§ 2.52 p.m.
§ Order of the Day for the Second Reading read.
§ THE CHANCELLOR OF THE DUCHY OF LANCASTER (THE EARL OF SELKIRK)
My Lords, in discussing the Second Reading of the Finance Bill it has been customary in this House to allow a latitude probably unique in Parliamentary Assemblies in the world. What I propose to do at this stage is to examine the proposals contained in the Finance Bill, many of which were discussed earlier this year, and to explain how they fit into the general policy which the Government have been pursuing for some eighteen months, and thereafter to examine shortly the economic position as we see it to-day.
The central problem which we have been facing in the last eighteen months to two years has been the emergence of inflationary forces in the economy, and it has been the policy of the Government, by a series of measures, to counteract these forces and to bring them under control. The general forces of inflation have been described as a spiral, by which is implied that movement at any point tends to create a chain reaction which will gradually extend throughout the whole system, and to accelerate itself. It remains our policy to try to break that chain reaction and to do so by applying pressure at as many points as 362 possible This policy is continued in the measures contained in the Finance Bill, which is the statutory counterpart of the Budget which was introduced in April.
By far the most important purpose of this Budget is to increase real savings, whether compulsory or voluntary. Compulsory savings are achieved by the substantial surplus which was forecast at the time of the Budget. This was fortified by increased tobacco duty of 2d. on a packet of twenty cigarettes, and by increases in the profits tax. I know that the structure of this latter tax has been criticised more than once in this House, and I am familiar with what the Royal Commission have said. But the need for attaining a substantial surplus, with all its disinflationary effects, has been held to outweigh the other considerations. To this surplus of £450 million there now falls to be added the further £75 million of economy in Government expenditure which the Chancellor of the Exchequer announced a few weeks ago economies which are separate and distinct from either underspending, on the one hand, or Supplementary Estimates, in the event of their being necessary, on the other. These economies stand entirely on their own feet. This gives a forecast surplus of about £525 million, which by any token is pretty substantial.
Now I turn to voluntary savings. Here, encouragement is given in two forms: those which, broadly, come under the National Savings Committee, and those which take the form of deferred pensions. The part which comes under the National Savings Committee has been warmly welcomed by Lord Mackintosh of Halifax in England, and by Sir John Erskine in Scotland. They consist broadly of three parts. The first is the National Savings Certificate, giving, an equivalent to a return of 7¼ per cent. These certificates will be on sale on the 1st August, and the limit will be 600 units. Then there is the Defence Bond which, with an improved yield of 4½ per cent., has been made more attractive by the addition of a tax-free bonus of 5 per cent. if held for 10 years. In ten years this will have produced 5¼ per cent. gross per annum. The 5 per cent. Bond has been on sale since 1st May, with a maximum holding of £1,000. Holdings in the Special Investment Department of the Trustee Savings Bank have been raised from £1,000 to £2,000.
363 There are also Premium Bonds. There is a good deal of controversy on this subject, and the Chancellor of the Exchequer has always recognised quite frankly that certain people have conscientious objection to using Bonds of this character. At the same time, it is felt that if there are people who prefer to save in this way there are no decisive reasons why the State should not gain by the benefit of such an incentive. Details of the Premium Bond were issued last Friday, and many of your Lordships will see the pamphlet which has been produced by my right honourable friend the Postmaster-General. The units will be of £1 each and each individual holding will be limited to £500. They will be issued from November I this year. and prizes will be awarded after they have been held six months.
The prizes will be made from a prize fund which will be constituted on the basis of 2 per cent. of the money invested —that is, for a six months' period—or 4 per cent. on an annual basis. The first draw will be in June. 1957. For every £10,000 of prize money there will be one prize of £1,000, two prizes of £500 each, and 234 prizes of smaller denominations. The bonds will not be transferable, but will be registered and cashable at any time, but they will be eligible for a prize only after they have been held for six months. The names of the prizewinners will not be published. The draw will be made by an electronic random number indicator, which no doubt in future will come to be affectionately known at "Ernie." Everyone must, of course, approach this matter in his own way, but I must say that I find it very hard to believe that something which benefits both the individual and the country as a whole, and is quite incapable of ruining anybody, is really entitled to the severe moral stigma which some people have thought fit to attach to it.
The second major point is what the Savings Committee have been asking for for some time; that is. that the first £15 annual interest on deposits in the Trustee Savings Bank, the Post Office, and the Seamen's Bank will be free of tax. In other words, interest on ordinary deposits up to a total of £600 in these Banks will pay no tax. Provision has also been made by which organisations similar to the 364 Birmingham Municipal Bank can, by setting up a special department in which the long-term rate of 2½ per cent. is established and the money is loaned direct to the State, also gain the benefits of this provision.
The third point is the provision under Clause 22 and the following clauses of taxation relief for deferred pensions provided by persons who are self-employed or who are employed in circumstances in which no pension provision is made. At the present time I believe that, of persons employed, about one-third are covered by some pension arrangement. This clause will, or can, cover the whole of the remaining two-thirds. These are very important provisions, and perhaps I may explain them quite shortly. The annual premium on which relief will be given is limited to 10 per cent. of the gross earned income in any one year, up to a maximum of £750. There is no provision for averaging.
The provisions cover persons who are self-employed, that is, trading on their own account, or who are partners, and they will get full relief of the amount of the premium on income tax and surtax. The pension must be deferred until they are over 60, and they may, on a man's death, be payable to the widow. It must not be paid in a lump sum except on the death of the pensioner, when the premiums are returnable to his representatives. Trade unions and friendly societies can operate this scheme on exactly the same basis as insurance companies. A provision is made in the second part of the Third Schedule under which, as a temporary provision, persons coming later into the scheme may pay a higher sum towards pension—that is to say, on a graduated scale ranging from persons who are 41 this year who may pay 11 per cent., to those who are 49, who can pay 15 per cent. up to a maximum of £1,125. This is temporary, in the sense that late entrants cannot gain any of these advantages if they were born after the year 1915. Accordingly, in future, anyone who wishes to gain the full benefit of the scheme must come into it at a young age.
I should mention Clause 42, under which the capital provision for nationalised industries is brought more closely under the supervision of the Treasury. I think a moment's reflection will show the 365 necessity for this. We have just successfully completed an important conversion operation running to about £800 million. It is, I think, clear that raising substantial sums of money on the market by nationalised industries must be carefully phased with such operations as the Government may wish themselves to undertake and the general condition of the market makes desirable. This is only a temporary measure, lasting two years, but it is, I am sure, necessary at the present time.
Your Lordships will also observe in Clause 34 that the range of property which the Treasury may accept in payment of death duties has been extended to objects associated with certain buildings which are works of art pre-eminent for their æesthetic merit or historical value. It is a small but, I think, important measure to retain the contents of places which form part of our national heritage. Clause 37 reduces the stamp duty on the purchase of residential houses. This is designed to facilitate owner occupation. Under this provision, houses costing up to £4,000 will carry only half the duty they have done heretofore.
The only other clause I might refer to is Clause 7, which has caused a certain amount of anxiety. It has been the practice, fairly extensively engaged in, for private persons to buy commercial vehicles at a lower purchase tax and thereafter convert them into passenger vehicles of the shooting-brake type. Owing to a defect in the existing law, some of these people were able to escape purchase tax normally due on such vehicles. This loop-hope was being increasingly exploited and has row been effectively closed. As originally drawn, however, the clause caused consternation by including the manufacture of motor cars in the back garden—which, I am given to understand, some people do. It has now been improved to enable any enthusiast who has the ability arid the inclination to engage in this sort of work to manufacture his own motor car without paying purchase tax. I might just add this warning: should this matter be exploited commercially, as might well be the case, it is obvious that further steps will be necessary to prevent what would, in fact, amount to pure evasion of purchase tax.
My Lords, I will now pass to a general summary of the position as we see it to- 366 day. As I have said, over the last eighteen months the Government have taken a series of measures with the object of bringing the economy into balance, both at home and abroad. The main purpose of these measures has been directed towards reducing demand—or to put it in the simplest language, towards discouraging or preventing people from spending so much money. To this end it has been made more difficult for people to borrow money from the banks or to buy goods on hire purchase; purchase tax on consumers' goods has been increased; the bread and milk and housing subsidies have been reduced; new incentives to save have been introduced; the profits tax has been raised and investment allowances suspended; the control of capital issues has been tightened; public investment programmes have been curtailed. Finally, the Government have, as was forecast, a substantial Budget surplus. These are, collectively, pretty drastic measures. They must be exercising a highly disinflationary pressure on the economy. They are also extremely unpopular, and it is for that reason that inflation is so difficult to stop. There is now clear evidence that the measures have produced a gradual but unmistakable easing in the pressure on resources. I am not claiming that this is, as yet, more than marginal, but I can say that the rising trend in consumption has been checked, and in the first five months of the year the volume of total consumption was little higher than a year ago. Fixed investment continues to rise. Private manufacturing industry now expects this year to spend about 20 per cent. more on fixed capital than last year. However here, too, there is evidence that the measures we have taken are reducing the rate at which new plans are coming forward, and this, in turn, should ease the pressure on the capital goods industries. Our long-term objective is a higher level of investment, but for the time being we must moderate the rate of increase so as to stop the congestion of industry which has impeded our export trade.
Overseas trade figures have improved. Exports are up 14 per cent. on the first six months, while imports have risen only 4 per cent. If we change that comparison to one by volume, and make all the adjustments which economists make to ensure that statistics are representative, 367 we find that imports are up 2 per cent. and exports 6 per cent. There is obviously an improvement there. The visible trade gap during this period is £150 million less than it was for the corresponding six months' period last year—that is to say, about £25 million a month less. This has resulted in a surplus on our current account for the first six months of the year of £100 million, and we have seen a rise in our gold and dollar reserves of £95 million. Do not let me pass from that without saying that our reserves are, of course, still very much too low. Moreover, we are now entering the second half of the year, which is always most difficult for our balance of payments. It is a time when we make heavy purchases abroad, and when the reserves are normally at their least favourable position.
May I now say a word about exports? The increase in our export trade in the first six months of this year is particularly encouraging in the context of the lower imports taken by one of our best markets—that is, Australia and New Zealand. Fortunately, this has been offset by a marked increase of exports to the North American Continent which are now running at about 30 per cent. above last year's figure. The most notable increases have come in the engineering industry, whose exports now constitute 40 per cent. of our export trade. I might mention, particularly, the aircraft industry, in which this House is always interested, which appears to have doubled its exports in the last six months. Indeed, we are now selling three different types of large transport aircraft in the North American Continent. The export of passenger cars has notably increased to the North American Continent and, compared with the six months' period of last year, is 63 per cent, higher in respect of Canada, and 37 per cent. higher in respect of the United States of America.
As to production at home, there has been a reduction in the production of durable consumer goods, such as furniture, motor-cycles, television sets, cookers and motor cars. While production of these consumer goods has fallen, production of capital goods has continued to rise, and recently there has been some improvement in coal production, though it is still much too low. On balance, the index of production seasonally adjusted is at about the same level as a year ago. 368 Production has stopped rising and this is probably an unavoidable step in the adjustments through which industry is going at the present time.
Changes in demand and production are one aspect of our inflationary problems, and the other aspect is the movement of prices and incomes. The retail price index now stands at about 2 per cent. higher than at the end of last year, having fallen slightly in the past two months. That is all to the good. On the other hand, wage rates are now 6½ per cent. higher than at the end of last year, and have clearly been rising faster than prices or production. The need for stability in prices and incomes is as essential in the foreign market as it is in the home market. I think it would be wrong to be too gloomy. World trade is running at a very high level, and markets are expanding. But competition continues to be very intense. In the first quarter of this year the total of United Kingdom exports of passenger cars was exceeded by those from West Germany, who in the last four years have increased their percentage of world trade in cars from 14 to over double that figure—that is, to just over 30 per cent. Over the whole field of manufactured goods the figures this year suggest that, while the United Kingdom has increased the volume of her exports by 5 per cent., Western Germany has increased her volume by 12 per cent.
I will conclude by saying this. I think we can say that the inflationary tendencies in this country still make it difficult for us to compete as effectively as we might in the international market. Nevertheless, as the Chancellor of the Exchequer said last week, the indications in our present position encourage us to pursue the same policies, because they are beginning to show results and it is the resolute determination of Her Majesty's Government to continue on this course, whether they may appear to be popular or not. If I may put this complicated problem as shortly as I can, inflation has occurred. and is continuing, in this country for two distinct but related reasons. In the first place, the amount we have been investing has tended to exceed the amount the community wishes to save. Secondly, increases in wage rates have outstripped productivity. and the resultant increases in costs have been passed on in the form of higher prices. The Government's aim, therefore, is not merely to 369 bring about sufficient savings to finance the required level of investment but to stabilise prices in order to break the vicious circle of cost inflation. That is a point on which we can all be in complete agreement. I very much hope that the proposals which we make will meet with the support of this House and that, in any case, they will be successful in the objects they have in view. I beg to move that the Bill be now read a second time.
§ Moved. That the Bill be now read 2a. —(The Earl of Selkirk.)
§ 3.12 p.m.
§ LORD PETHICK-LAWRENCE
My Lords, the noble Earl has, with his accustomed skill and knowledge, told us some details about the Finance Bill, the Second Reading of which he is moving to-day, and he has also given us a number of world facts. He has stressed particularly the favourable facts and I am very glad to know that things are to that extent going well. He gave us one or two unfavourable facts and no doubt he himself could very much have enlarged upon them. For instance, he could have enlarged upon the enormous increase in the share of export trade done by the Soviet Union which exhibits our trade as being of very small growth in comparison. Bu: I do not want to go into all those details. I am sure the noble Earl would not expect me to do so. I will only say, therefore, that we are grateful to him both for his exposition of the Bill and for giving us some optimistic view of the progress that the Government and the country are making.
He has brought to us the many-course meal which has been prepared in another Chamber of our common Parliament House. Its items do not come to us as any surprise. As recently as May 2 last, I myself introduced a Motion here on the Economic Situation which gave rise, as I anticipated, to an active debate on finance. It is our accustomed tradition in this House to deal with finance. To-day we have the full menu. The Chancellor of the Exchequer especially commends to us—and I think the noble Earl did so this afternoon—his disinflation sauce, with which he says that all the main dishes are flavoured. Sonic of us remember nostalgically the days when we ourselves in, another place took a hand in the cooking. To-day in your Lord- 370 ships' House we are not allowed to interfere with the cooking or to touch the products, but only to express in words our admiration or disapproval. But, if it is too late, as it is, to modify it, it is equally too early to pass judgment, for the proof of the pudding can only come with the eating. That, as yet, has only just begun. and, in spite of what the noble Earl told us, I myself feel that there is yet no sure sign that inflation is being held in check unless what is happening in the motor industry is to be regarded in that light.
Let me begin with the incentives to saving in the Bill. I do not suppose that arty of us have changed our minds regarding the lottery loan, a rather undignified proceeding for a Chancellor of the Exchequer, as I called it in May, and I think so still. Even if a number of millions of pounds are invested in it, we shall never know how much represents additional savings of money that would otherwise have been eater up in consumption and how much consists merely of a diversion from other, more orthodox, forms of investment. Equal uncertainty is bound to attach itself to the results of the encouragement of thrift through the remission of income tax on the first £15 of deposit in the Post Office or Trustee Savings Bank. Your Lordships recognise that there exist at present other nationwide repositories of savings to which this concession is not extended. May it not he that this differential will lead people simply to change their form of saving without increasing its amount? A day or two ago I was reading the Third Reading debate on the Finance Bill in another place and I gathered by the words the Chancellor of the Exchequer used that while he could not anticipate his Budget of 1957, he himself thought that this point was worthy of his further consideration.
I turn now to the Chancellor of the Exchequer's own direct contribution to saving. Originally, he promised to find £100 million and he now claims to have succeeded in discovering £76 million by cuts. I cannot say that I am greatly impressed by the character of the inventory of these items. J remember when I was a boy looking at a picture in Punch of two old ladies who had just got out of what we used to call in those days a "growler"—a four-wheeled cab. They had just paid the cabman a fourpenny bit, a threepenny bit, two pennies, four 371 halfpennies and four farthings in payment of the fare of one shilling. The legend underneath the picture was a remark by the cabman:And how long may you have been saving up for this little trip?When I look at the miscellaneous items in the Chancellor's list of alleged cuts, I am rather forced to see a similarity between that case and his. Not, of course, that I have anything to say against the Chancellor because there are a number of very small items, if they were really worthy and adequate cuts of unnecessary expenditure. But what do we actually find? Some cuts, such as those in the bread and milk subsidies, have been previously announced; some represent the running down of stocks, of physical inventories, and some are hypothetical under-spending in Estimates already made and accepted. Only a few contain any new proposals to do without unnecessary services, and not all of these are, in my opinion desirable.
At the same time, the Chancellor has. to admit that he has seriously under- estimated the cost to this country of keeping four divisions of our troops on the Continent. I have for long been greatly exercised in my mind over this commitment, and it seems to me that it constitutes a grave threat to our financal stability. If I understand it aright—no doubt I shall be corrected if I am wrong—it now seems likely that we shall have to find no less than £60 million or £70 million annually (it may easily be greater as the years go by) for the fifty years or whatever period it is that the Prime Minister has promised to keep these troops on the Continent. And, mark you! all this is in hard foreign currency and has to be wrung out of our balance of payments which we are already having the greatest difficulty to keep in equilibrium. It is certainly a very high price to pay for the object, even if it is achieved, of keeping our nearest neighbour in line with us in the matter of the Continental set-up. I confess it gives me great anxiety, and I feel it must have the same effect of those Members of your Lordships' House who have considered the matter carefully.
Now, on the larger issues of financial policy, the Chancellor is handicapped by 372 the consequences and mistakes of his predecessor in office, of which the most serious were his reliance almost exclusively on the weapon of dear money, and, in aggravation of inflation by his lavish reduction of taxation in his April Budget of 1955. Mr. Macmillan would appear to have realised the gravity of these actions by his decision, made in his Budget speech, to provide an estimated surplus above the line of some £100 million. To this, I suppose, we should theoretically add the cuts which he claims to have made of another £76 million. How far this precise sum or a greater sum may turn out to be a surplus above the line is at present quite hypothetical. It is far too early in the year to form any real estimate which would be of value in determining what surplus there may or may not be. But in so far as there is a considerable surplus above the line, that will have an important effect in reducing inflation and enabling us to pay off what is always a net debit beneath the line.
But I must remind your Lordships of what I ventured to say the other day when a local authority Bill was under discussion—that you cannot make any reliable comparison between this year and last year, because important changes in the form of presentation of the Budget have been introduced. The first was that the former Chancellor of the Exchequer decided that in future local authorities should be required to try to get their loans floated on the market and not come to the Treasury at all. Now that method has been increased. Therefore we were told the other day that the amount borrowed on local loans will be considerably less and that, automatically, that will reduce the amount of borrowing below the line. But it will not, of course, affect the physical facts; they will be precisely the same. The other change that the Chancellor has made is to put the finding of money for the nationalised industries in the below-the-line category, which presumably means that they will have to be met in the same way as other items which are there. Therefore, on both those accounts, one increasing and one reducing the below the line figures, we have a divergence from previous practice, and we must be careful not to make any undue attempt at correlation between one year and another.
373 With regard to Mr. Butler's other error, that of placing too much reliance on monetary action alone—and by that I mean high bank rate—there is some evidence that Mr. Macmillan has a new approach, and it may be that changes in the personnel set up at the Treasury which have recently been announced are part of this "new look". In spite of its great knowledge and experience, the Treasury has never had an adequate contingent of economists and experts on high finance on its staff; and if it is now the intention to employ more men of this calibre, that is to be welcomed. In saying this, I must not be thought to be expressing any criticism or disparagement of the retiring chief, Sir Edward Bridges, for whom I have the greatest respect and whose ability I rate most highly. It may very well be that the changes now announced arise from his suggestion.
I should like to say a few words about the campaign which is being conducted by the Prime Minister and the Chancellor of the Exchequer together to keep the level of prices stable and to secure promises of no increase for the next twelve months from both private and national industries. On a short view, it is sometimes argued that by not allowing prices to rise the result will be to enable the consumers to increase their purchases of other physical goods, and thereby not to reduce but to promote inflation; and it is suggested that the success which attended the efforts of the Ministers in the nationalised industries and some others—the most recent of which was announced in The Times today, of the recruitment to this doctrine of I.C.I.—will not really act towards reducing inflation but in the opposite direction. I do not associate myself with that criticism because I am convinced that, taking the long view, the psychological consequence is of greater importance. Rising prices constitute the climate in which all classes in the community who have any bargaining power clamour for greater monetary incomes. They must defend, they say. their standard of life, and, by doing so, they create the merry-go-round of rising costs and rising incomes to purchase the same quantity of goods.
My criticism of Her Majesty's Government in these matters is that they do not preserve a consistent policy. While they 374 are urging industry—nationalised and private—to freeze prices, and while they are, in a sense, subsidising the transport service in order to secure that it shall do so, they are themselves responsible for forcing up rents by their dear money policy and increasing the price of bread and milk by removing or reducing the subsidy on them. I realise that this may be in line with the principles of the Party, but it does not make sense to me if the purpose of Her Majesty's Government is to cure inflation.
In my speech in May last, I pointed out to your Lordships that the only real remedy for the present disequilibrium is to induce every section of the community to realise the position to-day, and that if any such appeal is to have effect, it must be addressed to all sections of the community. And it must be coupled with a solid intention by the Chancellor of the Exchequer to prevent evasion and even avoidance of burdens placed upon the community by Parliament. provided that avoidance is of an unworthy kind—as much of it is. Since I made that speech facts have come to light which have greatly disturbed and disgusted many people. I realise, of course, that everything which companies are prepared to allow as expenses is not necessarily Allowed for income tax purposes. Nevertheless, I hope that the Chancellor of the Exchequer will be sensitive to the widespread feeling that exists on this matter throughout the whole country to-day. I do not propose to deal any further with that question row, but there is something which I wish to say to your Lordships and, as far as my words will penetrate, to the country as a whole.
I was present, as were some of your Lordships who are sitting here to-day, when Mr. Winston Churchill made that wonderful speech in another place in which he said he believed that the time when we were resisting alone the whole might of Germany would be remembered as Britain's finest hour. I was greatly moved by that speech at the time and I believe history will bear out that Mr. Churchill was right. The sacrifices which we were called upon to make in the interests of the freedom of the world, were great sacrifices; but the people of this country were prepared to face and to make them. But what Mr. Churchill naturally did riot say at that 375 time and what has never been said to the people of this country, and what I want to say to them to-day, is this: the sacrifices we made in that finest hour were not complete at the time. Some of them have had to be borne ever since, and some of them are still to be borne in the future. In the war we lost nearly all our overseas wealth: we incurred a great National Debt: we let down the internal capital of our country, notably our housing, roads, transport and other forms of capital wealth.
Now to-day we have to compete with other countries, some of whom have not had to make those sacrifices—at any rate, not to the same extent. To-day our gold reserves are running down: our overseas wealth is no longer bringing us an economic yearly return; we have to meet the interest on the American debt; we have to supply our Colonial Empire with capital; we have to find substantial foreign exchange to meet the costs of our troops in Europe; and we have to do all these things in the teeth of fierce and growing competition from Germany, Russia, Japan and elsewhere. We have to meet their competition by the skill, the brains and the integrity of our people, by our industry, our shipping, our insurance and all the other services we render to the world.
My Lords, this is a tremendous task but it is not impossible. I never despair of the British people. But we must tell them the truth and must inspire in them a sense of the urgency of the task and the dignity of what is required of them. We must make it clear that everyone has his or her special contribution to make and that everyone who fails to make it is betraying his country and "blacklegging" his fellow citizens. If we can put this across to our people as a whole, irrespective of party and class, then I am confident they will not fail us in their response.
§ 3.38 p.m.
§ LORD BEVERIDGE
My Lords, I do not propose to discuss the Finance Bill in general; I am not sure how far we in this House are entitled to do so. I shall say nothing even on the fascinating problem of Premium Bonds. I want to concentrate upon something that is quite definitely within the power of Her Majesty's Government. and something 376 that I hope they will do as a result of what we may say here. Taxation at the levels which it has now reached has a dominating influence on the life of the people. It is an instrument of great importance for social policy, and I want to concentrate upon one Part of the Finance Bill, Part III, which is simply designed as an instrument of social policy. Part III, which includes Clauses 22 to 26, is headed "Retirement annuities and related matters". It represents a definite attempt. a definite plan. for taxation to be treated as a means of contributing to the solution of one of the greatest problems of the time—the problem of provision for old age. That is a very great problem. I think we all know it. It is one that is growing as more and more people become old in relation to the total population. That is what I want to speak about.
Before I do so, however, I should, in accordance with the well-known tradition of this House, inform your Lordships that I have a personal interest in this problem. Within the last three months I have become one of nine directors of an organisation known as the Noble Lowndes Pension Service, whose principal function is to design schemes of provision for retirement to be put into operation by employers for their staff through insurance companies. This organisation does not do the insurance, it only invents and submits schemes to employers to be put through insurance companies. This interest of mine as a director of that organisation, I need hardly say, has no bearing on what I am saying to your Lordships to-day. Its significance is that it gives me a certain knowledge of the practical problems which arise in dealing with the retirement of employees, through the organisation of employers' schemes for them.
It also has for me the attraction that it enables me to do one of the things that I think most needs doing in this country—that is, enabling everyone in the country to go well "beyond Beveridge" in his provision for old age, beyond the existing National Insurance, which was designed merely as a minimum to keep body and soul together, a minimum which was made free of any kind of means test, so that everyone should have the freedom and the incentive to go beyond it; so that every employer should have the freedom and the incentive to go beyond it for the 377 people employed by him. To me, that development of voluntary insurance for old age on top of the basic minimum provided by National Insurance is one of the major social problems of our time. National Insurance was never meant to be more than a basis from which voluntary insurance should start—as a supplement.
From that point of view I welcome heartily nearly everything in Part III of the Bill. Part III is a plan for doing some things which badly needed doing. In particular, there is one clause which extends the benefits of relief from taxation to a kind of insurance which did not enjoy it before—the retirement provision of self-employed persons. Professional people are now given the kind of relief from taxation which they ought to have (and I am delighted to think they are going to have it under this Bill) to make their provision for themselves. That is excellent, so far as it goes, but I want to make the point that, excellent as some things are in Part III of the Bill, it is not all as excellent as I think it should be.
The essence of additional provision for retirement as a supplement to National Insurance is that it should not be uniform; it should allow individuals and their employers to adjust the kind of provision for old age to their own particular desires, which are not, of course, the same for all individuals. Those who want to have deferred annuities should be able to get them with tax relief. Those who want endowment insurance, as well as deferred annuities, should be able to get that with tax relief. Those who want provision for dependants, as well as for themselves, should be able to get that, again with tax relief. I myself have spent a good many years of my time under the insurance system known as the Federated Superannuation Scheme for Universities, which was run wholly through insurance companies, with a perfectly free choice of the kind of provision you could make for yourself. And I stress the vital importance of having our taxation scheme such that it does not favour one particular method of providing for old age but leaves the individual and his employer free to adopt different schemes. In this respect there should be a liberal policy.
The Bill, as it stands, does not do that. The Bill, having introduced special pro- 378 vision for the relief of self-employed persons getting their deferred annuities. makes the same kind of relief for deferred annuities given by employers, but it denies any additional relief to other kinds of provision for old age. In the technical terms which are familiar to people who deal with this problem, but are probably not familiar to most people in this House. the Bill, as it stands, gives a certain advantage to all schemes under Section 379 of the Finance Act of, I think, 1952. It denies it to schemes under Section 388. I may say that Section 379 is a very old section. It dates from 1921. Section 388 is of much later origin, and therefore, I think, is much better. It came in in 1947. As it stands, the Bill seems to rut a premium upon one particular way of providing for old age but discourages others.
When the Bill was before another place the Government were repeatedly pressed to alter this state of affairs and to give the same kind of tax relief for all kinds of different provisions. Their answer was that they recognised the need for going beyond what they were doing now but. that they did not feel able to do it in the present Bill. Let me quote the words of the spokesman of the Government on that occasion [OFFICIAL REPORT, Commons, Vol. 554 (No. 169), col. 434]:I have said, and so has the Chancellor, that it is not possible to attempt to deal this year with all the difficulties, curiosities and anomalies which exist in connection with pensions schemes for employees.He went on to say:That is something which has got to stand over and has got to be tackled.And I am giving the reason why it has got to be tackled. In effect, the Government have promised a review of taxation in relation to retirement pension schemes. I want to urge that there are very strong practical reasons indeed for making that review immediate and comprehensive. and not putting it off until another day.
The first definite reason is that there are now in existence many different schemes—some for deferred annuities only, others with an element of endowment insurance. some with provision of one sort and others with provision of another. Under the Bill as it stands there will be a tendency for many employers to think that they can do best for themselves by coming under Section 379 and giving up Section 388. If that leads to a general switch-over of employers from 379 one kind of scheme to another, it will mean terrific work in changing over schemes for no material good. except that employers would be saving a little money. I cannot think why the Government insist on something which, in fact, they do not want to happen—they have said so themselves in so many words. They do not want employers to change over, and they have given excellent reasons why employers would be unwise to switch.
I want to quote the, to me, surprising words that were used by a spokesman of the Government in another place on this subject [OFFICIAL REPORT, Commons, Vol. 556 (No. 188), col. 280]:I strongly suggest to those people who are thinking of changing over … to bear in mind that there is a greater element of uncertainty in the future state of the law on this matter than perhaps they may have realised …Can your Lordships imagine how a Government spokesman can get up and use the uncertainty of the law as an argument on a vital question affecting the finances of all sorts of insurance schemes and be content to go on having the law uncertain? I suggest to the noble and learned Viscount that, while there are good laws and bad laws, no uncertain law can be a good one. Yet here the Government are proposing to go on with this uncertainty of the law and using this uncertainty of the law, which is within their power to change at once, as an argument with employers on how they should behave. I beg the representatives of the Government in your Lordships' House to put it to the Chancellor of the Exchequer that uncertainty of the law in a matter affecting the finances of retirement pensions is utterly indefensible and should be ended at once.
The second point I want to make is that, when the Government make that review—and I hope they will do it immediately and not at some later date—I hope they will make it on the principle of making tax relief available for all kinds of different schemes, and not merely for one particular kind of retirement scheme. I appeal to the Chancellor of the Exchequer to bring to an end the present uncertainty of taxation—which he has emphasised—in respect of retirement pensions schemes. That is something within the power of the Government. They could do it to-day. Inflation and many other things it may not be within their power to cure, 380 but this is something that is within their power, yet they are clinging to this uncertain law which, because of its uncertainty, is a bad law.