Commons Sitting of 16 July 1980

Preamble
The House met at half-past Two o'clock.
PRAYERS
[Mr. SPEAKER in the Chair]
PRAYERS
  PRIVATE BUSINESS
    UNITED REFORMED CHURCH LION WALK COLCHESTER BILL
    As amended, considered; to be read the Third time.

    GREATER MANCHESTER BILL [Lords]
    Order for Second Reading read.
    To be read a Second time tomorrow.

ORAL ANSWERS TO QUESTIONS
ORAL ANSWERS TO QUESTIONS
    FOREIGN AND COMMONWEALTH AFFAIRS

      British Council
      Mr. Neubertasked the Lord Privy Seal whether he has plans to increase the amount of grant for the activities of the British Council above what has been already announced for the next three years; and if he will make a statement.
      The Minister of State, Foreign and Commonwealth Office (Mr. Peter Blaker): As I told my hon. Friend the Member for Norfolk, North-West (Mr. Brocklebank-Fowler) on 3 July, the Government have agreed that the council's "core budget", which consists of grants from the Foreign and Commonwealth Office and the Overseas Development Administration and aid administration payments, should not fall below £38 million, at 1979 survey prices. The core
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      budget will be gradually reduced until that level is reached by 1983–84. This represents an improvement in that year, and intervening years, which cannot be exactly quantified, but the new arrangements will give the council greater certainty in its planning.
      Mr. Neubert: Will my hon. Friend accept that his answer will give some encouragement to those who, like myself, believe that the British Council has been called upon to make excessive economies following a decision that failed to recognise the importance of a service that makes friends, influences people and boosts British exports? Will he ensure that the British Council is able to match the efforts of our major competitors, such as the French and the Germans, who are in no doubt about the value of national cultures abroad?
      Mr. Blaker: I gladly join my hon. Friend in paying tribute to the work of the British Council and its value for the country. The arrangements that I have explained represent a considerable improvement both financially and in terms of certainty. I am glad to say that they have been welcomed by the council.
      Mr. Robert Hughes: Is the hon. Gentleman aware that there is considerable disquiet in many areas of the world that the British Council is not given enough money to do its job? Is he aware that I wrote recently to his right hon. Friend enclosing a letter from a Zambian business man who made it clear that, in his view, the Government were not doing their duty by the British Council?
      Mr. Blaker: I think that the letter may have been written before the new arrangements were announced. While the British Council was unhappy with the previous arrangements, it has welcomed the new ones.
      Mr. Charles Morrison: With a record of achievement by the British Council that is probably unparalleled among Government agencies and, indeed, among most Governments, does my hon. Friend agree that every effort should be made to prevent the reduction of assistance to the British Council?
      Mr. Blaker: We have recently given this matter further thought. I agree with my hon. Friend, as I agreed with my hon.

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      Friend the Member for Romford (Mr. Neubert), about the value of the work of the British Council, but the Government took the view that in the present circumstances it could not be exempted from the Governmen's spending cuts. I believe that when my hon. Friend has studied the new arrangements he will find that they represent a considerable improvement on what was previously planned.
      Mr. Ioan Evans: Is not the British Council doing a tremendous amount of work for international understanding and co-operation? People who come to this country often return home to take up high office in their Governments. How can the Government say that they cannot afford this expenditure when, yesterday, they announced the expenditure of £9 billion on arms?
      Mr. Blaker: That is a different matter, which was discussed by my right hon. Friend yesterday. We are satisfied that the British Council will remain an effective, vigorous and capable organ for spreading British interests abroad.
      Mr. Kershaw: Is my hon. Friend aware that the alteration to a cut that was to some extent unexpected and, I believe, to some extent unintended, will do a great deal for the morale of the British Council personnel and enable them to continue their good work?
      Mr. Blaker: I agree with my hon. Friend. One of the benefits of the new arrangements is that they should greatly reduce the need for any redundancies—if, indeed, over the coming three years there have to be any redundancies at all.
      Mr. Shore: Will the Minister now make clear what has so far not been clear? What is to be the size of the cut in the budget of the British Council? What was the budget programmed to be in this year, and what will be the revised figure for 1983–84? Ought he not to think a good deal further about a whole range of policies which would help this country—through overseas broadcasting services, the British Council, our diplomatic presence and help to overseas students—to increase its influence abroad?
      Mr. Blaker: The right hon. Gentleman will find the previously planned figures in a written answer that I gave to
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      his hon. Friend the Member for Merthyr Tydfil (Mr. Rowlands) on 22 April. It is not possible to quantify the new figures exactly, but they could mean an improvement of about £3 million by 1983–84.

      Soviet Jews
      Mr. Greville Jannerasked the Lord Privy Seal if he will raise the cause of those Soviet Jews who have applied to leave the Union of Soviet Socialist Republics at the forthcoming Madrid review conference to review the Helsinki agreement.
      Mr. Lawrenceasked the Lord Privy Seal whether he intends to ensure that the situation faced by Soviet Jews seeking to leave the Union of Soviet Socialist Republics will be on the agenda for the forthcoming Madrid review conference.
      Mr. Blaker: The Government will certainly press at Madrid for all signatory States, including the Soviet Union, to fulfil their commitments under the Helsinki Final Act. These include respect for human rights and fundamental freedoms
      "for all without distinction as to race, sex, language or religion"
      and dealing
      "in a positive and humanitarian spirit with the applications of persons who wish to be reunited with members of their family".
      Mr. Janner: I appreciate that answer, but does the Minister agree that the Soviet Union has failed to comply with that obligation in respect of its Jewish minority, which has been harassed and persecuted more than ever, with the numbers allowed to leave having been reduced? Is he aware that within the past two days a young student in Leningrad—Grigori Geishis—has been arrested? Does he agree that this sort of behaviour causes great harm to good relations between our country and the Soviet Union?
      Mr. Blaker: I agree with the hon. and learned Gentleman. It is worrying that the number of Jews allowed to leave the Soviet Union this year has decreased. Last year the figure was almost 50,000. It was only 2,200 per month in April and May. That appears to be because the Soviet Union is applying a more restrictive definition to the term "kinship", and that we regret.
      Mr. Lawrence: Is my hon. Friend aware that the suppression of cultural and religious freedoms in the Soviet Union, with the Government-inspired wave of anti-semitism, are by themselves significant betrayals of the Helsinki principles? Will he undertake to urge his Common Market friends to make the strongest possible objections to this course of action when the Madrid conference convenes?
      Mr. Blaker: I assure my hon. Friend that we shall take this matter up very seriously in Madrid in the light of the failure of the Soviet Union to fulfil its obligations under the Helsinki agreement.
      Mr. James Lamond: The question of human rights is important, whether in the Soviet Union or in Israel. However, will the Minister undertake to see that the Madrid conference does not deteriorate into bickering between East and West about human rights, but is used as a platform for a more positive approach on the question of peace and disarmament, which is the only alternative open to the world?
      Mr. Blaker: I recognise the interest of the hon. Member in matters relating to the Soviet Union. He is a vice-president of the World Peace Council, which is a disguised instrument of Soviet policy.
      Mr. James Lamond: Nonsense.
      Mr. Russell Kerr: My hon. Friend is doing something towards world peace. What are you doing?
      Mr. Emery: What action is my hon. Friend taking under the Helsinki agreement to monitor and publish Soviet action during the Olympic Games?
      Mr. Blaker: My hon. Friend will find set out in the answer that I gave my hon. Friend the Member for Chislehurst (Mr. Sims) on 2 July the position over the last six months to date. That deals with the subject fairly fully. We are continuing to monitor the Soviet performance.
      Mr. James Lamond: I have a point of order to raise, Mr. Speaker, but I do not want to interrupt Question Time. May I pursue it with you later?
      Mr. Speaker: Certainly. The hon. Member may do so after questions.
      Later—
      Mr. James Lamond: On a point of order, Mr. Speaker. There has recently been discussion in this House and in the press concerning the raising of questions about individuals in the House, because individuals have no opportunity to make a proper reply at the time. Sometimes—I believe that it occurred today—Ministers also raise such questions, although perhaps on a reduced scale.
      You may recall, Mr. Speaker, that in reply to question No. 2—some time ago now—the Minister—the hon. Member for Blackpool, South (Mr. Blaker)—sought to answer a question that I had raised. He did not refer to the serious and reasonable question that I asked about human rights. He accused me of being a member of a certain body. I believe that he said that that body was the concealed arm of Soviet foreign policy. I am proud of the fact that I am the vice-president of the World Peace Council. That is no secret. Hon. Members will find that it is revealed in the Register of Members' Interests. Indeed, they can discover that fact in any reference book that they choose to consult. I am proud to let it be placed on record that I hold that position.
      Perhaps I may say a few words about the World Peace Council. I shall not speak for too long—[Interruption.]
      Mr. Speaker: Order. Since I became Speaker I have always worked on the principle that if an hon. Member feels that he has been criticised he should be given a chance to explain.
      Mr. Lamond: I thank you, Mr. Speaker, for your consideration. If I thought for one moment that the World Peace Council could be described in such a way, I would resign immediately. The World Peace Council has its headquarters in Helsinki. Its executive secretary is a member of the Australian Labour Party. It is financed by contributions from members throughout the world, including myself. None of the money comes from Governments. [Interruption.] If any hon. Members can prove to me that the World Peace Council receives money from, the Soviet Government, the British Government or any other Government, I shall resign my position immediately.
      Mr. Speaker: I allowed the hon. Gentleman to make his position quite clear. He understands that I can do no more.
      Mr. Frank Allaun: Further to the point of order, Mr. Speaker, raised by my hon. Friend the Member for Olham, East (Mr. Lamond). Should not the Minister—the hon. Member for Blackpool, South (Mr. Blaker)—withdrew his remarks.
      Mr. Speaker: I think that we had better move on. [HON. MEMBERS: "No".] Order. It is not for me to call upon the Minister to withdraw his remarks. [HON. MEMBERS: "Withdraw".] Order. Hon. Members know that at this stage I cannot ask a Minister, or any hon. Member to withdraw a statement that was made half an hour ago, during Question Time.
      Mr. Foot: Further to that point of order, Mr. Speaker. It appeared to some hon. Members that the Minister wished to rise. We assumed that he was doing so in order to apologise to the House. I hope that he was doing that. It is true that I was not in the House when the Minister made his remarks. However, I hope that the Minister will rise and do the decent thing. From what we know of him, that may be expecting a bit much. I should have hoped that he would do his best to try.
      Mr. Blaker: Further to that point of order, Mr. Speaker. I am sorry that I did not give the hon. Member for Oldham, East (Mr. Lamond) a fuller and longer answer. I was bearing in mind the injunction, that you had given. As for what I said about the World Peace Council, I do not withdraw a word.

      Helsinki Agreement
      Mr. Sproatasked the Lord Privy Seal what latest discussions he has had with representatives of the Warsaw Pact countries regarding the implementation of the Helsinki agreement.
      Mr. Blaker: Since I answered my hon. Friend's question on 18 June I have called in the Soviet Ambassador to protest at the harassment and intimidation of a number of British visitors to the Soviet Union, in breach of the Helsinki agreement. There have been meetings at official level with the Governments of Poland, Hungary and Czechoslovakia.
      Mr. Sproat: Will my hon. Friend make it clear that the Soviet Union is obnoxiously in breach of the Helsinki agreement's provisions for greater freedom of movement, in that no fewer than 150 persons normally resident in Great Britain, including the wife of the official attaché of the British Olympic team—it is also in breach of the Olympic spirit—have been refused visas to visit the Soviet Union during the Games?
      Mr. Blaker: I agree with my hon. Friend. I understand that the Soviet embassy in this country has refused to grant visas to people who do not hold British passports. That appears to us to be another example of a breach by the Soviet Union of its obligations.
      Mr. Spriggs: Is the Minister aware that hon. Members on both sides of the House would welcome greater freedom in the Soviet Union? However, does he agree that many of those who criticise Soviet policy should understand that the King David hotel was blown up, along with many British officers and their families? Is he aware that there are other parts of the Middle East where certain people could teach the Russians methods of atrocities far beyond anything that we have seen yet from the Soviet Union?
      Mr. Blaker: I find the hon. Gentleman's question remote from the original question on the Order Paper.
      Mr. David Atkinson: Is my hon. Friend prepared to submit practical proposals to the Madrid conference for the establishment of a Helsinki conference commission on human rights which would be empowered to investigate and report upon discrimination and harassment on religious grounds in any or all participating States?
      Mr. Blaker: I am familiar with my hon. Friend's ideas on that subject. They are certainly of interest. The first task at Madrid, however, is to conduct a thorough evaluation of the extent to which the various parties to the Helsinki agreement have fulfilled or failed to fulfil their obligations.
      Mr. Dalyell: What concrete evidence do the Government have of harassment of British citizens?
      Mr. Blaker: When I called in the Soviet Ambassador on 18 June I handed

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      him a piece of paper containing details of eight cases that had been brought to my notice—
      Mr. Dalyell: Put it in the Library.
      Mr. Blaker:—by British subjects who had asked that their cases should be raised with the Soviet authorities. These cases had already been raised with the Soviet authorities in Moscow by our Ambassador there, but without result. I thought that it was right for me to follow up his representations.

      Middle East
      Mr. Sainsburyasked the Lord Privy Seal what representations he has received on the proposals on the Middle East put forward at the European Council meeting in Venice.
      Mr. Waltersasked the Lord Privy Seal if he will report on progress to follow up the initiative in the Middle East proposed at the Venice European summit.
      The Lord Privy Seal (Sir Ian Gilmour): Representations have been made to the Government from a number of quarters. Particular concern has been expressed by representatives of the Anglo-Jewish community about the reference in the European Council statement to the Palestine Liberation Organisation. We continue to believe that the statement was balanced and positive. We are currently considering with our partners the practical aspects of the contacts with the parties concerned which the Nine have undertaken to carry out.
      Mr. Sainsbury: Has my right hon. Friend's attention been drawn to the extent to which there is discrimination and, in some cases, an absolute prohibition, against Christianity as well as Judaism in nearly all of the States which most strongly support the PLO and which are most strongly supported by it? Does my right hon. Friend accept that this is yet another reason why there is such widespread disquiet about an initiative which appears at least to be aimed at creating a PLO-dominated State on the West Bank?
      Sir I. Gilmour: With respect to my hon. Friend, I am not certain how closely those two questions are intertwined. For
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      one thing, the European declaration did not recommend a PLO State on the West Bank. It recommended self-determination for the Palestinians, at the same time as seeking to ensure that Israel's security was guaranteed. I think, therefore, that the statement was balanced. Although there have been some representations against it, it has been widely welcomed.
      Mr. Walters: Will my right hon. Friend assure his right hon. and noble Friend the Foreign Secretary that the majority of hon. Members prefer his statesmanlike approach to the problems of the Middle East to the grotesque and abusive outpourings of Mr. Begin who, with his record, should not lecture the British Government? Will he assure the House that the follow-up to the Venice communiqué, with its initiative on the Middle East, is being pursued as vigorously as possible, bearing in mind the gravity of the situation?
      Sir. I. Gilmour: The initiative is being followed up in co-operation with other countries today and this week. I hope that further progress will be announced shortly. On the first part of my hon. Friend's question, it would be surprising if the approach of my right hon. and noble Friend the Foreign Secretary were not preferred to the approach of the leader of another Government, however respected a person.
      Mr. Mikardo: What does the Lord Privy Seal think about the fact that Mr. Yasser Arafat has flatly and contemptuously rejected the Venice declaration by saying that the Palestine question can never be settled by any political declaration or other political action, but only by military means? Does the right hon. Gentleman think that that is a good reward for all the work that he has done on behalf of the Palestinians?
      Sir I. Gilmour: It is regrettable that the European declaration has been rejected. It has been rejected only by the PLO, Israel and the Syrians. It was welcomed by President Sadat as balanced and constructive. Certainly any extreme claims by either side are to be regretted. We deplore the recent Fatah declaration. I am sure that the hon. Gentleman will agree that claims by Mr. Begin for sovereignity over the whole of Palestine would be equally unacceptable.
      Sir Hugh Fraser: Is my right hon. Friend aware that President Sadat has said that the PLO should not be involved, under any circumstances, in the negotiations? Be that as it may, will my right hon. Friend now take some practical steps in terms of homework before the grant mission leaves for the Middle East, and ask the French Government why they are supplying nuclear fuel of weapon-making quality to the Government of Iraq? Why are the French supporting an extremely dangerous and highly sensitive position in the Middle East? Far from being a contribution to peace, it could be a contribution to the explosion of the whole of the Middle East.
      Sir I. Gilmour: That is as may be, but it has nothing to do with the European initiative from Venice. I repeat that President Sadat was well aware of the terms of the European declaration, and he described it as balanced and constructive.
      Mr. Donald Stewart: Is the Lord Privy Seal aware that many of us regard the declaration not only as well balanced but overdue? To continue with the exclusion of one of the most vitually concerned participants would mean that there would never be any hope of achieving peace in the Middle East.
      Sir I. Gilmour: I am grateful to the right hon. Gentleman for his remarks. We deplore terrorism, from wherever it comes, in the Middle East. We have not recognised, and will not recognise, the PLO, but it is futile for anybody to deny that it enjoys a considerable measure of support among Palestinians. Therefore, it would be futile not to talk to the PLO.
      Mr. Lawrence: What about the IRA?
      Sir I. Gilmour: The IRA does not enjoy significant support in Northern Ireland.
      Mr. William Shelton: I understand the views of my hon. Friend the Member for Westbury (Mr. Walters), but does my right hon. Friend agree that the Israeli State is a bastion for the West in the Middle East?
      Sir I. Gilmour: We have no doubt, and are unequivocal about the fact that we are committed to the security and
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      continuance of Israel. The Venice declaration made that clear. It is also clear that Israel will never be fully secure until the Palestinian problem is solved. That can be solved only by giving justice to the Palestinians, while ensuring the security of the Israelis.
      Mr. Shore: On the question raised by the right hon. Member for Stafford and Stone (Sir H. Fraser), does the right hon. Gentleman agree that the supply of arms and nuclear materials by European countries to the contestants in the Arab-Israeli dispute is a matter of major importance in the context of trying to achieve peace anywhere in the Middle East let alone the possibility of its repercussing, as it is bound to do, upon the so-called European initiative?
      In the light of the many specific statements that have been made during the past week about the supply by the French of high grade uranium to Iraq, and in the knowledge that Iraq is pursuing an independent nuclear programme, will the right hon. Gentleman say what representations have been made to the French Government, and what response has been receieved?
      Sir I. Gilmour: If it is pursuing an independent nuclear policy, Iraq is probably not the only country in the Middle East to do so. That does not arise out of this question, but if the right hon. Gentleman tables a question on the matter I shall answer it.
      Sir Hugh Fraser: On a point of order Mr. Speaker. In view of that unsatisfactory reply, I propose to raise the matter on the Ajournment.

      Medium-range Missiles
      Mr. Frank Allaunasked the Lord Privy Seal when he will next meet Mr. Gromyko and Mr. Muskie to discuss reduction of medium-range missiles in Europe.
      The Minister of State, Foreign and Commonwealth Office (Mr. Nicholas Ridley): My right hon. Friend has no plans to meet Mr. Gromyko and Mr. Muskie to discuss the reduction of medium-range missiles in Europe.
      Mr. Allaun: Will the Government now follow the example of Chancellor Schmidt, who has secured the removal

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      of two Soviet conditions? If the Government say that they are in favour of negotiations, why are they proving the driving force in NATO for the deployment of cruise missiles?
      Mr. Ridley: It is true that when Chancellor Schmidt visited Russia the Russians removed one of their preconditions for the negotiations. The problem is that they substituted another condition, namely, the inclusion of United States aircraft and the exclusion of Soviet aircraft from the negotiations. Surely the hon. Gentleman would agree that that would be most inequitable. That is why we are studying the matter closely.
      Mr. Squire: Will my hon. Friend confirm yet again that if SS20 missiles were not rolling off the assembly lines in Russia, aimed at Europe, at the rate of more than one a week, the question of cruise missiles for Britain would be academic?
      Mr. Ridley: We must take such precautions as are necessary for the defence of these islands and to deter the Soviet Union, which shows no signs of abating its increase in its military power, both conventional and nuclear.
      Mr. Stoddart: Is the Minister aware that there is a deep and profound yearning for peace, both in Britain and throughout the world, and for the removal of the nuclear sword of Damocles from above our heads? Is it not the Government's duty to do everything that they can to bring the arms race to an end and to obtain a nuclear-free zone in Europe?
      Mr. Ridley: The Government would welcome opportunities for a balanced reduction in armaments. Why does the hon. Gentleman not address his remarks to the Russians? It is they who are causing us to keep up our defences.
      Later—
      Mr. David Stoddart: On a point of order, Mr. Speaker. During Question Time I asked a supplementary question to Question No. 6. At the end of his answer, the Minister—the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) asked me why I had not asked the Russians. Fortunately, Russian Ministers do not answer from the Dispatch Box. I am, therefore, not in a position
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      to ask the Russians. Is it in order for one of her Majesty's Ministers to tell an hon. Member, who has put a reasonable, legitimate and serious question, to ask it of a foreign Power?
      Mr. Speaker: I can rule only on whether the reply was out of order. I do not rule on the wisdom of it. I cannot say that the Minister's reply was out of order.

      French Neutron Bomb
      Miss Richardsonasked the Lord Privy Seal if he will raise at the next meeting of the North Atlantic Treaty Organisation Foreign Ministers the testing of the French neutron bomb.
      Mr. Ridley: My right hon. Friend has no plans to do so.
      Miss Richardson: In view of the Government's much vaunted claim to be close to their allies and to have some influence with them, will they reconsider their position and point out to the French that the testing of a neutron bomb is a dangerous extension of the spread of nuclear weapons, which might destabilise the present position?
      Mr. Ridley: The French are entitled to make their decisions. We understand why they have considered it necessary to develop the neutron bomb. We do not intend to follow their example.
      Mr. Churchill: Does my hon. Friend agree that it is reckless and irresponsible in the extreme for a nuclear power to give weapons-grade uranium to a non-nuclear power? What representations have the Government made, or intend to make, to the French Government about the imminent delivery of 72 kg of weapons-grade uranium to Iraq?
      Mr. Ridley: We have no plans to do so.
      Mr. Shore: That is a reply which the Minister ought deeply to regret. As well as being a member of NATO, as is France, we are a member of the International Atomic Energy Authority. Along with France and others we took part in the INFCE evaluation fuel cycle. We share all these matters with them. Is the hon. Gentleman really saying that we have no interest in this extremely

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      important matter and have no intention of raising it with the French?
      Mr. Ridley: I made it clear that the decision is one for the French to take and that it is not one which the British Government can pursue.

      South Korea
      Mr. Viggersasked the Lord Privy Seal if he will make a statement on relations between Her Majesty's Government and the Republic of South Korea.
      Sir Ian Gilmour: We have enjoyed close and friendly relations with the Republic of Korea for many years. During my recent visit I reaffirmed the importance we attach to those relations and to our trading links. I also emphasised our strong interest in maintaining stability in the region and expressed the concern of people in this country that democratic institutions should be strengthened.
      Mr. Viggers: Does my right hon. Friend agree that the short-term stresses which have been apparent recently should not obscure the dramatic social, political and economic advances that have been made in South Korea in the last 30 years? Does he also agree that it would be a good idea to encourage a direct air link between London and Seoul as a way of encouraging mutual understanding and trade?
      Sir I. Gilmour: I noticed that there had been remarkable economic progress in South Korea. I hope that that will be paralleled by political progress. The question of a direct air link is strictly one for my right hon. Friend the Secretary of State for Trade. I hope that something will happen. Discussions have been held, and I hope that they will be resumed before long.
      Mr. Rowlands: When the right hon. Gentleman spoke to the South Korean authorities, did he raise the issue of human, civil and democratic rights for the South Korean people? Did he make it clear that large-scale killings and brutality's against South Korean students are not representative of the concept of democracy as we see it?
      Sir I. Gilmour: I made it clear in my original answer, when I said that I "expressed the concern of people in this
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      country that democratic institutions should be strengthened". However, for once, the hon. Gentleman has shown less than his customary fairness. He may have seen on television that the students commandeered a bus and drove straight through a police cordon, killing policemen in the process. Therefore, the violence is not all on one side.

      British Diplomats (Car Parking Immunity)
      Mr. R. C. Mitchellasked the Lord Privy Seal whether it is the policy of his Department to claim diplomatic immunity on behalf of British diplomats who commit parking offences in other countries.
      The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Richard Luce): No, Sir. Our staff overseas are normally expected to pay any parking fines they may incur.
      Mr. Mitchell: In that case, should not there be some reciprocity? Is the Minister aware that people, particularly in London, are getting fed up with reading about the blatant disregard of parking regulations by diplomats from a number of foreign embassies in London? What will he do about it?
      Hon. Members: Tow them away.
      Mr. Luce: I agree with the hon. Gentleman that it is fair to suggest that there should be reciprocity. Although diplomatic immunity is provided under the Vienna convention, at the same time it is laid down in article 41 that diplomats in other countries are expected to follow and obey the law of those countries. However, I should point out that parking offences by diplomats in this country have been reduced by 40 per cent. in the last two years, and that is a source of encouragement.
      Mr. Jessel: Although the number of offences has been reduced by 40 per cent., is not the remaining number still substantial? Is not the real purpose of diplomatic immunity to ensure that ambassadors can carry out their duties without hindrance? Is it not intolerable that junior embassy officials can act with a total lack of consideration for and courtesy towards other road users, thereby causing congestion and inconvenience to thousands of them, while sheltering behind diplomatic immunity?
      Mr. Luce: That is precisely why we make strong representations to heads of mission when there is strong evidence that particular diplomats have been abusing the laws and have been committing offences, particularly with regard to parking. That is something with which we shall persist.

      Nuclear Reactor Plant (South China)
      Mr. Parryasked the Lord Privy Seal if there have been any recent talks between the Government, the Hong Kong Government and the Government of the People's Republic of China concerning the construction and siting of the proposed nuclear reactor plant in South China.
      Mr. Blaker: No, Sir. The position remains as set out in my reply to the hon. Member of 2 June.
      Mr. Parry: Is the Minister aware of the grave local public concern about the proposed building of such a plant, bearing in mind the Three-Mile Island incident? Can he give an assurance that full local consultation will take place, particularly on all aspects of safety involved in such a project?
      Mr. Blaker: We are, of course, at a very early stage. A feasibility study is being conducted between the China Light and Power Company and the Government of Kwantung province. I have no doubt that if the feasibility study leads to plans for the construction of a nuclear power plant there will be the fullest consultation and planning by the Government of Hong Kong to make sure that their citizens are safeguarded.
      Mr. Rowlands: Do the British Government have any responsibility for, or final say in, any such project?
      Mr. Blaker: We are being consulted by the United Kingdom Atomic Energy Authority, but, ultimately, as the proposal is to build a nuclear power station on the territory of China, it will be a matter for the Chinese Government to decide.

      New Hebrides
      Mr. Christopher Priceasked the Lord Privy Seal what arrangements he is making for the attendance of Government representatives at the independence
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      celebrations of the New Hebrides on 30 July.
      Mr. Blaker: I expect to represent Her Majesty's Government at the independence celebrations.
      Mr. Price: Can the Minister give an assurance that the independence celebrations will go ahead on 30 July? What is being done to ensure that the pledges that were given from the Government Dispatch Box on two occasions this year—that all necessary measures will be taken to put down any problems in other islands—are being fulfilled?
      Mr. Blaker: We stand by the pledges that we have made. It is our intention that independence shall occur on 30 July as planned. I understand that that is also the intention of the French Government.
      Mr. Michael McNair-Wilson: Can my hon. Friend say what progress is being made with the negotiations within the New Hebrides to bring Espiritu Santo within the total of the islands?
      Mr. Blaker: Negotiations have recently taken place. They ended yesterday, at least for a time. Our representative, and the representative of the French Government, are now on their way back to Europe. I expect to see our representative tomorrow and to receive a full report. So far, I have had only a very brief report.
      Mrs. Dunwoody: We welcome the Minister's assurance that independence will be granted on 30 July, but is he aware that it is important for the New Hebrides Government to have complete control and territorial integrity? I hope that that is an undertaking which the British Government intend to support.
      Mr. Blaker: The hon. Lady is aware of the fact that at present one island is in a state of secession. Therefore, at present, there is not complete control. It is our objective to remedy that situation and to bring the New Hebrides to independence as one unit.

      Namibia
      Mr. Ioan Evansasked the Lord Privy Seal what recent representations have been made to South Africa regarding its defiance of the United Nations resolution over Namibia.
      Mr. Luce: The Five Western Powers have told the South African Government that they support Dr. Waldheim's letter of 20 June to the South African Foreign Minister, in which Dr. Waldheim answered South Africa's questions about aspects of the arrangements for implementing the United Nations plan. The Five urged South Africa to reply positively.
      Mr. Evans: Will the Government take firm action in the United Nations to end South Africa's illegal occupation of Namibia? As there are now incursions into Angola, and as the situation is developing, will the Minister take steps to bring an end to this illegal regime at the earliest possible moment, by bringing strong pressure to bear on the South African Government?
      Mr. Luce: That is precisely what the Group of Five nations has been working at for the last several months—to persuade the various parties to reach agreement. The sooner they do so, the better it will be for everyone concerned.
      Mr. David Steel: Are there any plans for direct ministerial contact with the South African Government in order to press forward this matter?
      Mr. Luce: The Group of Five has its own means of contact with the South African Government, and uses it whenever it thinks it right to do so.
      Mr. Nicholas Winterton: Can my hon. Friend confirm that the occupation of South-West Africa by South Africa is not illegal, and that the South Africans were invited to go there in the first place to take over this territory? Can he also confirm that on several occasions the South African Government, together with the elected Members in South-West Africa, have agreed to arrangements made by the Western Powers and the United Nations, only to find those arrangements changed because of the intervention of SWAPO External? Does he agree that the Democratic Turnhalle Alliance is likely to be more representative of the best interests of South-West Africa than SWAPO External?
      Mr. Luce: You invited us to answer only one question, Mr. Speaker, and I shall therefore choose to answer the first question. All the parties are committed
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      to two important things: first, that there should be United Nations supervised elections; and, secondly, that there should be a demilitarised zone. Therefore, the gap is narrowing rapidly, and the sooner it is agreed upon, the better it will be for the future of the people of Namibia.
      Mr. Winterton: On a point of order, Mr. Speaker. My hon. Friend said that he would answer my first question, but he failed to do so. My first question was whether he would confirm that South Africa—
      Mr. Speaker: Order. I believe that that was the Minister's way of answering the question. However, it is 3.10 pm, and we had better move on.

    EUROPEAN COMMUNITY

      Budget Repayments
      Mr. Spearingasked the Lord Privy Seal if he will specify the nature of the European Economic Community instrument that will authorise the amount of repayment to the United Kingdom from the European Economic Community budget of 1981; and which body or bodies will authorise the relevant amount.
      Sir Ian Gilmour: The instruments under which payments will be made are the revised financial mechanism regulation and the regulation establishing supplementary measures in favour of the United Kingdom, drafts of which were debated by this House on 2 July. The amounts to be entered in the budget of a particular year, or in a supplementary budget, will be decided by the Council and the Parliament, acting as the budgetary authority, in the normal way. The formal adoption of the budget or supplementary budget will constitute the authority for the Commission to disburse the amounts agreed.
      Mr. Spearing: Within the criteria laid down by the Commission, what will be the Government's criteria for selecting the projects in the programme to be put forward, and which Government Department will put them forward to the Commission or the Council?
      Sir I. Gilmour: The projects to be put forward are still under discussion. The hon. Gentleman will be aware of the

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      general categories that we have in mind. Presumably the projects will be put forward by the Foreign Office, but in conjunction with all other Departments concerned. They will not necessarily be put forward by the same Department.
      Mr. Budgen: Will my right hon. Friend tell the House whether it is the Government's intention to press for an expansion of the regional and social funds? If that is his intention, how does it square with the general objective of trying to reduce the Community budget?
      Sir I. Gilmour: That is a separate point. Restructuring implies that there will be more expenditure on some aspects, and less on others.

      Air Fares
      Mr. Dykesasked the Lord Privy Seal if he will seek to place on the agenda at future meetings of the Council of Foreign Ministers the need for Community action to achieve lower air fares between the member States.
      Sir Ian Gilmour: The United Kingdom Government pressed successfully for agreement by the Council of Transport Ministers on 24 June on an invitation to the Commission and national experts to examine scheduled air fares within the Community as soon as possible. The reports of this study are likely to be considered by the Council by the end of this year or early in 1981. We hope that the Community can respond to the challenge of encouraging cheaper air travel between member States.
      Mr. Dykes: I thank my right hon. Friend for that answer, but is not the inference to be drawn from his reply that he agrees that air fares between member States in Europe are supported by an unacceptable and anachronistic cartel, and that there is now a growing public clamour for realistic air fares between European countries? If those fares were similar to internal fares within the Community, the fare between London and Paris, for instance, could be halved. The carriers may resist that process, but the demand is now inexorable and Governments are supporting it.
      Sir I. Gilmour: I think that the whole House agrees that air fares in Europe are
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      extremely high and should be lower. It is our objective that fares should be lower, but under bilateral and multilateral agreements that have been made over the years, we are not allowed to impose cuts in existing European air fares. The agreement of the Governments of the countries concerned is necessary. Governments of both parties have resisted increases in fares over the years.
      Mr. Mikardo: Is the right hon. Gentleman aware that it is possible to fly to Hong Kong more cheaply than it is to fly to Marseilles, and that that situation will continue until the Transport Ministers change it? In view of that, can be persuade them to agree to a programme that is a little more speedy than the leisurely one that he announced today?
      Sir I. Gilmour: I agree with the first part of the hon. Gentleman's question, but he will realise that it is not simply a question for the EEC. It affects the whole of Europe. I agree that the general situation is ridiculous.
      Mr. Wilkinson: Does my right hon. Friend agree that it is not merely the regulation of the fare structure that is at the heart of the matter, but also the pooling arrangements that exist between carriers? If we are to get the proper competitive environment that is necessary to bring fares down, could not pooling also be carefully examined?
      Sir I. Gilmour: That is basically a question for my right hon. Friend the Secretary of State for Trade, but what my hon. Friend says sounds correct.
      Mr. Dalyell: The problem is not simply between States, but within this particular State. The most expensive air services in the world are those between London and Edinburgh, and London and Glasgow.
      Sir I. Gilmour: I am sure that the hon. Gentleman is right, but he will appreciate that that is not a matter for me.

      Future Planning
      Mr. Cryerasked the Lord Privy Seal when next he expects to meet other EEC Ministers to discuss the future planning of the Community.
      Sir Ian Gilmour: I expect to meet my Community colleagues at the Foreign Affairs Council on 22 July. The agenda for the meeting has not yet been finalised.
      Mr. Cryer: With regard to the future planning of the Community, will the Lord Privy Seal explain the extent to which the Community will have power to control projects that are authorised under the scheme to refund money to those countries that are owed it? Given the fact that the refund is possible only with the approval of the Community, does that not mean that there has been a shift of power from the United Kingdom Parliament and Government to Brussels? Does he regret that trend? If he does, will he seek to reverse it in future Community planning?
      Sir I. Gilmour: The hon. Gentleman is not quite correct. He should welcome the considerable success that we have gained in achieving a substantial reduction in the United Kingdom's net contribution to the Community budget. The regulation is now being worked out, but it is not our intention—it cannot be read into the conclusions of the 29–30 May Council—that the Community should control our public expenditure projects.
      Mr. Jim Spicer: When the Foreign Affairs Ministers meet, particularly to discuss political co-operation, will my right hon. Friend take account of the great unease that exists in Turkey about its position following the accession of Greece to the EEC? Will he give an undertaking that the Government will take some steps to put that unease at rest and reassure the Turks that we take full account of their position not only in relation to the Community, but also in relation to NATO?
      Sir I. Gilmour: As I think I have assured my hon. Friend in the past, I share his concern over Turkey. We regard the position of Turkey as a matter of the greatest importance, and we all welcome the recent agreement with Turkey.
      Mr. Skinner: Will the Lord Privy Seal explain how the Conservative Government will get round the dilemma of reclaiming some of the money, bearing in mind that during his first Budget speech the Chancellor of the Exchequer said, in reply to me, that if any money was forthcoming from the attempts to cut the budget, none of it would be used to cut public expenditure? How on earth can that be reconciled with the fact that, to reclaim some of this money, pound for
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      pound will have to be spent on some projects to increase public expenditure? Should not the Chancellor of the Exchequer or the Prime Minister explain to the House how they will get out of that dilemma?
      Sir I. Gilmour: There is no dilemma, and the premises on which the hon. Gentleman bases his question are wrong.
      Mr. Skinner: It is on the record.
      Sir I. Gilmour: We are not obliged to spend pound for pound, and the Community money does not oblige the Government to spend money on projects that they would not otherwise have been expected to fund.
      Mr. McQuarrie: When my right hon. Friend meets the EEC Ministers to discuss future planning in the Community, will he ensure that the question of the closure of the border at Gibraltar is taken into consideration before Spain is allowed to accede to the Community?
      Sir I. Gilmour: My hon. Friend, who follows these matters extremely closely, will be aware that my right hon. and noble Friend met the Spanish Foreign Minister and made an agreement at Lisbon, and that the talks on the matter are still continuing. I shall be very disappointed if there is any question of the matter to which my hon. Friend refers not being settled long before Spain joins the Community.
      Mrs. Dunwoody: The right hon. Gentleman may dismiss the argument of my hon. Friend the Member for Bolsover (Mr. Skinner) on the ground that some of his facts are wrong, but is it not true, nevertheless, that if the Foreign Office is to be the lead Department in deciding which projects are acceptable, it will be the Community that will decide the priorities, and it will be the Community that will decide what is acceptable? If that happens, will it not be true to say that the Government will have handed over responsibility for public expenditure to Brussels, in no uncertain terms?
      Sir I. Gilmour: No. The hon. Lady has got it just as wrong as her hon. Friend. I apologise to the hon. Member for Newham, South (Mr. Spearing) if I misunderstood him. The Foreign Office may be responsible for putting forward

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      the projects, but obviously the Foreign Office will not be the one to decide it all. Even if that were the case, the idea that that would somehow be handing the decision over to the Commission is wrong, as the hon. Member should realise.

      Budget (Structural Changes)
      Mr. Strawasked the Lord Privy Seal what constraint he anticipates the continuation of common financial responsibility for Community policies will have upon the EEC's examination of structural charges, agreed at the Foreign Affairs Council on 29 and 30 May.
      Sir Ian Gilmour: The Commission has been invited to consider how the necessary structural changes in the budget can best be achieved without calling into question the common financial responsibility for Community policies. It is to bear in mind the agreed aim of preventing the recurrence of unacceptable situations for any member State.
      Mr. Straw: In the light of that answer, will the Lord Privy Seal now acknowledge that when, on 2 June, he told the House that the EEC had agreed that there should be a fundamental restructuring of the Community budget he got it wrong and that he misled the House, because the only thing that was agreed at Venice was a review of the budget structures, without tackling the fundamental problems of the budget, which are both the own resources system and the common agricultural policy?
      Sir I. Gilmour: Some Labour Members are a bit free in their allegations about misleading the House. In no way have I misled the House. It is common knowledge that it was agreed at that Council that there should be a restructuring of the budget. If the hon. Gentleman will be good enough to read the speeches of Chancellor Schmidt and President Giscard recently, he will see that they also agreed.
      Mr. John H. Osborn: Does my right hon. Friend agree that a common energy policy would be of value to this country, which has coal, gas and oil, and whose coal miners need protection? Would it not be appropriate to demand a levy on imported natural gas from the Mediterranean and from North Africa, as well as from the Middle East via the Soviet Union?
      Sir I. Gilmour: My hon. Friend has put forward some interesting ideas. He will be aware that the Commission has proposed a combination of energy, price and tax harmonisation, and a programme of investment in energy, financed by a system of energy taxation, possibly combining an oil import levy with an oil production tax. There are many ideas floating around. The Commission has put its proposals forward and we are studying them carefully.
      Mr. Jay: Are the British Government to put forward their own proposals for the way in which these structural changes should be made, or are they to sit back and wait for the Commission to do so?
      Sir I. Gilmour: No. Obviously, there will be a period of intensive discussion between all members of the Community.
      Mr. Farr: Will my right hon. Friend give the House an assurance that, whatever the outcome of these negotiations, the voice of the Community will not be weakened in forming a unified policy to deal with the threat to the British footwear and textile trades from cheap and underpriced imports?
      Sir I. Gilmour: Yes, I give my hon. Friend that assurance.

      Spain
      Mr. Rentonasked the Lord Privy Seal when he expects Spain to become a member of the EEC.
      Sir Ian Gilmour: It should be possible for Spain to join the Community in 1983, as the Spaniards wish.
      Mr. Renton: Does my right hon. Friend expect France to drag her feet about Spain's entry to the Community because she will expect Spain's demands on the common agricultural policy to be pitched at an intolerable level? Conversely, should not we be pressing strongly for the entry of Spain, both because she is now a European democracy and because her accession to the Community will make a fundamental reform of the CAP inevitable?
      Sir I. Gilmour: It is not for me to speculate about the actions of the French Government. I agree with what my hon. Friend said about Spanish democracy. What he said about the CAP implies that the restructuring that we have envisaged

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      as taking place in 1981–82 will not by that stage have taken place. If it has not, the point that he put will apply strongly.
      Mr. McNamara: Will not the restructing of the CAP and the entry of Spain make a fundamental reappraisal of the CAP vital? We are already seeing rather distressing scenes on the Franco-Spanish border. Can the right hon. Gentleman say how he envisages this anomalous position being rectified?
      Sir I. Gilmour: As the hon. Gentleman knows, the Labour Party and the Conservative Party in this House have both long been in favour of reform of the CAP, but this is not the occasion for me to put forward comprehensive proposals for its reform.
      Mr. Amery: I support the accession of Spain to the European Community and share my right hon. Friend's hopes that the blockade of Gibraltar will have been lifted long before 1983, the date to which he referred, but does he agree that British opinion could not accept the accession of Spain to the EEC if coercive measures were still in force against Gibraltar? Will he make that plain to the Spanish Government?
      Sir I. Gilmour: My right hon. Friend may be aware that I said last year when I was in Gibraltar—and also subsequently to a Spanish Minister—that I thought that a closed frontier between two members of the Community was unthinkable.
      Mr. Foulkes: Will the Lord Privy Seal confirm that it is the Government's policy to welcome the accession not just of Spain but of Greece and Portugal? Will he without anticipating what the French might do, tell us what the British Government will do if there is any backsliding in the French or German attitude to the accession of those three countries?
      Sir I. Gilmour: We have made our attitude plain. In welcoming the proposed accession of Spain I did not mean to imply that we were not equally in favour of the accession of Greece and Portugal. We most certainly are.
      Mr. Murphy: In the light of early-day motion 756, does my right hon. Friend agree that such accessions may well be politically a good thing, but economically a bad thing?
      Sir I. Gilmour: I think that it is generally agreed in the House that, as my hon. Friend says, politically they are undoubtedly a good thing. If my hon. Friend is thinking of the budgetary cost to this country, I should point out that the accesion of Greece was taken into account in the new budgetary arrangements for the United Kingdom.
      The accession of Spain and Portugal will obviously mean a larger Community budget and therefore higher gross contributions by all the existing members, but at this stage it is not possible to say whether that will result in a higher net contribution by the United Kingdom, since this will depend on several factors, including the 1981 review of the Community budget.
      Mr. Shore: Clearly, the Gibraltar question must be settled, but will the right hon. Gentleman tell the House whether the timetable for negotiations for opening up communications between Gibraltar and Spain has been delayed as from the time when he made his statement in the House? If so, can he tell us the reasons for it?
      Sir I. Gilmour: It has been delayed in the sense that, as the right hon. Gentleman will remember, we had hoped that the preliminary negotiations would be completed by the beginning of June. We had hoped, therefore, that the frontiers would be open by now. There has been delay. We are still in discussion with the Spanish Government, and I hope that the restrictions will be lifted before long.
      Mr. Nicholas Winterton: My right hon. Friend gave an assurance to my hon. Friend the Member for Harborough (Mr. Farr) about the textile and footwear industries. Is he aware that the accession of Greece, Spain and perhaps of Portugal could sound the death knell for one of our most important and strategic industries? What will he do about that?
      Sir I. Gilmour: My hon. Friend will be aware that there is a safeguard clause in the arrangements for the accession of Greece, and we envisage similar arrangements for Portugal and Spain.
      Mr. Maclennan: Is the Lord Privy Seal aware that the Spanish fishing fleet

      1493
      is interested in gaining access to European Community waters? What consideration is being given to the protection of British interests during the current discussions on the common fisheries policy?
      Sir I. Gilmour: There will be a Fisheries Council meeting next week, and we are engaged in discussions with our partners over the common Fisheries policy. We hope that an agreement will be reached by the end of the year. Therefore, the question of Spanish interests has not arisen.

      FOREIGN AND COMMONWEALTH OFFICE QUESTIONS
      Mr. William Shelton: On a point of order, Mr. Speaker. May I draw your attention to Question Time, and the balance between questions on foreign affairs and those on the EEC? If I am right, 13 questions out of the 46 questions tabled on foreign affairs were answered. That is less than one-third. However, 100 per cent. of the questions on the EEC were answered. Might it not be to the benefit of the House if we were to change that proportion?
      Mr. Speaker: I believe that the proportion has been changed at the request of other hon. Members. The fact that only 13 questions on foreign affairs were answered is no indication of what happened. Every time that I moved on, several hon. Members rose to their feet seeking to be called.

POSTAL SERVICES
The Secretary of State for Industry (Sir Keith Joseph): With permission, Mr. Speaker, I should like to make a statement about the postal monopoly.
The House will recall that on 2 July 1979 I stated that if co-operation to improve postal services were not manifest it would be necessary to review the Post Office's monopoly for the carriage of letters, and that I would call for reports of possible modifications to that monopoly, their practicability and implications, by the end of the year.
I have received a report from the chairman of the Post Office and a report from officials in the Department who consulted widely with persons and organisations throughout the United Kingdom with an interest in the postal service. In addition, my right hon. Friend the Secretary of State for Trade referred the inner London letter post to the Monopolies and Mergers Commission. The commission's report was laid before Parliament on 31 March and was published on 1 April. The Government have been discussing with the Post Office its response to this report, and I intend to lay before Parliament shortly the Post Office's programme of action to meet the commission's recommendations.
Members of the House will be aware of the widespread criticism of the postal service, particularly in the summer of 1979. I am glad to say that recently the quality of service to the customer, as measured by the statistics furnished by the Post Office, has shown a marked improvement, particularly in April and May this year. The service is now close to the Post Office's own target. It has, moreover, been encouraging to hear of the decision of the Union of Communications Workers to discuss with the Post Office measures to improve productivity and to bring about more efficient working.
However, for some time it has been clear that the monopoly is more extensive than is sensible and that there are uncertainties in some of the key definitions in the Post Office Acts of 1953 and 1969. I have therefore decided that some changes are desirable. In coming to that decision I have taken into account the

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views expressed by those whom we consulted in the course of our review, the Post Office's own report on the monopoly, the views expressed by the Monopolies and Mergers Commission, and the quality of service received by the customer.
There are certain categories of mail that it would be beneficial to remove from the monopoly. When the necessary legislation has been enacted I intend to relax the monopoly in certain respects.
First, in respect of time sensitive/valuable mail, private operators will be free to carry such mail provided that they charge a minimum fee subject to review by the Secretary of State. I propose that this minimum fee should initially be £1.
Secondly, on document exchanges, at present the document exchanges established in a number of the larger cities are able to operate only an exchange of mail at a common centre, and may not transport mail in bulk between those centres. It is intended to amend the law so as to enable them to do this. Thirdly, on Christmas cards, the Government propose to amend the law so as to allow charitable organisations to deliver Christmas cards.
In addition, the Government propose to amend the law relating to the monopoly in a number of other fields. First, in relation to the definition of a letter, it is intended, with the help of the Post Office, to specify that a number of items are excluded from that definition so that those wishing to compete with the Post Office will not be deterred by confusion about the precise extent of its exclusive privilege. Secondly, in relation to part carriage by private operators it is intended to amend the law to allow that where a letter at some stage goes through the Post Office network it may be carried for part of its journey by private carriers, provided that it is first stamped. This will enable the large customer some freedom to avoid his mail being handled in those parts of the Post Office network known to give rise to delays.
Thirdly, the law will be amended in relation to delivery by a wholly owned subsidiary. At present there is no obstacle to individuals or companies delivering mail on their own account, but it appears
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that a wholly owned subsidiary cannot deliver mail on behalf of its parent or of other companies in the same group. It is intended to amend the law to rectify this anomaly. Fourthly, in relation to addressed advertising and other new market demands, the Government will watch how the Post Office reacts to such market demands and will, if justified, make appropriate relaxations of the monopoly.
In addition, the Government will seek to amend the law relating to the Post Office letter monopoly in order to provide powers for the Secretary of State to make further relaxation in respect of certain categories of mail. Moreover, we shall seek powers to remove the monopoly, either in a local area or nationally. These powers will rest in my hands. [Interruption.] I would intend to use them in the event of industrial action within the Post Office which resulted in a cessation or serious decline in the quality of service. I would also use the powers if, after due warning, the Post Office failed, for reasons within its control, to satisfy me as to its performance in serving the public.
In deciding whether to use my powers I shall take into consideration the Post Office's record in relation to productivity, unit costs, quality of service to the customer and its financial target. I am starting discussions with the chairman of the Post Office on whether the targets for the quality of service of first-and second-class mail are sufficiently rigorous.
I believe that these measures will stimulate greater efficiency within the postal service. Taken together, they clarify the law, open up to competition some parts of the postal monopoly, and safeguard the general interest of the customer by making it clear that the letter monopoly is a privilege that the Post Office needs continually to justify through the quality of the service that it provides. These changes will require legislation, and the Government will bring proposals before the House in due course.
Mr. John Silkin: The Secretary of State began his statement by saying that on 2 July 1979 he had stated that if cooperation to improve the postal services were not manifest it would be necessary to review the Post Office's monopoly. He then told the House that he was glad that the quality of the service to the customer, as measured by his own criteria, had

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recently shown a marked improvement. He congratulated the workers concerned and the Post Office on that improvement. That makes the whole of his statement quite unnecessary.
At this stage I shall not deal with the peripheral matters to which the Secretary of State referred. In any event, some of them have the most peculiar names and will need some consideration. We shall deal with them when the legislation comes before the House. At first glance they represent a pretty good pirates' charter. The real guts of the statement lie in the powers that the prophet of Government non-intervention has raised before us. The House will enjoy very much the phrase
"These powers will rest in my hands."
Those hands have been pretty guilty of messing about with British industry over the past 14 months.
Perhaps the Secretary of State will listen to my questions, as he has a habit of not answering questions—
Mr. Russell Kerr: Megalomanics do not listen.
Mr. Silkin: Does the Secretary of State not appreciate that in every civilised community in the world the letter service is a monopoly of the State? Does he not realise that most postal services in other countries are subsidised by the State—in Germany, France and the United States to the extent of $1,000 million a year? Does he not realise why this occurs. It occurs, first, because it is uneconomic in rural communities to have a private postal service. Secondly, it is in the interests of industry, commerce and export that the postal service should be as cheap and efficient as possible. This can be done only by a postal monopoly. That is the basis on which every civilised country works its service.
The Secretary of State referred to the report made by the Monopolies Commission. Is he not aware that in paragraph 12.3 of that report the commission says that there is no evidence whatsoever against the monopoly and indeed, that all the evidence is in favour of it?
Sir K. Joseph: I am not responsible for postal services abroad. The service here has improved, but it is not yet good enough.
Mr. Speaker: Sir John Eden.
Mr. Silkin rose—
Mr. Speaker: Order. I have called the right hon. Member for Bournemouth West (Sir J. Eden), but if he does not mind, I shall call the Front Bench again.
Mr. Silkin: I wonder whether the House considers that brief reply a sufficient answer to the questions put to the right hon. Gentleman. Will the right hon. Gentleman now have the guts to answer from the Dispatch Box the questions that I asked?
Sir K. Joseph: I am not responsible for services abroad. I do not know, and the right hon. Gentleman has not told us, whether those services are satisfactory. They may be monopolies that are unsatisfactory to the customer. Our monopoly has been unsatisfactory to the customer. It has become less unsatisfactory, but it could still be much better, and the customer deserves it to be much better. That is why I made the statement. As I told the House in my statement, the Monopolies and Mergers Commission's recommendations have all been taken into account in deciding Government policies.
Mr. Silkin: The right hon. Gentleman refuses to direct his mind to the question. Is it correct that the Monopolies and Mergers Commission, at paragraphs 12.2 and 12.3, stated, with only one dissenter, that all the evidence showed that the monopoly service was extremely good?
Sir K. Joseph: The service has been shown to be open to improvement. We believe that it can be better still.
Sir John Eden: Will my right hon. Friend accept my congratulations on his having taken an important first step to reduce the area of the Post Office letter monopoly? Is not the only justification for the retention of such a monopoly the high quality of service given to the user? Does my right hon. Friend anticipate that the stimulus to improvements in the service that his action will no doubt provide is likely to lead before long to the greater use of mechanised handling and the introduction of more stereotyped forms of envelopes?
Sir K. Joseph: The degree of mechanisation and the stereotyping of envelopes are questions for the management

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of the Post Office. I agree that the only justification for the monopoly is the quality of service to the public. It is not a right but a privilege.
Mr. Charles R. Morris: Does the Secretary of State accept that, on his own admission, postal services are improving and that meaningful negotiations on increased efficiency and productivity are proceeding between the Union of Communications Workers and the Post Office? Is he aware that Post Office workers will recognise his statement for what it is—a postal strike-breakers' charter? Will the Secretary of State confirm that the Post Office board, the Post Office Users National Council, the Mail Users Association, the Carter committee, the Select Committee on nationalised industries, everyone who has been associated with the Post Office, and this House are on record as being opposed to breaking the Post Office monopoly? What makes him think that he is right and they are all wrong?
Sir K. Joseph: In the right hon. Gentleman's lengthy catalogue he did not mention the customer. I am responsible for reconciling the interests of all those whom the right hon. Gentleman listed with the interests of the general customer.
Mr. Kenneth Baker: Does my right hon. Friend agree that his proposal to allow private carriers to take primarily business mail between different towns and cities has been the practice within London for several years, and has been carried out speedily and satisfactorily without a great loss of service for the Post Office? Will he reconfirm that the powers that he has reserved to himself will be used when the quality of service falls below the standard expected by the British public, as should be the case?
Sir K. Joseph: I agree with both my hon. Friend's propositions. I have explained to the House that I shall use the powers only if the quality of service falls below a specified level, and after due notice, in order to give the Post Office a chance to put its service right, or if there is an industrial dispute that destroys the service to the public.
Mr. Cyril Smith: Does the Secretary of State accept that, on his own admission, he has gone back on his word? In July
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1979 he clearly said that he would break the monopoly only if he was not satisfied that the postal service was not improving. Bearing in mind his last answer, to what level will the Post Office's service have to fall before he considers using the powers to which he has referred? Is it correct that, when the right hon. Gentleman's statement mentions the necessity to clarify the law, it is an excuse for this action, and that the right hon. Gentleman is seeking to break the Post Office's monopoly on the postal service? Should he not therefore clearly state that? Does he accept that the sections of the postal service that he proposes to hive off are the profitable ones, and that when the income from those services is lost to the Post Office there will not be a comparable reduction in the costs of the Post Office, which is bad business practice? Will the Secretary of State accept that his threats over industrial relations are a poor way to seek better industrial relations in any industry?
Sir K. Joseph: I am disappointed that the hon. Gentleman did not refer to the customer. I have proposed to take powers to break the monopoly if the standard of performance is below the necessary level. The hon. Gentleman asks what the targets for that level will be. It may well be proper to raise the targets that the Post Office has so far set itself. Discussions are to be started between my Department, the Post Office and the Post Office Users National Council to decide whether we can reasonably expect a higher standard of performance than that represented by those targets. I do not conceal that the Government believe it right to treat the monopoly as a privilege and not as a right, to be preserved—as my right hon. Friend the Member for Bournemouth, West (Sir J. Eden) says—only to the extent that that is justified by good performance to the public. I do not consider that the proposals significantly damage the Post Office's revenue. I am not making threats. No responsible and productive postal worker has anything to fear from what the Government have decided.
Mr. Grylls: Does my right hon. Friend agree that his prime consideration in those radical changes is to ensure that the public receives the best possible service, from the Post Office, the private

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sector, or both? Does he accept that we should learn that monopoly is bad in public and private industry?
Sir K. Joseph: It is extraordinary that the Opposition have not asked a single question that mentions the interests of the public. I am grateful to my hon. Friend for bringing out the fact that the postal service exists to serve the public and not the Post Office.
Mr. McWilliam: Will the right hon. Gentleman accept that if he continues with his wrong-headed attempt to milk the profitable business from the Post Office my constituents in rural areas will get a lousy service? Who will deliver the mail in Chopwell and Tynedale at the prices that will pertain? Is the right hon. Gentleman aware that the Government's wrong-headed and silly adherence to cash limits is preventing the modernisation and mechanisation of the Post Office at a pace sufficient to enable the service to be improved to meet his criteria? Will he accept that he is tying the Post Office's hands behind its back, while giving customers, apart from big business and those in the city centres, a far worse service, simply because he does not like nationalised industries and wishes to make a doctrinaire attack on the Post Office.
Sir. K. Joseph: The hon. Gentleman will regret all that rhetoric when he has had time to study what I have said. I assure the House that what the Government have decided will make no perceptible difference to the service in rural areas. The removal of the monopoly will improve the service to rural areas if the service to those areas falls so far below the target that the Secretary of State of the day feels justified in removing the monopoly.
Mr. Lee: Is my right hon. Friend aware that the whole country will welcome the Christmas card exemption for charities? Is he prepared to consider granting similar exemptions for charities' mail for the rest of the year?
Sir. K. Joseph: I should not like to encourage the charities to expect that in-increase in the load on their services. We shall have to see how the service goes.
Mr. Faulds: I have a technical question for the right hon. Gentleman. Are these other carriers to be entitled to carry their mails bearing the stamp of Her
1502
Majesty the Queen, or are they to be entitled to print their own stamps under the right hon. Gentleman's lunatic system? I think that my hon. Friends will understand, and will probably accept, that, having been in the House for 15 years, I have never heard the House treated with such contempt as the right hon. Gentleman treated it in his original reply to my right hon. Friend the Member for Deptford (Mr. Silkin). Although I am sure that the Secretary of State's colleagues make allowances for the fact that he has problems with his mental balance, why should the country suffer from it?
Sir K. Joseph: The express deliveries that are made at present do not use Her Majesty's stamps and I do not imagine that they will in future. I have announced that a stamped letter may, under the Government's proposals, be put into the postal network at a different place from where it originates. That is the only area where I am making any proposal that affects stamped letters.
Mr. Neubert: To what extent does my right hon. Friend anticipate that the Post Office will use the breaches of the postal monopoly as a pretext for abandoning some of its more social obligations to provide sub-post offices in small communities, urban as well as rural, and other lightly used but nevertheless important services, such as telegrams?
Sir K. Joseph: I do not want to exaggerate the extent of the reductions of the monopoly that I have announced. The answer to my hon. Friend is "Not at all". The significance of my statement lies more in the proposal to take powers for the Government to remove the monopoly under certain circumstances than in the announced reductions of the monopoly.
Mr. Stott: Is the right hon. Gentleman aware that my right hon. Friend the Member for Manchester, Openshaw (Mr. Morris), my hon. Friend the Member for Blaydon (Mr. McWilliam) and I do not have any regrets about what we say on the question of the Post Office, because we were all employed by the Post Office before being elected to the House? We do not apologise to the right hon. Gentleman or to the House for what we have to say on the issue. Let me ask the Secretary of State a question that he

1503
failed to answer earlier. The hon. Member for Rochdale (Mr. Smith) asked how much revenue the Secretary of State estimated will be lost to the Post Office as a consequence of the actions and measures that he has announced.
Sir K. Joseph: It is impossible to give a figure, but it must be very small indeed. We are dealing largely with mail that does not go through the postal service at the moment. As for the amount that goes through the postal service and might be diverted, I suppose that if we leave out Christmas cards, which cannot be measured, the total will be about 1 per cent. or 2 per cent.
Mr. Bruce-Gardyne: I congratulate my right hon. Friend on preparing the ground for moving forward. In framing the legislation will he bear in mind that the preservation of the Post Office monopoly would not guarantee the survival of doorstep deliveries in rural areas for many more years? What is the justification for the minimum £1 fee? Will the scheme for fast carriage by private opertors enable them to bypass such notorious blocks as the Crewe sorting office?
Sir K. Joseph: The future of the monopoly depends on the performance of those who work in the postal service. The £1 fee is less than many of the charges now made by express carriers, but is sufficiently above the price of a first-class stamp not to prejudice excessively the postal revenue. The proposed provision will enable any remaining weak spots in the network to be bypassed in the way that I have described, but it will not remove from management the obligation to improve the management and performance at such places.
Mr. Gregor MacKenzie: Can the Secretary of State square his statement that he will take power into his own hands to break the Post Office monopoly with his often-expressed view that there should be a policy of non-intervention? Can he explain how, if he creams off the most profitable part of the Post Office, leaving it only the non-profitable sectors, such as rural services, and so on, that will improve the quality of the service in rural areas? Will he bear in mind what happened to the Secretary of State for
1504
Education and Science at the hands of the Duke of Norfolk in another place, because that may happen to him when his legislation gets through this House?
Sir. K. Joseph: Intervention means trying to do mangement's job for it. The Government's proposal in this case is far more of a policy issue of removing the monopoly if it is not justified by performance. If the right hon. Gentleman rereads my statement and considers my answers I think that he will accept that the other part of his question is not relevant.
Mr. Kenneth Lewis: Is my right hon. Friend aware that his reasonable proposals will be welcomed by the public, though some business men may think that he has not gone far enough? Will charities be allowed to set up an overall delivery service for Christmas cards to which a number of charities can contribute, in order to get one delivery?
Sir K. Joseph: My hon. Friend says that some business men may think that the Government have not gone far enough, but the main theme of my statement is that we are taking power to consider performance at any time and to remove the monopoly to the extent justified. The precise arrangements for charities will have to be defined, but I should have thought that my hon. Friend's suggestion would be a reasonable part of them.
Mr. W. Benyon: Is not the real need for massive Post Office investment in mechanisation, of one form or another? Is my right hon. Friend aware that some of us, particularly myself, cannot see how that can be done outside the monopoly?
Sir K. Joseph: It may be that further mechanisation is part of the right answer, but that is a matter for management.
Mr. Cryer: Is this not the beginning of a vortex of destruction of the Post Office? Does not the right hon. Gentleman's statement mean that rural areas will suffer, that users who benefit from the Post Office monopoly will face increased charges, and that the Secretary of State will then use his powers, which will result in a further increase in charges, a further reduction in services and a further invocation of his powers? Is this not the basis for what he hopes will be the total destruction of the Post Office,

1505
and will he be surprised if the Union of Communications Workers bitterly opposes the proposal?
Sir K. Joseph: The hon. Gentleman debases language by such rhetoric which bears no relation to the statement that I made.
Dr. Mawhinney: Will any private carriers be required to compete with the Post Office on a national basis, or will they be allowed to compete locally? If the latter, does not that raise the possibility of decreased services, particularly in rural areas?
Sir K. Joseph: No private carrier will be required to do anything. To the extent that a monopoly is, under the circumstances described, withdrawn locally or nationally, it will be up to the private sector to respond in any way it decides fit.
Several Hon. Members rose—
Mr. Speaker: If hon. Members will be brief, I hope to call those who have been rising throughout.
Mr. John Home Robertson: As the Secretary of State cannot explain his ideas, will he at least explain his arithmetic? Precisely how will the Post Office charge my constituents in rural Scotland for the services they now receive, if the profitable parts of the Post Office are hived off as the right hon. Gentleman suggests? What exactly will they be charged for the service, or will the service be reduced—and, if so, how?
Sir K. Joseph: The hon. Gentleman cannot have followed what I said. His constituents will find no alteration whatsoever, unless they decide to make use voluntarily of the express service, at over £1, or the business document exchange, or decide to benefit from the freedom of charities to deliver Christmas cards. There will be no other change for them.
Mr. Adley: With regard to Christmas cards, will my right hon. Friend explain how those responsible are to know what is inside the envelopes? How will they know whether they really are Christmas cards? Who will do the checking, and how are they to know whether the cards come from a charity?
Sir K. Joseph: There are already privileges for lower-cost mail given by the Post Office. No doubt those privileges are sometimes abused. It is up to the Post Office to prosecute if it thinks fit.
Mr. Hugh D. Brown: Does the Secretary of State realise that this latest ideological obsession does nothing to solve the difficulties facing the Post Office, which are not seen by the public as a real problem, like unemployment, for example? It will be bitterly resented by the public, the workers and everyone on the Opposition Benches.
Sir K. Joseph: I do not think that the hon. Gentleman speaks for the public when he says that. To the extent that this reminder to the postal service that its monopoly is a privilege, and not a right, achieves a higer standard of service to the public, I think it will be welcomed.
Mr. Renton: Having taken this important first step in regard to the postal services, will my right hon. Friend now turn his attention to the inefficient and costly monopoly in the telephone services? Does he accept that if private capital and management were introduced into the telephone services that would lead to higher capital expenditure, more rapid introduction of advanced technology, and therefore a much better service to the customer?
Sir K. Joseph: The Government propose to announce their policy on the telecommunications service before the recess.
Mr. McQuarrie: Despite what has been said by Opposition hon. Members, I agree with what my right hon. Friend said today about the proposed operations by private operators. In the rural and coastal areas that will give an opportunity to entrepenuers and small businesses to create something, because there is a demand for that kind of service in those areas. In my constituency urgent mail has to travel 35 miles in both directions with the hope of its being received back into the same area within three or four days, instead of having a one-day service.
Sir K. Joseph: My hon. Friend is going a bit fast. There is no proposal to remove the monopoly in any area at present;

1507
there is simply a proposal to take powers to be able to remove it if in any area the performance falls below a specified standard.
Mr. Maclennan: Will the Secretary of State withdraw his accusation that Opposition hon. Members are not concerned about what is in the consumers' interest and recognise that he has not acted in accordance with the advice given by those who represent the consumers' interest—the Monopolies and Mergers Commission and the Post Office Users National Council? Why has the right hon. Gentleman felt it necessary to take the steps that he has announced in advance of the Post Office response to the Monopolies and Mergers Commission's recommendations, which he omitted in his initial statement? Will he recognise that our concern about the consumers' interest is, as he has failed to recognise, that any diminution in the Post Office's profitability is bound to put pressure on the less profitable services, particularly those that serve the rural communities, which can never be subject to commercial considerations?
Sir K. Joseph: I think that when he studies what I have said the hon. Gentleman will find that it is a balanced statement, which takes into account the interests of those who work in the postal service and of the postal service, and certainly of the rural areas. I stand by my charge that the Opposition seem to show scant interest in the consumer. The right hon. Member for Deptford (Mr. Silkin), who led for the Opposition, referred to the Monopolies and Mergers Commission but never specifically referred to the particular interest that led to the whole statement—namely, that of the consumers.
The hon. Member for Caithness and Sutherland (Mr. Maclennan) asked why I did not take more heed of the commission's report. I did take heed of it, but the hon. Gentleman must remember that the report was only on the inner London postal service, and my statement was about the national postal service.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: I shall call the Opposition Front Bench spokesman again, but
1508
I undertake to call afterwards not speakers from the Front Bench but the hon. Members who have been rising.
Mr. John Silkin: I should like to put two points, briefly. First, it was the Labour Government who appointed consumer representatives in the first place. Secondly, I referred the right hon. Gentleman, who clearly does not have a copy with him, to the Monopolies and Mergers Commission report, paragraph 12.2 and 12.3, where he will find a strong reference to the Post Office users and the consumers. Perhaps it would have saved time if the right hon. Gentleman had read it originally.
Sir K. Joseph: The right hon. Gentleman cannot create an alibi. He never once referred to the consumers, the public.
Mr. Michael Brown: I congratulate my right hon. Friend on his statement. Can he confirm that under present circumstances the preservation of the Post Office would in no way guarantee the continuation of the Post Office services in rural areas? Will he specify the criteria that he will apply in determining whether the Post Office is living up to his expectations?
Sir K. Joseph: What matters is the service in urban and rural areas alike. The purpose of my statement is to seek to improve those services.
Mr. Winnick: Leaving aside the genuine charities, may I ask whether the right hon. Gentleman is aware that there will be no confidence in a few pirates or spivs taking on the duties and responsibilities now being properly carried out by the Post Office? Is it not clear that his statement shows once again his malice and certainly hostility towards, and the vendetta that he is waging against, the public sector?
Sir K. Joseph: No individual will be forced to use a charity for Christmas cards. The Post Office will still handle charity Christmas cards, but the consumer will have the option of using charitable services if they are available and if he or she wishes.
Mr. Henderson: Does my right hon. Friend agree that an essential element in the justification of the Post Office monopoly is that, broadly speaking, equal ser

1509
vices at an equal price will be provided throughout the country? Is he aware that while his statement will be broadly welcomed on the Government Benches, the legislation that will follow will be more carefully studied by Conservative Members than by any other hon. Members, to ensure that it will not adversely affect rural constituencies?
Sir K. Joseph: I accept what my hon. Friend says, but I assure him that what I have announced will do nothing whatsoever to injure rural services.
Mr. Lyell: Is my right hon. Friend aware that the business community, which already resorts privately to expensive methods of its own, will greatly welcome the opportunity of the new, swifter and more flexible services that his proposals provide, and that it is illogical for the Opposition spokesman, the right hon. Member for Deptford (Mr. Silkin), to suggest that the fact that some other countries subsidise parts of their rural services gives any reason for depriving the community in this country of the beneficial measures that my right hon. Friend has announced this afternoon?
Sir K. Joseph: I agree with my hon. Friend on both points.

POSTAL SERVICES

  STATUTORY INSTRUMENTS, &c
  Ordered,
  That the draft North of Scotland Hydro-Electric Board (Compensation for Smelter Deficits) Order 1980 be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. MacGregor.]

SHIPBUILDERS (COMPENSATION)
4.20 pm
Mr. Peter Lloyd: I beg to move,
That leave be given to bring in a Bill to set up a committee to review the original terms of compensating the former owners of the assets nationalised by the Aircraft and Shipbuilding Industries Act 1977; and to propose more just and equitable arrangements.
It is impossible to bring this matter to a just and equitable conclusion under the Act as it stands because the Act restricts compensation for the companies concerned to their average stock market prices in the six months ending February 1974—a date that I know is engraved on many hearts. Stock market prices have no direct relationship to the real value of the underlying assets; and, in particular, the sectors concerned in that reference period were particularly depressed by the threat of nationalisation and by the first of the long series of oil crises by which the country had just been hit.
Thus, for a number of the companies taken into public ownership under the Act the compensation on the formula contained in the Act was far below their net worth. For instance, Vosper's, in my constituency, has been offered £4½ million for its warship building and ship repairing assets which on vesting day were worth more than £25 million, including £5½ million cash in the bank. In this matter the previous Government acted like nothing so much as a humorous burglar who having made off with the family valuables then offered the family compensation from the housekeeping money that he had snatched from the sideboard on the way out. Other companies, including Vickers, Yarrow and GEC, have a similar tale to tell.
The simple remedy I would have proposed is a straightforward amendment in so far as anything in these complex matters can ever be simple and straightforward. That amendment would have given each of the former owners the choice of keeping to the original terms of the 1977 Act or of opting for compensation based upon the company's net asset value on vesting day. I do not propose that because I was advised by the Public Bill Office that, as that would almost certainly mean extra

1511
spending by the Government, it would constitute a money Bill and would therefore be out of order.
Therefore, I am reduced to proposing that a committee should review the matter. But I am quite confident that, if the members of that committee have a modicum of objectivity and a modicum of fairness, they will not be able to avoid coming to similar conclusions about what is the right thing to do. I am sure that the majority of hon. Members—certainly my right hon. and hon. Friends—are convinced that the original Act is defective. However, I know that some of my hon. Friends fear that correcting the injustice contained in the Act will merely create new injustices.
First, there could be injustice between those companies that accepted the 1977 terms and those that did not. As I said earlier, every company, whether it has settled or not, could have the option that I briefly described. It would be the same for all companies and there would be no discrimination. Secondly, there is the fear of injustice between those who have bought and those who have sold shares in the former parent companies. But that worry ignores the fact that, under the scheme that the committee may well propose, no one would be worse off. That worry also forgets that in every stock market transaction each party has to take a host of uncertain factors into account.
In this case the buyers and the sellers would have had to make a judgment on the likelihood or otherwise of improved compensation being offered. They had to make a guess one way or the other. They could not avoid that, because nothing was definite in the matter.
The Conservative Opposition at the time trenchantly criticised the Act when it went through Parliament in 1977 and they never ruled out the possibility of subsequent amendment. True, they did not promise amendment, either. The matter was left wide open, and wide open it remains today. Moreover, that fear of creating new injustices underestimates the widespread assumption that such flagrantly unfair terms must eventually be superseded, as witness the steadfast refusal of the most profitable and, therefore, the most heavily penalised companies involved to settle, though they
1512
could well have done with the extra cash, however meagre, over the last year or two. It is not justice but injustice that is almost entirely on the side of leaving things as they are.
There is, too, a healthy reluctance to legislate retroactively, but it is surely the creation of retrospective penalties and obligations which is anathema, not retrospective compensation arrangements to remedy a clear-cut wrong. There are a number of examples of that that we can all applaud in other spheres.
It would not even be a case of establishing a new basis for compensation; it would be a case of returning to the earlier practice set by Herbert Morrison in the post-war Labour Government. That had long ensured that former owners of companies taken into public ownership were always fully compensated on an agreed basis. That practice was later enshrined internationally in the Washington agreement to which the United Kingdom is a signatory.
However, in the 1977 Act that basic principle was abruptly abandoned in favour of new arrangements which meant virtual confiscation for some of the affected companies. Since then, foreigners have had better protection for their property rights in the United Kingdom than have United Kingdom citizens though British citizens may, in due course, obtain judgments in their favour in the European Court of Human Rights at Strasbourg. That court is now being petitioned by an ex-shareholder on the ground, among others, that the Act contravenes Britain's own pleadings on other occasions in the International Court of Justice.
With all the worry and concern about precedent in these matters, it would surely create an extremely poor precedent if we were to allow this injustice and discrimination to continue uncorrected. For that reason, in particular, I beg leave to introduce the Bill.
4.28 pm
Dr. David Clark: I shall be brief in opposing this proposed Bill. I hope that the House will not give it a First Reading. I claim that it is impracticable, unnecessary, unfair and extremely provocative to tens of thousands of workers in the industry.
I argue that the Bill is impracticable

1513
and unfair on a number of grounds. Hon. Members might be aware that the majority of companies that were taken into public ownership in 1977, after many hours of debate in Committee and in the House, have agreed—I repeat agreed—terms with the Government. Of that majority, 10 agreed terms under the previous Labour Government and one only has agreed terms under this Government. If there has been a delay, it has been caused by the reluctance of this Government to come to an agreed—I repeat agreed—settlement with the outstanding companies. That is one reason why I think that this Bill is unnecessary.
The hon. Member for Fareham (Mr. Lloyd) argues for the setting up of a committee. There is no need for a committee. Under the 1977 Act there is provision for arbitration procedure by which an independent judgment can be obtained. Indeed, there is at least one company involved in arbitration at the moment. Therefore, I say that a committee is unnecessary.
I also argue that the Bill is deeply provocative and is irrelevant to the industry. As the Minister responsible will bear witness—he has visited the industry on many occasions—this is one British industry in which management and workers have worked side by side with a great deal of flexibility to make a success of the industry. The Minister has repeatedly said that from the Dispatch Box. That success will be threatened if a feeling develops that one group of previous owners will receive preferential treatment. I ask the House to consider that key issue.
Conservative Members may disagree but they do not represent constituencies on the Tyne, the Clyde or the Mersey where tens of thousands of people are out
of work. Government Members are not interested in the fact that one in five men in my constituency is out of work. They are interested only in the former shareholders.
I maintain that the shipbuilding industry, like every other industry, is a partnership between capital and labour.
Mr. Maurice Macmillan: Will the hon. Gentleman give way?
Dr. Clark: I do not have time to give way.
If we impose an extra financial burden on the industry, we shall weaken morale and make it more difficult for the industry to succeed. The management set a target of 45 ships. Many people said that that was an impossible target, but it was reached with little assistance from the Government. Management and labour did a magnificent job.
The hon. Member for Fareham said that he wanted to go back to the Attlee-Morrison formula for nationalisation. Many thousands, if not millions, of people believe that if there was one fault in the 1947 and 1948 Acts to nationalise industries it was that they were too generous to the owners. That is the feeling in the country. The 1977 Act sets a formula for a fairer balance between the shareholders and the workers. The 1977 Act provides a fair basis, and I ask the House to reject the Bill.
Question put, pursuant to Standing Order No. 13 (Motions for leave to bring in Bills and nomination of Select Committees at Commencement of public business):—
The House divided: Ayes 153, Noes 160.

Division No. 404]

AYES

[4.32 pm

Adley, Robert

Braine, Sir Bernard

Dunn, Robert (Dartford)

Aitken, Jonathan

Bright, Graham

Durant, Tony

Alexander, Richard

Brinton, Tim

Eden, Rt Hon Sir John

Alton, David

Brocklebank-Fowler, Christopher

Eggar, Timothy

Amery, Rt Hon Julian

Brotherton, Michael

Faith, Mrs Sheila

Ancram, Michael

Brown, Michael (Brigg & Sc'thorpe)

Farr, John

Atkinson, David (B'mouth, East)

Browne, John (Winchester)

Fisher, Sir Nigel

Baker, Nicholas (North Dorset)

Bruce-Gardyne, John

Fletcher-Cooke, Charles

Banks, Robert

Buck, Antony

Fookes, Miss Janet

Beaumont-Dark, Anthony

Butcher, John

Forman, Nigel

Bell, Ronald

Carlisle Kenneth (Lincoln)

Fraser, Rt Hon H. (Stafford & St)

Bendall, Vivian

Chapman, Sydney

Fraser, Peter (South Angus)

Benyon, W. (Buckingham)

Churchill, W. S.

Freud, Clement

Best, Keith

Clark, Hon Alan (Plymouth, Sutton)

Fry, Peter

Bevan, David Gilroy

Colvin, Michael

Galbraith, Hon T. G. D.

Blackburn, John

Corrie, John

Garel-Jones, Tristan

Body, Richard

Dorrell, Stephen

Glyn, Dr Alan

Bonsor, Sir Nicholas

Dover, Denshore

Grant, Anthony (Harrow C)

Bowden, Andrew

Dunlop, John

Greenway, Harry

Grieve, Percy

Meyer, Sir Anthony

Smith, Cyril (Rochdale)

Griffiths, Peter (Portsmouth N)

Mills, Iain (Meriden)

Smith, Dudley (War. and Leam'ton)

Gummer, John Selwyn

Mills, Peter (West Devon)

Spence, John

Hamilton, Hon Archie (Eps'm &Ew'll)

Moate, Roger

Spicer, Jim (West Dorset)

Hamilton, Michael (Salisbury)

Molyneaux, James

Spicer, Michael (S Worcestershire)

Hannam, John

Montgomery, Fergus

Sproat, Iain

Hawksley, Warren

Morgan, Geraint

Stanbrook, Ivor

Heddle, John

Morris, Michael (Northampton, Sth)

Steel, Rt Hon David

Hill, James

Morrison, Hon Charles (Devizes)

Steen, Anthony

Holland, Philip (Carlton)

Mudd, David

Stewart, John (East Renfrewshire)

Hordern, Peter

Murphy, Christopher

Stokes, John

Howell, Ralph (North Norfolk)

Myles, David

Tapsell, Peter

Howells, Geraint

Neale, Gerrard

Temple-Morris, Peter

Hunt, John (Ravensbourne)

Needham, Richard

Thomas, Rt Hon. Peter (Hendon S)

Jessel, Toby

Nelson, Anthony

Townsend, Cyril D. (Bexleyheath)

Johnson Smith, Geoffrey

Neubert, Michael

Trippier, David

Kaberry, Sir Donald

Onslow, Cranley

Wainwright, Richard (Colne Valley)

Kellett-Bowman, Mrs Elaine

Osborn, John

Waldegrave, Hon William

Knight, Mrs Jill

Page, John (Harrow, West)

Walker, Bill (Perth & E Perthshire)

Lang, Ian

Patten, John (Oxford)

Wall, Patrick

Lawrence, Ivan

Pawsey, James

Waller, Gary

Lee, John

Penhaligon, David

Walters, Dennis

Lennox-Boyd, Hon Mark

Pink, R. Bonner

Ward, John

Lewis, Kenneth (Rutland)

Pollock, Alexander

Wells, John (Maidstone)

Lloyd, Peter (Fareham)

Proctor, K. Harvey

Wheeler, John

Loveridge, John

Rees-Davies, W. R.

Wickenden, Keith

Lyell, Nicholas

Renton, Tim

Williams, Delwyn (Montgomery)

MacKay, John (Argyll)

Rhys Williams, Sir Brandon

Winterton, Nicholas

Macmillan, Rt Hon M. (Farnham)

Ridsdale, Julian

Wolfson, Mark

McNair-Wilson, Michael (Newbury)

Ross, Wm. (Londonderry)

McQuarrie, Albert

Sainsbury, Hon Timothy

TELLERS FOR THE AYES:

Marland, Paul

Shepherd, Colin (Hereford)

Mr. Michael Grylls and

Mawhinney, Dr Brian

Shepherd, Richard (Aldridge-Br'hills)

Mr. William Shelton.

Maxwell-Hyslop, Robin

NOES

Abse, Leo

Forrester, John

Mason, Rt Hon Roy

Adams, Allen

Foster, Derek

Maynard, Miss Joan

Allaun, Frank

Foulkes, George

Mikardo, Ian

Anderson, Donald

Garrett, John (Norwich S)

Miller, Dr M. S. (East Kilbride)

Ashton, Joe

Garrett, W. E. (Wallsend)

Mitchell, Austin (Grimsby)

Bagier, Gordon A. T.

Graham, Ted

Mitchell, R. C. (Soton, Itchen)

Bennett, Andrew (Stockport N)

Grant, George (Morpeth)

Morris, Rt Hon Alfred (Wythenshawe)

Bottomley, Rt Hon Arthur (M'brough)

Grant, John (Islington C)

Morris, Rt Hon Charles (Openshaw)

Bradley, Tom

Hamilton, James (Bothwell)

Morris, Rt Hon John (Aberavon)

Bray, Dr Jeremy

Hamilton, W. W. (Central Fife)

Morton, George

Brown, Ronald W. (Hackney S)

Hardy, Peter

Moyle, Rt Hon Roland

Brown, Ron (Edinburgh, Leith)

Harrison, Rt Hon Walter

Newens, Stanley

Buchan, Norman

Hattersley, Rt Hon Roy

O'Halloran, Michael

Callaghan, Rt Hon J. (Cardiff SE)

Haynes, Frank

O'Neill, Martin

Callaghan, Jim (Middleton & P)

Healey, Rt Hon Denis

Orme, Rt Hon Stanley

Campbell-Savours, Dale

Heffer, Eric S.

Parker, John

Canavan, Dennis

Hogg, Norman (E Dunbartonshire)

Parry, Robert

Cant, R. B.

Homewood, William

Pavitt, Laurie

Carmichael, Neil

Horam, John

Powell, Raymond (Ogmore)

Carter-Jones, Lewis

Howell, Rt Hon Denis (B'ham, Sm H)

Race, Reg

Clark, Dr. David (South Shields)

Huckfield, Les

Rees, Rt Hon Merlyn (Leeds South)

Cocks, Rt Hon Michael (Bristol S)

Hughes, Robert (Aberdeen North)

Richardson, Jo

Cohen, Stanley

John, Brynmor

Roberts, Ernest (Hackney North)

Coleman, Donald

Johnson, James (Hull West)

Roberts, Gwilym (Cannock)

Concannon, Rt Hon J. D.

Jones, Rt Hon Alec (Rhondda)

Rooker, J. W.

Conlan, Bernard

Jones, Dan (Burnley)

Roper, John

Cook, Robin F

Kaufman, Rt Hon Gerald

Ross, Ernest (Dundee West)

Cowans, Harry

Kerr, Russell

Rowlands, Ted

Cox, Tom (Wandsworth, Tooting)

Kilroy-Silk, Robert

Sandelson, Neville

Cryer, Bob

Lambie, David

Sheerman, Barry

Cunningham, Dr John (Whitehaven)

Lamond, James

Silkin, Rt Hon John (Deptford)

Dalyell, Tam

Leighton, Ronald

Silverman, Julius

Davis, Clinton (Hackney Central)

Lester, Miss Joan (Eton & Slough)

Skinner, Dennis

Davis, Terry (B'rm'ham, Stechford)

Lewis, Ron (Carlisle)

Smith, Rt Hon J. (North Lanarkshire)

Dempsey, James

Litherland, Robert

Soley, Clive

Dewar, Donald

Lofthouse, Geoffrey

Spearing, Nigel

Dormand, Jack

Lyons, Edward (Bradford West)

Spriggs, Leslie

Douglas-Mann, Bruce

McDonald, Dr Oonagh

Stallard, A. W.

Dubs, Alfred

McKay, Allen (Penistone)

Stoddart, David

Eadie, Alex

McKelvey, William

Stott, Roger

Edwards, Robert (Wolv SE)

MacKenzie, Rt Hon Gregor

Strang, Gavin

Ennals, Rt Hon David

McNally, Thomas

Straw, Jack

Evans, Ioan (Aberdare)

McNamara, Kevin

Summerskill, Hon Dr Shirley

Evans, John (Newton)

McTaggart, Robert

Taylor, Mrs Ann (Bolton West)

Field, Frank

McWilliam, John

Thomas, Dafydd (Merioneth)

Fitt, Gerard

Marshall, David (Gl'sgow, Shettles'n)

Thomas, Dr Roger (Carmarthen)

Flannery, Martin

Marshall, Dr Edmund (Goole)

Thorne, Stan (Preston South)

Foot, Rt Hon Michael

Marshall, Jim (Leicester South)

Tilley, John

1516

1517

Tinn, James

Welsh, Michael

Winnick, David

Torney, Tom

White, Frank R. (Bury & Radcliffe)

Woolmer, Kenneth

Urwin, Rt Hon Tom

Whitlock, William

Varley, Rt Hon Eric G.

Wigley, Dafydd

ELLERS FOR THE NOES

Walker, Rt Hon Harold (Doncaster)

Willey, Rt Hon Frederick

Mr. Don Dixon and

Watkins, David

Williams, Rt Hon Alan (Swansea W)

Mr. John Home Robe s

Weetch, Ken

Williams, Sir Thomas (Warrington)

Question accordingly negatived.

SHIPBUILDERS (COMPENSATION)

  BUSINESS OF THE HOUSE
  Ordered,
  That the Third Reading of the Finance (No. 2) Bill may be taken immediately after the consideration of the Bill notwithstanding the practice of the House as to the intervals between the stages of Bills brought in upon Ways and Means Resolutions.—[Mr. Biffen.]

ORDERS OF THE DAY

  FINANCE (No. 2) BILL
  Not amended in the Committee, and as amended in the Standing Committee, considered.
  Ordered,
  That the Finance (No. 2) Bill, as amended, be considered in the following order—

  (a) new clauses;

  (b) amendments relating to clause 1, Schedules 1 and 2, clauses 2 to 4, Schedule 3, clause 5, Schedule 4, clause 6, Schedule 5, clause 7, Schedule 6, clauses 8 to 40, Schedule 7, clauses 41 to 43, Schedule 8, clause 44, Schedule 9, clauses 45 to 47, Schedule 10, clauses 48 to 58, Schedule 11, clauses 59 to 71, Schedule 12, clauses 72 and 73, Schedule 13, clauses 74 to 84, Schedules 14 and 15, clauses 85 to 88, Schedule 16, clauses 89 to 103, Schedule 17, clauses 104 to 114, Schedule 18, clauses 115 to 117, Schedule 19, clauses 118 and 119;

  (c) new Schedules;

  (d) amendments relating to Schedule 20.—[Mr. Peter Rees.]

  FINANCE (No. 2) BILL
    New Clause 1

      MAINTENANCE FUNDS: ONE-ESTATE ELECTIONS
      (1) Where a building or land which is qualifying property for the purposes of subsection (3) of section 84 of the Finance Act 1976 (maintenance funds for historic buildings) forms part of an estate in relation to which an election has effect under section 73 of the Taxes Act (deductions from rents: land managed as one estate)—

      (a) the election shall not cease to have effect by reason only of another part of the estate becoming comprised in, and being managed by the trustees of, a settlement in relation to which the Treasury give a direction under the said section 84; and

      (b) that other part shall be treated as continuing to form part of the estate to which the election relates.

      (2) Where a person becomes the owner of any such building or land as is mentioned in subsection (1) above which in the immediately preceding ownership formed part of an estate in relation to which an election under the said section 73 had effect, any other part of that estate which continues to be or becomes comprised in a settlement of the kind mentioned in that subsection shall be treated as part of the estate in relation to which an election may be made by him under that section.
      (3) Where by virtue of this section an election has effect in relation to an estate part of which is comprised in a settlement—

      (a) there may be treated as deductible from the rents arising from that part—

      1520

      (i) any payments which are made in respect of the other part of the estate by the trustees of the settlement and which would be so deductible under section 72 of the Taxes Act if that part were also comprised in the settlement; and

      (ii) any payments made in respect of the other part of the estate by its owner to the extent to which they cannot be deducted by him under that section in the chargeable period in which they become due because of an insufficiency of the rents arising in that period from that part; and

      (b) any relief available to the trustees under section 79 of that Act (agricultural relief) in respect of the part of the estate comprised in the settlement shall instead be available to the owner of the other part of the estate.

      (4) Where by virtue of this section an election has effect in relation to an estate part of which is comprised in a settlement, the election shall not cease to have effect in relation to any of that part by reason of its ceasing to be comprised in that settlement if within thirty days it becomes comprised in another settlement in relation to which the Treasury give a direction under the said section 84.
      (5) The inclusion by virtue of this section in an estate of property comprised in a settlement shall not be construed as requiring it to be treated as the property of the person who owns the remainder of the estate or as affecting any question as to the person entitled to the income arising from that property.—[Mr. Peter Rees.]
      Brought up, and read the First time.
      4.42 pm
      The Minister of State, Treasury (Mr. Peter Rees): I beg to move, That the clause be read a Second time.
      The clause is tabled in response to an argument advanced in Standing Committee by my hon. Friend the Member for Anglesey (Mr. Best) which we judged to be valid. The clause is designed to perpetuate the advantages of the one-estate election where assets comprising part of the estate are, subject to an election, transferred to a maintenance fund. The concept of the one-estate election derives from the Finance Act 1963. It has been maintained through a number of Administrations.
      We are concerned that the imaginative concept of a maintenance fund, which derives from the Finance Act 1976, should be refined and improved so that there will be a take-up and so that our heritage assets will, so far as they can be, be supported and maintained by funds provided by the families that have owned the assets.
      Mr. John Horam: In Standing Committee we discussed the principle that owners of historic property should not lose existing tax advantages because of the new arrangements that the Government are introducing to deal with maintenance funds, and that they certainly should not lose them inadvertently as a consequence of the Revenue not foreseeing fully the effects of its measures.
      There is bipartisan support for the sensible upkeep of heritage properties. I personally support that on aesthetic and economic grounds. The Minister has said that the Government are building on the maintenance fund concept established by the previous Government.
      Is the Minister satisfied that owners will not be able to offset their legitimate costs against two sources of income? I understand that the one-estate election allows them to deduct costs from rents. The maintenance fund provisions will allow them to offset the costs against tax-free maintenance funds. I am concerned that it will be possible to claim the same costs against two sets of income.
      I am sure that the hon. and learned Gentleman will agree that, even with his grasp of legal matters, this is legislation of extraordinary complexity. We have seen a series of fairly complicated amendments to the innovation of the previous Government. During today's proceedings we shall be considering a large number of further amendments of considerable length to the position that the Government first established when they introduced the Finance (No. 2) Bill.
      We are dealing with highly complicated matters that few understand fully. That makes me uneasy. It may make the hon. and learned Gentleman uneasy to see the sprawl of legislation that bears on the heritage. As I examine it I am less convinced that the Government were right—I accept the honourable reasons that prompted them—in going down the path that we are now following. It may have been better to consider the different approach advocated by some of my hon. Friends. That is the approach of having not so much maintenance funds with heritage owners being able to use them in the way that they think fit but a system of grants that would enable us to see more clearly where the money was being spent. Such a system would allow
      1522
      the Government of the day more of a say in deciding exactly who should receive the money. I shall be grateful for the Minister's thoughts.
      We shall have to see how the system proceeds. It seems that there are only three maintenance funds in existence. Presumably, the hon. and learned Gentleman hopes that as a result of these changes many more funds will come into being. If the scheme is to work properly, there will have to be more funds. There must be far more than three funds.
      I hope that the Government will take into account the fact that we are becoming rather uneasy about the extent to which there has to be legislation covering the heritage because of the methods that Labour and Conservative Governments have chosen to pursue their objectives. It is absurd that so much of one Finance Bill should be dedicated to one part of the tax structure.
      Mr. Tam Dalyell: As one who tabled a number of amendments in Standing Committee, I, too, share much of the unease of my hon. Friend the Member for Gateshead, West (Mr. Horam). I sometimes wonder whether we are going about these matters in the best way, by choosing to emphasise the taxation route.
      It must be confessed that the heritage has occupied a considerable chunk of parliamentary time this Session. There were five sittings of two and a half hours duration in Committee on the National Heritage Bill. On the Floor of the House it has been debated for nine hours and 52 minutes and directly and indirectly, give or take three hours, in Standing Committee when considering the Finance Bill. On no occasion was there any filibuster. I think that Ministers will agree that there was no talking for talking's sake on the subject. As my hon. Friend the Member for Gateshead, West said, we are now entering a complicated area which very few people understand. Now the only Government new clauses on the Order Paper today are both concerned with the heritage.
      I confess that I have taken a huge chunk of the time devoted to this subject of the heritage. I was asked the other day whether it was the only thing I could speak about. You, Mr. Deputy Speaker, may be forgiven for observing somewhat

      1523
      ruefully that from your experience of defence and foreign affairs debates I have occupied my fair share of the time of defence Ministers and the Lord Privy Seal in the past six months! However, one can become immersed—possibly too deeply—in the question of the heritage.
      I therefore predict that, on this subject, next year and the year after will constitute a fallow time unless there is amending legislation to tidy up the loose ends. I do not think that one can over-egg this pudding. In the circumstances, I am not entirely surprised that new clause 22 has not been selected for discussion. I put it forward on behalf of the National Trust for Scotland with the support of the English National Trust and of Lord Charteris, the chairman of the National Heritage Memorial Fund.
      Unless I hear a satisfactory response from the Minister of State in his reply to the debate, I shall be writing to the Treasury to ask it to put on record its attitude to new clause 22. The issue here is that on occasion individuals and trustees of settlements wish to make gifts of property tied up in settlement to organisations such as the national trusts and that the property must first be appointed to a beneficiary who can give it in tax exemption to the trusts. The appointment is taxable, however, so that the gift is eroded by taxation—
      Mr. Deputy Speaker (Mr. Bernard Weatherill): Order. May I remind the hon. Gentleman that it is not possible now to speak to new clause 22 which, as he pointed out, has not been selected?
      Mr. Dalyell: I was making only a passing reference to it, Mr. Deputy Speaker.
      In welcoming new clause 1, I give the undertaking that I shall not seek to over-egg the pudding. Unless there is a minor clearing up of anomalies I shall not be returning to heritage issues next year on the Finance Bill. Perhaps there will be a general welcome, not only on the Treasury bench but elsewhere, that, having done so much this year, we do not propose to take up so much of the time of the Finance Bill on this subject in future. I think that my hon. Friend the Member for Gateshead, West was expressing the views of a large number of
      1524
      people in the House and outside when he said that we do not apologise for what has been done this year, but we shall not go on and on about it.
      I have lost no opportunity of saying candidly that in putting forward heritage amendments I was acting as a council member of the National Trust for Scotland. I have had the expert advice of, above all, Mr. Jeremy Benson, who also helped other members. On every occasion that an issue of substance was put forward I asked the lawyers whether they were sure that the proposal benefited the heritage rather than well-off people. On each occasion I was assured that that was the case. I have no doubt that they have been acting in complete good faith and that, to the best of their beliefs, it was the heritage that was being helped. Even so, there could be side effects.
      Equally, I pay tribute to the grinding hard work of the Minister's advisers both in the Treasury and in the Office of Arts and Libraries who have not only been extremely patient and have frequently made themselves available but have endeavoured successfully to do an excellent job in a necessarily complicated area. In a sense, if the National Heritage Memorial Fund legislation achieves its general purpose, it will be a memorial in part also to those who worked so hard at it. I pay the advisers the compliment of trusting them to make sure that such proposals as they have accepted from us are limited to the good of the heritage rather than to individuals who may be associated with the heritage.
      Bluntly, if the heritage bodies are satisfied they can largely thank the National Trust for Scotland—colleagues will know that I cannot sensibly be charged with Scottish nationalism—because it was it and its director, James Stormonth Darling, who convened the original brains trust conferences and acted as a catalyst for much of the briefing that I and others have openly said we have received.
      I am sensitive to a feeling in some quarters that the National Trust for Scotland has an affinity with landowning interests. That may be partly true, but I occupied the place on the council that belonged first to the late Right hon.

      1525
      Arthur Woodburn and subsequently to the Right hon. Miss Peggy Herbison. That well-known belted earl, Lord Ross of Marnock, who, as Willie Ross, the Member for Kilmarnock, dominated the Left in Scotland for so long and entertained the House of Commons for some 33 years with his basso profundo diatribes against privilege, is now a respected member and deputy chairman of the National Trust for Scotland. The people who run the trust will not consciously be a party to asking for concessions that go beyond the heritage as such. Equally, because the subject is now so complicated it is understandable that Back-Bench Members cannot be quite certain of the effects of their proposals. We therefore rely on Ministers and civil servants to explain whether the cost to the Treasury of our amendments is likely to overlap into areas not concerned directly with the heritage or concerned with it in other capacities.
      I therefore underline the comments of my hon. Friend in making no apology for arguing the case for the heritage. There is a formidable problem to be faced. Much of what is to be preserved goes back four centuries or more. In those cases the costs of preservation often rise at an exponential rate. We cannot pretend that either tax concessions or the National Heritage Memorial Fund can do the job adequately. It is arguable, as my hon. Friend explained, whether tax concessions are the proper way to deal with the problem. I shall not be back asking for more tax concessions. If more needs to be done, the correct route is directly through the Historic Buildings Council and other agencies. In the meantime let the heritage bodies be grateful for what has been achieved.
      In Standing Committee on the National Heritage Bill and, to a lesser extent, on this Bill the case for archaeology was advanced. I wish to draw the attention of the committee to the latest edition of Rescue News, the journal of archaeologists which carries the headline "Backwards into the 80s". It makes the point that public expenditure of £2·25 million is woefully inadequate for the job that has to be done unless part of the heritage is to be lost for ever.
      It is for those reasons that I welcome the setting up of the National Heritage
      1526
      Memorial Fund. Equally, I welcome such tax reliefs as have been given but ask how much public money is expected to flow from the Government's new clause. Some price tag ought to be put on it, as we frequently said in Committee. Has a price tag been put on the clause? I welcome the clause with all the qualifications that I have thought it right to put before the House.
      Mr. Peter Rees: I shall respond briefly to the short contributions from the Opposition Benches.
      The hon. Member for Gateshead, West (Mr. Horam) raised two points, and I shall endeavour to deal with both. He quite properly wished to be reassured that there could not be a double offset for expenses. Indeed, there could not be an offset for the same set of expenditure against the funds of a maintenance fund and against the property comprised in a one estate election that was not within that maintenance fund. I wish to reassure the hon. Gentleman and the House that it is only legitimate expenditure on the maintenance of the heritage asset, and not in any sense personal expenditure of the current owner of the asset, that can be the subject of relief. I hope that that deals adequately with the first point.
      5 pm
      The hon. Gentleman's second point was of wider significance. He said, as did his hon. Friend the Member for West Lothian (Mr. Dalyell), that we had to deal with a large number of complex provisions in the Finance Bill. I would be the first to concede that, because I was largely responsible for commending the provisions to the Committee. To me has fallen the job of commending this new clause and new clause 2 to the House tonight. The hon. Gentleman will be the first to recollect that the provisions on which we are building, which originally introduced the maintenance fund concept in the Finance Bill 1976, and which received bipartisan support, were complex also. I do not apologise for, or make any secret of, the fact that they are matters of high technicality. As the hon. Member for West Lothian rightly pointed out, the Minister of the time has to commend the provisions to the House—not only to reassure himself but to reassure the House that they are right, and that we are establishing an acceptable framework.

      1527
      The ownership and the devolution of property of whatever sort, both north and south of the border, depends on rules often of great antiquity and great complexity. They are complexities to which the profession to which I belong has contributed over the years. I entirely accept that. They are matters of some difficulty. I accept the general proposition stated by the hon. Member for West Lothian that we do not want to return year after year to the problem. I cannot guarantee that we shall not. It would be arrogant in the extreme to suggest that we have got every line right, but I hope that we have. I would not wish to inflict on the House again a whole range of measures of technicality in that area. I take into account the remarks of the hon. Gentleman. He invokes an echo from me, as I have had the business of comprehending the principles at stake, and also of trying to supervise their translation into a legislative framework.
      The hon. Member for Gateshead, West was right to remind us that the problem could be approached in two ways. We could choose the Government grant route for which a case was made in Committee, as it was made on earlier occasions, by the hon. Member for Motherwell and Wishaw (Dr. Bray). It is a perfectly legitimate area of debate. Do we approach the problem by relief through the tax system, or by Government grants, or by a blend of the two? If so, where do we strike a balance?
      In the context of the provisions in the Bill and in the new clause, I must point out that, having enshrined in our fiscal legislation the concept of maintenance funds, I am sure—and I hope that I speak for both sides of the House—that we wish to ensure that it is a practical route that people will want to adopt.
      The hon. Member for Gateshead, West said that three maintenance funds had been established to date. I do not know whether he derived that information from an answer of mine. I have checked on the position, and I find that only two have been established in four years. That demonstrates that there has not been an immediate rush to take advantage of the reliefs. Therefore, we have asked ourselves "What are the partic
      1528
      ular difficulties? "We have sought advice from a wide range of quarters. Some of that advice, no doubt, has been tendered to Opposition Members. I hope that that will always be so because we wish to find a bipartisan approach to the problems.
      The House having decided in 1976 that a measure of fiscal relief through maintenance funds was an appropriate way to preserve the heritage of Britain, we wish to ensure that the heritage concept is workable, and is sufficiently attractive for people to take advantage of it. It is only in that respect that we have ventured to accept some amendments and to put forward some new clauses in Committee and in the House today.
      I understood the point raised about new clause 22, but I should be out of order if I responded directly to the hon. Member for West Lothian. If he wishes to write to me setting out the worries about the new clause, I shall endeavour to deal with them to his satisfaction. I hope that I can, by proxy, accept with gratitude the kind words that he said about the officials who have dealt with this extremely complex subject. Not only have they done their best to instill into my mind the technicalities and broad principles, but I am glad to hear that they have offered their expertise to people inside and outside the House. Broadly speaking, we can get that difficult area right.
      Without pre-empting the debate about where the balance precisely should be struck, at least we can say that, if there is to be a maintenance fund route, it is a viable route and one that those concerned will feel anxious to take up and enjoy for the benefit of the country as a whole.
      Mr. Dalyell: What about the price tag?
      Mr. Rees: As I said in Committee, it is difficult to put a precise price tag on this provision. We have to make a whole range of assumptions. As I said earlier, only two maintenance funds have been established, and we have to make assumptions about the number of people who may wish to do so. If the House will make every allowance for that, the best price tag that I can predict is £1.6 million per annum.

      1529
      I hope that the House will feel able to accept the new clause.
      Question put and agreed to.
      Clause read a Second time, and added to the Bill.

    New Clause 2

      MAINTENANCE FUNDS FOR HISTORIC BUILDINGS
      (1)No stamp duty shall be chargeable on any instrument whereby property ceases to be comprised in a settlement if as a result of the property or part of it becoming comprised in another settlement (otherwise than by virtue of the instrument itself) there is by virtue of section 88(4)(d) or 89(1) above no charge to capital transfer tax by reference to the value of the property ceasing to be comprised in the settlement or a reduced charge to tax by virtue of section 89(3) above; but where only part of the property becomes comprised in the other settlement this subsection shall not affect the stamp duty chargeable on the instrument by reference to the other part.
      (2) An instrument in respect of which stamp duty is not chargeable by virtue only of this section or in respect of which the duty chargeable is reduced by virtue of this section shall not be treated as duly stamped unless it is stamped in accordance with section 12 of the Stamp Act 1891 with a stamp denoting that it is not chargeable with any duty or that it is duly stamped.—[Mr. Peter Rees.]
      Brought up, and read the First time.
      Mr. Peter Rees: I beg to move, That the clause be read a Second time.
      The new clause deals with maintenance funds from the stamp duty aspect. I have tabled it in response to the point made with admirable lucidity and brevity by my hon. Friend the Member for More-cambe and Lonsdale (Mr. Lennox-Boyd) in the concluding stages of the Committee. He pointed out that relief is enshrined in the Finance Bill from capital transfer tax and capital gains tax where funds are taken out of one maintenance fund and resettled in another, or appointed into it from a discretionary settlement. He pointed out that there was a gap in the reliefs that we had offered because we had afforded relief from capital transfer tax and capital gains tax, but not from stamp duty.
      In our debates in Committee on capital transfer tax and capital gains tax I made the point, which commanded assent from both sides of the Committee, that in many instances, because of the operation of the rule against perpetuities, maintenance
      1530
      funds would not be able to persist for more than 80 years. If those concerned were anxious that the funds should continue to enjoy the tax reliefs, and should continue to be applied to the maintenance of a certain heritage asset, they should be reappointed on fresh maintenance fund settlements. It was in that context that we felt it right to introduce a measure of capital transfer tax and capital gains tax relief. On the prompting of my hon. Friend the Member for Morecambe and Lonsdale, we feel that the same relief from stamp duty should also be afforded.
      Mr. Horam: I understand that the relief granted for stamp duty will apply only when a fund is broken to avoid the perpetuities rule and is transferred to another fund. Stamp duty will be chargeable when money is taken out of the fund.
      Mr. Dalyell: The whole issue of the rule of perpetuities is extremely complex. As we have said already, it is highly undesirable that we should ever have to discuss the matter again, either in Committee or on the Floor of the House.
      Will it be possible to produce a document in 12 or 18 months monitoring the effect of this provision to show how it has progressed? There is a difficulty which applies not only to the Finance Bill but to a number of other matters with which we deal in the House. We spend a great deal of time passing legislation and far too little time examining within one, two or three years how it has worked out in practice. This is something of a test case. There could be a sober look at how the provision has worked out in practice, with a report being made to the House, preferably in written form.
      I leave it at that, because there is much to be done during the next few hours. However, I wonder whether the Minister could give a favourable response in principle.
      Mr. Patrick Cormack: I associate myself with the remarks of the hon. Member for West Lothian (Mr Dalyell). He has made a valuable point. It is obvious that over the last few years the rules governing maintenance funds have not really worked. Such funds have not been set up.

      1531
      Indeed, the perpetuities rule has bedevilled most of them. However, everyone concerned with the preservation of our heritage and historic buildings is deeply grateful to the Government for the moves that they have made during the passage of the Bill. I add my warm thanks to my hon. and learned Friend the Minister of State for his own personal endeavours in that regard.
      I hope he can adopt the suggestion of the hon. Member for West Lothian. It would be extremely helpful to everyone if we monitored how the new system was working. If the desired aims, which I think are shared in all parts of the House, are not realised, perhaps we could have some fine tuning.
      Mr. Peter Rees: I do not know whether I am disposed to commit this or any other Administration to fine tuning in this area, because I am not exactly certain whether I have a sufficiently sensitive ear. However, I take the point that has been made by both the hon. Member for West Lothian (Mr. Dalyell) and my hon. Friend the Member for Staffordshire, South-West (Mr. Cormack), who over the years have made an enduring contribution to the preservation of heritage assets. Indeed, they have also stimulated the awareness of our fellow countrymen to what is at stake.
      I think that this and any Administration would be concerned to see how these measures work out. I am not certain whether we would be justified in laying a report before the House, because there are only three matters on which we must reassure ourselves. The first is how many maintenance funds will be set up in the light of the reliefs afforded in the Finance Act 1976 and in this Bill. Secondly, we shall want to know how the fiscal reliefs are operating, and whether there is any evidence of abuse or avoidance, which will obviously be a matter of concern.
      The third reason is a matter of more general concern which is perhaps not even a matter for the Treasury or the Inland Revenue. It relates to the scale of destruction or disrepair of heritage assets which are not adequately preserved or maintained, either by the system of fiscal reliefs embodied in the maintenance fund legislation or a system of Gov
      1532
      ernment grants. That is a more general question to which I am sure the House will want to return from time to time.
      On the narrower question of how many maintenance funds will be set up, it will be open to any hon. Member who is interested in these matters to table questions. I can assure hon. Members that we shall be concerned to ensure that the provisions are not abused. Indeed, I gave that assurance in Committee upstairs, where hon. Members were quick to observe, as I am sure the House will be, that we have embodied certain very stringent provisions which will operate if funds are taken out for the benefit of the individuals and not for the heritage itself, and if income is not applied for the benefit of the heritage but is taken out for the benefit of individuals. I do not say that there are penalties, but at any rate there is a fairly stringent and, I hope, adequate clawback of reliefs. I hope that that will reassure the House.
      I turn to the more general question raised by the hon. Member for Gateshead, West (Mr. Horam). The cases provided for in the new clause are those which involve a distribution of assets made to an individual out of an existing discretionary trust or an existing heritage maintenance fund and their resettlement within 30 days in a new heritage maintenance fund. The new clause is designed to cover that narrow range of situations, which, broadly speaking, are covered by reliefs from capital transfer tax and capital gains tax.
      I hope that the new clause will commend itself to the House.
      Mr. Dalyell: The case for some kind of monitoring partly rests on the fact that the Treasury, quite properly, is not prepared to disclose the tax affairs of individuals where those tax affairs can be identified. No one quarrels with that as a matter of principle. However, there is a responsibility for giving some assurance that there is no abuse.
      As it happens, I have the impression, which may be wrong, that there is very little, if any, abuse at present. A careful watch is kept by the Treasury and the Inland Revenue in respect of these matters. On the other hand, if the system is to be extended in any way, we should face the fact that as laws become more

      1533
      and more complex, and because there are extremely expert lawyers to advise people who have property, there is an argument for some kind of Government report such as that which the hon. Member for Staffordshire, South-West (Mr. Cormack) and others have asked for—
      5.15 pm
      Mr. Deputy Speaker: Order. I must remind the hon. Gentleman that this is a Report stage and not a Committee stage. I took his remarks to be an intervention and not a speech.
      Mr. Dalyell: Thank you, Mr. Deputy Speaker. I have made my point.
      Question put and agreed to.
      Clause read a Second time, and added to the Bill.

    New Clause 4

      AMENDMENT OF S. 248 OF THE TAXES ACT
      Section 248 of the Taxes Act (allowances of charges on income) shall be amended as follows:—

      (a)at the end of subsection (3)(b) by the insertion of the words—
      "(c) any donation to charity".

      (b)in subsection (5) by the omission of the word "covenanted".

      (c) in subsection (8) by the omission of the word "covenanted".

      (d) by the substitution for subsection (9) of the following—

      "(9) In this section 'donation to charity' means a payment made, otherwise than for consideration in money or money's worth, by the company to a body of persons or trust established for charitable purposes only".—[Mr. Paul Dean.]
      Brought up, and read the First time.
      Mr. Paul Dean: I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker: With this we may discuss amendment No. 58, in clause 55, page 39, line 1, leave out subsections (4) and (5) and insert—
      '(4) In paragraph 3 of Schedule 16 to the Finance Act 1972 (Apportionment of amounts which have been deducted by close companies in arriving at their distributable income) there shall be inserted at the end of sub-paragraph (2) the words "or constitute covenanted donations to charity as defined in section 248(9) of the Taxes Act and which do not exceed £10,000 in the aggregate.".'.
      Mr. Dean: One of the sponsors of the new clause is my hon. Friend the Member for Kingswood (Mr. Aspinwall), and I am sure that the whole House wishes him a speedy recovery from his recent accident.
      The new clause may appear to be complicated because it amends the Taxes Act. However, its purpose is very simple. It is that all donations by a company to a charity should be tax deductible. I am grateful for the expertise of the National Council for Voluntary Organisations in assisting in the drafting of the new clause.
      I shall be brief, because I am conscious that the House has a great deal of business to transact. However, I should like briefly to paint the background to the new clause. Over the centuries, charitable organisations have made a major contribution to the religious, cultural, educational, economic and social life of this country. One has only to look at the glories of our cathedrals, churches, schools and artistic organisations to recognise the great contribution that has been made by the charitable organisations. That contribution has been recognised by Governments of all political colours over many centuries through the tax relief which has been made available to those organisations.
      I would be churlish if I said that the Government have not responded to the pleas made last year by my hon. Friends and myself. They were replied to sympathetically by my hon. and learned Friend the Minister for State. Similar proposals were put forward on 10 July last year. Indeed, on that occasion, my hon. and learned Friend said:
      "My hon. Friends have put down markers which a Conservative Administration would ignore at their peril."—[Official Report, 10 July 1979; Vol. 970, c. 412.]
      That was a comforting phrase from my hon. and learned Friend. I marked it in my Hansard, and I have it with me today. Such is the influence of my hon. and learned Friend on my right hon. and learned Friend the Chancellor that in this year's Budget Statement substantial progress was made—I freely concede this—in meeting the points that were put forward last year.
      All the points that were put forward last year have a respectable pedigree.

      1535
      They benefited from the research carried out, and recommendations put forward, by the Goodman committee on charity law and voluntary organisations, which reported in 1976, and also from the fiscal working party that was set up by what was then the National Council for Social Services and is now the National Council for Voluntary Organisations. I warmly welcome the Government's response in meeting many of the points put forward last year, particularly in relation to charitable donations made by individuals.
      But, welcome as those proposals are, they do not go far enough, for two reasons, First, charities lose revenue when income tax is reduced. It is one of those unhappy ironies that a tax reducing Government, are not to the liking of charities. As a result of the reduction of income tax from 33 per cent. to 30 per cent. the income of charities has probably been reduced—I am of course talking about income through covenants—by about £3¼million to £3½ million. That is a substantial loss of revenue to charities, a factor that I hope that my hon. and learned Friend will consider relevant to the background of this debate.
      The second reason, and in many respects a more significant one, is that many of the charities rely on grants from central or local government to pursue their activities. I give credit to the Government for saying that there will be no reductions of central Government grants to voluntary organisations and charities, and I believe that they have honoured that commitment. Unfortunately, the same cannot be said for local authorities. There are all too many examples where county councils, district councils and other public bodies have stopped their grants to local charitable and voluntary organisations. It has been the easy way out. It is often easier to cut the grant to an outside organisation than to prune something within one's own house. But the combination of economies in public expenditure by local and central authorities, and the reduction of grants by local authorities to voluntary organisations has made it more difficult for them to fill the gaps that public expenditure can no longer meet. As a result, it is all the more important that individuals should be encouraged to make increasing contributions to charitable organisations, and that com
      1536
      panies should be encouraged to do so also.
      The Government should now seriously consider going further. The encouragement that they have given to individuals in this Bill, welcome as it is, does not give equal encouragement to companies. I hope that some of the other recommendations made by the fiscal working party will be sympathetically considered by the Government.
      As I understand it, at present a company can give donations—and get tax relief without too much difficulty—to a local charity that is connected with the business concern or with its employees, or which is closely linked with the business of the company. As a result, most of the charitable donations fall into that category. But if the company wishes to go wider than that, there are substantial complications involved, and the income tax has to be deducted at the basic rate, and then reclaimed by the charity. Further, the company deducting the income tax has to account for such tax to the inspector of taxes on a quarterly basis. That is a highly complicated matter, and deters many companies from giving on a wider basis than they would otherwise be prepared to do. For that reason, I hope that my hon. and learned Friend will be able to follow the pattern that has now been set for individuals for companies also.
      My suggestion has a respectable precedent. It was a suggestion of the Goodman committee in 1976. I realise that my hon. and learned Friend may say that charities have been given a substantial concession this year and cannot expect too much. I would be sympathetic to that argument. but I hope that my hon. and learned Friend will say that at least he accepts the principle of my suggestion and that he will be sympathetic to it, if not this year then next year. He may say that this is not the best way of achieving the objective, and that it would be more sensible and helpful to look at the American experience. Equally, I would be sympathetic to his arguments. I pay tribute to the substantial advances that the Government have made in encouraging individuals to give charitable contributions. I am simply asking that what has been done in this Bill for individuals should be done equally for companies, if not this year then as speedily as possible.
      Mr. Richard Wainwright: Although I endorse much of what the hon. Member for Somerset, North (Mr. Dean) has said, my amendment No. 58 is more specific, and is deliberately intended to remedy what is regarded as a serious flaw in what the Government are doing this year for charitable objects. The amendment is related to several matters of principle, and although I feel bound to draw the attention of the House to them, I shall be as concise as possible.
      In the Budget Statement and associated documents, the House was led to believe that close company covenant sums and charitable objects would not be apportioned. In his Budget Statement, the Chancellor specifically said that he was moving in accordance with the recommendations of the Goodman committee, and he made no qualification of his adherence to those recommendations. However the Inland Revenue press release, which coincided with the Budget Statement, stated that close company donations to charities would not be apportioned among the shareholders of close companies. It was therefore a considerable surprise and disappointment to note that the Finance Bill went back on that press release and provided for apportionment of covenant donations from close companies.
      The second matter of principle is one that has been endorsed by a majority in the House, and certainly Conservative Members have endorsed it repeatedly in recent months. It is that the arts and other charitable objects should not be wholly dependent upon Government subsidy but that increasingly voluntary contributions should replace much of what the taxpayer has shouldered in the past. I take that to be the philosophy of most Conservative Members and also of some Opposition Members. How perverse it is, then, for the Government to go out of their way in the Bill to clobber on the head a very valuable source of financial support to charitable objects, namely, gifts from close companies.
      5.30 pm
      Then there is the point whether it is healthy for the arts—and perhaps some other charitable objects—to be wholly in the hands of Government financial support. The Association for Business Sponsorship of the Arts has expressed this view in a letter of May of this year to the
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      Financial Secretary to the Treasury. It says that
      "his organisation have always taken the view that the private sponsorship of the arts is important not only as a relief to governmental pressure but also on the vital social ground that the Government should not be the only source of support for creative activities."
      Yet flying in the face of that view—which I would have thought had widespread support of the House—the Government go out of their way in the Bill to handicap the support which close companies generously give to the arts and other charitable objects.
      There is also the important point that the Government seem unwilling to recognise that most close companies have a life of their own, distinct from the lives of their various proprietors. It is only in the mind of the Inland Revenue that a close company is regarded as a somewhat bogus body, with no existence other than the joint existence of its proprietors.
      In the real world, it is well known that many very substantial trading companies are close companies. What happens—certainly in my experience—is that very often it is the managers, the chief executives, not the shareholders, of the close company who form the view, in the course of their management of the company's affairs, that it would be right and proper, and perhaps beneficial, for the company to support various objects in the community in which it is situated. It might be thought appropriate to support arts festivals, certain local charities, and other good causes. It is the managers who put the idea to the shareholders or the board that the company—not the shareholders but the company—has a public duty to subscribe to these charitable objects.
      I hope that I have made the point that all of that is a world away from the charitable motives of individual proprietors of close companies. What happens in many cases is that the individual shareholder in his own private life makes charitable convenants to Oxfam, Save the Children Fund, a church organisation, or whatever it might be, and then the company, in which he is just a shareholder, has charitable motives of its own and wishes to make covenants as a company. It is flying in the face of reality for the Government, prompted by the Inland Revenue, to pretend that close companies do not have lives and motives of their own.

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      In Committee, the only serious argument that the Minister of State adduced against a similar amendment was that it had no limit, so that the awful prospect loomed of close companies so milking the Revenue that the Budget would be very severely knocked about. Therefore, obedient and responsive to the Minister of State's point, we have come back now with this amendment containing an upper limit of £10,000 for any one close company in any one year.
      The Minister of State professed great delicacy in Committee. He said that he could not possibly think of imposing an arbitrary limit and that he could not find some formula—such as the number of shareholders, the age of their grandmothers, or the turnover of the company—that would produce a limit. That ignores the fact that for individual taxpayers. quite rightly, the Treasury has imposed an arbitrary limit, namely, £3,000 a year. There is nothing wrong with that.
      We have come back on Report, therefore, with an amendment containing this admittedly arbitrary—but I think perfectly reasonable—upper limit of £10,000 on charitable contributions by any one close company in any one year. I hope that on reflection the Treasury Ministers will agree that it is a serious flaw in their generous treatment of charities this year that they should have surrendered to bureaucratic panic and flown in the face of several important principles, which have the support of the House, in denying close companies a reasonable right to show charitable intentions.
      Mr. Anthony Steen: In supporting the new clause, it might be useful to the House if I were to say a word about the definition of charities, because they cover a great range of activities. Not only do we have direct service charities, giving service to people in need in the community; we also have a great deal of pioneering service which charities give in the community, not to mention the fund-raising bodies which are also charitable. In addition, there are many specialist services, such as the family service units which fill in the gaps when the local authorities can no longer carry out services themselves.
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      There is also the new body which has emerged over the last decade—the pressure group which is, more often than not, also a charitable organisation, and which tries to mix the service side with the campaigning and pressure group side.
      In the last two years we have seen the advent of the community service concept in the courts and, more recently, for the unemployed. That is a confusion again between the charitable work, on the work hand, for the recipients, and, on the other, the organisations which are administering the charity.
      All this creates a degree of confusion in the minds of hon. Members and in the minds of the public as to exactly what charities are doing at the moment. But we can say that they share one thing in common: they are non-statutory. They are not run by the Civil Service. Although some which have staff and are quangos are paid nearly as much, they are the private side of the welfare coin. They are independent of the politicians and are not caught by public constraints. The charities represent the conscience of the nation.
      The party in opposition is always quick to say how important voluntary work is. When we have been in opposition, we have always traditionally supported voluntary work. The difference between the Conservative Party when in office and the Labour Party in office is that we have actually done something this time to help the voluntary organisations. We do not hold a monopoly of voluntary organisations, any more than the Labour Party holds a monopoly of care.
      The confusion about why charities need money is perhaps part of the thinking behind the argument for the amendment, because in the past charities have increasingly relied on public sector support for their organisational work. The Conservative Government take an opposite view. It is that no longer shall we go on building up the public sector finance to support the work of voluntary organisations. We shall reverse that process and encourage the private sector to finance the work of independent private organisations.

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      Our argument goes further. We say that the people know best what they want. Instead of collecting taxes from the people and distributing money by way of central or local grants, we shall hand the money back so that the people can decide which charities and voluntary organisations they wish to support. If the Government believe that the people know best what to do with their money, and that we should encourage them to distribute it locally to voluntary and charitable groups, the important corollary is that private companies should be encouraged to support the private sector of voluntary work. That is the thinking behind the new clauses. It is merely an extension of the Government's proposals to shift taxation relief and to reduce the length of the covenanted income.
      Voluntary work has continued to increase among local communities. We must recognise that there has been a shift from public to private financing. As a result of the cuts, local authorities are rightly reducing the amount of grant given to service organisations. However, one cannot reduce the income of voluntary and charitable organisations unless it is increased by another method, namely, through private sector contributions.
      Given the present level of inflation and a reduction in real earnings, it is clear that the individual will not produce the necessary finance. It is therefore necessary to find another device—namely, the private company—to which the private sector can turn for increased income. The new clause deals with a new source of funding for charities. Many charities will find themselves at an important cross roads. When the cuts bite on local authorities, they will be able to turn to individuals and to private companies for money. We support that principle, and we hope that the Government will support it.
      Mr. Charles Morrison: When my hon. Friend the Member for Liverpool, Wavertree (Mr. Steen) referred to pressure groups, I could not help feeling that someone who had not been a chairman of a voluntary organisation, as I have been, would not understand the full implications of the term "pressure group". My hon. Friend was a director of such an organisation and no one was more determined than he to turn that
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      voluntary organisation into an effective pressure group. The organisation was effective partly because voluntary contributions were made from a variety of sources, and partly because of the benign contributions that were made by the Government of the day.
      5.45 pm
      I support the new clause. Last year the Minister showed great sympathy when he replied to our pleas for a more generous approach to charitable institutions. This year he has followed up that sympathy with action. The action that he has taken has been most generous and has rightly earned the gratitude of the charities. The Government's record cannot be beaten by any of their predecessors.
      The importance of charities cannot be over-emphasised, particularly at a time of economic difficulty, when the Government are correctly intent on cutting public expenditure. As my hon. Friend the Member for Wavertree pointed out, charities cover a range of organisations. Many of them provide full-time or part-time employment. Many are deeply involved with the social services and fill gaps that may exist or which, perforce, may have to be created in the Welfare State.
      Any money spent on voluntary organisations is money well invested. Just as contributions to voluntary organisations create expenditure that is far in excess of the level of the contribution—as a result of the voluntary element—so charitable contributions can expand the work of the voluntary organisation. I agree with my hon. Friend the Member for Somerset, North (Mr. Dean) that not enough has been done, even now, for charities. I support the new clause, because it will encourage companies to make greater contributions to charity. There can be no doubt that the new clause will simplify the system of taxation, or lack of taxation, for companies.
      If the Minister accepts the new clause, it will encourage companies, just as other provisions in the Bill are providing greater encouragement to individuals to make charitable contributions. I also agreed with my hon. Friend the Member for Somerset, North when he said that he hoped that the Minister would give a sympathetic reply. It would be pleasant if he felt able to accept the new clause.

      1543
      If he gives warning that he will consider the measure, with a view to accepting it next year, it will further encourage charities and companies which may be interested in the new clause.
      Mr. Chris Patten: I do not wish to interrupt the smooth and largely uncontroversial passage of the Bill for too long. I should like to make three brief points in support of the new clause, which was moved so ably by my hon. Friend the Member for Somerset, North (Mr. Dean). I support the new clause with more discretion than valour, but I should not like it to be thought that I was ungrateful to the Treasury and to the Minister of State for their actions to encourage charitable giving. I think in particular of clause 53.
      For several years I worked in or around voluntary organisations. I am used to writing to the Treasury shortly before Budget day and asking it to encourage charitable giving. I am equally used to receiving circular, carefully laminated replies from the Treasury, saying that that will not be possible this year because of the dangers of creating anomalies or precedents. I have always thought that that was one of the purposes of politicians. If the Treasury did not say that, it would say that the money was not available. When I heard the right hon. Member for Llanelli (Mr. Davies) speak about clause 53 in Committee, I thought that some of the replies that I received must have been written by him. The Treasury and my right hon. and learned Friend the Chancellor of the Exchequer went a good deal further than that. Indeed, they went further than we had asked them to do. It was a most disorientating experience. We hope that that will be repeated next year as regards VAT and charities.
      Secondly, I wish to say a word about the principle that lies behind new clause 4. Hon. Members will recall that G. K. Chesterton, when asked what book he would take with him to a desert island, replied that he would take Thomas's "Guide to Practical Shipbuilding". Similarly, any discussion on the importance of voluntary organisations cannot take place without considering the report of the Goodman committee on charitable law and voluntary organisations which came out about four years ago.
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      That report pointed out that the spirit of voluntarism has been one of the hallmarks of our civilised society, and it notes that a great deal of our social progress in this country has been based on co-operation between the statutory services and voluntary organisations. It is clearly the case that central and local Government get a good deal out of the bargain with the voluntary sector. That is not the main purpose for supporting charities and voluntary organisations, but nevertheless it is true that if one tots up the State subsidies and the cost of tax concessions and puts them against the amount of effort that the voluntary sector puts in, one sees that clearly the Government get the best part of the deal.
      The main reason for encouraging voluntarism is that it provides that extra dimension to our social and other services. We see that in the pioneering social work that goes on right across the country and in many of the activities in our own constituencies.
      My third point about the new clause is that there has been an argument in the past about whether one can encourage charities best by the covenant system or by the tax deduction system which operates in Canada, Germany and the United States. That system works on the principle that it is not only more blessed to give than to receive but it is also tax deductible. The Goodman report came down in favour of continuing the covenant system provided that we could reduce the seven-year period to four years and do something about the higher rate taxpayers. On both those points the Government have brought home most of the bacon.
      The report also suggested that we should do more to encourage charitable giving by companies. That is why I believe that the acceptance of this clause could round off what has been a most successful package in the Budget. It is just conceivable that my hon. and learned Friend may not be able to accept the new clause this year. But I hope that he will be able to tell us that he will look carefully at ways in which charitable giving by industry can be encouraged in future. That would be widely welcomed by the voluntary sector and by industry itself, even though it has brought a few murmurs of consternation from the Treasury and the Inland Revenue.
      Mr.Peter Rees:My hon. Friend the Member for Somerset, North (Mr. Dean) has an enviable reputation in this area, in that he has been a doughty and consistent champion of the cause of charities over the years. Today he has been supported by a galaxy of talent from my hon. Friends on the Benches behind me, all of whom have made their own contributions in this area. Of course I do not exclude Labour Members, but I am not so personally acquainted with what they have done.
      My hon. Friend the Member for Somerset, North reminded me of the words that I used advisedly in the debates last year. I am grateful for the acknowledgement by my hon. Friends that we have completely discharged the obligations that we then assumed. That is not to say necessarily that we cannot come back to the advantage of charities and the whole area of personal and corporate giving, but I will come back to that point in due course.
      Mr. Denzil Davies: That is ultra vires.
      Mr. Rees: The right hon. Gentleman suggested that something is ultra vires. That leads us into the area of company law and I shall come to that in a moment. The burden of my hon. Friend's case was that equal encouragement has not been given to companies in this area compared with the encouragement given to individuals in the Finance Bill. I must take issue with my hon. Friend. As my hon. Friend the Member for Bath (Mr. Patten) has pointed out, we have preferred to maintain the covenant route rather than changing to the American system of voluntary giving and direct tax relief up to certain limits.
      It is open to an individual, under the measures that we propose, to covenant in favour of a charity, as it has always been. But in this instance the individual has relief from the total burden of income taxation up to a covenanted amount of £3,000 a year. By contrast, a company—leaving aside the special case of close companies—has been entitled and will continue to be entitled to make covenanted donations to charity. Under the provisions of section 248 of the Income and Corporation Taxes Act companies will get relief from corporation tax without any particular limit on the amount
      1546
      that they have covenanted in favour of the charity. In fact, under the system that we have devised, with the amendments that we propose in this year's Finance Bill, companies or bodies corporate will be in a more favourable position than individuals.
      At this point I shall deal with the matter raised by the right hon. Member for Llanelli (Mr. Davies) about the vires of the company. We are debating the fiscal consequences of giving to charity, whether by covenant or otherwise. There is always the more general constraint on the directors of companies under company law because they must reassure themselves, and eventually reassure their shareholders, that what they are doing is, in the long term, consistent with the objectives of the company. I am sure that no one would expect us in a Finance Bill to deal with that important question of company law.
      Mr. Denzil Davies: Surely, even for tax purposes any gift could be deductible only if it was for the purposes of the trade.
      Mr. Rees: I hesitate to cross swords with the right hon. Gentleman, who has had a great deal of experience on this matter. That would be so if a"company were claiming the right to deduct a gift to charity in the computation of its profits for tax purposes. For all I know there may be the exceptional case where a company could say that a donation to charity constituted a proper donation for trade purposes, but I suspect that that would be very rare and I would not like to lay down any kind of general principle. The hon. Member for Colne Valley (Mr. Wainwright, who has experience in this area, suggests that I am wrong. But if that test is to be applied, of course the gift would have to be wholly and exclusively for the purposes of the company's trade. My more general point is that, even for a covenanted payment, members of a board of directors would have to satisfy themselves that what they were doing was broadly consistent with the objectives of the company. But that is a slightly different question.
      Under the framework which we propose, companies are still in a more favourable position than individuals. My hon. Friend the Member for Somerset, North suggests that we should go a stage further

      1547
      and that a body corporate and not an individual should be entitled, subject to various restrictions, to deduct for corporation tax purposes any legitimate gift to a charity. This would be taking it even further and putting companies in an even more favourable position. Certainly we could have an interesting debate on this matter, as indeed we have. My hon. Friends have made some notable contributions, but they are moving us into a slightly different and rather more extended area.
      My hon. Friend the Member for Bath said that surely it was the business of politicians to create anomalies and precedents. But our business is to create good anomalies and precedents. The difficulty in creating an anomaly in one field is that that anomaly will be applied, in the course of debates, to another field. Then we would be led on to adopt the American approach of a deduction for any gift to a charity. That is a quite different approach from anything that has obtained so far in English law. It would be expensive in tax terms and it would be for the House to decide whether the administrative costs would be worth while.
      Since we do not have a system of self-assessment, as in the United States, the proposal would involve a considerable amount of Inland Revenue time and require additional staff. However, these are important principles and well worth canvassing. I hope that my hon. Friends will rest content, even with some reservations, with the extensions that we have introduced in the covenant field, recognising that, on analysis, companies are in a better position than individuals.
      6 pm
      Amendment No. 58, in the name of the hon. Member for Colne Valley, raises an interesting point, which the hon. Gentleman raised in Committee, with one notable exception. The hon. Gentleman obviously took my point that, by introducing such a relief for closed companies, an individual or group of individuals would be able to get greater relief for charitable giving than they would were they to enter into a series of deeds of covenant. The £3,000 annual restriction for individual covenanted giving, which is fair, would not have applied under his previous amendment. The hon. Gentle
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      man has given the matter great thought, and come back with a £10,000 limit. In a curious way, the amendment is more restrictive than the existing situation. If there were four or more participators, the amendment could impose a limit lower than £3,000 on each. Under our proposals a close company can covenant in favour of charities, and, on the whole, the apportionment to the individual participators would be limited to £3,000, were they to make an individual covenant.
      Mr. Richard Wainwright: The hon. and learned Gentleman is overlooking the fact that the rights of the several proprietors of the close company as individual taxpayers remain intact. If there were five of them, between them they would have £15,000 in their own individual right. I can scarcely be accused of restricting their rights.
      Mr. Rees: It is difficult to construe in great detail fine technical matters in these debates, but that is not the way that I have construed the hon. Gentleman's amendment against the background of the clause that we have introduced. The hon. Gentleman may suggest that my eye is blurred, but we have received advice to the effect that that would be the consequence. I do not criticise the amendment on that ground, although the hon. Gentleman may now be aware of the unattractive consequences. I make the point to demonstrate the difficulties of relaxing the regime that we have devised for closed companies. Partly on principle, but also on practical grounds, I was compelled to advise the Committee to reject the hon. Gentleman's amendment. I do not believe that the hon. Gentleman's new amendment, however well intentioned, has resolved those problems.
      Having looked at the problem in the round, I hope that at the end of the day the House will feel that the regime, relaxations, and advantages that we have built in to the fiscal system this year are generous, fair and practical. As one would expect, my hon. Friend the Member for Somerset, North moved his clause persuasively, moderately and lucidly. Any Government who believe in voluntarism and charitable giving, as we do, must preserve an open mind. I do not undertake to consider the precise problem

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      again, but over the many years that I hope we shall be in office we shall consider whether we have done sufficient to encourage individual and corporate generosity. I hope that my hon. Friend will feel that we have had an extremely useful debate, and that the fiscal and general principles that should be canvassed have been canvassed.
      Mr. Paul Dean: It would be churlish of me to go on arguing the toss in view of the substantial package of improvements for charitable giving that the Government have introduced in the Bill and in view of the sympathetic response from my hon. and learned Friend. In the confident expectation that the door is not closed and that pressure from my hon. Friends will achieve further advance in the future, I beg to ask leave to withdraw the motion.
      Motion and clause, by leave, withdrawn.

    New Clause 6

      EXPENSES (LODGING RENTS)
      Expenses incurred by a single person on lodging rents when travelling away from his normal permanent domicile wholly necessarily and exclusively in pursuit of his trade, vocation or profession may be claimed as a relief from tax under the appropriate Schedule.—[Mr. Hooley.]
      Brought up, and read the First time.
      Mr. Frank Hooley: I beg to move, That the clause be read a Second time.
      The clause covers a small but not unimportant point. In the Bill the Minister and his colleagues have been graciously distributing £1 million here and £2 million there to business and property interests for which special arguments have been advanced. 1 am seeking a modest concession for the ordinary working chap who, for one reason or another, has the misfortune to have to work away from home. A considerable number of hon. Members share that misfortune.
      At present a married man who has to work away from home in his professional or trade capacity can claim against tax the lodging charges and so on that he has to pay when it is not practical, convenient or economic for him to return home that night,. That is reasonable. The fact that a man is away from home does not reduce his obligation
      1550
      to make his mortgage payments, pay his rent, rates and, if he has a family, lighting and heating charges. He has to pay lodging charges in addition. My argument relates only to a man who is obliged to be away from home for trade, professional or vocational reasons. A married man should be entitled to tax relief for the extra expense.
      However, a single person who has to travel away from his normal domicile is not entitled to claim an allowance for the extra expense incurred by staying away. It may be argued that a single man can live wherever his job takes him at any time, and that there is no reason why he should incur a double expense, particularly if he is living with parents or relatives, when no extra expense would be incurred. That is a limited argument. Nowadays large numbers of single persons have their own flats and even their own house, and prefer not to live with relatives or friends. They will incur extra expenses when they have to stay away on business, in addition to paying their mortgage, rent, rates and so on for their permanent dwelling.
      I agree that there might be a modest saving in heating and lighting because a married man's family would still require those services while he was away. However, single people with a house or flat of their own incur extra expense when they work away from home and have to pay hotel bills or lodging rents. They cannot contract out of the basic rents and rates payable on their permanent homes.
      Such people ought to be able to make a claim against tax for the additional expenses incurred in the course of their trade or profession. I do not say that they should be able to claim tax relief every time they travel away from home, for whatever purpose, but when travel is clearly in pursuit of their work they should be entitled to tax relief.
      The Minister may tell me that relief is available at the discretion of inspectors of taxes. If that is so, it is unsatisfactory, because the essence of a concession is that sometimes it might not be exercised. I believe that it would be unfair for any single person to be denied the ability to offset extra expenses, which may be considerable, incurred in the circumstances that I have outlined.

      1551
      I hope that I shall receive a satisfactory explanation of the situation or an assurance that the matter will be looked into and remedied.
      The Financial Secretary to the Treasury (Mr. Nigel Lawson): If the law were as the hon. Member for Sheffield, Heeley (Mr. Hooley) outlined, I would agree with his comments, but I can assure him that the law is not as he suggested. There is no discrimination of the sort that he implied between the married man and the single man or between the employed and the self-employed.
      Any one of those groups is entitled to relief in respect of lodging expenses, provided that they are incurred—in the case of an employee—wholly, exclusively and necessarily in the performance of his duties or—in the case of the self-employed—wholly and exclusively for the purpose of his trade, profession or vocation. Nor is there any distinction between the married and the single person. It would be wholly wrong if a single employee could get relief only at the discretion of the Inland Revenue. But that is not the case. He has that relief as of right.
      There is a difference in the procedure used by the Inland Revenue. It is not the difference that was suggested by the hon. Member for Heeley and it would not be affected by the new clause, but it may be what he had in mind.
      When an employer pays his employees a lodging allowance, he can do so without deducting tax provided that they are no more than reasonable payments for the extra living expenses incurred by employees working temporarily away from home and their normal place of employment. In the case of certain such allowances paid under working rule agreements negotiated between employers and the unions involved for highly mobile employees in the construction and allied industries, married employees are required, before the allowance can be paid tax-free, to complete a certificate stating that they have spent the period away from home.
      Single employees, however, do not have those certification arrangements open to them and they cannot get their allowances paid tax-free in the first place.
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      That is because the great majority of single employees do not have permanent homes. However, many do, and are in the circumstances to which the hon. Member for Heeley referred. It is open to any of them, if they have received a lodging allowance after deduction of tax to establish to the satisfaction of the Inland Revenue that the additional expenses were incurred whilst they were working away from their normal place of work. If they can satisfy the Inland Revenue, they can get a refund of the tax paid on the allowance.
      That is the procedure by which the single man gets his refund. Except for the procedural difference, he is in precisely the same position as the married man.
      Mr. Hooley: I am much obliged for that explanation. In the light of it, I beg to ask leave to withdraw the motion.
      Motion and clause, by leave withdrawn.

    New Clause 8

      STAMP DUTY: UNIT TRUSTS
      No stamp duty shall be chargeable on any transfer of any unit in an authorised unit trust to which section 59 of this Act applies and under the terms of which the funds of the trust cannot be invested in any investment on the transfer of which ad valorem stamp duty would be chargeable.—[Mr Heddle.]
      Brought up, and read the First time.
      6.15 pm
      Mr. John Heddle: I beg to move, That the clause be read a Second time.
      The new clause has the support of the Unit Trust Association which kindly assisted in its drafting and which has done a great deal over the past 20 years to help small savers invest in equity stocks. The objectives of the new clause are to encourage wider share ownership and to open the Government's own funding programme to a much wider market.
      Clause 59 enables unit trust managers to operate trusts, authorised by the Department of Trade, investing in gilt-edged and industrial debentures, and such investments are transferred free of ad valorem stamp duty. It therefore seems logical and reasonable that trusts which, under their trust deeds, are permitted to invest only in securities transferred free of

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      stamp duty should themselves be free of stamp duty.
      Otherwise, duty would be paid when a unit was sold back to the trust managers by the unit holders. Margins between the managers' selling prices and buying prices would be unnecessarily widened, and therefore managers would be unlikely to maintain their prices at the lowest possible level permitted by the Department of Trade. Consequently, there would be little chance of the trust being competitive with direct investments and the objective of clause 59 would be nullified.
      There is no gain to the trust managers in the granting of the exemption contained in the new clause. I invite Ministers to agree that there will be no loss of revenue to the Government, because clause 59 is a new concept.
      Mr. Lawson: My hon. Friend the Member for Lichfield and Tamworth (Mr. Heddle) paid tribute to the Unit Trust Association, as I do. I hope that my hon. Friend will also pay tribute to the Government, because clauses 59 and 80 are important measures to assist the unit trust movement and the causes of wider share ownership and the interests of small investors—causes in which we profoundly believe.
      My hon. Friend has made a good point. I think that the new clause would be an improvement to the Bill. I do not think that he is correct in saying that the cost would be zero, but it would be negligible. I am convinced by his arguments and the case that he put so eloquently; and I recommend that the new clause be accepted.
      Question put and agreed to.
      Clause read a Second time, and added to the Bill.

    New Clause 14

      EXPENSES OF MANAGING LET PROPERTY
      (1) Section 72 of the Taxes Act shall be amended by inserting after paragraph (a) in subsection (1) thereof—
      "(aa) in respect of travelling and other expenses wholly and necessarily incurred by him in visiting the property for the purpose of inspection or maintenance where the management of the property is carried on from his home."
      (2) This section shall apply to expenditure incurred after 5th April 1980.—[Mr. Lennox-Boyd.]
      Brought up, and read the First time.
      Mr. Mark Lennox-Boyd: I beg to move, That the clause be read a Second time.
      I move the Second reading of the clause in the absence of my right hon. Friend the Member for Crosby (Sir G. Page). It is an elegant and worthy new clause. I shall be brief in commending it to the House, because its objects are clear. It would enable owners of property who let the property to claim the travelling expenses that they "wholly and necessarily" incurred, if they managed that property from their home, in visiting it in connection with letting it.
      When the clause was first shown to me by my right hon. Friend yesterday evening I thought that such expenses must clearly be allowable. Under section 72 of the Taxes Act expenses
      "in respect of maintenance, repairs, insurance or management"
      are allowed. However, I understand that in most cases the Inland Revenue does not consider that travelling expenses of the kind that I have described come reasonably under the heading of "management".
      I represent a constituency in the Lake District with many second homes, holiday homes, which are let part of the time. It might be suggested that there would be room for abuse in permitting such an allowance against the taxable income from the property, because people could use it in order to visit their holiday homes. I comment only that the words "wholly and necessarily" are the magic words in the clause.
      It seems logical that this concession should be made where people manage property from their home. It cannot be said that they are travelling from their home to a place of business, because the home would be the centre for the management of the property. Therefore, it is reasonable in those circumstances to allow such expenses to be deducted.
      This is a simple matter. The clarity of the clause is apparent from the wording, and I need say no more.
      Mr. Lawson: I am not at all surprised that my right hon. Friend the Member for Crosby (Sir G. Page) persuaded my hon. Friend the Member for Morecambe and Lonsdale (Mr. Lennox-Boyd) that this was a worthy new clause, because my right hon. Friend is very

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      persuasive. However, I hope that I can persuade my hon. Friend that it is not as reasonable as he thought.
      The whole question of allowability of travel-to-work expenses against tax is very big. I think that my hon. Friend would agree that if we were to give tax relief to landlords on expenses incurred in visiting their properties, visiting particular investments, it would not be easy to justify denying it to other people, including employees who feel strongly that the costs that they have to incur to travel to work should be tax-deductible.
      Moreover, the man who wishes to invest in property has considerable choice as to where he will make his investment. He can make it nearby or a long way away. It is up to him, and that will determine the travelling costs when he has to oversee the property.
      I hope that my hon. Friend will realise that I am being brief with no wish to be discourteous, but simply because we have a great deal of progress to make on the Bill. One final argument is that there are people who invest in other forms of investment than property—real investment, not portfolio investment—and who may wish to inspect those investments from time to time. It is difficult to say that a landlord is more deserving of tax relief when travelling to oversee his investment than someone who has made another type of investment—perhaps in a small factory—and who wants to visit it.
      To introduce this benefit would create an anomaly that I could not accept. I think that on reflection my hon. Friend will feel that it is not one that he can accept either
      Mr. Lennox-Boyd: I do not wish to pursue the matter, but no doubt there will be an opportunity to press it on another day. Although I am not wholly convinced by what my hon. Friend has said, I beg to ask leave to withdraw the motion.
      Motion and clause, by leave withdrawn.

    New Clause 20

      WIDOWS' RELIEF ON EARNED INCOME
      At the end of subsection (1A) of section 8 of the Taxes Act (Personal reliefs) there shall be added the following paragraph; and
      "(c) in relation to a claim by a widow who does not come under paragraphs (a) or (b) of this subsection and whose income includes earned income of her own, as if the sum specified in paragraph (b) were increased by the amount of such earned income or by £445 whichever is the lesser.".—[Mr. Durant].
      Brought up and read the First time.
      Mr. Tony Durant: I beg to move, that the clause be read a Second time.
      Mr. Deputy Speaker: With this we shall consider amendment No. 6, in clause 22, page 13, line 33 at the end insert—
      '(e) In subsection (1A)(b) (age allowance-single) there shall be inserted after the word "upwards" the words "or in the case of a single woman or widow that she was of the age of sixty years or upwards" and subsection (1)(c) above shall apply accordingly
      Mr. Durant: The purpose of the clause, which is also in the name of the hon. Member for Woolwich, East (Mr. Cartwright), is to give widows an allowance in addition to the personal allowance that they receive as of right. The amount is the difference between what widows would receive in the personal allowance and what they would receive if they were over 65. It is a complicated provision, in an attempt to allow widows to have more earnings relief.
      The all-party group of which I have the honour to be chairman decided this year to approach the Government in this way rather than to seek to disallow 50 per cent. of the widows' benefit, which we have done in previous years, because the Government are moving towards taxing all benefits. Therefore, we felt that we should take a different tack and move towards more allowances. We believe that that would find sympathy from the Government.
      We are pleased that the Government have taken action in the Bill. The bereavement allowance in clause 23 is a welcome step. I was delighted that the Liberal spokesman, the hon. Member for Colne Valley (Mr. Wainwright), obtained

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      a concession to make this allowance run for the entire year. This has been a great help. The widows are particularly pleased about this benefit.
      Mr. Lawson: I am the last person to decry the Liberal Party, which is not now represented in the Chamber, but it is fair to say, because he is not here, that the amendment that I accepted was tabled and moved by my right hon. Friend the Member for Crosby (Sir G. Page).
      Mr. Durant: I withdraw what I said. I read the newspapers rather than the Official Report of the proceedings, and the papers have misled me. I apologise to my right hon. Friend the Member for Crosby (Sir G. Page), for whom I have great regard.
      I repeat that widows are delighted with that move forward. However, the widows' lobby strongly believes that there is a need to do more to encourage the working widow, who has to create a new life, a new beginning, having lost her husband. Going out to work is an essential part of that. She wants new contacts and a new environment.
      The present tax system tends to work against that, because the widow's allowance is taxable. Therefore, it often pays the widow to take the allowance, obtain social security and stay at home rather than go out to work. There is a marginal advantage in going out to work, depending on the salary, but the earnings tend to be small, and when the cost of food, travel and so on are taken into account we see that there is a deterrent to the widow to go out to work. The matter needs to be examined.
      We have tried in the best way we could to provide an allowance in line with the allowances given to old-age pensioners. I shall probably be asked how big the problem is. There are about 3 million widows in this country, but 2½ million are over 60. I am not so concerned about them in the clause, but amendment No. 6 covers them. There are about ½ million who could be working. However, I suggest to the Government that the number who would benefit from the new clause is about 30,000. The reason for that is that many of them have young children, and obviously at that stage they do not wish to go out to work.
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      I am, therefore, particularly concerned with the woman of, perhaps 40 whose children are grown up and who is trying to create a new life for herself. She may not have many skills to offer and the work that she can get is usually not highly paid. But it is psychologically right for her to go out and build up a new life for herself, my new clause would encourage her to do that.
      6.30 pm
      We debated the situation of widows last year. During that debate the Minister of State, Treasury—my hon. and learned Friend the Member for Dover and Deal (Mr. Rees)—was kind enough to say that the Government were looking at the matter. They have obviously done so in making new amendments this year and I hope that they will also look at the situation of the working widow. That question needs to be examined because the working widow needs encouragement. I believe that the suggestion of myself and the hon. Member for Woolwich, East goes some way to achieve that end.
      Mr. Robin F. Cook: I wish to speak to amendment No. 6 which stands in my name and in the names of hon. Members on both sides of the House and which has been linked with new clause 20. It might be helpful to the Chair if I indicate at this stage that we may wish formally to move this amendment and divide the House on it at the appropriate time.
      My amendment addresses itself to a similar problem, though in a different way. It seeks to extend the age allowance to women who have retired at the age of 60 rather than, as at present, from the age of 65. You will be aware Mr. Deputy Speaker, as will the House, that the age allowance has been granted to those over 65 for two reasons. One is that those who are old naturally incur additional costs by reason of age and infirmity and the other is lack of mobility. Therefore, it is reasonable for us to recognise the additional costs that have to be borne as a result of age.
      If that were the sole ground for the age allowance it would be logical that it should start for both sexes at a particular age—in this case at age 65. But there is another reason why the age allowance is granted. It is granted because it is recognised that at the point of retirement

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      the income of most taxpayers declines. For that reason, their capacity to meet the taxes which other economically active individuals may be able to pay also declines.
      Interestingly, it is for the latter reason that the Treasury recently justified the payment of the age allowance. I have a letter dated 13 June from the Financial Secretary to the Treasury addressed to the director of Age Concern. The letter states that "The additional relief…" that is the addition to which the age allowance goes beyond personal allowance—
      "recognises that the onset of old age does in some measure, reduce the taxable capacity."
      That is correct. The onset of old age does that because at that point either most people retire or those who remain in work work to a lesser degree.
      For women the point at which their taxable capacity diminishes is not at the age of 65 but at the age of 60. They become eligible for the State pension at 60 when many of them retire and many of them are obliged to retire at 60 by employers who use that point as the age beyond which they will not employ women. If the rationale of the age allowance is that it recognises the reduction in the taxable capacity it is surely logical in the case of women, to date it from the age when they cease to be in the economically active section of the community and when they are normally expected to be retired and drawing retirement pension only.
      It is for that reason that this amendment is supported by a wide variety of organisations concerned with single women and with the elderly. For a start it is supported by the Equal Opportunities Commission which has pointed out that this discriminates against women because women must wait five years after retirement before they qualify for the age allowance. The amendment is supported by the National Council for the Single Woman and her Dependants because of the large number of single women living in poverty exacerbated by their failure to obtain the age allowance. It is also supported by Age Concern.
      I emphasise that my amendment addresses itself to single women only. It addresses itself to those most likely to
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      find themselves suffering hardship as a result of the operation of the age allowance system. I prefer my own amendment to the new clause moved by the hon. Member for Reading, North (Mr. Durant) because I am not particularly enamoured of the idea of creating additional tax distinctions between those who are single because they are widowed and those who are single for other reasons.
      It is small consolation to tell a woman of 62 or 63 who has never been married, or who may have become divorced from her husband, that because she is single for reasons other than widowhood she will not obtain the same tax advantages as are extended, rightly and understandably, by the House to those who are single by reason of widowhood. Therefor, I prefer my approach which treats the problem of single elderly women as just such a problem and not as one that stems from the particular method by which they became single women.
      This is a real problem and it is shared by widows and by others. I must tell the House that I have been advised by Age Concern that as a result of the failure of the present rules to extend the age allowance to single women over 60 there are women who have retired at 60 who draw small pensions of about £5 a week from a private superannuation source and who, because of their low income, qualify and obtain a supplementary pension in certain circumstances and are still liable to taxation on the superannuation received from the private source.
      I cannot believe that that result was intended by the Treasury or that it is a result that the House is prepared to condone. It is plainly anomalous that the same person should be able to claim a supplementary pension by reason of a definition of a poverty line laid down by the House and simultaneously be liable to taxation because of the failure of this House to extend the appropriate tax allowances in those cases.
      The ideal would be to create a retirement allowance rather than an age allowance. That retirement allowance would extend to everybody from the point of retirement which is, after all, the point at which their taxable capacity diminishes. That should apply irrespective of sex. I have not approached the problem from that particular angle

      1561
      because, quite candidly, I realise that it would double the cost of the amendment as there is now a growing number of men who retire before the age of 65.
      I have confined the amendment to single women, many of whom have no option but to retire when they reach retirement age. In any case the House has continued to insist that there should be a separate and junior age of retirement for women. It seems only right that the House should recognise the special position of women in that age group.
      There would still be a cost to this amendment. In 1978 the Treasury estimated the cost of such a provision as £35 million. I do not know what the current figure would be. No doubt the Minister has been briefed on that, but I imagine that a figure of £50 million would not be far out of range if we uprate the figure of £35 million of two years ago. I do not wish to undervalue the effect of £50 million being lost to the Treasury, but that £50 million is obtained from single retired women between the ages of 60 and 65. There does not appear to be any justification for us, as a nation, to assist in that sacrifice by a group which is in no position to afford it and which by all reasonable lights should have extended to it the same protection that we afford to men from the age of their statutory retirement.
      Mr. D. A. Trippier: New clause 20 deserves serious consideration by the Government. The Minister of State will recall that I spoke on matters related specifically to this issue in an Adjournment debate on 4 March this year. I do not intend to repeat all my arguments. Instead, I shall confine myself to the new clause.
      The reason why a widow goes out to work is irrelevant. She should not be penalised by being taxed on every penny that she earns. The suggestion has been made that a special tax allowance should be introduced to take effect approximately half way between the single person's tax allowance and the married man's allowance. I accept that that suggestion is too vague. The new clause is more definite and equitable.
      The Government must recognise that in the years after her husband's demise the widow still has as many overheads
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      as existed when her husband was alive. She still has to pay the rent or mortgage and the domestic rate; she will still have to feed and clothe herself and pay for the heating and lighting. That is where I differ from the approach of the hon. Member for Edinburgh, Central (Mr. Cook).
      Thanks to legislation, cognisance is now taken of the special problems facing widows in the tax year of her husband's demise. It is known as the bereavement allowance. Cognisance was also taken in the first Budget of the new Government of the problems faced by war widows. We must express our sincere thanks for that. The National Association of Widows is appreciative of that legislation.
      Mr. Stan Thorne: Since the Government took action in relation to war widows is it not reasonable that they should take action in regard to widows in general? A woman who is rendered a widow by an industrial accident, for example, should not be placed in an inferior position to a war widow.
      Mr. Trippier: I agree. I made that point in my speech in the Adjournment debate. I said that it does not seem to matter how a woman is made a widow. A woman who is made a widow as a result of an industrial accident has to face the same problems as other widows.
      There is no recognition of the fact that the financial commitments of the family home still have to be met. The husband might have died when at the peak of his earning capacity. I commend the new clause to the House and ask the Financial Secretary to realise that widows do not want charity. They want to maintain their spirit of pride and independence and to take their rightful place in society.
      Mr John Cartwright: I support new clause 20. I remind the Financial Secretary of the undertaking that he gave to the House during proceedings on the Finance Bill 1979. He rejected all the proposals put forward from both sides of the House but said that the problems of widows were being reviewed. He said:
      "The question of widows is one of many aspects that are under review".—[Official Report, 9 July 1979; Vol. 969, c. 160].

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      Hon. Members waited with interest to see what the review would produce. It produced only the bereavement allowance. That is a step in the right direction. It gives some help. However, it does not go far enough.
      Figures given in parliamentary answers suggest that the cost of the allowance is about £2 million and that about £1 million has been added as a result of concessions in Committee. The cost of the bereavement allowance is about £3 million a year.
      Through the Social Security (No. 2) Bill the Government intend to reduce, and then to remove, the earnings-related supplement to the widows' allowance which is paid during the first six months of bereavemenet. I tabled questions to find out how much the Government were saving and discovered that the saving in 1981–82 will be £4 million and in1982–83, £16 million. The Government are making a profit out of suddenly bereaved widows. They are giving away £3 million with one hand and taking back £16 million with the other.
      6.45 pm
      The bereavement allowance makes no real, lasting contribution to working widows. New clause 20 deals with the problems of working widows. The working widow is the poor relation of our tax and social security system. She is regarded as a single person by the Treasury and is taxed as such, but the Department of Health and Social Security takes a different attitude. If a widow decides to act as a genuinely single person in her personal relationships her pension is liable to be removed rapidly.
      Time and time again hon. Members on both sides of the House have tried to convey the bitterness which working widows feel about the way in which they are affected by taxation. The single person's personal allowance is swallowed up by the widow's pension. That means that they start paying tax on the whole of their earned income. What annoys them more than anything is that a working widow, working alongside a married woman, pays more tax than the married woman, even though the married woman has a husband who makes a contribution to the household.
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      On many occasions the Government have said that they wish to encourage people to work. Many widows would rather go out to work than live on supplementary benefit. They would rather contribute to the nation's wealth than live off it. Often it is better for them to go out to work than to stay at home where there are sad memories. Yet the taxation system actively discourages widows from working, and many feel that it is not worth the effort.
      I support the approach of my hon. Friend the Member for Edinburgh, Central (Mr. Cook) to the widow who is over 60. However, his amendment does not tackle the problem of the working widow under 60. I accept what he said about single women who become single through other causes but the widow will argue that there is an element of choice about divorce or separation. There is an element of human intervention whereas widowhood arises from something over which there is no control. The widow is plunged into a situation, often without the possibility of tackling the problems, whereas separated or divorced women can perhaps cope.
      Mr. Cook: I accept that my amendment relates to widows over 60 and that the new clause relates to widows under 60. My hon. Friend should take on board the fact that the House decided to change the divorce laws. It is now possible to be divorced through no wish of one's own.
      Mr. Cartwright: I accept that. However, divorce is a result of human intervention and personal relationships. One cannot claim that of widowhood, over which one has no control.
      A number of proposals have been made. We have sought the part or entire exemption of the widow's pension from taxation. We have suggested giving a working widow the married woman's personal allowance. We have suggested the introduction of household allowance for widows. All the proposals have been rejected by Governments.
      All that we are suggesting today is that the widow under the age of 60 should be given the same tax benefit as the widow aged over 65 and that the same earnings relief shall apply to working widows as to people who work after the retirement age. That means that they

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      could earn up to £445 a year—or £8·75 a week—before paying tax.
      The proposal is modest. However creaking our economy is, I do not believe that it will be brought crashing down if the Government accept our modest proposal. I hope that we shall have a friendly reception from the Government Front Bench. Even if we do not, the problems of widowhood will not go away from the House. Many of us on both sides of the Chamber will argue the case for the widow in successive Parliaments until finally justice is achieved.
      Mr. Andrew Bowden: I rise briefly to support amendment No. 6. The very fact that the age allowance is higher than the personal allowance is an acceptance that the retired should receive extra tax concessions as a recognition that income is likely to be lower at that time of life. The fact that the age allowance affects women between 60 and 65 years in that they do not receive it must mean that there is considerable hardship for widows and divorced and single women. It can be argued strongly, as the hon. Member for Edinburgh, Central (Mr. Cook) has argued, that there is direct discrimination against that group.
      It would be much better if the allowance were called a retirement allowance. On that basis a much more logical outcome would emerge. Linked with that one could argue that there should be an equalisation of the retirement age for men and women. It may be that one day the Government and the House will get round to considering that issue carefully. Many problems would be eliminated if there were joint retirement age of, say, 63 years.
      We are talking about a group that needs additional help. Amendment No. 6 would be a fair and equitable way of giving such people some extra assistance.
      I comment briefly on an intervention that was made concerning war widows. In my view, they form an exceptional category and group. They are not in the same category as any other group of widows. Their husbands have given their lives in the service of this country in Her Majesty's Forces.
      Mr. Martin Flannery: So what?
      Mr. Stan Thorne: What about coal-miners?
      Mr. Bowden: That is the attitude that we expect from certain extremists on the left on the Labour Benches. They do not give a darn about those who serve in the Forces and they never have done. I contend that war widows are a special case. They have been recognised as such by responsible Governments of both major parties. I know that right hon. and hon. Members who occupy the Opposition Front Bench will reject the attitude that we have heard expressed from the Opposition Benches below the Gangway.
      Many forms of compensation are available to widows generally but not to war widows. Compensation is available through insurance and through legal action following accidents. There is a world of difference between those who died in the service of Her Majesty's Forces in defending this country and those who died in other circumstances.
      Mr. Hooley: I have a good deal of sympathy with new clause 20. There is no doubt that many widows feel extremely bitter because they are taxed—sometimes they are regarded as being heavily taxed—to an extent that they consider disadvantageous when compared with the taxation of married women. Secondly, they do not consider it right that a fairly modest income should be taxed. I do not go along with the argument that the income of widows should not be taxed at all, but undoubtedly there is a problem.
      A widow has to carry the overhead expenses of the home. The total of rates and heating and lighting charges is not very much different for two persons from what it is for one person. It is probable that there will not be a mortgage charge as sensible persons will have insured against that. Probably widows have to meet the same overhead housing costs as a married couple or a married person who can obtain the married person's allowance. Undoubtedly that causes a great feeling of unfairness and imposes a genuine burden on the widow who alone and with one income has to pay the rates and all the other outgoings for her home.
      I am slightly uneasy because the clause refers only to earned income. It would,

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      therefore, exclude any benefit the widow had in addition to her pension—for instance, the residue of a small works pension or superannuation money that she had taken over from her husband's superannuation arrangements. That is quite common with employment pensions. A widow can probably inherit part of her husband's pension. Usually that does not amount to a very large sum, but it can put the widow in the tax bracket.
      If I understand the clause correctly, a person in that position, notwithstanding that her income over and above her basic pension was a good deal less than the income of a working widow, would gain no advantage from the clause. It will probably be said that we have to deal with one thing at a time, especially when we are trying to get money from the Treasury for deserving cases. I fear that the clause as phrased could create further anomalies.
      I accept that working widows would benefit, and I hope that the clause will be accepted for them. However, the widow who in addition to her basic pension inherited a small superannuation income from her husband's payments would get no advantage. I am inclined to the view that the solution lies in what has been described as the household allowance, where the person—a married man, a widow or anyone—responsible for all the basic outgoings of a home, such as rent, mortgage payments and rates, should receive a tax allowance as recognition of that fact. A taxpayer who was not a house owner, or who did not rent a house or dwelling, would not require such an allowance.
      My inclination would be to pursue the issue in that direction. I am entirely sympathetic to the new clause as it stands. It is a move in the right direction. If the issue is forced to a Division, I shall support the clause.
      Mr. Peter Griffiths: I speak briefly in support of new clause 20, which was moved by my hon. Friend the Member for Reading, North (Mr. Durant). I echo the comments of the co-sponsor of the new clause, the hon. Member for Woolwich, East (Mr. Cartwright).
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      I recently met a group of members of the National Association of Widows from within my constituency. They expressed their support for the clause in no uncertain terms. They welcomed the increased earnings relief that the working widow would receive under the new clause. However, it was pointed out to me that the widow has a new independence thrust upon her unexpectedly. That is independence for herself and a responsibility for members of her family for which she could not reasonably have made full provision.
      I accept that some provision may have been made. As the good lady said on the occasion of the meeting, the purpose of the clause is to reinforce the ability of the widow to accept the independence that has been thrust upon her and to give her the opportunity to accept the new, unexpected and unwanted challenge that widows accept with such courage.
      I commend the clause. It has aroused strong and enthusiastic support in my constituency.
      7 pm
      Mr. David Penhaligon: I rise to support new clause 20. It might make some improvement in an area that I, since becoming an hon. Member, have found least able to defend. That is the incredible amount of tax that widows find they are paying, often on incredibly low earnings. Many have not worked for a large part of their lives and have reached no great position of stature or earning capacity. They find themselves working beside someone who is married and who appears to be in the position that they themselves wish they occupied and yet they are paying more tax. Of all our tax laws, I have never found any cohesive arguments to convince these widows that the situation is proper and right. This sum of £445 would do something to remedy it.
      I agree, personally, with the solution mentioned by the hon. Member for Sheffield, Heeley (Mr. Hooley), who talked about a householder's allowance. The one group in our community that is relatively lightly treated for tax purposes is the single person living at home with the family. Those who are relatively hard hit are single persons running a home, who would be helped to a certain

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      extent by amendment No. 6, although the argument could be made for single persons in general, as opposed to widows in particular.
      I shall vote for new clause 20 if there is a Division. It is a useful provision. I congratulate the hon. Member for Reading, North (Mr. Durant) and the hon. Member for Woolwich, East (Mr. Cartwright), who have campaigned so vigorously over a long time. I recollect that while addressing a widow's meeting with both hon. Members—I am often invited as the statutory Liberal—I advised widows that they should chase those Conservative Members with small majorities as the only way to make progress. They have clearly been taking my advice. I hope to see those hon. Members in the Division Lobbies with me tonight.
      Mr. Tim Eggar: I support the comments made from all quarters of the House. I welcome the bereavement allowance that the Government generously brought forward in the Budget. I should like to reiterate two points. First, widows, whether they like it or not, have costs that are normally associated with a couple or a family. They cannot avoid that. Secondly, there are good social, as well as economic grounds for encouraging widows to go out to work. That is seen particularly in parts of my constituency which rely on part-time female labour, much of it provided by widows as a way of adding to their weekly income. Many of those widows are only marginally better off from having done a part time job.
      I commend the new clause to the Government. If it is pressed to a Division, I shall support it.
      Mr. Ronald W. Brown: I add my support to the new clause. The more one listens to the argument in favour of it, the more difficult, it seems, is it for the Government to refute it. For too long, we have taken the view that widows can be placed at the bottom of the list for help. The Government now have an opportunity to take urgent action. All the arguments have been advanced. I merely wish to indicate that I shall support the new clause in the Division Lobby if the Government are so unwise as to turn down its modest proposals.
      Mr. Peter Rees: I am sure that the House will be unanimous in feeling that we owe a debt of gratitude to my hon. Friend the Member for Reading, North (Mr. Durant) for providing us with an opportunity to have an extremely interesting and compassionate debate. My hon. Friend has allowed the House to consider a whole range of problems but not problems entirely associated with widows. I recognise the considerable contribution that he has made both to the all-party group and to the National Association of Widows. I am sure that almost every hon. Member who has taken part in the debate has made his particular contribution in this sphere.
      My hon. Friend introduced his new clause on the basis that it was designed to encourage widows to go out to work. Whatever the intentions, honourable and compassionate though they were, underlying the new clause, it does not achieve that result because earned income is not necessarily confined to the income earned by the particular taxpayer. To take up the point made by the hon. Member for Sheffield, Heeley (Mr. Hooley), it could cover the benefit of a works pension awarded to the deceased husband. It covers every category of income other than investment income. It could cover some kind of pension that the widow had achieved by virtue of her own contributions and work during her lifetime. One understands and respects the objective, but it will not be achieved by the new clause.
      The whole House is concerned with my hon. Friend's objective, but we should also consider the problems of single persons and lone parent families. The hon. Member for Woolwich, East (Mr. Cartwright) was disposed to point out that there was an element of choice about divorce. I would do no more than rest on the rather sharp intervention of his hon. Friend the Member for Edinburgh, Central (Mr. Cook). I do not think for a moment that members of the Gingerbread group would accept that formulation of the distinction. There is, of course, a particular problem associated with single people with family responsibilities. It is not confined to widows. It is a problem that must be recognised.
      The problem, viewed on a narrow or a wide basis, will not be resolved by

      1571
      the new clause introduced by my hon. Friend. The debate has at least enabled hon. Members to ventilate some of the problems that deserve consideration, although not perhaps on this occasion. The hon. Member for Edinburgh, Central raised a different point. This has been a far-reaching debate. I expected that we should have to consider the allowances offered to married women, which raises a problem to which this Administration hope to address their minds in due course, although not in this Finance Bill. The hon. Gentleman suggested in his amendment that the age allowance should be reduced for women, but not for men, to 60. I cannot say that I found his argument compelling.
      The hon. Gentleman went so far as to say that the present situation discriminated against women. I cannot accept that formulation, since the age allowance is awarded impartially at 65. According to his argument, age allowance is conceded on a theoretical basis as an award to compensate for diminution in earning capacity. His test for diminution of the earning capacity was the award of the old-age pension—more properly, the retirement allowance. I find that a rather theoretical basis for determining the moment at which a person, whether a man or a woman, suffered a diminution in capacity to earn and to maintain himself. It was only by starting from that shaky and doubtful premise that the hon. Gentleman could possibly construct an argument—
      Mr. Cook: The test of diminution of income is not an award of retirement pension but the fact of retirement, from which the retirement pension follows. It is a fact of reality as well as an economic fact of society that the act of retirement, in most cases if not almost all, results in a diminution of income. The age allowance was first invented in answer to that problem.
      Mr. Rees: I can understand the hon. Gentleman's point, but there is a gap in his logic. He is saying that the award of the retirement pension in every case marks the retirement of the person concerned. It must be a matter of common experience on both sides of the House that that is not so. I respect the way in which the hon. Gentleman put his case, because he is a man of keen intellect
      1572
      and he studies these matters. The predominant experience in his part of the world is, it seems, that women retire when they receive the retirement pension. I cannot say that that experience is mirrored in other parts of the United Kingdom. I think that he would be very hard put to produce compelling evidence that that was the case.
      If one removes that premise, the hon. Gentleman's elegantly constructed arguments that developed from it fall to the ground. It is pushing the case hard to say that the existing situation involves discrimination against women. A much better case could be made for saying that, since the retirement pension is awarded at 65 for men, rather than 60, there is discrimination in the existing system against men. I believe that his amendment would accentuate that discrimination. I do not want to develop this debate on a sexist basis. I only hope that the House will look at these matters with a clear and unprejudiced eye and determine whether the hon. Gentleman's amendment would remove or accentuate discrimination between the sexes.
      I come back to the more powerful considerations that hung on my hon. Friend's new clause. I hope that he will accept that, however well intentioned his clause—and I entirely respect his motives and the eloquent way in which he developed them—the clause would not achieve its objective. I hope that the House will also accept that if a case exists it certainly extends beyond the bounds of widowhood.
      I hope that the House will recognise, from whatever position the problem is approached, that the Government have certainly honoured the undertaking, if it should be dignified with that description, given by my hon. Friend the Financial Secretary last year in revealing our intentions in respect of clause 23 in this Bill.
      I made a particular note of the telling phrase of my hon. Friend the Member for Portsmouth, North (Mr. Griffiths) that a widow finds that she has a new independence thrust on her unexpectedly. My hon. Friend put the point in an attractive and compelling way. I hope that it is precisely in recognition of that sad circumstance that it will be recognized

      1573
      that the Government have introduced clause 23. No politician should ever be rash enough to expect gratitude or plaudits. I hope that at least the Government's sincerity in this sensitive area will be recognised on both sides of the House. On that basis I hope that my hon. Friend the Member for Reading, North will not be disposed to press his clause to a Division.
      7.15 pm
      Mr. Durant: I am slightly disappointed with that reply in the sense that my hon. and learned Friend has given no hope that this matter will at least be further considered. He seemed rather to be shutting the door, and that causes me concern and disappointment. I fully accept his point about the technical nature of the clause and the point that it would not entirely achieve what I am seeking. Therefore, on those grounds I feel that I ought to withdraw the motion. I am sorry that the reply was not as helpful as I had hoped. I beg to ask leave to withdraw the motion.
      Hon. Members: No.
      Mr. Cook: The Minister replied to my amendment in the course of dealing with the new clause and I should like to respond briefly to his remarks. He based his case on the ground that discrimination rested with my amendment rather than with the present practice. I have on my side the Equal Opportunities Commission which has found the existing arrangements to be discriminatory—
      Mr. Deputy Speaker (Mr. Richard Crawshaw): Order. The hon. Gentleman is not entitled to make another speech. He may make one point and then sit down.
      Mr. Cook: Then I shall make one point, Mr. Deputy Speaker, and finish. In the light of the Minister of State's disappointing reply it may be for your convenience to know that we may wish to press my amendment to a Division when we reach the appropriate point.
      Question put, That the clause be read a Second time:—
      The House divided: Ayes 155, Noes 273.

      Division No. 405

      AYES

      7.1pm

      Abse, Leo

      Dunwoody, Mrs Gwyneth

      Lester, Miss Joan (Eton & Slough)

      Allaun, Frank

      Edwards, Robert (Wolv SE)

      Lewis, Ron (Carlisle)

      Alton, David

      Eggar, Timothy

      Lofthouse, Geoffrey

      Anderson, Donald

      Ellis, Tom (Wrexham)

      Lyon, Alexander (York)

      Atkinson, Norman (H'gey, Tott'ham)

      English, Michael

      McElhone, Frank

      Bagier, Gordon A. T.

      Evans, Ioan (Aberdare)

      McKay, Allen (Penistone)

      Beith, A. J.

      Evans, John (Newton)

      McKelvey, William

      Bendall, Vivian

      Fitch, Alan

      MacKenzie, Rt Hon Gregor

      Benn, Rt Hon Anthony Wedgwood

      Flannery, Martin

      Maclennan, Robert

      Bennett, Andrew (Stockport N)

      Fletcher, L. R. (Ilkeston)

      McNally, Thomas

      Bidwell, Sydney

      Fletcher, Ted (Darlington)

      McTaggart, Robert

      Boothroyd, Miss Betty

      Ford, Ben

      Magee, Bryan

      Bottomley, Rt Hon Arthur (M'brough)

      Forrester, John

      Marshall, David (Gl'sgow, Shettles'n)

      Bradley, Tom

      Foster, Derek

      Marshall, Dr Edmund (Goole)

      Bray, Dr Jeremy

      Fraser, John (Lambeth, Norwood)

      Marshall, Jim (Leicester South)

      Brown, Hugh D. (Provan)

      Freeson, Rt Hon Reginald

      Martin, Michael (Gl'gow, Springb'rn

      Brown, Robert C. (Newcastle W)

      Garrett, W. E. (Wallsend)

      Maynard, Miss Joan

      Brown, Ronald W. (Hackney S)

      George, Bruce

      Mitchell, Austin (Grimsby)

      Callaghan, Jim (Middleton & P)

      Ginsburg, David

      Morris, Rt Hon Alfred (Wythenshawe)

      Campbell-Savours, Dale

      Gourlay, Harry

      Moyle, Rt Hon Roland

      Canavan, Dennis

      Graham, Ted

      Newens, Stanley

      Cant, R. B.

      Grant, George (Morpeth)

      Ogden, Eric

      Carter-Jones, Lewis

      Hamilton, James (Bothwell)

      O'Halloran, Michael

      Cartwright, John

      Hamilton, W. W. (Central Fife)

      Parker, John

      Cox, om (Wandsworth, Tooting)

      Hardy, Peter

      Parry, Robert

      Crowther, J. S.

      Heffer, Eric S.

      Pendry, Tom

      Cryer, Bob

      Hogg, Norman (E Dunbartonshire)

      Penhaligon, David

      Cunliffe, Lawrence

      Holland, Stuart (L'beth, Vauxhall)

      Powell, Raymond (Ogmore)

      Dalyell, Tam

      Home Robertson, John

      Prescott, John

      Davidson, Arthur

      Homewood, William

      Radice, Giles

      Davies, Ifor (Gower)

      Howells, Geraint

      Richardson, Jo

      Davis, Clinton (Hackney Central)

      Huckfield, Les

      Roberts, Albert (Normanton)

      Deakins, Eric

      Hughes, Robert (Aberdeen North)

      Roberts, Allan (Bootle)

      Dean, Joseph (Leeds West)

      Janner, Hon Greville

      Roberts, Ernest (Hackney North)

      Dempsey, James

      Jay, Rt Hon Douglas

      Roberts, Gwilym (Cannock)

      Dewar, Donald

      Johnson, James (Hull West)

      Robertson, George

      Dixon, Donald

      Jones, Barry (East Flint)

      Robinson, Geoffrey (Coventry NW)

      Dobson, Frank

      Jones, Dan (Burnley)

      Ross, Ernest (Dundee West)

      Dubs, Alfred

      Kilfedder, James A.

      Ross, Stephen (Isle of Wight)

      Duffy, A. E. P.

      Kilroy-Sllk, Robert

      Ryman, John

      Dunnett, Jack

      Lambie, David

      Sandelson, Neville

      Sever, John

      Thomas, Mike (Newcastle East)

      Wigley, Dafydd

      Sheerman, Barry

      Thomas, Dr Roger (Carmarthen)

      Wilson, Gordon (Dundee East)

      Silverman, Julius

      Thorne, Stan (Preston South)

      Winnick, David

      Skinner, Dennis

      Tilley, John

      Woodall, Alec

      Soley, Clive

      Torney, Tom

      Woolmer, Kenneth

      Spearing, Nigel

      Trippier, David

      Wright, Sheila

      Stallard, A. W.

      Urwin, Rt Hon Tom

      Young, David (Bolton East)

      Stewart, Rt Hon Donald (W Isles)

      Wainwright, Richard (Colne Valley)

      Straw, Jack

      Watkins, David

      TELLERS FOR THE AYES:

      Taylor, Mrs Ann (Bolton West)

      Weetch, Ken

      Mr. Tony Durant and

      Thomas, Dafydd (Merioneth)

      Welsh, Michael

      Mr. Frank Hooley.

      Thomas, Jeffrey (Abertillery)

      White, Frank R. (Bury & Radcliffe)

      NOES

      Adley, Robert

      Farr, John

      Lester, Jim (Beeston)

      Alexander, Richard

      Fell, Anthony

      Lewis, Kenneth (Rutland)

      Alison, Michael

      Fenner, Mrs Peggy

      Lloyd, Peter (Fareham)

      Amery, Rt Hon Julian

      Finsberg, Geoffrey

      Loveridge, John

      Ancram, Michael

      Fisher, Sir Nigel

      Lyell, Nicholas

      Arnold, Tom

      Fletcher, Alexander (Edinburgh N)

      MacGregor, John

      Atkins, Rt Hon H. (Spelthorne)

      Fletcher-Cooke, Charles

      MacKay, John (Argyll)

      Atkins, Robert (Preston North)

      Fookes, Miss Janet

      Macmillan, Rt Hon M. (Farnham)

      Atkinson, David (B'mouth, East)

      Forman, Nigel

      McNair-Wilson, Michael (Newbury)

      Baker, Nicholas (North Dorset)

      Fowler, Rt Hon Norman

      McNair-Wilson, Patrick (New Forest)

      Banks, Robert

      Fox, Marcus

      McQuarrie, Albert

      Beaumont-Dark, Anthony

      Fraser, Peter (South Angus)

      Madel, David

      Bell, Sir Ronald

      Fry, Peter

      Major, John

      Bennett, Sir Frederic (Torbay)

      Galbraith, Hon T. G. D.

      Marland, Paul

      Benyon, Thomas (Abingdon)

      Gardiner, George (Reigate)

      Marshall, Michael (Arundel)

      Benyon, W. (Buckingham)

      Garel-Jones, Tristan

      Marten, Neil (Banbury)

      Best, Keith

      Gilmour, Rt Hon Sir Ian

      Mates, Michael

      Bevan, David Gilroy

      Glyn, Dr Alan

      Mather, Carol

      Biffen, Rt Hon John

      Goodhart, Philip

      Mawby, Ray

      Biggs-Davison, John

      Goodlad, Alastair

      Mawhinney, Dr Brian

      Blackburn, John

      Gow, Ian

      Maxwell-Hyslop, Robin

      Bonsor, Sir Nicholas

      Grant, Anthony (Harrow C)

      Mayhew, Patrick

      Bottomley, Peter (Woolwich West)

      Gray, Hamish

      Meyer, Sir Anthony

      Boyson, Dr. Rhodes

      Greenway, Harry

      Mills, Iain (Meriden)

      Braine, Sir Bernard

      Grieve, Percy

      Mills, Peter (West Devon)

      Bright, Graham

      Griffiths, Eldon (Bury St Edmunds)

      Miscampbell, Norman

      Brinton, Tim

      Griffiths, Peter (Portsmouth N)

      Mitchell, David (Basingstoke)

      Brittan, Leon

      Grist, Ian

      Moate, Roger

      Brocklebank-Fowler, Christopher

      Grylls, Michael

      Monro, Hector

      Brooke, Hon Peter

      Gummer, John Selwyn

      Montgomery, Fergus

      Brotherton, Michael

      Hamilton, Hon Archie (Eps'm&Ew'll)

      Moore, John

      Brown, Michael (Brigg & Sc'thorpe)

      Hamilton, Michael (Salisbury)

      Morgan, Geraint

      Browne, John (Wincheser)

      Hampson, Dr Keith

      Morris, Michael (Northampton, Sth)

      Bruce-Gardyne, John

      Hannam, John

      Morrison, Hon Charles (Devizes)

      Bryan, Sir Paul

      Haselhurst, Alan

      Morrison, Hon Peter (City of Chester)

      Buchanan-Smith, Hon Alick

      Havers, Rt Hon Sir Michael

      Mudd, David

      Budgen, Nick

      Hawkins, Paul

      Murphy, Christopher

      Bulmer, Esmond

      Hawksley, Warren

      Neale, Gerrard

      Butcher, John

      Hayhoe, Barney

      Needham, Richard

      Butler, Hon Adam

      Heath, Rt Hon Edward

      Nelson, Anthony

      Carlisle, Kenneth (Lincoln)

      Heddle, John

      Neubert, Michael

      Carlisle, Rt Hon Mark (Runcorn)

      Henderson, Barry

      Newton, Tony

      Chalker, Mrs Lynda

      Heseltine, Rt Hon Michael

      Normanton, Tom

      Channon, Paul

      Hicks, Robert

      Nott, Rt Hon John

      Chapman, Sydney

      Hill, James

      Onslow, Cranley

      Churchill, W. S.

      Hogg, Hon Douglas (Grantham)

      Oppenheim, Rt Hon Mrs Sally

      Clark, Hon Alan (Plymouth, Sutton)

      Holland, Philip (Carlton)

      Osborn, John

      Clark, Sir William (Croydon South)

      Hooson, Tom

      Page, John (Harrow, West)

      Clarke, Kenneth (Rushcliffe)

      Hordern, Peter

      Page, Rt Hon Sir R. Graham

      Colvin, Michael

      Howe, Rt Hon Sir Geoffrey

      Page, Richard (SW Hertfordshire)

      Cope, John

      Howell, Ralph (North Norfolk)

      Parkinson, Cecil

      Cormack, Patrick

      Hunt, David (Wirral)

      Patten, Christopher (Bath)

      Corrie, John

      Hunt, John (Ravensbourne)

      Patten, John (Oxford)

      Costain, A. P.

      Irving, Charles (Cheltenham)

      Pattie, Geoffrey

      Cranborne Viscount

      Jenkin, Rt Hon Patrick

      Pawsey, James

      Critchley, Julian

      Jessel, Toby

      Pink, R. Bonner

      Crouch, David

      Johnson Smith, Geoffrey

      Pollock, Alexander

      Dean, Paul (North Somerset)

      Jopling, Rt Hon Michael

      Porter, George

      Dorrell, Stephen

      Kellett-Bowman, Mrs Elaine

      Prentice, Rt Hon Reg

      Dover, Denshore

      King, Rt Hon Tom

      Price, David (Eastleigh)

      du Cann, Rt Hon Edward

      Knox, David

      Prior, Rt Hon James

      Dunn, Robert (artford)

      Lamont, Norman

      Proctor, K. Harvey

      Dykes, Hugh

      Lang, Ian

      Pym, Rt Hon Francis

      Eden, Rt Hon Sir John

      Langford-Holt, Sir John

      Raison, Timothy

      Edwards, Rt Hon N. (Pembroke)

      Latham, Michael

      Rathbone, Tim

      Emery, Peter

      Lawrence, Ivan

      Rees, Peter (Dover and Deal)

      Eyre, Reginald

      Lawson, Nigel

      Rees-Davies, W. R.

      Fairbairn, Nicholas

      Lee, John

      Renton, Tim

      Fairgrieve, Russell

      Le Marchant, Spencer

      Rhodes James, Robert

      Faith, Mrs Sheila

      Lennox-Boyd, Hon Mark

      Rhys Williams, Sir Brandon

      1576

      1577

      Ridley, Hon Nicholas

      Steen, Anthony

      Waller, Gary

      Ridsdale, Julian

      Stevens, Martin

      Walters, Dennis

      Rifkind, Malcolm

      Stewart, Ian (Hitchin)

      Ward, John

      Roberts, Michael (Cardiff NW)

      Stewart, John (East Renfrewshire)

      Warren, Kenneth

      Roberts, Wyn (Conway)

      Stokes, John

      Wells, John (Maidstone)

      Sainsbury, Hon Timothy

      Stradling Thomas, J.

      Wells, Bowen (Hert'rd & Stev'nage)

      St. John-Stevas, Rt Hon Norman

      Tapsell, Peter

      Wheeler, John

      Scott, Nicholas

      Taylor, Teddy (Southend East)

      Whitelaw, Rt Hon William

      Shaw, Michael (Scarborough)

      Tebbit, Norman

      Whitney, Raymond

      Shepherd, Colin (Hereford)

      Temple-Morris, Peter

      Wickenden, Keith

      Shepherd, Richard (Aldridge-Br'hills)

      Thomas, Rt Hon. Peter (Hendon S)

      Wiggin, Jerry

      Shersby, Michael

      Thornton, Malcolm

      Wilkinson, John

      Silvester, Fred

      Townsend, Cyril D. (Bexleyheath)

      Williams, Delwyn (Montgomery)

      Sims, Roger

      Trotter, Neville

      Smith, Dudley (War. and Leam'ton)

      Vaughan, Dr Gerard

      Winterton, Nicholas

      Speed, Keith

      Viggers, Peter

      Wolfson, Mark

      Spicer, Jim (West Dorset)

      Wakeham, John

      Young, Sir George (Acton)

      Spicer, Michael (S Worcestershire)

      Waldegrave, Hon William

      Younger, Rt Hon George

      Sproat, Iain

      Walker, Rt Hon Peter (Worcester)

      Squire, Robin

      Walker, Bill (Perth & E Perthshire)

      TELLERS FOR THE NOES:

      Stainton, Keith

      Walker-Smith, Rt Hon Sir Derek

      Lord James Douglas-Hamilton and

      Stanbrook, Ivor

      Wall, Patrick

      Mr. Robert Boscawen.

      Stanley, John

      Question accordingly negatived.

    New Clause 21

      RATE OF VALUE-ADDED TAX
      As from the date of the passing of this Act in section 9(1) of the Finance Act 1972 (as amended by section 1(1)(b) of the Finance (No. 2) Act 1979) (standard rate of value-added tax) for the words "fifteen per cent." there shall be substituted the words "twelve and one half per cent."—[Mr. Horam.]
      Brought up, and read the First time.
      Mr. Horam: I beg to move, That the clause be read a Second time.
      The object of the new clause is to reduce the general rate of VAT from its present level of 15 per cent. to 12½ per cent. We wish to do that for three reasons. First, we want to ameliorate the anomalies in the structure of VAT that have been made harsher by the increase from 8 per cent. to 15 per cent.—which was the Government's first major decision in the economic sphere. Secondly, we want to reduce inflation by cutting prices and influencing wage settlements and thirdly, we seek to increase manufacturing activity and, therefore, to reduce unemployment.
      I shall deal first with the question of anomalies in hard cases. We discussed that issue in our debates on the Finance Bill last year, when the Government changed the general rate of VAT. In the intervening 12 months the practical difficulties of the structure of, and the exemptions from, VAT have become more apparent, especially as a result of the harsh economic climate created by the Government. There are a large number of anomalies ranging from the live
      1578
      theatre and food items to sanitary towels and matters of that sort.
      I shall pick out two or three examples that illustrate the problem we now face. There is the important question of children's clothing and footwear where VAT is not chargeable but, for the sake of VAT, children stop being children when they reach the average size of a 13-year old. A proportion of children reach that point in time younger than 13, and as time goes by more and more will fall into that category. Therefore, tax must be paid at the full VAT rate for clothing and footwear for 11-year-olds. That state of affairs has persisted since VAT came into being, but it has been made worse by the doubling of the general rate of VAT in the 1979 Budget. It has had a particularly bad effect on young families.
      7.30 pm
      To be fair, the Goernment have looked into this matter, and I understand that they have received a report from the Customs and Excise. In commenting on that study, the Minister of State said that
      "widening the scheme to benefit older children and larger children would mean going beyond the original purpose of the scheme".
      He added:
      "Alternative schemes of relief which have been suggested in various quarters would similarly involve an unacceptable revenue risk".
      That is a pretty negative response to the hardships which exist. I am sure that the whole House is disappointed by the Minister's response.
      I do not see why the VAT exemption cannot include school uniforms. In many localities, school uniforms for the area

      1579
      will be well known to those who sell them. When a person is buying a school uniform, it is perfectly apparent that not many teenagers or adults who are not at school will want a school uniform. There seems to be very little possibility of abuse, but, if there is, the Government should be able to resolve it. That practical suggestion has been put to the Government on a number of occasions, but it has not been taken seriously enough.
      I believe that the Financial Secretary is to reply to the debate. I did not know that his responsibilities normally covered VAT. None the less, I shall be interested to hear what he has to say. I accept that that would mean a change in the structure of VAT. However, the reduction to 12½ per cent. would at least be some amelioration of that difficult situation.
      The second area of concern which has emerged strongly in the last few months relates to VAT on the NHS. The NHS pays roughly between £90 million and £100 million in VAT. About £45 million was added as part of that total when the Government increased VAT from per cent. to 15 per cent. As we know, the NHS is suffering from an acute cash crisis. That was fully brought out at the last BMA conference. According to a report:
      "Financial problems dominated the first day's debate at the conference in Newcastle, with doctors highlighting the effects of cash shortages. Hospitals, they said, were threatened with closure, over half a million patients were waiting for treatment, and services to the mentally and physically handicapped were wholly inadequate. The doctors carried overwhelmingly a motion expressing their 'grave concern' at the financial problems facing the NHS, and in particular its effect on medical and nursing staffing."
      The human consequences of that sort of cash shortage are often literally quite tragic. For example, in recent months, the Sunday Mirror has been running a campaign on the lack of kidney machines. I am glad to see my right hon. Friend the Member for Lewisham, East (Mr. Moyle) on the Front Bench, because I know that he has been concerned about this aspect of the problem. In the articles in the Sunday Mirror, Dr. Anthony Wing pointed out that 1,000 kidney patients died last year because machines were not available for them. They were not
      1580
      available because there was no cash to purchase them. It is no use the Minister for Health saying to the Sunday Mirror, as I gather he did, that along with him it should start a drive to raise the money from charities.
      The fact is that we are talking about basic health needs, and in this case we are talking about human life. Surely we have gone past the stage when we can tackle these problems by adopting the attitude of Lady Bountiful. We must have clear public provision. A reduction of VAT on the NHS would provide a small amount of cash which is desperately needed at this point in the history of the NHS. I am sure that the Government would have the support of all Opposition Members if they decided not only to accept the new clause but to exempt the NHS as a whole from VAT.
      My third example relates to the building industry. As we know, repairs and maintenance are taxable, whereas improvement is not. Thus, if one insert a chemical damp course in an old house, which is quite common during the rehabilitation work, the removal of the skirting board is taxable; the drilling and injecting of the chemical fluids are not taxable; reinstating the skirting board and redecorating are taxable. As a result, the keeping of records and the administration involved in that simple exercise are probably as much as the profit involved for the person who is carrying out the work.
      There is now another nonsense whereby some of the grants which the Government are giving for work in this area are now exceeded by the amount of VAT which is paid on that work. For example, the Government supply the churches restoration fund with roughly £2 million in grants, yet it pays back more in VAT. That is clearly nonsense, and the Government know it to be nonsense. Given that at present we have an extremely depressed construction industry, a reduction of VAT to 12½ per cent. would be some small filip to that type of work, which because it is labour intensive, would do a considerable amount to ease the current rising unemployment.
      However, it is not with these special cases, which have been made worse by 15 per cent. VAT, that I am principally

      1581
      concerned. I am more concerned about the general economic situation and the effect which a reduction in VAT would have. As I have already said, I believe that it would help to reduce inflation and increase employment.
      There is no doubt now that one of the Government's biggest mistakes in the economic sphere was to increase VAT from 8 per cent. to 15 per cent. in their first Budget. It was particularly a mistake when they claimed that their central priority was to reduce inflation, because by doing so they increased the retail price index by more than 3½ per cent. at a stroke. Faced with public concern, the Government's riposte was that this was a once and for all increase. But that shows the lack of understanding of economic reality which has pervaded their approach to our economic problems.
      An increase in VAT of that size has consequences, not least with regard to wage claims and settlements. It is now clear beyond any reasonable doubt that the increase in VAT was a major cause of the high wage round which is now nearing completion. The 21·3 per cent. rise in earnings was, according to most objective opinion, attributable to a considerable extent to the increase in VAT and other increased charges that were made by the Government. Certainly, that sort of figure bore no relation to the 7 to 11 per cent. monetary targets which the Government held out as their major element of control.
      The first advantage of a reduction in the general rate of VAT, therefore, is that the Government would be seen to be doing something directly about the rate of inflation. We would have the novel sight of the Government tackling inflation by cutting prices. In their monetarist frame of mind, the Government will probably shrink from this obvious, banal approach to the problem. One can well understand that, especially after the Secretary of State for Trade has gone on record as saying that increases in prices due to VAT have nothing to do with inflation. We get into a remarkable mental state when the obvious and straightforward approach to the problems of inflation is rejected as somehow bizarre.
      The second advantage of my suggestion is that this would come at a time when
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      there is the possibility of a downward trend. As we know, the present level of the annual increase in the retail price index is just under 22 per cent. This month's figures will be coming out this week. There should be some levelling off in that rate of increase. I imagine that in the following month there will be a substantial decline in the index as the effect of the VAT increase comes to an end. Therefore, there should be a reduction of 3½ per cent. on that score alone.
      If this new clause is accepted, that deceleration in the retail price index will be carried further, to the extent of 1½ to 2 per cent., by virtue of a general reduction in the general rate of VAT. Therefore, the RPI would fall dramatically in historical terms and that would have, if not an effect on wage claims that are in the course of settlement, an effect on the outcome of wage negotiations, because the RPI would meet or better the Government's target of 16 per cent. by the end of the year.
      The third advantage is that it would have a favourable effect on prices without an unfavourable effect on employment. On the contrary, such a measure would increase output and productivity, and consequently employment, simply by increasing consumer demand. It would come at a time of a spectacular collapse—certainly in the Midlands—in consumer confidence, resulting in high levels of unemployment, an so on. Therefore, a reflationary measure of this sort would be apposite now, and would perform the function of the regulator which, by this Bill, the Government are taking out of the hands of future Governments.
      For the sake of professionalism we have available to us the Treasury model for simulating these exercises. I took the trouble to run these proposals through that model. The effect would be an immediate fall of 1·6 per cent. in the retail price index, and by the second quarter of 1982 prices would be 1·8 per cent. below what they would otherwise have been, due to the continuing effect of the immediate reduction of the RPI on wage settlements. By the second quarter of 1982 there would be about 100,000 more jobs. The results are not dramatic, but they are substantial and worthwhile.
      The Government's answer to the new clause will be that it would add to the
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      public sector borrowing requirement. From the calculations that I have just described, it would add an additional £1 billion in 1981, and rather less thereafter. The Minister may disagree, but we are talking about his own model.
      He will say that if monetary targets remain unaltered, interest rates would rise. In successive debates we have made plain our opinion of the Government's monetary targets. They are too tight, and they are damaging output without significantly affecting inflation. We believe that they could be relaxed. That is our fundamental argument.
      But even if we accepted the Government's parameters, and if the monetary targets were retained, I still believe that this measure would, on balance, be beneficial. To offset the higher interest rates we would have a greater level of consumer demand. While many factors are causing concern to industry at present, and causing lower production and higher unemployment, the sudden fall in consumer demand is the most fundamental point. That is where industry would prefer help. I believe that if it were asked to choose between lower interest rates and increased consumer demand, industry would choose the extra fillip to consumer demand that is implicit in this clause.
      7.45 pm
      If interest rates were maintained at their present level or increased as a result of this clause, pressure on wage settlements would continue. Even in the Government's own terms, I believe that this amendment is a sensible step forward. But in general terms, it will give the man in the street an indication that the Government are prepared to help directly to bring prices down in an obvious and unmistakable way, and it would be a sign that they cared about the horrifying rise in unemployment. In those terms I commend the new clause to the House.
      Miss Joan Lestor: I wish to speak on the narrow point of the cut-off stage of VAT for children's clothing. I have had correspondence with the Chancellor of the Exchequer and I have tabled many questions on the subject.
      I have recently carried out a small survey on school uniform. Of 20 girls completing their second year at secondary school, 15 or 16 will have to buy clothing.
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      which will be subject to VAT, to replace their school uniform. The argument against raising the cut-off level of VAT is that it is subject to abuse: small adults could buy clothing which would not be subject to VAT.
      In two or three weeks I shall be buying a school uniform for my daughter. I shall be buying a grey skirt, a grey pullover, grey socks and a pink blouse. I can assure the House that I have no intention of buying that school uniform for myself and coming to the House thus attired. Whatever the arguments about the VAT cut-off level on some clothing, there can be no argument about school uniform. The problem facing many parents is that their children are now adult in terms of clothing, and they have to pay VAT on that clothing simply because they have produced taller or bigger children. That is utterly ridiculous.
      There cannot be any argument about school uniform. However much we may have advanced in styles, there are not many adults who want to parade themselves in school uniform. Even if it is true that some people do that, the discrimination against the children or households that have to pay extra for children's clothing can be offset against the alleged abuse.
      I hope that the Government will make a real effort to meet some of the arguments that have been made. In my view, there is an unanswerable case for school clothing. As for other clothing, the larger child, particularly the girl, is penalised because of size. If the parent has to pay VAT on children's leisure clothing, the larger child will not be able to have as many clothes as the smaller child. On those grounds, too, there ought to be some way in which some of these points can be met.
      The doubling of VAT has produced great hardship for large numbers of families in this country in which the children have grown to stature and maturity—something the whole nation should be proud of—because of the great school meals service, which is now being undermined, and the school milk provision, which is now being lost.
      My last point is one that has been mentioned again and again, although we seem to get nowhere with it. What on earth is the justification for VAT on

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      sanitary towels? There can be no justification for it. When the Government are considering any changes in VAT or any relaxation of VAT, they should make a gesture and remove the VAT on sanitary towels.
      Mr. Martin J. O'Neill: My hon. Friend the Member for Eton and Slough (Miss Lestor) has put forward several arguments of a special nature. In doing so, I am sure that she was acting on behalf of the many parents of pupils at the well-known school that is named after her constituency. However, the arguments are even sharper when we consider the large State comprehensive schools, where school uniform is being discontinued and the children want to wear clothes which are as attractive as those of adults. At the ages of 15 and 16, considerable difficulties are arising in households as a result of the pressures of fashion and, at the same time, the pressures of value added tax.
      I want to direct my remarks to the macro-economic effects of the new clause, because it is quite clear that, while there is no great response on the part of wage negotiators to cuts in taxation, increases in taxation can have a considerable effect. The VAT increase of last year is still being worked through the system in terms of wage claims.
      Looking to the position 18 months to two years hence, some reduction in the rate of wage increases may be thought to be desirable. Obviously we want the rate of inflation eventually to come down. In that context, the amendment can be seen by the country at large as a meaningful step in the right direction. Obviously anything that can be done to reduce the level of unemployment is to be encouraged.
      Reference has already been made to the use of computers and models. Unfortunately, so many different interpretations of the model are being made these days that it seems to be possible to prove almost anything. However, if we take the sensible construction that was placed on the model by my hon. Friend the Member for Gateshead, West (Mr. Horam), we can safely say that about 100,000 jobs would be likely to be created if the new clause were to be implemented.
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      In recent years, Labour Members have been reluctant to speak up on the regressive nature of indirect taxation. I believe that it is an essential tenet of Socialism that those who have should contribute more to the common weal than those who have not. We should therefore seek to reduce the level of taxes on consumption. This is perhaps simplistic and perhaps mildly ideological, but it is no less relevant as an element in political philosophy than the kinds of arguments put forward by the monetarists on the Conservative Benches, who seem to believe that they have only to cut direct taxes and allow indirect taxes to rip in order to produce some sort of liberated economy.
      Apart from the 100,000 or so jobs that would be created by the reflationary element in the amendment, a 2½ per cent. reduction in VAT would be of considerable assistance to people who at present are living on unemployment benefit and on various forms of supplementary benefits, which will not be increased this year to anything like the same extent as the increase in inflation. The Government must surely admit that the amount by which the social security benefits will be increased will not match the levels of inflation being forecast even by their own faulty computer.
      The time is long overdue for the Opposition to make clear that if we were back in power we would be starting to erode the intolerably high indirect taxation in this country, and that if necessary we would find the revenue from other sources. We do not share the Government's preoccupation with the level of public sector borrowing requirement. Therefore, we would be talking about a higher public sector borrowing requirement than the Government have set as their target. As a Socialist party we are seeking to bring about a greater degree of equality in the country—I accept that Conservative Members do not regard that as a justifiable political objective—and access to consumption is a desirable step in that direction.
      Anyone who wishes to do something about reducing unemployment and making a modest impact on the level of inflation should support the new clause. I reiterate the point made by my hon. Friend the Member for Eton and Slough

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      about the difficulties of parents in clothing their children. Incidentally, those parents have very little assurance today that their ever-growing children will have jobs once they leave school. The only realistic way in which to help such people in their difficulties is to support the new clause.
      Mr. K. J. Woolmer: I support the amendment, the intention of which is to reduce the rate of value added tax. The Government have often stressed that the prime objective of their policy is to reduce inflation. They have appealed to wage earners to take notice of monetary targets, but that is far too remote and meaningless for ordinary people to take into account in their everyday lives, particularly when what they see, at a time when the Government are talking of monetary targets, is a succession of Government actions intended to increase prices.
      Last year, there was a doubling of VAT. I well remember—it was the first Budget for which I had been present in the House—that Conservative Members were waving their Order Papers with glee at that Budget, which resulted in a doubling of VAT and the setting up of a marked inflationary spiral. No doubt, when those Conservative Members were supporting their own Government they thought that the objective was to reduce prices, but we have now long since forgotten about all the initiative and drive that were to result from last year's income tax cuts. The reason for doubling VAT was supposed to be to create energy and drive. Instead, the result has been spiralling inflation and growing unemployment. This year's financial debates have been a lot more sombre and sober than the debates in the heady days of the post-election euphoria.
      Since then, the Government have not stood still. They have talked about monetary targets and the fight against inflation, but they have regularly increased price after price. We have not only had petrol and oil prices going up in line with the most hawkish of OPEC countries. The Government have accepted rises in common agricultural prices; they have accepted a devaluation of the green pound.
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      Mortgages have risen to astronomical, and historically high, levels. Rents have been forced up. There is even talk that the Secretary of State for the Environment will use his financial powers to compel local housing authorities to raise council house rents. However, at the same time, Treasury Ministers talk about the need to hold down prices and wage demands.
      8.00 pm
      Little secret is made of the fact that the Government's expenditure proposals mean that council house rents will rise by up to £9 or £10 a week—over and above inflation—over three years. In addition, there will be further reductions in house building programmes. Nationalised industries have been set impossible financial targets. It is clear that that will result in huge increases in the cost of electricity, coal, gas, petrol, postal charges, train fares, bus fares, and so on. I have stressed the Government's deliberate intention to raise prices and squeeze living standards in order to emphasise a crucial point. Do the Government wish to bring down the rate of inflation quickly? Is that their policy? Their policies are clearly directed—in deed as opposed to in word—the opposite direction.
      It is no good telling wage earners that they must not price themselves out of jobs, if the Government are busy stoking up the fires of inflation. Unemployment is racing at an alarming speed towards the 2 million mark. There has been a record number of bankruptcies and long-established businesses genuinely fear for their survival. Informed commentators say that unemployment will reach 2½ million or 3 million. The Minister knows that that is not scaremongering. The figures have been produced by responsible and realistic forecasters. After all that, the Government will return only to the rate of inflation that they inherited when the Labour Party left office. That is ironic. Unemployment, production losses, and enormous increases in living costs will result only in the inflation rate that existed when the Government took office.
      The amendment gives the Government an opportunity to reduce inflation by a deliberate and direct act of policy. As

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      my hon. Friend the Member for Gateshead, West (Mr. Horam) said, the Government will be able to boost demand, sales, production and jobs. If the retail price index falls in July, it will give the Government an opportunity to reduce inflation by 5 per cent. or 6 per cent. at a crucial moment in their preparations for the annual round of wage negotiations. Last year, VAT was doubled, and that undoubtedly had an effect on the ability of wage negotiators to convince their members to talk about wage restraint. Just as I was critical last year, I am prepared this year to state that I am certain that a reduction of 5 per cent. or 6 per cent. in the retail price index would affect wage negotiations and wage negotiators.
      The Government have been given an opportunity to show that actions speak louder than words. It is no good talking about monetary targets if they shove up the prices. The Government can vote for reduced prices tonight. They can show that they believe what they say. They can go further. They can moderate some of the other price increases that threaten. The electorate does not realise what will hit it in the form of increased prices for gas, electricity and rent. People do not realise what will happen this winter. Only yesterday, the Chancellor of the Exchequer told people to take note of monetary targets. It is no use having such targets if the Government deliberately force up prices at the same time.
      In the next few months there will be deliberate and massive increases. Even industry is complaining about gas prices. It realises what is implied. It is no good just talking about bringing down inflation. Last year, Conservative Back Benchers waved their Order Papers in election euphoria just as the Government were doubling VAT and setting off on a disastrous economic policy.
      Mr. Hooley: Breaking their manifesto promise.
      Mr. Woolmer: The Government said that it was a lie to suggest that they would increase VAT. This year, Conservative Back Benchers can vote more soberly and responsibly to reduce VAT. They can show that the House believes that inflation can be brought under control.
      Mr. Robert Adley: I shall intervene briefly in the debate, and I hope that I am not out of order. I recall that when a previous Conservative Government introduced VAT it was at the uniform rate of 10 per cent. It was not the Conservative Party that increased VAT to 25 per cent. I have never forgotten the look that the former Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey), gave to my right hon. Friend the Member for Sidcup (Mr. Heath), when he gloatingly announced that VAT would be increased to 25 per cent. for boat builders. That had a very damaging effect on my constituency.
      I declare an interest, as I am a marketing director of a hotel company. I wish to draw the attention of my hon. Friend the Financial Secretary to the effect that the increased rate of VAT has had on the competitiveness of our tourist industry. The strength of our currency has had a considerable effect. However, in the national interest, I make no complaint. Many of those in the service industries feel that it is unfair that the hotel industry is not allowed to offer overseas visitors any exemption on VAT. Such visitors bring valuable foreign currency into Britain. However, exemption is available to those overseas visitors who buy fur coats and a whole range of luxury goods. I hope that my hon. Friend will bear in mind that the hotel industry feels that it is getting a raw deal. The foreign currency earned from tourism is just as valuable as the foreign currency that is earned by those who come here to buy goods in our shops.
      I accept that my hon. Friend will not be able to do anything about that in the Bill. However, as other amendments have not been selected, I have chosen this opportunity to bring that point to the attention of my hon. Friend.
      Mr. Hooley: I would have thought that the Treasury Bench would have welcomed the new clause with open arms. Her Majesty's loyal Opposition are positively panting to help the Government in their declared aim of bringing down inflation. I can hardly imagine a better, quicker or simpler way of achieving that than cutting VAT from 15 to 12½ per cent.

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      Ministers repeatedly tell us, both inside and outside the House, that inflation is the central objective of their policies. According to them, everything else depends on that, including the health of the economy, growth and so on. They say that the ability to pay better pensions and social benefits depends on the success of the attack on inflation. When the Prime Minister goes to international gatherings, such as the meeting in Venice, the story is told that inflation is the bogy man, and that it must be brought down. I have no reason to dispute that the Government hold that view. However, they have shown themselves grotesquely incompetent in pursuit of that central objective.
      As my hon. Friend the Member for Batley and Morley (Mr. Woolmer) said, the Government inherited an inflation rate of 10 per cent. and managed to push it up to 22 per cent. in 14 months. That is quite an achievement, given all their arguments point to cutting inflation. On that ground alone, the Treasury should welcome this contribution from Her Majesty's Opposition, which will help to solve our appalling rate of inflation.
      Let us consider some of the other advantages of the clause to the country and to the Government. Let us consider the clause's effect on unemployment. The Government have shown themselves to be depressingly indifferent to the plight of the unemployed. Despite protestations, the figures have gone up. The last set of figures showed that 1·6 million people were unemployed. That is a record. Everybody believes that that figure will have risen to 1·8 million in a week's time. Most people believe that it will have reached 2 million by the end of the year, or by the beginning of next year. What are the Government doing about it? Absolutely nothing. The small firms employment subsidy has been scrapped, skillcentres are being cut down, the special temporary employment programme is being slashed from 35,000 to 12,000 places and so on. One could quote item after item on which the Government have failed to take positive action to deal with unemployment.
      Far be it from me to suggest that by reducing VAT from 15 per cent to 12½ per cent. the Government could solve that problem. But at least some contribution would be made. There would be some
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      incentive to demand and some incentive to manufacturers to produce more, knowing that even if their goods were produced at the same price, at least the incidence of taxation would bring down prices a little in the shops and stimulate demand. Quite apart from the argument on inflation, there is a powerful argument for the amendment in terms of reducing unemployment, even if only marginally.
      The third point relates to business confidence. A little while ago MLR came down with a great flourish from 17 per cent. to 16 per cent. It is still at an absolutely outrageous and ridiculous height. It is still destroying the ability of many firms to survive and the incentive of many others to invest. Nevertheless, there was a great flourish as MLR came down by one percentage point. The stock exchange went mad, there was great excitement, and share prices went up. Surely if business were given the incentive of knowing that VAT would be cut by 2½ per cent. as a direct stimulus to demand, it would be encouraged. Those business men—if there are any left—who still have some small faith in the Government's ability to manage our economic affairs would be encouraged by such a move. At least it would be a faint indication that the Government were moving towards some sort of expansion of the economy instead of maintaining the vicious, depressing deflation that all their policies represent. In the interests of keeping their friends in the CBI the Government should adopt this modest but sensible proposition. The Government's friends are shrinking in numbers day by day. Thus, from the points of view of inflation, unemployment and business confidence there is every incentive for the Government to accept this sensible and constructive amendment.
      There is another aspect as well—that of an incomes policy. So far the Government's incomes policy—in so far as they have one—appears to be to default on and dishonour pledges that have been made. For example, they have defaulted on the pledge to Members of this House on their salaries. There was a firm commitment by the Leader of the House that the recommendations of the independent review body would be honoured. That firm commitment has been broken and the Prime Minister has told the House that she has no intention of laying before the House an instrument or

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      resolution to implement the findings of the Boyle committee's report.
      I suggest that by reducing VAT the Government could make some impact on the formulation of wage demands. The reduction of VAT would help to reduce inflation and thus reduce the RPI. If the cost of goods in the shops were reduced, responsible negotiators—and my trade union friends are responsible negotiators, despite the rubbish that is sometimes talked on the Conservative Benches—would take this into account in their wage bargaining. Thus there would be a useful effect on the general level of inflation—the constant spiral of prices acting on incomes and incomes acting again on prices. Therefore, in terms of incomes policy and the general effect on incomes bargaining, the reduction in VAT could be positive and beneficial without any loss in real purchasing power to any of the bargainers. I am not suggesting that their incomes should be reduced, but possibly they could accept slightly moderated claims without in any way reducing the real standard of living of the people they represent. If the new clause were carried the prices in the shops would be reduced and this would be conducive to bringing down inflation.
      8.15 pm
      Therefore, all aspects of the clause are conducive to the declared aims of the Government—the reduction of inflation, the reduction of unemployment, the restoration of business confidence and assistance with the wage bargaining problems of trade union leaders and others. In all those respects this amendment would make a positive and constructive contribution and I would be interested to hear how the Financial Secretary could claim otherwise.
      There is another aspect. This Government, by a squalid sleight of hand, deprived the pensioners of this country of two weeks' increase in their pensions. They created what has never been heard of before—the 54-week year. A large sum of money which should have accrued to the pensioners by way of an increase for those two weeks has not been given to the rightful recipients. By accepting the amendment the Government could make a modest contribution to restoring the purchasing power of pensions.
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      It would be difficult to calculate the exact effect of this. It is not easy to calculate how much indirect tax pensioners pay but it is quite considerable. When one adds up the various indirect taxes one realises that the notion that pensioners do not pay tax is nonsense. Pensioners pay a fair bit of their income in indirect taxation. The clause would make a modest contribution towards relieving the 8 million people who are living on pensions in retirement of their taxation burden and would help their standard of living. It would also offset the squalid trick played upon them by the Government with the creation of the 54-week year. This also applies to a great many other social benefits.
      The new clause would also offset the Government's very mean attitude to the uprating of child benefit. We all know that child benefit was not properly up-rated to compensate in full for the anticipated rise in inflation. This was another little manoeuvre designed to save the Government %£30 million or £40 million at the expense of parents with children. My hon. Friend the Member for Eton and Slough (Miss Lestor) mentioned the problem of VAT on clothing for children who are growing into adult sizes. That is a special problem and there are plenty of others faced by parents paying for the needs of children at school, particularly those in their teens. Reducing VAT in the manner suggested by my hon. Friend would considerably help parents, who were looking forward to a genuine up-rating of child benefit, and have been cheated by the Government.
      It will be difficult for the Treasury to deny the advantages my hon. Friend's proposition for inflation, employment, business confidence, incomes policy and the benefits to those living on social security. However, the Financial Secretary may argue that there would be a demand for additional imports, which would create a balance of payments problem. With £10 billion or £15 billion North Sea oil and gas revenue I doubt whether even this Government could create a serious deficit in the balance of payments. In the past 14 months they have tried hard to put us in deficit, but they will have to try even harder as the enormous natural wealth of gas and oil comes more and more on stream. The

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      Financial Secretary would be hard pressed to argue the disadvantage for our balance of payments compared with the stimulation of demand that the clause would produce.
      Another entrenched position that the Treasury takes is over the famous PSBR—the public sector borrowing requirement or the central Government borrowing requirement. There are delightful variations on the theme. Next to the Government's worship of their goal to reduce inflation is their central aim of controlling or reducing the PSBR. The Minister of Agriculture, Fisheries and Food the other day made a speech that is highly embarrassing to the Government. He pointed out that the cost of having 1·6 million people unemployed is about £7 billion in terms of paying unemployment and social security benefits and forgoing the revenue from income tax. The figure may be £5 billion or £8 billion. We need not quarrel about the odd billion pounds when we are dealing with Treasury figures. The main theme of the right hon. Gentleman's argument is correct. The Government are deliberately forcing up unemployment, which is heading steadily for 1·8 million, and will probably reach 2 million by the end of the year. They are thereby aggravating the PSBR problem.
      My hon. Friend the Member for Batley and Morley argues that a reduction in VAT from 15 to 12½ per cent. would reduce the unemployment figure by 100,000, which is probably a fair estimate. If demand is increased and business confidence improved, that is quite possible. That reduction would provide the Treasury with the revenue that it needs to fill in the gap in the PSBR.
      The Financial Secretary may argue that a 2½ per cent. reduction in VAT will lose the Treasury a great deal of revenue, which would upset the PSBR calculation and bring disaster upon disaster. We are already experiencing the disasters of inflation that the Government are supposed to be combating. The clause would help to move the economy in the right direction, stimulate demand and reduce unemployment. It would also have a beneficial effect on the PSBR. It would provide extra revenue, and reduce the Treasury's commitment to unemployment and social security payments. There is
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      everything to be said for this sensible and constructive clause in terms of inflation, unemployment, business confidence, an incomes policy—if the Government want one—the value of pensions and child benefit, where the Government have acted so shabbily, the balance of payments and even the Treasury idol, the PSBR.
      Mr. David Stoddart: I support the amendment.
      I should first like to put the hon. Member for Christchurch and Lymington (Mr. Adley) right. I am sure that he does not mean to give the impression that under a Labour Government VAT stood at 25 per cent. The rate of VAT under a Labour Government was reduced from 10 to 8 per cent. In accordance with our policy, certain inessential items were taxed at a higher rate, but the majority of items were taxed at 8 per cent.
      Mr. Adley: I said only that the boat builders in my constituency were severely damaged and unemployment was created. The industry, which at that time was mainly concerned with export trade, was hard hit when the Labour Government increased VAT from 10 to 25 per cent. That severely affected the home market, and consequently the export market.
      Mr. Stoddart: I served on the Committee, and heard all the arguments about the boat builders. The hon. Gentleman is aware that VAT is not levied on boats exported. During the whole period of the last Labour Government the standard rate of VAT was 8 per cent.
      This is a sensible new clause which should commend itself to the Government, because the present Chancellor of the Exchequer gave the impression in a broadcast before the election that he would support a 12½ per cent. rate of VAT. The Government should review their policy and honour that near pledge to the electorate.
      It is interesting to contrast the Government's actions yesterday with their attitude today. Yesterday they proposed expenditure of £5,000 million on a so-called independent nuclear deterrent. Even the Americans agree that it is not a deterrent and that it is not independent. They would prefer us not to have it. The House should contrast that with the Government's resistance of a reasonable amendment to assist the people of

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      this country and to help to reduce the rate of unemployment.
      8.30 pm
      We are suffering a recession which is rapidly developing into a slump. The shadows of the 1930s are closing around us. As my hon. Friends have pointed out, a reduction in VAT would help to push those shadows away a little. If the Government have a care for the unemployed and wish to avoid the gathering slump, they should take the amendment seriously.
      We heard today that the general standard of living is being affected not only by unemployment, but by a reduction in the number of hours of overtime being worked. Incomes have been reduced by 1½ per cent. because of that reduction. That is significant and will assist the developing slump. There is a need to stimulate the economy and not to push it further down. But perhaps the Government intend to use unemployment and a lower standard of living to bludgeon workers into utter docility. If that is their plan, I must tell them that it is an unwise one which will rebound on them with social, and perhaps even political, consequences.
      I have referred in previous speeches to VAT on children's clothes. I have two kids and, like other Members, I know about the problem from first-hand experience. I was in the Hosue in 1972 when VAT—an absurd foreign tax—was imposed on this country. I remember hon. Members from both sides fighting the Government for an exemption for children's shoes and clothes. That was a fight by Parliament against a resistant Government who, because of the efforts of hon. Members on both sides, eventually made a concession.
      However, that concession is coming to nought, because the clothes of children aged 10 and 11 are being taxed at the standard rate of VAT. I have a son of 14 who is a big chap and takes size 11 shoes. My other boy is 10½. Yesterday, he complained that his shoes were getting tight and my wife bought him a new pair. Because he now takes size 4, having moved up from size 3½, my wife had to pay VAT on the new shoes.
      What sort of exemption is that? The Government should examine the matter closely. Families are under siege—from
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      escalating food prices, rents, mortgage interest and rates. They do not receive the exemption that we thought they would have on children's clothes.
      The Government even ratted on the child benefit increase. The increase that families should have received last November was delayed until November this year. They have not yet got their 75p and even that is about 45p below what the Government estimate the child benefit should be to keep it in line with inflation.
      The clause is eminently sensible. For their own sake, for the sake of sensible policy and for the country's future, the Government should consider it seriously. For all the reasons advanced by my hon. Friends, including those on the Opposition Front Bench, they should accept it.
      Mr. D. N. Campbell-Savours: Being one of those who wish to attend the debate on the summer time order later tonight, I do not wish unduly to delay the House now. However, I must say that the Financial Secretary and his friends in the Treasury would have done well to join some of us last Thursday when we marched from King's Cross station to near the House with 800 steel workers from Consett. The many people who took part did not know what the future held for them. They are among the nearly 2 million unemployed who look to the Government to take action to resolve their difficulties.
      I do not wish to dissociate myself from the principle of high indirect taxation, although perhaps not necessarily as high as was introduced last year and in succeeding Budgets. It would be of benefit to the House if the Government accepted the spirit of the clause. Labour hon. Members believe that the economy needs a cash injection. That is said not only by the trade union movement and Labour hon. Members but by Conservative hon. Members. I wish that they would speak up. It is noticeable that they have sat quietly from the beginning to the end of this debate. They have said nothing, yet we know that they would like to express some views.
      The people in industry and trade that Conservative hon. Members represent come to the House in delegations to make exactly the same case. I give an isolated example. At a meeting of the

      1599
      Northern group of Labour Members yesterday, yet another delegation pressed for more cash to be injected into the economy. The delegation represented the building industry, which is not exactly one of the best of friends of the Labour Party. We had great difficulty in convincing its members that they should be putting their view directly to Conservative hon. Members.
      During last week's march with our colleagues from Consett one asked me "Who really is responsible for what is happening?" I do not necessarily blame the Prime Minister. I blame key Ministers in the Treasury. It may well be that future demonstrations in London should turn their attention on the demagogues in the Treasury who are destroying this country's economic and monetary base. They are the guilty ones, the people causing the damage. It is about time they recognised it, but it seems that one of them would prefer to spend his time on the Front Bench sleeping—perhaps he is listening—to listening to the crucial points made by hundreds of thousands of people throughout the northern region.
      I turn to the principle of VAT, which is the means by which we seek to increase the amount of money that circulates in the economy, thereby ensuring greater consumption. I raise a point that has been raised with the Financial Secretary by a number of lobbies whose members have come to the House in the last few years. The point concerns small hotel keepers, inn keepers and boarding house keepers who turn over just sufficient money to take them beyond the VAT threshold. As VAT increases—it is at a particularly high level now—the position of those people is gravely endangered by other businesses which are not registered for VAT and which fall just below the VAT threshold.
      Over the last few years, in the national parks and the coastal towns, owners of small boarding houses have put up signs in their windows saying "Without VAT". In many areas that is having a detrimental effect upon similar businesses which are registered for VAT and which must submit all their returns to the Inland Revenue, whether to the Excise or to the direct taxation divisions.
      When the Minister replies to the debate, I hope that he will comment on the
      1600
      tenuous position of small traders who feel aggrieved by the decision of the Government last year to raise the level of VAT. I hope that he will take this opportunity to reply to that point.
      Mr. Ronald W. Brown: I wish to put two points to the Financial Secretary. He has heard my first point before, but I do not apologise for asking him to consider it again. As he knows, I am the parliamentary adviser to the furniture trade unions and I have argued with the hon. Gentleman and his Department on many occasions about the way in which VAT is applied in the furniture industry.
      First, there is the price of furniture as manufactured by an efficient and effective industry. It is manufactured at an extremely competitive price, but by the time it reaches the shop the price has been marked up by 100 per cent. The Minister knows that VAT is then added. There can be no possible case for saying that any value has been added to the furniture. Nothing has taken place from the time the furniture was made and boved to the time it reaches the shop to add any value to the article. Value added tax should be imposed at the point where value has been added.
      It is time that the Financial Secretary looked at the issue. It is unfair that a great number of people are being forced to buy furniture at a much higher price because of VAT. For example, a piece of furniture can be manufactured in a Scottish prison for £163. The Minister knows that apparently we are now driven to manufacturing furniture in prison and contracting to sell it outside while at the same time making furniture trade workers redundant by closing businesses. I have always failed to follow the Government's argument, but they pursue it almost to the point of vendetta.
      If that same piece of furniture had been manufactured for £163 outside the prison, by the time it reached the shop it would cost, after mark up, more than £340. The customer would also have to pay 15 per cent. VAT on top of that price. Without going into the entire argument again, I ask the Minister to reconsider the matter and explain how he can justify VAT being added to the mark-up price of furniture. Applying VAT in that way is an abrogation of the meaning of VAT.

      1601
      8.45 pm
      The other point I wish to raise has been the subject of a dialogue between myself and the hon. Gentleman, who was kind enough to write to me about it. One of my constituents lives in a flat owned by the Crown. His garage is a long way from his flat. When he was a Crown tenant he did not pay VAT on the rent of his garage because the garage and the flat were owned by the Crown. However, the Crown decided that instead of developing the area it would hand the site over to a housing association. The man still occupies his flat. The difference is that the owner is now a housing association which is a lessee of the Crown. The man's garage is in the same place but he now has to pay VAT on the rent of his garage.
      For the life of me I cannot see the rationale of that. The man's circumstances are precisely the same. He did not ask to become a housing association tenant. He did not ask to be transferred. The Minister knows that such happenings are wrong. When he wrote to me, he said that there was not much that he could do about it. He said that that was the state of play. The Bill gives him a chance to put right what he knows to be wrong. The Minister has the vehicle and he can now put right a total absurdity.
      Mr. Lawson: We have had what is customarily called a wide-ranging debate. It did not wholly confine itself to new clause 21. I shall try to confine myself to the clause. I hope that hon. Members will not feel that that is discourteous to the House.
      I shall take the points in sequence and deal first with what might be called the micro-economic problems and the particular detailed problems of VAT raised by the hon. Member for Gateshead, West (Mr. Horam) and others and then I shall deal with the more general points made by the hon. Member for Gateshead, West and others.
      Before I forget, I shall deal with the problems raised by the hon. Member for Hackney, South and Shoreditch (Mr. Brown)—if I can engage his attention for a moment. He raised two points. First, he mentioned his constituent who
      1602
      was formerly a Crown tenant and became a housing association tenant and the correspondence that he has had with me on that matter. In fact, he has had that correspondence with my hon. and learned Friend the Minister of State, certainly not with me. I am sure that my hon. and learned Friend will do his best to satisfy the hon. Member on this point. Whether he succeeds remains to be seen. Clearly he has not succeeded so far.
      The hon. Member also referred to furniture. There is a problem. Oscar Wilde said that a cynic was someone who knew the price of everything and the value of nothing. In fiscal matters we have to be cynics. We have to go on price. If the price reached at one stage of the production or distribution process, or the price to the consumer, is higher than it was at an earlier stage, that has to be taken to be the value added. There is no other more metaphysical or meaningful way in which we can assess what value has been added. I am sorry that I cannot satisfy the hon. Gentleman further than that.
      A number of micro-problems have been put to the House. One was raised by the hon. Member for Gateshead, West and spoken to, not for the first time, by the hon. Member for Eton and Slough (Miss Lestor), who has been a persistent campaigner about it, as I know well. They raised the matter of children's clothing and footwear. It is a complicated matter. There is one way of removing the complication, namely, to remove the concession on children's footwear and clothing. If that were done, there would be no demarcation problems. I am sure that neither the hon. Member for Gateshead, West nor the hon. Member for Eton and Slough wants the concession to be removed. As the hon. Member for Swindon (Mr. Stoddart) said, as soon as we have a special concession for children's clothing and footwear, we are bound to have a demarcation problem. We have examined these issues carefully and there is no practical way of overcoming the problem. The previous Government found themselves in precisely the same position.
      Miss Joan Lestor: Will the hon. Gentleman comment on the school uniform proposition? That seems to be an area where a concession could be made.
      Mr. Lawson: I was about to turn to that. I was struck by the hon. lady's argument when she said that her daughter's school uniform was a pink blouse and a grey suit. She said that she would not come to the house dressed in that fashion. However, she has come to the House today dressed in a lime green V-necked dress. Who is to say whether that may not be a school uniform? There may be a school that has that style as its uniform. What is and what is not a school uniform is something that is not obvious.
      The hon. Member for Clackmannan and East Stirlingshire (Mr. O'Neill) said that the school uniform in the obvious and conventional sense is gradually disappearing. What now passes for school uniform is becoming closer and closer to what we would construe as ordinary clothing.
      Mr. O'Neill: Will the hon. Gentleman concede that the answer might be to do away with VAT on clothing for all ages?
      Mr. Lawson: It would be possible to do that, but the lost revenue would have to be raised elsewhere.
      It has been alleged that VAT is a regressive tax. Secondly, it has been said that we have a very high rate of VAT following the 1979 Budget. That was alleged by the hon. Member for Workington (Mr. Campbell-Savours), who said that he is in favour of high indirect taxes but not as high as the present rate of VAT.
      I accept that VAT could be a regressive tax, but much depends on the structure. It is not regressive in Britain. Essentials such as food, heating, lighting, house prices, rents, fares on public transport and young children's clothing are all zero-rated, unlike most other countries with VAT. These are essential items and items of expenditure that bulk far larger in the budgets of the poor than they do in those of the wealthy. That means that British VAT is not a regresssive tax. That was accepted by the previous Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey).
      The effective rate of VAT is 8 per cent. About half of all items attract 15
      1604
      per cent. VAT while the other half are zero-rated. That means that the effective rate is about 8 per cent. That is the lowest effective rate of VAT in any country in the European Community. There was an effective rate of 5½ per cent. under the previous Labour Government. The two rates of 8 per cent. and 12½ per cent. equalled an effective rate of 5½ per cent. As I have said, 8 per cent. is the lowest rate in the European Community. I do not think that by international standards it is possible to say that this is a high rate of indirect taxation.
      My hon. Friend the Member for Christchurch and Lymington, (Mr. Adley) was particularly concerned about the tourist industry. The whole House knows how doughtily he has fought for it. He made a considerable achievement during the last Parliament that all hon. Members recall. I regret, however, that I cannot accept his plea, which boiled down to the argument that there should be a 15 per cent. rate of VAT for British holiday-makers but no VAT for the foreign tourist, who may or may not be a holiday-maker, in hotels in this country. I believe that that is a form of discrimination that the House would not wish to see. Certainly the Government would not wish to see it.
      I do not deny the big contribution that the tourist industry makes to our economy; but it also makes a contribution to the economy in other countries. My hon. Friend can go to any country in the Continent of Europe and I am sure that he will find no distinction in the VAT levied on the foreign tourist and that levied on the indigenous hotel resident.
      Mr. Adley: My hon. Friend is not quite right. In most other countries, there is a uniform rebate for export earnings, whether in goods or services. It is in this country that a distinction is made between the two. It is not normally the case in most countries.
      Mr. Lawson: I think, with respect, that my hon. Friend will find that tourists, foreign or not foreign, pay exactly the same VAT in the hotels of any country of the Community. If that is wrong, I shall write to my hon. Friend and let him know that I am wrong.
      Mr. Adley: And change it here?
      Mr. Lawson: I am of the opinion that what I have said is right.
      I think I have dealt with most of what might be called the micro-economic questions, although not all of them. The main thrust of the Opposition case has been a macro-economic one. They have sought to maintain that by reducing VAT from 15 per cent. to 12½ per cent.—
      Mr. Roland Moyle: Before moving on to the macro-problems, the hon. Gentleman may care to deal with what he calls the micro-problems of people dying because there are insufficient kidney machines in the National Health Service as a result of the high rate of VAT that has to be paid on the equipment.
      Mr. Lawson: The amount of resources available to the National Health Service depends on the health of the economy as a whole. The purpose of this Government's economic policy is to increase the health of the economy so that more resources become available to the Health Service and other essential services. To suggest that every problem in the National Health Service is due to VAT is the most arrant nonsense. The right hon. Gentleman knows as well as I do that there were immense problems under the previous Government.
      The hon. Member for Gateshead, West suggested that if we were to reduce VAT by this amount inflation would come down and all our problems would be on the way to solution. What would happen if I were to agree to the new clause—it will be no secret to the hon. Gentleman that I do not intend to agree to accept it—and if VAT were to be reduced from 15½to 12½ per cent., is that the cost in a full year would be £1·6 billion. That increase in the borrowing requirement in a full year is only for starters.
      We are about to discuss another official Opposition amendment on personal allowances. That would cost about £640 million. The Opposition are therefore today alone proposing to increase the borrowing requirement by substantially over £2 billion. That is not all. A document called the draft Labour manifesto was published recently—
      Mr. Horam: Pathetic.
      9 pm
      Mr. Lawson: Indeed the hon. Gentleman is right. It was pathetic. Nevertheless, it was a document of which most of his hon. Friends approved and to which they gave their support. It calls for increases in public expenditure of at least £16 billion at a rough estimate. The undoing of the economies that we have made adds an extra £7 billion. The social security proposals would cost £9 billion. That is an extra £16 billion, leaving aside everything else.
      That shows the irresponsibility of the Opposition. When in government they took a different line. They were most concerned then that the borrowing requirement should be kept down. Now they do not care. The new clause amounts to pure inflationism. If the Opposition believe they can reduce inflation this way, I am surprised at the modesty of their clause. Why stop at 12½ per cent? Why not reduce the rate to 10 per cent. and bring down inflation further? Why not go to 5 per cent. and reduce it further still? Why not abolish inflation altogether by abolishing VAT? I do not know why they have not thought of that. They have been producing economic nonsense.
      As the hon. Member for Gateshead, West knows, inflation is now on the way down. He said that he expected the figures which are to be published later this week to show a levelling off, if not a reduction. He said that the next month's figures after that would show a substantial reduction. My right hon. and learned Friend the Chancellor said only recently that he expected inflation to be running at 16½ per cent. by the end of the year. That is about 5½ per cent. below the current level.
      Labour Members, including the hon. Member for Batley and Morley (Mr. Woolmer), have said that a reduction of between 5 and 6 per cent. would have a profound effect. My right hon. and learned Friend has forecast that that is exactly what would happen on present policies by the end of the year. Our present policies offer the prospect of getting inflation down. The inheritance we suffered of excessive monetary growth and a sharply rising rate of inflation was

      1607
      the cause of the problems of the past 12 months, problems with which we have been grappling. The turning point has now been reached.
      The new clause is the most arrant inflationism. The Opposition are calling for an increase in the borrowing requirement, an increase in monetary growth and an increase in inflation. I hope that the House will reject this clause.
      Mr. Horam: In line with all his colleagues the Financial Secretary has done a great deal of talking about inflation, but they have done precious little about it since they came into office. We have seen the results: an escalating rate of inflation now reaching 22 per cent. The hon. Gentleman speaks as though there is a triumph in the possibility that it may level off in the figures that we are about to see.
      This clause would enable the Government to do something direct and imme-
      diate about this very important problem. It would also have a favourable effect on the climate for wage settlements during the next 12 months. That is a matter about which the Government are clearly concerned. It would have a beneficial effect—not dramatic, but certainly worthwhile—on the spiralling unemployment which the country is viewing with increased alarm.
      I am extremely disappointed that the Government have not seized the opportunity that we, a responsible Opposition, have afforded them. It is nonsense for the Financial Secretary to talk about this clause being irresponsible. It is constructive, moderate and commonsense economics: and I urge my hon. Friends to vote for it.
      Question put, That the clause be read a Second time:—
      The House divided: Ayes 231, Noes 293.

      Division No. 406]

      AYES

      [9.05 pm

      Abse, Leo

      Cunningham, Dr John (Whitenaven)

      Gilbert, Rt Hon Dr John

      Adams, Allen

      Dalyell, Tam

      Ginsburg, David

      Allaun, Frank

      Davidson, Arthur

      Gourlay, Harry

      Anderson, Donald

      Davies, Rt Hon Denzll (Llanelli)

      Graham, Ted

      Archer, Rt Hon Peter

      Davies, for (Gower)

      Grant, George (Morpeth)

      Armstrong, Rt Hon Ernest

      Davis, Clinton (Hackney Central)

      Grant, John (Islington C)

      Ashley, Rt Hon Jack

      Davis, Terry (B'rm'ham, Stechford)

      Hamilton, W. W. (Central Fife)

      Ashton, Joe

      Deakins, Eric

      Hardy, Peter

      Atkinson, Norman (H'gey, Tott'ham)

      Dean, Joseph (Leeds West)

      Harrison, Rt Hon Walter

      Bagier, Gordon A. T.

      Dempsey, James

      Hattersley, Rt Hon Roy

      Barnett, Guy (Greenwich)

      Dewar, Donald

      Haynes, Frank

      Barnett, Rt Hon Joel (Heywood)

      Dixon, Donald

      Healey, Rt Hon Denis

      Benn, Rt Hon Anthony Wedgwood

      Dobson, Frank

      Heffer, Eric S.

      Bennett, Andrew (Stockport N)

      Dormand, Jack

      Hogg, Norman (E Dunbartonshire)

      Bidwell, Sydney

      Douglas, Dick

      Holland, Stuart (L'beth, Vauxhall)

      Booth, Rt Hon Albert

      Douglas-Mann, Bruce

      Home Robertson, John

      Boothroyd, Miss Betty

      Dubs, Alfred

      Homewood, William

      Bottomley, Rt Hon Arthur (M'brough)

      Duffy, A. E. P.

      Hooley, Frank

      Bradley, Tom

      Dunnett, Jack

      Horam, John

      Bray, Dr Jeremy

      Dunwoody, Mrs Gwyneth

      Howell, Rt Hon Denis (B'ham, Sm H)

      Brown. Hugh D. (Provan)

      Eadie, Alex

      Hughes, Mark (Durham)

      Brown, Robert C. (Newcastle W)

      Eastham, Ken

      Hughes, Robert (Aberdeen North)

      Brown, Ronald W. (Hackney S)

      Edwards, Robert (Wolv SE)

      Janner, Hon Greviile

      Brown, Ron (Edinburgh, Leith)

      Ellis, Raymond (NE Derbyshire)

      Jay, Rt Hon Douglas

      Buchan, Norman

      Ellis, Tom (Wrexham)

      John, Brynmor

      Callaghan, Rt Hon J. (Cardiff SE)

      English, Michael

      Johnson, James (Hull West)

      Callaghan, Jim (Mlddleton & P)

      Evans, Ioan (Aberdare)

      Jones, Rt Hon Alec (Rhondda)

      Campbell, Ian

      Evans, John (Newton)

      Jones, Barry (East Flint)

      Campbell-Savours, Dale

      Faulds. Andrew

      Jones, Dan (Burnley)

      Canavan, Dennis

      Field, Frank

      Kaufman, Rt Hon Gerald

      Carmichael, Neil

      Fitch, Alan

      Kerr, Russell

      Carter-Jones, Lewis

      Fitt, Gerard

      Kilfedder, James A.

      Cartwright, John

      Flannery, Martin

      Kilroy-Silk, Robert

      Clark, Dr. David (South Shields)

      Fletcher, L. R. (Ilkeston)

      Lambie, David

      Cocks, Rt Hon Michael (Bristol S)

      Fletcher, Ted (Darlington)

      Leighton, Ronald

      Cohen, Stanley

      Foot, Rt Hon Michael

      Lestor, Miss Joan (Eton & Slough)

      Coleman, Donald

      Ford, Ben

      Lewis, Ron (Carlisle)

      Concannon, Rt Hon J. D.

      Forrester, John

      Litherland, Robert

      Conlan, Bernard

      Foster, Derek

      Lofthouse, Geoffrey

      Cook, Robin F

      Foulkes, George

      Lyon, Alexander (York)

      Cowans, Harry

      Fraser, John (Lambeth, Norwood)

      McDonald, Dr Oonagh

      Crowther, J. S.

      Freeson, Rt Hon Reginald

      McElhone, Frank

      Cryer, Bob

      Garrett, John (Norwich S)

      McKay, Allen (Penistone)

      Cunliffe, Lawrence

      Garrett, W. E. (Wallsend)

      McKelvey, William

      Cunningham, George (Islington S)

      George, Bruce

      MacKenzie, Rt Hon Gregor

      Maclennan, Robert

      Price, Christopher (Lewisham West)

      Strang, Gavin

      McNally, Thomas

      Race, Reg

      Straw, Jack

      McTaggart, Robert

      Radice, Giles

      Summerskill, Hon Dr Shirley

      McWilliam, John

      Rees, Rt Hon Merlyn (Leeds South)

      Taylor, Mrs Ann (Bolton West)

      Magee, Bryan

      Richardson, Jo

      Thomas, Jeffrey (Abertillery)

      Marshall, David (Gl'sgow, Shettles'n)

      Roberts, Albert (Normanton)

      Thomas, Mike (Newcastle East)

      Marshall, Dr Edmund (Goole)

      Roberts, Allan (Bootle)

      Thomas, Dr Roger (Carmarthen)

      Marshall, Jim (Leicester South)

      Roberts, Ernest (Hackney North)

      Thome, Stan (Preston South)

      Martin, Michael (Gl'gow, Sprlngb'rn)

      Roberts, Gwilym (Cannock)

      Tinn, James

      Mason, Rt Hon Roy

      Robertson, George

      Torney, Tom

      Maynard, Miss Joan

      Robinson, Geoffrey (Coventry NW)

      Urwin, Rt Hon Tom

      Meacher, Michael

      Rodgers, Rt Hon William

      Varley, Rt Hon Eric G.

      Mellish, Rt Hon Robert

      Rooker, J. W.

      Walker, Rt Hon Harold (Doncaster)

      Mikardo, Ian

      Roper, John

      Watkins, David

      Millan, Rt Hon Bruce

      Ross, Ernest (Dundee West)

      Weetch, Ken

      Mitchell, R. C. (Soton, Itchen)

      Ryman, John

      Welsh, Michael

      Morris, Rt Hon Alfred (Wythenshawe)

      Sandelson, Neville

      White, Frank R. (Bury & Radcliffe)

      Morris, Rt Hon Charles (Openshaw)

      Sever, John

      Whitehead, Phillip

      Morris, Rt Hon John (Aberavon)

      Sheerman, Barry

      Whitlock, William

      Morton, George

      Sheldon, Rt Hon Robert (A'ton-u-L)

      Wigley, Dafydd

      Moyle, Rt Hon Roland

      Short, Mrs Renée

      Willey, Rt Hon Frederick

      Newens, Stanley

      Silkin, Rt Hon John (Deptford)

      Williams, Sir Thomas (Warrington)

      Oakes, Rt Hon Gordon

      Silkin, Rt Hon S. C. (Dulwich)

      Wilson, Gordon (Dundee East)

      Ogden, Eric

      Silverman, Julius

      Winnick, David

      O'Halloran, Michael

      Skinner, Dennis

      Woodall, Alec

      O'Neill, Martin

      Smith, Rt Hon J. (North Lanarkshire)

      Woolmer, Kenneth

      Orme, Rt Hon Stanley

      Soley, Clive

      Wrigglesworth, Ian

      Owen, Rt Hon Dr David

      Spearing, Nigel

      Wright, Sheila

      Parker, John

      Spriggs, Leslie

      Young, David (Bolton East)

      Parry, Robert

      Stallard, A. W.

      Pavitt, Laurie

      Stewart, Rt Hon Donald (W Isles)

      TELLERS FOR THE AYES:

      Pendry, Tom

      Stoddart, David

      Mr. James Hamilton and

      Powell, Raymond (Ogmore)

      Stott, Roger

      Mr. Hugh McCartney.

      Prescott, John

      NOES

      Adley, Robert

      Carlisle, Kenneth (Lincoln)

      Gardiner, George (Reigate)

      Altken, Jonathan

      Carlisle, Rt Hon Mark (Runcorn)

      Garel-Jones, Tristan

      Alexander, Richard

      Chancer, Mrs. Lynda

      Glyn, Dr Alan

      Alison, Michael

      Channon, Paul

      Goodhart, Philip

      Alton, David

      Chapman, Sydney

      Goodlad, Alastair

      Amery, Rt Hon Julian

      Churchill, W. S.

      Gow, Ian

      Ancram, Michael

      Clark, Hon Alan (Plymouth, Sutton)

      Grant, Anthony (Harrow C)

      Arnold, Tom

      Clark, Sir William (Croydon South)

      Greenway, Harry

      Atkins, Rt Hon H. (Spelthorne)

      Clarke, Kenneth (Rushcliffe)

      Grieve, Percy

      Atkins, Robert (Preston North)

      Clegg, Sir Walter

      Griffiths, Eldon (Bury St Edmunds)

      Atkinson, David (B'mouth, East)

      Colvin, Michael

      Griffiths, Peter (Portsmouth N)

      Baker, Kenneth (St. Marylebone)

      Cormack, Patrick

      Grylls, Michael

      Baker, Nicholas (North Dorset)

      Corrie, John

      Gummer, John Selwyn

      Banks, Robert

      Costain, A. P.

      Hamilton, Hon Archie (Eps'm & Ew'll)

      Beaumont-Dark, Anthony

      Cranborne, Viscount

      Hamilton, Michael (Salisbury)

      Beith, A. J.

      Critchley, Julian

      Hampson, Dr Keith

      Bell, Sir Ronald

      Crouch, David

      Hannam, John

      Bendall, Vivian

      Dean, Paul (North Somerset)

      Haselhurst, Alan

      Bennett, Sir Frederic (Torbay)

      Dorrell, Stephen

      Havers, Rt Hon Sir Michael

      Benyon, Thomas (Abingdon)

      Dover, Denshore

      Hawkins, Paul

      Benyon, W. (Buckingham)

      du Cann, Rt Hon Edward

      Hawksley, Warren

      Best, Keith

      Dunn, Robert (Dartford)

      Hayhoe, Barney

      Bevan David Gilroy

      Durant, Tony

      Heddle, John

      Biffen, Rt Hon John

      Dykes, Hugh

      Henderson, Barry

      Biggs-Davison, John

      Eden, Rt Hon Sir John

      Heseltine, Rt Hon Michael

      Blackburn, John

      Edwards, Rt Hon N. (Pembroke)

      Hicks, Robert

      Blaker, Peter

      Eggar, Timothy

      Higgins, Rt Hon Terence L.

      Body, Richard

      Elliott, Sir William

      Hill, James

      Bonsor, Sir Nicholas

      Emery, Peter

      Hogg, Hon Douglas (Grantham)

      Boscawen, Hon Robert

      Eyre, Reginald

      Holland, Philip (Carlton)

      Bottomley, Peter (Woolwich West)

      Fairbairn, Nicholas

      Hordern, Peter

      Bowden, Andrew

      Fairgrieve, Russell

      Howe, Rt Hon Sir Geoffrey

      Boyson, Dr. Rhodes

      Faith, Mrs Shella

      Howell, Ralph (North Norfolk)

      Braine, Sir Bernard

      Farr, John

      Howells, Geraint

      Bright, Graham

      Fell, Anthony

      Hunt, David (Wirral)

      Brinton, Tim

      Fenner, Mrs Peggy

      Hunt, John (Ravensbourne)

      Brittan, Leon

      Finsberg, Geoffrey

      Irving, Charles (Cheltenham)

      Brocklebank-Fowler, Christopher

      Fisher, Sir Nigel

      Jenkin, Rt Hon Patrick

      Brotherton, Michael

      Fletcher, Alexander (Edinburgh N)

      Jessel, Toby

      Brown, Michael (Brigg & Sc'tnorpe)

      Fletcher-Cooke, Charles

      Johnson Smith, Geoffrey

      Browne, John (Wincheser)

      Fookes, Miss Janet

      Jopling, Rt Hon Michael

      Bryan, Sir Paul

      Forman, Nigel

      Kaberry, Sir Donald

      Buchanan-Smith, Hon Alick

      Fowler, Rt Hon Norman

      Kellett-Bowman, Mrs Elaine

      Buck, Antony

      Fox, Marcus

      Kershaw, Anthony

      Budgen, Nick

      Fraser, Rt Hon H. (Stafford & St)

      Kimball, Marcus

      Bulmer, Esmond

      Fraser, Peter (South Angus)

      King, Rt Hon Tom

      Butcher, John

      Fry, Peter

      Kitson, Sir Timothy

      Butler, Hon Adam

      Galbraith, Hon T. G. D.

      Knight, Mrs Jill

      1610

      1611

      Knox, David

      Newton, Tony

      Sproat, Iain

      Lamont, Norman

      Normanton, Tom

      Stainton, Keith

      Lang, Ian

      Nott, Rt Hon John

      Stanbrook, Ivor

      Langford-Holt, Sir John

      Onslow, Cranley

      Stanley, John

      Latham, Michael

      Oppenheim, Rt Hon Mrs Sally

      Steel, Rt Hon David

      Lawrence, Ivan

      Osborn, John

      Steen, Anthony

      Lawson, Nigel

      Page, John (Harrow, West)

      Stevens, Martin

      Lee, John

      Page, Rt Hon Sir R. Graham

      Stewart, Ian (Hitchin)

      Le Marchant, Spencer

      Page, Richard (SW Hertfordshire)

      Stewart, John (East Renfrewshire)

      Lennox-Boyd, Hon Mark

      Parkinson, Cecil

      Stokes, John

      Lester, Jim (Beeston)

      Patten, Christopher (Bath)

      Stradling Thomas, J.

      Lewis, Kenneth (Rutland)

      Patten, John (Oxford)

      Tapsell, Peter

      Lloyd, Peter (Fareham)

      Pattie, Geoffrey

      Taylor, Robert (Croydon NW)

      Loveridge, John

      Pawsey, James

      Taylor, Teddy (Southend East)

      Lyell, Nicholas

      Percival, Sir Ian

      Tebbit, Norman

      Macfarlane, Neil

      Pink, R. Bonner

      Temple-Morris, Peter

      MacGregor, John

      Pollock, Alexander

      Thomas, Rt Hon. Peter (Hendon S)

      MacKay, John (Argyll)

      Porter, George

      Thornton, Malcolm

      Macmillan, Rt Hon M. (Farnham)

      Prentice, Rt Hon Reg

      Townsend, Cyril D. (Bexleyheath)

      McNair-Wilson, Michael (Newbury)

      Price, David (Eastleigh)

      Trippier, David

      McNair-Wilson, Patrick (New Forest)

      Proctor, K. Harvey

      Trotter, Neville

      McOuarrie, Albert

      Pym, Rt Hon Francis

      van-Straubenzee, W. R.

      Madel, David

      Raison, Timothy

      Vaughan, Dr Gerard

      Major, John

      Rathbone, Tim

      Viggers, Peter

      Marland, Paul

      Rees, Peter (Dover and Deal)

      Waddington, David

      Marshall, Michael (Arundel)

      Rees-Davies, W. R.

      Wainwright, Richard (Colne Valley)

      Marten, Neil (Banbury)

      Renton, Tim

      Wakeham, John

      Mates, Michael

      Rhodes James, Robert

      Waldegrave, Hon William

      Mather, Carol

      Rhys Williams, Sir Brandon

      Walker, Rt Hon Peter (Worcester)

      Mawby, Ray

      Ridley, Hon Nicholas

      Walker, Bill (Perth & E Perthshire)

      Mawhinney, Dr Brian

      Ridsdale, Julian

      Walker-Smith, Rt Hon Sir Derek

      Maxwell-Hyslop, Robin

      Rifkind, Malcolm

      Wall, Patrick

      Mayhew, Patrick

      Roberts, Michael (Cardiff NW)

      Waller, Gary

      Meyer, Sir Anthony

      Roberts, Wyn (Conway)

      Walters, Dennis

      Mills, Iain (Meriden)

      Ross, Stephen (Isle of Wight)

      Ward, John

      Mills, Peter (West Devon)

      Royle, Sir Anthony

      Warren, Kenneth

      Miscampbell, Norman

      Sainsbury, Hon Timothy

      Wells, John (Maidstone)

      Mitchell, David (Basingstoke)

      St. John-Stevas, Rt Hon Norman

      Wells, Bowen (Hert'rd & Stev'nage)

      Moate, Roger

      Scott, Nicholas

      Whitelaw, Rt Hon William

      Monro, Hector

      Shaw, Michael (Scarborough)

      Whitney, Raymond

      Montgomery, Fergus

      Shelton, William (Streatham)

      Wickenden, Keith

      Moore, John

      Shepherd, Colin (Hereford)

      Wiggin, Jerry

      Morris, Michael (Northampton, Sth)

      Shepherd, Richard(Aldridge-Br'hills)

      Wilkinson, John

      Morrison, Hon Charles (Devizes)

      Shersby, Michael

      Williams, Delwyn (Montgomery)

      Morrison, Hon Peter (City of Chester)

      Silvester, Fred

      Winterton, Nicholas

      Mudd, David

      Sims, Roger

      Wolfson, Mark

      Murphy, Christopher

      Smith, Dudley (War. and Leam'ton)

      Younger, Rt Hon George

      Neale, Gerrard

      Speed, Keith

      Needham, Richard

      Spence, John

      TELLERS FOR THE NOES:

      Nelson, Anthony

      Spicer, Michael (S Worcestershire)

      Lord James Douglas-Hamilton and

      Neubert, Michael

      Spicer, Jim (West Dorset)

      Mr. John Cope.

      Question accordingly negatived.

    New Clause 29

      AMENDMENT OF FINANCE ACT 1978
      In paragraph 14(b) of schedule 9 (to the Finance Act 1978), the words "only pursuant to a direction given by or" shall be omitted and the following words shall be added "in such manner as the trustees shall in their absolute discretion consider to be in the best interests of participants provided that all such participants are treated on similar terms".[Sir William Clark.]
      Brought up, and read the First time.
      Sir William Clark: I beg to move, That the clause be read a Second time.
      The clause refers to profit-sharing schemes where trustees acquire shares. In many cases, the company in which the trustee holds the shares has a rights issue. That issue must be taken up within a
      1612
      certain time, and as the Tax Acts are currently worded, the trustees must ask all the participants of that scheme whether they wish to exercise their rights issue. That is impractical. If there is a profit-sharing scheme with 4,000, 5,000 or 6,000 participants it is ridiculous that the trustees should have to consult each of the participants. This new clause seeks to give the trustees discretionary power, and if they wish to take up the rights issue, they can do so, provided each participant is dealt with in the same way. This is a sensible amendment to the Finance Act 1978.
      This matter was raised in Committee, not through an amendment, but during a discussion on clause stand part. I urge my hon. Friend the Financial Secretary to look at this matter, because the Government have extended the potential of share option schemes and profit-sharing schemes, with which most hon. Members

      1613
      agree. We are putting on the trustees of those profit-sharing schemes an onerous liability by saying that they must consult all the participants.
      The amendment would give discretionary power to the trustees, provided that they act in a reasonable manner and act for the general benefit of each and every participant. I hope that the Government will accept it.
      Mr. Richard Wainwright: I support the clause. My party conducted a survey of 170 companies which had successfully applied to the Inland Revenue for the operation of the Finance Act 1978 in respect of employee share ownership. There was an 86 per cent. response. Out of that 86 per cent., a significant number commented unfavourably on what they regarded as the over-complicated regulations with which they had to comply. Some of them made the telling point that the regulations were so complicated that they were impossible to explain to busy employees, who had much better things to think of. Therefore, a clause such as this, which very sensibly eliminates some of the quite unnecessary red tape, is to be commended.
      When the House, from all sides, gave a fair wind to this part of the Finance Act 1978, I am sure that hon. Members wished it to succeed and not to be hobbled by a number of quite unnecessary regulations. The virtue of the new clause is that it would remove one of the most vexatious aspects, because rights issues at present are a nightmare to companies which have been far-sighted enough to operate the 1978 legislation.
      I hope that the Government will be able to accept at least the spirit of the new clause, even if they have to attend to the drafting of it.
      Mr. Lawson: With his customary acumen, my hon. Friend the Member for Croydon, South (Sir W. Clark) has hit on a real point. There is clearly a problem with rights issues and how they fit into the 1978 so-called profit-sharing schemes—it is more accurate to call them employee share schemes—of the Finance Act 1978.
      The hon. Member for Colne Valley (Mr. Wainwright) will agree that in the
      1614
      Bill we have introduced a number of improvements to the 1978 schemes, but I accept that something needs to be done about the problem of rights issues. However, I do not think that the clause is the right way to deal with it.
      This is not merely a drafting point. What my hon. Friend is suggesting is that the rights of the participants—rights in a technical sense—should, in effect be taken away from them and that the trustees should decide, rather than the participants. This creates a difficult problem of principle. We have, therefore, thought further about the matter and Revenue officials are at present looking at specific proposals which are directed to a more fundamental solution to the problems than the solution put forward in the new clause. The solution that is sought is one that would not fall foul of the objection that I mentioned a moment ago. Basically, it would involve taking rights issues made to scheme participants outside the profit-sharing scheme altogether. This is something that we are looking into very carefully.
      Consultations should take place on a reasonably full scale, but it is hoped that our studies will be completed in good time for any legislative proposals to be included in next year's Finance Bill. I hope that with that assurance my hon. Friend will see fit to seek to withdraw the motion.
      Sir William Clark: I am most grateful to my hon. Friend for that reply. I emphasise to him that it is quite impractical for trustees to deal with a rights issue if they have to consult all participants. Many profit sharing schemes involve 6,000 or 8,000 people. The trustees act for all the participants. How can a trustee circularise so many people about taking up the rights issue within the time limit.
      I interpret my hon. Friend's remarks as meaning that this matter will be dealt with in the next Finance Bill, and that the rights of participants will not be removed. In view of my hon. Friend's categoric assurance, I beg to ask leave to withdraw the motion.
      Motion and clause, by leave, withdrawn.

    New Clause 32

      AMENDMENT OF SECTION 30 OF THE FINANCE ACT 1978
      After subsection (2) of section 30 of the Finance Act 1978 there shall be inserted the following subsection—
      "(2A) With effect from the year 1980–81, subject to the provisions of this section, relief shall be given from income tax on an amount of the claimant's income equal to the amount of the loss, being income for the five years of assessment last preceding that in which the loss is sustained, taking income for an earlier year before income for a later year."—[Mr. Love-ridge.]
      Brought up, and read the First time
      Mr. John Loveridge: I beg to move, That the clause be read a Second time.
      The purpose of the clause is to amend section 30(2) of the Finance Act 1978 and to provide from 1980–81 that the relief given to an individual or partner when setting up a small busines—by which a business man can offset losses in the firms early period against his previous income in a jo—should be extended to cover five years of his previous employment, instead of three.
      My colleagues and fellow officers in the Smaller Businesses Committee have tabled several amendments to the Finance Bill. We are glad that this clause has been selected for debate. A similar amendment of ours suggested that such relief should apply to companies as well as to individuals. As the Government have not felt able to accept that, it would be helpful if they would accept this limited amendment. The reasons for the extension from three to five years are simple. A new small business may, in its early years of trading, experience trading losses, and the cost of equipment. It may desire to occupy 2,500 sq. ft. in one of the new, small workshops. Such expenditure would be subject to relief.
      New small businesses cannot get the benefit that the Government wish to give them—apart from the three-year provision—until they make adequate profits.
      For example, if a married man has a mortgage and earns £10,000 a year, his taxable income might be £7,000 per annum. His tax bill might be about £2,000 a year. If he starts his own business and loses £5,000 in the first year,
      1616
      £5,000 in the second year—as he might well do in the initial stages of getting that business off the ground—and spends £10,000 on plant and equipment, he will have spent £20,000. That amount could be claimed against the three years in his previous job. That is the position under existing legislation.
      So far, so good. The man is covered by the three-year provision. Let us suppose that the same man wants as well to buy one of the new small workships of 2,500 sq. ft. That would not represent a great scale of operation but he might need to buy since it is difficult for new small businesses to find rented accommodation. If the man buys, he might well find that he cannot get the benefit of the allowance that the Government want him to take up—in order to encourage the expansion of small businesses—until years later, when profits come in, because the three year rule is not enough for him to claim the allowances that he has accrued. If the period were five years he could get the benefit. Our proposal to add two years would be helpful to the Government's design. It would help this man move into a small factory of 2,500 sq. ft. or less. It would help him to expand and to keep solvent at a time when in the second, third or fourth years of founding a business he might be at his greatest risk and in greatest difficulty. This is even more important if a man has borrowed the money in order to try to expand.
      9.30 pm
      Although the amendment is small, none the less its importance to the nation is much more substantial than appears at first sight. Many hon. Members will remember the well-known Massachusetts Institute of Technology survey in the United States which showed that two-thirds of new jobs there came from firms that had fewer than 20 staff at the start of the survey and the bulk of which were less than five years old. What is not so generally known is that more than half the jobs came from the very fast expansion of young firms—those which, during the period of the survey, had grown from fewer than 20 to more than 100 employees.
      If the same applies in this country—and it probably does—in order to get new jobs we need a very fast expansion

      1617
      of very small new firms. I believe that we shall not get the full employment that we want for this nation unless we expand them. Although the amendment is small it would nevertheless be helpful in achieving fresh employment. It would speed the growth of very small firms in the third and fourth years of their foundation. I hope that the Government will agree to this concession. It would not cost them much, but it would be a great practical and psychological help to the small business man and would encourage him to expand.
      It is equally important that it should be possible for a such a man to get the same concession from the Government if he incorporates his business in the form of a company. Limited liability should be encouraged for small men.
      Even if the Government cannot go that far this year I hope they will accept this small amendment to extend the 1978 Act to increase relief from three to five years. I congratulate the Government on all they have done for smaller businesses in the Budget. They have helped to change the atmosphere for small businesses and the attitude of people towards small businesses. More are being founded and that is encouraging. I hope that the Government will encourage them further by accepting the amendment.
      Mr. Dalyell: I have listened very carefully to the arguments for this new clause because I have had a couple of requests to support it. However, I wonder whether it is as small as hon. Members suggest. I put the question that I put many times in Committee. What is the Government's price tag on this? I understand that a number of hypothetical assumptions may have to be built in, but I have a suspicion that the clause is not as small as it is made out to be.
      Secondly, does it not lend itself to many of the things we have been saying about the "black economy"? The new clause would assume knowledge of what happened three, four or five years earlier—knowledge which may not be freely available to the Inland Revenue. For that reason I cast a somewhat beady eye on the new clause.
      Mr. Graham Bright: I support the new clause and the com-
      1618
      ments of my hon. Friend the Member for Upminster (Mr. Loveridge). There has been a growing recognition of the contribution of small businesses in generating new jobs, producing new goods and generally supporting the economy.
      The biggest problem that new businesses face is finding capital. Promoters sometimes have to pledge their homes or borrow from families and friends or banks and other institutions. However the capital is raised, it costs money. We unfortunately do not have a loan guarantee scheme, but I hope that we shall in due course. Our immediate task is to suggest measures that will further assist small business men immediately. That is why we have moved this new clause.
      Many small business men have to accept that they will make a loss for two or three years, or possibly even longer, particularly if their business involves high technology and requires a great deal of investment in research and development. The contribution already made to the State could offset the burden placed on newly created businesses, which will already be meeting their own tax burden. It is an indirect means of enlarging the credit facilities available to small businesses. Because of the intervening price movements, it may prove to be a relatively cheap means of achieving the objective.
      Those who contribute to the country's prosperity by creating new goods and jobs deserve that modest encouragement. All the evidence suggests that it is in the initial five years that small firms find it most difficult to obtain credit and survive losses. Our competitors in Japan and France have taken special measures to ensure that small businesses emerge from that stage.
      The new clause is imaginative and responds to the existing problem. I recognise the constructive measures that the Government have taken to help small businesses. This new clause is a further step, and their acceptance of it will confirm their commitment to practical help for small businesses. I appeal to the Government whole heartedly to support it.
      Mr. Peter Rees: My hon. Friend the Member for Uxbridge (Mr. Loveridge)

      1619
      moved the new clause with his customary moderation and grasp of the commercial realities of the situation. [Interruption.] The scepticism of Opposition Front Bench Members has never been more clearly demonstrated than by their comments from a sitting position on this serious problem.
      My hon. Friend, ably supported by my hon. Friend the Member for Luton East (Mr. Bright), has focused the attention of the House, not for the first time, on the problems that will inevitably occur time and time again. I commend the work of my hon. Friend the Member for Hertfordshire, South-West (Mr. Page), who put forward a series of amendments that enabled us to debate the problem in Committee.
      My hon. Friend the Member for Uxbridge invites the House to consider a clause that would build on a relief—and I give this to the Opposition in spite of its deep cynicism on the subject—introduced in the 1978 Finance Bill, which enables a loss in the first year or so of a new business to be set against the taxpayer's income for the previous two years. My hon. Friend invites the House to consider extending that relief to the previous five years.
      I am sympathetic to the objectives underlying the clause, and I hope that our commitment to them is clearly demonstrated by the range of measures that we have proposed in this Bill to support small businesses. However, I am not entirely persuaded that this is the right way to offer a solid measure of support to the small business sector.
      The appropriate number of years for which the relief can be carried back must be a matter of judgment. I do not believe that in the two years that the relief has been running we are able to form a firm view on how effective itis and how far it should be extended. I should prefer to consider the matter over a more extended period.
      If we accepted the new clause, we should have two periods of relief, one for losses incurred before the Bill becomes law and one for losses incurred thereafter. That would cause considerable administrative complication to the Inland Revenue and to those advising small business men.
      1620
      I am always a little reluctant to dwell on technical defects, but it is a little uncertain exactly to which losses the new clause would be extended. We are sympathetic to the general objectives, but I hope that my hon. Friends will feel, on reflection, that there are more practical ways to demonstrate our sympathy and support.
      The hon. Member for West Lothian (Mr.Dalyell) asked two specific questions. The first concerned the price tag on the new clause. My brief says "Cost—small". If I were to be more precise, the House would be sceptical about the figures, because this is an area which must be hedged around with uncertainty and assumptions that I do not feel entitled to make.
      The hon. Member for West Lothian asked whether the new clause would not give an undue stimulus to the black economy, because it would go back for a period of five years for which no records might be available. I do not think that that is a valid argument for rejecting the new clause, because the taxpayer making a claim would have to prove his tax liability over each of the five years.
      Mr. Michael Grylls: My hon. and learned Friend said that the cost would be small. Can he give any indication of the cost of the current relief scheme that was started two years ago?
      Mr. Rees: I cannot do so at this stage, but I shall see whether any worthwhile evidence can be turned up. The scheme has not been running for long and people are sometimes in arrears with such claims. If I can turn up any worthwhile information, I shall write to my hon. Friend. I know that he takes a keen interest in these matters.
      As my hon. Friend the Member for Upminster has chosen to build on a relief contained in the Finance Act 1978, I hope that there is unanimity in the House that this is an area in which Governments should be sensitive and should endeavour to develop assistance and encouragement for small businesses. However, I hope that my hon. Friend will feel that the new clause would not be the most effective way of channelling a limited measure of relief. We owe him a debt of gratitude for enabling us to

      1621
      debate this important question, but I hope that he will withdraw his motion.
      Mr. Loveridge: I am glad to have confirmation that the cost of implementing the proposal in the new clause is likely to be small. I note that the Government would like longer to consider the implications of the 1978 relief, but I hope that the consideration will not take too long, because the need is urgent. While liquidity is low in small businesses and general unemployment is high, we need such measures acted upon as urgently as possible.
      I shall look forward with some small measure of confidence not only to the Government's bringing forward relief in due course, but to further measures to help the small business sector to promote the improvement of the economy.
      In view of all that the Government have done for the small business sector; the gratitude of the sector for that action and the good that has been done to the country as a result, and in spite of my words of warning to the Government, I beg to ask leave to withdraw the motion.
      Motion and clause, by leave, withdrawn.

    Clause 14

      PENALTIES AND ASSESSMENTS
      Sir Graham Page: I beg to move amendment No. 2, in page 9, line 25, after'substituted', insert
      '£20 but if payment has not been made of the amount assessed and notified to the person concerned under section 31 (1) of the Act the substituted amount shall be'.
      The clause imposes new penalties for two offences. The first is not paying VAT that is due, expressed in the clause as "tax due". The phrase "tax due" is defined as the amount shown by the person's return or
      "such tax as has been assessed and notified to him"
      if he has not made a return.
      The second offence is that of not furnishing a return within the time required by statute, whether or not the tax has been paid as assessed.
      9.45 pm
      The present penalty for the offences is £100 plus £10 per day. Under the
      1622
      clause the penalty will be increased to £100 plus £10 per day or ½ per cent. on the amount owing. That sounds a small sum, but we heard in Committee that it was at the rate of 182½ per cent. a year. My mathematics do not tell me whether that is correct; I take someone else's word for it. Anyway, it is a severe penalty.
      I am not complaining about the penalty being severe if tax is due, but if a person has had the tax assessed or has made his return and has paid the tax shown in it, he is still liable to those severe penalties. He may have had the tax assessed and have paid all that he has been told is due and then it may later be found that some more tax is due. if he is then prosecuted for not making a return the penalty will be large—½ per cent. on what is due. It seems unfair that he should suffer the same penalty merely for not making a return when he has paid all the tax that he thinks is due.
      The amendment would leave the same penalty as is in the clause when the tax has not been paid. It is a harsh penalty, but is probably right that that should be so, when the tax has not been paid. But when the tax has been paid, because it has been assessed, and the only offence is failure to make a return, the ½ per cent. part of the penalty would be removed.
      I recognise that we need a more severe penalty than the £10 a day, and under the amendment it would be £100 plus £20 a day. I think that that would be fairer when the offence is nothing more than failure to make a return.
      Mr. Richard Alexander: I support the amendment. I find all penalty clauses in statutes rather reprehensible and unpleasant, but they are no doubt necessary. The objectionable part is that in most instances the taxpayer does not have equal treatment. While he is liable to penalties for late delivery, the Revenue is not obliged to pay any interest if it owes him money. He must wait without interest, without redress, except perhaps the intervention of his Member of Parliament.
      Here we have a penalty that could cripple the small trader in certain circumstances. As my right hon. Friend the Member for Crosby (Sir G. Page)

      1623
      said, we are given to understand that ½ per cent. a day comes to 182½ per cent. a year—four times the permitted level of interest rates under the Moneylenders Act 1927. That is too high and puts enormous power over the taxpayer in the hands of the Customs and Excise.
      My hon. Friend the Minister argued in Committee that the object was to catch those who paid high taxes and who tended to use the VAT system and the penalties as something of a banker. Very well But I suggest to my hon. Friend that, if that is so, we could perhaps have drafted the clause in such a way that it caught the big fish and did not put the smaller taxpayer at so much risk from the Customs and Excise.
      Small business men and small traders find the requirements of the VAT system and the time involved in dealing with returns and the VAT man a great burden. Because of the problems experienced with the big fish, the little man has greater cause for fear as a result of this clause.
      As my right hon. Friend the Member for Crosby said, the matter does not quite stop there. The taxpayer who has paid his VAT is liable to the same penalty if he is in arrears or if his tax return was submitted late. So the taxpayer who has paid all his VAT is at risk, under this clause, of a penalty of 182½ per cent. a year on tax that he has already paid. That is penal. Therefore, I support the amendment. The small business man has enough hanging over his head without the risk of incurring penalties of that order on tax that he has already paid.
      My hon. Friend might argue that these are maximum rates, but these days the small business man in particular has little confidence in the VAT man and his reasonableness. We should not put the small business man at such risk. The clause should have been drafted to catch the much bigger fish who abuse the present system. We should leave the smaller man facing realistic and fair penalties. Nothing less than this amendment will give him confidence in the VAT system.
      Mr. Peter Rees: We return once again, and not inappropriately, to clause 14. This issue was given exhaustive consideration in Committee and enjoyed the considerable and penetrating atten-
      1624
      tion of my right hon. Friend the Member for Crosby (Sir G. Page). However, since we are proposing an increase in existing penalties, it is right that we should examine the matter again and that I should attempt to reassure the House that what we propose is well thought out and moderate in intent and application.
      I emphasise to my hon. Friend the Member for Newark (Mr. Alexander), who made a powerful contribution but who was not a member of the Standing Committee, that this is, of course, a penalty. It is not an interest charge, and the computation we propose is a maximum and not a mean figure. It is subject to review at imposition by the VAT tribunal and subsequently on appeal to the High Court. I think, therefore, that my hon. Friend's reservations and his description of the VAT man are a little misdirected.
      I believe that in the Customs and Excise there are bound to be errors of judgment in an area as complex and sensitive as this. Many officials are involved, but on the whole they do a fair and useful job. We are not entrusting to the Customs and Excise the ultimate decision on the amount of the penalty involved. That will be a matter for the courts.
      My hon. Friend suggested that we should have so tailored the provision that it did not bear heavily on the small business man. I reassure him that it is a matter of simple mathematics. A person whose charge to VAT is £2,000 or less will be on the existing penalty as it is set out today. I do not wish to weary the House with the calculation and I hope that the House will accept it. We dealt with that point in Committee. By any fair standard, the small business man will not be exposed to the risk of a larger penalty than that to which he is exposed under the existing system. We are not imposing a new penalty but merely sharpening the effectiveness of the existing penalties which have been operating since 1972.
      Sir William Clark: I agree that 182½ per cent. is a maximum and that one can appeal to the VAT tribunal, but a business man will hesitate to do that if he has made a mistake or is late in his payments. The VAT officer will settle a case at a higher rate because of the 182½ per cent. maximum than he would at

      1625
      present. The Government should take that on board. It is easy to say that there is a right to go to the tribunal, but that involves more and more expensive legal costs for the business man. Giving the VAT inspector the right on paper to impose a maximum 182½ per cent. penalty puts into his hands the strength to settle the case before it goes to the tribunal.
      Mr. Rees: I remember my hon. Friend making exactly that point in Standing Committee. The argument does not lose force merely because it is made a second time in the Chamber. I am not in the business of generating more litigation. We want something which is serviceable. I do not entirely take my hon. Friend's point because soon the tenor of decisions by the VAT tribunal will become generally known. The type of cases which carry a stiffer or more lenient penalty will become known. I am sure that the profession of which my hon. Friend is a notable adornment will soon be able to advise clients whether to settle. If the Customs and Excise officers seek to impose unreasonable penalties, the profession will tell clients that it is unreasonable.
      Unlike the special income tax commission, the VAT tribunal can award costs. It is not for me to direct the tribunal. Indeed, it can take no account of what I say. I have no doubt that if the Customs and Excise bears hard on a trader costs will be awarded. My hon. Friend is being over-sensitive. I know that we must be sensitive, but he must remember that the Government's cash flow depends on the prompt payment of VAT, which is a self-assessed tax.
      We have directed our attention to two areas—first, to when a taxpayer is late in paying the tax due under his own return, or perhaps under an estimated assessment, and secondly, to when he makes no return at all.
      My right hon. Friend the Member for Crosby, with his customary penetration, seeks to distinguish between the two situations. He says that a person who fails to make a return should be treated more softly or sensitively than a person who has not paid his tax. I regret to say to a lawyer of such eminence and experience that his amendment is a little defective. It does not cover the case of a person who has made a return but who has not paid the tax due under it.
      1626
      Since VAT is based on self-assessment it is of crucial importance that registered traders should be encouraged to make their returns promptly so that a fair assessment of their liabilities may be made. I am sensitive to the anxieties that have been voiced by my right hon. and hon. Friends. I hope that on reflection they will feel that the right balance has been struck. If there is any tendency to bear down on registered traders in an unfair way, I have no doubt that it will be put right by the judicial authorities, namely, by the VAT tribunals. A fundamental safeguard has been built into the provisions. It has been built in all along.
      I have no doubt that it has been of great service to the House that these considerations have been ventilated. This is an issue which perhaps has weighed more heavily with one side of the House than with the other.
      10 pm
      Mr. Dennis Skinner: Sometimes poachers turn gamekeepers.
      Mr. Rees: The hon. Gentleman reminds me that it is known for poachers occasionally to turn gamekeepers. That background may assist them to carry out their gamekeeping duties. It may assist them to recall their time setting snares. I have set snares in my time and because of that I am sensitive to the arguments that my right hon. and hon. Friends have presented. I hope that they will feel that we have struck just about the right balance. I hope that my right lion. Friend will feel able to withdraw the amendment.
      Sir Graham Page: I am grateful to my hon. and learned Friend for answering so fully the points that I endeavoured to raise. He advanced one argument against the amendment that was not valid. He said that I had not dealt with the person who had made a return but not paid his tax. If he has not paid his tax, he should receive the harsher penalty.
      My amendment was intended to deal with the unfortunate taxpayer who is assessed and notified by the authorities that he owes £X. He pays that and later the authorities find that they made the wrong assessment. They then say "You do not owe £X but £X plus. You have

      1627
      not made a return, although we have been happy to assess you and notify you. Therefore, you will suffer a penalty that is severe and harsh"—I should say even an unconscionable penalty—"for not having put in your return."
      How many hon. Members have failed to put in a tax return in the time
      1628
      required by statute? It is not such a great offence, especially when the tax has been assessed, the amount has been notified and it has been paid.
      I am grateful to my hon. and learned Friend for his reply. I feel that I cannot withdraw the amendment.
      Amendment negatived.

    Clause 22

      ALTERATION OF PERSONAL RELIEFS
      Mr. Denzil Davies: I beg to move amendment No. 4, in page 13, line 25, leave out '£2,145' and insert '£2,250'.
      Mr. Deputy Speaker (Mr. Bernard Weatherill): With this it will be convenient to discuss the following amendments:

      No. 5, in page 13, line 28, leave out '£1,375' and insert "£1,445'.

      No. 7, in page 13, line 36, leave out '£770' and insert '£805'.

      Mr. Davies: The amendment seeks to increase what are known as the personal tax allowances or the tax thresholds beyond what is set out in the Bill. It seeks to increase the single person's allowance so that a person earning just over £27 a week would not pay any tax. It seeks similarly to increase the married couple's allowance on a joint income to just over £42 a week. It proposes a corresponding increase for the additional personal allowance in respect of one-parent families.
      The purpose of the amendment is to increase the allowances by the effective amount that the Chancellor did not increase tax thresholds in general in the Budget. The right hon. and learned Gentleman said that, in view of the abolition of the reduced rate band, the effective increase in tax thresholds was about 11 per cent. and not 17 per cent., which was the rate of inflation.
      The amendments under discussion seek to increase personal allowances, with some rounding up and some rounding down, by approximately 6 per cent. They are put forward because the Government abolished the reduced rate band and would not reinstate it when we debated these matters in Committee. These are alternatives to the abolition of the reduced rate band. My preference, as I argued in Committee, is still for a reduced rate band. There is a division between people who are experts and those who are not. It has always been my opinion that it is ridiculous to have a starting rate of tax of 30 per cent., or even 25 per cent., without an intermediate band. The reduced rate hand fulfils that function. I accept
      1630
      that the argument is not all on one side but my preference has always been for the reduced rate band.
      The amendments, if carried, would not benefit exactly the same groups who lost some benefit as a result of the abolition of the reduced rate band. They cannot be completely co-terminous. Our intention, however, is to benefit some of the groups who have lost benefit. Many hon. Members might consider these modest amendments. I am sure that the Financial Secretary will say that they are modest. On the other hand, I do not think that we could have gone further.
      The cost would not be great, but if one is talking of increased public expenditure there are other areas at which one has to look. One cannot look at tax in isolation. There is, for instance, the question of child benefits. We would argue that child benefits should have been increased fully in line with inflation. We cannot put down amendments to the Bill to increase child benefits because the benefits are now a public expenditure item and not tax expenditure, as was the case with child lax allowances.
      There are other areas that warrant public expenditure. That is why we have put forward modest amendments. We felt that we could not put all the emphasis on cuts in taxation, partly because allowances benefit everyone up the scale. They benefit those at the top as well as those at the bottom. We would not want to give more benefit to those who have already benefited greatly from the last two Budgets.
      The amendments have three aims. The aim, first, is to alleviate in a modest way the poverty trap, and, secondly, to increase the incentives for the working population about which we heard so much from the Government, although, with no work around, the incentives do not seem to count much. It is no good Conservative Members humming and hawing. In South Wales, the North-East and the North-West, there is no work. To talk of incentives seems unrealistic. On the other hand we have heard a considerable amount about incentives. The raising of the tax threshold will increase incentives slightly.
      Thirdly, at a small cost—the Financial Secretary will no doubt give the cost to

      1631
      the PSBR this year—the amendments will provide a modest stimulus to the economy.
      Hon. Members are by now familiar with the poverty trap in which an individual or a family has an increase in gross income but, despite the increase, the tax take, together with the loss of family income supplement and other means-tested benefits, leaves the individual or the family little better off as the result of the increase in gross income. As argued from both sides in Committee, the Budget has increased the depth of the poverty trap by abolishing the reduced rate band. It has been estimated by the Low Pay Unit that, of the 64,000 families receiving family income supplement but paying tax, 50,000 were within the reduced rate tax band abolished by the Budget.
      About 12,000 families were taken out of tax completely as a result of the increase in allowances. On the other hand, it has been calculated that about 9,000 new families have been brought into the poverty trap as a result of the Budget. Those 12,000 families which have momentarily been taken out of the poverty trap will go back into it again as the year and inflation progress. The amendments are an attempt to help people on low pay a little by increasing the thresholds in the wake of the Government's abolition of the reduced rate band.
      The question arises of incentives to work. We were told by the Conservatives, when in Opposition, that the important element in taxation was the marginal rate. The marginal rate of tax at the moment is 30 per cent., which is ridiculous for poor families and people on low income. They come into tax at an immediate rate of 30 per cent. which is far too high. That is why we favour the reduced rate band.
      Given that the Government do not accept that argument, they should at least accept the amendments to increase the tax threshold a little so that fewer people are brought into tax at the 30 per cent. rate. The Low Pay Unit first calculated that the tax threshold this year, as a percentage of the average earnings of male workers in manufacturing industry is for a man with a two-child family, at its lowest since the war. The figure is 42·4 per cent. of the average manufacturing industry wage.
      1632
      That is the low level to which the tax threshold has fallen. The amendments would slightly raise it and alleviate the problem.
      The amendments would provide a modest stimulus to the economy. The Financial Secretary will no doubt tell us the figure, but I should have thought that the cost would be less than £500 million on the PSBR this year. That is not a very large sum on a PSBR of £8·5 billion. Even if the cost of the amendment is higher, we would still contend that it would be acceptable, since a PSBR of £8·5 billion is much too low for the British economy at a time of depression and high unemployment.
      Mr. Lawson: Will the right hon. Gentleman say at what level he would like to see the PSBR this year?
      Mr. Davies: We have given that figure. If the Financial Secretary had studied the reports of our debates he would have known that we put the figure forward during the debate on Second Reading of the Bill. We suggested that it should be £11·5 billion. It is possible to finance that size of PSBR, especially during a depression, when there is no danger of crowding out the private sector—which was one of the arguments for reducing the PSBR.
      A considerable amount of money is now coming into the pension funds, partly as a result of 20 per cent. wage settlements and partly as a result of the pensions legislation. If the Financial Secretary is so confident that inflation will fall this year—I should have thought that interest rates would also fall in that case—that would be a very good time to fund a higher PSBR. If only the Financial Secretary would read Professor Friedman and his own chief economic adviser at the Treasury—his latest economic progress, or perhaps it should be lack of progress, report—he would see the sensible argument that at a time of depression the PSBR should be allowed to increase.
      If unemployment goes beyond 2 million the Government, so we were told by the Financial Secretary earlier in our debates, will cut public expenditure to pay for the additional unemployment benefit. According to the Treasury's evidence to the Select Committee, it would like to put up national insurance payments to

      1633
      pay for that extra unemployment benefit. That would be as deflationary as cutting public expenditure. Therefore, it is no good Ministers coming to the Dispatch Box, holding up their hands in horror and saying that an £11·5 billion PSBR would be too high. It is not too high. It could be funded, and at lower rates of interest.
      The Government will obviously argue that the amendments would cost too much and that the PSBR should be reduced progressively. What on earth is the point of reducing the PSBR over the years, especially when revenues are coming in from North Sea oil? That will merely depress the economy still further. The end result will be that all the oil revenues will be used to pay to keep people on the dole.
      There are three reasons for the amendments. The first is to alleviate the impact of the poverty trap. The second is to try to provide help for those who are on low pay and to create an incentive for them to work. The third is to provide a modest reflation of the economy. I hope that even at this late stage the Government will recognise the force of the case and will accept the amendments.
      10.15 pm
      Mr. Cook: I support my right hon. Friend the Member for Llanelli (Mr. Davies) in the moderate and reasonable amendments that he has moved. As he pointed out, on the same page to which the amendments refer there is a new clause that abolishes the lower rate band of taxation. It is entirely relevant to take into account the effect of the amendments on the allowances and weigh that against the effect of the abolition of the reduced rate band. The combined effect of the abolition of the reduced rate band and the failure of the Government to increase personal allowances faster than inflation will be that more income earners will pay tax this year than last year, and that they will be paying it at a higher marginal rate than ever before.
      If we look back over history we see clearly the way in which more and more low-income families have been brought into the tax threshold. In 1955 a worker had to earn an average wage before he entered the tax threshold. That is not that long ago—it is within even my re-
      1634
      collection. Moreover, in 1955 when he entered the tax threshold on average income he paid tax at the rate of 9 per cent. By last year, the tax threshold had shrunk to 45 per cent. of the average wage. With less than half of the average wage the income earner became liable for taxation. Even then he paid taxation at the rate of 25 per cent. From November he will need to earn only 42 per cent. of the average wage to become liable for tax at the full standard rate of 30 per cent.
      We can see more clearly the effect of those policies on the low-paid if we consider one group—those who receive family income supplement. In 1974 only one-fifth of those receiving family income supplement found themselves liable for taxation. By November of this year, as a result of the increase in the family income supplement eligibility level, and as a result of the policies contained in the Bill, not one-fifth but four-fifths of those receiving family income supplement will find themselves liable for taxation at the full standard rate. I regard that as a disgrace. The rate of taxation on the low-paid has trebled within 25 years and is now higher than in any other Western country, with the possible exception of Australia.
      In a previous debate this evening on the amendment that I moved relating to age allowances, I drew the attention of the House to the position of some single women between the ages of 60 and 65 who found themselves simultaneously liable for taxation and eligible for supplementary benefit. After that debate, one hon. Member observed that that was not an uncommon position. I accept that it is not uncommon, but that does not mean that we must accept it. It reveals the scandal of the position.
      In November of this year a married man with two children will be liable for taxation on a wage of £51, but the supplementary benefit scale level will be £60, and the family income supplement eligibility level will be £74. There is no rhyme or reason for the House deciding that it will supplement the income of wage earners on less than £74 because they are living in poverty and simultaneously deciding that it will make them liable for taxation. If they are so poor that they require supplementary income, they are too poor to pay taxation and

      1635
      should be taken out of the tax threshold altogether.
      I wish to pick up a point made by my right hon. Friend the Member for Llanelli. We have heard a great deal about incentives from the Government. We have heard a great deal about the incentive to work. When we debated the last Budget, "incentives" was the keynote of the speeches from the Treasury Bench. We were promised that the incentives provided in the Budget would galvanise the entrepreneur.
      Each hon. Member received a letter from the British Institute of Management, to which I referred during the Committee stage of last year's Finance Act, in which it called upon its members to respond to those tax cuts with
      "enterprise, strategic boldness, personal effort and leadership"
      If we look back over the waste of our industrial and economic experience during the past 12 months, we search in vain for those new qualities. The truth is that last year we were sold the tax cuts on humbug. Last year there were tax cuts for the top 10 per cent., and we were sold those cuts on the argument that they would invigorate industry. Plainly they had nothing to do with our economic strength or our industrial position. The arguments adduced last year were mainly a pretext to provide handouts to the very rich.
      Surely it is curious that a Government who last year cut the higher rates for the top 1 million higher income earners should this year be proposing a tax change which will increase the tax burden of the bottom 4 million income earners. There is no conceivable way in which one can reconcile that difference in attitude, either in economic theory or on any fiscal principle. One can explain it only by the fact that the Government are pursuing class policies which benefit the wealthy at the expense of the poor.
      My right hon. Friend's amendment would go some way towards diminishing those policies. For that reason, I confidently predict that the Treasury will resist it and that it will give Labour Members yet another opportunity of registering our opposition to the way in
      1636
      which the Government's policies are affecting the poor.
      Mr. Hooley: I strongly support the arguments put forward by my right hon. Friend the Member for Llanelli (Mr. Davies) which were endorsed by my hon. Friend the Member for Edinburgh, Central (Mr. Cook).
      The origin of this argument goes back to what came to be called the "Rooker-Wise" amendment, which perhaps more correctly should have been called the "Rooker-Wise-Lawson" amendment, as I understand the Financial Secretary was a party to that manoeuvre. It indexed personal allowances. This year, the Government have displayed a characteristic piece of chicanery which is on all-fours with their 54-week pension year, because, being forced under legislation to raise personal allowances, they have got their own back on the lowest-paid by abolishing the reduced rate of income tax.
      I entirely agree with my right hon. Friend that it is in the lower rate band that the adjustments should be made. I have never entirely accepted the argument about automatic indexation of personal allowances. However, I believe that it was a serious mistake some years ago when Mr. Roy Jenkins scrapped the lower rate of tax. It was a very good move on the part of my right hon. Friend the Member for Leeds, East (Mr. Healey), as Chancellor, to restore it in 1977 or 1978, because it was a long overdue reform of our personal tax system.
      It is absolutely preposterous that a married couple on supplemenetary benefit plus rent allowance should get just about the same income as a person who, if he were earning a wage, would be liable to the standard rate of tax. It is preposterous that a person should be liable to the standard rate of tax at £42 a week, particularly when that standard rate is set at 30 per cent., which is about the highest initial tax band in the world. That is absolutely outrageous.
      Of course, it will become worse over the years, because with inflation and the general drift of incomes more and more people will go into the tax-paying band. We shall then have the absurd situation that people earning possibly less—I think

      1637
      that the figure already mentioned was 42 per cent. of average earnings—will become standard rate taxpayers at a full 30 per cent. The amendment makes only a modest adjustment in that respect, and I agree that a more far-reaching adjustment would be infinitely preferable. The amendment will at least give some compensation for the double-dealing of the Government on indexation of personal allowances. I hope that we shall divide against the Government on this issue.
      Mr. Lawson: Quite properly, we have covered much of the ground in these amendments that we covered in Committee when we discussed the lower rate band. Part of this brief debate centred round the discussion of the relative merits of the lower rate band and the higher threshold in our tax system.
      I was astonished to hear the right hon. Member for Llanelli (Mr. Davies) say that he has always preferred the existence of a lower rate band to higher thresholds. He has a short memory. That was certainly not the position he took in 1977, which was not very long ago. He said then:
      "If the cost of the reduced rate band had to be met by keeping the tax threshold lower than it would otherwise be, it would widen the poverty trap by enlarging the overlap between tax liability and entitlement to means-tested benefit "—[Official Report. 3 March 1977; Vol. 927, c. 747–8]
      He was right then, and I am sorry that he has shifted his position now. It was because we were concerned that we decided to maintain the full real value of the thresholds, and increase the thresholds this year, even though we were obliged to finance it partly by abolishing the lower rate band.
      I accept entirely the point about the thresholds being too low. But they are higher now in real terms than when the Labour Ciovernment were in office. We raised them substantially in real terms in the 1979 Budget, and maintained their real value in the 1980 Budget. They are now significantly higher in real terms than they were when we took office.
      The hon. Member for Edinburgh, Central (Mr. Cook) looked back 25 years, saying that the burden of income tax has risen substantially over those 25 years, and that more and more people had gone further down the income scale. He is
      1638
      right, but why has that happened? It has happened because Governments of both parties, but particularly the Labour Government, have insisted on higher and higher public expenditure, which has had to be financed. The main means of financing it is by income tax. But where will the money be found? It will not be found by ever taxing the small minority of the rich. Inevitably, money on that scale has to be found by taxing the generality of the population.
      Mr. Cook: The proportion of the national income that is disappearing in direct taxation has remained constant throughout those 25 years. Within the proportion that goes in direct taxation, the proportion received from the corporate sector has collapsed. That collapse has to be made good by income tax. If the balance could be transferred back to the corporate sector, the tax on income could be relieved.
      Mr. Lawson: There is a half truth in that, but not in the relationship between income tax and indirect taxes, which has deteriorated. But the hon. Gentleman is right in saying that corporation tax now accounts for a small proportion of the total tax yield. That is inevitable if profits are declining. We have had 20 to 25 years of declining profits. But the tax revenue on profits also declines. The problem is what has been happening to profitability. I hope I have the support of Labour Members for profitability over the next 25 years.
      10.30 pm
      It is a great illusion to assume that the only form of corporate taxation is the corporation tax. There are many other taxes that fall on companies, not least local government rates, which for many companies is a very real tax and a more serious tax than corporation tax. [Interruption.] But to return to the amendment, as the hon. Member for Bolsover (Mr. Skinner)—always a stickler for the rules of order—has reminded me that I should do, there is the question: given that there is a certain amount of money available, how should it to be used? Should it be used to raise the thresholds or should it be used to have a lower rate band? The House has shown some interest in this question. I accept that the marginal rate of tax at the beginning is now higher as a result of

      1639
      the abolition of the lower rate band. But this is a marginal disadvantage compared with the advantages of abolishing the lower rate band and increasing the thresholds.
      There is one point above all that should be emphasised: switching resources from the lower rate band to increases in thresholds cannot in any way make the lower-paid worse off financially; it must and does make them better off. In the area of work incentives for this group of the lower-paid it means that at that level the incentive is less. But let us consider whether it makes that much difference to the "Why work?" syndrome.
      We have had the view of Mr. John Kay, who was one of the advisers to the Sub-Committee of the Treasury Select Committee dealing with taxation. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) is in his place and will confirm that this is so. Mr. John Kay, in a very detailed study, found that the abolition of the lower rate band would have no significant effect on work incentives.
      The poverty trap, it is true, will be deepened by the abolition of the lower rate band for a small number of people, but—to put in another way what I said earlier—the alternative to deepening the poverty trap by abolishing the lower rate band is to widen the poverty trap so that it affects far more people, and that has a far more damaging effect on incentives. That is why we decided to make the switch from the lower rate band to higher thresholds than could otherwise be afforded.
      Mr. Skinner: Perhaps the hon. Gentleman will bend his mind for a moment or two to the fact that there is another development here which is somewhat different and which has been exaggerated over the course of the past few years, namely, that there are many more thousands of people who have been put on the three-day working week and who are thereby paying tax at a level which is half or three-fifths of their wages. Indeed, it can be argued that in 1973, when the Tories were last in office, the then Prime Minister was sacked for introducing a three-day week policy, and now under
      1640
      this Government it has become official Tory policy.
      Mr. Lawson: The hon. Gentleman has an obsession with the events of 1973–74 and seems incapable of living in the world of today or thinking in any other terms.
      I was asked what addition there would be to the PSBR if these amendments were accepted—a course that I shall not advise the House to take. There would be an increase in the PSBR of the order of £½ billion this year. [Interruption.] The hon. Member for Bolsover regards that as chicken-feed and the right hon. Member for Llanelli—who now decides that it is politic to take his cue from his hon. Friend the Member for Bolsover—agrees with him. He also wants to increase child benefit and increase public expenditure in various other ways and, indeed, to increase the borrowing requirement by £3 billion. His attitude is "Who cares about that?" The right hon Member for Leeds, East (Mr. Healey) would have cared about that when he was in office. As the right hon. Gentleman is in his place, I shall remind him of what he said in 1977. It is unfair to quote what the right hon. Member for Llanelli said without quoting what the right hon. Member for Leeds, East said in that memorable year. He said that
      "no responsible Government could shirk their duty for maintaining firm control over the supply of money and using the necessary fiscal and monetary instruments for that purpose."—[Official Report, 20 July 1977; Vol. 935, c. 1731.]
      Labour Members are now running away from that as fast as possible. What do they propose to do? Do they propose to allow interest rates to go through the roof by borrowing the extra money? Do they propose to print more money? Do they propose to allow the monetary targets to go through the roof? Which will it be? Perhaps the right hon. Member for Llanelli will tell the House. He is not willing to get to his feet, and is muttering from a sedentary position.
      If the amendment and the increased expenditure were accepted, one of two things would happen. Either interest rates would become higher than they might otherwise be, or monetary growth would be greater than necessary. Inflation would then increase. If inflation were to rise faster than would otherwise be

      1641
      the case, interest rates would have to increase. Labour Members have shown themselves once again to be opportunistic and irresponsible. I invite the House to throw out the amendment.
      Mr. Denzil Davies: The Financial Secretary has not attempted to answer the points raised, nor has he addressed his mind to the problem. He began by reiterating the arguments about the reduced rate band and the tax thresholds. We have had those arguments. We accepted that we were beaten, and we put forward the amendments as an alternative. Apart from at the end of his speech, the Financial Secretary did not explain why he would not accept the amendment. He said that it would cost the PSBR £500 million. The PSBR stands at £8·5 billion this year. Another £500 million will not have any effect on interest rates, particularly as the hon. Gentleman is confident that the rate of inflation will have decreased to 16½ per cent. by the end of the year.
      If that were to happen, it would be easy to fund £9 billion at a lower rate of interest. We have been told that we shall get £500 million from the EEC. Presumably that will reduce the PSBR this year. Apparently we shall receive that money by the end of the fiscal year. If the hon. Gentleman does not wish to increase the PSBR, the money could he used to raise the tax thresholds. There can be no argument.
      The amendment concerns £500 million. That would give some assistance to a small number of people who are suffering from low pay and poverty. If the Government cannot increase the PSBR by that much, they do not deserve to address themselves to our economic problems. That is why we shall vote in favour of the amendment.
      Mr. Skinner: Is my hon. Friend aware that the make-up of the PSBR must be examined? According to the Minister of Agriculture, Fisheries and Food, £7 million of the current PSBR of £9 billion will be taken up by unemployment benefit, tax rebates, lost tax, lost production, and so on. Although the PSBR was of that dimension when the Labour Party was in Government, and although unemployment took a large slice, it did not take seven-ninths. If the PSBR is comprised of such ingredients, it can help the economy.
      Mr. Davies: My hon. Friend is quite right. The Government are borrowing money and spending money to put and keep people on the dole. In a modest way the amendment asks the Government to spend a little more money in order to get people back to work. That is why we shall vote in favour of it.
      Question put, That the amendment be made:—
      The House divided: Ayes 239, Noes Noes 288.

      Division No. 407]

      AYES

      10.39 pm

      Abse, Leo

      Canavan, Dennis

      Douglas-ann, Bruce

      Adams, Allen

      Carmichael. Neill

      Dubs, Alfred

      Allaun, Frank

      Carter-Jones, Lewis

      Duffy, A. E. P.

      Alton, David

      Cartwright, John

      Dunnett, Jack

      Anderson, Donald

      Clark, Dr. David (South Shields)

      Dunwoody, Mrs Gwyneth

      Archer, Rt Hon Peter

      Cocks.Rt Hon Michael (Bristol S)

      Eadie, Alex

      Armstrong, Rt Hon Ernest

      Cohen Stanley?

      Eastham, Ken

      Ashley, Rt Hon Jack

      Coleman, Donald

      Edwards, Robert (Wolv SE)

      Ashton, Joe

      Concannon, Rt Hon J. D.

      Ellis, Raymond (NE Derbyshire)

      Atkinson, Norman (H'gey, Tott'ham)

      Conlan, Bernard

      Ellis, Tom (Wrexham)

      Bagler, Gordon A. T.

      Cook, Robin F.

      English, Michael

      Barnett, Guy (Greenwich)

      Cowans, Harry

      Evans, Ioan (Aberdare)

      Barnett, Rt Hon Joel (Heywood)

      Cox, Tom (Wandsworth, Tooting)

      Evans, John (Newton)

      Beilh, A. J.

      Crowther. J. S.

      Faulds, Andrew

      Benn, Rt Hon Anthony Wedgwood

      Cryer, Bob

      Field, Frank

      Bennett, Andrew (Stockport N)

      Cunliffe, Lawrence

      Fitch, Alan

      Bidwell, Sydney

      Cunningham, Dr John (Whitehaven)

      Flannery, Martin

      Booth, Rt Hon Albert

      Dalyell, Tam

      Fletcher, L. R. (Ilkeston)

      Boothroyd, Miss Betty

      Davidson, Arthur

      Fletcher, Ted (Darlington)

      Bradley, Tom

      Davies, Rt Hon Denzil (Llanelli)

      Foot, Rt Hon Michael

      Bray, Dr Jeremy

      Davies, Ifor (Gower)

      Ford, Ben

      Brown, Hugh D. (Provan)

      Davis, Clinton (Hackney Central)

      Forrester, John

      Brown, Robert C. (Newcastle W)

      Davis, Terry (B'rm'ham, Stechlord)

      Foster, Derek

      Brown, Ronald W. (Hackney S)

      Deakins, Eric

      Foulkes, George

      Brown, Ron (Edinburgh, Leith)

      Dempsey, James

      Fraser, John (Lambeth, Norwood)

      Buchan, Norman

      Dewar, Donald

      Freeson, Rt Hon Reginald

      Callaghan, Rt Hon J. (Cardiff SE)

      Dixon, Donald

      Garrett, John (Norwich S)

      Callaghan, Jim (Middleton & P)

      Dobson, Frank

      Garrett, W. E. (Wallsend)

      Campbell, Ian

      Dormand, Jack

      George, Bruce

      Campbell-Savours, Dale

      Douglas, Dick

      Gilbert, Rt Hon Dr John

      Ginsburg, David

      McTaggart, Robert

      Sandelson, Neville

      Gourlay, Harry

      McWilliam, John

      Sever, John

      Graham, Ted

      Magee, Bryan

      Sheerman, Barry

      Grant, George (Morpeth)

      Marshall, David (Gl'sgow, Shettles'n)

      Sheldon, Rt Hon Robert (A'ton-u-L)

      Grant, John (Islington C)

      Marshall, Dr Edmund (Goole)

      Shore, Rt Hon Peter (Step and Pop)

      Hamilton, James (Bothwell)

      Marshall, Jim (Leicester South)

      Silkin, Rt Hon S. C. (Dulwich)

      Hamilton, W. W. (Central Fife)

      Martin, Michael (Gl'gow, Springb'rn)

      Silverman, Julius

      Hardy, Peter

      Mason, Rt Hon Roy

      Skinner, Dennis

      Harrison, Rt Hon Walter

      Maynard, Miss Joan

      Smith, Rt Hon J. (North Lanarkshire)

      Hattersley, Rt Hon Roy

      Meacher, Michael

      Soley, Clive

      Haynes, Frank

      Mikardo, Ian

      Spearing, Nigel

      Healey, Rt Hon Denis

      Millan, Rt Hon Bruce

      Spriggs, Leslie

      Heffer, Eric S.

      Miller, Dr M. S. (East Kilbride)

      Stallard, A. W.

      Hogg, Norman (E Dunbartonshire)

      Mitchell, Austin (Grimsby)

      Steel, Rt Hon David

      Holland, Stuart (L'beth, Vauxhall)

      Mitchell, R. C. (Soton, Itchen)

      Stoddart, David

      Home Robertson, John

      Morris, Rt Hon Alfred (Wythenshawe)

      Stott, Roger

      Homewood, William

      Morris, Rt Hon Charles (Openshaw)

      Strang, Gavin

      Hooley, Frank

      Morris, Rt Hon John (Aberavon)

      Straw, Jack

      Horam, John

      Moyle, Rt Hon Roland

      Summerskill, Hon Dr Shirley

      Howell, Rt Hon Denis (B'ham, Sm H)

      Newens, Stanley

      Taylor, Mrs Ann (Bolton West)

      Howells, Geraint

      Oakes, Rt Hon Gordon

      Thomas, Jeffrey (Abertillery)

      Huckfield, Les

      Ogden, Eric

      Thomas, Mike (Newcastle East)

      Hughes, Mark (Durham)

      O'Halloran, Michael

      Thomas, Dr Roger (Carmarthen)

      Hughes, Robert (Aberdeen North)

      O'Neill, Martin

      Thorne, Stan (Preston South)

      Janner, Hon Greville

      Orme, Rt Hon Stanley

      Tilley, John

      Jay, Rt Hon Douglas

      Owen, Rt Hon Dr David

      Tinn, James

      John, Brynmor

      Paisley, Rev Ian

      Torney, Tom

      Johnson, James (Hull West)

      Parker, John

      Urwin, Rt Hon Tom

      Jones, Rt Hon Alec (Rhondda)

      Parry, Robert

      Varley, Rt Hon Eric G.

      Jones, Barry (East Flint)

      Pavitt, Laurie

      Wainwright, Richard (Colne Valley)

      Jones, Dan (Burnley)

      Pendry, Tom

      Walker, Rt Hon Harold (Doncaster)

      Kaufman, Rt Hon Gerald

      Penhaligon, David

      Watkins, David

      Kerr, Russell

      Powell, Raymond (Ogmore)

      Weetch, Ken

      Kilfedder, James A.

      Prescott, John

      Welsh, Michael

      Kilroy-Silk, Robert

      Race, Reg

      White, Frank R. (Bury & Radcliffe)

      Lambie, David

      Radice, Giles

      Whitehead, Phillip

      Leighton, Ronald

      Rees, Rt Hon Merlyn (Leeds South)

      Whitlock, William

      Lewis, Arthur (Newham North West)

      Richardson, Jo

      Willey, Rt Hon Frederick

      Lewis, Ron (Carlisle)

      Roberts, Albert (Normanton)

      Williams, Rt Hon Alan (Swansea W)

      Litherland, Robert

      Roberts, Allan (Bootle)

      Williams, Sir Thomas (Warrington)

      Lofthouse, Geoffrey

      Roberts, Ernest (Hackney North)

      Wilson, Gordon (Dundee East)

      Lyon, Alexander (York)

      Roberts, Gwilym (Cannock)

      Winnick, David

      Lyons, Edward (Bradford West)

      Robertson, George

      Woodall, Alec

      McCartney, Hugh

      Robinson, Geoffrey (Coventry NW)

      Woolmer, Kenneth

      McDonald, Dr Oonagh

      Rodgers, Rt Hon William

      Wrigglesworth, Ian

      McElhone, Frank

      Rooker, J. W.

      Wright, Shella

      McKay, Allen (Penistone)

      Roper, John

      Young, David (Bolton East)

      McKelvey, William

      Ross, Ernest (Dundee West)

      MacKenzie, Rt Hon Gregor

      Ross, Stephen (Isle of Wight)

      TELLERS FOR THE AYES

      Maclennan, Robert

      Rowlands, Ted

      Mr. George Morton and

      McNally, Thomas

      Ryman, John

      Mr. Joseph Dean.

      NOES

      Adley, Robert

      Braine, Sir Bernard

      Cranborne, Viscount

      Aitken, Jonathan

      Bright, Graham

      Critchley, Julian

      Alexander, Richard

      Brinton, Tim

      Crouch, David

      Alison, Michael

      Brittan Leon

      Dean, Paul (North Somerset)

      Amery, Rt Hon Julian

      Brocklebank-Fowler, Christopher

      Dorrell, Stephen

      Ancram, Michael

      Brotherton, Michael

      Douglas-Hamilton, Lord James

      Arnold, Tom

      Brown, Michael (Brigg & Sc'thorpe)

      Dover, Danshore

      Atkins, Rt Hon H. (Spelthorne)

      Browne, John (Wincheser)

      du Cann, Rt Hon Edward

      Atkins, Robert (Preston North)

      Bruce-Gardyne, John

      Dunn, Robert (Dartford)

      Atkinson, David (B'mouth, East)

      Bryan, Sir Paul

      Durant, Tony

      Baker, Kenneth (St. Marylebone)

      Buchanan-Smith, Hon Alick

      Dykes, Hugh

      Baker, Nicholas (North Dorset)

      Buck, Antony

      Eden, Rt Hon Sir John

      Banks, Robert

      Budgen, Nick

      Edwards, Rt Hon N. (Pembroke)

      Beaumont-Dark, Anthony

      Bulmer, Esmond

      Elliott, Sir William

      Bell, Sir Ronald

      Butcher, John

      Eyre, Reginald

      Bendall, Vivian

      Butler, Hon Adam

      Fairbairn, Nicholas

      Bennett, Sir Frederic (Torbay)

      Carlisle, Kenneth (Lincoln)

      Fairgrieve, Russell

      Benyon, Thomas (Abingdon)

      Carlisle, Rt Hon Mark (Runcorn)

      Faith, Mrs Sheila

      Benyon, W. (Buckingham)

      Chalker, Mrs. Lynda

      Farr, John

      Best, Keith

      Channon, Paul

      Fell, Anthony

      Bevan, David Gilroy

      Chapman, Sydney

      Fenner, Mrs Peggy

      Biffen, Rt Hon John

      Churchill, W. S.

      Finsberg, Geoffrey

      Biggs-Davison, John

      Clark, Hon Alan (Plymouth, Sutton)

      Fisher, Sir Nigel

      Blackburn, John

      Clark, Sir William (Croydon South)

      Fletcher, Alexander (Edinburgh N)

      Blaker, Peter

      Clarke, Kenneth (Rushcliffe)

      Fletcher-Cooke, Charles

      Body, Richard

      Clegg, Sir Walter

      Fookes, Miss Janet

      Bonsor, Sir Nicholas

      Colvin, Michael

      Forman, Nigel

      Boscawen, Hon Robert

      Cope, John

      Fowler, Rt Hon Norman

      Bottomley, Peter (Woolwich West)

      Cormack, Patrick

      Fox, Marcus

      Bowden, Andrew

      Corrie, John

      Fraser, Peter (South Angus)

      Boyson, Dr. Rhodes

      Costain, A. P.

      Fry, Peter

      1644

      1645

      Galbraith, Hon T. G. D.

      Macmillan, Rt Hon M. (Farnham)

      Roberts, Wyn (Conway)

      Gardiner, George (Reigate)

      McNair-Wilson, Michael (Newbury)

      Sainsbury, Hon Timothy

      Gardner, Edward (South Fylde)

      McNair-Wilson, Patrick (New Forest)

      St. John-Stevas, Rt Hon Norman

      Garel-Jonea, Tristan

      McQuarrie, Albert

      Scott, Nicholas

      Glyn, Dr Alan

      Madel, David

      Shaw, Michael (Scarborough)

      Goodhart, Philip

      Major, John

      Shelton, William (Streatham)

      Goodlad, Alastair

      Marland, Paul

      Shepherd, Colin (Hereford)

      Gow, Ian

      Marshall, Michael (Arundel)

      Shepherd, Richard (Aldridge-Br'hills)

      Grant, Anthony (Harrow C)

      Marten, Neil (Banbury)

      Shersby, Michael

      Greenway, Harry

      Mates, Michael

      Silvester, Fred

      Grieve, Percy

      Mather, Carol

      Sims, Roger

      Griffiths, Eldon (Bury St Edmunds)

      Mawby, Ray

      Smith, Dudley (War. and Leam'ton)

      Griffiths, Peter (Portsmouth N)

      Mawhinney, Dr Brian

      Speed, Keith

      Grist, Ian

      Maxwell-Hyslop, Robin

      Spence, John

      Grylls, Michael

      Mayhew, Patrick

      Spicer, Jim (West Dorset)

      Gummer, John Selwyn

      Meyer, Sir Anthony

      Spicer, Michael (S Worcestershire)

      Hamilton, Hon Archie (Eps'm &Ew'll)

      Mills, Iain (Meriden)

      Sproat, Iain

      Hamilton, Michael (Salisbury)

      Mills, Peter (West Devon)

      Stainton, Keith

      Hampson, Dr Keith

      Miscampbell, Norman

      Stanbrook, Ivor

      Hannam, John

      Mitchell, David (Basingstoke)

      Stanley, John

      Haselhurst, Alan

      Moate, Roger

      Steen, Anthony

      Havers, Rt Hon Sir Michael

      Monro, Hector

      Stevens, Martin

      Hawkins, Paul

      Montgomery, Fergus

      Stewart, Ian (Hitchin)

      Hawksley, Warren

      Moore, John

      Stewart, John (East Renfrewshire)

      Heddle, John

      Morris, Michael (Northampton, Sth)

      Stokes, John

      Henderson, Barry

      Morrison, Hon Charles (Devizes)

      Stradling Thomas, J.

      Heseltine, Rt Hon Michael

      Morrison, Hon Peter (City of Chester)

      Tapsell, Peter

      Hicks, Robert

      Mudd, David

      Taylor, Robert (Croydon NW)

      Higgins, Rt Hon Terence L.

      Murphy, Christopher

      Taylor, Teddy (Southend East)

      Hill, James

      Myles, David

      Tebbit, Norman

      Hogg, Hon Douglas (Grantham)

      Neale, Gerrard

      Temple-Morris, Peter

      Holland, Philip (Carlton)

      Needham, Richard

      Thomas, Rt Hon. Peter (Hendon S)

      Hooson, Tom

      Nelson, Anthony

      Thornton, Malcolm

      Hordern, Peter

      Neubert, Michael

      Townsend, Cyril D. (Bexleyheath)

      Howe, Rt Hon Sir Geoffrey

      Newton, Tony

      Trippier, David

      Howell, Rt Hon David (Guildford)

      Normanton, Tom

      Trotter, Neville

      Howell, Ralph (North Norfolk)

      Nott, Rt Hon John

      van-Straubenzee, W. R.

      Hunt, David (Wirral)

      Onslow, Cranley

      Vaughan, Dr Gerard

      Hunt, John (Ravensbourne)

      Oppenheim, Rt Hon Mrs Sally

      Viggers, Peter

      Irving, Charles (Cheltenham)

      Osborn, John

      Wakeham, John

      Jenkin, Rt Hon Patrick

      Page, John (Harrow, West)

      Waldegrave, Hon William

      Johnson Smith, Geoffrey

      Page, Rt Hon Sir R. Graham

      Walker, Rt Hon Peter (Worcester)

      Jopling, Rt Hon Michael

      Page, Richard (SW Hertfordshire)

      Walker, Bill (Perth & E Perthshire)

      Joseph, Rt Hon Sir Keith

      Parkinson, Cecil

      Walker-Smith, Rt Hon Sir Derek

      Kaberry, Sir Donald

      Patten, Christopher (Bath)

      Wall, Patrick

      Kellett-Bowman, Mrs Elaine

      Patten, John (Oxford)

      Waller, Gary

      Kershaw, Anthony

      Pattie, Geoffrey

      Walters, Dennis

      Kimball, Marcus

      Pawsey, James

      Ward, John

      King, Rt Hon Tom

      Percival, Sir Ian

      Warren, Kenneth

      Kitson, Sir Timothy

      Pink, R. Bonner

      Wells, John (Maidstone)

      Knight, Mrs Jill

      Pollock, Alexander

      Wells, Bowen (Hert'rd & Stev'nage)

      Knox, David

      Porter, George

      Wheeler, John

      Lang, Ian

      Price, David (Eastleigh)

      Whitelaw, Rt Hon William

      Langford-Holt, Sir John

      Proctor, K. Harvey

      Whitney, Raymond

      Latham, Michael

      Pym, Rt Hon Francis

      Wickenden, Keith

      Lawrence, Ivan

      Raison, Timothy

      Wiggin, Jerry

      Lawson, Nigel

      Rathbone, Tim

      Wilkinson, John

      Lee, John

      Rees, Peter (Dover and Deal)

      Williams, Delwyn (Montgomery)

      Le Marchant, Spencer

      Rees-Davies, W. R.

      Winterton, Nicholas

      Lennox-Boyd, Hon Mark

      Renton, Tim

      Wolfson, Mark

      Lester, Jim (Beeston)

      Rhodes James, Robert

      Young, Sir George (Acton)

      Lewis, Kenneth (Rutland)

      Rhys Williams, Sir Brandon

      Younger, Rt Hon George

      Lloyd, Peter (Fareham)

      Ridley, Hon Nicholas

      Loveridge, John

      Ridsdale, Julian

      TELLERS FOR THE NOES

      Lyell, Nicholas

      Rifkind, Malcolm

      Mr. David Waddington and

      MacGregor, John

      Roberts, Michael (Cardiff NW)

      Mr. Peter Brooke.

      MacKay, John (Argyll)

      Question accordingly negatived.

    Clause 24

      INDEXATION OF INCOME TAX THRESHOLDS AND ALLOWANCES
      Mr. Lawson: I beg to move amendment No. 8, in page 15, line 30, leave out second '(1)(a)'.
      This is a consequential drafting amendment to the amendment moved in Committee by my right hon Friend the
      Member for Crosby (Sir G. Page) concerning the widow's bereavement allowance, which I was happy to accept.
      Amendment agreed to.

    Clause 25

      CHILD TAX ALLOWANCES FOR CHILDREN LIVING ABROAD
      Mr. John Garrett: I beg to move amendment No. 9, in page 16, line 5, leave out clause 25.
      Mr. Deputy Speaker (Mr. Bryant God-man Irvine): With this we may take the following amendments:

      No. 10, in page 16, line 16, leave out '£165' and insert '£365'.

      No. 11, in page 16, line 20, leave out `£135' and insert '£335'.

      No. 12, in page 16, line 21, leave out '£100' and insert '£330'.

      No. 13, in page 16, line 23, leave out `1981–82' and insert '1983–84'.

      Mr. Garrett: The clause was debated at length in Committee and therefore I shall do no more than summarise the broad arguments for what is a fairly clear case. In April 1977, child benefits replaced child tax allowances, which were payable only in respect of children resident in the United Kingdom, as family allowances had previously been.
      The change affected thousands of children whose parents were taxpayers in this country but who themselves were resident overseas. Most were waiting to join their parents from India, Pakistan and Bangladesh. In April 1978, the Labour Government said, in response to many representations from the immigrant community and representative bodies concerned with immigrants, that the special tax relief should be continued, pending a review of some other form of child support for those children, because if child tax allowances had been ended at that time those children would have been treated unfairly, in that their parents would have lost benefits in respect of the children, even though the failure of the children to join the parents was often due to delays in the Governments allowing them to come here.
      The effect of the clause is to reduce child tax allowances in respect of children overseas by about £200 in the coming year. They will be ended altogether in 1981–82. The children affected are overwhelmingly of Asian racial origin and it is widely held, clearly with justification, that the effect of the clause is discriminatory on the basis of race—in effect, if not in intent.
      In answer to questions about the racial discrimination effects of the clause, the Minister of State said:
      "The clause is not designed in any racialist spirit whatever."—[Official Report, Standing Committee A, 10 June 1980; c. 353.]
      1648
      Indeed, the hon. and learned Gentleman man even evinced in support his own family's long service on the Indian Subcontinent as evidence of his understanding of the problem. I have no doubt that the intent of the clause is not basically racialist, but it seems to me to be drawn up simply because of a crude enthusiasm for administrative tidiness by the Treasury, and an attempt to save a very small sum compared with some of the sums that we have discussed on other amendments.
      On 13 April 1978 my right hon. Friend the Member for Llanelli (Mr. Davies) said that these child tax allowances would continue for the foreseeable future, pending the Government's consideration of representations about alternative ways of helping parents who were entitled to some relief. Among the alternatives put to the Government by various bodies representative of the immigrant community are paying child benefit in respect of the children, setting up an arrangement for deeds of covenant to give relief on maintenance payments that have been made by taxpayers in this country to their children overseas, or continuing the child tax allowances—the remedy that we have chosen in the amendment.
      It is clear that the allowances' benefit would diminish as the children grew too old to qualify or were admitted to this country. Anyway, if the amendment were carried, inflation would whittle away its value.
      It is essential that the allowance in respect of overseas children be continued. It may be up to five years before children eligible to come to this country are allowed in, because of the rate at which the entry queue is being cleared. In other words, we are penalising families for our own bureaucratic delays. Many of the children were entitled to come here the day the clause was announced and will take about five years to join their parents. About 150,000 children are eligible. Claims are made in respect of 75,000 of them. The difference between the two figures is accounted for by parents who do not understand what their entitlement is, or by the delays caused by the stringent checking on eligibility.
      The saving as a result of the clause is a mere £7 million, and about 150 Inland Revenue staff will be redeployed. In speaking to the clause in Committee, the

      1649
      Minister of State dwelt almost exclusively on the saving as being its justification. He did not dwell on fraud. We had a brief discussion on fraud, in which we showed that the Inland Revenue's estimates of fraud in the past were based on an unsatisfactory sample, and that now the risk was that the procedures as to entitlement were so tight that many parents were not getting their entitlement to child tax allowance, except after protracted delays.
      We believe that taxpayers in good standing in this country should continue to have the right to this tax relief. The Minister tried to say, I think unfairly, that in some way the parents were on notice of withdrawal of the allowance, and had been for some years. That is not true. In the Labour Government my right hon. Friend undertook that the allowances would be continued until a substitute could be found, in the way of family support.
      We shall penalise a group who already feel discriminated against and threatened. The saving is minimal compared with the damage that can be done to race relations as a result of the enactment of the clause.
      Mr. Alexander W. Lyon: The clause, which we seek to delete, would bring to an end a concession to people with children overseas, a concession arising out of the change in practice between child benefit and child allowance.
      I noticed that in Committee the Minister of State relied on some words of mine and tried to force a wedge in the Opposition case. It was a typical legalistic quirk by the hon. Gentleman. There never was any disparity between the reasoning that I adopted on Second Reading and the reasoning adopted by my hon. Friends in Committee.
      11 pm
      The argument is that ever since the Select Committee reported on child benefit it has been accepted that it would not be possible to pay child benefit to children living abroad in normal circumstances. But a difficulty arose because, in particular, there was a substantial number of Asian children—far more than with other foreign parents—still in India, Pakistan and Bangladesh whom it was intended to bring to live here. Therefore, there is a basic injustice in taking away their parents, rights either to child
      1650
      benefit or to tax allowances before we have allowed the children into this country.
      Once the choice has been exercised and a parent who has come to live here decides that he will not bring his child here for a long time to come—or perhaps ever—it may be fair to say that the administrative difficulties are such that we can make no concession to that parent. But we cannot force that choice upon a parent who wishes to bring his child here but who has been prevented from doing so as quickly as he would wish by British immigration controls.
      That argument was advanced when the original child benefit scheme was brought forward. It won favour with the previous Government and that is why the cut-off day for child tax allowance was postponed indefinitely. Tonight we ask not that there should never be a time when child tax allowance comes to an end but that that time should, at any rate, be beyond the time at which the queue ends in India, Pakistan and Bangladesh.
      At present there are 27,000 people waiting in the queue, of whom about two-thirds are children. If the Government were to say tonight that we would take the whole 27,000 next year, I would not offer any resistance to this clause. But the Minister is not about to say that. He will not say that, because he will claim that the issue is nothing to do with immigration. He will not say that, because it is not Government policy to get this queue ended as quickly as possible. If the reduction of the queue carries on at the present rate, the end will come within the next few years. The figures have fallen consistently since 1976. About 17,000 children came from the sub-continent in 1976 and that figure was down to 13,000 last year. It will be fewer this year and the figure will go on reducing until the queue ends. That end will probably be some time in 1985–86.
      The question is why the Government cannot allow the concession to continue until that time. In this clause the Government make the concession end in 1981–82. Why not allow it to continue until 1985–86? The difference is four or five years at the outside and on the figures given in Committee it would be at a total cost to the Exchequer of about £28 million.

      1651
      Compared with the cost of the Polaris replacement, that figure is chicken-feed for the country as a whole but for the people affected a most important impost will be put upon them if the clause is approved.
      We would not be here calmly talking about this issue and completely accepting these proposals if we were dealing with white children waiting to come here from Australia, America or Rhodesia. There would be a seething expression of indignation from Conservative Members if it was proposed that such children should not be allowed to come in.
      I say to hon. Gentleman who declare that there is nothing racialist in this measure that there is nothing racialist in the sense that the concession had to come to an end at some time. We recognise that at that stage people who had left their children abroad would enjoy neither tax allowances nor child benefit. However, it is racialist if we make the sacrifice now, without compassion for the Asian children, when we know that the argument would not be the same if the children were white. In that sense, the Government's argument is racialist. It will be seen as such by the black people of this country.
      It is no good the Minister of State writing placid articles for The Guardian telling us how wonderful is the Government's racial policy when tonight he supports a clause which denies the justice which should be given to a few thousand Asians. For them it is a serious imposition on their family standards. I hope that even at this late stage the Government will relent.
      Mr. Hooley: On a point of order, Mr. Deputy Speaker. I understand that amendments Nos. 10 to 13 are being discussed with amendment No. 9. May I speak to my amendment?
      Mr. Deputy Speaker: The hon. Gentleman is in order in discussing the amendment, but he has not caught my eye. Since he has drawn himself to my attention, perhaps that can be remedied fairly soon.
      Mr. Tristan Garel-Jones: I am sorry that the hon. Member for York (Mr. Lyon) saw fit to raise the racialist question again. I hope that he will do
      1652
      his best to assure the minority communities that this is not a racially based measure. I am sorry that he and many of his hon. Friends seem to take advantage of opportunities as this to instil fear into the immigrant community.
      We are talking about British subjects who are working in Britain in full employment and whose children, for reasons beyond their control, are unable to come into this country. Everyone accepts that child tax allowance should be phased out. Because of the introduction of child benefit, to which the people whom we are discussing are not entitled, and the phasing out of tax allowance they will be penalised. That is why some of my hon. Friends feel that it is unfair to an already disadvantaged minority.
      The arguments against continuing with the present system will be precisely the same as the arguments used when the Labour Party was in Government—the cost. It is referred to as chicken-feed by Opposition Members, but I do not accept that £7 million and 150 Revenue employees is chicken-feed.
      Mr. Cormack: It will feed a lot of chickens.
      Mr. Garel-Jones: My hon. Friend is right. We should be making such savings.
      The questions of fraud and low take-up have been mentioned. The hon. Member for Norwich, South (Mr. Garrett) gave good reasons for the low take-up. The Minister of State will say that notice of the phasing-out has been given. I doubt whether hon. Members will be convinced by that argument. I am not. The arguments in favour of allowing the situation to run for another two or three years are strong. First, it is by definition a diminishing problem. The children involved will grow up and become adults outside the United Kingdom or they will enter this country. It will not be an on going expense. Secondly, we are talking about an ultimate protection for the family, which most hon. Members on both sides of the House would regard as a good thing.
      Finally, we are discussing a disadvantaged minority. I do not have a large immigrant population in my constituency. However, the number of immigrants who attend my surgeries is totally out of proportion to the number of immigrants in my constituency. The reason for that is

      1653
      simple. They are new arrivals. They face many difficulties that other citizens do not have. Despite the cost and the administrative untidiness, it would be a greatly appreciated step if the Government were able to consider an extension beyond 1981–82.
      Several Hon. Members rose—
      Mr. Deputy Speaker: I call the hon. Member for Sheffield, Heeley (Mr. Hooley). It is now clear that the hon. Gentleman was screened from my view by the hon. Member for York (Mr. Lyon).
      Mr. Hooley: I did not wish to give the impression that I was complaining, Mr. Deputy Speaker. I admit that I was slightly puzzled.
      I accept entirely the arguments of my hon. Friend the Member for York (Mr. Lyon). The objection to the clause is that it is racialist in fact, though not technically so, as it applies to children overseas of whatever nationality. It discriminates largely against the children of immigrants from India and Pakistan.
      There are two main issues. The first concerns money—the savage reduction this year in the value of the tax allowance. I have heard nothing in Standing Committee or in the Chamber to justify the vicious cut in the value of the allowance. In each instance there is a cut of £200. The real cut is more than that because of the effect of inflation. The cut is about 75 per cent. in real terms.
      I do not know of any other tax allowance this year of any sort that is being slashed to that extent. As the Government are accepting that there should be a tax allowance in respect of these children, how do they propose to justify slashing the allowance by 75 per cent. without putting anything in its place? They are not giving any compensatory children benefit. They are giving no compensation. They are merely slashing the allowance from the current £365 to £165, from £335 to £135, and in any other instance to £100.
      Leaving aside all the other arguments about racial origin and place of domicile, how on earth can the Government justify cutting a tax allowance on such a scale? I know of no other allowance in the current financial year that is being reduced in such a fashion. Three of my
      1654
      amendments are intended to restore the cash value of the allowance, although in real terms the value will diminish because of inflation. We have 22 per cent. inflation already and we may well have a higher rate before the end of the financial year.
      The Government owe the House an explanation. They are not proposing to scrap the allowance. It is to stay for the current financial year. They owe it to the House to explain why the allowance in favour of the children of a class which is not wealthy and which comes from overseas is to be cut drastically. As far as I know, no compensatory payment will be made. Why should the allowance in respect of children who are, largely for bureaucratic reasons, unable to join their Indian and Pakistani parents here be cut in this Draconian fashion? If there is to be some saving, why should this small group of people be, singled out to take on the burden with no compensatory payment?
      11.15 pm
      The further issue that arises is of the transitional arrangement. Here I agree with my hon. Friend the Member for York. I do not envisage the arrangement by which a child benefit is paid in this country with a tax allowance applying overseas carrying on for ever. In amendment No. 13 I have suggested that it should finish in 1984. My hon. Friend has suggested 1985 or 1986. I do not quarrel seriously with that. If it ended in 1984, that would be a seven-year transition from the original change in 1977. That would be reasonable.
      Thereafter, if parents have children abroad and do not bring them back to this country they could not seriously claim the allowance. It is harsh and discriminatory to cut the allowance by £200—it is more in real terms. In humanitarian terms it would be fairer and more reasonable to extend the transition period to 1984 or 1985. To cut it off in 1981, given the waiting list that still applies, which is in no way the fault of the parents, would be harsh and unjustifiable, and would certainly lay the Government and the country open to a charge of racialism on this issue.
      Mr. Nick Budgen: I am sure that we can all agree that, to people who believe that

      1655
      they have a just claim for tax reliefs, the loss of them is a serious matter. The public sector borrowing requirement may be as much as £9 billion, and in those terms £7 million may not be a great deal. Here I may find myself in substantial agreement with the hon. Member for York (Mr. Lyon). Although he and I approach these matters in different ways, we agree on the importance of certainty and clarity. We believe in the importance of letting the British people of all races know the size of the problem. I remember well that when 14 of us in this House voted in favour of an ethnic question in the 1981 census, the hon. Member was among those 14. He is therefore, I am sure, in favour of certainty, and of finding out as clearly as possible what is happening.
      The Government's problem here is plain. It is widely believed that the new Commonwealth and Pakistani ethnic group in this country has a propensity to make false claims in respect of nonexistent children. That matter has been most carefully investigated on at least one occasion. I see the hon. Member for Workington (Mr. Campbell-Savours) in his place. In the discussion in Standing Committee, as reported in column 339 of the Official Report for 10 June, the hon. Gentleman quoted most helpfully at length from a report made by the Inland Revenue at the request of the Public Accounts Committee in 1967. He said, quite rightly, that the sample inquiry into 1,000 different cases was stopped after 638 cases had been investigated. He said that, of the 638 cases, 306 were not fraudulent and 332 were fraudulent. It would be wrong to say that 52 per cent. of the claims were fraululent. For the sake of argument, let us concede that if the remaining 362 cases had been investigated and found to have been true and lawful claims, it would still show that about one-third of the claims were fraudulent.
      The Government have to hand quickly and obviously an instrument to deal with the unfortunate allegation so often made against the new Commonwealth and Pakistani ethnic groups. The Government promised in the most specific terms that a register would be compiled in the countries of origin. They made that promise through my right hon.
      1656
      Friend the Home Qecretary in his Leicester speech two years before the general election. I have no doubt that the clever and diligent gentlemen in the Home Office noted that speech and had all the necessary machinery for a register prepared long before we won the general election more than a year ago. I expect that register to be introduced soon, because we have received the most specific and clear undertakings from my right hon. Friend the Home Secretary that it is still a proper and clear part of our proposals on immigration. Once the register is introduced, it will be possible to check the names of dependants in the countries of origin against the register.
      Mr. Cormack: What about "Patel?"
      Mr. Budgen: I accept that a register would not be a complete guide.
      Mr. Douglas Hogg: Will my hon. Friend say why the register should be any more accurate than the claims to the Inland Revenue?
      Mr. Budgen: My hon. Friend makes a fair point.
      Mr. Chris Patten: My hon. Friend the Member for Grantham (Mr. Hogg) has bowled out my hon. Friend the Member for Wolverhampton, South-West (Mr. Bugden).
      Mr. Budgen: He has not bowled me out. Perhaps my hon. Friends who laugh so uproariously think that I am bowled out. Perhaps they wish to distinguish their position from that of the Tory Party at the last general election. If it was so obvious that the register was nonsense, no doubt they made it absolutely plain to their electorate that they would have no part of the register. I understand that.
      On many occasions I have stood at general elections and made it plain that I disagreed with a part of the campaign of my party. I have the deepest respect for my hon. Friends who told their electorate that the register was nonsense. But if they agreed with the idea of a register but now say that it is nonsense because that is the way that the wind is blowing, that would be despicable. I am sure that my hon. Friends would not wish to make fun of me if they were in that position.

      1657
      There is to hand a mechanism to deal with the problem, namely, the register. I am sure that the hon. Member for York would agree that the register would make a small, perhaps inaccurate—
      Mr. Cormack: On a point of order, Mr. Deputy Speaker. What on earth has that to do with the Bill?
      Mr. Budgen: It has everything to do with the Bill. The problem that confronts those who wish to see the continuance of the tax relief is the belief that, regrettably, there may be fraudulent claims. I am suggesting the mechanism by which that allegation can be dealt with.
      Mr. Garel-Jones: Of course, it is not for me to advise my hon. Friend on whether he is in or out of order. No doubt he will come to this matter later in his speech. Are we to understand that, if such a register were introduced, and if my hon. Friend were to be convinced that such a register was at least in some degree accurate, we should continue to allow these tax allowances?
      Mr. Budgen: We want the register to be introduced. If my hon. Friends feel that the register would be no use, we want that problem dealt with—[Interruption.] I understood that my hon. Friends were making the attack upon the Tory Party's official position. I understood that they were saying that they thought that it would be no good. In my simple way as a party loyalist, I was saying that I still believed in the things on which I specifically campaigned. I am saying that once this register is introduced it will be a useful way of dealing with the unfortunate allegations which are so often made against those who wish to make these claims for tax allowances.
      Mr. R. C. Mitchell: I hope that the hon. Member for Wolverhampton, South-West (Mr. Budgen) will pardon me if I do not follow his argument, because I do not have the faintest idea where he was going. So far as I could see, it had very little to do with the subject under discussion. He mentioned fraudulent claims. If there are such claims—and I suspect that there are—the Inland Revenue has the means to deal with them. It does so when it detects that fraudulent claims exist. I have plenty of evidence from
      1658
      my own constituency that where there have been fraudulent claims the Inland Revenue has dealt with them.
      I do not wish to set any date for the abolition of these tax allowances. I believe that they should be abolished when, and only when, the problem itself no longer exists. I very much agree with the hon. Member for Watford (Mr. Garel-Jones), who said that this is a diminishing problem and that it will decrease year by year. How long that problem exists will depend largely on the Government's immigration policy.
      There is no doubt in my mind that the Government are using administrative delays as a method of immigration control. There is no doubt whatever that they are doing so indirectly by administrative delay. Not only do we have the long delay in obtaining an interview in the first instance, but there are now long delays in interviewing the parents at this end. Whereas this used to be done over a short period, it is now taking six or nine months, and sometimes a year, between the time the children have their interview in India and the man has his interview over here. In my view, the immigration procedure is being lengthened.
      While that is the position, and while the Government are deliberately delaying the joining of children and their parents—by making it two or three years instead of a year or so, as it was in the past—it is only fair and just that tax allowances should continue. My argument is simply that tax allowances should be allowed to continue in their present form until such time as the problem no longer exists. It may be 1985. 1986 or even later, but that depends purely and simply on the attitude of the Government with regard to immigration control.
      11.30 pm
      Mr. Jim Marshall: If I have sensed the feeling of the House correctly, it is that hon. Members wish to make rapid progress. [Interruption.] It ill becomes Tory Members to cheer that statement in view of the way they responded to the speech of the hon. Member for Wolverhampton, South-West (Mr. Budgen). It is my intention to be brief.
      My hon. Friend the Member for Norwich, South (Mr. Garrett) was correct to say that the current difficulty arises from

      1659
      the Labour Government's decision to phase out child tax allowance and introduce child benefit. It was incorrect of the Minister of State to read into the Labour Government's subsequent change of mind a feeling that the phasing out of child tax allowance would be over a short period rather than a long one. Having spoken to those who were Treasury Ministers at the time, and having read what they said then, it is clear to me that their intention was to continue the allowance until such time as all the children who had a right to come to the country were here, or until some suitable, alternative arrangement could be made.
      That is not the situation now and the Government are misleading the House and country if they suggest that what they are doing is continuing the policy of the Labour Government. We have to show that that is untrue. In Committee the Minister of State said—and I accept that he is an honourable man and means what he say—that the phasing out of tax allowance affects all groups, irrespective of racial origin. However, whether by design or accident, the effects of the phasing out are racially discriminatory. It is what people perceive as the effect of policy changes which counts, not the intentions of the Government.
      If the Government are to allay the fears of the Asian community—and they have done a great deal to arouse the fears of that community—they can do so by accepting the amendment to delete clause 25. It will mean a little extra expenditure, but it will be money well spent in allaying the genuine fears and suspicions held by the Asian community.
      Mr. Alfred Dubs: The hon. Member for Wolverhampton, South-West (Mr. Budgen) spent some time suggesting that frauds associated with this allowance are on such a large scale that a register was the only way of pinning down such frauds. I wonder whether he knows, or would like to hazard a guess, how many prosecutions have been brought by the Inland Revenue in the last two and a half years. If he cares to venture a guess, I shall gladly give way and let him tell the House.
      Mr. Budgen: I do not know. I should be grateful if the hon. Gentleman would inform the House, if he knows.
      Mr. Dubs: Between I January 1978 and 1 July 1980 a total of nine prosecutions were brought for this offence. I should have thought that, given the attention that has been paid to the allegations of fraud, if there had been more instances there would have been more prosecutions. The accusation that fraud is taking place on such a large scale is one for which there is no significant evidence.
      This is a shabby, nasty little measure, representing for a handful of people what is effectively the biggest cut in social security benefits of any that have been brought about by the Government. We are talking about a relatively small number of people. Hon. Members have said that we are talking about an estimate of 75,000 children, probably fewer by now, and 22,000 taxpayers. The only way in which we can reconcile the figures quoted now and on previous occasions is to suggest that the amount of under-claiming must be significant. This measure is unjust because we are punishing a group of people twice over: we are punishing them because we are not allowing families to be united, and we are punishing them by denying them benefits which they have earned through the tax they are paying, benefits that are available to all other people in this country whose children are not here with them.
      It is because of that manifest injustice that we on this side are complaining and submit that this measure should be withdrawn by the Government. Even if it is not racially discriminatory in intent, it is certainly seen as being racially discriminatory in effect, in that it is penalising some of the poorest people in this country and penalising people whose children are living in some of the poorest countries. I therefore hope that the Government will, even at this late hour, think again and withdraw this nasty little measure.
      Mr. Peter Rees: In Standing Committee we had a debate which was marked by a certain passion, although the amendment was not then pressed to a Division. Tonight we have had a rather far-reaching debate, which has been characterised, except in one or two regards, by a greater degree of moderation. I should like to think that that is because hon. Members opposite have had a chance to reflect a little on some of the considerations which

      1661
      were deployed by Government Members in Committee. It may be presumptuous of me to imagine that anybody bothers to read the reports of our debates in Standing Committee, but we proceed on the basis that what we say has some effect outside the Committee Room in which we held our discussions.
      I wish at the outset to emphasise two points. I hope that I do not need to review at this hour, because I am not particularly qualified to do so, the immigration policies of either this or the previous Administration. With all respect to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), I hope that I do not have to pause to consider whether I am a party loyalist, although I like to think that I am. I shall confine myself a little narrowly—some hon. Members opposite might say too narrowly—to the fiscal considerations.
      Before doing that, I wish to emphasise once again—although I like to think, after having listened to the interventions tonight, that this basic point was accepted, albeit with a little reluctance, by some hon. Members opposite—that this Government certainly have no intention to discriminate racially or in any other way. Equally, I will accept that the consequences of this may be more widely felt in the immigrant community than among some of our fellow countrymen.
      I emphasise that the phasing out of child tax allowance will affect a number of other people who by no test could be regarded as members of the immigrant community. Equally, as it was suggested—I think not so much tonight as upstairs in Standing Committee—that this would bear very hard on the economic and social conditions of the immigrant community and on such of their families as are left behind in their countries of origin, I remind the House of the figures, although I gave them in Standing Committee. On the best estimates available to us, in 1978–79 there may have been some 50,000 parents who would have been eligible to claim in respect of some 150,000 children.
      Here I move on to firmer ground as to actual claims in 1979 and 1980–81. There have been claims on behalf of 22,000 taxpayers in respect of 75,000 children. I do not say that too much weight can be attached to that, but it does not seem to demonstrate that there
      1662
      is a massive take-up—it is slightly under 50 per cent. That suggests that this is not a dominant issue in the immigrant community or any other section of our community. That it is important to individuals and individual families I of course accept.
      Naturally we thought long and hard before reaching the conclusion which, I suspect, the previous Administration reached when they announced at the end of 1976 that they would introduce a system of child benefits and that in parallel with it they would phase out the system of child tax allowances. I hope that both sides of the House will recognise that it will be an anomaly, although it may be an anomaly that some hon. Members would be prepared to accept, to carry through both systems of relief—if that is the way to describe it—for children.
      We thought about the problems and we were encouraged by the fact that the first intention of the previous Administration—it was very easy to glean, and I say that with no disrespect to the right hon. Member for Llanelli (Mr. Davies)—was to phase it out completely. They were no doubt influenced by powerful representations made by their right hon. and hon. Friends, and perhaps by quarters outside the House, to defer it "for the time being". Those were the precise words of the right hon. Member for Llanelli. We can all debate what he meant by "for the time being". I have no doubt that he had no very clear impression. He obviously wanted to review the position. We are all entitled to review our first impressions and I am glad that the previous Administration were so open-minded. I hope that we have also been reasonably open-minded.
      The hon. Member for York (Mr. Lyon) accused me of taking a lawyer's point—who could be better qualified than he to make that charge against me?—and of distorting his words. When we were debating the Bill on Second Reading he said:
      "It has always been recognised that there would come a time when the allowance would cease."—[Official Report, 8 May 1980; Vol. 984, c. 614.].
      Although in form the amendment which stands in the name of the official Opposition, as opposed to that standing in the name of the hon. Member for Sheffield, Heeley (Mr. Hooley), suggests

      1663
      an indefinite postponement of the phasing out, I hope that at the end of the day what lies between the two sides of the House is the period over which the child tax allowances should be phase out.
      Mr. John Garrett: Or replaced.
      Mr. Rees: The hon. Member for Northwich, South (Mr. Garrett) says "Or replaced", but I have not heard from the Opposition Benches—or indeed from the Government Benches—any practical and satisfactory alternative. It was suggested that we should devise a system of child benefits which could be paid outside the United Kingdom. Having listened to the tenor of the debate from each side, I feel that that is not really a practical conclusion. It is certainly not one that commends itself to me.
      It was put to me that there are some possible alternatives other than a gradual phasing out. It was canvassed, but rather faintly, from the Opposition Benches in Committee—probably originally from the Government Benches—that there should be some form of covenanted relief and that parents should be entitled to convenant in favour of their children overseas. In listening to the debate tonight, I do not believe that any hon. Member on either side of the House really believes that that is, either in principle or in practice, a very satisfactory conclusion.
      All that lies between the two sides of the House is the period over which we should phase out the child tax allowances. My hon. Friend the Member for Watford (Mr. Garel-Jones) joined Opposition Members in suggesting that we should perpetuate the child tax allowances until the problem is resolved. But I do not think that any hon. Member would be able to say with complete confidence over what period the problem could be resolved. I do not put it on the ground of the amount of tax at stake or to be saved; I put it on administrative grounds. I know that these are perhaps rather odious considerations, but it is perpetuating an anomaly for an indefinite period until, as some hon. Members say, the problem is resolved.
      Mr. R. C. Mitchell: During the time before the problem is resolved, it is in the direct control of the Government, so that the Government can decide how long the problem will take to resolve it self.
      Mr. Rees: I do not know whether I should respond to that invitation. Is the hon. Gentleman really suggesting that my right hon. Friend the Home Secretary should say "No further immigration of dependants"? Some of my hon. Friends might say that that would provide a definite solution to the problem, but I am not certain that it is a solution that would commend itself to the Opposition or, indeed, to many of my hon. Friends. So on grounds of practicality one is left with the question: when will the problem resolve itself? I do not believe that it will be resolved nearly as quickly as Opposition Members would suggest.
      Mr. Alexander W. Lyon: The number of children who have the right to come is finite and the number is decreasing each year. It seems almost inevitable that they will end in the middle 1980s. No one can be exactly sure about which year. The Minister has caught the essential injustice. If those people want to bring in their children but are not allowed to do so because of an administrative delay in the system, surely it is wrong to take away their tax allowance at the same time.
      11.45 pm
      Mr. Rees: That point has been made several times and the hon. Gentleman has made it again powerfully. Given the hon. Gentleman's experience at the Home Office, one must respect his views, even if one does not always share them. I am not persuaded that the problem is self-liquidating. It will go on for some time, although I accept that it will do so on a diminishing scale. I am not as confident as the hon. Gentleman. If he wishes to raise further questions about the Government's immigration policy, he should address himself to the Home Secretary.
      I approach the problem from a slightly different point of view. Those who wish to come to our shores with their families have been on notice since the end of 1976 that there was the possibility that

      1665
      child tax allowances for their children would be phased out.
      Mr. Lyon: They cannot get them in.
      Mr. Rees: Apart from a few exceptional cases, I do not accept that those in the queue at the end of 1976 did not come in with their children.
      Those who chose to enrol subsequently, and to join the queue, were on notice. It was up to them to make their calculations. I do not wish to speak harshly. The hon. Gentleman's point cannot apply to more than a fraction of those involved. The point was made in 1976. Those who joined the queue subsequently should have appreciated that notice had been given. I accept that that is a theoretical point. I am not sure that people go round India and Pakistan thinking about the minutiae of our taxation system. I suspect that the debate has been given an undue significance.
      I am sorry that one or two people will feel disadvantaged. I hope that the House will accept that the provision was not introduced because of any animus against the immigrant community. I hope that we have demonstrated clearly that others will be affected, and perhaps for a longer period. A person may work abroad, and return to Britain having left his children abroad for some years. Parents may get divorced. If the father returns, he may be responsible for the maintenance of his children, who live abroad with his former wife. They will not get tax relief. The Opposition have not advanced such cases.
      Immigrants have been on notice since the end of 1976. The Labour Administration were overborne by the representations that were made. We
      have taken full account of the issue. Indeed, that is demonstrated by the fact that we did not seek to cut off the allowances immediately. They are to be phased out over two years. If I do not succeed in carrying Opposition Members with me, I hope that those outside who study reports of our debates will recognise the practicality and ultimate fairness of our proposals. Whatever the outcome of the debate, I hope that hon. Members—even if they do not accept that our solution is right—will not muddy the waters outside by pretending that we were activated by any dishonourable or hostile motives directed at the immigrant community.
      The previous Administration recognised that there was a sound case for phasing out the child tax allowances. We have had the courage to carry through what they intended and planned.
      Mr. John Garrett: The Minister of State has thoroughly misjudged this issue. He has given the answer of a Treasury technocrat. He just does not understand the effect of this clause on the immigrant community, and has shown himself to be grossly insensitive throughout the debate.
      The Labour Government said that they would phase out child tax allowances when some alternative form of family support had been found for these children. Thousands will see this clause as racist. It overwhelmingly affects people who are poor and black. I urge my right hon. and hon. Friends to support the amendment.
      Question put, That the amendment be made:—
      The House divided: Ayes 231, Noes 289.

      Division No. 408]

      AYES

      [11.50 pm

      Abse, Leo

      Boothroyd, Miss Betty

      Coleman, Donald

      Adams, Allen

      Bray, Dr Jeremy

      Concannon, Rt Hon J. D.

      Allaun, Frank

      Brown, Hugh D. (Provan)

      Conlan, Bernard

      Alton, David

      Brown, Robert C. (Newcastle W)

      Cook, Robin F.

      Anderson, Donald

      Brown, Ronald W. (Hackney S)

      Cowans, Harry

      Archer, Bt Hon Peter

      Brown, Ron (Edinburgh, Leith)

      Cox, Tom (Wandsworth, Tooting)

      Armstrong, Rt Hon Ernest

      Buchan, Norman

      Crowther, J. S.

      Ashley, Rt Hon Jack

      Callaghan, Jim (Middleton & P)

      Cryer, Bob

      Ashton, Joe

      Campbell, Ian

      Cunliffe, Lawrence

      Atkinson, Norman (H'gey, Tott'ham)

      Campbell-Savours, Dale

      Cunningham, George (Islington S)

      Bagler, Gordon A. T.

      Canavan, Dennis

      Cunningham, Dr John (Whitehaven)

      Barnett, Guy (Greenwich)

      Cant, . B.

      Dalyell, Tam

      Barnett, Rt Hon Joel (Heywood)

      Carmichael Neil

      Davidson, Arthur

      Beith, A. J.

      Carter-Jones, Lewis

      Davies, Rt Hon Denzil (Llanelli)

      Benn, Rt Hon Anthony Wedgwood

      Cartwright. John

      Davies, Ifor (Gower)

      Bennett, Andrew (Stockport N)

      Clark, Dr. David (South Shields)

      Davis, Clinton (Hackney Central)

      Bidwell, Sydney

      Cocks, Rt Hon Michael (Bristol S)

      Davis, Terry (B'rm'ham, Stechford)

      Booth, Rt Hon Albert

      Cohen, Stanley

      Deakins, Eric

      Dean, Joseph (Leeds West)

      Jones, Rt Hon Alec (Rhondda)

      Roberts, Albert (Normanton)

      Dempsey, James

      Jones, Barry (East Flint)

      Roberts, Allan (Bootle)

      Dewar, Donald

      Jones, Dan (Burnley)

      Roberts, Ernest (Hackney North)

      Dixon, Donald

      Kaufman, Rt Hon Gerald

      Roberts, Gwilym (Cannock)

      Dobson, Frank

      Kerr, Russell

      Robertson, George

      Dormand, Jack

      Kilroy-Silk, Robert

      Robinson, Geoffrey (Coventry NW)

      Douglas, Dick

      Lambie, David

      Rodgers, Rt Hon William

      Douglas-Mann, Bruce

      Leighton, Ronald

      Rooker, J. W.

      Dubs, Alfred

      Lewis, Arthur (Newham North West)

      Roper, John

      Duffy, A. E. P.

      Lewis, Ron (Carlisle)

      Ross, Ernest (Dundee West)

      Dunnett, Jack

      Litherland, Robert

      Ross, Stephen (Isle of Wight)

      Dunwoody Mrs Gwyneth

      Lofthouse, Geoffrey

      Rowlands, Ted

      Eadie, Alex

      Lyon, Alexander (York)

      Sandelson, Neville

      Eastham, Ken

      Lyons, Edward (Bradford West)

      Sever, John

      Ellis, Tom (Wrexham)

      McCartney, Hugh

      Sheerman, Barry

      English, Michael

      McDonald, Dr Oonagh

      Sheldon, Rt Hon Robert (A'ton-u-L)

      Evans, Ioan (Aberdare)

      McElhone, Frank

      Shore, Rt Hon Peter (Step and Pop)

      Evans, John (Newton)

      McKay, Allen (Penistone)

      Silkin, Rt Hon John (Deptford)

      Faulds, Andrew

      McKelvey, William

      Silkin, Rt Hon S. C. (Dulwich)

      Field, Frank

      Mackenzie, Rt Hon Gregor

      Silverman, Julius

      Fitch, Alan

      Maclennan, Robert

      Skinner, Dennis

      Flannery, Martin

      McTaggart, Robert

      Smith, Rt Hon J. (North Lanarkshire)

      Fletcher, L. R. (Ilkeston)

      McWilliam, John

      Soley, Clive

      Fletcher, Ted (Darlington)

      Magee, Bryan

      Spearing, Nigel

      Foot, Rt Hon Michael

      Marshall, David (Gl'sgow, Shettles'n)

      Spriggs, Leslie

      Ford, Ben

      Marshall, Dr Edmund (Goole)

      Stallard, A. W.

      Foster, Derek

      Marshall, Jim (Leicester South)

      Steel, Rt Hon David

      Foulkes, George

      Martin, Michael (Gl'gow, Springb'rn)

      Stoddart, David

      Fraser, John (Lambeth, Norwood)

      Mason, Rt Hon Roy

      Stott, Roger

      Freeson, Rt Hon Reginald

      Maynard, Miss Joan

      Strang, Gavin

      Garrett, John (Norwich S)

      Meacher, Michael

      Straw, Jack

      George, Bruce

      Mikardo, Ian

      Summerskill, Hon Dr Shirley

      Gilbert, Rt Hon Dr John

      Millan, Rt Hon Bruce

      Taylor, Mrs Ann (Bolton West)

      Ginsburg, David

      Miller, Dr M. S. (East Kilbride)

      Thomas, Jeffrey (Abertillery)

      Gourlay, Harry

      Mitchell, Austin (Grimsby)

      Thomas, Mike (Newcastle East)

      Graham, Ted

      Mitchell, Ft. C. (Soton, Itchen)

      Thomas, Dr Roger (Carmarthen)

      Grant, George (Morpeth)

      Morris, Rt Hon Alfred (Wythenshawe)

      Thorne, Stan (Preston South)

      Grant, John (Islington C)

      Morris, Rt Hon Charles (Openshaw)

      Tilley, John

      Hamilton, James (Bothwell)

      Morris, Rt Hon John (Aberavon)

      Torney, Tom

      Hamilton, W. W. (Central Fife)

      Moyle, Rt Hon Roland

      Urwin, Rt Hon Tom

      Hardy, Peter

      Newens, Stanley

      Varley, Rt Hon Eric G.

      Harrison, Rt Hon Walter

      Oakes, Rt Hon Gordon

      Walker, Rt Hon Harold (Doncaster)

      Hattersley, Rt Hon Roy

      Ogden, Eric

      Watkins, David

      Haynes, Frank

      O'Halloran, Michael

      Weetch, Ken

      Healey, Rt Hon Denis

      O'Neill, Martin

      Welsh, Michael

      Heffer, Eric S.

      Orme, Rt Hon Stanley

      White, Frank R. (Bury & Radcliffe)

      Hogg, Norman (E Dunbartonshire)

      Owen, Rt Hon Dr David

      Whitehead, Phillip

      Holland, Stuart (L'beth, Vauxhall)

      Paisley, Rev Ian

      Whitlock, William

      Home Robertson, John

      Parker, John

      Williams, Rt Hon Alan (Swansea W)

      Homewood, William

      Parry, Robert

      Wilson, Gordon (Dundee East)

      Hooley, Frank

      Pavitt, Laurie

      Winnick, David

      Horam, John

      Pendry, Tom

      Woodall, Alec

      Howell, Rt Hon Denis (B'ham, Sm H)

      Penhaligon, David

      Woolmer, Kenneth

      Howells, Geraint

      Powell, Raymond (Ogmore)

      Wrigglesworth, Ian

      Huckfield, Les

      Prescott, John

      Wright, Sheila

      Hughes, Mark (Durham)

      Price, Christopher (Lewisham West)

      Young, David (Bolton East)

      Hughes, Robert (Aberdeen North)

      Race, Reg

      Janner, Hon Greville

      Radice, Giles

      TELLERS FOR THE AYES:

      Jay, Rt Hon Douglas

      Rees, Rt Hon Merlyn (Leeds South)

      Mr. James Tinn and

      John, Brynmor

      Richardson, Jo

      Mr. George Morton.

      Johnson, James (Hull West)

      NOES

      Adley, Robert

      Blackburn, John

      Budgen, Nick

      Aitken, Jonathan

      Blaker, Peter

      Bulmer, Esmond

      Alexander, Richard

      Body, Richard

      Butcher, John

      Alison, Michael

      Bonsor, Sir Nicholas

      Butler, Hon Adam

      Ancram, Michael

      Boscawen, Hon Robert

      Carlisle, Kenneth (Lincoln)

      Arnold, Tom

      Bottomley, Peter (Woolwich West)

      Carlisle, Rt Hon Mark (Runcorn)

      Atkins, Rt Hon H. (Spelthorne)

      Bowden, Andrew

      Chalker, Mrs. Lynda

      Atkins, Robert (Preston North)

      Boyson, Dr. Rhode

      Channon, Paul

      Atkinson, David (B'mouth, East)

      Braine, Sir Bernard

      Chapman, Sydney

      Baker, Kenneth (St. Marylebone)

      Bright, Graham

      Churchill, W. S.

      Baker, Nicholas (North Dorset)

      Brinton, Tim

      Clark, Hon Alan (Plymouth, Sutton)

      Beaumont-Dark, Anthony

      Brittan, Leon

      Clark, Sir William (Croydon South)

      Bendall, Vivian

      Brocklebank-Fowler, Christopher

      Clarke, Kenneth (Rushcliffe)

      Bennett, Sir Frederic (Torbay)

      Brooke, Hon Peter

      Clegg, Sir Walter

      Benyon, Thomas (Abingdon)

      Brotherton, Michael

      Colvin, Michael

      Benyon, W. (Buckingham)

      Brown, Michael (Brigg & Sc'thorpe)

      Cope, John

      Berry, Hon Anthony

      Browne, John (Wincheser)

      Cormack, Patrick

      Best, Keith

      Bruce-Gardyne, John

      Corrie, John

      Bevan, David Gilroy

      Bryan, Sir Paul

      Costain, A. P.

      Biffen, Rt Hon John

      Buchanan-Smith, Hon Alick

      Cranborne, Viscount

      Biggs-Davison, John

      Buck, Antony

      Critchley, ulian

      1668

      1669

      Crouch, David

      Kitson, Sir Timothy

      Renton, Tim

      Dean, Paul (North Somerset)

      Knight, Mrs Jill

      Rhodes James, Robert

      Dorrell, Stephen

      Knox, David

      Rhys Williams, Sir Brandon

      Dover, Dershore

      Lang, Ian

      Ridley, Hon Nicholas

      du Cann, Rt Hon Edward

      Langford-Holt, Sir John

      Ridsdale, Julian

      Dunn, Robert (Dartford)

      Latham, Michael

      Rifkind, Malcolm

      Durant, Tony

      Lawrence, Ivan

      Roberts, Michael (Cardiff NW)

      Dykes, Hugh

      Lawson, Nigel

      Roberts, Wyn (Conway)

      Eden, Rt Hon Sir John

      Lee, John

      Ross, Wm. (Londonderry)

      Edwards, Rt Hon N. (Pembroke)

      Le Marchant, Spencer

      Royle, Sir Anthony

      Eggar, Timothy

      Lennox-Boyd, Hon Mark

      Sainsbury, Hon Timothy

      Elliott, Sir William

      Lester, Jim (Beeston)

      St. John-Stevas, Rt Hon Norman

      Eyre, Reginald

      Lloyd, Peter (Fareham)

      Scott, Nicholas

      Fairbairn, Nicholas

      Loveridge, John

      Shaw, Michael (Scarborough)

      Fairgrieve, Russell

      Lyell, Nicholas

      Shelton, William (Streatham)

      Faith, Mrs Sheila

      MacKay, John (Argyll)

      Shepherd, Colin (Hereford)

      Farr, John

      Macmillan, Rt Hon M. (Farnham)

      Shepherd, Richard (Aldridge-Br'hills)

      Fell, Anthony

      McNair-Wilson, Michael (Newbury)

      Shersby, Michael

      Fenner, Mrs Peggy

      McNair-Wilson, Patrick (New Forest)

      Silvester, Fred

      Fisher, Sir Nigel

      McQuarrie, Albert

      Sims, Roger

      Fletcher, Alexander (Edinburgh N)

      Madel, David

      Smith, Dudley (War. and Leam'ton)

      Fletcher-Cooke, Charles

      Major, John

      Speed, Keith

      Fookes, Miss Janet

      Marland, Paul

      Spence, John

      Forman, Nigel

      Marshall, Michael (Arundel)

      Spicer, Jim (West Dorset)

      Fowler, Rt Hon Norman

      Marten, Neil (Banbury)

      Spicer, Michael (S Worcestershire)

      Fox, Marcus

      Mates, Michael

      Sproat, Iain

      Fraser, Peter (South Angus)

      Mather, Carol

      Squire, Robin

      Fry, Peter

      Mawby, Ray

      Stainton, Keith

      Galbraith, Hon T. G. D.

      Mawhinney, Dr Brian

      Stanbrook, Ivor

      Gardiner, George (Reigate)

      Maxwell-Hyslop, Robin

      Stanley, John

      Gardner, Edward (South Fylde)

      Mayhew, Patrick

      Steen, Anthony

      Glyn, Dr Alan

      Meyer, Sir Anthony

      Stevens, Martin

      Goodhart, Philip

      Mills, Iain (Meriden)

      Stewart, Ian (Hitchin)

      Goodlad, Alastair

      Mills, Peter (West Devon)

      Stewart, John (East Renfrewshire)

      Gow, Ian

      Miscampbell, Norman

      Stokes, John

      Grant, Anthony (Harrow C)

      Mitchell, David (Basingstoke)

      Stradling Thomas, J.

      Gray, Hamish

      Moate, Roger

      Tapsell, Peter

      Greenway, Harry

      Monro, Hector

      Taylor, Robert (Croydon NW)

      Grieve, Percy

      Montgomery, Fergus

      Taylor, Teddy (Southend East)

      Griffiths, Eldon (Bury St Edmunds)

      Moore, John

      Tebbit, Norman

      Griffiths, Peter (Portsmouth N)

      Morris, Michael (Northampton, Sth)

      Temple-Morris, Peter

      Grist, Ian

      Morrison, Hon Charles (Devizes)

      Thomas, Rt Hon. Peter (Hendon S)

      Grylls, Michael

      Morrison, Hon Peter (City of Chester)

      Thornton, Malcolm

      Gummer, John Selwyn

      Mudd, David

      Townsend, Cyril D. (Bexleyheath)

      Hamilton, Hon Archie (Eps'm&Ew'll)

      Murphy, Christopher

      Trippler, David

      Hamilton, Michael (Salisbury)

      Myles, David

      Trotter, Neville

      Hampson, Dr Keith

      Neale, Gerrard

      van-Straubenzee, W. R.

      Hannam, John

      Needham, Richard

      Vaughan, Dr Gerard

      Haselhurst, Alan

      Nelson, Anthony

      Viggers, Peter

      Havers, Rt Hon Sir Michael

      Neubert, Michael

      Waddington, David

      Hawkins, Paul

      Newton, Tony

      Wakeham, John

      Hawksley, Warren

      Normanton, Tom

      Waldegrave, Hon William

      Heddle, John

      Nott, Rt Hon John

      Walker, Rt Hon Peter (Worcester)

      Henderson, Barry

      Onslow, Cranley

      Walker, Bill (Perth & E Perthshire)

      Hicks, Robert

      Oppenheim, Rt Hon Mrs Sally

      Walker-Smith, Rt Hon Sir Derek

      Higgins, Rt Hon Terence L.

      Osborn, John

      Wall, Patrick

      Hill, James

      Page, John (Harrow, West)

      Waller, Gary

      Hogg, Hen Douglas (Grantham)

      Page. Rt Hon Sir R. Graham

      Walters, Dennis

      Holland, Philip (Carlton)

      Page, Richard (SW Hertfordshire)

      Ward, John

      Hooson, Tom

      Parkinson, Cecil

      Warren, Kenneth

      Hordern, Peter

      Patten, Christopher (Bath)

      Wells, Bowen (Hert'rd & Stev'nage)

      Howe, Rt Hon Sir Geoffrey

      Patten, John (Oxford)

      Wheeler, John

      Howell, Rt Hon David (Guildford)

      Pattie, Geoffrey

      Whitelaw, Rt Hon William

      Howell, Ralph (North Norfolk)

      Pawsey, James

      Whitney, Raymond

      Hunt, David (Wirral)

      Percival, Sir Ian

      Wickenden, Keith

      Hunt, John (Ravensbourne)

      Pink, R. Bonner

      Wiggin, Jerry

      Irving, Charles (Cheltenham)

      Pollock, Alexander

      Wilkinson, John

      Jenkin, Rt Hon Patrick

      Porter, George

      Williams, Delwyn (Montgomery)

      Jessel, Toby

      Powell, Rt Hon J. Enoch (S Down)

      Winterton, Nicholas

      Johnson Smith, Geoffrey

      Price, David (Eastleigh)

      Wolfson, Mark

      Jopling, Rt Hon Michael

      Proctor, K. Harvey

      Young, Sir George (Acton)

      Joseph, Rt Hon Sir Keith

      Pym, Rt Hon Francis

      Younger, Rt Hon George

      Kaberry, Sir Donald

      Raison, Timothy

      Kellett-Bowman, Mrs Elaine

      Rathbone, Tim

      TELLERS FOR THE NOES:

      Kershaw, Anthony

      Rees, Peter (Dover and Deal)

      Lord James Douglas-Hamilton and

      Kimball, Marcus

      Rees-Davies, W. R.

      Mr. John MacGregor.

      King, Rt Hon Tom

      Question accordingly negatived.

    Clause 28

      RELIEF FOR INTEREST: MONEY BORROWED FOR INVESTMENT IN CLOSE COMPANY.
      Sir William Clark: I beg to move amendment No. 163, in page 17, line 27, at end insert—
      '(1A) In paragraph 12 of Schedule 1 to the Finance Act 1974 (conditions for interest relief; interest in partnership)—

      (a) paragraph (a) (which requires the borrower to have acted personally in the conduct of the trade, profession or vocation) shall be omitted;

      (b) in paragraph (b) for the words "that period" there shall be substituted "the period from the application of the proceeds of the loan to the payment of the interest".'.

      This should not be a long debate, but a question of principle is involved. Clause 28 relaxes the requirements necessary to obtain tax relief on bank interest on money borrowed for lending to a close company. That is welcome. But what is the difference between investing in a close company and investing in a partnership or an unincorporated company?
      The 5 per cent.-plus holding that is obligatory in relation to the interest relief does not give any proprietorial rights to an investor in a close company. Anyone with a 6 per cent. holding in a close company has little control over it. The holder of the other 94 per cent. can do a lot without recourse to the 6 per cent. investor. The position is the same if one invests in a partnership.
      I cannot understand why the Treasury will not accept the logic that if it is right to give a tax relief—and I agree as regards close companies—similar relief should apply to an investment in a partnership.
      I think that the Treasury has a fixation on proprietorial rights of the 5 per cent. plus holding. With the little experience that I have of the City, of companies and of partnerships, I should not have thought that anybody investing in a close company and having 6 per cent. of the share capital was in any different position from somebody investing in a partnership where he had 6 per cent. of the equity. The answer in Committee was not entirely satisfactory. The Treasury has not yet satisfactorily explained the difference between an investor in a close company and an investor in a partnership.
      Mr. Peter Rees: There is undoubtedly an analogy to be drawn between an investment in a close company and an investment in a partnership. My hon. Friend certainly has a point there. However, I do not think that the problem has quite the dimensions that he originally ascribed to it, because it is possible for partners to borrow and to obtain relief on the interest, as it will be a normal trading expense. That does not entirely meet the problem, because my hon. Friend presumably has in mind the case of someone who borrows to buy, for instance, a share of goodwill or assets of the partnership. But there are many ways in which these transactions can be undertaken. In many cases there will be a measure of relief.
      However, I recognise that there will not be relief, on the present form, for an outright borrowing to acquire an interest, which is clearly the primary situation that my hon. Friend has in mind. It is a complex area. We may have to consider whether there will be a difference between an active partner, a sleeping partner and a partner with limited liability.
      There are various dimensions to the problem. It must probably also be looked at against the background of the changes in the structure of companies that my right hon. Friend the Secretary of State for Trade is considering.
      Sir William Clark: I take the point about a person's being a non-active partner, but what is the difference between somebody who is investing in a partnership and does not take an active role in it and a man who invests in a close company and does not take an active part in it? He still gets the relief, and the investor who puts his money into the partnership does not. I do not think that my hon. and learned Friend is right in saying that one can have a sleeping partner. One could have a sleeping investor in a close company.
      Mr. Rees: I hope that I was not over-brief, but at this hour of the night I did not want to labour the point. I said that my hon. Friend had drawn a very fair analogy. But I said that there were other dimensions to the problem, and I instanced the fact that it might be necessary to consider whether a distinction

      1673
      should be drawn between an active partner, a sleeping partner and a partner with limited liability.
      The problem is not quite as simple as perhaps my hon. Friend was disposed to suggest. At this hour I do not want to go again into a problem that we touched on in Standing Committee.
      I hope that my hon. Friend will allow us to look—at more leisure than has been possible since the end of the Committee stage—at the structure of companies, the question whether a company may purchase its own shares, and similar problems, which are germane to the kind of problem that my hon. Friend raised. I can give no undertaking, but I hope that we shall return to the matter in another year.
      Sir William Clark: I appreciate my hon. Friend and learned Friend's saying that he will look at the matter again, though he can give no assurance. I do not think that he could give an assurance that the matter will come up in the next Budget, but there is an anomaly, and it should be eradicated from our tax laws. In view of the fact that my hon. Friend says that he will look at it again, I give him a categoric assurance that I will raise the same point on the next Finance Bill. I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.

    Clause 30

      DISQUALIFICATION OF CERTAIN LIFE INSURANCE POLICIES
      Sir Graham Page: I beg to move amendment No. 16, in page 18, line 3, leave out
      'with reference to the other, or'.
      This is an amendment to clause 30 which, quite rightly, ends the exploitation of life assurance relief by the issue of certain short-term bonds. It does so by disqualifying a life policy which is connected with another policy which gives what I would call extraordinary benefits—that is to say, in the words of the clause,
      "benefits which are greater than would reasonably be expected if any policy connected with it were disregarded."
      In clause 30(2) what is meant by one policy being connected with another is
      1674
      defined. In that definition are the words I seek to leave out, which I cannot think mean anything except to extend the clause to cover policies which, obviously, were not intended to be covered. The clause goes much too wide in those words. If I might give an example, it is not uncommon for life insurance companies to offer existing policy holders an opportunity to take out new policies on preferential terms—for example, without a medical examination. I do not think that that was intended to be covered by the clause. However, it would be covered if those words were left in the clause.
      They can be removed without in any way damaging the tax avoidance value of the clause, by which I mean the value of the clause in catching tax avoidance—the mischief which it is intended to catch.
      Mr. Peter Rees: Of course, one understands and appreciates the fears and suspicions of my right hon Friend on this point. It was touched on in Committee and I have looked again closely at the clause and its possible ambit.
      We must strike a balance between a clause that is effective in putting an end to the problems mentioned by my right hon. Friend, but which does not confine and prevent legitimate activity. I should hope that, on a fair reading of the clause, it would not stop the kind of innocent operations which my right hon. Friend has in mind.
      However, to give double reassurance, a press release was issued on 16 June which set out the kind of operations that this clause was not intended to catch. I know that a press release has no sanctity whatever but it at least indicates the way in which the Inland Revenue construes this provision and the way in which it intends to operate it.
      I give this undertaking to the House, that if it should be found in the years to come, and as long as I have any responsibility for these matters, that the kind of operation or transaction that my right hon. Friend has in mind is caught we shall be prepared to introduce legislation to put the matter beyond doubt. On that basis, I hope that my right hon. Friend will feel able to ask leave to withdraw his amendment.
      Sir Graham Page: My hon. and learned Friend knows that I intensely dislike government by press release, but an undertaking given by him in the House can, to a great extent, be relied on to mean that the clause will be so interpreted by the courts. In the light of that undertaking, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      12.15 am
      Sir Graham Page: I beg to move amendment No. 17, in page 18, line 21, leave out 'think necessary' and insert 'may reasonably require'.
      Mr. Deputy Speaker: With this we may discuss Government amendment No. 152 and amendment No. 18, in page 18, line 22, at end insert:
      'and as the person to whom the notice is addressed has or can reasonably obtain'.
      Sir Graham Page: The amendment deals with the provision under which the Board of Inland Revenue can acquire any information about the policies to which I referred in the debate on the previous amendment. The board can demand that information from anyone involved in the issue of the policy. It can demand such particulars as it thinks necessary for the purpose of the clause. This includes forcing a solicitor to breach the privilege to which a client is entitled of secrecy between solicitor and client.
      The Government amendment provides that a solicitor who has advised on a policy being taken out is not a person who is concerned with the issue of a policy. That does not go as far as is necessary. To give the board the power to demand any information which it thinks necessary puts the matter out of question by the courts or anyone. It is a dictatorial provision.
      If the words "may reasonably require" are used instead of "think necessary", I am convinced that a court will decide that it is unreasonable to require a solicitor to disclose communications with his client. My amendment would protect the privilege which has been protected by many Finance Acts.
      I am grateful to the Government for tabling amendment No. 152, which covers the proposal in amendment No. 18.
      Mr. Peter Rees: I understand my right hon. Friend's anxieties. He gave vent to them in Committee. However, it is not always possible for the Revenue to determine with precision at whom its requests for information should be directed. Latitude must be granted.
      Before the House says that it is always dangerous to entrust the Executive with too much latitude, I must remind hon. Members that the Revenue is not armed with enforcement powers. It must go to court and say that it requires particular information from a particular person. The court has to decide whether the request is reasonable and whether it is directed at the right person. If it is found to be unreasonable, no penalty will be imposed and the matter will drop. I hope that my right hon. Friend will not press the amendment to a Division.
      I am grateful to my right hon. Friend for what he said about Government amendment No. 152, which was tabled in response to his arguments in Committee. It goes further than amendment No. 18. We are anxious to defend professional privilege. I hope that my right hon. Friend will not feel obliged to press his amendments and that the House will accept Government amendment No. 152.
      Sir Graham Page: I fail to understand my hon. and learned Friend's argument for requiring "think necessary" to remain in the clause in place of "may reasonably require". He says that the board would have to go to the court and that the court would decide whether it was reasonable. The court would have to decide whether the board thought it necessary according to the clause. That is all that the court would decide.
      Why does the board have to go to the court? If the Bill is enacted, the board can require information as it thinks necessary. If a person objects to producing that evidence and does not think that it is relevant, he will be advised, no doubt, "It is no use objecting to this. If the board says that it thinks it necessary, that is the end of the matter. It is not a question of reasonableness according to the clause".
      That is unreasonable. The board will have sufficient powers if the clause states

      1677
      that the board may obtain evidence that it reasonably requires
      "for the purposes of this section."
      Surely that would be a perfectly acceptable provision for the Government.
      Amendment negatived.
      Amendment made: No. 152, in page 18, line 22, at end insert
      'and as the person to whom the notice is addressed has or can reasonably obtain; but no solicitor shall be deemed for the purposes of this subsection to have been concerned in the issue of a policy by reason only that he has given professional advice to a client in connection with that policy.'.—[Mr. Peter Rees.]

    Clause 34

      ANNUITIES FOR FORMER PARTNERS
      Mr. Peter Rees: I beg to move amendment No. 19, in page 21, line 38, leave out 'be amended as follows' and insert
      'have effect with the amendments specified in subsections (2) and (3) below'.
      Mr. Deputy Speaker: With this it will be convenient to take Government amendment No. 20.
      Mr. Rees: In view of the lateness of the hour and, I hope, the transparency of the amendments, I hope that I may leave the matter without explanation. If any points occur to hon. Members. I shall endeavour to satisfy them.
      Amendment agreed to.
      Amendment made: No. 20, in page 22, line 16, at end insert—
      '(4) In section 457 of the Taxes Act (income under settlement treated as the settlor's income except as respects certain payments made for full consideration etc.) after subsection (4) there shall be inserted—
      "(4A) Where for any year of assessment there is made to or for the benefit of a former member, or the widow or a dependant of a deceased former member, of a partnership an annual payment which—

      (a) is excluded from the operation of subsection (1) above by virtue of paragraph (a) of that subsection or by virtue of subsection (2) above; and

      (b) falls short of the limit applying for that year under section 16 of the Finance Act 1974 (amount of partnership retirement annuity treated as earned income),

      any additional annual payment made to or for the benefit of that person shall, notwithstanding that it is not made under a liability incurred for full consideration, be
      1678
      excluded from the operation of subsection (1) above to the extent to which it makes good that shortfall.".'.—[Mr. Peter Rees.]

    Clause 37

      RELIEF FOR LOSSES ON UNQUOTED SHARES IN TRADING COMPANIES
      Mr. Peter Rees: I beg to move amendment No. 161, in page 25, line 17, after 'and', insert
      'where by virtue of subsection (3) of section 19 of the said Act of 1979 that consideration is deemed to be equal to the market value of the shares the amount of any loss on their disposal shall be treated as not exceeding what it would have been if that subsection had not applied to that consideration.
      (3A) For the purposes of this section'.
      Mr. Deputy Speaker: With this it will be convenient to take amendment No. 22, in page 27, line 39, at end insert—
      '(13) This section shall not apply to give relief on an allowable loss on the disposal of shares unless the subscription for such shares is for bona fide commercial reasons and does not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is the avoidance of tax; except that this subsection shall not apply if before such a subscription the Board have, on the application of an individual, notified that individual that the Board are satisfied that the disposal will be effected for bona fide commercial reasons and will not form part of any such scheme or arrangement as mentioned above.'.
      Mr. Rees: I shall adopt the same procedure. I shall try to satisfy the House if any points occur to hon. Members.
      Amendment agreed to.
      Mr. Peter Rees: I beg to move amendment No. 146, in page 25, line 21, leave out
      'are on the date of the disposal, or have previously' and insert 'have at any time in the relevant period'.
      Mr. Deputy Speaker: With this it will be convenient to take the following amendments:
      No. 21, in page 25, line 22, leave out 'previously' and insert
      'at any time since the relevant subscription'.
      Government amendments Nos. 147 and 150.
      Mr. Rees: The amendments meet a legitimate argument advanced by my right hon. Friend the Member for Crosby (Sir G. Page) dealing with the date on which a company might or might not have been

      1679
      quoted. It relates to the relief for losses afforded by clause 37 on an investment in unquoted shares.
      Sir Graham Page: I thank my hon. and learned Friend.
      Amendment agreed to.
      Amendment made: No. 147, in page 25, line 25, leave out 'that date' and insert
      'the date of the disposal'.—[Mr. Peter Rees.]
      Mr. Peter Rees: I beg to move amendment No. 148, in page 27, leave out lines 15 to 17 and insert—
      '"excluded company" means a company—

      (a) which has a trade which consists wholly or mainly of dealing in shares, securities, land, trades or commodity futures or is not carried on on a commercial basis and in such a way that profits in the trade can reasonably be expected to be realised; or

      (b)which is the holding company of a group other than a trading group;
      "group" means a company which has one or more 75 per cent. subsidiaries together with that or those subsidiaries;'.

      Mr. Deputy Speaker: With this we may also take Government amendments Nos. 149 and 151.
      Mr. Rees: The amendments were tabled in response to a point raised by my hon. Friend the Member for Dorking (Mr. Wickenden) in Committee after he had observed that there might not be relief for losses on shares in a holding company, even though it was the parent company of a trading group. The amendments seek to meet that point.
      Mr. Denzil Davies: Amendment No. 151 contains a definition of "trading group". It seems a strange definition because it states that it
      "means a group the business of whose members, taken together, consist wholly or mainly in the carrying on of a trade".
      That seems loose drafting. Is the definition to be found somewhere else? I do not understand how one determines whether a group is a trading group. Does one look only at subsidiaries in respect of the word "members", and how many of those members have to be involved in the trade for it to consist
      "wholly or mainly in the carrying on of a trade"?
      Presumably one member could be large and one small. I am in some difficulty because of the vague drafting. Will there
      1680
      be any difficulty in interpreting the definition?
      Mr. Peter Rees: I hope that there will be no difficulty. I agree that the definition is novel. I do not think that there is an exact precedent for it in fiscal legislation. I am tempted to recall that in this situation the right hon. Member for Llanelli (Mr. Davies) would be tempted to say that this would be a matter for the courts. On that basis, I am happy to leave the matter there.
      Amendment agreed to.
      Amendments made: No. 149, in page 27, line 19, at end insert—
      '"holding company" means a company whose business consists wholly or mainly in the holding of shares or securities of one or more companies which are its 75 per cent. subsidiaries;'.
      No. 150, in page 27, line 27, at end insert—
      '"relevant period" means the period ending with the date on which the shares in question are disposed of and beginning with the incorporation of the company, or, if later, one year before the date on which the shares were subscribed for;'.
      No. 151, in page 27, leave out lines 35 to 37 and insert—
      '"trading company" means a company, other than an excluded company, which is—

      (a) a trading company within the meaning of paragraph 11 of Schedule 16 to the Finance Act 1972; or

      (b) the holding company of a trading group;
      "trading group" means a group the business of whose members, taken together, consists wholly or mainly in the carrying on of a trade or trades but for the purposes of this definition any trade carried on by a subsidiary which is an excluded company or not resident in the United Kingdom shall be treated as not constituting a trade.'.—[Mr. Peter Rees.]

    Clause 38

      INCIDENTAL COSTS OF OBTAINING LOAN FINANCE
      Mr. Peter Rees: I beg to move amendment No. 23, in page 28, line 12, leave out 'shares or other securities' and insert—

      '(a) shares; or

      (b) other securities not being a qualifying loan or qualifying loan stock,'.

      The clause deals with the incidental cost of obtaining loan finance, and the amendment is designed to remove an

      1681
      unnecessary restriction in the clause. As the clause was originally drafted, the relief would not have applied to incidental costs of the issue of loan stock which carried the right of conversion into loan stock of a different type—in other words, a floating rate bond which is convertible to a fixed rate bond.
      We felt, on reflection, that it was unnecessary to have that kind of restriction, and on that basis I commend the amendment to the House.
      Amendment agreed to.

    Clause 39

      RELIEF FOR PRE-TRADING EXPENDITURE
      Sir Graham Page: I beg to move amendment No. 24, in page 28, line 35, after 'incurred', insert:
      'on a new ship not more than three years but otherwise'.
      Mr. Deputy Speaker: With this we may also take the following amendments:
      No. 25, in page 28, line 35, leave out 'one year' and insert 'three years'.
      No. 26, in page 28, line 35, after 'incurred', insert:
      'on heavy machinery, heavy plant or heavy equipment or ships not more than three years but otherwise'.
      Sir Graham Page: The amendments are alternatives. They deal with the relief given by the clause for expenditure incurred by a person for the purpose of his trade but before he starts that trade. In order to qualify for relief the expenditure must be incurred within the 12 months prior to the start of trading. Second, the expenditure must have been that which would have been deductible as a trading expense if it had been incurred after the commencement of trading.
      12.30 am
      In many cases one year would be unrealistic. If construction is involved, a company must start preparations for trading much more than 12 months in advance. Amendment No. 25 proposes that the one year should, in all cases, be extended to three years. When construction work is involved, 12 months is too short a period for the relief to be realistic. Of course, we are grateful for the relief given in clause 39, but if it is to be given let us make some sense of it. I am
      1682
      talking not about the cost of construction but about the trading expenses in connection with it.
      If amendment No. 25 is not acceptable, an alternative amendment, No. 26, deals specifically with the construction of heavy plant and machinery that is bound to take longer than 12 months before trading begins. That provision is fairly wide. It would make the clause acceptable, without providing for any extravagance in the relief that the Government are giving away. The third choice, amendment No. 24—against which there can be no argument—is where trading requires a new ship. It is impossible to think of its taking less than three years, and certainly not such a short time as 12 months, to prepare for and to build a ship, during which time trading expenses would be incurred by a company where trading had begun. I press the third choice because it would not be of great expense to the Government and would encourage the shipbuilding trade which, as my hon. and learned Friend the Minister knows, is not in the best of shape. It needs encouragement of that sort, even if it is only a tax concession. If my hon. and learned Friend is not prepared to accept amendmend No. 25, I hope that he will accept amendment No. 24.
      Mr. Peter Rees: My right hon. Friend the Member for Crosby (Sir G. Page) makes, at first sight, a powerful case. I find the case more compelling on amendment No. 25 than on the other amendments, for reasons that I shall outline.
      Amendment No. 25 seeks to allow pre-incorporation expenditure for tax purposes for the previous three years rather than the one year that we propose. It is a matter of fine judgment about how far back the Revenue and the taxpayer should be obliged or entitled to look to find items that should be relieved. For administrative reasons the Revenue would want to circumscribe the period because there would be problems in determining expenditure incurred a considerable time before incorporation. Subject to the points made by my right hon. Friend about amendments Nos. 24 and 26, he has not produced any examples. I hope that we shall proceed a little cautiously and start with the relief, which is a novel relief in tax law, on the basis

      1683
      of a 12-month period and see how we progress. I can assure my right hon. Friend that I am quite open-minded about this. If in the course of time we have drawn to our attention obvious cases of hardship, or obvious cases in respect of which the period should be extended, we shall look at them with an open mind.
      My right hon. Friend narrows our gaze to two particular questions—expenditure on a new ship, and expenditure on heavy machinery, plant and equipment. The relief proposed in clause 39 is intended to cover only items which would have been relievable after the trade had started—that is to say, expenditure of a revenue and not of a capital nature. The various categories which he has outlined in amendments Nos. 24 and 26 are pre-eminently, as I see it—perhaps my right hon. Friend will disabuse me of this—items of a capital nature. As I have said, had expenditure been incurred on them after the trading start, relief would not have been allowed against the company's trading profits, although I at once concede that there would have been capital allowances. However, that is quite a different matter.
      There are already provisions in section 50 of the Finance Act 1971 dealing with capital expenditure on new ships. Broadly speaking, they allow pre-trading capital expenditure to be carried forward and claimed for capital allowance purposes as though they had been incurred on the date on which the trade started. Therefore, capital allowances are covered to a degree.
      Having said that, I must tell my right hon. Friend—with a certain amount of diffidence, because he has such experience in these matters—that I believe that amendments Nos. 24 and 26 are misconceived because they do not relate to revenue expenditure. Having ventilated what is obviously an important problem, I hope that my right hon. Friend will feel able to let the matter drop.
      Sir Graham Page: These amendments were not intended to apply to capital expenditure in any way. I certainly
      1684
      thought that clause 39(1)(b) would make it quite clear that the intention was purely in regard to trading expenses—expenses which would, if they were spent not before the trading had started but during the trading, have been allowed against profits or treated as a loss.
      I should have thought that the word "ship" in amendment No. 24 would have sufficiently limited the effect of the clause. I am quite sure that I shall be able to produce examples in time for the next Finance Bill. Of course, before a relief of this sort has come into operation, it is rather difficult to produce hypothetical cases. My hon. and learned Friend said that I had not produced examples. When a relief is only just introduced, it is a little difficult to point to cases in respect of which the relief has not been obtained because of some incident in the length of time.
      However, I shall not press the matter at this time of night. I hope that by the time we reach next year's Finance Bill there will be plenty of cases to show that the 12 months allowed in the Bill is unrealistic. In that hope, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Mr. Peter Rees: I beg to move amendment No. 27, in page 28, line 37, leave out
      'would, if incurred after that time, have been'
      and insert 'is not'.
      Mr. Deputy Speaker: With this we may discuss Government amendment No. 28.
      Mr. Rees: This amendment, together with amendment No. 28, is designed to clear up some possible ambiguities in clause 39, I hope that the House will find them entirely acceptable.
      Amendment agreed to.
      Amendment made: No. 28, in page 28, line 39 at end insert
      'but would have been so allowable if incurred after that time'.—[Mr. Peter Rees.]
      Further consideration of the Bill adjourned—[Mr. Brooke.]
      Bill (not amended in the Committee, and as amended in the Standing Committee), to be further considered this day.

    SUMMER TIME
    12.40 am
    The Minister of State, Home Office (Mr. Timothy Raison): I beg to move,
    That an humble Address be presented to Her Majesty, praying that the Summer Time Order 1980 be made in the form of the draft laid before this House on 9 July.
    The order will have the effect that our summer time will start one week later in 1981 and 1982. Other member States of the European Community intend to start their summer time one week earlier in 1981 and 1982, and the combined effect of these arrangements will be that all members of the EC will start summer time on the same dates in 1981 and 1982.
    As the House knows, the present position is that summer time is determined by the Summer Time Act 1972. This provides that summer time normally runs from the day after the third Saturday in March until the day after the fourth Saturday in October.
    Although there have been many changes in the period since we first introduced summer time in 1916, I think that summer time is now well accepted here. That is also the case in Europe. This summer, summer time is being applied by all member States of the European Community as well as by many other States in northern, central and southern Europe. But there is a difference. While summer time in the United Kingdom—and in the Irish Republic—runs this year from 16 March until 26 October, the other Community States are applying it from 6 April until 28 September.
    A difference in starting and finishing dates has occurred for a number of years and these differences have caused real complications for transport undertakings and for those who have personal or commercial dealings with others in Community countries. There are at present, for example, four changes each year in the timing of transport services between the United Kingdom and France, and the additional costs for airline operators are significant.
    To try to resolve these difficulties, the possibility of common starting and ending dates for summer time has been under discussion in the European Community in recent years. But, while the
    1686
    difference at the beginning of the summer time period between the United Kingdom and Ireland on the one hand and the seven other Community countries is usually only two weeks, the difference at the end is four or sometimes five weeks. This has meant that reaching agreement on common finishing dates has proved more difficult. We feel that the British public might be reluctant to see any substantial shortening of our summer time in October and we have not felt able to support compromise proposals for summer time to end in mid-October. The Community has, therefore, concentrated on achieving a common starting date. The Transport Council, meeting in Brussels on 24 June, agreed in principle to a draft directive which would require member States to adopt starting dates in 1981 and 1982 which are one week later than the date which would ordinarily apply in the United Kingdom and one week earlier than that adopted on the mainland of Europe. The Government welcome this as a sensible compromise but have placed a reserve on the proposal until the approval of both Houses has been obtained.
    The purpose of the order before the House is to make the necessary adjustment of one week in the United Kingdom's starting date. I should emphasise again that the draft order before the House provides for a change only in starting dates, and then only in 1981 and 1982. If it is decided subsequently to make further changes for 1983 or later years, it will be necessary to bring forward either a further draft order or, possibly, amending legislation to provide for any longer-term change that might then be in view.
    Even if common starting and finishing dates can be agreed, both this country and Ireland will of course remain on a different time zone, one hour behind the rest of the Community. Given the wide geographical spread of the Community, it is not practicable to create a single time zone. But at least the one hour difference would then be constant throughout the year.
    Finally, I should mention that articles 2 and 3 each provide for the hour of changeover to be 1 o'clock Greenwich mean time. In other words, the clocks would go forward from 1 am GMT to 2 am summer time in March, and back from 2 am summer time to 1 am

    1687
    GMT in October. The usual hour of changeover time under the 1972 Act is 2 am GMT. The new hour of 1 am is proposed for March in order to ensure that summer time starts at the same moment throughout the European Community. In the absence of a common European finishing date, there is not, of course, the same necessity to provide for a new hour of changeover in October, but we think that it will be simpler to have the same hour for putting the clocks back as we have for putting them forward.
    Mr. Ivan Lawrence: If it is such an excellent arrangement that we have come to, that we should have a common starting date—and I am inclined to agree that it is an excellent provision—why have we to keep coming back to these orders, late at night, to change what we think is an excellent arrangement?
    Mr. Raison: I have some sympathy with my hon. Friend's point, but we felt that it was reasonable to try this for a couple of years to ensure that it was acceptable to the House and to the country as a whole. Therefore, there is a reasonable logic in what we are putting forward.
    Mr. George Cunningham: Can the Minister give us some justification for moving from 2 am GMT to 1 am GMT for the time as against the date of the change, both at the beginning of the summer and at the end of it? Can he give us any justification other than the fact that that is what the other members of the Community—other than the Irish—do at the moment?
    Mr. Raison: No, I cannot give any other justification for that. That seems to be a perfectly sensible and sufficient justification in itself.
    In conclusion, the present arangements, with summer time starting on different dates in different countries, causes confusion and inconvenience, and the Government believe that the adoption of a common starting date will bring a welcome improvement without any real loss in the advantages of summer time which we at present enjoy in the United Kingdom.
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    All we need now is some summer to go with summer time.
    12.46 am
    Mr. George Cunningham: One rather feels, even at this time of night, that one should be singing one's speech to this title rather than speaking it.
    However, I think that the Minister has addressed himself to the subject unduly briefly. This is the latest of many moves towards harmonisation of all sorts of things within the European Community. The beautiful name of harmonisation has acquired—rightly—a bad odour because of the excesses to which it has been taken by the European Commission. It could be argued that the order is not the worst by a very long way but is one of the excesses of harmonisation throughout the Community which have been put forward.
    We should, however, remember that there would be a case for harmonisation on a matter like this whether the Community existed or not. Anybody who has frequently crossed the Channel every week or so, as I had to do the other year, knows how irritating and confusing it can be to have the difference of time, and the difference in the difference of time, at different seasons of the year. So there is no reason to attribute only to the existence of the European Community this particular manifestation of harmonisation. What we need to beware of is harmonisation for harmonisation's sake, and it is in that spirit that we should address ourselves to the order.
    The text for this debate is article 100 of the Treaty of Rome. It is worth recalling the text of that article:
    "The Council shall, acting unanimously on a proposal from the Commission, issue directives for the approximation of such provisions laid down by law, regulation or administrative action in Member States as directly affect the establishment or functioning of the Common Market".
    I stress the last words—
    "as directly affect the establishment or functioning of the Common Market".
    It is arguable on this issue, as on so many others on what harmonisation proposals have been put forward, that the legal base of article 100 of the Treaty of Rome does not exist.
    There is no ground, in the interests of the existence of a Common Market, for

    1689
    the harmonisation of a matter such as this. There may be justification upon other grounds, but there is not actually a legal basis in the Treaty of Rome for harmonisation of this kind. If there were, then one could argue that the Commission, on the basis of article 100, would be justified, once Greece and Portugal fully enter the Community, in putting forward a proposal for a directive in favour of a common time zone throughout the whole of that enlarged Community—not a common time for the changing to summer, not a common obligation to have a summer time, but a common time zone stretching all the way from the island of Rhodes to the Azores.
    The fact is that article 100 of the Treaty of Rome has been grossly abused by the Commission, and the Commission needs to be told in no uncertain terms that it is in future to stick to what article 100 says and not to stretch it. That is a point really rather separate from and independent of the argument whether we should have a common summer time changing basis. The Minister of State smiles, but there is only one reason why this proposal is before us tonight. [Interruption.] No, there is only one reason, with respect, why it is before us tonight. It is not because the Government have, as an independent issue, decided that our date of changing to summer time should be the same as that of France. It is because it has been decided as a European Community measure that this is desirable in the interests of a European Community harmonisation of policy. Therefore, it is valid to make that remark about the abuse of article 100 of the Treaty of Rome.
    The Commission should be constantly reminded that the United States exists not only as a common market, not only as a free trade area, but as a total customs and economic union, despite the difference between states of a kind in the United States which would horrify the men Berlaimont. One can have a country and a customs union without that unnecessary degree of harmonisation.
    We need to sound that warning now because there will come a time when the Community stretches all the way from the island of Rhodes to Portugal and when that kind of harmonisation would manifestly be unacceptable. Leav
    1690
    ing aside the European Community point, the difference of time between this country and France particularly causes problems. It is inconvenient. It is particularly inconvenient for the transport authorities. Therefore, if there is a case to be made for it, and if the inconvenience, the loss, to us is not significant, it certainly is most desirable to make a change.
    That inconvenience, which existed for travellers, was especially the case when within the Community there were, only recently, four countries which had a summer time. So there were all sorts of unmanageable differences in the times operated by different countries.
    The change made by the order that is before us affects us only as to one week. It means that we shall start our summer time one week later than we otherwise would in 1981 and in 1982, and the Continental countries will start their summer time one week earlier than they otherwise would. There will be no change in the date for going back to GMT in October, but there will be a change in the time, from 2 am to 1 am. Although the change next year and the year after will be only one week for us, it could be more. The difference between the summer time date for Britain in 1980 and that for France and the others was not two weeks; it was three weeks. If we had been harmonising in 1980, would we have harmonised by losing two weeks while the French lost one week, or vice versa? I suspect that we would have made the major change and that the French would have made the lesser change.
    I use the French as an example. Until recently, in Europe, only the French and Italians had a summer time. It is therefore legitimate to regard the French as the leaders. Indeed, the French have displayed a far greater ability to get what they want from the European Community than the Foreign Office. The French understand that the essence of diplomacy is getting what one wants and making somebody else pay for it. That is a skill about which the Foreign Office has much to learn from the Quai d'Orsay. The Home Office is not in the game at all.
    In so far as the change can be regarded as an energy matter, the non-insular countries of the Community will gain.

    1691
    They will have lighter evenings for one week in spring. The British and the Irish will have darker evenings for one week in spring. Inasmuch as there is an energy cost and gain, the British and the Irish will be the losers, and the other countries of the Community will be the gainers. On the whole, more energy is used in the evenings than in the mornings. It is universally agreed that one reason for summer time is to save energy.
    I apologise because I was not in the Chamber for the Minister's first few words. However, I do not think that he addressed himself to the problem of what will happen after 1982. In 1976, when the Commission put forward its first proposal, it said that it regarded the proposed step—equivalent to the step that it now proposes—as a first step towards a more comprehensive harmonisation of summer time arrangements. The Government say that at this stage they are not prepared to compromise on the finishing time for summer time in September and October.
    We want some indication tonight from the Government as to whether they are likely to sacrifice two weeks of our present summer time in the interest of harmonisation. What benefit would that bring to this country, apart from the technical benefit of harmonisation with the rest of the Community?
    The Minister did not say anything about Easter. The Summer Time Act 1972 provided a definition for the changeover time to summer time. It embodied an automatic advancing of the time if the date for summer time were to fall on Easter Sunday. The country will agree that the changeover should occur not on Easter Sunday but before it. The prayer proposes to make the date later. That means that we shall run a greater risk of running up against Easter. It would be useful if the Government were to make a statement to the effect that they are not prepared to have the changeover at any time on Easter Sunday or later.
    Then there is the question of the time of day that the change is effected. It is the difference between 1 am and 2 am. We in our traditional legislation adopted 2 am because that was the deadest part of the wee hours. By adopting 1 am we come into a slightly more active
    1692
    period—[Interruption]—yes, it is reasonably active now, but I hope that by 2 am it will be considerably less active.
    The Minister of State indicated that the only reason for changing over from 2 am to 1 am is that that is what the other Europeans do. That is what has lost us an awful lot in our negotiations with the other members of the Community.
    Mr. Raison: Come off it!
    Mr. Cunningham: The Summer Time Act 1972, passed by a Conservative majority in the House, adopted and continued the practice that we had had previously, which was to have the time of changeover as 2 am. One either goes back from 2 am to 1 am or forward from 2 am to 3 am. The time of 2 am was not just plucked out of the air. It was chosen because it was thought to be the most sensible time.
    There may be an argument for saying that 1 am is a more sensible time. But the Minister has not advanced that case at all. In reply to my intervention, he said that the only case—in his opinion sufficient in itself—for moving from 2 am to 1 am for the change was that the other countries in the EEC had chosen 1 am.
    We have been in the Community now for a few years, and I should have thought that even the Home Office would have appreciated that if we are to live and survive, and survive with our pants on, in the EEC we will not do it by adopting a practice just because the others do it. Can we imagine the French sitting in the Quai d'Orsay considering this problem and saying "Well, we have to do it because the British do it." Of course not. If that habit of mind applies to a little thing, such as whether we change our time at 2 am or 1 am, it will apply to other things as well, as we know it does.
    We must get across to British Ministers that that attitude of mind must change. If Ministers bring a proposal to the House to change the law in this country, they must justify it on its merits. If they say they are changing just because that is the way the French do it, we want to see whether the French do it our way because that is the way that we do it.
    Mr. Lawrence: The hon. Member has conceded that there is an argument for harmonising the date. What is the point of having the same date if we have different times on the same date?
    Mr. Cunningham: I shall be patient with the hon. Member at this time of the morning. It is highly desirable, if we are to harmonise, that we do so at the same time. Of course I concede that. But the Minister of State has not said that 1 am is better than 2 am and given us reasons. All he has said is that that is the way that the other countries do it. The hon. Member for Burton (Mr. Lawrence) said that if the others do it at that time of day it would be silly if we did not do it at the same time of day. My God, how many hundreds of thousands of millions of pounds have we lost in the past seven years or so because of that attitude—the attitude that if the French do it by the method of the common agricultural policy if the French have sluice gate prices, and so on, it would be absurd for us not to do so.
    The question is whether there is an argument on merit for making the change. No British Minister should come to the Dispatch Box and say that such action is being taken not on merit but because the others are doing it that way, and that he is not interested in whether there is a case on merit.
    Mr. Michael Brown: In support of what the hon. Gentleman has said, when we make the change, even assuming that we do so on the same day as the remainder of Europe, we shall still be an hour adrift. Many countries in Europe are already two hours ahead of Greenwich Mean Time.
    Mr. Cunningham: Yes, but that does not affect the argument. There will be differences despite this measure. There will be the differences attributable to latitude, quite apart from the differences that we are talking about. Those differences will be infinitely greater when the island of Rhodes and Portugal become part of the same community. However, that is not an argument against removing those differences which are eradicable without inconvenience.
    We must look at the matter on its merits, and not simply on the basis of harmonisation. When British Ministers
    1694
    are up against the others in the Community, they should ask why 1 o'clock is better than 2 o'clock. They should not say, "Well, we will come round to 2 o'clock because that is the way that you do it." It is a serious matter, although the Minister may dismiss it in this light manner.
    Mr. Nicholas Baker: The reason for the change from 2 o'clock to 1 o'clock may not be substantial, but there is an argument for having the same time as most other countries in Europe. If it makes him so angry, will the hon. Gentleman explain what we shall lose by making the change?
    Mr. Cunningham: Gladly. It is useful to have the discussion in the presence of the Minister, who seemed to feel that the merits did not apply to the matter. If we have the change at 2 o'clock, we are talking of changes operating at 2 o'clock, 3 o'clock or 1 o'clock by operating time in spring or in October. If we change at 1 o'clock, we are talking of changes at 12 o'clock, 1 o'clock or 2 o'clock. On the whole, more things are happening at midnight than at 1 am. That applies to the operation of transport systems, and so on. Why do hon. Members believe that we adopted the time of 2 am? A civil servant in the Home Office did not merely pick a number out of a hat. Two o'clock was thought to be the most dead and least active time in the 24 hours. The question is whether 1 o'clock is any less dead and less active.
    I am not saying that the change is the most important thing in the world. It is very much not. The question is whether we have Ministers who say "Oh, well, the others do it at 1 o'clock, so we had better fall into line with 1 o'clock", or "We consider that 2 o'clock is better than 1 o'clock, and why do you not come over to 2 o'clock?" There has to be give and take. That is the nature of life. It should not, however, always be give and give and give. Too often in the Community that is the way it is.
    I am not saying that 1 o'clock is unacceptable, but it is unacceptable for the Minister to say, when I ask why it is to be 1 o'clock instead of 2 o'clock, that it is a good and sufficient reason in itself that the others change at 1 o'clock. If we behave that way in the Common Market, we shall have every thread pulled out

    1695
    of our trousers and will come out of every negotiation with no trousers on at all.
    Mr. Raison: The hon. Gentleman is being rather ridiculous. On the major point at issue, the other seven members of the Common Market made a concession of one week and we made a concession of one week. We arrived at a satisfactory conclusion. Both sides compromised, which shows that we did not enter the negotiations in the spirit that the hon. Gentleman tried to imply.
    Mr. Cunningham: With respect to the date in 1981 and 1982, both sides gave a week. It may be two weeks in our case in later years, but there was an equal exchange on 1981 and 1982. However, that is not the case on time. When I ask for reasons I expect to be given reasons and not merely a statement that the others do it in a different way.
    The House should keep a close eye on the whole business of harmonisation to ensure both that harmonisation does not take place unnecessarily and without benefit to this country and that where harmonisation is a good thing in itself, when we give an inch, we get an inch in return. It seems from the Minister's remarks that that has not taken place so far, and I hope that a different attitude will manifest itself in Ministers' approach in future.
    1.12 am
    Mr. Iain Mills: I should like to make a few points of substance after the speech of the hon. Member for Islington, South and Finsbury (Mr. Cunningham) which seemed to come into the category of what is known in Committee as a wide-ranging speech covering points that had little relevance to the words of my hon. Friend the Minister of State, who made several substantial points about the advantage of the scheme.
    My attention was drawn to summer time a few months ago by a constituent who set me thinking by asking how much the present summer time system is costing the country. She suggested that we might abolish the summer time change entirely, but I did not then, and I do not now, believe that we can do that, as the whole principle of the extra summer time is valuable during certain times of the year. I asked the Home
    1696
    Office to estimate the cost of implementing the 1972 Act and was disappointed when I was informed that that was impossible. We do not know how much it is costing us.
    I believe that the measures involve costs to the public purse, private companies and individuals, particularly those involved in transport undertakings. Any steps to remedy the fact that we are out of step with Europe on time and to move eventually towards common European time are welcome and I welcome the order as a first step towards common European time.
    Mr. George Cunningham: Common time from the island of Rhodes to Portugal? Is the hon. Gentleman serious?
    Mr. Mills: Yes. There may be parts of the nether empire of the European Communities where, for geographic reasons, that may be difficult, but I should like to explain why I regard this as the first of what I hope will be a number of steps.
    Mr. Alan Clark: A common currency?
    Mr. Mills: I ask hon. Members not to make ridiculous interventions. We are not talking about currency. We are talking about a substantial and important method of improving transport undertakings, which will allow this country to benefit from exports and our business efforts to improve sales. It has nothing to do with currency or any other aspects of the EEC.
    Mr. Clark: Will my hon. Friend give way?
    Mr. Mills: No. If my hon. Friend will have the courtesy to allow me to finish my paragraph, I shall gladly give way to him.
    I see the order as an indication that the Government have realised the significance of moving into closer phase with some, if not all, of our EEC partners. However one feels about the EEC, there is no doubt that a time schedule with different changes and different times from other countries creates difficulties for some of our inhabitants, and particularly for our transport undertakings.
    Those who travel regularly have to adjust to the hour's difference, plus the

    1697
    differences caused by the different dates of changes, when travelling, and when booking for aeroplanes, trains and cross-Channel ferries. The constant change of schedules involves business people and transport operations in continual rescheduling, and involves travel firms and freight companies in considerable complexity, in constant alterations to travel brochures and such items as the ABC guide to airline travel and many other complex and expensive publications.
    Mr. Clark: I apologise for the rather hectoring manner that I may have adopted earlier. If the purpose of harmonisation is to go further than the simple business of railway timetables, which surely it cannot be beyond the power of human intellectual facility to cope with in their present condition, and is to harmonise business arrangements, would not my hon. Friend accept that the European Community tends to start at 8 am, whereas we tend to start at 10 am, and that most of the Community nations take their siesta at noon, whereas we tend to repair for lunch at 2 pm? Consequently, it would be much more effective for business harmonisation were we to be running two hours behind.
    Mr. Mills: I shall always give way to my hon. Friend's knowledge of siestas and times of lunch. However, in this matter I offer my own experience, that of one who travelled for four years almost constantly to various parts of the globe, and particularly to Europe. On the basis of one man's experience of this complexity, I can assure my hon. Friend that for those of us who have travelled, trying to sell British goods, it is indeed a complex and difficult subject.
    I managed to get to the odd German factory at 7 am, when it started, but I started at my own factory in Birmingham, near my constituency, at 8.30 am, and not at 10 am—an hour at which my hon. Friend might care to join me at some time in the future.
    I finish my contribution to this fascinating debate by saying that I genuinely do not believe that the order, or any future changes, which have not been suggested at this stage by the Government, will detract from our own ability and the importance of being British, and having our own unique style. However, it will make life much easier
    1698
    for many of our business men, our businesses, and particularly those many transport undertakings that have the job of getting our exports to overseas territories on time, with the least complexity and at the least cost.
    1.18 am
    Mr. Nigel Spearing: I shall not follow up the points made by the hon. Member for Meriden (Mr. Mills), who I think was advocating a common EEC time. That is not the question before the House. The hon. Gentleman perhaps forgets that for every 15° of longitude there is an hour's difference in sun time. Although it may be difficult for his colleagues and for people involved in international travel and export, the difference in daylight, and the inconvenience for the vast majority of the population, of any such proposal would far outweigh the advantages for a tiny number of persons, who, despite what the hon. Gentleman says, are relatively well provided for in most respects anyway.
    I was surprised by the brevity of the Minister's introduction to the matter, which, while not complex, gives rise to constant misunderstandings. Anyone wishing to examine the problem who searches the Minister's speech will not find a great deal of enlightenment. Indeed, I am not sure whether we shall change from four changes, which is the present position, to two, or whether it be three. I suspect that it is two, because that is the provision in the draft directive.
    The matter of compromise is the date of 29 March 1981. That was a compromise between ourselves and the French. I agree that clearly there is a case for some form of harmonisation, not necessarily of time as such but of the dates and times at which one changes from summer time back to normal time. To do that twice in a year over the whole of the Continent might be advantageous. That, of course, is different from the various time zones. One must take the two together.
    This directive is related to the EEC, but it is generally forgotten that Central European time and Eastern European time, and, indeed, what I might call the time change club, extend to countries which are not members of the EEC. For instance, the time of change already in existence has been agreed by Norway,

    1699
    Austria, Czechoslovakia, Poland, Sweden and Hungary. They are not EEC members, but they have already agreed to change their times at the same time as some of the other members of the EEC, though not ourselves.
    To make things more complex, but also to put the matter into more realistic perspective, Greece has Moscow time during the summer and Switzerland, to which some business men travel and with which some business men have connections by telephone, does not have summer time at all. So, the great advantages, boons and blessings which we are expected to derive from this directive are perhaps not quite so universal as might be supposed.
    My next point is one of considerable substance. It concerns the matter of consultation. I have here an extract from British Rail's Continental timetable for 1980–81 in which the dates for the change of British summer time and Greenwich mean time are set out. The date given is 21 March. I presume that the airline timetables which are also printed contain similar indications. On some of the timetables local times are also printed.
    The proposal before us is to make the change not in 1982 but next year. I ask the Minister of State what consultations he has had with the airline associations and with British Rail or other organisations which have already printed their timetables. People who consult those timetables might well be inclined to think that they are accurate.
    Does not the Minister think that the notice of time in this order is much too short? Irrespective of the merits of this proposal, is it not unfair to ask for it to be imposed in the next calendar year? Would it not be better to do that in 1982? I hope that the Minister will reply to that question, and I trust that consultations of the kind I have mentioned have been made. I think that he should tell us what answers he has received.
    My next point concerns the order itself. I make no apology to the House for dealing with the explanatory note. Almost every statutory instrument in pursuit of some form or other of EEC legislation has an entirely inadequate explanatory note. From reading this explanatory note, one gets no idea at all that the draft
    1700
    statutory instrument is in pursuit of a directive.
    Some of our statutory instruments contain some mumbo-jumbo about the European Communities Act, section 2(1), and so on. That at least gives one an indication about the source of the authority. Being "pursuant to a directive" gives no such indication. The Government are being less than frank in the way in which the explanatory note is drafted. The explanatory note is lamentably short. It is four-and-a-half lines, which is even shorter than the Minister's introduction to the subject.
    I turn to the draft directive which has been put in the Vote Office and is un-characteristically brief. There is no date or origin of this
    "Informal Draft Council Directive on Summer Time Arrangements."
    Its title means that it is not yet a directive. It contains neither date nor town. We are entitled to know the status of an informal draft directive from which stems a definite and well printed draft statutory instrument which contains the words "Buckingham Palace".
    Can an inadequate, duplicated piece of paper, with no date but headed "ER"—which I presume means "Elizabeth Regina"—and which purports to be an informal draft Council directive, move the Government to introduce a draft statutory instrument with all the usual paraphernalia about the Privy Council? Is that the state to which the House is now reduced? We have the equivalent of an office boy's note from Brussels which has resulted in a draft statutory instrument. The Minister owes us an explanation.
    Why the hurry? The original statutory instrument, which is also available, is dated 3 February 1976. The proper draft directive clearly is what is known in the jargon as a "slow moving document." It is out of date, but why put the clock forward so quickly? What is the hurry? Is the order part of some package deal to ease the hopeless position on fish, or whatever is in the mind of the Foreign Office? We must have an explanation. If there is no quid pro quo expected by the Foreign Office, perhaps the instrument should be withdrawn.
    Mr. Andrew F. Bennett: What will happen if we approve

    1701
    the order and the other Governments do not fall into line? Will we be stuck with it while they continue with their old arrangements?
    Mr. Spearing: That is a good point. We could be high and dry, whether it is 1 am or 2 am. I wonder whether the other national legislatures or authorities have taken notice of this piece of paper. Perhaps they do not regard the office boy's note from Brussels in such a serious light. Does the Minister's opposite number in Paris contemplate introducing a similar measure in the National Assembly? If he does not, we are wasting our time.
    Mr. Nicholas Winterton: We are anyway.
    Mr. Spearing: We may be wasting it in any event. The Government will have wasted the time of their supporters, who wish to enact this important piece of proposed legislation. Surely it would be a bad thing if it transpired that it was not being done in other national capitals.
    Apart from the article 100 argument that my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) mentioned at the beginning of his speech, I suggest that the EEC is not the best circle in which to decide matters of this sort. I have read to the House the countries that are concerned in the existing time change club. Many of them are not members of the EEC. If we are to embark on this harmonisation, why should we not do it in consultation with Czechoslovakia, Hungary, Norway, Poland, Spain, Sweden and Austria? Surely they are as eligible to be members of the time change agreement as any member of the EEC.
    This is an international item that is best dealt with on its merits by an international organisation established for the purpose, or where the States concerned can get together to discuss what should be done. It may be that Switzerland, which is not a member of the EEC, will decide that it is a good idea to introduce its own form of summer time so that it can march in line with everybody else. That cannot be done under the aegis of the EEC. Whatever the merits and despite the snags that I have suggested, the Minister should be frank about the difficulties. Even if they are overcome,
    1702
    which I very much doubt, this is not the proper business of the so-called EEC.
    1.32 am
    Mr. Selwyn Gummer: I listened with interest to the speech of the hon. Member for Newham, South (Mr. Spearing). It reminded me of the days long ago when at a late hour we discussed the unification of the United Reformed Church, when the same hon. Member sought to discuss with the House the same reasons for not achieving what is an obvious, sensible and widely accepted change which the majority regard as sensible. Only those who find it imposible to discuss anything about the Common Market without finding some reason to object want to keep us all here tonight.
    The hon. Gentleman complained that there was a short informal draft directive, a short statutory instrument, and that my hon. Friend the Minister of State made a short speech. This is a short and easy matter to decide. It does not require all the detailed points that have been raised.
    We have given away one week and others have done likewise. We have come to a compromise. There is nothing wrong with a compromise. We accept that we should not compromise on issues which lead to major differences for ourselves, which are expensive or which are unhelpful to ourselves.
    The hon. Member for Islington, South and Finsbury (Mr. Cunningham) did not do himself justice. There are issues on which the Government and the people must take a stand. In the past year the Government have shown a great deal more ability to get what Britain needs in the Common Market than the previous Labour Government revealed during their years in office. The hon. Gentleman should not criticise my right hon. and hon. Friends when during the long period that the previous Labour Government were in power they were unable to win anything for Britain in the European Community. He demeans himself when he advances the argument that Britain will compromise on everything as long as others do exactly what we want them to do. That is the argument that he has advanced, and it is the argument that some of my hon. Friends below the Gangway are putting so hilariously.
    Mr. Spearing: The hon. Gentleman must not say things that are untrue. He will see in the Hansard report of this debate that I am wholly in favour of some international agreement on the harmonisation of changing to and from summer time. The burden of my speech was, first, that the EEC is not a suitable institution to do that and, second, that the documents before us are inadequate.
    Mr. Gummer: The hon. Gentleman is in favour of making the change, but because it is made under the aegis of the EEC he regards it as an unsuitable change to make. That is what he is saying. We knew before he rose to speak that that was what he would say.
    The task before us is to decide whether the change is worthwhile on its merits, not whether it should be done in or out of the EEC. Is it a useful change to make? It seems that it would be useful if the major trading group in the world with which we carried on nearly half our export trade changed at the same time. That seems not unreasonable on the face of it, and there would have to be a pretty good case against it to justify not making the change.
    The second problem concerns the one hour difference. The hon. Member for Islington, South and Finsbury made a great deal about this aspect. He suggested that 2 o'clock was the ideal time because that was the deadest time of the night. I can think of some much deader times. We are often here at 2 o'clock. We are less frequently here at 3 o'clock, and we are hardly ever here at 4 o'clock. If he wants the deadest time of the night, I suggest 4 o'clock. Perhaps he wants us to say we shall have neither 1 o'clock nor 2 o'clock but that we shall go for 4 o'clock because that is different from everyone else.
    When we seek to compromise over great matters such as multilateral disarmament between nations so diverse as ourselves and the Union of Soviet Socialist Republics, are we to say that we cannot come to a tiny agreement of this kind without a major, long-winded debate at this time of night by people who do not want the change not because it is not good, but because it is passed by the EEC?
    Mr. George Cunningham: The hon. Gentleman is making much more of my
    1704
    objection than it deserves. My objection was to argue something on the merits only to indicate that on the surface it seems that 2 o'clock is better than 1 o'clock. My objection was basically that in reply to my intervention the Minister said that the case for our moving to 1 o'clock was that the others did it. I say that that is not an adequate reason in itself, and that in every Common Market matter we may compromise to their ways, they may compromise to ours, and we may find something in between. But in every case that must be done upon some discussion of the merits. The British must not always be saying "We will do it their way because that is the way they do it." That is not the attitude of the French, and it should not become the attitude of the British.
    Mr. Gummer: I hope that we shall not adopt the attitude proposed by the hon. Gentleman. I feel that there is not sufficient difference between changing at 1 o'clock or at 2 o'clock to justify making a great fuss about it. As a number of the other countries do it that way, it seems to be a practice upon which we can legitimately compromise. I want to be much tougher on the issues that really matter.
    The basic issue before the House tonight is whether we can discuss matters on their merits without constantly arguing about the EEC. Let us argue issues on their merits. This is a perfectly reasonable compromise on which, if the letters "EEC" had not been attached to it, most hon. Members here now complaining would not have bothered to do so. We can make the change because it is sensible. Let us do it. We shall find that the Swiss, who are not in the EEC, will follow very soon because we have set the example. Cannot we set it and solve the problem without drawing the great dudgeon of high heaven upon us, as the hon. Member for Newham, South and the hon. Member for Islington, South and Finsbury have suggested?
    1.38 am
    Mr. Tim Rathbone: I support the order, but wish to ask my hon. Friend the Minister for reassurance on one point and to answer a question.
    The point of reassurance relates to the power of any regional Assemblies that may one of these days raise an ugly head

    1705
    in the United Kingdom. The Labour Government planned to delegate these powers of choosing summer time to Scottish and Welsh Assemblies. I hope that my hon. Friend can reassure us that there will be no plans for the delegation of the powers if ever such Assembles are formed.
    My question relates to the consultations my hon. Friend has had with other members of the EEC on the advantages of having double summer time in the summer and single summer time all the year round. That may strike a bell with some hon. Members who remember that that was adopted during the war years.
    In questions to my hon. Friend the Minister of State, Department of Energy on 27 July 1979, I was told that if double summer time was adopted from April to October there would be
    "saving in fuel used for electricity generation of about 250,000 tonnes of coal or 150,000 tonnes of heavy oil."—[Official Report, 27 July 1979; Vol. 971, c. 578.]
    That is the equivalent of about 40 million gallons of petrol which, at retail prices, costs about £56 million. No one should quibble at that amount of money. I hope that my hon. Friend the Minister will reassure us that he has investigated that question thoroughly with other members of the EEC, and has come to some conclusion, to which we are not yet privy, about why double summer time during the summer and single summer time throughout the year has not been decided upon throughout the European Community.
    1.40 am
    Mr. Michael Brown: I wish to follow the point made by my hon. Friend the Member for Eye (Mr. Gummer), who asked whether it would be possible to agree to this sensible compromise and forget that it was instigated by that nasty institution, the Common Market. We cannot let matters pass in an easy compromise. I have the report of the Transport Council, the body responsible for bringing forward the proposal instituted in the order. It says:
    "Such differences considerably complicate the work of transport companies in intra-Community relations. Therefore the Commission proposes a directive providing that in 1981 and 1982 summer time will be introduced."
    Let us make no bones about it; the only reason why my hon. Friend the Minister
    1706
    is bringing forward the order is in response to a directive from the EEC.
    Mr. Nicholas Winterton: Will my hon. Friend indicate how many representations he has received from major transport undertakings about the matter? I know that he has a number of such companies in his constituency, as I have in mine. I am happy to say that I have not received a single representation pressing for this change.
    Mr. Brown: I have not received any representations from transport undertakings. But I have received representations from the agricultural community, where daylight is at an absolute premium. That brings me to a point which, although not the subject of the order, will be the subject of another order probably to be brought before the House at some future date. The Transport Council document says:
    "the Commission proposed 11 October for 1980 and 10 October for 1982"
    to return to Greenwich mean time in the United Kingdom. It continues:
    "but there are still differences of opinion between continental States … The Commission will insist on this question being settled and will later make a proposal for the 1983 calendar."
    That will be a sinister proposal because it will involve Britain losing one hour of daylight at the end of the period when we return from British summer time to Greenwich mean time. I and a number of my colleagues represent agricultural communities. We should be concerned that the order is merely the prelude to an order in response to an insistence from the Common Market at some future date. We should take the matter seriously.
    My hon. Friends below the Gangway are deeply concerned that it is the thin end of the wedge. It may not be a major proposal for Britain, and only a minor proposal for the EEC, but it is a symptom of a general malaise. We can talk in light-hearted terms about changing clocks. I happen to believe that it is rather quaint that for a few weeks in the year, around the middle of March, one can leave Brussels or Paris and arrive in the United Kingdom an hour before one started one's journey. I think that that answers the point of my hon. Friend the Member for Meriden (Mr. Mills). His argument cuts both ways.
    The point at issue, in my view, is the

    1707
    sinister events which will take place behind this order, when at some stage in the future the Minister will have to give way on a much worse compromise when it comes to returning from British summer time to Greenwich mean time at the end of the year. I hope that he will speculate on that, although I do not know whether he will be in order in doing so. It is something of which we should beware.
    1.45 am
    Mr. Douglas Jay: I want to raise with the Minister a simple question of fact. Has the EEC directive on which this order is based been approved by the EEC Council, or is it still a draft directive? If it is still a draft directive, why do we need to have an order based on it brought before the House before it has even been approved by the Council of the EEC?
    1.46 am
    Mr. Roger Moate: My hon. Friend the Member for Eye (Mr. Gummer) suggested that this was a matter of controversy only because it concerned a document produced by the EEC. In saying that, I think that he was revealing that he has a very short memory indeed, as well as coming to some wrong judgments on matters of this kind. If he casts his mind back, he will remember our debates in the early 1970s on the question of British summer time—which had nothing whatever to do with the Common Market—which gave rise to some of the most controversial and highly emotive debates that we have ever had. If my hon. Friend looks at those debates, he will discover just how much controversy they raised. The reason is that the British people value those extra hours of daylight which the British summer time arrangements have given them in the past. They have valued them in the past. This House has protected those arrangements, and it is right that it should be jealous of those arrangements for the future.
    The importance of the documents before us tonight lies not just in the fact that we shall lose a week of British summer time, but also in the point raised by my hon. Friend the Member for Brigg and Scunthorpe (Mr. Brown). He referred to the report in Agence Europe of the transport meeting, which talked about the Council insistence—we must
    1708
    note that word—upon harmonisation when what is at stake is an extra month of British summer time in the autumn. That is a matter of some significance. It is absolutely right that the House should be considering it tonight. I believe that the Minister owes the House an explanation in his reply about the Government's long-term intention about this matter.
    It seems to me that the most apt comment on this matter was contained in a report in The Guardian, dated 11 June, when, after the announcement had been, made, it said:
    "Possibly basking in the idea of infinite bureaucratic summer time, a Home Office spokesman said that the announcement was part of the EEC's policy of 'bringing everyone into line, not only with trading but with symbols and seasons'.".
    I cannot vouch for the accuracy of The Guardian article, but if the Home Office really believes that the EEC can wave its wand, pass directives and organise our seasons, I suspect that the Euro idea has got somewhat out of hand. It seems to me that this is a classic case of harmonisation for harmonisation's sake.
    My hon. Friends on the Government Front Bench said "Hear, hear", when it was suggested that this would contribute to removing some of the difficulties with regard to intro-Community trade. If that is their objective, frankly they are putting forward the proposals in an extraordinarily illogical way. As has been made clear, they are certainly not harmonising time. Despite the views of my hon. Friends the Members for Meriden (Mr. Mills) and Eye, they are not managing to create one time zone across Europe, which would allow the Greeks to go to bed in the daylight and the Spaniards to pick their oranges in the middle of the night. There will be a variety of time zones, and nothing can change that.
    Mr. George Cunningham: They will stop the sun by directive.
    Mr. Moate: Perhaps.
    If harmonisation is the objective, to make life easier for travellers and transport organisations, why are we harmonising only at the beginning of the year and not at the end of the year too? This document does not harmonise. I say that it should not, but I do not believe that my hon. Friends can argue that this is being put forward for the convenience of road haulage organisations or railway time

    1709
    tables when, at the end of the period, we are saying positively that we shall maintain British summer time for one month longer than the rest of Europe. Or is my hon. Friend saying that we shall harmonise there too, and we shall lose an extra month in 1983, in accordance with the Community's insistence?
    The case for harmonisation for the sake of efficiency does not stand up. There is a case, where it can possibly be organised, for changing times at the same time as other nations. But that does not apply only to the European Community. It certainly applies to many other countries in Europe and in the world, if that can possibly be done. Is it not extraordinary that this House has put itself in this position, when we are discussing this order as a result of a directive—
    Mr. George Cunningham: Not even a directive.
    Mr. Moate:—as a result of a directive, because if we have not got one yet, it is clear that we shall have one? If we do not pass this order, perhaps we shall be in breach of the Treaty of Rome and be summoned before the European Court for failing to accept this edict.
    It is the height of folly to have put ourselves into this position on such a matter. It would be much more sensible if we were able to arrive at decisions of this kind in conformity with our many partners and produce common sense policies, and not as a result of an extraordinary directive. Heaven knows how much ministerial time has been wasted on this type of exercise in Brussels. I feel that this is a bureaucratic exercise. It is unnecessary. I do not think it contributes to the efficiency which my hon. Friends rightly seek. It worries me that we could lose that extra British summer time in the autumn, and for that reason I am very much inclined to vote against the order.
    1.53 am
    Mr. Richard Body: I wish to speak for only a minute because I see that my hon. Friend the Member for Norfolk, South-West (Mr. Hawkins) is seeking to catch your eye, Mr. Deputy Speaker, and I look forward to hearing his contribution. I remember his speech on the last occasion we debated this matter, some years ago. No doubt he will prove to be consistent in his approach.
    1710
    I take up a point made by the hon. Member for Islington, South and Finsbury (Mr. Cunningham) who spoke of the energy costs involved in this proposal. As I understood him, he made the point that we should be losers in this country—and presumably Ireland—and that the Continental members of the Common Market would be the gainers. Can my hon. Friend, in replying, say whether that is the case? To what extent shall we be losers and the Continental members gainers?
    1.54 am
    Mr. Paul Hawkins: I wish only to point out to Labour Members who spoke at such length about other countries except the EEC that the Council of Europe, which represents 21 nations, from Iceland to Turkey and from Turkey to Portugal, has been trying to press this sort of proposal with the 21 nations for a number of years and would welcome the first step from the EEC, thus getting a proportion of those countries on to what I consider to be the right lines for an up-to-date country. Some of my hon. Friends on the Front Bench below the Gangway are troglodytes, completely out of touch with the present situation in this country. Our banks open at 9.30 a.m. In Germany the banks open at 8.30 a.m. That is why they do better business.
    The ludicrous nature of the present situation is apparent to anyone who has to travel to and from Europe and who knows how he must alter his travel arrangements because of the difference in time. Business men try to telephone their European opposite numbers in the morning and find that they cannot get through because our European friends have gone to lunch.
    This country has got to be dragged into this century. We are far behind at present. This is one little instance of the way in which some Members of this House are far behind.
    1.56 am
    Mr. Nicholas Winterton: In a debate like this at this time of the night the House of Commons really becomes alive as a House of Commons. Tonight the Minister came to the House with a Home Office brief and gave us absolutely no explanation. It

    1711
    is not lightly that I say that the Opposition have done us a service by highlighting the important matters that lie behind the order.
    I am ashamed of the fact that my hon. Friend the Minister of State did not justify the order he is asking the House to approve. I say this openly. The longer I remain in the House the greater my regret that I voted for Britain's entry into the European Economic Community. I believe in the philosophy that if the Community is enlarged it will bust. The sooner that happens, the better. My very sincere and hon. Friend the Member for Meriden (Mr. Mills) made his speech tonight with the Brussels blinkers right over his eyes. He told us absolutely nothing that is relevant to the order. It is time that the House stood up for the traditions and the customs of this country. We are allowing the sea of Europe to wash over us and to change our customs.
    How right my hon. Friend the Member for Faversham (Mr. Moate) was. Not so long ago we had a debate in the House on the question of summer time. It was a very emotional debate. The people of this country felt very strongly about it. Is it because it is now 1.57 am that the Government, having introduced this order, expect it to go through because there are no representatives of the press here to report what is going on and that the citizens will accept what we have done in their name?
    There is no doubt that we are being pressed into doing something which it is not in our best interests to do. The Minister did not deal at all adequately with the question of the increased energy costs. I am sorry that my hon. Friend the Member for Norfolk, South-West (Mr. Hawkins), who was, I gather, very emotive on a previous occasion relating to the importance of summer time, appears to have changed his tune altogether and has gone back on what he said. He was obviously a reactionary in those days—a troglodyte, as he has described those of us below the Gangway. I do not believe that we are troglodytes. I believe that we are standing up for the best interests of this country. If we are talking now only about what happens at the beginning of summer time, it is very sinister that reference should be made to what is to
    1712
    happen at the end. However, the Minister has made no mention of that.
    It is very important for us to ensure, regarding the end of the summer time period, that we maintain our custom of not going back to Greenwich mean time until the end of October.
    If the Minister thinks that he will get a smooth ride tonight and that there will be no Division at the end of it, I tell him that those of us who believe the order to be faulty may not win but we ask him this question: does he intend to justify the status of the order, bearing in mind that it is based only on a draft directive? The hon. Member for Newham, South (Mr. Spearing) rightly described it as an office boy's note. It is ridiculous that this House should sit for an hour and a half late at night, after an important debate on the Finance Bill, to debate something based on a draft order from a Brussels bureaucrat. The House is doing itself no honour and no service at all and is certainly not acting to the advantage of the British people.
    2.1 am
    Mr. Raison: With the leave of the House, Mr. Deputy Speaker, may I say that I do not think that this has been a great House of Commons occasion, but it has been a spirited debate and has given a certain amount of innocent pleasure. It must have been rather like the debates which took place in the eighteenth century, when the calendar was changed and the great cry of "Give us back our 11 days" was heard in the land. The troglodytes were probably more active then than they have been tonight.
    Perhaps I should first apologise for the brevity of my opening remarks, for which I have been criticised by several hon. Members. My brevity, I confess, was due partly to a feeling that we had been discussing the Finance Bill at some length and some hon. Members seemed not to want to have to stay here too long, but more than that it was fundamentally due to the fact that, as my hon. Friend the Member for Eye (Mr. Gummer) pointed out, the reasons for these proposals are very simple and there is not a great deal to say about them.
    Common sense stands out absolutely clearly in favour of the order. It is based on a compromise in which seven other

    1713
    European countries have surrendered one week and we have surrendered one week, together with Ireland. The result is something that should be wholly acceptable. It is clearly advantageous to the very large number of people who travel across the Channel; it is advantageous to the industries that serve them. It has the full support of British Rail and of the airlines. In practical terms, therefore, the advantages of what we are putting forward are very strong.
    To be fair to the hon. Member for Islington, South and Finsbury (Mr. Cunningham), he acknowledged that the advantages were there. He may have nit-picked, if I may use that phrase, about a number of things, but I think I am correct in understanding that he was perfectly happy about the order.
    I gently suggest that any hon. Members who are doubtful about the EEC provenance, and who feel concerned that the Common Market should be looming in the background, might like to look at the order and console themselves. Rather than grumble about the fact that there is nothing about the Common Market in the order, they should say "Here we have a rather sensible order which will be to the benefit of quite a large number of people; therefore, let us pass it this evening". That would seem to be the easy way out for those who could not ever bring themselves to support any matter that has ostensibly anything to do with the Common Market. They should look at the order and ask "Do we think that this is a sensible order?" If they do, they should vote for it. The overwhelming majority of hon. Members would then be in a position to support the order.
    Mr. Jay: Will the hon. Gentleman give way?
    Mr. Raison: I think I ought to answer the debate. I shall be coming to the right hon. Gentleman's point.
    We have had a lot of talk about harmonisation. I have never been a fanatic for harmonisation for harmonisation's sake, nor have Her Majesty's Government. That has never been our position. But if harmonisation produces a clear and obvious benefit, there is virtue in harmonisation. That essentially is what this is all about.
    1714
    I find it rather improbable, in a way, that we should not be merely, as it were, implementing a draft directive. People have been grumbling about the fact that all there is at the present time is a draft directive. I should have thought that those people who have argued so long and so eloquently that the House of Commons has had to surrender power to the European Commission would be rather pleased about the fact that what we have here is a draft directive. It is not yet a directive.
    The House has an opportunity to express its view about the measure without any great complications. My hon. Friends should welcome that. If the House is foolish enough to chuck out the order, the changes will not be made. That will be a pity, because the draft directive is remarkably sensible. It does not become those who have fought this battle over the years to grumble that the EEC has produced a draft directive.
    My hon. Friend the Member for Lewes (Mr. Rathbone) asked what would happen if devolution took place. He asked whether the devolved Assemblies would have the power to produce their own summer time regulations. I confess that I had not given one moment's thought to that before the debate. I hope that I am not stepping out of line when I say that I believe that there is no prospect of devolved Assemblies. The party has made its view clear. That worry should not keep my hon. Friend awake, if and when he eventually gets to bed. There is no ground for that concern.
    It has been asked whether we should have double summer time. Other similar points have been raised. They are interesting points, and they are debated from time to time. However, they do not arise from the debate. I remind hon. Members that there was a major national debate in the 1970s on this issue. There was a great deal of controversy in my constituency, and I am sure that that applied to all constituencies at the time. The House made a decision, and did so with a large majority. Nobody could argue that we are trying to undermine that decision.
    Some of my hon. Friends think that sinister events are involved, and they have presented the debate as a dark evening in the history of our constitution. They have implied that the Government are

    1715
    paving the way for terrible events. My hon. Friends may have enjoyed their rhetoric, and we enjoyed listening to it. However, it has been the rhetoric of fantasy rather than of reality.
    The point about October is fair. We have not come to an agreement and we have not made up our minds, because we know that there are considerable drawbacks to surrendering a period of summer time in October. We sought to give the House a chance to assert its views. We have not tried to steamroller the provision in the wake of a directive. We have brought a draft directive before the House. We have not made up our minds. We want to know what hon. Members think. It is important. However, I beg my hon. Friends to remember that the Common Market generally likes to negotiate. It does not like to steamroller. It is not in the business of doing that. When we have listened to hon. Members and to
    Question accordingly agreed to.
    Resolved,
    That an humble Address be presented to Her Majesty, praying that the Summer Time
    the public, we shall decide whether there is scope for a further compromise agreement. At present we have not made up our minds. We have nothing to put to the House this evening.
    Mr. Spearing rose—
    Mr. Raison: I shall not give way as I have only half a minute in which to speak. We are talking about a simple, sensible proposal.
    Mr. Spearing: Two or three changes? Answer that.
    Mr. Raison: If hon. Members would concentrate on what the prayer—
    It being one and a half hours after the commencement of proceedings on the motion, Mr. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted Business):—
    The House divided: Ayes 78, Noes 13.

    Division No. 409]

    AYES

    [2.09 am

    Alexander, Richard

    Fowler, Rt Hon Norman

    Page, Richard (SW Hertfordshire)

    Ancram, Michael

    Griffiths, Peter (Portsmouth N)

    Penhaligon, David

    Baker, Nicholas (North Dorset)

    Gummer, John Selwyn

    Raison, Timothy

    Beaumont-Dark, Anthony

    Hawkins, Paul

    Rathbone, Tim

    Be y, Hon Anthony

    Heddle, John

    Rhys Williams, Sir Brandon

    Best, Keith

    Henderson, Barry

    Roberts, Michael (Cardiff NW)

    Biggs-Davison, John

    Hogg, Hon Douglas (Grantham)

    Sainsbury, Hon Timothy

    Blackburn, John

    Hunt, David (Wirral)

    Shaw, Michael (Scarborough)

    Boscawen, Hon Robert

    Hum, John (Ravensbourne)

    Shelton, William (Streatham)

    Bottomley, Peter (Woolwich West)

    Jopling, Rt Hon Michael

    Shepherd, Colin (Hereford)

    Bowden, Andrew

    Lawrence, Ivan

    Sims, Roger

    Bright, Graham

    Le Merchant, Spencer

    Speed, Keith

    Brinton, Tim

    Lester, Jim (Beeston)

    Spicer, Jim (West Dorset)

    Brooke, Hon Peter

    Lloyd, Peter (Fareham)

    Stevens, Martin

    Bulmer, Esmond

    Lyell, Nicholas

    Stradling Thomas, J.

    Butcher, John

    MacGregor, John

    Temple-Morris, Peter

    Carlisle, Kenneth (Lincoln)

    Major, John

    Viggers, Peter

    Clark, Hon Alan (Plymouth, Sutton)

    Mather, Carol

    Wakeham, John

    Clark, Sir William (Croydon South)

    Mayhew, Patrick

    Waller, Gary

    Clarke, Kenneth (Rushcliffe)

    Meyer, Sir Anthony

    Ward, John

    Colvin, Michael

    Mills, Iain (Meriden)

    Wells, Bowen (Hert'rd & Stev'nage)

    Cope, John

    Morrison, Hon Peter (City of Chester)

    Wickenden, Keith

    Cranborne, Viscount

    Mudd, David

    Wolfson, Mark

    Dorrell, Stephen

    Needham, Richard

    Dover, enshore

    Nelson, Anthony

    TELLERS FOR THE AYES:

    Dunn, Robert (Dartford)

    Newton, Tony

    Mr. David Waddington and

    Fairgrieve, Russell

    Normanton, Tom

    Lord James Douglas-Hamilton.

    Fenner, Mrs Peggy

    NOES

    Bennett, Andrew (Stockport N)

    Hawksley, Warren

    Spearing, Nigel

    Brown, Michael (Brigg & Sc'thorpe)

    Jay, Rt Hon Douglas

    Welsh, Michael

    Campbell-Savours, Dale

    Leighton, Ronald

    Cryer, Bob

    Moate, Roger

    TELLERS FOR THE NOES:

    English, Michael

    Shearman, Barry

    Mr. Nicholas Winterton and

    Farr, John

    Mr. Richard Body.

    Order 1980 be made in the form of the draft laid before this House on 9th July.
    To be presented by Privy Councillors or Members of Her Majesty's Household.

    INFORMATION TECHNOLOGY (GOVERNMENT PURCHASING POLICY)
    Motion made, and Question proposed, That this House do now adjourn.—[Mr. Peter Morrison.]
    2.20 am
    Mr. John Butcher: A few moments ago, my hon. Friend the Member for Norfolk, South-West (Mr. Hawkins) said that the British should be dragged into the twentieth century. There is some irony in the fact that we are discussing at 2.21 am a subject which is relevant to the ninth decade of the twentieth century because our charming and traditional idiosyncrasies dictate such strange rituals.
    I am delighted to have the opportunity to raise the subject and I start by recording my appreciation of the contributions made to the debate on the subject outside the House by the Advisory Council for Applied Research and Development, the Parliamentary Computer Forum, the United Kingdom Information Technology Organisation—UKITO—the officers and staff of the Department of Industry, particularly Mr. Ray Atkinson, and not least to my hon. Friend the Under-Secretary who is being kept from his bed to answer the debate when he may feel that he has already contributed to debates on the subject ad nauseam over the past few days.
    I declare an interest, because I have worked in the computer industry for 11 years and am still associated with it, though I assure the House that the topics that I have selected for conspicuous mention in the debate are projects with which I have no direct connection.
    The subject of the debate is public purchasing policy for the information technology industries. I should refer briefly to an aspect of research and development for public purchasing which has been vividly and efficiently described in an ACARD report "R and D for Public Purchasing". Paragraph 7.7 reads:
    "We recommend that the Government should review the balance between the R and D carried out by purchasers and that by suppliers in each industry where public purchasing decisions have significant influence".
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    Paragraph 7.11 reads:
    "the Government should consider how the expertise of public sector R and D establishments may be effectively marketed abroad, without, adversely affecting their support for United Kingdom industry or its competitive position."
    Paragraph 7.14 reads:
    "We recommend that public purchasing organisations should review their arrangements for administering R and D contracts in order that the maximum benefit is obtained for their industries from the contracts placed."
    Paragraph 7.17 reads:
    "We recommend that public sector organisations with significant purchasing programmes should, where they have not already done so, establish central units to increase the benefits to industry of their R and D and purchasing programmes, particularly in regard to exports."
    I hope that we shall examine the whole aspect of information technology, the broad range of all those products that we describe under the titles mainframe computers, software, bureau services, telecommunications, minis and microcomputers.
    I suppose that the debate is highly topical, as there is some controversy surrounding the placing of a contract for a large mainframe and telecommunications system for the inspectors of taxes. I am sure that my hon. Friend will understand that I must consider this matter as sub judice. I am aware that that debate will probably reach a conclusion in the not-too-distant future.
    I am sure that the Government recognise that information technology is an industry of strategic importance, and that perhaps a public purchasing policy could be a better form of aid, as opposed to direct investment, but it should certainly be complementary to investment decisions. Support for British industry must also be borne in mind, but only to the extent that it becomes more competitive and develops export potential. It would be helpful if my hon. Friend could give a definition to those outside the Chamber of what "British" means in the context of information technology products and services. Does it mean a British-owned company, a company where there is a significant production element in the United Kingdom, or a company that is a net contributor to our positive balance of payments in this product range?

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    A policy on public purchasing should also take account of the growing nationalism and protectionism in this sector, but it must recognise that our major markets are still in the developed countries, and that therefore we cannot simply pursue our self-interest.
    We shall shortly have to cope with new EEC and GATT regulations. Although there are restrictions on the level of open tendering—or, rather, there is an exhortation for open tendering in the majority of cases—a case is being made under the GATT and EEC regulations for exclusion clauses for single tendering. These are:
    "For additional supplies requiring inter-changeability with existing equipment.
    Where prototypes or products are for research, experiment, study or original development in the absence of tender procedures
    For unforeseeable reasons of extreme urgency
    Where the products can only be provided by one supplier because of exclusive rights or where no alternative exists".
    I should like to look at three products or services where I believe a public purchasing policy could be of invaluable assistance to our domestic industry. The first is viewdata, which is an excellent example of co-operation between the public and the private sectors. We have established a lead in Britain, producing a product which is more sophisticated than the French, but which still has a simplicity of operation compared with the French equipment. Viewdata offers easy user access, easy amendment and easy handling of data. In other words, it is what we call a "user—friendly system", which can take decisions in real time in one place in order to carry out decisions in another place. For the first time the general population can use a database and interact with it.
    The implications for industry and commerce are massive. Decisions can be taken on moving goods straight from the factor to the consumer. This will have big implications for the distributive trades.
    In the public sector, particularly in the public administration of the United Kingdom, a number of application areas can be suggested. My hon. Friend the Minister for Housing and Construction recently shepherded the Housing Bill
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    through the House. I know that he is interested in the mobility of labour and in the flexible use of our housing stock. He might be interested in a register of council properties so that exchanges could be facilitated between tenants living in the areas of different local authorities. There could be a closer exchange of information between the town hall and the tenant and between local authority and local authority.
    My hon. Friend the Under-Secretary of State for Education and Science—the Member for Sutton and Cheam (Mr. Macfarlane)—has taken a great interest in the facilities that can be offered by terminals and a viewdata type of equipment to assist us in areas of shortage, particularly of maths and science teachers. Programmed learning schemes using these devices could give a teacher an analysis of the weaknesses of a particular pupil and perhaps allow the teacher to concentrate on problem children.
    Looking at public utilities, we see an excellent example in the Sealink booking service. I hope that other public utilities will follow this example. But Government Departments generally are in the business of assembling, distributing and processing information and I am sure that there are many applications inside our public utilities and administrative departments which would lend themselves to this particular form of dissemination of information. In dealing with viewdata I pay tribute to British Telecom and hope that it will continue its admirable campaign of promoting this product. I make a special plea that the Post Office should assist industry outside by the mass purchasing of viewdata adaptor kits and renting them out to the general public and business markets.
    Fibre-optic cabling is a second project which I think is worthy of our consideration this evening. This is a product which is comparable, and in some cases superior, to those of our foreign competitors. We have developed, in co-operation with the Post Office, facilities to transmit data at eight, 34 and 140 megabits per second. I am delighted that British industry has seized this opportunity.
    Such co-operation is highly commendable but there is a danger that, though initial costs have been incurred, research and development work done and prototype production facilities built, we might

    1721
    not sustain the level of orders for this type of cabling in order gradually to reduce production costs and keep together the teams of experts in the supplier companies.
    I hope that my hon. Friend will consider the requirements of the police and British Rail in relation to telecommunications services. British Rail may need a form of cabling immune from interference from the electricity supply on its electrified services. The police may greatly welcome their own secure circuits.
    My third candidate for special examination is the system X telephone exchange. Here I must declare an interest, in that this device is manufactured and has been developed predominantly in Coventry. System X is more than a match for foreign competition. It incorporates the latest techniques in digital switching, full store programme control, common channel signalling and VLSI circuits. I believe that orders have been placed for 16 exchanges and the first installation in London is progressing satisfactorily.
    The price of this first generation of system X exchanges is comparable with existing electro-mechanical exchanges. We have, therefore, reached the crucial stage where forward orders will need to be placed for the second generation. As with fibre-optic cabling, the Japanese are preparing for an aggressive world-wide marketing operation and it is at this stage that I wish to examine the common themes that emerge from an analysis of the dilemmas facing those whose responsibility it is to place orders for these three products and, indeed, for the whole range of information technology devices which are manufactured in the United Kingdom.
    First, research and development should not be financed for its own sake or purely for domestic demand. It should be financed for products that are exportable. Secondly the build-up of orders should be gradual and should not follow an erratic pattern of batches of orders. Thirdly, public corporations and Government agencies should be understanding when the supplier is forced at short notice to switch products to the export markets. I have more than a tiny suspicion that this is precisely what the Japanese do when, in spectacular fashion, they get their products to their customers very quickly indeed, and very rapidly after initial
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    development has taken place. Fourthly, if purchasing contracts do not follow the research and development and prototype phase the enthusiasm and expertise within supplier companies may be dissipated.
    The Department of Industry has a significant role in co-ordinating the whole of the public sector, not only Government Departments. There must be a pooling of information, a monitoring of performance under GATT and EEC regulations and strategic advice on the best methods of promoting the interests of British information for the British information technology industry.
    I hope that the Minister will consider a revamped CCTA. I hope that that, incorporated in the existing structure in the Department of Industry, will assist the Secretary of State and his colleagues in their decisions. I do not agree with some of my hon. Friends that there should be a special Minister for information technology.
    An enlightened public purchasing policy should take cognisance of the strategic importance of information technology, particularly as it relates to defence and telecommunications. It is in the front line of the prospects of our whole industrial and commercial future. Our purchasing policy must be in the full glare of the scrutiny of the Public Accounts Committee. That means that occasionally we must be prepared to make mistakes. The Post Office and officials in Government Departments might be tempted to believe that no decision is better than a wrong decision. Advancement to many in the public service often goes to people who make the fewest mistakes.
    Enlightened purchasing should be Government policy. It can take place within cash limits, provided that the limits do not impose sudden peaks and troughs in the orders placed. Enlightened purchasing can take place within the overall strategy of reducing public expenditure. The use of the products of information technology can assist us to stabilise current costs of administration and to make better use of the time of our public servants, particularly those who distribute and administer the so-called social wage.
    When a world mini-recession is looming, and when our domestic economy is going through a period of retrenchment,

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    I hope that the Minister will see this issue, as he might see the whole of public purchasing, as one on which we must maintain courage in order to continue our capital investment programmes. We must reject the easy option of capital investment programmes while the costs of public adminstration remain obstinately high.
    2.37 am
    The Under-Secretary of State for Industry (Mr. Michael Marshall): I am grateful to my hon. Friend the Member for Coventry, South-West (Mr. Butcher) for raising this important topic. It follows the debate last Friday, in which my hon. Friend took a notable part, as did my hon. Friend the Member for Fife, East (Mr. Henderson), who is present.
    I want to avoid covering the ground covered last Friday. My hon. Friend raised a number of new topics which I shall study. I appreciate the way in which he put his questions, especially in regard to the timing of the debate and about the Inland Revenue PAYE computer. That matter is sub judice. We are hoping to see in the ACARD report evidence of an independent review which will be published later.
    My hon. Friend talked about the British definition. That raises a difficult question. I spend much of my time trying to attract inward investment to Britain. On Friday I was able to say that the substantial capability in the production of the standard microchip will be largely underpinned by the inward investment which has been achieved in recent years by bringing multinational companies into the country.
    My hon. Friend will appreciate the balance that must be struck in treating companies as being on all fours. I regard companies which employ British workers in this country as British operators. To be more discriminatory would be self-defeating. My hon. Friend singled out a number of cases that he suggested called for special examination. I shall turn to those later.
    I reiterate that, although information technology is relatively new, major elements—namely, computing and communications—have been with us for a long time. The current interest has been sparked by an increasing awareness of the role of information in industrial and
    1724
    economic matters and by the circumstances of the advances in microelectronics, which have enabled the necessary information, storage and handling equipment to be produced at relatively modest costs and in small convenient sizes.
    There are many—doubtless there will be more—who call for Her Majesty's Government to do more to promote the development and expansion of all facets of information technology in the United Kingdom. They point, as some hon. Members did last Friday, to the activities of countries such as Japan and France. I repeat the argument that I advanced on Friday, that in a number of instances comparisons need to be made very carefully. The French "telematique" programme is often pointed out in admiring terms. I quite agree. However, I repeat that from a relatively low telecommunications and computer base the French authorities have embarked on a substantial development programme.
    It is essential that we do not sell ourselves short, especially to others. That is why I welcome my hon. Friend's three special cases. In the United Kingdom we have significant developments going on in most of the principal component areas of information technology, even if we do not lump them all together and invent a new heading for the activity. I give some general examples. Very substantial Government support has been provided for development in the microelectronics industry and in the promotion and utilisation of microelectronics in industry. Industry schemes exist and are used for the development of the hardware and software needed in information technology. But calls for greater Government investment and procurement should bear in mind the very substantial investment programmes of the Post Office, amounting to about £1·5 billion over the next three years in improving and modernising our national telecommunications network, introducing packet switching and applying fibre-optics. We should make adequate recognition of the very significant expenditure incurred by the Post Office in the development of the world's first public viewdata system, still the only public system operating today.
    The development of Ceefax and Oracle by the BBC and IBA in many other countries would be pointed to as an

    1725
    example of the coherence of the public programme on information technology which had been consciously adopted. I shall come back to some of these achievements later in my speech if I have time to do so. What I wish to emphasise, however, is that public purchasing and support have already had a substantial effect on the development in the United Kingdom of an infrastructure to enable advantage to be taken of the advances which are being made in information technology. It will continue to do so, for we have already made clear our commitment to the role of public procurement and the use of Government purchasing power to increase the efficiency and competitiveness of United Kingdom suppliers and manufacturers. I know that my hon. Friend has received that assurance directly from the Prime Minister.
    Industry will have to play its part. It will have to co-operate with purchasers and provide the required goods to the required standards at the required time and at competitive prices.
    I turn to the specific cases to which my hon. Friend referred, namely, viewdata, fibre-optics and system X. There is one area in which Britain has pioneered not only the invention but the development and marketing, and that is in viewdata. Teletext, the service broadcast by the BBC and IBA, is now received by about 75,000 TV sets, and there should be nearly double that number in use by the end of the year. As I have mentioned already, in many countries investment by BBC and IBA in such a service would be counted as Government investment.
    The Post Office's Prestel service, operated by television sets linked to telephones, is now received by nearly 5,000 customers. It is still the world's first and only fully public viewdata service operating via the ordinary telephone. The public sector, through the Post Office, has made a very large investment in Prestel and computers are already installed in London, Birmingham, Nottingham, Edinburgh and Glasgow. Industry is responding to the challenge of the new services and new markets: almost every week new viewdata products are announced. Prestel itself has now been sold to Holland, Switzerland, Germany, Austria and Hong Kong. Within central Government we are pioneering the use
    1726
    of Prestel-type viewdata for disseminating information to the public, and for internal use within Departments. My Department—I think that this is in accord with what my hon. Friend suggested—has commissioned a feasibility study for a pilot scheme of 30 to 40 terminals, designed to improve the collection and retrieval of information by divisions at different locations inside the Department. I am sure that internal viewdata systems such as we envisage will play a major part in introducing the system to the office of the future, and we in Britain are world leaders.
    Already our intention to operate a pilot system has attracted much interest and attention from industrial companies in this country. Other ways in which my Department is assisting in the promotion and development of Prestel include the support of a programme by the Ministry of Agriculture, Fisheries and Food to provide an up-to-date agricultural information service to farmers in support of a British Library programme for the use of Prestel in public libraries. There are a number of other examples I could quote, all of which are indicative of the action which the Government are taking to stimulate, by example, the development and wide utilisation of a key activity in the information technology sector.
    I turn to system X. As my hon. Friend has remarked, one of the most striking influences on the development of information technology will be the introduction of system X and the creation in the United Kingdom of a fully digital telecommunications network. This will permit the high quality transmission and switching of speech, data, and telex on an integrated system throughout the country. It will enable a wide range of the most advanced electronic attachments to be connected to the network and intercommunicate at great speed and reliability. Telephones, teleprinters, computers, viewdata sets, and so on, will use the same network.
    This digitalisation of the network is just commencing. Already a system X exchange is in process of installation in London. Reports are that it is proceeding very smoothly and, I believe, ahead of schedule. Later this year another system X exchange is to be installed in Woodbridge, Suffolk, and this is to be followed

    1727
    by another dozen or so exchanges over the next two years. I was present last year at the Telecoms 79 exhibition in Geneva at which system X was unveiled and can confirm from personal experience the world-wide impact it made on that occasion. We have a splendid new product and over the next few years I hope to see it make its impact not only in the United Kingdom but in export markets worldwide.
    I turn now to fibre-optics. Hon. Members are aware that the United Kingdom, in common with the majority of the PTT's post and telecommunication departments of the other industrial nations, is installing fibre-optic units. By 1982 we shall have 450 route kilometres operating with data rates up to 140 megabits per second. Plessey, GEC and STC are active in this area and clearly there are significant markets for fibre-optics in the telecommunications sector, particularly in the main trunk routes, submarine routes and in switching facilities.
    In this sector we rank alongside or above most of our colleagues in Europe, although compared with the United States and Japanese positions Europe is coming from behind. Overall, however, the market is developing more slowly than was predicted and, although a number of sectors have been identified which might benefit from the use of fibre-optics, the number of trial systems and implementations have been small. One example of how the Government can help in this area is the case of British Rail. Again, I have noted my hon. Friend's comments about the opportunities for co-ordination in these areas.
    British Rail is one of many nationalised industries for which fibre-optics could be of great future value for data transmission but for which conventional systems are still adequate and involve no development costs. By helping British companies with some of their development costs the Government have made it
    1728
    possible for them to offer British Rail a fibre-optics system in which these development costs are spread between the three parties. This should create a technology shop window for the rest of the world. The alternative would have been to use conventional technology and wait until developed systems became available in a few years from overseas.
    I am sure that my hon. Friend will recognise that in this way and in the other examples that I have quoted a good deal of work is going on. I certainly appreciate the opportunity that he has given by raising the subject tonight for me to expand on these matters in more detail. Certainly these are a number of examples of the role of collaboration between the Government and the public and private sectors on which my hon. Friend has invited discussion.
    The House certainly appreciates my hon. Friend's interest and knowledge, and I am grateful for the opportunity we have had to look once more at a subject that will continue to be debated here. It is a matter which is not easily resolved in a short debate such as this, but because we have had an opportunity to expand in particular on the three areas that my hon. Friend highlighted I certainly feel that they show that in this country work is under way which is not just of short-term importance but which will have a long-term impact. It is work that brings together not only the work of my Department but that of a number of other Departments. I shall certainly want to reflect on a number of my hon. Friend's suggestions—
    The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
    Adjourned at ten minutes to Three o'clock am.