CHARGE OF INCOME TAX FOR 1979–80

HC Deb 09 July 1979 vol 970 cc36-139

3.46 p.m.

Mr. John Garrett (Norwich, South)

I beg to move amendment No. 43, in page 3, line 17, leave out paragraph (b).

The Chairman

With this we may take the following amendments:

No. 42, in page 3, line 17, after ' total insert money '.

No. 9, in page 3, line 29, leave out: ' The remainder … 60 per cent' and insert— ' The next £5000 .. 60 per cent. The next £5000 … 65 per cent. The remainder . 70 per cent.'

No. 45, in page 3, line 33, at end add— ' (3) subsection 1(b) above shall not apply to income in money's worth '.

Mr. Garrett

I have noticed in these debates that the assertion by the Opposition that this is a class Budget designed to bring about a shift in wealth in favour of high income people and their families causes Government supporters to fall about with rage, fury and guilt. Therefore, I hope to demonstrate the truth of that assertion.

Allowing for the increases in VAT and petrol prices, let alone the likely increases in mortgage interest rates, the majority of wage and salary earners will be worse off this year. Again, allowing for these inevitable price increases, the point at which a salary earner will be better off will be at well over £10,000 a year.

To allow for the increases in VAT and petrol prices is perfectly valid because, for most families, those increases are unavoidable. We demonstrated the truth of that in our debates on VAT and hydrocarbon duty. Although in the small hours of the morning the Chief Secretary, in a momentary aberration from his usual standards of logic, tried to show that there was a class of VAT-ed expenditure called " discretionary clothing ", the fact is that all families, and especially low-wage ones, will be caught by the increased household costs caused by the Finance Bill.

The low-paid family on £55 a week will benefit over this tax year to the tune of about £1.20 a week. Such a family may expect to pay somewhat more than that in VAT on a typical family budget. This excludes increased housing costs and the big cut in the social wage that is to come, public expenditure cuts in jobs, education and other public services. Every day we read of new, even bigger cuts in prospect. These no doubt will be revealed in the summer and autumn. There is not much incentive there. In fact, it is a mockery of the condition of such families, of whom there are heavy concentrations in our inner cities and rural areas.

The manual worker on £90 a week will, in this tax year, gain about £2 a week. The combination of VAT and petrol price increases alone will leave his family worse off by about 40p a week if we adjust for the spending patterns of such a family in the family expenditure survey. At £10,000 a year, the manager's family about breaks even until the mortgage interest rate goes up. There is not much incentive there for the group on whom the Chancellor's hopes are pinned for the new dynamism of the industrial revival.

When we move further up the income and social scales, the pickings are much better. The company director's family on £25,000 a year clears, after VAT and petrol price increases, a good £1,500 a year. The cost-benefit ratio comes right only for the top boss on £40,000 a year. His net gain will be over £4,500 a year. Those figures show beyond any doubt that this is a class Finance Bill—a Finance Bill for the wealthy and for the Institute of Directors, a body which it might be unfair to refer to as the Tory Party at lunch but which has been a good friend to the Tory Party over the years.

Many of the beneficiaries of the Bill recently received large pay increases, on the ground of punitive tax rates. Now they receive tax cuts and what amounts to a double increment. As The Economist recently pointed out, the effect is much more dramatic at the top than it is for taxpayers in the middle, yet it was the middle income taxpayers whom the Budget was supposed to stimulate, galvanise, dynamise, unshackle and generally gee up.

Strong elements of mysticism enter Conservative statements about the need to give a shot of cash adrenalin to the typical middle manager in industry and to create, in the Chancellor's words, a " successful and prosperous society " based on " successful and prosperous individuals ".

As a result of the tax changes, we are led to expect that all those thrusting executives will be searching, rather like a herd of buffalo, for our airports and the export markets beyond—[Interruption—yet the tax reliefs—

Mr. Patrick Cormack (Staffordshire, South-West)

On a point of order, Mr. Weatherill. It really is—

Mr. Bob Cryer (Keighley)

This is a good speech, and Conservative Members do not like it.

Mr. Cormack

It used to be a custom of the House, Mr. Weatherill, that speeches were delivered and not read as papers. It really is a bit much, and an insult to the House, that every syllable of a speech should be read from the Dispatch Box.

The Chairman

The hon. Member for Staffordshire, South-West (Mr. Cormack) is right, but full notes are always allowed, and I think that some dispensation is always given to those who speak from the Front Bench.

Mr. Garrett

I always thought that it was some kind of compliment to the House for an hon. Member to make extended notes for a speech. It helps a speaker to stick to the point. Since, in so doing, I have managed to galvanise Conservative Members into some kind of annoyance, it perfectly meets the case.

The tax reliefs do nothing for the executive on £10,000 a year or less, unless he is a non-drinking, non-smoking bachelor, travels on foot, wears zero-rated children's clothing and has the life style of Neanderthal man. The tax reliefs do a lot for the company director and the company chairman who have already reached the top. Will they be newly dynamised? The chairman of one of our great exporting companies, who had his net income doubled to around £61,000 a year, was interviewed by The Guardian on this very point. He said, diffidently: Yes, I shall be better off but I don't think that in itself is the answer to the problem. I think the least of the problem is the individual's income tax. I don't think it is going to have a direct effect on export performance. I think the idea of income tax cuts across the board is to create a climate where people have more money in their pockets to do what they like with. It will take some time for that to work through the economy. We demonstrated during the VAT debates and in the debates on hydrocarbon duty that there will not be much left in people's pockets for them to do what they like with, because that money is as good as confiscated already. There we have a No. 1 beneficiary who does not sound particularly galvanised.

What about the other 145,000 individuals who earn over £10,000 a year or, more particularly, the 15,000 people who earn over £20,000 a year? Perhaps two-thirds of them work as managers. There is a widespread belief that these people are less effective than they might be because of a lack of incentive in our tax systems that the lack of incentive discourages drive and decision-making and the desire to be promoted, and that the lack of incentive leads to a brain-drain.

Evidence is pretty hard to come by. A survey in 1978 showed that the number of managers returning to the United Kingdom exceeded the number of managers wanting to leave. A second survey in that year showed that it was very difficult to persuade managers to leave Britain for work abroad, particularly in the Middle East. It is hard to prove that managers refuse promotion because of the lack of incentive in our tax system. It is hard to prove any link between extra cash in the wallet and the quality of decision making or managerial performance. Perhaps the Treasury Minister who replies to the debate will demonstrate that he can deal much more effectively and vigorously with the case that we are making, as a result of the tax reliefs that he is getting. I look forward to his dynamic performance. At the end of the regulator debate the speech of the Chief Secretary could only be described as aching pessimism.

Even the extent to which our tax take is penal is grossly exaggerated by Conservative Members. They usually talk about the marginal rates, but if we examine the average rates of taxation, social security contributions, the effect of tax allowances, and talk about stoppages, we find that the man on twice average earnings in this country does no worse than his counterparts in Scandinavia or Germany. We are not, in general, a highly taxed country, according to the report a year or two ago of the Expenditure Committee—signed, I believe, by the present Financial Secretary to the Treasury—and the incidence of income tax is usually grossly exaggerated by Conservative Members.

Clearly, however, there must be some links between taxation and management performance. But is taxation the most important variable in the equation? Studies of motivation carried out by academics and consultants in management tend to rank financial motivation rather low on the scale for managers who have made it already to the upper ranks. Less tangible factors, such as responsibility and autonomy, appear to rank rather higher, on good research evidence.

What has always struck me is that there is surely something seriously wrong with the quality of management in Britain but that this is due, more than anything else, to lack of technical and managerial education, and to low absolute levels of pay and the low status and value given to industrial management in our culture. People of my generation and older had to go to American business schools to be trained in management. To this day, a middle manager in Britain earns half to one-third of the salary of his equivalent in Europe, and the tax reliefs in the Budget will not do much about that.

Our values as a society are such that the way to make a high salary and enjoy esteem in Britain is to avoid industry altogether and go into the public service, banking and finance, and the learned professions. A few years ago, the Diamond Commission showed that in local government there were five people per 1,000 employed earning over £8,500 a year, seven per 1,000 in the professions, 13 per 1,000 in central Government, 17 per 1,000 in banking and insurance, and only three in 1,000 in manufacturing industry. The issue is as much about the way our society works as about taxation.

Industrial management has a low esteem, and it is much more significant, in my view, than the incidence of income tax as a deterrent to raising the quality and performance of management. After all, the high road to power, the high road to influence and income, in Britain is to read classics or history at Oxford, enter the administrative Civil Service and get closer to the Treasury—not to study engineering or accountancy and join a manufacturing company.

These tax reliefs go indiscriminately to importers as well as exporters, to judges and to Civil Service mandarins. While on the subject of exporters, I point out that a report in the Financial Times of 27 June spoke of a " disquieting " slowdown in British exports to France—a nearby market in which we might expect the new dynamism soon to take effect. Our deficit in trade with France is rapidly widening. The reasons adduced by the British Chamber of Commerce in France were failures to honour delivery dates, to respond to letters and to produce relevant literature". These, the report states, " are still too prevalent ". The report continues: Mr. Robin Ward, president of the chamber, said that the image of bone idle' British companies was becoming a serious factor which would be ' terribly difficult' to reverse. I really cannot see that giving middle-income sales executives a few pounds, or company chairmen thousands of pounds, will guarantee that they will reply to letters or produce relevant sales literature if they are not doing so now. The failure to meet delivery dates must be due, as much as anything else, to capital investment, which is now being discouraged by the Government through high interest rates.

I therefore doubt the tax incentive argument. The proposed tax arrangements amount to a gigantic productivity deal for management, and a lot of less deserving people as well, with payment in advance—an arrangement always vigorously opposed by Conservative Members. Unfortunately, we also get in advance the inflation inherent in the Bill.

Then, of course, we have to consider the condition of the economy in which these tax reliefs will take effect. My right hon. Friend the Member for Leeds, East (Mr. Healey)—in a speech last week in this Committee on the regulator clause. which neatly skewered the Chancellor, the Chief Secretary and Professor Friedman in the most succulent kebab—showed that the Budget was economic nonsense. The Government may not realise it yet, but lots of other people do. My right. hon. Friend quoted the Financial Times survey of 2 July of consumer confidence. The survey suggests that VAT increases in the Bill clearly outweighed in consumers' minds the impact of income tax cuts. As the report states: The survey shows that the biggest switch from optimism to pessimism among consumers has come from among ABC-1 men—those in professional and executive jobs—who stand to gain most from the Budget's income tax cuts. Their consumer confidence index has dropped a dramatic 60 points—from a positive index of 27 per cent. to minus 33 per cent. in one month. That is after the Budget.

So much for the new beginning promised by the Chancellor. A Finance Bill is as much a social as a financial document. It sets out the priorities among occupational groups and social classes. This Finance Bill gives heavy rewards to those who need them least, and very little to those in real need. It also sets the tone for pay bargaining, by giving enormous sums to the very well paid. This part of the Bill is divisive, unjust and provocative.

4 p.m.

Mr. Richard Wainwright (Colne Valley)

I should like to speak briefly to amendment No. 9. The fairly modest purpose of this amendment is to get, for the first time, an explanation from Treasury Ministers for this extraordinary drop in the higher rate of income tax. The Government have declared war, not, as we would wish, on income tax, but on the old concept of supertax. That is what the Government have tried to get rid of in the Finance Bill, and they have not yet done the House the courtesy of explaining just why they have made this extraordinary choice.

I agree that a rate of income tax of 83 per cent. on earned income was, to use an old-fashioned word, nonsense. When that was allied to even a modest amount of income from savings it produced the absurd rate of annual tax of 98 per cent.[...] which could scarcely be justified for long in a free society during peace time. I readily agree—indeed, I have advocated it—that there is a need to bring the top level of tax down quite markedly. But for it to come down in one fell swoop by such an extraordinary margin seems provocative and unreasonable in a Finance Bill which does very little—as the Committee has just been told, quite correctly—for middle management, let alone the average and lower-paid worker. It is an extraordinarily provocative thing to do prior to what is bound to he one of the most difficult winters that this country has ever faced in terms of pay negotiations, because we appear to be virtually defenceless. Although not a vast sum in financial terms, the cut in income tax will be one of the most provocative elements in discussions at plant level this winter.

The alternative amendment which the Liberals have put down for debate provides for a more modest, though still significant, scale of reductions, which is intended to remove what might fairly be described as the penal element in income tax; to get away from what is virtual confiscation but still to keep the reduction in scale with the fairly modest direct tax reliefs in the rest of the Finance Bill.

I make no secret of the fact that the Liberals' first objective is to try to draw from the Government some detailed justification for the proposals that they have made.

Mr. Robin F. Cook (Edinburgh, Central)

In this amendment we come to the central part of the Finance Bill. When the Chancellor of the Exchequer introduced his Budget to the House he referred to his cuts in income tax as the keystone of his policy. I find that a particularly fitting metaphor, because it is, after all, placed on top of the foundation to which each of our constituents has contributed through the increases in VAT provided for in other parts of the Bill.

As other hon. Members who have contributed to this debate indicated, what this clause does, in conjunction with the clause on VAT that has already been debated, is to transfer the burden from income tax to indirect tax and thereby increase the net burden on all income groups below £10,000 while providing very generous decreases in the burden for those with income over £10,000.

It is a great pity that the Prime Minister abandoned her practice of walkabouts in shopping centres. A month ago at Question Time I remember the right hon. Lady referring, in most moving terms, to an elderly lady whom she had met during a walkabout. The right hon. Lady referred to the fact that the person she had met had an income of £24 per week and paid tax at £1.25 per week. I remember, as I am sure will every other hon. Member of the Committee, the strong, passionate and sincere tones in which the right hon. Lady told the House on that occasion that that lady should not have paid tax at all.

There is one conclusion only to be drawn from the reduction in income tax rates contained in the clause and the increases in VAT contained in the clause which we have already disposed of, namely, that that elderly lady will now pay more tax than she did on the day she met the Prime Minister. I entirely agree with the point raised by my hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk), that it is no wonder that the right hon. Lady has abandoned her walkabouts. If she were to return to them her advisers would take care to see that she did not return to the shopping centre where she met the old lady.

I do not pretend that there is not a problem with income tax. A very severe problem has arisen with our income tax structure in the last five or ten years because of inflation, fiscal drag and, in particular, the collapse of taxation in the company sector. That last matter is never referred to by Government Members. However, if we make an international comparison—of which Conservative Members are so fond—we find that in Britain the proportion of tax raised from the corporate sector is lower than anywhere else in Western Europe, North America or Japan. It is lower than anywhere inside the OECD countries.

If one looks at the figures within this country, one finds that of the 20 most profitable companies last year, 13 did not pay corporation tax. I know that Government Members do not wish to know that, but that is precisely why the average wage earner has found that his income tax burden has increased.

I do not deny that the increase in the tax burden in the last five years is one of the features that contributed to the unpopularity of the previous Administration. It would be very foolish for me, or any of my hon. Friends who campaigned on doorsteps, to deny that the increase in the tax burden for the average wage earner was one of the major reasons why we did badly in the general election. What is now getting home to the electorate is that the Conservative Party, having gained power by exploiting that grievance and obtained office on the pretext that it would do something about it, has now piled even more tax on the average wage earner whilst giving substantial hand-outs, paid for by those increases in tax, to the higher-paid section of the community, which, arguably, is the one group that has not had its tax burden increased over the last two or three decades. The evidence that that has been discovered by the electorates becomes more apparent with each passing day. Only today there was a new poll in the Glasgow Herald which showed that the Labour Party in Scotland has added 10 points to its position in Scottish opinion.

We read in the same paper the anguished cry from the hon. Member for Aberdeenshire, West (Mr. Fairgrieve)—indeed, one might describe it as a scream—who, in his capacity as chairman of the Conservative Party in Scotland, is quoted as having said The Labour Party has done nothing to deserve this ". That may or may not be true, but the fact of the matter is that the Tory Party has thrown away its support by the way in which it has arranged the tax cuts to fall beneficially on its own selected supporters and with severity on the average wage earner.

I have sat through the last few days of the sittings of this Committee and have heard about the grievous poverty to which the top few of our population have been reduced by the penal rates of taxation. I think that all hon. Members have heard this, accompanied in the background by the faint plucking of violin strings.

Since our last sitting, I have been in the Library and have looked up Economic Trends. I urge that as a salutary process on any hon. Members who have been listening to the speeches over the last few days. In Economic Trends, they will find a table on page 88, which shows that if one takes the top half of the top 1 per cent. of income earners—I do not think that we could take a sample less than a half of 1 per cent. without risk of statistical error—in the last year for which figures are available, which is 1976–77, that proportion paid on average only half its income in taxation. The average rate of tax on the top half of the top 1 per cent. was a mere 50 per cent.

That puts into perspective some of the figures about which we have heard. It arises because of the very generous tax relief that we still offer on things such as insurarce policies and mortgage allowances. Such tax relief is of greatest value to those who pay the highest rate of taxation. Hitherto, it has been justified because of the progressive rate of our income tax structure, but now that we are dismantling that progressive taxation system I see no sign that we will reexamine those generous tax reliefs.

In the many papers emanating from the Government, I see many references to cash limits on subsidies to local authority tenants and local authority expenditure. However, I see no reference to cash limits on tax relief to mortgagors or to those who pay insurance premiums.

Mr. Robert Kilroy-Silk (Ormskirk)

Before my hon. Friend concludes this most important point, will he not also make the same point in relation to tax-free perks, which make up a considerable proportion of the real income of most executives?

Mr. Cook

I take my hon. Friend's point entirely. I shall not pursue it, because I am anxious to continue with my own argument. However, I am sure that my hon. Friend will deal with that matter when he addresses the Committee, in what I am sure will be a lengthy and serious debate.

Another reason advanced by the Conservative Party why we must have these tax cuts is that apart from the fact that this penal rate of taxation forces top earners into poverty, the distraction of that poverty prevents them from the vital task of invigorating business and industry. The Chancellor of the Exchequer specifically made this point when he introduced the tax cuts, when he referred to the fact that the high rates of income tax on the upper bands had contributed to the lacklustre performance of British industry. In other words, with this cut in the tax we will liberate the business man from his chains, and with one galvanised bound Britain will enter the land of incentives and wider opportunity.

That has been asserted by Conservative Members. We have never been offered any proof, not even the anecdotal proof that passes for evidence in this Chamber. I find it interesting that Conservative Members are not willing to test their belief by any serious investigation. After all, we have had Royal Commissions on income tax before. Until this Government came into power, we even had a Royal Commission on the distribution of income and wealth. The basis on which one could test the assertion was there. It has not been put to that body. We have been left with measures being introduced on nothing more than the retailing of the prejudices of the lounge bar.

Mr. Donald Anderson (Swansea, East)

Does it not go further than that? Not only is there no proof in favour of that assertion; evidence exists—namely, the evidence of the practice between 1970 and 1974—that is against it, when the right hon. Member for Sidcup (Mr. Heath) went on his knees pleading with industry to invest more.

Mr. Cook

I agree with my hon. Friend that there is very little evidence in history to support the contention being argued by Conservative Members. Indeed, when I look around I see very little evidence in the current situation. There is no obvious scientific fact to which one can point to buttress the argument that, for example, the British should be working longer hours. The irony is that over the last five years the number of hours worked in overtime has been increasing at the same time as the income tax burden has been increasing. If Conservative Members were correct in their thesis, one would expect to find precisely the reverse correlation.

4.15 p.m.

I know that Conservatives will tell us that that is not what they mean—that they do not have in mind people working additional hours of overtime. The argument will be that they have in mind the quality of work of senior management, which will be stimulated to fres[...] effort by these tax cuts. Indeed, a circular that I and, I think, all hon. Members received from the British Institute of Management calls upon its members to respond to the tax cuts with enterprise, strategic boldness, personal effort, and leadership. I find it very difficult to credit that there can be managers in British industry possessing the qualities of enterprise, strategic boldness, personal effort, and leadership who will discover these for the first time because the top rate of income tax has been cut from 83 per cent. to 60 per cent. I doubt that even the Treasury Bench agrees with that. Last Thursday the Chief Secretary to the Treasury regaled us with a speech which turned mainly on his own view of economic predictions, which he termed " agnosticism ". It is only fair to point out to the Chief Secretary that one of the people to whom we will be looking for a particularly galvanised response to these tax cuts is the permanent secretary in his own Ministry, who not only received a £3,000 rise last month as a result of the top salaries review but, as a result of this Budget, will be paying £400 a year less tax on the increased salary that he is receiving. If the thesis being advanced is that this will give incentive and advantage and new opportunity, so that the permanent secretary can show enterprise, strategic boldness, personal effort, and leadership ", what prodigy of results can we expect from the Treasury in the future?

I know that the Chief Secretary does not expect that for one minute. I doubt that any hon. Member expects that for a minute. After all, we do not even expect it of ourselves. Two days from now we will debate the increase in our salaries. That may well go through. Does any hon. Member really expect his efforts, or the efforts of any of his colleagues, to show new leadership or boldness as a result of that increased incentive? Does any hon. Member expect our speeches to become even more witty, or—God forbid—even longer, as a result? Does any hon. Member expect that we shall see the Temple barristers descend here before 4 p.m.? The answer to each of those questions is " Of course not ".

At this point I can pray in aid—which I did not expect to be able to do—the right hon. Member for Down, South (Mr. Powell), who has a most interesting article in this morning's Guardian, which ends with the following fascinating sentence. It almost seems to have been written as a text for our debate. It states that In proportion as the financial remuneration rises, the marginal motivation of all other kinds must fall ". On the basis of that, I find it very difficult indeed to comprehend the faith of Conservative Members that this cut in tax rates will result in the galvanised leap forward in which a thousand executives will bloom.

I may be wrong. Perhaps British business is crammed with talent, locked up in sullen bosoms which nursed their wrath at the low pay that they received net of tax. It may be that our golf courses are crowded with executives who can be coaxed back to their rooms by this tax measure. These things may be true, but it is only fair to warn the Treasury Bench that we will be watching to see whether it happens.

We were promised by the Chancellor that these cuts marked a turning point. Very well. We will be watching to see whether that turning point has arrived. We will be watching to see what the consequences are. Our constituents will also be watching, because, after all, they are the people who will have to pay the increases in VAT to make all this possible. If they find that they have been led up the garden path, and that this is no more than a pretext to provide handouts to the few friends and masters left to the Tory Party, Conservative Members will not be forgiven, nor will they deserve to be forgiven.

Mr. Dudley Smith (Warwick and Leamington)

The hon. Member for Edinburgh, Central (Mr. Cook) referred to the British Institute of Management. I declare an interest as an honorary supporter of that organisation, as, I believe, the hon. Member for Norwich, South (Mr. Garrett) has been in the past.

I should also declare an interest as a management consultant, as I believe the hon. Gentleman was, too. As has been said, the speech of the hon. Member for Norwich, South was something of an essay but it was none the less interesting. Leaving aside his political argument, the nitty-gritty of what he was saying was that salaries at the top end of the range are too high. He may be right, but we should look back and consider why that is so. It is because of the penal rate of taxation that has been imposed, particularly over the past five years under a Labour Government. That point was grudgingly admitted by the hon. Member for Colne Valley (Mr. Wainwright) when referring to the highest rate of taxation.

Mr. Kilroy-Silk

Those salaries must come down.

Mr. Smith

There may be a case for saying that at the top end salaries should not be increased so much, but what we should be trying to achieve is a situation where people receive real salaries from which they have a real income. The Government want to establish the right rate for the job throughout the range of salaries. At the lower end people are unable to look after themselves, are not capable of earning reasonable incomes, or are retired or disabled, and they must of course be protected.

The rate of taxation over the last few years has amounted to penal confiscation. Labour Members are doing themselves less than justice by ignoring the fact that the people in the £25,000 to £40,000 or £50,000 a year salary range are almost exclusively employed by companies. They are subject to the rules of those companies and can be dismissed far more easily than can Members of Parliament. We come up for dismissal or reaffirmation every four or five years, but unless these people " deliver the goods " they will find themselves in the firing line. Some may have equity in the companies concerned, but over the past few years that has not produced great dividends.

There may be a case for reducing the highest level of salaries provided that the take-home pay for those individuals is equatable with the responsibility and initiative that they are required to show. That also applies to the middle income groups. The hon. Member for Norwich, South said that the £10,000 a year man would from now on begin to do well, but surely the hon. Gentleman agrees that salaries in British industry in that range are too low? We should have a more equitable system compared with the Common Market countries, and initiative and responsibility should be properly rewarded.

There is an interesting debate in the press, which has not yet been announced in the House, that perks should be shorn by the Government. There is a strong argument for looking at perks, particularly company cars, but perks can be cut only if the vast majority of the salary is going to the individual. The practice of giving perks, especially company cars, has grown up only because of the severe rate of taxation imposed during the postwar years in order to get a response from middle and senior management. It may be possible to phase out perks because of the new atmosphere created by my right hon. and learned Friend the Chancellor and his colleagues at the Treaasury.

The Treasury should also look closely at moonlighting. From what I read and hear, it is costing the country thousands of millions of pounds. People are doing jobs on the side on which they are paying no tax, which is strongly resented by those imprisoned by the system, working for an individual company or organisation, who have to pay tax by PAYE. They resent seeing the man down the road getting two or three incomes and not declaring them. That again stresses the need to return to proper incomes for people in all types of work—the shop floor worker, the manager and the worker in the public services. People must have a fair return on what they earn and not receive special benefits or privileges.

In this Committee we perhaps do not realise the level of incomes and salaries earned outside. In the past 10 days there has been much controversy about salaries for Members of Parliament, and, as the hon. Member for Edinburgh, Central said, we shall be voting on that matter in the next 48 hours. I overheard a conversation the other day between two civil servants. A principal now earns £15,000 a year and an assistant secretary £17,000. I have not checked that, but I believe it to be right. Those are large sums of money. Principals sometimes play a leading part in the offices of junior Ministers who are not earning anything like that sum. We tend to underestimate the number of people doing a logical, worthwhile and good job but who are earning between £10,000 and £20,000 a year. We shall not achieve anything by keeping down salaries and incomes.

The Government must watch inflation closely but at the same time move towards a policy of higher real incomes for individuals. Those people who cannot look after themselves by initiative or opportunity, through age or disability, must be protected, but those who are able must be allowed to progress and earn larger incomes and keep more of them. We should not all the time be seeing how much the State can take from salaries. That is a profitless exercise. If the hon. Member for Norwich, South looks into his heart he must agree that, although some enmity might arise from higher incomes, if people in the higher and middle salary range are allowed to keep more of their money, individuals will strive harder and do a better job. At the end of the day the country will then be better off. We are on the right road.

We are members of the European Economic Community, whether we like it or not. Regressive taxation is not the right answer. We should not say that because an individual is earning much more money he should be curbed. That creates the wrong atmosphere. Although many people are not enchanted by the present tax cuts, they must understand that as the year progresses they will be getting responsible and worthwhile increases in pay. Inevitably, because of those increases, they will be keeping more of the money that they have earned, because the base now is so different from what it was before the general election on 3 May.

Given those circumstances, I believe that the working population as a whole—that includes everyone; those who work include company chairmen and those right down the line to the shop floor, even those doing the most menial jobs—will feel and understand that there is a better opportunity now than there was before, and that they can possibly respond rather better than they have done in the past.

4.30 p.m.

Mr. Kilroy-Silk

We are debating, suppose, the results of what, by any standards, can only be described as the most colossal and disreputable con trick that was ever perpetrated on the British electorate. What the Conservative Party was saying during the entire period of the election campaign—certainly by my Conservative opponent and by various Tory spokesmen who went around my constituency in an attempt to dislodge my limpet-like hold on it—was that we would have a new Conservative Government and that there would be tax cuts which would benefit everyone and for which no one would be required to pay the costs involved.

Indeed, hon. Members who are now Ministers were at that time denying our claim that the tax cuts promised by the Tory Party would result in a doubling of value added tax. We had the Prime Minister herself emphatically denying to the electorate at large that it was any part of her intention—nor, she said, would it be necessary—that a Conservative Government would double the rate of VAT to implement the income tax changes that the Tories had in mind, yet we are now confronted with a virtual doubling of VAT, although to 15 per cent. rather than 16 per cent.

What the Conservatives have done, as the Conservative Party did during the election campaign, is to demean British politics. This is one of the most important features in this debate—it should be an important feature—but it is not very often mentioned in the context of talking about marginal rates of taxation or VAT and the important consequences that both have on the economy and on working and non-working people in our society.

We are all concerned—or we should be—about the principles that lie behind the Conservatives' politics and about the standards of public behaviour of all of us individually and of parties in the House of Commons collectively. What the Conservative Party did in the election campaign was to add to the cynicism with which people have traditionally regarded politicians and the two major political parties. The Conservatives have damaged, in a very dangerous way, the integrity of not merely their own party—they have damaged that on previous occasions; perhaps more significantly in the past—but politics generally, by behaving in that deliberately callous way—going out and purchasing votes at the price of cheap promises which they knew they had no intention of honouring.

Mr. David Winnick (Walsall, North)

Does my hon. Friend agree that a number of popular newspapers have allowed themselves to be used by the Conservative Party and, indeed, that they prostituted themselves during the election campaign for the Conservative Party? That was illustrated today by comments on the headline story of the Daily Mail during the election campaign.

Mr. Kilroy-Silk

My hon. Friend is quite right, although he is not surprised by such behaviour on the Dart of our predominantly Tory press in an election campaign. It was ever thus, and no doubt it will be so for a long time ahead while we have proprietorial control of newspapers and while they are largely the friends and supporters of the Conservative Party. That is what one has always expected, and what one anticipated. As my hon. Friend rightly points out, it was demonstrated clearly by the kind of behaviour that we saw during the election campaign on the part of the Daily Mail. Every one of those 12 " lies " has now been nailed to have been the truth. But that is one of the consequences that we must bear.

One of the most unfortunate aspects of this Budget and its tax changes is its unjust nature and the way in which it affects different sections of the community disproportionately. As my hon. Friend the Member for Norwich, South (Mr. Garrett) said, it is very much a class Budget, with all the old prejudices and the bias of the Tory Party presented, clearly and openly, for public display. After all, as my hon. Friend the Member for Edinburgh, Central (Mr. Cook) clearly pointed out, as have others on the Labour Benches time and again in our debates in this Committee—and it has now been echoed in the Tory press, which recognises the dangers of the present Administration—someone must be earning £10,000 a year or more to benefit from the Government's fiscal changes in the Budget. That is an extraordinary state of affairs. It cannot in any sense be defended on the ground of justice.

Mr. Anderson

Perhaps my hon. Friend will help me on this point. In that figure of £10,000, has account been taken of the certain increase in mortgage interest rates, which will be a direct result of the increase in the minimum lending rate?

Mr. John Garrett

It is rising every week.

Mr. Kilroy-Silk

My hon. Friend the Member for Norwich, South, who has intervened from a sedentary position, is wrong. It is not rising every week; it is rising every day. The consequences of the Budget and of the abolition of the Price Commission, whereby we have profiteering, and prices going sky high, will be with us for several more months. Many other people will have to earn significantly larger sums than £10,000 to benefit from the Budget.

However, let us take the Government at their own figures. Let us look at the £10,000 a year figure. It cannot—no Conservative Member has attempted to defend this—be considered to be a just Budget when one must earn £10,000 a year to benefit from it. Certainly very few, unfortunately, of my constituents earn £10,000 a year. I suspect that none of them in Kirkby even approaches the figure of £10,000 a year. Many of them are unemployed. Many are heads of one-parent families. There are several thousands of pensioners, and many thousands of sick and disabled, yet every one of those groups is being asked to pay increased prices because of the 15 per cent. rate of VAT, increased petrol prices and the effect that they will have on other commodities, and increased prices generally, because of the abolition of the Price Commission. They, the poor, the disadvantaged and the deprived, who will get no benefit at all out of the tax concessions, are being asked to subsidise the tax handouts to the already rich and wealthy.

Surely that is an indefensible situation. It is a heavy price to pay to have the rather dubious pleasure of welcoming home the Bee Gees, the Humperdincks and all the rest for whom the present Chancellor's heart bled in previous debates in this Chamber when the Labour Party was in Government. Yet those are the very people around whom he seems to have geared his whole Budget strategy, those few people who are affected by the higher bands of income tax, who are leaving the shores of this country—good riddance to them if that is their only motivation—and he seems to have devised his Budget strategy to bring them back to this country.

I take great exception to my constituents, particularly those who are deprived and disadvantaged, having to bear the burden of the increased tax concessions that they now, in effect, are having to pay to line the already rich pockets of the wealthy, the nonentities and the parasites such as the Humperdincks and the Bee Gees.

It is not only that. As the hon. Member for Warwick and Leamington (Mr. Smith) pointed out quite fairly, salaries previously were large because one attempted to compensate for the high rates of taxation. If that is so—and there may be some evidence to support that—one would now expect those salaries to come down, but we get no cries from the Conservative Benches on that issue. Nor shall we get any suggestion from the Minister of State—perhaps he might deign to answer this question later—about whether we shall now have an attack upon the whole panoply of perks which disfigure our corporate life. As the Minister of State has previously said many times in this Committee, there is a proliferation of perks—company cars, company housing, cheap mortgages or loans, private medicine, private education, and a wide variety of things. These were justified in the past—at least, the justification for them was given—by the assertion that they had to be given to employees to escape various pay policy curbs or the high rates of taxation.

Now we do not have a pay policy. We have the Tory free-for-all and lower rates of taxation. Are we, therefore, to see a major onslaught on corporate perks? I believe that such an onslaught is required if the objective of galvanising British management, encouraging it to adopt a more entrepreneurial spirit, is to be achieved.

The way in which many of our middle and higher managers are cosseted in a cosy corporate world cannot be said to be conducive to their being outgoing, adventurous, enterprising or entrepreneurial. They are too firmly fixed with the company car, private medicine, pension schemes, private education for their children and all the rest, in a safe and comfortable world, ever to become the new, galvanised, economic men the prototype of whom we are presented with in the Budget Statement.

It is also wrong of Conservative Members to attribute their motives and feelings to other people. As many of my hon. Friends have repeatedly said, the Budget is predicated on the basic premise that man is motivated only by economic interests or, in their terms, by greed. They should not assume that everyone else is like them, motivated only by economic interests or greed. There are many people in our society, in industry, commerce and other areas, including the House, who are certainly not motivated exclusively, and perhaps not even primarily, by material reward but who have other motivation. It may simply be straightforward job satisfaction. They certainly will not be motivated to work harder, produce more, export more or whatever by the tax cuts which the Government have handed out to them at the expense of ordinary working men and women.

The tax cuts may even be counterproductive. If people with high incomes are motivated by economic interest and greed, substantial tax concessions in the Budget may make them feel that they do not have to work harder, because the kind of things that they would have worked harder to buy have now been given to them freely through the massive tax handouts from the Chancellor of the Exchequer. En that sense the Budget could act as a disincentive to all those who will receive significant sums of money as a result of it.

More damaging even than the unfairness of the income tax changes, and the fact that they are potentially counterproductive, is the effect that they will have upon the quality of our public services. I take great exception to the fact that more of my constituents will have to be unemployed in order to pay for the tax handouts to the already rich. I take even greater exception to more of my constituents now being made unemployed in order to carry the Budget strategy through. That cannot be defended. Yet it is precisely what the Government are advocating. They are complacently expecting and accepting, without any defence, without any rationale, that more of the people in the deprived areas, such as Merseyside, the North-West and the Northern region, where employment opportunities are already seriously eroded and employment is precarious at best, will now be subjected to the rigours of a very different economic system and that far more will be in the dole queue.

Apart from that, as we have already seen from the pronouncements of Tory local authorities throughout the country, we shall witness a massive erosion in the quality of our public services. There will be longer waiting lists and longer waiting times at our hospitals. There will be fewer items such as life-saving kidney machines. There will be fewer teachers, home helps, health visitors and community nurses. There will be fewer libraries or no libraries. There will be no school books in some places, and no school meals, or there will he economic charges for school meals.

A whole variety of new measures has been announced in the past few weeks by various Tory local authorities, all in order to finance the Government's tax handouts to the rich. That is indefensible. The people who are really deprived will not only have to pay for the tax handouts. through higher prices, increased value added tax, and so on, but will be discriminated against yet again in a callous and vindictive fashion, finding that they have reduced or no public services, because the Chancellor has deemed it necessary to lop hundreds of millions of pounds off public expenditure to finance his Budget strategy.

4.45 p.m.

That brings us to the crux of the question whether it is right and proper to reduce income tax in the way that is proposed. I do not object to lower rates of income tax, certainly not in principle. I am not against tax cuts per se, but I am fundamentally opposed to tax cuts of the kind proposed at this time in our economic history. It is acceptable to finance them out of economic growth or an increase in gross national product. It seems to me totally wrong and misguided to finance them, as the Chancellor is now doing at a time of nil economic growth, out of reductions in public expenditure and therefore of the quality of life, and out of increases in prices, which will affect the already low-paid, the unemployed, the sick and the disabled.

Mr. Dudley Smith

Well over 1 million people have been taken out of taxation by the Budget. Does the hon. Gentleman object to that?

Mr. Kilroy-Silk

I dispute the hon. Gentleman's figures. They are hotly contested on both sides of the Committee, but I shall not become involved in that argument. I accept that it is desirable to take large numbers of low-paid people out of the tax net. I and some of my hon. Friends who are present today were vociferous in arguing that case when we were in Government, but I am not arguing that point now. My point is simple and much more straightforward. It is that there cannot much of a rationale—certainly, there can be only rationalisation—for any suggestion that we should finance the present tax cuts, when we have nil growth, out of inevitably reduced public expenditure.

I honestly and sincerely believe that if confronted with a straightforward choice between having more in their pockets as a result of tax cuts and reduced public services and a reduction in their quality, most people would choose not to have a reduction in income tax. They consider it very important that we should have a proper and efficient Health Service, that waiting times and waiting numbers should he reduced. They believe that people should have access to proper education, proper housing, proper street cleansing and libraries, to all those important things which mean a great deal to the individual because they meet him at his doorstep. They are concrete and peculiar and personal to him.

When the individual realises and accepts the connection between income tax and the public services that he enjoys, he is invariably—unless, like Conservative hon. Members, he is selfishly motivated by greed—prepared to accept the reasonable price that he is asked to pay to ensure that we have adequate public services. Certainly that applies to the majority of my constituents, who, I accept, perhaps benefit disproportionately as a result of public expenditure and lose disproportionately as a result of the cuts in personal taxation.

In the past few days we have seen the Labour local authority of Sheffield threaten to take discriminatory action against one part of its community, the people living in the Conservative constituency of Hallam. I want to put on record that I very much deplore that attitude, but I also want to put on record that the authority is only doing what the present Government have already taught it to do. It is following closely and clearly in the footsteps of the Government in their Budget strategy.

The Conservative Government have. unfortunately, shown the city of Sheffield, and others who may follow in its footsteps, the way forward. The Government said clearly from the very beginning of their period in office " We shall nationally discriminate callously against Labour voters and ordinary working men and women. We shall discriminate against the already poor and the already deprived and disadvantaged. We shall do it in order that we may ensure that our already wealthy friends can be subsidised even more by larger tax handouts from the Treasury."

The Government will bear a heavy responsibility for the political unrest that may follow from Sheffield and elsewhere. The responsibility for the consequences rests on the Conservative Benches, and it should lie heavily on the shoulders and consciences of Conservative right hon. and hon. Members.

Mr. Ralph Howell (Norfolk, North)

I welcome, in general, the proposals in the Budget. I shall be critical of certain aspects, and on one aspect I shall not be able to hide my disappointment, but the Chancellor of the Exchequer should be congratulated on his boldness in cutting drastically the higher rates of income tax and on the considerable switch that he has made to indirect taxation. The country fully understands the good sense of this step. I hope that it is merely a foretaste of better things to come.

I was amazed to hear the remarks of the hon. Member for Norwich, South (Mr. Garrett). It seems that the Labour Party will never learn that the people of this country are fed up with high income tax rates. That is what is holding us back. Until we break out of this impossible situation, there is no likelihood of our having a healthy economy. It simply does not pay to work.

A manager in my constituency, only 10 miles from the constituency of the hon. Member for Norwich, South, manages poultry farms in North Norfolk and in France. The average worker whom he employs in France earns £84 a week, he pays about 9 per cent. in social charges, and he finishes up with £73 weekly spending power. The average worker employed in my constituency earns £77 a week, pays £14 income tax, with an additional sum in national insurance, and finishes up with a weekly spending power of £53. The French worker works only 42 hours a week, the British worker 46 hours. No trouble is experienced in getting people to work at weekends in France. In this country one has to beg people to work at weekends. We should not continue to believe that we are not the highest taxed country. All the facts bear out that we are the hightest taxed, certainly in Europe.

Before the cuts in the Budget, the average family man reached 40 per cent. taxation and was charged national insurance on pay of £2,500 a year. In the United States, that position is not reached below a salary of £16,000 a year, and in Germany below £17,000 a year. We are the highest taxed of almost any people in the world. That is the basic trouble. Labour Members are in opposition because people were determined to see a change. Those people understand the good sense in the Government's actions.

Mr. Kilroy-Silk

The hon. Gentleman knows that that is nonsense.

Mr. Howell

It was impossible in a Budget that had to be put together quickly for the whole question of co-ordinates of taxation and welfare to be covered, but there are two aspects of the Budget which disappoint me. One is that the Government did not cut the standard rate of income tax more. I should have liked to see a cut at least to 25 per cent. My hope is that we shall not be satisfied with 25 per cent. The rate needs to be cut to at least 15 per cent. in due course. We shall not get out of our Socialist State by cutting the rate merely to 25 per cent. Let us get it down to 15 per cent., bearing in mind that the standard rate in America is 14 per cent. and in France 5 per cent. We should also remember that the tax thresholds in those countries are higher than they are here.

Mr. Kilroy-Silk

The hon. Gentleman is proposing a revolutionary strategy. It is making the Minister of State quake. A 15 per cent. tax rate would involve massive financial resources. How would the hon. Gentleman propose to finance that rate?

Mr. Howell

There are many ways, which I shall not explain today. I want to continue with my theme. We need to look over the fence. I do not claim to be a financial wizard. I am a farmer. Every day of the week, like any good farmer, one looks over the fence to see what one's neighbour is doing. Why do we insist on acting differently from successful countries? The most successful countries have much lower income tax rates, which do not cut into people's pay at low levels as occurs in this country. We should learn from others. Labour Members are much too blind to this fact.

I should be grateful if the Minister would explain why social and welfare benefits have been increased to a greater level than the amount that people can expect to gain in tax cuts. This is a pity. It will aggravate the poverty trap and aggravate the unemployment trap. Anyone earning under £100 a week will be lucky if he is £3 a week better off as a result of the tax cuts, yet single people will receive £3.80 in increased benefits and a family with two children will receive £6.15. I should like an explanation of why this step was thought necessary and sensible.

Child benefits for those who work will remain at £4 a week. For those who are not at work, the benefits will be increased by 85p, to £5.70. The poverty trap will continue to be deep. Until we tackle this problem and create a situation where it is always more profitable to work than not to work we shall not solve the economic ills of this country. There are 800,000 vacancies waiting to be filled. It is impossible for the Post Office to recruit people at £100 a week. In the London area the situation is even more absurd. There are 360,000 vacancies in the South-East of England and only 260,000 people are unemployed. There are masses of jobs waiting to be filled. Until we alter our taxation and welfare system, and until these matters are co-ordinated so that it is worth while to work and people are not taxed at such low levels, we shall not solve the problem of people refusing to work.

My hon. Friend the Member for Warwick and Leamington (Mr. Smith) talked about moonlighting. This black economy, as it is called, is increasing all the time. It will continue to increase until much bolder action is taken on the lower rates of taxation. I recognise that the Government were unable to make fundamental changes within the few weeks available to produce the Budget, but there will be no excuse in April 1980. There is no sense in following this Socialist road while our tax rates are at their present levels. The sooner we turn from that course the better.

5. p.m.

I propose that, no later than 1980, all income should be treated alike for tax purposes. I fail to understand why social benefits should be exempt from taxation. This causes the huge anomaly of tax refunds. Those at work pay about £700 million a year in tax rebates, and that should go on no longer. It discourages people from working.

Mr. Nick Budgen (Wolverhampton, South-West)

I wonder whether I can help my hon. Friend further to refine his thoughts. Does he really mean that all income should be treated in the same way, or simply that short-term benefits should be taxable?

Mr. Howell

I am saying that wages and benefits should be classified as income. In 1949 the Attlee Government exempted short-term benefits from taxation. Pensions are taxable, but unemployment and sickness benefits are not. That is what causes anomalies.

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

The hon. Member is making an important point. Does he accent that to put into operation what he is advocating would require a massive rise in personal allowances—that is, the tax threshold—or the poverty trap would be made worse? Secondly, after what he has just said, does he intend to vote for the clause exempting from tax the other half of the war widow's pension?

Mr. Howell

I accept that we should raise tax thresholds considerably. All income should be treated alike for tax. We have heard a great deal about the Rooker-Wise amendment, which in fact is meaningless.

Mr. Rooker

Tell that to my constituents.

Mr. Howell

The hon. Member has gained a good deal of credit from that, but until we do something more dramatic and raise tax thresholds in line with the national average wage we shall not solve the poverty trap. The average wage is now about £4,000 a year. If wage inflation is 10 per cent., thresholds will need to be raised by £400 in one jump to remain static.

I hope that the Government will take my suggestion on board. Of course it will mean considerable cuts in Government expenditure, but that is why we change Governments—because we want to change these things in a major way. That is what the British people want. I hope that the thresholds will be raised well clear of supplementary benefit levels, thus eliminating the need for family income supplement and all that nonsense. I hope that in due course we shall reach the target of a starting rate of 15 per cent. and a top rate of 50 per cent.

There is another necessity among the reforms for which I hope in April 1980. All child support should be uniform. Why should a person who works receive less child support than someone who does not? This is another area which deepens the poverty trap and locks into unemployment people who would rather be working but cannot afford to because of the crazy interaction of taxation and welfare.

It is vital to recognise the absurdity of the present system, which has grown out of a hotch-potch of make-and-mend in which all sorts of remedies have been tried. People have genuinely tried to solve our economic ills, but this will never be done until we completely abandon our present taxation and welfare systems and start afresh in a truly coordinated way.

Mr. Denzil Davies (Llanelli)

Perhaps I might intervene briefly on amendments Nos. 42 and 45, which go together. I do not think that the hon. Member for Norfolk, North (Mr. Howell) will wish me to comment on his characteristically interesting speech. I say only that he gave the Minister of State a good deal to think about with his suggestion of raising the threshold substantially and cutting the income tax basic rate to 15 per cent. He did not go into how he would achieve that, except that he favoured cuts in public services. I do not know what effect that would have on his constituency, which I understand depends heavily on such services.

Amendments Nos. 42 and 45 seek more than anything to probe the Government's intention about perks. The hon. Member for Warwick and Leamington (Mr. Smith) said that he now thought, as do many others on both sides of the politcal debate, that perhaps this was the time to look at benefits in kind.

The original argument against doing anything against perks, as we tried to do in the Finance Act 1976—it was a reasonable argument in some ways—was that the high top rates of tax led to greater use of this safety valve. Now that the top rate is 60 per cent. on earned income, there is no case for not legislating—not this year, because of the time limitation, but next year—to deal with the problem.

These amendments suggest one way of doing so. I am not saying that it is a perfect way—there are probably better ways—of providing that there should be a different rate of tax, but if the top rates are being reduced for money income, there is no reason for reducing them for benefits in kind—for money's worth income, to use the wording of the income tax legislation.

We now have a real problem, which is most visible in the case of motor cars. I know that the value of cars is taxed to some extent, but the scale rates—as we recognised when we introduced them—are not equivalent to the total value and worth of the car to the individual. Probably 98 per cent. of all Rolls-Royces are not bought and paid for by those driving or being driven in them. Often, they do not provide their own petrol. The Minister of State will know the loophole in regard to petrol.

Mr. Budgen

Does the right hon. Gentleman agree that one of the problems, now that the State is in effect the major manufacturer of motor cars in Britain, is that British Leyland would complain bitterly if the tax system were changed so as to make the purchase of large, expensive motor cars less attractive?

Mr. Davies

I accept part of what the hon. Gentleman says. When we considered this question, representations were made from both sides of the motor car industry to that effect. About 98 per cent. of Rolls-Royces are perks, and about 95 per cent. of all other large cars are provided by companies or out of partnerships or self-employed income. This should not be allowed to continue, particularly when it involves the higher income bracket.

The Budget does nothing for those who earn less than £10,000 or 02,000 For those earning £12,000 and more it provides a definite benefit. The amendments seek to restrict that benefit to cash incomes.

I raised this matter with the Minister of State on Second Reading. He was under pressure at that stage, and he was not disposed to deal with the matter favourably. However, in an offhand manner, he said that he would examine the argument. With a characteristic wave of his left hand he gave a grudging commitment to consider the matter.

I hope that the Treasury will not be too grudging. There are two Minister of State in that Department. I do not know what the other one does. I suppose that he sits and thinks. Between them, I hope that they will deal with the problem.

There have been reports in the newspapers that the Prime Minister is not keen on such perks and wants to do something about them. I hope that we shall be given a definitive view, because Ministers have not yet said much about perks now that the top rate of income tax has been reduced to 60 per cent. I hope that the Minister of State will say that they will introduce the necessary legislation in the next Finance Bill.

One can contrast the Government's attitude to this matter with the zeal with which they say that in the next Finance Bill they will reform the capital gains tax and capital transfer tax systems. Let them attach the same urgency and zeal to this problem.

If the perks are not dealt with, the resentment created by the Budget will be even greater than it is. It will be seen that it has nothing to do with initiative, drive and private enterprise. It will be seen as an attempt to provide surtax payers with a tax cut.

We shall not press the amendments to a Division, but I hope that the Minister of State will state clearly that action will be taken next year. There is no excuse for maintaining the present system now that the top rates of tax have been reduced.

Mr. David Crouch (Canterbury)

I shall not detain the Committee for long. The right hon. Member for Llanelli (Mr. Davies) has returned to the subject of the amendments. I mean that as no criticism of the Chair, but as a slight criticism of how some hon. Members have wandered from the point. Perhaps it is a good thing that you, Mr. Weatherill, have allowed them to wander, because we are discussing the kernel of the Budget. It is the guts of the Bill.

We are discussing what was offered by the Conservative Party, honestly and freely, to the public. We asked them " Do you or do you not want a reduction in income tax at all levels—at the lowest level, in the middle and at the top?" The cut was offered not only to those at the top earning between £10,000 and £25,000 a year, but to the whole nation. It was up to the nation to decide between what was offered by the Labour Party, campaigning throughout the country with its packet of promises—

Mr. Anderson

Will the hon. Member give way?

Mr. Crouch

No, I shall not give way. I have listened to enough this afternoon. Perhaps I shall give way later. I have only just begun.

Mr. Anderson

Give way.

5.15 p.m.

Mr. Crouch

I shall in a minute. The hon. Member for Swansea, East (Mr. Anderson)—as has been said of me—is a fair and honourable man. He has taken some of the pep out of what I was going to say, but that is part of the art of this place. However, I shall work myself up again.

As we campaigned, the Opposition as they now are—and I exclude the hon. Member for Colne Valley (Mr. Wainwright), who sits in solitary refinement representing the Liberal Party—campaigned not to reduce income tax. That is extraordinary. I could hardly believe that members of the Labour Party campaigned against a reduction in income tax, until I heard the hon. Member for Norwich, South (Mr. Garrett) speaking from the Opposition Front Bench. He has earned his place there.

When he spoke in government, he said that he spoke for management. He is acknowledged here and outside as somebody to whom we should listen because he knows what management is about, yet he suggested that management does not need the encouragement of lower tax rates. This afternoon he was advancing the policies of the Opposition and the alternative policies for running the country. Not only do the Opposition oppose the Government, but they produce alternative policies on which the country can decide. We heard ideas and philosophies from an hon. Member who is much experienced in the ideas of management. He said that a reduction in income tax was not an incentive to management.

Mr. John Garrett

I said that it was not proven that a reduction in income tax for those who have already made it to the top in management would be a great incentive. I attempted to show that the middle managers—the sales managers and export managers—upon whom we depend, and who earn £12,000 or £13,000 a year, get virtually nothing out of the Finance Bill. The Bill helps above all the company chairman who has already made it.

Mr. Crouch

That is typical of the con trick remark that we have heard in the last few days. We have heard it in particular from the hon. Member for Ormskirk (Mr. Kilroy-Silk). He has been advancing his individual ideas for the last five or six years, since he first declared his intention of becoming Prime Minister before long. The ranks for that job on his side of the House have become crowded recently.

I listened to the hon. Member for Ormskirk when we were debating an earlier clause. I listened to the claptrap and twaddle that he delivers now that he is in opposition. When he was on the Government side, he was more measured in his tones and more careful about how he attacked the necks of his own party's Front Bench. He sometimes threw caution to the wind, but since he has taken his place below the Gangway—although he occupies an honourable place there—he tends to shoot his mouth off. If that offends the hon. Gentleman, I withdraw it. He says the most ridiculous things, although he is quite an intelligent person.

It is lucky that the hon. Gentleman is a Gangway removed from the Opposition Front Bench, because he does no service to his party. Hon. Members who are ranked behind today—and I exclude hon. Members of other parties who fit into another category—have a pretty high quotient of intelligence. Those hon. Members may be on one side or the other of the Centre, but the hon. Member lets down even the Left side when he talks such nonsense.

Mr. Kilroy-Silk

What nonsense?

Mr. Crouch

The hon. Member for Norwich, South explained to me in his intervention that he was really saying that perhaps the Budget had helped those paying the highest possible rates of income tax, although they do not need much help. I know many people who say that they do not know, and are not interested in, how much they earn. They say that their motivation lies in doing a good job. I accept that.

I do not believe that among middle managers there is no interest in what is their take-home pay. We are talking about the people who earn between £7,000 and £15,000 a year. That is the principal bracket, of which the average is about £10,000 to £12,000 a year. We are talking about our young managers who need an incentive to stay in management and make a success of it, whether they are on the employer side of industry or on the union side. One of our weaknesses is the poor level of management on the union side. That must be put right, and it can be done only by increasing the remuneration of managers in that discipline.

This clause offers an opportunity, and, as the Chancellor said in his Budget Statement, it is only the first step. We must remember that. As I listened to the Chancellor on Budget Day, I thought that he was taking a risk in what he offered to do to effect such a dramatic change of direction in the fiscal and economic management of this country.

I am a cautious man, like the hon. Member for Norwich, South perhaps and perhaps not so incautious as the hon. Member for Ormskirk. I should have been more cautious than the Chancellor was, but I should not have been as right as he was in making this bold move. We now hear from the Labour Benches that this bold move is too much for them. Socialists today cannot take a bold Conservative move. They have become so reactionary that they cannot contemplate change, and they are supposed to represent the radical party. Even the right hon. Member for Down, South (Mr. Powell), who is one of the great reactionaries of this House, is capable of radical thought. He combines—in a schizophrenic way—this quality, and we know his reservations about the Budget.

There should be more hon. Members from the Opposition Benches here this afternoon to represent the view of their party. Where are they? It is the gaps along their Benches that worry me. They obviously agree with the Chancellor, except when it comes to Divisions, when they will be dragooned into the Lobbies. There is not even a Whip on the Opposition Front Bench. However, out of the great generosity that I have for Whips on both sides of the House, I withdraw that remark.

Let us take note, before I leave to attend to urgent business outside the House, that I am on the side of the Chamber men—not chambermaids—when we come to debate procedure. I am on the side of the men and women who want to serve this Chamber above all, rather than of those who run upstairs to Select Committees, and other Committees, and who work in the private rooms of this great palace. I believe that this is where the work is done.

As we consider clause 5, where are the men and women of this Chamber? There are not enough of them on the Opposisition Benches. Admittedly, those who dare to get up speak strongly against the Budget. I suspect that there is a brief from Transport House that tells them to concentrate on the £10,000 a year mark. Time and time again during this debate I have heard it said that that is the Chancellor's Achilles heel. The Chancellor does not have an Achilles heel. He has boldly approached the problems of this country. He is the first Chancellor for 25 years who has made such a bold attack on the problems that we face. I should like to see some reality from the Labour Benches and some evidence of their being prepared to accept the challenge presented by the Chancellor's brave attack on our problems.

Mr. Michael Meacher (Oldham, West)

The hon. Member for Canterbury (Mr. Crouch) made some amusing remarks—some of them intended. However, the essence of his radicalism would appear to be that he believes that this is a valuable Budget because of the incentives that will galvanise middle management. That is the group that he places in the £10,000 to £12,000-a-year band.

He misses the point, made repeatedly from the Labour Benches, that below a salary of £12,000 a year the gain—net of VAT, petrol duties and other increases in charges—will be nil. In fact, it will be negative. That is before we take account of the prospective increases in mortgage rates. Even on the hon. Gentleman's own argument about radicalism, this Budget is exceedingly unradical and reactionary. It is a Budget in favour of the super-wealthy.

The ostensible rationale of the tax cuts, from the Government's point of view, is that Britain is taxed unduly highly compared with our competitors, especially at the higher ranges. Therefore, they claim that it is necessary to bring Britain more closely into line with other countries in order to increase incentives to promote greater productivity and growth. That, as I understand it, is the Government's theory.

It can easily be shown that the essence of the Government's case is wrong, since Britain, contrary to what has been said from the Tory Benches, is not unduly highly taxed. I will produce the evidence for that in a moment. Even if they were right about that the Government's motives are misconceived, since the available evidence shows that high tax cuts are unlikely to increase incentive.

Contrary to the impression that has widely been given by Government spokesmen, we pay, believe it or not, a smaller proportion of our gross national product in taxes and social security contributions than any other EEC country, with the sole exception of Italy. That is not an interpretation from the Labour Benches. It has not come from Transport House. It comes from the Government's own journal, Economic Trends of December 1978. This shows that the figure for the United Kingdom is 40 per cent. In France and Germany—I invite hon. Gentlemen on the Tory Benches to note this—it is 44 per cent.; in Belgium, 45 per cent.; in the Netherlands, 51 per cent.; and in Sweden, 58 per cent. All these countries have a considerably higher rate of economic growth than we have. Britain is the one country in the western world where the share of taxes and social security contributions has gone down during the 1970s.

It may surprise some hon. Members in the Tory Party that in Germany, France and many other countries they can check these figures in the Government's own journal—that share rose by between 4 per cent. and 5 per cent. in the 1970s. In Britain it has fallen by 3 per cent. I realise that I have been speaking about the total income tax take and that the Tories have repeatedly referred to marginal tax rates. They love to harp on the special figure of 83 per cent., which has now been brought down to 60 per cent. In fact, as opposed to theory, allowances against income tax—which have not been mentioned today—are now on a huge scale. They make the top marginal rates a great deal more theoretical than real.

The value of these non-personal tax reliefs—on mortgage interest, life assurance premiums, contributions to occupational pension schemes, certain interest income, alimony and maintenance payments, relevant annuity relief and age allowance—now account for no less than £4,000 million a year. Of course, they are heavily concentrated on the highest earners. It is precisely for that reason that the Government's statistics show that the poorest families—say, on £1.000 a year—pay about 10 per cent. of their gross income in income tax and national insurance, whereas the well-off family on £10,000 pays only 24 per cent. I suggest that that paints a completely different picture from the appearance of punitive-ness in the 83 per cent. rate of tax on the top slice of income, which is levied on those earning more than £24,000 a year.

5.30 p.m.

Comparison with the tax structures of other countries—both within the EEC and outside—suggests that tax rates here are higher. But that fails to take account of the non-personal allowances against tax which now have a value of no less than one-fifth of the total value of all income tax now collected.

There may be a case, both on psychological and political grounds, for reducing the high marginal rates by phasing out these non-personal tax allowances and creating an income tax structure which is net of these allowances and which corresponds with what people actually pay. That was sensibly done in 1972 under a previous Conservative Government, when earned income allowance was phased out and the standard rate of income tax was reduced at a stroke from 38.75 per cent. to 30 per cent. However, on the basis of the tax systems of other EEC countries there is no case for lopping the high marginal rates while leaving intact the considerable non-personal allowances which overwhelmingly benefit the rich.

The Government are wrong in trying to give the impression that direct taxes in the United Kingdom are unduly high, and that comparison with other countries therefore suggests that a switch should be made towards greater indirect taxation. The EEC national accounts show that indirect taxes are already a higher proportion of total tax revenue here than in the other EEC countries excluding Denmark and Ireland. The figure in the United Kingdom is 45 per cent., in France it is 40 per cent. and in Germany it is 37 per cent. That seems to knock out another major reason for the Government's proposed change.

The proportion of indirect taxes in total tax revenue has been rising in the United Kingdom in recent years. The Treasury says that it was 48 per cent. in 1971 and that it is now 52 per cent. That applied before changes were made in the Budget. It has been higher in only two out of the last 20 years. It would be quite wrong to move even further out of line with the other EEC countries, when alignment with the EEC is supposed to be the justification for reducing the high marginal rates of direct tax.

The most important factor is the effect of all this on people's pockets. The latest Government survey shows that the poorest families with children pay about a quarter of their disposable income in direct taxes while the richest pay about one-eighth. It is difficult, therefore, on grounds of equity to see any justification for switching the tax burden even more heavily against the poor.

Mr. Anthony Nelson (Chichester)

The hon. Member was comparing our tax rates with those in Europe. Is not the important point not the comparison of percentage rates of direct or even indirect tax but the ability of people to pay those rates? Should not one therefore look at the per capita real income of people in the various European countries and deduct from that the percentage rate of tax? That would show generally that people in Europe have, after tax, substantially more real money to dispose of than is left to the people in this country. The percentage differences do not demonstrate that. The people in this country are much less able to bear the prevailing percentage rates of tax than are the people in Europe because our per capita income level is much lower.

Mr. Meacher

That is a fair point, and I accept what the hon. Member is saying. Growth rates abroad are higher and real incomes at all levels of the working population are also generally higher. But if we are to cut income tax it should be cut evenly across the whole working population and not be excessively concentrated at the top. If all the income tax cuts were on the standard rate, we on the Labour Benches would not object.

These facts all show that there is no justification for this tax switch, and one is then forced to discover the real motive behind the switch, apart from what appears to Labour Members to be a pay-off to the Tory Party's richest and most powerful supporters. Of course, the Government will say that the motive is to promote incentive, but that is misconceived. It is not clear that if a person's real income is depressed his drive is necessarily sapped. It is at least as plausible to suggest that it would increase a man's determination to earn more, by working longer hours, by seeking to acquire bonuses, if need be by changing jobs, or by some other means.

This is not just conjecture. There is hard evidence that this is what happens. The Financial Times conducted a survey—there is little other evidence on the subject—of about 700 managers earning around £10,000 a year. The results are interesting and relevant to the Bill. The survey found that only 17 per cent. of middle managers said that a depression of the level of their salary reduced their will to work. Rather more—25 per cent.—said that it increased their ambition to make up their net pay to the desired level. If Ministers are contemplating further steps along this road they should take note of that.

Even if the Bill provides an extra incentive, however, why should people at the top be given 100 times the incentive given to the real wealth creators, the people on the shop floor? The average-pay worker was given a tax cut equivalent to a pay rise of about 4 per cent. The top income earners, however, have been showered with a largesse which involves a gross pay rise equivalent to more than 80 per cent., which is 20 times as much.

People at the top got an even bigger differential. The average worker has had a pay rise equivalent to 4 per cent., but the Prime Minister will get an extra £43 a week. That assumes that she pays tax separately from her husband which, like all sensible tax lawyers, no doubt she does. It is not clear to me why she should get 11 times more than the average. Her increase, however, is certainly less than some others. Mr. Norman Castle, the chairman of S. and W. Berisford, the sugar importers, got a staggering rise of £1,155 a week out of the Budget. Why should he get 280 times more than the dockers on the quayside who are working for his company who do the unloading and the work of importing?

Why should Mr. Michael Pocock, the chairman of Shell, who got an extra £405 a week, need 100 times the average increase for his company? Why should Mr. Maurice Hodgson, chairman of ICI, get an extra £306 a week, about 75 times the average for his company?

The truth is that those men—they are nearly all men—already have very sizeable fringe benefits. They have already awarded themselves considerable gross pay rises in recent years in order to compensate, as has been said, for high tax rates. They already have manifold allowances against tax which are closely geared to high income. They already, above all, have strong psychological motivation in the form of considerable job satisfaction, high status and substantial power and authority.

I submit that further huge benefits concentrated on that tiny clique at the very top are unjustified in terms of international comparison, they are not warranted in terms of the extra incentives which they will provide, and by their gross unfairness in an already deeply unequal society they will cause further alienation and deepen social divisions for the explosion which is certainly coming this winter, or later. That is why we should throw out this part of the clause, the payola for the rich that it is.

Mr. Ted Graham (Edmonton)

I begin by acknowledging the wisdom of the hon. Member for Canterbury (Mr. Crouch) in saying that what we are discussing in this clause—I think that these were his words—is the kernel and guts of the whole Budget. If that be so, it is not possible to do other than use these provisions as a reference point for a great deal else in the Budget. We are talking of the Budget strategy, and in considering the clause we do right to refer to its wider effect and relationship to a great many other parts of the Budget.

I acknowledge also the devastating demolition job on the premises behind the clause just done by my hon. Friend the Member for Oldham, West (Mr. Meacher). Clause 5, and paragraphs (b) and (c) in particular, are offensive, since it is clear that the tax forgone by the Treasury is to be recouped from the lower paid, the already disadvantaged, the sick, our schoolchildren and workers in our public services. They are all to suffer so that those with earnings of more than £20,000 a year can keep more. This is a Robin Hood in reverse Budget, a policy of robbing the poor to give to those already rich so that they may become even richer.

Increased VAT was sold not only to the House of Commons but to the country as part of a package—a dash for freedom in a great incentive Budget. But what is the incentive for, and for whom is it intended?

To illustrate the force of the case, I shall quote from a letter which appeared in my local press only last week. It is written by a constituent of mine, Mr. Stanley Eric Dale, of 114 Chatsworth Drive, Enfield. He began his letter by quoting from what the Chancellor of the Exchequer said on 18 June: No Budget has done more to help the low paid. Let us see. My constituent quoted also from the words of the Secretary of State for Trade, that the Budget has increased people's real take-home pay, widened people's personal choice and encouraged earning rather than spending."— [Official Report, 18 June 1979; Vol. 968, c. 930.] Again, let us see. My constituent quoted also from the words of the Prime Minister when she stressed that workers would be better of after Budget income tax cuts.

My constituent went on in his letter in these terms: My wife and I went shopping last Monday, the first day of the increases in VAT, and purchased the following items: 4 gallons of petrol—extra VAT 28p; one bottle of medicine—extra VAT 10p; two ounces of tobacco—extra VAT 11p; half a pound of barley sugars—extra VAT 1½p; rubber bands—extra VAT 11p; one reel of cotton—extra VAT 5p; parking the car—extra VAT 1p; laundry—extra VAT 11p; knicker elastic—extra VAT 2p; soap powder—extra VAT 8p. This amounted to 88½p extra VAT in one day. 5.45 p.m.

I am not saying that that happens every day, but it happened on the very first day of the new VAT rate—an extra 88½p. My constituent went on: My wife and I happen to be more fortunate than many others. We are two of the 1,300,000 people who have been relieved of paying income tax—45p a week. He is relieved of paying 45p a week and in one day he paid 88½p extra. There must be many others who do not pay income tax at all, so therefore these people must be worse off than we are. Sir Geoffrey also stated that this was a Budget of incentives. My constituent concluded by saying: The only incentive that I can think of at the moment is to cut my throat and get it all over with. If that is the sort of mood of despair which the Budget induces in someone who is alleged to be better off as a result of it, what can it do to others?

I am concerned not just about the VAT increases needed to finance clause 5 and the tax reductions. Other imposts have been visited upon my constituents and the people of the country in the name of the incentives that we are supposed to welcome. For example, there are increased bus fares, higher train fares, higher petrol prices and slashed public expenditure. I welcome and endorse the comments of my hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk), who dealt at length with the effect of the Budget, because—let there be no mistake—the money being saved and given out by the Treasury under this clause has to be recouped somewhere.

The Enfield Tory-controlled council has already begun to spell out to my constituents how it intends to help the Tory Government to carry out their central Budget strategy. There will be freezing of posts in education, for example. Already in all departments in Enfield we have staffing levels well below what should normally be expected. They will be frozen and eroded. Education will be cut to ribbons. Increased VAT has added to the costs of education, the social services and housing, affecting furnishings and teaching supplies.

A new school is desperately needed in my constituency to replace the out-moded Houndsfield school but the future of that project is now placed in jeopardy because, when the Enfield council carries out the dictates from Whitehall in trying to carry through the Budget strategy, the question whether that new school goes ahead will undoubtedly be high on the agenda. But the school is needed to give the community an added lease of life.

Untold damage will be done by this Government to the present and future generations by their senseless policy of paying for the tax handouts under this clause with increased VAT and public expenditure cuts.

I happen to be a graduate of the Open university, and I am a member of the council of the Open university. I read the university newspaper, Sesame, for July with particular interest. I was disturbed to note the following on the front page: The Open University faces a bleak financial prospect. In the June Budget, cuts in education spending include £250,000 from this year's Open University grant of £33 million, and a further £270,000 in the first three months of next year. The effect of increased VAT and of staff pay rises which may not now he covered by supplementary grants means that the total reduction is much greater. I put this question directly to the Treasury. Do the Government have any real appreciation—

The Temporary Chairman (Sir Stephen McAdden)

Order. I apologise for interrupting the hon. Gentleman, but he will realise, I am sure, that he is getting away from the amendments that we should be discussing. I shall be glad if he will relate his remarks more closely to the amendments rather than present arguments about taxation in general.

Mr. Graham

I acknowledge what you say, Sir Stephen, but the point I am trying to make is that if the clause remains as it stands it will remain as part of the Budget strategy, and the Budget strategy implies a great deal more than merely reducing the rates of income tax.

Is the so-called incentive of a few extra pounds in some pockets, which is what is involved in the clause, worth the " aggro ", the distress, the agony and the despair inflicted on large numbers of people, many of whom are defenceless? How does the young mother with children at school, such as those in my constituency of Edmonton, balance her tax bounty with the effect of soaring prices and slashed public services? That applies to the family that relies on help from the social services and to those who depend on home help. Clearly there will be fewer home helps in Edmonton if the clause continues to remain part of the Bill. Boroughs are being asked to reduce their public expenditure to finance the clause.

Do the Government and their supporters understand what they are doing to the ordinary, average, typical taxpayer by making such a drastic, traumatic switch from direct to indirect taxation? The clause is at the heart of the Budget strategy of switching from direct to indirect taxation. It sounded simple, brave and right during the election campaign to leave more in a person's pocket to spend as he wishes. The past few weeks have brought the reality of that enticing prospect home to millions of people. The most dismayed are those who voted Tory for the first time on 3rd May.

I am prepared to accept that electors were fed up under a Labour Government. I can understand why they were fed up and desperate under the Labour Government. However, they did not bargain for an economic package, part of which is the clause, designed deliberately as an act of government to escalate inflation to nearly 20 per cent., a doubling of the rate in about six months. Did they bargain for a bank rate at a record high? When they voted Conservative did they bargain for a mortgage famine and a near-certain colossal mortgage rate of 13 per cent.?

The tax reductions that are part of the Budget cater only for the very rich. They result in the average family, as the Prime Minister calls it, being £1.25 better off a week, and I challenge even that derisory figure. So that the average family may be £1.25 a week better off, the Government have introduced clause 5. That applies especially to paragraphs (b) and (c).

Mr. Crouch

Is the hon. Gentleman saying that he believes, as a Labour Member—and advises his party accordingly—that the policy to follow from now on is one opposed to a reduction of income tax? I am sure that his constituents and electors generally will be interested to hear that he is totally against a reduction of income tax.

Mr. Graham

I have never said that. My hon. Friends and I are against the way in which the Government have resorted to the shabby tactic of taxing the poor and the sick to finance the gross reductions of income tax that are part of the clause.

In their last two years of office the Labour Government reduced income tax, as part of a balanced package. The package before us is not balanced.

Mr. Nicholas Winterton (Macclesfield)

The Labour Government were forced to reduce income tax.

Mr. Graham

However we did it, we did it.

Mr. Winterton

The House of Commons did it.

Mr. Graham

The Labour Government reduced income tax to take account of the need to restore incentive.

Mr. Winterton

No.

Mr. Graham

I regard it as obscene that the Government have literally gone overboard and inflicted great trouble on so many.

Mr. Rooker

If my hon. Friend cares to think back to that which took place and to which the hon. Member for Macclesfield (Mr. Winterton) has referred from a sedentary position—namely, the then Opposition parties combining to vote against the Finance Bill 1978 and to reduce taxation—he will recognise that that action had exactly the same effect as the clause will have if it is enacted. Only those earning twice average earnings benefited from the Tory tax amendments to the 1978 Bill. That is the position that we find in the Bill.

Mr. Graham

My hon. Friend makes a good point. Conservative Members fail to understand that it is the gross inequality and inequity of the clause that causes so much offence among Labour Members.

Mr. Winterton

Is the hon. Gentleman aware that the Budget about which he is being so derogatory removes 1.3 million from paying tax? Does he realise that in addition to reducing the level of direct taxation the Government are raising the threshold at which people start to pay tax? If we raise the threshold, that will benefit all those paying tax, whether they are paying at a high rate or a low rate. In other words, everyone benefits.

The Temporary Chairman

Order. I am sure that that is an interesting intervention, but it is likely to divert the hon. Member for Edmonton (Mr. Graham) from his address, which should be devoted to the amendments. I hope that he will not follow the path introduced by the hon. Member for Macclesfield (Mr. Winterton).

Mr. Graham

I am obliged, Sir Stephen. I have quoted the remarks of a real person in the real world, who is one of those alleged to benefit from the Budget, having been removed from the taxpaying sector. That gentleman wrote to tell me that in one day he paid an extra 88½p in VAT. That must be set against the 45p a week that he was paying in income tax.

Do those on the Treasury Front Bench apprehend the grave injustice of imposing the heaviest burdens on the weakest backs in our society? In the name of choice they are taking from the poor to make the rich richer. Government spokesmen seek to justify the huge tax concessions that are concealed within the clause by telling my constituents that they are now free to decide how to spend the alleged benefit of £1.25 a week.

The reduction of income tax must be set against the public expenditure cuts that have accompanied Tory freedom of choice. Am I to tell my constituents that with their extra £1.25 a week they now have the choice to buy a little more education, a little more social service provision, a little more housing and a little more health care to make up for the crippled public services imposed on them by the Enfield Tory council, prompted by a firm prodding from Whitehall? I hope that someone will explain to me and my constituents the purpose of this pointless exercise. It is clear that it will create two nations once more in Britain.

Clause 5 is the cynical pay-off clause giving those with above-average incomes a hefty slice of additional income at the expense of below-average wage earners. For some it is good news but for most of my constituents, especially those who voted Tory, it is bad news. All my constituents, regardless of whether they voted Tory and whether they can look after themselves, will contribute through the clause, contingent increases in VAT and cuts in public expenditure, to make life easier for the well-off. It is a recipe for national divisiveness and should be rejected. I ask the Committee to support the amendment.

The Temporary Chairman

I request hon. Members to apply their minds to the amendments rather than divert to other subjects that are much more interesting, I am sure, but not within the scope of this debate.

Mr. Winnick

My hon. Friend the Member for Edmonton (Mr. Graham) rightly said that clause 5 and the amendment are to a large extent the crux of the Budget.

Undoubtedly a great deal was said during the election campaign by the Conservative Party about reducing taxation. It would be foolish to pretend otherwise. It is true that the Conservative Party put great emphasis, as the hon. Member for Canterbury (Mr. Crouch) said, on reducing the standard rate of income tax. It is right and proper to concede that many electors did not accept the point of view of the Labour Party. I should say that they were taken in by Conservative propaganda about reducing the standard rate.

Labour candidates argued at the hustings that the average person would not benefit from a reduction in direct taxation, as indirect taxation would increase. To a large extent our arguments were not accepted by a large section of the voting population, hence the result on 3 May.

However, most of the British people now realise that a reduction in the direct rates of income tax does not benefit them. As my hon. Friend rightly said, the increased rate of value added tax and increases in other forms of indirect taxation are far in excess of any benefit that the average taxpayer is likely to gain from a reduction in income tax. That is one of the reasons why the Budget has proved in a short period to be so unpopular. I do not think Conservative Members will quarrel with the statement that throughout the country there has been a rejection of the Budget. That has happened because it is considered to be unfair and unjust.

The richer section of the community will benefit decisively from the income tax reductions. Illustrations have already been given. The chairman of S. and W. Berisford will gain £1,155 a week as a result of the Budget. That is a large sum of money. The chairman of ICI will gain £306 a week. The chairman of Shell will gain £405 a week. My constituents do not earn those sums. Far from it. They do not even earn what those gentlemen will gain from the Budget. We are justified in describing this as a rich man's Budget. It undoubtedly helps the richest and most prosperous in the community.

6 p.m.

Take, for example, the difficulties that will be faced by those buying houses on mortgage if the mortgage interest rate goes up on Friday. A large number who voted Tory on 3 May will realise with much bitterness that they have experienced a con trick. Those who fear what may happen on Friday do not earn the large sums that I quoted. In the main, they earn ordinary incomes. A number of my constituents are owner-occupiers. They fear, with justification, what the increase in the mortgage interest rate will mean for them and their families come Friday.

Apart from the reduction in the standard rate of income tax, higher charges and higher VAT, there will be cuts in public expenditure. In the past two weeks the local council in my community—Walsall—undertook an urgent review of the cuts in education, social services and housing. As a result of the reductions in public expenditure it is likely that there will be a substantial increase in unemployment in the next four to six months. The cuts being made in education, social services and housing will affect working-class families. Those on low incomes will feel the cuts most of all.

The Temporary Chairman

Order. I am sorry to interrupt the hon. Gentleman. I congratulate him on his return to the House. He is not following the line that I asked hon. Members to take—which was to deal specifically with the cuts. Tedious repetition may consist not only of one hon. Member repeating the same thing but of several hon. Members repeating it.

Mr. Winnick

I was trying to say that a large number of ordinary people would feel the effects of the expenditure cuts provided for in the clause. That was my point. I want to keep within the terms of order.

I give this warning. If the Opposition amendment is not passed, ordinary wage earners will try, in view of price increases, to compensate for what they lose by means of further wage increases. It is no good Government supporters calling for trade unions and others to show restraint when they are faced with the most provocative Budget of all time. It is understandable for trade union conferences now meeting, and the TUC later in the year, to come to the view that it is right and proper to pursue wage and salary claims in view of the way in which ordinary people are penalised by the Budget. It is perfectly in order for those affected to pursue such claims.

Inflation must go up as a result of this provocative Budget. Some people think, with some justification, that inflation may reach 20 per cent. within a short period. That is a serious matter. Time will tell. I believe that the Government will pay heavily for this Budget. They will learn—as the Tory Government of 1970–74 learnt—their lesson within a short period. The Budget is being implemented against the interests of the majority of ordinary people. It is a Budget for the rich. In six or 12 months' time it is likely that the Government will regret having introduced this provocative Budget. No one expected the Conservatives to do other than introduce a Budget to help the rich. However, the extent to which the Budget does that has caused surprise even among the Opposition.

When the Labour Party is returned to office, I hope that it will defend the interests of those whom it represents and that I will be as bold and resolute on behalf of them as the Conservative Party has been in the Budget that it has introduced on behalf of its rich friends.

Mr. Anderson

The hon. Member for Canterbury (Mr. Crouch) asked why the Opposition should criticise a Budget that was consistent with the prospectus put forward by the Tories at the last election. He argued that a prospectus having been put to the British electors and accepted by them, they must now accept the consequences, benefits, advantages and disadvantages of a radical Budget. I trust that he is now in less of a lather. If what he said is accepted, and we are in the realm of political honesty, I hope that he will look at the promises and pledges made by his party—especially the pledges that the Tories would not double VAT, that they had no intention of increasing prescription charges, and the denial that they were considering selling BP shares.

If we are discussing political honesty, I hope that the hon. Gentleman will bear those factors in mind when he considers the disillusionment of the populace with politicians. Election promises were made—the reduction of direct taxation and the switch from direct to indirect taxes. Those formed a major part of the Tory prospectus. I hope that he will also consider the other Tory promises made at that time. As he is an honourable man, I know that he will feel suitably ashamed at the dishonest way in which the Conservative Party acted in the election campaign on those issues. If the hon. Gentleman wishes to gainsay that those pledges were made in the election campaign, I am ready to give way.

Mr. Crouch

I feel like Brutus. The hon. Gentleman sounds like Mark Antony. Yes, I am an honourable man. I said in the election campaign that we would reduce direct taxation. I was challenged at every meeting by people whom I had thought to be Conservative Party supporters, and by supporters of other parties. They attacked me and asked how we would pay for the cuts. I believe that I was honest in saying that we would do so by increasing indirect taxation, by cutting Government expenditure, and by allowing people to spend more of what they earned rather than requiring the Government to decide that. The electors chose that change of direction.

Mr. Anderson

That is an entirely honest response, very much in keeping with the hon. Gentleman's usual position. I hope that he did not go beyond that and echo the promise of the Leader of his party, who said " We shall not double VAT, and have no intention of introducing prescription charges." If he did not follow the right hon. Lady in that regard, he indeed spoke honestly to his electorate, and not in the way in which his party spoke to the country as a whole.

This, clearly, is a Budget the major benefits of which will go to the more prosperous. If the Budget achieves the objects that the Government say they set out to achieve, there may be some justification for that. It is, nevertheless, a good return on capital for those who have invested in various ways in the Conservative Party. It is a Budget for the Lulus and for the Petula Clarks, and for those who sang so happily on the stages for the Conservative Party. It is clearly not a Budget for the less prosperous people, the less advantaged individuals and the less advantaged regions in the country.

One thinks also of what is now proposed for the British National Oil Corporation, development land tax, and so on. Perhaps the one major Tory contributor which has had two black eyes as a result of the Budget is the Campaign Against Building Industry Nationalisation. It is clear that the construction industry will have a major shock as a result of the Budget. Although individual managers within the construction industry may well benefit from the direct tax reductions, we know that house building will be adversely affected, not only in the private sector, as a result of the increase in mortgage charges, following directly on the increase in minimum lending rate, but also as a result of the VAT effect on maintenance and that side of the construction industry's work. It will adversely affect employment in the construction industry, and those people in CABIN who fought so hard on behalf of the Conservative Party may well now be rueing that they did so.

The backcloth, essentially, to the Chancellor of the Exchequer's speech was that we, as a country, are going through a period of decline, that our productivity is low, that we are approaching almost the point of de-industrialisation, and that somehow we must adopt radical policies in order to break out of this period of decline. How do we go about it? We know that this has been the problem faced by Governments of each major party in the last two decades.

Various philosophers' stones have been sought, such as export-led expansion, and expansion at all costs under the Barber Budgets in the early 1970s. These attempts to break out of that period of decline have failed. The Government are now saying that they have found another philosopher's stone—a way that has not yet been tried—and that is by the use of incentives. The centrepiece of these incentives is the reduction in direct taxation. This is to be justified even if, in the short term, there are adverse consequences, and even if the Government concede that in the short term the reductions in direct taxation, taken together with the other elements in the Budget, fuel inflation. It is to be justified even if, in the short term, these reductions in direct taxation lead, as the Government may well concede, to an increase in unemployment.

The Government take the view that these adverse and possibly short-term consequences must be justified, because they believe that this is the route—by incentives and by reduction in direct taxation—that will allow the country to break out of the restrictions that have affected it over decades.

6.15 p.m.

The Government, in putting forward these reductions in direct taxation, regard them as so important that they are bringing them forward even though the circumstances that faced them after the election may well be different from and graver than those that they had considered before. This may be because of the rather spurious argument about wanting to look at the books, or, with more justification, because of the OPEC price increases and their effect on our domestic economy. In spite of those changes, the Government have said, in a wooden way, that they will not adjust their proposals, because they are convinced that the reductions in direct taxation are so well justified.

The key assumption, then, is that these reductions are relevant and that they will work. We have to ask for whom the incentives will work, and what empirical evidence there is that a reduction in direct taxation will lead to the kinds of incentive claimed by the Government. My hon. Friend the Member for Oldham, West (Mr. Meacher) has already dealt with the international comparisons, and with whatever data the Government could bring forward to show that we are overtaxed in comparison with our major competitors, and pay, as is alleged, a greater proportion of our total tax burden by way of direct rather than indirect taxation. The figures put forward by my hon. Friend, which are quite incontrovertible, surely indicate that the premises on which the Government base their proposals are, at the very least open to serious doubt.

I ask again: who is meant to work harder and to produce more as a result of these reductions in tax? It cannot, for example, be the professional workers—the lawyers, the architects and others. They are unlikely to increase their output as a result of higher take-home pay. Can it be the managers? My hon. Friend the Member for Oldham, West has already mentioned one aspect of the cushioning effect on managers of the high marginal tax rates, and that is the effect of the tax allowances.

There are also the so-called perks, mentioned by my right hon. Friend the Member for Llanelli (Mr. Davies). It is surely common knowledge that in the greater part of British industry, and starting at a relatively low income level, a person would expect to have a company car and would expect to have his petrol paid for by the company.

The Minister of State, the hon. and learned Member for Dover and Deal (Mr. Rees), is aware of the tax dodge concerning petrol for company executives. The company executive win probably expect to be able to purchase various goods more cheaply at the company shop than elsewhere. He will probably expect to have free or subsidised private education for his children. He will probably expect to have his mortgage rate reduced as a result of company help. He will expect, perhaps, to have an interest-free loan from his company. All these things help to cushion the effect of the previously high marginal tax rates, and they also surely run counter to the idea of the executive being galvanised, in that these things keep him within the womb of the company. The various incentives tie him to his company and act as a complete disincentive to mobility and to improving his personal position by moving ahead in the way claimed by the Government to be so vital.

If, at the same time as reducing the high rates of direct taxation, the Government were to make a serious attack on the perks system, or to reduce the effect of the tax allowances—and the top-hat pensions, and so on—there might be some justification for their action, in terms of the bucket-in-the-well system, by which one moves up and is compensated as the other moves down. But there is no such suggestion.

There have been various whispers—Vatican-like smoke signals—that the Government, through the Think Tank or otherwise, are considering a reduction in these perks. I shall believe this when I see it. I can see no real attack on the perks system coming from the Conservative Party when in government. It seems to me unlikely that the Government will remove the perks system—the real disincentive—or make a serious attack upon it. One knows that the company car and petrol are contrary to what the Government claim to be pursuing in terms of the 10p on petrol, which is to encourage more economic consumption of a scarce resource.

If professional people are unlikely to be motivated, what about skilled workers? There must be relatively few skilled workers who come within the range of £11,000-£12,000 a year and who would benefit from the Budget. The real failure of the Government in their Budget is the failure to understand the psychology of the skilled worker. The Government are saying to those workers " Your bills are increased but you will have 3p off the standard rate of income tax and various other tax improvements which will help you." The empirical evidence is that that is what my right hon. Friend the Member for Leeds, East (Mr. Healey) put forward in his Budget when he was Chancellor of the Exchequer last summer. It did not work then, so what likelihood is there that it will now? This is surely more an act of faith than actual experience of the response of the work force.

The worker who lives in a council house knows that his rent is likely to increase as a result of Government policy. Also, that same skilled worker and those who negotiate on his behalf as we enter the new wage round will know on black Friday—Friday the thirteenth—that mortgage interest will increase substantially, more than offsetting any gains received. In what way is the skilled worker likely to produce more or work harder as a result of the appeal of this Budget?

One might argue with some plausibility that, by contrast, the skilled worker will feel embittered because of what he will have to pay in PAYE—he is imprisoned within the PAYE system—when he sees the extent to which those above him have their differentials increased, because greater benefit will go to those on higher incomes. He will see the continuance of the perks system and will say "When I hear the appeals to my patriotism and loyalty and the request to pull hard together, what about the higher-paid? Why should I respond to this appeal when the Government have increased the unfairness and differentials between me and the higher-paid managers in my own company? " That, surely, is more likely to be the response from skilled workers than that which the Government claim. There is likely to be greater conflict, exacerbated by increased unemployment and inflation, which, on the Government's figures, will increase.

The Chancellor has antecedents in South Wales and in Surrey. In the past, whenever there is a real conflict of interest between those in South Wales and other less advantaged areas and those in the prosperous area of Surrey, the Chancellor has always chosen the people in the more prosperous areas. Here again, when it comes to a conflict such as that evident in the Budget, it is the Surrey man—the prosperous man—who wins and those in South Wales and other disadvantaged areas who stand to gain least.

Mr. Rooker

I have heard all the speeches in this short debate, and the Committee will be pleased to know that I do not intend to repeat any of the valuable points made by my hon. Friends.

One of the advantages of having the Finance Bill in Committee on the Floor of the House—it is the first time that it has happened during the five years that I have been in the House—is that it gives 635 paid-up Members an opportunity to debate the minutiae of the tax system, which is a reverse social security system for the rich. The epitome of that is contained in the clause that we are debating—in other words, the tax thresholds that have been raised for the well-off in society.

The word " galvanised " has been bandied about. I think that it was first used by the Chancellor of the Exchequer. Nobody has said what it means. I am an engineer and a plain fellow, and to me the word means " zinc plated " or " protected from corrosion ". The Budget and this clause in the Finance Bill will be corrosive to society and industrial relations. When I hear that word bandied about I wonder whether anyone knows what it means. I have come to the sad conclusion that those who use it do not know.

The Chancellor has told us—I have no doubt that the Minister will repeat it—that the tax changes will motivate entrepreneurs and managers. I took the opportunity to go to the Library to look at jobs presently advertised for managers working at what I consider to be the sharp end of industry; for example, those who run the factory and get the goods out of the factory, such as engineering and production managers. I declare an interest, of course, because that was my experience before I came to this place.

I discovered that among the jobs currently advertised for June 1979 are works production manager, £7,000 to £8,000; production manager, £7,250, with career prospects; industrial engineer/production engineer, £6,000; senior body design engineer, £7,000; plant engineer manager, £7,500; chief production engineer, £10,000 plus car, and managing director of a manufacturing company in Hull, £10,000 plus bonus, plus car.

It is not true that a brief was put out from Transport House about this—during the relevant time when one would have been prepared, if Transport House were so minded, the employees were on strike—because hon. Members on the Labour Benches can actually work out the effects of this Budget on families and on different scales of income. We know, because we can see for ourselves, that the break-even point is between £10,000 and £12,000. It is irrefutable that a family man earning £10,000 per year will be no better off, in total, as a result of the financial package contained in the Budget.

Certainly, the family man will be better off as regards the effects of clause 5, but there is the other side of the coin, which we have already debated and which we do not need to labour. The point that I make it that those at the share end of industry, doing the type of job that I have just read out, will not reach the break-even point. They will be worse off as a result of the Budget, notwithstanding the effects of clause 5.

Perhaps the Minister will tell us where the advantage is for those at the sharp end of manufacturing industry—those opening up a factory and making sure that it is running throughout the day. Where is the incentive for the producers and the supervisors of the producers? Where in clause 5 is the incentive for them? It is a simple qustion. It is quite clear that we shall have a debate on clause stand part, but this is a point that must be covered. Clause 5 also covers the basic rate of income tax, and those who do the jobs that I have just read out are not even covered by the change in the thresholds. Even under the Labour Government, except for the last example I quoted, they would not have paid the higher rate of tax anyway. So to move the threshold, which was already above their income, further up the income scale is of no benefit to them whatever.

The only gain for middle management comes from the change in the personal allowances, which we shall debate later in the evening, and the 3p reduction in the standard rate of income tax, but that change applies to millions of working people—20 million to be precise. The effect on the people at the sharp end of industry—the motivators of everyone else—will be non-existent. In fact, it will be negative. This point must be met, because it was one of the points that the Minister of State made ad nauseam when in Opposition, about what the Conservative Party would do to get manufacturing industry on the move.

6.30 p.m.

I shall not labour my second point because it has already been referred to. It concerns the total myth about Britain being a highly taxed nation. That is true at the margin, but the fact remains that if the 83 per cent. rate is cut to 60 per cent. and coupled with the other reductions, at a cost of £600 million in a full year—which is a relatively small sum of money—not many people paid 83p in the pound to start with. That is a well-known fact.

The average rates of tax in this country were nothing like the rates at the margin. For example, someone on five times average income in 1977, which was not a small sum of money, paid only 50 per cent. of his income in tax. In the Netherlands, Denmark and Sweden, he would have paid more. This information is based on the Which? report of last June, which takes into account all special allowances, mortgage interest, child benefit, and so on. At every level of income, be it 80 per cent. of average income, average income, twice average income, or five times average income, the United Kingdom taxpayer appeared around the middle of the table of the advanced industrial countries. Therefore, the argument always related to the margin.

The Government claim that they are doing something about it because they saw major problems. The first reason for reducing the 83 per cent. rate was that it would not cost much, since not many people were paying it. At the same time, because of the high rates at the margin, a massive tax avoidance industry has built up and is still operating.

That is the third point that I want to make, and I should like to put a couple of questions to the Minister of State. I am a pretty realistic fellow, and I do not believe that there is much hope of carrying the amendment. It can be carried only if Conservative Members either do not vote, or vote with us. However, there are not many really " honourable " Members opposite. I do not accuse anyone of being dishonourable. I mean " honourable " in the sense of putting their vote where their mouth is.

Conservative Members know that every word that I have uttered so far is true and irrefutable. They know that the effect on that section of society which is supposed to get manufacturing industry going will be negative as a result of the Budget, yet not one will be prepared to vote to stop it happening, not least the hon. Member for Norfolk, North (Mr. Howell), who made a somewhat rambling speech. In so doing, he widened the scope of the debate, because he talked about the Rooker-Wise amendment. He said that I had wrongly got a lot of credit. The reason why I and my former colleague, who will soon be back with us, got a lot of credit was that it was a very good amendment and people outside realised it.

As I said, this amendment can be carried only if Conservative Members vote in the interests of their constituents and not in the interests of the dogma emanating from the Government Dispatch Box. There are some new Conservative Members, and it may be that they will give the Tory Party some trouble. At some future date, on a particular amendment which is close to their hearts, it may be that we will find them with us.

Mr. Cook

Unlikely.

Mr. Rooker

Having reduced the highest marginal rate of tax to 60 per cent., will the Treasury collect the money? It is axiomatic that it wants to collect the money, and I am sure that the Treasury will have done its calculations about getting the money in.

On 3 December 1977, the Minister of State and I took part in a television programme on the subject of tax avoidance. The hon. and learned Gentleman will well remember it. We appeared on " The London Programme ". It was quite enjoyable. The hon. and learned Gentleman attacked—rightly so—the tax avoidance business that had been built up in this country. He made the point that it had been built up only because of the high marginal rates of tax. That was the ethos of his comments. He said: Well, let me make it clear for a start that no one in public life can responsibly be enthusiastic about quite such stark schemes as you've been outlining. These were the schemes of Messrs. Bradman and Tucker. They were blown sky-high in The Sunday Times in May 1977, which showed that because of the way in which they worked this high marginal rate tax system by the reverse annuity scheme, they actually made sure that Wimpey got out of paying any tax at all that year. To his credit, the hon. and learned Gentleman said that he would not support these schemes. He made moral pronouncements, but he also made the point that The time may have come possibly to introduce some general anti-avoidance provision such as they have in Australia, to do away with the mass of detail stuff which is only confusing the issue. By implication the hon. and learned Gentleman then made a strong attack on the operations of Bradman and Tucker. He said that all that was required was to bring the tax rates down and then these people would be put out of business. I suspect that they will not, even now that there is a Tory Government. The remarkable thing was that Bradman and Tucker were able to operate these schemes only because they found a merchant bank that was willing to operate these schemes in a conniving sort of way. I should add that in 1978 the last Labour Government passed retrospective legislation to outlaw these schemes, which cost this country hundreds of millions of pounds, simply because money was floated around the system like the Birmingham one-way traffic system. It went in at one end taxable and, lo and behold, emerged at the other end with no tax to be paid on it.

If the Tory Party gets its way in respect of this clause, I should like to know whether the Treasury will make sure that there are no further loopholes. The only way in which these loopholes could be operated was because Bradman and Tucker found a bank to finance these shady deals.

I should like to quote again from " The London Programme ". Godfrey Hodgson, the interviewer, actually said: In the advance interest schemes we just saw, the bank Tucker used was First London Security, the part of the Rossminster group of companies. The Managing Director of Rossminster was Roland Plummer, who's known Tucker since they were both young accountants in the city. Roy Tucker then said: Rossminster was a young bank, who appeared to be doing quite well, when all the other banks, all the other small banks were falling. This is about 1973. Then comes the crucial part: And Rossminster had a particular management capability and willingness to provide finance and other services in connection with these tax avoidance schemes. They are still in operation. I do not want to be accused of being unfair to another hon. Member, but I should like to mention in passing the name of an hon. Member who may not yet have made his maiden speech. I make no attack upon him, and I shall be happy to argue and debate with him in the future. If the Minister of State has any doubt about how Rossminster was then operating, or has any doubt about how difficult it was for the Labour Government to close the loophole, he may perhaps like to have a word with his new Friend, the hon. Member for Abingdon (Mr. Benyon), who was the co-founder of the Rossminster bank and group of companies.

According to the Leader of the House last Thursday, the hon. Member for Abingdon is a man of talent, because the right hon. Gentleman said that if hon. Members had other jobs they had talent. It is, therefore, quite clear that the hon. Member for Abingdon has talent. The hon. Gentleman came to this House in extremely tragic circumstances, and as I have said, I do not quarrel with the way in which he has operated his business interests. I have repeatedly reminded the Minister of State that at an early opportunity I would raise the matter discussed in the interview in which he and I took part, if his party came to power. Unfortunately, that happened, and my only advantage is that in opposition I am once again able to take part in the Committee stage of a Finance Bill.

Having reduced the high marginal rates of tax, will the Minister guarantee that all the schemes that operated when those rates were higher will be stamped out? We can then collect all the money due to the Revenue, notwithstanding that there has been an almighty rip-off of the 20 million people paying PAYE.

The Minister of State, Treasury (Mr. Peter Rees)

We have had an interesting and far-ranging debate. Hon. Gentlemen opposite have tended to treat it as a Second Reading debate, and those of us who over the years have been on the Standing Committee on the Finance Bill and have become connoisseurs of radical ham have noticed some specialised contributions.

The hon. Member for Oldham, West (Mr. Meacher) spoke about a pay-off to the richest supporters of the Conservative Party. He always makes a highly original contribution and I admire his fascinating grasp of statistics, even if they tend to mislead rather than clarify the debate. I am sorry that he is not here. The hon. Member for Edmonton (Mr. Graham) moved rapidly from the Front Bench to the Back Benches to make an apocalyptic speech on the impact on his constituents of the Budget. I am glad to see him back in his normal place. The hon. Member for Walsall, North (Mr. Winnick) said that it was the most provocative Budget of all time. That is a challenge for subsequent Chancellors. The hon. Member for Swansea, East (Mr. Anderson) is normally moderate in his contributions. He was unmindful of those for whom he appears on the South-Eastern circuit, going back to his Welsh origins in Swansea, East. However, there was a dilemma facing my right hon. and learned Friend the Chancellor of the Exchequer, just as there is a dilemma facing the hon. Gentleman, and I admired the elegant way in which he attempted to resolve it.

Finally, we are glad that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) has not been debarred from taking part in this debate. It may be his last appearance on the Committee stage of a Finance Bill, but I hope not. Over the years we have come to treasure his interventions, but the best that he could do was to describe the Budget as corrosive. That is rather below his form, and perhaps his new-found responsibilities have slightly tempered his ardour. He trotted out certain specialised points on every possible and even improbable occation, and I shall endeavour to deal with them.

As hon. Gentlemen have ranged widely, I hope that I shall be permitted to set clause 5 in its true perspective. It does not deal only with the higher rate tax but with the reduction in the standard rate. Listening to Labour Members, it is difficult to recall that the previous Chancellor managed gingerly to inch that rate down by 1 per cent. on one occasion. He had to be encouraged on another.

Mr. Denzil Davies

We are debating one amendment that relates to paragraph (b) and not to the clause in general.

6.45

Mr. Rees

I wish that the right hon. Gentleman had reminded his hon. Friends of that. The debate has been far-reaching, and to get my remarks in context, I wish to remind the Committee that there are several facets to clause 5. One is the cut in the basic rate.

I do not wish to dazzle the House with statistics. I am not really as numerate as the hon. Member for Oldham, West. The cuts in the personal allowances were by far the most expensive—if I may put it in that way. In a full year they involve a diminution in the tax take of slightly over £2 billion. In a full year the cut in the basic rate of 3p will cost £1,395 million. The cut in the top rate, including the raising of the threshold and the altering of the bands, will cost, in a full year, £662 million. The full weight of the cuts is concentrated on the personal allowances, then there are the cuts in the basic rate. The smallest cuts are those in the highest rates. It may be asking too much for Labour Members to take that in, but I wish to make that point before coming to the amendments.

Mr. Rooker

Will the hon. and learned Gentleman accept that the previous Government were responsible for half the cut in the allowances, because of indexation? Only half of the new cut—half of the £1.8 billion came from this Government. They have spent £900 million on the allowances of 20 million people and £660 million on the few hundred thousand who are well off.

Mr. Rees

On reflection, the hon. Gentleman will realise that that is a rather specious point, because it was an agreed Finance Bill. Purely on the basis of the Rooker-Wise amendment, carried with the support of the Conservative Party, the previous Chancellor would have been obliged to lay an order. The right hon. Gentleman knew that in his previous incarnation he would not have to find the money. I remind the hon. Gentleman, on a technical point, that the reliefs are not operative until 1 August. My right hon. and learned Friend had to put together the substantive Finance Bill for this year—our Administration had to determine the balance of the Finance Bill. This year the personal allowances have been increased beyond anything that was contemplated by the Labour Administration. In a full year—and I emphasise a full year—that will be £2 billion. The hon. Gentleman has considerable pride in the authorship of the Rooker-Wise amendment. If, however, he does not appreciate where the balance of the Finance Bill lies, I am sure that other hon. Members will do so.

Amendments Nos. 42 and 45 were spoken to by the right hon. Member for Llanelli (Mr. Davies). They relate to perks, which is an obsessive subject with Labour Members. Over the past five years—I shall not say going back to 1948 because no one but the right hon. Member for Down, South (Mr. Powell) will recall that—in the Finance Bill Committees the subject has been raised time and time again by Labour Members. The regime of perquisites has become unattractive and possibly a little out of hand, but it is a consequence of high tax rates. No hon. Gentleman has yet observed that the value of perks will be considerably diminished by the proposed cuts in the higher rates. If hon. Gentlemen are serious about pressing amendment No. 43 to a Division and if, contrary to the expectation of the hon. Member for Perry Barr, the amendment were carried, the consequence would be to increase the true value of tax-free perks.

In an ideal regime—certainly one to which the present Administration hopes to move—perks would be done away with. I hope very much that employers and those responsible will revert to the old tradition of paying people in cash and not in kind. That is the right principle, but when one starts to apply oneself to the problems in practice, one finds how difficult that is.

The right hon. Member for Llanelli, who is usually so candid and open-minded on these questions, ought to have reminded the Committee that the Administration of which he was a distinguished ornament had three separate goes at attempting to cure this problem. He threw out all sorts of loopholes that he suggested still existed after his efforts. He talked about free petrol. I do not know whether that is a perquisite. It could be that under the existing law it could be taxable. Again, that is something that we must look at.

Then the question of cars arose. I think that the right hon. Gentleman would have been better advised to remind the Committee that his right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), when he was Financial Secretary to the Treasury, came forward with some brand new measures that would solve this problem once and for all. Unfortunately, he had not done sufficient homework. It was pointed out that the measures that he proposed would do irreparable damage to the car industry—which I am sure would worry the hon. Member for Perry Barr—and he had to withdraw them, and he brought them back the next year. If the right hon. Member for Llanelli is saying that they are still defective, I must say that Opposition Members have had a certain amount of time to look at the problem.

I was asked whether we would do something about perks. Any responsible Government—certainly the present Administration—would want to look at the whole field of perquisites and see what could be done. I hope, too, that the climate for tackling this problem will have been considerably improved when this Finance Bill and the rates proposed in it are passed into law. I hope that it will be recognised in industry—and not only in industry: there are other areas—that it is much better on the whole that people should be paid in cash. There will always be exceptions. It is perhaps wrong for me to identify them tonight. They can be identified on another occasion. I hope that that will reassure the Committee.

Mr. Denzil Davies

Is the hon. and learned Gentleman saying that he is now prepared to look at this matter seriously and to use the tax system, in the new climate of a 60 per cent. top rate, to insist on outlawing perks, as much as it is possible to do so?

Mr. Rees

" Outlawing perks " is a strong term. The point that I have been trying to make to the Committee, however inadequately, is that, highly motivated as the right hon. Gentleman and his right hon. Friends were, over five years—and it was nothing to do with the climate then—they were not able to perfect a system of dealing with perks. It would be presumptuous of me, even against the altered climate which this Budget has created, to suggest that we shall be that much more successful. All I am saying is that we shall look at the problem. We are not blind to it. We do not find the system of perquisites particularly attractive. Perhaps we are not quite so carried away and emotional about the subject as the right hon. Gentleman and his hon. Friends. We look at it with, perhaps, a rather more worldly eye. [HON. MEMBERS: " Oh."] We know the frailties of human nature, as no doubt in their heart of hearts Opposition Members do, too.

Anyhow, as the right hon. Gentleman was modest enough to say that he would not press his amendment to a Division, I give him the assurance that the Government do not regard the system of perquisites as attractive and do not regard it as one that can be ignored. We shall certainly look at it, although I am not so presumptuous as to imagine that I shall succeed where the right hon. Gentleman has failed over the past five years.

Mr. Tam Dalyell (West Lothian)

The hon. and learned Gentleman says that he will be looking at all these matters with a worldly eye. We know that they are not easy and can be difficult. Will there be some kind of serious report back to the House of Commons, when the results of this worldly-eyed look can be considered?

Mr. Rees

I think that the hon. Member will recognise that the results of our scrutiny will be found, or not found, as the case may be, in subsequent Finance Bills. It would be wrong for me to anticipate those. If the hon. Member imagines that he will be able to elicit by a series of shrewd questions what we have in mind, I think that he will realise the constraints. It is much better that these matters be dealt with in a Finance Bill and debated in the proper and traditional way. I am sure that there is nothing between the two sides of the Committee in that respect. If the hon. Member is suggesting that there should be a Green Paper, I do not think that that would be the appropriate way.

Mr. Cook

A new clause.

Mr. Rees

I am not sure that that will be open to the hon. Member for West Lothian (Mr. Dalyell). It probably would not be selected. Dare I say that the hon. Member ought to have applied his mind to it at an early stage? It is a recurring theme. It is nothing new. I am surprised that the hon. Member has not done so, but I do not want to tempt him.

Amendment No. 9 stands in the name of the hon. Member for Colne Valley (Mr. Wainwright). It is designed to reduce the top rate of tax from 83 per cent. to 70 per cent., not 60 per cent. I wonder why the hon. Member put down that amendment. When I saw it, I was tempted to say " Come back, John Pardoe, all is forgiven." Although Mr. Pardoe had his frailties, at least he was a good deal more robust than that. I remember what he said about the tax structure—" a Gothic horror " and " a Gothic nightmare ". Obviously, the hon. Member for Colne Valley believes that the nightmare can be reduced only brick by brick.

We believe in a rather more fundamental approach. I hope that, on reflection, the hon. Member will see that what we propose is in conformity with the great Liberal Budget of 27 March 1977, to which I return so often. The idea then was that the top rate of income tax should come down to 50 per cent. I know that many things have happened to the Liberal Party since 1977, both inside and outside the House of Commons—and I shake my head sadly. But I cannot believe that there has been such a fundamental change of heart that the Liberals can have lost their confidence to such a degree that they believe in this rather timid approach to what is basically a rather important problem.

Mr. Richard Wainwright

The Minister of State was on the Government Front Bench while I was speaking. Perhaps he was not attending. However, I made the point as strongly as I could that it is in the context of this Budget that we object to the singling out of one very small class of extremely wealthy taxpayers when he was not able to carry out, alas, all the other proposals in the Liberal Budget which he has just cited.

Mr. Rees

This is only the first Finance Bill of many which I hope my right hon. and learned Friend will be commending to the House of Commons. My right hon. and learned Friend has said that we hope to get the basic rate down to 25 per cent. Perhaps the hon. Member for Colne Valley is not so timid. Perhaps he is over-keen, a little too ardent. To him I say " Everything in good time ". But at least this is something to which we should address ourselves. We have been encouraged to do so by things that have been said by his hon. Friends in the past and, indeed, things said by Labour Members. It is really almost embarrassing that there is such a wealth of quotations from which I could draw to remind the Opposition of the views of at least their Front Bench spokesmen on this important subject.

I come now to amendment No. 43, which I apprehend is the amendment which right hon. and hon. Members will wish to press to a Division—although I hope that they will not do so. I still have not determined whether they are really saying that rates of 83 per cent. and 98 per cent. are tolerable and should be part of the United Kingdom tax system. Do they believe that in the right situation these sorts of confiscatory rates should be imposed? If so, they have changed their minds. Perhaps that is why Lord Lever, whose interventions here used to enliven our debates rather more than some of the interventions we have heard this afternoon—although he did not carry the whole of his party with him—chose to accept a peerage. But I do not want to intervene in these internal dissensions of the Labour Party. I know that some matters are rather sensitive at present. I draw a veil over them and come to the substance of the amendment.

The point that we did not elicit from the hon. Member for Norwich, South (Mr. Garrett) was whether he believes that a rate of 83 per cent. on earned income and 98 per cent. on investment income is a proper approach to these problems. Is he of the " howls of anguish " school? I know that many Opposition Members are of that school. I had hoped that we had a rather more sensible, practical and moderate approach from the Opposition Front Bench. Again, I do not want to come between them and their hon. Friends.

I heard the apocalyptic speeches stating that this was the most provocative Budget that hon. Members had ever encountered. Perhaps when the hon. Member for Norwich, South replies to the debate he will say whether he thinks that these are fair rates. We lived through six years of Labour administration from 1964 to 1970, and five years from 1974 to 1979, but the right moment never came. There have been moments, I agree, when there has been a glimmer of hope in the economy, when we have not had a nil growth rate.

I took the point made by the hon. Member for Ormskirk (Mr. Kilroy-Silk), who casts himself in the peculiar role of a Robespierre with a heart of gold. We saw him in both capacities this afternoon. I thought he was saying at one point, before sheering away again, that if it were not for the fact that there was a nil growth rate this might have been permissible. I should like to know what the Opposition Front Bench feel. What are the conditions which they feel are necessary before cuts can be made in the higher rates? To what figures would they bring them down in that situation? I fear that I may be cheated of that hope.

Hon. Members on the Opposition Benches made many observations and speculated on the motives of management and entrepreneurs. Most of the comments would have featured better in a postgraduate thesis. They did not demonstrate, I believe, a first-hand acquaintance with the true circumstances of commercial life. I know that the hon. Member for Norwich, South has some passing acquaintance with it, but he got a little academic. Listening to the hon. Member for Oldham, West I realised that he had been very far from the true sense of commercial activity.

7 pm

Mr. Meacher

I referred to a Financial Times survey.

Mr. Rees

It is always a survey in the Financial Times or some record. My hon. Friends, on the other hand, speak with a good deal of first-hand experience. [HON. MEMBERS: " Oh! "] I am glad to have those unstinted tributes from the Labour Benches for the contributions made by my hon. Friends. They were notable contributions. The Committee was not impressed by the observations about incentives, but since Opposition Members like statistics I should like to give some figures about the top rates and the point at which they are reached in our competitor countries.

A married man in France reaches the top rate of 54 per cent. at the equivalent of £44,580 a year. A married man in Germany reaches the top rate of 56 per cent. at £67,000 a year. For a married man in Japan, the top rate of 67 per cent., which I agree is higher than the rate that we propose, is reached at £199,130 a year. Against that standard of comparison, is this Administration's proposal corrosive? Is it provocative? Is it unfair? Is it unrealistic? Do we need these apocalyptic visions of doom on the shop floor from Labour Members? It is a long-overdue measure of reform—a corrective of what has been inflicted for so long on the higher echelons of management.

Hon. Members on the Labour Benches, as one would expect, did not concentrate on the higher echelons. They asked what was the impact further down the scale. What they have not appreciated, or what they have chosen to ignore, is that the person lower down the rung will be looking higher and deciding " What is in it for me if I soldier on in the United Kingdom for another 10 or 20 years and resist the blandishments of the Persian Gulf or the Continent of Europe? " Even the hon. Member for Perry Barr presumably hopes to succeed the right hon. Member for Salford, West (Mr. Orme) in due course. He is not considering rambling around dealing with parliamentary questions at his low level. He is looking at the stars. So are people in industry. If one looks at our Continental competitors and considers the whole field of incentives, one realises that clause 5 is a long-overdue and modest measure of reform in our taxation system.

There have been predictable ritual noises from Labour Members. I was disappointed to hear them from the more moderate Members on the Front Bench, for whom I have a genuine respect. I recognise that they have to defer, in the delicate state of their party, to hon. Members below the Gangway. For the good of their reputations, and because I hope that they have the interest of British industry at heart, I trust that they will not feel disposed to press amendment No. 43 to a Division.

Mr. John Garrett

It is no surprise that this has been a wide-ranging debate. We are dealing with the part of the Finance Bill which hon. Members on the Conservative Benches have described as the heart, the kernel, the intestines and the very soul of the Bill. The Minister of State, with his customary fluency, has not made out a case for the higher tax rate reliefs. I recall from previous Finance Bills that he was opposed to using taxation policy as social engineering, yet this part of the Bill is a massive piece of social engineering, which might better be called jerry-building. It singles out one social class—the very highly paid—for special treatment.

It is clear that since the Budget Statement was first made the Government have got the matter seriously wrong. One can see the realisation creeping over the faces of hon. Members sitting on the Conservative Benches. With every day that passes it is clearer that lower-paid workers get nothing out of the Budget. I can understand how galling Conservative Members must find the fact that the middle class benefit very little, either. Only the very well off—those who have made the top—really get anything worth while. To benefit those top 15,000 or 20,000 taxpayers, we have to proceed through all the miseries and unfairness caused by the increases in VAT and hydrocarbon duties and the cuts in public expenditure that are still to come. It has been a self-defeating exercise—an exercise in futility.

Even if the incentive argument were proven—it was not proven by the Minister—and the aim were to give incentives to middle management, the incentives will run through their fingers like sand. For most middle managers, the money comes in one day and will vanish the next as a result of other decisions in the Finance Bill. My hon. Friend the Member for Edinburgh, Central (Mr. Cook) showed that the keystone has dropped out of this Government's fiscal strategy and that this is recognised by an increasing number of people, particularly those who have to pay the VAT, the petrol tax and interest rates and receive a pittance in income tax relief.

Conservative Members again trotted out the argument about penal taxation on managers. We showed that average taxation on managers is not penal and that its level is grossly exaggerated by Conservative Members. The Minister of State asked whether I would consider the argument that taxation on middle management should be cut in this way. In present circumstances, present rates, in terms of tax take, seem broadly fair and should not be reduced at the expense of all the other increases placed on the household budget as a result of this Bill.

My hon. Friends for Oldham, West (Mr. Meacher), Edmonton (Mr. Graham), Walsall, North (Mr. Winnick), Swansea, East (Mr. Anderson) and Birmingham, Perry Barr (Mr. Rooker), in excellent speeches, demonstrated the gross unfairness of this section of the Bill. The hon. Member for Canterbury (Mr. Crouch), who is not in his place at the moment, chided me, as someone with a

background in management, for opposing these tax reliefs. But managers at the sharp end of industry, as my hon. Friend the Member for Perry Barr, demonstrated—the operating managers, the plant managers and the export managers—get little benefit, if any, from this part of the Bill.

I have said that a manager would have to earn about £10,000 a year to benefit from the Bill. Today, that figure must be £12,000 a year. Tomorrow, it will be easily £14,000 a year. I was too modest in saying that this was a class Budget. It has been an opening salvo in a new round of the class war. I shall recommend my hon. Friends to support amendment No. 43 in the lobby.

Question put. That the amendment be made:—

The Committee divided: Ayes 225, Noes 285.

Division No. 45]	AYES	[7.9 p.m.
Abse, Leo	Davis, Terry (B'rm'ham, Stechford)	Howell, Rt Hon Denis (B'ham, Sm H)
Adams, Allen	Deakins, Eric	Huckfield, Les
Allaun, Frank	Dean, Joseph (Leeds West)	Hughes, Mark (Durham)
Anderson, Donald	Dempsey, James	Hughes, Robert (Aberdeen North)
Armstrong, Rt Hon Ernest	Dewar, Donald	Hughes, Roy (Newport)
Ashley, Rt Hon Jack	Dixon, Donald	Janner, Hon Greville
Ashton, Joe	Dobson, Frank	Jay, Rt Hon Douglas
Atkinson, Norman (H'gey, Tott'ham)	Dormand, Jack	Johnson, James (Hull West)
Barnett, Guy (Greenwich)	Douglas, Dick	Johnson, Walter (Derby South)
Benn Rt Hon Anthony Wedgwood	Douglas-Mann, Bruce	Jones, Rt Hon Alec (Rhondda)
Bennett, Andrew (Stockport N)	Dubs, Alfred	Jones, Barry (East Flint)
Bidwell, Sydney	Duffy, A. E. P.	Jones, Dan (Burnley)
Booth, Rt Hon Albert	Dunnett, Jack	Kaufman, Rt Hon Gerald
Boothroyd, Miss Betty	Dunwoody, Mrs Gwyneth	Kerr, Russell
Bottomley, Rt Hon Arthur (M'brough)	Eadie, Alex	Kilroy-Silk, Robert
Bradley, Tom	Eastham, Ken	Kinnock, Neil
Bray, Dr Jeremy	Ellis, Raymond (NE Derbyshire)	Lambie, David
Brown, Hugh D. (Provan)	Ellis, Tom (Wrexham)	Lamond, James
Brown, Robert C. (Newcastle W)	Ennals, Rt Hon David	Leadbitter, Ted
Brown, Ron (Edinburgh, Leith)	Evans, loan (Aberdare)	Leighton, Ronald
Callaghan, Rt Hon J. (Cardiff SE)	Evans, John (Newton)	Lewis, Ron (Carlisle)
Callaghan, Jim (Middleton & P)	Ewing, Harry	Lofthouse, Geoffrey
Campbell, Ian	Field, Frank	Lyon, Alexander (York)
Campbell-Savours, Dale	Fitch, Alan	Lyons, Edward (Bradford West)
Canavan, Dennis	Flannery, Martin	Mabon, Rt Hon Dr J. Dickson
Cant, R. B.	Fletcher, Ted (Darlington)	McCartney, Hugh
Carmichael, Neil	Foot, Rt Hon Michael	McDonald, Dr Oonagh
Carter-Jones, Lewis	Forrester, John	McElhone, Frank
Cartwright, John	Foster, Derek	McGuire, Michael (Ince)
Clark, Dr David (South Shields)	Foulkes, George	McKay, Allen (Penistone)
Cocks, Rt Hon Michael (Bristol S)	Freeson, Rt Hon Reginald	McKelvey, William
Cohen, Stanley	Garrett, John (Norwich S)	MacKenzie, Rt Hon Gregor
Coleman, Donald	George, Bruce	Maclennan, Robert
Concannon, Rt Hon J. D.	Gilbert, Rt Hn Dr John	McMahon, Andrew
Conlan, Bernard	Ginsburg, David	McMillan, Tom (Glasgow, Central)
Cook, Robin F.	Golding, John	McNally, Thomas
Cowans, Harry	Graham, Ted	McWilliam, John
Craigen, J. M. (Glasgow, Maryhill)	Grant, George (Morpeth)	Magee, Bryan
Crowther, J. S.	Grant, John (Islington C)	Marshall, David (Gl'sgow, Shettles'n)
Cryer, Bob	Hamilton, W. W. (Central Fife)	Marshall, Dr Edmund (Goole)
Cunliffe, Lawrence	Harrison, Rt Hon Walter	Marshall, Jim (Leicester South)
Cunningham, George (Islington S)	Healey, Rt Hon Denis	Martin, Michael (Gl'gow, Springb'rn)
Cunningham, Dr John (Whitehaven)	Heffer, Eric S.	Mason, Rt Hon Roy
Dalyell, Tam	Hogg, Norman (E Dunbartonshire)	Meacher, Michael
Davidson, Arthur	Holland, Stuart (L'beth, Vauxhall)	Mikardo, Ian
Davies, Rt Hon Denzll (Llanelli)	Home Robertson, John	Millan, Rt Hon Bruce
Davies, E. Hudson (Caerphilly)	Homewood, William	Miller, Dr M. S. (East Kilbride)
Davies, Ifor (Gower)	Hooley, Frank	Mitchell, Austin (Grimsby)
Davis, Clinton (Hackney Central)	Horam, John	Mitchell, R. C. (Soton, Itchen)
Morris, Rt Hon Alfred (Wythenshawe)	Robertson, George	Thomas, Dr Roger (Carmarthen)
Morris, Rt Hon Charles (Openshaw[...]	Robinson, Geoffrey (Coventry NW)	Thorne, Stan (Preston South)
Morris, Rt Hon John (Aberavon)	Rodger, Rt Hon William	Tilley, John
Morton, George	Rooker, J. W.	Torney, Tom
Mulley, Rt Hon Frederick	Ross, Ernest (Dundee West)	Urwin, Rt Hon Tom
Newens, Stanley	Rowlands, Ted	Varley, Rt Hon Eric G.
Oakes, Rt Hon Gordon	Ryman, John	Wainwright, Edwin (Dearne Valley)
Ogden, Eric	Sandelson, Neville	Walker, Rt Hon Harold (Doncaster)
O'Halloran, Michael	Sever, John	Watkins, David
O'Neill, Martin	Sheerman, Barry	Weetch, Ken
Orme, Rt Hon Stanley	Sheldon, Rt Hon Robert (A'ton-u-L)	Wellbeloved, James
Owen, Rt Hon Dr David	Shore, Rt Hon Peter (Step and Pop)	Welsh, Michael
Palmer, Arthur	Short, Mrs Renée	White, Frank R. (Bury & Radcliffe)
Park, George	Silkin, Rt Hon John (Deptford)	White, James (Glasgow, Pollok)
Parker, John	Silverman, Julius	Whitlock, William
Parry, Robert	Skinner, Dennis	Willey, Rt Hon Frederick
Pendry, Tom	Snape, Peter	Williams, Sir Thomas (Warrington)
Powell, Raymond (Ogmore)	Soley, Clive	Wilson, Rt Hon Sir Harold (Huyton)
Prescott, John	Spriggs, Leslie	Winnick, David
Price, Christopher (Lewisham West)	Stallard, A. W.	Woodall, Alec
Race, Reg	Stoddart, David	Woolmer, Kenneth
Radice, Giles	Stott, Roger	Wrigglesworth, Ian
Rees, Rt Hon Merlyn (Leeds South)	Strang, Gavin	Young, David (Bolton East)
Richardson, Miss Jo	Straw, Jack
Roberts, Albert (Normanton)	Taylor, Mrs Ann (Bolton West)	TELLERS FOR THE AYES:
Roberts, Allan (Bootle)	Thomas, Jeffrey (Abertillery)	Mr. James Hamilton and
Roberts, Ernest (Hackney North)	Thomas, Mike (Newcastle East)	Mr. James Tinn.
Roberts, Gwilym (Cannock)
NOES
Adley, Robert	Cormack, Patrick	Hampson, Dr Keith
Alexander, Richard	Corrie, John	Hannam, John
Amery, Rt Hon Julian	Costain, A. P.	Hastings, Stephen
Ancram, Michael	Cranborne, Viscount	Havers, Rt Hon Sir Michael
Arnold, Tom	Critchley, Julian	Hawkins, Paul
Aspinwall, Jack	Crouch, David	Hawksley, Warren
Atkins Robert (Preston North)	Dean, Paul (North Somerset)	Hayhoe, Barney
Atkinson, David (B'mouth East)	Dickens, Geoffrey	Henderson, Barry
Baker, Nicholas (North Dorset)	Dodsworth, Geoffrey	Heseltine, Rt Hon Michael
Beaumont-Dark, Anthony	Dorrell, Stephen	Hill, James
Beith, A. J.	Douglas-Hamilton, Lord James	Hogg, Hon Douglas (Grantham)
Bell, Ronald	Dunn, Robert (Dartford)	Holland, Philip (Carlton)
Bendall, Vivian	Durant, Tony	Hooson, Tom
Benyon, Thomas (Abingdon)	Dykes, Hugh	Hordern, Peter
Benyon, W. (Buckingham)	Eden, Rt Hon Sir John	Howe, Rt Hon Sir Geoffrey
Berry, Hon Anthony	Edwards, Rt Hon N. (Pembroke)	Howell, Rt Hon David (Guildford)
Best, Keith	Eggar, Timothy	Howell, Ralph (North Norfolk)
Bevan, David Gilroy	Emery, Peter	Howells, Geraint
Biffen, Rt Hon John	Eyre, Reginald	Hunt, David (Wirral)
Biggs-Davison, John	Fairbairn, Nicholas	Hunt, John (Ravensbourne)
Blackburn, John	Fairgrieve, Russell	Hurd, Hon Douglas
Bonsor, Sir Nicholas	Faith, Mrs Sheila	Irving, Charles (Cheltenham)
Boscawen, Hon Robert	Farr, John	Jessel, Toby
Bottomley, Peter (Woolwich West)	Fell, Anthony	Johnson Smith, Geoffrey
Bowden, Andrew	Fenner, Mrs Peggy	Johnston, Russell (Inverness)
Braine, Sir Bernard	Finsberg, Geoffrey	Jopling, Rt Hon Michael
Bright, Graham	Fletcher, Alexander (Edinburgh N)	Joseph, Rt Hon Sir Keith
Brinton, Tim	Fletcher-Cooke, Charles	Kaberry, Sir Donald
Brittan Leon	Fookes, Miss Janet	Kllfedder, James A.
Brocklebank-Fowler, Christopher	Forman, Nigel	Kimball, Marcus
Brotherton, Michael	Fowler, Rt Hon Norman	King, Rt Hon Tom
Brown, Michael (Brigg & Sc'thorpe)	Fox, Marcus	Kitson, Sir Timothy
Browne, John (Winchester)	Fraser, Rt Hon H. (Stafford & St)	Knight, Mrs Jill
Bruce-Gardyne, John	Fraser, Peter (South Angus)	Knox, David
Bryan, Sir Paul	Fry, Peter	Lamont, Norman
Buck, Antony	Gardner, Edward (South Fylde)	Lang, Ian
Budgen, Nick	Garel-Jones, Tristan	Langford-Holt, Sir John
Bulmer, Esmond	Glyn, Dr Alan	Latham, Michael
Burden, F. A.	Goodhart, Philip	Lawson, Nigel
Butcher, John	Goodlad, Alastair	Lee, John
Cadbury, Jocelyn	Gorst, John	Le Merchant, Spencer
Carlisle, Kenneth (Lincoln)	Gow, Ian	Lennox-Boyd, Hon. Mark
Carlisle, Rt Hon Mark (Runcorn)	Gower, Sir Raymond	Lester, Jim (Beeston)
Chalker, Mrs Lynda	Gray, Hamish	Lewis, Kenneth (Rutland)
Channon, Paul	Grieve, Percy	Lloyd, Ian (Havant & Waterloo)
Chapman, Sydney	Griffiths, Eldon (Bury St Edmunds)	Lloyd, Peter (Fareham)
Churchill, W. S.	Griffiths, Peter (Portsmouth N)	Loveridge, John
Clark, Hon. Alan (Plymouth, Sutton)	Grimond, Rt Hon J.	Luce, Richard
Clark, Dr William (Croydon South)	Grist, Ian	McCusker, H.
Clarke, Kenneth (Rushcliffe)	Grylls, Michael	Macfarlane, Neil
Clegg, Walter	Gummer, John Selwyn	MacGregor, John
Cockeram, Eric	Hamilton, Hon Archie (Eps'm&Ew'll)	MacKay, John (Argyll)
Colvin, Michael	Hamilton, Michael (Salisbury)	Macmillan, Rt Hon M. (Farnham)

McNair-Wilson, Michael (Newbury)	Pattie, Geoffrey	Steen, Anthony
McNair-Wilson, Patrick (New Forest)	Pawsey, James	Stevens, Martin
Madel, David	Penhaligon, David	Stewart, Ian (Hitchin)
Major. John	Peyton, Rt Hon John	Stewart, John (East Renfrewshire)
Marland, Paul	Pollock, Alexander	Stokes, John
Marlow, Tony	Powell, Rt Hon J. Enoch (S Down)	Tapsell, Peter
Marshall, Michael (Arundel)	Price, David (Eastleigh)	Taylor, Robert (Croydon NW)
Marten, Neil (Banbury)	Prior, Rt Hon James	Tebbit, Norman
Mates, Michael	Proctor, K. Harvey	Temple-Morris, Peter
Mather, Carol	Pym, Rt Hon Francis	Thomas, Rt Hon Peter (Hendon S)
Maude, Rt Hon Angus	Raison, Timothy	Thompson, Donald
Mawby, Ray	Rathbone, Tim	Townend, John (Bridlington)
Mawhinney, Dr Brian	Rees, Peter (Dover and Deal)	Townsend, Cyril D. (Bexleyheath)
Maxwell-Hyslop, Robin	Renton, Tim	Trippler, David
Mayhew, Patrick	Rhodes James, Robert	van Straubenzee, W. R.
Mellor, David	Ridley, Hon Nicholas	Viggers, Peter
Meyer, Sir Anthony	Ridsdale, Julian	Waddington, David
Miller, Hal (Bromsgrove & Redditch)	Rifkind, Malcolm	Wainwright, Richard (Colne Valley)
Mills, Iain (Meriden)	Roberts, Michael (Cardiff NW)	Wakeham, John
Mills, Peter (West Devon)	Roberts, Wyn (Conway)	Waldegrave, Hon William
Miscampbell, Norman	Ross, Stephen (Isle of Wight)	Walker, Rt Hon Peter (Worcester)
Mitchell, David (Basingstoke)	Rost, Peter	Walker-Smith, Rt Hon Sir Derek
Moate, Roger	Sainsbury, Hon Timothy	Waller, Gary
Molyneaux, James	St. John-Stevas, Rt Hon Norman	Walters, Dennis
Monro, Hector	Shaw, Giles (Pudsey)	Ward, John
Montgomery, Fergus	Shaw, Michael (Scarborough)	Watson, John
Moore, John	Shelton, William (Streatham)	Wells, John (Maidstone)
Morris, Michael (Northampton, S[...]h)	Shepherd, Colin (Hereford)	Wells, Bowen (Hert'rd & Stev'nage)
Morrison, Hon Charles (Devizes)	Shepherd, Richard(Aldridge-Br'hills)	Wheeler, John
Morrison, Hon Peter (City of Chester)	Shersby, Michael	Whitelaw, Rt Hon William
Mudd, David	Silvester, Fred	Whitney, Raymond
Murphy, Christopher	Sims, Roger	Wickenden, Keith
Myles, David	Skeet, T. H. H.	Wiggin, Jerry
Neale, Gerrard	Smith, Dudley (War. and Leam'ton)	Wilkinson, John
Neubert, Michael	Speed, Keith	Williams, Delwyn (Montgomery)
Newton, Tony	Speller, Tony	Winterton, Nicholas
Nott, Rt Hon John	Spence, John	Wolfson, Mark
Onslow, Cranley	Spicer, Michael (S Worcestershire)	Young, Sir George (Acton)
Oppenheim, Rt Hon Mrs Sally	Sproat, Iain	Younger, Rt Hon George
Page, Rt Hon R. Graham (Crosby)	Squire, Robin
Parkinson, Cecil	Stainton, Keith	TELLERS FOR THE NOES
Parris, Matthew	Stanbrook, Ivor	Mr. John Cope and
Patten, Christopher (Bath)	Stanley, John	Mr. Peter Brooke.
Patten, John (Oxford)

Question accordingly negatived.

Mr. John Garrett

I beg to move amendment No. 44, in page 3, line 20, leave out paragraph (c).

The Temporary Chairman

With this we may discuss the following amendments:

No. 25, in page 3, leave out from below' in line 19 to the end of line 22.

No. 26, in page 3, line 21, leave out ' £5,000 ' and insert £10,000 '.

No. 27, in page 3, line 22, leave out 15 per cent.' and insert 5 per cent.'.

No. 28, in page 3, line 29, at end insert: ' (1A) No investment income accruing to a person of state retirement age shall be subject to surcharge under subsection (1)(c) of this section.'.

Mr. Garrett

Paragraph (c) deals with the treatment of investment income. Its effect is to reduce the number of people who are liable to pay investment income surcharge from about 700,000 to about 300,000—at a forecast loss of revenue of £21 million in 1979–80 and £201 million in a full year.

These beneficiaries will be allowed £5,000 of investment income free of the 15 per cent. tax surcharge. Given present-day yields, that is the level of income which would arise from a portfolio of £75,000—a substantial amount of wealth even today.

In his Budget Statement the Chancellor of the Exchequer said that the surcharge bites at too low a level of income and, as half the surcharge is paid by people over 65, it falls particularly heavily on pensioners. For that half I assume that the Chancellor was not using the argument of a greater spur to executive initiative and effort. We are, therefore, in the emotional area of justice to pensioners and other deserving groups who are thought to be unjustly taxed, even though they have about £75,000 put away. In other words, we are back to the priorities of the Government as expressed in the Bill.

In an earlier debate we referred to the Government's fiscal and social priorities. We can re-examine them briefly tonight. For ordinary pensioners without a sizeable nest egg the picture is not so rosy as it is for the beneficiaries of this part of the Bill. Retirement pensions will be increased in November to £37.30 for a married couple, but pensioners have been subjected to the sell-out of the century in the refusal of the Government to link retirement pensions of ordinary pensioners to wages or the cost of living, whichever is the higher. As the country staggers forward into higher and higher inflation, these pensioners surely will lose out.

For pensioners on a State retirement pension or a small occupational pension without an investment income the future holds out heavy cuts. Retirement pensioners use the provisions of the Welfare State to a disproportionate degree. We know only the broad outlines of the cuts in public expenditure. We have to wait for the public expenditure survey at the end of the year for the rest of it. It is like waiting for the other boot to drop.

The Government's total strategy will be revealed then. It will be the " new beginning " as the Chancellor said. We can expect cuts of 10 per cent. in many social spending programmes to achieve an overall target of 6 per cent. or 7 per cent. in cuts in existing public expenditure survey levels.

This will fall on the backs of the less well off, many of whom are pensioners. What we are sure of are cuts in social services which do much for the elderly. We can bet that the Tory shire counties, many of which already fell far short of recommended levels of provision, will itch to put the axe into these services.

We can also confidently expect that the National Health Service, which devotes so much of its resources to the elderly, will suffer. The Government's pledge not to reduce the Health Service has been repeated in the House, but that does not square with the Chancellor's statement that cash limits are not to be raised to cover prices which rise higher than those originally provided for this year. Cash limits are likely not to take full account of rises in NHS labour costs, so that the service will suffer a real cut in resources and services.

What protection will the Government offer pensioners from such cuts in the services that they need most? The Government argument is that one group of pensioners—those with a fair amount of wealth—need protection. But what about the overwhelming majority of pensioners?

Half of the beneficiaries from this tax reduction are not pensioners. They are wealthy or very wealthy people. Again, we are involved in social justice. Ordinary wage and salary earners, many of whom are in poverty, are expected to work for wages that will be subjected to a ferocious erosion of purchasing power through inflation, much of it created by the Government, and yet they will see that the wealthy, drawing investment income, receive special treatment. These arrangements will not strike many people as just.

Over the years there has been a growing swell of argument from the Tory Benches for the abolition of investment income surcharge, which was introduced by Lord Barber in 1971. Something like it has existed since early this century. We have heard arguments for its total abolition to encourage small businesses, encourage investment in British industry, help agriculture, remove distortions, and put Britain into line with other countries.

That argument has gained ground in the Conservative Party. This measure is the first step towards the abolition of investment income surcharge. The Conservative Party document " The Right Approach to the Economy " foreshadowed the abolition of this surcharge. It stated that We are increasingly doubtful about the wisdom of retaining any kind of Investment Income Surcharge ". This is the first step. Perhaps the Minister will confirm the Government's policy on this important issue. I am sure that my right hon. and hon. Friends will resist any movement down that road. It is our belief that the taxable capacity of low yielding wealth, which escapes taxation altogether, should be brought into revenue by the introduction of a wealth tax, such as exists in many other countries.

7.30 p.m.

The phasing out of investment income surcharge makes for justice only if it is accompanied by the phasing in of a wealth tax. The report of the Select Committee on the wealth tax said that there was a strong case for abolishing the investment income surcharge and relying on a wealth tax with a relatively low threshold as the instrument for taxing capital.

Of course it is too much to expect the party of property to bring in a wealth tax. What that party will do is to abolish the surcharge in the interests of administrative efficiency, or justice for pensioners, or some other inegalitarian pretext. This is really big money hiding behind a screen of pensioners and widows. The top 5 per cent. of people in this country own 56 per cent. of its personal wealth. In terms of wealth we are still a very unequal society. On those grounds alone, in my view, it would be wrong to endorse this provision to give relief to people who are, in general, very wealthy.

Mr. Nicholas Winterton

I shall not do what I consider the hon. Member for Norwich, South (Mr. Garrett) did and make almost a Second Reading speech with brief reference to the specifics dealt with in the amendment.

I direct the attention of the Committee to amendments Nos. 25, 26, 27 and 28, which are being taken with the main amendment. Unlike the hon. Member for Norwich, South, I wish to encourage people to create wealth in order to provide for themselves and their families. I wish this wealth to be used not only during their working lives but particularly so that people may provide for themselves in their retirement. I specifically refer to amendment No. 28, which reads: No investment income accruing to a person of state retirement age shall be subject to surcharge under subsection (1)(c) of this section. I have received numerous representations since the publication of the Finance Bill both from retired people in my own constituency and from others. They indicate to me that the surcharge on investment income is a deterrent to people saving during their working lives in order to provide a satisfactory income for themselves and perhaps, even in their retirement, for certain dependents. I hope that my right hon. Friend on the Treasury Bench will appreciate my objective in tabling these amendments.

Unlike the Member for Norwich, South, I believe that those who save during their working lives—those who are responsible and thrifty—are doing a service not only to themselves and their families but to the country. The money thus saved is often invested in building societies, but perhaps even more commonly it is invested in industry.

I am sure that even the hon. Gentleman will agree that the one thing that industry in this country has lacked in recent years is a satisfactory level of investment. I believe it is because the creation of wealth has been too highly taxed in this country and that, as has been pointed out, a surcharge on investment income was introduced by a former Conservative Government. People have asked themselves why they should be responsible and thrifty and bother to make provision for themselves and their families in retirement out of money which they have saved while at work. They ask why, if they have been particularly thrifty, and their investments have proved sound and have increased in value over the years, should they pay a higher rate of tax on the income they would achieve in retirement by way of this surcharge.

I hope that the hon. Member for Norwich, South is listening to me, because I believe that this issue clearly demonstrates the difference in philosophy between the Opposition and the Government. The Opposition have been critical of the Budget. Perhaps one should not have expected anything else. The Labour Party was fairly destructive in government, and I am sure that it will be extremely destructive in opposition. That is its wont. It makes a better Opposition than a Government.

We now have a Budget which is changing the direction of the country. It is a tough Budget, and one which, I accept, will create a great deal of discomfort for a number of people for a limited period. If the strategy behind this Budget is allowed to see the light of day—which I believe will happen because of the courage that will be displayed by the Government—I think that we will see a new dawn, which will bring to the people of this country—whatever the level of their income—a new prosperity and a new freedom with responsibilty. That will encourage people to make provision for themselves. I have highlighted the purpose of my amendments and I say straight away to my hon. Friends that no doubt they will achieve some reaction from the Opposition.

These are probing amendments. I say that because I know that my right hon. Friend on the Treasury Bench is worried that I may well press this matter to a Division. However, in putting his case the hon. Member for Norwich, South so persuaded me that he was wrong that I could not possibly join him and his right hon. and hon. Friends in the Division Lobby to vote against my party. The overall strategy behind this Budget is long overdue.

If we are to encourage people to make provision for themselves, is it right that they should pay a surcharge, above the standard rate of tax, on levels of investment income in excess of a particular figure? I want to create wealth in this country. I do not care particularly whether chairmen of companies will be £1.000, £2,000 or £3,000 a week better off as a result of the Budget. I believe that everybody will be better off. The Budget will create a climate in which investment will once again take place in this country.

Investment leads to employment. We have, as the Opposition will admit, an unacceptable level of unemployment. If we can encourage people in any way to save rather than to spend irresponsibly and to invest in industry to create employment, will that not be to the benefit of the people of this country? One of the great problems that the last Government faced was the rising level of unemployment. We know that the previous Administration was relatively successful in hiding the true level of unemployment, because of short-term job creation schemes and other projects. Those projects camouflaged the true level of unemployment. Do we not genuinely want sound investment that will really reduce the unacceptable level of unemployment? Surely we want sound investment that creates employment and reduces the unacceptable level of unemployment.

I do not seek to pander to a deserving group—the retired. Too often political parties pay a great deal of lip service to these groups, but they use them as political pawns. That is wrong. It does the House no service for parties to behave in that way. Nevertheless, I have included them because these are the people who have set an example in the past. They are people who have successfully invested and accumulated considerable wealth. In the course of that acquisition they have built up a portfolio of stocks and shares and have invested money that has perhaps created new jobs, not only directly by allowing a manufacturing company to take on more workers, but indirectly by permitting that company to provide work in the industries that supply it.

Mr. Meacher

How does the hon. Member know that the capital which leads to the imposition of investment incomes surcharge is earned and saved and is not, in the majority of cases, inherited?

Mr. Winterton

That point will widen the debate, but if you allow me to pursue the matter, Mr. English, I should be happy to answer the question. I am the first to admit that an element of the money from which I seek to remove the effects of surcharge could be inherited, but in that case I say " Bravo ", because one of the strongest motivations for men and women is not only that they should provide for themselves during their working lives and for their retirement but that they should be able to hand something on to their children.

The hon. Member for Oldham, West (Mr. Meacher) displays great lack of knowledge of the basic instinct of men and women. They wish to provide for themselves, for their families, and for the next generation of their families. They want their children to do the things that they could not do. I want to make generous provision for my children—I have three—[Interruption.] I thought I heard hon. Members say that there could be more. I am being diverted, Mr. English—

The Temporary Chairman (Mr. Michael English)

Order. I think that the hon. Member for Macclesfield (Mr. Winterton) is diverting the Committee by discussing the basic instincts of men and women. Perhaps he would like to do that outside the Chamber at a later hour.

Mr. Winterton

One of those basic instincts, Mr. English, is reproduction. I agree that we were almost launching into a debate on that subject.

The creation of wealth by individuals is good while it is being used by those individuals for their benefit and to make a better life for them. However, it often has a beneficial effect in providing employment for other people. Money generates money. Therefore I do not step back one inch from saying that some of the benefits of my amendments could well be applied to wealth that is passed from father to son.

I hope that my objective will be taken on board by the Government and that the surcharge will be phased out. My party believes in the creation of wealth. We want as many people as possible to create it. I do not want the " nanny " State to provide people with everything they want from the cradle to the grave. I want people to assume responsibilities for providing for themselves, and my modest amendments will perhaps tempt the Government a little further down the path to removing what I consider to be an anachronism and a deterrent to the true creation of wealth.

7.45 p.m.

The Opposition have made great play about the impact of the Budget on the living standards of the elderly and the retired. The hon. Member for Norwich, South failed to say that although the increase in the old-age pension will not be implemented until November—that has been the habit of successive Governments—we have doubled the increase that was originally proposed by the Labour Government. We have taken account of the likely increase in the cost of living as a result of the Budget.

I shall not be tempted to discuss in detail the rise in the cost of fuel and petrol because much of that is beyond the control of the Government. But if some Labour Members, particularly those below the Gangway, had not been so quick to get rid of the Shah of Iran I do not believe we should have been facing the serious situation we have today—although I do not blame hon. Gentlemen for that.

The Temporary Chairman

I sincerely hope that the hon. Member for Macclesfield will keep away from foreign affairs and restrict himself to domestic income tax.

Mr. Winterton

I believe that investment abroad will have a bearing on the investment income surcharge, Mr. English.

I conclude with a plea to my right hon. Friend the Chief Secretary. I have tabled these probing amendments because it is the duty of a Member of Parliament to reflect here the views represented to him by important bodies speaking on behalf of large sections of the community, by individuals, and particularly by constituents. I have received a number of letters from constituents who feel that people could well be deterred from making satisfactory provision for themselves in their retirement because their income will be subjected to the surcharge. I am not certain what sum the Exchequer receives from the surcharge each year, but I believe that its deterrent effect far outweighs any benefit that may accrue to the Government from it.

My right hon. Friend the Chief Secretary may be unable to give ground on this matter during the deliberations on the Bill. However, my party believes in the creation of wealth for the benefit of all and it encourages people to provide for themselves. Therefore I hope that the Government will take on board the message I have endeavoured to put across so that people will not be deterred from making provision for their families and particularly for their retirement.

Mr. Dalyell

The hon. Member for Macclesfield (Mr. Winterton) asserted that his Front Bench was worried about the amendments. I suspect that Treasury Ministers have subjects of greater weight to worry about than amendments put down by the hon. Member for Macclesfield, but I take it that they are probing amendments.

I am curious to know, however, how many letters the hon. Gentleman has had from people outside his constituency saying that their saving decisions are affected by the investment income surcharge. If he cares to interrupt to tell me how many letters he has received, as he claims, from people outside his constituency, I shall be interested to hear. I see that he does not have anything to say, so I shall let that point go.

Mr. Nicholas Winterton

I am waiting to hear what the hon. Gentleman has to say.

Mr. Dalyell

I simply do not believe that decisions on saving are to any wide extent affected by that consideration. They may be affected by many other considerations, but, frankly, I think it preposterous to assert that they are affected by that one. The hon. Gentleman still does not wish to interrupt me, so I shall come to my principal question.

One of the less satisfactory features of our procedure in taking Finance Bills on the Floor of the House is that it is a little difficult to come back on Ministers after they have spoken. If I make a short speech on this occasion I shall do so wishing to reserve the right to come back, if necessary, after the Chief Secretary has spoken, because I am curious about this Government decision.

It will be within the Chief Secretary's recollection, I believe, as it is certainly within mine, that when the Labour Party was last in opposition and the Finance Bill was being taken in Committee upstairs there was considerable discussion in which, if my memory serves me aright, the present Secretary of State for Social Services and the right hon. Member for Worthing (Mr. Higgins), then Financial Secretary to the Treasury, defended the investment income surcharge as a matter of principle. They argued against some of their hon. Friends then below the Gangway and—again, if my memory serves me aright—in the face of criticism from the then Member for South Angus, now the hon. Member for Knutsford (Mr. Bruce-Gardyne), in defence of the principle of the investment income surcharge.

I come now to my question. If it was right in the early 1970s, why is it now wrong? Any party can change its mind, any Government can change their mind—I not complain about that—but I think it worth asking what has changed in basic philosophy over the intervening years. I ask that because some of us find this a strange priority, given that there are so many other causes. I do not quite see the point of this provision, and I shall with that comment end my speech, looking forward with interest to the Chief Secretary's reply.

Mr. Meacher

I wish to touch on the three points which the hon. Member for Macclesfield (Mr. Winterton) raised, on each of which, in my view, he has come to a profoundly wrong conclusion. However, instead of addressing myself to ideology or philosophy, as the hon. Gentleman did, I wish to look at the mechanics of this proposal a little more closely. My reason for opposing it is that, as one looks closely into it, one sees no defensible rationale for what is proposed, except that it is yet another big bonanza for the rich.

First, only a very small number of people will gain anything at all from what the Government propose. Secondly, even among those who gain, the benefit is concentrated overwhelmingly on those with already very high incomes who need relief least. I say that having taken the precaution to put a question to the Treasury, which was answered on 2 July, asking what was the gain to individuals from raising the investment income surcharge threshold. The cost of doing it is £200 million, and, in company with my hon. Friend the Member for West Lothian (Mr. Dalyell), I cannot regard this as a priority for the use of funds in that quantity.

I have attempted to work out the gain per head among those paying investment surcharge at the different bands of income stated in the Treasury's answer. Although I am the first to admit that my figures are subject to some margin of error, I calculate the matter in this way.

First, as the Treasury says, those with incomes below £2,000 a year get nothing at all. Secondly, for those with incomes between £2,000 and £5,000 the gain is about £5 a year, which is pretty neglibile. Then—this is where the increase starts—for those with incomes from £5,000 to £10,000 the gain is about £27 a year. Then, for those with incomes from £10,000 to £20,000 a year the gain is £85 per head per year. Next, we really reach the jackpot: for those with incomes over £20,000—we are talking here of a rich elite of about 128,000 people paying investment income surcharge—the gain is about £234 a year. Thus, it is heavily concentrated on the rich.

It seems to me that the justification could be on three grounds, all of which were mentioned by the hon. Member for Macclesfield. First, I think that about one-third of the recipients of the gain from raising the threshold are pensioners, and therefore it could be regarded as a measure to help the old. Secondly, it may be said that it will in some way assist investment. Thirdly, as the hon. Gentleman said, it can be regarded as an encouragement to thrift, allowing people to keep more of the investment income from capital which they have built up. Those seem to me to be the only possible justifications, but all of them, in my view, are entirely fallacious, or they stand on extremely weak ground, as I shall now show.

First, if the aim is to help pensioners, why not increase pensions to ensure that the benefit goes to all pensioners, not just to some of the rich ones? After all, this is entirely in line with the Government's philosophy in considering other benefits for pensioners. For example, we have recently had before the House again the question of free television licences. The Government have refused the concession on the ground that some of the benefit would go to better-off pensioners. The name of Lord Montgomery always tends to be mentioned in this context, even though he is now deceased, but he has a son. The argument is that the benefit would go also to rich pensioners who do not need it and it would therefore be much better—I understand this argument—to use any moneys that are available to increase the pension itself so that, again in line with the Government's argument about freedom of choice, pensioners may themselves decide how to spend it.

If that is the argument—I recognise it as a perfectly defensible argument—why are the Government now hell-bent on increasing a benefit to pensioners which will go only to a few, and only to the richest at that, giving absolutely no help to the ordinary pensioner? How is that consistent with refusing free television licences, which would overwhelmingly benefit the ordinary non-rich pensioner? I am not, therefore, much impressed by the argument that it is designed to assist the pensioner.

Secondly, perhaps the real motive is to assist in promoting investment, as the hon. Member for Macclesfield suggested. The trouble with that argument—my hon. Friend the Member for West Lothian hinted at it—lies in the marginality of the extra tax represented by the investment income surcharge which must be taken as discouraging extra investment. Of course, it is not that. It is, rather, the lack of prospects of increased demand in the economy and hence the lack of prospects of profitability which are the discouragement.

I believe it to be one of the accepted nostrums of the City and, if I may hazard a guess, of the Treasury as well, that there is no lack of funding in this country for industrial investment, but the problem is much more a lack of incentive for companies to deploy available funds for industrial investment. It is a problem of the economic environment, and who can blame companies when, after the Budget increased the MLR, even blue chip concerns are now having to pay about 17 per cent. for their extra borrowings? So raising the investment income surcharge threshold will have an utterly negligible impact on investment, and I cannot believe that anyone would seriously hold that out as justification.

I turn, then, to what I assume must be the real reason for this proposal. It is to encourage thrift, to encourage the build-up of capital by individuals, an aim which is near and dear to the hearts of hon. Members on the Government Benches. This may sound very appealing, of course, until one looks more closely into the proposal and its effects. The proposal does not help the property-owning democracy. The Treasury answer indicates that those with incomes below £2,000 will receive nothing at all, whilst about 93 per cent. of the benefit is concentrated on those with incomes above the national average. That is not a direct or effective way of promoting a property-owning democracy, if that is really the motive.

8 p.m.

The point of my question to the hon. Member for Macclesfield is that the measure does not promote thrift. From surveys to find out the origins of capital, it appears that the majority of those owning sizeable assets have obtained them by inheritance rather than by personal savings. I take the hon. Gentleman's point that he, nevertheless, would still think it justified to reduce tax on inherited wealth, but that is a different argument from encouraging thrift. The main effect of the measure will be to reduce taxation of the income yield on gains that are essentially purely windfall gains.

To secure an income yield of around £5,000 means having a capital stock of around £100,000. That is the top side of what might be earned or saved in the course of an ordinary working life. There are exceptions, but it is not generally beyond that. Yet the majority of beneficiaries under the proposal will be those with an investment income yield of over £5,000. The proposal will overwhelmingly, though not exclusively, benefit those with inherited capital rather than those who earn or save it. That shows that there is no defensible rationale for the proposal. There is only the indefensible one of piling yet further considerable gains on the already rich.

Mr. Nicholas Winterton

I have not intervened earlier, because I have been listening to the hon. Gentleman's argument with great care. Will he direct one or two comments to the small business? He spoke of accumulating a portfolio of around £100,000 in the course of a lifetime and producing an annual income of around £5,000 or a little more. The smaller business man is affected by the provision and by the investment income surcharge. Does he agree that many small businesses have produced more than £100,000 in the course of a lifetime and that many smaller business men, who could provide jobs for many hundreds, and perhaps ultimately thousands, of people could, in a small way, be deterred from making future investment because that could mean that they would be paying a heavy price by way of investment income surcharge?

Mr. Meacher

The hon. Gentleman is going far too wide. There are arguments for easing the tax burden on small businesses. That was recognised by the previous Labour Administration with the so-called Lever amendments, which raised the VAT threshold for small businesses and in a variety of ways eased the burden of capital transfer tax. Perhaps more is justified to promote increased investment by small businesses. To suggest that raising the investment income surcharge threshold will make more than a minute difference to that particular area is entirely to misread the effect of the proposal, which cannot be justified on that basis.

I submit that the proposal is a further, and absolutely unnecessary, division in an already Tory-divided Britain. On that basis it should be thrown out.

Mr. John Townend (Bridlington)

Those who favour investment income surcharge forget one or two points. I speak as the managing director of a private company. Investment income surcharge distorts the financial decision of private companies. Because of its incidence, it is often more advantageous for a company to declare no dividends but to take its profit out by way of directors' remuneration. That distorts what should be an impartial financial decision. In many cases it is to the detriment of small minority shareholders. The start that has been made in the Budget—which to me is only a first step to the eventual abolition of investment income surcharge—is most important.

Whilst there are high rates of taxation, and a high 15 per cent. investment income surcharge in addition, many people, instead of looking for pure investment to provide jobs and a return on their money, are looking for quick capital gains. That distorts the financial situation. For both those reasons I support the Government's proposals, and I hope that before long they will take on board the amendment of my hon. Friend the Member for Macclesfield (Mr. Winterton).

The Chief Secretary to the Treasury (Mr. John Biffen)

It has been a short but entertaining debate, mounted on two fronts. The official Opposition amendment, seeking to delete the paragraph relating to investment income surcharge would, as the hon. Member for Norwich, South (Mr. Garrett) said, give an addition to the revenue of over £200 million and would have quite an impact on the proposed reductions in the Budget. The four amendments in the name of my hon. Friend the Member for Macclesfield (Mr. Winterton) seek to diminish the remaining burden, as it will be under the Budget, for those paying investment income surcharge by between £100 million and £200 million a year, depending upon the amendment.

I mention three cardinal points about the investment income surcharge as it now stands in the Bill. First, the proposal is made against the background of a pledge to review capital taxation that will incorporate the capital transfer tax and the capital gains tax. Clearly, such a review could not conceivably have been encompassed in the few weeks between the general election and the presentation of the Budget. I say to my hon. Friend the Member for Bridlington (Mr. Townend) that it is precisely because of the difficulties to which he referred, such as the distorting of financial decisions, that such a review is fundamentally required.

The hon. Member for Oldham, West (Mr. Meacher) is not entirely fair when he sees the investment income surcharge as being essentially a problem or a characteristic of the wealthy rentier class. The investment income surcharge is mentioned by practically every small business organisation, be it the Association of Independent Businesses, the Union of Independent Companies or the CBI smaller businesses council, precisely because of the financial points referred to by my hon. Friend the Member for Bridlington. That in no way detracts from the validity of the points made by the hon. Member for Oldham, West on the basis of the information provided to him by way of a parliamentary answer.

We have taken the proposed reductions in capital transfer tax contained in the Budget as an interim reform. That touches immediately upon the points raised by the hon. Member for West Lothian (Mr. Dalyell), who made the very pertinent observation that it seems like only yesterday, though it was in fact in 1973, that my right hon. Friend the Member for Worthing (Mr. Higgins) and my right hon. Friend who is now Secretary of State for Social Services were defending an investment income surcharge which was part of the Conservative financial policy of that Parliament. I do not think that I can give the hon. Gentleman an answer that will satisfy him. However, I hope that my answer will persuade him not to speak twice. In this uncertain world that is about as much as one dare hope for.

Many feel that indexation is desirable in our taxation policy. I am mildly agnostic about its virtues. I think that it can be overdone. However, to make everything nice and cosy and all-party, we have the Rooker-Wise amendment, which is probably the most famous testimonial to indexation.

Let us consider the investment income surcharge that was being defended by my right hon. Friends in 1973. At that time the threshold was £2,000. If that had been indexed, we would now be talking of a surcharge threshold of £4,650. If that were rounded to the nearest £1,000, we would be talking about an investment income surcharge threshold of £5,000.

Mr. Denzil Davies

I apologise for taking the right hon. Gentleman back to the argument of the hon. Member for Bridlington (Mr. Townend) about the distortion of financial decisions in small companies, especially as they concern minority shareholders where the dividend comes as investment income. The subsection does not confine its benefits to that type of organisation. I should have had greater sympathy with the Government if they had tried to do something to remove that type of distortion. However, the subsection deals with investment in stock market companies and does not meet the argument of the hon. Member for Bridlington.

Mr. Biffen

It is true that it is a rough-and-ready virtue. We had to produce a Budget in weeks rather than months. The right hon. Gentleman has underlined the necessity of having the wider reform to which we are committed.

In introducing our interim reform we have tried to simplify by having a single rate. We have lifted the threshold. The result is that 550,000 people have been removed from tax. It now applies to only 300,000 persons. The Committee should know that 250,000 elderly persons have been removed from tax and only 150,000 remain. It is a modest measure but, given the time available, I believe that it will prove to be constructive.

My hon. Friend the Member for Macclesfield described amendments Nos. 25, 26, 27 and 28 as probing in character. He promised that he would confine himself to the narrow points of debate appropriate to a properly conducted debate in Committee on the Finance Bill. That was a heroic premise for someone who eventually managed to stretch his argument to effusive references to the Shah of Iran. Probing though the amendments may be, and even if my hon. Friend were determined to be even more heroic, I cannot advise the Committee to accept the amendments. They would deprive the Revenue of about £100 million, and possibly more. For a Government with a Budget pivoted on a borrowing requirement of £8,000 million, there is no scope for the loss of any revenue even in so enticing a cause as that advanced by my hon. Friend.

An inquiry will be conducted by my right hon. and learned Friend the Chancellor of the Exchequer. Its purpose will be to bring about a more equitable system of capital taxation. I shall ensure that my hon. Friend's remarks to that end are put before my right hon. and learned Friend.

I turn to amendment No. 44, argued for by the hon. Member for Norwich, South, who spoke on behalf of the official Opposition. As best I can judge, there is a philosophical divide between the Government and the Opposition. The arguments that the hon. Gentleman advanced were put even more sharply by the hon. Member for Oldham, West. The hon. Member for Norwich, South talked about those who are not pensioners who are in receipt of investment income. He described them as either wealthy or very wealthy. That reflects a set of values that I do not think is shared by my right hon. and hon. Friends.

8.15 p.m.

The truth is that in any society there is a challenge and an uneasy relationship between freedom and equality. On the Opposition Benches there is a strong premium on equality. On the Government Benches there is a strong premium on the side of freedom. One of the consequences is how we judge investment income. Is it to be judged as meriting a discriminatory tax treatment, and if so, how much? There is an argument to be advanced on whether it is inherited or saved money, but I see the argument based not so much on the economics of fine tuning—namely, how we encourage savings, how we treat income that comes from savings and the panoply of arguments that comes from the econometricians—but on social judgment. That is whether investment income, savings and private accumulations of wealth are to be championed or to be tamed. We say that they should be championed.

Mr. John Garrett

This has been a brief debate on a subject to which, no doubt, we shall return on a number of future occasions, given that the modern Tory is well and truly into lashing out money to the well-off.

It was interesting that the Chief Secretary went on about the Tory vision of freedom. However, the only terms in which he referred to freedom were those of money. In passing, the right hon. Gentleman referred to £200 million a year in tax reliefs as modest. I hope that he will say as much when the Government cut such sums, or even more, from the education budget in the next public expenditure White Paper.

The part of the Bill to which the amendments relate is concerned with and benefits those with wealth. Half of them may be pensioners, and some but not all of them may have saved for their old age and accumulated sizeable sums. The other half are plain wealthy people. This is a first step towards the Conservative Party ending many decades of a taxation system that has rightly, in our view, placed an additional tax on investment income. My hon. Friend the Member for West Lothian (Mr. Dalyell) asked some penetrating questions. I do not know whether he is fully satisfied with the answers that he received. He will be able to ask further questions on other occasions.

The hon. Member for Macclesfield (Mr. Winterton), after accusing me of making a Second Reading speech, took the Committee on a tour d'horizon, which embraced the Shah of Iran as well as basic human instincts in general and his own in particular. I was flattered that he chose to address most of his remarks to me rather than to his right hon. Friend the Chief Secretary before withdrawing his amendments.

The hon. Gentleman hit the nail on the head when he said that amendment No. 44 illustrated the contrast between the philosophies of the major parties. That is true. All our amendments highlight that contrast. We have tried throughout to demonstrate the inherent unfairness, injustice and provocativeness of the good old Tory principle of helping the well off. Their aim is to give the better off the most help and to do nothing for those who really need help.

My hon. Friend the Member for Oldham, West (Mr. Meacher) clearly demonstrated the nature of this part of the Bill.

Its purpose is to help the wealthy. That is what it is all about. How often do we have to spell that out? How often do we have to spell out the basic, central injustice of the Bill? I suggest that we have to spell it out by taking the amendment to a Division.

The Temporary Chairman

It is only fair to point out that the hon. Member

for Macclesfield (Mr. Winterton) did not withdraw his amendments, because he had not moved them since he was not entitled to move them; only one amendment can be moved at any one time.

Question Put, That the amendment be made:—

The Committee divided: Ayes 231, Noes 286.

Division No. 46]	AYES	[8.20 p.m.
Abse, Leo	Ellis, Tom (Wrexham)	Maclennan, Robert
Adams, Allen	Ennals, Rt Hon David	McMahon, Andrew
Allaun, Frank	Evans, Ioan (Aberdare)	McMillan, Tom (Glasgow, Central)
Anderson, Donald	Evans, John (Newton)	McNally, Thomas
Armstrong, Rt Hon Ernest	Ewing, Harry	McWilliam, John
Ashley, Rt Hon Jack	Field, Frank	Magee, Bryan
Ashton, Joe	Fitch, Alan	Marshall, David (Gl'sgow, Shettles'n)
Atkinson, Norman (H'gey, Tott'ham)	Flannery, Martin	Marshall, Dr Edmund (Goole)
Barnett, Guy (Greenwich)	Fletcher, Ted (Darlington)	Marshall, Jim (Leicester South)
Barnett, Rt Hon Joel (Heywood)	Foot, Rt Hon Michael	Martin, Michael (Gl'gow, Springb'rn)
Benn, Rt Hon Anthony Wedgwood	Forrester, John	Mason, Rt Hon Roy
Bennett, Andrew (Stockport N)	Foster, Derek	Meacher, Michael
Bidwell, Sydney	Foulkes, George	Mellish, Rt Hon Robert
Booth, Rt Hon Albert	Freeson, Rt Hon Reginald	Mikardo, Ian
Boothroyd, Miss Betty	Garrett, John (Norwich S)	Millan, Rt Hon Bruce
Bottomley, Rt Hon Arthur (M'brough)	George, Bruce	Miller, Dr M. S. (East Kilbride)
Bradley, Tom	Ginsburg, David	Mitchell, Austin (Grimsby)
Bray, Dr Jeremy	Golding, John	Mitchell, R. C. (Soton, Itchen)
Brown, Hugh D. (Provan)	Gourlay, Harry	Morris, Rt Hon Alfred (Wythenshawe)
Brown, Robert C. (Newcastle W)	Graham, Ted	Morris, Rt Hon Charles (Openshaw)
Brown, Ron (Edinburgh, Leith)	Grant, George (Morpeth)	Morris, Rt Hon John (Aberavon)
Callaghan, Rt Hon J. (Cardiff SE)	Grant, John (Islington C)	Moyle, Rt Hon Roland
Callaghan, Jim (Middleton & P)	Hamilton, James (Bothwell)	Mulley, Rt Hon Frederick
Campbell, Ian	Hamilton, W. W. (Central Fife)	Newens, Stanley
Campbell-Savours, Dale	Harrison, Rt Hon Walter	Oakes, Rt Hon Gordon
Canavan, Dennis	Healey, Rt Hon Denis	Ogden, Eric
Cant, R. B.	Heffer, Eric S.	O'Halloran, Michael
Carmichael, Neil	Hogg, Norman (E Dunbartonshire)	O'Neill, Martin
Carter-John, Lewis	Holland, Stuart (L'beth, Vauxhall)	Orme, Rt Kon Stanley
Cartwright, John	Home Robertson, John	Palmer, Arthur
Clark, Dr David (South Shields)	Homewood, William	Park, George
Cocks, Rt Hon Michael (Bristol S)	Hooley, Frank	Parker, John
Cohen, Stanley	Horam, John	Parry, Robert
Concannon, Rt Hon J. D.	Howell, Rt Hon Denis (B'ham, Sm H)	Pendry, Tom
Conlan, Bernard	Huckfield, Les	Powell, Raymond (Ogmore)
Cook, Robin F.	Hughes, Mark (Durham)	Prescott, John
Cowans, Harry	Hughes, Robert (Aberdeen North)	Price, Christopher (Lewisham West)
Craigen, J. M. (Glasgow, Maryhill)	Hughes, Roy (Newport)	Race, Reg
Crowther, J. S.	Janner, Hon Greville	Radice, Giles
Cryer, Bob	Johnson, James (Hull West)	Rees, Rt Hon Merlyn (Leeds South)
Cunliffe, Lawrence	Johnson, Walter (Derby South)	Richardson, Miss Jo
Cunningham, George (Islington S)	Jones, Rt Hon Alec (Rhondda)	Roberts, Albert (Normanton)
Cunningham, Dr John (Whitehaven)	Jones, Barry (East Flint)	Roberts, Allan (Bootle)
Dalyell, Tam	Jones, Dan (Burnley)	Roberts, Ernest (Hackney North)
Davidson, Arthur	Kaufman, Rt Hon Gerald	Roberts, Gwilym (Cannock)
Davies, Rt Hon Denzil (Llanelli)	Kerr, Russell	Robertson, George
Davies, E. Hudson (Caerphilly)	Kilroy-Silk, Robert	Robinson, Geoffrey (Coventry NW)
Davies, Ifor (Gower)	Kinnock, Neil	Rodgers, Rt Hon William
Davis, Clinton (Hackney Central)	Lambie, David	Rooker, J. W.
Davis, Terry (B'rm'ham, Stechford)	Lamborn, Harry	Ross, Ernest (Dundee West)
Deakins, Eric	Lamond, James	Rowlands, Ted
Dean, Joseph (Leeds West)	Leadbitter, Ted	Ryman, John
Dempsey, James	Leighton, Ronald	Sandelson, Neville
Dewar, Donald	Lestor, Miss Joan (Eton & Slough)	Sever, John
Dixon, Donald	Lewis, Ron (Carlisle)	Sheerman, Barry
Dobson, Frank	Lofthouse, Geoffrey	Sheldon, Rt Hon Robert (A'ton-u-L)
Dormand, Jack	Lyon. Alexander (York)	Shore, Rt Hon Peter (Step and Pop)
Douglas, Dick	Lyons, Edward (Bradford West)	Short, Mrs Renée
Douglas-Mann, Bruce	Mabon, Rt Hon Dr J. Dickson	Silkin, Rt Hon John (Deptford)
Dubs, Alfred	McCartney, Hugh	Silkin, Rt Hon S. C. (Dulwich)
Duffy, A. E. P.	McDonald, Dr Oonagh	Silverman, Julius
Dunnett, Jack	McElhone, Frank	Skinner, Dennis
Dunwoody, Mrs Gwyneth	McGuire, Michael (Ince)	Snape, Peter
Eadie, Alex	McKay, Allen (Penistone)	Soley, Clive
Eastham, Ken	McKelvey, William	Spriggs, Leslie
Ellis, Raymond (NE Derbyshire)	MacKenzie, Rt Hon Gregor	Stallard, A. W.
Stoddart, David	Urwin, Rt Hon Tom	Williams, Sir Thomas (Warrington)
Stott, Roger	Varley, Rt Hon Eric G.	Wilson, Rt Hon Sir Harold (Huyton)
Strang, Gavin	Wainwright, Edwin (Dearne Valley)	Winnick, David
Straw, Jack	Walker, Rt Hon Harold (Doncaster)	Woodall, Alec
Taylor, Mrs Ann (Bolton West)	Watkins, David	Woolmer, Kenneth
Thomas, Dafydd (Merioneth)	Weetch, Ken	Wrigglesworth, Ian
Thomas, Jeffrey (Abertillery)	Wellbeloved, James	Wright, Sheila
Thomas, Mike (Newcastle East)	Welsh, Michael	Young, David (Bolton East)
Thomas, Dr Roger (Carmarthen)	White, Frank R. (Bury & Radcliffe)
Thorne, Stan (Preston South)	White, James (Glasgow, Pollok)	TELLERS FOR THE AYES:
Tilley, John	Whitlock, William	Mr. Donald Coleman and
Tinn, James	Willey, Rt Hon Frederick	Mr. George Morton.
Torney, Tom
NOES
Adley, Robert	Dorrell, Stephen	Kaberry, Sir Donald
Alexander, Richard	Douglas-Hamilton, Lord James	Kilfedder, James A.
Amery, Rt Hon Julian	Dover, Denshore	Kimball, Marcus
Ancram, Michael	Dunn, Robert (Dartford)	King, Rt Hon Tom
Arnold, Tom	Durant, Tony	Kitson, Sir Timothy
Aspinwall, Jack	Dykes, Hugh	Knight, Mrs Jill
Atkins Robert (Preston North)	Eden, Rt Hon Sir John	Knox, David
Atkinson, David (B'mouth East)	Edwards, Rt Hon N. (Pembroke)	Lamont, Norman
Baker, Kenneth (St. Marylebone)	Eggar, Timothy	Lang, Ian
Baker, Nicholas (North Dorset)	Emery, Peter	Langford-Holt, Sir John
Beaumont-Dark, Anthony	Eyre, Reginald	Latham, Michael
Beith, A. J.	Fairbairn, Nicholas	Lawson, Nigel
Bell, Ronald	Fairgrieve, Russell	Lee, John
Bendall, Vivian	Faith, Mrs Sheila	Le Merchant, Spencer
Benyon, Thomas (Abingdon)	Farr, John	Lennox-Boyd, Hon. Mark
Benyon, W. (Buckingham)	Fell, Anthony	Lester, Jim (Beeston)
Berry, Hon Anthony	Fenner, Mrs Peggy	Lewis, Kenneth (Rutland)
Best, Keith	Finsberg, Geoffrey	Lloyd, Ian (Havant & Waterloo)
Bevan, David Gilroy	Fletcher, Alexander (Edinburgh N)	Lloyd, Peter (Fareham)
Biffen, Rt Hon John	Fletcher-Cooke, Charles	Loveridge, John
Biggs-Davison, John	Fookes, Miss Janet	Lyell, Nicholas
Blackburn, John	Forman, Nigel	Macfarlane, Neil
Body, Richard	Fowler, Rt Hon Norman	MacKay, John (Argyll)
Bonsor Sir Nicholas	Fox, Marcus	McNair-Wilson, Michael (Newbury)
Boscawen, Hon Robert	Fraser, Rt Hon H. (Stafford & St)	McNair-Wilson, Patrick (New Forest)
Bottomley, Peter (Woolwich West)	Fraser, Peter (South Angus)	McQuarrie, Albert
Bowden, Andrew	Fry, Peter	Madel, David
Braine, Sir Bernard	Gardner, Edward (South Fylde)	Major, John
Bright, Graham	Garel-Jones, Tristan	Marland, Paul
Brinton, Tim	Glyn, Dr Alan	Marlow, Tony
Brittan Leon	Goodlad, Alastair	Marshall, Michael (Arundel)
Brocklebank-Fowler, Christopher	Gorst, John	Marten, Nell (Banbury)
Brooke, Hon Peter	Gow, Ian	Mates, Michael
Brotherton, Michael	Gower, Sir Raymond	Maude, Rt Hon Angus
Brown, Michael (Brigg & Sc'thorpe)	Gray, Hamish	Mawby, Ray
Browne, John (Winchester)	Grieve, Percy	Mawhinney, Dr Brian
Bruce-Gardyne, John	Griffiths, Eldon (Bury St Edmunds)	Maxwell-Hyslop, Robin
Bryan, Sir Paul	Griffiths, Peter (Portsmouth N)	Mayhew, Patrick
Buchanan-Smith, Hon Alick	Grist, Ian	Mellor, David
Buck, Antony	Grylls, Michael	Meyer, Sir Anthony
Budgen, Nick	Gummer, John Selwyn	Miller, Hal (Bromsgrove & Redditch)
Bulmer, Esmond	Hamilton, Hon Archie (Eps'm&Ew'll)	Mills, Iain (Meriden)
Burden, F. A.	Hamilton, Michael (Salisbury)	Mills, Peter (West Devon)
Butcher, John	Hampson, Dr Keith	Miscampbell, Norman
Butler, Hon Adam	Hannam, John	Mitchell, David (Basingstoke)
Cadbury, Jocelyn	Havers, Rt Hon Sir Michael	Moate, Roger
Carlisle John (Luton West)	Hawkins, Paul	Molyneaux, James
Carlisle, Kenneth (Lincoln)	Hawksley, Warren	Monro, Hector
Carlisle, Rt Hon Mark (Runcorn)	Henderson, Barry	Montgomery, Fergus
Chalker, Mrs Lynda	Heseltine, Rt Hon Michael	Moore, John
Channon, Paul	Hill, James	Morris, Michael (Northampton, Sth)
Chapman, Sydney	Hogg, Hon Douglas (Grantham)	Morrison, Hon Charles (Devizes)
Clark, Hon. Alan (Plymouth, Sutton)	Holland, Philip (Carlton)	Morrison, Hon Peter (City of Chester)
Clark, Dr William (Croydon South)	Hooson, Tom	Mudd, David
Clarke, Kenneth (Rushcliffe)	Hordern, Peter	Murphy, Christopher
Clegg, Walter	Howe, Rt Hon Sir Geoffrey	Myles, David
Cockeram, Eric	Howell, Rt Hon David (Guildford)	Neale, Gerrard
Colvin, Michael	Howell, Ralph (North Norfolk)	Neubert, Michael
Cope, John	Howells, Geraint	Newton, Tony
Cormack, Patrick	Hunt, David (Wirral)	Nott, Rt Hon John
Corrie, John	Hunt, John (Ravensbourne)	Onslow, Cranley
Costain, A. P.	Hurd, Hon Douglas	Oppenheim, Rt Hon Mrs Sally
Cranborne, Viscount	Irving, Charles (Cheltenham)	Page, Rt Hon R. Graham (Crosby)
Critchley, Julian	Jessel, Toby	Parkinson, Cecil
Crouch, David	Johnson Smith, Geoffrey	Parris, Matthew
Dean, Paul (North Somerset)	Johnston, Russell (Inverness)	Patten, Christopher (Bath)
Dickens, Geoffrey	Jopling, Rt Hon Michael	Patten, John (Oxford)
Dodsworth, Geoffrey	Joseph, Rt Hon Sir Keith	Pattie, Geoffrey

Pawsey, James	Silvester, Fred	van Straubenzee, W. R.
Penhaligon, David .	Sims, Roger	Viggers, Peter
Peyton, Rt Hon John	Skeet, T. H. H.	Waddington, David
Pollock, Alexander	Smith, Dudley (War. and Leam'ton)	Wainwright, Richard (Colne Valley)
Porter, George	Speed, Keith	Wakeham, John
Powell, Rt Hon J. Enoch (S Down)	Speller, Tony	Waldegrave, Hon William
Price, David (Eastleigh)	Spence, John	Walker, Rt Hon Peter (Worcester)
Prior, Rt Hon James	Spicer, Michael (S Worcestershire)	Walker-Smith, Rt Hon Sir Derek
Proctor, K. Harvey	Sproat, Iain	Wall, Patrick
Pym, Rt Hon Francis	Squire, Robin	Waller, Gary
Raison, Timothy	Stainton, Keith	Ward, John
Rathbone, Tim	Stanbrook, Ivor	Watson, John
Rees, Peter (Dover and Deal)	Stanley, John	Wells, John (Maidstone)
Renton, Tim	Steen, Anthony	Wells, Bowen (Hert'rd & Stev'nage)
Rhodes James, Robert	Stevens, Martin	Wheeler, John
Ridley, Hon Nicholas	Stewart, Ian (Hitchin)	Whitney, Raymond
Ridsdale, Julian	Stewart, John (East Renfrewshire)	Wickenden, Keith
Rifkind, Malcolm	Stokes, John	Wiggin, Jerry
Roberts, Michael (Cardiff NW)	Tapsell, Peter	Wilkinson, John
Roberts, Wyn (Conway)	Taylor, Robert (Croydon NW)	Williams, Delwyn (Montgomery)
Ross, Stephen (Isle of Wight)	Tebbit, Norman	Winterton, Nicholas
Rost, Peter	Temple-Morris, Peter	Wolfson, Mark
Sainsbury, Hon Timothy	Thatcher, Rt Hon Mrs Margaret	Young, Sir George (Acton)
Shaw, Giles (Pudsey)	Thompson, Donald	Younger, Rt Hon George
Shaw, Michael (Scarborough)	Thornton, Malcolm
Shelton, William (Streatham)	Townend, John (Bridlington)	TELLERS FOR THE NOES
Shepherd, Colin (Hereford)	Townsend, Cyril D. (Bexleyheath)	Mr. Carol Mather and
Shepherd. Richard (Aldridge-Br'hills)	Trippier, David	Mr. John MacGregor.
Shersby, Michael

Question accordingly negatived.

THE CHAIRMAN, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto,

forthwith put the Question, pursuant to Standing Order No. 48 (Debate on Clause or Schedule standing part). That the clause stand part of the Bill:—

The Committee divided: Ayes 276. Noes 230.

Division No. 47]	AYES	[8.35 p.m.
Adley, Robert	Budgen, Nick	Fell, Anthony
Aitken, Jonathan	Bulmer, Esmond	Fenner, Mrs Peggy
Alexander, Richard	Burden, F. A.	Finsberg, Geoffrey
Amery, Rt Hon Julian	Butcher, John	Fletcher, Alexander (Edinburgh N)
Ancram, Michael	Butler, Hon Adam	Fookes, Miss Janet
Arnold, Tom	Cadbury, Jocelyn	Forman, Nigel
Aspinwall, Jack	Carlisle, John (Luton West)	Fowler, Rt Hon Norman
Atkins, Robert (Preston North)	Carlisle, Kenneth (Lincoln)	Fox, Marcus
Atkinson, David (B'mouth, East)	Carlisle, Rt Hon Mark (Runcorn)	Fraser, Rt Hon H. (Stafford & St)
Baker, Kenneth (St. Marylebone)	Channon, Paul	Fraser, Peter (South Angus)
Baker, Nicholas (North Dorset)	Chapman, Sydney	Fry, Peter
Beaumont-Dark, Anthony	Clark, Hon Alan (Plymouth, Sutton)	Gardner, Edward (South Fylde)
Beith, A. J.	Clark, Dr William (Croydon South)	Garel-Jones, Tristan
Bell, Ronald	Clarke, Kenneth (Rushcliffe)	Glyn, Dr Alan
Bendall, Vivian	Clegg, Walter	Goodhart, Philip
Benyon, Thomas (Abingdon)	Cockeram, Eric	Goodlad, Alastair
Benyon, W. (Buckingham)	Colvin, Michael	Gorst, John
Berry, Hon Anthony	Cormack, Patrick	Gow, Ian
Best, Keith	Corrie, John	Gower, Sir Raymond
Bevan, David Gilroy	Costain, A. P.	Gray, Hamish
Biffen, Rt Hon John	Cranborne, Viscount	Grieve, Percy
Biggs-Davison, John	Critchley, Julian	Griffiths, Eldon (Bury St Edmunds)
Blackburn, John	Crouch, David	Griffiths, Peter (Portsmouth N)
Body, Richard	Dean, Paul (North Somerset)	Grist, Ian
Bonsor, Sir Nicholas	Dickens, Geoffrey	Grylls, Michael
Boscawen, Hon Robert	Dodsworth, Geoffrey	Gummer, John Selwyn
Bottomley, Peter (Woolwich West)	Dorrell, Stephen	Hamilton, Hon Archie (Eps'm&Ew'll)
Bowden, Andrew	Douglas-Hamilton, Lord James	Hamilton, Michael (Salisbury)
Braine, Sir Bernard	Dover, Denshore	Hampson, Dr Keith
Bright, Graham	Dunn, Robert (Dartford)	Hannam, John
Brinton, Tim	Durant, Tony	Havers, Rt Hon Sir Michael
Brittan, Leon	Dykes, Hugh	Hawkins, Paul
Brocklebank-Fowler, Christopher	Eden, Rt Hon Sir John	Hawksley, Warren
Brooke, Hon Peter	Edwards, Rt Hon N. (Pembroke)	Henderson, Barry
Brotherton, Michael	Eggar, Timothy	Heseltine, Rt Hon Michael
Brown, Michael (Brigg & Sc'thorpe)	Emery, Peter	Hill, James
Browne, John (Winchester)	Eyre, Reginald	Hogg, Hon Douglas (Grantham)
Bruce-Gardyne, John	Fairbairn, Nicholas	Holland, Philip (Carlton)
Bryan, Sir Paul	Fairgrieve, Russell	Hooson, Tom
Buchanan-Smith, Hon Alick	Faith, Mrs Sheila	Hordern, Peter
Buck, Antony	Farr, John	Howe, Rt Hon Sir Geoffrey
Howell, Ralph (North Norfolk)	Mitchell, David (Basingstoke)	Skeet, T. H. H.
Howells, Geraint	Moate, Roger	Smith, Dudley (War. and Leam'ton)
Hunt, David (Wirral)	Molyneaux, James	Speed, Keith
Hunt, John (Ravensbourne)	Monro, Hector	Speller, Tony
Hurd, Hon Douglas	Montgomery, Fergus	Spence, John
Irving, Charles (Cheltenham)	Morris, Michael (Northampton, Sth)	Spicer, Michael (S Worcestershire)
Jessel, Toby	Morrison, Hon Charles (Devizes)	Sproat, Iain
Johnson Smith, Geoffrey	Morrison, Hon Peter (City of Chester)	Squire, Robin
Johnston, Russell (Inverness)	Mudd, David	Stainton, Keith
Jopling, Rt Hon Michael	Murphy, Christopher	Stanbrook, Ivor
Kilfedder, James A.	Myles, David	Stanley, John
Kimball, Marcus	Neale, Gerrard	Steen, Anthony
King, Rt Hon Tom	Neubert, Michael	Stevens, Martin
Kitson, Sir Timothy	Newton, Tony	Stewart, Ian (Hitchin)
Knight, Mrs Jill	Nott, Rt Hon John	Stewart, John (East Renfrewshire)
Knox, David	Onslow, Cranley	Stokes, John
Lamont, Norman	Oppenheim, Rt Hon Mrs Sally	Tapsell, Peter
Langford-Holt, Sir John	Page, Rt Hon R. Graham (Crosby)	Taylor, Robert (Croydon NW)
Latham, Michael	Parkinson, Cecil	Tebbit, Norman
Lawson, Nigel	Parris, Matthew	Temple-Morris, Peter
Lee, John	Patten, John (Oxford)	Thatcher, Rt Hon Mrs Margaret
Le Merchant, Spencer	Pattie, Geoffrey	Thompson, Donald
Lennox-Boyd, Hon Mark	Pawsey, James	Thornton, George
Lewis, Kenneth (Rutland)	Penhaligon, David	Townend, John (Bridlington)
Lloyd, Ian (Havant & Waterloo)	Percival, Sir Ian	Townsend, Cyril D (Bexleyheath)
Lloyd, Peter (Fareham)	Peyton, Rt Hon John	Trippier, David
Loveridge, John	Pink, R. Bonner	Trotter, Neville
Lyell, Nicholas	Porter, George	van Straubenzee, W. R.
Macfarlane, Neil	Powell, Rt Hon J. Enoch (S Down)	Viggers, Peter
MacKay, John (Argyll)	Price, David (E[...]stleigh)	Waddington, David
McNair-Wilson, Michael (Newbury)	Prior, Rt Hon James	Wainwright, Richard (Colne Valley)
McNair-Wilson, Patrick (New Forest)	Proctor, K. Harvey	Wakeham, John
McQuarrie, Albert	Pym, Rt Hon Francis	Waldegrave, Hon William
Madel, David	Raison, Timothy	Walker-Smith, Rt Hon Sir Derek
Major, John	Rathbone, Tim	Waller, Gary
Marland, Paul	Rees, Peter (Dover and Deal)	Ward, John
Marlow, Tony	Renton, Tim	Watson, John
Marshall, Michael (Arundel)	Rhodes James, Robert	Wells, John (Maidstone)
Marten, Neil (Banbury)	Ridsdale, Julian	Wells, Bowen (Hert'rd & Stev'nage)
Mates, Michael	Rifkind, Malcolm	Wheeler, John
Mather, Carol	Roberts, Michael (Cardiff NW)	Whitney, Raymond
Maude, Rt Hon Angus	Roberts, Wyn (Conway)	Wickenden, Keith
Mawby, Ray	Ross, Stephen (Isle of Wight)	Wiggin, Jerry
Mawhinney, Dr Brian	Rost, Peter	Williams, Delwyn (Montgomery)
Maxwell-Hyslop, Robin	Sainsbury, Hon Timothy	Winterton, Nicholas
Mayhew, Patrick	Shaw, Giles (Pudsey)	Young, Sir George (Acton)
Mellor, David	Shaw, Michael (Scarborough)	Younger, Rt Hon George
Meyer, Sir Anthony	Shelton, William (Streatham)
Miller, Hal (Bromsgrove & Redditch)	Shepherd, Richard (Aldridge-Br'hills)	TELLERS FOR THE AYES
Mills, Iain (Meriden)	Shersby, Michael	Mr. John Cope and
Mills, Peter (West Devon)	Silvester, Fred	Mr. John MacGragor.
Miscampbell, Norman	Sims, Roger
NOES
Abse, Leo	Cartwright, John	Dubs, Alfred
Adams, Allen	Clark, Dr David (South Shields)	Duffy, A. E. P.
Allaun, Frank	Cocks, Rt Hon Michael (Bristol S)	Dunnett, Jack
Anderson, Donald	Coleman, Donald	Dunwoody, Mrs Gwyneth
Armstrong, Rt Hon Ernest	Concannon, Rt Hon J. D.	Eadie, Alex
Ashley, Rt Hon Jack	Conlan, Bernard	Eastham, Ken
Ashton, Joe	Cook, Robin F.	Ellis, Raymond (NE Derbyshire)
Atkinson, Norman (H'gey, Tott'ham)	Cowans, Harry	Ellis, Tom (Wrexham)
Barnett, Guy (Greenwich)	Craigen, J. M. (Glasgow, Maryhill)	Ennals, Rt Hon David
Barnett, Rt Hon Joel (Heywood)	Crowther, J. S.	Evans, Ioan (Aberdare)
Benn, Rt Hon Anthony Wedgwood	Cryer, Bob	Evans, John (Newton)
Bennett, Andrew (Stockport N)	Cunliffe, Lawrence	Ewing, Harry
Bidwell, Sydney	Cunningham, George (Islington S)	Field, Frank
Booth, Rt Hon Albert	Cunningham, Dr John (Whitehaven)	Fitch, Alan
Boothroyd, Miss Batty	Dalyell, Tam	Flannery, Martin
Bottomley, Rt Hon Arthur (M'brough)	Davidson, Arthur	Fletcher, Ted (Darlington)
Bradley, Tom	Davies, Rt Hon Denzll (Llanelli)	Fool, Rt Hon Michael
Bray, Dr Jeremy	Davies, E. Hudson (Caerphilly)	Forrester, John
Brown, Hugh D. (Provan)	Davies, Ifor (Gower)	Foster, Derek
Brown, Robert C. (Newcastle W)	Davis, Clinton (Hackney Central)	Foulkes, George
Brown, Ron (Edinburgh, Leith)	Davis, Terry (B'rm'ham, Stechford)	Freeson, Rt Hon Reginald
Callaghan, Rt Hon J. (Cardiff SE)	Deakins, Eric	Garrett, John (Norwich S)
Callaghan, Jim (Middleton & P)	Dempsey, James	George, Bruce
Campbell, Ian	Dewar, Donald	Ginsburg, David
Campbell-Savours, Dale	Dixon, Donald	Golding, John
Canavan, Dennis	Dobson, Frank	Gourlay, Harry
Cant, R. B.	Dormand, Jack	Graham, Ted
Carmichael, Neil	Douglas, Dick	Grant, George (Morpeth)
Carter-Jones, Lewis	Douglas-Mann, Bruce	Grant, John (Islington C)

Hamilton, James (Bothwell)	Magee, Bryan	Sheldon, Rt Hon Robert (A'ton-u-L)
Hamilton, W. W. (Central Fife)	Marshall, David (Gl'sgow, Shettles'n)	Shore, Rt Hon Peter (Step and Pop)
Harrison, Rt Hon Walter	Marshall, Dr Edmund (Goole)	Short, Mrs Renée
Healey, Rt Hon Denis	Martin, Michael (Gl'gow, Springb'rn)	Silkin, Rt Hon John (Deptford)
Heffer, Eric S.	Mason, Rt Hon Roy	Silkin, Rt Hon S. C. (Dulwich)
Hogg, Norman (E Dunbartonshire)	Meacher, Michael	Silverman, Julius
Holland, Stuart (L'beth, Vauxhall)	Mellish, Rt Hon Robert	Skinner, Dennis
Home Robertson, John	Mikardo, Ian	Snape, Peter
Homewood, William	Millan, Rt Hon Bruce	Soley, Clive
Hooley, Frank	Miller, Dr M. S. (East Kilbride)	Spriggs, Leslie
Horam, John	Mitchell, Austin (Grimsby)	Stallard, A. W.
Howell, Rt Hon Denis (B'ham, Sm'H)	Mitchell, R. C. (Soton, Itchen)	Stoddart, David
Huckfield, Les	Morris, Rt Hon Alfred (Wythenshawe)	Stott, Roger
Hughes, Mark (Durham)	Morris, Rt Hon Charles (Openshaw)	Strang, Gavin
Hughes, Robert (Aberdeen North)	Morris, Rt Hon John (Aberavon)	Straw, Jack
Hughes, Roy (Newport)	Morton, George	Taylor, Mrs Ann (Bolton West)
Janner, Hon Greville	Moyle, Rt Hon Roland	Thomas, Dafydd (Merioneth)
Johnson, James (Hull West)	Mulley, Rt Hon Frederick	Thomas, Jeffrey (Abertillery)
Johnson, Walter (Derby South)	Newens, Stan[...]ey	Thomas, Mike (Newcastle East)
Jones, Rt Hon Alec (Rhondda)	Oakes, Rt Hon Gordon	Thomas, Dr Roger (Carmarthen)
Jones, Barry (East Flint)	Ogden Eric	Thorne, Stan (Preston South)
Jones, Dan (Burnley)	O'Halloran, Michael	Tilley, John
Kaufman, Rt Hon Gerald	O'Neill, Martin	Tinn, James
Kerr, Russell	Orme, Rt Hon Stanley	Torney, Tom
Kilroy-Silk, Robert	Palmer, Arthur	U[...]win, Rt Hon To[...]
Kinnock, Neil	Park, George	Varley, Rt Hon Eric G.
Lambie, David	Parker, John	Wainwright, Edwin (Dearne Valley)
Lamborn, Harry	Parry, Robert	Walker, Rt Hon Harold (Doncaster)
Lamond, James	Pendry, Tom	Watkins, David
Leadbitter, Ted	Powell, Raymond (Ogmore)	Weetch, Ken
Leighton, Ronald	Price, Christopher (Lewisham West)	Wellbeloved, James
Lestor, Miss Joan (Eton & Slough)	Race, Reg	Welsh, Michael
Lewis, Ron (Carlisle)	Radice, Giles	White, Frank R. (Bury & Radcliffe)
Lofthouse, Geoffrey	Rees, Rt Hon Merlyn (Leeds South)	White, James (Glasgow, Pollok)
Lyon, Alexander (York)	Richardson, Miss Jo	Whitlock, William
Lyons, Edward (Bradford West)	Roberts, Albert (Normanton)	Willey, Rt Hon Frederick
Mabon, Rt Hon Dr J. Dickson	Roberts, Allan (Bootle)	Williams, Sir Thomas (Warrington)
McCartney, Hugh	Roberts, Ernest (Hackney North)	Wilson, Rt Hon Sir Harold (Huyton)
McDonald, Dr Oonagh	Roberts, Gwilym (Cannock)	Winnick, David
McElhone, Frank	Robertson, George	Woodall, Alec
McGuire, Michael (Ince)	Robinson, Geoffrey (Coventry NW)	Woolmer, Kenneth
McKay, Allen (Penistone)	Rodgers, Rt Hon William	Wrigglesworth, Ian
McKelvey, William	Rooker, J. W.	Wright, Sheila
MacKenzie, Rt Hon Gregor	Ross, Ernest (Dundee West)	Young, David (Bolton East)
Maclennan, Robert	Rowlands, Ted
McMahon, Andrew	Ryman, John	TELLERS FOR THE NOES
McMillan, Tom (Glasgow, Central)	Sandelson, Neville	Mr, Joseph Dean and
McNally, Thomas	Sever, John	Mr. Jim Marshall.
McWilliam, John	Sheerman, Barry

Question accordingly agreed to.

Clause 5 ordered to stand part of the Bill.

Clauses 6 and 7 ordered to stand part of the Bill.