Sitting of 3 March 1977

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  GREATER LONDON COUNCIL (GENERAL POWERS) BILL (By Order)

    MERSEYSIDE PASSENGER TRANSPORT BILL (By Order)
    Orders for Second Reading read.
    To be read a Second time upon Thursday next.

ORAL ANSWERS TO QUESTIONS
  HOME DEPARTMENT

    Community Service
    Mr. Gwilym Robertsasked the Secretary of State for the Home Department what are the latest figures for the number of areas operating community service arrangements; and what steps he is taking to further the extension of these arrangements.
    The Minister of State, Home Office (Mr. Brynmor John): Community service arrangements now exist in the whole of 28 probation areas and in parts of 25 others. The Government have repeatedly emphasised the importance they attach to the development of community service within the limits of the resources available to probation and after-care committees, and have encouraged committees to achieve extensions where possible by appropriate reallocations of resources. I am glad to say that further extensions of these arrangements will take effect in certain areas from 1st April.
    Mr. Roberts: I greatly welcome that answer and I congratulate my right hon. and hon. Friends on the progress they
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    have made in this direction. Is it possible still to speed up the development of this service in view of the many factors involved, including the pressure on the prison population? Will the Minister also look at the possibility of providing additional resources for this purpose?
    Mr. John: As my hon. Friend will know, the question of resources is difficult, but within available resources we encourage the probation and after-care committees to look at their priorities, and we believe these arrangements to have high priority.
    Mr. Sims: Does not the hon. Gentleman realise that the freeze on recruitment to the probation service which was imposed last autumn makes it difficult, if not impossible, for probation committees to extend or develop their community order schemes? Will he reconsider this policy and perhaps lift the restrictions on recruitment?
    Mr. John: I understand the difficulties which financial constraints place upon all public services. In answer to my hon. Friend the Member for Cannock (Mr. Roberts), I said that redeployment in favour of these services is something which such committees would need to look at because it can be a valuable arrangement.

  Civil Defence
  Mr. Frank Allaunasked the Secretary of State for the Home Department what if the number and annual cost of staff employed by his Department and by local authorities in connection with his Department on home defence; what increases he proposes in staff and cost; and if he will make a statement on recent proposals for dealing with home defence.
  The Under-Secretary of State for the Home Department (Dr. Shirley Summer-skill): Three hundred and eighty-five civil servants were employed on 31st March 1976 by the Home Office on civil defence and related matters at an annual cost of about £1·2 million, and we have no proposals for an increase. We have no information about the number and salaries of local authority employees, and we know of no recent proposals about home defence which would warrant a statement.
  Mr. Allaun: Would it not be more honest to tell people that there is no effective defence against hydrogen bombs instead of sending out, as the Home Office did recently, a spate of circulars to certain county council officials? Second, would my hon. Friend like to comment on the more secret and sinister aspects of civil defence refered to in today's issue of Time Out?
  Dr. Summerskill: There have been no new proposals, and only one circular has recently been issued updating the contingency plans for the event of a nuclear attack. Some of the matters which have given rise to Press comment have been a feature of Government plans for 25 years, and others for the past five or 10 years.
  Mr. Banks: Is it not the case that many countries are spending money on building underground nuclear fall-out shelters? Is it not high time that the Government grasped this nettle and formulated a policy to ensure that proper shelters are available to house people from nuclear fall-out rather than dispersing them to their homes to die in misery?
  Dr. Summerskill: No. The Government have carefully considered this proposition and they do not advise the policy which the hon. Gentleman suggests.
  Mr. Woodall: Although there is no acknowledged or accepted defence against nuclear fall-out, has the Department any advice to offer authorities regarding defence from germ warfare?
  Dr. Summerskill: The circular which has been issued embraces catastrophes and emergencies, both civil and nuclear.
  Mr. Anthony Grant: Is the Minister aware that the Russians do not regard money spent on civil defence as wasted and that their contribution is quite astronomical, being about four times that of the United States? Is she further aware that in NATO terms our allocation to civil defence is really one of the feeblest? Will she take note of the last report of the committee of NATO on civil defence which recommended that there should be an allocation from the defence budget itself?
  Dr. Summerskill: The Home Office is in continuous consultation with my right hon. Friend the Secretary of State for
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  Defence about the matters which the hon. Gentleman has raised, and our policy is decided according to co-operation between the two Departments.

  Age of Consent
  Mr. Michael McNair-Wilsonasked the Secretary of State for the Home Department what changes, if any, he proposes to the law governing the age of consent.
  Mr. John: We have no present proposal to do so. The law relating to the age of consent is being considered by the Criminal Law Revision Committee and the Policy Advisory Committee in the context of a wider review of the law relating to sexual offences.
  Mr. McNair-Wilson: Is the Minister of State aware that recent flippant comments from judges appear to have brought the age of consent into question, and is he aware also that 3,500 girls under 16 had abortions carried out on them last year? Will he ask the judiciary to stick to the letter of the law?
  Mr. John: In this country the judiciary is independent, and I am sure that if Ministers started to interfere with the judges in the exercise of their discretion the hon. Gentleman, among others, would be the first to shout.
  Mr. Lipton: In view of conflicting judicial decisions, which seem to make the age of consent a movable feast, could we have a little more certitude in this branch of the law and a little less beatitude?
  Mr. John: I am not sure whether the age of consent is a feast, but the age is 16 under the Sexual Offences Act 1956. It is neither movable nor is it to be moved.
  Mr. Alison: But has the Minister of State, as representative of the public, noted the concern expressed by many members of the public at the apparently indulgent attitude taken by some High Court judges towards statutory sexual offences against children, and does he share that concern?
  Mr. John: As a member of the public, I have, of course, noted what judges have said, but as a Minister all I say is that the judges, within the discretion given

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  to them by Parliament, have a right to express themselves. Although I have opinions as a private Member, I am answering on this occasion not as a private Member but as a Minister.

  Computers and Privacy
  Mr. Michael Stewartasked the Secretary of State for the Home Department when he will bring forward legislation based on the White Paper on Computers and Privacy, Cmnd. 6353, published in December 1975.
  Mr. John: The timing of the legislation will depend upon the progress made by the Data Protection Committee.
  Mr. Stewart: As there seems to be a bit more time available generally nowadays, could my hon. Friend be a bit more definite than that?
  Mr. John: I take it that my right hon. Friend refers to the time available to us. As I have said, we are governed in this case by the speed of deliberation of the Data Protection Committee, which undertook its examination of this difficult subject only in August last.

  Police (Pay)
  Miss Fookesasked the Secretary of State for the Home Department if he will make a statement about the latest position in the pay dispute with the police.
  Mr. Aitkenasked the Secretary of State for the Home Department when he next expects to meet the leaders of the Police Federation.
  Mr. Hal Millerasked the Secretary of State for the Home Department when he will next meet the Police Federation.
  Mr. Viggersasked the Secretary of State for the Home Department if he will make a statement on the current claim by the Police Federation for improved terms of service.
  The Secretary of State for the Home Department (Mr. Merlyn Rees): I last met the Chairman and Secretary of the Police Federation for England and Wales the day before yesterday. This was the latest in a series of meetings; and my right hon. Friend the Secretary of State for Scotland has had meetings with representatives of the Scottish Federation. I have also had meetings—the latest only
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  this morning—with representatives of the official side of the Police Council, which, of course, has to be involved in any settlement.
  In the course of those meetings I have made clear that, if we can resolve the immediate pay problems, I am prepared to initiate a review of police pay negotiating machinery and an examination of the constitutional arrangements for the Police Federation. I am having a further meeting with the chairman and secretary of the federation this evening. It would be wrong for me to comment in detail on the situation at this time. I can say, however, that I very much hope that it will be possible to reach a solution acceptable to all concerned and compatible with the current phase of pay policy.
  Mr. Speaker: As four Questions from one side of the House are being answered together, I shall call other hon. Members for supplementary questions afterwards.
  Miss Fookes: I recognise the delicacy of the situation, but will the Home Secretary bear firmly in mind the principle that those who behave with most responsibility should not fare worst?
  Mr. Rees: Yes, but in this respect—I have been looking into it recently—one has to remember that even in bad times the number of people who have had pay awards because of strikes has been extremely small, and, as regards the police, their unique position was recognised 18 months ago when they had 30 per cent. instead of £6. I certainly understand the uniqueness of their position, but I must act within the pay policy.
  Mr. Aitken: Does the Home Secretary realise that, if the pay talks with the Police Federation break down, the Government will have set the police down the politically dangerous road of becoming a trade union-type organisation, affiliated to the TUC and with the right to strike? Does not the right hon. Gentleman feel that any such fundamental change in the unique status of the police would be highly regrettable, since the police must be seen to be independent of all political groups and factions if they are to do their job properly?
  Mr. Rees: Certainly, with regard to the right to strike I agree fully. However,

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  with regard to the question which the police have raised with me—and, I understand, over a long period—that we should look at the status of the Police Federation, it is not for me to say what the TUC would say. If the police were to talk to me about affiliating to the TUC, that is a matter which I should consider, but it has not arisen.
  Mr. Miller: In the course of his meetings, has the Home Secretary understood the very genuine feeling of the police that they have not been given the award which they were originally granted in the way in which it was originally awarded? Should the matter come to the Cabinet on a discussion of pay policy, will the right hon. Gentleman try to explain to his colleagues that the public place a far higher priority on carrying through the police award than on some other items of public expenditure?
  Mr. Rees: In fact it did come to the Cabinet, and on that occasion my predecessor put the case for the police having 30 per cent. instead of £6. That was the decision taken. So the Cabinet has done exactly what the hon. Gentleman suggests. [Interruption.] It is no good making a statement and then withdrawing from it. At that time the Cabinet treated the police as a unique body, and that is why that decision was taken.
  Mr. Viggers: Is the Secretary of State aware that the police accept that they were regarded as a unique case 18 months ago but that this should not now be thrown in their teeth in negotiations, and that they should continue to be regarded as a unique body? Will the right hon. Gentleman continue to maintain in the discussions that the moderation of the police must not allow them to be treated less well than people who show themselves to be bloody-minded and unreasonable?
  Mr. Rees: I am grateful to the hon. Gentleman. I think that he shows an understanding of the matter. What we are now talking about in this context is an increase of 5 per cent. in earnings, subject to a minimum of £2·50 and a maximum of £4 a week. It is within that context that everyone has to settle. But, as I say, I have discussed—not negotiated, because there are others
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  involved there—forward commitments into the next phase. I am aware of the uniqueness of the police. The problem is within this phase, and it is important for the sake of everyone that we should get to negotiation and settle this matter.
  Mr. Kilroy-Silk: Is my right hon. Friend aware that there is considerable dismay and concern in Lancashire about the activities of the chief constable there? Does he not consider it appropriate in these circumstances that the chief constable and the senior officers should be suspended from duty—
  Mr. Speaker: Order.
  Mr. Kilroy-Silk:—and that my right hon. Friend should institute—
  Mr. Speaker: Order. I remind hon. Members who continue to speak after I have called for order that I have an inclination to lose my sight for a while where they are concerned. That is only fair to the House, and hon. Members must acknowledge the rule. The Question is about police pay.
  Mr. Hooson: Has the Home Secretary had talks with the Chancellor of the Exchequer to find out whether it is possible to conduct talks, with the intention of obtaining a settlement for August or September, that will enable a more amicable settlement in the present phase?
  Mr. Rees: If the hon. and learned Gentleman is referring to the next phase, that is a different matter altogether. It is, of course, a matter for the Police Federation and other organisations. All I can say is that what we have been talking about—not negotiating—refers to this phase with regard to the pay angle. Forward commitment—upon which there has been some discussion—does not seem to be a major issue.
  Mr. Kilroy-Silk: On a point of order, Mr. Speaker. May I draw your attention to the fact that Question No. 7 refers to meetings with the Police Federation, not to pay, and that, therefore, the question that I raised is a proper matter of concern for the Federation? Would the Home Secretary now care to answer my question?
  Mr. Speaker: Order. I dealt with that question earlier.
  Mr. Ford: Is the Minister aware that there will be wide public support for measures to allay discontent in the police force, particularly from people such as some of my constituents who are afraid to go out in the evenings and who realise that the only way to defeat hooliganism, vandalism and petty crime is by having a plentiful supply of contented, well-paid bobbies on the ground?
  Mr. Rees: I agree, but during the lifetime of this Government we have spent, in real terms, £¼ billion more on law and order and the number of police has increased every year. Of course contentment matters. The number of policemen is not the issue.
  Mr. George Rodgers: Is my right hon. Friend aware that, while many hon. Members on this side have considerable sympathy for people who have received rough justice at the hands of the social contract, they would resent a breach of the Pay Code in isolation for the police?
  Mr. Rees: Nobody, during the talks I have had, has asked me to break the pay policy. The discussions have been about how to be fair to all concerned and finding a way forward within the existing pay policy. I must make that clear.
  Mr. Whitelaw: Is the Home Secretary aware that I join him in hoping that he will be able to reach a fair settlement that will recognise the work that, as the hon. Member for Bradford, North (Mr. Ford) has stated, the police have to do? In reaching that settlement, will the Home Secretary accept that the situation is serious when there is a sense of grievance within the police force so great that there are demands for the police to be given the right to strike? Does the Home Secretary agree that such demands are a step down the dangerous road to a police strike, which most people would regard as a national catastrophe?
  Mr. Rees: I agree with the right hon. Gentleman that the road towards a police strike would be a bad way for the community, even if the facts of the matter belied the argument that underlay the feeling. There is a feeling of frustration and I come across it when I visit police forces, but I judge that it exists far more among young policemen than
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  among older ones. I recognise that we all want to find a way out of the problem.

  Nationality Law
  Mr. Ronald Atkinsasked the Secretary of State for the Home Department when he expects the current review of nationality laws to be concluded; and if he will introduce legislation in the present session.
  Mr. Durantasked the Secretary of State for the Home Department when he expects to publish the report of the Working Party on Nationality.
  Mr. Merlyn Rees: As I explained on 9th February, following my statement on the Franks Report, my next step will be to publish a discussion paper on nationality law at the appropriate time.
  Mr. Atkins: In view of the muddle in the present nationality laws, does the Home Secretary agree that urgent action is needed to make the laws clear, comprehensive and as consistent as possible?
  Mr. Rees: As I indicated the other day, I intend to publish a document soon. It will be a discussion paper, not because of lack of parliamentary time, even though under the best of circumstances that is a difficult matter, but because this is a complicated matter. The reason why I want it to be a discussion document is that any legislation will have to stand the test of time. It will have to translate the transition from Empire, durbars and Queen Victoria into the reality of today, and that will not be easy.
  Mr. Durant: Is the Home Secretary aware of the urgency of the problem particularly for his officials and other Ministers' officials in embassies and high commissions who have to interpret the existing laws and find it extremely difficult?
  Mr. Rees: I am not so sure that they are interpreting the nationality laws. I suspect that they are interpreting the Immigration Act 1971, and I am glad that I was not responsible for that Act.
  Mr. Emery: Will the Home Secretary ensure in his discussion document and his thinking that he takes powers for himself and for other Home Secretaries for special provisions to be made for the grandchildren and great-grandchildren of people whose whole parentage has been

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  born abroad but who have always considered themselves British and who have always been Anglo-Saxon people? It is important to them—[Interruption]—although it may not be to some hon. Members opposite, that they should have the right of British nationality.
  Mr. Rees: I have no doubt that the hon. Gentleman has read the 1971 Immigration Act. The transmission of nationality is one of the problems that one finds when considering citizenship. Citizenship is not something that one feels ought to be transmitted over the years, otherwise it ceases to be citizenship. Let us not come to a view on the matter now, but let us have a discussion to see how difficult it is to deal with each of these matters.

  Prison Service
  Mr. Stephen Rossasked the Secretary of State for the Home Department what steps he intends taking to improve morale in the Prison Service.
  Mr. Merlyn Rees: The Prison Service, which is operating under severe pressure because of overcrowding and the number of disturbed and disruptive prisoners with which it has to deal, will continue to have my full support in discharging its difficult and demanding duties.
  Mr. Ross: I am pleased to hear the Minister's response to my Question. Does he accept that there is too much bureaucracy and secrecy in the administration of the Prison Service and that there is a great need for better public relations between the Prison Service and the general public? Does he agree that there is a dire need for the Home Office to give an earlier official response when incidents occur rather than, as at present, the Home Office attitude leading to outside bodies publishing documents that are often misleading?
  Mr. Rees: On the matter of openness, I have found that I cannot have it both ways. I allowed television and others to visit prisons because I felt that it was right that the public should know the situation. Then one receives criticism of what has been revealed. But that is the way that it should be.
  There is a problem about the Prison Service. There is no doubt that much
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  comment is ill-informed, but my Department cannot respond unless it has the full facts because ultimately there may be questions for the courts. Meanwhile, the Prison Officers Association feels that many hon. Members are critical without knowing the facts and it feels the same about the media. I ask people who make such investigations to remember that there are two sides to the coin and that prison officers have a difficult job to do.
  Mrs. Renée Short: Does my right hon. Friend accept that grossly overcrowded prison conditions, lack of privacy and the refusal of parole without reason are factors that affect prisoners and inevitably prison officers as well, because the two are absolutely interdependent? Can he say whether he is carrying out any review of sentencing policy in order to reduce overcrowding?
  Mr. Rees: I am looking at the whole matter of overcrowding, but if any real change is to be made some of the things that I shall have to do will not be popular. That will have to be understood by the police, the prison officers and the public. I sometimes wish that we put a lot of effort into making the problems known, because often when decisions are taken they are grossly misunderstood since the facts of the matter are not widely known.
  Mr. Edward Gardner: Will the right hon. Gentleman accept that there are, no doubt, hon. Members in all parts of the House who will support what he has said about the need to put to the public both sides of the dispute over prison conditions? Can he confirm that in order to achieve this he intends to have the report on the Hull Prison riot published as soon as possible?
  Mr. Rees: I have already said that. I have asked for the report to be written in a way that would enable it to be published. It is very important. I know that the hon. and learned Gentleman will not misunderstand me when I say that the repercussions among the public are one thing, but the repercussions of the film on the prison are another. Many officers felt they had been very badly dealt with in that film. They participated in it and I do not grumble at that, but it is not simply reports from my Department that

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  are important. Reports by other people are equally important.
  Mr. Jim Marshall: Is my right hon. Friend aware of the low morale at Leicester Prison, which has arisen for many reasons but particularly the Home Office policy of using detached duty staff and, perhaps more important, the delay in the publication of the prison inspector's report into conditions at Leicester Prison arising from the Hughes escape? Can my right hon. Friend comment on these matters?
  Mr. Rees: I understand the problem over detached duties and I am looking at it, though without commitment. I have received the report about Hughes and it is being printed. I shall not give a precise date for publication, because, with the best will in the world, we do not know when it will emerge ready for publication, but I hope to publish it very soon as I promised in the House some weeks ago.
  Mr. Alison: Is the right hon. Gentleman aware that one factor that is exacerbating an already difficult situation in our prisons is that economies in the service are being realised by cutting prison officers' overtime, necessitating the earlier locking up of prisoners and a consequent souring of relations between prisoners and prison officers? Will the right hon. Gentleman give instructions that this sort of economy should not be allowed?
  Mr. Rees: I should need to look at that question carefully. I did not understand that to be the case. The problem over overtime has arisen because there are now more prison officers. In the past, an important part of their income has been derived from overtime. Now that more officers have been recruited, the income of others, particularly the elderly officers, has been cut.

  Vandalism
  Mr. Ashleyasked the Secretary of State for the Home Department what recent steps he has taken to combat vandalism.
  Mr. Merlyn Rees: Since replying to a similar Question by my hon. Friend on 3rd February I have had discussions with my colleagues in other Departments and
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  I hope that it will be possible to hold a conference soon.
  Mr. Ashley: Is my right hon. Friend aware that I appreciate his reply, especially since many old and disabled people are terrified of vandalism? At the conference will he bear in mind that, if any generals suggest that there should be vigilante groups to combat vandalism, that suggestion should be rejected out of hand? However, will he consider setting up anti-vandal units in the Home Office and in each police area?
  Mr. Rees: We are all against vigilante units. I think my hon. Friend will find that most police forces have an anti-vandalism unit or something similar. I am content that this work should be done locally because, although I can give a lead on behalf of the Government on dealing with vandalism, it has to be dealt with in the areas concerned.
  Mr. Eldon Griffiths: Is the right hon. Gentleman aware that the difficult fight against the rising tide of vandalism is not being won and could be lost unless he deals with the problem of deteriorating morale, particularly among younger police officers?
  Mr. Rees: I admit that morale is a problem, but even if the morale of the police were suddenly uplifted and their pay were increased I do not think that that would prove to be the main issue. From what I have read in many reports in the Home Office, I have learned that the problem of vandalism is far deeper than that. It is a scourge of modern society. It is not just youngsters deliberately breaking up things; it is such factors as the availability of ink that can be squirted all over the place and the way in which local authorities and others build housing estates. There are many aspects to the problem. It is not only a question of police conditions.
  Mr. Heffer: Is my right hon. Friend aware that many of us who are very anxious to stop vandalism find it a difficult problem to solve? Is he aware, for instance, that I asked my local police to put on extra patrols and when they did I ran into criticism from parents in the area, who claimed that the police were picking up youngsters who had not been involved in vandalism? Will my right

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  hon. Friend therefore keep a balance in this matter and realise that it is difficult to get it right?
  Mr. Rees: I agree with my hon. Friend. He has discovered what I have learned in this job—that even though one has the best of intentions, one sometimes gets criticism. However, that is what we are paid for.
  Mr. Nicholas Winterton: Does the right hon. Gentleman agree that vandalism relates not only to damage and destruction of property but to damage and destruction of people? In the light of the callous and brutal murders in my constituency within the last week, will he consider bringing in a referendum to allow the people of this country to decide whether there should be a capital deterrent?
  Mr. Rees: It would not be right for me to comment on a case that is subjudice. As with vandalism, there is no simple answer to the problem with which the hon. Gentleman is concerned. That has been found over the years.
  Mr. Raphael Tuck: Would my hon. Friend consider my suggestion in regard to vandals and all hooligans? Do not put them in prison or on probation; stick them in the Army for three years. That will give them discipline—
  Mr. Speaker: Order. The hon. Gentleman is asking a question and answering it at the same time. Perhaps he will complete a question.
  Mr. Tuck: I was asking my right hon. Friend whether he would consider sticking them in the Army. Does he not agree that this would discipline them and give them a lesson that they would never forget and would probably discourage future acts of vandalism?
  Mr. Rees: If my hon. Friend puts that to people in the Army, they will tell him where he can stick his answer.
  Mr. Whitelaw: Has the right hon. Gentleman read the 1975 report of Chief Superintendent Chappell of the Merseyside police entitled "Report on the Social and Police Problems in Kirkby"? Is he aware that the report discloses a very serious state of lawlessness there, with vandalism rife, a very high crime rate, serious truancy in the schools, and mas-
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  sive arrears of rent? Is it not important that the authorities in the area should be backed so that they can re-establish some sense of community?
  Mr. Rees: I have not read the report, but I shall now do so. Rent arrears occur in all parts of the country, just as drug-taking occurs more often in the higher income groups than in the lower income groups. We need to look at these problems in depth, and I shall read the report.
  Mr. Speaker: The next Question—Mr. Patrick Mayhew.
  Mr. Ogden: On a point of order, Mr. Speaker. The right hon. Member for Penrith and The Border (Mr. Whitelaw) made direct references to conditions in the constituency of my hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk). In those circumstances, and assuming that the right hon. Gentleman knew exactly what he was doing, my hon. Friend should have an opportunity to put a more balanced view.
  Mr. Speaker: Order. I want to be fair. Perhaps the hon. Member for Ormskirk (Mr. Kilroy-Silk) will ask his question.
  Mr. Kilroy-Silk: Will my right hon. Friend point out to the right hon. Member for Penrith and The Border (Mr. Whitelaw), who has made a terrible slur on the town of Kirkby and the people who live there, that many of the local people resent the unfair generalisations of the Chappell Report and that the people of the town suffer to a higher degree than anywhere else in Western Europe from social deprivation and unemployment?
  Mr. Rees: I have not read the report, but my hon. Friend will remember that I visited his area There is no doubt that there are problems in my hon. Friend's area. There are problems in other parts of the country as well. There is no doubt that one factor is economic and social deprivation, for which we have a responsibility.

  Immigrants (Marriages of Convenience)
  Mr. Mayhewasked the Secretary of State for the Home Department if he is yet in a position to give details of the new Immigration Rules covering marriages of convenience.
  Dr. Summerskill: Not yet, but my right hon. Friend hopes to lay the new rules before Parliament in the course of this month.
  Mr. Mayhew: In framing the new rules, will the hon. Lady's right hon. Friend bear in mind that evidence can arise in certain cases after the event that throws light on the true intention of the marriage? Will her right hon. Friend take power with proper safeguards in such a case to revoke the qualification to which the original marriage gave rise?
  Dr. Summerskill: I advise the hon. and learned Gentleman to study the rules when they are laid. If he does so, I think he will find the answer to his question.
  Mrs. Knight: Will the hon. Lady bear in mind that there is a good deal of evidence that these marriages are being undertaken illegally in that the persons who marry are already married and have not been divorced? Will she consider the possibility of the need to check at a central registry of births, divorces and deaths before a marriage licence is allowed?
  Dr. Summerskill: We are considering the very point that the hon. Lady has raised.
  Mrs. Hayman: When my hon. Friend is considering the rules, will she ensure, despite some of the more strident cries from Conservative Members, that they are not tipped in the balance so that they become a harassment to couples who marry legally and genuinely?
  Dr. Summerskill: We are anxious to do what my hon. Friend suggests, but, as my right hon. Friend has announced, we are determined to tackle abuses of the present system of immigration control. One such abuse is a marriage of convenience aimed solely at achieving entry to this country or avoiding removal.

  Immigrants
  Mr. Eyreasked the Secretary of State for the Home Department what is the total increase in the number of immigrants who have settled in Great Britain in each of the following years: 1973–74, 1974–75 and 1975–76.
  Mr. Lawrenceasked the Secretary of State for the Home Department what
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  is the total increase in the number of immigrants who have settled permanently in Great Britain in each of the following years: 1973–74, 1974–75 and 1975–76.
  Sir W. Elliottasked the Secretary of State for the Home Department what is the total increase in the number of immigrants who have settled permanently in Great Britain in each of the following years: 1973–74, 1974–75 and 1975–76.
  Dr. Summerskill: The total numbers of Commonwealth citizens and foreign nationals accepted for settlement in the United Kingdom, either on arrival or on removal of time limit, in each of the years 1973–75 were, respectively, 55,162, 68,878 and 82,405.
  The figures show increases of 13,716 between 1973 and 1974, and 13,257 between 1974 and 1975. The provisional figure for total acceptances for settlement in 1976 shows a slight decrease compared with that of 1975.
  Mr. Eyre: Is the hon. Lady aware that immigration has heavily increased under the present Government and that one of the most serious aspects is the developing problems in the crowded, run-down inner areas of cities such as Birmingham which are the main immigrant reception areas? Resources for housing, education and social services are being cut. Unless the Government are willing to allow the creation of extended slum areas, which cannot be in the interests of any family living there now, will the Government undertake a drastic review of immigration and reduce the numbers arriving?
  Dr. Summerskill: As the hon. Gentleman may have heard in my reply, there has been a decrease during the past year. I am sure he will agree that the conditions to which he refers should not affect—I do not think this is the policy of his party—entitlement to admission conferred by Parliament on the dependants of Commonwealth citizens.
  Mr. Speaker: Will the two hon. Members whose Questions are also being answered ask very brief supplementary questions? Otherwise we shall be taking Prime Minister's Question Time.
  Mr. Lawrence: Is the hon. Lady aware that the new immigrants are not being spread evenly throughout the country but

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  siphoned into 18 large towns and cities throughout the country, thus putting tremendous pressure on existing resources? What on earth is the point of making matters worse if the Government do not have the money available to give increased resources to the areas concerned?
  Dr. Summerskill: There is no direction of immigrants to where they should go to live. I do not think that the hon. Gentleman would want to see that.

  ISLE OF WIGHT
  Mr. Stephen Rossasked the Prime Minister if he will pay an official visit to the Isle of Wight.
  The Prime Minister (Mr. James Callaghan): I have at present no plans to do so.
  Mr. Ross: Is the Prime Minister aware that I am deeply disappointed that he will not be following the now monthly visit of official Opposition Members to my constituency? Is he further aware that in the Isle of Wight there are three prisons, two of which are in the top security category, and that prison officers on the island would very much like to meet him? Will he follow up the initiative on education and start a great debate on all aspects of prison life and sentencing?
  The Prime Minister: My right hon. Friend the Secretary of State for the Home Department has already answered the hon. Gentleman on some of those matters this afternoon. I am very satisfied with the way in which the matter is now being dealt with and I see no reason to intervene personally.
  Mr. Heffer: Before my right hon. Friend visits the Isle of Wight, will he visit Liverpool, where there are now over 80,000 unemployed and where—
  Mr. Speaker: Order. I must remind the hon. Gentleman that I ruled earlier this week and last week that supplementary questions should have some relationship to the Question, otherwise we can go round every city in the United Kingdom on the one question.
  Mr. Heffer: On a point of order, Mr. Speaker. [Interruption.] I do not care
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  what you say. We have over 80,000
  people unemployed—[Interruption.]
  Mr. Speaker: Order. The hon. Gentleman did not mean to be discourteous. He was emphasising that he feels strongly about the matter. Perhaps he will ask a question and try to relate it to the Question on the Order Paper.
  Mr. Heffer: It is possible that Plessey has a factory in the Isle of Wight—
  Mr. Ross: Yes, it has.
  Mr. Heffer:—although I am not aware of such a factory. However, before my right hon. Friend visits the Plessey factory on the Isle of Wight will he visit the Plessey factory in Liverpool, where 2,800 workers are likely to be put out of work in the next few months, adding to the 89,000 who are already out of work on Merseyside? Will my right hon. Friend recognise that Merseyside is now becoming a disaster area and that we cannot tolerate it any longer?
  The Prime Minister: There is a Question on the Order Paper concerning an official visit to Kirkby, which is part of Merseyside. I was expecting and intending to make some observations in response to the supplementary questions that I assumed would be coming on that Question. Perhaps it will be more convenient if I make my observations in response to that Question.
  Mr. Adley: Is the Prime Minister aware that both in the Isle of Wight and in my adjacent constituency there are many people who work at Vosper Thornycroft? Is he aware that Vosper Thornycroft accounts for 10 per cent. of the ship repairing capacity of this country? As the Government have now decided to remove the ship repairing companies from the nationalisation proposals, does he agree that the ship repairing capacity of Vosper Thornycroft should be offered the same life line?
  The Prime Minister: I am not prepared to give an answer to that detailed question on this Question.
  Mr. Gould: Is my right hon. Friend aware that many employees of Vosper Thornycroft in my constituency will be delighted by the fact that the Royal Navy has placed an order for a Type 42 frigate with the firm and that they will draw

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  comfort from that fact and will appreciate that they have nothing to fear and a great deal to gain from public ownership?

  KIRKBY
  Mr. Kilroy-Silkasked the Prime Minister if he will explain why he has not yet made an official visit to Kirkby.
  The Prime Minister: I visited Merseyside in September last, but there was insufficient time for me to go to all parts. I will bear in mind the possibility of going to Kirkby on a future occasion.
  Mr. Kilroy-Silk: When my right hon. Friend visits Kirkby, he will be aware that it has the highest rate of unemployment in the whole of the United Kingdom and that the town will be further decimated by the announced closure of the Plessey factory. Will he look at this matter urgently? Will he look at the Post Office's ordering policy? Will he, in particular, look at the possibility of taking into public ownership the whole of the telecommunications industry?
  The Prime Minister: I have considered this matter since it came to my attention this morning. I am glad to be able to say that, as the House may already know, my right hon. Friend the Secretary of State for Industry has today appointed Professor Posner to review the latest Post Office ordering cuts. The terms of reference of his inquiry will be
  "To consider the assessment which led the Post Office in November to reduce the future level of orders for telephone exchange equipment and to report."
  That seems to be the first step to take in this particular matter. The technical considerations which led to this position are fairly well known. I think that, in view of the seriousness of the situation, we should carry the matter a little further.
  After consultation with my right hon. Friend today, I shall be asking the National Enterprise Board—[HON. MEMBERS: "Oh."]—which has established a regional director in both the North-West and the North-East, to investigate the investment potential in both areas and to report to us on what can be done to offset any of the disastrous consequences which may ensue. I believe that to be the best way to tackle both the
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  Post Office side and alternative employment.
  Mr. Grylls: If the Prime Minister goes to Kirkby, will he repeat what he said yesterday—that he will not be pushed out of office—and will he explain to the House and the country why he said that? Is it because he enjoys being Prime Minister or because he believes that his industrial and economic policies have been so outstandingly successful that he must stay on?
  Hon. Members: Answer!
  Mr. Ogden: I thank my right hon. Friend for the considerable interest that he has shown in the problems of Kirkby and of Sunderland and particularly of the Plessey organisation. Will he take one further action today, namely, use his considerable influence with the Plessey company to get an assurance that there will be no redundancies while consultations and all other efforts are taking place? I believe that he can ask for that assurance and that the Plessey company ought to give it freely.
  The Prime Minister: Under the Employment Protection Act, which is one of the Acts passed by this Government, the company is required to give, and has, I understand, given, 90 days' notice before any redundancies can take effect. That should give us the time that we need to investigate these matters.
  Mrs. Thatcher: Does the Prime Minister recall that when his predecessor visited Kirkby in 1972 and went to the employment exchanges he said that he felt a sense of shame at the then level of unemployment, which was just touching 1 million for Great Britain as a whole? I have no need to ask the Prime Minister whether he feels a sense of shame. I am sure that he does. But, on the third anniversary of the beginning of the Labour Government, will he now accept responsibility for the level of unemployment, which has increased by 700 for every day that his Government have been in office?
  The Prime Minister: No, I do not accept that responsibility. [HON. MEMBERS: "Oh."] If the right hon. Lady attempts to deceive her followers into believing that the Government can cure these matters, if she ever came to office

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  she would rapidly disillusion them. I do not think that the cause of democracy, to which the Opposition say they are attached, is strengthened by that kind of superficial approach to this problem. It is well known that the levels of world recession, coupled, as the Conservative Party's documents say, with the run-down of British industry over a period of 30 years, will take us a long time to recover from them. The right hon. Lady does not help by pretending that there are immediate and quick solutions, and she should stop doing it.
  Mrs. Thatcher: Then I take it that the Prime Minister is prepared only to accept office but never responsibility.
  The Prime Minister: The right hon. Lady is still showing her slip on these matters, and her preoccupation with office comes out in nearly every question that she asks. I am ready to accept responsibility for taking the harsh decisions necessary to achieve the industrial regeneration of the country and to put our economy on a sound foundation. That involves taking harsh decisions, not making idiotic quips.
  Mr. Mellish: Is it not absolutely sheer humbug for the Conservative Opposition to moan and groan about unemployment when their policies, from what little we know of them, of massive cuts in Government expenditure would mean that there would be many more unemployed? What kind of humbug is it that we are getting from the Opposition Front Bench?
  The Prime Minister: It is well known that the right hon. Member for Leeds, North-East (Sir K. Joseph), who has just taken over as Opposition spokesman on industry, believes that there should be much tighter control than we have now on sources of credit, money and public expenditure. It is quite clear that if his policy were carried out the right hon. Gentleman, as my right hon. Friend said—whom, in passing, perhaps I may be allowed to congratulate on his birthday—if he ever had the misfortune to stand here, would be presiding over a vastly higher level of unemployment.
  Sir K. Joseph: Does the Prime Minister agree that my prediction two and a half years ago, which he attacked—that increased public spending under Labour would lead to increased unemployment—
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  has been proven right? My right hon. Friends and I still say that until public spending, interest rates and direct taxation are reduced, unemployment will continue to rise.
  The Prime Minister: I am obliged to the right hon. Gentleman for confirming my analysis of his attitude and of the support that he is getting from the Benches behind him. [HON. MEMBERS: "Answer."] Now we know that it is the policy of the Conservative Party Front Bench to cut public expenditure even more and, therefore, to increase unemployment, perhaps the right hon. Gentleman will convey that policy to those on the Opposition Back Benches as well as to those on the Front Bench who in one and the same breath are calling for additional expenditure on arms and social security, great tax credits and, of course, the abolition of the rating system. How does he square all those?

  CANNOCK CHASE
  Mr. Gwilym Robertsasked the Prime Minister if he will visit the Cannock Chase.
  The Prime Minister: I have at present no plans to do so.
  Mr. Roberts: If at some date in future my right hon. Friend visits this area, he will find a very strong community spirit. Does he accept that that community spirit is in danger unless urgent steps are taken to reduce unemployment and to provide local jobs and unless there is an expansion of public expenditure, which would enable urgently-required local projects, such as the Cannock Community Hospital, to be brought forward?
  The Prime Minister: Yes, it is obviously a prime concern of this country, as of other industrialised countries, to return to full employment. I hope in my discussions with President Carter in Washington next week to make this a major item of discussion leading to the summit conference of the industrialised nations in May. The free world as a whole, as well as each individual country, must tackle this matter.
  I am glad to say to my hon. Friend that industrial output has begun to move ahead, that less short-time working is being done, that there is more overtime

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  working and that the trends are moving in favour of more employment. But this is happening too slowly. As I have said before—and I say it again—I cannot see sufficient improvement yet.

NORTHERN IRELAND(ASSASSINATIONS)
Mr. Neave Mr. Neave(by Private Notice) asked the Secretary of State for Northern Ireland, in view of the latest series of assassinations in Northern Ireland during the past few days, constituting new developments, whether he will make a statement.
The Under-Secretary of State for Northern Ireland (Mr. James A. Dunn): I have been asked to reply. [HON. MEMBERS: "Why?"] If hon. Members will wait for the second part of my answer, they will know why, without having to get excited. My right hon. Friend the Secretary of State is on his way back to Northern Ireland to undertake serious discussions on the problems associated with this Question.
There has been a greater concentration in the last few days of violence against people in the business community. This is, sadly, not a new development, as there have been series of attacks on business people in the past.
Her Majesty's Government regret the deaths and I can assure the House that security measures are kept under constant review and are adjusted to deal with the changing patterns of violence.
Mr. Neave: I thank the hon. Gentleman for that statement. Would he not agree that the community is now at war with terrorism in Northern Ireland and it is action which is required by the Government, not only the strong statements which his right hon. Friend has been making? Would he also agree that we now need to speed up the arming of the RUC, who suffered terrible casualties over the last week, and also that we need more Special Air Service troops in Northern Ireland?
Finally, would the hon. Gentleman also agree to invite the BBC in future to await inquiries by the Chief Constable before televising uncorroborated allega-
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tions against the police as they did for a whole hour last night on the "Tonight" programme, when the police had no opportunity to reply?
Mr. Dunn: I hope that the hon. Gentleman will forgive me if I do not respond to the associated matters which he has raised in his supplementary question. I prefer at the moment to deal with the very serious problem of assassinations. I am sure that the House will agree that that in itself places a burden on us all.
It is my view and the view of my right hon. Friend that the problems relating to security must be left in the first instance to those who are well qualified to deal with the operational side of security matters. I am aware that there have been claims for specialised troops to be brought into the Province to undertake specific tasks, but my right hon. Friend, the Chief Constable and the GOC are at present discussing these matters and I do not wish to make a statement in advance of their decisions.
Mr. Powell: In view of the presence of the Prime Minister in the House, would the Minister convey to him the great importance for all concerned in Northern Ireland that the Prime Minister makes clear the personal concern which he undoubtedly feels for the Province, which is now under a new and ugly phase of attack, and that one of the ways in which he could show this is by rendering himself available for discussion of this matter with hon. Members representing constituencies in Northern Ireland?
Mr. Dunn: My right hon. Friend has heard that supplementary question and I have no doubt that the right hon. Gentleman will very soon be hearing from my right hon. Friend.
Mr. Craig: Would the Minister agree that this trend of assassinations has been expected for about six months and that the powers-that-be appear impotent to deal with such a threat unless the law is considerably strengthened?
Mr. Dunn: Every effort to deal with these great tragedies has been made by my right hon. Friend and all concerned

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in the Province. The right hon. Gentleman will know, from the time when he was responsible for these matters, that the problem is complex. There is no simple and immediate answer. There is a war, there has been a war and there still is a war. We have to deal with it on that basis.
Mr. Kilfedder: Since the Ulster people are suffering grievously from the complacent and gutless policy of this Government, will the Government stop deceiving them by tough words and introduce instead tough measures, including the restoration of capital punishment, to deal with a murderous situation?
Mr. Dunn: The hon. Member can always be relied on to use emotive language in these circumstances, but that is not the answer to this problem. The law is there. All we need is the co-operation of the community to apply the law with vigour and with the certainty that we can detect those who perpetrate these offences. Once that happens, law and order will return to Northern Ireland.
Several hon. Members Several hon. Members rose—
Mr. Speaker: I will call one more hon. Member to put a supplementary question on this matter before I call the Business Question.
Mr. Mates: While the hon. Gentleman has rightly said that a war is being fought, the nature of that war seems to be changing considerably and this regrettable series of murders is merely a further indication of that chance. Is the Minister aware that many people think that the IRA no longer needs to shoot at soldiers and policeman to achieve its ends when it can achieve them by bringing total economic ruin to the Province? Would he therefore take a new look at the security situation in the light of this potentially complete change and try to advise us what is the best thing to do?
Mr. Dunn: I agree entirely, and I hope that the House will take note of what the hon. Gentleman has said. Guerrilla warfare does change its pattern because in doing so it becomes more successful. No military presence, no matter how strong, can deal with that problem. Only the community itself can deal with it.

QUESTIONS TO MINISTERS
Mr. Kilroy-Silk: On a point of order, Mr. Speaker. You will recall that during Question Time you ruled out of order a supplementary question of mine to Question No. 8 to the Home Secretary, referring to his meeting the Police Federation. However, you allowed a supplementary question on the death penalty to Question No. 12 about vandalism, and a question about a visit to Liverpool on a Question on the Isle of Wight. With all due respect, I submit that the question which I asked about the activities and morale of the police force in Lancashire, which I know my right hon. Friend wishes to answer, was in order. Could I ask you as a courtesy to allow my right hon. Friend to answer that question?
Mr. Speaker: I will certainly not allow him to do so at this stage of our proceedings, as we are about to move on to the Business Question. If the hon. Gentleman disagrees with my judgment he knows what to do.

BUSINESS OF THE HOUSE
Mrs. Thatcher: May I ask whether the Leader of the House will state the business for next week?
The Lord President of the Council and Leader of the House of Commons (Mr. Michael Foot): Yes, Sir.
The business for next week will be as follows:
MONDAY 7th March—Proceedings on the Consolidated Fund (No. 2) Bill.
TUESDAY 8th March—Remaining stages of the International Finance, Trade and Aid Bill, of the New Towns (Scotland) Bill and of the Town and Country Planning (Scotland) Bill [Lords].
Motion relating to the Agricultural Levy Reliefs (Frozen Beef and Veal) Order.
WEDNESDAY 9th March—Remaining stages of the Job Release Bill.
Motions on the Prevention of Terrorism (Temporary Provisions) Act 1976 (Continuance) Order and on the Police Regulations.

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THURSDAY 10th March—Motions on Northern Ireland Orders on appropriation, rates amendment and transport.
FRIDAY 11th March—Private Members' motions.
MONDAY 14th March—Debate on reports from Select Committees.
Mr. Maurice Macmillan: Since Early-Day Motion No. 168, in my name and the names of many right hon. and hon. Members in all parts of the House, is not down for debate this week, may I take it that that means that the Government are taking seriously the problem contained therein?
[That, in the opinion of this House, the ruling given by the Chairman of Ways and Means on Thursday 10th February 1977, in selecting for debate in Committee of the whole House on the Scotland and Wales Bill the Procedure Motion, new Clause 40 and Amendment 679, all in the name of the Leader of the House, ought not to be cited or drawn into precedent on any future occasion.]
Second, may I suggest to the Lord President that since it is obvious that the Government are finding it difficult to get enough business to occupy the House, he might consider having a higher proportion of the Finance Bill in Committee of the whole House this year?
Mr. Foot: I assure the right hon. Gentleman that there is plenty of business for the House both next week and in the following weeks. Of course I take his Early-Day Motion seriously, as I have told him before. I believe that it is important that the House should have a debate on the subject, and I hope that we shall have one during the week after next.
Mr. John Ellis: Does my right hon. Friend accept that there has been a considerable degree of alarming misinformation about the current situation in the Common Market over the sale of butter? Will he therefore arrange for an early debate, as some of us believe that this House needs to know many more facts and figures? The question of the butter is only incidental to a situation in which such sales are going on at a cost of £1·75 million a day. We could well do with the stuff here to keep prices down.
Mr. Foot: Neither I nor my right hon. Friends in charge of that matter minimise the importance of the subject. It was
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referred to in the foreign affairs debate on Tuesday, but that does not exclude the possibility of returning to it on an early occasion.
Mr. Watt: When does the right hon. Gentleman propose to bring forward a referendum on the question of devolution for Scotland, so that we can flush out the anti-devolutionists in both the Liberal and Tory parties?
Mr. Foot: I think that they flushed themselves out, did they not? The talks on the matter are proceeding, and I think that that is the next stage to which we should apply ourselves.
Mr. Thorpe: May I ask the right hon. Gentleman, he being the best European convert that we have, when the Government will be telling us their thinking on direct elections to the European Parliament? Will it be green or white?
Mr. Foot: I am not sure whether the right hon. Gentleman was present during the foreign affairs debate en Tuesday and listened to all the discussions then.
Mr. Thorpe: I was and I did.
Mr. Foot: In that case, the right hon. Gentleman will have heard what the Government had to say on that matter.
Mr. Skinner: Is it not time that we had an opportunity to tighten up company legislation? Is my right hon. Friend aware that there is a constant breaking of the law by company directors who fail to make any adequate returns? Is it not outrageous that a Tory Member of Parliament has set up eight companies in the past three or four years and has failed to send in returns? Is it not quite ironic that this law breaker and property speculator is none other than the Member for Aberdeen, South (Mr. Sproat), the scrounger himself?
Mr. Speaker: Order. I remind the House again that I deprecate personal attacks.
Mr. Skinner: Yes, and I deprecate personal attacks on people who do not have the means to defend themselves.
Mr. Speaker: Order. If the hon. Member for Bolsover (Mr. Skinner) does that once again, I shall ask him to withdraw from the Chamber.
Mr. Tapsell: On a point of order, Mr. Speaker. Are not the continual interventions of this nature by the hon. Member for Bolsover (Mr. Skinner) clearly designed to damage the standing of this House in the eyes of the general public Should they not be considered in that light?
Mr. Speaker: People must make up their own minds about that. Mr. Foot.
Mr. Foot: I always listen to my hon. Friend the Member for Bolsover (Mr. Skinner) on matters of big business affairs, and of course I have listened to what he has had to say just now. I have no doubt that other steps will be taken by the hon. Member concerned to state his view of the matter.
Mr. Michael Latham: Is it because of the crushing weight of business next week that we do not have the direct labour Bill before us? Or has it been dropped? If it has been dropped, may we have a debate on the construction industry instead?
Mr. Foot: The hon. Gentleman cannot assume that the Bill has been dropped. We are still considering whether we shall proceed with it, and we are still studying certain aspects of it. That is a perfectly normal procedure for any Government to adopt.
Mr. Hugh Jenkins: A public lending right Bill has made good progress in another place, and I think that it is almost ready to come to this Chamber. Will my right hon. Friend undertake to provide Government time for the completion of the Bill and do so before introducing any question of direct elections to the European Parliament?
Mr. Foot: I will take account of my hon. Friend's representations about that Bill, in which several of us have an interest, but, as I have said, there is pressure for many other Bills from many other quarters which I must also take into account.
Mr. Scott: Since the Government's published review of the Rent Acts and their much-leaked review of housing finance are being widely discussed, will the right hon. Gentleman bring forward a motion to establish a Select Committee of the House to look at housing policy
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and the Government's policy in this disaster area?
Mr. Foot: I refuse to accept what the hon. Gentleman said in the last part of his question. I am doubtful whether a Select Committee would be the best way to proceed on this matter, partly because about 300 right hon. and hon. Members are already serving on Select Committees. I do not think that it is necessarily the best way to discuss matters of great importance and policies of the utmost significance.
Mr. Buchan: Did my right hon. Friend hear the exchanges in the House yesterday, and has he read my Early-Day Motion No. 202, referring to the activities of Bristol Channel Ship Repairers? When will he be in a position to announce a date for a debate on the establishment of such a Select Committee or state that he intends to form one? There is a great deal of disquiet about the activities of this company.
[That this House, in view of the disquiet that exists regarding the activities of the Bristol Ship-Repairing Company in relation to the Aircraft and Shipbuilding Industries Bill, calls for a Select Committee to be established to investigate these activities.]
Mr. Foot: I understand the reasons for the disquiet, but again I am not sure that the establishment of a Select Committee would be the best way to deal with all these matters. In this instance, I think that we should proceed with the Aircraft and Shipbuilding Industries Bill first, but I will take account of my hon. Friend's representations and of the Early-Day Motion.
Sir John Rodgers: Is the right hon. Gentleman likely to be able to provide time in the near future for a debate on the British Press? If restrictive practices, overmanning and stoppages continue in the industry, the British people will soon be deprived of this medium for news of what is happening. May we have a debate on this very important subject?
Mr. Foot: I will consider it amongst other applications.
Mr. George Cunningham: Although we are rather short of business in the House at the moment, could my right

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hon. Friend assure us that he will not table a motion to invite the House to give approval to the Second Report of the Select Committee on Procedure which deals with the obligation of a Member to wear a comic top hat when raising a point of order during a Division, in view of the fact that the Committee's solution to this mighty trifle is that instead of there being one comic opera hat in the Chamber for these occasions there should be two?
Mr. Foot: I cannot say that that is a subject which has weighed most heavily on my mind in the last few days, but we have to consider when time is available for debates on reports from Select Committees. We are trying to get through some of them, but we cannot get through them all.
Mr. Eldon Griffiths: Will the right hon. Gentleman bear in mind that in the next 48 hours we shall almost be past the point of no return in the Government's negotiations with the police? Will he invite the Home Secretary to make a statement one day next week? In urging the right hon. Gentleman to arrange for a statement, may I remind him that we could be at the beginning of a very dangerous situation, bearing in mind that the Royal Ulster Constabulary is, of course, involved with the police of England and Wales in these negotiations?
Mr. Foot: My right hon. Friend the Home Secretary dealt with this matter at Question Time today, and I cannot add to what he said then.
Mr. Louden: In view of the decision taken by the Government in relation to the ship-repairing industry and of the vagueness of the present situation, will my right hon. Friend made available time for a debate on the industry?
Mr. Foot: There will be time to debate the Bill when it comes back shortly, but I will see whether there is a possibility of having time available for debating the ship-repair aspect.
Mr. Wiggin: It is a year ago this week that the House, on a free vote, gave a Second Reading, by a majority of 110, to the Road Traffic (Seat Belts) Bill. That Bill completed its Committee stage in this House and was not allowed to go to the
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other place because of the intransigence of the Government. Does the right hon. Gentleman not have on his conscience the death of hundreds of people and the serious injuries of thousands of others? Will he now find time for this important piece of legislation?
Mr. Foot: If the hon. Gentleman followed the matter he would know well that that was not the reason for the failure of the Bill to pass. The hon. Gentleman should not fling around such foolish accusations.
Mr. Dalyell: Will my right hon. Friend reconsider the answer that he gave on the issue of butter? Will he accept that some of his colleagues, who are members of the European Parliament, have had the complexities of the issue explained to them at great length? Will my right hon. Friend also bear in mind that various Select Committees on Procedure have emphasised the need for topicality in the debates? This matter raises such issues that there ought to be a debate in this House.
Mr. Foot: There are many matters which arise in the European Parliament on which topical debates are required and the Government do their best to provide time for such debates, particularly on the recommendations of the Scrutiny Committee. Although the debates we have are not perfect, no one can say that the Government have not done their best to provide opportunities for such debates.
Mr. Monro: Does the Leader of the House remember saying just before Christmas that he would look at the possibility of having a debate on the Government's White Paper of August 1975 on sport and recreation? Now that we are not under such pressure, may we have a debate soon?
Mr. Foot: There are several applications that I have to consider either for debates or for Bills to be brought forward. The House should not be under any misapprehension. There is plenty of legislative and other business to be brought before the House. It is not a fact that we have plenty of time on our hands. We shall take into account what the hon. Gentleman has said and I shall look up the words of wisdom that I used before Christmas to see whether they are still apposite.
Mr. Thorne: In view of the continually deteriorating situation with regard to industry and employment, and in view of the Labour Government's manifesto commitments, will my right hon. Friend propose an urgent debate during the next week?
Mr. Foot: I certainly agree with my hon. Friend and many other of my hon. Friends, who have made representations to me both last week and on other occasions, that we should have an early debate on the very serious unemployment situation on which questions were put to the Prime Minister a few minutes ago. We shall be seeking opportunities of doing that properly. Of course, there will be opportunities during the Budget debates, but we are looking at other opportunities as well. I am not proposing that we should alter next week's business but we shall certainly take into account the representations that have been made.
Mr. Jasper More: Will the Lord President arrange for a Statement to be made next week by a Treasury Minister on the inter-departmental committee on forestry which, I understand, has now reported? If the right hon. Gentleman cannot do this, will he undertake to have a debate on forestry instead of some of the rubbish that he is proposing to put down on the Order Paper?
Mr. Foot: The hon. Gentleman should not say that about the discussions that we are proposing on Northern Ireland, for example, as well as on other matters and other Bills, that are coming forward next week. The hon. Gentleman should not characterise them in that way. It is not the best way of inviting me to have a debate on something else. But I shall look with an unprejudiced mind at the hon. Gentleman's suggestion to see whether there is a possibility of having a statement on the matter at some later stage.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: I would remind the House that it is Supply Day—
Mr. Farr: On a point of order, Mr. Speaker—
Mr. Speaker: Order. I am making a statement. Not only is it a Supply Day but there is also a statement to follow
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and two applications under Standing Order No. 9. I propose to take two more questions on the Business Statement from either side of the House.
Mr. Adley: Does the right hon. Gentlemen recall that last week I asked him about a statement from the Secretary of State on Concorde's landing rights in New York? Can the right hon. Gentleman confirm that he received from me a copy of a letter from the Secretary of State promising that he would make a statement—and that was dated at least two weeks ago? As we are now approaching the date, next week, when the Port of New York Authority will make its decision, will the Leader of the House give an assurance that whatever the outcome of that decision a statement will be made on it by the Secretary of State as soon as possible after 10th March.
Mr. Foot: I shall look at the question of any further statement, but it is not the case that we did not carry out the undertaking made earlier, because the Under-Secretary of State replied to the debate on an Adjournment motion on 24th February.
Mr. Greville Janner: While not accepting for a moment the accusation that the Government are responsible for the deaths caused through the failure of the seat belts legislation, may I ask my right hon. Friend whether he accepts that we all share the responsibility? As we now have time to deal with it, will my right hon. Friend undertake to introduce the Bill into the House as a Government measure as soon as possible?
Mr. Foot: I shall look at the possibilities with regard to this Bill along with any other applications that have been made. But we must also take into account the way in which the House of Commons itself dealt with the Bill before. That is one of the considerations which the Government must have in their mind.
Mr. Farr: Looking ahead to the Finance Bill, which is imminent, may I ask the right hon. Gentleman whether he recalls the days when he objected most strongly to any part of the Bill going upstairs to a remote Committee Room? May I therefore ask the right hon. Gentleman, when planning the timetable for the next few weeks, to bear in mind the objections that he himself strongly held

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at one time? Does the Leader of the House realise that this restricts the rights of Back Benchers to raise particular points? Will he therefore try to have as much as possible of the Committee stage on the Floor of this House?
Mr. Foot: I know that I have protested to many Governments about the way in which they have conducted their business but I cannot recall criticising the way in which Finance Bills were divided. It may be that I would have preferred certain aspects of particular Finance Bills to be debated in the House. However, I cannot say to the hon. Gentleman or the House that we shall revert to the previous procedure. We have to take into account how we shall get through the business of the House generally. Over the past few years there have been great additions to the business of the House in respect of the EEC and Northern Ireland and in several other respects as well. I do not think we shall be able to return to the days when all the debates on Finance Bills were taken on the Floor of the House.
Mr. Lee: May we have an assurance that the habit which has grown up in recent years of having any opposed private business debated at 7 o'clock on Budget day will not be continued this year, because the first day of the Budget is the most free-ranging of all the debates?
Mr. Foot: If it is as free-ranging as that it must be very free-ranging indeed. I shall have to look at what was done on previous occasions and see what force there is in my hon. Friend's suggestion.

EMPLOYMENT (GOVERNMENT PROPOSALS)
Mr. Speaker: Statement, Mr. Booth.
Mr. Viggers: On a point of order, Mr. Speaker. About 10 minutes ago I observed some papers being passed around in the Press Gallery. An inspired guess leads me to believe that the Press was being briefed in advance of Parliament on the statement which the Secretary of State is about to make. Hon. and right hon. Members are sitting here like dummies waiting to hear something which the Press knows already. Is that
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a proper exercise of parliamentary democracy?
Mr. Speaker: It is not for me to decide, and it is not my responsibility, what briefing is done by the Government Benches, if any has been done.
3.58 p.m.
The Secretary of State for Employment (Mr. Albert Booth): Over the last 18 months, the Government have introduced a number of special employment and training measures to mitigate the worst effects of higher unemployment, especially for hard-hit groups such as young people. These measures should assist well over half a million people, and it is estimated that they are currently reducing unemployment by about 200,000.
The Manpower Services Commission has stated in its report, "Towards a Comprehensive Manpower Policy", that the problems of unemployment amongst young people are so serious that it should become an objective of the Commission to ensure that all young people between 16 and 18 years of age who have no job or who are not engaged in further or higher full-time education should have the opportunity of training or part-time further education, of participation in a job creation programme or of work experience. The Government share this ultimate objective, but, as the Commission recognises, it is ambitious and has considerable resource implications.
The Commission has set up a working party on which the education interests are represented, to study all the current measures to help unemployed young people. The working party will report in April. The Commission will inform the Government in due course of its proposals in the light of its working party's report, and we shall then consider with the Commission the feasibility of meeting the objective.
Decisions are needed now, however, on special training measures for 1977–78 and on the future of certain employment measures which mainly affect young people, some of which reach their current terminal dates over the next month or so. In view of the continuing high level of unemployment and the numbers of young people unemployed, including some who have been unemployed for long periods, it is not possible to await the outcome of the Commission's work on the future

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of measures for young people before reaching decisions on the present schemes.
The measures have, therefore, been reviewed in the light of the unemployment position and the proposals made by the Manpower Services Commission on the schemes it operates and of its views on the other schemes. We have also taken into account in reaching decisions on the training measures, the work experience programme, the community industry scheme, the possibility of assistance from the European Social Fund, which gives a high priority to methods of helping unemployed young people who are seeking their first employment to fit themselves for work.
As a result of this review, we have decided to provide support again this year to keep up the level of training in industry. The measures introduced in 1975–76 and 1976–77 enabled the TSA, in co-operation with the industrial training boards, to sustain the level of training during the recession. This year we are allocating a further £46 million, spread over the next two financial years, for the training of apprentices and technicians, in 1977–78. The sum allocated will support about 41,500 additional training places in industry, mainly for young people.
The number of places for young people taking courses such as short industrial courses and occupational selection courses under the Training Opportunities Scheme will also be increased by 5,000, raising the total number of places for young people to 17,000 this year. About half of these places will be in further education colleges.
Turning to the employment measures, we have decided to extend the present measures affecting young people for a limited period pending the outcome of the Manpower Services Commission's work on the possibility of developing measures for young people on a more systematic and permanent basis.
The job creation programme, which provides temporary jobs mainly for young people but also for adults, will be extended for new applications from the current terminal date of 30th April to 31st August. A further £25 million will be allocated for the programme over this period.
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The Work Experience Programme, which supports young people gaining experience in industry, reaches its terminal date for applications this month. The Manpower Services Commission has put a great deal of effort into this scheme, and I am glad to say that it is becoming well established and is attracting increasing support from employers. We have decided that this programme should be extended, like the job creation programme, until 31st August so that it can be reviewed with the job creation programme in the light of the MSC's proposals on the future of measures affecting young people.
The Youth Employment Subsidy, which provides a subsidy of £10 a week to employers recruiting young people who have been continuously unemployed for six months, also reaches its terminal date for applications this month. The scheme is now being well used after a slow start, and we propose to extend it as well to 31st August.
The permanent community industry scheme, which currently provides temporary jobs for up to 4,000 unemployed disadvantaged young people, will be temporarily expanded to provide an additional 1,500 places. The gross cost in 1977–78 will be £2 million.
The 230 additional centrally-funded employment specialist posts for the Careers Service made available in 1975, which have secured extra vacancies and placing for young people, will be increased by a further 90 posts in 1977–78 which will be allocated to areas of particularly high youth unemployment. The scheme will be continued into 1978–79 and reviewed in September 1978. The extra cost of the additional 90 posts in 1977–78 is £300,000.
I should like to take this opportunity of thanking the Manpower Services Commission and its officials working on the special employment and training measures, careers officers, all those concerned with community industry, and the many others involved in my Department and elsewhere for their efforts in launching and developing the measures for young people over the last 18 months. Despite a very difficult unemployment situation, their work has led to many young people securing jobs or training or work experience who would otherwise have been unemployed.

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All of the schemes on which I have announced decisions are directed mainly or exclusively at young people, and particularly at young people who have been unemployed for lengthy periods. Decisions on the temporary employment subsidy and job release scheme, which affect adults as well as young people, will be announced nearer to their terminal dates.
Some of these schemes are operated under provisions in Section 5 of the Employment and Training Act which expire before the end of June unless renewed by order subject to affirmative resolution. I propose to make the necessary order, which will be laid before the House in due course.
Mr. Prior: Is the Secretary of State aware that the Opposition share his anxiety about the very serious unemployment problem amongst young people and, therefore, that we welcome any steps which will help deal with the problem?
Is the right hon. Gentleman aware, also, that we believe that it is a problem which will now remain with us for a number of years? Can he give any indication of the number of additional young people who will be requiring jobs over each of the next few years so that hon. Members may form an estimate in their own minds of the seriousness and scale of the problem with which we have to deal?
Is the right hon. Gentleman aware, further, that we shall await the working party's report with a good deal of anxiety and that we hope that the report will be able to share the objective of this House that all young people should have the opportunity of training and/or part-time further education or a job and that we believe that it will be necessary for a fresh look to be taken at all the schemes that we have now, which have been collected together over a period of 18 months or so as the situation has been seen to be deteriorating, and which we believe now should be looked at afresh in the light of the continuing problem and in the light of the fact that a number of these schemes may have had some temporary value but are unlikely to form part of a more permanent training scheme which will be required for young people?
May we have an undertaking from the Secretary of State that, as soon as pos-
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sible after the working party's report has been made available and the Government have had a chance to look at it, we shall have a debate in this House on what is now becoming an extremely serious matter in which all right hon. and hon. Members have a duty to try to help in any way possible?
Mr. Booth: I thank the right hon. Gentleman for what he said about our shared concern in this matter. It is a matter which should and does concern right hon. and hon. Members of the House as a whole.
Our best estimate, as of now, of the increase in the number of people who will be seeking jobs over the next few years is that it is about an additional 150,000 each year on the current number seeking work. But that is not made up entirely of the greater numbers leaving school as a result of the higher birth rate in the early 1960s. It reflects in part the larger incidence of married women seeking work.
I shall consult my right hon. Friend the Leader of the House about a debate on the report of the working party and the MSC's proposals. I agree that we have reached a stage when it is valuable to try to examine the effect of all the measures collectively to see the way in which they might be altered to meet the immediately foreseeable and longer-term situation so far as we can judge it. But I put it to the House that the working party's report, which the MSC has now set in hand, will provide for the Government and for the House a much needed opportunity to consider the effect of all these measures which have a bearing on youth unemployment.
Mr. Cledwyn Hughes: I welcome my right hon. Friend's statement. Is he aware that there is deep concern in areas such as mine that the agencies seem incapable of devising schemes which are applicable to rural areas and small towns? Is he aware that unemployment in Anglesey is 14·3 per cent. and that the local authorities and the county council have been trying for a long time to get some assistance from the Training Services Agency? Is he aware that they have been told that the money must be found from the rates and not from the millions of pounds that the Government have

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properly made available for these purposes? Is my hon. Friend aware that I shall continue to press him, other Ministers and the Prime Minister until someone has the imagination to devise a scheme that will cater for the needs of young people in rural areas?
Mr. Booth: I fully accept what my right hon. Friend has said about the particular problems that his own area is experiencing. I assure him that it is not the case that the schemes that we have introduced have been without success in rural areas. Some of them have been highly successful in rural areas, including those schemes that combine the work of the Training Services Agency, the Construction Industries Training Board and rural authorities. Therefore, we must examine why the schemes go better in some areas than they do in others. I welcome the success of some of the combined ventures by local authorities and the Training Services Agency such as that which I opened in Chesterfield the other week.
In announcing now the Government's support for increased training placings in industry and in the colleges of further education over the next 12 months, our aim is to enable plans to be made well in advance. I recognise the importance of this not only as it affects the training of young people but because of the importance of meeting the needs of the country in the upturn of the present slump.
Mr. Penhaligon: The Government deserve congratulations for their efforts and initiatives in this sphere. However, is there not a danger of a "Catch 22" situation with so much time and effort being spent on short-term solutions that leave no energy or money for increasing the number of new jobs which in the long term will finance themselves?
Mr. Booth: A correct balance must be struck between the work that the Government do in this area and the work that they do in developing new industry within the industrial strategy. It is a continuous requirement of my Department and the Department of Industry to ensure that we strike a reasonable balance. I assure the hon. Member that some of the measures to which I have referred today have a long-term implication. They are not all concerned with
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the short-term problem which both the hon. Member and I recognise as important.
Mr. Crawford: Does the Secretary of State think that his holding operations will keep unemployment in Scotland below 200,000?
Mr. Booth: I hope that the measures will contribute towards reducing unemployment in Scotland. Over recent months, and certainly in the last six months, there has been an increase in unemployment in Scotland relative to other parts of the country.
Dr. Bray: Is the Secretary of State aware that his announcement about the extensions of these schemes will be welcomed in Scotland? Is he aware that a number of them have been well administered and that they are effective both for the young people concerned and for the community as a whole? May we have an assurance that in the review by the Manpower Services Commission the factor of success, which is often the result of the quality of the organisers, will not be overweighted by top-heavy bureaucracy?
Mr. Booth: Yes. When I and other Ministers of my Department met the chairman of the Manpower Services Commission we discussed, among other things, the factors that contribute to the quality and effectiveness of the schemes. We recognise that organisers and instructors on the ground have an important rôle to play. We shall give priority to maintaining the quality of organisers.
Mr. Emery: How much of the money will be spent in the South-West, or is the present position likely to continue whereby the only way in which the young unemployed can benefit is by moving away from the South-West?
Mr. Booth: I expect that there will be a rather large take-up of these schemes in the South-West. Some of the better schemes are developing rather slowly, particularly the Work Experience Scheme. Most schemes are of a high quality and they are praised by both employers and participants. I urge employers in the South-West to look at their fellow employers who are already operating the schemes. If they do so I am sure that they will be more ready to participate.
Mrs. Millie Miller: Does my right hon. Friend acknowledge that during many Question Times over the past year or more the Prime Minister has stressed that much of the unemployment in this country is of a structural nature, as indeed it is in other parts of the world? Does my right hon. Friend accept that it is necessary for the Government to provide a long-term strategy for the provision of work for young and not-so-young people? Will he bear in mind that as we increase productivity we shall decrease employment opportunities in the productive industries?
Mr. Booth: I accept what my hon. Friend says. There is a large structural element in employment. I am greatly concerned at the lack of take-up of the employment transfer subsidy which, if it were more successful, could help to resolve the problem of unemployment in some areas and the problem of vacancies for young people in others. That is one matter to which we should pay attention. It would be of as much importance to adult unemployment as to youth unemployment.
Mr. Steen: Is the Secretary of State aware that in spite of spending £700 million on special remedies for young people there are still about 400,000 young people under the age of 25 without work? What is the point of putting them on job creation programmes and training them if there is no work at the end?
Mr. Booth: At least 70 per cent. of those who undertake training are employed very shortly after the completion of their training. I agree that there is a high level of your unemployment that is not reflected in the school leaver unemployment figures. That is one of the reasons that we have asked the Manpower Services Commission, in its working party, to examine what is required to ensure jobs for young persons in the 16 to 18 years old range, whether or not they qualify to be listed among the school leavers.
Mr. Blenkinsop: Is my right hon. Friend aware that there is strong support on this side of the House as well as on the other for an early debate on training facilities? Is he aware that that debate would reveal how anxious we are to see the day come quickly when the respon-
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sibility for providing training for all young people in work is accepted?
Mr. Booth: I accept the need to debate this subject. The House will have to consider, and I shall have to consider in discussions with the Leader of the House, how much we can debate in advance of the working party report and when we can have a debate on that report.
Mr. David Hunt: Is the Secretary of State aware that although the extensions of the schemes will be welcomed on Merseyside, this week has been disastrous for that area with the rebuff for Cammell Laird and the problems of the telecommunications industry? Is he aware that on Merseyside 25 per cent. of last year's school leavers are still without a job? Does he accept that the long-term solution is the increased provision of training facilities? Will he therefore ask his right hon. Friend to review his refusal to set up a skill centre on Merseyside?
Mr. Booth: Serious as is the problem on Merseyside because of the Post Office situation, one must also remember that that affects many other areas as well. I accept that there is a special youth unemployment problem on Merseyside where there is a higher percentage of regional youth unemployment than in any other major city or region in the country. Within the scope that is provided, we shall have to review the extent of training on Merseyside. I hope that this might provide a measured answer to the hon. Member's direct question.
Mr. Madden: I welcome this statement. Does the Secretary of State agree that we face the staggering task of creating some 2 million new jobs by 1980 in order to ensure a return to full employment? That need is incompatible with the deflationary economic policies that are being sustained, and the massive cuts in public expenditure. We shall not solve the unemployment crisis unless we have controlled reflation, earlier retirement and a real effort to share work.
Mr. Booth: I would accept that the measures that I have announced this afternoon, and indeed any of my Department's measures, will not in themselves solve unemployment problems. Elements in the measures depend on the achievement of a considerable degree of growth

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in this country, particularly in manufacturing industry, so that wealth will be created in order to sustain a higher level of public expenditure.
Mr. Hordern: Will the Secretary of State ensure that the report from the working party includes an analysis of the cost-effectiveness of the various schemes, as well as the administrative costs of them? In view of the fact that there are no fewer than 300,000 people coming on to the job market in the next two years, it is essential to secure as full employment as possible. To this end, will he not agree that the whole of the Price Commission and price control structure should be abolished in order to allow a maximum intake for full employment?
Mr. Booth: I canont agree with the implications of the last part of the hon. Member's question. I do not think that the removal of price control would bring about a solution to unemployment. In fact there is evidence that the reverse may well be true. But I agree that we must examine the cost-effectiveness of the various measures that we are running, and we must bear in mind the net cost to public funds of these measures. Much less than the gross cost is involved because of the savings on social security payments and the maintenance of receipts from tax and insurance contributions.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: In order to be fair to the rest of the House, as there are a large number of hon. Members who want to speak on the next debate I shall do my best to call those hon. Members who are standing up, but in order to help me I hope that they will ask brief questions and I hope also that they will receive brief replies.
Mr. Viggers: Does the Secretary of State agree that many people have a rather jaundiced view of job creation schemes in the long run? But one area in which there is support for the schemes is that of disadvantaged people, particularly in view of the fact that they form a high proportion of the long-term unemployed. Therefore, is the Secretary of State doing enough for disadvantaged people, or does he think he could slope more weight towards that area?
Mr. Booth: I have already announced some increase in schemes for disadvantaged people but I agree that it is not enough. We are considering other measures that could be taken in this area.
Mr. Skinner: Would the Secretary of State bear in mind that there are two figures on which he should concentrate his gaze all the time? First, it has cost more than £8,000 million to prop up the ramshackle private enterprise system with tax reliefs and grants since this Labour Government came to power. Secondly, it is also costing £4,000 million to keep 1,500,000 people on the dole. Is it not time to tackle this fundamental problem instead of titivating about with the edges as the Secretary of State has been doing with all the suggestions he has brought in since he has been in office?
Mr. Booth: I would point out to my hon. Friend that the propping up of the private enterprise system did not start with the election of this Government. The manifesto on which both he and I were elected included proposals to deal with this problem in the way that he has suggested. What I said about the net costs, compared with the gross costs of these measures, has a bearing on my hon. Friend's concern about the cost of maintaining employment.
Mr. Rathbone: Will the Secretary of State agree that the difficulties of resources to which he has referred could be partly overcome by bringing to an end the expansion of job centres that do not create one extra job? These centres are costing an enormous amount of money in some areas where they are not necessary.
Mr. Booth: We have found that where jobcentres have opened up and down the country they have increased by up to 30 per cent. the level of placements obtained by the older exchanges. Therefore we consider that they are making a worthwhile contribution.
Mr. Ioan Evans: While the measures are welcome, will the Secretary of State agree that we need a major operation rather than first-aid treatment? Will he consider the possibility of restoring the regional employment premium, which was very important in the regions, and will he persuade his colleagues to introduce selective import controls?
Mr. Booth: The latter point is a matter for my right hon. Friend the Secretary of State for Trade. Of course I am concerned about the employment implications of import controls in certain industries, particularly where manufacturing industry is suffering grievously from certain forms of imports. This matter has been discussed with me from time to time. As far as the regional employment premium is concerned, the decision was taken to terminate that, and we are now examining ways in which other measures of the Department of Industry and the Department of Employment can step in more effectively in areas where jobs are threatened.
Mr. Michael Latham: Is the Secretary of State aware that 250,000 people—that is 18 per cent.—in the construction industry are currently unemployed? What numerical difference will his long statement today make to that figure?
Mr. Booth: I cannot give a precise effect on the construction industry, but I can assure the hon. Member that the combined effects of the Construction Industry Training Board, the Training Services Agency, and the job creation programme are maintaining a level of training and work in that industry which otherwise would not be feasible.
Mr. Spriggs: Can my right hon. Friend give an indication of what he intends to do about unemployed youngsters in my constituency who left school at the end of last term? Will he do something about training them for the higher skilled jobs in the manufacturing industries?
Mr. Booth: There are two measures that should be particularly helpful to these youngsters. One is the Youth Employment Subsidy, which will pay to any employer who takes on a youngster who has been unemployed for more than six months, £10 a week for the first six months of his employment. The second is the fact that in the review of the working party, we shall expect proposals to come forward to cover anyone who leaves school at 16 up to the age of 18 for the purpose of training and work experience.
Mr. Craigen: Can the Secretary of State tell us how the new apprenticeships will be sponsored? Will this be left to the industrial training boards or will
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reliance be placed on employers to take on young people? Will he tell us in which industries the new apprenticeships will be sponsored? In relation to the job creation programme, will he have a word with the Chancellor to see whether any increase can be made in the rate support grant to areas of urban deprivation, as this would be more helpful in generating employment opportunities for young people?
Mr. Booth: The moneys that I have announced for supporting training will be spent in the main through the industrial training boards and will be allocated among employers. The money will be spent in funding first-year costs of apprentices over and above those employed under the training rebate schemes. Some money for shorter-term courses in Government training centres will be available through the TOPS scheme.
Mrs. Renée Short: Is my right hon. Friend aware that he will have two reports before him on the question of the continuation of the job creation scheme? One will be from the Manpower Services Commission, and the other from the Select Committee of this House, which is hoping to report shortly. Will he wait for both reports before debating this matter, in view of the fear that what we are doing is a palliative measure to deal with the problem of unemployment created by large numbers of large firms bringing about large numbers of redundancies while exporting capital abroad at the same time? Will he initiate an urgent inquiry into the whole question of firms exporting capital abroad and creating redundancies in this country?
Mr. Booth: My right hon. Friend the Chancellor assures me that he is operating measures to restrict the outflow of capital from this country for investment abroad. I sympathise with my hon. Friend's request to delay a debate until we have a report from the Select Committee as well as the report of the committee set up by the Manpower Services Commission, but I hope that she will trust me to convey that request to my right hon. Friend the Leader of the House, with an understanding that the House would not want unduly to delay this debate if one of those bodies were to report much later than the other.

PLESSEY TELECOMMUNICATIONS LTD.
Mr. Loyden: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
"the statement made by Plessey Telecommunications Ltd. that the effects of the Post Office cuts since 1974 will cause a net reduction of about 4,000 jobs and some factory closures in the electro-mechanical systems sector."
That statement, made yesterday, is a further blow to employment on Merseyside and in Sunderland. There is an urgent need for Government intervention to stop these redundancies and to carry out a full inquiry into the Post Office decision to change its ordering programme.
The House has been made fully aware today, and, indeed, over the last few months, of the unemployment problem not only on Merseyside but throughout the whole of the United Kingdom. Evidence has been advanced here today that Labour Back Benchers have reached the point at which we feel that the present Government ought to take seriously the questions that we raise about the grave employment situation that exists on Merseyside, in the North-West and in other parts of the United Kingdom.
My right hon. and hon. Friends from the Merseyside area have drawn to the attention of the House the present unemployment figures. Whatever the Government say about the policies they are pursuing, it is quite evident that not only have they had no effect even on bottoming out the dramatic unemployment figures but that day by day the unemployment figures are rising.
As far as we are concerned, this is a clear indication that the Government's policy on jobs and unemployment requires a dramatic change. It is not sufficent for Ministers to say that they are sympathetic to the arguments advanced in this place about the unemployment situation in the various regions. It is the responsibility of Ministers, representing the movement to which we all belong, to turn their faces towards the emerging problems in the regions and to take such action as is necessary to resolve those problems.
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The telecommunications industry on Merseyside is one that has a work mix that is affected directly and almost exclusively by the vacillations of the Post Office. I shall want to make a few comments about the Post Office shortly. One of the things—
Mr. Speaker: Order. Perhaps I may help the hon. Gentleman. I know that he feels very deeply about this question. However, what he ought to do is to explain why the matter is urgent, specific and important.
Mr. Loyden: I am coming to that point now, Mr. Speaker. What I was saying was that the urgency and importance of the problem have been spoken about in this place day after day. I am sure that in that sense the House is fully aware of the importance and urgency of the problem. What I am trying to point out is that there is a need at this stage not co allow these redundancies to take place—as may well happen—and then have a post-mortem examination of the reasons for them with 4,000 more people out of work and on Merseyside an increase, by a single stroke, of 2 per cent. in the unemployment figure.
I need not add anything further to that sort of argument for the House to appreciate the urgency of this problem. What I am trying to point out is that there has been a conflict of opinion between, on the one hand, the Post Office and, on the other hand, Plessey in regard to the decisions that they have made, which will result in these redundancies. In that respect, a veil of secrecy has surrounded the talks that have been taking place between Plessey and the Post Office, and the work force knows little or nothing about those talks and the decisions that were taken. Those talks and decisions have culminated in 4,000 people losing their jobs. One thing that we must understand is that the secrecy that has surrounded the talks has been a matter of major concern to the people in the industry and to Members of Parliament representing the areas that are being affected.
One of the reasons why I wish to impress on you, Mr. Speaker, the urgency of a debate on this matter is that it cannot be seen in isolation. It is part of the general problem of unemployment and, again, it shows quite clearly that the

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unemployment figures are continuing to rise. There is, therefore, an urgent need to discuss this matter on the basis of whether we are satisfied that the Post Office and the telecommunications industry—in this particular case Plessey—have carried out the correct rôle concerning the industry. The fault, in that sense, does not lie totally on the side of the Post Office. The Plessey organisation has continually disregarded the need for investment in the industry, and in that sense—
Mr. Speaker: Order. Perhaps I may remind the hon. Gentleman that he must not argue the case that he would argue if an emergency debate were granted. He must now make his case for having the debate.
Mr. Loyden: With all due respect, Mr. Speaker, I am to some extent prejudging your decision. I hope that that does not weaken my argument in the least or weaken the sympthy that I hope to gain from you when you make that decision.
This situation is both urgent and specific, and it falls within the requirements of Standing Order No. 9. The issue of personal taxation that we are to debate in the House today is something that can well wait while we discuss the loss of 4,000 jobs to workers on Merseyside and in Sunderland.
Mr. Speaker: The hon. Member asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he believes should have urgent consideration, namely,
"the statement made by Plessey Telecommunications Ltd. that the effects of the Post Office cuts since 1974 will cause a net reduction of about 4,000 jobs and some factory closures in the electro-mechanical systems sector."
As the House knows, under Standing Order No. 9 I am directed to take into account the several factors set out in the Order but to give no reasons for my decision. The whole House heard the exchanges this afternoon, and I realise that this is a very serious problem. I also have to take account of what I heard this afternoon. I am not able to rule that the hon. Member's submission falls within the provisions of the Standing Order. Therefore, I cannot submit his application to the House.
Mr. Madden: On a point of order, Mr. Speaker—
Mr. Ogden: On a point of order, Mr. Speaker—
Mr. Loyden: On a point of order, Mr. Speaker—
Mr. Speaker: There can be no point of order on my ruling.
Mr. Madden: On a point of order, Mr. Speaker. With the greatest respect to you, many of us are often confused as to the criteria upon which—
Mr. Speaker: Order. The hon. Gentleman is quite clearly about to question my ruling, and that I shall not permit.
Mr. Ogden Mr. Ogden rose—
Mr. Speaker: I am not taking points of order on my ruling. If any hon. Member tries to raise such a point of order, I shall order him to resume his seat.
Mr. Madden: Further to my point of order, Mr. Speaker. I was in no may seeking to challenge your ruling on this occasion or on any other, and I understand the reasons for your decision. I am seeking to raise a matter connected with the fact that earlier today the Prime Minister indicated that extra-parliamentary agencies are to consider this matter, namely, that a professor is to undertake an inquiry. The National Enterprise Board will also be involved.
I am seeking from you, Mr. Speaker, an assurance that in this situation you will not preclude the possibility of my hon. Friend the Member for Liverpool, Garston (Mr. Loyden) or any other hon. Member from seeking to raise this matter under Standing Order No. 9 in the future. The situation is a developing one in which extra-parliamentary agencies may be heavily involved.
Mr. Speaker: I owe the hon. Member for Sowerby (Mr. Madden) an apology, and I offer it to him in front of the House. Long experience had taught me to expect something else. I am able to tell the hon. Gentleman that applications under Standing Orders can be made at other appropriate times. It happened this very week. But I am not saying that the hon. Gentleman should bring forward an application tomorrow.
Mr. Ogden: On a point of order, Mr. Speaker. I bear in mind your ruling, and I am not challenging it in any way. I would be most foolish to try to do so.
Will you give the House guidance on the subject that is to be debated next under the Adjournment motion? Will you confirm, whatever the custom and practice of the House, that if you call my hon. Friend the Member for Liverpool, Garston (Mr. Loyden) to speak in that debate he would be entitled to talk about any subject? The subject to be debated by the House is the burden of personal taxation, and that can be seen in two ways. The criticism might come from Conservative Members that there is too great a burden of taxation. On the other hand, the criticism from my hon. Friend might be that because of the redundancy notices given by Plessey, arbitrarily and unilaterally, the workers concerned will have no opportunity of paying taxation. I hope that the House will agree to be generous to my hon. Friend if he is able to take part in the debate.
Mr. Loyden: Further to that point of order, Mr. Speaker. You will be aware that I went through what are termed "the normal channels" in order to raise this matter, and that for three weeks I have been putting my name down in the hope of getting an Adjournment debate on Plessey. May we have an indication of what the position would be—I am not seeking a firm commitment, of course—if the matter was raised with you, Mr. Speaker, on Monday?
Mr. Speaker: May I let out a little secret? I would have thought that by now the hon. Member for Liverpool, Garston (Mr. Loyden) would have heard that he had been fortunate to get an Adjournment debate next Thursday.

THE "GLOBTIK VENUS"
Mr. Prescott: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration; namely,
"the implications, particularly those relating to safety, affecting the 'Globtik Venus' in consequence of the dispute involving the use of armed mercenaries while the ship was berthed at Le Havre."
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The House will be aware, from the many Press reports that have been received, of the deplorable armed attack by a mercenary force, recruited in this country, particularly on some parts of Humberside, which is even more deplorable, and shipped to France to attack the crew of a British vessel and threaten the safety of that ship.
The matter is specific in that the vessel is a British ship under the jurisdiction of this House. The laws of this country apply to that ship even though the vessel is in French waters. An alarming aspect of the case is that the armed attack apparently took place with the co-operation of the French authorities.
It is crucial that the House should debate this matter because even now the vessel, which is a large tanker and which is in a highly dangerous condition, does not have on board sufficient skilled personnel to keep the ship safe and free from explosions and fire. The chief engineer has been on his feet for 24 hours, without any skilled assistance, attempting to maintain the safety of the vessel.
This matter raises an issue of considerable importance within the control of the House, namely the difference in wages between coloured seamen and white seamen, which is part of the source of this dispute. The difference is due to legislation passed in this House which allows shipowners to maintain differentials between coloured and white seafarers doing the same job on British ships.
Moreover, the public statement made by the owner, Mr. Tikkoo, made clear that he hired this highly-organised private army, equipped with two-way radios and axes, and appears to have committed an act of conspiracy that makes the activities of the Shrewsbury pickets and the dockers on the small wharves pale into insignificance.
The introduction of private armies into industrial relations matters could create a serious escalation of industrial disputes in this country, and can only lead to greater violence. It is essential that the House debates urgently the action necessary to maintain the proper safety of this vessel and to prevent further violence and chaos in industrial relations.
Mr. Speaker: The hon. Member for Kingston upon Hull, East (Mr. Prescott)

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asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration.
I remind the House that I am not called upon to decide whether a matter is important. I am called upon to decide only whether it shall take precedence over business tonight or, in this case, on Monday next.
As the House knows, under Standing Order No. 9 I take into account all the factors set out under the Standing Order but I give no reason for my decision. I have listened very carefully to the hon. Gentleman and, although I have no doubt about the importance of the matter that he has raised, I have to rule that it does not fall within the provisions of Standing Order No. 9 and therefore I cannot submit his application to the House.

BUSINESS OF THE HOUSE (SUPPLY)
Ordered,
That this day, as soon as the House has entered upon the Business of Supply, Mr. Speaker shall put forthwith the Questions which under the provisions of paragraph (11) of Standing Order No. 18 (Business of Supply) he is directed to put at Ten o'clock.—[Mr. Bates.]

STATUTORY INSTRUMENTS, &c.
Ordered,
That the draft Weights and Measures Act 1963 (Honey) Order 1977 be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Bates.]

ORDERS OF THE DAY

  SUPPLY
  [10th ALLOTTED DAY],—considered.
  Mr. SPEAKER then proceeded, pursuant to the Order this day, to put forthwith the Questions which he was directed to put at Ten o'clock by paragraph 11 of Standing Order No. 18 (Business of Supply).

DEFENCE ESTIMATES, 1977–78 (NAVY), VOTE A
Question,
That during the year ending on 31st March 1978 a number not exceeding 78,000 Officers, Ratings and Royal Marines he maintained for Naval Service.
put and agreed to.

DEFENCE ESTIMATES, 1977–78 (ARMY), VOTE A
Question,
That during the year ending on 31st March 1978 a number not exceeding 188,500 all ranks be maintained for Army Service, a number not exceeding 65,000 for the Regular Reserve, a number not exceeding 85,000 for the Territorial and Army Volunteer Reserve and a number not exceeding 10,000 for the Ulster Defence Regiment.
put and agreed to.

DEFENCE ESTIMATES, 1977–78 (AIR), VOTE A
Question,
That during the year ending on 31st March 1978 a number not exceeding 90,400 all ranks be maintained for Air Force Service, a number not exceeding 10,600 for the Royal Air Force Reserve and a number not exceeding 400 for the Royal Auxiliary Air Force.
put and agreed to.

CIVIL AND DEFENCE ESTIMATES, SUPPLEMENTARY ESTIMATES, 1976–77
Question,
That a further Supplementary sum not exceeding £477,613,000 be granted to Her Majesty out of the Consolidated Fund. to defray the charge which will come in course

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of payment during the year ending on 31st March 1977, for expenditure on Civil and Defence Services, as set out in House of Commons Papers Nos. 139, 140 and 173.
put and agreed to.

CIVIL AND DEFENCE ESTIMATES, EXCESSES, 1975–76
Question,
That a sum not exceeding £61,320,686·47 be granted to Her Majesty out of the Consolidated Fund to make good excesses on certain grants for Civil and Defence Services for the year ended 31st March 1976, as set out in House of Commons Paper No. 185.
put and agreed to.
Bill ordered to be brought in upon the two foregoing Resolutions by the Chairman of Ways and Means, the Chancellor of the Exchequer, Mr. Joel Barnett, Mr. Robert Sheldon, and Mr. Denzil Davies.

CONSOLIDATED FUND (No. 2)
Mr. Denzil Davies accordingly presented a Bill to apply certain sums out of the Consolidated Fund to the service of the years ending on 31st March 1976 and 1977; And the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 78.]

PERSONAL TAXATION
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Bates.]
4.50 p.m.
Sir Geoffrey Howe: The subject of the burden of personal taxation is in our view not unconnected with the subjects which have just been discussed, and as long as the burden of personal taxation remains in its present position, so long will it be more rather than less difficult to secure the conquest of unemployment.
The case I wish to put in concentrating on the burden of direct taxation on personal income can be summed up in a few sentences. The present rates of direct taxation are much too high. Secondly, they are paid by people who are too poor to be required to pay such direct taxation at all. Thirdly, the combined burden of personal taxation is much too heavy at all levels of income.
This gives rise to serious consequences for society as a whole. First, there is a widespread and growing feeling not just of injustice at the scale of the present burdens, but that we have designed and are tolerating a system which is almost literally by now insane, with the poor paying income tax when their incomes are below those defined as the poverty level.
More and more people see that they get less money in work than they do out of work, and this is having a deeply damaging effect on the willingness of people to work, to acquire skills and to take risks, not just discouraging them, but driving them away from this country. All this is causing the growth of a more and more complex and expensive bureaucracy in the Inland Revenue. The House will have seen the growth of that service—an increase of 6,000 last year to a figure of 80,000—reported in the papers today. The number is now probably up to as much as 85,000.
Probably most serious of all, the burden of personal taxation is undoubtedly giving rise to more and more dishonesty as more and more people on both sides of the market move into what is known as the cash economy, resentful of the very high

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levels of tax being imposed on their earnings.
I invite the House to support three propositions, First, by far and away the most powerful reason for seeking to control and reduce public spending, which we have now so blithely dealt with in the measures just introduced, is that high public spending is certainly the major cause of the burden of personal taxation being so much too high.
Secondly, I should like to think that the House, with support from both sides, would want to carry through a strategy of altering the entire balance of our taxation system. We have been leaning more and more in recent years upon direct taxation which has been contributing in larger and larger share to our total tax revenue and which now runs at 53 per cent. of the total tax take. This has created a situation which is by now intolerable.
As the Chancellor has told the House on several occasions, indirect taxes, particularly VAT, are now less regressive than our present system of direct taxation. About half of the goods covered by VAT are not purchased by the poorer households. Indirect taxes have the great advantage in that they do not fall on taxpayers whether the taxpayers want them to or not. A person has an option to decide whether he makes a purchase which attracts a high rate of tax. We have to undertake this shift in the balance of our tax system because more and more people both outside as well as within the House now believe that pay as you spend is a far healthier principle of taxation than pay as you earn, with the burden as high as it is.
Thirdly, it is surely time for this House to reassert itself and to call upon the Government to end the practice of taxation by stealth, using inflation as a means of imposing taxes upon the people that this House has never authorised.
I know that my hon. Friend the Member for Blaby (Mr. Lawson) has argued many times that the right answer to this problem is to provide for indexation of our tax system, certainly at all the personal allowance and threshold levels. There is a great deal to be said for this view, which is increasingly commending itself in Australia, Canada and European countries. If it were done it would
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make it more difficult to continue the present crazy system under which the Government take separate decisions at separate times of the year about what they will spend and about how they are to raise that taxation.
If the Government do not feel disposed at this stage to accept the advice of my hon. Friend by going all the way for indexation, surely they should ensure that as each Budget is presented to the House the consequences of inflation for the tax system are clearly and specifically spelt out. The Chancellor should tell the House precisely how much taxation is likely to accrue to him as a result of inflation and say how little or how much of that he is abating by changes in the general levels of tax.
In that way the House and the country can see how much tax is being added to our burden at a time when the Chancellor may be purporting to reduce that burden. It is for that reason that the burden of income tax since the last year in which the Conservatives were in office—that is 1973–74—has risen to the present year by 129 per cent. The reality is that few people understood, let alone voted for, an increase in the burden of direct personal taxation of 129 percent. This was taxation inflicted by the misrepresentation of inflation.
We know quite well just how far that will go in the coming year because in a letter to one of my hon. Friends the Chancellor said that if incomes in the present year go up by 10 per cent. and there is no change in the rates and allowances the yield of income tax will automatically go up by 17 or 18 per cent. This is taxation by stealth, and we should no longer tolerate it.
I want to find out to what extent there might be an area of common ground in the House on this matter. In recent months the Chancellor has been making speeches which have echoed the speeches from the Opposition side of the House on many occasions. Last November he said:
"the level of income tax is already dangerously high and is already doing real damage to our economic performance, particularly through its effect on those at each end of the earnings ladder."—[official Report, 30th November 1976; Vol. 921. c. 717.]
He went on to make precisely the same point in his letter to the International

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Monetary Fund. We take some comfort from that because the Chancellor may feel himself more bound by his undertakings to the IMF than by his random observations to this House.
He said then that it was his own belief that the present levels of taxation had proved discouraging to effort and efficiency and if they were to continue unchanged they could threaten the improvement in our economic performance which was an essential objective of the Government's strategy. So far, in spite of what he may say in these creditable statements, he has been doing almost exactly the opposite. Income tax is dangerously high because the Chancellor has made it so, and he has done that with the enthusiastic support of the Labour Party. The question is, how far is he free to reverse his present position?
The Labour Party's document "Labour's Programme for Britain in 1976" contains the most alarming statements about this, claiming, for example, that the Labour Government have already made substantial progress towards a fairer income tax system. The effective starting point of the higher rates of taxation have been brought down, the document says. They have been brought down by inflation and the failure to index, as has the starting point of the investment income surcharge. The document continues
"a great deal remains to be done to bring in more income tax revenue from those who can afford to pay…. Measures to deal with tax avoidance must therefore be continuous…. These should not wait for annual Finance Bills, but be carried out through an enabling Bill to provide for the plugging of tax loopholes by Statutory Instrument."
Heaven forbid! But how far is the Chancellor free to begin responding to his own claim that income tax is dangerously high if he is supported by advice of that kind? We believe that the Chancellor is a prisoner of his past and of his party in this respect and, as so often in the past, he will not begin to fulfil the promises implied by the words I have quoted.
I invite the House to consider first the burden of taxation on those on pay below the average and on average pay levels—the lower paid end of the income tax payers. One must consider their
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position alongside the social security system contributions and benefits.
We start with the fact that people at that level pay the highest starting rate of income tax, at 35p in the pound, of anywhere in the world. Add to that 5¾ per cent. national insurance contributions, and we have people paying almost 41p in the pound, paying it, moreover, from the lowest starting point of any country in the world. That starting point, the threshold at which income tax becomes payable by such taxpayers, has sunk steadily over a long period. When PAYE was introduced it was set at a figure above the average earnings. It is now down to about 40 per cent. of average earnings.
We have the ludicrous position that a single man begins paying tax at 41p in the pound for every pound he earns above £14 a week. The tax threshold for a single man is £735, yet the long-term supplementary benefit level for such a person is £752. If he is married, the tax threshold is £20 a week, or £1,085 a year, but the long-term supplementary benefit level is £1,187. Therefore, we have an absurd situation in which tax is being paid through the direct income tax system at levels well below those established as the official poverty line.
The irony is that when the Chancellor of the Exchequer announced to the Labour Party Conference in 1973 his intention to provoke howls of anguish from the rich, the reason he gave was that
"We shall increase tax on the better-off so that we can help hundreds of thousands of families now tangled helplessly in the poverty trap by raising the tax threshold and introducing reduced rates of tax for those at the bottom of the ladder."
The right hon. Gentleman provoked the howls of anguish, but he did nothing to fulfill the promise. He has done the opposite, and has provoked howls of anguish from the poor as well as the rich. This lunacy is widely recognised by many people throughout the country.
I wish to read extracts from a letter sent to my hon. Friend the Member for Blaby by one of his constituents. The Chief Secretary may laugh, but this is at the heart of our criticism of the position the Government have now reached. My hon. Friend's constituent wrote:
"I am a working man in my early fifties, and I have never drawn dole in my life … However. … I recently spent some time on

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the sick list, and as a result received benefits from the State, in accordance with the law. When I came to reckon upon my financial situation, I found that my net loss for not working was about £4 a week. This set me thinking … and I reckon that if I become redundant I could … virtually retire, since £4 per week could easily be saved by getting rid of my car".
The writer then talks about two workmates of his, one married with two children and the other single, who compared their pay cards. Both were on the same rate and both had 40 hours on the card. He says:
"Out of a topline of £63 approximately, one drew £50 and the other"—
the single man—
"drew £43, a difference of only £7 extra which he is allowed to keep out of his own money to support three extra people."
his wife and two children.
"If he were on the dole he would get more in cash allowances than the paltry £7 he is allowed to keep from his own pay".
That is a typical example at a pay level of £63 a week, an example which more and more ordinary working people are understanding for themselves, as the letter clearly sets out.
Mr. Norman Tebbit: That is less than average pay.
Sir G. Howe: That is correct.
Mr. George Cunningham: Will the right hon. and learned Gentleman make completely clear whether those figures for the receipts of benefit are assuming receipt of the earnings-related part of unemployment benefit? I do not say that this negatives his argument, but it is as well to get it clear, because the earnings-related part would be payable for only six months.
Sir G. Howe: I am sure that that must be right, but the reality remains, and I am sure that the hon. Gentleman understands the force of this point. I want to read the closing sentence of the letter, with which I am sure the hon. Gentleman will agree:
"In closing, I would like to make clear that I in no way condemn my workmates (in fact, I could almost say that I too am coming around to their way of working and thinking). It is a condemnation of a muddled system which penalises the conscientious worker and seems to idolise the idle."
That is the force of our criticism against the position we have now reached.
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As the right hon. Member for Newham, North-East (Mr. Prentice) pointed out in his resignation speech before Christmas, if we continue on our present course the situation is bound to get worse, and there are not many things which can be done to make it better. One is that benefits of this kind can be made subject to tax, which has complications, or the extent to which they are raised in line with changes in the price level needs to be reconsidered. Alternatively, the tax thresholds must at the very least be fully indexed. Even that may not be sufficient to correct the abuses of which we are complaining.
This is the point I want the Chief Secretary to accept. Even to raise the thresholds to compensate for inflation from £735 to £845 for a single man and £1,085 to £1,250 for a married man, as he told an audience in Harrogate not many weeks ago, would cost the Government £1,500 million. Therefore, the kind of figure being bandied around as the tax that the Chancellor might "give away" in his forthcoming Budget is no more than would be necessary to preserve the burden of tax at its present level. If the Government set about restoring the tax threshold to the level at which it was set in the 1973 Budget, they would have to "give away" £3,600 million. Anything less would maintain a more severe tax burden than that in the last Budget introduced by a Conservative Government.
That is still not enough to correct the situation. To adjust the starting point for higher-rate income tax would cost £600 million. To lower the standard rate from 35 per cent. back to 30 per cent. would cost more than £2,000 million. So the Chancellor is now taking more than £6,000 million in tax than he would have been taking if he had maintained the real value of allowances and the rates prevailing under the last Conservative Government.
I know that the hon. Member for Cornwall, North (Mr. Pardoe) is likely to say that the process of increasing the tax burden has gone on under all Governments.
Mr. John Pardoe: How does the right hon. and learned Gentleman know that?
Sir G. Howe: I read the hon. Gentleman's speeches, and I want to challenge

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the way in which he continues to make that assertion.
There has been a degree of non-indexation under Governments of all parties, but I want the hon. Gentleman to understand the difference between a Labour Government and a Conservative Government. Let the hon. Gentleman look simply at one set of figures. When the right hon. Member for Huyton (Sir H. Wilson) first came to office in 1964, the percentage of the income of an average man, a man with two children and a wife, taken up by income tax and social security contributions was 9·5 per cent. When the Government changed in 1970, that had risen to 20 per cent. By 1973–74, it had fallen to just under 19 per cent.—not a dramatic change, I agree, but at least a move in the right direction. In the current tax year it has risen to 24·8 per cent. Let us consider a man on three times average earnings. For him, the amount has risen from 22·9 per cent. in 1964 to 27·7 per cent. in 1970. It had gone back down to 26·7 per cent. in 1973, but it is now up to 38 per cent.
Therefore, I make with total confidence the point that it is under a Labour Government that the process of taxation by stealth proceeds and that under a Conservative Government we are likely to see some progress in the opposite direction.
I pass on to the position of skilled workers and managers, because that is almost more serious. But first I want to mention one particular meanness. I refer to the Government's manipulation of the investment income surcharge. I say nothing about the lunacy of a top rate of 98 per cent. on investment income, but I want to speak about the way in which this tax is now falling largely on retired people with modest investment incomes.
The Chief Secretary will remember, and should remember to his shame, the way in which in this Government's first year in office the starting point for investment income surcharge was reduced from £2,000 to £1,000, with a figure of £1,500 for those over 65. To compensate for inflation it should now be raised to £4,000. The Government, for the sake of a paltry revenue of about £275 million a year, have failed to raise it. That is paltry by comparison with the £17,000 million
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which the Government take in income tax from the whole of the population.
Our complaint is that 42 per cent. of that burden falls on those over the age of 65. All their investment income above £30 per week is subject to that investment income surcharge. They have saved throughout their lives by investment, not through insurance, and they deeply resent this cruelly unjust burden placed on the fruits of their saved income—and they resent it even more when they set their position alongside those who are able to draw inflation-proof pensions in the public sector. Why should old people pay this additional impost on income to sustain inflation-proof benefits? How can that be defended? That is one of the most striking examples of the burdens of the present tax system.
I turn to the situation of skilled and managerial workers—the people of whom the Chancellor has often spoken as the "chaps on £4,000 to £8,000"—those of whose difficulties he is deeply conscious, so he says, and who have taken quite a caning. The Government must now recognise that skilled workers and managers are becoming increasingly demoralised at the huge and real burden of taxation that has fallen on their shoulders. They are unwilling to accept promotion, unwilling to move, unable to save, they are cutting back on their willingness to work and many of them emigrate. The figures of those who want to emigrate are a reason to be seriously alarmed at the situation.
We shall ignore this matter at our peril. It is an area in which the tax burden is dangerously high. The remedy lies in the Chancellor's hands. He can bring rates of taxation down from the present dramatically high figure of 83 per cent. If he were to act by cutting the top rate to 60 per cent., the real loss would be £120 million. He could follow the example taken, curiously enough, by the Indian Government. Mrs. Gandhi has recently reduced the ton rates of income tax from 75 to 66 per cent., and it Ins had the predictable consequence of bringing about a substantial increase in the yield of income tax from that kind of person. The right hon. Gentleman could follow the example of the Irish Government who in their Budget last month reduced direct tax rates from

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77 to 26 per cent. down to a band of 60 to 20 per cent. That surely would be a sensible thing to do.
The alternative would be to raise the starting point for those in the higher band of income tax. If the starting point of £5,000 had been altered in line with inflation since 1973, the figure should now be standing at £9,100. That is the reason why an increasingly heavy burden now falls on those who are expected to take managerial positions and to undertake skilled work in this country and who are suffering reductions in their taxed take-home pay of up to 30 per cent. and more.
If the Chancellor were to make changes of that kind, there are a number of other complicated and expensive nonsenses that he could avoid—for example, the recent consultative document proposing a change in the basis of taxation on overseas earnings. Many companies have made representations to the Chancellor challenging the proposition that in order to obtain relief on overseas earnings the person concerned must remain abroad for 30 days—suggesting six trips of five days or 10 trips of three days, and so on, and implying that this should all in some way be computed. But this all arises because of the foolish attempt to identify those at "the sharp end of the export business" and to give special concessions to those who happen to go overseas on export business. It is a ludicrous distinction to make. Who is at the sharp end of the business in that sense? Why should it always be the salesman in Paris or Mexico who alone is seeking to promote exports, instead of the chargehand fitter in Derby who works all the hours God sends to get orders packed?
Mr. Nicholas Ridley: Surely the reason is that the chargehand fitter in Derby does not meet the foreign people who are paying very much less tax when competing in other countries.
Sir G. Howe: My hon. Friend is quite right, because that worker is ignorant of the burden placed upon him. This underlines the case for reducing these grotesquely high taxes. There would then be no need for elaborate arrangements of that kind.
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Let me instance the elaborate arrangements now made for the taxation of benefits in kind related to motor cars. The Labour Party National Executive document preens itself on the fact that the Government have introduced a measure of taxation to cover motor cars used by "directors and senior executives".
Mr. Tebbit: But not by Ministers.
Sir G. Howe: But not by Ministers, as my hon. Friend says. I shall return to that matter a little later. What does the National Executive believe the figure falling on senior executives amounts to? It falls on those earning over £5,000—but not just that category, because it includes those earning far less than that.
My hon. Friend the Member for Richmond, Yorkshire (Sir T. Kitson) has submitted to me a document from one of his constituents who has set out graphically the rules applied by the Revenue in these cases. Let us take an employee who is provided with a car and who earns a salary of £3,700. He must face the hard work that is often involved in business travel outside normal working hours is paid no overtime, travels 22,000 miles a year, and his salary, plus business costs on petrol and accommodation, takes his income above the £5,000 figure. Therefore he will be taxed on the benefits of having a car. But if, in the coming year, he refuses to suffer the inconvenience of working away from home and travels less frequently, he will escape liability for tax on the car with which he was provided.
That kind of nonsensical situation is now happening. Already the Government have drawn into the net of those paying tax above the standard rate—about a million extra people compared with the figure three years ago. There were 400,000 people paying above standard rates in the period 1973–74, and that figure has now risen to 1,300,000. By adding to that list all those who receive expenses taking their pay above £5,000, yet more people are drawn into the exceedingly complicated and bureaucratic arrangements.
Even further injustices are still in the mind of this Government and the Chancellor. They are considering a change in the child benefit and child allowance system which for people paying tax above

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55 per cent. a year involves a gradually growing additional burden, about which the Government are prepared to do nothing. An additional burden is imposed on those who are responsible for university students not receiving full grants. It is characteristic of this Government that they should be prepared to tolerate that casual additional burden which will fall on the shoulders of those whose plight they purport to recognise.
I wish to turn to the proposal put by the TUC for withdrawing relief on mortgage interest payments for those paying above the standard rate. I wish to give the Chief Secretary a warning. If the Government accept that advice, they will be piling the last straw on the backs of managers who already feel grotesquely over-taxed, and they will inflict grave damage on the economy in a number of ways. Such a move will serve to raise the price of houses in the average price level as those who live in the larger houses begin to move to smaller ones because they find they will be forced to do so. That will be an impediment to skilled employees and managers.
Mr. George Cunningham: It will lower the price at the higher level.
Sir G. Howe: It will lower the price at the higher level, but what on earth is the point of securing empty houses at the higher level.
Mr. Cunningham: They will not be emtpy. They will be cheaper.
Sir G. Howe: Houses at average prices will be more expensive because people will withdraw from houses in the higher price range and will crowd into houses sold at average prices. That will make the prices of those average houses a good deal higher. Such a serious change looks as if it will involve legislation of the worst kind of retrospective nature.
In all these ways the Government have maintained and strengthened a pattern of personal taxation which is doing grave damage to the prospects of our economy. It is doing severe and growing damage to the morale and efficiency of the nation. It is imperative to make a fresh start, first by doing far more than this Government are doing to bring down the total burden of taxation, and second, by recognising
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that it is already long past time to begin changing the basis of our tax system.
We should make a fresh start in the direction of lightening taxes on personal income, even if it means increasing the tax paid by people when they choose to spend their own money. People passionately want to keep a larger share of their earned income, and they want a greater range of choice in the way in which they spend that money.
Unless the Government set out soon to make these changes, they will not begin to secure the industrial recovery about which they talk so often. For that reason, we shall ask the House to divide on this issue.
5.21 p.m.
The Chief Secretary to the Treasury (Mr. Joel Barnett): I hope that the House will appreciate at the outset that I shall not anticipate my right hon. Friend's Budget on 29th March, and that hon. Members will recognise the reason why.
As the right hon. and learned Member for Surrey, East (Sir G. Howe) knows, I agree that the levels of direct taxation are too high. I have said this on numerous occasions both in the country and in the House. Equally, we have made clear that it is our intention to reduce them, but the extent to which any Government can reduce the burden of personal taxation, or taxation generally, must depend on the economic and industrial performance of the nation and the level of total national income. The right hon. and learned Gentleman does himself a disservice by pretending that somehow or another he can find huge sums of money in order to relieve the burden of personal taxation.
Mr. Percy Grieve: Will the right hon. Gentleman give way?
Mr. Barnett: I have hardly started. I promise to give way to the hon. and learned Gentleman. It will be a great pleasure to do so, but I wish to continue a little way. If the hon. and learned Gentleman persists, I shall give way.
Mr. Grieve: I appreciate that I have interrupted early, and I am grateful to the Chief Secretary. Does he not appreciate that our point is that the present disastrous financial and economic state

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of the country is in large measure due to over-high taxation?
Mr. Barnett: With the greatest respect to the hon. and learned Gentleman, our industrial performance has been bad not for three years but for 30 years, and, indeed, even from the beginning of this century. It is absurd to suggest that there is one simple reason for our bad industrial performance, and I hope that the hon. and learned Gentleman will reflect on what he has just said.
I have said frequently that I recognise that there is a need to try to reduce the levels of direct taxation as quickly as is possible. To imply that it can all be reversed at a stroke of the right hon. and learned Gentleman's pen, and that massive tax reductions can somehow be provided across the board for the higher-taxpayer, the middle income groups, the lower tax groups and everybody, is a deliberate attempt to mislead, and it will be seen as such by anyone seriously examining the situation.
I should like to deal with some of the points raised by the right hon. and learned Gentleman, and if I miss some, my hon. Friend the Minister of State will take them up when he replies. The right hon. and learned Gentleman talked about the "paltry" sum of £275 million to give some relief to those paying investment income surcharge. Again, I make clear that we have not been able to—[Interruption.] I am glad to hear that the right hon. and learned Gentleman did not suggest that. The implication was that he would find £275 million for that, £120 million to reduce the top rate of income tax, and large sums of money to revalorise the personal allowances, to help the lower paid, and to help the higher rate thresholds as well. The total sum, which the right hon. and learned Gentleman did not add up, would be pretty huge. He did not give the total.
Mr. David Stoddart: The right hon. and learned Gentleman did on one occasion.
Mr. Barnett: The right hon. and learned Gentleman spoke of tax reductions of more than £5,000 million on one occasion.
I should like to do something about raising the investment income surcharge starting point of £1,000, but it is fair to
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say of the great majority of pensioners, that the average worker will not save enough in his life time to be caught on his investment savings by the present level of investment income surcharge. The right hon. and learned Gentleman somehow implies that the great majority of workers can save the kind of sums that would be required to be caught by the levels of investment income surcharge, but that simply is not the case.
When one is looking at the matter responsibly one has to examine the balance between providing relief for investment income and for earned income. We should like to do something for all of these—and I am sure that right hon. and hon. Members on both sides would wish to do something—but we must have a balance in priority, and the highest priority must be to try to help those who are paying, as the right hon. and learned Gentleman rightly said, high marginal rates of direct taxation on low earnings.
Mr. Tebbit: Could the Chief Secretary say whether he thinks that there is any moral justification for taxing at a lower rate a pension which is drawn from an industrial pension scheme than is applied to the income which would have been gained if the person concerned had put the same amount of his savings into private investment? What is the difference, except that one is conducted collectively and, therefore, has the approval of the collectivists, and the other is done individually and therefore, upsets them?
Mr. Barnett: The fact is that one is deferred pay and the other is investment. [HON. MEMBERS: "Oh."] Of course, it is deferred pay. I know the hon. Gentleman's obsession with public service pensions, but the average public service pension is about £10 a week, and the majority are much lower than that.
It really is silly for the hon. Gentleman not to recognise that our direct taxation system, under successive Governments, has always differentiated between earned and investment income. It changed only when the previous Government unified the direct tax system. I agreed with that unification, and accepted that, when it was done, there was a case for some relief from the higher investment income surcharge at the lowest

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levels of investment income. All I am saying is what I should have thought most reasonable people would accept, that, given the limitation of the amount of relief that can be provided, the highest priority must be to give that relief to those with earned income.
Mr. Ridley: If I can introduce into the Finance Bill a system whereby private individuals can in some way have deferred pay credited to a savings account and invested, will the Chief Secretary agree to waive the investment income surcharge on that income?
Mr. Barnett: The hon. Gentleman tries to be too clever, and it is unlike him. It is difficult for him as well. He knows that our direct tax system differentiates between the two and, indeed, his right hon. and learned Friend did not suggest that we should not. He did not suggest positively a great many thing except that he told us that we should massively reduce levels of direct taxation—though he did not tell us how. He did not say that we should remove the differentiation which we make between investment and earned income.
Sir G. Howe: The point I was making was that the Government lowered the starting point from £2,000 to £1,000, and then allowed inflation to roar away. The least they should do in the way of justice is to put it back to a figure nearer to what it should be, which is £4,000, from the starting point originally designed. The Government have dragged it down and kept it at the lower level, to the great disadvantage of those who depend on savings income in retirement.
Mr. Barnett: The right hon. and learned Gentleman must recognise that one cannot look at one aspect of the tax system in isolation from all the rest. It is quite wrong to pick out one item for indexing back to a particular date.
Sir G. Howe: That is the sharpest.
Mr. Barnett: The right hon. and learned Gentleman is now saying that that is the sharpest. Previously, he was talking about the top rate, and then it was the lowest end. He must decide where his priorities lie. One has to look at the whole tax system.
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I was interested to hear the right hon. and learned Gentleman talk about the problems of introducing the child benefit scheme—I hope to hear some clarification from him about this—and the effect on higher rate taxpayers of the phasing out of child tax allowances. The truth is that the right hon. and learned Gentleman and his party support the child benefit scheme. I shall be interested to know how he would help specifically—I do not mean by indexing the higher rate thresholds—parents of that kind. He knows that there is no specific way of helping them.
Sir G. Howe: The Chief Secretary knows perfectly well that, when this matter was debated earlier, my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) put forward specific proposals simply to prevent the higher-rate taxpayer from becoming actually worse off as a result of the introduction of child benefit which we support. The fundamental remedy, as the Chief Secretary must know, is to alter the rates of taxation at higher levels in order to prevent people from being made worse off as a result of the change. There can be no justification for keeping an additional burden, however modest, on these people with middle and higher incomes—managers and skilled workers—as a result of making a change, however beneficial. That is the point, and there are various ways of dealing with it.
Mr. Barnett: The right hon. and learned Gentleman knows that there is no way of specifically directing relief to that particular group. It is no use wriggling. There is no way of doing it. He supports the child benefit scheme, which means phasing out child tax allowances. There are ways of helping all income groups at that particular level, but that is not directing relief specifically to those parents. I recognise that there are problems for such parents, but it is a strange argument to suggest that one is in favour of bringing in the child benefit scheme, while recognising that that means removing the child tax allowances, and then seeking to escape from the inevitable dilemma that arises from it.
The main burden of the right hon. and learned Gentleman's speech was directed to personal income tax, and I shall deal now with some of the points he made. The international comparisons which are

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frequently made are invariably somewhat misleading—I include in that many of the examples which I have given from time to time—because on closer analysis any international statistics do not give the true circumstances in any individual country. When I give international statistics I do so only to give a broad indication of the situation. Right hon. and hon. Members on the Tory Benches frequently give such figures in an effort to show that we have a very high level of direct taxation in the United Kingdom. I do not deny it. We have a very high level of direct taxation, but the case should not be overstated, either. We have a very high starting rate at the lowest end of the income tax scale. We also have a very high top rate, but we do not have the highest rate of direct taxation in ail the developed world if national insurance contributions are included—in other words, if one counts the effective rate rather than the marginal rate.
The hon. Member for Norfolk, North (Mr. Howell), who is constantly putting Questions on these statistics, has given us the opportunity, if we did not have it already, to find many more to show that there are many countries with higher totals of direct taxation than we have. It is not true, therefore, that we are the highest taxed country in the world.
Mr. Ralph Howell: Will the Chief Secretary name the countries which have a higher rate than we have?
Mr. Barnett: I am happy to do so. I thought that the hon. Gentleman would never ask. Taking national insurance as well as taxation, as a percentage of gross national product, which is one basis for doing it—
Mr. Ralph Howell: No.
Mr. Barnett: All right. I shall give it on the basis of average production workers' earnings. This comes from an answer recently given by my right hon. Friend the Financial Secretary, and here are the figures: the United Kingdom 23 per cent.; the Netherlands 31 per cent.; Denmark 38 per cent.; Germany 23 per cent. Is that all right?
Mr. Ralph Howell: Let us have it in a fair way, comparing the figures which the right hon. Gentleman said I have
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asked for and given in the form of percentage rates of tax.
Mr. Barnett: I shall be happy to answer. We have always answered the hon. Gentleman's Questions as quickly as possible, and if he puts down more Questions we shall be happy to deal with them. However, merely because he finds that one set of answers does not suit his argument, he should not seek to ask further Questions. I have not disputed that we have high levels of direct taxation. I only dispute that we have the highest effective rates throughout the world. We have high rates, and I shall come to the problems which that carries with it.
Mr. Ron Thomas: Does my right hon. Friend agree that in making these comparisons one has to take many various allowances and other factors into account, including mortgage interest relief and goodness knows how many ways of avoiding actually paying a tax?
Mr. Barnett: My hon. Friend is right. I thought for a moment that he was about to ask me another question to which I shall come shortly.
Mr. Tebbit: He will.
Mr. Barnett: I am sure he will.
Comparisons can be misleading for a number of reasons. First, they ignore the social wages. [HON. MEMBERS: "Oh."] Of course. If a worker is left with less cash in his wage packet he may none the less enjoy the same living standard as will be enjoyed by someone with a higher net take-home pay because of the provision of health services, education, pensions and many other benefits. That is a fact. I know that the Opposition constantly say that they would leave the taxpayer with more cash in the pocket and reduce the level of public expenditure to do it. That would be fine, but I wish that they would occasionally tell us which part of the social wage they propose to cut. They have never told us.
Mr. Tebbit: The right hon. Gentleman's.
Mr. Barnett: If the hon. Gentleman thinks that my salary is the social wage, he is welcome to it, net of tax.

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The other main point made by the right hon. and learned Member for Surrey, East was that it would not be a true reduction in taxation if we did not increase the personal allowance in the next Budget in line with inflation from April—even taking it on a one-year basis, from April 1976 to April 1977. It is a simple statistical fact, of course, but again it takes the situation in isolation.
I was interested to note that the right hon. and learned Gentleman quoted his hon. Friend the Member for Blaby (Mr. Lawson) in this connection. He quoted him more than once, but on this matter he quoted his hon. Friend's view as being in favour of indexation. The right hon. and learned Gentleman did not give us the privilege of knowing whether he supported indexation. Perhaps he will tell us at some stage, since he must now be beginning to think that perhaps, at some time in the next 20 years, he may even be Chancellor of the Exchequer. It would be valuable to know whether the right hon. and learned Gentleman supports indexation, because it is only a true measure if one takes the increase in personal tax allowances from one year to the other, and it is not true unless one increases it directly in line with inflation. Moreover, if one accepts indexation, not just the personal tax allowances, indirect taxes have to come in as well. Indeed, as the right hon. and learned Gentleman knows, the hon. Member for Blaby is in favour of taking indexation to much greater lengths.
One could argue that, if personal tax allowances and indirect taxation were to be indexed, there would be many other areas of economic and financial life that equally should be indexed, if that were what one would want to do. I see the right hon. and learned Gentleman shaking his head at that—
Mr. George Cunningham: Let my right hon. Friend give way to him.
Mr. Barnett: I am ready to give way to the right hon. and learned Gentleman at any time, but I do not think that he will tell us today. He does not wish to answer now.
I do not accept the case for indexation, for a great many reasons. Above all, I do not accept it because of the
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rigidity which it would impose on a Chancellor.
Mr. A. J. Beith Mr. A. J. Beith(Berwick-upon-Tweed):Oh!
Mr. Barnett: The hon. Gentleman ought to understand what would be imposed if one did that.
I do not deny that indexation would require a Government to come to the House of Commons and say explicitly that they were asking for such and such more direct taxation. That is true. Neither the Chancellor nor I have ever denied that when the Chancellor has not increased personal tax allowances in line with inflation he has not, therefore, fully revalorised personal tax allowances and that, therefore, inflation is increasing direct taxation.
I should have thought that any serious examination of the way to handle both direct and indirect taxes would show that maximum flexibility allows discretionary change—so that one can modify the impact, not just between direct and indirect taxation, but between different groups of taxpayers. That would not be so readily available if there were built into it the rigidity that personal tax allowances must be increased in line with what happened in the previous year.
Sir G. Howe: That which the Minister defines as rigidity, and which has been accepted in Canada, Australia and other countries, would be regarded by many people as a valuable discipline upon transfers. That is why I said that it deserves to be considered seriously. Will the Minister at least accept that the Chancellor of the Exchequer ought, when he discusses changes in taxes, to adopt the principle of truth in taxation and that this year he should not tell people in his Budget broadcast that he will give them so much extra if they will do this or that in relation to the pay deal, but should tell them candidly that he will take that much less away from them? Does not the Minister recognise the case for spelling this out clearly and for accepting truth in taxation?
Mr. Barnett: I have noticed that the right hon. and learned Gentleman is in favour of truth and of considering the matter seriously. I am grateful for that, and I am sure that the House is, also.

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I assure him that I have considered indexation seriously, and I have come to the conclusion that there are many disadvantages in it. I do not, therefore, recommend it to the House. That is my position, but the right hon. and learned Gentleman's position—and we have noted it—is that he will consider indexation. I do not accept the case for it and the right hon. and learned Gentleman has not made out a case. Indeed, he has not made it out to his own satisfaction. He will only consider indexation, and he will not tell the House that he intends to introduce it. He knows that we have spelt out the truth in countless answers to Questions in the House and during the Budget and Finance Bill debates. It is silly for the right hon. and learned Gentleman to keep saying "Spell it out". We have done so on numerous occasions.
Mr. David Howell: In view of that, can the right hon. Gentleman say why the Chancellor of the Exchequer said the other day that he hoped to reduce taxation in the next Budget while, according to the Chief Secretary's definition and the definition of all those who know about these things, it will, in fact, increase?
Mr. Barnett: The hon. Gentleman and his hon. Friends are worried about how popular the next Budget will be. That is why they are worried about the cut in direct taxation. One cannot look at direct taxation in isolation from everything else. A reduction in direct taxation is a reduction, whether fully revalorised or not.
Mr. Frank Allaun: On this point, as a simple man and a fellow blunt Mancunian may I ask the Minister a blunt question? But first, I congratulate him on his promotion to the Cabinet. We are told that the Government suddenly find themselves able to grant possibly £2 billion in tax relief in the Budget. Why are the Government not equally able to restore the cuts in housing, education and health? That would certainly reduce unemployment more directly. May we plead with the Chief Secretary that at least part of the handout should go in this social direction that will also directly reduce unemployment?
Mr. Barnett: I thank my hon. Friend for his kind remarks. I make it quite clear that we are talking in a purely
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hypothetical situation. I am not proposing to tell the House now precisely what will be in the Budget. Otherwise my position in the Cabinet might not last long. I know my hon. Friend's views and I know that many of my hon. Friends would like to see some of the cuts that we have had to make in public expenditure reversed. But I do not agree. We have had to achieve a better balance between public expenditure and the levels of taxation. One has to recognise what I have been saying in my speech—although there have been one or two interventions from time to time—and that is that the levels of direct taxation ought to be reduced for people with low levels of income. I am in favour of doing as much as possible to help reduce the level of direct taxation, particularly for such people as my hon. Friend and I represent in the Greater Manchester area.
Mr. Frank Allaun: May I follow up that point? We were told two or three months ago that the size of the public expenditure deficit required these cuts. Suddenly we are told that it is not required, because the Minister can give away money. So, there must have been a misleading account, either deliberate or unintentional, and the answer is not quite as straightforward as the one that we have had so far.
Mr. Barnett: I always have the greatest respect for my hon. Friend, but I do not know who said that the cuts were not required. I have not said that, and neither has the Chancellor.
I want to turn to the question of the erosion of differentials. I have said on numerous occasions that we recognise that the combination of the incomes policies of successive Governments, together with tax increases and inflation, has considerably eroded the differentials between the highest and the average paid, between the unskilled and the skilled, and between those in work and those out of it. I have never hidden the fact that I recognise that that is a problem with which we must deal.
I am also bound to say that the reduction in real net income is not simply due to the level of direct taxation: it is due to the underlying reason that we have done so badly as a nation. If, tomorrow, we passed the necessary resolution to

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reduce direct taxation by the £5,000 million that the right hon. and learned Member for Surrey, East mentioned, it would not increase anybody's living standards. It would not solve anything. It is oversimplifying the situation to suggest that by reducing high levels of taxation we shall somehow suddenly achieve a massive turn-round and a massive output as a nation. It would help to some extent, but to pretend that that is the only reason—[HON. MEMBERS: "We do not say that."] I am glad to hear that nobody on the Opposition Benches does so.
I noted the Opposition spokesman's quotation from a letter received by his hon. Friend the Member for Blaby. The hon. Member must be receiving a great many letters—I must say that I receive a fair number from him. The Chancellor and I, and a great many other hon. Members, have talked about the differentials between those who are in work and those who are out of work. There is a problem here. I do not object to what the right hon. and learned Gentleman quoted. The figures are clear. Not many people would be better off out of work, because, as the right hon. and learned Gentleman conceded, the majority of people on short-term benefit do not receive earnings-related supplement.
One is bound to accept that the great majority of workers, even if they can do better out of work than they could in a job, want to get back to work. It is wrong to suggest that simply because we calculate the figures here and show that some people are better off out of work, there are millions of workers taking advantage of that situation. It simply is not true. An unemployed man who is married with two children receives a flat-rate benefit of £27·50 a week, and not many hon. Members would be happy trying to survive on that sort of money.
We accept the problem of the erosion of differentials at all levels and between those in work and those out of work, but I hope that no one will succumb to the temptation of saying that vast numbers of workers have suddenly become scroungers and are seeking to use the Welfare State to their advantage. We recognise the problem of differentials in many areas. It is a problem not least because it deters the acquisition of skills and
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responsibilities and discourages a longer view of career prospects.
We want to do something about it. The question is, how much can we do?
Mr. A. P. Costain: I agree that people prefer to work rather than not to work, provided that they get some reward for doing so, but has the right hon. Gentleman considered that the very high fares that many people have to pay to get to work are a further disincentive?
Mr. Barnett: I was just coming to the question of incentives. I know that fares are a very great burden for many people, in all our constituencies, who have to travel any distance to work, but there is no simple answer to this problem. If it is suggested that we should reduce the fares for millions of passengers going to work, the money would have to come from somewhere—from direct or indirect taxation. I am not sure that this would be fair, because some people choose to live nearer to their work and to pay higher rents rather than live further out and travel to work. That is a personal choice and, although I recognise the problem to which the hon. Gentleman has referred, I do not think that we should provide tax relief on fares or subsidies public transport even more in order to reduce fares.
There is ample anecdotal evidence about the disincentive of personal levels of taxation. I am under no illusion about that, even though one does not always get the hard evidence and the facts. I have seen several surveys and they do not provide hard evidence. However, I am not saying that, just because they are not always crystal clear in their evidence, there is no disincentive. We recognise that, in many instances, there is.
I should just point out that the Royal Commission in 1955 found something that I have had confirmed in my constituency, namely, that at least some workers work longer hours because of the incidence of income tax. The incentive works the other way because these people have decided that they want a certain take-home pay. I am not suggesting that this is an argument for higher levels of taxation, but there is evidence that this attitude is taken by some workers.
The disincentive applies particularly to entrepreneurs, professional people and

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others who begin to feel that there is no point in earning more. I do not think that it applies to the same extent to managers who stay in this country. It may make some managers go abroad or persuade them not to come back once they are abroad, but it would be a bit of an insult to the managers who are working hard in this country to suggest that if we reduced their taxation they would immediately start working a lot harder. I do not accept that argument.
It would be comparatively cheap to do as the right hon. and learned Member for Surrey, East suggested and give substantial relief for those at the top end of the tax scale. It would cost very little in terms of lost revenue, but it would cost many thousands of millions of pounds to help the average taxpayers—those earning between £1,500 and £6,000 a year—who pay the bulk of tax.
The House must recognise the problem. It is impossible to argue that we should give substantial cash relief, no matter how justified, for those at the top end of the tax scale while we were able to do only very little for those at the bottom of the scale.
Mr. Frank Allaun: It would be despicable.
Mr. Barnett: I do not always agree with my hon. Friend's choice of words, but such action would certainly be impossible for any Government, especially when they were asking the average worker, as we are asking him, to accept a pay deal which will result in a small reduction in real living standards in the coming year. We could not justify doing that and we would not ask the House to do so. I hope that no Opposition Members would support such a proposition.
The best way of helping all tax payers is for us to get a pay policy that is as flexible as possible in the next pay round and that will reduce the rate of price inflation and thereby help everyone, whether high or low paid.
Mr. Tebbit: The average industrial worker with a wife and two children has suffered a loss of £3·80 a week in the real value of his take-home pay while the Government have been in office. That is bad enough, but the man on £6,000 or £7,000 a year has suffered a far greater reduction. Although it may
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not be a terrible disincentive to that man, many people have noticed—though the Chief Secretary may not have done so—that if that man spends a great deal of time at work for very little reward, his wife does not find it particularly funny and will discourage him from doing so.
Mr. Barnett: My attitude to that situation is similar to my attitude to the hon. Gentleman—I do not find it particularly funny. I have said that I am appalled at the erosion of differentials. It is a serious problem, but if anyone suggested that it is the fault of what has happened in the last three years that our total national income has not grown as fast as that of the rest of the developed world, that would be a rather silly party point. However, I do not accuse the hon. Gentleman of doing that.
There is a need to make cuts in income tax, but it would be foolish and dishonest to imply that we can make cuts of the magnitude of £5 billion that the right hon. and learned Member for Surrey, East has sometimes referred to. I know that on these occasions he always says—in what might be called the small print—that he could not do it tomorrow. The trouble is the average taxpayer does not read that sort of small print and gets the impression that the right hon. and learned Gentleman is offering something that he knows he cannot deliver.
There are literally only four ways of obtaining substantial tax reductions. The first method is increased borrowing. The second method is to make cuts in public expenditure. The third method is to switch from direct to indirect taxes. The fourth method is better economic growth than we have been able to achieve in recent years or, indeed, for many years.
My hon. Friend the Member for Salford, East (Mr. Allaun) who has now left the Chamber, wants increased borrowing. No doubt he takes that view for very good reasons. However, to increase borrowing at present cannot be contemplated. We are determined not to take that course. To finance reductions in taxation by going above the levels of borrowing to which we arc committed would not be sensible. It is crucial that we reduce the level of borrowing to ensure that finance is available to industry at interest rates that it can afford. That is the only way in which

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we shall be able to help all those that we represent. That is the only way of dealing with the problem. It would be reckless and irresponsible to endanger the gains that we have been making on the financial front by increased borrowing.
The second possible approach is to make further massive cuts in public expenditure. This is the point that was made very quickly by the right hon. and learned Member for Surrey, East. The right hon. and learned Gentleman skated over that very quickly. That is because he and everyone in the House knows that all that we have had from him and his right hon. and hon. Friends in the past three years have been ways not of cutting expenditure but many ways of increasing it. I understand that in about two weeks' time we are to have a debate on public expenditure. Perhaps I shall then be interrupted on fewer occasions and I shall be able to spell out the many ways of increasing public expenditure that have been advanced by the Opposition.
It would be extremely difficult to ask workers to accept a pay deal, flexible as we hope the next round will be, on the basis of massive cuts in public expenditure unless someone can explain to me after three years of examining public expenditure—they have been three very strange years—how we can make cuts of thousands of millions of pounds that are painless. Unless I am told how that can be done, that is not a real proposition.
The third method is to switch from direct taxation to indirect taxation. Many of us came to politics believing that the switch should go the other way, namely, from indirect taxation to direct taxation. Many of us felt that that would be much more progressive. I am bound to say that the situation has changed considerably. [HON. MEMBERS: "Oh"]—There is nothing amusing about that. The situation has not changed only over the past three years. In 1969–70 expenditure taxes took 45 per cent. and income taxes took 38 per cent. In 1975–76 that was reversed so that expenditure taxes took 37·4 per cent. and income taxes took 42·6 per cent. That went on under successive Governments. When income tax is so steeply progressive that it is hitting people on the margin, including national insurance
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contributions, at nearly 41 per cent.—I have in mind those with incomes that are at about supplementary benefit level—it can no longer be argued that we should proceed further with switches from indirect taxation to direct taxation. I believe that we must make a move in the opposite direction, not least because to increase some indirect taxes would be nothing like as regressive as we have often thought. I shall not spell out that argument in detail on this occasion. I hope that no one is taking anything that I am saying other than from a medium or long-term viewpoint.
Many countries in the EEC, as well as industrial countries throughout the world, rely much more heavily than we do on indirect taxes. However, I am bound to say to Conservative Members that other countries rely on employers to a much greater degree for national insurance contributions. When we added 1 per cent. to employer contributions recently the Opposition voted against us. No doubt they can always justify a selective approach. No doubt, they can justify supporting what some countries do on one matter and not on another.
I favour a switch from direct taxation to indirect taxation but I do not believe that it can be done overnight. At a time when a major problem is the level of inflation it would be difficult to argue the case to make a substantial increase in the rate of inflation to pay for huge reductions in income tax. However, I believe that we should move in the direction of switching from direct to indirect taxation.
Mr. John MacGregor: Has the right hon. Gentleman calculated the effect of an increase in indirect taxes—not too great an increase—on the RPI compared with what has happened over the past year, given that most people will have much more money in their pockets to spend?
Mr. Barnett: I can assure the hon. Gentleman that I have done so many calculations over the past three years that that one is somewhere among them.
The fourth and best way to finance tax reductions must be from a higher rate of economic growth than has been achieved by successive Governments. Even if we obtain higher levels of economic growth of the sort that we should all like to see, in the immediate future that growth will

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be largely pre-empted for industry, for the balance of payments, and for the better balancing of our external financial position. That has to be.
Provided that we do not pretend that there is some simple panacea, provided that we do not pretend that we can concentrate resources on reducing income tax and that we can somehow get everything right at a stroke, provided we ensure that we get the economy into proper balance first, the prospects will be brighter for our economic future as well as for reducing the general level of income tax. It would be madness to try to reward ourselves with tax cuts that we had not yet earned. That would be to do what has been done all too frequently in the past. I hope that no one suggests that that should happen again.
In the short term—as the House will recognise, I am somewhat inhibited—I have made it clear that we want to reduce the level of income tax, although that must depend entirely on the next pay round and the general room for manoeuvre that the economic situation allows.
In the longer term we must aim for a much better tax profile. The threshold is too low, and people come into tax at too high a rate, but to have a reduced rate band in circumstances in which we would be limited in the amount of relief that we could give would mean that we could not increase the threshold as much as we would like. At the same time we are considering all the representations that are being made. If the choice is between a reduced rate band and raising the threshold, I ask the House to recognise that the best way to help the lowest paid is to raise the threshold. I want to see a much better tax profile, not just one reduced rate. I want to see a number of reduced rates.
In the longer term I want to see a much better and fairer tax system. I am bound to say that such a system would have to include taxation of all taxable capacity. That must mean the proper taxation of wealth. It is no use pretending that we can ignore the taxable capacity of large sums of inherited wealth. It is not possible to devise a fair tax system in any other way.
Our priority for now must be to maintain the priority of financial stability and
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to improve our industrial performance. That is the only real way of improving both net take-home pay and real living standards. It is the only way that we shall reduce the burden of personal taxation.
6.10 p.m.
Mr. John Cope: I propose to make a short intervention, in the course of which I should like to comment on one or two remarks made by the Chief Secretary. I thought that in some senses the hon. Member for Salford, East (Mr. Allaun) went near the nub of what lies behind all the discussions when he referred to the balance between taxation and expenditure and made it clear that in his opinion taxation should be increased, or allowed to go up as a result of inflation, to restore the cuts in expenditure. The hon. Gentleman seemed to think it surprising that the idea had suddenly got about in Treasury circles—and from Treasury circles spreading to other circles—that there might be room for what the Chief Secretary, despite his earlier remarks, kept referring to as "cuts" in direct taxation at the time of the Budget.
I should remind the hon. Member for Salford, East if he were here—as he is not, I must remind the House as a whole—of the position at the time of the Budget last year. Income tax and surtax, which was very nearly finished, but not quite, were forecast to raise in 1975–76 almost exactly £14,000 million. When the Chancellor rose to make his Budget Statement last year, the estimate for the current financial year was very nearly £18,000 million—an increase of £4,000 million before the Budget changes took place. I do not know what the equivalent figure for this year will be, but I should judge that it will be of the same magnitude.
Almost by the time that the Chancellor sat down, as it were—in fact, not by the time that he sat down, because the House will remember that some of the reliefs last year were conditional on agreement with the unions—at any rate, by the time that the Budget changes, including the conditional ones, were fully introduced, a step back of about £1,000 million of that £4,000 million had been taken by the Chancellor. The result last year was an increase of about £3,000 million as a result of inflation. That is the money

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which is talked about as being available for so-called "cuts" in direct taxation.
Some of that figure—I do not know how much, and I suspect that nobody else knows how much—is pure inflation by itself. But a large part of that figure is the result of people coming into the higher tax brackets and coming into income tax at the bottom end, because the allowances are still below the rates for social security benefits, as we heard this afternoon. The extent to which that has been happening is considerable.
The Chief Secretary also spoke about the differential between direct and indirect taxation. I am not sure how his figures compare with the figures given yesterday in the Inland Revenue report, but the figures in that report are fairly startling.
Taking income tax and surtax, which have been incorporated into one—so we must join the figures together for earlier years—at the start of the Labour Administration in 1964 just under 40 per cent. of all tax revenue was taken in income and surtax. By the end of that Administration—1970–71—it had risen to over 42 per cent. That was not a dramatic rise but it was a significant rise in the proportion of direct taxation.
The level remained more or less stable until 1973–74. Since then it has gone up from 42·8 per cent. in 1973–74 to 53·5 per cent. in 1976–77. It will undoubtedly have gone up considerably more in the estimates for the forthcoming year. That is a switch of more than 10 per cent. in the proportion of tax coming on to income and surtax and their successors. I should make it clear that a small proportion comes from corporation tax, but it is a very small portion of the percentage. The vast majority comes from indirect taxes collected by Customs and Excise.
Another peculiar matter—I was not quite able to follow from where the Chief Secretary got his figures—concerns the comparisons between taxation in this country and taxation overseas. In an intervention one of my hon. Friends drew attention to the nub of the matter by referring to the way in which these comparisons bite on most people. People from this country who travel abroad on business see themselves, day by day, alongside those with whom they are work-
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ing overseas. But we should not imagine that they are the only people who are affected by these comparisons.
Increasingly, particularly in some industries in my constituency, many skilled and less skilled people, who are not export salesmen or managers at high levels, travel abroad in the course of their work. I am thinking particularly of the aircraft industry. The Bristol aircraft industry is involved in joint projects with the French and the Germans. Therefore, many people have to travel abroad and are able to compare at first hand what happens.
The Chief Secretary produced figures that seemed to indicate that taxation in some Continental countries was much higher than it is here if the employee's social security contributions are included. I recall and have before me some of the figures that were given in a Written Answer on 4th November last year. They show United Kingdom average earnings and the percentage of total earned income of a family man taken in income tax and employee's social security contributions combined. The United Kingdom figure is the highest of all the principal European countries listed.
The Chief Secretary mentioned France and Germany in particular. The figures given in November show that in the United Kingdom 25·75 per cent. of average earnings was taken in income tax and employees' social security contributions. The German figure was 22·22 per cent. That is not a great deal less but it is certainly less. Incidentally, the French figure was 8·34 per cent., but that is a reflection in part of the different nature of the French tax system. Howexer, it is also a reflection of the different weights of the taxation systems of the two countries.
The important point is not so much the United Kingdom average earnings but the steepness of increase that occurs in the United Kingdom compared with the other countries listed. If we take twice the United Kingdom average earnings and the same percentage figure at that stage—this comes from the same Written Answer on 4th November—the German figure goes up from 22·22 per cent. to 26·38 per cent., but the United Kingdom figure goes up from 25·75 per cent. to over 32 per cent. That steep increase is the principal worry.

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The figures taken are for the current year in each case.
I recognise, as do my hon. Friends, the great problems facing the Government in deciding how to frame the Budget. I am sure that there is no doubt among any of us that the balance must be kept between the various options outlined by the Chief Secretary. But the right hon. Gentleman at one stage appeared to be suggesting that we were proposing decreases only in the real level of direct taxation. That is not so. However, that must be high on any Government's priorities.
To some extent, the subject of this debate is, which came first, the chicken or the egg? Does the growth and success of our economy depend on reducing tax rates so as to raise incentives, or must we wait until the economy has improved before we can reduce taxes? There is no scientific way, so far as I know, of answering that question absolutely or of calculating the exact effects in advance. It is a matter of political judgment.
However, my belief, which is shared by many of my hon. Friends and by many of my constituents at all levels of income, in work and out, is that it is essential, first, to restore the incentive to work and to work hard before we can expect the economy to expand faster. I do not believe that we can expect the economy to expand first for some other reasons—the Chief Secretary has never spelled out those reasons—and then dish out cuts in taxation. That is the importance of this debate and of what happens on 29th March.
The Chief Secretary rightly said that we were suspicious of what will happen then and about whether any so-called "cuts" in taxation will be real. I hope that he will face what he said about taxation honesty and that his right hon. Friend will make clear the extent to which any cuts will be real and the extent to which he is simply cashing in on the inflation over which this Government have presided and which has a mammoth effect on raising their revenue.
I made my maiden speech rather less than three years ago on this same subject of the importance of the real value of taxation allowances. I apologise for having had to repeat some of what I
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said in that speceh, but the subject has increased in importance since then.
6.23 p.m.
Mr. John Pardoe: I hope that it would not be uncharitable to ssume that this debate has been initiated by the Conservatice Opposition with two purposes in mind—first, an annual ritual-bash at the Chancellor and, second, an attempt to upstage him on the personal taxation cuts which they fear, I hope rightly, that he will make in the Budget. But I hope that the debate will do far more than that. That it should do so is obvious, if from nothing else, from the 119th Report of the Board of Inland Revenue, which some of us managed to read today over and above the Press summaries. Anyone who has read it—I managed to: it is not very long—and anyone who has been following the work of the Institute of Fiscal Studies Commission under the chairmanship of Professor Mead can be under no illusions about the British tax system.
The British tax system is a Gothic nightmare—a monster. It is not a monster, however, that has suddenly risen from the bog of the last three years of Labour government. It was born way back in the two-party past and it has grown fat and greedy on the wilful negligence of successive Governments.
The tax system is not the cause of all our ills. It would be futile to give the impression that somehow shuffling the pack of taxes will solve all our industrial and economic problems. But anyone who wants to know why Britain suffers has only to ask what kind of a system of government allowed a system of taxation such as this to continue for so long. The answer can only be a diseased and decrepit system of government which has outlived its usefulness and deserves to be put out of its misery. The same can be said of the tax system.
Anyone who is not part of what I might call the professional tax establishment but who has had to grapple with taxation debates and the Committee stages of Finance Bills—let alone with his own tax returns—knows that this is nothing new. There is and has been plenty of evidence of the inadequacies and ghastliness of the British tax system for a long time. The regular articles that

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appear in Economic Trends on the combined effects of taxes and social welfare benefits on household incomes show that we spend an enormous amount of ingenuity—and another 6,000 Inland Revenue officials in the last year above the total of the year before—in taking money out of one pocket and putting it in another. And the pockets do not always belong to different people.
The present tax system is an extra-ordinarily inefficient way of redistributing income, if that is what we want to do. It has not worked; we might as well admit it and try to redistribute income, if we want to do so, in some other way.
There are two warnings that I would take to heart. First, no one should believe politicians who say that the tax system will come right with an overall cut in public spending and they should especially not believe those politicians who say that they will make those cuts but do not itemise them.
Public spending has come to hold the place in the mythology, I would almost say the theology, of the Conservative Party which defence spending has always held in the mythology of the Left—that is, that it is a bottomless pit from which one can always get money to finance one's latest pet topic. There are very strict limits to cuts in public spending, which nearly always mean cuts in public investment. For the foreseeable future, that means a cut in total investment, because for the foreseeable future cuts in public investment are not likely to be compensated for by corresponding increases in private investment. I wish they were, but they are not.
We must consider also the effects of cuts in public investment on the taxable capacity of the private sector of industry. No one who represents a constituency like mine, which now has the highest rate of unemployment of any in the country—20 per cent. male unemployment in some towns—can doubt that cuts in public investment in fact mean a substantial cut in the taxable capacity, the real wealth, of the people of the area.
For instance, if a sewerage scheme is not built in Wadebridge it will deprive 50 men of work for two years. Such a scheme would be a great help there, because Wadebridge has 350 men, or 20 per
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cent., unemployed at the moment. But that is not the only effect. The direct effect of the scheme would be to put 50 men to work for two years, but it would also have a multiplier effect on the money that they would then be able to spend in the shops and many other effects on the local economy. Also, without that sewerage scheme, there can be no other building to provide work in that locality. The people who are unemployed will therefore have to travel away to work. In that microcosm one sees the problems caused by cutting public investment.
I have indicated that we shall not change the whole balance of the British economy by shuffling taxes. I do not want to give the impression that we shall. Tax reform will not change everything. Our economic decline has been going on for a long time. Its beginning predated the most recent growth of the tax monster. But the tax system is now a formidable barrier to all other avenues to our economic and industrial success. What is wrong?
First, income tax has been forced to carry far too large a part of the burden. The Inland Revenue report today clearly shows in Table 1 what the pattern has been. In 1969–70, income tax plus surtax was 37·8 per cent. of the total tax revenue; the estimate for 1976–77 is 53·5 per cent. But that is not a true picture because the Inland Revenue has fallen for the politicians' myth that national insurance contributions are not a tax. I hope that, in future reports, the Inland Revenue, in these helpful tables, will show national insurance contributions as part of total taxation.
If national insurance contributions are included in total taxation, we see that income tax was 28·73 per cent. of the tax revenue in 1969–70 and is estimated to be 42·5 per cent. in 1976–77. If, in 1976–77, income tax was still at the share of 28·73 per cent., the total income tax revenue would be £5,000 million less than it is.
The Chancellor of the Exchequer and the rest of us are desperately trying to think of ways in which we can find the revenue to reduce the personal tax burden. Here is £5,000 million which, if only we could move back to the profile of tax of 1969–70, we would have available to increase tax allowances, to expand tax

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bands, and the rest, or perhaps even to reduce the standard rate, and, I hope, introduce a lower rate of income tax. It is crazy to start off at 35 per cent., which—if one is fair and calls a tax a tax—with national insurance contributions included, means that one actually starts at around 41 to 42 per cent.
Mr. George Cunningham: If it is logical to regard national insurance contributions as tax, how come that it would not also be possible to regard pension contributions as tax? How can one logically differentiate between contributions made for which one gets a State pension and contributions made for which one gets a private pension? One has to apply the line somewhere, and surely it is more sensible to draw the line where it is?
Mr. Pardoe: I do not want again to get into the row about inflation-proofed pensions in the public sector. Most of the private pension contributions are a payment for actual value received. The national insurance scheme is in no sense related to the pension one is to get. It is related to the pensions that one's parents are getting now. We are paying for the pensions of our parents. It is a pay-as-you-go scheme, not a funded contribution. We might as well regard it as tax. In any case, we need to do so in order to compare like with like in other countries, where these things count as social security tax.
Mr. George Cunningham: The hon. Gentleman is wrong. Private pensions in France, for example, are on a pay-as-you-go basis for the most part, so, by his own criterion, the hon. Gentleman should include the private pension contributions as tax. But of course he does not.
Mr. Pardoe: That is one of the difficulties of comparing percentages of taxation on national wealth and incomes country across country. The Chief Secretary was trying to make comparisons, but they are extraordinarily difficult to do. Not all the same services are paid for out of taxation, and so on. I accept the hon. Gentleman's point, but perhaps he would like to ask his constituents whether they see any difference between a contribution and a tax. I guess that when they see their pay packets they think that the national insurance contribution is a tax and blame the Chancellor
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accordingly. If they see the payment of national insurance contributions on that basis, we might as well stop perpetuating the political mythology and accept that the national insurance contribution is a tax.
The Tories will say that these terrible increases are the fault of the wicked Socialists, but that is only partially true. I accept what the right hon. and learned Member for Surrey, East (Sir G. Howe) said about allowances. There is no doubt that, under the Conservative Government, tax allowances kept ahead of the rate of inflation. But if one looks at the percentage of income tax in the total tax revenue. I am afraid one sees that his Government started down the road. Including national insurance contributions, income tax rose from 28·73 per cent. in 1969–70 to 33·14 per cent. in 1973–74, he last full tax year of the Conservative Government. Most of that happened by what the right hon. and learned Gentleman calls "stealth" and of course this result is the effect of inflation on personal tax allowances and on tax hands.
An extremely clear exposition of what has happened is shortly being published by the Institute of Economic Affairs. It is a pamphlet called "Over-taxation by inflation", by Dr. David Morgan. I have argued on many occasions that we should have complete indexation of the tax system. No-one who has read Dr. Morgan's pamphlet can fail to be convinced by the argument. Indexation would be a wonderful discipline on Government spending. It would stop them from escaping the slings and arrows of Parliamentary scrutiny. They would have to come to us and get their tax in a full-frontal manner, as it were, rather than in some more secretive way.
The first proposal I make is that we must index the whole tax system. But I ask the right hon. and learned Gentleman who, I think, is moving in this direction, pursued or pushed by the hon. Member for Blaby (Mr. Lawson), how one indexes the tax system without a written constitution. Whatever one Parliament says, another can undo. Unless one wrote it into a Bill of Rights or a written constitution, or there were some kind of entrenched clause, it would be difficult to have a foolproof system of indexation.

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Part of what went wrong in those years of Conservative Government lay in the introduction of value added tax. It was supposed to replace purchase tax and selective employment tax, but it never did. Those two taxes reached a peak revenue in 1970–71 bringing in £3,260 million, or 18·16 per cent. of total tax revenue. The last year of significant revenue from these two taxes was 1972–73, when they brought in £2,381 million, or 11·93 per cent. of total tax revenue. Value added tax and car tax were introduced later, in 1973–74. Their revenue then brought in £1,561 million, or 7·25 per cent. of total tax revenue, and only in 1975–76 did the revenue from VAT and car tax together exceed what the revenue from purchase tax and selective employment tax together had been in 1970–71, five years earlier. Even now it is only about 10 per cent. of total tax revenue.
I do not blame the right hon. and learned Member for Surrey, East, because I supported the introduction of VAT, anyway. But the way in which we have introduced VAT into Britain means that we have landed ourselves with a very inefficient expenditure tax. One measure of this inefficiency is certainly that many retail stores today actually pay out more in compliance costs than they hand over to the revenue in money. The right hon. and learned Member for Surrey, East may have seen the study by Bath University which shows that only too clearly.
What are the possible ways forward? We could switch from income taxes to others taxes but VAT would have to be broadened at its base, and we all know what that means. If we exclude two major items of expenditure such as housing and food we cannot do with VAT what the French do with it. I accept that for any Government to bring in VAT on food would be politically impossible and I therefore regret to say that VAT is not a satisfactory tax for us to make this very substantial switch about which I suspect there is a growing consensus in this House.
We might move over to a much higher social security tax—national insurance contributions if the hon. Member for Islington, South and Finsbury (Mr. Cunningham) must have it that way. Europe has much higher social security taxes.
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In Italy it is 40 per cent. of the wage bill which is an astronomical figure. That is better than an income tax, but I believe it is not the whole answer although it may take a large part of the burden.
At the Liberal Conference last year I proposed the abolition of income tax and its gradual replacement by a graduated expenditure tax. I had reason to believe that would be heavily documented in the coming months and I think that it is already beginning to be so.
Sir Geoffrey Howe: Is the hon. Gentleman aware that the last election that Gladstone lost to Disraeli was 103 years ago last week, when Gladstone stood on the platform of the abolition of income tax? Perhaps the hon. Gentleman had better take warning from that fact.
Mr. Pardoe: Because Gladstone failed is no reason why I should try! As much as I admire Gladstone I cannot accept that as a natural brake on Liberal proposals for ever and anon.
But I think the graduated expenditure tax, with its parentage in Professor Kaldor's work on the Royal Commission on Taxation in the 1950s, is the way that we can move forward.
The question we ought to be asking ourselves is what tax do people prefer to pay. All my experience with my constituents leads me to believe that they would prefer to pay tax on expenditure rather than tax on income. We might as well accept that point and go along with it in creating an equitable tax structure.
The trouble with taxes on expenditure is that most are included in the retail price index. It would be very much better if we followed the example of some foreign countries and left taxes on expenditure out of the calculations of the retail price index altogether. Any way, it would be very convenient for the Chancellor.
If we do retain income tax as a major source of revenue in this country we have to broaden the base very substantially. The Economist has calculated that if we broadened it right across the board we could bring the rate down to 17 per cent. on all income and yet have the same yield. That would be an enormous advantage administratively and it would be very much simpler for everyone to understand. We could then solve the

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poverty problem in other ways. Certainly we could solve the inequality problem by cash grants in a tax credit system.
Whatever tax we have we cannot go on taxing people below the poverty line. Many of my constituents are much worse off working than not working and lose more than £1 for every extra £1 that they earn. That cannot be allowed to continue. Therefore, if we have to continue with an income tax we have to have a tax credit system. I believe this should encompass virtually all the 44 means tests with which we at present encumber ourselves, including housing allowances, rent allowances and rate allowances.
Capital taxation is in an appalling mess. We get very little income from it. In 1976–77 we got £400 million from capital gains and £282 million from capital transfer tax and death duties together. The total for that year was £682 million. That is not to be sneezed at, but it is only 2 per cent. of total tax revenue.
As part of a substantial reduction in income tax, and much lower rates at the top, some capital taxation is absolutely essential. But investment income surcharge is utterly ridiculous. It is madness to tax someone on capital which gives a return when we do not tax the capital that one hangs on the wall. Surely it is the other way round that we ought to go.
The way forward is to scrap all our present capital taxes and the investment income surcharge and introduce either an annual wealth tax or an accessions tax. I believe that an annual wealth tax, self-assessed rather like the American income tax, is a quid pro quo for the abolition of investment income surcharge and the reduction in all rates of income tax to 50 per cent. I would go for that in the Budget.
Mr. Grieve: What effect does the hon. Gentleman think that a wealth tax, carried as far as works of art, would have upon the national collections of this country in private hands? We have already seen the danger of execessive taxation in recent weeks with regard to the great collection at Mentmore?
Mr. Pardoe: The hon. and learned Gentleman should read the report of the Select Committee on the wealth tax and in particular the minority report in my
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own name. It was one of five minority reports. The Committee dealt extensively with the problems of works of art and the national heritage. I remind the hon. Gentleman that my minority report was so satisfactory that I was able to persuade all the Conservative representatives on the Committee to vote for it. Admittedly that was a quid pro quo for my voting for theirs.
There is no doubt that a great deal of all-party support exists in the House for a wealth tax, and the Government should not forget it. It is not something that we have to fight about in the old adversarial political style. There is a broad measure of agreement in all parts of the House for a wealth tax and we may still go along that road.
Proposals on these lines would go a long way towards solving some of the problems with regard to tax. In the words of Edmund Burke:
"To tax and to please, no more than to love and to be wise, is not given to men".
But it would hardly be possible to devise a tax system so unpleasing, so unlovely and so unwise as the British tax system is today. We have to make radical and far-reaching changes in it.
6.48 p.m.
Mr. George Cunningham: Edmund Burke is quoted in this Chamber practically every week, if not every day. The only quotation from him that I cherish is what he said when he was asked by a lady if he really believed in the nonsense he spoke about the wicked Tories and the Whigs, when he replied "Gad, Madam—does any man swear to the truth of a song?" I always recall that when one hears the Front Benches going through their ritual motions, particularly when debating tax matters. It would be a commonsensical thing—far too commonsensical for the House of Commons, of course—to have a Select Committee of this House responsible for looking at tax matters on a continuing permanent basis. Although there must always be a measure of disagreement between the parties periodically, nevertheless there appears to be a considerable measure of agreement with regard to the techniques and devices that are best adopted in the taxation field and, indeed, on the substance of taxation policy. I

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hope that that reform will ultimately be adopted by the House.
It has been suggested today that the tax system is, if not all, at least a large part of the British economic disease. In my view, the British economic disease is no more or less than the simple, old-fashioned administrative inefficiency that exists throughout our society in private and public industry, in Government, in commerce, and so on, and has nothing or very little to do with the taxation system.
The truth is that tax has risen in virtually all countries throughout the world. A far larger proportion of national wealth is taken in tax and spent on public purposes than was the case a few decades ago. That tendency has still some way to go, but that does not mean that every increase in public expenditure and therefore in tax is to be welcomed as an advance in Socialism. Nor is every expenditure of a public kind to be welcomed as part of the social wage. If I were to tell some of my council tenants that the wage of the clerk attending or not attending to their needs in the housing department was part of their social wage, I should either he laughed out of court or chased out of their premises, and I would richly deserve to be.
It is important that the Government and the House should devise better methods of watching over the relentless rise in public expenditure programmes. I do not think that we yet have the devices for doing that. I think that the changes in public expenditure scrutiny which began with the Plowden Report in the early 1960s were a disaster. Treating the great public Departments as individual satraps, each allocated its total, with the Treasury having relatively little to do with the figures for the sub-sub-programmes and the large projects within each programme, is the wrong road to go down. We shall never get a sensible system of priorities until we have at the centre a unit, both at ministerial and at official level, which is responsible for comparing sub-sub-programmes in one Department with sub-sub-programmes in another Department. Even in the Departments of the highest general priority—housing or social security—there are always sub-programmes which are of far lower priority than some of the programmes in the Departments of lesser
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general priority. The difficulty is that it is very hard for departmental Ministers to stand outside their departmental responsibilities and take an overall view.
That is why there should be a Minister, preferably of Cabinet rank—and if not that, just outside the Cabinet—responsible not for the day-to-day control of public expenditure as the Chief Secretary is now but, rather, for searching in the forest and pruning out the sub-programmes that may have been desirable at one time but that have ceased to have the same justification that they once had. Public expenditure should always be pruned and not simply cut arbitrarily.
I want to raise a few matters in relation to the tax system, and it is very useful to have an opportunity to do so a month or so before the Budget, at least in the fond hope that one can have some effect on the thinking leading up to the Budget.
Ultimately, we shall go over to a system where tax allowances are reductions in the tax which is payable and not reductions in the income which is taxable. If we did that, automatically we should make the benefit of any given allowance—say, for a child—of equal value for a person paying the basic rate of tax and for a person paying at a higher rate of tax. Therefore, it is not a change which can be adopted in isolation. It would have to be accompanied by alterations in the bands applying to the higher rates of tax. Nor is it a change that can be adopted suddenly throughout the tax system.
We have made a beginning. The relief that is now given on life insurance premiums is limited to the basic rate. But that makes very much more difficult the form of the coding allowance. That allowance has to be injected in the form in a totally different way from the way that we deal with other allowances. I should like to see us picking one after another of the existing allowances and limiting it to the basic rate, as each change is made not necessarily making the allowances exactly counter-balancing but making some balancing adjustment to the rates of higher taxation.
If the allowances were expressed as deductions in tax payable rather than in deductions in income taxable, I believe that the public would understand the

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system much better. If there is a disincentive in the tax system to work longer and harder, it is usually because people do not understand how the system works rather than because they understand it and think it too ferocious.
In the old days, it was common—and still is—to find people who thought that, if they worked overtime not only did they lose all that they were paid for the overtime but a bit more besides. That was never possible in our system, but a lot of people thought that it was, and that was the disincentive. So, the simpler that we can make the system, the better it will be for the incentive to earn more, and that change would make it more easy to comprehend.
There is also a need to have a long—term series of objectives with regard to tax. I instance the married man's allowance. Do we want the ratio between the married man's allowance and the single man's allowance to get wider or narrower? No one Government can make up their mind about that. But if we were to debate the matter more, preferably upstairs and sitting down—everyone talks much greater sense when sitting down than when standing up—we could come to a consensus.
My preference would be gradually to narrow down the differential between the married man's allowance and the single person's allowance. I do not see any reason why a couple without children should pay less tax if they are married than they would if they were both working but both single. That is one consequence of the system that we have now.
Mr. Grieve: Does the hon. Gentleman see any reason why a couple should pay a great deal more tax, if they happen to have investments, because they are married than they would if they were single?
Mr. Cunningham: The difficulty about that is that whereas I cannot switch to my wife the earnings that I have, I can arrange to switch to her the investment income that I have—assuming that I have any, which I do not. That, therefore, makes it more difficult to deal with investment income in the straightforward manner in which it is possible to deal with earnings between husband and wife. There may be a way out of this, but
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it is a difficulty which has to be faced. It is not as easy as the question seems to suggest.
It would be of advantage, too, if, ultimately, we could get rid of the married man's higher allowance, because it would take away the disadvantage which the widow feels at present. At the moment, the widow is no worse off than the widower. He, if he has children, also loses the advantage of the married man's allowance if his wife dies, just as she loses that advantage if her husband dies. But there is no reason at all why the married couple without children should have that advantage. We ought to take that money and shift it over to the benefit of children—previously in the form of child tax allowance, in future in the form of child benefit.
Therefore, in principle, I should like to see the Chancellor this year shading down the differential between the married man's allowance and the single allowance. But he cannot and must not do it this year, because this year he cannot do anything except that to benefit families with children. I recognise that dilemma. This year we cannot increase child benefit beyond what it has been fixed at, because it takes a long time to alter that figure. Nor should we increase child tax allowances, because we are in the business of trying to phase them out. Therefore, the only way in which we can help families with children is to give an advantage to all married couples.
I am sure that the Chancellor this year will allow the differential between the married man's allowance and the single person's allowance to increase. I only hope that the Treasury Ministers explicitly realise and state that it is being done this year, if it is done, for that reason and that reason alone, and that the long-term objective of reducing the ratio will still be pursued.
I also suggest that this year some thought should be given in the child benefits context to tax allowances which will after April continue to be available, if the Government get their way, to parents resident in this country with children resident abroad. In practice, this means the children of immigrants to this country resident abroad, for the most part. We are, therefore, on very sensitive ground indeed. Let us all recognise that. But I do not think that the sensitivity of

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the ground should deter us from looking fully at the situation.
It is, I think, the Government's intention that the present rate of child tax allowance—£000 at the rate for the child under 11—should be retained for a child resident abroad, because that child will not qualify for the new child benefit, as residence in this country is a condition of the child benefit, which it is not for child tax allowance.
I shall cite an extreme case, but the others are not much less extreme. Let us consider an immigrant to this country from Bangladesh, who has, back in Bangladesh, three children under 11. That immigrant will be receiving a total tax allowance for those three children of £900 of income which is not made taxable. Converting that into its value in Bangladesh and expressing it as a multiple of the national income of Bangladesh, one finds that the multiple is 7½ times, so the immigrant in this country in that situation is being provided with a cash figure that is 7½ times the national income of Bangladesh.
This was never a system that anyone sat down and worked out. No one ever said that this was a sensible thing to do, that it was a form of overseas aid, or anything like that. This is the accidental consequence of never having thought that it was worth while to limit the tax allowance in respect of children who were resident overseas. Years ago, of course, there were very few such children resident overseas. But this is big money now, and the time when we are reducing the child tax allowances for children at home because people are getting the new child benefit is the time to consider whether at least some reduction should not be made in the rate of this assistance provided in respect of overseas children.
Hon. Members will find that in Germany recently, their equivalent of child benefit provided for children outside Germany and outside other Community countries has been reduced on exactly the kind of grounds that I am now advancing.
It is particularly appropriate to look at this matter this year, for two reasons. First, we are phasing down the child tax allowance anyway. Second, hon. Members may recall that in the Finance Bill of last year, contrary to what the Govern-
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ment wanted, an amendment of mine was forced upon them whereby the increase in child tax allowance from £240 to £300 a year was limited to that year, and it expires in April 1977. The figure automatically goes back down to £240 for everyone in April this year. unless legislation in the Finance Bill provides otherwise.
My limited objective, therefore, is to say to the Government that at least that much of a reduction ought to be applied in respect of children resident overseas. The figure should go back down to what it was up to April 1976 and stand at no more than £240. In other words, the Finance Bill should not provide for any rise in the figure that would otherwise apply in April 1977.
Reference has been made to mortgage relief. I should like to take just one minute, not to provoke the kind of partisan comments which are the general stuff of a discussion on this issue, but to suggest that it is at least respectably arguable that mortgage relief does not bring a benefit to the owner-occupier at all. Of course, if one takes away the relief from one owner-occupier, one is taking away a terrifically significant advantage. But the situation that we must imagine is one in which we have taken it away from everyone and, of course, taken it away very gradually indeed.
What would be the effect of that? At present more people want houses than there are houses to be bought. The only consequence of providing a Treasury subsidy to the buyer is to make him able to pay more for the same houses than he would otherwise be able to pay. That person usually works out what he can afford to pay as the starting point and then sees what he can get for the money. If he were able to afford less in monthly payments because he was not getting relief, he would be able to offer less for the house. The consequence would, as a general rule, be that the price of houses would not fall, because one could do this only in a very gradual way, but that they would not rise as fast as they otherwise would do.
I suggest that what we are doing at present, except in areas where there is an excess of houses over people wanting them—I do not know any such area—is giving an extra push to the inflation of

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house prices. I therefore suggest very seriously that the notion that mortgage relief is obviously a subsidy and a help to the owner-occupier is at least questionable, and that we ought to discuss that notion more and not take it for granted.
Mr. Peter Hordern: I agree that that would be a most interesting topic of conversation and worthy of discussion in a Select Committee. However, surely the hon. Gentleman would not wish to isolate the subsidy given to the mortgagor from that given to the council house tenant which, as he knows, is three times as much as that given to the mortgagor. That being so, would not the hon. Gentleman also wish to phase out council house subsidies, which would have the effect of increasing the number of council houses available?
Mr. Cunningham: Let me respond in the spirit in which I am asking hon. Members to respond to my motion. It seems to me that the subsidy to the council house tenant is actually a subsidy. It actually reduces the rent that the council house tenant needs to pay. I am trying to get away from the notion that these two things are equal things, which is how I have always regarded them in the past and have always been slammed down by the Conservative party for so regarding them. What I am saying is whether or not we want it, a council house subsidy really is a subsidy and brings benefit in the form of a lesser payment for the council house tenant on average, but that the tax allowance is not a subsidy actually, in that sense, to the owner-occupier. In fact it operates, strictly speaking, against his interests because any normal owner-occupier who moves up-market say, three times in his lifetime—most people move up-market until they come to retirement—suffers relatively more from a high rate of inflation than from a low rate of inflation.
I do not have time to develop this notion now but I suggest that it is worth closer consideration. The hon. Member for Horsham and Crawley (Mr. Hordern) shakes his head. I am already late for an appointment outside the House which will take me away almost as soon as I have sat down, so I shall not pursue the matter. I merely suggest that we should discuss this matter more closely than we
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usually discuss it, and we should look at it too see whether there is anything in it.
Mr. MacGregor: I appreciate the way in which the hon. Gentleman is putting his point. If we started from square one and did not have the present system he would be right, but the present system exists. Even if the present system was phased out slowly there would be a big difference in house prices between those with existing mortgages and those who would have to take new mortgages. The effect would be very much to freeze the housing market and it would make many people immobile in terms of moving to other jobs.
Mr. Cunningham: When I said "gradually", I meant gradually. The relief is not something that could be denied to any new borrower. One would have to reduce relief for all who were enjoying it over a period of about 30 or 40 years. When we are talking about something that would take as long as that, once we decide that it is desirable it is all the more important to get started because it will take so long to achieve.
I have only one more point that I wish to make, because I shall have to leave the Chamber almost as soon as I have finished. I express the hope to the Government that on the tricky matter of taxation and short-term social security benefits they should not consider that there is no alternative between what we do now and the proposal to tax short-term benefits in the normal way. I have put a proposal to the Financial Secretary to the Treasury which seems to me to give most of the advantages of taxation while avoiding most of the costs and removing most of the anomalies. If the system would have that effect, it is something that should be given very serious consideration in the Finance Bill, not, I imagine for adoption in the present year, but perhaps next year.
7.13 p.m.
Mr. Peter Hordern: The hon. Member for Islington, South and Finsbury (Mr. Cunningham) made a most interesting and thought-provoking speech. I for one should like a Select Committee of the House set un which would be permanently in session to examine taxation and taxation proposals. That would enable

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us to conduct our affairs with a very much better background than we customarily have when we address ourselves from time to time to the Government's taxation proposals.
The hon. Member for Islington, South and Finsbury has asked one or two questions about the position of the overseas children of people who are resident in this country. I thought he made a very good point on that subject. I should like to compare the position of those children with the position of United Kingdom pensioners who have retired and have left this country to live abroad but who are not eligible for any increase in their pensions, whereas the children of people living in this country, children who may never have been to this country and may never come here, regularly receive increases in their child allowances. It is a strange set of circumstances that allows this to happen.
We last had a debate on personal taxation just a year ago, which was led, I believe, by the Liberal Party. In that brief space of 12 months the personal tax position of everyone in this country has become so much worse that it is astonishing that we have not had further debates on this most important topic.
Yesterday we had an emergency debate on British Leyland. Those who took part were concerned about the question of differentials, which may be the principal cause of the problems at British Leyland. Those problems have been exacerbated by the problems of the pay code. But a large contributory reason for the intense frustration felt by those who have the skill to perform difficult and intricate operation is the very high level of direct taxation. They have found that their take-home pay is not enough to meet the extra costs which they and their wives have had to bear. I am sure that that is a very important reason for the sense of frustration and dissatisfaction in British Leyland.
Mr. Pardoe: Does the hon. Gentleman agree that it might not be entirely a coincidence that the dispute that he has mentioned has happened in the last quarter of the tax year?
Mr. Hordern: That is a very interesting point and is perhaps another point
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that a Select Committee on tax evasion should examine.
I believe I do not exaggerate when I say that the level of taxation lies at the heart of our national problems today. I say that because the effects of taxation have become so much more dramatic in the last three years. The effects on the economy even before that were dramatic enough, but the last three years are especially significant because of the extent of the damage that has been caused. It may not be the whole problem—I do not suggest that it is—but whether one thinks of production or of productivity, of enterprise or of profit, of savings or thrift there is one question that will not stay for an answer.
With personal taxation as high as it is, people wonder whether there is any point in working harder or accepting greater responsibility. There is no longer any direct link between effort and reward. There is not even any particularly significant point in monetary terms in accepting promotion. There is no use saying that if one takes a new job or new responsibility one will receive an extra £2,000 in gross salary. One might receive an extra £500 net, but is it worth all the inconvenience, the cost of moving house, of accepting new responsibility, of placing one's children in new schools to accept that new figure? Too often now the answer is "No."
Take the example of an able young accountant earning perhaps £10,000 a year. Let us assume that he gets the job of a lifetime and doubles his salary so that he is now getting £20,000 a year. I am not saying that this is typical, but it could happen. He will find that his net salary will rise by just over £3,000 a year—that is, an increase in net salary from £6,300 to £9,400 a year. If the same salary were paid in New York that man would be getting £15,300; in Frankfurt he would be getting £13,200; in Paris £16,100; in Japan £16,900. That is the most pitiful comparison.
To take another example, let us suppose that a man achieves a lifetime's ambition and becomes managing director of a company, on £30,000 a year. Starting from a gross income of £10,000 in one year his net income after tax would be only £1,900 more—that is, an increase in net salary from £9,400 to £11,300. In France and Japan his counterpart would receive more

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than twice as much after tax. In Germany he would receive £18,400; in the United States £20,900. What sort of promotion is that for someone who has been made up to managing director of a company?
Why should a man take on the highest form of responsibility for such a minuscule extra reward, especially when he knows what people in comparable jobs abroad are getting? Of course, business managers have to put up with the additional frustration of the freeze in incomes over the last year or so for anyone earning more than £8,500. So, they see, year after year, not the normal improvement in their standard of living which they used to experience when they were younger but an absolute and relative decline. They get poorer every year. Nobody who has the drive and ability to get to the top in business will lightly accept that situation. Hence the demand for company cars, for drivers and for perks of every description on a massive scale.
People in this position do not live their lives in the way that they choose. They conduct their lives on the most tax-efficient basis. Life for them becomes a sort of tax distorted struggle, an endless search for cash benefits. And in case the hon. Member for Bristol, North-West (Mr. Thomas) thinks that this is confined to directors, let me tell him that the search for cash benefits exists at every scale, as I am sure he knows very well—
Mr. Ron Thomas: The directors are just better at it.
Mr. Hordern: What is perhaps even more serious is the effect on business itself. I quote here from an article in the Financial Times under the headline:
"Tax-cut call by Chemical Association"
which said:
"One company reported in response to association inquiries that of more than 70 expatriates working in various parts of the world not one had any interest in returning to U.K.-based appointments."
I do not think that that can be a healthy trend. I think that it represents a most serious state of affairs. Further, it is not confined only to company executives or managers of large businesses.
The position is also described in another report in the Financial Times.
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An English woman who is a bilingual secretary working in Frankfurt gets there £10,100 a year. Suppose that there is a United Kingdom bank employee earning £4,000 who, because he is good about currency transactions is transferred to Frankfurt. His salary becomes £17,700. In addition, these people pay half the tax they would pay in this country.
So, leadership and management of business is suffocated by Government intervention and throttled by a lack of personal incentive. Leadership is important, but it is not as important as the frustration felt by every working person in this country. There is frustration because of the Pay Code, frustration because of the attack on differentials, and, above all, massive indignation at the level of personal taxation and the size of the deduction from the pay packet. This is so at every level.
Twenty years ago a man with two children paid tax first when his income was 93·4 per cent. of average earnings. Today he pays tax at 44·6 per cent. of average earnings. Further, when he pays tax he pays it effectively not at a low rate, as they do in other countries, but at 41 per cent. So, a married man with no children pays tax at 35 per cent. when his income exceeds £1,100 a year. It increases to 41 per cent. if national insurance contributions are included.
I regard that as an extortionate figure, not only absolutely, but relatively to other countries. My hon. Friend the Member for Norfolk, North (Mr. Howell), whose Questions have provided very interesting information over a long period, has shown that a family man earning £35 a week or less is better off out of work than working. I think that my hon. Friend's figures do no take account of tax refunds, so that the situation may be even worse than the facts he has uncovered would indicate.
It is not the fact that a man out of work is treated generously that is so objectionable to a man in work; it is that he is treated differently for tax purposes. That is what causes so much trouble. The House should recognise the extraordinary change in tax experience that has occurred to every working person during the last three years alone in this country. Three years ago, in 1973–74, income tax yielded £7·1 billion. In 1976–77 it is expected to yield £17 billion. Of course, a lot

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of that is due to inflation. But three years ago income tax accounted for 41 per cent. of total revenue. This year it is expected to account for 53·4 per cent. of total revenue—a 30 per cent. increase over that period.
I do not have the latest figures for other countries, but the figures of two years ago showed that income tax took up 32·8 per cent. of revenue in Germany, 20·9 per cent. in Italy and 20·4 per cent. in France. Compare that with 53·4 per cent. in Britain today.
Again, the latest report from the Inland Revenue shows that the number of people liable to pay the higher rate charge 1975–76 was more than four times the number who paid surtax in 1972–73. That again is in a three-year period. The latest figure for this current year must be much more alarming still and much greater than four times as much.
If the average increase in earnings over the last two years continues from now the man on average earnings and on present allowances and who has no children will find himself paying tax at the higher rates by December 1978. In other words, he will find himself a surtax payer when he is on average earnings. From that time, assuming that no change is made, there will develop what can only be described as a gearing situation, which will cause deeper and deeper unrest.
We tend to judge the morale of the country by obvious signs. Industrial unrest is one and political unpopularity is another. I believe that the pressure for devolution is a third. I believe also however that there is an underlying discontent which is not obvious. It is that more and more of our money is being taken from us without any evidence that it is being used to good effect.
But I reckon that what was an irritation three years ago is becoming a festering sore which will put industry and our economy at risk. The signs are there for all to see. Why is it that production over the last three years has for the most part been less than it was during the three-day week in 1974? Let us just consider what the industrial climate will be when personal tax really begins to bite in a way that it has not bitten so far.
It seems clear that we just cannot continue in this way. If production and
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productivity are low now what possible hope is there that either will improve when the levels of personal taxation become totally unacceptable, as they will with the present level of inflation and the present marginal rates—unacceptable not just for management but for every worker in the land?
There is a growing sense of indignation which the Government cannot ignore. Resentment of those who get tax-free payments for being out of work will grow to dangerous levels. More people will down tools and more still will look for work in other countries. Even those countries which used to have the highest rates of personal tax are reducing them. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) mentioned some of them today. India, Israel and Ireland have reduced them substantially already. Why should we stand alone?
Where then should we look for alternative sources of revenue? First, we should examine expenditure. Is it right, for example, that council house tenants should pay a substantially lower proportion of their income in rent than they used to? In 1968, 8·2 per cent. of average earnings went in rent. The latest figure I have discovered is 6·2 per cent. in 1975. This is particularly the case since the majority of people, according to the NEDO report which none of us is permitted to read, would prefer to own their own homes rather than continue as council house tenants. The hon. Member for Bristol, North-West is a good example of that trend. As a council tenant he bought his house and he therefore knows what the position is. I am sure his view is shared by many people in the country.
Let us take another example—and here again I refer to my hon. Friend the Member for Norfolk, South. The amount disbursed in flat-rate unemployment benefit and supplementary benefit in 1974 was £73·5 million. Two years later it had grown to £189 million, simply reflecting the increase in the number of unemployed. But the cost of administering those benefits rose in the same period from £80 million to £165 million. What is that money going on? How is it being used? How can it cost twice as much in two years to administer the paying out of short-term benefits?

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My hon. Friend the Member for Aberdeen, South (Mr. Sproat) discovered that total expenditure on personal social services amounted to £1,028 million. He found that the cost of administration by Government Departments alone, not taking local authorities into account, was £710 million. If those figures are correct it is undeniable that the cost of administration for paying out these benefits of every kind is far in excess of their value. How can that be right?
There is a growing number of administrators in the National Health Service. In 1964–65 the administrative costs of the NHS was £39·2 million. In 1973–74, the latest year for which we have figures, it had grown to £130 million.
Mr. Ron Thomas: Surely the hon. Gentleman will agree that the cost of administering social security payments and unemployment pay has risen because of the continued witch hunt by Conservative Members demanding all kinds of investigations into people. Secondly, it was the reorganisation by the hon. Gentleman's Government that brought about the rapid increase in the number of administrators in the NHS and local government.
Mr. Hordem: As the Duke of Wellington said to somebody who asked him whether he was Mr. Jones, if the hon. Gentleman believes that he will believe anything.
In the past two years the number of civil servants alone has risen by 60,000 people, which is 10 per cent. The original estimate for central government salaries for 1975–76 was £6·8 billion. The estimate for 1976–77 was £8·5 billion, and that in an era of cash limits. It is interesting to reflect that if the increase in central government salaries had been restricted to 20 per cent. in one year it would have been possible to reduce the top rate of income tax to 45 per cent.
The key to reductions in direct taxation is partly reductions in the cost of administration and other reductions in public expenditure. It is partly a switch from direct to indirect taxation, a point that the Chief Secretary was making. But it is to be found also in the encouragement of business and industry, which a lower direct taxation regime would bring, and a substantial increase in the yield of
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corporation tax, which the removal of price control would also bring. That is the best way to cure unemployment, not by spending too much time on distinct, selective unemployment schemes, but removing the burden that now rests on industry and allowing it to invest more to increase its profits, on which the yield of corporation tax would increase.
We must take care to see that the levels of direct taxation do not cause industry and business to seize up altogether. With tax as it is, increasing resentment is felt by those who produce against those who do nothing but administer. They see the numbers of the administrators grow. The producers see the administrators' inflation-proof pensions and watch their functions multiply at the direct expense of the producer. They feel like Gulliver in the land of Lilliput, tied to the ground by little men.
The worst of it is that there is no need to inflict these wounds upon ourselves. We do not need to have such high levels of indirect taxation. The choice is entirely in our own hands. If we choose to do so, we can provide incentives. We can provide rewards, but it will require a determination to reverse the trend of recent years and a strength of purpose which neither this Chancellor nor this Government possess.
Several Hon. Members Several Hon. Members rose—
Mr. Deputy Speaker (Mr. Oscar Murton): I should inform the House that the last three speeches lasted on overall average 24 minutes each, and many hon. Members are still anxious to speak.
7.35 p.m.
Mr. Douglas Crawford: The House will not be surprised to hear that I shall confine what I have to say primarily to Scotland, though some of what I say will be of relevance to the other countries in these islands.
In Scotland, as elsewhere, the burden of taxation is too high, is rising, and must come down. There are personal taxes and personal taxes, some direct and some more indirect. I was a little worried when the Chief Secretary talked of a possible reduction in direct income tax and a possible increase in what I think

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he called indirect taxes. I am thinking of the whisky industry—the Scottish goose that has laid golden eggs for the English Treasury for long enough. As I have already pointed out to the Chancellor of the Exchequer in writing, if this important Scottish industry is to realise its full potential it is vital that the levels of duty come down at least to those levels prevailing in October 1974. The right hon. Gentleman has told me in a written reply that that would cost the Exchequer £70 million to £80 million a year.
I also believe that there should be a change in the time at which duty is paid on whisky. It is now paid when it comes out of bond, but there is a case for imposing it when the whisky is sold. As it is, the whisky industry is, in effect, giving the Government an interest-free loan of two or three months' duration. I have been told by the Chancellor that the once-and-for-all cost of such a change would be about £80 million. My hon. Friend the Member for Banff (Mr. Watt) raised the matter in an Adjournment debate about a year ago and got short shrift from the Minister who replied.
The second area where the burden of personal taxation is crippling is that of small businesses. I refer the House particularly to two taxes that were either proposed or introduced by the Conservatives—the levy on the self-employed and value added tax. I accept that VAT is with us and I do not think that it will go away, but for small business men it is a personal administrative nightmare in form filling. There is a case for raising the threshhold at which VAT becomes payable from businesses with a turnover of £5,000 a year to, say, £15,000 a year. I learned from an answer to a Question that the cost of that would be about £75 million in a full year, including £8 million to £9 million in Scotland.
The levy on the self-employed should be abolished outright. The Treasury estimates the income from it to be only £75 million to the United Kingdom economy, and £8 million to £9 million in Scotland.
The total cost to the Treasury of these matters would be between £160 million and £170 million. To arrive at the net cost, we must subtract the £70 million
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that the Chancellor is saving, purely in Scottish terms, by the abolition of regional employment premium. Therefore, the net cost of what I propose would be under £100 million—a puny amount when set against the £400 million accruing annually from whisky and the current estimated annual oil wealth of £1,600 million.
The Chief Secretary spoke of four ways in which tax could be reduced. There is a fifth way—the sensible use of natural resources.
Much has been made of the current top rates of personal income tax. The United Kingdom level of 83 per cent. on earned income is too high by any standard. It is essential to get the figure down to 60 per cent., or at least to the levels prevailing in Belgium and Italy, which are about 72 per cent.
Perhaps it would be unfair to ask the Minister to reply to detailed costing matters at such short notice, but he might, in his reply, give an estimate of the cost of the reduction in taxation at these top levels.
The right hon. and learned Member for Surrey, East (Sir G. Howe) said that a reduction from 83 per cent. to 60 per cent. would cost £120 million. Obviously a reduction from 83 per cent. to 70 per cent. would cost only half that figure.
I am glad that the right hon. and learned Gentleman alluded to what the Irish Government have done in this sector. This shows what can be done—and by extension it shows how Scotland is being cribbed, cabined and confined by this monolithic unitary economic State.
Theret is in Scotland a curious thing called the Scotland is British Campaign, comprising a motley number of business men and a token trade unionist. This fine body of men point to the joys and benefits that flow to Scotland from belonging to the economic union called the United Kingdom. I ask them whether one of those joys is high taxation at the top levels current in the United Kingdom, or whether they would prefer those lower levels of tax that prevail in other small European countries.
At a time when public expenditure within the Secretary of State for Scotland's authority is scheduled to fall from £3,408 million in the current year to

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£2,850 million in 1978–79, and when current and capital local authority expenditure in Scotland in the next two years is scheduled to fall from £1,783 million to £1,508 million in 1978–79, why does tax in Scotland not also fall? I am rapidly coming to the conclusion that this House and this Treasury no longer have any moral right to levy any taxation in Scotland at all. We all know the famous two-centuries old phrase, that there should be no taxation without representation. Scotland may have representation of a sort in this House, but that representation is not listened to or observed. I refer particularly to last week's vote, when Scottish Members voted by a majority of more than two to one for the devolution Bill and when, at the same time, the weight of Members representing English constituencies steamrollered flat the wishes of Scottish Members and the overwhelming wish of the people of Scotland.
The moral right of this House to tax people and companies in Scotland has been seriously, and I believe fatally, eroded by its continuing failure to take into account the genuine aspirations of the people of my country. If this House is in process of forfeiting its moral right to tax people and companies in Scotland, it will most assuredly soon lose the legal right so to do, when the majority of the people of Scotland show that what they wish is a Scottish Parliament with full control over Scotland's economic and financial affairs—a Parliament whose taxation legislation adequately and properly reflects Scottish representation, a Parliament with power to reduce taxes, and a Parliament that will become worthy of the ancient nation of Scotland.
7.45 p.m.
Mr. Raphael Tuck: I apologise to my right hon. Friend the Chief Secretary to the Treasury for the fact that it was impossible for me to be here for the greater part of his speech.
I wish to call to his attention the fact that our taxation system bears very heavily and unjustly on certain sections of the population that are least able to bear them and bears unequally on other sections of the community. I wish to highlight three instances of this unjust and unequal situation. Let me take the case of a married man who has reached the age of 60 and falls ill. That
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man may have worked from the age of 20 and by the time he is 60 may have been able to save enough money to produce an unearned income of £3,000 a year and at the same time obtain earned income of £4,000 a year. That gives him a total of £7,000 a year.
I have calculated the position by taking those figures. If I am wrong I hope that the Chief Secretary will correct me. I calculate that on that figure of £7,000 for that man of 60, after his allowances as a married man, he will pay tax of about £2,586·75p a year. Therefore, his net income will be £4,413·25p for himself and his wife.
If at that age he falls ill and is retired and has no pension, the £4,000-a-year income will disappear into thin air. He will then receive only £3,000 a year gross unearned income. He will thus receive £1,400 less, in gross income terms, than he was receiving in net income under the earlier situation. He is taxed on that sum. and indeed he has to pay a surcharge. I then calculate his tax to be £907·50, making a net income of £2,092·50p compared with the figure of £4,413·25p when he was earning.
Even if that man were not taxed at all on the sum of £3,000, he would still be earning £1,400 less than he was earning before, but he is taxed on the figure of £3,000. Therefore, he will receive less than half the income he enjoyed before. In my view, that man should not be taxed at that level of income. If such a man were receiving £10,000 a year, he would be able to pay the tax on it, but at the level of £3,000 he should bear no tax. That man is now being taxed, and he cannot bear it.
Furthermore, he is being taxed at that figure at a time when he is at an age when he needs a little more comfort than a man would need at the age of 30 or 40. A man of 60 certainly needs more heat in his home, because we hear about so many cases of hypothermia.
I hope that one day my right hon. Friend the Chief Secretary will be an old man—indeed, I hope that all Ministers on the Treasury Bench will have the fortune to become old men. They will then realise that at that age they need more comforts than do younger men. If my right hon. Friend had an income in earlier years of £4,400 net,

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surely he would not then like it to go down as low as £2,092 net in later years. I ask him to consider greatly raising the threshold from the present figure.
Next, I wish to draw attention to the discrimination that is now practised against the self-employed. Let me take the case of two men, one who is self-employed and the other who is an employee. Let us call them Mr. Employee and Mr. Self-Employed. Let us assume that they both start work at the age of 20 and that Mr. Employee puts a certain amount, as he has to do, into national insurance. This, of course, is added to by a greater contribution from his employer. That situation rolls on until the man is at retirement age. When retirement age arrives, Mr. Employee will then receive a pension of £3,000 a year.
Let us then take the case of Mr. Self-Employed. He also puts aside a certain amount, but has to put aside a far greater amount than does Mr. Employee, to reach the figure of £3,000, because Mr. Self-Employed does not have an employer behind him to contribute a large sum. Mr. Self-Employed, who has put aside a much larger amount than Mr. Employee, then reaches the age of retirement and is also able to receive, flowing from the amounts he has put aside, a sum of £3,000 a year. Both gentlemen are taxed—but Mr. Self-Employed's income is taxed as unearned income, while Mr. Employee's is taxed as earned income. That situation is completely inequitable and there is no possible justification for it. It might even be agreed that because Mr. Self-Employed has put more in he should be able to get more out. At any rate, they are both getting £3,000 a year and they both should be taxed in the same way. They both put aside their money for their future years, and when they have to retire one should not be discriminated against in favour of the other.
Finally, I take the case of journey to work. This has been a controversy for a long time. A person is not allowed to deduct from his taxable income the amount that he spends on travel to work, because the law says that it has to be necessarily, wholly and exclusively in respect of his work. Therefore, part of it is in respect of going to sleep at his home, and he cannot take off the
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expenses. A Member of Parliament, for example, who goes from his home to Parliament and back, cannot deduct that cost, as expenses, from his taxable income.
In my view this should be revised. The test should not be whether it is wholly and exclusively attributable to his work; it should be whether, if he did not have the employment, he would undertake that journey. If the answer is "Yes", he should not be allowed to deduct it, but if the answer is "No", it means that he is undertaking that journey because he had that employment, and if he is incurring expenses because of his employment those expenses should be deductible.
As I am a Member of Parliament, I should like to state at once, to allay any suspicions that I have an interest in this, that I have no interest; I make the journey to my home in Sussex by car. That is taxed, so I have no interest. But one of my hon. Friends who has been a Member of Parliament since 1975 lives in Aberdeen, and he will have to pay about £700 more in income tax than he paid before because he is not now allowed to deduct the cost of his journey home and back as a taxable allowance. I regard this as inequitable and unjust. The test should be whether it is because he is a Member of Parliament or an employee that he makes the journey. If that is so, he should be allowed to deduct the amount.
After all, a barrow boy, who works from home, is allowed to deduct his expenses for the journey to market and back, where, incidentally, he makes a lot of money and possibly fiddles quite a proportion of his income, whereas a Member of Parliament or an ordinary worker cannot. I ask my right hon. Friend to consider what I have said and to see whether he can do anything to alleviate these injustices, which our taxation system unfortunately involves.
7.53 p.m.
Mr. Percy Grieve: We have had an interesting and thoughtful debate. I congratulate the hon. Member for Watford (Mr. Tuck) on the three cogent points he has made, and I congratulate also the hon. Member for Islington, South and Finsbury (Mr. Cunningham) on his thoughtful contribution.

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I want first to deal with the intervention that I made early in the speech of the Chief Secretary. I say to the Chief Secretary, with good humour, that he did what an advocate with a bad case always does—he avoided my point and answered a question that I had not asked. I did not suggest to the House, nor did I suggest to him, that over-taxation was the cause of all our ills. I suggested, as have many other hon. Members, that it is an important cause of our present ills.
I shall outline briefly four reasons why, in my view, this country is suffering grievously from the dangerous levels of direct taxation—and in this I echo the Chancellor himself. The first is the demoralisation that comes from the diminution of differentials. Member after Member has pointed out that if we continue to erode differentials—and they are now being eroded not just by taxation but by the pay pause—there will be an erosion of incentive, except that incentive which lies—and I concede this at once—in the pride of a man in his own achievement.
I do not denigrate or under-estimate that, but the man who takes pride in his own achievement and his own work may well find that when he gets home late at night to his wife she says to him "Why have you remained so long at the office? Why are you undertaking this enormous burden of extra work when all it brings into the house is the price of a few more jars of Continental Nescafe?" This happens. I hope that I make that point cogently to everyone here, and certainly to everyone who runs a house or who has to help with the housekeeping in this day and age.
Second, as my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) pointed out, salaries enormously in excess of those now available in England are being paid in every country with which we are in competition, and in every one of those countries the level of direct taxation is drastically lower than ours. Frequently I have occasion to go to France, as many of my hon. Friends know. In France it is impossible to compete with one's colleagues in business, in the professions and in politics, in the hospitality one can offer them and in the way that one can live with them and make friends, because of the tremendous
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differences in the level of direct taxation in our two countries.
The result is that people are emigrating and we are losing some of our best brains and some of our best men and women. I was horrified the other day in my constituency when a youngish man at the top of his profession told me that he wanted to leave for one of the great Dominions, and asked for my assistance in obtaining the necessary permissions from the relevant High Commission. This will continue at an increasing rate if we do not recognise the importance to our community of the entrepreneur, of the executive, of the talented, able and hardworking man.
My third point is one on which there has been enormous emphasis in debate after debate in recent weeks—the effect of over-taxation on investment. A large part of the funds for investment which were available when this country was becoming great and rich and was building up its industry came from the savings of people whe were able to save because they were not taxed as much as they are now. I ask the Chief Secretary to bear this in mind, because one of the reasons why we are failing in investment is that the individual no longer has the money to invest because it is being taken by the tax collector to pay for the over-expenditure of the State.
Finally, there are British men and women all over the world—in such places as Hong Kong, the Gulf States and South America—earning their living and putting money aside for their retirement. This has been so for centuries, and for centuries those people have returned to make their homes in their own country in their retirement with love in their hearts and a desire for their native heath.
But they are no longer able to do so, and that is not only a loss in what one might call senior manpower in this country; it is a loss in investment, because no longer dare they bring their money back here, and no longer dare they suffer the appalling decline in their standard of living which they would suffer if they came back to this country.
No doubt, many of my hon. Friends and Opposition Members will know of other examples of the effects upon our economy of the vicious scale that our taxation has now attained.

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In November—by coincidence, only six days before the Chancellor said that taxation had reached a dangerous level—I put down a series of Questions to the Chancellor of the Exchequer to ask what income after tax was now necessary to produce an income of equivalent purchasing power to £1,000, £2,000, £3,000, £5,000, £7,000 and £10,000 a year in a series of past years.
The first year that I selected was 1939. I shall give some of the figures, because they reveal the level that our taxation has now attained and the effects of it. In order now to have an income with a spending power equivalent to an earned income of £1,000 in 1939, a married man with two children would have to earn £13,461 a year. Were his income all from investments, he would need to have £25,256 a year.
I go now from the realm of the practical to what almost seems the realm of fantasy. A similar family man with an earned income that gave him, in 1939, a spending power of £10,000 a year would now need to earn £220,534 a year to give him the equivalent spending power. Were his income all from investments, he would need £1,810,634 a year. Perhaps the Treasury Minister will tell us at the end of the debate how many people in Britain now have an income of £1,810,634 a year. Yet a man with £10,000 a year before the war, as we all know, was far from being a millionaire.
I turn now to the effect of this Government's policies during the past two years, since they also can be exemplified by the figures that I obtained. A man with earnings of £2,000 a year in 1974 would in November 1976, after two years of Socialist Government, need £3,216 a year in order to have the same income, in terms of purchasing power. A family man getting on in business with £7,000 a year in 1974 would, in November 1976, have needed to earn £12,346 a year to break even. Moreover, were his income all from investments, he would have needed £14,129 a year—that is, double the investment figure that he would have needed two years before—and who in this country has had that?
You asked us not to take too long, Mr. Deputy Speaker, and I shall do my best to bring my speech to a quick con-
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elusion, but in the light of the figures that have been given I wish to dwell for a moment on the lot of those to whom the hon. Member for Watford referred a few minutes ago—the lot of the retired, of the elderly, of widows, and especially of the retired self-employed and their widows.
Everyone in this country now knows that the only conceivable way by which, in a collectivist State, one can provide for one's future is through a pension. But that is not how those who are now in their late 70s, their 80s and their 90s saw their future when they were providing for themselves. As the hon. Member for Watford said, they provided for their future by putting aside some capital, investing it and saving it, providing lifeblood to British industry.
Those are the people whom this Government have deliberately penalised. I say "deliberately" because that is the fruit of the Chancellor of the Exchequer's promise at the end of 1973 to squeeze the rich "until the pips squeaked". Moreover, it is not only the rich whom he has squeezed—if there are any rich left, and, having looked at the figures, one wonders about that—in my constituency there are many retired people living on the savings of a useful and fruitful life. They have to pay the investment income surcharge at over £1,500 a year, and so do their widows after them. There is many a widow now who cannot live save by selling the capital on the income from which she has relied for her living.
There are many who foresee the day when, if they live long enough, they will have no money left. These women, who have given their lives to their husbands, and whose husbands gave their lives and savings to their country in industry—and, no doubt, in the Services in their time—as well as in many other ways, look forward to the day when, if they live long enough, their capital will be gone and they will be dependent on the local authority.
There may be hon. Members on the Government side who would like to see these people dependent upon the local authority. I cannot believe that there are many such, but possibly there are some. I ask Ministers on the Treasury Bench to bear in mind the lot of these people. When I write to Treasury Mini-

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sters, as I constantly do, on behalf of that class of person, I receive a cruel and heartless reply, to the effect that "They are cushioned by their capital. It does not matter. They have some capital to fall back on." If they have to sell a tranche of capital every year, for how long will they have any capital to fall back on?
Is that the way to encourage thrift? Is that the way to encourage saving? Is that the way to encourage the qualities that will make us great? Is that the way to encourage the investment that alone will give lifeblood to British industry? Morality, justice, expediency and the necessities of the economy all dictate and demand a drastic change in this Government's policies.
8.8 p.m.
Mr. Ron Thomas: I wish at the outset to take up one of the points just made by the hon. and learned Member for Solihull (Mr. Grieve) and which was made earlier by the right hon. and learned Member for Surrey, East (Sir G. Howe) and several of his hon. Friends. I refer to their constant theme that the levels of direct taxation in Britain have a distorting effect upon incentives. The Opposition constantly refer to what they call this disincentive effect, the suggestion being that there are thousands of innovating entrepreneurs who would be ready to regenerate British industry and do all manner of wonderful things if only the level of direct taxation were reduced by some amount or other. Not for them patriotism, of course, because we are told that they are all rushing overseas. Not for them the idea of doing a day for Britain, or a year for Britain. For them, it is not the principle; it is the money, because it seems that they are all leaving these shores for sunnier climes.
Is there any good evidence, apart from all sorts of assertions, that our direct taxation system has a disincentive effect? This matter was discussed in considerable detail by the Radcliffe Commission—the Royal Commission on the Taxation of Profits and Incomes. I shall read a couple of lines from the Commission's conclusions because, whether right or wrong, at least its discussion was based on considerable investigation and inquiry rather than upon assertion.
Mr. Grieve: I cannot be definite about the date, but was not the Radcliffe Report published about 20 years ago?
Mr. Thomas: I readily accept that it was published about 20 years ago, but similar arguments to those that were used by the hon. and learned Member were being used at that time. I do not suppose that there has ever been a debate on a Budget, from the time of Pitt onwards, without the Tories talking about the disincentive effect. Let us face that. The Royal Commission said:
"Such rates are criticised as tending to repress effort and to discourage the taking of risks."
That is exactly what the hon. and learned Member said, and the Royal Commission was responding to similar complaints that were being made then. It went on:
"Probably they do, to some, though quite an unascertainable, extent. All heavy taxation may be said to have this repressive effect, just as, though again to an unascertainable extent, it tends to stimulate effort by diminishing the individual's disposable income. But if we are asked to infer from this that the heavy rates have any special disincentive effect upon the receivers of the higher levels of income, so as to justify a shifting of the existing weight of taxation from these ranges to lower levels of income, we are bound to reply that we see no evidence that the higher income earners are specially affected by disincentive."
Mr. Costain: Has the hon. Gentleman never known a constituent who, when asked why he did not work overtime, said that the overtime pay would all go in income tax? Is the hon. Member so out of touch with working people that he has never had that said to him?
Mr. Thomas: If the hon. Member has a constituent who says that, he should spare the time to explain to his constituent that unless he is getting more than £7,000 a year, only 35 per cent. of any marginal increase in income can go in income tax. That is the position, and I am sure that the Minister will confirm it. I have discussed this with workers as part of my job in the university extra-mural department. I have talked with them about the whole question of overtime and the incidence of income tax. The majority of workers, when faced with that situation, have to do more overtime, not less.
Much has been said by the Opposition on the matter of choice. They say that money should be left in the pockets of

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the workers so that they can choose whether to spend the money at the Dorchester or to buy the kids' school dinners. Working people do not have a choice of how to spend their money, because it is already committed to rent, food, and such things. They do not say "I do not know whether to buy the wife a diamond tiara this week or to go for a month to a sun-drenched island"—as do hon. Members on the Opposition Benches. They and the people they represent are the ones who have the choice. That is why, in the whole history of economic thought, people such as Marshall have flogged this idea—because the wealthy have choice.
I must have frightened the hon. and learned Member for Solihull to death, because he has left the Chamber, but he said that there was little personal saving, because of the high rate of taxation. He had better check the statistics. I hope that the Minister will show them to him. He should see Economic Trends for November, because he would see that both the level of personal savings and the savings ratio are higher than ever. There may be all kinds of reasons for that, but that is the actual statistical record.
The hon. and learned Member for Solihull then said that because there were insufficient savings we were not getting capital investment. But what happened under the Tories? What happened with the Barber hand-outs that were given to all those wealthy people? That money did not go into capital investment or manufacturing industry. The level of capital investment continued to decline.
There was the argument that part of the conflict at British Leyland is probably caused by direct taxation. I believe that a great deal of the conflict in British Leyland and in British industry generally is due to the social contract and the freeze on wage increases. To sustain the other attempted argument one has to explain why, under a Tory Government, with lower levels of direct taxation, more days were lost through industrial disputes and conflict than have been lost during the last two or three years. That takes some explaining away.
The Chief Secretary has already shown up, refuted, and, in my judgment, completely demolished the argument that
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Britain, in terms of direct taxation, is more heavily taxed than any other country. Again, if one looks at the November issue of Economic Trends and takes into account income tax and national insurance contributions, one finds that Britain is nowhere near the most highly taxed country in the world. As the Chief Secretary pointed out, the figures have been given to us this afternoon, and that is the end of the story.
It matters little how much taxation one has to pay if, when one receives one's wage packet, one then has to pay for health, education and a whole range of services that are otherwise provided by the public sector. I do not want to pay less income tax if that means that we shall no longer have a free National Health Service. These things are important. Income is a combination of the money that one has left in one's wage packet or salary cheque and that which is provided in the social wage through a whole range of public services such as education, and health.
The hon. Member for Cornwall, North (Mr. Pardoe), representing the Liberal point of view, more or less suggested that we should get rid of income tax and go on to VAT. Of course, one could have a progressive form of VAT on certain items. Rolls-Royce cars could be taxed at about 200 per cent. But any kind of VAT on expenditure must hit the poorer sections of our community far harder than the wealthy ones. That is why the wealthy and their representatives opposite want an expenditure tax, VAT or some such thing. They know quite well that such a tax hits the poorer members of society and leaves the wealthy that much better off.
The right hon. and learned Member for Surrey, East talked about the level of direct taxation and public expenditure. Of course, those two cannot be divorced. We on the Government side do not suggest that that can be done, but some of us have repeatedly pointed out the indefensible system that spends between £4,000 million and £5,000 million a year on people not in work. A large chunk of our public expenditure borrowing requirement exists because of a capitalist system that fails to find jobs for at least 1½ million members of its working population.

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We have heard a great deal about other countries and how the innovating entrepeneurs there are better and higher paid, and are making a far better job of things. In terms of employment they are not. There are over 1 million unemployed in West Germany—and that is after sending back about 1 million immigrant workers. There are 16 million unemployed in OECD countries. So, those innovating entrepeneurs are not making a better job of it.
The right hon. and learned Member for Surrey, East also talked about the switch to indirect taxation. He said:
"Pay as you spend and not as you earn. Give workers a choice" Few working people in this country have any choice about how they spend their money. It is already committed to food, housing, and so on.
We also had from the right hon. and learned Gentleman crocodile tears about workers having to pay this and that other rate of tax, but he represents a party that would cut all subsidies, push up rents and push up the price of food and goodness knows what else. Those crocodile tears leave me unimpressed.
Everyone on the Government Benches is concerned with a situation in which workers on a low level of pay must pay a marginal rate of tax of 35 per cent. I appeal to the Government to give careful consideration to the suggestion in the TUC's latest economic review for a more progressive direct tax system. Marginal income used to carry progressive rates of tax, with, for instance, the first £200 of income attracting tax at 2s. in the pound, the next £200 at 4s., and so on. The TUC suggests that the Government should consider reducing the tax impact on a new first band of taxable income.
It is indefensible that a married couple with two children and a wage of £30 a week should be paying a marginal rate of tax of 35 per cent. and that this rate should apply right through to salaries of £7,500 a year, or even more, since the wealthy members of our society use accountants and the tax avoidance businesses that are springing up for advice on their insurances and their mortgage relief. They can probably earn up to £8,000 a year before they start paying higher rates.
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The TUC suggests that tax bands should be reduced, that the threshhold should be increased, or that tax relief should be allowed on national insurance contributions—or a mixture of all three.
I appeal to the Government to consider introducing a wealth tax as soon as possible. There is plenty of evidence that what should be classed as income and should, therefore, be taxed is still being converted into capital. Even under the so-called price controls, there is plenty of evidence that firms are making scrip issues of shares and the like, rather than paying dividends, which would be taxed. There are many cases of income which should be taxed being converted into capital, which is not taxed. This is still happening.
I refute the suggestion that our system of direct taxation has a disincentive effect or is the great burden that hon. Members opposite suggest. I strongly believe in direct taxation, based on ability to pay. It is not possible to have an expenditure tax based on ability to pay.
I suggest to those who believe that the wealthy members of our society are overtaxed that they go to the hotels and clubs in London tonight and look at the sort of obscene expenditure that goes on night after night in this city and other parts of Britain.
8.23 p.m.
Mr. Ralph Howell: I shall not follow the hon. Member for Bristol, North-West (Mr. Thomas) except to say that his arguments have convinced me more than ever that we should move away from direct taxation to indirect taxation.
I am sorry that the Chief Secretary is not here. I wanted to congratulate him on his fine performance in standing on his Socialist head. I know that it was not appreciated by his hon. Friends, but the right hon. Gentleman is one of the brighter members of his party and he has given us considerable encouragement. He and the Chancellor of the Exchequer are gradually being weaned away from the sacred Socialist cow of high income tax.
That is encouraging, but I doubt whether they will be able to do nearly enough to reverse the trend of taking increasing amounts in taxation which has been going on for so long. As my right hon. and learned Friend the Member for

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Surrey, East (Sir G. Howe) pointed out, it would need a reduction of about £4,000 million to stop the rot.
The Chief Secretary took me to task for asking a number of Questions in an attempt to prove that we have the highest rates of income tax in the world. He said that I should also take into account the national insurance contributions. He did not answer me very well and it was unfair of him to produce that sort of answer. He should have pointed out that other countries that have a higher combined total pay very much larger family allowances and other benefits from those higher contributions. The right hon. Gentleman should not try to dodge the issue by giving a biased and unfair answer.
A massive switch should be made from direct to indirect taxation. I am not addressing hon. Members opposite so much as my own Front Bench. That is the way ahead for our party. It is no good tinkering with this. When we have the opportunity to put our policies into operation, we should have the courage to halve the revenue from income tax.
We have a starting rate of 35 per cent. and a top rate of 83 per cent. That gives us a mean of 59 per cent., which is more than double the mean rate of our competitors. Until we halve our rates of income tax, our industry and people have no chance of competing in world markets. The incentive is not there. I urge my party to take a really positive stride and have a starting rate of no higher than 15 per cent. and a top rate of no more than 50 per cent.
This could be done by switching from direct to indirect taxation. It would not necessarily mean any loss of revenue, although we should probably be able to tax ourselves less heavily as a result. We should also raise the tax threshholds considerably. The revenue from income tax this year is about £15,000 million, and £7,000 million of that will come from people who are earning less than the average wage. What possible sense can there be in this?
Everyone on this side recognises that we are operating a totally crazy taxation and welfare system in which some awful things happen and they discourage people in all walks of life. For example, if a
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man with two children increases his income from £35 to £45 a week, he will be paying a marginal rate of 94 per cent. Of that £10, the family will receive only 58p. What a crazy situation. If a similar family increased its income by £30 a week, it would be left with only £4·01 more than it was receiving previously. That is horrifying.
I draw the attention of the House to two disturbing letters that I have received from constituents in the past two or three days. One person writes that her income consists of £735 from her pension and £504 untaxed interest. She has been charged income tax of £176·40. She writes:
"I am 61 years old, unmarried, and this excessive income tax demand has really reduced me to below the poverty line."
What a pitiful situation that this country cannot organise its affairs in a better way than that.
The second letter states:
"I am aged 63 and have been widowed for six months. I have a small occupational pension and my total income amounts to £28 weekly. The Government claim £5 of this and I am expected to keep a roof over my head, keep warm and fed on the remaining £23."
It is not merely shameful, it is criminal that we allow that sort of thing to happen. We are driving more and more people away from independence and forcing them to rely on the State. That is what a great many people in the House are deliberately setting out to achieve. That is what those who want to achieve complete State control are aiming at.
I draw the attention of the House to the remark made by the Chief Secretary about some of my colleagues who, he says, harp on about scroungers. I do not take that approach. I am concerned that practically the whole working population is demoralised by the present state of affairs in which it is virtually impossible to better oneself. It seems that we are on a huge treadmill.
I represent a low-wage constituency Probably half the people in my area would be better off if they did not bother to work, yet they continue to do so. We are an extremely conscientious nation. Our people would rather work than not and they continue to work. However, it is time that we woke up

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to the present situation. It is time that we realised that we shall never get out of the appalling plight that confronts the country until we dramatically revise our taxation and welfare system.
We must recognise that the Government will not be able to do much in that direction. Too many of their supporters are intent on keeping the restrictive policy that is doing so much to lead the country down the road to complete State control. That is what it is all about, and that is why the Government will be unable to make any real, substantial changes in the forthcoming Budget or in any other Budget that they may formulate.
8.33 p.m.
Mr. R. B. Cant: One of the great troubles about this annual essay competition is that we go in for a great many exaggerations and hope to prove general points on the basis of particular cases, including cases of genuine hardship such as the hon. Member for Norfolk, North (Mr. Howell) and other hon. Members have mentioned. We then try to find some sort of correlation between the rate of income taxation and our national economic decline. On balance, this is not particularly fruitful.
When we talk about the burden of income taxation and reaction to it we are over-simplifying the situation considerably. If we think in terms of the average family and its attitude to taxation, that is a generalised phenomenon.
If we spoke to people who live in Staffordshire, from where I come, they would probably be talking about the prospect of a 30 per cent. increase in their rates. If we spoke to people who live in London, we would probably find that they are talking about an appalling increase in their electricity charges. It is the burden of one tax or price increase when compared with another that adds up to a total that undoubtedly is becoming quite frightening. If one asks how much income tax they pay—for example, the chairman of a company to whom I was talking yesterday was complaining about the burden of taxation—they would not have the slightest idea.
In general, the cause of the dissatisfaction is not so much the burden of taxation or prices as—the Chief Secretary
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said this, too—the failure of the underlying economy to produce a general income which makes tax contributions not so burdensome.
That applies to the more specific case referred to by my hon. Friend the Member for Bristol, North-West (Mr. Thomas), who has now left the Chamber—my hon. Friends seem to have a knack of making speeches and then leaving—as the innovating entrepreneur. I am sure that such people are not constrained by the high level of taxation.
Mr. John Page: Yes, they are.
Mr. Cant: The hon. Gentleman seems to know all the answers. I am just putting my humble point of view. In effect, they are constrained by the relatively low level of salaries. We had a massive debate in this House about the brain drain of doctors because of high tax levels. But, as was pointed out, doctors went to the United States not for lower tax levels but for three times the income. That important factor should be borne in mind.
I should like to give a couple of warnings to the Minister of State who is waiting to deliver his peroration. We know, because we read it in the newspapers, that we are likely to get a reduction in income tax of between £1 billion and £2 billion.
My hon. Friend the Member for Salford, East (Mr. Allaun) said that tampering with the thresholds, the base rates, having new rates and so forth, will be desirable from the point of view of incentives and of general welfare. If the public sector borrowing requirement is to be not the IMF's £8·7 billion or the National Institute of Economic and Social Research's £7 billion, but possibly Phillips and Drew's £6 billion to £6·5 billion and everything works out nicely, the Chancellor will have between £1 billion and £2 billion to give away.
The great danger is that, if the Chancellor uses what is undoubtedly theoretically the best route for increasing demand within the economy—that is, reducing income tax—he may fall foul of what my hon. Friend the Member for Bristol, North-West referred to as the savings ratio. But my hon. Friend was out of date to the extent of about 4 per cent. when he said that the savings ratio

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had never been higher. It is now possible that the savings ratio has fallen from about 14¼ per cent. to 10 per cent. If, in consequence of the Chancellor's beneficence in reducing taxes, we save them—we may do that, because we live in strange times—a lot of what he hopes for by way of incentives and generating more employment may be lost.
Many hon. Members opposite have said that the Chancellor should accelerate the present change from income taxation to indirect taxation. That is splendid in theory but unfortunately it cannot be done rapidly. The Chancellor should not go for the income tax concessions of between £1 billion and £2 billion for which the TUC is pressing if that will mean increases in VAT and Customs and Excise duties. That would have a serious impact on the retail price index.
I know that it is said that additional indirect taxation of £800 million adds only 1 per cent. to the RPI, but people are even more sensitive to increasing prices than they are to unemployment. My right hon. Friend should turn his back on that option. He might help the RPI if he let the pound appreciate, stopped the Bank of England buying dollars and allowed the minimum lending rate to fall a little faster. That would help the RPI and make our lives much happier.
8.42 p.m.
Mr. John Wakeham: It is reasonable that a good deal of any debate on personal taxation should be devoted to the effect of high taxes on incentives at all levels of income. Cases have been made out about those on all levels, but there are other problems connected with direct taxation with which I want to deal.
The first is the effect of high direct taxation on industrial costs. It is very expensive for a company to change salary levels, giving people increased responsibility and so on. At one end of the income scale, to increase the take-home pay of a senior executive by £20 a week one would have to increase his gross salary by about £5,000 a year. That is a much more expensive cost for the company. It is often inflationary and prohibitive. At the other end of the scale, it would cost an employer £18·35 a week to
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increase by £10 a week the take-home pay of a man earning half the average industrial wage. So direct taxation to an additional industrial cost. We should also recognise that many such increases would leave the employee no better off but would simply offset part of the effect of inflation.
Second, the whole cult of expense accounts and fringe benefits is a byproduct of a system of high direct personal taxation. I am sure that many executives would willingly give up their expensive Jaguars for Minis if they thought that some of the consequent saving would be reflected in higher take-home pay.
Thirdly, the whole business of high rates of direct taxation has produced and exacerbated many of the anomalies in our tax system. The situation has required the Inland Revenue to bring in countless amendments and changes, many of them extra-statutory concessions, which appear in a book published every year. Indeed, one could say that extra-statutory concessions have become a growth industry. From the day of William Pitt up to 1972, we managed with about 60 extra-statutory concessions. Since then, the number has nearly doubled. In addition, the Inland Revenue in practice makes a number of concessions, quite rightly, which are not included in the official list.
I believe that the Inland Revenue in many instances tries to find a fair way of dealing with relatively minor but nevertheless, to the taxpayer, important anomalies. It is up to the politicians to find a better way than exists of dealing with anomalies. The pressure of legislative time is such that we cannot deal adequately with them at present.
I am an accountant, and my professional body proposed to the Renton Committee some years ago ways of dealing with anomalies and extra-statutory concessions in an easy and effective way and which would not take up too much parliamentary time. I believe that those in the Inland Revenue and in the professions who are trying to work our tax system should be aided by Parliament in dealing with these problems.
The increases in high rates of direct taxation are shown in the report of the Inland Revenue published yesterday. The

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costs of the collection of tax are increasing. The cost of the collection of income tax increased by 42 per cent. last year, and is now about 2p in the pound. Part of the problem of these additional costs can be attributed to the unnecessary and unrewarding complexity of our income tax laws. Both the accounting profession and the Board of Inland Revenue have indicated willingness to solve the problems, and they look to us to give them the means to save the additional burdens of these complications, which are an added cost to our society.
8.48 p.m.
Dr. Cohn Phipps: The hon. Member for Maldon (Mr. Wakeham) very properly pointed out some of the anomalies arising from our system of very heavy progressive direct taxation. Many hon. Members who have spoken have dwelt upon anomalies. I think that there is a general consensus in the House that something has to be done about them. But the solutions offered in the debate have been very different, and it is of the nature of the solutions that I wish to speak.
I begin in all tax matters with what seems to me to be fairly basic and general premises. First, it has always seemed to me to be something of a privilage to pay high taxation. That may not seem so to many people who have always been used to paying high taxation, but if one pays high taxation it means, basically, that one is either earning or has more money than other members of society who are paying less in tax.
I start with the premise that anyone paying high taxes is, after all, likely to be a better off member of society than anyone else. But I equally take the view—I believe that it should form the basis of the Labour Party's approach to taxation—that we should not be taxing the creators of wealth as heavily as we tax the inheritors of wealth or those who in one way or another gain wealth without genuinely earning it.
I believe that the burden of taxation on earned income should be reduced and that the burden of taxation on unearned income of all kinds should be increased. I appreciate that the great mass of taxation will come from direct or indirect taxes upon persons. There are not enough rich people around. Even if we con-
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fiscated all the wealth that they possessed it would not make a major difference. But we can change the balance of our taxation in ways which would allow a reduction in direct income tax at the higher levels but which at the same time would continue to gather money from the unearned income that people received.
Unearned income is difficult to define. People can properly argue that money which has been put aside into savings, and upon which income tax was paid, and which in its turn earned interest or dividends, is perhaps part of earned income. But that is a different kind of income from someone who happens to inherit £500,000 from a dead uncle. I personally should like to see taxation levied on inherited wealth rather more than it is at the moment. We could then accept that earned income is partly in the form of dividends from money which is saved.
If we did away with the investment income surcharge what would we put in its place? One thing which has not been brought out strongly enough is the effect that investment income surcharge has on society as a whole. In recent years people with large amounts of money to invest have tended to look at capital gains rather than income. As a result we have had the boom in fringe banks, property and things of that sort.
That has not been an unnatural thing to do especially if one is taxed at 98 per cent. People will say "I may as well take a gamble or have a splurge". That has not been a healthy factor in the way that the private sector has invested. But investment income surcharge produces £280 million a year. That is the figure that I have received. It is a fairly substantial one. Capital gains tax produces £400 million a year. It is not unrealistic to ask "If this is a disincentive to sensible investment why do we not replace the investment income surcharge with a high capital gains tax?" Simple figures show that if £400 million is raised through capital gains tax at 30 per cent., then £666 million will be raised at 50 per cent. That is £260 million more, which is almost exactly the same amount of money that is raised by investment income surcharge.
Mr. Robert Boscawen: Would the hon. Gentleman also raise capital

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gains tax on savings put into occupational pensions? That would be the only fair way of doing it.
Dr. Phipps: I was a member of the Select Committee on the wealth tax and we discussed the whole nature of occupational pensions. As the hon. Gentleman may know, I was in favour of taxing pensions which were unearned, as many pensions are. So long as they are not realised the element of pensions which are earned could be kept out of the capital gains tax net.
What I am talking about is realised capital gains and, with those realised capital gains, I am trying to balance what seems to be the disincentive at the moment to sensible investment. If the net effect is no different, it would make more sense to put it on capital gains tax and to take it off the investment income surcharge. My right hon. Friend might look at that.
Another matter about which I want to make one comment concerns overseas tax relief. I think that we are in danger of getting into an awful mess over this. We set up a relief on 25 per cent. of the salary which can be said to be earned overseas as an incentive both for people to go overseas and sell and, it must be admitted, as a way in which higher income earners can be given some relief.
We now have a situation where, having given that concession for a specific purpose, we have the Inland Revenue arguing that it should be for 30 continuous days overseas. Any company which required its salesmen to spend 30 continuous days overseas every time that they went to sell its products would not be likely to be a very efficient company. We also have the crazy situation where the Inland Revenue now argues that the travel costs should be classed the same as one's travel costs between one's place of work and one's home. This is nonsense, and I hope that my hon. Friend the Minister of State will speak to the Inland Revenue and make it clear that, if we intend to make a concession, it must be made a real concession. To suggest that the cost of an air fare to Tokyo and back should be taxed as if it were part of one's income is a ludicrous concept, and I hope that it will not be continued.
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I return to my principal aim in this debate, which is to point out that, if we are to move away from direct personal income taxation, it is not sufficent, as Opposition Members have suggested, merely to regain this money by taking away subsidies to council house tenants or by reducing unemployment benefits. We have to look at the genuine immorality of our tax system which is also a genuine disincentive to achievement. I refer to the immorality of inherited wealth and what might be called gratuitous wealth gained by the fact of—[HON. MEMBERS: "Oil money."] Absolutely—money gained purely by the effect of increases in the value of shares, by people being left money, and so on. It is a strong disincentive. I have always felt that, if one's son was any good, he did not need the money, and, that if he was not any good, he ought not to get it.
If there is a problem in British industry, it is nepotism. Too many people are there because their fathers, grandfathers and great-grandfathers were there in positions of power. This cannot be good for British industry. By and large, it is unlikely that the sons of creative entrepreneurs will themselves be creative entrepreneurs. I have never heard it suggested that the sons of creative artists and musicians are likely themselves to be creative artists and musicians. I imagine that perhaps 2 per cent. or 3 per cent. may do, and I suggest that much the same figure could be applied to creative entrepreneurs.
With our inheritance laws, we endorse a system which perpetuates mediocrity and, in many cases, downright uselessness at the very top in industry. If we wish to change the nature of our tax laws by reducing direct taxation on the individual, the place to look for its replacement is in the gratuitous enrichment which far too many individuals get without lifting a finger for it.
9.0 p.m.
Mr. Tim Rathbone: I should like to divert from the points made by the hon. Member for Dudley, West (Dr. Phipps) and move from macro-taxation difficulties, upon which most hon. Members have concentrated, to some micro examples. It is perhaps appropriate to do so towards the end of the debate, because a very horrifying picture has

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been painted by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) and many of my hon. Friends about the way in which business taxes impinge on large and small businesses, and even on whisky distillers, and how taxes on management, entrepreneurs and risk-takers are also damping the fuel that they can give to the prosperity of this country, as they are affecting others in industry and in service companies and agriculture.
I fear that from the Labour Benches there have been too many of the silly arguments about workers—who are workers and who are non-workers—and divisive arguments about the Savoy, and so forth, which are based on divisive political beliefs. However, from that criticism I should like to eliminate the hon. Member for Watford (Mr. Tuck), and I want to spend one moment, and one only, on the problem that he identified. It was also identified by my hon. and learned Friend the Member for Solihull (Mr. Grieve). I refer to the taxation of the retired—taxation that at present is at too high a rate, on a lifetime of hard work and often a lifetime of thrift.
Like other hon. Members, I have had many letters on this subject recently. I should like to quote from one in particular, because it makes such a clear and precise case about the difficulties in day-to-day living faced by one family. A constituent wrote to me saying
"As Budget day draws nearer, I feel I must write to you in the hope that you will use every effort to obtain a reduction of taxation.
I was born in Dover in 1892."
He is, therefore, 84.
"When the State pension was increased last November, the Inland Revenue people promptly dashed in with a new coding on a month 1 basis, causing my monthly tax on my former employer's monthly pension of £38·28 to be increased from £3·25 to £8·10—an increase of £4·85."
Hon. Members can easily work out that that is an increase of about 150 per cent.
My constituent went on to explain that his pension came from ex-employers—one company that took over a previous company for which he had worked for 29 years. The previous company started a scheme through an insurance company in 1946, to which he contributed until he retired in 1963, when the capital sum
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was used to purchase a life annuity producing £234 a year, which works out at £4·50 a week.
Those two pensions and the national insurance weekly pension of £26·20 are his total income, though, as he goes on to explain, his wife has savings and investments bringing her in £179 a year—which is the huge total of £3·44 a week. He continues
"You may be sure it is extremely difficult to meet escalating prices and make ends meet."
Further explaining some of the bills that he has had difficulty in meeting, he says,
"This winter I have had to borrow to meet these coal and electricity accounts and in fact have borrowed £60 to pay the last account. I have never been in debt in my life so you can imagine how worrying things are."
He volunteered for infantry service in 1915, was in the battle of the Somme in 1916 and returned home, after being wounded at Ypres, in April 1917. He adds
"I know there must be many people who are worse off than myself but I do think octogenarians like myself should be made able to enjoy some happiness in the late years of their lives, and a little less worry. What a mess our poor country is in."
The Government must reduce expenditure so that absolute levels of taxation can be reduced. They must transfer taxation from earnings and savings to expenditure. That is the way back to a vital, vigorous and fair Britain.
9.4 p.m.
Mr. Robert Boscawen: The last words that the Chief Secretary to the Treasury used warned us not to reward ourselves with tax cuts before they were earned. I know exactly what he means, and I understand that tax cuts cannot come out of thin air. The words that he used were symbolic of so much that is wrong with what the Labour Party and all that it stands for thinks on the subject of taxation.
Taxes are not really rewards, should not he regarded as rewards, and never will be rewards. Rewards are earnings from labour and skill, and nothing else. They should not be thought of as something that a benevolent State hands out to us when we are good boys and work hard. The fact that earnings from work are so depleted by tax and deferred pay, before an individual has to meet all the

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other burdens brought about today by inflation, is one reason for Britain's poor industrial performance.
Of course, industrial performance does not depend wholly on taxation. No one in the House has ever suggested that it does, although the Chief Secretary tried to pretend that my right hon. and learned Friend the Member for Surrey, East (Sir. G. Howe) had done so. But I am certain that it is one of the causes, and one that we could put right ourselves without great difficulty. It is suggested that it would not cost a great deal, in teens of income tax, to reduce the level on the higher rates, but politically it would be exceedingly difficult. I readily accept that.
We must say over and over again that it is through the failure of talent to break through in industry and to go all-out to seek skilled careers, career opportunities and freelance opportunities, that industry suffers. When I sit as a member of one of the Government's sector working parties—part of the great industrial regeneration in which we are supposed to be taking part—it is clear to me that what is really needed is a major effort to stimulate new management, new managerial talent, new risk-taking and entrepreneurial talent to come forward and take jobs and regenerate industry.
The high burden of taxation affects not only those people who are in the highest-paid jobs and who are paying the higher rates of tax. We must also remember all those people who want to get into those high-paid jobs but have been put off because there was so little differential in pay, after tax, between those jobs and their present ones. That is not the only reason why they are not coming forward, but it is one that we could put right if we set about it.
If the Chief Secretary continues to say that we have to get Britain's growth going again before we can cut taxes we never shall get growth going, because it will be too late. The stimulus has to come first. That is true in large and small industries, and nowhere is it more true than among the self-employed. The stimulus must come now if Britain's regeneration is to take place. That is the fundamental message of this debate.
9.9 p.m.
Mr. David Howell: I think it has been a good time to have a debate about the burden of personal taxation. Nowadays the Budget or the Budget decision-making process seems to he opening out into a more and more prolonged business, starting in January or February or even before Christmas and going on until June or July. Since everyone else is allowed a preliminary say in this matter, I do not see why Parliament should not also seek to put its views on record before final decisions on the tax side of the Budget are served up ready-baked on Budget day. The opening out of the Budget process is a trend that we should welcome, and today's debate has been a useful part in that.
Let me begin with one of the aspects of the burden of taxation which has been touched on this evening but which is perhaps more disguised than some. That is the enormous burden of administration involved in the personal tax system. The very timely production by the Commissioners of Inland Revenue of their 119th report, which was published yesterday and which is in the Press today, makes a good peg upon which to hang a few remarks. The report shows and reflects the widespread disquiet that one finds across the country about certain aspects of the tax administration.
I should like to think that Treasury Ministers also share that disquiet. The disquiet comes in two slices. First there is disquiet on the sheer complexity and size of the operation which is now dealt with. As the Commissioners point out, their budget has risen to a staggering £354 million for 1975–76, so that presumably during the current year they are pushing on to £400 million as the administrative costs of running the Inland Revenue. Although in an excellently-written report the Commissioners do not say so explicitly, it is clear that this is their ultimatum to events—that we cannot go on attempting to deal with complexity of this kind at such a gigantic cost.
We know what the administration problem is primarily. It is that we have a vast and predominantly manual system which is attempting to deal with millions more taxpayers who have come into the tax bracket and with the vast increase in those who have come into

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the higher tax bracket. We should aim to move out of this situation, not only by means of lifting the tax burden but by simplification of it. The first possibility is self-coding, on which we should be going all out. Down the line a little there should be a move to self-assessment so that we can begin to reduce to the sort of staff figures that the United States Internal Revenue Service manages to achieve. As the Chief Secretary knows, the IRS has roughly the same manpower as our own, but it deals with a considerably larger number of customers and an enormously larger amount of revenue.
I was disappointed that the Chief Secretary did not choose a day like today to indicate that there is some creative thinking going on in his Department about these matters. But instead he devoted his efforts to refuting, rather thinly, one or two of the points put forward from this side of the House.
Mr. John Page: I was listening intently to the point my hon. Friend made about the £400 million that the Inland Revenue costs to run. Does my hon. Friend have and idea what might be the cost of manpower concerned in the preparation of tax returns, from the company and individual point of view, to get the stuff to the Inland Revenue?
Mr. Howell: I should think that the compliance costs are quite enormous. The suggestion that a system of self-assessment would be more expensive is absurd. The whole answer to that is that under self-assessment the tax system would be simple. If the Chief Secretary was prepared to look at these maters constructively I think he would find that they were worth consideration and that they were matters for this Department and for his Ministers to examine carefully.
There is widespread concern on the question of powers. Some publications have suggested that the Government should be thinking about having a Minister more closely alongside the Inland Revenue. I think that was suggested in The Times. I do not share that view. There are obvious dangers about politicians getting politics into the business of tax administration. We must obviously avoid that. I hope that the Chief Secretary agrees on that score.
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I do not agree with the fashionable ideas that are currently going the rounds for reorganising the Treasury by splitting it. That to me would add confusion and bureaucracy to the current situation. I would offer what might be the best answer—and this is a subject upon which a number of my hon. Friends, including my hon. Friend the Member for Horsham and Crawley (Mr. Hordern), have touched this afternoon—of giving a more permanent responsibility to a Committee of this House to safeguard the individual and oversee the operations of the tax Departments. There may be something there. The best hope for safeguarding our freedoms is the revival of the power and authority of Parliament.
The Chief Secretary had certain questions to ask on indexing. He had some exchanges with my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), who made clear, as I do now, that while there may be those behind us who believe in full-blown indexing, our view is that the principle to which we should adhere is that of truth in taxation. That is a straightforward view. All that it says is that we should establish by custom, if not by law, the habit for Chancellors of the future, one hopes the very near future, to make absolutely clear the reasons for allowing the real tax burden to rise, if that happens.
It is misleading when the Chancellor talks about hoping to reduce taxation. In the Chief Secretary's words, to bring us back to the real levels of last year a cut of £1½ billion would be needed. Anything less would not be a reduction. I agree with what Samuel Brittan has said in the Financial Times. It should not need a campaign in the newspapers, by the Opposition parties or people outside this place to persuade Ministers to follow what should be the basic principle of setting out for the public what is really happening.
There is no difficulty about it. We would expect the Chancellor for straightforward reasons to say why he is allowing the real tax burden to rise and by how much he hopes to cut the real increase, rather than use the highly misleading word " reduce ". We hold that view most strongly, and we hope to see some

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adherence to it by the Government in the coming weeks.
The one truth on which we are all agreed in this debate is that there has been a vast rise in the real burden, and it has fallen nowhere more fiercely than on middle management, skilled people and craftsmen. We believe that that is one of the most serious developments in the economy today. Of course, we do not argue, as the Chief Secretary tried to imply we were arguing, that that is the root of all evil. There is a whole range of problems to solve, but it is essential to solve that one.
We have support from all sorts of eminent citizens. As Hughie Scanlon has argued.
"There is an absolute need to restore differentials, not just for craftsmen but also for middle management and among the professions, engineers, doctors, accountants and other sections of the community where there has been loss of traditional relativities. Failure to use financial incentives as a means of motivation may significantly erode job performance."
Compared with the widespread agreement on such matters, what the Chief Secretary said was by any standards a counsel of utter despair. Many people who read what the Chief Secretary said will share my despondency. He seemed to be saying that there could not be help for the middle management range unless there was to be help for everybody, but that as there could not be help for everybody on the sort of scale of which he was talking, because it would cost billions of pounds, there could not be help for anybody.
The right hon. Gentleman asked whether we could argue that there should be help for the higher income ranges without its being extended to everybody. It seemed to amaze him that some of us thought that possibly there could be such help, because it is in the higher income ranges, in middle management and among the supervisors and senior craftsmen that there has been a disproportionate sacrifice. If that is so, there is a strong and integrated case for benefit in the form of tax relief to be applied in those areas.
We are deluged with evidence. My hon. Friend the Member for Horsham and Crawley gave some graphic examples showing a drop in living standards
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of between 35 per cent. and 40 per cent. for middle and senior management in the past three years.
The Left—whose members do not seem to be present in the Chamber, although they had a spokesman present a little earlier—does its case no good at all by claiming that there has been a monopoly of sacrifice among blue-collar workers and manual workers. There have been cuts and disappointments in that area and the ending of the idea that living standards would go on rising indefinitely, but it is not in that area where the biggest sacrifice has occurred. Therefore, there is every justification for allowing substantial tax reliefs to seek to end the present demoralisation of middle management.
Let me deal with the mortgage relief restriction issue which has been running through our debates, and on which the hon. Member for Islington, South and Finsbury (Mr. Cunningham) commented. If the Government are seriously contemplating such a move and listen to the economic committee of the TUC, I ask them to think back to the pickle they got into last year. Do they not realise that when they are dealing with the higher rated taxpayers, it was found by the Board of Inland Revenue that in 1975–76 a total of 1,750,000 people were paying tax at the higher rates and paying investment surcharge—and the number is even larger at the moment. If it is suggested that the relief against higher rates of tax should be ended, many hundreds of thousands more people will be in that category.
In short, we are not talking about what, in the Chief Secretary's favourite phrase, are awkward problems involving "only a minority", but about millions of people. We have only to cast our mind back to last year to remember what happened over the fringe benefits issue. When they introduced their scheme the Government believed that it involved only a minority—just a few of the very rich, who should be made to squeal. But as soon as the provisions came in, they found that they were dealing, not with a tiny privileged group, but with a vast number of work people in a vast range of incomes. When that was discovered Labour Members came rushing from their meetings with shop stewards to tell the Government to call the whole thing off.

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I urge the Government before they plunge into this new proposal to think very carefully. It would totally demoralise middle management and lead once again to another round of legislative chaos. If the Government do not restrict mortgage relief, I know what will happen. It will be presented by the Chancellor under the umbrella of his favourite phrase—namely "solid achievement". It will be presented as a great relief and concession to middle management rather as the decision to cut VAT from 25 to 12 per cent. was presented as a great achievement.
The truth is that every time a mistake is corrected by the Government, such as their mistake over VAT, and every time the Government do not do something silly, it is brought forward as a solid achievement. The Chancellor of the Exchequer used that rather interesting phrase in a recent interview with Keith Richardson in The Sunday Times. The right hon. Gentleman said
"So now we are taking far more notice of the industrial impact. When I put some of the VAT rates up to 25 per cent. in the 1975 Budget that was a mistake."
I was interested to hear the right hon. Gentleman say that. He continued:
"But last year, when we looked at the possibility of ending the vehicle excise duty and putting up the petrol tax instead, there were all kinds of good reasons for doing it but the industrial implication would have been a flood of imports of small foreign cars and so we didn't do it. That's one solid achievement for the industrial strategy already, if you like."
The truth is that the industrial strategy, which is the centre of everything we are concerned with in every job, seems to lie either in undoing what the Government have done, or in not doing what they have said they will do.
Behind all this there is a serious point. It is that the real industrial strategy starts with tax reductions—not of putting aside resources for industry, which is a phrase that falls often from the Chief Secretary's lips, but of putting them aside for the people in the industry. Industry is not a large block of soulless activities, but consists of people—managers, supervisors, blue-collar and white-collar workers—who respond to incentives and who want to get back to good jobs. Passionate feelings have been expressed this afternoon about the loss of jobs.
We are just as concerned about the situation. We try to turn a deaf ear to
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the patter that is so often heard to the effect that the Opposition policies will lead to more unemployment—even greater than the appalling levels we now experience. We do not accept that argument. We want to see jobs just as much as do hon. Members on the Government Benches, but where will the jobs come from? We do not believe that they will come in the foreseeable future from handling out vast grants and subsidies for the restructuring or rationalisation, let alone nationalisation, of huge industries.
We say that jobs will come from small firms, farms, new enterprise, local builders, wholesalers, manufacturers and commerce. They will come from small family firms. If we get these going again we shall see some pick-up in employment. But if these people remain in their present state, where it does not pay to take on anybody or to expand, because if they do they will run into severe financial difficulties, we shall never see the beginning of the recovery in jobs which we, as much as anybody else, would like to achieve. That is why in the coming Budget debates we shall emphasise the need to put more incentives back into business taxation on both the income and the capital side.
This afternoon the Chief Secretary told us that easing the higher tax rates would not cost very much, so he and his colleagues cannot say that we are being irresponsible in a budgetary and revenue sense. It is true that all these higher taxes on capital and on income could be substantially reduced, if not abolished, with little impact on the revenue at all. Some figures will, no doubt, be brought forward by Ministers, but in reality the overall effect will probably be to generate more income and revenue and to produce even a positive increase in revenue rather than a reduction. That certainly applies to the top marginal tax rate, the 83 per cent, rate.
I cannot understand why the Chief Secretary found it so agonising this afternoon to contemplate the prospect of cutting the 83 per cent. rate. It is an object of ridicule. It has nothing to do with serious fiscal policy. Our creditors in the world think us barmy. The Financial Secretary told my hon. Friend the Member for Norfolk, North (Mr. Howell), that only four countries in the world had a higher rate than our 83 per cent—

739
Tanzania, Portugal, Egypt and Algeria—and below us on the list come Tunisia and Uganda. I do not think that it would be asking too much of the Government to get us just below Uganda on that list. That would be a start. I believe that it could be done without smashing up the whole social contract philosophy which the Chief Secretary believes is so essential to getting the deal.
I see the right hon. Gentleman's problem—that is the way he sees things—but I do not necessarily agree, and I think that he is being too sensitive. He could tackle some of these ridiculous rates and put some morale back into business and get jobs going again, without upsetting the deal or challenging his Budget constraints or revenue needs.
That is our first priority—if I may borrow a phrase which I hope will not be too embarrassing to Ministers—"to get the country back to work", on the farm, in the firm, in the High Street and right across the commercial and small business sector of England. That is the way we believe we shall do it. That is why we have no hesitation of putting as our first priority the need to lift the burden of business taxation on both income and capital. We say that straightforwardly and we have no doubt that that is in the interests of the vast majority of working people.
The second priority which goes with it—indeed, it is of equal importance—is to lift the thresholds. We all recognise, as does the Chief Secretary, that that is where the money is. That is where the big costs lie. The situation is appalling, and it has been described graphically by my hon. Friends this afternoon. It creates the most pathetic, impoverished circumstances for individuals. All hon. Members know the situation when a constituent comes to them with a badly printed pay slip and asks in total bewilderment how it is that on his modest income, which is way below average earnings, the deduction in the tax box can be quite so much.
It is a miserable story, and we have to get it right. We know that it costs an immense amount of money. The Chief Secretary does not need to tell us that. But we have reached a stage where
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taxation, which was supposed to be the wonderful instrument to carry forward Socialism, has now become the enemy of the poor. It is a direct attack on the weakest members of the community, and unless we can get it right we shall run into worse and worse difficulties.
What can the Chancellor do? I agree with my hon. Friend the Member for Norfolk, North that, when one really comes down to it, there is not much that he can do. Of course, he can do a bit to stop the situation deteriorating. We recognise that. He can, of course, see that the further real increase in taxation which will take place this year can be not quite so heavy as it would be if he did nothing. He can talk about that, and, if he is prepared to do so—and it will be shameless propaganda if he does—he can claim that as a reduction in taxation. But the truth is that there is no hope whatever of bringing down the level of taxation on the poor or on skilled craftsmen, middle management and those who work to create new jobs and getting tax levels back to sanity unless he and the Government think seriously more in terms of lower public spending and/or a switch to spending taxes. Those are the realities, as the Chief Secretary well knows.
Any real reduction in the grotesque tax burden which at present goes right down the line to the lower paid—even to the single man on £15 a week—cannot be financed without a further check on Labour's public spending ambitions. The sooner that truth is admitted and explained to his colleagues by the Chief Secretary the better it will be for our nation, the more quickly will jobs return, and the better will it be for all the 25 million workers in this country.
9.31 p.m.
The Minister of State, Treasury (Mr. Denzil Davies): The hon. Member for Guildford (Mr. Howell) made one point which I shall deal with at the outset. He accused my right hon. Friend of lack of creative thinking because he did not mention in his opening speech the difficulties of the present tax system, the costs of collection and the administrative burden of collecting such vast sums of money. I assure the hon. Gentleman that we are occasionally capable of some creative thinking. But this is obviously

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a problem which has bedevilled all Governments. I understand that the Government of which the hon. Gentleman was a member looked at the matter and came to the conclusion that they could do nothing about it.
The hon. Member for Guildford now tells us that it is Conservative policy to have what I think was called self-coding. It was called self-coding, not self-assessment. I am not quite sure what self-coding means, but it must be something on the road to self-assessment. I accept entirely that if we had a full-blown self-assessment system such as there is in the United States—which the Opposition now seem to favour—there would be fewer civil servants administering the system and the costs of administration would probably be lower, but the truth is that the costs would be transferred to the private sector and the individual.
For the ordinary employed person in this country, the tax system is extremely simple. It is probably one of the simplest tax systems in the Western world. The taxpayer is provided with a very sophisticated service at the cost of Inland Revenue officials who do all the calculations for him. If the hon. Gentleman cares to go to the United States and examine what the ordinary employee there has to do to work out his tax—doing it by a certain date, since if he does not he will pay a fine—he will see the full nature of the burden on the individual in the United States compared with the burden here in terms of administration costs.
One cannot have it both ways. Both systems are complex. The question is who must do most of the work. It is no good the hon. Gentleman shaking his head. That is the reality of the matter.
Mr. Rathbone: I assure the Minister of State and those whom he may have taken with him in his argument that that is not so. I lived and worked in the United States for eight years, and I never had any difficulty whatever in the self-assessment process. It is not the burden which he suggests.
Mr. Davies: The hon. Gentleman may not have had difficulty, but the burden upon the taxpayer is bound to be greater under a self-assessment system than under a system whereby the coding and deduc-
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tion work is done for him by the Inland Revenue. That is the point I make.
Moreover, the powers of criminal investigation in the United States are considerably harsher than they are here. I recall that when we introduced mild powers of investigation in the Finance Bill last year, the Opposition created a considerable fuss. If they want the kind of self-assessment system which the United States operates, they must accept very strict powers of criminal investigation such as are given to the Internal Revenue Service.
I turn now to the main points raised in the debate and the question of the burden of personal taxation. We could possibly agree on two points. First, there has been a shift in the burden of taxation in this country over the last few years from indirect taxation to direct taxation. In other words, the burden has gone towards direct taxes and away from indirect taxes. Compared with most Western developed countries we are probably raising more in direct taxes and less in indirect taxes. That is certainly the case when we are compared with European countries, and there is no doubt that there has been this shift.
Secondly, there is not much doubt that at the margins—and I am talking about the margins at the bottom and the top—our rates are higher than those of most of our international competitors. That cannot be denied. Whether the effective rate of tax in the case of every individual is much higher, taking into account such allowances as the mortgage allowance and so on, is debatable. But the marginal rate of 35 per cent. hits people at the lowest end of the scale and one must concede that the marginal rates at the top are higher than those of most of our competitors.
The people who suffer most are those right at the bottom who come into tax at an early stage at the rate of 35 per cent. They are such people as widows, single people, and people on small incomes with possibly a State pension or a small additional pension. We readily accept that there is a high marginal rate. In the same way, at the top end of the scale we are obviously competing in the international market of industry. When managers move from one country to another, there is no doubt that we are

743
at some disadvantage because our top marginal rates are higher than those that they have to pay in other countries.
As for the rates in the middle, we are not substantially out of line, especially if one takes social security contributions into account. I accept that by bringing in those contributions we are not necessarily comparing like with like and that these comparisons, as the Chief Secretary said, are difficult to make. But if we take those contributions into account, the difference between us and other countries, especially in Western Europe, is not substantial.
Having accepted that the burden of direct taxation has grown over the last three or four years, the Opposition should have said in their arguments from where they would get the money to reduce the burden. The right hon. and learned Member for Surrey, East (Sir G. Howe) and the hon. Member for Guildford talked about truth in taxation. We do not get much truth from them about where the money would come from to reduce the burden. Granted that both sides of the House are agreed that there is a burden, where will the money come from? The Opposition Front Bench did not face that fact or try to answer the question, and they did not live up to their rather grandiose assertion of truth in taxation.
The truth is that the money can come from only two sources. We could increase the public sector borrowing requirement, but that is an option that the Government would not pursue—unlike the Barber Administration that printed money like confetti, reduced taxes and increased public expenditure. We would not pursue such profligate policies. We are more responsible about the public sector borrowing requirement. Most Labour Chancellors are more responsible than Tory Chancellors when they are in office, because Labour Chancellors understand the real value of money better than the Opposition.
Mr. Horbern: Can the Minister say when any Tory Government have had to spend 11 per cent. of the GNP in the public sector borrowing requirement as this Government have had to do?
Mr. Davies: To pick a figure of 11 per cent. without any relationship to what is happening in the outside world, and the increase in the price of oil, is, frankly, quite ridiculous. A Conservative Administration increased public expenditure, cut taxation and printed money like confetti to try to solve this country's economic problems.
If we are to reduce the burden of direct taxation as hon. Members opposite wish and if we are looking for truth, we must realise that the only alternatives are increasing indirect taxation or cutting public expenditure.
Hon. Members opposite did not make clear whether they favour increasing indirect taxes. If we are to alleviate the burden in that way, that will increase the cost of living. The hon. Member for Cornwall, North (Mr. Pardoe) invited us to fiddle the Index of Retail Prices. I was interested to hear him say that some European countries exclude indirect taxation from their equivalent to the RPI. Unfortunately, we cannot do that.
Hon. Members opposite say they wish to reduce the burden of direct taxation, but do they wish to do that at the cost of a substantial increase in the RPI? We are told and we accept that inflation depresses investment, that it is bad for the economy and that it increases unemployment. Are hon. Members opposite asking us to relieve the burden of direct taxation by substantially increasing indirect taxation?
Mr. Pardoe: We assume that indirect tax increases result in price increases, because we can see them in the RPI, and that direct tax increases do not increase inflation. In fact, increases in direct taxation increase inflation just as much as increases in indirect taxation.
Mr. Davies: Indirect tax increases affect the RPI and that has an effect on wage rates, wage claims, the value of the pound and all the other indicators relating to inflation.
Mr. David Howell: Is the hon. Gentleman saying that an increase in VAT is ruled out under the social contract?
Mr. Davies: That is a silly question. I am making a serious point. If the hon. Gentleman and his colleagues want

745
a substantial shift in the burden of direct taxation, one way of getting the money would be to increase indirect taxation, but that would put up the cost of living. Are they in favour of that? They have not told us. If they were so concerned about truth in taxation, they would have answered that question earlier.
The other alternative, which has been mentioned by hon. Members opposite, is a reduction in public expenditure. They constantly tell us that we must cut public expenditure, but truth seems to stop at that point for them. It does not go any further and they do not identify the areas that they want cut in order to alleviate the burden of direct taxation.
We shall be truthful, and I repeat what I said in a recent Answer to the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). The effect of having indexed—to use the shorthand word for the revalorisation of allowances and rates—all tax rates from 1974–75 would be £5 billion less in the hands of the Exchequer and, presumably, £5 billion more in the hands of taxpayers. That has been the effect of our being unable, for one reason or another, to index allowances and rates. Hon. Members opposite should not shirk from these factors. Those who call for indexation should say what would have happened if that money had not flowed into the coffers of the Exchequer. It would have had an effect on the economy, on the poor and on unemployment rates.
If we had operated a policy of so-called indexation and denied ourselves that £5 billion, we should have had to do certain other things. The £5 billion could have been saved by a cut of 80 per cent. in retirement pensions. That is the nature of the effect of not indexing. If we were to index there would have to be an 80 per cent. cut in retirement pensions to save £5 billion—[Interruption.] I am sorry that Opposition Members do not like the figures. Let me give them another figure. As an alternative they could have a 75 per cent. cut in expenditure on the National Health Service. The Opposition have asked for the truth about taxation. They have asked us to tell the British people the truth. We are doing just that. We have raised an extra £5 billion as a result of not having been able to revalorise or index the tax system.
746
It is only fair that it should be known where the £5 billion has gone and what the effect of not receiving it into the Exchequer would have been. The Opposition could have had a 25 per cent. cut in defence expenditure or a 25 per cent. cut spread over retirement pensions, the National Health Service and defence expenditure. Alternatively, they could have had a 12 per cent. cut in all sections of central Government expenditure.
Mr. Reginald Eyre: Perhaps I may give the hon. Gentleman a helpful example. It would have meant the Government not spend£7½ million on administrative costs in respect of the Community Land Act to acquire land worth £2 million.
Mr. Davies: I am sorry that I gave way to the hon. Gentleman.
Mr. F. A. Burden: I bet you are.
Mr. Davies: Opposition Members want the truth about taxation and public expenditure and I am giving them the truth. If we had followed a policy of complete indexation, £5 billion would not have been available to us. That would have had a catastrophic effect on levels of public expenditure and on most people living in this country.
Mr. Grieve: The point being made by my right hon. and hon. Friends is not that we cut one section of essential public expenditure entirely but that there are economies to be made across the board by good administration.
Mr. Davies: Yes, the hon. and learned Gentleman is right. I have said that there could have been a 12 per cent. cut across the board. Economies could have been made across the board. I am merely pointing out the consequences of a reduction of £5 billion.
If there were some money available for a reduction in direct taxation, how could the money best be utilised within out present tax system? I am sure that Opposition Members appreciate that there are different ways in which the money could be used, which must be determined by the nature of our tax system.
If we approach the matter on the basis of the mass of taxpayers, there are three basic approaches. There could be a

747
permutation of the three but there are three basic ways in which money could be used to reduce direct taxation. The expensive way is to increase personal allowances. The advantage of doing so, if we could do so by a full amount in respect of inflation, is that it would give the greatest benefit to those right at the bottom. The advantage of the full re-valorisation of personal allowances, which is very expensive, is that it takes most people out of the tax net right at the bottom. It helps the very people that Opposition Members have mentioned who face a tax rate of 35 per cent. at the lowest levels of income.
The indexation of personal allowances would also give considerable benefit to those at the top end of the scale. I accept that Opposition Members would want to see that. However, very often the effect is completely disproportionate when we consider the whole tax profile. Although an increase in personal allowances is beneficial in taking a large number of taxpayers out of the tax net, it perpetuates a tax profile that still looks rather inequitable when we consider the levels of income right from the bottom to the top of the tax bracket.
Another alternative which could be used and which has been mentioned today, especially by my hon. Friend the Member for Bristol, North-West (Mr. Thomas), is the introduction of a reduced tax band. Unfortunately, if a reduced rate band is introduced and is to make any worthwhile contribution, it has to be a fairly large band and the rate of tax has to be a bit lower than 35 per cent. For example, a reduced rate band on £2,000 would cost £3,700 million if charged at 25 per cent. or £1,850 million if charged at 30 per cent. A reduced rate band on £1,000 at 25 per cent. would cost £2·2 billion. Indeed, at 25 per cent. on the first £500, it would cost about £1·2 billion.
A reduced rate band, as distinct from an increase in the tax threshold, would not give most help to those on the smallest incomes. For the man on the tax threshold complete exemption for a few pounds is worth more than a lower rate of tax on a larger band of income which he has not got. If the cost of the reduced
748
rate band had to be met by keeping the tax threshold lower than it would otherwise be, it would widen the poverty trap by enlarging the overlap between tax liability and entitlement to means-tested benefit. If having a reduced rate band is at the expense of having less of an increase in allowances, it will not benefit people at the lower end of the scale as much as an increase in allowances.
Mr. Crawford: Earlier I spoke about Scotland. There are now the resources available in the Scottish context to raise the threshold and lower the rate of VAT on all the things that we need to avoid the poverty trap and bring down the rate of tax at the top level in Scotland.
Mr. Davies: I shall listen with interest when the hon. Gentleman introduces his first budget.
Another way of reducing the burden is by reducing the basic rate. A reduction of the basic rate gives greater benefit to the large group of taxpayers in the middle. But if that is an alternative to increasing the allowances, there will be less of a benefit at the bottom and at the top end of the scale, because an increase in allowances does not greatly benefit those in the middle of the tax bracket. These are the constraints which to some extent, apart from money, the present tax system imposes on us in creating a more equitable profile.
My right hon. Friend the Chief Secretary made it clear that if it were possible over the longer term, we would all like to see one or even more reduced rate bands. One of our problems is that we have no rates below 35 per cent. Unfortunately, the constraints on having anything like that are not only of money but of trying to operate—I come back to the point I made at the beginning about self-assessment—a sophisticated PAYE system with a large number of different bands of income tax. In order to operate sophisticated PAYE system, one needs more or less a basic rate. If we do away with the basic rate thereby having more rates of tax and perhaps creating a more equitable profile of taxation, we must consider whether to move from the present system to a different kind of system with all the administrative implications involved in that.

749
For the Opposition merely to call for a debate on the burden of personal taxation is to choose to look at only one area. However, we cannot separate the burden of personal direct taxation from indirect taxation. We must balance the one against the other. We cannot also separate direct taxation from inflation in the economy because the main reason that the burden has increased over the last three years has nothing to do with the present Government's policies or with our tax system. The reason is inflation. That has created this extra burden, and most of the inflation has been caused not by anything that has happened in this country but by factors completely outside this country's control.
Mr. MacGregor: Is it not clear that it is not inflation but the Government's failure to keep the tax thresholds in line with inflation which has caused the present situation? Is it not clear from this debate that the real lesson is that the extra £5 billion of taxation has been imposed on the British people by this Government and that because of their failure to deal earlier with public expenditure, they are now in the trap that the Minister has described?
Mr. Davies: The hon. Gentleman was not listening earlier to my explanation of the £5 billion. I made it absolutely clear that if the £5 billion had not existed, there would have been far lower levels of public expenditure at a time of world recession and considerable difficulty in all the industrialised countries. Is he suggesting that the Government should have reduced public expenditure by £5 billion? [HON. MEMBERS: "Yes".] They say, "Yes", but they have come into this Chamber and read letters from poor constituents who are brought into the tax net at very low levels of income. They profess with crocodile tears to be very sorry for those people and now they are shouting, "Yes", and demanding that we reduce public expenditure by a substantial amount—thereby hitting the very people whom they profess, at least, to be concerned to help.
Hon. Members opposite, with a few exceptions, have shown again that they are not even concerned about burdens of direct taxation on everybody but merely about those burdens on the people with
750
the highest incomes. If they were concerned about those at the bottom of the scale, they could not have come to that Despatch Box or made speeches calling for substantial cuts in public expenditure or substantial increases in indirect taxes. That shows their hypocrisy. Now they fear that we may be able to do something over the whole range of direct taxation.
In our taxation policy, we shall not consider only the top end of the bracket, because our taxation policy is to marry that with the need to get a third stage in our incomes policy. We could not possibly justify the kind of massive tax reductions at the top end of the scale that Conservative Members seem to want. Perhaps one of these days they will come here and tell the truth, not only about their taxation and public expenditure policies but also about whether they want an incomes policy or not.
Mr. Ridley: We do not.
Mr. Davies: Some of them do not. The hon. Member does not. I understand that. He would prefer it if unemployment exceeded 2 million, if we had slashing cuts in public expenditure and very reduced taxation for the better off. But from the Conservative Front Bench we get no truth at all about their policies on taxation, on public expenditure, even on incomes policy.
This Government took over at a time of considerable world recession and difficulty. We have managed to stabilise our public expenditure and our public sector borrowing requirement and we are gradually bringing down the rate of inflation. Hon. Members may laugh, but as a result of the co-operation of the trade union movement, whose co-operation they do not apparently want, we are bringing down the rate of inflation. Hon. Members feel rather jealous about that, I imagine, because they could never get the kind of agreement with the trade union movement that we have been able to get.
We have managed to stabilise public expenditure and the borrowing requirement and are bringing inflation down to the level of our competitors. We are gradually getting the British economy back on an even keel. Hon. Members are frightened that in addition we shall

751
be able to reduce the burden of direct taxation. What they fear most is a good stable economy because they appreciate that their chances of office will be much less if we manage to secure it.
Mr. Ridley Mr. Ridley rose—
Mr. Davies: I was hoping that the hon. Gentleman would have taken part in the debate.
Mr. Humphrey Atkins rose in his place and claimed to move, That the Question be now put.
Question, That the Question be now put, put and agreed to.
Question put accordingly, That this House do now adjourn:—
The House divided: Ayes 270, Noes 272.

Division No. 84.]

AYES

[10.0 p.m.

Adley, Robert

Fairgrieve, Russell

Kimball, Marcus

Aitken, Jonathan

Farr, John

King, Evelyn (South Dorset)

Alison, Michael

Fell, Anthony

King, Tom (Bridgwater)

Amery, Rt Hon Julian

Fisher, Sir Nigel

Kitson, Sir Timothy

Arnold, Tom

Fletcher, Alex (Edinburgh N)

Knight, Mrs Jill

Atkins, Rt Hon H. (Spelthorne)

Fookes, Miss Janet

Knox, David

Awdry, Daniel

Forman, Nigel

Lamont, Norman

Bain, Mrs Margaret

Fowler, Norman (Sutton C'f'd)

Langford-Holt, Sir John

Baker, Kenneth

Fox, Marcus

Latham, Michael (Melton)

Banks, Robert

Fraser, Rt Hon H. (Stafford & St)

Lawrence, Ivan

Beith, A. J.

Freud, Clement

Lawson, Nigel

Bell, Ronald

Fry. Peter

Lester, Jim (Beeston)

Bennett, Dr Reginald (Fareham)

Galbraith, Hon T. G. D.

Lewis, Kenneth (Rutland)

Benyon, W.

Gardiner, George (Reigate)

Loveridge, John

Berry, Hon Anthony

Gardner, Edward (S. Fylde)

Luce, Richard

Biffen, John

Gilmour, Rt Hon Ian (Chesham)

McAdden, Sir Stephen

Biggs-Davison, John

Gilmour, Sir John (East Fife)

MacCormick, Iain

Blaker, Peter

Glyn, Dr Alan

MacGregor, John

Body, Richard

Godber. Rt Hon Joseph

Macmillan, Rt Hon M. (Farnham)

Boscawen, Hon Robert

Goodlad, Alastair

McNair-Wilson, M. (Newbury)

Bottomley, Peter

Gorst, John

McNair-Wilson, P. (New Forest)

Bowden, A. (Brighton, Kemptown)

Gow, Ian (Eastbourne)

Madel, David

Boyson, Dr Rhodes (Brent)

Gower, Sir Raymond (Barry)

Marshall, Michael (Arundel)

Braine, Sir Bernard

Grant, Anthony (Harrow C)

Marten, Neil

Brittan, Leon

Gray, Hamish

Mates, Michael

Brocklebank-Fowler, C.

Grieve, Percy

Mather, Carol

Brooke, Peter

Griffiths, Eldon

Maude, Angus

Brotherton, Michael

Grimond, Rt Hon J.

Maudling, Rt Hon Reginald

Brown, Sir Edward (Bath)

Grist, Ian

Mawby, Ray

Bryan, Sir Paul

Grylls, Michael

Maxwell-Hyslop, Robin

Buchanan-Smith, Alick

Hall, Sir John

Mayhew, Patrick

Budgen, Nick

Hall-Davis, A. G. F.

Meyer, Sir Anthony

Bulmer, Esmond

Hamilton, Michael (Salisbury)

Miller, Hal (Bromsgrove)

Burden, F. A.

Hampson, Dr Keith

Mills, Peter

Butler, Adam (Bosworth)

Hennam, John

Miscampbell, Norman

Carlisle, Mark

Harvie Anderson, Rt Hon Miss

Mitchell, David (Basingstoke)

Chalker, Mrs Lynda

Hastings, Stephen

Moate, Roger

Channon, Paul

Havers, Sir Michael

Monro, Hector

Clark, Alan (Plymouth, Sutton)

Hayhoe, Barney

Montgomery, Fergus

Clark, William (Croydor S)

Heath, Rt Hon Edward

Moore, John (Croydon C)

Clarke, Kenneth (Rushcliffe)

Henderson, Douglas

More, Jasper (Ludlow)

Clegg, Walter

Heseltine, Michael

Morgan, Geraint

Cockcroft, John

Hicks, Robert

Morris, Michael (Northampton S)

Cooke, Robert (Bristol W)

Higgins, Terence L.

Morrison, Charles (Devizes)

Cope, John

Hodgson, Robin

Morrison, Hon Peter (Chester)

Cormack, Patrick

Holland, Philip

Mudd, David

Costain, A. P.

Hoosen, Emlyn

Heave, Airey

Craig, Rt Hon W. (Belfast E)

Hordern, Peter

Neubert, Michael

Crawford, Douglas

Howe, Rt Hon Sir Geoffrey

Newton, Tony

Crouch, David

Howell, David (Guildford)

Nott, John

Crowder, F. P.

Howells, Geraint (Cardigan)

Onslow, Cranley

Davies, Rt Hon J. (Knutsford)

Hunt, David (Wirral)

Oppenheim, Mrs Sally

Dean, Paul (N Somerset)

Hunt, John (Bromley)

Page, John (Harrow West)

Dodsworth, Geoffrey

Hurd, Douglas

Page, Rt Hon R. Graham (Crosby)

Douglas-Hamilton, Lord James

Hutchison, Michael Clark

Page, Richard (Workington)

Drayson, Burnaby

Irving, Charles (Cheltenham)

Pardoe, John

du Cann,Rt Hon Edward

James, David

Parkinson, Cecil

Durant, Tony

Jenkin, Rt Hon P. (Wanst'd & W'df'd)

Pattie, Geoffrey

Dykes, Hugh

Johnson Smith, G. (E Grinstead)

Penhaligon, David

Eden, Rt Hon Sir John

Johnston, Russell (Inverness)

Percival, Ian

Edwards, Nicholas (Pembroke)

Jones, Arthur (Daventry)

Peyton, Rt Hon John

Elliott, Sir William

Jopling, Michael

Pink, R. Bonner

Emery, Peter

Joseph, Rt Hon Sir Keith

Price, David (Eastleigh)

Ewing, Mrs Winifred (Moray)

Kaberry, Sir Donald

Prior, Rt Hon James

Eyre, Reginald

Kershaw. Anthony

Pym, Rt Hon Francis

Fairbalrn, Nicholas

Kilfedder, James

Raison, Timothy

Rathbone, Tim

Sinclair, Sir George

Trotter, Neville

Rawlinaon, Rt Hon Sir Peter

Skeet, T. H. H.

van Straubenzee, W. R.

Rees, Peter (Dover & Deal)

Smith, Dudley (Warwick)

Vaughan, Dr Gerard

Rees-Davies, W. R.

Speed, Keith

Viggers, Peter

Reid, George

Spence, John

Wainwright, Richard (Coloe V)

Renton, Rt Hon Sir D. (Hunts)

Spicer, Michael (S Worcester)

Wakeham, John

Renton, Tim (Mid-Sussex)

Sproat, Iain

Welder, David (Clitheroe)

Rhodes James, R.

Stainton, Keith

Walker, Rt Hon P. (Worcester)

Ridley, Hon Nicholas

Stanbrook, Ivor

Watt, Hamish

Rldsdale, Julian

Stanley, John

Weatherill, Bernard

Rifkind, Malcolm

Steel, Rt Hon David

Wells, John

Rippon, Rt Hon Geoffrey

Steen, Anthony (Wavertree)

Welsh, Andrew

Roberts, Wyn (Conway)

Stewart, Rt Hon Donald

Whitelaw, Rt Hon William

Rodgers, Sir John (Sevenoaks)

Stewart, Ian (Hitchin)

Wiggin Jerry

Ross, Stephen (Isle of Wight)

Stokes, John

Wigley, Dafydd

Rossi, Hugh (Hornsey)

Tapsell, Peter

Wilson, Gordon (Dundee E)

Rost, Peter (SE Derbyshire)

Taylor, R. (Croydon NW)

Winterton, Nicholas

Royle, Sir Anthony

Taylor, Teddy (Cathcart)

Wood,Rt Hon Richard

Sainsbury, Tim

Tebbit, Norman

Young, Sir G. (Ealing, Acton)

St. John-Staves, Norman

Temple-Morris, Peter

Younger, Hon George

Scott, Nicholas

Thatcher, Rt Hon Margaret

Shaw, Giles (Pudsey)

Thomas, Dafydd (Merioneth)

TELLERS FOR THE AYES:

Sheldon, William (Streatham)

Thomas, Rt Hon P. (Hendon S)

Shepherd, Colin

Thompson, George

Mr. Spencer Le Marchant and

Silvester, Fred

Thorpe, Rt Hon Jeremy (N Devon)

Mr. Michael Roberts.

Sims, Roger

Townsend, Cyril D.

NOES

Abse, Leo

Davies, Bryan (Enfield N)

Hughes, Roy (Newport)

Allaun, Frank

Davies, Denzil (Llanelli)

Hunter, Adam

Anderson, Donald

Davies, Ifor (Gower)

Irvine, Rt Hon Sir A. (Edge Hill)

Archer, Peter

Davis, Clinton (Hackney C)

Irving, Rt Hon S. (Dartford)

Armstrong, Ernest

Deakins, Eric

Jackson, Colin (Brighouse)

Ashley, Jack

Dean, Joseph (Leeds West)

Jackson, Miss Margaret (Lincoln)

Ashton, Joe

Dell, Rt Hon Edmund

Janner, Greville

Atkins, Ronald (Preston N)

Dempsey, James

Jay, Rt Hon Douglas

Atkinson, Norman

Doig, Peter

Jeger, Mrs Lena

Barnett, Guy (Greenwich)

Dormand, J. D.

Jenkins, Hugh (Putney)

Barnett, Rt Hon Joel (Heywood)

Douglas-Mann, Bruce

John, Brynmor

Bates, Alf

Duffy, A. E. P.

Johnson, James (Hull West)

Bean, R. E.

Dunnett, Jack

Johnson, Walter (Derby S)

Bann, Rt Hon Anthony Wedgwood

Eddie, Alex

Jones, Alec (Rhondda)

Bennett, Andrew (Stockport N)

Edge, Geoff

Jones, Barry (East Flint)

Bidwell, Sydney

Ellis, John (Brigg & Scun)

Jones, Dan (Burnley)

Bishop, E. S.

English, Michael

Judd, Frank

Blenkinsop, Arthur

Ennals, David

Kaufman, Gerald

Boardman, H.

Evans, Fred (Caerphilly)

Kelley, Richard

Booth, Rt Hon Albert

Evans, Ioan (Aberdare)

Kerr, Russell

Boothroyd, Miss Betty

Ewing, Harry (Stirling)

Kilroy-Silk, Robert

Bottomley, Rt Hon Arthur

Fernyhough, Rt Hon E.

Kinnock, Nell

Boyden, James (Bish Auck)

Fitch, Alan (Wigan)

Lamble, David

Bradley, Tom

Flannery, Martin

Lamborn, Harry

Bray, Dr Jeremy

Fletcher, Ted (Darlington)

Lamond, James

Brown, Hugh D. (Proven)

Foot, Rt Hon Michael

Latham, Arthur (Paddington)

Brown, Robert C. (Newcastle W)

Ford, Ben

Lee, John

Buchan, Norman

Forrester, John

Lestor, Miss Joan (Eton & Slough)

Buchanan, Richard

Fowler, Gerald (The Wrekin)

Lever, Rt Hon Harold

Butler, Mrs Joyce (Wood Green)

Fraser, John (Lambeth, N'w'd)

Lewis, Ron (Carlisle)

Callaghan, Rt Hon J. (Cardiff SE)

Freeson, Reginald

Lipton, Marcus

Callaghan, Jim (Middleton & P)

Garrett, John (Norwich S)

Litterick, Tom

Campbell, Ian

Garrett, W. E. (Wallsend)

Lomas, Kenneth

Canavan, Dennis

George, Bruce

Leyden, Eddie

Cant, R. B.

Gilbert, Dr John

Luard, Evan

Carmichael, Nell

Ginsburg, David

Lyon, Alexander (York)

Carter, Ray

Golding, John

Lyons, Edward (Bradford W)

Carter-Jones, Lewis

Gould, Bryan

Mabon, Rt Hon Dr J. Dickson

Cartwright, John

Gourlay, Harry

McCartney, Hugh

Castle, Rt Hon Barbara

Graham, Ted

McDonald, Dr Oonagh

Clemitson, Ivor

Grant, George (Morpeth)

McElhone, Frank

Cocks, Rt Hon Michael

Grant, John (Islington C)

McGuire, Michael (Ince)

Cohen, Stanley

Grocott, Bruce

MacKenzie, Gregor

Coleman, Donald

Harper, Joseph

Mackintosh, John P.

Colquhoun, Ms Maureen

Harrison, Walter (Wakefield)

Maclennan, Robert

Concannon, J. D.

Hart, Rt Hon Judith

McMillan, Tom (Glasgow C)

Cook, Robin F. (Edin C)

Hattersley, Rt Hon Roy

McNamara, Kevin

Corbett, Robin

Hayman, Mrs Helene

Madden, Max

Cox, Thomas (Tooting)

Healey, Rt Hon Denis

Magee, Bryan

Craigen, Jim (Maryhill)

Heffer, Eric S.

Mahon, Simon

Crawshaw, Richard

Harem, John

Mallalieu, J. P. W.

Cronin, John

Howell, Rt Hon Denis (B'ham, Sm H)

Marks, Kenneth

Crowther, Stan (Rotherham)

Hoyle, Doug (Nelson)

Marquand, David

Cryer, Bob

Huckfield, Les

Marshall, Dr Edmund (Goole)

Cunningham, G. (Islington S)

Hughes, Rt Hon C. (Anglesey)

Marshall, Jim (Leicester S)

Davidson, Arthur

Hughes, Robert (Aberdeen N)

Maynard, Miss Joan

754

755

Meacher, Michael

Roberts, Gwilyan (ob/)

Thorne, Stan (Preston South)

Mellish, Rt Hon Robert

Robinson, Geoffrey

Tierney, Sydney

Mendelson, John

Roderick, Caerwyn

Tinn, James

Mikardo, Ian

Rodgers, George (Chorley)

Tomlinson, John

Millan, Rt Hon Bruce

Rodgers, Rt Hon William (Stockton)

Tomney, Frank

Miller, Mrs Millie (Ilford N)

Rooker, J. W.

Torney, Tom

Molloy, William

Rose, Paul B.

Tuck, Raphael

Moonman, Eric

Rose, Rt Hon W. (Kilmarnock)

Urwin, T. W.

Morris, Alfred (Wythenshawe)

Rowlands, Ted

Varley, Rt Hon Erie G.

Morris, Charles R. (Openshaw)

Sandelson, Neville

Wainwright, Edwin (Dearne V)

Morris, Rt Hon J. (Aberavon)

Sedgemore, Brian

Walden, Brian (B'ham, L'dyw'd)

Moyle, Roland

Selby, Harry

Walker, Harold (Doncaster)

Mulley, Rt Hon Frederick

Shaw, Arnold (Ilford South)

Walker, Terry (Kingswood)

Murray, Rt Hon Ronald King

Sheldon, Rt Hon Robert

Ward, Michael

Newens, Stanley

Shore, Rt Hon Peter

Watkins, David

Noble, Mike

Short, Mrs Renée (Wolv NE)

Weetch, Ken

Oakes, Gordon

Silkin, Rt Hon John (Deptford)

Weitzman, David

Ogden, Eric

Silkin, Rt Hon S. C. (Dulwich)

Wellbeloved, James

O'Halloran, Michael

Silverman, Julius

White, James (Pollok)

Orme, Rt Hon Stanley

Skinner, Dennis

Whitlock, William

Ovenden, John

Small, William

Willey, Rt Hon Frederick

Owen, Rt Hon Dr David

Smith, John (N Lanarkshire)

Williams, Rt Hon Alan (Swansea W)

Padley, Walter

Snape, Peter

Williams, Rt Hon Shirley (Hertford)

Park, George

Spearing, Nigel

Williams, Sir Thomas (Warrington)

Parker, John

Spriggs, Leslie

Wilson, Alexander (Hamilton)

Parry, Robert

Staliard, A. W.

Wilson, Rt Hon Sir Harold (Huyton)

Pavitt, Laurie

Stewart, Rt Hon M. (Fulham)

Wilson, William (Coventry SE)

Pendry, Tom

Stoddart, David

Wise, Mrs Audrey

Perry, Ernest

Stott, Roger

Woodall, Alec

Phipps, Dr Colin

Strauss, Rt Hon G. R.

Woof, Robert

Prentice, Rt Hon Reg

Summerskill, Hon Dr Shirley

Wrigglesworth, Ian

Price, William (Rugby)

Swain, Thomas

Young, David (Bolton E)

Radice, Giles

Taylor, Mrs Ann (Bolton W)

Rees, Rt Hon Merlyn (Leeds S)

Thomas, Jeffrey (Abertillery)

TELLERS FOR THE NOES:

Richardson, Miss Jo

Thomas, Mike (Newcastle E)

Mr. James Hamilton and

Roberts, Albert (Normanton)

Thomas, Ron (Bristol NW)

Mr. Frank R. White.

Question accordingly negatived.

EUROPEAN COMMUNITY (EXPORT CREDITS)
10.17 p.m.
The Under-Secretary of State for Trade (Mr. Michael Meacher)The Under-Secretary of State for Trade (Mr. Michael Meacher) rose—
Mr. Speaker: Order. Would hon. Members who are leaving the Chamber please do so quietly?
Mr. Meacher: I beg to move,
That this House takes note of Commission Documents Nos. S/752/76 and 1/427/76 on Export Credits.
With regard to the two documents before the House tonight, I propose to deal first with Document 1/427/76, which contains the Commission's proposal for the Community to apply, on an experimental basis until 30th June 1977, certain guidelines for Government-supported export credits to third countries. Those guidelines are set out in the Annex to the draft Decision and relate to minimum pre-delivery payments, minimum interest rates and maximum lengths of credit.
The main effects are to set minimum pre-delivery payments of 15 per cent. of the contract value for sales to all markets, to raise the minimum interest rate for credits of two to five years, inclusive, to 7¼ per cent. per annum except for sales to wealthier markets where the minimum rate will be 7¾ per cent., and to set maximum lengths of credit varying between five and 10 years according to the relative financial strength of markets, whilst maintaining minimum interest rates on credits exceeding five years at, or above, the existing internationally-agreed levels. Certain classes of goods which are the subject of existing arrangements are excluded.
The Commission's proposal needs to be set in its wider international context. For many years the major exporting countries have expressed their attachment to the principle of avoiding self-defeating export credit competition. But despite these expressions of general principle, at the operational levels progress towards greater uniformity of the terms of export credit has been very slow. In the Berne Union, the OECD, and the EEC, there are procedures for prior consultation or notification in certain cases, and there
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are understandings about the appropriate maximum terms for a few particular categories of goods. But for the most part these arrangements are confined to broad understandings about the length of credit.
In the middle of last year, seven countries, including the United Kingdom—the number has since increased to nine—agreed to respect the guidelines which the Commission has now put forward for endorsement by the Community as a whole. Members will recall the United Kingdom decision announced to the House by the Secretary of State for Trade on 15th June 1976 as reported at col. 124–125 of Hansard. The effect of the Commission proposal would be that all the countries of the Community would apply the guidelines, to which the Community as a whole would subscribe.
These guidelines may be regarded as a modest step, but it should be recognised that they go a good deal further than the previous arrangements, in that they cover length of credit, interest rates, pre-delivery payments and even to some extent credit mixte facilities. Because of this they have been introduced experimentally until 30th June 1977. They have no legal force, and individual countries have complete rights to derogate or withdraw altogether.
As experience is gained of the application of the guidelines, and particularly if they are successful, as in practice they appear to be so far, we would expect an attempt to be made to make them firmer, and to encourage more countries to join in, as well as building on them in various ways. The key to further progress lies to some considerable extent in a Community endorsement of the guidelines.
There have been difficulties here arising over problems of Community competence, in particular the extent to which the individual powers of particular member States would be subjected to Community disciplines, for example to derogate or withdraw, but there are grounds for hope that a satisfactory compromise will still be reached shortly between the Commission and the member States on these issues, and endorsement of the proposal by the Community is now in early prospect. The Government welcome this prospect so that further steps along this road can be taken.
Mr. Tim Renton: Am I right in understanding that even if the Ministers of Finance agree with these proposals on 14th March there will still be an absolute right for any member of the Community not to apply these guidelines to its own export credit systems?
Mr. Meacher: Of course individual member States will retain the right to make their own credit agreements with third countries. Indeed, the Commission does not have the power, the facilities or the funds for this purpose. Member States will be expected—and indeed required—to adhere to the guidelines unless they specifically make their own individual arrangements, in which case, if they were not in accordance with the guidelines, they would be expected to seek a derogation. Whether a derogation would be agreed is another matter, but it would be within the sovereignty of individual States to make their own arrangements if they chose to do so and to face the consequences.
I turn now to cost escalation cover, which is referred to in S/752/76. Our attitude on this is, of course, governed by our general policy of supporting action through international agreement to restrain excessive competition by Governments to promote their exports, which I have already explained. We have already said that we are willing to take part in international discussions on the subject of cost escalation schemes and of other schemes similar in their effect. That continues to be our position, and we are currently participating in a study of the subject by a working party of GATT. If such discussions were to show a possibility of international agreement to ban or limit such schemes, we should play a positive and constructive part in efforts to reach such an agreement, provided, of course, that it took adequate account of our own legitimate national interests.
I must point out, however, that we did not develop the idea or practice of cost escalation cover. Others, notably the French and the Finns, had been practitioners of this art for many years before we introduced this temporary scheme. Hon. Members will recall the very serious problems, arising from the very high rate of cost inflation that was affecting United Kingdom exporters, which led to our decision to establish a scheme early in 1975.
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The scope of the scheme was limited, so that it applied only to a relatively small part of our export trade where the problems of cost inflation were most severe, and the scheme was deliberately presented to Parliament as a temporary measure, initially for a duration of two years only. I think this made it quite clear that we regarded cost escalation cover as something in the nature of emergency first aid and certainly did not decide to make it a normal and permanent feature of our support for exports.
Judged by these modest objectives, we may fairly claim that the scheme has been a success. Certainly, this has been the view reflected by the number of representations we have received from industry that it should be extended for at least a further year. To date six guarantees have been given by ECGD and, in support of ship exports, a further six by the Department of Industry. In addition many offers of cover have been made and a further £500 million of export business has been won with the support of those two schemes.
The ECGD scheme as such has given the heavy end of our export industry an essential measure of reassurance in respect of the effects of exceptional and unpredictable inflation on its costs. Many exporters have acknowledged the help which they have received from the availability of this insurance. It has been of particular importance during a difficult economic period when overseas buyers and governments, in OPEC markets and elsewhere, have increasingly insisted upon completely fixed prices, leaving the exporters themselves to bear the risk of exceptional inflationary cost increases.
In the event some exporters who have won contracts on the basis of ECGD's support have decided to go it alone in bearing these risks, as they are entitled to do since cover is optional. But in the absence of the safety net which the scheme represents many, I feel sure, would have been unwilling or unable to go after the business in the first place. That is the key point.
Because of its limited nature, we do not believe that our scheme distorts competition in international trade generally. As I have pointed out, it applies to only a very small proportion of our exports, and the terms on which it is given merely

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go some way to correcting an inequality in conditions arising from the exceptionally high rates of United Kingdom inflation over the past few years, which are a serious impediment to the efforts of our companies to win major contracts abroad.
Furthermore, though predicting the future in this area is a dangerous thing to do, on presently predicted rates of inflation any future cover under the scheme stands a good chance of breaking even financially.
However, as I have said, industry places a substantial value on the insurance against unpredictable contingences it obtains from the scheme, and has strongly urged that it should continue. The Government therefore decided to seek the House's approval to an extension of the scheme for a further 12 months from 26th March, the expiry date of ECGD's present statutory power to operate it.
The necessary draft order has been considered in Committee and will be made shortly. Although some exporters have pressed us strongly to make costly improvements in the terms on which cover is made available, I am afraid there can be no question of our doing so. We need to keep a very firm control on all aspects of public expenditure. Nor do we wish to get into a new area of subsidising exports. This, incidentally, is the answer to any suggestion that we should emulate the more favourable terms of the French scheme.
The decision to continue the scheme for another year on its present terms does not alter anything I have said about its essentially temporary nature, or about our willingness to discuss arrangements for such schemes internationally. In our opinion the most suitable forum for this is the GATT, where a study has already begun. That is because we believe that cost escalation cover is only one method by which Governments can give support to their export industries to help them with the special difficulties they experience in times of high inflation, and we think it necessary and only fair that an international study should take account of other possible methods that may be used by Governments who do not themselves provide cost escalation cover.
As regards the draft directive from the EEC Commission that we are debating
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tonight, we sympathise with the Commission's attempt to secure a uniform Community position, which we agree is desirable if we are to participate most effectively in wider international discussions. We shall certainly play our full part in attempts to achieve that position. Essentially, however, and I say this with care, this is something that can be effectively pursued only in an arena wider than that of the Community.
There are important exporting nations outside the Community that have a legitimate interest, and are important competitors of which we must take account. We think, therefore, that it would be premature and tactically unwise for the Community to tie the hands of its own members by laying down detailed rules for the harmonisation of cost escalation schemes, with a view to their eventual phasing out, before the wider international study has taken place. This is the line that we have so far taken in the Community when discussing the Commission proposal, and the one we propose to continue to take in future.
Mr. Douglas Jay: Could my hon. Friend make slightly clearer the Government's attitude on the cost escalation scheme? In his own explanatory memorandum the EEC proposals are described as
"a proposed Council directive on the abolition of the cost escalation guarantee schemes for exports to third countries".
Do I understand him to say that until the wider international discussions, which seem to me clearly necessary, have reached some agreement the Government will not agree to the abolition of our cost escalation scheme?
Mr. Meacher: Our view is that it would be unwise for the Community to seek to bind the member States in a system for winding down and ultimately phasing out cost escalation cover before the international studies have had time to reach fruition. That remains our position, but we must take account of the situation in a year's time. This is an extension for a year. That is the maximum for which we can extend the cover at any one period. The situation in Britain may be different in a year's time. We are opposed to the phasing out of cost escalation cover until the international studies have been completed. That will remain our position.
10.32 p.m.
Mr. Cecil Parkinson: As the Minister pointed out, the two EEC documents before us have a similar purpose, namely, to impose on member States a tighter discipline concerning export credits.
A decision by the European Court made it clear some time ago that export credit terms were a matter for the Commission rather than for member Governments to decide. Needless to say, this is not accepted by all the member countries. The French Government in particular are reluctant to accept this finding. That reluctance may explain why draft proposal S/752/76, which should have come into effect on 1st April 1976, is still only a draft proposal.
The proposal seeks to phase out the cost escalation schemes operated by the French and ourselves and previously by the Italians. There is no doubt that these schemes are extremely unpopular with major trading nations which do not have them and do not operate them. The Commission proposes in the document that the schemes should be phased out within two years.
A GATT working party is examining such schemes, and it will be a surprise to everyone if it does not produce an adverse report on cost escalation schemes. Nevertheless, British exporters like the scheme, and, as the CBI made clear in its evidence to the Select Committee on European Secondary Legislation, &c., would like to retain it. In evidence to the Select Committee, the CBI spokesman said:
"We think that the scheme is of significant value to exporters and should be retained."
Later he said:
"It is a fact that escalation in this country through no control of the exporters is twice as high as it is in Germany."
When the scheme was proposed, British exporters were facing a serious situation. We had a record rate of inflation, the pound was falling dramatically, and it was obvious that British exporters were at considerable disadvantage against exporters from other countries which had more stable currencies and were not suffering our rate of inflation. Although the pound appears to have stabilised, it would be a brave man who would claim that inflation is under control or that it will be so in the near future. The truth is
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that if there were a need for such schemes, that need still exists.
On behalf of the Opposition, I welcome the fact that yesterday the scheme was extended by the House for a further year. When the scheme was introduced by the Government, its scope was restricted and it was confined to a strictly limited portion of our export trade where the problems of cost inflation were most acute.
The scheme has not been widely used. It was a great surprise to find that, after the scheme had been in existence for over a year, only two contracts had been guaranteed under it. But in recent months, however, interest in the scheme has been growing. A large number of inquiries are being received and more and more business is being written. There is no doubt that in a number of major cases the scheme has proved to be of significant value to exporters. As the Minister said, it was never intended to be a normal or permanent feature of the Government's export services. It was always intended to be an emergency measure, and it would be far better for British exporters, if our economic conditions were to stabilise, if we did not need such a scheme.
The scheme can be expensive. Recent estimates suggest that the French scheme could be costing up to £200 million a year. It is not a scheme which one undertakes lightly or which one would want to see being used very widely. If it was being used widely, we would be suffering a high rate of inflation and the cost would be considerable.
This is an occasion when the House can please everyone. The EEC can be reassured that the spirit of the draft proposal is acceptable, and GATT can be reassured by the fact that we are playing an active part in examining the whole question of cost escalation schemes. Meanwhile British exporters will have the cost escalation scheme into the foreseeable future, so that our intentions are beyond reproach and our exporters are receiving the help that they feel they need. On this occasion we are pleasing everybody. We are pleasing GATT and the EEC, and, not least important, the interests of the British exporter will continue to be protected.
The other draft proposal, I/427/76, is much less contentious. Obviously it is

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sensible for the world's trading nations not to become involved in a full-scale export credit war. The document sets out guidelines covering minimum rates of interest, minimum down payments and minimum credit periods, which, I suggest, are acceptable and, indeed, in the interests of all the world's trading nations to accept. I welcome the fact that the Government have accepted the spirit of the proposals and their implementation, and we support them in that desire.
The ECGD is determined to make sure that British exporters have available to them the full range of credit facilities and supports that are available to our trading rivals. We welcome that determination and we support the ECGD in it.
10.40 p.m.
Mr. Tim Renton: This is the second time today that I have had the pleasure of listening to the Under-Secretary of State, once outside the Chamber and now in it, and I am pleased to hear that he is still in such good voice and so fluent.
It is interesting that the EEC claimed as long ago as 1973 that export credit lay within its competence. My hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) reminded us that, because of disagreement, notably by France, as to whether the EEC's position was justifiable, one of the documents which we are taking note of tonight which should have come into implementation some months ago has not yet done so. In fact, I believe that the first EEC document on export credit, Document S/678/73, never became a regulation. It stayed a proposal, and one of the reasons for that, as my hon. Friend said, was that France disputed whether this lay within the competence of the EEC.
The EEC Finance Ministers are to meet on 14th March, and I understand that it is up to them then to decide whether they agree with the guidelines in the document before us. I was not entirely clear from the Under-Secretary's reply to me whether, if the Finance Ministers did agree to follow these guidelines, there would still remain a total right of any member of the Community to opt out of the system. Yesterday, the Financial Times referred to the meeting of the Finance Ministers on 14th March, and I understood from the article that if The Ministers do agree
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it will then become accepted that export credits are the exclusive preserve of the Commission. On that basis the Commission would drop the case that it was threatening against those countries, ourselves included, which signed the gentlemen's agreement on export credit guidelines last year. Perhaps the hon. Gentleman will enlarge on that in his reply.
We are presented tonight with the two EEC proposals, one which is basically in Britain's interest and the other, on the cost escalation scheme, which is potentially against Britain's interest. Doubtless, this is an example of which we have to learn from the Community. If the Community is to grow in competence and authority, there will have to be give and take by the member nations. While fighting legitimately to protect their national interests, at some stage in the bargaining member nations have to remember that the Community interest may be greater or in the long run more important to themselves than a particular self-interest which they are striving at the time to protect. No doubt we ourselves will experience this dichotomy of interest when we come to the revision of the common agricultural policy. I think that we see it also in the documents before us now.
I welcome the idea of the Commission being involved in export credit guidelines but I see in these two documents a strong, diversity of interest between different members of the Community. As my hon. Friend said, we can welcome Document I/427 with very little reservation. Clearly, it is to everyone's benefit that there should be standardisation of terms in export credit, and especially in negotiations with the less developed countries such standardisation should be of assistance.
I put to the Minister two points on that document. First, there are no sanctions proposed in it. I understand that the gentleman's agreement signed at the Puerto Rico summit last year is being abided by at present, although there are from time to time claims that France, in particular, is not sticking quite as closely to it as she should. I wonder what will happen when there is a very large export contract for which three or four member States of the Community, or States which signed the Puerto Rico gentleman's agreement last year, are competing. What will

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happen to the guidelines then? Does the Minister really think that they will stick when there is a large reward in prospect for which two industrialised exporting nations are competing? We must be willing to be as flexible as any other Government in interpreting these guidelines.
In saying that, I am aware than Spain, for example, is becoming more active in the export field, and is now beginning to take a leading part in the export of nuclear equipment. There is increased competition in manufactured exports from such countries as South Korea and India. We must not lull ourselves into an atmosphere of believing that all competition in export credit has ceased because the guidelines have been accepted, especially when one sees competition arising from such potential competitors as I have just mentioned.
The guidelines are less important to us now than in the past. This arises from the Chancellor's decision, as part of the IMF loan agreement in December, that the greater part of long-term export loans from this county should be financed in dollars rather than sterling. This means that we are now less concerned about the period of time in which we receive payment for our exports, because we are receiving payment in dollars and not in sterling. Essentially, as a nation we are going on to the Eurodollar market in order to borrow the money that we need to finance our export credits, and we are now less concerned about receiving depreciated currency in the years to come than we were when we worried about depreciated sterling being paid back.
We have to use dollars rather than sterling as a condition of the IMF loan, but this makes things harder for our exporters because they have to persuade overseas customers to borrow dollars from them rather than sterling. I would be sorry if, as result of the guidelines, a lot of restrictions were put upon exporters just at a time when, as we are all agreed, we need to increase exports in order to build up a better international base.
As to the second document which foreshadows the withdrawal of the cost escalation scheme, I have considerable reservations. I was pleased to hear the Minister say that, although we are taking note of
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the document tonight, that does not mean that we are accepting it. The Minister said that the Government are awaiting the results of a wider international study before agreeing to the definite withdrawal of the cost escalation scheme. That is right, because our need for the scheme, when we have as high a rate of inflation as we have now in comparison with, for example, Germany, is much greater than that of German or Dutch manufacturers.
The problem is not only the high rate of inflation but uncertainty among manufacturers as to what the future rate of inflation will be. It cannot be said that they receive good guidance from the Government. The Government proclaimed a rate of inflation of 8·4 per cent. a short time ago, and we later found that the rate was about double that figure. If the Government can so mislead themselves, what about the poor British manufacturers!
If we were to abolish the cost escalation scheme in the near future, that could put some of our major manufacturers—who are now, as my hon. Friend the Member for Hertfordshire, South said, going in for larger tenders—under a serious disadvantage and could provide a disincentive for them to try for some of this business.
We have heard that comparatively few contracts have been accepted for the cost escalation scheme. Can the Minister tell us how many tenders are out from this country internationally into which ECGD cost inflation guarantees have been written? That would foreshadow the degree to which the scheme will be used by British manufacturers in the months ahead.
I heard the Under-Secretary speak earlier today at a world development meeting and he elucidated the detailed technical objections to a common fund. However, he left the door ajar on the question of a common fund as one of the options to be studied at a conference in Geneva next week He was right to do that. Whatever the technical objections, a common fund must be one of the possibilities to be considered in the attempts to achieve commodity stabilisation.
Much will depend on the attitude of the new American Administration. If we are to have a common fund, it will be necessary for the consumer countries to

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encourage the exploration for and development of non-fuel mineral deposits in the less developed parts of the world. Let us take copper as an example. If there is a stabilisation agreement, it is likely to lead to higher prices. To keep the matter in balance, we as a consumer must seek to aid the European mining companies in their search for more copper.
Can the Minister give us any information on the political risk guarantee scheme which is under discussion between the European mining industry and the Commission? The implementation of the scheme is important if we are not to have a shortage of non-fuel minerals in 10 years' time. I hope that the Government are using their influence with the Commission to speed up consideration of such a scheme. The guarantees proposed would cover the situation in which a mining company's interests were damaged by unilateral action by the host Government in defiance of their original undertakings in the agreement.
This is a potential part of the Community's involvement in export credit, and consideration of such a scheme brings me back to the duality of interests and possible conflict between national and Community interests. In this case I do not think that there is any conflict. Such a scheme would be of great benefit to Britain, because we have a greater concentration of technical mining skills and expertise than any other EEC country, and to the Community, which is so dependent on third countries for imports of non-fuel minerals.
10.53 p.m.
Mr. Douglas Jay: I wish to ask one question arising from Document 1/427. On the one hand we have a general agreement between a number of countries, some of which are outside the Community. On the other hand we have the Community proposals for general guidelines which would to some extent limit the freedom of this country in export credits. As our freedom is limited by the Community guidelines, will other major exporting nations outside the EEC be similarly affected?
Surely, the situation that we do not wish to arise is the one in which in shipbuilding, for instance, Japan is able to offer
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much more favourable export credit terms than ourselves. I am sure that that is not my hon. Friend's intention, but will he make quite clear what our relations will be with countries outside the EEC if we observe the EEC guidelines?
10.56 p.m.
Mr. Meacher: I am grateful for the remarks of my right hon. Friend the Member for Battersea, North (Mr. Jay) and Opposition Members on these two draft directives. It is not often in our debates that there is such real and genuine unanimity and, indeed, welcome for such proposals. I am glad that in this case there is such wide acceptance. A number of points have been made and I shall try briefly to reply to them.
The hon. Member for Hertfordshire, South (Mr. Parkinson) referred first to cost escalation cover. He said that the French traditionally have tended to reserve the idea of independence in respect of export credits. That is perfectly true, or at least it has been true up to now. However, in the past week or two the French, prior to the meeting of Finance Ministers on 14th March, seem to have shown signs of having accepted the inevitability of a common position on export credits. I do not wish to prejudge the ultimate position that they take up—certainly their officials have been careful not to disclose too much—but there seem to be signs that they will accept a common line on 14th March.
The hon. Gentleman referred to the opinion of the European Court in November 1975 when it found in favour of the Commission. It found that the Commission had exclusive competence to conclude an agreement on OECD local cost standards. This is relevant to the question of whether Articles 113 and 114 of the Treaty apply to export credits. Those articles are concerned with the harmonisation of export aids. The Commission has started proceedings against four member States that were signatories to the consensus of July 1976 as being in breach of Article 113 on the ground that the Community has full competence in the matter.
The Commission has also put proposals to the Council under Article 113 requiring the phasing out of cost escalation insurance. That is what we are examining

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tonight. We hope that if the draft decision is accepted the Commission may see fit to drop these infraction proceedings.
The hon. Gentleman was right to insist that industry sees great value in this scheme. As the hon. Member for Mid-Sussex (Mr. Renton) rightly said, even if the rate of inflation were significantly to drop it has a value for industry that we should take properly into account. It is not exclusively to be seen as a relief to high rates of inflation. I am talking about manufacturers of goods with long production periods—for example, aircraft, ships, power plants, telecommunications, computers and items of that kind with a period of construction that could be five years or more. That is where I believe that a scheme of this kind continues to have an extremely import fallback value. The hon. Gentleman was right when he drew attention to the valuable part that this scheme has played in the winning of business.
I was asked what was the extent of tenders at present involving cost escalation cover. At present, live applications total £2·6 billion worth of business. Of these, there are likely to be five further issues of guarantees. There are also 15 cases where exporters secured the business with cost escalation support but decided in the event to dispense with cover. Therefore, it has a significant role.
Our aim is to get the rate of inflation down. The Treasury forecast, when the Chancellor made his statement in December, was of 15 per cent. inflation year on year at the end of 1977, but such has been the improvement in the situation as a result of the Chancellor's measures and, of course, of the stability of sterling that we hope to improve on that performance. I repeat, our aim is to bring down the rate of inflation. That will do more than anything else to restore confidence to our exporters and assist them further in winning extra business.
I can only emphasise my agreement with what has been said by saying that, as our fundamental aim, we should support any measures which can end self-defeating export credit competition. I am sure that that is right, and that is our policy. It is consistent with what I have said about one of these measures.
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The hon. Member for Mid-Sussex referred to French resistance to previous Commission proposals. Indeed, he quoted a particular directive which was not implemented because of French resistance. The French now show signs of accepting a common line on this matter.
The hon. Gentleman asked whether, if the guidelines were agreed at the meeting of Finance Ministers on 14th March, individual member States could opt out. I thought that I had made the position clear. I am certainly seeking to do so in my reply. Member States will be expected, as under the existing consensus—the so-called Washington Agreement—to keep to the terms of the Commission proposal. But we still have a right to seek a derogation. The only point is whether, if we seek a derogation, it is likely to be acceptable to the other member States. Indeed, if one of our competitors were to seek a major credit agreement involving a significant derogation from the guidelines, I am sure that we would be greatly concerned.
Mr. Tim Renton: I am probably being very obtuse. If we sought a derogation, would we still run the risk of a European Court of Justice ruling against us? In 1975 it ruled that export credits were the exclusive preserve of the Commission. Does that ruling mean that a member State has no right to seek a derogation?
Mr. Meacher: No. Member States have the right to seek a derogation. As member States retain exclusive control over the making of new credit agreements, they would be able to insert terms which involve a derogation from the Commission proposal as stated here. However, it is not to be assumed, nor is it desirable, that that should be regarded as other than wholly exceptional.
I say that to make it clear that in our view this does not involve a loss or transfer of sovereignty. The adoption of this decision may be interpreted by some as a concession of competence to the EEC over a wide area of export credit policy, but it would be more proper to regard it as no more than the application of the terms of the European Court opinion to a reasonable proposition from the Commission.

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The hon. Member then asked me whether, if there were a large contract which was likely to form a lucrative competition for a number of relevant countries, the guidelines would be expected to stick. I certainly hope that they will. The evidence is that up to now they have done so. On the question of whether the French have sought some shift from this in the interests of the provision of credit mixte facilities, they may have done so in some cases but that has always been the case. Equally, however, we shall still be able to match officially-supported competition from any country on terms more generous than the guidelines. We could match such tactics in the relatively exceptional cases where this happens.
Any country offering longer or cheaper credit will know that others will be able to match those terms. That is the disadvantage of seeking to deviate from the guidelines. Matching will be considered for terms offered both by countries which have adopted the consensus and by those outside the consensus. There is a greater realisation that increased competition on export credit terms is self-defeating in anything but the short run. In fact, its benefits assist only overseas buyers. To that extent, therefore, I would not anticipate any major deviations.
The hon. Member also referred to the growing presence of new exporting countries like Korea and Brazil. What he said is true, but if this proposal were accepted we should expect that to be the basis for an extension of the coverage of the scheme to include other countries—which are sometimes called the super-competitive, so-called developing countries—the intermediate group which are industrialising fast and providing extremely competitive goods to this and other European countries. Certainly I would see us making efforts through the existing channels to extend its scope.
The hon. Member then asked about cost escalation cover. It is true, as he said, that the industry needs long-term assurances, but this is being extended for one year only, because that is the maximum that is possible at any one time.
The hon. Gentleman asked whether I could assist in speeding up the political risk guarantee scheme in respect of the mining industry within the EEC. I am
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well aware of the problem of non-fuel minerals and the present problems of mining companies in many developing countries. We provide investment insurance cover ourselves at present through ECGD. That should go some way towards providing the sort of cover that the hon. Gentleman wanted. As he must have expected, I cannot give him an immediate answer to his specific question, but I shall certainly write to him about it.
My right hon. Friend the Member for Battersea, North asked how far other countries outside the Community were involved, and whether, by agreeing to the guidelines, we would be putting ourselves at a disadvantage relatively to third countries outside the Community. I do not think that that is the case, partly because there were originally seven signatories to the consensus. That number was later extended to nine. Four of these countries were inside the Community, while those outside included the most important economically—the United States and Japan. Therefore, by adhering to the Commission's proposals, we are ensuring that the smaller countries within the Community, such as Holland and Belgium, will be required to adhere to the guidelines where previously that was not the case, while outside the Community major competitors will still be constrained by the July 1976 consensus.
Mr. Jay: One can assume, therefore, that the guidelines in the two different agreements are substantially the same.
Mr. Meacher: They are identical. The Commission proposes an extension to the other States of the Community, besides the four which have signed the consensus, of exactly the same conditions as laid down in the wider agreement.
I hope that I have answered the points raised in the debate. I am glad that these proposals have met with the approval of both sides of the House. I am sure that they will be in the best interests of our own industry.
Question put and agreed to.
Resolved.
That this House takes note of Commission Documents Nos. S/752/76 and 1/427/76 on Export Credits.

SUB-POST OFFICE (TOTTERIDGE)
Motion made, and Question proposed, That this House do now adjourn—[Mrs. Ann Taylor.]
11.11 p.m.
Mr. Reginald Maudling: It has been a long time since I raised a matter on the Adjournment—at least a quarter of a century, if not more. But the matter I raise tonight, although it may seem of relatively small importance, is worthy of the consideration of the House, first, because it concerns deeply a large number of my constituents and, secondly, because it raises a matter of principle of considerable importance.
On the resignation of the previous sub-postmistress the Post Office decided to close down the Totteridge Lane sub-post office and not appoint a successor. There was great concern in the neighbourhood, especially among elderly pensioners who had been drawing their pensions from the sub-post office.
A deputation went to see the Post Office, led by Lord Brockway, and very persuasive it was, because afterwards the Post Office decided to reopen the sub-post office. I have a letter from the managing director saying that it had decided that there were good grounds for retaining it, notwithstanding the proximity of the Whetstone branch post office. He gave four reasons why it should be retained, and I agree with them.
This decision was greeted with great satisfaction in the district. It was what the public wanted. The Post Office, a nationalised industry, had decided to do what the public wanted. But then a new story spread around that it was not to be retained after all, because of opposition from the trade union concerned. This has given rise to considerable worry, and it is the point of principle to which I want to refer.
The Post Office has told me and the local council:
"Although we now consider that the office should re-open, it has not yet been possible to convince the National Headquarters of the Union of the strength of our case."
But the strength of the Post Office's case is surely the job it is there to do. The letter went on:
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"Consultation has continued at a high level, but I must not mislead you into thinking that this is a simple point to resolve. I should mention that the co-operation of our regular staff is essential since they are responsible for supplying the sub-post offices with cash and stocks."
In other words, the Post Office representative was saying that although the Post Office thought the office should be re-opened it could not do so without the permission of the trade union concerned. That has given rise to very considerable concern among my constituents.
There is no doubt that if this sub-post office is not allowed to reopen considerable hardship will be caused, particularly to elderly people, who will have to walk a long way up a very steep hill to collect their pensions and allowances. It is no good their being told that they can send an agent to do it for them. Pensioners do not want to send agents to collect their pensions. They want to collect it themselves. They feel a sense of pride and a sense of privacy.
In some cases, as with fuel allowances, it is not possible for an agent to operate on behalf of the pensioner. Concern has arisen recently because some pensioners in my constituency have been told that they must transfer their books, whether they want to or not, from this sub-post office to the other one a long way up the hill. They do not want to, but they have been told that if they do not do so they will not get their money next week. This is a matter of considerable human, sensible and practical concern.
I of course recognise that there is a strong case for consultation with the trade unions. I recognise the proper concern of the unions for the employment of their members. But I doubt whether it is justifiable to try to maintain the work load at the Crown Post Office by compelling elderly people to climb steep hills to collect their pensions. That does not seem a very good way of going about it.
That is not my main concern. That is not my main reason for raising this matter with the Minister tonight. My main concern is that the Post Office has a statutory duty laid upon it by Parliament to serve the public in these ways. The Post Office has made it clear to me, to the local council and to the local public, that it believes that this sub-post office should be reopened. It has made clear that in its judgment it should be reopened.

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Surely, therefore, such a service as it is compelled to provide to the public requires the reopening of the sub-post office?
If the Post Office believes that it should do so in the interests of society, but fails to do so, it is failing in its statutory duty. That is a very important issue indeed. It is easy to raise a major matter of principle—the conflict between unions and Parliament. That is happening in this case. It is easy to ask who is running the country and the nationalised industries. Is it the management of the Post Office, which is responsible to the Minister, and through the Minister to this House, or is it the trade unions, who are responsible to no one save their own members? One can make a major issue out of this. It might come to that, but it would be a pity if that happened.
I hope that this matter can be resolved by common sense on both sides. I am sure that it is the concern and responsibility of the Minister to do so. That is the reason for my appeal to the hon. Gentleman. It is a perfectly simple issue, but it is basically a very important one.
My constituents want this service. The management of the Post Office wants to provide it. The only people stopping the Post Office from providing this service are the trade unions. Why is this allowed to happen? What will the Minister do about it? Is it right that a nationalised industry should be frustrated from providing a service which it thinks should be provided and which the public wants?
11.20 p.m.
The Under-Secretary of State for Industry (Mr. Les Huckfield): Because sub-post offices play a very important part in the lives of so many urban and rural communities a proposal to close one, for whatever reason, is bound to be a source of great concern to the people affected. It is for that reason that I am grateful to the right hon. Member for Chipping Barnet (Mr. Maudling) for raising this matter.
This is a rather complex matter, involving several different parties with different views, and I am grateful to the right hon. Gentleman for the opportunity to explain where the Post Office stands in this matter.
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The right hon. Gentleman has been in this House far longer than I have, and he will recognise that the Government are not responsible for the provision of or closure of post offices or, as in this case sub-post offices. The Post Office, by an Act of 1969, is no longer a Government Department. By that legislation, it was made a nationalised corporation. In giving the Post Office full responsibility in the 1969 Act to operate as a nationalised corporation, Parliament clearly intended to remove any need for the House to intervene in matters affecting the day-to-day management of the services provided by the Post Office.
My right hon. Friend the Secretary of State for Industry has certain reserve powers under the Act to give the Post Office directions, but only of a general character. I am sure that the House will agree that it was not intended that these powers should be used in respect of day-to-day management decisions affecting sub-offices or industrial relations within the Post Office.
Many of us saw the right hon. Gentleman on television tonight, making a rather similar argument to that which he made to the House. He made several points about the statutory duty and the obligation of the Post Office. However, I think that he has rather misinterpreted Section 9 of the 1969 Post Office Act. He is right in saying that the Post Office has a statutory obligation to exercise its powers in providing postal services, including counter services. According to Section 9, the Post Office has the duty so to exercise its powers as to meet the social, industrial and commercial needs of the British Isles. The right hon. Gentleman will see in subsection (2) that the Post Office also has a duty imposed upon it to discharge that obligation, and in the discharge of that obligation it has to have regard to efficiency and economy. I draw that to his attention, because I know that he and his party are in favour of nationalised industries not making losses.
Mr. Maudling: I have studied that subsection very closely. But, in the light of it, the Post Office still thinks that it should reopen this sub-post office.
Mr. Huckfield: I am about to refer to exactly that point. The Post Office is very capable of carrying out that

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obligation. Throughout the country there are now nearly 22,000 sub-post offices, which, together with nearly 1,600 Crown offices, represent, on the basis of the area served per post office and the population served per office, one of the best Post Office services in the world.
It was especially appropriate that the right hon. Gentleman attached so many of his comments to Section 9. I am sure that he recognises that, in providing counter services the Post Office seeks to maintain a balance between the reasonable needs of the community and the cost of meeting those needs.
The broad criterion that the Post Office adopts in reviewing the need for a sub-post office is that an office is not normally opened within one mile of an existing office in a town, or within two miles in a rural area. Local factors are also taken into account. These include the volume of business transacted at the office concerned, the nature and terrain of the area that it serves, and the availability of local bus services. The Post Office assures me that it also gives full consideration to the needs of focal residents, especially retirement pensioners.
Well before the event, local authorities and existing Post Office advisory committees are always notified of any impending closures and the reasons for them. Their views and those of other interested parties are taken fully into account before a final decision is reached. All of this was done at that stage in the case of the proposed closure of this sub-post office.
I have to say to the right hon. Gentleman, as he said to me, that in the case of the Totteridge Lane sub-post office it is clear that it was the views of the local residents which obviously weighed heavily on the Post Office's final decision. Indeed, on the first stage of the review the bare facts of the case indicated that it was reasonable to close the office. A branch post office, staffed by Post Office employees, which had some spare capacity was only 586 yards away, in the main shopping area and on a bus route. However, the case for the closure was not clear cut, as the right hon. Gentleman has put to the House tonight, in view of the hilly nature of the area and the fact that on the west side of Totteridge Lane the nearest post office was over two miles away and people living on that side would
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have a journey of over a mile to reach a post office.
Nevertheless, it was the lack of strong reaction to closure during the formal consultation procedure that seemed to confirm that the original decision to close the office was the right one. Even the right hon. Gentleman did not make any representations at that stage. It was at this stage that local Members of Parliament and local interests were advised, and certainly at that stage during the formal consultation procedure the right hon. Gentleman did not make representations. In fact, it was rather later that the Totteridge Ratepayers and Residents Association came on to the scene and entered the lists. As the right hon. Gentleman said, it was representatives of the association, led by my noble Friend Lord Brockway, who met senior officials of the Post Office and, as we have heard, were successful in convincing the Post Office that their local sub-post office should remain open.
The right hon. Gentleman says that he has been a Member of the House for a long time. I am sure that even he will agree that it is a rather rare combination when he gets together, on the same cause, with my noble Friend Lord Brockway. I should love to comment on that in a variety of contexts. Nevertheless, this consultation procedure took place, the deputation was seen, and the Post Office changed its view, to the effect that the local sub-post office should remain open. This remains the view of the Post Office and it remains the objective of the Post Office, as it has confirmed to me.
The fact that the sub-post office is now closed is contrary to the wishes of the Post Office. As I am sure the right hon. Gentleman and his constituents know, it is because the retiring sub-postmistress, faced with the sickness of her assistant, had to give up that the decision was taken.
The right hon. Gentleman has referred to the feelings of the Union of Post Office Workers. I am sure that he would recognise that the union has made a significant contribution to Post Office economies and, indeed, has borne its share of the economies that have been carried out. The union has made the point that it feels that those working behind counters have had to bear their share. Over the past 18 months about 800 jobs behind counters and associated with counter services

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have gone from the Post Office. This is testimony to the fact that the union has taken a constructive attitude to these matters. I am sure that the right hon. Gentleman would agree, in looking at the economies that have been effected by the Post Office over the past two years, that no one could accuse the Union of Post Office Workers or the Post Office Engineering Union of taking a basically unreasonable attitude. They have played their constructive part. I am sure that the right hon. Gentleman will recognise that this is a matter that is best left to the negotiations between the Post Office and the Union of Post Office Workers. I am sure that results will be produced in that context.
The inconvenience that may be caused to the right hon. Gentleman's constituents is recognised, but I think that particularly on the question of the collection of old-age pensions the Whetstone office has been flexible in its interpretation of the rules and regulations. We recognise that inconvenience may be caused. The parties which are currently discussing these matters obviously have to take account of that inconvenience.
Negotiations are going on, and I am absolutely sure that this is the right thing. I am deeply concerned, as the Post Office is, that the valuable co-operation between the Post Office management and unions should be preserved. Inevitably, as here, there will be occasional points of diffi-
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culty, but with good sense and good judgment these can be resolved.
In the interim, the Post Office judges that it would not be a helpful step to take any action towards the reopening of the Totteridge branch office. I can reassure the right hon. Member that this is not part of a device to allow the decision to reopen it to be forgotten and to lapse with the effluxion of time.
I am sure that the right hon. Gentleman recognises that neither my right hon Friend nor I have the ministerial responsibility to intervene in a day-to-day management matter of the Post Office. I do not think that it would be prudent of us to charge in on a rather delicate matter such as this when negotiations are still in progress. I have confidence that the matter will be settled as quickly as possible, to the satisfaction of all the parties.
The right hon. Gentleman has represented the interests of his constituents tonight. What he said will be taken into account in the discussions. I hope that he will give his constituents some comfort and consolation from what I have said tonight, and I can assure him that the information that he has put before the House will play a part in the further consideration of this matter.
Question put and agreed to.
Adjourned accordingly at twenty-seven minutes to Twelve o'clock.

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Preamble
The House met at three of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Derby.

CIVIL SERVICE PENSION SCHEME: COSTS
3.6 p.m.
Lord ORR-EWING: 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 how many people are employed in administering the Civil Service pension scheme, and what is the total cost of doing so.
The LORD PRIVY SEAL (Lord Peart): My Lords, 686 people are directly engaged in the administration of the Civil Service pension scheme, including the awarding and payment of pensions and other superannuation benefits. The present cost, including an allowance for accommodation and other overhead expenses, is about £3·8 million a year. This is 1·2 per cent, of the total annual expenditure on Civil Service pensions.
Lord ORR-EWING: My Lords, is the noble Lord aware that that is a relatively satisfactory figure compared with some of the swollen administrative figures for other Departments? Does that figure include those who look after Forces pensions and gratuities?
Lord PEART: It is purely for the Civil Service, my Lords. I have checked this point carefully, because I had a feeling that the noble Lord would ask that supplementary question. I am grateful to him for his remarks.
Lord ORR-EWING: My Lords, the noble Lord's perception is as sensitive as his ears into which I poured that supplementary. The noble Lord has stood up, understandably, for maintaining pensions,
730
the standard of pensions and the indexation of pensions; but is it right that we should now read that there exists strong pressure on, and possibly a decision by, the Government to take away the gratuities of our Service pensioners who signed on under an agreed contract of service? That seems to be totally unfair and I hope that the noble Lord, who is extremely fair, will make sure that those terms are honoured as part of the contract.
Lord PEART: That is another question, my Lords.

MIDDLE EAST DISPUTE: GENEVA CONFERENCE
3.8 p.m.
Lord CHELWOOD: 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 and our EEC partners favour the recall of the Geneva Conference to seek a peaceful settlement in the Middle East; and if so what initiatives are being taken to this end.
The MINISTER of STATE, FOREIGN and COMMONWEALTH OFFICE (Lord Goronwy-Roberts): My Lords, we and our EEC partners favour any negotiations, including the resumption of the Geneva Conference, which seem likely to help achieve the goal of a just and lasting settlement of the Middle East dispute, and we shall take whatever practical steps we can to assist in the peace-making process.
Lord CHELWOOD: My Lords, I am glad to hear that reply. May I ask the noble Lord whether he agrees that high hopes were raised in 1973 at the EEC Summit Conference when the Nine countries agreed to work as one,
"for the full implementation of Security Council Resolution No. 242 in all its parts, taking into account also the legitimate rights of the Palestinians "?
Arising out of that, may I ask two brief questions? First, is it the view of Her Majesty's Government that there should be no Geneva Conference unless there is Palestinian representation, not as refugees but as a national political entity?

731
Secondly, am I right in saying without any fear of contradiction that Resolution No. 242 requires that Israel should withdraw from 70 illegal settlements in Arab territory occupied since the 1967 war?
Lord GORONWY-ROBERTS: My Lords, I think I can give substantial reassurance on all three points. As the noble Lord remarked, the European Community Summit meeting of 1973 remains the basis of the policy and attitude of the Nine on the Middle East question. The second reassurance is that Resolution No. 242, with Resolution No. 338, certainly remains the basis, as we and our partners see it, for a lasting and fair solution, and that of course in turn rests on the balance of assurance to Israel that it is recognised within secure boundaries and, on the other hand, of a restoration of territories taken in former conflicts. As to the third point the noble Lord raised, I can assure him that, while the question of participation in a Geneva or other type conference would be primarily a matter for the parties concerned, we would look for the widest possible participation and hope that everybody concerned would regard the question of participation with moderation and in a constructive way.
Lord WEIDENFELD: My Lords, does my noble friend agree that the Government should seek to use their influence to harmonise EEC policies with those of our American allies, who bear the brunt of the mediation, and, particularly on the question of participation, that the EEC backs the American position, which is against the participation of the PLO unless and until it adheres to Resolutions Nos. 242 and 338?
Lord GORONWY-ROBERTS: My Lords, we are, naturally, and have been, in very close touch with the United States on this important matter. Clearly the United States have a lead in the matter and we think it is right to support that lead. Having got a very substantial consensus on this question in the Nine, we naturally want to connect that consensus with a larger one involving the Americans and in particular the new American Administration. On the question of Palestinian participation, I revert to my answer to the noble Lord, Lord Chelwood: we would wish to see the fullest practical
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participation, but I repeat that this primarily depends on the acceptability of suggestions to those primarily concerned. We will work to get proper representation, and that includes a possible Palestinian presence.
The Earl of ONSLOW: My Lords, is the noble Lord aware—I am sure that he is—that the long-term survival of Israel is based on one of two things: either on the consent of the Arab world in which it lives, or on the United States of America? Is the noble Lord further aware that the Israelis do not seem to understand this and also that the mood for peace in the Arab world is very much stronger than we may have thought? Will the noble Lord take into account what is going to happen at the Palestinian Conference on 12th March and encourage the moderate element among the Palestinians and, furthermore, urge the Israelis not to quote only the immoderate Palestinians but occasionally to listen to the moderate Palestinians? Will he also encourage the Israelis not to use the terrorist argument with all the blood that there is on the hands of Menachem Begin?
Lord GORONWY-ROBERTS: My Lords, I am sure that the House will agree that the terrorists are present in all Parties—and, thank Heaven! the moderates are present in all Parties as well. We must depend on the latter. However, the noble Earl has made some valid points and I am glad to agree with him that the prospect of moving to a peaceful solution appears to be better today than for some time past. We certainly agree that the lasting security of Israel and, indeed, of every other country in that troubled area depends upon indigenous consent rather than international sanction, although it may be that, for a considerable period, both must march together, and perhaps merge. As regards the noble Earl's final point about the conditions of peace, he will not expect me to argue the two sides at Question Time. We in this House have had some excellent debates which have gone into this matter and have aired the broadly Arab attitude and the broadly Israeli attitude.
Lord GLADWYN: My Lords, is not one of the basic difficulties that Resolution No. 242 regarding the evacuation of occupied territories is ambiguous and

733
always has been a difficulty? Is there any reason to suppose that the Nine are now agreed on the right interpretation of this resolution?
Lord GORONWY-ROBERTS: My Lords, I think that most international documents are ambiguous in one respect or another; even legal documents have been known to be somewhat ambiguous when they deal with land. However, I do not think that there is an ambiguity here that would not be resolved by genuine negotiation. I am well aware of the point that the noble Lord, Lord Gladwyn, has made, and I am quite sure that this will be among the very first and most important matters for negotiation.
Lord JANNER: My Lords, while I agree with my noble friend that it is highly essential that moderate people should come together, will he give an assurance that, unless and until there is a categorical statement by anyone who participates in the negotiations that they recognise Israel as a sovereign State, the negotiations will not be allowed to be used by the PLO so as to gain some kind of negotiating advantage in order to achieve their declared aim which is at present the destruction of Israel?
Lord GORONWY-ROBERTS: My Lords, as usual, my noble friend asks me to anticipate beyond the bounds of possibility. However, I take the central point he makes that, if we are to have a lasting fair and equitable agreement, a firm objective of any conference must be recognition of the Israeli State, internationally and regionally within firmly recognised and secure borders.

PARLIAMENTARY CONSTITUENCIES
3.18 p.m.
Lord ELLENBOROUGH: 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 what the justification is in present circumstances for the under-representation of England and Northern Ireland and the over-representation of Scotland
734
and Wales in the number of Parliamentary constituencies at Westminster.
Lord WELLS-PESTELL: My Lords, the present framework of representation of Scotland and Wales in another place dates, with minor modifications, from 1918. The position was reviewed by the Speaker's Conference of 1944 which recommended that there should be no reduction in Scottish or Welsh representation. The Government do not consider that the present arrangements need to be further reviewed at the present time. I am sure that your Lordships would agree that the question of the representation of Northern Ireland is a separate matter which must be considered in the light of the special needs and problems of that part of the United Kingdom.
Lord ELLENBOROUGH: My Lords, I thank the noble Lord for that Answer; but does he not appreciate that the Speaker's Conference of 1944 took place a long time ago and that the considerations relevant at that time are hardly relevant now? May I ask whether it is not a rather unsatisfactory state of affairs that the average size of the electorate per seat in England is 64,900; in Wales, 56,100; and, in Scotland, only 52,200? I appreciate that Northern Ireland is a special case. On consideration, would not the noble Lord agree that there is nothing to justify these considerable discrepancies in the number of Parliamentary seats allocated to the four constituent parts of the United Kingdom? Is it not time to make a decision to restore a more equitable distribution?
Lord AMULREE: My Lords, before the noble Lord replies, may I intervene to ask whether this is a proper subject to be discussed by your Lordships? It seems to me that this is a matter for the House of Commons and not for this House.
Lord WELLS-PESTELL: My Lords, I am not in a position to say whether or not this is a proper subject for this House. I have been given certain information on this matter, and unless I am out of order, I will continue. The noble Lord has said that the position is very different today from what it was in 1944. This is not so because of the 1939 registers in force in 1944; leaving out the university

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seats, the electorate per constituency in England was 23 per cent, higher than that in Scotland and 16 per cent. higher than that in Wales. The comparable figures for 1975 were much the same: 24 per cent. and 16 per cent., as against 23 per cent. and 16 per cent.
Lord LEE of NEWTON: My Lords, if there are to be inquiries into this important matter, will my noble friend find out whether there is any reason, or even excuse, for the gross over-representation of the Tory Party in this Chamber?
Lord MOLSON: My Lords, is it not clear that, if anything in the way of extensive devolution is put on to the Statute Book, one condition of that situation would obviously be a reconsideration of the balance or representation in Parliament of the different countries?
Lord WELLS-PESTELL: My Lords, so far as the Scottish and Welsh Bills are concerned—and the noble Lord is talking about devolution—I understand that a review of representation in another place undoubtedly would be necessary.
Viscount BROOKEBOROUGH: My Lords, if the Government accept that there is an injustice to Northern Ireland in under-representation, can the noble Lord give us an assurance that this matter will be urgently dealt with?—because this under-representation has existed for five years since the abolition of devolution. This is a matter of great concern.
Lord WELLS-PESTELL: My Lords, I can give no undertaking that this matter will be considered soon. I can only say that this is a matter which is constantly in the mind of the Government; but at the moment they do not feel that it is necessary to make any move in regard to this question.
Lord WYNNE-JONES: My Lords, does not the injustice consist of the progressive depopulation of Scotland and Wales?
Lord WELLS-PESTELL: My Lords, if there is any injustice at all, it is that England should have far greater representation than she has at the present moment.

AFRICAN PRESIDENTS AND TERRORISM
3.23 p.m.
Lord COLERAINE: 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 are aware of any steps being taken by the so-called front line Presidents to suppress or discourage terrorism in Africa.
Lord GORONWY-ROBERTS: My Lords, Her Majesty's Government are not aware that the front line Presidents are failing to discourage terrorism. They have long made plain their preference for a peaceful solution based on genuine majority rule. In the absence of such a solution, however, they have felt that they have no alternative but to support the armed struggle.
Lord COLERAINE: My Lords, I am not clear that I heard correctly the earlier part of the noble Lord's reply. But I gather from what I did hear that he takes the view, and Her Majesty's Government take the view, that anyone who has a political grievance, if he cannot get it settled his way, is entitled to take military action. I would ask the noble Lord whether the attitude of the front line Presidents is a breach of the United Nations' Charter in at least two respects. In the first place, is it not interference with the internal affairs of another country? In the second place, is it not a breach of the peace rather than a threat to the peace?
May I put this further point to the noble Lord. I do not know whether he is haunted by the same fear that haunts me; namely, that Salisbury may prove to be the Sarajevo of a third and final world war. Will he impress upon the Prime Minister and the Foreign Secretary, who I understand are shortly to visit Washington, the urgency of persuading the Americans to take a more positive line in Africa than they have so far done, in order to avert what may be the most appalling clash between East and West?
Lord GORONWY-ROBERTS: My Lords, I do not think that anybody in this noble House would disagree with the

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closing passages of the noble Lord's supplementary question. Most certainly my right honourable friends the Prime Minister and the Foreign Secretary will pay attention to what the noble Lord (a former Minister and a right honourable gentleman) has to say on this matter. I will not detain the House on the question of constitutional niceties which are important and which the noble Lord raised, but I wish to take this opportunity of making it absolutely clear to him and to everybody else that Her Majesty's Government never have, do not now, and will not support armed struggle, still less terrorism. It is a matter of opinion as much as of fact as to who in Rhodesia for the past 11 or 12 years has been engaged in terrorism, and we could detain the House by arguing this matter.
I have said to the House before now that it is a tragedy that the past 11 years—11 years of illegal rule—have been wasted, without any attempt being made to move forward towards majority rule and equal rights in Rhodesia. Today we are all paying the price; the dangers in Africa, to which the noble Lord quite rightly drew attention towards the end of his remarks, are very acute indeed, and I place the greater part of the blame on those who for the past 11 years have not moved at all to solve those questions.
Baroness ELLES: My Lords, I agree with a great deal of what the Minister has said, but would he not agree that Ian Smith, whatever his faults and however much one may blame him, has in fact in the past few months made a considerable change in his attitude, first, by agreeing to achieve majority rule within two years and, secondly, by his recent actions in removing apartheid, particularly in relation to land tenure?
Lord GORONWY-ROBERTS: My Lords, I would address myself to Mr. Smith's policies and actions against the background of the past 11 years, not the past 11 days. One can only hope that these measures—too little—are not too late. It is not enough to condemn the front line Presidents and the leaders of black Africa for taking the attitudes they do. They have been extraordinarily patient for the major portion of those 11 years. They did not engage in violent action in protest against the illegal régime.
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I only hope that even Mr. Smith may be able to persuade a majority of his Party to agree to this moiety of tardy equity for 7 million black Africans in his country.
Lord HAILSHAM of SAINT MARY-LEBONE: My Lords, is there not a danger that we are losing sight of the importance to the world of the United Nations' Charter? Was it not in fact one of the main purposes to outlaw war except in direct self-defence? We have had two Questions today, both of which arise out of the fact that in different parts of the world nations resort to war, which they may beautify by the term "the armed struggle", in direct conflict with their obligations under the United Nations' Charter, which is not to resort to war as an instrument of policy. Is that not so?
Lord GORONWY-ROBERTS: My Lords, I agree with the noble and learned Lord that that is the meaning of the Charter; and I have said in answer to the noble Lord, Lord Coleraine, that we have not supported, and do not support, armed struggle, still less terrorism. But the facts are that, after a long period of expecting movement forward by the illegal regime, black Africans have lost patience. This is not to say that they are within the Charter; it is only to say that these are the facts.
Baroness LEE of ASHERIDGE: My Lords, is the Minister aware that the sentiments he has expressed were previously expressed in this country by one of the really great men among the front line leaders, Mr. Julius Nyerere? Is he aware that, when Mr. Nyerere was in this country as the honoured guest of the Crown, in dealing with the Palace and in dealing with the leaders of both Government and Opposition, his whole plea was that they should recognise the suffering that would be imposed on the African masses if no alternative was open to them except armed conflict? Is the Minister aware that everything that Mr. Nyerere cares about—the lives, the future and the dignity of his people—has been involved in seeking a peaceful solution, but that he also warned that if a peaceful solution was not available then the mood of the African people today, from North, South, East and West, is such that it will be a bloodbath, that we will all abhor, for both black and white?
Baroness WOOTTON of ABINGER: My Lords, are we asking Questions or are we having a debate?
Lord AVEBURY: My Lords, I have been trying to ask a question. Would the noble Lord agree that, while we would all condemn terrorism and the murder of innocent civilians, there have been many occasions in our history when British Governments have supported the struggle of peoples against oppressive dictatorships, from the days of Garibaldi, when he was fighting against the atrocious dictatorship of King Ferdinand (Bomba) in the Kingdom of the two Sicilies, to the Maquis in the last war; that when constitutional means of change are not open to a people then armed struggle may be the only alternative; and that after 11 years one could hardly disagree that that situation has been reached in Zimbabwe?
Lord GORONWY-ROBERTS: My Lords, when constitutional means of redress are obviously unavailing or unavailable then it is, I will not say natural but understandable, though not justified—and this is where I agree with the noble and learned Lord. We do not take the view that armed struggle in pursuit of political change, still less terrorism—and often the dividing line between the two is very thin—can receive the support of Her Majesty's Government. I am personally absolutely clear on this. I regret I cannot follow the noble Lord back to 1860 and discuss with him the views of Garibaldi. I prefer to agree entirely with my noble friend Lady Lee of Asheridge, when she refers to Nyerere, who, repeatedly, with others from black Africa, has in the past shown patience and expressed warnings. We have to address ourselves to the facts of life today; how can we retrieve, in the present circumstances, the possibility of a just and durable multilateral, multiracial solution in Rhodesia? It is not going to be easy, and the main reason, as I have said, is that 11 precious years have been lost.

NORTHERN IRELAND: TERRORISM
3.32 p.m.
Lord BELSTEAD: My Lords, I beg leave to ask Her Majesty's Government the Question of which I have given the
740
Government Private Notice. The Question is as follows:
To ask Her Majesty's Government, in view of the latest series of assassinations in Northern Ireland during the past few days, constituting a new development, whether they will make a statement.
Baroness LLEWELYN-DA VIES of HASTOE: My Lords, with the leave of the House, at a convenient moment after 3.30 p.m., my noble friend Lord Melchett will answer this Question in the form of making a Statement.

SEXUAL OFFENCES (AMENDMENT) BILL [H.L.]
The Earl of ARRAN: My Lords, I beg to introduce a Bill to amend the Sexual Offences Act 1967, to lower the age at which persons may consent to homosexual acts in private. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read la.—(The Earl of Arran.)
On Question, Bill read la, and to be; printed.

RETURNING OFFICERS (SCOTLAND) BILL
Brought from the Commons; read la, and to be printed.

DEPUTY CHAIRMEN OF COMMITTEES
The CHAIRMAN of COMMITTEES (Lord Aberdare): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, on behalf of the Committee of Selection, That the Lord Jacques be added to the panel of Lords appointed to act as Deputy Chairmen of Committees for this Session.—(Lord Aberdare.)
On Question, Motion agreed to.

AIRCRAFT AND SHIPBUILDING INDUSTRIES BILL
Lord PEART: My Lords, I beg to move the Motion standing in my name

741
on the Order Paper. This Motion is necessary as a result of the Statement which I made yesterday. I do not think I need to explain it in detail beyond saying that until this step is taken it will not be possible to delete the ship repairing companies from the Bill. If the Motion is agreed to, the House will be able to go directly into a Committee of the Whole House after the Second Reading of the Bill next Tuesday. I beg to move.
Moved, That in view of the Government Statement of yesterday,—

(1) No Petition praying to be heard upon the merits against the Bill shall be heard; and

(2) The condition relating to the publication of notices in the Report of the Standing Orders (Private Bills) Committee of 23rd February shall be dispensed with.—(Lord Peart.)

On Question, Motion agreed to.

NORTHERN IRELAND: TERRORISM
3.37 p.m.
The MINISTER of STATE, NORTHERN IRELAND OFFICE (Lord Melchett): My Lords, with the leave of the House, I will now repeat a Statement being made in another place in answer to a Private Notice Question on Northern Ireland. The Statement is as follows:
"There has been a greater concentration in the last few days of violence against people in the business community. This is, sadly, not a new development, as there have been series of attacks on business people in the past.
"Her Majesty's Government regret these deaths. But I can assure the House that security measures are kept under constant review and are adjusted to deal with the changing patterns of violence".
My Lords, that concludes the Statement.
Lord BELSTEAD: My Lords, I am grateful to the noble Lord for that Answer. The reason for this Private Notice Question is the considerable number of tragic murders committed in Northern Ireland during the last month, although I accept from the noble Lord
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that they are not a totally new development. The murders began with the shooting of Mr. Geoffrey Agate in Londonderry at the beginning of February, then there were further such murders during the month and within the last 10 days eight businessmen and policemen have been murdered in Northern Ireland. May I just ask the Government to accept that I am in no way trying to press the noble Lord to reveal any information which would be of use to the IRA; but the Northern Ireland Office, the Department which the noble Lord serves, has been reported in the Irish Times within the last few days as stating that special protection will be offered to leading personalities, and I think it is right to ask the Government whether they can enlarge on that statement. May I just add that, in asking that question, I would ask the Government to accept that we on these Benches will support the Government in any measures which they deem necessary to end this brutal wave of killings.
Lord MELCHETT: My Lords, I am very grateful to the noble Lord for that response to the Statement. Certainly I can give him some information although, as he has accepted, it would not necessarily be sensible to reveal everything that is being done by the RUC and the Security Forces in Northern Ireland. But I can tell the noble Lord that a directive has been issued by the Deputy Chief Constable to all divisional commanders instructing them to mount additional mobile patrols, foot patrols and vehicle check points; to familiarise themselves with the homes of prominent members of the business community, and to pay these special attention; to offer advice to businessmen on measures they can take to protect themselves; and to call up reserve policemen as required. The directive will remain in force for as long as is considered necessary.
Viscount BROOKEBOROUGH: My Lords, I feel that this is a very grave moment in the history of Northern Ireland, and it would be wrong if I did not emphasise to the House the fact that at the present moment public opinion in Northern Ireland is really at a breaking point. It is extremely exercised; and I am going to ask the Government what would have happened here if these last four murders had occurred in London in the

743
short period of time in which they have occurred in Northern Ireland. I believe that there would have been some dramatic and drastic action, and I think public opinion in Northern Ireland now requires some dramatic step to be taken.
Yesterday's murderers were teenagers. They were under 10 when the "Troubles" started. From that, it must be obvious to the Government that the present methods are not enough. I shall ask the Government this: can they not convince the terrorists that they will be caught, and, secondly, that the punishment will be sufficient to hurt? Even the Churchmen at the funerals of the victims are now calling for the reimposition of the death penalty, much though I, personally, and other people may dislike it. May I ask the Government whether they will seriously consider it, because what we are facing is the failure of the deterrent to deter? It may be all right to release an anarchist in England, but the battle is in the United Kingdom as a whole. Do the Government realise how much it undermines the firm statement made by the Secretary of State that there will be no amnesty for terrorists? Can they please do something to emphasise the fact that the Government are determined not to have an amnesty?
Finally, will the Government convey to the Security Forces the admiration of the whole House for their work, particularly the UDR and the RUC reserves? If society does not protect its population, then even peace loving people will take the law into their own hands. That is what we have to prevent.
Lord MELCHETT: My Lords, I certainly welcome the admiration of the House for the work of the Security Forces in Northern Ireland. It may be appropriate to remind ourselves of the very heavy casualties that the Security Forces have suffered over the past years in Northern Ireland when we are today discussing the series of brutal murders against the civilian population there. The noble Viscount asked what I thought would happen if a similar series of murders had taken place in this country, in Great Britain. I certainly believe that the Government would have reacted in exactly the way we react to the deaths of people in any part of the United Kingdom
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and in the same way as we are reacting to the brutal murders that have taken place in Northern Ireland.
As I said in reply to the noble Lord, Lord Belstead, this is not, unfortunately, a new development, although there have been a particularly large number of killings of this kind in recent days. I have to say to the noble Viscount that I do not think anyone can possibly say that there are any new sweeping measures which have not yet been tried which are likely to solve the problem in Northern Ireland. If there were, they would already have been tried. I would agree with the noble Viscount that the Security Forces are doing a fine job. This is something that we, as Ministers in Northern Ireland, constantly reiterate. They are apprehending the terrorists; they have been taken before the courts and tried and convicted in large numbers. We constantly reiterate the fact that the RUC, and the action they have taken, have our full support, and that the Army will remain in Northern Ireland as long as necessary to back up the RUC in the job they are doing. The most helpful thing, so far as that task is concerned, is that instead of casting doubts on the integrity of the statements every time the Government say this, everybody in Northern Ireland, for a change, will believe what is told to them endlessly and repeatedly and set about the job of backing us up.
Lord HAILSHAM of SAINT MARY-LEBONE: My Lords, without seeking in any way to impugn the integrity either of the Government or of the noble Lord—for I am sure that the sympathy of the whole House will be with him and them—can one altogether avoid the impression that the policy of the Government at the moment is one of enforcing the law but without any political imagination at all? How long is this to go on? Does the noble Lord think that this policy of what I believe to be political drift is really paying a dividend? Does he not think that the time will have to come when the Government will have to take further steps to look at political change?
Lord MELCHETT: My Lords, I could not accept that the Government policy is a policy of drift. I accept that, as yet, it has not paid a dividend. The dividend

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that we all seek on both sides of the House is a devolved Government in Northern Ireland that is acceptable to both communities in Northern Ireland. That is agreed policy between us. What, I believe, has been made clear by previous political initiatives taken by the United Kingdom Government is that it cannot be imposed on the people of Northern Ireland if the people there are not prepared to accept it. Our political initiative is to recognise that fact and to say to politicians and people of Northern Ireland: "In your hands lies your future. You must, at least, get to the stage where you are ready to talk to each other about some new political system in Northern Ireland to which both major Parties in this country have pledged themselves to and are committed to".
Lord WADE: My Lords, while we all appreciate that these murders are deplorable and despicable, and while we are aware of the strain on the Security Forces, may I ask a question which puts the matter in a slightly different context; I think it is both political and psychological. Would the noble Lord agree that in the circumstances at the moment in Northern Ireland it would be unwise to act precipitately? For example, an increase in the size of the military forces at present might have the opposite of the desired effect. That is one of the difficulties under which any Government are working at present.
Lord MELCHETT: Certainly, my Lords, before taking any steps to change the existing security policy, the Government must be convinced that new measures will be effective. That is the important thing. The Government are not convinced that there are any new sweeping measures as yet untried which are likely to be more effective than the policy currently being pursued—which is being effective in as much as terrorists are being arrested, taken before the courts, convicted and sentenced to long periods of imprisonment.
Lord HAILSHAM of SAINT MARY-LEBONE: My Lords, I do not want to prolong this. The noble Lord has said, as have other Ministers in successive Administrations, that the solution lies in the hands of the politicians in Northern Ireland. What I want to ask is this. Where is the forum at present available to
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those unfortunate people to find such a solution? When I was accusing the Government of a policy of drift, I was really asking the noble Lord whether we could not, apart from law enforcement measures, use a little more political imagination: because the present policy of waiting for somebody else to do something does not seem to be very successful.
Lord MELCHETT: My Lords, as one who spends most of the week in Northern Ireland, I would say that there are plenty of opportunities for the political Parties to get together and to exchange ideas. Recently, as the noble and learned Lord will know, all major political Parties in Northern Ireland had meetings with my right honourable friend the Secretary of State. Following that series of meetings, my right honourable friend said that it was clear to him that there was as yet not sufficient common ground between the Parties for real progress to be made. Once again, he made clear to the political Parties the grounds on which both major Parties in this country, indeed I believe all the main political Parties in this country, believed that a constitutional settlement would be desirable. While admitting that a great deal of movement has taken place, he enjoined the political Parties in Northern Ireland to move towards that; so the picture is not quite as dark as the noble and learned Lord is painting it. As soon as there is a real prospect for progress, the Government will be prepared to act in any way possible; but my right honourable friend at this moment is convinced that there is not sufficient common ground for that sort of initiative to be taken.

BRITISH AIRWAYS BOARD BILL [H.L.]
The LORD CHANCELLOR (Lord Elwyn-Jones): My Lords, I understand that no Amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript Amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the Order of Recommitment be discharged.
Moved, That the Order of Recommitment be discharged.—(The Lord Chancellor.)
On Question, Motion agreed to.

PUBLIC LENDING RIGHT BILL [H.L.]
Bill read 3a: an Amendment (privilege) made.
Lord WILLIS: My Lords, I beg to move that this Bill do now pass. In doing so, I should like to thank my noble friends on all sides of the House for their co-operation in getting this Bill through its stages so quickly.
Moved, That the Bill do now pass.—(Lord Willis.)
On Question, Bill passed, and sent to the Commons.

PATENTS BILL [H.L.]
3.50 p.m.
The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, that the House do again resolve itself into Committee.—(Lord McCluskey.)
On Question, Motion agreed to.
House in Committee accordingly.
[LORD ABERDARE in the Chair.]
Clause 38 [Amount of compensation]:
Lord LYLE Lord LYLE moved Amendment No. 189:
Page 30, line 8, leave out ("employer") and insert ("employee").
The noble Lord said: We understood that the words in the Bill should be as they are on the Marshalled List. This is in the nature of a mere administrative and printing error.
The LORD CHANCELLOR: This is a good note of agreement upon which to start this part of the Committee stage. I am grateful to the noble Lord for drawing the attention of the Committee to this printing error. I agree of course with the Amendment.
On Question, Amendment agreed to.
Lord LLOYD of KILGERRAN Lord LLOYD of KILGERRAN moved Amendment No. 190:
Page 30, line 13, leave out subsection (2) and insert—
("(2) For the purpose of subsection (1) above a fair share of the benefit which the employer has derived or may reasonably be expected to derive from the patent shall, subject to the provisions of subsection (3) below, be taken to be the amount which could reasonably be expected to be obtained by the employee if he had not been connected with his employer.").
The noble Lord said: The Part of the Bill with which we are now dealing sets out a number of guidelines to assist either the court or comptroller on the amount of compensation which should be payable to the employee inventor in the circumstances set out in Clause 36. My Amendment is in the nature of a probing Amendment. It seems to us that the Amendment improves and helps the court or comptroller in deciding what is a fair share of the amount, whatever it is that is payable. Subsection (1) reads:
"An award of compensation to an employer…shall be such as will secure for the employee a fair share (having regard to all the circumstances) of the benefit which the employer has derived or may reasonably be expected to derive from the patent."
We have no quarrel with that initial statement, that the employee shall have a fair share of the benefit which the employer has derived.
Now comes the question: How does one consider what is the fair share that an employer should derive? It seems to us that subsection (2), as drafted, does not have the clarity that the court or comptroller might want in assessing the award. The Amendment I have suggested puts the matter round the other way, and says this—the words are simple:
"For the purpose of subsection (1) above"—
which I have read out—
"a fair share of the benefit which the employer has derived or may reasonably be expected to derive"—
quoting again the part of subsection (1) that I have already mentioned—
"shall, subject to the provisions of subsection (3) below, be taken to be the amount which could reasonably be expected to be obtained by the employee if he had not been connected with his employer".
One must look at the situation from the point of view of the employee, and that is of advantage to the employer. What could the employee, if he had not been associated with the employer, have derived or reasonably have been expected to derive? If it is put the other way round,

749
as in the Bill at present, that the fair share must be assessed having regard to what the employer might have derived, then complicated parameters immediately arise.
The position in assessing what is the fair share within the context of subsection (1) would be simplified if the court or Comptroller General were to look at it from the point of view of the employee: What could he do with this patent if he had not been associated with the employer? My Amendment simplifies the position and, with great respect, that seems to be a clearer guideline than the somewhat muddled phraseology involved in subsection (2).
In order that there should be no misunderstanding about the other parts of the subsection, I find the other guidelines very reasonable and I will not be making any great criticism about them. Will the Government consider assessing that a fair share of the benefit which the employer has derived shall be an amount which could reasonably be expected to be obtained by the employee, if he had the patent, in the ordinary commercial circumstances? I beg to move.
Lord BROWN: Rather tentatively, I support this Amendment, while waiting to hear what the noble and learned Lord has to say about it. I support it on these grounds. If one says "a fair share of what the employer would have derived had he not been associated with the patent", then in logic one is putting it the wrong way round. If the invention had not arisen, nothing would have happened. But one wants to decide what would happen if the employer had not backed the invention. This is the purpose of the Amendment. It seems a strictly logical approach to the determination of the question of compensation in principle.
The LORD CHANCELLOR: There are two parts to this Amendment. The first proposes to leave out subsection (2) of the Bill. That subsection is a necessary provision in the Bill to avoid the possibility of the employer defeating the employee's claim by giving the patent away for next to nothing to a close relative or subsidiary of the firm. I am sure that that was not in the mind of the noble Lord when he moved the Amendment, he having ex pressed views in an entirely opposite direction earlier. Therefore, Clause 38 (2)
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should be retained. To delete it would be prejudicial to the interests of employees.
The new subsection which the noble Lord wishes to substitute seems, with great respect, to be directed to a different point. It would provide a test for the fair share of the benefit to which an employee was entitled that was divorced from the benefit actually obtained by the employer from the patent. It is preferable to maintain a link between what the employer has obtained and to what the employee may be entitled. The intention of the Amendment, however, seems to be that the fair share should be determined on the basis that an employee is in a position to negotiate at arm's length with his employer as if the compensation were to be the result of some kind of commercial transaction; but that goes much further than what the Government and the Bill intend. Indeed, it could work against the employee if the employer was a hard bargainer.
The main criticism of the Amendment is that it would establish a notion of compensation which is inappropriate to what I call the Clause 37(1) situations. These are the common cases where employees are employed to carry out inventive activity, and the compensation over and above what they receive in the ordinary course of their employment should not be looked upon as some kind of commercial deal. On the contrary, the Government consider that in such cases the compensation should be no more than what is, in the particular circumstances of the case, sufficient to ensure the fair treatment of the employees concerned. In Clause 37(2) situations, the invention originally belongs to the employee, who is not obliged to offer the rights in it to his employer. If he does, and the employer accepts them, a commercial transaction has taken place and it would seem to be an effect of the proposed Amendment that the employee would then have no further claim on his employer unless he could show that he got less than he would otherwise have done because he was an employee—which might not be very easy to do.
I do not know whether that is what the noble Lord intended by his Amendment, but the Bill as drafted—which does not constrain or restrict the court or the comptroller, whoever may be deciding

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the matter, in reaching a conclusion as to what is a fair share of the benefit derived, or expected to be derived, by the employer—is more likely to be something for the employee in Clause 37(2) situations than it would if the clause were amended as the noble Lord proposes. In the light of the explanation of the existing provisions, I hope that the noble Lord will be prepared to give the matter further thought.
Lord LLOYD of KILGERRAN: I am very grateful to the noble and learned Lord for the very long and careful consideration which the Government have obviously given to my Amendment. However, perhaps the way in which this discussion has proceeded illustrates my point. My Amendment gets the support of the practical businessman of great experience, like the noble Lord, Lord Brown; yet, on the other hand, there are obviously a number of legal matters which the Government find difficult to eradicate at this stage. The Amendment seems to me, to quote the words used by the noble Lord, Lord Brown, in supporting the Amendment,
"to put it the right way round",
but in view of the careful consideration that has been given to my Amendment, I beg leave to withdraw it. I may wish to return to it later when we see what other Amendments have been put into the Bill.
Amendment, by leave, withdrawn.
The CHAIRMAN of COMMITTEES: I must point out to your Lordships that, if Amendment No. 191 is agreed to, I cannot call Amendments Nos. 192 or 193.
The LORD CHANCELLOR The LORD CHANCELLOR moved Amendment No. 191:
Page 30, line 21, leave out from ("of") to end of line 42 and insert ("a patent for an invention which has always belonged to an employer, the court or the comptroller shall, among other things, take the following matters into account, that is to say—

(a) the nature of the employee's duties, his remuneration and the other advantages he derives or has derived from his employment or has derived in relation to the invention under this Act;

(b) the effort and skill which the employee has devoted to making the invention;

(c) the effort and skill which any other employee has devoted to making the invention jointly
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with the employee concerned, and the advice and other assistance contributed by any other employee who is not a joint inventor of the invention; and

(d) the contribution made by the employer to the making, developing and working of the invention by the provision of advice, facilities and other assistance and by his managerial and commercial skill and activities.

(3A) In determining the fair share of the benefit to be secured for an employee in respect of a patent for an invention which originally belonged to him, the court or the comptroller shall, among other things, take the following matters into account, that is to say—

(a) the amount of any sums received by the employee under this Act or otherwise in respect of the invention or the patent; and

(b) the extent to which the invention was made jointly by the employee with any other person.").

The noble and learned Lord said: As your Lordships will be aware, this group of clauses that we are now considering, namely, Nos. 36 to 40 inclusive, provide for compensation to be paid in appropriate cases to two quite different categories of employed inventors. The first category comprises those who are employed to invent, if I may use a single compressed phrase. Their inventions will have belonged to their employers throughout, and it is only in the circumstances covered by Clause 37(1) that those employees will be entitled to compensation. We had a spirited debate upon that matter the last time we considered the Bill, as to the lasting benefit to the employer, which is the concept involved in that subsection.
The second group comprises employees whose inventions belong to them. The fact that the inventor is employed will be irrelevant unless he chooses to assign his rights in the invention, or in any patent for the invention, to his employer. In those quite different circumstances, if the requirements of Clause 37(2) are satisfied, the inventor in this case, too, will be entitled to compensation. The categories, as I have indicated, are quite distinct and it is therefore logical that, in assessing compensation, the comptroller and the court should have regard to different considerations when assessing what is a fair share of the employer's benefit. Subsection (3) in its present form does not reflect that fact, since it lists six factors which are to be taken into account in both sets of circumstances, and the Amendment I move seeks to rectify the position.
If I may take first the case of the invention which originally belonged to the employee, the new subsection (3A) reflects the fact that all the comptroller or the court will be doing is to vary the terms of the contract between the employee and his employer. Only two factors need to be considered: first, how much the employee has already received in respect of the invention—that is in subsection (3A)(a)—and whether he is the only person who is entitled to compensation, or whether another employee is also entitled. That is covered by subsection (3A)(b), but in such a case matters such as the employee's duties, his remuneration, and the effort and skill which he has devoted to making the invention are irrelevant. Those matters, however, are very relevant to the assessment of a fair share of the employer's benefit which should accrue to the employee in a case where the invention has always belonged to the employer. That is why those matters are retained in the amended subsection (3), which will apply only to that category of invention.
Before sitting down, perhaps I should add that subsection (3)(d) of the Amendment also refers to the employer's contribution to
"the making, developing and working of the invention…".
I would emphasise the word "developing" as being a relevant factor in that connection. That point was noted by the noble Lords, Lord Lyell and Lord Belstead, in connection with Amendment No. 193, to which we shall be moving shortly and which I hope they may think has now been taken care of by this Amendment which I beg to move.
4.8 p.m.
Lord BELSTEAD: We are grateful to the noble and learned Lord for the explanation of the rewording of a considerable amount of Clause 38. May I also thank the noble and learned Lord for inserting the word "developing" into paragraph (d). That meets our Amendment No. 193, which we should not otherwise be allowed to move. Clearly the word "developing", as well as the words "making" and "working", should be taken into account when considering the employer's contribution.
A general criticism of these paragraphs is, I think, that the factors set out on this
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page of the Marshalled List are going to be taken into account by either the court or the comptroller several years after the invention has been discovered. That will almost certainly be the case in assessing outstanding benefit under Clause 37(1). I would suggest it might also be the case when the employee makes an application on the ground that he has received inadequate benefit under Clause 37(2)(c). I think this is an apprehension which many noble Lords had already voiced about the clause as a whole before we actually came to it.
I should like now to turn to the specific provisions of the Amendment. I must confess that, even though the noble and learned Lord has led us gently by the hand through the rewording of the clause, I am still not very happy about the new subsection (3A). As drafted, in the Bill there are six criteria applying to applications for compensation, whether those applications are made under Clause 37(1) or 37(2). What has happened is that the first two criteria in the Bill have been amalgamated to form paragraph (a) in the Amendment, which is followed by the next three criteria relating, also, only to inventions belonging to the employer, and then the final criterion, paragraph (f), has been transferred to the new subsection (3A) which deals only with employees' inventions originally belonging to the employee.
Under this new subsection (3A), the employee is having to prove that his benefit from the patent has been inadequate, compared to the employer's benefit. I wonder why there are only the two criteria to decide this, even though, of course, I accept what the noble and learned Lord said, which is that the whole point of this new Government Amendment is that there will be fewer criteria under subsection (3A) than there will be above. But if I may be specific, I would not accept—and I hope that the noble and learned Lord may be able to put me right—that paragraph (a) of the new subsection (3A) covers paragraph (a) above and, in fact, I do not think the Government mean it to. If the Government do not mean this, why should not the comptroller, in assessing whether benefit to an employee under new subsection (3A) is inadequate, take into account the employee's remuneration,

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"and the other advantages he derives or has derived from his employment or has derived in relation to the invention under this Act"?
All that new paragraph (a) of subsection (3A) is going to allow is for,
"the amount of any sums received by the employee under this Act or otherwise in respect of the invention or the patent"
to be taken into account. That wording is not the same as paragraph (a) above, and I should be interested to know why this is the case.
If I may move on, when I look at new paragraph (b) of the Amendment, I certainly accept that effort and skill are immaterial so far as new subsection (3A) is concerned, because it is the employee's own invention and what he had to do to make it is his own affair. Similarly, I accept that paragraph (b) of new subsection (3A) probably covers paragraph (c) above. But I now come to my other complaint, which is that there appears to be nothing at all under subsection (3A) which corresponds to paragraph (d) above, and I think that there ought to be. What I am saying is that any contribution which the employer may have made to secure the benefit which is going to be shared, appears to be a factor which is totally disregarded when benefit is being assessed under subsection (3A). I do not think, speaking for myself, that the words,
"the extent to which the invention was made jointly by the employee with any other person",
which is the wording in paragraph (b) of subsection (3A), is in any way the same as the assessment of the,
"advice, facilities and other assistance and…managerial and commercial skill and activities"
which the employer may have contributed not only to the making, but also to the developing and working of the invention.
The reason why I put these views forward is that on the last occasion when we sat in Committee on this Bill we had speeches pointing out that an invention needs to be developed, produced and marketed in order to make it a commercial success. If the comptroller, under Clause 37(2)(c), is to assess whether,
"the benefit derived by the employer from the contract of assignment, assignation or grant…was inadequate in relation to the benefit derived by the employer from the patent",
I should have thought that the criteria which are now contained in paragraph (d)
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above ought to be provided for, or ought to be provided for in a very similar way, in new subsection (3A).
I apologise to the noble and learned Lord for my rather convoluted argument and, for clarification, may I just remind him what my two real questions are? Apart from the general criticism that I think the criteria set out in this Amendment will probably have to be assessed several years after the discovery of an invention, I am trying to ask two questions. The first is: why does paragraph (a) of new subsection (3A) not correspond with paragraph (a) above? My second question is: why is there nothing in new subsection (3A) which corresponds with paragraph (d) above? I hope that I have made those two questions clear. I realise that, without notice, the noble and learned Lord may be able to give me only a little advice on this matter.
The LORD CHANCELLOR: Would it be convenient for me to deal with that matter now? If I may say so with respect, I do not think that the noble Lord's speech was convoluted, and I hope that my answer may be equally clear. The criteria are, of course, intended to be a guide to the comptroller or the court and it is imperative, where the provisions are admittedly rather wide and all-embracing, that the guidance given is as helpful and as precise as possible. I agree that, as the assessment may fall to be made some years after the invention has been made, there will be problems. But that is an inescapable situation and, whatever formula might be devised, applying it years later will present problems. I think that is inescapable by the nature of the circumstances which we are considering.
Coming to the rejigging, if I may use a good inventive phrase, the matters which arise in subsection (3A) relate to the circumstances where the employee who has made the relevant invention has done so when, if we look at Clause 36, it was not in the course of the normal duties falling upon him or in the course of duties falling outside his normal duties, but specifically assigned to him; nor was the invention made in the course of his duties as an employee, but was something quite outside conditions of that kind, where he had no obligation at all to make an invention. So it is very much his initiative, his time and his effort that have gone to achieve

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the invention. Therefore, in considering what should be the benefit payable to him in respect of that invention which has been his, and was originally his, the only relevant factors are those set out in paragraphs (a) and (b); namely, what he has already been paid for it by the employer; and, secondly, the extent to which the invention was made solely by him or jointly with other employees, whose effort might, indeed, have to be considered.
The nature of his duties is, in the circumstance, not relevant, nor are his remuneration and other advantages which he derives from his employment, nor the effort and skill which he has devoted to making the invention. It is the quality and value of the invention itself which will be relevant. The effort and skill which any other employee has devoted to it is covered in paragraph (b). The contribution of the employer is hardly likely to be relevant to the calculation of the compensation or benefit in the circumstances of subsection (3A), because it is done outwith the conditions that govern the award under Clause 37(1).
So if I may say so with respect, I think we have greatly simplified the task of those who have to apply these not easy provisions by the restructuring which, in my submission, is contained in the new subsection. I hope that that will, at least to some extent, have reassured the noble Lord on a field which I do not pretend is free of difficulty.
Lord BROWN: Given that we have to accept subsection (1) of Clause 37—and the Committee knows that I consider it bad law—I think that the Amendment, in totality, is right, because to have separate criteria for judging the case of an employee who owns an invention and one who does not is obviously sound. But I found myself in some sympathy with the noble Lord, Lord Belstead, and, again with deference and some timidity, I would suggest this. The Department which drafted this Bill is somewhat amateur in respect of patents. I spent five years in the Board of Trade and always found, excellent Department though it was, that knowledge there of patents and patent law was almost totally absent. They always had to rely on the comptroller, and this comes through in the Bill.
I want to draw attention to paragraph (d) of the new subsection which says:
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"the contribution made by the employer to the making, developing and working of the invention…"
It is commonplace in many good firms, although I regret to say that it is not general practice in industry, for an employee to produce an idea. It may go into the suggestion box. This is often the route by which an idea reaches management. Other ideas are perhaps communicated to the departmental manager who says, "Hold it ". He takes it up to the senior people, perhaps to their patent man, and they come down and say to the employee, "You have a patentable idea here". They take out a patent on his behalf which, with his name upon it, belongs to the employee. Furthermore, they may make a model, indulge in extensive trials and possibly spend a great deal of money on developing it, for which the employee is duly grateful. This is not general practice but it is commonplace practice. When the comptroller considers how much compensation the employee should be paid, the employee having assigned the patent to the employer, he is not invited to take any account of all this. To miss out this consideration altogether seems to me to be very amateur.
I am not seeking advice today from the noble and learned Lord. I want this opinion simply to go on the Record because I think that the department is missing out in its consideration of what really goes on in industry. Some clauses of the Bill are redolent of the omission to think sufficiently deeply about real practice.
Lord CAWLEY: I find myself in some difficulty in understanding why subsection (3A) is necessary—why, if the patent is the absolute property of the employee and he assigns it for a good consideration to the employer, he should not be in the same position as any other outsider. Is it suggested that the employer would put pressure on the employee to assign the invention to him, or is there any other reason for these provisions?
Lord DAVIES of LEEK: Paragraph (d) on page 2 of the Marshalled List of Amendments says clearly, although I should be glad if my noble and learned friend would correct me if I am wrong

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because it is a difficult question of semantics which we want to get right:
"the contribution made by the employer to the making, developing and working of the invention by the provision of advice, facilities and other assistance and by his managerial and commercial skill and activities"
will be taken into consideration. That is fair enough; it refers to the employer. In a maiden speech from below the gangway we had an example yesterday of an invention which cost only £5 but which, to develop it to the full, cost millions. That invention was developed in the man's firm. I do not believe that any just employee would object to a share of the development cost going to the firm that had developed it fully. Have I got it right now?
Lord BROWN: Yes. The point is that that particular set of criteria will not apply in the case of an employee who owns an invention and who has assigned or licensed it to the employer. If the Amendment is passed, the help that is given by the employer will be left out of consideration.
Lord DAVIES of LEEK: That is what I am not so sure of, but we will leave it at that.
4.24 p.m.
Lord BELSTEAD: I wonder whether the noble and learned Lord is able to answer that question. I will not repeat it; I was going to ask the same question but the noble Lord, Lord Brown, and the noble Lord, Lord Davies of Leek, have put it better than I could have done. May I ask a second question about the relationship between paragraph (a) of the new subsection (3A) and paragraph (a) above? If an employee has been given promotion, and thereby extra remuneration, I am surprised that under the new subsection (3A) things of that kind are not going to be taken into account by the comptroller. They are provided for in paragraph (a) above but not in the new subsection (3A).
I think that the noble and learned Lord will say to me that I am riding a hobby horse, but the reason why I am repeating the question—I know that the noble and learned Lord does not agree with me on this—is that when we considered the Bill a week ago my noble friend Lord Nelson of
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Stafford moved an Amendment about voluntary reward schemes. During the debate, I ventured to express the opinion that if the voluntary reward schemes were not allowed to exist side by side with the statutory reward scheme, the employee deciding whether he wished to go for the voluntary or the statutory scheme, the voluntary reward schemes would come to an end.
If the Government are going totally to reject the argument that paragraph (a) should not, in some form, come into subsection (3A) below, then I put it to the noble and learned Lord that this is proof of what I was attempting to say last time. The situation will be that if the employer has a voluntary reward scheme and the rewards of that scheme are not going to be taken into account when the comptroller or the court is assessing compensation under Clause 37(2)(c), I think that most employers will ask whether there is any point in allowing an employee, however worthy he may be, to have two bites at the cherry. Then the voluntary reward schemes will wither on the branch and die.
The LORD CHANCELLOR: First may I deal with the matter raised by my noble friend Lord Brown. I am sorry that he has thought it right to describe the provisions of 37(1) as bad law. My noble friend may not like the provisions of Clause 37(1), but if Parliament, in all its wisdom, likes them and Her Majesty the Queen then gives Royal Assent to the Bill it will become the law of the land, whether good or bad. That is all I can say about the unkindly observation which my noble friend has made.
Coming to the interesting matters which have been raised, I may inadvertently have misled the Committee to this extent about one aspect. If your Lordships will look at subsection (3A) it will be seen that:
"In determining the fair share of the benefit to be secured for an employee in respect of a patent for an invention which originally belonged to him, the court or the comptroller shall, among other things, take the following matters into account…"
Then follow paragraphs (a) and (b). Paragraphs (a) and (b) are intended to identify the main and paramount factors which should be taken into account, but the court or the comptroller is not prevented from taking into consideration, where they may be relevant or pertinent in deciding how much the employee ought

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to be awarded, any of the matters listed in paragraphs (a) to (d). However, in a situation where the invention originally belonged to the employee—it was invented entirely on his own initiative without involving any duties that he had to the employer—the relationship between the employer and the employee differs quite fundamentally from the situation that exists where the invention belongs as of right to the employer, because the employee is, in effect, employed to invent and gets extra salary and remuneration for his skill in that capacity.
In the first case that I have mentioned the employer-employee relationship is not really very different from parties negotiating at arm's length—somebody else coming in and offering the employer an invention. Therefore, with great respect, I do not think that paragraph (d) in the first part of the Amendment will normally or usually be relevant; but, as I have said, the considerations in subsection (3)(a) and (b) by virtue of the words "among other things" are not exhaustive and the court or the comptroller could in the appropriate case take them into account. If I had made that clear earlier, I think that perhaps we should not have got into the difficulty we are now in, but I hope that explanation will help the Committee.
I confess that I did not quite follow the point made by the noble Lord, Lord Cawley, about "assignment". I did not quite see how that arises under this Amendment, but no doubt that is my fault.
Lord CAWLEY: I said that the invention originally belonged to the employee so he must have been the inventor; he must have had the original patent, and he must surely have assigned it to his employer. I wondered why subsection (3)(a) is necessary if that is, as the noble and learned Lord said, akin to a transaction at arm's length. Was it because it was thought that the employer might not be in a position to put over unfair terms to the employee when the employee was in a position to negotiate freely with the employer to take a licence?
The LORD CHANCELLOR: I think we are in a situation where the employee may desire to have recourse to the court or the comptroller for them to assess what
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he claims to be his fair share of the benefit. I think it is intended to deal with that situation.
Lord BROWN: I should like to have one more little cut at this matter. I have been, so to speak, at the wrong end of the law in the Patents Court on one or two occasions. I can imagine the employer arguing before the comptroller or the Patents Court, and I can hear the comptroller saying to the employer: "You have sought to have me introduce into my decision about compensation the words of Clause 38 (3)(b)". That paragraph applies to inventions that are owned by an employer and not to inventions owned by the employee, which is the case we are considering. I can imagine his saying: "You have sought to make use of the words ' among other things' in subsection (3)(a) to imply that I, the comptroller, ought to take into account the contribution made by the employer; but if the law had intended that I should take into account paragraph (b) they would surely have included it under (3)(a). In fact, by including it under the previous subsection and by failing to include it in (3)(a) they have obviously implied that I should not take it into account under (3)(a)."I can almost hear the comptroller saying that and, with great respect, I think the noble and learned Lord's argument that such matters can be taken into account because subsection (3) says "among other things" will, in the case of this particular criteria, not apply.
The Lord CHANCELLOR: I am very willing to look into the point made by my noble friend. I think the words "among other things" cover the situation, but, as I regret to say I had somewhat overlooked them myself, it may be necessary to look again to see whether that matter should be more clearly identified. The whole scene is at large in the matter of the assessment, and all relevant factors will be taken into account and the value of subsection (3)(a) and (b) seem to me now, giving the matter further consideration, to do no more than identify the most important and the most relevant factors.
Lord BELSTEAD: I am sure we should all be very grateful to the noble and learned if he would look again at this point.

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Perhaps during his review of this Amendment he would also be so kind as to give attention to whether the words:
"the amount of any sums received by the employee under this Act or otherwise",
have some relevance to what the employee might receive, even though it is the employee's invention, by way of special remuneration from his employer, and this might perhaps be taken into account in subsection (3)(a). In saying that, I am not trying to wring the last penny from the employee who has made an invention which legally belongs to him. However, I think it is right that we should have spent a little time in trying to find out what these expressions, particularly "among other things" and "or otherwise", really mean.
The Lord CHANCELLOR: I am making no complaint.
The DEPUTY CHAIRMAN of COMMITTEES (Viscount Goschen): Does the noble and learned Lord wish to withdraw the Amendment?
The Lord CHANCELLOR: No, indeed not!
On Question, Amendment agreed to.
4.35 p.m.
The Lord CHANCELLOR The Lord CHANCELLOR moved Amendment No. 194:
Page 30, line 43, leave out ("this section") and insert ("section 37 above").
The noble and learned Lord said: In moving this Amendment perhaps I might also refer to Amendments Nos. 197 and 198 in the same connection. These changes reflect in the appropriate places in Clause 38 that it is under Clause 37 and not Clause 38 that the comptroller orders payment of compensation to an employee. These are purely drafting changes. I beg to move.
On Question, Amendment agreed to.
The Lord CHANCELLOR The Lord CHANCELLOR moved Amendment No. 195:
Page 31, line 1, after ("Where") insert ("the court or ").
The noble and learned Lord said: This Amendment is consequential on Amendment No. 176, which has the effect of allowing application for compensation
764
under Clause 37 to go either to the court or to the comptroller. I beg to move.
On Question, Amendment agreed to.
The LORD CHANCELLOR The LORD CHANCELLOR moved Amendment No. 196:
Page 31, line 1, after ("order") insert ("the court or").
The noble and learned Lord said: This, similarly, is a drafting Amendment following Amendment No. 176. I beg to move.
On Question, Amendment agreed to.
The LORD CHANCELLOR The LORD CHANCELLOR moved Amendment No. 197:
Page 31, line 8, leave out ("this section") and insert ("section 37 above").
On Question, Amendment agreed to.
The LORD CHANCELLOR The LORD CHANCELLOR moved Amendment No. 198:
Page 31, line 12, leave out ("this section") and insert ("section 37 above").
On Question, Amendment agreed to.
Clause 38, as amended, agreed to.
Clause 39 [Enforceability of contracts relating to employees' inventions.]:
The LORD CHANCELLOR The LORD CHANCELLOR moved Amendment No. 199:
Page 31, line 19, leave out from second ("the") to ("in") in line 22 and insert ("employer or").
The noble and learned Lord said: This Amendment simplifies the drafting of Clause 39(1) by combining paragraphs (b) and (c) without effecting any material change. I beg to move.
On Question, Amendment agreed to.
Lord LYELL Lord LYELL moved Amendment No. 199A:
Page 31, line 24, after ("term") insert ("other than an obligation of confidence ").
The noble Lord said: I had originally intended to support my noble friend Lord Nelson of Stafford on this particular Amendment, but he asked me whether I should be able to move it on his behalf and I hope the Committee will accept his apologies. Owing to the pace at which we proceeded with our deliberations at the last sitting of the Committee we did not reach this Amendment. He is in

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Paris on Parliamentary business; so I hope the Committee will bear with us.
It is a fairly simple Amendment but the noble Lord, Lord Nelson of Stafford, would ask the Government to give the closest scrutiny to this Amendment. The main point that he feels deserves an answer, as I do, is what should happen where an employee makes, or makes a contribution to, an invention and in so doing uses confidential information which in fact and in law would belong to his employer? Can any employer have any confidence that an employee—who may have absolutely nothing to do with, and no detailed or specialised knowledge of, any particular research project—would not be able to use information gleaned from his employment which might be of great interest and use for the benefit of the employer's competitors, or indeed any outside concern? This is what seems perfectly possible under Clause 36(2). I shall come to Clause 39 later, but at the first strike it seems that Clause 36(2) is the relevant exclusion.
Perhaps it would be for the convenience of the Committee if I alluded to a possible example. Somebody who worked in a research laboratory, let us say an accountant or a statistician, might in the course of his work note that the research scientists had come up with a certain product. Let us suggest even that this particular product might be of a chemical or a polyolefin nature. The particular example I had in mind was a particular non-slip plastic or oily substance or surface which in this particular instance would be designed to be useful in industry. I have great knowledge of the use of one of these non-slip substances, first, on the sporting field. For this reason I am sorry that my noble friend Lord Orr-Ewing is not in his place, because he and I, and indeed other noble Lords, make great use of this substance, which I understand goes by the name of polytetrafluorethylene. It is used on the base of the skis that noble Lords and I tend to use, as well as on various utensils which are used for culinary purposes, non-stick frying pans and such things.
Let us suppose that this laboratory technician goes home, having noted that this product has been developed in the laboratory, and when he sees his food being cooked he notes that the eggs are
766
sticking to the pan. He thinks "This could be a possible use of the product ". Let us also suppose—this is possibly going to be rather hypothetical—that the research scientists do not fry their own eggs or do not notice this use of their industrial substances. That could be a fairly long hypothesis, but nevertheless I believe the example is relevant. This particular assistant in the laboratory, who would not be directly involved on the reserach project, could make use of the knowledge he has gleaned as part of his employment.
He might wish to patent the invention in his own name. As I understand it, under Clause 36(2)—and this is what the noble and learned Lord the Lord Chancellor and the noble and learned Lord, Lord McCluskey, were alluding to—the employee can claim such an invention as his own. Also under Clause 39(2), we understand, he could do the same thing. In the latter case, in the clause we are discussing, that employee has very clearly breached his contract of employment with his employer in using confidential information, which he has derived not necessarily in the course of his work but through observation.
Another, possibly longer, hypothesis is a clerk—or even somebody of a lower technical category, perhaps even somebody who would be involved in general maintenance or indeed an outside employee. I have personal knowledge of this myself. I was involved, as part of my apprenticeship in Scotland, in stocktaking in a particular firm. My duties lay between myself and my employer—although in those days it was "my masters" as I had signed an apprenticeship, an indenture. As part of my duties I had to check that certain stocks of various chemical substances were held in the factory. The technicians took me round the factory. An empty hopper was wheeled on to a weighbridge and mixtures of four different types of substance were put into this hopper, graded very carefully, according to a predetermined formula. When the entire formula had been completed the technician said to me that he hoped I would not put this formula in my report. The allusion was very clear to me: that if I had done a relatively simple sum as a result of observing the amounts of chemical mixture put into the hopper, I would have had the formula for a paten table invention

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which was entirely secret to that particular firm. I probably could have derived some rudimentary chemical knowledge and gone and patented that invention on my own behalf. I was not in any way connected with this particular firm; I was connected with an outside firm.
This seems to me to be a possible second hypothesis, that somebody who is not directly involved in a research project could indeed, as we understand it, under Clause 39, use confidential information which he (or she) might derive from his employment for his own benefit. As we understand it, the employer would not have any right against any employee who used this confidential information which he had acquired. That is the substance of the Amendment that the noble Lord, Lord Nelson, has put down, and we should be very grateful if the noble and learned Lord could give us an answer. I beg to move.
The LORD CHANCELLOR: Clause 39 of the Bill gives effect to the recommendation of the Banks Committee that in contracts between employers and employees any term of the contract which would diminish the rights which an employee would otherwise have in inventions made by him should be unenforceable. The provision relates to inventions made by an employee. If we were faced with the situation where the employee was purporting to patent and exploit an invention in fact made by the employer, in those dreadful circumstances the noble Lord has just disclosed to us, he would never begin to set his claim on its feet. His employer would quickly say, "Sorry, Charlie. You have just pinched my invention", or words to that effect. So I do not think he would get very far in that way. He would be indeed—to coin a phrase of the noble Lord—embarking on a very slippery slope. He would need more than that non-stick substance, or "stick" substance as the case may be, to protect him—I suppose it would be "stick" substance.
I confess that I do not quite see what advantage would be gained, to either the employer or employee, by amending Clause 39 in the way that is proposed. Indeed, the Amendment could well open the door to terms in contracts which had
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the effect of diminishing an employee's rights in inventions made by him and, therefore, defeat the purposes of the provisions. However, I shall study the hypothetical illustrations that the noble Lord has given in order to discover whether they give rise to the need to provide for protection to an employer's inventions, or those owned by him, in regard to which concern has been expressed. However, as at present advised, I am not satisfied that this change would really be very helpful.
Lord CAWLEY: I should like to ask the noble and learned Lord whether the phrase "any term in a contract" covers implied terms as well as express terms, because in this type of contract there must be an implied term that one will not do anything in breach of confidence. I am not quite certain whether this covers "implied" or whether it applies only to an express term in a contract.
The LORD CHANCELLOR: As it refers to a contract, I should not have thought that it excludes implied terms. It would be quite remarkable if it did. I shall most certainly look at the point.
Lord CAWLEY: I should like to raise another matter. We have referred to polytetrafluorethylene, but I know of a case where a learned gentleman wrote a letter to Nature saying that he had discovered an organic molecule in which there was an iron atom. He said nothing about its possible uses. The oil companies "muscled in" straight away and patented it for use as an "anti-knock" compound. Therefore these things do occur. Afterwards there was a tremendous dispute. I have no idea of the result, but I think it turned out that it was not an "anti-knock" compound. If it had been an "anti-knock" compound, it would have been what the oil companies were looking for because it was non-poisonous.
The LORD CHANCELLOR: I am very willing to look at these hypothetical illustrations. Of course I take them seriously and I shall return to them. I hope the noble Lord, Lord Lyell, will forgive me for a certain amount of cheerfulness and breaking in on this solemn discussion. If at this stage he sees fit to withdraw his Amendment, I shall look at the points that have been made.
Lord LLOYD of KILGERRAN: I do not want to enter into any discussion about "anti-knocks" or "slippery slopes", but I could not understand the real reasons behind this Amendment. The law of confidence has been extended very greatly during the past ten years, and I did not think that the noble Lord's Amendment quite covered that position.
Lord LYELL: I had understood that this matter was raised by my noble friend Lord Nelson of Stafford, who is involved with matters of confidence. However, I shall certainly raise it with the noble Lord and have further discussions. I am very grateful to the noble and learned Lord for his explanation of how he understood the two hpyothetical cases. The noble and learned Lord dealt very effectively with my first example. He pointed out that where the employee, let us say the laboratory technician, sought to patent an invention from his employer, that certainly would not be allowed.
However, the second hypothesis is one of which I have some personal knowledge. I was not employed by this firm. I do not know whether my employment with an outside firm which had a commercial relationship with the research firm would class me as an employee of the research firm. However, I think that the noble and learned Lord, Lord McCluskey, will be able to deal with this matter at a later stage. I think that we have slipped on our skis quite far enough on this Amendment. On the cooking side, I am sure that the eggs have slipped out of the pan. Therefore, I beg leave to withdraw the Amendment, and hope to return to it, possibly more briefly, at another stage.
Amendment, by leave, withdrawn.
The DEPUTY CHAIRMAN of COMMITTEES: Before I call the next Amendment I should inform noble Lords that if Amendment No. 200 is agreed to I cannot call Amendment No. 201.
The LORD CHANCELLOR The LORD CHANCELLOR moved Amendment No. 200:
Page 31, line 26, leave out ("commencement of this section") and insert ("appointed day").
The noble and learned Lord said: The purpose of this Amendment is to bring the drafting of Clause 39(2), in respect of the coming into operation of the provision,
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into conformity with other parts of the Bill which refer to the "appointed day". This is a mere drafting Amendment. It also takes care of the point raised by the noble Lords, Lord Lyell and Lord Belstead, in Amendment No. 201. I beg to move.
On Question, Amendment agreed to.
The LORD CHANCELLOR The LORD CHANCELLOR moved Amendment No. 202:
Page 31, line 27, at end insert ("or applications for such patents").
On Question, Amendment agreed to.
The LORD CHANCELLOR The LORD CHANCELLOR moved Amendment No. 203:
Page 31, line 30, at end insert ("or an application for any such patent.
(3) This section applies to any arrangement made with a Crown employee by or on behalf of the Crown as his employer as it applies to any contract made between an employee and an employer other than the Crown, and for the purposes of this section "Crown employee" means a person employed under or for the purposes of a Government department or any officer or body exercising on behalf of the Crown functions conferred by any enactment.").
The noble and learned Lord said: The new subsection which is introduced by this Amendment is to make clear that Crown employees have the same protection given by Clause 39(2) as employees in private industry. A special provision for Crown employees is necessary as they do not have contracts of employment as referred to in subsection (1) and would otherwise therefore not enjoy the safeguard provided by Clause 39(2). Therefore this new subsection is needed to make it clear that Crown servants are also to enjoy the protection given by subsection (2).
On Question, Amendment agreed to.
Clause 39, as amended, agreed to.
Clause 40 [Supplementary]:
The DEPUTY CHAIRMAN of COMMITTEES: If Amendment No. 204 is agreed to, I cannot call Amendment No. 205.
4.58 p.m.
The LORD CHANCELLOR The LORD CHANCELLOR moved Amendment No. 204:
>Page 32, line 15, leave out from ("derived") to end of line 16 and insert ("from the patent by

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his personal representatives or by any person in whom it was vested by their assent.").
The noble and learned Lord said: This Amendment prevents an employee inventor being deprived of the possibility of an award under Clause 37 by the death of his employer. If a claim is made by the employee after the employer has died, the compensation is to be related not only to the benefit derived by the employer when he was alive, but also to the benefit which may reasonably be expected to be derived by the person in whom, on his demise, his personal representatives vested the patent.
On Question, Amendment agreed to.
The LORD CHANCELLOR The LORD CHANCELLOR moved Amendment No. 206:
Page 32, line 22, leave out ("to 39") and insert ("and 38").
The noble and learned Lord said: The purpose of this Amendment is to delete from subsection (7) an inappropriate reference to Clause 39 as the latter does not refer to "benefit". The Amendment does not alter the meaning of the subsection.
On Question, Amendment agreed to.
Clause 40, as amended, agreed to.
Clause 41 [Avoidance of certain restrictive conditions]:
5 p.m.
Lord McCLUSKEY Lord McCLUSKEY moved Amendments Nos. 207 to 222:
Page 32, line 31, leave out from ("the") to ("or") in line 33 and insert ("supply of a patented product or of a licence to work a patented invention, or of a contract relating to any such supply").
Page 32, line 35, leave out ("disposal") and insert ("supply")
Page 32, line 41, leave out ("contract for").
Page 33, line 11, leave out ("whether made") and insert ("and licences whether made or granted").
Page 33, line 12, after ("made") insert ("or granted ").
Page 33, line 17, after ("pursuer") insert ("or a licence under the patent granted by him or with his consent").
Page 33, line 19, after ("contract") insert ("or licence").
Page 33, line 21, after ("contract") insert ("or granting of the licence").
Page 33, line 22, leave out ("dispose of") and insert ("supply").
Page 33, line 25, after ("contract") insert ("or licence").
Page 33, line 29, after ("contract") insert ("or licence").
Page 33, line 33, leave out ("for disposal") and insert ("to supply").
Page 33, line 35, leave out ("contract for").
Page 33, line 36, leave out ("contract") and insert ("licence").
Page 33, line 40, after ("contract") insert ("or licence").
Page 33, line 43, after ("contract") insert ("or licence").
The noble and learned Lord said: After the heady excitements of the last 35 Amendments we now return to the drafting minutiae with which it is my privilege and pleasure to deal. With the leave of your Lordships, I should like to take 22 Amendments at the same time. Amendments Nos. 207 to 222 inclusive are Amendments to Clause 41, and may I speak at the same time to Amendments Nos. 224 to 228 inclusive, and No. 230, which are Amendments to Clause 42. Clause 41 reproduces with minor drafting changes Section 57 of the 1949 Act, and this group of Amendments to which I am now speaking seeks only to make minor drafting improvements in the wording of the two clauses to which they relate.
The changes effected can be seen to be of three types, although they are to some extent mixed up with one another. First of all, the word "disposal" is replaced by the more accurate word "supply". This avoids the possibility of the word "disposal" being held to have different meanings in difference clauses: it also appears in Clause 58 in relation to infringement. The next group of Amendments is to delete the superflous words "contract for" wherever those words appear before the word "licence".
Next there is inclusion in several Amendments of references to licences which are granted as well as to those which are made. The Amendment to page 33 line 17, Amendment No. 212, ensures that the defence to infringement provided for in subsection (3) is also available when the defendant has a licence containing a term rendered void by subsection (1) of the clause as well as when he has a contract containing such a term. This remedies a deficiency in the existing draft of the clause. I beg to move Amendments Nos. 207 to 222 inclusive.
On Question, Amendments agreed to.
Lord LYELL Lord LYELL moved Amendment No. 223:
Page 34, line 4, at end insert—
("(7) For the avoidance of doubt it is hereby declared that any condition or term of a contract as referred to in this section which requires the person supplied or the licensee to utilise in pursuance of the contract raw materials or components of a specified design, constitution or quality shall not be void by reason only that such raw materials or components are for the time being obtainable only from the supplier or licensor or his nominee.")
The noble Lord said: We are grateful to the noble and learned Lord, Lord McCluskey, for pointing out that we are coming back to drafting Amendments. The Amendment that I should like to speak to now is, I hope, in the same category of drafting, but it is a little more complicated than the group of Amendments that we have just considered. This particular Amendment covers the situation in which a patentee grants a licence and he instructs the licensee to use certain specified raw materials for a specification. It may be long-winded and somewhat convoluted, but I would say that it is a simple Amendment. I think that the meaning is clear, that the licensor instructs the licensee to use certain raw materials for the specified specification. It also would be the case that these raw materials are, for the time being, only available from the licensor. The case would also be that the raw materials conform with the requirements of the working of the invention.
It is important to note that this Amendment includes the words "for the time being". I think your Lordships will find them at the last but one line of the Amendment at the bottom of the page. The effect of the Amendment is not to seek to protect merely the interests of the patentee as a supplier of raw materials, or of components, for the working of an invention for ever, but only for a limited period of time. We hope, and believe, that this particular Amendment is relevant because it follows on Article 85 of the Treaty of Rome which prohibits a practice of this sort.
However, in December 1962 the Commission sent out a letter, which I think was called the Announcement of the Commission on Patent Licence Agreements, but it is popularly known, I understand, in patent circles, as" the Christmas message," esoteric though this may be. In this letter the Commission mentioned the achieving of quality and standards if a patentee put an obligation on someone else to procure supplies from a particular source for the
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technically perfect exploitation of the patent. I think that the crux of the Amendment is that the patentee wants to see that his licensee is going to produce the product in the best way possible, so that the reputation and the name of the patentee, and we hope also of the licensee, are going to be protected. The technically perfect exploitation of the patent is apposite here. We hope that this particular Christmas message shows that this would be allowed. It is in essence this provision that the Amendment seeks to write into the Bill. I beg to move.
Lord McCLUSKEY: I fear that with the passing of the centuries the Christmas message has become more complicated and less appealing. The Government would like to consider more carefully this particular Amendment with a view to seeing whether what we see as its objectives, and what the noble Lord has explained are its objectives, can be achieved without disadvantage. It is thought possible that the clause might be abused as well as properly used if it were amended in this way; abused so as to enable the main intent of the clause to be avoided. On the other hand, we recognise that it has certain advantages, and if the noble Lord would care to withdraw the Amendment the Government would like to consider it further. In the meantime, in anticipation of that withdrawal, I thank the noble Lord for tabling this particular Amendment.
Lord LYELL: Once again I am grateful to the noble and learned Lord for the kind way in which he has listened to my explanation of the Amendment and also for the reception which he and the Government have given to it. We hope that the Government will be able to look favourably on some aspects of this Amendment, and we look forward to hearing what they have to say at a later stage. With that, I certainly take up the noble and learned Lord's invitation, and beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 41, as amended, agreed to.
Clause 42 [Determination of parts of certain contracts]:
Lord McCLUSKEY Lord McCLUSKEY moved Amendments Nos. 224 to 228:
Page 34, line 5, leave out from ("the") to

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first ("or") in line 7 and insert ("supply of a patented product or licence to work a patented invention, or contract relating to any such supply")
Page 34, line 9, after ("contract") insert ("or granting of the licence").
Page 34, line 11, after ("or") insert ("licence or").
Page 34, line 12, after ("contract") insert ("or licence").
Page 34, line 15, after ("contracts") insert ("and licences").
The noble and learned Lord said: I have already spoken to Amendments Nos. 224 to 228 inclusive, and with the leave of the Committee I would formally move these Amendments en bloc.
On Question, Amendments agreed to.
5.10 p.m.
Lord BELSTEAD Lord BELSTEAD moved Amendment No. 229:
Page 34, line 16, at end insert—
("( ) For the purpose of this section the expressions" patented product "and" patented invention "shall include respectively a product and a process the subject of a patent application or patent applications and the expression" the patent or all the patents by which the product or invention was protected at the time of making the contract "shall include the patent or patents granted on any such patent application or applications.").
The noble Lord said: when a proprietor of a patent licenses someone else to manufacture the invention, the licensor may not have reached the stage at which his patent has actually been granted; in other words, he may not have reached the stage when he is the proprietor—he may only have submitted an application—so a contract made at the time of a patent application should, I believe, also qualify under Clause 42 to allow either party to determine the contract after the patent or patents concerned have expired. As the clause is a defence for a licensee or someone who is being supplied with patented goods, in that under the clause conditions extending the effect of the patent beyond its actual term are prohibited, it would seem equitable for this Amendment to be made.
Lord McCLUSKEY: Again I begin by thanking the noble Lord for tabling the Amendment. The Government appreciate the idea which lies behind it and which the noble Lord has explained. Nevertheless, we should like to study it more closely before we can say that we are satisfied
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that the clause should be extended in the manner proposed. Again, therefore, I invite him, in the light of what the Government are prepared to do, to withdraw the Amendment and perhaps we can return to it on Report, when I hope to be positive, but cannot promise.
Lord BELSTEAD: I am grateful to the noble and learned Lord for those comments and I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 230:
Page 34, line 18, after ("contract") insert ("or licence").
The noble and learned Lord said: I have already spoken to this. I beg to move.
On Question, Amendment agreed to.
Clause 42, as amended, agreed to.
Clause 43 [Patentee's application for entry in register that licences are available as of right]:
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 231:
Page 34, line 21, leave out from first ("the") to ("may") in line 22 and insert ("grant of a patent its proprietor").
The noble and learned Lord said: I will, with the permission of the House, speak at the same time to Amendment No. 235. This Amendment is consequential to an earlier one. The House may recall Amendment No. 98 to Clause 22 which makes the date of the publication of the notice of the grant of a patent the date on which the patent is to be treated as having been granted for the purposes of the Act. Amendment No. 231 to Clause 43 therefore replaces the reference to the publication of a notice of the grant of a patent by a reference to the grant of a patent to its proprietor. This is nothing more than a consequential Amendment. Amendment No. 235 to Clause 45 deals with the same matter.
On Question, Amendment agreed to.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 232:
Page 34, line 30, leave out ("such an") and insert ("that").
The noble and learned Lord said: As can be seen, this Amendment is a drafting Amendment. It does not affect the meaning of the clause as drafted.
On Question, Amendment agreed to.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 232A:
>Page 34, line 44, after ("defendant") insert ("or defender").
The noble and learned Lord said: This is an Amendment of which I can proudly say that I am the personal author. In Scotland the person who defends an action is known as the defender, in England as the defendant, and that had been omitted on this point. Thus, with a degree of pride and certainty that I am right about it, I beg to move.
On Question, Amendment agreed to.
Clause 43, as amended, agreed to.
Clause 44 [Cancellation of entry made under section 43]:
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 233:
Page 35, line 38, leave out ("such period as may be prescribed") and insert ("a period specified by the comptroller").
The noble and learned Lord said: This Amendment relates to proceedings for the cancellation of an entry in the register made under Clause 43 that licences under a patent are available of right, and is needed because a point does not exist in the proceedings from which a prescribed period for the purposes of subsection (4) could run. The Amendment therefore permits the comptroller to fix the period during which renewal fees payable under subsection (4) should be paid. This does not in any other sense affect the operation of the provision.
On Question, Amendment agreed to.
Clause 44, as amended, agreed to.
Clause 45 [Compulsory licences]:
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 234:
Page 36, line 11, after ("years") insert (",or of such other period as may be prescribed,").
The noble and learned Lord said: I can deal briefly with this Amendment.
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Forthcoming revision of the International (Paris) Convention for the protection of industrial property, particularly in the matter of compulsory licences, may make it necessary for United Kingdom patent law to be changed in order to conform to Convention requirements. The Amendment would allow this to be done by rule in respect of the period during which patents are immune to applications for compulsory licences, but in recognition of the importance of this matter to patentees, the provision for change is made subject to Affirmative Resolution procedure. In other words, we are simply avoiding the necessity for introducing legislation should this change be required.
On Question, Amendment agreed to.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 235:
Page 36, line 12, leave out ("publication in the journal of a notice of the").
The noble and learned Lord said: This is the last Amendment of the group of 22. I beg to move.
On Question, Amendment agreed to.
5.18 p.m.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 236:
Page 36, line 21, at end insert—
("(1A) A rule prescribing any such other period under subsection (1) above shall not be made unless a draft of the rule has been laid before, and approved by resolution of, each House of Parliament.").
The noble and learned Lord said: I think I mentioned this Amendment when I was speaking to Amendment No. 234. I beg to move.
On Question, Amendment agreed to.
Clause 45, as amended, agreed to.
Clauses 46 and 47 agreed to.
Clause 48 [Application by Crown in cases on monopoly or merger]:
On Question, Whether Clause 48 shall stand part of the Bill?
Lord LLOYD of KILGERRAN: Although no Amendment has been tabled to this clause from these Benches, it seems to us that it raises a question of some constitutional importance. The

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clause relates to the findings of the Monopolies Commission and enables the appropriate Minister or Ministers to make an application to the comptroller for relief. The Comptroller General is part of the Executive and it is of course without any disrespect to him that I would submit that perhaps an application by the Minister should go to the court rather than directly to the Comptroller General. Of course, the answer may be that the Comptroller General is acting in his quasi-judicial capacity but it is the function of the court to control the Executive. I should therefore be grateful if the Government would not necessarily give an answer now but would consider whether it is not invidious for the Comptroller General, as a civil servant, to be asked to exercise powers by the Minister or Ministers in relation to an application which the Crown feels desirable to be made in cases of monopoly or merger.
Lord McCLUSKEY: I should like to answer the noble Lord by saying that the Comptroller General does of course act in a quasi-judicial capacity. The other point that I might simply make is that this is not a new clause. It reproduces, with drafting changes, the provisions of Section 126 of the Fair Trading Act 1973, which, in turn, amended the 1949 Act. I do not know whether this point has been taken before and I would simply give the answer that I gave before; that is, that the comptroller is acting in a judicial capacity.
Clause 48 agreed to.
Clause 49 [Inventions relating to food or medicine, etc.]:
On Question, Whether Clause 49 shall stand part of the Bill?
5.22 p.m.
Lord NORTHFIELD: This clause refers to the pharmaceutical industry and I oppose it and hope that we shall agree to delete it without too much fuss. I declare a minor interest, in that, from time to time, I advise a pharmaceutical company. On Second Reading, my noble and learned friend referred to the fact that this is a repetition of what I might describe as the "friendless" Section 41 of the 1949 Act. He indicated that he thought that its mere presence in the Bill at the moment stimulated competition and restrained exorbitant prices. However, he went on
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to say that discussions were going on with the industry about the adverse effects on confidence and investment. He said that if more effective ways to prevent exorbitant profits could be found, he was prepared to reconsider the clause.
I believe that the first question we must ask my noble and learned friend is what has happened between Second Reading and now? Clearly, discussions will have taken place and I hope he can say what is their outcome. My understanding is that the discussions were part of a package deal which included the deletion of the clause and that the remainder of the package was virtually agreed, so that it is now up to the Government to carry out their part of the bargain and take the agreement to the point of deleting Clause 49.
However, whatever the outcome of these discussions, I believe that the clause should be deleted for quite other reasons. First, why are the powers in this clause needed? The powers are very wide indeed. It is a power of the comptroller virtually to make available anybody's patent to anyone he wishes without any real guidance or rules being laid down. Why is this great power needed over the pharmaceutical industry?
First, I believe that it is worth recording that the industry has no very bad record. Its exports are worth £400 million, which is about four times the cost of our imports of pharmaceutical products into this country. The industry is a net exporter and, as far as I can discover, its prices have certainly not been exorbitant. In recent years, they have risen half as fast as the Retail Price Index. Certainly, its return on capital seems to have declined quite dramatically. I do not know what complaint the Government have about the pharmaceutical industry faced with figures like that.
Secondly, I beg your Lordships to look at the powers that the Government already possess if they feel that there are exorbitant profits being made. First, the industry is subject to the voluntary price regulation scheme, which has worked very effectively indeed in recent years. This is a voluntary scheme. It works well and prices for drugs have ended at such a level that they are about the lowest in Europe. What is my noble and learned friend grumbling about? Furthermore,

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if he has some grumbles about the pharmaceutical industry, he already has an enormous armoury in the Bill with which to fight exorbitant prices. I shall not go into the provisions in detail—he must be very well aware of them as must other Members of your Lordships' House—but there are, for example, the clauses against monopoly. Under these, if a monopoly situation is being exploited and prices are unreasonable, the Government can surmount the patent and make it available for others to produce the product. Secondly, there are the provisions in Clause 45 which deal with compulsory licences for use when demand is not being met on reasonable terms. In other words, if a patentee is charging exorbitant prices, the Government can, under Clause 45, insist on compulsory licensing of other people to make the product and make it available at a reasonable price.
Later in the Bill, we have the provisions for the Crown to be able to use patents, as was done in 1961 when certain patented drugs were taken over by the Crown in order to provide drugs at a cheaper price for the National Health Service than the price for which they could be bought from the patentee. In other words, the difficulty with this situation is that my noble and learned friend is trying to defend the indefensible. He has an enormous armoury of powers against this industry which are working extremely well, particularly on the voluntary side of price regulation, and it is an industry with a good record. Apart from the Government, I know of no friend of the hated Section 41 which is now repeated in Clause 49.
What is the positive case against the clause? The positive case is really that, so long as the clause remains in the Bill, it will be an enormous deterrent to research taking place in this country. Who in the great multinationals will undertake substantial amounts of research in the future if they feel that, by some use of the present clause, the patent that results from their research may, very quickly and almost without anybody knowing, be made available to anybody, with no guidelines laid down as to why that is to be done or anything else? Certainly, there is a right of appeal in the subsequent clause, but there is undoubtedly a very widespread fear in the industry that this
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clause may be abused in the future and that, for that reason, research will be deterred. The Government, in their own publication about the issue, were quite wrong. The Government said that the case being made against the clause was that it was necessary for research-based pharmaceutical companies to be able to recover their costs. That is not the point at all. The point is the other way round: that they will not undertake this research if the product of the research and the patent is then available to almost anybody at the whim of the comptroller.
In many ways I would not have minded had the clause had some guidelines in it, but that is not satisfactory. For example, the comptroller ought to be told exactly when he should be using these swingeing powers. For example, it ought to be insisted in the clause that he had to take into account reasonable reward for relevant research. That is not even in the clause, and the comptroller could just ignore anything like that. So I think that the best thing to do is to delete the clause.
When one comes to the final crunch on this matter, the support for deleting it is extremely respectable. First, the Banks Committee itself spent a great deal of time on this matter. A very large part of Chapter 14 in the Banks Report is devoted to this issue. In paragraph 410 the Banks Report comes down absolutely firmly in favour of taking out the clause. I should like to read just one sentence from what is a very large part of the Banks Committee recommendations:
"Thus, in our opinion, the benefit which may accrue to the public through the licensing of an alternative supplier does not outweigh the discouragement to research inherent in a system which may deprive a successful researcher of a part of his expected return to the benefit of a manufacturer who may never have undertaken research of any kind."
Those are strong words. Those are words direct from the Banks Committee Report in favour of total abolition of the clause, and I am sure that it is quite right.
But the pedigree goes further. The National Economic Development Organisation's Working Party on the pharmaceutical industry also agreed that the clause should go; and I understand that after further consultations even the trade union members of that committee agreed that it ought to go. Again, if we look at

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the comparisons with Europe, as to whether we are getting out of step with Europe, we see that the clause is taking us further away from practice in Europe. The Banks Committee again says, in paragraph 402 of the report:
"…where the patent laws of major drug-producing countries have been revised in recent years, any change affecting drugs has been in the direction of providing fuller protection than they were previously afforded."
In other words, Europe is moving in one direction in this matter, and apparently in the clause we are moving in quite another direction.
My noble and learned friend may say that, despite my complaints, the industry is getting on rather nicely; it is exporting and is doing its research. He may want to throw this at me and ask what proof I have that the clause is misguided. I think that there are two answers to that. A number of the research developments that are going on now are what one might call pre-1975 discussions—up to which point it had been assumed that the clause was going anyway. I would suspect that it has been in the past two years that, as the Labour Party has begun to become fond of the clause again, second thoughts are beginning to take place in the pharmaceutical industry about research that is going on in this country. Secondly, if my noble and learned friend says that our export figures, as a result of research in this country, are fairly good, then I should say that he ought to look at some of the other figures. I gather that Ireland is getting a fair share of this research investment now. I do not want to overstate the case, but Ireland is doing much better than we are in bumping up its output of Pharmaceuticals for export.
I do not want to be too long, and I come to my final point. I want to say something to my noble and learned friend, and I shall use my words very carefully. I can tell him that there is one considerable investment which may well take place in this country by a very large international pharmaceutical firm which could run initially—and this will be for research—at about £16 million. I understand that the advice to that firm will be such that if the clause stays in the Bill the firm will not only refuse to carry on with this research project here, but will probably move it to France. That is a precise example of the danger of retaining the clause in the Bill.
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Noble Lords have borne with me on previous occasions when I have expressed my own personal passion for making the mixed economy work. I believe that in this country we must accept a substantial proportion of private enterprise in our economy, and once we accept it we should allow it to work properly. We should not fetter it to the point where we inhibit its confidence and take away its incentives. It is because this clause is exactly one of those hindrances—a totally unnecessary hindrance—to confidence, to foreign investment in this country, to the growth of a successful private enterprise sector that is doing quite well for this country already, and finally because, as I said at the beginning, my noble and learned friend has such an armoury in any case against the unscrupulous or the exorbitant, that I hope we will quite quickly and without much ado agree to delete the clause.
The Earl of HALSBURY: In rising to support the Motion in the name of the noble Lords, Lord Northfield and Lord Ferrier, and myself, I ask the Committee to take account of the fact that one is a Government Back-Bencher, the other an Opposition Back-Bencher, and I am an independent; so this ought to be a quite non-ideological matter. I was delighted to hear the noble Lord, Lord Northfield, give such an eloquent and well covered treatment of the subject matter, and I should like to add something on the same lines. There are five pharmaceutical firms in the United States, each of which is larger than the whole United Kingdom pharmaceutical industry put together. It is to our enormous advantage to have these people operating over here. I was having lunch with the English director of one of the largest of those firms today, and he said, "We are getting a little tired of being second-rate citizens". He confirmed exactly what the noble Lord, Lord Northfield, had said; that conditions are really much more propitious in Ireland. He said, "I can't imagine why we stay here".
The noble Lord, Lord Ferrier, and I are both industrialists who, in years gone by, have been connected with the pharmaceutical industry, though my involvement was only minimal, for two or three months. In addition, I have to declare an interest in the food industry, which is also covered by the clause. I cannot

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speak for the noble Lord, Lord Ferrier, who has asked me to convey his apologies that he cannot be in his place while we are discussing the Motion to which his name is attached. My own explanation is that the pharmaceutical industry has been pre-selected as the ideological whipping boy of the far Left. I do not think that we ought to deal with whipping boys in this day and age. It is a medieval concept of young princelings, who in theory had to be punished for derelictions, having one of their friends whipped instead, and presumably the two boys settled it afterwards. But this belongs to the province of the antiquarian and medieval juvenilia and I do not think that we ought to import it into British politics. I think that it is bad for the morale of industry to pick on someone to be a second-class citizen and to say that making profits is wicked, that making profits on something essential to humanity is doubly wicked, and therefore, since the victim is unpopular, injustice does not matter. I do not think that that is the way to approach the morale of industry because it makes everybody ask, "It is the pharmaceutical industry today. Which of us will it be tomorrow?"
I am not going to speak at any great length on this matter because the noble Lord, Lord Northfield, has covered it very fully. Normally speaking, in Committee we fence a little across the Floor of the Chamber. We engage in a certain amount of shadow boxing, and Amendments which are probing, elucidatory and so on are put up and are then withdrawn. But this is not that kind of clause. This is not something which you can get to work on with scissors and paper, cutting out a word here and putting in a word there. I think the old Clause 41 had no precedent in all the Patent Acts that pre-existed it. It was an experiment in 1949, and it is an experiment that has not worked. It has very rarely been operated, and on the rare occasions when it has been it has led to a lot of ill-feeling between manufacturers and industry. I think the time has come to be done with it.
5.40 p.m.
The LORD CHANCELLOR: It may be convenient for me to indicate to the Committee the position of the Government upon this matter, and I hope that
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the noble Earl, Lord Halsbury, who normally adopts a detached approach to these matters, will defer a final decision upon this at least until he has heard me speaking upon the Question. I have listened, of course, with very great care to the arguments which have been advanced by my noble friend Lord Northfield, supported as he is by the noble Earl, Lord Halsbury. I may say at once that the Government do not approach this matter from an ideological point of view at all, but from the point of view of what we regard as a legitimate concern for the public interest on this important issue.
The Government are as anxious as all those concerned with the industry to promote confidence, to encourage investment and to improve the relationship between the Government and the industry, and the position (and those arguments, which I accept) must be considered against the background of the quite unique contribution that the pharmaceutical industry makes to the wellbeing of our country and, of course, of our people. We have to bear in mind the special nature of its products, the very high standards of production, its dependence on continuing research, of course, and the price of its products. All these are matters of legitimate public interest; and, however responsibly the industry may meet those special responsibilities which it has, it is necessary to safeguard that public interest. Perhaps it may not be irrelevant for me to remind noble Lords that for all practical purposes the Department of Health and Social Security is in effect the only customer in this country for the products of the industry, or at any rate overwhelmingly the most important customer.
My noble friend Lord Northfield has properly drawn attention to the fact that there are other provisions in existence, apart from the provisions of Clause 49, which are available to restrain prices. There is the power to fix prices by order under the Emergency Laws (Repeals and Re-enactments) Act 1964; the Monopolies and Mergers Act can, as he has also said, be used; and the Crown can also use the provisions contained in Section 46 of the Patents Act 1949, which are repeated in Clauses 53 to 56 of this Bill. But, powerful as all these instruments are, they each have their limitations. They all depend on Government intervention and,

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to varying extents, on lengthy investigation leading to confirmation that there has been some abuse. Since recourse to those powers could have a significant effect on trading activity, any Government are likely to be reluctant to invoke them except in the most exceptional circumstances. A provision which does not require Government intervention, and which is not likely to be invoked unless the potential licensee can make a profit from a selling price below that of the patent-holder notwithstanding payment of a royalty, is, we believe, a useful restraint on prices.
The White Paper on Patent Law Reform set out briefly the Government's reasons for retaining the powers in this clause, and referring to the old Section 41 the White Paper says:
"It operates in-terrorem as a means of stimulating price competition and of restraining exorbitant prices".
I do not need to remind noble Lords that the pharmaceutical industry and its products comprise an exceptionally high proportion of patented discoveries, and important new drugs are invariably patented. During the effective patent life of new drugs, high profits can be made from their sale, and people being treated by those drugs cannot be treated by cheaper substitutes for what become essential medicines. It is really not like substituting margarine for butter; and it is the possibility of unreasonably high profits that is at the heart of this issue.
It has been urged that there are very few applications for compulsory licences, but I suggest that in this feature lies the strength of the provisions, since they would not be doing their job if there were a large number of applications. As I have suggested to your Lordships, a potential licensee will act only if he calculates that the patentee's profit margin is high enough to make it possible for a competitor to market profitably at a price lower than that of the patentee, despite his having to pay a royalty. The sparcity of applications for licences, far from showing the clause to be unnecessary, in my submission shows that it acts as a restraint, and a continuing restraint, on exorbitant prices.
I quite agree with what my noble friend Lord Northfield has said about the value
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of the Voluntary Price Regulation Scheme, which I readily admit has been helpful in controlling prices, and therefore profits, for the supply of medicines to the National Health Service. But despite the existence of that scheme, it is, given the nature of the industry, still possible for very high profits to be made; and without this clause, or some alternative provisions in respect of this matter which I shall refer to in a moment, such profits would probably be made in the early years of a new patented drug.
It is for these reasons that the Government are not disposed—indeed, cannot—to accept deletion of this clause unless agreement can be reached on alternative measures for the public protection. In this business of profits on medicines paid for the National Health Service out of the public purse to the tune of millions and millions of pounds, the Government have to strike a balance between the confidence and willingness of the industry to invest and the necessity to ensure that there are reasonable restraints against unreasonable profits. The Government recognise the strength of opinion in the industry—and we have heard it expressed strongly today—that the availability of compulsory licences may discourage investment in research and production in the United Kingdom, and indeed my noble friend has identified one significant illustration of that.
Therefore, the Government are very willing to consider, and are indeed now considering with the industry, means of safeguarding the public interest without the possible disadvantages that the industry associates with this clause; and it is with that objective of arriving at a voluntary agreement between the pharmaceutical industry and the Department that the whole problem is now being discussed with those most closely concerned.
Your Lordships will appreciate, I hope, that the extent to which the Government could move in this matter to the point of agreeing to the dropping of the clause depends upon the extent to which the industry, for its part, are prepared to co-operate. All that I can say to your Lordships now is that, certainly, if the

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informed, an important stage. Clearly, a voluntary agreement between the industry and the Department of Health and Social Security would be the most desirable result to be arrived at. Accordingly, I venture to invite my noble friend and the noble Earl, Lord Halsbury, and those who are disposed to take their view of this matter, in the light of the existence of discussions and the indication that I have made on behalf of the Government that we wish to arrive at a voluntary agreement on this matter in terms which we can present to the public as representing the public interest, at this stage to withdraw the Amendment to see the progress of these discussions which are now taking place.
Lord CAWLEY: The noble and learned Lord talked a great deal about medicines. This clause deals with food as well as medicines. Can the noble and learned Lord justify the clause in relation to food? Surely the Ministry is not the biggest buyer of food in the country.
The LORD CHANCELLOR: I think that the same considerations apply in respect of food where the activities of the food industry are relevant to the kind of provisions provided for in Clause 49.
Lord DOUGLAS of BARLOCH: Before the noble Lord withdraws his Amendment, if he decides to do so, may I suggest that, understanding very well why the Government feel that some protection of this kind is needed in respect of pharmaceutical products, the clause is not likely to have any great value. Many of us will probably remember the case of the tranquillisers Valium and Librium which was dealt with by another process entirely. It was referred to the Monopolies Commission and, as a result of their investigations, the prices which were charged for these drugs were reduced very substantially. But that was not a case in which a licence was granted to some other firm to produce them. That is a remedy which is rather ineffective, for this reason. These drugs are sold not by their scientific name but by trade names, as in the example which I have given. It becomes of interest to any other manufacturer to try to obtain a licence to manufacture and to market them only when their use has become established and it appears that there is something of value in them. But at that stage they have become known by their trade names.
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No doctor is going to prescribe medicines by their scientific, chemical, nomenclature; they are always prescribed by these short names. More than that, these names are protected by the Trade Marks Acts and they will continue to be protected by them if this clause is put into effect. Therefore, any manufacturer who gets the licence has to start at the beginning with a new trade name and build up a demand for the product under that name. Therefore, I venture to suggest, with all respect to my noble and learned friend, that there is not a great deal of value in this clause.
Lord CAWLEY: Listening to what the noble Lord, Lord Douglas of Barloch, has said, the get-up of the goods is also extremely important. A Butazolidine pill which is not coloured red will not be taken by most patients. Nevertheless, if another persons receives a licence to make Butazolidine and colours his pills red, he is passing off.
The LORD CHANCELLOR: I venture to find comfort in having some support for the colour red.
Lord PORRITT: I had hoped that it would not be necessary, after the eloquent advocacy of the noble Lord, Lord Northfield, and the noble Earl, Lord Halsbury, to say anything further. But in view of the fact that the public interest has been brought so much into the case, might I put a point of view from the medical angle—although I must express a slight interest as I am a director of a pharmaceutical company. There is no doubt in today's world that what is happening is greatly restricting the value of pharmaceutical companies to the public interest. They are finding it harder and harder to produce drugs of enormous value to the public. Nowadays, with inflation and the rising cost of producing a drug, even when it is discovered, it is almost impossible after toxicity and clinical trials, to get any new drug on to the market under at least seven years or probably more—between seven and ten years. In other words, to produce a drug for the benefit of the public now costs the pharmaceutical company something in the neighbourhood of £1 million. Hence, not only in this country, but worldwide, drugs which may be of the greatest value to the public are not being produced.

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If this clause in any way—as it most certainly does—restricts even more the activities of recognised and reputable pharmaceutical companies it is doing nothing but harm to the public interest. Most of the other things that have been said are, of course, very applicable. I know from personal experience that this clause would be very much a research deterrent. It would sap confidence in the industry; it would remove initiative and it would remove incentive in an important field. It seems to me, from all that we have heard, that it is quite unnecessary and, therefore, a great shame that even more brakes should be put on an industry which is trying to do something—and I underline this—for the public interest. I hope I have done something to dissuade your Lordships against the talk of exorbitant profit. If it costs as much to produce one good drug as I have mentioned, then the profits are not all that good in the majority of pharmaceutical companies. I should like strongly to support the deletion in totality of this clause.
Lord PLATT: Very briefly, because I am a medical man and have no financial interest in any pharmaceutical company whatever, I should like to indicate my strong support for those who are moving the deletion of this clause. The pharmaceutical industry is of tremendous importance in medicine. You have only to mention the modern drugs, the antibiotics and so on which are in everyday use, and you find that nearly all have been either discovered or developed in the pharmaceutical industry.
The industry takes enormous risks. They spend a great deal of money on research, and if it so happens that another firm has been researching on another drug which turns out to be slightly better than theirs, then the whole of that money can be lost. I am not saying that they do not make large profits. We all know that they do. But if there is a case where large profits should be accepted as part of the stimulus to an industry as important as this, I think we should show our view on this and vote for the deletion of the clause. As for delaying this until the discussions have taken place, this is taking a risk on the part of those who want to delete this clause. Further, is it not perhaps more
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logical that we should delete it and then the Government, if they can bring strong evidence to bear, can reintroduce the clause if they wish to do so?
6 p.m.
Lord JACQUES: We are getting a lot of confusing evidence from the people who wish the deletion of this clause. First of all, we are told by the mover that this clause is so effective that the company which wishes to invest £16 million in this country will not do so if this clause remains. Then another supporter of the deletion tells us that the clause is completely ineffective, anyway. Where are we? We are also told that it costs £1 million to produce a new drug; but there is nothing in this clause which prevents a pharmaceutical company from getting money back which has been invested in research. The clause prevents exorbitant profits on top of getting the money back. Do not let us have red herrings; let us put all the cards on the table.
In view of the statement of the noble and learned Lord the Lord Chancellor, it would be irresponsible on the part of this Committee to have this clause deleted. He has told us that the Government are at present negotiating and they hope to reach a voluntary agreement. The negotiations have reached a crucial stage. Surely, with a statement like that from a responsible officer of the Government, it would be foolhardy on the part of this Committee to delete the clause at this stage, especially when there will be opportunities later for deleting it if the Committee so wishes.
Lord LLOYD of KILGERRAN: May I strongly support what the noble Lord, Lord Jacques, has put to the Committee? I should like to remind the Committee that some 10 years ago the Government set up a committee under the chairmanship of the noble Lord, Lord Sainsbury, to examine the cost of Pharmaceuticals. I had the privilege of being a member of the Sainsbury Committee. All members of that committee were impressed by the opportunities that were available to pharmaceutical companies to charge high prices and make excessive profits. Examples of excessive profits made by companies were given to the committee upon which I had the privilege to serve.

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After all these years, it is fair at this stage, that we should be reminded of the great work that the noble Lord, Lord Sainsbury, did in assisting the Ministry of Health at that time to improve the so-called voluntary price scheme, which was not at all influential in keeping down prices. I support the noble Lord, Lord Jacques, in his earnest plea that at this early stage, while these discussions with the pharmaceutical companies are going on, the noble Lord, Lord Northfield, would be doing a great service in withdrawing his Amendment.
May I say something about the view taken by the noble Lord, Lord Northfield, regarding the operation of Section 41 of the Act, which is replaced by Clause 49. I have had the privilege of appearing before the comptroller in many cases for large companies where an applicant had made an application for a compulsory licence. Having regard to what the noble Lord said—that there were no guidelines in the sections of the Act to help the Comptroller General—the Comptroller General adopted an extremely fair and careful approach to the application at all times.
These were not cases that were dealt with off the cuff. I remember being in cases which lasted for 14 and 15 days, where evidence was put before the comptroller and there was cross-examination of both sides in order that the position should be realistically appreciated. It is my experience that the Comptroller General of Patents did not deal with these matters the way in which it has appeared to have been suggested by the noble Lord, Lord Northfield, because there were no guidelines in the Act.
Lord NORTHFIELD: I was not saying the comptroller used his powers wrongly or frivolously. I was simply saying that, until there is a section which contains some guidelines, no one can be sure what guidelines the comptroller uses.
Lord LLOYD of KILGERRAN: Of course the noble Lord was not saying that the comptroller acted frivolously or was in any way objectionable. The noble Lord indicated that there were no guidelines. But there is a history in relation to this section, and I can assure the noble Lord that the comptroller had many
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opportunities of being helped to come to a decision. The kind of royalties that were imposed by the Comptroller General were not 4 per cent. or 5 per cent.; I remember cases where royalties of from between 20 per cent. and 30 per cent. were included in the agreement. In all the circumstances, I support the noble Lord, Lord Jacques, in saying that at this stage at least this Amendment should be withdrawn.
Baroness WARD of NORTH TYNESIDE: I hope that we will now withdraw the clause. I always listen with very great interest to the noble and learned Lord the Lord Chancellor because he always has a marvellous way of putting across his case. That gives great pleasure; I like listening to him. If we withdraw the clause—and I hope we shall—he has an opportunity to take his own line and get on with the job. He is so clever that I ask him to get on with the job and let us do what I think is right: withdraw the clause now. I like action. With great respect, sometimes I get bored in this House, having been for 38 years in the Commons. I am used to action and I like action. If there is a case which, as I say, was beautifully put by the noble and learned Lord, then let him get on with it on this occasion. If he wants to, I am sure that he can get on with it. In the meantime, I want to see the clause deleted, and I hope that we shall vote it out.
Lord LYELL: Before we come to the action which is so earnestly desired by my noble friend Lady Ward, perhaps I may make one or two comments and ask the noble and learned Lord for clarification of the remarks that he has made. The Committee will recognise that this clause has given rise to more controversy, dispute, apprehension and doubt than any other measure contained in the Bill. During the course of my remarks on the Second Reading of this Bill I mentioned that the United Kingdom had the lowest medicine prices in Western Europe. These particular remarks brought what I can only describe as "noise" from noble Lords opposite and particularly from the Government Front Bench. I believe that this particular noise indicated approval.
However, I believe that it is relevant to examine the means by which the objective of cheap medicines is obtained. It seems

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that two methods have been widely discussed. One has been very widely discussed this afternoon; but there is another which has not been mentioned by name, yet it seems to have been brought into the deliberations and discussions. These two methods are Clause 49, as we have it in the Bill, and also something else: negotiations on the Voluntary Price Regulation Scheme are going on continually between the industry and the Government, represented by the Department of Health and Social Security. The noble and learned Lord mentioned this maxim which he called in terrorem. He mentioned it several times in the course of the Second Reading so far as this particular clause was concerned.
It seems to us that the Sword of Damocles hangs over one or two sectors of the pharmaceutical and chemical industry. When we consult what the Banks Committee said on this subject, we find that they were strongly opposed to the continuation of this concept of in terrorem. As the noble Lord, Lord Northfield, pointed out, the very short and clear recommendation of the Banks Committee was that the provisions of Section 41 of the Act, which are with us again in Clause 49 in this Bill, should be excluded; that they should no longer apply.
Noble Lords will find it stated in the Banks Report that the provisions of the old Section 41 were hardly used at all: that was up to 1969 or 1970. However, since Banks, use has been made of the section, and many more applications for licences have been successful. The proportion of successful to unsuccessful applications has been approximately the same as that recorded in the Banks Report, and we believe that indicates that the entire pharmaceutical industry in the United Kingdom is still full of vigour, strong and competitive. However, it would help them to know that the rules of competition are not to be biased against them.
When the noble and learned Lord the Lord Chancellor made his remarks, which were admirably clear, he mentioned the prices of medicine. One factor he mentioned as being involved in the negotiations on price between the industry and the Government was the marketing cost of those medicines. The noble and learned Lord mentioned one factor, but there were
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two others which he did not mention, namely, the costs of production and of research and development. I believe that anyone connected with the industry would agree that those are particularly relevant costs when looking at the marketing cost of the product.
The noble and learned Lord went on to speak about medicines on the National Health Service. I wonder whether he would agree that the prices paid by the Department of Health and Society Security should reflect costs of research and development which is carried on outwith the United Kingdom, and that the products sold in the United Kingdom through the Department of Health and Social Security should reflect those costs? I believe that research and development should be so reflected and that we should not just have imports on what one might call "the black market". I should be interested to hear whether the noble and learned Lord could give us further guidance on this point before we reach a decision.
Lord JACQUES: Would the noble Lord agree that if expenses which are incurred elsewhere than in the United Kingdom should be taken into account, sales of the drug elsewhere should also be taken into account?
Lord LYELL: I would agree that sales of the drug should be taken into account, but I also believe that expenses incurred on a worldwide basis should be taken into account too. The noble Lord, Lord Jacques, has put his finger exactly on the point that I am making; yet he and his noble and learned friend apparently believe that there should be only one-half of the equation, and that the prices in this country should not reflect research and development outwith the United Kingdom. That is clearly what I have understood the argument to be about this afternoon, and I think it is what many people in the industry have understood.
Lord LLOYD of KILGERRAN: May I interrupt the noble Lord at this point, because he is dealing with a question with which the Sainsbury Committee had to deal over many weeks; in other words, they had to find out what were the expenses of research of these international firms. So far as the great firms in Switzerland were concerned, we found that there was

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some regulation or law which would not allow those companies to disclose, even if they wished to do so, facts about research and their expenses in relation to that. Therefore, it is somewhat of an empty phrase to say that the Government should take account of the expenses of foreign firms, because it was the experience of the Committee on which I was privileged to sit that it was impossible to get that information in this country. Therefore, when dealing with pharmaceuticals, with the health of the community depending so much on them, the Government should have these powers in the case of emergencies which occasionally arise.
Lord LYELL: I am grateful to the noble Lord, Lord Lloyd, and I accept there may be laws outwith the United Kingdom which preclude relevant information being obtained. However, Switzerland is only one country, and there may be different laws in other countries. There might also be other disadvantages for companies based in the United Kingdom. We might have laws which preclude disclosure. However, although the point made by the noble Lord has relevance in part to the argument I have put forward, I would rather not dwell too much on it.
Lord LLOYD of KILGERRAN: I am sorry to interrupt the noble Lord again, but in his support of this Amendment, the noble Earl, Lord Halsbury, referred to these very large international companies. They have subsidiaries in this country, and I would repeat that it is quite impossible in certain circumstances to get from those foreign companies details of what they spend on research and development.
Lord LYELL: If the noble Lord will have patience I shall cover that point, but I feel I should get on, because we have spent long enough discussing this point. We believe very strongly that, wherever possible, voluntary schemes should be used. Indeed, when speaking earlier about employee inventions we spoke about voluntary award schemes and expressed our strong approval for them. I am sure noble Lords would agree that where there is the chance of a voluntary scheme operating, as in this case, parallel with the law, the choice must always be to use the voluntary scheme. Therefore I would put to the Government that, where we
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already have a Voluntary Price Regulation Scheme, there is no need for what I would call "a second prong" to the harpoon of the Department of Health and Social Security, which I believe they can use against industry when negotiating medicine prices.
Noble Lords will be aware that one particular company was engaged in long and detailed negotiations with the Department over the last few years. There was a great deal of publicity about it, and emotions ran high. It is interesting to learn that the company at that time had withdrawn from the Voluntary Price Regulation Scheme, as they felt that the provisions of Section 41 could be, and would be, used against them. Negotiations continued amid considerable publicity on prices as well as on other matters, between that company and various segments of the industry and the Department. The prices of certain products—I believe the noble Lord, Lord Douglas, referred to the products of the company—were reduced by up to 40 per cent. However, I am not aware of any publicity being given, and I did not hear any comments by noble Lords this afternoon, to the effect that since those prices were reduced some 3½ years ago, the Department and the company have reached an agreement, and the prices of those particular products have been raised no fewer than four times since the agreement was reached and the prices were originally reduced. Indeed, some of the products concerned cost four times the amount of the reduced price in 1973, and that has occurred under the Voluntary Price Regulation Scheme.
Lord BROWN: I am sorry to intervene, but the noble Lord ought to know that the drugs to which he is referring are the subject of a licence given to Berk Chemicals under Section 41.
Lord LYELL: Yes, I was aware of that; but I understood that the licence had no great relevance and that indeed the licensee no longer carries out work under the licence. That is my understanding of the situation, although the noble Lord is quite correct. That was a factor in the discussions 3½ years ago, yet under the voluntary scheme the prices have gone up, with the concurrence of the Department. The noble Lord, Lord Jacques, believed that all the cards were not on the table—
Lord DAVIES of LEEK: The noble Lord has gone on and on and on, and he has now contradicted himself. Will the noble Lord not agree that, only a moment or two ago, he was suggesting that some voluntary scheme may be snatched out of the air? Now he says that a voluntary scheme has resulted in prices going up and up, and the noble Lord is going on and on and on.
Lord LYELL: I have not gone on for as long as some noble Lords in this debate, and if the noble Lord had listened earlier he would have heard me say that there were at least two prongs—there are plenty more, such as Section 41 and other Crown user provisions. I said that one prong was Clause 49 and one of the others was the Voluntary Price Regulation Scheme. I think that that covers the noble Lord's point. The noble Lord, Lord Jacques, believed that all the cards were not on the table. The noble Lord is a man of financial expertise and knowledge, and he will know that there are rules, particularly in the case of this one country, Switzerland, which preclude the fullest disclosure. Nevertheless, the Voluntary Price Regulation Scheme seems to work and provide a modicum of agreement between the industry and the Department.
The moral seems to us clear on at least two counts. First, where possible one should use voluntary mechanisms as these render the statutory provisions unnecessary. Secondly, does it help good relations between a monopoly consumer, in this case the Department, and what I would call a near monopoly supplier, to demand fluctuations of pricing policy when the consumer has access to a plethora of figures and details under the Voluntary Price Regulation Scheme? I am sure that noble Lords who are interested will know that voluntary financial returns, certified by company auditors, are sent in each year to the Department by companies in the pharmaceutical industry, so that the Department can get first-hand knowledge of a company's pricing policies, and if the Department wants further information it can in almost all cases obtain it directly from the company. The major example that we have discussed, that raised by the noble Lord, Lord Douglas, shows that much emotion has been raised—we believe for no good
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purpose—when negotiations outwith the atmosphere of the provisions achieved a fair result and, in addition, destroyed many of the myths and scares raised during them.
Lastly, I want to add a word or two about the competitiveness and the confidence of pharmaceutical companies and their industry in the United Kingdom. First, it is the quality of competitiveness which I, and many others, believe does so much to ensure that our medicine prices are lower than those in Western Europe. Various people have mentioned exorbitant profits, but can they still justify that claim when they know that a daily dose of tranquilliser tablets or other treatment costs, on average, one-half to one-third as much in the United Kingdom as the same treatment—be it red pills, brown pills or yellow pills—in the rest of Western Europe? I also hope it is appreciated that, thanks to the research facilities which the industry has built up here, which have been alluded to by the noble Lord, Lord Northfield, and the noble Lord, Lord Porritt, who has experience in these matters, the industry has been able to produce net exports of pharmaceutical products of more than £300 million per annum. This is one of the strong points made by the noble Lord, Lord Northfield.
As to confidence in this industry, this is not something that we can just regard as a concept of the past. It concerns future intentions which are based on prospects allied to the current financial, economic and political scene. I, and many of my noble friends, are firmly of the conviction that this confidence has to be nurtured, and that it is destroyed by the continuance in Clause 49 of the provisions of the old Section 41. For this reason, I declare my support for the Amendment.
6.24 p.m.
The LORD CHANCELLOR: It is clear that we have been discussing matters of very great importance in this debate on this Amendment. The outcome either of the debate or of the discussions that are taking place between the Government and the industry is very important—important for the industry, but important also for the British people. We buy £400 million worth of drugs each year from the pharmaceutical industry. That is the extent of the public financial interest.

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Of course, there is an immense public interest, on the other hand, in seeing that the quality of the goods, drugs and inventions of that industry should be maintained, and that there should be a proper and fair return for its investment. Happily there is no evidence—certainly as yet—to indicate that the industry's investment in research is being reduced, and I understand that the investment in Ireland that has been referred to is mainly in production and not in research.
May I say how grateful I am for the eloquent support that I received from my political adversary and old friend, the noble Baroness, Lady Ward. We tussled with each other for 29 years in another place, and it looks like lasting for another 29 years here—I hope for both of us. But what I invite your Lordships to consider now is this. I have told the Committee that discussions are taking place between the Government and the industry on this important matter—important to the public and important to the industry. I am advised that there is a reasonable possibility that the discussions will make significant progress before Report stage. Surely the Committee will not want to prejudice the Government's position in these discussions by deleting the clause now. It has been suggested by the noble Lord, Lord Platt, that if the Committee does that now it can be restored, but it could not be restored here. I have little doubt that it would be restored in another place. But in this House there will be opportunities at Report stage of reverting to the matter, and I believe that that stage will be in the next month. There will also be an opportunity of returning to the matter at the Third Reading and final stages of the Bill.
I invite your Lordships seriously to consider the duty which this House owes, in negotiations of this kind affecting the public interest, to see that that public interest should not be prejudiced by a premature decision upon this matter in the Committee here tonight. I think that this would be a serious step to be taken in the situation which I have described, and I accordingly hope that the Committee will respond to the appeal from the noble Baroness, Lady Ward, from my noble friend Lord Jacques and from the noble Lord, Lord Lloyd of Kilgerran, to resolve this matter for the time being—and I do not ask for more than that— by not deleting the clause, so that the
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discussions can go on without prejudice to the position of the Government and the British public.
The Earl of HALSBURY: Faced with so eloquent an appeal from the noble and learned Lord the Lord Chancellor, declared with all his usual elegant phrases and courtesy, I naturally do not wish to return him a dusty answer. I have, however, to ask myself: should it be I who returns him a dusty answer or the Committee? Should not the Committee have an opportunity to decide for itself whether to respond to the appeal of the noble and learned Lord? There are undoubtedly people who feel that the clause should go now.
The matter that is most on my mind is the appeal made by the noble and learned Lord not to do anything to prejudice the course of negotiations. In terms of the phrase in terrorem, one does not like negotiating in terrorem. I do not like being held in terrorem at all, as a manufacturer, and this clause is a pistol pointed at the other side of the negotiating table. I do not think that the noble and learned Lord has drawn attention—and I must draw the attention of the Committee to it—to the fact that he has loaded a six-shooter and handed it, butt first, to the other side by coupling the negotiations with the Parliamentary timetable on this Bill. All they have to do is to be awkward until the Report stage, and rely on us to do the rest for them if that is our wish. Therefore, I think it would not be against the public interest to disarm both opponents and let them come to the negotiating table as equals. No other country has anything like this clause in its patent laws, and, from that point of view, I believe that the Committee should have an opportunity to express its views.
Lord NORTHFIELD: I am very grateful to my noble and learned friend for all the care he has taken in answering my case on this very difficult issue. I do not want for one moment to look as if I am in favour of protecting a pharmaceutical company that charges exorbitant prices, or makes unnecessary profits. I have not the slightest wish to appear in that role, but the difficulty is that my noble and learned friend did not deal at all with the recommendations of the Banks Committee. This is not an issue which should be judged on today's negotiations; I will

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come to these very briefly in one moment. In fact, the issue has a long history.
After great consideration the Banks Committee said that this clause ought to go. The Banks Committee, which did not wish to look as if it were protecting the unscrupulous, said—and I give this final quotation to my noble and learned friend from Section 409 of their Report:
"It is in the public interest that the final sanction should be available to the department whereby supplies of the drug can be obtained at competitive prices. However, we firmly believe that this result should be sought on a selective basis rather than by attempting to weaken patent protection for drugs overall".
That is the kernel of the case. My noble and learned friend has his protection against unscrupulous charges, which should be used constructively and selectively. It should not be used, as this clause and as this quotation indicates, in a way that attempts to weaken patent protection for drugs overall.
I am very sorry that I find myself in
great difficulty over acceding to my noble and learned friend's request that we should not press the issue at the stage. I asked my noble and learned friend what the position was regarding the negotiations, and he properly and kindly told me that he does not know. My understanding is that the negotiations are at the stage where they could be clinched by the deletion of this clause. In other words, there is agreement up to this point. If I am wrong about this, I will misled when we reach this matter at the Report stage. All I can say is that if noble Lords fell that they are bound to press the matter to a Division, I shall have to abstain because I cannot support the Government on this issue.
6.32 p.m.
On Question, Whether Clause 49 shall stand part of the Bill?
Their Lordships divided: Contents, 45; Not-Contents, 78.

CONTENTS

Amulree, L.

Hale, L.

Murray of Gravesend, L.

Banks, L.

Harris of Greenwich, L.

Peart, L. (L. Privy Seal.)

Boston of Faversham, L.

Henderson, L.

Phillips, B.

Brown, L.

Jacobson, L.

Pitt of Hampstead, L.

Byers, L.

Jacques, L.

Ritchie-Calder, L.

Castle, L.

Janner, L.

Seear, B.

Collison, L.

Kagan, L.

Stedman, B. [Teller.]

Davies of Leek, L.

Kilbracken, L.

Stewart of Alvechurch, B.

Donaldson of Kingsbridge, L.

Kinnoull, E.

Stone, L.

Douglas of Barloch, L.

Leatherland, L.

Strabolgi, L. [Teller.]

Elwyn-Jones, L. (L. Chancellor.)

Llewelyn-Davies of Hastoe, B.

Wallace of Coslany, L.

Gaitskell, B.

Lloyd of Kilgerran, L.

Wells-Pestell, L.

Gladwyn, L.

Lovell-Davis, L.

Wigoder, L.

Gordon-Walker, L.

McCluskey, L.

Winterbottom, L.

Goronwy-Roberts, L.

Melchett, L.

Wootton of Abinger, B.

NOT-CONTENTS

Aldenham, L.

Greenway, L.

Redmayne, L.

Alexander of Tunis, E.

Halsbury, E. [Teller.]

Robbins, L.

Auckland, L.

Harcourt, V.

Romney, E.

Balfour of Inchrye, L.

Hylton-Foster, B.

St. Aldwyn, E.

Belstead, L.

Ironside, L.

St. Just, L.

Birdwood, L.

Killearn, L.

Sandford, L.

Broadbridge, L.

Kinloss, Ly.

Selsdon, L.

Brougham and Vaux, L.

Kinross, L.

Sempill, Ly.

Carr of Hadley, L.

Long, V.

Shuttleworth, L.

Cawley, L.

Loudoun, C.

Skelmersdale, L.

Colville of Culross, V.

Lyell, L.

Somers, L.

Colwyn, L.

Macleod of Borve, B.

Spens, L.

Craigmyle, L.

Margadale, L.

Stamp, L.

Cullen of Ashbourne, L.

Molson, L.

Strathcona and Mount Royal, L.

Daventry, V.

Monck, V.

Strathspey, L.

de Clifford, L.

Mowbray and Stourton, L.

Swansea, L.

Denham, L.

Moyne, L.

Thorneycroft, L.

Drumalbyn, L.

Nathan, L.

Trefgarne, L.

Emmet of Amberley, B.

Netherthorpe, L.

Vernon, L.

Falkland, V.

Newall, L.

Vickers, B.

Fraser of Kilmorack, L.

Nugent of Guildford, L.

Vivian, L.

Gainford, L.

Onslow, E.

Wakefield of Kendal, L.

Glasgow, E.

Pender, L.

Ward of North Tyneside, B.

Glendevon, L.

Platt, L.

Westburv, L.

Glenkinglas, L.

Porritt, L. [Teller.]

Windllesham, L.

Gowrie, E.

Rankeillour, L.

Young, B.

Resolved in the negative, and Clause 49 disagreed to accordingly.
Clause 50 [Opposition, appeal and arbitration]:
6.40 p.m.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 237:
Page 41, line 43, leave out ("in accordance with") and insert ("under")
The noble and learned Lord said: This is a pure drafting change made for the purposes of consistency. It has no effect upon the meaning of Clause 50. I beg to move.
On Question, Amendment agreed to.
Clause 50, as amended, agreed to.
Clause 51 [Supplementary provisions]:
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 238:
Page 42, line 33, leave out ("as").
The noble and learned Lord said: Again this is a pure drafting change. I beg to move.
On Question, Amendment agreed to.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 239:
Page 42, line 44, leave out subsection (6).
The noble and learned Lord said: The general policy of the Bill is to have procedural matters in the rules and Clause 51(6) as drafted is an exception to that. It is now proposed, again for consistency, to remove subsection (6). Of course there will be a corresponding provision which will appear in the rules when they are made. I beg to move.
On Question, Amendment agreed to.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 240:
Page 43, line 5, leave out ("arrangement or engagement") and insert ("or other international agreement").
The noble and learned Lord said: This again is a drafting change to update the terminology of a provision which now appears in the 1949 Act. No difference in effect is produced. Your Lordships will see that the same Amendment may eventually be required for Clause 84,
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page 70, line 2, which does not yet appear on the Marshalled List. I beg to move.
On Question, Amendment agreed to.
Clause 51, as amended, agreed to.
Clause 52 [Special provisions where patented invention is being worked abroad]:
Lord BELSTEAD Lord BELSTEAD moved Amendment No. 241:
Page 43, leave out line 7 and insert ("Except as provided in. subsection (1A) below").
The noble Lord said: In moving Amendment No. 241 I may perhaps also speak to Amendment No. 243. Articles 47 and 82 of the Community Patent Convention provide that, if any Member State within the EEC manufactures a patented product and supplies another EEC country, that other country may not grant compulsory licences. But Article 89(1) and (2) of the Convention provide an exemption reserving the right for any contracting State to declare that Articles 47 and 82 shall not apply within its territories for a period of not more than 10 years—that is dated from the coming into force of the CBC—and a possible further five years if the Council of the EEC so agrees.
So these two Amendments to which I am speaking will together write the effect of Article 89 of the Community Patent Convention into this Bill. If the Amendment is not agreed, then it strikes me that it would be possible for other EEC countries to export patented goods to us for which it would not be possible to grant licences in the United Kingdom, whereas we should be unable to enjoy the same advantage. So both from the point of harmonisation and of natural fairness, I beg to move.
Lord McCLUSKEY: I am not sure that I can accept what has just been said; that is, that the effect of these two Amendments is to write into the Bill the effect of the Community Patent Convention, because it is not clear (that the Community Patent Convention enables the members, as it were, to retaliate one against another as the Amendments would allow. Amendment No. 241 would allow an order to be made for a licence under a patent where the product is being made in, or imported from, certain of the Member States. It is based on the assumption that another Member State may enter a

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reservation under Article 89 of the Community Patent Convention and it enables the United Kingdom to retaliate in that event. The Government do not intend to put British industry at a disadvantage as compared with its competitors in the Member States. At present we have no intention of entering a reservation ourselves, but if other countries should do so and implement the reservation we should think it right to do so ourselves.
We believe that Clause 80, which we have not yet reached, gives us the power to do this and, if it does, the Amendment would be superfluous. We certainly propose to look more carefully into the powers which are given by Clause 80 and in the meantime the noble Lord opposite may wish to withdraw it. I might just mention another small point. Clause 52—one can see it shortly summarised in the Explanatory and Financial Memorandum—gives powers to extend to other countries the treatment afforded such Member States. This Amendment would have the effect of introducing a restriction rather than an extension, and noble Lords may think that, even if it should be included at some stage, this is not the correct place for it. So in the light of these considerations—the major and the minor one—I would invite noble Lords opposite not to press this Amendment at this stage but to allow the Government to consider the position under Clause 80 and to make a fuller statement when we come to that point.
Lord BELSTEAD: I am grateful to the noble and learned Lord for what he has said because it is useful on these clauses which are not easy to understand when one is trying to compare them with the two conventions—the Community Patent Convention and the European Patent Convention. I accept that it may well be that the wording of this Amendment is not exactly the intention which I had and that it provides for a certain retaliatory action of which the noble and learned Lord warned me. For that reason alone I would not dream of pressing the Amendment.
All I should like to ask at this stage, and I ask it as a complete layman, is whether in referring me to Clause 80, the
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noble and learned Lord was referring to Clause 80(1) where it is provided that:
"All rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Community Patent Convention…shall…have legal effect in the United Kingdom".
It would be comforting to think that means that the Convention, whether it be the EPC or the CPC, will have effect in this country, but if that is the case I ask myself why we are taking such immense trouble in this Bill to try to get the wording of the Bill as near as possible to the wording of two conventions concerned. For that reason, I should like to look carefully at what the noble and learned Lord has said to me and, having reserved my position and having read what the noble and learned Lord has said, I might possibly table a similar Amendment again. If I may ask the Government for a favour, if they feel that perhaps this Amendment was not totally misconceived but simply needed rewording, perhaps the noble and learned Lord would communicate with me between now and the Report stage.
Lord McCLUSKEY: I will certainly do that if we can—as I hope—resolve the question by that stage. If so, I shall certainly communicate with the noble Lord.
Lord BELSTEAD: I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 242:
Page 43, line 7, at end insert ("it is provided that").
The noble and learned Lord said: In moving Amendment No. 242, perhaps I may also speak to Amendments Nos. 244 and 245. These are purely drafting changes. The two latter Amendments become necessary because, as a result of Amendment No. 242, subsection (1) now contains reference to two kinds of pro-visions in lines 7 and 16, and it must be made clear that it is the provisions of the convention that can be applied in respect of the countries not within the Community. I beg to move.
On Question, Amendment agreed to.
Lord McCLUSKEY Lord McCLUSKEY moved Amendments Nos. 244 and 245:
Page 43, line 18, after ("provisions") insert ("of the Convention").
Page 43, line 27, after ("provisions") insert ("of the Convention").
The noble and learned Lord said: With the leave of the Committee, I beg to move Amendments Nos. 244 and 245 together.
On Question, Amendments agreed to.
Clause 52, as amended, agreed to.
Clause 53 agreed to.
Lord STRABOLGI: This may be a convenient moment to adjourn the Committee. I beg to move that the House do now resume.
Moved accordingly and, on Question, Motion agreed to.
House resumed.

SOCIAL SECURITY (MISCELLANEOUS PROVISIONS) BILL
6.50 p.m.
Lord WELLS-PESTELL: My Lords, I beg to move that this Bill be now read a second time. As your Lordships will have noticed, this is most aptly entitled a "Miscellaneous Provisions" Bill, for it touches on a wide range of disparate, and often highly technical, matters in the field of social security. There are three main purposes to the Bill, each of which is important. One is the vital need to secure public expenditure savings. A second reason is to make some small but, I venture to suggest, useful improvements in benefit provisions. And, finally, there is the need to correct omissions and mistakes in legislation, and to provide firm statutory backing where at present the law appears open to doubt.
My Lords, I will not weary your Lordships by going through each clause of the Bill in detail; that would take far too long, and I am sure it is not your Lordships' wish that I do so. I have already provided copies of Notes on Clauses to certain noble Lords, and I hope that they have found them helpful. I will, however, draw your Lordships' attention to some of the more significant features of the Bill. From the point of view of public
810
expenditure the most important clause of the Bill is Clause 4, which relates to the retirement pension earnings rule. This is the rule whereby retirement pensioners in the first five years over pensionable age whose weekly earnings exceed a specified limit—at present £35 a week—have their pension progressively reduced. The earnings rule limit also represents the level of earnings below which a person can be treated as retired, and is, therefore, entitled to draw full pension on top of his earnings from work. Clause 4, together with Clause 5, will provide a net saving of £45 million in the financial year 1977/78, by not raising the £35 limit to £50 in April next, but instead providing for the limit to be uprated each year, starting this autumn, in line with average earnings. The gross savings are £60 million to the National Insurance Fund, which is offset by £15 million loss in income tax.
The Government recognise that the retirement pension earnings rule is disliked by many people, and have confirmed their commitment to its eventual phasing out when resources permit. Nevertheless, even relaxing the rule—let alone phasing it out—involves very considerable additional expenditure. I hope noble Lords will agree that this is something which the Government cannot contemplate at the present time.
In view of the controversy and confusion which has in recent months surrounded the cost figures relating to the retirement pension earnings rule, I should like briefly to make two points about them. First, the costings are made not by Ministers, but by the Government Actuary's Department. They, of course, have no political axe to grind. They are the experts on whom successive Governments rely for an independent assessment of available trends and indicators to determine the future costs of a particular policy proposal in the pensions field. No Government, as I am sure your Lordships appreciate, could plan without such forecasts, and policy must inevitably be based on the best estimates to hand at any time. The detailed facts and assumptions on which the Government Actuary's estimate is based were made freely available in another place, and there was no seriously-based challenge to their accuracy there. Those whose case is that the earnings rule could be abolished at

811
minimal cost have not been able to reconcile, if I may put it this way, their optimistic conclusion with the known facts, and have had to fall back on vague, and I would venture to say illogical and completely unsubstantiated hypothesis.
Secondly, the most important variable in the Government Actuary's calculations, the factor on which most of the savings depend, is the number of people who would be able to draw their pensions if the earnings rule limit is raised, but who at present cannot do so. It seems too obvious to say—though some seem reluctant to believe it—that if the earnings rule limit is increased then more people are free to draw their pension while continuing in work. That, in itself, must increase public expenditure. This is the crux of the argument.
My Lords, on this vital question let us simply consider the facts. Over the last two years, in which the earnings rule limit has been raised considerably, from £13 to £35 a week, the number of people over pension age who are deferring retirement has fallen considerably: from about 218,000 in November 1974 (a level which had remained fairly static since 1971) to around 135,000 (I admit the figure is provisional) today. I recognise that other factors, including higher unemployment, may have played a part, although on the other hand we should remember that the rate of increments for deferred retirement was also raised substantially in April 1975. Nevertheless, these figures are hard evidence which confirms what we might, using common sense, expect: that at 60 or 65 people will, by and large, take their pension when they can, if they are not prevented from doing so by their earnings; and that a higher earnings rule limit does in fact lead to more people drawing their pension and thus to greater public expenditure. Clause 4 of the Bill will provide a large and necessary saving in public expenditure without taking away any existing rights to retirement pensions. People over pension age will be left as free as they now are to undertake either full-time or part-time employment, if they wish to do so.
My Lords, I have spoken in some detail on Clause 4, which is the money-saving part of this Bill, and I do not want to take up too much of your Lordships' time.
812
I will, therefore, with your Lordships' permission, be brief on the other major clauses. Clause 11 deals with a subject in which I know a number of noble Lords have a special interest: the extension of eligibility for the mobility allowance consequent on the unavoidable decision to phase out production of the invalid tricycle. The clause will enable the Secretary of State to issue certificates to holders of tricycles issued under the old vehicle scheme, and to certain groups with similar reserved rights under that scheme, deeming them to satisfy the inability to walk test for award of the allowance. Because the vehicle scheme had no upper age limit, those transferring from the vehicle scheme will be able to receive mobility allowance even when over pension age.
I should emphasise, however, that, as the Secretary of State made clear in his letter to vehicle holders last December, the Government are ordering sufficient spares and stocks to keep the fleet going and to replace tricycles until at least 1981. There is therefore no question of existing holders of tricycles provided under the old vehicle scheme being suddenly deprived of their vehicles if they want to keep them. Moreover, they have been assured that the Government recognise that some of them will continue to need a specialised vehicle when eventually the tricycle can no longer be replaced, and will look at what is available on home and world markets. But some will wish to take the option of mobility allowance provided by this clause.
Clause 12(1) contains provisions to give statutory backing to the Supplementary Benefits Commission's long-standing practices with regard to student claims. It will enable the Commission to take into account any contribution to the student's grant which the parents are assessed as being able to make whether it is, in fact, paid—in cash or in kind—or not paid. It will also ensure that no part of the student's award is disregarded.
If the Commission were compelled—and I want to make this clear—to investigate every case where a student claimed that his parents were not paying their proportion of the grant, this would have the most serious practical implications. It would mean that the Commission's officers would have to mount detailed investigations into the exact family situation

813
in order to ascertain precisely what was or was not being provided for the student, not just in cash but also in kind. The word of the parent would not be sufficient, as this would open the door to collusion between parents and students in an attempt, in effect, to get the Commission to meet at least some of the parental contribution. It must be doubted whether the Commission could effectively carry out such a requirement, and it would certainly open the door to collusion, abuse of the social security system, and considerable ill-feeling all round. It would also have severe manpower implications. I am told that if the Commission had to investigate in detail each case where a student complained or claimed that his parents were not giving him his due support, it might need altogether about 125 extra civil servants at first, and that number would probably increase.
Your Lordships may know that since the Bill left another place the Court of Appeal has given its judgment in the case of Atkinson v. Barnsley Supplementary Benefits Appeal Tribunal. The judgment is relevant to this clause since it said, in effect, that the Commission were in error in using their discretionary powers to deal with whole classes of claimants, such as students. So far as students are concerned, we think that this clause will remedy that situation.
I must stress to your Lordships that the clause does not prevent students from receiving supplementary benefit if their grant and any other resources fall short of their assessed vacation requirements—if, for example, they are householders or have special expenses. Students who are severely disabled or who are lone parents will continue to receive supplementary benefit as before.
I should also mention that the Atkinson judgment casts considerable doubt on the wider use of the Commisison's discretionary power. This has serious operational consequences for the Supplementary Benefit Scheme, including the possibility of past claims to benefit being received. To deal with the wider problems raised by the judgment the Government will be introducing Amendments at the Committee stage.
Clause 18 is also one which I know will particularly interest a number of
814
noble Lords, relating, as at least some of it does, to the important but complicated questions facing occupational pension schemes in the final run-up to the introduction of the new pensions scheme next year. Subsections (6), (7) and (8) provide alternative arrangements whereby the solvency requirements of the Pensions Act may be satisfied by occupational schemes. Subsection (9) amends, by way of clarification, the provisions relating to the calculation of the various premiums when a scheme ceases to be contracted-out, and subsection (10) provides a regulation-making power to cover a particular situation in the same context.
My Lords, these proposals on occupational pensions are highly technical and, if I may speak for myself, very confusing to the uninitiated. At this stage I shall not pretend to your Lordships that I know them from beginning to end, so I hope that I shall not be pressed on some of these matters tonight. I should, however, make the general point that the Government firmly stand by the broad consensus of all sides of the House and the partnership between the occupational pensions industry and the Government which was achieved in 1975 and embodied in the Pensions Act of that year. Now that we are close to the start of the new scheme we want to avoid any changes which are not, let me say clearly essential, since unnecessary last minute changes in the rules can have only a disruptive and harmful effect, as I think noble Lords will appreciate. But that does not mean that we shall not continue to look closely and sympathetically at all proposals and representations from the industry.
My Lords, I have mentioned only the more notable parts of what is rather a pot-pourri of a Bill. The other provisions are also important, but will not, I hope, prove excessively controversial. They will provide significant improvements in a number of areas of social security where, for example, the law at present does not achieve original intentions or where for some other reason it is defective. The Bill also provides for some useful improvement and simplification of administrative arrangements, particularly in the field of industrial injuries, disease and war pensions. Last, but not least, the provision inserted in another place into

815
Clause 2 for a higher rate of increment on deferred retirement pensions and postponed guaranteed minimum pensions will improve benefit rights, as will other provisions included in Clauses 7, 9 and 14.
I hope noble Lords think that I have said enough at this stage. Perhaps I may—I hope successfully—commend the Bill to your Lordships. My Lords, I beg to move that the Bill be read a second time.
Moved, That the Bill be now read 2a.—(Lord Wells-Pestell.)
7.9 p.m.
Baroness YOUNG: My Lords, I should like to begin by thanking the noble Lord, Lord Wells-Pestell, for introducing this Bill and for explaining its content so clearly. This is not a Bill that at this stage will arouse any great Party political controversy, though inevitably there will be matters of difference between us. As the noble Lord said, in parts it is an extremely technical Bill, and I am therefore grateful to him for letting me have the Notes on Clauses in good time. Like him, I should like to begin by commenting on two major matters that are included in the Bill and to which we shall wish to return at a later stage.
The first one concerns the provisions in Clause 4 on the earnings rule. As I understand the position, the effect of this Bill was originally to prevent the earnings for retirement pensioners rising from the limit of £35 a week, as exists at present, to £50 a week, as was agreed. This was to come into force in April 1977 and is the case under existing legislation. Now the Government are proposing under Clause 5 to index-link the earnings of retirement pensions to average industrial earnings.
We on this side of the House have no quarrel with this point. Indeed the dynamising of earnings—if that is the correct expression to use these days—is much to be welcomed, and we, as indeed do the Government, would, for a variety of reasons, like to see the end of the earnings rule, but we accept the enormous public expenditure cost. However, I was glad that the noble Lord, Lord Wells-Pestell, went into some detail on the figures on the abolition of the earnings rule and those that were given
816
on Report stage in another place. At Committee stage we shall be pressing the noble Lord to undertake to review the operations of the earnings rule for retirement pensioners, and of course for the wives of retirement pensioners and invalidity pensioners.
I do not intend this evening to repeat the figures that were given by my right honourable friend in another place and which are fully recorded, but they give cause for some disquiet because the Government calculations on the cost of abolishing the earnings rule have varied so much. It is certainly not my intention to question the Government actuaries in the costs that they have put out and the calculations they have made. I too appreciate that they have a job to do, and I am sure they are doing it with the intention of arriving at the best projections that they can. Nevertheless, the projections have altered so much that I think it is necessary that, before too long, we should have some kind of statement on the costs, and how all this Clause 4 and Clause 5 variation in the earnings rule is going to work out.
The second point to which I should like to draw attention is of course the point about the students, in Clause 12. What is required now, it seems to me, is that the Government should make a clear and unequivocal statement about the position. Apart from anything else, there is the practical fact that the Easter vacation is almost upon us; indeed, it will be upon us before this Bill becomes law. In order to make the position quite clear I wrote down what I called the "Seven Ages of Students", to indicate the complexity of the situation into which we have got ourselves and which lies behind Clause 12 of the Bill.
As I understand the position, originally students were eligible for supplementary benefits in the Christmas and Easter vacations of 1976, but in the Christmas vacation of 1976 the Supplementary Benefits Commission changed the rules so that student grants were taken into account in considering cases. Part of the grant was assumed to cover their expenses during the Christmas and Easter vacations, and the consequence was that some of the offices of the Supplementary Benefits Commission stopped paying the supplementary benefit.

817
Then of course the Bill was published, and its first intention was that students would not be eligible for supplementary benefits in the Christmas and Easter vacations. Students then were shown to be eligible, on further amendment to the Bill, but the parental contribution was to be taken into account. The difficulty here is that all the statistics that one can obtain show that 73 per cent. of parents do not make the parental contribution. Why they do not make the parental contribution, we do not know.
It might well be, as the noble Lord suggested, that this is collusion between the students and the parents to get the Supplementary Benefits Commission to pay. We have no evidence at all of this. All we know is that it might well be the case that quite a number of parents now cannot pay, because of course it can be a major cost to have one or more children at a university to which a contribution must be made in order to complete the grant. At any rate, as the noble Lord said, in the meantime there has been a court case, the Atkinson case, which has clarified the position on this point, and we now find that the Government will need to bring further Amendments to this Bill in order to put the position back as they originally wanted it; namely, that students would be eligible for supplementary benefits, and only the parental contributions must be taken into account.
What really concerns students is that not only do 73 per cent, of parents not pay the contribution, but the alternatives are no longer available to them. For a great many students vacation employment is no longer available. Secondly, even if the grant is increased it is unlikely to keep up with inflation. The proportion of the grant which is designed to cover expenditure during the Christmas and Easter vacations has certainly not kept up with inflation, and there could indeed be cases of considerable hardship. This is a matter to which we shall need to return at a later stage. In the meantime, so complicated is the position that I think a clear statement from the Government is called for.
I was glad to hear from the noble Lord, Lord Wells-Pestell, that the Government stand by their proposals for handicapped students. It would be helpful to have it
818
printed in the Bill that handicapped students are eligible for supplementary benefit. I believe that to be the case, although the Bill does not explicitly say so. We shall again return to this point.
As the noble Lord said, this is a Miscellaneous Provisions Bill, and one of the difficulties with it is that one finds oneself hopping, as it were, from one issue to another. There are two other matters which I think will be of great interest to your Lordships' House. As the noble Lord said, Clause 11 is one of them because it concerns the mobility allowance and the anomalies arising from that allowance. I should like to study again what the noble Lord has said, because I understand that he will be bringing forward an Amendment at a later stage to cover some of the anomalies. We shall look forward to seeing that Amendment.
The other matter which I think will be of interest to your Lordships' House is an Amendment moved by my honourable friend in another place concerning pensions for the over 80s. This has been a matter of considerable concern to Members not only of your Lordships' House but outside, and arises, of course, only in cases of people who were not eligible to subscribe to the National Insurance Scheme in 1948. The number of such people still alive diminishes every year, but there is a small category of people who come back to this country but who have been out of the country for ten years and cannot count the years after the age of 80 towards the present ten-year qualification for the pension for the over 80s.
They are a very aged and diminishing number of people, who may suffer great hardships. I believe it would need only a small amount of public expenditure cost to give these people a pension. The cost is estimated to be between £250,000 and £500,000 a year. The important factor is that the sum would diminish each year, as of course the group of people who are not eligible diminishes each year.
However, as this is a Miscellaneous Provisions Bill, I should also like to draw to the noble Lord's attention another point which I believe has arisen recently and which I think the Government ought to consider. On 2nd February in another place my honourable friend Mr. Hannam introduced a Private Member's Bill to

819
remove what I am sure your Lordships' House will agree is an anomaly in the payments to those who care for disabled children. I understand that at present the natural parents of disabled children are entitled to attendance allowances which are tax free. Under Section 35(6) of the Social Security Act 1975 the Secretary of State for Social Services may by regulation withdraw these allowances in certain circumstances, and usually this is done when the child in question is in hospital for some long time. Regulations also cover children boarded out by local authorities. However, foster parents do not get the attendance allowance; they can be given the special care allowance by local authorities in lieu of the tax-free attendance allowance.
Recently a couple in Wiltshire agreed to foster a severely handicapped child and they have been taxed on the special allowance given to them by Wiltshire County Council. This seems to be an anomaly and one which goes against the spirit of the Government's Consultation Document on the Future of the Health and Personal Social Services, in which it would appear to be the intention of the Government that children should be fostered rather than left in institutions. In my view that is the right policy and, I should have thought, one by which we should give encouragement to foster parents to take on severely handicapped children. This particular anomaly that has arisen from a Treasury ruling should be looked at again and I hope to introduce Amendments on this point at a later stage.
As Lord Wells-Pestell said, a number of highly technical points arise under Clause 18. Like him and at this hour, I do not intend to pursue them. Nevertheless, I would like the noble Lord to consider before the next stage of the Bill the points raised in Committee in another place under the then numbered Clause 19. Those of us who are not expert in these matters understand that some experts are not satisfied with the technical replies that were given on the Amendments that were raised at that stage. A sensible way out of the dilemma would seem to be for there to be a meeting between those who advise the Government on actuarial matters and those in the private industries
820
who are concerned about these actuarial calculations because, what is being discussed is a matter of fact and, rather than pursue a great deal of technical detail across the Floor of the House, I should have thought that these were matters which could be resolved by a private meeting. Between now and the next stage, would the noble Lord consider whether this is the best way of proceeding? As I have indicated, this is not a Bill which we are against in principle. We wish to discuss in detail some of the interrelated but rather technical points and we wish the measure as speedy a passage through the House as possible.
7.23 p.m.
Lord BANKS: My Lords, I join the noble Baroness, Lady Young, in thanking the noble Lord, Lord Wells-Pestell, for the thorough explanation he gave of the various provisions of the Bill. I also thank him for letting me have in advance the notes on the clauses. Like the curate's egg, the Bill is good in parts; for example, I imagine that most noble Lords welcome the provision which enables disabled persons, if they wish, to exchange tricycles issued under the old scheme for the mobility allowance and to continue to receive that allowance after retirement age. We welcome that provision, whatever we may think of the withdrawal of tricycles and the general rules governing the mobility allowance scheme, both of which fall outside the scope of the Bill.
The miscellaneous tidying-up provisions, of which the Bill mainly consists, are broadly acceptable, if not exciting, subject to certain reservations which my noble friend Lord Byers will make. However, these provisions do not touch the main purpose of the Bill. In the debates in another place it was made clear by the Secretary of State for Social Services and the Minister for Social Security that the main object of the Bill was to secure savings in public expenditure, and as originally presented for Second Reading in another place there were three sources of such saving. The first was the reduction of unemployment benefit for those receiving an occupational pension of over £25 a week. The second was the provision, to which Lady Young referred, that students should no longer be eligible for

821
supplementary benefit during the Christmas and Easter vacations. The third was the proposal that the earnings limit for retirement pensioners should not go up to £50 from £35 in April as provided for in the Social Security Act 1975.
The first two of those provisions have not survived the scrutiny of another place. However, although the main provision in regard to students has been deleted, as Lady Young pointed out, the Bill introduces an unsatisfactory feature into the supplementary benefit arrangements for students, a provision to which Lord Wells-Pestell referred at some length. Under Clause 12, any prescribed contribution must be taken into account, notwithstanding the fact that the contribution is not actually made; parental contributions must be taken into account as if they had been paid, even though they had not been paid.
The survey to which Lady Young referred, conducted by the Department of Education and Science, revealed that 73 per cent, of students do not get the full parental contribution. Surely supplementary benefit should take into account the actual situation—even if that involves certain difficulties of administration such as those to which the noble Lord referred—because the whole purpose of supplementary benefit is to provide aid for actual situations and not for notional ones. In any case, the system of parental contributions for adults is nonsensical and humiliating, and to say that contributions must be assumed to have been paid when they have not is to make the system more nonsensical still.
The main saving is contained in the provision about the earnings rule; that remains in the Bill and keeps the limit at £35 instead of allowing it to rise. This is going against a previous decision of Parliament. It is not a new benefit which is being refused on grounds of economy; something which has already been provided for is being withdrawn because it is felt that that is essential to make a saving.
We on these Benches have been pledged to the abolition of the earnings rule for a great many years and I understand that all Parties now agree that it should be phased out. It is kept, then, not because of any principle but because it is alleged that the economic situation makes it
822
necessary to do so in order to make a net saving, as the noble Lord told us, of £45 million, this at a time when there is a surplus of £932 million in the National Insurance Fund this year and another surplus of £888 million anticipated for next year. And those figures, as the Government Actuary made clear in the report presented at the time of the last uprating, do not take into account this saving of £60 million gross which is now added to the surplus. The only reason why this is done is that it is a convenient way—building up this reserve—of reducing the public sector borrowing requirement.
When the 2 per cent, surcharge on employers' contributions was introduced, I maintained that it was an abuse of the National Insurance system; that is, to use it to raise taxes, which was in effect what was being done. Similarly, the noble Lord may recall that, when we discussed the uprating, I said that with a surplus of the size I have just mentioned, either benefits should be increased or contributions reduced, and that if that was not done it seemed an improper use of National Insurance contributions.
Similarly now, I feel that to insist on a saving of £45 million by withdrawing something that Parliament has already approved in order to assist with the problems relating to the public sector borrowing requirement is again an improper use of the National Insurance system. In my view, that is not the way these problems should be tackled. Incidentally, one hears a great deal at the present time about the possibility of tax cuts, and I notice that the Trades Union Congress is urging a package upon the Chancellor that would cost £2,500 million, of which £1,500 million would be in tax cuts. One can regard this as a case of taxation. After all, it is being used for what are virtually tax purposes and, at it speak, it is a rate of tax of 100 per cent. Surely, something that has already been provided for should have priority over other cuts in what is, in effect, taxation.
To sum up, I would say that, in so far as this is a tidying up measure, the Bill is certainly welcome to us on these Benches, though there are one or two points of criticism here and there. However, in so far as it uses the National Insurance system as a weapon in the management of the economy, which, in our view

823
it is doing with regard to the earnings provision, it is not something that we can welcome.
7.32 p.m.
Lord BYERS: My Lords, I do not intend to deal with the Bill as a whole. That has already been done by my noble friend Lord Banks. I have to declare an interest as the chairman of the Company Pensions Information Centre, I have been fairly close to the pensions scene over the last three and a half years and I should like to draw attention to one or two problems which have arisen in operating the Social Security Pensions Act 1975 and to suggest that the Bill now before us may have to be used as an appropriate vehicle for amending that Act in minor detail or for obtaining clarification from the Government at different stages of our proceedings.
One of the problems which I believe should be tackled is the delay which occurs by a strict interpretation of the 1975 Act by the Occupational Pensions Board in connection with the interpretation of the various stipulations concerning what are called the "requisite benefits". I want to make it clear that I am not criticising the Occupational Pensions Board. I believe that it is acting very properly and, indeed, I would not seek to criticise the Board when I see on the Cross-Benches the chairman of the Board, the noble Lord, Lord Allen of Abbeydale, who is unfortunately, in political and Parliamentary baulk because of the Addison Rules. I sympathise with him very much.
Some of these stipulations are mandatory and some are permissive. The appropriate place for complying in detail with these provisions is in the formal rules of the schemes themselves, and the Act appears to envisage this by using the word "rules", for instance, in Clause 33(l)(a ) and 36(2). But, in practice, very few schemes will be able to produce full and final rules or amendments to rules by April 1978 and, even if they could, I do not believe that it is reasonable to suppose that the Occupational Pensions Board would have time to examine them in detail before then. Therefore, I believe that there is a need for interim methods of documentation if the work is to be completed before April 1978. I am told that many insurance companies have
824
been negotiating with the OPB to establish standard methods for this purpose.
Unfortunately, the OPB officials concerned in these discussions take the view that they have no discretion to waive any of the detailed requirements in defining what are called "requisite benefits". I do not know whether they are right or wrong: they may well be right and I think that they could be. But at present the only place where this kind of detail can be recorded appears to be in the announcement usually issued to employees. This is a highly unsatisfactory situation because the kind of detail and formal expression needed tends to defeat the simple communication objectives which everybody insists are the right sort of approach for such document. Secondly, the variety of such documents and of alternative forms of requisite benefits make any kind of standardisation very difficult.
It is also likely that pensions practitioners will have great difficulty in persuading employers to accept standardised provisions in these documents and the OPB is likely to have to examine most of them individually and in detail at some time. Again, I say that the likelihood of their achieving this by April 1978 seems almost as remote as for the fall rules themselves.
The Minister will already be aware from discussions with representatives of the Life Offices that they regard the situation as reaching crisis point and feel that if there is no change of course it will be impossible in more than a minority of cases for the necessary documentation to be completed in time for the OPB to carry out the necessary work by April 1978. In fairness, I should say that the Occupational Pensions Board has today written me a letter that indicates that it does not think the matter all that serious. However, my technical advisers tell me that I am right and I shall be replying to that effect.
I want to propose a possible solution to what I believe to be a real problem. What I think is needed is the facility to meet the requirements of the Act by a short, generalised commitment in interim formal documentation. There are precedents for this—for example, a long-standing Inland Revenue practice, and the arrangements

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under the 1973 Act for the preservation requirements. I believe that the OPB is under the impression that there is no provision in the 1975 Act for it to issue interim certificates for contracting out. I do not believe that that is correct, because the drafters of the 1975 Act envisaged this situation and included a regulation-making power in Section 63(2)(g) which would make it possible to overcome the difficulty by adopting more streamlined systems of interim documentation.
I hope that the Government will feel able to give an assurance at some stage that they recognise the urgency of the situation and will issue the necessary regulations under this section. Alternatively, this House could take action to include the necessary discretion for the OPB in Section 33 of the 1975 Act. What I think is required is an amendment to the 1975 Act which could be made at a later stage of the Bill to give the OPB the discretion to issue a contracting-out certificate even where the scheme does not at that stage contain rules complying in detail with the requirements of the Act, but where the OPB is genuinely satisfied that it is intended to do so and that a formal commitment has been entered into. The OPB could lay down the date by which the detailed requirements must be satisfied. Subject to what the Government may feel, I should be prepared to put forward an Amendment to that effect at Committee stage.
I turn to one other point. Again, it is a practical point and has arisen, I am informed, between the OPB and the Life Offices. It arises from the interpretation of the legal requirements which must be followed in examining the solvency of guaranteed minimum pensions. Putting it at its simplest, it appears that the OPB view is that it cannot rely upon the security of an insurance policy unless it is issued to and vested in an individual member or, at the least, is outside the trusts of the relevant pension scheme. I do not understand why this should be the case, because the contracting-out provisions of the Boyd-Carpenter scheme worked happily for many years without anyone insisting on this requirement and without any suggestion that the precautions were inadequate.
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What I understand is that the requirement now will cause considerable proliferation of paperwork which will have to be paid for, and this will mean a reduction in the amounts of pension which can be provided for given contributions of the employer and the employee. In other words, the requirement is against the interest of providing better pensions, and if the OPB are correct in their interpretation of the law—as they may well be—then there is a need for the law to be put into more practical shape.
My Lords, I should like to make one final suggestion arising out of what I have been saying. In seeking to operate the provisions of the 1975 Act—and we are working under a very tight schedule now to try to get the Act into operation by April 1978; every day and every week counts—there will inevitably be a number of matters which will require clarification either by the Occupational Pensions Board or by the DHSS. If these matters can be disposed of quickly, then there is no problem at all; but with this tight timetable we cannot afford to allow unsolved problems to drag on, even for a few weeks. This is particularly true of matters which will affect the granting of contracting out certificates by the OPB.
Often these matters drag on—and I do not want to be misunderstood, and I am not being critical—because they are being dealt with in the very nature of things, as is quite right, at a relatively low level to begin with. My experience is that many of these problems can be solved if they are put to the highest level in good time. I should like to see meetings taking place from time to time between the OPB at top level, the DHSS at top level, possibly with the Minister, Mr. Stanley Orme, in the chair, and the outside parties involved, to examine any problems which have arisen which may cause delay in dealing with the granting of contracting out certificates.
I wonder whether I might draw an analogy. In the war we had in 21 Army Group a very similar problem in the Normandy campaign not long after D day. We realised that the availability of replacement tanks from the United Kingdom was not keeping pace with the tank casualties and that our calculations showed that the supply of tanks arriving

827
in Normandy could well dry up; and we were working against a very tight schedule for the breakout. We convened a conference in the beach-head comprising the top-brass from the factories dealing with the tanks, the transport system, the Navy and the senior officers of the tank regiments, not to mention from the War Office, and one or two others. It was not long before we identified the real bottleneck; I say not long, it was only a few hours. It appeared that whereas the Americans went into battle with the identical tanks after about 30 modifications had been made to them, our own people had insisted on modifications counted in hundreds. It took about a day to iron this out and to decide with the help of the experts on which modifications were essential and which could be dropped, and we decided how to cut through the red-tape and to get things moving. The tanks began to roll into Normandy very soon after that.
This is not just a military reminiscence. The point is that these kind of decisions have to be made quickly, and they have to be made at the top. If we are to avoid a chaotic log-jam at the OPB some organisational structure must be brought into being, in my view, to cut out avoidable delay. I hope that the Government will recognise the problem. I am quite sure that the noble Lord, Lord Wells-Pestell, who has been so extremely helpful in all pension matters, will see it quite quickly, and I am sure that something has to be created, even if it is only ad hoc, to solve the problem. I am not looking for a reply from the Government tonight. I merely want to put forward these suggestions in the hope that they will be considered.
7.44 p.m.
Lord WELLS-PESTELL: My Lords, I am grateful to the three noble Lords who have taken part in the debate. I think that I can say without being misunderstood that perhaps in the whole of your Lordships' House it would be difficult to find three people more competent to contribute in this particular field. I know that the noble Baroness would say that her involvement derives from her concern. Both she and I have a very deep concern in the field of social services, social welfare and social benefits, and the noble
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Lords, Lord Byers and Lord Banks, bring to discussions of this kind an expertise which we would not ever presume to possess; indeed, perhaps no one else in the House possesses quite that expertise. The Government will read Hansard very carefully because a number of quite definite suggestions have been made. I am under the impression that there has been an "on-going discussion"—I hate that expression, although it is used by professional social workers these days. I cannot bear it. But there has been an on-going discussion between experts; but it may well be, as the noble Lord, Lord Byers, suggested, that we ought to be looking at the matter afresh.
The noble Baroness raised the question of the Easter situation with regard to students. I can say at this stage that we shall deal with any claims that are made in accordance with the law as it is at the moment, until the law is changed, as we hope, by this Bill; but that is the position. I do not want to enter into a discussion at this time with the noble Lord, Lord Banks, about the responsibility of parents regarding the contributions that they are expected to make in relation to their sons and daughters who have been given student awards. Some of us feel quite strongly about this, but we realise that there are difficulties. It is very difficult to find a satisfactory way of dealing with this question, and sometimes one has to adopt a position which is going to meet the situation generally, even though it may be unfair to some. The noble Lord, Lord Byers, was good enough to say that he did not expect replies to what he——
Baroness SEEAR: My Lords, I hope that the noble Lord will forgive me for intervening, but I wish to refer to a matter with which I know he has great sympathy. With regard to the parental contribution, will he recognise that if nothing is done about this the people who will suffer most acutely will be the daughters where there is a question of choosing whether it is a son or a daughter who gets a university education? In cases where a parental contribution is required, many daughters simply will not go to university.
Lord WELLS-PESTELL: My Lords, the noble Baroness will know that my

829
Department is not responsible for that particular system. This system has been adopted by Governments over many years, and one recognises that there are problems where there are one, two, and perhaps three children in a family going to university one after another. I am prepared to accept, because it is within my own personal knowledge, that the discrimination to which the noble Baroness has referred does in fact sometimes take place. But I think that the Government always have to look at the situation as it should be and consider whether it is right to have a system which provides a possibility of money being paid out twice from different sources. The noble Baroness will say that in 73 per cent. of cases it is not being paid out at all. We recognise this problem and it is a matter which causes us some concern.
The noble Lord, Lord Byers, referred to the solvency test. He mentioned certain difficulties in connection with contracting out. I think that he will understand when I say that this is a very technical and complex subject. It is one which we are very carefully examining in the Department, and it is also being carefully examined by the Occupational Pensions Board. Discussions are still continuing on the details of implementing the test and perhaps the noble Lord will allow me to leave the matter there. But as I said at the beginning of my reply, we will look very carefully at what has been said. I am grateful to the three noble Lords who have taken part for their balanced observations and comments. Although the situation may be a little different in Committee, nevertheless we are grateful for what they have said.
On Question, Bill read 2a and committed to a Committee of the Whole House.

TRANSPORT (NORTHERN IRELAND) ORDER 1977
7.50 p.m.
Lord MELCHETT Lord MELCHETT rose to move, That the draft Transport (Northern Ireland) Order 1977, laid before the House on 10th February, be approved. The noble Lord said: My Lords, I beg to move that this draft order be approved. May I, with great sadness, preface my remarks with a few words of tribute to the noble
830
Lord, Lord Faulkner, whose tragic death today in a riding accident has removed one of the major figures of the post-war years in Northern Ireland. Much of the industrial progress of the Province stemmed from his imaginative and far-sighted planning as Minister of Commerce; and in recent years he devoted his talents, great energy and skills to the task of seeking to create in Northern Ireland genuine partnership and reconciliation within the community. His death is a great loss to Northern Ireland and to this House, and I know that I speak for the whole House when I extend our deepest sympathy to Lady Faulkner and to the rest of his family.
My Lords, the order which we are considering this evening is a miscellaneous transport order, the main purpose of which is to enable the Northern Ireland Transport Holding Company, with the consent of the Department of the Environment for Northern Ireland, to transfer to a subsidiary company the functions, assets and staff previously transferred to the holding company from Belfast Corporation at the time of local government reorganisation. The proposed order would also enable the Department of the Environment, with the approval of the Department of Finance, to make grants to the holding company and its subsidiary companies; to rebate fuel tax duty incurred by bus companies; to provide for grants by the Department of the Environment for concessionary fares on passenger transport undertakings; and to permit alteration in the membership of the Transport Users' Committee. It increases certain fines for offences on railways, and enables the making of regulations about offences for fare evasion on buses. It also confers functions on the Department in relation to the railway company under certain EEC regulations; and, finally, it repeals spent provisions in railway legislation.
The proposal was published on 14th September 1976, and was given a wide distribution to statutory and non-statutory bodies, the Northern Ireland Committee of the Irish Congress of Trade Unions and the Press, in addition to the agreed distribution through Parliamentary channels. The order as now presented includes several points made by these bodies during the consultative period. The draft order was debated in the Northern Ireland Committee in another

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place on 16th December 1976, and, while many points of interest about its implementation were raised, the debate did not reveal the need for any modification to the content of the order.
My Lords, I do not intend to mention every article in detail, but I should like to say a little more about the most significant, and that is Article 2. This article would enable the holding company, with the consent of the Department of the Environment, to transfer to a subsidiary company all or any of the functions previously transferred to the holding company from the Belfast Corporation Transport Department. In effect, this means that Citybus, which at the moment is no more than a trading agency of the holding company, could be translated into a self-contained subsidiary. It is envisaged, as agreed by both unions and employers, that a merger of the Belfast transport undertaking with Ulsterbus is the longer-term objective. For the present, however, the disparities in terms and conditions of employment render this unattainable, and the present proposal to set up Citybus as a separate subsidiary is seen as an interim solution. A merger remains the ultimate objective, and discussions between unions and management will continue towards that end.
My Lords, I have mentioned only the most important article in any detail, but I would be happy to answer any questions that I can on any part of the order. As noble Lords will see, this proposal is not far-reaching in nature, and each of its miscellaneous provisions is designed to achieve a limited objective. My Lords, I beg to move.
Moved, That the draft Transport (Northern Ireland) Order 1977, laid before the House on 10th February, be approved.—(Lord Melchett.)
7.54 p.m.
Viscount LONG: My Lords, I should first like to thank the noble Lord for his kind tribute to my noble friend Lord Faulkner. From these Benches I would say that we have heard the very sad news that he died this afternoon after a riding accident, and there is no doubt that Northern Ireland has lost a great friend and a great political leader. It was as
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Brian Faulkner that many of us knew him, though I might say at this moment that I personally did not know him but was looking forward to meeting him, I having just been allocated this job with my noble friend Lord Belstead. But many knew him, and knew how well his Premiership went from 1971 to 1972 and, equally, how well, after the difficult period of the break-up, he led all the representatives in Ireland to try to counteract the enormous difficulties that faced Northern Ireland at that time. That, of course, as the noble Lord knows, was in the Assembly. My Lords, it is tragic indeed, as it was only a few days ago that we saw him take his seat in your Lordships' House; and I have already said how much many of us, on all sides of the House, were looking forward to hearing his wise words and counsel on the problems and the difficulties of Northern Ireland. It is a tragic day for all of us in your Lordships' House that we have lost such a great friend and a great brain on Irish affairs. I end this part of what I have to say by expressing from this side of the House our very deepest sympathy to his wife and to his family.
Having said that, my Lords, like the noble Lord I do not wish to detain the House on this draft Transport Order. Obviously, we welcome every move that is designed to improve the transport situation in Ireland. There is only one question, I think, that I should like to ask, and it is this. There seems to be some conflict between the taxi-cabs, or the black cabs, and the buses, and it appears to me, without going any deeper into this Instrument, that Citybus are losing out through want of control over these black cabs or taxis. I would ask the noble Lord whether there is any movement in Northern Ireland to counteract this. Of course, one fully realises that the black taxi-cab drivers are not very fond of the buses; they affect their own services. I also welcome page 6 of the order, in that you pay to get on a bus now rather than pay when you get off. I wonder why those paragraphs on page 6 were not brought forward before. It would have meant less embarrassment and difficulty for both the bus driver and the conductor. Having said that, I will not detain the House further. I repeat that we are indeed sad tonight at the tragic accident to Lord Faulkner.
Lord BYERS: My Lords, on behalf of the Liberal Party in this House I should like us to be associated with the tributes which have been paid by the two noble Lords who have already spoken. It is a real tragedy that this should have happened so soon after the noble Lord, Lord Faulkner, had been introduced into this House, when so many of us were hoping to benefit from his experience and his political contributions. We extend our sincerest sympathies to his widow and to his family.
7.59 p.m.
Lord WINDLESHAM: My Lords, it is some time since I spoke in a debate on a Northern Ireland order, although at one time it was my task to introduce a large number of such orders in the same way as the noble Lord, Lord Melchett, does now. I intervene this evening only to pay tribute to Lord Faulkner of Downpatrick. I first met him when I was a Minister at the Home Office and he was Prime Minister of Northern Ireland—the last Prime Minister of Northern Ireland before the Prorogation of the Stormont Parliament in 1972. Later I saw him frequently in Northern Ireland after the introduction of direct rule. My Lords, I came to admire his quality as a politician. His characteristics were great skill, high professionalism and exceptional toughness.
Brian Faulkner was a determined man and an effective leader of the Unionist Party. When the power-sharing experiment came to its brief period of fruition, it was Brian Faulkner, the former Unionist Leader, who headed the first Executive in which both communities were represented. As we know, the experiment lasted for only a short period but it was not for any lack of effort by Brian Faulkner that it was so. His death today is a double irony in that Brian Faulkner's political career was over. It finished some months ago when he left active politics. It is also ironic for a man who spent most of his career in public life—and the noble Lord, Lord O'Neill of the Maine, will correct me if I am wrong, but I believe Brian Faulkner was the youngest member when he was first elected to the Northern Ireland Parliament at Stormont—for a man who had spent so many years of his life exposed in public positions at personal
834
risk that he should end his life so suddenly in a hunting accident.
I should like to add my sympathy to his wife, his family and friends. Brian Faulkner's place in the history of Northern Ireland is assured. I conclude by expressing the hope, as we remember him in this House this evening, that the principles for which he stood and for which he fought so hard will in the end take root and lead to the creation of a more stable, happier and more peaceful society in Northern Ireland.
Lord O'NEILL of the MAINE: My Lords, I should like to take this opportunity of associating myself with everything that has been said. I have just come back from ITV where, in conjunction with Jerry Fitt, I was paying a tribute to Brian Faulkner. People in Northern Ireland know that Brian Faulkner and I rather parted company a few years ago; but it was one of the happier events in my life that when he took his seat last week I had a reunion with both Brian and his wife, Lucy, and I am very happy that this should have been so. Of all the various facets of Brian's political life, I hope that he will be remembered for the great efforts he made as chairman of the Executive in the power-sharing venture to which the noble Lord has just referred. Had it been possible for the Assembly to survive, had it been possible for that power-sharing Executive to have survived, it might be that the troubles with which Lord Melchett is trying to deal today would not have reached their present peak. However, that is all a matter of history. But I hope that Brian will be remembered for his efforts there rather than for anything else.
I feel that among the minority he may perhaps be recalled as the man who was the architect of internment. I hope that they will try, at this time, to forget that and to remember that this was the man who risked his political life and his political future in trying to establish a power-sharing Government. It is a tragedy that this has happened; although knowing Brian as I did and knowing that the hunting field was perhaps more important to him than anything else, I think that he probably would have been happier to end his life in this way than in ways which are so open to people in Northern Ireland.

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It is a great tragedy that this has happened and, once again, I should like to associate myself with the words of the speakers who preceded me.
Lord MELCHETT: My Lords, the noble Viscount, Lord Long, raised the question of the black taxis in Belfast. As he may know, they do give rise to considerable concern and there are, unfortunately, grounds for believing that the existence of the illegal taxi services in Belfast may have resulted in a loss to the city buses in the last financial year of £1.5 million or more. This certainly cannot be regarded as a satisfactory state of affairs. I can assure the noble Viscount that the Government are, and will be, keeping this situation under careful review.
Other than that, the thrust of the comments, somewhat naturally, on this order has been on the tragic death of Lord Faulkner. Once again, I should like to associate myself, my colleagues in the Northern Ireland Office, all those in Government and on this side of the House with the remarks made by noble Lords opposite and, in particular, to express my warm agreement with Lord Windlesham's hopes for the future of which he spoke.
On Question, Motion agreed to.
8.4 p.m.

RATES AMENDMENT (NORTHERN IRELAND) ORDER 1977
Lord MELCHETT Lord MELCHETT rose to move, That the draft Rates Amendment (Northern Ireland) Order 1977, laid before the House on 1st February, be approved. The noble Lord said: My Lords, I beg to move the draft Rates Amendment (Northern Ireland) Order. The purpose of the short order before your Lordships tonight is to amend the law in Northern Ireland relating to rates and the valuation of property for rating purposes and also to achieve broad uniformity with the law in England.
Three main changes are proposed in the order: first, to extend domestic rate aid to apply to the private dwelling part of premises used partly for residential purposes and partly for other purposes; second, to give a right of appeal on the question whether rates on premises used
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for recreational purposes are subject to reduction; and, third, to allow rate relief for charity shops. Several amendments related to or in consequence of these changes, together with others of a comparatively minor and unrelated nature, are provided for in the order. These include the arrangements for paying rates by instalments, the right to discount on rates, the correction of clerical errors in the valuation list, rectifying minor in correct use of language and removal of industrial derating from any part of an industrial hereditament which is used for the purposes of a private dwelling. I beg to move.
Moved, That the draft Rates Amendment (Northern Ireland) Order 1977, laid before the House on 1st February, be approved.—(Lord Melchett.)
Viscount LONG: My Lords, I am most grateful to the noble Lord for his explanation of this order. There are two points I should like to raise. The first is on recreation. I believe that some recreation centres, particularly the indoor centres, find it intolerably difficult because they are charities to raise the money to meet their rates. Secondly, may I ask whether the local traders are being fairly treated? Added to the difficulties of inflation they have the problem of bombings and window smashing affecting their trade. I wonder whether those two points should not be looked at more sympathetically. I believe the noble Lord said that there was a right of appeal on recreational grounds. If that is the case, I welcome it; but I should like to feel that the local traders could also have a right of appeal. Other than that, I will not detain your Lordships.
Lord MELCHETT: My Lords, the noble Viscount is quite right in saying that this order introduces a right of appeal which will lie to the Lands Tribunal for Northern Ireland on the question of whether an hereditament is entitled to recreational rating relief. As the noble Lord may know, Article 4 of the 1975 Order inserted in the 1972 Order a new article which provided for rating relief for certain recreational hereditaments. It is the purpose of Article 4 in this order to give a right of appeal where the occupier of such a premises is not satisfied with the extent of rating provision incurred. I think that the noble Viscount's point is probably met by that.

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The noble Viscount also raised the question of the rating of commercial and industrial premises. As he knows, this is a matter which has given grounds for some concern in Northern Ireland. It will be very difficult to attempt to compare the position in Great Britain with that in Northern Ireland. It will be a very complex operation, and no attempt has been made to do this. However, a Working Party, which includes representatives appointed by the Association of District Councils, is examining the method of striking the regional rate in Northern Ireland. They will be considering, among other things, the aspect of comparability with Great Britain and, in particular, the comparability of the rating of industrial and commercial premises. The report of this Working Party is expected later this year. Hopefully, that will have something constructive to say on the problem which the noble Viscount mentioned.
On Question, Motion agreed to.

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