§ 6.13 p.m.
§ EARL FERRERS rose to ask Her Majesty's Government why, for the purpose of the Selective Employment Tax, the Government are not placing Agriculture, Horticulture and Forestry in the same category as those industries which process agricultural, horticultural and forestry products. The noble Earl said: My Lords, in rising to put this Question I realise that I am inviting your Lordships to delay a little further the moment at which you would normally start the Whitsun Recess. For that I readily apologise. But I make little apology for raising this Question as such, because, quite frankly, the whole of the selective employment tax and its effect on agriculture, horticulture and forestry, and the manner in which it has been applied and so forth, bristles with irrationalities and inconsistencies.
§ This is in fact the second occasion upon which I have put down a Question on the selective employment tax, and I am bound to say that I find it a trifle peculiar that, just shortly before it is due to be debated, the Government have changed their minds with regard to various aspects of the tax. Last week I put down a Question about why agriculture should not be entitled to any refund of tax at all and, just shortly before the Question was put, the Government altered their mind and said that the refund would not be by way of the 1531 February Price Review, but would be under normal circumstances repayable by the Government. To-day, my Question refers to the effect of the tax on agriculture, horticulture and forestry, which of course was always going to pay the tax and have no form of recoupment. Then yesterday we find that the Government have changed their mind again.
§ I like to feel that they have changed their mind because I have put down my Question. But I suppose such self-imposed flattery is somewhat ungracious, certainly impertinent, and probably inaccurate. However, I am glad to see that the Government are at last seeing the light in regard to agriculture; and I hope that after we have had this short debate, and when all the points which are still irrational and still inconsistent have been brought out, they will change their minds still further. I assure the noble Lord, Lord Champion, that we look forward to some further change on the part of the Government.
§ May we examine the situation a little? The Chancellor of the Exchequer decided on the selective employment tax as a method of raising tax and, broadly speaking, classified all businesses in the country into one of two categories: either they were manufacturing industries or they were service industries. That is putting the position broadly. I have no intention of commenting this evening on the effectiveness or desirability of the tax, because this is neither the time nor the place, but let it be perfectly clear that one can at least see the reasoning behind it. Within the manufacturing category there is no distinction. You can manufacture safety pins or steam rollers—you are a manufacturing industry and, as such, you come into Category One for the selective employment tax. The basis of this classification therefore is: are you engaged in manufacturing?
§ If we are to accept this quite general classification—and we must, because this is the basis of the tax—my question is simply, why exclude agriculture? By "agriculture", I include horticulture and forestry. Here, let me say that I hope that the noble Lord in reply will not use the argument that the Government have moved a long way to meet agriculture by altering the original decision that any 1532 recoupment should be by way of the Annual Price Review, and that I am being unreasonable in trying to get more. I do not wish to get anything. I wish that to be perfectly clear. But I want to point out that the Chancellor, by his method of imposing this tax, has deliberately and possibly unwittingly, discriminated against agriculture, horticulture and forestry.
§ As the position stands at the moment, the farmer pays the selective employment tax in September, and he then receives a refund in full in February. This poses three questions. First of all, if he is going to receive a refund, why pay the tax in the first place? Secondly, why should agriculture give to the Government an interest-free loan of £12 million per year? Thirdly, if the tax is to be refunded, why is agriculture not to be put in the first category and classified as a manufacturing industry, and thus enjoy not only the refund but also the premiums due to a manufacturing industry?
§ Is agriculture a manufacturing industry, and should it be treated as such? I suppose that a purist would say that you do not manufacture wheat, you grow it. Equally, a miller does not manufacture flour, but grinds it. Yet the miller is put into Category One and the farmer is not. Again, it is not generally considered that a cow is a manufacturer of milk; yet no one has yet devised a better or more efficient machine than the cow for converting grass into milk. Yet the farmer who produces the milk gets no premium, but the person who puts it into a bottle does. Is this logical? I, for one, think it is not.
§ I cannot see why the producer of the primary product is not to be put in the same category as the person who processes that product. Why, for instance, should the man who grows tomatoes get no premium, but the man who makes them into ketchup get a premium? Why should the man who grows peas get no premium, yet the man who puts them into tins get a premium; or the man who grows beans gets no premium, but the man who freezes them receive a premium; the man who grows potatoes get no premium, but the man who makes crisps get a premium; the man who grows fruit get no premium, yet the man who makes lollipops get a premium; the person who for thirty, fifty or a hundred years has grown wood get no premium, 1533 but the man who makes orange boxes get a premium? These, I respectfully suggest, are illogicalities.
§ Many farmers, in addition, have had their agricultural buildings—their piggeries, their poultry houses, their bullock yards—rated for one reason, and for one reason only, because their premises have been dubbed as "factory" farms. I put the same question to Lord Champion as I put to his noble friend Lord Shepherd last week, a question to which he was unable to reply. The question is this: If these buildings are to be regarded as factories for the purposes of rating, why should they not be regarded as factories for the purposes of the selective employment tax? I do not believe this makes sense, because I believe agriculture is as much a manufacturing industry as are those industries which make one-armed bandits and those which process pet foods. I believe agriculture should be placed in the first category, and I invite the noble Lord this evening to say that this will be done.
§ I hope the noble Lord will not use the argument which was mooted by Lord Shepherd last week, that the Government puts a lot of money into agriculture by way of the Price Review and by various other means, and therefore this in itself is reason enough to exclude agriculture from the first category. I can assure the noble Lord that that argument just will not wash. This tax does not pretend, nor should it attempt, to take into account any Government grant, involvement or investment in an industry. It stands, on its own, as a tax.
What is the Government's reason for their reluctance to consider agriculture as a manufacturing industry? Is it that the Government feel that farmers are hoarders of labour, or that if they receive the premium they will begin to hoard labour? One might be forgiven for thinking that the Minister of Agriculture takes this view, because only ten days ago he said:
Since one of our objectives is to release manpower from agriculture, it would not make sense to give a premium payment on workers employed in agriculture. It would look wrong and it would be wrong.
I am sorry to see that the noble Lord Lord Hilton of Upton, is not in his place, because I wonder how he took those remarks, having just relinquished the
Presidency of the National Union of Agricultural Workers; or, indeed, what the noble Lord, Lord Collison, who normally sits behind him, thought about them. I could not help wondering how they viewed the prospect of a Labour Government actually wanting to push agricultural workers off the land, and deliberately denying agriculture the right to be placed in the premium category in order to achieve this end. How different are those words spoken by the Minister from the words spoken by an Opposition spokesman in another place when, in referring to the Chancellor of the Exchequer, he said:
I hope that he will give an adequate reason why there has been a decrease in manpower on our farms.
Those words were not in fact spoken by Mr. Godber, nor by Sir Martin Redmayne, his predecessor; they were spoken by Mr. Peart himself, when he was in Opposition.
§ The real point is that agriculture has reduced the numbers it employs enormously without the incentive, or the disincentive, as one might feel it, of the selective employment tax; it has increased its efficiency out of all proportion. Is it hoarding labour, or is it likely to? The National Plan is based upon an annual decrease in manpower in agriculure of 20,000 per year. But from June, 1964, to June, 1965, the number leaving agriculture was not 20,000, but 33,000. Indeed, if labour continues to be lost to agriculture at this rate—and I say this advisedly to the Government—it could well be that the task given to agriculture under the National Plan will not be achieved.
It may be the Government feel that those employed in agriculture are not put to the best possible use, and that if agriculture is put into a premium category it will merely aggravate what the Government may consider to be an unsatisfactory state of affairs. But the annual increase in output per man in agriculture between 1960 and 1964 was 6 per cent. How does this compare with other industries? In the textile industry the figure was 3.3 per cent.; in mechanical and electrical engineering, 2.9 per cent.; in paper, printing and publishing, 2.7; in clothing and footwear 2.3; in iron and steel, 1.3; in machine tools, minus 1 per
cent. in shipbuilding and marine engineering, minus 5.9 per cent. In agriculture, plus 6 per cent. Yet all those industries are going to be entitled to claim a refund on all their employees—but not agriculture which stands at the top of the list. The average annual increase in output per man of all manufacturing industry was 3 per cent. Agriculture was double that, 6 per cent., and yet it is to be excluded as a manufacturing industry.
On productivity our agriculture has an unequalled record. It has been going up at a rate of about 6 per cent. a year. This is more than double the rate of the economy as a whole. You are carrying a lot of the other fellows on your backs. We really should not have much trouble if the whole of our manufacturing industries were doing as well.
Who said that? None other than the Prime Minister on April 5 this year. So, even the Prime Minister agrees that agriculture has done twice as well as other manufacturing industry, and yet still his Chancellor deliberately excludes agriculture from its rightful place among the manufacturing industries. What a pity he did not say those words to his Chancellor as well as to the farmers.
§ How has this tremendous productivity been achieved? It has been achieved by greater efficiency and by continual vast investment of cash in agriculture, which is now running at no less than £170 million per year. That £170 million compares with £85 million in the iron and steel industry; £80 million in the motor vehicle industry; £24 million in the oil refining industry. I repeat that in agriculture the figure is £170 million. Indeed, if we look at the fixed investment per man, we find that in agriculture, forestry and fishery the figure is £217 per man; in mining and quarrying it is, not £217 per man, but £159; in manufacturing industry in general, it is £140 per man; in the construction industry, it is £61 per man. Money is being invested in agriculture; men are being released from agriculture; but still the Government say "No, you are not a manufacturing industry".
§ The picture which I have given is not the picture of an industry hoarding labour, but of a dynamic and progressive industry, one which is the biggest saver of imports, and which, under the National Plan, is required by 1970 to save the country a further £200 million. 1536 It is right that it should be treated as, and considered as, a manufacturing industry, especially as it has been called upon to make further massive investments of capital in the future in order to increase food production.
This tax in itself may be bad for agriculture, horticulture and forestry, but the manner in which it has been brought in—being altered and not altered—gives rise to particular concern, because it gives the impression that grossly inadequate consideration has been given to the effects which it will have on these industries. I believe that the answer may well be that there has been no liaison between Government Departments. The Chancellor announced the Budget with these sweeping proposals, saying that agriculture would be reimbursed by the method of the Annual Price Review—a most inadequate and unsatisfactory method, as was subsequently admitted. The Government then changed their mind, but the noble Lord, Lord Shepherd, if I may say so, let an extraordinary cat out of the bag last week, in answer to a supplementary question from me, when he said that the Government had changed their mind as the result of
… further conversation within the industry itself, which the noble Earl will accept was not possible before the tax statement was made".—[OFFICIAL REPORT, Vol. 274 (No. 13), col. 880, 17/5/66.]
What was the Minister of Agriculture doing? Does he not liaise with the Chancellor of the Exchequer. Was he even unable to tell the Chancellor what would be the simplest effect of this tax on the industry? Was it really to be left to the leaders of the industry to complain to the Chancellor of the Exchequer after the proposals had been put forward?
§ I should have expected that the Minister of Agriculture would explain to the Chancellor precisely what effect those proposals were going to have. It may be that the Chancellor never consulted him. Does the Chancellor, indeed, as the noble Lord, Lord Shepherd, suggested, make his proposals first, consulting nobody, not even the Ministers whose Departments are going to be affected, and then discuss them afterwards? If that is so, I should have thought that this was a pretty inadequate and unsatisfactory way of going about the matter, because it results merely in impossible and impracticable measures, which have been 1537 inadequately thought out, being put forward.
§ One then wonders why, as the Chancellor of the Exchequer had made the first announcement about the selective employment tax and its effect on agriculture, it was not the Chancellor who announced the alteration in the proposals. For it was not him: it was the Minister of Agriculture; and it was not in a Statement: it was in reply to a Written Question in another place. I should have thought it a somewhat novel way of announcing the alteration of the tax system, for it to be explained in answer to a Written Question. I should have thought the correct way for that to be done, normally, was for the Chancellor of the Exchequer himself to explain how he intends or does not intend to gather in taxes.
§ I am bound to say that the selective employment tax, and its effect on agriculture, horticulture and forestry, have been quite inadequately appreciated. I believe that the Government—now that they are realising the terrible disaster which their original proposals were going to cause—are understanding the difficulties involved. I am glad that the Government have moved a long way from their original position, but I ask the noble Lord to look at this tax most seriously and most carefully. I ask him, when he comes to reply this evening, to tell the House that the Government have thought yet further about this, and that they realise that these important industries are, in fact, as much—and more—manufacturing industries as are some of those at present in the first category of the selective employment tax. I also ask the noble Lord to give an assurance that agriculture, horticulture and forestry will be put in the same category as those people who process the products of agriculture, horticulture and forestry.
§ 6.35 p.m.
My Lords, I greatly enjoyed what one might call a rattling good castigation of the Government from the noble Earl who has just sat down, and of course I agree with a great deal of what he said. I particularly liked his splendid list of extraordinary anomalies and illogicalities. He is, of course, right in saying that agriculture, except in a technical sense—certainly in regard to the 1538 selective employment tax—is a manufacturing industry. Nevertheless, in spite of the apparent oddness of not classing agriculture as a manufacturing industry, I should be inclined to accept the situation and to get the recoupment which agriculture ought to have in this context, but to get it in other ways.
First of all, I take the view that the best way to recoup the indirect effects of this tax is by means of the Annual Price Review. Of course, the indirect effects of the tax are, first of all, the increased cost of services, of contract work and of those other things which the service industries pass on to agriculture; and, secondly, the interest—not the lack of the premium of 7s. 6d.—which farmers have to pay for lending the Government a large sum of money. On the Minister's own authority yesterday, that sum of money, believe it or not, between September, when the tax starts, and the Annual Price Review will be between £11 million and £12 million. It is a startling thought.
The Minister has said categorically that everything which affects the viability and profitability of the agricultural industry will be made good in the Review; and he must play fair on this point. These costs must not be left to be made good, even partially, by increases in efficiency. The Minister has been less forthright on that point. He said that the costs will be taken into account in the Annual Price Review, but he has not said categorically that some of them will not be left to be taken up by increases in efficiency.
Your Lordships will remember that, at the last Annual Price Review, agriculture made up something like £30 million-worth of increased costs by increased efficiency; and what the noble Earl, Lord Ferrers, had to say about the outstanding efficiency of the agricultural industry in this sense is very remarkable. It would be most unfair if agriculture had to incur these costs and make them up by means of increased efficiency, while the manufacturer is isolated from them by the 7s. 6d. premium. Of course, this 7s. 6d. premium is partly, no doubt, to encourage people to go into industry; but it is also partly to insulate the manufacturer from these very costs. And agriculture, as the noble Earl proved so conclusively, is a manufacturing industry, except in the technical sense.
1539 I think it would be better not to insulate agriculture from the effects of these costs by means of a direct payment, of the same sort as manufacturing industry is getting—a 7s. 6d. premium, as it were. I believe that if that were done it would cost something like £5 million which would have to come straight off the Annual Price Review, and then the single self-employed farmer would not be at all happy. Though why anybody should have a 7s. 6d. premium at all, I cannot understand. I can see the force of a tax of this nature; I can see the sense of having exemptions from it. But I cannot see the point of a 7s. 6d. premium. By all means have a tax, and let some people off it; but to give a subsidy is an odd way of proceeding.
As to the other two groups in the same category as agriculture, the neutral zone—the Civil Service and transport—they can make good their costs by passing them on to the consumer, the customer. Agriculture cannot. It seems to me that it would be an extraordinary anomaly if agriculture—which, I repeat, is a manufacturing industry—were less favourably treated than either the premium zone, on the one hand, or its colleagues (if I may use that term) in the neutral zone, on the other. I accept the fact that there is a case for not treating agriculture as part of the first category. It is an anomaly: the noble Earl has demonstrated that to all of us beyond any possible doubt. But there are certain aspects of that illogicality which I accept.
The National Plan points out, and I think proves, that agriculture is properly a labour-loss industry, and I think that is fair enough. It would be making rather nonsense of the Government's National Plan to say that, on the one hand, the agricultural industry is a labour-loss industry, which I accept, and that, on the other hand, it has got to have a premium to persuade people to go back into it. Here, I think I disagree with the noble Earl about the position of people in the agricultural industry. I would say only that there is a danger that we shall push them out of agriculture rather too fast. The present rate of increase in production is, I think, something like 6 per cent. If we go too fast, I think there is a possibility that we might endanger the Government's avowed aims of increased 1540 productivity in agriculture, and that discrimination of this nature on the labour front might be too soon and go too far. I think we must take care that it does not go too fast—and, mark you, in France they are a little worried that they are going a little too fast. They recognised that agriculture was properly a labour-loss industry, but they have gone too fast and I think they are a little worried about this.
Also in connection with labour, I would urge Her Majesty's Government to consider the question of what one might call "fringe" men in agriculture—that is, the part-time, small farmers who do other kinds of jobs. There are no statistics, or no very accurate ones, as to how many men there are in this category, but there are a lot of them. I think they serve a valuable purpose in the industry, and one must think carefully what effect this tax is going to have on them. Similarly, there are other "fringe" men—the 55-year-old-plus men who do a bit of tidying up, vermin killers who kill rats, rabbits and other vermin of that kind, and so on. There are many of these men, and the Government want to think about them very carefully when they get down to considering some of these anomalies. Here I agree very strongly with the noble Earl: all these anomalies ought to have been sorted out before. I think it is preposterous that these ideas are being argued out in Parliament now. They should have been argued out months ago.
There is one last subject I should like to touch on as a very strong reason why I should like to keep agriculture in the present zone, in spite of certain anomalies and certain ridiculous features, and that is the question of rating. I would not have raised this question, because I do not think it is entirely germane to this particular debate, but the Minister of Agriculture has spoken about it very recently when speaking on the subject of the urge to put agriculture into the first category. He said, "If I do this, do you want to have agriculture re-rated?". I am quite sure that in fact the Minister of Agriculture would do no such thing and would press no such thing, because I have no doubt that he knows as well as all of us do that there are two very strong arguments against it. The first and most forceful one is that the rating 1541 of agricultural land is something quite different from the rating of agricultural buildings. When you rate agricultural land you are not rating in the ordinary sense; you are taxing a raw material, and this is something quite different from and unsuitable to agriculture. So for that reason alone I hope very much that such suggestions will go no further. The other and more immediately obvious reason is, of course, that if agricultural land were re-rated it would be the subject of a total re-claim under the Annual Price Review; so it is as broad as it is long.
For all the reasons that I have mentioned, although I agree with the splendid case which the noble Earl produced for saying that agriculture is, properly speaking, a manufacturing industry, I would nevertheless be inclined to say that I would rather it stayed in the neutral zone and that we recouped ourselves along the lines that I have suggested. I agree with the noble Earl that this is not the occasion on which to go into the whole question of how a selective employment tax should work, and why this is not, properly speaking, a payroll tax but a poll tax. All these problems are not for us to-night. Nevertheless, it does seem to me extraordinary that a tax with such glaring anomalies could be thought up and put before us. Indeed, they are not really glaring anomalies they are glaring nonsenses. It seems to me extraordinary that we cannot, rather on the lines of the Americans, thresh out some of these problems by various Parliamentary Committees before they are flung at us in what is a rather half-baked state. But having said that, I think—and so, I believe, do a lot of the professional bodies concerned with the land that there are very strong arguments for leaving agriculture in the neutral zone.
§ 6.48 p.m.
§ LORD BALERNO
My Lords, I rise to support wholeheartedly my noble friend in his protest to the Government against the maltreatment of agriculture in this way, and I support three-quarters of the way what Lord Henley has said. I am afraid I cannot go the whole way with him in putting some of the recoupment on to the subsidies. I rise particularly in regard to how these matters will affect Scotland. Here I must apologise that I was unable to make contact with the 1542 noble Lord, Lord Hughes, who looks after these agricultural matters for Scotland, but, having had experience, both to-day and formerly, of the expertise of the noble Lord, Lord Champion, I feel sure that the Government will in no wise suffer from the absence of the noble Lord, Lord Hughes.
Scotland is particularly badly struck in this matter, both in agriculture and in forestry. To take forestry first, forestry plays a bigger part, a very much bigger part, in the economy of Scotland than it does in England's economy, and a very much bigger proportion of the people of Scotland are engaged in forestry than is the case in England or Wales. I was glad that my noble friend Lord Ferrers included that in his remarks, because it is a very important point; and it is going to be extremely difficult to understand and explain why timber merchants qualify for the 7½"it per cent., or whatever it is, while the growers do not. If it is the timber merchants only who are to qualify for this premium, surely this is going to discourage harvesting by the timber growers themselves either with their own or with contractors' staff. This is the most efficient way of harvesting timber; it is the economical way of supplying many of the new bulk markets for which timber can be cut into correct categories of woods.
Dr. Frankel, to whose ideas we are largely indebted for the construction of the new pulp mill at Fort William—and he is responsible for its running—said only the other day that it was becoming almost cheaper to import wood from Canada for the pulp mill than to grow it in Scotland. Here is an increased charge which will indubitably fall on the timber industry in Scotland. There is no doubt of that: costs will then go up and we shall, perhaps, price Scotland's timber out of the new £20 million pulp mill which has just been erected at Fort William. They must go on working, but they must of course buy their timber as cheaply as they can.
My Lords, I will turn to agriculture. Scottish agriculture is much more dependent than English agriculture is on animal production. The proportion of animal production in relation to the total output of Scottish agriculture marketed is substantially higher in Scotland than it 1543 is in England. Animal production requires more manpower than cereal production; therefore this tax will bear heavily on those farmers who employ labour, and many of them will think about how they can decrease further the number of men whom they employ. One example of what has already happened is the increase in the practice of running two hersels together on a hill. The total output is reduced by one-third; the manpower is reduced by one-half. This I think is going to be an inevitable result of the Government's policy. However, I must not trespass further on the expertise of my noble friend Lady Elliot of Harwood, who is far more skilled on the matter of hill-sheep farming than I am. But this is an important point.
As a dairy farmer myself, I was glad to note what my noble friend Lord Ferrers said about the cow as a manufacturer of milk and about its not being treated by the Government as such. The question I should like to ask the noble Lord, Lord Champion, arises from that. What happens on the farm where you are a producer-retailer, as we are? If you are a producer-retailer, you are bottling your own milk. The bottling of that milk, as my noble friend pointed out, is a manufacturing process. Are you to get the premium if you bottle milk in a city but not if you bottle it on the farm? How is that distinction going to be made? The noble Lord, Lord Henley, made certain animadversions concerning the "fringe men" in agriculture. I had them down in my notes as "the ancillary workers"; but whatever they are called, it is important that consideration should be given to them.
My Lords, I should like to draw the attention of the Government to the question of milk records. In Scotland, all the work of the milk recorders, including butterfat analysis, is done on the farm; but it is different in England. This tax will add almost certainly to the cost of recording; and in Scotland we are up against a terrible problem at the present moment. I was looking only yesterday at the last report of the Scottish Milk Records Association. It said that the number of herds recorded, of cows recorded, is steadily declining and that there has been a substantial decline in the year under review.
1544 The importance of recording nowadays is that it is from the recorded cows that you are able to test your bulls for artificial insemination. If you do not have an adequate number of dairy farms recording, and those records being processed according to the different bulls who sired the cows that produced the milk, you cannot test which hulls should be retained for artificial insemination. If you cannot do that, you cannot get an improvement in milk production through breeding. It is an extremely important thing; and it applies in a less degree in England. The present cost of milk recording has led to the decline in the number of records, and if it goes on much further we shall not be able to test the dairy bulls at all adequately.
There is another point in relation to the "fringe men". Are the livestock officers employed for pig recording by the Pig Industry Development Authority to be taxed? Or are they to receive the premium free because they are helping to manufacture pigs? It is a point on which one should get enlightenment. One could ask the same question in relation to all three categories: the staff at pig testing station, those at bull testing stations and those at cattle testing stations. Are these men employed in agriculture; are they manufacturing; or are they merely servicing? If they are merely servicing, that means that the cost of that service to the farming industry as a whole is going up; and the point about factory farming shows how anomalous is the whole thing.
Are the Government going to have it in every way possible, as my noble friend Lord Ferrers said, by rating the poultry factory farmers and the pig factory farmers and then not calling them manufacturing industries; calling them farmers and not giving them a rebate? We shall almost expect, if this goes on (because the thing is getting into such an illogical situation) that they will be termed "service industries".
My noble friend Lord Ferrers said that this tax must stand on its own; but nevertheless we must look forward to what is liable to happen in the future. We must look at the situation as it will exist in a year or two when the commodity subsidies will almost certainly be decreased. The reason I say that the commodity subsidies will almost certainly be decreased is because I took time off a 1545 month or two ago to read a pamphlet, A Time for Decision, which said:Most important of all, we,"—the Labour Party—shall initiate the radical reforms required to achieve cheaper marketing of foodstuffs by reducing the gap between what the producer receives and what the consumer pays".The selective employment tax can only have the effect of widening the gap between the consumer and the producer, as the increased costs of distribution and service are passed on. Those charges come to something quite substantial. The agriculture industry, the farmers of this country, are spending nearly £1,000 million a year on goods and services. The increased costs of these goods and services that will be a direct result of the tax are certainly going to be passed over to the farmer. Would 5 per cent. be a fair guess at what the increase will be? I do not think it is far out. That means £50 million on the annual cost to the agriculture industry because of this selective employment tax.
The noble Earl, Lord Ferrers quoted what the Prime Minister said at the National Farmers' Union on April 5. It makes sad reading in the light of what has happened since then. These are the words, and I think they might be quoted again, in full. The Prime Minister said:On productivity our agriculture has an unequalled record. It has been going up at a rate of about 6 per cent. a year. This is more than double the rate of the economy as a whole. We should not have much trouble if the whole of our manufacturing industry do as well.My Lords, this tax is a slap in the face for British farmers.
§ 7.2 p.m.
§ BARONESS ELLIOT OF HARWOOD
My Lords, I rise to support the noble Earl most wholeheartedly. I speak, as did the noble Lord, Lord Balerno, as one who farms in Scotland. I have an interest as I am a farmer, and I declare it. I support all that was said by the noble Earl, Lord Ferrers. He has pointed out the many anomalies in this extraordinary tax, and the extraordinary way in which it was announced and, so far as agriculture, forestry and horticulture are concerned, has been changed. We do not know so far, but perhaps it might be—I hope it will be—changed yet again. In any case, it is most extraordinary. I have 1546 read as much as I can about the tax and listened to what I could on the radio and elsewhere on this subject, and I still remain quite bamboozled about the whole thing.
I speak with some feeling, for the present Minister of Agriculture, Fisheries and Food is a most delightful person—he is most sympathetic towards farmers—who, I am quite sure, fights as hard as he can in the Cabinet for the farming industry. But every Minister of Agriculture is at a great disadvantage in the Cabinet. I know that, for I was for a number of years married to a Minister of Agriculture. I know how he had often to fight—sometimes losing the battle, but not always—against a very heavy proportion of the 21 or 22 members of the Cabinet—I cannot quite remember the number in the Cabinet to-day, but on the whole they are, frankly, not particularly interested in agriculture. Although the Prime Minister may be very generous, and kindly entertains farmers to dinner at No. 10 Downing Street, and goes to their dinners and makes helpful speeches, which have been quoted in this House, so far as the ordinary practical farmer is concerned this is kind, nice and generous—but "eyewash". I think that something more has to be done if we are to get any real policy for farming in the National Plan.
I have often wondered—this applies not only to the present Government but to other Governments as well—what would happen if some members of the Cabinet represented constituencies where the people were truly interested in farming. It has I think happened in respect of some past Governments, but so far as I know there is no-one tending sheep in the High Street at Huyton; no-one milking cows in South-East Cardiff and, though I do not know, I imagine that in Belper there are probably only miners or people interested in that industry. It is a great pity that we cannot have some Cabinet Ministers who are really interested in the farming industry, because, on the whole, the Minister of Agriculture has to fight a lone battle in the Cabinet. I notice that to-day the noble Lord, Lord Champion, is also fighting a lone battle. He has the support of two noble Baronesses, but otherwise he has to stand up alone to the barrage from Scotland and from elsewhere.
1547 I agree with the noble Earl, Lord Ferrers, who asked why agriculture was classed first as a service industry and then, after an outcry, as a neutral industry. We are not in the least neutral, we are a very active, hardworking and practical body of people. I do not feel neutral, and I do not think that the industry should be called a neutral industry. We do a number of essential things which this Government in particular are very anxious should be done. We are a dollar-saving industry and there are very big exports of agricultural machinery, fertilisers and so on. We know that in time of war the farmers are essential, but in time of peace we have to struggle on with everything weighted towards manufacturing and other types of industry. In spite of this, the members of the agricultural industry increased their production over the last twenty-five years so that now we supply about two-thirds of that part of the nation's food which can be produced in this country; compared with only half in the period before the war, although the population was then much smaller.
The farming industry has been asked to give up more labour, and figures of the amount of labour which has left the land have been quoted. I could also give (it is too late in the evening to do so) quotations from Ministers, particularly Ministers in this Government, who have talked about stopping people from leaving the land. Now in the National Plan we are again being asked to give up more men. The number of men regularly employed by the industry has fallen from 680,000, in 1955, to 480,000, in 1964, and I think that the figure has gone down considerably since then. I do not think we can continue to lose more and more men from the land.
As the noble Lord, Lord Balerno, has said, there are certain great sections of the agriculture industry where manpower is absolutely essential. The noble Earl, Lord Ferrers, talked about the intensive type of factory farming. I know best—and I think that there are noble Lords on both sides of the House who also know it—the other kind of agriculture, the stock-rearing type which represents the greatest proportion of farming in Scotland and Wales; and that type of industry desperately needs men. The other day 1548 I heard the noble Lord, Lord Collison, who is the greatest expert on the employment of agricultural workers in the country, say that there was no shortage of labour on the land. With all due respect to him, I beg to differ from the noble Lord. I know that in the areas where stock-rearing is important and where shepherds are needed, where it is impossible for farming operations to be mechanised, there is a shortage of labour.
In the area in which I live I notice week after week there is never less than two columns of advertisements in the local newspapers by people applying for shepherds and tractor drivers. They are the two main types of labour in short supply. I also read in other of the farming papers, like the Scottish Farmer and the Farmer and Stockbreeder, long columns of people who want more labour. It is not possible to keep up production of beef cattle and mutton, let alone increase it, unless one is able to recruit sufficient labour for the purpose.
As my noble friend Lord Balerno said, people are trying to rear 1,000 or more sheep with one shepherd, and inevitably the sheep death rate is high. The difficulties are so great that you cannot possibly keep up the rate of production without men. At some point or other when we are discussing agriculture I shall have more to say about this. But on this particular matter of the tax and the way it is going to affect our industry, I would say that it is simply no use thinking that we shall be able to continue with our production and our efficiency. I do not need to repeat the figures about efficiency which have been given—the noble Lord, Lord Champion, knows them very well—and the way that our industry has contributed to the national economy.
I now come to the point that I particularly dislike about this tax, and it is that, even though we are now told (and I am glad that we have been told) that we are to have it refunded, I cannot, for the life of me, see why we should pay out 25s. a week with one hand and be given back 25s. a week with another hand, while in the process a great number of clerical workers will have to be employed. The farmers themselves will have to do considerably more accounting, because you cannot do all these things without more accounts and more 1549 accountants. This question of agricultural accounting, as we all know, is a tremendous business. And all this is going to be done in the interests of—what? I cannot see why we are going to pay and it is going to be refunded to us, with all this tremendous business of paying it into an office, giving a whole lot more people forms to fill up. It must, in the process, lose some of its value, because it is a costly operation. If you did not pay it, and did not have to have it back, no money would have to change hands. It is a kind of Alice in Wonderland situation.
I have tried to think who could have thought of anything so extraordinary and, in a way, inefficient. During the last Election we heard from all sides—and it was perfectly justified—that this was going to be a more efficient Government who would do away with all the inefficiencies of the past years. If ever anybody invented a way of using clerical labour, form filling, postage and the rest of in order to take away from somebody 25s. for every man he employed, and giving him back 25s.—well, words fail me. This is the most inefficient method of dealing with taxation and people that I have ever known. I am inclined to quote Alice Through The Looking Glass:The Walrus and the CarpenterWere walking close at hand;They wept like anything to seeSuch quantities of sand;'If this were only cleared away,'They said, 'it would be grand‡'I feel that if this could only be cleared away we might see where we were going. But this kind of Alice in Wonderland atmosphere of taxation is appalling.
To sum up, the agricultural industry helps the nation in three main ways. We can save imports by our valuable production. We can export large quantities of agricultural machinery, fertilisers and so on—I could give all the figures, but it is late, and I will just mention that in 1963 the export of agricultural machinery was worth £130 million; and it is worth more to-day. We can make good use of labour. We can make as good a use of labour as any other section of the community. My noble friend Lord Ferrers has given the figures per head of the workers in agriculture compared to the production in other industries. I beg the noble Lord, Lord Champion, to see 1550 that he and some of his colleagues back up the Minister of Agriculture so that we may get a better deal for agriculture. Do not let them look upon us as a neutral industry, because we are not.
§ 7.15 p.m.
§ LORD BARNBY
My Lords, my purpose in rising to speak is to support the appeal which my noble friend Lord Ferrers made that the Government should take another hard look at their proposal on this matter with regard to agriculture. He made so forceful and convincing a speech that it does not really need further support from this side. But the noble Lord who is to reply has already had experience, and knows well, that when it comes to matters of agriculture there is on this side of the House a wealth of speakers who are both knowledgeable and authoritative on these matters. Tonight we have had a most interesting explanation from my noble friend Lord Balerno of the complications and classification of various actions that are necessary in connection with agriculture.
My noble friend Baroness Elliot of Harwood speaks with great knowledge, as did her husband, whom I remember so well: he spoke not only with authority, but with great knowledge, and always in an appealing way. It appeared to me that my noble friend Lord Ferrers emphasised the inadequacy of the preparation that had taken place from all angles affecting agriculture.
I would only give one illustration that came to me last week in relation to wool. The wool clip of Great Britain is collected with great efficiency by the Wool Marketing Board. I was told last week by the Secretary that of the authorised agents through which the Government's scheme works one-third falls under one classification and two-thirds under another classification. They are all employed to do the same operation and function in part in a similar way. There must be scores of other cases where such complete confusion exists. So it seems that agriculture has an additional reason to assume that the Government will take another good hard look at this matter.
My noble friend Baroness Elliot of Harwood emphasised that the Government take away with one hand and give back with the other. She said nothing 1551 about the loss of interest. Of course, the whole purpose of this scheme is interest-free loans to the Government. The banks have already reached the point where they cannot make any more advances: indeed, they are beyond the guide line of 5 per cent.
Where on earth is the money to be found? I have some doubt whether the Government have really considered what proportion of those in industry and agriculture who are likely to be called upon to put up this interest-free loan to the Government currently have an overdraft with their banks. In view of the guidelines of the Government, the banks are in no position to give further advances, and I am sure there must be tens of thousands of people in the country who are wondering how this financial jugglery is to be resolved. My purpose in speaking was to support my noble friend in his appeal. His reason as to why there should be reconsideration was convincing, and it is that which I wish to support.
§ 7.22 p.m.
§ EARL FORTESCUE
My Lords, before the Minister replies, there are one or two points I should like to make. I will be as brief as I can, because it is late. The noble Lord, Lord Barnby, has emphasised the point brought up by the noble Baroness that this loan is interest-free. Why agriculture is to give the Government a loan interest-free absolutely passes my comprehension, and I should like to know why it has been proposed. This is not the case with the so-called manufacturer, because he gets 7s. 6d. on his loan, which must be an exorbitant rate of interest.
I should like to dissent from what the noble Lord, Lord Henley, said when he advocated utilising the Price Review for this purpose. The Price Review rarely gives wide satisfaction to anybody. Sometimes a farmer is lucky, sometimes unlucky, over the Price Review. But it does nothing for horticulture at all, still less for forestry. I think that some adjustment of the Government's proposals would be much more suitable than adjustment in the Price Review. Of the different types of farmers concerned, the very small man with a family farm does not have to pay, because everyone working on that farm is self-employed. The very large cereal farmer, highly mechanised, 1552 can probably manage to pay, because by much mechanisation he has reduced the proportion of his labour bill to turnover.
The man who is really hit is the fairly small farmer, who employs, say, two or three men and who has not been able to take advantage of the various improvement schemes which have come up hitherto because he was offered only a third of the cost of improvements. He has been unable to carry out those improvements and thereby reduce his labour costs in proportion to his turnover. That man is extremely hard hit, and one can say that he is almost certainly already in the red. I rather see an underhand Government attempt to squeeze out this type of farmer by forcing amalgamations and liquidations, in the same way as the tax is calculated to drive out the private schools.
§ 7.24 p.m.
§ LORD CHAMPION
My Lords, as I listened to this debate to-day I wondered whether I was in the House of Lords, or in the House of Commons on the Committee stage of the Finance Bill. It seems to me that we have strayed a little into fields which are proper to another House, because here we are dealing with something which is appropriate to the other House. But I do not stress this point, and I will not make use of it to run away from the debate which was started by the noble Earl, Lord Ferrers, with a forceful speech.
I must admit that, as I sat here this evening, if I had not known something about agriculture my heart would have been bleeding for it. But it is not. I know that exaggeration is the language of politicians, and I am used to it. I have been in this game a long time, and I have listened to a tremendous amount of exaggeration here tonight. The noble Earl started by referring to a change of mind by the Government. I really do not know what he is complaining about. The other day he lectured the House on democratic procedures, and praised them in relation to an Order that was going through this House. If Parliament is not the place in which to criticise and persuade the Government of the day to change their mind, the sooner the whole place is dissolved the better. I have no desire to change what is taking place.
1553 The Government came to a decision on a matter which, clearly, they could not go out into the world and discuss with everybody—as we will do on Transport, the subject of the other debate I was answering this afternoon. They prepared something which they thought would work, and they thought that it would be easier to do it through the Price Review. As a result of democratic procedures and discussions, both inside and outside the House, the Government changed their mind and made an announcement. And we are charged with doing precisely this. If we are not permitted to do this, and if Parliament is not to function in this way, the sooner the whole shoot is dissolved, the better it will be for the nation. It will certainly save the expenditure of a lot of money on Parliament and everything that Parliament means.
I am tremendously in favour of this system. This sort of thing will happen from time to time. If ever it should be my bad fortune again to sit on the Benches opposite, I am sure that I shall be doing very much what the noble Earl has done to-night; that is, criticising the Government of the day. I hope the Government of the day will do precisely what we have done in this connection—look at it, and come to the House and say that they have changed their minds on some of the detail, purely as, or partly as, the result of this democratic procedure that I am now praising so highly. And I should hate to see it lost to this country. The last thing I want to see happen—
§ LORD CHAMPION
That is what I am saying, and I am saying that the Government were right to consider all the points raised in this connection. The only thing I dislike about the noble Earl is that if the Government come along with a gift-horse he not only looks it in the mouth but feels its legs to see if it has splinter. Nevertheless, it is a process of democratic Government, and I am still in favour of it, despite this debate to-night and the debates I have had to answer to-day.
I am grateful to the noble Earl for raising this question, despite my doubts about its suitability to this House in some of its aspects, because it gives me an opportunity, on behalf of the Government, to express the appreciation which the 1554 Government have of the valuable contribution that agriculture, horticulture and forestry are continuing to make to the development of the national economy. As the noble Earl knows, the National Plan envisaged that home production would rise steadily over the next few years, and in view of the past record of these industries I am confident that the desired levels of production will be reached.
I know that there has been widespread concern because the premiums which will be paid to manufacturers will not be available to employers engaged in agriculture, horticulture and forestry. As I understand it, the argument is quite simply that all productive industry—this word has been stressed many time tonight—should be given similar treatment, whether it relates to natural processes on the land (such as the cow giving milk, which somebody instanced) or to factory-type operations. This argument is based on a misunderstanding of the purposes of the tax, which I will come to in a moment.
What I should like to stress now is that it is quite wrong to think of the scheme as dividing industry into classes based on their relative importance. We have never regarded agriculture, horticulture or forestry as second-class industries. The fact that they are not to receive premiums does not mean that they have been in any way downgraded. As my right honourable friend the Minister of Agriculture, Fisheries and Food pointed out in a recent speech to the National Union of Agricultural Workers at Shrewsbury, the same category includes such important classes as the miners, the seamen, the dock workers, transport workers and workers at power stations and gas works. Each industry has a contribution to make to the smooth running of the economy, and the treatment of each for the purposes of the new tax merely reflects our overall assessment of the present deployment of labour and our considered view of the best method of raising revenue to meet current requirements.
I will therefore seek to put the picture in perspective by explaining the main objectives of the tax. In his Budget speech the Chancellor of the Exchequer made it clear that in proposing the tax he had three things in mind: first, to avoid the adverse effects of further increases in purchase tax and income tax; second, to broaden the tax base; third, 1555 to make a positive contribution to the long-run structural changes needed to achieve a healthy balance of payments. These considerations pointed to a new payroll tax and, in turn, directed the incidence of the tax on various sectors of industry.
A feature of the existing tax system was that manufactured goods subject to purchase tax and Excise duties bore a disproportionate burden of tax when compared with service industries, including distribution. This was one of the main reasons for giving premiums to manufacturers. Another reason was that the growth of manufacturing output had been hindered by labour shortages, and measures were required to encourage the saving of manpower in services and in this way to assist manufacturing.
In answer to points that have been raised in this debate, and particularly, perhaps, by the noble Earl, Lord Ferrers, I would say that we must recognise that in agriculture, horticulture and forestry we do not face the same problem, despite what the noble Baroness said. In particular, the labour position is different. The National Plan estimates on manpower in agriculture, which were agreed with the farming unions, indicated that as many as 140,000 persons could be released during the period up to 1970 while still raising production sufficiently to meet a major part of the increased demand for food.
One of our objectives for this industry is to help it to continue increasing its output per man and in this way to make manpower available to other industries which have very urgent needs. I hope that the noble Lord will notice this particularly. The Government are already committed to a heavy programme of support for agriculture, and we do not think that the awarding of premiums to farmers and growers who employ labour would be an appropriate method for giving any additional support that may be thought necessary. The existing channels for supplying Exchequer assistance enables funds to be provided for particular products and classes of expenditure, and the Government intend to continue to use these channels, which are well tried and very well suited to the purpose.
The Government are pledged, and remain pledged, to a system of guaranteed 1556 prices and assured markets. At the same time, we are paying out large sums for capital improvements to enable the industry to become still more efficient. Our basic policy for agriculture remains unchanged, and I would point to the proposals in the Agriculture Bill, which will come to this House eventually, as further evidence, if further evidence is needed, of the Government's desire that agriculture should flourish.
Perhaps I may interrupt the noble Lord. He has said that large sums of money are paid out in capital improvements, for buildings and so forth, in agriculture. But I think he will admit that similar grants are also available to manufacturing industry.
§ LORD CHAMPION
To some, yes. Certain grants are available, but this industry has been extremely well placed in this respect in the whole of the postwar years. I remember the capital injections into the annual prices that were made in the years immediately following the last world war. I remember these very well, because I had some association with the industry and the Ministry at that time. Large amounts of taxpayers' money have gone for these purposes. The only thing I would say to the industry is that it has used this money for the purposes for which it was given, and the country is now reaping some of the benefits brought about by this injection of capital received from the taxpayers. This is right. I am not complaining about it; I am merely reminding the noble Lord and others who have spoken of the facts of this situation.
Against this background that I have mentioned, noble Lords will readily understand that it would not make sense to give a premium for the employment of agricultural workers. It would impede the release of surplus workers and would not contribute a stimulus to greater efficiency. Farmers and growers are entitled to be proud of their outstanding record of increasing productivity. It has been said before, and I have no hesitation in saying it again, that if all industries had been able to increase productivity to the same extent, our present economic problems would not have arisen.
§ LORD CHAMPION
The noble Lord says "Hear, hear‡". He knows I am right and, strangely enough, I know I am right in this.
§ LORD CHAMPION
I think it was the noble Lord, Lord Henley, who said that this is a labour-loss industry. Of course it is; and this is recognised in the National Plan. The facts are that the circumstances of the industry make it possible for the increasing use of machinery to release men for other industries. I thought the noble Lord, Lord Henley, made a very responsible speech except in so far as he strayed into the wider field of the incidence of the tax, into which I do not propose to follow him. What I will say to the noble Lord is that the question of the part-time "fringe" men that he mentioned is one that will have to be looked at, and it will be looked at in connection with the Bill which will eventually be introduced in the other House.
The noble Lord, Lord Balerno, referred to forestry in Scotland, and to some of the effects of this selective employment tax on the timber industry there. I should have thought, having regard to what has been announced in relation to forestry, that he would be reasonably satisfied with this, and the very fact that the sawmills will in certain circumstances get a refund of the tax might help them to provide cheaper timber, so that they will not be priced out when the timber goes to the Fort William Pulp Mill. The noble Lord asked a number of detailed questions about the farmer-retailer. I cannot answer them offhand but we shall probably have to return to that subject later.
On the point of milk recorders I cannot quite see how this will work out, but I agree with the noble Lord about the importance of recording. This is something in which we have rather lagged behind other nations for a long time. But recording, once started, and properly used by the industry, enables it to improve the quality of the progeny of the bulls. It also enables the farmers to call the low milk yielders—and there are still too many of these within the farming industry.
1558 I think that at least three noble Lords—the noble Earl, Lord Fortescue, Lord Henley and the noble Baroness, Lady Elliot of Harwood—referred to the forced loan. The only thing I can say in this connection is that the interval before repayment will be much shorter now that the Government have decided to make direct payments to individual farmers, rather than use the machinery of the Annual Review. We recognise, however, that farmers employing labour will have to find additional working capital and this, together with the other effects of the tax, will be taken into consideration at the Annual Review. Beyond this I cannot go now.
§ LORD CHAMPION
There will be some difficulty about that. We shall have to look at that. I had forgotten momentarily that horticulturists do not come into the Price Review. They get protection in other ways. We might have to look at that.
The noble Lord, Lord Henley, rightly stressed the desirability of keeping agriculture—certain aspects of it—within a single rating zone, as he called it. I should hope that agriculture would be very careful to ensure that they do not stray out of that zone, because, as we know, the farmhouse is rated, but below the usual rate for dwelling-houses; while agricultural land and buildings other than dwelling-houses are exempt from rates. This is no small privilege, I would say, to that industry, and I hope they will not do anything which would cause them to stray out of this field of what I regard as something of a privilege.
We are still considering the many problems that have been put to us in connection with the classification of different types of undertakings for the purpose of the tax. The criteria for agricultural rating relief are not necessarily the right ones to follow for the new tax. But I can assure noble Lords that their comments will be taken into account when the Government decide into which category intensive husbandry establishments 1559 are to fall. I do not think there is very much more to which I need reply, but I can, of course, say that everything that has been said here to-day, in the democratic process that I mentioned at the outset, will be taken into consideration.
There is one last point I may make to the noble Baroness, about the difficulty of retaining farm workers, shepherds and others, farm workers generally; that is, that whenever they make an application for a reduction in hours, or for a wages increase, the people who fight that application are the farmers. Part of the job of keeping people on the land is to make sure that their wages, their conditions of service, match up to the wages and conditions of the workers in urban areas. It must always be remembered, in this connection, that people are not going to stay in the countryside on low wages; their wives will not let them do this for ever. Farmers must recognise this fact, and accept their responsibility in this connection.
§ LORD BALERNO
My Lords, may I ask the noble Lord whether he has any idea of what proportion of the farm-workers are on or near the minimum wage? My experience of most farm-workers, particularly on the livestock side, is that they are receiving wages greatly in excess of the minimum wage.
§ LORD CHAMPION
I know that some are, and I recognise the point the noble Lord has made. But the simple fact is that there are complaints to-day in this Chamber that workers are deserting the industry, and in some cases where they could usefully and productively be employed on the land.
§ THE EARL OF LONGFORD
My Lords, with very great respect, I do not think the noble Lord is really in a position to continue the debate any further.
§ BARONESS ELLIOT OF HARWOOD
My Lords, the noble Lord did ask me a question, and all I would say is that I entirely agree with him about wages; and it is not a matter of trying to keep wages 1560 down. If someone wants 25s. a week for every person I employ, I would rather give it to the shepherd. That is not the point.
§ THE EARL OF LONGFORD
With very great respect, the noble Baroness has spoken once and, unless the House gives special leave, I do not think she ought to speak a second time.