Sitting of 22 June 1966

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the chair]
NEW WRIT
For Carmarthen, in the room of Lady Megan Arfon Lloyd George, C.H., deceased.—[Mr. Short.]
PRIVATE BUSINESS
  LIVERPOOL CORPORATION BILL (By Order)
  Consideration, as amended, deferred till Tomorrow.
  MERSEY DOCKS AND HARBOUR BOARD (SEAFORTH WORKS) BILL [Lords] (By Order)
  Second Reading deferred till Tomorrow.
ORAL ANSWERS TO QUESTIONS
  MINISTRY OF DEFENCE

    Bahrain (Minister's Visit)
    Mr. Kershawasked the Secretary of State for Defence when he next proposes to visit Bahrain.
    The Secretary of State for Defence (Mr. Denis Healey): On 15th July.
    Mr. Kershaw: Will the right hon. Gentleman realise when he visits there that Bahrain is no substitute for Aden, and can he tell the House how much money he proposes to save by substituting Bahrain for Aden?
    Mr. Healey: I entirely agree that Bahrain is no substitute for Aden, otherwise we would not be saving a large amount of money by going there, but Bahrain and the other facilities we expect in the Persian Gulf will be fully adequate to enable us to carry out all our commitments in that area. On the question of the precise amount of money we
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    expect to save, I cannot add to what was said in the Defence White Paper and the debates which followed.

    Hovercraft
    Mr. Wingfield Digbyasked the Secretary of State for Defence what conclusions he has reached about the use of a large Hovercraft for the Royal Navy as a result of the recent official investigation of the project.
    Mr. Hector Hughesasked the Secretary of State for Defence how far his consideration of Hovercraft following the trials of such craft in Borneo last year have gone in the direction of larger, seaworthy Hovercraft; and whether the prototypes he is considering for coastal patrol work are fit for crossing the English Channel and North Sea and for passenger and commercial use and for carrying freight.
    The Minister of Defence for the Royal Navy (Mr. J. P. W. Mallalieu): We have decided, subject to satisfactory arrangements on price and time-scale, to order two experimental Hovercraft for technical and service evaluation; one is to be developed and built for coastal patrol work, and one for logistic support. These craft will certainly be capable of crossing the English Channel and the North Sea; they may have commercial application where the sea is too rough for smaller craft, but the traffic too light for larger.
    Other studies of multi-engined craft are continuing.
    Mr. Digby: Can the hon. Gentleman give any idea of the size of the craft which has been ordered, and can he say also whether he is considering an even larger craft which will go further than coastal duties?
    Mr. Mallalieu: These are of 45 tons. Yes, we are considering a larger hovership.
    Mr. Hector Hughes: Can my hon. Friend say why Britain's achievement in the science of Hovercraft lags behind Britain's achievement in aircraft, as evidenced by the recent spectacular flight of Miss Sheila Scott, and will he do something——
    Mr. Speaker: Order. That supplementary question is getting too wide of the Question on the Paper.
    Mr. Hector Hughes: May I continue my supplementary? Will the Minister take steps to see that Britain's achievement in Hovercraft keeps pace with Britain's achievement in aircraft?
    Mr. Mallalieu: Britain's achievements in Hovercraft lag behind no one and no thing.
    Captain W. Elliot: Can the Minister tell the House whether the Hovercraft is a naval vessel? If this question has not been considered, ought it not to be considered, to prevent overlap which has so often occurred among the Services in the past?
    Mr. Mallalieu: There has been no overlap at all. Inter-Service work has been entirely harmonious and satisfactory. What one calls the thing I do not know, except Hovercraft, which is what it is.
    Mr. E. L. Mallalieu: Will my hon. Friend bear in mind the vast superiority of the Humber ports for craft of this order, rather than the North-East of Scotland—or Aberdeen?
    Mr. J. P. W. Mallalieu: I do not want to get involved in that one.

    Polaris Submarine Base (Indian Ocean)
    Mr. Wingfield Digbyasked the Secretary of State for Defence what investigations he has made into a suitable site for a Polaris submarine base in the area of the Indian Ocean.
    Mr. Healey: None, Sir.
    Mr. Digby: Are we to understand that in conversations with the Americans this was not thought of last year, in view of the importance which the Government attach to policy east of Suez?
    Mr. Healey: We think of a great many things which we do not discuss with our allies. There are no plans by the Government to put Polaris boats east of Suez.
    Dr. Gray: Would my right hon. Friend give an assurance that the Indian Government will not be subjected to nuclear defence against their wishes either from Polaris submarine bases or by Prime Ministerial nuclear umbrella?
    Mr. Healey: I can assure my hon. Friend that the Indian Government will
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    receive no defence assistance which they do not request.
    Mr. Powell: How, then, is it proposed by the Government to provide any nuclear defence of the kind to which the Prime Minister frequently refers, in the event of its being agreed to?
    Mr. Healey: My right hon. Friend the Prime Minister has repeatedly made it clear, not least in the notable speech which he made in another room a week ago, that there is no proposal by Her Majesty's Government unilaterally to provide nuclear defence for India.

    Vietnam (Observers)
    Mr. Martenasked the Secretary of State for Defence if he will seek to attach British officers to units in Vietnam as observers.
    Mr. Healey: No, Sir.
    Mr. Marten: But would not the right hon. Gentleman agree that, in the interests of peace, British forces must keep up to date in the skills" and techniques of counter-insurgency warfare? As the confrontation in Malaysia might fold up, ought we not to attach some British officers to the Commonwealth troops fighting so nobly for the defence of freedom in South Vietnam?
    Mr. Healey: I recognise that it is desirable that we should keep in touch with developments which might be relevant to the rôle of our own forces. That is the reason why we have attached three additional defence attaches to the British Embassy in Saigon.
    Mr. Park: Is my right hon. Friend aware that any proposal which involves a British military presence in Vietnam in any capacity whatsoever would be most strenuously resisted both by the Labour movement and by the country? Will my right hon. Friend reaffirm that the Government have no such intention?
    Mr. Healey: Yes, Sir.

    Arms Sales
    Mr. Martenasked the Secretary of State for Defence what was the total value of arms sales overseas for the last convenient 12 months before the appointment of the new head of defence sales.
    Mr. Healey: About £120 million during 1965.
    Mr. Marten: In the furtherance of the job of exporting arms, will an arms manufacturer get any particular Government assistance when doing so over and above what a private exporter would get? Will the Prime Minister's statement about the break-up of the Ministry of Aviation mean that Mr. Brown, the arms salesman, will be put under the Minister of Technology?
    Mr. Healey: On the second question, no, Sir; on the first question, yes, Sir. The Government are helping British manufacturers to sell their arms abroad through the appointment of the new head of defence sales.
    Mr. Emrys Hughes: Is my right hon. Friend aware of the Prime Minister's statement yesterday that all war is barbarism and that, when the arms salesman heard this, he thought that the Prime Minister was letting him down and threatened to resign?
    Mr. Healey: To the first question, yes, Sir; to the second, no, Sir.

    Type 82 Destroyers
    Mr. Atkinsasked the Secretary of State for Defence when he intends to place orders for Type 82 destroyers; when he expects that these ships will start to come into service; and what their primary rôle will be.
    Mr. J. P. W. Mallalieu: I have nothing to add to what I told the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) on 9th March, and the hon. Member for Haltemprice (Mr. Wall) on 27th April.
    Mr. Atkins: Does the right hon. Gentleman consider it to be satisfactory that he should delay so long after his announcement in February about ordering these ships? Has he gone to tender for these ships? Does he realise that every month he delays ordering them will add to the cost of £17 million, £18 million, £19 million or £20 million each?
    Mr. Mallalieu: We have gone to tender and hope to place a contract in September.

    Polaris Submarines (Missiles)
    Mr. Atkinsasked the Secretary of State for Defence what plans he has for equipping our Polaris submarines with Poseidon missiles in place of 3A missiles.
    Mr. Healey: None, Sir.
    Mr. Atkins: Does the right hon. Gentleman know that the President of the United States has stated publicly that this weapon increases the effectiveness of a Polaris submarine eight-fold? In view of the Prime Minister's intention to provide a massive contribution to the nuclear defence of the West, does he not consider that our Polaris submarines should be armed with the most advanced weapons available?
    Mr. Healey: No, Sir. My view has always been that our forces should have the most advanced weapons required. We are not satisfied that there is a requirement for the Poseidon missile. Moreover, the American Government have not yet made a decision to produce and deploy it.
    Mr. Wingfield Digby: Despite the technical difficulties, can we be assured that this matter has at least been looked at?
    Mr. Healey: Of course, Sir.
    Rear-Admiral Morgan Giles: Does that reply mean that the Polaris is now considered to be an entirely satisfactory system and that there is, therefore, no longer any need to renegotiate the Nassau Agreement?
    Mr. Healey: I do not think there is any connection between the first and second parts of that question.

    Anns Supplies (Anglo-American Agreement)
    Mr. Ridleyasked the Secretary of State for Defence if he will publish the text of the Anglo-American agreement for co-operation on the supply of arms to third countries as part of the dollar offset arrangements following on the purchase of the F111A.
    Mr. Healey: No, Sir.
    Mr. Ridley: Is the right hon. Gentleman aware that there is a growing feeling in America that there is no firm specific

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    commitment under this arrangement? Is he aware that it is becoming better and better known that the right hon. Gentleman was fobbed off? Will he publish the terms of this agreement so as to vindicate himself?
    Mr. Healey: The hon. Member should be aware that Mr. McNamara stated America's obligations under the agreement in the most precise terms a week or two ago to the United States Congress. Moreover, an official of the American Defence Department is coming to London this week to try to improve some of the arrangements for presenting the invitations to tender on this matter.
    Mr. Frank Allaun: In view of the difficulties which have already arisen and the tremendous cost in foreign exchange to our country—which we cannot afford —will the Secretary of State carefully reconsider this proposal before it is too late and the whole matter is finished?
    Mr. Healey: No, Sir.
    Mr. Powell: Why was the existence of this agreement, which accounts for the greater part of the dollar cost of the F111A aircraft, not disclosed in the Defence White Paper?
    Mr. Healey: It was referred to in my briefing on the Defence White Paper which was given in the House on the same afternoon that the White Paper was published. Moreover, the fact that sales to third countries were part of the sales agreement was twice referred to by me in my statement in the House that afternoon, but the right hon. Member for Wolverhampton, South-West (Mr. Powell) did not discover that this was the case until two months later, when I told him.
    Mr. Powell: But why was it not in the White Paper itself? Was it because the agreement had not been arrived at when that Defence White Paper went to press?
    Mr. Healey: No, Sir. This agreement was arrived at a month before the right hon. Gentleman's extraordinary rigmarole to Conservative ladies in the Home Counties recently appeared to suggest.

    Jordan (Supply of Arms)
    Mr. Ridleyasked the Secretary of State for Defence why there was no co
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    operation between the United States Government and Her Majesty's Government on the recent sale of arms to Jordan, in view of the agreement between Her Majesty's Government and the United States Government on cooperative sales to third countries.
    Mr. Healey: The discussions that took place with the United States and Jordanian Governments were confidential and I cannot disclose details.
    Mr. Ridley: No wonder. If the agreement in effect is viable, why has there been no benefit whatever to us in relation to Jordan, or, so far as we know, in relation to another Middle East country which will be relevant shortly? Is he aware that this is a classical example of the fact that this agreement is worth nothing?
    Mr. Healey: There is no agreement for us to co-operate with the United States on all sales of armaments to third countries. Only last week I made certain sales to the German Government in competition with the United States. Jordan was an issue in our discussions with the United States, but the fact is that the Jordan Government found it more to its interest to buy three times as many refurbished American aircraft as new British aircraft. There was nothing we could do about it. In the end, the buyer will always decide what he wants.
    Mr. Powell: Is it not a fact that the arrangements for a co-operative sale to Jordan were far advanced? Why did they break down?
    Mr. Healey: No, Sir. Like so many statements by the right hon. Gentleman, that is not a fact.

    Defence Budget
    Mr. Powellasked the Secretary of State for Defence if he will specify the main components of the saving of £80 million on the defence budget for 1969–70 arising from the decision not to build the new aircraft carrier.
    Mr. Healey: Approximately £25 million on the new carrier and its associated support and the balance of £55 million on aircraft.
    Mr. Powell: The right hon. Gentleman has told me that, of that balance,

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    £15 million is attributable to Phantom aircraft. Can he, if necessary in writing, supply me with more detail on the remainder?
    Mr. Healey: Yes, Sir, I can do that orally now—£15 million was for Phantom aircraft, £9 million is on credits for the Phantom buy, and the rest is on Buccaneers for fewer Buccaneers of the present mark, not developing and buying Buccaneer Mark 2 Star and not developing new British airborne early warning aircraft.

    Military Medal (Gratuities)
    Captain W. Elliotasked the Secretary of State for Defence what gratuities are paid to holders of the Military Medal who won this decoration in the Second World War and the First World War, respectively.
    The Under-Secretary of State for Defence for the Army (Mr. David Ennals): For the Second World War, £20 gratuity or for pensioners 6d. a day in addition to pension; for the First World War, nothing.
    Captain Elliot: When the hon. Gentleman comes to answer my supplementary question, will he throw away his Departmental brief? Is he aware that I know the number who won the medal in each war? Does he not think that there is a most unfair anomaly which could be easily corrected, and will he look into the matter?
    Mr. Ennals: When the decision was taken at the end of the Second World War, it was decided that it would not then be possible to include First World War holders. If we were to do it now, it would involve a total of 35,000 holders of the pension from the First World War and would cost about £700,000. It is felt that at this stage, so many years afterwards, that would not be a reasonable expense upon the defence budget.
    Mr. Gurden: Is the hon. Gentleman aware that many of the recipients of this decoration, being officers, did not have their names and numbers inscribed on them, which is the practice with other ranks? Will he look at the point and try to change the practice so that all names and numbers are inscribed?
    Mr. Ennals: With respect, that is a different question, but it goes to prove that it would be difficult to track down all those who gained the award at the time of the First World War.
    Captain Elliot: In view of the unsatisfactory nature of the hon. Gentleman's reply, I wish to give notice that I shall raise the matter on the Adjournment.

    Ships (Aircraft)
    Captain W. Elliotasked the Secretary of State for Defence what types of ships in the Royal Navy are equipped to carry and operate aircraft.
    Mr. J. P. W. Mallalieu: Aircraft carriers, commando ships, assault ships, guided missile destroyers, Leander and Tribal Class frigates, the ice patrol ship, some surveying vessels and some Royal Fleet Auxiliaries.
    Captain Elliot: Will the Minister give an assurance that he will not limit these ships in the Royal Navy which can carry aircraft to only one type of aircraft?
    Mr. Mallalieu: I hope not.
    Mr. Atkins: Does not the Minister's Answer really refer to helicopters rather than to aeroplanes? Will he give the House an assurance that his Department is studying the possibilities of V.T.O.L. aeroplanes being carried in our ships in the future?
    Mr. Mallalieu: That is one of the options which we are looking at urgently.

    British Army of the Rhine
    Mr. Kershawasked the Secretary of State for Defence what steps he is taking to bring the British Army of the Rhine up to the strength undertaken by treaty.
    Mr. Healey: Our general intentions regarding B.A.O.R. were set out in this year's Defence Review White Paper. The strength of B.A.O.R. at any one time depends on such factors as our other overseas commitments and the progress of recruitment for the Regular Army.
    Mr. Kershaw: But how will the Secretary of State bring up these figures to

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    the treaty strength in view of present recruiting levels and the fact that he proposes to cut the Regular Army by 16,000 men?
    Mr. Healey: The hon. Gentleman will be aware that there are plans for redeploying the forces following the end of confrontation, which we now hope is in sight.
    Mr. Michael Foot: Is it not the case that the British Army of the Rhine has never been up to strength since the Treaty was agreed, which is a further illustration of the absurdity of this commitment, which was made by a previous Government? Will my right hon. Friend make sure that we do not enlarge the Army there at a time when the Americans and many others are considering immense reductions, which we in this country want to see? We want to reduce the scale of the arms budget west of Suez, as well as east of Suez.
    Mr. Healey: My hon. Friend will be glad to know that I share his desire to reduce the arms budget, but not at the expense of the nation's security.
    Sir C. Osborneasked the Secretary of State for Defence, in view of the changing rôle of the North Atlantic Treaty Organisation, including France's desire to opt out, and that of the United States to reduce overseas expenditure, what negotiations he is having to reduce the British Army of the Rhine and gradually to bring home British troops; and if he will make a statement.
    Mr. Hamlingasked the Secretary of State for Defence what plans he has for bringing back the British Army of the Rhine to this country.
    Mr. Healey: As things stand, we have no intention of bringing back or reducing the British Army of the Rhine, provided means are found for meeting the foreign exchange costs.
    Sir C. Osborne: Does the Minister suggest that our troops will stay there for ever? Why cannot the Germans defend their own country? What right have we to put our troops there and let the Americans pay for them? Surely we have some pride left?
    Mr. Healey: I think most of the House will recognise that the presence of our
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    forces in Germany is an essential part in the strength and solidarity of N.A.T.O. on which our survival depends. I point out that I said, "As things now stand". Her Majesty's Government hope that it may be possible to reach some agreement with the Warsaw Powers on a reciprocal reduction of arms in both parts of Europe, which would enable us on both sides of the Iron Curtain to make substantial savings.
    Mr. Henig: Will my right hon. Friend bear in mind that in any decision to leave Germany to defend herself, the great danger, if this is done, is that the Germans might decide to buy nuclear weapons, which some of us believe would be a great threat to the peace of Europe?
    Mr. Healey: I think my hon. Friend is absolutely right. The existence of the alliance is not only necessary to the security of our country but also a very important framework within which Germany can grow democratically and prosperously and not as a danger to her neighbours.
    Sir A. V. Harvey: The right hon. Gentleman said earlier that he had sold £8 million worth of goods to pay for the cost of these troops. Does not he think that it would be more appropriate to give a little credit to those who helped him to do that? Will he say when the balance will be sold to make up the cost of these troops before the autumn?
    Mr. Healey: On the first part of the hon. Gentleman's supplementary question, as he knows, the sales are not finally concluded. He would agree that any sale of this nature requires a great deal of hard work by a very large number of people, not only inside but outside the Government, before it can be concluded. I think that he will find that the sale of the £8 million worth of goods brings us close to the total of military purchases envisaged by the current offset agreement. He will know that the Chancellor of the Exchequer is shortly to discuss with the German Finance Minister the major question of covering foreign exchange costs in general.
    Mr. James Davidson: Would the right hon. Gentleman say whether consideration has been given to the possibility of keeping our troops in Germany on an active service basis and replacing them

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    periodically in order to save expenditure on the cost of permanent bases and family quarters?
    Mr. Healey: We have considered a very, very large number of possibilities.
    Mr. Frank Allaun: Will my right hon. Friend confirm that we are spending £195 million a year on B.A.O.R., nearly half of it in foreign exchange? Secondly, will he at least consider this morning's statement that the Soviet Government are offering to withdraw part of their forces from Europe?
    Mr. Healey: I think that my hon. Friend had better put down a Question on his first point. On his second point, I have no knowledge of such a statement, but if there is one I should like to consider it before I comment on it.
    Mrs. Renée Shortasked the Secretary of State for Defence what progress he has made in negotiations with the West German Government about their obligations in connection with support costs for the British Army of the Rhine; and if he will make a statement.
    Mr. Healey: During my recent visit to Bonn, I was able to arrange for the purchase of British equipment to the value of £8 million under the existing offset agreement. The question of a greater German contribution to the foreign exchange burden arising out of the stationing of our forces in Germany is now being pursued by my right hon. Friend the Chancellor of the Exchequer and the Federal German Minister of Finance. I hope that these negotiations will be brought to a satisfactory conclusion.
    Mrs. Short: Is my right hon. Friend aware that there is growing exasperation on both sides of the House at the continued refusal of the West German Government to meet their obligations in this matter and that the large burden of foreign exchange on our economy is quite untenable? Is he further aware that we regard the offer of £8 million, spread over two years, as quite derisory and an insult to the British people? We also feel that the acquisition of arms——
    Mr. Speaker: Order. The hon. Lady must learn to make her supplementary questions shorter. Mr. Healey will answer.
    Mr. Healey: First, I am well aware of the depth of feeling on this matter, not only inside but outside the House, and I communicated it to Herr von Hassel during our talks. It is very important that the German Government and people should be aware how we feel. My hon. Friend was unfair to the German Government. This £8 million is in addition to a very large amount of money which they have already spent under the existing offset agreement.
    Mr. Powell: Is it the Government's object to secure a complete offset during the current financial year? If so, do they expect to achieve it?
    Mr. Healey: The Chancellor made clear our objective in that respect. Of course, we always hope to achieve our objectives.

    Military Equipment (Purchase by United States)
    Mr. Goodhewasked the Secretary of State for Defence what purchases of British military equipment have now been made by the United States Government to offset the dollar cost of the F111A aircraft for the Royal Air Force.
    Mr. Healey: The first sale should be completed shortly.
    Mr. Goodhew: Is the right hon. Gentleman aware that the House was given an undertaking that the Government would take steps to ensure that this dollar cost would be fully offset; yet here we are, many months later, with nothing yet announced to the House. Can he not take some active steps to see that his undertaking is kept?
    Mr. Healey: If there were any more active steps that I could take, I would take them. I would remind him that there are still 12 years to go, and we do not start paying dollars for the F111A for several years yet.
    Mr. Hugh Fraser: Will the right hon. Gentleman assure the House that there is a mission which will be arriving shortly in this country to deal with the matter and look at the possibility of buying more British goods? It really is becoming scandalous.
    Mr. Healey: If the right hon. Gentleman had not been asleep a few moments

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    ago, he would have heard me refer to that mission.
    Mr. Bessell: Will the right hon. Gentleman confirm that, whatever the merits or otherwise of the purchase of the F111, the United States Government have gone out of their way to be co-operative in the matter? Certainly that was the impression I gained when I was in Washington six weeks ago.
    Mr. Healey: I am grateful to the hon. Gentleman. What he says is exactly true.

    Royal Navy (Surface-to-Surface Guided Weapons)
    Mr. Goodhewasked the Secretary of State for Defence what provision he is making for surface-to-surface guided weapons for the Royal Navy.
    Sir Ian Orr-Ewingasked the Secretary of State for Defence what plans he is making to develop, produce or buy surface-to-surface guided weapons with ranges of more than 15 miles.
    Mr. Healey: I am considering the Navy's need for weapons of this kind, and how to meet that need, in the light of the Defence Review decisions.
    Mr. Goodhew: Is the right hon. Gentleman aware that, by taking away the Navy's ability to see and strike beyond the horizon, he has left it in a very vulnerable position, and surface-to-surface missiles are therefore most important?
    Mr. Healey: I agree that surface-to-surface missiles may be an important way of filling the gap left by the phasing out of carriers in 1975. I would remind the hon. Gentleman that the Navy does not lose the capabilities to which he refers for at least another nine years.
    Sir Ian Orr-Ewing: Could the right hon. Gentleman assure us that, as he has assassinated the carriers, he will attack with some vigour the question of finding an alternative surface-to-surface missile for the defence of ships? Would he make a statement to the House as early as possible explaining what is being done, because there must be great anxiety among all those who wish to see our ships, both civil and naval, properly defended?
    Mr. Healey: The right hon. Gentleman had some responsibility in a Govern-
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    ment which failed to order a new carrier for the Royal Navy over a period of 13 years. It is not for him to talk about assassination. But I will ensure that the Royal Navy has the weapons that it needs to carry out the tasks required of it.
    Mr. Goodhew: Since the right hon. Gentleman has himself stated in his defence review that it takes 10 years to produce a new weapon, is it not time that he got on with it? He is admitting today that the aircraft carriers will be finishing in nine years.
    Mr. Healey: I can assure the hon. Gentleman that my colleagues have got on with it.

    Germany (Talks)
    Mr. Channonasked the Secretary of State for Defence what discussions he has had with the German Minister of Defence about the future of the British Army of the Rhine.
    Mr. Blakerasked the Secretary of State for Defence if he will make a statement about his recent consultations with the Government of the Federal Republic of Germany in Bonn.
    Mr. Healey: The details of my talks with Herr von Hassel are confidential but I am, with permission, making arrangements for the communiqué which was issued to be circulated in the OFFICIAL REPORT.
    Mr. Channon: Does not the Secretary of State recall the Chancellor of the Exchequer's remarks during the Budget debate that the whole or the greater part of the Government's financial programme for the year is based on the assumption that, by the autumn of this year, we shall be relieved from the whole of the foreign exchange costs of our troops in Germany. Can he confirm that that is the position?
    Mr. Healey: I can tell the hon. Gentleman that I am so aware of the Chancellor's views on this matter that, in one day in Bonn, I arranged sales of £8 million worth of British equipment to the German Government under the existing off-set agreement.
    Mr. Blaker: Since it is now 18 months since the Government first proposed the

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    A.N.F., can the right hon. Gentleman say whether he discussed the matter with the German Government when he was over there and whether any progress was made?
    Mr. Healey: I had discussions with Herr von Hassel about making arrangements by which the non-nuclear members of the alliance can be satisfied that the nuclear members use their weapons in accordance with the collective desires of the alliance in a crisis. That is the issue which is generally agreed by all Governments in the alliance to be by far the most urgent matter for decision and, incidentally, it is one which was totally ignored in the 13 years that the party opposite was in power.
    Mr. Dickens: Is my right hon. Friend aware that the Warsaw Pact Defence Ministers at a recent meeting decided to reduce Soviet forces in Eastern Germany by five divisions? Is he further aware that that is just one more indication that the cold war forces in Europe are falling apart? Would he not make a contribution to that at least by making a total reduction in the B.A.O.R. in the immediate future?
    Mr. Healey: I am not aware of the facts to which the hon. Gentleman refers. The Soviet Government, who control these divisions, have certainly not decided to withdraw five of them, as far as I am aware. Nothing would please this Government and other members of the alliance more than if it were possible for the two alliances to reach agreement on a progressive reduction in the level at which the balance of security is maintained on both sides of the Iron Curtain.
    The following is the Communiqué:
    Bonn, 6th June, 1966

    COMMUNIQUÉ
    (For release at 1200 hours, 7th June, 1966)
    On 6th June, 1966, the British Minister of Defence, Mr. Denis W. Healey, and the Federal Minister of Defence, Kai-Uwe von Hassel, met in Bonn for a discussion of questions of mutual interest within the scope of their regular meetings.
    Among those attending the talks were, on the British side, the British Ambassador, Sir Frank Roberts, the Deputy Under Secretary in the British Ministry of Defence, Mr. G. Leitch, the Assistant Chief of the Defence Staff, Rear Admiral O. Steiner, and the
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    Assistant Under Secretary (Material), Mr. G. C. B. Dodds; on the German side State Secretary Karl Gumbel, the Federal Armed Forces Deputy Chief of Staff, Lieutenant General Gustav-Adolf Kuntzen, and Dr. Werner Knieper, the Chief of the Military Materiel Department.
    After a private talk in the morning during which the Ministers exchanged views on current problems of NATO, the delegations met in plenary session during the afternoon.
    The British Minister of Defence described the serious foreign exchange problems caused by maintaining the present strength of the British Forces in Germany at full fighting efficiency. Minister von Hassel, for his part, explained the German problems which made it difficult to achieve a full offset of foreign exchange costs. Against this background a wide field of projects was discussed. Agreement was reached on the following measures:—

    (a) The Federal Government intends to introduce the British "Seacat" Ship-to-Air missiles into the Federal German Navy and is also prepared to participate in a joint development of a follow-on system for the "Seacat" missile.

    (b) As a result of the German trials of the "Stalwart" load carrier which started in November, 1965, the British manufacturer is making a few modifications to the vehicle. Assuming satisfactory results from a further trial, the Federal German Government intends to procure a certain number of this vehicle for the Federal German Army.

    (c) The Federal German Government will send a team this month to Britain to discuss the purchase of heavy radar equipment.

    Other questions raised concerned the location of British and German troops, the deployment of the Royal Air Force and the joint use of training areas in the Federal Republic. The Ministers agreed to examine these questions immediately.
    On 7th June, Minister Healey and Minister von Hassel will visit a surface-air-missile battalion of the Federal Armed Forces and the Combat Troop School II at Munsterlager.
    The Federal Minister of Defence will take leave of his visitors in Gütersloh at approximately 6.0 p.m. From there Minister Healey will go to visit the British Army in the Bielefeld area and the R.A.F. at GUtersloh and return to London the following evening by air.

    Buildings, Bovingdon
    Mr. Allasonasked the Secretary of State for Defence for what purpose buildings are being retained at the old United States Air Force camp near Bovingdon Airfield; when they will be used; and why they are at present abandoned to vandalism.
    Mr. Ennals: Some of the facilities including a gymnasium and some water

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    storage tanks, are being used by the Royal Air Force. The rest of the property is awaiting disposal. I have already told the hon. Gentleman that we are taking steps to prevent vandalism.
    Mr. Allason: Why is the Minister leaving these buildings open to sabotage and to destruction if he wants to use them?
    Mr. Ennals: The problem of disposal is being discussed with the local planning authority, which has not yet taken a decision concerning the future use of the area. The hon. Member asked about vandalism. Since he raised the matter with me, we have taken additional measures to try to see that vandalism is reduced.

    South Africa (Supply of Arms)
    Mr. Winnickasked the Secretary of State for Defence what instructions have been given to Mr. Brown, the recently appointed arms salesman, regarding sales of arms to the South African authorities.
    Mr. Healey: The appointment of Mr. Raymond Brown as head of defence sales implies no change in the Government's policy regarding sales of arms to South Africa. He has, of course, been informed what that policy is.
    Mr. Winnick: Does not my right hon. Friend agree that there is a danger of the arms sold to one country finding their way to South Africa? Does he not recognise this danger? Does it not prove that even the appointment of an arms salesman is wrong in all possible directions?
    Mr. Healey: No. With respect to my hon. Friend, I think that it proves exactly the opposite. It proves that it is desirable for the Government to exercise more political control of the sale of arms by this country to other countries.
    Sir Ian Orr-Ewing: Will the right hon. Gentleman publish from time to time a list of countries—perhaps Portugal, Spain and others—in respect of which the Labour Government do not agree with the régime s in power with the result, presumably, that the terms of reference of this arms salesman prevent him from selling arms to those countries? The House is entitled to a list of those countries so that we may know where he may sell and where he may not sell.
    Mr. Healey: The House has already been informed of those countries in respect of which we wish to impose restrictions in the sale of British arms.
    Mr. Ian Lloyd: Is it not fatuous to deny the sale of shotguns and Ferret scoutcars to a country which is at least thought to be on the verge of developing its own nuclear capability?
    Mr. Healey: If the hon. Member reflects, he will not think it wise or right for this country to fly in the face of resolutions of the United Nations Assembly on this matter. I hope that he will not press us to do so.

    Satellites (Meteorological Studies)
    Mr. Geoffrey Lloydasked the Secretary of State for Defence what steps he is taking to stimulate British participation in meteorological studies based on data obtained by satellites.
    The Under-Secretary of State for Defence for the Royal Air Force (Mr. Merlyn Rees): The Meteorological Office is studying the results of its Ariel 2 experiment and is preparing an experiment for UK 3. The Office at Bracknell also receives cloud pictures for forecasting from American weather satellites and is equipping four other reception stations overseas.

    Shipbuilding (Orders)
    Sir Ian Orr-Ewingasked the Secretary of State for Defence whether he will order three frigates in the current financial year; and when the first type 82 will be laid down.
    Mr. J. P. W. Mallalieu: Two Leanders have been ordered in this financial year, and a third was ordered in March; the first Type 82 should be laid down in 1967.

    Army (Strength)
    Mr. Powellasked the Secretary of State for Defence when he now expects that the Army target strength of 181,000 will be reached.
    Sir T. Beamishasked the Secretary of State for Defence if he still proposes to recruit the Regular Army to

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    his stated ceiling of 181,100; and, in the light of the latest recruiting figures, when he expects this strength to be achieved.
    Mr. Healey: We maintain the ceiling of 181,100. On current recruiting trends it should be reached next year but much will turn on the extent to which those now serving renew their engagements.
    Mr. Powell: Is this a target which the right hon. Gentleman intends to revise in the light of his statement of 8th March and other occasions about a reduction in manpower following developments in the Far East?
    Mr. Healey: The possibility of reducing the target is of course, open in that respect.
    Sir T. Beamish: Is the right hon. Gentleman aware that his refusal either to confirm or to deny the very strong rumours of a cut of 15,000 or so in the overall size of the Regular Army is not only having a deplorable effect on recruitment and re-engagement but is leaving our allies in doubt about our determination and ability to carry out our obligations to them?
    Mr. Healey: I am not responsible for rumours which circulate but I am glad to say that the May recruiting figures do not bear out the statement made by the hon. and gallant Gentleman.
    Mr. Atkins: Is the right hon. Gentleman satisfied wtih the current rate of re-engagement?
    Mr. Healey: No, Sir, and successive Governments have always felt that the question of re-engagement and prolongation of service is the most difficult question with which they had to deal—more difficult than the recruitment of new members of the Services.

    India (Naval Vessels)
    Mr. Edward M. Taylorasked the Secretary of State for Defence what naval vessels have been purchased or ordered by India in the past three years from the United Kingdom.
    Mr. Healey: None, Sir, but she is obtaining equipment from the United Kingdom for a number of Leander frigates to be built at Bombay.
    Mr. Taylor: Does the Minister agree that there is a great desire by India to buy a large part of her military equipment from Britain and that it is being frustrated for various reasons? Will he review the various restrictions, official or unofficial, which are placed on the sale of military equipment to India?
    Mr. Healey: I think that I am right in saying that the problem is not political restriction but the ability to finance sales of this nature.

    Cyprus (Bases)
    Mr. Freesonasked the Secretary of State for Defence whether Her Majesty's Government is considering the replacement of the British sovereign bases in Cyprus by North Atlantic Treaty Organisation bases.
    Mr. Healey: No, Sir.

    East of Suez
    Mr. William Hamiltonasked the Secretary of State for Defence what plans he has for discussions within the next six months with Britain's Commonwealth and other allies on proposals to reduce the British military commitment east of Suez; and whether he will take steps to reduce this commitment speedily.
    Mr. Healey: We are in constant communication with our Commonwealth and other allies over the whole range of international affairs which have a bearing on the speed with which we can implement the reductions foreshadowed in the Defence Review. These reductions will be carried out as quickly as is both practicable and consistent with our political obligations.
    Mr. Hamilton: Is it not the case that my right hon. Friend went to Canberra and to Washington earlier this year with a firm policy in mind of reducing this commitment drastically, that strong representations were made to him by Australia and by the United States to reverse that policy and that he acceded to those representations? Will he take steps either to confirm or to deny this and give an assurance that we are not committed unilaterally to defend that area until the 1990s or the turn of the century?
    Mr. Healey: I am glad that my hon. Friend has given me an opportunity to deny completely the story, on which he based his remarks, in the Observer last Sunday. There is not an atom of truth in that story. It is on record, and in the House of Commons Library, that I pointed out to the people of Australia in my speech at the Press Club in Canberra—in which incidentally, I did not say, as some hon. Members have been led to believe, that we should maintain all our present commitments until the 1980s; that can easily be checked—that we should expect a fair sharing of the burden.
    Mr. Biggs-Davison: If the Government persist in their determination to rat on their obligations in Aden, does the right hon. Gentleman think that we shall be able to respond to any further appeals for military assistance from Commonwealth Governments in Africa?
    Mr. Healey: First, I cannot accept the hon. Member's statement that we are ratting on our commitments in Aden. We are perfectly satisfied that our capability for carrying out such operations as we think are likely to be required in Africa will not be affected by a withdrawal from Aden, not least because we have made arrangements to provide ourselves with long-range transport aircraft which, under the previous Government's policies, we should not have had for another six years.
    Mr. Paget: Can my right hon. Friend say whether the fact that Malaysia, so far from expressing gratitude for her defence, is now ordering our troops out, will accelerate the process of leaving the Middle East? It certainly seems to be an illustration that troops are not a very good way of buying either gratitude or trade.
    Mr. Healey: My hon. and learned Friend, with his vast experience of international affairs, will agree that gratitude is not a commodity which one seeks to acquire through doing one's duty.
    Mr. Evelyn King: Does not the right hon. Gentleman agree that he would secure worth-while defence economies if he were to discuss the withdrawal of both British missions and British troops from the Sudan, from Zambia and from other African countries?
    Mr. Healey: No, Sir.

    N.A.T.O. Installations, France
    Mr. Goodhartasked the Secretary of State for Defence what estimate has been made of the cost to this country of moving North Atlantic Treaty Organisation installations from France.
    Mr. Healey: Until further detailed studies have been carried out to determine precise locations, communications requirements and the like, no estimate can be given.
    Mr. Goodhart: Surely the Minister can be a little more frank than that with the House, as discussions have been going on for many weeks? Is the Minister aware that part of the very heavy cost which will have to be borne by this country could be offset if displaced units from France came to this country? Have Ministers had any success in pressing this point?
    Mr. Healey: Yes. The hon. Member will be aware that two American units, displaced from France, are coming to the United Kingdom very shortly. I would point out that there is still some uncertainty as to the number of N.A.T.O. installations which will be required to be moved from France. For example, the North Atlantic Treaty Council will not decide until October whether it, itself, should move out of France, and there is still a good deal of discussion about the number of logistic facilities now in France which would require to be moved.

    Marriage Allowance (Qualifying Allotments)
    Mr. G. Campbellasked the Secretary of State for Defence whether he will raise the compulsory qualifying allotment for marriage allowance for corporals and below from 4s. a day, since it has remained at this figure for many years while pay has increased.
    Mr. Ennals: The whole question of qualifying allotments is now being reviewed.
    Mr. Campbell: While I do not share the view of a noble Lord who is a field marshal that the Army should largely consist of bachelors, may I ask whether the hon. Gentleman would agree that Service men should be encouraged

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    to take family responsibilities seriously as under the present system their families can be left in financial straits?
    Mr. Ennals: Of course it is true that seven out of eight married Service men are living with their families. It is also true that the present qualifying figure of 4s. a day is very much less than the vast majority of Service men pay over. As part of the review we are considering whether the responsiblity for deciding how much should be allocated to his wife should fall on the man rather than be done by means of restrictions.

    British Forces, Malaysia
    Mr. William Hamiltonasked the Secretary of State for Defence if he will give an assurance that British Armed Forces released from the Malaysian confrontation will not be transferred for service in Australia unless the cost is fairly shared by all interested parties.
    Mr. Healey: We have no intention of transferring for service in Australia the forces which, we hope, will soon be released from their present duties by an ending of confrontation. The sharing of costs in Australia does not, therefore, arise at this stage. If and when it does, we shall certainly expect the costs to be fairly shared.
    Mr. Hamilton: Does that mean that the troops will be either brought home or demobilised?
    Mr. Healey: No. It means that the troops will be redeployed either in the Far East or in other parts of the world.
    Rear-Admiral Morgan Giles: Will the right hon. Gentleman remember that Australia gave us help without counting the cost in two World Wars? Will Her Majesty's Government be generous in carrying out Commonwealth obligations in conditions of cold war?
    Mr. Healey: We recognise our responsibilities in respect of Australia. That was one of the reasons why I visited Australia and discussed our decisions with the Australian and New Zealand Governments before they were finally taken.

    Civilian Flying and Gliding Clubs
    Sir C. Osborneasked the Secretary of State for Defence if, in view of the fact that most Royal Air Force stations
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    are based on a five-day working week, he will give greater facilities for civilian flying and gliding clubs during the weekends; what extra financial support he proposes to give to these clubs; and if he will make a statement.
    Mr. Merlyn Rees: I am unable to add to the reply given to the hon. Member by my predecessor on 2nd June, 1965. With regard to facilities, however, I would be prepared to look sympathetically at any specific proposal which the hon. Member has in mind.
    Sir C. Osborne: Since the R.A.F. stations are absolutely at a standstill over a long weekend, on the assumption, I suppose, that no enemy would be caddish enough to attack us while we were having a weekend off, cannot greater facilities be given to the flying and gliding clubs to use these expensive installations which are standing idle?
    Mr. Rees: The hon. Gentleman's remark about operational stations is not true. There are two factors which must be borne in mind. First, R.A.F. stations are carefully established for the rôle which they perform. There is no surplus manpower for performing civilian tasks. Secondly, there is the problem of control, safety and fire precautions. Men must be there over the weekend to perform these tasks if aircraft are there. I have promised to look at any individual case, but, in general, this is a very difficult problem.

    Variable Geometry Aircraft
    Mr. Rankinasked the Secretary of State for Defence what progress was made during his recent meeting with the French Minister of Defence towards developing the Anglo-French variable geometry aircraft; and what difficulties remain to be overcome.
    Mr. Healey: We noted that considerable progress had been made on the military requirement and arranged for this to be further examined so that the technical and industrial factors could be fully evaluated before we launch the next stage of the project. This examination is now in hand.
    Mr. Rankin: While that news is welcome, may I ask my right hon. Friend whether he is aware that there is some concern about what appears to be slow

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    progress in getting the Anglo-French v.g. aircraft under way? Will he assure us that there is no chance of it being supplanted by a smaller version of the American F111?
    Mr. Healey: I can certainly give my hon. Friend the assurance for which he asked in the latter part of his supplementary question. I am aware that people are worried about the pace of progress in this matter, but—and I know that he will agree with this—the French Defence Minister and I are convinced that we must produce a worth-while aircraft at a cost which we can afford and which gives some chance of selling it to other countries. This is one of the reasons why we are examining the matter so carefully at this stage. If other projects had been equally carefully examined by previous Governments, we could have saved the taxpayer a great deal of money.
    Mr. Hugh Fraser: Surely the right hon. Gentleman will agree, if he has done his homework on the matter, that there is not even an operational requirement for this aircraft at the moment?
    Mr. Healey: That is totally untrue, and the right hon. Gentleman would have known that if he had attended our debates and remained alert, as I hope he often is. He will know very well that we have a real requirement for this aircraft to supplement the V-bombers in the strike rôle when the V-bombers phase out in the middle 1970s. One respect in which we have made progress on this matter in the last few months is that we now agree with the French on the operational requirement and on the time scale.
    Mr. Powell: Does not the fact that the French Government are proceeding with their own variable geometry aircraft indicate that they have a well-founded doubt as to the seriousness with which the British Government are approaching this matter—well founded in the light of their experience with Concord and E.L.D.O.?
    Mr. Healey: No, Sir.

    British Forces, Zambia
    Mr. Biggs-Davisonasked the Secretary of State for Defence, how many members of Her Majesty's forces have now left Zambia for Rhodesia; and
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    what representations have been made in Salisbury and other action taken.
    Mr. Merlyn Rees: Five, Sir. No representations have been made, nor has any other action been taken in Salisbury.
    Mr. Biggs-Davison: Does that mean that the Government are quite happy that our forces should transfer themselves to Rhodesia from Zambia? Has the Ministry of Defence satisfied itself that Her Majesty's Forces now have proper conditions of life in Zambia? With regard to their morale, have they been told the purpose of their being there; and, if so, what is it?
    Mr. Rees: No representations have been made, because it was not thought likely that they would be productive; nor would it be desirable to make representations. The conditions of our airmen in Zambia have greatly improved. They are quite aware why they are there, and the hon. Genteman ought to be aware of that, too.
    Mr. Evelyn King: Are not these troops costing many millions of £s? Is not their rôle unpopular, and are not their duties unnecessary? Will the hon. Gentleman bring them home as soon as possible?
    Mr. Rees: No, Sir.
    Mr. Biggs-Davison: In view of the refusal to say why our forces are there, I beg to give notice that I shall raise the matter on the Adjournment.
    Mr. Speaker: Notice must be given in the conventional way.

    Chiefs of Staff Committee and Service Board
    48 and 49. Mr. Murtonasked the Secretary of State for Defence (1) what plans he has for the reorganisation of the Chiefs of Staff Committee as part of the progressive unification of the defence services;
    (2) what plans he has for the future of the three Service board; and if he will make a statement.
    Mr. Healey: None at present.
    Mr. Murton: Will the right hon. Gentleman give an assurance that should this matter ever be considered, as has been

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    suggested in reports, this House will be given the chance to debate it before anything permanent is done?
    Mr. Healey: Certainly the House will have a chance to discuss any proposals which the Government may ultimately decide to put before it.

    Courts-Martial (Acquittals)
    Mr. Doigasked the Secretary of State for Defence if he will amend the Rules of Procedure made under Section 103 of the Army and Air Force Acts, 1955, to provide that a prisoner acquitted shall not suffer heavier costs than a prisoner honourably acquitted; and why he makes the distinction.
    Mr. Merlyn Rees: No, Sir. An ex gratia payment in respect of costs may be made when the circumstances of an acquittal justify it. The distinction quoted by my hon. Friend is only one example of the cases in which such a payment may be made. Our practice in this respect is modelled as closely as possible on the practice of civil courts.
    Mr. Doig: How many decisions is it 0possible to have from a court-martial? Is it possible to have an acquittal which is not an honourable acquittal?
    Mr. Rees: It is possible to have an acquittal which is not an honourable acquittal.

    ROYAL ASSENT TO BILLS
    Mr. Winnickasked the Lord President of the Council whether he will seek to refer to the Select Committee on Procedure the matter of the procedure for the Commons attendance at another place for the Royal Assent to Bills.
    The Lord President of the Council and Leader of the House of Commons (Mr. Herbert Bowden): I am considering whether any changes can be made in the procedure for notifying the House of the Royal Assent to Bills.
    Mr. Winnick: Would not my right hon. Friend agree that the present procedure of Black Rod is an out-dated pantomime and a farce? Will he not also agree that it is no use lecturing the country on the need for modernisation if we in
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    the Commons retain all the old rituals which were out-dated many years ago?
    Mr. Bowden: Without agreeing in total with what my hon. Friend has said, I have already said that this matter is being considered, but he will appreciate that it is not solely a matter for the House of Commons. Another place is concerned and, of course, the Royal Prerogative.
    Dame Irene Ward: Will the right hon. Gentleman give an assurance that no alteration of any kind will be made until this House of Commons has its say in the matter? Is he aware that I disagree entirely with the supplementary question put by the hon. Member for Croydon, South (Mr. Winnick), which I think is disgraceful?
    Mr. Bowden: The hon. Lady probably heard me say that this is not solely a matter for the House of Commons, but I can give an assurance that before any change is made the House of Commons will be able to consider it.
    Sir G. Nabarro: While not associating myself in any way with the supplementary question asked from behind the right hon. Gentleman——
    Dame Irene Ward: Hear, hear.
    Sir G. Nabarro: —not in any way— may I ask the Lord President of the Council to consider that it can be perfectly practicable, without interfering with the arrangements in this House, for the Royal Assent to be given in 20 minutes or half an hour immediately before lunch in the morning?-
    Mr. Bowden: Yes, Sir. There are a number of ways in which this could be done. Many different proposals are at present being considered, but I urge the House not to ask us to hurry this because, of course, we would have to have the approval not only of this House but of another place and of Her Majesty.
    Mr. Rankin: Could my right hon. Friend assure us that by the time we reach a conclusion in this matter in this House, the other place will still be in existence?

    FINANCE BILL (SPEECHES)
    Mr. Hector Hughesasked the Lord President of the Council if he is aware that long speeches on the Finance

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    Bill use House of Commons time which could otherwise be used for the debates on a great variety of subjects which many Members seek; and if he will move to refer the subject of the length of speeches to the Select Committee on Procedure.
    Mr. Bowden: The Select Committee can, if it wishes, look at this question.
    Mr. Hughes: I thank the Minister for that reply. Does he agree that many repetitive and over-long speeches delay the very constructive work for which this House is assembled? Will he take steps to protect its rights in that respect?
    Mr. Bowden: The Select Committee on Procedure has looked at this question from time to time and on one occasion it recommended five-minute speeches. It probably took half an hour to discuss that, but that is what happens.
    Mr. Turton: Has the right hon. Gentleman considered the last Report of the Select Committee on Procedure, which suggested that, if too many instructions were given to it by the House, that tended to delay a thorough review of the procedure of the House?
    Mr. Bowden: Yes, I was aware of the view of the Committee, but it was necessary to give it one or two instructions, particularly on hours of sitting, after which I hope it will be able to have a free-for-all and a general review.

    MEMBERS (FACILITIES FOR PHYSICAL EXERCISE)
    Mr. Longdenasked the Lord President of the Council if he yet has any proposals for providing Members with facilities for taking physical exercise, on which the hon. Member for South-West Hertfordshire has written to him and some of his predecessors.
    Mr. Bowden: There is no space available in the Palace of Westminster for providing Members with facilities for taking physical exercise, but consideration may well be given to the provision of such facilities in the new Parliamentary building to be built in Bridge Street.
    Mr. Longden: I thank the Lord President for that reply. Is he aware that the Mother of Parliaments is the worst
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    employer of labour in the Kingdom and that no trade union would for a moment tolerate the conditions under which we work? Can he give a guarantee that the plans for the new building will contain provision for these facilities so that our successors in the year 2000 A.D. may enjoy them?
    Mr. Bowden: Facilities, not necessarily in the new building, are now under consideration by the Accommodation Sub-Committee. The hon. Member will remember that we had the facilities for which he is asking 20 years ago, but at the moment the Accommodation Sub-Committee is having to use every available inch of space to provide desks for hon. Members.
    Mr. Hector Hughes: If he is considering potentialities of physical exercise, will my right hon. Friend take into account the need to provide some facilities for swimming?

    MAINTENANCE ORDERS (ENFORCEMENT)
    Mr. Neaveasked the Attorney-General when he expects to receive the report of the Committee under the chairmanship of Mr. Justice Payne which is at present considering the law relating to the enforcement of maintenance orders.
    The Attorney-General (Sir Elwyn Jones): Mr. Justice Payne's Committee is not confined to maintenance orders but is considering the whole of the law relating to the recovery of debts and the enforcement of orders for the payment of money in civil proceedings. The Committee's Report is not expected until early next year. I understand, however, that the Committee has already decided to recommend the abolition of imprisonment for non-payment of judgment debts, and will be making recommendations for the more effective enforcement and recovery of such debts. The Committee wishes to give further consideration to the problem of maintenance and affiliation orders.
    Mr. Neave: Would not the Attorney-General agree that under the present law if the subject of a maintenance order is determined to avoid his obligations there are no means of compelling him to fulfil them? What have the Government in

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    mind in view of the increase in the number of these cases?
    The Attorney-General: If the offender is within the jurisdiction, the Maintenance Orders Act, 1958, enables an attachment to be made of his earnings by order of the court. That is an improvement. The difficulty arises when the offender, if he can properly be so described, leaves the jurisdiction. I understand that that is the problem which concerns the hon. Member.
    Sir J, Hobson: Can the Attorney-General tell us when the interim report on the recovery of debts without imprisonment will be presented by the Committee, because we understand from reports of Labour Party meetings yesterday that this is rather important to the party?
    The Attorney-General: This Committee is concerned with civil debts and I have nothing to add to the Answer I have given.
    Mr. Tinn: Will this review include the law relating to affiliation and maintenance orders in Scotland? If not, are any steps in mind to bring the law of the two countries into line?
    The Attorney-General: I should like notice of that question. I do not know whether this includes arrangements made in Scotland.

SMALLPOX (PONTYPOOL)
Mr. Abse Mr. Abse (by Private Notice) asked the Minister of Health whether he is aware of the public concern at the outbreak of smallpox in Pontypool; what action is being taken to trace the contacts of those who have fallen ill; and whether he will make a statement.
The Parliamentary Secretary to the Ministry of Health (Mr. Charles Loughlin): Yes, Sir. The Medical Officer of Health has arranged for the investigation of all cases of illness ocurring in the affected school and for the vaccination and surveillance of all school and household contacts. Twelve cases have been reported from Pontypool, three of whom have already recovered. The illnesses have been mild and very little different in severity from
582
chickenpox of which also there have been cases in this area.
Mr. Abse: I thank my hon. Friend for his reassurances. May I take this opportunity of expressing, on behalf of the House, our sympathy at the tragic bereavement?[HON. MEMBERS: "Hear, hear."]
In view of the concern in South Wales, what steps are being taken to improve the isolation hospital facilities which, once again now, are being stretched as a result of this outbreak?
Mr. Loughlin: All possible steps are being taken. As regards the isolation hospital, my hon. Friend will recognise that the Penrhys Hospital is used solely as an isolation hospital. The Welsh Hospital Board has now decided upon another and better hospital. Certain discussions are having to take place, and I cannot go further at this stage.
Mr. G. Elfed Davies: Is my hon. Friend aware that the report of the inquiry into the smallpox outbreak in South Wales in 1962, published by his Department, condemned the Penrhys Hospital as totally unsuited to this purpose, and that the people of the Rhondda, while they are warmhearted and generous, feel that four years is long enough to have done something to prevent this hospital being used again for this purpose? Further, is he aware that the driver of the ambulance taking one of the first cases in this new outbreak to hospital stopped in Porth to inquire——
Mr. Speaker: Order. We cannot have a speech on a supplementary question. It must be brief.
Mr. Davies: Is my hon. Friend aware that the ambulance driver stopped to inquire his way to the hospital? Does he think that that is a fit way to conduct cases of this kind?
Mr. Loughlin: It is true that there are deficiencies in the Penrhys Hospital, but I hope that my hon. Friend will recognise that, in trying to find an alternative isolation hospital, there are difficulties and a lot of discussions have to take place. As I have said, we have now decided on a particular hospital. I give him the assurance that we shall proceed with this as quickly as we possibly can.

583
As regards the ambulance driver having to stop, although I accept that there is some small danger of contamination, I can only say that we have issued guidance to all concerned that this should not happen, and we shall do whatever we possibly can to ensure that full directions are given to ambulance controls to see that it does not occur again.
Mr. Gower: What knowledge has the Minister of the origin of this outbreak, and are any steps being taken by his Department in Wales in case there may be some spread into other parts of the Principality?
Mr. Loughlin: The origin of the outbreak is completely unknown. As far as we can ascertain, it has no connection whatever with any other outbreak in any part of the country. As regards the taking of steps to check any possible contamination in other areas, the usual notices and warnings have been issued to all medical officers of health so that they can be very quick to ensure that any possible cases are detected.
Mr. Gibson-Watt: Is not this particular type of disease known as variola minor? Second, in order to relieve any possible disquiet in other places in South Wales, can the hon. Gentleman assure the House that there has so far been no sign of this disease appearing in those places?
Mr. Loughlin: This is variola minor. I am very glad that the hon. Gentleman has raised that point, because "smallpox" is a very emotive term and I would like to assure parents that there is not anything like the danger with variola minor as there is with smallpox.
On the second point, as far as we know there are no other cases in other parts of Wales.
Mr. Probert: Is my hon. Friend aware that, because of the total inadequacy of accommodation to meet this contingency, a geriatric hospital in my constituency had to be vacated, at great inconvenience to its patients?
Mr. Loughlin: I would like notice of that. I was not aware of it. I shall look into it to see what I can do.
Miss Pike: As the Minister has said that he has no knowledge of the origin
584
of this outbreak of smallpox, will he assure the House that he is investigating the matter and that the health checks at the ports are being watched to make certain that smallpox is not being brought into this country?
Mr. Loughlin: The health checks at ports are being watched very carefully. We do not know how this outbreak arose. I assure the hon. Lady that, as soon as it was notified, both my right hon. Friend and I went into the question carefully to see whether we could ascertain precisely where the contamination began. She may rest assured that we are watching it very closely indeed.

MESSAGE FROM THE QUEEN

  PROCLAMATION OF STATE OF EMERGENCY
  Message from Her Majesty brought up, and read by Mr. SPEAKER, as follows:
  The Emergency Powers Act 1920, as amended by the Emergency Powers Act 1964, having enacted that if it appears to Her Majesty that there have occurred or are about to occur events of such a nature as to be calculated, by interfering with the supply and distribution of food, water, fuel or light, or with the means of locomotion, to deprive the community, or any substantial portion of the community, of the essentials of life, Her Majesty may, by Proclamation, declare that a state of emergency exists: and Her Majesty having on the 23rd day of May, 1966 made, in pursuance thereof, a Proclamation declaring that the stoppage of work among merchant seamen did, in Her opinion, constitute a state of emergency within the meaning of the said Act of 1920 as so amended, which Proclamation does not remain in force for more than one month: and the continuance of the said stoppage of work having, in Her Majesty's opinion, constituted such a state of emergency as aforesaid:
  Her Majesty has deemed it proper, by Proclamation dated the 22nd day of June, 1966 and made in pursuance of the said Act of 1920, as so amended, to declare that a state of emergency exists.
  The Prime Minister (Mr. Harold Wilson): With permission, Mr. Speaker, I should like to make a brief statement about the renewed Proclamation of emergency under Section 1 of the Emergency Powers Act, 1920.
  Under the powers conferred by the Act fresh Regulations have been made which, with one exception, renew the Regulations made on 23rd May. That exception, Regulation 21, provides an additional power to direct British airlines to carry essential passengers and goods.
  The House will be aware that under the Regulations the Government have today established Port Emergency Committees. The functions which these Committees will be authorised to exercise, on behalf of my right hon. Friend the Minister of Transport, will initially be confined to the power to regulate the admission of ships of any class or any specified ship to their ports. As I explained to the House on Monday, it has not been necessary as yet to use any of the other powers.
  The House will, of course, have the opportunity early next week to debate the Proclamation of the state of emergency and to give its approval to the Regulations. I hope on that occasion, if I catch your eye, Mr. Speaker, to make a fuller statement on all aspects of the dispute and the action which is being taken.
  Mr. Heath: I thank the Prime Minister for his statement. He mentioned that the Port Emergency Committees will be given power to regulate the admission of ships. Can he state whether they will also have power to move ships, or is that to be dealt with in some other way?
  Secondly, is the Prime Minister aware that the effect of the strike on our exports is now becoming much more marked, especially in regard to New Zealand and Australia, no ship having sailed to New-Zealand since 27th May and there being a very interrupted service to Australia?
  Might I also ask whether the right hon. Gentleman, if he catches your eye next week, Mr. Speaker, will be able to give the House more information to justify his assertion that he doubted whether the executive of the N.U.S. was its own master?
  The Prime Minister: On the first point, power exists to move ships. So far it has
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  not been necessary, and it does not look immediately necessary, but we feel that now a state of congestion is arising which makes it necessary for the Port Emergency Committees to be set up ready to operate if a crisis occurs.
  I entirely agree with the right hon. Gentleman about exports. The effect on our export trade in June, while not perhaps as great as might have been expected, has been serious in respect of one or two markets, and quite definitely Australia and New Zealand. My right hon. Friend the President of the Board of Trade will be making a statement after Questions tomorrow about export shipments and about certain new arrangements to be introduced.
  With regard to the third part of the right hon. Gentleman's supplementary question, in the fuller statement that I hope to make in the debate next week I shall deal fairly fully, as fully as is consistent with the other considerations that one has to have in mind, with the statement that I made on Monday and give the House many of the details which the House as a whole would, I think, want to have on that point.
  Mr. Grimond: Will the Prime Minister confirm that no ship, either British or foreign has sailed to New Zealand since 27th May? Secondly, with regard to Regulation 21, can he say whether it gives the Government power to direct British airlines to carry essential passengers and goods on both internal and external services?
  The Prime Minister: In answer to the second part of the right hon. Gentleman's supplementary question, this applies to both internal and external services. With regard to the shipment of goods to New Zealand, it is my impression that no ship, British or foreign, has gone since that date. Very few foreign ships enter into that trade.
  Mr. Sydney Silverman: In view of the very serious statement which my right hon. Friend made on Monday and the unfortunate effect that it is likely to have in postponing a settlement of this unfortunate dispute, can he say how far his own Cabinet is master of its own decisions in this matter and how far it is being clandestinely, legitimately or illegitimately influenced by a group of politically-motivated bankers in Zurich——
  Mr. Speaker: Order. This is very fascinating, but it is a little wide of the Proclamation on which the statement has been made.
  The Prime Minister: If I might reply, Mr. Speaker, to that part of the supplementary question which was in order before you stopped my hon. Friend, the position is that the Cabinet, like any other Cabinet, is subject to the democratically elected House of Commons—[Laughter.]—democratically elected, I would remind hon. Gentlemen opposite, on 31st March. As to my statement about the executive, there are pressures by people who have not been elected, and I think that when I make my fuller statement to the House next week my hon. Friend and other hon. Members will see how fully justified was what I said the other day.
  Several Hon. Members Several Hon. Members rose ——
  Mr. Speaker: Mr. Burden.
  Mr. Burden: Would the right hon. Gentleman not agree—
  Mr. Sydney Silverman Mr. Sydney Silverman rose ——
  Mr. Speaker: Order. I did not call the hon. Member for Nelson and Colne (Mr. Sydney Silverman) again. I called Mr. Burden.
  Mr. Burden: Would the right hon. Gentleman not agree that any prolongation of the strike will also in the long-term considerably affect exports of wool textile goods, because it will delay the imports of the essential raw wool imports for them? Would it not also be possible that essential meat imports could be very seriously threatened?
  The Prime Minister: Yes, Sir. I said on Monday that I thought that this might have effects on exports going beyond the duration of the strike itself. The very fact mentioned by the Leader of the Opposition, the lack of sailings to New Zealand, is bound to have an effect on imports in some months' time from now. All these considerations point to the urgency of ending the strike, as we have strongly pressed the union to do, on the basis of the Report of the Pearson Committee. I cannot accept the view which has been expressed this afternoon that the statement that I made on Monday is likely to delay a settlement. It is cal-
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  culated, I think, to have the effect of speeding a return to work.
  Mr. Hector Hughes: Will my right hon. Friend give an assurance that the declaration of an emergency now does not imply any diminution in his efforts to settle the strike on a basis of justice to the seamen?
  The Prime Minister: Certainly it does not involve any such diminution. The House had a full report on Monday of the meetings that we had last week. This afternoon my right hon. Friend and I will be meeting the Finance and General Purposes Committee of the Trades Union Congress. We shall do everything in our power to get a reasonable, just, honourable and—I place increasing emphasis on this—speedy settlement.
  Mr. Abse: Since the statement by my right hon. Friend would appear to indicate that a considerable number of boats will not be able to berth, can we have an assurance that the seamen held just outside our ports will not be detained on those boats in order that the disciplinary effect of the Merchant Shipping Act should continue, but that my right hon. Friend recognises that if they are not permitted to land it may very well be that it will be regarded as additional provocation, which will be of no help in the dispute?
  The Prime Minister: Up to now there has not been the shortage of berths that we might have expected. There are signs that it is developing. As to the other point, it would be our hope that the seamen could be taken off the ships as quickly as possible. Of course, the Merchant Shipping Act has been one of the contributory factors over the years to the present state of affairs. I am sure that my right hon. Friend will ensure that nothing provocative is done to make the position any worse.
  Mrs. Knight: Since the Prime Minister said that a crisis does not yet exist, may we ask how much further the situation has to develop before he will deem it to be a crisis situation?
  The Prime Minister: It has been deemed an emergency now for over a month. I was referring specifically to the movement of ships in individual ports.

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  No crisis exists in individual ports in the sense that there is such a shortage of berths that ships cannot unload. It was in that sense that I said that there is no crisis. But there are signs of one developing. I do not know how quickly it will develop. If it does develop, we shall take whatever measures are necessary to clear the berths. I do not say that no national crisis exists. It is clear from the declaration of a state of emergency that we think it does.
  Mr. Heffer: In view of the statement by Mr. Hogarth and Mr. George Woodcock this morning that the issues in the dispute are narrowing, will my right hon. Friend give an assurance that the Government will once again, as he promised in his statement on Monday, bring both sides of the industry together, and if an agreement is reached beyond the Pearson Report, will the Government give an assurance that it will not in any way be interfered with or vetoed by the Government?
  The Prime Minister: This is very much a hypothetical question. It was put to me by some of the members of the executive of the National Union of Seamen last week, and I told them that it was hypothetical. Certainly we shall do everything in our power to bring the two sides together if one or both feel that it can lead to a settlement. We brought
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  them together last Friday, but the results were not in any sense fruitful. With regard to the Pearson Report, I explained on Monday, and I confirm, that we think that the Pearson Report provides a real, honourable settlement in the circumstances and that any variation from it, as I explained on Monday, must be earned by guaranteed improvements in productivity which would reduce costs sufficiently to compensate for further concessions.
  Several Hon. Members Several Hon. Members rose ——
  Mr. Speaker: Order. We shall, I understand, be debating this on Tuesday.

EMERGENCY POWERS
Message to be considered upon Tuesday next.—[Mr. Bowden.]
Sir Harmar Nicholls: On a point of order, Mr. Speaker. I gather from the exchanges and your announcement that we are to debate this matter on Tuesday. I have no knowledge officially that that date has been fixed. Is there no possibility of the debate being brought forward to tomorrow if the urgency is what it is?
Mr. Speaker: The hon. Gentleman does not seem to be aware that we have just passed unanimously a Motion that the Queen's Message be taken into consideration on Tuesday next.

ORDERS OF THE DAY

  FINANCE BILL
  Considered in Committee[Progress, 21st June].
  [Sir ERIC FLETCHER in the Chair]

  FINANCE BILL

    Clause 33.—(ABOLITION OF INVESTMENT ALLOWANCES AND AMENDMENTS AS TO INITIAL ALLOWANCES.)
    3.50 p.m.
    Mr. Geoffrey Hirst: I beg to move, Amendment No. 221, in page 36, line 42 to leave out from "1966" to end of line 2 on page 37, and to insert:
    "or on any date after 16th January, 1966, but not later than 16th January, 1968 where the following conditions are satisfied in respect of that asset:—

    (a) that it is for use in or about a building or structure provided for use for industrial purposes (as defined in section 38(8) of the Finance Act 1963) or is for use in conjunction with other machinery or plant so provided, and

    (b) that its provision was required for the fulfilment of the purpose for which the building or structure or, as the case may be, the other machinery or plant was provided, and

    (c) that contracts for the provision of a substantial proportion of the assets required for the fulfilment of that purpose had been entered into before 17th January, 1966".

    The Chairman: It would be convenient to consider at the same time Amendment No. 252, in the name of the hon. Member for MorecaMbe and Lonsdale (Mr. Hall-Davis): in page 36, line 41, after "on", insert:
    "or for the purposes of a project undertaken before".
    Amendment No. 253 in the name of the right hon. Member for Altrincham and Sale (Mr. Barber): in page 36, line 42, leave out from "1966" to end of line 2 on page 37.
    Amendment No. 9 in the name of the hon. Member for Ashton-under-Lyne (Mr. Sheldon): in page 36, line 43, after "made", insert: "not later than 16th January, 1967".
    Mr. Hirst: That would be convenient, Sir Eric.
    We have reached the Clause dealing with the abolition of investment
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    allowances and Amendments to initial allowances. My Amendment touches only one aspect of the Clause, but you have kindly selected three others to discuss with it. I shall keep more or less exclusively to the aspect of my own Amendment, although there are certain similarities between it and No. 252.
    I want to draw attention to subsection (2), which provides in general that investment allowances will be due in respect of expenditure on assets where that expenditure was incurred—and this is the important point—after 16th January, 1966, provided, however, that it was spent under a contract entered into on or before that date.
    But the matter is not quite such plain sailing as appears by that. There are two clear restrictions. The first is that the payment should be made and that the assets concerned should be brought into use not later than 16th October, 1966. My Amendment has two specific purposes. The first is to remove the restriction that the payment should be made and the asset brought into use not later than 16th October, 1966.
    The reason for this is that both buildings and plant—and I am surprised that the Government did not give more thought to this—take perhaps two years or more in some instances to complete. It seems to us—and, I am sure, to hon. Members opposite—wrong to impose such arbitrary restrictions on investment allowances. I remind the Committee that these restrictions were not thought necessary when investment allowances were supen-ded for a time by the Conservative Government in 1956.
    My second objective is to provide that investment allowances should be due in respect of expenditure on what is acquired under contracts placed within two years of 16th January, 1966, where they are required in order to complete a project and the contracts for a substantial proportion of the assets have already been placed before 17th January, 1966.
    In these circumstances, contracts placed after 16th January, 1966, may well give effect to decisions already taken by that date. Although there may not necessarily be a legal obligation to complete, it would be somewhat unrealistic and perhaps unbusinesslike, to say the least, not to do

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    so Depending upon the date of payment rather than upon the date of expenditure being incurred is highly unsatisfactory and contrary, as far as I can inform myself, to all previous legislation of this nature. It is an undesirable departure from our customs.
    A considerable administrative problem would seem to arise also if the termination of investment allowances is to be made by reference to the date of payment rather than the date the expenditure was incurred. Time and again in business and commercial houses records are kept —nowadays often by computer—and stored with the date of expenditure. The date is not likely to be the date of payment. I understand that today it was stated that the Industrial Development Bill will be amended by the President of the Board of Trade to meet precisely these difficulties in this context. Therefore, it would not be unreasonable if the Finance Bill were also to be amended to take account of the same factors.
    I appreciate that there are many other aspects of the Clause, but I have tried to keep to my own Amendment at this stage. I realise that my Amendment is a little open, but again it is the old story of the back bencher's difficulty in drafting, even with help and advice. But if the Chief Secretary to the Treasury takes the point and at least undertakes to look at the matter before Report stage to see what can be done to meet my general view, I feel that my argument will have been met to some extent.
    Mr. Joel Barnett: In view of the support I was given last night—wholly unsolicited—and which I naively like to think was given without ulterior motive, I would like to give my support not wholly to the Amendment but to the reasoning behind it. There is a need for adjustment. I would not necessarily go as far as the hon. Member for Shipley (Mr. Hirst) does in taking the date to 1968, for I think that would be going a little far. Whenever an allowance of this sort is withdrawn a line has to be drawn somewhere and it is a question of drawing the line to make it fair. What is important is that this transitional arrangement should be seen to be as fair as it can be.
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    4.0 p.m.
    The Amendment of my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and myself, Amendment No. 9 deals with the sort of case of which my right hon. Friend will be aware, that is to say, instances where items of plant or other equipment are ordered and the expenditure incurred before 17th January, 1966, and brought into use before 16th October, but not paid for until some time later. There are variations on that where the items are ordered and the expenditure is incurred before 17th January, but the items are not even delivered perhaps for some 12 months or even more. I am sure that hon. Members could, and will, give many examples.
    It is not clear from the Clause what will happen if payment is made on credit terms or hire purchase. Does the payment have to be completed, or will it be sufficient if payment is commenced before 16th October, 1966? According to my reading of the Bill, it would have to be wholly paid for by 16th October.
    Mr. F. A. Burden: The allowance will be given only on that part of the hire-purchase price which has actually been paid on that date.
    Mr. Barnett: I hope that my right hon. Friend will deal with that.
    There seems to be some inequity, but the difficulty is that this is tied with the new investment grant and because items of fixtures and fittings and vans which were previously allowable for investment allowance are not now allowable for investment grants, there will clearly be many attempts to bring in fixtures and fittings and vehicles for the old investment allowance for as long as possible. I do not think that we should here argue the merits of the investment grant, and I do not think that these Amendments should be used as a method of frustrating the philosophy behind the investment grants, but it is important to understand that.
    While one can accept the logic of the Opposition Amendment, Amendment No. 253, admitting items of expenditure incurred before 17th January, that would leave the position far too open. One can appreciate the administrative trouble which would arise if the Amendment were accepted, because for many years hence the Revenue would still have this

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    type of allowance coming up. That will be the case when accounts are submitted a few years later, even drawing the line as now proposed. To leave the position as wide as the Opposition suggest would involve the Revenue in dealing with these matters into the 1970s. So while one can understand the logic of Amendment 253, administratively it would be impossible.
    The important thing to understand is that it was presumably the Government's intention that expenditure genuinely incurred before 17th January, 1966, should be allowable for investment allowance. If so, they should accept one of the Amendments, or bring forward one of their own, so that the majority of genuine expenditure incurred before that date can be allowable. It is with that sort of consideration in mind that I hope that my right hon. Friend will accept, if not my Amendment and one or two others, at least something on those lines.
    Mr. Terence L. Higgins: I am sure that the Committee will be grateful to my hon. Friend the Member for Shipley (Mr. Hirst) for the clear and cogent way in which he moved his Amendment. I want to deal with the narrower Amendment, Amendment No. 253, which you, Sir Eric, have been kind enough to link with my hon. Friend's Amendment.
    I stress at the outset that the essential point about the Amendments is that unless some such changes are made, there is a grave danger that business confidence in the system of investment allowances will be shaken. For that reason, I very much hope that the Chief Secretary will find it possible to accept our Amendment. The hon. Member for Heywood and Royton (Mr. Barnett) said that it was necessary to draw the line somewhere. Our contention is that in this case it is not necessary to draw the line as the Government have done, because that makes the Clause far more restrictive than it needs to be.
    In effect, the Clause says those people who have made contracts for investment within the specified time, none the less will not benefit from the system of allowances unless they have also qualified under two further headings, the first being that payment has been made and the second being that the assets have actually
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    been brought into use by 16th October, 1966. There is no reason why the line should be drawn in such a way as to impose those additional restrictions.
    We do not feel that the system of incentives which the Government are now proposing is as good as the previous system of incentives. The reasons for this have been spelled out at great length in previous debates—the fact that the new system of grants will be paid regardless of profitability, the fact that firms will not have to work out the system and therefore need not use modern techniques, the fact that there is no right of appeal, and so on. I want not to dwell on those subjects this afternoon, but to concentrate on the rather narrow Amendment.
    I stress the importance of confidence. The danger as the Clause stands is that firms who have engaged in an investment decision and who have taken the decision in completely good faith, will now find, either because they have not or have been unable to pay, or because the building or construction of the asset has not been completed, that they are not permitted investment allowances.
    I appeal, in many ways on a personal basis, to the Chief Secretary to accept the Amendment. In a previous occupation, I spent many hours with chairmen and managing directors and directors trying to persuade them of the advantages of the investment incentives which the Government were giving to industry under the system introduced by the previous Government. As the Chief Secretary no doubt knows, it was very heavy going at times. It was difficult to convince directors and industrialists that the allowances were equivalent to a reduction in production prices and, if expressed in present value terms, something which they should take into account and which should encourage them to invest.
    If I had been successful, as on one or two occasions I might have been, in encouraging investment in a particular asset and the investment allowance had been taken into account and the contract signed and so on, and then at some later stage this Clause was passed unamended, and if the company had not paid for the asset in time, or if there had been some delay so that the original project needed a longer construction time than that specified in the Clause, the people whom I

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    had been advising in my previous occupation might turn round and say that I had advised them wrongly and completely misled them and should have foreseen what an absurd Clause this would be.
    It is not reasonable to expect people to know that parts of this Clause which we are now arguing should be deleted could have been foreseen, and I very much hope that it will not become part of the Act. The need to inspire confidence in these incentives is brought forward very cogently by the way in which the debate took place on an earlier occasion on the question of the new incentives when my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) stressed the fact that the Government's National Plan anticipated a growth in investments of 7 per cent. per annum. He pointed out that the actual achievement of investment in the present period was far below that. Indeed, it compared very unfavourably with the 2·4 per cent. annual increase in investment which had taken place in the period 1960–64.
    The point which I am trying to make is that, against this background of stagnating investment, instead of a 7 per cent. per annum increase in investment, it is all the more important that we should amend this Clause and continue slowly and laboriously to build up the confidence of industry that the Government are determined to encourage investment by the kind of incentives that we are now debating.
    I notice that in a Press notice published today by the Board of Trade it said that in May, 1966, the Board of Trade asked companies contributing to the investment intentions inquiries to state whether they planned to spend in 1966–67 more or less than they had forecast in November-December of 1965. The latter inquiry now suggests that manufacturing industry is likely to spend very little more on fixed assets in 1966 than in 1965, that the distributive and service industries are expected to spend about the same in 1966 as in 1965, and that both groups envisage that plans for spending in 1967 are going to be about the same as in 1966. This is far below the proposals made in the National Plan and far below the performance of recent years.
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    It is surely important that this Clause should be seen in its true perspective and that this Amendment should be carried. It is not good enough to impose, first of all, the restriction on the fact that the asset must be brought into use by 1965. It is not an adequate time to allow a number of companies to complete the investment decisions which they have made. Industrial buildings, of any size, will not normally be completed within nine months of entering into contracts, which is what the Clause at present specifies. Plant installed within those buildings will again not normally be completed within nine months. This nine months' limit is a very restrictive limit, and the point which we are making is that the restriction on bringing into use should be disregarded. The same is true with regard to the question of payment.
    Here again this may raise very real difficulties. My hon. Friend the Member for Shipley raised the point, which has been discussed in the Committee upstairs, that great difficulty may arise in the case of firms who put their records on computers if we change from a basis on which asset records are related to the date of contract and the date of expenditure rather than the date of payment. I hope that this point will be covered by the Chief Secretary, because we are trying to encourage firms which are mechanising and using computers.
    4.15 p.m.
    On the question of the date of payment, we have not only to ask what is the position on hire purchase, which has been clarified in Committee, but also what is the position if a payment has been partially made and the remainder is being met on credit. From a point of view of definition there may be some doubt. If the Chief Secretary can clear this point up we can take it into account. I do not wish to detain the Committee further because I am very hopeful that the Chief Secretary will respond favourably to the Amendments. It does not seem necessary to restrict the payments of the allowances in the way in which they are being restricted, and it certainly does not seem adequate that it should be done merely for administrative convenience, in order to change over cleanly from one system to the other.
    This would seem to be a very high price to pay if we are going to, as I

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    believe we may, to discourage faith in the Government's intentions. I hope that the Government will make a clear statement saying that if a system is entered into, those firms may have confidence that they will get the allowances which they are taking into account when making their investment decisions. On these grounds I hope that the Committee will accept these Amendments.
    Mr. Robert Sheldon: As my hon. Friend the Member for Heywood and Royton (Mr. Barnett) has done, I wish to speak on Amendment No. 9 which seeks to allow the period of three months between the asset being brought into use and the payments for that asset. It is very rarely industrial practice that delivery of a particular piece of equipment or plant coincides with the payment for that particular piece of plant or equipment. The company might buy an asset, say a business machine, on long-term delivery —and there are some very long-term deliveries at present. When the asset is finally delivered, the payment is not expected to be made instantaneously.
    This Amendment is a very reasonable one and we hope that my right hon. Friend the Chief Secretary might see fit to accept it. I do not agree with the hon. Gentleman the Member for Shipley (Mr. Hirst) who said that the final date should be when the order was placed. Payment is a very much more precise means of calculating a date than is the order. Neither would I agree with the hon. Gentleman the Member for Worthing (Mr. Higgins) who said that there was no need to draw a line in deciding when these provisions should finally terminate and give way to the new provisions for investment grants. It is natural, and we must accept it, for there to be a desire to close the books on a particular form of investment incentive is strong. To have two kinds of systems going along together for any period has obvious administrative inconveniences and, while this may not be a prime consideration, we must take some account of it. I think that this is a very modest Amendment and I hope that the Committee might consider it. Large schemes of investment take several years to bring to fruition, from the planning
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    stage to the time when they are brought into use.
    It is always a shame when the investment decision is undermined by means of any change of Government policy. In this case I accept that Government policy operates in an advantageous way. Whereas there may be some disputes about the level of investment grants in individual cases the clarification given to businessmen is extremely valuable.
    Whenever there is a change of investment incentive the investment decision which at the time was considered suitable and of value to the company concerned is also changed. If it is terminated in a provision of this kind it is necessary that we should be generous in order not to prejudice what might have been a reasonable forecast as to the outcome of that investment decision. We should be careful that when we do change over we provide the least inconvenience to those firms which have made those far-reaching decisions and I hope that because of this my right hon. Friend will go some way towards accepting this Amendment.
    Mr. A. G. F. Hall-Davis: I do not think anybody would doubt that the Clause is unnecessarily restrictive in its terms and that the qualifying period within which investment allowances can be secured is too short. I contrast the shortness of this period with the latitude that the Chancellor has given himself in his payments timetable for the introduction of the investment grant.
    Most of my hon. Friend's Amendments are designed to secure an extension of the time in which contracts entered into before 16th January, 1966, could be completed and payments made as a result of those contracts with the benefit of the investment allowance. Amendment No. 252 which stands in my name and that of my hon. Friends is concerned with those items which previously qualified for investment allowance but which will not now qualify for investment grant and regarding which a contract was not entered into by 16th January, 1966, but in respect of which a project had been undertaken which made expenditure inevitable if the project which had been commenced by 16th January, 1966, was to be completed and was to fulfil its purpose.

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    Hon. Members on both sides can think of a number of examples. My hon. Friend the Member for Worthing (Mr. Higgins) has given some. I will confine myself to one example which I believe to be sufficient to illustrate my point. Prior to 16th January, expenditure on a wide range of hotel equipment qualified for investment allowance. Under the Industrial Development Bill it will no longer do so. I will heed the suggestion of the hon. Member for Heywood and Royton (Mr. Barnett) that we do not now attempt to discuss the merits of the qualifications under the Industrial Development Bill. This exclusion from investment grant of this equipment was a grave blow to an industry which is a major earner and saver of foreign currency and which under this Bill is to suffer the additional burden of the Selective Employment Tax.
    It is unusual when letting a contract for hotel construction to order at the same time the whole range of hotel equipment. There is no need to do so. Delivery dates, about which we hear so much, are not so long that it is necessary to order carpets, curtains and cutlery at the same time as the erection of the building is commissioned. It is desirable to be in a position to take advantage of the most up-to-date designs. Therefore, the ordering of this equipment is deferred for as long as possible. Yet there is no doubt that in the initial decision to undertake the project the availability of investment allowance for that equipment will have been taken into account. Therefore, I suggest to the Chief Secretary that the investment grant should not be denied solely on account of the absence of a contract.
    I suspect that the right hon. Gentleman will echo the statement made by the hon. Member for Ashton-under-Lyne (Mr. Sheldon) that the line must be drawn somewhere. Although I hope that the right hon. Gentleman will accept all the Amendments, I should be surprised if he does not continue to enjoy some protection under subsection (2,a) and (2,b). It may have escaped the right hon. Gentleman's notice that the Industrial Development Bill recognises that identification of projects and their date of authorisation is possible. Paragraph
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    1(b) of Schedule 1 of that Bill contains the words:
    "under a contract entered into, or for the purposes of a project undertaken, while the area was a development area".
    If it is possible to identify projects which were commenced while an area was a development area, I see no reason why it cannot be done for the whole range of investment grants.
    The wording of Amendment No. 252 has a respectable parentage, but I would not be dismayed if the Chancellor or the Chief Secretary preferred to introduce his own wording if he were prepared to concede that the circumstances I have mentioned merit recognition in the Bill. In the example I have quoted, this is what the hotel and tourist industry would hope for. The industry feels that it has suffered badly at the Government's hands in recent months. The Treasury should start to recognise the currency-earning abilities of this industry. This is a very humble way in which the Chief Secretary could indicate that some softening of the Treasury's heart may be about to take place. I know that acceptance of Amendment No. 252 or something on these lines would be welcomed by this industry and by other industries.
    Mr. Burden: I am very encouraged by the fact that the Chief Secretary has the background of an accountant. I am further encouraged by the fact that the hon. Member for Heywood and Royton (Mr. Barnett) is also an accountant and that he is very much in agreement with the views which have been expressed from these benches.
    Mr. Barnett: Not entirely.
    Mr. Burden: Not entirely, but the amount of unanimity on both sides is a great encouragement. The fact that the hon. Gentleman is an accountant and that the Chief Secretary was a very distinguished member of that profession——
    Mr. Barnett: What a distinction.
    Mr. Burden: I have found that in the past the right hon. Gentleman's background played a great part in formulating the views he has expressed in the Chamber. Despite the fact that he is now in the Treasury, I hope that his professional ideas will intrude themselves

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    into this debate and enable him to recognise the justice of our claim. What we are claiming is that there should be some equity in the matter of these allowances and the termination of the time in which they can be allowed.
    Some industries are not worried about the dates which have been stipulated. They will benefit to the full. Other industries are very concerned about the effect if the present situation is not changed. I hope that the Chief Secretary will forgive me if I deal specifically with an industry in which I have an interest—the aircraft industry—and which clearly illustrates the problems as they will appear if the Clause goes through unamended. This applies also to other industries which are comparable in the way they order their equipment, the way in which the equipment is delivered, and the time which is taken to deliver it, and the way it is financed.
    According to the present terminology of the Clause, the air transport operator will receive allowances only on aircraft or other tools of his trade which were ordered on or before 16th January of this year and which will come into use and be wholly paid for by 16th October of this year. The hon. Member for Heywood and Royton asked whether it would apply to the whole of the capital expenditure if the capital equipment was on hire purchase or if it would apply only to that part of it which had been settled under the hire purchase agreement. As I understand it, the allowance will apply only to that part of the total sum which has been settled.
    These proposals completely ignore the established conditions under which some industries purchase the tools of their trade, equipment which often costs millions of £s. Air transport operators finance their equipment on a long-term basis by a pay-as-you-earn process of hire purchase or lease purchase agreements. In other words, it is the practice of the industry to finance aircraft purchases from current earnings by assessing the cash flow which is likely to result when the aircraft is put into operation. In assessing that cash flow account is taken of the 30 per cent. investment allowance which was available on all new equipment under Section 16 of the Finance Act, 1954. With Corporation Tax at 40 per
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    cent., this is of the greatest assistance on the capital equipment of costly items such as aircraft.
    4.30 p.m.
    Removal of this concession will be a great blow to the air transport industry, quite apart from the terms under which financing is carried out. Capital equipment such as aeroplanes and spares must be ordered many months ahead, in many instances a year or two or more ahead. When a new aircraft comes into operation, particularly if it is a revolutionary machine, there is often a rush to get down orders, which have to be placed at least two years ahead. That is probably the shortest delivery time. Operators who are not prepared to do this will not get the aircraft. This is a question of long-term planning and it is an inescapable requirement of successful air operation. It has become a greater necessity in this age of jet aircraft.
    If the Chancellor adheres to the proposals of the Clause, they will have a harsh and penalising effect upon the air transport industry, and certainly upon other companies which are in a comparable position and which finance their equipment in a similar manner.
    I therefore ask the Chancellor to extend the period in which the investment allowances will be paid so that it will become available in the case of all contracts placed before 17th January, 1966. I also ask him to extend the time factor at the other end, so that it embraces the total payments for equipment ordered before that date, irrespective of the date on which payment is completed. This is the fundamental issue.
    For a great many companies, the effect of the Clause as drafted would be viciously retrospective. A moment's thought should enable the Chief Secretary to realise that that is a fair statement concerning companies which have to order in the way I have stated as against others which can get their equipment almost "off the peg" and will receive the full benefit.
    Many companies have arranged the financing of their purchases under existing law and on the assumption that all the existing allowances will apply to equipment which they contracted to buy prior to 17th January this year. Surely

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    the Chancellor will recognise the harsh penalties that the proposed cut-off dates governing the entitlement to investment allowance will impose in the case of companies which often subscribe considerably to the strength of our economy.
    My hon. Friend the Member for More-cambe and Lonsdale (Mr. Hall-Davis) has referred to the foreign currency-earning capacity and powers of hotels and holiday resorts. Air transport also plays a great part in this matter and also earns a great deal of foreign exhange, as well as saving a great deal of foreign exchange.
    This is a matter which not only affects private operators but is obviously of tremendous importance to the nationalised air corporations, which are in a similar position in the way in which they have to make their purchases of aircraft and plan their future. Although it might be argued that in the case of the Corporations it would merely be a book entry from one side to the other, this in no way justifies the fact that there should appear to be different treatment between private operators and a nationalised Corporation. I am sure that the boards of the nationalised Corporations are fully aware of this and would wish to be treated in the same way as every other operator in this connection.
    I hope that the Chief Secretary will seriously consider this matter and endeavour to smooth out what could be an untenable anomaly if it were allowed to pass as it stands.
    Mr. Michael Alison: I wish particularly to reinforce the comments of my hon. Friend the Member for Morecambe and Lonsdale (Mr. Hall-Davis. I start with a point which seems to me to be one of considerable injustice. Here I declare a constituency and not a personal interest. It relates particularly to small-scale operators of commercial vehicles, the quality lorries manufactured by some of our big commercial vehicle manufacturers. I am told by the Road Haulage Association that some of the major manufacturers—I refer particularly to Leyland, E.R.F., A.E.C. and Albion —are quoting as long as two years for delivery for some of their quality vehicles. In one instance the delivery date is three years ahead.
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    It is entirely unjustifiable that in this Finance Bill the Government should introduce a provision which means that a small road haulage operator can place an order for a quality vehicle with a delivery date two or three years ahead in the expectation of getting his allowance but that by what amounts to retrospective legislation he should be denied it. The Government need only to recognise the truth of this to make the necessary change.
    The injustice is all the more glaring because some of the assets which will be caught out by the time limit will be assets which, under the new discrimination in investment incentives, will in any event be cast into the wilderness. There are a lot of these which have the double disincentive of loss of investment grant under the new Industrial Development Bill and the burden of the Selective Employment Tax, and now the smack in the eye which they are to get from this crudely unimaginative and obviously ignorantly-drawn provision.
    I wish, secondly, to point out to the Government another severe nail which they are knocking in to the coffin of what they are pleased to call industrial incentives as being an apparent driving force behind Government policy. If they look carefully at the provisions not only of the Clause, but of various Finance Acts and Bills, including the Industrial Development Bill, it is obvious that they are producing for the country a scheme of investment disincentive. It is not only that some businesses, whether or not they invest as a qualifying asset under the Industrial Development Bill, will be knocked by the time limit: they will lose their allowance, and this itself will be a severe jolt to some of them.
    What is worse is that the excuse that might be put forward that even if they lose their allowance under the time limit they will recoup it on the possibility of getting a grant if they come within the "qualifying asset" definition of the Industrial Development Bill, is entirely vitiated by the Government's announcement that the industrial development grants will be delayed for at least as long as were the old investment allowances.
    The whole justification for the change from allowances on a tax basis to grant on a cash basis, although it was highly

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    discriminatory against service industries, and so on, was speed. Here, however, we have a clear pronouncement by the Government, looking ahead and seeing their economic difficulties, that the grants will be delayed for at least as long as the old investment allowances were held up. Some industrialists will lose their grant or encouragement and, because of the anxiety of the Treasury to save grant, they will not get any conpensating speed in grant in substitution. There is, therefore, a double disincentive.
    We should not pass this point without also noting another serious underlying weakness, which my hon. Friend the Member for Morecambe and Lonsdale and other hon. Friends of mine and I have tried to put right by Amendment No. 252, which would make it possible for what might be described as the follow-through to continue to qualify for the incentive allowance.
    In reality and practice, it is quite impossible to separate these qualifying assets under the terms for grant from the assets which, under the Industrial Development Bill, will no longer qualify for grant but which formerly received an allowance. My hon. Friend has mentioned the hotel industry, which is an obvious case in point. When one raises capital to build a hotel one is, by implication, raising capital to buy television sets, armchairs, carpets, cutlery, and all the paraphernalia that go into hotels.
    There are other examples, the most pressing current one being the motor manufacturing industry. I read in The Times today that General Motors—Vaux-halls—are looking askance at the possibility of night-shift working in the coming months because of the slight lack of buoyancy in the export market, the seamen's strike and so on. It is sometimes forgotten that the motor manufacturing industry's investment in new plant and equipment in the factory is geared to the provision of motor car showrooms and servicing facilities in new towns, in attempting to get into the market for selling cars where new towns are being built, where housing is expanding and the population is developing. It is not possible to separate the provision of plant and machinery from the provision of some of the service facilities that go with it, particularly in construction and building.
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    My hon. Friends and I are anxious that the follow-through which is the logical consequence of investment decision in manufacturing should be provided for. If the Government will take to heart their own message on investment and the need to encourage it, they will accept the abolition of the time limit, together with the logical necessity of allowing a follow-through for a tax allowance as a result of decisions taken to invest in plant and machinery, and will seriously look at the levelling off in investment prospects and projects as shown by the Board of Trade in its report issued today, and by the steady shortfall in capital investment as compared with the National Plan target of 7 per cent., and what my hon. Friend the Member for Worthing (Mr. Higgins) referred to as the 3 per cent. per annum increase which is the present rate, and will knock this time limit right out of the Bill.
    The hon. Member for Ashton-under-Lyne (Mr. Sheldon), who is not in the Chamber at the moment, spoke of the Government's need to keep two balls in the air at the same time—allowances and grants. I do not think that this is a serious problem. There will be an overlap anyway, because even if the October, 1966 date is accepted allowances will inevitably still be going on for the 18 months after that, and we must assume that grants will begin to be paid earlier than 18 months after October, 1966.
    Therefore, they will have to keep two balls in the air at the same time whether they like it or not. The hon. Member will see in the Industrial Development Bill that the President of the Board of Trade has taken powers, which we believe are far too great, to regulate the amount of money which he lets out of the grant system by his own discretionary powers written into that Bill.
    I hope that the Government will look sympathetically at the Amendment.
    Mr. Ian Lloyd: I notice that the Amendment to which I should particularly like to refer, No. 136, is unusual, if not unprecedented, in having the accolade of being supported twice by my hon. Friend the Member for Tynemouth (Dame Irene Ward). I hope that this will give added emphasis to whatever argument I might employ in its favour.
    Mr. Eric Lubbock: On a point of order, Sir Eric. I think that Amendment No. 136 was selected for discussion with the next Amendment.
    The Chairman: That is quite correct. Would the hon. Member like to postpone his speech until we come to Amendment No. 151?
    Mr. Ian Lloyd: Thank you, Sir Eric.
    4.45 p.m.
    Mr. Raymond Gower: Like many of his predecessors, the Chief Secretary has had to spend a good deal of his time at the Dispatch Box in stonewalling, and, like them he has frequently acknowledged the merit of a particular case and had reluctantly to turn it down. He should hardly do either of these things on this occasion.
    It is usually deemed a merit to state a case in the House of Commons in moderate terms, but I do not think that this case should be stated in moderate terms. I see very little merit in the way in which the Clause is drawn at present.
    Three methods have been prescribed by various hon. Members to amend it; those proposed by my hon. Friends the Members for Shipley (Mr. Hirst), Worthing (Mr. Higgins), and that proposed by the hon. Member for Heywood and Royton (Mr. Barnett). I like best the method proposed by my hon. Friend the Member for Worthing, which would do away with both the quite unjustifiable limitations.
    I beg the Chief Secretary first to reconsider the aspect of the limitation as to time when the asset is brought into use. That sets an unjustifiable and unfair premium on the nature of the asset. In some cases it is possible for the asset to be provided and made use of fairly quickly. In other cases, a much longer period must be involved. There is no merit in a rigid prescription of this kind, which takes no account of the nature of the asset with which a company has sought to provide itself.
    There is the same objection to the limitation of payment. This takes no account of the method in which the original contract was entered into and no account of the resources of the company or of its liquidity at the time. It merely prescribes in a rigid, wooden way
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    that payment must be made by a certain date.
    The hon. Member for Heywood and Royton said that the line must be drawn somewhere. Surely, the place where it should be drawn was where the contract was made and the commitment was entered into? That was the time when the businessman made his commitment, and he made it in good faith under the law as it then obtained. This is vitally important.
    Successive Governments and Oppositions have been cajoling firms to enter upon investment commitments of this kind for a decade and more. Conservative Governments and Labour Oppositions sought repeatedly to step up the investment allowances and to induce more and more companies to embark on investment. It was deemed a meritorious activity for the companies and firms, and they entered into the commitments.
    With great respect to my hon. Friend the Member for Shipley, his Amendment would go a fairly long way to dealing with this, but there may be some cases where even his proposed date would exclude a worthy project properly entered into under the existing law. That is why I consider that the Amendment in the name of my hon. Friend the Member for Worthing should be accepted. In equity, the Chief Secretary must admit that there is no answer to the case, and the Government should accept it.
    Mr. John Peyton: I should like to support very briefly the arguments adduced with such eloquence by my hon. Friends, particularly those of my hon. Friends the Members for Barkston Ash (Mr. Alison) and Morecambe and Lonsdale (Mr. Hall-Davis).
    I shall refer particularly to the hotel industry. For the life of me, I cannot understand how the Government have let themselves get into the position of singling out the hotel industry for a really vindictive swipe. They might just as well have issued a really glossy brochure advertising and commending holidays in Spain in very euphemistic and flattering language. They could not have done more to urge upon the public the merits of holidays abroad than by reserving for the hotel industry this extraordinarily vindictive treatment.

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    I do not believe that the Government, who have the merit of having the right hon. Gentleman the Chief Secretary as one of their leading lights, could have done this willingly, and with their eyes open. They must have attacked the problem in a piecemeal manner. First, we have the denial of the grant, and now we have this burden, on top of the Selective Employment Tax. Is it the intention of the Government to cripple this industry? From time to time many of us have criticised the hotel industry for its shortcomings, but it is making obvious efforts to contribute to our vitally important tourist industry and it is inexplicable that the Government should have introduced these three measures, which are calculated to do it almost irreparable harm.
    I hope that the Chief Secretary will have second thoughts about this matter. Quite apart from the weight of the argument, we have just about arrived at the time when a major Government concession is due. Perhaps the right hon. Gentleman will find that consideration even more commendable than the weight of the argument.
    Another question concerns retrospection. Literally speaking, there is no retrospection here, but my hon. Friends are on good ground in arguing about commitments which have been entered into. There can be no gainsaying this. I was very impressed by what my hon. Friend the Member for Morecambe and Lonsdale (Mr. Hall-Davis) said, namely, that at the time a person builds a hotel he does not enter into any contracts for furnishings. The wretched man is therefore caught whatever happens.
    I am always shocked by the carelessness with which Governments inflict sudden tax changes upon industry, and I should like to make one constructive suggestion. During the Committee stage of the Finance Bill one day should be set aside when the entire Government should be chained to their Front Bench and made to listen in silence to industrialists who would be given the Floor of the House free so that they could express their views about what is being done.
    In the House we are very free in expressing our opinions about industry, but industry has little or no opportunity to tell Government after Government what a
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    paralysing and crippling blow it suffers when policies upon which it has depended, and upon which its budgets have been balanced, are changed overnight without a "by-your-leave" and apparently without any awareness on the part of Governments of the effect of their actions upon industry.
    On this count my sympathies are wholeheartedly with industry. I hope that the right hon. Gentleman will get up in a white sheet of repentance and say, on behalf of the Government, that he is indeed sorry and that he will offer, instead of these proposals, a policy based on justice.
    The Chief Secretary to the Treasury (Mr. John Diamond): I respond immediately to the request of the hon. Member for Yeovil (Mr. Peyton) that I should make a statement on behalf of the Government. Nobody enjoys more than I do close, regular and direct contact with leading industrialists and representatives of industry of all kinds. I take it as part of my responsibility continually to have my mind refreshed by their current views, and I am having my next stage of refreshment on Friday night of this week, when I am going to one of our major towns to listen to representatives called by the local chamber of commerce in order to discuss absolutely openly any points that they wish to discuss concerning those aspects of Government policy which affect business. I share the view of the hon. Member that Ministers must continually keep in touch with industrial opinion of all kinds.
    We are grateful to the hon. Member for Shipley (Mr. Hirst) for the way in which he moved the Amendment, and also for its content. It puts before the Government some serious problems, which must be considered sympathetically. Many points have been put forward, and the simplest wav of dealing with them would be to gather together the strands of what has been said and indicate the way in which the Government's mind is moving.
    My hon. Friend the Member for Heywood and Royton (Mr. Barnett) said that we could not have the door too wide open; administrative difficulties would arise if we had no dividing line of some kind or the other. My hon.

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    Friend the Member for Ashton-under-Lyne (Mr. Sheldon) echoed this opinion by saying that we must draw a line somewhere, and must close the books somewhere.
    That is a starting point. We are changing over from one system to another and it would not be appropriate or proper to argue about the various issues that arise. I am grateful to all hon. Members who have spoken for not dragging other issues into the question. The Government take the view that this is a change for the better. I do not seek to impose any view upon the Committee; I recognise that this is part of our thinking. But there is a change, and we must provide reasonable arrangements for it. Therefore, we must have a dividing line, and give reasonable consideration to the administrative problems which will arise.
    My hon. Friend the Member for Hey-wood and Royton also said that he thought that it must have been in the Government's mind to take account of investment expenditure which was genuinely incurred. That is so. But that presents a certain problem to the Government when—as had to be the case here—many months' notice had to be given of the kind of change that was in the Government's mind.
    That is one side of the story. I was also impressed by what was said by several hon. Members opposite about keeping faith with investors. They made the kind of speech that I have made from those benches on many occasions as a result of the experience I had, day by day. I was very interested in what the hon. Member for Worthing (Mr. Higgins) had to say. I have been myself in exactly the same position in respect of the problem of persuading boards of directors of the value of investment allowances. I am sure that he tries very hard to do this, as I did, but it is tough going. This is the whole basis of our case; it is very tough going to persuade people who ought to understand without any need for persuasion that investment allowances are valuable.
    That is why we had to turn to another kind of investment incentive—one which could be more readily grasped and more easily understood. I do not suppose that
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    that was the intention of the hon. Member's illustration, but he and I have had the same experience. He was drawing attention to the fact that we must keep faith with those who make investments on the basis of an allowance which they can reasonably expect——
    Mr. Higgins: I would draw the attention of the right hon. Gentleman to the C.B.I. Industrial Trends Review, published recently, which suggests that many people who said that their investment decisions were not affected at all further added, "Neither system affects our investment decision." There is still a great deal of ignorance. I cannot agree that the answer is to provide assistance which is more easily understood; the real answer is to educate management.
    Mr. Diamond: Nobody would deny that part of the answer is to educate management, but we must also make it more easy for management to understand what is in the interest of the country and also of their own firms.
    5.0 p.m.
    So we have to take account of the need to have a dividing line because we are having a change, of the need to have regard to investment genuinely undertaken, and the need to keep faith with the investors, and of the comparable situation under the Industrial Development Bill which the President of the Board of Trade is arguing in Standing Committee.
    Under the provisions affecting development areas, the Government have accepted the point of view that those who went to development areas may well have been induced to go there by the very allowances which were offered, and therefore, when a development area is ceasing to be a development area and depreciation allowance is being withdrawn, the Government recognise that by the manner in which the allowance is withdrawn, but it should be remembered both that there was clearly in those cases a more direct inducement by the Government through the Finance Acts to manufacturers and others to go there, and, secondly, that what is being offered in the form of investment grant is a discretionary grant. So long as discretion remains with the President of the Board of Trade one can obviously afford to go

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    a great deal further than one can in Finance Bill provisions where every taxpayer has the usual rights of appealing to the Commissioners, the High Court, and so on, where there is no question of any discretion resting with any inspector of taxes, as the hon. Member for Chelmsford (Mr. St. John-Stevas) keeps on suggesting to us as the method of conducting our tax affairs.
    All I am saying is that we have to have a reasonable balance between those opposing points of view. I am not suggesting that the balance we have at the moment is necessarily the right one. I am not suggesting that. There are obviously cases which are genuine which do not fit in with the limitations which have been provided in the Bill. We have always expected that there would be representations made; we knew of certain views before the Bill was drawn in its present form. I will not say it was drawn in a tentative way, but we did think it was right that it should be fully discussed in Committee and that we should take account of everybody's views.
    I do not suppose each individual contributor to the debate would wish me to deal individually with what he had to say. I would want to be a little discouraging, I am afraid, to those hon. Gentlemen who suggest we should go back before the contract was entered into, as the hon. Member for Barry (Mr. Gower) would like——
    Mr. Gower: I did not say that.
    Mr. Diamond: What he said was that the determining factor should be the entering into of the contract, and he was pouring very cold water on his hon. Friend's suggestion who wanted to go back before the contract and consider the project.
    I think that perhaps at this stage, if the Committee would be good enough to agree, we would like to consider very carefully and as far as we can sympathetically appropriate cases and everything that has been said, with a view to bringing forward such amelioration as we regard as proper. I have indicated that there must be a dividing line. I have indicated that we do not at the moment feel very much persuaded about going behind the date of contract. I am bound to say about the two years' delay with the
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    lorries the hon. Member mentioned, becoming three years in certain cases, that I accept those figures; they correspond with my own information and I accept those figures——
    Sir Robert Cary rose ——
    Mr. Diamond: Let me just finish this statement, which will not be all that acceptable, I am afraid, to the hon. Gentleman. I accept the figures, and I accept the argument that where we are unable for two years, to supply what we have to sell it does not seem on the surface as if there is a tremendous need to increase investment allowance, so far as the purchase of those goods in concerned. I am bound to say that that is part of the case which the hon. Gentleman is making, though I would not wish to encourage him to believe that the Government are likely to look very sympathetically on cases where investment is already so over-stretched it is impossible to supply the investors' demand for two or three years. I am saying this because I do not want to mislead hon. Gentlemen.
    I would have hoped that we could go some way at a later stage to meet some of the reasonable requests which have been put before the Committee.
    Mr. Alison: I think the Chief Secretary is a little unfair on the question of road haulage vehicles. He will have noticed that the export figures this year have been supported by extraordinarily good performance in the export of commercial vehicles, whereas the ordinary private cars have gone slumping down substantially. He is really penalising the home buyer because he is unable to exert pressure against the industry, which is doing extremely well with exports.
    Mr. Diamond: It is a very marked contribution they are making to exports, and I congratulate the hon. Member. His constituent will get investment grant, that grant with which they are making lorries. That is what he is talking about. What I am talking about is the domestic purchaser of the lorries who does not seem to be so laggardly in his purchases as to require the inducement and the stimulation of additional and obvious incentive allowance.
    Mr. Burden: I am sure the right hon. Gentleman will appreciate the situation of the aircraft industry. We are now dealing only with orders placed on or before 16th January of this year in various fields. It must be taken into consideration, as I am sure he appreciates, that the particular character of the capital article purchased may be such that there must of necessity be a long delay before there is delivery—because of the character of the article.
    Mr. Diamond: I do understand that fully. I would now, therefore, suggest to the Committee that, as I have indicated as clearly as I can, the lines on which the Government are thinking, the way in which we will try to meet reasonable requests, the need to have regard to points made by both my hon. Friends, which are absolutely right, and as I have given a fairly clear indication of the lines of Government thinking, that it would be the best next stage if we could consider very carefully indeed everything that has been said—read it all again in HANSARD —and bring forward our proposals to go some way to meet their needs.
    Mr. Anthony Barber: I must say that I am very disappointed with what the right hon. Gentleman has said. I had expected that he would have risen earlier during the debate on these Amendments, because I could not conceive that he would not be able to announce to the Committee that he would be able to accept the general principle underlying these Amendments. Then when the right hon. Gentleman got up a short time ago I expected even at that late stage that he would do that. In fact, all he has done is to hold out some pious hope that he may be able to meet us in one way or another.
    Of course, I do not doubt the right hon. Gentleman's sincerity, but what really concerns me is this. He told us representations were being made to the Treasury before the Bill in its present form was published. He will, of course, have had far more representations, I am sure, than we on these benches have had, but I personally have received innumerable letters from businessmen about this Clause, since the Bill was published. The right hon. Gentleman and his right hon. and hon. Friends have had a very
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    long time in which to consider this, and I really must tell him, before I deploy the arguments which my hon. Friends have put forward on the Amendments, that unless he feels able to get up before this debate is concluded and be a little more specific about what he proposes to do I feel it would be right that we should divide the Committee. I hope that he will have second thoughts. He must be considering, in the Treasury and with the Inland Revenue, what he will do. I have no doubt that if he has something specific in mind an Amendment will be in draft already. We might be told —there can be no reason why not—what the right hon. Gentleman has in mind which might lead us to reconsider our position. After all, the single purpose of the Amendment is the same. It is to do justice, no more and no less. The purpose is to ensure that those who entered into firm commitments before 17th January, 1966, should not be prejudiced by the abolition of investment allowances, that abolition having been announced on that day.
    There has been some talk about administrative difficulties. The hon. Member for Heywood and Royton (Mr. Barnett) said that the line had to be drawn somewhere. I would not press the Government to go the whole way, but my hon. Friend the Member for Barry (Mr. Gower) agreed with the hon. Member when he said that the line should be drawn at the date of the contract. This is the right way to deal with it. If there are serious objections, we must hear more about them. Certainly, the administrative difficulties which the right hon. Gentleman mentioned were not particularly compelling. We are told there are two balls in the air and that it is difficult to keep them there for too long. But we know that the staff of the Inland Revenue is to be increased and that the Board of Trade will have another 1,100 staff, so that I should have thought that between them they could have kept the two balls in the air for a considerable time.
    The right hon. Gentleman's observations have not been satisfactory. This is a simple demand for justice. I can see no reason why the right hon. Gentleman should not give way on this point, or at least extend the period within which payment has to be made and the asset

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    brought into use. The general reasons in favour of some relaxation here were cogently argued by my hon. Friend the Member for Shipley (Mr. Hirst) and my hon. Friend the Member for Worthing (Mr. Higgins). When, in the past, investment allowances were discontinued, they were available for assets which had already been contracted for. I can see no reason why the same principle should not apply in this case.
    My hon. Friend the Member for More-cambe and Lonsdale (Mr. Hall-Davis) gave the example of the building of a hotel. It must be common sense and obvious to everyone that, if someone started to build a hotel at the end of last year, the equipment and the furniture—all of which are necessary, even if they were ordered before 16th January: I concede the point on this aspect made by the right hon. Gentleman—could not possibly be brought into use before the middle of October, the deadline in the Bill.
    I would endorse what my hon. Friend the Member for Yeovil (Mr. Peyton) said about the tourist industry. After all, the tourist industry has received one blow after another the total abolition of investment allowances with no cash grants put in their place, followed by the Selective Employment Tax and so on. I would have thought that, for the tourist industry and the hotel industry in particular, some concession ought to be made to ease the way.
    I was told the other day of an actual case and I can give the right hon. Gentleman the details if he would like to have them. This was a multi-million pound development which should be completed and brought into use at the end of September, 1966. But what will happen if there is some small delay in completion until after the date specified in the Bill, 16th October? Suppose, in the Prime Minister's words, that some "politically motivated" trade union leaders were to call a strike in the middle of September and that this new building could not be brought into use in time?
    Why should the developers suffer in order to satisfy the convenience of the right hon. Gentleman and those who work with him? This is a simple case of justice. Why should someone who has ordered plant and machinery be penalised,
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    simply because of late delivery, which is entirely beyond his control? It is, of course, common knowledge that industrial buildings of any size will not normally be completed within nine months of the date of the contract.
    5.15 p.m.
    I was pleased that my hon. Friend the Member for Gillingham (Mr. Burden) referred specifically to the air transport industry, because it is obvious that in its present form the Clause is far too restrictive. From what I have heard about the air transport industry, I would say that the Amendment which is supposed to cover it, in the name of the right hon. Member for Orkney and Shetland (Mr. Grimond), is far too restrictive to do all that is necessary for the industry.
    What of plant and mechinery generally? Frequently, for heavy plant in particular, it is bound to take more than nine months from the date of contract for the plant to be installed. After all, it is not just a question of delivery: the plant must actually be brought into use. There is the case, for example—one can consider many types of heavy plant— of a glass-forming machine——
    Mr. Burden: There is one example of what my right hon. Friend is saying in the fact that when a new aircraft is ordered a number of new engines have also to be ordered so as to ensure serviceability for the future. This underlines his point.
    Mr. Barber: I am grateful to my hon. Friend, and in view of that example, I will not press on further with my own, which was a similar one.
    My hon. Friend the Member for Barkston Ash (Mr. Alison) ——
    Mr. Diamond: The right hon. Gentleman was talking about a glass-forming plant. I have no firsthand knowledge of a glass-forming plant, but I assume that it is the ordinary kind of plant which will get the investment grant. Therefore, wherever one draws the line on whatever operation that part will get the investment grant. I do not know what the right hon. Gentleman is complaining about.
    Mr. Barber: I will tell the Chief Secretary what I am complaining about— simply that, if he will compare the figures, he will find that for this type of plant and machinery the investment grant is

    621
    worth less, in cash terms, than the investment allowance. This is why these people are complaining. This is the position. If the right hon. Gentleman has not found that out yet, after all the comment in the press and all the discussion in Standing Committee on another Bill and all the figures given in the House, he is proceeding with a complete misunderstanding of what the Government are doing.
    My hon. Friend the Member for Barkston Ash referred to commercial vehicles, of which delivery can take up to two and perhaps even three years in some cases. Surely it is reasonable to meet a case like this. The extra burden is considerable. On Second Reading of the Industrial Development Bill, I gave figures about a goods vehicle costing £2,000. Under the proposed scheme, in the Industrial Development Bill—the scheme of cash grants—the actual cash benefit in the first year of purchase would be £259 less than in 1964. I went on to say that, in each successive year, the cash benefit would be less than under the old system.
    This Clause, as drafted, shows that Treasury Ministers have simply no idea of the practical realities of business life. They are, of course, in favour of paying lip-service to long-term planning, but how can a businessman plan in the face of this sort of legislation? In many cases, contracts for new equipment have to be placed a long time ahead. In entering into those contracts, regard is had to the effect of investment allowances on the future cash flow. Thirdly, of course, it is normal in many industries to finance the equipment on a long-term basis and not by an immediate cash payment.
    My hon. Friend the Member for Yeovil conjured up the endearing picture of the whole of the Government Front Bench being chained in their places to listen to the views of industrialists.
    I would point out to him that, on the narrow issue which is covered by the Amendment standing in my name, during the last few days, even though the Amendment has only been down for a few days, I have been inundated with protests about the way in which subsection (2) works. Only this morning, I received a letter from——
    Mr. Peyton: I am obliged to my right hon. Friend for giving way. I am grate-
    622
    ful to him for re-conjuring up that vision. The reason why I suggested it was not because they had not heard the arguments before, but because they should be seen publicly to endure the ordeal again.
    Mr. Barber: I must say that I am with my hon. Friend on that. This would be a very jolly occasion.
    I was going to refer to a letter which I received this morning from a trade association. I will not read it all, but one paragraph raises the sort of point which is genuinely troubling people. It says:
    "Even in those cases where assets contracted for before January are brought into use by October, it would seem that a complicated situation would arise in that in many instances they will only have been partly paid for"—
    which is the point made by the hon. Gentleman opposite—
    "if for no other reason than by virtue of the customary practice of retention moneys."
    That is bound to be fairly widespread. Yet, depending upon the particular time schedule, the person concerned will be prejudiced under the Clause.
    What possible reason was there for the Chief Secretary not, at least, accepting the principle of the Amendment in the name of the hon. Member for Ashton-under-Lyne (Mr. Sheldon), which is the most modest of all the Amendments with which we are dealing? We heard not a word from the Chief Secretary that he was willing to accept it.
    Mr. Barnett: Is not the right hon. Gentleman being a little churlish? As I heard my right hon. Friend, he was making it reasonably clear that he did accept the principle.
    Sir Gerald Nabarro: An allegation is coming from the other side, most improperly. Would not the Chief Secretary comment now on the assertion of his hon. Friend and give the Committee the benefit of his advice? Why is he quiescent? I am waiting for him.
    The Temporary Chairman (Mr. George Rogers): Order. That is not a point of order.
    Sir G. Nabarro: I did not rise on a point of order.
    Mr. Diamond: The reason why I did not rise was because the hon. Gentleman was still on his feet. Unlike him, I do not think that it is a good thing for two hon. Members to be on their feet at the same time.
    Mr. Barber: That only goes to prove the point which is being made by my hon. Friend. All that the Amendment doss is to provide for the case where payment is delayed for a matter of 12 weeks. Even now, the Chief Secretary will not give way on that simple point.
    With the added burden of Corporation Tax and the new one of the Selective Employment Tax, surely the Amendment is not unreasonable. If the hon. Member for Heywood and Royton (Mr. Barnett) manages to divide the Committee, when he goes into the Lobby we shall be right behind him and shall support him in the same way that we did yesterday evening.
    If there had been any real hope expressed by the right hon. Gentleman in the sense of some specific undertaking, and if he had only spelled out in general terms what he proposed to do, I would not have advised the Committee to divide on the Amendment. In the circumstances, I am bound to say that I hope that my hon. Friend will divide the Committee on Amendment No. 253.
    There have been one or two other observations made about the Clause in general. Some of my hon. Friends wish to refer to other aspects of the Clause. I want to say that the purpose of it is a simple one. It is to abolish completely the whole system of investment allowances. In our view, that is a retrograde step. We are opposed to it and, when we come to the Question, "That the Clause stand part of the Bill", we shall vote against it.
    No one who has had any experience of the taxation of companies would pretend that the existing system of investment allowances is not capable of improvement. The Chancellor and the President of the Board of Trade have listed some of the defects. There is the fact, for example, that some assets such as rented television sets qualify for investment allowances, contrary to the original intention when the system was first introduced. But those sorts of matters are capable of simple amendment, and, in
    624
    our view, they provide no reason for abolishing the whole system. It is dishonest to pretend otherwise.
    The Clause refers to the new system of cash grants. If that new system, which is to replace investment allowances, was an improvement on the existing system, we would not oppose it. The fact is that, by the Clause, the Chancellor of the Exchequer is abolishing investment allowances and intends to replace them by a system of cash grants. In so doing, he is, firstly, abolishing a system which gives industry an investment incentive as of right and, as the right hon. Gentleman admitted in his speech just now, replacing it with a system which is to be operated at the discretion of the bureaucracy.
    Secondly, the right hon. Gentleman is abolishing a system under which industry had the right to appeal to the courts, and he is replacing it with a system where the say so of a Government official is final and unchallengeable.
    Thirdly, he is abolishing a system where the cash incentive——
    Mr. Lubbock: On a point of order, Mr. Rogers. Can you tell me whether we are on the Question, "That the Clause stand part of the Bill"?
    The Temporary Chairman: No, we are still on the Amendment.
    Sir G. Nabarro: Further to that point of order, as I have been reserving my comments largely for the Question, "That the Clause stand part of the Bill", and you, Mr. Rogers, and your predecessor have allowed this debate on a group of Amendments to go so wide as almost to represent a debate on the Question, "That the Clause stand part of the Bill", would it be in order if we now spread the net a little wide than just the narrow issue of timing in anticipation of the Question, "That the Clause stand part of the Bill", because the two are nearly inseparable?
    The Temporary Chairman: It would not be in order to spread the debate any wider than it has already gone. There are other Amendments to be discussed. I am also listening very carefully to the right hon. Member for Altrincham and Sale (Mr. Barber).
    Mr. Barber: Then, I wonder whether you could help me, Mr. Rogers.

    625
    Obviously, there are a number of hon. Members on this side of the Committee, including myself, who want to say something about the general purpose of the Clause. If it is for the convenience of the Committee for me to say no more, having dealt broadly with the Amendments, and if we can be sure that we will be able to have a short debate on the Question, "That the Clause stand part of the Bill", I will not pursue these matters any further. Can you help the Committee, because I know that some of my hon. Friends wish to speak on the wider issues?
    The Temporary Chairman: I think that it would be better if these points were dealt with on the Question, "That the Clause stand part of the Bill".
    Mr. Barber: In that event, we can deal with those when we debate the Question. I will only express once again my deep regret that the Chief Secretary has not been more specific, and I must advise my right hon. and hon. Friends to divide the Committee.
    Mr. Cranley Onslow: I want briefly to reinforce the arguments in support of the aircraft industry which my hon. Friend the Member for Gillingham (Mr. Burden) was deploying some minutes ago.
    Amongst the representations which the Chief Secretary has received about the effects of the arbitrary date which has been set, I have no doubt that he has had some from the aircraft industry. If I may remind him of them, he will have been told of specific cases of orders for VC10 and BAC111 aircraft where investment allowances to the value of some £1½ million will be lost unless the date is extended. He will have been told of cases of contracts for the supply of engines for VC10's, where investment allowances would amount to some £200,000, and those will be lost if the date is not extended.
    Mr. Lubbock: I am sorry to keep intervening on points of order, but there is an Amendment dealing with this very point which is just about to be discussed.
    Mr. Onslow: Further to that point of order, Mr. Rogers, I am speaking in support of Amendment No. 253. There has been mention of the aircraft industry in this connection, and I hope that you will wish me to continue.
    The Temporary Chairman: It does not seem to me to be out of order so far.
    Mr. Onslow: Thank you. If I may return to the Chief Secretary, probably he has also been made aware of orders for machine tools placed by aircraft firms, in many cases from overseas and involving delivery lags of as much as 17 months, and, in the case of one firm alone, totalling some £300,000.
    5.30 p.m.
    It is within the knowledge of the Chief Secretary and the House that the aircraft industry has no cause to love the Government. There is no doubt about that. I do not believe that it will have any additional cause to love the Government if the Clause as it stands is allowed to pass to the Statute Book. There can be no case in equity for leaving it as it stands, because it will affect severely the viability, the future prospects and the ability to compete for future orders of the aircraft industry, which the Government have already very much damaged.
    The Chief Secretary knows that in many respects the position of the aircraft industry will be much worse when the investment allowance system is tapered away and that therefore the case being put forward warrants a much warmer response than he has so far given. I do not want the Chief Secretary to come into the Chamber in a mini-skirt with nothing else to hid his nakedness, but there is no reason why he should come into the Chamber in bombasine down to his ankles and refuse to show us more than his big toe.
    We have a right to be told more of the Government's intentions now. This is not a situation in which we can afford to delay indefinitely and in which business can afford to postpone decisions indefinitely while he makes up his mind. I therefore press him hard to tell us more of his specific intentions in relation to the aircraft industry and to give this much-maligned, much-abused industry some encouragement for a change.
    Mr. Hirst: I thought that after all these years I knew the Chief Secretary roughly in and out. That is a very big undertaking, and it has taken the concentration of thousands of hours in Committee over the years to arrive at

    627
    it. Today I have come to the conclusion that I must be wrong.
    When I moved the Amendment which started the proceedings earlier this afternoon, in what the Chief Secretary kindly said were very reasonable terms, I detected him nodding agreement several times. I realised that my Amendment was a little wide in certain respects and I said that if he met the principle behind it to the extent of promising to take action on Report, I should be happy and I am sure that my hon. Friends would be happy, and that would shorten the course of the proceedings enormously. But I must make it clear that if that is not the case, that will make debates on further Amendments and on the Clause extremely volatile and long-winded affairs.
    I am prepared to limit myself somewhat and perhaps to take action in a moment or two which would help my hon. Friends and the Committee, because, as I said earlier, my Amendment has two distinct parts and one part is pretty well parallel with Amendment No. 253, which would remove the restriction imposed by the date, 16th October, 1966. If the right hon. Gentleman cannot give an assurance, that, whatever its terms may be, the purpose of his Amendment on Report will be to achieve that, then frankly all his nods and indications and bonhomie seem to be completely pseudo.
    This is one of the occasions which we always get on Finance Bills which test the temper of the Committee and to a great extent control the proceedings long after we have passed from the Clause. It is useless to seek unanimity or reasonable working in the Committee when the right hon. Gentleman gets up and says, more or less, "That is all reasonable. The argument is reasonable. The hon. Member for Shipley is reasonable"—and that is going a long way—and to create the atmosphere that he is prepared substantially to meet the case, and then to do nothing of the sort. That is not up to his usual integrity or to the standard which we expect from the Government and from such an experienced member of it, and it will make our discussions very protracted.
    I want to know whether he is prepared to be more specific on this point here and now—not, of course, as to the wording of the Amendment. I agree with
    628
    my right hon. Friend that one would expect a draft Amendment to meet these points to be in his pocket, because all these representations have been made for a very long time. I know all about them. He knows that industry has not for one single moment accepted this alternative system of grants. He knows that the Federation of British Industries—and he knows my connection with it—have represented to the Government time and again that they do not like the system. It has not a single friend except some of the imported economists who possibly thought it out—potted economists, I call them.
    Mr. Burden: Potty is the word.
    Mr. Hirst: As far as I know the contamination from Wales which we heard earlier has not yet reached the Finance Bill, though it seems to be on the way.
    The right hon. Gentleman must be honest with the Committee. All the time I have been in the Committee I have never known so much co-operation from an Opposition on a Finance Bill as on this occasion. There has been far more co-operation than my right hon. Friends got from their own hon. Friends, including myself, on Finance Bills. This ought to be worth something. It ought to expedite our business. I know that the Government have a difficult timetable and it might be made easier if the temper were attuned a little by the right hon. Gentleman being specific and honest. My right hon. Friend rightly challenged him by stating that he had said nothing which comes anywhere near the assurance which he indicated in his piecemeal acceptance of our arguments. Does he intend here and now to be more specific? Will he rise from his place to be more specific—in which case I will sit down.
    Mr. Diamond: I gladly respond to the hon. Member. He asked me whether I had an Amendment in my pocket. No. He then asked whether an Amendment had been prepared. No. What was my purpose in coming here? It was to listen to right hon. and hon. Gentlemen. If they do not like it, well, they do not like it, but I propose to continue to listen to what the House of Commons has to say.
    Mr. Hirst: That may mean listening for a very long time for by no means has

    629
    the right hon. Gentleman given the sort of assurance which he set out at the beginning to give. We have been somewhat rhetorical and talked about an Amendment in his pocket, but he knows what is meant by that phrase. I know that he has already had representations— he admitted that—in the drafting of the Bill. He kindly said that it was not done as a joke. I admit that that is an advance on last year. He clearly knew that representations and objections would be mads today. And yet he has the nerve to come to the Committee and to pretend that he is listening sympathetically to our views, pouring oil on troubled waters when in fact he is walking about with a napalm bomb in his pocket. This armistice which I have had with him on the Finance Bill is at an end, and I am sure that in this context I shall not lack support on these benches.
    The right hon. Gentleman has not treated the Committee with his usual courtesy. He has not treated the Committee with anything like the candour which we expect. Because it should be seen by a Division how hollow these assurances are, if the right hon. Gentleman cannot give a better answer than he has given, I shall join with my right hon. Friend in the Lobby. In listening to the discussion I have been impressed
    by the fact that the Amendment in the name of my right hon. Friend and other hon. Friends which does not contain the second part of my Amendment is probably the best way to impress this matter on the mind of the Government. If I were for this purpose—not out of any satisfaction but the opposite—to withdraw my Amendment, Mr. Rogers, would you be agreeable to my doing so and to permit a Division on Amendment No. 253?
    The Temporary Chairman: That would be quite in order.
    Mr. Hirst: On that understanding, although I withdraw not a single word I have said and I am likely to add many more, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Amendment proposed: In page 36, line 42, to leave out from "1966" to end of line 2 on page 37.—[Mr. Higgins.]
    Question put, That the words proposed to be left out, to "October," in page 37, line 2, stand part of the Clause:—
    The Committee divided: Ayes 252, Noes 183.

    Division No. 45.]

    AYES

    [5.42 p.m.

    Abse, Leo

    Brown, R. W. (Shoreditch & F'bury)

    Dunnett, Jack

    Albu, Austen

    Buchan, Norman

    Dunwoody, Mrs. Gwyneth (Exeter)

    Allen, Scholefield

    Buchanan, Richard (G'gow, Sp'burn)

    Dunwoody, Dr. John (F'th & C'b'e)

    Anderson, Donald

    Butler, Herbert (Hackney, C.)

    Eadie, Alex

    Archer, Peter

    Callaghan, Rt. Hn. James

    Edwards, Robert (Bilston)

    Armstrong, Ernest

    Cant, R. B.

    Edwards, William (Merioneth)

    Ashley, Jack

    Carmichael, Neil

    English, Michael

    Atkins, Ronald (Preston, N.)

    Carter-Jones, Lewis

    Evans, Albert (Islington, S. W.)

    Atkinson, Norman (Tottenham)

    Castle, Rt. Hn. Barbara

    Evans, loan L. (Birm'h'm, Yardley)

    Bacon, Rt. Hn. Alice

    Chapman, Donald

    Faulds, Andrew

    Bagier, Gordon A. T.

    Coleman, Donald

    Fletcher, Ted (Darlington)

    Barnett, Joel

    Concannon, J. D.

    Floud, Bernard

    Baxter, William

    Conlan, Bernard

    Foot, Michael (Ebbw Vale)

    Beaney, Alan

    Craddock, George (Bradford, s.)

    Forrester, John

    Bence, Cyril

    Crawshaw, Richard

    Fowler, Gerry

    Bennett, James (G'gow, Bridgeton)

    Cronin, John

    Fraser, John (Norwood)

    Bidwell, Sydney

    Cullen, Mrs. Alice

    Fraser, Rt. Hn. Tom (Hamilton)

    Binns, John

    Dalyell, Tarn

    Freeson, Reginald

    Bishop, E. S.

    Darling, Rt. Hn, George

    Gardner, A. J.

    Blackburn, F.

    Davidson, Arthur (Accrington)

    Garrett, W. E.

    Blenkinsop, Arthur

    Davies, G. Elfed (Rhondda, E.)

    Garrow, Alex

    Boardman, H.

    Davies, Harold (Leek)

    Gourlay, Harry

    Booth, Albert

    Davies, Ifor (Cower)

    Gray, Dr. Hugh

    Bottomley, Rt. Hn. Arthur

    de Freitas, Sir Geoffrey

    Grey, Charles

    Bowden, Rt. Hn. Herbert

    Delargy, Hugh

    Griffiths, David (Rother Valley)

    Boyden, James

    Dell, Edmund

    Griffiths, Rt. Hn. James (Llanelly)

    Braddock, Mrs. E. M.

    Dempsey, James

    Griffiths, Will (Exchange)

    Bradley, Tom

    Dewar, Donald

    Hale, Leslie (Oldham, W.)

    Brooks, Edwin

    Diamond, Rt. Hn. John

    Hamilton, William (Fife, W.)

    Broughton, Dr. A. D. D.

    Dickens, James

    Hamling, William

    Brown, Rt. Hn. George (Belper)

    Doig, Peter

    Hannan, William

    Brown, Hugh D. (G'gow, Provan)

    Donnelly, Desmond

    Harper, Joseph

    Brown, Bob (N'c'tle-upon-Tyne,W.)

    Dunn, James A.

    Hazell, Bert

    Heffer, Eric S.

    McMillan, Tom (Glasgow, C.)

    Rowland, Christopher (Meriden)

    Henig, Stanley

    McNamara, J. Kevin

    Rowlands, E. (Cardiff, N.)

    Harbison, Rt. Hn. Margaret

    MacPherson, Malcolm

    Shaw, Arnold (Ilford, S.)

    Hobden, Dennis (Brighton, K'town)

    Mahon, Peter (Preston S.)

    Sheldon, Robert

    Hooley, Frank

    Mahon, Simon (Bootle)

    Shinwell, Rt. Hn. E.

    Horner, John

    Mallalieu, E. L. (Brigg)

    Short, Rt. Hn. Edward (N'e'tle-u-Tyne)

    Houghton, Rt. Hn. Douglas

    Manuel, Archie

    Short, Mrs. Renée (W'hampton, N. E.)

    Howarth, Robert (Bolton, E.)

    Mapp, Charles

    Silkin, John (Deptford)

    Howell, Denis (Small Heath)

    Marsh, Rt. Hn. Richard

    Silkin, S. C. (Dulwich)

    Howie, W.

    Mason, Roy

    Silverman, Julius (Aston)

    Hoy, James

    Mellish, Robert

    Silverman, Sydney (Nelson)

    Hughes, Rt. Hn. Cledwyn (Anglesey)

    Mendelson, J. J.

    Slater, Joseph

    Hughes, Emrys (Ayrshire, S.)

    Miller Dr. M. S.

    Small, William

    Hughes, Hector (Aberdeen, N.)

    Mitchel, R. C. (S'th'pton, Test)

    Snow, Julian

    Hughes, Roy (Newport)

    Molloy, William

    Spriggs, Leslie

    Hunter, Adam

    Morgan, Elystan (Cardiganshire)

    Steele, Thomas (Dunbartonshire, w.)

    Hynd, John

    Morris, Alfred (Wythenshawe)

    Stonehouse, John

    Jackson, Colin (B'h'se & Spenb'gh)

    Morris, Charles R. (Openshaw)

    Strauss, Rt. Hn. G. R.

    Janner, Sir Barnett

    Moyle, Roland

    Summerskill, Hn. Dr. Shirley

    Jay, Rt. Hn. Douglas

    Neal, Harold

    Symonds, J. B.

    Jeger, George (Coole)

    Newens, Stan

    Taverne, Dick

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Oakes, Gordon

    Thomas, Iorwerth (Rhondda, W.)

    Jenkins, Hugh (Putney)

    Ogden, Eric

    Thornton, Ernest

    Jenkins, Rt. Hn. Roy (Stechford)

    O'Malley, Brian

    Tinn, James

    Johnson, Carol (Lewisham, S.)

    Oram, Albert E.

    Tomney, Frank

    Jones, Dan (Burnley)

    Orbach, Maurice

    Urwin, T. W.

    Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)

    Orme, Stanley

    Varley, Eric G.

    Jones, J. Idwal (Wrexham)

    Oswald, Thomas

    Wainwright, Edwin (Dearne Valley)

    Judd, Frank

    Owen, Dr. David (Plymouth, S'tn)

    Walden, Brian (All Saints)

    Kelley, Richard

    Owen, Will (Morpeth)

    Walker, Harold (Doncaster)

    Kenyon, Clifford

    Page, Derek (King's Lynn)

    Wallace, George

    Kerr, Mrs. Anne (R'ter & Chatham)

    Paget, R. T.

    Watkins, David (Consett)

    Kerr, Russell (Feltham)

    Pannell, Rt. Hn. Charles

    Wellbeloved, James

    Lawson, George

    Park, Trevor

    Wells, William (Walsall, N.)

    Ledger, Ron

    Parker, John (Dagenham)

    Whitaker Ben

    Lestor, Miss Joan

    Parkyn, Brian (Bedford)

    Williams, Alan (Swansea, W.)

    Lever, Harold (Cheetham)

    Pavitt, Laurence

    Williams, Alan Lee (Hornchurch)

    Lever, L. M. (Ardwick)

    Pentland, Norman

    Williams, Clifford (Abertillery)

    Lewis, Ron (Carlisle)

    Perry, George H. (Nottingham, S.)

    Williams, Mrs. Shirley (Hitchin)

    Lomas, Kenneth

    Price, Christopher (Perry Barr)

    Williams, W. T. (Warrington)

    Loughlin, Charles

    Price, Thomas (Westhoughton)

    Willis, George (Edinburgh E.)

    Luard, Evan

    Price, William (Rugby)

    Wilson, William (Coventry, S.)

    Lyon, Alexander w. (York)

    Probert, Arthur

    Winnick, David

    McBride, Neil

    Randall, Harry

    Winterbottom, R. E.

    McCann, John

    Rees, Merlyn

    Woodburn, Rt. Hn. A.

    MacDermot, Niall

    Reynolds, G. W.

    Woof, Robert

    Macdonald, A. H.

    Rhodes, Geoffrey

    Wyatt, Woodrow

    McGuire, Michael

    Roberts, Albert (Normanton)

    Yates, Victor

    Mackenzie, Gregor (Rutherglen)

    Roberts, Gwilym (Bedfordshire, S.)

    TELLERS FOR THE AYES:

    Mackie, John

    Robinson, W. O. J. (Walth'stow, E.)

    Mr. Alan Fitch and

    Maclennan, Robert

    Rodgers, William (Stockton)

    Mr. William Whitlock.

    MacMillan, Malcolm (Western Isles)

    Rose, Paul

    Ross, Rt. Hn. William

    NOES

    Alison, Michael (Barkston Ash)

    Channon, H. P. G.

    Gilmour, Ian (Norfolk, C.)

    Allason, James (Hemel Hempstead)

    Clark, Henry

    Gilmour, Sir John (Fife, E.)

    Atkins, Humphrey (M't'n & M'd'n)

    Clegg, Walter

    Glover, Sir Douglas

    Awdry, Daniel

    Cooke, Robert

    Glyn, Sir Richard

    Barber, Rt. Hn. Anthony

    Cooper-Key, Sir Neill

    Goodhart, Philip

    Batsford, Brian

    Cordle, John

    Goodhew, Victor

    Beamish, Col. Sir Tufton

    Corfield, F. V.

    Gower, Raymond

    Bell, Ronald

    Costain, A. P.

    Grant, Anthony

    Bennett, Sir Frederic (Torquay)

    Crouch, David

    Gresham Cooke, R.

    Bessell, Peter

    Dalkeith, Earl of

    Grieve, Percy

    Biffen, John

    Dance, James

    Griffiths, Eldon (Bury St. Edmunds)

    Biggs-Davison, John

    Davidson, James(Aberdeenshire, W.)

    Grimond, Rt. Hn. J.

    Birch, Rt. Hn. Nigel

    d'Avigdor-Goldsmid, Sir Henry

    Hall, John (Wycombe)

    Blaker, Peter

    Dean, Paul (Somerset, N.)

    Hall-Davis, A. G. F.

    Bossom, Sir Clive

    Digby, Simon Wingfield

    Hamilton, Michael (Salisbury)

    Boyd-Carpenter, Rt. Hn. John

    Dodds-Parker, Douglas

    Harris, Reader (Heston)

    Brewis, John

    Doughty, Charles

    Harrison, Brian (Maldon)

    Brinton, Sir Tatton

    Eden, Sir John

    Harrison, Col. Sir Harwood (Eye)

    Brown, Sir Edward (Bath)

    Elliot, Capt. Walter (Carshalton)

    Harvey, Sir Arthur Vere

    Bruce-Gardyne, J.

    Errington, Sir Eric

    Hawkins, Paul

    Bryan, Paul

    Eyre, Reginald

    Hay, John

    Buchanan-Smith, Alick (Angus, N&M)

    Farr, John

    Heath, Rt. Hn. Edward

    Buck, Antony (Colchester)

    Forrest, George

    Heseltine, Michael

    Bullus, Sir Eric

    Fortescue, Tim

    Higgins, Terence L.

    Burden, F. A.

    Fraser, Rt. Hn. Hugh (St'fford & Stone)

    Hiley, Joseph

    Carlisle, Mark

    Galbraith, Hn. T. G.

    Hill, J. E. B.

    Carr, Rt. Hn. Robert

    Gibson-Watt, David

    Hirst, Geoffrey

    Cary, Sir Robert

    Giles, Rear-Adm. Morgan

    Hobson, Rt. Hn. Sir John

    632

    633

    Hogg, Rt. Hn. Quintin

    Maydon, Lt.-Cmdr. S. L. C.

    Sinclair, Sir George

    Holland, Philip

    Mills, Peter (Torrington)

    Smith, John

    Hordern, Peter

    Mills, Stratton (Belfast, N.)

    Steel, David (Roxburgh)

    Hornby, Richard

    Miscampbell, Norman

    Stodart, Anthony

    Howell, David (Guildford)

    Mitchell, David (Basingstoke)

    Stoddart-Scott, Col. Sir M. (Ripon)

    Hunt, John

    Monro, Hector

    Summers, Sir Spencer

    Hutchison, Michael Clark

    More, Jasper

    Tapsell, Peter

    Irvine, Bryant Godman (Rye)

    Morrison, Charles (Devizes)

    Taylor, Sir Charles (Eastbourne)

    Jenkin, Patrick (Woodford)

    Mott-Radclyffe, Sir Charles

    Taylor, EdwardM. (G'gow, Cathcart)

    Jennings, J. C. (Burton)

    Munro-Lucas-Tooth, Sir Hugh

    Taylor, Frank (Moss Side)

    Johnston, Russell (Inverness)

    Murton, Oscar

    Temple, John M.

    Jopling, Michael

    Nabarro, Sir Gerald

    Thatcher, Mrs. Margaret

    Joseph, Rt. Hn. Sir Keith

    Nicholls, Sir Harmar

    Thorpe, Jeremy

    Kaberry, Sir Donald

    Nott, John

    Tilney, John

    Kershaw, Anthony

    Onslow, Cranley

    Turton, Rt. Hn. R. H.

    King, Evelyn (Dorset, S.)

    Orr-Ewing, Sir Ian

    Vaughan-Morgan, Rt. Hn. Sir John

    Kitson, Timothy

    Page, Graham (Crosby)

    Vickers, Dame Joan

    Knight, Mrs. Jill

    Page, John (Harrow, W.)

    Wainwright, Richard (Colne Valley)

    Lewis, Kenneth (Rutland)

    Pearson, Sir Frank (Clitheroe)

    Walker, Peter (Worcester)

    Lloyd, Ian (P'tsm'th, Langstone)

    Peel, John

    Walker-Smith, Rt. Hn. Sir Derek

    Loveys, W H.

    Peyton, John

    Wall, Patrick

    Lubbock, Eric

    Pike, Miss Mervyn

    Ward, Dame Irene

    McAdden, Sir Stephen

    Pink, R. Bonner

    Weatherill, Bernard

    Mackenzie, Alasdair (Ross&Crom'ty)

    Pounder, Rafton

    Webster, David

    Maclean, Sir Fitzroy

    Powell, Rt. Hn. J. Enoch

    Whitelaw William

    Macleod, Rt. Hn. Iain

    Prior, J. M. L.

    Wills, Sir Gerald (Bridgwater)

    McMaster, Stanley

    Pym, Francis

    Wilson, Geoffrey (Truro)

    Macmillan, Maurice (Farnham)

    Ramsden, Rt. Hn. James

    Winstanley, Dr. M. P.

    Maddan, Martin

    Ridsdale, Julian

    Wolrige-Gordon, Patrick

    Maginnis, John E.

    Rodgers, Sir John (Sevenoaks)

    Woodnutt, Mark

    Marten, Neil

    Rossi, Hugh (Hornsey)

    Worsley, Marcus

    Maude, Angus

    Scott, Nicholas

    Maudling, Rt. Hn. Reginald

    Sharples, Richard

    TELLERS FOR THE NOES:

    Maxwell-Hyslop, R. J.

    Shaw, Michael (Sc'b'gh & Whitby)

    Mr. R. W. Elliott and

    Mr. George Younger.

    Mr. Richard Wainwright: I beg to move Amendment No. 151, in page 37, line 2, to leave out "October 1966" and insert:
    "March 1967 in the case of industrial buildings and aircraft not later than 16th October 1966 in the case of all other assets".
    I gave the Chief Secretary fairly clear notice of the Amendment in a speech on Second Reading more that four weeks and a fairly lengthy Recess ago, which I hope constitutes adequate notice.
    The purpose of the Amendment is to push the time limit in the Clause five months further on without taking the date into a fresh fiscal year—in fact, to bring into the Clause a more significant fiscal date than that of 16th October. I scarcely imagine that the Chief Secretary will defend the date of 16th October as having any special fiscal significance. Our proposal is to take it into March and in respect of two very clearly defined classes of asset, the definition of which should give the Board of Inland Revenue no trouble. In both cases the cessation of investment allowance, at any rate outside the development areas, is not being followed by the substitution of any other kind of grant. We therefore regard these two types of asset as being of outstanding importance because if, through the operation of a harsh and unconscionable time limit, the investment allowance is lost
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    in the case of these two classes of asset there is nothing else to put in their place.
    We are discussing large sums of money both relatively and often absolutely. May I take the case of a new building contracted for in January of this year at a contract price of £200,000. The question of time limit will settle whether or not the taxpayer has to pay in cash an additional £12,000 if he is a company paying Corporation Tax or if, perchance, he is a sole trader paying Income Tax and Surtax at the same rate as that which the hon. Member for Worcestershire, South (Sir G. Nabarro) tells us he pays; or if one could visualise even a partnership of people similar to the hon. Member for Worcestershire, South unincorporated the amount of money at stake could well be over £20,000. It seems very important to us on this bench that a much more reasonable time limit should be fixed.
    We were tempted, in drawing up the Amendment, to pitch the date a good deal further on, but it was our hope that by being relatively modest in the date we chose we should prevail on the Government to accept the Amendment in its entirety. If it is not accepted, it is not necessarily only certain taxpayers who will suffer. I am trying to look at the matter from a practical point of view for

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    a moment. If the taxpayer does not suffer, there may be two other sorts of consequence. Either a trader, realising the new and much more unfavourable situation, will seek to cancel the contract, and a valuable industrial building, providing very much better working conditions for those engaged in the enterprise, will be postponed or cancelled, or aircraft will not be ordered; or, perchance the businessman will seek to alter the building contract and cut out a number of the refinements having regard to the fact that he will be, in the case which I have quoted, £12,000 worse off.
    The result of the present time limit, if the Government insist that it should remain unaltered, may well be that mill and factory workers will find themselves with a much less adequate new building than they would otherwise have had, shorn perhaps of the frills, if frills they be, of a canteen, rest rooms, decent gardens and so on. So this is not necessarily a matter which affects only the taxpoyer.
    The general arguments against the harsh and unconscionable time limit have already been well rehearsed and I do not wish to detain the Committee by repeating them, but I should like to close with a rather more general point relating to the frequent statements made from the Treasury Bench asking the public to adopt a sort of fair-shares attitude towards taxation and not to seek to exploit intricate loopholes in the tax statutes. From such little practising experience as I can offer, I should say to the Chief Secretary that nothing is more calculated to turn a fairly easy-going, tolerant, good citizen who is, on the whole, disposed to adopt a fair-shares attitude towards taxation into a determined tax avoider—I do not say "evader"—than when he stubs his toe badly against a time limit of this kind which he considers to be arbitrary and unconscionable.
    I do not wish to detain the Committee by giving examples of this, although I have quite a number from my experience. I hope that if the Treasury Bench is sincere in wishing to bring the public into a co-operative relationship with the Inland Revenue it will take some of its own medicine and will remove from the Bill unconscionable time limits of this character which we seek to amend and
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    on which, if necessary, we should certainly divide the Committee.
    The Temporary Chairman: I suggest that it might be to the advantage of the Committee to discuss at the same time the following further three Amendments: Amendment No. 251, in page 37, line 2, to leave out "October, 1966" and to insert:
    "January 1967 in the case of farmhouses, farm workers' cottages, and agricultural machinery which is used seasonally, and not later than 18th October 1966 in the case of all other assets".
    Amendment No. 302, in page 37, line 2, at the end to insert:
    (b) in so far as that expenditure is on road vehicles of a type not commonly used as private vehicles and unsuitable to be so used.
    Amendment No. 136, in page 37, line 2, at the end to insert:
    Provided that the requirement for that payment to be made and that asset to be brought into use not later than 16th October 1966 shall not apply to any expenditure in respect of a ship.
    6.0 p.m.
    Mr. Peter Walker: I share the view expressed by the hon. Member for Colne Valley (Mr. Richard Wainwright) on the sense of injustice which is arising out of the manner in which it is proposed the Clause shall be applied. I shall direct my remarks specifically to Amendment No. 302.
    Amendment No. 302 deals with a very serious matter which will quite dramatically affect the costs of road transport and fares on the buses. This being so, I can only express surprise at the absence of a representative of the Ministry of Transport. This is a matter fundmental to that Ministry's affairs. Only yesterday, the Minister of Transport summoned to her Ministry the Chairman of the Road Haulage Association to discuss the Association's recommendations on putting up road haulage charges. The person she should have summoned is the Chancellor of the Exchequer. No one has done more to put up road haulage costs than the present Chancellor. He has already increased the petrol duty, the motor vehicle licence duty and National Insurance contributions, he proposes by this Clause to remove the investment allowances for commercial vehicles, and in September he is to demand an enormous interest-free loan from the road

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    haulage industry. Yet throughout there has, seemingly, been no protest whatever from the Minister of Transport.
    One can only have one's suspicions raised by that lack of protest and the absence today of any representative of the Ministry of Transport. The Ministry shows no interest in this matter, except for a rather surprising comment upon it. One wonders whether it is, in fact, the present Government's keen desire to see that the road haulage section of transport is penalised, presumably in order to justify the White Paper on transport which, we are told, will shortly be published.
    The Government's case regarding commercial vehicles is quite remarkable. They have provided that equipment needed to move goods within a factory shall enjoy the new investment grants. The movement of goods abroad by ship from the docks will in the future come within the ambit of special provision for investment grants. But, for some mysterious reason, equipment and machinery needed for the movement of goods from the factory to the docks is to be left out, receiving neither investment grants nor investment allowances in the future.
    Road haulage is going through a period of considerable change now in the types of vehicle used. In the debate on the earlier Amendment, the Chief Secretary advanced a remarkable argument. He said that the Government were sympathetic about the date relating to commercial vehicles but they understood that there was a two or three-year delivery period and this only went to show that there was no need for any incentive. What it came to was, "We need not bother about giving these chaps an incentive in the future. There is a waiting list for vehicles".
    One of the prime reasons for the waiting list for vehicles is that the commercial vehicle industry has concentrated better than most upon the export market. Nearly 40 per cent. of its production is now going abroad.
    The result of the date proposed by the Government will be to put considerable pressure on distributors to go to the manufacturers and say, "Neglect exports a bit till next October so that our chaps can at least get the investment allowance
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    on the goods they have ordered". Indeed, it will pay a road haulier to offer his distributor, and the distributor to offer the manufacturer, additional sums of money to deliver before next October, at the expense of our export drive. This is the result of the muddled thinking coming from a Government who say that, if an industry has a good record in modernising itself, in going over to new types of vehicles and developing new types of transport such as containerisation, the investment allowances can be taken from it because no one needs any incentive.
    In taking the investment allowances away from road hauliers, the Government reduce the amount of money available for future investment. If by this action they are giving notice that, whenever their investment grants succeed and they begin to see an industry doing well in reinvestment, they will withdraw the grants, it is a very sad projection of their investment policy and their attitude towards industry.
    The effect of these changes will be considerable. Let us consider for a moment the way in which the incentive to modernise road haulage has deteriorated during the period of this Government At the time when they came into office, a road haulier buying a £2,000 lorry received during the lifetime of that lorry if he kept it for the whole length of its working life a total tax relief of £1,463. After the introduction of the Corporation Tax, that incentive was reduced to £1,040. Under the present proposals, it will be reduced to £800. This is a savage blow from a Chancellor who has already put taxes on road haulage of £30 million extra for motor vehicle licences and £30 million extra in fuel duty.
    I take next the case of a smaller firm buying a vehicle for £1,000 and selling it three years later for £400. In 1964, under a Conservative Administration, the value of the total allowances was £483. After this Clause is passed, it will be reduced to £240—more than halved in 18 months of Labour Government.
    The Government constantly complain that some road vehicles being used today do not meet the required standards of maintenance and road safety. There

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    should, therefore, be every encouragement to ensure that road hauliers maintain modern and up-to-date fleets, not holding on to out-dated vehicles which have been on the road too long. Yet this move by the Government, of course, is a direct discouragement to that.
    I come now to a very serious question——
    Mr. Diamond: Why not come to the Amendment?
    Mr. Walker: Everything I have said is directed to the Amendment. It is quite plain that the Ministry of Transport is complacent, and we know that the Government are very happy to deliver a further crippling blow to private enterprise road haulage, but we on this side are intent on seeing that they do not.
    What I have said already applies also to the bus services. Last year, when the Government introduced their increase in the petrol tax, they made special provision for a rebate system so that passenger transport would not have to bear that additional taxation. This concession was to the value of £5 million a year. It was an important concession, welcomed on both sides of the House, and regarded by the Government as essential in order to prevent a rise in fares.
    Yet by this Clause the Government are adding £2·8 million to the costs of that same service for which last year they arranged a rebate of £5 million. On top of that, in September the bus operators will have to give the Government an interest-free loan of £15 million under the Selective Employment Tax. Having arranged a rebate of £5 million last year, they propose this year to take £2·8 million back and demand a £15 million interest-free loan. Thus, the effect of the rebate last year is completely taken away and will remain taken away for the next seven years. This is the way they are treating the industry.
    The effects of the date desperately affect the industry. Proprietor after proprietor of the fleets of public transport buses have contacted us with lists of the coaches that they have on order. There is a long delivery time. Many of these operators will take delivery of the chassis of the vehicles before next October and have them fitted in their own organisation, but they will not benefit under the
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    present provision because the buses will not be in use. The effect of the wording of the Clause will be very severe.
    The remakable thing is the total impact on costs. A £6,000 bus will cost an additional £720 to the proprietor. A medium-sized operator, one with 300 vehicles, if he adopts the normal practice of keeping his buses for 12 years and replacing 25 each year, will find that the Clause will add £45,000 a year to his costs. This will mean one of two things —reduced services or higher fares.
    It is remarkable to read a statement issued after talks which took place between the Public Transport Association and the Ministry of Transport. The Committee will be surprised to learn that it was said that the representative of the Minister of Transport:
    "had considered the representations made by the industry to see what could be done to help but he appreciated that this had not yet resulted in effective action. He appreciated that the effect of the withdrawal might be increased fares, reduction of services or standards."
    This is the spokesman of the Ministry of Transport quoted at talks which had taken place. It is a complacent view for the Ministry of Transport to take on such a serious issue. The statement went on:
    "It was necessary that the industry and the Ministry jointly should face these problems and whilst he was not yet in a position to comment on the recommendations of the Prices and Incomes Board, he had noted the recommendations that the industry should take the lead in obtaining extension of one-man operation."
    Here is the Ministry of Transport saying that the bus industry should take a lead in going over to one-man operation, and the Ministry will back it, presumably, against the restrictive practices of the union on the issue, and the Treasury saying, "But we shall take away the investment allowances that would give the extra money and incentive to go over to the one-man buses". This is a complete contradiction in policy on public transport. If the Government, as they so frequently say, want to improve public transport, it is a very odd way of going about it to take away the investment allowances on new buses and imposing a Selective Employment Tax which will result in a large interest-free loan being paid by the industry.
    The whole question of leaving out the commercial vehicle and having this

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    adverse effect particularly upon the privately-owned bus companies operating bus services reeks of a Government with a policy which is hostile to the private sector of transport and wishes to impose penalties on that sector to benefit the publicly-owned sector. It is because of that that we shall press the Amendment to a Division unless we can obtain satisfactory undertakings from the Chief Secretary.
    6.15 p.m.
    Sir R. Cary: I intervene to reinforce what has just been said so eloquently and vigorously by my hon. Friend the Member for Worcester (Mr. Peter Walker). As will be well known, I am the chairman of a very large transport operating company in the north of England, with 500 or 600 buses and coaches. The replacement of the fleet is almost a monthly preoccupation with me. A considerable capital investment has to be made by my directors and officers every year.
    Rather than waste the time of the Committee by indulging in generalities, I would merely say that I am shocked to find from the Clause that the vehicles and bodies which I ordered in 1965 and which cannot be delivered by the manufacturers before 1967 will now not carry an investment grant. This penalty will be extremely great. In regard to recent expenditure on 26 vehicles at an average cost of roughly £6,000 each—the vehicles to be delivered in 1967—the Clause will cost me £21,000. I am the chairman of a private operating company, and I do not have the privilege of the municipalities which when in deficit have the ratepayers' cheque books to call upon. So I am in the front line in making both ends meet each year in operating the company.
    The Committee will appreciate that the resentment now against any fares increase is at white hot level. I do not think that fares increases can now be allowed to continue. But it means in regard to the costing of my vehicles that if I spend, say, £200,000, I now have to face an additional cost of £20,000-£30,000 in order to find the 14 per cent. envisaged in the Clause. That is a very unfair penalty to place on the bus industry. It applies to all the operating fleets in the country.
    I would point out—I do not say this exclusively to the Chief Secretary and other members of the Government—that
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    over a period of years the Treasury has not in policy been over-generous towards public service vehicles. Hon. Members on both sides have for years received bitter complaints from constituents about the constant applications made for increases in fares. In 1956 the industry was used by the Treasury to find its Suez deficit of £6 million by a levy of 1s. which lasted for five months. In the cost-of-living Budget in 1958—it should be remembered that the bus fare is a basic part of the cost-of-living index—2d. was given to beer but no concession was given to bus transport except a rather small concession in regard to licences. Since then the public service vehicle has been carying taxation to the extent of 2s. 9d. per gallon on its fuel, and has had no concessions on that.
    The first legislative act of the Government in the last Parliament was to introduce the pet of the Chief Whip—the Travel Concessions Act. I supported that Measure because the thread of compassion through our society is strong. On the blind, the elderly and the poor scholar we conferred a benefit. But this still added a little more to the burden of the operating companies.
    My hon. Friend the Member for Worcester has indicated that the Chancellor has recently relented, reimbursing the bus operators for increased fuel taxation. I strongly suspect that that concession and our exclusion from the Selective Employment Tax is because the Government know well that they dare not risk the level of fares being taken higher.
    In the battle now being waged between the Transport and General Workers' Union and the Treasury about the incomes policy, with the claims that are now being made by bus crews, if the Government give way I dread to think what reaction might come from the public if once more the whole country sees an unending procession of bus operators asking the Traffic Commissioners again to increase the scale of fares.
    I know that I make a special plea here. I beg hon. Members to watch the impact of the Clause if the Government continue to deny bus operators the investment grants to which they should be entitled in the replacement of their fleets. It is usually the last straw which breaks the back carrying the load. I beg the

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    Chief Secretary to enlarge the sentiments he expressed earlier and tell us, even if he cannot meet us all the way, that he can relent to some extent and on Report give us the concession we seek.
    Mr. Lubbock: I have great sympathy with the hon. Member for Manchester, Withington (Sir R. Cary), who presented a powerful case for the bus industry. The greatest hardship will fall on those living in rural areas as a result of the Bill. In municipalities one generally has the local council in the bus undertaking and in the Greater London area we have the London Transport Board. But in rural areas and in places like the Highlands, people depend much more on privately-run transport. These are the very regions in which they can least afford to pay the increased fares which will inevitably result if the Government refuse to accept the strong plea made by the hon. Member for Withington.
    I was delighted to see the Joint Parliamentary Secretary to the Ministry of Transport listening to the hon. Member for Withington, and I hope that he will use his influence on the Chief Secretary to see that this crushing blow at the bus industry in rural areas does not fall after all. The right hon. Gentleman should undertake, in the review he has promised. to give sympathetic consideration to this issue.
    My hon. Friend the Member for Colne Valley (Mr. Richard Wainwright) has already adequately dealt with the issue raised in Amendment No. 151, but I want to go into a little more detail, particularly in relation to aircraft. As with industrial buildings, nothing else is to be put in the place of investment allowances for aircraft and, also similarly, these are assets which are not normally brought into use within a period as short as nine months from the placing of the contract. This is not an academic point but one which is having to be demonstrated by some of the independent air transport operators.
    I have received information that at least three of the British independent air operators, having placed orders for new aircraft before 16th January, 1966, in good faith and in the absence of knowledge of this development, are not going to take delivery of these aircraft until
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    the middle of 1967 or even perhaps later than that.
    Mr. Burden: Is the hon. Gentleman also aware that, in most of these contracts, there is a very stiff cancellation clause as well, so that if, as a result of the Government proposal, they are forced to cancel, they will nevertheless be called upon to pay very large cancellation charges to the manufacturers?
    Mr. Lubbock: The hon. Gentleman has made an important point and I am sure that the Chief Secretary is also aware that it is a normal feature of such contracts for a cancellation clause to be included. In at least the three cases I have mentioned, the operators are on the horns of a dilemma. They can either forfeit the investment allowance that they expected at the time of placing their orders or they can cancel the contracts and pay the penalty to the manufacturers. However they decide, they are faced with a severe financial penalty.
    The dates of delivery of aircraft are completely outside the control of the airlines. Frequently, even when the delivery date has been promised, the facts of life being what they are in the aircraft industry—and I am not particularly criticising the British industry now—aircraft are not delivered until later. It may well be that, in some cases, operators think they will obtain delivery in time to benefit from the nine months provided for in the Bill but due to circumstances beyond their control may not receive them until after that date.
    Earlier, the right hon. Member for Altrincham and Sale (Mr. Barber) said that our Amendment did not go nearly far enough. I agree. As my hon. Friend the Member for Colne Valley tried to point out, we have been modest in putting the date back only from October until March. Many customers for aircraft will not be able to derive benefit from the Amendment because it may well be that the delivery of their aircraft will take two years or even longer. One might, there-more, have chosen the date of 16th January, 1968, for the Amendment.
    It was only because we wished to be as cautious as possible in the hope that the Government would grant a modest request that we put in the date of next March. I am optimistic that the Chief

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    Secretary will accept this proposal because he must realise that our independent air transport operators are one of the chief sources of foreign currency earnings. British United Airways has pioneered the new route to South America, using a British aircraft, the VC10, and very highly successful it has been. Caledonian Airways are pioneering inclusive tours across the North Atlantic, which could be an extremely valuable and growing source of dollars for this country.
    6.30 p.m.
    This is an important industry in which there is large investment of capital. The modern jet aircraft now coming into use cost at least £2,500,000 before starting to take account of spare engines and other components required before an aircraft can be put into service. Removal of investment allowances and grants from this industry can be a serious blow to it unless it can get some concession from the Chief Secretary.
    In his reply to the previous debate, the right hon. Gentleman said that he would bring forward such amelioration as he found possible. He would have no difficulty about applying this Amendment which is plain sense and which we very much hope that he will accept now.
    Mr. Ian Lloyd: I take the opportunity to apologise to you, Sir Eric, and to the Committee for my attempt to jump the gun on Amendment No. 136. Those of us who were here at a very early hour of this morning were probably not as alert as we should have been in discerning the change in the grouping of Amendments between that hour and now.
    However, the debate gives me the chance to say that I hope that my hon. Friend the Member for Tynemouth (Dame Irene Ward) will not take offence if I describe Amendment No. 136 as a "double Darned" Amendment. It is far better to have that than what one must now call the "double damned" economic policy of the Government. The fate of the Finance Bill, now that my hon. Friend the Member for Shipley (Mr. Hirst) has declared war on it, must fall into that category.
    Throughout many of our discussions, particularly on this Clause, the Government have presented themselves as the patron saint of enterprise, but I cannot
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    help reflecting that it is some saint who lies in a glass case of regulation and restriction over which there is a notice "Do not touch", because if it is touched, the whole thing turns to powder and ashes.
    I hope that I shall give the Chief Secretary an opportunity to refute my allegation and I shall be very happy if he can do so on my Amendment. This does not differ substantially in principle from the other Amendments which seek to modify or limit the time factor which the Clause imposes. The reasons are closely similar. The number of claims for investment allowances on the building instalments of ships falling due after 16th October, 1966, under contracts made before that date, is very limited but will be completely eliminated by the Clause if the ship is not in use by 16th October, 1966.
    It may well be said that ships can be constructed in three or four months and that that is being done in Japan and Sweden and in this country. But the Labour Party is the protagonist of planning and a piece of capital equipment such as a ship involves years of planning in advance of building and probably at least two months to bring it into operation after it has been launched, which automatically takes us well outside the limits which the Clause allows. I hope that the Chief Secretary will consider the problems of the shipping industry for much the same reasons as those mentioned in connection with the service vehicle industry. It is the policy of the Government to develop both shipping and shipbuilding, but the Chief Secretary has defined the Government out of their intention to do so.
    The Amendment refers to "a ship", which the right hon. Gentleman should interpret rather more widely than hitherto. The Prime Minister has recently made some snide remarks about the modernisation of the shipping industry and he and others have suggested that the key to modernisation lies in what is broadly known by the dreadful word "unitisation" the principal meaning of which is the use of containers. It could be argued that standardisation equals containers. I want briefly to refer to an E.D.C. Report, Through Transport to Europe, which has 37 recommendations at least 13 of which refer directly and

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    specifically to the desirability of containers being developed and used. Paragraph 17 of that Report says:
    "The Government should consider whether ICDs should qualify for loans and grants as do ports; also whether containers should qualify for investment grants."
    Paragraph 28 says:
    "The shipping companies should give continuing study to the new methods of transport, and in particular the movement of goods in containers of size 8 ft. by 8ft. end profile which can be loaded semi-automatically into specially constructed container ships."
    My reason for referring to that in detail is that it is no longer efficacious for the Government to give assistance, in whatever way they choose, whether by allowing the Amendment, or in another way, simply for the ship as such. They must also give assistance for the associated equipment which is necessary to build and operate that ship and to operate the container system.
    But the capital requirements of such assistance in my experience generally exceed the capital cost of the ship by a factor of at least 100 per cent., that is, if investment in a ship is £1 million, investment in containers and all the ancillary and associated equipment necessary to operate the special container ship is about £1 million. There is no point whatever in simply allowing the ship to be built and then saying that no assistance will be given with the container equipment. If that is done, the disincentive on the development of the system will be so great that development will not occur.
    I commend to the Chief Secretary most earnestly not only the specific point, but the whole character of the assistance which the Government proclaim it to be their intention to give to the shipping industry, and I hope that he will bear that point in mind.
    Mr. Michael Jopling: I want to refer to Amendment No. 251 which seeks to mitigate the considerable hardship to agriculture which will result from the Clause. The Amendment seeks to extend to January, 1967, the final date for qualifying for investment allowances for farmhouses, farm workers' cottages and agricultural machinery when the equipment has not been brought into use.
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    Two aspcts of hardship might occur. First, there is investment in farmhouses and farm workers' cottages. As the Committee knows, the delays in building are often much more likely, even under the present Government, to be greater in the country than in the towns, because in the country we have rather smaller builders who are often slow starters and even slower finishers and who employ relatively few people, so that the construction of houses takes much longer than in urban areas.
    Very often one has a situation in which the small country builder will build only during the summer months and will not work at all in the winter months. Hence, after a contract has been signed, there may be a considerable delay after 16th January, 1966, until the work is started. There may be a considerable delay with the carrying into use of the farmhouse or the farm workers' cottage after it has been constructed. There is a seasonal element here, because, by the very nature of agriculture, there is a pressure of work in the summer months and often a farmer will wish to wait until the turn of the year to occupy a house constructed during the summer months.
    This Amendment seeks to extend the final qualifying date from October to January. There is a potential problem with regard to farm buildings, because, quite apart from the delays in construction, there are often delays in getting grant aid and approval from officials of the Ministry of Agriculture. As we know, in the last few months things have piled up very considerably and this might lead to a serious problem. The situation could arise, because of the seasonal nature of the use of the buildings, in which a farmer may make a contract about the turn of the year for a new farm building to be constructed during the summer months for use in the following winter.
    I can think of an obvious case, when a building is put up for wintering animals in the following winter. This clearly would not begin to be brought into use by 16th October. These are just some of the problems. I do not wish to delay the Committee but I hope that the Chief Secretary will show that the Government are sympathetic to the needs of rural investment and particularly the needs and the seasonal problems of agriculture.
    Mr. Diamond: I hope that it will be convenient if I now offer comments on behalf of the Government in response to the many interesting speeches which have been made about the various Amendments. The hon. Gentleman the Member for Colne Valley (Mr. Richard Wainwright) was persuasive in his brevity. He understands, as I am sure most of us do, that the weight of an argument is not to be measured by the volume of words accompanying it. I hope that he will not be deterred in future from speaking with equal brevity and clarity, and weight of argument.
    I am not able to do more, with regard to his Amendment, which was supported by his hon. Friend the Member for Orpington (Mr. Lubbock), than to say that I recognise that it is, if not modest, more modest than any other Amendment put forward. It is certainly not an immodest Amendment. I am not in a position to accept any individual Amendment, and I am sure that the hon. Gentleman realises that the reason why I was unable, on the previous occasion to accede to the request put forward in such gentle, persuasive and lamb-like terms by the hon. Gentleman for Shipley (Mr. Hirst) to accept a particular Amendment was because, as I have explained, the Government are most anxious to hear all the representations and, at the appropriate stage, to bring forward the new form of words which would go as far as we reasonably can—and I make no specific promises because that would be misleading the Committee—in meeting the generality of the case. The provision when made is a provision which will apply to a number of transitional cases and not necessarily a particular subject for investment allowances.
    Mr. Burden: The right hon. Gentleman has praised the hon. Member for Colne Valley (Mr. Richard Wainwright) for his brevity and clarity. I wish that the right hon. Gentleman could be a little more forthcoming and a little more brief and clear about whether the Government do or do not intend to do something. We have had an awful lot of words and, "I will not give any promises; I cannot say anything; we will look at the situation". Surely the right hon. Gentleman must come out and say whether the Govern-
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    ment are going to do something and stop shilly-shallying.
    Mr. Diamond: Now that the hon. Member has put his speech over I hope that he is feeling better. I return to the hon. Member for Colne Valley and say that I listened very carefully to what he said. I can only ask him to be good enough to leave with me the consideration of everything that he and his hon. Friend have said.
    6.45 p.m.
    I am really only in a position to say the same with regard to the other Amendments put forward. I am in particular difficulty about the speech of the hon. Gentleman the Member for Worcester (Mr. Peter Walker), because he was making a speech which was really directed against the removal, at any time, not only on a transitional basis, of the investment allowance. That was the tone of his remarks and I am in slight difficulty because I cannot promise the same consideration to his Amendment, which he did not explain in any way. I am in this difficulty because his Amendment can only be interpreted—and I do not know whether it was intended that it should be so interpreted—as continuing for all time the investment allowances on the assets in question. If that is what he is saying, I want to make it clear that the Government will not be considering that kind of proposal.
    Mr. Peter Walker: On this subject, we have the problem that there are two Bills involved, one of them upstairs. In that one there is no form of grant for the commercial vehicle, and therefore there are two ways in which we can tackle this. We can try to get a grant upstairs or we can try to continue, in this context, the grant providing investment allowance on commercial vehicles and buses. This is what we are trying to do.
    Mr. Diamond: I have correctly understood the hon. Gentleman. I am only saying this so as not to mislead the Committee on a future occasion. What we would be considering sympathetically are arrangements related to the transitional period and we would not be considering a complete root and branch operation. I am sure that the hon. Gentleman understands that.

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    I was very interested in what the hon. Gentleman the Member for Portsmouth, Langstone (Mr. Ian Lloyd) had to say, and I will take his comments very carefully into account, as well as those of the hon. Gentleman the Member for Westmorland (Mr. Jopling). I can only say in reply to these Amendments, as I did earlier, that we are very anxious to try to meet, as far as we reasonably can, the suggestions that have been made, in order to provide a satisfactory transition arrangement. I have indicated the lines upon which the Government are thinking, and I am completely unable to give any more precise indication until careful thought has been given to everything that has been said.
    Mr. David Webster: That is one of the most fantastic speeches I have ever heard. We are invited to give our opinions on these Clauses and to move our Amendments, and the Chief Secretary is going to sit and listen to them day after day, and the answer that he will give at the end of each debate is going to be a large yellow lemon. This seems to be a most extraordinary way in which to proceed. The Chief Secretary went down to the City the other day and talked about the Selective Employment Tax. There was a violent protest about this both in the City and on this side of the Committee. He has said that a violent protest is something which he likes, and I think that we ought to give him one today.
    This is a thoroughly discriminatory method of leaving both the public transport sector and the road haulage industry out of the investment allowances and investment incentives. It is completely deplorable and I think that the Committee and the country should be well aware of it. It seems extraordinary that, having praised every speaker, the right hon. Gentleman should then sit down, and that was all that we got. I think that it is contempt of the lowest order for us to be treated in this way.
    The Minister said that he listened to what has been said. I think that he had his mouth shut and his ears closed. At a time when his colleague the Minister of Transport is saying that we should develop the public transport system, this omission of investment allowance or in-
    652
    vestment incentive for bus companies is completely stultifying and frustrating what the Government say they are trying to do.
    The Minister of Transport, who I understand is fairly busy, says that we cannot clear the traffic congestion in our cities without a public transport system further developed. We have heard this view expounded at great length in the debates on London Transport recently. But the right hon. Lady does nothing to try to persuade the Chancellor to do something for the bus companies.
    There are at the moment exciting developments in buses, such as the 24 bus, which is a bigger bus, the standee bus and the one-man bus, all of which require considerable investment. My hon. Friend the Member for Manchester, Withington (Sir R. Cary) said that it does not pay to make such investment at present. The Chancellor of the Exchequer and the Minister of Transport tell the bus companies that they must develop these things, as if they have not been trying to do so for many years, yet they exclude them from any form of investment incentive and take away from them the investment allowance. My hon. Friend the Member for Withington said that since 1954 the cost of a bus has risen by £2,000 to £6,000. For a 300-vehicle company to set aside £600,000 over 12 years means £50,000 a year. When, because of the crippling rises in expenditure, fares have to be increased, the National Board for Prices and Incomes becomes very interested.
    This places these unfortunate people, who are trying to give a service to the public in very difficult circumstances, in a dilemma. They are struggling to give a service. They must now choose between reducing that service or increasing their fares. Whichever course they adopted, they would be criticised by the Government, who are doing nothing to help them. A 300-vehicle company, assuming a vehicle-life of 12 years, purchases 25 new vehicles every year at a cost of £150,000 a year. The loss of the investment allowance amounts to £45,000 a year after profits. So such a company will have to increase its profits by about 40 per cent. to stay where it is now. How can such a company explain that to the man at the bus stop? It is the Government who should be

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    explaining it to the man at the bus stop when he complains to the unfortunate conductor about reduced service, congestion and higher fares.
    I think that the Chancellor of the Exchequer and the Chief Secretary, after they have finished with the exercise which my hon. Friend the Member for Yeovil (Mr. Peyton) recommended of being chained to their seats in the Chamber, should be chained to the seats of a public service vehicle, because in that way I believe that they would gain invaluable experience which might be reflected in their granting these companies more favourable treatment.
    Mr. Burden: Does not my hon. Friend think that it would be a good idea if Government back benchers were here to listen to these arguments?
    Mr. Webster: It seems that some of them are here.
    Mr. Peyton: There is one addition that I would make to the proposition just expounded by my hon. Friend. It is tailor-made for the Prime Minister: gags should be provided.
    Mr. Webster: I do not want to join my hon. Friend in what might be a politically motivated plot, but I tend very much to agree with him. In addition, these companies are facing fiscal decisions which are taken overnight with little warning. They are asked to have a phased investment policy which they have had to try to negotiate.
    I am glad that the Chancellor of the Exchequer has arrived. I am sorry that he missed his bus ride, but we can still arrange that at a peak traffic time. These companies are engaging in a phased investment policy on which our public transport system depends if we axe to solve the problem of congestion in cities and also, as the hon. Member for Orpington (Mr. Lubbock) rightly said, in rural areas. Hon. Members representing rural areas in general and the West Country in particular are well aware that bus companies in those areas are faced with a very great problem which has been aggravated by about 40 per cent. by this decision.
    This is a horrible situation which has been arrived at. I can see no logic in
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    their being left out, particularly at a time when we have this exhortation to go by public transport. Yet the providers of public transport are penalised up to the hilt. This is in conflict with the publicly expressed policy of the Government.
    In the light of the repeated claims by Government supporters in debate after debate on transport matters that people should cease to go by motor car and go by public transport, I am horrified that none of those Government supporters is here to speak up on behalf of the public undertakings. It is all so hollow and shallow. I suppose it is simply another plot, as the Prime Minister would say.
    What about the position of a company which has a long-drawn-out investment policy but which has deferred its purchase of buses so that they could be channelled into the export market? If there is a strike this summer and the supplying company fails to meet the delivery date by the qualifying time, the bus company suffers, as does the public it is trying to serve. This is why I cannot understand why the Government's supporters are not here to criticise this provision.
    Different considerations arise in the case of the Government's attitude to the road haulage industry. Their attitude here is in complete support of the declared Government policy to penalise the road haulage industry. This industry, or any form of distribution, is simply a continuation of the factory process, just as much as a fork lift truck is. For this reason, we must ensure that it is not penalised if we wish to proceed with a highly pressurised export drive.
    The Minister of State, Board of Trade is sending letters out regularly beginning "Dear Colleague" and asking what is being done to assist the export drive. No help is being given to 80 per cent. of the haulage fleets which take the goods to the docks. There has been a slow-down of the road building programme. There is a penalisation of the road haulage industry. We await with horror the freight plan to be announced later this summer. There has been a conditioning by the Government over the last 18 months and by this Minister of Transport, who had the temerity to summon road hauliers and put them on the red carpet for having the insolence, as she thought, to recommend a blanket increase in prices.

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    May I give one illustration of where the anomalies creep in and why company secretaries are very worried. Oxygen is used very much for the enriching of the furnace techniques in the steel industry. The oxygen-supplying industry delivers its goods in the form of liquid oxygen which can be in a container taken off a tanker and put into the factory yard and then connected through a manifold to the various furnaces. If the steel company concerned has its own container, this is then part of the manufacturing process. If it is a liquid oxygen tank which can be detached and connected to the manifold but belonging to the distributing company, it seems to be the case at present, although we have not had any ruling on the point, that it is only a distributive function and therefore does not qualify for investment allowance. We should like clarification. This would apply also to the manufacturers of acids and corrosives.
    My hon. Friend the Member for Portsmouth, Langstone (Mr. Ian Lloyd) rightly described pioneering methods of transport into the docks and the type of dock development which he wants in his constituency and which I want very near mine—containerisation. This forward-looking process is being penalised by the Government's own action, although the Prime Minister promises a cutting edge to our economy modernisation, and a massive export drive. Again, for the sake of political dogma the whole exercise is being completely frustrated and frittered away. The White Paper recognises the importance of ports in this connection but not that of road transport which is the vital link between factories and ports.
    7.0 p.m.
    The Government have handicapped on every occasion the efforts of the hauliers to modernise their fleet and to make their vehicles safe and roadworthy. This is an attempt to give the industry as bad a name as possible. This unfortunate industry, by which 80 per cent. of our goods are being delivered to the docks and to industry, has suffered in the last 18 months of this Government and its predecessor a series of crippling blows, first, the 6d. increase in petrol duty and the increase in excise duty, each of which cost the industry £30 million. There was
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    the increase in P.A.Y.E. and there have been repeated wage increases.
    The industry is rebuked publicly by the Minister in her war of nerves when it tries to put forward a recommended standard increase in charges which companies in the industry, it is suggested, should negotiate with their customers. When will she rebuke the Transport and General Workers' Union for having a blanket demand for increased wages? The industry is referred to the National Board for Prices and Incomes, with the threat of the Freight Authority behind the reference, and with a Selective Employment Tax to be imposed. One comes back to the psychological warfare going on in the Ministry of Transport to get control of the industry but not by a legislative act of nationalisation. May I quote what the Prime Minister said:
    "We have said, in our policy statement, that we shall rebuild the integrated system, not so much on the basis of buying off every lorry, every truck, every little back-street garage that's got four or five broken-down lorries together with the goodwill and pay enormous sums for them as we did last time—but on the basis of taking the lid off the already nationalised British Road Services."
    Today we see many small companies being penalised by the Budget. We find deliberate attempts by the Government to put up the cost of distribution in this country by private hauliers, and when the industry attempts to pass on the cost to the customer, we see an act of psychological warfare against the industry. This is Socialism at its worse and most subtle. I recommend my hon. Friends to fight this in every way they can.
    Mr. Daniel Awdry: I have been sitting here throughout the debate and it seems to me that we have come off very badly indeed. The Chief Secretary has given no comfort at all to bus operators. He has not shown even the slightest sympathy with them in their difficulties.
    I want to say a few words on Amendment No. 302, and I am glad that we have the support of the Liberal Party on this occasion. The Government's proposal to withdraw investment allowances will cost bus operators £2¾ million in the year, just when the industry is going through a very difficult time. The National Board on Prices and Incomes reported last month on the industry and

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    stressed that there has been a very steady decline in the bus industry. Paragraph 22 of its Report reads:
    "The principal cause of the decline in demand lying largely within the industry's own control has been the rise in fares. Between the end of 1953 and the end of 1964 bus fares rose on average by 70 per cent. (63 per cent. in the larger companies, 69 per cent. in the local authorities and 89 per cent. in London Transport) or twice as fast as the price of all consumer goods and services and nearly four times as fast as motoring running costs."
    The solution to the plight of the industry, as in so many industries, lies in a better use of manpower. This means a new type of bus manned by one man. At present only 8 per cent. of the mileage travelled by company buses on stage services is operated by buses manned by only one man, and this is not good enough.
    The Government should help the bus industry to modernise and should encourage it to acquire new equipment and new buses. The proposals in the Bill are a step in exactly the wrong direction. Those who represent rural constituencies, as I do, know from our correspondence and our surgeries that already bus services are totally inadequate and oppressively expensive. These measures will add to the expense and this increased expense will fall on people who can ill afford it. In view of the totally unsatisfactory attitude of the Government, I hope that we shall press the Amendment to a Division.
    Mr. Richard Wainwright: In his reply to me, the Chief Secretary blandly overlooked the fact that it is over four weeks since I drew his attention to this matter on Second Reading. What a state the Treasury must be in if, on one simple item of tax law, they are unable to produce a satisfactory solution, which required only elementary work, within four weeks and at the end of a lengthy Recess which in the case of my hon. Friends was imposed upon us.
    Before I recommend my hon. Friends to divide, I wish to draw attention to the difficulties of people who made contracts in January of this year. The clock is ticking on, the pages in the diary are being turned. If I had placed a contract for a building costing £200,000 and now faced the operation of this cruel imposition, I should want to alter the nature
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    of the building and to talk to the builder in order to adjust the contract to reduce the price by about the £12,000 which I shall lose. If the Chief Secretary leaves it until August before making an announcement, it will be too late and a reasonable part of the building will already be up. I hope that even now we shall hear something from him in the spirit of accepting the Amendment. If not I shall recommend my hon. Friends to divide against the Government.
    Mr. Charles Morrison: When my hon. Friend the Member for Weston-super-Mare (Mr. Webster) began his speech he said that the Chief Secretary had praised most speeches from this side of the Committee and yet was prepared to do nothing about what my hon. Friends had said. I can only conclude that the Chief Secretary was convinced by our arguments but had not the authority to give a concession.
    He has survived 2½ hours since my hon. Friend the Member for Yeovil (Mr. Peyton) remarked that the time must be approaching when we could expect a major concession from the Government. I am glad to see that in the last quarter of an hour the Chancellor has entered the Chamber and I hope that in most of the conversation which he has had with him the Chief Secretary has been conveying yet again my hon. Friend's arguments and that the Chancellor will allow the Chief Secretary to give the concession for which we are asking.
    I reinforce remarks made by a number of my hon. Friends about bus services and, in particular, about rural bus services. The bus companies have been righting against increasing costs for a very long time, but they have been fighting a losing battle, and the level of rural bus services has shown a steady deterioration. Yet, as long ago as 1961, the Jack Committee on rural bus services reported:
    "It was maintained that lack of public transport in rural areas created ' difficulties for young people attending further education classes; difficulties for those working in towns, whose homes are in the country; difficulties for the elderly drawing pensions … difficulties for the housewife who has to do her main shopping in the towns; difficulties for those attending doctors' or dentists' surgeries or needing to have prescriptions made up by the chemist; difficulties for those

    659
    visiting patients in hospital or attending hospital for treatment'."
    In many parts of the country—not only in central Wales and in Scotland, to which the hon. Member for Orpington (Mr. Lubbock) referred—these inconveniences are very considerable. Since the Jack Report in 1961, there has been a huge increase in the number of families which own cars, and the figure may be as high as 80 per cent. or more in some areas. The husband going to work is almost invariably the car user, and therefore the wife and the family are often left without any private means of transport.
    Because the overall number of people using public transport is steadily decreasing, public transport in its turn is gradually becoming more uneconomic, and therefore more and more services are withdrawn. As a result, many people are without any form of transport. This causes hardship and inconvenience, particularly to the elderly, the infirm, and those young people who have not yet reached an age when they can have a driving licence, or who cannot afford to buy their own transport.
    If the Government have their way, the economics of the bus services will become even more hazardous than they are already. The bus companies have estimated that the withdrawal of investment allowances would cost the industry about £2·8 million. The only result could be an increase in fares, a reduction in services, or a reduction in standards.
    These points may be of marginal importance to the Treasury, but they should be of the greatest relevance to the Ministry of Transport. They are of ever-increasing importance to thousands of people, who deserve far more consideration than they have received this afternoon from the Government. I cannot believe that the Government intend to add to the difficulties of those people in rural areas to whom I have referred.
    Much more help from the Government is needed for the bus services, instead of the harmful effect of the Government's proposals. I hope that the Chancellor will be able to make a concession on this matter.
    Mr. Peter Mills: I wish to support Amendment No. 302, particu-
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    larly as it concerns rural buses. The problems of communication in the Southwest are very acute, and the loss of investment allowances will considerably aggravate the situation.
    I am very pleased to see that the Transport Ministers are here. We are constantly having to remind them of the transport problems in the South-West. They know them very well. The Clause will present another problem which will be very difficult to solve.
    Rural bus operators, especially those in my constituency, are in very serious trouble and feel that they cannot go on much longer. The various things that have brought this to a head, such as taxation, have already been mentioned this afternoon. Now we have the loss of the investment allowance. I believe that this is the end of the road for many rural bus operators unless the Government wake up, take notice of the problem and give them back the allowances that they had before.
    7.15 p.m.
    I make a very strong appeal to the Minister to look into this matter again and to give way a bit on Amendment No. 302, particularly as regards rural bus operators. He is the most "ungiving" man that I have ever come across. The only way to solve our rural communications problems is to provide some sort of specialised buses for these areas. I am very much in favour of the small, tailor-made bus that will carry not only people but also goods and other things. But the small bus operators cannot invest in them unless they receive adequate allowances.
    I should also like to say something about Amendment No. 251, in the name of my hon. Friend the Member for Westmorland (Mr. Jopling). I support this practical Amendment, because agriculture needs the safeguard which it would give. I must declare my interest, as I am having a farmhouse built and therefore I, too, may be in difficulties.
    There are always delays in the building of farmhouses, cottages and farm buildings. The weather is one cause, particularly in the South West, and there is also a shortage of materials—except, of course, bricks—and labour, especially skilled labour.

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    The Amendment is worthy, and I ask the Minister to give a bit on it.
    Mr. Hector Monro: Any problem that is serious in the South-West of England is 20 times more serious in Scotland. We have been debating the position of rural bus services. Those who live in rural areas and know the small bus operators also know that they are hanging on by their boot straps at this moment. The Clause is likely to be the last straw. Many operators will not be able to carry on if the Government continue in this way.
    I note—and Scottish hon. Members are becoming used to this—that no Scottish Minister has come to listen to the problems of Scotland. They are not here even when we discuss hill sheep. We have no idea of how seriously the Government are treating Scotland at the moment. They knew that Scotland would be discussed when we considered the problem of rural buses, and one Minister from the Scottish Office should have been present to hear about it.
    Many cogent arguments have been put forward to show why bus operators should be helped, particularly in Scotland, where there is less opportunity to travel by train, there are fewer roads, and the country is much larger. We deserve special treatment in the rural areas, and I hope that at last we shall have some form of repentance from the Government.
    Dame Irene Ward (Teignmouth): What a wonderfully dumb Front Bench ! Would it not be better if the Front Bench withdrew and had a Cabinet meeting and came to a decision on various matters which have been raised during this debate? I do not think that most of them even know what the Chief Secretary said—[HON. MEMBERS: "He said nothing."] He said nothing and that is just the point. They did not even know that he said nothing.
    I rise because I have a particular interest in Amendment No. 136. Few voices in the House are raised on behalf of the shipbuilding industry. No doubt that is why the Government have decided to bring the industry under the control of the Minister of Technology—who, in view of that fact, also might have made a contribution to the debate.
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    We have not heard a word in support of the industry from hon. Members opposite who represent—or think they represent—shipbuilding and shipping interests. Nearly all those who represent large centres of shipbuilding won their seats at the last General Election, since when they have all gone dumb. I very much regret the fact that the Chief Secretary said so little about this very important industry.
    The details of the series of Amendments that we are discussing have been put by experts on this side of the Committee, and I want to ask the Chief Secretary what he meant when, as far as I understood it, he addressed somebody as a lamb. I am not certain whether he was lambing or cooing.
    Mr. Peyton: The right hon. Gentleman would certainly never refer to my hon. Friend as a lamb.
    Dame Irene Ward: I agree. He never would. All the industries connected with these Amendments will be put into an even worse position. None of them will be able to make any plans. They do not know whether the Chief Secretary was promising to do anything. They will not know how to plan their future, and they will wait for the Report stage hoping that Father Christmas will pop up, because we shall be nearer Christmas then than we are today.
    These provisions come from a Government which attacked the Conservative Government on the ground that they took such a long time to make up their minds. But when the Budget was introduced, and then the Finance Bill, and when all the Amendments appeared on the Order Paper, it was surely possible for the Chief Secretary to discover what he was going to do about them, or what the Chancellor was going to do. All the Amendments are in clear terms. I do not see that any technical difficulties confront the right hon. Gentleman. He can make up his mind for or against.
    All the facts should be known to the Treasury. Whether they are, I do not know. Sometimes I do not think the Treasury knows anything at all now. Its director—the man who now dictates policy—has changed. A long time ago I said that the Treasury would get on better if it got rid of Dr. Kaldor, but nobody took any notice of me. Now,

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    however, I notice with great interest that the public are reaching the same conclusion. I am delighted that Aims of Industry has now said the same thing.
    What on earth was the Chief Secretary thinking about when he introduced an attitude into the debate which will cause even further anxiety to people in the industries that have been mentioned. I cannot believe that any of those people will think that the Chief Secretary meant anything. I suppose that this is a new technique, to try to prevent hon. Members on this side of the Committee from putting the case for the Amendments that they are supporting. The Government Front Bench is dull as dull. Ministers have no ideas in their heads, because they do not know how to make up their minds.
    Mr. Peyton: I must explain to my hon. hon. Friend the Member for Tynemouth (Dame Irene Ward) that I meant no discourtesy or disrespect to her when I said that the Chief Secretary would certainly not refer to her as a lamb. I meant to suggest that he undoubtedly regards her as the lioness that she is. Despite the terrible gloom and pessimism exhibited by my hon. Friends I, optimistic to the end, saw a ray of hope when the Solicitor-General appeared on the Government Front Bench. We all know that an apparition of that sort never materialises unless an Amendment is about to be accepted. We are very seldom given the intellectual treat of listening to the Solicitor-General unless he has the onerous task of accepting an Amendment. Unfortunately, our hopes have been dashed, because he has gone away.
    I want to refer to the point made by my hon. Friend the Member for Torrington (Mr. Peter Mills). This is a desperately serious matter for the countryside. The Government should know that we are growing stronger in the conviction that the Government, obtaining little support from the countryside, care even less for it. We are becoming extremely discontented with the way in which our pleas constantly fall on deaf ears. I feel very sorry for the Chief Secretary. He has been sitting there all afternoon, taking the bowling from both ends. He has not scored many runs. He has stood consistently in front of his wicket but, there being no umpire—because we are not
    664
    allowed to appeal to you, Mr. Grant-Ferris—nobody has been able to get him out, although he has constantly been leg-before-wicket.
    I hope that the Government can be induced to take this matter seriously and to realise that all their piffling talk about a dynamic country, purposive planning and regional arrangements will go entirely by the board if they do not allow the seeds of a decent transport system to develop. They are stifling them almost before they are born.
    Sir G. Nabarro: The hon. Member for Deptford (Mr. John Silkin) has come in to closure the debate.
    Mr. Peyton: I hope that it will not be too far out of order for me to remark that the vet has come in with the humane killer, to put the Government out of their misery.
    Mr. Archie Manuel: You look pretty miserable yourself.
    The Temporary Chairman (Mr. Grant-Ferris): Order. I hope that the Committee will allow the hon. Member to conclude his speech.
    Mr. Peyton: I will not reply in kind to such a vulgar remark as the hon. Member for Central Ayrshire (Mr. Manuel) has seen fit to make. I was saying, as gravely as I could, that the vet had come in with his humane killer. Unfortunately, although there is no doubt that he will be successful in putting the Government temporarily out of their misery on this issue he will be powerless to persuade them to alleviate the misery that their policies will cause if persisted in in the West Country and elsewhere. We bitterly resent this, hence our very sustained attack upon the Government this afternoon.
    7.30 p.m.
    Mr. Peter Walker: I really must ask for an answer to this debate, and I appeal to the Chancellor. As he knows, throughout the Committee's consideration of the Bill there has been considerable cooperation by both sides of the Committee —I think he will agree with me about that—and so considerable progress has been made. But a major Amendment has been proposed by the Opposition— I hope the Chancellor will listen to this —and many people have spoken on it,

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    and then the Chief Secretary gets up and says, "I have listened with great interest to all the speeches" but presents no arguments in reply to the Opposition case. This is really a very bad way of treating this Committee, and it has resulted in an unfortunate delay in our progress. He really does have the duty to stand up and say why this Government should have decided to stop giving investment allowance or any other form of incentive to the buses.
    Mr. Diamond: The hon. Gentleman is quite wrong. He has been speaking all the time to the Question, "That the Clause stand part of the Bill". I have been listening very carefully indeed for any single remark addressed to the Amendment.
    Mr. Walker: If I may say so, it is the Chief Secretary who is absolutely wrong about this. The Amendment which I proposed was on the principle that it is wrong to do away with investment allowances completely for commercial vehicles and buses, and nobody in this Committee has heard one argument from the Chief Secretary against that. If it is because he has not bothered to be briefed upon this subject, and the effects on the bus industry, there is the Joint Parliamentary Secretary to the Ministry of Transport here, so let him come to the Dispatch Box to defend putting an extra imposition of £2·8 million a year on the bus industry. Let us hear the Ministry of Transport defending this. If the Chief Secretary has in fact been briefed that he should not say anything in reply to our arguments, then the Chancellor himself has the responsibility to come to the Dispatch Box and make his comments about why these two major industries should be so adversely affected.
    Other industries are not so adversely affected by doing away with investment allowances. The Committee is well aware that for other plant and machinery investment grants are to take their place, and the Committee knows that for road haulage and for the bus industry no incentive grants will take their place. Before we press the matter to a vote, I must ask for a reply from the Government as to why they are in favour of leaving the bus industry and the road haulage industry without these investment incentives.
    The Chancellor of the Exchequer (Mr. James Callaghan): A personal request has been made to me and I shall be courteous to the Committee, although I hope that the Committee will be equally courteous in this matter to the Chief Secretary.
    Mr. Hirst: We must have reason.
    Mr. Callaghan: Sometimes there is discourtesy without reason.
    The Chief Secretary and I discussed this series of Amendments before we came here this afternoon and we selected a particular date in respect of these contracts, namely, 16th October. We have had a number of representations about the selection of that date, and it seemed to us that there was a case which ought to be considered here, and we reached the conclusion, which I would have thought would have appealed to the Committee—indeed, I dare say it does appeal to the Committee—that the best thing to do would be to listen to the debate and hear all the arguments put forward— and not vilification—and then come forward in a fortnight's time on Report with considered conclusions.
    Mr. Hirst: Oh, no.
    Mr. Callaghan: The hon. Gentleman the Member for Colne Valley (Mr. Richard Wainwright) thought we should have thought the matter out before coming here. We could have had another date or we could have stuck to this one. We are sticking to this one, but we thought we would prefer to hear the arguments—I know that this is something which will appeal to the Liberal Party— and then consider it again and put down an Amendment, if that were thought desirable, to change it on Report.
    On this Amendment we are discussing we have heard a lot said in the last half hour since I have been here—and I apologise for not having been here earlier but it is well known to hon. and right hon. Members opposite that although one has a duty to the Committee one has a lot of other duties to carry out, too— about the bus industry, but the fact is that that has nothing to do with this particular Amendment. This arises in connection with investment grant, or on the Question, "That the Clause stand part of the Bill", but it does not arise on the date of 16th October, which is the particular

    667
    question which will be put to the Committee.
    Mr. Peter Walker: With respect, I realise that coming into the Committee late it is difficult to know what is being debated, but we are debating Amendment No. 302, which has nothing to do with the date at all. Amendment No. 302 seeks to see that commercial vehicles and coaches are not affected by this Clause. I can see that the right hon. Gentleman has an argument about the date, although I think it an unjustifiable one, because, as the hon. Member for Colne Valley (Mr. Richard Wainwright) pointed out, the Treasury have had four weeks now to think of this issue. It is not the date we are worried about. The Amendment was proposed by me, perhaps inadequately, in a speech of some 20 minutes, and it has been supported and spoken to by other hon. Members, and then the Chief Secretary said that he had listened to some very interesting speeches and he was not going to give way to them. That is not the way to treat this Committee.
    Mr. Callaghan: The Chief Secretary always treats this Committee with courtesy. It is his well-deserved reputation in this Committee. We have listened to the arguments, and, as I said, they have been put forward in relation to buses especially.
    In relation to the point about uncertainty, I do not think there should be any more uncertainty now than at any other stage of the Bill, in the sense that the date which we operate is 16th October, and anybody who makes his plans while the Bill is going through must make his plans on the assumption that that is the date although it could be changed.
    Dame Irene Ward Dame Irene Ward rose ——
    Mr. Callaghan: With respect, I am trying to answer a point which was put to me. What I am saying is that the Bill is being considered in Committee, and anyone trying to reach conclusions must do so on that understanding and at that risk. All right, I will give way.
    Dame Irene Ward: I am grateful to the right hon. Gentleman. If the Chief Secretary or if the Chancellor now decides 16th October is to be the date
    668
    why did not the Chief Secretary say so? All he said was that he was listening.
    Mr. Callaghan: I do not think that that really needs any reply from me. I think what I have said is clear to everybody in the Committee except the hon. Lady.
    We shall give further consideration to the matter. We shall reach our conclusions and on Report we shall then be able to say to the House why we have taken the dates that we have taken.
    I wish to appeal to the Committee. We have had over three hours on these related subjects. I hope the Committee will not take this amiss, but I do not think that the arguments of the last half hour during which I have listened have carried the matter any further. They have, substantially, only reiterated it. We have a lot of business to do and I would ask the Committee now if they will agree to come to a conclusion so that we can registered our views.
    Mr. Peter Walker: I really must reply to this, because the Chancellor's comment is on the date, and he actually says the argument on the buses is another matter. The fact is that the major Amendment from this side is about the buses and the commercial vehicles. The major debate has been about this. The Liberals' Amendment was the one about the date; the Liberals moved it and perhaps they are satisfied with the Chancellor's answer and the Chief Secretary's, when he said that he would consider this further. But the major debate from this side has been about the buses and the commercial vehicles. The Chancellor was not here. I do not complain about that at all, but if he had been here he would have known what the major debate was about and that we got no answer at all. In the circumstances the Chancellor must expect delay on this point. I think we are grateful to him for joining in and endeavouring to placate the Committee, but I fear that when he studies in HANSARD tomorrow the report of the debate he will see that our arguments have been treated with unusual contempt——
    Mr. Hirst: Unusual?
    Mr. Walker: —by the Government Front Bench, and we certainly vigorously complain at the treatment which we have received.
    Sir G. Nabarro: I have refrained throughout the last four hours from contributing to the debate, because my interpretation of the selection of Amendments was that they dealt only with timing, save only the. last Amendment selected, that in the name of my hon. Friend the Member for Worcester (Mr. Peter Walker) and others of my hon. and right hon. Friends.
    It is incongruous—I make no adverse criticism—that the selection for our last debate is an admixture of a timing Amendment from the Liberal Party and an exclusion Amendment—
    The Temporary Chairman: Order. I am sorry to interrupt the hon. Gentleman. It is not in order to criticise the Chair's selection of Amendments. Perhaps he would have that topic.
    Sir G. Nabarro: No, I said deliberately that there was no criticism. I know my Parliamentary rules much too well for that. There is no criticism, but I observed, factually, that there is an admixture. There is a timing Amendment from the Liberal Party and there is an exclusion Amendment from my right hon. and hon. Friends. The exclusion Amendment, I remind the Chancellor of the Exchequer, who has only just returned to the Committee—[An HON. MEMBER: "He has been here for an hour."] Well—one hour out of four— does not primarily relate to buses.
    It relates to hundreds of thousands of commercial vehicles. It relates to 1·3 million C licence vehicles. The buses, though important, are a secondary consideration. This is not a debate about buses. It is a debate on a point
    of massive importance. I hope that there will not be a repetition of the sad occurrence 48 hours ago, when a debate on the Question, "That the Clause stand part," was denied to my hon. Friends because the present Question, "That the Clause stand part," which I shall oppose, is an exclusion consideration——
    The Temporary Chairman: Order. The hon. Gentleman must wait until we come to the Question. He will hear then what I have to say about it, and I will have something to say to him.
    Sir G. Nabarro: Thank you far your guidance, Mr. Grant-Ferris. As always, I am most grateful.
    This is an exclusion consideration. I appeal to my right hon. and hon. Friends, as I do not want the two considerations to be mixed up, that the timing consideration of the Liberal Party, which I shall strongly support in the Lobbies, should have a separate Division from the exclusion Amendment of my right hon. and hon. Friends. At the risk of tiring myself, I shall seek to walk through the Lobbies twice, and a third time on the Question, "That the Clause stand part," when I propose to spend some time, if I catch your eye, Mr. Grant-Ferris—I have sat here for four hours holding myself back for the debate on the Question, "That the Clause stand part"—to criticise severely the proposition to exclude important assets from capital allowances.
    Question put, That the words "October 1966" stand part of the Clause:—
    The Committee divided: Ayes 215, Noes 147.

    Division No. 46.]

    AYES

    [7.44 p.m.

    Abse, Leo

    Braddock, Mrs. E. M.

    Dalyell, Tam

    Albu, Austen

    Bradley, Tom

    Davidson, Arthur (Accrington)

    Alldritt, Walter

    Brooks, Edwin

    Davies, G. Elfed (Rhondda, E.)

    Archer, Peter

    Broughton, Dr. A. D. D.

    Davies, Harold (Leek)

    Atkins, Ronald (Preston, N.)

    Brown, Rt, Hn. George (Belper)

    Davies, Ifor (Gower)

    Atkinson, Norman (Tottenham)

    Brown, Hugh D, (G'gow, Provan)

    de Freitas, Sir Geoffrey

    Bacon, Rt. Hn. Alice

    Brown, Bob (N'c'tle-upon-Tyne, W.)

    Delargy, Hugh

    Barnett, Joel

    Brown, R. W. (Shoreditch & F'bury)

    Dell, Edmund

    Baxter, William

    Buchan, Norman

    Dempsey, James

    Beaney, Alan

    Buchanan, Richard (G'gow, Sp'burn)

    Dewar, Donald

    Bence, Cyrll

    Callaghan, Rt. Hn. James

    Diamond, Rt. Hn. John

    Benn, Rt. Hn. Anthony Wedgwood

    Cant, R. B.

    Dickens, James

    Bennett, James (G'gow, Bridgeton)

    Carmichael, Neil

    Doig, Peter

    Binns, John

    Carter-Jones, Lewis

    Donnelly, Desmond

    Blackburn, F.

    Coleman, Donald

    Dunn, James A.

    Blenkinsop, Arthur

    Concannon, J. D.

    Dunnett, Jack

    Boardman, H.

    Conlan, Bernard

    Dunwoody, Mrs. Gwyneth (Exeter)

    Booth, Albert

    Craddock, George (Bradford, S.)

    Dunwoody, Dr. John (F'th & C'b'e)

    Bottomley, Rt. Hn. Arthur

    Crawshaw, Richard

    Eadie, Alex

    Bowden, Rt. Hn. Herbert

    Cronin, John

    Edwards, Robert (Bilston)

    Boyden, James

    Cullen, Mrs. Alice

    Edwards, William (Merioneth)

    English, Michael

    Ledger, Ron

    Probert, Arthur

    Evans, Albert (Islington, S. W.)

    Lestor, Miss Joan

    Randall, Harry

    Evans, loan L. (Birm'h'm, Yardley)

    Lever, L. M. (Ardwick)

    Rees, Merlyn

    Fletcher, Ted (Darlington)

    Lewis, Arthur (W. Ham, N.)

    Rhodes, Geoffrey

    Foot, Michael (Ebbw Vale)

    Lewis, Ron (Carlisle)

    Richard, Ivor

    Forrester, John

    Lomas, Kenneth

    Roberts, Albert (Normanton)

    Fowler, Gerry

    Loughlin, Charles

    Roberts, Gwilym (Bedfordshire, S.)

    Fraser, Rt. Hn. Tom (Hamilton)

    Lyon, Alexander W. (York)

    Robinson, W. O. J. (Walth'stow, E.)

    Freeson, Reginald

    McBride, Neil

    Rose, Paul

    Gardner, A. J.

    McCann, John

    Ross, Rt. Hn. William

    Garrett, W. E.

    MacDermot, Niall

    Rowlands, E. (Cardiff, N.)

    Ginsburg, David

    Macdonald, A. H.

    Shaw, Arnold (Ilford, S.)

    Gray, Dr. Hugh

    McGuire, Michael

    Sheldon, Robert

    Gregory, Arnold

    Mackenzie, Gregor (Rutherglen)

    Shinwell, Rt. Hn. E.

    Grey, Charles

    Mackie, John

    Shore, Peter (Stepney)

    Griffiths, David (Rother Valley)

    Maclennan, Robert

    Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

    Griffiths, Rt. Hn. James (Llanelly)

    MacMillan, Malcolm (Western Isles)

    Short, Mrs. Renée (W'hampton, N. E.)

    Griffiths, Will (Exchange)

    McMillan, Tom (Glasgow, C.)

    Silkin, John (Deptford)

    Hamilton, William (Fife, W.)

    McNamara, J. Kevin

    Silkin, S. C. (Dulwich)

    Hannan, William

    MacPherson, Malcolm

    Silverman, Julius (Aston)

    Hazell, Bert

    Mahon, Peter (Preston S.)

    Silverman, Sydney (Nelson)

    Heffer, Eric S.

    Mahon, Simon (Bootle)

    Slater, Joseph

    Henig, Stanley

    Manuel, Archie

    Spriggs, Leslie

    Herbison, Rt. Hn. Margaret

    Mapp, Charles

    Steele, Thomas (Dunbartonshire, W.)

    Hobden, Dennis (Brighton, K'town)

    Mason, Roy

    Stonehouse, John

    Hooley, Frank

    Mellish, Robert

    Thomas, lorwerth (Rhondda, W.)

    Horner, John

    Mendelson, J. J.

    Thornton, Ernest

    Houghton, Rt. Hn. Douglas

    Miller, Dr. M. S.

    Tinn, James

    Howarth, Harry (Wellingborough)

    Mitchell, R. C. (S'th'pton, Test)

    Urwin, T. W.

    Howell, Denis (Small Heath)

    Molloy, William

    Varley, Eric G.

    Howie, W.

    Morris, Charles R. (Openshaw)

    Wainwright, Edwin (Dearne Valley)

    Hoy, James

    Morris, John (Aberavon)

    Walden, Brian (All Saints)

    Hughes, Hector (Aberdeen, N.)

    Neal, Harold

    Walker, Harold (Doncaster)

    Hughes, Roy (Newport)

    Newens, Stan

    Wallace, George

    Hunter, Adam

    Noel-Baker, Francis (Swindon)

    Watkins, David (Consett)

    Hynd, John

    Oakes, Gordon

    Wellbeloved, James

    Irvine, A. J. (Edge Hill)

    Ogden, Eric

    Whitaker, Ben

    Jackson, Colin (B'h'se & Spenb'gh)

    O'Malley, Brian

    Whitlock, William

    Janner, Sir Barnett

    Oswald, Thomas

    Williams, Alan (Swansea, W.)

    Jay, Rt. Hn. Douglas

    Owen, Will (Morpeth)

    Williams, Alan Lee (Hornchurch)

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Page, Derek (King's Lynn)

    Williams, Clifford (Abertillery)

    Jenkins, Hugh (Putney)

    Paget, R. T.

    Willis, George (Edinburgh, E.)

    Johnson, Carol (Lewisham, S.)

    Pannell, Rt. Hn. Charles

    Wilson, William (Coventry, S.)

    Jones, Dan (Burnley)

    Park, Trevor

    Winnick, David

    Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)

    Parker, John (Dagenham)

    Winterbottom, R. E.

    Jones, J. Idwal (Wrexham)

    Parkyn, Brian (Bedford)

    Woodburn, Rt. Hn. A.

    Judd, Frank

    Pavitt, Laurence

    Woof, Robert

    Kelley, Richard

    Pentland, Norman

    Yates, Victor

    Kenyon, Clifford

    Perry, George H. (Nottingham, S.)

    Kerr, Mrs. Anne (R'ter & Chatham)

    Price, Christopher (Perry Barr)

    TELLERS FOR THE AYES:

    Lawson, George

    Price, Thomas (Westhoughton)

    Mr. Alan Fitch and

    Leadbitter, Ted

    Price, William (Rugby)

    Mr. Harry Gourlay.

    NOES

    Allason, James (Hemel Hempstead)

    Crowder, F. P.

    Harris, Reader (Heston)

    Atkins, Humphrey (M't'n & M'd'n)

    Dalkeith, Earl of

    Harrison, Brian (Maldon)

    Awdry, Daniel

    Dance, James

    Hawkins, Paul

    Baker, W. H. K.

    Davidson, James (Aberdeenshire, W.)

    Heseltine, Michael

    Barber, Rt. Hn. Anthony

    Dean, Paul (Somerset, N.)

    Higgins, Terence L.

    Batsford, Brian

    Digby, Simon Wingfield

    Hiley, Joseph

    Beamish, Col. Sir Tufton

    Dodds-Parker, Douglas

    Hill, J. E. B.

    Bell, Ronald

    Doughty, Charles

    Hirst, Geoffrey

    Bennett, Sir Frederic (Torquay)

    Eden, Sir John

    Hobson, Rt. Hn. Sir John

    Bessell, Peter

    Elliot, Capt. Walter (Carshalton)

    Holland, Philip

    Biffen, John

    Elliott, R. w. (N'c'tle-upon-Tyne, N.)

    Hordern, Peter

    Biggs-Davison, John

    Errington, Sir Eric

    Hornby, Richard

    Birch, Rt. Hn. Nigel

    Eyre, Reginald

    Howell, David (Guildford)

    Blaker, Peter

    Farr, John

    Hunt, John

    Bossom, Sir Clive

    Forrest, George

    Hutchison, Michael Clark

    Boyd-Carpenter, Rt. Hn. John

    Fortescue, Tim

    Jenkin, Patrick (Woodford)

    Bryan, Paul

    Fraser, Rt. Hn. Hugh (St'fford & Stone)

    Jopling, Michael

    Buchanan-Smith, Alick (Angus, N&M)

    Galbraith, Hn. T. G.

    Joseph, Rt. Hn. Sir Keith

    Buck, Antony (Colchester)

    Gibson-Watt, David

    Kaberry, Sir Donald

    Bullus, Sir Eric

    Giles, Rear-Adm. Morgan

    Kershaw, Anthony

    Burden, F. A.

    Gilmour, Ian (Norfolk, C.)

    King, Evelyn (Dorset, S.)

    Carlisle, Mark

    Gilmour, Sir John (Fife, E.)

    Kitson, Timothy

    Cary, Sir Robert

    Glover, Sir Douglas

    Knight, Mrs. Jill

    Clegg, Walter

    Gower, Raymond

    Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)

    Cooke, Robert

    Grant, Anthony

    Lloyd, Ian (P'tsm'th, Langstone)

    Cooper-Key, Sir Neill

    Gresham Cooke, R.

    Loveys, W. H.

    Corfield, F. V.

    Grieve, Percy

    Maclean, Sir Fitzroy

    Costain, A. P.

    Hall, John (Wycombe)

    Macleod, Rt. Hn. Iain

    Craddock, Sir Beresford (Spelthorne)

    Hamilton, Michael (Salisbury)

    McMaster, Stanley

    672

    673

    Maddan, Martin

    Peyton, John

    Thatcher, Mrs. Margaret

    Maginnis, John E.

    Pink, R. Bonner

    Turton, Rt. Hn. R. H.

    Maxwell-Hyslop, R. J.

    Pounder, Rafton

    van Straubenzee, W. R.

    Maydon, Lt.-Cmdr. S. L. C.

    Powell, Rt. Hn. J. Enoch

    Vaughan-Morgan, Rt, Hn. Sir John

    Mills, Peter (Torrington)

    Prior, J. M. L.

    Vickers, Dame Joan

    Mills, Stratton (Belfast, N.)

    Pym, Francis

    Wainwright, Richard (Colne Valley)

    Miscampbell, Norman

    Ramsden, Rt. Hn. James

    Walker, Peter (Worcester)

    Mitchell, David (Basingstoke)

    Ronton, Rt. Hn. Sir David

    Walker-Smith, Rt. Hn. Sir Derek

    Monro, Hector

    Rossi, Hugh (Hornsey)

    Wall, Patrick

    More, Jasper

    Scott, Nicholas

    Ward, Dame Irene

    Morrison, Charles (Devizes)

    Sharples, Richard

    Weatherill, Bernard

    Munro-Lucas-Tooth, Sir Hugh

    Shaw, Michael (Sc'b'gh & Whitby)

    Webster, David

    Murton, Oscar

    Sinclair, Sir George

    Wells, John (Maidstone)

    Nabarro, Sir Gerald

    Smith, John

    Whitelaw, William

    Neave, Airey

    Steel, David (Roxburgh)

    Wilson, Geoffrey (Truro)

    Orr-Ewing, Sir Ian

    Stodart, Anthony

    Woodnutt, Mark

    Page, Graham (Crosby)

    Stoddart-Scott, Col. Sir M. (Ripon)

    Worsley, Marcus

    Pardoe, J.

    Summers, Sir Spencer

    Younger, Hn. George

    Pearson, Sir Frank (Clitheroe)

    Taylor, Sir Charles (Eastbourne)

    Peel, John

    Taylor, Frank (Moss Side)

    TELLERS FOR THE NOES:

    Percival, Ian

    Temple, John M.

    Mr. Russell Johnston and

    Dr. M. P. Winstanley.

    Amendment No. 302 proposed: In page 37, line 2, at end insert:
    (b) in so far as that expenditure is on road vehicles of a type not commonly used as private vehicles and unsuitable to be so used.—[Mr. Peter Walker.]
    Question put, That those words be there inserted:—
    The Committee divided: Ayes 134, Noes 212.

    Division No. 47.]

    AYES

    [7.54 p.m.

    Allason, James (Hemel Hempstead)

    Grant, Anthony

    Orr-Ewing, Sir Ian

    Atkins, Humphrey (M't'n & M'd'n)

    Gresham Cooke, R.

    Page, Graham (Crosby)

    Awdry, Daniel

    Grieve, Percy

    Pardoe, J.

    Baker, W. H. K.

    Hall, John (Wycombe)

    Pearson, Sir Frank (Clitheroe)

    Barber, Rt. Hn. Anthony

    Hamilton, Michael (Salisbury)

    Peel, John

    Batsford, Brian

    Harris, Reader (Heston)

    Percival, Ian

    Beamish, Col. Sir Tufton

    Hawkins, Paul

    Peyton, John

    Bell, Ronald

    Heseltine, Michael

    Pink, R. Bonner

    Bennett, Sir Frederic (Torquay)

    Higgins, Terence L.

    Pounder, Rafton

    Bessell, Peter

    Hiley, Joseph

    Powell, Rt. Hn. J. Enoch

    Birch, Rt. Hn. Nigel

    Hill, J. E. B.

    Prior, J. M. L.

    Blaker, Peter

    Hirst, Geoffrey

    Pym, Francis

    Bossom, Sir Clive

    Hobson, Rt. Hn. Sir John

    Ramsden, Rt. Hn. James

    Boyd-Carpenter, Rt. Hn. John

    Holland, Philip

    Renton, Rt. Hn. Sir David

    Bryan, Paul

    Hordern, Peter

    Rossi, Hugh (Hornsey)

    Buchanan-Smith, Alick (Angus, N&M)

    Hornby, Richard

    Scott, Nicholas

    Buck, Antony (Colchester)

    Howell, David (Guildford)

    Sharpies, Richard

    Bullus, Sir Eric

    Hunt, John

    Shaw, Michael (Sc'b'gh & Whitby)

    Burden, F. A.

    Hutchison, Michael Clark

    Sinclair, Sir George

    Carlisle, Mark

    Jenkin, Patrick (Woodford)

    Smith, John

    Cary, Sir Robert

    Johnston, Russell (Inverness)

    Steel, David (Roxburgh)

    Clegg, Walter

    Jopling, Michael

    Stodart, Anthony

    Cooke, Robert

    Joseph, Rt. Hn. Sir Keith

    Stoddart-Scott, Cot. Sir M. (Ripon)

    Corfield, F. V.

    Kaberry, Sir Donald

    Summers, Sir Spencer

    Costain, A. P.

    Kershaw, Anthony

    Taylor, Sir Charles (Eastbourne)

    Craddock, Sir Beresford (Spelthorne)

    Kitson, Timothy

    Taylor, Frank (Moss Side)

    Dalkeith, Earl of

    Knight, Mrs. Jill

    Temple, John M.

    Dance, James

    Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)

    Thatcher, Mrs. Margaret

    Davidson, James (Aberdeenshire, W.)

    Lloyd, Ian (P'tsm'th, Langstone)

    Turton, Rt. Hn. R. H.

    Digby, Simon Wingfield

    Loveys, W. H.

    van Straubenzee, W. R.

    Doughty, Charles

    Maclean, Sir Fitzroy

    Vickers, Dame Joan

    Eden, Sir John

    Maoleod, Rt. Hn. Iain

    Wainwright, Richard (Colne Valley)

    Elliot, Capt. Walter (Carshalton)

    Maddan, Martin

    Walker, Peter (Worcester)

    Elliott, R. W. (N'c'tle-upon-Tyne, N.)

    Maginnis, John E.

    Walker-Smith, Rt. Hn. Sir Derek

    Errington, Sir Eric

    Maxwell-Hyslop, R. J.

    Ward, Dame Irene

    Eyre, Regnald

    Maydon, Lt.-Cmdr. S. L. C.

    Weatherill, Bernard

    Farr, John

    Mills, Peter (Torrington)

    Webster, David

    Forrest, George

    Mills, Stratton (Belfast, N.)

    Whitelaw, William

    Fraser, Rt. Hn. Hugh (St'fford & Stone)

    Miscampbell, Norman

    Wilson, Geoffrey (Truro)

    Galbraith, Hn. T. G.

    Monro, Hector

    Winstanley, Dr. M. P.

    Gibson-Watt, David

    More, Jasper

    Woodnutt, Mark

    Giles, Rear-Adm. Morgan

    Morrison, Charles (Devizes)

    Worsley, Marcus

    Gilmour, Ian (Norfolk, C.)

    Munro-Lucas-Tooth, Sir Hugh

    Gilmour, Sir John (Fife, E.)

    Murton, Oscar

    TELLERS FOR THE AYES:

    Glover, Sir Douglas

    Nabarro, Sir Gerald

    Mr. George Younger

    Gower, Raymond

    Neave, Airey

    and Mr. David Mitchell

    NOES

    Abse, Leo

    Garrett, W. E.

    Molloy, William

    Albu, Austen

    Ginsburg, David

    Morris, John (Aberavon)

    Alldritt, Walter

    Gourlay, Harry

    Neal, Harold

    Archer, Peter

    Gray, Dr. Hugh

    Newens, Stan

    Atkins, Ronald (Preston, N.)

    Grey, Charles

    Noel-Baker, Francis (Swindon)

    Bacon, Rt. Hn. Alice

    Griffiths, David (Rother Valley)

    Oakes, Gordon

    Barnett, Joel

    Griffiths, Rt. Hn. James (Llanelly)

    Ogden, Eric

    Baxter, William

    Griffiths, Will (Exchange)

    O'Malley, Brian

    Beaney, Alan

    Hale, Leslie (Oldham, W.)

    Oswald, Thomas

    Bence, Cyril

    Hamilton, William (Fife, W.)

    Owen, Will (Morpeth)

    Benn, Rt. Hn. Anthony Wedgwood

    Hannan, William

    Page, Derek (King's Lynn)

    Bennett, James (G'gow, Bridgeton)

    Hazell, Bert

    Pannell, Rt. Hn. Charles

    Binns, John

    Heffer, Eric S.

    Park, Trevor

    Blackburn, F.

    Henig, Stanley

    Parker, John (Dagenham)

    Blenkinsop, Arthur

    Herbison, Rt. Hn. Margaret

    Parkyn, Brian (Bedford)

    Boardman, H.

    Hobden, Dennis (Brighton, K'town)

    Pavitt, Laurence

    Booth, Albert

    Hooley, Frank

    Pentland, Norman

    Bottomley, Rt. Hn. Arthur

    Horner, John

    Perry, George H. (Nottingham, S.)

    Bowden, Rt. Hn. Herbert

    Houghton, Rt. Hn. Douglas

    Price, Christopher (Perry Barr)

    Boyden, James

    Howarth, Harry (Wellingborough)

    Price, Thomas (Westhoughton)

    Braddock, Mrs. E. M.

    Howell, Denis (Small Heath)

    Price, William (Rugby)

    Bradley, Tom

    Howie, W.

    Probert, Arthur

    Brooks, Edwin

    Hoy, James

    Randall, Harry

    Broughton, Dr. A. D. D.

    Hughes, Hector (Aberdeen, N.)

    Rees, Merlyn

    Brown, Rt. Hn. George (Belper)

    Hughes, Roy (Newport)

    Rhodes, Geoffrey

    Brown, Hugh D. (G'gow, Provan)

    Hunter, Adam

    Richard, Ivor

    Brown, Bob (N'c'tle-upon-Tyne, W.)

    Hynd, John

    Roberts, Albert (Normanton)

    Brown, R. W. (Shoreditch & F'bury)

    Irvine, A. J. (Edge Hill)

    Roberts, Gwilym (Bedfordshire, S.)

    Buchan, Norman

    Jackson, Colin (B'h'se & Spenb'gh)

    Robinson, W. O. J. (Walth'stow, E.)

    Buchanan, Richard (G'gow, Sp'burn)

    Rose, Paul

    Callaghan, Rt. Hn. James

    Janner, Sir Barnett

    Ross, Rt. Hn. William

    Cant, R. B.

    Jay, Rt. Hn. Douglas

    Rowlands, E. (Cardiff, N.)

    Carmichael, Neil

    Jeger, George (Goole)

    Shaw, Arnold (Ilford, S.)

    Carter-Jones, Lewis

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Sheldon, Robert

    Coleman, Donald

    Jenkins, Hugh (Putney)

    Shinwell, Rt. Hn. E.

    Concannon, J. D.

    Johnson, Carol (Lewisham, S.)

    Shore, Peter (Stepney)

    Conlan, Bernard

    Jones, Dan (Burnley)

    Short, Rt.Hn. Edward (N'c'tle-u-Tyne)

    Craddock, George (Bradford, S.)

    Jones, Rt. Hn. Sir Elwyn(W. Ham, S.)

    Short, Mrs. Renée (W'hampton, N. E.)

    Crawshaw, Richard

    Jones, J. Idwal (Wrexham)

    Silkin, John (Deptford)

    Cronin, John

    Judd, Frank

    Silkin, S. C. (Dulwich)

    Culten, Mrs. Alice

    Kenyon, Clifford

    Silverman, Julius (Aston)

    Dalyell, Tam

    Kerr, Mrs. Anne (R'ter & Chatham)

    Silverman, Sydney (Nelson)

    Davidson, Arthur (Accrington)

    Lawson, George

    Slater, Joseph

    Davies, G. Elfed (Rhondda, E.)

    Leadbitter, Ted

    Spriggs, Leslie

    Davies, Harold (Leek)

    Ledger, Ron

    Steele, Thomas (Dunbartonshire, W.)

    Davies, Ifor (Gower)

    Lestor, Miss Joan

    Stonehouse, John

    de Freitas, Sir Geoffrey

    Lever, L. M. (Ardwick)

    Thomas, Iorwerth (Rhondda, W.)

    Delargy, Hugh

    Lewis, Arthur (W. Ham, N.)

    Thornton, Ernest

    Dell, Edmund

    Lewis, Ron (Carlisle)

    Tinn, James

    Dempsey, James

    Lomas, Kenneth

    Urwin, T. W.

    Dewar, Donald

    Loughlin, Charles

    Varley, Eric G.

    Diamond, Rt. Hn. John

    Lyon, Alexander W. (York)

    Wainwright, Edwin (Dearne Valley)

    Dickens, James

    McBride, Neil

    Walden, Brian (All Saints)

    Doig, Peter

    McCann, John

    Walker, Harold (Doncaster)

    Donnelly, Desmond

    MacDermot, Niall

    Wallace, George

    Dunn, James A.

    Macdonald, A. H.

    Watkins, David (Consett)

    Dunnett, Jack

    McGuire, Michael

    Wellbeloved, James

    Dunwoody, Mrs. Gwyneth (Exeter)

    Mackenzie, Gregor (Rutherglen)

    Whitaker, Ben

    Dunwoody, Dr. John (F'th & C'b'e)

    Mackie, John

    Whitlock, William

    Eadie, Alex

    Maclennan, Robert

    Williams, Alan (Swansea, W.)

    Edwards, Robert (Bilston)

    MacMillan, Malcolm (Western Isles)

    Williams, Alan Lee (Hornchurch)

    Edwards, William (Merioneth)

    McMillan, Tom (Glasgow, C.)

    Williams, Clifford (Abertillery)

    English, Michael

    McNamara, J. Kevin

    Willis, George (Edinburgh, E.)

    Evans, Albert (Islington, S.W.)

    MacPherson, Malcolm

    Wilson, William (Coventry, S.)

    Evans, loan L.(Birm'h'm, Yardley)

    Mahon, Peter (Preston, S.)

    Winnick, David

    Fletcher, Ted (Darlington)

    Mahon, Simon (Bootle)

    Winterbottom, R. E.

    Foot, Michael (Ebbw Vale)

    Manuel, Archie

    Woodburn, Rt. Hn. A.

    Forrester, John

    Mapp, Charles

    Woof, Robert

    Fowler, Gerry

    Mason, Roy

    Yates, Victor

    Fraser, Rt. Hn. Tom (Hamilton)

    Mendelson, J. J.

    Freeson, Reginald

    Miller, Dr. M. S.

    TELLERS FOR THE NOES:

    Gardner, A. J.

    Mitchell, R. C. (S'th'pton, Test)

    Mr. Alan Fitch

    and Mr. Charles R. Morris.

    8.0 p.m.
    The Temporary Chairman: Before I propose the Question, "That the Clause stand part of the Bill", may I ask the Committee to be so kind as to bear with me for one moment. I am anxious to
    676
    honour the undertaking given by my predecessor that he would allow a debate on this Question, but I am sure that the Committee realises that we have spent a very long time this afternoon discussing the Clause and I most sincerely hope that

    677
    we shall now be favoured with short speeches. I know that the hon. Member for Worcestershire, South (Sir G. Nabarro) has deliberately refrained from speaking in order to have an opportunity to speak on this Question, and I shall certainly call him if he seeks to catch my eye, but I hope that hon. Members will try to make their speeches short in the general interests of the Committee.
    Question proposed, That the Clause stand part of the Bill.
    Mr. Barber: I am sure that hon. Members on both sides of the Committee will be pleased to co-operate in the proposal which you have put, Mr. Grant-Ferris. It is true that we have been debating this Clause for more than four hours. But with great respect the main reason why we have had two such very long debates on these two sets of Amendments is the fact that we had such unsatisfactory answers from the Chief Secretary. It must also be borne in mind that this is a Clause of paramount importance. It merits a much longer debate than that which, I hope, in the general interest, it will have.
    In view of the debates which we have had I propose to curtail what I would otherwise have said. The purpose of the Clause is simple—to abolish completely the whole scheme of investment allowances. As I said earlier, in our view this is a retrograde step. We oppose it and this is why we shall vote against the Clause. The policy is to abolish investment allowances and to replace them by a system of cash grants.
    I shall put the objections to this proposal as briefly as I can. In abolishing investment allowances the Chancellor is, first, abolishing a system which gives industry an investment incentive as of right and he is replacing it with a system which is to be operated at the discretion of officials. Secondly, he is abolishing a system under which industry had the right to appeal to the courts and he is replacing it with a system under which the decision of a Government official is final and unchallengeable. Thirdly, he is abolishing a system in which the cash incentive was linked to profitability and he is replacing it with a system under which the grant of public money is not dependent upon the success of the investment. Fourthly, he is making the change against the advice of industry. Fifthly,
    678
    and most important of all, for most of British industry and commerce the Chancellor is reducing the cash incentive to invest and to modernise.
    When the Government first came to office in October, 1954, most of the leading figures in industry were impressed by the repeated statements of Ministers that a Labour Government would act to encourage the modernisation of industry and would provide the financial incentives to ensure that it happened. They are no longer under any such illusion. The latest industrial trends survey of the C.B.I. forecast an actual decline in investment by manufacturing industry over the next year to 18 months, and today we have the Press notice issued by the Board of Trade—I will not read all of it—which contains this paragraph, after an inquiry into industry's investment intentions:
    "The results of the inquiry suggest that companies both in manufacturing industry and in the distributive and service trades now expect to spend on capital account in 1966 and in 1967 less than they had planned to spend at the end of last year."
    It is against this background that we have to consider the proposal to abolish investment allowances. I do not intend to detain the Committee long, because I spoke at length during a debate on the White Paper which foreshadowed this change and also on Second Reading of the Industrial Development Bill. I will content myself with reminding the Committee that I have given innumerable specific examples of the way in which British industry will be worse off as a result of this change. The figures which I gave were not mine. They were the result of discussions with accountants and tax advisers to some of the leading companies in the country. They were unanimous in their conclusion, and I have again and again asked Ministers, if they disagreed with my figures, to give their own. They have declined to do so, and the reason can be simply stated: the figures which I gave were accurate.
    Let me sum up the financial consequences of this proposal to abolish investment allowances. If the Clause is allowed to pass, the result will be that outside development areas, which account for only one-fifth of manufacturing industry, in every single case, without

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    exception, the cash value of the investment incentive will be much less than under the scheme which the Labour Government inherited.
    In many cases the withdrawal of investment allowances, as we heard in earlier debates this afternoon, is not to be replaced by even the smaller cash grants. The hotel industry is to suffer this blow in addition to the burden of the new Selective Employment Tax, and so are the distributive trades and the transport industry. I remind the Committee that the Amendment on which we voted last proposed to exclude from this Clause and to retain investment allowances for buses and commercial vehicles.
    I shall not weary the Committee with the figures I gave previously about the additional cost to the transport industry, because we had a full debate on that earlier. The consequences in these cases will be twofold, first to slow down improvement in efficiency and, secondly, to increase the cost of living. It is naive in the extreme to pretend that these increased burdens will not be passed on to the public. Neither the First Secretary nor the Chancellor can stop the increases in prices and fares which will follow the increases in costs. They may honestly believe that they can, but no one else in the country believes it.
    The proposal to abolish investment allowances is another instance of the right hon. Gentleman's habit of abandoning one form of taxation and replacing it by another, hastily contrived, the consequences of which have not been thought through. This is a bad proposal which will hinder the modernisation of industry and we shall oppose it.
    Sir G. Nabarro: I am grateful to my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) for surveying so accurately the reason why the whole of my party, I am sure, will unanimously oppose Clause 33. I recall that during the 21 years since the end of the war there have been three systems of capital allowances for industry. The first was introduced by Sir John Anderson when he was Chancellor of the Exchequer at the end of the war. It was a system of initial allowances. I did not very much care for it. It was an interest-free loan, a weighting forward depreciation allowances, which were subsequently recouped
    680
    by the Revenue by a smaller rate of depreciation allowance in each of the succeeding years until the asset became obsolescent and the obsolescence allowance was claimed. So the total of initial allowances, annual depreciation and obsolescence allowance equalled the historical amount of the asset. That was not much of an inducement to investment.
    The Conservative Party in the middle 1950s devised and originated the investment allowance. Although complicated and difficult to compute, it has been singularly successful because the real attraction is that, taking the historical cost of an asset at £100, the investor ultimately recoups a total of £130 in respect of plant, machinery and equipment and £115 in respect of industrial buildings, based upon the investment allowances before their proposed abolition.
    The third attempt at capital allowances was again inaugurated by a Conservative Government in 1963, the cash grant. The cash grant originated in the Local Employment Act, 1963, and in the Finance Act of that year and was confined only to development areas which, along with free depreciation gave an incentive to many firms to migrate, or transmigrate to development areas. I shall not argue the merits or demerits of the two systems of capital allowances compared with cash grants. My right hon. Friend has done that shortly and very accurately. What I am very concerned with is the fact that certain important industries attracted investment allowances and under the system of cash grants, due to proposed abolition of investment allowances under Clause 33, will no longer attract any capital allowances.
    8.15 p.m.
    I refer at once to the hotels and restaurants industry which is at the centre of our country's very large income from tourism. My hon. Friend the Member for Yeovil (Mr. Peyton) touched on this topic during discussion of an earlier Amendment and my right hon. Friend did likewise. This industry comes within the Ministerial ambit of the President of the Board of Trade. I am delighted to see him in his place listening to me. We have often debated these important matters on Finance Bills. I want to put the importance of this industry in correct perspective by giving a few figures.

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    The tourist industry of Great Britain earned last year, in terms of foreign exchange, a sum in excess of £300 million. The earnings of the hotel industry alone were of the order of £120 million, all in foreign exchange. Those are figures issued by the Hotels and Restaurants Association, I believe after consultation with the Treasury. In 1965, 2,165,000 tourists came to Britain, the highest figure in our history. It is estimated by the British Travel Association —a Government-sponsored body, so it is not likely to be inaccurate—that by 1970 4 million tourists will come to Britain and the income in foreign exchange from that great increase in tourism will be of the order of £500 million, all in foreign exchange, compared with £300 million last year.
    This tourist trade will not continue to expand unless Britain is equipped with attractive, comfortable, well furnished hotels offering services, food, wine, and the remainder which are at least equivalent to those of our Continental competitors. I have never decried British hotels. I think they are generally as good as most of their Continental equivalents whether they are town hotels or country hotels. But the building of new hotels is relatively a rarity in Britain and the equipment, re-equipment and modernising of existing hotels is an extremely expensive process.
    I refer to all classes of hotels which attract foreign tourists. It may be the Dorchester, the Savoy, Claridges or Grosvenor House in London——
    The President of the Board of Trade (Mr. Douglas Jay): The Lygon Arms?
    Sir G. Nabarro: I am grateful to the President of the Board of Trade. There is also the Lygon Arms in Broadway, which I believe is the best country hotel in England—[HON. MEMBERS: "Hear, hear."]—I am delighted to have the approbation of both sides of the Committee in this important matter. The proprietor of the Lygon Arms has written me an important letter about the abolition of investment allowances because he is faced with the problem afflicting all hoteliers and restaurateurs today. That is the problem of how to find out of net income without the help of capital allowances a sum sufficient for the reequipment of his hotel or restaurant. Net
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    profits after taxation are generally inadequate to enable him to do so.
    There was a remarkable letter by my hon. Friend the Member for Eastbourne (Sir C. Taylor) in The Times on Wednesday 11th May. My hon. Friend, Chairman, Grosvenor House, Park Lane, W.1, said:
    "For its size, Grosvenor House must be one of the biggest foreign currency earners in British industry. Last year 73·5 per cent. of our room lettings were to visitors from overseas including 56 per cent. from the United States and Canada. We have been disallowed investment allowances"
    under Clause 33 of this Finance Bill, though these are
    "given to other industries as cash grants and now we estimate that the selective employment tax will cost us £80,000 a year directly, in addition to which, of course, all our supplies of food and drink, laundry services, etc. will cost us more. It is less irksome, and probably more profitable, to run a bassoon factory".
    Captain Walter Elliot: Candyfloss.
    Sir G. Nabarro: I am grateful to my hon. Friend. He anticipated my next words. It is more profitable to run an establishment making candy floss, or toffee apples, or bassoons which contribute not a jot or tittle to Britain's balance of payments, our exports or our foreign exchange earnings than it is to run a good hotel.
    I appeal to the Chief Secretary and the President of the Board of Trade that this position should certainly be remedied. I doubt whether the Chief Secretary will be prepared to give any unilateral concessions in respect of the Government's proposal to abolish investment allowances. But the fact is that a hotel earning foreign exchange has capital equipment and re-equipment problems which are exactly analogous to those of an engineering company. The fixed assets installed in a hotel or restaurant for providing for the comfort, food and wines of its guests are as productive, in every sense of the term, as a machine tool is productive. It always seems to me a little incongruous that the Treasury can arrive at the conclusion that the capital equipment of manufacturing industry should attract a cash grant but that the capital equipment of hotels and restaurants which are today derogated to a second-class position as a service industry, should not

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    attract a capital grant: in spite of its fixed assets contributing so largely and directly to foreign earnings.
    This is a form of fiscal discrimination against hotels. This is what the loss of investment incentives will mean to hotels. They will receive no investment allowances as from 16th Janury, 1966, on their cooking equipment and refrigerators; furniture and carpets and soft furnishings; central heating systems, boilers and radiators; basins and baths and plumbing; linen and cutlery; and glass and china. All these fixed assets attracted 130 per cent. of historical cost while the investment allowance was at 30 per cent. I am sorry that the Chief Secretary is frowning. I ill explain further if he wishes me to do so, but I am trying to be brief.
    Mr. Diamond: I am sure that the hon. Gentleman is trying to be brief and I did not want to interrupt him. I always listen very carefully to what he says. He uses words with knowledge and precision. I wondered why he called them all fixed assets.
    Sir G. Nabarro: I am sorry. That is perhaps a contradiction in terms. I would regard a boiler for the central heating system of a hotel as a fixed asset. I would regard a radiator or the plumbing as fixed assets. It might be argued that the furniture, linen, cutlery, glass and china are expendable, consumable assets. I agree that there is a division here. But I am informed—and perhaps the Chief Secretary will correct me if I am wrong —that investment allowances have been given in the hotel industry for linen, glass, china and cutlery, and therefore I am not generally inaccurate in my argument.
    It is estimated that the loss of investment allowances to hotels and restaurants will raise the cost of equipment by 13·6 per cent., assuming Corporation Tax at 40 per cent. This is claimed to be a figure of material significance in the future arrangements of the industry.
    I realise that the Chief Secretary will feel disinclined to ameliorate in any way, by unilateral relief, the withdrawal of investment allowances in respect of the assets of hotels and restaurants. But the presence of the President of the Board of Trade this evening gives me a little
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    inspiration and hope for the future. I am glad to see him nodding assent. As an old friend of mine, although he and I have differences in politics, we have often found a wide measure of agreement on economic and financial matters. I say to him that the restaurant and hotel industry—tourism generally—should have his special attention during the next few months to see how he can replace what was formally a financial and fiscal benefit to the hotel and restaurant industry in the form of investment allowances, by some other kind of financial aid, be it cash grants, as in productive and manufacturing industry, or otherwise.
    It is not without significance that Mr. Egon Ronay, known to the majority of us in the Committee for his excellent advice on hotels, restaurants, fine food and choice wines—[HON. MEMBERS: "Oh."] I am almost a teetotaller and therefore not a connoisseur of wines. But I recognise that Mr. Egon Ronay is well informed in these matters. He wrote in the Daily Telegraph a few days ago:
    "I am appalled by the deterioration in the economic situation of the hotel and catering industry. Sixteen inspectors of my organisation, nearing the end of another year's research into many thousands of establishments, unanimously report a most alarming difference between their findings 12 months ago and now … One of our most important export industries"
    is—
    "inexplicably—…a stepchild"
    of this Government.
    "Politically it has always been much too well behaved. As a reward it was penalised by the short-sighted abolition of expense account allowances, resulting in a frightening reduction in takings even in many … small establishments. Plans for new hotels"
    are now
    "shelved by giant groups because of the Chancellor's stubbornness in disallowing new buildings for capital allowances, whereas factories get this benefit. Even the hitherto accepted investment allowance on equipment"
    has now been stopped. Mr. Ronay goes on to talk about the coup de grâce —the payroll tax.
    There is no doubt that the combination of those three factors—I apologise for straying slightly from the context of the Clause—the cancellation under Clause 33 of the investment allowances, the swingeing effect on the hotel and restaurant industry of the Selective Employment Tax, and the stringent

    685
    rules in regard to business entertainment expenses and the taxation of them, have all had a most damaging effect on British hotels and restaurants.
    For the reasons I have given, I oppose the Clause. I believe that it will react extremely detrimentally upon the proceeds and earnings of foreign exchange from tourism in Britain. I appeal to the right hon. Gentleman to try to ameliorate, to use his own term, this position in concert with his right hon. Friend the President of the Board of Trade by giving further consideration to my words tonight, pleading for fiscal help for hotels and restaurants.
    8.30 p.m.
    Sir John Eden: I strongly support what has been said by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro). One of the worst features of the proposal in Clause 33 is that under the new system officials at the Board of Trade will be allowed a fairly wide discretion. The old system was mandatory on the Inland Revenue. The new system is at the discretion of officials. Civil servants will have to consider each claim for a grant and pay it if they think fit. There will be more work for civil servants, there will probably have to be more civil servants, and there will certainly be more uncertainty for businessmen generally. In addition, everyone in the Committee shares the concern expressed by my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) that anyone aggrieved by a decision of these officials has no course open to him for appeal.
    There is an arbitrary discrimination against service industries. The new grants are to apply only to firms carrying out manufacturing processes. They are not to apply to services or distributive trades. Left out of the scheme altogether are transport, shops, hotels and catering.
    My hon. Friend has gone in some detail and with great care into the position of the hotel trade and the Committee will not expect me to repeat what he said, but it is important to emphasise one or two points. Up to January this year, as he said, there were hotels receiving investment allowances which actively, to my knowledge, encouraged many improvements and extensions in our hotels. The
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    loss of these investment allowances will raise considerably the cost to the hotel trade of its necessary equipment. It will certainly have a restrictive effect upon new hotel starts, upon the construction of new hotel buildings. As I have seen already in my own constituency, these proposals have had a retarding effect upon the extension of existing premises and upon the plans which hoteliers have already had for the further modernisation of their premises.
    Why are both shipping and airlines to be exempt from the effects of the Selective Employment Tax and not to be subject to the withdrawal of the investment allowances while the hotel industry is to be subject to both these penalties? Cannot the Chief Secretary see that the hotel industry is just as important in this context as are the shipping and airline concerns? He must realise that foreign currency coming to this country is not attracted here solely by virtue of the transport facilities which are offered. Neither do people coming here stop at the point of arrival. They disperse to areas outside London and travel throughout the country.
    Everywhere now, at this time of the year, the pressure of visitors from overseas is being felt and the demand for hotel places throughout the country is very great. As the standard of living improves, so the standard of demand for services rises. The Chief Secretary may believe that this in itself is a sufficient pressure to stimulate the industry to make whatever improvement, may be deemed necessary to retain existing customers and attract new ones. I wonder whether he fully understands the tremendous sense of frustration which many hoteliers now feel as a result of the Government's proposals and the way in which it appears to them, understandably, that their industry is picked out for the most unfair and discriminatory treatment. The hotel industry is just as important as the others I have mentioned, and I should have thought that the Government, in view of the foreign currency earnings record of the industry, were equally well aware of its importance.
    It is no good the President of the Board of Trade paying lip-service to the industry. What it needs is practical support, positive help and encouragement. The Minister of Technology is the sponsor

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    for a large number of industries. I would say, without in any way being unfair, I hope, to the President of the Board of Trade, that if the Minister of Technology looks after the interests of the industries for which his is the sponsoring Department with the same lack of care as appears to be the case with the hotel industry by the President of the Board of Trade, the country is in for a most unpleasant experience.
    I very much support my right hon. Friend's strong opposition to the Clause. The new system is discriminatory. It should certainly not be seen in isolation from the Government's other proposals in the Bill. Together with the Selective Employment Tax, the proposals in Clause 33 make a formidable onslaught against certain sections of private industry and private enterprise. This appears to be a deliberate act on the part of the Government. I cannot see that any positive encouragement to modernisation is given by the removal of the old investment allowances and their replacement by the new system.
    The right hon. Gentleman has a duty to defend the proposals and show exactly how it is that they will benefit our economy. As they stand, and as they are applied to certain special industries, particularly the hotel industry, they are grotesquely distorting and unfair, and I shall join my right hon. and hon. Friends in opposing them.
    Mr. Gower: I want to ask the Chief Secretary what is the reason for the animus of the Government against the hotel and catering industry? My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) gave some very fair illustrations of the value of the industry to the economy and included a graphic quotation from a letter from my hon. Friend the Member for Eastbourne (Sir C. Taylor) showing how one hotel is contributing enormously, in proportion to its size, to the export earnings of the country.
    That contribution is not, of course, limited to one hotel. We have seen the figures produced by a number of groups in London. I am informed that the percentage of foreign exchange earnings in room charges alone by Associated Hotels is 40 per cent., by Grand Metropolitan
    688
    Hotels, 55 per cent., by the Lyons group, 48 per cent., and by the Savoy group, 73 per cent. The right hon. Gentleman should reflect that, in some ways, this is an even stronger case than my hon. Friend the Member for Worcestershire, South adduced so forcibly.
    In the case of physical, manufactured goods, there is the job of finding an overseas purchaser and conveying the goods overseas. In the case of the tourist industry, we merely have to provide here the services which the visitors need. In a sense the industry delivers the goods more directly than do the manufacturing industries. Indeed, it does not make the demands that many manufacturing industries do on imported raw materials. In most cases, the product is native, with the tourists coming to see the country. Many stay in London, but now tourists are beginning to visit other parts of the country. We want to encourage them to travel more widely in Britain.
    One would have thought that the Secretaries of State for Scotland and Wales—[HON. MEMBERS: "Where are they?"]—yes, where are they?—would have resigned because of the vital importance of tourism to the economies of Scotland and Wales, as, indeed, it is important to the economies of Ulster and of the Lake District and other parts of England.
    Some of those parts of the country which do not have heavy industry and perhaps not as much agricultural wealth as other parts rely enormously on the growth of tourism. But Government policy seems to be directed to the destruction of the tourist industry. Perhaps those are extravagant words, but this is an astonishing commentary on what has happened.
    My hon. Friend the Member for Worcestershire, South said that hotels must provide reasonable and good quality food, good wines and so on. They also must provide better public rooms—better lounges—than do hotels in most competing countries because of the peculiarity of our climate. We have the sort of climate which demands better lounges, reading rooms and television rooms in our hotels more than is the case in Italy, France and Spain, whose tourist industries get magnificent help from their Governments.

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    The Government have gravely underestimated the importance of tourism to the economy—and I am sure that the only Liberal here, the hon. Member for Inverness (Mr. Russell Johnston), will testify to the importance of tourism to Scotland as well as to other parts of the country.
    Mr. Russell Johnston indicated assent.
    8.45 p.m.
    Mr. Gower: Reverting to the broader question of the abandonment of investment allowances and the substitution of the new cash grants; in some respects, this is a very sombre occasion, a sad occasion. The Government are moving in completely the wrong direction. In the combination of investment allowances and cash grants in the development areas and free depreciation in certain areas, we had evolved a splendid system which needed only some modification to fulfil most of the requirements which could be foreseen for it.
    But the Government have chosen to abandon a system which over a number of years had been well tried and which was giving increasing satisfaction in all parts of the country, and they have substituted for it a system of cash grants. One of the reasons is that the new system will be much cheaper to them in the long run.
    Mr. Diamond Mr. Diamond indicated dissent.
    Mr. Gower: Considerably cheaper.
    Mr. Diamond Mr. Diamond indiciated dissent.
    Mr. Gower: The right hon. Gentleman shakes his head, but we cannot say, because it will be at the discretion of officials in the Board of Trade.
    Under the old system, if a company came within certain qualifying rules, it qualified for grant. Under the new system, the Board of Trade will make the decision and a certain company with very good qualities might not get the grant which it had under the old system. As has been pointed out, the whole system of the cash grants has been narrowed and will not obtain in certain industries. Many hon. Members have referred to the tourist industry, but there are other ser-
    690
    vice industries to which the new grants will not apply.
    It would have been more difficult for the Government to reduce investment allowances. That would have been a much more positive political action which might have led to much more serious criticism. But to abandon the old system and bring in a new throws a veil of uncertainty over the whole operation. The former system, which was not based on the discretion of the Board of Trade, had manifest advantages in that respect.
    To replace a system based on established profitability by one which is not is open to some criticism. To remove the right of appeal which existed under the old system is a bad step. One feels that the operation has been conducted hastily and without due consideration for all possible consequences. I hope that the right hon. Gentleman and his colleagues have not entirely closed their minds to extending the new grants at least to industries which are now excluded, and that if they have closed their minds to any retention of the system of investment allowances, they have not equally closed them against those industries. I will not ask the right hon. Gentleman to give that assurance now, but it would be encouraging if we could hear some indication that the minds of right hon. Gentlemen are not entirely closed on this matter which is of great consequence.
    It would be wrong of me and I would be ruled out of order if I embarked on a detailed examination of the justification for the distinction between service and manufacturing industries which seems to motivate the Government's thinking, not only in this respect, but with the Selective Employment Tax. I would only say in passing that, as an economy becomes more sophisticated and as the standard of living in any country increases, these service industries, not least the tourist industry, become more and more important.
    It is folly for a Government in such a country to suggest that they are of some inferior standard and that there is some superior merit in certain manufacturing industries. For those reasons I reiterate the misgivings which have already been expressed by my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) on the general principle, and the more specialised misgivings which

    691
    have been expressed by my hon. Friend the Member for Worcestershire, South on the question of the tourist and holiday industries.
    Mr. Diamond: The Government have done, and are doing, a number of things to encourage investment and efficient and increased production. They recognise that they have the supremely important task of increasing investment and efficiency so that we shall do what we have not yet succeeded in doing—earn our living as a country. One of the important steps which we took last year was the introduction of Corporation Tax, to give the greatest possible inducement to companies to plough back their profits by way of increased investment so as to achieve increased productivity.
    The second method that we are adopting is to change the form of investment incentive after studying all the available evidence from the most authoritative sources. I am grateful to the hon. Gentleman the Member for Worthing (Mr. Higgins) for having confirmed as recently as this afternoon that business firms, not the best, not the most advanced, but large numbers of important business firms, were insufficiently aware of the benefits of the investment allowances, and the incentive was failing in its effect.
    We therefore adopted a new method, which is in the process of being legislated so as to give the most direct form of incentive to businessmen, namely, a cash incentive. I would suggest that there is no more readily understood incentive in business than cash. I recognise that we are in the opening stages and have an 18 months delay with which to cope. This is a transitional problem which has to be taken into account. As the right hon. Gentleman the Member for Altrincham and Sale (Mr. Barber) said, this matter has been discussed in principle both on the White Paper and on the Industrial Development Bill.
    The details of the Bill are being discussed now and the associated problem of the Selective Employment Tax is going to be discussed both on a Clause in the Finance Bill which we have not yet reached and again on the Second Reading of the Bill. I fully recognise that there are these associated problems, and that
    692
    there are good reasons why one does not want to repeat, ad nauseam, arguments of principle.
    It is clear that, whereas there has been widespread acceptance of the principle of a new and more direct form of investment incentive, there has been some dissatisfaction with the concentration of that investment incentive in certain areas. Why has there been some dissatisfaction? The answer lies in the simplest rule that every politician knows from the moment he puts himself up for election in the most modest rural district council—that, whatever one does in public life which concentrates or differentiates, one is bound to get silent approval from those who benefit and outspoken criticism from those who do not. This is always the case. It does not mean that one is without sympathy, or that it is not a proper democratic process that those who are put at a disadvantage should make their views fully known.
    That is why I am here listening very carefully to everything that is being said on this topic. It is right that it should be understood that what is causing the dissatisfaction is not so much the new method but its concentration. As the hon. Member for Barry (Mr. Gower) and other hon. Members have said, it is the differentiation between one kind of activity and another, with disadvantage to the particular activity which one happens to be promoting at a given moment.
    The right hon. Member for Altrincham and Sale asserted that in appropriate cases, where there is substitution of an investment grant for investment allowance, there is no benefit to the taxpayer. The right hon. Gentleman asked for the figures. My right hon. Friend the President of the Board of Trade gave the figures in a long Written Answer which is set out in cols 279–80 of HANSARD for 1st March, 1966. If the Committee will forgive me, I will read out just two of the figures. The figures I refer to are on a cash recovery discounted at 7 per cent.—a discounted cash flow basis—one under the investment allowance system and the other under the investment grant system. Under the investment allowance system for the nation as a whole—that is, not development districts—the figure is £39·43 per £100 invested; under the investment grant system the figure was £41·38. This is a small improvement. In development districts, under the old system the figure was

    693
    £51·92. Under the new system, the figure is £55·20. That is a more marked advantage.
    Mr. Barber: All the protests which have come to me from industrialists have been to the effect that the cash value has been reduced as between the system which existed in October, 1964, when the Labour Party came to power, and the system which is now proposed. In other words, the true contrast—I have repeatedly asked for figures on this—is between the system before Corporation Tax with investment allowances and the system under Corporation Tax at 49 per cent. with a system of cash grants. These are the figures we want.
    Mr. Patrick Jenkin: I am obliged to my right hon. Friend for giving way. Will he say——
    Mr. Diamond: We shall get a little out of order if the hon. Gentleman continues, because I gave way only to the right hon. Member for Altrincham and Sale. I therefore hope that I shall be allowed to continue. I have been as helpful as I can in giving figures asked for by the right hon. Gentleman and which my right hon. Friend has supplied.
    Mr. Barber: No.
    Mr. Diamond: I can only repeat that my right hon. Friend is satisfied that there is a fair comparison. It comes within his responsibility, and I share his view.
    Mr. Barber: We are not satisfied. I want to make this absolutely clear, as I and my hon. Friends have done time and time again.
    Mr. Diamond: Where?
    Mr. Barber: On Second Reading of the Industrial Development Bill, I gave a set of figures—I invite the right hon. Gentleman's attention to column 963 of HANSARD for 16th May, 1966—which I have checked with two chartered accountants and which were provided for me by a leading tax adviser of one of the biggest companies in the United Kingdom. They agree these figures on the most modern and sophisticated methods of discounted cash flow. They are all in entire agreement. I have asked again and again that, if any member of the Gov-
    694
    ernment disagrees with these figures, he should give me his figures on the basis I have clearly set out. I have clearly asked for these figures. We cannot get them.
    Mr. Diamond: The right hon. Gentleman is not saying that I am not giving him the figures. He is saying that he does not accept them.
    Mr. Barber: No.
    Mr. Diamond: The right hon. Gentleman is saying that he does not accept these figures as being the relevant figures for the purpose of the true comparison which he seeks to draw. He has said that this matter has been debated. That was the only reason for my asking "Where?"
    In fact, this matter has been debated many times. Therefore, I hope that I shall not be accused of discourtesy if I feel, as it has been debated many times, that we do not have to go over it so many times again. I am only too anxious to answer the questions put to me, but I feel that perhaps we coud make faster progress if we debated each proposition on the relevant Bill. We are dealing with three separate Bills.
    Mr. Gower Mr. Gower rose ——
    Mr. Diamond: Does the hon. Gentleman feel that he must intervene?
    Mr. Gower: Yes. To take a slightly different assessment, some time ago I asked a Parliamentary Question. It is my recollection that the information I received indicated that the cost of investment allowances globally for the last year for which figures are available would have been less had they been in the form of the new cash grant.
    Mr. Diamond: I will repeat the figures, if necessary. They are on the record in HANSARD for 1st March. They show the comparison in the most relevant way.
    Clearly, the Committee has been concerned not only with the general problem of discrimination, namely, the concentration of investment allowances in certain sectors. It has been concerned—the hon. Member for Worcestershire, South (Sir G. Nabarro) made an interesting speech on this topic—in particular with the hotel industry and its relationship to travel and

    695
    tourism. The hon. Member for Worcestershire, South gave us many detailed figures with regard to the application of the investment allowance. I was discourteous enough to ask the hon. Gentleman to reconsider whether he was correctly calling them fixed assets. The hon. Gentleman shared my view that these were not really fixed assets. Therefore, the hon. Gentleman understands that it is possible to take the view that the extension of the investment allowance to knives, forks, spoons, teacloths and so on, was unexpected.
    Indeed, this has been the case. Investment allowances have been galloping along and covering a wider and wider area. If we had retained the system of investment allowances, any Government would have had to take some very severe measures to restrict the application of investment allowances in the way which the legislature and the Conservative Government originally intended but which was not being interpreted in that way in the courts and elsewhere. The comparison is not with the present application of investment allowances but with what was originally intended, and if there is a sudden change, it is felt. When each year one has been adding to the number of assets attracting the investment allowance, and in one year there is a sudden change, it is felt.
    9.0 p.m.
    Sir G. Nabarro: I accept that there is common ground between us here. The equipping of hotels contains items which are fixed assets and capital equipment in the true sense of the word—the boiler for the central heating or the refrigerator in the kitchen. But there are also all those marginal items such as knives, forks, spoons, cutlery and carpets. Surely the right hon. Gentleman is not telling the Committee that the reason for excluding the capital equipment of hotels is the existence of these marginal items.
    Mr. Diamond: Of course not. I was telling the Committee—and this is why I used precise words—that had the system not been altered it would nevertheless have been necessary for any Government to take steps to limit the application of investment allowances because of the way in which it had been widening and in which it had been applied over the most extraordinary items—much more extraordinary than knives, forks and spoons in the hotel industry. Every practitioner in this field is aware of what has been happening. This is why in certain cases the comparison is more acutely felt than would otherwise have been the case.
    Those who are interested in the hotel industry and particularly in tourism know that the combination of all the acts which have been referred to create a problem for tourism. The President of the Board of Trade is fully aware of that and he is at the moment engaged in discussions with the British Travel Association to see to what extent amelioration—the hon. Gentleman asked me to use that word—can take place. It is too early to say anything more than to advise the Committee that we are aware of the problem and are in the process of discussing it.
    Inasmuch as the debates on the principle of the Clause have already taken place on several other occasions, and the details have been discussed in the very lengthy debates which we had on the Amendments, I hope that the Committee will now feel that we have had a very good discussion on the Clause and can come to a conclusion.
    The Treasurer of Her Majesty's Household (Mr. John Silkin)The Treasurer of Her Majesty's Household (Mr. John Silkin) rose in his place and claimed to move, That the Question be now put.
    Question put, That the Question be now put:—
    The Committee divided: Ayes 213, Noes 138.

    Division No. 48.]

    AYES

    [9.5 p.m

    Alldritt, Walter

    Blenkinsop, Arthur

    Brown, Bob (N'c'tle-upon-Tyne, W.)

    Archer, Peter

    Boardman, H.

    Brown, R. W. (Shoreditch & F'bury)

    Atkins, Ronald (Preston, N.)

    Booth, Albert

    Buchan, Norman

    Bacon, Rt. Hn. Alice

    Bottomley, Rt. Hn. Arthur

    Buchanan, Richard (C'gow, Sp'burn)

    Barrett, Joel

    Bowden, Rt. Hn. Herbert

    Callaghan, Rt. Hn. James

    Baxter, William

    Boyden, James

    Cant, R. B.

    Beaney, Alan

    Braddock, Mrs. E. M.

    Carmichael, Neil

    Bence, Cyril

    Bradley, Tom

    Carter-Jones, Lewis

    Benn, Rt. Hn. Anthony Wedgwood

    Brooks, Edwin

    Coleman, Donald

    Bennett, James (G'gow, Bridgeton)

    Broughton, Dr. A. D. D.

    Concannon, J. D.

    Binns, John

    Brown, Rt. Hn. George (Belper)

    Conlan, Bernard

    Blackburn, F.

    Brown, Hugh D. (G'gow, Provan)

    Craddock, George (Bradford S.)

    Crawshaw, Richard

    Hynd, John

    Pannell, Rt. Hn. Charles

    Cronin, John

    Irvine, A. J. (Edge Hill)

    Park, Trevor

    Cullen, Mrs. Alice

    Jackson, Colin (B'h'se & Spenb'gh)

    Parker, John (Dagenham)

    Dalyell, Tam

    Janner, Sir Barnett

    Parkyn, Brian (Bedford)

    Darling, Rt. Hn. George

    Jay, Rt. Hn. Douglas

    Pavltt, Laurence

    Davidson, Arthur (Accrington)

    Jeger, George (Goole)

    Pentland, Norman

    Davies, C. Elfed Rhondda, E.)

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Perry, George H. (Nottingham, S.)

    Davies Harold (Leek)

    Jenkins, Hugh (Putney)

    Price, Christopher (Perry Barr)

    de Freitas, Sir Geoffrey

    Johnson, Carol (Lewisham, S.)

    Price, Thomas (Westhoughton)

    Delargy, Hugh

    Jones, Dan (Burnley)

    Price, William (Rugby)

    Dell, Edmund

    Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)

    Randall, Harry

    Dempsey, James

    Jones, J. Idwal (Wrexham)

    Redhead, Edward

    Dewar, Donald

    Judd, Frank

    Rees, Merlyn

    Diamond, Rt. Hn. John

    Kenyon, Clifford

    Rhodes, Geoffrey

    Dickens, James

    Kerr, Mrs. Anne (R'ter & Chatham)

    Richard, Ivor

    Doig, Peter

    Lawson, George

    Roberts, Albert (Normanton)

    Donnelly, Desmond

    Leadbitter, Ted

    Roberts, Gwilym (Bedfordshire, S.)

    Dunn, James A.

    Ledger, Ron

    Robinson, W. O. J. (Walth'stow, E.)

    Dunnett, Jack

    Lestor, Miss Joan

    Rose, Paul

    Dunwoody, Mrs. Gwyneth (Exeter)

    Lever, L. M. (Ardwick)

    Ross, Rt. Hn. William

    Dunwoody, Dr. John (F'th & C'b'e)

    Lewis, Arthur (W. Ham, N.)

    Rowlands, E. (Cardiff, N.)

    Eadie, Alex

    Lewis, Ron (Carlisle)

    Shaw, Arnold (Ilford, S.)

    Edwards, Robert (Bilston)

    Lomas, Kenneth

    Sheldon, Robert

    Edwards, William (Merioneth)

    Loughlin, Charles

    Shinwell, Rt. Hn. E.

    English, Michael

    Lyon, Alexander W. (York)

    Shore, Peter (Stepney)

    Evans, Ioan L. (Birm'h'm, Yardley)

    Lyons, Edward (Bradford, E.)

    Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

    Faulds, Andrew

    McCann, John

    Short, Mrs. Renée (W'hampton, N. E.)

    Fletcher, Ted (Darlington)

    MacDcrmot, Niall

    Silkin, John (Deptford)

    Foot, Michael (Ebbw Vale)

    Macdonald, A. H.

    Silkin, S. C. (Dulwich)

    Forrester, John

    McGuire, Michael

    Silverman, Julius (Aston)

    Fowler, Gerry

    Mackenzie, Gregor (Rutherglen)

    Slater, Joseph

    Fraser, Rt. Hn. Tom (Hamilton)

    Mackie, John

    Spriggs, Leslie

    Freeson, Reginald

    Mackintosh, John P.

    Steele, Thomas (Dunbartonshire, W.)

    Gardner, A. J.

    Maclennan, Robert

    Stonehouse, John

    Garrett, W. E.

    MacMillan, Malcolm (Western Isles)

    Thomas, Iorwerth (Rhondda, W.)

    Ginsburg, David

    McMillan, Tom (Glasgow, C.)

    Thornton, Ernest

    Gourlay, Harry

    McNamara, J. Kevin

    Tinn, James

    Gray, Dr. Hugh (Yarmouth)

    MacPherson, Malcolm

    Urwin, T. W.

    Grey, Charles

    Mahon, Peter (Preston, S.)

    Varley, Eric G.

    Griffiths, David (Rother Valley)

    Mahon, Simon (Bootle)

    Wainwright, Edwin (Dearne Valley)

    Griffiths, Ft. Hn. James (Llanelly)

    Manuel, Archie

    Walden, Brian (All Saints)

    Griffiths, Will (Exchange)

    Mapp, Charles

    Walker, Harold (Doncaster)

    Hale, Leslie (Oldham, W.)

    Marsh, Rt. Hn. Richard

    Wallace, George

    Hamilton, William (Fife, W.)

    Mason, Roy

    Watkins, David (Consett)

    Hannan, William

    Mendelson, J. J.

    Wellbeloved, James

    Hazell Bert

    Miller, Dr. M. S.

    Whitaker, Ben

    Hoffer, Eric S.

    Mitchell, R. C. (S'th'pton, Test)

    Whitlock, William

    Henig, Stanley

    Molloy, William

    Williams, Alan (Swansea, W.)

    Herbison, Rt. Hn. Margaret

    Morris, Charles R. (Openshaw)

    Williams, Alan Lee (Hornchurch)

    Hobden, Dennis (Brighton, K'town)

    Morris, John (Aberavon)

    Williams, Clifford (Abertillery)

    Hooley, Frank

    Neal, Harold

    Willis, George (Edinburgh, E.)

    Horner, John

    Newens, Stan

    Wilson, William (Coventry, S.)

    Houghton, Rt. Hn. Douglas

    Noel-Baker, Francis (Swindon)

    Winnick, David

    Howarth, Harry (Wellingborough)

    Oakes, Gordon

    Winterbottom, R. E.

    Howell, Denis (Small Heath)

    Ogden, Eric

    Woodburn, Rt. Hn. A.

    Howie, W.

    O'Malley, Brian

    Woof, Robert

    Hoy, James

    Oram, Albert E.

    Yates, Victor

    Hughes, Hector (Aberdeen, N.)

    Oswald, Thomas

    Hughes, Roy (Newport)

    Owen, Will (Morpeth)

    TELLERS FOR THE AYES:

    Hunter, Adam

    Page, Derek (King's Lynn)

    Mr. Alan Fitch and

    Mr. Neil McBride.

    NOES

    Alison, Michael (Barkston Ash)

    Cary, Sir Robert

    Gibson-Watt, David

    Allason, James (Hemel Hempstead)

    Clegg, Walter

    Giles, Rear-Adm, Morgan

    Atkins, Humphrey (M't'n & M'd'n)

    Cooke, Robert

    Gilmour, Ian (Norfolk, C.)

    Awdry, Daniel

    Cooper-Key, Sir Neill

    Gilmour, Sir John (Fife, E.)

    Baker, W. H. K.

    Corfield, F. V.

    Glover, Sir Douglas

    Barber, Rt. Hn. Anthony

    Costain, A. P.

    Gower, Raymond

    Batsford, Brian

    Craddock, Sir Beresford (Spelthorne)

    Grant, Anthony

    Beamish, Col. Sir Tufton

    Dalkeith, Earl of

    Cresham Cooke, R.

    Bell, Ronald

    Dance, James

    Grieve, Percy

    Bennett, Sir Frederic (Torquay)

    Davidson, James (Aberdeenshire, W.)

    Grimond, Rt. Hn. J.

    Birch, Rt. Hn. Nigel

    Digby, Simon Wingfield

    Hall, John (Wycombe)

    Blaker, Peter

    Dodds-Parker, Douglas

    Hall-Davis, A. C. F.

    Bossom, Sir Clive

    Doughty, Charles

    Harris, Reader (Heston)

    Boyd-Carpenter, Rt. Hn. John

    Eden, Sir John

    Harrison, Brian (Maldon)

    Bryan, Paul

    Elliot, Capt. Walter (Carshalton)

    Hawkins, Paul

    Buchanan-Smith, Alick (Angus, N&M)

    Elliott, R. W. (N'c'tle. upon. Tyne, N.)

    Heseltine, Michael

    Buck, Antony (Colchester)

    Eyre, Reginald

    Higgins, Terence L.

    Bullus, Sir Eric

    Farr, John

    Hiley, Joseph

    Burden, F. A.

    Fraser, Rt. Hn, Hugh (St'fford & Stone)

    Hill, J. E. S.

    Carlisle, Mark

    Galbraith, Hn. T. G.

    Hirst, Geoffrey

    698

    699

    Hobson, Rt. Hn. Sir John

    Mitchell, David (Basingstoke)

    Smith, John

    Holland, Philip

    Monro, Hector

    Stodart, Anthony

    Hooson, Emlyn

    Morgan, W. G. (Denbigh)

    Stoddart-Scott, Col. Sir M. (Ripon)

    Hornby, Richard

    Morrison, Charles (Devizes)

    Summers, Sir Spencer

    Howell, David (Guildford)

    Munro-Lucas-Tooth, Sir Hugh

    Taylor, Sir Charles (Eastbourne)

    Hunt, John

    Murton, Oscar

    Taylor, Frank (Moss Side)

    Hutchison, Michael Clark

    Nabarro, Sir Gerald

    Temple, John M.

    Jenkin, Patrick (Woodford)

    Neave, Airey

    Thatcher, Mrs. Margaret

    Johnston, Russell (Inverness)

    Orr-Ewing, Sir Ian

    Tilney, John

    Jopling, Michael

    Page, Graham (Crosby)

    Turton, Rt. Hn. R. H.

    Kaberry, Sir Donald

    Pardoe, J.

    van Straubenzee, W. R.

    Kershaw, Anthony

    Pearson, Sir Frank (Clitheroe)

    Vaughan-Morgan, Rt. Hn. Sir John

    Kitson, Timothy

    Peel, John

    Vickers, Dame Joan

    Knight, Mrs. Jill

    Percival, Ian

    Wainwright, Richard (Colne Valley)

    Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)

    Peyton, John

    Walker, Peter (Worcester)

    Lloyd, Ian (P'tsm'th, Langstone)

    Pink, R. Bonner

    Walker-Smith, Rt. Hn. Sir Derek

    Loveys, W. H.

    Pounder, Rafton

    Ward, Dame Irene

    Lubbock, Eric

    Powell, Rt, Hn. J. Enoch

    Weatherill, Bernard

    Macleod, Rt. Hn. Iain

    Prior, J. M. L.

    Webster, David

    Macmillan, Maurice (Farnham)

    Ramsden, Rt. Hn. James

    Wilson, Geoffrey (Truro)

    Maddan, Martin

    Renton, Rt. Hn. Sir David

    Winstanley, Dr. M. P.

    Maginnis, John E.

    Ridsdale, Julian

    Woodnutt, Mark

    Maxwell-Hyslop, R. J.

    Rossi, Hugh (Hornsey)

    Worsley, Marcus

    Maydon, Lt.-Cmdr. S. L. C.

    Scott, Nicholas

    Younger, Hn. George

    Mills, Peter (Torrington)

    Sharples, Richard

    Mills, Stratton (Belfast, N.)

    Shaw, Michael (Sc'b'gh & Whitby)

    TELLERS FOR THE NOES:

    Miscampbell, Norman

    Sinclair, Sir George

    Mr. Francis Pym and

    Mr. Jasper More.

    Question put accordingly, That the Clause stand part of the Bill:—
    The Committee divided: Ayes 211, Noes 138.

    Division No. 49.]

    AYES

    [9.14 p.m.

    Alldritt, Walter

    Diamond, Rt. Hn. John

    Irvine, A. J. (Edge Hill)

    Archer, Peter

    Dickens, James

    Jackson, Colin (B'h'se & Spen'gh)

    Atkins, Ronald (Preston, N.)

    Doig, Peter

    Janner, Sir Barnett

    Bacon, Rt. Hn. Alice

    Donnelly, Desmond

    Jay, Rt. Hon. Douglas

    Barnett, Joel

    Dunn, James A.

    Jeger, George (Goole)

    Baxter, William

    Dunnett, Jack

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Beaney, Alan

    Dunwoody, Mrs. Gwyneth (Exeter)

    Jenkins, Hugh (Putney)

    Bence, Cyril

    Dunwoody, Dr. John (F'th & C'b'e)

    Johnson, Carol (Lewisham, S.)

    Benn, Rt. Hn. Anthony Wodgwood

    Eadie, Alex

    Jones, Dan (Burnley)

    Bennett, James (G'gow, Bridgeton)

    Edwards, Robert (Bilston)

    Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)

    Binns, John

    Edwards, William (Merioneth)

    Jones, J. Idwal (Wrexham)

    Blackburn, F.

    English, Michael

    Judd, Frank

    Blenkinsop, Arthur

    Evans, Ioan L. (Birm'h'm, Yardley)

    Kenyon, Clifford

    Boardman, H.

    Faulds, Andrew

    Kerr, Mrs. Anne (R'ter & Chatham)

    Booth, Albert

    Fitch, Alan (Wigan)

    Lawson, George

    Bottomley, Rt. Hn. Arthur

    Fletcher, Ted (Darlington)

    Leadbitter, Ted

    Bowden, Rt. Hn. Herbert

    Foot, Michael (Ebbw Vale)

    Ledger, Ron

    Boyden, James

    Forrester, John

    Lestor, Miss Joan

    Braddock, Mrs. E. M.

    Fowler, Gerry

    Lever, L. M. (Ardwick)

    Bradley, Tom

    Fraser, Rt. Hn. Tom (Hamilton)

    Lewie, Arthur (W. Ham, N.)

    Brooks, Edwin

    Freeson, Reginald

    Lewis, Ron (Carlisle)

    Broughton, Dr. A. D. D.

    Gardner, A. J.

    Lomas, Kenneth

    Brown, Rt. Hn. George (Belper)

    Garrett, W. E.

    Loughlin, Charles

    Brown, Hugh D. (G'gow, Provan)

    Ginsburg, David

    Lyon, Alexander W. (York)

    Brown, Bob (N'c'tle-upon-Tyne, W.)

    Gourlay, Harry

    Lyons, Edward (Bradford, E.)

    Brown, R. W. (Shoreditch & F'bury)

    Gray, Dr. Hugh (Yarmouth)

    McCann, John

    Buchan, Norman

    Grey, Charles (Durham)

    MacDermot, Niall

    Buchanan, Richard (G'gow, Sp'burn)

    Griffiths, David (Rother Valley)

    Macdonald, A, H.

    Callaghan, Rt. Hn. James

    Griffiths, Rt. Hn. James (Llanelly)

    Mackenzie, Gregor (Rutherglen)

    Cant, R. B.

    Griffiths, Will (Exchange)

    Mackie, John

    Carmichael, Neil

    Hale, Leslie (Oldham, w.)

    Mackintosh, John P.

    Carter-Jones, Lewis

    Hamilton, William (Fife, W.)

    Maclennan, Robert

    Coleman, Donald

    Hannan, William

    MacMillan, Malcolm (Western Isles)

    Concannon, J. D.

    Hazell, Bert

    McMillan, Tom (Glasgow, C.)

    Conlan, Bernard

    Heffer, Eric S.

    McNamara, J. Kevin

    Craddock, George (Bradford, S.)

    Henig, Stanley

    MacPherson, Malcolm

    Crawshaw, Richard

    Herbison, Rt. Hn. Margaret

    Mahon, Peter (Preston, S.)

    Cronin, John

    Hobden, Dennis (Brighton, K'town)

    Mahon, Simon (Bootle)

    Cullen, Mrs. Alice

    Hooley, Frank

    Manuel, Archie

    Dalyell, Tarn

    Horner, John

    Mapp, Charles

    Darling, Rt. Hn. George

    Houghton, Rt. Hn. Douglas

    Marsh, Rt. Hn. Richard

    Davidson, Arthur (Accrington)

    Howarth, Harry (Wellingborough)

    Mason, Roy

    Davies, G. Elfed (Rhondda, E.)

    Howell, Denis (Small Heath)

    Mendelson, J. J.

    Davies, Harold (Leek)

    Howie, W.

    Miller, Dr. M. S.

    de Freitas, Sir Geoffrey

    Hoy, James

    Mitchell, R. C. (S'th'pton, Test)

    Dalargy, Hugh

    Hughes, Hector (Aberdeen, N.)

    Molloy, William

    Dell, Edmund

    Hughes, Roy (Newport)

    Morris, Charles R. (Openshaw)

    Dempsey, James

    Hunter, Adam

    Morris, John (Aberavon)

    Dewar, Donald

    Hynd, John

    Neal, Harold

    Rhodes, Geoffrey

    Urwin, T. W.

    Newens, Stan

    Richard, Ivor

    Varley, Eric G.

    Noel-Baker, Francis (Swindon)

    Roberts, Albert (Normanton)

    Wainwright, Edwin (Dearne Valley)

    Oakes, Gordon

    Roberts, Gwllym (Bedfordshire, S.)

    Walden, Brian (All Saints)

    Ogden, Eric

    Robinson, W. O. J. (Walth'stow, E.)

    Walker, Harold (Doncaster)

    O'Malley, Brian

    Rose, Paul

    Wallace, George

    Oram, Albert E.

    Ross, Rt. Hn. William

    Watkins, David (Consett)

    Oswald, Thomas

    Rowlands, E. (Cardiff, N.)

    Wellbeloved, James

    Owen, Will (Morpeth)

    Shaw, Arnold (Ilford, S.)

    Whitaker, Ben

    Page, Derek (King's Lynn)

    Sheldon, Robert

    Williams, Alan (Swansea, W.)

    Pannell, Rt. Hn. Charles

    Shinwell, Rt. Hn. E.

    Williams, Alan Lee (Hornchurch)

    Park, Trevor

    Shore, Peter (Stepney)

    Williams, Clifford (Abertillery)

    Parker, John (Dagenham)

    Short, Rt.Hn. Edward (N'c'tle-u-Tyne)

    Willis, George (Edinburgh, E.)

    Parkyn, Brian (Bedford)

    Short, Mrs. Renée (W'hampton, N. E.)

    Wilson, William (Coventry, S.)

    Pavitt, Laurence

    Silkin, John (Deptford)

    Winnick, David

    Pentland, Norman

    Silkln, S. C. (Dulwich)

    Winterbottom, R. E.

    Perry, George H. (Nottingham, S.)

    Silverman, Julius (Aston)

    Woodburn, Rt. Hn. A.

    Price, Christopher (Perry Barr)

    Slater, Joseph

    Woof, Robert

    Price, Thomas (Westhoughton)

    Spriggs, Leslie

    Yates, Victor

    Price, William (Rugby)

    Stonehouse, John

    Randall, Harry

    Thomas, Iorwerth (Rhondda, W.)

    TELLERS FOR THE AYES:

    Redhead, Edward

    Thornton, Ernest

    Mr. William Whitlock and

    Rees, Merlyn

    Tinn, James

    Mr. Neil McBride

    NOES

    Allason, James (Hemel Hempstead)

    Hall-Davis, A. G. F.

    Page, Graham (Crosby)

    Atkins, Humphrey (M't'n & M'd'n)

    Harris, Reader (Heston)

    Pardoe, J.

    Awdrey, Daniel

    Harrison, Brian (Maldon)

    Pearson, Sir Frank (Clitheroe)

    Baker, W. H. K.

    Hawkins, Paul

    Peel, John

    Barber, Rt. Hn, Anthony

    Heald, Rt. Hn. Sir Lionel

    Percival, Ian

    Batsford, Brian

    Heseltine, Michael

    Peyton, John

    Beamish, Col. Sir Tufton

    Higgins, Terence L.

    Pink, R. Bonner

    Bell, Ronald

    Hiley, Joseph

    Pounder, Rafton

    Bennett, Sir Frederic (Torquay)

    Hill, J. E. B.

    Powell, Rt. Hn. J. Enoch

    Birch, Rt. Hn. Nigel

    Hirst, Geoffrey

    Prior, J. M. L.

    Blaker, Peter

    Hobson, Rt. Hn. Sir John

    Pym, Francis

    Bossom, Sir Clive

    Holland, Philip

    Ramsden, Rt. Hn. James

    Boyd-Carpenter, Rt. Hn. John

    Hooson, Emlyn

    Renton, Rt. Hn. Sir David

    Bryan, Paul

    Hornby, Richard

    Ridsdale, Julian

    Buchanan-Smith, Alick (Angus, N&M)

    Howell, David (Guildford)

    Rossi, Hugh (Hornsey)

    Buck, Antony (Colchester)

    Hunt, John

    Scott, Nicholas

    Bullus, Sir Eric

    Hutchison, Michael Clark

    Sharples, Richard

    Burden, F. A.

    Carlisle, Mark

    Jenkin, Patrick (Woodford)

    Shaw, Michael (Sc'b'gh & Whitby)

    Cary, Sir Robert

    Johnston, Russell (Inverness)

    Sinclair, Sir George

    Clegg, Walter

    Jopling, Michael

    Smith, John

    Cooke, Robert

    Kaberry, Sir Donald

    Stodart, Anthony

    Cooper-Key, Sir Neill

    Kershaw, Anthony

    Stoddart-Scott, Col. Sir M. (Ripon)

    Corfield, F. V..

    Kitson, Timothy

    Summers, Sir Spencer

    Costain, A. P

    Knight, Mrs. Jill

    Taylor, Sir Charles (Eastbourne)

    Craddock, Sir Beresford (Spelthorne)

    Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)

    Taylor, Frank (Moss Side)

    Dalkeith, Earl of

    Lloyd, Ian (P'tsm'th, Langstone)

    Temple, John M.

    Elliot, Capt. Walter (Carshalton)

    Loveys, W. H.

    Thatcher, Mrs. Margaret

    Dance, James

    Lubbock, Eric

    Tilney, John

    Davidson, James (Aberdeenshire, W.)

    Dlgby, Stmon Winglas

    Macleod, Rt. Hn. Iain

    Turton, Rt. Hn. R. H.

    Dodds-Parker, Douglas

    Macmillan, Maurice (Farnham)

    van Straubenzee, W. R.

    Doughty, Charles

    Maddan, Martin

    Vaughan-Morgan, Rt. Hn. Sir John

    Eden, Sir John

    Maginnis, John E.

    Vickers, Dame Joan

    Elliot, Capt. Walter (Carshalton)

    Maxwell-Hyslop, R. J.

    Wainwright, Richard (Colne Valley)

    Elliott, R. W. (N'c'tle-upon-Tyne, N.)

    Maydon, Lt.-Cmdr. S. L. C.

    Walker, Peter (Worcester)

    Farr, John

    Mills, Peter (Torrington)

    Walker-Smith, Rt. Hn. Sir Derek

    Fraser, Rt. Hn. Hugh (St'fford & Stone)

    Mills, Stratton (Belfast, N.)

    Ward, Dame Irene

    Galbralth, Hn. T. G.

    Miscampbell, Norman

    Weatherill, Bernard

    Gibson-Watt, David

    Mitchell, David (Basingstoke)

    Webster, David

    Giles, Rear-Adm. Morgan

    Monro, Hector

    Wilson, Geoffrey (Truro)

    Gilmour, Ian (Norfolk, C.)

    More, Jasper

    Winstanley, Dr. M. P.

    Gilmour, Sir John (Fife, E.)

    Morgan, W. G. (Denbigh)

    Woodnutt, Mark

    Glover, Sir Douglas

    Morrison, Charles (Devizes)

    Worsley, Marcus

    Gower, Raymond

    Munro-Lucas-Tooth, Sir Hugh

    Younger, Hn. George

    Gresham Cooke, R.

    Morton, Oscar

    Grieve, Percy

    Nabarro, Sir Gerald

    TELLERS FOR THE NOES:

    Grimond, Rt. Hn. J.

    Neave, Airey

    Mr. Francis Pym and

    Hall John (wycombe)

    Orr-Ewing, Sir Ian

    Mr. Jasper More.

    Clause ordered to stand part of the Bill.

    Clause 34.—(TERMINATION OF FREE DEPRECIATION IN DEVELOPMENT DISTRICTS.)
    Question proposed, That the Clause stand part of the Bill.
    Mr. Higgins Mr. Higgins rose ——
    Mr. J. Bruce-Gardyne: On a point of order. I should like to ask your guidance, Mr. Irving. In view of the fact that, prior to the vote before last, only two hon. Members rose to speak, was it normal in those circumstances to move the Closure at that stage?
    The Deputy Chairman (Mr. Sydney Irving): That matter is one for the discretion of the Chair and not for argument. I cannot answer that.
    Mr. Higgins: I am delighted to see that the Minister of State to the Board of Trade is to reply to the debate on this Clause. One of the reasons that the Government decided to move the Closure of the last debate was that the proceedings had been unduly prolonged and a number of arguments had been put forward from this side of the Committee, without a single point of substance being raised in opposition to them from the other side. It was for that reason, because the debate was entirely one-sided, with no argument at all the other way, that right hon. and hon. Gentlemen on this side of the Committee thought it necessary to probe the matter further. We could not understand why, instead of thinking about those Amendments, the right hon. Gentlemen opposite could not give way and agree that they were real and important points which could have been conceded.
    We turn now to Clause 34, which is concerned with the question of free depreciation. That was part of the system of investment allowances and other arrangements whereby the former Conservative Government sought to encourage investment in the development districts.
    One should state quite clearly, for the reasons which have been debated earlier, that we believe that the system was the right way of encouraging investment in those districts. Perhaps, for the convenience of the Committee, I should spell out precisely the principle involved in free depreciation.
    704
    It was an arrangement whereby a firm which was investing in a development district was allowed to write off immediately against profits its depreciation allowances to the full extent which it would normally have been allowed to do in other areas over the life of the asset. That was of considerable advantage to the firm concerned, though it required a slightly complicated calculation, because it meant that, instead of the firm having an allowance to be set against its profits year after year, perhaps on a straight line or on a reducing balance basis, it was allowed to write the whole thing off against profits straight away. That meant that it had to bring to a present value what the depreciation allowances would have been worth over the life of the asset, and compare that with the actual benefit that it derived immediately from free depreciation.
    A great deal of the principle involved turns upon the fact, first of all, that a firm needs to make profits in order to benefit from free depreciation. We would argue that if the firm was making profits, that was a good reason for encouraging it to invest, particularly in a development district. But, apart from one or two small points about new firms starting up in business, we do not believe that the cash grant system which the Government are now introducing is as good a way of doing it.
    Bernard Shaw once said, "Primitives always pay in cash." The Chief Secretary has made great play with the fact that people are not able to appraise what the free depreciation allowance is worth and that that has deterred them from making use of it. But we do not want to encourage firms which are likely to invest in a development district if they are not even capable of carrying out the fairly simple calculation which I have just mentioned.
    It is true that some firms are finding difficulty. The National Economic Development Council's Report on Investment Appraisal spelt it out in some detail. On the other hand, there is no doubt that management techniques are improving, and I should have thought that management education was the right way to do it, rather than giving out cash almost willy-nilly in all directions to firms

    705
    which are not even able to work out the value of a free depreciation allowance.
    The Chief Secretary might note the survey of the Confederation of British Industry, where it refers to the question of whether the present system was appreciated by industry. In answer to the question whether they had yet been able to assess the implications of the new system, something like 19 per cent. of replies, with regard to plant and machinery, said that they had not been able to do so. We clearly have a terrific uphill task in improving management education in this field.
    The other night, I took the evening off and went to a cinema. There I saw a movie called "Modesty Blaise". To my astonishment, half way through, the villain's henchman quotes at length from a well-known textbook on discounted cash flow methods by Merrett and Sykes. For some years, I had the pleasure of sharing an office with Professor Merrett, and I was surprised to hear the words given birth to in that office embodied in the villain's part in that movie. It is indeed the villain's part. We want to encourage people to look at the investment proposals in the right way. If they do this, then I believe that there is no difficulty in assessing the very real value of free depreciation allowances. I much regret that this Clause has been introduced which will abolish these allowances.
    9.30 p.m.
    The opening words of the Clause are,
    "Any district which, immediately before 17th January, 1966, was a development district"
    shall cease to be so. I hope that we may have an assurance that the new boundaries will be guaranteed for a period of years. The fact that boundaries have been changed introduces an element of uncertainty into businessmen's calculations which should be eliminated, and J hope that this will be done.
    It is unfortunate that the Clause has been introduced because it gets away from the idea of a growth point and moves towards a wider distribution in which the benefits are diffused and less likely to result in a take-off in the economy.
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    I have some questions to put to the Minister of State. He will agree that these are complicated drafting matters and that it would be for the benefit of industry if the situation could be clarified. First, on the abolition of free depreciation what is the position of someone who has already undertaken investment in a development district but, because it was to his advantage from the tax point of view, because of the pattern of his cash flow over recent years, or because he was making insufficient profits to write off the whole free depreciation immediately, he has not yet done so and has an accumulation of free depreciation? Will this not be affected by the Clause at all and will he be able to write it off in the normal way as if the Clause had not been introduced?
    Another point on which the drafting is obscure compels me to ask what is the precise position of free depreciation compared with the other investment allowances which we were discussing on the previous Clause. That Clause imposed a restriction; not only must the contract be signed by a certain date but the assets concerned must be both paid for and in operation by a further date in the autumn specified in Clause 33. Is the same situation true of free depreciation allowances? Clause 34(2) makes a reference which I understand is designed to cover the point, but it is not entirely clear and it would help industry to know whether the same situation is true. Or would it be possible under Clause 33 for an investment allowance to be denied on the ground that the assets had not been paid for and were not in operation by the due date? Or will free depreciation still be claimable?
    Another technical point arises under Clause 34(3) which refers back to Clause 33(3). Clause 33(3) could include the old grants in the United Kingdom under the Local Employment Acts, and also the old Northern Ireland grants. As the Clause stands it appears that investment allowances and initial allowances could be withdrawn completely on expenditure which was incurred in the past if it attracted a grant. Equally, initial allowances could be withdrawn on industrial buildings in development areas which still get grants under the Local Employment Acts. This appears to be contrary to the information given in the

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    White Paper, and I assume that the key to the point is in line 25, which gives the Treasury power to make orders by Statutory Instrument, and presumably the Treasury intends to use its power in such a way as to bring the proposals into line with the White Paper. If I understand it correctly, this seems an odd way of doing it. Surely it would be better to write it into the Finance Bill.
    I turn from these technical points, which I do not doubt are confusing industry—this is perhaps one reason why industry has not assessed the effect of the new arrangements—to a slightly more general point which is concerned with the delay in bringing in the new arrangement as against the present arrangement which is already in operation.
    There has been some debate in the House as to which system industry prefers. For all the reasons previously given, I do not believe that industry will prefer the new method, unless it is incapable of working out the real advantages which accrued under the old method. The C.B.I. survey is significant because it shows a certain percentage of firms—not a very large one—which actually revised investment proposals downwards as a result of the change in the system. Although not a large percentage, it is none the less significant. I suspect that these are firms which worked out the advantages of the old system in advance.
    I asked the Minister of State if he can give us a little information on the actual regional pattern of investment. I have mentioned today the fact that the Board of Trade has issued a statement on industry's investment intentions. It seemed pretty pessimistic. It is extraordinary that the announcement of that survey made no mention of what has happened to the regional pattern of investment intentions. I should therefore be glad if the Minister of State could tell us whether the survey covered a regional analysis, an analysis of what firms intended to do with regard to investments in development districts and development areas, if not why it did not, and if it did what were the results. These were not included in the Press announcement.
    The main grounds on which we opposed the Clause are on the division of opinion
    708
    between the two sides of the Committee as to which of the two systems is the better. We also have to look at this matter in the context of general regional policy. We need to emphasise that it might well be true that we should keep some arrangement for free depreciation to offset the unfortunate regional effect of the Selective Employment Tax. That tax, which we are constantly told is infinitely variable and that there is no difficulty in adjusting it, could be used as a deliberate attempt to further regional policy, but quite the contrary appears to be the case. More accurately, the impact appears to be quite random, and on balance this is undesirable.
    I refer to page 10 of the current review where the effect of the Selective Employment Tax on the regions is worked out. A plus sign in these tables indicates that the impact is favourable to a region, or conversely a minus. The area which is most favoured is the West Midlands, an area of greatest overheating in the economy. If one were working out a regional policy this is where one would try to deter economic activity, to quieten things down and to take the heat out, because here mainly inflation could be generated. In the North of England the plus is very small indeed, less than 1 per cent., compared with +14·7 per cent. in the West Midlands. In Wales it is a little above ½ per cent. Therefore, the balance appears to be completely wrong. In Scotland it is even worse, a minus of 2·2 per cent. The effect of the tax will be to create a counter-regional policy.
    What we need is greater incentive to economic activity in these regions which will offset the unfortunate effects of the Selective Employment Tax in the form in which the Government have introduced it. We must therefore look at the position rather differently from the way in which we looked at it when the debate took place on the new arrangements for fostering development in the development districts. If that was the situation then, the Government have taken action which will be adverse to their regional policy.
    What else can we do to stimulate investment in these areas? Given the fact that regional balance is crucial to the question of whether we can maintain a steady growth rate and high employment and stabilise the cost of living, I should

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    have thought there was a case for continuing free depreciation allowances for those firms which preferred it to the system of cash grants which the Government are introducing.
    On both grounds—first, because we disapprove of the change of system, and, secondly, because we think that we should have a stronger regional policy—I oppose the Clause, and I hope that my right hon. and hon. Friends will join me in the Division Lobby against it.
    The Minister of State, Board of Trade (Mr. George Darling): It would be for the convenience of the Committee if I were now to try to answer the points put forward by the hon. Member for Worthing (Mr. Higgins).
    I would agree, as everybody must agree, that free depreciation has been extraordinarily helpful to the development district policy. The hon. Gentleman said that the system of free depreciation is better than the cash grants which we are suggesting, even for firms starting up which would not make profits for perhaps some time. This is a difference of opinion which can in the end be decided only by arithmetic.
    Mr. Higgins: I am sure that the right hon. Gentleman does not wish to misinterpret what I said. I conceded that there might be some case for making special arrangements for new firms which had not made profits.
    Mr. Darling: I do not want to make too much of the point. That is one of the factors which we could have dealt with even if the free depreciation system had been continued. But it is a matter of arithmetic to decide which system is the better.
    As the hon. Gentleman probably knows, we are carrying out exercises on hypothetical cases—some of them perhaps real cases—to decide whether the free depreciation system or the cash grant system is more beneficial to firms. At the moment we are winning, but I would not put any great stress on that because we have not covered every conceivable case.
    The hon. Gentleman suggested—and I agree—that we must do a great deal more to improve management education so that every firm knows what its situation is and
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    the best thing to do as far as practicable, even by using education films. This is outside the scope of the Clause. The hon. Member suggested that we should give a guarantee that development district boundaries should stand for three years, whatever may be in the regulations after the Industrial Development Bill is on the Statute Book. This is a matter which we shall discuss, either this week or certainly early next week, in the Committee on the Industrial Development Bill, when. I assure the hon. Gentleman, the views which he has expressed will be put forward with great vigour by his hon. Friends.
    On the question of the regional pattern of investment, when I saw the Press notice about investment—I must confess that this is all that I have seen; the hon. Gentleman will understand that we have been rather busy on the Industrial Development Bill and other matters—I thought that it would be a good idea if the statistics which are available could be broken down to give a pattern of regional investment. If we can get those figures, I will ensure that they are passed on to the hon. Gentleman. I certainly do not have them with me.
    9.45 p.m.
    The hon. Gentleman suggested that we should agree to free depreciation in development districts to offset the incidence of the Selective Employment Tax. This is a very interesting point, and I undertake to pass it on to my right hon. Friend the Chancellor.
    To come to the real issue of how the Clause will work, what its purpose is, and why it has been framed in this way, I say at once that the arrangements under Clause 34 are quite different from those under Clause 33. The reason why there is a reference in subsection (1) to the idea that on 17th January development districts, so to speak, disappear for free depreciation is this. When free depreciation in development districts was introduced in 1963, to provide inducements to firms to go to those districts, very generous transitional provisions were laid down in the 1963 Act. The transitional arrangements were made because there was power in the Board of Trade—I hate to use this word but I want to deal with the matter briefly, and I hope that it will be accepted—to de-schedule development

    711
    districts. Obviously, if a district was to be de-scheduled, firms going ahead with expansion plans would be caught out under the free depreciation arrangements unless something was done to cover the transitional period on a development district ceasing to be a development district.
    What happened under the 1963 Act— this was laid down very clearly—was that an industrialist would continue to have free depreciation on machinery which he had already installed, on machinery which he had contracted for while the place was a development district, and even on machinery which he had not ordered if that machinery was clearly necessary to complete a project which he had started while the place was a development district. In view of the statutory assurances in the 1963 Act, we have carried this provision over. This is the purpose of Clause 34. The effect will be that, development districts having for this purpose only been deemed to have ceased on 17th January, the same situation in regard to free depreciation on projects in the development districts will stand.
    In the instances I have given, the firms concerned will still get their free depreciation, but, of course, in certain circumstances, where their projects come along after 17th January, they will be entitled to the new investment grant. Therefore, Clause 34(3)—this is the purpose of the subsection—provides that, if they have a 40 per cent. investment grant, they will lose their entitlement to free depreciation. Obviously, they ought not to have both. The reference to Northern Ireland is to ensure that, if they are operating in Northern Ireland, firms can have the equivalent grant there, grants in that case coming from the Northern Ireland Government.
    Mr. Higgins: Then will the hon. Gentleman confirm that, supposing a firm had decided to invest in a development district before 17th January, 1966, but the asset in which it was investing had either not been bought or had not been brought into use by 16th October, 1966, the firm, if it opted to operate under the old system, would be denied the allowances under Clause 33 but would continue to have free depreciation under Clause
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    34? If this is so, it reinforces our argument in the first debate today beyond any doubt whatever.
    Mr. Darling: I do not accept the hon. Gentleman's last observation, but it is true that, because we are carrying over the provisions of the 1963 Act to suit the circumstances here, firms which were developing in a development district before 17th January would still be entitled to free depreciation but not to the investment grant also.
    The hon. Member for Worthing also asked whether the regulations provided for what he had spelt out. That is so. I confirm another point that the hon. Member raised, that the areas to which the free depreciation would apply would be the areas that were operative as development districts under the Local Employment Act, 1960.
    I think I have answered all the hon. Gentleman's questions. I repeat that it is a matter of opinion whether the free depreciation or the investment grant system will be better for the firms which want to go into development districts. We shall continue to look at the examples to see whether arithmetic proves we are right or the hon. Member is right.
    Mr. Bruce-Gardyne: Like my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), I sat through the previous debate, when I had hoped to raise some points about the impact of the withdrawal of investment allowances, in particular in Scotland, but I was, unfortunately, unable to make them. At least at that time we were under a restraint from the Chair to keep our speeches short, and we are not under a restraint any longer. So I apologise to the Minister of State if I keep him a little longer——
    The Deputy Chairman: That was an obligation on all hon. Gentlemen to keep their speeches as short as possible on all occasions.
    Mr, Bruce-Gardyne: I accept that, of course, Mr. Irving.
    At any rate, I think it is important that when we are discussing this Clause dealing with the withdrawal of free depreciation we should have regard to the impact on Scotland in particular. I believe—I am sure that most of my right hon. and hon. Friends from Scotland

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    agree—that the system of free depreciation introduced by my right hon. Friend the Member for Barnet (Mr. Maudling) in 1963 was the biggest and most effective single incentive to industrial development in Scotland and, what is more, the one single incentive most responsible for the prosperity that Scotland has enjoyed over the past two or three years. This is what right hon. Gentlemen opposite, in their wisdom, are proposing to take away.
    During our previous debate the Chief Secretary made an interesting comment which I think is worth referring to. He said that complaints had arisen because of the concentration of investment incentives in certain areas. I assure the Minister of State that the complaints in Scotland, at any rate, are positively the other way round. It is not the concentration that is causing anxiety; on the contrary, it is the diffusion of the new investment incentives over a far wider area.
    My constituency, except for a very small area, was not able to attract free depreciation, but it is now included in a development area and, therefore, able to attract the new system of investment grants, and it may be that manufacturing industry in my constituency may be marginally better off. But what right hon. Gentlemen opposite do not seem to realise is that very large areas of Scotland, including the whole of the Highlands, were included in the old development district and, consequently, were able to obtain the benefit of the free depreciation which is being removed by the Clause.
    The Minister of State said just now that on the whole, obviously, cash grants were better for new firms than free depreciation. Put in those simple terms, the statement cannot be disputed. But, of course, we had a system of initial allowances and Board of Trade grants and loans which operated in the development districts and these were designed for the new firms and industries setting up. Then, of course, there was free depreciation in the development districts over and above this.
    My hon. Friend the Member for Worthing (Mr. Higgins) has referred to the yardstick of profitability, and it is fundamental. We want new investment
    714
    in Scotland but not unprofitable investment, because that would not help in the long run any more than it would help in other parts of the country which suffer from under-utilisation of resources. It is not sufficient answer to say that a new firm will be better off with cash grants than it would be with free depreciation.
    Another important aspect of free depreciation is that it is easily understandable and easily welcomed by industry. Time and again the Chief Secretary has told us that many firms did not apparently understand the system of investment allowances. But they did understand, by and large, free depreciation. That is why it was such a simple and effective inducement to industry to move into these areas. Inevitably in this debate we are much concerned with the problems of Scotland in particular and it is a little disappointing, though not untypical, that no representative of the Scottish Office is on the Government bench to listen to the debate and consider these matters.
    The Secretary of State for Scotland has taken to complaining rather bitterly about the resentment that is being aroused in the Highlands in particular by the new system of investment incentives devised by the Government, coupled, of course, with the impact of the Selective Employment Tax. As the Minister of State knows, more than three-quarters of the employment in the Highlands will be liable to the S.E.T. without the rebate and, on top of this, the Highlands as a whole are to lose the right to free depreciation and are put on a par with the rest of Scotland, the North of England as far south as Scarborough, the whole of Wales and the whole of Cornwall.
    The Secretary of State for Scotland seems to be becoming something like a latter-day Marie Antoinette. He goes to the Highlands and says, "Let them manufacture". Where does he think they are going to manufacture? Why should manufacturing firms set up in the Highlands, facing the consequences of the withdrawal of investment allowances on transport undertakings so that transport difficulties are greatly increased, when they can set up in Scarborough, for example, which is much closer to their markets, with precisely the same investment incentives as they can receive in the Highlands? The

    715
    withdrawal of free depreciation is a recipe for further depopulation of the Highlands and other parts of Scotland.
    10.0 p.m.
    I was very relieved to hear the Minister of State say that he would pass on to his right hon. Friend the Chancellor of the Exchequer, the admirable suggestion by my hon. Friend the Member for Worthing that free depreciation might be allowed in development areas to offset the cost of the Selective Employment Tax. I hope that when he goes to see the Chancellor on this matter he will grab his right hon. Friend the Secretary of State for Scotland by the elbow and drag him along, because the right hon. Gentleman ought to be there to put the case for Scotland. He does not seem to have made very much effort to do that when these matters have been discussed.
    I hope that the Minister of State meant what he said when he said that he would put the idea to the Chancellor and I very much hope that the Chancellor will receive it in the spirit in which it was offered by my hon. Friend. I am delighted to see that the Secretary of State has now joined us. Most unfortunately, he has missed the cream of my speech, but I trust that he will read it in HANSARD tomorrow.
    The Secretary of State for Scotland (Mr. William Ross): Tell me the old, old story.
    Mr. Bruce-Gardyne: It is better than that. The right hon. Gentleman has heard several old stories before, but he does not seem to have taken them in and digested the wisdom of the speeches of my hon. Friends even when he has listened to them.
    I had contemplated moving an Amendment to the Clause to suggest precisely that free depreciation should be retained throughout the new development areas, but it is not easy to see how the system of free depreciation could be combined with the new system of cash grants. I trust this is a problem to which the Minister of State will find a solution and, as I have said, that he will take his right hon. Friend the Secretary of State by the elbow and lead him to the Chancellor and that he will persuade the Chancellor to accept his solution.
    The Minister of State said that the Board of Trade was conducting an exer-
    716
    cise to test the relative attractiveness of free depreciation and cash grants in the development areas. I trust that if, contrary to his expectation, but in accordance with ours, he finds that the experience from this exercise suggests that it is the system of free depreciation which is more attractive, he will redouble his efforts to get that system reintroduced in the development areas.
    Mr. Hirst: I cannot support the Clause and I hope that my hon. and right hon. Friends will think likewise. The arrival of the Minister of State at the Board of Trade has been very refreshing after the patronising howlers of the Chief Secretary. He treated the Committee with the sort of respect to which I, at any rate, immediately react and which is valuable in our discussions. I followed quite clearly what he had to say and what he believed.
    Personally, I have always supported free depreciation in development areas. I have bothered to look it up and I have found that my first speech after my maiden speech—I think that now I would have been brave enough to make it in my maiden speech, but it was not done in those days—was a plea for free depreciation on a much wider basis. I have always believed that one should be able to throw any machinery into the hedge bottom, if one could find something more effective and efficient, without a tax loss. That has always been my philosophy since 1950, which is quite some time back, and I have mentioned it many times in our discussions over the years. I am unlikely on those grounds alone to be able to agree with the Minister of State, but the manner of his exposition and his willingness to speak to the Committee in the way which we like is something which I deeply appreciate.
    We are here dealing with an important matter. The trouble of it all comes back to the investment grants. On these benches we have made it perfectly clear that we do not like them and that we think them unsatisfactory. Organised labour has done the same, and I am wondering where the Government went for their material, because I cannot find anyone, apart from the odd individual firm, who thinks it a good idea. I see nothing wrong.
    I see nothing wrong in a firm proving its profitability in whatever venture it

    717
    undertakes, and then getting the advantages arising from such a venture. I have had quite a lot of business experience in my time and I remember particularly in the pharmaceutical business the number of ventures which were launched. We all know the ones which succeeded, such as Eno's Fruit Salts—although I remember that, when it was in a room in a street in Leeds, it had to come to us for help to get it through one day's orders.
    That does not alter the fact that we all remember the successes, but we do not remember the massive failures. That is part of the competitive spirit. I am very sorry for people who work hard and fail. It is very distressing, but it is part of a competitive system. One has to prove oneself in this difficult and wicked world, and when one does one gets the rewards of that success. To hand out money right across the board, irrespective of whether the venture is going to be good or not, is against my personal philosophy. I agree with the Minister of State, who has decently said that this is a matter of opinion. My opinion is that the Government are wholly wrong. I cannot support this Clause and I sincerely hope that my hon. and right hon. Friends cannot do so either.
    Mr. Iain Macleod: I wish to endorse the point made by my hon. Friend the Member for Shipley (Mr.
    Hirst). The title of this Clause is "Termination of free depreciation in development districts", and I think that the Minister of State, Board of Trade realised from the start that he was on a hopeless wicket. There is a difference of policy and philosophy. As the Member responsible for the conduct of the Opposition on this Bill I would like to thank him very much for the way in which he replied to the debate on the Question, "That the Clause stand part of the Bill."
    It was in marked contrast to the shabby treatment that the Committee was given on Clause 33, when we were treated with great discourtesy, in the debate and at the end of it. There is a lesson here, which I am sure will not be lost on the Chancellor, for progress throughout the rest of the Finance Bill, namely, that although we may disagree, as we do, with what we have heard from the Minister of State, yet we listened carefully to the factual argument he put before us. Because we cannot accept this Clause we intend to divide the Committee. We do so recognising that the right hon. Gentleman has made a considerable contribution to our debate.
    Question put, That the Clause stand part of the Bill:—
    The Committee divided: Ayes 211, Noes 124.

    Division No. 50.]

    AYES

    [10.8 p.m.

    Abse, Leo

    Carter-Jones, Lewis

    Faulds, Andrew

    Alldritt, Walter

    Coleman, Donald

    Fitch, Alan (Wigan)

    Anderson, Donald

    Concannon, J. D.

    Fletcher, Ted (Darlington)

    Archer, Peter

    Conlan, Bernard

    Foot, Michael (Ebbw Vale)

    Armstrong, Ernest

    Craddock, George (Bradford, S.)

    Forrester, John

    Atkins, Ronald (Preston, N.)

    Crawahaw, Richard

    Fowler, Gerry

    Barnett, Joel

    Cronin, John

    Fraser, Rt. Hn. Tom (Hamilton)

    Baxter, William

    Cullen, Mrs. Alice

    Freeson, Reginald

    Beaney, Alan

    Dalyell, Tarn

    Gardner, A. J.

    Bence, Cyril

    Davidson, Arthur (Accrington)

    Garrett, W. E.

    Benn, Rt. Hn. Anthony Wedgwood

    Davidson, James (Aberdeenshire, W.)

    Ginsburg, David

    Bennett, James (C'gow, Bridgeton)

    Davies, G. Elfed (Rhondda, E.)

    Gourlay, Harry

    Binns, John

    Davies, Harold (Leek)

    Gray, Dr. Hugh (Yarmouth)

    Blackburn, F.

    Davies, Ifor (Gower)

    Gregory, Arnold

    Blenkinsop, Arthur

    de Freitas, Sir Geoffrey

    Grey, Charles (Durham)

    Boardman, H.

    Delargy, Hugh

    Griffiths, David (Rother Valley)

    Booth, Albert

    Dell, Edmund

    Griffiths, Will (Exchange)

    Bottomley, Rt. Hn. Arthur

    Dempsey, James

    Grimond, Rt. Hn. J.

    Boyden, James

    Dewar, Donald

    Hale, Leslie (Oldham, W.)

    Braddock, Mrs. E. M.

    Diamond, Rt. Hn. John

    Hamilton, William (Fife, W.)

    Bradley, Tom

    Dickens, James

    Hannan, William

    Brooks, Edwin

    Doig, Peter

    Hazell, Bert

    Brown, Rt. Hn. George (Belper)

    Donnelly, Desmond

    Heffer, Eric S.

    Brown, Hugh D. (G'gow, Provan)

    Dunnett, Jack

    Henig, Stanley

    Brown, Bob (N'c'tle-upon-Tyne, W)

    Dunwoody, Mrs. Gwyneth (Exeter)

    Herbison, Rt. Hn. Margaret

    Brown, R. W. (Shoreditch & F'bury)

    Dunwoody, Dr. John (F'th & C'b'e)

    Hobden, Dennis (Brighton, K'town)

    Buchan, Norman

    Eadie, Alex

    Hooley, Frank

    Buchanan, Richard (G'gow, Sp'burn)

    Edwards, Robert (Bilston)

    Hooson, Emlyn

    Callaghan, Rt. Hn. James

    Edwards, William (Merioneth)

    Horner, John

    Cant, R. B.

    English, Michael

    Houghton, Rt. Hn. Douglas

    Carmichael, Neil

    Evans, loan L. (Birm'h'm, Yardley)

    Howarth, Harry (Wellingborough)

    Howell, Denis (Small Heath)

    Mackie, John

    Richard, Ivor

    Howie, W.

    Mackintosh, John P.

    Roberts, Albert (Normanton)

    Hoy, James

    Maclennan, Robert

    Roberts, Gwilym (Bedfordshire, S.)

    Hughes, Hector (Aberdeen, N.)

    MacMillan, Malcolm (Western Isles)

    Rose, Paul

    Hughes, Roy (Newport)

    McMillan, Tom (Glasgow, C.)

    Ross, Rt. Hn. William

    Hunter, Adam

    McNamara, J. Kevin

    Rowlands, E. (Cardiff, N.)

    Irvine, A. J. (Edge Hill)

    MacPherson, Malcolm

    Shaw, Arnold (Ilford, S.)

    Jackson, Colin (B'h'se & Spenb'gh)

    Mahon, Peter (Preston, S.)

    Sheldon, Robert

    Janner, Sir Barnett

    Mahon, Simon (Bootle)

    Shore, Peter (Stepney)

    Jay, Rt. Hn. Douglas

    Manuel, Archie

    Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

    Jeger, George (Goole)

    Mapp, Charles

    Short, Mrs. Renée (W'hampton, N. E.)

    Jeger, Mrs. Lena (H'b'n&St.P'cras, S.)

    Marsh, Rt. Hn. Richard

    Silkin, John (Deptford)

    Jenkins, Hugh (Putney)

    Mason, Roy

    Silkin, S. C. (Dulwich)

    Johnson, Carol (Lewisham, S.)

    Miller, Dr. M. S.

    Silverman, Julius (Aston)

    Johnston, Russell (Inverness)

    Mitchell, R. C. (S'tn'pton, Test)

    Spriggs, Leslie

    Jones, Dan (Burnley)

    Molloy, William

    Steele, Thomas (Dunbartonshire, W.)

    Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)

    Morgan, Elystan (Cardiganshire)

    Stonehouse, John

    Jones, J. Idwal (Wrexham)

    Morris, Charles R. (Openshaw)

    Thomas, Iorwerth (Rhondda, W.)

    Judd, Frank

    Morris, John (Aberavon)

    Tomney, Frank

    Kelley, Richard

    Neal, Harold

    Urwin, T. W.

    Kenyon, Clifford

    Newens, Stan

    Varley, Eric G.

    Kerr, Mrs. Anne (R'ter & Chatham)

    Noel-Baker, Francis (Swindon)

    Wainwright, Edwin (Dearne Valley)

    Kerr, Russell (Feltham)

    Oakes, Gordon

    Wainwright, Richard (Colne Valley)

    Leadbitter, Ted

    Ogden, Eric

    Walden, Brian (All Saints)

    Ledger, Ron

    O'Malley, Brian

    Walker, Harold (Doncaster)

    Lee, Rt. Hn. Jennie (Cannock)

    Oram, Albert E.

    Watkins, David (Consett)

    Lestor, Miss Joan

    Orbach, Maurice

    Wellbeloved, James

    Lever, L. M. (Ardwick)

    Oswald, Thomas

    Whitaker, Ben

    Lewis, Arthur (W. Ham, N.)

    Williams, Alan (Swansea, W.)

    Lewis, Ron (Carlisle)

    Page, Derek (King's Lynn)

    Williams, Alan Lee (Hornchurch)

    Lomas, Kenneth

    Pardoe, J.

    Williams, Clifford (Abertillery)

    Lubbock, Eric

    Park, Trevor

    Willis, George (Edinburgh, E.)

    Lyon, Alexander W. (York)

    Parkyn, Brian (Bedford)

    Wilson, William (Coventry, S.)

    Lyons, Edward (Bradford, E.)

    Pavitt, Laurence

    Winnick, David

    McBride, Neil

    Perry, George H. (Nottingham, S.)

    Winstanley, Dr. M. P.

    McCann, John

    Price, Christopher (Perry Barr)

    Woodburn, Rt. Hn. A.

    MacDermot, Niall

    Price, Thomas (Westhoughton)

    Woof, Robert

    Macdonald, A. H.

    Price, William (Rugby)

    McGuire, Michael

    Redhead, Edward

    TELLERS FOR THE AYES:

    Mackenzie, Alasdair(Ross&Crom'ty)

    Rees, Merlyn

    Mr. George Lawson and

    Mackenzie, Gregor (Rutherglen)

    Rhodes, Geoffrey

    Mr. William Whitlock.

    NOES

    Allason, James (Hemel Hempstead)

    Heseltine, Michael

    Peel, John

    Atkins, Humphrey (M't'n & M'd'n)

    Higgins, Terence L.

    Percival, Ian

    Awdry, Daniel

    Hiley, Joseph

    Peyton, John

    Baker, W. H. K.

    Hill, J. E. B.

    Pike, Miss Mervyn

    Batsford, Brian

    Hirst, Geoffrey

    Pink, R. Bonner

    Bell, Ronald

    Hobson, Rt. Hn. Sir John

    Pounder, Rafton

    Biffen, John

    Hogg, Rt. Hn. Quintin

    Powell, Rt. Hn. J. Enoch

    Biggs-Davison, John

    Holland, Philip

    Pym, Francis

    Birch, Rt. Hn. Nigel

    Hornby, Richard

    Renton, Rt. Hn. Sir David

    Bossom, Sir Clive

    Howell, David (Guildford)

    Ridsdale, Julian

    Boyd-Carpenter, Rt. Hn. John

    Hunt, John

    Rossi, Hugh (Hornsey)

    Bryan, Paul

    Hutchison, Michael Clark

    Scott, Nicholas

    Buchanan-Smith, Alick(Angus, N&M)

    Jenkin, Patrick (Woodford)

    Sharples, Richard

    Buck, Antony (Colchester)

    Jopling, Michael

    Shaw, Michael (Sc'b'gh & Whitby)

    Carlisle, Mark

    Joseph, Rt. Hn. Sir Keith

    Sinclair, Sir George

    Carr, Rt. Hn. Robert

    Kaberry, Sir Donald

    Smith, John

    Clegg, Walter

    King, Evelyn (Dorset, S.)

    Stodart, Anthony

    Cooke, Robert

    Kitson, Timothy

    Stoddart-Scott, Col. Sir M. (Ripon)

    Cooper-Key, Sir Neill

    Knight, Mrs. Jill

    Summers, Sir Spencer

    Corfield, F. V.

    Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)

    Taylor, Sir Charles (Eastbourne)

    Dalkeith, Earl of

    Loveys, W. H.

    Temple, John M.

    Dance, James

    Macleod, Rt. Hn. Iain

    Thatcher, Mrs. Margaret

    Digby, Simon Wingfield

    McMaster, Stanley

    Tilney, John

    Dodds-Parker, Douglas

    Macmillan, Maurice (Farnham)

    Turton, Rt. Hn. R. H.

    Doughty, Charles

    Maddan, Martin

    van Straubenzee, W. R.

    Elliot, Capt. Walter (Carshalton)

    Maginnis, John E.

    Vaughan-Morgan, Rt. Hn. Sir John

    Eyre, Reginald

    Maxwell-Hyslop, R. J.

    Vickers, Dame Joan

    Farr, John

    Maydon, Lt.-Cmdr. S. L. C.

    Walker, Peter (Worcester)

    Fortescue, Tim

    Mills, Peter (Torrington)

    Walker-Smith, Rt. Hn. Sir Derek

    Fraser, Rt. Hn. Hugh (St'fford & Stone)

    Mills, Stratton (Belfast, N.)

    Ward, Dame Irene

    Galbraith, Hn, T. G.

    Miscampbell, Norman

    Weatherill, Bernard

    Gibson-Watt, David

    Mitchell, David (Basingstoke)

    Webster, David

    Giles, Rear-Adm. Morgan

    Monro, Hector

    Wells, John (Maidstone)

    Gilmour, Sir John (Fife, E.)

    More, Jasper

    Whitelaw, William

    Glover, Sir Douglas

    Morgan, W. G. (Denbigh)

    Wilson, Geoffrey (Truro)

    Gower, Raymond

    Morrison, Charles (Devizes)

    Woodnutt, Mark

    Grant, Anthony

    Munro-Lucas-Tooth, Sir Hugh

    Worsley, Marcus

    Gresham Cooke, R.

    Nabarro, Sir Gerald

    Younger, Hn. George

    Grieve, Percy

    Neave, Airey

    Hall, John (Wycombe)

    Nicholls, Sir Harmar

    TELLERS FOR THE NOES:

    Hall-Davis, A. G. F.

    Orr-Ewing, Sir Ian

    Mr. R. W. Elliott and

    Hawkins, Paul

    Page, Graham (Crosby)

    Mr. Peter Blaker.

    Heald, Rt. Hn. Sir Lionel

    Pearson, Sir Frank (Clitheroe)

    Clause 35.—(VEHICLES WHICH ARE TO BE ELIGIBLE FOR INITIAL ALLOWANCES.)
    Question proposed, That the Clause stand part of the Bill.
    Mr. Hirst: I should like to raise a probing point, which I do not want to press to a Division, but I would be grateful if one of the Treasury Ministers could help me. It does not appear to be quite apparent why there should be any exclusion in repect of expenditure prior to 16th January, 1966, the famous date which we have spent a long time discussing.
    As I see it, the purpose of the Clause is to remove an iniquity in the terms of Section 13(1) of the Finance Act, 1965. As it stands, it would discriminate unfairly, I am informed, where expenditure was incurred between 6th April, 1965, and 15th January, 1966. I have no wish to pull a fast one, but if the explanation is available it would be nice if the Committee as a whole could have it. Otherwise, I realise that I did not give notice of the Question beforehand and I would accept an answer later.
    Mr. Diamond: The hon. Member for Shipley (Mr. Hirst) has asked a perfectly reasonable question: why the change which is being made, which the hon. Member understands and which, I imagine, the whole Committee accepts,
    722
    was not made retrospective to a date further back. The first answer is that—
    Sir Douglas Glover: On a point of order. You called the Chief Secretary, Sir Eric, but I do not think that an Amendment has been moved.
    The Chairman: The Question is, "That the Clause stand part of the Bill". The Question was proposed and the debate is continuing on that basis.
    Mr. Diamond: The hon. Gentleman asked me why the capital allowance adjustment was not made retrospective to an earlier date. The answer is that it has never been the practice, when removing capital allowance anomalies to make the change retrospective. There are several precedents for that. One example is Section 22 of the Finance Act, 1959, and another is Section 40 of the Finance Act, 1963.
    He may go on to ask why it is retrospective at all. The answer is that as we are making major changes in investment allowances as from this date, for other purposes which are within the recollection of the hon. Gentleman, this seemed the appropriate date to take for these purposes also.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.

    Clause 36.—(STATUTORY REDUNDANCY PAYMENTS.)
    Question proposed, That the Clause stand part of the Bill.
    Sir Keith Joseph: The Clause gives very proper encouragement to statutory redundancy payments, but, as the Government will be well aware, some redundancy payments are not of a statutory nature. Will the Government give the same tax exemption, by way of encouragement, to redundancy payments which do not at the moment get it?
    When the service of an individual who is made redundant is split between the company which makes him redundant and a company which has been acquired by that company, then the element of the redundancy payment attributable to the earlier service is frequently not allowed for tax. This is just one example. We should like to know whether, as an extension of this very proper attitude to statutory redundancy payments, the Government will take another look at nonstatutory redundancy payments to see whether the Inland Revenue can encourage them by an equivalent tax exemption.
    Mr. Hirst: I wish to raise a point which I think is slightly different. I feel that there should be a full tax allowance in all redundancy payments, and my point arises where a business for one reason or another has ceased. I am not quite sure whether my right hon. Friend was covering that point or not—apparently not. Then this is an additional point of some importance.
    Where a business has been declining, the profits of the last period, if any, may be insufficient to allow for the full relief for redundancy payment. I hope that the right hon. Gentleman will be able to comment upon this point in addition to that raised by my right hon. Friend.
    Mr. Diamond: The right hon. Gentleman asked me whether any extension was proposed in relation to tax relief for voluntary payments by an employer on cessation. Voluntary payments of this kind on a cessation are not payments in carrying on the trade, and therefore they would not attract Income Tax relief.
    Sir K. Joseph: The right hon. Gentleman may be meeting a point which I should have made, but I was talking about straightforward redundancy and not cessation.
    Mr. Diamond: I think that I was answering the question which the right hon. Gentleman asked me. Where there is a statutory scheme there is no question. Relief is given to the employer—the right hon. Gentleman is not asking me about the employee's tax liability.
    Where there are voluntary payments arising on a cessation, not otherwise, of a business, they are not payments in carrying on the trade. Where voluntary payments are made of a kind which are approved, and the business is carrying on, that is perfectly all right. Where it is purely voluntary and there is a cessation, it is not a payment of a kind which would attract——
    Mr. Hirst: In the case which I instanced, which was rather different to that of my right hon. Friend, where there is a statutory redundancy payment and a business ceases that would be dealt with. Am I clear?
    Mr. Diamond: I did not hear what the hon. Member said.
    Mr. Hirst: Where there is a statutory redundancy payment and the business ceases, that would be taken care of, would it not?
    Mr. Diamond: Yes. There is no problem about a statutory scheme.
    Sir K. Joseph: The right hon. Gentleman is being very clear and rather tautological. The question is whether Inland Revenue approval can be given more generously where voluntary redundancy payments in excess of statutory redundancy compensation is paid, without cessation? Without an amendment to discuss it is obviously difficult for the right hon. Gentleman to answer the point, but I should be grateful if he can tell us whether, with a view to encouraging redundancy payments of a more generous nature, he would undertake to ask the Inland Revenue authorities to look kindly on their approval arrangements. That is all I am asking at this stage.
    Mr. Diamond: The right hon. Gentleman will appreciate that the Government

    725
    are anxious to help redundancy schemes. My right hon. Friend has honoured his undertaking to do this where reasonably necessary. The right hon. Gentleman has raised a new point, which requires careful consideration, and we shall give it that consideration.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.

    Clause 37.—(CANCELLATION OF TAX ADVANTAGES FROM CERTAIN TRANSACTIONS IN SECURITIES.)
    Mr. Patrick Jenkin: I beg to move Amendment No. 304, in page 41, line 45, at the end to insert:
    (3) Paragraph (2)(d) of the said section 28 shall not apply to the receipt of any such consideration as is therein referred to after 6th April 1966.
    We now come back to one of the more incomprehensible Clauses. For my sins I find myself put up to talk about it. The Clause is designed to amend Section 28 of the 1960 Finance Act. It would be helpful to the Committee if, by way of introducing the Amendment, I were to say something of the background not only to the Clause but also to Section 28 of the 1960 Act.
    When I read the Clause I could not help feeling that the Chief Secretary must have approached it with mixed feelings. If I were a betting man—which, unlike my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) I am not—I would be willing to bet that the Chief Secretary's inclination was to resist the Clause when it was put to him for inclusion in the Bill. That may appear strange, because it is concerned with tax avoidance. Nevertheless, it may well be true.
    The Clause is concerned with tax avoidance of a devious and cunning, though legal, nature, such as dividend stripping, bond-washing, forward stripping, stock stripping, the "scissors", and so on—those varieties of tax avoidance devices which, for the most part, are designed to take advantage of the fact that income is taxed as income whereas capital is not subjected to Income Tax. The Clause is
    726
    aimed at tightening up the law—at closing the loopholes and preventing avoidance.
    In those circumstances my hon. Friends may ask why I should suggest that the Chief Secretary might be reluctant in putting this Clause forward. Is it a newfound tenderness for strippers? I hasten to add that I am referring to dividend strippers. Is it perhaps that he has acquired an admiration for their skill? He is qualified to admire their skill, but I do not believe that that is the reason. I believe the reason is that, as the hon. Gentleman will remember, over and over again when he was a Member of the Opposition he told the Committee that under a Socialist Government legislation of this sort would be totally unnecessary.
    I want the Committee to cast its mind back six years to the introduction of the Finance Act, 1960, and especially to Section 28 of that Act. In that year the Chancellor of the Exchequer was the right hon. Gentleman's predecessor, Mr. Heathcoat Amory, who is now Lord Amory; the Attorney-General was Sir Reginald Manningham-Buller—now Lord Dilhorne; the Solicitor-General—and I am glad to see the present Solicitor-General in his place; now we shall make great progress—was Sir Jocelyn Simon, who is now President of the Probate, Divorce and Admiralty Division. All these, together with the present Minister without Portfolio and the Chief Secretary, took part in the debate on the Clause which became Section 28. The Clause, which is now Section 28, evoked great discussion and it did so because it represented an entirely new departure in the anti-avoidance legislation. For the first time the Inland Revenue, the Treasury, was taking powers of a general nature to nullify tax advantages on transactions dealing with securities. Hitherto specific devices had been hit at Clause by Clause, and stretching back over many years. Section 28 represented the first attempt to hit at these matters generally.
    10.30 p.m.
    I have been reading the debates that took place in Committee, on Report and in Third Reading of that Bill, and I have found that one theme came from the Chief Secretary repeatedly, bordering on monotony. I will not bore the Committee with all the quotations, but I must

    727
    read one or two. On one of the Amendments on 24th May, 1960, the present Chief Secretary said:
    "I have tried prose and I have tried poetry. Whichever way I try I always seem to fail. I now propose to try to be persuasive by irritation "—
    that has a familiar ring—
    "and, when we come to the Question, 'That the Clause stand part of the Bill', to draw attention to this frightful difficulty and to our inability to deal with the situation simply because we have a tax structure under which capital gains are free of tax."
    On the next Clause he said:
    "This is the third anti-tax avoidance Clause, and it arises from the fact that we have a tax structure under which capital gains are not taxed and, therefore, all this procedure is necessary to prevent a man turning his income into notional capital and escaping taxation."
    On this next Clause he said:
    "This will never be a satisfactory method of dealing with attempts at tax avoidance. No doubt in two or three years' time we shall have another Finance Bill dealing with the same sort of problem, unless by that time we have a sensible tax structure, including a capital gain tax."—[OFFICIAL REPORT, 24th May, 1960; Vol. 624, cc. 350, 362 and 365.]
    The right hon. Gentleman returned to the theme in replying to the debate on the Third Reading of the Bill on 8th July, when he said:
    "Is it too much to hope that soon the Government will match their responsibilities? They can be assured of our support, although I do not suppose that that will be the final argument. Is not the necessary remedy within the modern Tory interpretation of the theory of the electoral mandate? Was not the ending of tax avoidance and the revision of the tax base specifically mentioned in the Labour Party manifesto?"—[OFFICIAL REPORT, 8th July, 1960; Vol. 626, c. 884.]
    So it went on throughout the debates on that Bill, and on that Clause in particular, ad nauseam. If only we had a Capital Gains Tax, if only we could reform the tax structure, all this complicated anti-tax avoidance procedure would be unnecessary. The weary round, year by year and Clause after Clause, to deal with this problem which beset the Inland Revenue—all this would become a thing of the past.
    Well, we have a Capital Gains Tax at a swingeing rate of 30 per cent.—higher than in almost any other country. The Government have entirely reformed the structure of the Corporation Tax and we have a high rate of 40 per cent. coupled with withholding tax under Schedule F at
    728
    41¼ per cent. We have had fierce new provisions to deal with close companies, and I have no doubt that all sorts of hidden delights are yet to come.
    What do we find? In the very first Finance Bill introduced after all these measures, as the Chief Secretary emphasised over and over again, we have a Clause whose only purpose is to close loopholes to tighten the law to prevent avoidance. He must regard this as the shattering of yet one more starry-eyed illusion and bear it with great equanimity as he remembers the high old days of happy opposition. He is now faced with the stern reality that, however embarrassing it may be, he has to continue the pattern which he so roundly condemned when sitting on these benches.
    Take the definition of "non-taxable" in Clause 37(6) is:
    "'non-taxable' in relation to a person receiving consideration, means that the recipient does not pay or bear tax on it as income."
    The pattern will remain, and Clauses of this type will continue. It must be very galling for the Chief Secretary to be faced with this situation.
    I say at once that it is not our intention to press the Amendment to a Division. It is a probing Amendment. The purpose of Section 28 of the 1960 Act was to deal with tax avoidance of a particular kind. In the Budget statement of 4th April of that year, the Chancellor of the Exchequer outlined the general intention of this part of the Act. Under the heading "Dividend Stripping" he outlined to the Committee some of the ingenious devices which I have mentioned, whereby tax avoiders could make use of the different methods of dividend stripping. The debate proceeded on the basis that this was the intention of Section 28, that it was aimed primarily at dividend stripping.
    The main Government Amendment, which went to the heart of the Clause, and was an attempt to improve and clarify it, was moved on 25th May by the then Attorney-General. He introduced it with these words:
    "I do not want to weary the Committee by going into any great detail of the lamentable history of dividend stripping and bond washing."—[OFFICIAL REPORT, 25th May, 1960; Vol. 624, c. 504.]
    and went on for some columns of HANSARD to say what the various methods

    729
    were, and how it was hoped that the Clause, as then being redrafted, would deal with them.
    My point is that partly by the operation of Section 28 (2, d), which the Amendment seeks to remove, the Section is not so confined in practice. There have recently been cases before the courts, including an important one in which judgment was delivered in the House of Lords, at the beginning of this year— the case of the Commissioners v. Parker, No. 2178 of Tax Cases. Their Lordships reversed the decision of the Court of Appeal and held that the particular transaction came within Section 28, although by no stretch of the imagination could the transaction be held to have anything to do with dividend stripping or bond washing.
    The transaction bore no remote resemblance to any of the processes which had been described both by Lord Amory and the then Attorney-General, but involved the issue of debentures, or capitalisation of reserves, redeemed eight years later, the main purpose being to raise cash to pay estate duty.
    The importance of the case, of course, rests in the two dicta which have been quoted frequently since then as representing the real nub of the case. Lord Dilhorne said:
    "I think I should make it clear that, in my opinion, this is taking too narrow a view of Section 28"—
    this was the view taken by the Court of Appeal, which had held that it was confined to dividend stripping—
    "That Section was, in my view, directed to tax avoidance taking place in certain circumstances and one has to consider whether in a particular case the circumstances specified existed."
    Lord Wilberforce was even more explicit:
    "One type of tax avoidance transaction at which the Act is evidently aimed at is that generically known as ' dividend-stripping'. This being perhaps the most easily identifiable target, it was contended in the Court of Appeal, and the argument found some favour there, that the Act, or at least Section 28, was confined to this and analogous practices and was not intended to and did not deal at all with the kind of arrangement with which we are concerned. This is an argument which I cannot accept. I do not find it possible to discern in this Act any indication that it was the purpose of the Legislature to limit it to any specific form of tax avoidance."
    The plain fact is that that decision of the House of Lords has caused very
    730
    considerable consternation, not only among the tax avoiders. That is a matter on which I am certain that the Chief Secretary and I are at one. We do not want to do anything to encourage tax avoidance. On the contrary, we want to defeat it. It has caused consternation among ordinary business folk contemplating perfectly legitimate transactions in securities.
    To take a simple case, a transaction involving the purchase and sale of securities may be done in two different ways. One way would land the person doing the transaction in a heavy liability to tax. The other way would land him in a lesser liability to tax. The effect of the dicta which I have quoted is to suggest that if he chooses the latter in preference to the former, one of his motives would be to avoid taxation, and therefore there could be a direction under Section 28. He would have to pay the tax, whichever method he chose.
    One is bound to ask if that was the intention of Section 28. It is miles outside dividend stripping or anything like the sort of transaction which comes within the normal understanding of the phrase "tax avoidance". This judgment has undoubtedly introduced a new element of uncertainty among professional men, an element introduced into perfectly genuine transactions, many of which would not escape by the exception which is in Section 28 about being "normal commercial transactions" or "transactions of a bona fide commercial nature".
    The question is, are they all to be struck at? Many people believe, as I do, that the judgment in the Parker case, in its extreme interpretation, takes the law outside the scope of Parliament's intention when it passed Section 28. There were fears expressed in the Committee at the time it went through that this would be the interpretation. Those fears were met by the Government. Lord Amory himself, opening the Third Reading debate on 8th July, said:
    "Obviously, the operation of this Clause will want close watching and careful scrutiny as time goes on. If in practice it should prove either too harsh or ineffective it can be discussed on an appropriate occasion in this House with a view to further amendment if any further amendment is required."—[OFFICIAL REPORT, 8th July, 1960; Vol. 626, col. 873.]

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    He was a good deal less confident than was the Chief Secretary himself, who at one stage in the Committee proceedings said:
    "I entirely agree with my hon. Friend the Member for Sowerby (Mr. Houghton) when he says that no innocent person conducting an ordinary transaction need have any fear of this Clause at all."—[OFFICIAL REPORT, 25th May, 1960; Vol. 624, col. 522.]
    That is what the Chief Secretary said then. His confidence was entirely misplaced and, quite frankly, the Parker case proves him wrong. If he doubts that, I would invite him to talk to tax counsel, solicitors, accountants and the hon. Member for Manchester, Cheetham (Mr. Harold Lever), who will no doubt back them up. The right hon. Gentleman will get a picture which is totally inconsistent with the view that he expressed then.
    It would be unrealistic to expect the Government to do anything in this Finance Bill, because it will obviously require time. The purpose of the Amendment is to ask the Government to give an undertaking seriously to look at this. We do not want to take such a blind antipathetic view of tax avoiders as to show no concern at all where perfectly innocent transactions are brought into the net, which was not the intention of Parliament.
    I hope that the Chief Secretary will take a more responsible view than he sometimes showed on these matters when conducting debates from this side of the Chamber. Of course, he was there to hit hard at the whole process of tax avoidance. But we have now got a Capital Gains Tax and a reformed structure of the Corporation Tax, though reform should never necessarily be confused with progress. It is altered and it is reformed. It is what the right hon. Gentleman was asking for in those debates. Clearly he will have to continue with the legislation and that is a matter of embarrassment which he will no doubt bear with fortitude, but it is damaging to the reputation of the Inland Revenue if honest, ordinary transactions involving dealings in securities are to be struck at. This case of Parker and the Commissioners has opened a new area of doubt and uncertainty. I am quite certain that the Government would be right to undertake to look at it seriously between now and next year and, if they agree with the
    732
    case I have made, introduce amending legislation next year.
    10.45 p.m.
    Mr. Harold Lever: I must make two apologies to the Committee. One is that the unaccustomed formality of my dress is evidence that I have not been present throughout the sitting of the Committee. I can only plead that I have been engaged in something in the public interest. I see that the Opposition Chief Whip, who was similarly engaged, has resumed his normal dress.
    Secondly, I do not want to detain the Committee by going through the Clause, but there are some things which I think should be said. Section 28, to which this Clause relates, was a general provision against tax avoidance. It was drawn in the widest terms, entirely incomprehensible to the layman, to the majority of lawyers, and certainly to the majority of Ministers. We have to ask ourselves to what extent is the House to fulfil its duty as the watchdog of the citizen if it cannot understand the meaning of a Clause which it is asked to pass. When we passed Section 28 we were, as the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) rightly said, under the impression that we were authorising the Government to exercise a wide discretion in dealing with complex professional forms of tax avoidance. I am quite certain that the House had no idea at all that the kind of cases now being decided in the courts, in particular the Parker case, would come within the ambit of the Section. I am quite certain that Lord Amory would turn in his seat in another place if he but knew that what he intended in one way was being used so widely to hit at totally unforeseen transactions which seem to me to be of the most innocent nature.
    What makes the matter worse is that all we see in the courts is the tip of the innocent iceberg. What we do not see are the thousands of harassed businessmen, investors, lawyers and accountants and those who have responsibilities to advise, now have no certitude of what ought to be done in any given situation. This seems a serious demerit in the Clause and in our tax legislation. If we are to fulfil our duties as a watchdog over the interests not only of the Revenue

    733
    but of the citizen, it is high time that we insisted on a reformed system of enacting tax legislation.
    It is all very well boasting of reformed tax structures; what the House, the Committee and the country urgently need is a reformed system of tax legislation. We need a taxation Act divorced from the irrelevant conjunction of the Chancellor's remedies and plans for redressing the balance of payments. It seems that the Chancellor has to set aside time to deal with the most complex, technical tax questions at the same time as he is planning the economic course of the country. It seems to me that there must arise in this Committee a sustained protest at the antiquated, out of date and unsatisfactory way of enacting tax legislation which prevails at the moment.
    The Chairman: I hesitate to interrupt the hon. Member, but he is travelling far from the substance of this Amendment.
    Mr. Lever: I thought that was a sort of introduction to the matter. To tell the truth, Sir Eric, since you ruled after a number of Amendments had been discussed on a perfectly comprehensible Clause that there should be no debate on the Clause standing part, I have been in great terror that on this totally incomprehensible Clause you would make a similar Ruling and I was, therefore, anxious to get in all my speeches on this Amendment and not to trouble the Committee further.
    Our duty is to protect the innocent, as was mentioned by the hon. Member for Wantead and Woodford, and I will not weary the Committee by giving further details of the cases mentioned or further cases under the Section of which this is an extension and renewal.
    I would like, in passing, to draw attention to subsection (2), and I hope that the Chief Secretary will explain why it is necessary to enact the subsection. The Amendment was not called and I will not go into detail on it. There is another matter which I want to mention, and this might give more comfort to the Chancellor who I am happy to see in his place. All of us here dislike retrospection, but I believe that retrospection is to be preferred to this sort of Clause.
    734
    At any rate the Committee would have the satisfaction of knowing that retrospection was aimed accurately at the people whom it was desired to hit. The Chancellor would make out his case for it, as I have no doubt he would, in proper form.
    The Chairman: There is nothing about retrospection in this Amendment.
    Mr. Lever: With respect, Sir Eric, and I do not want to quibble or challenge a Ruling of the Chair. All I am asking is: should we have this in this form, or should we consider as an alternative retrospective legislation to bring about the same effect?
    The Chairman: We are not discussing the Question, "That the Clause stand part of the Bill." We are discussing this particular and rather narrow Amendment.
    Mr. Lever: In that case I will await that Question and complete what I have to say then.
    Sir Lionel Heald: I am anxious to keep in order and I hope that I shall be able to do so. I realise that we shall have a further opportunity to go more deeply into the subject which the hon. Member for Manchester, Cheetham (Mr. Harold Lever) has been discussing. I would like to say how glad I am to be, not for the first time—but I am not always—in agreement with him. He has expressed a view which is widely held in this Committee and outside, without any regard to party politics.
    In this matter of tax legislation we are in danger of bringing into disrepute not only Parliament but the law and the courts which have to administer the law. The courts are forced to do things which they know are against or would be against justice, law and equity owing to the remarkable provisions enacted in this Committee and the House. I wonder whether the time will not come when we find that this part of our legislation has to be dealt with separately.
    I have no doubt that only a tiny minority of the hon. Members of this Committee have any idea what we are talking about when we are enacting legislation which is going to impose the most terrible injustices on people and which compels the courts to do something which revolts them. Worst of all, perhaps, we

    735
    find the Chief Secretary and others treating objections on these matters with humour. That is something which we must be very careful about, and I hope that we shall have the opportunity shortly, on another Clause, to discuss the matter.
    Sir D. Glover: Most of the speeches in this interesting debate on tax avoidance have come from lawyers. I shall speak as a non-lawyer. Every Member of the House of Commons or of any assembly wishes to stop tax avoidance There is no division on that. Both sides of the Committee wish to stop tax avoidance. But it seems to me, a non-lawyer, that the law has become far too complicated. I am a trustee of various trust funds, and I find it increasingly difficult to administer them because the lawyers tell me that they are not quite sure whether, if I do this or that, I shall be entering the realm of tax avoidance, which I have no desire to do.
    The present Chancellor and his predecessors, of either party, seem in the last few years to have got somewhat hag-ridden by the idea that any of these activities must be stopped. Basically, I agree, but it seems to me that we have developed, as it were, a phobia about tax avoidance. We have become rather like a man who, wishing to protect his strawberries from the birds, puts up not an ordinary strawberry net but a net 500 feet high and kills every bird in the district.
    The Chairman: On this Amendment, we cannot have a general debate on tax avoidance. I must ask hon. Members to confine themselves to the rather narrow point of the Amendment.
    Sir D. Glover: I accept your Ruling, Sir Eric. Like the hon. Member for Cheetham (Mr. Harold Lever)—I almost referred to him as my hon. Friend because we have known one another for very many years—I shall have another go on the Question, "That the Clause stand part of the Bill."
    Mr. Diamond: In view of your anxiety, Sir Eric, that we should restrict the discussion to the point raised by the Amendment, I shall not attempt to respond to the appeal of the hon. Member for Wanstead and Woodford (Mr.
    736
    Patrick Jenkin) that the rate of Capital Gains Tax should be put up from 30 per cent. to something between 41¼ and 91¼ per cent.
    The hon. Gentleman said that he raised the Amendment in order to probe and seek information with regard to a particular case, a case relating to an individual shareholder in a private company which in 1953 made a bonus issue of debentures which were repaid in 1961, the House of Lords holding that Section 28 of the Finance Act, 1960 applied. In view of the heat displayed elsewhere in the Chamber, I may, perhaps, refer to the fact that it is against the Finance Act, 1960, that complaint is being laid. The hon. Gentleman asks both for clarification and whether we would look into the matter.
    The answer—the hon. Gentleman may not have expected it—is "Yes, Section 28 of the 1960 Act was intended to catch this sort of arrangement". This is an arrangement under which there was a tax advantage in the terms of the Section. There was a redemption of the debentures in such a way that profits were released in non-taxable form. I wish, therefore, to make clear that this particular transaction was one which was caught by the Section, according to the House of Lords, and was intended so to be caught.
    Mr. Patrick Jenkin: I wonder whether the right hon. Gentleman has taken the point. Of course, their Lordships interpreted the Section as it stood. They looked at the language, and they held— as the highest tribunal in the land, they cannot be challenged—that the Parker case fell within the terms of the Section. But by just saying that it was so intended, the right hon. Gentleman misses the point. The question here is did Parliament intend that this sort of transaction should be caught? A study of the debates on the matter shows that it must be a matter of doubt. The debentures in question in the Parker case were issued in 1953 with no intention whatever that they should be redeemed. It was an entirely separate transaction, done for an entirely separate reason. It was not until seven or eight years later, as I understand it, in 1961, when the need arose for money to pay Estate Duty, that the shareholder in question was advised that this was a way in which it could be done.

    737
    11.0 p.m.
    This, of course, was only just immediately after the Act had been passed, and I do not suppose for one moment that their advisers felt that this was going to come within the Clause which throughout the debates in the House was said to be dealing with the professional tax avoider, with the dividend stripper, the bond washer and all the devices with which the Committee has become all too familiar. Did Parliament intend that a transaction made for an entirely different purpose, with no intention of avoiding tax, should come within Section 28? I have chosen this particular Amendment to raise this point because it is under the paragraph I am seeking to leave out that the Parker case was decided. That is the question to which the right hon. Gentleman must address his mind. Merely by using the words "it was intended" he is sliding over the point.
    Mr. Diamond: The hon. Gentleman has made a very long intervention, telling me I have slid over the point. I said I was going to deal with it in two parts. He listened to the first part but did not wait to hear the second. But he has made it all the more clear, and so I am grateful for his intervention.
    I think the essence of the second part of the hon. Gentleman's question is whether now the Government are prepared to look at this in the light of the debates and in the light of what was said in the judgments and see whether any adjustment is called for. Without giving any undertaking of any kind as to what the result of such a review would be, we are certainly prepared to accede to the hon. Gentleman's request to give the matter that kind of consideration.
    Mr. Peyton: I want to ask the right hon. Gentleman two questions. He answered my hon. Friend with these words, "Yes—it was intended", but he has not said by whom. What I and the Committee are anxious to know is what was the intention of Parliament. We are not now talking of the intention as construed by the courts. We are asking whether it was genuinely the intention of Parliament. This is the point on which there is doubt, and I hope the right hon. Gentleman will make his view clear on this. My suggestion is that he has not yet done so.
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    My second point is that it seems to me that my hon. Friend might have been a little restrained and modest in the way he put this point to the right hon. Gentleman. What he said was that he thought it was unreasonable to ask the Treasury to settle this matter quickly within the time-scale of the present Bill. I put it to him that if there were a comparable flaw from a comparable Treasury point of view, would not the matter be immediately remedied during the passage of the Bill through Parliament? If that is so, surely it is incumbent upon the Treasury now to remedy any difficulty there may be. I hope my hon. Friend may see fit to step up his demand and say that if there is anything wrong here it should be remedied during the passage of the Bill.
    Mr. Diamond: The hon. Gentleman asked me what the intention of Parliament was, but I should have thought that was a question which it was quite impossible to answer except to say that the court interpreted what was the intention of Parliament.[HON. MEMBERS: "Nonsense."] It is all very well to say "Nonsense". I thought I was helping the Committee by dividing the question into its two elements. The first is that Parliament can presumably only be thought to intend what the Statute said. The second part is what is the intention of the present Government, which is a different question and, I should have thought, a much more relevant and practical question.
    Mr. Harold Lever: And very interesting.
    Mr. Diamond: As my hon. Friend says, it is very interesting question as to what would be the intention of the present Government after having considered this and seen whether there is any case for the element of complaints which has crept into the hon. Gentleman's consideration.
    I have told the hon. Gentleman that we shall be glad to consider the matter. I understood the time scale. I cannot go farther than that. It is pointless for the hon. Gentleman opposite to consider what might arise if so-and-so came to a conclusion. I promise that we shall look at it very carefully. At the moment there is no reason to say that Parliament's wishes were not faithfully interpreted by

    739
    the courts. But to go to each Member of Parliament who took part in those debates and ask him what his particular view was would be going a little far.
    I hope that I have answered the hon. Gentleman. I do not think it is possible for me to go further than to say that I have listened very carefully to what he has had to say and have answered his question, I think, in the two relevant parts. The Government will give the matter careful review and consider whether there is anything to be done, though I am not giving the slightest undertaking as to what the result of that review might be.
    Mr. Harold Lever: Will my right hon. Friend, when considering the matter, bear in mind the most important fact of the two meanings of the words "the intentions of Parliament"? One is the intention from the point of view of the courts, which little concerns us here, because the courts are bound to ignore HANSARD or anything of that kind, for it cannot be admitted to assist the courts to see what the intention was from that point of view. The court is strictly bound to the words in construing the intention of Parliament.
    The hon. Gentleman opposite, in considering what was the intention of Parliament in the popular sense—that is, the wishes of the majority of the Members— has only to look at HANSARD and what was said by the Chancellor of the Exchequer, who, after all, introduced the Bill, and by others who have spoken on the Bill, to see what the intention was in the non-legal sense.
    I hope that the Chancellor and the Chief Secretary will not think it disrespectful of me if I point out to them that they are not Law Lords in considering this matter, that they are great humanitarian Ministers of State presiding over the economic and financial destinies of our people, and that one of their duties is not merely to protect the Revenue but to protect the will of this House and the intention of this House in the real sense. Perhaps it might assist my right hon. Friends if I tell them in unmistakable terms that I studied the Clause with considerable care when it was brought in in 1960, and I would never have advised that it had the meaning that was put upon it by the House
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    of Lords, nor, incidentally, would a single member of the Committee of Appeal, and it was a unanimous decision of the Court of Appeal that decided it in a contrary sense. So these things are very difficult, complex and technical.
    As to the real intention of Parliament, there is little doubt. I for one will testify that, for my part, my intention was precisely as indicated in my previous comments and certainly not to hit at the kind of transaction which was undertaken in the Parker case. Even worse, I little thought that we were enacting a Clause which would work a retrospective effect in part to undo a transaction which had been undertaken many years before the Clause had seen the light of day.
    Sir D. Glover: As the right hon. Gentleman has based the whole of his argument on the will of Parliament, and if he thinks that Parliament's intention was as he has indicated and not what his hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) has indicated, why does he not put down something at Report stage to test the will of Parliament again? After all, each Parliament is different, and we are not bound by the Parliament of 1960. If what has happened is not the will of Parliament, let Parliament test it again.
    Mr. Patrick Jenkin: I agree with and admire the way in which the hon. Member for Manchester, Cheetham (Mr. Harold Lever) made the distinction of the intention of Parliament. He put it as cogently and succinctly as it could have been put, and I would only add this. Last night, at a late hour, we were considering one year and three year surplus. There is not a shadow of doubt that had that Clause in the form in which it was presented last year gone before the courts, companies and their subsidiaries would have been entitled to take advantage of the surplus in a way that they are now being prevented from doing.
    It was not Parliament's intention that they should, and that points to the distinction clearly. Parliament's intentions are what appears in the Act. Parliament's intentions in 1960, when it was considering this may have been something quite different, and the hon. Member for Manchester, Cheetham, says that as far as he was concerned it certainly was.

    741
    I am grateful to the Chief Secretary for his offer to examine this matter and I hope that he and his staff will examine it sincerely, honestly and fully. It is a point which has very grave implications for people who would not, by the remotest stretch of imagination, consider themselves tax avoiders. Having had that assurance, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Mr. Diamond: I beg to move, Amendment No. 299, in page 42, line 11, at the end to insert:
    ("as defined by paragraph 7(1) of Schedule 11 to the Finance Act 1965)".
    It may be for the convenience of the Committee if we discuss with this Amendment No. 300 in page 42, leave out lines 38 and 39, and Amendment No. 352, in page 42, line 41, at end insert:
    "and the references in subsection (4) above to the repayment of share capital include references to any distribution made in respect of any shares in a winding up or dissolution of the company".
    These three Amendments deal with two points. The first is purely a drafting point, which I will go into if the Committee so desires. It relates to the meaning of "security" in the singular and "securities" in the plural. The second is a more substantial point, arising in connection with subsection (4) and deals with the situation when the accumulated profits of one company have been, in effect, transferred to the shareholders of a second company, as a result of a reconstruction. It was thought that the second company's shareholders would be subject to this Clause. It has now been found on further consideration that the words "repayment of share capital" which would be the charging words, have been held to apply to shares which have a prior claim on the assets, such as preference shares, and not to ordinary shares which did not entitle shareholders to any repayment as such but simply to a distribution of what was left in the kitty, the surplus assets. Therefore, this Amendment makes it clear that the words are intended to refer to repayment to ordinary shareholders.
    Amendment agreed to.
    Further Amendments made: In page 42, leave out lines 38 and 39.
    In line 41, at end insert:
    "and the references in subsection (4) above to the repayment of share capital include references to any distribution made in respect of any shares in a winding up or dissolution of the company".—[Mr. Diamond.]
    Question proposed, That the Clause, as amended, stand part of the Bill.
    11.15 p.m.
    Mr. Harold Lever: I do not want to be guilty of any tedious repetition, but this is a most important Clause and opens up fairly widely a most important subject which we started to discuss on the Amendment, whether our tax system is altogether satisfactory in the way in which we enact our legislation. Dr. Johnson, I believe, used a phrase in defining a net that it was the interstices between the intersections, and in our tax system there appear interstices between intersections which cause all the trouble. It is understandable that the Revenue are anxious to deal with those who are expert in finding the interstices between the intersections.
    That is all very well provided that the manner in which it is done is in the general public interest and gives effect to the will of the House. One of the difficulties in making sure that the will of the House is adhered to is that by our system of law—I have no doubt that there are good reasons for it—the courts, in seeking the intention of Parliament, may have regard only to the actual wording of the Statute and may not have regard to anything said in the course of the debate as to the intention of Parliament. The result is that the court cannot protect the citizen from a misapplication of the will of the House because our system of law is geared to the notion that it should pay no regard to what was said in the House. Even if every speaker in the House said, and was recorded as having said, that they wanted a particular section restricted in a certain way, the court could not have regard to anything which was said.
    It follows that a very serious burden falls on the shoulders of my right hon. Friend to ensure that the will of the House—the intention of the House, as I have explained it—is respected. I have explained that in my opinion effect was not given to the will of the House in the Parker case. I am not blaming the

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    Revenue because the Revenue no doubt have great difficulty in interpreting this Section, but in my opinion the idea that anybody in the Parker type of case would be hit by the Section was far from the thought of any Chancellor and I suspect of my right hon Friend the Chief Secretary when he was on the Opposition Benches at that time. Most hon. Members passed the Clause on the assurance which was given by Lord Amory at the time as to what its general intention was. It is inevitable in our system that most hon. Members who pass such a Clause accept the gloss put upon it by Treasury Ministers because they themselves cannot understand it, but the unhappy contradiction of the system is that the courts cannot put any such gloss upon the words of the Section. Hon. Members have to rely on what is said from the Government Bench.
    I very much hope that we shall put this matter right. I am not sure how much legislation is required and how much Government statement is required as to what the Revenue will do in such circumstances—because the Revenue are not obliged to bring these cases before the Commissioners for adjudication if they choose to operate it in another way. But the only satisfactory remedy is to amend the law. If there is not time and if the Government are not in a position to amend the law, then until we find time to pass a Taxation Act, on which we can consider all these matters closely in Committee, amelioration could result if the Government made a statement of their intention that the Clause should be operated only against what I describe as professional and complex tax avoidance and that it should not be aimed at circumstances such as the Parker case revealed. If my right hon. Friend is to see the kind of difficulties that beset ordinary taxpayers, he must look at this very case.
    Until the House of Lords decided otherwise, every lawyer that I know had thought that the Court of Appeal decision, that the Parker type of transaction was not within the Section, was right. Unhappily, the House of Lords, which is always right, for the simple reason that there is no appeal from its decision—in his own way, the Chancellor is always right for the same reason—decided that this was wrong.
    744
    Imagine the difficulties that beset trustees, lawyers, custodians of other people's property when they are asked to advise. They might very well have advised in the way which the Court of Appeal decided unanimously. If they had done so, they might very well have ruined their clients.
    To leave the law in this cloud of hazard and uncertainty is by no means in the interests of the Revenue. I ventured to pay a compliment to the Inland Revenue inspectors and staff, and appeared to cause some amusement in doing so. As I said then, they are unmatched in any other country in decency, integrity and zeal. It imposes an impossible burden on them when we throw the Parker type of case within sections like Section 28 and this Clause, which is an extension of that Section.
    As long as he had read HANSARD and his notes from the Inland Revenue on the Court of Appeal decision, every tax inspector was hitherto able to say, "I do not need to look at share transactions to see whether they come within the Section 28 assessment"—unless they were blatantly of the kind which I have described as professional and complex tax-avoidance transactions.
    In other words, he was able to leave 99 per cent. of the transactions that came to his notice from detailed surveillance, inspection and assessment. Once one brings in the Parker type of transaction, it follows that the Inland Revenue inspectors will have to look at almost every sale of shares and other securities, and this will impose a ludicrous burden on them. If there is the smallest possible ground for bringing the sale within the excessively wide provisions of the Clause, the inspector in question will be forced to make innumerable fruitless interrogatories to make quite sure that it does not come within them.
    It is not to the advantage of the Inland Revenue to leave the Clause in its present state of wideness, hazard and uncertainty. A penal Clause of this kind may be very necessary, but it should be exceedingly clear and sharp so that innocent people are not hit by it.
    I wish that a special effort were made, at any rate with our penal Clauses, to write them in English that can be understood by most of the people who will be

    745
    their victims. With the advantage of plain English, people would know what was coming to them. I do not know why it is always assumed that one cannot express oneself with exact legal effect in plain English. A man can woo his wife in plain English, marry her in plain English, quarrel dramatically, drastically and continuously with her in plain English, and divorce her in plain English, but we cannot have Statutes in plain English because it is thought that this would be too dangerous an experiment.
    If it is too much to ask that all Sections of all our Statutes should be in English which the average lawyer can understand, we might at least have these penal Sections in language that could be clearly understood by everybody who might be affected by them, and by more hon. Members than at present.
    When I was interrupted by the Chair, very properly, as being out of order, I was taking up the point of whether it is better to oppose the Clause or not to oppose it and make the Chancellor rely on retrospection. If the choice is between this sort of Clause, with the general incomprehensibility, vagueness, sense of danger and difficulty which it brings to ordinary business transactions, or retrospection, much as I dislike it, I go on record as saying that retrospection is to be preferred to this sort of Clause. I know that I shall have the sympathy of my right hon. Friend in this, because he has said that he intends to give effect to retrospection in given circumstances. That was regarded with horror in some quarters. I see far less mischief in accurate and careful retrospection than there is in a Clause of this kind.
    I am not satisfied that either retrospection or this kind of Clause is necessary. Neither is desirable if it can be avoided. If we set up a different system for enacting our tax law and divorce it from the annual Budget debates, we shall keep our tax law effective and up to date without the necessity either for this general type of provision or retrospection. My reason for saying that is that not one of the tax avoidance devices aimed at by successive Statutes was not widely known to the Revenue well before the law which abolished it was brought into effect.
    746
    Every year there is a queue of proposed Amendments to the law which are simply squeezed out because we are busy dealing with the Purchase Tax on toothbrushes, the Selective Employment Tax and matters of that kind. But if we were to establish a proper and sensible system for enacting tax laws separate from the Budget, we should be able to give proper time to these matters, and the moment the Inland Revenue learned of a tax avoidance device it could be legislated out of existence. If the Government would bring into being some such reform in our taxation legislation, which is urgently needed, we might find that we could do without this sort of Clause and retrospection, neither of which is very attractive to hon. Members.
    I am sorry that I have troubled the Committee at length, but this seems to me to be a most important matter. I hope that none of my hon. Friends or any hon. Member opposite will go away with the impression that this sort of Clause troubles only people who are engaged in tax avoidance. Nothing could be further from the truth. I can testify that many of the most naive and innocent people are the people who are really hit by this kind of Clause. Immense disturbance is caused to their businesses by this sort of Clause because they do not understand it. The professional tax avoider knows that he has nothing to lose, and he will chance his arm. The more innocent and naive people are, the greater is their anxiety and disturbance.
    There is one small point which I should like my right hon. Gentleman to clear up. To my sorrow, I have not studied, as I intended to do, Schedule 12 to the 1965 Act. I should like an explanation as to why subsection (2) is required in Clause 37. No doubt my right hon. Friend will be good enough to enlighten me on that point.
    Sir D. Glover: I support the theme running through the speech of the hon. Member for Manchester, Cheetham (Mr. Harold Lever), although I do not support what he said about retrospective legislation. I agree with him very strongly that this sort of legislation should be in language which ordinary people can understand. I speak very feelingly on this matter. Being a lawyer, the hon. Gentleman probably understands some

    747
    of the provisions in our legislation. On the other hand, I am sure that non-legal Members like myself have not the faintest idea what we are passing.
    I should like to make a plea to the Chancellor of the Exchequer and my right hon. and hon. Friends on the Front Bench. While I abhor and oppose tax avoidance of the sort we are discussing, we must accept that we live with human beings. We have become hag ridden over tax avoidance in recent years, starting in about 1957 right down to the present Government. Human beings being what they are, there will always be some form of tax avoidance, whatever legislation the Government introduce. The real tax avoider will always find some way around it, and there will always be glaring cases, but if they are within the law then what we are now reaching is a stage where an enormous number of transactions are being inhibited because nobody really understands what is the law.
    11.30 p.m.
    If we carry this thesis into the whole of our law making, then we shall reach an impossible situation. My flat was burgled last week and I have now put another lock on the door. If it is burgled again. I suppose I shall put locks on all the windows, and eventually I shall reach the impossible situation where I find I shall not be able to get into the flat myself. We are really getting to this state of affairs in the matter of tax avoidance. If we carried on in this way in the matter of ordinary crimes, we should make our whole life completely intolerable. We should find that nobody could leave their premises without dropping the portcullis, fixing steel bars in front of their windows, and generally making it impossible for anybody to get near the place.
    We are becoming completely hag-ridden over this matter of tax avoidance, and I speak with some feeling. Because of a very strict upbringing, I suppose that if I found a sixpence in the street I should put it in the first poor-box that I came across, since to do otherwise would give me the strongest feeling of guilt.
    Mr. Harold Lever: The hon. Gentleman should know that when he finds property of which he is not the owner he is breaking the law to dispose of it in the way in which he suggests.
    Sir D. Glover: Then quite innocently I have been a criminal for years. I am sure that what I am trying to illustrate is exactly the position into which we are getting in the matter of tax avoidance.
    We have to remember that so many things in human life are marginal. If the Treasury, no matter which party is in power, finds something is going on which is definitely against the public interest, then it is right that the Government should come to the House with an Amendment or a separate Bill to close it. At the same time, human nature being what it is, people will try to do something to make an honest or a dishonest penny within the law, or not pay tax if they can avoid it—again within the law—and it is very silly for this Committee not to take notice of human nature.
    It is not right to pass a blanket piece of legislation, because we are not thereby stopping a crime. We are stopping the activities of people who are not certain they are committing a crime. We are making it very much more difficult for ordinary honest people to deal, for example, with the money in a trust fund; men of the highest probity, who are not certain what the law is and who will find they have committed some offence against some Statute they do not understand, and which no lawyer understands. We shall never get away from crime while human nature is human nature and human beings are human beings, but it is no part of our duty to pass legislation which is understood by nobody.
    We have heard a brilliant speech about the intentions of the House in 1960. What I would say is that the lawyers seem to have taken a different view of what was at that time the view of this House. We in Parliament have a duty to put that right. We may have altered our views since 1960, but if this Committee still holds the same view about this that it held in 1960, and if the courts are now giving rulings which are against the intentions of the Committee and the House, then I think we in Parliament have a very definite responsibility and duty to bring back the law to what the intention of the Committee was when we passed that legislation.
    It is not sufficient for the right hon. Gentleman to say he will have an inquiry into this. If in the courts decisions are being given which are contrary to

    749
    the intentions of the Committee when it passed the legislation, then this Committee and the House have the responsibility to put the law right, so that the intention of the Committee and the House without peradventure is carried out by the courts. It is not sufficient—I know the difficulties—for the Establishment, the Executive, to say, "This is so complicated that we shall never get anywhere with it, and therefore we will pass a blanket piece of legislation", because all they are saying to the great mass of the public is, "We do not know what the law about this is, and we are going to leave it to the courts".
    The supreme court of this country is these Houses of Parliament and this Committee and this Chamber. It is not the Law Lords. The supreme law-giving body in this country, with respect to my hon. Friend who is trying to intervene again, is Parliament. It is not for the Law Lords to lay down for ever the law. It is Parliament which lays down the law. If the Law Lords misinterpret our intentions we have the responsibility to alter the law and make it accord with our intentions. That is the whole basis of Parliament. We are the sovereign body in this country, not a group of five judges or the Appeal Court or anybody else. If the courts give decisions which we in this Committee do not think are in line with what our intentions were when we passed the legislation we have the overwhelming responsibility to bring in amending legislation at the earliest possible moment to make certain the Law Lords do not go on misinterpreting our original intentions. It is not sufficient and it is very dangerous for this Committee to pass blanket legislation because we find it too difficult to deal with each individual case.
    I disagree with the hon. Gentleman. I apologise: I called him my hon. Friend a moment ago. I will repeat that, because there are in these debates so many things he says with which I agree, and we have been old friends for many years. But I do not agree with him about the retrospective side, because in a very complicated matter we are saying to sub-stational, honest citizens that they may do something which this Committee will afterwards decide they should not have
    750
    done. I do not think it is right they should be put in that position.
    Mr. Harold Lever: I was expressing something considerably less than enthusiasm for retrospective legislation. What I did say was that if the choice really is between wide, general Clauses of this kind, badly aimed, hazardous and uncertain, or retrospective legislation, accurate and clear, I would rely on the good sense and alertness of this Committee and the House to protect the public against the retrospective legislation, rather than have these wide, dangerous Clauses.
    Sir D. Glover: I agree with everything my hon. Friend has said in his interjection, except that I say that we are dealing with human beings who make mistakes. Some may be deliberate, some may be accidental; but there is always a very thin dividing line between the law-keeper and the lawbreaker. Under those conditions, if it was within the law at the time it was done, Parliament should support the person who did it. If we do not agree with it we have an obligation to pass amending legislation to prevent his doing it in future, but we should not say that what an ordinary decent citizen did—which we disapprove of retrospectively—was illegal.
    In any case, if one person gets away with a killing of £50,000 by tax avoidance, although that is dreadful when we consider his isolated case, and everybody shudders with horror when it happens, taken against the background of the great fabric of the nation, with its 52 million people, it is a bagatelle. The rule of law is far more precious than the fact that some person has made a killing of £50,000. The House can pass legislation to cover the loophole, but if no such particular legislation is passed it is wrong to pass blanket legislation, because that means that nobody knows what is right and what is wrong, or what was the intention of Parliament. When the House passes legislation it should do so with a clear intention.
    I am not supporting law breakers or dividend strippers. To the best of my knowledge I have never stripped anything —[Laughter.]—including dividends. That only shows that after years in the House I am a man supremely lacking in initiative, never seizing the opportunity. That

    751
    happens to be true. The fact that there was laughter when I said it—and I knew laughter was going to come when I said it; it was not accidental—only shows that people can be misunderstood, and that people can misunderstand legislation. It is wrong for us to give the Executive blanket powers when we do not know what they involve, thereby making it more and more difficult for responsible citizens to carry out their ordinary affairs.
    Admittedly this situation increases lawyers' fees, when nearly every legal transaction requires a lawyer to be consulted. But that is not the intention of Parliament. We do not seek to increase the remuneration of lawyers. The ordinary citizen has the right to expect Parliament to pass legislation which is understandable to him, so that he does not need to consult a silk before a quite normal transaction is carried out, and even then run the risk of hearing his counsel say, "The legislation passed in 1966 was so wide that I cannot advise you; I do not know whether it is legal or illegal".
    Under those conditions it becomes almost impossible for people to carry out ordinary transactions. We should criticise any Executive, Labour or Conservative, which tries to take power into its hands whereby ordinary citizens and their advisers cannot have any reliable knowledge of what will be the view of the courts. That is what the Government are asking for here, and I hope that we shall vote against it.
    Mr. William Baxter: I hesitate to add my voice to those which have been raised in connection with these matters, and I apologise for doing so at this late hour, although I should remind the Committee that I have refrained from entering into some of our other deliberations because I knew that we wanted to make progress. I am in agreement with almost all of what was said by the hon. Member for Ormskirk (Sir D. Glover), especially about retrospective legislation. I agree that it is very bad, and should be introduced only with very great reluctance.
    I also agree with my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), who has done a great service to the Committee in adding his plea
    752
    —with his legal ability, knowledge and qualifications—that the law should be made understandable not only to the layman, such as the hon. Member for Ormskirk and myself, but to the lawyers and professional men.
    11.45 p.m.
    I should like to draw attention to the fact that in the last month or two I have on numerous occasions sent letters to my right hon. Friend the Chancellor of the Exchequer and the Treasury, in each of which letter I have given the homily that the law should be compiled in such a way that most people can understand it. While it is true that we are anxious to get the best productivity from our people, we should also remember that the productivity of the professional classes is very important. More time has been wasted in the past year by professional people trying to understand the last Finance Act—and Finance Acts in previous years have been difficult enough to understand—that it must add up to a considerable amount of effort. If that effort had been put to good productive purposes, we probably would not have so much taxation in our Budgets. However, that is only an aside.
    It is absolutely imperative that Members of Parliament, even lay Members like myself, should understand what the various provisions mean. It is a sad state of affairs when even the best lawyers in the land find great difficulty in giving a clear interpretation of the intent of Parliament on these important matters. I trust that this debate has done something to bring it forcibly home to whoever may be occupying the Government Front Bench in the future, be they Conservative, Labour or Liberal, for it behoves us all to ensure that the law is of such a nature that people can understand it. If we do not do that, it will get into a state of disrepute and we shall get into a considerable mess not only financially but law-wise.
    My hon. Friend the Member for Cheetham has done a great service to the nation in drawing the attention of my right hon. Friend to the seriousness of this problem. As I have said, I have written to the Chancellor and to the Treasury about it. Many professional people have approached me because they have not understood the law as we Members of Parliament have sought to pass

    753
    it. I hope that this homily will be taken to heart.
    Mr. Peyton: I am sure we are all much indebted to the hon. Member for Manchester, Cheetham (Mr. Harold Lever) for the support that he has given in this debate. Speaking as a rather extinct kind of lawyer, I lack the eloquence and the knowledge adequately to support the plea made by the hon. Member, but I hope that that plea has not fallen on deaf ears. The question that we have got to ask ourselves is whether it is right for Parliament to impose these imponderable patches of fog into the Statute Book and just hope that they are all right.
    I do not want to detain the Committee long, but I should like to draw attention to one subsection of this Clause, subsection (4), which reads:
    "So far as the paragraph (e) added to the said section 28 (2) by subsection (3) above relates to share capital other than redeemable share capital, it shall not apply unless and except to the extent that the share capital is repaid (in a winding-up or otherwise), and where the said section 28 applies to a person by virtue of the said paragraph (e) on the repayment of any share capital any assessment to tax under subsection (3) of the said section 28 shall be an assessment to tax for the year in which the share capital is repaid."
    Even the learning of the Solicitor-General will not be adequate to explain the intention of Parliament in letting that sort of rubbish go through. I defy anyone on the Government Front Bench to say what that subsection means, accurately and concisely. It is monstrous to impose on the courts the duty to construe this sort of thing. We are shirking our duty to say what we mean, and it is a monstrous injustice to ask the courts to turn this sort of unleavened nonsense into intelligible law.
    I would remind the Committee of the distant episode of Roman history when the secession of a section of the people took place because the law was not clear. I cannot help feeling that if we go on imposing tax legislation of this kind a secession of some other people will be called for and will probably happen.
    Mr. Patrick Jenkin: The debate has shown that deep issues of principle are involved in legislation of this kind. Many hon. Members have a basic dislike of legislation which is cast in not only an inscrutable form but in a form as sweep-
    754
    ing and pervasive and uncertain as this kind of legislation is. In view of the strong feelings expressed from both sides of the Committee, it is not right that we should let pass a Clause cast in this form without expressing our protest. I would therefore ask my right hon. and hon. Friend to divide against it.
    Mr. Harold Lever: This is a Clause of some complexity. I asked a question about the need for subsection (2) and we ought to have some answer. I am sad to hear that it is the intention to divide the Committee on this matter. I thought that we had received an earnest assurance from my right hon. Friend that this would be considered. The Parker case is very recent. I ask hon. Gentlemen opposite, who have hitherto spoken in a non-party fashion, to reconsider whether it is wise, creative or desirable to produce a division on a Clause which, on their own showing, they do not understand.
    Mr. Diamond: I understood the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) to say that they would divide not against the meaning of the Clause but against its lack of comprehensibility.
    My hon. Friend asked me the reason for subsection (2). The reason is that it is necessary to guard against a double setoff of franked investment income received by the company. There might be two kinds of set-off, the first against an assessment under Clause 37(1), and the second a further set-off by the company for the same income against its Schedule F liability for dividends paid out of other profits. The subsection is necessary to avoid the possibility of an offset being used twice.
    The hon. Member for Yeovil (Mr. Peyton) asked what was the meaning of subsection (4). This is a much more straightforward subsection, providing that, where the consideration received consists of non-redeemable shares in the second company, Section 28 will apply only if those shares are repaid——
    Sir L. Heald: Then why not say so?
    Mr. Diamond: Lawyers can answer that question more readily than I.
    Mr. Peyton: The right hon. Gentleman has not answered the question put by my right hon. and learned Friend the Member for Chertsey (Sir L. Heald). If the

    755
    meaning is as simple as that, why not express it in those terms?
    Mr. Diamond: I can only say that that is how I understand the Section. I have tried to put it in my own lay terms. As every lawyer knows, it would be wholly unsatisfactory for imprecise terminology to be used for definition in the courts.
    As the hon. Member for Yeovil has been good enough to say that he understands what the subsection means, I hope that we may now be able to make a little progress.
    Mr. Harold Lever: Just to establish on the record the will of the Government, may I take what my right hon. Friend has said to mean that it is not the intention by subsection (2) that, when an assessment is made, the Revenue will get more tax out of the transaction than if the transaction had not been engaged in?
    If the company would have had a setoff against Income Tax by reason of the fact that, for example, it had franked investment income, is there any reason why that benefit should not accrue to the shareholder who is being surtaxed on the income as a result of the operation of Section 28 and Clause 37?
    Can I have an assurance from my right hon. Friend that the purport of the subsection cannot result in a gain to the Revenue by upsetting the transaction, other than by frustrating the tax avoidance?
    Mr. Diamond: I can most readily answer my hon. Friend by drawing his attention to the fact that the subsection is permissive. In appropriate cases, it will be possible to allow a set-off against the assessments on the shareholders; provided always that the Revenue can be safeguarded in a subsequent claim to set off the same income against dividends paid.
    Mr. Harold Lever: I am sorry to press the point. What I am asking my right hon. Friend is, can we have an explicit assurance that the subsection will not be operated so as to cause an accrual to the Revenue of Income Tax which could not have accrued except by the operation of the subsection against an avoidance transaction?
    Mr. Diamond Mr. Diamond rose ——
    Mr. Harold Lever: If my right hon. Friend wants to give an express assurance on the matter, I will sit down at once.
    Mr. Diamond: I do not want to give an express assurance in my hon. Friend's words, but in my own. I can give an express assurance that the subsection is intended to counteract a tax advantage, and no more.
    Sir D. Glover: The hon. Member for Manchester, Cheetham (Mr. Harold Lever), if he would listen for a moment, has criticised the fact that my right hon. and hon. Friends intend to divide the Committee. Speaking for myself, I am going into the Division Lobby tonight not as a Conservative but as a Member of the House of Commons. This is not a party matter, but a matter where the Committee has the right to insist that the Executive do not ask for this kind of blanket legislation.
    Mr. Harold Lever: May I give the hon. Member for Ormskirk (Sir D. Glover) and his right hon. and hon. Friends this warning? If they intend to vote against every Clause which they do not understand, there is going to be precious little legislation got through the House.
    Question put, That the Clause, as amended, stand part of the Bill:—
    The Committee divided: Ayes 184, Noes 105.

    Division No. 51.]

    AYES

    [11.59 p.m.

    Abse, Leo

    Bennett, James (C'gow, Bridgeton)

    Brown, R. W. (Shoreditch & F'bury)

    Albu, Austen

    Binns, John

    Buchan, Norman

    Allaun, Frank (Salford, E.)

    Blenkinsop, Arthur

    Buchanan, Richard (C'gow, Sp'burn)

    Alldritt, Walter

    Boardman, H.

    Callaghan, Rt. Hn. James

    Anderson, Donald

    Booth, Albert

    Cant, R. B.

    Archer, Peter

    Boyden, James

    Carmichael, Neil

    Armstrong, Ernest

    Bradley, Tom

    Coleman, Donald

    Atkins, Ronald (Preston, N.)

    Brooks, Edwin

    Conlan, Bernard

    Baxter, William

    Brown, Rt. Hn. George (Belper)

    Crawshaw, Richard

    Beaney, Alan

    Brown, Hugh D. (G'gow, Provan)

    Cullen, Mrs. Alice

    Benn, Rt. Hn. Anthony Wedgwood

    Brown, Bob (N'c'tle-upon-Tyne, W.)

    Dalyell, Tarn

    Davidson, Arthur (Accrington)

    Howell, Denis (Small Heath)

    Newens, Stan

    Davidson, James (Aberdeenshire, W.)

    Howie, W.

    Noel-Baker, Francis (Swindon)

    Davies, G. Elfed (Rhondda, E.)

    Hughes, Hector (Aberdeen, N.)

    Oakes, Gordon

    Davies, Harold (Leek)

    Hughes, Roy (Newport)

    Ogden, Eric

    Daviee, Ifor (Gower)

    Hunter, Adam

    Oram, Albert E.

    de Freitas, Sir Geoffrey

    Jackson, Colin (B'h'se & Spenb'gh)

    Orbach, Maurice

    Dell, Edmund

    Jay, Rt. Hn. Douglas

    Orme, Stanley

    Dempsey, James

    Jeger, George (Coole)

    Oswald, Thomas

    Dewar, Donald

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Page, Derek (King's Lynn)

    Diamond, Rt Hn. John

    Jenkins, Hugh (Putney)

    Pardoe, J.

    Dickens, James

    Johnson, Carol (Lewisham, S.)

    Park, Trevor

    Doig, Peter

    Johnston, Russell (Inverness)

    Parkyn, Brian (Bedford)

    Donnelly, Desmond

    Jones, Dan (Burnley)

    Pavitt, Laurence

    Dunnett, Jack

    Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)

    Perry, George H. (Nottingham, S.)

    Dunwoody, Mrs. Gwyneth (Exeter)

    Judd, Frank

    Price, Christopher (Perry Barr)

    Dunwoody, Dr. John (F'th C'b'c)

    Kelley, Richard

    Price, William (Rugby)

    Eadie, Alex

    Kenyon, Clifford

    Redhead, Edward

    Edwards, Robert (Bilston)

    Kerr, Mrs. Anne (R'ter & Chatham)

    Rhodes, Geoffrey

    Edwards, William (Merioneth)

    Kerr, Russell (Feltham)

    Roberts, Gwilym (Bedfordshire, S.)

    English, Michael

    Lawson, George

    Rose, Paul

    Ennals, David

    Leadbitter, Ted

    Rowlands, E. (Cardiff, N.)

    Evans, Ioan L. (Birm'h'm, Yardley)

    Ledger, Ron

    Shaw, Arnold (Ilford, S.)

    Faulds, Andrew

    Lee, Rt. Hn. Jennie (Cannock)

    Sheldon, Robert

    Fletcher, Ted (Darlington)

    Lestor, Miss Joan

    Shore, Peter (Stepney)

    Foot, Michael (Ebbw Vale)

    Lever, Harold (Cheetham)

    Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

    Forrester, John

    Lever, L. M. (Ardwlck)

    Short, Mrs. Renée (W'hampton, N. E.)

    Fowler, Gerry

    Lewis, Arthur (W. Ham, N.)

    Silkin, John (Deptford)

    Fraser, Rt. Hn. Tom (Hamilton)

    Lewis, Ron (Carlisle)

    Silkin, S. C. (Dulwich)

    Freeson, Reginald

    Lomas, Kenneth

    Silverman, Julius (Aston)

    Gardner, A. J.

    Lubbock, Eric

    Steele, Thomas (Dunbartonshire, W.)

    Garrett, W. E.

    Lyon, Alexander W. (York)

    Stonehouse, John

    Ginsburg, David

    Lyons, Edward (Bradford, E.)

    Summerskill, Hn. Dr. Shirley

    Gourlay, Harry

    MacDermot, Niall

    Urwin, T. W.

    Gray, Dr. Hugh

    Macdonald, A. H.

    Varley, Eric G.

    Gregory, Arnold

    McGuire, Michael

    Wainwright, Edwin (Dearne Valley)

    Grey, Charles

    Mackenzie, Alasdair (Ross&Crom'ty)

    Walden, Brian (All Saints)

    Griffiths, David (Rother Valley)

    Mackenzie, Gregor (Rutherglen)

    Walker, Harold (Doncaster)

    Griffiths, Will (Exchange)

    Mackie, John

    Watkins, David (Consett)

    Grimond, Rt. Hn. J.

    Mackintosh, John P.

    Wellbeloved, James

    Hale, Leslie (Oldham, W.)

    Maclennan, Robert

    Wells, William (Walsall, N.)

    Hamilton, William (Fife, W.)

    MacMillan, Malcolm (Western Isles)

    Whitaker, Ron

    Hazell, Bert

    McMillan, Tom (Glasgow, C.)

    Whitlock, William

    Heffer, Eric S.

    McNamara, J. Kevin

    Williams, Alan (Swansea, W)

    Henig, Stanley

    Mahon, Peter (Preston, S.)

    Williams, Alan Lee (Hornchurch)

    Herbison, Rt. Hn. Margaret

    Mahon, Simon (Bootle)

    Williams, Mrs. Shirley (Hitchin)

    Hobden, Dennis (Brighton, K'town)

    Manuel, Archie

    Wilson, William (Coventry, S.)

    Hooley, Frank

    Mapp, Charles

    Winstaley, Dr. M. P.

    Hooson, Emlyn

    Miller, Dr. M. S.

    Woodburn, Rt. Hn. A.

    Horner, John

    Morgan, Elystan (Cardiganshire)

    Woof, Robert

    Howarth, Harry (Wellingborough)

    Morris, Charles R. (Openshaw)

    TELLERS FOR THE AYES:

    Howarth, Robert (Bolton, E.)

    Neal, Harold

    Mr. McCann and Mr. Alan Fitch.

    NOES

    Allason, James (Hemel Hempstead)

    Gresham Cooke, R.

    Maginnis, John E.

    Awdry, Daniel

    Grieve, Percy

    Maxwell-Hyslop, R. J.

    Baker, W. H. K.

    Hall, John (Wycombe)

    Maydon, Lt.-Cmdr. S. L. C.

    Batsford, Brian

    Hall-Davis, A. G. F.

    Mills, Peter (Torrington)

    Bell, Ronald

    Heald, Rt. Hn. Sir Lionel

    Mitchell, David (Basingstoke)

    Biggs-Davison, John

    Heseltine, Michael

    Monro, Hector

    Birch, Rt. Hn. Nigel

    Higgins, Terence L.

    More, Jasper

    Bossom, Sir Clive

    Hiley, Joseph

    Morrison, Charles (Devizes)

    Bryan, Paul

    Hill, J. E. B.

    Munro-Lucas-Tooth, Sir Hugh

    Buchanan-Smith, Alick (Angus, N&M)

    Hirst, Geoffrey

    Neave, Airey

    Buck, Antony (Colchester)

    Hobson, Rt. Hn. Sir John

    Nicholis, Sir Harmar

    Carlisle, Mark

    Holland, Philip

    Page, Graham (Crosby)

    Clark, Henry

    Hordern, Peter

    Pearson, Sir Frank (Clitheroe)

    Clegg, Walter

    Hornby, Richard

    Peel, John

    Cooke, Robert

    Howell, David (Guildford)

    Percival, Ian

    Cooper-Key, Sir Neill

    Hunt, John

    Pike, Miss Mervyn

    Dalkeith, Earl of

    Hutchison, Michael Clark

    Pink, R. Bonner

    Deedes, Rt. Hn. W. F. (Ashford)

    Jenkin, Patrick (Woodford)

    Pounder, Rafton

    Digby, Simon Wingfield

    Jopling, Michael

    Powell, Rt. Hn. J. Enoch

    Doughty, Charles

    Kaberry, Sir Donald

    Pym, Francis

    Eden, Sir John

    King, Evelyn (Dorset, S.)

    Renton, Rt. Hn. Sir David

    Elliot, Capt. Walter (Carshalton)

    Kitson, Timothy

    Ridsdale, Julian

    Elliott, R. W. (N'c'tle-upon-Tyne, N.)

    Farr, John

    Knight, Mrs. Jill

    Rossi, Hugh (Hornsey)

    Fortescue, Tim

    Langford-Holt, Sir John

    Scott, Nicholas

    Giles, Rear-Adm, Morgan

    Lloyd, Rt.Hn. Geoffrey (Su'nC'dfield)

    Sharples, Richard

    Gilmour, Sir John (Fife, E.)

    Macleod, Rt. Hn. Iain

    Shaw, Michael (Sc'b'gh & Whitby)

    Glover, Sir Douglas

    McMaster, Stanley

    Sinclair, Sir George

    Gower, Raymond

    Macmillan, Maurice (Farnham)

    Smith, John

    Grant, Anthony

    Maddan, Martin

    Stodart, Anthony

    758

    759

    Summers, Sir Spencer

    Walker, Peter (Worcester)

    Wilson, Geoffrey (Truro)

    Taylor, Frank (Moss Side)

    Walker-Smith, Rt. Hn. Sir Derek

    Woodnutt, Mark

    Thatcher, Mrs. Margaret

    Wall, Patrick

    Worsley, Marcus

    Tilney, John

    Weatherill, Bernard

    Turton, Rt. Hn. R. H.

    Webster, David

    TELLERS FOR THE NOES:

    van Straubenzee, W. R.

    Wells, John (Maidstone)

    Mr. George Younger

    Vickers, Dame Joan

    Whitelaw, William

    and Mr. Reginald Eyre.

    Clause 38.—(ESTATE DUTY: INTERESTS LIMITED TO CEASE ON DEATH.)
    The Solicitor-General (Sir Dingle Foot): I beg to move Amendment No. 316, in page 43, line 19, at the end to insert:
    (2A) If immediately before the death of the deceased a number of persons were, as beneficiaries under a discretionary trust, together entitled to an interest in the property limited to cease on the death and the deceased was then one of those persons, or at some earlier time had been a beneficiary under that discretionary trust, then, in determining the questions in subsection (1) above as regards that interest, any other interest in the property which, whether as arising from the same trusts or otherwise, belongs to those who immediately before the death were the beneficiaries under the discretionary trust shall be treated as being held by persons other than those beneficiaries, and other than the deceased.
    I propose, with your permission, Sir Eric, and that of the Committee, to take with this Amendment, Amendment No. 317, as they go together.
    I can propose this Amendment in a few words, but to make it in some degree more comprehensible may I refer to the reasons for the Clause to which it is an Amendment. This Clause was foreshadowed by the Chancellor in his Budget statement. He then made it clear that it was proposed to close a gap in the law of Estate Duty which had been revealed by the House of Lords' decision in the case of Ralli Brothers v. Commissioners of Inland Revenue. I do not think that the Chancellor's announcement or this Clause has come as a surprise to anyone familiar with Revenue legislation.
    The House of Lords decision, which reversed the decision of the Court of Appeal in the previous October, was delivered on 15th December last. I will say a word about its effect?
    Under Section 1 of the 1894 Act—the Act where Estate Duty began—a duty is imposed on all property, real or personal, settled or not settled, which passes on the death of any person. Under Section 2(1)(b), the property which passes includes property
    "in which the deceased or any other person had an interest arising on the death of the
    760
    deceased, to the extent to which the benefit accrues or arises by the cesser of such interest".
    Where property is settled on a tenant for life, Estate Duty becomes payable when the tenant dies because the property then passes to the reversioner. In the Ralli case, the reversioner assigned the income of the reversionary capital to the life tenant until a fixed date to be expected after her death, that is, some years ahead. In fact, she was certain to have died before that date was reached. Following her death, therefore, some years before the date fixed, the income continued to be paid to her estate.
    The House of Lords held, in effect, that the interest did not cease on her death and that the beneficial ownership of the settled fund remained the same. In other words, the property had not changed hands and there was no liability to Estate Duty.
    As the Committee will appreciate, this opens up an enormous prospect of tax avoidance, and it is for that reason that this Clause has been included in the Bill. As drafted, subsection (2) deals with ordinary trusts, but by the Amendment it is proposed to make the same provision for discretionary trusts. The Committee will note that a discretionary trust is defined in the new subsection (5) proposed in Amendment No. 320 as including a trust
    "under which the disposition of any of the trust income is at the discretion of the trustees or of any other person".
    In order to avoid transgressing the rule against perpetuities, there has to be some provision in a discretionary trust for the ending of the trust. There is nothing at present in the law to prevent the employment of what I call the Ralli device, which I have described and which was held to be lawful by the House of Lords, in a discretionary trust: that is to say, the settlement may be expressed to continue until the last beneficiary dies or until a much later date. It is necessary, therefore, here to deal with

    761
    the discretionary trust in the same way as the ordinary trust, and these Amendments are proposed for that purpose.
    Mrs. Margaret Thatcher: The Solicitor-General has given us a detailed account of what is known as the grafting operation, and I understand that the purpose of this set of Amendments is to cure the law as it was shown to be in In re Holmden's Settlement Trusts, the judgment in which was published in The Times on 13th May last, against which the Clause as originally drafted would not have been sufficient to strike.
    In view of the debate on the last occasion, I ask the Solicitor-General whether he is quite certain that the Amendment which he proposes strikes at that mischief and goes no wider. Having examined it reasonably carefully, I think that the words
    "or at some earlier time"
    take it very much wider than the Holmden case. I should be grateful if the hon. and learned Gentleman would look at that point, because there is no time limit at all. The expression "or at some earlier time" could cover a very long time ago.
    Will the Solicitor-General give his considered opinion on Report if I put down an Amendment to delete those words? I recognise that it would be asking a lot to expect an expression of opinion now, but I am concerned that we should not unwittingly enact a provision which went much wider than the case at which it was intended to strike.
    The Solicitor-General: I should be very glad to give the hon. Lady my considered opinion on Report, but I think that I can probably set her mind at rest here and now as regards the words,
    "or at some earlier time had been a beneficiary under that discretionary trust …".
    There may be a number of beneficiaries under a discretionary trust.
    12.15 a.m.
    Supposing we take the case of an old lady, let us say, who is one of the beneficiaries under the trust, and it may be that obviously she has not long to live. She can give up her interest under the trust and the result would be that the payment of Estate Duty would be avoided. It is to meet that kind of situation that these words are included.
    762
    That is the purpose, but I will, of course, look at it again as the hon. Lady asked and, if she wishes, give her further information on Report stage.
    Mrs. Thatcher: The words to which I referred go much wider even than that explanation. The words are "at some earlier time." The old lady could have been a member of the trust from the time she was born, and if she ceases to be a member of the trust at 21 she would still have been a member at some earlier time, even if she did not die until she was 80. What the right hon. and learned Gentleman said encourages me in the view I expressed, and I would ask him to reconsider the point.
    Amendment agreed to.
    Further Amendments made: In page 43, line 20, after "purposes" insert "(a)",
    In page 43, line 20, after "section", insert:
    "and
    (b) so far as they relate to estate duty leviable on a death after 3rd May 1966, of section 43 of the Finance Act 1940 and section 28 of the Finance Act 1958 (disposition or determination of interest limited to cease on death, and purchase of interest in expectancy in property subject to an interest limited to cease on death)".—[The Solicitor-General.]
    Mr. Hugh Fraser: I beg to move Amendment No. 105 in page 43, line 20, to leave out from "section" to end of subsection (3) and insert:
    "the deceased shall be deemed to have had more than one interest in property including immediately before his death an interest in property limited to cease on his death if at that time he had any of the following interests:

    (a) an interest not limited to cease on his death but which was enjoyed under two or more titles one of which conferred an interest limited to cease on the death of the deceased;

    (b) an interest which could not terminate before the death of the deceased;

    (c) an interest which in contingencies not related to the death of the deceased could not terminate before his death."

    At this late hour I do not intend to detain the Committee too long, but the hon. and learned Member for Manchester, Cheetham (Mr. Harold Lever) and my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) drew the attention of the Committee when

    763
    we were discussing Clause 37 to the general danger of vague legislation. I would like to call the attention of the Committee at this stage to the great danger of incomprehensible phraseology. This was drawn attention to by my hon. Friend the Member for Birmingham, Edgbaston (Mrs. Jill Knight) in a remarkable maiden speech when she referred to subsection (3) of this Clause.
    If any hon. Member is at this time of night prepared to read subsection (3) and comprehend it, I would gladly pay him a very heavy reward. My only regret is that my Amendment No. 104 has not been called, because, taken with this Amendment, it does make the intention of this Clause infinitely clearer than it is at the moment to the average person and even to the average lawyer.
    This Clause is quite rightly aimed at dealing with a form of avoidance quite apart from the question of the trust, to which the Solicitor-General referred a moment ago. It refers to the type of avoidance which I think is known more as the extension of the life interest scheme. The proposals which I put do, I believe, make this infinitely clearer than it has been made by the Parliamentary draftsmen and by Parliament. I am glad the Solicitor-General is here tonight because it must be the Solicitor-General's duty to make the thing as clear as possible to the Committee.
    Of course, as the law stands, the technique has been, providing that an interest can be arranged to extend beyond death and not coincidental with it, that tax can be avoided. This is one of the weaknesses of the Act of 1894 of odious memory, when the economic relationships of the whole country were changed. To those blessed inside this type of scheme, death loses its financial sting, and although they cannot take it with them, neither can the Chancellor take it off them. This is rightly being corrected by the Government in the Clause.
    But I believe that, as it stands, the Clause is scarcely comprehensible, not only to the ordinary layman but to the ordinary lawyer. Consequently, I have tabled two comparatively simple Amendments which I believe clarify the Clause enormously. Although my other Amendment was not called, I hope that the Chancellor or the Solicitor-General will
    764
    adopt it on Report because it makes the Clause infinitely clearer. The Amendment to subsection (3), by breaking it up into paragraphs and giving it a new introduction, also makes the intention infinitely clearer. I hope that in the interests of better drafting and greater clarity my Amendments will be adopted by the Government.
    Even if my proposals are accepted, as I trust they will be, there is another point in subsection (3) which needs clarification, and that is: Why is the final sentence of the subsection necessary? Surely what is contained in paragraph (c) is contained within my paragraph (a)? It is not clear to me why it is necessary to have this apparently redundant and tortuous phrase.
    To sum up my arguments, I believe that there is an important obligation on any Government to ensure that complicated and complex legislation—I agree that the question of preventing avoidance, with which we are all in accord, is complicated—is in language of such clarity that it can be understood by the average Member of Parliament and at least by the average lawyer. If this is not done, all the dangers which the hon. Member for Cheetham and other hon. Members have pointed to will accrue—simply because the language is not clear.
    The hon. Member for Manchester. Cheetham quoted from Dr. Johnson. I should like to end by quoting Confucius. He was told that he was to be the military governor of a new province, and he was asked what his first reform would be, and he replied that his first intention would be to reform the language so that men understood what he was about. In spite of their great talk of new tax structures, this is what right hon. and hon. Gentlemen opposite have singularly failed to do. They are prepared to bring before the House of Commons such a meaningless piece of mumbo-jumbo as subsection (3).
    Mrs. Jill Knight: It may be thought that I rise because so many hon. Members in the last hour or two have made speeches which coincide precisely with my own view, but this is not so. I rise because some days ago I tabled Amendment No. 323, which I understand is being taken with this Amendment.

    765
    My Amendment seeks to delete subsection (3), not because I have any strong feelings against it or for it, but simply because I do not understand one word of it. It really is pure gibberish from beginning to end, and so far it has defied the intelligence of every person to whom I have shown it. My hon. Friend the Member for Yeovil (Mr. Peyton) a little while ago quoted another subsection. That subsection is a model of clarity and light compared with this particular subsection.
    The Government stretch the loyalty of their supporters in many ways, but I should think that the limit has been reached when they expect them to troop dutifully through the Division Lobby in support of a great chunk of legislation which is couched in terms of ritualistic mumbo-jumbo which would do credit to the Flower Pot Men, and hardly reflects any credit upon the Chancellor.
    Early in the Second Reading debate I quoted this subsection in full and, in doing so, I begged the Chancellor to make it clearer. It is perhaps presumptuous of me to expect that the Chancellor will take the smallest piece of notice of me, but I feel that there might be some slight hope that he will take some notice of his right hon. Friend the Chief Secretary. I was delighted when during the Second Reading the Chief Secretary said:
    "The administration which we propose must be based on simplicity. …"—[OFFICIAL REPORT, 25th May, 1966; Vol. 728, c. 484.]
    "Hear, hear" I said from my seat. How splendid. Now everything is going to be all right. But not a bit of it. What we find when we see the Amendments put down is that the Chancellor, far from making things simpler in response to the plea by the Chief Secretary, if not in response to my plea, seeks to make it more complicated by adding another four or:5ve lines to the nine lines, which are all one sentence. There are no full stops. What a contribution to clarity !
    Anyone who goes through the Lobby in support of this subsection as it stands will deserve, and will probably receive, the ridicule of every political commentator in the land. We are not all lawyers here and, even if we were, this subsection would still baffle 99 out of a 100 Members. My right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser)
    766
    has valiantly attempted to bring order out of chaos in this subsection, but I must say that it seems almost to have defeated even him. This subsection is better out altogether, but if it must remain then Amendment No. 105 is infinitely preferable.
    No one expects Finance Bills to be easy to understand, but at least reasonably intelligent Members should have a fair chance of doing so before they vote, otherwise Parliament is a farce and we might as well all go home and let the Government rubber-stamp the lot.
    Sir L. Heald: I would like to point out that we have been usefully discussing, in an entirely non-party spirit, apart from the Government Front Bench, a matter of very great importance. This demonstrates that this new House of Commons at last is going to insist on some sensible action being taken in relation to the wording of tax matters. It is also very important to note that the hon. Lady the Member for Birmingham, Edgbaston (Mrs. Knight) has been expressing a point of view held by a large number of women who are interested in these matters.
    Time and again women have said to me, "Why cannot Members of Parliament, including many lawyers, express a thing in decent English which people can understand?" Let me read this English which we are asked to enact as the Parliament of 1966.
    "For the purposes of this section"—
    that is always the introduction to something which will cause the courts to say that for the purposes of this Act Monday means Tuesday—
    "an interest … shall be treated as two separate interests one of which is the interest limited to cease on death, and an interest shall be regarded as one including an interest limited to cease on death if it is an interest under more than one title and one title is to an interest limited to cease on death, or if it is an interest which cannot terminate before the death, or which in certain contingencies not related to the death cannot terminate before the death".
    12.30 a.m.
    We ought seriously to pause for a moment, irrespective of where we sit in the Committee. Is it necessary for us to put that jargon in an Act of Parliament? In about three years time we shall be told that the House of Lords has made a decision under this Clause which has an effect which is the exact opposite to that

    767
    which many people thought it would have. The great advantage is that practically nobody here knows what our intention is so that the decision cannot be contrary to it when the time comes.
    My hon. Friend the Member for Edgbaston referred to one comment on this subject and I should like to refer to another by, I believe, the greatest expert on Parliamentary nonsense in our history, even perhaps including Sir Alan Herbert. It is in a book by Lewis Carroll —Chapter 12 of "Alice in Wonderland":
    "'Write that down', said the king to the jury. And the jury eagerly wrote down all the dates on their slates. Then they added them up, then they reduced the answer to shillings and pence. Then the jury all wrote down on their slates, 'She doesn't believe there's an atom of meaning in it'".
    The Financial Secretary to the Treasury (Mr. Niall MacDermot): May I seek to respond to the spirit of the debate and the comments made in the previous debate. We all feel very frustrated when we see language like this. But this is highly technical language in a very specialised branch of the law and plainly no layman will understand it either in the form in the Bill or in the form in the Amendment proposed by the right hon. Member for Stafford and Stone (Mr. Hugh Fraser). Those of us who are lawyers but are not specialists in this field of law frankly admit that we are extremely unlikely to understand it, it being a specialised branch of law of which we have no specialised knowledge. It contains, and must contain, many terms of art. To ask that it should be put in ordinary layman's language is to ask the impossible.
    May I remind the Committee that there was a famous Statute which quite deliberately was couched in layman's language, and the lawyers have been living off it ever since. It was the original Rent Act of 1923. It was put in ordinary layman's language. The result was that it was riddled with ambiguities and the cases seeking to construe it have never ceased since then. On the other hand, I suggest that no one who is not a Chancery lawyer would understand the Settled Land Act, 1925, but it was so drafted that there have not been more than a handful of cases seeking to construe it since the Act was passed. Probably the
    768
    hon. Lady the Member for Finchley (Mrs. Thatcher) is one of the few people to whom subsection (3) is crystal clear because she has great expert knowledge in this field.
    The right hon. Member for Stafford and Stone has made a valid point about the lay-out of the subsection. By breaking it into paragraphs his Amendment helps the reading of it by anyone, layman or expert. I will gladly consult the Parliamentary draftsmen to see whether there is a way of doing this, because it seems more easily digestible than the form in the Bill.
    We cannot accept the Amendment, because the Amendments which we have already passed already alter the shape of the subsection, so that it would need redrafting anyway.
    Secondly, I am advised that, although on the face of it the Amendment looks clear, it contains some latent ambiguities. If we put our heads together about it, we can produce something which at least appears more presentable.
    Amendment negatived.
    Amendments made: In page 43, line 28, at end insert:
    Provided that where an interest belongs to persons as beneficiaries under a discretionary trust which throughout the subsistence of that trust was such that it could not terminate before the death of the survivor of two or more persons, estate duty shall only be payable by virtue of this section in respect of the cesser of the interest on the death of that survivor.
    In page 43, line 29, leave out from "that" to end of line 33 and insert:
    "this section has effect for the purposes of estate duty not only as respects the question whether property is deemed to pass on a death but also as respects the questions—

    (a) whether, in any circumstances specified in section 43 of the Finance Act 1940, property would have passed on a death or would have been deemed to be included to a particular extent in property passing on a death, and

    (b) whether (as under section 28(12) of the Finance Act 1958 which relates to the purchases of interests in expectancy) in specified circumstances estate duty would have been chargeable by reason of the coming to an end of an interest in property.

    (5) In this section 'discretionary trust' includes a trust under which the disposition of any of the trust income is at the discretion of the trustees or of any other person".—[The Solicitor-General.]
    Mrs. Thatcher: I beg to move Amendment No. 107, page 43, line 33, at the end to add:
    (5)(a) This section shall not apply where prior to 3rd May 1966 an interest which at some time belonged to the deceased but which apart from this section was not limited to cease on his death has been bona fide sold for full consideration in money or money's worth; and,
    (b) in the case of any mortgage of such an interest so made, any duty payable by reason of an application of this section shall rank as a charge subsequent to that of the mortgagee.
    This is a short point, and I shall put it briefly. The Financial Secretary will be aware that when there is a change in Estate Duty provision it operates in one sense retrospectively. I am particularly concerned with the case where, before the change was announced, the interest affected by the change had been purchased by a bona fide purchaser for full consideration.
    Where there is a change of this kind, protection for such a purchaser is often put in the Statute. There is a precedent in Section 17 of the Finance (No. 2) Act, 1940. When a change was made in the rate of Estate Duty, that Section gave protection to those who purchased the interest before the change in the rate. We ask for similar protection here, as otherwise the purchaser may be very adversely affected by the change.
    The Solicitor-General: Everyone in the Committee can understand and sympathise with the principle for which the hon. Lady has contended. She says that where someone has bona fide purchased an interest, or advanced money on mortgage in reliance upon the existing law, that person should not be penalised by a change in the law which he could not have foreseen.
    When the law has been changed in the past, provision has sometimes, but not always, been made to protect such bona fide purchasers or mortgagees. There was such a case in 1962. By Section 28 of the Finance Act, 1962, foreign land was for the first time brought into charge for Estate Duty purposes. At no time since 1894 had such land been chargeable. It was therefore thought right to except transactions of that kind which were entered into before Budget Day, 1962.
    The hon. Lady referred to Section 17 of the Finance (No. 2) Act, 1940, which
    770
    provides permanent protection against increases in rates of Estate Duty for such bona fide purchasers and mortgagees. The situation with which we are confronted is quite different. Any purchaser or mortgagee of one of these extended life interests will only have made his purchase or executed his mortgage deed at some time since 15th December last. That was the date of the judgment in the Ralli case. It must have been abundantly clear to everyone concerned in transactions of this kind that a new loophole, and a very large loophole, in the revenue law had been opened up by the decision of the House of Lords, and it must have been also abundantly clear that this was a loophole which would be closed at the first opportunity. That would have been done quite certainly whichever party had been in power and whoever had been the Chancellor of the Exchequer. That is what we are doing in this Clause. Therefore, it is extremely difficult to imagine anyone entering into a transaction of this kind since 15th December last without knowing the risk that he was running.
    But, moreover, if we were to accept the Amendment, we should be creating a very dangerous precedent for the future, because it will almost certainly happen again, as has happened on this occasion, that the ingenuity of tax consultants will discover some fresh gap in the revenue law, and then again, whichever party is in power, it will only be a matter of time before the gap is filled by fresh legislation. During the interval until the fresh legislation, however, the beneficiaries have an easy way out. All that they will need to do will be to sell their interest in advance of the legislation and so protect themselves against the charge which will arise.
    That is a situation which is bound to happen if we accept the principle in such a case as this. But a very clear distinction is to be drawn between this sort of case, when everyone during this short time since the House of Lords decision must have foreseen that in this Finance Bill or, at latest, the next Finance Bill this loophole would be closed, and the sort of case to which the hon. Lady has invited the attention of the Committee.
    Mrs. Thatcher: The Solicitor-General is assuming that the language of this

    771
    Clause strikes only at the Ralli case. I do not believe that it does. I believe that it goes wider, and for that reason I ask him to look at the language of the Clause again to ensure that it strikes only at the mischief which he has described. I can foresee one or two cases in which it will go wider. If that is so, his explanation falls to the ground. Again, I ask him to look at the matter. I agree with him in so far as it applies only to the Ralli case.
    The Solicitor-General: I certainly agree to look at this point again in conjunction with the other point which the hon. Lady has raised. We are concerned with drafting. We do not want the language to go too wide. We want it to be as comprehensible as the subject-matter permits. But we still draw a distinction between the sort of case with which we are dealing here and the sort of case to which the hon. Lady alluded in her speech.
    Mrs. Thatcher: On the basis of that undertaking, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Clause, as amended, ordered to stand part of the Bill.

    Clause 39.—(RESTRICTION OF EXEMPTION FROM ESTATE DUTY FOR CERTAIN GOVERNMENT SECURITIES.)
    The Solicitor-General: I beg to move Amendment No. 292, in page 44, line 43, at the end to insert:
    "and where the circumstances in which the exemption so applies in respect of any government securities were not brought about by the deceased subsection (2) above shall not apply so as by virtue of paragraph (b) of that subsection to make the personal representatives accountable for duty or to increase the amount of duty beyond what would have been due had there been no exemption".
    The purpose of this Amendment again is rather technical, but it should, I think, meet with the approval of both sides of the Committee because it is to prevent the Clause from operating against a person who is not a party to the avoidance device.
    The main avoidance device countered by the Clause is one whereby a father who is life tenant of a settled fund com-
    772
    prising exempt securities assigns his life interest to a foreign company to hold until the time of his death, so that the securities qualify for the exemption, with the remainder then to his son. The Clause deals with this situation in two ways: in the case of securities issued since 1940, which are issued on the terms that the exemption will not stand against anti-avoidance legislation, the exemption is cancelled; in the case of securities issued before 1940 where the terms of issue include no reservation about anti-avoidance legislation, a sum equal to their value is included in the deceased's free estate.
    This provision could go wrong if a father on his deathbed made use of a pur autre vie settlement. He could settle his securities and give himself an interest to terminate on the death of some stranger not expected to live for very long and then assign the life interest to a foreign company. The death on which the settled fund passes to the son would not be that of the father but that of the innocent stranger and, under the Clause as published, it would be the stranger's estate that would be charged with the notional sum.
    12.45 a.m.
    The Amendment accordingly provides that the charge on the free estate operates only where the deceased himself was a party to the avoidance. In the case of pur autre vie settlements, the trustees and beneficiaries of the settled fund will be held accountable.
    Mr. Patrick Jenkin: We welcome this Amendment. The Clause contains the strange conception of a notional sum to be charged with Estate Duty, and that it should be charged on the death of a person who had no interest in the securities or in the notional sum would be carrying the conception to an extreme length. We consider this to be an obviously necessary limitation on the operation of this Clause.
    Amendment agreed to.
    Mr. MacDermot: I beg to move, Amendment No. 293, in page 46, line 2, to leave out from "instance" to the third "of".
    This is a purely drafting Amendment to clear up a possible ambiguity and I

    773
    shall be happy to explain it if any hon. Member wishes me to do so.
    Amendment agreed to.
    Clause, as amended, ordered to stand part of the Bill.
    Clause 40 ordered to stand part of the Bill.

    Clause 41.—(CAPITAL GAINS.)
    Mr. John Hall: I beg to move, Amendment No. 267, in page 48, line 9, at end to add:
    (2) For the year of assessment 1966–67 the rate of capital gains tax shall be 25 per cent.
    We now come to the first of a large group of Amendments relating to Capital Gains Tax which will, I fear, keep us occupied for some hours to come. We have already had a debate on Clause 37 and its incomprehensibility, but now that we have reached Capital Gains Tax we find a real example of really incomprehensible legislation. If any hon. Members present wish to study that subject, then, if may coin a phrase, they are now to have a basinful.
    This Amendment is similar in form to one moved last year by the then hon. Member for Caithness and Sutherland, and was supported then by the whole weight of the Liberal Party. Therefore, we hope for the support of Liberal hon. Members tonight. Last year, my right hon. and hon. Friends went into the Division Lobby in support of the Liberal Amendment and, as I have said, I look forward to Liberal support tonight. We then had a far-ranging debate, lasting about 2¼ hours, despite a commendably short speech by the hon. Gentleman who moved the Amendment—a gesture which I shall seek to emulate tonight.
    Perhaps the most significant feature of the debate then, however, was the birth of MacDermot's Law. It was a celebrated occasion, which, I think, ought to be celebrated every year. I will repeat MacDermot's Law in case any hon. Member of the Committee is not aware of it; and repeat how my right hon. Friend the Member for Bexley (Mr. Edward Heath) defined it. My right hon. Friend said:
    "MacDermot's Law can be defined as follows: When raising a new tax, the objective should be to raise the tax sufficiently to ensure that the next adjacent tax is raised sufficiently to ensure that the next adjacent tax is raised sufficiently to ensure that the next adjacent tax is raised sufficiently."—[OFFICIAL REPORT, 25th May, 1965; Vol. 713, c. 408.]
    774
    One can sum it up by saying that higher taxes lead to higher taxes and so on ad infinitum.
    I do not want to go all over the arguments we had last year, but I think we should emphasise certain points on this Amendment which is designed to reduce the rate of Capital Gains Tax. Last year, hon. Members of the Committee may remember, we had some debate about the actual yield. During the debates on the Finance Bill and the Budget of 1965 it was estimated that the total yield we would get out of Capital Gains Tax would be about £125 million, and during the debates on the reduction of the rate of Capital Gains Tax from 30 per cent. to 25 per cent. it was estimated by the Financial Secretary at that time that it would cost £20 million of the full yield. I must stress that the full yield would only be reached, if ever—I am talking of the £125 million now—only after some 15 to 20 years. What the estimate of possible yield of Capital Gains Tax is now, after some 12 months of experience, I do not know, but I do not know that it is very important, because we were told quite definitely on many occasions during the debates last year that the real purpose of this tax was not to raise revenue; it was wholly a question of social justice; revenue did not come into this at all, it was a matter of putting social justice right.
    It was, perhaps, a little misleading to be told, as we were, last year that the cost of this concession, if concession it be, would be £20 million. It is only £20 million over a very long period of time, and I would estimate that the actual cost of the concession in 1966–7 would be much nearer £1 million. I think I am right in saying—I speak from memory now—that when asked to give the cost of the reduction to 15 per cent., which was the Amendment we moved at that time, the hon. and learned Gentleman said the cost would be £3 million for the year 1966–7. So from that I think our Amendment now would probably cost about £1 million over the same period of time. We are not, therefore, asking for a concession which would be very costly this year.
    We have to look at this against the background of potential yield and against the background of the experience which

    775
    other countries have had in getting yield from this tax. So far as my researches have gone they tell me that the yield from the tax in other countries, as a percentage of total tax revenue, is very small indeed. Even in the United States of America, where they get the highest yield, it is estimated at between 1·5 and 2·5 per cent. The cost of collection in most cases, almost invariably, is very high indeed.
    What can be learned from the experience of other countries is that the higher the rate of tax the more it encourages evasion or avoidance, or whatever hon. Members like to call it. The cost to the taxpayer of avoidance by the taxpayer of a tax of this kind tends to be very high. I am sure hon. and learned Members on both sides of the Committee will agree with that. Therefore, with a low rate of tax it is not worth while trying to avoid the tax. Therefore we find that if there is a high rate of tax it does lead to evasion, and as we know—we have had various examples quoted during the long debates we have had today—attempted evasion leads to amendments to the law, to anti-evasion legislation, which adds further complication to an already over-complicated matter and produces confusion on confusion. I mentioned at the beginning of my remarks that the present legislation governing Capital Gains Tax is sufficiently complicated. I would have thought that even those with a vested interest in added confusion would be slightly appalled at the idea of having to add other Amendments, making it even more complicated, in order to stop up loopholes found year by year—loopholes which had been exploited by people who felt that the tax they were being asked to pay was too high.
    We know that in the first year of the operation of this tax the Inland Revenue officers have been overwhelmed by the task placed upon them; indeed, we were faced with something very rare in fiscal experience—a threatened strike by them. In a previous incarnation the Chancellor might have been more closely associated with such a strike, but in this case it must have been a source of some embarrassment. I understand that an arrangement has now been made which has at least satisfied those officers tem-
    776
    porarily and has provided them with some recompense for the appalling labour of having to try to comprehend the ramifications and intricacies of Capital Gains Tax legislation, quite apart from the burden placed upon them by the valuation provisions.
    I remember suggesting from time to time, in last year's debate, that the Capital Gains Tax would face the Inland Revenue officers with serious and difficult problems, which would create a great strain upon the organisation. I was brushed off, and such is my normal diffidence that I accepted this brushing off. I took it that the Chancellor, the Financial Secretary, the Chief Secretary and the other notable and highly intelligent Members on the Government Front Bench knew much more about these things than I did, and that they were right and I was wrong. But what I said then has turned out to be true; we have created appalling problems for the Inland Revenue officers—and not only for them, but also for the taxpayers.
    The Inland Revenue has produced a very good comprehensive booklet on the Capital Gains Tax, which runs to 143 pages, including the index at the end, and which gives some idea of the complicated legislation with which it has to deal. It has undoubtedly been completely and utterly overloaded by the work placed on its shoulders. That is one reason why we have the curious situation in which the Selective Employment Tax is administered by the Ministry of Labour and the Ministry of Health. I can understand the Ministry of Health being called in, no doubt for medical as well as other reasons.
    Looking at this new tax—and I call it a new tax because it is new in its present form, although the first tax of this kind was introduced some years ago—we tend to compare it with the experience of other countries which have the same sort of tax. Last year the Financial Secretary suggested that it was difficult to compare our proposals with those of other countries because there were so many differences in the systems and the forms of tax exemptions used, and that the only country with which we could fairly compare our system was the United States.
    In the United States the rate of tax imposed is 25 per cent. The argument

    777
    used by the Financial Secretary was that because the maximum rate of personal taxation in this country is 91¼ per cent. on investment income exceeding £15,000, whereas in the United States it is 70 per cent. on the top slice of investment income exceeding £35,700, it was right that our Capital Gains Tax should also be at a higher rate. That was the reason for MacDermot's Law.
    Many arguments have been put forward in the past about the effect that the tax has on Surtax payers, who, on the whole, will make capital gains and will therefor be subject to this tax. It is not true that Surtax payers are the only ones who make capital gains, but even if it were, surely the fact that our Surtax payers are the most heavily penalised of all the Surtax payers in the world—certainly much more heavily penalised than those in America, with which we compare our Capital Gains Tax system—is a reason for having a lower rate of Capital Gains Tax rather than a higher one.
    1.0 a.m.
    Mr. Michael English: Would the hon. Gentleman explain whether he is referring to the net effect of American taxation or to the American taxation rates? Surely the American Income Tax rates are higher than are the rates in this country at the top level, although because of the possible number of exemptions their net effect may be lower?
    Mr. Hall: I accept as a fair comparison the top rate of tax and the top slice of income as between the two countries. This is a comparison which has been used on both sides of the House in previous debates. I have never understood, when it is agreed that we can use the United States as a fair comparison with this country, why we have decided to take the rate of 30 per cent. instead of 25 per cent.
    I would not protest so vigorously about this high rate of tax if it were not for various considerations which have been brought into play by the operation of our legislation. I would not protest if it were a tax entirely on gains and not, as it is in part, on capital. I would not protest so much if it did not impose such a burden on many taxpayers who have to seek professional advice, and often costly professional advice, for which they can claim no recompense against their capi-
    778
    tal gains. I would not protest so much if the tax avoided injustice and anomalies, some of which we shall try to put right by later Amendments. I would not protest so much if it were not for the fact that some shareholders find that they are paying 58 per cent., because capital gains which have borne tax at the hands of companies bear tax very often at the hands of shareholders. Neither would I protest so much if the tax did not encourage evasion and avoidance with all the undesirable consequences which flow.
    I think it is fair to say that we on this side of the Committee do not oppose a Capital Gains Tax. We oppose a tax on capital, which we shall discuss later on, but we do not oppose the principle of a Capital Gains Tax. What we do oppose is the imposition of a rate of 30 per cent. against the background of the present imperfections and injustices of the present Capital Gains Tax legislation.
    Against that background we believe that this rate of 30 per cent. is too high, and although I think that the reduction to 25 per cent. a little modest on our part, I think it is a sensible and moderate Amendment which I hope will receive the support of the Committee.
    Mr. MacDermot: The hon. Member for Wycombe (Mr. John Hall) has been doing a lot of protesting, but I should like him to explain to the Committee on whose behalf he is protesting.
    The effect of this Amendment and the only effect would be to reduce from 30 per cent. to 25 per cent. the fiat rate of Capital Gains Tax on gains accruing in the year 1966–67 to persons other than companies. May I remind the Committee that there is what is known as the alternative basis of charge, by which people who make capital gains can choose an alternative basis of charge, which, broadly speaking, means that for people whose income is such that at the marginal rate they do not pay a rate higher than the standard rate of Income Tax, the rate of Capital Gains Tax is about 20½ per cent. For the people who pay less than the standard rate of Income Tax, which is the great majority of taxpayers in the country, if they make capital gains the rate of Capital Gains Tax would be still lower. All that this Amendment does is to propose that we should lower the rate of Capital Gains

    779
    Tax for that relatively small minority of taxpayers who would pay Capital Gains Tax at the standard rate of 30 per cent. There are about 21 million taxpayers in this country, of which fewer than half a million have investments on which their marginal rate of tax exceeds the standard rate of Income Tax. Broadly then, there are half a million taxpayers who, if they realised capital gains, would be liable to pay at the standard rate of 30 per cent., and many of those will be Surtax payers.
    But for the other three million or so people who have investment income—it is mainly, presumably, people with investment income who are likely to realise capital gains—if they paid Capital Gains Tax at all, it would be at 20½ per cent. or lower——
    Mr. Hall: I find this question of 20½ per cent. puzzling. Am I not right in saying that, on 25th May, 1965, in an intervention in the speech of my hon. Friend the Member for Gloucestershire, South (Mr. Corfield), the Financial Secretary confirmed that someone paying the standard rate of Income Tax would pay 27½ per cent. instead of 30 per cent.?
    Mr. MacDermot: The hon. Member will remember that that was in Committee. On Report, we introduced an Amendment which considerably improved the alternative basis of charge. He will probably recall—he will be able to refresh his memory from the reports— that, on average, it works out that, for the standard rate payer, the alternative basis of charge means that he now pays Capital Gains Tax at a rate of 20½ per cent.
    In effect, the Amendment proposes that we should reduce the rate of Capital Gains Tax for the Surtax payer and for people who are paying at the highest rate of Income Tax——
    Mr. Gower: What is wrong with that?
    Mr. MacDermot: What is wrong with it? It is interesting to see that, in a year in which it is conceded that the Chancellor cannot in general reduce taxes, when the Opposition concede that this is not a year in which we can reduce Income Tax, in the proposals which are put forward for redundancy taxes—I understand that this is an Official Opposition
    780
    Amendment—this tax is picked out as the one which should be reduced.
    It is an Amendment for the relief of the distressed fraternity, the Surtax payers. It is like the friendly society which we heard about yesterday from the hon. Member for Worcestershire, South (Sir G. Nabarro), the Nabarro Friendly Society for taxpayers whose marginal rate is 18s. 3d. in the £. These are the people who are singled out by the Opposition for relief in this year. I suggest that this is a curious section of the community to choose.
    The hon. Member for Wycombe suggested that 30 per cent. is an unfair rate, or as his hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) described it, a "swingeing" rate. We can judge the rate ony by comparing it. We can compare it with the rates of other countries, which is always difficult because they often have different tax structures from our own, or we can compare it with other rates in this country. Comparing it with other countries, we agreed last year, when we reviewed some of the other systems for taxing capital gains, such as those in Germany, Japan and Sweden, that their systems are so different—in some cases they tax capital gains much higher than we do— that it would not be possible to draw any comparison from those countries.
    The nearest system to ours is the American one. The hon. Member referred to what was described as MacDermot's Law in our debates last year, which description arose directly from my comments on a comparison of our system with that in America.
    If I might quote the law as I formulated it and not as the right hon. Gentleman who is now the Leader of the Opposition formulated it, I said:
    "Their rate"—
    that is, the American rate—
    "is 25 per cent., but I would remind the Committee of what I said at the outset about how we must relate our capital gains tax rate to our general rates of personal taxation. American rates of personal taxation are lower than ours. Their maximum rate is 70 per cent. on the top slice of investment income exceeding £35,700 a year. That compares with the figure I gave of 91¼ per cent. for investment income exceeding £15,000. When we bear in mind that the alternative rate exists for people of moderate means—and exists under both the American system and our system—and when we consider that the chief

    781
    beneficiary of the low flat-rate tax is the Surtax payer, I suggest that if 25 per cent. is fair and reasonable in relation to the American maximum of 70 per cent., a rate of 30 per cent. is very moderate in relation to our maximum of 91¼ per cent. … but if the purpose of this tax is to secure social justice, to secure some equity, and to see that one lot of people do not get away with vast and regular increases of wealth, and if the second obective is to prevent incentive to tax avoidance by people dressing income as capital, neither of these objects will be achieved if we make too great a discrepancy between the rate of tax that wealthy people pay on their income and the rate of tax which wealthy people pay on their capital."—[OFFICIAL REPORT, 25th May, 1965; Vol. 713, c. 325–7.]
    Mr. John Hall: In his very interesting quotation, the hon. and learned Gentleman has omitted one intervention by my right hon. Friend the Member for Bexley (Mr. Heath), at c. 326. in which he said:
    "This is such an important point that I hope that the hon. and learned Gentleman can reiterate it, and clarify it. What he says is that because we have a very much higher maximum level of personal taxation than have the Americans it is only fitting that we should also have a higher rate of Capital Gains Tax."
    Mr. MacDermot: Of course it is, and that is what I said in the passage that I have just read. One of the objects of the Capital Gains Tax is to stop tax avoidance by people dressing up income as capital. Clearly, the nearer the Capital Gains Tax rate is to the Income Tax rate, the more likely one is to achieve that objective. But we all agree that it would be quite unfair to establish a rate of Capital Gains Tax which was the same or nearly the same as these high rates of Income Tax.
    That is agreed for a variety of reasons, taking into account that many of these gains are realised and accumulated over many years, taking into account the inflation element which may be present in those gains which calls for a lower rate, and weighing up the many different elements which go to decide what is a fair rate, in relation to our general structure of rates of tax. 30 per cent. was a fair rate, and I suggest that nothing has happened in the mean time to make us alter that view.
    Mr. Higgins: Can the hon. and learned Gentleman tell us what rate of inflation he is assuming in making this calculation?
    Mr. MacDermot: I am not assuming any rate. We all know and have experience of the rate of inflation that there has been since 1939. We have had two short periods when the inflation was actually reduced, one a period under Sir Stafford Cripps and another period shortly after 1957; otherwise, we have had a fairly steady rate right through. That is obviously something which one must take into account when assessing what is the fair rate of Capital Gains Tax, and that we have done.
    Capital Gains Tax in particular is a type of tax where one would expect the rates to be altered with rather less frequency than the rates of other taxes. But, in any event, one cannot see the particular argument for reducing the rate for one year—and it is only estimated on the basis of one year—for the narrow class of people who will pay at the standard rate.
    I will not quarrel with the hon. Gentleman's estimate of the amount of money involved. As we know, the yield of the Capital Gains Tax in these early years will be very low, because we are only dealing with taxing gains since Budget Day of last year. Of necessity, therefore, we are dealing with very small amounts.
    1.15 a.m.
    Mr. Gower: Surely one of the justifications of a Capital Gains Tax is that it brings in a source of revenue which in favourable conditions should enable less tax to be collected from other sources, including Income Tax. By the hon. and learned Gentleman's argument, if Income Tax is lowered presumably Capital Gains Tax should be at a lower rate. Does that not make nonsense of the whole thing?
    Mr. MacDermot: I have indicated that I do not think Capital Gains Tax rate should be altered or that it should fluctuate. If we had a substantial reduction in Income Tax rates—some have been arguing for that and suggesting that we should make substantial differences in indirect taxes—I agree that that would be circumstances in which we would look again at the rate of Capital Gains Tax.
    Mr. Iain Macleod: I should like straight away to put right something which the hon. and learned

    783
    Gentleman said in regard to priorities enshrined in this Amendment. I think he was happier in the legal rather than the political part of his answer. He said that we are giving priority to a small number of people who would be favourably affected by this proposal. That is perfectly true. He went on to say that this seems an odd priority to take as our first relief, but it is not the first relief. The first relief we asked for was the one I ask for which is enshrined in New Clause 11 for tax relief for disabled and those who are widows or widowers and who because of their circumstances—I have been in those circumstances myself— have to have a housekeeper and to claim an allowance.
    There is a vast number of New Clauses which we shall come to subsequently which show the true social priorities we on this side of the Committee believe in. It is a mere accident of the order in which the Bill is arranged that we happen to come to this proposal before the others. As to the hon. and learned Gentleman's argument that comparatively few people would be affected by this proposal, comparatively few are affected by having a disabled wife, but that is no reason why we should not do justice if we can to both classes. We know perfectly well that a limited number are affected and the sum of money is about £1 million a year, which cannot be spoken of in the same breath as the £360 million Income Tax 9d. relief for which we on this side did not vote. I think the hon. and learned Gentleman is wrong to criticise our order of priorities.
    Mr. Alison: The Financial Secretary, perhaps perfectly legitimately, has had his bit of fun about tonight not being the Fellowship of Buffaloes which we had last night but the Friendly Society for Surtax Payers, but in stressing the social justification for the Capital Gains Tax and turning down the Amendment we propose, he ignores at the nation's peril the connection which one cannot avoid between the pursuit of social justice and its economic consequences.
    If the Capital Gains Tax is to have an effect on savings and the mobility of savings which it does have, economic consequences will flow which will be counterproductive socially. We cannot have it both ways. If the nation is not going to
    784
    save, or decides that the only reasonable way to save in the light of the Capital Gains Tax is to save money in the form of works of art which people will enjoy and keep for a lifetime rather than spending money on productive enterprise, the taxpayer will be hit.
    Taxes have to be used to make the savings equal to the investment, and it nearly always means that indirect taxes have to be raised. There is the 1d. on the pint and more on tobacco. The swingeing effect of taxes has the effect of discouraging savings and the mobility of savings. One cannot have it both ways. The Government cannot claim that they are going to pursue social justice and say that the economic consequences are irrelevant. One can be counter-productive in one's social aims, as I believe the Government are in danger of being at the present time. One of the reasons that we have given high priority to lowering the Capital Gains Tax at present is that the country is faced with an investment crisis. The Government do not seem to have spotted this yet. The C.B.I. latest survey showed that the whole investment trend and attitude of management were depressing and the trend is not optimistic. This is of great importance. The rate of increase in capital investment is half the projected level in the National Plan.
    In this situation we have two things of considerable importance. We have the new form of industrial development in which the Government are going to use the taxpayers' money in the interests of subsidising manufacturing investment, but there is no proper criterion. There is no attempt in the Industrial Development Bill, nor has there been anything hinted in public statements, nor is there anything in the White Paper, proposed to canalise the taxpayers' money in the pursuit of projects which are profitable, desirable or worthwhile. It could be argued that the capital grant system proposed by the Government will make it possible for the train robbers to get a grant for capital investment. If they operated a business for breaking up scrap metal by oxy-acetylene burner they could probably get a capital grant from the Government which they would not have got with the investment allowance system. There is no criterion of soundness, worth-whileness or profitability of the capital investment in the Government's incentive scheme.

    785
    At the same time the Government have with the Capital Gains Tax deliberately frozen private savings which, freed from the shackles of this kind of taxation, would instinctively tend to find its way out of profitless, declining assets into assets giving a bigger return. It is an undesirable fact that the tax, however limited, has immobilised savings and will tend to retain them in assets which may cease to be productive. It may encourage savings to go into sectors which are entirely unrelated to manufacturing industry. We have already seen the trend of some savers to switch to gold and works of art. If the Government want to get the economy moving they must give an incentive to the saver to use his savings rationally, to switch from one investment into another and to pursue projects which will be profitable and worthwhile. It may be humorous to say that this is in the interest of Surtax payers, but Surtax payers have a contribution to make to the economy as the Financial Secretary must admit.
    It is economic as well as social justice to do what we can to take the burden of investment off the taxpayer's back and put it on the back of the people who are prepared to do it and take risks. It is no use the Financial Secretary pretending that he can dismiss the Amendment as one of narrow self-interest, looking after the rich. It is not in the least designed to do that. It is designed to increase the mobility of capital, at a time when savings are static and investment in industry is declining, and when, above all, the Government's own scheme for canalising the taxpayer's money into industry is based on an entirely irrational premise, with no sort of attempt to smell out projects which are profitable and worthwhile.
    Mr. Hirst: I very much agree with what has been said by my hon. Friend the Member for Barkston Ash (Mr. Alison), and I am grateful to my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) for intervening in this debate. I greatly resented the speech of the Financial Secretary on this Amendment. If anything could be more unmitigated claptrap than MacDermot's Law when we first heard it, it was his repetition of it from HANSARD tonight. I am surprised that he was not too ashamed to read it again.
    786
    It is quite right that we should be consistent. Last year, we said that the rate was too high, and we say it again now. The hon. and learned Gentleman makes his unctious remarks, telling us that it is shocking that we should do these things. I know that he has been present in the Chamber a good deal, but I wonder how much of the debates he has listened to, or how much he has read the Notice Paper. I myself have several New Clauses down on the very lines referred to by my right hon. Friend the Member for Enfield, West. It is quite monstrous for the hon. and learned Gentleman to tick off the Opposition for bringing forward an Amendment which is perfectly consistent with what they said on the last occasion and which is regarded as perfectly reasonable in the country at large. If this rate were reduced by some other method—for the moment I forget the details, but I accept what I have heard—that would be all the more good reason for the basic or standard rate being reduced also.
    I greatly resent the Government's political vendetta, which must be a nonsense in economic terms, against the Surtax payer. Some of the Surtax rates constitute a great injustice to some people, and it is adding insult to injury for the Financial Secretary, in his unctious way, to trot out political claptrap in defence of a situation which he knows is utterly indefensible.
    Mr. Gower: We did not like MacDermot's Law when we heard it last year, and we like it even less now. It is an appalling law. It frightens us and makes us very apprehensive about the future. The level of personal taxation is extremely high now, and, if the Financial Secretary is to be believed, should it become higher the rate of Capital Gains Tax will be raised accordingly even more. The party oppossite is a party of high taxation of all kinds.
    Mr. Hirst: And spite.
    Mr. Gower: Certainly of high taxation. We are most anxious about the prospect not only for people in this category but for all classes of taxpayers. It was most misleading of the hon. and

    787
    learned Gentleman to suggest that, because we have put down this Amendment, we are not interested in many other classes of taxpayer. There is far too great a burden of taxation already in many cases, but not least in this.
    Mr. John Hall: The Financial Secretary's reply was on the lines we expected. He did not answer to the arguments put to him, and he has not sought to return to answer the cogent points made by my hon. Friends the Members for Barkston Ash (Mr. Alison) and for Shipley (Mr. Hirst). What he did was what one anticipated he would do, and that is to single out this Amendment as being more a method of obtaining some particular concession for Surtax payers. We have heard this in Finance Bill after Finance Bill, whether they are on this side or that side of the Committee. It seems that the Government Front Bench regard the Surtax payer as some sort of undesirable person who does not deserve any form of fiscal justice whatsoever. It is worth while pointing out that included in the brain drain are a large number of potential or existing Surtax payers who are leaving this country because of the burden of taxation. Even the Chief Secretary and the Financial Secretary have indicated that they sometimes find the burden of Surtax too high.
    1.30 a.m.
    The Financial Secretary did not address himself to the problems that will arise when people become conscious of the fact
    that this rate is high and unfair and are driven—as always happens when taxation is regarded as penal—to forms of evasion. This means that we shall go on having additional amendments to this legislation which will make it practically impossible for any normal person to understand it.
    Over recent weeks, when it has been necessary for taxpayers to complete their returns, I have had three people in my constituency telephoning me in tears and in despair who did not understand how to deal with this problem. People living on investment of one kind or another, not particularly wealthy people, who are required to make returns of their capital or capital gains, cannot afford to ask for the highly professional advice which is essential in so many of these cases. They really do not understand the Act or how to deal with their returns. I have given them such advice as I can, but this is the kind of complication that arises.
    There is little doubt that a rate of this kind will be resented when it is felt, and I do not think the Financial Secretary gave sufficient attention to that. We regard the Financial Secretary's reply as very unsatisfactory, and we shall want to express that dissatisfaction in the normal way. I would advise my hon. and right hon. Friends to divide the Committee.
    Question put, that those words be there added:—
    The Committee divided: Ayes 95, Noes 156.

    Division No. 52.]

    AYES

    [1.33 a.m.

    Allason, James (Hemel Hempstead)

    Glover, Sir Douglas

    Lubbock, Eric

    Awdry, Daniel

    Grant, Anthony

    Mackenzie, Alasdair (Ross&Crom'ty)

    Baker, W. H. K.

    Gresham Cooke, R.

    Macleod, Rt. Hn. Iain

    Batsford, Brian

    Grieve, Percy

    McMaster, Stanley

    Biggs-Davison, John

    Grimond, Rt. Hn. J.

    Macmillan, Maurice (Farnham)

    Bossom, Sir Clive

    Hall, John (Wycombe)

    Maddan, Martin

    Bryan, Paul

    Hall-Davis, A. G. F.

    Maginnis, John E,

    Buchanan-Smith, Alick (Angus, N&M)

    Heald, Rt. Hn. Sir Lionel

    Maxwell-Hyslop, R. J.

    Buck, Antony (Colchester)

    Heseltine, Michael

    Mills, Peter (Torrington)

    Carlisle, Mark

    Higgins, Terence L.

    Mitchell, David (Basingstoke)

    Clark, Henry

    Hill, J. E. B.

    Monro, Hector

    Clegg, Waiter

    Hirst, Geoffrey

    More, Jasper

    Cooke, Robert

    Holland, Philip

    Morris, Charles R. (Openshaw)

    Cooper-Key, Sir Neill

    Hooson, Emlyn

    Munro-Lucas-Tooth, Sir Hugh

    Dalkeith, Earl of

    Hordern, Peter

    Page, Graham (Crosby)

    Davidson, James (Aberdeenshire, W.)

    Hornby, Richard

    Pearson, Sir Frank (Clitheroe)

    Deedes, Rt. Hn. w. F. (Ashford)

    Howell, David (Guildford)

    Peel, John

    Digby, Simon Wingfield

    Hunt, John

    Percival, Ian

    Eden, Sir John

    Hutchison, Michael Clark

    Pink, R. Bonner

    Elliott, B. W. (N'c'tle-upon-Tyne, N.)

    Jenkin, Patrick (Woodford)

    Pounder, Rafton

    Eyre, Reginald

    Johnston, Russell (Inverness)

    Ridsdale, Julian

    Farr, John

    Jopling, Michael

    Rossi, Hugh (Hornsey)

    Fortescue, Tim

    King, Evelyn (Dorset, S.)

    Scott, Nicholas

    Giles. Rear-Adm. Morgan

    Kitson, Timothy

    Sharples, Richard

    Gilmour, Sir John (Fife, E.)

    Knight, Mrs. Jill

    Shaw, Michael (Sc'b'gh & Whitby)

    Sinclair, Sir George

    van Straubenzee, W. R.

    Wilson, Geoffrey (Truro)

    Smith, John

    Vickers, Dame Joan

    Winstanley, Dr. M. P.

    Stodart, Anthony

    Walker, Peter (Worcester)

    Woodnutt, Mark

    Summers, Sir Spencer

    Walker-Smith, Rt. Hn. Sir Derek

    Worsley, Marcus

    Taylor, Frank (Moss Side)

    Wall, Patrick

    Thatcher, Mrs. Margaret

    Weatherill, Bernard

    TELLERS FOR THE AYES:

    Tilney, John

    Webster, David

    Mr. Pym and Mr. Younger.

    Turton, Rt. Hn. R. H.

    Whitelaw, William

    NOES

    Allaun, Frank (Salford, E.)

    Freeson, Reginald

    McNamara, J. Kevin

    Alldritt, Walter

    Gardner, A. J,

    Mahon, Peter (Preston, S.)

    Anderson, Donald

    Garrett, W. E.

    Mahon, Simon (Bootle)

    Archer, Peter

    Ginsburg, David

    Manuel, Archie

    Armstrong, Ernest

    Gray, Dr. Hugh (Yarmouth)

    Mapp, Charles

    Atkins, Ronald (Preston, N.)

    Gregory, Arnold

    Miller, Dr. M. S.

    Baxter, William

    Griffiths, Will (Exchange)

    Morgan, Elystan (Cardiganshire)

    Benn, Rt. Hn. Anthony Wedgwood

    Hale, Leslie (Oldham, W.)

    Neal, Harold

    Bennett, James (G'gow, Bridgeton)

    Hamilton, William (File, W.)

    Newens, Stan

    Binns, John

    Hazell, Bert

    Noel-Baker, Francis (Swindon)

    Blenkinsop, Arthur

    Heffer, Eric S.

    Oakes, Gordon

    Boardman, H.

    Henig, Stanley

    Ogden, Eric

    Booth, Albert

    Hobden, Dennis (Brighton, K'town)

    Oram, Albert E.

    Boyden, James

    Hooley, Frank

    Orbach, Maurice

    Bradley, Tom

    Horner, John

    Orme, Stanley

    Brooks, Edwin

    Howarth, Harry (Wellingborough)

    Oswald, Thomas

    Brown, Rt. Hn. George (Belper)

    Howarth, Robert (Bolton, E.)

    Page, Derek (King's Lynn)

    Brown, Hugh D. (G'gow, Provan)

    Howell, Denis (Small Heath)

    Park, Trevor

    Brown, Bob(N'c'tle-upon-Tyne, W.)

    Hughes, Hector (Aberdeen, N.)

    Parkyn, Brian (Bedford)

    Brown, R. W. (Shoreditch & F'bury)

    Hughes, Roy (Newport)

    Pavitt, Laurence

    Buchan, Norman

    Hunter, Adam

    Perry, George H. (Nottingham, S.)

    Buchanan, Richard (G'gow, Sp'burn)

    Jackson, Colin (B'h'se & Spenb'gh)

    Price, Christopher (Perry Barr)

    Callaghan, Rt. Hn. James

    Janner, Sir Barnett

    Price, William (Rugby)

    Cant, R. B.

    Jay, Rt. Hn. Douglas

    Rhodes, Geoffrey

    Carmichael, Neil

    Jeger, George (Goole)

    Roberts, Gwilym (Bedfordshire, S.)

    Coleman, Donald

    Jeger, Mrs. Lena (H'b'n&S. P'cras, S.)

    Rose, Paul

    Crawshaw, Richard

    Jenkins, Hugh (Putney)

    Rowlands, E. (Cardiff, N.)

    Cullen, Mrs. Alice

    Johnson, Carol (Lewisham, S.)

    Shaw, Arnold (Ilford, S.)

    Davies, Harold (Leek)

    Jones, Dan (Burnley)

    Sheldon, Robert

    Davies, Ifor (Gower)

    Judd, Frank

    Shore, Peter (Stepney)

    de Freitas, Sir Geoffrey

    Kelley, Richard

    Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

    Dell, Edmund

    Kerr, Mrs. Anne (R'ter & Chatham)

    Short, Mrs. Renée (W'hampton, N. E.)

    Dempsey, James

    Kerr, Russell (Feltham)

    Silkin, John (Deptford)

    Dewar, Donald

    Lawson, George

    Silkin, S. C. (Dulwich)

    Diamond, Rt. Hon. John

    Leadbitter, Ted

    Silverman, Julius (Aston)

    Dickens, James

    Ledger, Ron

    Steele, Thomas (Dunbartonshire, W.)

    Doig, Peter

    Lee, Rt. Hn. Jennie (Cannock)

    Summerskill, Hn. Dr. Shirley

    Dunnett, Jack

    Lever, Harold (Cheetham)

    Varley, Eric G.

    Dunwoody, Mrs. Gwyneth (Exeter)

    Lever, L. M. (Ardwick)

    Wainwright, Edwin (Dearne Valley)

    Dunwoody, Dr. John (F'th & C'b's)

    Lewis, Ron (Carlisle)

    Walden, Brian (All Saints)

    Eadie, Alex

    Lomas, Kenneth

    Walker, Harold (Doncaster)

    Edwards, Robert (Bilston)

    Lyon, Alexander W. (York)

    Watkins, David (Consett)

    Edwards, William (Merioneth)

    Lyons, Edward (Bradford, E.)

    Wells, William (Walsall, N.)

    English, Michael

    McCann, John

    Whitaker, Ben

    Ennals, David

    MacDermot, Niall

    Williams, Alan (Swansea, W.)

    Evans, Ioan L. (Birm'h'm, Yardley)

    Macdonald, A. H.

    Williams, Alan Lee (Hornchurch)

    Faulds, Andrew

    McGuire, Michael

    Williams, Mrs. Shirley (Hitchin)

    Fitch, Alan (Wigan)

    Mackenzie, Gregor (Rutherglen)

    Wilson, William (Coventry, S.)

    Fletcher, Ted (Darlington)

    Mackie, John

    Woodburn, Rt. Hn. A.

    Foot, Michael (Ebbw Vale)

    Mackintosh, John P.

    Woof, Robert

    Forrester, John

    Maclennan, Robert

    Fowler, Gerry

    MacMillan, Malcolm (Western Isles)

    TELLERS FOR THE NOES:

    Fraser, Rt. Hn. Tom (Hamilton)

    McMillan, Tom (Glasgow, C.)

    Mr. Grey and Mr. Whitlock.

    Clause Ordered to stand part of the Bill.

    Schedule 9.—(CAPITAL GAINS.)
    Mr. Anthony Grant: I beg to move Amendment No. 315, in page 97, line 41, at the end to insert:
    Exemption of first £400
    1. In section 20(4) of the Finance Act 1965 after the words "total amount of chargeable gains" there shall be inserted the words "in excess of £400".
    The Temporary Chairman (Mr. Grant-Ferris): It will be for the convenience of the Committee if we also take Amendment No. 279, in page 101, line 33, at end insert:
    Exemption for small gains
    8. In section 20(4) of the Finance Act 1965 there shall be made the following amendments:—
    In line 1 after the word "on", insert "the amount by which", and, in line 8, at end insert "exceeds £500".

    791
    and new Clause 18.—(Capital gains tax relief.)
    Mr. Grant: The purpose of this Amendment is to exempt the first £400 of capital gains from the Capital Gains Tax. It is coupled with the Amendment in the name of my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), who puts the figure at £500, and the new Clause of my hon. Friend the Member for Shipley (Mr. Hirst) who, with rather uncharacteristic modesty and reticence, puts the figure at £250.
    The purpose behind all of these is entirely the same in that they can be said to be an attempt to bring a little sanity into the fiscal maze created by the Capital Gains Tax. Briefly stated, there are three arguments to be advanced in favour of the Amendment. First, there is the administrative one. As was rightly forecast by my hon. Friend the Member for Wycombe (Mr. John Hall) last year, the tax has resulted in the absolute demoralisation of the staff of the Inland Revenue.
    They have been so thoroughly demoralised that they have had to have a no doubt well-merited increase in pay in order to cope. But the Stock Exchange, the professional men, lawyers and accountants and, above all, investors, are affected by this tax. There are 2½ million investors trying to grapple with the obscure form and fantastic calculations involved in the tax, which has also dealt a body-blow, if not a death-blow, to the growth of the very valuable movement, the investors' club.
    The Chancellor should not underestimate the amount of time and energy expended by useful, sensible people in this rather ridiculous exercise imposed by the tax. I pray in aid the minority report of the Royal Commission on the Taxation of Profits and Incomes which said that there should be an exemption limit when the annual gain is £400 or less to reduce the administrative costs involved. Those, as I said last year, were the words of none other than the redoubtable Dr. Kaldor himself. When I put them forward last year the Financial Secretary said that it was one of the rare occasions on which he found himself in disagreement with Dr. Kaldor. It was one of the rare occasions on which I found myself in agreement with him.
    792
    1.45 a.m.
    In answer to this point last year the Financial Secretary said that there would be an administrative saving only if
    "the £400 of net gains in a year were exempt but the net losses were to be carried forward against the first net gains liable to tax …".—[OFFICIAL REPORT, 25th May, 1965; Vol 713, c. 373].
    My answer is, why not do just that? The revenue must be trifling compared with the great advantages to the community if this small concession is granted.
    The second point in favour of the Amendment is that the market in shares is being stifled by the Capital Gains Tax. There is no question about that. Because of the tax, people will not realise their gains and therefore shares are in short supply and there is an artificially high price. To this can be attributed the market increase over the last year. It is vital in a free country to have a free buoyant share market. It may be that some hon. Members opposite would like the Stock Exchange to be abolished, but if they do they must explain what they would put in its place. They should bear in mind that thousands of millions of pounds are invested each year by pension funds, institutions and trade unions. As a result of the tax they are paying an artificially high price in the share market.
    The third point in favour of the Amendment is that the Capital Gains Tax is a direct disincentive to savings, particularly by the small saver—and the spread of wealth by wider share ownership has a social as well as an economic purpose. It is fantastic that little investment clubs, of humble people engaged in useful occupations, are beginning to fold up because even the most minute capital gains are taxed in this way.[Laughter.] The humour of hon. Members opposite ought to be conveyed to those sensible people from, for example, Fords at Dagenham and Pressed Steel who get together and invest their small sums of money. It seems ludicrous that this is happening while my hon. Friend the Member for Basingstoke (Mr. David Mitchell)—who runs a splendid business —is advising his clients to invest in vintage port because this is a form of investment which does not attract tax on capital gains of under £1,000. What a ludicrous situation we have reached when

    793
    it is regarded by a puritanical Government as being thoroughly bad to invest in shares in British industry but less bad, or even good, to lay down a case of vintage port.
    Those are the arguments in favour of the Amendment. I do not need to be a crystal gazer to anticipate the answer. We know that the answer from the Financial Secretary will be the same as last year. We shall hear, as last year, that he suspects that there is a Surtax payer lurking behind the skirts of the small man and that he will smell somewhere a benefit to the wealthy.[Laughter.] Those words were used by the Financial Secretary. He sniffs out wealthy people, he seeks out the Surtax payer with rare glee like a hog snuffling a truffle. The exemption is not so much an advantage to the top Surtax payer— and in any event, what if it is? It does not matter two hoots to me that the hon. Member for Cheetham (Mr. Harold Lever) and my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) get richer—jolly good luck to them—provided that there is benefit and encouragement to savings among the broad mass of people in the community.
    I hope that the dreary argument which we heard time and again last year and in this debate—this illogical, puritanical and thoroughly silly argument about Surtax payers—will not be heard again. It is my hope—forlorn it may be—that the Chancellor will match the fine words which he has uttered about the need for savings with some action. Even if he will not accept my Amendment there would be a dramatic effect upon savings and investment if he could offer some crumb of hope to the millions of frustrated, harassed and rather hopeless savers and new savers.
    Mr. Harold Lever: I had thought that last year the Opposition exhausted their demagogic eloquences on behalf of the widows of one-legged hill farmers, and that this year we should have debates on a rather more serious level. I hope that my right hon. and hon. Friends will not be misled by the extravagance of the argument into supposing that the case is as bad as that presented by the hon. Member for Harrow, Central (Mr. Grant).
    794
    Although it is difficult to discern it, there is a good case for some concession. I add that I am not wedded to the terms of the Amendment, in case any hon. Member opposite has a spark of hope that I shall vote for it. But my right hon. Friend the Chancellor should consider making some reasonable exemption for small capital gains. As has been pointed out, this was recommended by the Royal Commission, and it might be very much for the convenience and gain of the Revenue if some such concession were made.
    I therefore add my voice in support of the substance of the Amendment, namely, that some small exemption for small capital gains should be considered.
    Mr. R. Gresham Cooke: I support my hon. Friend the Member for Harrow, Central (Mr. Grant) on the Amendment. Income Tax concessions have been given over the years to help the small man, the wage-earner, through marriage allowances, personal allowances, earned income relief, children's allowances and so on. Some of these allowances have doubled and trebled over the past 15 to 16 years.
    This has been done to ensure that the heavy weight of the tax does not fall on the small earner. The same argument must apply to capital gains. If we want to help the small saver, we must do it with concessions of this kind. Therefore, I hope that this year the Government will see sense over this and help their millions of supporters who are now putting their savings into unit trusts, investment clubs and so on. Quite apart from helping these small savers, this would gain the Government support. They are not very popular at the moment, and this would be a way in which they could regain some of the popularity that they have lost in the past few months.
    Sir D. Glover: I agree with most of what the hon. Member for Manchester, Cheetham (Mr. Harold Lever) said. I do not want to put my argument on the basis of widows of men with one leg but on the basis that we removed from taxation by Income Tax those people who were earning such a small amount that it was not worth collecting. That removed millions of people from the lower bracket of Income Tax.

    795
    We did not do this entirely out of the milk of human kindness. We did it because it was not worth the cost of collection. If someone pays £2 tax a year, in view of all the paraphernalia of collection involved, it would be far better to raise the limit and excuse him from paying tax.
    The same applies to capital gains. I do not know whether my case is supported by that of other hon. Members, but since the Finance Act, 1965, for the first time in my life, my accountants have not sent me a final tax assessment this year. Therefore, the Revenue has not received any tax from me because it has not been agreed. This is because we have been over-governed. This firm of accountants is so over-burdened with administrative detail that it has not been able to deal with my tax return. This is not just an isolated case; it applies to hundreds of thousands of people. The basis of the Government is over-government.
    It may not be particularly desirable in the minds of many hon. Members opposite that somebody should make a capital gain and avoid paying the 30 per cent. tax laid down by the Chancellor of the Exchequer. If it is levied on £250, in view of the ramifications which the accountant and inspector of taxes have to go into before the claim is settled, it will be two or three years before the Revenue receives the money. The oncost to the economy will be more than the Treasury receives.
    We are already desperately short of accountants. They are devoting their time to dealing with the very simple problem of Douglas Glover's tax return and some important companies' figures are getting further and further in arrear. This is not in the interests of the Treasury. The taxation system should be such that the Treasury has a reasonable expectation of getting speedily and accurately the taxes we have levied and without too much burdening of the administrative machine.
    I hate to say this, because I said that I would not talk about widows, but there are many people like them who have had, say, £500 invested for years. They may decide to sell in order to eke out their income. On that there is a capital gain, and as the years go by the possi-
    796
    bility is that there will be more capital gain. Perhaps it is £100. They have no accountant. They probably do not know the law. They will presumably, therefore, be criminals in the eyes of the law. Other people with slightly more money may have an accountant in a small way of business to deal with the matter.
    A great many accountants even now do not understand the Finance Act, 1965. They are devoting almost as much time in computing the capital gain on a small amount as on a very large amount. The accountants are over-worked. Not only is the administrative machinery overburdened, but it will become less efficient and the Chancellor will probably receive less money than he would by making it more efficient by exempting very marginal sums from Capital Gains Tax. I agree with the figure of £250 in the proposal of my hon. Friend the Member for Shipley (Mr. Hirst). It would be wise for us to lay down a figure like that below which Capital Gains Tax was not payable. This would take two-thirds of the burden off the administrative machine, the Inland Revenue and the accountancy profession. The machine would be far more efficient, and that must be in the interests of the nation in the long run. I hope that the Government will approach the Amendment moved by my hon. Friend and the other Amendments we are discussing with it with some sympathetic understanding and tell us that some limit is proposed; perhaps £100 could be laid down as the figure below which people are not subject to Capital Gains Tax.
    If something like that is not done, then the accountancy profession, the Inland Revenue staffs, and others concerned, will be so over-burdened that people will begin to break the law by implication. Quite a lot of small accountants are hagridden by this law and, if these Amendments are not accepted, then at least I hope that we shall hear that the Government will promise to provide some limit below which this tax will not be paid.
    2.0 a.m.
    Mr. Hirst: I am grateful to my hon. Friend the Member for Harrow, Central (Mr. Grant) for initiating this discussion. I see that he has had to leave the Chamber, but he has already done one turn tonight so far as taxpayers are concerned. I want to enforce one or two things which

    797
    he particularly said, because in constituency conversations which have taken place I have found that people take an interest in the acquisition of industrial shares. I have always thought that to be a very good thing and better than some of the more orthodox forms of saving for the small investor.
    But people investing in industry, and taking an interest in it, are doing more than helping themselves; they learn better to appreciate our whole system. There is no point in putting money into shares in these days of inflation unless one has a hope of getting a capital appreciation, Yet, if ordinary people do that, then they are now faced with all this awful form filling; and it is awful. They do not appreciate always the importance of keeping records. Let us say that something comes up in the way of a rights issue. How are these people to calculate which is the less; the capital gains or the capital losses? What happens is that they are worried stiff and think they may be sent to prison. They get into a flat spin and in the end will not touch the things with a barge-pole.
    These people have been getting along very nicely; these ordinary, small investors, but now they hear a cry about capital gains, and they go back to keeping their money up the chimney or in a stocking.
    Mr. Harold Lever: I am not unsympathetic to the hon. Gentleman's general argument, but could I ask him why the Opposition restricted the whole of its argument to the small investor when it has not restricted its Amendments to small investors?
    Mr. Hirst: That is just one of the prejudices we are getting rather used to, which I personally discount 100 per cent. It does not mean a thing in my philosophy, and the hon. Gentleman will have to get used to that. I made it perfectly clear earlier in our debates that I do not accept that thesis even in the slightest degree. When wealthy people make capital gains the sums are pretty large, but I am sick to death of this business of trying to include this class. I wear it not at all. I am not impressed in the slightest by it. I do not mind the hon. Gentleman's interrupting me about it, if it gives him any pleasure. I appreciate that he is in general in support of the general
    798
    theme of the Amendments, and I hope he will try to do something in this matter.
    I am getting rather embarrassed, almost, by the sort of reputation for modesty which is creeping up on me because of the modest nature of my Amendments, and I gather that the proposal in my new Clause is more modest than anybody else's. I there suggest an exemption for £250. I am not trying to cast myself in any particular rôle or place myself in any particular niche by this means, but I do think there is something to be said for cutting down the appalling administrative expense which trying to catch such small sums for tax will involve. It is a bit more valuable than trying to deal with the prejudice which precludes exempting small sums of small people for fear that rich people will get away with those sums which, to so many of them, are utterly marginal.
    That is the sort of argument which shows the attitude of mind of many right hon. and hon. Members opposite. The hon. Member for Manchester, Cheetham (Mr. Harold Lever) is much more sane and experienced in these matters than anybody else on those benches, and in consequence I accept what he says much more readily, because I appreciate the intelligence he brings to these matters. I only wish we could have more intelligence from the Government, and if we had had it we should not be sitting here still at 2 o'clock in the morning. I hope we shall get some reasonable answer on this, and not the sort of stuff we got earlier, which angered us, and has kept us here longer than we need have been.
    Mr. Gower: As my name appears in support of both the new Clause by my hon. Friend the Member for Shipley (Mr. Hirst) and the Amendment moved by my hon. Friend the Member for Harrow, Central (Mr. Grant), I would like to express my support for the principle which underlies them both. If the Government cannot concede a concession of the size asked for by my hon. Friend the Member for Harrow, Central, I hope they will give consideration to the amount suggested by my hon. Friend the Member for Shipley.
    But how well my hon. Friend the Member for Harrow, Central moved his Amendment, and how much pleasure we

    799
    on this side took from his obvious enthusiasm for saving, particularly by a lot of small people, and for thrift and investment and investors' clubs. I think he was misguided, in that he seemed to think his enthusiasm was shared all over the Committee. For my part, I am not quite sure that it is shared on the benches opposite. I am not happy that there is the same enthusiasm for the spread of property ownership, particularly share ownership. I hope that I am wrong, but at least the hon. and learned Gentleman has the opportunity of proving me wrong tonight, and of showing there is on the benches opposite great enthusiasm for spreading among many small people share ownership and property ownership and saving and investment in industry. If there is this enthusiasm the hon. and learned Gentleman can demonstrate that tonight by at least accepting the principle of the modest concession at the bottom end of this scale.
    Mr. Maurice Macmillan: I start by telling the hon. Member for Manchester, Cheetham (Mr. Harold Lever) that we are not particularly wedded to the terms of the Amendment but rather to the principle underlying it, which is to exempt small capital gains and small investors. The figure of £400 was put in because it follows the minority report of the Royal Commission, which seemed to us to set a reasonable standard. I do not underrate the administrative inconvenience of an Amendment of this nature; nor should we underrate the arguments about the restriction of the market and the forcing up of share prices, as mentioned by my hon. Friend the Member for Harrow, Central (Mr. Grant). But I want to talk about the effect on savings, and small savings in particular. Surely it is only just and equitable to treat a capital gain derived from the sale of shares as favourably as that derived from dealing in port or pictures, or any other commodity of that nature.
    I want to refer once again to the massive disinterest displayed by all Governments in the subject of savings for small people outside the narrow field of lending to the Government themselves, in one way or another. There is almost a hostility to private enterprise on the
    800
    part of the small saver. This provision is another example of the disincentive to saving that this narrow approach to the problem must bring.
    The economic effect of savings is the same, regardless of the way in which they are made, in the sense that purchasing power is withdrawn and the need for raising taxes is lessened. It would be very unwise of any Government to underrate the growing force of the investment club movement, especially on the shop floor in the bigger factories and industrial establishments in Birmingham and other parts of the Midlands, where their growth has been spectacular.
    People today are not as unsophisticated as they used to be; they are no longer content with the derisory reward they can get from the more conventional methods of small savings, in lending to the Government. Even a £400 capital gain could be eaten away in five years— whether the money is reinvested or spent —by the commission and, most of all, by the present rate of inflation. I plead with the Financial Secretary to consider not so much the convenience of the Treasury in dealing with its problems of raising money but the interest of the small saver and the nation, and to consider the Amendment with favour.
    Mr. Evelyn King: There are two reputable arguments, and the function of the Committee is to balance one against the other. There is the argument, first used when the Capital Gains Tax was introduced, that this is a piece of social justice, that it is offensive to the community that a few people should make large profits at a moment when others are being asked to exercise restraint, and that the broader back must carry heavier taxation. All those arguments are put forward, and any Governments must have some regard to them.
    But the point that I seek to make is that there must be a limit to these considerations. It cannot be in the interests of social justice to promote that climate of opinion which ensure that, in the end, the British economy is even slightly damaged. These are the two arguments that we must balance, and I do not suggest that it is easy to do so.
    But I am alarmed—and I should think that every neutrally-minded person must be alarmed—by the sheer volume of

    801
    intellectual ability that goes, on the one hand, into the collection of taxes and, on the other, into resisting that collection. However deep may be convictions of social justice, that point must creep in. In assessing the value of this Amendment and urging it upon the Financial Secretary, it is those calculations—the purely practical ones—which I hope will influence him in accepting the Amendment.
    2.15 a.m.
    I dread the time when almost every person who makes an Income Tax return will demand the services of an accountant to enable him to make his return. Already we are not far from that state of affairs. Considering the matter purely in financial terms, and taking a modest man with savings amounting to £2,000, from an investment of £2,000 a capital gain of £250 or more may well accrue, and immediately that happens professional help will be required in order that the tax return can be completed.
    We have heard much of the brain drain, in the sense of the emigration of brains. Another kind of brain drain, which is every bit as harmful, is the drain of brains into useless and unproductive occupations. It is upon that point alone that I feel this Amendment ought to be considered. I wish that some of our social scientists, many of whom are doing less useful jobs, would direct themselves to an assessment of the volume of brain power doing jobs in this country which fulfil no useful function, which produce nothing and are engaged in an almost childish tug-of-war between those on the one hand who seek to collect taxes and those on the other hand who seek to resist the collection. That is the sort of study to which the Treasury ought most seriously to address itself. Because I believe those things, I believe this Amendment to be in the national interest.
    Mr. John Smith: I congratulate my constituent, the hon. Member for Manchester, Cheetham (Mr. Harold Lever), on his practical approach. Before his colleagues and the Government turn down his and our suggestion, embodied in this Amendment, they ought to demonstrate to us that they know, by telling us, just how
    802
    much the Government would lose in revenue by adopting an Amendment on these lines, and how much they would save in administration. If they turn down the Amendment without doing that, they will demonstrate that they are not concerned with good housekeeping, that they do it for doctrinaire reasons without regard to the shortage of skilled manpower and without regard to our finances.
    Mr. MacDermot: The hon. Member for Harrow, Central (Mr. Grant), who moved the Amendment, forecast that the Committee would have to listen to a dreary repetition by myself of the arguments that I addressed to the Committee last year. I am afraid that that is inevitable. Hon. Members must not be surprised, if they repeat their arguments, when they get the same answers again.
    I hope hon. Members will not mind my saying that in listening to this debate I have not detected any new arguments in favour of the Amendment. However, I do not want to give the impression that I have not enjoyed the debate. I have. We have heard some attractive speeches in support of the Amendment. My personal view is that there is only one argument in favour of the Amendment which really bears examination at all, and that is the argument which influenced the Minority Report of the Royal Commission—the allegation that this would result in a large administrative saving. I will come to this argument in a moment, and it seems to me that it merits very close consideration. The other arguments are not valid. It is common ground, certainly between the Front Benches, that there should be a Capital Gains Tax, though some of the speeches tonight from the back benches have been directed against the whole principle. At any rate, if we agree that there should be such a tax, it is because we agree that additions to people's wealth in the form of capital as well as of income should be subject to tax though at a lower rate.
    Secondly, we should remember that about 3½ million of our 21 million taxpayers are likely to make capital gains because they have investment income and, therefore, assets on which they might make gains. We are asked to accept that these 3½ million people who make any addition to their income in capital gains, which it is agreed should be subject to tax, should nevertheless have the first

    803
    £500 or £250 of these gains entirely tax-free. This is negating and gainsaying the whole accepted principle that capital gains should be taxed.
    I do not want to be emotive, but we are facing a difficult situation at the moment because a certain class of industrial workers feel that they should have higher earnings. If they get those higher earnings, they will be taxed on them and some of them at the standard rate of 41½ per cent. We are being told that those 3½ million people who earn capital gains—I am sure that there are precious few seamen among them—should be given £10 a week addition to their income by way of tax-free capital gains. That is what the Amendment proposes.
    All I want to do is reject the concept that, in principle, if one supports the idea of a Capital Gains Tax, it is right to say, "Let us not be hard on the small investor: let us give him the first £500 tax-free." It does not make sense——
    Mr. Gresham Cooke: Surely Income Tax concessions are given tax-free on earned income allowance and so on? That is all tax-free.
    Mr. MacDermot: Certainly: that is the right way to do it. If one wants to give relief to the small man, let it be by way of personal allowances which are available against the whole of his tax liability. But if we think that the poorer people need more support, the right way to help them is by improving allowances or raising the limits of the lower rate of tax, but not by selecting 3½ million people, most of whom are likely to be at the upper end of the scale——
    Hon. Members: No.
    Mr. MacDermot: Certainly the great majority of them are, including the people on the shop floor at Ford's. Of course they are the people who are earning large wages. Speaking personally, I entirely support everything which has been said by those who want to encourage wage earners of this kind to invest their money in industrial equities. I am in favour of their investing in investment clubs unit trusts or other saving schemes. This is one of the ways in which we shall achieve a greater and fairer distribution of wealth.
    804
    People should be encouraged to invest their savings in ways in which they can participate in the growing wealth of the country. This is one way in which they can——
    Mr. Grant: I do not want the Financial Secretary to be obsessed by this view. Our case is simpler than that. It is that there should be some concession for the people at the lower end of the Capital Gains Tax scale. If the Financial Secretary, with all his skilled draftsmen, can undertake to produce on Report or at some other stage a formula which would give some sort of concession, while excluding the tycoon, I should be happy.
    Mr. MacDermot: I give notice formally now that I do not propose to give way again until the end of what I have to say, because it only interrupts the thread of my argument if I am asked to deal with a point which I have every intention of coming to.
    I was asked by the hon. Member for Cities of London and Westminster (Mr. John Smith) what the cost of this would be. No one can estimate what the cost would be. Amongst other things, it would depend on the extent to which wealthier people arranged their affairs so as to spread the realisation of their gains and have the benefit of the concession, whatever it be.
    Again, that leads to one of the injustices of the Amendment. It would mean that people who were able to realise gains steadily over the years by adjustment of their portfolio could realise very considerable gains tax free, whereas other people who perhaps only had one capital asset which they were compelled to realise once in a lifetime through circumstances outside their control and realised a large capital gain would have to pay the full rate of Capital Gains Tax on it. When one examines it, the Amendment has not the justice and fairness that is attributed to it. The maximum relief would go to the wealthiest taxpayers.
    I am sorry if the hon. Member for Harrow, Central considers the argument pedantic and silly. It is not. It is a simple fact which must be faced by those supporting the Amendment that it will not bring benefit to the small man. The greatest benefit will be brought to the man with large capital assets and a large

    805
    potentiality for making capital gains. The way to help the small man is to increase his personal allowances.
    If the small man is going to pay tax on this at all, which he may not do because of the altenative basis of adding it to his income level, he will not pay at more than half his marginal rate of tax. There are about 12 million taxpayers whose marginal rate of tax is at the 6s. 0d. level and who are not paying the standard rate of 8s. 3d. The rate which they would be paying for capital gains as a result of the working of the alternative basis of charge would be about half their marginal rate. There is already relief for the small man built into the system by the alternative basis of charge.
    So much for those arguments, which I suggest do not bear examination. We come now to what I consider to be the serious argument, which is the administrative one. It is said that if we can make an exemption of this kind workable, we will save an enormous amount of work for the taxpayer, the accountancy profession and the Inland Revenue. That was the argument which appealed to those associated with the minority Report of the Royal Commission.
    All that I can do is to repeat that we have again looked into the proposal very carefully. My right hon. Friend has had it investigated by the Inland Revenue again. I can only repeat what I said last year, that it is the view of the Inland Revenue that the concept of the amount of reduction in administrative work which an Amendment of this kind would achieve has been very considerably exaggerated.
    Sir D. Glover: No.
    Mr. MacDermot: The hon. Member for Ormskirk (Sir D. Glover) says "No", but apparently he does not wish to listen to the argument.
    The reason for that is that it will be necessary still for people who make capital gains to calculate them to see whether they are within the limit or not. It is only in cases where it is self-evident that capital gains would be below whatever limit was chosen—and I suggest that, if we chose a limit at all, £500 would be too high—and where none of the gains accrued from a part disposal
    806
    of the asset that there would be any reduction.
    If a person holds a block of shares and he realises only part of that block holding, that is a part disposal of the asset. In their own interests it would be necessary to calculate what proportion of the cost of the asset had to be set against the proceeds of the part disposal to ensure that the right residue of cost was carried forward and set against a subsequent disposal. These are the sort of complications which are involved when one deals with the proposal that there would be a great administrative saving under this Amendment.
    2.30 a.m.
    We have heard many pleas about persons with a small holding of 500 shares and so on who do not know what to do when they sell their shares and realise on them. I hope that any hon. Member will tell such people that they should discuss the matter with their tax inspectors. As everyone in this Committee knows, they are most anxious to be helpful to taxpayers. No doubt many hon. Members have had the experience of receiving help from them. Do not let us exaggerate or put the case on a not very substantial basis.
    There are very substantial objections in principle to this type of Amendment, but in spite of that, if it would really succeed in achieving a substantial diminution of administrative work and we were convinced of that we would be disposed to look at it again. At the moment we are not convinced of that argument.
    Mr. Maurice Macmillan: Before he sits down, will the hon. and learned Gentleman answer one question? Are we to understand that by the earlier part of his speech he has entirely rejected the idea of giving incentive to saving through the fiscal system? Development bonds could be an equivalent of a tax-free capital gain.
    Mr. MacDermot: The hon. Member is seeking to argue from this Amendment a case which he is continually pressing, that there should be a tax concession for various forms of savings by small savers in industrial equities. That is an entirely different question and

    807
    raises much broader issues. Governments of all political complexions have agreed that there should be special exceptions for certain forms of national savings, but the issue which the hon. Member is opening is very much wider than that covered by this Amendment.
    Mr. John Hall: The Committee will agree that the Financial Secretary has waxed most eloquent and indignant in replying to the debate, but he should reserve his energy a little because we have still a long way to go. So far as I could make out from what he said, he was telling the Committee that a Government should never reduce taxation because if it did we would be bound to help the rich rather than the less well-off. That seems a rather curious philosophy.
    This debate has been a most interesting one. We have had extremely good contributions from my hon. Friends and a most interesting one from the hon. Member for Manchester, Cheetham (Mr. Harold Lever). It is true that in the course of his remarks he made a back swipe at the Opposition Amendment. One expects that, but he supported the principle of the Amendment.
    The Financial Secretary has kept on talking about giving £10 a week to Surtax payers and about what the seamen are getting, but we are debating three Amendments dealing with sums ranging from £250 to £500. We are not wedded to a particular sum, but we concentrate on trying to help the small saver to overcome the appalling problem of the volume of administrative work which has to be carried out by various professional bodies. If the Financial Secretary is not prepared to listen to us, he will know that the Chancellor has had representations from professional bodies including the Institute of Chartered Accountants and the Association of Certified and Corporate Accountants. With all their experience in trying to work this system over the past year they have come to the conclusion that the amount of work involved, and which frequently means comparatively small capital gains, is out of all proportion to the revenue which will accrue to the Treasury and imposes a very severe and sometimes savage burden in
    808
    professional costs on the client whose affairs have to be examined by his professional advisers. One might say that this could be covered if the professional fees were allowable, but they are not. The shareholders or the taxpayers have to pay them.
    The Institute of Chartered Accountants expressed anxiety concerning the burden placed by the Inland Revenue on the taxpayers and their advisers and suggested a different approach. They suggested a general exemption on the first £5,000 on the proceeds of chargeable assets other than assets covered by Section 30 which are chattels.
    The Association of Certified and Corporate Accountants in their memorandum to the Chancellor pointed out the incredible amount of work involved in dealing with so many cases that they have to investigate. I have no doubt that the Financial Secretary has seen many examples, and I have one here which is a computation worked out in respect of a shareholder holding ordinary shares in one quoted company. There are about 14 transactions dating back from before and after the relevant Budget date. They include rights issues, bonus issues and a legacy of some shares and so on. It is the sort of transaction one might expect to find over 10 years, particularly in a company with perhaps a strong family interest. The computation runs to six sheets of foolscap of close calculation. It was worked out by a specialist in tax law and, in order to be able to give the benefit of his researches to other professional men, chartered accountants and so on he gave a lecture. It took one hour and 20 minutes with the use of a blackboard to explain one case in the computation and in the end the actual capital gain was £317 over a period of some 10 years. This will be duplicated time and time again up and down the country. I suggest, even from the point of view of the minority report which talked about administrative costs, it is worthwhile looking at the principle again.
    My hon. Friend the Member for Dorset South (Mr. Evelyn King) emphasised the appalling waste of high-grade talent in this country which is concentrated all the time on tax affairs. There is the appalling waste of high-grade talent in individuals

    809
    who have to divert their attention from running their own businesses or professional affairs to their taxation affairs. This is most undesirable, and, if we are to find some way of avoiding it, especially in the light of the small amounts ultimately involved, the Government must devote the greatest possible effort to that end.
    I shall not prolong the debate now. My hon. Friends have advanced extremely cogent and closely argued points in support of our case. The Amendment was moved extremely well and comprehensively by my hon. Friend the Member for Harrow, Central (Mr. Grant), and we are indebted to him for having given us the opportunity to have a debate.
    I give the Financial Secretary one further opportunity. He has come here
    with a brief which, in effect, tells him to say "No". He has said "No" eloquently and effectively, but I know that in his heart of hearts he is seized of this problem of the waste of time, talent and money in achieving what is a very small return for the Revenue in the end. If he will say that he is prepared to look again at the principle of this matter to see whether it is possible to find a way of exempting these small amounts, particularly from small savers, my hon. Friends will not wish to press the Amendment. If he cannot say that, I must advise my right hon. and hon. Friends to take it to a Division.
    Question put, That those words be there inserted:—
    The Committee divided: Ayes 79, Noes 153.

    Division No. 53.]

    AYES

    [2.40 a.m.

    Allason, James (Hemel Hempstead)

    Hirst, Geoffrey

    Pym, Francis

    Baker, W. H. K.

    Holland, Philip

    Rossi, Hugh (Hornsey)

    Batsford, Brian

    Hordern, Peter

    Scott, Nicholas

    Biggs-Davison, John

    Hornby, Richard

    Sharples, Richard

    Bossom, Sir Clive

    Howell, David (Guildford)

    Shaw, Michael (Sc'b'gh & Whitby)

    Bryan, Paul

    Hunt, John

    Sinclair, Sir George

    Buchanan-Smith, Alick (Angus, N&M)

    Huntchison, Michael Clark

    Smith, John

    Buck, Antony (Colchester)

    Jenkin, Patrick (Woodford)

    Stodart, Anthony

    Carlisle, Mark

    Jopling, Michael

    Summers, Sir Spencer

    Clark, Henry

    King, Evelyn (Dorset, S.)

    Taylor, Frank (Moss Side)

    Clegg, Walter

    Kitson, Timothy

    Thatcher, Mrs. Margaret

    Cooke, Robert

    Knight, Mrs. Jill

    Tilney, John

    Deedes, Rt. Hn. W. F. (Ashford)

    Langford-Holt, Sir John

    Turton, Rt. Hn. R. H.

    Digby, Simon Wingfield

    Macleod, Rt. Hn. Iain

    van Straubenzee, W. R.

    Eyre, Reginald

    McMaster, Stanley

    Vickers, Dame Joan

    Farr, John

    Macmillan, Maurice (Farnham)

    Walker-Smith, Rt. Hn. Sir Derek

    Fortescue, Tim

    Maddan, Martin

    Wall, Patrick

    Giles, Rear-Adm. Morgan

    Maginnis, John E.

    Weatherill, Bernard

    Gilmour, Sir John (Fife, E.)

    Maxwell-Hyslop, R. J.

    Webster, David

    Glover, Sir Douglas

    Mills, Peter (Torrington)

    Whitelaw, William

    Grant, Anthony

    Mitchell, David (Basingstoke)

    Wilson, Geoffrey (Truro)

    Gresham Cooke, R.

    Monro, Hector

    Woodnutt, Mark

    Grieve, Percy

    More, Jasper

    Worsley, Marcus

    Hall, John (Wycombe)

    Morrison, Charles (Devizes)

    Hall-Davis, A. G. F.

    Munro-Lucas-Tooth, Sir Hugh

    TELLERS FOR THE AYES:

    Heseltine, Michael

    Page, Graham (Crosby)

    Mr. R. W. Elliott and

    Higgins, Terence L.

    Percival, Ian

    Mr. George Younger.

    Hill, J. E. B.

    Pink, R. Bonner

    NOES

    Allaun, Frank (Salford, E.)

    Buchanan, Richard (G'gow, Sp'burn)

    Edwards, Robert (Bilston)

    Alldritt, Walter

    Callaghan, Rt. Hn. James

    Edwards, William (Merioneth)

    Anderson, Donald

    Cant, R. B.

    English, Michael

    Archer, Peter

    Carmichael, Neil

    Ennals, David

    Armstrong, Ernest

    Coleman, Donald

    Evans, loan L. (Birm'h'm, Yardley)

    Atkins, Ronald (Preston, N.)

    Crawshaw, Richard

    Faulds, Andrew

    Baxter, William

    Davidson, James (Aberdeenshire, W.)

    Fletcher, Ted (Darlington)

    Benn, Rt. Hn. Anthony Wedgwood

    Davies, Harold (Leek)

    Foot, Michael (Ebbw Vale)

    Bennett, James (G'gow, Bridgeton)

    Davies, Ifor (Gower)

    Forrester, John

    Binns, John

    de Freitas, Sir Geoffrey

    Fowler, Gerry

    Blenkinsop, Arthur

    Dell, Edmund

    Fraser, Rt. Hn. Tom (Hamilton)

    Booth, Albert

    Dempsey, James

    Freeson, Reginald

    Boyden, James

    Dewar, Donald

    Gardner, A. J.

    Bradley, Tom

    Diamond, Rt. Hn. John

    Garrett, W. E.

    Brooks, Edwin

    Dickens, James

    Ginsburg, David

    Brown, Rt. Hn. George (Belper)

    Doig, Peter

    Gray, Dr. Hugh (Yarmouth)

    Brown, Hugh D. (G'gow, Provan)

    Dunnett, Jack

    Gregory, Arnold

    Brown, Bob (N'c'tle-upon-Tyne, W)

    Dunwoody, Mrs. Gwyneth (Exeter)

    Grey, Charles (Durham)

    Brown, R. W. (Shoreditch & F'bury)

    Dunwoody, Dr. John (F'th & C'b'e)

    Griffiths, Will (Exchange)

    Buchan, Norman

    Eadie, Alex

    Hale, Leslie (Oldham, W.)

    Hamilton, William (Fife, W.)

    Lyon, Alexander W. (York)

    Perry, George H. (Nottingham, S.)

    Hazell, Bert

    Lyons, Edward (Bradford, E.)

    Price, Christopher (Perry Barr)

    Heffer, Eric S.

    McCann, John

    Price, William (Rugby)

    Henig, Stanley

    McGuire, Michael

    Rhodes, Geoffrey

    Hobden, Dennis (Brighton, K'town)

    MacDermot, Niall

    Roberts, Gwilym (Bedfordshire, S.)

    Hooley, Frank

    Macdonald, A. H.

    Rose, Paul

    Hooson, Emlyn

    Mackenzie, Alasdair (Ross&Crom'ty)

    Rowlands, E. (Cardiff, N.)

    Horner, John

    Mackenzie, Gregor (Rutherglen)

    Shaw, Arnold (Ilford, S.)

    Howarth, Harry (Wellingborough)

    Mackie, John

    Shore, Peter (Stepney)

    Howarth, Robert (Bolton, E.)

    Mackintosh, John P.

    Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

    Howell, Denis (Small Heath)

    Maclennan, Robert

    Silkin, John (Deptford)

    Hughes, Hector (Aberdeen, N.)

    MacMillan, Malcolm (Western Isles)

    Silkin, S. C. (Dulwich)

    Hughes, Roy (Newport)

    McMillan, Tom (Glasgow, C.)

    Silverman, Julius (Aston)

    Hunter, Adam

    McNamara, J. Kevin

    Steele, Thomas (Dunbartonshire, W.)

    Jackson, Colin (B'h'se& Spenb'gh)

    Mahon, Peter (Preston, S.)

    Summerskill, Hn. Dr. Shirley

    Jeger, George (Goole)

    Mahon, Simon (Bootle)

    Varley, Eric C.

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Manuel, Archie

    Wainwright, Edwin (Dearne Valley)

    Jenkins, Hugh (Putney)

    Mapp, Charles

    Walden, Brian (All Saints)

    Johnson, Carol (Lewisham, S.)

    Miller, Dr. M. S.

    Walker, Harold (Doncaster)

    Johnston, Russell (Inverness)

    Morgan, Elystan (Cardiganshire)

    Watkins, David (Consett)

    Jones, Dan (Burnley)

    Newens, Stan

    Wells, William (Walsall, N.)

    Judd, Frank

    Noel-Baker, Francis (Swindon)

    Whitaker, Ben

    Kerr, Mrs. Anne (R'ter& Chatham)

    Oakes, Gordon

    Whitlock, William

    Kerr, Russell (Feltham)

    Ogden, Eric

    Williams, Alan (Swansea, W.)

    Leadbitter, Ted

    Oram, Albert E.

    Williams, Alan Lee (Hornchurch)

    Ledger, Ron

    Orbach, Maurice

    Williams, Mrs. Shirley (Hitchin)

    Lee, Rt. Hn. Jennie (Cannock)

    Orme, Stanley

    Wilson, William (Coventry, S.)

    Lever, Harold (Cheetham)

    Oswald, Thomas

    Winstanley, Dr. M. P.

    Lever, L. M. (Ardwick)

    Page, Derek (King's Lynn)

    Woof, Robert

    Lewis, Ron (Carlisle)

    Park, Trevor

    Lomas, Kenneth

    Parkyn, Brian (Bedford)

    TELLERS FOR THE NOES:

    Lubbock, Eric

    Pavitt, Laurence

    Mr. George Lawson and Mr. Alan Fitch.

    2.45 a.m.
    The Deputy Chairman: In calling the next Amendment, No. 294, may I draw the attention of the Committee to a misprint, a printing error, in the first line of the text on the Order Paper. After "3.—(1)" the next word "In" should be omitted.
    Mr. MacDermot: I beg to move in Amendment No. 294, page 98, line 50, at end insert:
    Definition of investment trust
    3.—(1) Section 37(3)(b) of the Finance Act 1965 (which allows an investment trust as defined in that section to have a holding representing more than the limit of fifteen per cent. of its investments imposed by subsection (2)(b) of that section if the holding was acquired on or after 6th April, 1965, and did not exceed that limit when it was acquired) shall also apply to a holding acquired before the said date and accordingly the words "acquired on or after that date" in the said subsection (3)(b) shall cease to have effect.
    (2) All such adjustments shall be made, whether by the discharge or repayment of tax otherwise, as are required to give effect to the provisions of this paragraph.
    This is one of those moments of aberration when the hearts of the Treasury melt and we bring forward an Amendment which is designed to relieve and assist the taxpayer. The purpose of this Amendment is to provide a slight relaxation in the conditions which have to be met before the Board of Inland Revenue can approve an investment trust for the
    812
    purposes of Section 37. The general rule is that none of the holdings in its portfolio—other than a holding in another investment trust—should represent more than 15 per cent. by value of the portfolio as a whole.
    In order that a trust should not be penalised merely because one of the holdings in its portfolio increased in value at a rate faster than that of the rest of the portfolio, there were provisions last year that the 15 per cent. test was not to apply to a holding acquired after Budget day last year which, when it was acquired, represented not more than 15 per cent. by value of the investing company's investments, so long as no addition was made to the holding. So long as no addition was made to the holding and the holding was acquired before Budget day, the condition was relaxed by providing that a holding could amount to up to 25 per cent. by value, provided, again, that no addition was made to the holding.
    We have had representations from one or two investment trusts who each had holdings which at Budget day represented more than 25 per cent. of the value, but in each case when the holding was acquired it represented less than 15 per cent. It was represented to us that it is illogical to take a stricter view of holdings acquired before Budget day than of holdings acquired after Budget

    813
    day. That argument appealed to us, and so we have brought forward this Amendment to secure the result that they are put on the same footing and will not be penalised by these provisions.
    Mr. John Hall: I agree that the provision under Section 37(3, b) was somewhat restricted. I am delighted to learn that the hon. and learned Gentleman has listened to the representations made to him. It is a little early to burst into tears of pure joy at this evidence of a sinner repented. Nevertheless, we welcome it and thank the hon. and learned Gentleman for it.
    Amendment agreed to.
    Mr. MacDermot: I beg to move Amendment No. 296, in page 99, line 46, at the end to insert:
    Apportionment of cost of acquisition of new holding of shares, etc.
    5.—(1) This paragraph shall apply to a new holding, as defined in sub-paragraph (1)(b) of paragraph 4 of Schedule 7 to the Finance Act 1965 (which, as extended by section 45(8) of that Act, provides for a new holding resulting from a reorganisation or reduction of the capital of a company or unit trust scheme being treated as the same as the original holding)—

    (a) if it consists of more than one class of shares in or debentures of the company and one or more of those classes is of shares or debentures which, in the period of three months beginning with the date on which the reorganisation or reduction of capital took effect, or such longer period as the Board may by notice in writing allow, had quoted market values on a recognised stock exchange in the United Kingdom, or

    (b) if it consists of more than one class of rights of unit holders and one or more of those classes is of rights the prices of which were published daily by the managers of the scheme in that period of three months (or longer if so allowed).

    (2) Where for the purpose of computing the gain or loss accruing to a person from the acquisition and disposal of the whole or any part of any class of shares or securities or rights of unit holders forming part of a new holdings to which this paragraph applies it is necessary to apportion costs of acquisition between what is disposed of and what is retained, the cost of acquisition of the new holding shall first be apportioned between the entire classes of shares or debentures or rights of which it consists by reference to market value on the first day after the reorganisation or reduction of capital took effect on which market value or prices were quoted or published for the shares, debentures or rights as mentioned in sub-paragraph (1)(a)
    814
    or (1)(b) above (with such adjustment of the market value of any class as may be required to offset any liability attaching thereto but forming part of the cost to be apportioned); and this sub-paragraph shall have effect notwithstanding sub-paragraph (5) of the said paragraph 4 (which requires apportionment by reference to market value at the date of disposal).
    (3) The foregoing provisions of this paragraph shall have effect as if contained in the said paragraph 4, and paragraphs 5, 6 and 7 of the said Schedule 7 (which apply the said paragraph 4 subject to modifications) shall have effect accordingly.
    (4) For the purposes of this paragraph the day on which a reorganisation of share capital involving the allotment of shares or debentures or unit holders' rights takes effect is the day following the day on which the right to renounce any allotment expires.
    (5) This paragraph applies to a disposal of part of a new holding at any time after the end of the year 1965–66 and, if a person so elects by notice in writing given to the inspector not later than the end of the year 1966–67 as respects a new holding, it shall also apply to a disposal by that person of part of that new holding at any time in the year 1965–66; and such adjustments shall be made whether by way of discharge or repayment of tax or assessment to tax or otherwise as are required to give effect to the election.
    The Deputy Chairman: There is a printing error in subsection (4) of the Amendment. The word following "debentures" should be not "all" but "or".
    Mr. MacDermot: May we also, Mr. Irving, discuss Amendment No. 297, in page 102, line 22, at end insert:
    Apportionment of cost of acquisition of new holding of shares, etc.
    11.—(1) This paragraph shall apply to a new holding, as defined in sub-paragraph (1)(b) of paragraph 10 of Schedule 9 to the Finance Act 1962 (which, as extended by section 16(4) of that Act, provides for a new holding resulting from a reorganisation or reduction of the capital of a company or unit trust scheme being treated as the same as the original holding)—

    (a) if it consists of more than one class of shares in or debentures of the company and one or more of those classes is of shares or debentures which, in the period of three months beginning with the date on which the reorganisation or reduction of capital took effect, or such longer period as the Board may by notice in writing allow, had quoted market values on a recognised stock exchange in the United Kingdom, or

    (b) if it consists of more than one class of rights of unit holders and one or more of those classes is of rights the prices of which were published daily by the

    815
    managers of the scheme in that period of three months (or longer if so allowed).

    (2) Where for the purpose of computing the gain or loss accruing to a person from the acquisition and disposal of the whole or any part of any class of shares or securities or rights of unit holders forming part of a new holding to which this paragraph applies it is necessary to apportion costs of acquisition between what is disposed of and what is retained, the cost of acquisition of the new holding shall first be apportioned between the entire classes of shares or debentures or rights of which it consists by reference to market value on the first day after the reorganisation or reduction of capital took effect on which market values or prices were quoted or published for the shares, debentures or rights as mentioned in sub-paragraph (1)(a) or (1)(b) above (with such adjustment of the market value of any class as may be required to offset any liability attaching thereto but forming part of the cost to be apportioned); and this sub-paragraph shall have effect notwithstanding sub-paragraph (5) of the said paragraph (10) (which requires apportionment by reference to market value at the date of disposal).
    (3) The foregoing provisions of this paragraph shall have effect as if contained in the said paragraph 10 and paragraphs 11, 12 and 13 of the said Schedule 9 (which apply the said paragraph 10 subject to modifications) shall have effect accordingly.
    (4) For the purposes of this paragraph the day on which a reorganisation of share capital involving the allotment of shares or debentures or unit holders' rights takes effect is the day following the day on which the rights to renounce any allotment expires.
    (5) This paragraph applies to a disposal of part of a new holding at any time after the end of the year 1965–66 and, if a person so elects by notice in writing given to the inspector not later than the end of the year 1966–67 as respects a new holding, it shall also apply to a disposal by that person of part of that new holding at any time in the year 1965–66; and such adjustments shall be made whether by way of discharge or repayment of tax or assessment to tax or otherwise as are required to give effect to the election.
    and two Opposition Amendments, Amendment No. 119, in page 101, line 33, at end insert:
    Re-organisation of share capital, conversion of securities, &c.
    8. Paragraph 4(5) of Schedule 7 to the Finance Act 1965 shall be omitted and the following inserted:—
    "(5) Where the new holding comprises more than one security, the cost of acquisition of the original shares shall be apportioned between the constituent parts of the new holding by reference to market values on the first day of dealing after the re-organisation or reduction of capital (with such adjustment of the market value of any part of the new holding as may be required to offset any liability attaching thereto but forming part of the cost to be apportioned) and any corresponding
    816
    apportionment for the purposes of sub-paragraph (4) above shall be made in like manner".
    and Amendment No. 120, in page 102, line 22, at end insert:
    Re-organisation of share capital, conversion of securities, &C.
    11. Paragraph 10(5) of Schedule 9 to the Finance Act 1962 shall be omitted and the following inserted:—
    "(5) Where the new holding comprises more than one security, the cost of acquisition of the original shares shall be apportioned between the constituent parts of the new holding by reference to market values on the first day of dealing after the re-organisation or reduction of capital (with such adjustment of the market value of any part of the new holding as may be required to offset any liability attaching thereto but forming part of the cost to be apportioned) and any corresponding apportionment for the purposes of sub-paragraph (4) above shall be made in like manner".
    The Deputy Chairman: Yes, if that is for the convenience of the Committee.
    Mr. MacDermot: These are Amendments to simplify the operation of the Capital Gains Tax by changing the basis on which the Capital Gains Tax cost on an original holding of shares is to be apportioned between the shares or securities comprised in the holding which results from a reorganisation of the capital. The matter is somewhat involved and complicated, and I will gladly explain it in full to the Committee if hon. Members wish. I gave a brief outline of it when we were considering the Ways and Means Resolution the other night. The Opposition have tabled two Amendments which were aimed to achieve the same purpose. I think that the Government Amendments achieve the object a little more fully.
    Mr. John Hall: I do not think we wish to take advantage of the hon. and learned Gentleman's offer to explain this to us. I think that, even with his well known brevity and clarity of expression, it would take a little time. His Amendments take the place of the two that we tabled to deal with the point. We are grateful to the Chancellor for having been seized on the point and tabling two Amendments of his own. We will not debate which of the Amendments are the most comprehensive or most meet the point, but I think that it is done perfectly adequately.

    817
    I should like to ask a question about paragraph 5(1,a) of Amendment No. 296, which reads:
    "on a recognised stock exchange in the United Kingdom".
    Paragraph 22 of Schedule 6 in the 1965 contained similar words, but the words "and elsewhere" were added, so that it read:
    "on a recognised stock exchange in the United Kingdom and elsewhere".
    I do not know whether there is any significance in the omission of the words or whether it makes any difference. Perhaps the hon. and learned Gentleman would care to comment.
    Mr. MacDermot: I am afraid that I have not had my attention drawn to the point, and I do not recall for the moment what the reason was why last year we added "and elsewhere" in the passage referred to by the hon. Gentleman. I will look into the point and let the hon. Gentleman know the result. If it appears that we ought to have added those words this year, then I will bring forward an appropriate Amendment at Report.
    Amendment agreed to.
    Mr. John Hall: I beg to move, Amendment No. 275, in page 100, line 39, at the end to insert:
    7.—(1) In the event of the winding-up of a body corporate or the bankruptcy of an individual the capital gains tax payable in consequence of and during the course of the winding-up or the bankruptcy shall not exceed the amount (if any) by which the assets vested in the liquidator or the trustee in bankruptcy exceed the sums owing to the creditors of the bankrupt.
    The Deputy Chairman: With this we can also discuss Amendment No. 276, in page 102, line 18, leave out subparagraph (4).
    Mr. Hall: This Amendment is similar to one moved last year, since when we have had some experience of the operation of the Act. I would like to quote the words that I used on that occasion in dealing with this question of bankruptcy. I said:
    "The present position on the winding-up of a body corporate or the bankruptcy of an individual is that should any assets realised during the disposal of a bankruptcy produce a capital gain the State will impose a Capital Gains Tax in the case of an individual in bankruptcy at 30 per cent. and in the case of a company or corporation at 40 per cent.,
    818
    even though the final proceeds of the liquidation may be insufficient to pay the creditors 20s. in the £."—[OFFICIAL REPORT, 27th May, 1965; Vol. 713, c. 947–8.]
    Unlike Income Tax or Corporation Tax, the liability to Capital Gains Tax does not arise every year. It cannot arise until the assets are realised. In the case of a liquidation of bankruptcy where the losses incurred may be very considerable and the chances of the creditors being paid 20s. in the £ rather slight, it seems to be rather extraordinary that the gains which are made on the realisation of the assets, which would not have been realised but for the bankruptcy, and which would normally go towards the payment of the creditors, including the preferential creditor, the Inland Revenue or preferential creditors, for Income Tax or Capital Gains Tax, should not be applied in full to meet those liabilities, but instead the State steps in and takes its Capital Gains Tax before the balance of the capital gain is available for the rest of the creditors.
    Last year the Solicitor-General was kind enough to point out to me, and it had slipped my mind at the time, that the Finance Act, 1962, which covered the short-term Capital Gains Tax provided for this particular exemption. He rather spoiled this generous gesture by going on to argue at some length that, whereas exemption is justified in the case of short-term gains, it was apparently not justified in the case of the longer-term gains. He said:
    "In the case of a short-term Capital Gains Tax one naturally looks more kindly at the involuntary disposition, because the liability to a short-term tax depends on the two transactions happening within a certain period of time. An acquisition takes place and then a disposal takes place within six months or three years, as under the 1962 Act, or within a period of 12 months, as we propose in the Bill. In such a case it would be a hardship on the other creditors"—
    I stress that—
    "… to take it against tax when the disposal is an involuntary one, because the owner of the property has at that period of time become insolvent. If that is done, the bankrupt's liability is added to because of circumstances beyond his control and, indeed, beyond the creditors' control, and the amount which is available for the other creditors is reduced."—[OFFICIAL REPORT, 27th May, 1965; Vol. 713, c. 951.]
    It appears that hardship occurs to creditors and to the bankrupt where this takes place under twelve months, but if

    819
    it is twelve months and a day, then no hardship arises. In the debate last year, I was privileged to have the support of the hon. Member for Heywood and Royton (Mr. Barnett), who as a practising accountant—and I hope that the Chief Secretary is listening—probably has more practical knowledge of these affairs than other people, and who seemed in this matter to adopt a rather more sensible approach to the problem than chartered accountants on the Front Bench opposite. I hope that the Amendment will this time command the sympathetic attention of the Financial Secretary and that we shall be more fortunate than we were last year in getting a favourable response to this Amendment. I am encouraged by the fact that we have just passed two Amendments, tabled by the Chancellor, which made concessions of the kind for which we have pressed in the past and about which representations have been made. Perhaps we may have a third to give us a hat trick.
    3.0 a.m.
    Mr. MacDermot: I am afraid that the Treasury's heart has returned to its normal condition on this Amendment. We discussed—and rejected—an Amendment of this character last year, and since then there has been an important change in the position as a result of the proposals contained in the Schedule.
    The position last year was that the transfer of an asset to a trustee in bankruptcy or to a liquidator of a company was itself a disposal and was regarded as the occasion of a charge to Capital Gains Tax. If there were an increase in the value of the asset while it was in the hands of the trustee or liquidator and he subsequently disposed of it, there could be a charge to the long-term Capital Gains Tax but it was only that disposal that was exempt from short-term Capital Gains Tax liability.
    It was represented to us with force that there was a possible injustice in that position in that where there was not a gain but a loss when the asset was in the hands of the trustee or liquidator, there was no other gain in respect of which that loss could be carried forward to get a set-off. As a result of our proposal we have introduced in the Schedule, the transfer to the trustee or liquidator is no
    820
    longer a disposal. One will look through at the total gain or loss from the time that the debtor company originally acquired the asset to the time at which it was finally disposed of by the liquidator or trustee. If there were a gain before the liquidation or bankruptcy and a subsequent loss, the loss could be set off against the gain. That is an advantage.
    In these circumstances—and it is in these circumstances that we must consider the proposal—the Opposition propose that where assets are realised the tax due on the chargeable gain should not be payable unless or in so far as there is a surplus of assets over liabilities in the bankruptcy or dispossession. But the Capital Gains Tax is a tax on disposal. It is a tax on gains realised at the time of disposal and the circumstances occasioning the disposal are not relevant to considering the liability to tax.
    If we started making exceptions in this way, many other cases could be brought forward in which a person could say that he has had to realise assets in circumstances occasioning sympathy and therefore he should not have to pay the charge. If we were to consider that argument, then, speaking personally, I should not regard this case as being particularly meritorious. The case for the creditors, in my view, would be much less strong than the case which they sometimes mount against the position of the Crown as a preferred creditor in respect of liability to Income Tax and Corporation Tax. Here we are dealing with the net gain to the creditors when a capital asset of the debtor or liquidated company is being realised, and the net gain is that which results after it has been disposed of and the charges involved in that disposal have been paid, and among those are the Capital Gains Tax liability, if any, which results at the time of the disposal. To argue from the absurd, one does not say that at the moment when there is an auction sale of a bankrupt's assets the auctioneer should not be entitled to his fee because of one's sympathy for the creditors.
    One must remember that it is the creditors who, by granting excessive credit to the debtor, enabled him to get into the position of being bankrupt. I do not see why we should cease to protect the interest of the general body of

    821
    taxpayers by surrendering Capital Gains Tax, which it is otherwise right to levy at the time of disposal, because the occasion of the disposal is that creditors are realising an asset of a bankrupt. I may be expressing a personal view on this, but I urge upon the Committee that in view of the change which we have made now there is even less argument in favour of the Amendment than there was last year.
    Mr. John Hall: I appreciate the action that has already been taken by the Treasury Bench in order to remove one injustice. This is an improvement, but to call it in aid as a reason for not removing another injustice is not entirely logical. The Financial Secretary says that we cannot grant exceptions to various rules and laws which are laid down in our fiscal legislation, but our laws are full of exceptions. This would not be a departure from previous practice.
    In bankruptcy, the Crown ranks as preferential creditor for Income Tax or Corporation Tax. Now the Financial Secretary also wants to tax capital gains on assets that have to be forcibly realised on bankruptcy. It is bad enough to do that, but this would tax not only capital gains but also the capital that has been realised in order to pay back to the creditors some of the money which is owed to them.
    I find the Financial Secretary's reply disappointing. I also find odd his philosophy in suggesting that it is the creditors who have made the person bankrupt. If one never did trade with an individual who might go bankrupt, the trade of this country would come to a grinding halt The reasons for which people go bankrupt are largely outside their control. There may be one or two traders and those providing services who may be severely affected by the Selective Employment Tax and may be forced into bankruptcy through Government action— nothing to do with the creditors having unwisely given them too much credit.
    I did not expect anything more from the Financial Secretary. I felt certain that he had another brief with "No" written right across it. With his usual skill, he deployed all the arguments in favour of that brief; he did it very well. But he has not convinced anybody on this side of the Committee. This seemed to be an injustice when we raised it last time. The fact that something has been done to remedy one of the anomalies and injustices is welcome, but it does not alter the situation. I strongly recommend my hon. Friends to divide on the Amendment.
    Question put, That those words be there inserted:—
    The Committee divided: Ayes 76, Noes 150.

    Division No. 54.]

    AYES

    [3.9 a.m.

    Allason, James (Hemel Hempstead)

    Holland, Philip

    Rossi, Hugh (Hornsey)

    Baker, W. H. K.

    Hordern, Peter

    Scott, Nicholas

    Batsford, Brian

    Hornby, Richard

    Sharples, Richard

    Biggs-Davison, John

    Howell, David (Guildford)

    Shaw, Michael (Sc'b'gh & Whitby)

    Bossom, Sir Clive

    Hunt, John

    Sinclair, Sir George

    Bryan, Paul

    Hutchison, Michael Clark

    Smith, John

    Buchanan-Smith, Alick (Angus,N&M)

    Jenkin, Patrick (Woodford)

    Stodart, Anthony

    Buck, Antony (Colchester)

    Jopling, Michael

    Summers, Sir Spencer

    Carlisle, Mark

    King, Evelyn (Dorset, S.)

    Taylor, Frank (Moss Side)

    Clark, Henry

    Kitson, Timothy

    Thatcher, Ms. Margaret

    Clegg, Walter

    Knight, Mrs. Jill

    Tilney, John

    Deedes, Rt. Hn. W. F. (Ashford)

    Langford-Holt, Sir John

    Turton, Rt. Hn. R. H.

    Digby, Simon Wingfield

    Macleod, Rt. Hn. Iain

    Vickers, Dame Joan

    Farr, John

    McMaster, Stanley

    Walker-Smith, Rt. Hn. Sir Derek

    Fortescue, Tim

    Macmillan, Maurice (Farnham)

    Wall, Patrick

    Giles, Rear-Adm. Morgan

    Maddan, Martin

    Weatherill, Bernard

    Gilmour, Sir John (Fife, E.)

    Maginnis, John E.

    Webster, David

    Glover, Sir Douglas

    Maxwell-Hyslop, R. J.

    Whitelaw, William

    Grant, Anthony

    Mills, Peter (Torrington)

    Wilson, Geoffrey (Truro)

    Gresham Cooke, R.

    Mitchell, David (Basingstoke)

    Woodnutt, Mark

    Grieve, Percy

    Monro, Hector

    Worsley, Marcus

    Hall, John (Wycombe)

    More, Jasper

    Younger, Hn. George

    Hall-Davis, A. G. F.

    Morrison, Charles (Devizes)

    Heseltine, Michael

    Munro-Lucas-Tooth, Sir Hugh

    TELLERS FOR THE AYES:

    Higgins, Terence L.

    Percival, Ian

    Mr R. W. Elliott and Mr. Reginald

    Hill, J. E. B.

    Pink, R. Bonner

    Eyre.

    Hirst, Geoffrey

    Pym, Francis

    NOES

    Allaun, Frank (Salford, E.)

    Gardner, A. J.

    MacMillan, Malcolm (Western Isles)

    Alldritt, Walter

    Garrett, W, E,

    McMillan, Tom (Glasgow, C.)

    Anderson, Donald

    Ginsburg, David

    McNamara, J. Kevin

    Archer, Peter

    Gray, Dr. Hugh (Yarmouth)

    Mahon, Peter (Preston, S.)

    Armstrong, Ernest

    Gregory, Arnold

    Mahon, Simon (Bootle)

    Atkins, Ronald (Preston, N.)

    Griffiths, Will (Exchange)

    Manuel, Archie

    Baxter, William

    Hale, Leslie (Oldham, W.)

    Mapp, Charles

    Benn, Rt. Hn. Anthony Wedgwood

    Hamilton, William (Fife. W.)

    Miller, Dr. M. S.

    Bennett, James (G'gow, Brldgeton)

    Hazell, Bert

    Morgan, Elystan (Cardiganshire)

    Binns, John

    Heffer, Eric S.

    Newens, Stan

    Blenkinsop, Arthur

    Henig, Stanley

    Noel-Baker, Francis (Swindon)

    Booth, Albert

    Hobden, Dennis (Brighton, K'town)

    Oakes, Gordon

    Boyden, James

    Hooley, Frank

    Ogden, Eric

    Bradley, Tom

    Hooson, Emlyn

    Orbach, Maurice

    Brooks, Edwin

    Homer, John

    Orme, Stanley

    Brown, Rt. Hn. George (Belper)

    Howarth, Harry (Wellingborough)

    Oswald, Thomas

    Brown, Hugh D. (G'gow, Provan)

    Howarth, Robert (Bolton, E.)

    Page, Derek (King's Lynn)

    Brown, Bob (N'c'tle-upon-Tyne, W)

    Howell, Denis (Small Heath)

    Park, Trevor

    Brown, W. R. (Shoreditch & F'bury)

    Hughes, Hector (Aberdeen, N.)

    Parkyn, Brian (Bedford)

    Buchan, Norman

    Hughes, Roy (Newport)

    Pavitt, Laurence

    Buchanan, Richard (G'gow, Sp'burn)

    Hunter, Adam

    Perry, George H. (Nottingham, S.)

    Callaghan, Rt. Hn. James

    Jackson, Colin (B'h'se & Spenb'gh)

    Price, William (Rugby)

    Cant, R. B.

    Jeger, George (Goole)

    Rhodes, Geoffrey

    Carmichael, Neil

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Roberts, Gwilym (Bedfordshire, S.)

    Coleman, Donald

    Jenkins, Hugh (Putney)

    Rose, Paul

    Crawshaw, Richard

    Johnson, Carol (Lewisham, S.)

    Rowlands, E. (Cardiff, N.)

    Davidson, James (Aberdeenshire, W.)

    Johnston, Russell (Inverness)

    Shaw, Arnold (Ilford S.)

    Davies, Harold (Leek)

    Jones, Dan (Burnley)

    Shore, Peter (Stepney)

    Davies, Ifor (Gower)

    Judd, Frank

    Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

    de Freitas, Sir Geoffrey

    Kerr Mrs. Anne (R'ter & Chatham)

    Silkin, John (Deptford)

    Dell, Edmund

    Kerr, Russell (Feltham)

    Silkin, S. C. (Dulwich)

    Dempsey, James

    Lawson, George

    Silverman, Julius (Aston)

    Dewar, Donald

    Leadbitter, Ted

    Steele, Thomas (Dunbartonshire, W.)

    Diamond, Rt. Hn. John

    Ledger, Ron

    Summerskill, Hn. Dr. Shirley

    Dickens, James

    Lee, Rt. Hn. Jennie (Cannock)

    Varley, Eric G.

    Doig, Peter

    Lever, Harold (Cheetham)

    Wainwright, Edwin (Dearne Valley)

    Dunnett, Jack

    Lever, L. M. (Ardwick)

    Walden, Brian (All Saints)

    Dunwoody, Mrs. Gwyneth (Exeter)

    Lewis, Ron (Carlisle)

    Walker, Harold (Doncaster)

    Dunwoody, Dr. John (F'th & C'b'e)

    Lomas, Kenneth

    Watkins, David (Consett)

    Eadie, Alex

    Lubbock, Eric

    Wells, William (Walsall, N.)

    Edwards, Robert (Bilston)

    Lyon, Alexander W. (York)

    Whitaker, Ben

    Edwards, William (Merioneth)

    Lyons, Edward (Bradford, E.)

    Whitlock, William

    English, Michael

    McCann, John

    Williams, Alan (Swansea, W.)

    Ennals, David

    MacDermot, Niall

    Williams, Alan Lee (Hornchurch)

    Evans, Ioan L. (Birm'h'm, Yardley)

    Macdonald, A. H.

    Wilson, William (Coventry, S.)

    Faulds, Andrew

    McGuire, Michael

    Winstanley, Dr. M. P.

    Fletcher, Ted (Darlington)

    Mackenzie, Alasdair (Ross&Crom'ty)

    Woof, Robert

    Foot, Michael (Ebbw Vale)

    Mackenzie, Gregor (Rutherglen)

    Forrester, John

    Mackie, John

    TELLERS FOR THE NOES:

    Fowler, Gerry

    Mackintosh, John P.

    Mr. Alan Fitch and Mr. Charles Grey.

    Fraser, Rt. Hn. Tom (Hamilton)

    Maclennan, Robert

    Freeson, Reginald

    Mr. Higgins: I beg to move, Amendment No. 72, in page 101, line 33, at the end to insert:
    Policies of insurance
    8. In paragraph 10(1) of Schedule 7 to the Finance Act 1965 the words from the beginning to "neither" exclusive in line 5 shall be omitted.
    The object of this Amendment is to remove what seems to us to be a clear anomaly in the 1965 Finance Act. It covers capital redemption policies, which provide a capital sum assured at the end of a stated period of years in return for annual premiums; and the sum assured is the accumulation which the insurance company makes, plus the interest and other earnings, all of which have borne full taxation.
    This is a policy which is a means of saving, carried out by somebody who pays
    824
    premiums which it is the duty of the insurance company to invest. Under last year's Finance Act, these policies were made liable for tax on the excess of the sum assured over the premiums paid; that is, the capital amount which a person would receive at the end of the stated period. The supplementary charge on what is called a capital gain imposed an extra layer of taxation, which would not be charged if the person concerned had decided not to take out the policy, but had invested the same amount himself. We feel that this is a matter which should be rectified. We feel it is wrong that we should have in this sort of redemption policy an extra layer of taxation, compared with the situation which would have arisen had a corporate body or individual invested on his own account. Had the corporate body not taken out

    825
    the policy but had itself invested it would have avoided the extra layer of taxation. For this reason we feel that the Amendment ought to be accepted by the Committee.
    As I say, the policy could be taken out either by a corporate body or by an individual. The vast majority of these policies are in fact taken out by corporate bodies; something like 95 per cent. of them are taken out by corporate bodies. They take out these policies to cover loans which typically are made by the insurance company which is also granting the policies; in other words, a policy effectively covers the loan which the insurance company is making.
    This form of redemption policy is not taken out to any great extent by individuals, nor is it taken out to any great extent by large companies, because a large company can undertake investment of its funds and cover its capital requirements and loans through its own operators and experts. It is, fundamentally, the small company which employs this kind of policy to cover loans which it receives from the insurance company. This is a useful means whereby it obtains capital which it probably could not otherwise achieve by way of a debenture issue.
    It seems to us quite wrong that this extra layer of taxation should be imposed on this kind of policy, and the effect, we can see, is to eliminate this kind of policy in any new business. Since the passing of the Act the rate of taxation which is imposed on this kind of policy is so high that no one would willingly take out such a policy rather than carry out his own investment decisions. So really it is not so much a Capital Gains Tax as a capital punishment for this kind of policy. This means that a useful source of finance for small and medium sized businesses is effectively being stopped. I think the Chief Secretary would agree that most of the alternatives which would be open to a company in these circumstances would not in fact be very satisfactory alternatives either from the point of view of the firm or from the point of view of the Revenue. Therefore, on these grounds, we feel very strongly that the Amendment should have the support of the whole Committee.
    There is a second point which I ought to make, and that is that already a very considerable amount of money has been raised on policies of this kind. Those policies cover loans which small and medium-sized businesses have acquired in the past. If we fail to amend the Finance Act, 1965, in the way which we suggest, it means that those who have policies already negotiated and loans already covered by them will find it necessary to renegotiate the whole operation. They will have to start from scratch and say, "Our policies, because of the Capital Gains Tax levy, are not going to cover the loans which we have in fact been granted, and as a result of this we have to come back to you and try to renegotiate the whole thing." This is likely to disrupt very severely the whole of this part of the capital market, and this is a part of the market which performs a useful function. On both those grounds we feel it is desirable that the 1965——
    Mr. Harold Lever: Would not the force of the argument depend upon the nature of the investment which the insurance company made on behalf of the assuree or the company holding the policies to which the hon. Gentleman refers?
    Mr. Higgins: No, I do not think so. The position is quite clear. Regardless of the type of investment which the insurance company makes, if one has a capital redemption policy, supposing the accumulation of the various things will already have borne full tax at the end of the period—let us say tax of £10,000——
    Mr. Lever: Let us assume that the insurance company invested the premiums —and based its returns on those—in equity shares, and made a capital gain upon them, would not the effect of the Amendment be that, indirectly, that capital gain on those equities and the other investments would escape Capital Gains Tax?
    Mr. Higgins: Not at all. I cannot accept that for a moment. I thought that I had covered that point in my opening remarks. We are comparing two systems. Under the redemption policy system, if the capital accumulation at the end of the period is £10,000 and the premium paid is £6,000, so that the accumulation after interest is £4,000. Corporation Tax will

    827
    be chargeable on the gain even though the company had paid taxes of £1,600 in the earlier stages, so that at this stage the net benefit would be £2,400.
    We have to contrast this with the situation under the system of direct investment, where, again, the total accumulation would be £10,000, the premiums paid £6,000, and the accumulation after interest, £4,000. As in the previous case, all the taxes for which the company was liable would have been paid, but in the second case Corporation Tax would not be chargeable on the amount.
    This is a complicated point to make at this early hour of the morning, and perhaps I can put it again very simply for the benefit of the hon. Member for Cheetham, who is a great expert in these matters.
    Mr. Callaghan: My hon. Friend will not understand it.
    Mr. Higgins: I do not accept the Chancellor's assertion that the hon. Gentleman will not understand it. I am sure he will. My point is that in both cases all the taxes will have been paid, whether the company takes out a redemption policy or, on the other hand, invests individually. But in the first case an additional layer of taxation will be levied, with the result that under the 1965 Act this kind of policy is no longer a workable proposition. Unless we amend the provision as it stands at present this kind of policy will be completely killed, both for those who have already taken out such policies to cover loans and also those who wish to initiate further policies to cover other loans, which they need to finance their operations.
    I can assure the hon. Member that the existing provisions of the Finance Act effectively make a capital redemption policy quite uneconomic for a firm wishing to take one out to cover a loan. For those reasons I believe that the Committee would be right to remove this anomaly which, if we consider the question in detail, we find to be a clear one and one which is not likely to work in the interests of the business community—because redemption policies performs a useful function—or in the interests of the Exchequer or the country, and I hope that the Committee will accept the Amendment.
    3.30 a.m.
    Mr. Diamond: As the hon. Member for Worthing (Mr. Higgins) has rightly said, it is early in the morning and it is not an occasion when a long speech would be appropriate. I have listened to what the hon. Member has said; we have received many representations and have been made fully aware of the real difficulties that exist in this connection.
    I am more conscious of the difficulties than I am persuaded by the arguments of principle which the hon. Gentleman used. There are real difficulties. Nevertheless, we have debated this before and have received representations, and we have decided not to resist this Amendment. The words are appropriate to fulfil the purpose of the Amendment and, therefore, I would recommend to my hon. Friends that they do not vote against this Amendment.
    Mr. John Hall: It would not be fitting to allow this unique occasion to go by without comment. I am sure the whole Committee is indebted to the Chief Secretary for having listened so carefully and for having signified the intention of the Government to accept the Amendment. We are indeed grateful to him for this. It removes an anomaly—furthermore, as far as I can understand, at no cost to the Treasury because there is no revenue to be obtained from it; so although it is a generous gesture, we note that it is at no cost to anyone.
    I have said earlier on that it is a little early to burst into tears of joy at the sign of the sinners repenting. I am almost getting to that point now. One more concession by the Government would bring me to the point of tears.
    Amendment agreed to.
    Mr. John Hall: I beg to move Amendment No. 278, in page 101, line 33, at the end to insert:
    Inflation relief
    8. In Schedule 6 to the Finance Act 1965 there shall be added, as paragraph 8A, the following:—
    "8A. In any computation under this Schedule of the gain accruing on the disposal of an asset there shall be added to the expenditure attributable to that asset under paragraph 4 of this Schedule an amount equal to 3 per cent. of that expenditure as respects each year (and proportionately for any part of a year) during the relevant period of ownership".
    The Temporary Chairman (Mr. Grant-Ferris): With this Amendment it will be convenient to take Amendment No. 310, in line 33, at end insert:
    Chargeable gains on assets held for three years or more
    8. The chargeable gains on the disposal of an asset shall be computed as if any expenditure allowed as a deduction by Schedule 9 to the Finance Act 1965 which was incurred three years or more prior to the date of disposal were increased in direct proportion to any increase in the Board of Trade Index of Wholesale Prices between the date the expenditure was incurred and the date of disposal.
    Mr. Hall: This Amendment which I am moving is also not unfamiliar. We advanced arguments about the effect of the Capital Gains Tax upon real capital during the debate which went on for such a long time during the Committee stage of the 1965 Finance Bill. As you say, Mr. Grant-Ferris, we are taking Amendment No. 310 with this Amendment, and I must confess that I am of the view that Amendment No. 310 is perhaps a little more realistic than the one that I am moving—more realistic against the background of the movement of the cost of living figures in the last 12 months or so.
    I notice that in April, 1965, the retail prices index was 112, and that in April, 1966, it had risen to 116·8, a rise of 4·8 points or 4·3 per cent., which is in marked contrast to the movement of the cost of living which we had been led to expect if one listened to the election speeches during the last two elections.
    Inflation is a very heady and attractive thing to live with. Indeed, I sometimes think that inflation is like that type of suicide which used to be popular amongst the noble Romans who used to sit themselves in a nice hot bath and cut their veins, and, with a sense of delicious and increasing languor, gradually bleed till life was extinct. Inflation is very much like that because the country bleeds to death very often without realising what is happening.
    The effect of the Capital Gains Tax can be summed up by a quotation from Lord Shawcross in The Times of 7th April. Lord Shawcross is now Chairman of the Wider Share Ownership Council. The paper saw fit to point out that he was a former Labour Minister and that therefore his words were worth noting. He said:
    830
    "Of all the taxes the capital gains tax is perhaps the greatest fraud. They will tax a nominal inflationary rise in values although the real value of the investment or property has decreased in purchasing power owing to inflation which has resulted of Government policies."
    Perhaps that is why The Times mentioned that he was a former Labour Minister. Obviously he had experience of what happens under a Labour Government.
    The article went on to say:
    "There are two indictments here. One against the form and complexity of the tax itself;"—
    which we have mentioned—
    "the other against its use in a period of inflation."'
    This is precisely the point now being made by the country's farmers—The Times article was about the farmers— that the effect of the tax in a period of inflationary price rises was tantamount to a capital levy on individual farms.
    The article quoted Professor Merritt, in a wider context, as saying that most taxpayers had no real capital gains on assets subject to the tax and that many of them are in fact suffering definite losses. This is the point of the Amendment.
    The main arguments about the effect of inflation and the fact that the Capital Gains Tax will tax the inflated value of the asset and thus become a capital tax were deployed last year and I will not repeat them, but one ought to examine some of the arguments against the proposals of that time. It was suggested, for example, that a tax system could not protect against the effect of inflation. The hon. Member for Heywood and Royton (Mr. Barnett) was against it in this respect. He said that inflation was an economic fact of life.
    But we do take inflation into account in our system in the variation of allowances and from time to time in the variation of rates. The inflationary effect must be taken into account when considering tax reliefs. It was argued that income earners suffer the effects of inflation without being specially treated to protect them against it. But even that is not true. Many workers have written into their contracts of service an automatic cost of living increase clause, which raises their income with the cost of living.

    831
    Others who do not have that written-in protection manage to obtain protection by pressure.
    There is no doubt that the majority of wage earners have managed to stay well ahead of the cost of living. I agree that some sections of the community, the professional and small fixed income groups, for example, have not been able to do this. I also agree that inflationary increases in income attract higher Income Tax and Surtax, but this has comparatively little effect on those whose earnings keep well ahead of the cost of living. It can have an effect on the higher income brackets, because in the higher Surtax realms, a person's real income may depreciate even though it appears to increase.
    We have heard constantly in these debates and last year's that Capital Gains Tax is most likely to affect the Surtax payer, because he is most likely to have investment holdings or assets which are likely on realisation to attract the tax. If that is so, the Surtax payer has been hit twice. As he is pushed up into the higher Surtax brackets, he has a depreciated income, out of which he buys assets the value of which will be reduced when he realises them. I do not want to go through the arguments which we made about the effects of the tax.
    The article in The Times goes on:
    "If, for example, prices rose by a fifth over five years the monetary value of an investment originally costing £100 would have to rise to £120 to retain its value in real terms. The tax on this apparent monetary gain would take £6, leaving the owner with £114 of inflated currency—the equivalent of £95 in the original monetary terms."
    So there one has a real depreciation of capital, and one can quote many similar examples.
    I am sorry that the hon. Member for Manchester, Cheetham (Mr. Harold Lever) is no longer in his place. He has been a constant attender in the last few hours. The hon. Gentleman took part in the debate on Report stage on 7th July, 1965, and he had this to say about a similar Amendment which we moved at that time. He introduced his comments by a very clever back-hander at the Opposition, saying:
    "This talk about double tax is beside the point but under a cocoon of bad argument there is a real grievance. It is that tax is levied not on the real but on the paper
    832
    profits. Here not only have the Opposition a case but they have an unanswerable case. The only trouble about the unanswerable case is that it is an utterly useless one to the House. It is unanswerable and it is unremediable at the same time."—[OFFICIAL REPORT, 7th July, 1965; Vol. 715, c. 1670.]
    I am not quite so pessimistic as the hon. Gentleman is about it being unremediable, but he is right in saying that it is an unanswerable case.
    Let us look at the situation in other countries. As far as I am aware, all countries, without exception, either have had or still have a system which takes account of inflation. In 1920, originally, the United States of America had an abatement system. It continued for a number of years, though I agree that they have dropped it since. It was suggested that it was abandoned because it had a locking-in effect, as it was called, on market movements. I very much doubt whether that was so. Even if it was, our Amendment would not have that effect. I find it hard to believe that a tax which is as expensive and complicated to administer as the Capital Gains Tax and which in inflationary periods, without any argument, destroys real capital and thus must affect adversely the future earning capacity of individuals and the country as a whole, can be of any real value to the nation or any section of the population. On the contrary, I believe that the taxation of capital over the years must be harmful in the long-term interests of the nation, particularly in our present economic situation.
    I have no great hopes that the Amendment will be the fourth in a row which we shall get out of the benches opposite, and that it will be another to add to the list of Amendments and improvements which have been made to the Capital Gains Tax legislation tonight. But I am sure that hon. Members on this side of the Committee and, obviously, hon. Members opposite appreciate that, as the system now exists, it is not only a tax on gains but a tax on capital. The arguments about it being impossible to make arrangements to offset the inflationary effect on the taxation system do not hold water. We have suggested the way in which it could be done, and we believe that it should be done.
    Even at this late hour, I hope that the Committee will be prepared to support the Amendment.
    3.45 a.m.
    Mr. David Mitchell: Although it is a quarter to four in the morning, I feel that I must rise in view of the importance of Amendment No. 310 which you, Mr. Grant Ferris, have called to be discussed with the Amendment which has been moved. It is an Amendment which would prevent the citizen paying Capital Gains Tax on that part of a capital gain which arises purely from inflation. I hope the Government will recognise that there is a difference between taxing real capital gains and those capital gains which occur purely on paper.
    Inflation is not new, but I ask the Government to consider where we would be today if over the last 40 years we had transferred from the individual to the Government 30 per cent. of the paper increase in wealth. There would be no need to nationalise major industries or the land for they would have been transferred by these means overwhelmingly to the Government in that period. The effect of a Capital Gains Tax in one year in view of inflation is very small, but over a decade it is very large. It then becomes a capital levy, not a capital gains tax.
    If we are working with inflation at the rate of 5 per cent. a year a tax increase of 5 per cent. is very little in one year, but a tax increase of 50 per cent. in 10 years becomes very substantial. The average small saver is probably saving over 20 years. Then there is a 100 per cent. increase in the paper value of the asset due to inflation. It is that 100 per cent. increase which is liable to a tax of 30 per cent. and this becomes a capital levy, not a Capital Gains Tax. It will result, indeed there are already signs that it is beginning to result, in a drastic reduction in the amount of savings which people are prepared to make.
    Investment has always been regarded as a hedge against inflation. To the extent that we are taxed on the increase, the less is the attraction for most people to save. Savings are essential to the nation, not only because of the capital which can then be used to push forward production, but also because savings are a voluntary withdrawal of consumptive power from the purchasing power of the country and they can create immeasurable advantages for the Chancellor at a time of inflation. I ask that this Amendment shall be given
    834
    serious consideration. The disincentive to savers and those building up businesses is very considerable.
    People do not work for love of the Chancellor of the Exchequer or even for love of the Financial Secretary to the Treasury. They work because there is an advantage to them. If during the years in which they are working to build up a business they see that at the end they will be robbed of 30 per cent., there is little incentive to them to put their backs into building up a business. The small man is building up a business for a good living now and to provide security for his wife and himself in their old age and an opportunity for his children to have a better chance in life than he had himself. Disincentive will be very serious for the economy, which needs incentive. In a memorable phrase, my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said that this would produce "stagflation". There are many signs that that is happening whether the person concerned is a grocer in Andover, a baker in Basingstoke, or a Hampshire farmer.
    For a farmer with 400 acres at £250 per acre, it works out at £100,000, and over 30 years he will have to pay £30,000. That is not an uneconomic or an excessively sized unit, but where can a farmer find that sort of sum to pay back in 20 years? If he does not sell the farm but gives it to his son, he will still have to pay and that rate of money is not to be found in farming today
    This situation will destroy the incentive to work. I therefore urge the Government to give most serious consideration to accepting the Amendment. The long-term damage which the situation can cause will do irreparable harm to the economy.
    Mr. Percy Grieve: The absurdity of the situation is that we have a Capital Gains Tax at a flat rate of 30 per cent. without any regard for inflation at all, and it will be perfectly possible, with inflation proceeding at the rate it has proceeded over the last few years, for a man to have a real loss in terms of real money and then to sell his shares at a real loss and then have to pay 30 per cent. to the Treasury on what he obtains over and above the purchase price. This is not taxation of a capital gain it is a levy, whether the man has made a loss or not.

    835
    I will add nothing to what my hon. Friend the Member for Basingstoke (Mr. David Mitchell) said, nor will I take up the time of the Committee in urging the point further. If what the Government intend to do is to tax capital gains, then let them tax capital gains but not put a tax on wealth or on diminishing wealth.
    Mr. MacDermot: The hon. Member for Wycombe (Mr. John Hall) will not be surprised to hear that I do not think that this Amendment is an occasion for the tears he promised us on our third occasion in yielding. Nor will he be surprised to hear me hazard the view that Amendment No. 310 is possibly a better Amendment than the one he moved, if one wanted to do something about inflation relief.
    In the Amendment which he moved there are some curious illogicalities including one proposing to add what is supposed to be inflation relief at three per cent. to the incidental costs of the disposal which presumably are costs incurred at the end of the period when the inflation is supposed to have taken place. I do not quite follow the logic behind that particular provision.
    I can deal with the matter briefly because we fully rehearsed the arguments for and against this proposal last year. I can see, when I look back at the reports of the debates on this subject last year, how I earned the reputation for brevity to which the hon. Member for Wycombe referred. Let me, with that brevity, seek to answer what the hon. Member called that unanswerable case and remind him what our arguments are. The main argument is that we do not in our tax system offer any hedges against inflation. If one were to seek to do so, I suggest it would be unwise to start with the equity investor who by and large has a better protection against inflation than anyone else.
    The ordinary wage earner, including those with an automatic cost of living increase, will, as a result of that increase, if there is inflation, be paying effectively a higher rate of tax. He may go into a higher tax bracket but even if he does not, the tax he pays and the proportion of his income at his marginal rate will be increased and his effective rate will be increased, He has no relief against that.
    836
    The man who is a dealer in securities is, and always has been, taxed on the gains he makes, when he disposes those securities, as part of the profits of his trade or business. There has never been any relief for such an inflationary element which there may be in those gains and it has never been argued that there should be. The person who suffers and suffers most, surely, in any period of inflation is neither the wage earner nor the equity investor, but the investor who did not make any gain and the value of whose stock falls as a result. There is no provision in our fiscal system for compensating them for that loss or giving any rebate to them.
    As I say, if we were to start building in a hedge against inflation, the equity investor is not the one to start with. But I think it would be unwise. As far as I know, there is only one country which has really tried building into its fiscal system hedges against inflation. I believe that it was attempted by Israel, and the result was merely to increase the inflationary pressure. The scheme was abandoned. Other attempts have been made in one form or another to try to counteract the inflation element in the Capital Gains Tax, in particular by various systems of time abatement. I refer hon. Members who are interested to what I said last year on the subject. The hon. Member for Wycombe reminded us that the Americans who had something built into their system found that it did not work and have abandoned it. They have no such system as is proposed in the Amendment.
    The hon. and learned Member for Solihull (Mr. Grieve) said that we were imposing a 30 per cent. rate without regard to any element of inflation. That is precisely what we are not doing. We are imposing a 30 per cent. rate and an alternative basis of charge with regard to the element of inflation. As I said earlier, the possible inflation element in gains was one of the factors which we took into account in fixing the very low rates of tax upon capital gains compared with other taxes and the tax at different levels upon incomes.
    As I have said several times today, of the 3½ million who are potential candidates for this tax, under 500,000 will pay at 30 per cent. and the other 3 million will pay at effectively 20½ per cent. or a

    837
    substantially lower rate than that. This takes account, among other things, of the point that there may be an inflation element in the gains.
    Mr. Higgins: We cannot accept the Financial Secretary's argument. We shall be very sorry to see the Government not accept this Amendment. Our hopes were somewhat raised by the acceptance of the previous Amendment, and we thought that it might become a habit. The real point here was made very cogently by my right hon. Friend the Leader of the Opposition last year. His words are to be found reported at column 1677 of HANSARD of 7th July, but, to paraphrase it, his argument was this. Supposing that Capital Gains Tax were charged on a piano and there was a situation of inflation so that the piano which originally cost £100 cost £150 at the end of the period, the taxpayer would then be charged to tax on the increase in the money value of the piano of £50 and lose 30 per cent. of that £50. But he would not then, after selling the piano and being charged to tax, be able later to replace it with a precisely similar piano.
    In that way, my right hon. Friend illustrated the point that is not a tax in any sense on a capital gain but is a tax on the actual value of the asset or wealth. The hon. and learned Gentleman has not answered that point at all, and it was not answered last year either.
    The Amendment is in very moderate terms. The increase in the cost of living index, which is as good an indication as we have of the rate of inflation, imperfect though it is, rose from 112 at 13th April, 1965, to 116 at 19th April, this year, an increase of 4 points, whereas our Amendment makes allowance only for an increase of 3 per cent. This a modest proposal, in the light of all the factors involved. It was clear from our debate on the regulator the other day that the Chancellor will take no deflationary measures of any significance before the autumn, and this means that wage claims are not likely to be more strongly resisted than hitherto. Any likely settlement of the seamen's strike, even if the Inquiry recommendations are carried out, will be somewhat in excess of the nominal norm, and certainly far in excess of the actual norm justified by the increase in
    838
    productivity taking place. Therefore it is likely we shall see an even faster rate of inflation in the coming months, and this again will mean that people who happen to own taxable assets in this class will actually be losing in terms of their command over real resources. I do not think it can be denied that the revenue from this tax is greater if the rate of inflation is greater, and this surely is an unfortunate situation.
    4.0 a.m.
    The next point I think ought to be taken up, and the hon. Gentleman really did not take account of this, is that precisely the same amount of tax is charged if the increase in capital value takes place after one year as if it takes place over 20 years. If a particular asset increases in value from £100 to £200 in one year, the same amount is charged as if it had increased from £100 to £200 over 20 years. In the second case it is much more likely that the actual change in the value of money will have been greater, but the actual rate of tax will be precisely the same in both cases.
    The hon. Gentleman was quite right in saying that last year his reply was very brief. It was not only brief, it was also inadequate because it failed completely to cover the point I have just made, which illustrates that the arguments of the Government are based on fallacies. The hon. Gentleman repeated the statemnt which he made last year that we were being asked to build in a hedge against inflation. I put it to him that we are not building in a hedge against inflation, but what we are saying is that if a particular asset does appreciate in money terms and not in real terms this is no reason for taxing the person who owns that particular asset.
    The essential argument of the hon. Gentleman is that whatever happens, no one can be allowed to escape the effect of inflation. He might argue that that was a good idea, but if he does he has also to argue that if there is any inflationary wage claim that also should be taxed away. He is not arguing this, and therefore I suggest his argument that we cannot allow anyone to have a hedge against inflation is not relevant. We had a debate on gold coins the other day, and now we are not even being allowed to import gold coins to award to winners of the World Cup.

    839
    I believe the answer to this is to be found in the Report of the Royal Commission on Taxation where the Report was largely written by Mr. Kaldor, and it seems to me it is right that we should distinguish between Mr. Kaldor and Mr. Balogh. I have a high opinion for Mr. Kaldor and his reputation as an economist. But in the Royal Commission on Taxation, it seemed to me that Mr. Kaldor himself went very badly off track and entered into arguments which were not really valid.
    I do not want to go over in great detail the arguments which we had last year, but I would make one final point. The hon. Gentleman in replying just now said that allowance had been made for the effect of inflation in the rate which was determined for Capital Gains Tax. I did earlier ask him in an intervention on what assumed rate of inflation the rate had been adjusted, and he declined to answer that.
    There was no specific answer on that point, but if he is really arguing that this inflation problem is covered in the rate, then surely the whole of his argument
    that one should not allow a hedge against inflation falls to the ground. He is really putting it surreptitiously into the rate and some allowance has been made for inflation, rather than making it explicitly in the way in which we are proposing in the Amendment. It surely is far more desirable that it should be made explicitly, that an actual allowance should be made of the kind that we have suggested, rather than that it should be made implicitly with no clear statement of the arithmetic or the actual rate assumed in the lines put forward in the Bill.
    For all these reasons, we completely oppose the provisions put forward by the hon. and learned Gentleman. He has completely failed to answer the fundamental and numerous points that we have made. We hope that by next year we shall finally have convinced him of the validity of our arguments. I call on my hon. Friends to vote in favour of the Amendment.
    Question put, That those words be there inserted:—
    The Committee divided: Ayes 80, Noes 141.

    Division No. 55.]

    AYES

    [4.6 a.m.

    Allason, James (Hemel Hempstead)

    Hirst, Geoffrey

    Pink, R. Bonner

    Baker, W. H. K.

    Holland, Philip

    Pym, Francis

    Batsford, Brian

    Hordem, Peter

    Rossi, Hugh (Hernsey)

    Biggs-Davison, John

    Hornby, Richard

    Scott, Nicholas

    Bossom, Sir Clive

    Howell, David (Guildford)

    Sharples, Richard

    Bryan, Paul

    Hunt, John

    Shaw, Michael (Sc'b'gh & Whitby)

    Buchanan-Smith, Alick (Angus, N &M)

    Hutchison, Michael Clark

    Sinclair, Sir George

    Buck, Antony (Colchester)

    Jenkin, Patrick (Woodford)

    Smith, John

    Carlisle, Mark

    Johnston, Russell (Inverness)

    Stodart, Anthony

    Clark, Henry

    Jopling, Michael

    Summers, Sir Spencer

    Clegg, Walter

    King, Evelyn (Dorset, S.)

    Taylor, Frank (Moss Side)

    Davidson, James (Aberdeenshire, W.)

    Kitson, Timothy

    Thatcher, Mrs. Margaret

    Deetles, Rt. Hn. W. F. (Ashford)

    Knight, Mrs. Jill

    Tilney, John

    Digby, Simon Wingfield

    Lubbock, Eric

    Turton, Rt. Hn. R. H.

    Elliott, R. W. (N'c'tle. upon-Tyne, N.)

    Mackenzie, Alasdair (Ross&Crom'ty)

    Vickers, Dame Joan

    Farr, John

    Macleod, Rt. Hn. Iain

    Walker-Smith, Rt. Hn. Sir Derek

    Fortescue, Tim

    McMaster, Stanley

    Wall, Patrick

    Giles, Rear-Adm, Morgan

    Macmillan, Maurice (Farnham)

    Weatherill, Bernard

    Gilmour, Sir John (Fife, E.)

    Maddan, Martin

    Webster, David

    Glover, Sir Douglas

    Maginnis, John E.

    Whitelaw, William

    Grant, Anthony

    Maxwell-Hyslop, R. J.

    Wilson, Geoffrey (Truro)

    Gresham Cooke, R.

    Mills, Peter (Torrington)

    Winstanley, Dr. M. P.

    Grieve, Percy

    Mitchell, David (Basingstoke)

    Woodnutt, Mark

    Hall, John (Wycombe)

    Monro, Hector

    Worsley, Marcus

    Hall-Davis, A. G. F.

    More, Jasper

    Heseltine, Michael

    Morrison, Charles (Devizes)

    TELLERS FOR THE AYES:

    Higgins, Terence L.

    Munro-Lucas-Tooth, Sir Hugh

    Mr. Younger and Mr. Eyre.

    Hill, J. E. B.

    Percival, Ian

    NOES

    Allaun, Frank (Salford, E.)

    Bennett, James (G'gow, Bridgeton)

    Brown, Hugh D. (G'gow, Provan)

    Alldritt, Walter

    Binns, John

    Brown, Bob (N'c'tle-upon-Tyne, W.)

    Anderson, Donald

    Blenkinsop, Arthur

    Brown, R. W. (Shoreditch & F'bury)

    Archer, Peter

    Booth, Albert

    Buchan, Norman

    Armstrong, Ernest

    Boyden, James

    Buchanan, Richard (G'gow, Sp'burn)

    Atkins, Ronald (Preston, N.)

    Bradley, Tom

    Callaghan, Rt. Hn. James

    Baxter, William

    Brooks, Edwin

    Cant, R. B.

    Benn, Rt. Hn. Anthony Wedgwood

    Brown, Rt. Hn. George (Belper)

    Carmichael, Neil

    Coleman, Donald

    Hooley, Frank

    Miller, Dr. M. S.

    Crawshaw, Richard

    Horner, John

    Morgan, Elystan (Cardiganshire)

    Davies, Ifor (Cower)

    Howarth, Harry (Wellingborough)

    Newene, Stan

    de Freitas, Sir Geoffrey

    Howarth, Robert (Bolton, E.)

    Noel-Baker, Francis (Swindon)

    Dell, Edmund

    Howell, Denis, (Small Heath)

    Ogden, Eric

    Dempsey, James

    Hughes, Hector (Aberdeen, N.)

    Orbach, Maurice

    Dewar, Donald

    Hughes, Roy (Newport)

    Orme, Stanley

    Diamond, Rt. Hn. John

    Hunter, Adam

    Oswald, Thomas

    Dickens, James

    Jackson, Colin (B'h'se & Spenb'gh)

    Page, Derek (King's Lynn)

    Doig, Peter

    Jeger, George (Goole)

    Park, Trevor

    Dunnett, Jack

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Parkyn, Brian (Bedford)

    Dunwoody, Mrs. Gwyneth (Exeter)

    Jenkins, Hugh (Putney)

    Pavitt, Laurence

    Dunwoody, Dr. John (F'th & C'b'e)

    Johnson, Carol (Lewisham, S.)

    Perry, George H. (Nottingham, S.)

    Eadie, Alex

    Jones, Dan (Burnley)

    Price, William (Rugby)

    Edwards, Robert (Bilston)

    Judd, Frank

    Rhodes, Geoffrey

    Edwards, William (Merioneth)

    Kerr, Mrs. Anne (R'ter & Chatham)

    Roberts, Gwilym (Bedfordshire, S.)

    English, Michael

    Kerr, Russell (Feltham)

    Rose, Paul

    Ennals, David

    Leadbitter, Ted

    Rowlands, E. (Cardiff, N.)

    Evans, Ioan L. (Birm'h'm, Yardley)

    Ledger, Ron.

    Shaw, Arnold (Ilford, S.)

    Faulds, Andrew

    Lee, Rt. Hn. Jennie (Cannock)

    Shore, Peter (Stepney)

    Fitch, Alan (Wigan)

    Lever, L. M. (Ardwick)

    Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

    Fletcher, Ted (Darlington)

    Lewie, Ron (Carlisle)

    Silkin, John (Deptford)

    Foot, Michael (Ebbw Vale)

    Lomas, Kenneth

    Silkin, S. C. (Dulwich)

    Forrester, John

    Lyon, Alexander W. (York)

    Silverman, Julius (Aston)

    Fowler, Gerry

    Lyons, Edward (Bradford, E.)

    Steele, Thomas (Dunbartonshire, W.)

    Fraser, Rt. Hn. Tom (Hamilton)

    McCann, John

    Summerskill, Hn. Dr. Shirley

    Freeson, Reginald

    MacDermot, Niall

    Varley, Eric G.

    Gardner, A. J.

    Macdonald, A. H.

    Wainwright, Edwin (Dearne Valley)

    Garrett, W. E.

    McGuire, Michael

    Walden, Brian (All Saints)

    Ginsburg, David

    Mackenzie, Gregor (Rutherglen)

    Walker, Harold (Doncaster)

    Gray, Dr. Hugh (Yarmouth)

    Mackie, John

    Watkins, David (Consett)

    Gregory, Arnold

    Mackintosh, John P.

    Wells, William (Walsall, N.)

    Grey, Charles (Durham)

    Maclennan, Robert

    Whitaker, Ben

    Griffiths, Will (Exchange)

    MacMillan, Malcolm (Western Isles)

    Williams, Alan (Swansea, W.)

    Hale, Leslie (Oldham, W.)

    McMillan, Tom (Glasgow, C.)

    Williams, Alan Lee (Hornchurch)

    Hamilton, William (Fife, W.)

    McNamara, J. Kevin

    Wilson, William (Coventry, S.)

    Hazell, Bert

    Mahon, Peter (Preston, 8.)

    Woof, Robert

    Heffer, Eric S.

    Mahon, Simon (Bootle)

    Henig, Stanley

    Manuel, Archie

    TELLERS FOR THE NOES:

    Hobden, Dennis (Brighton, K'town)

    Mapp, Charles

    Mr. Lawson and Mr. Whitlock.

    4.15 a.m.
    Mr. Nigel Birch: I beg to move, Amendment No. 281, in page 101, line 33, at the end to insert:
    Exemption for Government Securities
    8. In section 27 of the Finance Act 1965 there shall be added the following subsection:—
    "(4A) United Kingdom Government securities shall not be chargeable assets".
    The Temporary Chairman: It would also be convenient to discuss at the same time Amendment No. 288, page 102, line 22, at the end to add:
    Exemption for Government Securities
    11. In section 17 of the Finance Act 1965 there shall be added the following subsection:—
    "(5A) There shall be exemption from tax chargeable under Case VII for any gain accruing to a person from his acquisition and disposal of United Kingdom Government securities, and a loss so accruing shall not be an allowable loss".
    Mr. Birch: The effect of these Amendments would be to take Government securities right out of the operation of the Capital Gains Tax. I moved a similar Amendment on the Finance Bill last year although at a rather earlier hour.
    842
    Before I moved the Amendment quite considerable propaganda was carried out in the papers and elsewhere by myself and others against the application of the Capital Gains Tax to Government securities. The reasons were that we held that it was fraudulent to impose the tax because many Government securities had been sold at a heavy discount and no one would have paid the price in fact paid had he had the slightest idea that the capital appreciation would be subject to tax. We also objected to it because we held, rightly, that the market in Government securities was a sick and ailing market and that it was essential to the health of our economy that that market should not be further damaged but should be revived.
    This preliminary propaganda had some effect on the Chancellor because after I had moved that Amendment he made some rather strange proposals of his own. It was a typical Kaldorian pantomime. The third act of this pantomime was a mixture of tragedy and farce which surprised nobody except our very dear Chancellor. What was done was that some securities were taken out of the tax altogether, some were left in

    843
    altogether, and some were partially subject to tax and partially not. This so startled everybody that the market in Government securities had to be suspended the next day and it caused some most extraordinary anomalies. For example, Transport 3 per cent. stock 1968–73 is completely exempt from the tax and Electricity stock 3 per cent. 1968–73, on exactly the same terms, is wholly subject to tax. I give the Chancellor some credit. I could not accept that what he did was all that was necessary, but he did at any rate aspire to the status of a demi-vierge.
    I come back from that point now to talk about the health of the gilt-edged market. The market has been sinking steadily, and largely this is the result of Government policy. The effect of Corporation Tax has been to cause a flood of debenture issues directly competing with the gilt-edged market. It started shortly after the Finance Bill last year and it is going on at an ever-increasing pace. Gilt-edged securities are not franked investment income and therefore to many institutional investors they are most unattractive under Corporation Tax.
    Thirdly, the inflation continues relentlessly and will continue while we have, in effect, only 100,000 unemployed—mostly changing jobs—with vacancies four or five times as high. When he was talking about capital gains, the the Financial Secretary said that the capital gains took account of inflation. But inflation works exactly the opposite way round on gilt-edged securities. Ordinary shares may go up as a result, goods may go up, but not gilt-edged securities. If the Amendment is accepted it will not be a cure but it will be a palliative. What could it cost? Probably less than nothing. Gilt-edged securities are mostly at the lowest point they have ever reached. There are not many capital gains on them. There are some capital gains on redeemable securities reaching the date of redemption but some of those securities are not subject to tax any way. In addition, as the gilt-edged market has fallen since the last Finance Bill, it is open to people to sell gilt-edged securities and claim a tax loss.
    I cannot think that the tax will bring in very much. On the other hand, if it were taken off it would bring certain advantages. I have cited two stocks
    844
    which are in identical terms, one of which is subject to Capital Gains Tax and the other not. The difference in yield is three-quarters of one per cent.—a very big difference. I do not say that taking off the Capital Gains Tax would produce anything like as large an effect as that throughout the market. Of course it would not, because there is a certain scarcity value in stocks which are free of tax, but it would produce some effect
    It is desperately necessary that we should do something to help the market in gilt-edged securities. It is sinking, and this not only makes it difficult for the Government to manage the market and difficult and expensive for them to fund. It also costs local authorities more to get finance in the market and elsewhere, and it has a direct effect on rates of debentures, which are costs on industry, and the unfortunate holders of house mortgages. Anything that can be done to help the gilt-edged market is in the national interest. It could be done not only without loss to the Revenue but possibly with an actual gain, and certainly with a gain in justice.
    Mr. Diamond: We had this very same debate last year. The greater part of the challenge is on the basis of good faith, and my right hon. Friend met that challenge completely by relieving from Capital Gains Tax those gilt-edged securities that had been issued at a discount, where it could possibly have been said that the expectation was, and the bargain was, that the difference was an element in the price, and that therefore it was clear that there was no deduction to be made in any form of taxation.
    Having made that point, I can see no argument, and the right hon. Gentleman has not produced a single argument, for saying that we should single out a particular source of gain and that one shall not pay Capital Gains Tax on that source but shall pay on other sources. Moreover, there is no reason to suppose that there is anything to distinguish that kind of source from similar sources. There would be immediate pressure to extend the distinction to Commonwealth securities, to local authority securities and loans, and, indeed, to all fixed interest securities.
    No argument was produced last year, and none has been produced this year,

    845
    as to why one should remove a particular category from the general body of gains that are taxable. Once one does that, one loses faith, and my right hon. Friend is not prepared to do that, and he is not prepared to accept the Amendment.
    Mr. Birch: The Chief Secretary says that he has not heard a good argument for the Amendment. He cannot have been listening. If the Government go on
    like this with the gilt-edged market, they will find it slithering steadily down, resulting in damage to the country and to the economy and great unfairness to gilt-edged holders. I strongly advise my right hon. and hon. Friends to go into the Lobby in favour of the Amendment.
    Question put, That those words be there inserted: —
    The Committee divided: Ayes 81, Noes 140.

    Division No. 56.]

    AYES

    [4.24 p.m.

    Allason, James (Hemel Hempstead)

    Hill, J. E. B.

    Percival, Ian

    Baker, W. H. K.

    Hirst, Geoffrey

    Pink, R. Bonner

    Batsford, Brian

    Holland, Philip

    Pym, Francis

    Biggs-Davison, John

    Hordem, Peter

    Rossi, Hugh (Hornsey)

    Birch, Fit. Hn. Nigel

    Hornby, Richard

    Scott, Nicholas

    Bossom, Sir Clive

    Howell, David (Guildford)

    Sharples, Richard

    Bryan, Paul

    Hunt, John

    Shaw, Michael (Sc'b'gh & Whitby)

    Buchanan-Smith, Aliick (Angus, N&M)

    Hutchison, Michael Clark

    Sinclair, Sir George

    Buck, Antony (Colchester)

    Jenkln, Patrick (Woodford)

    Smith, John

    Carlisle, Mark

    Johnston, Russell (Inverness)

    Stodart, Anthony

    Clark, Henry

    Jopling, Michael

    Summers, Sir Spencer

    Clegg, Walter

    King, Evelyn (Dorset. S.)

    Taylor, Frank (Moss Side)

    Davidson, James (Aberdeenshire, W.)

    Kitson, Timothy

    Thatcher, Mrs. Margaret

    Deedes, (Rt. Hn. W. F. (Ashford)

    Knight, Mrs. Jill

    Tilney, John

    Digby, Simon Wingfield

    Lubbock, Eric

    Turton, Rt. Hn. R. H.

    Elliott, R. W. (N'c'tle-upon-Tyne, N.)

    Mackenzie, Alasdair (Ross&Crom'ty)

    Vickers, Dame Joan

    Farr, John

    Macleod, Rt. Hn. Iain

    Walker-Smith, Rt. Hn. Sir Derek

    Fortescue, Tim

    McMaster, Stanley

    Wall, Patrick

    Giles, Rear-Adm. Morgan

    Macmillan, Maurice (Farnham)

    Weatherill, Bernard

    Gilmour, Sir John (Fite, E.)

    Maddan, Martin

    Webster, David

    Glover, Sir Douglas

    Maginnis, John E.

    Whitelaw, William

    Grant, Anthony

    Maxwell-Hyslop, R. J.

    Wilson, Geoffrey (Truro)

    Gresham Cooke, Ft.

    Mills, Peter (Torrington)

    Winstanley, Dr. M. P.

    Grieve, Percy

    Mitchell, David (Basingstoke)

    Woodnutt, Mark

    Hall, John (Wycombe)

    Monro, Hector

    Worsley, Marcus

    Hall-Davis, A. G. F.

    More, Jasper

    Heseltine, Michael

    Morrison, Charles (Devizes)

    TELLERS FOR THE AYES:

    Higgins, Terence L.

    Munro-Lucas-Tooth, Sir Hugh

    Mr. Younger and Mr. Eyre.

    NOES

    Allaun, Frank (Salford, E.)

    Diamond, Rt. Hn. John

    Hobden, Dennis (Brighton, K'town)

    Alldritt, Walter

    Dickens, James

    Hooley, Frank

    Anderson, Donald

    Doig, Peter

    Horner, John

    Archer, Peter

    Dunnett, Jack

    Howarth, Harry (Wellingborough)

    Armstrong, Ernest

    Dunwoody, Mrs. Gwyneth (Exeter)

    Howarth, Robert (Bolton, E.)

    Atkins, Ronald (Preston, N.)

    Dunwoody, Dr. John (F'th & C'b'e)

    Howell, Denis (Small Heath)

    Baxter, Wiliam

    Eadie, Alex

    Hughes, Roy (Newport)

    Benn, Rt. Hn. Anthony Wedgwood

    Edwards, Robert (Bilston)

    Hunter, Adam

    Bennett, James (G'gow, Bridgeton)

    Edwards, William (Merioneth)

    Jackson, Colin (B'h'se Spenb'gh)

    Binns, John

    English, Michael

    Jeger, George (Goole)

    Blenkinsop, Arthur

    Ennals, David

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Booth, Albert

    Evans, loan L. (Birm'h'm, Yardley)

    Jenkins, Hugh (Putney)

    Boyden, James

    Faulds, Andrew

    Johnson, Carol (Lewisham, S.)

    Bradley, Tom

    Fitch, Alan (Wigan)

    Jones, Dan (Burnley)

    Brooks, Edwin

    Fletcher, Ted (Darlington)

    Judd, Frank

    Brown, Rt. Hn. George (Belper)

    Foot, Michael (Ebbw Vale)

    Kerr, Mrs. Anne (R'ter & Chatham)

    Brown, Hugh D. (G'gow, Provan)

    Forrester, John

    Kerr, Russell (Feltham)

    Brown, Bob (N'c'tle-upon-Tyne, W.)

    Fowler, Gerry

    Leadbitter, Ted

    Brown, R. W. (Shoreditch & F'bury)

    Fraser, Rt. Hn. Tom (Hamilton)

    Ledger, Ron

    Buchan, Norman

    Freeson, Reginald

    Lee, Rt. Hn. Jennie (Cannock)

    Buchanan, Richard (G'gow, Sp'burn)

    Gardner, A. J.

    Lever, L. M. (Ardwick)

    Callaghan, Rt. Hn. James

    Garrett, W. E.

    Lewis, Ron (Carlisle)

    Cant, R. B.

    Ginsburg, David

    Lomas, Kenneth

    Carmichael, Neil

    Gray, Dr. Hugh (Yarmouth)

    Lyon, Alexander W. (York)

    Coleman, Donald

    Gregory, Arnold

    Lyons, Edward (Bradford, E.)

    Crawshaw, Richard

    Griffiths, Will (Exchange)

    McCann, John

    Davies, Ifor (Gower)

    Hale, Leslie (Oldham, W.)

    MacDermot, Niall

    de Freitas, Sir Geoffrey

    Hamilton, William (Fife, W.)

    Macdonald, A. H.

    Dell, Edmund

    Hazell, Bert

    McCuire, Michael

    Dempsey, James

    Heffer, Eric S.

    Mackenzie, Gregor (Rutherglen)

    Dewar, Donald

    Henig, Stanley

    Mackie, John

    Mackintosh, John P.

    Page, Derek (King's Lynn)

    Summerskill, Hn. Dr. Shirley

    Maclennan, Robert

    Park, Trevor

    Varley, Eric C.

    MacMillan, Malcolm (Western Isles)

    Parkyn, Brian (Bedford)

    Wainwright, Edwin (Dearne Valley)

    McMillan, Tom (Glasgow, C.)

    Pavitt, Laurence

    Walden, Brian (All Saints)

    McNamara, J. Kevin

    Perry, George H. (Nottingham, S.)

    Walker, Harold (Doncaster)

    Mahon, Peter (Preston, S.)

    Price, William (Rugby)

    Watkins, David (Consett)

    Mahon, Simon (Bootle)

    Rhodes, Geoffrey

    Wells, William (Walsall, N.)

    Manuel, Archie

    Roberts, Gwilym (Bedfordshire, S.)

    Whitaker, Ben

    Mapp, Charles

    Rose, Paul

    Whitlock, William

    Miller, Dr. M. S.

    Rowlands, E. (Cardiff, N.)

    Williams, Alan (Swansea, W.)

    Morgan, Elystan (Cardiganshire)

    Shaw, Arnold (Ilford, S.)

    Williams, Alan Lee (Hornchurch)

    Newens, Stan

    Shore, Peter (Stepney)

    Wilson, William (Coventry, S.)

    Noel-Baker, Francis (Swindon)

    Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

    Woof, Robert

    Ogden, Eric

    Silkin, John (Deptford)

    Orbach, Maurice

    Silkin, S. C. (Dulwich)

    TELLERS FOR THE NOES:

    Orme, Stanley

    Silverman, Julius (Aston)

    Mr. Lawson and Mr. Grey.

    Oswald, Thomas

    Steele, Thomas (Dunbartonshire, W.)

    4.30 a.m.
    Mr. Higgins: I beg to move, Amendment No. 283, in page 101, line 33, at the end to insert:
    (8) In section 35 of the Finance Act 1965 the following new subsections shall be inserted after subsection (2):—
    "(2A) A charity holding shares in a unit trust or in an investment trust approved by the Board for the purposes of sections 37 and 67 of this Act shall be entitled to be repaid the amount of the tax charged on the unit trust or investment trust (as the case may be) in any accounting period which):—

    (a) has been deducted in computing the total net gains of the trust in that period; and

    (b) is attributable to the amount of the total net gains apportioned under section 67 of this Act to the shareholding of the charity".

    (9) In section 36 of the Finance Act 1965 the following new subsection shall be inserted after subsection (2):—
    "(3) Where a fund being either such a fund as is referred to in subsection (1) of this section or a fund the income of which is exempt from tax under any of the enactments mentioned in subsection (2) thereof holds shares in a unit trust or in an investment trust approved by the Board for the purposes of sections 37 and 67 of this Act the provisions of subsection (2A) of section 35 of this Act shall apply to that shareholding as they apply to the shareholding of a charity in a unit trust or in such an investment trust:
    Provided that if part only of such a fund as is referred to in the said subsection (1) has been approved the entitlement to repayment shall be restricted to such proportion of the amount of the tax as corresponds to the proportion of the chargeable gain that would be exempt under subsection (1) of this section".
    No doubt at this hour of the morning the Committee is ready to accept Amendments, and it may therefore be superfluous for me to say anything about this Amendment; but perhaps I should explain that the Finance Act of last year exempted charities and approved superannuation funds from liability for
    848
    Capital Gains Tax. This Amendment is designed to correct an anomaly, because at present the exempt bodies cannot recover the Capital Gains Tax paid on their behalf by unit trust companies in which they hold shares. Only the shareholders are permitted to set any net gain against the sale of holdings in a particular investment trust company, and the exempt body of the kind we cover in this Amendment is not able to be in the position where it could set off its liability, and any grant is, to that extent, valueless to it.
    The larger charities and pension funds may be able to make suitable arrangements by investing direct, but the smaller funds may be able to obtain the necessary spread of risk only through investment trusts, and consequently become subject to Capital Gains Tax. It has been suggested that they should get round this by setting up their own investment trusts, but they would not be able to provide adequate management and so on, and it would be difficult for them to get the spread they would get in a normal investment trust.
    Secondly, this would provide no solution for those charities and superannution funds which are already investing in investment trusts, and if they were to withdraw in the way suggested last year it would mean very serious disruption of the whole market.
    Therefore we feel it is necessary to remove this anomaly, and I very much hope that hon. and right hon. Gentlemen will feel able to support us in correcting this anomaly, as they felt able so to do two Amendments ago.
    Sir D. Glover Sir D. Glover rose ——
    Hon. Members: Oh.
    Sir D. Glover: I do not want to detain the Committee. Owing to the

    849
    clarity of my hon. Friend's remarks I do not propose to intervene in this debate.
    Mr. MacDennot: I say "Hear, hear", and I should also just like to say "No", but perhaps as the subject deals with charities I should say a few sentences, just to explain why it is we cannot accept this Amendment. As the hon. Gentleman has pointed out in the few sentences he gave us, by Section 38 of last year's Act there is a provision designed to give a special relief to charities and to superannuation funds which are exempt or partly exempt from tax, and they are able to combine to set up a special trust in order to take advantage of their tax exempt status and get all the advantages of professional management and operate their own trust without having to pay Capital Gains Tax. There is no reason why any other charities which wish to avail themselves of this should not either combine together to set up a unit trust of their own or to join one of the existing trusts to which this exemption applies.
    But what we are being asked to do is to go beyond this and to give a power to reclaim tax where trustees of charities are investing through ordinary unit or investment trusts. All I need say is that if we were to do this we should be driving a very serious wedge into the whole principle of the separation of cor-
    porate and personal taxation, which was the basic change in last year's Finance Act. It would lead to many pressures by other individual shareholders, who might be liable to Capital Gains Tax, to be refunded, and to shareholders entitled to an alternative basis of charge to claim partial refund. It would in the end lead to pressures and attacks on the whole application of this principle of the separation of corporate and personal taxation.
    So we can only advise the Committee that we have made very reasonable provision already to favour charities and superannuation funds, and we cannot carry it further.
    Mr. Higgins: We feel that the time lag between the Government's decision to impose S.E.T. on charities and their decision to give relief to charities, and the time lag between now and Report, are similar, and we hope they will consider this matter further before then, but in the absence of any assurance by the hon. and learned Gentleman I must call on my hon. Friends to vote in favour of the Amendment.
    Question put, That those words be there inserted:—
    The Committee divided: Ayes 79, Noes 140.

    Division No. 57.]

    AYES

    [4.38 a.m.

    Allason, James (Hemel Hempstead)

    Hill, J. E. B.

    Munro-Lucas-Tooth, Sir Hugh

    Baker, W. H. K.

    Hirst, Geoffrey

    Percival, Ian

    Batsford, Brian

    Holland, Philip

    Pink, R, Bonner

    Biggs-Davison, John

    Hordern, Peter

    Rossi, Hugh (Hornsey)

    Bossom, Sir Clive

    Homby, Richard

    Scott, Nicholas

    Bryan, Paul

    Howell, David (Guildford)

    Sharples, Richard

    Buchanan-Smith, Alick (Angus, N&M)

    Hunt, John

    Shaw, Michael (Sc'b'gh & Whitby)

    Buck, Antony (Colchester)

    Hutchison, Michael Clark

    Sinclair, Sir George

    Carlisle, Mark

    Jenkin, Patrick (Woodford)

    Smith, John

    Clark, Henry

    Johnston, Russell (Inverness)

    Stodart, Anthony

    Clegg, Walter

    Jopling, Michael

    Summers, Sir Spencer

    Davidson, James(Aberdeenshire, W.)

    King, Evelyn (Dorset, S.)

    Taylor, Frank (Moss Side)

    Deedes, Rt. Hn. W. F. (Ashtord)

    Kitson, Timothy

    Thatcher, Mrs. Margaret

    Digby, Simon Wingfield

    Knight, Mrs. Jill

    Tilney, John

    Eyre, Reginald

    Lubbock, Eric

    Turton, Rt. Hn. R. H.

    Farr, John

    Mackenzie, Alasdair (Ross&Crom'ty)

    Vickers, Dame Joan

    Fortescue, Tim

    Macleod, Rt. Hn. Iain

    Walker-Smith, Rt. Hn. Sir Derek

    Giles, Rear-Adm. Morgan

    McMaster, Stanley

    Wall, Patrick

    Gilmour, Sir John (Fife, E.)

    Macmillan, Maurice (Farnham)

    Weatherill, Bernard

    Glover, Sir Douglas

    Maddan, Martin

    Webster, David

    Grant, Anthony

    Maginnis, John E.

    Whitelaw, William

    Gresham Cooke, R.

    Maxwell-Hyslop, R. J.

    Wilson, Geoffrey (Truro)

    Grieve, Percy

    Mills, Peter (Torrington)

    Woodnutt, Mark

    Hall, John (Wycombe)

    Mitchell, David (Basingstoke)

    Worsley, Marcus

    Hall-Davis, A. G. F.

    Monro, Hector

    Younger, Hn. George

    Heseltine, Michael

    More, Jasper

    Higgins, Terence L.

    Morrison, Charles (Devizes)

    TELLERS FOR THE AYES:

    Mr. Pym and Mr. R. W. Elliott.

    NOES

    Allaun, Frank (Salford, E.)

    Fraser, Rt. Hn. Tom (Hamilton)

    MacMillan, Malcolm (Western Isles)

    Alldritt, Walter

    Freeson, Reginald

    McMillan, Tom (Glasgow, C.)

    Anderson, Donald

    Gardner, A. J.

    McNamara, J. Kevin

    Archer, Peter

    Garrett, W. E.

    Mahon, Peter (Preston, S.)

    Armstrong, Ernest

    Ginsburg, David

    Mahon, Simon (Bootle)

    Atkins, Ronald (Preston, N.)

    Gray, Dr. Hugh (Yarmouth)

    Manuel, Archie

    Baxter, William

    Gregory, Arnold

    Mapp, Charles

    Bonn, Rt. Hn. Anthony Wedgwood

    Grey, Charles (Durham)

    Miller, Dr. M. S.

    Bennett, James (G'gow, Bridgeton)

    Griffiths, Will (Exchange)

    Morgan, Elystan (Cardiganshire)

    Binnis, John

    Hale, Leslie (Oldham, W.)

    Newens, Stan

    Blenkinsop, Arthur

    Hamilton, William (Fife, W.)

    Noel-Baker, Francis (Swindon)

    Booth, Albert

    Hazell, Bert

    Ogden, Eric

    Boyden, James

    Heffer, Eric S.

    Orbach, Maurice

    Bradley, Tom

    Henig, Stanley

    Orme, Stanley

    Brooks, Edwin

    Hobden, Dennis (Brighton, K'town)

    Oswald, Thomas

    Brown, Rt. Hn. George (Belper)

    Hooley, Frank

    Page, Derek (King's Lynn)

    Brown, Hugh D. (G'gow, Provan)

    Horner, John

    Park, Trevor

    Brown, Bob (N'c'tle-upon-Tyne, W.)

    Howarth, Harry (Wellingborough)

    Parkyn, Brian (Bedford)

    Brown, R. W. (Shoreditch & F'bury)

    Howarth, Robert (Bolton, E.)

    Pavitt, Laurence

    Buchan, Norman

    Howell, Denis (Small Heath)

    Perry, George H. (Nottingham, S.)

    Buchanan, Richard (G'gow, Sp'burn)

    Hughes, Roy (Newport)

    Price, William (Rugby)

    Callaghan, Rt. Hn. James

    Hunter, Adam

    Rhodes, Geoffrey

    Cant, R. B.

    Jackson, Colin (B'h'se & Spenb'gh)

    Roberts, Gwilym (Bedfordshire, S.)

    Carmichael, Neil

    Jeger, George (Goole)

    Rose, Paul

    Coleman, Donald

    Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)

    Rowlands, E. (Cardiff, N.)

    Crawshaw, Richard

    Jenkins, Hugh (Putney)

    Shaw, Arnold (Ilford, S.)

    Davies, Ifor (Gower)

    Johnson, Carol (Lewisham, S.)

    Shore, Peter (Stepney)

    de Freitas, Sir Geoffrey

    Jones, Dan (Burnley)

    Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

    Dell, Edmund

    Judd, Frank

    Silkin, John (Deptford)

    Dempsey, James

    Kerr, Mrs. Anne (R'ter & Chatham)

    Silkin, S. C. (Dulwich)

    Dewar, Donald

    Kerr, Russell (Feltham)

    Silverman, Julius (Aston)

    Diamond, Rt. Hn. John

    Lawson, George

    Steele, Thomas (Dunbartonshire, W.)

    Dickens, James

    Leadbitter, Ted

    Summerskill, Dr. Shirley

    Doig, Peter

    Ledger, Ron

    Varley, Eric G.

    Dunnett, Jack

    Lee, Rt. Hn. Jennie (Cannock)

    Wainwright, Edwin (Dearne Valley)

    Dunwoody, Mrs. Gwyneth (Exeter)

    Lever, L. M. (Ardwick)

    Walden, Brian (All Saints)

    Dunwoody, Dr. John (F'th & C'b'e)

    Lewis, Ron (Carlisle)

    Walker, Harold (Doncaster)

    Eadie, Alex

    Lomas, Kenneth

    Watkins, David (Consett)

    Edwards, Robert (Bilston)

    Lyon, Alexander W. (York)

    Wells, William (Walsall, N.)

    Edwards, William (Merioneth)

    Lyons, Edward (Bradford, E.)

    Whitaker, Ben

    English, Michael

    McCann, John

    Williams, Alan (Swansea, W.)

    Ennals, David

    MacDermot, Niall

    Williams, Alan Lee (Hornchurch)

    Evans, Ioan L. (Birm'h'm, Yardley)

    Macdonald, A. H.

    Wilson, William (Coventry, S.)

    Faulds, Andrew

    McGuire, Michael

    Woof, Robert

    Fletcher, Ted (Darlington)

    Mackenzie, Gregor (Rutherglen)

    Foot, Michael (Ebbw Vale)

    Mackie, John

    TELLERS FOR THE NOES:

    Forrester, John

    Mackintosh, John P.

    Mr. Fitch and Mr. Whitlock.

    Fowler, Gerry

    Maclennan, Robert

    4.45 a.m.
    Mr. Higgins: I beg to move, Amendment No. 284, in page 101, line 33, at the end, to insert:
    (8) In paragraph 22 of Schedule 6 to the Finance Act 1965 the following new sub-paragraph shall be inserted after sub-paragraph (5):—
    "(5A) For the purpose of computing under sub-paragraph (4) the amount of a gain or a loss in relation to the disposal of shares or securities held on 6th April 1965 the cost of acquisition may, subject to the approval of the Board, be computed by reference to the average cost (computed in accordance with the provisions of Part I of this Schedule) of acquiring all the shares or securities of the particular class in respect of which the approval has been given."
    We were constantly told in the debates on the Finance Bill last year that the object of the Bill was to simplify taxation, and I think the extent to which this has been valid is clearly indicated by the number of people whom it has been necessary
    852
    for the Inland Revenue and other Government Departments to take on as a result.
    This Amendment is designed to simplify the computation of the amount of capital gains when the calculations are complicated because there are a number of transactions in a particular class of share which has perhaps been held for a number of years. I understand that at the moment the Inland Revenue is bound to interpret the provisions of the 1965 Act in such a way that it applies the principle of "first in, first out" when calculating the value of particular shares for capital gains purposes. This is something which is written into the Act and which is mandatory. One is bound to consider the principle of "first in, first out" on the disposal of the shares and securities as of 6th April, 1965.
    In this Amendment we are trying to provide an option which will simplify the actual computation of capital gains in

    853
    complicated share cases so that the shareholder can make reference to the calculations by taking the average cost of those shares rather than working it out item by item. But in order to prevent any advantage being taken of this provision, we make the provision that the option shall only be exercised if the approval of the Board of Inland Revenue is obtained.
    It seems to us that if this is so, there is no reason why such a simplifying Amendment, which is designed to save the time of the Revenue and all the individual firms concerned with these capital gains, should not be accepted because it is, as I say, designed to simplify the calculation. I hope therefore, that the right hon. Gentleman will feel able to accept the principle of the Amendment for the reasons that I have given.
    Mr. MacDermot: I am afraid that I cannot advise the Committee to accept the Amendment. It is urged on the grounds that it would achieve simplification, but I doubt whether that is so. If an election of this kind were given it would mean that a large number of accountants who are advising their clients would feel it incumbent upon them to work out the claims on the basis of both alternatives in order to advise them whether they should seek to exercise their election and apply for the aproval of the board. This would entail a great deal of wasted labour.
    As far as we know, this proposal has been urged by the Investment Trusts Association only because it is alleged that certain investment trusts have holdings dating back quite a long time and they have not readily or at all the evidence of the actual purchase price of the shares. I accept what they say but do not feel that the problem can be very great. If one analyses it, one sees that if the shares and holdings have been held for a substantial period before Budget Day, it is unlikely that any real problem will arise if it is a question of the taxpayer seeking to restrict a gain to show that the purchase price was greater than the Budget Day value. This would be a rare occurrence if the security has been held for a substantial period before Budget Day.
    If it is a question of the Revenue being concerned with restricting the loss on a disposal, if the purchase price is
    854
    obviously below the disposal price, which in most cases it will be, there will be no loss for the purposes of the calculation. I agree that, theoretically there may be a "no man's land" period during which, if people have not the evidence of their actual purchase price, there might be some difficulty, but this is the sort of matter which on a reasonable basis can be the subject of negotiation with the Revenue. We are not satisfied that a case has been made out for an Amendment of this kind and we could entertain nothing as wide as this.
    Amendment negatived.
    Mr. John Hall: I beg to move Amendment No. 298, in page 101, line 38, at the end to insert:
    In computing under Schedule 6 to the Finance Act 1965 the gain accruing on a disposal of assets deemed to be made by an individual on his death, costs reasonably incurred by the personal representatives of the deceased in making any valuation or apportionment required or used for the computation under that Schedule, including in particular the expenses of ascertaining market value, where required by Part III of the said Finance Act 1965, shall be allowable as a deduction in the computation.
    The point is very simple. As I understand it the cost normally allowable as a deduction for Capital Gains Tax purposes under Schedule 6, 4(1, c) and 4 (2, b) of the 1965 Act are not allowable in the circumstances we refer to because they are not incurred by the person making the disposal, the person who actually died.
    This is a sensible probing Amendment, because we may not fully have understood the effect. It seems that, under the circumstances outlined in the Amendment, this would be so, that the cost which is allowable under the original Act would not be allowable in the case of a person who has died.
    Mr. MacDermot: The hon. Member for Wycombe (Mr. John Hall) entertained us earlier by reminding the Committee of the circumstances of the decline of the Roman Empire and also said that he would be moved to tears if he succeeded yet again in our discussions. I would only remind him of the words of another Roman and say that if he has tears he should prepare to shed them now. The point that he is making and to which he has drawn our

    855
    attention is a valid one. Owing to the technical wording of the drafting, this allowance, which clearly should be made, is not available on the disposal of assets at the time of death.
    If the hon. Gentleman will be good enough to withdraw his Amendment, we will agree to draft one which will go a little further and a little wider than his own. There are certain other expenses concerned with the transfer of assets to personal representatives in these circumstances which we think ought to be covered as well.
    Mr. John Hall: Mr. Irving, you will forgive me this sign of weakness, but I appreciate very much having got this additional concession. During the debates on Amendments to the proposed Capital Gains Tax legislation we have not done too badly.
    I am glad that the Financial Secretary has seen the validity of the point, and, on the undertaking that he will introduce a suitable Amendment on Report, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Amendment made: In page 102, line 22, at end insert:
    Apportionment of cost of acquisition of new holding of shares, etc.
    11.—(1) This paragraph shall apply to a new holding, as defined in sub-paragraph (1)(b) of paragraph 10 of Schedule 9 to the Finance Act 1962 (which, as extended by section 16(4) of that Act, provides for a new holding resulting from a reorganisation or reduction of the capital of a company or unit trust scheme being treated as the same as the original holding)—

    (a) if it consists of more than one class of shares in or debentures of the company and one or more of those classes is of shares or debentures which, in the period of three months beginning with the date on which the reorganisation or reduction of capital took effect, or such longer period as the Board may by notice in writing allow, had quoted market values on a recognised stock exchange in the United Kingdom, or

    (b) if it consists of more than one class of rights of unit holders and one or more of those classes is of rights the prices of which were published daily by the managers of the scheme in that period of three months (or longer if so allowed).

    (2) Where for the purpose of computing the gain or loss accruing to a person from the acquisition and disposal of the whole or any part of any class of shares or securities or
    856
    rights of unit holders forming part of a new holding to which this paragraph applies it is necessary to apportion costs of acquisition between what is disposed of and what is retained, the cost of acquisition of the new holding shall first be apportioned between the entire classes of shares or debentures or rights of which it consists by reference to market value on the first day after the reorganisation or reduction of capital took effect on which market values or prices were quoted or published for the shares, debentures or rights as mentioned in sub-paragraph (1)(a) or (1)(b) above (with such adjustment of the market value of any class as may be required to offset any liability attaching thereto but forming part of the cost to be apportioned); and this sub-paragraph shall have effect notwithstanding sub-paragraph (5) of the said paragraph (10) (which requires apportionment by reference to market value at the date of disposal).
    (3) The foregoing provisions of this paragraph shall have effect as if contained in the said paragraph 10 and paragraphs 11, 12 and 13 of the said Schedule 9 (which apply the said paragraph 10 subject to modifications) shall have effect accordingly.
    (4) For the purposes of this paragraph the day on which a reorganisation of share capital involving the allotment of shares or debentures or unit holders' rights takes effect is the day following the day on which the rights to renounce any allotment expires.
    (5) This paragraph applies to a disposal of part of a new holding at any time after the end of the year 1965–66 and, if a person so elects by notice in writing given to the inspector not later than the end of the year 1966–67 as respects a new holding, it shall also apply to a disposal by that person of part of that new holding at any time in the year 1965–66; and such adjustments shall be made whether by way of discharge or repayment of tax or assessment to tax or otherwise as are required to give effect to the election.—[Mr. MacDermot.]
    Question proposed, That the Schedule, as amended, be the Ninth Schedule to the Bill.
    Mr. John Hall: I have one point on paragraph 7, which deals with insolvents' assets. It seems that a trustee has to calculate the tax payable on any gains on realisation, either at 30 per cent. or a lower figure, depending on the debtor's income. From time to time in bankruptcies the trustee loses touch with the bankrupt, and it is very difficult to be quite certain of the debtor's income at the point of time when the asset is realised and the liability to Capital Gains Tax arises. It is suggested as a method of dealing with this that the debtor's income for the preceding year before

    857
    the bankruptcy or the year following the bankruptcy be taken as the guiding factor in arriving at the liability for Capital Gains Tax. It may be that I have not fully understood the implications of this, but I think that that is the effect of it.
    Mr. MacDermot: I hope that I can assist the hon. Gentleman on the point. He was good enough to give me prior notice that he was going to raise it. May I make it clear that I am assured that even if the trustee were to lose touch with the debtor, which would in itself be a rare circumstance, the Revenue thinks that in virtually all cases it would not lose touch. It has ways of tracing people and it thinks that it would be able to provide the necessary information.
    If one follows the hon. Gentleman's point through and assumes a case where it did lose touch, what would happen would be that an assessment would have to be raised by the Revenue on the trustee in the name of the debtor, on the best information available. In those circumstances, the assessment would not be any higher and might be lower than whatever the income was in the preceding year.
    Mr. John Hall: With that assurance from the hon. and learned Gentleman, I beg to ask leave to withdraw the Amendment.
    Question put and agreed to.
    The Chancellor of the Exchequer (Mr. James Callaghan): I beg to move, That the Chairman do report Progress and ask leave to sit again Whilst some of us would like to get on, the fact that the hon. Member for Wycombe (Mr. John Hall) has just withdrawn an Amendment that he did not move shows clearly that we should not get very much further. In fairness to hon. Members opposite, I think that we ought to adjourn now.
    We have made very good progress. If there is a moral to be drawn from it— and I am sure that the right hon. Member for Enfield, West (Mr. Iain Macleod), who has sat throughout the whole of the debates like Patience on the monument, will have drawn it—it is that lengthy speeches are not always the most persuasive in producing the right answer. There are all sorts of morals that might be
    858
    drawn about the obtuseness of the Government Front Bench and the rest of it, but one thing which has been proved is that, when we are up against the pressure of time, we make good progress.
    However, this is not the time to moralise, and I ask you to report Progress and ask leave to sit again.
    Question put and agreed to.
    Committee report Progress; to sit again this day.

  WESTMINSTER ABBEY 900TH ANNIVERSARY
  Resolved,
  That this House will, on Wednesday next, attend a service in the Collegiate Church of St. Peter, Westminster, to commemorate the nine hundredth anniversary year of Westminster Abbey.—[Mr. Fitch.]

  WIRELESS AND TELEVISION (PIRATE STATIONS)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Fitch.]
  5.0 a.m.
  Mr. Hugh Jenkins: I rise to draw attention to the Government's attitude to pirate radio and television. I think that the adjournment of the House has never been more welcome. As I stand here we see dawn coming in through the windows. I hope that this debate may be seen, looking at it in retrospect, as heralding the dawn of a new attitude by the Government to this whole question.
  There has been a tendency perhaps to dismiss pirate radio as a matter of no great importance and no great significance, as something which is a passing episode, but the extraordinary and tragic events of the past 24 hours have perhaps impressed everyone, the Opposition as well as the Government, that piracy is piracy in whatever aspect it occurs. We have seen the hi-jacking of a pirate station, Radio City, and the taking over of that illegally occupied tower by another group equally illegally occupying it. We have seen this culminate in the shooting to death of the chief of one of the pirate ships and the captain of another accused of murder.

  859
  We might have been more prepared for this had we considered that piracy is an aspect of anarchy. When the Government condone anarchy, as in effect they have been doing in the last two years, the gangsters soon take over. We might have been warned of this as this is not the first time that murder has taken place as a result of radio piracy. There was a murder on a Dutch ship some time ago. This is not something to be regarded as unimportant and a sort of pleasantry.
  When the circumstances of the financing and management of Radio Caroline and of Radio City are investigated, we shall find that some respectable newspapers, notably the Financial Times, have been weaving a romantic web around some operations which will not look too well when the light of examination is brought to bear upon them.
  The Government presented us more than a year ago with a document in which they set out the decisions of the European Agreement For The Prevention of Broadcasts Transmitted From Stations Outside National Territories. Article 2 of that Agreement said:
  "Each contracting party undertakes to take appropriate steps to make punishable as offences, in accordance with its domestic law, the establishment or operation of broadcasting stations referred to in Article 1, as well as acts of collaboration knowingly performed.
  2. The following shall, in relation to broadcasting stations referred to in Article 1, be acts of collaboration:

  (a) the provision, maintenance or repairing of equipment;

  (b) the provision of supplies;

  (c) the provision of transport for, or the transporting of, persons equipment or supplies;

  (d) the ordering or production of material of any kind, including advertisements, to be broadcast;

  (e) the provision of services concerning advertising for the benefit of the stations."

  The Government have announced their intention to implement this agreement and to make these things illegal. It is extraordinary that, since that announcement, organisations which are normally regarded as respectable business organisations should continue to support these pirate stations although in full knowledge that the Government were to introduce legislation to make them illegal. One would have thought that it would
  860
  have been proper for these business organisations to have ceased to support these pirate radios by discontinuing advertisements. That they refused to do so reflects discredit on them. Other countries have found it possible to get rid of pirate radios, but the United Kingdom is being regarded as a sort of refuge for buccaneers who have been rejected by more resolute Governments in Holland, Scandinavia and elsewhere and who have found shelter in and around our shores.
  If we can, by international agreement, stop tankers reaching a port in Africa surely we can, with equal international agreement, prevent ships nearer our own shores breaking the European agreement to keep the air free from piracy.
  The Postmaster-General has told us of the possible dire consequences of the usurpation of wavelengths, but the Government continue to find excuses for doing nothing to stop that which my right hon. Friend condemns.
  When the pirates get into difficulty all available services are deployed to enable them to get back to their stations to continue their piracy. I understand that in the recent fracas on Radio City one group of pirates actually appealed to Scotland Yard to help them to resist the infiltration or attacks of the other group of pirates. According to last night's Evening Standard senior Scotland Yard officials are considering whether they should go to the aid of one side to help them resist the hijacking of the other. The only thing that Scotland Yard should be considering, but what they have not considered, is how to help the Government to eject the pirates. They should not be intervening in what is an internal competition in illegality.
  Many of these pirates are not even on ships. The towers from which they operate have been brought inside territorial waters. They have no licences, and last December the Postmaster-General decided that the time had come to act. In February the Ministry of Defence said that it was too dangerous for the Armed Forces. Perhaps the police could help, but my right hon. Friend said no, the magistrates did not have proper jurisdiction. I am advised that this is not so. They have jurisdiction under the Wireless Telegraphy Act

  861
  and under the Magistrates' Courts Act of 1952. I am advised on good authority that the arguments advanced to this effect by Sir Alan Herbert are legally valid. Why is it that the Government have not decided to act? Why is it too dangerous for the Navy or even marines to do here what the policeman regards as part of his job—going in and arresting law breakers?
  Why did the Chancellor of the Exchequer refuse to consider my own proposal that the cost of advertising on pirate radio should be disallowed as an expense for tax purposes, thus starving the pirates out if they are too dangerous to arrest? The consequence of that refusal is that the advertising organisations have now recognised the pirates, and the audience must be substantial, for they are paying up to £80 for a 30-second spot.
  Here, perhaps, lies the secret of the Government's inaction. A lot of people are listening to the pirates, and the B.B.C. has lost its grip on the audience for popular music on sound radio. Perhaps the Government do not really know what to do about it.
  I hope that my right hon. Friend will comment on the following proposals which I put forward as a possible solution to the problem. The Government should set up a new public authority, called, perhaps, the Television and Radio Authority. It would be quite separate from the existing authorities, which would continue as at present. The new authority would run the fourth television channel, which is needed if the University of the Air is to get off the ground in a big way, and it might also transmit some pay-television programmes, which have had a surprising success in their first test.
  The new authority's immediate task would be to set up a national radio network in competition with the B.B.C. It would replace the pirates, who should be given immediate notice to quit and evicted. The new service would aim to be popular. It would, in the first instance, transmit the same sort of programmes as the pirates are transmitting. It would do that, perhaps, on a medium wavelength which, if necessary, could be borrowed from the B.B.C, though it might be found by international agreement. It would transmit simultaneously on v.h.f., and on these wavelengths would act as a
  862
  national feeder station for local radio stations which would be set up locally under local boards of directors, with local authority participation.
  The new authority would be capitalised by public finance, but it would be allowed to accept advertising. The local stations would be allowed to accept local advertising. It would, as it were, be a mixed economy of the air.
  By this means, several problems would be solved. First, we should be able to rid ourselves of the pirates, without depriving the audience of their "mush". Second, we should break the sound monopoly of the B.B.C. The very existence of the pirates is proof that this needs to be done. Third, we should have established a parent for local radio. Local radio needs a national parent, but it should not be the B.B.C. The flavour of the B.B.C, in my judgment, is good; I enjoy it myself; but many people do not, and they should not be deprived of choice. If anyone says that the three B.B.C. sound programmes provide all the choice that one could want, I point to the success of the pirates. Clearly, the B.B.C. is not catering for that huge audience. I do not believe that the Corporation should be forced to cater for them, if it does not want to, and neither do I believe that it should be forced to accept advertising.
  Here, I suggest, is the answer: a new authority, publicly capitalised, publicly owned, but accepting advertising revenue, providing a national service and source of a local service which would provide means of stimulating interest in local activities, facilities, music, sport and so on.
  I recognise that there are difficulties. One of them is the absolute need to reach agreement with the performers' and writers' unions. In my opinion—I speak here entirely for myself—this would not be impossible if the new authority were prepared to transmit a proportion of live or specially recorded material and to pay for all broadcasts on a royalty basis so that every time a commercial gramophone record was broadcast, the performer or, perhaps, his union or organisation on his behalf received a payment.
  These are the lines along which, I suggest, the problem should be tackled. It should be tackled now, and not allowed

  863
  to drift. The more it is allowed to drift, the more difficult it will be to solve and the less credit the Government will deserve or get for tackling it. I hope that my right hon. Friend will be able to tell us that he believes that the Government have been perhaps encouraged or shocked by the events of the last 24 hours and jerked into action which only if it is determined and quick action, will be forgiven for being belated.
  5.15 a.m.
  The Postmaster-General (Mr. Anthony Wedgwood Benn): It is customary for a Minister to express his gratitude to any hon. Member who raises a subject on the Adjournment, but on this occation I do it with particular warmth because of the importance of the subject my hon. Friend has raised and the complexity of the issues involved, and because of the obvious thought that has gone into his speech.
  The question of pirate radio broadcasting is one that concerns everybody because it involves the whole character of our radio services and the extent to which it is necessary that they should be regulated to meet both our international requirements and our national needs.
  Pirate ships began about two and a quarter years ago. Most of them were operating outside our territorial limits, and hence outside our domestic jurisdiction, and were able to seize wavelengths which did not belong to this country, play records recorded by and belonging to others and thus attract an audience which began to interest the advertisers. They could do all this with impunity since no Government had any authority to stop them.
  May I make it clear from the outset that the objection to the pirate ships does not stem from the content of the programmes. Most of them provide what has sometimes been described as audible wallpaper, a continuous series of musical items that are understandably attractive to any general audience. They provide an apparently free service of entertainment that would otherwise involve buying one's own gramophone records to play in one's own home or car or on a picnic. Of course they are popular.
  864
  Why then have all European Governments, together with the last Government and this Government, come out so strongly against them? It certainly was not due to any puritanical prejudice against light music or to a bureaucratic hatred of enjoyment. It was for much more practical reasons which I should like to spell out, because this is the first debate on the pirates since the 1964 General Election.
  First, by using high-power transmitters on wavelengths that have not been allocated by international agreement, the pirate ships are interfering with the reception of national stations within Europe, and this interference is going on still.
  Many European countries have protested to Britain about our pirates. Zagreb Radio recently had to broadcast an apology to its own listeners for the interference caused by Radio London, which they courteously explained was not an official British station. The Czechs, the French, the Swedes and more recently the Italians have complained to us about them. Quite frankly I should do exactly the same were I in their position and the reception of B.B.C. programmes was being ruined by some unauthorised foreign station.
  I do not believe that those who listen to the pirates in Britain have any idea that they are getting their pleasure at the expense of others, and if they did know it I am sure that most of them would support and will support the action we are going to take.
  The second reason is similarly an important one—namely the safety of our ships at sea. Some of these pirates operating near to the ship-to-shore safety frequencies occasionally spill over into them and interrupt this vital emergency service. There is a continual risk that some disaster at sea may not be reported quickly enough because emergency messages have been drowned or delayed by pirate stations. If such a tragedy were to occur—which is a personal nightmare of mine—the public would rightly rise in their wrath and demand to know why the pirates had been allowed to continue.
  The third reason why the pirates cannot go on is that they are taking advantage of their extra-territorial position to

  865
  steal the work of others, composers and musicians, and make money out of them without payment. Some ships have offered some payment, but an ex-gratia grant from a man who has stolen your property is not a very satisfactory basis on which to proceed.
  Finally we have to ask ourselves— particularly today—whether unregulated broadcasting could possibly be allowed by any country or by the world as a whole. Radio waves know no frontier, and a complete free-for-all would reduce us all to jungle conditions in which the enjoyment of broadcasting would be continually threatened by more powerful transmitters from other nations that were appropriating our own wavelengths.
  The word "pirate" is now beginning to lose some of its artificial glamour, and reverting in every sense to its real meaning. This is why the Conservative Government in 1964 and our own Government since have consistently accepted the necessity for ending pirate broadcasting. The European Convention signed last year was a solemn international undertaking by us and others to legislate for this purpose. Some countries have already done so. Sweden passed a very strong Act in April and has finally settled its own pirates. What happened? One of its pirate ships moved to Britain, and the Swedes, who have been through this experience of legislating, are now experiencing interference from ships lying off our own shores.
  Our Bill to deal with the pirates is ready. It will be introduced. I am not the first Minister in a British Government to be waiting for Parliamentary time to get his legislation on the Statute Book. The Bill will come forward when the time table permits. That is the position. It is easy, and, indeed, natural, for the cynics to say—I am not suggesting that my hon. Friend said it, but he hinted at it—"The Government have got cold feet and they dare not touch these stations because they are so popular." I assure my hon. Friend that my feet are very warm. The Bill will come forward, and I believe that, in the light of the growing experience that we have of the meaning of these ships, it will be welcomed by the House and passed into law.
  Mr. Hugh Jenkins: Does my right hon. Friend think that the events of the last 24 or 48 hours will perhaps enable the Government to give the matter a little higher priority than it has apparently had up to the moment?
  Mr. Benn: We have to be very careful in discussion about the events of the last 24 hours, because some of them spill into matters which may come before the courts. I can only say that every fresh example of the meaning of unregulated broadcasting strengthens my feeling about it—not that it needed strengthening at the outset, I confess.
  I turn to another point raised by my hon. Friend, the question of prosecution. It is true that at one stage it looked as if some of the pirate stations might be within our jurisdiction and could be dealt with in the courts. But I am now advised that there is some doubt about jurisdiction. This is a very complex matter, and I am not sure whether it can be overcome. If it can, action will be taken. In any case, prosecution under existing powers would deal with only some of the pirates and would not obviate the need for legislation in respect of the ships now outside our territorial waters.
  I turn to a question to which my hon. Friend addressed himself very fully, and that is the question quite properly asked whenever the pirates are discussed: "If you are getting rid of the pirates, what is the alternative?". This is a problem to which, inevitably, I have given a very great deal of attention over the past 12 or 18 months. It is not at all an easy one, for in one sense there can be no substitute for the pirates. For example, the wavelengths which the pirates use are not available to us. They are denied to us by the same international agreement that the pirates are now ignoring. Therefore, anyone who thinks that if the wavelengths which they are using were used under different auspices within the United Kingdom we should have solved the problem is misleading himself. The only wavelengths that are effectively available to us in any quantity are the v.h.f. wavelengths. But the difficulty about them is that only a minority of the public have v.h.f. sets, and the majority of the people who listen to the pirates, particularly the transistor users, have not got

  867
  v.h.f., or at any rate have not got it now. Secondly, it would not be sensible—I am not saying that my hon. Friend suggested it—to requisition v.h.f. transmitters that might be used for genuine local broadcasting and hand them over to non-stop music stations which are anything but local in the sort of programmes which they broadcast.
  The question arises: could the B.B.C. run an alternative? I have often had to remind the House that I do not control the B.B.C. Perhaps I should say it again. The pirate stations have moved into an area which the B.B.C. has not thought it right—it has been unwilling or unable, or both—to develop. The pirate audiences are drawn from among the many millions of people who want to be able to find on the dial of their radio a station that will invariably give them light music. They also want what has come to be called "companionship radio"—that is the informality of the disc-jockey who presents the programmes.
  The certainty of light music and informality of presentation have never been a part of the B.B.C. programme policy. The B.B.C. has always worked on entirely different lines. It has worked on the principle that there were three kinds of listeners, the Third Programme listener, the Home Service listener and the Light Programme listener. To each it feeds a balanced diet of music, news and spoken word, mixed in the proportion thought right for that particular type of listener.
  It is not for me to comment on whether B.B.C. policy is right or wrong, but it is a fact that this conception of radio programming does not meet the desires of those who want continuous music, or continuous spoken word, predictably to be found at a certain spot on the dial.
  When I went to Sweden recently, and I went there partly to discuss the whole question of broadcasting policy on pirates, I was told about a re-programming set in hand by the Swedish Broadcasting Corporation, which is introducing a 24-hour melody network to replace one of its existing programmes, and rescheduling drama, spoken word, education and serious music on the other two. Thus, in Sweden they have plans to provide a choice between different types
  868
  of programmes on their three channels instead of a choice of three different balanced diets, as has been done hitherto.
  One cannot look to the B.B.C, with its present programme policy, to offer what could be strictly called an alternative to the pirates. It has introduced more light music on the Light Programme than in the past, but it would face two problems if it intended to go further, the first being the agreement on needle-time with the Musicians' Union, which is designed to protect the livelihood of musicians, and restrict the use of records. I do not know whether this problem is as difficult now as it was before. The Musicians' Union is badly threatened by the pirate stations. In the past the Union interpreted its job as involving some restriction on the use of records. It might be that it would be prepared to look again at this agreement to see whether it could be liberalised.
  The other problem that the B.B.C. would face if it went for the 24-hour light music programme would be the problem of money, for, unlike the pirates, who make money out of broadcasting light music, the B.B.C. has repeatedly reaffirmed its belief in the licence fee method as the sole method of financing its services. That means that, even if it could get the agreement of the Musicians' Union to the use of more music, it would still have to find more money out of the licence fee to pay the musicians for the programmes put on.
  These are some of the problems which have confronted me in trying to find an alternative to the sort of programmes provided by the pirates. I can see nothing but good coming out of the widest possible public discussion of this matter. Meanwhile, I am having discussions with the B.B.C. about this subject.
  I was naturally interested to hear my hon. Friend's solution, which he appeared to have worked out with great care. Whether it is desirable or practicable, I cannot now say, but it is a great help to feel that others are thinking about this and are aware, as my hon. Friend is, of the nature of the problem.
  I will conclude by summarising what I have said. First, pirate radio stations are a form of international anarchy that no Government could ignore. They make

  869
  their money by taking the work of others, without permission or payment; they broadcast in such a way as to spoil the enjoyment of others and to threaten essential radio services. Legislation to deal with them is ready, and it will be brought in as quickly as possible. We are looking hard to see whether an alternative programme within the limits of international law is possible. This
  870
  search has revealed formidable difficulties. I do not say that they are insuperable. All I can say is that a great deal of time and effort is going into the search, and I very much hope that we can see our way through to a solution.
  Question put and agreed to.
  Adjourned accordingly at twenty-nine minutes past Five o'clock a.m.

MINISTRY OF DEFENCE
  Forces' Family Pension Scheme
  Forces' Family Pension Scheme
  Naval Dockyards (Construction of Nuclear Submarines)
  Naval Dockyards (Construction of Nuclear Submarines)
  Nuclear Hunter-Killer Submarines
  Nuclear Hunter-Killer Submarines
  Royal Navy (Court-Martialling of Officers)
  Royal Navy (Court-Martialling of Officers)
  Royal Ordnance Factory, Woolwich (Common Services)
  Royal Ordnance Factory, Woolwich (Common Services)
  Aden and Persian Gulf
  Aden and Persian Gulf
  Lieutenant Baker, R.N. (Mine Disposal)
  Lieutenant Baker, R.N. (Mine Disposal)
  Indian Ocean
  Indian Ocean
  Parachutists (Refusal to Jump)
  Parachutists (Refusal to Jump)
  Overseas Expenditure (Economies)
  Overseas Expenditure (Economies)
  Cambridge and Marie Louise Hospitals, Aldershot (Patients)
  Cambridge and Marie Louise Hospitals, Aldershot (Patients)
  Head of Defence Sales (Staff)
  Head of Defence Sales (Staff)
  Regular Army (Recruiting Literature)
  Regular Army (Recruiting Literature)
  Service Men (Overseas Deaths)
  Service Men (Overseas Deaths)
  Service Men, Northern Ireland (Seamen's Strike)
  Service Men, Northern Ireland (Seamen's Strike)
  Army-Held Land (Acreage)
  Army-Held Land (Acreage)
  Service Pay (Comparability)
  Service Pay (Comparability)
  South Vietnamese Troops, Malaysia
  South Vietnamese Troops, Malaysia
  Polaris Submarine Fleet (Completion Date)
  Polaris Submarine Fleet (Completion Date)
  Service Men, Malaysia and Borneo
  Service Men, Malaysia and Borneo
  Gurkha Brigade
  Gurkha Brigade
  Unidentified Flying Objects (Reports)
  Unidentified Flying Objects (Reports)
  Singapore and Malaysia
  Singapore and Malaysia
  Anglo-American Offset Agreement
  Anglo-American Offset Agreement
  Military Facilities (Australia)
  Military Facilities (Australia)
  Armed Services (Stocks)
  Armed Services (Stocks)
  Support Costs (Foreign Exchange Element)
  Support Costs (Foreign Exchange Element)
  Civilian Personnel (Foreign Exchange Cost)
  Civilian Personnel (Foreign Exchange Cost)
  Military Equipment (Exports and Imports)
  Military Equipment (Exports and Imports)
  Defence Treaty Obligations
  Defence Treaty Obligations
  R.A.F. Station, Chelveston (Airfield)
  R.A.F. Station, Chelveston (Airfield)
  Service Aircraft (Low Level Flying)
  Service Aircraft (Low Level Flying)
  R.A.F. Station, Sculthorpe (Airfield)
  R.A.F. Station, Sculthorpe (Airfield)
  Assault Tracking (Sale to America)
  Assault Tracking (Sale to America)
  F111A Aircraft (Modifications)
  F111A Aircraft (Modifications)
  Nuclear Submarines (Depot Ship)
  Nuclear Submarines (Depot Ship)
  Chief Scientific Adviser
  Chief Scientific Adviser
  Military Equipment (Purchases from America)
  Military Equipment (Purchases from America)
  B.A.O.R.
  B.A.O.R.
  American Nuclear-Armed Warships, Hong Kong
  American Nuclear-Armed Warships, Hong Kong
TRANSPORT
  Goods Vehicles (Unusual Size)
  Goods Vehicles (Unusual Size)
  Transport Policy (White Paper)
  Transport Policy (White Paper)
  Seat Belts
  Seat Belts
  Speed Limit (Young Persons)
  Speed Limit (Young Persons)
  Large Vehicles (Lighting)
  Large Vehicles (Lighting)
  Parking (Disc System)
  Parking (Disc System)
  Motor Vehicles (Noise)
  Motor Vehicles (Noise)
  London Transport (Concessionary Fares)
  London Transport (Concessionary Fares)
  Parking Meters, Greater London (Revenue)
  Parking Meters, Greater London (Revenue)
ROADS
  Motorways
  Motorways
  Thorne and Doncaster Southern By-Passes (Draft Schemes)
  Thorne and Doncaster Southern By-Passes (Draft Schemes)
  Road Markings (Reflectorised Material)
  Road Markings (Reflectorised Material)
  Mr. (Improvements and Repairs)
  Mr. (Improvements and Repairs)
  Accidents (Economic Costing)
  Accidents (Economic Costing)
  Traffic Islands and Lights, Meole Brace
  Traffic Islands and Lights, Meole Brace
RAILWAYS
  Rail Load Gauge
  Rail Load Gauge
  Edinburgh-Hawick-Carlisle Line (Passenger Services)
  Edinburgh-Hawick-Carlisle Line (Passenger Services)
  Bakerloo Line (Extension to Bromley)
  Bakerloo Line (Extension to Bromley)
  Redundant Assets and Stock (Disposal)
  Redundant Assets and Stock (Disposal)
  British Railways Board
  British Railways Board
  Capital Expenditure (Forecast for 1967–68)
  Capital Expenditure (Forecast for 1967–68)
  Railway Police (Amalgamation with Local Forces)
  Railway Police (Amalgamation with Local Forces)
  Railway Workshops
  Railway Workshops
  New Shrewsbury-London Service
  New Shrewsbury-London Service
MINISTRY OF AVIATION
  Military Aircraft (Sales to India)
  Military Aircraft (Sales to India)
  Stornoway Airfield
  Stornoway Airfield
  Glasgow Airport
  Glasgow Airport
POST OFFICE
  Overseas Parcels (Weight Limit)
  Overseas Parcels (Weight Limit)
  Services, Brighton (Staff)
  Services, Brighton (Staff)
  Sub-Post Offices, Brighton (Closure)
  Sub-Post Offices, Brighton (Closure)
WIRELESS AND TELEVISION
  Pirate Radio Stations
  Pirate Radio Stations
  Television Reception (Chesterfield)
  Television Reception (Chesterfield)
AGRICULTURE, FISHERIES AND FOOD
  Meat Exports (Ban)
  Meat Exports (Ban)
  Beef Cattle (Imported Breeding Stock)
  Beef Cattle (Imported Breeding Stock)
  Bacon Imports (Average Weekly Value)
  Bacon Imports (Average Weekly Value)
  Fisheries Mission (Parliamentary Secretary's Visit to the U.S.S.R.)
  Fisheries Mission (Parliamentary Secretary's Visit to the U.S.S.R.)
SCOTLAND
  Forestry Commission (Staff)
  Forestry Commission (Staff)
  South of Scotland Electricity Board (Tariff Increases)
  South of Scotland Electricity Board (Tariff Increases)
  Vacant Houses, Glasgow
  Vacant Houses, Glasgow
  Scottish Special Housing Association, Glasgow (Rents)
  Scottish Special Housing Association, Glasgow (Rents)
  Farm Rents (Information)
  Farm Rents (Information)
  Skilled Craftsmen (Emigration)
  Skilled Craftsmen (Emigration)
  Charolais Cattle (Tests)
  Charolais Cattle (Tests)
  NORTH ATLANTIC TREATY ORGANISATION
  NORTH ATLANTIC TREATY ORGANISATION
MALTA
  Consultations
  Consultations
RHODESIA
  Sanctions
  Sanctions
HOME DEPARTMENT
  Capital Punishment
  Capital Punishment
  Theft (Maximum Penalties)
  Theft (Maximum Penalties)
  Drug-Taking (Young People)
  Drug-Taking (Young People)
  Birds (Importation)
  Birds (Importation)
  70 m.p.h. Speed Limit (Prosecutions)
  70 m.p.h. Speed Limit (Prosecutions)
PENSIONS AND NATIONAL INSURANCE
  National Insurance Scheme (Late Entrants)
  National Insurance Scheme (Late Entrants)
MINISTRY OF POWER
  Stewarts and Lloyds, Corby
  Stewarts and Lloyds, Corby
OCEAN ISLAND
  British Phosphates Commission (Labourers' Strike)
  British Phosphates Commission (Labourers' Strike)
ECONOMIC AFFAIRS
  Longbridge Delivery Agents and T.G.W.U. (Pay Agreement)
  Longbridge Delivery Agents and T.G.W.U. (Pay Agreement)
MINISTRY OF LABOUR
  Wages Regulation Orders
  Wages Regulation Orders
NATIONAL FINANCE
  Selective Employment Tax
  Selective Employment Tax
  Government Posts (Outside Appointments)
  Government Posts (Outside Appointments)
  Military Aid (Cost)
  Military Aid (Cost)
  Members of Parliament (Free Postage Facilities)
  Members of Parliament (Free Postage Facilities)
  Purchase Tax (Motor Vehicle Safety Features)
  Purchase Tax (Motor Vehicle Safety Features)
OVERSEAS DEVELOPMENT
  Ghana (Medical Aid)
  Ghana (Medical Aid)
EDUCATION AND SCIENCE
  Biochemical Engineering (Courses)
  Biochemical Engineering (Courses)
  Circular 11/64
  Circular 11/64
  Business Schools, London and Manchester (Students)
  Business Schools, London and Manchester (Students)
BOARD OF TRADE
  Board of Trade Office for Wales (Staff)
  Board of Trade Office for Wales (Staff)
  Departmental Staff (Wales, Northern Region and Scotland)
  Departmental Staff (Wales, Northern Region and Scotland)
  Industrial Estates Management Corporation
  Industrial Estates Management Corporation
LOCAL GOVERNMENT
  Shopping Centres (Retail Floor Space Requirements)
  Shopping Centres (Retail Floor Space Requirements)
  Circular 49/64
  Circular 49/64
HOUSING
  Controlled Tenancies (Rents)
  Controlled Tenancies (Rents)
PUBLIC BUILDING AND WORKS
  House-Building, Scotland (Increased Costs)
  House-Building, Scotland (Increased Costs)
WALES
  Housing
  Housing
  ERRATUM
  ERRATUM
Preamble
The House met at two of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Manchester): The LORD CHANCELLOR on the Woolsack.
LORD TAYLOR OF MANSFIELD
Harry Bernard Taylor, Esquire, C.B.E., having been created Baron Taylor of Mansfield, of Mansfield in the County of Nottingham, for life—Was, in his robes, introduced between the Baroness Summerskill and the Lord Blyton.

LORD PARGITER
George Albert Pargiter, Esquire, C.B.E., having been created Baron Pargiter, of Southall in the London. Borough of Ealing, for life—Was, in his robes, introduced between the Lord Lindgren and the Lord Champion.
The Viscount Wimhorne—Took the Oath.

WAR PENSIONS
2.20 p.m.
LORD FRASER OF LONSDALE: 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, having regard to the Government's declared intention that, in assessing the pensions payable to the war disabled and their widows, regard would be had to the cost of living and to the higher standard of living now enjoyed in the country as a whole, they will bear in mind the effect on war pensioners, and on the widows of deceased war pensioners, of the substantial increase in the cost of living which has taken place since the improvements in war pensions and war widows' pensions were announced in November, 1964.]
LORD BOWLES: My Lords, as the noble Lord will know, the war pensions improvements which came into effect in March, 1965 were the largest of their kind ever made, and further important improvements in the war pensions provisions have been introduced this year. These are an earnest of the Government's concern for war pensioners, and I can assure the noble Lord that they will continue to keep very much in mind the considerations to which he has referred.
LORD FRASER OF LONSDALE: My Lords, while thanking Her Majesty's Government for those provisions, which were very greatly appreciated, may I ask that this matter will he among others considered by the Chancellor of the Exchequer when he is making his plans for the next Budget?
LORD BOWLES: My Lords, I cannot answer for the Chancellor, but I am quite sure that the whole Government will keep in mind the point which the noble Lord has raised.

SELECTIVE EMPLOYMENT TAX AND DOMESTIC HELPERS
2.23 p.m.
LORD MOYNE: 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 they will consider exempting from the selective employment tax mothers of children under ten in respect of a single domestic helper, when such mothers are themselves in employment or engaged in public service.]
LORD SHEPHERD: My Lords, it would not he practicable, within the framework of the simple scheme to be introduced this year, to exempt any employers of domestic assistance from payment of the selective employment tax. However, the Government recognise that the tax may cause hardship in certain circumstances. The House will no doubt be aware of the conditions in Clause 6 of the Selective Employment Payments Bill which is now before the other place. This clause requires the Minister of Social Security, subject to certain conditions,

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to refund the tax paid in respect of a person giving such assistance in a household where there is an old, infirm, incapacitated or sick person; or where there is a child or children under 16 and where there is only one parent, or person acting as a parent, in the house and that parent or person is working more than eight hours a week, not counting the domestic work of the household. Your Lordships will therefore see that, under the provisions of this clause, a household in which there is a mother as sole parent with children under 16 she would qualify for a refund of tax paid in respect of a single domestic helper when the mother herself was employed for more than eight hours a week in work other than the domestic work of the household.
LORD MOYNE: My Lords, my Question was really concerned with the case for instance of a couple where the husband and the wife are both employed. The wife, who may be a doctor or a school teacher, has perhaps one baby. She has had training and has years of learning behind her, and it is in the national interest that she should go on working—I am sorry to be stating something rather than asking a question, but it is the background to my question. Would the noble Lord not give further consideration to this matter, in view of the fact that only where one person is working does the relief which he mentioned, at present in the Bill as drafted, apply?
LORD SHEPHERD: My Lords, on the first point the noble Lord has made, of course the Government wish to ensure that, so far as possible, married women should go back into industry or into the various essential services of local government such as school teaching. However, we do not feel at the present stage that the imposition of this tax is likely to be detrimental to this desire, since that type of person clearly would be working more than eight hours a week and, of course, in conjunction with the husband's earnings there would be a fairly substantial income. We have no reason to believe that this would stop the present flow of married women into industry and local government. In regard to the second observation, I should not like to answer immediately, but I will give the noble
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Lord the assurance that I will look into it, and if I can give him any information I so will.
BARONESS SUMMERSKILL: My Lords, may I take up my noble friend on one point? If two women share one lady worker during the week, it is the woman who employs her on the Monday morning—and I presume she would have to employ her for two days—who would have to pay the tax.
LORD SHEPHERD: My Lords, the tax of course will require to be paid only if the domestic help is working more than eight hours in the week. In the case of two employers of one employee, presumably they would share out the selected employment tax on the basis of what they now do in contributing towards the insurance stamps for the domestic worker.
BARONESSS SUMMERSKILL: My Lords, I am sorry to hurt my noble friend's feelings, but he obviously does not know much about women and domestic work. The point is, if I may remind him, that perhaps two housewives living on different sides of a large suburb in London employ the same woman but they have never met each other. The second one who employs her, perhaps on Wednesday and Thursday, will consider herself extremely fortunate that the law does not compel her to pay, but the employers are complete strangers to each other.
LORD SHEPHERD: My Lords, I would not claim that I know a great deal about domestic work, but certainly I am beginning to know a good deal more about women the more I come in contact with the noble Baroness. I appreciate there is some difficulty where there are two employers who may not know each other, but I think I referred to the general circumstance which is going on all the time. There is the obligation to pay for the stamp. I think that in most cases it is the employee who arranges with her two employers how they shall share the cost of the stamp.
LORD TAYLOR: My Lords, with great respect to my noble friend, the situation is that in law the first employer of the week has to pay the whole of the cost of the stamp, as I know to my cost—
BARONESS SUMMERSKILL: Hear, hear!
LORD TAYLOR: I imagine the position in the case of this tax may well be the same. Certainly none of the other employers of my domestic assistant pay towards the cost of the stamp.
LORD SHEPHERD\: My Lords, I am quite prepared to bow to the greater experience of the noble Lord, Lord Taylor. What may be the law and what may be the fact may be two different things. It may well be that the first employer should in fact pay for the stamp, but my experience, limited thought it be, is that usually the cost is shared.
LORD NEWTON: My Lords, will the noble Lord realise that both his noble friends are on a very good point? Although I would not go so far as the noble Baroness and suggest that he does not know anything about women, nevertheless may I ask him to realise that endorse what the noble Baroness, Lady Summerskill, said? Will he also realise that this is going to be a much more serious problem in future, because in the past the level of payment for the stamp has not made it worth while for the employer to take the trouble to discover the identity of the remaining employers, but this is now different? Will he invite his right honourable friend the Chancellor of the Exchequer to think about this?
LORD SHEPHERD: My Lords, when one is on a difficult point it is perhaps the best thing to say that one will take note of the point and convey it to one's right honourable friend, and this I will certainly do. But as has been said on a number of occasions, this is an important measure. This is a simple scheme in the very first instance, and I believe that the Chancellor is on record as saying that all matters arising from this scheme will be considered, and no doubt certain refinements will appear in the next Finance Bill.
BARONESS HORSBRUGH: My Lords, as the noble Lord has said that he does not himself know much about domestic service, can he assure us that a member of the Government does?
LORD SHEPHERD: Yes, my Lords.
LORD WADE: My Lords, was I to understand the noble Lord, Lord Shepherd, in reply to the first question, to refer to the measure now being introduced in another place as "a simple scheme"?
LORD SHEPHERD: My Lords, it is the judgment of the Government that it is simple, but there are some who try to make it more difficult than it really is.
LORD AUCKLAND: My Lords, will the noble Lord recognise that there are many mothers of young children who are magistrates? Will he urge on his right honourable friend the importance of this public duty, particularly in view of the present crime rate as it is and the great burden of work which magistrates have to undertake?
LORD SHEPHERD: Yes, my Lords, I will certainly look at it, but this has already been considered. At this stage I cannot go any further than I have already this afternoon. We shall be watching the scheme during the next few months prior to the introduction of the next Finance Bill, and if any refinements should be introduced this will be done.

PROCLAMATION OF EMERGENCY
LORD SHEPHERD: My Lords, may I inform the Lordships that about 3.30 p.m. my noble friend the Leader of the House will be making a Statement on the renewed Proclamation of Emergency under Section 1 of the Emergency Powers Act 1920, and that he will also be repeating a Statement that will have been made about the same time by the Prime Minister.
MANCHESTER SHIP CANAL BILL [H.L.]
Read 3a, and passed, and sent to the Commons.
BLACKFRIARS BRIDGEHEAD IMPROVEMENTS BILL [H.L.]
Read 3a, and passed, and sent to the Commons.

AGRICULTURE
2.32 p.m.
BARONESS ELLIOT OF HARWOOD BARONESS ELLIOT OF HARWOOD rose to call attention to the problems which face the agricultural industry; especially those posed by the Price Review, and the proposed selective employment tax; and to move for Papers. The noble Baroness said: My Lords, I rise to move the Motion which stands in my name on the Order Paper. Your Lordships will remember that last Wednesday we had a very interesting debate on television. In the course of that debate one noble Lord described himself as "a simple country gentleman". This caused some merriment on the Government Benches. I should like to describe myself today as "a simple commercial farmer", and so declare my interest. I understand, from a paragraph I read in The Times newspaper yesterday, that this is not apparently done in our debates on agriculture. I speak as someone who is engaged in this industry, and I shall try to be both short and practical.
I am glad to see that a considerable number of noble Lords are to follow me in this debate, and I am sure they will deal with the points with which I do not deal. I am particularly glad that my noble friend Lord Nugent of Guildford will be making his maiden speech from the Opposition Front Bench. Your Lordships will remember from his record in another place that he is a practical farmer and a great expert, and I am glad that he has chosen this debate in which to make his maiden speech. I would also say that I am sorry the noble Lord, Lord Hughes, cannot be here today (he is in Denmark), as I think that several noble Lords, myself in particular, will be speaking about agricultural conditions in Scotland. But I know that the noble Lord, Lord Champion, who is to reply, is perfectly equal to dealing with agriculture both North and South of the Border, so I know that we shall have all the answers we hope to get.
I should like to begin by asking the Government one or two questions. What part do they want agriculture to play in the National Plan? What amount of production of food do they want the industry to be responsible for? And what figure of import saving are they hoping
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the farmers of Britain will make in the future? I should like to look at that part of The National Plan—this large !book which I have in my hand—which deals with agriculture. In all this enormous volume, there are exactly seven pages devoted to this, as I think, the most important industry in the country. However, in these seven pages there are some encouraging proposals. Paragraph 9 points out that in ten years our industry has saved the nation £250 million at 1964 import prices. I believe that to be no mean figure. And we could still further increase the saving in imports if the Government would say how much more of the home market they are prepared to allow the British farmer.
I come to my second question: how much food production do the Government want industry to be responsible for? Paragraph 14 of the Plan hopes for an increase of 1·3 per cent. annually, or of 8·4 per cent. between 1964 and 1970. But this would actually be a reduction in farm production, because over the last five years the net output of agriculture has increased by 4·4 per cent. And there is no doubt in my mind—and I am sure noble Lords who are engaged in the industry will bear me out in this—that with modern techniques and machines, and by giving a decent return to the farmers, we could produce more than 1·3 per cent. per annum above what we already produce. But we must know what the plan is. Is it to increase food production, or is it to remain more or less static?—because 1·3 per cent. a year is hardly an increase.
This country, as your Lordships will know, is practically self-supporting in certain commodities—milk, eggs, poultry, pork and main-crop potatoes. There is a table in The National Plan, No. 32, which gives an estimate of what will be required in the next five or six years. The biggest demands for increases are in beef, veal, fruit and vegetables, and the figures appearing in the table for commodities like mutton, lamb, eggs and sugar are by far the smallest. From this table there is no doubt that, given the right encouragement, the British farmer could supply a much greater proportion of these further demands.
Here comes my third question. What figure of import saving do the Government want the industry to provide? And

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here comes the problem of international trade. In paragraph 20 of The National Plan, the case is argued for free imports from the old Commonwealth countries and from EFTA countries. Here, it seems to me, is the nub of the problem, and here is where the Government must make up their mind. Otherwise, farmers will find it difficult to carry on in existing circumstances; and many of them will go out of business, even though they do not want to, simply because they cannot make ends meet. This is a big problem and one which must be solved, if the future of agriculture is to be as important as we all hope it to be.
May I now look at one or two of the individual commodities which are important in this industry? I will take livestock first, because that is what I am engaged in and know best; also it forms the basic production of Scottish agriculture. In Scotland, two-thirds of the land is hill and heath. The hill farmers produce cattle and sheep, maintain them on the hills and then sell them in store markets to the farmers with better land to fatten them. There are hundreds of thousands of acres carrying sheep. They breed hardy animals, and hardy folk-shepherds and their families, some of the finest people in Scotland. I want to see these people given as good a deal as we can for the work they do and for the splendid families they rear under these hard conditions. They put the interest of the stock first and their own interest second.
I am sure your Lordships will agree with me that these skilled men are hardworking and do everything they can to be as efficient as possible in that section of the industry with which they are dealing. But there is one thing they cannot do: they cannot mechanise the breeding of sheep and, they cannot mechanise themselves. The cycle of birth is not controlled by man, even though one reads of experiments in the breeding of animals to increase the number of twins, for instance, in ewes. These experiments are nowhere near a commercial proposition as yet, and I am somewhat sceptical as to whether they ever will be. In any case, if the desired increase in, let us say, mutton and lamb is to be only the £5 million, which is in the table to which I have
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referred in The National Plan, this could be achieved by the existing methods of raising sheep and mutton and is quite a practical proposition. But to make it a remunerative proposition is, of course, a different thing.
I have here a few prices (I will try not to bore your Lordships with too many figures) which show that in 1957 the average price of mutton and lamb was 39·5d. per lb.; in 1958–59, 39·76d., and in 1964–65, almost ten years later, 39d. This is slightly less. It does not need me to tell your Lordships the difficulty of increasing production and getting a return when the price received for the product is less than it was ten years ago. On the subject of costs, I might put in, in parenthesis, the question of the cost of labour, because in this type of farming it is high in relation to the product.
On the general subject of labour costs, between 1947–48 and 1964–65 the cost of living went up by 89 per cent.; the general farm worker's minimum rate went up by 126 per cent., and the average actual earnings (and these are slightly different, due to overtime and so on) by 149 per cent. Yet in the same period the industry's net income went up by only 90 per cent. So that farming, particularly in upland areas, is facing a growing problem of keeping an adequate skilled labour force to meet the requirements, and yet still paying, as we want to pay, a proper wage for the skilled work which the men do. The selective employment tax, which your Lordships discussed a short time ago (I am not going into this to-day, because I had my say on it then), and the proposed loan which the farmer will have to make in order to pay this tax, is not going to help, in the way in which we should like to see, in the remuneration of farm workers.
Then there are the costs of agricultural machinery, because even on a hill farm you must have some machines: you have to make hay; you have to buy balers, tractors and so on. Then there is the cost of feeding for certain breeds of sheep on the hill; there are the fertiliser and liming costs, and the cost of hill drainage, which we all try to improve as much as we possibly can for the grazing of sheep and cattle. The cancelling of the grants for lime and for ploughing has not made these things any easier.
Another product of the hills which is important is wool. The value of the wool clip in 1965 was £16½ million. The price of wool has fallen. In the last Price Review the guaranteed price was reduced by 2d. a lb., and although (and for this I am grateful to noble Lords opposite) there is to be an increase of 1s. on the ewe subsidy, it is rather doubtful whether this will make up for what I believe to be a heavy drop in the price of wool.
So we are now seeing something happen which I believe is not in the interests of this country or of this industry—namely, that, owing to the fact that our prices arc lower now than they were ten years ago, there is a decline in the amount of stocking which is going on at the present time. In Scotland alone last year there were 16,000 fewer ewes. I do not know what the figures are for the highlands of Wales, but I was in Wales not long ago and I know they are in some difficulty; I imagine that they are down, too. This is something which will not be helpful, and it is something that we in the industry do not want to see happen. I ask the Government whether they would expect nationalised industries to survive if they were trying to sell their products at a little less in 1966 than in 1957. What about coal, gas and electricity? Is there one of those industries which is trying to sell its product at 1957 prices? I do not think there is. So we are really facing a big problem.
The other product which the Government are keen to see us increase is beef. This is a subject which I think is of importance, and I know that the industry is anxious to co-operate and do all it can to increase the production of beef. And we can do it. On the hills we could grow more beef and we could produce more calves. But the difficulty is that the price at the end of the product so often does not cover all the costs, and one sees thousands of young animals slaughtered when they should be kept on and reared for beef. If only we could get a slightly better price for the product, then I believe that thousands of these young calves, which in my opinion should not be slaughtered, would be kept on for two summers and grow into beef, which would provide a considerable amount more for the public to eat. I should like
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to see this stressed in any plans that are put forward for the industry. I know that a number of people, including some of your Lordships, have gone in for barley beef. It began by being very profitable, but I think now, owing to the increase of costs, it is not profitable.
As I said, I do not intend to go through all the products, because there are noble Lords here—and the noble Lord, Lord Netherthorpe, in particular—who know far more about milk, cereals and so on. But there is one other commodity that I should like to mention, because it also affects Scottish agriculture, and that is potatoes. The growers last year produced a record of ten tons of potatoes to the acre—that is, a ton higher than in any previous year. But what happened? They produced a surplus of 700,000 tons of potatoes, which were disposed of at throw-away prices which proved disastrous to the growers. In no other industry of which I can think could you have record production which proved disastrous for the grower. These are matters of which I am sure the Government are cognisant, but I cannot help stressing them.
Then there is the question, which again comes up in the National Plan, of the industry releasing labour. We in the agricultural industry have released 20,000 men and women a year over the last ten years. This has not prevented us from increasing our production. We have saved, as I have said before, £250 million in imports, and the actual increase in the rate of production is double that of the economy as a whole. We have helped the country by providing cheap food and a home market which has grown to £1,000 million a year. At the same time, by the purchase of agricultural machinery, and the help that we have given to the machinery industry, that industry is now able to export £125 million worth of exports a year. This is also helpful to the economy of the country, but it would be a serious thing if, as I read The National Plan, we are to be asked to allow another 140,000 men to leave agriculture—a figure which I personally do not think the industry could stand, and certainly not the section that is breeding cattle and sheep or producing mutton or is concerned with any of the hill lands. If we have to give up our shepherds, our cattlemen, and so

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on, we shall not get the increased production which we could get if the question of giving up labour on this scale were not mooted.
Of course, on the farms where machinery and mechanisation is possible on a very big scale great quantities of machinery can be bought. But it is very expensive. Traditionally, the money for this investment came from the incomes of farmers. In 1950, the Minister of Agriculture said that farmers reinvested 5s. 9d. out of every pound they made on their farms. To-day, the figure is only 3s. 3d., and there has been an enormous increase in farm loans and credit from the banks. Agricultural borrowing has increased from £221 million to £503 million. This is very difficult at a moment when the banks are reluctant to lend money to the farmer, and he must try to find his own investment just at a moment when men are being taken off the land and the need for mechanisation, for modern buildings and equipment, becomes more urgent. This could be serious, and to cut off our noses to spite our faces by letting the productive capacity run down would be a great mistake.
In the Government's new Agriculture Bill there is a proposal to reduce the level of grant under the Farm Improvement Scheme—a scheme under which many of us have improved our buildings, and so on—from 33⅓ per cent. to 25 per cent. and there is, of course, the scrapping of the Hill Farming Scheme for other and, I think, probably less effective schemes. It really will not help at this juncture if men are to go out in the quantities that the National Plan seems to wish. If we could persuade the Government in the next Price Review, when they are discussing all this, together with the Hill Farming Scheme, which is part of their new Bill, to cover such things as fixed equipment and cottages for farm workers, where the scheme was of enormous help, this would be a great help indeed.
There is one other difficulty about investment in machinery where this industry is at a greater disadvantage than almost any other industry I can think of. If you are a textile manufacturer and you put new power looms into your factory, you know that those looms will work all day and, if the demand is very great, probably all night. But that does not happen in
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agriculture. If you buy, as we do, new farming machines (except for possibly the basic tractor, which you must have, and which is basic to the whole mechanical procedures of farming) those machines are often used for only a very short time in the year: they are used for the harvest, for sowing, for making silage, or something else which comes up only once a year. For the rest of the year they are in a shed waiting for the next term, when they will be used again. In that shed they are naturally deteriorating, not so much physically, but because in the same period these clever mechanical producers are inventing new machines which many of us long to buy. But we have to weigh up whether the return is worth the capital outlay.
I was at the Highland and Agricultural Society Show in Edinburgh yesterday morning and, like a child pressing its nose against a toyshop window, I walked around the agricultural machinery lines longing to buy some of these enormous, greatly improved, machines which come out every year. But, my Lords, it is no good, because the return that I or many other farmers would get on new machinery would not be worth the capital expenditure. The investment allowances which were allowed in previous Bills are to be abolished in this new Bill. I know there is going to be a new incentive investment allowance, but we do not know exactly how that is going to come out. Being a somewhat conservative farmer, I feel doubtful whether it will be as good as the one we have just lost. Those are some of the problems which face us, either on the side of industry where efficiency can be got by mechanical means, or on the side of industry where labour is the great point.
There is one other question I should like to ask the noble Lord to answer when he is replying, and that is whether he could give me a little more information about the rural development boards. These might be very good if they could really speak up with authority for agriculture and forestry, and if they were not slanted all the time towards industry and all the other chapters in this great Report which deals only with manufacturing industry. I should like to see these boards more helpful and useful to the agricultural industry.
May I ask—and this is a point on which I know the noble Baroness, Lady Summerskill, will support me—that from time to time, when they are thinking of members of these boards, they consider appointing on occasion some women to them? As to the last one which was appointed in my own area in the Borders—it was an enormous great board; I forget how many members there were, twenty or thirty—not one single woman was appointed. And that in an area where, if you take manufacturing industry alone, the big proportion of those employed are women because of the textile trade. That is only a sideline to my speech, but it is really extraordinary that we should have this great number of members, but on this board not only is there no woman, but it has only one man who could be said to represent agriculture. It is heavily weighted against the industry. I shall watch it very carefully in the area where I live, and I hope to be able to speak up for the agricultural industry if and when its report comes out. I have stressed the difficulties and problems which face the farming industry to-day because I believe that, as an industry, we can help the country better than almost any other industry, but we must know what is desired of us. The public are dazzled by headlines of what the Press call farm subsidies. They should be called consumer subsidies, for that is what they are.
To sum up the position of the farmers to-day, farm prices in general are slightly lower than they were ten years ago. Over the same period there has been an enormous increase in farm costs. Rents and wage rates are nearly twice as high, and farm machinery prices have risen by about 25 per cent. Looked at in another way, farmers' costs have risen by slightly over £290 million during the past ten years of the Price Review, while the total of the Review awards over this period is £56¾ million. Farmers have had to carry £152½ million of higher costs by increasing their output and their efficiency. In fact, they have done so, as I have tried to show. Their output has increased by 42 per cent. and without this, of course, they could not possibly have carried the costs which have been allotted to them. But they are increasing all the time, and I do not know how long the industry can go on unless something is done to help. Despite all the
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efforts that the farmers have made, their real income, after allowing for the fall in the value of the pound, is only 1 per cent. higher than it was ten years ago. This is in sharp contrast to that of the community as a whole, whose income has risen by 43 per cent. in relation to an increase in output of only 32 per cent. This is a basic situation which I believe must be altered if agriculture is to carry out the heavy investment needed to play its part in the National Plan and to have any confidence in the nation's willingness to give it a fair reward for its efforts in so doing. My Lords, I beg to move for Papers.
3.1 p.m.
LORD HENLEY: My Lords, may I thank the noble but "simple commercial farmer" for having got this Motion on the Order Paper at this time. Just before the Recess her name was near the top of the queue of Motions for "No Day Named". Then I noticed that two other debates, apparently of greater importance—and one of them, I will say, was a Liberal Motion—appeared to have got in front of her, and I thought "Poor old agriculture; Cinderella again!" But, my Lords, I did not reckon with the noble Lady. She was not going to have any queue-barging of this kind. She did not tell us, but perhaps I should tell your Lordships that she is also a noble and bluff chairman of auctioneers. May I also say how sorry I am not to be lucky enough to be third on the list of speakers, so that I could congratulate the noble Lord, Lord Nugent of Guildford on his maiden speech? I need say no more. We all know what services he has rendered to agriculture.
I think the central theme of the noble Lady's speech was the falling profitability of the industry, and this is the point that I want to "plug". The fact is that it is not yielding a fair return to those who work in it; and any industry, if it is to be healthy, must do this. It is becoming too difficult to make a living out of agriculture. Of course I do not mean to say that it should be made easy, but at present the smallest reverse, the smallest piece of bad luck or bad weather, is enough to turn a year's hard labour into a loss; and this is a loss which can be made good only by eating into diminishing capital. And an industry is not healthy where it is becoming as difficult to avoid such a state of affairs as it is in agriculture. This

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applies to all aspects of agriculture, on some of which the noble Lady has already touched.
It is not only the farmer's income that is falling so heavily. We do not need all the statistical surveys which have been made in the past year or so to tell us, but at any rate they have left us in no doubt that the farmer's real income is falling, and the return on his capital. It is not happening in quite the same way, but this applies also to labour. Agricultural labour is still among the most poorly rewarded in this country, although, unlike the farmer's returns, it is at least keeping pace with inflation. The same also applies to the return to the owner of land. I need hardly remind your Lordships that land and fixed equipment represent more than half the total capital investment in agriculture, and in fact the return on this more-than-half of the whole capital invested in agriculture has not yet quite caught up with the return that land yielded in 1870, before the first great collapse of the industry.
If the return on this half of the agricultural industry is too low, a state of affairs will arise in which proper maintenance and proper improvement falls by the wayside, and I think that many owner-occupiers—who have increased by enormous numbers in the last 25 years—are beginning to find that this is so. The owner-occupier is finding that the part of his capital which is represented by his ownership of land is yielding so small a return that he is not able to improve the land as he should.
I wonder whether the Price Review could have helped us here a little more than it did. We must remember that the Price Review this year could have been a great deal worse than it was. Under the statutory arrangements, the guarantees could have dropped by £6 million, instead of rising, as they did, by £23 million. Nevertheless, I do not think it helped enough, in view of the difficulties through which the industry is now going. I think we ought to remember, and indeed manufacturing industry ought to remember, that agriculture was the only industry asked to make good nearly all its increased costs by higher efficiency, without passing on these higher costs to the consumer in the form of higher prices.
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It could do this only because agriculture, unlike the rest of manufacturing industry, which increased its efficiency by something like 3 per cent., increased its efficiency by 6·6 per cent. It was only as a result of this that it was able to absorb its costs in the way it did. I think this is worthy of note.
Agriculture is the only industry in the United Kingdom that can stand on equal terms with its opposite number in the United States of America. I am not quite sure how many men it takes to produce a ton of steel in the United States, but in this country it takes something like three times as many men to produce a ton of steel as it does in the United States. So far as agriculture is concerned—and it is the only industry to which this applies—agriculture has managed to hold its own with America in this context. The Minister of Agriculture did his best for us in the face of what was, I believe, probably very tough opposition in the Cabinet, and I do not think we ought to forget that.
If the Price Review did not help us very much, the selective employment tax has helped us far less. I do not want to talk a great deal about this, because we had a debate on it a week or so ago, but I want to "plug" one or two points. First, I accept the arguments that have been put forward for putting agriculture in the premium zone; that is to say, the zone of manufacturing industry which gets the 7s. 6d. premium. I accept that it is illogical and paradoxical: in any case, why should anybody have a premium? But if manufacturing industry is going to be insulated from this direct cost increase which results from the tax on the service industries, and which those service industries will pass on to agriculture, then agriculture, with its import savings role, ought to be insulated as well. Agriculture cannot, like industry in the premium zone, pass that on to the consumer; nor can it pass it on as its colleagues (if one may use the term, in the "neutral zone", that is to say the Civil Service and the transport industry, can do.
I accept all those arguments. The situation seems to make nonsense. Nevertheless, I believe that there is no point in pressing this issue; there is no point in trying to make the Government put agriculture in the premium zone. I think this

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would put the Government themselves in the position of having their own illogicality. I think they made quite a good case in the National Plan for saying that agriculture is a labour-loss industry, and should be a labour-loss industry, as things are at present.
I enter one or two warnings, as I think the noble Baroness did, too. The Government want to be rather careful they do not go too fast here. This happened in France. France felt they had a bottomless reservoir of labour and set about diminishing it, and found they were going faster than they should have done. Already we have made up the 6·6 per cent. in efficiency, which nobody else has, and the law of diminishing returns must set in if you are not careful; there is a limit to how far you can take up the slack, and if we lose too much labour I think it will not be possbile to increase still further on our 6·6 per cent., as we are expected to and take up the labour-loss slack in that way. Also I should be sorry to press this point about putting agriculture in the industrial zone because it raises rather ticklish problems of the re-rating of agricultural land which are best left alone. I think there is a very strong case indeed for not rating agricultural land because you are not rating land in the same way as you are in an industrial context; you are rating a raw material. But be that as it may, it is probably something we should do well to leave alone.
We ought not to be pressing the Government to bring us into another zone, but trying to recoup our costs, both direct and indirect. The Minister of Agriculture has undertaken to do this. First of all he has undertaken to repay the tax itself. I hope he will do this through his own Ministry, and not through housing or pensions or some nonsensical way of that kind. I hope also that he will try and put all agricultural estate workers under a single umbrella. This is very important. There are a great many people on agricultural estates, part of the agricultural industry, some of whom at the moment do jobs which come under the premium zone—that is to say, if they were in another industry they would be getting the 7s. 6d.—but, in other cases, they are doing jobs which would not be recouped and the 7s. 6d. would have to be paid. I think the right thing would be for the Minister to
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put all these estate workers under one agricultural umbrella so that they can claim back the tax. If he does not do this, there will be all sorts of subterfuges such as calling the job of one kind of worker by a wrong name. I do not, of course, mean only butlers. We all hope that this kind of situation will not go on under this new selective employment tax. But I think all who are agriculturists in this House know what I mean by trying to get it all under one agricultural umbrella.
I think the Minister of Agriculture is in some difficulty here. He does not want to prejudice the overall position of the agricultural industry by making too many involved exclusions from the tax under this umbrella. I am sure he is doing his best. I want to make this point. We have at the moment a Minister of Agriculture who I think bids fair to become as good a Minister as Tom Williams was and that is saying something. In all our arguments and negotiations with him I think we ought to remember that he cares for agriculture; he really "knows his stuff" and is doing his best for us. If he cannot get over this one of getting agricultural estate workers under an all-embracing umbrella, we shall at least know that he has tried. So much for the direct tax he has undertaken to pay.
There remains the problem of the indirect effects. I think we must try to press for them to be repaid in full. First of all, there are the increased costs of repair hills and contract work and so on, which the service industries will inevitably pass on to us and which we cannot pass on to anybody else. I think that they can, and we must accept that they can, be recouped to us by the Price Review, and this is the most sensible way to do it. What we should try to say to the Minister is that he should not leave us to have to make up some of it by increased efficiency. Manufacturing industry is totally insulated against it, as agriculture is not, and it seems a bit hard we should be asked to pay the tax just because we are more efficient than manufacturing industry in general.
The second indirect effect that is going to affect us is this interest-free loan to the Government. I sympathise with the Chancellor of the Exchequer. One of

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the troubles that beset us is that we are so short of credit, and I do not blame the Chancellor for looking for other means of getting it. But I think he must try to make this good to us. Whatever, happens, the effects of this selective employment tax are at the very least going to be difficult for us. In fact, I feel they cannot be other than bad. The other day President Johnson, in a speech about the problems of the countryside and agriculture, said:
"Our tax policy should not penalise or discourage conservation…".
He meant conservation in its widest sense of making the best use of land. I wonder whether this selective employment tax really falls within what President Johnson meant.
The second problem that impinges very heavily upon agriculture at the moment is the competing claims on the land for other uses—the "your playground, our workshop" syndrome, as it were. The tremendous drive that is being made at the moment for more and better compensation for dispossession is symptomatic of this. I beg you to remember the enclosures. The in closures were an enormous but inevitable dispossession. But in the course of that dispossession incalculable harm was done to a large part of the rural population. I think we have progressed so far that we ought to be able to make the dispossession which is inevitable in the coming world without its being at the sole expense of the agricultural community.
Next, there is the complexity of all the various new bodies—the noble Baroness has asked the Government to expatiate on one of them, but this is not the only one; there are dozens of interlocking bodies already being put on top of local authorities: regional authorities and Heaven knows what authorities; and so far as we in the industry of land are concerned, we do not quite know where we are. In the same context, I am rather sorry—I said this before and I was "shot down" by the noble Lord, Lord Kennet—that the old Ministry of Land and Natural Resources has gone, and I am glad to see I was backed up by the noble Lord, Lord Mitchison, in this connection. I think if you have land and natural resources you ought to administer them
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as such by some body directly concerned with land and natural resources, not administer them as a sort of utility in the files of some other Ministry like that of Housing. I am sure that a great many of us on both sides of the House feel this.
The third of our problems is in some respects the most important of all, and that is the problem of the relationship of United Kingdom agriculture and the agriculture of the rest of Europe and the E.E.C., and also the relationship of our agricultural industry to the rest of the world's temperate climate agriculture. The expansion of British agriculture has been accepted by the Government, and it has been accepted that a larger proportion of foodstuffs should be home-grown: that is to say, not only the foodstuffs likely to be needed in the future in this country because of the increased population, but also a larger share to take the place of foreign imports. I think we on these Benches have been urging this for a very long time; and we are not for one moment suggesting that elaborate negotiations carefully entered into should he chucked over just like that. But what I do think we all feel—and I am glad to see the Conservative Party now feel this very strongly, too—is that it is time we started thinking about how to renegotiate some of these long-term international agreements so that we can substitute our present system of subsidies (and I am so glad the noble Baroness pointed out that they should not be called farm subsidies at all) to try to change present support prices for import levies.
I think that farmers themselves have been unnecessarily frightened by the prospects of the change from a price support to import levies, and I think we have all understood this. But I say advisedly—and I wonder what the noble Lord, Lord Netherthorpe, would say about it—that, in view of our technical superiority and our technical efficiency, which is so much better than in the rest of Europe, and indeed our structure, which is a problem which is now concerning us greatly, I do not see why we should not be able to do much more than hold our own in any enlarged European Community. I think the Government also have been unduly frightened about this whole business of dovetailing our agriculture into Europe's. May I say that I am not a bit surprised

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about that? When one looks at the agonising negotiations that have gone on among the Six themselves to agree upon an agricultural policy, I am not surprised at any Government in this country boggling at the difficulties of trying to do it. Nevertheless, I think one can be too frightened of these difficulties, and we should now set about trying to overcome them.
Lastly, I think that the consuming public as well has been unnecessarily frightened by cries of the end of cheap food. I think that this is a sacred cow which it is high time was butchered. If you have artificially cheap food, which is what we have, the taxpayer will inevitably have to pay for it somehow. He will have to pay for it in some rather disguised way, as indeed he does. In fact, the increase in the price of food would not really be large compared with all the other increases that have gone on in the last two or three years; indeed it would be but little compared to what has, in the last two or three years, been added in terms of taxation. If one looks at the matter in proportion the difference is not great.
Those are three problems which seem to me to matter. If we can solve this third problem, that of integrating our own agriculture with that of the rest of the temperate foodstuffs countries, then I think we are in a fair way to solving what I posed as my first problem, which is that agriculture at this moment is becoming so unprofitable that it is hard to make a living at it at all. If we can solve these two problems, then, with a little good will and give and take, I think there is no reason why we should not solve the second problem which is the conflict between different uses for the agricultural land of this country not only to the advantage of the community at large, but also in such a way as to help to solve the problem of the poor farmer.
3.24 p.m.
LORD NUGENT OF GUILDFORD: My Lords, I have the honour to make my maiden speech to your Lordships today, and I shall make my remarks as uncontroversial as policy differences allow. First, may I congratulate my noble friend Lady Elliot of Harwood upon giving us the opportunity to have this debate to-day, and upon making such an interesting speech, with her exceptional knowledge
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of agriculture—because to me the name of "Elliot" has been famous in the field of agriculture for more than a generation, and we still remember it with great gratitude.
This is, in my judgment, a valuable opportunity to review the industry because a number of factors have been changing over the last year or two. I should like to make a comment on each of the three major objectives of agricultural policy as I see them, and a comment on the Government's handling of them. The first one is, of course, to provide a fair living for farmers and farm workers engaged in the industry. Both my noble friend Lady Elliot of Harwood and the noble Lord, Lord Henley, have already dealt cogently with this point, and made clear how poorly the agricultural industry has kept up with the rest of the community. Secondly, I should like to make a comment on the responsibility of agricultural policy to provide the right level of production from our farms, to combine with imported supplies to meet the nation's need, both now and in the future. Thirdly, I should like to make a comment on the need for the policy to support the general economic policy of the country, having particularly in mind the possibility of entry into the European Community.
On the first point, a fair living for farmers and farm workers, I felt that my noble friend Lady Elliot of Harwood dealt most cogently with this, and for myself, I certainly felt that last year's Review was a turning point in the trials of this particular policy. The farmers' resentment reached the highest level I have ever seen—and I have sometimes been on the receiving end in this particular matter. Although this year's Review is easier—as Reviews are wont to be just before a General Election—it has not entirely restored the confidence that was seriously shaken last year. I am sure that the Farmers' Union, in Agriculture House, and maybe even noble Lords opposite as well, look with foreboding to the 1967 Review, for in the year after a General Election there is usually a tough Review. That, I think, is the reaction of both farmers and farm workers—and may I include in any reference to "farmers", farm workers, to whom we all owe so much? Farm workers are skilled men nowadays. The farm worker works long

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hours in all conditions. His factory roof is, of course, the sky; therefore, he is an exceptionally valuable member of the community, and, of course, farmers' incomes are largely determining what can be paid to him. So to-day it seems to farmers that their incomes are being held static by the Government's policy, while the production and the productivity of farms is rising annually. The result is that they are beginning to feel that the greater their efforts in increasing production, the less their profit margin.
I feel that there is substance in this complaint now. The White Paper on the 1966 Price Review shows that last year the net income of the industry was roughly static—and that in a year when the rest of the community were getting an income rise of about 10 per cent. This really rubs salt into the wound, in an industry which is achieving great things in terms of increased production and increased productivity. To be fair, the increase in income over the five-year period has averaged just about 3½ per cent.—the guiding light. But I should think that farmers are about the only "children of the light" in this country. Most of the rest of us are quite happy to live in darkness and have much greater increases in income.
The fact is that although the bigger farmers are still getting increased production in order to keep up with inflation and tighter profits, the smaller farmers, and especially the smaller dairy farmers, are really feeling the pinch, and it is extremely difficult for them to know where to turn. They can no longer turn to pigs or poultry to help them out, because these are both intensely competitive and it needs big units to make a profit. They are really being squeezed to a point where, apart from their incomes, their production is bound to suffer. They feel that this is very hard when set against the great achievement of the last ten years of a 30 per cent. increase and a £250 million import saving. It seems that noble Lords opposite believe that virtue should be its own reward.
THE MINISTER WITHOUT PORTFOLIO (LORD CHAMPION): Hear, hear!
LORD NUGENT OF GUILDFORD: The noble Lord, Lord Champion, says "Hear, hear!" to that, but most people
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feel that there ought to be a little "something" in it as well for those who earn it. The fact is that all Parties are committed to seeing that farmers and farm workers get a fair living compared with the rest of the community, and I should be the first to credit noble Lords opposite with the good intention of wishing to redeem their own promises in this respect. But they are being frustrated by the mechanics of the price support system, which creates an annual conflict between the interests of farmers and the interests of taxpayers as represented by the Treasury. Far be it from me to discourage the Government from striking a blow for the taxpayer. After all, they have struck one or two against him in the past 21 months, with an extra £1,000 million of tax. But the suggestion of my Party is that it is now appropriate to change the agricultural support system in a way to which the noble Lord, Lord Henley, was referring earlier: to transfer the cost of support from the shoulders of the taxpayer to the shoulders of the consumer so that he would then pay an economic price for his food.
I should like to say why I feel the present system no longer serves a national need. It was a good system when we first introduced it some twelve or fourteen years ago. It was the right way to get rid of State trading and the rationing which we inherited and to get back to free markets and choice for the consumer, and at the same time to give the farmer security. I believe that succeeded well, despite the fact that I myself played a small part in it. It is somewhat ironical that Ministers in the Party opposite, who fought so hard to reject the system some twelve years ago, now fight equally hard to retain it. In fact, the noble Lord, Lord Champion, could almost pick up one of my speeches of those days and use it this afternoon, as I could pick up one of his to make my attack on him now—except that my limited dialectic would be far too weak to assist him to defend his case to-day. He will need his most persuasive powers to help him with his case to-day.
The fact is that conditions have changed fundamentally, and the major change is the very big increase in home production since that time; production is up by about 40 per cent. since we had the full Review in 1954. At the same time, the trend of world supplies

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is changing, and our national policy may also be changing. In 1954, at the time of the first full Review, we judged that a £250 million programme was as much as the Treasury and the taxpayer could stand. Production was not rising dramatically in those days, and it looked as if the system could be made to work within that limit. But production has risen steeply by some 40 per cent., and if the same rate of deficiency payment per unit of food were paid to-day as was paid then, the total cost to-day, if production costs went up pro rata, would be some £350 million per annum.
The Review of 1961–62, when the Argentine drought caused meat prices to collapse and the cost of the support rose to about £340 million, showed that that was more than public opinion was prepared to stand in the interests of giving security to farmers. Therefore, I should entirely agree with anybody who said that £350 million was too much. But the fact is that, as production goes on increasing, if workers are to get a fair return there is a built-in necessity, year by year, for the Treasury to squeeze tighter in order to keep the total cost at a reasonable level.
It would be true to say that two battles take place—and this applies to the past as well as to to-day. The first is between the N.F.U. and the Minister of Agriculture, and the second between the Minister of Agriculture and the Chancellor of the Exchequer. And, of course, the Chancellor always wins—give or take £10 million, but it is usually "take". The result is that with strongly rising production it is almost impossible today to give farmers the fair living we should like to see them have. For this reason I seriously suggest to your Lordships that we should now consider changing the system to one where the market price itself would give the farmer a fair return. This would be secured by a system of import levies. It was very interesting to recall, during the speech of the noble Baroness, Lady Elliot of Harwood, that in 1934 her late and distinguished husband introduced a similar system in the Wheat Act which worked very well in the 'thirties to give some stability in those very difficult years. This, in principle, is the system which we think should now be introduced.
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An example will illustrate how it would work. In regard to beef, for long periods last year market prices were high enough, so that no deficiency payments had to be paid in order to implement the guaranteed price. Under this system, the effect of the import levy would be to secure that the market price gave farmers the desired return. Each commodity would have to be treated differently, and the price of feeding-stuffs would rise, so that we should have to make special, higher price arrangements to deal with the livestock products. But it could be done, and there could be consultation with the industry in the transition period, because it would be most important to do this step by step over a period of five years in order to avoid any dislocation as we phase out deficiency payments and introduce the import levies. When the process is completed the final step would be to introduce a minimum import price for each commodity, to give adequate protection to the home market against any sudden influx. The Price Review would continue and also the production grants, but we should have got rid of this agonising annual confrontation between the interests of the farmers and the interests of the taxpayer. This would make it possible to give additional elbow room to see that farmers and farm workers got a fairer return in terms of what the rest of the community was getting.
The cost of the change was referred to by the noble Lord, Lord Henley, and he thought it would not be unduly large. We estimate that it would be of the order of £300 million per annum. Noble Lords opposite put it higher, at £400 million, but it is something of that order. It would in fact raise the cost of living by some 2 to 2½ per cent. If this were spread over a five-year transition period, that would raise the cost of living by 0·5 per cent. per annum. It is significant, but it would not be so enormous in the perspective of cost of living increases with which we have all become too familiar. Last year it was nearly 5 per cent. and the selective employment tax will be likely to raise the cost of living considerably more. It would also be a welcome relief to the Treasury to the extent of some £125 million. I personally deprecate any increase in the cost of living, and I regard

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it as significant, but it would be a justifiable change in the interests of what I believe to be a sound agricultural policy.
Secondly, may I turn to the problem of the right level of home production to combine with imports? I believe that we have reached a time when the balance of advantage of our traditional policy, of importing large quantities of cheap food, in the belief that this would assist us to export large quantities of manufactured goods which would pay for them, is beginning to change. In particular, the terms of trade changed in the 1960s. In the 1950s we had a period when it looked as if the traditional policy was paying, but now it appears that manufactures are harder to sell, that food is becoming less plentiful on world markets, and prices are rising against us. It is significant that six out of seven of our major food-supplying countries are running a trading surplus with us; that is to say, Britain is running a trading deficit with them. This indicates that the traditional policy may no longer be serving us well.
When one sets alongside that the fact, which has already been observed, that home production has achieved an efficiency which I would judge to be comparable with the best, certainly in the Northern hemisphere, it really seems that the balance of advantage may be in a positive policy of increased home production, rather than in trying to buy as large quantities of imported food. In this respect, I felt that the assessment in The National Plan was really not right where it said that it
"expects home agriculture to meet a major part of the additional demand expected by 1970".
As my noble friend Lady Elliot of Harwood said, this, in fact, represents a slowing down of the present rate of expansion compared with what has been happening in recent years. I feel that this is really a mistake in the present circumstances, and likely to operate against the national interest.
The treatment of agriculture under the selective employment tax also indicates that the Government do not rate very high the contribution which agriculture can make to the national economy, both in feeding the nation and in saving imports. I think that the scope for both is progressively increasing year by year. Therefore, I would advocate that we should re-
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negotiate treaties with the supplying countries. Great Britain will, of course, continue to be a massive importer of food and a very attractive market, but the time has come when we should renegotiate these treaties with a view to progressively increasing our own production and the share of the total food consumed here which comes from our own farms.
If I may say just one word about world supplies, which I think fortifies my argument, I would point out, first, that there is less coming on the market, and, secondly, that there are heavier demands upon it. Meat is, of course, by far the most exposed commodity, as it were. In pre-war days we used to buy some 80 per cent. of all the meat that came on to the world market. That figure has already fallen below 50 per cent., is falling still and, in my opinion, is likely to go on falling. Countries like the Western European countries—Italy, particularly—are heavily in the market; Japan is heavily in the market; and even the United States is now a heavy importer of meat. Wherever standards of living are rising, inevitably there is an increasing demand for meat; and the very small quantities that come onto world markets make our prospects progressively smaller. I think that we can expect large quantities of New Zealand lamb to continue to come here for many years, but I believe that within the next ten years large quantities of beef coming into this country will be the exception, rather than the rule. So our policy on our own farms ought to be directed to filling, as rapidly as we can, the gap of some 300,000 tons a year.
In this context, I welcome the White Paper's indication that more beef should come from our farms, and that a new subsidy will be provided for beef cows on lowland farms. But my own belief is that by far the best prospect for more beef is in the dairy herds. Even now there are some 750,000 calves wasted annually. Either they die from disease as soon as they are born, or they are slaughtered straight away. Of course, they are mostly from the Channel Islands breeds, but by better hygiene, and by better crossing with suitable beef bulls, most of these calves could be reared to make good beef which, without any increase in the dairy herd, would close a large part of the gap which is now filled by imported beef.

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I would commend to your Lordships the reverse of the old slogan, "More milk from less cows", turning it round and saying, "Less milk from more cows". I believe that this should now be the slogan on the dairy farm, with the balance of calving for beef, in order progressively to increase our beef supplies. I should have thought that the noble Lord, Lord Champion, and the Ministry of Agriculture, might well have devised some increased subsidy for calves from the dairy herds, sired by an approved beef bull, in order to stimulate just this. If we could get this happening to a greater extent on the small dairy farm, nothing would help more their hard-pressed incomes.
I would expect, also, that in the coming years we shall see dairy products following the trend of beef supplies on world markets. At present they are plentiful; we are able to get what we want, and prices are very reasonable. But as the standards of living rise in European and other countries there is bound to be an increasing demand for dairy products, as there is with meat. The fact is that the amount of money in the dairy industry now is not enough to finance these changes, and some further injection of money by future Reviews is needed. The extra penny last time boiled down to only about 0·18d. net to the dairy farmers, and it simply will not be enough to get the dairy farmers to do what we want them to do.
Similarly, cereals are plentiful at present, and the price is pretty reasonable. But the 10 million tons which are going to India this year are indicative of what is happening in the world to-day, and of what will increasingly happen. I feel great pleasure as I am sure your Lordships do, that this very large quantity of wheat is going to relieve the Indian famine. But this is an example of surpluses of food going to relieve hunger where a cash payment cannot be made. As we know that the world population is expected to double by the end of the century, we must anticipate that there will be literally hundreds of millions of hungry mouths waiting, and competing with us here in Britain for some of these large supplies of cereals which we now import into this country.
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The trend in the great cereal-producing countries, such as the United States and Canada, in regard to stocks indicates that they are progressively decreasing. However, I am glad to see that the acreage in the United States is now being increased by 15 per cent, to begin to meet this reduction. I am sure that, with more acreage and greater yields, there is great scope for more grain to be produced and this will continue to be so, because altogether, we import some 10 million tons of cereals annually, and I am sure we shall continue to import a very great deal. But I am also quite sure that it would be a sound policy for us to have here a more positive incentive for a growing acreage of cereals with a growing cereal harvest. These are cogent indications of the trend of world food supplies of which we should do well to take note, and against which we should consider our home agricultural policy. I believe that Britain's traditional advantage as the world's biggest food importer is dwindling, and that the balance of advantage between home supplies and imported supplies is changing as well.
Finally, I should like to make the point that agricultural policy should be reviewed to fit in with the general, national, economic policy in regard to the Government's intention of trying again for entry into the Common Market. I understand from a statement by the Foreign Secretary last month that it may be the intention of Her Majesty's Government to try again for entry into the E.E.C., and I look forward with great interest to the debate next week, when this subject will, of course, be fully covered. I hope that some statement may then be forthcoming from noble Lords opposite. But in this debate I wish to make only one point—a point that the noble Lord, Lord Henley, has already made. It is that the E.E.C. system of agricultural support is, broadly, on the lines of the system that I have been seeking to advocate to the House, and it aims, of course, at agricultural free trade within the E.E.C. by 1970. We have all watched the enormous efforts that the Six countries have made to proceed to integrate their national agricultural policies in preparation for this, and the sweat and sacrifice that they have endured in order to make that progress. I am sure I am right when I say that there

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cannot be the slightest chance of their changing to our system in order to facilitate our entry.
Therefore, if it is Her Majesty's Government's intention to try again for entry, I earnesty hope that the noble Lord, Lord Champion, when he replies to this debate, will be able to tell us that he and his right honourable colleagues will seriously look at this aspect of policy. Agricultural policy cannot be changed quickly. It takes a long time to make a change of this sort, and if it is to be made smoothly, without dislocation to the industry, then the transition must be carefully planned and thought out, and it cannot be done overnight. So I hope Ministers will be able to give us some enlightenment on this point, and that it will be enlightenment which will encourage us to think that they are prepared to revise the system.
May I conclude, my Lords, by summarising the three points that I have made to Her Majesty's Ministers—the three, as I believe, cogent reasons for the Government to review and revise their agricultural policy? The first is to give farmers a fair living; the second is to ensure that there is a sufficient food supply for the country both now and in the future, when world conditions, I believe, will tighten against us; and the third is to prepare the way for entry into the Common Market. I earnestly hope that Ministers will give us an encouraging answer.

MESSAGE FROM THE QUEEN: STATE OF EMERGENCY
3.54 p.m.
THE LORD PRIVY SEAL (THE EARL OF LONGFORD): My Lords, I have the honour to present a Message from the Queen, signed with her own hand. Her Majesty's Message is as follows:
"The Emergency Powers Act 1920, as amended by the Emergency Powers Act 1964, having enacted that if it appears to Her Majesty that there have occurred or are about to occur events of such a nature as to be calculated, by interfering with the supply and distribution of food, water, fuel or light, or with the means of locomotion, to
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deprive the community or any substantial proportion of the community of the essentials of life, Her Majesty may by Proclamation declare that a State of Emergency exists; and Her Majesty, having on the 23rd day of May, 1966, made in pursuance thereof a Proclamation declaring that the stoppage of work among merchant seamen did in her opinion constitute a State of Emergency within the meaning of the said Act of 1920 as so amended, which Proclamation does not remain in force for more than one month; and the continuance of the said stoppage of work having, in Her Majesty's opinion, constituted such a State of Emergency as aforesaid, Her Majesty has deemed it proper, by a Proclamation dated the 22nd day of June, 1966, and made in pursuance of the said Act of 1920 as so amended, to declare that a State of Emergency exists."

STATE OF EMERGENCY
THE EARL OF LONGFORD: My Lords, with permission, I should like to repeat a Statement which my right honourable friend the Prime Minister has just made in another place. His words were:
"I should like to make a Statement about the renewed Proclamation of Emergency under Section 1 of the Emergency Powers Act 1920.
"Under the powers conferred by the Act fresh Regulations have been made which, with one exception, renew the Regulations made on the 23rd of May. That exception, Regulation 21, provides an additional power to direct British airlines to carry essential passengers and goods.
"The House will be aware that under the Regulations"—
that is, the existing Regulations—
"the Government have today established port emergency committees. The functions which these committees will be authorised to exercise, on behalf of the Minister of Transport, will initially be confined to the power to regulate the admission of ships of any class or any specified ship to the ports. As I explained to the House on Monday, it has not been necessary as yet to use any of the other powers.

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"The House will, of course, have the opportunity early next week to debate the Proclamation of the State of Emergency and to give its approval to the Regulations. I hope on that occasion, if I catch your eye, Mr. Speaker, to make a fuller statement on all aspects of the dispute and the action which is being taken."
My Lords, that concludes the Prime Minister's Statement. I should add that, after consultation through the usual channels, it has been agreed that we in this House should consider these Regulations on Tuesday next, June 28.
LORD CARRINGTON: My Lords, I am obliged to the noble Earl the Leader of the House for having repeated this Statement. In the circumstances, I do not think that any of your Lordships would expect anything other than a renewal of the State of Emergency; and I, for one, noting that we shall be able to discuss this matter on Tuesday, will reserve anything I have to say until then.
LORD REA: My Lords, may I join in thanking the noble Earl the Leader of the House for repeating the Prime Minister's Statement? There is one small point I should like to ask him to elucidate, if he can. I am not quite clear—it may be my own stupidity—whether it is now intended to include Regulation 21 in the other Regulations, so that it may automatically be renewed when necessary. I gather that the other Regulations were necessary and have been automatically renewed. Do we have to take special steps in the case of Regulation 21?
THE EARL OF LONGFORD: No, my Lords. I should say that I am grateful to the noble Lords the Leader of the Opposition and the Leader of the Liberal Party. I would only say that this exception, Regulation 21, as it will now appear in the new Regulations, will provide an additional power.
LORD REA: And presumably it can be renewed equally easily with the other powers.
THE EARL OF LONGFORD: It will be on the same footing.
LORD REA: I am much obliged to the noble Earl.

AGRICULTURE
3.59 p.m.
Debate resumed.
LORD HILTON OF UPTON: My Lords, like other speakers in this debate I should like to thank the noble Baroness, Lady Elliot of Harwood, for initiating this debate to-day on what I regard as the most important, the largest and the oldest industry—an industry in which the noble Lady and I, with many other Members of your Lordships' House, have for many years had a very deep interest. It is not surprising that the noble Baroness should have this keen interest in agriculture, because your Lordships will remember that in that very difficult period between the two wars, when farmers really had their problems, her late husband was a very distinguished Minister of Agriculture.
I have been reminded of that in recent days because I have just read the autobiography of my noble friend Lord Williams of Barnburgh, entitled Digging for Victory. In this book he pays a very great compliment to Walter Elliot, describing him as a very great Minister of Agriculture during a very difficult period in the history of agriculture. I am sure that we are all sorry that my noble friend Lord Williams of Barnburgh is unable to he with us these days to take part in these debates. He is still regarded very highly among all those with a real interest in agriculture. The noble Baroness, of course, always speaks with deep knowledge on agricultural subjects, and this afternoon we have had another example of it. She also has practical experience of farming, and she puts her case with such charm that I am sure that if the proceedings of this House are televised in the future the noble Lady will be somewhere in the "Top Ten".
At this juncture I should like to welcome to the Opposition Front Bench my noble friend, Lord Nugent of Guildford. I say "my noble friend" deliberately, because it seems only a short time ago that he and I were doing battle in another place on agriculture. Although we argued vigorously we were always, and still remain, friends. I am sure that we all welcome the noble Lord to this House. Like many noble Lords opposite, he has a great wealth of experience and knowledge of agriculture, and we had an example of this just a few minutes ago.

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I congratulate the noble Lord on his maiden speech. He said that he would try to be non-controversial. He was never known as the most controversial of speakers on the other side of the House, but I think that this afternoon he did extremely well. I know that we shall all look forward with great pleasure to hearing the noble Lord address the House on future occasions.
My Lords, since the Motion we are discussing refers to the problems arising from the selective employment tax, I intend to refer briefly to this tax at the beginning of my speech. Noble Lords will recall that just before the Whitsun Recess as a result of a Question put by the noble Earl, Lord Ferrers, we had an interesting discussion on the effects on the agricultural industry of the selective employment tax. I regret that on that occasion I was unable to be present; but I read the Report of the debate with great interest. I do not wish to take up the time of the House unnecessarily by repeating the very adequate explanation of the policies of the Government which was then given by my noble friend Lord Champion, but since that time the Bill which is to give effect to the Government proposals has been introduced in another place, and noble Lords will be aware that it gives effect to the Government proposals that the tax paid by employers in agriculture should be refunded. I am sure that this is good news for all farmers.
It is the Government's intention that the payment of these refunds should be the responsibility in England and Wales of the Minister of Agriculture and in Scotland of the Secretary of State. The detailed arrangements for making these repayments are now being discussed with the National Farmers' Union and other appropriate organisations. It is also the intention of the Government, as indicated in the White Paper, that the first repayments, which will be in respect of the period from September 5 this year to January 1, 1967, should be made early in 1967, and that thereafter the repayments should be made at quarterly intervals. In due course, that Bill will come before this House, and noble Lords will then have the opportunity of considering in detail the proposals it contains in regard to agriculture.
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I myself am naturally very interested in an aspect of agriculture in which the noble Baroness, Lady Elliot of Harwood, also takes great interest, and to which she referred in her speech: the use of labour in agriculture and the methods of securing its most productive and rewarding use. Agriculture, as your Lordships know, is one of the industries with a key role in the Plan for faster economic growth. It is expected to contribute not only by increasing production to ease the pressure on our bill for food imports but also by increasing productivity more rapidly than the increase in production, so that the resources of manpower can be released from agriculture to other industries. The Plan therefore envisages that agriculture will have a smaller labour force—and I note that the noble Lady was worried about this aspect—but one that continues to become more productive. This implies, of course, a labour force that is more highly skilled and is able to understand and apply the developments which are continually being made in agricultural science and technology.
As regards the future size of the agricultural labour force, it was estimated in the Plan that the labour force would probably continue to fall about as fast as during the period 1960 to 1964. This would mean a reduction of some 140,000, in total, over the six years between 1964 and 1970, representing a decline of rather less than 25,000 a year, on average. I would point out that these estimates include not only the hired workers but also the farmers. The number of full-time farmers is estimated to have been falling at a rate of between 2,000 and 3,000 a year; but the provisions on farm amalgamations in the Agriculture Bill are designed to accelerate this trend towards fewer but larger farms. By encouraging the creation of farms which are large enough to permit the full use of the latest technological developments and which will give more scope for the abilities of farmers and staff, I believe that these incentives for amalgamations will do a great deal to accelerate the already high rate of increase in the productivity of the farm labour force.
So far, the release of manpower has proceeded rather faster than the rate envisaged in the Plan. In the first year, for instance, up to June, 1965, the agricultural census showed a decline of 33,000

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in the number of workers, and the agricultural census returns for March, 1966, show a further outflow. It would, however, be wrong to draw any conclusions from the figures for this relatively short period. The rate of outflow has fluctuated very considerably in the past. For instance, the census in June, 1956, showed a reduction of 34,000 in the number of workers over the previous twelve months; but in the next twelve months the decline was only 4,000. The rate of outflow depends on a variety of factors, such as the speed at which farmers reorganise their businesses and the availability and attractiveness of jobs outside agriculture. The rate of decline will probably continue to fluctuate in the future as it has done in the past.
This outflow of manpower from agriculture will help the economy generally, but nobody will deny that it brings with it problems of management and reorganisation for the agricultural industry. Various Government measures are in hand directed towards improving productivity. There are various matters to be considered from the point of view of the worker. Here I should like fully to endorse the tributes which have been paid by previous speakers to the efforts of the farm workers in the country over recent years. We are all very proud of the way in which they have worked and the efforts which they have made. The Agriculture Bill, for example, enlarges the extent and scope of grants for improvements to equipment and contains new incentives for investment in machinery. On many farms labour is, till wasted because of out-of-date buildings. Compared with the standards of our best farms, there is still a great deal of scope on others for securing a more productive and more economical use of labour by a carefully planned modernisation of the buildings and the installation of labour-saving equipment. And, with the continuing advance of science and technology, what is at present the most labour-saving and productive type of equipment on our best farms will no doubt before long be superseded by something that is even better.
Last October I remember that the noble Lady said that labour could be saved by improved equipment and mechanisation on cereal farms, pig farms and dairy farms, but that on hill farms it was impos-
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sible to mechanise the shepherds. I think, however, that the noble Lady will agree that by improving the land through draining, fencing and ditching, and by amalgamations and boundary adjustments, all of which are covered by the grant provisions in the Agriculture Bill, it is possible to increase the stock which can be carried on a given area of land and managed by a given number of shepherds. Although I make no forecasts, I think it not beyond the bounds of possibility that science and technology will surprise us in the field of hill farming, as in other aspects of farming.
We read in the newspapers about new methods of travelling across country. Will any of them eventually be applied to hill farming? We read about the housing of sheep. How far is this an economic and practical proposition? We know that new techniques have made possible a remarkable increase in productivity in the recent past. I think it not unreasonable to believe that in the future techniques still undeveloped will contribute to the more productive and economic use of manpower in agriculture.
I should like now to say a word about the position of the agricultural worker. Meanwhile the industry has to see that it has enough workers under present conditions. This means that the industry must look to its attractiveness to potential recruits in the face of competition, often acute competition, from other industries. Rates of wages are, of course, a question for the Agricultural Wages Board, but it must be a matter for satisfaction that the two sides, the farmers' and workers' representatives, are coming to grips with the subject of a wages structure in agriculture. This is a difficult problem, but it is very much to be hoped that the Agricultural Wages Board will be able to work out a practicable and acceptable scheme. I am sure that other conditions of employment are being studied by the industry. So far as the Government are concerned, we have given attention to the question of sick pay, and the Agriculture Bill before Parliament includes a provision empowering the Agricultural Wages Board to fix minimum rates of sick pay. This I am sure is long overdue and represents a move in the right direction.
Training and education must play a key role in the situation in which the

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agricultural industry is now placed. The keenness which both farmers and farm workers have shown to get an Agricultural Training Board established is very much to be praised, and the Ministry of Labour are of course very ready to play their part in setting up the machinery. They are now doing the preparatory work for the setting up of the Board. It is hardly necessary to say that the Board's task will be a big one, and it is bound to take some time to survey the industry's needs and work out suitable training arrangements. But the will to make progress is undoubtedly there. Training cannot be divorced from education, and it is increasingly recognised that the two must be integrated. It is very opportune, therefore, that the Report of the Pilkington Committee on Agricultural Education has come to hand. This Report is of considerable assistance in defining the needs of the industry at different levels and proposing a progressive system of courses of instruction linked with practical training. The Report will need careful study by the industry and the educational bodies acting together.
My Lords, I have concentrated on one aspect of agricultural policy, but it is, I think, a particularly important one. It is, after all, only by improvements in the utilisation of manpower and by increasing output per man that we can continue to raise income per man and, at the same time, improve our social services and play our part in world affairs. In recent years British agriculture has a splendid record in increasing food production. Now we must have even greater production through greater productivity, and in view of the different rates of growth of demand for the products of different industries, to say nothing of other factors, the increase in productivity must be accompanied by some redeployment of our manpower resources. This redeployment which agriculture is called on to make is of the same order as that which has been achieved in recent years.
I am confident that, with proper attention to the manpower in this great industry, to the improvement and reward of its skill, to the conditions and method of work, and to the equipment at its disposal, the agricultural industry will indeed play a key role in the achievement
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of faster economic growth, and will make a key contribution to the solution of our balance-of-payments difficulties.
4.17 p.m.
LORD NETHERTHORPE: My Lords, may I from these Benches add to the congratulations to the noble Lord, Lord Nugent of Guildford, on his maiden speech? It has been my privilege to know the noble Lord for many years, having worked alongside him, I can say shoulder to shoulder, and then sat on the opposite side of the table to him. Whatever my experience of him, I have always found his knowledge profound, his approach objective and the discharge of his responsibilities impeccably commendable.
I should like also to add my thanks to the noble Baroness, Lady Elliot of Harwood, for instigating this debate, and to congratulate the noble Lady on the masterly manner in which the subject has been introduced. I was privileged to know the noble Lady's late husband, not only in his role as a Minister of Agriculture but also, I am proud to say, as a personal friend. We certainly owe him much for his contribution to the promotion of positive agricultural legislation between the two wars—the 1933 Agricultural Marketing (No. 2) Act and the Act to which the noble Lord, Lord Nugent of Guildford, referred, the Wheat Act. I am also mindful that his great knowledge and love of the countryside prompted him constantly to be seeking ways of furthering the best interests of the nation through a progressive and virile agricultural industry. The noble Baroness, however, speaks not only with the benefit of having been the wife of a great agricultural statesman, but in her own right as herself an operator with a profound knowledge of the countryside in general and of hill farming in particular.
For my own part, I must at the outset declare my interest, though this is no longer as the leader of the farmers but as the chairman of a company manufacturing and supplying farm requisites. When first I assumed the position of chairman of that company, after relinquishing active responsibility within the farmers' organisation, a Member postulated the question in the other place as to whether I should prove to be a Trojan horse or a robber baron. I

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trust that in the event I have been neither. Rather have I sought to ensure that the supplying industry for which I am responsible makes a contribution to the community of interest that is enshrined in all who collectively constitute the agricultural industry.
The subject of agriculture should always be topical, but it is never more so than when, in either war or peace, the lifeline of our shipping imperils the supply of food to supplement our own resources or the transport outward of goods to pay for such imports as are within our capacity to purchase. In the ten years to 1964–65, the expansion of over one-third in home food production is estimated by the Government to have yielded a net import saving to this country, as the noble Baroness mentioned, worth about £250 million, valued at import prices. If taken at the current date instead of 1964–65, then the saving would be even greater.
The net output of British agriculture has indeed more than doubled compared with pre-war, and during the past quarter of a century we have witnessed the greatest rise in productivity in the industry's history. Yet even to-day we produce only half of our food for a population of some 54 million, as compared with one-third of our food pre-war for about 48 million people. A century ago, admittedly for a smaller population—24 million—we were 80 per cent. self-sufficient. I believe that as we approach the end of the 20th century, with our population growing to 75 million, we shall have to depend on our farmers for a much greater proportion of our food than we do to-day.
I am quite convinced that our excessive dependence on imports, greater relatively than in any other major country in the world, is one of the fundamental causes of our failure to achieve steady economic growth. Instead, we have had periodic balance-of-payments crises and "Stop-and-Go" policies, creating a semi-permanent state of economic insecurity and a sense of living from hand to mouth. The simple economic facts facing this country to-day are that we are living beyond our means. Our spending is too high, our earnings too low, our credit precarious and our standard of living higher than certainly economic prudence would dictate.
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The national rate of advance of individual earnings in aggregate has outstripped the rate of improvement in national productivity. For so long as this situation persists, so will the decline in our solvency proceed apace and the threat to our standard of living increase. Improvement in national productivity is geared to the most effective use of our total national resources. The only natural resources we can boast are our very limitedminerals—and by their very nature the extractive industries are exploiting a declining asset—and the land of these Islands, which, through encroachment is a diminishing productive asset; but, even so, its productive potential has by no means been achieved.
How timely, then, is the discovery of natural gas, which at any rate promises to be a much-needed supplement to our otherwise limited natural resources—though we cannot afford to mortgage that asset before we have even harnessed it. Our major national resource is, of course, our manpower, representing, as it does, an accumulation of skills, both technical and artisan, that can transform imported raw materials by incorporating those skills into an added value that can earn the necessary foreign exchange to pay for the food we need to import and the raw materials needed to keep the wheels of industry turning. True, our professional acumen, expressed in the form of services, also constitutes an invisible earning that makes an invaluable contribution to our economy. Imports substitution, whether it be food or processed intermediate raw materials for manufacturing industry, is critically important—indeed, I say, equally as important as battling for exports.
In the National Plan, to which the noble Baroness and other noble Lords have referred, the agricultural industry has shown that, afforded the resources, it could increase the volume of net output by about one quarter in the period, say, to 1970; and meet virtually the whole of the additional demand for food resulting from the growth in our population and from higher incomes. Since last September, when the Plan was published, events have shown the need for agriculture to be encouraged to achieve the maximum, rather than merely "a major part", as indicated by the Government in their selective expansion programme. The

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1966 Review determinations by themselves will not enable the industry to earn a reasonable enough return and thereby to find resources on the scale required to enable it to carry out the additional investment, which, in tenants' capital alone, may amount to some £800 million over the six years covered by the Plan. The long-term assurances contained in paragraphs 9 and 64 of the White Paper must, of course, play a vital part—indeed, their importance has been acknowledged by both the Prime Minister and the Minister of Agriculture. In the talks with the National Farmers' Unions, it is vital that these assurances should be interpreted in terms which will be meaningful to the farmers, who will have to find much of the additional capital out of their own resources.
For virtually the first time in official thinking, the Plan clearly establishes the close link between the expansion of beef and the expansion of milk, and, if import saving is to be maximised, the fact that the expansion of meat products generally and milk must be based very largely on additional supplies of home-grown cereals for animal feed. We cannot achieve the beef target unless the milk producer, in building up his herd to supply the extra calves for beef, is to be specifically assured that in so doing he will not be severely diluting the milk price. Unless this problem is effectively resolved, beef is likely to be scarce for many years to come, far beyond 1970; and, indeed, current progress justifies our immediate concern. How well, incidentally, all this illustrates the need to keep a balance in the development of our agricultural policy and to avoid a separate commodity-by-commodity approach, unrelated to the overall pattern!
The population explosion is already breaking on us, but its full impact can conjure up an horrific spectacle that would have made Malthus a pale shadow of any modem counterpart. Indeed, Russia's contract, announced only yesterday, for 3 million tons of wheat a year for three years from Canada, and the general run-down of world stocks of grain must give point to this contention. It therefore behoves us to ensure that the land of this country is conserved to the utmost, and that its production potential, whilst fully exploited, is nevertheless
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so used that its continuing productivity and fertility is in no way impaired.
The most effective use of our great national asset, the land, is dependent on long-term stability—stable markets and stable prices—indeed, an exploitation of such stability as will invite, inspire and justify an investment programme, in both capital and trained manpower, as will make possible the greatest contribution to a buoyant national economy. Progressive efficiency involves investment not only in farm buildings, drainage, farm equipment and the building up of our herds, but also, and I believe equally important, in the industries that manufacture and supply farm requisites in order to enable them to employ the most advanced techniques based on objective applied research, thereby aiding the farmer and grower to produce the quantity and quality of the food needs of our people at the lowest price economically possible.
Over the years since the end of the Second World War successive Governments have sought to inject capital into the agricultural industry through a variety of schemes, the benefit of which is demonstrable. Even so, by far the greatest proportion of capital for development has still to be found by the farmer out of his own earnings, or from sources of borrowing that are contingent upon his credit worthiness and, therefore, the viability of his farming enterprise. In the context of capital availability, while it is gratifying to know that the farmer is to receive a direct pay-back of the selective employment tax, albeit with no premium, even so, as the noble Baroness and others have said, it means that the availability of farmers' working capital is still eroded to the extent of providing the Government with an interest-free loan for the duration between collection and reimbursement. I am therefore encouraged by what the noble Lord, Lord Hilton of Upton, has said, and the assurance that he gave about the rapidity of pay-back. This, however, is a further burden on an industry with already too little capital resources to invest in farm improvements.
Just as on the international scene, where the vacillation of commodity prices can nullify, overnight almost, the value of technical aid to a developing country,

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so on the national scene instability of prices and of markets can undermine the confidence on which investment and progress is dependent. A sequence of vigorous expansion followed by a retrenchment borne out of insecurity breeds curtailed production. This is conducive neither to sound husbandry or progressive efficiency, nor to the best use of national resources.
By all the criteria enunciated in the productivity, prices and incomes philosophy, agriculture has earned a better recognition than its experience reveals. Whether it be output per man, per acre or per quantum of all inputs, the record of the industry bears comparison with that of many countries of the world, and certainly stands high in the national league table of all British industry. For the sake of the noble Lord, Lord Henley, I can quote figures from the statistics of the Food and Agriculture Organisation. Using figures of gross output available from their studies, the following international comparisons may be of interest. One man engaged in agriculture in the United Kingdom produces as much as four men do in Italy, or Austria; 2¼ to 2½ men in France or Germany, and 1¼ to 1½ men even in Holland or Denmark. And one man produces about the same as a man in Belgium, and about three-quarters of the amount produced by one man in the United States of America—but we must remember, in the case of America, the conditions under which they are prepared to work.
Our system of price guarantees, based as it is on the Agriculture Acts of 1947 and 1957, has proved, I believe, flexible enough to be adapted to varying degrees of food availability and national and international trade policies as they change from time to time. The reward for the capital, labour and management in agriculture has never kept pace either with the reduction in the value of money or with the earnings of the other sectors of the community. Yet, on the basis of improving productivity and the contribution to the balance of payments, agriculture has a worthy record to boast. The element in the farm price guarantee structure that seems to be open to question is the extent to which the industry's efficiency factor—capable as it is of reasonable evaluation—is shared between the three
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parties involved: the Treasury, the consumer and the farmer.
Just because the present form of "deficiency payment" price support happens, by comparison, to afford benefit to the nation at large, and to the consumer in particular, it seems invidious that the farmer's collective share of his own increased productivity is always threatened, and indeed often eroded, at annual Price Reviews, which inevitably leads to acrimonious argument. It is vital that in the Price Reviews to come a much bigger share of the productivity factor should be retained by the industry. Sustained under-recoupment in a period of general inflation means not only that farmers earn too low a return, but also that the industry is deprived of resources for further investment. It is a remarkable fact that since 1961–62, though the industry's output has increased by 20 per cent., the cost of Exchequer support has fallen by about £100 million, or 30 per cent., and in real terms by even more. Against this record, successive Governments have followed an unwarrantably parsimonious financial policy towards the industry. I am sure that this subject deserves, and I hope is getting, an objective study to ensure an equitable benefit to a progressive and enterprising industry.
As regards the form of agricultural support, may I say that, while from the industrial viewpoint I can see potential advantages in the long term in our closer integration with a larger European Economic Community, I am nevertheless anxious lest we should be over-ready to dismantle unilaterally a proven basis for pursuing a coherent and integrated agricultural policy that has the inbuilt prerequisites for a stable British agriculture before we are satisfied that what takes its place can accord the same prospects of stability. It would be just as stupid to do so as it would be to prosecute a policy of unilateral disarmament. A common agricultural policy for an enlarged European Economic Community, including the United Kingdom, must take account of our basic needs and interests, just as the common agricultural policy at present evolving rather painfully and slowly for the Six themselves represents a compromise reflecting their essential interests.
Agriculture has a proud record of ingenuity and adaptation. The present

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generation of farmers is fully seized of the need to harness the results of research and development. A good farmer is constantly alert to the advantage of learning from demonstration and example, not only over the fence from his neighbours, but where-ever the National Agricultural Advisory Service experimental husbandry farms or the technical advisers of the commercial firms have something to teach him. It is in this context that the development of Stoneleigh Abbey, the site leased by the Royal Agricultural Society of England as a national agricultural centre, is so commendable. Here there exists, and is developing, a focal point where the latest advances in production techniques can be demonstrated, be they in feeding systems, pesticides, fertilisers or general farm equipment. The active co-operation of the Ministry of Agriculture and of commercial firms in this endeavour is, in my view, both timely and welcome, and calculated to give practical effect to the worthy motto of the Royal Agricultural Society of England "Practice with Science ".
My Lords, I am not despondent about the future of this country, despite the present setbacks and the unhappy portents of continuing inflation. If only we could, as a nation, earn more overseas by hard work, technological initiative, creative enterprise and vigorous salesmanship, and spend less overseas by positive encouragement to ensure a reinvigorated agriculture capable of effective import substitution, then a Britain conscious of its challenge could, I am certain, first, restore its economic balance; secondly, regain its dignity, and, thirdly, contribute its wise judgment to a world that needs all three.
4.42 p.m.
THE EARL OF DUNDEE: My Lords, may I add my warmest congratulations to my noble friend Lord Nugent of Guildford on his admirable maiden speech? I think we have seldom heard a speech in which so much wisdom and experience was expressed in so pleasant a manner and in so short a time. That is what we should have expected of anyone with my noble friend's record of office and of service to the country behind him. We all look forward to hearing him very often again.
My noble friend's speech is the only speech on behalf of the Front Opposition Bench which will be made in this debate,
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but since my noble friend Lady Elliot of Harwood had managed to collect only one other supporter from Scotland, I thought that perhaps my noble friend Lord Balerno might allow me to share with him that great privilege for a few minutes.
I hope that the Government will pay very careful attention to the powerful case which was put by my noble friend Lady Elliot of Harwood and by other noble Lords who followed her. I would particularly urge them to consider the impressive record of the agricultural industry in increasing its productivity, in its contribution to our balance of payments, and in the increase of efficiency which has continued uninterrupted since the end of the war. In the last ten years United Kingdom agriculture has increased its total output by one-third; and since, at the same time, the number of men employed in it has been reduced by something like one quarter, that means that the amount produced by each man has more than doubled. I think this is the only industry in the country in which a continuous and effective prices and incomes policy has always been applied since the war—often, in the opinion of those engaged in the industry, rather a mean and severe one. With only one exception, I think that every Annual Price Review since the war has given an award which was substantially less than the farmer's increase in costs, so that practically every time the farmer has been expected to make up the difference by increased efficiency.
As my noble friend Lady Elliot of Harwood has so clearly pointed out, all the prices he has to pay have been steadily rising and all his materials have gone up, while the prices which he receives have remained constant. The increase in agricultural incomes has never been inflationary because it has always been less than the increased contribution which has been made by the industry to our national wealth and to our balance of payments. And there has certainly been no question of any hoarding of labour. On the contrary, the industry has reduced its labour supply more quickly than anybody else.
I think your Lordships can well understand that an industry with a record like this, when it was suddenly told a month ago that it would have to pay

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an additional tax of £65 a year on every fully-employed man, while manufacturing industries whose record was very much worse were going to get a premium of 7s. 6d. a week on every male employee, should have felt like a man of rather modest means whose pocket book and watch have just been stolen. When the pocket book is given back by the thief, although the victim may feel that he does not owe any gratitude for that, he may experience some considerable sense of relief—and certainly the agriculture industry has been relieved by the decision to reverse this tax—but he still has not been given back his watch. He still has to pay to the Government an interest-free loan of £65 on every man he employs from the beginning of September until, I believe, the following April. My noble friend has already given your Lordships the figures.
THE MINISTER WITHOUT PORTFOLIO (LORD CHAMPION): My Lords, did I understand the noble Earl to say £65 in the short period of three months?
THE EARL OF DUNDEE: It is more than three months. I said that farmers have to start paying in September and they get it back the following April, six or seven months later. Is that not right? I think it is. That is what I understand is now proposed. On that sum they have to pay bank overdraft interest, as my noble friend has pointed out—and nearly every farmer now, except a very few, is farming on an overdraft. My noble friend gave the figures. Overdrafts have gone up from £200 million ten years ago to more than £500 million now. It is not the fault of the banks. I believe they are playing the part of a reluctant Shylock, but they are effective Shylocks all the same. In Scotland, the bank overdraft interest rate on unsecured overdraft is 2 per cent. above bank rate, and when the bank rate was 7 per cent. the farmer was paying an overdraft interest rate of 9 per cent. on his bank overdraft. Now the bank rate is down to 6 per cent., he is still paying 8 per cent., and he has still to pay at that rate between the time at which this tax is collected and the time, more than half a year later, when it is refunded.
LORD CHAMPION: My Lords, I think the noble Earl ought to correct the figure of £65. After all, as he says—and he is right—this will be held for some three months.
THE EARL OF DUNDEE: Six months.
LORD CHAMPION: Three months in the case of each man. This is only the initial period, otherwise it will be for a period of three months. Of course that could not possibly be £65. For a period of thirteen weeks it would be £16 5s. 0d. The noble Earl is rather exaggerating it and making it appear much worse than it would be. Indeed, in the case of this money, which he regards as a loan, this is an increasing figure over the whole thirteen weeks so that the full impact of the loan would be for the tiny period at the end of thirteen weeks.
THE EARL OF DUNDEE: I am glad to hear that it is not as bad as I thought. But the farmer has to pay quite a lot before he gets it back.
LORD CHAMPION: And it will be taken care of in the Price Review.
THE EARL OF DUNDEE: That was said at the beginning, but I am afraid it did not carry much conviction, in view of our experience over the last two years.
Why should there be this distinction between an industry with a record like agriculture, with its service to our economy, and other industries which are getting a premium of 7s. 6d. per week in respect of every man they employ? I am sure the Government would not suggest that an Aberdeen Angus prize bull sent at a large price to South America is a less useful export than a number of motor cars, and I am sure they would not suggest that the £1,700 million worth of food for home consumption which is estimated to be produced next year is a less valuable contribution to our balance of payments and to our economy than the newspapers. I hope they would not argue that many of these industries which will receive a premium are not hoarding labour and are not giving increases in wages and raising their prices to an inflationary extent, none of which agriculture has ever done.
The noble Lord, Lord Henley, rightly said that agriculture does not want to be classified as a manufacturing industry because it is not one, and because being classified as a manufacturing industry might involve paying rates, and as the noble Lord pointed out it would not be in the general interest that a raw material such as land should be rated. But why

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should there be this discrimination in favour of many manufacturing industries which are inflationary, and against agriculture, which is not? So long as that continues I think we are bound to expect resentment among the farming community when they see that they are making this payment and only getting it refunded a little later on, while other industries, which are hoarding labour and in which restrictive practices still remain uncorrected, are receiving the premium.
The growth of farming output in Scotland is not so great as in the United Kingdom as a whole. If your Lordships have read the Government's publication on the Scottish economy you will have seen that the increase in Scottish agricultural net output in the last ten years is only 15 per cent., which I think is less than half the United Kingdom increase, and that the increase in productivity is only 40 per cent. That again is less than half although, as this publication rightly adds, that 40 per cent. achieved by Scottish agriculture is a rate which exceeds the average for all the industry in the United Kingdom.
What is the reason for the difference? It is not that the Scottish farmer is less efficient or that the Scottish worker does not work so hard or so skilfully. There are many reasons. The principal ones are that the average quality of the soil in Scotland is not so rich, the climate on the whole is very much more severe, and the distance from some of the most lucrative markets in the United Kingdom is much greater. The Scottish farmers always feel, with some reason, that they get the rough end of every Price Review. I think they always have the feeling when the Price Review is settled that their incomes are going to be more severely restricted than those of farmers in other parts of the United Kingdom, and I think they will be particularly hard hit by the decision of the Government to abolish the existing investment allowances and to substitute their new scheme of investment grants.
I think your Lordships were probably touched by the Lady Elliot of Harwood's account of her not very successful shopping tour yesterday morning at the Highland Show, saying to herself all the time, "How much is that combine in the window? I do hope it is not for sale, because I cannot afford to buy it". If
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I understand the Government's proposals rightly, on fixed agricultural equipment the existing 15 per cent. investment allowance is going to be replaced by a grant of 10 per cent., and the 30 per cent. investment allowance on machinery, tractors, combine harvesters and other vehicles is going to be replaced by a grant of 10 per cent., while the improvement grant, as the noble Baroness, Lady Elliot of Harwood, has mentioned, is being reduced from 33⅓ per cent. to 25 per cent. I think it is a great pity that at a time when we need so much—and I think the need may become more urgent a great deal sooner than we expect—to have a larger increase of home-produced food in Great Britain the investment cuts should come.
I would make one practical suggestion to the Government, drawn from an analogy with their industrial investment policy. That, as your Lordships know, we also deplore because it is much less favourable to industry than the investment allowances which have prevailed up to now, and even in the development areas their proposals are less favourable to new industries than those applied by Mr. Maudling in his 1963 Budget, with his one year depreciation. But they have at least maintained the principle of giving preference to the development areas. The industrial investment grant is to be 40 per cent. instead of 20 per cent., and I would put this suggestion to the Government because they are very keen on the idea of regional policy, where one deals differently with different regions. I suggest that they should act on the same principle with regard to agriculture. As the whole of Scotland is now a development area, would it not be consistent with the Government's general policy to double the investment grants in Scotland, from 10 per cent. to 20 per cent.? I do not think it would be resented elsewhere and I think it would do a great amount of practical good.
I am not going to say anything on the positive policy which has been so fully and adequately put by my noble friend Lord Nugent of Guildford and supported by noble Lords on this side of the House, although it may possibly come up again next week in the debate on the Common Market. I have confined myself to present policy, which in our view is becoming increasingly inadequate

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for the needs of this country. But so long as that policy is continued we will do our best, while reserving our right to criticise its administration and its inadequacy, to help the Government to improve it and to administer it to the general advantage, and I do most earnestly beg the Government to pay particular attention to what has been said and will be said in this debate by so many of your Lordships on all sides of the House who have such an unrivalled knowledge of the subject.
5.2 p.m.
LORD ARWYN: My Lords, we are indebted to the noble Baroness, Lady Elliot of Harwood, for one more opportunity to discuss agriculture, which opportunity the noble Lord, Lord Nugent of Guildford, has seized so well in making a very comprehensive speech on this complicated subject. It is some fifteen months since I took part in a debate on the subject in your Lordships' House, and in reading up in the OFFICIAL REPORT the debate on March 31 last year one finds that most if not all of the same conditions still exist, except for the incidence of selective employment tax and the effect of this year's Price Review.
Enough has been said about the merits or demerits of the new tax. I should like to deal very briefly with one item of the Price Review; that is, the reduction in the subsidy for agricultural lime spreading. I must once more declare my interest. I am connected with a group having substantial interests in the quarrying and spreading of agricultural lime. We are very much concerned about the long-term policy of the agricultural lime producing industry. It is the duty of directors to safeguard the interests of shareholders, and if an investment proves to be unprofitable or likely to be unprofitable in the foreseeable future it is the duty of the board to reduce its commitments as quickly as possible and to re-invest the capital released to greater advantage; in other words, pull out as quickly as possible. So, on the one hand we have a Government Department with a duty to perform in reducing expenditure, and on the other hand boards of companies with a duty to perform as trustees of shareholders' money. It is therefore obvious that, before lime producers can plan for the supply of farmers'
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needs, they have to consider the profitability of their capital investment.
The small producer can adjust his capital investment programme to the Annual Price Review with a far higher degree of flexibility than we large producers can. The small producer is unable to give anything like the technical service which is required and expected of the large producer. He has no expensive research laboratories to maintain or highly trained field technologists working with mobile laboratories always at the farmer's service to programme a series of tests of every field on his farm and to rectify deficiencies in trace minerals so vital in increasing productivity. I do not know whether sufficient has been mentioned in your Lordships' House about this very vital factor. We have been engaged for some ten years on research work on the effects of deficiencies of trace minerals, and they are bewildering.
It is therefore reasonable for lime producers, both large and small, to seek the maximum co-operation from the Ministry. For instance, we need to be told what the Government's views are on the effect of the subsidy reduction on the level of consumption. The farmer has been encouraged by lime subsidies to give his land adequate dressings of lime for nearly thirty years. If the subsidies are to be continually reduced (this year's reduction was nearly 20 per cent.), then the time might soon come when the subsidy disappears entirely. The reduction in the subsidy this year means a loss of £1¾million to the farmers. The increased costs of the producer and spreader of lime preclude any reduction in prices; the profit margins are too thin. So the farmer has to stand the whole cost if he is to continue spreading lime. The producers of lime are fully aware of the national economic difficulties and appreciate the need for economies, but it is difficult to understand why the lime subsidies were reduced by nearly 20 per cent. in this year when fertiliser subsidies remained unchanged and the overall agricultural support increased by over £20 million—that is the difference between the £243 million in 1965–66 and the £264 million in 1966–67.
In 1958 there was in our farm lands an estimated deficiency of calcium carbonate of 30 million tons. The

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annual tonnages being spread average around 6½, million tons. This is practically all maintenance tonnage. Very little, if any, dent is being made in the 30 million tons deficiency on the very sour land which we need to bring into top production. This is land which is in need of very heavy dressing before it can be made really productive. If the subsidies on agricultural lime spreading are to be reduced step by step and finally withdrawn, there could be a danger that lime spreading would almost cease altogether, especially when the farmer is undergoing a squeeze on his capital expenditure from other causes; he may decide to drop liming for a year or two.
The effect of this, if widespread, would mean severe losses to lime producers. Their slender margins between break-even and profit would disappear. They would no longer be able to support their programmes of research and would have to cut down on their technical services to farmers. The need, therefore, for the closest possible liaison between producers and the Ministry is extremely important. There should be every encouragement for one to help the other. A decisive long-term policy would enable producers and farmers to take every advantage of long-term budgeting.
I think I have said enough on the subject of lime spreading, but before I sit down I should like to have a little jab at the farmers. When we travel by train or car we too often see fields which are a disgrace to the farming industry. I am referring to grassland particularly, when it is covered with buttercups and daisies as well as excellent specimens of Scotland's national emblem. Why the Scots should choose a weed which is neither a fruit, a flower nor a vegetable as their national emblem I do not know, but we do know that the National Agricultural Advisory Service is doing its best to limit the thistles as well as those friends of our childhood, buttercups and daisies, and other hazards to maximum grass production.
The Government Advisory Service, their research institutes and those of commercial organisations, have developed a range of herbicides and methods of control which have proved conclusively that, given proper treatment, such fields as I have described can increase grass yield
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by 40 per cent. These are not wild figures; we have ample proof in our laboratories and in our field research. Between the N.A.A.S. and the knowledge made available from the top-rank commercial organizations, the farmer has on tap far more free first-class technical expertise than any other industry. My squabbles with farmers are all because of their reluctance to admit that they are not technically self-sufficient and their reluctance to go outside the range of their own experience. We all have similar failings, and they are more understandable in the case of farmers who so often have to tight alone and be dependent on their own resources.
My Lords, the future of farming in this country is more secure than that of any other industry, provided we realise that it must kick off all its remaining shackles. The future farmer will be one of the highest skilled and most versatile of all the professions, and the most important. Our agricultural research centres must be given greater priority. Our scientists have a world-wide reputation, but there are still more worlds to conquer. When one sees the effect of long-term research one is astonished at what can lie before us. With the new advances in protein production, and maximum cultivation, it may not be so impossible as it appears to-day for us to feed ourselves. That should be the long-term aim of our farmers, particularly those of the future. I hope that we shall still call them farmers rather than agronomists. We lead the world, except in one case, in agricultural efficiency per man in productivity, but we are still dependent on imports. It is in closing this gap that our opportunity lies.
5.13 p.m.
VISCOUNT BRIDGEMAN: My Lords, I hope that the noble Lord, Lord Arwyn, will excuse me if I do not follow him in what he has said to us just now, except to say that his description of the treatment of the agricultural lime industry seems to me to be a good example of the tendency of the Government to say one thing about agriculture and to do another; and for that we are grateful to the noble Lord. It seems to me that at the moment there are two major opportunities in front of the agricultural industry. One is to get the economic structure, the price structure, the support system

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and all that, right in relation to the needs of the present time, which are different from those of ten years ago. I am not going to say a great deal about that aspect, because the subject has been fully covered by the speeches of my noble friend Lord Nugent of Guildford (he has left the Chamber, but I should like to congratulate him on his maiden speech), and of the noble Lord, Lord Netherthorpe. But my second point is the need to get the manpower position and the wages structure right. I am going to talk about that and follow, if I may, a number of the things that were said by the noble Lord, Lord Hilton of Upton, and perhaps succeed in getting some of the things he said into rather sharper focus than he did.
This opportunity has arisen largely because of the publication of two excellent Reports. One was the Report of the Wise Committee on Smallholdings, sponsored by the Ministry of Agriculture, in a blue cover; and the other was the Pilkington Report of the Advisory Committee on Agricultural. Education, sponsored by the Department of Education and Science, in a green cover. Both Reports, to my mind, are well worth the time spent in reading them. In my own view, they are Reports which should be acted upon by Her Majesty's Government without delay. They would be better acted on, again in my own view, if they are taken together, because they attack this important subject from two different directions, and on many points they seem to me to meet in the middle. What struck me when I read them was that they do a great deal to blow away, perhaps with the wind of change, a great deal of confused thinking which has bedevilled this side of agricultural policy for a long time past—in fact, for as long as I can remember. The Wise Report does something which ought to have been done a long time ago. It draws into the light of day the attitude of the Ministry of Agriculture towards smallholdings. For years, that has been completely schizophrenic.
If your Lordships take your minds back to the start of the farm improvement grant you will remember that the Ministry decided to refuse grants for smallholdings which in their opinion were too small to he viable. In doing that, I think they were right. It was never too easy to find out what was their yardstick;
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but trial and error proved it to be somewhere around 20 acres. That is what one department of the Ministry did. But the other one, which was responsible for statutory smallholdings, went on subsidising the statutory smallholdings, notwithstanding the fact that, when seen on the ground, they exactly resembled the private enterprise ones. That distinction cannot have been right. Either it was right to spend public money on a smallholding of a certain size, whether in farm improvement grants or a subsidy of statutory smallholdings, or it was wrong. I personally think it was wrong to go on with the same policy of statutory smallholdings for anything like so long as the Ministry have done. Therefore, I think that the Wise Report is right in its approach to this problem.
That Report begins with what seems to me a masterly history of the whole of the political history of smallholdings—the three acres and a cow, and all the rest of it. By doing so, it has shown up how much the previous thinking on statutory smallholdings or smallholdings in general is quite irrelevant to agricultural economics of to-day, because it is largely bound up with old-fashioned notions of a peasant economy—the sort of peasant economy which some people may remember the more starry-eyed of the Americans thought it right to impose on defeated Germany after the Second World War.
So the Wise Report takes the line, broadly speaking, that the only justification for statutory smallholdings is that they provide a farming ladder, if indeed those smallholdings are large enough to give the modern farmer experience to start on the first rung of that ladder: because as someone has said (I think it was the noble Lord, Lord Hilton of Upton) to be viable the size of farms is getting bigger and bigger, and therefore the jump from the smallholding to the farming ladder is getting higher and higher. But let us think for a moment of that farming ladder, and see whether any of it is straight thinking, or whether some of it is wishful thinking.
In farming, as in any other business, there is always a certain number of men who would rather be their own boss in a small way than work for another boss, and some have the character, the knowledge and the physical strength to do so. Therefore, we must continue to provide

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opportunities for such people in farming, because this has been the traditional way for the local lad to make good. In past years that farming ladder was the only way by means of which the farmer's boy could get to the top and own his own farm. But is that true to-day? I very much doubt it. The smaller unit which the aspiring farmer is likely to get hold of may well be too small to make sense, unless the man or his family have the money to start him off on the farm.
However, another ladder of advancement is beginning to appear, the ladder of the agricultural technician, or whatever we are going to call him. It will not lead to that man becoming his own boss and running his own farm, but it will lead to his being appointed to positions of very great interest, carrying high rewards. The larger the farm units become the more necessary it will be to have these skilled people, and the more careers of that sort will be available, worthwhile careers in themselves, with security at the end, and possibly an easier life for the man's wife than would be the case if the man were running the farm himself. This is where the Pilkington Report begins to fit in with the Wise Report, for, as the noble Lord, Lord Hilton of Upton, said, it stresses the importance of agricultural education for herdsmen and shepherds, as opposed to knowledge and experience. I do not say that knowledge and experience are not just as necessary as agricultural education, but I think the day has come when the two things have to go side by side, and when one is of no use without the other. I very much doubt whether this aspect of the situation is appreciated as much as it should be on the smaller farms, although I think that on the larger enterprises it has been well appreciated for a good number of years.
The recommendations of the Pilkington Report point to the need for educating the right men for responsible jobs, and I think it will be found that they also point to what may be a slightly new approach in considering the problem of farm wages. The Pilkington Report says a very great deal on the matter of technical detail, and covers much ground in dealing with the higher ranges of agricultural education, diploma, degree and all the rest of it—matters which are quite well known and which have been covered
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before in many ways. But where the Report breaks new ground (and I am very glad that it does) is in talking of the education of the men referred to as the craftsmen, which I take to mean the herdsmen, the shepherd, the pig man, whoever it is, who is sent on a recognised course. The man returns to the farm knowing the biology and the chemistry behind his job, and realising the need for accuracy which is so important if we are to increase productivity on the farm in the ways we all talk about. I think that all this points the way to the work which the Pilkington Report says the Industrial Training Board is going to carry out as soon as a board is established for agriculture, which I take it will be in the fairly near future.
May I turn for a moment to see what effect any proposals of this sort will have on the problem of agricultural wages? I think that they can have a great deal of effect. I must say that I was very sorry about one thing which did not appear in the Pilkington Report. I think the noble Lord, Lord Collison, was a member of the main Committee, though not, I believe, of the sub-committee, which I fancy did most of the work. The National Union of Agricultural Workers did not give oral evidence, or send in written evidence, and, although I may have missed it, I could see nothing in the Report which gave any indication of the attitude of that union to this problem and to the proposals which the Pilkington Report was making. This is absolutely vital, because if anything is to happen in these directions it will not happen merely because the Government accept the Report. That may be all right for a start, but things will get moving only if the proposals are accepted by all sides of industry as common sense proposals and as something which ought to be operated constructively and not just given lip-service.
Therefore, I very much hope that, although the N.U.A.W. seem to have drawn a bye in the first round—and after all I suppose they are "seeded"players—they will not draw a bye in the second round, because their co-operation and advice are absolutely vital if we are to break away from the dreary round of "hard-line" stories which characterise the Annual Review of Agricultural wages. We shall have to break away sooner or later, if only because one "hard-line" story has gone over the side since last year. Up

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to now, if I am right, one of the main "hard-line" stories told in support of an increase in wages is the need to arrest the drift from the farms. But now those who are responsible for the selective employment tax would have us believe that there are too many people in agriculture already. I wonder which view is right.
I was very pleased to see the kite being flown, in the last two issues of the Farmers' Weekly, in support of a definite system of wages for increased skill. If the unions implement that idea they will be following, about a generation later, in the steps of the National Farmers' Union. I should like to mention the work which was done by the noble Lord, Lord Netherthorpe, on behalf of the National Farmers' Union, work which he carried out together with his two predecessors as President. They got the N.F.U. out of the rut by thinking of the professional standards of the people it represented, rather than just the size of the membership.
I believe that now is the time, when we are thinking about keeping the agricultural wage level in line with the needs of the day, to think very hard about paying wages for skill. The only satisfactory way in which wages can be paid for skill is by linking the increased wage rate, whatever it may be, with a definite, recognised attainment of the kind discussed in the Pilkington Report. Only in that way can we avoid having the farming industry bedevilled by demarcation disputes and such things, from which we have been free, thank goodness! all the time. If we were paying increased wages, or bonuses, or whatever it may be, for something which is recognisable, which men either have or have not, then everyone—the employer, the worker and the people who carry on the education, which is very important—would know where he was, and the plan would then be accepted. As I said just now, if it does not have universal acceptance, it will not be a starter.
Those are the ideas which I wanted to put before your Lordships this evening. I hope very much that the Government will lose no time in acting on those two Reports, and I hope, equally, that all sides of the agricultural industry—farmers, workers, landowners and the rest—will do everything in their power to assist the Government, if they decide to
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take that line of supporting these two Reports.
LORD MOYNE: My Lords, before the noble Lord sits down, and before I speak, I wonder whether he would either confirm or dispel an impression, which I think he did not mean to give, that no smallholdings were viable. He may have meant to say what he did, but I have not read the Wise Report and I suspect that specialised smallholdings such as the Land Settlement Association, with co-operative marketing, are probably viable and should remain.
VISCOUNT BRIDGEMAN: My Lords, I am most grateful to my noble friend, because in my remarks about smallholdings I was not referring to specialised smallholdings, or co-operatives like the Land Settlement Association, or the small horticultural or pig or poultry holding. I was talking about the kind of smallholding which can be described as a small-scale farm. Of course, if the Ministry of Agriculture ever decided to arrange their terminology in regard to smallholdings otherwise than by the exact acreage, it would be much easier for people to make the right speeches about these matters.
5.33 p.m.
LORD MOYNE: My Lords, before I come to its agricultural aspects, I hope I may be forgiven for saying a few words about the selective employment tax in general, so as to present in its proper perspective what I have to say on its agricultural effects. I have often wondered how this tax, which is now widely seen as inequitable and full of anomalies, was received at first by the public with such comparative equanimity. I suppose it was because we all have a tendency to look no further than the end of our noses. Service employees tended, I think, to feel that it was a tax that would not come on them, forgetting the effects on their jobs and their shopping; and industrialists, in the first flush of their surprise at learning they were actually to be given a bonus for every man employed, tended to forget that increased costs of services, whether in shops, transport or hotels, must in the end mean increased prices and so increased wages and costs of production. Never can the inflationary spiral have

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received from ill-conceived fiscal measures so strong a stimulation.
It is perhaps arguable that the tax could actually prove an inducement to an industrialist to hoard labour and to postpone automation, though I should perhaps say that this will certainly not be the effect on my own firm of brewers which has in England been in the forefront of modernisation. But, welcome as any bonus must be in itself to any manufacturing company to offset the effect of other new taxation, the selective employment tax seems to me misconceived when its wider aspects are considered, particularly in regard to agriculture.
The justification advanced seems to be that industry, whether it produces gadgets or consumer goods, helps our balance of payments. But the maintenance of our balance of payments is not the object of our existence; it is a means to an end, not the end itself. The end is surely a happy and civilised life for our citizens. If the exportation of gadgets, or pints, is to be the sole object of existence, you end by crowding more and more people into our overcrowded island to make more and more gadgets and have to export more and more gadgets to maintain more and more people still. And by the selective employment tax you favour gadget-producing industry as against other forms of employment which are equally helpful to the maintenance of a civilised life—and in the case of agriculture produces the very essentials of life which otherwise have to be imported, and indeed the raw materials for the exports of such firms as the brewery of which I am a director.
To rely too much upon industry for our living, at the expense of agriculture, is surely dangerous. I know from my own firm's experience that one large overseas market after another has threatened to disappear owing to prohibitive tariffs—Nigeria and Malaysia, for example—and they have only been retained by yielding to requests for local manufacture. It is natural that the new countries should want to develop industry to make up a balanced economy with their agriculture, and I suggest that it is natural and right that we should also foster a healthy agriculture to maintain a balanced economy with our industry here at home.
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I know it is now proposed that farmers should recover the tax, but apart from the fact that it is a ridiculous charade to have to pay a tax that is not due from you and later to have to claim it back, the very recovery of it—and the more I have gone into it the more complicated it sounds—is going to put the farmer, who wants to be out and about on his farm, to serious trouble in new record-keeping and form-filling. In some cases this extra work may be the last straw on top of other form-filling, and may drive him to employ a clerk, which is not, presumably, the object of the tax. in any case, as the noble Baroness, Lady Elliot of Harwood, the noble Earl, Lord Dundee, and other speakers have pointed out, the tax will be an enforced loan and will oblige many farmers to increase their overdrafts and to pay interest to the State, instead of receiving it, on the money compulsorily advanced.
Already, presumably in anticipation of the tax, I hear that in Wiltshire transport costs are to rise, which of course will affect everything used by the farmer and the produce he sells. It may be said that the tax is not going to be passed on, but it seems to me that people are probably increasing their costs in anticipation of this being prevented.
But the worst effect will be the encouragement of industry to suck labour away from agriculture. The drift from the land already, caused by high industrial wages, can only be intensified by the bonus to the factories for every man they can tempt away. I cannot conceive what grey eminences, what economic theorising, could have induced the Government to foster our mills, even though no longer dark and satanic, at the expense of the self-supporting, self-fulfilling life of our "green and pleasant land". The doctrine surely runs counter to Blake's poem, which noble Lords opposite used to sing as the anthem of their Party, and which used to make me feel that they were at least aiming in the right direction, even if they sometimes took some curious turns to get there. One of the saddest and strangest manifestations of a wrong direction which I have lately seen was the equanimity with which the noble Lord, Lord Hilton of Upton, in his speech just now, seemed to view the gradual disappearance of a large proportion of our yeoman farmers.

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I should like to end on a practical note. I make an appeal on behalf of the over 65s. We all know that there are many elderly men who keep at work on farms until they are 70 or more. With the rising rates of agricultural wages, it becomes increasingly difficult for farmers to afford to employ any but the most able-bodied and efficient workers. None the less, many are still glad, in view of the shortage of skilled manpower, to keep on some elderly men. This new tax must tilt the scales against them. Their work is their life to many of these old men, and they can be most useful, too. May I appeal to noble Lords opposite, out of the goodness of their hearts, to consider exempting the over-65s from the effects of this tax, which seems, in general, so anomalous and inequitable, and, in respect of the over-65s, so particularly cruel?
5.41 p.m.
VISCOUNT MASSEREENE AND FERRARD: My Lords, I should like to start by congratulating the noble Lord, Lord Nugent of Guildford, on his admirable maiden speech, which I listened to most attentively. I should also like to thank the noble Baroness, Lady Elliot of Harwood, for so speedily putting this Motion down on the Order Paper. I support what my noble friend Lord Moyne has just said about the selective employment tax. It really seems a complete charade when we remember that while the last Government were in power we had an increase in the number of civil servants of over 10,000—and now, I understand, we are to have a further increase of several thousand. Is it really necessary to make the farmers pay this selective employment tax and then to have the complete absurdity of handing it back to them, which is obviously going to require quite a few extra clerks? With the high rate of bank interest, farmers are having a very hard time, and now they have to grant an interest-free loan to the Government. Albeit the loan will be for only a short time, why do it at all? It seems complete nonsense, and I am really surprised at Her Majesty's Government.
On this question of manpower, we are told in the National Plan that 140,000 persons could be released from agriculture during the period up to 1970. Last
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year over 30,000 agricultural workers left the land. I have perhaps done it wrongly, but I have been trying to do a bit of mathematics in the last few hours or so, and it appears to me that if we are going to lose 140,000 persons from agriculture in the next four years, the annual increase in output per man in agriculture, if the present production is to be maintained, will have to be 9 per cent. In the White Paper the Government talk about increased production, about an increased productive capacity. Is this really going to be possible if we lose a further 140,000 workers from agriculture? The present regular force of agricultural workers, men and women, is 388,000, and if we take it down to nearly 250,000 I do not think we can possibly maintain production.
I quite agree that many arable and mixed farms can probably become still more efficient, but the really large, efficient arable farms can surely not become more mechanised. I do not think they can be mechanised any more. Perhaps the manufacturers of agricultural machinery have something up their sleeves, but, apart from farmers controlling tractors by radio, without there being any drivers on them, I cannot imagine any great increase in the efficiency of mechanisation. We can, of course, secure greater efficiency by having larger units, but then we come up against the very big social problem that I think has been mentioned in this debate.
But, my Lords, the Review places emphasis on the expansion of meat production, especially beef. Of course a certain amount of this expansion must come from the stock-rearing farms, from the hill farms in Scotland and Wales, and the North of England. I agree that the majority of the beef expansion—probably two-thirds of it—will probably come from the dairy herds; but, nevertheless, some of it has to come from the hill farms. It really is not possible to take any more labour from the hill farms. As I have often said in this House before, you cannot have a mechanical shepherd. You can improve your shearing arrangements, and you can give your shepherds land rovers to drive up rough hill roads, so that they do not have to walk; but you cannot mechanise hill farms. Therefore, I think the Government are not being completely realistic

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in asking, on the one hand, for greatly increased meat production and, on the other, for a greatly reduced labour force.
I have only just come down from Scotland, and the other day I was speaking to a tenant of mine who has 2,000 ewes. He also has about 150 cattle. At the moment he has only one shepherd. He is trying desperately to get other shepherds, and of course to be completely efficient he should have three. This lack of shepherds on the hills inevitably means a very big death rate, and therefore inefficiency. As my noble friend Lord Dundee pointed out, I think, the increase in Scotland of agricultural output has been far less than in England, and to some extent this is owing to lack of labour. So how the Government can expect hill farms to dispense with more labour I really cannot imagine.
On the question of hill cattle—and I am glad to see that we are having a new beef cow subsidy outside the hill cattle subsidy—the problem is that of the vast areas of summer grazing which cannot be fully utilised because the amount of permanent stock carried is controlled by the amount of winter keep produced. I should very much like to see the manufacturers of farming foods and requisites produce a compact food, perhaps in nut form, which could be fed to the hill cattle in the winter to supplement their roughage diet. I feel sure that we could treble the stock on the hills with such a food. I have tried nearly all the manufacturers, but so far have not been successful in obtaining the right type of compact food.
My Lords, another point that I should like to make is that hill grazing is a very haphazard affair: the animals graze everywhere. A vast amount of fencing is required to make large enclosures on the hills to control their grazing. I note in the White Paper that the Government are doing away with the grass renovation scheme. I wonder whether they could institute instead a controlled hill-grazing scheme under which the hill farmers would receive a very large grant for the purpose of fencing. I should also like to see the Government make a grant for liquid manure (probably the noble Lord, Lord Netherthorpe, would not like this), because at present we use very large amounts of artificial fertilisers, and I think
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it is time that there was a grant for some natural fertiliser. Perhaps the noble Lord who is to reply might consider this. I think the noble Lord shakes his head. He indicates that he cannot do this; but I think it should be done.
In the Price Review, Her Majesty's Government appear to pat themselves on the back because in the determinations they have increased the guarantees by £23 million; but I would point out that in the last Review the farmers were about £20 million relatively worse off. Therefore, the Government have nothing for which to pat themselves on the back. Of course, the people who should be patted on the back—and I am glad to see it has been done in this debate—are the farmers themselves. The record of the farming community, in production and in the saving of imports, is quite a magnificent one. But I have always had the feeling that Socialist Governments are anti-farmers. Perhaps it is that farmers are a small community compared with the urban communities. Perhaps I am wrong, but I have always had that feeling.
There is another point that I think has not been brought out in the debate so far: the matter of capital investment. In agriculture we have the seasons to contend with, and we have to have extra capital in order to contend with the various seasonal contingencies. In fact, the agricultural worker—I think I am right in saying this—has more capital investment behind him than almost any other worker in industry. I should prefer over a period of time—and here I agree completely with the noble Lord, Lord Nugent of Guildford—to revert to a system of import control. I feel that the Exchequer deficiency payments give the public the idea that the farmer is subsidised and feather-bedded; but, as I think other noble Lords have pointed out, it is, in fact, the consumer who is subsidised.
Eventually, if we join the Common Market (as presumably we shall, when we have a Conservative Government), we shall have to do away with these Exchequer deficiency payments. So far as I am concerned, the sooner this happens the better; because there is a great deal of nonsense talked about such action resulting in a rise in food prices. Perhaps it might put up the food prices slightly—by 5 or, at most, 10 per cent.

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But I would hazard the guess that half the families in this country to-day spend more on gambling, drink and tobacco than on food. Perhaps I have exaggerated, but in any case I would say that one-third of them do so. Therefore to say that people cannot pay an extra 5 per cent. or, at the utmost, 10 per cent. on food is, I think, nonsense.
Finally my Lords—and coming from a land owner and a farmer this is rather a delicate point—there is the question of tied cottages. As regards agriculture, these have now, of course, been abolished. I entirely agree that 99 per cent. of agricultural workers are the most magnificent people. But there are always a few rogues, in every strata of society, and in every profession and employment—including, perhaps, in your Lordships' House, though I do not think so. But it has come to my notice that the ending of the tied-cottage system has led in one or two cases to the privilege being abused. After all, the whole trend of the White Paper is to reduce the labour in agriculture, so that we now have tens of thousands of farms where the farmer has only one farm worker. If that worker turns nasty and downs tools, he can remain in his house, rent-free, for several months, and the poor farmer has not any labour force. I hope that the court procedure can be speeded up when dealing with these cases, because to my knowledge, from what I have heard, it can take six to seven months to deal with such a case. The individual concerned can appeal, and so the case drags on; and all the time the farmer has to hire a contractor. I feel that if only the court procedure could be speeded up it would be a great help.
My Lords, I do not wish to say anything else, but before I finish I should like to point out the great burden, to which I have referred in the newspapers, that farmers have to endure over the very high hank rate. I should have thought it possible for the Government to come to some arrangement with the banks so that bona fide farmers had not to pay this extremely high bank rate. After all, the farmers are saving imports, and it seems economically stupid that a body of people who are saving imports should have to bear this burden.
6.3 p.m.
LORD BALERNO: My Lords, I was much interested in what the noble Viscount, Lord Massereene and Ferrard, had to say about natural fertilisers. If the noble Viscount cared to do so, he could get help from the Government were he to install a system of organic irrigation on his farm. He would then find that he could get quite a reasonable subsidy from the Government to help him to do so. There are other forms of natural fertilisers for which there is some element of Government help. It is largely due to Government help that seaweed research has been carried out. Another form, which would confront the noble Viscount with a second delicate problem, would be the drying of sewage from the urban areas for agricultural purposes. So the Government are not entirely negligent on the question of natural fertilisers.
I should like to congratulate and thank the noble Baroness, Lady Elliot of Harwood, for introducing this debate and for doing so in such a wide-ranging manner, which has provided many pegs for the rest of us to hang our ideas upon. I particularly liked the reference of the noble Lord, Lord Netherthorpe, to Walter Elliot, than whom few people did more for British agriculture. I thought that the noble Lord's phrase "positive agricultural legislation" was peculiarly happy because so much of agricultural legislation lacks positiveness, but everything that Walter Elliot did was positive. He was such a very positive man, and the noble Lord, Lord Netherthorpe, used exactly the right word to describe his legislation.
I should also like to congratulate the noble Lord, Lord Nugent of Guildford, on his maiden speech. It was a most meticulous survey of the situation and left little in the general field about which the rest of us could say anything more. There is, however, one point about which I should like to question the Government. I believe that the British farmers spend about £1,000 million a year on goods and services. With the selective employment tax being imposed on those goods and services, how much will the cost to the farmer be put up? By £30 million a year? By £60 million a year? I do not know, but the important question is not exactly how much the sum will be; it is whether the Government are going to recoup the farmer with that sum in the Price Review.

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I should like to support what was said by the noble Baroness, Lady Elliot of Harwood, about the agricultural implement industry. This industry depends primarily on a healthy agriculture. It was built up only because we had a healthy agricultural industry. If we had not been given a healthy agriculture through the Agriculture Acts after the war (and I acknowledge the outstanding contribution of the noble Lord, Lord Williams of Barn-burgh in this respect) we should not have developed our agricultural implement industry as we have done.
I support the noble Baroness, Lady Elliot of Harwood, in what she said about the expansion of British farm output in recent years. This increase in production is now saving £250 million a year on the import Bill. The noble Lord, Lord Netherthorpe, spoke about beef and milk. I cannot agree with the proposal put forward under this head by the noble Lord, Lord Henley, which I thought was more cows, less milk—
LORD HENLEY: My Lords, I think that the noble Lord, Lord Balerno, is confusing me with the noble Lord, Lord Nugent of Guildford.
LORD BALERNO: My Lords, I apologise. I know that one should not enter into controversy at the present moment. The point I should like to make is that the two are absolutely combined together. In this country you cannot separate beef production from dairy production. Over 80 per cent. of the beef produced in this country conies from dairy herds and, as Mr. C. de Boinville of the British Oil and Cake Mills has said twice in his recent annual reviews, the country could support a larger herd of dairy cows (a point which the noble Lord, Lord Netherthorpe, made) provided that there was a platform put into the price of milk and milk products. But I do not think that this can come about without the implementation of the Meat and Livestock Commission, which is embodied in the Agriculture Bill.
I noticed that this Bill was reintroduced recently into the other place, and I should like to ask the noble Lord, Lord Champion, whether when he replies he can give us some indication of the likely rate of progress of this Bill. If there is to be any slowness about it, would
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it be possible to go on with Part I of the Bill, which deals with the Meat and Livestock Commission, and so put an end to the uncertainty which at present exists in the livestock industry? I would take this opportunity of saying that I am one of those who welcome the controversial Clause 9 of the Bill, which puts teeth into the Commission, although there are also safeguards in the clause, which is not going to allow the Commission to bite without the permission of the Ministers concerned.
In Part II of the Agriculture Bill there are two new clauses dealing with the promotion of agricultural investment. These make rather curious reading in the light of the Finance Bill and the Ministry of Labour Bill dealing with the selective employment tax. Under these new clauses for investment incentive, agriculture is treated the same as manufacturing industry; but under the Finance Bill it is being treated below the manufacturing level. This is an interesting point and adds to the collection of in consequences which the noble Viscount, Lord Bridgeman, has been displaying to us this afternoon.
There is at the moment a point about meat which I think is of major importance; that is, the exporting of meat from this country to Europe. This is a most interesting development, which has been growing during recent years, and the new Meat and Livestock Commission, when it gets going, may be able to help this trade considerably. I would illustrate this by the type of sheep which we are producing. In the Paris market there is a big difference between top and bottom quality payments, and some of our breeds and crosses are coming very near the bottom. Others, notably one of the breeds in which the noble Baroness, Lady Elliot of Harwood, is most interested—the Cheviot lamb—are about the most highly thought of there, though this seems to have taken a little time to discover. It could be a function of the Commission to help this trade, because they would have proper market intelligence as to the quantity and quality to be produced. At the present time, the lambs produced in France have a larger proportion of lean to fat than lambs produced in this country. This is a rather a reflection on us, because we used to think of ourselves as the stock farm of the world.

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There are other interesting developments which point again to the need for the Meat and Livestock Commission to get down to work. There are other Continental breeds which are now being more highly valued than our own in this country. For instance, Yugoslavia is sending to Smithfield chilled beef which is making nearly as much as prime Scotch and sometimes a little more. Again, these car cases are very lean.
There is one point on the Finance Bill on which I think we may perhaps get some enlightenment. It is another anomaly to add to Lord Bridgeman's collection. The Finance Bill defines part-time workers as working not more than eight hours a week, but under the Redundancy Payments Act the definition is 21 hours a week for a part-time worker.
I would support what the noble Lord, Lord Moyne, said about those who have served agriculture well and worn themselves out in its service. They are kept on by good farmers. Good farmers will always want to hold their old employees on the ground and keep them going in part-time employment, even though they are badly disabled, usually by arthritis, and able to do only light work. And here is a tax being put upon them. It is good husbandry for a farmer to look after his workers just as much as to look after his land. The workers love the land and want to die on it, just as any good farmer ought to want to do, too. This selective employment tax is going to bear hardly on them.
I agree with the noble Viscount, Lord Bridgeman, about the ordinary smallholding—the old idea of three acres and a cow—being uneconomic. But there are the intensive smallholdings, to which the noble Viscount referred, where there is usually some form of intensive livestock production. If these units are to be made subject to rating, then it will not be possible for young men to enter into them. I know of a case where a young man—a degree diploma chap—employed on the administrative side of agriculture gave that up in order to go into intensive pig breeding on something like ten or fifteen acres. Being a progressive and thoroughly well-trained young man, he will certainly make a success of it, and, at the age of 30 to 35, that will start him well up on the first rung of the farming ladder. As regards
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Scotland, this sort of beginning is going to become almost impossible, if these intensive units are to be rated, because the rating burden in Scotland is substantially heavier than it is in England. It is, I am informed, nearly double. However, in Scotland, because of this, there is a measure of industrial de-rating. So my further question on the rating problem is this: if intensive agricultural units are to be rated, will they get potential de-rating as industrial units?
I was interested in what the noble Lord, Lord Hilton of Upton, said about agricultural education and the Pilkington Report and also in what the noble Viscount, Lord Bridgeman, said about this. If I may again bring this on to Scottish lines, may I ask the noble Lord, Lord Champion, who informed me that he was willing to carry the brief of the noble Lord, Lord Hughes, while he is in Iceland, if there are any plans for developments of this nature in Scotland? Would these proposals link up with the agricultural training boards which, I gather, are likely to be set up under the Industrial Training Act 1964? If so, how would they operate in Scotland, where the organisation of agricultural education is somewhat different? And, most important of all, will they be financed by the State or by another levy on the farmer?
My noble friend Lord Dundee has touched on a number of Scottish problems, and I should like to conclude by adding one or two more to those which he and my noble friend Lady Elliot of Harwood have mentioned. We had in Scotland for the year 1965–66 another record output. Scottish farmers are estimated to have produced £205 million gross output, an increase of £9 million on the previous year; and that, if I remember rightly, was an increase of £14 million on the year before. The greater part of that increase came from livestock, to which noble Lords have made reference. In Scotland this accounts for about three-quarters: of the total marketed output from the soil. This has been achieved in spite of the fact that in the last three years there has been a substantial reduction in the total of subsidies and grants coming to Scotland. The total figure for 1963–64 amounted to £46 million, and in the next year it dropped to £39½ million, which is something of the order of a 15 per cent. drop.

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But farmers' incomes in Scotland, like those in other parts of Britain, have not kept pace with the industry's performance. I should like to commend to your Lordships a statement made the other day by the President of the Scottish Famers' Union to the Secretary of State for Scotland. He said:
"To put it very simply, the nation as a whole has had the lion's share of the benefit of the industry's increased efficiency. Food prices to the housewife are cheaper than in other countries."
I believe that that comment puts our problem in a nutshell. Agricultural efficiency has reached a higher overall pitch in Scotland than in England; and the reason it does not show as great a rise in recent years is because English agriculture had more slack to take up. We have been forced to do this because our conditions in Scotland are, by and large, much tougher; and we have a lower proportion of arable farming, in which, of course, mechanisation has been more easily accomplished in recent years.
My Lords, there is at the present time a serious and increasing unrest among the farmers of Scotland. I venture to say, with respect, that it is perhaps much more deep-seated than among English farmers. The fact that Scottish farmers have not threatened to go on strike, and have not sent circuses around the countryside, does not mean that they are not worried; but that is not their normal way of doing things. We are worried. Our hank overdraft is over £70 million, and the farmers of Scotland cannot for much longer carry this strain of increasing efficiency with diminishing returns. Some of your Lordships may be surprised to hear that the reason there has been no vocal manifestation from the Scottish farmers is because the Scottish farmer is not so violently emotional as the farmer South of the Border. I would merely add that the Government will disregard these facts at their peril. For Scotland, under pressure, goes for action rather than words, and this pressure is building up. Scotland will not let off steam: we shall explode!
6.26 p.m.
LORD ALLERTON: My Lords, I join with other noble Lords who have spoken in thanking my noble friend Lady Elliot of Harwood for having initiated this debate. I should like also to add my con-
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gratulations to the noble Lord, Lord Nugent of Guildford, on the quite admirable maiden speech that he made, which, needless to say, we all expected from him. And we were not disappointed. Like my noble friend Lady Elliot of Harwood, I am a simple commercial farmer. Having listened to the noble Baroness this afternoon, and on many other occasions, I have a nasty feeling that I am a great deal simpler than she is; and I think it is probable that her sense of commerce is more highly developed than mine
No fair-minded man should expect those who invest money and labour in agriculture to do so on worse terms than those who invest in industry. The purpose of the Annual Review of Farm Prices should be to ensure that farmers get a fair return. However, as agriculture is subsidised by the taxpayer, and not all taxpayers are either farmers or countrymen, I feel that more should be done to make the public realise that agriculture is one of our key industries, and to understand the benefits which derive from agriculture. Were it more generally realised that its output is in excess of £1,800 million a year, which I believe is twice that of coalmining and the motor industry, that it saves imports worth £400 million, and that we have the cheapest food in Europe, fair-minded people must regard the money spent on food subsidies, or, as the noble Baroness put it, consumer subsidies, as being well spent. The country may also be interested to know that farmers are not as prosperous as some people think. Indeed, they owe the banks a sum in excess of £500 million. I think they would probably owe them more, were they able to get it; but even loans to farmers are now difficult to negotiate: and this, I think, in many ways is hampering the industry.
My noble friend Lord Bridgeman has been thoroughly into the question of the small farmer. Unfortunately, I have not read the Report to which he referred. I did not know of its existence. I welcome the schemes for retirement and amalgamations, which must, in the long run, be beneficial. Although I have the greatest respect for the industry and the independence of the small farmer, which he shows by working for himself, he often incurs excessive expenditure by not having machinery, which is capable of cutting

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costs and reducing hours of work. Such machinery is too expensive to justify the cost for a small acreage. It is possible that more could be done by sharing labour and machinery among small farmers, although such schemes are difficult to operate, because each member of a syndicate will naturally want the machine on the first, and possibly only, day when the weather is suitable.
The direct injection of capital is undoubtedly an immediate help. But the question must remain as to whether or not there has been lasting benefit, and whether farmers are in a better position to face the future. Moreover, suppliers of capital are only too well aware that in farming it is possible to do something which, although technically sound, is economically suicidal. I should have thought that the best solution for the small farmer was to rely on specialised lines such as pigs, poultry and horticulture, and to avoid mixed farming like the plague. Even for the bigger farmer costs continue to rise, and labour becomes more expensive and, in my experience, more difficult to get. We have heard quite a lot this afternoon about reducing labour. I think most people are finding that they have not enough labour. I do not think anybody has made that point, but that certainly has been my own experience.
We are told to offset these higher costs by increased mechanisation and greater efficiency. But mechanisation is not cheap, either in initial cost or in maintenance, and, as I have said before, nor are loans easy to obtain. Even if loans were more readily obtainable, it must be remembered that working capital has to earn a high rate of interest, both to pay for its annual cost and to contribute towards its eventual repayment. I think the repayment point might be stressed, because one frequently reads in certain sections of the Press that if more loans were to be forthcoming, the difficulties would be over. But loans, sadly enough, like pigeons, come home to roost.
In my view, farm implements and farm machinery are ridiculously expensive, presumably because they are not sold in quantities sufficient to lower the costs of production. This prompts one to ask whether the effort made to sell machinery abroad is quite as strong as it might be. I know that the tractor figures
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sound very impressive, but one never seems to hear much about the implements they pull behind them. In any event, even a very short journey across the Channel is sufficient to show one that foreign standards of mechanisation are deplorably low, and to lead one to suppose that it should be possible to sell foreigners more equipment than we do. If this could be done, it would certainly do something to reduce the appallingly high costs which we have to face here.
Increased mechanisation must inevitably produce a new concept of the agricultural worker. The present-day skilled agricultural worker, who understands and can service machinery, is well worth the high wages which he earns. I do not think it is fair to say that the highly skilled workers do not earn good wages. I should have said that the minimum wage is but very rarely paid, and certainly not to the skilled workers. But why the minimum agricultural wage should be regarded as the lowest basic wage for any other occupation, I have never been able to understand. The agricultural wage is one negotiated through the agricultural industry, and has no bearing at all on any other employment.
The noble Viscount, Lord Bridgeman, referred to the Pilkington Report and the agricultural colleges. I sometimes wonder whether up to date these agriculture colleges have been tackling the problem in quite the right way. Maybe the Pilkington Report will nut that right. It always seems to me that they attempt to produce too many managers and farmers on their own account. With more amalgamations and a reduction in the number of farms, I should have thought that the demand for them must necessarily be fairly limited. I would suggest that it would be more practical to have more shorter courses designed to produce the highly skilled agricultural worker, as well as the longer courses for managers.
A new problem which faces the agricultural industry is that of the capital gains tax. As I understand it—and in all fairness it is difficult enough to understand—this tax must bear very heavily on the family farm. In the past many family farms have passed down from generation to generation, and they include many which are among the best run in the country. It now seems that if a father

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wishes to take into partnership his son—in all probability a young man brought up and fully educated to assume this responsibility—the father would become liable to capital gains tax. It may well be that the father has no capital other than that invested in the farm, so in order to pay his capital gains tax he would have to sell off some of his land if the son is to join the business. This would seem to be in conflict with the Government policy for the amalgamation of holdings. I hope I have misunderstood this very complex tax, and I am sure that if I have the noble Lord who is to reply for the Government will correct me. I hope he will be able to. If he is not, I must ask him if something could not be done to help this class of man, who has been the backbone of agriculture throughout history.
The new beef cow subsidy is a welcome and sensible help in a direction where it was needed. Up to date, there has been little profit in rearing beef calves except possibly in the hills. I hope my noble friend Lady Elliot of Harwood will not correct me here. It is clear that more beef is needed, and this new subsidy will help those who rear calves on better land—a type of farming which fits into a mixed farming business quite well, and is deserving of encouragement. Even so, it does not put beef on a par with other forms of farming enterprise as regards profitability. In my view, it is dangerous to grow too many cereal crops without a break, although apparently some people are able to do so. Nevertheless, a few years under grass can only do good, and this is where the beef herd helps out.
On the subject of beef cattle, I would suggest that the calf subsidy for genuine beef cattle should be at the same rate for both heifer and steer calves. It is only by good fortune that a man, breeding for beef, gets a preponderance of steer calves. They both cost the same to rear, even though the heifers make less in the market. So if the producer has bad luck and a great many heifer calves, he loses both ways, through no fault of his own. I hope that this point may be considered.
If I may be permitted to have one final agricultural grumble, may I suggest that it is unreasonable for farmers
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to be required to pay the road fund licence duty on agricultural tractors and combine harvesters. Surely this is taxing the tools of our trade. The tax must be expensive to administer and can bring in only a small amount of money. Now, when the road fund licence no longer dates from January 1, and falls due at all sorts of odd times, the unfortunate farmer is involved in a great deal of work in keeping abreast of the dates on which they are due and in filling up yet another of these horrible forms with which the agricultural industry is already so bedevilled. Would not one initial registration be sufficient, on payment of, I should hope, a very small fee? The identity of the vehicle would be established and this could last until it was disposed of. I am well aware that it is possible to get exemption for vehicles which do not travel more than six miles a week on the road, but even this entails continual form filling and must be just as costly to the licensing authorities.
In conclusion, I would refer to paragraph 14 of the White Paper, which expresses the hope that the well-being of the industry can be put on a firm foundation so that it can contribute even more effectively to the growth of the national economy. My Lords, this is also the hope of the industry.
6.41 p.m.
LORD RAGLAN: My Lords, may I thank the noble Baroness, Lady Elliot of Harwood, for initiating this debate? I, too, am a farmer, and I am almost wholly dependent upon my farm for a living. I have no grumbles, at the moment. I am in slightly too big a way of business to feel the pinch which some smaller farmers are feeling, though I may say that the ones I talk to seem to be as cheerful and as careful as ever, and not depressed by anything much except the weather; and it seems to me that the go-ahead ones are rightly doing fairly well for themselves.
Food is, of course, unique in that it and its by-products are the only man-produced articles which we must have to live, and so agriculture is liable to be an emotive subject, for if farmers are making any more than a bare living from their job they are likely to be accused of profiting out of other people's very existence. This resentment is behind

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much anti-farming propaganda, and I think it is an understandable sentiment which farmers must try to be careful not to stimulate.
Yet if the country is to prosper, farming must prosper, for we must have food, and it is better to have a surplus to worry about than a deficit. But it seems to me to be a poor reflection upon man's capability and foresight that after at the very least 10,000 years of highly organised agricultural existence, we in the Western world are only just learning how to manage our food production and distribution not too badly; that is, we do not starve every few years, though we could, if by some cataclysm one harvest went completely wrong.
We have reached this comparatively secure situation for two main reasons. First—and I think I must say this—we have become disinclined to believe that the crops grow better through religious practices and superstitions, which is the trouble in many parts of the world, and we put our faith in the results and documentation of research. Agricultural research, and education in the fruits of that research, is of first importance, and I may he unpopular in suggesting that more money should be spent on that rather than on direct subsidies to farmers which are of dubious value, like building grants, where, in my experience, the Ministry's stipulations are needlessly expensive and elaborate to start with, and the contractors, knowing of the grant, appear to put their prices up accordingly.
Secondly, we have discovered, or are discovering, that the so-called law of supply and demand is too fickle a force to rely upon when a commodity is needed, as we need food, in even supply at all times. The movement of shares on the Stock Exchange never ceases to surprise me. If I were the manager of a public company I should be thankful that it was only the price of the shares and not the actual running of the company which was affected by the whims of those jittery speculators. The same sort of speculation happens with food, but its effect is too often directly on the farmer. A month ago the wholesale price of meat shot up by sixpence a pound because the seamen went on strike. A week later it was down by nearly a shilling a pound when it was realised that meat was not going to be short after all.
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It is this psychological factor which is left out of the reckoning when economists airily talk about the law of supply and demand. In fact it is not a law at all. If it were, it would give predictable results. It is a theory which does not work out in practice because of the desire people have for what is scarce, or appears to be or threatens to be scarce, and their disdain for what is plentiful. This means that prices go way up beyond their scarcity value in times of shortage, and way below what they are worth in times of plenty.
I should think, too, in this connection, that housewives ought to be glad that the price of a loaf has not been tied to the price of copper these last few months. We have not been very clever over securing our copper supplies, but at a pinch we can use less copper, and find substitutes for it, and we shall not die for the lack of it. But it is not possible yet to find substitutes for grain and other farm produced food, and the farming industry must have the price stability, so that we can plan forward and keep producing the goods at moderate cost and the housewife may know roughly where she is from week to week.
The noble Baroness mentioned the selective employment tax. I am proud of belonging to an industry which has so enormously raised its productivity, and keeps on raising it. We have done it mainly, of course, by mechanisation. Indeed, the machines have been enthusiastically welcomed, in all of which I think there are some lessons for other industries with less happy labour relations. My farm is not very expensively mechanised, yet on its 750 acres of good land, half corn and half grass, I have only two men besides myself, one aged 57 and the other aged 58, and with help from a contractor at peak times. Yet the farm has a greater output than it had 15 years ago when there were 12 men, and we do not work such long hours as we did then. I am bound to say, rather smugly, perhaps, that the selective employment tax would not have hit me very hard; but though I believe that a great many farmers do waste labour, none that I have seen waste it to the scandalous extent that I have seen it wasted in other industries.
To conclude: given the stability and ever more research and education, I am certain that farmers and their men, and the industry as a whole, can keep on

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producing more at reasonable cost and that consumers can have every confidence that their next meal will be increasingly well assured.
6.50 p.m.
LORD BURTON: My Lords, I will be very brief, but I should like to make a few points which do not appear to have been mentioned to-day. May I first start by thanking the noble Baroness for having made this possible? First, there is a serious problem, brought about by the shipping strike, over barley in the Highlands. I do not know whether this is a national problem, but it is one in which I must declare a substantial interest. I have had a substantial amount of barley lying in store since the last harvest which I am now quite unable to move. It will be well known that at the end of this month the subsidy year comes to an end. Not only shall I be unable to get the subsidy on my last year's barley, but I shall have to pay a premium, for it will pass into the next year. I do not know whether this is a national problem, but it is certainly a very serious one for us, and I hope that it will be possible for something to be done about it. I will not ask for an answer to-night, but certainly it is a serious problem for a large number of people in the far North.
Secondly, my noble friend Lord Massereene and Ferrard touched on the plight of the hill sheep industry. A number of people, again in the North, are talking about removing their sheep from the hills altogether, as sheep on some of those West Coast hills in the north of Scotland are becoming quite uneconomic. They consider that in the present state of the industry it might well be worth increasing their deer stocks and farming deer instead of sheep. Thirdly, again in our part of the world, we are not at all happy about the beef cow subsidy. I appreciate that in some of the richer areas this may be a useful thing, perhaps particularly in Lord Raglan's part of the country: it is obviously a very prosperous one if there are no complaints there about agriculture. However, it does concern me that to administer this grant is probably going to cost a quarter of a million pounds. I would much rather see that quarter of a million pounds going into the farmers' pockets, and I feel that
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this could have been done by putting the money available for the subsidy on to the calf subsidy or on to the finished product, on the beef prices. I appreciate that the money would not have gone where this subsidy will be going, but it would have gone where it is most needed.
Fourthly, I buy very large quantities of artificial fertiliser and, as a result, I am able to get preferential prices from the merchant. I felt that it would be a good thing from my own point of view, as it would help my tenants, and also from my tenants' point of view, if they joined me in purchasing these fertilisers. so before I bought last year I circularised all the tenants and asked them to join together to get preferential prices. I was very surprised that no replies came. I went to one or two of the more progressive tenants, and asked what was the position. I found that they never paid cash for their fertilisers at all: they went to their merchant and undertook that the price of their fertilisers would be deducted when they sold their corn. This means that they are completely tied to the one merchant, absolutely in a cleft stick. This shows how very "sticky" it is for the small man in the capital world; and it is getting increasingly difficult to borrow from their bankers.
Finally, I would mention again the point that was touched upon by my noble friend Lord Allerton—agricultural wages. It is not easy now to get good men. They are going out of the industry very quickly; and not surprisingly when they see what wages they can get in industry for very much shorter hours. I should be very happy to see agricultural wages rise to something near what they are in industry, or perhaps even better; for, after all, we have had virtually no agricultural industrial disputes, and this is quite a remarkable achievement for man/management relationships, in view of the fact that this industry is probably the poorest paid of any. If the wage is to be adjusted I hope that it will be done prior to the Price Review and not, as so often happens, after it.
6.55 p.m.
VISCOUNT STONEHAVEN: My Lords, I want to thank the noble Baroness for making it possible to have this debate. I wish to make merely two points, perhaps three, to get a little clarification, if that is possible. My first is

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for a little more clarification on the policy or potential policy of import levies. People seem to be rather frightened of this because it affects the cost of living, and this is what I want to get a little clearer. When your Lordships bandy about millions of pounds I find it very difficult to know where you are. Having said that, I am going to do exactly that, so I apologise; but I hope to keep it simple.
If you take support for agriculture at a round figure of £350 million a year, and the population of the United Kingdom as being 50 million, you can divide a into b and you will find that the total cost of support in these very rough figures is £7 per head. Again, if you do a very rapid sum you will find that that is less than 3s. per week per head of the population. I am assured by my friends who smoke, which I do not, that a packet of cigarettes costs 4s. 6d. The suggestion is that this great burden of 3s. a week should be imposed over a period of five years, so it seems to me a bit of a "mountain out of a molehill", especially in the figures of tax we have been talking about.
I am not going to grumble about the tax—everyone else has done that, and I support them. There is one point the noble Lord, Lord Balerno, raised when he talked about rating. I want to raise another, and it is that although agricultural buildings are de-rated, the assessor of taxes is now endeavouring to assess a farmer if he puts a car into a part of his steading, calling the steading a garage and assessing him on it. I think this is scandalous. If you tell me a farmer can manage to-day without a car, I disagree: he cannot. This is the thin end of the wedge and the kind of swindle that is only too prevalent in perfectly good Acts of Parliament; you get this thing creeping in. This should be stamped on at once because, in my opinion, it is absolutely scandalous.
There is one other point. We are told that the ancillary items will be made up to the farmers in the Price Review. I hope that this is not only done, but (if I may parody the saying) be seen to be done, because there has been much criticism among farmers of Price Review decisions, justifiably or not. I hope it is made absolutely clear that these effects are compensated for in the Price Review. The only other matter I wish to raise is
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in regard to the increased efficiency of beef producers. If you could ensure that every cow you had presented you every year with twins, then your efficiency would have gone up enormously. I have a herd of roughly 200 breeding cows, and with the exception of old "Rosie", who has done it three times running, the rest have miserably failed. So increased efficiency is not always applicable to all types of farming, and I think that should be recognised. In that connection, I must say that the thought went through my mind that if the noble Lord, Lord Raglan, who had no grumbles, were to take over my farm on my marginal land at the foothills of the Grampians, and I were to take over his, I wonder which of us would go broke first.
7.0 p.m.
LORD CHAMPION: My Lords, my noble friend Lord Hilton of Upton, in making the first speech from this Box to-day, rightly paid tribute to the excellent speech of the noble Baroness, Lady Elliot of Harwood, and there is nothing that I can usefully add to what he said about that except to endorse his every word.
The noble Lord, Lord Nugent of Guildford, has made a maiden speech of the quality and with all the authority that one would expect from a recognised expert. In another place he was the Parliamentary Secretary to the Ministry of Agriculture, when I happened to have the pleasure from time to time of speaking on agriculture from the Opposition Front Bench. We crossed swords on many occasions without, I think, either ever conceding victory, but certainly so far as I was concernedour verbal combat always ended with my respect for him and his knowledge undiminished, indeed usually increased.
When I heard that the noble Lord was coming here, I was happy to congratulate him, although I realised that it boded ill for me and my future happiness, for he happens to be expert on two of my subjects, agriculture and transport. However, I am sure that neither of us will do or say anything which might destroy the friendship that can, strangely as some people would think, spring up across the Floor of either of the two Houses. I am sure that we shall all be happy to hear him again, excepting me, on the

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subjects in which he is expert, as he has proved himself to-day.
It is always a pleasure to listen to a debate on agriculture in this House, because in this subject so many of your Lordships are expert and knowledgeable because you actually participate in the day-to-day job of running a farm, or are landowners who know something of the problems of this great industry. Recently we have had a number of debates on this subject, and of course some more are in prospect, particularly when we get the Agriculture Bill up here. I think I can assure the noble Lord, Lord Balerno, that we are likely to get it here this time. I cannot imagine that we shall have another General Election so soon as to cause us not to get this Bill up here. I think that after this Bill has received, as it must, careful consideration in another place we shall get it here, and then we shall begin our examination of the Bill that they send to us.
Last October the noble Earl, Lord Ferrers, called attention to the position of agriculture, and we had a most useful debate in which we were able to discuss the key role for agriculture envisaged in the National Plan. A month ago we discussed—and I had to answer the debate—agriculture in relation to the selective employment tax. We shall, of course, have to consider this matter again when the Selective Employment Payments Bill comes to us; and here, I imagine, we shall not be short of people who will raise objections and suggest Amendments, and I am afraid I shall have to fight off many of them. Nevertheless, we shall listen to them because, as I have said previously, we have so many experts here.
The speeches by noble Lords to-day have covered a wide range of subjects in such detail that, quite frankly, I cannot hope to cover them all tonight. If I did, those of your Lordships who cared to remain to listen to me would be here until the early hours of the morning. Your Lordships would not welcome that; nor would I. I can guarantee that anything that has been said in this debate will be studied by the Agricultural Departments concerned, because they recognise your Lordships' expertise in this matter. I do not know whether "expertise" is a word that would be welcomed by the noble Lord, Lord
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Conesford, but I think we all know what is meant by it. But after all, the whole point of debates such as this is that the Government and all the people who might read this debate will be educated and to some extent persuaded.
I am sure that no noble Lord would expect from me "off-the-cuff" replies to many of the points that they have raised. However, I must begin by replying to some extent to what the noble Baroness said. She posed the question: what part has the agricultural industry to play in the national economy? She is not the only one who has posed this question. To some extent every speaker has. To some extent, too, I think it has been answered by various speakers in the debate. I was particularly struck by the speech of the noble Lord, Lord Netherthorpe, whom I do not see here now. Nevertheless, I was enormously impressed by his speech and its wide-ranging character covering the whole of the national economy and certainly the place of agriculture within it.
Before I come to some of the more detailed points, I should like to put into perspective some of the remarks which have been made about the general position of agriculture and the general effect of the Price Review. I believe that this year's Review award was a fair one. The award of £23 million covered about two-thirds of the increased costs of £32 million. This means that farmers have to find the remaining one-third, about £9 million, out of their rising efficiency, which this year has been assessed at about £30 million. Farmers will therefore he able to take a substantial sum gained from their increasing efficiency to help with investments for further expansion and to provide a reward for their work and enterprise.
Here, I must not fall behind other noble Lords in paying tribute to the work of this industry. They have done a grand job since the end of the war. It is true that their starting point was low, which makes it rather easier for them to show this increase of which they and we are so proud to-day. Nevertheless, despite what I have said by way of a caveat, the farming industry has indeed done an extraordinarily good job of work. If we could only get the same sort of response from the whole of industry in this

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country we should have little difficulty to-day in our national economy. Most of the problems we have would, I think, already be on the way to a complete solution.
However, the cycle of agricultural production is a long one, and if agriculture is to make its full contribution to the national economy its development needs to be considered not merely on a day-to-day basis but over a longer period. The decisions on prices and production grants at this year's Review must therefore be seen against the background of the National Plan, which sets out a selective expansion programme for agriculture covering the period to 1970. The security provided by this knowledge of our long-term objectives has been reinforced by the assurances given in this year's Annual Review White Paper, not only on the future level of cattle prices, the rate of the beef cow subsidy and on milk, but also on the use to be made of the industry's gains in productivity in the coming years.
Further assurance, if any were needed, of the Government's determination to promote the development of our agricultural industry is provided by the Agriculture Bill itself. The Bill is now before another place, and I must not anticipate the debates upon it, although the noble Lord, Lord Balerno, tried to tempt me into doing precisely that; but he has made his point, and I imagine he will make it again when the Bill has been presented to this House. Your Lordships will know that the Bill contains measures to encourage the longer-term development of the industry through improvements in the size, layout and equipment of farms, including assistance for investment, and through better marketing, and co-operation. It is also designed to promote the fuller use of hill land. These measures and those in the Annual Review White Paper, together with the general guide-lines set out in the National Plan, form a comprehensive and constructive policy aimed at helping farmers to continue modernising the industry and putting its well-being on a firm foundation.
I must say that I have very great sympathy with the point made by the noble Baroness and others about how this applies to some extent to the "barley barons". I gather that the noble Lord, Lord Raglan, is in the minor category
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of the "barley barons", or, if he is not he seemed to be very happy—and in fact most "barley barons" happen to be quite happy. They are the very people who at this time can use to the full the mechanisation which has been made possible by the research into the use of agricultural machinery, and so on. But I agree absolutely with the noble Baroness and others who have said that what applies to them cannot apply to the hill farmer. All we can hope to do in this connection is to secure that the size of the farm is right and that equipment is used to the best advantage on this type of farm. Everything the noble Baroness said in this connection certainly has my sympathy, for I speak as one who for a short time struggled with a hill farm in South Wales. I know the problems of which she spoke, touching the hill farms, and this applies particularly to Scotland, to Wales, and to some of the counties in the North of England.
The noble Baroness and the noble Earl, Lord Dundee, referred to the figures relating to the increase in the amount of bank loans from £250 million to £500 million, as a measure of the burden placed upon the industry because of the bank overdraft which the industry has to carry. Those figures are an indication of the amount of credit which is being made available to agriculture, and indeed the Government have introduced measures to underwrite guarantees on bank loans, which will be consolidated in the Agriculture Bill and which it is hoped will result in due course in an increase in the amount of credit available to farmers.
THE EARL OF DUNDEE: My Lords, the noble Lord said that these would be guaranteed. May I ask who will guarantee them?
LORD CHAMPION: I said: "to underwrite guarantees for bank loans." I think the phrase is clear. If not, I should like to clear it up with the noble Earl over a whisky afterwards. I understand that that is the product of his country, and he will know as much about that as I do.
The noble Viscount, Lord Massereene and Ferrard, talked about the loss of labour from the land. We recognise immediately that the labour content in some types of production is very much

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greater than in others. This must be taken into consideration by the Government, by the unions on both sides of industry; and they, in turn, must make sure that the Government take this matter into consideration at the Annual Review and in all their thinking. It is, of course, the purpose of debate that we should focus attention on such points, and that the Government of the day should be prepared to consider them and, if possible and necessary, do something about them.
The noble Viscount, Lord Bridgeman, who was kind enough to apologise to the House for his inability to remain, seemed to me to talk a lot of common sense about education, dealt with in the Pilkington Report, and about smallholdings, dealt with in the Wise Report. There is nothing I can say here tonight that will add to what the House knows about this. These two Reports have been received and are under urgent study by the Departments concerned. I know that this is a phrase which is often used by Ministers at Dispatch Boxes when talking about Reports, but it is a fact that we recognise the value of these two Reports which have been presented to us by these excellent Committees.
Both Lord Bridgeman and Lord Balerno pointed to the fact that many men prefer to be their own boss on a small farm, rather than work for others. They virtually asked the question: is the farming ladder still available for this type of man? We must do what we can to ensure that the ladder remains, but with every passing day difficulties increase. One has only to look at the cost of farmland and farms to-day to see that what was possible for some of us in a very small way in the inter-war years is no longer possible because of this fact. This is some answer to people who say that this industry is in difficulty. If the industry was really in difficulty, I could buy good land in Suffolk, as it was bought in the inter-war years, for £21 an acre—land which you could not get to-day for £250 an acre. I do not mean land that is likely to be built on, but land used for farming. This, I admit, is one of the problems of trying to enable the small man who is anxious to own a farm and to go on from there to something bigger; and how we are to solve it, despite the
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assistance of these Reports, I do not know.
I hope that we shall never lose sight of the fact that this is a good way to keep the men in the industry and to encourage them so that they have a chance of aspiring to higher things. So many of these men, first-class men, are by a misnomer called labourers and feel that they will be labourers for the rest of their lives without going any further. I dislike calling a man a "labourer", because of its connotation and the way the word has come to be accepted—the understanding that if a man does anything manual he is just a "labourer". For too long this understanding has been applied to the farm worker. Much of a farm worker's job is highly skilled, and with every passing year will become more highly skilled. Technological development will mean that we have got to have men in the industry who have received sufficient education to enable them to be classified as something very different from the ordinary "farm labourer" term now applied to them.
The more I saw of farming in the little time that I was in it, and the more I have looked at it elsewhere—because I happen to have a number of relatives in this industry, and they often read what I say and criticise it—the more do I appreciate the fact that the farm worker is often much more highly skilled than the machine-minder, who gets twice his wage in the town. I think that this is becoming increasingly recognised.
The consideration now being given, not to setting up a general standard or wage applicable to all but to endeavouring to separate farm workers into classifications which will give recognition of the actual work they do, is a tremendous advance. I am hoping that those who are considering this issue will come forward with something which will really remove the idea behind the term, and give to these highly skilled workers in the various classifications a reward for their skills which they must have and which is at least comparable to the payments for skills which operate in our towns.
The noble Viscount, Lord Massereene and Ferrard, said that he regarded all this talk about putting up the price of food as a lot of nonsense. It might be nonsense to a landowner and a farmer,

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as he described himself, but putting up the price of food is certainly not nonsense to the vast majority of people in this country; and this we must consider in connection with the whole business of, perhaps, going into the European Economic Community. We must consider this as a factor, and we dare not lose sight of it. It has more implications than merely the question of what the housewife pays at the week-end, although that is of enormous importance.
The noble Viscount suggested that the interest charged to landowners and farmers should be lowered; that they should have a special rate of their own. If we borrow a sum of money at a certain price and lend it at another price, that is merely another form of subsidy, and, however you look at it, you just cannot hide the fact.
The noble Baroness, Lady Elliot of Harwood, asked me about the rural development boards. Of course, this is germane to the Agriculture Bill which we shall be seeing. But I am sure she will be glad to know that the people who will be put on these boards will have a knowledge of farming matters. Also, she will be glad to see that the Bill provides that more than half of the members of a rural development board shall be appointed as
"having had experience of, and shown capacity in. or otherwise as having special knowledge of, agriculture and forestry."
Despite the language of the Paliamentary draftsman, I think that is pretty clear.
BARONESS ELLIOT OF HARWOOD: And there will be women, too?
LORD CHAMPION: The noble Baroness also made the point that women should come into this. I am sure that she would join with the noble Baroness, Lady Summerskill, in getting at me if we did not see to this, so far as it is humanly possible.
The noble Lord, Lord Nugent of Guildford, set before us what is the Conservative policy of substituting import levies for deficiency payments. I do not want to go into this deeply, although I have a fair amount which I could say about it. To some extent, I have said something about it already, because it is related to our possible entry into the European Economic Community. It is a matter of preparing our industry for what might happen if we go into the Common
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Market. All I will say about it immediately is that there has been a marked lack of support for these proposals by the National Farmers' Union. Perhaps that is understandable, because none of us likes to lose the securities which we have for some insecurity which might flow from an action which we do not at present understand.
But I can say to the noble Lord, Lord Nugent of Guildford, to the noble Lord, Lord Henley, and to the noble Viscount, Lord Stone haven, that these points deserve, and are receiving, consideration by the Government. They must do. We cannot say that because we like the 1947 Act, because we are still working the 1957 Act, this is right for ever and ever, amen. What we must do is to be considering always whether there is a better way of doing this job of securing for the industry a reasonable degree of prosperity, at the same time, perhaps, bringing certain advantages to the country. This is the job of the Government and we must go on doing this. But in this connection, as I said a moment ago, we must remember the warning of the noble Lord, Lord Netherthorpe, about losing a well-tried system. To some extent I should expect that from him, because of his particular connection with the industry as President of the N.F.U. for a long time.
I will not go very deeply into the points of the noble Baroness, Lady Elliot of Harwood, and the noble Lord, Lord Burton, about sheep and wool. I think it is sufficient for me to say that the Government do not want to see any check on the expansion which has been taking place in the hill sheep flocks, and for this reason the rate of hill subsidy was increased by ls. a ewe. This more than offsets the effect of the cut in wool, which was the equivalent of a reduction of about 9d. per hill ewe. In the lowlands, where flocks have been declining, the cut in wool is equivalent to about ¼d. per lb. on a fat lamb. In order to compensate lowland producers for this reduction, and to encourage the moderate expansion in sheep production which is desired under the National Plan, the guaranteed price for fat sheep and lambs was increased at the Annual Review by ½d. per lb. This increase, while giving the most direct benefit to lowland farmers, will benefit hill sheep farmers as well.

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I have some sympathy, as have the Government, with the point raised by the noble Lord, Lord Nugent of Guildford, about increasing our dairy herd in order to get more beef, and the Annual Review made some provision for this. But I am not sure that the best way to achieve this is to lower the gallonage per cow. This seems to be a rather wasteful way of attempting to achieve it. But, the suggestion coming from such a source, we must, of course, consider it.
LORD NUGENT OF GUILDFORD: My Lords, would the noble Lord allow me one moment of explanation? It is true that I used the catch phrase, "More milk from less dairy cows". What I intended, of course, was that less of the progeny of the dairy cows would go into the dairy herd, and more of them would go to make beef. I should expect the actual yield per cow to continue to rise.
LORD CHAMPION: I am glad the noble Lord has cleared that point up. So often, when we get up at Boxes or in our places, we love to use a catch phrase which sometimes creates misunderstanding, rather than give the sort of explanation which the noble Lord has now given to the House and with which I am in a great deal of agreement.
The noble Lord, Lord Arwyn, talked about the cut in the lime subsidy. It is not a very severe one. There has for a very long time been a high rate of subsidy in this country on lime distribution, and if we have not had the spreading of lime to the extent which the country ought to have had it, the farmers themselves are to blame for it. But there is still an estimated £9·5 million for the year 1966–67, and that is a tidy slice of money. It still is 50 per cent. of the cost, and this is a lot of money.
However, I agree with the noble Lord, Lord Arwyn—and here I am sure the noble Lord, Lord Netherthorpe, associated as he is with the great fertiliser firm of Fisons, would agree—that much of our grassland, despite all the money that has been poured out on fertiliser subsidies and on lime subsidies, is very poor indeed. Anyone who looks at farming in this country must wish that farmers would devote as much of their attention, their thought and their work to the improvement of their grassland as they have done
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to the improvement of their arable land. You cannot make any mistake about this. I am sure the noble Baroness, Lady Elliot of Harwood, knows that I am speaking the truth here. Despite all that was ever done at Aberystwyth by Sir George Stapled on in the wonderful improvement in seeds for this purpose, and despite the fertilisers that are now available, much of our grassland is a disgrace to the industry—but not all. Quite a lot of it is very well farmed, but certainly not as much as there ought to be in the circumstances of our time, the knowledge available to us and the subsidy that has been poured out upon it.
The noble Earl, Lord Dundee, made a suggestion to which I must revert, and that is that the agricultural investment grant should be doubled in the development areas. I am sure he seized on the phrase "development areas" because Scotland happens now to be a development area, having been so classified. The agricultural investment grants were drawn up in agreement with the agricultural industry, and it was decided that they should be at a uniform rate throughout the country, as is already the case with the Farm Improvement Scheme. One of the existing agricultural grants is in fact designed to meet the needs of special areas in this country, and this, of course, is the hill farming grant, which has been of particular value to both Scotland and Wales. At this stage, at any rate, neither of the Ministries which are involved here consider it right to apply special rates of grant to agricultural investment generally in the development areas, which have not been drawn up with particular refererence to agricultural conditions.
The noble Earl spoke, as did all the other speakers, about the impressive record of the industry. He urges us to keep this in mind always. My Lords, judging from my knowledge of this House, we are never likely to be able to forget it so long as the noble Earl is here; and practically everybody else who has spoken here to-day made it quite clear that we just dare not forget it. Indeed we never can and never shall.
The noble Lord, Lord Balerno, asked me a pretty straight question about S.E.T., the selective employment tax, and said that this will bring additional charges by the service industries—those industries which serve the agricultural industry and

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form part of the cost to the industry. My Lords, in so far as this is a genuine agricultural cost, it will, of course, have to be taken into consideration at the Annual Review. I welcome his support for the Livestock Commission proposed in the Bill, and I look forward to his supporting me again when I come to introduce this Bill in the House, after, I think, the Summer Recess.
On the point about Scotland's agricultural education, the Pilkington Advisory Committee on Agricultural Education deal with the further education below degree level in agriculture and allied technologies in England and Wales. The present arrangements for the award of national diplomas which are on a United Kingdom basis would be affected by the recommendations, which have, therefore, considerable implications for Scotland. Accordingly, the Report is now under urgent study (I use these words again; and they do mean something) by the Department for Agriculture and Fisheries for Scotland and by the Scottish Education Department. The Departments of the Secretary of State are in close touch with the Department of Education and Science about this matter. I hope that the noble Lord will accept my assurance upon it. I could answer him to some extent on his point about rating, but the document which has been sent along to me, by "pigeon post", is rather a long one, and I would much rather show it to the noble Lord afterwards than take up the time of the House on the matter at this hour.
My Lords, that brings me nearly to the end of the time I am going to devote to my reply. The noble Lord, Lord Allerton, welcomed the schemes for amalgamation, and advocated, as all of us who have any sense in this matter do, the sharing of machinery and labour. Farmers are about the worst sharers of machinery and labour it is possible to think of, because everybody wants to use a particular implement on the same day as everybody else who happens to be in that co-operative. Nevertheless, it is possible for them to get together, provided they have the good will, and the intention and desire to do it.
The noble Lord then went on to the capital gains tax, and he said he did not understand it completely. Here I have a fellow feeling for the noble Lord. Not being a finance Minister, I certainly do
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not pretend to understand the capital gains tax. Indeed, when I came to make out my income tax return I somehow dodged that little bit. But they were having none of it. They sent it back to me and said, "Please fill in that part of it". But I can assure the noble Lord that his remarks will be brought to the attention of the responsible Minister, and I am sure he would not expect me to say any more than that to-day.
LORD ALLERTON: My Lords, would the noble Lord say whether I was right in assuming that capital gains tax would be attracted in those circumstances? Perhaps his "pigeon post" has let him down.
LORD CHAMPION: My "pigeon post" does not at the moment happen to be assisted by a number of people from the Treasury, so perhaps it has failed me in this connection; but I will write to the noble Lord on this, and I am sure that is about all he can expect of me at this moment.
The noble Lord, Lord Raglan, talked a lot of sound common sense about this industry, and I would especially refer to his point on research. Research is so vital to this industry, and I hope that we shall never cease to do all we can to ensure that a sufficient amount of money is devoted annually to research, and to stepping up résearch. I agree with him that it is no longer of any use to pray to the moon or the sun or something else in the hope that this will bring increased fertility to our land and to our animals. We have to do some research, and I think we have got to do research on the point made by the noble Viscount, Lord Stonehaven—that is, of trying to ensure twins where to-day we get only singles. I should think that this is an extremely difficult one, but nevertheless I understand some research into it is going on and that some results are already being shown.
The noble Lord, Lord Burton, pointed to the fact, in relation to the purchase of fertiliser, that tenants will not cooperate because of the system which they now adopt of paying out of later receipts. They have not the ready cash and there is difficulty in borrowing from the bank. I did talk a little bit about this before, but the noble Lord's point is taken and we will certainly give consideration to it. I have taken rather a long time and

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I apologise to the House for it. I end where I began, by thanking the noble Baroness for raising this topic, and by thanking the House for the excellence of the speeches that have been contributed on it. I assure your Lordships, once again, that every word spoken in this debate to-day will be carefuly studied by the Minister.
7.40 p.m.
BARONESS ELLIOT OF HARWOOD: My Lords, I rise for one moment to thank the noble Lord, Lord Champion, sincerely for the extraordinarily delightful and charming way he has answered all our queries in this debate; for his assurance that he will draw the attention of the Government Department concerned to those that he has not been able to answer, and also that he will write to a number of noble Lords. I think there is not one of us here who does not appreciate the courtesy and kindness with which the noble Lord has always listened to what we have had to say, and also his great tenacity in remaining in his seat for the whole time, from 2.30 until now. I feel that this marathon was an Olympic performance by the noble Lord.
I should also like to say how glad I was to hear the first speech from the Front Bench by the noble Lord, Lord Hilton of Upton. It was also good to hear from the noble Lord, Lord Arwyn, from the Labour Benches. We appreciated the speeches of the noble Lord, Lord Nugent of Guildford, and the noble Lord, Lord Netherthorpe and I think that the noble Viscount, Lord Bridgeman, was right to bring up the question of agricultural education. I was very interested to hear the noble Lord, Lord Henley, from the Liberal Benches. I am sure we were glad to have his contribution, and also those of the noble Lord, Lord Balerno, and the noble Earl, Lord Dundee, both old friends of mine who know a great deal about the problems of Scottish agriculture. I was glad to hear from one noble Lord that the mechanisation which he has been able to undertake on his farm was so successful. As the noble Lord, Lord Champion, said, the variety of agriculture in this country is so great that what applies to one area does not necessarily apply to another; and with the
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best will in the world one cannot achieve everything that one would like.
I think it only right that I should give a slight warning about the labour position. If we go on talking of giving up more and more labour, we may find labour rushing away from the industry, so that there will not be enough to carry on the essential work in the country. We must bear this in mind. The same thing happened in the coal industry; and it has happened in many industries. If you start saying that the labour force could be reduced, then there is a beeline rush away from the industry so that, before you can wink, there are not enough people in the industry.
My Lords, this has been an interesting debate. It is the first in this new Parliament. I feel that it has been quite up to standard, and very useful. Certainly we on this side of the House found it useful. I hope that those engaged in the industry will feel that they have in the House of Lords, on both sides, Members who are genuinely interested in helping them. I think I can say, on behalf of the industry, that we are most anxious to play as important a part as we can in the economic situation of the country to-day. Everything we can do to help, we will do. I beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

YORKSHIRE REGISTRIES AMENDMENT BILL [H.L.]
Reported, with Amendments.
BRADFORD CATHEDRAL AND CHURCHYARD BILL [H.L.]
Returned from the Commons, agreed to.

LOUGHBOROUGH UNIVERSITY OF TECHNOLOGY BILL UNIVERSITY OF SURREY BILL
Returned from the Commons, agreed to, with Amendments; the said Amendments considered, and agreed to.
House adjourned at seventeen minutes before eight o'clock.