HL Deb 09 August 1966 vol 276 cc1704-25

3.58 p.m.

House again in Committee:

Clause 1 agreed to.

Clauses 2 to 9 agreed to.

Clause 10:

Interpretation, etc.

10.—

"non-qualifying activities" means—

(a) activities carried on for office purposes within the meaning of section 1(2) of the Offices, Shops and Railway Premises Act 1963, other than drawing and other than such activities falling under minimum list heading 486 or under sub-head 1 of minimum list heading 702 in the Standard Industrial Classification; or

LORD DARWEN

moved, in the definition of "non-qualifying activities", to leave out "heading 486" and insert "headings 486 and 489". The noble Lord said: I should like to preface my remarks on this small Amendment by referring to the speech of my noble friend Lord Champion on Second Reading. If I had some misgivings about the soundness of this Bill, his speech in reply to the Second Reading debate dispelled them. What I am now attempting is simply a little refining of what he referred to as "a blunt instrument". In the business of amending a Bill which has already received certification from the Speaker in another place, the position, as I understand it, is that any Member of this House can move a detailed Amendment, even though it is a Money Bill, and, if necessary, we are entitled to divide. This, I think, is rare. It is also extremely rare for a Back Bencher to divide a Committee against his own Party or Front Bench.

Although I did this yesterday, perhaps I should say once again that I have to declare an interest. From a financial point of view, this interest is quite negligible. I have, however, spent a good many years of my life in publishing, and perhaps it needs a publisher to understand how far the processes of publishing are involved in the manufacture of a book. I would submit that they are inseparable. A book does not just land on a publisher's desk for him to make an assessment of it and then go to the printers to be printed, and make arrangements for its distribution by the book trade. Nevertheless, this is a conception of what the publisher's function is which is very widespread indeed.

I should like to spend a few moments (and they will be only few) trying to correct that misapprehension. What happens is that in nearly all cases of non-fiction books it is the publisher who devises the book. He then gets an expert to write it; he then "vets" the manuscript and consults with the author; he then makes decisions about illustrations, he sends for estimates if he has not his own printing works, and so forth. During the actual course of manufacture he is constantly in touch with his printer, so that he consults on all kinds of matters—design, layout, proofs, and so forth. Therefore it would be impossible for any printer to print a book unless he had a publishing department with him.

My Amendment refers to the "non-qualifying activities" which are: activities carried on for office purposes within the meaning of section 1(2) of the Offices, Shops and Railway Premises Act 1963. This Act specifically included editorial matter for publication, so that it means in effect that publishers who have not that fifty-fifty role referred to by my noble friend Lord Shackleton yesterday will have to be penalised under the Bill. But there are quite a large number of publishers who have their own printing works. There are in fact some seventeen of them, and many of these are well known: Collins, Oxford University Press, Heinemann, Hutchinson, Nelson, Cambridge University Press, et cetera. I think I should also say that there are a number of publishers, well known, who have not their own printing presses: for example, Macmillan, Long-mans Green, Gollancz—perhaps that will do.

The same kind of division occurs in the newspaper industry, where a certain number of publishers have their own printing plant, and a certain number do not. I would put to my noble friend Lord Champion that the proportion of publishers who have their own printing works is sufficiently large for the arguments that he deployed yesterday concerning the newspaper publishers to apply equally to book publishers. I would ask him to give very serious consideration to this point. As I have said, partly through his advocacy and partly through Party loyalties, I support the Bill, and I think it is a pity that the Government should have moved an Amendment on Thursday night allowing the newspaper publishers exemption from this tax, and the premium, and deliberately, it seems, have excluded book publishers. I would ask my noble friend to consider this matter very carefully, for I do not feel that the answer he gave me last night really meets the case in view of the further facts I have put before him. I beg to move.

Amendment moved— Page 13, line 32, leave out ("heading 486") and insert ("headings 486 and 489").—(Lord Darren.)

4.5 p.m.

LORD GOODMAN

I am sorry to inflict a second speech upon your Lordships in the same afternoon, but I should like to take the opportunity of strongly supporting this Amendment. On this occasion, I have no personal interest to disclose, but I have a public interest as the Chairman of the Arts Council. I am concerned on behalf of the cause of letters, and I think this important Amendment touches the cause of letters very materially. Refusal to accept this Amendment, and the maintenance of a quite discriminatory distinction, based on no logic but on the accident of whether they have a printing works or not, will be in favour of the large publisher and to the detriment of the small publisher.

Over the years we have seen a very unfortunate trend—the increasing absorption into large publishing houses of a number of important, good, and very famous old publishing imprints. This is a tendency one would wish to see discouraged, and discouraged very sternly. This measure, if I may say so, will encourage it, because over the years I have had a professional concern with a good many publishers, and I have had an opportunity of seeing their balance sheets. I believe that noble Lords would be surprised and astonished to see on what tiny margins of profit—and often of losses—small publishing houses work. These are dedicated men. They love their craft; they love the work. They do it for that; they do not do it for the rewards. Rarely does one find that a publisher will embark on good publishing, of work of quality, with any primary intention of making a fortune. It seems to me that the people who engage in this type of work in order to advance the cause of letters and literature are entitled to special consideration.

It is most unfortunate that a discrimination of this kind has been driven into the industry by the accident of this piece of legislation. I do not complain about the Amendment in favour of the newspapers. It would be invidious if I did, because I am a trustee of one of the newspapers which benefited by the change. Moreover, I think it was a justifiable change, because without it the newspapers who would have borne the burden would have been those least able to sustain its impact. I do not complain about it but, of course, it has added to the grievance of the publishers. There can be no question about it, because the logic of their case becomes unarguable once it is accepted for the newspapers. If you accept that an organisation which is publishing a work of prints such as a newspaper can have this particular advantage whether or not it has a printing works, why in Heaven's name can you not accept that the same advantage can be enjoyed by a publishing house producing the work of print, whether or not it has a printing house? It seems to me that the logic of that contention does not admit of argument.

Once again, it is an unfortunate illustration of the odd consequence of this Bill that it appears, on the face of it, to be anti-intellectual, anti-letters, anti-art, and anti-culture. It works that way. It works, as I said before, because of the determination to divide all mankind into sheep and goats. When they do not fit into two categories of that kind, there is a third category for which no provision is made. I would urge the Government to give careful and sympathetic consideration to this claim. I think the money involved is very little indeed. They are bestowing on large organisations—which have not asked for it; I think it would be quite wrong and invidious to stigmatise them by suggesting that they have asked for any benefit over their colleagues—an unfair advantage over the small organisations, which at this moment of time need particular protection.

This is another reason why I hope the Government will seize the opportunity of accepting this Amendment, which is a small Amendment. It is an Amendment in favour of letters as a whole; it is an Amendment which would be very favourably received and which I think the country would regard as an appropriate concession to make. It does not touch on the policy of the Bill for one moment; it touches on things which I think the Government in their hearts are as much concerned about as I am, or any other Member of your Lordships' House. I would make this special appeal: that they should consider this an appropriate Amendment to make, even at this very late stage.

LORD STRABOLGI

I support strongly what has been said by my noble friend Lord Darwen and my noble friend Lord Goodman. If anything is a manufactured object I should have thought a book was, and it is indeed a particularly complicated one. A publisher is an integral part of this book manufacture, and indeed that is recognised by the Government for those publishers who own or are owned by printers, where the problem does not arise. Her Majesty's Government do not seem to be at all aware of how a book publisher works. They seem to be under the impression, as my noble friend Lord Darwen said, that all a publisher does is to negotiate a manuscript with an author and then send it down to a printer and have it printed.

They do not seem to realise that most of the make-up of a book is done in the publishing house itself. It is the publisher who decides what form any book will take; it is the publisher who selects the illustrations; it is the publisher who does the make-up, and later, the paste-up and also the proof reading. This is particularly complicated in the case of illustrated books, where one cannot really divorce the two. It would be as illogical to try to do that as to say that the making of lipstick cases was a manufacture but the manufacture of the lipstick mass was a service, whereas of course the two go together, just as a publishing house goes with the printing side of the same business.

Indeed, this is recognised by the Government in the case of newspapers, magazines published by newspaper groups, books published by newspaper groups, books published by publishers who are owned by printers, but it is not recognised for independent publishers. It seems to be most unfair on those publishers who do not own their own printers and, moreover—and this is a very important point which was made by the noble Lord, Lord Goodman—who are not owned by printers because, as the noble Lord said, there has been a tendency in recent years for large printing firms to take over the smaller independent publishers, and I would have thought this tendency would be accelerated by this Bill, and also there would be a tendency for publishers to amalgamate. Indeed, I think it would be certain to seal the doom of the small independent publisher.

Eventually, no doubt, we shall reach a situation where we shall require the attention of the Monopolies Commission and then the Government will start trying to unscramble the omelette, and start again. I do beg Her Majesty's Govern- ment to study the publishing industry in all its complexities a little more closely. They might possibly start with their own Stationery Office, which does a lot of distinguished work, and really find out what happens in publishing. Then I think they would be quite clear in their minds that the publisher should be classed as a manufacturer in the same way as publishers of newspapers and many magazines.

LORD SHACKLETON

I do not think there is any need for the noble Lord, Lord Darwen, to feel that he is in any way embarrassed by being a publisher and declaring his interest. I am quite sure that the whole of this Committee in your Lordships' House will agree that we all have the most powerful interest, personally and generally, in publishing. I strongly endorse the views expressed by the noble Lord, Lord Goodwood—sorry! I should have said Lord Goodman. I apologise to him—his name seems to be unlucky but, if I may say so, his speeches to-day have been superb. The eloquence he has brought to bear on these matters which touch us very closely on quite fundamental questions of national living, will, I know, have been greatly appreciated by your Lordships. I should be most concerned if I thought that this tax was in any way seriously going to endanger literature or indeed the arts—and here I agree with the noble Lord, Lord Conesford, and thank him for his perhaps backhanded support, but if I may say so, entirely logical view that it is difficult to single out one particular artistic or creative activity from another.

I think the noble Lord, Lord Darwen, has, on a major point, misunderstood the significance of the Bill. He called in aid—indeed. he founded much of his case upon—the analogy of the newspaper and of the Amendment which was made in what was described as "the Observer case", but it is relevant to other newspapers and to provincial newspapers also to put them all on the same basis. The noble Lord, Lord Darwen, gave us a list of publishers who own their own printing works, but these publishers will not, in respect of their publishing activities, benefit at all unless in fact these printing works are part of the same establishment. In many cases of newspapers this is so. I know one or two small publishers and printers who are housed in approximately the same buildings, but I cannot for the moment mention any major publisher who does his printing in the same place as he does his publishing.

LORD ROBBINS

With great respect, may I declare an interest?

LORD SHACKLETON

Yes, we all do.

LORD ROBBINS

The Financial Times group owns the educational publishing firm of Oliver & Boyd whose printing works is in the same building.

LORD SHACKLETON

Yes, I did say that there may be one or two exceptions; but I am quite sure the majority—and this is the sort of case on which we have not yet had evidence, and I should like to know whether even then technically it would be the same establishment within the meaning of the Act—

LORD ROBBINS

Since the noble Lord was kind enough to give way and to take notice of my first observation, might I perhaps ask him to give me the benefit of his advice? The holding company of which I am chairman also owns in Edinburgh two printing works in addition to the printing works which is domiciled in the establishment of Oliver & Boyd. In the interests of efficiency we had decided to rationalise these printing works and to bring them all together under one roof, the roof of the firm of Messrs. T. & A. Constable. Would the noble Lord advise me whether it would be a sensible thing for me to arrest that operation which is now in train, having reached very satisfactory arrangements with the trade unions concerned, or whether I should proceed with it nevertheless?

LORD SHACKLETON

I hope the noble Lord will not base his decision on the advice I give him, but it sounds to me as if it might well pay him to continue with this particular arrangement. But, again, I would say this is a matter on which it will be necessary to establish whether these are technically separate establishments within the meaning of the Bill. I know the noble Lord sat faithfully through most of the Second Reading debate yesterday, but I was conscious when I came to that part concerned with the definition of establish- ments that I could have gone on at much greater length. Even then, one would have to look—and I say this as being relevant to a point made by the noble Baroness, Lady Asquith of Yarn-bury—at the precise circumstances of the particular firm to make it possible to give a clear ruling. But I stand by the point that in relation to publishing (and I prefer to call them publishers, rather than manufacturers of books) the application of this will not produce the distortion that was the decisive factor in regard to the newspaper industry.

LORD DARWEN

If I may interrupt the noble Lord, he speaks of the newspaper industry; but would he not recognise the fact that heading 486 mentions not only newspapers but also periodicals? This is important.

LORD SHACKLETON

I certainly accept the noble Lord's correction: it arose primarily out of newspapers, but it certainly applies to periodicals.

Both Lord Darwen and Lord Strabolgi gave us some account of book publishing, and I thought the noble Lord, Lord Strabolgi, perhaps taught us something which, even if we are not all publishers, is familiar to many of your Lordships in this House. I must say that speaking, as other noble Lords have done, as an author, I only wish that I had not had to do as much proof-reading, as I and other noble Lords have had to do; or as much selection of illustrations. None the less, having been also an editor, acting for a publisher, I know that there are certain types of publication, some of them very elaborate publications, where very great editorial skill is required and where the production is comparable to periodicals or films. But, having granted all this, I must stress that I think the damage that is likely to be done will be a great deal less than has been implied, although not quantified, in the speeches of my noble friends.

If we look at the production of a book and at the costs involved, it is worth noting that, of the costs of the book as it leaves the publisher (and there are slight variations according to whether it is fiction or non-fiction, or even paper-back) broadly something like 30 to 32 per cent. is on the printing, binding and paper. This will, of course, attract premium and to that extent will be an offset against the payment of the selective employment tax by that part of the publishing activity which will in fact pay the tax.

It is difficult, I find, to get precise figures on this matter, I have had to draw on certain figures which were published recently in The Publisher. As I mentioned, in the case of a novel something like 32 per cent. of the cost goes on paper, printing and binding.

LORD DARWEN

May I interrupt the noble Lord again? Is he suggesting, in speaking of the 32 per cent. of the production costs carrying the premium, that those publishers who employ outside printers will, in fact, get a reduced price?

LORD SHACKLETON

I hope the noble Lord will let me deploy a fairly difficult argument: I was about to come to this point. The position will still be the same. The publisher should get the benefit—I will not say he will get a reduced price, but at least it will not be an increased price. It is the hope of the Government that there will be certain savings where this premium is paid, and the position ought to be the same whether the publisher goes to an outside printing firm or does his own printing. But I am not making a major point of this. My major point is that, of the cost of the book when it leaves the publisher, only a proportion will attract tax.

At this point the author—to whom the noble Lord, Lord Conesford, so rightly referred, although there has been little mention of authors in other parts of the discussion—is himself responsible for 20 per cent. of the cost of the book as it leaves the publisher. Of course, the author certainly will be self-employed and will not pay the tax, though possibly his amanuensis might do so. When we look at the management of the publishing firm—what might be called the production—we find that the figure is around 30 per cent., and of this only about 10 per cent. is editorial production and directors. Then there is another 7 per cent. on surcharges and carriage, where again there will be certain refunds on the carriage, so that this also should not be affected by the tax.

I have not been able to arrive—although I recognise that it would have been helpful to your Lordships if I had been able to do so—at an estimate of the effect of the cost of this tax on publishing. The noble Lord, Lord Goodman, said he thought it would be very small. I certainly accept that in the past a number of publishers, particularly small publishers, have failed; that others have had a difficult time, while some have been subject to amalgamation. It is perfectly true, as the noble Lord, Lord Strabolgi, said, that there has been a large element of merging, although I do not think it is likely to reach the stage—I think the noble Lord was indulging in hyperbole—at which the Monopolies Commission might have to take action. I would say sincerely that I do not believe that this tax will significantly damage publishing. As I say, it affects only a proportion of the publishing process.

Nor do I think, on the evidence I have had so far—although we shall look with great interest into the points made by the noble Lord, Lord Robbins, and watch how he arranges his affairs—that it is likely in any way to produce the sort of distortion which would have arisen in the newspaper and periodical industry and which was the main ground for that particular Amendment. It is perhaps a dangerous thing to say (though I think the noble Lord, Lord Conesford, will sympathise when I say it), but I believe it is unwise to apply too much logic to different parts of this Bill. The broad purpose, however, must stand. The moment one goes into the details and the anomalies, one is liable to get into trouble. But I assure your Lordships that on the evidence—and I have looked into this very closely—I see no grounds for apprehension.

I appreciate what the noble Lord, Lord Goodman, said: that anything which could put a serious tax on knowledge or the arts is something we should have to be deeply concerned about. But I appeal to my noble friend to wait and see what the effect is. I cannot give an undertaking, but if our assessment of the way in which this tax would operate in relation to the book-publishing industry proved to be wrong, we should certainly be prepared to have another look at the position. In the meantime, I feel that this will not have the damaging effects my noble friend may fear.

LORD DARWEN

I think your Lordships will appreciate that the reply of my noble friend Lord Shackleton is not satisfactory, because it does not answer the points which I put to him, and which other noble Lords who supported this Amendment put to him. However, in view of his closing assurance, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

4.30 p.m.

LORD NUGENT OF GUILDFORD

moved, in the definition of "non-qualifying activities", after "702" to insert, "or under sub-head 1 of minimum list heading 704". The noble Lord said: I beg to move this Amendment, which is distinguished from its predecessors, not by being more logical, but by the fact that the intention to benefit the shipbuilding industry was included in the White Paper. The effect of this Amendment is to restore the shipping industry, not the shipbuilding industry, to the position which it appeared to have according to paragraph 16 on page 5 of the White Paper, which says: It is not intended that the tax should fall effectively on transport"— and then there are certain savings, and it continues: Shipping (including fishing vessels) and other forms of transport such as airlines and inland waterways will, with ports and airports, generally speaking, have the tax refunded, though there will be some exceptions. So it was evidently the intention of Her Majesty's Government to include the shipping industry within the benefits of these refunds and premium.

It is true that the fate of the two previous Amendments, which could not have had better intrinsic merits nor have been more eloquently argued. gives me little encouragement to think that my Amendment may fare better. But I rest on the strength of my argument, partially, it is true, on its intrinsic merits (although I realise that that does not count for too much) but more on the fact that it was clearly the intention of the Government to include the shipping industry in these benefits.

I believe the reason why the intended benefit has slipped is that it may not have been clear to Her Majesty's Ministers at the time of drafting the Bill itself just what the structure of the ship- ping industry is. As I understand it, it was the intention of the Government that a shipping company should benefit by a refund if its seagoing personnel exceeded its shore-based personnel. Then, the whole of the personnel, shore-based and seagoing, would benefit by the refund. But where the shore-based personnel exceeded the seagoing personnel, then no refund would be made. Normally, of course, there would be no difficulty at all in a company qualifying by this definition. But there is a further complication in that now, under the Bill, only seafarers who are both domiciled and resident in the United Kingdom may count as seafaring personnel for this purpose—I imagine because of the necessity for registration under the National Insurance Act for employment purposes.

In the shipping industry the difficulty arises for companies who employ large numbers of Asians or lascars who are not normally resident in this country. In fact, the structure of the shipping industry is such that, out of the total of 150,000 seagoing men in the industry, no fewer than 40,000 are either Asians or lascars, and therefore not domiciled in this country. In the light of those figures, it is quite clear that companies who employ a large number of seafarers who are not home-based and not domiciled here will not be able to qualify according to the definition of the Bill, because the seagoing men whom they employ will not count to match against the home-based personnel, who will not qualify unless they are exceeded in number by the seafarers.

This is the point—it seems a sound technical point. I believe it was the intention of Her Majesty's Government to include the industry as a whole. It is an industry which is not only a saver of foreign currency but also an earner of foreign currency. It is now recovering from the severe setback of the seamen's strike. It is in the fiercest possible competition with foreign shipping companies. Therefore, the last thing that anybody would wish to do, I am sure, is to handicap it by imposing upon it additional taxation.

There is just one further point. Of course, some of these shipping lines are in competition with the nationalised Transport Holding Company and British Railways shipping services. Here again, I think it is the general principle of the Government not to upset the basis of fair competition between the nationalised lines and private lines. It is on these grounds that I feel that this is a special case, distinguished by the words in the Government's own White Paper, that their intention was that the shipping industry should benefit. It is on these grounds that I urge the Government again to look at this point, and on these grounds I beg to move the Amendment.

LORD CHAMPION

Before the noble Lord sits down and the Question is put, I should like him to explain to me the point about the nationalised as opposed to privately-owned lines. Is he suggesting that there is some element of distinction in this connection? I did not quite get the point.

LORD NUGENT OF GUILDFORD

Yes. I am sorry if I did not make myself clear. As I understand it, there is. There are certain shipping lines which are run by British Railways, such as the cross-Channel services. There are certain shipping lines which are run by the Transport Holding Company. Both of these services are, in certain cases, in competition with the private shipping services, and unless the Amendment is made there may be some lines which employ a large number of non-domiciled seafaring men and which would be put at a disadvantage if the incidence of tax fell upon them. This is, I think, an additional point—it was not my main argument—for asking the Government to look again at the shipping industry and, I hope, to accept the Amendment, the effect of the Amendment being that all shore-based personnel would qualify for the refund, leaving the seafarers in the certain category in which they now fall. Whether it is done in this way, or whether some way can be found in which the non-domiciled seafarers can be brought in in order to correct the imbalance that will occur in some companies, I do not know. I feel that this is a good point, and I hope that Her Majesty's Ministers will look at it.

Amendment moved— Page 13, line 33, after ("702") insert ("or under sub-head 1 of minimum list heading 704").—(Lord Nugent of Guildford.)

4.38 p.m.

LORD CHAMPION

This Amendment is one which has been considered. It has been considered by the Chamber of Shipping of the United Kingdom. I rather think that there is some misunderstanding here by the Chamber and, to some extent, by the noble Lord. The seagoing personnel of shipping companies are regarded, for purposes of the Bill, as being employed from a shore establishment. This is agreed between us, is it not? But the point that the noble Lord makes is one that is chiefly based on the fact that some shipping companies employ what I might call foreign recruited seamen in the operation of their business.

Under the provisions of Section 44 of the Finance Act which we have just passed, no selective employment tax will be paid in respect of any mariners in foreign-going ships, whether they are domiciled in the United Kingdom or not. I am sure that this is common ground between us. It hardly seems reasonable for the shipping companies to argue that seamen recruited abroad, in respect of whom no tax is paid and many of whom will not be employed from an establishment in the United Kingdom, should nevertheless be allowed to count for purposes of determining a United Kingdom shore establishment entitled to refund of the selective employment tax.

The noble Lord argued the point about the nationalised industry being favoured as against a private company. The only case I can think of where they are in competition would be in the cross-Channel services. In this case I am sure the noble Lord will know that the companies which are in competition with the nationalised industries do not employ seamen who are recruited outside this country. This term is usually applied to men who are recruited in Asian countries in particular. The more I look at this the more I feel that this is one case, at any rate, in which the Government are right.

SEVERAL NOBLE LORDS: Oh!

LORD CHAMPION

The Government are right in most things but on this one I feel on more secure ground than I did on the cases that have been argued previously on this Bill this afternoon. I do not think there can possibly be anything here which is really adverse to the shipping companies. In some things they will to some extent be better placed than large manufacturing concerns. For example, shipping companies are likely to be in a better position than large manufacturing concerns with head offices in London, as they will be able to treat their seagoing personnel as being employed from their head office and will be able to obtain refunds for the head office as a whole.

This is a case on which I feel no difficulty at all about asking the noble Lord to withdraw the Amendment. But if by any chance it should happen that this Bill in its operation will work as the Chamber of Shipping and the noble Lord believe it will work, but as I believe it will not work, the Government will include this subject in their review after the first year's operation of the tax and will be prepared to consider any representations which may be made in the light of experience. I can assure the noble Lord that after careful examination the Government have decided that they ought not to accept the Amendment at this stage, but they will certainly be prepared to consider what the noble Lord has said and will consider any representations which I imagine the Chamber of Shipping will not be slow to make if they find they are being adversely affected.

LORD NUGENT OF GUILDFORD

I must thank the noble Lord for his explanation and answer, although I have to confess that I feel little persuaded by it, and I am staggered that he finds that this is the best case he has looked at out of all. I agree that he has looked at some pretty frightful ones, but really this is an anomaly. In fact, he makes out for me the case I have been arguing when he speaks about these lucky shipping companies which can count in their head office personnel because they are covered along with the seafarers. That is just what I am pleading for, that some companies employ foreign seafarers and therefore will not be able to include head office personnel or any other shore-based personnel. It sticks out like a sore thumb. However, this is not the occasion to press the Amendment and I can do no other than withdraw it. But unfortunately the shipping companies will make further representations to the noble Lord because this is a case which he should look at again. I can only hope that, after next year's review, this will be the very first case to be corrected.

Amendment, by leave, withdrawn.

Clause 10 agreed to.

Remaining clauses and Schedules agreed to.

House resumed: Bill reported without amendment; Report received.

Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of August 1):

LORD CHAMPION

My Lords, I beg to move that the Bill be now read a third time.

Moved, That the Bill be now read 3a.—(Lord Champion.)

4.48 p.m.

LORD SALTOUN

My Lords, this would seem to be the appropriate moment, for me to express my thanks to the Government for the consideration which they have given to the charities in their concession under Clause 5 of the Bill. I have not put down any Amendment to the Bill, but it seems to me that the Government are still in something of a quandary in this matter, and perhaps I can best express it by referring to the conditions in relation to a blind school with which I am connected—and similar conditions must apply to a large number of charities all over the country. The blind school with which I am connected runs two establishments, for children and also for adults. All the pupils are received at present from local authorities, but if any of your Lordships were to go blind I think you would probably have to go to the school with which I am connected to learn how to be blind.

The school, like many other charities, feeds all its pupils by contract with caterers. As it has two establishments, its catering charges are considerable. The caterers say—and I quite understand their viewpoint—that because of the selective employment tax they will have greatly to increase their charges. This particular school could probably meet the extra charges by increasing its fees to the local authorities, but it would then be up against the Government's prices and incomes policy, for the Government would not wish to see any increase in their fees. The only other resource left to the school would be to dip into its own general fund, which is not a very large one. It would be forced to dip into its capital, which has been subscribed by the British people for the service of the blind.

I think Her Majesty's Government will see that this is a matter which cannot be deferred, because the fees of the school only meet its current outlay, and they cannot be increased out of hand. In this particular case, it may be possible, as I say, for the school to have recourse to the local authorities, but there must be a great many other charities which practise very much the same method of feeding people for whom they are responsible, and which do not have that recourse; so that their position will be even more unhappy. I have represented this particular case privately to Her Majesty's Government, but I hope that the general question will be considered by them, and without very much delay, because it is quite obvious that the matter cannot bear a year's delay and a year's experience. Once more, I return to where I began, and I thank the Government for the concession which they made to charities in respect of this Bill.

4.53 p.m.

LORD SINCLAIR OF CLEEVE

My Lords, I must apologise for my inability to be in your Lordships' House for the Second Reading debate, but having read the OFFICIAL REPORT there is one point to which I might appropriately refer on Third Reading. It is related, but strictly additional, to a point which was clearly and forcibly argued by my noble friends Lord Harlech, Lord Conesford, Lord Barnby and Lord Nugent of Guildford. It relates to what I may, for the sake of brevity, call the forced loan. In that connection, perhaps I ought to declare a two-fold interest: on the one hand, a connection with manufacturing industry, in which case the interest I suppose, in theory, ultimately would be that of a beneficiary; and, on the other hand, a connection with banking and insurance in which respect, I suppose, the interest would be that of a contributor.

But the point which I particularly want to make is this. At the very moment this forced loan, starting next month, approaches its peak, which is estimated to be of the order of between £400 million and £500 million, of which admittedly a part will be temporary, industry will be beginning to feel the full effects of the strain put on its finances by reason of the requirement, under the corporation profits tax, to hand over to the Revenue income tax formerly deducted from dividends. These two things will be complementary and will, I believe, create an exceedingly serious financial situation. Although it may be appreciated by Members of your Lordships' House, I do not think the gravity of this combination of these two forces, working together, has yet been adequately appreciated throughout the country.

I believe that by the end of this year, and the early months of next year, there will inevitably be many desirable and important industrial development projects which will have to be postponed; and some will even have to be cancelled. It is quite conceivable—though this would be very rare, in view of the priority given to exports—that occasionally a very desirable export project will be delayed through lack of finance. This arises through the Chancellor's inability, or unwillingness, so far, to admit of any relaxation in the 105 per cent. limit imposed on clearing banks through the Bank of England.

This situation is one which we should seriously not be prepared to tolerate. Many of us, in all walks of life at this time, and of various political persuasions, in the situation we have got into, or have been got into, or perhaps, preferably, in which we find ourselves—a situation largely created by loss of confidence—if we are convinced, as many of us are, that it is only by something like the standstill that we can hope to stem the rapidly rising tide of inflation, can just tolerate the thought, hateful though it be, of industry being put into a straitjacket even for a year. I might go further and say that most of us in this situation are prepared to do what we can to help. We are prepared, indeed, to put on a hair shirt under the straitjacket and to be pretty uncomfortable. However, what this forced loan, plus the other disadvantages to which I have referred, will mean, is that under the hair shirt something like an internal hæmorrhage is being generated; and this in turn is going to mean that, when we come through this crisis, the country will be that much slower and less able quickly to recover its position.

In these circumstances, may we express the hope that the Chancellor might give further consideration to a temporary relaxation in the application of, what I may call, the 105 per cent. rule? I am sure that the noble Earl the Leader of the Houseis very familiar, from his past experience, with all the arguments in this situation. But I hope that he and his colleague will bring all the force of argument and persuasion that they can to bear in this direction. This is not a matter in which a relaxation on the Hart of the Chancellor would in any way reduce the confidence which we have regained. I believe that the contrary is true; that if we do not have some relaxation by the early months of next year, we shall find ourselves in a situation in which that confidence will be further undermined.

5.0 p.m.

LORD CHAMPION

My Lords, I am most grateful to the noble Lord, Lord Saltoun, for his opening remarks about the Government's action in relation to charities. One is bound to feel that, with his particular knowledge, there is very great point in the remarks that he made about the way in which taxation will fall upon certain charitable institutions—and, of course, the Royal Normal College for the Blind happens to be his special interest in this connection. The fact that we have exempted charities has been, as he said, well received. There is, however—and this the noble Lord knows—no provision in the Bill which would exempt charities from tax in respect of the services provided on contract to these charitable organisations—and this is the point. To the extent, therefore, that these charities employ firms which pay the tax, no matter what they might happen to be—building, retailing, catering or any other employment upon which the tax is levied—the future cost may be put up as a result of this tax. This we admit. Prices will be influenced in the same way as they are influenced by the incidence of any tax. Purchase tax is an example. Many of the articles which these institutions purchase are, of course, affected by purchase tax and other taxes.

I do not think I can say to the noble Lord that there is any way at all, or any way that we could devise, which would, in relation to this particular tax, relieve these organisations of the incidence of the tax which will result from the S.E.T. It must be for all these organisations who employ catering contractors, and such like, to consider whether they ought to use their own services for these purposes.

LORD SALTOUN

My Lords, may I interrupt the noble Lord for one moment? That, of course, has been considered as a device. The school does not like it, and the caterers hate it because it is certain to lead to labour troubles.

LORD CHAMPION

Yes, my Lords. This is a matter which the appropriate charity, school or organisation, whatever it is, must carefully consider, in regard to what would be to its greater advantage. I dislike having to say to the noble Lord that I fear I cannot help him here except to note what he has said, and to thank him for his very sympathetic interest in this matter, and for his kindness in writing to the Government on this point before raising it to-day. I am extremely grateful to the noble Lord.

The noble Lord, Lord Sinclair of Cleeve, has raised a point which has been exercising the mind of the Government. It is one to which considerable thought has been given at every stage of this Bill, both in the other place and here. The figures which the noble Lord gave seemed to me to be in excess of what in fact will be the position. The figures I have got show that by the end of December the involuntary loan (as I prefer to call it, rather than the forced loan) will have reached a total of £160 million—and it should be remembered that this is not the total over the whole period from September 5, but the total reached by the end of December. It will be rising throughout the whole of the period from September 5 until the end of December. At the beginning of January there will be a decline, because the employers in the premium category will be receiving their refunds, plus their premiums in the case of those in the manufacturing category. Of the sum of £160 million, £140 million will have been received from employers in the premium category and £20 million from employers who are to receive a full refund of the tax but not of the premium.

The Chancellor of the Exchequer, who has an extremely difficult job at this time in trying to deflate, to take some of the over-heating out of the economy, in reply to a Question in the other place on July 12, with particular reference to S.E.T. and S.E.P., said: There is no room yet for any relaxation of monetary restraints, and I have therefore agreed with the Governor of the Bank of England that the present ceiling on bank advances of 105 per cent. of the level in March 1965 should remain from now until the end of March 1967 and until further notice thereafter". He continued: I shall continue to keep the position under review, but it follows that there will be no general arrangements to offset the intended effect of the tax."—[OFFICIAL REPORT, Commons, Vol. 731 (No. 52), col. 1198; 12/7/66.] I fear that that is a very firm statement. But he also added, in reply to a later Question: the banks have already given and are now giving top priority to exporting firms which are in need of credit". (col. 1199.) The Chancellor has to consider all these matters in the light of day-to-day movements in the banks and all such circumstances, and I am sure that, as he said, he will continue to keep the position under review. I am sorry that I cannot quite give the noble Lord the assurance for which he has asked, but, clearly, coming from such a knowledgeable source as the noble Lord, Lord Sinclair of Cleeve, I am sure it will be noted by the Chancellor of the Exchequer.

On Question, Bill read 3a, and passed.