Sitting of 3 May 1960

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  CITY OF LONDON (GUILD CHURCHES) BILL (By Order)
  Consideration, as amended, deferred till Monday next at Seven o'clock.
ESSEX COUNTY COUNCIL (FULLBRIDGE, MALDON) BILL [Lords] (By Order)
Second Reading deferred till Thursday.
ROYAL COLLEGE OF PHYSICIANS OF LONDON BILL [Lords] (By Order)
Second Reading deferred till Monday next at Seven o'clock.
BOURNEMOUTH CORPORATION BILL [Lords] (By Order)
  LONDON COUNTY COUNCIL (GENERAL POWERS) BILL [Lords] (By Order)

    SOUTHAMPTON CORPORATION BILL [Lords] (By Order)
    SOUTHEND-ON-SEA CORPORATION BILL [Lords] (By Order)
    Second Reading deferred till Thursday.

ORAL ANSWERS TO QUESTIONS
  SCOTLAND

    Schools (Swimming Facilities)
    Mr. Hector Hughesasked the Secretary of State for Scotland how many schools under his control have swimming pools, indicating their dimensions, location, and which schools they are; how many, and which, of his schools have no facilities for swimming; and what steps he has taken, is taking or plans to take, to provide swimming facilities in all such schools.
    The Joint Under-Secretary of State for Scotland (Mr. Niall Macpherson): There are 30 schools administered by Scottish education authorities which have swimming baths, and I am sending details of them to the hon. and learned Member. In addition, 13 schools which are either being built or at the planning stage are to have baths. Education authorities are well aware of the importance of teaching pupils to swim. Public baths are used where available.
    Mr. Hughes: Is the Minister aware that the swimming teachers' organisation and other relevant organisations are anxious to start a national campaign with a view to encouraging the art and pleasure of swimming? Will the Minister do what he can to encourage these organisations in that laudable aim?
    Mr. Macpherson: I know the excellent example that the hon. and learned Gentleman gives by his own matutinal efforts, and I am quite certain that my right hon. Friend will be glad to look into the matter to see how far he can give encouragement to the provision of swimming facilities.

    Fishing Industry
    Mr. Hector Hughesasked the Secretary of State for Scotland if he has yet considered the representations which he has received from the Scottish fishermen's and boat owners' associations and from the Aberdeen Fish Curers and Merchants Association as to the adverse effects on the Scottish fishing industry of the Outer Seven Convention; and if he will state in detail what steps he has taken and proposes to take to protect that industry from those adverse effects.
    The Joint Under-Secretary of State for Scotland (Mr. Gilmour Leburn): As the hon. and learned Member is aware, my right hon. Friend has replied to the representations which he received from the Shetland Fishermen's Association and the Aberdeen Fish Curers' and Merchants' Association. The tariff reductions for which the Agreement provides do not begin to apply until 1st July and it would be wrong to assume that they will necessarily have any adverse effects on the Scottish fishing industry.
    Mr. Hughes: Does the Minister realise that the fishing industry is one

    857
    of the largest industries in the country, that it employs thousands of workers, feeds millions of consumers, and yet there is unemployment in it? Will the Minister do what he can to protect the industry from the unfair competition arising from the Outer Seven Convention.
    Mr. Leburn: I am certainly aware of the facts which the hon. and learned Gentleman has mentioned, but I hope that in the event we shall be found to have safeguarded the real interests of the fishing industry.

    Hearing Aids
    Mr. Dempseyasked the Secretary of State for Scotland what complaints he has received to the effect that the transistor hearing aids being issued to schools for handicapped deaf children in Scotland are of an inferior nature; and if he will make a statement.
    The Joint Under-Secretary of State for Scotland (Mr. T. G. D. Galbraith): My right hon. Friend has received one letter from an education authority about the performance of the loop type of Medresco transistor aid now being issued to schools for use by deaf children. This aid has proved of considerable advantage and further development is taking place to improve its performance for the very deaf child.
    Mr. Dempsey: Is the Minister aware that it is openly alleged that the type of aid which has been introduced is really inferior to that introduced in English schools? Will the hon. Gentleman give the matter further consideration and, at the very least, see that deaf Scottish children have the same standard and quality of hearing aid as is supplied in the English schools?
    Mr. Galbraith: It is the first time I have heard that suggestion made. I will certainly look into the matter.
    Miss Herbisonasked the Secretary of State for Scotland how many people in Scotland are having to do without their hearing-aids because of shortage of material for repairs.
    Mr. T. G. D. Galbraith: Inquiries from the clinics concerned indicate that about 250 patients are at present with-
    858
    out aids for this reason. I very much regret the inconvenience, and steps have been taken to overcome the shortage of the spare parts required.
    Miss Herbison: Is the Minister aware that many people who are without hearing aids need them desperately for business purposes? Is he also aware that I have been informed by the clinic of the Royal Infirmary Glasgow that, because of instructions received from the Department of Health, transistor hearing aids can be issued only to children? As a result, transistor hearing aids are available but cannot be issued to people who need them. Finally, can the Minister say why there is this shortage of repair parts for the old type of hearing aid?
    Mr. Galbraith: For two reasons. First, a miscalculation in the change-over from the old to the new type. Secondly, production difficulties that unfortunately occurred at the same time.
    Miss Herbison: Will the Minister say why particularly the West of Scotland cannot use the transistor hearing aids that are lying about unused because there have never been a great many children to whom they could be given?
    Mr. Galbraith: I will certainly look into that point.

    Ploughing Grants
    Mr. W. Hamiltonasked the Secretary of State for Scotland what new procedures have been devised to obviate the risk of over-payment of ploughing grants, as happened in 1958–59; and whether he is satisfied that no such overpayment is now taking place.
    Mr. Leburn: My right hon. Friend has made arrangements for ploughing grant claims under this year's scheme to be checked against cereal deficiency claims in earlier years. This should, I think, obviate the particular risk to which the hon. Member refers, but my right hon. Friend will, of course, review the position in the light of any comments which the Public Accounts Committee may make on the Comptroller and Auditor General's report on this matter.
    Mr. Hamilton: Does the hon. Gentleman not think it quite scandalous that this should have occurred at all? Can he

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    indicate the approximate sum that was involved in 1958–59 and the comparable sum for 1959–60?
    Mr. Leburn: We are taking all possible steps to make this scheme complete and watertight. As for the figures for which the hon. Member asks, the amount of wrong payment was £11,751 5s., of which £11,385 has been recovered to date.

    Outer Hebrides Fishing Training Scheme
    Mr. G. Campbellasked the Secretary of State for Scotland what response there has been so far to the scheme, announced on 22nd December, 1959, for providing training in fishing for men living in certain areas of Scotland.
    Mr. Leburn: Of the 22 applicants for training under the Outer Hebrides Fishing Training Scheme, 17 have been accepted. Four men from Eriskay started training yesterday when they joined the local ring net fleet at Mallaig; four men from Barra will start on seine net boats at Oban on Monday, 9th May; and the other nine will be placed for training very soon.
    Mr. Campbell: I am grateful to my hon. Friend for that information, but is he aware that several experienced skippers from the Moray Firth have offered under the terms of the scheme each to train a man on board his boat? Will these valuable offers be taken up?
    Mr. Leburn: My hon. Friend will be interested to know that of the 29 skippers who have agreed to accept candidates for training, 20 are from Lossiemouth and district. The introduction of this scheme for the Outer Hebrides has been made possible only by the co-operation of owners and skippers of fishing boats from elsewhere in Scotland, and I should like to take this opportunity of thanking them.

    Classified Roads
    Mr. Willisasked the Secretary of State for Scotland what proposals he has for giving assistance to the Scottish counties of cities for improving and maintaining classified roads.
    Mr. N. Macpherson: Schemes for improving classified roads in the counties
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    of cities are eligible for grant on the same conditions as major improvements on classified roads in Scotland generally. As regards maintenance, my right hon. Friend is precluded under the terms of the Local Government (Scotland) Act, 1929, from giving assistance to the counties of cities and other large burghs for maintaining classified roads within their boundaries.
    Mr. Willis: Is the hon. Member aware that that is a very unsatisfactory Answer and that I am asking whether or no he will do anything about this? Is he aware that the cost to the cities in connection with improving and maintaining these roads is leaping up year by year and is becoming quite an intolerable burden on the local ratepayers? Will not he look at this problem again?
    Mr. Macpherson: A settlement was reached, as the hon. Member knows, a long time ago on this, and before any change was made it would be necessary to consider any propoals against the general background of local government finance.
    M. Hoy: Is the hon. Gentleman not aware that owing to the ever-increasing cost it is absolutely impossible for the cities to maintain the roads in the state they ought to be in and that that is a further point? In view of this, will not he look at the matter again?
    Mr. Macpherson: Certainly I shall ask my right hon. Friend to look at it again, but I am afraid that I cannot give any commitment.
    Mr. Willis: Is the hon. Gentleman aware that Edinburgh Town Council has asked him to look at this?
    Mr. Macpherson: I think that the next Question relates to that.

    Road Traffic and Roads Improvement Bill
    Mr. Willisasked the Secretary of State for Scotland what reply he has made to the representations of Edinburgh Town Council concerning the Road Traffic and Roads Improvement Bill.
    Mr. N. Macpherson: The Corporation is being told today in reply to its letter of 14th April that, in my right hon. Friend's view, the scope of the Bill could

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    not appropriately be broadened to extend its temporary financial arrangements beyond London as desired by the Corporation.
    Mr. Willis: But is the hon. Gentleman aware that whilst we have no objection to London having extra money for road improvements, traffic signs, parking places and the rest, we feel that these same financial provisions should be applied to the other large cities and towns which have a similar traffic problem?
    Mr. Macpherson: I agree that the traffic problem is similar, but I think that the House as a whole recognised that it was not so intense.
    Mr. Hoy: But is the hon. Gentleman not aware that the position steadily worsens in all the large cities and that as a consequence the rates in the cities and certainly in Edinburgh have gone up substantially to meet the present needs? If it is good enough for the Government to make these provisions for London, with Which I am not quarrelling, why is it not possible to make them for the capital of Scotland?
    Mr. Macpherson: I do not think it is appropriate at this stage to argue at Question Time about a Bill which is before the House.
    Mr. McInnesasked the Secretary of State for Scotland what proposals he has for extending the provisions of the Road Traffic and Roads Improvement Bill to Scotland.
    Mr. N. Macpherson: Except for certain provisions which are designed to deal with the special traffic problems in the London area, the provisions of the Bill apply to Scotland.
    Mr. McInnes: Is the hon. Gentleman prepared to extend the financial provisions in that Bill so that it will adequately cover Scotland and not simply confine itself in that regard to London?
    Mr. Macpherson: No. Certain provisions, financial and otherwise, apply specifically to London, and it is not proposed to extend them to Scotland.
    Mr. Manuel: Does not the hon. Gentleman agree that the duty is upon
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    him, as the representative of Scotland on the Front Bench in the Committee presently sitting upstairs, to see that Scotland, in those areas where traffic densities are becoming so alarmingly high, especially during the tourist period this summer, gets these provisions that are being applied in London? There is no case against Scotland, or at least its cities, getting the same provisions as are applicable to London.
    Mr. Macpherson: What the hon. Member has just said applies equally to other parts of the United Kingdom, but nevertheless the problem in London is a special one.

    Marginal-Aid Production Grants
    Mrs. Emrys Hughesasked the Secretary of State for Scotland if he is aware of the growing concern among farmers in Scotland about the reduction of marginal-aid production grants; and if he will make a statement to reassure them that his policy is in the best interests of agriculture in Scotland.
    Mr. Leburn: While the reduction is no doubt unwelcome to the farmers concerned, it must be remembered that marginal aid was introduced as a wartime measure. The Government does not believe that it is against the best interests of our agriculture that it should now be withdrawn from those farms which, in the light of the other available forms of assistance, no longer need this special form of support.
    Mr. Hughes: Is the hon. Gentleman aware that this is a matter of profound concern among the farmers of Scotland? Is he aware that Lord Lovat has described the Government's policy as an act of folly? Is it not true that the Government's policy is taking money away from the green fields in order to waste it on Blue Streaks?
    Mr. Leburn: I agree that the M.A.P. scheme is generally regarded as having fulfilled admirably the purposes for which it was intended. There are, however, other forms of assistance to encourage the breeding and rearing of cattle in our upland areas, for example, the hill cow subsidy and the calf subsidy, both of which were increased as a result of the 1959 Annual Review.

    Larkhall-Uddingston By-pass
    Mr. T. Fraserasked the Secretary of State for Scotland if he will now state when a start will be made on the proposed Larkhall-Uddingston by-pass on trunk road A.74.
    Mr. N. Macpherson: My right hon. Friend has appointed consulting engineers to review the line of the Larkhall-Hamilton-Uddingston by-pass which was fixed in 1954. He hopes to receive their report within the next three months. At this stage it is not possible to say when the road works will start.
    Mr. Fraser: Is the hon. Gentleman aware that this is the most congested part of trunk road A.74 and that it would appear to be the last part of A.74 that is to be constructed? Is he aware that this road runs through industrial Lanarkshire, where we have 6 per cent. unemployment, and that he should proceed without delay with the building of the road and provide much-needed employment for road-makers and workers employed in Lanarkshire in making earth-moving equipment, and for steel workers and the bridge builders who would be employed in large numbers on this highway?
    Mr. Macpherson: I do not think the hon. Member is right in saying that this will be the last section of A.74. In any case, I must tell him that my right hon. Friend does not see his way to authorise this scheme within the current four-year programme—[HON. MEMBERS: "Why not?"]—which takes it to March, 1962, but he hopes to be able to do so shortly after that.

    Road Programme
    Mr. McInnesasked the Secretary of States for Scotland how many schemes in the road programme, approved prior to March, 1957, have not yet been completed.
    Mr. N. Macpherson: Of the 21 schemes costing over £100,000 listed in the Appendices to the Roads, etc. (Scotland) Estimate, 1957–58, four trunk and four classified road schemes have not been completed. Of the latter, the Forth road bridge was not fully authorised until 1958.
    Mr. McInnes: Is the hon. Gentleman aware that in the Official Report of
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    25th June, 1957, his estimates were that there would be only three schemes altogether not completed by 1960? Can he indicate why the delay on the others?
    Mr. Macpherson: I think that they have gone more or less according to plan. The four trunk road schemes should be completed this year. The others, the Forth-Clyde tunnel and the Inverness suspension bridge, should both be completed in 1961–62 and the Forth road bridge, as the hon. Member knows, in the financial year 1963–64.
    Mr. Woodburn: Could the hon. Gentleman tell us whether money which was authorised and not spent has remained in the Scottish kitty or whether it has been handed back to the Treasury? Does this mean that the limitation which the Secretary of State for Scotland placed the other day on his programme on purely financial grounds, while people and materials are unemployed and unused, is due to the fact that the Treasury has got away with savings because of these delays?
    Mr. Macpherson: I should like to have notice of that question, but my recollection is that if money is not taken up on authorisation it falls.
    Mr. Rossasked the Secretary of State for Scotland what plans he has for improvement of the trunk roads in south-west Scotland.
    Mr. N. Macpherson: At present four major improvement schemes, each costing more than £100,000, are in progress in south-west Scotland at a total cost of over £2 million. In addition, 15 smaller schemes are in progress or will be authorised during the current financial year at a total cost of over £300,000.
    Mr. Ross: When are these major schemes likely to be completed?
    Mr. Macpherson: The Howford scheme is due to be completed in Summer, 1961; the Kilwinning by-pass in Spring, 1962; the Ayr by-pass in Summer, 1961; and the improvement from Malletsheugh to Eastwood Toll in summer, 1962.

    Housing
    Mr. Dempseyasked the Secretary of State for Scotland how many one-apartment houses there are in Scotland;

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    and how many dwelling-houses there are in Scotland without baths.
    Mr. T. G. D. Galbraith: At the last census, in 1951, there were 71,784 one-roomed houses and 619,521 houses without fixed baths in Scotland. Up-to-date figures will be provided by the 1961 census.
    Mr. Dempsey: Is the hon. Gentleman aware that there has been no appreciable difference made in the existing numbers due to the lack of housing drive by the present Government, and that there has been no drive by the landlords to take advantage of the improvement act? Does he not think that a bath is an ordinary, decent amenity to have in a home, and will he now consider introducing legislation to compel landlords with houses which have a reasonable length of life to provide baths?
    Mr. Galbraith: I do not see how the hon. Member comes to that position before we have had the census, but I agree that houses ought to have baths. I hope that, as a result of this question and the publicity directed to the matter by it, more houses will be improved.
    Mr. Millanasked the Secretary of State for Scotland how many local authority houses he expects to be completed in the year 1960; and what percentage increase or decrease this represents compared to 1958 and 1959.
    Mr. T. G. D. Galbraith: I expect that about 19,000 local authority houses will be completed in 1960, which is 16 per cent. less than in 1958 but almost 2 per cent. more than in 1959.
    Mr. Millan: Is the hon. Gentleman satisfied with these figures, particularly in view of the answer he has given to my hon. Friend the Member for Coat-bridge and Airdrie (Mr. Dempsey) about the number of one-apartment houses in Scotland? Is there not an absolutely urgent necessity for speeding up the whole programme?
    Mr. Galbraith: As has been explained on countless occasions, the difficulty is that it is necessary to redevelop the centres of cities, which obviously makes the building of new houses a much slower operation than it was when one could build on green sites outside the cities.
    Mr. Millanasked the Secretary of State for Scotland how many unfit houses he expects to be demolished or closed in the year 1960.
    Mr. T. G. D. Galbraith: My expectation is that about 10,000 unfit houses will be demolished or closed in 1960. This excludes houses already closed which will be demolished in 1960.
    Mr. Millan: Does the hon. Gentleman appreciate that as the number of houses closed and demolished increases—and we are all very glad to see that—the number of houses built for general needs correspondingly goes down, and that this is becoming a serious problem in industrial cities, particularly Glasgow and, I think, Edinburgh? Is not that another factor to be taken into account and another argument in favour of a general speeding up of the housing programme?
    Mr. Galbraith: It is necessary first to clear these sites and then it will be possible to build on them.

    Hospital Out-patients
    Mr. Hannanasked the Secretary of State for Scotland if he will state the total number of attendances at outpatient departments in all hospitals in Scotland for the past year at any convenient date.
    Mr. T. G. D. Galbraith: In 1959 there were 7,385,000 attendances at the outpatient departments of Scottish hospitals.
    Mr. Hannan: Is the hon. Gentleman aware that these figures increase year by year? Is he further aware of the great economic waste in the time which patients have to put in at these outpatient departments? Does the hon. Gentleman receive representations from hospitals? Will he say why these figures have been omitted from the annual reports since 1956?
    Mr. Galbraith: I would like notice of that last question. The hon. Member will be glad to know that at this moment a survey is being conducted designed to show what improvements are required in the appointment system to prevent patients from having to wait too long.
    Mr. Hannan: Reports were asked for in 1956 and in 1957. Is not this just further time wasting? Action was called

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    for as long ago as four or five years. It is not a report but action which is needed by the hon. Gentleman's Department.

    Victoria Hospital, Kirkcaldy
    Mr. Gourlayasked the Secretary of State for Scotland what progress has been made in the preparation of the schedules for the second extension of Victoria Hospital, Kirkcaldy.
    Mr. T. G. D. Galbraith: The regional hospital board is meeting my right hon. Friend's Department later this week to discuss the progress of this project, and he will write to the hon. Member after that meeting.
    Mr. Gourlay: Is the hon. Gentleman aware that this is further evidence of the dismal failure of the Government's record in hospital building, which is only equivalent to its failure in providing houses in Scotland? Will he give us an assurance that he will bring the utmost pressure to bear on the regional board to expedite the planning and building of this extension, which the Secretary of State promised would be started in 1961?
    Mr. Galbraith: It is because my right hon. Friend is anxious to progress with this matter that the meeting has been arranged.

    Mental Hospital Accommodation
    Mr. Manuelasked the Secretary of State for Scotland how many new hospitals are now needed to overcome the shortage of mental hospital accommodation.
    Mr. T. G. D. Galbraith: Most of the outstanding shortage relates to accommodation for particular classes of mental defectives. It should be very largely overcome by the extensions to existing hospitals which are in hand under the current building programme.
    Mr. Manuel: Is the hon. Gentleman sure that the local authority accommodation, the community care accommodation, which will arise under the new Mental Health (Scotland) Bill when it becomes law, will be adequately covered by the provisions for extensions which he has in mind? Has he ascertained whether or not we will need some completely new hospitals if we are to tackle the job efficiently when the Bill becomes law?
    Mr. Galbraith: I cannot agree with that. The present building programme will provide about 800 additional places, which ought to be about sufficient.

    Regional Hospital Boards (Finance)
    Mr. Manuelasked the Secretary of State for Scotland what global sum was allocated to each of the regional hospital boards for 1960–61; and how these sums compare with the estimates asked for by each of the regional hospital boards.
    Mr. T. G. D. Galbraith: Sums totalling just over £50 million have been allocated to regional hospital boards for revenue expenditure in 1960–61, equal to about 99 per cent. of the estimates submitted. I shall with permission, circulate individual figures in the OFFICIAL REPORT.
    Mr. Manuel: Is the hon. Gentleman certain that the hospital boards, in the global sums allocated to them, are not being cramped in their work? When I was a member of a regional hospital board my experience was that it was cramped very much in its work by the estimates being severely cut down each year.
    Mr. Galbraith: To be given 99 per cent. of the estimate is not bad going.
    Following are the figures:

    Region

    Allocation

    Estimate

    £000

    £000

    North

    …

    …

    1,934

    1,912

    North-East

    …

    …

    4,285

    4,288

    East

    …

    …

    5,157

    5,074

    South-East

    …

    …

    10,961

    11,418

    West

    …

    …

    27,835

    28,178

    Total

    …

    …

    50,172

    50,870

    (98·6%)

    Kilmarnock-Ayr By-pass
    Mr. Rossasked the Secretary of State for Scotland what progress has been made with the by-pass on the Kilmarnock-Ayr road.
    Mr. N. Macpherson: Work started on the first stage of the by-pass in November, 1959, and is due to be completed by July, 1961, but if the present rate of progress is maintained the work should be substantially completed early in 1961.
    Mr. Ross: In the hon. Gentleman's answer to my supplementary question

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    previously, in referring to one of these large schemes, he meant its first phase. Will he consider the wisdom of proceeding on this basis now that he has discovered that the Victoria Bridge, in Ayr, which was temporarily to carry by-pass traffic, has to be rebuilt in order that it can sustain the present level of traffic?
    Mr. Macpherson: Perhaps the hon. Gentleman will put that question down, when I shall be only too glad to try to answer it.
    Mr. Ross: I wrote to the Minister about this. Here is a bridge which is to carry by-pass traffic until such time as a new—[HON. MEMBERS: "Question."]
    Mr. Speaker: We may waste such a long time if no recital is allowed.
    Mr. Ross: Now this bridge has to be rebuilt. Am I to understand that the Minister did not do anything about this?
    Mr. Macpherson: I do not want to give an answer off the cuff in this matter. I have answered the Question on the Order Paper.

    Edinburgh (Traffic Survey)
    Mr. Stodartasked the Secretary of State for Scotland what application he has received from the Edinburgh City Corporation, consequent upon the resolution expressed at its meeting on 14th April last, for a grant towards the cost of proceeding with a survey of the origin and destination of traffic approaching the city; and what reply he has given.
    Mr. N. Macpherson: The Answer to both parts of the Question is, "None, Sir."
    Mr. Stodart: Would my hon. Friend take it from me that at its meeting on 14th April a decision to make a request was passed? Will he have his reply to that request, when it comes, ready so that work may be undertaken as soon as possible?
    Mr. Macpherson: I take note of what my hon. Friend has said. Technical discussions have already been going on between the Department and the Corporation.
    Mr. Hoy: Can the hon. Gentleman explain why there has been this long
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    delay in presenting the report of the judicial inquiry into the proposed changes at Randolph Crescent?
    Mr. Macpherson: That is a totally different question.

    Glasgow-Greenock Road
    Dr. Dickson Mabonasked the Secretary of State for Scotland if he will now estimate the date by which the present work of redevelopment of trunk road A.8, between Glasgow and Greenock, will be completed.
    Mr. N. Macpherson: I assume the hon. Member is referring to work on the Laigh Hatton Diversion and the improvement at Bishopton Railway Bridge, both of which have just been completed at a total cost of over £116,000.
    Dr. Mabon: Is the hon. Gentleman aware that other developments are taking place during the redevelopment of this road and that the slow, piecemeal work which has been done has been overtaken by the growing volume of traffic on the road? Will he pay attention to the complaints of my constituents and those of the Secretary of State for Scotland—through whose constituency the road runs—alleging that the redevelopment of this road has left it as narrow as it was prior to redevelopment, which is rather pointless in an industrial area of this kind?
    Mr. Macpherson: Again, that supplementary question relates to the next Question.
    Dr. Dickson Mabonasked the Secretary of State for Scotland what proposals he has for extending the dual-carriageway system on the Glasgow-Greenock section of trunk road A8.
    Mr. N. Macpherson: There are at present no sections of dual carriageway on this part of A.8, but dual carriageways are ultimately proposed. I cannot yet say when it will be possible to authorise this work to start.
    Dr. Mabon: I appreciate that the hon. Gentleman does not travel this road very often, but is he aware that between Shieldhall and Renfrew there is partly a dual carriageway—I suppose that we should be grateful to the City of Glasgow for providing that—and that we would like to see a dual carriageway throughout the rest of the road? Will he tell

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    us how many lines of traffic the reconstructed bridge at Bishopton will have on completion or is designed later on to carry?
    Mr. Macpherson: Again, speaking off the cuff, I think that provision is being made for a dual carriageway which it is hoped will be started early in the next road programme.

    Index of Production
    Mr. T. Fraserasked the Secretary of State for Scotland why, in the preparation of the Digest of Scottish Statistics, the Index of Production has not been revised to make it comparable to the Index of Production for the United Kingdom as a whole.
    Mr. N. Macpherson: The information derived from the 1954 census of production, which has been used to create the base of the United Kingdom index of production, was not available for Scotland for some time after it was available for the United Kingdom. The work of revising the Scottish index started as soon as the information was available, and it is hoped to publish an index which will be directly comparable with the United Kingdom index in the October 1960 issue of the Digest of Scottish Statistics.

    Hydro-Electric Schemes
    Mr. Nabarroasked the Secretary of State for Scotland what consideration he has given to the plans of the North of Scotland Hydro-Electric Board in respect of projects at Glen Nevis, Ken-more, Grandtully, Loch Laidon, Fada-Fionn-Maree, Snizort-Bracadale, and Upper Findhorn-Monadhliath-Loch Ness, total k.w.i. 240,000; what is the estimated capital cost both in pounds sterling, correct to one million pounds, and pounds sterling per k.w.i; and, having regard to large unsold stocks of bituminous coal in the hands of the National Coal Board, mostly suited for power stations' use and anxiety concerning employment in the coal mining areas, whether he will make a statement on future hydro-electric schemes in the Highlands.
    Mr. N. Macpherson: Apart from the Glen Nevis project, to which my right hon. Friend is giving preliminary consideration, none of the schemes has pro-
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    gressed sufficiently to be submitted to him, and it is not, therefore, possible to give any information about them. Future schemes will be considered on their merits in the light of the Board's statutory responsibilities.
    Mr. Nabarro: Has my hon. Friend observed that there is a level of unemployment in Lanarkshire of more than 6 per cent., notably in the coal mining areas? As the primary purpose of all these hydro-electric schemes in the far north has been to save coal, is it sensible at high cost to continue to build dams in the far north while we are subsidising unemployment in the coalfields in the south of Scotland? Will the Secretary of State endeavour to relate those two important matters, instead of aggravating coal mining unemployment and indulging extravagance in the far north?
    Mr. Macpherson: My right hon. Friend is well aware of the problems of coal mining in Lanarkshire, but I cannot accept that it is the primary or even a primary purpose of the hydro-electric schemes in Scotland to save coal. The primary purpose has always been to supply electricity to the Highlands and to develop the economy of the Highlands.
    Mr. Nabarroasked the Secretary of State for Scotland, in respect of £16 million proposed to be spent during the financial year 1960–61 by the North of Scotland Hydro-Electric Board, how much coal per annum will be saved by the new projects; what will be the additional k.w.i. created, and at what capital cost per k.w.i.; how much has been spent by the Board out of its total maximum borrowing powers of £200 million at 30th April, 1960; and what consultations he has had with coal mining interests, having regard to the current planned reduction in British coal mining output and stocks held, financed by public funds.
    Mr. N. Macpherson: The projects under construction in 1960–61 will, when completed, produce additional supplies of electricity equivalent to the production from a quarter million tons of coal per annum; and they will add 556,000 kilowatts of installed capacity at an estimated average cost of £75 per kilowatt installed. Up to 30th April, 1960, the Board had spent £194·5 million out of its total maximum borrowing powers of £240 million. As regards the last part of the

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    Question, when the merits of a proposed hydro-electric scheme are examined the comparative cost of alternative methods of production is a prime consideration.
    Mr. Nabarro: Is it not a fact that the 250,000 tons of coal per annum saved represents the annual output of 800 coal miners in Lanarkshire? Is it sensible to go on maintaining that high level of unemployment in our basic industry in Scotland, coal mining, with £125 million of taxpayers' money, represented by unsold coal stocks, while the Secretary of State continues his extravagance in the far north, spending £16 million more money in order to save coal?
    Mr. Macpherson: I cannot accept what my hon. Friend says. Electricity produced from hydro-power is essentially at a much lower cost per unit than from steam power.
    Mr. Nabarro: But not including capital.
    Mr. Macpherson: That is the cost per unit. I cannot accept what my hon. Friend says. My right hon. Friend has to consider the economy of all the parts of Scotland in this matter, but he has primarily to consider the economy and problems of the Highlands.
    Mr. Woodburn: Could not the hon. Gentleman make it clear to the hon. Member for Kidderminster (Mr. Nabarro) that his Questions are misconceived and that the production of hydro-electricity is not in competition with coal, because hydro-electricity is being used at peak periods when coal-produced electricity would not be economic and that there are two entirely different purposes? While we appreciate the hon. Gentleman's interest in Lanarkshire, surely there are other ways in Which he can help than by stopping hydro-electric schemes?
    Mr. Macpherson: I join with the right hon. Gentleman in appreciating—
    Mr. Nabarro: Go over there then.
    Mr. Macpherson: I was about to say that I join with the right hon. Gentleman in appreciating the benevolent interest of my hon. Friend in the Highlands and I agree that there is a great deal in what he said.
    Mr. Nabarro: In view of the very unsatisfactory Answers to both Questions, I beg to give notice that I shall raise the matter on Clause 72 of the Finance Bill.

    Fleck Committee (Report)
    Mr. John MacLeodasked the Secretary of State for Scotland when the Fleck Report is likely to be published.
    Mr. Leburn: As my right hon. Friend has already informed the House, the Chairman of the Committee has told us that the Report will be available before the end of the year.
    Mr. MacLeod: Why is this Report taking so long to complete? Surely my hon. Friend appreciates that there is uncertainty about the future of the fishing industry and developments which are taking place? It is important that we should have this Report. Is it nearing completion?
    Mr. Leburn: My hon. Friend will appreciate that the Fleck Committee has a very difficult task before it and that it is important that the Committee should go into all the aspects. I am afraid that I cannot tell my hon. Friend what stage the Report has reached, but it has been promised before the end of the year.

    Hospitals (Meals)
    Miss Herbisonasked the Secretary of State for Scotland how many complaints he has had of the lack of balance and the inadequacy of vitamins in the diet of patients in hospital in Scotland.
    Mr. T. G. D. Galbraith: My right hon. Friend is not aware of any general deficiency in the dietary standards of Scottish hospitals, and he has had no recent complaints. A Committee appointed by the Scottish Health Services Council in 1958 is looking into a number of aspects of hospital catering.
    Miss Herbison: Is the Minister aware that there have been complaints, even if they have not reached the ears of the Secretary of State for Scotland, first, about the lack of balance in the diet and, secondly, about the lack of vitamin C in the diet? Will this Committee take into account both those points, because they

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    are of the greatest importance? It is not the amount but the quality of the food given to a patient that matters.
    Mr. Galbraith: The Committee's terms of reference are very wide and it will be able to deal with those aspects of the matter.

  TRADE AND COMMERCE

    Anglo-Eire Trade Agreement (Tariffs)
    Mr. Jannerasked the President of the Board of Trade what steps he proposes to take to decide priorities as regards the reduction of Eire tariffs on goods exported to Eire from the United Kingdom, in accordance with the arrangements made under the new Anglo-Eire Trade Agreement.
    The President of the Board of Trade (Mr. Reginald Maudling): The order of priority in which the Government of the Republic of Ireland will take up items for the purpose of the review will be settled in consultation between the two Governments. United Kingdom industries which are interested should get in touch with my Department.

    Motor Industry
    Mr. Edelmanasked the President of the Board of Trade what estimate he has made of the effect of the new hire-purchase restrictions on motor car production; and to what extent the new restrictions will affect the facilities for expansion which he is providing for the motor industry.
    Mr. Maudling: There is no reason to expect a check in the production of new cars, since to the extent to which sales in the home market fall off, it should be possible to sell more cars abroad. The facilities for the expansion of production, which my Department are providing, will not be affected in any way.
    Mr. Edelman: Is it not the case that the right hon. Gentleman is here applying the brake and the accelerator simultaneously to the motor industry? Is it not also the case that before the credit squeeze was relaxed there was incipient unemployment in the motor industry? In view of that, is he not encouraging false hopes in the special areas where new facilities are being given?
    Mr. Maudling: I do not think so at all. The registration of new motor cars during the first quarter of this year was about 50 per cent. up on the year before, and the export demand for motor cars is very strong indeed.
    Mr. Edelmanasked the President of the Board of Trade what ratio of production for export to production for the home market he has prescribed to the motor industry; and what action he has taken to ensure that the motor industry fulfils this requirement.
    Mr. Maudling: No ratio is prescribed but motor manufacturers are well aware of the country's pressing need for exports and have maintained a fine record. I watch the figures closely and the industry's performance is regularly examined at the meetings of the National Advisory Council for the Motor Manufacturing Industry.
    Mr. Edelman: If the right hon. Gentleman has watched the performance of the industry closely, has he not observed that between 1957 and 1959 the increase in production for the home market has gone up by 50 per cent., whereas the increase in production for the export market has gone up by less than 33⅓ per cent.? Is that not a disquieting tendency? In order to buffer the motor industry, ought he not to give a directive to motor car manufacturers to increase their efforts in the export market?
    Mr. Maudling: I do not think that a directive of that kind would serve any purpose, because I think that the motor industry is doing a magnificent job already in the export market. Of the number of cars made in 1957, 49 per cent. were exported. In 1958, 46 per cent. were exported, and in 1959, 48 per cent. were exported. I think that our motor car manufacturers are keeping up a very good record of exports.
    Mr. C. Osborne: Will my right hon. Friend not agree that the figures given by the hon. Member for Coventry, North (Mr. Edelman) in his supplementary question answer completely the complaints he made in his first Question, and it is the restriction which the Chancellor is now putting on home market purchases that will help to drive a greater proportion and greater output from the motor trade to the export market?
    Mr. Maudling: It could be argued with much justice that if a higher proportion of the motor industry's output were diverted to exports that would lengthen delivery dates at home and could mean more imports of foreign cars. One must always bear that in mind.

  NATIONAL FINANCE

    Statutory Undertakers (Profits Tax)
    Mr. de Freitasasked the Chancellor of the Exchequer whether he will include in the draft of the Finance Bill provision to allow the amount paid in dividends to be deducted from income before assessment to Profits Tax in the case of statutory undertakers who are in receipt of fixed incomes, the amount of which is prescribed by or under an Act of Parliament.
    The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory): I am afraid that I cannot accept the hon. Member's suggestion.
    Mr. de Freitas: If I send the right hon. Gentleman details, will he look again at the peculiar position, the anomalous and possibly unique position, of the Witham Navigation, the shareholders of which, such as Lincoln Corporation, are particularly penalised under the present law?
    Mr. Amory: I assure the hon. Gentleman that I will read with interest any information he sends me. He will remember that the Royal Commission considered this matter and recommended that a unified Profits Tax should apply to the kind of undertaking to which the hon. Gentleman has referred.

    Under-employment areas
    Mr. Woodburnasked the Chancellor of the Exchequer whether he will include in the restraints imposed to deal with inflationary tendencies in areas of over-active trade, provisions to stimulate development in areas of under-employment.
    Mr. Amory: Fiscal and monetary measures tend inevitably to be general in their effects. But provisions already exist under the Local Employment Act
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    which enable the Government to stimulate development in areas of under-employment and these powers are being vigorously exercised by my right hon. Friend the President of the Board of Trade.
    Mr. Woodburn: Is the Chancellor aware that the proof of the pudding is in the eating, and the fact is that these measures have not been successful in areas of unemployment? There is a great danger from his new measures being applied generally that they will bring further unemployment and further contraction in the areas that require development. Is he not prepared to look into measures that would discriminate between those needing curtailment and those needing development?
    Mr. Amory: I agree with the right hon. Gentleman that the proof of the pudding is in the eating, but I should have thought he was too depressing. I should have thought that considerable progress was being made in finding new employment for those areas.
    Mr. Jay: As the Chancellor is again squeezing bank credit, have the Government explicitly drawn the attention of the banks to the list of development districts under the Local Employment Act so that they may take account of this in making advances?
    Mr. Amory: I think the banks are aware of the areas concerned. I will look into that point. I have not squeezed the Bank Rate.
    Mr. Lipton: Will the Chancellor say what the pudding is and who is eating it?
    Mr. Amory: I think the country is devouring it with every sign of satisfaction.
    Mr. Bence: No wonder there are so many signs of indigestion.

    British Industry (Foreign Investment)
    Mr. Jannerasked the Chancellor of the Exchequer what statistics he has to indicate the present amount of foreign investment in British industry; what proportion of the whole it represents; and what scope he considers still exists for increasing such investment without risking undue foreign influence over British economic policy.
    Mr. Amory: I regret that figures of the total amount of foreign investment in this country are not available. It is estimated, however, that additions to private foreign investment in the United Kingdom have averaged rather more than £100 million a year in recent years. This figure includes foreign investment in British Government securities and undistributed profits from existing investments as well as new investment in industry. The total funds available for investment in this country in the same period averaged nearly £4,000 million a year for the whole economy and about £1,750 million a year for the company sector alone.
    Foreign investment, therefore, would clearly have to rise a very long way indeed before there was any risk of its exercising an undue influence on economic policy. In the meanwhile, it continues to be the Government's policy to welcome foreign investment in British industry: such investment is beneficial to the country's economy and in general serves the national interest.

    Whitworth Park Coal Company v. Commissioners of Inland Revenue
    Mr. Shepherdasked the Chancellor of the Exchequer if he will state the cost to the Revenue of reversing the legal position established by the case of Whitworth Park Coal Company versus Commissioners of Inland Revenue without retrospective effect instead of as proposed in Section 37 of the Finance Bill.
    Mr. Amory: This would depend on whether the possible defences which are open to the Crown against claims by the taxpayers concerned succeeded or not. If all possible claims went against the Crown the cost might amount to £40 million.

    Housing Loans
    Mr. Frank Allaunasked the Chancellor of the Exchequer if, in view of recent Government action to control credit, he will make a statement on future policy with regard to council-house building loans and programmes.
    Mr. Amory: Capital investment by local authorities does not come within the scope of the measures to restrain the expansion of private credit which I announced on 28th April. I therefore see no need for a statement.
    Mr. Allaun: As this issue was evaded yesterday, and since, in my view, it has been evaded again just now, will the right hon. Gentleman give the House an undertaking at least that there will be no further increase in the interest rates on housing loans, since the doubling of these rates has already halved the council house programmes in the last five years and there is a growing demand for cheaper and not dearer loans?
    Mr. Amory: I am afraid that I can give the hon. Member no such assurance. As he knows, the rates charged by the Public Works Loan Board depend upon the current rates for comparable loans in the market.
    Mr. H. Wilson: Is the Chancellor aware that very few councils can obtain loans from the Public Works Loan Board, even if they were at a reasonable rate? Is he further aware that to restore the housing subsidies at the full rate would cost only about £5 million a year? Since his right hon. Friend the Minister of Defence told us last week that he did not think that £500 million was an excessive burden on the economy, does the Chancellor realise what a great effect it would have on council house rents, and the finances of local authorities, if he restored housing subsidies?
    Mr. Amory: I am quite sure that our present policies are right. I do not understand what the right hon. Gentleman means when he says that local authorities find it practically impossible to obtain loans from the Public Works Loan Board.

    COMMONWEALTH DAY
    Mr. Fletcherasked the Prime Minister whether he will discuss with the Commonwealth Prime Ministers during their conference the most appropriate way of celebrating Commonwealth Day, 24th May, throughout the Commonwealth and in dependent territories, having special regard to the necessity of stressing the inter-racial nature of the Commonwealth.
    Mr. Amory: I have been asked to reply.
    Commonwealth Day is not observed officially in any member country of the Commonwealth other than the United

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    Kingdom, and my right hon. Friend, therefore, sees no advantage in discussing this matter during the Prime Minister's Meeting.
    Mr. Fletcher: As we have the advantage of the Chancellor of the Exchequer answering a Question for the Prime Minister, will he be good enough to say whether he does not agree that, in addition to the paramount moral importance of stressing the inter-racial nature of the Commonwealth, there are considerable economic advantages in doing so?
    Mr. Amory: I think that my right hon. Friend the Prime Minister expressed his views on the first point the hon. Gentleman has raised in reply to the hon. Gentleman on 26th April, and I have nothing to add to what he said.
    Mr. Emrys Hughes: Would not a good way to commemorate Commonwealth Day be to release all Commonwealth citizens now in gaol?
    Mr. Amory: That is a rather wider question.
    Mr. H. Wilson: Will the Chancellor, in either of his present capacities, answer my hon. Friend's main supplementary question about the economic effects of the present situation in the Commonwealth? Will he tell us whether there is to be a full discussion of the economic relationships within the Commonwealth at the present Conference?
    Mr. Amory: The discussions are confidential. It is for the Conference itself to decide what subjects will be discussed.

    UNION OF SOUTH AFRICA
    Mr. W. Hamiltonasked the Prime Minister what requests he has received from Commonwealth Prime Ministers that the South African situation should be formally discussed at the forthcoming Conference.
    Mr. Amory: I have been asked to reply.
    The proceedings of the Prime Ministers' Conference are confidential, and so are the communications which are received from Commonwealth Prime Ministers about the matters to be discussed at it. The manner in which the South African situation might be
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    discussed remains one for the decision of the Conference as a whole.
    Mr. Hamilton: Can the right hon. Gentleman say how the Press get to know so much about what is going on? Is he aware that the Prime Ministers of Malaya and Ghana, and even the Prime Minister of Nigeria—although he is not here—have expressed themselves extremely forcibly on this issue? Is he aware that we hope that when the communiqué is issued—in whatever form this matter is discussed in the Conference—it will contain a forthright condemnation of the policies now being pursued by the South African Government?
    Mr. Amory: I have no idea how the Press gets any of its information. As for the second part of the supplementary question, I am sure that it implies that we shall be right to await the communiqué.
    Mr. Callaghan: Did the right hon. Gentleman hear the one o'clock news today? Did he hear the B.B.C. say that the Conference will discuss this in informal exchanges and not in formal session? If he is not aware of that, can he say whether, while the Conference is considering the problem of apartheid in South Africa, these formal exchanges will also include reference to the problem of the future administration of South-West Africa, in respect of which South Africa has for years ignored the continuing demands of the United Nations that she shall account for her trusteeship?
    Mr. Amory: The hon. Member's version of what the B.B.C. put out is not irreconcilable with what I have said.
    Mr. Callaghan: May I have an answer to the second and most important part of my supplementary question?
    Mr. Amory: That is a different question.

    NATIONAL DAY OF PRAYER
    Mr. Teelingasked the Prime Minister whether he will consider recommending to Her Majesty the Queen that there should be a national day of prayer before the Summit talks; and whether he will recommend to the

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    Commonwealth Premiers assembled in London that they too might make such a request so that it could be a Commonwealth day of prayer.
    Mr. Amory: I have been asked to reply.
    My right hon. Friend believes that this is a matter which is best left to the Church authorities. In fact, we understand that the World Council of Churches has already issued an appeal for special prayers on Sunday. 15th May.

  LOCAL GOVERNMENT

    Air Pollution (Transfer of Control)
    Mr. Winterbottomasked the Minister of Housing and Local Government and Minister for Welsh Affairs how many applications have been made to him to make orders under Section 17 (2) of the Clean Air Act, 1956, transferring from the Alkali Inspectorate to local authorities responsibility for control of emission of smoke, grit, and dust from premises controlled under the Alkali &c. Works Regulation Act, 1906; and what decisions he has made.
    The Minister of Housing and Local Government and Minister for Welsh Affairs (Mr. Henry Brooke): Nine applications have been made. After consultation with the local authorities and industries concerned, I have made orders transferring control of certain processes to the Liverpool and Manchester City Councils and to the Sheffield and District Clean Air Committee. I have decided that transfer of control should at present be limited to the largest authorities, employing experienced staff with the appropriate qualifications.
    Generally the processes transferred are ones which give rise to air pollution problems involving questions of fuel combustion.
    I have not thought it right to transfer control over processes involving problems of chemical engineering, except that in the case of Sheffield, where the local authorities have long experience of the steel industry, I have included in the order certain steel-making processes where the problems are not primarily concerned with fuel combustion. I have
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    decided not to make orders for transfer of control in respect of the six other local authorities that have applied—Reading and West Bromwich County Borough Councils, and Jarrow, Luton, Redcar and Stalybridge Borough Councils.
    Mr. Winterbottom: I thank the Minister for at long last making up his mind on this matter and being able to indicate some progress in the matter of control by local authorities over the atmosphere in their areas. Will the right hon. Gentleman accept from me that the Sheffield authorities will be very disappointed that he has not gone further in respect of the steel industry? If, in the opinion of the Minister, local authorities are progressing satisfactorily with the control given them under Section 17 (2) of the Act, will he give favourable consideration to suggestions for further control by municipalities as against the Alkali Inspectorate?
    Mr. Brooke: If this has taken a long time to decide, the hon. Member knows that it was because I was asked to receive further deputations about it and was anxious to give all the interested parties every opportunity to put their cases to me personally. This decision will be criticised from both sides. That strengthens my belief that it is a correct one. I can certainly assure the hon. Member that the question will be kept under review. These orders may be modified or extended in future, in the light of experience.
    Mr. Callaghan: As the only thing that really matters is that the air should be as clean as possible, can the Minister give us an assurance that he will not prevent local authorities from taking proceedings—as he has power to do—when they ask him for permission to do so?
    Mr. Brooke: That is quite a different question from the one that I was asked.
    Mr. Tilney: Can my right hon. Friend say whether Liverpool's Clarence Dock Power Station, which is owned by the Central Electricity Generating Board, will come under this Order?
    Mr. Brooke: I have sent the Liverpool City Council a copy of my decision, and I think that it will be fully set out in the papers tomorrow.

HOME DEPARTMENT

  Peppiatt Committee (Recommendations)
  The following Questions stood upon the Order Paper:
  Mr. E. JOHNSON: To ask the Secretary of State for the Home Department if he is now in a position to state his conclusions regarding the findings of the Peppiatt Committee.
  Mr. FLETCHER: TO ask the Secretary of State for the Home Department if he will now announce the intentions of Her Majesty's Government with regard to the recommendations of the Peppiatt Committee.
  The Joint Under-Secretary of State for the Home Department (Mr. Dennis Vosper): I will, with permission, now answer Questions Nos. 64 and 65 together.
  The Government have considered the recommendations of the Committee in favour of a compulsory statutory levy on betting on horse racing, and are disposed, subject to consultations which are in progress, to accept them in principle. The administrative arrangements for putting them into effect will, however, be rather complicated, and a great deal of work will be needed in preparing the necessary legislation.
  In these circumstances it will not be possible to put down Amendments for the Report stage of the Betting and Gaming Bill. My right hon. Friend will, however, press on as rapidly as possible with the work and consultations involved, with a view to giving legislative effect to the Committee's proposals at an early opportunity and in sufficient time to enable the Committee's proposed timetable to be followed.
  Mr. Fletcher: Is not this most unsatisfactory? Does not the Minister recall that both during the Second Reading debate and during the prolonged discussions in Committee hon. Members were invited to take decisions on the Bill on the basis that the recommendations of the Peppiatt Committee, if approved by the Government, would be incorporated in the Bill? Does the statement by the Minister mean that the terms of reference to the Peppiatt Committee were so inadequate that it is now impossible
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  to carry out the intentions of the Government as indicated on Second Reading?
  Finally, would the Minister clarify what is meant with reference to the proposed timetable? Does that mean that if the Bill is passed the operation of its provisions will be postponed until the Government have pursued their negotiations relating to the recommendations for a levy?
  Mr. Vosper: I recall that during the Second Reading debate my right hon. Friend said that we shall do our best either to include the recommendations in the Bill, or to give them the force of law. That pledge still stands. I think that it must be clear to the hon. Member and to the House that a great deal of work remains to be done despite the recommendations of the Peppiatt Committee, and that to include this in a form ready for debate this week on the Report stage of the Bill is not a practical proposition.
  If the hon. Member will look at the timetable at the back of the Peppiatt Report, he will see that legislative effect must be given by the early months of next year, and that is what my Answer was understood to indicate.
  Mr. E. Johnson: May I ask my right hon. Friend whether he is aware that the speedy decision to accept the proposals of the Peppiatt Committee will be welcomed by all those connected with racing? May I ask whether the levy to be paid by the bookmakers will be allowed as a deduction for taxation purposes, in which case will steps be taken so that the distribution by the Racecourse Betting Control Board is also free of tax?
  Mr. Vosper: I am sure that my right hon. Friend would like to be associated with any tribute paid to the Peppiatt Committee for what has been a very speedy Report. I am sure that my hon. Friend will realise that taxation is one of the issues which are receiving further consideration at the present time.
  Miss Bacon: Will the right hon. Gentleman say whether or not the decision to accept these prosopals in principle means that the Government accept in principle the figure of £1 million or £1¼ million, or do they merely accept a figure?
  Mr. Vosper: The figure was a fairly definite part of the Peppiatt proposals and my statement to the effect that the Government are disposed to accept the recommendations in principle includes some reference to that figure.
  Mr. Wigg: Is the right hon. Gentleman aware that millions of punters will welcome the decision of the Government as the first step towards giving better starting prices and providing better facilities for those who go racing? May we take it that the right hon. Gentleman is giving an undertaking that the Government will introduce legislation next Session? Will the right hon. Gentleman ask his right hon. Friend to consider the possibility that the consultations which are to take place will include a debate in the House of Commons? Would not it be an excellent thing if the Government provided facilities for the Peppiatt Report to be debated in anticipation of this legislation?
  Mr. Vosper: I do not want to go beyond my original Answer. The hon. Gentleman's assumption is correct with respect to the first point he raised. The question of a debate hardly rests with me, but I think that my right hon. Friend would welcome expressions of opinion by hon. Members if an opportunity did arise.

  ADJOURNMENT DEBATES
  Mr. W. Yates: On a point of order, Mr. Speaker. For the second occasion of which you are aware, you have declined to accept a Private Notice Question addressed to the Foreign Secretary. On Thursday I have the Adjournment debate. Therefore, under the new Standing Orders of the House I desire to give you notice that I shall withdraw the
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  subject for debate which I have placed on the Order Paper and, with your permission, substitute for it the conduct of the negotiations in Cyprus and the responsibility of the Foreign Secretary, the Under-Secretary of State for the Colonies and Her Majesty's Government for nine weeks' delay in concluding those negotiations.
  Mr. Speaker: It is not quite like that. The trouble is that on Thursday the Chair chooses the subject and not the hon. Member. If an hon. Member were thereafter allowed to change his subject without the consent of the Chair he would be usurping to himself an Adjournment. I will treat this as an application for my consent to change the subject, but I must look at the other subjects available to me before I give my consent.
  Mr. Yates: I did not understand that under the new Standing Orders I had actually to apply in that way, Mr. Speaker. I thought that I had only to give notice formally on the Floor of the House. This is a new Standing Order which will affect every back-bench hon. Member if at any time he wishes to substitute a subject. I wish to express my regret if I have not given you, Mr. Speaker, sufficient time to consider it, but I desire to change the subject. If you cannot accept the change, then I accept the subject which you have already allotted to me.
  Mr. Emrys Hughes: Further to that point of order, Mr. Speaker, would not the problem of the hon. Member for The Wrekin (Mr. W. Yates) be solved if he suggested to the Leader of the House that it would be very important to discuss Cyprus on Friday?
  Mr. SpeakerThat is not a point of order.

ORDERS OF THE DAY

  FINANCE BILL
  Order for Second Reading read.
  3.38 p.m.
  The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory): I beg to move, That the Bill be now read a Second time.
  As hon. Members know, we have been enjoying a very satisfactory economic expansion during the past eighteen months, with price stability. The object of the fiscal measures which have been proposed in the Budget and of the monetary steps taken last week is to enable that expansion to continue at the highest rate which can be maintained with safety to price stability and to our balance of payments. Furthermore, we have always to bear in mind the need to leave room in our economy for a high level of productive investment in industry, on which our future prosperity so largely depends. I believe that the series of measures which I have introduced are best fitted to achieve the objectives which I have just described.
  As my colleagues and I made clear during the Budget debate, the Government regard a combination of monetary and fiscal measures as likely to be more effective than reliance on one single type of measure only. During recent months the Bank Rate has been raised by 1 per cent. I have introduced a Budget designed to exercise a moderate restraint on demand and these earlier measures will now be reinforced by the restrictions on credit which I announced to the House last week. The initial call for special deposits was deliberately made a moderate one. It is of the essence of monetary measures that they should be applied in a flexible manner. We want smooth adjustments and not violent shock action.
  I have, of course, noticed one or two criticisms which have been directed in some quarters at the hire-purchase controls, but criticisms have, in fact, been extremely few. I do not believe that it would have been right to have taken no action at all in that part of the credit field, especially in view of my concern to exert some restraint on current consumer demand in order to avoid the need to
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  cut at the roots of our future earning capacity. The measures which I have just described will affect demand in the private sector of the economy. I can assure the House that the Government are not neglecting the importance of applying the same more rigorous standards to the public sector as well, especially when they are considering proposals for further new increases in Government expenditure.
  We have before us a somewhat substantial Bill and, because of the complexity of the subjects covered, the phraseology may be in some places less than translucently clear at first glance to the layman. One or two Clauses I think may even seem slightly opaque at first sight. I want to deal particularly with certain points on which hon. Members have expressed interest and concern during the Budget debates. I hope that I shall be forgiven, therefore, if I make only the briefest reference to some of the simpler and less contentious Clauses.
  I shall begin with the Clauses which relate to Customs and Excise. Clauses 1 and 2 together provide for the reduction in the wine duties. As I explained in my Budget Statement, this step was designed mainly to meet the Portuguese request in the negotiations for the European Free Trade Association for some help with their traditional exports of heavy wine to this country. It had the advantage of completing the reform of the duty structure which was begun in 1958.
  Clause 4 provides for the abolition of the remainder of the Entertainments Duty charged on admissions to cinemas and public television shows. I think I can say that this change has been welcomed on both sides of the House. The increases in Tobacco Duty and drawback are contained in Clause 5. Hon. Members opposite have voiced some criticism of this provision. I shall only say that, although no tax increases are ever welcome, this one seems to involve less avoidable hardship than any other by which I could have raised a similar amount of revenue.
  Clause 9 enables the Commissioners of Customs and Excise to make regulations introducing a more efficient system for detecting the misuse of duty from heavy oil used as fuel for road vehicles by adding a dye to it. This new system of control will in due course enable users

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  of dutiable heavy oil to be relieved of their existing necessary but tiresome obligation to maintain record of mileage and of their fuel purchases. I think that that is a useful step.
  I now come to the Clauses dealing with Inland Revenue matters. Clause 13 bears witness to the important constitutional point that Income Tax is an annual tax. Clause 15 gives effect to my proposal, which received a general welcome, to introduce a new relief for widows and widowers with a child or children eligible for child allowance, but with no resident housekeeper. The Clause is framed so as to make the allowances available also to certain classes of single taxpayers who are responsible for young children and who have no housekeeper, but would qualify for the housekeeper allowance if, in fact, they had a housekeeper.
  Clause 16 carries out my other proposal in the personal allowance field by making an increase of £15 in the amount of housekeeper and dependent relative allowances. Clause 17 meets the situation which will be created when the graduated contributions begin to be payable under the National Insurance Scheme. These graduated contributions could not be handled under the pay-as-you-earn procedure without grave risk of the machine breaking down. As a practical matter it seems that a flat-rate allowance is inevitable. I should much have preferred to have avoided this, but there seems to be no practical alternative.
  I now come to Clause 18. In my Budget statement I said that I proposed that relief in respect of farming losses, or, indeed, of any other trading losses, should be restricted to activities conducted on reasonably commercial lines and that I did not believe that this proposal would adversely affect genuine farming at all. The wording I have proposed, on consideration, to adopt in the Bill is that recommended by the Royal Commission, namely, that the activities should be carried out
  "on a commercial basis and with a view to the realisation of profits."
  The Royal Commission intended that its wording should
  "put out of court claims in respect of farming activities which can be seen clearly to lack commercial inspiration and to be nothing more than hobbies or private amenities."
  892
  I have no desire to go one inch beyond that object.
  Mr. Douglas Houghton: Does the Chancellor also recall that the Royal Commission said that it did not think that its proposal would make much difference?
  Mr. Amory: Yes, the Commission said that it did not consider that it would make a great deal of difference, but, as the hon. Member will remember, it went on to say that, even so, it thought that this was an instrument which should be used by the Revenue to prevent really excessive loss cases where there was no relation to commercial practice whatever. If the hon. Member read the whole of the statement, I think he would agree that that is what the Royal Commission said. The words we have chosen mean that the Clause does not affect in any way loss claims under Section 341 by occupiers of woodlands. They will remain exactly as they were before this Bill.
  Farmers who incur temporary losses while establishing an enterprise, building up a herd, bringing back land into fertility or improving it, should be in no danger provided that the enterprise in which they are engaged is one that can be regarded as likely in due course to become an economic undertaking. This interpretation will provide reasonable scope for technical experiments and research in the course of such operations. We must remember that all the financial and other assistance provided under the auspices of the Ministry of Agriculture is designed to see that our limited area of land should be farmed productively, efficiently and economically.
  As I said in my Budget statement, I share the view that many of those with other occupations who run farms and market gardens bring great benefit to agriculture with new ideas and new methods. I do not want to discourage such genuine efforts in any way whatever. The cases we are concerned with are of a kind where the alleged trading activities over a long period bear no relation whatever to any commercial criteria. There are cases, for instance, in which the annual losses consistently exceed the total sales of the undertaking.
  I do not think that it can be right or fair to other taxpayers that in such

  893
  extreme cases such losses should be allowable as a set-off against other income. I have also thought it reasonable that the new provisions should not apply to allowances on plant and machinery bought before this year or to capital allowances in respect of farm buildings under Section 314 of the Income Tax Act, because we do not want to discourage the provision of useful new buildings.
  The next series of Clauses is designed to frustrate the stratagems by. which certain persons seek to avoid their proper liability to tax or to establish unjustified claims on the Revenue. I will deal only briefly with Clauses 19 to 22 and with Clause 29. These Clauses cover specific avoidance devices, which we must clearly seek to prevent, and the major question which arises is, therefore, whether they are so drawn as to cover the malpractices at which they are aimed, without interfering with any legitimate business. This we shall examine during the Committee stage.
  Most of these Clauses are designed to ensure that trading profits are dealt with as trading profits for tax purposes and do not escape liability by being disguised as or turned into capital gains. Clauses 19 to 22 deal with the problem in relation to companies which construct or deal in buildings, land, investments or other major assets. In the simplest type of case here, a company is formed to engage in a trading venture like putting up a building, but the building is never sold. Instead, the company is sold to the ultimate owner of the building and so the profit on the construction of the building becomes, in effect, a capital gain on the sale of the shares.
  There are quite a number of variants of this device, and the proposal is that those who sell the company in such a case shall be charged on an amount of income corresponding to the profit which would have arisen, judged by the price they received for their shares, had the trading assets and not the shares been sold.
  Clauses 23 and 24 relate to devices which turn on the differences in treatment for tax purposes between a company which carries on a trade of dealing in investments and a company whose business is that of an investment holding company. They are designed to ensure
  894
  that profits which would ordinarily have been liable to tax do not escape tax as a result of purely artificial manipulations within a group of dealing and investment companies. I think that the House will be satisfied with the proposal.
  Clause 25 deals with a device of a rather different nature. Financial operators are able to make a profit out of pretending that they are entitled to a dividend on stock when they are not, by using the recognised Stock Exchange machinery for sales of stock. The result is that a voucher is created for a taxed dividend, tax on which is never, in fact, paid. The Stock Exchange is blameless in this matter and the purchasers, too, may not be to blame. The Clause provides that for the future the operators will have to pay over to the Revenue tax on the pretended dividend.
  Clause 29 removes the six-year limitation in the 1955 anti-dividend stripping legislation. That has become necessary because it seems that prospective strippers, such is their enthusiasm, are prepared to wait for six years, if need be, to achieve their objective. This will apply only to transactions entered into after 5th April, 1960.
  I will explain rather more fully the new power which I propose in Clauses 26 to 28, since those Clauses have given rise to a good deal of anxiety, for reasons which I fully respect. As I explained in the Budget debate, Clause 26 is designed to cover, and is limited to, two main classes of avoidance tricks where the operators are particularly persistent and the amounts involved are very large.
  Mr. John Diamond: How large?
  Mr. Amory: I could give instances of how large individual cases have been, and I wish I knew how large the total was.
  First, there are all the types of case based on the central idea of what has been called dividend stripping—in other words, getting profits or reserves or assets out of companies in such a way that in the end the Revenue will lose the tax which has been paid or fail to collect tax which ought to be paid. Secondly, there are the types of case known as bond washing. Let no one think that this is a small matter. We are dealing with devices by which

  895
  the gains of the operators on individual schemes can run into many hundreds of thousands of pounds and the possible loss to the Exchequer into many tens of millions of pounds.
  We have found that it is largely ineffective to legislate against new devices after they have been brought into operation. One series of operations is enough to bring huge gains, and when the legislation comes along it does not catch that particular series of operations. What we need is a provision which will make the contrivance of new schemes unprofitable. I should have liked to give some examples of what is involved here, but time does not allow. I will refer only to one of many forms of device, and that very briefly. This is called current dividend stripping and is on the increase. I will not go into the details of the schemes, although I should be glad to do so at a later stage if hon. Members are interested.
  The effect is, first, that the shareholders can take the net profits of a company over a period of years completely free of Surtax, while the dealing concern associated in the transaction can claim back from the Inland Revenue much, if not all, of the Income Tax paid on those profits. This device could lead to enormous losses of tax revenue, and it is a device which seems rather to be gathering way at the present time.
  The main criticism of Clause 26 is that these problems should be dealt with by specific legislation. I only wish that that were practicable. I must explain why it has not proved to be so. The dividend stripper, or bond washer, uses features of the tax code which are necessary in themselves, in the interest of the taxpayer, to create a great variety of contrived situations to milk the Exchequer. The tax code, for instance, must allow a dealer in securities, who is taxed on the profits of his trading in securities, to deduct any losses on realisation. It is accepted that charities and approved superannuation funds should have exemption from tax and that in certain circumstances there should be a right to set off tax losses against other income.
  The strippers and bondwashers set out to distort for their own enrichment those kind of provisions intended for bona fide
  896
  cases. The trouble is that the combinations and permutations are very numerous. Parliament thought in 1937 that it was putting bondwashers out of business. In 1955, it thought that it was administering the coup de grâce to dividend strippers. Parliament had another go at bondwashers in 1959 and two further goes at dividend strippers in 1958 and 1959. The Council of the Stock Exchange has done everything it can to co-operate in preventing devices which it deplores as much as we do.
  Now we are faced with at least five further forms of dividend stripping, including ingenious variants where it is the company's trading stock that is stripped, with a vista of further ingenious schemes in the future. One more has come to light since my Budget speech. Reluctant as we have been to contemplate any general provisions, we have, in fact, used specific measures to the limits of what is practicable, but we have to admit that in many cases we have been operating well behind or badly behind events.
  I will describe what I mean in a little more detail. A new device is discovered and put into operation. When specific legislation comes along, it is dropped and replaced by another or modified. This would be true almost to the same extent were the specific provisions to be effected by Order—the combinations and permutations are too many. As I have already stated, the tax at stake is large and is increasing.
  The operation of Clause 26 has been as narrowly restricted as possible. First, it relates only to transactions in securities as defined in Clause 40, and then only when a tax advantage, as there defined, is or could be obtained. The operation of Clause 26 is still more closely defined even when these conditions are fulfilled, since it operates only in the circumstances set out in subsection (2). These circumstances restrict its application to cases where the benefits obtained are of the dividend stripping or bondwashing type.
  The House will have noticed that there is a specific provision that the Clause is not to apply to cases where the transactions are carried out either for bona fide commercial reasons or in the ordinary course of making or managing investments, provided that none of them has

  897
  as its main object, or as one of its main objects, to enable tax advantages to be obtained.
  Next, the Clause defines in considerable detail the conditions in which directions may be made, and there are special provisions for appeal rights. A person aggrieved by a direction given by the Commissioners of Inland Revenue will be able to appeal to the Special Commissioners who are the normal appeal tribunal for this type of matter. We are also providing that there should be set up a special tribunal to rehear completely cases in which either the taxpayer or the Revenue is dissatisfied with the Special Commissioners' decision. That is on a question of fact.
  This special tribunal will consist of the Chairman of the Board of Referees, who will in future be appointed by the Lord Chancellor and not by me, and two or more other members appointed by the Lord Chancellor as having special knowledge of and experience in financial or commercial matters. From these tribunals, both of which are independent of the Inland Revenue and of the Treasury, there will be the right of appeal to the courts as before on a point of law.
  Sir Spencer Summers: Did I understand my right hon. Friend to say that the right to refer to the special tribunal is only on a question of fact?
  Mr. Amory: No. It is on a question of fact or law to the tribunal, but the appeal to the courts can be only on a question of law. The appeal to the Special Commissioners and the special tribunal can be on either. I am sorry that I did not make that clear.
  Mr. G. R. Mitchison: May I ask the Chancellor two questions? First, this tribunal was not mentioned in the right hon. Gentleman's Budget statement. He referred to the Special Commissioners and to an appeal to the court. Am I right in thinking that it has been added since then? Secondly, when did the right hon. Gentleman first hear of any of the devices to which he has referred, not only in connection with this Clause, but in connection with the other Clauses about which he was talking a short time ago?
  Mr. Amory: I can answer the hon. and learned Gentleman's first question
  898
  by very simply saying "Yes". The decision to propose a second appeal was taken after I made my Budget speech. I find it very difficult to answer the second question, because these devices come to light in many forms and overlap. I could not give the dates on which a particular form first came to our notice. We hear rumours and then very gradually the form takes shape.
  Mr. Mitchison: May we take it that the light has been coming continuously through the fiscal year and not in a sudden flood during the Chancellor's period of purdah just before the Budget?
  Mr. Amory: I think that the hon. and learned Gentleman is right, because during our discussions on the Finance Bill last year I expressed considerable anxiety about this. At that time I introduced proposals to deal with one or two cases which had only recently then come to light.
  Mr. Glenvil Hall: I am sorry to interrupt the Chancellor again, because he has had to deal with a number of interjections. Can we learn a little more about the tribunal? It is obviously quite a new feature in our law to set up a body of this kind. Will judges serve on it, or will they be excluded because the matter may afterwards be taken to the courts? Will they be commercial people, such as well-known accountants, or will they have to concentrate on this work and not be in business on their own or in partnership?
  Mr. Amory: There will be an opportunity to discuss this in greater detail later. My right hon. and learned Friend the Attorney-General may be answering quesions on this point at the end of the debate. I do not think that the intention is that there should be a judge. It will be a distinguished lawyer, such as has been occupying the post of Chairman of the Board of Referees up to now. The other two members will be men who are experienced in financial and commercial matters. That information is contained in Clause 26 (4).
  The transactions at which the Clause are aimed are of a contrived character, but we recognise that there may sometimes be genuine transactions which might be thought to have some of the characteristics of the transactions we

  899
  want to stop. To ensure that no avoidable uncertainty will arise in bona fide cases toy reason of the new power, there is a specific statutory provision enabling persons contemplating a transaction to approach the Inland Revenue and seek a clearance for it.
  I emphasise that the proposal does not break new ground. The power we now propose is much more specific than the comparable Profits Tax provision to which the Royal Commission on the Taxation of Profits and Income saw no objection. I have become convinced that it is the minimum that is necessary. The machinery of appeal in relation to Profits Tax cases is less complete than is now proposed under Clause 26, and we have accordingly provided in Clause 62 that in Profits Tax cases there will be an appeal not only to the Special Commissioners as at present, but a further appeal thereafter to the new tribunal.
  I hope that what I have said will convince hon. Members that what we are proposing is not a matter of the Inland Revenue making up the law as it goes along. It can make a direction in these cases if it believes that tax is due, but the effectiveness of the direction is subject to two appeals on fact and one on law. I sincerely believe that these provisions give full and ample safeguards to the taxpayer against any arbitrary action by the Commissioners of Inland Revenue, and I would not have put the proposal forward had I had any doubts whatever on that score.
  I now turn to a series of Clauses dealing with terminal payments. First, post-cessation receipts are dealt with in Clauses 30, 31 and 32. Clause 30 says that the receipts of an uncertain or contingent character that come in after the end of a trade or profession will be taxed. It does not, however, operate to tax post-cessation receipts that arise merely because the "cash basis" of accounting—that is to say, receipts and payments—was adopted.
  Clauses 35 and 36 impose tax on payments made in connection with the termination of an office or employment and, in particular, payments of the kind that have come to be known as "golden handshakes". In recent years, there have been a growing number of instances where retiring directors have received very
  900
  large payments, indeed, on the occasion of take-over bids. I think that there will be general agreement that the complete freedom from tax which large payments of this kind can at present enjoy is anomalous, and unfair to other taxpayers.
  Clauses 35 and 36 carry out a recommendation of the Royal Commission in regarding as proper subject for taxation payments designed to compensate a man for the loss of future emoluments of an office. I propose, however, that the first £5,000 of any payment should be exempt from tax. I feel that it is the very large payments that are open to criticism as being free of tax, and that it is justifiable to exempt fairly modest lump sums from charge. Though the new charge will also cover voluntary payments made at the termination of an employment, we are endeavouring to make as little change as possible in the existing tax position of sums that may be fairly regarded as superannuation payments for past service. Thus, the Clauses do not affect lump sums that are payable under statutory or approved superannuation schemes.
  Moreover, where a voluntary payment is of a kind brought into charge by these Clauses, there will be an exemption either of the first £5,000, or of so much of the payment as may be regarded as the equivalent of a reasonable superannuation payment if that is bigger—and sums of that kind could be much bigger than £5,000 in appropriate cases.
  Mr. J. T. Price: Where the superannuation payment due is commuted by a lump sum, either wholly or partly in place of the annual or monthly payment, what is the distinction in principle that confers a special favour on such payment when, in the normal course of business, super-annuitants who receive pension by way of monthly or other periodical payment are still taxable at the full rate on those payments? Surely, as a matter of equity, one has to distinguish between the right-ness or wrongness of the granting of special privilege to the lump-sum payment as against the more normal, periodic payment.
  Mr. Amory: The hon. Member raises an extremely difficult, complicated, but, I agree, relevant point. He will forgive me if I do not deal with it now, but

  901
  I would think it a very appropriate case to raise, and to be dealt with at a later stage in our deliberations.
  I propose, also, that any payment which becomes liable to tax under this Clause should be treated, in calculating the amount of tax due, as though it were spread, in compensation cases, over the number of years for which the recipient was entitled to hold the office, and for which the recipient is being compensated and, in the case of voluntary payments, over six years. This will represent a very substantial relief.
  That brings me to the Whitworth Park case. Clause 37 enables the Crown to deduct Income Tax from certain income payments in circumstances in which a taxpayer would be entitled or required to deduct tax, and validates past tax deductions made from such income. There still seems to be a certain amount of misunderstanding about this proposal, which I hope I can clear up.
  I should like to emphasise two points in particular. First, the Crown won the case in the House of Lords; thus, the suggestions that we are in this Clause reversing a decision of that House that this tax ought to be paid are wide of the mark. Secondly, and even more important, we are not making liable to tax income that was not so liable before. What is in question is the machinery by which the tax was collected.
  Under the Coal Industry Nationalisation Acts the Ministry of Fuel and Power was authorised to make payments of "interim income" to former colliery companies pending a settlement of the amount of compensation. These interim income payments were made under deduction of Income Tax in accordance with what was understood to be the law. The colliery companies acquiesced in these arrangements. If tax had not been deducted, and the colliery companies had received payment in full, the Inland Revenue would have collected tax from the companies then by direct assessment.
  In 1955, a Surtax appeal—not on this Income Tax matter—on the part of the Whitworth Park Coal Company raised the contention that the payments fell under Case VI of Schedule D, not Case III as had been assumed. This case went
  902
  ultimately to the House of Lords, which found in favour of the Crown and against the company on this Surtax issue. The House of Lords expressed the opinion, however, that Income Tax should have been collected from the companies by the Inland Revenue, and that the Crown had no power to deduct it in such cases at source.
  A number of former colliery companies have now taken out writs against the Ministry of Power claiming that they should now be paid the sums deducted over the period 1948–57 on account of Income Tax. Had they, of course, taken that point when they received the payments, they would have gained no advantage from it. As I have described, the alternative method of collecting the tax by direct assessment upon the companies would have been promptly adopted.
  As regards merits, if the companies won, they would gain an advantage only because, of course, they acquiesced in the deduction of Income Tax in the first instance; and put in their present claim when it was too late to make assessments for some of the years in question, and Income Tax rates have fallen. I have concluded that it is my duty to ask Parliament to bar such claims. The Clause covers various similar payments by the Crown where the same point could be taken equally without merits on a technicality.
  There are, of course a number of precedents for action to validate things done with the clear consent of both parties when it later appears that the law was not what it was assumed to be. Some of these were for the benefit of taxpayers and not of the Revenue.
  Mr. Mitchison: If the Clause were not passed, would the claim on 'the writs succeed, with the result that the companies could not be assessed and taxed by the Inland Revenue because of questions of time?
  Mr. Amory: If the case succeeded, that would be the effect.
  Mr. Douglas Jay: Did I understand the Chancellor to say at Question Time today that £40 million was at stake on this point?
  Mr. Amory: If the right hon. Gentleman will read carefully the Answer I

  903
  gave, he will see that I said that, if the principle were carried against the Revenue in every possible case where the Revenue can think it might be, then the amount of tax involved would be of that order.
  There was an almost exact precedent in 1934, when a court decision showed that certain colliery companies had been wrongly deducting tax at source from royalty payments. The companies were faced with claims by the royalty owners in that case and for a refund of the tax deducted. Following representations from the Mining Association, the Government of the day validated what had been done, with retrospective effect, in the Finance Act, 1934. I find it difficult to reconcile the attitude taken by the colliery companies in 1934 with the present claim that tax deductions made in good faith between 1948 and 1957, and accepted, should not now be validated.
  I do not propose to deal at length with Part III of the Bill, which deals with penalties, although I am glad to bring before the House a comprehensive reshaping of the penalty code. The detailed discussions would, I think, best be left to the Committee stage. My right hon. and learned Friend the Attorney-General, who will wind up the debate, will, I am sure, be ready to answer any questions which are raised. My aim, in Part III, has been to bring together the new provisions in a rational and coherent scheme which meets, I hope, the valid criticisms which have been made of the existing penalties.
  The Bill proceeds on the principle that tax lost to the Exchequer through the taxpayer's fault should be recoverable, but should be recoverable by assessment and not in the form of penalties, that interest should be charged on such tax, and that the penalty for the offences which led to the loss of tax should be reasonable in amount and related to the amount of tax lost and not to the total tax chargeable on the whole of the income. All penalties will be open to mitigation by the High Court as well as by the General or Special Commissioners and the Board of Inland Revenue. The new scale of penalties is, I hope the House will agree, reasonable and, indeed, moderate.
  904
  To put the matter briefly, we propose a substantial reduction in the scale of penalties which may be imposed. At the same time, we propose a certain extension, subject to safeguards, of the time limit for reopening assessments when there has been repeated loss of tax because of the taxpayer's negligence.
  Mr. Houghton: Do I understand that the amounts prescribed as penalties will be in addition to assessments for tax lost and not in substitution?
  Mr. Amory: The hon. Gentleman understands quite rightly. They will be in addition to the recovery of the tax lost.
  The remaining Inland Revenue Clauses call for little additional explanation. Clauses 59 and 60 enact the concessions I felt able to propose this year on Estate Duty. As regards gifts inter vivos, I believe the graduation principle to be sound and I think that it will make this duty operate more fairly. The changed basis of valuation of trading concerns is one which has been strongly urged on me, and, again, I believe that it will be welcomed.
  Clause 61 raises the Profits Tax to the extent I indicated in my Budget statement. My reasons for recommending this were given by my hon. Friend the Financial Secretary and myself in the Budget debate. I will merely repeat now that I am satisfied that this increase will not, in present circumstances, interfere with the current upward trend in industrial investment, but should have some limited effect on consumer spending.
  Clauses 63 and 65 introduce a small reform which has been urged on me on behalf of unit trusts and I am glad to propose it. Clause 66 provides for a small but merited extension of capital allowances.
  I come now to Clause 72. During the Budget debate, doubts were expressed in various quarters about the three-year period for which I proposed that the Exchequer should be empowered to make advances to the seven nationalised undertakings. I hope that Clause 72 has allayed these doubts. In addition to limiting advances by reference to the borrowing powers given by Parliament to each undertaking, the Clause fixes an aggregate of £2,050 million for advances up to the end of August, 1961. The

  905
  advances in each of the two succeeding years are to be subject to an aggregate amount for each year, which will be fixed by a Treasury Order which will require the affirmative approval of the House.
  This all adds up to what I recognise to be a formidable Bill which is likely to keep us busy during the weeks to come. The reforms which it proposes are ones which, I am sure, ought to be made in the interests of justice and fairness between one taxpayer and another. I believe that this view is shared by most people in the country. I commend the Bill to the House.
  4.28 p.m.
  Mr. G. R. Mitchison: It was only about a year ago, but before the General Election, that the Chancellor introduced some tax concessions that were estimated to cost £295 million and, with them, an additional repayment of post-war credits estimated to cost £71 million. Speaking on the Second Reading of that Finance Bill, he described it as providing
  "a stimulus which should be felt throughout the economy"
  and having
  "a significant effect in promoting stability of prices".—[OFFICIAL REPORT, 28th April, 1959; Vol. 604, c. 1221.]
  Since then, during 1959, share prices have risen by more than 50 per cent. and bank advances, taking April to April, have risen from £2,412 million to £3,328 million, including an extra £99 million last month. The right hon. Gentleman now proposes, in his own words, to put a
  "…moderating influence on the rate of expansion…".—[OFFICIAL REPORT, 4th April, 1960; Vol. 621, c. 64.]
  the expansion which he himself helped a year ago.
  These convolutions have been fairly described by the Sunday Times as "economic hiccups". This is a very small hiccup on this occasion, and I trust that the right hon. Gentleman's hiccup and those of his successors will grow progressively smaller. After all, the real remedy for hiccups is to keep off the economic drink. A year ago, the right hon. Gentleman was taking to the economic drink in a big way. I trust that he will moderate his economic potations and his advertisements of them
  906
  before the next General Election. I believe that it will cause him less trouble afterwards if he does.
  It is for that purpose that the right hon. Gentleman has introduced what he rightly calls one group of measures— partly of a fiscal character and partly of another character. The Bank Rate was raised in January and the right hon. Gentleman now proposes to call for special deposits of 1 per cent. of total deposits from the London clearing banks, a rather lower rate from the Scottish banks and to impose certain hire-purchase restrictions. He has brought in this Finance Bill which, by contrast with last year's tax concessions of £295 million, adds up, so far as direct charges go, to a net total of £14 million, obtained substantially out of an increase in the Tobacco Duty. This really is a very small measure, and, although it may be described as a formidable and substantial Budget, from that point of view, at any rate, the positive contribution that will be made by it will not be large.
  I am not going back on what was said in the Budget debate about possible things that might have been done. I want to mention only one thing which seems to me perfectly obvious. Given the position described by the right hon. Gentleman and indicated by the measures that he proposes to introduce, a change in the Profits Tax and a higher rate on distributed profits would have been, I should have thought, a useful and material contribution to what is now sought to be done mainly by monetary measures.
  Let me take the special deposits first. We on this side of the House agree with the right hon. Gentleman that if bank advances should be limited the special deposits are the best way to do it. We claim that originally this was suggested by my right hon. Friend the Member for Huyton (Mr. H. Wilson) and later by other hon. Members on this side. There are, however, points about them, and the question is whether they are quite sufficient in present circumstances. They do not touch anything but the banks. They do not touch other sources of credit, and to that extent they drive borrowers to borrow long-term or to finance their own resources from various other sources indicated in the Radcliffe Committee's Report.

  907
  It was for that reason that the Radcliffe Committee stated:
  "… in any ordinary situation"—
  I do not think that the right hon. Gentleman would describe this as an extraordinary situation—
  "we cannot find that there would be sufficient advantage to justify discriminatory action against the banks".
  The question is whether something more ought not to have been done with other sources of credit. I have not forgotten the hire-purchase restrictions, to which I shall come in a moment.
  There is another point. If provision is made for special deposits, the banks can do one or tooth of two things. They can either limit their advances, or sell their short-term securities and raise more liquid money in that way. In the proceedings before the Radcliffe Committee, there were considerable differences of opinion and, indeed, changes of opinion as to what the banks were likely to do when something of this sort was introduced.
  As I have said, the London clearing banks raised their advances by about £99 million in the last month. It is not without importance that during that month their investments decreased by £61 million. I agree that that is a short period to take, but the efficacy of this Measure for the purpose for which the Chancellor intends it must depend either on agreements with the 'banks or, at any rate, on a highly informal understanding with them that they will not merely sell their short-term securities and continue to advance on the same scale as before.
  The Radcliffe Committee made one other comment that applies to this Measure as a whole. It stated:
  "Although aimed at total demand"—
  as the Chancellor told us this Measure was aimed at—
  "any monetary measures will have inescapable directional effects;"
  It seems to me that that may well be the case here.
  Let me take one instance. The Scottish banks are also to be restricted, although at a lower rate, it is true. They have no conventional 30 per cent. liquidity ratio, as I understand the Radcliffe Committee's Report. They have, in effect, largely a separate banking system,
  908
  although they are closely inter-locked by ownership both of Scottish banks by English banks, and English banks by, at any rate, one Scottish bank. Any limitation of Scottish banks in their advances is bound pro tanto to hinder the advances they might well be able to make to promote employment in areas where unemployment is, and has been for some considerable time, very much above the national average. That applies particularly to Scotland because of the separate character of its banking system, but it also applies to areas of high unemployment.
  What one says to oneself is what is to be done about it? I have pointed out that the efficacy of the special deposits must depend on an understanding with or promise by the banks. I suggest that in this case it would have been better if some understanding had been arrived at with the banks that instead of restricting their advances generally they would promote them in areas of exceptional unemployment.
  In answer to a Question today, the right hon. Gentleman said that he would call the banks' attention to the position in the development areas. Here, the Government reply steadily, as the right hon. Gentleman has replied, "We have attended to this by the Local Employment Act." But this Measure is little more than a re-enactment, with quite minor additions, of distribution of industry Measures which were already on the Statute Book. It all depends on how those Measures are operated. It seems to me that here the Government have missed an opportunity of directing the national resources to a larger extent to these special areas or, at any rate, to put it in a more negative form, of ensuring that the measures taken with regard to the economy in general should not operate unfairly in areas of exceptionally high unemployment.
  I now want to say one or two words about hire purchase. I see the point of restricting hire purchase at the moment, but the restrictions which the right hon. Gentleman has proposed seem unlikely to have much effect. To put it generally, I believe that they do little more than a prudent trader or financier in these matters would do. I go further. I agree with the comment of the Leader of the Liberal Party when these

  909
  restrictions were first mentioned. Some of the distinctions are extraordinarily difficult to follow. For instance, why should kitchen furniture, bath units and the like be subject to half the restrictions on small refrigerators?
  I do not propose to go into detail now, because it would be wasting the time of the House, but it is one of the curiosities of our legislation that these hire-purchase restrictions have been introduced in statutory Orders labelled in large letters "Emergency" and under legislation which allows us to pray against them and to raise points on them. However, I would describe them shortly as a bit of patchwork.
  I turn from these two measures to some of the Clauses in the Bill. I do not propose to say anything, so far as I can spare the House the time, about the Clauses which will come up in Committee and can be discussed then.
  I should like to say this about the first two Clauses in the Bill. These affect the concessions in respect of port and other wines. With great respect to the right hon. Gentleman, I cannot accept the proposition that the object of these Clauses is to make a timely concession to Portugal, connected, perhaps, with the European Free Trade Association. The fact is that port does not account for even the largest of the items, let alone for a very large proportion of the total. In fact, Portugal had to be admitted on special terms to the Stockholm Convention.
  What is really happening—and the right hon. Gentleman must face it—is that instead of making any concession to pensioners, or for housing subsidies, or in the amount of the rate of interest paid by local authorities for their borrowings, the concession is being made to the wine trade and to those who, like myself, buy from it. This concession which is being made—I do not want to repeat this, but the frown on the face of the hon. Member for Eastleigh (Mr. D. Price) compels me to do so—would have been enough to provide housing subsidies for the number of houses being built before the Government cut down the housing programme. It would have been enough to reduce by 1 per cent. the rate at which local authorities are borrowing.
  Mr. David Price: Is the hon. and learned Gentleman really say-
  910
  ing that this concession in Clause 1 of the Bill has nothing to do with the Stockholm Treaty? Is he not aware that a concession cannot be given to the Portuguese alone without breaking the rules of G.A.T.T.? It had to be done over that range of revenual goods. Surely he knows that.
  Mr. Mitchison: On the second point, I think that the hon. Member will find a concession to Portugal alone at the end of the Stockholm Convention. I would sooner that this money had been spent for the purposes I have indicated than used for this purpose. I do not believe that it would have made, or should have made, that material difference to the attitude of this country to Portugal. If it is suggested that it had to be done, I would simply say: if that can be done, surely other things can be done, too.
  Mr. Amory: Following the intervention of my hon. Friend the Member for Eastleigh (Mr. D. Price), I should like to express the hope that the hon. and learned Gentleman will, in fact, accept my assurance 'that that was the main reason for this action.
  Mr. Mitchison: Of course, I accept the right hon. Gentleman's assurance as to his own reasons. I only indicated that the concession to Portugal was less than half of the total amount. For instance, the value of champagne imports to this country—and I have never tasted Portuguese champagne—was considerably larger than the volume of imports of wine from Portugal. I do not want to deal further with this matter, because it has already been discussed.
  As to the abolition of the Entertainments Duty, I think that it is sufficient to say that we on this side of the House all welcome it. We have been pressing for it for years and we are very glad indeed that it has happened at last. As to tobacco, comments have already been made during the Budget debate and I will not repeat them. The rest of Part I deals with what I think I may fairly call minor administrative matters.
  When we come to Part II of the Bill, all of it except the first five Clauses—one is rather a marginal one—deals with highly technical tax avoidance and similar questions. It raises the question of

  911
  machinery from two points of view. One is our own proceedings in the House. There are some people who have taken the view that parts of the Finance Bill should be taken from the Floor of the House and dealt with by a Committee specially interested in questions of that kind. While I doubt whether I share that view personally, there is another aspect of the matter which seems to me to provide a much more hopeful solution.
  Year after year from this side of the House two suggestions have been made that overlap. One is that from time to time there should be tax management Bills, as I think that my hon. Friend the Member for Sowerby (Mr. Houghton) has from time to time described them, and another and a similar one is that there should be arrangements for dealing rapidly with the tax avoidance question which at present we only consider Budget by Budget at the end of each fiscal year.
  We shall go away when we have got through this Bill, and the right hon. Gentleman, if he remains in office until then, will go away, too, and there will gradually begin to dawn on him yet again, in spite of the Clause that he has put in because he has himself said it is very restricted in its application, the annual light of the bondwashers, the dividend strippers and the rest of the City and other gentlemen who contrive to pay less taxes than they should and who sometimes actually mulct the Exchequer. That goes on year after year. Yet although the light begins to shine at once, no steps are taken to deal with the matter until a year later, at the end of the Financial Bill.
  When a Bill of this kind is introduced, which in substantial fiscal respects does a little, but not very much, but is padded out, if I may use the words, with very necessary avoidance measures and the like, we ask ourselves what has happened during the past year. The right hon. Gentleman has known about these things. He has known about individual cases in which, as he has told us, very large sums indeed have been collected, or avoided, by these methods. We get an Exchequer loss, amounting to many millions of pounds, not perhaps quite as much as the Blue Streak on one series of transactions, but, taking the whole lot together, something of that order.
  912
  Yet so rigid is our system that we go on year after year trying to deal with what might be called day-to-day ingenuity by annual Budgets. It really is ridiculous. I suggest to the House that we should consider at least one of the three possibilities. One is a tax management Bill of the kind that my hon. Friend indicated. Another, and a different one, is that there should be arrangements for dealing with these matters either by Orders or, perhaps better, by short ad hoc legislation as they arise from time to time.
  I do not regard Clause 26, the motive Clause, as I call it, as sufficient protection. I would have these other things added to it. Indeed, in this Bill it is necessary not only to have a motive Clause, but to have another collection of extremely complicated provisions, although the motive Clause itself is in the Bill. There is not the least doubt that with a restricted Clause like that ingenuity will again be exercised to no good purpose and that, again, the Revenue will lose what it ought to collect. So, in fact, other taxpayers and, perhaps, in particular, the rather humble Schedule E taxpayers will have to pay more than they otherwise ought for the same fiscal expenditure. We go on saying this, but nothing is done. We cannot find better evidence for it than in the contents of the Bill.
  About the reliefs at the beginning of Part II, I say no more than this. Although we welcome them, they are in one or two respects, which we can discuss in Committee, a little close still and there are possible additions. That, however, we shall consider at a later stage.
  I come next to the "hobby farmers'" Clause, Clause 18. One appreciates the reason for it and it will have to be considered in the light of all the Royal Commission's observations. I make only the comment that it involves, again, a question of motive and one must face this. When, however, we get to questions of motive, we are putting a rather difficult task on the Inland Revenue and its officers.
  I should like to say something on my own behalf. I have been dealing with Income Tax officers for many years, and so have all of us. I do not go to accountants. I have never felt at any time that I have been treated otherwise than

  913
  perfectly fairly and most helpfully. I have never had any feeling that the Inland Revenue was trying to do a sharp one on me, or to get more tax than it ought to collect. Quite the opposite. I have always felt that the Income Tax officers would give gladly any amount of help, which people do not always realise. They are prepared to give it in the same spirit as those who function in quite another capacity, the National Assistance officers.
  I feel, therefore, that if they take that attitude, as they do—and I hope they will keep it—it is sometimes a little difficult for them when questions of motive are put up to them for decision. I am not saying that the matter can be avoided, except in so far as it could be avoided by prompt and particular action on the lines I have indicated.
  Sir S. Summers: The hon. and learned Member has suggested that there should be additional opportunities for bringing in precise changes in the law. Are we to understand from what he has said that he advocates them instead of the broader powers in Clause 26, or in addition to them?
  Mr. Mitchison: I am obliged to the hon. Member. I would have said it later, but will say it now. Certainly not. I welcome the provisions in Clause 26.
  I was trying to point out, however, that it is, as the Chancellor of the Exchequer indicated, a restricted Clause, that it is not sufficient even to cover the other points which have to be met, especially in this same Bill, that there are sure to be other exercises of misplaced ingenuity directly after the passing of the Bill—in fact, they are apparently going on already—and that, therefore, I want both things, both some such Clause as Clause 26 and day-to-day provision for dealing quickly with these things before large sums are lost.
  I shall not say more about Clauses 19 to 22 than this. It is difficult for the Opposition to deal with Clauses which put a new restraint upon the taxpayer if we think that the restraint falls short of what is required, because for obvious technical reasons—Money Resolutions and the like—we cannot put any additional burden on the taxpayer by means of an Amendment. It is, therefore, difficult for the Opposition to tighten up these
  914
  Clauses, although, sometimes, we would wish to do so. I do not think that these particular ones, so far as I can judge, could be tightened up much in their incidence, although, possibly, they could be in their scope.
  I turn to another type of Clause, Clauses 30 to 34, which deal with discontinuance. I believe that these Clauses have an avoidance content. That is to say, discontinuance has been used by people who carried on some sort of trade or business and then wound it up, transferred it to a company or whatever it could be, made an arrangement between themselves—one can think of all sorts of possibilities—and thereby profited by the discontinuance arrangements. Nobody would wish to interfere with any steps that are taken to avoid that practice. Although this type of Clause deals with people who trade on an earnings basis, however, it does not deal effectually with those who carry on a profession and, therefore, work on a cash basis. It does not, therefore, cover the lawyer. Although I am not allergic to lawyers, my party is and I rather think that the House is, too.
  People will view it amiss if a Clause dealing with discontinuance is introduced and it is discovered that it does not apply to lawyers. There are, of course, plenty of others to whom it does not apply. It does not apply to any professional man unless, rather exceptionally, he is assessed on an earnings basis. As I see it, the difference between these two bases is not a matter of principle. Indeed, to some extent it is in the option of the taxpayer in practice. Therefore, I find it difficult to understand why some provisions, at least, have not been made for discontinuance in cases where there is a cash basis: that is to say, among other professional cases.
  If it is said that the difference is between tax avoidance in relation to trades and businesses and the inevitable discontinuance that happens when anyone retires from a profession, I should have thought that that could have been met by suitable language and that there was enough risk, at least, of avoidance, even in professional cases, to make it advisable to put in something of the sort.
  I go one further stage about it. It is most expedient in financial matters that we should not only do what we think

  915
  to be right, but should appear to do it. It will not be popular if we rest our distinction purely on the technical difference between the two bases of assessment. That is what these Clauses do. I am aware that there is another minor point, depending upon whether lawyers are ever entitled to their fees. The Government would not, however, wish to rest on that point, although it may be useful as a device of language and no more.
  I turn now to say a word or two about the motive Clause. I have already indicated that I regard it as restricted and that it seems to me to have difficulties from the point of view of those who will have to administer it. I do not, however, wish to be taken to disapprove of it in any way. On the contrary, it is not only necessary, but long overdue, and I rather wish that it was less restricted. Perhaps, however, like the Chancellor's financial measures, having found that it works, as we hope it will, he or his successor in office will extend it.
  The "golden handshake" Clauses, Clauses 34 and 35, are, again, something that we on this side welcome. It should, however, be said that the £5,000 limit is rather high. That is a matter that can be considered in Committee. In addition, we will have to see that cases in which damages for an accident have been assessed having regard to tax do not get taxed twice in any way. The Gourley case is what I have in mind, and there are others.
  The Attorney-General (Sir Reginald Manningham-Buller)The Attorney-General (Sir Reginald Manningham-Buller) indicated assent.
  Mr. Mitchison: I am glad to know from the Attorney-General that that has been borne in mind and that, no doubt, he or somebody else will explain in due course how effectually the matter has been dealt with.
  Turning for a moment more to the Whitworth Park case, that is, of course, retrospective legislation. It is not only retrospective in form—retrospective, I agree, to a less extent than one might think at first sight—but definitely retrospective. It puzzles me why retrospective legislation can be introduced in that case and not introduced in some of these dividend stripping and bondwashing transactions of which we have heard
  916
  so eloquently from the Chancellor. It really is rather absurd.
  No doubt a considerable sum of money is involved in this case, but at least as large an amount is involved in the others. If we are not to have day-to-day provision for dealing with them, then no Chancellor of the Exchequer ought to hesitate the moment the light dawns on him to warn the people concerned and to bring in retrospective legislation in the next Budget. I cannot understand how the Treasury, sitting there and watching this sort of thing going on month by month, never warns anybody, then brings in a provision in the next Budget and expresses itself as contented with it.
  Turning to Part III of the Bill, as regards penalties I will say no more than this. I do not think that there is enough difference in these oases between penalties for negligence, of which in fiscal matters I am constantly and incorrigibly guilty myself, and penalties for fraud, on which, so far, I have not embarked and do not propose to embark.
  As to the next part of the Bill, I would say that an Estate Duty concession as regards gifts inter vivos, whatever its moderation and whether or not it avoids an inconvenient shock and a rather improper feeling as to whether so-and-so will survive the necessary five years, is, in spite of that, viewed with considerable suspicion on this side of the House. We take the view that Estate Duty ought to be tightened up, that gifts inter vivos particularly are not matters for concessions.
  I say no more. I have not touched on all the Bill. I have spoken quite long enough, if not too long, and it is the first time that I have ever had to do so on a Finance Bill at this stage. It is not too easy, but I would say to the right hon. Gentleman that though I am not an expert economist, and I think that this is a very difficult Bill, I cannot feel that the Bill, taken with the monetary measures, really amounts to quite enough. I think that the use of the Budget financial measures, in the strict sense of the term, is generally preferable to the type of general monetary restriction indicated by the special deposits and the reintroduction of hire-purchase restrictions.

  917
  I wish that the right hon. Gentleman had put rather more into the Finance Bill and done rather less in other ways and that in doing so he had paid regard to the social conditions of the country. I do not think that the extra tobacco tax is right from that point of view. The social conditions which ought to have been borne in mind are not merely those of the pensioners, but the social conditions of unemployment in some parts of the country and the social conditions arising out of expenditure by local authorities.
  I earnestly hope that, whatever is said from the other side of the House about this matter, the right hon. Gentleman will not come down financially on local authorities and restrict the services which they are already finding it very difficult to carry out fully and properly. I am trusting, therefore, that one or two remarks which the right hon. Gentleman made at the beginning of his speech were more concessions to his hon. Friends than intimations of anything very dreadful to come. I trust that we stop here so far as the public sector and local authorities are concerned.
  5.5 p.m.
  Mr. Michael Shaw: I should like at the outset to crave the indulgence of the House on this the first occasion on which I address it. I come from my constituency of Brighouse and Spenborough, an industrious and hard-working part of the West Riding of Yorkshire and a constituency where the old-fashioned principles of neighbourliness, friendliness and an interest in local affairs still grow strongly.
  It is my one regret that the chain of circumstances which led to my being here this afternoon started by the tragic and sudden death of John Edwards. He was a man much beloved by everyone in our constituency, and it is a matter of regret that it was because of his death that I was eventually elected to this House. I came here on one pledge and on one pledge only. That pledge was to support the present Government, in the firm and sincere belief that they were the team that we needed to carry on the affairs of the country.
  I take this early opportunity of supporting this Bill. I believe it is a Bill that is necessary in the present circumstances
  918
  of the country and that it meets the needs with which we are faced. I have asked many people in my constituency what their views are on the Bill and, by and large, the reaction has been, "Well, I do not see what else we could have done." In other words, it has been considered as reasonable and necessary.
  In our district textiles are one of the predominating industries and one of the first industries to reflect depression and the lack of well-being in our economy. We fully realise how necessary it is that any adjustments made to our economy should be made gently and should be made early because, otherwise, the people who feel it most are those in our textile industries. Therefore, it is good that at this time the Finance Bill is moderate and is, in a sense, a standstill Measure striking a note of caution.
  I do not propose to talk at any great length on this occasion, and, I trust, not on any future occasion either. I will not, therefore, go through the Clauses in detail. However, I should like to refer to one part of the Bill. It is, perhaps, the only part which I feel that I have completely mastered as yet, a feeling, perhaps, which is shared by many other hon. Members on both sides of the House. It is Part III of the Bill which deals with penalties.
  I feel that it is high time that there was an alteration in the penalty provisions. For too long, in my opinion, the taxpayer and his professional advisers have been at a disadvantage in dealing with the Inland Revenue on back-duty cases, cases of omission, and such-like things.
  The irritating part about the negotiations has always been that even though the Inland Revenue people, as they nearly always are, have been most courteous, the more trivial and less culpable the case the more disproportionate has always been in the past the maximum penalty which the Inland Revenue has had at its disposal. Therefore, I hope that in future we—and I must disclose an interest in this matter as an accountant—shall sit round the table more in a feeling of equality one with the other, without the uncertainty of the awful weight of the maximum penalties that are never mentioned but that one knows are hanging around just outside.

  919
  I am also pleased that these penalty provisions do nothing to disturb the settlement by agreement that is nearly always made in back-duty cases. The relationship and customs that have been built up over the years between the three parties—the Inland Revenue, the taxpayer's advisers and the taxpayer; and perhaps once it gets to that stage, that is the correct sequence in which to list them—have been for the good of the country as a whole, because they have worked.
  What we need in back-duty cases is a swift and complete inquiry, a satisfactory settlement, and a deterrent against the recurrence of the faults that have been disclosed. Nine times out of ten all those factors are dealt with in the best manner by agreement between the parties concerned. Nothing that I can see in the new penalty provisions goes against these customs that have been built up throughout the years.
  In short, the path of a Chancellor is like a pilgrim's progress. It lies straight and narrow up the hill of difficulty. Danger and destruction lie on either hand. This Bill cannot be considered on its own. It is one of a series—those that have gone before and those that lie ahead—but when we are able to see it in perspective I believe that it will have its true and proper place as a necessary Measure in the continuance of the country's pursuit of additional and higher prosperity in the years ahead.
  5.13 p.m.
  Mr. J. Grimond: It is a great honour for me to be able to express on behalf of the whole House our congratulations to the hon. Member for Brighouse and Spenborough (Mr. Shaw) on his maiden speech. We listened to it with great interest and with great enjoyment for its content, its length and its final simile. I feel that the Chancellor of the Exchequer must have been fortified by this vision of himself climbing the narrow path, with destruction on one side and no doubt promotion on the other. I should like to say sincerely to the hon. Member that I know that the whole House will look forward very much to hearing him again. No doubt the people who are represented, as he says, so ably by their lawyers and accountants will also take note of
  920
  what he said about the penalty Clauses of the Bill.
  But, if I may say so, I slightly differ from the hon. Member, and this is really the theme of my speech, when he says that this Finance Bill is one of a series. I wish it were. I think it ought to be, but I cannot see it in that way. The Chancellor has certainly earned a good deal of praise from orthodox economists. This is always a doubtful compliment of which to be the recipient, but still on the whole it is worth having. I think that most of them feel and felt that there was some case this year for some reduction in demand. Indeed, most of them would have said that the Chancellor should have taken more account of demand than he has done.
  It is always strange that these nice adjustments of £25 million or more of demand this year are made when at the end of the year we find that the Estimates are out by several hundred million pounds. I also find in strange when we consider what happened last year. We then had a little off beer, and this year we have a little on cigarettes. This I would describe as electoral tiddly-winks. I cannot help feeling that if the Chartists had accomplished their aims of annual Parliaments taxpayers would have seen considerable tax benefits. The truth of the matter is that these adjustments to the Budget, as the Chancellor has said, are as much signals to the economy as definite instruments for achieving set purposes.
  It is curious that while we debate some parts of our financial machinery at great length we do not debate others at all. For instance, to alter the tariff on toothpicks would need an Order before the House of Commons, but to alter the Bank Rate or to bring in special deposits one merely has to make an announcement after Questions, although the effect of these is far greater. This is a point which we should look at.
  This is a moment for looking at these sorts of points. This Budget may be justified on orthodox lines looked at short-term, but I would remind the Chancellor of Stephen Leacock's advice to young gardeners:
  "Take a garden two years ago".
  I think that this is good advice for Chancellors. We are two years away from 1962. We are at the beginning of

  921
  a new Parliament. We are at a period of prosperity and a time when the Chancellor does not think it necessary to make very large financial changes. But, we are not, as the hon. Member for Brighouse and Spenborough suggested, setting out in the Finance Bill to deal with some of the long-term matters as well as the fiscal provisions for this year.
  When we look back to the 1930s everyone is struck toy the fact that, although the knowledge to deal with unemployment was there, Governments appear to have been so short-sighted that they did not apply that knowledge. They never had time to think. This country has gone on ever since the war between the twin dangers of inflation and stagnation and we do not seem to be making progress out of this dilemma. The Chancellor this year and lately has taken certain steps to curb too rapid an increase in demand. I must remind him again that the increase in production in this country has been very small over the last four to five years compared with Chat in other European countries—about 4 per cent. against 13 per cent.
  It must cause concern that even though it has risen quite a bit in the last few months we are back again in the era of threats and controls. What are the controls? There are hire-purchase controls designed to stop or check an increase in hire-purchase debt of about £300 million. I am not saying that these are not justified, but is the Chancellor satisfied that what will happen will not be a great increase in rentals of one form or another? Is he satisfied that the checks are sufficient to prevent a mere transfer of debt from one kind to the other?
  Then there are the special deposits. There has already been an increase in bank advances of over £1,000 million. Is the Chancellor satisfied that this device will not hamper new enterprise while not making a great deal of difference to those firms which are established? I take it that in all these measures the right hon. Gentleman is looking to the future and giving warning signals. He does not expect a great deal from them at present, but if our economy does not respond I take it that he may ask for further deposits or will take further steps at the Treasury.
  I cannot believe these controls are suitable. If they are not, should we
  922
  not begin to consider the whole question of Government debt, of Treasury bills, of bank ratios, and, indeed, follow up the findings of the Radcliffe Commission? I ask here whether any work is being done in the Treasury on the subject of whether we can get out of the dilemma of having either stagnation or inflation by reforming the system of monetary control and Government borrowing.
  The Chancellor has come out fairly well from under the attacks from behind him. Those attacks have never really got down to the question of what is to be cut. I do not think that any back bencher can say exactly what can be cut, but my hon. Friend the Member for Bolton, West (Mr. Holt) did point to certain things in his Budget speech. I will deal only with one matter, and that is the financing of the nationalised industries.
  This is a long-term problem which has been with us for some years and with which we are making no progress. Take the railways. Are we awaiting until the Stedeford Committee has reported, apart from moving the deficit above the line, or are any other steps being taken about their finance? Are we considering the possibility of raising some money for the more viable of nationalised industries, smaller amounts, on the market?
  I now turn to the tax structure. The is surely another matter to which long-term thought should be given. As has been said, this Bill is very largely taken up with incredibly complicated provisions for the administration of taxation. We were delighted to hear that the hon. and learned Member for Kettering (Mr. Mitchison) has so far avoided prosecution for fraud and is on perfectly good terms with the Tax Commissioners. So am I. I hope, like him, to be on equally good terms with the National Assistance Board if that should become necessary. But if we got rid of all the bond-washers and tax-strippers in the world, he and I would still be far from mastering the tax law. The complications are growing every year and are nothing but "Brock's benefit" for lawyers and accountants.
  Can nothing be done about that? I do not accept that we should be so completely defeatist. If we keep such a

  923
  very heavy tax on earnings, and especially higher earnings, we shall get avoidance. My fear is that, however astute the Chancellor may be, however many general Clauses he brings in to allow the Commissioners to look at motives, however many orders are passed to stop this or that evasion, evaders will still always be slightly in front and will remain so, so long as it is worth while.
  One of the easiest ways of checking earnings is on transactions carried out by cheques. Should the Chancellor not remove the Stamp Duty on cheques, and indeed on other forms of transactions as well? Then, when he comes to the question of looking at the methods, before the Committee stage he should read A. P. Herbert's article in Punch in which he tells the story of the man who went out of business and found that he was assessed with very large sums which he should have earned but did not. We are getting on to very dangerous ground.
  Mr. Amory: I should be grateful if the hon. Gentleman would give me the date of the issue.
  Mr. Grimond: I will send the right hon. Gentleman a copy and when he is next having tea in Lyons, I hope that he will read it. We are in a very dangerous sphere here in interpreting motives, especially as part of the tax system is designed to stop people doing things which are heavily taxed. I do not object to this particular provision but the House should scrutinise very carefully any further departures in this way.
  Most of us approve what he has done with post-war credits, but it is slightly curious that a straightforward Government obligation is discharged to some people on the ground that they are deserving people, and not to other people. I do not object to that in itself, but it is a practice which should now be stopped. I was glad that the Financial Secretary said that this was not going very much further and that in future post-war credits would be regarded as a straightforward obligation of the Government.
  When this Bill comes to be passed, apart from tidying up some of the administration of taxation—if one can call it tidying up—or making it more difficult, will it assist our economic advance? That is what we have to judge it by. Will
  924
  it assist the country to raise production and maintain stability? I doubt if it will do so in the long run though it may do so in the short run.
  The extra taxation is described as skimming off some demand which the Chancellor thinks to be excessive in the general economy. He has also indicated that that may help us to export more and to encourage goods to be pushed into foreign markets. In the Budget debate the market in Europe was raised and I make no apology for raising it again. Since then—and even since I referred to it before Easter—the situation in Europe has become even more serious than it was.
  I do not ask the Chancellor for an answer today, but I was not convinced by the answer given in the Budget debate, nor by the later answer of the Economic Secretary. There is obviously an agonising reappraisal going on within the Seven. We have to accept now that the acceleration by the Six will happen. Has not the time come when the Seven should make an approach to the Six of a rather different sort from that in the Vienna proposals?
  Should we not make an approach to say that we are willing to enter the Common Market with certain assurances? I am not at all sure that the Six would accept. They might or they might not. But even if they did not accept, should we not then be in a position to get negotiations going? If we did that, we should press for the 20 per cent. reduction of tariffs in the Common Market to be made permanent and not subject to abolition on the vote of one member. We in the Seven should then accelerate, too, and reduce our tariffs and try to get together on that basis. The Chancellor referred to acceleration in the Budget debate and at that time was inclined to say that he hoped that it would not take place. He is bound to admit now that the strong likelihood is that it will take place and that the recent message by Mr. Dillon shows that Washington will not be helpful to us, and will indeed encourage the growth of the Common Market and acceleration.
  We still do not know exactly what the Prime Minister said in Washington. It may be unfortunate that he was reported at all, but the substance has not been

  925
  denied and it made an unfortunate impression not only in Europe but in the United States.
  Should we not do something to encourage production in this country by taking some taxation off companies which encourage profit sharing, or, what we Liberals want, co-ownership? I hope that this prods the Chancellor in a very soft spot, because he is one of the leading exponents of co-ownership between Budgets but as each Budget season comes along he goes into double purdah on this subject and year after year nothing appears.
  We have put forward proposals which would encourage companies to make shares available to their workers, and would encourage savings to be set aside out of earnings, to be used for investment. I cannot understand why we have seen nothing in this Budget to bring about what we are always told the Conservative Party believes in—a property-owning democracy.
  What of Schedule A? Between Budgets, great pleas are made by hon. Members opposite for the abolition of Schedule A, but provisions to that end are singularly lacking in this Finance Bill.
  Finally, although there may be objections to discrimination in taxation in different parts of the country, I welcome the unorthodox steps which the Chancellor has taken in treating Scottish banks differently from English banks in the matter of special deposits. I believe that he should study the suggestions in the Economist for some sort of tax on employers who want to go to areas of very high employment, or, alternatively, helping local authorities in areas of heavy under-employment or unemployment so that they may reduce the rates. In many ways, that seems to be a fairer method of helping those areas to attract industry than that of singling out particular firms and giving them subsidies.
  It is with those matters that this Finance Bill should have been concerned. It would not have been possible to have dealt with them all, but, with no great pressure to make big fiscal changes, this was the time to have started the process of a thorough overhaul of the tax system to see whether we could not stop penalising earnings so heavily, to reform the methods by which the Government raise
  926
  money, the methods of financing nationalised industries, and to make progress with the general question of how we can get out of this unpleasant dilemma of being continually poised between inflation and stagnation.
  5.31 p.m.
  Mr. Nigel Birch: I should like to associate myself with the tribute paid by the hon. Member for Orkney and Shetland (Mr. Grimond) to my hon. Friend the Member for Brighouse and Spenborough (Mr. Shaw) on an entirely admirable maiden speech—short, clear and to the point.
  The hon. Member for Orkney and Shetland complained that there was no theme in the series of my right hon. Friend's Budgets, but I am bound to say that I could not find any theme in the hon. Gentleman's speech. The only theme at all was the recurring phrase, "Should we not start thinking about" this, that and the other. When he said "We" I presume that he meant the Liberal Party, because they were all things with which the rest of us have been wrestling and about which we have been thinking for many years.
  Mr. Grimond: If all the results we have seen are the results of wrestling for many years, I suggest that the right hon. Gentleman should give it up.
  Mr. Birch: Perhaps we shall get the answers from the Liberal Party.
  At any rate, I congratulate the hon. Gentleman on making a speech on some general points. It has been the tradition of the House that the Second Reading of the Finance Bill was a sort of miniature Budget debate. There seems to be a conspiracy on the Front Bench opposite to turn it into a sort of bloodsucker's bean feast. I understand that the hon. Member for Sowerby (Mr. Houghton) is to wind up for the Opposition, and so hon. Gentlemen opposite are putting up an exhibit of a real live specimen of the tribe of bloodsuckers. They intend to enjoy themselves very much. I do not doubt that the lemonade will flow like water. Fancy cakes will be almost loaded down by margarine cream. For myself, I have no great fancy for such orgies and I should like to return to the general economic theme.
  In his economic White Paper and more urgently in his Budget speech, my right

  927
  hon. Friend the Chancellor of the Exchequer put forward the view that our economy was beginning to suffer from some overstrain, from some overheating. If he believed his own figures, he was bound to take that view. If he believed his own figures in the balance of payments White Paper, he was more or less bound to do something about it.
  It is worth thinking for a moment why this present overstrain has come about. One of the reasons is that my right hon. Friend took too gloomy a view of the state of the British economy at the time of the last Budget. After all, a strong recovery was then taking place in America and Western Germany. Unemployment was only 2½ per cent. in this country and the collective wisdom of the markets was indicating fairly clearly that a strong revival was about to take place.
  I do not suppose that my right hon. Friend was in any way influenced by the Opposition. They, as usual, were shouting for reflation at all costs, more expenditure, less taxation and so on. I do not suppose that he paid much attention to them, but he probably paid a good deal of attention to the opinions of practically all the professional economists.
  At the time of the last Budget, practically all professional economists were of the opinion that a strongly reflationary Budget was necessary. It is worth noting that a great many of them persisted in that view until very recently, many of them long after we had won the last election. Some of those economists were no doubt well placed to make their views heard. I suspect that an attentive observer in Downing Street might often have seen the manly figure of Sir Roy Harrod striding up the steps of No. 10 in order to pour into willing ears his well-known views.
  One of the points we have to understand is that many of the things which were done last year are only now beginning to work. For example, I should be rather surprised if the investment allowances granted last year had had very much effect in the last financial year. My guess is that they are just beginning to have effect now. The encouragement given to local authorities to increase their capital expenditure is also only now beginning to have a major effect.
  928
  Possibly because of last year's misjudgment the Chancellor's main difficulty has come about—the very large increase in expenditure this year, a general loosening of the purse strings. I am sure that it is true of the Treasury that once it gives way on one sector of the front, it is bound to give way all along the line.
  However it came about, there was, in the Chancellor's judgment, a certain amount of overstrain in the economy and his problem was what could he do about it. He had a choice between putting up taxes or employing the monetary weapon—the Bank Rate, compulsory deposits, hire-purchase controls, and so on. Although he made a few alterations in taxation, my right hon. Friend did not do enough to make a serious impact by that means on the economy. Clearly, he did not intend to do so. I think that he was right, because if there is very high taxation, as we now have, and if there is an overstrained economy, it is not very much good trying to get out of that position by increasing taxation.
  Some very wise words have been written about this matter in the current issue of Lloyds Bank Review by Mr. F. A. Cockfield, who at one time was in the Inland Revenue. He wrote:
  "I do not for a moment deny that changes in the level of taxation have important and often immediate effects on the national economy. But unfortunately the effects are often very different from what their sponsors expect or hope. This is particularly true of increases in taxation designed to reduce consumer expenditure, for such increases lead to pressure for higher wages and higher profits, thus merely reinforcing the inflation the tax measures were designed to avoid."
  We have seen that happen many times under both parties since the war. I therefore think that my right hon. Friend was almost certainly right not to try to get out of his difficulties by a sharp increase in taxation.
  That left us with only the monetary weapon and it meant that, once again, that wretched beast of burden, the holder of gilt-edged securities, had to be punished.
  I have several times had the honour of addressing this House about the gilt-edged market. I believe that a healthy gilt-edged market is of vital importance to this country. I have always believed it and I become more convinced about it every day. If the Government have not

  929
  power to sell stocks to the public no civilised type of economy is possible, nor can we carry on the great banking business that we do, and which is so profitable to us.
  After the measures which were taken at the time of the crisis in 1957 there was a considerable revival of confidence in the gilt-edged market. In the first three quarters of 1958 net sales of marketable Government securities to the public amounted to £267 million—quite a reasonable sum. But then confidence started slipping, and in the next four quarters, namely, the last quarter of 1958 and the first three quarters of last year, there were no net sales at all. In fact, the authorities had to buy £291 million of stock. We have no figures for the last six months, but from what the Chancellor said in his Budget speech I judge that the authorities had to buy pretty heavily again.
  We are in the position that we are starting to operate the monetary weapon at a time when the state of the market in Government securities is far from healthy. What is the size of the problem which we have to face? How much stock will the Chancellor, or the authorities, have to sell in this financial year to avoid having to finance themselves by Bills? First, there is a total overall deficit of £318 million. There is £41 million for doctors, and £20 million for the rest of the Guillebaud recommendations, and there is one other item which, though technically not part of the Budget, ought to be counted in.
  I understand it is estimated that £45 million will have to be raised by the sale of securities from the reserve of the National Insurance Fund. I am a little surprised that my right hon. Friend did not mention this in his Budget speech. I can see that it was a good way of sweeping a little local difficulty under the carpet, but it should be counted in, and if one counts all those items together the total comes to £424 million.
  On top of that there is the borrowing by local authorities. In the first quarter of this year my right hon. Friend the Minister of Housing and Local Government sanctioned a record amount of borrowing. He sanctioned the borrowing of £160 million, £23 million more than in the first quarter of last year. The structure of the local government debt in this
  930
  country gives rise to a good deal of anxiety. Unfortunately, there are no up-to-date figures. Over the past year I have asked several Parliamentary Questions with a view to persuading the Chancellor to publish detailed figures of the structure of the debt, particularly the amounts borrowed at short term. I have always had Answers of the most eager sympathy, but no figures.
  The last figures which we have are those for about the beginning of 1958 which were published in the Radcliffe Report. Those figures show that the amount of money borrowed for one year or less by local authorities then amounted to £630 million, £399 million more than three years before. Of that £630 million, no less than £275 million was seven-day money, no doubt used to build schools, houses, sewers, or whatever it is that local authorities like to do.
  We do not know what the figures are but it is certain that there is still a vast quantity of seven-day local authority money about, and that a great deal of that is in the hands of foreign holders. I do not think that it requires a great deal of imagination to guess that if we once again run into serious balance of payments difficulties the great mass of that very short money might prove extremely awkward. So much for the size of the problem.
  What means has the Chancellor for meeting and solving this problem? First, there are small savings. I should like to add my tribute to the work done by the National Savings movement. It has done a great deal of voluntary work. It has been very successful, and I am sure that we were all gratified when Lord Mackintosh was raised from a barony to a viscounty. But, having said that, we want to fee a bit careful about this.
  The theory behind small savings, and the tax concessions that go with many forms of them, was that they would be held by small men liable either to no Income Tax or to Income Tax at the reduced rates. But with the fantastically high level that direct taxation has now reached, one sometimes gets rather odd results. The Chancellor has increased the amount that can be held in three forms of national savings. First, savings certificates. A savings certificate held to maturity yields 4·2 per cent. tax free, but if one grosses it up, that is to say, if one

  931
  looks at it from the point of view of a man who pays Income Tax at the standard rate, it pays a grossed-up yield of 6·85 per cent. if held to maturity. If one takes the case of a taxpayer who pays Surtax at the maximum rate, the grossed-up yield means a return of 37·3 per cent.
  The same applies to Premium Bonds. Suppose that one is neither lucky nor unlucky, but that one's drawings are of the proportion which they should be in proportion with the rate of interest paid on them. In that case the holder who pays tax at the standard rate would get a return of 7·3 per cent. and the surtax payer, at the maximum rate, would get a return of 40 per cent.
  We ought to be careful about this. We may be paying pretty high for a good deal of money, and not all of this money will be new money coming into the market. Much of it may come from the sales of other Government securities. I have no doubt that as a result of my right hon. Friend's decision we shall see a big increase in the totals of National Savings. I am sure that we shall all be gratified if Lord Mackintosh moves up another step in the peerage, but we should keep this matter in proportion. Having said that, I do not want in any way to minimise the importance of National Savings. They are vital, and they contribute largely towards solving my right hon. Friend's problems.
  The next point, and this is the real point in his favour and one which may easily save his bacon, is that the relative yields have changed. Now the average yield on ordinary shares is lower than the yield on gilt-edged securities. That is likely to encourage pension funds to put money into gilt-edged markets if only as a yield sweetener. It will also discourage trustees from switching from gilt-edged to ordinary shares because, in these circumstances, they will reduce the income of their beneficiaries. We cannot foresee what will happen, but it may well be that that will be a tremendous help and of great importance to my right hon. Friend.
  There is another point that can be of some assistance—although in a rather backhanded way. I suspect that sales of securities by the banks will be less this year, if only for the reason that they have not so much left to sell. But they
  932
  still have a lot they can sell, and I do not think that compulsory deposits would deter them from selling stock if that was the only means they had of fulfilling obligations and promises to their customers.
  That leads me to say that nothing shows the incapacity of the Opposition so much as the fact that when, in 1958, it was announced that compulsory deposits would be introduced in certain circumstances, no debate was asked for, no discussion was held and no demand was made for legislation. It may be that those responsible were lecturing abroad on some subject on which they are acknowledged masters, such as, "How to stay in Opposition", but the House should look carefully at this question because compulsory deposits are simply forced loans—and forced loans can be used as an instrument of tyranny.
  I should like to read a short extract from the evidence given by the Governor of the Bank of England to the Radcliffe Committee on this matter. I suspect that he must have given this evidence before my right hon. Friend announced the scheme, and I enter that caveat. The Governor said:
  "My own view is that it would be a mistake to make Government borrowing from the banks easier than it now is. I am therefore opposed in principle to variable liquidity ratios, Treasury Deposit Receipts, or similar devices which, though they might be intended to set a maximum to lending to the private sector, would have the effect of forcing the banking system to lend a minimum to the Government. The effect would be obvious: and the variable nature of the device will enable the Government to extend the floating debt, and borrowing from the banking system, to an unlimited extent with even less checks than at present."
  That is quite a tough thing to say.
  I would not go as far as the Governor of the Bank of England. On the instructions of my right hon. Friend the Member for Monmouth (Mr. Thorneycroft), I gave a good deal of study to this subject when I was at the Treasury. Compulsory bank deposits are a power which a Government should have, but that power should be sanctioned by legislation, and subject to a back-stop, or sanction, of some sort. Compulsory deposits in peace-time are something new, and I presume they rest on the tenuous foundation of the Bank of England Act, 1946. Certainly legislation should be introduced. As for the back-stop, every time a Government impose or increase compulsory deposits

  933
  they should have to present an affirmative Resolution to the House and explain how it is that they have got into this mess—because if this power is used unchecked it can be an instrument of tyranny, and the House should not pass it by as lightly as it has done. I therefore hope that my right hon. Friend will consider legislation and the incorporation within it of some kind of back-stop.
  That is all I want to say on the main theme of the Budget. It may be that my right hon. Friend's actions will be all that are necessary and will succeed. I would not say that they will not, and I certainly pray that they will Having said that, however, I find it very distressing that we should live all the time so near to the edge of the precipice. Conditions are favourable at the moment. The terms of trade could hardly be more favourable, and all the main factors which have made inflation so difficult to prevent no longer operate. There are no war-time shortages; no shortages of raw materials—of coal, oil, gas or electricity.
  In this situation, if only we can control expenditure it should not be difficult to run ahead more easily and get our taxation down. I was very depressed by the speech made by my right hon. Friend the President of the Board of Trade in the Budget debate. If I read correctly between the lines, he was really saying, "I know that we are spending too much. I know that it is unfair to the holders of securities bearing a fixed interest. I know that high taxation is involved and that it damps down our economy. But we are all politicians; we all vote to spend more money. After all, what can we do?" I do not think that that argument is a good one, and I doubt whether it is wise politically.
  Let us consider some of the things that are happening now. In the Budget, £40 million is provided for loans to building societies—nearly double the net increase in taxation that my right hon. Friend has imposed. Is there a vote in that? Is it economically necessary or right that we should do that? Then there are all the loans on secret terms to Fords, Vauxhalls, B.M.C. and so on. Those companies will expand any way. Surely we could have got what we wanted by negative powers alone. Then there is the big subsidy that was needed
  934
  to persuade Colvilles to put half a strip mill down in an uneconomic place. Was that really necessary?
  Is it utterly impossible for us ever to pay for our roads and bridges? In America every motorway is called a turnpike, for the simple reason that motorists pay to drive on them. They do the same to cross the great bridges, and the capital expenditure is very quickly paid off, so that they can start again on more roads and bridges. I cannot see that it is any hardship to anybody to have to pay a toll if the routes they used before are still open to him to use freely. If we had some motorway tolls, and tolls on our great bridges, like those over the Forth and the Severn, we should be able to pay off some debts, and what a sensation that would be.
  Lastly, there is that awful millstone round our neck—the financing of the capital expenditure by nationalised industries. Just before the Budget Mr. Manning Dacey said in a speech:
  "Collectively, the public corporations do not earn enough to cover the cost of replacing capital used up during the year's operations. After providing for capital consumption, they have had a combined deficit of the order of £200 million a year, and part of the Government's lendings below the line go to finance, not capital formation, but this current deficit."
  As I understand it, most if not all the nationalised industries depreciate on the historical cost basis. They do not put aside enough to replace the assets that they are using up, as private companies have to do. If the screw were put upon them I believe that they could do more internal financing by effecting economies. Even if they could not, is it sensible to tax ourselves in order to buy electricity below the true cost of producing it?
  Those are a few suggestions of what might be done. The fatal thing is just to sit back, let the tide roll over us, and say, "We are spending much too much, but we cannot do anything about it. It is all so difficult." The younger Pitt introduced seventeen separate Budgets, and I hope that my right hon. Friend will introduce the same number. The theme of all those Budgets was, "Let us look our difficulties in the face." Can we not look our difficulties in the face?
  6.0 p.m.
  Mr. John Diamond: The right hon. Member for Flint, West (Mr. Birch) started his speech by complaining of the lack of theme in the speech of the hon. Member for Orkney and Shetland (Mr. Grimond). There can be no complaint about a lack of theme in the speech of the right hon. Gentleman. His theme was a slightly veiled attack on his right hon. Friend, an attack on the nationalised industries, an attack on Government spending and an attack—which I regret extremely—on the encouragement of private saving.
  It is perfectly true that, having said all these things, the right hon. Gentleman said, in a rather inconclusive manner, that, of course, we all support private saving. I thought it very odd of one who has only recently come from the Treasury Bench that he should be rather supercilious in his remarks about the distinguished people who have charge of organising private saving, knowing as he does that the essence of making things balance in our economy and in the Budget is reliance on private savings.
  Let me say this further to the right hon. Gentleman. I could have wished that he had not kept all his remarks for this occasion, but had joined in our debate on the advances to the steel industry and made his remarks about Colvilles then. He would have found great sympathy from this side of the House with the remarks, which, so far, he alone on the benches opposite has been prepared to make, to the effect that this represented what he called a subsidy—what we call bribery—to Colvilles to get that firm to do what, quite obviously, it would have been prepared to do without being subsidised and without any bribery at all. That is our view of the situation.
  The right hon. Gentleman complained somewhat that hon. Members who have spoken from both sides of the House had directed their attention to the provisions of the Finance Bill, and he said that we ought to have had a further discussion on the Budget. I had the good fortune to be called during the Budget debate—[HON. MEMBERS: "Many of us did not."] I am aware that many hon. Members did not have that good fortune, but that is something about which
  936
  I can do nothing. I dare say that many of those hon. Members will remedy that lack of opportunity on this occasion by making their speeches this evening, as did the right hon. Member for Flint, West. But they have no right to complain if the rest of us direct our attention to what, after all, is more obviously before us today, the provisions of the current Finance Bill.
  I wish to address a few remarks to that subject, because to my mind this Finance Bill is a special one in that it deals substantially with the problem of tax avoidance in a comparatively new way. I wish to use that as my theme and to discuss four questions. The first is why we are compelled to look at the present position and particularly that part of the Bill which proposes to change history, in the sense of the Income Tax Acts, and to give the right of decision to the Executive and take it away from Parliament. I wish to discuss the genesis of that Clause and the arguments for and against this kind of anti-tax avoidance provision. I wish to discuss what we can do which would be better and, finally, to suggest what we could do which would be best.
  Let us, first, deal with the genesis of Clause 26, which is a new departure in the Finance Bill so far as tax avoidance is concerned. There are several reasons which compel us to consider the position. The first is the enormous loss of revenue, with which I wish to deal at a little length. No one likes doing sums of arithmetic, but I hope that hon. Members will bear with me for a moment while we examine a particular method of avoiding taxation which I will put in its simplest terms so that the House may realise the extent to which the Revenue is being defrauded.
  Let us take the simple case of a businessman who makes a trading profit of £1,000. He has another business of which he sells the shares at a profit of £900, forgoing the trading profit which he would have made. The person who buys the shares buys a company which is worthless at the price of £900 and takes over the trading profit of £1,000. It is as simple as that. It would take too long for me to go into the details involved, but those are the essential figures. What happens is that the businessman has secured—instead of £1,000 trading profit

  937
  on which he would have paid, say, £500 tax and Profits Tax in round figures—a tax-free sum of £900 for his shares. Accordingly, he has £900 tax-free instead of £1,000 less the £500 which would have been paid in tax, leaving him with £500. He has made a profit in money of £400.
  The buyer has bought something which is worthless for £900. He has paid out £900 and made a trading profit of £1,000 and as he is allowed to set one against the other he has made a profit of £100 on which he pays tax. We will assume that the tax is again 50 per cent. and so he would pay £50. Put quite simply, there was a trading company making a profit of £1,000 as a result of which the Revenue would anticipate receiving £500 in tax and Profits Tax. At the end of the day the trader concerned has made a tax-free profit of £400, the buyer has made a profit, less tax, of £50, and the Revenue has lost £450. That is how the sum balances. Out of £1,000 profit the Revenue should have received £500, but it actually receives £50, or 10 per cent.
  If one realises that there is no limit to the extent to which this can be done under the present law, if people wish to operate in this way, one realises the extent to which the Revenue must have been "cheated"—to use the word of the Chancellor of the Exchequer—during, at all events, the past two years when we have been pleading for something different to be done. So I do not think that anyone can complain that we are compelled to look carefully at the situation when there is this loss to the Revenue involved.
  The second reason why we are compelled to examine a Clause of this kind on its merits is that no detailed legislation can ever be adequate to foresee and forestall all attempts at tax avoidance. I repeat that, as a general proposition, no legislation can be adequate to forestall it, including this Clause with which we are now dealing. It cannot be adequate to forestall all attempts at tax avoidance, because it is beyond the wit of a few men to think out all the schemes open to the community as a whole in which to devise ways of avoiding legislation. The more detail which is given in the legislation to show what things cannot be done, the more is illustrated those things which can be done. Therefore, it is absolutely inevitable that we
  938
  are forced to something other than specific, detailed legislation in order to achieve the will of Parliament.
  The third reason why we are compelled to look at this Clause on its merits is the time lag involved; the fact that the Revenue, in the nature of things, cannot be aware of the inroads being made until they come to its attention long after the transactions have been carried through. That is the only possible explanation of why at the time we were told that the cost of these devices—these dividend stripping and bondwashing devices—was about £4 million, as we were once told, or about £10 million as we were once told, and why today the Chancellor says that he cannot say how much it is. In individual cases it is very considerable and the right hon. Gentleman is no longer prepared to give an estimate of the total. Of course he is not, because even at this moment he is not aware of the total inroads on the Revenue which have been made as a result of these devices.
  Finally, we are compelled to consider a Clause of this kind because of the Conservative pressure which was exerted two years ago and resulted in the reversion of the Chancellor's wish for retrospection. We would have had retrospection which would have been the most useful deterrent that one could have thought of, but the Chancellor wavered. There was some sort of Conservative streak in his character which made him go back after he had decided to take the plunge and to do something to support the general body of taxpayers. One might almost say that it was some sort of "Blue Streak" which prevented him from doing that and made him withdraw this deterrent until so much money had been lost.
  The comparison is not without point. I am quite sure that the £60 million lost on Blue Streak is small in relation to the amount which has been lost through the refusal of the Government to listen to the advice that was tendered to them from this side of the House two years ago, because of their obstinacy in carrying on with an attempt which they now recognise to be an impossible attempt to deal with this type of tax avoidance by specific legislation.
  Now, therefore, we are compelled to look at this Clause to see whether it is

  939
  one of the best methods of dealing with the problem which faces us. The one thing to be said for the Clause—I have made it clear that I do not like it very much—is that the method the Government have adopted saves the Revenue through acting as a deterrent. There is no question of that, but there are a number of arguments against it. As presumably drawn, it is far too limited. The Revenue got far too nervous about it and have limited the application of the Clause. Obviously, those limitations provide for future loopholes.
  Secondly, it brings what I can only describe as vagueness into this legislation which, so far as I am aware, we have tried to eliminate, apart from the comparable E.P.T. and Profits Tax Clauses. It is not sufficient to say, "You can rely on the courts ". It is all very well for those who are lawyers, and look at the thing from their own legal experience, to talk about the safeguard of the courts, but that is of very little practical application when working in this field. If every tax argument had to be settled by reference to the court the Revenue would never collect its money; but the enormous majority of cases are settled by correspondence, discussion, meetings and the avoidance of appealing to courts in one way and another.
  Every practitioner knows that the last thing one does is to risk the uncertainty of going to the court. If you win in a lower court and the Revenue does not like it, the Revenue can take you to a higher court. It has unlimited funds to force the issue in the higher courts. We know that the last thing to do is to seek the assistance of the courts, however much one may think one is right. Young practitioners go to the Commissioners and rub their hands when they win a case, but they little realise that the Revenue will take it to higher and higher courts until, in the end, the young practitioner will wish that he had never started on it. I hope that hon. Members opposite do not think that this would be a satisfactory protection for the public.
  That leads on to two major arguments against the Clause which I do not think can be disputed. First, it attempts to prove the impossible. It attempts to prove what a man's motives are. It may be possible to infer what his
  940
  motives are, but to my mind to prove what they are is utterly impossible. Yet this Clause rests on that. The other argument against the Clause is that it appears to surrender the will of Parliament to the Executive. Everyone who supports the Clause ought to realise that he is resigning from his job as a Member of Parliament, walking out of his responsibilities, and saying, "This is a matter which is so difficult that we had better leave it to the Executive. The man in Whitehall will know better than I do." That I regard as an abdication of our duties, and we should not abdicate from them if we can avoid doing so.
  Those who spoke so strongly against retrospection two years ago are not entitled to complain now, because this was the alternative forced on the Government by the refusal of back benchers opposite to do the right thing although the Chancellor was in favour of it. Those who complain about the extent of Government expenditure have no right to complain about what the Government are proposing to do in this Clause, because this Clause is intended to increase revenue very substantially. If they do complain about it, they must suggest an alternative.
  There are two alternatives. One was suggested by my own Front Bench. I think that it meets the case up to a point, but, I regret to say, only up to a point. That is the method of a Statutory Instrument followed by a Clause in the later Finance Bill. That does not meet the real difficulty adequately. It meets the problem of the time lag, but only to a small extent and only in two years, not in six months or so, would that method help to meet the problem. It would also require a Statutory Instrument of great complexity and it would have to be enacted precisely during the course of the next Finance Bill. That method would mean that the provision could not be changed in any way at all. Discussion in Parliament would be completely limited up to the time of the Finance Bill. Then it would have to be re-enacted exactly, for otherwise the law would not be the law during that period.
  Altogether I do not regard that as an adequate method of dealing with the problem, unless we are to hand in our resignations as incompetent Members who were unable to carry out our responsibilities of making the laws. Of course

  941
  we can say, "Leave it to the Executive", but that, is not our job. Our job is, as far as possible, to make the laws.
  Sir John Barlow: The hon. Member leaves me in some confusion. As I understand, he has criticised this Clause yet applauded it. Will he make clear exactly where he stands on the matter?
  Mr. Diamond: Perhaps the hon. Member was not in the Chamber when I started my speech. I made it perfectly clear that I was going to draw attention to the reasons why we have to consider this Clause. We have been forced into this situation mainly by the actions of hon. Members opposite, two years ago, in refusing retrospection, but it is not a satisfactory Clause and there are better ways of meeting the problem. I said that I should consider what is better, and what, finally, is the best method. If the hon. Member will be patient, I shall come to what I regard as a better method. This Clause is a possible course and, unless we have a better method of dealing with the problem, hon. Members opposite must support it.
  There are better methods of dealing with this problem than that suggested in the Bill. One is brought forward by the Labour Party Front Bench, and it goes some way, but not all the way, to deal with the problem. The only method which goes the full way to meet this situation—and I hope that it will again be considered by the Revenue, the Chancellor and the Government—is a clear and precise warning, given at the time of the introduction of the legislation, that a particular piece of legislation is aimed at a particular evil and that if loopholes are found in that legislation they will be stopped retrospectively to the date on which the warning was given. I can see nothing against that procedure. It is precise and clear and it leaves the decision to Parliament, when the enactment is made.
  Sir Kenneth Pickthorn: If it is precise and clear, why cannot that which is precise and clear in the mind of the person presenting it be included in the Bill which is before the House?
  Mr. Diamond: It is precise and clear in the object at which it is aimed. The reason why the legislation fails is that it aims not at the object, but at the method.
  942
  It deals with the method, and there are hundreds of methods of arriving at the same object. In giving the warning, what Parliament and the Government should do is to say, "This is the object which we have in mind". For example, the object could be the avoidance of future devices for dividend stripping.
  Sir K. Pickthorn: Define that.
  Mr. Diamond: The warning could make it plain that any dividend stripping device—which is a clear and well-known term—which manages to get through the present legislation will be legislated against in future in a Finance Bill, subject to debate and approval in the House of Commons but retrospectively to the date of this warning, provided that it is clearly within this warning. I am grateful to the hon. Member for Carlton (Sir K. Pickthorn) for his intervention, because that is a point which I wanted to make absolutely clear.
  The defect in the use of a Statutory Instrument is that it does not deal with the object, which is a tax avoidance device, but deals with a method, or two or three methods, of arriving at it. I therefore suggest that the only satisfactory method is to give a clear and precise warning. No one can say that any hardship is involved. All that will happen as a result of retrospection when the time comes is that those who did not expect to get away with their Profits Tax free will find that they do not get away with them tax free, just as they were advised that they would not get away with them tax free; because they will have been advised on the law, and the warning will have made it clear that the law is directing its attention to a particular objective and that if they try to reach that objective by other methods they will be caught retrospectively. No hardship of any kind is involved. It is merely that the Revenue will get the tax to which it would have been entitled had the law been more specifically drafted against this method.
  It is time that we stopped thinking of tax avoidance in terms of cricket and of all the correspondence which I have seen in The Times recently headed, "Chancellor v. Taxpayer". It is time we realised that the Chancellor has a duty, and the House has a duty in supporting him, to see that every member of the community makes a fair contribution towards tax,

  943
  and, in fairness to one member, that another member of the community does not escape his fair burden of taxation. It is only when we are prepared to accept that view of the liability of the taxpayer that we shall help the Revenue and establish an attitude of mind which is not so largely directed to tax avoidance. The method which I have suggested retains control by Parliament in the fullest way, because when we come to legislate against that on which the warning has been given, Parliament will have a full opportunity to debate the legislation.
  I am saying all this because I am satisfied that Clause 26 and the other Clauses which hinge on it, which will be subject to a great deal of criticism in Committee by hon. Members opposite, will not prove adequate—
  Mr. W. R. Rees-Davies: Bosh.
  Mr. Diamond: It is no good the hon. Member saying "Bosh". He is, of course, in good company, because two years ago the Chancellor of the Exchequer said "Bosh" when I made the very same remarks on the subject on which he is now legislating. We do not mind hon. Members say "Bosh" as long as we do our duty in trying to see that every member of the community pays his fair share of taxation and that the Chancellor is supported in carrying out that function.
  The Chancellor has not refused to consider retrospection of this kind within the warning. When he withdrew retrospection two years ago he made it clear that he was not turning it down as a proposition for all time. On that occasion he said that, having regard specifically to the fact that what was proposed in the legislation went a bit wide of the warning, it ought not to be made retrospective. He was right in that part of it went wide of the warning, and it is important that the Chancellor should realise that he was extremely badly advised on that occasion by advisers who sought to include in the Clause more than had been warned about at the time of the previous legislation. But for that, there would not have been a single argument at the time against restrospection.
  All the other methods which are open to us are in varying degrees unsatisfac-
  944
  tory. The method which I am suggesting is the most satisfactory of those which are available, as long as we continue to make tax avoidance schemes desirable.
  Mr. Raymond Gower: Is not the hon. Member going too far in suggesting that the are no objections to that method? If it is accepted, does it not mean that the taxpayer's adviser will have to say, "This is the statute law in this country. At present, what you propose is perfectly legal, but a politician has given a warning, and if he does not die before next year, that may become the statute law of the country"? Is not that an objectionable procedure.
  Mr. Diamond: I was advocating that the Government should give a warning in precise term so that the will of Parliament shall have effect.
  This is the best method as long as we are in a situation which makes it attractive to have tax avoidance devices, but the most sensible thing to do is to remove the attraction of tax avoidance schemes. They are attractive for two reasons: first, and the main reason, that the rate of tax is so high; and, secondly, because there is a large area which is tax free, and all one has to do, as the Chancellor made clear in his opening speech, is to arrange to divert the activities of an individual from tax-paying sources to non-tax-paying sources.
  The two objectives which I suggest can both be achieved quite simply by broadening the base of taxation so that we include capital gains as well as revenue gains for all taxable purposes. If the situation were that one became just as liable to be taxed on capital profits as on revenue profits, then it would no longer be profitable to seek to change from one to the other. If at the same time, as a result of broadening the taxation base, the standard rate of Income Tax is reduced, there will be a further encouragement to people to stop thinking about tax avoidance schemes. All of us who are aware of this problem must regret very much the activities and the amount of energy, brain power and thought which is given to these schemes—I cannot call them non-productive—instead of to the more useful social activities of the community.
  I hope, therefore, that the Chancellor will consider a method whereby a threat

  945
  can be introduced at the time of legislation and also consider once more the possibility of a capital gains tax. The last time we spoke about this the Chancellor said that, whenever he had invested, he had always made a loss. He must be one of the miracle men of the age. We are told on the Stock Exchange that during the last year equities rose by 51 per cent.—that is, 51 per cent. tax-free. In view of that history, the Chancellor should tell us how he manages to buy equities of a kind which always make a loss.
  The reason why I mention the figure is that I think it is deplorable—it is felt especially by all hon. Members on this side—that the only people who pay their full effective rate of taxation are wage earners, salary earners and the small rentiers. They are the only people who pay the effective rate of tax as Parliament intended. All the rest—'the large salary earner, the large Schedule E man, the businessman, and particularly the in-vestment and merchant banker—can so arrange their affairs as to escape taxation to the tune of millions of pounds, as the Chancellor of the Exchequer himself said. It is an absurd state of affairs that Parliament should allow that to continue.
  6.31 p.m.
  Sir Alexander Spearman: The hon. Member for Gloucester (Mr. Diamond) started his speech by referring to the number of hon. Members who had been kept out of the Budget debate. There was a moment when I thought that he had set himself the formidable task of keeping every other hon. Member out of this debate.
  The hon. Member spoke at considerable length about tax avoidance. I support entirely the measures to prevent those abuses. The hon. Member spoke about the enormous losses to the Revenue, but the losses from these abuses, which certainly should be remedied, are very small compared to the loss to the Revenue caused by those doing a cash business and those receiving payments for part-time work in the evenings and at weekends not returning them.
  Mr. A. C. Manuel: The hon. Member for Scarborough and Whitby (Sir A. Spearman) seems to be referring to charladies.
  Sir A. Spearman: The only way of avoiding that is to lower the general rate of taxation. As long as it is at the present level, tax avoidance of some sort is quite inevitable.
  I believe that the measures of my right hon. Friend are exactly right for the conditions facing him today. If the Government had spent less we could be having a different Finance Bill today. We all know that almost the sole responsibility for controlling expenditure rests on the Treasury. Perhaps that is out of date today. One hundred years ago Members of the House of Commons did not urge the Government to spend more. The Opposition were continually critical of any expenditure. The job of the Treasury was to save candle ends, minor waste, not to deal with major policy.
  Today the Opposition continually urge the Government to spend more. It is inherent in their social policy. We have had the present Opposition for a long time and look like having them for a long time to come, so that state of affairs will go on. Most hon. Members on this side also urge the Government to spend more money on the particular project which they happen to know is far more important than anything else. Even my hon. Friend the Member for Dorset, South (Viscount Hinchingbrooke), who so often attacks Government expenditure, has been known to urge increased expenditure on his particular projects, such as roads. So we now have an Opposition not criticising but urging Government expenditure. Most Members of Parliament, and I rather think most members of the Government, do the same.
  I do not claim to know much of what goes on at Cabinet meetings, and I am open to correction by right hon. Gentlemen on either side. I rather think that when a Minister puts forward a spending project he will find that his colleagues will quite often support him, hoping when their time comes to get their backs scratched in return. If the Government were able to fix the total amount which was to be spent so that every Minister knew that the more one Minister spent the less there would be for him, there might be rather less enthusiasm to support spending projects.
  1 should like to see a clearer estimate of the automatic increases of the cost

  947
  of existing projects and a clearer set-up of the resources likely to be available over the years ahead. I remind my right hon. Friends in the spending Departments of the wise and brave words of Lord Attlee. He said, speaking as Prime Minister, on one of the more serious balance of payments crises of the Labour Government:
  " It may be we have tried to do too much in a short time".—(OFFICIAL REPORT, 6th August, 1947; Vol. 441, c. 1489.]
  It is not really a question of settling what is good and what is bad on which to spend money. It is a question of priorities, which is far more difficult—how far to put off spending on something that is good in order to make room for something that is still better. If we are to have a more agreeable Finance Bill next year and at the same time are to continue to expand benefits to those in need, perhaps we must move more to the principle of those who can afford it paying for their own benefits, and perhaps, as my right hon. Friend the Member for Flint, West (Mr. Birch) said, those who use particular roads paying a toll for them.
  The Bill must be considered in conjunction with the monetary measures which the Chancellor has announced, because without those I do not believe that the Government would retain sufficient control of the economy to prevent inflation. We have had two years of absolutely stable prices with enormous expansion in industry, which I think is unprecedented in our history.
  That has not happened by chance. It has happened because my right hon. Friend the Chancellor of the Exchequer gave the economy a push on in 1958 and 1959 when it was going too slowly and a pull back this year when it was going too fast. It is generally agreed—certainly the Leader of the Opposition has repeatedly said this—that we can have stable prices only if the increase in spending does not exceed the increase in resources and we can have full employment or a very high level of employment only if the increase in resources does not exceed the increase in spending. Therefore, the Chancellor must be continually expanding or curbing general expenditure so as to get that balance.
  I say this in face of the joint wisdom of the hon. and learned Member for
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  Kettering (Mr. Mitchison) and the hon. Member for Orkney and Shetland (Mr. Grimond), who both seemed to criticise the Chancellor of the Exchequer for varying the pace of the economy according to the circumstances of the day.
  Last year, largely as a result of the Chancellor's action in the Budget, demand for goods went up by about £1,000 million and, as the Chancellor had clearly foreseen, output went up by just about the same amount, so we had stable prices. The reasons for that increase in production were two. First of all, there was the capacity to produce more as a result of previous investment—which amounts fairly regularly to 3 per cent. a year—and, secondly, there was the taking up of the slack in the economy resulting, partly, from a falling off in world trade.
  That slack has now been almost entirely taken up. I know that there is spare capacity in some industries, particularly in Scotland, but I think that it will be found to be mainly in industries that are either making things that people do not want to buy or industries that cannot get more labour. Until we get more mobility of either work or workers I do not think that that can be improved upon.
  This year the increase in production will certainly be up, but it will be less than last year's. Therefore, demand can be up this year, but the increase must be up less than it was last year. According to the Survey, it is quite clear that this year Government expenditure will go up, investment will go up, and exports are expected to go up.
  It therefore cannot be safe for personal consumption to rise as much this year as it did last. In 1959, consumption, which takes just over half total demand, went up by 4 per cent., which is rather over £500 million, and it looks as though this year it ought not to go up by more than about 2½ per cent. Had the Chancellor not taken his measures, I am quite certain that this year consumption would have gone up by far more than that.
  I believe that the danger of inflation is particularly acute after the slack in our economy has been taken up because, unless action is taken, the rise in incomes that has gone on while the slack was

  949
  being taken up will continue, but the rise in output cannot continue, so one gets an imbalance.
  When incomes rise more than output, two things happen. In the first place, prices rise, because there is no effective competition. Here I should like to quote one sentence from an article by Professor Paish in last February's Westminster Review which, I think, is the clearest exposition of our economic position that I have ever read.
  In that article, Professor Paish said:
  "If all firms are employed to the limits of their capacities and new orders can be placed only at the end of long waiting-lists there can be no effective competition."
  I am quite sure that if there is no effective competition price rises are inevitable.
  In the second place, we get balance of payments trouble. Last year, our surplus was down by £200 million. That did not mean any alarming inroads into our reserves because the other countries in the sterling area built up their sterling balances, but we cannot depend on that happening again. Today we are importing just a little too much and exporting just a little too little. But if demand at home goes up we shall import more. If prices go up we shall probably export less.
  A balance of payments crisis is a very serious matter for any country, but for this country, as banker for the sterling area, it would be a disaster. I believe that if my right hon. Friend had presented us with a "soft" Budget this year it would have been a clear warning at home and abroad that we were in for inflation. The difficulty about that is that the more inflation is expected the quicker it grows, because the extent to which people try to protect themselves from the consequences of inflation must accelerate it.
  My right hon. Friend had two choices. One was to act now—not to stop the expansion but slightly to moderate its pace and, by doing so, risk the opposition of my hon. Friend the Member for Kidderminster (Mr. Nabarro). Or he could have waited, as we have so often done before, until the crisis arrived. He would then have had not to slow down the expansion but stop it altogether by drastic measures. No doubt he would then have had the full approval of my
  950
  hon. Friend the Member for Kidderminster, because it would have been quite obvious that those measures had to be taken to avoid a balance of payments crisis. If I may say so, my hon. Friend the Member for Kidderminster is always very quick to see the obvious, and tends to declaim it to us in no unclear voice.
  I believe that high taxation is bad. It is harsh, particularly on those with fixed incomes. It means a lot of waste, and it is a discouragement to hard work and enterprise. I would remind hon. Members opposite that it not only discourages the comparatively few very rich but also discourages the very many who have every intention of becoming rich.
  The Treasury's Bulletin for Industry tells us that now, for every £ of revenue that is raised, 10s. 7d. comes from income and 8s. l0d. from spending. I hope that in future Budgets it will be possible for the Government to alter that proportion so that at least no more is taxed on earnings than is taxed on spending.
  Mr. John Rankin: Does the hon. Gentleman realise that the present yield from taxation of capital is £213 million, and does he think that that bears an unfair relation to the taxation on expenditure and the taxation on income?
  Sir A. Spearman: I was not really going into that. I was merely saying that I would rather see the proportion between taxation on spending and taxation on earnings as it was in 1948.
  I am sure that high taxation is bad, but I am also sure that there is something worse—low taxation and high expenditure, because that must mean inflation. If we get into a really inflationary situation there is just no painless solution. No matter what controls are imposed, whether Conservative or Socialist, whether fiscal or physical, if demand is sharply cut back then, inevitably, workers will lose jobs, employers will lose profits and the economy will run into stagnation. I am convinced that only by taking measures in time, as my right hon. Friend is doing, can we hope to have a continual rate of expansion in our economy, and it is for that reason that I warmly support the Bill.
  6.59 p.m.
  Mr. Eric Fletcher: As I am conscious that a very large number

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  of hon. Members wish to take part in the debate, I propose to confine myself to a few observations on Clause 26. I do so chiefly because I want to take the opportunity of congratulating the Chancellor of the Exchequer on his courage in introducing this Clause. In our Budget debates of 1958 I had occasion to criticise the right hon. Gentleman's change of mind in dealing with bondwashing and dividend stripping.
  I do not take quite the same view as does my hon. Friend the Member for Gloucester (Mr. Diamond), but I am sure that it is important to have quite clearly in mind what are the real justifications for the Chancellor's bold proposal in introducing this new feature into our jurisprudence. We must face squarely the objections which have been raised in the Press and elsewhere, largely by hon. Members on the back benches opposite, and their supporters. It is said that Clause 26, aimed at stopping tax avoidance by giving much greater and, it is said, arbitrary powers to the Executive, is, in the first place, unconstitutional. It is said that it is unethical, that it is contrary to established fundamental principles of our jurisprudence.
  It is said, somewhat facetiously, although this is believed by many people, that it is contrary to the rules of cricket. There has been a great deal of correspondence in The Times on the subject. The hon. Member for Carlton (Sir K. Pickthorn), who has just left, and other pundits, claim it to be objectionable because it offends the principle that legislation passed by Parliament should be in clear and precise language.
  I admit that these seem to be formidable objections to Clause 26, but I believe that they are all fallacious. In the first place, it is obviously not unconstitutional. One thing we all agree upon in this land is that Parliament is sovereign. Parliament may enact whatever it likes, as a matter of constitutional theory, because there is no fundamental, constitution, as there is in the United States, for instance, to limit the powers of the legislature.
  Next, it will be agreed by all, I think, that the paramount objective of Parliament in legislating is to secure justice. I therefore turn to an aspect of the matter
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  which was well put in a letter to The Times of 7th April:
  "It is an accepted principle that the taxpayer is entitled to be as astute as he honestly can be to prevent the depletion of his means by the Inland Revenue, and eminent judges have held that this is neither legally nor morally reprehensible."
  I quite agree. There is a difference between the activities at which Clause 26 is aimed and the kind of tax evasion practised by the tradesman who puts his hand in the till, or by the person who does not make a proper return of his income. Those people are committing crimes for which they can be punished. The person who resorts to methods of tax avoidance in the nature of bondwashing or dividend stripping is not committing a crime. He is doing something which eminent judges over and over again have said he is entitled to do. They have said that there is nothing morally wrong or legally wrong about it.
  If a taxpayer is astute enough, and has sufficient skilled advice so to arrange his affairs and manipulate transactions between one company and another that he can make a vast tax-free fortune running into hundreds of thousands of pounds, he is perfectly entitled to do that, as the law now stands. He is not even doing anything which is morally culpable.
  Because that is the situation, Parliament must deal with it. I accept what has been said by the eminent judges about the right of the taxpayer so to arrange his affairs that he can, if he is within the law, resort to bondwashing and other avoidance devices. During the last twenty years, Parliament has taken steps to block up one loophole after another, but those steps have failed precisely because the law as it stands encourages people to find loophole after loophole. Therefore, we in this House must now face the corollary of that situation, which is that means must be found to stop these activities because, if we do not, Parliament will not fulfil its fundamental duty of securing justice among the citizens.
  Again, when considering what Parliament may or may not properly do, it is pertinent to observe that, in certain spheres of legislation, it would be morally impossible to contemplate certain things which Parliament might constitutionally do. For example, it would be unthinkable to go back on the doctrine of religious toleration,

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  or to repeal the Catholic Toleration Acts. Equally, I think that it would be very difficult for Parliament to defy public opinion to such an extent as to produce legislation which offended the Declaration of Human Rights of the United Nations.
  But Parliament must observe the distinction between matters of that kind and fiscal legislation directed at bond-washing and dividend stripping. The distinction is that in this matter of bond-washing and dividend stripping we are dealing with something artificial, with something which can take place only through the manipulation of companies. A company, by definition, is an artificial person. It has a great many of the rights and privileges of an individual, but it is essentially the artificial creation of Statute. It is a conception to which the doctrine of human rights can have no application.
  Human beings have certain fundamental human rights, but one cannot enunciate a parallel proposition that a limited liability company has any fundamental rights. Nor has any individual a fundamental, a priori, right to form as many companies as he likes and do what he likes with them, because companies depend for their existence upon creation under Statute. There are limitations upon the way in which companies can be created, and can operate. They exist to facilitate commerce, not to frustrate justice.
  It so happens that we live in a society which is so complex that, for the proper functioning of the manifold economic activities of our civilisation, the limited liability company, with its special structure, is recognised as a necessity. But it does not follow from that that the ingenious manipulator, the unscrupulous person who indulges in and delights in resorting to every possible device on the Stock Exchange, has any fundamental right so to manipulate dealings between one company he controls and another he controls that he is able to derive tax advantages which run into millions of pounds.
  A further reason why it is essential that Parliament should stop these devices is that the opportunity which is open to people, as the law stands, to deprive the Revenue, as the Chancellor said, of tens of millions of pounds is an opportunity
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  which presents itself only to a very limited class of people. They must be people with considerable means, rich people. The ordinary miner or railwayman does not indulge in bondwashing or dividend stripping. It is not the ordinary citizen who does it. Only a very limited class of persons are able, through the operation of company law and the possession of wealth, to have this particular tax advantage.
  I have no hesitation, therefore, in saying that Parliament would be abdicating its fundamental duty to the body of citizens if we do not take this opportunity of stopping these activities once and for all as an act of justice to taxpayers generally.
  I do not entirely agree with what my hon. Friend the Member for Gloucester said. I admit that we have to face the objection that the law should be clear and specific. I should like to quote from a recent article in The Times written by Professor Wheatcroft, Professor of English Law at the University of London and editor of the British Tax Review. He said:
  "The existence of high taxpayers side by side with tax exempt bodies, with dealers and tax loss companies near at hand, enables innumerable favourable tax situations to be created which are indistinguishable by legislation from genuine business transactions."
  That is the difficulty.
  Professor Wheatcroft goes on:
  " Financial transactions form a large part of City business and any tax legislation in the field must necessarily include substantial safeguards for genuine transactions which have no tax avoidance intent."
  I have not always been of the opinion which I am about to express, but I am now convinced that the best and most effective way in which we can deal with this problem, which is causing such a swelling sore of discontent in the body politic, is by the provisions proposed by the Chancellor.
  I have no objection to retrospective legislation after a clear and express warning has been given. That would have been a valuable deterrent and it would have been effective. I have no objection if it is thought necessary to give the Chancellor powers supplemental to what he is asking for in Clause 26 to enable him to bring in Statutory Instruments between one

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  Budget and another, subject to confirmation in the next Finance Bill, but I regard those as supplementary to the provisions which I think the Chancellor has wisely adopted in Clause 26.
  Mr. Diamond: If, as my hon. Friend rightly says, bona fide transactions and tax avoidance transactions are almost indistinguishable, why is it better that that distinction, difficult though it may be to draw, should be drawn by the Executive rather than by the House of Commons? While I am on my feet, may I apologise to my hon. Friend for not having said that a good deal of what I had to say on retrospection was drawn from a most excellent pamphlet on retrospective fiscal legislation by one Eric Fletcher, LI.D.
  Mr. Fletcher: I thank my hon. Friend for what he has said, and I should like to try to answer his point about why it is better that the judiciary should deal with this matter rather than Parliament.
  Mr. Diamond: The Executive.
  Mr. Fletcher: No, not the Executive, but the judiciary. Obviously, there is a limit to the detail in which Parliament can legislate. It is the function of Parliament to lay down general principles, and it is the function of the judiciary to apply those principles. It used to be said that all that Parliament should do is write laws and frame them in such clear and precise words that any judge could interpret them and give effect to them. But that is no longer wholly true.
  I have noticed that in recent years, in other contexts, we have found it necessary to depart from that maxim. There has been various legislation in which Parliament has had to define purposes in language which has been recognised on both sides of the House to be somewhat vague and rather general and has left it to specialised courts to interpret it. A very good illustration of that was the Restrictive Practices Act. I am not sure whether my hon. Friend the Member for Gloucester was a Member when that Measure was enacted, but we had a good deal of discussion because we were leaving the law in a somewhat imprecise form to be dealt with by a new tribunal set up for the purpose, namely, the Re-
  956
  strictive Practices Court. Many hon. Members on both sides who were concerned about the preservation of the principles of our common law had some scruples because they felt that we might be imposing on the judiciary tasks with which it was not familiar.
  I think that it is relevant to say that experience has shown that that Act is working very well. It laid down, for example, provisions about what was in the public interest and what was for the general good, using words which could not be clearly defined. It was designed to fulfil in this country the part which is played in the United States by the antitrust laws, which are necessarily somewhat imprecise. I think that that is a parallel example of what we are doing here.
  Mr. Diamond: The point which my hon. Friend is raising is most helpful, and I am sure that all of us would like to have our minds cleared on this difficult topic. Surely he is introducing a case which is not a true parallel, namely, a case which can be settled only by the judiciary. My complaint about Clause 26 is that, in practice, 90 per cent. or more of the cases will be settled by the Executive, and that only in the unfortunate event of a settlement not being reached with the Executive will recourse be had to the judiciary. It is not realistic to believe that the matter will be settled by the judiciary.
  Mr. Fletcher: I do not take that view. When we come to Clause 26 in Committee we may have to examine its content a little more closely. My own impression of Clause 26 is that it does not give the Commissioners any greater power in this class of taxation than it does in miscellaneous cases of taxation with which they are dealing every day in relation to individual taxpayers.
  I think that the Chancellor of the Exchequer has hit upon a very reasonable formula for ensuring that there is, first, the determination by the Commissioners, then there is provision for a special tribunal, and then for a review of points of law by the judiciary. There may well be differences of opinion as to whether this permits of too many appeals. I am prepared to appreciate that there may be room for argument about the mechanics of the Clause. But

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  as to the desirability and utility of this Clause as an instrument for giving effect to what I think everyone in the Committee must now regard as something of prime importance, I wholeheartedly approve of the courageous steps which the Chancellor has taken.
  7.8 p.m.
  Sir Spencer Summers: The speeches of the hon. Members for Gloucester (Mr. Diamond) and Islington, East (Mr. Fletcher), lasting between them close on one hour, have dealt with one aspect of the Bill alone, namely, the subject of tax avoidance. If the Opposition are not able to put forward any constructive suggestions about broad policy in this debate, perhaps we on this side of the House might try to do so.
  Before I come to the one or two Clauses on which I want to comment, I should like to share the view expressed by my hon. Friend the Member for Scarborough (Sir A. Spearman), who said that, given the facts of the situation as they are, the Chancellor had very little option but to bring in a Budget and Finance Bill very much on these lines. That does not necessarily imply concurrence in the Government expenditure which brought about the conditions with which we are here dealing.
  If conditions change, we must consider whether we should make changes in some of the hitherto acceptable forms of expenditure, even in the Welfare State. Just as was the case in defence, if conditions alter and the Government come forward with a good case for a change in public expenditure under that head, so, I suggest, if conditions alter in the social field it is equally proper to bring forward other suggestions.
  The hon. Gentleman the Member for Orkney and Shetland (Mr. Grimond) said that he had not detected any Member who alluded to Government expenditure suggesting where cuts could be made. I should like to suggest one important change in that field which I hope that one day the hon. Gentleman may think worth while supporting. I refer to family allowances. I do not want to develop this at great length, but it is seldom realised that the cost of providing 8s. a week for a second child in every family is about £70 million annually. That is a very large sum of money It used to be argued, when
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  family allowances were introduced—and I support the principle on which they rest—that it was not reasonable to ask parents to bring up more than one child without help and that they should have help for the second and subsequent children.
  I believe that the time has come, and that such changes have occurred in our society, that it should now be regarded as reasonable to say that parents should be expected to bring up two children without help from anywhere else. If we were to do that and use part of the saving accruing to the Treasury from that decision to spend on the third, fourth and subsequent children we could raise the amounts paid to them by as much as 40 per cent., 4s. a week, and still have £50 million annually to spend or not to spend, as the case might be, as the result of that transaction.
  So, when we are told that it is because policies approved by Parliament or by this party are merely being implemented or given effect to in the Chancellor's Budget, I do not think that he should use that fire escape, so to speak, because there are ways in which he can modify former policy in the light of changing circumstances.
  Sir A. Spearman: Not him only.
  Sir S. Summers: My hon. Friend says that it is not him only. I do not seek to distinguish between the Chancellor of the Exchequer as such and the Government. It is certainly open to them to come forward with modification of policies designed to save public expenditure.
  I turn to Clause 18, which deals with so-called hobby farming. I do not know what size the farm should be before an hon. Member discloses an interest in this matter but I am sure that my farm is large enough for me to disclose my interest. I accept that if we can, without doing harm to the genuine farmer or market gardener, eliminate abuse, we certainly should do so. I am, however, a little concerned at the way in which the Clause is drafted, because it says, in effect, that relief against other income shall not be allowed for losses so incurred unless it is shown that the trade was being carried on for that year of assessment on a commercial basis.

  959
  in other words, the proof is on the applicant. I do not know what the nature of the proof will require to be. I would have thought that if it was perfectly right prima facie for tax allowance to be made it would have been much fairer to say that the proof shall rest upon the Executive. If there were good reasons to withhold the tax hitherto thought properly allowable, the onus of proof should rest upon them.
  I notice that in Clause 18 (5) reference is made to the fact that if reasonable expectation of profit was once the case it shall continue to be so regarded. At any rate, that is what one understands the meaning of the words to be. I hope that my right hon. and learned Friend may give a clue as to what is the purpose of this subsection, and if it is to deal with an enterprise which was very profitable in the early stages and which appeared satisfactory at that time.
  The Attorney-General: I would point out that in Clause 18 (5) the wording is different. There, it is
  "… a reasonable expectation of profit …".
  The wording in Clause 18 (1) is with a view to the realisation of profit. This is merely to cover the possible gap that if it is established that there was a reasonable expectation of profit that will suffice. My hon. Friend will remember that the Chancellor used the words, "expectation of profit" in his Budget speech.
  Sir S. Summers: I am much obliged to my right hon. and learned Friend for eliminating one possible worry under that heading.
  I turn to Clause 26, about which we have heard so much already, and I will try not to be too wearying on that account. I am in somewhat of a difficulty, because any suggestion that it could be improved or that it causes concern could imply that I was satisfied to see a continuance of the evasion which it is designed to stop. I hope that it is not necessary to elaborate that point.
  Moreover, both here and in Clause 18 there may be borderline cases and we must be very careful, in passing Clauses of this kind, to make quite certain that the genuine bona fide case does not get caught up when it ought not to be caught
  960
  up. After the Budget speeches I expected to find much more fault with this part of the Finance Bill than I am able to find in the form in which it is presented to us. If, in fact, it really is impossible—and I am prepared to accept the assurance of my right hon. Friend on that point—to catch up with those who devise ingenious methods to circumvent the law, I am prepared to see a power of this kind included in the Bill.
  It is very important to satisfy ourselves that the safeguards are adequate to deal with the genuine bona fide case. I welcome very much the inclusion of the right to get a notification that the applicant's plans are in order and that that will hold good for all time.
  That is one of my objections to the proposal of the hon. Member for Gloucester (Mr. Diamond). He would have preferred to deal with that by retrospective legislation associated with a warning instead of powers such as this, because it would be impossible to go to anybody for a clearance alongside the warning, because no one can say what a future Chancellor may do in regard to retrospective legislation. The ability to get a clearance would be quite impossible if there were any attempt to deal with this type of abuse by warning and retrospective legislation. I am not very happy about the effect of the tribunal which has been introduced in this Clause. I interrupted my right hon. Friend in his speech and I understood from him that the effect of that tribunal is merely to get a check on facts—
  Mr. Harold Lever: And on law.
  The Attorney-General: I should like to deal with this point straight away. The position will be this. A person can appeal to the Special Commissioners on fact and law. If he is dissatisfied with the result he has an appeal entailing a rehearing of the whole case before the special tribunal where again questions of fact and law can be debated. If he is not satisfied with that on a point of law, although the questions of fact as then decided will be final, he can appeal to the High Court as one ordinarily can by way of case stated, as at quarter sessions and as with the ordinary appeal from the Special Commissioners or Board of Referees.
  Sir S. Summers: Like a number of other hon. Members, I am not a lawyer and never have been. Therefore, I am at a considerable disadvantage in assessing the description of the effect of the Clause. I can only interpret what my right hon and learned Friend has said as meaning that, provided that the facts are not altered by further investigation, the judgment of the first of the commissioners who issued a direction cannot be challenged.
  The Attorney-General: That is wrong.
  Sir S. Summers: Perhaps there may be an opportunity to deal with it later.
  I am suspicious of the use of the word "inappropriate" when it is stated that matters may be brought before further courts if the first verdict is inappropriate. If that verdict was unjustified, the layman would feel much more comfortable about the nature of the safeguard that is being introduced.
  My right hon. and learned Friend said that I am worrying unnecessarily. I hope that he will elaborate the point in winding up, because I am certain that many people who are not lawyers are anxious fully to understand the effect of the Clause. What I hope my right hon. and learned Friend will be able to say is that an aggrieved citizen who believes that the direction which is issued against his action ought not to have been so issued can take it through the various stages ultimately to the tribunal and that the tribunal will have power to say that the direction ought not to have been issued, even when there is no dispute on the facts as such.
  The Attorney-General: I can answer quickly. The Special Commissioners are the commissioners who sit in a judicial capacity. They could say, in the first place, "You are not within the scope of the Clause. No direction should be given to you." If the Special Commissioners do not say that, the taxpayer has a second opportunity, because he can go to the new tribunal and ask it to say that. He therefore has the twofold protection, the chance of going to a second court in the event of his being unsuccessful in one in getting the direction quashed.
  Sir S. Summers: That is encouraging and I hope that that will prove to be so when the time comes. In these
  962
  matters, however, a non-lawyer is at a grave disadvantage.
  I should like to say a word about Clause 37 and the colliery business. My right hon. Friend the Chancellor of the Exchequer has constantly declared—that he has shown it was made clear by the reference by the hon. Member for Gloucester—his reluctance to introduce retrospective legislation. This time, however, my right hon. Friend's reluctance has been overcome, for reasons which he has advanced. I feel that there is a perfectly simple way of achieving virtually the same object without incurring the objectionable feature of retrospective legislation.
  As I understand, tax was withheld for reasons which, at the time, were considered perfectly legitimate, both by the Inland Revenue and by the colliery company, but subsequent study has shown that it ought not to have been withheld. If the tax is paid over, as it then ought to have been, the passing of more than six years since it was withheld precludes the Inland Revenue from recovering it by an assessment in the ordinary way.
  In Clause 29, for entirely different purposes, the six-year rule is waived. If I am not mistaken, the reason is to make it possible to catch up with dividend strippers, even though six years have elapsed. It would be a much less objectionable feature to introduce a specific waiving of the six-year rule in favour of the Inland Revenue in a case like this than to introduce yet another example of retrospective legislation. I shall be interested to know whether there is any technical reason why this should not have been done.
  Clause 54 makes welcome changes on the subject of penalties and assessments. I am glad that these changes are being made, for they were much overdue, as was clear from a recent case on the subject. I query, however, the justification for charging interest on tax liabilities which are shown subsequently to be liable on account of neglect or other reasons. I do not know of any instance when tax due to the subject is ever increased by a rate of interest. Therefore, one is dealing here only with the question of motive. If for any reason tax is withheld from the Inland Revenue, it is only in these cases that the question of interest arises.
  Mr. H. Lever: Arrears of tax which are fully established bear interest. The Clause merely attempts to put that principle into force. It was not necesary as long as the Inland Revenue was in a position to enforce a savage penalty against the taxpayer. When the Inland Revenue rightly gives up the power to impose a savage penalty, it naturally wants at least the same rights as it enjoys against every other taxpayer, so that the taxpayer should pay interest on tax which has been owing for a long time.
  Sir S. Summers: The hon. Member has the advantage of experience of the legal profession. If, in this instance, there is a case for including interest on tax liabilities as well as on the other liabilities to which the hon. Member referred, I see no reason Why, when the boot is on the other foot, interest should not be allowed to the citizen by increasing sums due to him which are withheld for any reason by the Inland Revenue. I hope that this matter will be taken into account in Committee.
  I should like to add my voice to those who are concerned with the complexity of the language with which we are concerned. Part of it may be due to the extreme difficulty of attempting to plug loopholes in the law as a result of which tax evaders have been able to benefit. If, however, for legal reasons, this complexity is unavoidable, the time has come when an elaborate explanatory memorandum must be issued to Members to give them a much clearer picture of the intention of the various Clauses than we can possibly decide upon for ourselves. I hope that when my right hon. and learned Friend the Attorney-General replies he will divorce his mind for a while from his legal experience and realise what complete double-Dutch half of this business is to a large number of hon. Members. If it is necessary, please may we have some clear explanations for the benefit of the uninitiated?
  7.27 p.m.
  Mr. John Rankin: Although he is absent from the Chamber, I should like to say how fascinated I always am when I listen to the right hon. Member for Flint, West (Mr. Birch). He gives us so many figures and puts them forward so engagingly that one feels that his argument is almost beyond dispute.
  964
  The total effect on me, however, is to lead me to the belief that the right hon. Gentleman does not yet realise that he is living in a world of paper, a world that is totally unrelated to the world of the ordinary man and woman, the people to whom my hon. Friend the Member for Gloucester (Mr. Diamond) referred when he said that they were the great mass who could not, by the methods that are so well known to others, escape their obligations for tax.
  The right hon. Member for Flint, West seemed to me to forget that the world in which he is largely immersed is a world that has collapsed Partially it collapsed in this country at one time, and not so long ago it collapsed in America and brought with it to the Western world, and to this nation of ours in particular, distress and sorrow of the most widespread character.
  I thought that the right hon. Member was seeking to base the pyramid on its apex. That is the sort of unstable society in which we are living, the type of society in which the apex has always to be propped. Today we listen to continual appeals from shipowners, shipbuilders and all manner of industrialists to do something to prop up the pyramid. Very recently the new chairman of the United Shipping Chamber of Commerce had to remind us in the House that the shipping industry could no longer go it alone. It, too, had to be propped up.
  These things are forced upon us, despite all that the right hon. Member for Flint, West said about the Chancellor. It is to the Government that these people turn for aid in their hour of need. It was to the Government that American industry and commerce turned in order that the people of America could be saved from even greater trouble than the collapse which that form of society brought to them in America.
  The Bill reminds us of some of the problems that are inherent in that type of society. Last year the Finance Bill contained 37 pages. This year there are 80 pages and by far the greater proportion of that increase is due to the laudable attempt by the Chancellor to get a grip on the dodgers, the strippers and the tax avoiders. That is the great purpose of most of the extra pages which have been incorporated in the Bill. It is a recognition that widespread in this

  965
  society there are anti-social types who seek to avoid their obligations. The Tory Government, recognising that fact, are devoting a great part of the Bill to seeking to restrict these people.
  I am reminded tonight of the speech of the hon. and learned Gentleman the Solicitor-General, then Financial Secretary, who introduced the Finance Bill a year ago. Those of us who remember that speech will agree that he introduced it in lyrical and classical terms. Such elation seemed to be strangely absent today.
  Dealing with the Bill then, the hon. and learned Gentleman said:
  "… there are the measures for reduction of taxation which are particularly striking and widespread. …."
  Today they are singularly absent. He outlined them:
  "Income Tax, beer duty, Purchase Tax, bus licences and Stamp Duty all reduced, and Corporation Duty abolished."—[OFFICIAL REPORT, 28th April, 1960; Vol. 604, c. 1106.]
  By a strange omission at that stage he said nothing about the cinema tax, but once the back benchers behind him got busy and joined with us in Opposition, in due course there was a significant reduction in the cinema tax. Then there were the measures which the hon. and learned Gentleman told us were taken to encourage investment. There were the investment allowances in particular.
  I was interested to hear from the right hon. Member for Flint, West that these investment allowances were beginning to make themselves felt. I am glad to learn that, because as one who represents one of the great shipbuilding areas in the United Kingdom, I know that those engaged in the shipbuilding and shipping industries are not yet beginning to feel that effect. My recent meetings with them and my own knowledge of what is going on do not allow me to accept the view expressed by the right hon. Member. Naturally, I hope that in due course I shall be proved wrong and that these investment allowances will begin to give the encouragement to the shipbuilding industry, on which depends so much for all of us, which the right hon. Member for Flint, West foresees.
  Then the then Financial Secretary had something to say last year about the shady stratagems of bond washers and dividend strippers and this year again we
  966
  have been listening to what the Government hope to do and we have been discussing some of the proposals in the Bill with which we shall deal much more widely in Committee. As with the cinema tax, so with the Government's proposals on tax dodging and dividend stripping and all these other malpractices, the outcome of the Government's resolution will depend on the weight of the attack that is launched on these proposals from the Government back benches. It will require all the support that the Opposition can give the Government to ensure that this part of the Bill becomes law.
  Therefore, tonight we are in the position that instead of the twopences coming off they are now going on, and I would not suggest that it was the election that primarily directed that part of Government policy. Allowing for savings, we can take it that about £260 million were pumped into the purchasing power as a result of last year's Budget and this year, instead of pumping in, the Chancellor on balance has taken out about £12 million altogether.
  I should like to voice my own regret that the Chancellor is still in such desperate straits that he must keep a tax on culture. Books are still taxed and so are musical instruments and gramophone records, though we know that the records which are taxed are the smash hits and not the opera type. It is unfortunate that culture should still be taxed at a time when, in the words of the Prime Minister, we have been having it ever so much better than we have ever had it before.
  Clause 61 deals with Profits Tax. It may interest the Financial Secretary to know that as a result of this tax, the Co-operative movement will now have to find £1¾ million every year, or at least for this year, because we hope that the time will come when the Chancellor and his hon. Friends will take a different view of Profits Tax as it is applied to the Co-operative movement.
  The Chancellor said today that the increase from 10 per cent. to 12½ per cent. would not have any adverse effect on the current trend in industrial investment, but that is not something that affects the Co-operative movement. It is not interested directly in industrial investment; it has no shares in the industrial sense; it has no share appreciation; it

  967
  has no capital gains such as we have in industry. Because of that we have always claimed, still claim and will go on claiming, that there is a case for special treatment in taxation for the co-operatives.
  I take an example of one thing in which the Chancellor is particularly interested—savings. He wants to encourage savings. It will be accepted as generally true, by all those interested in the Co-operative movement, that the 10 per cent. decrease on the co-operative surplus has had a very depressing effect on the societies and that the increase from 10 per cent. to 12½ per cent. will have a still greater effect. That has to be remembered against the background that a few years ago the tax on the cooperative surplus was 3 per cent. In these few years it has risen to 12½ per cent., which is a startlingly large increase.
  I know that the Chancellor has said that he allowed the co-operatives to deduct that part of their profit paid as interest on shares as an expense against the Profits Tax; but that was no gift from the Chancellor. It was merely a piece of belated judgment, because it has been accepted by the Royal Commission on the Taxation of Profits and Income that co-operative shares are in much the same position as loan capital in an ordinary company, and, because of the fact that an ordinary company can put its loan capital as an expense against profits, it seems merely a recognition of an existing fact that the Chancellor should give the same benefits, as he has done, to co-operative societies.
  We must also remember that while he treats co-operative societies in much the same way as other trading societies, they are still limited by law to £500 of shares, and the methods which are open to ordinary companies to finance themselves are completely closed to the cooperative societies. Despite that, the Chancellor still regards them as ordinary trading companies. Once again, we want to impress on the Government that the Co-operative movement is not a trading movement in the ordinarily accepted sense. It is a great social institution, in addition, and we claim that because of that there should be, and I hope will be, before this Bill passes from our control, some toleration granted to the societies in regard to taxation.
  968
  No doubt the increase from 10 per cent. to 12½ per cent. in Profits Tax will tend to raise prices. That may well cause a diminution in the savings which the Chancellor wants to encourage. Cooperative savings are small savings, and if there is to be, as is possible, an increase in prices because of the increase in taxation, then the tendency will be for the co-operative member to go to his savings to make up the difference. I hope that before we leave this matter the Government will have another look at the position of this great movement in their taxation policy.
  The Chancellor told us that as one of his steps in restricting demand he would introduce more intensive hire-purchase controls in order not to allow the economy to be overstrained. It should be noted that the restrictions which he proposes to introduce affect goods which are largely used more by the women, in certain respects, than by anyone else. These are the goods that ease housework—the electrical equipment such as refrigerators and vacuum cleaners, and all these new aids to make housework easier than it was. That is the type of commodity which will now bear these more intensive restrictions, and it includes, in addition, goods such as furnishing and furnishings which help to make a home prettier and more comfortable. I feel that the only person who could risk offending the ladies of the country would be a bachelor Chancellor. He will hear more, during the Committee stage, about the effect which these taxes will have on this type of commodity.
  An hon. Member has already mentioned unemployment and I now return to that subject to deal with it particularly in its Scottish aspects and also with particular reference to the Chancellor's statement last Thursday. In Scotland today, as the House has often heard, unemployment still stands at 85,000. That is not a very happy figure, especially when we see what has been happening in other parts of the world. While the number of our unemployed has been rising, in Germany output has gone up over the last five years by 55 per cent.; in France by 45 per cent.; in Sweden by 25 per cent.; in Denmark by 16 per cent., and in Britain by only 15 per cent.; and in Scotland the position is worse than that of any other country in Europe.

  969
  I ask the hon. Member to try to make a little clearer the Chancellor's statement about the special deposit scheme and to say how it will help to relieve unemployment in Scotland as he seemed to think it would. I gather that £80 million will be diverted from the domestic banks to the central institution and that that will mean £80 million less to be lent to those who might require it, or feel that they require it.
  I suggest that the Chancellor's reason for this step is not a policy but a technical reason. I am sure he knows that only the Bank of Scotland out of the five banks in Scotland is free from an affiliation with English banks. Although the rest might be tied up in their affiliations, they are still free in day-to-day management. However, I fail to see how they can be free to decide policy.
  In other ways, there are different circumstances. The rule of 8 per cent. cash which is applied to English banks is not required from the Scottish banks and the ratio of liquid assets to total deposits, which for the English banks is 30 per cent., is 26 per cent. for the Scottish banks. As the Chancellor said, circumstances in the Scottish domestic banks are different from those in the English banks. It was because of that, a technical reason, that the Chancellor made the adjustment from 1 per cent. to ½ per cent. special deposit in favour of the Scottish banks.
  He will remember that the Radcliffe Report said that the Scottish banks acted as a tight cartel to a greater degree than did the English banks. That does not suggest that £80 million being subtracted from all the banks and put into the central institution will result in an easement in the lending of money. Nevertheless, the Chancellor has told us that he relies on Scottish banks to give high priority to genuine requests for advances for development.
  If that is his intention, he can do it in a more direct way than the indirect manner which he suggested last Thursday. Why should he not compile a list of all the areas of unemployment in Scotland and ensure that domestic banks in Scotland get that list, so that with it they know from Government sources exactly what parts of Scotland most need aid to deal with the problem of unemployment, as the Chancellor seemed to in-
  970
  tend? Can the Financial Secretary say whether such a list has been compiled and, if it has, whether it has been given to the Scottish banks? If not, I hope that he will show that he means business, because this is a direct way of bringing to the attention of every Scottish bank the area of unemployment nearest to it and ensuring that, with the Chancellor's blessing, something is done to relieve Scotland's unemployment. It should be one of the main aims of any Finance Bill to try to create work where no work exists.
  I am glad to see the Government's continued confidence in the nationalised industries. Last year, £650 million was given to them. This year, they are to be given £2,500 million for three years. We on this side of the House welcome that continued and increased confidence, and we hope that it will encourage the Government to go forward with further schemes of public ownership.
  I said that one of the main purposes of the Finance Bill and the Budget should be to try to ensure work where work was not provided at the moment. It should be the Government's business to increase production and not to increase bits of paper, because from increased production will come the increased consumption which we all want and the increased investment which is absolutely necessary for the country's future economic health.
  In that respect, I feel that the Chancellor has been over-cautious in his Budget. In shipbuilding, there is the prospect of serious unemployment and the same threat now faces aviation in view of the collapse of a certain project. Those are two of our great exporting industries and at the moment they stand—I hope not on the threshold—in danger of increased unemployment. I trust that the Chancellor will keep those things in mind and that, before we part with the Bill, he will have loosened the strings a little and returned more to the spirit of adventure which dominated last year's Budget and which is so strangely lacking in this Bill.
  7.58 p.m.
  Mr. Norman Pannell: The hon. Member for Glasgow, Govan (Mr. Rankin) has ranged very widely and I cannot answer all of the

  971
  many points which he raised. Nor shall I deal with his special pleading for cooperative societies. He alluded to the evasion of taxation, as did the hon. Member for Islington, East (Mr. Fletcher) at greater length and the hon. Member for Gloucester (Mr. Diamond) at much greater length still. I wish to give the other side of the medal and to demonstrate that in many cases my right hon. Friend the Chancellor of the Exchequer is collecting much more than he should and much more than it was ever intended that he should.
  I want to refer to Estate Duty. The Bill makes a concession about gifts inter vivos and therefore goes some way to removing what many hon. Members had considered to be an anomaly. However, a far greater anomaly has arisen with Estate Duty through the failure of successive Chancellors of the Exchequer to adjust the sliding scale of rates to account for the reduced value of money.
  The Chancellor continues to work on a sliding scale that was fixed many years ago when the £ was worth much more than it is today, with the result that he is collecting higher rates of duty than were intended when the rates were first fixed. For estates up to £17,500 the rates were last fixed in 1946. For estates over that value the rates were last fixed in 1949. Today the £ has a value of just over 11s. in terms of 1946 values, and just over 13s. in terms of 1949 values. The Chancellor is therefore continuing to collect on estates valued in depreciated £s at the same rates as were fixed for the much higher real values of 1946 and 1949.
  I will not weary the House with many examples of this, but I have worked it out carefully and I am certain of my facts. The most glaring example is on an estate of £17,500 on which duty is paid at 10 per cent., a rate that was fixed in 1946, and which gives the Treasury a return of £1,750. However, that estate, in 1946 values, is worth only £9,870 and, on that value, the rate should be 4 per cent. and not 10 per cent. If the Chancellor were to tax this estate of £17,500 at the rate of 4 per cent. instead of 10 per cent. he would receive exactly the same in real terms as was intended in 1946, because in 1946 that estate was valued at £9,870 and 4 per cent. of
  972
  £9,870 is £395. If one inflates that to 1960 values, one arrives at a figure of £700—
  Mr. Cyril Bence: Is the hon. Gentleman suggesting that on an estate which on current values is reduced from £17,500 to £9,870 the Chancellor, in levying death duties, should take only that sum of money which compares in real terms with 1946 values?
  Mr. Pannell: The hon. Gentleman has not followed my argument. Perhaps I did not make it clear. I am not suggesting that the lower rate should be levied on the lower value, but the lower rate should be levied on the present value, and the present value of £17,500, in terms of 1946 values, is £9,870. It was the intention of the Socialist Chancellor of the Exchequer that such an estate should bear duty at 4 per cent. and not 10 per cent. If the Chancellor levies a duty of 10 per cent. on £17,500, he gets a return of £1,750 which is not the same in real terms as he would have got in 1946.
  Mr. J. T. Price: That is a fallacious argument. If the hon. Gentleman is complaining that the estate that was worth £17,500 in 1946 is now worth very much less, that simple mathematical equation is also true of the tax which the Treasury is getting. In the duty levied today at £1,750, pari passu it is worth only £950. It is, therefore, fallacious to suggest that one should upset the balance between the two things.
  Mr. Pannell: The hon. Gentleman has not understood my argument. The rate is going up from 4 per cent. to 10 per cent. on the same real value as existed in 1946. On a sliding scale, the rate goes to 10 per cent. on £17,500, and that has a real value of £9,870 in 1946 values when the rate was fixed. It should, therefore, be 4 per cent. and not 10 per cent.
  On the same formula, an estate of £15,000 today was valued at £8,460 in 1946. It should, therefore, bear duty of 4 per cent. instead of 8 per cent. Similarly, an estate of £12,500, had a value of £7,050 in 1946, and should bear duty at 3 per cent. today instead of 6 per cent.
  Mr. Bence: There should be Income Tax on the same principle.
  Mr. Pannell: That is a valid point, except that successive Chancellors of the Exchequer have recognised this anomaly in regard to Income Tax and have made progressive reductions over the years, but there have been no changes in Estate Duty since 1949.
  Let me take my argument further. I have given the most glaring example and obviously for estates in regard to which the duty was last revised in 1949 the disparity is less, but it is still significant. The £ today is worth 13s. in terms of 1949 values. An estate of £45,000 bears duty at the rate of 28per cent. but on 1949 values that estate is worth only £29,000 and should therefore attract a rate of only 18 per cent. Consequently, the Chancellor is collecting 55per cent. more in real terms than was collected in 1949. I have gone through the whole range of this and it shows, that on estates between £20,000 and £60,000 the Treasury is collecting roughly 50 per cent. more than was intended.
  Mr. Harold Wilson: However valid this argument may or may not be—and I myself used it in connection with Income Tax last year—would the hon. Gentleman not agree that this whole argument is vitiated by the steady growth in capital values over the period to which he is referring? If he looks at the figures of equities published by leading stockbrokers he will find that the rise in capital values over the period to which he referred is very much greater than the erosion due to the factors he has described.
  Mr. Pannell: I do not think it can be argued generally that that is the case. I admit that an estate of £9,870 may have risen by inflation to £17,500, but my argument is not vitiated on that account, because on that value of £9,870 the duty would be 4 per cent. instead of 10 per cent.
  I am now going back to the dates when the rates were last revised.
  Mr. Wilson: The hon. Gentleman has not dealt with the point I made. Let me take him back two years. As I said in the Budget debate, if a man invested £10,000 in equity property shares two years ago, that sum would now be worth £27,000 by sheer capital accumulation,
  974
  and for no other reason. Does the hon. Gentleman feel that it is unfair to tax it at the higher rate for Estate Duty purposes?
  Mr. Pannell: The right hon. Gentleman's argument is that these estates consist largely of shares. I am dealing with people who have smaller estates. Houses make up a very big component of the smaller estates and values have not risen to the extent mentioned by the right hon. Gentleman. Money is money, and the intention of the Chancellor of the Exchequer in 1946 was to collect a certain amount, but very much more is being collected in real terms today on the same estates. That is the point I was trying to make.
  The higher one goes the less is the disadvantage suffered. When one gets to an estate of £75,000, one finds that, on the same formula, the overcharge by the Treasury is only 29 per cent. On an estate of £100,000, on the same formula, it is only 12½ per cent. Thereafter it falls steadily, until on an estate of £1 million the overcharge is only 7 per cent., and on estate of £2 million and over there is no overcharge, for the simple reason that if an estate of £2 million is revalued to 1949 terms it is still worth over £1 million and attracts the highest rate of 80 per cent. So we have the strange situation in which estates of a value up to £60,000 are overcharged by the Treasury from 150 per cent. down to 50 per cent., and in which the overcharging steadily falls, until, on the biggest estates of all, there is no overcharging at all.
  I think that I have demonstrated—although perhaps not to the entire satisfaction of all hon. Members—that all the rates in equity should be adjusted. If my right hon. Friend the Chancellor finds that too great a loss will be incurred if he revises the whole range of rates, I earnestly hope that he will consider revising the rates on the smaller estates of value up to £17,500, where the anomaly is greatest and the burden is the least easily borne.
  8.10 p.m.
  Mr. Harold Lever: I hope that the hon. Member for Liverpool, Kirkdale (Mr. N. Pannell) will forgive me if I am unable to follow him in detail at this late hour, but I confess that I admire the courage and ingenuity with which he propounded the somewhat

  975
  intoxicating novelty that what is sauce for the taxpayer should also be sauce for the Inland Revenue inspector and collector. Whatever may be the merits of the individual examples which he gave—in respect of which he did not persuade me to accept his argument—I am persuaded that the Inland Revenue gets a great deal of tax which Parliament never intended it should get. That only exposes the difficulty of dealing with these matters. The only safe guide as to the intention of the legislature is the interpretation of legislation in the courts and not in the minds of the officials appointed to administer the revenue laws.
  I shall not weary the House with much matter that can be safely relegated to the Committee stage, but I have certain views, which have not yet been met by anything said by hon. Members on either side of the House, on the question of the tax-avoidance Clauses of the Bill. Having fasted and prayed for the whole day in order to release certain bees which are buzzing a little disconsolately in my bonnet, I shall not waste time with Committee points.
  Like all Budget debates in the last few years, this one has revolved round the question of inflation, and I must enter my annual puritanical protest about this. Nobody has defined his use of that word in the context of the debate, but there are at least three meanings of the word "inflation" in the economic sense. It can relate to the ratio of effective monetary demand to the range of goods and services at a given price level—too much money chasing too few goods; it can mean the fall in the buying power of the unit of currency, extreme or gradual—extreme as in the case of the German mark in 1920 and gradual as in the case of most other countries ever since; and it has also been thought to mean such an imbalance of the economy as brings pressure upon the rate at which our currency can be exchanged with foreign units of currency—which amounts to balance of payments difficulties.
  Those are three related but entirely separate meanings of the word and I wish that people would not add to the difficulties of the subject by failing to define which meaning they have in mind and using the word in all three capacities. If we use a word that has three distinct meanings and apply to that word some
  976
  difficult and obscure theories, confusion is bound to arise.
  But the word has a further meaning as used by psychologists. When anyone gets an exaggerated notion of his own power and importance in the scheme of things he is said to be suffering from inflation. One of the great virtues of the Chancellor was the extreme modesty with which he behaved in the high office to which he has been elevated. I am glad to say that his personal modesty and charm are in no way diminished, but they are not so much at issue in a debate of this kind; it is his intellectual modesty that I am worried about, and I am sorry to have to record that the Chancellor and some of his assistants have been suffering from a little inflation in the psychologist's sense of the word when dealing with inflation in the economist's sense of the word.
  Lately they have given evidence that Government financial policy is being conducted, at any rate in part, by gesticulation rather than by firm action—by gesture rather than by pragmatic deed. The Chancellor will find that when he takes concrete actions which lead to concrete results he will have a chance of achieving success, but I must warn him that, as he has now started to suffer from the occupational folie de grandeur which seems to beset Chancellors of the Exchequer and their advisers after a time, mere gestures are unlikely to produce many results, even if they are sanctified by the approval of most of the City editors. The Radcliffe Committee has rightly held the changes in the Bank Rate to be a mere gesture in matters of inflation and balance of payments.
  Watching some of the Chancellor's efforts to deal with the problems of inflation recently, I was put in mind of a concert that I witnessed during the war, when some of the most distinguished musicians in the Forces were giving a symphonic rendering, on an occasion so auspicious that it was deemed desirable that a very senior Service officer should conduct the orchestra. The result was that while the conductor was gesticulating with his baton, and passionately and patriotically indicating the rhythm of the National Anthem, the orchestra was busy delivering a particularly beautiful version of Bruckner's Violin Concerto.
  The Financial Secretary to the Treasury (Sir Edward Boyle): Bruckner did not write a violin concerto; the hon. Member must be thinking of Max Bruch, who wrote two.
  Mr. Lever: I am grateful to the Financial Secretary. I must confess that he has won a very deserved victory in correcting me on that point. It was Bruch's Violin Concerto.
  The main point is that the Chancellor has recently been looking like the conductor whom I have described. The movements of his baton only now and again coincide with the actions of the economic orchestra that he is supposed to be conducting, and that will be bound to happen if he gesticulates rather than takes concrete practical measures as required by our economic situation.
  I include among these unsatisfactory measures even the most passionate sermons of the Chancellor and his helpmeets in various wars of nerves and threats which he and his assistants conduct upon the business population and the population at large in attempting to guide our economies. What we really want is some evidence—which is entirely missing on this occasion—that the Government are grappling with the central economic and financial problems besetting us.
  I shall try to deal with the most important ones. First, there is the question of taxation. I say that it is still at levels which are too nearly reminiscent of war-time levels to be regarded as satisfactory and as conducive to the optimum working of the economic system. I hope that my hon. Friends will realise that I am referring to taxation and not to Government expenditure, which is a totally different matter, as I shall shortly show. The reason why taxation is so high is not due to any profligacy on the part of Chancellors; it is due to their being wedded, over the last few years and perhaps even longer, to the fatuous notion that the Budget surplus—that is to say, a surplus over and above the current fiscal requirements—should be used in order to deal with the sinister menace of inflation, in which of the three senses of the word I do not know. I cannot make out whether the menace is thought to exist in respect of one or all three of the meanings of the word, but I believe that the surplus is supposed to
  978
  do something valuable in respect of all three.
  Year in and year out the mysterious nonsense implied in this theory is exposed and never better than this year. Last year the Chancellor said, "Of course, one must not take these things too accurately, one must have a feeling of judgment. But I think we can get along nicely with an overall deficit of £700 million." The hon. Member for Wolverhampton, South-West (Mr. Powell), the right hon. Member for Monmouth (Mr. Thorneycroft) and the right hon. Member for Flint, West (Mr. Birch) warned him that it was an intolerable situation to budget for a £700 million overall deficit, including the capital expenditure of the Government, and all the horrors of the night were held before us by these hon. Gentlemen during the last Budget debate.
  The Chancellor repudiated them and said, "No, £700 million is about right as the overall deficit." It turned out that at the end of the year the overall deficit was £300 million. It seems, therefore, that even the gloomiest, the most savage of retrogressive legislation referred to by those three hon. Members last year did not envisage levying taxes which would produce a figure calculated at more than a deficit of £400 million better than the Chancellor's figure. Does the Chancellor come to us now and say that this Budget surplus theory is all nonsense? Is he contrite because, having budgeted for a £700 million deficit and got £300 million, the whole of his economic arguments do not make sense? Not a bit of it. He says, "There was a little error, but it is all to the good so far as the Revenue is concerned." He admits that he overtaxed us by £400 million when he brought in his Budget on the last occasion.
  The paradox of all the arguments about Budget surpluses can easily be seen. Last year the Chancellor said, "I am budgeting for, and I am expecting, an overall deficit, including Government capital expenditure, of £700 million." He says that would combat inflation. The curious thing is that if he really combatted a tendency to inflation with his budgeting, which is the job of a Budget surplus, he would not get a Budget surplus. As a matter of fact, no Chancellor would get the Budget surplus he expects if he prevents inflation. The only time

  979
  he gets a really whacking Budget surplus is when the policy of budgeting for a surplus to defeat inflation is itself completely defeated. In other words, the Budget surplus, the remedy for inflation, becomes bigger the more inflation there is, and the more the policy of using a Budget surplus as a remedy for inflation fails, the bigger the Budget surplus. It is an extraordinary thing until we come to realise that the whole argument has no logical basis at all.
  It is external reality outside the Budget which determines the inflationary equation, as it were, the ratio or the balance between goods and services on the one hand and effective monetary demand on the other. It is only people like the right hon. Member for Flint, West and his friends, who insist on remaining embedded in nineteenth century classical Liberal thought on this and other subjects, who can possibly believe anything else. It does not make a scrap of difference to the inflationary equation whether we take the citizens' money by taxing it or confiscating it or borrowing it from him. It does not make the smallest difference to the actual inflationary equation. The Economic Secretary to the Treasury is looking as horrified as when I spoke of Bruckner's Violin Concerto, but that is a fact.
  If other factors came into play it is another matter, but in general it can be stated, and it is plainly evident, that a Budget surplus does not have any impact at all in normal circumstances, or no decisive impact, on the real inflationary equation, the balance between real goods and services and effective monetary demand. In fact, the Budget surplus is the indicator of the extent of the inflationary unbalance, as it were, rather than the cure. What is used as a cure is merely a register of the extent of the inflation.
  Sir E. Boyle: Surely the doctrine of a Budget surplus is not a nineteenth century classical doctrine, but a twentieth century Keynesian doctrine. I remember my right hon. Friend the Member for Flint, West (Mr. Birch) referring to the present Leader of the Opposition, when he was Chancellor of the Exchequer, as the industrious acolyte performing the Keynesian mysteries, and I think the House thought that a fair description.
  Mr. Lever: I was not saying that the doctrine of a Budget surplus was a nineteenth century doctrine. It is the doctrine of the right hon. Member for Flint, West which is that if the Government have to borrow money, it is necessarily inflationary. I believe the doctrine of the hon. Member for Wolverhampton, South-West is similar. I read his speech with care and I believe him to be passionately sincere but totally wrong-headed on this matter. He said that the right way to conduct our finances to avoid inflation is to pay our way honestly as we go and obtain by taxation all we need in respect of Government expenditure. Anything less would lead to the equivalent of the pit in the economic rather than the theological meaning.
  Mr. J. Enoch Powell: What the hon. Member so far seems to be omitting from his considerations is where the Government, having calculated on borrowing from the public, fail to do so.
  Mr. Lever: Of course, if the Government fail to borrow from the public to a satisfactory amount, they will have trouble.
  Mr. Powell: That is the point.
  Mr. Lever: But if the Government attempted to do what the hon. Member wants, they would have even bigger trouble, unless they did what he also wants—which is, as it were, the secret conditioning factor in his theory—and threw overboard a great deal of Government expenditure. If by current taxation they attempted to obtain the whole of Government expenditure, they would get into far more trouble. It is quite impossible in present conditions to cover the whole of Government expenditure by current taxation. Of course, there is no reason whatever why we should. There is no reason why we should not incur Government debt to cover the capital expenditure of the Government.
  I do not want to raise this tantalising prospect at such a late hour, but, in theory, we could run the country entirely without raising any taxation at all. But the effect of doing that would be to pledge the future earnings of the coming generations in interest payments in respect of the debt incurred. Oddly enough,

  981
  the realities of the situation keep bursting through. There is always enough money for the Government to borrow unless the political system goes to pot. The naive belief of the hon. Member that there is a danger that the British Government will not be able to cover their borrowings is not founded on any sort of logic, financial or economic.
  Where he goes wrong is that he keeps thinking of those symbols, all reflecting the accountancy of the financial situation as embodied in the Budget, as representing the real circumstances outside. Of course symbols and book entries do sometimes represent external realities. For example, if we take a figure which represents the copper stocks or gold stocks in this country and the figure goes down, unless there is fraudulent bookkeeping that is a reflection of reality—the copper stocks or gold stocks have gone down. In the case of borrowing, these are symbols of a particular form of accountancy and it does not make a difference to external reality whether the Government borrow the citizens' money for building or takes it from them by way of tax.
  The trouble is that the Government use this Budget surplus like a man who supposes that if he forces the barometer finger round to fine weather he is thereby producing fine weather. Of course, if he has the misfortune to do that when the weather is fine he is liable to suffer from the delusion rather longer than the man who forces the barometer finger round when the weather is wet. That is what happened to the right hon. Gentleman who now leads the House, the Home Secretary. He had the good fortune to force the barometer finger round to indicate fine weather and got it for a period. He was the hero of the Tory Party for about six months or nine months, but then he found that, although he firmly held the finger in the right direction, the weather changed. Then he ceased to be the hero and ceased to be the Chancellor of the Exchequer. I fear that this will happen to the present Chancellor unless he comes to realise that the Budget surplus is not in fact the means of obtaining balance in our inflationary problems, but rather the registering of the actual condition.
  The second point is that nothing has been done to solve the problems of our
  982
  balance of payments which governs the whole of our economic life. Sixteen years after the war when we are still bedevilled with this chronic problem and are having, quite irrelevantly, to tamper at regular intervals and interfere with the flow of production on account of our balance of payments position, one might think that the British people had failed somewhere in their endeavours to pay their way in the world. That is completely false. The fact is that we have more than paid our way in the sixteen years since the war.
  The reason why we are bedevilled by the balance of payments problem and the chronic uncertainty with which it conditions all the policy of the Chancellor is that the Chancellor has not been able to think of some realistic means of insulating us from the dangers of temporary waves of attack upon our currency. There is nothing wrong with our fundamental situation, as I think the Chancellor will agree, nor with our balance of payments, and there has not been for some years. The Chancellor is always worried, especially if he upsets some of his back benchers whose words are heard in some parts of the world, that there might be a temporary upset in the balance of payments position.
  May I press on him a remedy which I suggested some years ago and to which I hope he will give some attention? He finds that his whole policy is still being conditioned by the need to take precautions against temporary bad economic weather affecting the balance of payments. Almost all these runs on sterling which have occurred since the war and have caused these constant destructive and very negative interferences with our economy have come from the sterling area. I am not moralising about this. This is a case of the sterling area trader trying to hedge against the currency difficulties which have beset him in the postwar world. Why should the Bank of England not give him a hedge by opening in London an internal forward market enabling the buying of dollars or Deutsche-marks and to sell those currencies at prices fixed by the Bank of England? The risk would then go from the trader and the Chancellor would not have the leads and lags which are half the trouble of the exchange problem and which make him interfere with the domestic economy

  983
  because of necessities of the balance of payments.
  If the British trader who wanted to hedge his liability for imports from the Deutschemark area were allowed to buy forward in the Bank of England, the Bank of England would take the risk of the currency exchange and the leads and lags problem would disappear. Of course, the Chancellor might say that if he took the risk one day it might come unstuck. Even in the worst devaluation which took place in the Crippsian period, if the Government had run such a scheme throughout the whole period since the war they would have more than covered by fees—as it were, insurance premiums—the losses suffered from the devaluation by Cripps.
  It is time the Government thought up a plan and did not dismiss as crackpot every idea put up in this direction, whereby we would not be subjected to this illogical and nonsensical position where sterling area people who want to hedge their position can do so only by what is called a speculative run on sterling. It is open to the Chancellor not to sit back and rest on a year's success—which may not be repeated—but to think up some means of insulating our economy from the seasonal dangers and seasonal moves.
  The third major economic problem which the Government have neither tackled nor solved is that we are still subjected to the chronic idiocy of having to retard the whole of our economy if one part of it goes out of balance and comes under strain. We might think that this is a novel problem and that the most obvious solution is that which the Government have found—to pull back the whole economy just because in the Midlands, for example, or in half the economy there is overstrain. A little logic should show that it is as stupid for the Chancellor to argue that he must retard the whole economy because some of it is under strain as it would be for me to say that the Chancellor should give the whole British economy at present an expansionist fillip because some of it is under-employed. The latter would please my hon. Friends from Scotland, because it would be good for Scotland, but it would be very bad for the economy as a whole.
  984
  It is just as bad for the Chancellor to take a decision in which he knocks the whole of the economy on the head for the sake of the overstrained part of it. The Chancellor shakes his head, but he suffers from an illusion if he thinks that the general measures he has taken will not affect the whole of the economy. They will either be ineffective or they will not leave unscathed those areas which have not got into their stride.
  In the same way, when one cuts out expenditure which one does not particularly want, it does not follow that automatically—if it is done by financial means alone—it will be replaced by very desirable expenditure. One may think that one can improve the charm of a party by cutting out Aunt Maude, but it does not follow that Marilyn Monroe will automatically make up the party.
  This equally applies to the Chancellor's problem, because if he cuts out the undesirable consumer "gimmick" demand, it does not follow necessarily that the same funds will find their way into the capital goods industries. I urge upon him, therefore, that he should find something better than the general measures which he has adopted, which necessarily retard and advance the whole economy when only part of it ought to be retarded or advanced.
  I wish that he would not rely entirely on blind forces, because only people who lack good vision are always as anxious to use indiscriminate forces as the Chancellor seems to be. I am here using the word oracularly rather than ocularly. I wish he would not use devious measures. If he does not like the size of the lending by the joint stock banks, why not tell them so? Why does he have to go through the courtly minuet of passing a little billet-doux in the form of a somewhat undesirable measure on special deposits whereby a trifling sum is taken from the banks?
  The Chancellor has a doctrinaire objection—or, alternatively, his hon. Friends have, and they enforce their objection upon him—to direct control and to measures which smack of direct control, for everybody knows that they come from the Socialist Party. He does not, therefore, take direct control and telephone the five bank chiefs to say, "Please do not lend so much money.

  985
  Our idea of what is desirable is so-and-so." Instead of that we have a complicated charade. I noticed that the Radcliffe Committee felt as I feel about this, as well as about the whole discount market. It felt, however, that it was not all that expensive and it was such a pleasant old tradition that we might as well keep it on. The Chancellor has therefore fitted in an extra gavotte to the minuet which is being danced so pleasantly and regularly.
  In fact, all this complicated apparatus has about as much relevance in the twentieth century to the provision of Government borrowing, which is supposed to be its function, as the safety of Her Majesty is dependent upon the Household Cavalry. One can say that these institutions of the City are several times more costly than the Household Cavalry and only a fraction as decorative. Whereas I do not begrudge them this elaborate ceremonial, I wish that in emergency the Chancellor of the Exchequer would be ready for direct, simple, non-devious action to curb credit when he wants it curbed. There he is not gesturing. This is not like the Bank Rate when the Chancellor cracks down on the banks or on the hire-purchase companies with the avowed object of restricting hire purchase. He is doing something effective to curb the money supply. He is affecting the inflationary equation, not like in his fantasies on the Budget surplus or when relying upon the power of his sermonising, however sincerely it is intended.
  The other matter relating to the question of more effective and realistic action is capital investment. The long tradition of this country has been not to invest adequately in capital equipment. It was part of the cost of being a rentier country, the Chancellor might think part of the advantage of being a rentier country.
  Curiously enough—I shall not go into it to night, but I intend to do so on another occasion—Britain does not have to be a rentier country in the twentieth century. It pays one much better to get rid of one's foreign income and earn one's own living in the world. It is not only safer, but produces a much happier society. One does not have derelict heavy industry and the like, which is one of the inevitable consequences of
  986
  being a rentier nation in the twentieth century. We ceased to be a rentier nation by reason of our sacrifices in the war.
  We have not quite ceased some of the habits of mind of a rentier nation. We are not devoting as much as we should to capital investment. One of the reasons for that is that the Chancellor is under pressure. I suspect that he does not like it very much. As I mentioned on the last occasion, the right hon. Gentleman's theme song is the old popular number:
  "I try to be good, but the boys won't let me."
  The boys are very much in evidence in today's debate. The right hon. Gentleman is getting some acidulous treatment, in the face of which it is surprising that he maintains that urbane good humour to which we have become accustomed. I do not think that the Chancellor thinks it is a good thing to keep on interfering with our home production and economy on the ground of the balance of payments while we are over-investing overseas.
  Our first priority is this. If we have not enough for adequate home investment and overseas investment, apart from the obligations to the backward peoples where the Government have commitments which we respect and agree with, we can do without some of the investments in the less satisfactory Canadian oil wells and the like where British money has gone in the last few years. Half our problem in not getting adequate home investment is that the kind of investment funds that would be present in the home market and would tend to gravitate to home investment have, by long tradition, gone overseas where they are not as satisfactorily employed from our point of view. In the twentieth century it is not even a paying proposition. I hope that the Chancellor will look into that.
  I also think that we need more direct action such as when the Government got the steel mill going in Scotland. I know that some of my hon. Friends did not like my strong support for that Bill, including my hon. Friend the Member for Gloucester (Mr. Diamond), but my hon. Friend will notice that he is in the excellent company of the right hon. Member for Flint, West, who is heartily in agreement with every word my hon. Friend spoke on that Bill.

  987
  The real truth is that that is the kind of capital investment we want. It is not subsidised Government investment because, as I pointed out then, the Government will not lose a penny on the massive capital investment in steel which took place in Scotland as a result of their intervention. It is a splendid thing, and it is absolutely in line with Labour Party policy. I can understand that it does not appeal to hon. Gentlemen opposite, but I cannot understand why, just because the Tories do it, so many of my hon. Friends do not like it. When the Tory Party steal our clothes, it is quite in order to question their integrity, but one is very ill advised to question their sartorial taste. That is the position on this occasion. I should like to see not less but more Government practical, real, non-symbolic, active intervention to secure better capital investment.
  The same applies to exports and the like. The Government should not just talk of encouraging exports. They should abandon some of their Victorian inhibitions against taking concrete and practical steps to encourage exports and put a premium on them. Countries like Germany and France that boast these enormous increases in their exports have not been slow to give direct subsidy incentives and financial incentives to people to export.
  At the present time in this country, if I can make £1,000 as a night club proprietor—or, better still, as a nude-review proprietor—I have no inducement to go into the export trade to make that £1,000. In fact, I do not even stand a better chance of attracting the attention of the Patronage Secretary if I go into export to earn it. The Chancellor should do something about that, and abandon the Victorian delicacy that unless you leave it to the business folk themselves, free of any inducements, you are doing something wrong and immoral.
  The right hon. Gentleman must do something practical on the three main things. On taxation, he must abandon the antiquated notion of a Budget surplus. On balance of payments, he must institute some measures to remove the unnecessary chronic uncertainty which is irrelevantly dominating all our economic prospects at home because of the danger of temporary movements against us on balance of payments.
  988
  He must protect us from the use of blunt instruments to retard or advance the whole of the economy when what is wanted is a more selective and more accurately directed series of measures towards stimulating part of the country and, perhaps, holding back another part; stimulating capital investment where we need it at home—on basic industries and the like—and stimulating exports; selective work like that.
  Above all, in achieving these practical and desirable ends, he must not overestimate his power, other than in the actual concrete intervention that he makes. He must not over-estimate his power of conducting wars of nerves upon our economy—not altogether a desirable thing. In fact, as was rather wittily put by Nicholas Davenport in the Spectator, the Chancellor's frequent efforts to achieve stability are one of the great causes of the instability in our economy.
  I wish that the right hon. Gentleman would now come to the conclusion that he should leave the economy alone a little. The Chancellor, who started, as I said—he was not present when I said it—with immense intellectual modesty, has gradually lost it over the period of his great office. The other day he practically said—and I must paraphrase, I am afraid, because I have not the actual words before me—that "Modern industry is so complex, so difficult and so beset with problems that I can hardly take my fingers off the controls for a moment"—
  Mr. Amory: I think that the hon. Member is paraphrasing quite a lot. I find it quite difficult to recognise the speech.
  Mr. Lever: I hope that I am not being unfair to the right hon. Gentleman, but he did say that one has to have one's hands on the controls all the time. I see that his assistant the Economic Secretary has caught the contagion—in the psychological sense, of course. Addressing a cosy coterie of bankers in Newcastle—I did not know that there were any there, but I suppose that they do exist—he said that at last we had inflation by the throat. That sort of attitude of over-confidence—and, incidentally, the metaphor chosen—shows the part that inflation has in the demonology of the Tory Party.

  989
  I urge on the Chancellor that he must not expect changes favourable to our economy to arrive by exhortation, by gesture, by sermon or by the use of antiquated methods like Bank Rate. I urge him to take concrete steps such as he has taken in the past with success, and grapple with the three central economic problems of our country on some such lines as I have indicated.
  8.49 p.m.
  Mr. David Price: Like the hon. Member for Manchester, Cheetham (Mr. H. Lever) I have a good deal bottled up inside me, but, unlike him, I am now in my twenty-fifth hour of sitting out these Budget and Second Reading debates. The hon. Gentleman will, therefore, forgive me if I do not attempt to argue with him what are, I believe, some errors in his economic discourse. I hope to be able to make my points in about half the time taken by him. I believe that our proceedings would be very much improved if back bench speeches were considerably shorter than several from the benches opposite to which I have listened during the last four sittings of the House. A reference to some of the times for which some hon. Members have spoken will make clear what I mean.
  Our support for or opposition to this Bill will, plainly, depend upon what view we took of my right hon. Friend's Budget statement. It is against the background of that statement that we should examine the Bill. Given the figures about the progress of and the prospects for the British economy and the figures for Government revenue and Government expenditure, I had no hesitation in supporting the Budget and I shall have no hesitation tonight in giving my right hon. Friend my vote in the Lobby.
  My right hon. Friend gave the House an excellent progress report of what happened during the last year. It was a report of an economy expanding dramatically. Last year, production went up 10 per cent., exports 14 per cent., investment 4½ per cent., and personal savings 15 per cent.—all within the context of stable prices. What a wonderful report for any Chancellor of the Exchequer to be able to give to the nation. I am quite certain that the aspirant Chancellors of the Exchequer that one sees around one on these benches during such debates—
  Mr. H. Lever: On the Government benches.
  Mr. Price: I grant that the opportunity would be greater for my hon. Friends on this side of the House. I am sure that any one of those aspirants to my right hon. Friend's office would be happy to be able to deliver such a report in his Budget statement to the nation.
  As for future prospects, they are good. I would say that conditioned optimism should be the view, although there are certain features of our economy which give cause for concern. The first feature which gives me concern is export prospects. During the Budget debate last year, I wearied the House with an analysis of why I thought that some of our markets, particularly in North America, were far more precarious than people realised. I said then:
  "For the reasons I have given, I am worried about our export prospects for the next eighteen months."—[OFFICIAL REPORT, 8th April, 1959; Vol. 603, c. 274.]
  Twelve of those months have passed. I am worried about the next six months, and I am worried particularly about developments which are taking place in Europe in which we have no part, namely, the implementation of the Rome Treaty. This is not the time to discuss the errors which I think we made in not taking part in the Messina talks, but what I say—I think that this is a proper occasion to say it—is that we must now make the very best success we can of the European Free Trade Association.
  I ask my right hon. Friends please to stop whining about the fact that the Six will not come together with us in a free trade area. It is not getting us anywhere, and it is really rather undignified. I believe, nevertheless, that we should consider whether we can, within the European Free Trade Association, make tariff outs on our individual external tariffs at the same time as the Common Market countries make their tariff cuts, if Hallstein's proposals are carried out.
  I am worried, also, as are most of my hon. Friends, about a possible return of inflation. Therefore, I welcome heartily the Chancellor's recent measures to put a modest restriction on credit. We must realise, however, that we have not yet really discovered what are the best instruments for putting a small check on the expansion of credit leading to an

  991
  expansion of demand, when there are signs that demand may run ahead of supply. We have not found the answer. We have some untried ideas, and we should be willing to experiment with them.
  Let us remember that special deposits by the banks are being carried out in their present form now for the first time. We do not know how effective this measure will be. Several hon. Members opposite have criticised special deposits, saying that they will have only a marginal effect. As I understand it, that is precisely the purpose. It is to have a marginal effect before a possible inflationary situation gets to the stage where sterner measures would have to be used. Hon. Members can shake their heads, but in so doing what they are indicating, in effect, is that it is not proper to act on the margin. But rather that one should wait until a situation gets out of hand, when only blunt intruments can be used.
  Mr. H. Lever Mr. H. Lever rose—
  Mr. Price: I am not giving way to anyone, because I want to be brief.
  Hire-purchase restrictions are absolutely legitimate. Here, one is operating not only on the volume of current credit, but also introducing the element of time. Conceived mathematically, credit control is not a three-dimensional conception, but also a space time "continuum". The difficulty is how to operate on that "continuum". The demand for a 20 per cent. deposit rather than 10 per cent. on certain goods is an effort to restrain credit, not only in the present but also in the future.
  Our aim must be to have an expanding economy, with our economic resources of men, plant and machinery fully employed without so over-taxing our resources that either we run into balance of payments difficulties or into further inflation. That is the ideal, and I am sure that most hon. Members would agree that that should be our aim. The difficulty is how any Chancellor of the Exchequer can execute that aim. The trouble is that there is no ideal rate of expansion which will ensure that we have steady expansion without running into inflation, on the one hand, or a degree of under-employment of resources, on the other.
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  Managing the economy is not an exact science, in spite of improvements in statistical forecasting. It is at best an art. If human beings behaved like the mythical economic man invented by economic theorists who acts so rationally, with mathematical precision, it would be much easier; but the fine balance of management needed to guide the economy along the road of steady expansion, without inflation or balance of payments difficulties, depends upon the accurate forecasting of marginal economic decisions that are being made by millions of people, many of whom do not reside in this country. Frequently in our marginal decisions cold calculation is least effective and we human beings act far more by inspiration and by the mood of the moment rather than by arithmetical logic.
  Therefore, any Chancellor of the Exchequer has to take a risk. In my view, in taking the risk the Chancellor has to look at the matter in this way. If the arguments in any one year between expansion and restraint are equally balanced, I would always support the Chancellor who erred on the side of expansion. There are many reasons for this, but I will not weary the House with them. I believe that a policy of expansion is the only right one for this country, and I think that my right hon. Friend agrees with me. This year, however, the risk of inflation outweighs the risk of deflation. I am, therefore, sure that my right hon. Friend is right to err on the side of caution and not to introduce into the Bill the reductions in taxation which many of us would like to see.
  One should ask whether my right hon. Friend has gone far enough. Should he not have followed the advice of the Economist and increased taxation by £100 million to £150 million, in which case we would have had a Second Reading debate which would have attracted a little more attention than the debate that we have had today? I would merely say this about the Economist's argument. If ordinary men and women behaved like the men and women in economic theory, there would be a respectable argument for following the course advocated by the Economist.
  The fact is that we do not act entirely on the motivations that exist in economic theory. Any attempt to have raised

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  taxes substantially in this Bill would have been a disaster to the morale of industry and commerce, quite apart from being a grievous imposition upon the ordinary taxpayer. It may conversely be argued that my right hon. Friend should have remitted taxes. He should have fortified success by giving greater incentive to people in industry to earn more and to work harder—a sort of dash for freedom school. I believe that that would have been a fatal policy for my right hon. Friend to have pursued because, although emotionally it is very attractive, unfortunately, in life, one cannot cheat the rules of simple arithmetic because one thinks that it would be rather fun to do so.
  Mr. J. T. Price: That was said before the election.
  Mr. Price: The intervention of the hon. Gentleman is very revealing. Would he and his party have advocated this time last year a contrary policy to that of my right hon. Friend—a policy of restraint? My right hon. Friend's policy was expansion. Would they have said—and they certainly did not, though in hindsight they may think it ought to have been done—that the economy should have been held back merely so that the Labour Party could have won the General Election?
  Mr. J. T. Price Mr. J. T. Price rose—
  Mr. Price: I am trying to keep my speech short. The hon. Gentleman can make his speech afterwards.
  Mr. J. T. Price: The hon. Member asked a question. I want to be perfectly fair and not offensive to the hon. Member whose opinions I respect in many things. Surely when he asks a rhetorical question like this, after making his speech in his own way, I must remind him of the facts of recent history. After the election of 1955, the election policy pursued by the Government was diametrically altered a few months after being returned to power. They switched their whole economic policy against the sort of forecasts which they gave at the time of the election. The hon. Member knows perfectly well what has happened.
  Mr. Price: The hon. Gentleman, who I also respect, is in great error. He is trying to make a political point and he knows as well as I do that balancing
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  the economy is immensely complicated; it is not a simple thing. It is rather like a see-saw—a per cent. or two one way and we have inflation and a per cent. or two the other way and we have deflation.
  What hon. Members are saying in their jeers is that my right hon. Friend was wrong last year to have a large overall Budget deficit. He should have had a much tighter Budget and put up taxes, and so forth, and not made tax remissions. I did not notice at the time that hon. Gentlemen opposite voted against the Budget on those grounds. The main ground on which they voted against the Budget was because we did not put up the old-age pension. It is no good going back to the argument of how they would like to have voted last year; the fact is that they did not.
  I believe that the sort of figure which my right hon. Friend has given of an overall deficit of £318 million was about the amount that he could safely rely on financing by Government borrowing. The hon. Member for Cheetham seemed to think that it is easy to raise money by Government borrowing as it is by taxation. The difference is that to raise money by taxation, once we have passed the Finance Bill, is a matter of compulsion—we have no alternative but to pay. The raising of money by borrowing in a free society means that the rates have to be sufficiently attractive and the prospect of retaining the real value of our investment sufficiently good that people are prepared to lend money to the Government. There is no certainty about this. If they do not, the Government have the short-term device of pumping out Treasury bills, which are inflationary.
  Mr. H. Lever: They need not be.
  Mr. Price: We will argue that outside and not detain the House with it. The hon. Member is in error if he thinks that to pump out Treasury bills is not inflationary.
  One asks why there have been so many long faces and so many disappointed people who have been growling away in their beards about the things that my right hon. Friend has failed to do. Those people suffer from the error that they regard each year's Budget as a sort of annual distribution of largesse—[An HON. MEMBER: "It was last year."]—or

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  a sort of prizegiving. They remind me of the little incident in "Alice in Wonderland". when there had been a race and the Dodo screamed, "Everybody has won and all must have prizes". The chorus of voices—all good sound Tories, obviously—said, "But who is to give the prizes?" The Dodo, pointing to Alice, replied, "Why, she, of course".
  The only difference in this case is that the Alice of the Treasury has no money of her own and the only money which she has to give in prizes is money that she takes out of the pockets of the people in taxation, or by borrowing. If we do not balance Government expenditure by taxation and borrowing, the result is bound to be inflation.
  In modern times, a Budget deals not only with Government revenue and expenditure, but with trying to direct the course of the economy over the next year or two. Fiscal policy must support the Government's monetary and economic policy. I make the proviso, however, that the counter-argument sometimes used by the Treasury, that taxation on consumption can always mop up surplus purchasing power, is marginally fallacious. In general terms, taxation on consumption can have that result to a marked extent, but not marginally. There are too many ways of getting round it, such as wage increases and specific rises in prices and hence in incomes.
  Nor am I very happy about the increase in the tax on tobacco, because it fails for the reason which I have just indicated. My right hon. Friend tries to follow the advice of the famous French Finance Minister, Colbert, when he said that the art of taxation consisted in so plucking the goose as to obtain the largest quantity of feathers with the least amount of hissing.
  There are those who have pointed out during our debates the problem of rising Government expenditure, but we all have split personalities on this matter. On many of our favourite interests we want more Government expenditure, whether it is on roads, the Army, better pay, or pensions, or whatever else appeals to us personally. On the other hand, we ask for lower taxes. The more we contemplate this problem, the more one agrees that Oscar Wilde was right when he observed:
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  "When I was young, I used to think that money was the most important thing in life. Now that I am old, I know that it is."
  There we are. All our favourite pet schemes are frustrated. Where is the money to come from?
  Let my hon. Friends be under no illusions, however, that the programme for which the Tory Party stood at the last election involved increased Government expenditure on a substantial scale. I remind the House of just one or two of the items: reducing the gap between the industrialised and the underdeveloped nations, involving the export of capital, of which at least a part must come from Government resources; the Local Employment Act; assistance to the aircraft and cotton industries; railway modernisation; doubling the road programme; improved grants to agriculture and horticulture; a massive educational programme; development of the Health Service. That inevitably means increased Government expenditure. What one hopes is that such is the expansion in the economy that this increased Government expenditure can be contained within the current percentage of the gross national product which is taken by the Government. That must be our aim.
  Certainly, on the figures given by my right hon. Friend the Minister of Education, it is very questionable whether the educational programme will be containable within the current proportion of the gross national product going on Government expenditure. But I would make my own addition to that formidable list of increases. I should like to see far greater encouragement given to research. Government participation must be far more active and we must accept, as a nation, devoting more of our financial resources to the future in the form of research and development. I will go as far as to say that I believe that in the long run a comfortable retirement, certainly for the younger of us in the House, can be better secured by a greater contribution to space research than by inflationary tax reductions.
  Are we, however, using the right methods to raise the money for these desirable ends? First, I believe that Government accounting is a muddle. The so-called distinction between above and below the line, between capital and current account, is such an inaccurate distinction in practice that if any of us

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  presented accounts like that in our private business we would be going off to be Her Majesty's guests in Dartmoor for quite a number of years. [An HON. MEMBER: "A. good thing, too."] I should like to see my right hon. Friend putting his officials on to a study of our financial statements; to find whether it is possible to produce above the line those items which arc in the ordinary commercial sense current expenditure and put below the line those which are capital expenditure.
  Mr. Jay: The hon. Member will recall that that was done for five years from the time of the Labour Government onwards but, because nobody showed much enthusiasm for it, it was discontinued by the present Government.
  Mr. Price: The right hon. Member has the advantage over me. I was not in the House at the time, but he and I have agreed together on certain matters of Government finance when neither of our Front Benches has agreed.
  We want to get an accurate picture of that part of the expenditure which represents current goods and services and of that which is investment and which will remain in the future for the nation. It seems to me nonsense that when Chelsea Barracks is rebuilt it should be financed out of this year's taxation and not be paid for as a capital investment in the way one does such things in one's own company. If we were to make that distinction we could finance current expenditure out of current taxation and then consider how many of the capital items could be covered by Government borrowing and how many would have to be covered by taxation, bearing in mind the state of the gilt-edged market.
  We cannot consider that until we have the proper figures. I hope that my right hon. Friend the Chancellor will consider producing what I am rash enough to ask for—proper figures. The Government's defence may be Edmund Burke's, that
  "It is the nature of all greatness not to be exact."
  I believe, however, that we must find new ways of paying for Government action in a number of fields, distinct from either current taxation or Govern-
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  ment borrowing. The Government too frequently follow the advice of Voltaire, when he said:
  "The art of government consists in taking as much money as possible from one class of citizens to give to another."
  And one asks the question, "Are we not overdoing it?"
  I hope, also, that my right hon. Friend, in the next Budget, will take the opportunity to do what I wish he had done in this Budget and in this Finance Bill, and that is to make some of those changes in the pattern of taxation which do not require any change in the general incidence of taxation. I would mention three, in particular—a move to a corporation tax, a change from Estate Duty to a legacy duty as advocated by the noble Lord, Lord Robbins, and a move to current year assessment of company taxation, as recommended by the Royal Commission on the Taxation of Profits and Income.
  This Bill will put into law those features of the Budget which require legislation. It was a sound, steady, even cautious Budget, and soundness and steadiness are undramatic—they lack political sex appeal—but marriage with Surtax is better for the nation than adultery without it.
  9.15 p.m.
  Mr. H. Rhodes (Ashton-under-Lyne): The hon. Member for Eastleigh (Mr. D. Price) asked whether some of us on this side of the House were of the same opinion as the right hon. Member for Flint, West (Mr. Birch). He asked about our opinion of last year's Budget. The stimulus which was given in that Budget was overdone, because out of that stimulus came a situation in which consumer expenditure overran capital investment which should have been going into productive machinery.
  It seems to be a pattern that is being followed time after time, that we have an easy way of stimulating consumer goods expenditure. It goes very fast, the Stock Exchange and sentiment generally take it up, and a long way behind lags the investment that should be taking place to produce consumer goods more cheaply. It seems as though that has been borne out by the events of this past year, because it was not until much after last year's Budget that any significant advance

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  in capital goods expenditure was taking place.
  The figures have shown that industrial capacity is slowly taken up until inflation begins again. It is now obvious to anybody with any practical experience in industry that all the time we must have capital investment in machinery likely to produce consumer goods more cheaply and quickly than before.
  If we have Budgets of last year's type and then attempt to correct them, as we have done this year, we shall never get that development and persuade people to invest at the right time in machine tools to make consumer goods. When business is good and when a machine which has done its time can bring extra profits for a few more years, investment tends to go into the enlargement of the unit and not into replacement. If business is bad, the machinery is kept because there is no money to change it.
  There is much airy-fairy talk about the Common Market and the Outer Seven and their results, but the fact is we are forced more and more to look to the Continent to buy our machines than we had to do fifteen or twenty years ago. If there is justification for encouraging expenditure of any sort, the expenditure should be on machines which will give a fillip to productivity rather than to increasing capacity.
  It is not understood by many people that when a fillip in consumer goods is given to the market, manufacturers fill up their capacity before they start to spend money on improving plant. By the time they have filled their capacity, the Government starts a credit squeeze or a damping down of activities. It is time that the machinery manufacturers were given the encouragement which they deserve. Instead of turning the tap on and off, as we have done for the last few years, there should be discrimination between productivity investment and capacity investment. The Government should thoroughly understand the difference and be constant in encouraging productivity investment.
  The other day I made one or two suggestions which might be of assistance. The Chancellor sends out questionnaires to 700 firms, but instead of asking only for the amount of money which they propose to spend on capital
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  investment, he should ask for an estimate of what productivity they are likely to get out of the money which they are investing. Such information would help considerably.
  The tempo of productivity in a factory should be a steady factor. When it comes in fits and starts, the sympathy of the people on the shop floor is estranged. As in anything else, a rhythm is needed so that change comes as a matter of course and not as something which happens once in a while simply because fortuitous circumstances prevail.
  I hope that the dividend strippers and all those gentry get more pleasure out of doing it than I do from talking about it and hearing it discussed. I have one comment to make on that score. Hon. Members on this side of the House have raised their voices before about tax evasion and so on. This year, the Chancellor himself in his Budget speech gave details of how he intended to deal with the so-called "golden handshake". We then read in the newspapers that he had qualified that statement by saying that £5,000 was the sort of figure that he would allow. I suppose that if a rich man gets another "golden handshake" he will have a lot of trouble in giving it away and trying to leave himself right when he dies. It is not important from the point of view of a moral issue, but very often when a remedy is applied to a general abuse hardship which otherwise would not have occurred takes place. I am thinking, for instance, of the man whose capital is his working life.
  During the last twelve months the cotton industry has been reorganised. People have been given Government money to close firms down. One of the basic principles enunciated in this House when the Cotton Industry Bill went through was that adequate compensation would be paid to those displaced. Manual workers will be catered for, but what of the managers? What of the working directors who have been displaced by this action of the Government to stimulate the closing of factories in the cotton industry? What of the man of 45 or 50 years of age who has spent the whole of his working life in a highly technical job and for whom there is no other demand once he loses his employment through no fault of his own?

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  What can he do? Should he go on the dole? There was a moving article in the Guardian about the manager of a cotton mill who went on the dole. Those who read the article could not have failed to be moved by it. The case of such a specialist who is out of work should be considered sympathetically. Very often he is a man who has no shareholding in the firm in which he was a valued servant. He does not have a lot of money on which to fall back, and I make this point briefly. The amount of £5,000 should be raised. This is an unusual request coming from this side of the House, but I make it in all sincerity because I know many of the people affected. Perhaps it should be raised to £10,000. I do not care how this is worked out. Perhaps the higher figure could be paid over a number of years from the date of the man's enforced retirement to the date of his normal retirement at 65. If the Chancellor thinks about this proposal he will realise the validity of it.
  The Government are paying compensation for firms to go out of business. Through no fault of their own many specialists are thrown on the labour market with no reserves to enable them to carry on anything like the standard of living they previously enjoyed. I plead with the Chancellor to think again about this figure of £5,000. If he can devise some way of helping those who become casualties, he will earn the gratitude of many people in my part of the country.
  9.30 p.m.
  Mrs. Patricia McLaughlin: I hope that the hon. Member for Ashton-under-Lyne (Mr. Rhodes) will forgive me if I do not follow him in his discourse on the various points he made. At this late hour it is better to concentrate as quickly as possible on the points which I wish to make myself.
  This Budget has been stated to be a Budget of stability. The Budget is extremely difficult to balance if we wish to keep alive the incentive for expansion and at the same time maintain a thoroughly sound economy. To this end we tend to think only of the major issues—only of those issues which are of general importance to our economic stability. But the Chancellor made it clear that this was a Budget of small things as well. He took a great
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  deal of trouble to deal with small details, such as the abolition of duties on and licences for playing cards, tobacco dealers' licences, duties on mechanical petrol lighters, and so on. On not such a small scale, he saw fit to abolish Entertainments Duty, which was a great help to our people.
  He paid attention to some small points which he realised were of great importance, but I am sorry that he has not seen fit to extend his provisions to other small matters which are also of great importance. In our hands today we have the interim Report of the Molony Committee, which has given many of us food for thought and which will no doubt be discussed in this House at some future date. The Report makes it clear that there are still many articles, especially in relation to consumer goods, which are unsafe to use.
  There are many things which we have forgotten about in our great rush to maintain an expanding and sound economy. One is that the safety of our people has become of second-rate rather than first-rate importance. We should try to get it back into its proper perspective. Some time ago the Chancellor saw fit to reduce Purchase Tax on certain categories of articles, bringing all items into three major categories. In this way he reduced the Purchase Tax on many items which affect the safety of people. This year he has not seen fit to do anything in that line, and this means that it is not possible for us to raise this matter in Committee, or to endeavour to get something done by reducing Purchase Tax on items specifically designed for safe usage.
  I wish the Chancellor would reconsider this matter, in order to see whether he cannot exempt consumer items specifically designed to promote safety and, in the long run, to keep the cost of accidents down. I hope that he will be able to remove these articles from assorted ironmongery and various other categories, and put them all under the heading of items designed specifically with safety in mind. This would be a great incentive to manufacturers to continue their research on various parts of their appliances and commodities, which are at present designed without the question of safety being considered, except perhaps as a last resort.
  We shall hear much more of this subject in time to come. We have heard a

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  great deal about oil heaters, and we will hear more about other articles. We are told by the manufacturers that they do not do more in this direction because, if they did, their goods would be more expensive and the Purchase Tax would be increased. There are some very ludicrous examples of the way in which Purchase Tax operates. A person can buy a stove or a cooker with a safety appliance attached, but if he buys the safety appliance separately he has to pay Purchase Tax.
  I welcome the Income Tax reliefs which have been given to widows, widowers, and those responsible for looking after young children, but I would like the Chancellor to go further and realise that many elderly people who have never had the good fortune to get married, and are therefore neither widowers nor widows, are old and live alone, requiring a constant attendant. These people, with their own small income carefully balanced, can just manage to maintain a separate home or flat, or some place where they can feel they have a right to live, but they find it difficult to get someone to live with them and look after them.
  We have raised this question time after time with the Chancellor. We argue that if Income Tax relief can be given in respect of housekeepers, to widows and widowers, of whatever age, relief should not be withheld from persons who have had the misfortune not to get married. I think we shall have to go on pressing over this matter until something is done about it. It is another small thing which would bring justice and comfort to a number of old people. Their number may be greater than we shall ever hear about, because they are quiet and unassuming people and unable to band themselves together in a trade union or similar body which could make a noise and bring pressure to bear.
  There is the old question of taking a married couple's income and assessing it together for Surtax purposes. This practice will have a growing effect in the country as the years go by. Our young women are being highly educated and encouraged to enter a profession. After marriage, and having brought up their families, there will come a time—this applies particularly to the young women who are being trained as teachers—when
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  they will have an opportunity to return to their profession and to make use of the education which they receive.
  In order to do so, such women will have to make certain sacrifices and their husbands will have to sacrifice some of the time which they can spend together in the home. This means that the call to resume a professional life will have to include some incentive. We hear the old-fashioned statement trotted out time and again that it is still cheaper to live in sin today than to live as a respectable married couple if both are earning a professional income. It is time that state of affairs was tidied up and a 1960 look put upon it, instead of clinging to the old-fashioned aspect that anything will do for a married woman to tempt her to go back to her former work after she has raised a family. Then such women will be able to do something worth while for the country. I hope that the Chancellor will not fob us off with statements about the impossibilty of doing something about this sort of thing.
  I am a bit nervous about the penalties for Income Tax returns which are incorrect. I am not thinking about large companies or people with substantial incomes or those who are obviously trying to evade taxation. I am thinking of people with small incomes who are anxious to be honest but who get nervous and worried. I hope that the penalties imposed will not be used in order to frighten people unnecessarily and the fact that they have made a genuine mistake will never be a cause for people being unnecessarily chivvied and harried. This may sound ridiculous now, but in future years we may come to accept that sort of arrangement as natural and fall into the error of making it difficult for people to be honest, and imposing threats upon people which go far beyond the extent of any mistake which they may have made.
  This Budget, though highly unimaginative, is highly practical. The Chancellor has done a little where he could and given a little help where it could be given. But we have come to expect too much from the Budget. It is a sort of Pandora's Box which the Chancellor opens when he presents his Budget each year. If unpleasant things come out, there are people who will complain. If good things come out, there are those who will prophesy woe as a result. We have little about which we can prophesy

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  woe or complain with regard to this Budget, but I believe that if we are to continue to do the country the service which it needs through the Budget we must remember that nothing is too small to be neglected if it helps those people who need help.
  I hope, therefore, that the Chancellor will not forget the elderly, the spinsters and the bachelors. The right hon. Gentleman himself may be in need of a housekeeper at some time, and then he will appreciate any such measures which he may take. I hope also that my right hon. Friend will look at the other matters which I have mentioned where some action on his part surely would not upset the stability of our country.
  9.40 p.m.
  Mr. Stanley R. McMaster: I am very pleased, Mr. Speaker, to have caught your eye after my hon. Friend the Member for Belfast, West (Mrs. McLaughlin). We seem to be ending this debate on a good, strong Northern Ireland note. Like my hon. Friend, I am disappointed with the Budget. I agree with her and think it is negative and unimaginative. There is need for fresh thinking about Budgets and particularly about the Finance Bill.
  I wish to refer briefly to the Chancellor's speech. He said at the start of the debate that he thought the Budget was a step towards fair play as between taxpayers. I wish to draw his attention to the punitively high rate of tax which those in the upper brackets have to bear. One should pause to contemplate what a man earning £800 would say if £600 were taken from him in tax, or if a man earning £1,200 had £800 taken from him in tax. Yet we stand by while those who receive £20,000 are having £15,000 taken from them in tax.
  It is time that we fixed a top limit to Surtax after which the tax should be at a fixed rate of, say, 50 per cent. and if a man earned £20,000 he should contribute £10,000, which is a very large sum of money. There should be a top limit because this high rate of Surtax in the upper limits does the country a great deal of harm. It acts as a tremendous disincentive to saving, it impedes efficiency, it discourages people from being economic in the management of business. They spend vast sums of money advertising one soap powder
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  against another because they can set off that expenditure against tax. It does not help diligence or industry and work.
  In no country I know of, even in Communist Russia, does one find such high, discriminatory taxation. It only encourages young men to go abroad, young men with high administrative ability who go to Commonwealth or other countries. I am thinking particularly of professionally and technically qualified friends of mine who were at school and at university with me. There is a great need today to encourage skill, enterprise and initiative and also to encourage the traditional thrift on which this country has built the position we enjoy today. I should like to look forward with the Chancellor to a bright new world. I am young and imaginative and I think that we should be able to earn a fair reward for our efforts and also be allowed to keep a fair proportion of that reward.
  I shall mention briefly the effects of the credit squeeze. I think that the rise in the Bank Rate, the depressive Budget, special deposits and hire-purchase controls which have been introduced are perhaps prompted too much by a fear of the bogy of inflation about which we hear so much. What do we mean when we speak of inflation? This has already been referred to by the hon. Member for Manchester, Cheetham (Mr. H. Lever). No one minds an increase in incomes; it is an increase in prices of which we are all afraid.
  There need not necessarily be a rise in prices. We have a simple equation in the economy and, so long as the rise in incomes in the community is matched by increased efficiency and increased productivity, there will toe no rise in prices. We have only to look at Western Germany and other countries which have already been referred to in this debate. In Western Germany over the past ten years the average rise in productivity has been about 10 per cent. per annum as against nearly 3 per cent. in this country.
  It has been suggested by the Chancellor that the imposition of hire-purchase controls and restrictions on credit and finance will have the effect of encouraging manufacturers to export surplus goods which they cannot sell in the home market. But is not this putting the cart before the horse? We cannot force

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  people abroad to take more of our products. The only way we can export more of our goods is by lowering the price, and the only way to lower the price is by improving investment in industry and making use of all the technical skill and inventive capacity which we have in this country. When planning whether to invest, manufacturers are influenced first of all by a strong home market, and it is by encouraging a strong and stable home market that we can encourage manufacturers to invest and to increase the production of goods. The combination of investment and an increasing output lowers unit costs and prices and enables us to export more.
  I suggest to my right hon. Friend that in this critical period in our history, with productivity advancing so quickly in Europe, he should not be mesmerised by the phantom of inflation but should instead focus his attention on increased productivity, and the incentives necessary to it, and on expansion so that we may keep our place in this world of rising productivity.
  May I speak briefly about the special areas of high unemployment? They should be specifically excluded from the restrictions which have just been introduced. As I have indicated, I cannot completely accept the necessity for the Chancellor's measures, but even the Chancellor must admit that the measures which have been introduced to prevent strain in certain parts of the country leading to inflation cannot possibly be applicable to such areas as Scotland, North-East England, Wales and, in particular, Northern Ireland. There is still considerable unemployment and slack in the economy in those areas of the country.
  I therefore particularly welcome the Chancellor's statement in answer to Questions last Tuesday and earlier in this debate that he intends to take steps to assist such areas. I ask him to consider, particularly, that they should be insulated from any form of capital restriction. I ask him to make sure that there is no shortage of bank loans in those areas and that, if possible, interest rates are kept low there in order that this slack may be taken up and that these areas may share in the prosperity of the country as fully as the south of England and the Midlands.
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  Thinking of the period of the next three or four years, not just of the next financial year, I look forward to a more liberal and equitable policy creeping into Conservative finance and budgetary. I look forward to tax reform and to expansion. All steps should be taken to utilise all our available resources in every part of the country in order that prosperity may be shared by all and that the unemployed resources in Scotland, Wales, Northern Ireland and other areas may be used not only for the benefit of the people to whom I have referred but for the good of the country as a whole.
  9.49 p.m.
  Mr. W. R. Rees-Davies: I feel that the atmosphere demands that I limit myself to about five minutes. I am very happy to do so, so that we can hear the Front Bench speakers conclude the debate.
  I should like to adopt the great preponderance of speeches made earlier by my hon. Friend the Member for Wolver-hampton, South-West (Mr. Powell) and my right hon. Friend the Member for Flint, West (Mr. Birch). The only reason I rise is to ask my right hon. Friend the Chancellor of the Exchequer to consider three points which have not been raised in any debate.
  First, the Chancellor must know that by the time he comes to prepare his Budget the amount of elbow room left for him is at a minimum. With regard to tax reliefs in any given year, unless he is extremely lucky and also has a very strong Prime Minister, the demands of Ministers upon him are such that he is left with little scope. As my hon. Friend the Member for Wolverhampton, South-West indicated, this situation demands that we must have an opportunity in the House of Commons to consider questions of policy before the Estimates arise. There must be some chance in the future to consider whether we are progressing in the right way.
  My hon. Friend the Member for Eastleigh (Mr. D. Price) outlined all our election promises and a great deal of the election expenditure. We must somehow find about £100 million away from Government expenditure in the forthcoming year. That will hurt someone. It is not fair to put that political decision entirely upon the Chancellor of the Exchequer.

  1009
  Nor, indeed, is it the task of the Treasury. It is the task of the House.
  I believe that the railways should be made to pay. That is a big subject. If they did, we would not have needed any of these tax increases this year. Ninety million pounds would be saved. I believe that the egg subsidies should be drastically and substantially reduced. I know that that would cause trouble among many of my hon. Friends who represent farming constituencies, but nearly twenty years after the war that position must be faced. Further, I think that it is wholly wrong that there is no maintenance charge in hospitals. Goodness knows, I have had enough experience of hospitals. People have to pay for their food when at home. When they enter a hospital, they or their families can at least make a contribution towards food in a hospital. That will provide millions of pounds.
  I have many other suggestions. I believe that people would pay more for spectacles if it were put to them that they would get it back in the way of tax reductions. I invite my right hon. Friend to give the clearest consideration to the possibilities of wider pre-Budget debates to enable him to assess the temperature of the House and whether we would stand for such reductions. I believe now that we will. That is my first point.
  Secondly, the realm of legislation in the House should cover many of the matters with which my right hon. Friend deals by regulation. The Treasury today seems to think that it is a law unto itself. I agree entirely with my right hon. Friend the Member for Flint, West that bank deposits are a matter for the House and not for the Chancellor without previous warning to the House or previous opportunity for debate. With regard to hire-purchase regulations, the stock market has been boomeranging with U.D.T. shares bobbing up and down because everyone was waiting to know what the Chancellor would do. That is wrong.
  There should always be hire-purchase restrictions. A person should put down 20 per cent. deposit in cash. This should be the permanent situation as a matter of law. It is right. It is also good Tory policy on thrift. Therefore, it should be done by legislation in a
  1010
  proper Bill laid before the House. It should not lead to boomerangs on the Stock Exchange.
  Put briefly, my second point is to invite my right hon. Friend to look very carefully at the matters which are the province of the House in the realm of legislation and contrast them with those which are creeping in and becoming the perks of Treasury financial control.
  My third and last point is this. I am a lawyer. Law must be definable. I tell my right hon. Friend that Clause 26 as it stands is complete nonsense. I do not claim to be a tax lawyer. I am strongly in favour of trying to put a stop to dividend strippers, etc., although it is extremely difficult. I remind my right hon. Friend that Sir Stafford Cripps could not do this and I do not believe that my right hon. Friend can do it in this way, either. If he goes back to those days in the Treasury, ten years ago, he will find that Sir Stafford Cripps, who was a remarkable lawyer, as we all knew, had exactly the same matters in mind and wanted to achieve exactly the same purpose. He was unable to do it. I do not believe that any lawyer or any accountant could reasonably advise a client under Clause 26 as it now stands.
  I should very much like to support that Clause, but I cannot do so as it now stands. I urge my right hon. Friend to seek the advice of the tax lawyers at the Bar over a wide range, and the advice of the accountants, to see whether, perhaps, some suitable Amendments may be forthcoming. However, if it comes to a choice between the Treasury and definable law, I must stand four-square to the proposition that our law must be capable of definition so that those who advise can advise what is the law and not on questions of motive.
  It is because of my views on those three points—pre-Budget debates, clearly definable law, and the realm of legislation, which truly belongs to this House, not being relegated to the Treasury—that I have made this short contribution. I apologise if I have taken too much time in doing so, and I am indebted to the House for the opportunity.
  9.55 p.m.
  Dame Irene Ward: I have no intention of detaining the House for very long, as I realise that the hon.

  1011
  Member for Sowerby (Mr. Houghton) and my right hon. and learned Friend the Attorney-General want to wind up the debate, but it is too much of a temptation to see a quite formidable Front Bench available and not to say something about matters that cause me great concern.
  I fully accept the basis of the Budget. I have tried to follow what the Chancellor is trying to do, and I certainly think that he deserves great congratulations for the way in which he has steered our economy in very difficult circumstances during the past few years. Far too few people realise that, for the foreseeable future, we shall, as a nation, always be operating on a razor edge.
  In spite of our difficulties, I do not see why my right hon. Friend should not do justice to all sections of the community, and because of that I want to refer to the fact that shipping and dry docks find no place in the Finance Bill. I want also to refer to the increased reliefs given to widowers and widows while spinsters and bachelors are disregarded—although let me say that I have no personal interest in that matter at all.
  In this Bill my right hon. Friend is taking powers to find capital sums for the nationalised industries. While I do not disagree with Ministers of the Crown, perhaps I may make an observation about my right hon. Friend the Minister of Transport, who has been saying to those interested in shipping, ship repairing and shipbuilding, "Tell me what is wanted, and I shall endeavour to help in providing what is considered essential by those who play a very large part in our economy."
  That is all very well, but all Ministers are powerless if they cannot convince the Chancellor of the Exchequer, and for many years now we have tried to persuade him about the claims of the dry docks. The nationalised industries are, in fact, in direct competition with shipping, shipbuilding and ship repairing, and quite recently those engaged in our shipping interests have very strongly pointed out that our coastal shipping is being practically wiped out while, at the same time, the Chancellor is allowing money to be spent on the modernisation of the railways.
  I do not disagree with him on that, but there is no co-ordinated or concerted
  1012
  policy. The interests concerned have been begging my right hon. Friend to remember that shipping, ship repairing and shipbuilding have an importance for this country equal to that of the nationalised industries, in both peace and war, but in this Finance Bill nothing has been done for them.
  I give my right hon. Friend notice, and I enjoy doing it, that if I do not find something in the future which will be of benefit to those interests to which I have referred and, incidentally, of benefit to the railway superannuitants, I shall have the greatest possible pleasure in voting against him, in the interest of those for whom I and many of my hon. Friends believe we have a right to speak. That is my first point. I promised my Chief Whip, whom I always find very helpful, that I should not be too long, but I could not resist the opportunity of saying what I had in mind when such a body of admirable and formidable people was assembled on the Front Bench to listen.
  I come now to the subject of widows and widowers versus spinsters and bachelors. My complaint about my right hon. Friend and the Treasury is that they are so overwhelmed by the big national problems which must be faced that they never take the trouble to ask those who really know about the lives of these people and their problems. I take great pleasure in saying that the only Chancellor of the Exchequer who has ever done anything imaginative and set a new pattern for those living on small fixed incomes was my right hon. Friend the Member for Monmouth (Mr. Thorneycroft). I have never forgotten that. I disagreed with him when he resigned, and I do not agree with him today. I think that all those who talk about Government spending are generally not here to discuss the details of the Estimates. I shall not go further than that. My right hon. Friend the Member for Monmouth, however, did at least in his Budget set a new pattern for people living on small fixed incomes, and, as I say, I am very grateful to him for that. The present Chancellor of the Exchequer, the Prime Minister and all the other Ministers of the Treasury should take a leaf out of his book and do something for those who really helped us to win our victory in the last war.

  1013
  The basis of the housekeeper allowance is that one must be reasonably well off to be able to afford a housekeeper. My right hon. Friend has selected a section of the community which is in a reasonably good position. I am glad that it is, but that is the situation. Such people are being left a little of their own money in their own pockets to spend in their own way, except that they must have a housekeeper to receive the allowance. But this is not the point. Why should one section of the community, just widow and widowers, be selected?
  I am, of course, grateful for the little bits of comfort which are announced in the Budget statement and put into the Finance Bill to assist certain widows and single persons looking after children. But the point really is that there are many very wealthy widows and widowers, and I see no reason why people on normal incomes should have to accept extra reliefs for them when help is greatly needed, for instance, for the widows of ex-Regular officers. These Service widows are old, and the resources of many of them are below National Assistance levels.
  It is an absolute scandal that wealthy widows and widowers should have an advantage when nothing is done for that other section of the community. I deprecate it. It annoys me intensely. It is most unfair and unjust. My right hon. Friend the Prime Minister, who has an imagination, in a letter the other day referred to the fact that he was at one time the Member for Stockton-on-Tees, and how proud we were of the fact, but I thought that he learnt a little more than he appears to have done when he was the Member for Stockton-on-Tees.
  I have mentioned those who are being kept below National Assistance level for whom we as a nation have some responsibility, but I want to make a very important point about bachelors and spinsters. We started to argue about this matter during the war with Sir John Anderson, who later became Lord Waverley, a great predecessor of my right hon. Friend. Sir John Anderson always made it perfectly clear that the housekeeper's allowance for widows and widowers was an anomaly. He never sought to defend it in any way. None of the great pundits know how they come by the allowance. Obviously, my right hon. Friend has never bothered to find
  1014
  out. It has continued with successive Chancellors.
  I have been in this House since 1950, and this point has been argued on almost every Finance Bill and the answer that has always been given is that it was an anomaly. The Royal Commission on the Taxation of Profits and Income suggested that the allowance should be withdrawn. It has always been regarded as an anomaly. Every Chancellor has said, "We cannot remedy the anomaly because this allowance should never have been given".
  I have written to my hon. Friend the Financial Secretary, who is a very attractive bachelor. [Interruption.] I do not regard my right hon. Friend the Chancellor in the same way, and, in any case, I can deal with only one bachelor at a time. When I tried to intervene in the Budget, my hon. Friend said that he could not allow me to do so because he was making a very long speech. I noticed with a certain amount of dismay, heartburn and sorrow that the people who were not singled out for an answer were the spinsters and bachelors. Perhaps my hon. Friend had eliminated himself as a bachelor. I do not know whether that was declaring an interest, but the people who were disregarded by my hon. Friend were people on small fixed incomes.
  When I wrote to my hon. Friend pointing out how very upset I was that wealthy widows and widowers will again benefit under the Finance Bill by an increase, I received a reply from him which indicated that he thought that I wanted to withdraw the allowance. That just shows the extraordinary mentality at the Treasury. I have been speaking on this matter for 25 years, almost before the Financial Secretary was born, and no one has yet understood that I am definitely and sincerely interested in people living on small fixed incomes. My hon. Friend has written to me saying, in effect, that I ought not to blame his right hon. Friend for increasing the allowance which the present Home Secretary introduced in a Budget when he was Chancellor. All I can say is that my hon. Friend cannot possibly understand a woman's brain. The difficulty is that the Economic Secretary, who has a very charming wife, does not enter into this matter at all. I simply tear bachelors to pieces for their absolutely inhuman approach!

  1015
  I am delighted to see that my right hon. Friend is leaving the Chamber. I only hope that he is going to talk to his officials—it does not look like it—to find out whether he can make this concession. As my hon. Friend so eloquently pointed out, in the First World War many spinsters lost the men they would have married. They have had to work and many of them have had to keep elderly parents, or they have had had to build up a little income of their own so as not to be a burden on the State.
  I do not know how many bachelors there are in the Treasury or whether my right hon. Friend could give me an answer if I put a Question down, but I give fair warning that unless something happens and someone really looks at this matter from a human point of view, I shall vote in Committee solidly against the Government on every single thing
  1016
  that I can. I think that is the only way to make some impression upon those who have treated the spinsters and bachelors over the years so scurvily and who have advanced arguments against giving them the same Income Tax relief as that given to widows and widowers on the ground that it is an amomaly.
  I hope that what I have said will be read and digested and that, when we come to the Committee stage, if I put down an Amendment that is in order it will be called. I hope that hon. Members on both sides of the House, who have many spinsters and bachelors who vote for them, will come to their rescue and that we shall get this anomaly removed. That is all that I have to say. I hope that my hon. Friend who is to wind up for the Opposition—I call him my hon. Friend because he has so often supported me in this matter—will again support me and that we shall be able to knock some sense into the heads of the Treasury.
  10.13 p.m.
  Mr. Douglas Houghton: Mr. Speaker, when I heard that the hon. Lady the Member for Tynemouth (Dame Irene Ward) hoped to catch your eye, I gladly deferred to her wish because I felt sure that her speech would be a good curtain raiser to the one that I have to make. Little did I think that she would make a special plea for some Income Tax relief for the Chancellor of the Exchequer and the Financial Secretary. Having praised the Chancellor and the Financial Secretary and then scolded them, she then drew the attention of the House to the claim of single person householders for some special consideration in the code of personal reliefs. When the hon. Lady sees the new Clause which I feel sure will be put down on this very point, we can confer together to see how best to achieve our mutual purpose in Committee.
  We have had a long but very interesting and varied debate. My first pleasant duty is to congratulate the hon. Member for Brighouse and Spenborough (Mr. Shaw) on his excellent maiden speech. It gives me special pleasure to do that because he is a political neighbour of mine. We all deeply regret the cause for the by-election in Brighouse and Spenborough and I feel it particularly keenly because the late Mr. John Edwards and I did so much together. The hon. Member who comes from Brighouse will be (fully accepted toy the House, and I hope that he will have a fruitful and successful period of service here. I hope that in the meantime he will dissuade his Conservative friends in the West Riding from giving undue attention to Sowerby. They must not set too much store on the result at Brighouse and be unduly encouraged in my constituency.
  I agreed with the Leader of the Liberal Party when he differed from the belief of the hon. Member for Brighouse and Spenborough that the Budget was one of a series in a general pattern of economic and fiscal strategy which had been devised by the Chancellor of the Exchequer. I do not believe that this Budget and this Bill are the ones which the Chancellor expected to introduce this year. It is difficult to understand
  1018
  hon. Members who so confidently predict that the Budget and today's Bill are just about right. I do not know on what they base their calculation, however marginal, unless it is confidence in the judgment of the Chancellor and little else.
  To go from slack to overstrain in twelve months takes a little explaining, unless it is that there was an election in between. When the hon. Member for Eastleigh (Mr. D. Price) chides us with not answering his question, "What would you have done last year?" the answer is that we should have started the year before and then, we hope, there would have been less justification for blowing hot and cold between 1959 and 1960.
  When the right hon. Member for Flint, West (Mr. Birch) offered a plausible explanation of the choice that lay before his right hon. Friend, I thought that it would have been politically damaging or even unthinkable to reimpose any part of the tax remissions that the Chancellor made last year. How curious it is that when a tug at the reins has to be given, the reimposition of taxes is always in a different sector from that where the reliefs were given. This we found in 1955, and we have seen it again this year. Last year, tax was taken off beer. This year, it is put on tobacco. Last year, Income Tax was reduced. This year, it is put on Profits Tax. When one looks at the balance of the fiscal changes in the Bill, one wonders whether they have any relevance to the economic situation today.
  The tax reliefs in Entertainments Duty and Income Tax, and bits and pieces in Clauses 6, 7, 8 and 70 and the additional taxation on tobacco and Profits Tax make a net increase in taxation this year of £21 million and, in a full year, just over £70 million. What is the relevance of that to the present economic situation? How marginal must these calculations be? I call these economic refinements. It is extraordinarily difficult, even when adding up the total sum, to find that they are an answer to what the Chancellor says are our present difficulties. This is not a Budget so much as an economic abrasive. It has to be approached with that in mind.

  1019
  The Chancellor has had a much better day than we on these benches expected him to have. We had been ready to make room for him on this side in case he wished to face his critics and not be stabbed in the back. He has been kindly treated, however, both by the high priests of Toryism and his rampaging critics. It may be that they are holding their fire for the Committee stage.
  Mr. Cyril Osborne: Who is the high priest?
  Mr. Houghton: The rampaging critics? Does the hon. Member not know—
  Mr. Osborne: Who is the high priest?
  Mr. Houghton: If hon. Members interrupt me much more, I shall become one, too.
  I underline a proposal which was made by the hon. Member for Aylesbury (Sir S. Summers), because he echoed a request that I have been making every year. It is for an explanation of the Clauses of the Finance Bill in non-legal and non-technical language. It is disgraceful that we have to deal with a Bill of this complexity without a single word of explanation of any Clause until we come to the Second Reading itself, and we have to read professional magazines and financial correspondents and other people to find out what Bills mean which we are asked to study and appraise and criticise and pass.
  Strong insistence should be made on proper facilities to understand a Bill of this complexity so that we can do our job properly. Who is being pigheaded about this? I have asked for this year after year and Treasury Bench spokesmen say that it is not practicable. Yet the Chancellor knows full well, and the Financial Secretary knows, that they have in their hands, or close to them, the explanations which we require in order to approach the Bill with some degree of comprehension.
  However, most of us have done our homework on the Bill, I suppose, and we understand it moderately well. Certainly, I understand that there is a great deal in the Bill that I have advocated ever since I came to the House eleven years ago, and I look forward to the Committee stage with considerable
  1020
  relish. One suggestion made by my hon. and learned Friend the Member for Kettering (Mr. Mitchison) is of particular interest in connection with a Bill of this kind. We realise that this is quite an exceptional Finance Bill. It is normally the Bill of the Budget, but there is so little of the Budget that there could not be very much of the Bill unless something happened, and it did happen.
  The Inland Revenue saw these wide open spaces, moved in, set up its tents and brought a lot of complicated apparatus with it, and that is most of the Bill. It would probably be convenient when one has a Bill of this length and complexity to deal with some parts of it in the more congenial atmosphere upstairs, or to have measures of this kind included in an Inland Revenue Bill or a taxes management Bill, or something of that kind, so that we could separate measures which are not truly fiscal measures but are for the better administration of our tax system and deal with those proposals separately from the rather close timetable of the Finance Bill. I hope that that will be considered in the future.
  Some of the proposals in the Bill have waited for years, presumably, for the opportunity of introducing them. The amount of money which has leaked out of the Exchequer during those years of waiting would be found to be quite formidable if we could calculate it even approximately. I think that millions of pounds have been lost on the steps recommended by the Royal Commission for the stopping of tax avoidance, because we have been so long in introducing them into the Bill.
  Last year, the Chancellor of the Exchequer, when he was pressed to make concessions in personal reliefs, said that it was then the turn of the standard rate, and all pleas for higher personal reliefs were rejected. He had done so much in reducing the standard rate of tax, and so on, that he could not do any more.
  Most Members on both sides hoped and expected that this year it would be the turn of personal taxation, of personal reliefs. The fact that the Chancellor has included very moderate improvements in particular directions suggests that he is conscious that something should be done in that field this time. We certainly welcome the new relief, modest though it is, for certain categories of taxpayers who are not eligible for the housekeeper relief.

  1021
  We have frequently challenged the residential qualification for housekeeper relief, particularly, of course, for taxpayers with young children, and we are glad that the Chancellor has thought of this way of meeting that anomaly. In the housekeeper and dependent relative allowance, an improvement has been overdue for some years. We have reached the position when the whole field of personal reliefs is in need of review.
  There have been some striking differences in the increase of personal reliefs since 1951. The child allowance for those over 16 has risen 114 per cent., whereas the wife's allowance has increased by only 25 per cent. The present position is that relief for a child over 16 is higher than the relief for a wife. Whether that is justified, having regard to domestic circumstances, is a matter for debate. Certainly there is scope for the Chancellor to improve personal reliefs another time.
  We also express regret that the Chancellor has failed again this year to introduce the small yet important easement of tax for the special cases recommended by the Royal Commission. We think particularly of the 100 per cent. disabled, the blind and the incapacitated child over the age of 16. We may call attention to them once more during the Committee stage. With the hon. Lady the Member for Tynemouth and the hon. Lady the Member for Belfast, West (Mrs. McLaughlin), we shall devote some attention to the special claim of elderly spinsters and bachelors or single persons who are householders who may be entitled to some preferential treatment over the normal single person's allowance.
  Clause 17 deals with the National Insurance contribution. I was a little shocked to read in The Times of 5th April that this proposal for a flat rate relief for the National Insurance contribution was described as a monstrosity which should be firmly resisted. As the Chancellor has said, unless this flat-rate system were adopted there would be endless trouble in adjusting at the end of the tax year the liability of millions of people who would be included in the graduated schemes. It would be tiresome, probably even annoying for them, and certainly of great administrative inconvenience.
  1022
  We realise that, in adopting a flat rate of standard relief, unless it is to be pushed unduly high, those who make the maximum contribution will not get the full relief, but the greater number lower down—I believe that it will be the greater number lower down—will get something slightly above the precise relief to which they would be entitled if it was strictly calculated on their contributions. There are very strong arguments on practical grounds for what the Chancellor is proposing, and we accept them, while regretting that any question should arise of adding to the disadvantages of the higher-paid employees under this slick piece of financial wizardry called the graduated pension scheme.
  Now I come to the main subject, anti-avoidance. Hon. Members on both sides of the House have been surprised and disturbed to hear the Chancellor say that the amounts involved in these avoidance devices are very large indeed. We had been led to believe that they were very small. In fact, we had been led to believe that they had been stopped altogether. Looking back to 1955, one sees the sordid story of the humiliation of the House and the Government in their efforts to stop these devices, and one must come to these Clauses with a sense of considerable indignation.
  We shall ask the Chancellor at some time to tell us his estimate of the leakage by these devices. I remind the House that when some of my right hon. and hon. Friends were saying during the election that by tightening up tax avoidance we could save £100 million of revenue a year, that was denounced as wild exaggeration and as an irresponsible attempt to secure electoral advantage. I believe that at least £100 million a year is involved in all these tax-avoidance devices today. The figure is certainly much greater than we were led to believe and it is now a serious matter. The Opposition will give the Chancellor every support in tackling all these tax-avoidance devices boldly and resolutely.
  The Chancellor has dealt rather lightly with farming losses as a form of tax avoidance. I know that he has followed the recommendations of the Royal Commission on the Taxation of

  1023
  Profits and Income, but the Royal Commission had a somewhat palsied hand in this matter. It admitted in paragraph 496 of its Report that:
  "… we should not expect our recommendation to bring about any considerable change in the present position, or markedly to reduce the volume of loss claims in respect of farming."
  The Royal Commission thought that its recommendations would only put out of court those claims which could be clearly seen
  "to lack commercial inspiration and to be nothing more than hobbies or private amenities."
  The hon. Member for Aylesbury questioned whether the onus of proof should be put on the taxpayer in this matter, that he should be required to satisfy the Inland Revenue that he was carrying on his business on commercial lines with a view to realising a profit. It would be very difficult indeed for the Inland Revenue to prove that a taxpayer was not trying. In many matters, on questions such as expenses wholly, exclusively and necessarily incurred in the performance of an office, the onus of satisfying the Revenue rests upon the taxpayer.
  There are two features about farming losses which the House should notice. The first is that half of them, both in numbers and in amount, occur around London and the South. Is it not curious that out of 330,000 farmers, 10,000 make losses and the rest of them average net profits of £1,700 a year? Another curious thing is that 70 per cent. of the 10,000 farmers who make losses are Surtax payers on their other income. It is curious that men who are so obviously successful in other branches of their business lives are dismal failures when it comes to agriculture. I do not think that we should be too tender-hearted, still less, chicken-hearted, when dealing with avoidance of this kind.
  I am glad to see that under Clause 18 it will no longer be possible for a stockbroker farmer to set off losses on his farm against his profits as a stockbroker. They will be set off against other income and not against the profits of his business. Of course, he will be able to carry forward his losses in the future in the hope and expectation that one day he may make a profit and set off
  1024
  his losses against that. My judgment in the matter is that it would have been much sounder to have provided that these losses may not be set off against other income of any kind. They should be a running account with the Inland Revenue and set off against future profits. That would have saved all the arguments, disputes and appeals on whether a farmer is really trying to make a profit or not.
  Coming to the really crucial avoidance Clause in the Bill, Clause 26. I wonder whether the Chancellor now regrets not having stood his ground on retrospective legislation two years ago. Had he done so, there would have been the clearest warning that these practices should not be continued or new ones thought up. In answer to my hon. Friend the Member for Gloucester (Mr. Diamond), who advocated a warning followed by retrospective legislation as a better course of action, the Chancellor himself retreated from retrospective legislation on the ground that the warning was not sufficiently specific to justify retrospective effect to the legislation, which suggests that unless the warnings can be given in specific terms, Chancellors will be confronted with the same dilemma. It is not warnings in specific terms which can easily be given; it is warnings only in general terms which can easily be given and they, it seems, would fail to satisfy the test the Chancellor has adopted as a justification for restrospective legislation.
  Hon. Members opposite who may criticise this Clause, indeed hon. Members on this side of the House who may criticise it, have surely to support the Chancellor in his search for some remedy for this scandal of tax avoidance by transactions in shares. It cannot be allowed to go on if the taxpayer is to retain confidence in the machinery of taxation and if this House is to be respected as an effective body to check these malpractices.
  If it is not to be done this way. I suggest that there are two choices. One may lie in a capital gains tax, which would certainly take care of a great many of these gains, because there is no question that they are capital gains. The only question is whether they are income, and avoidance is possible because we tax only income and not

  1025
  capital gains. The other choice may lie in the suggestion made by my right hon. Friend the Member for Huyton (Mr. H. Wilson) of dealing with the specific loopholes by Statutory Instrument from time to time, but I think it was said in the course of the debate that there would be a time lag even then. It may be that we shall want all three before we have finished. I hope that all who will criticise this Clause are ready with some equally effective alternative.
  I am quite convinced in my mind that there is no foundation for the criticism which I read in the Accountant on 16th April that the Clause makes no distinction between the sophisticated avoider and the ordinary taxpayer. I believe that all operators in this field are sophisticated, even if they are not all sophisticated avoiders. They know what they are about and it is a specious plea to suggest that the ordinary taxpayer may be at the mercy of bureaucracy under this Clause. He will not, for the ordinary taxpayer is not in this racket. He has not the wealth, and in many cases not the ingenuity, to indulge in it. However, the main leak of revenue here undoubtedly comes from very substantial operations, and it is those that we must have in mind.
  I say to the right hon. Gentleman that we on these benches want to end this racket. We are sick of it, and we will gladly consider any effective alternative. We have suggested one, and there may be others, but in the last resort we shall support the Clause rather than see the House defied and the Revenue cheated up hill and down dale by slick manipulators of wealth.
  There are other Clauses which are of importance as checks on tax avoidance. Clause 35 deals with one which has received a good deal of publicity, that of the so-called "golden handshake." It is interesting to recall that Sir Stafford Cripps dealt with another form of "golden handshake," and dealt with it, incidentally, retrospectively. But that was about a bonus not for going but for staying on, a different kind of bonus and, incidentally, a very much bigger one.
  I think that here, again, the Chancellor's restraining hand is comparatively gentle. In fact, nearly everything that the right hon. Gentleman does is gentle, from squeezes to handshakes. We shall
  1026
  have to see whether this is too mild an approach to this problem. In principle, however, we agree with the Clause and with the Schedule, but we have been critical of the Chancellor's inaction on this matter for some years.
  The next important part of the Bill is Part III, which the hon. Member for Brighouse and Spenborough claimed quite modestly, but I am sure sincerely, that he had mastered. Of course, we heard in him the authentic voice of the practising accountant, one whose ambition it is to get on equal terms with the Inland Revenue. The hon. Gentleman thinks that Part III of the Bill puts him in a pretty good position to be on equal terms with the Inland Revenue. Unless I am much mistaken, the will be on top of the Inland Revenue with the proposals for penalties under Part III.
  The present scale of penalties has been such as it is for a very long time. Harsh as the penalties may appear on paper, they have been sanctified by mitigation. Various Commissions and Committees have reviewed them, and nothing has been done about them. The Colwyn Commission of 1920 was in favour of more severe penalties in some cases, especially for aiding and abetting. The Royal Commission in those days was very tough.
  The Codification Committee of 1936 put up a whole new code of penalties. I notice, incidentally, that the penalty in the Bill for aiding and abetting is exactly the same amount as that proposed by the Codification Committee of 1936. I rather thought that the value of money had fallen since then. Anyhow, the Inland Revenue saw nothing very much amiss with the penalty Clauses, nor, of course, was there, so long as the Revenue was given a free rein on negotiations within very wide margins of penalties.
  Then along came a Mr. Hinchy who upset the applecart, and there was a considerable outcry at the extreme powers that seemed to be in the hands of the Inland Revenue Department. This has been a very grievous thing for the Revenue, as we see from the last Report of the Comptroller and Auditor-General—in the accounts 1958–59—because a great deal of recovery work had been at a standstill for a long time while the Hinchy case was going through the court.

  1027
  The amount of tax recovered as shown in the last Appropriation Accounts is well down on previous years. Therefore, there is no time to be lost in putting the Inland Revenue in a position to proceed with this work.
  What I am sorry about is that there is not more room for negotiation in the penalties in Part III. I do not believe that in some cases lenient money penalties will match the crime. My forecast is that if justice is to be done, there will be more prosecutions of the real crooks of Income Tax evasion in the future than in the past. In 1958 only nine prosecutions took place for false accounts and returns of income whereas there were fifty-four prosecutions of miserable wretches who made false claims on their personal tax returns—men who claimed for wives they had forgotten were dead and men who claimed for children they had never had; they were put in the dock and convicted, but the big boys in the evasion line came to terms with the Inland Revenue Department. Now there will not be as much scope, and my forecast is that although the money penalties will be lower, the number of prosecutions will be, and should be, higher.
  I have no hesitation in saying, when I look at the proposed reduced penalties for fraudulently making incorrect returns and statements—£50 plus twice the amount of the tax lost—that they will not be in the class of the nuclear deterrent. I believe that these proposals on penalties do not make the way of the transgressor hard; they make it almost soft. We will come to that when we reach Committee. I may find that some of my right hon. and hon. Friends are a little milder in their approach to Part III than I am, but that will all come out in the wash.
  Mr. C. Osborne: In view of the hon. Member's long practical experience in these matters, will he tell the House whether he would choose a prison sentence rather than a heavy fine?
  Mr. Houghton: I am never likely to be in the position of having to make that choice, so what on earth is the good of asking me? If ever I appear in the dock I will tell the learned judge which I should like to choose.
  The Attorney-General (Sir Reginald Manningham-Buller): It would then be too late.
  Mr. Houghton: All right, it would be too late. I should take what was coming to me and that would be the end of it.
  May I make a few comments on things which are not in the Bill? I realise that it will go hard with the Chancellor to say that this long Bill should be still longer, but there are still some points which require the attention of the Chancellor and the House. We have not dealt with the question of expenses and we have recently heard some very hard words from the judicial bench on the difference between the rule for expenses under Schedule D on profits and the rule for expenses under Schedule E on employment. When a taxpayer goes to court to move from assessment under Schedule E to assessment under Schedule D solely in order to get the benefit of the more liberal and unquestioning basis of charging expenses, it is time to pause and see where we are going. One of the learned judges said that how much tax one paid seemed to depend on which Schedule one was under. It is almost as simple as that.
  Mr. H. Lever: May it not be that the rule under Schedule E is too harsh rather than the rule under Schedule D being too lax?
  Mr. Houghton: It may be, but my hon. Friend will get a much more ready response on that point from the Conservative benches than he will from me. I am not saying that the solution is easy, but I have said before that the Schedule D rule is absolutely wide open. If the Schedule E rule is also made wide open, it will be a taxpayer's picnic. That is the problem. Something will have to be done about it sooner or later.
  Should the Chancellor of the Exchequer have withdrawn the initial allowance for all private cars? I fully expected him to do that. It seemed rather the obvious thing for him to be doing, unless he was anxious not to annoy the motor car industry, which was about to go to places it did not want to go to in order to expand its manufacture of motor cars. However, that was a point.
  The question of commercial and industrial entertainment is still almost of the dimensions of a scandal. Should a

  1029
  limit be put on the charge against taxable profits for entertainment and other expenditure which confers benefits or amenities on those concerned? We should decide whether not more than half the cost shall be allowed, or none in the United Kingdom but all overseas, and so on. They are questions which should be answered.
  Another very large source of loss of revenue is in matters of travelling and subsistence expenses. Other countries are prescribing maximum admissible allowances for travelling and subsistence. That is worth looking at. Why should some quite low-grade commercial people travel and live in hotels on a more luxurious scale than top-ranking Civil Servants, the Permanent Secretary to the Treasury, Members of Parliament and, indeed, Ministers? It is very difficult to see the justice of it.
  We cannot stop the expenses racket merely by tightening up the administration. The whole operation is too irksome and too unpleasant for both taxpayers and tax gatherers. One cannot carry strictness of administration too far without provoking unfavourable reactions. It is most desirable to keep a good relationship between taxpayers and tax gatherers. Rougher justice, but unquestioned allowances, should be chosen rather than variable ones with a good deal of argument, temptations to exaggerate, and other abuses of expenses and allowances.
  The Bill contains so much of which we approve that the Chancellor will have from us more co-operation than opposition or obstruction. We want some of these things to go on the Statute Book. That does not mean that we swallow everything as the right hon. Gentleman now proposes it, but his intentions are those we approve of. We want to help in this very bold set of remedies to deal with avoidance devices and practices. Whether the Bill is relevant to the general economic situation is another matter. Finance Bills are not always that, and there is quite a lot in this which, from a fiscal point of view, will keep us occupied in fruitful endeavour.
  10.54 p.m.
  The Attorney-General (Sir Reginald Manningham-Buller): We have had a very long debate, which has really fallen
  1030
  into two distinct parts. The first part was a discussion of the general economic situation and whether the fiscal proposals in the Budget are right in the light of the assessment of the situation. The second part consisted of a discussion of the proposals in the Bill.
  The hon. and learned Member for Kettering (Mr. Mitchison) began his speech by a somewhat delicate approach to the economic situation and by references to economic concessions and economic hiccups. I must say that I was very pleased to note that, although he advised my right hon. Friend the Chancellor on what he should do in the future, the hon. and learned Gentleman appeared to have absolutely no doubt whatsoever as to the result of the next General Election, because he advised my right hon. Friend to make fewer economic concessions before the next election and then, he said, my right hon. Friend would have less trouble afterwards.
  It is interesting to note that a number of speakers today have referred to the Budget of 1959 on rather the same lines as the hon. and learned Gentleman, but nobody at the time of that Budget—neither my right hon. Friend the Member for Flint, West (Mr. Birch), the orthodox economists nor anybody else—criticised it for being too inflationary. It is, of, of course, easy to put forward criticisms of one kind or another after the event, but at that time there was no criticism of the Budget on that account.
  The hon. and learned Gentleman concluded his speech by saying that this was not an occasion on which he found it too easy to speak. I share his difficulty. I agree with him there, for this is, I Chink, my maiden speech on the Second Reading of any Finance Bill. On that account, particularly, I should like to join in congratulating my hon. Friend the Member for Brighouse and Spenborough (Mr. Shaw) on what was, if I may say so, a most enjoyable speech, excellently delivered. I am sure that his assurance of loyal support brought great comfort to the ears of the Patronage Secretary.
  I am sure that the House will not expect me, at this late hour, to deal very much with the economic considerations that have been advanced on one side or the other. I am winding up the debate

  1031
  because there is so much in this Bill of a legal character. Although my remarks will not replace the sort of explanatory memorandum that the hon. Member for Sowerby (Mr. Houghton) wanted but which, in his speech, he showed he did not really need at all, I hope that it will help hon. Members, when they came to consider what Amendments to put down, to see at least what we are trying to aim at by the wording of some of the Clauses.
  There are many Clauses that, as hon. Members have said, are tax-avoidance Clauses. Indeed, two of them really go beyond dealing merely with tax avoidance. They are Clauses that seek to prevent persons from making a profit out of the Revenue or, as the Press so rightly said after the Finance Bill was published, from "milking" the Revenue. I want to deal as shortly as possible with these proposals.
  The first on which I want to comment is Clause 18, which deals with what we call "hobby farming" but which, of course, is not limited in its operation to hobby farming. The Clause has come in for some little critiscism both inside the House and outside it. Some doubts have been expressed about the use of the words
  "… on a commercial basis and with a view to the realisation of profits …"
  That is not a new phrase in the Statute Book. It is to be found in the Finance (No. 2) Act of 1915, and it has been on the Statute Book ever since. So far as I can ascertain, in the forty-five years in which it has been part of the law it has given rise to no difficulty whatsoever. It has been on the Statute Book in this connection. Ever since 1915 the occupier of woodlands can, if he proves to the satisfaction of the General Commissioners that the woodlands are managed
  "… on a commercial basis and with a view to the realisation of profits …"
  elect to be taxed under Schedule D instead of under Schedule B. Indeed, unless he can prove that, the woodlands cannot be taxed under Schedule D, and, if they are not taxed under Schedule D, there can be no question whatever of setting off losses on woodlands against other taxable income.
  1032
  Therefore, those owners of woodlands who are now taxed under Schedule D in respect of their woodlands should have no difficulty about Clause 18. The test is the same under Clause 18 as it is under the existing law: they have to show the same thing, in the one case, before they are taxed under Schedule D and, in the other, to come outside the scope of Clause 18.
  The hon. Member for Sowerby, if I may respectfully say so, made one error in the course of his entertaining speech when he said in this connection that the farmer and stockbroker would not be able to set off his farming losses against his stockbroking profits but would have to set them off against his other income. The truth is that, if the farmer and stockbroker can show that he is carrying on
  "on a commercial basis and with a view to the realisation of profits",
  then he can set off farming losses against profits on any other business, including stockbroking.
  My hon. Friend the Member for Aylesbury (Sir S. Summers) raised the subject of onus of proof under Clause 18 and asked whether it should rest on the taxpayer. I agree with the hon. Member for Sowerby that it would be impossible really to put the onus on the Revenue here to prove a negative, and I should like to explain how the Clause works. The onus on the woodlands owner is the same as the onus on the claimant here who is claiming to set off a loss against other income. In the first place, he makes his claim. If the Revenue is not prepared to admit the claim as well founded, he can go before the General Commissioners, who will usually be a body of people acquainted with what is going on in the locality, and argue the matter out before them. If they come to the conclusion that he is carrying on
  "on a commercial basis and with a view to the realisation of profits"
  that is the end of the matter. That is conclusive. I do not think that it will in practice work at all badly.
  The hon. Member for Sowerby expressed the view that this Clause would deal with farming losses rather lightly. I wonder whether he is right about that. I have no doubt that what he has said about it will be noted outside the House. So

  1033
  far as the Government are concerned, we accept the view of the Royal Commission, that this Clause, following the wording the Royal Commission recommended, will operate satisfactorily to stop hobby farming and the promotion of private amenity at the expense of the general body of taxpayers. I think that is all I need say about those provisions.
  Not very much has been said in the debate about Clauses 19 to 22, which deal with another form of tax avoidance. These Clauses deal with a comparatively simple form of tax avoidance, namely, the sale of shares in a company instead of the sale at a profit of a trading asset. None the less, although that is a simple form of tax avoidance, by transmuting income into capital, it takes no less than four Clauses occupying more than five pages of the Bill to stop it and to stop all the loopholes which could be used, so far as one can discern them in relation to that particular form of avoidance.
  I think that I can now come to the only two Clauses which really ought not to be described simply as tax avoidance Clauses. The first is Clause 25, which deals with sales cum-dividend when no dividend is, in fact, payable, with a notional dividend, and with the seller getting the benefit because the difference in price between cum and ex exceeds the amount which he takes out of his own pocket to represent the dividend after deduction of tax, leaving the Revenue with liability to a claim for the return of tax when it has never received tax; that is, the case of sellers of shares who engage in these operations trying, not to avoid liability to tax, but to make money out of the provisions of the Statute.
  I am sure that the House is united in thinking that that ought to be stopped. I should like, but will not because I think that it is too late tonight, to explain in detail to hon. Members the form of operations now practised and which comes under the heading of dividend stripping. There was a simple form of dividend stripping in operation just before 1955. We stopped that by legislation. There were certain loopholes and they were stopped in 1958. In 1959, we had a provision, which was not made retrospective, dealing with a more complicated form of dividend stripping.
  1034
  The hon. Member for Sowerby was wrong in one respect about it. He should not assume that dividend stripping would be countered by a capital gains tax. The form of dividend stripping which was current or commencing before our 1959 legislation was a form which made use of bodies which were exempt from Income Tax, and they were the people who claimed back a sum which was notionally deducted from dividends.
  Mr. Houghton: I did not suggest that a capital gains tax would take care of all those, and I was not thinking of dividend stripping at that moment.
  The Attorney-General: I do not want to go further into detail on that. I challenge the proposition that this situation would have been completely dealt with if my right hon. Friend had merely made last year's legislation retrospective. I do not think that it would have. It is true that there were some operations of dividend stripping which were not caught because that legislation was not made retrospective but they may be caught under the law as it stood before that. In two oases in the High Court and in the Court of Appeal it has been held that they are caught, but that may not be final. One does not know.
  I ask the House to bear in mind that in any single transaction of this kind a very large sum of money may be involved. Merely to have made the last piece of legislation retrospective would not in any way have stopped those who engaged in these activities from developing the operations which have come into use since then. As has been said, there are no fewer than five variations which are known about now. I do not think that the hon. Member for Sowerby was right when he suggested that millions of pounds have been lost, or anything like £100 million. I think that that is wildly exaggerated. Nor was the hon. Member right in saying that some of these proposals have waited for years. There has been no need for a proposal like Clause 26 until now, when we see our efforts to tell these people that they must not take part in this kind of operation having no practical result in stopping them from undertaking new operations.
  If the House agrees that that use of the provisions of the Income Tax Acts must be stopped, then the question is:

  1035
  what is the best way to do it? There are, as far as I can see, three possibilities. One—and this is the one we normally follow so far as we can—is to introduce specific clauses to deal with a particular method.
  I do not know how many Clauses would be required to deal with these five extremely complicated variations on the same theme but, bearing in mind that we have five pages of Clauses, 19 to 22, to deal with one much more simple form of tax evasion, it would lead to a very lengthy bill. Again, that might not put an end to the business.
  The choice, if the House agrees that this kind of thing must be stopped, lies between retrospective legislation and a proposal on the lines of Clause 26. The hon. Member for Gloucester (Mr. Diamond) strongly urged that we should engage in the regular practice of retrospective legislation. I thoroughly disagree with him about that. He suggested that we should have warnings followed by legislation. Then he went on to say this rather curious sentence, "… a Government warning given in precise terms so that the will of Parliament shall have effect."
  I only hope that any statement made by the Chancellor at any time will always conform to the will of Parliament subsequently expressed, but just think what that means. The hon. Member talked about us not surrendering the authority of Parliament, but to adopt that practice surely must mean a total surrender of the authority of Parliament.
  The Chancellor gives a warning, then the Government do not legislate unless that warning is ignored. If the warning is satisfactory, then there is no legislation and we get rule by warning and not rule by law. I do not think that would be a satisfactory practice, and there was great force in the observation of the hon. Member for Sowerby that even that system could not work because one cannot give a clear and specific warning which will cover all the subsequent variations unless one is in a position to legislate at the time one gives the warning.
  It is for those reasons, and because we all dislike retrospective legislation—legislation which makes unlawful something that was lawful at the time it was
  1036
  done—that we have adopted the other solution. I hope that I am not talking too long, but I want to say something about that.
  Mr. Diamond: The Attorney-General has referred to a suggestion I made directed towards seeing that tax avoidance is ended, which is the wish of both sides of the House. Is it not the case, as he himself has said, that there was a theme and that subsequently there have been five variations which have recently come to his notice? Is it not easy to define what is the theme, although it may be impossible to define in advance in specific legislation the five methods to be adopted in the five variations?
  The Attorney-General: I do not think that it would be easy to define the theme in words clear and precise. One could give a general warning. The Chancellor might say that anyone who engaged in tax avoidance would have that nullified by subsequent legislation. That would cover everything, but no one would be satisfied with that.
  I come now to Clause 26, having, I hope, given reasons why we have come to the conclusion that something on these lines is necessary to stop what is going on. No one likes giving a general power, but sometimes this House is justified in so doing, as I think in this instance it is. One must, of course, be very careful to confine the exercise of this general power to these particular kinds of operation; and that we have sought to do.
  I should say at this stage that I must completely dissent from the observations of my hon. Friend the Member for Isle of Thanet (Mr. Rees-Davies)—who, I think, does not claim to be a tax lawyer—when he says that this Clause is unworkable and one which could not be advised upon. When one looks at Clause 26, one sees that subsections (1) and (2) set the framework for the Clause. The actual scope of the Clause does not depend—and here I part company with the hon. and learned Member for Kettering and the hon. Member for Gloucester—on motive.
  If one looks at subsection (1), paragraphs (a) and (b), and the definition of the circumstances in subsection (2), and the words dealing with bondwashing, one sees the importance of this point.

  1037
  Subsection (2) really brings within its scope those categories of persons and transactions coming within what we know as bondwashing and dividend stripping. From conducting cases on this matter in the courts, and in working upon it as a matter for legislation, I can say that it really is a very easy thing to recognise a dividend stripping operation, whatever permutations and combinations there are; and the same can be said for a bond-washing operation.
  Let us suppose that one of these operations appears to come within the scope of subsections (1) and (2). None the less, the persons concerned can get out of the scope of this section by showing that the transactions were carried out for bona fide reasons such as for managing or making investments, and not because they really wanted to obtain tax advantages.
  That is the way in which something which comes within the scope of the law can be excluded from the operation of this clause. The hon. Gentleman the Member for Gloucester told us that attempts to prove a man's motives were utterly impossible; but I should have thought that he would have known that if that was true it would be quite impossible to get any conviction on anything concerned with intent to defraud. One has to judge a man's motives from his actions and one can then say that he intends the natural consequences of his acts.
  There have been questions raised—not here—about the words "main objects" and whether they will cause a difficulty. I do not think so, but if one postulated a sole object I think that it would be found that these operators put forward two objects in the course of their transactions. As I have said, these transactions are really easily recognisable and there is not much chance of a borderline case being caught in this net.
  Mr. Mitchison: I am much obliged to the right hon. and learned Gentleman. All I want to say is that it seems to me that the scope of this Clause depends as much on the matter of the motive as on the circumstances described in subsection (2). It is rather a verbal point, and if I said anything else I think that it was only a verbal difference.
  The Attorney-General: I quite agree. I want to make this point clear because
  1038
  the scope of the Clause initially does not depend on motive. If the transactions appear to come within subsections (1) and (2), then, on proof of those matters, the person operating the transaction can get excluded.
  Supposing that he puts forward a claim that he is acting for a bona fide commercial reason and that tax advantage is not one of the main objects, what happens if the Revenue does not accept his contention? It is not left to the Revenue to decide—and that is where the hon. Member for Gloucester went wrong again. The person concerned can go before the Special Commissioners and assert that the transactions do not have as their main object a tax advantage. If he satisfies the Commissioners that that is so, then that is the end of the matter.
  If he does not satisfy the Special Commissioners, he can go on to the new tribunal, presided over by the Chairman of the Board of Referees and with two persons of special commercial and financial experience to assist him, and if he can satisfy the tribunal that the transactions do not come within the description of dividend stripping—and I am using that term colloquially—or bondwashing, that, again, is the end of the matter. If the tribunal decides against him and there is a point of law, he can go still higher up.
  Although one does not like a general power, if one recognises that there are cases where it has to be used, then I suggest that we have properly fettered and controlled the limits of the exercise of this power so as to hit the targets at which the power is aimed and nothing else. Indeed, persons who do not engage in this kind of operation and who feel that their transactions might be so regarded by the Revenue will find that the power to obtain the opinion of the revenue in advance is a very great safeguard. I will not say more about the Clause now. I agree that it is a complicated Clause to read.
  Sir K. Pickthorn: Will my right hon. and learned Friend say something about subsection (2, c)?
  The Attorney-General: That deals with different forms of dividend stripping, one of the most recent of which is stripping not so much of dividends as of assets. I will readily explain it to

  1039
  my hon. Friend in detail if he so wishes, but it would take some time to do so now. I will do it later. I hope that my hon. Friend will accept what is, in fact, the case, that paragraphs (a), (b) and (c) cover the three kinds of circumstances which give rise to dividend stripping.
  The Government have been asked why Clause 30 does not apply to lawyers. The Leslie Howard and Peter Cheyney cases established that book royalties paid after the death of authors were not subject to Income Tax. Following upon those cases, some authors have found it wise to discontinue their profession as authors and to become the employees of companies which they form and to write for the companies. The result of doing that is that they receive royalties—it may be for many years—on the books which they wrote before they voluntarily ceased to carry on their profession, and such royalties are free from Income Tax and Surtax. That is pure tax avoidance.
  The barrister is not in a like position. The barrister who has built up a practice cannot cease his profession and then do the work of a barrister as an employee or partner. In fact, practising barristers do not cease to practise just for tax avoidance reasons. They may cease to practise on grounds of ill-health, age, or appointment to the Bench, or, as many Members did, in the event of war, but I have not known of a case where a barrister ceased to practise just for the purpose of tax avoidance. If he did he might find it very difficult to reestablish himself again. So this Clause is designed to stop a form of tax avoidance which can be voluntarily operated, and to make royalties accruing after the death of the author subject to tax.
  I shall say a word or two about Whit-worth Park. It is, of course, quite easy to use the word, "retrospective" about Clause 37 and I dislike retrospective legislation in the sense in which it is generally used as much as anyone. By that I mean retrospective legislation which makes unlawful something which was lawful at the time it was done. This Clause does nothing of that kind. It merely validates and declares to be the law what everyone thought was the law at the time and it does not vary
  1040
  the liability which did exist to tax any individual. The only benefit which the collieries can get if this Clause is not passed, is the benefit arising from the fact that the time for assessment has now passed.
  My hon. Friend the Member for Aylesbury suggested that a simple remedy would be to enlarge that time of assessment. Unfortunately, it is not quite so simple as that. One of the reasons why this Clause is necessary is that in the light of what the House of Lords said in the course of giving judgment in the Whitworth Park case the Grown may be faced with claims by landlords of premises which the Crown occupies for the amounts which have been deducted by the Crown under Schedule A during the last six years. That may amount to a very substantial sum. That is why we have to bar claims of that kind in a rather more complicated and detailed Clause than my hon. Friend suggested.
  Mr. H. Lever: As I understand, the only reason why the Revenue might save if this legislation were not enacted retrospectively is that the Revenue would be liable for a repayment claim by the citizen, but the Crown would not have a remedy for the appropriate tax because it would fee statute-barred. If the citizen's claim is not statute-barred, why would the prompt enforcement of the Revenue in its case be statute barred?
  The Attorney-General: The difficulty about that, as the hon. Member will find if he studies it, is that the Crown would deduct Schedule A tax when paying the landlord and the landlord would be able to say, "You have no right to deduct it." I need not go into it in detail. I do not think that this is the time to pursue it, but it has been considered and that is one of the reasons why Clause 37 is of wider import.
  Now I come to the penalty provisions to which my hon. Friend the Member for Brighouse and Spenborough and the hon. Member for Sowerby referred. I am sorry that the hon. Member for Sowerby was rather critical of these provisions. I do not think that they will put the accountant on top of the Revenue. I think that they will make it easier for the Revenue and the taxpayer to arrive at a just solution. It is not the Hinchy case alone which drew

  1041
  attention to the need for this kind of legislation.
  The hon. Member referred to the Codification Committee of 1936. That Committee reported, on the penalty provisions:
  "The flotsam and jetsam of a century's legislation have nowhere accumulated into a greater confusion than in the mass of enactments which prescribe penalties for failure to make returns, or for the making of incorrect returns or claims."
  It is true to say that the penalty provisions form no logical system and are capable of being very savage in character. A penalty of three times the total tax chargeable can in these days reach astronomical proportions.
  One of the curious things is that these penalties of treble tax go back to the very early Income Tax Acts. Of course, then the penalty probably did not mean anything like as much. What we have worked out is this. Instead of what happened in the past, when the Revenue used the penalty provisions to collect back duty plus interest—I think it was compound interest—under the high maximum penalty, we have separated the penalty from back duty, and I hope that the House will think it right.
  We have acted on two principles, first, that the taxpayer who neglects to make a true return of income and has done so over a number of years should not benefit from that at the expense of the general body of taxpayers, and, therefore, that the Revenue should have the right to make fresh assessments, even more than six years after, to collect the back duty. But we do not give the Revenue an unlimited right under the provisions of going back.
  If, in the last six years, say, the open years, the Revenue finds that four years ago there was an omission from a return due to neglect, then the Revenue will have the right to make fresh assessments for the six previous years, making ten years. If, in the six previous years, the Revenue finds that there has been an omission owing to neglect it can go to the Commissioners and apply to them to take power to levy assessments within the six preceding years and the taxpayer has the right to resist that application.
  That is all machinery for collecting the back duty, and the Bill provides, and I think rightly, for the payment of interest at 3 per cent. on that back duty. After
  1042
  all, the taxpayer has had the use of the money. As the hon. Member for Manchester, Cheetham (Mr. H. Lever) said, the payment of interest on tax which is not paid on the due date is quite a common thing.
  It has been asked why, if that is so for the taxpayer, the Revenue should not pay interest. The answer is that the omission to pay tax by the taxpayer is due to his neglect to make a true and proper return. The Revenue, before it repays, has to be satisfied that the repayment is justified. That may take some time, so it is not easy to lay down a period of time after which one can say that the Revenue has been neglectful and should pay interest because it should have paid the money before.
  In addition to the recovery of back duty and interest we provide for the payment of penalties on a scale which, it is true, is reduced, but it is quite wrong for the hon. Gentleman to say that there is less room for negotiation under our penalty proposals than under the existing law. I also think it quite wrong for him to say that the result of these proposals will be that there will be more prosecutions.
  I hope and believe that we have secured not only the machinery for the collection of the back duty, but that we have provided penalties on top of that which will generally be regarded as fair and, at the same time, will operate as a satisfactory deterrent to deter people from being careless and neglectful, and, indeed, fraudulent, in discharging their obligations under the Income Tax Acts.
  I hope that I have covered most of the subjects that have been raised in the course of the debate in relation to the Bill and I am not going to be tempted to follow the hon. Gentleman through his usual hobby of dealing with expenses and entertainment, travelling and subsistence claims, and things of that sort. I hope that the Bill meets with the approval of the House. I have no doubt that its tax avoidance provisions and particularly Clause 26 are absolutely necessary and I invite the House to give the Bill a Second Reading.
  Question put and agreed to.
  Bill accordingly read a Second time and committed to a Committee of the whole House.
  Committee Tomorrow.

RAILWAYS ("TUTBURY JINNIE")
Motion made, and Question proposed. That this House do now adjourn.—[Mr. E. Wakefield.]
11.35 p.m.
Mr. J. C. Jennings: Some time ago a photograph was published in the Press showing my right hon. Friend the Minister of Transport helping an old lady across the road. This was a commendable action, quite in keeping with my right hon. Friend's character. I hold him in very high regard. Tonight, I want to ask him to help another old lady, not across the road but to keep on the road—the railroad. Her name is "Jinnie"—"Tutbury Jinnie"; and she is 111 years old. She is held in very great affection by thousands of residents in the Burton and Tutbury area. If I might parody an old music hall song, I should say that the sentiment expressed by these thousands of people in Burton and Tutbury would be expressed in the first lines:
"If you knew Jinnie like I knew Jinnie, Oh boy, oh what a girl!"
That is exactly how they feel.
"Tutbury Jinnie" has been a fine lady in her time. At some time in her 111 years she has held the record for the fastest time in a straight stretch of 4½ miles between Burton and Tutbury, even with two intermediate stops in those days. She runs between Burton and Tutbury. She sets out from Burton to Tutbury and then makes the return journey. One way she pulls and the other she pushes. She is known as "the old Pull-and-Push" If my right hon. Friend comes to Burton we shall not take him down to the "Old Bull and Bush," but before we entertain him in one or more of our famous breweries we will take him for a ride on the old Pull-and-Push, the grand old lady of the line,"Tutbury Jinnie."
The Minister must come soon, because she is doomed to die on 11th June. She has kept the strait and narrow way for many many years. Now the British Transport Commission is forcing the old lady, aged 111, to go off the rails. She is sentenced to death.
I have been facetious for the last few moments, but let me now be very serious and describe how she has been sentenced
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to death. I have come to the opinion that it was not a fair trial, if "trial" can be the name given to the sub-committee of the area transport users' consultative committee. In view of what I am about to say, I ask for a suspension of the sentence and a new trial and a new jury.
How was this decision unjust? I will not weary my hon. Friend the Parliamentary Secretary with all the reasons which were put forward by the objectors. They put a very strong case. I want to advance four new reasons why the operative date for the cessation of this train service between Burton and Tutbury should be postponed. The first is that I am of the considered opinion that justice has not been done, nor has it been seen to be done.
I have here a Press report of the proceedings which were held in November. There was present at the proceedings a very highly placed railway official from the Birmingham area, who gave some most damaging evidence. He is described in the Press report as the British Transport Commission "representative". Will my hon. Friend make inquiries and satisfy me—afterwards if he cannot do it tonight—whether the word "representative" means that this highly placed railway official was a member of the sub-committee dealing with this case? His evidence was damaging to the objectors. In the inquiry he acted as defending counsel for the Transport Commission and answered the objections put forward by the various bodies and individuals objecting to the proposals.
I am informed by a very responsible body that after the objectors were asked to withdraw, having stated their case, he stayed behind, presumably with the members of the sub-committee. Was he a member of the sub-committee? In staying behind, did he take part in the discussions which led to the recommendation to the area committee, and finally to the Central Consultative Committee, to cancel the service? If that is so, is it not true that, in addition to being defending counsel to the Transport Commission, he helped to act as judge and jury in the decision?
I have said that his evidence was damaging. In his evidence he said:
"… only twelve people a day used the Tutbury-Burton service during weekdays".

1045
That is not true, and I have evidence here to prove it in a memorandum from the Commission. The actual figures are an average of 10 or 12 per train. There are eight trains a day each way, making 16 trains in all. Therefore, there are on an average 160 passengers from Monday to Friday and about 191 on Saturday, making, in round figures, 1,000 passenger journeys a week. That is one piece of evidence Which, if he is reported correctly, is completely wrong.
Then he said:
"… there were still not enough people travelling to fill a bus. Diesel services were very expensive, and the Commission would need ten or twelve times more passengers for such a service to break even".
That makes nonsense of railway finance and economics, if it is true. The figures I have given are a round 1,000 a week. If what he says is true, it means that 12,000 passenger journeys a week from Tutbury to Burton or vice versa are needed to make the service pay.
This is an iniquitous system. One has the suspicion that there is far too close a tie-up between the transport users' consultative committees and the Transport Commission. This is not the first time that I have said this in the House. I said it in a previous Adjournment debate, when I gave irrefutable evidence that the Transport Commission had forestalled the decision of the committee by at least two months. This case is typical of the whole unjust working of the transport users' consultative committees.
The question of injustice and justice not being seen to be done is the chief reason why I ask my hon. Friend to look into the question I have raised. If he is satisfied that what I am asking about is true, will he ask his right hon. Friend the Minister to order a fresh inquiry? I suggest that my right hon. Friend should, therefore, postpone the operative date until he has had another look at this. He should then have another official inquiry without the highly placed Transport Commission official presumably being one of those who influenced the decision to close the service.
Secondly, in view of my right hon. Friend's decision to appoint what are euphemistically called "Four Wise Men" to study the finance and structure of British railways, it is logical to ask him, seeing that branch lines are part
1046
and parcel of the whole system, both finance and structure, to postpone closing any more branch lines until the "Four Wise Men" have reported.
If the criterion is financial loss—and in every case of the closure of a branch line that I know of we have been informed that it is—where does the rest of the railway system stand? Can we prove that every main line is working at a profit? If a main line is not working at a profit, is the same criterion to be adopted, and that line closed? Of course, that is nonsense, but the Minister should now hold his hand in regard to branch lines, and the "Tutbury Jinnie" gives him the chance.
My third reason is that 11th June is well into the holiday season. Tutbury is in the unique position of being a key-point for passengers from Derbyshire and south-west England. It is the gateway for many to the North-West and North Wales. Here, right in the holiday season, the service is to be taken off. That means that people going to Burton, instead of taking the "Tutbury Jinnie" at a cost of 1s., will have to go to Derby, which is on one side of an isosceles triangle, and come back along the other side of the triangle, at a cost of 2s. 7d., single and 5s. 8d. return. What enterprising businessman would close down a shop at the height of the buying and selling season?
The fourth reason, which I have already given, is the number of passengers who use this little line. The figures given by the Commission and by other people are vague, but it is established that there are at least 1,000 passengers a week. That is no negligible number—it is appreciable—and those figures are confirmed by considerable research undertaken by the Burton District Trades Council, to which body I am indebted for them.
What will happen? My right hon. Friend the Minister of Transport has been waging a campaign for some months on road safety and congestion. On 11th June, at one fell swoop, 1,000 passengers are to be flung on to the roads between Burton and Tutbury, and we shall get congestion in an already over-congested town. The real answer is for the Commission to run a rail bus; a single-unit diesel service, with a one-man crew, as

1047
is done in other countries. For those reasons, I implore my right hon. Friend to reconsider his decision.
11.47 p.m.
The Joint Parliamentary Secretary to the Ministry of Transport (Mr. John Hay): When my hon. Friend the Member for Burton (Mr. Jennings) first gave notice of his intention to raise tonight the case of the "Tutbury Jinnie," and I was told about it, I had a wild moment in which I thought that possibly my right hon. Friend the Minister of Transport had at last become responsible for one of Mr. Emmet's more inspired creations, but, as my hon. Friend has said, the "Tutbury Jinnie" is a small railway of great and respectable ancestry which now, under the pressure of economic conditions in the modern world, is doomed to die.
As he has said, it runs along a link line between Burton-on-Trent and Tutbury. Burton is on the Derby—Birmingham main line, and Tutbury is on the main Derby—Crewe line, and this provides the link. The line is nearly six miles in length, double track, and there are eight trains a day on week days only.
At the very outset, I should like to clear up one doubt in my hon. Friend's mind about the number of passengers. He quoted a newspaper report that information was given to the transport users' consultative committee to the effect that only 10 people per week, I think it was—
Mr. Jennings: Twelve per day.
Mr. Hay: —that 12 per day used this service. I have before me the information which was supplied in writing to the committee, and it is quite clear beyond any doubt whatever that 10 per journey was mentioned. I think that, no doubt by inadvertence, the Press report was wrong.
But 10 people per journey, with eight journeys per day, gives only 1,000 people per week travelling on the line. I can put the matter in perspective, I think, by saying that the Commission calculates—I have seen the figures—that it loses about £7,300 per year net on running this line for that number of passengers.
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This is not an area, as so often one finds in these cases, where there are virtually no other means of transport. As my hon. Friend knows, it is an area which is fairly highly developed, and there are many bus services, details of which I have here, which run between Burton-on-Trent and Tutbury. If the "Tutbury Jinnie" has to be withdrawn, this will not mean that people living in Burton or Tutbury will have no other form of transport between those two points. There are other alternatives, and these were put to the transport users' consultative committee when it considered the case.
The proposal to withdraw the service was made by the British Transport Commission in the spring of last year. Almost a year ago exactly, on 29th April, 1959, the West Midlands Transport Users' Consultative Committee received the proposal and opened its consideration of it. It heard then representatives of several local authorities which objected to the proposal for closure. Since those representatives argued that insufficient time had been allowed for full consideration to be given to the objections, the committee, I am informed, decided that it would defer a decision until an inquiry had been held in Burton-on-Trent.
For various reasons, the holding of the inquiry was deferred until 25th November, 1959. Then, several members of the committee, as my hon. Friend has said, formed what was virtually a small sub-committee to hold the inquiry. Of the objectors, three local authorities, the Burton-on-Trent and District Trades Council and one member of the public attended. The upshot of it all was that the sub-committee endorsed the proposal by the Transport Commission to withdraw the service, and that view was reported back to the West Midlands Transport Users' Consultative Committee on 16th January. That committee agreed with the view taken by the subcommittee holding the inquiry, and, as is the normal practice, with which my hon. Friend is familiar, the decision was forwarded to the Central Transport Users' Consultative Committee which has as one of its functions the filtering, if I may use that expression, of the decisions reached by the area committees.

1049
The Central Transport Users' Consultative Committee had no observations to make on this proposal, and, on 15th March, 1960, it approved it. It made no recommendation to the Minister of Transport, as it is entitled to do under the Statute. This has a significance to which I shall return in a moment or two. The result is that, at the moment, the service is due to be withdrawn on 13th June. The timing may be unfortunate from the point of view of those in Burton and district who wish to use the service on holidays, but I should explain that there is no particular significance in the date except that if coincides with the opening of the summer timetables. I think that it is generally convenient, if a service has to be withdrawn, that it should not be done when the new timetables have just come into force.
I do not think that I can really go into great detail with my hon. Friend tonight about the various figures and statistics which were given by the Transport Commission to the inquiry and to the transport users' consultative committee. This is really the kind of matter which the committees themselves were set up to consider. That is their function. Their purpose is to come to a conclusion about the validity or otherwise of the figures and the information given by the Commission in support of the proposal for closure.
As, I think, many hon. Members know, these committees are intended to be and are representative of users. They represent the interests of those who use the services and one would have imagined that, normally, they would have some bias, if bias there is, against the Commission and in favour of the maintenance of the services which they are using. I think that we are entitled to say, with that sort of composition, that if a committee says that it approves of a proposal made by the Commission for closure or withdrawal of a service then there must be a very conclusive case. In any event, my right hon. Friend has no locus standi in examining the figures and details put before the committee.
I come next to the allegation which my hon. Friend made about the proceedings in this case by the West Midlands Transport Users' Consultative Committee. As I understood him, he
1050
was claiming that the Transport Commission's representative on the committee took an active part in the proceedings before the inquiry by, in effect, presenting the case for withdrawal of the service, cross-questioning the objectors and then, after the objectors had withdrawn, remaining as a member of the committee to decide the issue before the committee.
I should like, first, to make one or two observations on this situation. To begin with, it is quite proper for the Transport Commission to have a representative on a transport users' consultative committee. The power is contained in Section 6 (4) of the Transport Act, 1947, which specifically provides that
"Every such Committee … shall consist of such number of persons appointed by the Minister as the Minister may from time to time determine … including members … appointed from among persons nominated by the Commission…."
I think that it follows from that that a person on the committee as a representative of the Commission is entitled, in his capacity as a member of the committee, to take part in the proceedings and participate in reaching a decision. It follows, therefore, that as a member he is just as entitled as all the other members of the committee to question objectors and raise any point that he wishes. It must follow from the fact that the statute enables a representative of the Commission to be there.
There is something which I only wish that the public would grasp more than it does at present. Proceedings before these committees are not in any way equivalent to a judicial proceeding. As the House knows, the intention always has been that they should carry out their work on practical, informal, consultative lines and that there should not be a sort of judge and jury atmosphere, as my hon. Friend suggested, but a round table informal discussion about the proposal.
In the light of these facts it would seem to me, on the face of it, unlikely that anything took place in this case which was in any way improper. But I think that the House would require points of this kind to be put absolutely beyond a peradventure, because it is right to say that in the proceedings of these committees there must be not only the form of fair dealing, but also the

1051
substance, for what is involved is not only public acceptance of the validity and usefulness of the committees but the reputation of the committees and the reputation of individuals who, unlike us, are not here to answer for themselves.
My hon. Friend suggests that my right hon. Friend should look into this matter. I have taken advice and I believe that under the Act it is open to my right hon. Friend to require the Central Transport Users' Consultative Committee to investigate any case where any real impropriety is alleged. I do not know whether my hon. Friend would wish him to go as far as that, but I will gladly bring to the attention of my right hon. Friend what he said about this case and about the way the proceedings were conducted. We will look into that. I will certainly let my hon. Friend know as soon as I can what our conclusion is, but I cannot tell him tonight what it will be. We will have to consider what he has said.
Mr. Jennings: What I am asking is about this gentleman, whom I do not know and who was doing his job. Was he actually a member of the sub-committee, and if so, after putting the case for the Commission against the objectors, did he then stay on and adjudicate?
Mr. Hay: I thought that I had made clear that this gentleman is a member of the committee. As such, he is entitled to be there. Whether or not there was anything improper in his putting the case for the Commission and then staying behind after all the objectors had withdrawn is a matter I would like to discuss with my right hon. Friend, and which we will certainly look into. I will write to my hon. Friend.
I must make it clear that whatever may result from this investigation it cannot affect the withdrawal of the service. With the best will in the world, I cannot respond to my hon. Friend's appeal to suspend the sentence. The Minister has no power to give other than a general direction to the Commission under Section 4 (1) of the Transport Act, 1947. This question of withdrawal of individual services and of the closure of individual branch lines cannot be said to affect the
1052
national interest, which is what is laid down in the Statute as being requisite where a direction of this kind is given.
The Minister's power to direct the Commission as a result of the consultative committee procedure is exercisable only in those cases where the Central Transport Users' Consultative Committee makes a recommendation to him to that effect. In this case, the Central Committee has made no recommendation, and, therefore, the Minister's powers under that Section do not come into play. He has no legal power under the Statute to intervene and give any kind of orders or directions to the Commission.
My hon. Friend made a suggestion about the group which is advising us about the future of the railways, and asked whether it would be possible for all branch line closures to be suspended until that group had completed its work. The task of the group is to consider broad problems of the finance, organisation and working of the Commission and to advise the Minister and the Commission. Apart from the nature of its work it cannot be expected to deal with individual cases of branch line closures.
The Prime Minister, in his statement announcing our general policy towards the railways, made it clear that inconvenience to the public was bound to occur as a result of the alteration in the structure of the Commission and of its services.
Finally, I do not think that we should lightly require the Commission to postpone or defer reductions in its uneconomic services until we make things move forward on this front after the advisory group gives its views. We are at the moment, as a nation, subsidising the railways, since the Budget, to the tune of £90 million this year. Every reduction that can be made will help to lighten the taxpayers' load.
That is really all that I have to say, but I will look into points which have been raised tonight in the hope that that will give my hon. Friend some satisfaction.
Question put and agreed to.
Adjourned accordingly at five minutes past Twelve o'clock.

SCOTLAND
  Road Programme
  Road Programme
  Household and Trade Refusé (Salvage)
  Household and Trade Refusé (Salvage)
  Road Safety
  Road Safety
  Public Houses (State Management)
  Public Houses (State Management)
  Moray House School, Edinburgh
  Moray House School, Edinburgh
  Universities (Future Needs)
  Universities (Future Needs)
  Hospitals (Meals)
  Hospitals (Meals)
NATIONAL FINANCE
  Casual Earnings
  Casual Earnings
  University Teachers (Salaries)
  University Teachers (Salaries)
LOCAL GOVERNMENT
  Local Authorities (Planning Powers)
  Local Authorities (Planning Powers)
  Betting Offices (Use Classes Order)
  Betting Offices (Use Classes Order)
  Essex Green Belt (New Building)
  Essex Green Belt (New Building)
  Halifax and District Water Order
  Halifax and District Water Order
HOUSING
  Old People (Warden Service)
  Old People (Warden Service)
NYASALAND
  Mr. R. Segal and Mr. O. Tambo
  Mr. R. Segal and Mr. O. Tambo
MALTA
  New Quays and Grain Silo
  New Quays and Grain Silo
  Magistrates
  Magistrates
COLONIAL TERRITORIES
  Residential and Non-Residential Students (Costs)
  Residential and Non-Residential Students (Costs)
MAURITIUS
  Unemployment and Sickness (Insurance)
  Unemployment and Sickness (Insurance)
  Secretary of State's Visit Wing
  Secretary of State's Visit Wing
FIJI
  Burns Commission (Report)
  Burns Commission (Report)
KENYA
  Constitutional Conference (Zanzibar)
  Constitutional Conference (Zanzibar)
MINISTRY OF WORKS
  British Embassy, Brasilia
  British Embassy, Brasilia
  Marlborough House
  Marlborough House
SOUTHERN RHODESIA
  Africans (Protection)
  Africans (Protection)
BRITISH ARMY
  Service Men, South Korea
  Service Men, South Korea
  Gurkhas
  Gurkhas
EMPLOYMENT
  Factories (Fire Precautions)
  Factories (Fire Precautions)
  Wales
  Wales
  Gower
  Gower
AGRICULTURE, FISHERIES AND FOOD
  Hill Cow Subsidy, Bodmin Moors
  Hill Cow Subsidy, Bodmin Moors
SCIENTIFIC AND INDUSTRIAL RESEARCH
  Shipbuilding Research (Production Methods)
  Shipbuilding Research (Production Methods)
ATOMIC ENERGY
  Advanced Gas Cooled Reactor, Windscale
  Advanced Gas Cooled Reactor, Windscale
  TEN-POWER COMMITTEE ON DISARMAMENT (VERBATIM RECORDS)
  TEN-POWER COMMITTEE ON DISARMAMENT (VERBATIM RECORDS)
MINISTRY OF HEALTH
  War Disabled (Motor Vehicles)
  War Disabled (Motor Vehicles)
HOSPITALS
  Goodmayes Hospital, Ilford (Mr. A. J. Healy)
  Goodmayes Hospital, Ilford (Mr. A. J. Healy)
TRADE AND COMMERCE
  Rhymney Valley
  Rhymney Valley
  Graving Dock, Greenock
  Graving Dock, Greenock

Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Leicester

ARSENICAL SPRAYS AND WILD LIFE
VISCOUNT ELIBANK: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether, seeing that most of the arsenical sprays, as also some of the organophosphorous compounds, have been taken off the market, but that there are many still remaining which are particularly deadly to wild life, they will prohibit the use of these latter sprays which are not essentials of good farming.]
THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF AGRICULTURE, FISHERIES AND FOOD (EARL WALDEGRAVE): No, my Lords. I am glad that through action by the agricultural chemical industry some of the more toxic organo-phosphorous sprays have been superseded by less toxic compounds, but this group of sprays has a valuable use in agriculture in checking the depredations of insects and other pests. Detailed precautions are published which are designed to minimise the risks to wild life.
VISCOUNT ELIBANK: My Lords, I beg to thank the noble Earl for his Answer. Is he aware that far more research is desperately needed into the long-term effects of these toxic sprays on soil, on the ecology of animal life and plant life and on human health? And has his attention been drawn to a notice of a meeting of a Council of Nature in February in which many interests were represented and in which concern was expressed at the often unintended effect on wild life, and occasionally on human life, of these sprays? And is he further
220
aware that there was general recognition that what was needed, above all, was much more research into the effect on wild life—especially on beneficial insects, which, as we all know, are one of the chief things—of the increasing use of these toxic sprays? May I ask the noble Earl whether he will ensure that this Council of Nature is assisted in every possible way in its researches into these important matters?
EARL WALDEGRAVE: My Lords, my right honourable friend is well aware of the need for research into this complex matter. It is being examined at the moment under a Research Study Group set up under the chairmanship of our Chief Agricultural Scientific Adviser. The Advisory Committee on Poisonous Substances Used in Agriculture and Food Storage has also set up a panel consisting of representatives of the agricultural chemical industry, the Nature Conservancy, and the Scientific Sub-Committee of the Advisory Committee. This panel will prepare guidance for the agricultural chemical industry on the type of data about wild life hazards which should be provided by manufacturers when notifying toxic chemicals to the Advisory Committee.
VISCOUNT ELIBANK: My Lords, the noble Earl would not deny that this Council of Nature is doing useful work. Would he give every assistance possible in the prosecution of its deliberations?
EARL WALDEGRAVE: My Lords, I am sure that this Council is doing admirable work and will be helped in every way in its deliberations.
LORD DOUGLAS OF BARLOCH: My Lords, may I ask the noble Earl whether the assumption made in the noble Viscount's question, that most arsenical sprays have been taken off the market, is correct? Is it not a fact that only one limited class of them is being taken off the market, and is it not well known that arsenic is capable of causing cancer?
EARL WALDEGRAVE: My Lords, as the noble Lord I think knows well, the arsenical products which are coming off the market and will not be used after this season are the alkali arsenites which are used for weed and haulm destruction. As far as I am aware, most, if not all, other arsenicals are pesticides, such as lead arsenate.
LORD DOUGLAS OF BARLOCH: My Lords, is there not a danger of their contaminating foodstuffs?
EARL WALDEGRAVE: My Lords, bearing in mind all the precautions that are issued, I think that the danger of contaminating foodstuffs is minimal.

ROYAL EXCHANGE ASSURANCE BILL
Read 2a, and committed to an Unopposed Bill Committee.
SAINT MARTIN'S PARISH CHURCH BIRMINGHAM BILL
Read 2a, and committed to an Unopposed Bill Committee.
SAINT PETER'S CHURCH NOTTINGHAM (BROAD MARSH BURIAL GROUND) BILL
Read 2a, and committed to an Unopposed Bill Committee.

OCCUPIERS' LIABILITY (SCOTLAND) BILL
2.40 p.m.
Order of the Day for the Third Reading read.
EARL ST. ALDWYN: My Lords, I have it in Command from Her Majesty The Queen to signify to the House that Her Majesty, having been informed of the purport of the Occupiers' Liability (Scotland) Bill, has consented to place Her Majesty's interest, so far as it is concerned on behalf of the Crown, at the disposal of Parliament for the purpose of the Bill.
THE MINISTER OF STATE, SCOTTISH OFFICE (LORD CRAIGTON): My Lords, I beg to move that the Bill be now read 3a.
Moved, That the Bill be now read 3a.—(Lord Craigton.)
On Question, Bill read 3a, and passed.

HIGHLANDS AND ISLANDS SHIPPING SERVICES BILL
Read 3a (according to Order), and passed.

POPULATION (STATISTICS) BILL [H.L.]
2.42 p.m.
Order of the Day read for the consideration of the Commons Amendments.
THE LORD PRIVY SEAL AND MINISTER FOR SCIENCE (VISCOUNT HAILSHAM): My Lords, I beg to move that the Commons Amendments be now considered.
Moved, That the Commons Amendments be now considered.—(Viscount Hailsham.)
On Question, Motion agreed to.
THE LORD CHANCELLOR (VISCOUNT KILMUIR): My Lords, it is for your Lordships to say, but I wonder whether it would be convenient to take the Commons Amendments en bloc, and if any noble Lord has any point to raise perhaps he will indicate it.

COMMONS AMENDMENTS
[The references are to Bill (48) as first printed for the House of Commons.]
Clause 2, page 2, line 16, at end insert—
(" (3) In subsection (2) of the said section eleven for the words 'the foregoing subsection' there shall be substituted the words 'subsection (1) of this section'.")
Clause 3, page 2, line 18, after ("1938") insert ("in paragraph (a) of subsection (2) for the words 'in attendance', in both places where they occur, there shall be substituted the word 'present'.
(2) In the said section one,")
Clause 3, page 2, line 21, leave out ("in attendance") and insert ("present")
After Clause 3, insert the following new clause—
Additional matters to be included in annual reports of Registrar General and Registrar General for Scotland.
("The general abstracts which under section nineteen of the Registration Service Act, 1953, and section seven of the Registration of Births, Deaths, and Marriages (Scotland) Act, 1854, are required to be sent annually to the Minister of Health and the Secretary of State respectively and to be laid before Parliament shall include the statistical information compiled—

(a) from particulars furnished to registrars in England and Wales and in Scotland respectively under the Population (Statistics) Act, 1938, on the registration of births, stillbirths and deaths registered in the last preceding year; and

(b) from certificates delivered to registrars in those countries respectively under section eleven of the Births and Deaths Registration Act, 1953, or, as the case may be, section one of the Registration of Still-Births (Scotland) Act, 1938, on the registration of still-births so registered.")

Clause 4, page 2, line 34, at beginning insert ("Section one of, and the Schedule to")
Clause 4, page 2, line 35, at end insert ("and sections two, three and four of this Act shall come into force on the first day of October, nineteen hundred and sixty")
In the Schedule, page 3, line 3, leave out ("or") and insert ("including a")
Clause 4, page 2, line 12, at end insert ("and how many of them were born alive or were still-born")
VISCOUNT HAILSHAM: My Lords, by permission of the House, I beg to move that this House doth agree with the Commons in the said Amendments.
Moved, That this House doth agree with the Commons in the said Amendments.—(Viscount Hailsham.)
On Question, Motion agreed to.

THE BLUE STREAK MISSILE
2.43 p.m.
LORD SHACKLETON LORD SHACKLETON rose to call attention to the decision of Her Majesty's Government to discontinue the development of the Blue Streak Missile, to the considerable expenditure of public funds, and to the new situation created in the national defence plans; and to move for Papers. The noble Lord said: My Lords, it is scarcely necessary to call attention to this decision. I doubt whether any single item of defence news, other perhaps than those items relating to the making of the atom bomb, and later the fusion bomb, has attracted so much attention or received so much publicity from the Press. Nor, for that matter, have there been, in my recollection, such firmly and clearly expressed statements in the newspapers of what the Government's decision was before Parliament was informed of the decision. This may not be a disaster: Members of both Houses can read. But I think it is a pity that someone, perhaps an official Government spokesman, explaining, so far as possible, in advance this difficult decision, has chosen to talk so freely on such vital matters without giving us the opportunity to discuss them first.
I must say first, however, in regard to the First Lord's statement, that I owe him an apology for saying that he had not discussed it and that it was a new situation. It is a new situation, but on reading the speech which he delivered in the Defence debate I realise that he
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was already then preparing, and preparing with some skill, for the storm that was about to break when the decision was duly announced. I do not think that in my recollection there has ever been a course which has been so unanimously and so continuously urged on the Government by experts of all kinds, by Parliamentarians of both the Conservative and the Labour Parties, and possibly by those on the Liberal Benches. This is a decision that has been urged on the Government now for two years or more.
The charge the Opposition make is not, of course, that the Government have now taken a wrong decision, but that it has been taken far too late: that there has been hesitation and vacillation beyond any reasonable degree, and that, us a consequence, a very large amount of public money and of the British national defence effort has been wasted. Furthermore, I do not think it an exaggeration to say that we have suffered a blow to our national prestige which we ought to take with great seriousness. Indeed, I go so far as to say that the consequences of the ministerial collapse, as it was called in another place, and of the ultimate cancellation of Blue Streak, are a disaster for us; and it will do no harm—indeed, it will do good—if we now recognise that fact. It is perhaps the most spectacular decision in the way of the cancellation of a particular investment in a weapon that has occurred in our British military history; and that is one reason, perhaps, why almost the whole of the Press has been so very critical of the Government's defence policy as a result. I shall not waste your Lordships' time in quoting the many very quotable statements that have been made in the Press with regard to Blue Streak. Today we have to examine this situation, to decide whether the decision that has been taken is in fact the right one, and to try to work out what our present position really is and what our position will be in the next few years and all the factors on which our future policy should be based.
In considering this we are not helped by the Government's insistence—and it is theirs; one reads the speeches of the Minister of Defence, both in another place and over the week-end—that there is no basic change in our policy; that we are still sticking to an independent British deterrent, and, furthermore, that

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no gap has occurred or is likely to occur in our deterrent defence time-scale. As the noble Viscount, Lord Hailsham, pointed out in your Lordships' House last February, the use of the word "deterrent", and indeed of all these phrases, produces a certain amount of confusion. I am sure he will have noted the degree of confusion that was shown by the Minister of Defence in another place when he started talking, not about "an independent deterrent" but about "a contribution to the independent Western deterrent", and a little later got up to say that he had made a mistake and that what he meant was "an independent British contribution to the Western deterrent".
My Lords, this is very revealing of the almost neurotic state of mind of the Government in regard to this matter. For so long have they pinned our defence policy's main hope on the independent deterrent that they now shrink from facing the consequences of the collapse of the Blue Streak device. The words the Government used in their statement were that they
"do not intend to give up this independent deterrent and therefore some other vehicle will be needed to carry British manufactured warheads."
Commenting on this—and this is the one quotation I shall make from the Press—the Economist said that what the Government spokesman really meant was
"Blue Streak will not give us an independent power of retaliation; there is nothing really to take its place, but we must have independence, so somehow or other we will buy or make something that will do the trick."
That is the position we are in to-day, and that is the position, so far as their official statements are concerned, which the Government have reached.
The cancellation of Blue Streak (I said this in the Defence debate, and many others have said it also) is likely to mean (it may not; we shall want to know; we shall want to have the facts on which we can judge), the end, in due course, of the independent British deterrent; and if that is the case, it is no good our blinking our eyes to this fact. I personally received with mixed feelings this information which the Government gave. Interdependence to-day—and we all acknowledge this—is a necessity; and it carries its own advantages. But the fact remains that our policy—and it has
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been broadly supported on both sides of the political fence—has been based on the concept that in this very dangerous world it is necessary that we should have complete control over an independent British deterrent. Now, my Lords, we do not know where we are, and I doubt whether the Government know where they are.
We have been told that they are considering other possibilities. We have been told that we shall probably receive a new airborne weapon called "Skybolt." We have been told that we shall receive it, and shall be allowed to use it, provided that it is for our own defence. My Lords, what weapon have we received from anyone at any time which was not primarily intended for our own defence? The Thors that are deployed now in this country, which are operated by the R.A.F., are not wholly under our control. We have not full operational control over them, yet they are for our defence. At least, that is the theory behind it.
The Government point to the fact that we have a programme by which we shall be able to make more advanced and more sophisticated atomic and fusion bomb warheads, and that the delivery instrument alone will not be British made. My Lords, this is an almost childish argument. It cannot really be suggested that in the great naval battles of the past this country would have been able to exercise the influence it did if we had provided merely the shells or the cannon balls without the guns or the ships to deliver them. It is pure sophistry to suggest that when we no longer have the power to make and to order completely the carrying vehicle for these weapons it is possible to claim that it is wholly a British deterrent.
My Lords, on the last occasion the noble Viscount said that he hoped we should not conduct our discussions on this crucial matter in a spirit of Party rancour, and I shall try to avoid doing so: but at least there should be willingness to face facts, and a determination (which we have not yet seen) not to conceal them in order to save the face of a Minister or Ministers who have bungled in this matter. It is against this background that we continue to detect a certain complacency, which I hope will be absent to-day on the part of Government spokesmen—a complacency which has certainly not been reflected in

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the speeches made by some of their supporters in another place and in the country.
The decision to cancel Blue Streak has not, of course, been taken as a result of a deliberate choice, or because something which promised better than we had originally hoped for has become available. It has been taken for the simple reason that the original concept of Blue Streak as a first-strike weapon is no longer credible or acceptable, and because it is no longer believed to be a practical contribution to the deterrent and to our defence. The question we have to ask is: was it right to have persevered with a weapon which, by so many people for so long, has been regarded as largely valueless?
In another place, the Government spokesman said that there was nothing better, and that we might have been without a satisfactory defence if we had not gone on with Blue Streak. But, my Lords, we are without that satisfactory defence now. We have not yet any certainty (and I shall await with interest what the Government spokesman has to say about this to-day) of a replacement for the particular rôle that Blue Streak was intended to fulfil. The reason is that the Government have at last decided what they have been told by so many people for so long: that the fixed-site, static, liquid-fuel missile is too vulnerable as a second-strike weapon. It is not any new discovery of the accuracy of Russian weapons that has led to this decision. We have known, and the Government must have known, the degree of accuracy which the Americans were hoping to achieve with their missiles, and must have known that this particular weapon was no longer a possible one for use in this country.
Apart from those who are supporters of unilateral disarmament, I do not think any of us complains about the Government's decision at least to initiate Blue Streak. Our charge is that they have persevered far too long, against every sort of advice and evidence, in sticking to a weapon which we now have to abandon, and which therefore is apt to become a total loss and a total waste of our defence effort, unless, for purely fortuitous reasons
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which have nothing to do with the original decision for Blue Streak, we can find a place for it in space research. The Government reply has not so far been very convincing. Mr. Sandys, the Minister of Aviation, complained that the Labour Government had not done much work on ballistic rockets in its time, but at least the V-bombers, which were set in hand in those days, are still effective as part of our independent British deterrent: and it is, and must be, the Party of the Government in power for the last nine years who must take the responsibility for this.
It is no use arguing, as the Minister for Defence did, that Blue Streak was an insurance against our needing (as we might well have needed, he said, until recent months) a liquid-fuelled static missile as a vital part of our Western deterrent. Nothing has altered to make us not need it; and the unfortunate tragedy of the matter is that we have persevered in something for far too long, and at a very heavy price of materials and resources which might have gone into strengthening our defences in other directions. Finally, the argument that at least we now have a missile-manufacturing capacity for dealing with missiles in the future, whether acquired or built, seems to me to be quite irrelevant. If we are to acquire missiles—and that appears to be the likely policy of the Government—then we do not need the manufacturing capacity for producing them. And this is part of the confusion that is being shown.
Curiously enough, we have not been told much about the reasons that have prompted the Government to abandon Blue Streak. They have told us that it depended on a very fine balance of argument, and I fully accept that the arguments were very hotly debated and that there was much to be said on both sides. In the Defence White Paper we were told:
"It may be decided not to rely exclusively on fixed-site missiles as the successor to the medium bomber armed with the stand-off powered bomb."
But, my Lords, a decision not to rely exclusively on something is very different from a decision to scrap it. There was no statement in the White Paper that it might be decided to scrap Blue Streak: it was merely a decision

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that we might not rely on it exclusively. Now we know that we are not going to rely on it at all; that it is being dropped. We should like to have some further explanation as to why this enormous national investment is to be wasted; why all the skill that has gone into this development, into the Spadeadam testing centre, the Woomera range and all the rest of it, is now largely to be scrapped; and why we have to throw away something—and I am sure your Lordships will all agree—into which so much devotion, skill and brain have gone.
The decision really means that the intermediate-range ballistic missile is no longer acceptable unless it can be mobile. But we were told that Blue Streak could be put underground, and that it should be safe against a counter-attack from hostile missiles. We should like to know what is the objection to putting it underground, and what is the reason for the secrecy. Is it that it would be possible in an attack to pick out its site completely, or the fact that for technical reasons it cannot be put underground? Or is it because the Government estimate that, even now, from £500 million to £600 million would be inadequate to bring this project to fruition and the cost might well be not less than £1,000 million? One appreciates how difficult it is to establish in advance what these projects are going to cost, but this has really proved such a wildly disastrous decision that we ought to have some more facts.
We should like to know what the Government intend to do in the consideration they are now giving to it—and they have suggested that they have a little time to think about it. If Skybolt were to prove a failure or be not available would they have continued to press on with Blue Streak (for that is one inference of the Government statement) or would they have decided to scrap it anyhow? It is implied that it was only when news was received that the United States Government were putting a large sum of money into the development of Skybolt that they decided to cancel the Blue Streak.
I should like to look again at the time-scale. According to the statement made, both here and in another place, V-bombers armed with weapons reasonably in sight, like the powered bomb
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Blue Steel—the flying bomb—will be useful until the latter half of this decade, and it is in the latter half of this decade when this gap may occur. We have been told (again I quote Sir Frederick Brundrett) that "Neither Skybolt nor Polaris can possibly be available before 1970." Are we understand that in fact Skybolt will be available? The Government may say they cannot answer this question now; that they are only looking into the situation. But if there is any doubt, then there is a real possibility that a missile gap may occur; because there is little doubt that the V-bombers will become a wasting asset. Anti-aircraft devices, whether medium missiles or Mig. fighters, with their 2 to 2½ mach. performance, armed with weapons similar to the Fire Streak, will make it very doubtful whether we shall be getting more than a small, if any, part of our attacking force through to their targets.
I should like to ask the Government what has happened to the improved Blue Streak. We have been told, not in a very public way, that it is to be cancelled and I should like to know on what grounds that decision has been taken and how much money the Government hope to save by that cancellation. Unless the Skybolt or Polaris is a reality, then we shall fall back under the shelter—it may be inevitable anyway—of the American inter-continental missiles. We are in a serious position, if we are no longer independent. It is true that we shall have to rely on the Americans to help us out of our difficulties and, with the best will in the world, they may let us down. Recently we have heard of the serious position in which, the Canadian defence situation finds itself. About two years ago they came to a bold decision, rather like the decision Mr. Sandys took, to dispense with the new fighter they were building, in favour of the Bowmark anti-aircraft missile. The Canadian Government put all their money on the Bowmark, only to find that it is likely to be cancelled. They are in a difficult position as a result.
It is difficult to judge these matters and we must look to the Government to give us some further information, so that we can assess how sound their policy is. I would ask the First Lord of the Admiralty what he hopes will come about with regard to Polaris. Is

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there really the possibility that we shall build some of these expensive atomic submarines? We have been told by the Government that there are arguments against them. Not only are they expensive, but they are noisy and easily detectable. I should like to make just one suggestion. If we are to achieve mobility with the Polaris, I am sure the First Lord will consider the possibility of putting them, one at a time, on ships or submarines, and not wait for the £40 million atomic submarine.
The more we get into this subject, the more it becomes almost a game of make-believe. We sympathise with the Government in their difficulties, as I am sure all noble Lords do, but they would make it much easier for us to sympathise with them if they told us a little more frankly and strove a little less desperately to keep up with "the nuclear Joneses". In this country, for a long time, we have been critical of General de Gaulle and his determination to explode his atom bomb, and now we find ourselves doing almost exactly the same thing. That is doing nothing for the credit or prestige of this country. The Blue Streak is not the end of it. We know that the Americans are proposing to put a satellite into orbit, the Midas, designed to detect and to give early warning, up to 30 minutes, of the possibility of ballistic missile attack. If this is so, what is the use of going on with Fylingdales? Are we going to have another inquiry as to why Fylingdales is going to be scrapped and what we are going to do with those vast structures in the middle of Yorkshire?
There are so many other deficiencies in our defence programme that it would be possible to condemn the Government in a number of ways, but I intend to try to keep the debate as narrow as possible. The kernel of our condemnation is that their obsession with the deterrent has led to a decline in the strength of our conventional forces. Most of us have friends who have served in the Army in Germany. Not long ago I was talking to men who had commanded there and they told me of the stratagems and devices which they have to use in order to get even part of their units fully on parade up to strength and able to take part in exercises. It was a courageous decision on the part of the Government to abolish
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National Service, but they did it largely on the basis that the Blue Streak was going to come off—and it has not come off. We heard recently in debate that the Army is to-day without the transport aircraft it needs. It is five years before the Britannic will come along and we are not in the position that we ought to be in to discharge our fire brigade rôle in the world to-day.
I should like to say a little about the effort that has gone into making Blue Streak. I am sure the Government will agree with me that it is a tragedy for men who have worked so brilliantly on what is generally acknowledged to have been a most promising development. We should like to know what the Government have in mind about trying to save something not only of an establishment like Spadeadam but also of the teams who have been working together in solving the problems. I should like briefly to look at one possible advantage that may be derived from the making of Blue Streak—that is, the possibility of using it for space research. This is not the occasion to go fully into the possibility of space research, but in the last year or two a change has come over scientists in their attitude to space research. Some of your Lordships may have attended a remarkable meeting of the Parliamentary and Scientific Committee, where a number of scientists, including Government scientists, stated their categorical opinion that there was real value to be obtained, economically, scientifically and in other ways, by undertaking a space research programme. Blue Streak is well suited for that. The Government cannot take credit for that, because they never intended it. But if we have decided how to dispose of it, I hope that the Minister for Science will give careful consideration to the opinions that have been expressed.
Already some extremely important discoveries have been made. There has been the discovery of the large area of charged particles which surround the earth, which is of great importance scientifically and from a communications point of view. There are many other scientific gains. There is the prospect of putting into orbit a satellite which would be of real importance, indeed of revolutionary importance, in the field of communications. The limitations on communications to-day—the shortage of wave

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bands, the interference from magnetic storms—are, I understand, not likely to affect such a satellite. To those of your Lordships who say that we cannot afford it, I would point out that this country plays a leading part in the field of intercommunication in the world to-day. The recent transatlantic cable, for instance, cost something like 36 million dollars, and the cost of putting space vehicles up into orbit would be something of that order, or possibly slightly less.
There is an even more important reason which has been given by scientists and engineers—namely, the enormous technical stimulus that will come from the development in this field. I will quote just a few words of what Professor Hawthorne said the other day at the conference. He said:
"The consequence is that if we blanket off a new technology or let it filter slowly through from some foreign country we shall reduce the resources of skill and experience upon which our designers can draw."
There are prospects of a major breakthrough, both scientifically and economically, in this field. This in no way releases Her Majesty's Government from their responsibility for the Blue Streak failure. It does not make it possible for them to say: "Well, at least we have given you space research", because they never intended to do so. It is difficult for us to judge how heavy their responsibility is, because they have refused the independent inquiry which was asked for in another place. We know that there has been great obstinacy. It is over a year ago since the military correspondent of The Times said in an article that somebody seemed determined to have a Blue Streak. What we should like to know—in actual fact, we think we do know—is the "somebody" who has pressed on against all advice in this unfortunate course.
The Government say that they have been justified in taking this risk. Obviously, anyone who has made a mistake of this kind has done so in good faith. The Labour Government were severely attacked for their decision over groundnuts; but the Opposition of the day showed no mercy on that occasion. That was a decision well-meant, well intended, designed to serve mankind. I am sure the noble Viscount, Lord Hailsham, would be the first to agree that faith
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alone is not enough to provide either good government or the safety of our country. Blunders have been made, and we ought to judge them. If, in fact, the whole of our independent deterrent defence arrangements have gone—and I think they become less and less credible; they really become almost out of this world, so far as any ordinary man in the street is able to judge—then I think the Government ought to explain a little more about the thinking that goes on. I suspect that we are in really grave danger, both in Parliament and in the Government, of deceiving ourselves in this matter. I doubt whether we are prepared now to go ahead independently. And if we are not, then there is grave disadvantage in maintaining our present posture. It confuses the country, and it confuses those in all Parties whose wish it is to support the Government in perhaps unpopular decisions, such as in resisting the call for unilateral disarmament. I hope we shall all stand strong in our resistance to a course which I and most of my noble friends and my friends in another place agree would be fatal to the peace and security of this country. But it would be much better if we knew what our position is in this matter.
My Lords, I have been critical of the Government's part in this matter, and I think it is right that we should criticise the Government so that they can make their reply. I hope I have not done so in a captious way, because we all know the tremendous difficulties of these decisions. But I beg the Government in their agonising reappraisal—and it is an agonising one—or whatever it may be, that we should think in terms of our strength and within our capacity. If we cannot have an independent deterrent, let us face it, and not play about with words like an "independent contribution to the deterrent". I do not know what that means. Surely any contribution, in so far as it is contributed by somebody, must be independent by that person. Although the scene to-day internationally is more encouraging than it was in those days immediately after the war during the Stalin régime, none the less we must be agreed that until disarmament and peace can become a reality we must maintain our strength to make our contribution to sustaining the peace of the world.
I hope that a rather calmer wisdom than the feverish hunt for an explanation will prevail in this matter. I think it is likely that for some time we shall see megaton weapons in existence. They are, after all, the ultimate horror of the ultimate throat to survival which I think has kept mankind from the irresponsibilities of war. But if we ourselves cannot find the means to deliver them in this pursuit of independence, then we must endeavour to play our part as best we can. We must play it, and the Government will have to help us all on how to do it, in a rôle adjusted to our ability, our power and our capacities for keeping the peace; the fire brigade rôle; a willingness to face trouble, wherever it may occur in the world, and to deal with it promptly, and to continue to work with our American and Western Allies, not only in sustaining the Western position but in the struggle and the battle which I am sure will be pursued by the Government with great vigour and will be supported by us all for a final settlement of the disarmament problem. I beg to move for Papers.
Moved, That there be laid before the House Papers relating to the decision of Her Majesty's Government to discontinue the development of the Blue Streak Missile, to the considerable expenditure of public funds, and to the new situation created in the national defence plans.—(Lord Shackleton.)
3.18 p.m.
LORD REA: My Lords, I do not propose to add many words to this debate, largely because a Motion such as that now before your Lordships' House cannot be dealt with in a very constructive way. It calls, unfortunately, for recrimination and reproach, neither of which appeals to members of the Liberal Party on these Benches. The fact remains, however, that it is a public duty to call attention to the obstinacy, as I would call it, of Her Majesty's present Government in adhering to a plan which, from its outset, seemed to many of us—and, in my opinion, to most people in this country—to be misconceived, unrealistic and tremendously wasteful, both in money and in the expenditure of precious time, at a juncture when time is of paramount importance. The basis upon which this misjudgment took place and on which it was maintained seems to me
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to be the old divergence of opinion between those who see this country in the continuing historic rôle of a great individual and insular sovereignty, and those who, less romantically but more realistically, see that the present world and the future world can exist only on reciprocity and on the considerable abandonment of old barriers, and of old exclusions, and of old prides and vanities and prejudices, and prestige.
The dream of this country continuing to enjoy the sort of position which it enjoyed in the last century is a nostalgic dream and, therefore, a very dangerous one. For its realisation, I think it should be faced at once that the present defence expenditure of £1,600 million a year (which is already crippling us, both nationally and internationally) is a fantastically inadequate figure for the vast target which is being aimed at. To be of some sort of military parity with nations whose company we wish to keep and whose decisions we would wish to influence by our own display of power, it should be made abundantly clear to every citizen that a more appropriate sum for the defence Budget would be not £1,600 million a year but something possibly like £16,000 million a year—that is, of course, more than three times the whole Budget figure for running the whole of the country. As such, of course, that is fantastic and wholly unrealisable. As for the loss of some £60 million on the abandonment of the Blue Streak, that is a very serious matter. But if Blue Streak was expected to be more than a very small contribution to Western armaments, or more than a token of British prestige, then a more realistic figure to have spent on it—and now to have lost on it—would surely be much higher than £60 million. I am not advocating that that would have been a good thing; it would have been a very bad thing. But it would have made some consistency in the madness, as I consider it, of postponing the decision to abandon a national, individual nuclear weapon; a weapon that we cannot afford and shall never be able to afford.
The noble Lord who opened this debate mentioned that advice had been given to the Government by people on their side, by experts, by people on the official Opposition and, he added, possibly also the Liberal Benches, too. I should like to make it clear that the

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Liberal Party has been the only one of the three Parties which consistently for the last four or five years has advocated this abandonment of an individual nuclear weapon. In my view, most people of this country, as they realise increasingly the implications of it, are becoming more and more of the same opinion. The Liberal Party, though small in Parliament, owing to an odd electoral system, is no longer very small in the country at large. It is therefore with gratification that I find that this Liberal line, inevitably, if a little slowly, is persistently and consistently being accepted as desirable. Of course, it is with similar gratification that I shall welcome the, I hope, imminent following of the official Labour Party along the same path, urged by strong but not quite such consistent pressure from the rear, instead of from the front. I would urge the Government not to let the word "conservatism" become such a shibboleth that conservation is rigidly applied far too long to what has been proved to have been wrong, as well as to what has been found to be right.
The history of the present Government (I say this in no partisan spirit), and indeed of the official Opposition lately, is too much bespattered with words which have to be eaten, with faces that have to be saved, and with the fragmentations of discarded advice now pieced together again in tardy and even humiliating recognition of its original soundness. But humiliations and reversals of unsound policies do not weigh at all in the balance against the country's solvency and prosperity and survival, with which the Government of the day are solemnly charged. All Governments can make mistakes, and all Governments can rectify at least a proportion of their mistakes. We who sit in Opposition to this Government are very ready to try to forgive them their mistakes, particularly those which they do not make, and those which they have the moral courage to admit and set right. That is the real essence of the Motion to-day. We urge those in power to accelerate their tardy alignment towards the international world of the latter twentieth century and away from the nationalistic world of a hundred years ago. When they do that we shall support them. When they do otherwise we shall oppose and criticise.
3.24 p.m.
THE FIRST LORD OF THE ADMIRALTY (LORD CARRINGTON): My Lords, your Lordships may remember that when the noble Viscount the Leader of the Opposition asked to have this debate the other day, I was not too keen about it. Not because the Government have anything to hide or wish to withhold any of the facts—far from it. We have been frank and informative the whole way through, and this afternoon I shall give the House as much information as I possibly can. My reluctance was due to a feeling—shared, I think, by some of your Lordships—that, in the two-day Defence debate of a few weeks ago, nearly every speaker concentrated on the problem of Blue Streak, its possible cancellation and the various alternatives which might be put in its place. I felt that in many ways a further debate might be rather repetitive. However, we have just heard from the noble Lord, Lord Shackleton, a very moderate, lively and interesting speech, and also from the noble Lord the Leader of the Liberal Party. I welcome the opportunity of setting out the facts and putting the Blue Streak story into perspective.
The line of the speech of the noble Lord, Lord Rea, was not entirely unexpected. He has pursued it before. We have debated it on several occasions, and I am sure that it will not come as much of a surprise to him to learn that the Government do not agree with him. I hope the noble Lord, Lord Shackleton, will forgive me if I do not at this moment answer all his questions. My noble friend Lord Hailsham will be speaking at the end of the debate and no doubt he will answer him then. I thought it would be for the convenience of your Lordships if I gave a brief account of the story of the development of Blue Streak.
The suggestion has been made that the Government have been following a Rake's Progress, pressing on with Blue Streak, at a great cost, in the face of facts so obvious that they should have stopped the project very much earlier; and, indeed, some say that they should never have begun it. I believe that this attitude is wholly unjustified, although perhaps in some quarters politically convenient. The fact is, as many noble Lords with their wealth of experience in government will

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know, the Blue Streak story demonstrates most vividly some of the major problems and difficulties that confront the Government, and would confront any Government in the circumstances of to-day.
The story starts about six or seven years ago. About that time it was apparent that by the mid-'sixties the manned bomber would no longer be able to deliver even propelled bombs, such as Blue Steel, in the face of the accurate surface-to-air guided weapons which would have been developed by then. It was clear that we should have to have some form of ballistic rocket if we were to have any hope in the long term of penetrating the defences. Of course the Government considered whether it might not be better to obtain a suitable weapon from the United States, rather than to undertake the enormous effort of developing a rocket of our own. But the McMahon Act had not yet been amended, and it was impracticable for the Americans to go further than provide technical assistance. Although we approached them on the matter, they had to rule out the possibility of supplying actual missiles, even without the nuclear warheads. The Government therefore decided to go ahead with the project for the long-range ballistic rocket, which was later christened Blue Streak.
Those noble Lords who have had responsibility for matters of this kind can imagine very easily the sort of scrutiny to which the programme was subjected—not once but several times. At the same time, Parliament was informed of what we were doing in successive White Papers. In 1955, for example, it was stated:
"The manned bomber may eventually be supplemented by the ballistic rocket, and we are therefore working on the development of such a rocket as an addition to our deterrent strength."
The programme of the missile was continued until 1958. In that year, the Government said in the Defence White Paper:
"A British ballistic rocket of the more advanced type is being developed on the highest priority in close co-operation with the United States."
So far as I can remember—and I have made some researches—only one noble Lord voiced any serious doubts about
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this development; and that was in 1958. The noble Earl, Lord Attlee, who I am glad to see will be speaking this afternoon, had, as usual, some interesting things to say. The line he took then—and I have no doubt that he will shortly remind us of it—was that if we are to have ballistic rockets they ought to be on mobile sites. That was easy enough to say, but not so easy to do. In defence matters mobility always has obvious attractions; but the frank answer to the noble Earl is this—and I will quote what my right honourabe friend the Minister of Aviation said in another place. He said [OFFICIAL REPORT (Commons) Vol. 622 (No. 101), col. 336]:
"Of course, it would have been better if we could have developed a mobile weapon ourselves, but my answer to that is that we didn't know how.…. We have to learn to launch rockets from the ground before we can launch them from fast-moving aeroplanes or from submarines."
However, it was not planned at that stage, or at any other stage, that the Blue Streak sites should be at all comparable to the flying-bomb launching sites about which the noble Earl, Lord Attlee, spoke two years ago. The sites would have been underground, as was made clear in the Defence White Paper, and as well protected as we could make them.
The noble Earl made another significant point on the same occasion. "Perhaps", he said, "we can get rid of the McMahon Act". But that was also what the Government thought; and in July, 1958, this Act was amended and at once we took steps to consult the Americans again. It was then evident that there were only two alternative possibilities which we could seriously consider: Thor, which would not serve our purpose, as it neither had the full range nor could be sited underground; and Polaris, which had some obvious strategic attractions but at that stage was untried. After the most searching consideration the Government came to the conclusion that the best course in the circumstances was to go ahead with developing Blue Streak. Even then, other developments were in the offing; but when in the defence sphere are there not "other developments in the offing"? At the end of 1958 and the beginning of 1959, when the usual annual review of the defence

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effort was taking place, the balance of advantage was clearly in favour of continuing with Blue Streak.
Certain things followed from that, and they cost money—as they always do. If we were to have Blue Streak by the time when we expected to need it, we had to devote the necessary resources to the project. There had to be the scientists and other staffs heavily engaged on new technical problems of the greatest complexity; there had to be the contracts with the firms concerned; there had to be new and expensive facilities. Here I should like to mention from my own personal experience the outstanding help which the Australian Government have given as partners at Woomera. They have carried the lion's share of the cost of establishing that range. As those of your Lordships who have been there will know, it is a most impressive technical achievement to have established this range, this complicated and difficult project, in the out-back of Australia, with the consequent difficulties of communication, water and the amenities of life. It has been a triumph for those concerned and I am glad to think that Woomera, with its tradition of Anglo-Australian co-operation, will continue to have much important work for many years to come. The Government have very much appreciated the understanding readiness with which the Australians have accepted the changed situation of to-day during the consultations we have had with them.
One of the most striking features of the development of Blue Streak has been the way in which our scientific and technical staffs succeeded in surmounting the many problems. Blue Streak has certainly not been stopped because of any technical failure. If it had been carried through to completion, it would have worked as well as any medium-range ballistic missile of the Americans or Russians. What came to stop it were developments during 1959 and early this year which gathered momentum and shifted the balance against continuing the project any longer. From our continuing and close contacts with the Americans it became clear that they had made considerable progress with solid-fuel, as distinct from liquid-fuel, missiles. The U.S. Navy had launched their first
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Polaris submarine and had carried out a successful series of test firings of the Polaris missile. The air-launched missile Skybolt, which we had known about for some time, had been adopted by the United States Government for inclusion in their development programme for the U.S. Air Force. For the first time it became possible to obtain from America an effective substitute for Blue Streak which would cost us much less money and had the additional advantages of mobility and solid fuel propulsion. These developments were most significant—and attractive in the light of the threat presented to this island by the increasing power and accuracy of Soviet long-range missiles.
In this situation the Government courageously faced the issue and cancelled the Blue Streak project. That is the story. It shows that we were right to start Blue Streak because we had to begin the development of ballistic missiles, and none could be made available from the U.S.A. if we had wanted them; it shows that we were right to continue with Blue Streak so long as there was no alternative; and it shows that we were right to cancel Blue Streak when a cheaper and more mobile weapon from America became possible. Can noble Lords opposite really criticise this policy? They have accepted it over the years: if they think now that Blue Streak should not have gone on, why did they not say so? When would they have stopped the project themselves? The noble Lord, Lord Shackleton, should not be critical on this score. I was surprised that he should say in the course of his speech that everyone had been telling the Government to stop it for years. He certainly was not. He said as recently as March this year, two months ago, during the Defence debate [OFFICIAL REPORT, Vol. 221 (No. 51), col. 1006] that the arguments for and against Blue Streak were
"a good deal more finely balanced than some noble Lords and some critics will admit".
He was quite right: the arguments were finely balanced—as they so often are in big issues of this character.
The noble Lord, Lord Shackleton, has suggested in his Motion that a new situation has been created by the cancellation of Blue Streak. This is not so. I made the position of the Government

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quite clear in winding up the Defence debate. At present we are making a substantial, and independent, contribution to the nuclear deterrent of the West by means of the V-bombers. The Mark II Vulcans and Victors are beginning to come into service, and the Blue Steel stand-off bomb will extend their capability. We also have a programme by which we can ensure that nuclear warheads of the most advanced design are manufactured by ourselves and available under our own control.
The main problem is one of delivery. How can we best deliver the nuclear warheads when the Blue Steel bomb will no longer be adequate? That is the question which we are in the process of answering. It is exactly the same question as the one which a number of noble Lords, as well as myself, discussed during the Defence debate. I said then [OFFICIAL REPORT, Vol. 221, col. 1058]:
"It would be nonsense for us to try to base an effective deterrent system upon weapons and means of delivery which have become obsolete and ineffective."
Everything said then pointed clearly to the fundamental review which we were making of the Blue Streak project in the light of the developments which were taking place. A good deal was also said about the alternative possibilities of Skybolt and Polaris which the Government are considering. What has happened since then? We have been able to discuss these matters again with the U.S. Government, and they have made clear the extent to which they will be ready to help us.
As to Skybolt, it is obviously an attractive choice and we have British teams in the United States studying the detailed problems of installing it in our V-bombers; and the United States Government have just sent a team here to explain at first hand the operational and technical aspects of their Skybolt programme. We are taking all possible practical steps to ensure that our V-bomber forces would be able to carry them; and a programme for fitting this missile to the Mark II V-bombers is being worked out. The United States Government has made it clear that they will be prepared to sell Skybolt to the United Kingdom when it has been developed.
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There would be no question of subjecting the launching of these missiles to a joint decision by the two Governments, on the lines of the agreement covering the supply of Thor missiles to this country, which have American-produced nuclear warheads. Skybolt missiles, bought from the U.S.A., with our own nuclear warheads and carried by the V-bombers, would be a British-controlled contribution to the deterrent.
As to Polaris, we have for some time had a liaison representative from the Royal Navy in the U.S. Navy Special Projects Office, which has been responsible for bringing the Polaris system from the sketch design stage to operational status in less than four years. We are therefore kept very well informed of the progress of both the submarines and the missiles. The submarine is simply—if simply is the right word to use—a very big nuclear-propelled submarine fitted to carry, aim and fire the Polaris missiles, which it can launch from under the sea. In that rôle it is the nearest thing to an invulnerable mobile base that can be imagined. I should certainly not agree with the noble Lord, Lord Shackleton, that it will be easy to detect; indeed, it is likely to be very difficult for an enemy to know where these submarines are. The Polaris missile is at an advanced stage of development as a result of highly successful test firings, though it has not yet been fired from a submarine. The first two United States Polaris submarines, the "George Washington" and the "Patrick Henry" are in commission and will become fully operational this year. We are urgently studying in the Admiralty what would be involved in building Polaris submarines ourselves, but it would be unrealistic to think that it would be possible to have them built here by the mid-1960s. The Government have been as forthcoming as possible about what is in their minds, but nobody could reasonably expect us to say any more at present than we have done about these possible forms for our future contribution to the deterrent. I do not think that noble Lords opposite will disagree with that.
What then are the points of criticism which are left? If it is accepted, as this House has accepted, that the Blue Streak programme was the right one during recent years, it does not make sense to claim that the £65 million spent on it

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has been wasted. £65 million spread over four or five years does not itself seem excessive—even if cancellation charges have to be added—when account is taken of all the new techniques and facilities involved. In any event, can we regard resources and effort as being wasted simply because the project on which they have been directed has not: come to fruition? The noble Viscount, Lord Alexander of Hillsborough, has frequently pressed the Government to make greater efforts to bring new weapons and equipment into service. He knows from his own experience that the worst situation is one in which ships, aircraft or weapons are needed for the defence of this country and are not there.
He would be the last to suggest that any Defence Minister should hesitate to put in hand a project which might play a vital part in the security of Britain simply because of the possibility—a possibility that must always be there—that strategic or technical circumstances might change and cause the project's cancellation. He put his position very clearly in 1958 in a speech that he then made. He said:
"I would not, from my own experience of defence, ever want to allow my country to become in a position in which she was not in possession of equal weapons with other countries."
At the present time, we are examining with the firms concerned the full implications of using Blue Streak as a satellite launcher for a space research programme; and no doubt my noble friend will elaborate later on that matter.
The charge against the Government boils down to this: why did we not discontinue the development of the Blue Streak missile earlier? This is a matter on which the Government had to make its own judgment. Only this Spring did we reach a situation in which we could clearly decide that the balance of advantage lay in stopping Blue Streak. The Government cannot accept that a new situation now exists. The situation is fundamentally the same as it was at the time of the Defence debate. The differences are these. Blue Streak, instead of being in great doubt, has been cancelled. Other alternative forms of missile, instead of being only names to play with, have become real possibilities Which we have discussed across the table with the United States Government. We
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have told the House our policy in the past as it is developed: and we shall continue to do that. This is not a sphere in which anybody should try and be dogmatic or risk his neck with precise forecasts. There have been uncertainties in the past, and there will be plenty in future; but one certain thing has emerged from all the discussions we have had in this House and in another place: it remains the policy of Her Majesty's Government to maintain an independent British contribution to the nuclear deterrent of the West. It is the Government's determination to implement this policy that has led to the winding up of the Blue Streak project—
LORD SHACKLETON: My Lords, would the noble Lord answer this particular question, which I am sure concerns us all: what is the difference between an independent contribution and the independent deterrent? Are they the same? This is important.
LORD CARRINGTON: The United States has a very large deterrent and we are contributing towards it. It is really as simple as that. It is the Government's determination to implement this policy; and as a result of that Blue Streak has been cancelled, and we must now closely and urgently study what we must do to have the most effective vehicle for our nuclear warheads.
It is, of course, the duty of an Opposition to enquire most closely into such matters as we have been discussing this afternoon. As I said at the beginning, I welcome the opportunity of explaining as fully as I can what has led to the decision to cancel Blue Streak. I hope that what I have had to say will have done something to dispel the confusion which seems to have existed over this subject. The Government have nothing to be ashamed of. They have been open and straightforward and consistent about their problems and their policy, both in the Defence White Papers and in the Defence debates in Parliament. In matters of such complexity, with so many imponderables, we must naturally expect some criticism, but it should be responsible criticism. I think we are entitled to ask where the Opposition stand in all this. After all, they have put themselves forward as the alternative Government responsible for handling these grave issues of national security. What would

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they have done? When would they have cancelled Blue Streak? Do they still believe in an independent British contribution to the nuclear deterrent? If not, what, other than convenience, has made them change decisions so firmly and cogently stated? My Lords, the Government have shown where they stand and where they are going. Your Lordships are no less entitled to know where the Opposition stands. The responsibility for letting the House know lies with the noble Viscount, the Leader of the Opposition.
3.47 p.m.
VISCOUNT BRIDGEMAN: My Lords, my noble friend who has just sat down said at the beginning of his speech that he wondered whether there was any justification for a debate on this subject this afternoon. But if such a justification had been wanted, surely it was provided by that most clear factual statement from him to which we have just listened. To my mind he has quite plainly gone as far as any Minister possibly could have gone in explaining the factors which have to be assessed in making a decision of this sort. Even so, I would judge that there must be certain matters which cannot at this moment be made public, in the House or anywhere else. This is a difficulty which we in Parliament are always under in discussing matters of this sort. Few people in this House could ever know the full facts of the case when a decision has to be made. Those who know cannot tell, and those who do not know cannot tell either. From that point of view we find ourselves much happier when we are dealing with something like road accidents or, of course, rabbits. None the less, it is our business to try to weigh up the factors affecting a most important decision of this sort, and we can probably do it in this House just as well as some people can who discuss these high matters—for example, the Women's Institute, or, if you like, some trade union meeting at Blackpool, or those who go the hard way, from Aldermaston to Trafalgar Square. So we must try to debate these matters.
Reading the debates in another place it struck me most forcefully, and it struck me again this afternoon, listening to the speeches which we have already had, that possibly not enough account was
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taken of the vital importance of timing. I do not think that the noble Lord, Lord Shackleton mentioned timing much, though he did refer to it. Here, I should like to join with my noble friend Lord Carrington in saying how much I appreciated the moderate way in which the noble Lord approached the problem. This being a Royal Academy season, one might perhaps say that he painted his picture of Blue Streak without too many purple patches. I am sure that we on this side appreciate that. But, my Lords, this matter of timing is very important indeed; and the time factor has been with us ever since the Government, whichever one it was, had to give its attention to nuclear or atomic defence. The 1957 White Paper is usually, I think, regarded as the start of our present policy, but if your Lordships look back, as I have done, to the 1946 White Paper you will find the seeds of the atomic defensive effort are sown there, even though we now describe it as "nuclear". There they are. These problems have been with us from that day to this, and they will go on being with us for the rest of foreseeable time.
Moreover, whether we like it or not, we have to get used to the very big money involved in these problems. It is going to be big money; that is inescapable. It is no good, I suggest, getting frightened of the size of the money; nor is it much good trying to think what else those particular sums of money could have been used for, had other things been equal. They are not equal, and I doubt very much if that is the point. Had we not spent money of that sort I do not see how we could have possibly stayed where we are in the consideration of these problems. Let me go back once again to the time factor and say that, of course, in these matters, unlike so many other matters with which Parliament has to deal, we are having to work five, ten or maybe fifteen years or longer ahead, dealing with imponderables, in a way, as my noble friend explained just now, which does not exist, or hardly exists, in any other field of government.
Now we come to another point which I think has been perhaps rather under-stressed, though the noble Lord, Lord Shackleton, mentioned it in his peroration, and that is the relationship of our

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efforts in the defence field, and particularly in the nuclear field, to our membership of N.A.T.O. and our obligations to N.A.T.O. I would say (I hope I am not wrong over this) that the size of these weapons, their range, and their destructive power, indicate that, whatever one may say in theory, in practice it is most unlikely that they can ever be let off or made use of except as part of a N.A.T.O. operation. Therefore, when we are considering these matters—leaving apart the tactical weapons on the battlefield, which are another matter and I think belong more to the Army Estimates debate—we must surely relate our use of these weapons, our development of these weapons and the share of the global development of these weapons, to what is required of us in N.A.T.O. and what our contribution should be. I think that was the point which was made by my noble friend, and we should also bear in mind that unless we make a proper contribution to the N.A.T.O. nuclear effort it is most unlikely that we shall be listened to in N.A.T.O. or anywhere else. Those things seem to form quite a part of the background behind the statement which my noble friend has just made.
Then, of course, there was the other point which he made, and which was made, I think, in another place, though only once: that in our early stages of the development of Blue Streak, whenever it was, five, six or seven years ago, the McMahon Act was in force. I can imagine that those who had responsibility for these things at that time must have prayed for the day and worked for the day when the McMahon Act could be amended in the way it has been. But they were working at a time when it had not been amended, and therefore they had to deal with the realities of the situation at that time. They had also to deal with the state of affairs where the inventions which led to Skybolt and Polaris had not then materialised.
So, my Lords, we were faced, were we not, with meeting our obligations to N.A.T.O under conditions where the McMahon Act was in force and doing the best we could. If, in the light of present experience, that best, namely, Blue Streak, turns out to have been second best, it may be regrettable, but it is
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surely not surprising. Still less does it mean that it would have been right for the Government at that time to do what has been suggested, I think, from the Benches opposite and abandon Blue Streak. To my mind, that would have been doing something very much the same as, when you are climbing up a ladder, to let go with both hands at the same time. They did not do that, and I am quite sure—and even more sure after listening to what my noble friend had to say just now—that that was the right course to pursue. Even if, in the end, it turned out that Blue Streak did not fulfil everything that was required of it, or, to put it in another way, if it turned out that the cost of "going it alone" with Blue Streak was so great that it would have been much better to rely on Skybolt and Polaris, nevertheless that seems to me to have been the sort of decision any Government might have been expected to take when they are working under these conditions and playing for these stakes. That, I think, is really part of the answer to the point made by the noble Lord opposite.
As everybody has pointed out, no one has said that it was wrong to abandon Blue Streak at all; but it is said that we should have done it a few years ago, before this expense, which I would suggest is not very great in the circumstances, mounted up, when Skybolt and Polaris were not there, and when it was not known, I imagine, exactly what the results of the amendment of the McMahon Act would be. That seems to me, fairly shortly (because after my noble friend there is no need to make a long speech), to be the gist of the matter. As my noble friend Lord Carrington has said, we are in N.A.T.O.; if we use this weapon at all I am quite certain we shall use it only in N.A.T.O., and we must go on making our contribution to the N.A.T.O. nuclear effort. If it is not to be a Blue Streak, then it must be something else, and that will be a matter for the Government.
So, my Lords, I am not prepared to criticise the decision to drop Blue Streak when we dropped it and not before. Equally, I should like to bring force to what I think the noble Lord, Lord Shackleton, said: that the fact that we have now abandoned Blue Streak certainly does not mean that all the experimenting, the scientific research and

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the development which went into Blue Streak have been lost. I am absolutely certain that they have not been, because that is not the sort of thing that happens. Whether or not we shall use it in the future in our plans to reach the moon (that I think might be quite expensive, too, and then no doubt noble Lords opposite will tell us so), I do not, of course, know. But whether we use it for space work or not, I am quite certain that my noble friends Lord Carrington and Lord Hailsham will, between them, find a way to beat Blue Streak into a ploughshare.
3.59 p.m.
EARL ATTLEE: My Lords, I have little to say this afternoon because the matter has been fully covered by my noble friend Lord Shackleton, who is far more competent in these matters than I am, but it strikes one that here was a matter in which, certainly, there was perhaps a reason for starting the project; the question is when you should have stopped it. It seems to me that there has been avoidable delay. It would appear that the Government had come to the conclusion that Blue Streak was not the answer, but, because there were no alternative answers ready, they continued with something which they knew was not the answer. That seems to me to be the condemnation.
Now what we have always to consider in this matter is the geographical position of the British Isles: our extraordinary vulnerability. I made the point formerly: that was the chief objection to having a static position for launching these weapons. It might be possible, as was said, to have alternative sites. Alternative sites might be possible in Russia or in the United States, but they are not going to be very far apart in this country of ours. What strikes me to-day (and I must say rather appals me) is that we go on considering what is going to be done about this nuclear weapon, and we contemplate spending millions and millions—not only five years ahead, but ten years ahead. I think the best thing that was said in the debate in the other place was said by the Minister of Aviation: that the only way out is total disarmament. To my mind, the corollary to total disarmament is a World Order, and making U.N.O. effective. I hope that some steps may be
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taken by our Government in the immediate future towards making a reality of U.N.O. N.A.T.O. we started as a prop to U.N.O.: never as a substitute, but as a prop. But U.N.O. has remained undeveloped; and I believe that the greatest service that our country could do at the present time would be to take a lead, not just for a total abolition of nuclear weapons, but for total disarmament—because I have never believed in the policy that disarmament tends only to exalt one Power and depress another.
I must say that there has been an enormous waste of money here. It is odd to think how things change. Fifty years ago one would have thought the waste of a few thousand pounds a terrible thing, and the Government would have stood in the dock. We got it "pretty hot" for losing some millions on the groundnuts scheme. The Government to-day waste far more, and we are asked to say nothing about it: to have no examination whatever. I do not think the world can go on recklessly like this, and I believe the time is ripe for a new lead. Almost every speaker has emphasised the fact that, if you have a world war, there will be nothing left to talk about after that; but now some people seem to think that you can have a minor war, or a restricted war, even if you are using nuclear weapons. I do not believe it. I believe that if the efforts we have put into Blue Streak could be put into bringing the nations to reality, we might make a greater advance. I think that at this time (not expecting that there has been a wonderful change of heart anywhere in the world, but on matters of strict realism) the United States of America, the U.S.S.R. and other nations are now getting into a frame of mind in which they realise that it is time we gave up this folly.
4.4 p.m.
THE EARL OF SWINTON: My Lords, as the First Lord of the Admiralty has said, this subject has already been fully debated, both in the Defence debate and in the Air debate a few weeks ago. But the subject is so important—and not only is the subject so important, but I think it is so important that there should be clear thinking and clear understanding of it—that I do not think anybody would complain that we are, as it were, giving

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the matter a Third Reading. Certainly I think that nobody on the Government side could complain if we are to have what is in the nature of a very modest vote of censure introduced with the great charm and very faint damns with which the noble Lord, Lord Shackleton, introduced his Motion.
Frankly, I am a little surprised at the attitude of the Opposition in this matter. I should have thought that what the Government were entitled to from the Opposition was a vote of thanks rather than a vote of censure. As they have said, they have been continually saying that Blue Streak ought to be abandoned. The noble Earl, Lord Attlee, says that it ought to have been abandoned two years ago; the noble Lord, Lord Shackleton, says, I think, that it ought to have been abandoned a year ago. What they all agree—and I am at one with them on this—is that it ought to be abandoned. Well, it has been abandoned, and that decision cannot be criticised. The only subject for debate, or dispute between us, it seems to me, is: ought it to have been stopped earlier?
Now, my Lords, I think that anybody who has served with a Government will agree that the Government—any Government—have special responsibility in these matters of defence, and are entitled to a special measure of consideration. I say that for two reasons. First of all, only the Government can have full knowledge, and much of that knowledge—about our own defence work, our Allies' defences, and the defences of those who are not our Allies—is information which they cannot fully divulge; and much of it, indeed, they cannot divulge at all. The second reason is that the Government have a duty and a responsibility to ensure our effective defence over many years ahead. I do not think that the noble Earl, Lord Attlee, was quite serious when he complained that they were thinking ten years ahead. I am entirely with him, and I think everybody is, that there is only one solution ultimately, and that is disarmament: not just nuclear disarmament, but complete disarmament. But, my Lords, while we must work for that all the time, yet, certainly when he was Prime Minister, he thought it wise to plan ahead, and to plan ten years ahead at least—because that is what you have to do. That does not mean that, if things go better and it is
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possible to reach effective disarmament, then not only Blue Streak but masses of defence effort, whether it be nuclear or conventional, cannot, the nuclear be abolished and the other greatly reduced.
My Lords, it was in the light of the knowledge which the Government had that they developed Blue Streak and that they stopped Blue Streak. I think we should also agree that the fact that it was right to stop it does not mean that it was not right to begin, and the fact that it was right to begin does not mean that it was wrong to stop. If I may say so—this does not apply to the noble Lord, Lord Shackleton, but does apply to some of his friends, and particularly some in another place and out of doors—it is the unwillingness of a number of members of the Labour Party to learn to change that accounts for their electoral failure and their lack of appeal, not least to the younger generation. I believe that we should all accept that Blue Streak would be a very effective and accurate weapon for discharging nuclear missiles. I think there is no doubt about that—as good a weapon for discharge as any which either America or Russia is likely to have. I think it is also accepted that after 1965, or thereabouts, we must have a successor to our V-bombers armed with Blue Steel. I think it is only fair to accept that it is only recently that we have been able to count with any certainty on an effective air complement and component for our new V-bombers which will be available after 1965. We must take a gamble in these matters, and I suppose it is a bit of a gamble whether Skybolt is going to do all we hope and expect of it. It is always a gamble whether these novel weapons will be ready on time. But I think that it is a right decision.
Last year and this year I have been a critic of Blue Streak, never on the ground that it was a bad weapon, but entirely, like my noble friend Lord Attlee, if I may say so, on the ground of the vulnerability of the static sites. Do not the Government as it is to their critics, let us forget that that vulnerability has enormously intensified in the course of the last year and even in the last six months. And, of course, the risk to the static sites must have been as obvious to the But what the Government had to do—

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and here I come to the special responsibility of the Government—was to make a decision about the fact that in 1965 or thereabouts there was going to be a gap in the effective deterrent. That gap had to be filled, and they had to plan to fill it. At the time the decision to make Blue Streak was taken; at the time it was decided to carry on with it; and, indeed, at the time when they decided to intensify the work on it, I am bound to admit that Blue Streak was the only hope of an alternative to fill the gap, as facts were known at those times. That was the justification. For my part, I am prepared to accept that the Government decided to change as soon as they felt reasonably sure of a mobile alternative.
Apparently some of the Labour Party seem to have thought, and still think (though there has been nothing of that kind said here to-day), that the decision of the Government gives them an opportunity to unite in some undefined defence policy in opposition to their leader—a very odd way of getting unity. But if this were true, then people who think like that ought to be grateful to the Government, and not censorious. It has been clear from the debate here, and from the very fair speech made by the noble Lord, Lord Shackleton, that the fundamental conflict in the Labour Party still remains. I am certain that the noble Earl, Lord Attlee, the noble Viscount the Leader of the Opposition and the noble Lord, Lord Shackleton, would not for a moment agree that the United Kingdom should unilaterally abandon all nuclear weapons and stand naked and defenceless in a cold world, in which the wind of change might be very bitter; and I welcome the courageous repudiation which Mr. Gaitskell, on his return, has given of any such proposal. Incidentally, it seems an odd idea that what are called "conventional weapons" are not only moral but apparently rather agreeable. Many of us, like the noble Earl, Lord Attlee, who have been at the receiving end of conventional weapons, would not treat them as quite so agreeable. And, of course, that would be a completely ineffective defence for us in the world as it is to-day and would be no deterrent at all.
It is possible, of course, to criticise the Government's timing—and that is about all that has been criticised to-day—particularly if you do not share the
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Government's responsibility. But what is wrong with the policy which the Government are now following? I am bound to say that I think it is entirely right. And, having in the past criticised the Blue Streak, I wanted to speak today to say that. We have our own deterrent up to 1965. It is an effective deterrent, an independent deterrent, and it is a sound contribution. That deterrent is our V-bombers, with Blue Steel stand-off bombs. After 1965, we shall have our new bombers, and we shall have, we trust—certainly there are no difficulties of the McMahon kind—the Skybolt and our own nuclear warhead. I am very glad that the First Lord of the Admiralty has to-day made it perfectly plain that the deterrent will be under our control. It is an independent deterrent and it is a very potent contribution.
We could hardly have closer or better co-operation with our chief Ally and partner. We have all been advocating the closest co-operation with the United States in nuclear development and production, and in what we are doing now there is no abandonment of our policy, our duty and our contribution, whether it be to N.A.T.O. or to any other part of the grand Alliance. There is no exclusive dependence on the United States. I am perfectly certain that everybody in the country, including a great many of those who voted Liberal at the last Election, would repudiate the suggestion made by the noble Lord who leads the Liberal Party to-day, that we should merely shelter behind the United States. All of us, or nearly all of us, have been advocating the closest co-operation with the United States; and so far from this being an abandonment of the policy which the noble Earl, Lord Attlee, initiated, and which we carried on, the policy which has now been enunciated by the Government is, on the contrary, the consummation of our policy of closer co-operation and interdependence with the United States. For my part, I say without hesitation that that policy commands my full support and, I believe, commands the full support of the great majority of people in this country.
4.18 p.m.
LORD TEVIOT: My Lords, I have listened with great interest to the

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speeches which have already been made. My criticism of the speech by the noble Lord, Lord Shackleton, is that he seemed to be finding the weather after the race was over. I want us to face together our future troubles in this very complicated world; and in the short speech I am going to make I should like to give the reasons for the importance of this suggestion. I hope that the Liberal Party—I see that the noble Lord, Lord Rea, has gone—will take the same line as I hope the noble Lord, Lord Shackleton, will take.
There is always a lot of talk about total disarmament. We are all in favour of it. But we cannot do it by ourselves. We must have other nations who will come with us and really do something about working to that end, and not just talk about it. The question seems to me to be a perfectly simple one. It is that should war cone the people in the country want to be properly defended. That is what they are thinking and worrying about. Therefore I support the Government in their endeavours to that end. I was greatly impressed by the speech made by my noble friend the First Lord of the Admiralty.
I do not want to annoy the Opposition, but I can go back a long way in their policy on this subject. I am delighted to see my noble friend Lord Stansgate laughing, but he is old enough to know what I am talking about and to know how true it is. I can go back to the days before the First World War when Lord Roberts was begging both Houses of Parliament to prepare for the dangers that he foresaw were going to come from war. I do not know that there are so many Lords opposite who remember it, or who were here at the time, but I am afraid that their Party on every occasion did not vote for preparation for the possible danger of war. We all know that. No doubt the noble Viscount the Leader of the Opposition will remember it, if he was here at the time, and I rather fancy that he was. Lord Roberts made the strongest appeal. I remember speaking in various parts of the country in support of his ideas that we should equip our Forces in such a way that they would be able adequately to defend our people.
To-day, when I talk about the defence of our people, it is a far bigger question than it was in those days. Then there were soldiers and sailors, but no airmen;
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and the ordinary civilians in the country were not dragged into war and did not find bombs descending upon them in various parts of the world; they were far from the actual realities of war. But, as I say, to-day it is quite a different proposition. What did those who supported what Lord Roberts and, indeed, many other Ministers afterwards were advocating, get? They were called "warmongers" and were accused of trying to prepare for something that did not exist. "Warmongers" was shouted from every platform in the country; I know, because I was there and had it shouted at me. A noble Lord laughs, but it is no laughing matter. I want to see that to-day what is said from those Benches shall not give that impression, because, in my opinion, it caused a very serious war. Whether preparedness would have stopped the Second World War, or not, I do not know, but I just mention to your Lordships what I saw happen and what was said here. We all know about it; it is nothing new. Therefore, I beg noble Lords opposite and the Labour Party to bear in mind that these two wars have happened. I am afraid that I see an indication of the same spirit—not, I may say, with a great many of noble Lords on that side of the House—behind their policy generally.
We must realise that weapons of the present day, with the enormous activities of the scientists, are often superseded and here we have the Blue Streak which has been so affected. Another of their great inventions has come into the atmosphere which we realise supersedes Blue Streak. The Government would not have been doing their duty if they had not realised that and made all the preparations they could in most difficult circumstances. Abuse of the Government on the subject is no good. They are responsible; they know the whole situation, which is not known to us in this House, with the possible exception of those sitting on the Front Bench before me. If the Government are going to take the responsibility, they must do everything they can to prevent the people of this country from suffering more than is absolutely necessary. That is their duty. We must have the best weapons available to defend ourselves against the aggressor. If the Opposition were in office and responsible, as was asked by my noble friend Lord Swinton, what would they do now in the

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present difficult situation? It is frightfully difficult. As we do not know the situation behind the scenes, we must have the greatest sympathy for the Government in their difficulties and do everything we can to help; we must not abuse and make no suggestions. Would the Opposition dare take a chance on this question? I do not think for one moment they would if they were in the responsible position. As my noble friend Lord Swinton said, we might be weak and naked; and naked we have nothing with which to fight.
We must remember that certain things happened in the days gone by. Noble Lords will remember that prior to the Second World War Hitler and his Ambassador here, Von Ribbentrop, were saying: "It's all right; England will never fight." They said that because we were not united. I believe that if we had then all been united, the Labour Party and some of my erstwhile colleagues, that would have been the best deterrent we could have had against Hitler's going on and doing the outrageous things that he did do. Our Government to-day know the situation, and we do not know it. I am prepared to support them up to the hilt in doing what they can to put right a very difficult situation that has arisen, not through their fault; they could not do anything else. Tommy Atkins is a great fellow, and those of us who have fought with him are determined to see that every effort is made to equip him so that he is able to face any aggressor on equal, if not on better, terms. Our people to-day want us to do that.
I find that throughout the country the one worry our people have is, "Are we in a position to do it?" We on the Conservative and the National Liberal Benches—I do not think there are any here to-day except myself—are determined to see that on land, sea and air everything possible is done, without interfering with the Government in their difficulties, so that our men are properly equipped and able to do all that is possible against a possible aggressor. We are a very courageous and determined people, but we must take advantage of this. We must see to it that they are ready to go into the ring, with their gloves off if necessary, and protect the country in their great responsibilities in
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looking after the Commonwealth. We must see to it, in both Houses and by all Parties, that they are properly looked after and properly equipped for anything that may happen.
4.32 p.m.
LORD CITRINE: My Lords, I am sure that every Member of this House is fully conscious of the difficulties under which a debate of this kind takes place. I do not think members of the Opposition have the least desire unnecessarily to embarrass the Government, but I am equally sure that they do not require any reminders from any quarter as to their responsibilities in initiating a debate of this kind. We know perfectly well that such difficulties are inherent in any kind of debate on defence matters. Many of us on this side of the House are even more familiar with the fact that, in certain of the dictator countries in particular, a debate of this kind could not possibly take place. We are quite aware how complicated it can be for a Government adequately to express its policy and its actions in a democratic assembly, with the Press carefully reporting what is said, and with our potential enemies listening very carefully to what is being stated.
I should like to ask what an Opposition is to do in these circumstances. Is it just to sit back and trust implicity in the actions of the Government of the day, without any kind of questioning or any kind of criticism? I am quite sure that that would not be put forward as a reasonable course for an Opposition to pursue. Some of us remember some of the events preceding the last war. Sir Winston Churchill was not the only person who was receiving information concerning the efforts that Hitler was making to arm his country for a conflict which some of us in 1934 saw was quite inevitable. But the Government of the day, hard pressed as it was by statements and questioning of Sir Winston in the House of Commons, was always ready to give firm assurances that our defences were sufficiently well equipped to meet any potential danger that might come from Hitler and his activities.
I do not want to be uncharitable, but I think that many of us drew the inference, when the war actually started—and some of us had some experience behind

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the scenes of the so-called preparations, and knew how inadequate they were—that Sir Winston Churchill was right, and that the Government of the day was wrong. But the assurances which were so blandly given in the House of Commons as to our preparedness to meet a contingency, if it arose, were not in fact the whole truth, although they may have been partly true.
I myself had some contacts with Sir Winston and with organisations which were concerned at the apparent unwillingness of the Government of the day to face the fact that a much more strenuous effort would be needed by this country to meet the challenge if it came. Some of us wonder whether, in the first eight months of the war, if the German forces had been thrown into the struggle right away with the intensity which later developed, we could have withstood the attacks which were made at that time. From that rather grim precedent we must draw the logical inference that it is the duty of an Opposition to criticise the Government of the day in its defence operations, just as in any other sphere of its activities. Naturally, there is some tempering of what has to be said, for the reasons I mentioned earlier, and because of the limitations which are necessarily imposed. I know how easy it is to have hindsight, and I have sometimes thought that it was grossly unfair in Party politics for criticisms to be made of actions which were taken under the stress of circumstances and great pressures, those criticisms being made in the light of events perhaps five years afterwards.
I well remember a discussion with Sir Winston Churchill when he was Prime Minister. I was approached by a number of contractors who had been given the job of building a line of pillboxes on the South Coast. I was then Secretary of the Trades Union Congress. They came to me, a person quite unconnected with any responsibility in the matter, to see whether it was possible for me to bring any pressure to bear by which decisions which were then being held up because of differences between the War Office and others could be expedited so that they could get on with their job. I went to see Sir Winston Churchill, and, after telling him of the circumstances, and subsequently seeing Sir Anthony Eden, who was then Secretary of State
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for War, Sir Winston said, "We must I have a financial structure." I had been pointing out that there was an attempt to get tenders for contracts for doing that work, and how absurd it was to try to apply that principle in days when we expected to be invaded at an early date. With all his experience, Sir Winston said, "We must have a financial structure, or we shall find some Committee coming along some years after the war criticising us for what we are doing now." I say that without any desire to be unduly critical, and with the knowledge that hindsight is a much easier thing to acquire than foresight.
With all that, my Lords, we on this side cannot help being rather perturbed at the development of this weapon, the Blue Streak. I should be the last to deny that the embarking on a project of this kind is a matter of technical and military judgment. I do not profess as an individual—and I should think there are few Members of this House who would—to have access to sufficiently detailed information about matters of this kind to be able to say whether the Government's decision at that moment was right or wrong. I do not think that has been firmly contended from this side of the House in this discussion. But it seems to be the case, from what has been said here, that what has been criticised is not so much the embarking upon the weapon as the late realisation that subsequent developments had taken place which would have rendered Blue Streak in effect obsolete. I may have misheard, but I thought I heard the noble Lord, Lord Carrington, say that the Blue Streak had been superseded by developments which took place in 1959. I gathered that the factor which caused that decision were the developments in regard to other weapons in the United States. If I am right in that premise, I have some justification for asking when the discovery took place. When did the Government find that out—in 1959? If they found it out only in 1959, then, so far as I can now see, there was some delinquency somewhere.
The noble Lord, Lord Carrington, in referring to some of the arguments put earlier, used language to the effect extenuating delays: contracts had to be placed, designs had to be gone into. Was that in regard to our own Blue Streak?
LORD CARRINGTON: May I interrupt? What I was saying was that once the decision had been taken to embark on Blue Streak all these things followed: there had to be contracts and designs and so on.
LORD CITRINE: But surely the point of the noble Lord's argument was that time was required for these things to take place after the original decision had been taken?
LORD CARRINGTON: I hesitate to interrupt the noble Lord again. What I was really trying to point out was that inevitably, once we took the decision to go on with Blue Streak, it was going to cost money.
LORD CITRINE: I beg the noble Lord's pardon. I thought he was referring to the time element. It cannot be wrong, surely, that a great deal of time passes between the initiation of an idea or conception or project, whatever it may be called, and the actual coming into operation of that project. I know from experience that in power-station erecting it took several years from the time of initiation to see the completed station. If it took several years to develop American weapons to the point they have now reached, what has our Intelligence Service been doing? Had our Government no prior information of what was going on until 1959? That seems to me to be rather a curious situation.
I remember during the war how Sir Winston Churchill told me, many months before the V2s arrived, a great deal about them and when they might be expected; and that was in time of war, when the opportunities of securing information were very much more hedged around with greater difficulties. Yet now in peace time, in the time when we have been working in quite close harmony for years with the Government of the United States as our principal Ally, apparently we did not know very much about it until 1959. The noble Lord, Lord Carrington, shakes his head. I wonder where I have gone wrong. Surely the Government must have had prior information before 1959 as to the qualities of the weapons they were making. I understand all about the McMahon Act.
LORD CARRINGTON: If I may interrupt the noble Lord once more, perhaps
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he would be good enough to read tomorrow what I said. I was trying to say that developments took place in 1959. Of course we were aware all along of what was happening in the United States; we have been in close contact all the way through. In 1959 developments took place in the United States which made Blue Streak very much more doubtful than it had been before.
LORD CITRINE: Technical developments?
LORD CARRINGTON: Yes.
LORD CITRINE: Technical developments took place in 1959. That explains to a very considerable extent the point I had in my mind, because I could not for the life of me understand how it was that our Government was not better informed on this subject prior to 1959. I would only hope that, whatever the circumstances which restricted the imparting of information to us, such as the McMahon Act, they are not likely to recur, and that in the future we shall not find that in fact, with a grave contingency always lying ahead of us, with the possibility of conflict, our two Governments can be working in such separate ways.
4.45 p.m.
VISCOUNT STONEHAVEN: My Lords, I want first of all to make an apology to the noble Lord, Lord Shackleton. I was not here to hear his speech; I was very late in coming to your Lordships' House. My excuse for that is quite genuine. I was at an international gathering; the Ministry of Agriculture were vouching for it and it was a Council of Europe Agriculture Committee luncheon. Unfortunately, I could not get here before.
Having said that, I should like to make a few brief remarks on the subject of Blue Streak, and if it has been said before merely to underline it. The first point I would make is that Blue Streak is a rocket, and a rocket is a means of propulsion and a means of delivering an atomic warhead or any other kind of warhead. But it is only part of the weapon system, and in developing a weapon system you do not develop only the rocket. When one is considering whether a large sum of money has been wasted or not one must consider not only the actual abandonment of that particular rocket but also whether there

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has been gained valuable information in the control and guidance systems, in the early warning part and various other sections of the weapon system, of which Blue Streak forms a part. That point should be considered.
The other point which ought to be considered is the fact that our resources in this country allow us to go in for only a limited number of developments. We have not available the vast resources that America has, and therefore someone must take the decision, granted that we have to develop something, what it is we are going to develop. Whether it was right or wrong I do not know, but I would emphasise the fact that Blue Streak as a rocket is a jolly good rocket; it is not a second best as far as rockets are concerned. It may be second best as far as the type that is desired to do the job is concerned. But it takes a very long time to develop these rockets; the Americans take round about ten years; we have done it a great deal quicker. It is not until a rocket is fired several times and has hit the target that you can say that that rocket is a success. I think any Government would be very foolhardy, with the record of the failure of Atlas and what I think the Americans call Pioneer and the Russians call Sputnik, to take any other steps than hope for the best of what might come from America.
Assuming that there was nothing at that time, and that a long period was necessary to develop any weapon at all, we probably knew more about the Blue Streak type of rocket, and it appeared quicker to develop that rocket. Within the limits, that rocket was developed extremely quickly, and I think a word of encouragement to the devoted teams of scientists who developed it and did all the research work should go out from your Lordships' House to-day. I think we should all sympathise with them in the great disappointment which they must feel that the rocket is now scrapped. Because these teams are devoted men who do a great job of work. The fact that the rocket does not lit the pattern of events—not that it is not a good rocket, because it is—is just unfortunate from their point of view.
One could put a proportion of whatever money has been spent to valuable development in a weapons system, as opposed to the actual rocket. One could also say that that is the sum of money
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necessary to overcome the thoroughness of, not the Americans themselves, but (so it appears to us at times) the unwieldy American political system which takes quite a while to overcome. One may say that Blue Streak is not the best. On the other hand, it is good. Surely it is right when, for one reason or another, the best is probably not available to you, that you should plump for something that is jolly good. It is only now that, luckily, we happen to have the opportunity of obtaining the best without strings. Whatever you like to call the money, I say that you can put it against that achievement. I think that any money spent on the deterrent can be said to be money spent in preventing a world war. However much money one has spent, I do not think one can say that that is not an object of which we should all approve.
I should like to make one other small point—it is a fact in which I think we can take pride. In this atomic age the only nation that has had the guts to drop an H-bomb out of an aeroplane is Great Britain. People have exploded them from towers, from balloons, in mines and in various other ways, but, so far as I am aware—and I think I am right—we are the only people who have had the guts to drop it out of an aeroplane. I happened to have been at Martham shortly afterwards, and I was speaking to one of the pilots who showed me some of the aeroplanes that were used and told the story of the pilot who actually dropped the bomb. I cannot verify the story; I have no other information about it; but I believe the story is quite true and that it is worth repeating. When the pilot who was to drop the bomb made his final run in, his machmeter failed so that he had to go in and try his best. The procedure for dropping a bomb is to go in and to drop the bomb, and then to turn completely round and come back again—one has to turn 360 degrees. This the pilot did. He turned too rapidly, got into a high speed stall and dropped 5,000 feet. Nevertheless, he got away with it. That man had the guts to do that. As far as I know no other nation has done anything of that sort.
We should remember that we in this country still have those chaps behind us. I think it is worth while remarking that "that is that", and that we are now in the lucky position of having a better weapon than we, with our resources,

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have managed to develop. Therefore I think the decision to scrap the weapon now was courageous and completely right. I am afraid I do not always back the Government 100 per cent., as I ought to do. In this case I do, and I am proud indeed to be able to do so.
4.55 p.m.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, I think we have had a most interesting debate this afternoon, and that the speeches which have been made have shown clearly that the Opposition were quite justified in putting their Motion upon the Paper. The speech made by the noble Lord, Lord Carrington, the First Lord of the Admiralty, was interesting, and I am certain that I shall read it with great interest to-morrow because it will be worth going through again. On the other hand, I felt that there were blanks in his explanation of the course of events which certainly need to be filled in. Because of the way in which the Government in another place failed to answer certain facts, I found it difficult to accept as being practically unchallengeable his presentation of the case as to whether or not the Government should have been able to take their decision earlier in regard to the abolition of Blue Streak.
According to a speech made by Mr. George Brown in another place, on two separate occasions in 1958, at the beginning of the year and in the middle of the year, strong warnings were given about the dangers of going on with this weapon because of its vulnerability. The First Lord will know that, as was pointed out in another place, a Committee was set up to advise the Government about it, I think under the chairmanship of Sir Robert Powell—a man for whom I have a great respect, and one who did a great deal of work for us in the war. Like many other fine civil servants, he graduated from the Admiralty. I know him very well. It seemed that nothing came from that inquiry; there was a slowing up of progress at that time with Blue Streak, but afterwards it was resumed and pushed on with.
It seems that we had no answer in another place as to the reason for suspending Sir Robert Powell's Committee and then bringing them back into
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service again on this matter. It points to the fact that there were real opportunities for the Government then to take decisions which would have avoided what is the subject of our charge today—namely, that in this business the Government have had to spend a much larger sum of money than they might have done had they taken earlier decisions as to the vulnerability of the sites for what was a developing new carrier for a rocket. We have had no answer to that. In my rather long political life I have seen in various Governments' histories instances where Ministerial resignations have taken place on far less difficult financial situations than this one. That, too, has been pointed out in another place. But in the official statements made there seems to be no sense of guilt in regard to any person in this matter.
As I look back over the last year or two I feel that we have been perfectly correct in following closely what was to happen as the result of the 1957 White Paper. There, as I said in the debate a few months ago, it was perfectly clear that the move towards the development of this kind of ballistic missile was part of the new plan which was presented to the country, in the belief, so firmly expressed by Mr. Duncan Sandys, at that time the Minister of Defence, that this was going to mean an economy—a saving of money. In the first year there was going to be a saving of about £100 million plus, and there was to be a continuing saving of money afterwards. We therefore watched carefully to see whether that would be so, because it would be one of the justifications for the policy outlined in the 1957 White Paper. But, of course, nothing of the kind has happened. The costs of defence go up and up, and security grows less and less. In our Motion before the House to-day we point out this fact. Not only do we
"call attention to the decision to discontinue the development of the Blue Streak missile"
and
"to the considerable expenditure of public funds,"
but
"to the new situation created in the national defence plans."
The noble Lord, Lord Carrington, says that there is no new situation. That is

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what he clearly tried to argue this afternoon. Is that so? At the time of the development of the 1957 White Paper policy we certainly had something in the making which was going to fill the gap in our nuclear defences in the 'sixties. And that has gone; that is discontinued. I am not quarrelling with the decision to discontinue, because I think the Government have been absolutely right to discontinue. My only complaint is that it was not done before; it should have been dropped before.
What have we now in its place? We have, of course, the temporary expedient—and it is a very temporary one—of using the bombers with the present standoff weapon. But it seems to me that with our present bases, before we get any further development of the V-bombers and Blue Steel, we should have to go within quite a limited distance of the target we are aiming at, so that at the present time our bombers thus conveying that weapon will be in grave risk of being shot down, and widely shot down. It will be only when we get the new type of weapon and the latest V-bombers that we shall be able to dispatch our rocket missile from a much longer range, and therefore, though they still will not be absolutely safe, there will be less liability to heavy casualties in that direction.
What have we now? It is proposed to use, when the time comes, the Skybolt. Where is the Skybolt? What is its development? I listened carefully this afternoon to see if the First Lord of the Admiralty would tell us when he expects it. There was no date. We listened carefully for any sort of firm details as to the contract. I want to read again carefully the conditions to which he referred and the assurances about the contract, from which some noble Lords seem to think that all strings are detached. I should like to reassure myself about that once more. It wants very careful reading, and I will do that. But at the present time in place of Blue Streak, which of course it had become quite hopeless to go on with, because of its vulnerability and its ground site, we have a promise that at some time, somewhere, this other weapon, not yet developed, will be supplied, and that because it will be delivered by aircraft it will be less vulnerable than the Blue Streak.
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My Lords, I feel very convinced in my own mind that we have been right to bring this question to the notice of the House. The question I ask the Government is: what are you going to do now about your general plan? I rather sensed the feeling in the speech of the First Lord of the Admiralty that he had at least an affectionate regard for the Polaris. We could see a sort of feeling, too, that the time when we could produce submarines equipped to dispatch the Polaris missile was a very long way off. We did not hear anything from him about the possible range at which the Polaris could be fired, and whether or not there would be a great deal of vulnerability in the submarine itself. I rather gathered that he feels that the submarine would be much more difficult to detect than some people imagine in those circumstances but certainly the range from which the Polaris missile would be fired from the submarine would be very much less than the kind of range at which, apparently, a Russian missile can be, and would be in the event of warfare, dispatched. So we have no really great answer in the proposal in that connection.
However, in considering the point made not only on this occasion but on the previous occasion by my noble friend Lord Attlee, about the advisability of having mobile bases for the dispatch of these weapons, I hope that a great deal of attention will be paid not only to the possibility of developing dispatch by aircraft, if the Government have a weapon available, but also to continuing examination of the possibility of having mobile bases at sea. If that were done, it might be of very great assistance to us. Certainly we are going to have another debate upon the Navy Estimates later on, and perhaps we can on that occasion ask some more questions on those matters. We may have something more to say then.
In the meantime, the Press of the country have been very anxious to turn upon the Labour Party—and this was referred to, and I thought quite fairly referred to, by the noble Earl, Lord Swinton—and to make it an occasion for saying, "Well, the Labour Party have no leadership; they have departed from all their ordinary tenets in connection with the general defence problem and the like". Of course, that is not

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true. There is one thing about the Labour Party which is slightly different from the Conservative Party: they have a very important and large annual Party Conference. The Conservative policy decisions very often do not seem to be exactly what is decided in their Party Conference. But in the case of the Labour Party we have to act in these matters upon the actual decisions taken at the Labour Party Conference.
If one casts one's mind back to the Brighton Conference, two years ago, one recalls that Mr. Aneurin Bevan himself made perfectly plain his attitude against any possibility of turning to unilateral nuclear disarmament. It was Mr. Bevan himself who made it perfectly clear. He, quite rightly, was already foreseeing the problems that would face not only the Defence Minister but any Foreign Minister who came to the table where we want to discuss urgently, and I hope effectively, the problem of general disarmament, provided that it is under proper control and inspection. He stated his attitude if he himself, for his country, had to go into the Conference naked—that was the actual word, I think, that he used in his speech at Brighton. So there is no dubiety at all as to where the actual Labour policy stands in this matter until some Labour Conference, having threshed it out in the meantime, come to a further decision.
We have the position into which we have been led since 1957, since the White Paper policy of 1957, and which has now culminated in the essential cancellation—I agree the quite essential cancellation—of the Blue Streak project, which means that we have to think again of what shall be the details of the defence policy of the country in future; and that is as far as we can go upon that. In the meantime, I think we are entitled to register our protest at the manner in which this development of the Blue Streak has proceeded for so long. There were the warnings; there was an opportunity on at least two occasions for revising the project, and for saving a great deal of money. By the way, the First Lord of the Admiralty will agree, I think, that this afternoon he assessed the total cost as £65 million. That was the figure. I put it down carefully as he said it.
LORD CARRINGTON: My Lords, I said that £65 million had been spent, and that even if you took the £65 million plus the cancellation costs it would not be more than about £100 million.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, I would say that that is probably right. It seemed to me that the Minister of Defence himself, in another place, accepted pretty well that it was £100 million; and I have seen other estimates of between £120 million and £130 million. I do not say the Minister accepted the latter figure, but it was certainly over £100 million. So we are entitled to register our protest, in those circumstances, when we have many urgent things to do in the financial sphere, and when we ought to be exceedingly careful.
We should also like the Government to consider how this volume of expenditure reacts upon us when we see how our defences have been cut and cut in relation to what is, at least as a money figure, a Budget larger than any we have had since 1947 or 1948, after we got rid of the war expenditure and came down to a peace-time basis. Certainly when I left the Ministry of Defence in 1950 the figure was slightly over £800 million for the year—about £830 million: and when you think of £100 million which goes just like that, and which could very largely have been saved, then I think we are entitled to register our protest at the fact that it was not discovered much earlier that the site for the weapon would be much too vulnerable and that therefore something else had to be done and thought out.
I should like to say two further things. I appreciated what the noble Viscount, Lord Stonehaven, said about the technicians, the scientists and their staffs who have engaged upon these works. And, believe me, my Lords, on this matter of research for defence I do not think that in peace time any Government have made the kind of allocation for this purpose that we decided upon (I think my noble friend Lord Attlee will remember this) in 1946, before we introduced our first White Paper. We decided that we would set aside in the Budget every year a very considerable sum (I think the first sum we set aside was £150 million) for defence research and development; and that total has been constantly increasing since. I

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have no desire to avoid anything in the way of payment for proper research and development in regard to defence. It is very important that we should be always increasing and improving our technical knowledge, so long as other countries in the world go on rearming. If they go on rearming, we must rearm, too. But I am certain that, at the stage of world history which we have to-day reached, as my noble friend Lord Attlee has said to-night, we need more than ever to go for general disarmament—a general disarmament which is controlled, and which is, for security and safety purposes, subject to inspection. But I think that, however quietly and carefully we have conducted this debate on both sides of the House to-day, it would be only right, in view of this question of expenditure and of what we think has been inefficiency in control of this project, that we should go into the Lobby to vote on this Motion.
5.13 p.m.
VISCOUNT HAILSHAM: My Lords, like the noble Viscount who has just resumed his seat, I personally welcome this debate. It enables us to think, and I hope think logically, under the discipline of a specific decision, about some of the general aspects of our defence policy, and I think we have done so in an atmosphere of complete candour. It is true, as the noble Lord, Lord Citrine, reminded us, that no one who approaches a subject of the extraordinary complexity of defence policy at the present time can do so without a consciousness of oversimplifying the issue. Equally, it remains true, as I think more than one noble Lord has said, that a Government spokesman, in approaching this question, has to be very careful not to compromise security in any way in what he says.
As I ventured to point out when I proposed the adoption of the Defence White Paper at the beginning of March, my own conviction (it is not, I believe, universally shared, but I still adhere to it) is that we all know enough about this subject to be able to debate it in what really amounts to an atmosphere of complete candour. I will not go over again a great deal of what I said then. Both the noble Viscount the Leader of the Opposition and the noble Earl, Lord Attlee, have referred, in terms which I think would have commanded at any rate their general acceptance, to the underlying policy of disarmament and
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world organisation which I think they will themselves agree I was the first to set forward in my own speech at the beginning of March. But, without in any way going back on any of that, I should think that probably the desire of the House would be that I should confine myself more specifically to the kind of topic revolving around the decision about Blue Streak, which is the subject of the debate that we have before us this afternoon.
Now there have been, both inside the House and outside it, a number of criticisms. No one has suggested in this debate that we were wrong to scrap Blue Streak; I believe I am right in saying that no criticism has been uttered on that score. But I think it is right to remind the House that, for reasons which I will give, this has not been universally true outside it. Sir Frederick Brundrett, before the decision was announced, made it very plain that he would regard the scrapping of Blue Streak as a mistake; and in the other place, if it is not out of order to refer to it (and I think I am in order), the late Minister of Supply, Mr. Aubrey Jones, made it very plain that he, for his part, regretted our decision. I thought I detected in one Labour speaker, Mr. Woodrow Wyatt, a rather similar point of view, less distinctly expressed.
My Lords, I am convinced that our decision to scrap Blue Streak was right; but, if I may say so, I think we have been given rather an easy ride about it in this House to-day, because I would say, with the noble Lord, Lord Shackle-ton, in his speech in March, although not in his speech this afternoon, that the decision to scrap Blue Streak was a matter of highly marginal arguments, for and against. It is perfectly true, as noble Lords have said, that one, at any rate, of the factors which influenced the Government in their desire to do so was the vulnerability of the fixed-site missile. We have said so: and the noble Earl, Lord Attlee, has rightly said that he drew attention to the weakness of a fixed-site missile as long ago as March, 1958. But I think one can over-estimate the vulnerability of such a missile; because, as the noble Earl, Lord Attlee, said, it derives from the vulnerability of this Island, and not from the vulnerability of the missile. Both the Americans and the Russians have gone into fixed-site missiles on a very big scale, and one would think

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that, in the general context of N.A.T.O. defence, they have a very valuable part to play.
It is true, of course, that this Island is highly vulnerable. What is also true—and I think I can say it without in any way compromising security—is that long before the Blue Streaks in their holes were destroyed by a forestalling attack, this Island would have been virtually uninhabitable—and, for the vast majority of us, after a very much lighter scale of attack. And although one may draw one political or strategic moral or another from that fact, one would have to contemplate a concentration of attack on this Island, before Blue Streak was actually destroyed as a retaliatory weapon, of a far greater order than one would normally think at all likely, even in the worst set of circumstances available. Therefore, I think that one has to face the fact, and one starts from the fact, that the decision to scrap Blue Streak was only a marginal one, and was one which was undertaken because, on balance—after the amendment of the McMahon Act, and after we had subsequently ascertained by a special visit of my right honourable friend to America the availability of Skybolt, at any rate as soon as the Americans had made it effective—it was marginally desirable that Blue Streak should be abandoned in favour of what we considered to be a better alternative.
If I may endorse what my noble friend Lord Teviot said, I would say that the noble Lord, Lord Shackleton, has conducted this debate in the best spirit and in the most moderate manner. He very fairly agreed, although the noble Lord, Lord Rea, did not, that we were right to start the Blue Streak as a project. Apart from the noble Lord, Lord Rea (whose criticism really proceeds from a general view about the position of this country in the world, with which I partly agree but which, I shall hope to show in the course of my argument, is in this context mistaken), there has been no voice raised to suggest that we ought not to have started Blue Streak. On the whole, I think that we were given a fairly easy ride on that.
The decision to start it, like the decision to stop it, was a carefully balanced affair, in which a practical judgment had to take place as between
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two sets of very evenly balanced arguments. The alternative might have been to go on with the supersonic bomber instead of Blue Streak. In that case we should have spent a great deal more money. The argument against the supersonic bomber was that it would have been most vulnerable at the time it came into production. Incidentally, in order to answer at this juncture, the logically right point, the question put to me by the noble Lord, Lord Shackleton, that is the objection against the second version of Blue Steel. Its vulnerability, considered on balance—but only on balance—is excessive at the point of time at which it would be likely to come into operation.
We decided that we must go into the ballistic missile field. Again, nobody in the course of the debate has suggested that if, in 1955, we were going into the ballistic missile field, the Blue Streak was other than the only kind of missile which at that time was available for us to go for. I know it is said that we stuck to it a great deal too long. I cannot see at what point of time the Opposition claim it would have been a reasonable decision to scrap Blue Streak, on the argument which I have tried to indicate, anterior to the point at which we actually did scrap it. Of course, the decision to do so has cost money. Clearly, the earlier you scrap a weapon which is not ultimately going to be used, the less money you spend. But, in these matters of terrific moment, clearly we ought not to have scrapped it until after my right honourable friend had gone to America and received the assurances which he did receive relating to the Skybolt, which was possible because the American Congress, within their own sovereign rights, had earlier decided to amend the McMahon Act. I should have thought that we would have laid ourselves open to a wide charge of irresponsibility if we had decided to scrap Blue Streak, although of course we knew, as the Opposition knew, that it had this vice of vulnerability, before we had worked out some kind of alternative which would take the place of the present combination of V-Bomber and stand off bomb at the time when that combination became unduly vulnerable.

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I should say, with respect, that if my argument has been valid up to this point, so far from being given over to criticism, what this debate has established is that the right decision was taken at the right time.
LORD SHACKLETON: My Lords, is the noble Viscount saying that if the Skybolt was not now to be available, we should continue to persevere with the Blue Streak?
VISCOUNT HAILSHAM: My Lords, I am not quite sure that I understand that question. What I was saying was that it would have been irresponsible to scrap the Blue Streak until we had received the degree of assurance which we have now received about Skybolt. That, at any rate, is not hypothetical. I cannot see anything which has happened in this debate which has in any way detracted from the validity of the argument I now put forward.
LORD REA: My Lords, if we had not received that assurance about the American Skybolt, would the Government have still gone on with the Blue Streak?
VISCOUNT HAILSHAM: My Lords, the decision to scrap the Blue Streak was deliberately not taken until after we had received that assurance. Of course, I am quite unable to say what would have happened, in the hypothetical event, had we not received it. The point is that we did receive it and we took a decision, which I am now defending as right. And I do not understand that that decision is in question before any of your Lordships to-day. What the charge (as the Opposition are pleased to call it) is alleged to be is that we ought to have done it a long time before. Therefore, I feel that I have presented an argument which deserves attention in this connection—namely, that the debate really establishes that we did what we did rightly and at the right time.
This leads me back to one or two more general questions. Perhaps I should start with this point, which was very well made by my noble and gallant friend Lord Bridgeman. We start with the same kind of technological background to all our decisions, whatever they may be. An industrialist wrote to me the other day in connection with quite a different matter. He was not writing about either the Blue Streak or any specific
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strategic project. He said that in any great industrial undertaking to-day, once a decision to proceed is taken, a project team of scientists has to be put on it and in about seven years you may get something which works, and about five years later (that was his figure, three would be the figure in relation to the Blue Streak) you might begin commercial production of what had been planned twelve years before. It is perfectly obvious that, when dealing with modern technology, you are bound to come to a certain number of decisions to proceed.
If we want this country to be in the field at all, and I am sure the great majority of people of this Island do have that wish, we have to come to a great number of decisions which, by the time production is arrived at, will mean production in a world totally different from that which saw their conception. Therefore, surely, what has to be done is what we are trying to do in this debate, on both sides of the House: to come to a decision knowing that large sums of money are going to be spent on absolutely pioneering technologies, but keeping these projects under review year after year in order to see that money is not thrown away and that the situation which gave rise to the need has not disappeared. I have tried to indicate the reasons why the first moment at which it could logically be said that the situation which had given rise to the need had disappeared is exactly the moment at which the decision has been taken.
But this leads me to another set of reflections which affords yet another reason for welcoming this debate this afternoon. There has been in this House, in another place and out of doors, a great deal of legitimate inquiry about the phrase "an independent deterrent"—and, of course, I have my own interpretation of these words. I think that nothing but good can come out of a close scrutiny of the ideas underlying those words, and I will endeavour to give the House my own feelings about them. If by "an independent deterrent" were meant a deterrent of such size and destructive power that by the use of it alone we could hope to engage one of the great Powers in the world on our own with a hope of victory, then I would say that we have never had, and are not

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likely to have, in my judgment, an independent deterrent in that sense. But I do not think anybody supposes that that is the true objective. What we have at the moment is a significant part of the Western deterrent under our own control; something, that is to say, which could in theory and in law, although perhaps not in practice, be used without any other nation exercising control over us. The bombers are British developed, British designed, British equipped with a British bomb, British controlled and British paid for; and in that sense the deterrent is independent now.
When those bombs become obsolete, what then? At this point the noble Lord, Lord Rea, says: "We, the Liberal Party, have a grand policy". What the policy is I have listened on many occasions with a view to trying to find out, and I have never been wholly able to understand it; and nor, I think, have the Party opposite. But the charge which the noble Lord, Lord Rea, makes against up is that we ought never to have considered Blue Streak; it was, to use his own phrase, lapsing for once from his usual moderation, "madness to do so". The reason, I am told by the noble Lord, Lord Rea, that we were mad to do so was not the kind of technical reason which I have been discussing hitherto, but the broad proposition that we have to realise that in the modern world the position of this country is something different from in the nationalistic past. With the general premise of that argument I wholly agree. Nobody who belongs to the Party of Sir Winston Churchill or the present Prime Minister—and believe me, I am not trying to make a Party speech in any way—could possibly put forward any other view than that, in the context of the modern world, the great countries, our own and other people's, are absolutely interdependent upon one another. They are interdependent in peace to an extent probably greater than they yet realise, and would be interdependent in war if there were to be a conflict between East and West.
But the question which then arises is: what are the acceptable moral, political and economic conditions of the alliance? This is where I think, with respect, the noble Lord, Lord Rea, and his friends, have not really worked out the implications. In the first place, I imagine that
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the noble Lord would agree with me absolutely that it was quite morally unacceptable to say to our Allies, the Americans: "We know that there are a lot of people who find moral difficulty about the nuclear weapon; there are a lot of people who think with their feet rather than with their heads and march from one spot to another. The thing is difficult for us. Therefore you have got to do it." Quite clearly, if any part of the West is morally going to rely on the deterrent, we, as part of the West, must face our own moral responsibility. I start from that proposition. It is not a way out of moral or political difficulties to say to the Americans: "You do it instead of us." That would be disgraceful and quite unworthy of a country of the dignity and pride of ours.
The second thing I would say to the noble Lord, with all humility, is this. What are the political consequences of an alliance between ourselves—that is to say, Europe; and we are part of Europe—and the Americans? Is it ultimately to the advantage of either side that although the rest of our forces should be, at any rate in law, as they are, under our own control for the purpose of giving to or taking away from the Alliance, or using or not using (of course, we know that in practice they are not, because consultation is the rule and we should desire to keep that so; but in law they are under our control—Her Majesty's Brigade of Guards is under her control), the Alliance as between ourselves and the Americans should be classified in two grades, and that in certain conditions the Americans should have a veto and should control weapons which our forces should use? Is that an ultimately healthy political condition in which the Alliance can continue indefinitely?
I would ask the noble Lord, Lord Rea, to consider another question which is closely allied to it. What are the economic conditions in which the Alliance is to continue? Is it going to be said that every time there is a novel piece of technology—and the noble Lord, Lord Shackleton, has reminded us of how many novel pieces of technology revolve round this particular weapon—the Americans are going to make it and we are not? If that is the proposition, then the noble Lord must realise what the consequences are going to be. The

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consequences will be that over a whole range of technologies, which will have their peaceful applications no less than their strategic ones, America will be streets ahead of every other industrial country in the world, and we shall ultimately take our place in the backwater, manufacturing Scotch whisky and motor cars. Maybe that is what the noble Lord desires; but I doubt it. If there are novel technologies, they must be shared between the Allies, and the burden of making them must be shared in some proportion. I say that it is wholly irresponsible to put forward a general point which disputes that kind of position.
This, therefore, is what I would say about the independent deterrent. When the V-bombers as at present equipped become obsolescent we shall have a deterrent which, although not British-made, will be under British control; and we are not, I hope, out of business technologically in the industrial world of the future. It would be, I think, wholly repugnant to the position of this country, and probably fatal to its economic future, if we continued, as many people do, to over-estimate the wealth of the Americans. The Americans are, unless I am mistaken—and I am speaking now after the debate without the exact figures at my control—spending at this moment about 11 per cent. of their gross national product either upon foreign aid or upon defence, which for this purpose must be regarded in the same part. Our own figure is about 8 per cent. That is more than any other of the Western Allies, except the French, whose position is not really comparable because of the situation in Algeria.
I would say to the noble Lord and his friends—and I know how moderate and statesmanlike he is in his approaches to this question—that the kind of opinion which the less responsible among them are constantly putting forward, that if there is anything rather expensive or rather difficult or rather disagreeable to be done the Americans should do it and not we ourselves, is one which would be ultimately disastrous for this country.
LORD CITRINE: Perhaps I may interrupt the noble Viscount. As always, and like other Members of your Lordships' House, I am glad to hear his logical reasoning, but while he has been
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speaking I have been looking at what was said by the Minister of Aviation in the debate in another place. He said: [OFFICIAL REPORT, Commons, Vol. 622 (No. 101), col. 336]:
"I have, in fact, from the very start been consistently trying to substitute an American weapon for Blue Streak so as to save money. For the reasons which I have explained, this has now become feasible for the first time."
If the noble Viscount is correct we are turning our backs on certainly our independent development of that technology which he so prizes.
VISCOUNT HAILSHAM: No, my Lords: I do not think so. I do not want to go back on to what was said in another place, but as the noble Lord sees the way in which my argument is developing I think he will see that I am not liable to that charge of inconsistency.
It is, of course, true—and I want to say this absolutely plainly—that if, for good strategic reasons, an American weapon which is available to us comes into operation at any given point of time, it would not be a respectable argument to say that we should not get that American weapon because we wanted to move in the world of technology, because this would defeat the whole purpose of defence. I moved from that line of technical argument, upon which I had hoped to carry the noble Lord with me, to the more general conception which was given from the Liberal Benches, which have consistently in this House represented in some form or another what they call the abandonment of the individual deterrent. I was asking them to think again a little more closely through their kind of general approach to the matter, and I was not addressing myself to the particular subject of Sky-bolt and Polaris, of which the noble Lord quite rightly reminded me.
This has been a lengthy debate, and there is only one other topic I would wish to handle at all. Again I must apologise for any logical or oratorical deficiencies in this speech, because I deliberately set myself to listen to the debate, and to the many interesting contributions which have been made to it, before I prepared any kind of reply. I thought that in this particular case, at any rate, it would probably be more appreciated if I did so. If I do not mention all the excellent speeches from either side, I hope that the noble Lords will forgive

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me, although I am sure the House would like to join me in congratulating my noble friend Lord Teviot on his 86th birthday. I hope that when I am 86 I shall be able to make as vigorous and forceful a contribution to a debate. Perhaps in about 25 years' time I shall be telling the House how I enjoyed the debate on Blue Streak in 1960. Whether it will be as vigorous or as relevant as that pungent reference to Lord Roberts, I can only speculate.
The other subject upon which I wish to touch is in response to what was an invitation from the noble Lord, Lord Shackleton. I know he will forgive me if I point out that there was, I think, a fundamental inconsistency in some of his arguments. He committed himself, as the noble Viscount who leads the Opposition committed himself, to the view that the only charge against the Government was that we had abandoned the project too late; not that we had abandoned it, and not that we ought not to have started it, but that we had abandoned it too late, and that, as the noble Viscount the Leader of the Opposition alleged, we had spent too much money. That may or may not be a valid charge. I have answered it as best I can, and the House must judge between the Government and the Opposition on that view. But there is one thing which certainly cannot be said about it. The charge that we ought to have abandoned Blue Streak some years before at some unspecified date—which is the present charge—cannot live with the criticism the noble Lord, Lord Shackleton, made: that its abandonment was in fact a disaster and a blow to national prestige.
The noble Lord, Lord Shackleton, not content with that went on to tell a pitiful tale of the good scientists whose technology was going to be thrown away. The noble Lord cannot have it both ways. If we ought to have abandoned it before, the technology would have been lost before; and so far from having saved any money, if I were to respond to the noble Lord's invitation to spend some money on space research with this same vehicle, what becomes of the argument of the noble Viscount the Leader of the Opposition that so much money has been spent in vain? Because, whatever may be in dispute, one thing is abundantly
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certain; and that is that almost every penny spent so far, apart from the guidance system, would have been incurred anyway if we were going to shoot the Blue Streak up into space to send a satellite revolving round the world. The truth of the matter is that there is a fundamental schizophrenia in the Opposition at the present time. They are very keen to criticise what they believe to have been a mistake, but the arguments by which they seek to support their criticism are really mutually destructive.
I therefore turn to the more congenial and constructive theme of whether this vehicle might be of some use in space research. I cannot tell your Lordships a great deal about it this evening, but there are one or two fundamental things which I think I can usefully say now which may assist noble Lords, when the time comes, to discuss it at greater length. When the optical telescope was invented we reached a stage in science when a whole new world became available to our eyes. The discoveries of the 17th, 18th and 19th centuries really stemmed from the discovery of that instrument. They have slowed up since, although there are certain developments, into which I will not enter, which may indicate a new era of discovery even for the optical telescope.
But now that, for the first time, partly by the radio telescope and partly by the possibility of satellites, we can get outside the earth's atmosphere by instruments (and it may be, in due course, by man), we may be in an exactly similar position as regards fundamental physical and astronomical knowledge as the position in which our ancestors were in the days of Kepler and Newton. Therefore, it is wrong to say that there is no useful work to be done in the way of space research; and it is quite wrong to think that if we go in for space research we are necessarily making an unnecessary duplication or imitation of what American or Russian scientists may do. That might be true one day, but there may be 200 or 300 years of work to be done first, and it may well be that some of the hitherto unknown secrets of the universe, and even perhaps of life, might be the result of such work. Of course, one cannot say for sure that this will all have a practical application. One cannot say that about any form of absolute

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or pure research. But, if experience is any guide, experience would indicate that there will be undreamed of practical applications which I could not be called upon to specify.
Of course, such work has to be approached with extreme cautiousness. It is something hitherto unthought of that a Government speaker at the Despatch Box should solemnly discuss the spending of what might be millions of pounds of public money, at a time when there are many urgent human calls upon the public purse, and upon the taxpayers' private purse, in sending a piece of metal into space to revolve round the planet. If it were done, it would be something we should have to justify in relation to other calls upon our expenditure. But it is a great mistake to think that there is no work which could be done, even though scientific opinion in general would not at present support, from the point of view of pure science, a vastly disproportionate expenditure on space experiments.
There is also the question, on which I should like to say a word, as to whether anything we may do should be based on a national or an international effort, and to what extent—although this is, of course, not a fundamentally scientific, but a fundamentally political and general question. Our present space experiments, as your Lordships will remember, have been concerned with British Skylark rockets, with Australian help in certain experiments. Our next part of the programme is tied to international co-operation with the Americans based on the Scout rocket. Of course, if, for reasons which I would indicate, it became advisable or desirable to institute further and bigger experiments with the Blue Streak or the Blue Streak-Black Knight combination, one of the first things that would be in our minds would be whether this might not be one of the more co-operative enterprises which would achieve in peace, and by peaceful means, exactly the same kind of integration between great countries, that the noble Lord, Lord Rea, was advocating in his speech.
I know that my right honourable friend the Minister of Aviation made some statement about this in another place yesterday. I was myself in Brussels last week, and I had some informal contacts there in the course of a meeting with some of the officials of
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the O.E.E.C. Noble Lords may like to know that only last Friday some of the scientists (including Professor Auger, known to same) were over here discussing matters with the Royal Society. I know that they have had informal discussions and that the feeling of the scientists, although I understood they did not commit their Government, was that they would strongly welcome a European co-operative project in space research, which could obviously be coupled with the activity of this country and of the Commonwealth, particularly of Australia, if the Woomera Range were used.
All these things need very careful consideration, because to my mind the question of the use of Blue Streak on space research is based not so much on the pure science which might emerge from it as upon the technology; and the technology is, I would say, far more difficult to assess—the technology of having our own or a European rocket vehicle. If we give up Blue Streak for this purpose we shall indeed be out of business in the design and development of large rockets. This, I would agree with the noble Lord, Lord Shackleton, would have important secondary effects on the rate of progress in other fields of technology—for example, electronics, metallurgy and telecommunications. How serious those secondary effects would be is, I think, extremely difficult to assess. At present it is not apparent that the results would be serious, and this is certainly so in the short term. Our scientific effort at the moment is fully deployed, and a switch would not necessarily be disastrous. But it would be foolish to take the short-term view of such a matter. In 1900, the short term would have shown no immediate advantage from public expenditure on aircraft. But if experience is any guide there are almost always important commercial and military applications of any new discovery, and they are always followed by technological discoveries of much wider and more flexible use than otherwise thought.
Many other things have to be taken into account before we can abandon this project. Clearly, the decision cannot be one of first impression; it must depend on careful appreciation of the scientific and technological factors involved. That is why we are undertaking close dis-

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cussions with the industries and scientists concerned before we make up our mind. I added these comments to my speech rather out of consideration to that part of Lord Shackleton's speech which dealt with the possibilities of Blue Streak in space research, and I do not think the House would desire that I should say any more on that topic to-day.
My Lords, I would close by saying this. Nobody can complain at all of the spirit in which this Motion has been moved, or of the tone of the speeches. Whether the noble Viscount the Leader of the Opposition is wise to take it to a Division at the end it is perhaps not for me to say. The noble Viscount is old enough to be my grandmother, and far be it from me to instruct him in those operations in which grandmothers are traditionally supposed to be proficient. I would only say that if one were trying to take Party advantage in this debate, which we are not, the noble Viscount renders himself open to devastating retort in this respect, because there has never been a Party in quite such disarray about these complex and difficult matters as the Party of which he is a noble ornament.
Nor do I think many noble Lords will be impressed by his plea that, before we can have anything from the Oracle of Delphi, we must wait for another Labour Party Conference. It is true, of course, that all great Parties are influenced by, perhaps governed by, Party Conferences; but Members of Parliament, leaders of Parties in Parliament, leaders of Parties in the House of Lords and in the House of Commons, cannot abdicate the duty of leadership and guidance simply by relying on their Party Conferences. The noble Viscount can, of course, press this Motion to a Division at this moment; he is well entitled to do so. I hope that my arguments, however, will have had some effect upon him. They were designed to have a certain logical impact, and I hope he will consider them before he actually makes up his mind. But if he does make up his mind in favour of dividing the House, I can only say I think it is a very great pity that somebody who lives in a house composed so obviously of brittle crystal should endeavour to throw stones at the Government on a matter of this kind.
5.57 p.m.
LORD SHACKLETON: My Lords, the House is grateful that at least the noble Viscount has "gone off", even if Blue Streak is not to explode in similar fashion. I shall not detain your Lordships. Nor shall I allow the noble Viscount to ride off into space and escape the consequences of the folly of the Government on earth. I personally am grateful for the words used by the noble Viscount with regard to the possibilities of space research. But it will not be as a result of the wisdom of the Government but by sheer chance that we have a weapon, an instrument, which is so useless that we are able to turn it into another purpose. That is not due to the foresight of the Government.
VISCOUNT HAILSHAM: The noble Lord really must not mis-state the case. No country on earth, neither the Russians nor the Americans nor ourselves, could put a satellite into orbit except by using the technology and development which they have got from what they have spent on their Defence Budgets.
LORD SHACKLETON: The noble Viscount is perfectly correct. The only thing is that the Government never intended this instrument for this purpose. This would be the occasion on which I would withdraw my Motion if my noble friends and I had been convinced by the Government spokesmen. May I give two reasons why in fact I think it is right to press this matter to a Division? We have still had no clear explanation as to the time and the reason why this cancellation has been made now. The noble Viscount rode off on the question of Skybolt. Even at this late stage we should have liked to know whether, if Skybolt had not come along, the Government would have persevered with Blue Streak. We should also like to know what the independent contribution to the deterrent is. The noble Viscount said he could explain what he thought the independent deterrent was, but whether his explanation would remove the semantic confusion which was shown by the noble Lord, the First Lord of the Admiralty—and I apologise for interrupting him as I did—I do not know. All we know from the noble Viscount is that the independent deterrent is something which you have under your control and which you can use in theory and in law,

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but not in practice; and for that reason we shall vote against the Government to-day.

ABANDONMENT OF ANIMALS BILL
6.8 p.m.
Brought from the Commons; read 1a, and to be printed.

CIVIL AVIATION (LICENSING) BILL
Brought from the Commons; read 1a, and to be printed.

NEWCASTLE UPON TYNE CORPORATION BILL SAINT STEPHEN BRISTOL (BURIAL GROUNDS, ETC.) BILL SOMERSET COUNTY COUNCIL BILL
Brought from the Commons; read 1a, and referred to the Examiners.
On Question, Whether the said Motion shall be agreed to?
Their Lordships divided: Contents, 27; Not-Contents, 53.

CONTENTS

Addison, V.

Faringdon, L.

Shackleton, L.

Alexander of Hillsborough, V.

Granville-West, L.

Silkin, L.

Attlee, E.

Greenhill, L.

Sinha, L.

Boyd-Orr, L.

Henderson, L.

Stansgate, V.

Burden, L. [Teller.]

Latham, L.

Stonham, L. [Teller.]

Chorley, L.

Lawson, L.

Strabolgi, L.

Citrine, L.

Macpherson of Drumochter, L.

Taylor, L.

Crook, L.

Pethick-Lawrence, L.

Williams, L.

Dalton, L.

Rea, L.

Wise, L.

NOT-CONTENTS

Ailwyn, L.

Ellenborough, L.

St. Aldwyn, E. [Teller.]

Albemarle, E.

Elliot of Harwood, B.

St. Oswald, L.

Allerton, L.

Freyberg, L.

Somers, L.

Amherst of Hackney, L.

Goschen, V.

Spens, L.

Ampthill, L.

Gosford, E.

Stair, E.

Arran, E.

Hailsham, V. (L. Privy Seal.)

Stonehaven, V.

Balfour of Inchrye, L.

Hamilton of Dalzell, L.

Strang, L.

Birdwood, L.

Hampton, L.

Swinton, E.

Bossom, L.

Hawke, L.

Tenby, V.

Bridgeman, V.

Jessel, L.

Teviot, L.

Buckinghamshire, E.

Kilmuir, V. (L. Chancellor.)

Teynham, L.

Carrington, L.

Mar and Kellie, E.

Torrington, V.

Coleraine, L.

Merrivale, L.

Tweedsmuir, L.

Conesford, L.

Morley, E.

Waldegrave, E.

Cottesloe, L.

Newall, L.

Waleran, L.

Davidson, V,

Onslow, E. [Teller.]

Winterton, E.

Dovercourt, L.

Raglan, L.

Woolton, E.

Ebbisham, L.

Rathcavan, L.

Resolved in the negative, and Motion disagreed to accordingly.

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