HC Deb 18 July 1979 vol 970 cc1915-40
Mr. Graham Page

I beg to move amendment No. 6, in page 7, line 28, leave out 'notwithstanding that' and insert 'except as far as'.

Clause 16 deals with double taxation relief and the convention on that subject between the United Kingdom and the United States of America. I should like to explain the amendment by going back to the origin of double taxation relief.

Any relief from being taxed twice in different countries on the same income starts with a treaty between the United Kingdom and the other country concerned. It eventually comes to this House by way of an Order in Council in order to introduce into our law what has been agreed over the double taxation relief between the two countries. It comes first before the House in a draft Order in Council for approval of the House. That is what happened with the earlier convention—not the one mentioned in clause 16, but that of 1945 between the United Kingdom and the United States. The convention of 16 April 1945 and its supplementary amending protocols in 1946, 1954 1957 and 1966 were all approved, so far as they deal with double taxation relief, by Orders in Council which have been approved in draft in this House. The law of this country, which grants double taxation relief as between the United Kingdom and the United States, is embodied in orders which confirm the convention of 1945.

Clause 16 refers to a later convention of 31 December 1975 which has since been amended by an exchange of notes in April 1976 and by protocols in August 1976, March 1977 and March 1979. Strangely enough, the convention, the exchange of notes and the first two protocols, I understand, have already been approved in draft by this House but have never gone forward to be made complete Orders in Council. They stand in a form of suspense. The last protocol, as recently as March 1979, would seek to terminate the 1945 convention from 6 April 1976 and to apply the 1975 convention and the protocols retrospectively to April 1976. None of these—the 1975 convention nor the protocols—has been embodied fully in Orders in Council. At the moment, therefore, they are not law.

Clause 16 would permit an Order in Council to be retrospective back to 1976. If that were to give citizens or residents of this country extra relief, I should have no complaint, but in fact it will deprive certain residents of relief of tax which they will have enjoyed over four years since 1976–77. They are to be deprived of that relief by retrospective legislation.

I do not believe that the House of Commons has ever before sanctioned retrospective taxation, which is what this is, by Order in Council requiring the approval only of this House. It should be remembered that these Orders in Council do not need to be approved in another place. Certainly the relevant provision of the parent statute under which these orders are made, section 497 of the Taxes Act, does not authorise an Order in Council which has retrospective ffect. That is the reason for clause 16—to enable an Order in Council under section 497 of the Taxes Act in this case, referring to the particular convention, to be retrospective. That is the need for clause 16 if the Government wish to make this retrospective.

Do we need a new constitutional procedure of this kind in order to claw back relief from certain residents who have enjoyed such relief for four years? Are our resources so short that we have to have this constitutional monstrosity of retrospective taxation against a few people who have had relief under the law as it now stands?

That is the effect of clause 16, and it is thoroughly unconstitutional. Surely, rather than put such a provision on the statute book, we could forgo this claw-back of relief from just a few people. We could forgo creating an unconstitutional precedent which will be extremely dangerous in the future. We have never allowed retrospective taxation by Order in Council to be done by this House alone, and I hope that we shall not do it this time.

If my amendment is accepted, it will mean that we can approve the convention of 1975 in all respects except as far as this item of retrospective taxation is proposed to be applied. I present the amendment only to uphold the constitutional rights and practices of the House.

Mr. Peter Rees

As one would expect, my right hon. Friend the Member for Crosby (Mr. Page) has deployed a powerful case which deserves the most serious consideration. It is none the worse for the fact that we debated it at an early hour in Committee only a few days ago, and I suppose that we should come back to good points and consider them a second time. However, I am not entirely certain that my right hon. Friend has not put his case a little high, and I hope to be able to explain to the House how this situation came about and what clause 16 is designed to do.

My right hon. Friend is perfectly correct to say that clause 16 would pave the way or enable us to lay and to debate in the House an order embodying in our domestic legislation a double taxation convention which was initiated some years ago, in 1975, and which has been amended by three subsequent protocols.

I stress, as I stressed in Committee 10 days ago, that clause 16 does not attempt to prejudge the merits of the double taxation convention and the amending protocols. It is merely an enabling provision because, as my right hon. Friend said, there is some doubt that section 497, which enables double taxation conventions to be embodied in our domestic legislation, will cover the special facts of this case.

10 p.m.

The original convention, which was designed to supersede an earlier convention negotiated in 1945 and amended subsequently, was negotiated in 1975. It was published in January 1976 and its terms have therefore been known for three years or more. It was debated by the House, when the merits were carefully considered, and approved in January 1977.

Subsequently the convention has had a rather chequered course because the question of States' rights and the unitary system of taxation came up in the United States. The Senate entered a reservation and it was therefore likely that the convention as originally drawn would not be approved by the two-thirds majority which the Senate requires.

I do not think that it is necessary to debate the unitary system that is prevalent in California, Oregon and Alaska. We can debate the merits or demerits of that if the order is laid before the House. I touched on the matter in Committee and my hon. Friend the Member for Surrey, North-West (Mr. Grylls) has made considerable representations on the subject. I recognise the reservations that may exist. However, I do not think that that is the thrust of my right hon. Friend's arguments. He is concerned with the retrospective element.

I concede that in a technical sense there is a measure of retrospection, but it is mitigated by the fact that the terms of the convention have been known for three years or more and the merits of the convention were debated and approved by the House in January 1977. No one can claim that he has been taken unawares.

The difficulty that we face is that the matter has been long drawn out and the new convention is designed to impose a fresh series of reliefs and to supersede the reliefs conceded under the 1945 convention, as amended. The reliefs were designed to come into effect broadly from 1976, but there was a transitional provision—and there will be such a provision if the House approves the order—to enable a taxpayer to choose, for at least one transitional financial year, whether he would prefer to have relief under the old convention or the new one. Considerable care was taken by the previous Administration—and I entirely approve of their action—to ensure that as much as possible will be done to ease the transition from one convention to the other.

The matter has dragged on for three years or so, which is unprecedented in these matters. The delay has been caused by reasons outside the powers and duties of the House or the previous Administration. I do not level any criticism at the previous Government for the delay. It has been caused for reasons that I understand and it would be improper for me to go into them further. They were concerned with the unitary system of taxation and the question of States' rights.

If the order is approved, we shall substitute the new reliefs back for a period of about three years. My right hon. Friend is right to say that that is unprecedented, but the situation that our proposal is designed to meet is equally unprecedented. No one can honestly claim that he has been taken by surprise. The terms of the convention embodying the reliefs have been known for more than three years and have been debated by the House.

This, therefore, is not a question of something being sprung on an unsuspecting taxpayer by an over-zealous regime. I do not wish to suggest this as a good reason for adopting this provision, but if anyone is disadvantaged it will be largely United States residents. I do not pray that in aid, but my right hon. Friend suggested that injustice was being done on this side of the Atlantic rather than on the other. The best advice that we have received is that it is likely to be the other way.

In this somewhat special situation, therefore, we should bear in mind that the effective points of the convention have been known for more than three years, that the merits were debated by the House in January 1977, and that clause 16 is only an enabling provision and does not attempt to prejudge the merits of the order. That order can be embodied in our domestic legislation only if it is approved by this House.

As I indicated in Committee, I propose to go personally to the United States to reassure myself and, I hope, to offer some reassurance to the House on other aspects—[HON. MEMBERS: "Oh."] It is at this point, since this is a replay of our earlier debates, that I am happy to receive the unstinted support of Labour Members.

The clause is an enabling provision, and if the Government feel that it is right to lay an order before the House embodying the new convention and the three protocols there will be ample opportunity to judge the whole question of the unitary system which exercises the minds of so many people outside and inside the House.

I recognise the points that my right hon. Friend has made, and I hope that on reflection he and the House will accept that this is the merest technicality in this case. I have made cases of considerably less power than that advanced by my right hon. Friend, but I have attacked retrospection in a more flagrant, blatant and unattractive form. However, in this case, although people will, after a period, be disabled from taking advantage of the old rules, there will be a comparable range of reliefs under the new convention, and on that basis I hope that my right hon. Friend will not feel disposed to press his amendment to a Division.

Mr. Graham Page

I rise only to thank my hon. and learned Friend for, with his usual courtesy, putting forward the full argument, and to say that I am wholly unconvinced by that argument and do not intend to withdraw the amendment.

Amendment negatived.

Motion made, and Question proposed, That the Bill be now read the Third time.—[Mr. Biffen.]

10.3 p.m.

Mr. Denzil Davies

We have had lengthy debates on this Bill on the Floor of the House, and the Opposition are grateful to the Government for bringing the Bill to the Floor of the House. That has enabled the British public, in spite of the non-availability of Hansard, to acquire some understanding of what the Bill is about. Perhaps in future we shall hold more of our Finance Bill debates on the Floor of the House—who knows?

We have had the opportunity to debate the tax proposals and the British public have had the opportunity to see how hollow were the promises of the Tory Party during the election campaign. The promises to cut taxation have not truly borne fruit in this Bill because the Bill has not simply shifted the burden of taxation from direct to indirect taxation; it has shifted the burden from the better off to the less well off, as has been shown quite clearly by our debates and by the figures we have adduced.

The first part of the Bill increases the rate of VAT to 15 per cent. That is inflationary in itself. It puts up prices by at least 3½ per cent., and probably more when one takes into account the rounding up that takes place. By putting up VAT the Government are making inflation worse. Before the Bill inflation was running at 11 or 12 per cent.

The increase in VAT has not gone on luxuries or those goods which the Chief Secretary said were discretionary. There is nothing discretionary about spending money on clothing, washing machines and on servicing one's motor car. There is no freedom of choice there. For 90 per cent. of families, that expenditure is mandatory, not discretionary. The Government are completely out of touch with the way in which ordinary people live. For a few people some of that spending is discretionary. Those who have enough money anyway can decide whether an extra few pounds should be spent on an item of clothing or a second motor car.

Many people, especially those who pay no income tax, suffer grievously from the increased VAT rate because they derive no benefit from the rest of the Bill. The pensioner, in particular, suffers. Perhaps we have not made enough of that argument during the passage of the Bill. The person who has no income other than the basic retirement pension does not receive his increased pension until November, but he has to bear the increase in VAT until November.

Basic rate pensioners do not benefit from the cuts in the basic rate of income tax, although they benefit from the increases in personal allowances which are brought into effect almost immediately. Pensioners are examples of the many people on the lowest levels of income who suffer from the increase in VAT. It is an inflationary increase. It is unnecessary at a time when inflation is rising because of external factors.

We have argued that the VAT increase is damaging to industry. Certain sectors of industry must suffer because the rate is too high. The debate on the theatre reflected that argument. Once VAT is at 15 per cent., there must be a multiple rate for VAT. Continental countries, apart from two, operate different rates for VAT. In France the basic rate is 17 per cent., but there is a 7 per cent. rate for the theatre. No doubt there are other rates for different industries. That applies to most European countries.

If the rate is higher than 10 per cent. one cannot operate a uniform rate which is as high as 15 per cent. One must make an economic choice and decide on priorities because of the harm that can be done to certain industries. The textile, furniture and footwear industries are already under pressure. They will be put under more pressure as a result of the VAT increase.

I am surprised at the Conservative Party because when it was in Opposition it told us that most of the growth in the British economy recently has been in the service industries. That is right. Yet the service sector is particularly hard hit by the increase in VAT. Small garages, for example, will be affected. The 15 per cent. VAT on the repair and maintenance of buildings will hit many small building firms. Conservative Members are always concerned about small industries and small businesses. We have heard them talk about the builder in a small way of business, but he will suffer grievously as a result of 15 per cent. VAT and from other measures such as the high interest rate.

I quote from the publication entitled Estates Times. It is not a Left-wing publication, but it is quite interesting. It represents the building industry. The article states: The slashing of £440 million in the Budget off spending on construction work … is one part … But even worse in its effect on the industry is the 15 per cent. VAT. Nothing will do more to kill work on maintenance and repair. Obviously CABIN"— my hon. Friends will know that that organisation was established to deal with the non-existent threat of nationalisation— never realised that the Iron Maiden (to be seen in Nuremburg) is an instrument of torture which killed by a thousand stabs. That is the Estates Times making it clear that high interest rates and a VAT level of 15 per cent. grievously affect the building industry.

The tourist industry is similarly affected. A report was issued tonight by the chairman of the national council of the British Hotels, Restaurants and Caterers Association. It makes clear the damage that the VAT rate will inflict on the tourist industry and hotel industry at a time when they are under considerable pressure because of the increase in the value of the pound and the fact that fewer visitors are coming to the United Kingdom.

All the service industries in which growth has taken place in the past will be damaged as a result of a penal rate of VAT. The Opposition have argued that if we have a VAT rate of 15 per cent. we must exempt certain industries or reduce the rate for those industries.

I turn from VAT to income tax. One wishes that the VAT increase was a ghastly mistake and was done without thought, but in fact it was a deliberate act of policy to provide the money to permit income tax cuts. The cuts will be enjoyed by only very few. On the Chancellor's figures, most people earning up to £5,000 a year will be worse off as a result of the Budget.

Mr. Wickenden

Does the right hon. Gentleman accept that the Chancellor said that 1.3 million people would be removed from tax entirely? Why are they worse off?

Mr. Davies

The hon. Gentleman was not a Member of this place when we had those spendid debates about truth in taxation, when Conservative Members used to educate Treasury Ministers of the then Labour Government by arguing that taking people out of taxation was not taking them out of taxation at all because they should never have been there in the first place and that they would not have been there but for inflation.

The fact is that 90 per cent. of wage earners are worse off as a result of the Budget. They will be paying more combined tax in income tax and VAT. An illuminating answer was given in another place to Lord Kaldor by Lord Cockfield, a Minister of State at the Treasury. He made it clear that a person on two-thirds of average earnings last year would have paid a total of direct and indirect tax of 27.7 per cent. and that this year, following the Budget, he will pay 28.6 per cent. A person on average earnings will pay exactly the same percentage and the person on one and a half times average earnings—for example, £7,500—will pay slightly less. However, when the other factors in the Budget are taken into account, the person on one and a half times average earnings will not be better off. The fact remains that a person has to earn at least £10,000 a year before he will receive any benefit from the Finance Bill, taking into account the other consequences of the Budget.

This is not a Budget to provide opportunity for those earning less than £5,000 a year. It is not a Budget for the middle manager or the skilled worker. Those persons will not get anything out of it. It is a Budget for the very few who are earning more than £10,000 a year. The Red Book bears that out. The total tax remission for those in the higher rate band and for those with investment income is £850 million. I contrast that sum with the ridiculous statement that was made yesterday by the Secretary of State for Industry. The right hon. Gentleman announced that he would be knocking off £250 million by way of grants to industry in the poorest areas of Britain. However, £850 million is remitted just like that in the Finance Bill.

Does the Chief Secretary believe that any of the £850 million will go back into the regions that lost £250 million yesterday as a result of the Secretary of State's announcement? Most of it will go abroad into houses, property and shares when the Government free exchange controls. None of that money will come back into investment.

If we add the benefit to the higher rate taxpayers of the increase in personal allowances we arrive at the figure of about one-third of the total tax remissions in the Budget. About one-third probably goes to people earning more than £10,000. About 500,000 people will probably receive about one-third of the total tax remissions in the Budget. The other 90 per cent. of the wage earners must pay for that as a result of the VAT increase. This is a surtax payer's Budget. It is the Selwyn Lloyd Budget of 1962, the Anthony Barber Budget of 1974. It is a Budget for higher rate taxpayers and surtax payers.

The Chancellor argued that these provisions would increase incentives, that people would work harder and that the man on £100,000 a year would receive an 80 per cent. increase in his income as a result of the tax cuts, work harder, contribute more and invest more in the economy. I do not think that many Members of Parliament believe that any more. The Chief Secretary, who is an honourable man, retreated into a moment of fiscal argument. He talked about freedom. It was not a comprehensive freedom. He referred to freedom to pay less tax. He retreated into the concept of freedom to justify the reduction in the higher tax rates.

The Bill will add to what the other budgetary measures—we must take them together—will do. I refer to the Government's monetary policy and their policy of high interest rates. The manager of one of the largest discount houses in the country said that interest rates may have to go up. The fact that the pound is high is not necessarily the fault of the Government. The effect of their measures will be to turn many areas of manufacturing Britain into industrial deserts. Our manufacturing industry will go downhill as a result of the Government's measures.

The Chief Secretary has spoken of freedom. I am tempted to paraphrase Tacitus and say that the Government create a desert and call it freedom. The Chief Secretary tells us that that is freedom. In effect, it means the demise of our manufacturing industry.

We shall continue to argue this case. We may lose the vote tonight. We reject the philosophy behind the Bill. We shall argue until the Government change course or until the British people say "Enough" and throw them out.

10.23 p.m.

Mr. Richard Wainwright

The right hon. Member for Llanelli (Mr. Davies) commented favourably on the fact that the Bill had been dealt with entirely on the Floor of the House. That was excellent for Back-Bench Members, who made first-class use of the opportunity. Certainly the Government have failed miserably to take advantage of their enormous opportunities to explain their financial policies and to inspire the country to rally behind them. The opposite has happened. The Finance Bill debates have served to show that many Treasury Ministers had many different opinions and indeed many different philosophies. As the Bill proceeded night after night on the Floor of the House, it was an entrancing but depressing spectacle to find that the Government spoke with four Treasury voices—and not with one and a half as did the previous Government.

It is not necessary to speak at length about the Bill. The country has already pronounced its opinion on it. The Bill and its proposals have fallen entirely flat in the country, although they were supposed to have had a tremendous, energising, dynamising and galvanising effect. I always rejected that metaliurgical simile. I never wanted our business men to be galvanised. It would be most unattractive to have rust-proofed business men in our midst.

The Bill has fallen entirely flat. The magic moment, when weekly wage earners received in their wage packets the first fruits of the Tory Budget, has already passed. What has happened? Have the church bells been finging? Have people been rushing to work an hour earlier wearing T-shirts labelled "Entrepreneur"? Not a bit of it. The whole thing has fallen dismally flat and the average working man is unaware that he is any better off for working harder under the Tories. All this was entirely predictable, and it has happened.

The second reason why the Bill has fallen flat is a matter for great concern in the House. Far and away the most damaging provision in the whole Budget—the quite horrendous rates of interest which our entrepreneurs of this new risk-taking age are called upon to bear—has gone through without the House being able to do anything about it. My Liberal colleagues and I maintain that this country cannot be called a democracy when interest rates and the management of sterling are entirely outside the powers of this House.

It is a great rebuke to the House of Commons that we allow highly centralised decisions to be taken in this way. Let not the Chief Secretary talk of the beneficent effects of millions of separate decisions in millions of pluralist power centres. These are highly centralised decisions over which our democratic institutions have no control whatever. The fact that they are also very stupid and short-sighted decisions adds to the effect.

These debates have proved what many of us feared—that the popular course on which the Conservative Party went to the country, and got a spurious fiction of a mandate, is composed of two totally contradictory elements—a highly depressive, deflationary monetary policy and a fiscal policy which is supposed to encourage enterprise and risk-taking. Those two contrary concepts cannot be married together and can only result in disaster.

10.27 p.m.

Mr. Nicholas Winterton (Macclesfield)

I listened with interest to the articulate but misguided philosophy advanced by the right hon. Member for Llanelli (Mr. Davies). I have great admiration for him, but I think that he totally misunderstood the whole strategy behind this, the first Budget of the new Conservative Government. I believe that purposely he misrepresented the Budget, because my right hon. and learned Friend the Chancellor of the Exchequer made perfectly clear that it is the Government's intention to make further tax cuts—that is, cuts in direct taxation—while the increase in value added tax is an increase which will be for the whole Parliament, and he does not envisage any further increases in VAT during this Parliament.

I look forward, therefore, with anticipation and pleasure to the incentive—which, I agree with the hon. Member for Colne Valley (Mr. Wainwright), is not yet with us—to encourage more and more people to work harder and to invest harder, because this is basically the strategy behind the Budget. I believe that the reductions in direct taxation are but the first tranche of a reduction in direct taxation which will take place under the present Conservative Government.

I say to my right hon. Friend the Chief Secretary that I look forward to seeing, within the next 18 months to two years, the basic rate of tax being reduced from 30p in the pound to 25p in the pound, which I believe was a commitment that we gave during the last general election. I would then believe that the views which have been expressed by the hon. Member for Colne Valley would be valueless. Far from having a spurious mandate, as he described it, I believe that having a majority with more than 2 million votes over the Socialist Party in the last general election is not a spurious mandate but a positive mandate by the people of this country who wished to see a change of direction in the economic management of this country. Indeed, the whole Budget that was courageously promoted by my right hon. and hon. Friends on the Front Bench represents that change which has long been sought by those people in this country who will produce the wealth which will create the employment which was so sadly lacking under the last Government.

Mr. David Alton (Liverpool, Edge Hill)


Mr. Winterton

I give way to the hon. Member, and I hope that his intervention will be relevant.

Mr. Alton

Indeed it is relevant. Will the hon. Gentleman tell the House how many people in his constituency earn between £10,000 and £25,000 and will, therefore, receive any benefit as a result of the Budget? Secondly, the hon. Gentleman talked in terms of having some kind of mandate from the people of this country; but only one-third of them voted for either him or his party.

Mr. Winterton

I regret to tell the hon. Member that rather more of my constituents are earning the higher rates of income than the constituents of Edge Hill. I should also tell him that I polled approximately 60 per cent. of the votes cast in the Macclesfield constituency. Therefore, the argument in relation to proportional representation is totally irrelevant. It is one of the bogus non-senses that is perpetually promoted by the Liberal Party.

I can also indicate that, since the announcement on regional aid was made yesterday, a number of business men in my constituency—which has lost its intermediate status—have advised me by telephone that they are fully behind the Government in the policy that they are now following. I only regret that the distortions which regional aid has created have not been further reduced by the decisions that have been made by the Government.

The right hon. Member for Llanelli raised several important matters that I hope will not be ignored by my right hon. Friend the Chief Secretary. I am gravely concerned about the effect of the VAT increase on the construction industry. It seems rather extraordinary at the present time, when we are urging the country to conserve energy. The construction industry can play a major part in this by improvements to houses by the various adaptions to property—

Mr. Eric S. Heller (Liverpool, Walton)


Mr. Winterton

With no disrespect to the hon. Gentleman, whose interest in the construction industry I am well aware of, I am endeavouring to be brief. I want to refer directly to a matter that was raised by the right hon. Member for Llanelli. At a time when we are urging this country to conserve energy, I am concerned that the building industry—which can make a major contribution to energy conservation, particularly the smaller builder, through improvements and adaptations to property as well as insulation—should now be subject to an increase in VAT which undoubtedly will deter many people from being in a position to afford improvements to their property that could result in energy conser- vation. While I do not expect any positive reply from my right hon. Friend, I hope that this matter has been taken on board.

Finally, I want to mention a subject that is very important to rural areas, although perhaps not to urban areas. I refer to representations made to the Government by the National Federation of Taxicab Associations. Taxicab owners are gravely disadvantaged by the increase in VAT, because without a decision of this House and the Home Secretary, and without a decision of the local authorities, they are not in a position to increase their fare rates. However, they are subject to the increase in VAT.

Many people who operate taxis are not within the limits of those who are exempted from paying VAT. Therefore, out of a fairly narrow profit margin, they will have to find another heavy rate to pay to the Customs and Excise. I know that the federation has made representations to the Treasury.

I hope that this matter will be taken on board, because there are great disparities between what is happening in this country and what is happening in other countries within the European Economic Community. Public transport in general in this country is exempted from VAT, but in the majority of countries in the Community it is not. It is anomalous that in rural areas where taxis are perhaps the only form of transport for the disabled and elderly for shopping and other essential services and duties of life they should be subject to VAT. It places a substantial additional burden on certain sections of the community who are not served by other forms of public transport. I hope that those matters have been taken on board.

I support the Budget. I believe that it is a dramatic change of direction and one that has been long overdue. I congratulate my right hon. and hon. Friends on the Front Bench on the articulate and forceful way that they have promoted the change of direction. Whether or not it is accepted by the Opposition parties, these policies were spelt out by my party at the last election, and whether or not they like us to honour our manifesto we are pledged to do so.

I say to my right hon. Friend the Chief Secretary, who is perhaps one of the most able promoters of Tory policy, that if we spell it out in rather more clear terms and indicate what our ultimate strategy is, I believe that we shall be in power not just for one Parliament but for at least a decade and perhaps even two.

10.37 p.m.

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

On the Labour Benches we are under great pressure not to engage in long speeches, but I should like briefly to take up the point of the hon. Member for Colne Valley (Mr. Wainwright) about the rate of interest. It was put up in the Budget by a fiat of the Government, without any discussion. The purpose of raising the rate of interest was to bring pressure to bear on the growth in money supply and in particular on bank lending, which was proving to be a source of increase in the money supply. It is obvious that the money supply is running almost out of control. That is a consequence of the fact that bank lending is going ahead at a rapid rate, so much so that Barclays Bank this year will declare larger profits than the biggest industrial company in this country, which I believe is ICI.

It has been suggested that because of the failure of the MLR at 14 per cent. to bring bank lending and, therefore, the money supply under control, the rate of interest will be once more increased. I hope that the Chief Secretary will say whether that is true. If it is, it will be wholly disastrous. If the answer is "No", will he adopt physical controls over the banking system in the hope that the money supply will be reduced in that way?

10.40 p.m.

Mr. Alexander W. Lyon (York)

The strongest argument that Labour Members have against the Budget is the way in which it burdens the standard of living of ordinary people in order to give tax handouts to the better off. The most significant aspect of the increase in VAT has been in food. Conservative Members say that VAT is not levied on food, but it is now levied on a section of food which represents about 25 per cent. of consumer expenditure. If that area were zero rated it would cut the retail price index by 1 per cent. Therefore, it could not continue to be a significant factor towards increasing the burden upon ordinary people.

I hope that we shall be able to discuss the matter in future. This time the Gov- ernment have obviated the possibility of discussing it by so framing their Budget Resolution that it was not possible to talk about it. However, I am sure that for those who rely so heavily on this item of expenditure in their family budget the imposition will continue to be a running sore.

10.42 p.m.

Mr. Robert C. Brown (Newcastle upon Tyne, West)

I declare a dual interest. There is a large Rowntree Mackintosh factory in my constituency and workers in that factory are organised by the National Union of General and Municipal Workers, by which I am sponsored. I support my hon. Friend the Member for York (Mr. Lyon) in his remarks and I am seriously concerned that the jobs of my constituents in that factory are being seriously put at risk by the imposition of the extra 7 per cent. on the products that they manufacture.

10.43 p.m.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

In Birmingham about 7,000 people are employed in the confectionery industry. When the economic policies of the Government have brought the country to prosperity, and when we are able to adjust taxation upon this area of the food industry, I hope that snack foods—which form a great part of people's expenditure, about £1,000 million of the total of £4,000 million that is spent upon food—will be zero rated.

10.44 p.m.

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

The right hon. Member for Llanelli (Mr. Davies) pointed out that we have laboured under the disadvantage of the non-publication of Hansard. I endorse what he said. The House properly believes itself to be the microcosm of the nation when debating the Budget, and its debates cannot be properly reflected by relying on the national press. One of the most fundamentally radical and reforming Budgets has been presented to the nation and it has been debated constructively, and we have all laboured under the current arrangements for reporting our proceedings.

It is the determination of this Government that VAT should be at the single rate of 15 per cent. The right hon. Member for Llanelli made the point that, in the view of the Labour Party, a single rate of VAT cannot go beyond 10 per cent.; thereafter we have to revert to a system of multi-rate value added tax.

I ask my hon. Friends to reflect just what that would mean in the burgeoning situation of paradox, contradiction and totally unacceptable marginal decisions. Indeed, the ghost of Gerald Nabarro would come to haunt us if ever we reverted to a multi-rate VAT. I am surprised that the right hon. Member for Llanelli, who, broadly, is a good, sound, gilt-edged British patriot, should pray in aid that this was the practice in most Continental European countries.

I am now happy to turn to the second consideration—clause 5 and income tax. It is perfectly true that this Budget brings the top rate of income tax into broad alignment with those of other OECD economies. That it does—no more and no less. Upon that modest reform is constructed the whole apparition of some kind of Tory regressive attitude designed to grind the faces of the poor and to enrich the substantial. It simply does not bear one moment's examination. The amount of revenue that is at stake in bringing into alignment our top rates is minimal. That is known by the Opposition. In my judgment, they play dangerously when they try to inflame any class considerations in this particular issue.

Thirdly, in clause 14, which concerns capital allowances, we have made arrangements so that they shall be modified in respect of motor vehicles. I say this because I believe that it indicates a future pattern: that is, of a determination to attack the whole question of tax abuse and tax evasion. I believe that this becomes much more acceptable in the context of personal tax rates which we are now establishing.

It would be absurd for me, on Third Reading, to pontificate upon directions in which this policy could be pursued, but my hon. and learned Friend the Minister of State has indicated that the Government will be looking at the whole question of benefits in kind. However, I should like to take the argument just one stage further, and I hope that I shall carry both sides of the House with me in this respect.

There ought to be real consideration of the size of the tax base and of the necessity to protect the tax base. Over the years, we have established a whole system of exemptions and privileges, which I think will naturally be re-examined in the light of the fiscal arrangements which we are now putting into effect. I personally was very pleased that the Institute for Fiscal Studies was able to make its report upon the tax base and the problems that were created by the size of current tax exemptions. I should like to place on record the view that tax exemption is a blood relative of public spending. Hon. Members may wish to reflect upon that in due course, as we enter upon subsequent Finance Bills, within the context of personal taxation as now described in the current Budget.

In that context, I must say to the hon. Members for York (Mr. Lyon) and Newcastle upon Tyne, West (Mr. Brown), and even to my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark), that there are always compulsive reasons why one can argue an exemption from this tax or that tax in respect of this product or that class of persons. But over the years and in their totality such arguments dangerously narrow the tax base. We in this country are operating a value added tax with as narrow a base as any within the European Community.

The fourth point is in respect of clauses 17 to 21 by which we are seeking to establish a petroleum revenue tax regime which I hope will command broad support on both sides of the House. Whatever the actual level of tax that may be settled, I believe it is important for the oil industry to know the tax regime within which it is expected to operate in future.

This brings me to the question of the Budget judgment contained in this Bill. I should like to comment on the points made by the hon. Members for Colne Valley (Mr. Wainwright) and for Stoke-on-Trent, Central (Mr. Cant). To the hon. Member for Colne Valley I say that I believe that it would be unwise to extend the political control over the Bank of England. If anything, the arguments point in the opposite direction. The Bank needs less, rather than more, influence from the politicians.

The hon. Member for Stoke-on-Trent, Central asked a direct question that is relatively easy to answer—whether I would indicate the future trend in interest rates and whether I would give a categoric statement on interest rates. The hon. Gentleman knows that I am in no position to give a categoric statement on interest rates. I have the encouragement of the right hon. Member for Leeds, East (Mr. Healey) in that course of virtue. The right hon. Gentleman would not wish to deflect me from it.

A point that must concern every hon. Member is the extent to which we balance borrowing, public spending and interest rates. The current situation demonstrates that every penny of the revenue in the Finance Bill, to which we are asked to give a Third Reading, is needed. It demonstrates that we are perilously poised around a borrowing requirement of £8,000 million. That is no situation in which any Government reasonably would expect to find themselves. It means that we have to adjust our public spending policies accordingly.

The official Opposition, I believe, have broadly accepted that the borrowing requirement could not be higher than is presently proposed. They have accepted, broadly speaking, the money supply targets. I assume that they will accept the Administration's public spending reductions.

Mr. Denis Healey (Leeds, East)


Mr. Biffen

I should like to finish making this point.

They argue, however, that the mix of taxes by which we raise our revenue—I thought I would anticipate the right hon. Gentleman—is fatal because of its impact on the retail price index. That would have been more credible an argument if it had not come from those who had argued that by the manipulation of value added tax in 1974 they could produce a rate of inflation of 8.4 per cent. We know from experience that the rate of inflation bore no relevance to the manipulation of the retail price index via value added tax in the summer of 1974. Their argument is a shadow argument.

The reality is that we are confronted with a situation in which the retail price index undoubtedly increases. But so does take-home pay. The question is how that situation will be played off ill wage negotiations this autumn. In respect of the Bill, the reality is that public spending lies at the heart of all Budget strategies. In the Bill there is shown a valuable and imaginative flair in adjusting the individual tax components of the total revenue. My right hon. and learned Friend the Chancellor of the Exchequer deserves the esteem and the respect of the nation.

Question put, That the Bill be now read the Third time:—

The House divided: Ayes 313, Noes 260.

Question accordingly agreed to.

Bill read the Third time and passed.