Sitting of 12 May 1977

Preamble
The House met at half-past Two o'clock

PRAYERS
[Mr. SPEAKER in the Chair]
Mr. Speaker: Before I instruct the Clerk to read the titles of Private Bills, I should draw the attention of the House to the fact that Private Business has been printed on the Order Paper immediately before the Orders of the Day and not, as is customary, immediately before Questions.
I must also draw attention to the fact that the Prime Minister's Questions have not been numbered in their customary sequence, though they are in a separate list.

PRIVATE BUSINESS
  SHREWSBURY AND ATCHAM BOROUGH COUNCIL (FRANKWELL FOOTBRIDGE) BILL (By Order)
  Read the Third time and passed.

  HERITABLE SECURITIES AND MORTGAGE INVESTMENT ASSOCIATION LIMITED BILL [Lords] (By Order)
  Orders for Second Reading read
  To be read a Second time upon Thursday next.

ORAL ANSWERS TO QUESTIONS
  NORTHERN IRELAND

    Loyalist United Unionist Action Council
    Mr. Flanneryasked the Secretary of State for Northern Ireland what discussions he has held with the Loyalist United Unionist Action Council; and if he will make a statement.
    The Minister of State, Northern Ireland Office (Mr. J. D. Concannon): I hope that the House will understand when I say at the outset that my right hon. Friend the Secretary of State has deemed it important that he should stay in Northern Ireland today. I hope that the House also understands that no discourtesy is intended.
    In answer to the Question, none, Sir. On 2nd May, before the stoppage began, my right hon. Friend met the Leader of the Democratic Unionist Party, the hon. Member for Antrim, North (Rev. Ian Paisley), and the Leader of the United Ulster Unionist Party, Mr. Baird, in their capacity as leaders of political parties in Northern Ireland. He asked them to use their influence to prevent the stoppage called by the UUAC and told them that such action could only help the IRA and weaken Northern Ireland's economy. I am sorry that they disregarded this advice; but I am glad that most people in Northern Ireland have courageously rejected the misguided strike call.
    Mr. Flannery: I thank my hon. Friend for that answer. Does he agree that the people of both the majority and minority communities in Northern Ireland should be congratulated by the House on the sane and sensible attitude they have taken to the atmosphere of thuggery and intimidation which somehow seems to surround the hon. Member for Antrim, North (Rev. Ian Paisley) almost everywhere he goes? Does he also agree that a measure of unity in the face of adversity of this nature seems to have pervaded the community generally and that this small measure of unity could grow and become something bigger? Does he further agree that steps of a carefully pre pared nature should be taken to try to capitalise on this position and bring

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    the various communities together to utilise it as best we can?
    Mr. Concannon: I think that the people of Northern Ireland have shown their determination to keep life going in the Province. Although they may and do feel strongly about the security situation, they see that the stoppage could only be harmful for Northern Ireland. 'This is a victory for the courage and good sense of the people of Northern Ireland and for responsible leaders of opinion there.
    Mr. Neave: Will the Minister of State convey our good wishes to the Secretary of State in this crisis? Does he agree that it has demonstrated not only the courage and resolution of working people but the splendid calibre of the RUC and the way in which it has become an effective and impartial police force?
    There has been a great amount of intimidation. Will the hon. Gentleman tell us how many cases of intimidation have been reported to the police and what charges have been or are being made? We can only hope that the offenders will be dealt with severely.
    Mr. Concannon: I thank the hon. Gentleman for his good wishes, which I shall convey to my right hon. Friend later this afternoon.
    Well over 1,000 cases of intimidation have been reported to the RUC. I should point out that, of all the people coming out of this situation with a lot of credit, the RUC is certainly coming out with great credit. I repeat that well over 1,000 cases of intimidation have been reported. The methods of intimidation are so insidious—some have been made over the telephone—that it is difficult to get evidence or people to back up the evidence. Over 100 cases have been taken up of which just under 30 involve intimidation charges.
    Mr. Fitt: Is my hon. Friend aware that within the last 24 hours one of the leaders of the Loyalist United Unionist Action Council—namely, the hon. Member for Antrim, North (Rev. Ian Paisley)—has made allegations that the SAS was responsible for the murder of the bus driver in the city of Belfast? Is he aware that the hon. Member also alleged that the CIA had had discussions with the RUC in an attempt to defame the
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    Loyalist population? Does my hon. Friend think that there is any truth in those allegations? Alternatively, does he agree with me and with many thousands of people in Northern Ireland that the hon. Member for Antrim, North is in urgent need of psychiatric treatment and that he is more to be pitied than blamed?
    Does my hon. Friend agree that over the past few days the RUC—and I am speaking as Leader of the SDLP—has been engaged in actions which have engendered a lot of trust in the Roman Catholic community? Will he congratulate the law-abiding people of Toomebridge who assisted the RUC in the removal of illegal road blocks?
    Mr. Concannon: It is not worth wasting the time of the House by replying to any of the absurd accusations made about the murder of the bus driver and other matters. I have attended two meetings with the bus drivers and their representatives. I would sooner take their word than that of anyone else. I was proud to be associated with the bus drivers and the action they have taken. The Toomebridge incident was regrettable. If the obstructions had not been on the road illegally, nothing would have happened.
    Mr. Fitt: Hear, hear

    Political Situation
    Mr. Watkinsonasked the Secretary of State for Northern Ireland if he will make a statement on the Northern Ireland political situation.
    Mr. Biggs-Davisonasked the Secretary of State for Northern Ireland whether he intends to take any political initiative.
    Mr. Kilfedderasked the Secretary of State for Northern Ireland if he will now reconsider his policy towards the restoration of a Stormont Parliament.
    Mr. Concannon: It remains the Government's primary aim to establish in Northern Ireland a system of devolved government that has been built on agreement between political leaders and that has the respect and support of the majority on both sides of the community. If it is the general wish, however, the Government will be ready to consider arrangements for partial devolution provided that what is being devolved is real power and

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    responsibility. There has been much discussion recently of the Macrory gap—between 26 district councils and Government and Parliament at Westminster. My right hon. Friend recognises that this is a matter of genuine concern and is hoping that the political parties in Northern Ireland will want to hold discussions on the issue after the local government elections.
    Mr. Watkinson: I thank my hon. Friend for that reply. Does he accept that it is important, even in these difficult times, that one should think about the future of Northern Ireland? My hon. Friend's reply, which indicated that administrative devolution is still on the agenda, is significant. Does he agree that the political future of Northern Ireland is very much bound up with the economic situation? Does he agree that the present problems and difficulties exacerbate the economic problem of Northern Ireland and discourage investment in the Province?
    Mr. Concannon: I am in charge of the Commerce and Manpower Departments in Northern Ireland. The recent incidents will do incalculable damage to the economy of Northern Ireland. We cannot calculate the damage. The sooner the present situation is over and we can again spread confidence in Northern Ireland industry, the better.
    Mr. Biggs-Davison: Have not recent events made quite clear that there is a political vacuum which is adverse to democracy in Northern Ireland? We are pleased about what the Minister said, but can he say whether the Secretary of State will be willing to entertain proposals from the official Opposition for a political forum?
    Mr. Concannon: I have not noticed that there is a political vacuum in Northern Ireland, nor has there been one for some time. The possibility of discussions about improving the existing structure of local government in Northern Ireland is in our minds. There are no cut-and-dried solutions. My right hon. Friend the Secretary of State hopes that the political parties will want to hold discussions as soon as the local government elections are over.
    Mr. Kilfedder: Administrative devolution has been mentioned. Will the Minister
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    take it from me that the people of Northern Ireland do not want administrative devolution? They do not want a second tier of local government, because it would be bureaucratic and costly. Does the Minister accept that the people of Northern Ireland want the restoration of the Stormont Parliament, despite what certain members of the Unionist coalition say at the moment?
    Mr. Concannon: That might be the hon. Gentleman's view. It is certainly not the opinion of everyone in Northern Ireland. The hon. Gentleman will have the chance to express his opinions.
    Mr. Powell: With regard to the concluding part of the Minister's reply, may I ask whether his right hon. Friend the Secretary of State would be willing to assist by putting forward from the Government an outline of the kind of proposals that would be likely to secure the Government's agreement?
    Mr. Concannon: As I have said, we intend to hold discussions. We are waiting for the air to clear on the political front after the local government elections.
    Mr. Nicholas Winterton: I welcome the Minister's comments on behalf of the Government this afternoon. Will he shortly announce really positive powers and responsibility for local government in Ulster? Is he aware that during my recent visit to Northern Ireland many complaints were made that there was no real power for local government at the moment? Is he aware that this was much regretted by the able and competent people who wish to administer the Province?
    Mr. Concannon: In my time in Northern Ireland I have also been responsible for local government. Local councillors have ways and means of putting forward their views. The hon. Member says that they have no power. One has only to examine certain booklets from local government offices saying how much power they have or look at the amount of money they spend each year to discover that they have plenty of power. There is a gap between local councils and the central Government. We want to talk about that as soon as the local elections are over.

    Republic of Ireland Citizens (Welfare Benefit)
    Mr. Powellasked the Secretary of State for Northern Ireland in what circumstances citizens of the Irish Republic may become entitled to supplementary or unemployment benefit in Northern Ireland by reason of the ending in 1977 of the derogation from freedom of movement of labour in the European Economic Community
    The Under-Secretary of State for Northern Ireland (Mr. Ray Carter): The termination on 31st December 1977 of the derogation in respect of Northern Ireland in regard to the free movement of workers within the European Economic Community will have no effect on the existing conditions under which citizens of the Republic of Ireland may receive unemployment benefit or supplementary benefit in Northern Ireland. The five-year residence test for supplementary benefit remains in operation.
    Mr. Powell: Is the Minister aware that his reply will help to dispel the quite widespread impression in Northern Ireland that following the end of the derogation there may be a considerable number of citizens of the Republic entering Northern Ireland for the purpose of collecting supplementary benefit and unemployment pay? Is he aware that his answer will be valuable in that context?
    Mr. Carter: I understand the fears represented by the right hon. Gentleman in his question. As he said, they are based only on an impression. Nothing changes as a result of the derogation

    Prisoners
    Mr. John Ellisasked the Secretary of State for Northern Ireland how many prisoners have broken prison rules; how much remission they have lost; and what is the range of crimes which they have committed, for the latest convenient period.
    Mr. Concannon: As at 10th May 1977, 99 prisoners convicted of offences committed after 1st March 1976 were refusing to wear prison clothing or to work. Ten female prisoners were also refusing to work. This is a breach of prison rules and an offence against discipline. Adjudications by prison governors take place at
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    regular intervals and as at 10th may 145 prisoners had been punished and had forfeited some 27 years—9,936 days—remission of sentence. This includes loss of remission by 52 prisoners who were formerly refusing to wear prison clothes or to work but who are now conforming to prison rules.
    The crimes for which these prisoners were committed to prison include murder, attempted murder, armed robbery, explosions and other firearms and explosives offences.
    Mr. Ellis: Will my hon. Friend say how many prisoners are conforming? With regard to his policy of ending special category status, which many of us supported, will he give us some comment, in the light of all these figures, about how this policy is working?
    Mr. Concannon: The best answer I can give is that while 99 prisoners are not conforming, 218 are conforming to prison rules and discipline.
    As I have said on many occasions before, the ending of special category status is now a fact and has been so for over a year. The Government are formally committed to this policy. From the peak figure of nearly 1,600 special category prisoners, we have come down to 998 at the last count.
    Mr. Farr: To what extent is the breaking of prison discipline a matter for prison visitors? If it is entirely the responsibility of visitors to adjudicate in these cases, will the Minister say whether he is entirely satisfied with the operation of these boards?
    Mr. Concannon: I am entirely satisfied with the operation of these boards. The prisoners are allowed a statutory visit, I believe, once a month. If I am wrong in that respect I shall write to the hon. Gentleman.
    The prisoners are liable to lose other privileges such as parcels and so on. But I am quite happy and contented with the activities of the prison visitors.

    Advance Factories and Industrial Assistance
    6. Mr. Hardyasked the Secretary of State for Northern Ireland how many advance factories have been built in Northern Ireland; and how much money

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    has been provided in various forms of assistance to industry in Northern Ireland since 1945
    Mr. Concannon: A total of 129 advance factories has been built in Northern Ireland costing £160 million, and just over £602 million has been paid in various forms of assistance to manufacuring industry since 1945. In addition, £268¾ million expended in the same period on selective employment payment—£237½ million—and on training and other employment subsidies—£30¾ million—benefited employers generally but mainly those in manufacturing industry.
    Mr. Hardy: I welcome that information. Have the present difficulties in any way endangered—or does the Minister suspect that they are likely to endanger—the further industrial and commercial development in Northern Ireland which he and his colleagues have so vigorously sought? Are there any possible areas of development which currently hang fire depending on an early resolution of the dispute?
    Mr. Concannon: There are certain areas of development which are hanging fire in this respect. In my travels and in talking to business men and industrialists throughout the world, I have found that the main factor which we have to build up is confidence.
    When we were just getting over the last strike I used to argue that it was a one-off situation. I should find it very difficult to argue that this a two-off situation. But the sooner the strike is over, with the damage that it is doing to the economy in Northern Ireland, the sooner we can get back to doing our job and the sooner I can do my job.
    Mr. Nelson: Bearing in mind the difficulty that the Minister mentioned earlier of making a provisional assessment of the damage done in recent weeks, will he comment on the statement by an eminent member of Queen's University that the damage might amount to some £5 million? Does he think that that is roughly the figure?
    Mr. Concannon: I think that that is a terribly low estimate. In regard to one development that is now hanging fire, the figure is certainly five times that amount.
    Mr. Madden: Will my hon. Friend tell us how many of the total number of advance factories have been let?
    Mr. Concannon: Of the 129 advance factories, 116 are currently in use. There are other premises that we have provided which total another 276—namely, purpose-built factories and factory premises provided for the Local Enterprise Development Units and for purchase and so on. There are not only the advance factories, which total 129. There are another 276 as well.

    Education
    Mr. Canavanasked the Secretary of State for Northern Ireland what percentage of children in Northern Ireland attend selective schools.
    Mr. Carter: In Northern Ireland about 33 per cent. of children of secondary school age attend grammar schools.
    Mr. Canavan: Will the Government urge the education authorities, the boards of management and the Church authorities to help to create more equality of educational opportunity for all the children of Northern Ireland by putting an end to the unfair system of selection into these grammar schools and replacing it by a fairer system of comprehensive education?
    Mr. Carter: My noble Friend the Minister of State will be making an announcement in the not too distant future on the very point that my hon. Friend has mentioned. It is precisely in order to introduce greater equality that all the discussions, pronouncements and activity in recent years in regard to education have occurred.
    Mr. Biggs-Davison: Without dragging the 11-plus red herring across the trail, is it not the case that there is enough strife in Northern Ireland without dismaying the religious bodies, to whom the hon. Member for West Stirlingshire (Mr. Canavan) referred in his question, and the thousands of Ulster people who value their existing good schools?
    Will the Government proceed very cautiously with any proposal based on the Cowan Report? On the assumption that it is Government policy to have eventual devolution, would not education in any case be a matter for a Northern

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    Ireland legislature rather than for this House?
    Mr. Carter: We always proceed with caution in all matters in Northern Ireland, but with regard to social affairs, whatever the political and security difficulties may be in Northern Ireland, we as an Administration feel, as I am sure the hon. Member would feel, that we should do all we can to improve equality of opportunity at every turn.

    Security
    Mr. Gowasked the Secretary of State for Northern Ireland what representations have been made to him about the need for fresh measures to combat terrorism in Northern Ireland.
    Mr. Matesasked the Secretary of State for Northern Ireland if he will make a statement on the security situation.
    Mr. Concannon: My right hon. Friend fully shares the concern felt by many people about the continuation of violence in Northern Ireland notwithstanding the improvement in the security situation which has taken place. Security measures are constantly under review to adjust them to a changing situation and to increase their effectiveness. He is certain, however, that the best strategy is to work through the police, with the support of the Army, to maintain the rule of law. This strategy is achieving real results.
    In the first four months of this year the level of violence, measured by the numbers of incidents and numbers of casualties, has been running at half the rate of last year. It is all the more regrettable that the UUAC, in seeking to compel a stoppage of work, ostensibly in part for the purpose of seeking improvement in security measures, should divert the security forces from their prime task of defeating the IRA. Indeed, the UUAC, or men claiming to act in support of it, is itself resorting to terrorism, intimidation and murder. Such action must not be allowed to succeed.
    Mr. Gow: Will the Minister of State look again at the suggestion which has been put to him from the Conservative side that there should be a new offence of terrorism applying in Northern Ireland? Secondly, in view of the con
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    spicuous success of the SAS Regiment, deriving from its particular anti-terrorist training, does he not think that there is a case for increasing the strength of the SAS and increasing the anti-terrorist training of certain units in the Army?
    Mr. Concannon: With regard to the hon. Gentleman's suggestions concerning the SAS and the security front, these things are being carried out, but they involve some extensive training for a lot of people within the Army. The hon. Gentleman is basically agreeing with me that it is possibly not numbers that count but the expertise of the people who are there to do the job.
    The laws dealing with terrorist offences are fully comprehensive at the moment but are always being reviewed. We do not think that an offence of terrorism, in regard to which the prosecution would have to show political intent, would be useful or appropriate at the present time.
    Mr. Mates: Does the Minister recall that, on the last occasion when we had Questions concerning Northern Ireland and I asked his hon. Friend about the change in emphasis of the crimes within Ulster, his hon. Friend agreed with me? Does he further recall that it was then indicated that the Secretary of State would tell us of the new plans that the Government would have for dealing with a change in emphasis in the violence in Ulster?
    Quite apart from the events of the past week—in regard to which I join in the congratulations to the Government—is not the Minister aware that many of us feel that the Government's view as to the way to handle changed security situations in Ulster is now in a rut and needs fundamental rethinking?
    Mr. Concannon: I do not agree with what the hon. Gentleman said about a complete rethink of security policy in Northern Ireland. It is constantly under review and progress is taking place. There are no short cuts and there is no panacea to the problem in Northern Ireland. Our policies are continually under review to meet the continuing situation, and they are having the desired effect of eating into the terrorists.
    Mr. Whitehead: Many people on all sides of the House will share our admiration for my hon. Friend's remarks at the

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    outset about the role of the security forces in Northern Ireland. Will he go back to Northern Ireland and tell the leaders of the strike who have fomented the events of the last few days that it is no good telling the Government that they must tighten security and take murder by the throat when some of the leaders of the strike appear to be shaking murder by the hand in the intimidation they have been practising?
    Mr. Concannon: Hansard is read very closely in Northern Ireland, and I have no doubt that my hon. Friend's remarks will hit home.
    Mr. Wm. Ross: What specific proposals about security have been put to the Minister by the leaders of the action council? Which of these proposals are already in operation and which has the hon. Gentleman rejected?
    Mr. Concannon: Security is continually under review. If we are to keep one step ahead with it, there will be times when it will be best to say as little as possible about the Government's intentions.
    Mr. Neave: Did the Minister of State say just now that there would be more specialist training in anti-terrorist work for the Army? If that is so, we welcome it very much. We on this side have been making representations for a long time for a special force based on the SAS to form an anti-terrorist brigade. Will the Minister consider that in connection with a possible future conference on this matter with the Opposition?
    Mr. Concannon: There is and will be an increase in SAS-type activities. SAS-type activities are now taking place throughout the Province and as the GOC wishes. The forces in Northern Ireland are undergoing more training to build up their expertise. Expertise is now as important as the numbers of troops involved.
    Mr. Flannery: It gives us a great deal of contentment to know that security training is being carried out. Does my hon. Friend realise, however, that the level of security is not directly proportionate to the number of troops engaged? For him constantly to be asked to increase the number of troops will not lead to a solution to the problem. Is he aware that in Northern Ireland we face a political
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    problem and that, important as security is, the politics of the situation must be considered in the search for an ultimate solution?
    Mr. Concannon: The politics of the situation are taken into account, but security is the number one priority in Northern Ireland. It is in that direction that people look for improvement. The politics of the situation come second, as has been shown lately to a great extent

    Development Control (Rural Areas)
    Mr. McCuskerasked the Secretary of State for Northern Ireland what action he proposes to take concerning complaints about rural planning in Northern Ireland; and if he will make a statement.
    Mr. Carter: I hope to make a statement within the next few weeks about a form of further review of development control policy in rural areas. Such a review would afford an opportunity for the whole matter to be reconsidered and for general complaints about refusal of planning permission to be assessed and taken into account.
    Mr. McCusker: Will the Minister accept that, in spite of the temporary inconvenience suffered by the people of Northern Ireland over the last few days, it is mundane matters such as this which concern them? Will he bear in mind that, whatever his policy, we are concerned that the countryside of Northern Ireland should not be depopulated and that people should receive adequate consideration in their planning applications?
    Mr. Carter: I agree that this is an area of controversy and it is precisely because it is an area of controversy—some of which I believe to be unfounded—that I shall be making an announcement within the next few weeks.

    Licensing Act (Amendment)
    Mr. Molyneauxasked the Secretary of State for Northern Ireland when he intends to introduce the proposed order amending the Licensing Act (Northern Ireland) 1971.
    The Under-Secretary of State for Northern Ireland (Mr. James A. Dunn): I am considering several matters in connection with the amendment of the Licensing Act (Northern Ireland) 1971. There

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    are serious problems facing hotels which, as a result of losing their accommodation facilities through terrorist action, are unable under existing law to renew their licences, and there have been representations about the licensing of sports and leisure centres. My right hon. Friend and I hope to be in a position to publish proposals for amending legislation towards the middle of this year.
    Mr. Molyneaux: Is the Minister aware that his promised action will be welcomed by undertakings which are anxious to reinstate themselves and to continue making a contributon to the tourist industry? On the question of licences for community and recreation centres, will he bear in mind that, since these centres are used mainly by young persons, in framing the order he should take account of the need to safeguard their interests?
    Mr. Dunn: I am aware of the interest and concern being expressed over a misunderstanding that there would be a much wider amendment of the licensing law. We are aware of the concern which exists about alcoholism, particularly among the young. I assure the hon. Gentleman that we shall take that into account.
    Mr. Fitt: Will my hon. Friend indicate whether it is the Government's policy to continue to grant licences to UDA, Provisional Sinn Fein and all sorts of other clubs which are run by illegal organisations and which attract a lot of young people in Northern Ireland, thus involving them in para-military activity. Is it the Government's intention to get rid of these illegal drinking dens and to restore licences to bona fide business people?
    Mr. Dunn: We shall make every effort to deal with the illegal activities of these organisations, particularly on the question of licensing and the non-observance of the licensing law. The existing law needs to be reviewed, however, since several inadequacies in it have emerged. We will not agree, even under a revision of the law, to licensing anything that is illegal.

    Housing
    Mr. Fittasked the Secretary of State for Northern Ireland if he will outline the measures he is considering to increase the housing options in Northern Ireland.
    Mr. Carter: Priority must continue to be given in the allocation of resources to those in greatest housing need. I believe, however, that more should be done to encourage owner-occupation and to develop alternative forms of tenure to bridge the gap between owner-occupation and renting. There are a number of possibilities.
    There might, for instance, be an option mortgage scheme in Northern Ireland like that in Great Britain. There could be greater scope for co-operatives, co-ownership and equity-sharing. I am reviewing the categories of public sector dwellings which might be sold to tenants. I also believe that owner-occupation would have a role to play in the new drive to tackle the problems of Belfast.
    Mr. Fitt: Does my hon. Friend agree that Northern Ireland is suffering from one of the most appalling housing problems in Western Europe? Does he agree that a young married couple have no chance of getting council accommodation because of the rehabilitation redevelopment schemes that are taking place? Can he announce any measures to alleviate the distress of these young people, and what help can be given to enable them to purchase their own accommodation?
    Mr. Carter: I hope that what I have already said indicates that we share my hon. Friend's concern about young married couples and low-wage earners who want to purchase their own homes. In Belfast we shall be doing all we can within the rehabilitation redevelopment programme, for example, to encourage a diversity of the housing stock, and we shall do what we can to encourage more home owner-occupation, greater competition in the private sector and so on.
    Mr. Kilfedder: Will the Minister take steps to ensure that in the allocation of houses proper preference is given to local people, particularly to young married couples who see new homes being erected in my constituency and then see them snatched away by outsiders who have no connection with the area? That creates a real hardship for them.
    Mr. Carter: I do not agree that this is a question of hardship, because most people on the housing waiting list ultimately get accommodation. I am aware of the criticisms of the points scheme.

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    and it is currently being reviewed. Hopefully, the problem referred to by the hon. Gentleman can be dealt with within that review.
    Mr. Speaker: Mr. Lipton, Question No. 16.
    Mr. Kilfedder: What about Question No. 15? On a point of order, Mr. Speaker. I am here.
    Mr. Speaker: The hon. Member's Question has been answered, and I called him for a supplementary question.
    Mr. McNamara: On a point of order, Mr. Speaker. Some of us are waiting to hear the Minister's answer to Question No. 15.
    Mr. Speaker: That question was answered with Question No. 3. I called the hon. Member for Down, North (Mr. Kilfedder) for a supplementary question because his Question was answered.

    Civil Expenditure
    Mr. Liptonasked the Secretary of State for Northern Ireland what is the current rate of annual civil expenditure by the Exchequer in Northern Ireland.
    Mr. Dunn: In the financial year 1976–77, the grant under Section 16 of the Northern Ireland Constitution Act 1973 was £360 million. In addition, expenditure by the Northern Ireland Office, chiefly on law and order, was £170 million. Grants and subsidies from the Ministry of Agriculture, Fisheries and Food to Northern Ireland farmers were £32 million. This gives a total of £562 million.
    Expenditure from the Northern Ireland Consolidated Fund during the same period was £1,207 million. This was partly financed by the grant of £360 million. The total civil expenditure by both United Kingdom Departments and Northern Ireland Departments was therefore £1,409 million. This figure does not include expenditure out of the Northern Ireland National Insurance Fund.
    Mr. Lipton: What have we got to show for all this vast expenditure? Have we had any thanks from anybody for it?
    Mr. Dunn: I would have thought that the events of recent days answered that question.
    Mr. Powell: Is the Minister aware of the current annual rate of civil expenditure by the Exchequer in the borough of Lambeth? In many parts of the United Kingdom similarly large sums would be quoted if they were registered separately and available for inspection.
    Mr. Dunn: I would not care to comment on that.

    Police (Firearms)
    Mr. Wm. Rossasked the Secretary of State for Northern Ireland if he is satisfied with the amount of training in the use of the firearms issued to the Royal Ulster Constabulary; and if the weapons at present issued are of a satisfactory quality and standard.
    Mr. Dunn: All training is entirely a matter for the Chief Constable. However, I am informed that the Chief Constable is satisfied with the weapons training given to members of the RUC. As the hon. Gentleman will recall from my replies to similar Questions on 2nd May 1977, I take the view that it would not be in the interests of security to provide information about weapons used by the RUC.
    Mr. Ross: In these circumstances, can the Minister deny reports which are circulating in Northern Ireland to the effect that the small number of M1 carbines supplied are defective and that difficulties have arisen over the supply of the remainder of the order? It is claimed that the only ammunition available is the stocks that are captured from terrorists.
    Mr. Dunn: I do not wish to make any comments in relation to these matters. All weapons must be checked. In cases where one or two have been found to be slightly defective, they have been replaced.
    Mr. Carson: Does the Minister agree that the RUC Special Patrol does a specialised job in Northern Ireland? Would he not agree that this force should be increased from 300 men to 1,000? Is he aware that the RUC is sick and tired of listening to Government Front Bench spokesmen and the news media saying that the police are getting better weapons and more vehicles? If they were, this might save more policemen's lives. We would like to know from the Minister

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    when these weapons and vehicles will be delivered.
    Mr. Dunn: All these matters are the prerogative of the Chief Constable and the Police Authority. If there are any requests for specialist equipment, these will be considered and receive support. I have no information which indicates that the hon. Member's complaints are correct.
    Mr. Biggs-Davison: The whole House welcomed very much the tribute paid to the RUC by the SDLP Member for Belfast, West (Mr. Fitt). May I ask the Minister whether there is a full supply of light intensifiers and special sights that the RUC may require for their firearms?
    Mr. Dunn: I repeat that this is a matter for the Chief Constable. If the Chief Constable wants any further equipment, the request will be made through the Police Authority. No opposition would be put to those supplies being made available. These are sets of circumstances which need very special care. As far as the RUC is concerned, I repeat what my right hon. and hon. Friends have said on this matter. In the last few days the RUC's behaviour has been a shining example to all in the Province.

  PRIME MINISTER (ENGAGEMENTS)
  Mr. Hannamasked the Prime Minister if he will list his official engagements for Thursday 12th May 1977.
  Mr. Greville Jannerasked the Prime Minister what are his official engagements for 12th May.
  Mr. Ashleyasked the Prime Minister if he will list his official engagements for 12th May.
  The Prime Minister (Mr. James Callaghan): This morning I presided at a meeting of the Cabinet. In addition to my duties in this House, I shall be holding meetings with ministerial colleagues and others, including one with the Writers' Guild of Great Britain. This evening I shall be holding a reception at No. 10 Downing Street in honour of delegates to the Commonwealth Parliamentary Association Parliamentary Seminar.
  Mr. Hannam: Will the Prime Minister find an opportunity to state why he finds it necessary to replace our existing excellent Ambassador in the United States? Does this mean a return to his predecessor's system of domestic patronage?
  The Prime Minister: No. It is in accord with appointments made on many occasions since the war. I have looked up the records and I see that since 1948 there have been eight ambassadors to the United States, of whom four have been non-political appointments and four non-career appointments. This appointment is in accordance with that.
  Mr. Janner: As the Commonwealth Prime Ministers' Conference is now less than one month away, can the Prime Minister say who he expects to attend and who he expects not to attend?
  The Prime Minister: I regret to say that I do not have a list yet from the Commonwealth Secretary-General as to who will be here or who has accepted his invitation. I am watching the situation very carefully.
  Mr. Ashley: On the question of the new Ambassador to Washington, will the Prime Minister agree that this appointment recognises brains and ability rather than orthodoxy and docility? Had the appointment been that of a diplomat, there would have been no complaints from either side of the House. Does my right hon. Friend recall that, had President Kennedy succumbed to charges and paid any attention to jibes about relatives and daughters, the American people would never have enjoyed the services of Robert Kennedy?
  The Prime Minister: I have read the newspapers and heard the criticisms that have been made. I considered this proposal when it was put in front of me, and the easiest course would have been to say "No". [HON. MEMBERS: "Why didn't you?"] That is a matter of judgment, and it could be said that my judgment is wrong. It would have been easy to say "No". I considered the matter, but in view of Mr. Jay's qualities and high calibre—of which I have seen no criticism at all—I believe that this is an imaginative appointment. The only question is whether I was right in my

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  judgment and whether, because he is my son-in-law, I should have refused the appointment. Frankly, I thought that if that was the only ground for my saying "No", I had no right to do so. My judgment may have been at fault, but that is the basis on which I approved the appointment.
  Sir A. Meyer: There are many of us on this side of the House who welcome this evidence of the Prime Minister's determination to strengthen and develop the personal relationship with President Carter. However, is the Prime Minister satisfied that the exceptional talents of Sir Peter Ramsbotham will find a full outlet as Governor of Bermuda?
  The Prime Minister: Sir Peter has served with distinction and I have no criticism to make of him. Indeed, when I became Foreign Secretary he was on the point of taking up his post and as incoming Foreign Secretary I confirmed him in that post. However, with a different Administration and a lapse of three years, it is open to the Foreign Secretary to take a different view of the nature of the task. On that basis he came to me with the proposition. Although the appointment is the Foreign Secretary's, I do not wish to shug off responsibility at all. I am sure that I could have said "No", but on the basis of the argument that the Foreign Secretary put to me I said "Yes".
  Mr. Bidwell: Will my right hon. Friend accept that many of us recognise the considerable abilities of the new Ambassador to Washington, but if he runs across the Home Secretary will he consult him to see whether this appointment falls within the purview of a marriage of convenience?
  The Prime Minister: I am happy to say on these domestic affairs that my daughter has been happily married for 16 years and has produced three grandchildren for me. Somehow, I do not think that when Mr. Jay proposed to her he had in mind the possibility either that I would become Prime Minister or that he might be appointed Ambassador to the United States.

  LORD PRESIDENT OF THE COUNCIL (SPEECH)
  Mr. Wyn Robertsasked the Prime Minister if the speech of the Lord President of the Council at Kirkby on constitutional reform on 25th April represents the policy of Her Majesty's Government.
  Mr. Ridleyasked the Prime Minister whether the public speech of the Lord President of the Council at Kirkby-in-Ashfield on 25th April 1977 on constitutional reform represents the Government's policy.
  Mr. Eldon Griffithsasked the Prime Minister if the Lord President of the Council's statement that the result of the Ashfield by-election will help Great Britain on the way to a Socialist republic represents the policy of the Government.
  The Prime Minister: I refer the hon. Members to the replies given by my right hon. Friend the Lord President of the Council to the hon. Members for Wirral (Mr. Hunt) and Folkestone and Hythe (Mr. Costain) on 28th April.
  Mr. Roberts: Is the Prime Minister aware that in the course of that reply the Lord President did not deny the remarks about progressing towards a Socialist republic? Since I cannot believe that the Prime Minister is heading in the same direction, will he take this opportunity to say so unequivocally? Then, perhaps, the rest of the Government, including the Lord President, will fall in line and the principle of collective responsibility, on which the Prime Minister is so keen when it applies to the Opposition, can be reasserted.
  The Prime Minister: My right hon. Friend has made it clear that his remarks were wrenched from their context [HON. MEMBERS: "Oh."] I am sure that is true. As for my own position and that of the Government, I refer the hon. Gentleman to the speech I made on 3rd May, when I moved the motion that a humble Address be presented to Her Majesty. He will find epitomised in that speech my sentiments on the Throne, the constitution and the Crown.
  Mr. Ridley: Is the Prime Minister saying that the quoted report in the Nottingham Evening Post is wrong? If not, will he say why he has told my right hon. Friend the Leader of the Opposition that she must be responsible for everything said by Conservative candidates, whereas he is not prepared to repudiate anything said by his Cabinet colleagues?
  The Prime Minister: So far as I know, what was said by the Conservative candidate who is now the Member was not wrenched out of context. It was a printed document—
  Mr. Ridley: I have it here.
  The Prime Minister:—whereas I understand that the other matter was a spontaneous reply to a good deal of heckling at the end of a by-election meeting. That was on an entirely different basis. I ask Conservative Members to search their minds and say whether, following heckling at a meeting, they have not thrown back a remark addressed to them. I am sure that each one of them has done so on some occasions.
  Mr. Griffiths: Does the Prime Minister recognise that we can all make a mistake in what we say, but will he answer this simple question: did the Lord President use the term "a Socialist republic" or did he not? Did he mean it? If he did, will the Prime Minister repudiate him?
  The Prime Minister: The hon. Gentleman himself has just used the term "Socialist republic". I do not have to repudiate it. It depends on the context in which such a phrase is used and the person to whom it is addressed. There is no written text, and we have to rely on my right hon. Friend's memory. [HONMEMBERS: "Oh."] Opposition Members cannot rely on anything else, because I understand that this piece was written up by a reporter who was 200 miles away at the time it was said. I do not mind the Opposition having a bit of fun about this, but I do not think anybody takes it very seriously.
  Mr. Kinnock: Is my right hon. Friend aware that in his views on a Socialist republic the Lord President is advocating views on a change in the constitution which are much more commendable than certain other changes in the constitution recently offered by the Government? In
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  the deliberations about the constitution which are being undertaken by the Government, will the Prime Minister give consideration to constitutional changes that would enable the House to examine the holders of particularly important and sensitive appointments before they take up those appointments, as is done in other parliamentary systems, so that we may avoid the enormous and stupendous political insensitivity in the appointment of a person who, whatever his individual talents, is inappropriate for the job?
  The Prime Minister:There has always been a streak of republicanism in this country, and if my hon. Friend the Member for Bedwellty (Mr. Kinnock) wishes to say that he is a republican he is entitled to do so. But that is not the attitude of Her Majesty's Government, and my hon. Friend is not yet a member of that Government. [Interruption.] One does not have to belong to Moscow to be a republican. Republicanism has always been a theme which, frankly, I know the overwhelming majority of the country feels is not appropriate to our constitutional arrangements. That is a matter for my hon. Friend to work out.
  As for the second part of my hon. Friend's supplementary question, I have nothing to add to what I have said.
  Mrs. Thatcher: As the Prime Minister has made some inquiries into this matter, and for the sake of greater accuracy, will he tell the House the context in which the Lord President used the phrase?
  The Prime Minister: I cannot pretend that my researches into this matter have been as detailed as they are into some possible questions. [HONMEMBERS: "Why not?"] Because the matter is not serious enough; that is why. I did, however, see the Daily Express, of which I always take great note, and the Daily Mail. From then on I drew my own conclusions and had a word with my right hon. Friend.
  Mrs. Thatcher: What was reported in in the Daily Mail was serious and purported to be verbatim. If that is an accurate report of the context, there is only one reply that the Prime Minister can give namely, that what the Lord President is reported to have said in no way represents Government policy.
  The Prime Minister: Obviously I have not pursued my research far enough, because my right hon. Friend tells me that the Daily Mail reporter who wrote the story was not present. I hope that the right hon. Lady is not relying on that evidence. I think that our attitude is pretty clear on this matter, and I do not think I have anything to add.
  Mr. Ridley: In view of the unsatisfactory nature of the reply, I beg to ask leave to raise the matter on the Adjournment at the earliest possible moment.
  Mr. English: On a point of order, Mr. Speaker. Since the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) accused—
  Mr. Speaker: May we take points of order after Questions?
  Later—
  Mr. English: On a point of order, Mr. Speaker. On Question No. 21 to the Prime Minister, the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) referred to my local newspaper, the Nottingham Evening Post. Is the Prime Minister aware that it is the only newspaper—
  Mr. Speaker: Order. The hon. Gentleman is very experienced in the ways of the House. He knows whether he has a point of order to put to me or whether he is trying to score points. Has he a point of order?
  Mr. English: I hope that I have, Mr. Speaker. It is the generally accepted custom of the House that if matters concerning an hon. Member's constituency are referred to, that hon. Member is given the opportunity to comment on them—[Interruption.] In one sentence, Mr. Speaker, may I put, through you, to the Prime Minister—
  Mr. Speaker: Order. In one word, "No".
  Mr. English: On a point of order, Mr. Speaker. The Nottingham Evening Post is, if not the only newspaper, certainly the first in this century that has ever caused a strike of every union of its employees because it sacked over 100 of all their members.
  Mr. Speaker: Order. Everyone is proud of his own local paper.

  NATIONALISED INDUSTRIES
  Mike Thomasasked the Prime Minister when he last met the nationalised industry chairmen.
  Mr. Corbettasked the Prime Minister when he last met the nationalised industry heads.
  .Mr. Wardasked the Prime Minister how often he meets the chairmen of the nationalised industries.
  The Prime Minister: I refer my hon. Friends to the reply which my right hon. Friend the Lord President of the Council gave on my behalf to the hon. Member for Newbury (Mr. McNair-Wilson) on 10th March.
  Mr. Thomas: When my right hon. Friend next meets the Chairman of the Central Electricity Generating Board, will he discuss with him the fact that both he and the Secretary of State for Energy have now clearly decided what "good girls" they are and in the matter of Drax B have agreed on the price? In those circumstances, will he assure the House that the order for Drax B, on which thousands of jobs in my constituency and in Scotland depend, will be brought forward with the minimum of delay?
  The Prime Minister: I can give my hon. Friend an assurance that the order for the Drax B power station will be made with the minimum of delay. I do not wish to quantify that, but discussions are proceeding urgently—indeed, at almost daily intervals. We are well aware of the circumstances and my hon. Friend has represented his case fully. We shall have to see how we can bring this to a conclusion. There are certain conclusions that the Government would like to achieve that would improve the health of the industry, but, whatever the result of those conclusions, Drax B will have to be ordered.

QUESTIONS TO THE PRIME MINISTER
The Prime Minister (Mr. James Callaghan): With permission, Mr. Speaker, I will make a brief statement about the Fifth Report of the Sessional Committee

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on Procedure, on Questions to the Prime Minister. I should like to thank the Committee for its speedy and constructive report.
The report makes four recommendations. I have proposed to the Committee that, for an experimental period, I should retain for answer by myself more Oral Questions on important matters, even if they fall within the responsibilities of another Minister. That proposal—the full details of which are spelled out in the first annex to the report—is made as the first recommendation by the Committee. I accept it and will apply it immediately and until the end of the Session, when I will review the matter in the light of experience.
The second recommendation of the Committee is directed at the House itself: it recommends that Members should table fewer Questions of an "indirect" kind—think of what I might have been spared this afternoon—such as official visit and engagement Questions, and more Questions of the kind that I have indicated that I am prepared to retain.
The third recommendation of the Committee is directed to the practice on grouping Questions: it suggests that indirect Questions should not be grouped for answer with identical Questions on the Paper for that day. The purpose of this recommendation is to break up blocks of syndicated Questions. I accept that recommendation and will apply it henceforth; I will review it, along with the first recommendation, at the end of the Session.
The fourth recommendation, Mr. Speaker, relates to your practice.
I hope that adoption of these recommendations will assist the House and improve Question Time.
Mr. Speaker: As the Prime Minister has observed, the fourth recommendation of the Select Committee relates to my own practice. I am prepared to act in accordance with that recommendation and I hope that I shall have the support of the whole House in doing so. This relates to relevance.
Mrs. Thatcher: I should like to say how grateful I am to the Prime Minister for making a statement so quickly, but
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must press him further about guidelines on the Questions that he will retain and those that he will transfer. The Prime Minister has said that the matter is fully dealt with in the first annex of the report. With the greatest respect, it is scarcely dealt with at all. The guidance given is that the Prime Minister will be prepared to retain Questions dealing with meetings of Heads of Government—on which statements are made by him in any event—and those dealing with foreign affairs and defence. If that is so, the new practice will be a great protection to the Prime Minister rather than a chance for the House to cross-examine him on social, economic and home affairs. Will the Prime Minister please see that better guidelines are given and that they are put in the possession of the Table Office or the Library so that hon. Members can be properly informed about the Questions that are likely to be retained by the Prime Minister?
The Prime Minister: I have thought about this a lot and I cannot adopt the last part of the right hon. Lady's proposal for the good reason that the House holds individual Ministers responsible for matters here. That is the constitution and, therefore, I must proceed with some delicacy in this matter. When I am willing to accept Questions, I shall certainly want to discuss them with the individual Ministers responsible, because one cannot remove their responsibility. It was for that reason that I selected the category that I selected—namely, conversations with Heads of Government and so on. After all, I proposed this to the Select Committee, and it is my intention to use its recommendations in the spirit intended. It is not in my interest to avoid answering Questions, but a certain discretion must be left to me about what I transfer or retain. I do not intend to concentrate wholly on overseas matters.
Mr. Ogden: Will the changes make it possible for Back Benchers to ask the Prime Minister such Questions as "Will the Prime Minister try to be at the Parliamentary Labour Party meeting this evening?" or direct Questions asking for a personal opinion, such as "What is the Prime Minister's fair estimate of the value of the pound?" without those Questions being diverted to other Ministers?
The Prime Minister: My hon. Friend has illustrated the difficulty that I shall be in, and I ask for the forbearance of the House in trying to select certain Questions. It would be the simplest thing in the world to transfer all Questions, and that is what I am seeking not to do. If I were answering my hon. Friend's first Question I should have begun by saying that there was no ministerial responsibility for that matter. However, the answer is—"Yes, I shall be there"
Mr. Tapsell: Is it not clear from what the Prime Minister has said that the new arrangements will actually make it easier for him to avoid difficult Questions? Did he not reveal that himself in one of his earlier remarks, when he said that the new arrangements would spare him the sort of embarrassment that he suffered this afternoon? Can we have an assurance that Questions to the Prime Minister will not be determined by what the Prime Minister is prepared to answer and that we shall still be free to put down wide-ranging Questions?
The Prime Minister: Hon. Members are always free to put wide-ranging Questions down and Ministers are always free not to answer them. That has long been the practice of the House, and it will continue. This is an experiment, and if the House does not like it, at the end of the summer—and this experiment will be going on for three months—we can have another talk. However, we must see how it goes. There was a widespread feeling that Questions were becoming totally unrelated to what was on the Order Paper. If hon. Members believe that I am not trying to carry out the recommendations of the Select Committee, they might consider why I put those recommendations to the Committee in the first place.
Mr. Atkinson: I agree that the nonsense exists, but the whole business is about supplementary questions rather than the Questions on the Order Paper. Will the Prime Minister assure the House that he will continue the age-old practice of answering whatever questions are put to him, irrespective of what is on the Order Paper? Would it not be much better to have an equitable system in deciding who should be called? For that purpose all that is necessary is for us to have a series of Questions on the Order
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Paper and for you, Mr. Speaker, to hold a kind of bingo session.
The Prime Minister: Some of those Questions go beyond my responsibilities and entrench on those of you, Mr. Speaker. Therefore, I should not care to answer them.
I have always said that the best exchanges in the House take place when there is a definite subject on the Order Paper to which I can refer and speak about matters arising out of it. For example, I thought that we had a useful exchange on Monday when I reported on the meeting with Heads of Government. All the questions were designed to obtain information or to challenge my view, and they were all relevant to the subject. However, let us experiment. I am in the hands of the House to some extent because I made this proposal to help the House, and if the House does not like it, we can go back to the old system in due course.
Mrs. Winifred Ewing: I congratulate the Prime Minister on what he assures us is an offer to increase his range of responsibilities to encompass the kind of Question that one does not now put down because one fears that it might not get to the Prime Minister. That is why we ask him to visit Lossiemouth, knowing that he has no intention of doing so. May I press for further examples to be included within the guidelines, such as another type of Question that he might consider—one affecting the survival of a vital industry?
The Prime Minister: I should prefer to see the Questions on the Order Paper. We are trying to improve the system, but I do not want—and it would not be right—to take responsibility completely out of the hands of, for example, the Secretary of State for Industry. This will be a difficult experiment, but I hope that we shall find a modus vivendi for it. I hope that on an issue such as Drax B—which I certainly regard as my responsibility—I should answer such a Question, after consulting the Secretary of State for Industry. However, we had better see how we get on. I shall try—and no doubt I shall make mistakes—to meet the convenience of the House in answering more substantive Questions.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: Order. I shall call one more hon. Member from each side, because we have business questions next.
Mr. Greville Janner: Does my right hon. Friend agree that one of the most important aspects of Prime Minister's Question Time is that Back Benchers can ask questions of immediate importance that may have arisen that day or the day before? Under his new and welcome system, would it not be possible to allow Questions to be put down seven days before they are to be answered rather than 14 days, which is an impossible time lag for topicality?
The Prime Minister: I do not have a view on that, but I had not understood that it was the purpose of Question Time to deal with matters that had arisen on the previous day, unless they were of sufficient importance to warrant a Private Notice Question. The purpose of Question Time is to enable a regular series and order of Questions to be put down so that hon. Members can have the opportunity to consider them and have fair play in getting answers. The topicality notion destroys that system.
Mr. Graham Page: Does the right hon. Gentleman realise the difficulty in which he will place hon. Members in putting Questions on the Order Paper if he does not give us better guidelines? Are we to put down every Question on policy to the right hon. Gentleman and hope that he accepts them? If so, the Order Paper will be an awful mess.
The Prime Minister: If every Question is put down to me, the experiment will clearly break down and we shall go back to the old system. There must be some give-and-take on both sides. Unless I get a bit of help, we shall not be able to carry on with the experiment and I shall have to say, with regret, that we shall have to go back to the old system. Some hon. Members may like that, but others will not.

BUSINESS OF THE HOUSE
Mr. Speaker: Mr. Foot—Business Statement
The Lord President of the Council and Leader of the House of Commons (Mr Michael Foot):
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The business for next week will be as follows:
MONDAY 16TH MAY—Until 7 o'clock, consideration of Private Members' motions. Afterwards, Second Reading of the Post Office Bill.
Motions relating to Police (Discipline) and (Complaints) Amendment Regulations.
TUESDAY 17TH MAY—Second Reading of the Local Authorities (Restoration of Works Powers) Bill and of the Control of Office Development Bill.
Motion on R/77 EEC Documents Nos. 75, 477–479 on energy policy.
WEDNESDAY 18TH MAY—Supply [18th Allotted Day]: a debate on the Belgrade meeting on the Helsinki Final Act.
Motion on R/76 EEC Documents Nos. 90 and 540 on sulphur in fuel oil.
THURSDAY 19TH MAY—Supply [19thAllotted Day]: a debate on the Royal Navy.
Remaining stages of the Rent (Agriculture) Amendment Bill.
FRIDAY 20TH MAY—Private Members' Bills.
MONDAY 23RD MAY—Debate on the Report of the Annan Committee on The Future of Broadcasting, Command No. 6753.
If next week's business is completed as announced and if nothing unexpected arises, it will be proposed that the Adjournment for the Spring Holiday should be from Friday 27th May to Monday 13th June.
Mrs. Thatcher: May I put two questions to the Leader of the House? First, the day on which it is proposed that we should rise is allocated to Private Members' motions, which will mean that we shall not have the customary day for Adjournment debates. Would it be possible to put down Private Members' motions on a day after we return so that we may have the customary day for Adjournment debates?
Secondly, will the direct elections Bill be published next week?
Mr. Foot: On the right hon. Lady's first point, a resolution of the House at the beginning of the Session allocated Friday 27th May for consideration of Private Members' motions and a further

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resolution would be required to change that. I think that we should stand by the existing arrangements, but if it is desired to have discussions through the usual channels for the restoration of Private Members' time thereby lost, we shall be prepared to consider that.
On the second matter, I am sorry that I cannot gratify the right hon. Lady's wish to have the Bill next week.
Mr. Beith: Is it not right that the House should have the opportunity to reach a decision on a fundamental issue of conscience that is not a party issue? Therefore, whatever the right hon. Gentleman's own views, will he consider looking again at the need for Government time in Committee and on the Floor of the House for the Abortion (Amendment) Bill, because the original Act was passed on the basis of Government time?
Mr. Foot: There are several considerations that I should put to the hon. Gentleman and the House that I have also put to the many deputations that have come from various parts of the House to make representations on this Bill. We are standing by the normal procedures of the House and it would he wrong to change them.
Mr. William Hamilton: Has my right hon. Friend seen Early-Day Motion No. 332 on Government nepotism that I tabled last night? Does he recognise that, despite what the Prime Minister said a few minutes ago, there is widespread disquiet on this side of the House and, no doubt, among our supporters in the country and that this matter must be urgently debated on the Floor of the House or within the Parliamentary Labour Party?
[That this House deplores the growing use of patronage by Government Ministers; condemns the appointment by the Prime Minister of his son-in-law as Her Majesty's Ambassador in Washington; and calls upon the entire Labour Movement to censure the Prime Minister for this indefensible action.]
Mr. Foot: Whether a matter crops up elsewhere is not immediately a question for me. I understand that there is interest in this subject, though the Prime Minister replied to questions about it
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earlier. I have read my hon. Friend's motion and I see that he has his customary massive support for it.
Mr. Peter Walker: Is the right hon. Gentleman aware that it is some weeks since the Secretary of State for the Environment promised us the White Paper on inner city problems? Does the right hon. Gentleman expect it to be published next week?
Mr. Foot: I cannot give the right hon. Gentleman any assurance about next week. I shall try to indicate when it will be published, and if I find that it is being brought forward earlier, I shall inform the right hon. Gentleman.
Mr. Skinner: Is my right hon. Friend aware that, notwithstanding his reply to my hon. Friend the Member for Fife, Central (Mr. Hamilton), there is massive worry and consternation throughout the Parliamentary Labour Party, even if this is not in evidence on my hon. Friend's Early-Day Motion, which, I understand, was not taken round for hon. Members to sign? Will my right hon. Friend arrange an urgent debate to consider the real problem in this matter—namely, patronage—so that we can get some, if not all, of it removed and subject such appointments to scrutiny by Back Bench Members in order that we may approve or endorse such appointments? Until we do that, we shall not be making any progress on behalf of our movement.
Mr. Foot: That is a very much wider question and does not arise necessarily from the particular appointment to which the Early-Day Motion refers. As for discussion of the wider question, no doubt it will be raised in the PLP as was suggested earlier, and it is a perfectly proper subject for hon. Members to select on the various occasions when private Members can choose the business to be discussed in the House.
Mr. Rossi: Will the right hon. Gentleman say whether the information that I have just received from a telephone call, that the Government intend to put down a Money Resolution tomorrow on the Homeless Persons Bill, is correct? Why should an outside source know before hon. Members of this House what is on their agenda tomorrow? Is it correct that a matter of this kind should be

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brought on at the last moment, because hon. Members who may wish to be here and speak on an important matter of this kind will not have the opportunity to do so?
Mr. Foot: I do not know the details of the matter that the hon. Gentleman has raised. I have had no outside telephone call about the matter, but I shall make inquiries and communicate with the hon. Gentleman this afternoon.
Mr. Newens: Has my right hon. Friend given any consideration to arranging a debate on the important statements which the Secretary of State for the Environment has made in recent weeks on the new towns and inner city areas? Both these issues are in many ways connected, and many of us regard it as vital that the House should have an opportunity of discussing them in full.
Mr. Foot: I certainly agree with my hon. Friend that this is one of the questions on which time should be made available. I cannot promise that it will happen in the next week or so but I shall keep in mind the representations of my hon. Friend as well as those of others.
Mr. Henderson: Has the Lord President seen Early-Day Motion No. 325, in my name and the names of several other hon. Members, praying for the Statutory Instrument on the fishing industry to be annulled?
[That an Humble Address be presented to Her Majesty praying that the Haddock (Restrictions on Landing) Order 1977 (S.I., 1977, No. 781), dated 2nd May 1977, a copy of which was laid before this House on 6th May, be annulled.]
Is the right hon. Gentleman aware that this has caused considerable concern in the fishing industry since the regulation was brought into effect on Monday? Will he promise time for an early debate?
Mr. Foot: Approaches have been made about the possibility of finding means for a debate. This motion appeared on the Order Paper on the 10th of the month and praying time expires on the 30th. We shall look at the possibility to see whether there is a chance of a debate.
Mr. Ashley: Is my right hon. Friend aware that a serious situation has arisen
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today as a result of the decision of the Law Lords about the battered wives' house in Hounslow? The Law Lords have now decided that it is overcrowded and as a consequence hundreds of housewives with their children will be thrown on to the streets unless we take action quickly and immediately. Will my right hon. Friend arrange for the House to debate this very important matter next week, and will he discuss it with the Secretary of State for Social Services and the Minister for Housing and Construction?
Mr. Foot: I shall discuss the matter with my right hon. and hon. Friends, as my hon. Friend has urged that I should do. But what action should be taken following a decision in another place, if a decision has been taken, is another question. I cannot make any promise about that.
Mr. Michael Marshall: Will the Lord President find time next week for a debate on a subject in which he takes the keenest interest; namely, whether this country shall become a Socialist republic?
Mr. Foot: That matter has been successfully disposed of on a number of occasions. I recommend to the hon. Gentleman that he studies the report of the newspaper correspondent who was there—The Times corespondent. So sensational were my utterances that he reported not a single word the next morning.
Mr. Russell Kerr: Is my right hon. Friend aware that the report of the Select Committee on the Nationalised Industries concerning the role of British Railways in public transport was reported this morning and that there were no fewer than 68 Press correspondents in attendance? In view of this tremendous public interest, will he make sure that within the next week or so we have a chance of debating the report in full?
Mr. Foot: I understand the importance of the subject, but I cannot promise a debate in the next week or two. However, I agree with my hon. Friend that this is obviously a strong candidate for a debate.
Sir Bernard Braine: Does the right hon. Gentleman recall that five months have elapsed since Sir Robert Megarry, the Vice-Chancellor, drew the attention of

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the Attorney-General to the wrongs done by the Government to the Banaban people? We have long been awaiting a statement. Will he assure us that such a statement will be made before the House rises for the recess?
Mr. Foot: I know of the interest of the hon. Gentleman and others in this subject. I cannot promise a further statement before the recess but I shall see what the possibilities are.
Mr. Palmer: Will my right hon. Friend say whether next week's debate on energy policy will cover President Carter's recent statements on nuclear development and their implications for British nuclear policy?
Mr. Foot: The debate next week is considerably narrower than that because it covers EEC documents. However, I am sure that some comments on this wider question would be in order. I also agree, as I have indicated to the House before, that there ought to be a wider debate on energy at a fairly early date soon after the recess.
Mr. Whitelaw: May I return to the point made by my hon. Friend the Member for Hornsey (Mr. Rossi)? Of course I understand that the right hon. Gentleman cannot be expected to know everything. Having once had his job I would be the last person to suggest that he could. But since he does not know, and since it is an urgent matter, will he undertake that if this Money Resolution on the Homeless Persons Bill is to be put down, he will adjourn the debate tomorrow so that the opportunity can be given to debate it properly at a later stage?
Mr. Foot: I gather that the motion has already been put down. I promised that I would look into this matter and see what action should be taken. That is the proper way for me to proceed. I shall also see whether there have been any discussions among the parties. I do not know whether there have been such discussions. However, I promised that I would look into the matter and that is what I shall do.
Mr. Whitelaw: May I press the right hon. Gentleman a little further? I understand that there have not been any discussions. Surely it is reasonable to ask the right hon. Gentleman, as there is a widespread demand in the House that this
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should be debated at a proper time and not on a Friday, that such an opportunity should be given. I do not think the right hon. Gentleman needs much knowledge of the subject to admit that this is a reasonable proposition and one to which he should accede.
Mr. Foot: The matter has only just been brought to my attention by the hon. Member for Hornsey (Mr. Rossi). I have promised that I shall look at this, and I shall also take into account the representations that the right hon. Gentleman has put to me.
Mr. Moonman: With regard to the point made by my hon. Friend the Member for Harlow (Mr. Newens), will my right hon. Friend recognise that 2,250,000 people have been left in some uncertainty and ambiguity arising from his right hon. Friend's statement and that it would be a great service to those people if an early debate were arranged?
Mr. Foot: I fully appreciate that this is a strong candidate for a debate. I hope that we shall be able to arrange it fairly soon, but I cannot promise it before the recess.
Mr. McCrindle: Since the subject of the nationalisation of the banks and insurance companies has again reared its head, will the Lord President consider an early debate in view of the obvious discrepancy between the policy of his party and the policy of the Government?
Mr. Foot: Eager though we are to supply time for debates, we cannot have debates on every subject that rears its head, but I understand what the hon. Gentleman is up to.
Mr. Heffer: Will my right hon. Friend tell us whether there will be a statement next week with regard to the present industrial dispute that is going on? Can he indicate what are the terms and conditions of the work force at present down below in the House under which trade union agreements and so on they are operating and what is the position?
Will he also ask the Opposition whether they will arrange for a debate on both banking and insurance and the Socialist republic? There are many hon. Members on this side who would be only too willing to explain to the Opposition precisely what our views are on these matters.
Mr. Foot: I am sure that my hon. Friend has indicated to the House generally how he would join in such a debate, and I understand that. It will be necessary to make a statement to the House next week on the first matter that my hon. Friend raised. In the course of making such a statement we shall be referring to some subjects to which my hon. Friend referred in his question today and on previous occasions, which are extremely important matters. I am not underrating them in any sense whatever. What I have to do in the interests of the whole House, and the interests of all the servants of the House, is to try to secure a settlement to this dispute and then see how we can proceed.
Mr. Tebbit: In view of the Prime Minister's characteristically evasive and less than honest replies, will the Lord President arrange to make a statement next week on what exactly he did say about wishing for the advent of a Socialist republic in Britain? Will the Lord President include in that statement the truth behind the fact that he sent me a Parliamentary Answer referring me to a newspaper which did not carry any report of the meeting? He would have done much better to refer to the account in the Nottingham Evening Post, which I understand, did have a reporter at the meeting.
Mr. Foot: I am tempted to reply to the hon. Member's characteristically offensive question in his own manner, but I shall not do so. I shall give him the answer clearly. He put down Questions to me about the speech that I had made in Kirkby and he asked for reports of what I had said. There is no report in existence—no textual report of what I said. What I referred him to was the reporter who was there, the reporter of The Times—and The Times reporter thought that it was so sensational that he got on to his newspaper at once and said nothing about it. If the Opposition cannot think of any better mare's nests than this one to pursue, they are hard up.
Mr. Faulds: Since we gather that our right hon. and admirable Friend the Prime Minister, who is always blunt and honest, unlike some of those chaps on the Benches below the Gangway opposite, is meeting some writers this evening, may
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we have a statement of the Government's intentions about public lending right, which I think has surfaced again in another place?
Mr. Foot: In the last Session the Government sought to introduce the Public Lending Right Bill. We were in full support of the Bill. That Bill or a Bill of similar character, although it does not deal with the important money aspects of the matter, has passed through another place. Representations are being made to the Prime Minister by the Writers Guild, a body which has fought consistently to get this measure on to the statute book, and my right hon. Friend will hear those representations. I should have thought that the next best likelihood of the Bill proceeding is in the next Session of Parliament, but all these representations can assist.
Mr. Dykes: Since, perhaps understandably, the right hon. Gentleman is reluctant to come clean on his objective of a Socialist republic, would he at least come clean on the Bill to introduce European direct elections, bearing in mind that the delay already incurred is a total disgrace and a let-down of this House? If he cannot promise the Bill next week, will he guarantee to introduce it before the recess?
Mr. Foot: I cannot give the hon. Gentleman the guarantee he seeks. I understand the Government's commitments in this matter and the questions on the matter which have been put to me by the right hon. Lady the Leader of the Opposition and others, but I have nothing further to add to that now.
Mrs. Wise: When my right hon. Friend is considering the suggestion by my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) that we should have a debate on battered wives, will he take into account the Select Committee's Report on this subject, which was published 18 months ago and has not yet been debated? Will he certainly see that this subject gets much higher priority than any nonsense about direct elections, because these women are suffering and being harassed—first of all by their husbands and now by the law?
Mr. Foot: This is obviously a question which deserves debate in the House. There are other opportunities, apart from the

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time that the Government provide, for discussion of these matters. However, I shall take note of my hon. Friend's representations. I certainly appreciate the importance of the subject, particularly in view of the reference made today to the decision elsewhere.
Mr. Marten: Is the right hon. Gentleman aware of a very curious and rather un-British proposal, that all citizens who want passports will in due course have to have a European Community passport? Can he assure us that before there is any commitment to this there will have to be an affirmative decision of this House and that it will not be done by the Royal Prerogative, without the consent of this House?
Mr. Foot: The hon. Gentleman has raised this matter before and of course I appreciate the interest in it. I would want the House to discuss this matter before the Government are finally committed. I think that that is in line with the undertaking that I gave before, and I give it again now.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: Order. I am afraid that I shall be able to call only three more hon. Members on each side, because we have other business in front of us.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: Mr. Ioan Evans
Mr. Ogden: Christ!
Mr. Ioan Evans: Will a statement be made of the Government's intentions regarding the sale of their holding in BP, and may we have a debate on the matter before any action is taken?
Mr. Foot: This matter has been discussed and referred to in the House before. I cannot say that there will be a fresh statement, but I will consult the Chancellor and see what the situation is.
Mr. Speaker: I hope that I did not hear aright a moment ago. Blasphemy in this place is out of order.
Mr. Eldon Griffiths: Can the right hon. Gentleman confirm that the Home Secretary will himself be replying to next week's debate on the police? In view of the serious situation in the police service at the moment, does he accept that
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it would be little short of an insult to the police if the Home Secretary were to go off to Guernsey and not reply to the debate himself?
Mr. Foot: I could not accept any suggestion about insults to the House or the police in any question of who would reply for the Government. As I think the hon. Gentleman knows, there has been some difficulty about the Home Secretary being able to be here on Monday, but the Government will certainly put the case and we are providing time for a debate at a time that we thought suitable for the House as a whole.
Mr. Molloy: May I draw my right hon. Friend's attention to the statement made by the Prime Minister about Prime Minister's Questions, a matter of great concern to all hon. Members? When the right hon. Member for Sidcup (Mr. Heath) was Prime Minister, one required a constitutional lawyer when one went into the Table Office to agree a form of words in order to get a Question down. At least the Prime Minister has now indicated his concern. Would it not, therefore, be possible for the Leader of the House to arrange for a debate so that all hon. Members can participate in a discussion of this vital question—our ability to question the Prime Minister of this country?
Mr. Foot: I am not sure whether my hon. Friend is asking for a debate on this report. If so, we shall look at that, although. I cannot promise it now. I should have thought that the best way to proceed is as the Prime Minister indicated—on the basis of the acceptance of the recommendations, in the main, that he has made, and see how that works. If we find after a period that it does not work, we can see what alterations need to be made. However, as my hon. Friend knows and as I have known for a long time, there has never been an entirely satisfactory solution of this problem. Let us see whether we can solve it in practice over the next few months, rather than by having a debate on the theory of the matter.
Mr. Reid: Bearing in mind that the annual conference of the Scottish National Party will be held at the end of this month, does the right hon. Gentleman intend to have the devolution Bill

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Mark II out and debated before then, or will it simply be published on the eve of the SNP conference? In any case, as Leader of the House, how does he hope to keep his new proposals going through this Chamber?
Mr. Foot: I am not saying whether a statement should be made before the Scottish National Party conference or any other conference, but I am sure that the hon. Gentleman will be perfectly capable of conveying to his associates there that the only party, the only kind of Government, who can conceivably carry through a proper system of devolution in the United Kingdom is a Labour Government. I am sure that that information will be rapturously received when the hon. Gentleman makes his speech.
Mr. Greville Janner: As there are now only four weeks until the Commonwealth Prime Ministers' Conference, for two weeks of which we shall be in recess, may we have a firm assurance from my right hon. Friend that there will be either a statement or a debate about the conference before the House goes into recess?
Mr. Foot: I cannot give a promise that there will be a debate on the matter before the recess, but there are, of course, other opportunities in which the questions can be raised. However, I recognise the importance of having a discussion in the House on the matter in some form. There have been many exchanges at Question Time and on other occasions.
Mr. Michael Morris: Is the right hon. Gentleman aware that hon. Members appointed to the Committee to consider the Housing (Homeless Persons) Bill will want to know whether the Money Resolution is to be debated tomorrow? May we have an assurance that each individual Member will be told before the House rises tonight whether there is to be a debate or not?
Mr. Foot: I have promised that I shall look at all the circumstances of the matter to see what is the best way to deal with it. That is what I stand by.
Later—
Mr. Ogden: On a point of order, Mr. Speaker. With respect, I hope that you
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will not take anything that I propose to say in any way as criticism of yourself. It is a request for information.
You may have been aware, Mr. Speaker, that from the very first lion. Member to stand to try to catch your eye to ask a question of the Lord President I was among those on the Labour Benches who were bobbing up and down like yo-yos trying to gain your attention so as to ask a question. The question that I wanted to ask concerned unemployment on Merseyside.
You were able, Mr. Speaker, to call other hon. Members on both sides of the House. Some of them had begun the ritual at the same time as myself, but many of them came in much later. You have often urged, Mr. Speaker, that hon. Members should follow the practice of trying to catch your eye. That is what I was trying to do. I assumed that because I had been able to ask a question of the Prime Minister I was excluded from those who could ask a question of the Lord President, but hon. Members were called who had asked more questions than I was able to ask. I make no criticism I am merely asking for information.
If at some stage I used the name of our God, it was not in blasphemy but merely a request for help from a higher authority. We happen, Mr. Speaker, to be Methodists, but I am rather a rougher one than yourself. My call to God was not a blasphemy it was an appeal to the higher authority. However, it did not get an answer. If it did, it was "No".
I should like an assurance, Mr. Speaker, that you are not trying to stop me and that some rule was being applied.
Mr. Speaker: I am deeply grateful for the way in which the hon. Member for Liverpool, West Derby (Mr. Ogden) has raised this matter. The hon. Gentleman knows that one's prayers are not always answered as one expects.
The House should bear in mind that the worst part of my job as Speaker is when I have to terminate questions and discussions when I know that hon. Members on both sides of the Chamber are bursting with indignation because they have not been called. If I allowed discussion to continue until everybody had

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been answered, matters would get completely out of hand. There must be—there always has been—some discipline in this place. I can assure the hon. Gentleman that there was nothing personal in my decision. I shall do my best next time to ensure that his prayers are answered.

LOCAL AUTHORITIES (RESTORATION OF WORKS POWERS) BILL (PROCEDURE)
Mr. Maxwell-Hyslop: On a point of order, Mr. Speaker. I raise a point of order that does not, I suggest, require a reply from you today. That is because the substantive matter is not on the Order Paper today, tomorrow, or Monday. On the following grounds I respectfully submit that the Local Authorities (Restoration of Works Powers) Bill is prima facie hybrid and ought to be referred to the Examiners before proceeding to Second Reading on the Floor of the House.
First, the current doctrine on recognising the characteristic of hybridity in a Public-General Bill was set out with clarity and authority in the Statement of Reasons for the Certificate from the Examiners concerning the Aircraft and Shipbuilding Industries Bill. House of Lords Paper No. 71 of 17th February1977.
Second, on page 11 of that statement appears the following:
"But one must assume that those who framed the Bill shrank from a bare naming of the ship-repairing companies that the Government wanted to take, with or without some such description of them as 'the major ship-repairing companies', because to do so would be to make a naked selection and so hybridise the Bill."
Third, the promoters of the Local Authorities (Restoration of Works Powers) Bill took special care to draw attention to the hybridity of the Bill in the Explanatory and Financial Memorandum, wherein they declare not that the Bill applies to any recognisable class of district councils but, on the contrary, to
"25 specified district councils in England and Wales."
Fourth, this is a good example of a "naked selection" that the Examiners identify as a sufficient condition of hybridity.
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Fifth, in the text of Clause 1, the naked selection made by the Government is described as
"the councils of certain districts, in each of which is included the whole or part of the area of a former county borough or boroughs."
Sixth, unless the class described by the criteria is exhausted, the Bill will be hybrid.
Seventh, Clause 2 of the Bill does not identify any class into which these district councils fall and which is exhausted by them. Instead, it identifies them by reference to portions of three different Statutory Instruments.
Eighth, in no one of these Statutory Instruments as quoted in Clause 2 is any one class of district council either created or exhausted. Article 3 of Statutory Instrument No. 339/75 names 14 district councils but does not name other district councils that fall in the class of
"councils of certain districts, in each of which is included the whole or part of the area of a former county borough or boroughs."
Article 8 of Statutory Instrument No. 944/75 similarly names 10 district councils, but does not name others falling within the same criteria. Article 8 of Statutory Instrument No. 315/76 names one district council, but does not name other district councils fulfilling the same criteria.
My ninth point is that, taken together, the 25 district councils so named do not exhaust the councils falling within the class whose criteria are set out in Clause 1. For example, the district councils of Langbaurgh, Middlesbrough and Stockton-on-Tees meet the criteria set out in Clause 1 and could have been included within the articles of the Statutory Instruments quoted above, but those district councils and many others were not so included.
My tenth point is that a class that escapes the characteristics of hybridity cannot be created merely by agglomerating three arbitrary collections of district councils that do not, either as individual groups or taken together, exhaust any class.
The eleventh consideration is that, in the words of the Examiners that I have already quoted, the promoters of the Bill made a "naked selection" from within a class and by "bare naming" rather than the construction of a class

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embodied their selection in three different Statutory Instruments.
Lastly, though Statutory Instruments are incapable of being hybrid, the embodiment of such a naked selection in a Bill creates no class on any available precedent, and the Bill is in consequence hybrid.
I have today, Mr. Speaker, deposited in the bag behind your Chair a petition praying that the Bill may be referred to a Select Committee so that petitions for relief against its arbitrary provisions may be considered in the proper way. I respectfully submit that the Bill should be referred to the Examiners, whose unique duty it is to determine whether the Bill is actually hybrid.
Mr. Speaker: I am obliged to the hon. Member for Tiverton (Mr. Maxwell-Hyslop) for the submission that he has advanced. The House will not be surprised when I say that I should like a little time to consider it. I shall give my ruling on Monday, having had an opportunity to consider the issues that have been raised.

ORDERS OF THE DAY

  FINANCE BILL
  (Clauses Nos. 4, 15 and: new clauses relating to value added tax, subcontractors in the construction industry, benefits from employment (motor cars) and capital gains tax.)
  Considered in Committee [Progress 10th May]
  [Sir MYER GALPERN in the Chair]
  4.20 p.m.
  The First Deputy Chairman::As the Government amendments to the Opposition's New Clause I have been selected, it will be in order for the new clause, the Government amendments and New Clause 8 to be discussed together.
  I remind the Committee that the amendments themselves cannot formally be moved unless and until the Second Reading of the new clause has been agreed to.

  FINANCE BILL
    New Clause 1

      VALUE-ADDED TAX—THRESHOLD OF REGISTRATION
      (1) Paragraphs 1 and 2 of Schedule 1 to the Finance Act 1972 (liability to be registered) shall be amended as follows.
      (2) In paragraph 1, in the provisions before the Table, for "£5,000" (in both places) there shall be substituted "£10,000" and in the second column of the Table for "1,750", "3,000", "4,250" and "5,000" there shall be substituted respectively "3,500", "6,000". "8,500" and "10,000".
      (3) In paragraph 2 for "£4,000" (in both places) there shall be substituted "£8,000" and for "£1,250" there shall be substituted "£2,500".
      (4) This section shall not come into force until 1st September 1977'.—[Mr. David Howell.]
      Brought up, and read the First time
      Mr. David Howell: I beg to move, That the clause be read a Secondtime.
      The First Deputy Chairman: I remind the Committee that with this we are to take New Clause 8—Value-added tax registration threshold
      Mr. Howell: Our new clause proposes that the annual threshold of taxable supplies at which it is necessary to register for VAT should be raised to £10,000 from the £5,000 which was fixed when the tax first came into operation in April 1973. Our view is that if £5,000 was right then £10,000 is right now. Strictly speaking, up to April this year the indexed amount would have been about £9,600, but it can be argued that by the time the Bill becomes law in August £10,000 will be the more accurate figure.
      That is our view, and it was also the view of those on the Liberal Bench. They have an amendment on the Notice Paper which, unfortunately for them, you did not find yourself able to select, Sir Myer. That amendment indicates that they hold a very similar view as it contains the figure of £9,600. It is presumably still their view, as they have rightly pledged to be unswerving, as one would expect a political party to be, in their principles and beliefs. We look forward to their support when we press our new clause.
      Our view also used to be the view of the right hon. Member for Heywood and Royton (Mr. Barnett), who told the Standing Committee considering the 1972 Finance Bill:
      "I consider that there is an overwhelming case for the figure of £10,000".—[Official Report, Standing Committee E. 24th May 1972; c. 163.]
      If the present Chief Secretary thought then that there was an overwhelming case for £10,000, he presumably thinks that there is an overwhelming case for a much bigger figure now, although I suppose that it would be naive to imagine that we could get consistency from him on this matter or anything else.
      The Chief Secretary to the Treasury (Mr. Joel Barnett): The hon. Gentleman has obviously been doing a great deal of research. Would he care to tell us what the then Conservative Financial Secretary said?
      Mr. Howell: I could read all that the then Conservative Financial Secretary said, as reported in Hansard, but we are looking for consistency from the right hon. Gentleman in this matter and we are finding something very different.
      Mr. Joel Barnett: I am sorry that the hon. Gentleman cannot answer that
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      question. I thought that he had read the whole debate. I am always consistent in these matters and am very consistent in listening to arguments and being convinced by them. I have now been convinced.
      Mr. Howell: We hope to convince the right hon. Gentleman a little more. Indeed, we think that we shall do so before we are through. Anyway, for the moment the right hon. Gentleman has changed his view, and that cannot be disguised. But we hope that the Liberal Party is still with us, in line with its principles and beliefs.
      Mr. Nicholas Ridley: Surely the then Financial Secretary was entirely consistent, because he thought that the figure should be £5,000 then and he now thinks that it should be nearly £10,000, which is exactly the indexed increase of £5,000. The Chief Secretary thought that it should he £10,000 at that time, and if he were consistent he would argue that it should now be exactly £20,000.
      Mr. Howell: My hon. Friend illuminates all too painfully clearly the point I am trying to make about the Chief Secretary's stance on this matter, but the Chief Secretary can be reassured that we expect very little else.
      We shall soon come to amendments tabled by the Government to raise the threshold, not to the £10,000 that we think to be the right level consistent in real terms with the original £5,000 but to £7,500. That amendment is a rather late arrival on the Notice Paper and occasioned some surprise. I have heard it suggested that it has something to do with the Liberal Party. If that were true, it would be a frustration of the majority concern of Parliament and of an objective that we could attain if we had a vote.
      It would be a great pity if the hon. Member for Cornwall, North (Mr. Pardoe) persisted in claiming that that amendment was a fruit of the Lib-Lab pact. If it is, it is a very withered fruit. It is considerably less than we should have achieved in open and above-board debate and vote. If that is claimed to be an achievement, we seem to have reached a new law of parliamentary dynamics in that what the majority want

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      and can achieve if the matter is put to a vote is prevented by the Lib-Lab pact, or the pact ensures that we achieve something less. That is a pity from the point of view of the workings of Parliament.
      If the threshold were raised to the £10,000 that we want and that the Liberals wanted until last week, it would help many self-employed people in particular. I agree with those who say that it would not help many traders because their turnover or taxable supplies are usually in excess of this figure. But there is no doubt that many self-employed people, such as freelances, and people doing part-time work over and above a salaried job, have taxable supplies or a total taxable income in about this area, and if the sum were raised to £10,000 a great deal of heavy work falling on those people and on the Customs and Excise would be reduced.
      If the figure is raised to the £7,500 that the Government want, it will obviously help many fewer people. Let us take, for example, a case where expenses are, say, £3,000 for a self-employed man running a business. That is a price at which he can hardly obtain a good secretary. If we add on income of £100 a week, we are already over £7,500. Therefore, the truth is that the £7,500 proposed by the Government is not very much. It is no more than a tiny concession to the Lib-Lab arrangement. It is not in line with what would be achieved on the Floor if the Committee were allowed to press the matter to a genuine vote and the Liberals were allowed to break away and follow their principles.
      Mr. John Pardoe: Will the hon. Gentleman confirm that it is, in fact, current Conservative Party policy, as stated in Conservative Party documents and as promised to the National Federation of Self-Employed, that the threshold must be raised to £20,000? Why has the Conservative Party compromised these sacred principles?
      Mr. Howell: The hon. Gentleman is wrong. That is not Conservative Party policy. We have said that the threshold should be at least £10,000. We also argue that it should be reviewed in line with inflation thereafter. The figure of £20,000
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      comes from inside the hon. Gentleman's mind, not from Conservative Party documents or official Conservative Party policy.
      But perhaps I shall carry the hon. Gentleman with me when I say that the need to raise the threshold at all, or to have this debate, would be much reduced if the VAT administration were less formidable than it has become in recent years; if we were to return to the single positive rate instead of the 8 per cent. that the Chancellor felt obliged to go to, for reasons that we all recall, in 1974, and the 12½ per cent. at which he eventually arrived by way of 25 per cent.; if we had a simpler accounts basis for smaller traders on the lines proposed by the Conservative Party in a recent document; if we simplified the VAT 100 form, again on the lines we have proposed; and if there were a better means than at present of calling to public account the administration of our tax system, both the Inland Revenue and Customs and Excise, possibly through a Select Committee procedure. There would then be less worry about entering the VAT labyrinth and more readiness to participate in this kind of discussion, without feeling that one will be caught up in impossible bureaucratic tangles and weighed down with appallingly heavy statistical returns.
      There is a very important point to which I hope Ministers will one day give attention. They have not yet given a great deal of attention to improving the public accountability of tax administration, including in particular VAT but also the Inland Revenue. When that is tackled, the worries about dealing with VAT, for example, will be reduced.
      4.30 p.m.
      If all these things were done, there would be less pressure, although there would still be some, to raise the threshold. As it is, in the absence of these things and in the recognition that not everyone will be happy wherever the threshold is drawn, we think that the case stands and we therefore commend New Clause 1 to the Committee. We are entitled to look to the support of all those who believe it right in principle to adopt the sort of level we propose. They include the Liberal Party and the Scottish National Party, which has put down an

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      amendment seeking a rather higher figure. Those who believe it right used to include the Financial Secretary himself, but he has modified his views in the light of events. That is perhaps the best way to put it. If we had half a chance, they would, indeed, include a majority of hon. Members. That is why we put this proposal before the Committee, and I commend it.
      The Financial Secretary to the Treasury (Mr. Robert Sheldon): Value added tax was introduced in 1973. It was heralded, when we debated it in 1972, as a broad-based comprehensive tax, free from anomalies. Those who made that claim were perhaps exceeding reality, but VAT has become an established part of the fiscal structure and obviously cannot remain unchanged for ever.
      While I supported a number of the provisions of the 1972 Finance Act which gave birth to VAT, I accepted that we might come to regret the loss of some of the advantages that we had under the old purchase tax system. This is not a suitable time to mourn once again the loss of the purchase tax structure, under which one had to deal with limited numbers of rather more knowledgeable people on taxation matters, because they were large-scale traders. Nevertheless, some difficulties arose from the creation of VAT, which deals with very many more people than the old purchase tax system did. While, therefore, mourning the virtues of the old system, we have had to learn to live with the new.
      New Clause 1 seeks to double the turnover level of £5,000. That is the level above which an unregistered trader has to register. It would also double the £4,000 below which the turnover must fall before he is able to deregister. The proposal forms part of the general system that the Conservative Opposition have tried to put forward in their belief that many of these allowances and limits ought to be indexed in some way.
      Of course, VAT needs to be reviewed from time to time—all limits based on financial grounds must be examined afresh from time to time—but without the precise policy of indexation. Indexation in this case is particularly inappropriate. I give an example stretching back to purchase tax days.
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      When purchase tax was introduced in 1940, it was fixed at the level of £2,000—a large sum in those days. Soon after, it was reduced to £500, and there it remained until the end of the purchase tax system in 1973. In other words, it remained at the same figure for over 33 years, during which the annual inflation rate was not as large as it has been recently, although overall inflation was substantial.
      The present level for VAT was fixed in 1972, at the beginning of the system. Only those who sought to explain that it was the most perfect system devised by man could maintain that that was a figure against which all changes should be indexed. The reality is that any sensible person would accept that the figure reached was an attempt to get the tax started. It is a guide in a mathematical equation. We should have a few years' experience of VAT and how people react to it before an alteration is made.
      That was the principle under which purchase tax was introduced, and subsequently altered, and that is the principle under which VAT should have been introduced. This is not a question of dogma. It is experience that should be the guide as to how VAT could be varied over a time. But so intense was the pride of parenthood of those who introduced VAT that they looked at it in this rather narrower way.
      New Clause 1 is far from being an ideal way of making these changes. Continental countries have, in general, had longer and wider experience of VAT than we have, and they have considerable variations. None of them, however, comes near either the limit that we have imposed or the one which the new clause seeks to bring about. West Germany has a threshold of less than £3,000; Denmark has a threshold of less than £500; in Belgium and Italy virtually all traders have to be registered.
      There is, of course, the problem of unfair competition which these other countries and we have to take into account. For example, we have received representations from the construction industry, among others, expressing concern about the possibility of unfair competition between registered and unregistered traders.
      Mr. Nigel Lawson: I am not clear what point the right hon. Gentleman is attempting to make. Is he saying that it is Government policy to bring the threshold for VAT registration closer to the thresholds in use in the European countries to which he has referred? If that is not Government policy, what is the point of his remarks?
      Mr. Sheldon: I was seeking on a philosophical basis to show that New Clause 1 does not have the validity that the hon. Gentleman may, or may not, accept. He is not always at one with his Front Bench, so his position is anomalous, making it difficult for us to know the status of his interventions at any time. I was trying to show the range of thresholds applicable in Europe. The hon. Gentleman knows that, during the discussions on the sixth directive of the Commission relating to VAT, I sought to provide as open an opportunity as I could to bring about this increase.
      Nevertheless, it is not a bad idea to look at the experience of other countries, because, even if one does not need to accept that experience, one can learn from it in a way which those who thought out this tax for introduction here did not necessarily always follow. My belief in these matters is less based on dogma than the Opposition's was when they introduced the tax. My attitude has been formed in the light of our experience since the introduction of VAT.
      Mr. David Howell: I agree with the high sentiments of the Financial Secretary in aiming to make comparisons. Does he agree that it is also not a bad idea to look in detail at the situation in other EEC countries? If he did so, would he not admit that there are a number of schemes and arrangements which very much modify the effect of the threshold figures that he has stated and which, in some cases, make the effect of the figures that he has quoted totally different from that which would prevail in this country? If he is making the argument in those particular terms, he must set all the facts before the House, and not just those that suit his argument.
      Mr. Sheldon: The hon. Gentleman will know that in this country we have a number of schemes for small traders. We have a wide range of such schemes, but
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      they are limited by the need to make them readily available and readily comprehensible. There is no a particularly important point that the hon. Gentleman can make in that respect.
      However, we are considering what the threshold should be and how it should take account of the experience that we have gained in the four years since the introduction of the VAT system.
      Mr. Michael Spicer: I am not quite sure what the gist of the Financial Secretary's argument is. Is it that the original threshold, when set at £5,000, was set too high in real terms? Is that what he is saying?
      Mr. Sheldon: I was maintaining that so far from being the consequence of an understanding as to what it ought to be, it was necessarily set at a fairly arbitrary level, even though it was sought to be defended by those concerned. But we now have the advantage of seeing in practical terms the experience of what the level of the threshold ought to be, and of being able to come to the House of Commons giving the benefit of the experience of Customs and Excise in carrying out the obligation to keep a close watch on these and other matters relating to VAT.
      The tax has been in operation for four years now. In the lifetime of any tax as important as this that is not a long time. One of the more important elements of this matter, because of the complexity of this new tax, to which the hon. Member for Guildford (Mr. Howell) and many others have frequently drawn attention, and because of its effects upon large numbers of people, is that there is a need for a considerable period of stability.
      This has been advantageous. At the beginning there were many problems. They have now either been resolved or been diminished because of the greater understanding. Ideally, I should have preferred a period of stability even longer than that which we have had up to now and to retain the threshold. However, I understand the widespread support for the increased threshold, and the representations that have been made to us. I am prepared to accept that it is time for an increase of a moderate nature. That is the reason for the Government amendments.

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      Concerning the practical arguments for limiting the change, there are a number of procedures that will be involved in the deregistration and a number of problems that have not so far been met by Customs and Excise. That is because we are dealing here not with the odd number of deregistrations and registrations that have obviously been a feature year by year, but with what could be a substantial number of deregistrations over a very short period.
      It is because of that and because I believe that we should allow VAT to continue in much the same form until greater experience is obtained by those who operate it that we are proposing that the new registration threshold limit should be increased by 50 per cent., from £5,000 to £7,500, and that the deregistration limit should be increased by the same percentage, from £4,000 to £6,000.
      The purpose of these two levels, the registration level and the deregistration level, is obviously to prevent a kind of see-saw effect as traders come above the threshold and then fall below the threshold, deregister, and then come above the threshold subsequently. Therefore, one wants an interval between those two limits of the kind that we have had previously. I know that the new clauses take this matter into account. We are grateful for the widespread understanding of this important factor.
      4.45 p.m.
      It is not possible to forecast the exact number of traders who will seek to deregister, because a number of such traders obtain net payments of VAT themselves, and we must assume that they will remain registered. A number of others obtain their business through the supply of goods or services to registered traders, and they may well decide on commercial grounds to retain their registration because it is useful for their customers.
      The Government amendments will enable more than 50,000 traders to apply for deregistration if they believe that it would be worth while. The revenue reduction that we expect to arise from this will be a figure somewhere between £5 million and £10 million.
      We have put forward 1st October as the date for the Government amendment to take effect. That is to allow for these
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      changes to become operative in that period, as a new clause will be needed at a later stage to relax the current provision for the payment of tax on stocks and assets, which we shall obviously be having to take into account.
      Mr. John Farr: Is the Financial Secretary saying that he estimates that the annual cost will be between £5 million and £10 million and that 50,000 traders may well avail themselves of this opportunity? If so, will he say why, despite letters to his right hon. Friend and several Questions, culminating in a Question six weeks ago when this specific question was asked, I was informed that the information was not available and that it was impossible for the Treasury to calculate how many traders would benefit?
      Mr. Sheldon: As I have mentioned, it is a tentative estimate. In the light of the new clauses and the Bill, obviously a considerable amount of effort had to be put into establishing the effects of these proposed changes. I mentioned at the outset that the figures that I was giving were only very broad estimates. I hope that the hon. Gentleman will accept the nature of the accuracy of the figures that I am providing.
      Mr. Peter Walker: I intervene on a point of information. The Government have obviously looked into this matter in order to table their amendments. What proportion of the total is 50,000? How many are registered at present, and what proportion will it mean? Also, if the limit were raised somewhat higher, has the right hon. Gentleman any figures to indicate how many more traders would fall into this position?
      Mr. Sheldon: Yes, but perhaps I may reply to the whole debate and come up with more figures which should be of help to the Committee. At this stage I want to give an indication of the Government's attitude.
      I believe that the new clause, as amended, will be able to provide the means of maintaining some of the advantages that Opposition Members claim for traders. I myself feel that the most important aspect of VAT is the level of comprehension that is possible for the ordinary person using it. I think that

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      that is increasing with time. Everything that we can do to make this a more readily understandable tax and one that people can operate in a more practised way will be to the advantage of the VAT system and of those concerned in trade generally.
      Mr. David Price: I do not believe that this debate on the new clauses and the Government amendments need cause either side of the Committee to get very up tight. It seems to me that what we are dealing with basically is the application of the de minimis principle to VAT. With the small exception of those hon. Members whom I regard as belonging to the hair shirt brigade—I notice that they are not present for the debate—there is nothing in principle that need divide us. The hair shirt brigade consists of those who regard all forms of taxation as a salutary form of penance and who, when they see a happy shopkeeper, assume that he is being under-taxed and is putting his fingers in the till. No hon. Member currently present falls into that category, because I see that the Labour Benches below the Gangway are empty. Therefore, we can assume that we are at one and agreed that it is perfectly proper to apply the de minimis principle to the VAT threshold.
      I should like briefly to put to the Committee some important reasons in favour of raising the threshold as part of the de minimis principle. This principle was established when VAT was brought in at £5,000 a year in 1973. First, my hon. Friend the Member for Guildford (Mr. Howell) has already shown that to bring the threshold back to its real value in April 1973 the figure should be nearly £10,000. The latest figure that I have from an answer to a parliamentary Question this week is that, to be at the April 1973 value, it should be £9,750. My hon. Friend said £9,600. Therefore, his argument that by the time it is implemented £10,000 is not an unrealistic figure should be accepted by all of us. I believe that the Financial Secretary supported my hon. Friend's figure, because he pleaded for stability and said that the Government amendment would stabilise the tax.
      I shall be interested to hear from the hon. Member for Cornwall, North (Mr. Pardoe) why the figure should be £20,000.
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      I have some sympathy with that view. However, the new clause fulfils the proposition adumbrated by the Financial Secretary regarding what he and his Treasury colleagues want. I believe that he should accept the new clause now in order that we may move on to the next new clause without further argument.
      Secondly, I believe that moving from £5,000 to £10,000—in 1973 terms, from £2,500 to £5,000—will relieve the Customs and Excise—the tax gatherers—of a great deal of work.
      We know from answers to questions earlier this year that there are about 250,000 VAT payers, each with an average tax liability of only £160 a year. Acceptance of the new class would make a positive contribution to the cost effectiveness of tax gathering. I suspect that the Financial Secretary has a sneaking regard for this argument because, in a somewhat nostalgic throw-away line, he talked about the advantages of the old purchase tax when the Treasury dealt only with larger and more clerically sophisticated companies.
      We know that VAT gives rise to "aggro" between the taxpayer—above all, the small business man and the self-employed—and the tax gatherer. Therefore, I should have thought that the Customs and Excise and the service generally would be greatly relieved if the new clause were accepted.
      Thirdly, there is the unofficial tax gatherer—the taxpayer who pays VAT. I have no doubt that this form of tax is particularly difficult for the small business man and, above all, for the independent self-employed. We all know that these taxpayers have the greatest difficulty in coping with the necessary bureaucracy involved.
      Those, then, are three substantial reasons for supporting the new clause.
      The only ground upon which the new clause could be opposed and the Government's amendment preferred would be one of cost. Again, I had an answer to a question on this matter earlier this week. I shall give the figures, because we have not had the relevant Hansard this week. I asked what would be the loss of revenue in 1977–78 if the exemption limit were to be raised to £10,000. The reply was that it would cost an estimated £45 million. If the limit went up

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      to £15,000, it would be £75 million. The hon. Member for Cornwall, North may care to note that if it went up to £20,000, it would be £95 million.
      On what rate of inflation are these estimates made? One of the features of VAT is that it is a buoyant tax. Therefore, it rises with inflation. If the rate of inflation is higher than the figure upon which the estimates were made, the tax will produce more revenue to the Treasury that it is anticipating getting this year. There are good grounds for assuming that this will happen, because inflation continues to increase.
      Looking at the Financial Statement and Budget Report 1977–78, we see that the Budget forecast for value added tax in 1976–77 was £3,650 million and that the outturn was £3,750 million. Therefore, last year the Treasury got £100 million more coming in from VAT than it had budgeted for. I suspect that was because the rate of inflation was higher than was forecast at the time.
      I suggest that we shall have a similar situation this year. In the first four months of this year the rate of inflation has been higher than was anticipated by the Government. Therefore, I conclude that, without any charge of being reckless or having little regard for the fiscal consequences, we can accept the new clause.
      As we know from the figures that I have quoted, the Government estimate that if the exemption limit were raised to £10,000, itwould cost £45 million. I have calculated that if they are 2 per cent. out on the rate of inflation, the reduced revenue produced by raising the threshold will easily be covered by the higher revenue arising from the extra inflation. Therefore, if the Financial Secretary is to convince the Committee that his lower figure is to be preferred to the higher figure in the new clause, he must tell us, first, on what rate of inflation these estimates are made. Secondly, does he wish to revise that estimated rate of inflation in the light of current experience? I suggest that if he answers those two questions directly, we shall have a clear justification for accepting the new clause. Indeed, as always in these matters, I am astonished at our moderation.
      Mr. Peter Walker: I apologise to the Financial Secretary for not being present
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      for his opening remarks. That was due to a phone call that I was taking.
      I declare a vested interest as someone registered for VAT who has probably already committed many criminal actions by accidentally failing to recall in my declarations some broadcasting fee or a fee for a newspaper article. Anyone who is registered for VAT in a small way knows the complication and worry involved in keeping the appropriate records and making the returns in the proper way.
      When the Conservative Party decided to set up a committee under the chairmanship of my hon. Friend the Member for Guildford (Mr. Howell) to look into ways not only of streamlining and improving the administration of VAT, but of taking the burden away from as many people as possible, I was delighted. I hope that the final work and conclusions of that committee will result, when given the opportunity, in some positive action.
      I apologise if any of the matters that I wish to raise were made clear before I came into the Chamber. If the new clause is accepted, how many people would have some option of deregistration under VAT, as opposed to the 50,000 to whom the Financial Secretary referred? Presumably some estimates have been given to him. I realise the difficulty of calculating how many of the 50,000 will take advantage of the option, but a tolerably intelligent guess can be made. Surely the Customs and Excise has already calculated the impact that this proposal, if accepted, will make on its workload.
      I should also like to know how many people could opt for deregistration if the higher figure of £20,000 were utilised. I think that the more people who can remove themselves from the liability for this tax, the better. The compensation of simplification and, indeed, revenue to the Government by going for a flat rate at a somewhat higher level than the lowest rate now makes good sense. One of the complications in the administration of VAT is the double level.
      5.0 p.m.
      Since, in the amendment the Government, are showing some desire to simplify and eliminate the process for a substantial number of people, surely they must have considered a higher rate to obtain all the revenue of last year, as opposed to

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      this relatively small increase in the threshold. How does the Minister see the balanced argument in terms of small businesses? Many small businesses in the early days found reason to complain about the manner in which various inspectors were examining their books and demanding to see them. There were many complaints about the attitude adopted. In fairness to the Customs and Excise Department many complaints were taken up, and the situation has improved. There has been a smaller volume of complaints in recent months. I welcome that improvement.
      A case concerning a constituent of mine was reported in the Press today. If the evidence given by the business concerned is correct, alarming attitudes have been adopted by the inspectors. Many small business men who read of such visits to private houses are genuinely frightened and anxious about the tax. It causes a great deal of anxiety to those small businesses that cannot employ professional staff to supervise the tax. I hope that the Government will go for the option to lift the threshold to the maximum level and relieve that anxiety.
      Mr. Pardoe: I welcome the Government's compromise amendment to the new clause. The Conservatives sounded pretty miserable about the amendment. They do not think it is a concession of any merit. Well, they would not, would they? The hon. Member for Guildford (Mr. Howell) is usually quite a cheerful soul, but in this debate he has had a hangdog look. His voice has sunk further and further into his boots. He must try to cheer up. He says that far from having achieved anything by getting the threshold raised from £5,000 to £7,500, the Liberal Party has somehow sold the pass.
      According to various Press reports the hon. Member for Guildford blamed me for the whole thing. The Financial Times states that he said:
      "This is another fruit of the Liberal Party deal with the Government."
      The Daily Mail and The Guardian do not agree with that. The Guardian states that
      "The Liberal Party won another Budget concession from the Government yesterday, when Treasury Ministers decided to raise the VAT level to £7,500 from the present £5,000."
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      The Daily Mail states that
      "The Chancellor Mr. Denis Healey, gave in to pressure for the change after Liberals made it clear that they would insist on the turnover levels being raised."
      Mr. Lawson: Will the hon. Member explain clearly which level he prefers—£9,600, which is the level in the Liberal new clause, or £7,500 which is the level in the Government amendment to the Conservative new clause?
      Mr. Pardee: The answer is £9,600. But, I actually prefer a higher level. I should really prefer a threshold of £20,000.
      I want to give the hon. Member for Blaby (Mr. Lawson) a lesson in parliamentary arithmetic. There is no certainty that the new clause will have the majority approval of the Committee—however I and my hon. Friends vote. There was no certainty that there was a majority in favour of a reduction in petrol tax. On recent occasions when the members of the Liberal Party and members of the Conservative Party have voted against the Government, the Government have won, partly because of the absence of the Ulster Unionists.
      Mr. Lawson: Three Liberals did not vote.
      Mr. Pardoe: On yesterday's vote the Government won by a majority of two.
      The First Deputy Chairman: Order. That matter does not arise on the question of the threshold of VAT.
      Mr. Pardoe: I am arguing why I am prepared to accept a bird in the hand rather than two birds in the bush. I am entitled to argue why I think it is unlikely that the new clause will go through, whereas the compromise agreed with the Liberal Party and the Government will go through. I think that I am entitled to adduce figures—
      The First Deputy Chairman: The hon. Member should not forecast the result of the vote. He has made his point. I do not see why we should go over what happened yesterday after a debate on agriculture. Let him keep his argument to the minimum.
      Mr. Pardoe: I am arguing that the amendment involving £10,000 would not be carried. That is why I prefer the

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      Government amendment. I was challenged by the hon. Member for Blaby about a vote that took place last night. I do not see why I should not use figures from that vote to illustrate my point.
      A total of 32 Conservative Members were absent paired last night. Three Liberals were paired. But the Liberals were paired with the sick. That is better than pairing with those who want to go out to dinner. The Ulster Unionists were absent. That is why the new clause will not be carried. That is why I prefer to accept the amendment involving £7,500 which has been agreed by negotiation, than take a risk on the £10,000 proposition.
      The Liberal Party cannot by itself change this tax threshold. Indeed, the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) during the Second Reading of the Finance Bill said
      "The hon. Member for Cornwall, North spoke as though he were going to get this tax knocked out of the Bill by himself, but he has to persuade 285 Conservatives to feel that they should lend him their support in what he seeks to do. It is not Just a question of his persuading himself."—[Official Report, 28th April, 1977; Vol. 930, c. 1627.]
      I do not think that I can convince that number of Conservatives to turn up and vote tonight, or any other night. If I had been able to do that two nights ago we should have established the principle that no one in this country should pay more than 50 per cent. of his income in tax. Unfortunately that amendment failed.
      It is possible that there are some monetarists in the Conservative Party who would decide not to increase the public sector borrowing requirement by voting for a reduction in petrol tax nor, indeed, vote for the increase in the VAT threshold. That is why I have taken the view that I have taken on the amendment.
      I say to the hon. Member for Blaby and other Conservative Members that a new clause involving £9,600 appears on the Order Paper in my name. I would rather have that threshold than £7,500 but I do not think that I could achieve it.
      Mr. John Cope: I think I am correct in saying that the first vote is likely to be on the Second Reading of the new clause. That is likely to go through. Presumably the Government will not oppose the first
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      vote. The vote on the amendment is the one that is likely to be in dispute.
      The First Deputy Chairman: The hon. Gentleman may be slightly misleading the House. The first vote will be on the Question "That the clause be read a Second time". That is all.
      Mr. Cope: I think that is quite correct, with respect, and I was assuming that that vote will be carried because the Government will not oppose it. The first opportunity for the hon. Member for Cornwall, North (Mr. Pardoe) to demonstrate any disagreement with either the Government or the Opposition will come on the vote which will follow that, on whether the clause as read a Second time should be amended. He can vote with us on that to oppose the Government's amendment and leave it at £10,000. If there is not a majority for the Conservatives and Liberals and anybody else voting together, the figure will revert to £7,500. The hon. Member is not in a dilemma about choosing. He can vote with the Conservatives with equanimity.
      Mr. Pardoe: When the hon. Gentleman has finally twisted himself around parliamentary procedure, he will find that his version of events is not quite what will happen.
      Mr. Cope: Why not?
      Mr. PardoeI advise the hon. Member to wait until the votes are cast. In any case, the main point of the debate is not just about what the actual level of threshold should be.
      Mr. David Price: Yes, it is. That is exactly what it is about.
      Mr. Pardoe: It is not. Some far more important questions are being raised, because we are dealing with a very bad tax. We are dealing with the left-overs of a very bad Government—the Conservative Government—for even with a threshold of £10,000 there would still be a very large number of the problems which were dealt with in earlier speeches.
      In general, one would like to say "Let us leave the tax alone", but major changes have to be made. It cannot be left alone. The tax is far too bad for that. If we leave it alone it will be subject to the random law of perversity that things get worse the longer they are left.

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      In an ideal world, taxes should not be introduced other than for reasons of efficiency and sound economics. The first question which should be asked of any tax—and we have to ask it again this afternoon in dealing with threshold—is whether the tax is an efficient revenue raiser. Next, will it have beneficial economic effects? Thirdly, would people prefer to pay their taxes in this way rather than in another way? The best tax is one to which the answer to all those questions is "Yes". I am afraid that VAT, at whatever level of threshold—and we are only patching it up by changing the threshold—is a bad tax on all those counts.
      It might be worth while recalling what the Conservative Government said was the purpose of this tax when they produced their Green Paper back in 1971. They said:
      "The existing pattern of indirect taxation in this country is open to the objection that it is selective and is based on too narrow a range of expenditure. Selective taxation gives rise to distortion of trade and personal consumption patterns, and can lead to the inefficient allocation of resources."
      The Green Paper went on, quite rightly, to argue that there should be a more broadly based structure which, by discriminating less between different types of goods and services—
      The First Deputy Chairman: Order. I think that the hon. Member for Cornwall, North (Mr. Pardoe) is now going pretty wide of the purpose of either the new clause or the amendment. He is now seeking to discuss the whole question of value added tax and whether it serves its purpose. I have to rule that all we are discussing is the threshold and not the actual existence of value added tax.
      5.15 p.m.
      Mr. Pardoe: The fact is that the anomalies which we are trying to put right by raising the threshold are very important anomalies, and they are anomalies to which I intend to address my speech. If you, Sir Myer, say that that speech cannot be made in the House of Commons I shall quite understand. If you did say that, however, it would make the House of Commons an even more fatuous place than I believe it to be now.
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      How does VAT fulfil the promise? It is not and has never been able to replace the revenue that—
      The First Deputy Chairman: The hon. Member for Cornwall, North has indicated that he is prepared to accept my ruling. If he wants to make that speech he will make it outside the House and not in the Committee stage in the House of Commons. I am ruling that particular aspect of his speech out of order.
      Mr. Pardoe: I quite understand, Sir Myer, what you are trying to do.
      The First Deputy Chairman: I hope that the hon. Member is not imputing to me any ulterior motives. All I am doing, as the custodian of the Standing Orders of the House, is to see that these Standing Orders are kept to strictly.
      Mr. Pardoe: I am debating anomalies which have been caused as a result of problems arising out of the present threshold of the tax. Will you please tell me, Sir Myer, whether I am entitled to argue that the threshold of the tax should not be raised ideally to £10,000 but to £20,000 or £50,000?
      The First Deputy Chairman: It is strictly in order to argue that.
      Mr. Pardoe: That is precisely the argument that I am attempting to make, but it is taking rather a long time to get to it.
      We have to look, therefore, at the whole question of compliance costs and administrative costs for people at the lower end of the taxpayers' scale. I am now talking about a very large number of VAT payers—not just those who are in the range of £5,000 to £7,500 or up to £10,000, but people way above that, certainly up to a level of about £50,000.
      I am indebted for evidence of this to two studies. The first is a survey of the compliance costs of VAT for 29 Bath retailers carried out by Michael Godwin of the Centre for Fiscal Studies at Bath University, and reported by him in an article in the September 1976 issue of Accountancy. The second study of the collection and administrative costs is by E. W. Sweeting, who was until recently Director of Accountancy Services for the Ministry of Defence Procurement Executive. This study was reported by him in an article

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      in the Accountant of 24th March 1977. These surveys show that successive Governments have not taken the compliance costs sufficiently into account.
      In the amendment we are as much dealing with compliance costs as we are with the direct administrative costs of collecting this money. Indeed, Governments never seem to recognise that these compliance costs exist at all. Certainly no attempt has ever been made by Government to estimate them.
      It would be an excellent thing if in future all new taxes or changes of taxes were accompanied by a memorandum from the Treasury estimating the effect on the taxpayer of the compliance costs, just as we insist on being told the revenue effect and the effect on the number of civil servants and the administrative costs of legislative changes. All these questions have been legitimately put to the Minister during the course of the debate so far.
      Compliance costs are, broadly speaking, those costs over and above the liability for the tax itself which are incurred by a taxpayer in paying the tax. They include the cost to the taxpayer of collecting the tax, accounting for it, preparing tax returns, and actually making the payment itself. The Bath study is a terrifying and damning indictment of VAT as it was devised and introduced by the last Conservative Government and as it now operates with our present threshold.
      I am not here concerned with commencement costs, Sir Myer, because in any case that would be out of order. I am concerned with the permanent and continuing costs of compliance as shown in the study of the Bath retailers. For 25 of these 29 retailers in the city of Bath, the average estimated compliance cost in the year 1973–74 was £140 and the average liability for tax was £179. To have to undertake £140 worth of extra work in order to pay the Government £179 of tax must be some kind of record in lunacy. It means that the compliance costs of these retailers were 78 per cent. of their total tax liability. That is really crazy. But there is worse to come, for 10 of these retailers actually spent on average £115 in compliance costs in order to claim back from the Government an average of £842. And
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      they call this a tax. It is a sort of inspired madness.
      The deeper one delves into the survey of the compliance and administrative costs the worse it gets. The compliance cost of seven grocers in this sample are estimated at £1,428. Yet their total liability for tax was only £98. What kind of Government was it that imposed on sonic harmless, inoffensive and hard-working grocers a tax which in 1973-74—the latest period for which we have the figures—cost them 14 times as much to collect, account for and pay, as the Revenue actually derived in tax? No wonder retailers and small business men are angry about the tax. It is only because the British are a peaceful and long-suffering people that they have not marched on the House or perhaps on Conservative Central Office long ago.
      The Minister may say what Governments always tend to argue when they are urged to adopt a higher threshold, that the system seems to work on the Continent with very low thresholds. I believe that the Minister mentioned that today. On the Continent VAT is a good tax with a low threshold because there is virtually no zero rating. But the zero rating of food and other items in this country has been regarded as a political necessity by Governments who believe that an across-the-board tax such as was first envisaged, though not applied to food, was a political impossibility. Zero rating made the tax very inefficient, and for that reason I do not believe that the tax should have been introduced.
      Let us consider whether something can be done with the threshold level to try to improve the tax. In his article in the Accountant on 24th March, Mr. Sweeting tries to link compliance costs and the direct administrative costs of the Customs and Excise to establish a total cost of collecting the tax from smaller and not-so-small retailers. Let us consider some of the horrors that he exposes. He makes it clear that he is not blaming the Customs and Excise Department, but that the nature of the tax and its present threshold are to blame. The article says:
      "What accountant with the best interests of his clients at heart would automatically recommend sales and purchases day books and ledgers for businesses with an annual turnover of less than £50,000? Only an unimaginative pedant. They are costly and time-consuming to run."

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      He is not commenting on some super-collectivist scheme dreamed up by centralising State Socialism. This tax was introduced by the supposed lovers of efficiency and enemies of bureaucracy—the Conservative Party. According to the Customs and Excise, there were 1,250,800 persons registered as VAT payers on 1st March 1976. They paid a net amount of £3,385,000 in tax. But it is when we come down the scale that we run into difficulties, because 367,000 of them—29·4 per cent. of the total of taxpayers—received refunds of £618 million, and those refunds cost the Customs and Excise Department a farther £20 million to administer.
      Therefore, 367,000 businesses or persons are made to go through the whole costly business of filling in VAT forms and keeping VAT books simply to enable the Government to repay them £618 million. It may be said that refunds are essential as a part of the tax and must not be confused with collection or compliance costs, I accept that to a certain extent.
      Let us turn to Mr. Sweeting's calculations on retail distribution which is where the real impact comes because these costs are laid obscenely bare. On 31st March 1976 287,000 retailers were registered as VAT payers. Of these, 143,000 had annual turnovers below £20,000. They paid tax of £18 million which cost the Customs and Excise £8 million and Heaven knows how much "aggro" to collect, and that does not seem very sensible.
      If we then add the problem of compliance costs which admittedly are difficult to estimate, but it can be done, to the direct administrative costs we can see that the whole picture is even worse. Those with a turnover of less than £20,000 paid £18 million in tax, and in addition to the £8 million that it cost the Customs and Excise to collect the money, there were compliance costs of £23 million. That is absolutely crazy. Compliance and collection costs were greater than the tax paid for 216,000 retailers with turnovers of less than £50,000 in 1973–74.
      Of course it would be impossible to raise the threshold to £50,000. For one thing, our European partners would not stand for it. In addition, there would be
      1596
      a great outcry from those with turnovers of more than £50,000 complaining of unfair competition. I am less impressed by that objection than others might be. I see nothing to be lost and everything to be gained by discriminating positively in favour of small business, and this kind of action would be such discrimination. Of course, we should have to put up with the objections of those above the threshold, but that would apply whether the threshold was £10,000, £50,000, or any other figure.
      It is, however, certain that we cannot allow such an argument to outweigh the sheer nonsense of levying a tax which costs more—in total administrative and compliance costs to the taxpayer—to collect than it yields in revenue from all those below the £50,000 threshold.
      We could do many other things to simplify the tax. The Financial Secretary referred to a study which is being carried out by the Conservative Party. We in the Liberal Party have been involved in an intensive study too, and many others are doing the same. Many changes could be suggested to the structure of the tax to enable a lower threshold to be administered profitably both in terms of compliance and direct administrative costs.
      It seems, however, that we must go in one direction or the other. Either we must change the tax virtually out of all recognition—that means abolishing the input and converting the tax to a straight sales tax—or raise the threshold substantially. That is the basic choice which is more important than the question of whether the threshold should be £7,500 or £10,000. An increase on that scale would not take many people out of the net and would not solve the basic problem demonstrated by the figures I have quoted.
      I hope that the Government will look at the studies which have been done. I hope they have done their own studies of compliance costs. They have detailed figures from the Customs and Excise about direct administrative costs. I hope they will put these together in a major study before next year's Finance Bill so that we can either make the tax a profitable and efficient revenue raiser or decide that we must raise the threshold substantially.
      5.30 p.m.
      Mr. Douglas Crawford: I wish to refer to new Clause 8, which has been grouped with new Clause 1 and stands in the name of my right hon. Friend the Member for the Western Isles (Mr. Stewart).
      This is a matter that has often exercised members of the Scottish National Party. I have noted what the Financial Secretary said about the need to maintain stability, but there is not much stability in business when inflation rates are running at 15 per cent. to 20 per cent. The Government may have moved a little on this issue, but they have not moved enough and they have moved grudgingly.
      An amount of £5,000 in 1973 is not the same as £7,500 today; in fact 1973's £5,000 is much nearer today's £10,000 and it could be that 1973's £5,000 will be next year's £12,500. Hence our selection of our threshold. There is not another Finance Bill until 1978, and it is possible that even £10,000 will be eroded by this time next year.
      I am sorry that the Liberals have gone back on their original proposal of a threshold of £9,600. After hearing Northern Ireland Questions today and knowing the mood of Ulster Unionist Members, I would have thought that with Liberal support the Government could perhaps have been defeated on this.
      The cost of raising the threshold to £15,000 is £75 million, and presumably the cost of raising it to £10,000 would be in the region of £50 million. VAT may or may not be a good tax, but the methods of assessment impose a huge burden on small business men.
      I take the point that the Financial Secretary made about fair competition and realise that any cut-off point must be arbitrary. I am sure that we have all been approached from time to time by small business men with truly horrific stories about the unconscionable amount of time they have to spend filling in forms in order to cut a swathe through the bureaucratic crop that the VAT regulations represent.
      I have been approached by constituents who are in near despair in their efforts to contend with four tax rates—zero, exempt, 8 per cent. and 12½ per cent. They spend far too much time filling in forms. It sometimes takes up the whole
      1598
      of a Saturday or Sunday morning—time that should have been spent in leisure.
      Despite what the right hon. Member for Worcester (Mr. Walker) said, there is, on the other side of the coin, bureaucracy among the VAT-men themselves. It is not unknown for VAT inspectors to spend a great deal of time going through the books of small companies with small turnovers, and the cost of that must be prohibitively high. I have had personal experience of this. One is prompted to ask if the VAT-men are compensating for their inability to police the large companies by taking it out on the smaller ones. Our amendment will not remove this inequity but at least it will alleviate it to some degree.
      It cannot be repeated too often that the small business sector is one of the most important in the economic firmament—important per se, and also because it is today's small companies that sometimes contain the seeds of tomorrow's large companies. Tall oaks from little acorns grow.
      The purpose of taxation should be to maximise revenue, and revenue can be maximised only if businesses are left as free as possible from bureaucracy and allowed to get on with creating wealth—making two blades of grass grow where there was only one before. Excessive interference by the VAT-men, especially in small companies, does not greatly assist the creation of wealth.
      As long as Scotland remains joined to the economic and political union of the United Kingdom, it will continue to suffer from raging inflation. This is why we seek to raise the threshold to £10,000, or £12,500, or even more. We shall vote against this niggardly concession that the Government, in concert with the Liberal Party, have produced.
      I hope that we shall have support and that not too many unpaired Tories will be getting themselves into further fumbles over devolution at the annual conference in Perth. I hope that the Conservatives will turn out in force to support us tonight.
      Mr. Farr: I support the new clause moved by my hon. Friend the Member for Guildford (Mr. Howell) and I welcome the suggestion that the threshold level should be raised to £10,000. I think

      1599
      that it would be sensible to raise it to a much higher level.
      I intervened about half an hour ago when the Financial Secretary was speaking, because I had a series of Questions, all directed to him, which were tabled in January this year. I asked him for the annual cost, in terms of lost revenue, of raising the threshold from £5,000 to £20,000 and £50,000. The answer I got, to paraphrase the Financial Secretary, was that it was unrealistic to assume that persons registered for VAT who would be entitled to substantial repayments would not wish to remain registered voluntarily.
      It is a pity that I should receive that sort of blocking reply to a Question that was tabled in the usual way on the Order Paper. This is the only way that hon. Members can have access to information, and when Ministers give this sort of rather curt blocking answer it tends to bring Parliament and the whole Parliamentary procedure into disrepute. This is especially so when, four months later, the same Minister gives the House the information in great detail. He has given us the cost of raising the threshold to the levels that I suggested, and to other levels, and has indicated the number of persons involved. That was all that I sought to ascertain when I tabled my questions.
      Mr. Robert Sheldon: There is an enormous difference between a parliamentary Question, when one is limited by the actual cost incurred in undertaking a thorough study about the amount of revenue lost, and a decision made by the Government, with the necessary requirement for us to tell the House how much our amendment will cost. One proposition is quite unacceptable in terms of cost, because of the amount of study that would have to be undertaken. The other is an essential part of an undertaking of any Government. The hon. Member should know that normally I give a great deal of attention to trying to give as much information as possible in parliamentary answers.
      Mr. Farr: I fully agree with what the Minister has said about his attention to parliamentary answers. That is why I was surprised at what had occurred. His
      1600
      record in the past had been good. I was even more surprised when I sought an elucidating answer from the Chancellor and I received a similarly negative reply from him. This was positively discouraging.
      I have sought to raise this matter on a number of occasions because of the representations that I have received at a number of meetings that I have attended, held by the National Association of Independent Businessmen. These meetings, entitled "Survival of Small Businesses" have been held throughout the country in recent months and have indicated that one of the causes for the decline of small businesses in recent years has been the incidence of VAT, and in particular the present very low level of the threshold at £5,000. I am attending another of these meetings shortly, in the Midlands, and there will be, as in previous meetings, almost unanimous representations from all over the East Midlands requesting that the VAT threshold be raised not to £10,000 but to £15,000 or £20,000.
      My hon. Friend the Member for Guildford (Mr. Howell) has emphasised that a considerable burden has been added to the tasks of small business men. The hon. Member for Cornwall. North (Mr. Pardoe) made some very good points resulting from a document showing an analysis of what happened to retailers in Bath. Some of those points were extremely telling. I do not have a document of that nature on which to draw. However, I have evidence that is almost as telling—namely, the records of small concerns that are going out of business completely because of the many burdens placed upon them by the Government. They are having to cope with masses of paper work, and they have been very much hit by the incidence of VAT and certainly by the present level of the threshold.
      I am sorry to see one of the occupants of the Government Front Bench laughing at my comment. It is nothing to be amused about. It is an undoubted fact that since the Government came into office small business men and traders are finding it difficult to keep their heads above water. The work has not increased merely marginally, but has multiplied to a considerable extent. That has been one of the main causes of the difficulties faced by such businesses.

      1601
      I wish to refer to the campaign which has been waged in the East Midlands in recent weeks to raise the VAT threshold from £5,000 to £20,000. I have received many letters complaining of the impact of the present low threshold on the viability of small businesses. It has been pointed out that the smallest firms do not have the clerical capacity to work out these complicated figures or to handle the VAT paper work in a proper manner. This also causes a disproportionate amount of work for the Inland Revenue officials who have to administer the scheme. This point was underlined by the hon. Member for Cornwall, North.
      Further evidence has come to light on this matter, and I should like to put it before the House. It has been discovered that many people are now being deterred from setting up their own businesses by the prospect of having to become involved in VAT administration. From the very beginning, they do not have a chance to breathe before they face the nightmare problems posed by the ramifications of VAT. I have already said that I have unsuccessfully tried to obtain some information from the Treasury showing the total cost to the Exchequer of raising the VAT threshold. Many of those who have approached me on this subject have given evidence about their experiences and the difficulties they have faced in compiling VAT returns on businesses with very small turnovers. This has definitely affected the viability of such concerns.
      In one case, even though the burden of VAT resulted in the failure of the business concerned, a fine was imposed. There are side effects of the present threshold level. The smaller business is not competent to handle the paper work that is part of the VAT system. Far too great an amount of bureaucratic and court time is taken up in dealing with trivial amounts.
      5.45 p.m.
      I had hoped that my hon. Friend the Member for Guildford would be a little more forthright in the line he took in moving his new clause, but I have every confidence that when we move to the Government Benches we shall take a more vigorous and energetic line on the VAT threshold. I am confident that it will be raised to a higher level than is now proposed.
      1602
      Even if the clause is accepted, it will only just keep pace with the decline in the value of the pound since the present £5,000 was introduced. Although I shall vote with my colleagues tonight, I know that we shall have another go at raising the level to a much more realistic one to give some relief to those who are acting as tax collectors. When we occupy the Government Benches, one of the first things we shall do is to raise the VAT threshold in a realistic manner.
      Mr. Jim Spicer: I wish to refer to the contribution made by the hon. Member for Cornwall, North (Mr. Pardoe). It appears that part of the rigours of the new regime that we now have to suffer involves having to listen to long lectures delivered by Liberal spokesmen as a substitute for any effective information about their policies. The hon. Gentleman, by a series of winks and nods, suggested that the Liberals will tonight vote on our clause. It was accompanied by other shakes and nods of the head indicating that they had done a deal with the Government which would set the threshold below the rate that we propose in the clause. It is ironical that by so doing the Liberals can have it both ways. I suggest that the Committee is entitled to know what the Liberal Party will do in this respect. Since all I have been given is yet another wink and a nod, we shall obviously have to wait and see.
      I wish to take up the Financial Secretary's plea about stability. The right hon. Gentleman is a little like Canute asking the waves to stay back—after the right hon. Gentleman had been drowned rather than before. In the period under consideration between 1972 and the present, we have experienced inflation of 100 per cent. This explains why it is logical to press for a 100 per cent. increase in the threshold. That would give stability because in real terms it would return the threshold to the level which, for better or for worse, it occupied in 1972.
      The Financial Secretary suggested that there was no reason for him to accept the level that was proposed and agreed in 1972. He then set out the arguments. That led me to intervene to ask whether he was arguing for a reduction in the threshold. He appeared to deny that he was asking for a reduction, but that is certainly what he will achieve if the Government's amendment to our clause

      1603
      is accepted. In real terms there will be a considerable reduction from the original rate proposed and accepted in 1972.
      In replying to the right hon. Gentleman, I would adopt the argument put forward by my hon. Friend the Member for Harborough (Mr. Farr) and also by the hon. Member for Cornwall, North—namely, that there are very good reasons, far from reducing the threshold, for raising it to a considerable extent. I join my hon. Friend in hoping that a future Conservative Government will raise the threshold in real terms.
      The classic example on the fundamental problems of turnover is shown by what happens in garage concerns. In most cases they are small businesses which often have an annual turnover—I do not know the average figure—of between £50,000 and £100,000 per year. Such businesses find it extremely difficult to comply with VAT regulations. I agree that the logical conclusion of that argument would be to raise the threshold well beyond £10,000 a year to £15,000 or £20,000. Far from reducing the current threshold, the Government should be considering raising it, a least marginally. They are not doing that tonight.
      One of the problems in debates on allowances and thresholds is that the figures are not usually given in real terms. The Government usually present their case by saying that they are giving an increase and making a generous step. In fact, as we see tonight, it is usually not generous. The increase that the Government are apparently giving is, in fact, a considerable reduction. I ask the Government at least to consider keeping the threshold at the level proposed in real terms in 1972, otherwise the argument that the Financial Secretary put forward about reducing the rate does not hold good.
      Mr. Cope: We should be grateful for small mercies in that the Government are going some way along the road that we have suggested. However, we should look this particular gift horse in the teeth carefully. We should consider it from an arithmetical point of view.
      As is often the case when we put down such amendments, my hon. Friends have obtained figures by putting down parliamentary Questions, and more figures have
      1604
      been given by the Minister in his speech. The Financial Secretary said that 50,000 traders would probably be taken out of the VAT net by the Government's proposal to set the threshold at £7,500. He also said that the cost of that to the Government was estimated to be between £5 million and £10 million.
      Mr. Robert Sheldon: I shall give some more figures later, but the figure of 50,000 that I gave referred to the number of people who could claim deregistration.
      Mr. Cope: I apologise. I do not wish to mislead the Committee, and I shall come back to the figure of 50,000. I accept that that is the number of people who might claim, but we do not know that they will do so. The Government said that the cost, if they all claimed, would be £5 million to £10 million, and that means £100 or £200 of VAT saved by each trader. Of course, in introducing that figure of £5 million to £10 million, the Government have obviously taken into account—it is a big spread—various assumptions about the number of people who would come out of VAT on that basis. However, we also know from a parliamentary Question put down by my hon. Friend the Member for Eastleigh (Mr. Price) that 250,000 traders pay £160 or less in VAT. That figure, of course, falls into the bracket of £100 to £200 that was given by the Financial Secretary in his calculations. There seems to be some divergence there that I hope can be cleared up during a later intervention from the Financial Secretary. It has been said that 50,000 traders might be able to come out, but a much higher number of 250,000 traders seem to be paying such a small amount of VAT. Of course, the £100 or less in VAT that is paid by those 250,000 traders is their gross payment.
      We know from figures that were given to us by the hon. Member for Cornwall, North (Mr. Pardoe), who has now left the Chamber and who referred to an article by Mr. Sweeting in the Accountant saying that at that level it cost £8 million to collect £18 million, that out of the £160 that is paid by each of the 250,000 people only £100 arrives net at the Treasury. We need to be clear about these figures when taking a decision on the limits proposed in the new clause and in the Government's amendment. The

      1605
      hon. Member for Cornwall, North was right in what he said about compliance and administrative costs for the Customs and Excise. That is the key to the decision that the Committee must shortly take.
      There must be a point—it is certainly above £7,500, and probably above £10,000—at which this tax begins to be negative to the economy. There must be a much higher point at which it must have a more or less negative effect and certainly little positive effect for either the economy or the revenue. It would be helpful if the Financial Secretary could tell us whether the figure of £5 million to £10 million that he gave was a net or gross figure. It may be gross—although from what the right hon. Gentleman said I have assumed that it is net. It would be helpful for the Committee to know the gross figure. Of the £20 million of tax that the Government will collect, will £10 million be spent in order to collect a net figure of £10 million?
      The big leap forward in simplification that is sought by the hon. Member for Cornwall, North might be achieved through a major increase in the threshold limit. It is more likely to come from a move to the accounts basis that we shall be discussing later in Committee when we debate two new clauses which have been put down—one of them in my name—on that subject. However, I cannot follow up that point now.
      The hon. Member for Cornwall, North has now returned to the Chamber, so I should like to reiterate the paint that I tried to make in an intervention to his speech because I do not think that he grasped it. I see that the hon. Member is taking some high-powered advice from my colleagues on the Opposition Front Bench, obviously on procedural matters.
      On this occasion the Liberal Party can have its cake and eat it. After the Liberal Party has voted, as we and the Government shall do, for the Second Reading of the new clause—which would be doing nothing out of the ordinary—it must then decide whether to vote for the amendment. If it votes for it, it will be voting against the £10,000 limit and for the £7,500 limit. Presumably, if the Liberal Members vote for the amendment with the Government, if they all turn out in force and there are no slip-ups in the machinery, the amendment will be carried
      1606
      However, if the Liberal Party votes with us, the limit will not be £7,500 but will be higher than that. There is no practical question whatever of the limit being less than £7,500 by the end of the evening. The only question is whether it will be £10,000, and the Liberals must direct themselves to that question. We shall see in due course, since they are not prepared to tell us now—as apparently, they are not—what decision they will make.
      6.0 p.m.
      Mr. John Loveridge: I suppose it is something that the Government have seen the light, even if they have seen only a little light. Certainly I and my colleagues have been pressing for this threshold to be raised during the last two years. We should have liked to see it raised by a greater amount, but at least what has been done shows some measure of increased sense and good will on the part of the Government.
      I cannot help wondering how the figure of £7,500 was arrived at. It seems a strange figure to choose. How small are the businesses affected by the exemption supposed to be? This is the key question. Are they supposed to be one-man or two-man concerns—or has that not even been considered by the Government?
      Do the Government want more employment? If so, the exemption limit should be set at a figure that allows one-man businesses to take on a second man. We have heard that 250,000 firms and self-employed people would be freed from VAT if the present limit were doubled. Even if only a segment of those businesses took on a second man, this would go a long way towards helping with our unemployment problem.
      However, the Government have fixed the exemption at £7,500 and that is just too low to allow a second man to be taken on without the discouragement to the firm of entering the VAT net. The average output per man in this country in terms of gross domestic product was about £4,300 last year. This is arrived at by taking the GDP per head of the population according to the latest issue of "Economic Trends" and adjusting it for the total employed labour force in mid-1976. That is an approximate figure—no doubt the Government could give us

      1607
      the precise sum—but it is accurate enough for us to see that the output of two men last year would have averaged £8,600—£1,100 more than the proposed exemption.
      Is it the Government's intention that the exemption should apply only to the one-man bands? It is at this stage of growth in tiny firms—the first step to expansion—that there are the biggest fears and anxieties in the owner's mind. When he considers whether to take on a man or perhaps two women, part-time, he wonders about the economy, as well he might. This is the wrong place from every angle to put any impediment in his way by taking him out of the class that is exempted from VAT.
      Help and encouragement should be given at this first point, yet the Government are giving notice that the discouragement of enterprise starts when a firm takes on its first help. The paper work starts here. The head of a tiny firm will have heard much about bureaucracy, about paper work, about the troubles that he will have to face as the firm grows and about the endless legal paraphernalia that Parliament has passed that he does not understand. He knows nothing of solicitors, and he has probably never read an Act of Parliament, yet it is at this moment, when he wants to take a step forward and to provide a job for someone, that the Government ring the warning bell that he will go into the VAT network if he dares to give one man a job.
      The Government should consider setting the threshold at a level above the normal anticipated output of two men at work. There would not have to be a very great increase and it would be an encouragement to the provision of a number of jobs. The small business sector is likely to be proportionately more helpful in providing jobs than is large industry, because the owners of small firms have always had to work near the limits of their capacity. In industry generally the position is different. For example, output is now little different from the levels during the three-day week. There is vast spare capacity and often substantial overmanning. That is not the case with tiny firms, and that is why the VAT limit should be lifted. Even the smallest upturn in economic conditions
      1608
      will find many of these small firms thinking of expansion. They are ready. They do not have the spare manpower, and they will therefore be the fastest sector in taking on new men.
      Mr. Peter Rees: On a point of order, Sir Myer. Would it not be appropriate for the sitting to be suspended until the Government Front Bench spokesman returns? Surely the courtesies of debate demand that Ministers should at least listen to contributions from the Opposition.
      The First Deputy Chairman: I expect that there is a good explanation for the Financial Secretary leaving the Front Bench. However, the Government Whip is there to acquaint him of the important contributions that have been made.
      Mr. Farr: Further to that point of order, Sir Myer. Ah!The Minister has returned. Now we can have a proper debate.
      The First Deputy Chairman: I am sure that the Minister has been away for no longer than was necessary.
      Mr. Loveridge: I am grateful that my colleagues feel that the Financial Secretary should be here to listen to what I have to say. I hope that the points he has missed will be conveyed to him by the Government Whip and that he will do me the honour of reading that part of my speech that he has missed.
      Mr. Peter Rees: Say it all again.
      Mr. Loveridge: The two Front Bench speakers are anxious to take part in the debate shortly, and I do not wish to hold up our proceedings by going back over what I have said. The Government ought to enable small firms to take on a second man and to encourage them to do so by raising the VAT threshold above the figure of two men's average output. That would have meant a limit of £9,000, or more now allowing for inflation. The Government should not stick to helping the one-man bands but should encourage the two-man bands as well.
      Mr. Robert Sheldon: To show that I had taken the hon. Gentleman's argument fully on board before I had to leave the Chamber, for obvious reasons, for no more than one minute, may I point out that his suggestion would not meet his

      1609
      objective? He gives the salaries to be expected by two men but has not taken account of other expenses, and even modest expenses would be almost certain to result in the gap between the salaries and a turnover of £10,000 a year being exceeded.
      Mr. Loveridge: The Minister is under a misapprehension. The figure of £4,300 to which I referred is the contribution of the average working person to the GDP for 1976. It is, therefore, a fair figure for the average firm. Of course there will be a wide spread of figures in various firms, and not all firms would be freed if my proposal were accepted. However, many firms would be freed from VAT. I appeal to the Government to try to meet this point and, if there is any error in my figures, to calculate for themselves the figure required to allow a second man to be employed in these firms. It would be a great shame for any Government to give discouragement at the first creative moment of a tiny firm's expansion.
      Mr. Peter Rees: This is a clause of considerable importance and I am gratified that the Financial Secretary has returned to listen to the contributions that I and my hon. Friends hope to make. The clause can be justified by the inexorable ravages of inflation, and there is no need for me to add to what my hon. Friend the Member for Guildford (Mr. Howell) said about the characteristic inconsistence of the Chief Secretary to the Treasury. Those of us who have had the privilege of taking part in Finance Bill debates in previous years have had occasion to notice them.
      The principal justification, however—the one that I wish to concentrate upon—is the number of people that will be taken out of the VAT net, which will result in a simplification of the administration and an easing of the taxpayers' burdens. The Financial Secretary was disposed to resist the new clause, citing the need for stability. Would that he had shown those sentiments in his approach to capital transfer tax, income tax, capital gains tax and the whole battery of direct taxes, and the amendments to them, that we have had to debate over the past three years.
      The right hon. Gentleman and his right hon. and hon. Friends have in the
      1610
      past been frantically radical in their rapacity. So this is a novel change of heart, a change of front. But, in fact, I assume that it is only a piece of blatant officialise written into his brief by the Customs and Excise. VAT is a broadly-based indirect tax. By its very nature it is hound to affect a great number of people and turn a great number of people into involuntary tax gatherers.
      Some of my hon. Friends have exemplified the various categories affected—the small individual trader, the small professional man, the small business man, the small shopkeeper, the old lady, perhaps with a weekend paper round, or the person with the small sweet shop. All these have been swept into the net. That is not to say—I turn to the hon. Member for Cornwall, North (Mr. Pardoe)—that the tax is bad in itself. I now recall the attitude that the Liberal Party took in the bright days of 1972, but I assume, since the Liberals voted with such conviction for our adherence to the Common Market, that they must also have supported the necessary and inevitable consequences—indeed, almost a precondition—of our entry into the Common Market. It may be that the hon. Member for Cornwall, North will seek to catch the eye of the Chair and explain the inconsistency of the Liberal Party on this theme.
      Mr. David Howell: The hon. Member for Cornwall, North (Mr. Pardoe) may wish to intervene, but at the time the Liberal Party was solidly in support of VAT and the hon. Gentleman described it as "magnificently efficient revenue raising" which would enable us to go from replacing the two taxes to replacing many more and which would be a redistribution of income and wealth. I am as surprised as my hon. and learned Friend that the Liberal Party appears to have changed its attitude.
      Mr. Rees: I am grateful to my hon. Friend, who has done a rapid piece of research and confirmed my suspicions. It may well be that the hon. Member for Cornwall, North has been reading the Accountant, which he did not previously read.
      Mr. Pardoe: I was about to intervene just before the hon. Member for Guildford (Mr. Howell) did so. Yes, I did

      1611
      support VAT and I do so now in principle. What I was arguing was not that it was a bad tax in principle—it is a very good tax in principle—but rather that, because it does not have as wide a base as it has in Europe, it has become. a bad tax. It is for that reason that the people at the lower end of the scale will be paying less revenue to the Government than they are paying out in administrative costs and compliance.
      Mr. Rees: As always, the hon. Gentleman wants it every way. But I shall leave him with his portentous responsibility to explain to the country at large, and his constituents in particular, why he would like an extension of VAT to food, children's clothes, shoes and other such items. There may be a good case, but—
      6.15 p.m.
      The First Deputy Chairman: Order. The hon. and learned Gentleman is now going wide of the matter under discussion. He should come back to the question of the threshold that we are discussing in relation to VAT.
      Mr. Rees: I am deeply apologetic. I was tempted by the rather ill-judged and ill-considered intervention of the hon. Member for Cornwall, North to go rather wider than I had intended.
      Mr. Pardoe: So it was my fault, was it?
      Mr. Rees: All I wish to say is that I do not wish to find myself on any platform with the hon. Gentleman defending his particular position. In fact, the tax affects such a wide number of people, in small businesses or in a small professional way, that the Committee needs to be assured that the threshold is no higher than it need be and that the administration is as sensitive and humane as it possibly can be. We know from bitter experience that nothing for which the Chancellor is responsible is either sensitive or humane. But we shall hope perhaps to detach the Customs and Excise from him in due course.
      Let me make it clear that nothing I am saying this evening is intended as a criticism of that devoted body of men, the officers of the Customs and Excise. It may well be that individual officers are
      1612
      too zealous, but that will always be so in a great organisation. It may even be that individual traders are a little too quick to resent criticism and investigation. There was a sad case in my constituency where certain traders refused to discuss their affairs with a certain Customs officer. I hope that that kind of difficulty can be ironed out. I hope that the Financial Secretary will be quick to receive representations from individual hon. Members on that kind of problem.
      The hon. Member for Cornwall, North—I apologise to the Committee for again returning to him—spoke so ponderously and at length. Some of his points were a most peculiar kind of Liberal gobbledegook and can be left unanswered and unlamented. He regurgitated a great deal of raw material prepared for that useful and important study on which Professor Sandford of Bath University is engaged into the compliance cost of VAT. That work was well worth undertaking, and I hope the Financial Secretary will pay attention to Professor Sandford's conclusions. I hope that on another occasion we shall be able to amplify the debate to deal with the compliance costs of taxes generally. This is a subject on which not enough has been said either in this Committee or in the House as a whole.
      The Government's amendment is a curious compromise. It is, of course, the product of that loveless and immoral alliance. The many imperfections of that alliance are already evident, because from time to time we have had to scrutinise with distaste its products. The hon. Member for Cornwall, North embarked on intellectual contortions at massive length to justify an act of calculated pusillanimity. By every kind of logic and common sense he should be voting for the new clause. It will be interesting to see how he and his right hon. and hon. Friends vote when put to the test, unless the Financial Secretary allows the new clause to go through without a Division.
      I myself cannot understand this newfound timidity of the hon. Member for Cornwall, North and his hon. Friends. It must be that he has in mind his newfound friends on the Government Front Bench and is frightened that he might just tilt them over the edge and provoke them to call a General Election. That is the

      1613
      only justification for the course he has advocated tonight. I preferred the rather lighter touch that the hon. Gentleman had before he engaged in this alliance. Indeed, his words now fall like lead on an apparently empty Chamber.
      Mr. Pardoe: It is not very full for the hon. and learned Member.
      Mr. Rees: Where are the hon. Gentleman's hon. Friends or the hon. Friends of the Financial Secretary? [Interruption.] The Financial Secretary can turn to the Patronage Secretary's representative, but the hon. Gentleman does not add much in numbers to the hon. Members supporting the Financial Secretary.
      If there is any logic in the position of the hon. Member for Cornwall, North he must surely support the clause moved by my hon. Friend the Member for Guildford. It would take out a calculable number of people who are unable to cope with the complexities of VAT. They have to cope with the administrative work, often after hours, during weekends or in their holiday period. I know of one such constituent who calculated that he had to spend one working day a month—probably his calculation was a modest one—dealing with these matters. If we can relieve him of those burdens, we shall have done a good night's work.
      I hope that at the end of the day the Financial Secretary will not be too proud to admit that there is possibly more to be said for the new clause than he at first appreciated when he discussed it with his devoted civil servants. Let him rise to heights to which he has sometimes—rarely, I regret—risen in Committee, throw away his notes, which no doubt say "Resist", and say that this is something which, in the interests of good administration, humanity, indulgence if you like—
      Mr. Pardoe: I cannot stand it any more.
      Mr. Rees:—to a hard-pressed body of men, should be accepted.
      Mr. David Howell: The Financial Secretary advised the Committee to reject the Opposition's new clause, using the argument that we needed some stability in the handling of value added tax. We hear a great deal nowadays about stability. We heard about it from the
      1614
      Leader of the Liberal Party. Stability was supposed to come when the pact came—since when, we have had nothing but political chaos and economic instability of a scale far in excess of anything that we have seen before.
      Now the Minister tells us that he opposes our new clause on the grounds of stability. If he will forgive me, it is a bit much to be treated to lectures about stability from a Minister whose colleagues in the Treasury gave us first the 25 per cent. luxury rate of VAT, discovered that they had made a terrible mistake, changed it to 12½ per cent. and claimed that as a solid achievement for industrial strategy. We do not accept that argument. I heartily agree with my hon. and learned Friend the Member for Dover and Deal (Mr. Rees).
      Other than that, the arguments from this side, from all parties, have been put excellently both by the hon. Member for Perth and East Perthshire (Mr. Crawford), representing the Scottish National Party, and by the hon. Member for Cornwall, North (Mr. Pardoe), speaking for the Liberal Party, who obviously has done a lot of work on this and who put the case very well for raising the thresholds substantially.
      I was surprised, however, to hear the hon. Member for Cornwall, North talk about a rotten tax from a rotten Government when, as we have now reminded him—perhaps he did not need reminding—he was strongly in favour of VAT and argued at the time of its introduction that it had been Liberal policy for 10 years, saying that he regarded it as a "major and significant advance" and so on. Perhaps those two positions can be reconciled, but the Committee has not yet heard how.
      As I have said before, we accept in good faith the problems and the position of the Liberal Party and the hon. Member's judgment that £7,500 is the best that he can get as a threshold—although he added that he wanted something higher. As my hon. Friend the Member for Gloucestershire, South (Mr. Cope) has perceptively reminded the hon. Gentleman, he can now put his beliefs precisely to the test. If Liberal Members—those who are not properly paired, if I may mention that kind of arrangement—vote with us, we might get the £10,000 that

      1615
      the Liberal Party wants, as the hon. Gentleman told us in an interesting and forceful speech.
      If we fail and the Government get their amendment, we shall still have the £7,500, which is the compromise that the hon. Member for Cornwall, North judges to be the best he can get. Therefore, a very favourable prospect is opening up for the hon. Gentleman in which he can have it either way. I appeal to him to give it a swing. Let him see whether he can actually use the votes available to him and his right hon. and hon. Friends to support us and the figure of £10,000. There is a sporting chance, and he will still get his compromise.
      Mr. Pardoe: The hon. Gentleman is making out that he is anxious to win the vote on this clause and to defeat the Government's amendment and thus achieve the full £10,000 threshold. In that case, why is the Conservative Party today on only a two-line Whip, and how many of the 285 Conservative Members will vote tonight?
      Mr. Howell: The hon. Gentleman knows something about the whipping system. We shall have here our full complement of those who are not properly paired, and I hope that the Liberal Party will have the same. We look forward to seeing them in our Lobby. They support the £10,000 level, and the Leader of the Liberal Party has pledged that the Liberal Party will not compromise their principles and beliefs.
      Here is an excellent chance for them to stick to that pledge, unless they want to compromise the pledge that they will not compromise their principles and beliefs. I appeal, therefore, to Liberal Members and I remind them that there is a sporting chance. This will not harm their precious pact with the Labour Party. I do not think that Ministers will be too cross with them. Even if they are, the Chief Secretary and the Financial Secretary are not too bad even when they are cross, so Liberal Members should not be too nervous.
      I have heard that the hon. Member for Cornwall, North, who has taken a constructive part in this debate, is a swashbuckling chap. I have never seen that side of his character, but if he goes
      1616
      around buckling swashes or whatever he does in his constituency let me appeal to that side of his character. This is a gambling situation, and he has a real chance to show that his party is on the side of a free Parliament and on the side of a parliamentary system which will deliver a majority in favour, if the thing is fairly put to the test, of raising the threshold by this amount.
      Some of my hon. Friends have said that £10,000 is not enough, and they may be right. Others have said that wherever we have a threshold there are always difficulties and problems on either side. Nevertheless, if £5,000 was right when this thing started, in logic £10,000 must be right today. I believe that if we can vote this matter out open and above board, to use the phrase used by the Liberals about their pact, we will win. I hope that the Liberals will come along.
      I hope also that the Scottish nationalists will come along. Their spokesman spoke feelingly about the matter, and they have a new clause on the subject. I hope that the Ulster Unionists will join us. No part of the United Kingdom would benefit more from the raising of the threshold than Ulster. There is no part of the United Kingdom where small business has been more magnificent in more appallingly adverse circumstances and where it deserves more to have every possible help. I hope that the Welsh nationalists will join us too.
      Together we can push a Government who do not really have an interest in or love for the self-employed and for small and independent business into doing something which they do not want to do but which would help far more than merely raising the threshold to the compromise level of £7,500.
      I therefore ask hon. Members to support the new clause and to reject the Government's amendment. I ask them to raise to £10,000 the threshold for the annual limit below which it will be unnecessary to register.
      Mr. Robert Sheldon: The hon. Member for Guildford (Mr. Howell) asked the Liberals—I think I got his words right—not to compromise their beliefs. I took fully the point made by the hon. Member for Eastleigh (Mr. Price), who did not see it in those terms. He said that there was

      1617
      no dogma in these matters. We are talking only about what the thresholds should be. To judge from the speech of the hon. Member for Guildford and others, however, there may now be such things as the high threshold party and the low threshold party. They would have a limited political platform.
      6.30 p.m.
      We are discussing sensible arrangements that should be undertaken to assist traders and at the same time ease the problems of those moving into and out of the scope of VAT, as well as to retain revenue and to have a system that we can defend in the House. I see these matters in the same way as the hon. Member for Eastleigh. It is a pity that we have not had more speeches of the sort made by the hon. Gentleman. Such speeches could have been more usefully applied to the problem before us.
      The hon. Member for Gloucestershire, South (Mr. Cope) asked me whether revenue of £5 million to £10 million was the net figure. I confirm that I gave the net figure of revenue that will be forgone if the Government's amendment is carried.
      The right hon. Member for Worcester (Mr. Walker) complimented—
      Mr. Cope: I asked the right hon. Gentleman to supply the gross figure. Is he able to tell us what it is?
      Mr. Sheldon: I have not forgotten that. Of course, the figures are extremely speculative. I believe that the hon. Gentleman understands why that must be so. It is hard to estimate in advance the number of traders who will deregister when they are able to do so and what number may feel that they might lose some of their clients, especially the larger ones, who will not wish to lose the benefits of dealing with traders registered for VAT.
      The right hon. Member for Worcester complimented Customs and Excise officials on their handling of VAT. I am sure that almost all sections of the Committee will accept that. Customs and Excise started off the tax, and it was a difficult tax to introduce. It has undertaken its task very well.
      I recognise the fear of VAT inspectors that the right hon. Gentleman described.
      1618
      It is a subject that I have before me a great deal of the time. That is not because there are many such cases but because I consider that they are important for the reasons I have given. I make a point of going into the cases that are brought to my attention personally. By and large, I believe that they are in fact handled with the degree of delicacy that we would wish to see maintained. At the same time, we must understand the problems that are bound to exist in a system that deals with 1¼ million people.
      In the operation of the VAT system there is not the close relationship that was possible under the purchase tax system, in which traders met Customs and Excise officers as a matter of course and were able to build up some sort of relationship with them. Each would know the mind of the other, to the advantage of both sides. That is not possible when there are so many traders and visits are more infrequent. However, a close scrutiny is maintained. I believe that the administration of the tax is being handled with the efficiency and understanding that we would wish.
      The hon. Member for Cornwall, North (Mr. Pardoe) talked about compliance costs. The Government are increasingly sensitive to these costs. They cannot always be quoted in this place, but they form a part of the economic cost of the maintenance of any form of taxation. By their very nature the figures cannot be very accurate, but we reckon that the compliance cost of VAT is about 2p in every pound.
      I am aware of the University of Bath study. I remind the Committee and the hon. Member for Cornwall, North, who went into the matter in some detail, that it was a pilot study, interesting though it may be. A fuller study is to be undertaken. The Government have authorised Customs and Excise to give assistance to the University of Bath in the further study, and I answered a Question on this subject fairly recently.
      Mr. Peter Rees: Is 2p in the pound the compliance cost for Customs and Excise alone? Has any calculation been made of the average compliance cost for the registered trader, which is the figure with which I am more concerned?
      Mr. Sheldon: This is the compliance cost of the trader. Perhaps the hon. and

      1619
      learned Gentleman has failed to comprehend. We are talking about the cost of complying with VAT regulations. By its very nature it can be only an approximate figure.
      Mr. Pardoe: I think that the right hon. Gentleman has it wrong. Surely 2p in the pound is not the compliance cost. It would help if we made a distinction between the compliance cost to the Treasury and the collection and administrative cost to Customs and Excise. The 2p in the pound is the Customs and Excise cost.
      Mr. Sheldon: I have given the latest figure for Customs and Excise VAT costs. I have quoted the official compliance cost of 2p in the pound. That is the way in which I thought I had expressed it to the Committee.
      The right hon. Member for Worcester went into the numbers that would be involved if we changed the deregistration limit. The Government's amendment proposes a registration limit of £7,500 coupled with a deregistration limit of £6,000, which would mean that between 50,000 and 55,000 regular taxpayers would come out of the VAT system. If the deregistration limit were £8,000, as proposed in the new clause, the number moving out of the system would be 125,000. If it were £7,000, the figure would be 80,000. I have more figures, but perhaps those I have given are sufficient to meet the purpose of the question.
      The hon. Member for Guildford said that if a registration exemption limit of £5,000 was right in 1972 it should be £10,000 in 1977. That begs a number
      of questions. The first and most obvious one is whether we can be sure that the figure was right in 1972. It was the figure laid down when the VAT system started. Those who took part in the proceedings in Committee on the Finance Bill 1972 will know the extreme assurance—at times it amounted almost to arrogance—of those who felt that they had the system exactly right and had produced the perfect tax system. Others realised that these matters were subject to error and failure to understand the possible future changes that might be necessary. They adopted a much more pragmatic outlook.
      I say in the light of experience that matters have not turned out in quite the way that those who introduced the tax anticipated. I think that we should see how the £7,500 limit works out. We shall learn something from the removal of a large number of traders from the VAT system. There will be a large amount of work for the staff of Customs and Excise in undertaking the change. The experience gained will be useful in considering where the future of the tax should lie, and particularly the question of thresholds.
      Question put and agreed to.
      New Clause read a Second tune.
      Amendment proposed to the proposed new clause: In subsection (2), leave out '£10,000' and insert '£7,500'.—[Mr. Robert Sheldon.]
      Question put, That the amendment be made:—
      The Committee divided: Ayes 167, Noes 146.

      Division No. 134]

      AYES

      [6.40 p.m.

      Allaun, Frank

      Colquhoun, Ms Maureen

      Evans, Ioan (Aberdare)

      Archer, Peter

      Cook, Robin F. (Edin C)

      Ewing, Harry (Stirling)

      Ashton, Joe

      Corbett, Robin

      Faulds, Andrew

      Atkinson, Norman

      Cowans, Harry

      Flannery, Martin

      Barnett, Guy (Greenwich)

      Cox, Thomas (Tooting)

      Fletcher, Ted (Darlington)

      Barnett, Rt Hon Joel (Heywood)

      Crowther, Stan (Rotherham)

      Foot, Rt Hon Michael

      Bates, Alf

      Davidson, Arthur

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

      Beith, A. J.

      Davies, Bryan (Enfield N)

      Garrett, John (Norwich S)

      Booth, Rt Hon Albert

      Davies, Denzil (Llanelli)

      George, Bruce

      Bradley, Tom

      Davies, Ifor (Gower)

      Gilbert, Dr John

      Brown, Hugh D. (Provan)

      Davis, Clinton (Hackney C)

      Gould, Bryan

      Brown, Robert C. (Newcastle W)

      Deakins, Eric

      Graham, Ted

      Buchan, Norman

      Dean, Joseph (Leeds West)

      Grant, George (Morpeth)

      Callaghan, Rt Hon J. (Cardiff SE)

      Doig, Peter

      Grant, John (Islington C)

      Carmichael, Nell

      Douglas-Mann, Bruce

      Grimond, Rt Hon J.

      Cartwright, John

      Dunn, James A.

      Grocott, Bruce

      Castle, Rt Hon Barbara

      Dunnett, Jack

      Hamilton, James (Bothwell)

      Clemitson, Ivor

      Eadle, Alex

      Hardy, Peter

      Cocks, Rt Hon Michael (Bristol S)

      Edge, Geoff

      Harper, Joseph

      Cohen, Stanley

      Ellis, John (Brigg & Scun)

      Harrison, Walter (Wakefield)

      Coleman, Donald

      English, Michael

      Hart, Rt Hon Judith

      Hooley, Frank

      Marks, Kenneth

      Silkin, Rt Hon S. C. (Dulwich)

      Hooson, Emlyn

      Marshall, Dr Edmund (Goole)

      Silverman, Julius

      Horam, John

      Marshall, Jim (Leicester S)

      Skinner, Dennis

      Hoyle, Doug (Nelson)

      Maynard, Miss Joan

      Small, William

      Huckfield, Les

      Mendelson, John

      Smith, John (N Lanarkshire)

      Hughes, Rt Hon C. (Anglesey)

      Mikardo, Ian

      Spearing, Nigel

      Hunter, Adam

      Millan, Rt Hon Bruce

      Spriggs, Leslie

      Irvine, Rt Hon Sir A. (Edge Hill)

      Miller, Dr M. S. (E Kilbride)

      Stallard, A. W.

      Jackson, Colin (Brighouse)

      Miller, Mrs Millie (Ilford N)

      Steel, Rt Hon David

      Jackson, Miss Margaret (Lincoln)

      Mitchell, Austin Vernon (Grimsby)

      Stewart, Rt Hon M. (Fulham)

      Janner, Greville

      Moonman, Eric

      Strauss, Rt Hon G. R.

      Jay, Rt Hon Douglas

      Moyle, Roland

      Summerskill, Hon Dr Shirley

      Jenkins, Hugh (Putney)

      Mulley, Rt Hon Frederick

      Taylor, Mrs Ann (Bolton W)

      John, Brynmor

      Noble, Mike

      Thomas, Jeffrey (Abertillery)

      Johnston, Russell (Inverness)

      Ogden, Eric

      Thomas, Mike (Newcastle E)

      Jones, Dan (Burnley)

      Orbach, Maurice

      Thomas, Ron (Bristol NW)

      Kaufman, Gerald

      Orme, Rt Hon Stanley

      Thorpe, Rt Hon Jeremy (N Devon)

      Kelley, Richard

      Ovenden, John

      Tinn, James

      Kerf, Russell

      Palmer, Arthur

      Wainwright, Richard (Colne V)

      Kilroy-Silk, Robert

      Pardoe, John

      Walker, Harold (Doncaster)

      Kinnock, Neil

      Parry, Robert

      Walker, Terry (Kingswood)

      Lamborn, Harry

      Phipps, Dr Colin

      Watkins, David

      Lamond, James

      Rees, Rt Hon Meriyn (Leeds S)

      White, Frank R. (Bury)

      Latham, Arthur (Paddington)

      Richardson, Miss Jo

      Whitehead, Phillip

      Leadbitter, Ted

      Roberts, Gwilym (Cannock)

      Whitlock, William

      Lee, John

      Rodgers, Rt Hon William (Stockton)

      Williams, Rt Hon Shirley (Hertford)

      Lyon, Alexander (York)

      Rooker, J. W.

      Williams, Sir Thomas (Warrington)

      Lyons, Edward (Bradford W)

      Rose, Paul B.

      Wilson, Alexander (Hamilton)

      Mabon, Rt Hon Dr J. Dickson

      Ross, Stephen (Isle of Wight)

      Wilson, Rt Hon Sir Harold (Huyton)

      McCartney, Hugh

      Ryman, John

      Wilson, William (Coventry SE)

      McDonald, Dr Oonagh

      Sandelson, Neville

      Wise, Mrs Audrey

      McElhone, Frank

      Sedgemore, Brian

      Wrigglesworth, Ian

      MacFarquhar, Roderick

      Shaw, Arnold (Ilford South)

      MacKenzie, Gregor

      Sheldon, Rt Hon Robert

      TELLERS FOR THE AYES:

      Madden, Max

      Shore, Rt Hon Peter

      Mr. David Stoddart and

      Magee, Bryan

      Silkin, Rt Hon John (Deptford)

      Mr. Peter Snape.

      NOES

      Alison, Michael

      Goodhew, Victor

      Meyer, Sir Anthony

      Arnold, Tom

      Goodlad, Alastair

      Miller, Hal (Bromsgrove)

      Atkins, Rt Hon H. (Spelthorne)

      Gorst, John

      Mills, Peter

      Awdry, Daniel

      Gow, Ian (Eastbourne)

      Morgan, Geraint

      Bain, Mrs Margaret

      Gray, Hamish

      Morrison, Charles (Devizes)

      Baker, Kenneth

      Griffiths, Eldon

      Morrison, Hon Peter (Chester)

      Banks, Robert

      Grylls, Michael

      Neave, Airey

      Bennett, Sir Frederic (Torbay)

      Hall, Sir John

      Nelson, Anthony

      Benyon, W.

      Hamilton, Michael (Salisbury)

      Neubert, Michael

      Berry, Hon Anthony

      Havers, Sir Michael

      Newton, Tony

      Biggs-Davison, Jonn

      Henderson, Douglas

      Nott, John

      Blaker, Peter

      Heseltine, Michael

      Page, Rt Hon R. Graham (Crosby)

      Body, Richard

      Hodgson, Robin

      Page, Richard (Workington)

      Boscawen, Hon Robert

      Holland, Philip

      Percival, Ian

      Bottomley, Peter

      Hordern, Peter

      Price, David (Eastleigh)

      Bowden, A. (Brighton, Kemptown)

      Howell, David (Guildford)

      Rees, Peter (Dover & Deal)

      Brocklebank-Fowler, C.

      Hunt, David (Wirral)

      Reid, George

      Brooke, Peter

      Hunt, John (Bromley)

      Rhodes James, R.

      Bryan, Sir Paul

      Hutchison, Michael Clark

      Ridley, Hon Nicholas

      Buck, Antony

      James, David

      Ridsdale, Julian

      Budgen, Nick

      Jessel, Toby

      Roberts, Wyn (Conway)

      Chalker, Mrs Lynda

      Johnson Smith, G. (E Grinstead)

      Rossi, Hugh (Hornsey)

      Churchill, W. S.

      Kershaw, Anthony

      Sainsbury, Tim

      Clark, Alan (Plymouth, Sutton)

      Kilfedder, James

      Shaw, Giles (Pudsey)

      Clark, William (Croydon S)

      Kimball, Marcus

      Shelton, William (Streatham)

      Clarke, Kenneth (Rushcliffe)

      King, Evelyn (South Dorset)

      Shepherd, Colin

      Clegg, Walter

      King, Tom (Bridgwater)

      Silvester, Fred

      Cope, John

      Knight, Mrs Jill

      Sims, Roger

      Costain, A. P.

      Knox, David

      Smith, Dudley (Warwick)

      Crawford, Douglas

      Lamont, Norman

      Smith, Timothy John (Ashfield)

      Crouch, David

      Lawrence, Ivan

      Speed, Keith

      Dodsworth, Geoffrey

      Lawson, Nigel

      Stanbrook, Ivor

      Drayson, Burnaby

      Le Marchant, Spencer

      Stanley, John

      Edwards, Nicholas (Pembroke)

      Lewis, Kenneth (Rutland)

      Steen, Anthony (Wavertree)

      Emery, Peter

      Loveridge, John

      Stewart, Rt Hon Donald

      Ewing, Mrs Winifred (Moray)

      Luce, Richard

      Stewart, Ian (Hitchin)

      Fyre, Reginald

      McAdden, Sir Stephen

      Stradling Thomas, J.

      Farr, John

      MacCormick, lain

      Temple-Morris, Peter

      Fell, Anthony

      Macfarlane, Neil

      Thomas, Rt Hon P. (Hendon S)

      Finsberg, Geoffrey

      MacGregor, John

      Thompson, George

      Fisher, Sir Nigel

      Marshall, Michael (Arundel)

      Townsend, Cyril D.

      Fookes, Miss Janet

      Males, Michael

      Trotter, Neville

      Forman, Nigel

      Maude, Angus

      Vaughan, Dr Gerard

      Fowler, Norman (Sutton C'f'd)

      Maudling, Rt Hon Reginald

      Viggers, Peter

      Gardiner, George (Reigate)

      Maxwell-Hyslop, Robin

      Wakeham, John

      Goodhart, Philip

      Mayhew, Patrick

      Walker, Rt Hon P. (Worcester)

      1622

      1623

      Warren, Kenneth

      Wiggin, Jerry

      Watt, Hamish

      Wigley, Dafydd

      TELLERS FOR THE NOES:

      Weatherill, Bernard

      Wilson, Gordon (Dundee E)

      Sir George Young and

      Welsh, Andrew

      Winterton, Nicholas

      Mr. Carol Mather.

      Question accordingly agreed to
      Amendments made to new clause: In subsection (2), leave out "3,500", "6,000", "8,500"and "10,000" and insert
      "2,625", "4,500", "6,375"and "7,500" in subsection(3), leave out "£,"8000" and insert "£6,000"
      In subsection (3), leave out "£"2,500"and insert "£1,875".
      In subsection (4), leave out 'september' and insert 'October'[Mr Robert sheldon]
      New clause, as amended added to the Bill.

    New Clause 2

      SUBCONTRACTORS IN THE CONSTRUCTION INDUSTRY
      'Subsections (2) to (5) of section 70, and Schedule 12 of the Finance (No. 2) Act 1975, shall cease to have effect on 1st June 1977.'—[Mr. Ridley.]
      Brought up, and read the First time.
      Mr. Ridley: I beg to move, That the clause be read a Second time.
      The new clause deals with arrangements in the construction industry in relation to tax certificates. The effect would be to remove the conditions in the Finance (No. 2) Act 1975 upon which a subcontractor may or may not be granted a 714 licence. This change is proposed by the Opposition because the evils that have resulted from the administration of the 714 scheme have become so damaging and so unfair that we feel that some way has to be found to right the grievances of those who have been held up, or not given certificates, or in many ways abused by the system brought in by the Government.
      That is not to say that we in any sense wish to condone tax evasion. The Financial Secretary would do well to avoid any argument of that kind, for the reasons that I shall give. We believe just as much as he does that it is important to stop tax evasion.
      The solution which we are offering to the Government to get them off their hook
      1624
      should not make it easier for tax evasion to take place or make the construction industry sub-contractor on all fours with any other self-employed person. Indeed, it would mean that sub-contractors in the construction industry would still be treated less favourably than most self-employed persons, because we accept that there should be a certificate. If it comes to that, I concede that it might be desirable to have a photograph appended to the certificate. But that certificate should be granted as of right to anyone who wants to practise his trade, and it should be possible for the Inland Revenue to trace tax evaders and tax offenders through the possession of the certificate.
      If it is argued that on any occasion someone could flee the country having not paid his tax, I remind the Committee that any self-employed person who is paid gross, and accounts for his tax later, is in a position, if he so wishes, to flee the country. It is wrong to single out the construction industry as being one in which that sort of thing is more liable to happen than in any other profession or industry. It is wrong to make a special case in the way that the Government have done in the past.
      Without going through the legislation, which is long and complicated, it is fair to say that the conditions that the clause seeks to remove can be boiled down to five. The first is that there should he a three years' experience before a tax certificate can be granted. In practice, this rule has worked extremely hardly. We have examples of men who have been abroad for a year or two, then come back, skilled and reliable people, but who have been refused certificates simply because they have been away. We have examples of people who have been in prison, and on release, far from being rehabilitated back into activity, have been refused certificates for that reason. We have examples of people who have been unemployed who, far from being helped back to work, when they got a contract to carry out were prevented from doing the work by not being allowed a certificate.
      This cannot be right. It simply cannot be a necessary condition that the

      1625
      three-year rule should apply. Today, I heard of the case of a man who had been working abroad. When he came home, he was unable to get a certificate because he did not have a three-year qualification. He was then unable to draw unemployment benefit, because he was self-emyployed as opposed to employed. He had to move out of the family home and leave his wife in order to qualify for unemployment benefit. To do that sort of thing to skilled craftsmen in the building industry must be wrong, and the Financial Secretary must know that it is wrong if he has any sense or compassion to bring to bear on the problem.
      Next, there has to be a bank account. That condition seems to be totally unnecessary. It has not caused the maximum of difficulties, but there have been a few cases in which the failure to have a bank account has resulted in the refusal of a certificate.
      7.0 p.m.
      Next, proper records have to have been kept, and then there have to be proper premises, stock and equipment. There have been many cases in which certificates have been refused on these grounds. I should like to quote only one. It came into my hands this afternoon. It is the case of a Mr. F. J. Lynn, of South Park Road, Wimbledon, who was a general foreman who worked as self-employed and went on to various contractors' sites in order to manage the job for them on a contract basis—a very skilled and senior man in the industry. Because of a mix-up by the Revenue in past year, he lost his earlier certificate.
      The story will be coming to the Financial Secretary from the wretched man's Member of Parliament, my hon. and learned Friend the Member for Wimbledon (Sir M. Havers). It is one of Revenue muddle and confusion, resulting in the man being unable to work, over a year ago. When it came to his wanting to apply for a new 714 certificate he was unable to do because—I quote—
      "I do not employ anyone, nor have to supply any materials or have any capital outlay, to enable me to carry on my work. I simply was employed by various firms as a freelance general foreman."
      As such, he is outwith the conditions, and he did not believe that he would be given a certificate if he applied. He concludes,
      1626
      "I am left to wonder, as the bills mount up, and the situation gets steadily worse—how can it be that a competent, skilled man is in this position, with work available at this very time, is prevented from doing it and is left a burden on the State, living on a minimal amount, when all I ever wanted was to continue working in the capacity for which I have trained and worked for since I was 15 years of age?"
      This really is not good enough.
      The final condition, as the Committee will know, is the quizzical one of whether there have been tax irregularities in the past. The first point that I want to make about this matter is one that shocks me profoundly. There have been a number of cases that have come my way and to some of my hon. Friends. With greater or lesser diligence, according to the time at our disposal, we have corresponded with tax inspectors and the Financial Secretary about these cases. I must say that in my own case, where I have pressed a case, I have nearly always succeeded in getting the person concerned a certificate. I think that my hon. Friend the Member for Eastbourne (Mr. Gow) has had a similar experience with a case about which I hope he will tell the Committee.
      There is prima facie evidence that if a Member of Parliament makes a stink about the refusal of a 714 certificate it is likely to result in a certificate being granted, whatever the tax irregularities. I am only sorry for the thousands of people who have been refused who have either not had Members of Parliament who would take the trouble to fight their case or not had the knowledge and bravery to involve their Member of Parliament in fighting it. That seems to me to be a most unsavoury position to have reached.
      I have succeeded in one or two cases. I am interested to ask the Financial Secretary at this stage about one case that I think it justified that I should name. I quote the Financial Times of Monday 9th May in relation to the J. Murphy company. It says:
      "In March, 1976, Murphy and its subsidiary, J. M. Piling, were fined a total of £575,000 in connection with payments to labour only contractors following the 54-day 'lump' trial at the Old Bailey. Three executives were each fined and given gaol sentences."
      That is a large company that employs over 2,000 people. I ask the Financial Secretary whether it is to be given a 714 certificate, because if ever there were

      1627
      tax irregularities this clearly is proven to have applied to that company? I do not wish it ill, but it will be very difficult for the Financial Secretary to justify to very many small men why they should be refused certificates for alleged improprieties when a company against which a case has been proven in the courts is to be given one. I hope that everybody will be given one.
      If we fail in the clause, I hope that we shall return to the matter in Standing Committee upstairs in order to move new clauses that will at least reduce the onerous nature of these conditions and that will also provide a channel of impartial appeal—particularly on the tax aspect, which is another unsavoury feature of the whole matter.
      However, I must point out that with the experience of a few weeks of operation since the scheme came into force, the worst fears of Opposition Members have been fulfilled. The injustices are rife. Moreover, our allegations that the refusal of a 714 certificate was the denial of the right to work, and that the certificate was in fact a licence to work, have been proved more and more true.
      I should like first to tell the Committee that it has recently come to my notice that the big ready-mixed concrete companies have started refusing to supply ready-mixed concrete to people who have not got 714 certificates unless they pay either in cash or in advance. Further, all sorts of suppliers in the building industry are starting to treat the refusal of a 714 certificate as a sign of uncreditworthiness, and some of the credit rating agencies are putting such people on their lists, for no other reason whatsoever than that they have been refused a 714 certificate.
      The same appears to be true of the suppliers of diesel oil, who have interpreted the refusal of a certificate as the existence of doubt about the financial stability and the creditworthiness of people who have not got such certificates.
      That is a very sinister development. It proves not only that the denial of a certificate makes it harder for people to survive financially but that all sorts of extraneous factors may be brought up against them by the private sector as well
      1628
      as the public sector, making it very difficult for them to get work.
      Another example that I have is a specification for a tender, sent out by Lambeth Borough Council—a bill of quantities. Condition 17 provides that
      "The Contractor shall only engage bona fide Sub-Contractors who comply with the Declaration of Intent as set out in the terms of the National Joint Council for the Building Industry and the Contractor or his Sub-Contractors shall under no circumstances engage self-employed operatives."
      There it is. There is a local authority doing exactly what the Government told us a month or two ago when we last raised this matter that local authorities would not do. Is the Financial Secretary going to make sure that this sort of thing is stopped immediately, or will he allow councils who so misinterpret the position as to do things like that to persist in their wrongful ways?
      The effect of all this is not to suppress the small man. It is not to make him, overnight, into that horrible concept of the Financial Secretary's—a good taxpayer. It is to drive him underground. More and more of these people are resorting to earning their livings in the only way that they can, which is by continuing their trade but not working for local authorities, and working for cash only. Probably the effect of what the Financial Secretary, in his foolish way, has done is to increase tax evasion, because if a man does not get a 714 certificate and goes moonlighting the Revenue gets precisely no revenue at all. It may well have had the effect of reducing the amount of revenue and increasing the amount of evasion.
      My hon. Friends and I have considered deeply what to do about this matter. As I have said, we do not believe that we should do anything that increases the chance of evasion. That is one of the reasons why, as I have just said, I attack the present situation.
      If, by granting a certificate automatically and as of right, we can get away from all the unpleasant and undemocratic stuff that I have been talking about on this occasion and on previous occasions, it will be a redress of the grievance that the 20,000 people who have been refused certificates quite rightly feel, as do my hon. Friends and I. If that can be done

      1629
      without putting the Revenue at a disadvantage in the proper collection of tax due, why not?
      It is up to the Financial Secretary to tell us, if he can, why the solution that I propose would not work. I am certain that he will simply flannel and rely on the fact that he believes that it is necessary to have these conditions. That will not be acceptable. The right hon. Gentleman must prove to the Committee, if he is to resist the new clause—which I hope he will not—that to rely upon the certificate only and to use that as a means whereby the Revenue can trace tax dodgers and evaders is satisfactory.
      The Financial Secretary must convince the Committee that there are grounds for arguing that, because these people are in the building industry, more onerous conditions should be imposed upon them than on, say, accountants or other self-employed people. If not, he will have the clause pressed upon him and, I hope, attached to the Bill.
      When we last debated this matter—before the disastrous spate of by-elections, which cut the Government down to size—the Liberal Party, the Scottish National Party, Plaid Cymru and the Ulster Unionist Party, so ably and fully represented here at the moment, found it right to vote with the Conservative Opposition. Members of those parties are no doubt so convinced of the case that none of them has felt it necessary to refresh his memory about the rights and wrongs of it. I think that the Financial Secretary will find himself in a tight corner. Therefore, I hope that he will do his best to persuade us that we are wrong. If he fails to do so, I assure him that we shall press the clause to a Division.
      Mr. Nick Budgen: It would perhaps be reasonable for the Government to persist in their onerous and arbitrary demands on sub-contractors in the building industry if they were able to persuade the Committee that many large contractors within the industry were prepared to offer permanent, regular employment to those who are otherwise driven on to social security as a result of being denied 714 certificates. But it must not be forgotten that, among the great industries that have suffered from the recent recession and have least benefited from the various
      1630
      forms of arbitrary and discretionary Government handouts which have been showered upon the more-favoured sectors of the economy, unhappily the construction industry generally has suffered most of all during the last two years. Therefore, it can properly be said that those who are denied 714 certificates are in a difficult position.
      The general position in the construction industry is uncertain. It started—I have to add a note of some criticism here against the Conservative Party—by being grossly over-stimulated during the period 1971 to 1973. The industry was then hit by cuts in public expenditure at the end of 1973. It was hit again by the introduction of the development gains tax, the Community Land Act, the development land tax and, again, recent cuts in public expenditure which, although in general I welcome them, concentrated overwhelmingly on the capital side. The construction industry has been hit, hit and hit again.
      7.15 p.m.
      Let us understand who is being hit. I see my hon. Friend the Member for Folkestone and Hythe (Mr. Costain) nodding in agreement. If he will forgive my embarrassing him in this way, the great company which bears his name has been extremely successful in contracting in the Middle East. That is splendid for the architects, for the surveyors and perhaps for those who lend money to that great company. However, it does not help the chap in Wolverhampton who wants a 714 certificate to do a bit of plastering. That kind of chap will not be employed on a large contract, perhaps in Dubai. Essentially, the professional and middle-class people benefit from that kind of work.
      Mr. A. P. Costain: I agree with my hon. Friend. Does he realise that many artisans and foremen who go out to Dubai in the Middle East to get some capital free of tax with the object of coming back and starting small businesses are completely stopped from doing so because of this problem?
      Mr. Budgen: I appreciate what was said by my hon. Friend. This evening I am making a plea not so much on behalf of foremen but on behalf of

      1631
      those who would otherwise be employed—persons who do not have many skills.
      For example, my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) referred to the chap who has just come out of prison and who in the past would have been employed as a bricklayer's labourer on a building site. Today, if he goes to Tarmac in my constituency and asks for a job, it has to be explained to him that, because the overhead costs of employing a man are so high and the uncertainty of the trade is so great, while the company might be able to give him some work as a sub-contractor it dare not introduce him on to the payroll generally as an employee.
      Let us consider the overhead costs which have been added to employing a man. I make no criticism of the concept of redundancy payments. However, when employing a man today a company must contemplate the possibility that he may become redundant, in which case he will have to be paid a substantial capital payment, largely at the expense of his employer.
      It is necessary to make proper provision for a pension for a man who may be employed by a construction company—again, in an uncertain trade climate. The Employment Protection Act makes it difficult for an employer to respond to changing conditions in the trade. The minimum wage legislation is often referred to by Labour Members. Minimum wage legislation, at a time of high unemployment and when that legislation is fiercely and vigorously forced upon employers, creates more unemployment. The consequences are to make it more expensive for the big construction companies to employ men on a permanent basis. Therefore, the only way in which many men—men who are weakest in the job market—can get any work is to become self-employed, to work for themselves and to sub-contract out their work.
      These men—many of the weakest people in society who most need help—are being harried at a time when they might reasonably say to themselves "The social wage, or whatever that silly expression these stupid people on the left wing of the Labour Party talk about, is so high that we might as well sign on the labour." They possibly would not understand the clever economist's
      1632
      term, but they would know that the social wage was indexed. They would know that most other people did not have wages or receipts which were indexed. A man in that position could say "I am better off signing on the labour than going through the agony of trying to register as a sub-contractor in the building industry, in which people like myself who do not have too many skills have traditionally found work."
      That is not the position in today's world. We now find that those self-reliant people are an affront to the Socialist concept of having most of the building work within the great companies or, better still, no doubt, within the direct labour organisations. That concept is also an affront to the Labour Party's masters in the trade unions.
      Tonight the Conservative Party should once again be the party that stands up for the little man. Most of all, we should stand up for the little man who is trying to rehabilitate himself. We should stand up for the chap who has no skills or who has just come out of prison and wants to do better for himself and his family than signing on at the labour. Those people are among the thousands who are unemployed as a result of the uncertainties in the construction industry. Our fight is on behalf of economic sanity and compassion for some of the weaker sections of our community.
      Mr. John Wakeham: I support the clause, for many of the reasons that were so eloquently given by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). It affects small sub-contractors trying to earn a living in difficult times, but the present situation also affects some of the major sub-contractors. Some substantial companies must abide by these regulations. In some cases, when they are working for overseas principals on contract in this country, they must go through all this rigmarole. That is damaging to the standing of some British companies, which should be well above having to deal with tax evasion. They, too, must produce certificates. Nobody could seriously think that they should be included in this scheme.
      I turn to the central question. I ask the Financial Secretary whether all this is worth while. I asked him a question on this subject in our last debate. The Financial Secretary said that we were talking

      1633
      about tax evasion, which is costing the Revenue about £10 million. I wonder whether the whole process is worth while. There are substantial arguments against it. The Financial Secretary owes it to the House to give a clear indication why he believes that a tax loss of £10 million justifies all the extra bureaucracy, the attacks on personal freedom and the many undesirable activities about which we hear.
      The same principle is at stake as was at stake in the previous debate. We should consider the compliance costs—the costs to the honest taxpayer and to the Revenue of administering the new scheme. A modest assessment of the cost to the taxpayer is about £25 per head. If about 400,000 certificates are involved, I calculate that to cost about £10 million—the total amount of revenue that is being lost. The Inland Revenue costs must be similar. It appears from those calculations that the scheme will cost about twice as much as the amount of tax lost. We would all like to see that revenue saved, if it were practicable.
      I hope that the Financial Secretary will consider carefully any compliance costs that he may be given. The compliance costs that he gave in the last debate did not stand up to one minute's examination. The Financial Secretary said that the costs of compliance were 2p in the pound. That means that a trader with £10,000 worth of output would have compliance costs amounting to £16. I do not think that is correct.
      Mr. Robert Sheldon: There has been a misunderstanding about this issue. Compliance costs represent the cost to the trader. I was talking about official compliance costs. I am sorry about the jargon, but there is a difference between the cost of collection and the other aspects. I was talking of the official compliance costs and comparing them with the total costs of administration. The hon. Member for Maldon (Mr. Wakeham) is talking about the cost to the trader in terms of the paper work required of him.
      Mr. Wakeham: I must be careful not to stray back. In the previous debate our case was that the cost to the taxpayer must be considered when justifying any legislation. Some of us accepted the
      1634
      information that we were given, but I did not fully understand at the time.
      I hope that the Financial Secretary will tell the House the true cost to the country as a whole—that is, the cost to the honest taxpayer and others, as well as the cost to the Revenue for administering the scheme. I say that the cost is twice as much as the revenue loss. I base that conclusion on the Financial Secretary's figures.
      We shall return to the subject in other debates. It is a much neglected side of our Revenue practice and taxation. The cost of compliance with complex legislation is becoming more of a burden. We must consider not only the uncertainty but the cost of compliance. I ask the Financial Secretary to try to justify the amount of revenue and the compliance costs and to see whether the sums add up. I do not think that they do.
      Mr. Costain: I support the new clause. As my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) said, I have had a number of years' experience in the building industry. I recognise the effective role of the labourer in that industry. All my life I have found a prejudice, particularly by trade unions, against self-employed labourers. The trade unions feel that they are losing members. That is not true.
      I shall explain to the House the necessity for labour-only sub-contractors. Well over half the new houses in this country are built by contractors who never build more than 25 houses per year. Maintenance is usually carried out by small firms. Only when one recognises that can one appreciate the need for labour-only sub-contractors.
      A firm building 25 houses per year cannot keep a permanent gang of bricklayers on its staff. There are not enough bricks with which they can build. One man could build one house per year, but in each house 15 to 20 different trades are involved. A lavatory pan could probably be fixed in a day, but small firms must rely on labour-only sub-contractors to do that job. If they did not they would have permanently to employ such labour. That would increase the costs of houses.
      I know that there have been tax evasions. I was a member of the committee that exposed the so-called Luton

      1635
      evasions. Large sums of money were involved. The evasions started because it had not been made easy for a small contractor to understand the machinery required for tax collection. He started off without the proper machinery and the evasions went from bad to worse.
      7.30 p.m.
      My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) apologised on behalf of the Conservative Party for an overheated economy. But what overheated the economy in 1971–72 was the legislation brought in by the Labour Government to give grants for alterations and improvements to hotels. It started with the very best of intentions but it concentrated the specialised labour for plumbing. The grants given for bathrooms to be put into hotels concentrated plumbers and individual craftsmen into this activity and put the whole thing out of balance. That is where the overheating started.
      There is another factor that has altered in my lifetime in the building industry, and that emphasises how essential it is to have the small labour-only sub-contractors. When I was a youth, building labour expected to travel all over the country. Men expected to follow their employers throughout the country. Nowadays, because of the shortage of housing and the effects of the stupid rent legislation—I should be out of order if I were to elaborate on that—people want to live near to their place of work. Travel is now so expensive that they want a job as near as possible to where they live.
      The labour-only sub-contractors can concentrate and spread their work over 10, 15 or 20 small firms in an individual town. I recently had a flat altered for myself in my own constituency. I wanted to employ as much local talent as I could. I employed a small contractor to do the work but I do not think there was ever more than one man in his permanent employ.
      The Treasury ought to make it extremely simple for a man to set up in business and get on the register. What did the Government do in the case of gun licences? They did not make it difficult for people to get licences. They made the cost of the licence extremely cheap—five shillings for three years—in
      1636
      order to get people to register. Then, once they were on the register, they could follow it through and see what was happening.
      Many artisans—bricklayers, carpenters and plumbers—have all their lives had the ambition to set up in business for themselves. Most of the large firms, including my own, started as labour-only sub-contractors. Sir Malcolm McAlpine used to tell how his first job was as a labour-only sub-contractor building a signal box at the time when the railways were being constructed. All these big firms have developed in this way.
      Artisans go abroad on a three- to four-year contract and, because there is no tax deducted, they can save £6,000 or £7,000. That is enough to enable them to come back to this country and start a business. But, unfortunately, because they have been away for three years, the regulations prevents them from commencing.
      I should like to have a definite reply from the Minister about the position in terms of the Common Market. I understand that we are bound to give equal employment to, say, a French contractor who wishes to come over to this country and start in business, employing two or three men. But how is he able to get a start? Our regulations prevent him from starting up. Is not this contrary to the treaty? As I understand the position, unless a man has been operating for three years in this country he cannot start a business.
      If the Government were to look at this question again and accept the clause they could achieve a good deal by it. If they fail to accept it, these small gangs of men will do moonlighting, going round from house to house in the manner of window cleaners. They will be employed by housewives to carry out small extensions to houses, they will be paid in cash, and the Revenue will lose all the tax. The Government are following a very short-sighted policy. I hope that the Minister will accept the clause. It is the sensible thing to do.
      Mr. Ian Gow: If the Government were to agree to the clause, it would remove the pernicious Schedule 12 from our legislation with effect from the first of next month. Schedule 12 applies to four categories of sub-contractor—individuals, partners, firms and

      1637
      companies. There are separate parts of the schedule which refer to those four categories of sub-contractor.
      My hon. Friend the Member for Maldon (Mr. Wakeham) talked about the effect of the schedule upon the larger sub-contractors. I want to concentrate solely upon the individual sub-contractor, the smallest man—the very man in the category in which we are most likely to have an expansion in employment. For the small man in particular, the granting or withholding of a No. 714 certificate is literally crucial to his right to work. For the small man, the single operator, a 714 certificate means that he can work. The withholding of a 714 certificate means that he cannot work.
      If, therefore, through our tax legislation we are to make it a condition, so clearly and so unequivocally, that the whole right to work depends upon the issuing of this certificate, we must be absolutely certain that we frame our tax legislation in such a way that it gives every encouragement to employment and every discouragement to unemployment.
      There is common ground about that between the Financial Secretary to the Treasury and my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). If I may say so, I thought that my hon. Friend was a little unfair to the Financial Secretary, because what has happened this evening is what has happened so often before. The Financial Secretary does not have his heart in the speech that he will be making in a few minutes' time.
      Mr. Budgen: He does not have one.
      Mr. Gow: No. That is the tragedy. The Financial Secretary does care about this, but he now has to go through the journey of extricating the Government from a position which is totally indefensible. He has to make the journey from the Finance (No. 2) Act 1975 to reality. Some concessions will be announced this evening. There will be an undertaking that the Government will look at it again. There will be a reference to the courtesy with which he writes to Members of the House who take up issues with him.
      The objectives of my hon. Friend here are the same as those of the Financial Secretary—to get back to sanity. The difficulty is that we shall not do that until
      1638
      my hon. Friend the Member for Cirencester and Tewkesbury is occuying the ministerial position now occupied by the right hon. Gentleman.
      When we had our earlier debate on 9th February on the subject of the 714 certificate, I explained the amazing case of one of my constituents who had been refused a 714 certificate because he had grown a moustache. Happily, following representations that were made to the Inland Revenue, despite the fact that he had grown a moustache, the decision to withhold a certificate was subsequently reversed. I am glad to say that my constituent is now working productively with others and has been able to reduce the unemployment in South-East England.
      But there is another case to which I wish to draw attention because it shows how the Government have produced regulations which fly in the face of their objectives. Schedule 12 sets out some of the requirements which have to be met before a 714 certificate can be issued. The regulations about moustaches appear in the Statutory Instrument, and I am concentrating on the schedule.
      One of the conditions for the issue of a licence to work is that the business is carried on from proper premises. It should not be for the inspector of taxes to decide whether the premises are proper. What does the word "proper" mean? A small sub-contractor may have all the tools of his trade in his own back garden. If my hon. Friend's clause is passed, it would not be up to the Inland Revenue to decide whether premises are proper.
      I come to the next requirement which has an effect which, it appears, the Government did not intend to introduce through the regulations. It is that no certificate shall be issued to an applicant unless he has been in employment for three years before the date of the application. That, too, is provided for in the schedule.
      In March this year a constituent of mine, a Mr. Knight, who is a painter and decorator, received a letter from the Inland Revenue which stated:
      "It is a requirement of the Finance (No. 2) Act 1975 that the applicant must have been employed or self-employed throughout the three-year period preceding application. As you were unemployed for 26 weeks in 1974–75, this requirement is not met."

      1639
      So Mr. Knight, who had undergone the misfortune of being unemployed, suffered from a further burden. Unemployment is a misfortune which has afflicted many of our citizens since 28th February 1974. I predict that it will afflict still more of them and that it will therefore become increasingly difficult to meet that requirement. In 1975, when we were debating that Finance Bill, the number of unemployed was significantly lower than it is today. As this Government have proceeded, so the number has risen. I do not believe that when the Government passed the Act they envisaged its pernicious effects.
      Having inflicted the misfortune of unemployment—which, one might say, was an involuntary action on their part—on certain people, they are now inflicting a further burden by denying these people the right to work even though they could do so. I do not believe that that is he Government's intention, but that is how the inspector of taxes sees it.
      I have with me a courteous letter from the Financial Secretary—and I must say that all the correspondence from the right hon. Gentleman is of a most courteous nature—dated 9th May in which he apologised for the decision in that case. The 714 certificate has now been issued to Mr. Knight in spite of his period of unemployment in 1974–75. The worrying aspect of the case is that if representations had not been made by a Member of Parliament Mr. Knight and the man who grew a moustache would both still be out of a job, because they would not have had their 714 certificates.
      Mr. Budgen: Will my hon. Friend explain how in law it was possible for the Inland Revenue to grant that certificate to Mr. Knight when so plainly his constituent did not conform to the admittedly ridiculous regulations which are laid down?
      7.45 p.m.
      Mr. Gow: My hon. Friend has raised an important point. if the regulations were interpreted strictly, as the inspector pointed out to me in justifying his decision, my constituent would not have got a certificate. This, therefore, is what would be described as an extra-statutory concession.
      Mr. Budgen: In that case, the inspector of taxes was unlawfully making the law and abrogating to himself the role of the Queen in Parliament.
      Mr. Gow: My hon. Friend will know well that a number of extra-statutory concessions are granted by the Revenue. I am not complaining that that power was exercised in this case by the Inland Revenue. I am complaining that we should have had these absurd regulations in the first place. My hon. Friend's new clause would remove them.
      In his letter of 9th May, the Financial Secretary explained this to me. He said:
      "At the same time, however, it has been recognised that the three-year requirement"—
      that is, the requirement of employment—
      "could bear hardly in some instances, and Inspectors have been authorised to ignore short periods of unemployment or absence, when these car, be fully documented and when the applicant's credentials are fully satisfactory in other respects."
      Again, I emphasise how courteous the right hon. Gentleman was in his letter. He concluded:
      "I would, however, once again extend my apologies to you and to Mr. Knight."
      The difficulties to which my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) referred could be removed at a stroke by the Financial Secretary accepting the amendment. We know that the new regulations, brought in understandably to try to end a certain amount of tax evasion, have proved sweet to the taste but have caused indigestion most sour. They have soured the small sub-contractor. They have eroded the ability to find work at the very time when we should be increasing the opportunities to do so. They have put one more nail in the coffin of mistrust between taxpayer and Inland Revenue, between Government and governed, and between people and Parliament. The regulations are recognised more and more by those who have to operate them as being unjustified, unjustifiable, complex and unfair.
      Mr. Peter Rees: I rise to intervene briefly in the debate. It is worth commenting that this is the second time in three months that the House has had occasion to return to these regulations which conceal the particular aims and principles that are being forced into the open by the activities of Conservative, Members. It is noticeable that

      1641
      no single hon. Member from the Labour Party, the Liberal Party or the Nationalist parties appreciates what is at stake in these regulations.
      I agree with my hon. Friend the Member for Eastbourne (Mr. Gow), although I cannot match his eloquence. I was struck by the metaphor that he used—"the nail in the coffin". What is being laid to rest in this coffin is the confidence between the general body of taxpayers and the Inland Revenue.
      It is obligatory to start our interventions in debates like this by saying that we have no truck with tax evasion. I shall also make that declaration. It is no part of our public duty in this House to hold any brief for evasion, but it is right to consider whether the remedy on occasions may not be worse than the disease.
      It is amazing, in fact almost grotesque, that the party opposite has at last discovered that evasion and avoidance are not the monopoly of one particular economic or social class. With the tax structure and the rates of taxation that exist at present—and we debated this fully earlier this week—there is a pressure to avoid, and I am afraid that at the margin there is a pressure to evade right throughout the country.
      I may be out of order in saying this but I think that the real remedy is for the Government to take a fundamental look at the whole tax structure and the rates of taxation. Only when we get the top rates down to 30 per cent. and the lower rates down to 5 or even 2 per cent. perhaps—and it is just perhaps—there may be a change in the attitude of taxpayers. There may be a return to the simpler arcadian era of the 19th century when it was almost a matter of national pride to pay taxes. But I must admit if we look back to the 18th century we find that individuals of every class in the community were concerned with avoiding excise duty—I am afraid it is a sad commentary on human nature.
      I do not wish to add to what my hon. Friend the Member for Folkestone and Hythe (Mr. Costain) said in his analysis of the problem. He speaks with direct experience of the construction industry. I speak with only second-hand knowledge which I have gleaned from talking to friends in the business. I add this interesting little statistic in the vain hope
      1642
      that it may evoke a flicker of response from the Financial Secretary. I was talking to a representative of a distinguished construction company—perhaps what my hon. Friend the Member for Folkestone and Hythe would admit as being in the higher echelons of the industry—and he said that in normal years—and we are talking about an industry that is in recession, but may be poised for an upturn depending on the outcome of this debate—one-third of his turnover would be paid in wages to direct employees, one-third would be spent on materials and one-third on payments to self-employed sub-contractors. That demonstrates the scale of the problem unless the Government devise an acceptable solution.
      When the next upturn in the economy comes—and the Government are desperately pinning their hopes for electoral survival on economic upturn—it must certainly start with the construction industry and then work its way through the rest of the economy. If we cramp the style of genuine construction companies we may find that one of the consequences will be to divert work to direct labour departments of local government. This may be the effect underlying these regulations. One is compelled to look past the fiscal scene and consider just how disinterested, in a political sense, the Financial Secretary is in supporting these regulations. It may be that he feels that this is a suitable way of diverting business to direct labour departments. Whether he will be successful in the light of the recent local government election results remains to be seen. I hope that with the benevolent connivance of the Chair we may debate this important question again.
      The alternative to diverting work to the direct labour departments will be the formation of a twilight or underworld of individuals or small groups operating exclusively for cash, outside the law regardless of what happens, and offering a service to those who are prepared to take a chance. This would be a desperate situation and for a marginal loss of tax it is not one that we should lightly contemplate.
      I have focused for a moment on the details of the conditions required for a certificate, which is, in effect, a licence to work—let us be under no illusions about that. These are the conditions imposed

      1643
      by statute. It will be interesting to see in practice how readily the conditions can be met or how necessary it will be for the individual Inland Revenue inspector to bend the law.
      My sympathy goes out to the individual inspector. The vast majority of inspectors are men of humanity and practical experience and they know that the world of commerce and industry must go on. They know that unless wealth is generated in the construction and other industries, what we do here in this House is a matter of irrelevance. We should not put them in the position of having to introduce on their own authority what I might charitably call "extra-statutory concessions" but which are, in fact, flat breaches of the law.
      In the last debate on 9th February I put a variety of rather precise questions to the Financial Secretary and he did not have time to answer them then. But with his habitual courtesy he wrote me a full letter, and I pay tribute to him for his courtesy and thoroughness in answering my points. However, I must confess that I remain doubtful. Perhaps the Committee would allow me to uncover the points that I raised with him then.
      The requirement in the Twelfth Schedule of the Finance (No. 2) Act 1975 is that business should be carried out on proper premises with proper equipment and other facilities. One understands the general drift of that. If proper premises can be identified, one can reasonably infer that the business is being properly conducted. But we are not talking about companies such as Taylor Woodrow and Costain. We are talking about small groups of men who may have to move across the country to find work—that is their utility. Will the tax inspector be satisfied when that man says that he has a house in Deal but his business takes him to Newcastle because that is where work is booming and he is looking for work? Will the inspector be prepared to accept that the man has premises at his home in Deal but he is operating nearly 400 miles away? This is a question of delicate judgment for the individual inspector. Will the man be required to produce the title deeds for his house in Deal? Will he have to demonstrate that he has a proper lease with the full panopoly of the law, or is this just a
      1644
      sham to terrorise people? These are practical questions. It may be that they are the sort of questions my constituents will ask me. They have to be answered by the individual inspector across the table to the individual applicant. I hope that the Financial Secretary will give us up-to-date figures of the number of applications waiting to be processed and the length of time these are taking.
      There is a question of plant. The Financial Secretary, with his usual acumen, said in his letter to me:
      "Clearly, some trades require substantial premises, including a yard (and anyone who, for example, said he was running a plant-hire business but had no yard and no plant would have difficulty persuading the Inspector that he was genuinely self-employed)."
      We can all produce extreme examples but it is examples at the margin with which we are concerned. How will the inspectors act? Will they go round examining premises? Will the plasterer arrive at the inspector's office with his plastering equipment? These are practical problems that do not admit of a glib answer.
      Mr. Ridley: In the case I quoted to the Committee involving the gentleman who is a self-employed foreman, how can he acquire either premises or a yard?
      8.0 p.m.
      Mr. Rees: My hon. Friend's question is both to the point and unanswerable. I suppose he comes to the inspector's office and shows him the callouses on his hands and says "Look at my hands, look at my face which is etched deep with lines of anxiety and responsibility. I am a centurion, a leader of men, and you must take it from me that I am doing this work."
      Mr. Costain: The man will probably arrive in a donkey jacket with a contractor's name written on the back.
      Mr. Rees: This discussion exemplifies the fact that, however unregarded we may be by millions outside, on any topic, however technical, there is always some hon. Gentleman who can speak from direct experience. I am grateful to my hon. Friend the Member for Folkestone and Hythe for drawing on his experience. That will provide the inspectors with the kind of overt symptoms they can look for.

      1645
      I also raised with the Financial Secretary following the previous debate the question whether the unfortunate applicant will he able to convince the inspector that his tax affairs were in order. The Financial Secretary blandly replied that where the Government felt there was a genuine difference of opinion between taxpayers and inspector, and where the liabilities had not been settled for that reason "that in itself will not be a reason for delaying the issue of a certificate".
      But what constitutes a genuine difference of opinion? The genuineness of the situation apparently is to be judged by the Inland Revenue. I must confess to a slightly partisan view. I do not believe that a person should be judge and jury in his own case. I am not utterly persuaded that our tax gatherers, with their well known integrity but also with their zeal for public service, can be relied upon in every case to detect a genuine difference of opinion.
      The Financial Secretary may say that these matters can readily be determined by the appeal commissioners, but I understand that this matter will not be within their discretion. Therefore, there is no remedy on that score. All an applicant can do is throw himself on the mercy of the inspector and say "I implore you to accept that there is a genuine difference of opinion between us".
      I come finally to the most outrageous matter introduced in Schedule 12—namely, that the applicant should have minimum insurance cover against public liability for £250,000. In the previous debate I adduced the case of a plasterer in Sandwich, Deal or Dover in my constituency and I asked how such a man would obtain cover. This is an immense burden to place on the small man or the small gang. Are they expected to go to a Lloyd's broker or to an insurance company and to say "We want this cover—what will be the charge in premiums?". The Financial Secretary in his letter replied:
      "I accept that there will be some, such as plasterers, whose occupations expose them to far less risk of incurring claims to damages than others, but insurance companies take this into account when fixing the level of premiums, and I would expect a plasterer to be able to get the necessary cover at relatively low cost,"
      I wonder why the Government have tried to slip this provision into what is
      1646
      essentially a fiscal matter. This induces in me the perhaps unworthy suspicion that this is not essentially a fiscal matter, but is aimed at the self-employed—those who are operating on the margins. I suspect that this is being introduced at the behest of the big battalions in labour, the trade unions who wish to see these people gathered into the fold, such as the Transport and General Workers' Union. This is a Jack Jones benefit measure. I appreciate that he is having his day and that he has his friends on the Government Front Bench, but he should not use them in this way.
      At the end of the day it appears that the Government would prefer to exact the last penny in taxation than to take steps to help the construction industry. The test is whether we want to see the construction industry ready and able to take advantage of the next upturn in the economy, or whether we wish to see a queue of disgruntled applicants outside the offices of the local Inspector of Taxes and eventually outside the Social Security offices. I am sure that the Financial Secretary who is a reasonably modest man—I shall not say a humble man—will recognise that there is some force in our arguments. I do not claim any direct experience, but we have had direct experience given by Opposition Members this evening. I therefore hope that the Minister will recognise that it is worth sacrificing a little tax at the margin, and that it is worth affronting Mr. Jack Jones in order to give a small measure of justice to those who on the whole have made their small contribution in the market places of this country.
      Mr. Graham Page: Mr. Robert Wilson, the President of the National Federation of Building Trades Employers, said in a speech the other day:
      "We believe that the whole thing has got out of control".
      He was referring to the 714 certificate system. If anybody should know how the system works, surely it is the President of the NFBTE.
      My hon. Friends have spoken eloquently about the conditions that have to be met under Schedule 12 of the Finance (No. 2) Act 1975—the schedule that the new clause seeks to obliterate. They have

      1647
      pointed to the extraordinary situation in which a person who wants to set up business on his own account is placed in view of the conditions set out in paragraph 1 of Schedule 12—for example, where the business
      "consists of or includes the carrying out of construction operations or the furnishing or arranging for the furnishing of labour in carrying out construction operations".
      Who would have thought that that provision would apply to carpet layers and landscape gardeners? Indeed, it has been so applied. The inspector says that they are substantial contractors, and therefore the view is taken that they are carrying out the terms of paragraph 1.
      Mention has been made of proper offices or premises at which a business must be carried on with proper equipment, stock and other facilities. But many successful small businesses are carried on from a man's own house, or involve the use of a room in that house. Are those to be regarded as proper premises? I am sure that the Financial Secretary will say "These regulations have been applied reasonably by the inspectors". But the examples given have shown that they have not been reasonably applied.
      I wish to draw attention to a statement issued by the Board of Inland Revenue relating to its policy on the issue, withdrawal and renewal of sub-contractors' tax certificates. Let me say for the record that I am quoting from the Income Tax Construction Industry Tax Deduction Scheme Appendix C. The statement says:
      "In the first place the Board wish to dispel any fear that the threat to withhold or withdraw a certificate may be used to encourage agreement with the Revenue's views in matters unrelated to the deduction scheme".
      Since that is said in that statement, it must show that the Board recognises that there is some fear and that that fear has been based on some sort of fact—some application of the system that has given rise to a fear in the mind of the public.
      The statement is trying to dispel the fear that the system will relate to matters unrelated to the system. It goes on:
      "When they are considering the entitlement of a business to the issue or renewal of a certificate, the Revenue are bound by the Finance (No. 2) Act 1975 to have regard to the extent to which there has been failure to comply with tax obligations."
      1648
      It says just the word "tax", not tax payable under this system or the tax that would be deducted if the certificate is not given, but any tax obligation. Having said that the scheme will consider merely the issue of the certificate it goes on to say that what must also be considered is the way in which a person has dealt with his tax affairs, and that if an inspector does not like it he can refuse the issue of the 714 certificate. This is enlarged on in paragraph 4, which says that:
      "Apart from irregularities in connection with the deduction scheme itself, examples of non-compliance with this order include failure to account for PAYE tax deducted"
      I am sure that a great number of right hon. Members have, in the course of their business or professional careers in or out of this House, occasionally omitted to account for PAYE deductions, perhaps for a month or two.
      The statement goes on:
      "continued failure to pay the business's own tax once the amount payable has been agreed, deliberate or reckless failure to meet normal obligations (including the settlement of accounts) or to answer inquiries".
      If one fails to answer an inspector's inquiry he may say that one is doing it deliberately and recklessly, and because one has done that in the past, perhaps a year or two ago, he may refuse to issue a 714 certificate. I give one further quotation. It comes from the last paragraph of the statement, which deals with the withdrawal of the certificate once it has been issued, and when it may be withdrawn during its period of validity. Many people do not realise that this can be done. An inspector can withdraw a valid certificate. The statement says:
      "it would be usual for the certificate holder to receive some form of preliminary warning."
      Can we believe that the Board of Inland Revenue could be so heartless as to withdraw a certificate without warning? The Board may do so. The statement says:
      "There may, however, be exceptional cases where immediate action, without warning, to withdraw the certificate will be the only way in which the revenue can be protected."
      Is that a reasonable way to apply these conditions? The Financial Secretary may say that if it is not reasonable one can appeal against it. I am not sure what the inspector had in mind in the case quoted by my hon. Friend the Member for Eastbourne (Mr. Gow), referring to his constituent, Mr. Knight. My hon.

      1649
      Friend made representations on behalf of his constituent. They were considered and, I gather, turned down by the inspector. However, later, because of pressure, the inspector wrote a letter. I have borrowed this letter from my hon. Friend the Member for Eastbourne, because it is quite extraordinary. It is a letter from the inspector of taxes to my hon. Friend's constituent, and it says:
      "If you do not accept the decision, written notice of appeal may be made to me within 30 days receipt of this notice. Arrangements will then be made for your appeal to be heard before the General Commissioners or, if you so wish, by the Special Commissioners, both of whom are independent bodies."
      One would have thought from that assurance that my lion. Friend's constituent could have gone before the general commissioners or the special commissioners if he had so chosen in order to put his case about having been refused a 714 certificate because he had not complied with the conditions under Schedule 12, and that he would have been heard. I certainly understood that to be the meaning of the letter.
      8.15 p.m.
      However, either the inspector who wrote that letter was trying to mislead my hon. Friend's constituent or he had not read the Act. If he had read Section 70(6) he would have seen that a person aggrieved by the refusal of an application for a certificate may give notice of 30 days—as the inspector said in his letter—and choose whether to go before general or special commissioners. He would have seen that:
      "the jurisdiction of the Commissioners on such an appeal shall include jurisdiction to review any relevant decision taken by the Board in the exercise of their functions under this section "
      However, we then come to the vital words:
      "other than a decision that an individual, a company or a firm is or is not to be treated as satisfying a condition set out in any Part of Schedule 12 to this Act."
      It is about those conditions that we complain, and that is why I support my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) in moving the new clause.
      There is no remedy for a man who applies for a 714 certificate and who is unfortunate enough to be refused because he is, like me, very bald and a
      1650
      year ago had a mass of hair. I could not go to the commissioners and say that that was a most unreasonable application of the conditions under Schedule 12. That is the real danger of the system.
      Mr. Gow:I am grateful to my right hon. Friend the Member for Crosby (Mr. Page), because he has drawn the attention of the Committee to a most important point, namely, do the commissioners have power to consider whether a refusal under the provisions of Schedule 12 is reasonable? My right hon. Friend has told the Committee that in his opinion and interpretation of the Act they have no such power. My right hon. Friend is right, but is he further aware that that interpretation is not the one that is being put upon the Act by the inspector of taxes? Further to the letter of 15th April that my right hon. Friend has just read out, the inspector of taxes wrote to my constituent to say that he had arranged for his appeal to be heard by the commissioners at their meeting on Thursday 5th May. Of course, it was only after the Minister intervened that we were able to withdraw the appeal, because the certificate was granted.
      I wish to draw the attention of my right hon. Friend to the fact that the inspector misunderstood the law.
      Mr. Page: I am much obliged to my hon. Friend the Member for Eastbourne. It seems that hon. Members must act as advocates and as general commissioners in these cases. There is no one else who can conduct or hear the appeal except the Minister so it is for us to persuade him—and not the general or special commissioners—by means of evidence so that he will give his blessing to the refusal of an application by an inspector because of some condition under Schedule 12.
      Of course, the inspector was quite right in saying that one can appeal to the general commissioners and that they will arrange for the case to be heard. The general commissioners can hear an appeal as long as it is not an appeal against the condition wrongly applied under Schedule 12. The inspector may lead an aggrieved applicant before the general or special commissioners believing that he will have the whole of his case heard. He may go there with counsel and solicitors, only to find that he is precluded under

      1651
      Section 70(6) of the 1975 Act from putting the very point that he wants to put.
      I do not say that the whole problem could be cured by removing that proviso, but this does show how unreasonable the application of the system as it stands can be. It demonstrates that it needs a complete revision, and I hope that the Financial Secretary will give an undertaking tonight to accept the clause. If necessary, it can be tidied up at a later stage. I hope that the Financial Secretary will accept what was stated by the President of the National Federation of Building Trades Employers—that the whole system has now got out of control.
      Mr. Robert Sheldon: This has not been a brief debate, and I do not complain about that even though we have debated the subject before. However, no one has mentioned the previous scheme that this system seeks to replace. Our system has only just come into operation, and one could be excused for wondering whether every hon. Member is aware of what is being replaced.
      The last Conservative Government tried to meet the problems that arise in this rather special industry with its rather special practices. During the 1960s, with the growth of evasion, attempts were made to trace people who regarded themselves, because of traditional practice, as self-employed and who were untraceable as they moved around the country pursuing their occupation.
      Faced with these difficulties, the Conservative Government produced a scheme to account for the tax paid by such people and it came into force in 1972. Its approach was the same as the approach of the present scheme, namely, to secure the deduction of income tax from those self-employed people.
      The sub-contractor's tax certificate that we have introduced is purely a response to improve provisions that were manifestly failing and were generally known not to be producing the results expected by the Conservative Government. We have tried to replace the inadequate certificates that led to considerable forgery, theft and impersonation and we have tried to cover all the categories affected. The previous certificates did not cover companies. Our scheme, which came into operation last month, provides
      1652
      for certificates that are proper security documents. They ask for proof of the taxpayer's reliability over the past three years. The requirement is to ensure only that people have been meeting their obligations in that period and are running bona fide companies.
      Everyone else undertakes to pay tax in accordance with the laws and regulations that we pass. We are trying to obtain tax from these sub-contractors, the majority of whom are individuals rather than companies. In other industries they will usually be employees, but in this industry they go around the country undertaking various tasks and we have to make special arrangements for them.
      Even if the people concerned are not able to meet the requirement of being able to show that they have paid taxes over the past three years—a requirement that every other citizen has to meet—the certificate still does not become a certificate to work. The man concerned could become an employee—though if he does not wish to do that we have no intention of forcing him to work for someone else. He could go to a contractor who has a deduction scheme—we hope that many contractors will operate such schemes—or he could do various building jobs for firms or individual householders. The worst fears of Opposition Members will not be fulfilled. There are many opportunities for these people to use their skills.
      The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) said that he did not wish to put the Inland Revenue at a disadvantage. Other hon. Members have echoed that view and said that the needs of the Inland Revenue should apply to these people just as they apply to anyone else in the community. The hon. Member for Cirencester and Tewkesbury said that he put a high priority on this point.
      I wish only to ensure that every individual pays the right amount of tax. If the new clause produced that result, I should be happy to accept it. It is because I have some doubts about whether that would happen that I am not able to accept it. I imagine that the hon. Member for Cirencester and Tewkesbury will not be surprised to hear that.
      The hon. Member for Maldon (Mr. Wakeham) asked about the cost of the

      1653
      scheme. The new scheme will cost about £2·3 million, compared with the £2·8 million cost of the old scheme, and according to our best estimates the new scheme will result in a substantial saving of staff of about 220.
      The hon. Member for Folkestone and Hythe (Mr. Costain) asked about the EEC aspect. I can assure him that there is no conflict with the Community.
      The clause would undermine the whole basis of the scheme by giving sole discretion to inspectors to decide whether a person should have a tax certificate. It is almost unbelievable that such a proposal should come from an hon. Member who believes in the liberty of the individual and in set rules with which the ordinary individual can comply rather than his being at the mercy and sole discretion of another individual. The House of Commons should not consider that to be a satisfactory way of obtaining tax from members of our community, and that is my main argument against the clause.
      It is proposed that the clause should come into effect on 1st June, but as Royal Assent is not given to the Bill until early in August I am at a loss to know how we could implement its provisions in June. I can see no question of retrospection. A rather odd mistake seems to have been made here.
      Mr. Peter Rees: If the clause were to come into effect when the Finance Bill received Royal Assent, would the Financial Secretary be disposed to accept it?
      Mr. Sheldon: The hon. and learned Gentleman does not seem to have understood what I said. The clause provides that the system comes into operation on 1st June. I do not see how a system can come into operation on 1st June of this year when the Bill is not passed into law until August.
      Hon. Members who know me will know full well that I never make a point about drafting that may not be particularly accurate. I know the problem under which Opposition draftsmen labour. But this seems to be more than that. There may be some peculiar reason for the date of 1st June 1977 that I am unable to understand, or perhaps it may be a piece of nonsense as I have already suggested
      Mr. Nicholas Winterton: My hon. and learned Friend the Member for Dover and Deal (Mr. Rees) asked whether the Financial Secretary would be favourably disposed towards the clause if it came into effect when the Finance Bill received Royal Assent. In answering that, perhaps the right hon. Gentleman can indicate what will happen to the 220 people who are being displaced under the new scheme that he has described.
      8.30 p.m.
      Mr. Sheldon: The hon. Gentleman may not have heard me earlier give reasons why I disagreed with the clause. Perhaps the hon. and learned Member for Dover and Deal (Mr. Rees)—who came into the Chamber and made a speech, went out and returned only while I was winding up—
      Mr. Peter Rees: I did not.
      Mr. Sheldon:—did not hear my point either. I said that I did not accept the clause.
      The hon. Member for Maldon asked about the number of applications received. Perhaps I can give him the latest figures. I have given figures of this kind before, but while we are discussing the clause perhaps I may give the latest figures that I have. They cover the period up to 14th April. I am sorry that I have none later than that.
      The applications totalled 316,000. Those that were approved and received certificates numbered 241,000. About 28,000 applicants were refused, although they could have made a subsequent application with success. Of the number outstanding, 16,000 did not pursue their applications; some of those may no longer be in business. Of the rest, late applications total 9,000. That presents no problem, and they will be processed in the normal way. There are 16,000 applications pending which will be successful when action is taken to put their tax affairs in order, and we believe that 6,000 are unlikely to qualify. That is the latest breakdown that I have at present.
      Mr. Graham Page: I am puzzled by what the right hon. Gentleman said about "putting their tax affairs in order" Having regard to the statement published by the Board of Inland Revenue, which

      1655
      I read out, that it would not deal with the deduction scheme as a means of blackmailing a man into paying his ordinary tax, what does the Financial Secretary mean by saying that these 9,000 applicants have to put their tax matters in order?
      Mr. Sheldon: I dealt with this matter in a previous debate, but I am happy to explain. If their record over the past three years is in order, that means that they have met their obligations for tax in the same way as other citizens of the country are required to do. They will then have met their tax in full, and there will be no question of their failing to qualify for the certificate and they will obtain it.
      If the right hon. Gentleman doubts that, I shall be happy to deal with any particular constituency case as, indeed, I have dealt with a number so far. I might say that there have not been as many cases as the hon. Member for Cirencester and Tewkesbury sought to inform the Committee as a result of the introduction of this scheme. I believe that certain changes have taken place in the industry as a whole. Perhaps I might briefly refer to them.
      Mr. Peter Rees: I must admit that was not reassured by the Financial Secretary's answer to my right hon. Friend the Member for Crosby (Mr. Page). The Financial Secretary will appreciate that the initiative must lie with the Revenue and that it must raise an assessment on the applicant which, presumably he must satisfy. The Revenue could endlessly delay raising a final assessment. What exactly does the Financial Secretary mean by saying that these people have to put their financial affairs in order? Does it mean that there could be an endlessly prolonged wrangle with the inspector of taxes and that ultimately, three years from now, lie may raise an additional assessment which the applicant must satisfy? The Financial Secretary owes it to the Committee to be a little more explicit.
      Mr. Sheldon: If there is a dispute with the Inland Revenue over the amount, as sometimes happens, certain sums outstanding which are the consequence of the dispute can be left over and the affairs of the person concerned will normally be regarded as being in order.
      1656
      In the majority of cases the total tax will be paid, but in some cases there can be disagreement. That will not preclude the granting of the certificate.
      These people in the industry had two years notification of the changes that were coming, and it is more than 18 months since the legislation was passed. They have had time to undertake to pay their tax liabilities in the same way as other citizens and to accept the changes that were coming.
      As I said, the major problems of this industry lie in the mobility of labour and in the historical fact that the ties to one employer or a particular area have been less strong than in most industries. In seeking to make this change, we have not tried to change the operations of the industry. We have been concerned with tailoring the need to obtain the required tax revenue from such individuals to the peculiar relationships between the self-employed and their industry.
      I have given the undertaking, which I am happy to renew, that I intend to continue this close watch on the operation of the scheme. I believe that the worst fears of the hon. Member for Cirencester and Tewkesbury have not come close to being fulfilled. It is too early to say what problems may yet arise, but so far this matter is going a little better than many of us expected when the changes were introduced.
      Mr. Ridley: I think that that was the worst speech I have ever heard from the Financial Secretary—and that is saying something. He did not address himself to the points raised in debate. He went through the worst refuge of a parliamentary scoundrel in relying on drafting objections to shoot down a matter of substance. He did not understand that what is on trial here is his attitude to the right to work of these people.
      Apart from that, this has been one of the best debates that I have heard for some time. My six hon. Friends who spoke, who unfortunately were not challenged by any Labour Member, made speeches based on experience, each complementing one another, and added even greater weight to the case that is building up against this iniquitous scheme.
      The help that we received from my hon. Friends the Members for Wolverhampton, South-West (Mr. Budgen) and

      1657
      for Folkestone and Hythe (Mr. Costain) in relation to the building industry showed that they knew more about the matter than did the Financial Secretary. The cases described by my hon. Friend the Member for Eastbourne (Mr. Gow) and others showed deep concern and great knowledge of this scheme.
      The Financial Secretary was wrong to suggest that the new clause was defective on drafting grounds. There is no reason why the inspector should not grant a certificate to everybody under the clause. Secondly, if the clause were carried there is no reason why it should not come into force on 1st June. Everyone would know that it would, and as soon as the Finance Act had become law that would be possible.
      When one is reducing the burdens on the taxpayer, there is no reason to wait until the Act receives Royal Assent. Indeed, the Minister could drop the whole scheme now if he wanted to. All that he would have to do would be to say that he will no longer require certificates to be gathered.
      My hon. and learned Friend the Member for Dover and Deal (Mr. Rees) was perhaps referring to the Financial Secretary when speaking of the froth on the surface of public life. If the right hon. Gentleman can do no better than rake over the past history of the way in which he introduced the scheme, when this was
      done, when that was done and when the other was done, when ordinary working people's livelihoods are at risk, my hon. and learned Friend's remark must ring true. The right hon. Gentleman has complained of inadequate certification in the past. The clause seeks to ensure that he has adequate certification but that he removes the intolerable position into which he has put the tax inspector; namely, making him the judge of the question whether a citizen has a good record in respect of these conditions.
      The right hon. Gentleman said that contractors had two years' notice of the scheme. I shall give them very much shorter notice. The notice is as short as the time that is necessary to get rid of this miserable Government, with their miserable attitude to those who want to get on with the job. When we return to office we shall review these conditions and remove from the statute book all the evils about which we have been complaining. Contractors can look forward to a proper deal under the next Conservative Government.
      In view of the fatuous response of the Financial Secretary, I suggest that my right hon. and hon. Friends vote against the Government and support the clause.
      Question put, That the clause be read a Second time:—
      The Committee divided: Ayes 133, Noes 138.

      Division No. 135]

      AYES

      [8.43 p.m.

      Alison, Michael

      Ewing, Mrs Winifred (Moray)

      Knight, Mrs Jill

      Arnold, Tom

      Eyre, Reginald

      Knox, David

      Atkins, Rt Hon H. (Spelthorne)

      Farr, John

      Lamont, Norman

      Bain, Mrs Margaret

      Finsberg, Geoffrey

      Lawrence, Ivan

      Baker, Kenneth

      Fisher, Sir Nigel

      Lawson, Nigel

      Banks, Robert

      Fookes, Miss Janet

      Lewis, Kenneth (Rutland)

      Bennett, Sir Frederic (Forbay)

      Forman, Nigel

      Luce, Richard

      Berry, Hon Anthony

      Fowler, Norman (Sutton C'f'd)

      McAdden, Sir Stephen

      Biggs-Davison, John

      Gardiner, George (Reigate)

      MacCormick, Iain

      Blaker, Peter

      Goodhart, Philip

      Macfarlane, Neil

      Body, Richard

      Goodhew, Victor

      MacGregor, John

      Boscawen, Hon Robert

      Gorst, John

      Mackay, Andrew James

      Bottomiey, Peter

      Gow, Ian (Eastbourne)

      Marshall, Michael (Arundel)

      Bowden, A. (Brighton, Kemptown)

      Gray, Hamish

      Mates, Michael

      Brocklebank-Fowler, C.

      Griffiths, Eldon

      Maude, Angus

      Brooke, Peter

      Grimond, Rt Hon J.

      Maxwell-Hyslop, Robin

      Bryan, Sir Paul

      Grylls, Michael

      Mayhew, Patrick

      Budgen, Nick

      Hall, Sir John

      Meyer, Sir Anthony

      Chalker, Mrs Lynda

      Henderson, Douglas

      Miller, Hal (Bromsgrove)

      Clark, Alan (Plymouth, Sutton)

      Hodgson, Robin

      Mills, Peter

      Clarke, Kenneth (Rushcliffe)

      Holland, Philip

      Moate, Roger

      Clegg, Walter

      Hordern, Peter

      Moore, John (Croydon C)

      Cope, John

      Howell, David (Guildford)

      Morgan, Geraint

      Costain, A. P.

      Hunt, David (Wirral)

      Morrison, Charles (Devizes)

      Crawford, Douglas

      Hunt, John (Bromley)

      Morrison, Hon Peter (Chester)

      Dean, Paul (N Somerset)

      Hutchison, Michael Clark

      Neave, Airey

      Dodsworth, Geoffrey

      James, David

      Nelson, Anthony

      Drayson, Burnaby

      Jessel, Toby

      Neubert, Michael

      Durant, Tony

      Kershaw, Anthony

      Newton, Tony

      Edwards, Nicholas (Pembroke)

      King, Evelyn (South Dorset)

      Nott, John

      Emery, Peter

      King, Tom (Bridgwater)

      Page, Rt Hon R. Graham (Crosby)

      Page, Richard (Workington)

      Sims, Roger

      Wakeham, John

      Percival, Ian

      Sinclair, Sir George

      Warren, Kenneth

      Price, David (Eastleigh)

      Smith, Dudley (Warwick)

      Watt, Hamish

      Rees, Peter (Dover & Deal)

      Smith, Timothy John (Ashfield)

      Weatherill, Bernard

      Reid, George

      Stanbrook, Ivor

      Welsh, Andrew

      Rhodes James, R.

      Stanley, John

      Wiggin, Jerry

      Ridley, Hon Nicholas

      Steen, Anthony (Wavertree)

      Wigley, Dafydd

      Ridsdale, Julian

      Stewart, Rt Hon Donald

      Wilson, Gordon (Dundee E)

      Roberts, Wyn (Conway)

      Stewart, Ian (Hitchin)

      Winterton, Nicholas

      Rossi, Hugh (Hornsey)

      Stradling Thomas, J.

      Wood, Rt Hon Richard

      Sainsbury, Tim

      Temple-Morris, Peter

      Shaw, Giles (Pudsey)

      Thomas, Rt Hon P. (Hendon S)

      TELLERS FOR THE AYES:

      Shelton, William (Streatham)

      Thompson, George

      Mr. Spencer Le Marchant and

      Shepherd, Colin

      Townsend, Cyril D.

      Mr. Carol Mather.

      Silvester, Fred

      Viggers, Peter

      NOES

      Archer, Peter

      Harrison, Walter (Wakefield)

      Palmer, Arthur

      Ashton, Joe

      Kooley, Frank

      Parry, Robert

      Atkinson, Norman

      Horam, John

      Pavitt, Laurie

      Barnett, Guy (Greenwich)

      Hoyle, Doug (Nelson)

      Phipps, Dr Colin

      Barnett, Rt Hon Joel (Heywood)

      Hughes, Rt Hon C. (Anglesey)

      Richardson. Miss Jo

      Bates, All

      Hunter, Adam

      Robinson, Geoffrey

      Booth, Rt Hon Albert

      Irvine, Rt Hon Sir A. (Edge Hill)

      Rodgers, George (Chorley)

      Bradley, Tom

      Janner, Greville

      Rodgers, Rt Hon William (Stockton)

      Brown, Hugh D. (Provan)

      Jay, Rt Hon Douglas

      Rooker, J. W.

      Brown, Robert C. (Newcastle W)

      Jenkins, Hugh (Putney)

      Rose, Paul B.

      Buchan, Norman

      John, Brynmor

      Sedgemore, Brian

      Carmichael, Neil

      Johnson, James (Hull West)

      Shaw, Arnold (Ilford South)

      Cartwright, John

      Jones, Dan (Burnley)

      Sheldon, Rt Hon Robert

      Castle, Rt Hon Barbara

      Kaufman, Gerald

      Shore, Rt Hon Peter

      Clemitson, Ivor

      Kerr, Russell

      Silkin, Rt Hon John (Deptford)

      Cocks, Rt Hon Michael (Bristol S)

      Kilroy-Silk, Robert

      Silkin, Rt Hon S. C. (Dulwich)

      Cohen, Stanley

      Kinnock, Neil

      Silverman, Julius

      Coleman, Donald

      Lamborn, Harry

      Skinner, Dennis

      Colquhoun, Ms Maureen

      Lamond, James

      Small, William

      Cook, Robin F. (Edin C)

      Latham, Arthur (Paddington)

      Smith, John (N Lanarkshire)

      Corbett, Robin

      Lee, John

      Smith, Timothy John (Ashfield)

      Cowans, Harry

      Luard, Evan

      Snape. Peter

      Cox, Thomas (Tooting)

      Lyon, Alexander (York)

      Spearing, Nigel

      Crowther, Stan (Rotherham)

      Lyons, Edward (Bradford W)

      Spriggs, Leslie

      Davies, Denzil (Llaneill)

      Mabon, Rt Hon Dr J. Dickson

      Stallard, A. W.

      Davies, Ifor (Gower)

      McCartney, Hugh

      Stewart, Rt Hon M. (Fuiham)

      Davis, Clinton (Hackney C)

      McDonald, Dr Oonagh

      Stoddart, David

      Deakins, Eric

      McElhone, Frank

      Stott, Roger

      Dean, Joseph (Leeds West)

      MacFarquhar, Roderick

      Summerskill, Hon Dr Shirley

      Douglas-Mann, Bruce

      MacKenzie, Gregor

      Taylor, Mrs Ann (Bolton W)

      Dunn, James A.

      Madden, Max

      Thomas, Ron (Bristol NW)

      Dunnett, Jack

      Magee, Bryan

      Tinn, James

      Eadie, Alex

      Marks, Kenneth

      Walker, Harold (Doncaster)

      Edge, Geoff

      Marshall, Dr Edmund (Goole)

      Walker. Terry (Kingswood)

      Ellis, John (Brigg & Scun)

      Maynard, Miss Joan

      Watkins, David

      Ennals, David

      Mendelson, John

      White, Frank R. (Bury)

      Evans, Ioan (Aberdare)

      Mikardo, Ian

      Whitehead, Phillip

      Ewing, Harry (Stirling)

      Millan, Rt Hon Bruce

      Whitlock, William

      Faulds, Andrew

      Miller, Dr M. S. (E Kilbride)

      Wilson, Alexander (Hamilton)

      Fletcher, Ted (Darlington)

      Miller, Mrs Millie (Ilford N)

      Wilson, Rt Hon Sir Harold (Huyton)

      George, Bruce

      Mitchell, Austin Vernon (Grimsby)

      Wilson, William (Coventry SE)

      Ginsburg, David

      Moyle, Roland

      Wise, Mrs Audrey

      Gould, Bryan

      Mulley, Rt Hon Frederick

      Wrigglesworth, Ian

      Graham, Ted

      Noble, Mike

      Grant, George (Morpeth)

      Ogden, Eric

      TELLERS FOR THE NOES:

      Grant, John (Islington C)

      Orme, Rt Hon Stanley

      Mr. James Hamilton and

      Grocott, Bruce

      Ovenden, John

      Mr. Joseph Harper.

      Hardy, Peter

      Question accordingly negatived.

    New Clause 3

      BENEFITS OF EMPLOYMENT (MOTOR CAR MILEAGE OPTION)
      'Paragraph 3 of Schedule 7 to the Finance Act 1976 shall have effect and be deemed always to have effect with the addition at the end of sub-paragraph (2) of the following:
      "(3) Provided that in no case shall the cash equivalent exceed the personal proportion
      1660
      of the aggregate of the costs incurred by the employer in respect of the car on petrol, oil, diesel fuel, maintenance and repair, car tax, insurance, garage rent, car parking, and depreciation (at the rate laid down in section 63(5)(6) of this Act).
      (4) For the purposes of this paragraph 'personal proportion' means the number of miles which an employee did not use the car preponderantly for business purposes in the year of assessment compared with the total number of miles for which the car was used in that year.".'—[Sir John Hall.]
      Brought up, and read the First time
      Sir John Hall:I beg to move, That the clause be read a Second time.
      The Second Deputy Chairman (Mr. Bryant Godman Irvine): It will be convenient to take at the same time New Clause 4—Taxation of directors and others in respect of cars, which also appears in the name of the right hon. and learned Member for Surrey, East (Sir G. Howe) and the names of his hon. Friends.
      Sir J. Hall: Both clauses deal with the benefits of employment and the assessment for private use of car mileage, as calculated under the Finance Act 1976. New Clause 3 is intended to give the taxpayer the option of being taxed either on the flat-rate cash equivalent laid down in Schedule 7 to the Finance Act 1976 or on a sum calculated by reference to the probabality of private use, whichever is the lower.
      As an expert, the Chief Secretary to the Treasury knows that under the existing law a director or employee whose total emoluments are above the magic £5,000 ceiling and who has a company car but whose private use of that car might be very small finds himself penalised by an arbitrary assessment which bears little relationship to the benefit he might get from the private use of the car. Indeed, in many cases the additional tax penalty which is imposed thereby largely offsets the very modest reduction in income tax that the executive might hope to get under the provisions of the Bill.
      Prior to the 1976 Act, those who used their cars preponderantly—to use that awful word which is employed in the 1976 Act—for business purposes generally managed to agree with their inspector at the end of the year the proportion of the mileage for which they used the car for legitimate private use. I find on inquiry among the employees of companies with which I am associated that many of those who have cars, such as salesmen and others like them, in general manage at the end of each year to agree with their inspector a figure which varies between 10 per cent. and 20 per cent. of the total mileage covered by the car during the 12-month period.
      I notice from a memorandum that the CBI has recently issued that it has carried out an examination of 12 major companies
      1662
      and finds that the average private usage of company cars by employees of those 12 companies was about 15 per cent. It is not very much different, therefore, from the experience I had in the inquiries I made in my own companies.
      Mr. Joel Barnett: Fifteen per cent. of what?
      Sir J. Hall: It is 15 per cent. of the total mileage covered by the car during a 12-month period. I hope I make myself clear.
      New Clause 3 is designed to restore that position in part. It reintroduces a variable basis by which the tax is based on the personal proportion of aggregate running costs defined by the proportion of private mileage to total mileage. The running costs include depreciation calculated on the basis of Section 63(5)(b) of the Finance Act 1976—that is, 20 per cent. of the original market value, or 10 per cent. if the car is over four years old.
      The proposal in New Clause 3 seems to me to have the merit of relating the private use of the car very closely to mileage—a factor on which last year the Financial Secretary laid very great stress during debates in Standing Committee and on the Floor of the House.
      I turn to New Clause 4. This reopens the debate that we had in July last year on Report, although the clause goes a little further than the amendment that was then moved by my hon. Friend the Member for Norfolk, South (Mr. MacGregor). However, the arguments remain the same. Indeed, they are strengthened by the representations that we have received since that date.
      There is little doubt that to set a figure of 25,000 miles for business travel before one can qualify for the 50 per cent. reduction in the flat-rate cash equivalent is to set it unrealistically high. I have been provided with the results of examinations of a number of companies, which are included in tables provided for me by the CBI, to which I made earlier reference. However. I have preferred in this case to carry out my own examination into some companies—three, in fact—with which I have been personally concerned over the years. I should like

      1663
      to give the Chief Secretary the results of my research.
      Mr. Max Madden: On a point of order, Mr. Godman Irvine. The hon. Gentleman has just referred for the third time to companies with which he is associated. Would it be in order for him to declare an interest in supporting the new clauses, as the clauses are obviously based on information from companies with which he is associated and, presumably, he has an interest in their success?
      The Second Deputy Chairman: That is a matter entirely for the hon. Member.
      Sir J. Hall: My interest in companies is well known in the House. No personal benefit accrues to me from anything that I am now debating. I do not possess a company car, so I have no personal benefit.
      9.0 p.m.
      Mr. Madden: Further to that point of order, Mr. Godman Irvine. Will you confirm whether interests are supposedly well known? There is an obligation on Members to declare their interests every time they participate in proceedings in the House.
      The Second Deputy Chairman: There is a resolution of the House that Members should declare their interests, and that is normally done. I should add that certain hon. Members who regularly take part in proceedings in Committee on Finance Bills from time to time declare interests which are fairly well known.
      Sir J. Hall: Perhaps I may make two points. First, many Opposition Members and, indeed, Labour Members frequently talk about matters of vital concern to trade unions without declaring that they are members of the unions concerned. Secondly, regarding the companies to which I was referring, I said that I was at one time personally concerned with them. I am no longer concerned with them. Indeed, I have retired from active participation in two of the three companies to which I referred as having been investigated.
      When making my inquiries, the chief executives and financial directors kindly supplied me with the information for which I asked. Of the total staff who
      1664
      have company cars, most are salesmen. However, there are many other categories as well.
      The average mileage covered by salesmen varies between 15,000 and 18,000 miles. No salesman at any time within the records of the company reached 25,000 miles, except on one occasion when I was an active executive with one of the two companies. One salesman did over 25,000 miles. At the time I said that we should rearrange his duties and area because it was wrong that a man should spend three to four hours a day driving. It was uneconomic. It meant that he had to drive 130 miles a day. Therefore, he could not make the calls that he should make, and it was an uneconomic use of time for that individual. We rearranged his duties to ensure that his mileage was drastically reduced. That was the only occasion in the last 10 years when I can remember anyone achieving 25,000 miles in one year. That is the experience of only three companies. Others may have different experience.
      Mr. Joel Barnett: It would be helpful, as we have been told the approximate percentage that is used for private use and the total average mileage, if we could be told, on a percentage basis, the total costs of running the car, taking into account depreciation, petrol and oil and the rest, so that we may compare it with the schedule.
      Sir J. Hall: That is a little difficult, because the cars varied in size from 1,100 up to 3,000 I have not got the breakdown of the cost of individual cars. I cannot help the right hon. Gentleman in that way.
      In addition to those figures, one company has staff technicians and chemists who are regarded as trouble-shooters and advisers and who visit factories within the group and customers' plants. They must have cars available for their individual use each day of the week. They might be called out to a factory at any time during the week. Their mileage is considerably less—between 8,000 and 13,000 miles, depending on the individual.
      About 55 per cent. of these people with company cars have second cars, because without them their families would be completely marooned. We all know about the problems. Labour Members laugh

      1665
      at that. We had a debate not long ago about the problems not only of rural transport but of urban transport. For example, many people in High Wycombe cannot rely on getting to work at the right time if they do not have the use of a car, because the bus services are so unreliable.
      Mr. Madden: The hon. Gentleman and I participated in the debate on rural transport. I am sure that he does not want to mislead the Committee. There were expressions of grave concern by Labour Members about poor people who live in rural areas. In many cases, because the husband had the use of the car during the day, the wife and family were marooned at home because they did not have access to a second car. That concern was expressed strongly by Labour Members.
      Sir J. Hall: That does not invalidate my argument. Some 55 per cent. of the people with a company car must for one reason or another have a second car, because without it their families would be marooned. That situation exists in all parts of the country.
      All those who were classified as being among the higher paid, who were caught by the provisions of the 1976 Act and who had a second car, made little private use of their company car—with one exception. All of them complained that they were now being assessed at too high a figure, and they believe that the change is unjust and penal.
      The present position arose because last year the Financial Secretary did not appear to understand the difference between exceptional business use of cars and exceptional business mileage. Few people, particularly the higher paid, reach an annual business mileage of 25,000 miles. They should not be allowed to reach that mileage. Far more people make exceptional business use of cars without coming within striking distance of 25,000 miles a year. A salesman covering an urban area works as hard as, if not harder than, a man covering a sparsely populated area because he makes more calls. One is to be penalised and the other may escape penalty. A senior executive engaged in customer liaison, for instance, may need a car each working day, and on occasion seven days a week. His mileage would be modest.
      1666
      A number of letters have been sent to me by constituents. I have picked out two from salesmen from the top of the pile. I shall quote only the relevant paragraphs because I do not want to bore the Committee. The first letter states:
      "As a field sales manager I need a motor car and incur some expenses on behalf of my employer, whilst performing my job…. In my case, the car and expenses are not a 'perk', but are essential to the pursuance of my job…. The provision that the amount to be included in reckoning my gross income should be halved, if I do 25,000 business miles per year, does not bear any relationship to the business miles covered by the average field sales manager of a national company."
      That constituent is right. The letter continues:
      "12,000 miles is much nearer the true average, and should be the point at which the amount is halved. This act is a discriminatory, iniquitous piece of legislation which penalises a section of the community for the way in which it earns its living."
      I received a similar letter from an area salesman covering Buckinghamshire, Hertfordshire, Middlesex and North London. He says:
      "In my opinion, 10,000 miles would have been sufficient to distinguish between those for whom the car is a perquisite and those for whom the car is a necessary tool for their job. In general, this aspect of the Finance Act will add a further burden to that group of people whom have benefited less than any others, those earning around the £5,000 per year. Already we are seeing differentials being whittled away.
      Other hon. Members will have received similar complaints.
      I think that the Financial Secretary knows me well enough to realise that I am right. I am opposed to fringe benefits in principle. But, there has been an alarming and rapid fall in the real incomes of middle and senior management because of the combination of the severe restrictions on growth and the penal tax. It is a wonder to me that there has not been a greater attempt to increase the number of fringe benefits rather than reduce them.
      When someone gets a benefit which normally he would expect to pay for out of taxed income, it is right that he should be assessed. No one would disagree with that. No one would complain, except perhaps at the level of taxation, if the assessment were done fairly. I believe that the new system is unfair, and its impact will fall especially on those who are most likely to be the men or women

      1667
      on whose initiative, ability and drive we depend. It was clear from the debates last year during the Report stage that insufficient thought had been given to the effect of the measures which are now in the Finance Act 1976.
      For those reasons I commend the new clauses to the Committee. In particular, commend New Clause 4 to the Chief Secretary.
      Mr. John MacGregor: In view of the obsession of the hon. Member for Sowerby (Mr. Madden), I shall declare an interest at the outset. I have no company car, I am not talking about anyone in the single company with which I am associated, and I am mainly concerned with the interests of constituents who have written to me on this matter and of other companies with whom I have had discussions over the past year. That arises from the fact that during last year's debates on the Finance Bill I was very much involved.
      As my hon. Friend the Member for Wycombe (Sir J. Hall) was kind enough to remark, I proposed an amendment last year to bring the figure down to £15,000. The Chief Secretary will also recall that in the debates upstairs, largely due to the Opposition's concentration on the problem of very extensive business use, the Government introduced the concession in the first place, and we were grateful for that.
      I had hoped, from the debates we had last year, and particularly from the response of the Financial Secretary, that the Government would be prepared to look again at their figure of 25,000 miles and, in the light of experience, to adjust it, because I believe that experience has shown that that figure is too high.
      I have sympathy with the Inland Revenue's desire to produce simplification in the whole area of taxation on car fringe benefits. For that reason I much prefer New Clause 4 to New Clause 3, because I think it is another step towards simplification, whereas New Clause 3 would slightly complicate the present laws.
      I am bound to say that the way in which the Inland Revenue is interpreting these new clauses in relation to cars does not exactly suggest that it is wholly concerned
      1668
      with simplification. There have been some interpretations, in which perhaps the Chief Secretary has not even been involved, which have created a great deal of muddle.
      One example of this is where an individual pays for his petrol himself for private or other use and asks his company to reimburse him, or, alternatively he reimburses his company for the private use of a car. In such a case the cost of the petrol will be added to the total, whereas, if a company credit card is used for the petrol, that rule will not apply. That is the sort of technical muddle that we seem to be getting into already in the interpretation of these clauses.
      I appeal to the Chief Secretary to make sure that the Inland Revenue carries out the original objective of these fringe benefit clauses on company cars, and, even if it means rough justice, tries to make sure that there are simple rules to follow.
      With regard to the main point on New Clause 4, the whole burden of our argument last year is that those who use their cars for very substantial business mileage will find that under the new rules they will be taxed more heavily. I think that that is doubly unfair, first, because an element of tax is being added—which is entirely due to business expense—to an executive's already highly-taxed income, in many cases. It is also discriminating against those who are using their cars entirely for business and not for private use at all.
      I well remember, last year in Committee upstairs, quoting a letter from a constituent. I shall not bore the House by quoting it again. The effect was that the writer hoped that Government Ministers did not believe that at the end of a very tiring week, driving many thousands of miles round the country, the people concerned were only too delighted to go out during the weekend on private mileage. The writer emphasised that he was only too pleased to see the car in the garage, rather than having to drive another mile during the weekend.
      9.15 p.m.
      There are many salesmen and executives in that situation for whom the car is essential for business and who use it very little for private purposes. The problem is that the Government have set

      1669
      the top limit on their concession far too high. The limit of 25,000 miles means that a salesman must travel about 100 miles every working day. That is a level that most of them do not achieve.
      So whereas the Government were right to accept the concession that we pressed last year, they have still not achieved the correct level, and they are still discriminating against those who use their car predominantly for business purposes, who are therefore incurring only business expense, and who are finding that they are therefore being taxed more highly.
      I have been talking to travellers or salesmen in various companies about this matter. Only this weekend a deputation of ICI salesmen came to see me in my constituency. All of them use their cars mainly for business purposes. None of them actually achieves the 25,000-mile figure, even though they all operate in a rural area. All the experience shows, therefore, that the Chief Secretary has set the limit too high.
      One point struck me about the circumstances in East Anglia. Many of these travelling salesmen, who work for all sorts of companies, run two cars. They have the company car, which they use every working day. They probably leave home early in the morning and return fairly late in the evening. Therefore the wife has to have an old "banger" to get the children to and from school and to do the shopping, because in a rural area that is the only way in which she can get about. In those circumstances it is ludicrous to assume that these travelling salesmen are using their business cars a great deal for private purposes. The car is an essential tool of business for them. I believe, therefore, that last year's concession should apply for all these cases.
      We can argue whether the limit should be 12,500 miles or 15,000 miles, as we suggested last year. Whichever figure we settle on there can be no doubt that 25,000 miles is too high. Personally, I would prefer to be generous. We are here talking about people earning between £4,000 and £6,000 a year, but because of the way in which total remuneration is calculated for last year and the forthcoming year, and because of the business expenses they incur, they are put into the category of the higher paid. They are not among the higher paid, but they
      1670
      are among the most hard-working members of the community.
      We were talking about such people on Tuesday, although on that occasion our remarks were directed primarily at those in the higher tax range. These are the people who are getting a raw deal and are becoming completely dispirited in their work, and who find that the combined effects of their not getting last year's concession and the change in the car rules mean that they will be taxed more heavily this year than in the previous year. They will ask themselves why they are in the business at all. I do not blame them taking that attitude. They use their cars almost entirely for business purposes, and the Chief Secretary would therefore be well advised to take another look at this matter and, for the sake of giving this group sufficient motivation, accept the concession we are suggesting in New Clause 4.
      I end by quoting from a letter from one of my constituents which emphasises the sort of problems presented by the demotivation of executives in industry. This constituent is precisely in the category that we have been discussing. This year his tax bill has increased by £60 because of the way that the rules operate. He receives a comparatively modest salary but recently he declined an offer of promotion and an extra £1,000 a year because it would have meant transferring to another part of the country, and he worked out that it was not worth accepting. He says:
      "How sad it is that people in positions similar to mine should be so dispirited and depressed. Is it any wonder that I find myself unable but to advise my son, who is just completing a postgraduate course at Cambridge after gaining a first class honours degree at another university, that he should seek employment beyond the shores of the United Kingdom."
      The Chief Secretary raises his eyebrows, but he must accept that this is the kind of problem occurring in British industry from time to time. This is not a bleat about tax levels, as it might well have been. It is a despair that has been brought about because the lines were drawn too high last year, and this is the final straw for that executive. The clause would make a comparatively small change, but I urge the Chief Secretary to think again and accept it.
      Mr. Richard Page: I want to speak very briefly, and, not surprisingly, in favour of the new clause—and not only from the straight taxation point of view. I am sorry that the Labour Benches are depleted, because I should have loved to declare my interest, which comes from a background of many years in the motor industry.
      The clause goes part of the way towards alleviating the problems that will be created by this part of the Finance Bill. There is a possibility that if this part is not changed there will be an increased threat of unemployment in the motor industry and its associated suppliers.
      The majority of companies that run company cars have strong pro-British and "Buy British" policies for their fleets. The vast majority of company-owned cars are British-manufactured. On the other side of the coin, private individuals are tending more and more to buy foreign imports. I am concerned about the rigidity of the Government's proposals and the depressing effect of tax levels on the individual in the section of our society that really needs every incentive and motivation to get up and make this country a better place.
      I am afraid that companies will consider paying their employees a mileage allowance and allowing them to run their own cars. This will increase the foreign vehicle demand, and the number of registrations of foreign imported cars will climb, month by month, to 30 per cent. or more. This will put pressure on home production. There will be a reduction in the number of registrations and sales of British cars. Obviously there will be job losses, and the increased import costs will affect our balance of payments.
      I wish to back up the points that have been made already about the 25,000-mile figure. We are told that this figure has been introduced to take account of the commercial traveller. I cannot follow the reasoning behind the fixing of that figure. The commercial traveller does a job the same as anyone else. He or she is no different in that respect from a bus driver or a train driver. His personal mileage—if he feels like it after a long hard day of driving—is personal to him, just as personal mileage is personal to anyone in any other occupation. One might just as
      1672
      well argue that because a bank clerk is handling and counting money all day he is qualified for a reduction in his taxation.
      I also wish to take up the point about the second car. In some country districts there is appalling local transport, and a person should not be penalised for having one car for his own use and another for his wife. For this reason the figure of 25,000 per year for predominantly business use is nonsense, and is far too high. The average recorded mileage is about 12,000 a year. That figure is produced and substantiated in practice, and it is borne out by Glass's Guide which is a trade manual and a fairly discerning publication on these matters.
      The figure of 12,000 miles includes personal and business use. It is a figure that is being achieved in practice. Therefore, it seems logical that the figure of 12,500 miles per year, as we propose, should be adopted as the starting figure.
      If this proposal is accepted, it will be of special benefit to small business men, who are being hard hit in the present business climate. They comprise a section of the community looking for expansion and growth to help mop up the unemployed. A change to a figure of 12,500 miles per year will help such a man, because he is under pressure and strain, as is shown by the present level of bankruptcies.
      I wish to draw attention to the rigidity of the present flat-rate proposal. I do not want to go into all the details or to plough through the examples, because no doubt Finance Committees have heard them many times before. The calculation divides proportionately between business use and insubstantial non-business use. The first half of the calculation relates to flat-rate benefit plus any private element. The second part is a percentage of original market value plus running costs. There is a looseness in the definition of the word "insubstantial" in the Finance Act, although the Inland Revenue has stated that the business rate of over 10 per cent. a year will be regarded as insubstantial.
      There is an additional and perhaps minor point, but it is relevant in this context. No provision is made in the Bill for vehicle use by companies engaging in the manufacture, promotion or sale of a

      1673
      specific product. This will mean a locked-in position for those concerned and will cause difficulty in negotiation.
      I believe that our proposals in New Clause 3, coupled with the mileage reduction to 12,500 will enable a contribution to be made for personal mileage use. The contribution will relate to actual cost and will be a means of evaluating personal use within the limits of the Bill. The present proposals could lead individuals to pay far more tax than they should under the flat-rate proposals. I support the clause because I believe that it will eliminate this injustice.
      Mr. Joel Barnett: I have listened to the debate with great interest. Two issues arise. The first relates to New Clause 3, which seeks to add to the half-scale in the schedule to last year's Finance Act a proportion of the actual cost in certain circumstances. The second matter which is dealt with in New Clause 4, would reduce the figure of 25,000 miles per year to 12,500 miles per year in the assessment of half the scale instead of the full scale.
      Let me seek to deal first with New Clause 3, which seeks to return to the old system of calculating a private proportion of total motoring costs in the circumstances of a figure of 12,500 miles. The hon. Member for Wycombe (Sir J. Hall) said that that figure would embrace the great majority of business users. We were given figures showing that that was an average mileage for business use. Therefore, we would be back to the old system of calculating the private mileage assessment.
      I have had some experience of dealing with these matters in a former life. I was reminded of those halcyon days when I heard the hon. Member for Norfolk, South (Mr. MacGregor) talk about someone who had written to him saying that he would be only to happy never to see his car again. That is what clients used to tell me in the past. I naturally assumed that they were telling me the truth and that that was the situation.
      9.30 p.m.
      However, it is a little difficult to imagine that private use would be an average of only about 20 to 30 miles a week, including evening, weekend and
      1674
      holiday motoring. That is the impression one gets from the figures given by the hon. Member for Wycombe. He referred to CBI figures which showed that 15 per cent. was private motoring and that this meant an average of 37 miles of private motoring a week. If one takes 12,500 miles a year as average, as the new clause seeks to do, one is talking about a pretty small assessment of mileage for private use. I am sure that the hon. Member for Norfolk, South was telling the truth, and I have no doubt that there are some salesmen who, once they have finished travelling and working at a difficult job all week, say at the weekend "Thank God. That's it" and then put the car in the garage, not wanting to use it again. If that happened over the whole year the private mileage for that car would be as low as the hon. Member for Norfolk, South suggested. I agree that that might be so in certain cases, but in most cases—I put it no higher than that—it is unlikely that the private use of the car would be so low.
      Sir John Hall: Does the right hon. Gentleman agree that it is difficult to calculate the actual private use of the car, because, although the business man involved might not be using the company car for private use, he might be using his second car or he might be driven around by his wife or another member of his family.
      Mr. Barnett: That is absolutely right it is extremely difficult to calculate the private use of a car. In my experience as an accountant in practice, there was no more burdensome task both for the inspector of taxes and for an accountant than to have to spend a huge amount of time calculating—this had to be done—the distance from home to the office and how many miles were driven during weekends and holidays. This could continue during a long correspondence and many telephone calls.
      That has been replaced by a scale which I shall come to presently. It cannot be suggested that having to calculate the mileage of the great majority of business users would be a better way of dealing with the matter. That is wrong. I see the hon. Member for Norfolk, South nodding in agreement. Nobody else saw him doing so, and I am sorry if I have embarrassed him.

      1675
      I hope that nobody will support New Clause 3. It would mean going back to the old system, which would cause the great burden of having to calculate what proportion of the mileage was private use and what proportion was business use.
      We could then go on to consider whether the scale that we use is accurate. That is the matter that we are really discussing. There can be few accountants and certainly, if the tax inspectors were to deal with these things stringently, few business motorists who would want to go back to the system of calculating private and business motoring.
      Let us take the example of a motorist with a Cortina 1600 and driving an average of 12,500 miles a year. I know that the sort of person to whom we are referring loathes using his car again after working hard all week. However, the proposition is that he would have to do as little as 20 miles a week private motoring to come within the half scale available on 12,500 miles a year. Are the Opposition suggesting that, even if a man does substantial business motoring, he will not use his car privately for an average of more than 20 miles a week? I cannot believe that they would press that idea.
      Even if we kept the mileage at 25,000 a year, such a driver would have to do less than 40 miles a week in order to benefit from going on to the proportional rather than the half scale. It stretches the imagination to believe the Opposition's proposition.
      Mr. Richard Page: Most commercial travellers do not go to an office first but go straight to work from home. That is what make it possible for them to cover these phenomenal mileages in a year. At weekends they are only too glad to put the car in the garage, and they are most unlikely to do even 25 miles a week if they have any sense.
      Mr. Barnett: The hon. Gentleman takes me back. Those are precisely the arguments that I used. No doubt many salesmen do exactly that. I am sure that every client who told me that was telling me the truth, and I am sure that those who tell the hon. Gentleman the same thing are also telling the truth. However, the car is at their disposal. Are we to believe
      1676
      that they never go out and see their friends during the week, that they never go out at weekends and that they never use the car on holiday? We are talking in this debate to the vast public outside, and to expect them to believe that is expecting too much.
      Sir John Hall: The Chief Secretary is making a lot of this point. We are talking about the private use of a company car. It does not mean that another car may not be used privately for more than 20 miles a week. I am not sure where the Chief Secretary gets the figure of 20 miles, because my suggestion would give a private use of about 50 miles a week. The right hon. Gentleman should not keep emphasising that the company car will be used for 20 miles of private use every week. It may not be the company car that is used privately.
      Mr. Barnett: There is a fair number of two-car families, but there are many others with only one car. The hon. Gentleman is seeking to bring down to 12,500 the mileage after which a man would be able to get the half scale and be allowed to use the proportion that, as I have said, few would seek to do. The hon. Gentleman also quoted the CBI in evidence and said that 15 per cent. was the proportion for private use. Fifteen per cent. of 12,500 miles is certainly less than 40 miles a week.
      Sir John Hall: This is probably where the confusion has arisen. I was not relating that to the 12,500 miles in New Clause 4. The two clauses are alternatives. I am sorry I did not make that clear. I was utilising the CBI's investigation, which showed that those who had a business use mileage of over 15,000 miles did an average of 15 per cent. for private use. We are talking about 15 per cent. of a minimum of about 17,500 miles.
      Mr. Barnett: The hon. Gentleman quoted a number of figures which I took down. He said that the CBI had quoted 15 per cent. as the total mileage for private use. He talked about salesmen as being responsible for 10 per cent. to 20 per cent. of costs, and an average mileage of between 15,000 and 18,000 a year. But I remind the Committee that 12,500 miles is not an exceptionally high figure. After all, the hon. Gentleman put forward New Clause 4. If that

      1677
      is not the case, he is seeking to persuade the Committee that less than the average mileage should be allowed half the scale or a proportion of the total calculated costs.
      Sir John Hall: Perhaps I may explain by using words of one syllable. In putting forward New Clause 4, I was trying to stress that the real problem arose last year because of the confusion between the concentration of exceptionally high mileage and the exceptionally high business usage. The two are not necessarily the same. We are beginning to get down to 12,500 miles because we believe that there are many people who use a car all the time who cannot possibly do the high amount of mileage required by the present Act.
      Mr. Barnett: I shall be coming precisely to that point. I do not think the hon. Gentleman is suggesting that 12,500 miles is an exceptionally high mileage. It is not. But under New Clause 4 it would be possible for business motorists, with that figure, to obtain half the scale. I should like to remind the Committee what the scale actually is and what that would mean particularly to business motorists. The scale, as it stands in last year's Finance Act, is in itself a very low scale by anyone's understanding of the availability of a car for private use and the amount of private mileage for which it is used.
      Let me come to New Clause 4, which is—[Interruption.] We are debating two new clauses. The hon. Member for Blaby (Mr. Lawson) may not know it, but his hon. Friend introduced New Clauses 3 and 4. I assume that the hon. Member for Blaby supports New Clause 3 because, being a Whip, he has to support both of them even though he does not agree with them.
      New Clause 4 seeks to reduce the milage from 25,000 to 12,500. We estimate that that would cost about £20 million because, as the hon. Member for Wycombe indicated, we are not talking about an exceptionally high mileage but rather about something lower than average business mileage. We put in a figure of 25,000 miles because it implies a reasonably substantial mileage. I have no doubt whatever that there will be many salesmen running their cars for business use on a rather higher mileage in a year
      1678
      than that. Certainly no one would argue that 12,500 miles was an exceptionally high mileage.
      9.45 p.m.
      If we accepted that 12,500 miles should be the scale of assessment of the benefit, for a car of 1300 cc or less, the present scale of £175 would be reduced to £87.50 Many motorists running such a car for even as little as 30, 40 or 50 private miles a week would consider that a small assessment. That is not the total liability—it is simply the assessment—on which the people about whom the hon. Member for Norfolk, South spoke would pay 33 per cent. or possibly as high as 40 per cent. It is a little difficult in those circumstances to believe that hon. Gentlemen are not exaggerating.
      The hon. Member for Norfolk, South said that the major problems were confronted by salesmen earning between £4,000 and £6,000 a year.
      Mr. MacGregor: And others.
      Mr. Barnett: Now he is seeking to add to the list.
      Mr. MacGregor: I did say "others".
      Mr. Barnett: The hon. Gentleman mentioned the man earning £4,000 to £6,000 a year. However, I am sure he has overlooked the fact that the Bill increases the level for P11Ds to £7,500.
      Mr. MacGregor: For next year.
      Mr. Barnett: Yes, but even if that man were running a Rolls-Royce he would not be caught. The full scales—certainly the half scales—would be an absurdity for the man with the average private availability of a car.
      Mr. MacGregor: Would not the right hon. Gentleman agree, though, that there are many people, some of them earning more than £6,000—I stressed that—who have done very little private mileage with their cars before and who, under the new system below 25,000 miles, will find that they are taxed very heavily? Is the right hon. Gentleman satisfied with the 25,000 figure? If he disputes 12,500, does he not think that it should come down a bit?
      Mr. Barnett: Since the hon. Gentleman asks, no, I do not. The scale of assessment to private benefit, even without the substantial mileage of 25,000, even for

      1679
      a man doing a substantial mileage for his private use—even if he does only 40 or 50 miles a week on average—will be £175 on a car of 1300 cc or less, £225 on a car up to 1800 cc and £800 on something above £10,000 in value. The hon. Gentleman is a reasonable man. He is smiling. I do not know whether that means that he agrees, but I have always regarded him as reasonable. Is he really telling the Committee that that kind of scale is excessive and should be halved for average business mileage? I hope that even Conservative Members will realise that that is not a reasonable argument to ask the Committee to accept, and I ask the Committee to reject it.
      Mr. David Howell: The Chief Secretary has entertained the Committee with some pre-ministerial anecdotes about the way in which he, no doubt excellently, acted for clients, and has offered us some guesses and some memories as a defence of the Government's position. That will not do. We are concerned with making law, not with guesses and anecdotes. The right hon. Gentleman used the phrase "I would guess" more than once. That is not a sufficient basis on which to continue, in financial legislation, measures which unfairly and discriminately damage the position of people who, as we have established, are of modest means.
      First, I deal with a point that the Chief Secretary made several times about the undesirability of returning to the old business of calculating all the mileage. We can all agree with his idea that we should aim for greater administrative efficiency. If the scale rates will simplify matters, we recognise the value of bringing forward such a system. However, the book issued by the Inland Revenue entitled "Notes On Expenses Payments And Benefits For Directors And Certain Employees" is full of recommendations and injunctions that those using their cars preponderantly for business travel should keep mileage records. In page 12, paragraph 10.7, the taxpayer is warned:
      "Employees likely to fall within this category should keep sufficiently detailed records to demonstate the extent of their business travel in the tax year."
      Under the section dealing with cars supplied with a driver, which would be the sort of cars that would probably not be used at the weekend, the book states that
      1680
      detailed records have to be kept throughout the year to assess what proportion of the driver's time, energy, wages and on-costs can be apportioned to that part of travel which is considered to be non-business. Presumably that is the last part of the journey between office and home or home and office. Therefore, records have to be kept over a long period. The whole of the book is full of injunctions that such records should be kept.
      It will not do for the right hon. Gentleman to tell us that he has a wonderful new system that is so nearly perfect that we should not sully it—a system that eases the administrative burden for the car user and the Inland Revenue of keeping records of mileages. The right hon. Gentleman knows that to a large extent the record-keeping has to go on as before.
      The effect of the law as it stands without the new clause is to ensure that commercial travellers are taxed more heavily than in the past. The law hits especially the travelling salesman who has a certain region to cover by car. Such a salesman cannot make use of a pool car. He has to cover a certain area from his house. He is being hurt the most by the present provisions.
      As my hon. Friend the Member for Wycombe (Sir J. Hall) said in his excellent moving of the clause, the propositions in the mass of new arrangements as outlined in "Notes on Expenses Payments And Benefits For Directors And Certain Employees" are based on a muddle. It was a muddle in the mind of the Financial Secretary. With due respect, we sometimes feel that it is not the only muddle in his mind when dealing with these matters. In any event, it is a muddle between business mileage and business use. It would seem to be a muddle in the Chief Secretary's mind too. But perhaps it is not. Perhaps he knows that it is a confusion but chooses to keep it to please himself.
      The confusion is between the idea that high business mileage means a high business use and low business mileage means a lower business use. That is nonsense. A salesman in the metropolitan area will find that it is possible to do a great deal of travelling, or a great deal of driving, and still clock up only 12,000 miles a year. That is well below the average for

      1681
      all the forms of travel that were mentioned by my hon. Friend the Member for Wycombe when dealing with the CBI survey.
      It is possible in the metropolitan area, or the Home Counties, such as my county of Surrey, to spend all day on the roads and to clock up a modest mileage. If a salesman confines his business driving to such areas, he may well drive only 8,000, 9,000 or 10,000 miles a year. However, in Radnorshire, parts of Wales, Herefordshire, Northamptonshire or Scotland, it is possible to clock up an enormous mileage. In both instances the salesman may spend all day on the roads, doing an equal amount of work, but when driving in the outlying areas he gets the half-scale rate after 25,000 miles if he has kept all his records, detailed mileage accounts and everything else that the Inland Revenue tells him to do, whereas in the Home Counties he may drive between 4,000 and 6,000 miles a year and the Chief Secretary chooses to put nothing into the Bill to help him.
      The salesman in the Home Counties is contributing as much as anyone to the efficient performance of our nation, but he gets no benefit. Our new clause would have enabled him to have some of the same benefit as those doing 25,000 miles. It would have been far better to reduce the mileage from 25,000 to 12,500. Keeping it where it is is yet one more attack on that so-called middle income group which is now merging with the lower income group, earning beween £60 and £100 a week—the people we are supposed to have been helping. As we learned earlier this week, these people are greatly disliked by Labour Members below the Gangway. There was talk that they would be helped in this year's budget, but when one adds up the tax concessions that they are supposed to have received and then deducts the additional tax imposts, increased national insurance and a variety of other costs, including higher petrol and fuel costs, as well as the increases yet to come from last year's Finance Act, one sees that they are no better off but are becoming daily worse off.
      Here is an attack being sustained by the Government on people with modest incomes who are trying to do a job that involves having a car for substantial business use. If that is what the Govern
      1682
      ment want to do, why do they not say so? If they are pretending to help these people, they should at least reinforce and make some virtue of that pretence by supporting a clause that will ease the situation for the people of whom I am speaking.
      The Government's position on this matter is feeble. The Chief Secretary's anecdotes are all very interesting, but have no relevance. His guesses are a poor basis for making law. I urge my right hon. and hon. Friends to press the clause to a Division.
      Mr. Peter Rees: I intervene briefly, provoked by the Chief Secretary's implausible arguments. The right hon. Gentleman remains as genial as ever but his arguments become more and more threadbare as he puts a greater distance between himself and the private practice he left in 1974, and as his association with the Chancellor grows longer.
      The arguments initially adduced to support the provisions in the last Finance Bill were based on grounds of equity. In fact, on analysis it was found not to be equity but the rancid envy and antediluvian malice of some of the right hon. Gentleman's hon. Friends below the Gangway. Now the argument has shifted to that of administrative convenience or simplicity.
      The Chief Secretary has batted on behalf of lower, middle and higher management. His mind has been lent to these classes to support them in their efforts to achieve a fair balance in the tax they pay. What the Chief Secretary has not admitted is that before the last Finance Bill there was but one test, admittedly not entirely simple—that of the annual value of the car and driver made available to the employee by his firm.
      In his professional life the Chief Secretary may have encountered certain difficulties in arriving at the annual value, but since the last Finance Bill we have not merely one test but three. It is now necessary to discover whether the car is substantially for private use or substantially for business use, or is a pool car. In other words, there is now not one category of car but three.
      Superimposed on that is the question whether a driver is provided for the car.

      1683
      As I understand the law—perhaps at some point it will be possible to elucidate this point—if one is fortunate enough to have a pool car there is to be no charge to tax for the driver, but if one has a car substantially used for business the value of the car is to be assessed by reference to the formula. However, the benefit of the driver is to be assessed on the old basis, the annual value. Therefore, one is still compelled to ascertain the number of miles for which one may have used one's car for business and the number for which it has been used for private purposes. If one's car is substantially used for private purposes, one must determine what the annual value of one's driver is, or was.
      Beyond that, if one is on the formula one must still keep records. This emerges from the booklet helpfully circulated by the Inland Revenue to assist in determining whether one has used one's car for more or less than 25,000 miles for business purposes. It is wrong to pretend, as the right hon. Gentleman has done, that the new system is devised for the advantage of middle management so that it can ascertain its liability with ease and simplicity is not true. The truth is that the right hon. Gentleman was responsible for a mean series of sections in the Finance Act 1976, of which he is probably now a tiny bit ashamed.
      Mr. Joel Barnett indicated dissent.
      10.0 p.m.
      Mr. Rees: The right hon. Gentleman shakes his head. There will be opportunities to come back to this matter in Committee upstairs, particularly, for example, with regard to the question of accommodation. We shall consider why and how, closely and carefully, the rules have been dealt with so that some can slip through the net and some can be caught. I shall not delay the Committee on the matter now, but I give the right hon. Gentleman due notice that we shall go into it with considerably greater care in Committee upstairs.
      The only honourable course for the right hon. Gentleman would be to withdraw the measures introduced in the Finance Act 1976. But it takes a bigger, braver and more honourable man than he is to admit error. The right hon. Gentleman's case is riddled with phrases like "These are practical arguments which you can safely pass by." But my right hon. and hon. Friends have riddled his arguments and have demonstrated how hollow they are. If he cannot, as he should, withdraw the offending sections of the 1976 Act, the least he can do is accept our proposal. There is just a moment for him to repent, but if he does not I hope that we shall press the matter to a Division.
      Sir John Hall: Before I seek leave to withdraw New Clause 3, I should like to make a brief comment. Referring to his previous incarnation, the Chief Secretary said that he accepted as completely true facts given to him about the very small private mileage in the use of company cars. Such cases must have been true, for otherwise he surely would not have been prepared to represent the people concerned, even for the high fee which I am sure he charged.
      I beg to ask leave to withdraw the motion.
      Motion and clause, by leave, withdrawn.

    New Clause 4

      TAXATION OF DIRECTORS AND OTHERS IN RESPECT OF CARS
      'The Finance Act 1976, Schedule 7, Part II, paragraph 3, shall have effect with the omission wherever it may occur of "25,000 miles" and substitution of "12,500 miles".'—[Sir John Hall.]
      Brought up, and read the First time
      Question put, That the clause be read a Second time:—
      The Committee divided: Ayes 116, Noes 156.

      Division No. 136]

      AYES

      [10.03 p.m.

      Alison, Michael

      Blaker, Peter

      Budgen, Nick

      Arnold, Tom

      Body, Richard

      Chalker, Mrs Lynda

      Atkins, Rt Hon H. (Spelthorne)

      Boscawen, Hon Robert

      Clark, Alan (Plymouth, Sutton)

      Baker, Kenneth

      Bottomley, Peter

      Clarke, Kenneth (Rushcliffe)

      Banks, Robert

      Bowden, A. (Brighton, Kemptown)

      Clegg, Walter

      Bennett, Sir Frederic (Torbay)

      Brocklebank-Fowler, C.

      Cope, John

      Berry, Hon Anthony

      Brooke, Peter

      Costain, A. P.

      Biggs-Davison, John

      Bryan, Sir Paul

      Dean, Paul (N Somerset)

      Dodsworth, Geoffrey

      Lambie, David

      Rees, Peter (Dover & Deal)

      Drayson, Burnaby

      Lamont, Norman

      Rhodes James, R.

      Durant, Tony

      Lawrence, Ivan

      Ridsdale, Julian

      Edwards, Nicholas (Pembroke)

      Lawson, Nigel

      Rossi, Hugh (Hornsey)

      Emery, Peter

      Le Marchant, Spencer

      Sainsbury, Tim

      Eyre, Reginald

      Luce, Richard

      Shaw, Giles (Pudsey)

      Farr, John

      McAdden, Sir Stephen

      Shelton, William (Streatham)

      Finsberg, Geoffrey

      Macfarlane, Nell

      Silvester, Fred

      Fisher, Sir Nigel

      MacGregor, John

      Sims, Roger

      Fookes, Miss Janet

      Mackay, Andrew James

      Sinclair, Sir George

      Forman, Nigel

      Marshall, Michael (Arundel)

      Smith, Dudley (Warwick)

      Fowler, Norman (Sutton C'f'd)

      Maude, Angus

      Smith, Timothy John (Ashfield)

      Gardiner, George (Reigate)

      Maxwell-Hyslop, Robin

      Stanbrook, Ivor

      Goodhart, Philip

      Mayhew, Patrick

      Stanley, John

      Goodhew, Victor

      Meyer, Sir Anthony

      Steen, Anthony (Wavertree)

      Gorst, John

      Miller, Hal (Bromsgrove)

      Stewart, Ian (Hitchin)

      Gow, Ian (Eastbourne)

      Mills, Peter

      Stradling Thomas, J.

      Gray, Hamish

      Moate, Roger

      Temple-Morris, Peter

      Griffiths, Eldon

      Moiyneaux, James

      Thomas, Rt Hon P. (Hendon S)

      Hall, Sir John

      Moore, John (Croydon C)

      Townsend, Cyril D.

      Hodgson, Robin

      Morgan, Geraint

      Viggers, Peter

      Holland, Philip

      Morrison, Charles (Devizes)

      Wakeham, John

      Hordern, Peter

      Neave, Airey

      Walker, Rt Hon P. (Worcester)

      Howell, David (Guildford)

      Nelson, Anthony

      Warren, Kenneth

      Hunt, David (Wirral)

      Neubert, Michael

      Weatherill, Bernard

      Hunt, John (Bromley)

      Newton, Tony

      Wiggin, Jerry

      James, David

      Nolt, John

      Winterton, Nicholas

      Jessel, Toby

      Page, Rt Hon R. Graham (Crosby)

      Wood, Rt Hon Richard

      Kershaw, Anthony

      Page, Richard (Workington)

      King, Evelyn (South Dorset)

      Percival, Ian

      TELLERS FOR THE AYES:

      King, Tom (Bridgwater)

      Powell, Rt Hon J. Enoch

      Mr Peter Morrison and

      Knight, Mrs Jill

      Price, David (Eastleigh)

      Mr. Carol Mather

      NOES

      Archer, Peter

      Hamilton, James (Bothwell)

      Ogden, Eric

      Atkinson, Norman

      Hardy, Peter

      Orme, Rt Hon Stanley

      Bain, Mrs Margaret

      Harrison, Walter (Wakefield)

      Ovenden, John

      Barnett, Guy (Greenwich)

      Henderson, Douglas

      Palmer, Arthur

      Barnett, Rt Hon Joel (Heywood)

      Hooley, Frank

      Pardoe, John

      Bates, Alf

      Hooson, Emlyn

      Parry, Robert

      Beith, A. J.

      Horam, John

      Pavitt, Laurie

      Booth, Rt Hon Albert

      Hoyle, Doug (Nelson)

      Penhaligon, David

      Brown, Hugh D. (Provan)

      Hughes, Rt Hon C. (Anglesey)

      Phipps, Dr Colin

      Brown, Robert C. (Newcastle W)

      Hunter, Adam

      Reid, George

      Buchan, Norman

      Irvine, Rt Hon Sir A. (Edge Hill)

      Richardson, Miss Jo

      Carmichael, Neil

      Janner, Greville

      Robinson, Geoffrey

      Cartwright, John

      Jay, Rt Hon Douglas

      Rodgers, George (Chorley)

      Castle, Rt Hon Barbara

      Jenkins, Hugh (Putney)

      Rodgers, Rt Hon William (Stockton)

      Clemitson, Ivor

      John, Brynmor

      Rooker, J. W.

      Cocks, Rt Hon Michael (Bristol S)

      Johnson, James (Hull West)

      Rose, Paul B.

      Cohen, Stanley

      Johnston, Russell (Inverness)

      Ross, Stephen (Isle of Wight)

      Coleman, Donald

      Jones, Dan (Burnley)

      Sedgemore, Brian

      Cook, Robin F. (Edin C)

      Kaufman, Gerald

      Shaw, Arnold (Ilford South)

      Corbett, Robin

      Kerr, Russell

      Sheldon, Rt Hon Robert

      Cowans, Harry

      Kilroy-Sllk, Robert

      Shore, Rt Hon Peter

      Cox, Thomas (Tooting)

      Kinnock, Nell

      Silkin, Rt Hon John (Deptford)

      Crawford, Douglas

      Lamborn, Harry

      Silkin, Rt Hon S. C. (Dulwich)

      Crowther, Stan (Rotherham)

      Lamond, James

      Silverman, Julius

      Davies, Denzil (Llanelli)

      Latham, Arthur (Paddington)

      Skinner, Dennis

      Davies, Ifor (Gower)

      Lee, John

      Small, William

      Davis, Clinton (Hackney C)

      Luard, Evan

      Smith, John (N Lanarkshire)

      Deakins, Eric

      Lyon, Alexander (York)

      Snape, Peter

      Dean, Joseph (Leeds West)

      Lyons, Edward (Bradford W)

      Spearing, Nigel

      Douglas-Mann, Bruce

      Mabon, Rt Hon Dr J. Dickson

      Spriggs, Leslie

      Dunn, James A.

      McCartney, Hugh

      Stallard, A. W.

      Dunnett, Jack

      MacCormick, lain

      Steel, Rt Hon David

      Edge, Geoff

      McDonald, Dr Oonagh

      Stewart, Rt Hon Donald

      Ellis, John (Brigg & Scun)

      McElhone, Frank

      Stewart, Rt Hon M. (Fulham)

      Ennais, David

      MacFarquhar, Roderick

      Stoddart, David

      Evans, Ioan (Aberdare)

      MacKenzie, Gregor

      Stott, Roger

      Ewing, Harry (Stirling)

      Madden, Max

      Summerskill, Hon Dr Shirley

      Ewing, Mrs Winifred (Moray)

      Magee, Bryan

      Taylor, Mrs Ann (Bolton W)

      Faulds, Andrew

      Marks, Kenneth

      Thompson, George

      Fitt, Gerard (Belfast W)

      Marshall, Dr Edmund (Goole)

      Tinn, James

      Fletcher, Ted (Darlington)

      Maynard, Miss Joan

      Wainwright, Richard (Colne V)

      Freud, Clement

      Mendelson, John

      Walker, Harold (Doncaster)

      George, Bruce

      Mikardo, Ian

      Walker, Terry (Kingswood)

      Ginsburg, David

      Millan, Rt Hon Bruce

      Watkins, David

      Gould, Bryan

      Miller, Dr M. S. (E Kilbrlde)

      Watt, Hamish

      Graham, Ted

      Miller, Mrs Millie (Ilford N)

      Welsh, Andrew

      Grant, George (Morpeth)

      Mitchell, Austin Vernon (Grimsby)

      White, Frank R. (Bury)

      Grant, John (Islington C)

      Movie, Roland

      Whitehead, Phillip

      Grimond, Rt Hon J.

      Mulley, Rt Hon Frederick

      Whitlock, William

      Grocott, Bruce

      Noble, Mike

      Wigley, Dafydd

      1686

      1687

      Wilson, Alexander (Hamilton)

      Wilson, William (Coventry SE)

      TELLERS FOR THE NOES:

      Wilson, Gordon (Dundee E)

      Wise, Mrs Audrey

      Mr Joseph Harper and

      Wilson, Rt Hon Sir Harold (Huyton)

      Wrigglesworth, Ian

      Mr Joseph Ashton

      Question accordingly negatived.

      CAPITAL GAINS TAX INDEXATION
      '(1) For the financial year 1977–78 and subsequent years the sums allowable as a deduction from the consideration for the disposal of an asset pursuant to paragraph 4 of Schedule 6 of the Finance Act 1965 shall be altered in accordance with the formula set out below, and any reference in the enactments relating to capital gains tax to any such sums shall be construed as a reference to such sums as altered in accordance with this section—
      A × B / C = D
      When "A" is the sum allowable pursuant to the said paragraph 4;
      "B" is the RPI for the month in which the disposal takes place;
      "C" in the RPI for the month in which the sum allowable pursuant to the said paragraph 4 was expended.
      "D" is the sum allowable so adjusted.
      (2) This section applies to disposals so adjusted.
      (3) In the section "the retail price index" means in relation to periods from 1st January 1962 the general index of retail prices and in relation to earlier periods an index which shall be calculated and published by the Board.'—[Mr. Pardoe.]
      Brought up, and read the First time.
      Mr. Pardoe: I beg to move, That the clause be read a Second time.
      This clause concerns the indexation of capital gains. It will be familiar to the hon. Member for Blaby (Mr. Lawson), because it is the very clause that he tabled last year after great discussions with his various advisers. I make no apology for tabling the same clause. After going backwards and forwards with every conceivable piece of advice about how to draft an indexation to capital gains tax clause, we came to the conclusion that this was the only way to do it.
      The principle of capital gains tax is good. Where the possessor of capital enjoys a real gain, that gain is in a sense income. Indeed, if we had a sensible income tax structure, there would be much to be said for calling a spade a spade and including capital gains as income for tax purposes. I do not recommend that we should do that. I do not recommend it because our income tax structure is so unreasonable.
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      The principle that I support is that which involves tax on real capital gains. Gains on a capital asset which, because of inflation, are not capital gains at all merely enable the real value of an asset to be maintained.
      10.15 p.m.
      Let us suppose that a man bought an asset for £5,000 in 1972 and that that asset has increased in value to £10,000 since then. That man will be taxed at 30 per cent. on the alleged gain of £5,000. His tax will be £1,500. If he sells the asset he will receive £8,500 net after tax. The cost of living, measured by the retail price index, has doubled since that time. The sum of £8,500 will therefore be worth only that which £4,250 was worth in 1972. That man's original investment of £5,000 has become only £4,250 in real terms after five years. That is not a capital gains tax. It is a capital tax. It is a wealth tax.
      I am in favour of a wealth tax as a replacement for investment income surcharge, the high rates of income tax and the general reform of our tax laws. I am not in favour of a wealth tax on top of our present tax structure. Let us not have a wealth tax by the back door. Let us do it by the front door. We should not tax a gain which merely compensates for the fall in the value of money.
      The Government will say that this is an expensive clause. It may be. If the Government want to tax wealth they should bring forward a comprehensive and sensible wealth tax. They should not seek to tax wealth by this method because it taxes "phoney" gains which do not exist except in the imagination of the Inland Revenue and the Treasury.
      Mr. Cope: On this occasion I am delighted to support the spokesman for the Liberal Party, the hon. Member for Cornwall, North (Mr. Pardoe). This is not a new issue. We have discussed it in successive Finance Bills for many years.
      Capital gains tax is the wrong title for that tax. I was interested to notice that an amendment, which was not called suggested that capital gains tax should be called "inflation gains tax". It was a simple amendment. It was delightful in its neatness and simplicity.
      Mr. Pardoe: It would not cost any money.
      Mr. Cope: As the hon. Member for Cornwall, North said, the amendment had the great attraction of not costing any money.
      Mr. Nicholas Winterton: This new clause would not cost any genuine money.
      Mr. Cope: I shall come later to the cost of the clause.
      The name of the tax does not reflect the true nature of what is going on. I recognise some of the parentage or history of the clause. The hon. Member for Cornwall, North did not in any way attempt to conceal it or pretend that it was his own invention. He put it forward bluntly as having been originally proposed by my hon. Friend the Member for Blaby (Mr. Lawson), who is now sitting on the Opposition Front Bench. It simply and readily makes the point which it is intended to make.
      I do not doubt at all that if the clause were put into effect it would be necessary for the Revenue and the Treasury to look over it very carefully, and maybe to revise the wording and the way in which it is drafted. For instance, it might be thought desirable by the Treasury Bench and by the Revenue advisers to ensure that very short-term gains, particularly in certain types of securities, were not given this inflation adjustment, and that it should apply only, for example, to items which had been held for more than 12 months, or perhaps, in the case of certain types of assets, for several years.
      We all remember that the original short-term gains tax was of this nature, applying to shares which were held for a year. In the case of land, I think the period was three years. Something like that might be a refinement which could be put into the clause and into these provisions if the Government were prepared to accept it. But at least for my part I do not think that is a disadvantage in our present purpose this evening, which is to press the Government on the principle of the matter.
      If the Government and the Minister of State—who I assume is to reply—were prepared to say they would agree to the principle of it, I would not fuss about the detail such as I have been expressing, nor for that matter would I fuss if they said they would take it away and come
      1692
      back on Report with a totally different method for doing it. There are other schemes for allowing for inflation in the capital gains tax which could be adapted.
      I used to think it would be much easier to have a regular slicing system of percentages similar to the old gifts inter vivos slicing system in regard to estate duty, which went on with the different adjustments for a number of years. The nature of inflation and the amount of inflation occurring over the last few years have eaten away at that argument. With the colossal rates of inflation that we have been experiencing—we get up to 20 per cent. and more per year these days—it is important to have a more accurate adjustment than merely a slicing system which causes capital gains tax to disappear over five years or some such period as that.
      I think, therefore, that the fundamental approach involved in the clause of using the retail price index to adjust the capital gain for inflation is the correct approach, rather than a cruder system, but it is, of course, open to a certain amount of criticism. The retail price index is not the index by which property prices are measured. It is not the index by which inflation is measured in those terms. The retail price index, as we all know, is based on family expenditure surveys, taking account of the price of groceries, beer, petrol, and all the things which are day-to-day expenses. It cannot be compared exactly with, and does not move in exactly the same way as, the property price index, nor does it move in the same way as the Financial Times share index or the actuaries' index and indices of that kind. They move differently from the retail price index. That is one possible area of criticism of that method of tackling the problem of the indexation of capital gains tax.
      Nevertheless, the arguments are strongly for that method because the money which is involved and which is liable to be paid as capital gains tax is related to the price of everyday goods. I do not know of a better measure of the price of everyday goods than the retail price index, even though the specific assets involved may move at a different speed and in a different way.
      I do not think that there is a real revenue point involved here for the Treasury. I do not think that the Revenue

      1693
      would lose or gain if it used a property price index or a share price index instead of the retail price index. I do not believe that over a given period there is a great deal of revenue to be gained or lost.
      There would be one clear advantage over using the asset indices, and that would be the use of one index across the whole field. If different indices were used for different assets, that would introduce a whole new range of calculations which would be difficult to handle. One has only to consider shares in property companies which would be affected by both the property index and the share index to realise the range of complications that would be encountered along that route.
      The best approach is, therefore, to stick to the straightforward retail price index with which we are all familiar, admittedly in other contexts, and which is not inappropriate to apply to capital gains.
      The question still remains whether the basic principle of going for this kind of indexation for capital gains is right. I agree strongly with the hon. Member for Cornwall, North in what he said in introducing the clause. This tax is in many respects a wealth tax by the back door, but as a wealth tax it is unsatisfactory because of its capricious nature in that it falls unevenly on different people since it is not a true measure of wealth.
      I am not sure that I go so far as the hon. Gentleman went in what he said about the wealth tax. There is a theoretical case to be made for a wealth tax in substitution for other existing taxes. A straight front-door tax, to use the hon. Gentleman's phrase, would be more desirable than a back-door wealth tax of this kind with its capricious effect. If it has been estimated, or if it is possible to estimate, I should be interested to know what amount of potential capital gains tax is hanging over the economy in terms of the ownership of assets.
      Any asset of any size has capital gains tax hanging over it. In the case of company assets, that would, of course, be corporation tax, but the same situation applies. There is an analogy with stock relief in corporation tax, a device which causes a considerable amount of concern among members of my profession—the accountants—over the way in which it
      1694
      should he treated. No doubt we shall return to that in other parts of the Bill.
      It is most undesirable in principle that the balance sheets of companies or individuals should have large amounts of deferred taxation hanging over them. In some cases this makes people potentially insolvent in the case of companies, it means they are trading illegally. This occurs because they have hanging over their assets this sometimes hidden or half-obscure lump of taxation. This is the undesirable feature of using the so-called capital gains tax as a wealth tax.
      10.30 p.m.
      The other argument in principle which applies to a wealth tax, and applies to capital gains tax in so far as it is used as a wealth tax, is whether it is desirable that people should be savers and investors. It has become familiar to point out that the Government are in favour of saving but are against savers, that they are in favour of investment but are against investors. There is no better example of either proposition than the way in which capital gains tax falls on inflationary gains. It is a clear example of the difficulty and contradiction of thought within the Government and the way in which they are operating the tax system.
      The hon. Member for Cornwall, North said rightly that this would be an expensive clause for the Government to accept. If one is prepared to fall into the trap of describing as expensive something that gives back taxation that would otherwise be collected, the only reason why it would be expensive is that the tax itself, and the way it works through inflation, is expensive and highly undesirable.
      When the Minister of State winds up perhaps he will say that the Government prefer to do this some other way. I would accept a reduction in the rate of capital gains tax, but if the Minister says that there is another way, this should be considered. What we really want to see is an acknowledgment in principle of the unsatisfactory nature and effects of the operation of capital gains tax on inflationary gains.
      For the reasons that I have outlined I was happy to add my name to the amendment and speak in favour of it. On the Notice Paper my name got attached to New Clause 5 instead of New Clause

      1695
      6. I hope that the Table corrected it this morning.
      Mr. MacGregor: As my hon. Friend the Member for Gloucestershire, South (Mr. Cope) says, this subject is a hardy perennial whose blooms grow more attractive every year, and whose roots grow deeper. It will not go away. I wish to say a few brief words in favour of the new clause.
      I do so with some misgivings because I am not particularly attracted to this method of reforming capital gains tax. I do not say that because the clause was moved by the hon. Member for Cornwall, North (Mr. Pardoe). As my hon. Friend the Member for Blaby (Mr. Lawson) knows, I felt exactly the same about the amendment that was moved last year. My objection to this particular form is that, while it meets head-on the problem of capital gains tax and deals with the issue correctly, it is a complicated formula. It will create complications for accountants, private citizens and the Inland Revenue in dealing with these matters.
      I am anxious to see more and more simplicity in our tax system, even if it means some rough justice. I would prefer to find a different way to deal with these matters. My preference, in contrast to that adopted by my hon. Friend the Member for Gloucestershire, South, involves tapering. I repeat that this will mean a certain amount of rough justice. It will mean that some capital gains that are not inflationary gains will sometimes get away tax-free, but it meets the general objective of greater simplicity for the taxpayer and the Revenue alike.
      My hon. Friend the Member for Gloucestershire, South said that he had come round to being in favour of this form of tax in a time of high inflation. Although I appreciate that a tapering system would not straight away meet the inflationary element of the gain for somebody who, for example, sold shares within a three-year period, we must fervently hope that inflation will not continue at these levels.
      We must examine the swings and roundabouts of the way the system will work. I hope that ultimately we shall even come to accept the principle of making capital gains tax a tax on capital gains. I accept that the Minister will say
      1696
      that the Government are not prepared to accede to this proposal. However, I hope that whatever the system adopted it will involve some form of tapering.
      It has already been said that the present capital gains tax is a total fraud. One point that has not come out of the discussion so far is that, although we have been debating this topic for the three years in which I have been in this House, the case for it becomes stronger and stronger each year as inflation goes on apace. Whereas the case was strong in 1974 and 1975, it is now overwhelming. The point that the tax is a fraud need not be elaborated, although it is the strongest possible argument for reform.
      My concern is for the private saver. We have talked frequently about the effects on dividend control, investment income surcharge and other aspects of the tax system as well as about inflation itself. We are making the position of the private saver acutely difficult, and it is almost impossible to see how he or she can obtain a real return on savings at a time of high inflation. But this form of capital gains tax also has that effect. Indeed, the consequences are becoming rather serious. The consequences for savers are particularly marked in retirement when people have saved for a long period of time, probably since 1965, and then find a high element of inflation in the capital gain and feel defrauded.
      Another consequence is that those who may have looked to the possibility of saving in certain forms of saving which attract capital gains will be put off. This creates distortions in the savings market. There will be a trend for savers to go into areas where investment income surcharge or capital gains tax does not apply so as to cause distortions in the savings pattern.
      I want to encourage the young couples who wish to save to buy their own house. There is no capital gains tax on the sale of owner-occupied houses because there are social and other benefits involved. I shall not go into that subject now because I would soon find myself out of order. However, I am less happy about distortions in other forms of savings.
      There is a temptation for savers on higher incomes to go into gilts in order to obtain the benefit of the capital gains tax-free element after one year. There

      1697
      are other examples, the most notable of which are in the area of Government saving, where the Government give particular benefits to their own elements of saving but they do not give those benefits to the private markets in terms of shares, and so on.
      Mr. Clement Freud: Would the hon. Member for Norfolk, South (Mr. MacGregor) agree that a substantial proportion of shares are now held by people who are reluctant to sell or inhibited from selling because of capital gains tax or the notional capital gains tax that would, in fact, be a net loss? Does he agree that if the Government relented to some extent the health of the stock market would be much enhanced and that even a small increase in stamp duty might well make up the loss sustained?
      Mr. MacGregor: I am a little doubtful about the increase in stamp duty but I agree on the general point. Indeed, it is a point that I shall partly refer to in another context. It is particularly true for retired people, who are now very cautious about moving their savings around—especially if they have been built over a long time in equities—because of the capital gains tax element. I know that there are exemptions for small sales but that does not fully meet the point. The hon. Member for the Isle of Ely (Mr. Freud) is correct.
      There is another way in which the tax is having a serious effect, particularly on the equity market. This was referred to in the interesting speech of my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) on the subject of investment income surcharge. He pointed out that private savers are now leaving the equity market in increasing numbers every year. My case is that the total number of shareholdings is reducing at the rate of 5 per cent. a year—nearly all of which are private holdings. Of course, there is a serious problem that must concern the House about the direction in which the equity market is going. There is far too great an emphasis on the institutional holder. I should stray too far if I went into the argument on that: nevertheless, it is a problem to which we must address our minds. The capital gains tax aspect of this is relevant.
      1698
      Finally, there is a point about the amount of revenue that would be lost through such a clause. If the figure is as large as my hon. Friend the Member for Gloucester, South said, that demonstrates just how high a fraudulent element there now is in the yield from capital gains tax. It demonstrates what a large proportion of the tax is inflationary gain. It also means that money is being taken out of the free savings market on a large scale, and that—if capital gains tax is to achieve its original purpose—should not happen.
      There are many arguments for such a clause. I should have preferred a tapering one but it is clear that at current levels of inflation this argument grows stronger every year. At some time, some Government must take that on board.
      Mr. Nicholas Winterton: I have great pleasure in following my hon. Friends the Members for Gloucestershire, South (Mr. Cope) and Norfolk, South (Mr. MacGregor) because they are always of considerable assistance to the House in their observations on monetary and financial matters. Their knowledge is exceptionnal, and I hope that some of the views that they have expressed in supporting the new clause in principle will be taken on board by the Minister.
      How right my hon. Friend the Member for Gloucestershire, South was when he said that the Government have, on the one hand, encouraged saving but deterred the saver and, on the other hand, encouraged investment but deterred the investor. Certainly the remarks of my hon. Friend the Member for Norfolk, South relating to the equity market were pertinent to this debate because there is no doubt that successive Governments, particularly the present Government, have swindled these who have invested in the equity market for the simple reason that investors have invested their money but the return to which they were entitled has been restricted by Government action. The actual value of their investment has dropped because of the high rate of inflation, and they have not been allowed to have returned to them the dividend that would reflect the high rate of inflation.
      10.45 p.m.
      Inevitably, over the years the equity market has got almost entirely into the

      1699
      hands of institutions. Far from redistributing wealth, the Government have concentrated it in a few hands, and that is dangerous for our economic growth and prosperity.
      The Minister shook his head when my hon. Friend the Member for Gloucestershire, South said that the Government had deterred savers and investors. I hope that the hon. Gentleman will justify that shaking of his head and will explain what the Government have done to help savers and investors.
      Perhaps I should declare an interest. In common with many other hon. Members, I have a few shares on the equity market. The return on them is well below the rate of inflation, and it would have paid me, despite capital gains tax, to sell the shares and squander the money. I have not done that, and I hope that the money is being used to advance the cause of British industry. However, I have no incentive to leave that money in the equity market.
      Perhaps the false figure of capital gains tax that I should have to pay if I realised my small assets does deter me to an extent. Certainly the principle behind the clause gets stronger every year. The rate of inflation this year is around 17 per cent., and the Government must get the message and must act.
      I hope that the Minister does not trot out the usual Treasury clap-trap about our not being able to afford such a proposal and so on.
      Mr. Cope: Even if we believe what Treasury spokesmen say about the rate of inflation coming down to single figures over the next few years, the points that my hon. Friend is making about the importance of the clause will still be true because of the potential capital gains tax that is hanging over us on assets that have not yet been realised.
      Mr. Winterton: I agree. My hon. Friend highlighted that point in his earlier remarks. The Minister of State is a young member of the Government and I hope that he is not clothed in the guise of the old-school Socialists who believe that a proposal such as this could not work and would be too costly.
      If the Government are not prepared to accept the principle in the few days or weeks that remain to them, I am sure
      1700
      that a future Conservative Government will make strides in this direction. I do not know what my hon. Friend the Member for Guildford (Mr. Howell) will be saying from the Opposition Front Bench, but I have considerable sympathy with the principle behind the new clause and I commend the hon. Member for Cornwall, North (Mr. Pardoe) for moving it.
      Mr. J. Enoch Powell: I shall not support the clause on either of the two grounds on which it has been urged or supported. The first is that it represents a form of indexation of taxation in a period of inflation. The second is that it at any rate diminishes the impact of capital gains tax upon gains which are purely of an inflationary character.
      I believe that indexation is justifiable only on an unfulfillable condition, namely, that we can index everything all the time. Unless that can be fulfilled, the attempt to index creates at least as many distortions as it purports to remove. I would far rather look towards such methods as may eventually remove the phenomenon of inflation, at any rate in its practical effects, than attempt to construct elaborate machinery for counteracting inflation.
      I noticed in the course of this short debate that hon. Members who have spoken were interested in the clause—this particularly applies to the hon. Member for Gloucestershire, South (Mr. Cope)—more as a defence in part against the taxation of inflationary capital gains than on the grounds of indexation. Here my objection is more fundamental. It is that I do not accept the validity of taxation on any form of capital gains. We deceive ourselves if we think that we are making much progress when we protect inflationary capital gains against taxation.
      There are three, and only three, causes of capital appreciation. The total possibilities of capital appreciation are exhausted when we have added together those three causes. One, of course, is inflationary appreciation; that is to say, appreciation which reflects purely the decline in the value of the money in which capital assets are valued. The second is relative, for all real appreciation of assets is equal and opposite to the depreciation of other assets which is taking place. It is impossible to conceive that

      1701
      some assets appreciate in real terms without that appreciation being at the same time offset by equal depreciation elsewhere. That is the second cause of capital gains whether realised or unrealised. The third is the conversion into capital assets of saved income. That is the third, and the only remaining, cause of the phenomenon of capital appreciation.
      It has long been my belief, and I have urged this over the years, that the attempt to tax any of these three forms of capital appreciation is fundamentally misguided. The essence of taxation is a diversion, or an application, to public purposes of a part of the current effort of a society. Therefore, all taxation is taxation on income—all taxation is a kind of corvée, a diversion of effort from the purposes to which individuals would otherwise have applied it to the purposes which are laid down by the community and are imposed by the community.
      When taxation falls not upon income but upon capital assets we are mistaking and misusing the essential nature of taxation itself and doing it in such a way as to transfer—and probably, in the attempt to transfer, destroy—the creative capacities of the society itself. That this happens when unreal gains, illusory gains, inflationary gains, are taxed goes without further demonstration. It also happens where relative gains, offset by equal and opposite losses, are taxed, because unless at the same time the community is making good the corresponding losses which are occurring, it is engaged on a net form of capital consumption.
      In the third case, what is happening is that the State is taxing twice. It is taxing the income and it is also taxing the saving of that part of income which has been, by common consent and deliberately, relieved of taxation, the part which is left after taxation has fallen upon it. If hon. Members will test this proposition by presenting to their minds cases where there is a real increase in value which is neither inflationary nor relative, they will find that it can arise only from the application, from the deposit as it were—the creation—of capital by the saving of current income.
      Mr. Lawson: I may try to comment later on what the right hon. Gentleman has said, but may I ask him one question, following on the lines of his thought?
      1702
      He said that, for the reason that he has given, he is opposed to all taxation of capital gains. By the same logic, is he therefore opposed to all taxation of capital, of any kind?
      Mr. Powell: Yes, I am. I believe that capital taxation is either self-destructive or an illusion, that taxation of income serves all the proper community purposes of taxation and that all increase in wealth, in so far as it ought to be brought within the scope of taxation, ought to be brought within the scope of taxation by means of the income which it produces and generates.
      Mr. Cope: The first of the right hon. Gentleman's causes of capital gains is the subject of the clause. On the second clement, in theory at least, if it were working well, a system of allowing for capital losses, which is an inherent part of the mechanism of the tax, should be self-balancing. If I have understood correctly the right hon. Gentleman's concept, if one house increases in value and another goes down in value—this is the relative effect—the owner of one will have the capital loss allowed and the other will be taxed on the capital gain. It does not work perfectly in practice because of the operation of the mechanisms. But suppose that coal or oil were discovered under a piece of land under which of the right hon. Gentleman's headings would the consequent increase in value fall?
      Mr. Powell: On the hon. Member's first point, it would be theoretically possible to construct some sort of tax system—it would be extremely complex—whereby all diminution, realised or unrealised, in capital values which was relative diminution was either remitted or repaid. But in practice this is far indeed from happening. In answer to his second question, unless and until the coal seams which have been discovered under that land are worked and the wealth which is produced has in part been applied to the creation of new capital assets, the relative increase in the value of that land must be counterbalanced by a relative fall in the value of all other capital assets whatsoever.
      I am sorry, Mr. Murton, if I have been betrayed into conducting a seminar at this untimely hour. I conclude by saying—perhaps it is a perfectionist's approach,

      1703
      but, if so, it is one proper to adopt by those who occupy the Back Benches rather than the Front Benches—that I do not wish to see us diverted from the real and profound evils and misconceptions of the taxation of capital in general by the attempt to palliate the effects of taxation of the illusory accretion of value in terms of inflation.
      11.0 p.m.
      Mr. Wakeham: We are extremely grateful to the hon. Member for Cornwall, North (Mr. Pardoe) and his hon. Friends for initiating the debate. Not only have they raised an especially important subject; they have produced most interesting comments from the right hon. Member for Down, South (Mr. Powell). What I am about to say is not quite in line with what the right hon. Gentleman said and, therefore, I am in some trepidation in saying it. However, I do not think that there will be quite as many contradictions at the end of my speech as at the beginning.
      I agree with the three points that the right hon. Gentleman made about capital gains. As for the element of inflation, I do not think that the majority of us would say that that is a real capital gain. Surely we should avoid taxing it in an ideal system. However, there is the question of real appreciation and real losses. The third form of capital gain is saved income. Saved income is post-tax income and provides the base value for a capital asset. Even under the present system it should not attract capital gains. That is because it is the basic cause of building up a capital asset. If an individual invested £1,000 of his saved income in a capital asset, in no way would he be taxed upon the £1,000 that he put into the capital asset.
      My approach to capital gains is to start with the proposition that a profit is a profit and a profit should be taxed. A Royal Commission in Canada—I think it was the Carter Commission—adopted that approach some years ago. I should treat genuine profits of income and genuine profits of capital in entirely the same way but with the introduction of two important factors. First, I should say that it would be wrong to tax the inflation element in a capital gain. That is why I believe that a capital gains tax
      1704
      of 30 per cent. instead of the normal rate of income tax, or surtax in the days that it was brought in, was an attempt to recognise that capital assets cannot be taxed at the same rates as income due to the important element of inflation. Clearly, the differential between income tax rates and capital gains tax is quite inadequate in the modern era given the rates of inflation that we have had.
      Secondly, if we are to adopt my approach to capital gains tax, we have to recognise that the capital gain does not accrue at the time of realisation but accrues evenly over the ownership of the asset. In my ideal situation I should have taxation of income over the period of ownership but with the inflation element excluded. Clearly, that sort of system is not very practical. Therefore, whatever system one introduces for capital gains tax is bound to be a compromise.
      I consider that the clause is a compromise well worth considering, but there are two factors that I want to bring into consideration. First, most capital gains taxes, which are taxes arising on realisation of assets, basically have a bad economic effect. Taxes such as capital gains tax, capital transfer tax and stamp duty are taxes on change. Because they inhibit economic change, I do not think them to be basically good taxes.
      Secondly, there is the very serious problem of the deferred tax The Chancellor said in his Budget speech that he thought that the problem was better understood in the country than previously. He then made some remarks which indicated to me that he did not appreciate the problem, and that, therefore, it was very unlikely that the rest of the country understood it either.
      Deferred tax is no problem whilst a business is a going concern. The problem is that when advancing money to companies or institutions bankers look at them not when everything is going right but when everything is going wrong and they realise the security. Deferred tax is no problem if there is no question of insolvency of the individual or liquidation of the company. It can continue as simply a figure on a balance sheet. But when it comes to the crucial question of the creditworthiness of an institution one does not look at it on a going-concern basis. It is only when a company goes broke that deferred tax is a serious problem.

      1705
      Deferred tax is a major inhibiting factor at present in our country's affairs. I do not believe that the Treasury understands the problem.
      For the reasons I have given, I think that the clause has played an important part in our consideration of the Bill, and we should all be grateful to the Liberal Party for having put it before us.
      Mr. Budgen: The clause raises two issues—indexation and the whole question whether capital taxation is right in principle. I do not propose to attempt what I suppose is always my difficult duty in politics, which is to follow—not always the lead of, but at least to follow—the right hon. Member for Down, South (Mr. Powell).
      As the right hon. Gentleman said, there are two logical positions that we can take up with regard to the principle of indexation. One is to have no indexation and the other is to have total indexation. It is possible for the State to order indexation of those contracts over which it has control. It then creates a distortion of contracts between private individuals, and there are further anomalies, further difficulties, for people who are coping with an increasingly fast rate of inflation.
      The more we discuss indexation, the more we must ask ourselves "Do we really want to beat inflation? Do we really want to deal with it at its fundamentals or simply to mask the symptoms?" I wonder why we now have a nearly 20 per cent. rate of inflation. Are there conditions in society which make people tolerate this level of inflation, or is it most people's desire not to halt inflation but so to rig it that it does them no harm and any harm is felt by others?
      For instance, why is it that in today's society, when so many people are partly dependent upon welfare benefits, which are themselves indexed, or partly dependent upon old-age pensions, which are also partly indexed, the broad mass of the population allow the politicians to print the money and not raise their taxes? Is it because they feel that they are at least partly indexed?
      Mr. Lawson: Before my hon. Friend gets too carried away, may I ask him two questions?
      Mr. Budgen: I would rather my hon. Friend asked me one at a time.
      Mr. Lawson: First, does my hon. Friend believe that Governments have been wrong to raise the threshold of income tax every few years to take account of rising prices? Does he feel, in other words, that the threshold of income tax should now be exactly the same in monetary terms as it was 10, 15 or 20 years ago? Does he believe that that would be of help in the battle against inflation?
      Secondly, is my hon. Friend not aware that it is the Government who are printing money and who are also the beneficiaries from non-indexation in many of these things?
      Mr. Budgen: I agree that the Government are beneficiaries from inflation—
      Mr. Lawson: From non-indexation.
      Mr. Budgen: Yes, indeed. But the way in which all Governments have persuaded large sections of the community to endure inflation is by saying to them In one activity or another, we will allow you to contract out of inflation." I instance the whole question of house purchasing.
      Mr. Lawson: Would my hon. Friend be kind enough to give me an answer to my first question?
      Mr. Budgen: Which was? I asked my hon. Friend to ask me one at a time.
      Mr. Lawson: Is my hon. Friend saying—this is the logic of it—that it is wholly wrong for Governments to have increased the threshold of income tax—the level at which people come into the net—over the years to take account of inflation? Is he saying that it would have been far better to have kept the threshold where it was, say, 10 years ago, and that this would mightily have contributed to the struggle against inflation?
      Mr. Budgen: No. I am saying that, in one area or another, the Government seek to take the pain out of inflation, but unless some pain is felt by those who are suffering under inflation there will be no popular will to break inflation. I was quoting the example of house ownership.
      The nominal value of housing goes up and up. The houseowner kids himself

      1707
      that he has a more valuable house. By dispensation of Parliament, he pays no capital gains on his principal private residence. But if, under the 1965 legislation, it had been laid down that he should pay capital gains tax on his principal private residence, I suspect that the wish to defeat inflation would have been a great deal stronger.
      When I hear various business men saying that they want to defeat inflation, I ask myself "Do they really?" Many of them have their businesses geared to it. Many of them have accepted a high rate of inflation, and if that high rate of inflation did not continue as they predicted they would be bankrupt. They know, as the Government know, that the only way someone who has borrowed a lot of money can get out of trouble is by a rising crescendo of inflation cancelling the real value of his debts.
      I wonder, when we talk about indexation, "Do we really want to defeat inflation, or do we just want to mask it?" The only way in which we can defeat inflation is by demonstrating to people the painful effects of inflation. If we take away the pain, we shall also take away the popular will to defeat it.
      11.15 p.m.
      The Minister of State, Treasury (Mr. Denzil Davies): We have had a very interesting, almost philosophical, debate on indexation, taxation and capital taxation in general. Perhaps I could return to the new clause and remind the Committee of what we are discussing.
      If we are discussing indexation—indeed, we are discussing it in relation to capital gains tax—we are discussing indexation for the benefit of one particular group of savers. We have heard one or two speeches about the virtues of saving. We are discussing indexation for one group of savers. Many of the people who would benefit from the new clause might not be savers or might not be people who have put their savings into capital assets and made a capital gain. Therefore, we are discussing indexing one form of taxation as opposed to others.
      Before pursuing that argument, perhaps I should say—although I am sure that the Committee will not be too interested in technical arguments tonight—that indexing capital gains would create
      1708
      enormous technical problems from the point of view of considering the clause. There is the problem of part disposal, of assets being disposed of partly from one year to the next. There is the problem of shares being pooled, of new shares being bought and old shares returned, and then those shares being sold. There are the problems of losses which have to be dealt with. Therefore, there are considerable technical problems, apart from objections in principle, as the hon. Member for Norfolk, South (Mr. MacGregor) recognised.
      The hon. Member for Norfolk, South said—I agree with some of it—that if one was wanting to deal with this problem a better way might be to introduce a kind of tapering system, which some other countries have introduced. They have a tapering system which perhaps creates a kind of rough and ready form of justice.
      The major objection is that I do not believe—I agree with the right hon. Member for Down, South (Mr. Powell) and the hon. Member for Wolverhampton, South-West (Mr. Budgen)—that indexation is the answer to this problem, or, indeed, that we should go down this road of indexation very far—except that in some cases we have indexed certain payments. This is something of which we have to be very wary, because it does not solve the problem of inflation. It is a cosmetic exercise. It creates a false sense of conquering inflation when we have not done so.
      If one indexes some things and not others, one is creating a benefit for one section of the community but not others. On the other hand, if one indexes everything, which seems to me to be fairer, one benefits no one. One is back in the same place again and has not solved any problem at all. Opposition Members want to index some areas but not others. That is unfair for those who are not getting the benefit of the indexation.
      Mr. Nicholas Winterton: Does the Minister agree that the investor who, very often, has made his investment out of earned income is a very deserving person within the community and, therefore, that indexation, which the Minister has admitted has been applied to other groups, might justifiably and rightly be admitted for small investors and savers?
      Mr. Davies: Small investors are very worthy people, but not all investors make

      1709
      capital gains. Many investors buy shares in building societies or put their money into building societies. They suffer from inflation. The value of their deposits, and, indeed, the value of the interest that they receive, is reduced by the effect of inflation. They are investors, but the clause would not help those investors. The hon. Gentleman refers to merely one kind of investor, but not all investors make capital gains.
      Mr. MacGregor: If the Minister believes in the argument that he was using just before my hon. Friend the Member for Macclesfield (Mr. Winterton) intervened, why did the Government introduce index-linked savings bonds, and is that not an example of discrimination against the institutions and even individuals who are trying to attract savings?
      Mr. Davies: I entirely accept that there is a certain amount of discrimination. But we are not living in a perfect world. There are certain areas in which it is believed that a certain group needs to be protected more than others against the ravages of inflation, which would seem quite different from saying that those who are able to make a capital gain should also get that benefit. However, I accept that there is a slight discrimination.
      We should be wary of going along this road, otherwise we shall end up by thinking that we have solved the problem of inflation when, of course, we have not done so.
      The clause calls for indexation on the basis of the retail price index. That is an unfair way of dealing with the problem. The hon. Member for Cornwall, North (Mr. Pardoe) looks surprised. I see RPI in several parts of the clause. I am right, am I not?
      The hon. Member for Gloucestershire, West (Mr. Cope) gave a good example. He said "If I bought agricultural land at a low price and then found coal or oil under it and made a vast profit, why should I be allowed to index that profit to the retail price index? That gain might have nothing to do with the retail price index." Indeed, one might make a gain on property shares which had nothing to do with the RPI. The Sandilands Committee did not recommend that its form of indexation should be related to the retail price index. We cannot have
      1710
      one RPI for all the different sorts of asset. I suggest that is a major flaw in the clause. [Interruption.] It is suggested that it is a bad point. There are many reasons why a person makes a capital gain. A gain may have nothing to do with the retail price index. Why should someone get the benefit of an increase in the retail price index? I suggest that there must be different indices, to be fair, in deciding what part of a gain should be indexed.
      Mr. Lawson: I am sure that the Minister does not want to display himself in public as an intellectual pigmy. He will surely appreciate that a capital gain is measured in terms of money. The retail price index measures the decline in the value of that money. We are talking about determining a true non-inflationary monetary gain. This has nothing to do with the particular price of coal, land or anything else.
      Mr. Davies: The inflationary gain, according to the clause, is computed by reference to the retail price index. I suggest that might be unfair in relation to a particular asset. The RPI takes account of many factors. If the hon. Gentleman studies the Sandilands proposals, he will see no suggestion that the gains, profits or valuation of assets should be related to the retail price index.
      It is interesting that the hon. Member for Norfolk, South and others suggested that if we were to go along this road we should have to look again at our capital gains tax system and provide a higher tax for a gain made over a short time, and that we should have to consider bringing back a short term gains tax to take account of speculative gains made over one or two years.
      The main objection to the clause is that indexation is not the right way to deal with the problem. We should not index one form of taxation without looking at the whole area of taxation. Indeed, we should look at other areas of financial and commercial transactions.
      I do not know whether the hon. Member for Cornwall, North will seek leave to withdraw the motion. If not, I ask the Committee to reject it.
      Mr. Lawson: I have been silent up to now. Indeed, I have made no contribution at all during the whole of the Committee

      1711
      stage on this Finance Bill. It has been difficult for me to do that. Indeed, this would have been the first indexation deabte on any Finance Bill, since I have been a Member of Parliament, in which I had not taken part.
      Mr. Budgen: My hon. Friend is taking part now.
      Mr. Lawson: I was about to say that it would have been the first indexation debate in which I had not taken part, but the Minister's lamentable reply has prompted me to rise.
      Mr. Robert Sheldon: The hon. Member for Blaby (Mr. Lawson) said the same thing last year, too.
      Mr. Lawson: The Financial Secretary reminds me—I had forgotten—that he made a very bad reply last year, too. As a matter of fact, it was not last year. The hon. Member for Cornwall, North (Mr. Pardoe) had the courtesy to point out that this clause was the clause that I moved last year. To put the record straight, I tabled it originally the year before last. If the hon. Member for Cornwall, North cares to look at New Clause 2 which I moved on 16th July 1975 he will find that that is the Eons et origo of the clause that we are debating tonight.
      The clause has been criticised by the right hon. Member for Down, South (Mr. Powell) and the Minister. I shall deal with that in a moment with all the brevity that I can command. [Interruption.] It may not be a great deal because we have had the benefit of what the right hon. Gentleman called a seminar. We should debate the matter seriously and at some length.
      One or two of my hon. Friends—the Minister hinted at this—said that they would be better disposed towards a tapering system rather than this explicit indexation. I do not have a copy of the amendments with me, but I believe that there is a new clause to taper capital gains on the Notice Paper for the Standing Committee. I hope that we shall repeat this debate even more fully upstairs. Hon. Members on all sides of the Committee will have the opportunity to discuss the question of tapering and perhaps vote on it.
      1712
      My hon. Friend the Member for Gloucestershire, South (Mr. Cope)—or was it the hon. Member for Cornwall, North?—said that this might be an expensive clause. It is always important to discuss costs. It is right to bring that up. It was striking that the Minister at no time said what it would cost if the clause were to be accepted. That is strange, because Ministers invariably say what would be the cost of accepting a clause. On this occasion, the Minister said nothing at all. Yet the uncertainties about the cost are exactly the same as the uncertainties about the yield from capital gains tax. It is estimated that the yield for next year will be £330 million. Last year the estimate was £400 million but the yield was £320 million—a 20 per cent. error. It is surprising that the Government can give no estimate of the cost of the clause. It might not be great. Alternatively, it might be so great that it is horrific and they wish to suppress the amount that they are gaining from inflation. Whatever the reason, we should be told. [Interruption.] If the figure was in between, as the Minister suggests, I suspect that the estimate would be given with the alacrity with which such figures are usually provided.
      The right hon. Member for Down, South said that he was against this, not because he felt that the inflationary element in a capital gain should be taxed. He did not think that any element of a capital gain should be taxed or that there should be any capital taxation at all.
      That is a point of view for which there is a considerable argument. But if the right hon. Gentleman feels that way surely that is sufficient reason for him to go some of the way. I do not think that the whole should be the enemy of the part. I do not think that the best should be the enemy of the good. I should have thought that he would have supported something that goes part, or a large part, of the way towards what he wanted to do.
      The right hon. Gentleman said that there were three kinds of capital gains—inflation, a relative gain and the other which is derived from income being transferred into capital through the mechanism of saving, and he said that if that is taxed in the form of capital, it is taxed twice, because it has already been taxed

      1713
      as income. That was what I understood him to be saying.
      11.30 p.m.
      Let us consider what might happen in a totally non-inflationary economy. Suppose that a painter got together certain pigments and used them to create a masterpiece of art. He would have created a capital asset of considerable value, but there would be no flow of income from it because a painting is not an income-producing asset.
      Mr. Denzil Davies: Surely the hon. Gentleman must be aware that painters are subject to income tax just like everyone else. A painter would pay income tax on the profits of the disposal of the asset.
      Mr. Lawson: That does not answer the point. A capital asset like a factory is valued by the multiple of its earnings and by the income that it produces. That is not so with a painting. I am surprised that Ministers should dispute that, because the whole of their case for recommending the introduction of a wealth tax is that there are assets which produce no income and that it is important somehow to tax them.
      The economists have a term for that. They say that a painting creates psychic income, but there is no taxation of that. Unless the right hon. Member for Down, South, can weave that into his model, I cannot see that there are only three exclusive categories of capital gain.
      My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) also made a contribution—[Interruption.] Judging from the cheers from the Government Front Bench, it seems that Ministers agree with what my hon. Friend says. No doubt they will continue to take that view when he speaks in Standing Committee. My hon. Friend seemed to be advancing a strange theory on how to cure inflation. He must surely understand that the clause has nothing to do with curing inflation, however. The hon. Member for Cornwall, North did not advocate it as such, and I know of no one who does.
      My hon. Friend said that inflation will be cured only by the infliction of pain. I should have thought that we had had enough of pain. Evidently he thinks that the answer to inflation is to have more
      1714
      and more of it, however. It seems that the cure also lies in the mechanism of the popular will. It is evidently not Governments that have a responsibility for the cure. It is the population, and until the populace is punished sufficiently the popular will will not provide a cure for inflation. I confess that I was not convinced by that thesis. Therefore, I was not convinced by my hon. Friend's opposition to the clause. I believe that the rest of my hon. Friends were in favour of the clause. I found their arguments more convincing.
      The Minister, who could have done with some tuition from my hon. Friend the Member for Macclesfield (Mr. Winterton), made a lamentable speech. He seemed to think that the clause was being proposed as a cure for inflation. It was not proposed as a cure for inflation; therefore, to say that it was not a cure for inflation was no argument against it.
      The Minister also said that the clause created a benefit for some people and not others. I have news for him; any tax change in any Finance Act creates a benefit for some—if it is a reduction in taxation—and not for others. That is no argument. The question is whether these people have been unfairly treated hitherto.
      It has been pointed out cogently by the hon. Member for Cornwall, North and my hon. Friends that that is indeed the case. The Minister's speech was a marked retreat from the speeches of previous Ministers. This is rather worrying. Even the Chancellor of the Exchequer, when introducing the 1975 Budget, said, on the very question of capital gains tax
      "There is, however, evidence that this tax is bearing unduly heavily on those who hold assets for long periods and is too lenient on those who hold for very short periods, and over the coming year I propose to review the incidence of capital gains tax."—[Official Report, 15th April 1975; Vol. 890, c. 311.]
      He admitted that there was a need for a review of the incidence of capital gains tax in the light of inflation, but nothing has happened since then. What is the result of that review? We have not been told. We should have been told what that review threw up, even if it led the Chancellor to believe that no action should be taken.

      1715
      A previous Treasury Minister, in a previous Finance Bill Committee stage debate—this is the Minister whom we love so much and who changes from Department to Department so often that I forget which one he is in now; the hon. Member for Dudley, East (Dr. Gilbert)—said, about another hon. Member of the Committee, on the subject of capital gains tax:
      "He sees this as a form of wealth tax and I accept that. It is an arbitrary form of wealth tax, however, because it falls on those who have to realise their assets in certain circumstances…the way in which we tax capital gains at the moment is unfair."—[Official Report, Standing Committee H, 23rd May 1973; c. 615.]
      That was one of the Minister's predecessors. Yet we now have the Minister backsliding, with no admission of unfairness.
      The Chief Secretary has also said that the capital gains tax was unfair. He said that we have to find
      "a more progressive or different way of dealing with capital gains tax."—[Official Report, Standing Committee A, 11th February 1975; c. 1176]
      The Government have had two years now. What more progressive or different way of treating capital gains tax are they presenting to us? The Chief Secretary has been ready to admit that the interaction of capital gains tax in its present form—capital transfer tax—causes a heavy, severe, punishing and wholly unfair and unacceptable form of taxation in many circumstances. He has convinced us. If he wishes me to quote his exact words I shall do so. They come from last year's debate. In 1975 he said:
      "Let me turn now to capital gains tax. The arguments about capital gains tax indicate a need for an examination of that tax. That I do not dispute."
      He pointed out the problems of interaction, and then went on:
      "The answer there lies more with a reform of the capital gains tax, whether it be by way of indexation which the hon. Gentleman is so fond of, or another way which others may prefer, a more progressive or different way of dealing with capital gains tax."—[Official Report, Standing Committee A, 11th February 1975; c. 1175–6.]
      Yet now we have no admission at all from the Government, no news of a review or a more progressive or fairer means of levying capital gains tax.
      1716
      There is one point that is worrying some of my hon. Friends and also seems to give some concern to the Minister. The right hon. Member for Down, South and some others have said that if one part of the system is indexed the lot must be indexed. This is manifest nonsense. The right hon. Member adduced no argument to suggest that this should be so.
      Many parts of our system are already indexed. We have index-linked bonds, stock appreciation relief, inflation-proof pensions, and indexation in many other forms. Is the right hon. Member really saying that there should be no regular increase in pensions along with the cost of living because this is indexation? Is he saying that the threshold of taxation should not go up in line with inflation? This is a nonsensical proposition. But in any event capital gains tax is clearly a special case. The reason why capital gains tax is special is that other taxes, which relate to specified monetary sums, can be changed each year. In the words of the Financial Secretary—and I am glad to see him in his place—they can be revalorised. They are reviewed each year, and every so often the thresholds are put up and allowances raised. But capital gains tax, by its very nature, cannot be adjusted each year because it is not a tax relating to the events of one particular year, nor to any specified monetary sums. It relates to a period going back over a long time. There is no way in which capital gains tax can be annually reviewed. It can only be reconstructed—by indexation or by tapering, which is a rough and ready means.
      The Government review every tax every year—even capital taxes such as capital transfer tax, where the limit of £15,000 could be put up next year by 10 per cent. or 15 per cent.—except capital gains tax. Because it is concerned with money at different times it cannot be revalorised or reviewed in this way. It is, therefore, uniquely necessary to reconstruct capital gains tax.
      I urge the Minister to go back to those who provide his brief and ask them to provide him with a better brief so that when we come to discuss the new clause on tapering in Committee upstairs there will at least be arguments with a veneer of respectability about them.
      The Minister of State gave us some indication of the severity of this tax, as

      1717
      did the hon. Member for Cornwall, North. For the period this Government have been in office the rise in prices has been about 75 per cent. This means that if an asset maintained its real value and was worth £100 when the Government came to office it is now worth £175. That is a notional gain of 75 per cent. A figure of 30 per cent. capital gain (on that sum of £175 means a tax of £22.50, which is a tax of about 13 per cent. I hope that the Minister is with me so far. That is a wealth tax of 13 per cent. Admittedly, it is spread over a three-year period because this Government have been in office for three years. That represents a wealth tax of 4 per cent. a year. Yet the highest annual wealth tax in Europe is that imposed by the Swedish Government amounting to 2½ per cent. Our wealth tax of 4 per cent. a year is, therefore, a severe tax. This aspect of capital gains tax is no mere technicality. It is pre-eminently a wealth tax and a wealth tax of the utmost severity.
      I hope that the Minister will try to reply more fully to these arguments when he deals with these matters upstairs. I hope that he will pay more attention than he is paying now while chatting to the Financial Secretary.
      Mr. Robert Sheldon: We are checking the figures.
      Mr. Lawson: The figures are right; do not worry about that. I hope that the Minister of State will remember the Chancellor's promise to review this matter and will come forward with something better upstairs or later on Report.
      11.45 p.m.
      Mr. David Howell: My hon. Friend the Member for Blaby (Mr. Lawson) is to be congratulated on the brevity of his speech, into which he was forced spontaneously and unwillingly by the provocative remarks of the Minister of State in summing up the earlier part of the debate.
      There should be no apologies in respect of the right hon. Member for Down, South (Mr. Powell) for treating us to a seminar. As usual, his remarks provoked thought, and he was right to remind us of the nature and accumulation of capital and of the fact that capital itself is a simpler and more elusive concept
      1718
      than might be inferred from hearing the word "capital" as it drops from the lips of tax reformers or economists or as it is thrown about in debates in Parliament.
      But when the right hon. Gentleman takes us on to his proposition that it is better that we do nothing in addressing ourselves to capital—because in principle he is against all taxation on capital—I do not think it follows that because we cannot do everything we can do nothing. I think that we should proceed on that path. There is progress to be made, and we should not let "ambition mock" our "useful toil" in this area.
      There is progress to be made in this sphere. Two years ago we thought that the Government would make some progress, but the review has been lost in the spiral of reviews, there have been further delays and nothing much will happen on the Treasury Bench.
      There are two aspects of the clause which have been discussed. There is the indexation aspect, and our position on indexation—obviously the word is elastic and can be stretched to mean many things—is that it should become the custom in this House that each year Chancellors of the Exchequer and Chief Secretaries should acknowledge the effect of inflation and rises in prices on the real impact of taxation. Money values should be appropriately adjusted and set before Parliament, and the Chancellor should explain clearly why he wishes to raise taxation if he does not want to make the full adjustment. That is what we mean by the principle of truth in taxation.
      It is a principle which Labour Members should embrace with more vigour than happened in the run-up to this Budget when an absurd degree of pretence was mounted from December onwards that the Government would do wonderful things, that this would be the last Budget before the Chancellor went to the Foreign Office, and that there would he all sorts of tax concessions. By the time we reached it, the public had rumbled and had realised that what were being trumpeted as tax concessions were not tax concessions at all but temporary checks in the ever-rising level of real taxation. That is the indexation side.

      1719
      As for indexation on capital gains, I confess that I share the view of the Minister of State. It creates a formidable bureaucratic machine. The indexation of capital gains would mean setting up an enormous machinery for assessment. Therefore, at a time when, heaven knows, we are trying to redress the balance between the public and the private sector, to reduce the growing army of administration and to persuade more people into wealth creation, this is not the right way to deal with the matter.
      The Minister of State mentioned a much more profitable way, and I do not know whether we should draw hope from that, but he was on the right lines in talking about tapering. That would be our preference—tapering capital gains tax over five years. So I shall draw encouragement from what the Minister said, especially now that the Government will get on with the review, spurred on by the eloquence of my hon. Friend the Member for Blaby and other hon. Members. That is the way to go. The review should come forward with proposals for the tapering of capital gains tax. That is the way to meet the needs of the situation more effectively, partially in relation to the needs of capital taxation reform. It could be done more effectively than through this clause, which, I fear, would create a massive bureaucratic army for dealing—probably not effectively—with a specific aspect of taxation caused by high inflation, which, in turn, means unemployment.
      Those are the views that I add to an excellent, useful and informative debate on a subject about which something must be done soon—if not by this Government, then by the one following it, and that is not far away.
      Mr. Pardoe: I must make it clear that I do not regard the Minister of State as an intellectual pigmy, but I am a little worried about the intellectual size of the mind that wrote the piece about the retail price index for the hon. Gentleman's speech. If there are people in the Treasury who do not know that the RPI measures the value of money, I do not know what they do know. The whole point was bad because the point about indexation is that one must start by measuring the fall in the value of money
      1720
      and then apply that to whatever one is trying to tax or measure.
      I wish to refer to the right hon. Member for Wolverhampton, South-West past and the hon. Member for Wolverhampton, South-West present (Mr. Budgen), if I may put it that way. The right hon. Member for Down, South (Mr. Powell) and I enjoy an extraordinary relationship with the Institute of Economic Affairs. It is a rather unsatisfactory eternal triangle, although I am not sure who is on the hypotenuse. We have a Box and Cox relationship. Every time that I find something that the Institute has advocated which I support, the right hon. Gentleman opposes it. Every time that he supports something advocated by the Institute, I do not do so.
      The definitive work on indexation is "Monetary Correction" by Professor Milton Friedman. It is the one part of his theory that I entirely support. My answer to the Minister of State on the point about indexation making it easy to live with inflation is that it does not—but it makes it easier to live with the cure. That has been argued by Friedman, Keynes and Marshall. The monetary cure for inflation—as the right hon. Member for Down, South has told us in innumerable debates while we have listened to him attentively on this subject—is bound to create pain. It may be that public opinion will decide that the pain is not worth taking and that, therefore, we want not to beat inflation but to live with it—not to cure it. The best course is to take some of the pain out of the cure, and that is what indexation does.
      If we continue indexing certain parts of the income base of the economy, including public service pensions, old-age pensions and supplementary and unemployment benefits and do not at the same time index capital, we shall erode the whole capital base of the economy. That is probably what Lenin was on about when he said that inflation would destroy capitalism.
      We need a clause that brings in wholesale indexations over the whole economy, but, on the more limited point, I hope that the review announced by the Chancellor of the Exchequer in 1975 will bring positive results.
      Question put and negatived

    New Clause 7

      CAPITAL GAINS TAX—ONLY OR MAIN RESIDENCE
      'At the end of Clause 29(2) of the Finance Act 1965 there shall be added the words "provided that, where subsequent to the acquisition by an individual of a dwellinghouse or part thereof as that individual's only or main residence (the 'residence'), that individual lets part of it not exceeding in superficial area 1,000 square feet, or one-third of the total superficial area of the dwellinghouse or part thereof whichever is the smaller, such let part shall be deemed to be occupied by that individual as part of his residence 'so long as that residence' remains the only or main residence of the individual".'—[Mr. Pardoe.]
      Brought up, and read the First time
      Mr. Pardoe: I beg to move, That the clause be read a Second time.
      The Chairman (Mr. Oscar Murton): With this, we may take the amendment to the new clause, at the end add
      'and subsection (5) of section 29 shall no longer apply'
      Mr. Pardoe: I am sorry to rise again so soon after the last debate. I declare an interest, because I wish to let part of my house and the clause is about letting part of one's house. I do not think that letting part of one's house, if one has a surplus of accommodation, is antisocial. In fact, it is a social thing to do.
      Mr. Nicholas Winterton: As long as one can get it back.
      Mr. Pardoe: The purpose of the clause is to remove one of the barriers that tend to stop owner-occupiers from letting accommodation in their main residence. The present situation is summed up in an Inland Revenue Press notice of November 1975. It says:
      "Where the owner of a dwelling has occupied the whole of it as his only or main residence throughout his period of ownership (or since 6th April 1965 if he acquired it before then) any gain on disposal is exempt from capital gains tax…. Where a lodger lives as a member of the owner's family, sharing their living accommodation and taking meals with them, no part of the accommodation is treated as having ceased to be occupied as the owner's main residence, and the exemption will not be restricted at all…If the owner lets accommodation in his home so that the part let ceases to be used as his only or main residence, the capital gains tax exemption must be restricted."
      1722
      There follows a fascinating calculation showing how to work out one's liability for capital gains tax involving the chargeable gain made if a property had been let for part of the year to, say, a student.
      We all ought to want people to rent out spare accommodation in their main residence. We are not an under-housed nation. We are a ruinously over-housed nation compared with our European neighbours in terms of square metres of occupiable accommodation per individual. Our problem is that we are using that accommodation wastefully.
      The Government have recognised part of the problem, and the most recent Rent Act specifically exempts resident landlords from the provisions giving tenants of furnished accommodation security of tenure. Despite this, we are still using our accommodation wastefully.
      12 midnight.
      What are the main barriers which stop the owner-occupier from letting a part of his property? Obviously, first, the assemblage of Rent Acts is the main constraint, and sooner or later the Government housing review must do something about that. In many ways this is almost the most important constraint. There is also the tax on the income that one gets from renting the property. It would be useful if we also dealt with that.
      Perhaps capital gains tax is not the most important constraint on letting a dwelling, but it is a constraint which can be removed by this tightly drawn, conservatively-phrased clause. It would not cost very much money. I doubt whether it would cost even £1 million, unlike the last new clause, which would have cost two-thirds of the total revenue from capital gains tax.
      I believe that it is worth removing this constraint, such as it is, from the landlord who wishes to let a part of his property. It is for that reason that I have moved the clause, and I propose to press it to a Division.
      Mr. Bruce Douglas-Mann: I congratulate the ho Member for Cornwall, North (Mr. Pardoe) on adopting one of the amendments that I put forward to last year's Finance Bill. Although I have some doubts about whether it would be advisable to press the matter to a Division at this late stage, I hope that my hon.

      1723
      Friends on the Front Bench will give serious consideration to the clause.
      Although I agree with the hon. Gentleman that capital gains tax is not the principal constraint against the letting of part of a property, it is indeed one of the constraints. There are three constraints. Perhaps the most important is the misunderstanding of the effect of the Rent Acts. One serious defect of the Rent Acts is the fixed-term letting provision.
      The second constraint is the fear of disclosing the rents one receives for income tax purposes because of the capital gains tax provision. As a consequence, the owner-occupier is unwilling to let, not because he is afraid of paying tax but because he is afraid of landing himself with capital gains tax as a consequence of disclosing the rent he has received.
      The Minister shakes his head. Most people are willing to pay tax on what they have received, but they are apprehensive about the extent to which they are landed with capital gains tax because it will reduce the income they receive from rents to zero.
      The effect of double taxation on the rental income is a greater deterrent to owner-occupiers letting part of their home than either of the taxes taken by themselves. The actual loss of revenue will be minute. The hon. Member for Cornwall, North referred to £1 million. I may be wrong—I have no direct experience—but I have been informed that it is the practice of the Revenue to disregard properties where the letting has come to an end more than 12 months before disposal of the property. If that is correct it provides a strong incentive for the disposal of a tenant long before one may choose to dispose of one's house, just to be on the safe side.
      Mr. Freud: Will the hon. Gentleman not agree that the executors are more likely to keep the house empty in order to discharge their job properly and burden the estate with the minimum amount of capital gains tax?
      Mr. Douglas-Mann: We may be talking about a subvention. I have tried to ascertain what the practice is. I have been given this information, but it is difficult to check up on extra-statutory concessions. If it is indeed the case that
      1724
      lettings more than 12 months prior to the disposal are disregarded the effect of the provision is absolutely nugatory and the revenue loss is virtually nil.
      In any event, I am not concerned so much with the impact on the revenue as with the impact on owner-occupiers contemplating letting part of their homes. That is a highly desirable practice and should be encouraged. A substantial part of the 1974 Rent Act was designed with that intention. The amendment would remove a substantial disincentive. Even if I am wrong about the extra-statutory concession, the proposal will not be significant in revenue terms. Whatever the Minister's decision, I hope that this matter will be reconsidered later.
      Mr. MacGregor: I have tabled, as an amendment to the proposed clause, at the end add
      'and subsection (5) of section 29 shall no longer apply'.
      Unfortunately, my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) could not be present and asked me to deal with the amendment for him. I agree very much with the proposed clause. I am sure that we are all concerned about the diminution in the amount of accommodation provided for students and single people over the last two years.
      I have been puzzling out the exact details of the amendment, but I think that my hon. Friend is on an interesting point. The amendment is slightly defective in drafting—something we have all been guilty of—but I commend my hon. Friend's ingenuity in getting this point in.
      The amendment relates to subsection (5) of Section 29 of the 1965 Rent Act, which states that any part of a dwelling-house given over to business or trade purposes shall not be exempt from capital gains tax. My hon. Friend said that this might even cover the case of a vicar who used part of his house to pray in, but the more serious and usual cases are those of doctors and dentists who use part of their homes as surgeries and waiting rooms.
      This would be a moderate exemption. If the amendment is accepted, it should be subject to the same kind of limitation in terms of square feet as is contained in the clause. Obviously, if three-quarters of a dwelling-house was used for

      1725
      trade purposes, that should not he exempt from capital gains tax; the amendment relates to the use only of a dining room or some such area.
      Someone might convert part of his house in pursuit of his business but then have to leave unexpectedly and at short notice. He would find that part of the proceeds of selling his house would go in capital gains tax, but then he would have to acquire a similar house in another part of the country. In such cases, the surgery or the business dining room reverts to its ordinary domestic use. This worry should be removed.
      Subject to the ceiling on the square footage, I look forward to the Minister's reply.
      Mr. Tony Newton: I do not want to take too much of the time of the Committee to support the hon. Member for Cornwall, North (Mr. Pardoe). The hon. Gentleman has performed a valuable function in bringing this proposal before the House of Commons once more. If I am right in my recollection, it was raised before from the Government Benches. It can hardly be said to relate to an unimportant measure of policy apart from its relationship to taxation.
      The clause has rightly been moved as part of a more sensible approach to housing policy at a time when there can be little doubt that we need to adopt a more sensible approach. Clearly, we need to make the best use of our housing resources. No doubt you would rule me out of order, Mr. Murton, if I were to attempt to discuss housing policy in any great detail. However, I am glad to see that my hon. Friend the Member for Hornsey (Mr. Rossi) is present, bearing in mind his responsibilities for housing. That is some sign of the relevance of the subject and the fact that the clause relates to an issue quite different from the one that is ostensibly under discussion. As the hon. Member for Cornwall, North said, I hope that there will be agreement from both sides of the Chamber.
      There is little doubt that we have plenty of housing stock, although there may be argument about the condition that some of it is in and whether we need to do more to bring it up to standard. The problem is not a shortage of rooms and houses but that many of them are in places where people are not living, or do
      1726
      not want to live, which is not a problem that we can solve tonight, and that many of them are not being properly used because of a variety of disincentives.
      I well recall buying the house in which I am now living in my constituency some two years ago. At that time there was a lodger in the house. I was trying to buy the house and no one would let me sign a document until the tenant was out. That would not necessarily be the situation as the law now stands but there was a great deal of worry at the time. It is a good illustration of the problems that are created by current tax and housing legislation.
      I was happy that the tenant should stay. I should have been happy to have had a little extra income. The tenant wanted to stay in the house for a while before she returned to the North of England. However, in no way would my legal advisers allow me to go through the transaction until she was out. As a result, a large part of the house stood empty for a few months.
      Mr. Joel Barnett: That has nothing to do with the clause.
      Mr. Newton: Perhaps the Chief Secretary will leave the question of whether I am in order to you, Mr. Murton.
      I return quickly to the issue of capital gains tax. I seek to illustrate my contention by drawing to the attention of the Committee that a great deal of our housing stock: is wasted and under-used for a variety of legal reasons. The main problem is rent legislation, but tax legislation is unquestionably a contributory factor.
      It seems that the problems of housing and the persistent failures of Governments of both parties to solve them satisfactorily over a number of years must lead us to accept that we need to consider every possible contribution that we can make towards easing the problems, whether by tax or rent legislation, security of tenure, building policy or anything else. Tonight we have the opportunity to discuss the matter and to do something about a relatively small area of the tax system that could do something to help.
      The hon. Member for Mitcham and Morden (Mr. Douglas-Mann) referred to a topic that appeared to be too lightly dismissed by the Chief Secretary. The right hon. Gentleman did not give vent

      1727
      to words but made his attitude clear by gestures, by shaking his head and employing other manifestations that have become familiar as one Finance Bill has been followed by another. The right hon. Gentleman indicated that he did not accept the hon. Gentleman's argument.
      I have no doubt that a good deal of what amounts to dishonesty in the tax system arises from the letting of properties. People do not declare a great deal of income, especially that derived from casual lettings to students and the like during the summer. I would not care to judge how far that is the result of their not wanting to pay income tax at, for the most part, investment income rates and how far it is because they fear the capital gains tax consequences.
      12.15 a.m.
      If the Chief Secretary believes that all taxpayers are so unsophisticated that many of them do not think of the implications of declaring the income when it comes to assessing the house for capital gains tax if they want to sell it, I think that he is wrong. There are many taxpayers sophisticated enough to know that by declaring the income they may be landing themselves with another problem not too far in the future. We may thus be creating an incentive to dishonesty, which we would all want to check, or encouraging the holding of that part of the house off the letting market, with the kind of consequences for housing policy of which we have been talking. Therefore, the right hon. Gentleman cannot dismiss the matter as easily as that. It does not apply to everybody, but if it applies to some it is worth taking into account.
      I am not sure what Ministers will say in reply. I shall be interested to hear. I do not propose to delay the Committee too long before we have the opportunity to gain this fascinating intelligence. Ministers may say that it is not a very important problem. It is clear from the general signs and muttering on the Labour Benches that they are building up to asking what we are fussing about, and whether we cannot all go home to bed. [HON. MEMBERS: "Hear, hear."]I can understand the Government Whips' enthusiasm for that, particularly as one train to the North follows another as we debate. If that is to be the Ministers'
      1728
      line, they are standing the point on its head. If it does not matter very much, what is the argument against doing it, in the hope that it may ease, at least a little, a problem that both sides of the Committee agree to be important?
      The general point is that none of us can be sure which of the factors discussed in this short debate are the ones that are contributing to the fact that a great deal of accommodation that used to be rented has been taken off the market and that much less than we would like to see comes on to the market. One thing we can be quite clear about is that people with accommodation available for letting in the sort of circumstances of which the hon. Member for Cornwall, North spoke are now thoroughly confused and frightened about what will happen. They decide that the safest thing is not to risk getting into this tangle by letting their property.
      The clause would not solve the problem, but it might do a little to help. If Ministers are to resist the clause, they cannot get away with saying that it does not concern a particularly important aspect, because that is a matter of judgment, and I doubt whether either side in the argument can prove it. They must say why they do not think it worth doing anything we can to encourage owner-occupiers to let those parts of their property that they do not wish to use themselves. They must also persuade us of what the Treasury and the Inland Revenue have to lose by accepting the clause. As far as I can see, virtually nothing can be lost by the Treasury. There is no new scope for tax evasion or similar difficulties. At least there is the hope and possibility that we may strike a small blow, if nothing more, for a slightly better use of our housing stock.
      For these reasons, I shall be happy to support the clause in the Lobby.
      Mr. Freud: The points that the hon. Member for Braintree (Mr. Newton) raised about tax avoidance or evasion have little to do with the clause. I should like, particularly in my capacity as rector of a Scottish university, to point out the great dangers inherent in not accepting the clause.
      Let us consider the present position in regard to education grants and especially discretionary grants, towards many of

      1729
      which there should be contributions from parents, contributions which are not forthcoming because of the parents' inability to pay. Therefore, it is essential that universities have as many different kinds of lodgings as possible, offering as many different facilities at different prices as possible.
      Certainly, the accommodation officer of Dundee University is encouraged during the recess to go to houses and ask people whether they might conceivably take one or two students during the 30 weeks of the 52-week year. But, of course, it is his duty to warn anyone whom he so solicits about his tax commitments and anything else he might be eligible for, and I think that the knowledge that that part of the house which he rents out will then be eligible for capital gains tax is just one more disincentive to people, because people who have retired and who would dearly like the company of young and intelligent undergraduates—[Laughter]—also have this astonishing responsibility to their next-of-kin and to the amount of money that they are going to leave, which will be that much less if it is liable to capital gains tax. [Laughter.] The people of Dundee University would be surprised and disappointed by the idiotic levity currently being shown by the Government Front Bench, but I shall go on, for this is an important point. It is certainly an enormously important point to constituents who do not have enough money to take a course at university without the need to commute, which, heaven knows, is expensive enough.
      The amendment, however ably put forward, has little relevance, and I wish particularly to point out to the hon. Member for Norfolk, South (Mr. MacGregor), who felt that the amendment might mean that if a vicar prayed in one part of the house he might have to pay capital gains tax on that part, that that vicar's only chance would be if he prayed for money and his prayer was successful.
      Mr. Nicholas Winterton: I agree with the views so eloquently expressed by the hon. Member for the Isle of Ely (Mr. Freud) about the importance of accommodation in university towns. But I want to address my remarks to the amendment, ably referred to by my hon. Friend the Member for Norfolk, South (Mr. MacGregor) on behalf of my
      1730
      hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), because I want to draw one point to the attention of the Minister of State.
      It is my understanding, on the advice of accountants, that if an hon. Member of this House uses a room in his principal residence as a study or as a room totally dedicated to parliamentary and constituency work and puts against his tax a small sum to cover the expenditure involved in that, his house, if it was sold, or that proportion of it which would apply to that room, would attract capital gains tax.
      Members of Parliament are badly paid as it is, and they incur substantial expenses. In this case, they are not legitimately able to set against tax expenses incurred in carrying out their parliamentary duties because they would prejudice the sale if they did, as it would attract capital gains tax to their principal residence. Therefore, the amendment holds a considerable amount of water. It justifies sympathetic consideration by Treasury Ministers, and I hope that the few words that the Minister of State has been uttering to his colleague indicate some support for my case.
      I believe that there is a lot of sense not only in the clause—which I shall support—but in the amendment. We want to get as much accommodation used as possible, and any deterrent which exists, whether through the Rent Acts—my hon. Friend the Member for Hornsey (Mr. Rossi) knows a lot about them and how damaging they are—or through the danger of capital gains tax, we should do our best to remove. I hope that we shall get a sympathetic answer from the Government.
      Mr. Hugh Rossi: I support the clause. It is significant that so far not one voice, from any party, has been raised against it in the debate. No doubt there will be one such voice from the Minister, and he will read from his brief and tell us all the reasons why the Inland Revenue feels that it cannot make this concession.
      However, what is significant is that hon. Members have spoken about the housing problem that exists. I think it right to say that there is no one in the House of Commons in any way concerned

      1731
      with the housing problems of this country who does not regret the continual decline in rented accommodation. It is of particular importance in the cities and the university towns to students and to the young mobile. It is a provision of accommodation for a particular section of the community who are having their first home of their own, their first independence of their parents, and are not in a position or are not willing or anxious to set up a permanent home in the sense of buying their own place. They do not qualify at all for council accommodation. Therefore, the private rented sector has traditionally been the area in which they have found their homes.
      The history of housing since the war has been one of a continual and progressive decline in that kind of accommodation. Today we are faced with all the problems of homelessness, particularly among the single young, and squatting and all the other ugly symptoms that we have in our society, consequential upon the kind of legislation that we in this Parliament have passed, which has acted as an effective deterrent to people allowing others to occupy part of their homes.
      The Rent Acts are a root cause of this. On this occasion I do not want to go into the merits and demerits of the Rent Acts. We have had that debate time and again in this Chamber. But there is no doubt at all that the incidence of capital gains tax in the way that the clause seeks to alleviate is a contributory factor.
      Certain hon. Members have expressed doubts about whether it is a significant factor in the loss of rented accommodation, or about the extent of its significance. Perhaps I can help them on this point. Very soon after the Rent Act 1974 came into operation, it came to my notice—people had made representations to me—that there was particular suffering and hardship among the student body as a result of the Act. Immediately after the Act was passed, for example, as third-year students went down in July 1974 and public attention was drawn to the fact that the Act would be giving security of tenure, landladies were not letting to the first-year students coming up in September and October. In London in that term over 1,000 students were unable to
      1732
      take up their courses straight away because they could not be placed by the accommodation officer in suitable places—or they were sleeping in sleeping bags in the corridors of friends' digs.
      That situation existed. I tried to obtain some help from the Government, from the Minister in the Department of the Environment who was concerned with these matters at the time. I did not get the help from him that I was seeking. Therefore, I had to make my own inquiries. I wrote to every university and every polytechnic in this country. I asked them to what extent they felt that the Rent Act had had an effect upon their student population, and whether it had made it more difficult for them to find accommodation to start their courses and the rest.
      12.30 a.m.
      I had many replies. A great number of the universities and polytechnics said that they had halls of residence and, therefore, the problem was not great, but a substantial number said that the Rent Act had had an extremely bad effect on the supply of accommodation.
      Mr. Douglas-Mann rose—
      Mr. Rossi: Just let me finish. But in that correspondence I received another piece of information which I had not sought. I had not asked the question. The information was volunteered. There was this recurrent theme: "Equal to the operation of the Rent Act, we regard the incidence of capital gains tax upon resident landords for the part of the house that they let as a disincentive towards letting."
      That was the first time that the proposition impinged itself upon my mind to any significant degree. I was impressed by the way one university and polytechnic after another volunteered that information. They asked for that particular incidence of tax to be removed from the resident landlord so that there could be a greater provision of letting for their students. That bears out, in terms of positive, hard evidence, that this tax has had, and is having, an adverse effect upon the supply of rented accommodation for young people.
      Having spoken in terms of general support for the clause, I should point out two matters in it which I find regrettable.

      1733
      I think that the hon. Member for Cornwall, North (Mr. Pardoe) has made it too restrictive. I do not see why he found it necessary to limit his concession to cases
      "where subsequent to the acquisition".
      the letting takes place
      I should like to put this proposition to the hon. Gentleman. If someone buys a house with a sitting tenant in part and subsequently that sitting tenant leaves, the owner is faced with this situation. If he does not relet but keeps the accommodation empty and spreads his own possessions into it, he will not pay capital gains tax when he sells the property after that situation has appertained for sufficient time to satisfy the inspector of taxes that it has become his main residence. I think that the statute requires that period to be at least 12 months. Alternatively, if he decides to relet that accommodation, then, on the wording of the clause, he will be stuck with capital gains tax, because the property was already let before he acquired it and he has replaced the tenant.
      In other words, the hon. Gentleman is moving away from what he is trying to achieve namely, to encourage people to let their houses. The wording of the clause would encourage people to keep their houses empty after their tenants had gone. I should have thought that was undesirable. Therefore, if we are to accept the principle underlying the clause, we must not—on another occasion—see that qualification in it.
      I do not understand the need for a limit of 1,000 sq. ft. or one-third of the dwelling-house. I do not recall the hon. Gentleman indicating why he chose that area or particular proportion of the house. I can understand that he wants to ensure that there is some limit and no abuse of the situation.
      Again, let us consider a university town where a landlady may be a widow with a largish house who is prepared to take in 10 or 12 students. Why should she limit her activity to one-third of her accommodation and leave the surplus empty? If we are to have this arbitrary definition in a clause of this kind, who will determine the issue? What is to be the test? Will a landlady, when making her tax returns, declare that she falls within the provisions of this clause? Does
      1734
      she have to support her claim with a surveyor's report which says that he has gone round all the rooms? Alternatively, will the inspector of taxes have the right to measure the size of the rooms which are let, with the possibility of people being boxed and coxed around? I do not see where such a restriction takes us. It is unnecessary. It militates against the spirit of the clause.
      Mr. Pardoe: The clause is designed as an anti-avoidance measure. If we did not have this provision, someone could occupy a small part of the dwelling. That is outside the spirit of what we are trying to do.
      Mr. Rossi: I draw the hon. Member's attention to the Rent Act 1974. The question of avoidance was examined carefully when the concept of residential landlords was considered. A distinction was clearly drawn between the resident landlord in a purpose-built block of flats and the resident landlord in a house which was not purpose-built as a flat. If that was sufficient for Rent Act purposes, it should be sufficient for the hon. Member.
      We are concerned particularly not with the raising of revenue but with housing policy. We want to remove a tax as an instrument of housing policy. Our concern should be for the provision of privately rented accommodation.
      I should be interested to learn how much revenue comes from this source. It is probably a small proportion of the total amount of tax raised. It is an irritant, not a great money-spinner for the Revenue. I hope that the Minister will not regard the amendment in the same light as an accountant looking for a few more boo-boos.
      Mr. Denzil Davies: First I shall deal with the points raised by the hon. Member for Cornwall, North (Mr. Pardoe) and then I shall deal with the amendment in the name of the hon. Member for Norfolk, South (Mr. MacGregor). The problem is not new. We have considered it before. My hon. Friend the Member for Mitcham and Morden (Mr. Douglas-Mann) has pressed the issue on several occasions. The former hon. Member for Cambridge, Mr. Lane, came to see me and we discussed the problem.

      1735
      If it were possible to do something in this limited case, we should be sympathetic. But there are objections. They are not Revenue objections. The amount of revenue lost as a result of passing this new clause would be minimal. It is a question of equity betwen taxpayers. That might not interest the hon. Member for Hornsey (Mr. Rossi), who pressed the housing argument. We are talking about tax legislation, not housing. We must consider the equity between different types of taxpayer.
      Hon. Members are asking for relief from capital gains tax for someone who lets part of his house and then sells that house. Relief is sought for the part of the house that has been let. The amendment seeks to extend that relief, quite logically if one considers the clause, to someone who uses part of his house for a trade or profession. I ask the Committee why a trader who uses two rooms in his house for that purpose should be denied the exemption if it is to be given to a landlord letting part of his house to a student or other tenant. I see no difference in taxation logic and equity between the two cases.
      The hon. Member for Macclesfield (Mr. Winterton) raised the question of Members of Parliament. This shows the difficulty. If a doctor uses part of his house as a surgery, is he to be denied capital gains tax exemption when a landlady or landlord who lets part of a house gets it? On grounds of housing policy that might be a very good thing to do, but on grounds of taxation equity it is not.
      Mr. Rossi: I think that a certain amount of misunderstanding has crept into the debate. I understood that if a Member of Parliament used a room or rooms in his house, perhaps as a study or an office, or if a professional man did the same, the Revenue did not charge capital gains tax on that notional proportion of the value of the house. If a professional man put a brass plate on his front door and the room became a separate hereditament, that would be a different situation altogether.
      Mr. Davies: May we forget the case of the Member of Parliament, even though I understand the interest of hon. Members in that? A provision in Clause
      1736
      29, which it was attempted to remove, is that if a person uses part of his house for the purposes of a trade or profession that part which he sets aside for those purposes bears capital gains tax if the house is sold. That is the important point. If we concede the housing case I can see no grounds for not conceding the case of a person who uses part of his house for a trade or profession. Why should not the shopkeeper get the same exemption as the landlord?
      Mr. Newton: The Minister is ignoring the fact that we already have a distinction for capital gains tax purposes between owner-occupied property—that is, the concession to housing policy—and other forms of property. How can it be equitable to exempt owner-occupied houses from capital gains tax and then reject on grounds of equity the other aim of housing policy which is being advocated this evening?
      Mr. Davies: It may be an aim of taxation to exempt the owner-occupier from paying this tax. But we are talking about a part of the property which is not in owner-occupation but is set aside. The owner-occupation exemption was given to enable the person who uses the house for his ownership and occupation to be exempted from tax. Many people would argue that even that capital gains tax relief should not be allowed, but I am not arguing that case. Once part of the house has ben let or used for trade or professional purposes, it is not then in owner-occupation. I cannot see how we can give exemption in one case and not in another.
      It would not be fair to allow it in the case of the landlord who lets part of his house when someone else using a house for other purposes is denied the exemption. I have great sympathy with the point that is being advanced, and if the line could be held at the case of students we might be able to accept it. But it would go much further. There would be no case for not extending the exemption to the doctor, the dentist or the shopkeeper who used part of his house for getting his income. For these reasons I cannot accept the proposal.
      12.45 a.m.
      Mr. Pardoe: I cannot accept the argument put forward by the Minister of

      1737
      State. He was entirely on the wrong point in distinguishing between those who want to use a room in their house for business purposes and those who wish to let part of their house. We are not desperately trying to encourage people to use part of their house for business purposes. We are not decrying that use, but it is not part of our policy to encourage it. What we wish to encourage is the use of accommodation not otherwise being used to house homeless students and others who cannot obtain accommodation.
      Since it would cost only peanuts to get rid of this injustice, why do we not do it? When the Minister distinguishes between persons who want to use a room for office purposes and those who want to let part of their house, let me point

      Division No. 137]

      AYES

      [12.48 a.m.

      Biggs-Davison, John

      Lawson, Nigel

      Thorpe, Rt Hon Jeremy (N Devon)

      Brooke, Peter

      Le Marchant, Spencer

      Weatherill, Bernard

      Cope, John

      MacGregor, John

      Wigley, Dafydd

      Eyre, Reginald

      Newton, Tony

      Winterton, Nicholas

      Henderson, Douglas

      Pardoe, John

      TELLERS FOR THE AYES:

      Hunt, David (Wirral)

      Rossi, Hugh (Hornsey)

      Mr. Clement Freud and

      Lamont, Norman

      Steel, Rt Hon David

      Mr. Stephen Ross.

      NOES

      Archer, Peter

      Ewing, Harry (Stirling)

      Mulley, Rt Hon Frederick

      Ashton, Joe

      Golding, John

      Noble, Mike

      Barnett, Rt Hon Joel (Heywood)

      Graham, Ted

      Palmer, Arthur

      Bates, Alf

      Grant, John (Islington C)

      Parry, Robert

      Brown, Robert C. (Newcastle W)

      Hardy, Peter

      Sheldon, Rt Hon Robert

      Clemitson, Ivor

      Harrison, Walter (Wakefield)

      Silkin, Rt Hon S. C. (Dulwich)

      Cocks, Rt Hon Michael

      Hooley, Frank

      Silverman, Julius

      Cohen, Stanley

      Horam, John

      Skinner, Dennis

      Coleman, Donald

      Kaufman, Gerald

      Snape, Peter

      Cox, Thomas (Tooting)

      Lamborn, Harry

      Spearing, Nigel

      Crowther, Stan (Rotherham)

      Luard, Evan

      Stallard, A. W.

      Davies, Derail (Llanelli)

      Lyon, Alexander (York)

      Stoddart, David

      Davies, Ifor (Gower)

      Lyons, Edward (Bradford W)

      Tinn, James

      Davis, Clinton (Hackney C)

      McCartney, Hugh

      Walker, Harold (Doncaster)

      Deakins, Eric

      MacFarquhar, Roderick

      Whitehead, Phillip

      Dunn, James A.

      Madden, Max

      Wrigglesworth, Ian

      Ellis, John (Brigg & Scun)

      Marshall, Dr Edmund (Goole)

      Ennals, David

      Mendelson, John

      TELLERS FOR THE NOES:

      Evans, Ioan (Aberdare)

      Mitchell, Austin Vernon (Grimsby)

      Mr. Joseph Harper and Mrs. Anne Taylor.

      Question accordingly negatived
      Bill (Clauses 4, 15, 21, and a new clause) reported with amendments; to lie upon the Table.

  NORTHERN IRELAND (SOCIAL SECURITY)
  12.58 a.m.
  The Under-Secretary of State for Northern Ireland (Mr. James A. Dunn): I beg to move,
  That the Social Security (Miscellaneous Provisions) (Northern Ireland) Order 1977 (S.I. 1977 No 610), dated 30th March 1977, a copy
  1738
  out that if a Member of Parliament or a professional man uses a room in his house as a study or an office and claims income tax relief the Inland Revenue says "You have claimed tax relief and we shall clobber you for capital gains tax", but if he does not claim tax relief he does not have to pay capital gains tax. But a landlady cannot claim tax relief for turning her room over to a student, and I say that we should remove this very minor and inexpensive constraint from her.
  I therefore hope that many hon. Members will join me in the Division Lobby.
  Question put, That the clause be read a Second time:—
  The Committee divided: Ayes 18, Noes 54
  of which was laid before this House on 7th April, be approved.
  This order has been made under paragraph 1 of Schedule 1 to the Northern Ireland Act 1974, which empowers Her Majesty by Order in Council to make laws for Northern Ireland during the interim period within the meaning of that Act. By reason of urgency, the order has been made without a draft having been approved by a resolution of each House of Parliament. The order, if it is to continue to have effect, must now be approved. The order is absolutely necessary if Northern Ireland is to maintain the principle of parity with Great Britain in cash social services.

  1739
  It might be helpful if I explain that the order, which has 21 articles and one schedule, could be described under two headings. Under the first heading are included provisions corresponding to those recently enacted for the rest of the United Kingdom in the Social Security (Miscellaneous Provisions) Act, which, among other less important matters, dealt with the earnings rule for pensioners, the extension of mobility allowance to beneficiaries under the former vehicle scheme and the treatment of claims to supplementary benefit by students during the short vacations. As right hon. and hon. Members are familiar with the contents of that Act, it is unnecessary for me to give detailed explanations of the articles falling under this heading except to draw attention to Article 13(1), which eases the conditions for the requalification for unemployment benefit after exhaustion of title to that benefit. This amendment, although affecting a relatively small number of persons, will be particularly welcomed in Northern Ireland by trade union leaders who have been making strong representations for a change in the law on behalf of their members employed in the docks at Belfast and Londonderry.
  Under the second heading are provisions which are additional to those contained in the Act and which are necessary to bring the social security law in Northern Ireland into line with that in Great Britain. They are referred to in the order as other miscellaneous amendments and involve some repeals of a minor or technical nature.
  I now refer to the two most important amendments. The first relates to the repeal of Section 27 of the Supplementary Benefits, &c. Act (Northern Ireland) 1966, under which the Supplementary Benefits Commission was empowered to establish advisory committees to secure advice and help in difficult cases involving claims to supplementary benefit. In 1971 the equivalent section in the Great Britain Act was repealed and the committees were disbanded on the ground that they had outlived their usefulness. But it was decided to retain them in Northern Ireland pending the reorganisation of local government as it was thought that members might be involved in a useful public relations
  1740
  role. In the event, this has not been necessary and the committees were allowed to lapse when their appointments terminated last September.
  The second important amendment concerns an amendment to paragraph 8 of Schedule 2 to the Social Security Pensions (Northern Ireland) Order 1975 relating to pension schemes covering persons employed in various public bodies under the aegis of Government Departments. Before amendment this paragraph permitted only the Department of Health and Social Services, after consultation with the bodies representing the interests of employers and earners concerned, to make regulations in relation to these public service pension schemes enabling the appropriate Department to act as the employer for the purpose of contracting out of the additional component of the new State pension scheme. This amendment provides that the power to make the regulations and the duty to consult the bodies representing the employers and earners concerned rests with the appropriate Department. The change represents a return to the situation which existed under the former graduated pension scheme and restores parity with Great Britain, where the power and duty is to be exercised by the Secretary of State responsible for the scheme in question.
  Recently the Minister of State, Department of Health and Social Security announced his intention to make certain improvements in the supplementary benefit appeal tribunal system. One of these, which would allow a direct right of appeal from the tribunals to the High Court on a point of law, can be achieved for Great Britain by the making of an order under the Tribunals and Inquiries Act 1971. The introduction of a corresponding right of appeal—that is, to the Court of Appeal in Northern Ireland—requires an amendment to the Supplementary Benefits, &c. Act (Northern Ireland) 1966, and such an amendment is contained in Article 18(21) of the order. This provision will not be brought into force until the date on which the Great Britain order takes effect.
  One of the provisions in the Social Security (Miscellaneous Provisions) Act reproduced in the order relates to the pensioners' earnings rule. It was essential that this became operative before 4th

  1741
  April, and the only way in which this could be achieved was to make the order by the urgent procedure.
  I hope that this brief explanation will give the House an adequate outline of the object and intention of the order. As I indicated earlier, it maintains the principle of parity in the cash social services between Great Britain and Northern Ireland. I commend the order to the House.
  1.06 a.m.
  Mr. John Biggs-Davison: I thank the Minister for his exposition of an order that is intended to bring the law of Northern Ireland into line with that of Great Britain, and I seize this opportunity to acknowledge the courtesy of the Secretary of State and the Northern Ireland Office in keeping the Opposition posted on the present difficulties in the Province.
  I should like first to invite the Minister's assistance on Article 3(1), which I find difficult to understand. I have studied Section 124 of the Social Security (Northern Ireland) Act 1975, but I am not clear about the purpose of the exclusion referred to in this paragraph of the order. I have an idea that there is a change in book accounting, but I should be grateful if the Minister could enlighten me.
  The Minister referred to the earnings rule, and this is one of the weightier elements in a complicated and important order. The House knows the Opposition's opinion of the earnings rule. The Conservative manifesto at the last General Election described it as
  "socially harmful as well as widely resented. It discourages able men and women, merely because of their age, from making a contribution to society which would help both them and the rest of us."
  Conservative Administrations have relaxed the rule, and we want to see an end to it.
  Ours is an ageing population. In Northern Ireland, those of 65 and over have increased at each census since 1901. The percentage of the population in that category has increased from 10·1 in 1961 to 10·8 in 1971 while the percentages in the age groups 15 to 44 and 45 to 64 have correspondingly declined. On present trends, the Province will contain an increasing number of elderly people for a decreasing number of young people to support. For the sake of the economy
  1742
  and the well-being of the elderly themselves, it is surely necesary to encourage the elderly to work and not to deter them.
  When the Great Britain legislation was going through, the Opposition carried an amendment against the Government in another place. As we said in "The Right Approach"
  "We inflicted a defeat on the Government over the earnings rule, raising the amount which a retired person can earn without any reduction in pension to £35 a week in 1976–77 and to £50 a week in 1977-78."
  Subsequently an amendment was carried in this House requiring the Secretary of State to review the cost of abolishing the earnings rule, including the extent to which it acts as a disincentive to work, and to make a full report to Parliament by 31st October 1978.
  That review is to be welcomed while there is an earnings rule to be reviewed, but actuarial minds far superior to mine are sceptical whether, on sheer grounds of cost, it is necessary to retain the earnings rule. I wonder what would be the cost in Northern Ireland if there were no earnings rule in operation.
  I understand from the order that, although there is to be a review of the working of the earnings rule in Great Britain, there is not to be a review for Northern Ireland. In other words, Northern Ireland will follow the result of the review in Great Britain. I am not clear why the review should not be a United Kingdom review. We are all in favour of parity, and we would like to see parity in the abolition of the earnings rule as soon as possible. I quote again from "The Right Approach"
  "Abolition remains our ultimate aim, because we believe it is wrong to discourage those elderly men and women who wish to work".
  We all know of examples—perhaps our own relatives—of old people who after enforced retirement from gainful, satisfying employment decay almost before one's eyes.
  I turn next to the mobility allowance provisions. Surely there is "an invidious distinction"—those are not my words but the words of my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) speaking in the House on the Great Britain legislation—that disabled drivers of three-wheelers and others in receipt of the now obsolete private

  1743
  car allowance can keep the mobility allowance after retirement age whereas everyone else—the majority—will lose it on reaching retirement. What would it cost to pay the mobility allowance to those in Northern Ireland past retirement age?
  I now mention Article 10(3), which was a product of constructive opposition during the passage of the Great Britain legislation. It is only right to give this protection for the private person against public error or delay.
  I would finally mention Article 11, which, as the Under-Secretary has explained, deprives certain full-time students of claims to unemployment benefit during short vacations. Certainly awards and grants in the support of students are a matter for the Northern Ireland Department of Education rather than for the Department of Social Security. I wonder whether this article does not breach the insurance principle in depriving students, who have worked and paid their contributions, of unemployment benefit. I see both sides of the argument, and I should be grateful for a comment about this.
  1.13 a.m.
  Mr. J. Enoch Powell: As the Under-Secretary made clear, this is one of those orders the effect of which is to bring the law in Northern Ireland into harmony with that in the rest of the United Kingdom. Quite a number of orders which are approved in these circumstances at this time of night have that effect. It is an effect that my hon. Friends and I in general principle welcome.
  Where the subject matter is related to the social services and concerns the entitlements of those whom the social services protect, it is proper that our proceedings on these orders should be on the Floor of the House rather than in the Northern Ireland Committee. We are indebted to the Government for their ready acceptance that this is proper.
  The Under-Secretary pointed out that the greater part of the harmonisation in the order is in obedience to the time-hallowed principle of parity. From an early phase in the form of self-government in Northern Ireland which was inaugurated in 1922, it became the principle to which Ulster Governments
  1744
  passionately adhered that in all such matters as the social services parity should be maintained between Northern Ireland and the rest of the United Kingdom.
  This parity is more than a mere phrase, more than a matter of theory. The social services and the figures which we write into social service legislation are designed to take into account the conditions of life and the cost of living of those who will be supported by those social services. Notoriously, those circumstances differ in different parts of the United Kingdom, but it is a consequence of the unity of the realm and of the legislative authority of this House that the same standards are laid down and the same principles are prescribed for all parts of Great Britain.
  Parity for Northern Ireland means that we accept as overriding that unity of the United Kingdom, from which there follows the identity of the social security provisions and legislation. The cost of living in most respects in Northern Ireland is higher than it is in the rest of the United Kingdom and the average family income is somewhat lower. We therefore, by accepting—indeed, demanding—the principle of parity, are making an assertion of the unity of the United Kingdom, which is, as I say, by no means theoretical but is something of which we fully accept the practical consequences.
  It would be absurd for us to attempt to traverse in a debate upon this order the ground covered by the long debates upon the Social Security (Miscellaneous Provisions) Act for Great Britain. Consequently, there is only one specific detail to which I should like to draw attention. It occurs in Article 9(2), which provides what had hitherto been missing—the possibility of Prayers against regulations made by the Department under Section 2 of an Act there mentioned. I draw attention to this provision because it has a certain irony.
  By that article we are apparently providing in Northern Ireland recourse to the negative procedure which is already available in comparable cases in Great Britain. At the very moment that we do that, however, we know perfectly well that in what is euphemistically called the "interim period" there is no such negative procedure in operation.
  The moral that I draw from that relates to my immediately preceding remark

  1745
  that is, that in all cases where we find ourselves legislating by order for Northern Ireland, instead of by Act of Parliament for the whole of the United Kingdom, we are in fact accepting drawbacks for Northern Ireland. This is a minuscule case, but it is a case in point.
  We are saying that there shall be a negative procedure, a means of querying regulations if we wish to do so, either on the Floor of the House or in a Standing Committee on Statutory Instruments, yet, because this is a subordinate instrument, that is a feast of the Barmecide: it is a power which is entirely nugatory and of no effect.
  Despite the parity that has been maintained, we recognise that it will be a considerable time before the two codes of law are sufficiently approximated that future legislation and future amendment in respect of the social security code can be made for all parts of the United Kingdom at the same time. However, we say that the sooner that time comes the happier we shall be and the more effective will be the safeguards, both in the passing of legislation and in the surveillance of subordinate instruments, that are available to us on behalf of our constituents in Northern Ireland.
  I have one further observation to make that may be of future use. It is a suggestion for future convenience. The Secretary of State was good enough, as this is an order concerned with harmonisation, to supply my hon. Friends and myself with a detailed statement of the minor respects in which the order differed from the Great Britain Act that it is reproducing. It was extremely useful to have that guide and we are grateful to the right hon. Gentleman and his officials for providing it.
  In this instance I believe I am right in saying that there was no proposal phase and no draft phase in the making of the order. That is because we were using the accelerated procedure. The suggestion that I put to the Under-Secretary of State is that in the many cases—they are much more numerous—where we are making harmonising orders with the full procedure, involving proposal and draft phases, a statement similar to the one with which we were provided for the purposes of this evening, a statement of the differences still remaining between the Northern Ireland order and the Great
  1746
  Britain legislation, should accompany the explanatory memorandum that is sent out with the proposals to receive the comments of interested parties in the initial phase of our procedure. There should be no difficulty in doing that and I am sure that those in Northern Ireland, as well as those in the House, who endeavour to scrutinise proposals for draft orders would find it helpful if such additional assistance were given by the Government.
  1.23 a.m.
  Mr. James Mlolyneaux: Like my right hon. Friend the Member for Down, South (Mr. Powell), I welcome the order in general. I welcome particularly Article 18(23), which amends the definition of voluntary organisations. In the list of comparisons to which my right hon. Friend referred, the following words appear:
  "Not required in Great Britain, peculiar to Northern Ireland."
  The House will be aware that we have certain organisations peculiar to Northern Ireland that we could do very well without, but those are not the excellent voluntry bodies that the Minister has in mind or with which we ourselves are concerned. I hope that my remrks indicate the desire of my colleagues and myself to encourage the growth and scope of the voluntary bodies.
  My right hon. and hon. Friends and I made that point very strongly in our submissions to the Royal Commission on the National Health Service. We did not leave the matter there. We made some practical suggestions as to how that might be brought into effect. I hope that that desirable feature will be further developed in the parliamentary structuring of social security aspects.
  It was suggested some time ago that the order should be referred to a Statutory Instruments Committee and should not be taken on the Floor of the House. I concede that that was a perfectly reasonable view. As my right hon. Friend has said, the order is designed to achieve and maintain parity between Northern Ireland and the rest of the United Kingdom. However, as it is based mainly on the Great Britain Act, which was considered during its passage through this House to be a major piece of legislation, we felt it right and proper that its Northern Ireland equivalent should be given equal

  1747
  status. Our attitude is based on the proposition that, as Northern Ireland is part of the United Kingdom legislation, Northern Ireland legislation should follow a course which is as close as possible to the main stream of legislation for Great Britain.
  When the Parliament of Northern Ireland functioned, in this kind of case it would have taken the Great Britain Act and made the small amendments and adjustments contained in the order. It would have solemnly debated the Bill, as it would have been in those days, and would have voted on it as it went through all its stages. What is even more important, the details of the debates would have been spread across the pages of the newspapers in Northern Ireland, and the people would thus have been given at least the impression that they and their elected representatives were participating fully in formulating legislation which would make a signficant impact on their everyday lives.
  We, the present-day representatives of Northern Ireland, would be failing those who elected us if we were to acquiesce in any kind of government by committee, because that would not be tolerated in any other part of the United Kingdom. I am very well aware that, particularly at this time of night, we risk criticism for taking up the time of the House. As always, we are eager to help, and my right hon. Friend has put forward a suggestion which I heartily endorse. It is that all that is required is that an inclusion clause be inserted in future Bills for Great Britain. A Bill would then become a United Kingdom Bill, and a United Kingdom Act would result from it. We could feel that we could legitimately play our part in the debates and Divisions on it and represent those who sent us here. We could tell them that they were now being governed in exactly the same way as their fellow citizens in other parts of the United Kingdom.
  With regard to the administration of the social security legislation, I would say that Northern Ireland is probably better served than other parts of the kingdom. We who have the duty of taking up with, first, local officers and, second, Ministers the problems of our constituents have always found the managers and staffs of the local offices to be very co-operative.
  1748
  This is all the more remarkable when one considers that because of the various civil disorders, which seem to be ever present, they probably have more problems in their offices per thousand population than do their counterparts in any other part of the kingdom.
  We must also remember that they are operating in conditions which are very far from ideal and in which they are not entirely removed from personal danger. It is to their credit that, in spite of all that, they remain humane and patient in their dealings with even the most abrasive of our constituents.
  Our relations with the managers of the local offices have greatly improved following the encouragement given by the Secretary of State and his Ministers to deal with Members of Parliament at their local level where no issue of policy is involved, where it is simply a matter of removing a minor administrative tangle, resolving the issue there rather than adding to the troubles of the Department and the Ministers at the top.
  We also wish the Under-Secretary of State to convey to his noble Friend Lord Melchett our appreciation of the co-operation we receive from his Department in the other matters of rather more general issue, particularly where issues of policy are involved. I have found in most cases that in a particularly difficult complaint the constituent will, by and large, accept—perhaps not with very good grace, but he will be satisfied to some extent—the rejection of his claim, provided that he is given the facts clearly and the reasons are set out in a way he can understand.
  There has always been an obvious hurdle for hon. Members in the matter of dealing with that member of the ministerial team in Northern Ireland who sits in another place, and it is to the credit of Lord Melchett that he has reduced that handicap to a minimum. He has made himself available to all of us despite what one might call his normal Northern Ireland commitments in another place, and we wish to place on record our appreciation.
  1.32 a.m.
  Mr. Dunn: I thank the hon. Membei for Antrim, South (Mr. Molyneaux) for what he has said about my noble Friend Lord Melchett and my other ministerial colleagues. What has been achieved

  1749
  could not possibly have been successful without the ready understanding and cooperation of the Members of Parliament for the Province itself. To erect something of this kind needs co-partnership and understanding and a working relationship which benefits all concerned. I return the compliment to the hon. Gentleman and his colleagues for the way they have assisted us to deal with some of the problems so quickly and with understanding and sensitivity.
  The hon. Gentleman also brought to attention the problem of government by committee. As he will realise, my right hon. Friend the Secretary of State and my other colleagues made it plain to the House that we believed that there were advantages in working away from that procedure and trying to erect something more meaningful. It meant that more and more business for Northern Ireland would come to the Floor of the House. This has shown already a measure of success. Even if now we come on late on a normal parliamentary day, we may not always stand in that order of priority. It may be regulated as time goes on. I hope that the hon. Gentleman will continue to share with us the further progress of this experiment.
  I assure the hon. Gentleman that we will continue to give all the encouragement we can to the voluntary organisations. We firmly believe that self-help very often is probably the best help, and that that can be supplemented by financial assistance as and when requirements emerge. We think that the voluntary organisations serve such a direct and useful purpose and, by their direct knowledge of case histories in which many of them are involved, bring in another dimension of direct awareness which might escape us.
  The hon. Member for Epping Forest (Mr. Biggs-Davison) raised the question of the non-domiciled mariners under Article 3(1). I am advised that, if regulations are made imposing on employers the liability to pay secondary national insurance contributions for certain seamen who are not domiciled in Northern Ireland, such contributions shall in future be paid into the Northern Ireland National Insurance Fund and will attract appropriate Exchequer supplements. This is in line with the position that already exists in Great Britain. The hon. Gentleman
  1750
  rightly says that no doubt this is a transfer of resources from one book to the other, but with the added advantage that it gets Exchequer supplement whereas previously this might not have been so clear.
  The hon. Gentleman also brought to my attention the earnings rule and the annual review of the pensioners' earnings limit. He will forgive me if I do not transgress into the policy document of his party. If I refrain from making any comment, it is not because I am not aware that there may be differences of emphasis and, indeed, policy that exist between us but rather that I would stay at my last at this late hour of the night and say that if, as a result of the annual review provided for in Section 7 of the Social Security (Miscellaneous Provisions) Act 1977 for Great Britain, the earnings limit for retirement pensioners and others were raised above the present limit of £35, the new limit would be applied in Northern Ireland by an order made by the Department of Health and Social Services.
  What we are attempting to achieve is exact parity of the earnings limit in Northern Ireland with that which will exist in Great Britain and that we shall automatically follow the annual review; and we would follow it by making the necessary order as the requirement may indicate.
  The hon. Gentleman also pointed out the anxiety and concern relating to students. Article 11 refers only to supplementary benefits for students. Unemployment benefit will be dealt with by regulation, as, indeed, is the case in the rest of the United Kingdom. But it will still mean that most students would not qualify for unemployment benefit during the short vacation periods. Article 11 deals only with the supplementary benefit position.
  This also partly answers the right hon. Member for Down, South (Mr. Powell). Although we have parity, we can clearly see that there are variations in the conditions and cost of living within the regions of the United Kingdom. Nevertheless, special regard is paid under the supplementary benefit regulations, right across the board, to take account of these very special circumstances. But the basic benefits will remain the same. I am sure that the right hon. Gentleman would wish

  1751
  that situation to continue. The harmonisation is important to Northern Ireland, and if we were to lose that advantage we might be placed in great difficulty.
  As regards the mobility allowance, the concession that is being granted to trike holders in Northern Ireland is the same as that being granted in Great Britain. It would be wrong of Northern Ireland to go beyond that which already exists in Great Britain. We would, first, be denying the principle of parity, and if we were to try to create a very special benefit within the circumstances of Northern Ireland we should find great difficulties in being able to put it into operation and to implement it. Then we should find that at some later date when we were trying to claim harmonisation and parity we should have denied for ourselves the argument of parity.
  The right hon. Member for Down, South brought to the notice of the House the appreciation of the explanatory statement about the order which was circulated by my right hon. Friend and my noble Friend. He suggests that the differences that still remain between the regions, particularly between Northern Ireland and the majority of Great Britain, should be included in an annex, perhaps, to any future statement that is circulated. I assure the right hon. Gentleman that I shall bring his request to the notice of my right hon. Friend and my noble Friend.
  However, the right hon. Gentleman will be the first to realise that there may be some difficulties about this. I do not know what they may be. There are complications about publishing such documents. We may not be able to get all the statistics quite right in time to circulate them, and the right hon. Gentleman would not wish documents to be held up. However, as I say, I shall bring the matter to the notice of my right hon. Friend and my noble Friend.
  There is a problem about the negative procedure. The right hon. Gentleman and I have discussed this matter in several contexts but following the same vein.
  The Northern Ireland Act 1974 made special provisions. If we were to follow that Act completely, as naturally as night follows day there would be integration. At the moment, that is not the apparent
  1752
  wish of all in the Province and those who represent them. There are variations of the theme. We are trying to protect the statute book of Northern Ireland for any form of devolved government which may be agreed and implemented within the Province. We are torn between two situations. One is that we would like continuity and the other is that we want to protect the Northern Ireland statute book. I assure the right hon. Gentleman that we are trying to protect the statute book.
  I shall draw the right hon. Gentleman's comments to the attention of my right hon. Friend the Secretary of State, who in the first instance will wish to consult his colleagues on these important matters.
  I hope that, with that brief reply, the House will approve the order.
  Question put and agreed to.
  Resolved,
  That the Social Security (Miscellaneous Provisions) (Northern Ireland) Order 1977 (S.I. 1977 No. 610), dated 30th March 1977, a copy of which was laid before this House on 7th April, be approved.

  EXPENDITURE
  Ordered,
  That the Standing Order of 18th November 1974 relating to the nomination of the Expenditure Committee be amended, by leaving out Sir Edward Brown and inserting Mr. William Benyon.—[Mr. Snape.]

  Mr. JOHN BUCHAN
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Snape.]
  1.41 a.m.
  Mr. Douglas Henderson: I am very pleased, even at this late hour, that, after trying unsuccessfully for several weeks in the Ballot, I have finally succeeded in securing this debate to raise the case of my constituent, Mr. John Buchan, who lives at 12 West-haven Crescent, in the village of Cairnbulg, just outside Fraserburgh.
  Mr. Buchan is an active and lively young man of 23 years of age, who has had one very strong ambition in life—to become a bus driver. He was delighted, therefore, when in May 1975 he passed the PSV—public service vehicle—driving test and was issued with his licence and badge.

  1753
  No permanent jobs in the bus industry were available at the time, so he accepted temporary employment with the local bus company, part of the Scottish Transport Group, Alexander's (Northern) Ltd., a post which he held until October 1975, at which time, with the more restricted winter schedules in operation and as no permanent employment was available, he was paid off.
  I want to emphasise at this stage that I have found no evidence that his service with Alexander's was other than completely satisfactory and that he, for his part, was extremely happy in that job.
  There being no permanent work as a bus driver, Mr. Buchan decided that it would be valuable for him to have more than one string to his bow, so he enrolled for training as a lorry driver at the ARTIC training centre in Aberdeen. He was accepted and, after the requisite period of training, applied to take the test for a heavy goods vehicle licence in February 1976.
  At this point the story becomes somewhat tragic, because he was astounded when he was informed that, on medical grounds, he could not be permitted to take the test, and, following an appeal, which he was not invited to attend and to which he was not privy, he was asked to return his public service vehicle licence and badge.
  Having met Mr. Buchan, I can say that I can appreciate that he may well have been justified in thinking that the world that he had built up for himself had crashed about his ears, because the grounds on which his HGV test application was refused and on which he was asked to return his hard-won PSV licence and badge were that he had, as a child, suffered from epilepsy.
  I want to make it clear at this stage that Mr. Buchan made a full disclosure of his medical history, both when he successfully applied for a PSV licence and when he applied to take the HGV test. On both occasions, he was medically examined and pronounced fit by his doctor.
  After he returned his PSV licence and badge, I understand that he underwent a full medical examination, including EEG tests and X-rays at Aberdeen Royal Infirmary, and was adjudged to be in excellent health.
  1754
  There is no history of epilepsy in his family. Why, then, was he refused leave to take the HGV test? Why did he have to surrender his PSV licence and badge?
  We have to go back to Mr. Buchan's childhood—to 1963, when he was nine years of age—and consider what happened. On the night of Friday 24th May 1963, his parents were aroused by a low mumbling sound from his bedroom. They found him in bed, with a slight tremor in his limbs. For less than five minutes he was unable to speak, although he was able to comprehend and respond to what was said to him. For example, his mother said "Sit up" and he immediately sat up, although he was not able to answer.
  His parents summoned the doctor from Fraserburgh, three or four miles away. When the doctor arrived the boy was behaving normally. The parents recollect that the doctor expressed the opinion that the boy had probably pressed his face against the pillow. He prescribed no treatment. The boy slept normally for the rest of the night and was out playing with his friends the following day, a Saturday.
  Ten days later, on the night of Monday 3rd June 1963, a similar incident occurred and lasted for the same period. On this occasion, as on the previous occasion, the boy's bed was not unduly disturbed and the bedclothes were in place. The doctor was summoned from Fraserburgh. This time a partner of the previous doctor arrived. Apart from a slight shivering, the boy was behaving normally when he arrived. He again slept normally for the rest of the night and went to school the next morning.
  The doctor referred the boy to the sick children's hospital in Aberdeen, where he had an EEG and an X-ray of the skull. I believe that no abnormality was detected, but that could be checked. When I spoke to the doctor on the telephone, he referred to a left-sided focus. I am no expert, but that could be checked.
  A course of phenobarbitone was prescribed for two years. No further recurrences of these incidents took place. The treatment was therefore discontinued at the end of two years. Since then, I understand that, apart from normal minor ailments to which both children and adults are subjected, Mr. Buchan has enjoyed excellent health and progressed normally in his school work and career.

  1755
  I have related his medical history from the recollections of Mr. Buchan, his parents and doctor. The events occurred 14 years ago. I spent time quizzing the family. They answered my questions as honestly and fairly as they could and related as best they could the events of those two occasions. For a busy general practitioner the events happened a long time ago. It is not for me to try to evaluate the medical evidence, but I respect the conscientiousness of the doctor.
  It is worth quoting from a booklet on epilepsy and fits published by the British Medical Association. Having described the various forms of epilepsy, it states:
  "At this point it is worth mentioning some conditions resembling epilepsy, but quite distinct from it, according to our definition of the electric outburst in the brain. It is possible for a neurotic person to seek refuge from an unpleasant situation by an hysterical attack."
  It notes that such fits and hysteria were popular among Victorian ladies. It continues:
  "In hysteria, the patient may lose awareness and throw himself about violently…. Similarly temper tantrums in children occasionally cause loss of consciousness and spasmodic movements."
  I wish to stress that last sentence.
  "There is no evidence, however, that temper tantrums are comparable in any way to epilepsy",
  it states.
  I introduce that aspect into the story of Mr. Buchan's life because it occurs to me that the fact that only two attacks took place some years ago and that no serious effects seem to have resulted from them indicates that it may be that in legal jargon there was a reasonable doubt about the incidence of epilepsy in this case. That is my first main point to the Minister. I should like him to say tonight whether he considers he has the power to order, construct or recommend a review of the situation in that sense. He will appreciate that the events of those two nights—24th May and 3rd June 1963—have never been repeated. They represent a watershed in the man's life and for his employment prospects. Has the Minister any powers to reopen this matter and look at it in a second light?
  Secondly, why was Mr. Buchan found fit, on the basis of medical evidence, to hold a PSV licence and badge for several months, both of which he lost only when
  1756
  he took the HGV test? Mr. Buchan was driving a double-decker bus in Fraserburgh and he disclosed all the information that was necessary to get the PSV licence. It was only when he went to take the HGV test that he was ordered to turn in his PSV badge and hand back his licence. I am assured that the information provided for the PSV licence was the same as that provided for the HGV licence.
  My third point is of wider application and interest than Mr. Buchan's case. Even if it were established that he had suffered from a minor form of epilepsy as a child, the question arises whether he should ever have been debarred from driving heavy goods or public service vehicles. Under the regulations he is, of course, eligible and free to hold a private vehicle licence, as are all epileptics who have passed the qualifying trouble-free period of three years. But he cannot hold a PSV or HGV licence if he is adjudged to have suffered from epilepsy after the age of three.
  I understand that there are about 300,000 epileptics in Britain, which is about one in every 200 of the population. Almost 100,000 of them are children, and that suggests that many children grow out of the disabilities of the ailment. Many countries impose strict conditions on driving, and Britain's Department of Transport is relatively enlightened in terms of the allocation of ordinary driving licences. For HGV and PSV licences, most Governments adopt an approach similar to that of the United Kingdom. Luxembourg is prepared to consider individual cases on the basis of medical reports. Denmark is perhaps more liberal than Britain, since it will consider applications for HGV and PSV licences after a seizure-free period, depending on the individual case. That may range from five to 20 years.
  The United Nations Economic Commission for Europe Agreement on minimum requirements for driving permits. reached on 1st April 1975, includes, for what it calls the heavier or group 2 vehicles—I concede that they are not in quite the same category as our heavier vehicles—provisions that, subject to competent medical opinion, permits may be granted to persons who have suffered from epilepsy in the past but who have been free from attacks for a long time. In

  1757
  fairness, it should be said that to date only Luxembourg has signed this agreement. The Minister may wish to comment on that aspect tonight.
  I wish to record the fact that, for the assistance that I have had in obtaining this information, I am grateful to Mr. Peter Mitchell, who is the excellent and lively research assistant to the All-Party Disablement Group and, of course, to our splendid staff in the House of Commons Library.
  I put it to the Minister that there is perhaps a case and a need for a programme of research on epilepsy and driving. What, for example, is so sacrosanct about the age of three as the dividing line in considering applications for PSV and HGV licences? When was it set, why was it chosen, and is it still valid? No one will disagree that the maximum care ought to be taken in issuing PSV and HGV licences. I am sure that the Minister does not think that I was arguing for any unnecessary relaxation in that respect tonight. However, nowadays restrictions on hours and conditions of service must surely play an increasing part in improving safety standards. It may be said that there are more stringent rules in connection with driving a bus or a lorry than with driving a motor car, because the driver of a private car can drive for any number of hours. There is no check or restraint on the period during which he can drive. In those circumstances, is there the same force in the argument for treating PSV and HGV licences so differently from private vehicle licences? My constituent, incidentally, has held a driving licence for six years without incident.
  Then there is the question of comparing sufferers from epilepsy with sufferers from other disabilities, such as diabetes or coronary thrombosis. There is surely scope for comparative research here.
  In summary, I ask the Minister whether he will examine the considerations that I have presented tonight and, in particular, whether he will look sympathetically at the case of my constituent, about whose medical background there is some doubt, and who views the permanent withdrawal of his PSV licence as in the nature of a life sentence. By way of analogy, can the Minister see his way to grant some reprieve, or at least a parole?
  1.58 a.m.
  The Under-Secretary of State for Transport (Mr. John Horam): I thank the hon. Member for Aberdeenshire, East (Mr. Henderson) for raising this matter. He has presented it in his customary eloquent and compassionate way. It might be helpful if I explained the background, with particular reference to driving and epilepsy.
  First, I want to answer the more general point that the hon. Member raised. One of the objectives of the vocational driver licensing schemes is to ensure, as far as possible, that those who drive heavy lorries, buses and coaches in today's traffic conditions are physically fit to do so. Drivers of these vehicles usually drive under conditions which are very much more demanding than those to which the ordinary motorist is subjected. They drive for longer hours and it is not so easy for them to stop driving when they feel unwell. Furthermore, the risk of death or serious injury to other road users in collision with heavy lorries is very high on account of their bulk and because they need more distance in which to stop.
  For recommendations on medical standards and driving we are indebted to the Medical Commission on Accident Prevention, which provides useful guidance to medical practitioners in its booklet "Medical Aspects of Fitness to Drive". This has been recommended to doctors generally in connection with the giving of advice to their patients about their fitness to drive. As well as providing guidance about fitness to drive under ordinary driving licences, the booklet also advises in particular on the higher standards needed—in the interests of road safety—in drivers of heavy goods vehicles and public service vehicles. This guidance is especially important in the case of doctors who are called upon to give the medical reports and certificates on applicants for drivers' licences to drive heavy goods vehicles, as the standards recommended by the commission are those accepted for the vocational driver licensing schemes. They are therefore the standards by which the statutorily independent licensing authorities are guided in exercising their discretion whether or not it would be appropriate to grant licences.
  The commission advises on all the main disabilities which could affect a person's

  1759
  safety as a driver; cardiac conditions, diabetes, disorders of the nervous system, mental illness, inadequate vision, loco-motor disabilities, drugs and, last but by no means least, epilepsy.
  Epilepsy is, in fact, in a unique category in relation to the vocational driver licensing schemes, as it is the only disability prescribed in the regulations for those schemes as a bar to the issue of a licence. I shall explain how this situation comes about.
  First of all, however, in response to the hon. Member's question, I shall provide a definition of what constitutes an epileptic attack. This has been defined as a
  "brief disturbance of brain function which may cause altered consciousness and which develops suddenly, ceases spontaneously, and exhibits an open-ended tendency to recur".
  The risk of epileptic attacks in a driver is generally recognised by all countries as constituting a threat to road safety, and conditions relating to epilepsy feature in their driver licensing schemes. An analysis of cases notified by the police to the licensing centre of drivers collapsing at the wheel between January 1976 and February 1977 showed that epilepsy was diagnosed in 88 of the 229 cases—38 per cent. A further 38 drivers were said to have suffered "blackouts", and there is little doubt that epilepsy was the underlying cause in at least some of them.
  Prior to 1970, epilepsy was a complete bar to the holding of any driving licence in Great Britain. I understand in the late 1960s a panel of eminent specialists, initially under the chairmanship of the late Lord Brain—and later of Dr. Denis Williams—recommended to the then Minister of Transport that the bar could be relaxed without significant risk so as to allow people whose epilepsy had been satisfactorily controlled to hold an ordinary driving licence. On the advice of the panel, which still exists, the regulations were amended in June 1970 to allow a person who had had at least three years free from wakeful attacks—or who had a history of attacks only while asleep, extending back for more than three years—to hold an ordinary licence.
  In giving this advice, however, the panel was quite categoric that the bar should not be relaxed in the case of those who drive goods vehicles, buses, coaches and
  1760
  taxis. The reasons stem from the general ones that I have mentioned about the conditions under which professional drivers work. Many of these drivers, day in and day out, travel what to them are often monotonous miles at the wheel in comfortable ergonomically-designed cabs, often listening to music. Schedules are tight. Turn-and-turn-about shifts are worked, and insomnia is not uncommon, particularly when drivers have to stay away from home. I am told that these are ideal conditions for an attack of epilepsy in persons with an epileptic tendency.
  As the liability to epileptic fits in a person who has had an attack since the age of three years is open-ended, the panel advised that the regulations for the vocational licensing schemes for drivers of heavy goods vehicles—that is, rigid goods vehicles with a permissible maximum weight over 7·5 metric tons and all articulated goods vehicles—and public service vehicles should bar from licensing those who had had an epileptic attack since the age of three years. The Department's medical adviser, who is also the medical adviser to the licensing authorities for vocational drivers' licences, tells me that in the course of discussing cases with many consultants he has never come across a challenge to the appropriateness of the regulations.
  Our standards in this country in this matter are no more stringent than those of other states. The British Epilepsy Association has been kind enough to let us know the results of its research. The association found that no licences were granted to a driver of the larger vehicles by Belgium, Denmark, Eire, France, Italy, the Netherlands and West Germany. It may be that the hon. Gentlemen has different information from that which I have, but I understand that mine is correct. I am sure that the hon. Gentleman said what he said in good faith.
  In an even wider field, the agreement concluded in Geneva in 1975 by the United Nations Economic Commission for Europe on minimum requirements for the issue and validity of driving permits provides that driving permits should neither be granted nor renewed for the driving of goods vehicles with a permissible maximum weight in excess of 3·5 tonnes, or with more than eight passenger seats, to anyone.

  1761
  "who suffers or has suffered in the past from epilepsy".
  I make these points to illustrate that internationally, as well as nationally, it is widely accepted that a history of epileptic attacks should continue to be a bar to the driving of large vehicles.
  Expert opinion sees no breakthrough in the treatment of epilepsy or any change in conditions that would suggest that this complete bar should be in any way relaxed in the foreseeable future. That is a depressing message, but that is the case. The only slight possibility is that the three-year period for the ordinary motorist might at some stage be brought down to two years, but it would not help since it would increase the difference between the circumstances of the ordinary motorist and those of other drivers.
  I now turn to the case of Mr. John Buchan. I can well appreciate the concern of the hon. Member for Aberdeenshire, East for his constituent. I hope that I have helped him to appreciate the reasons underlying the present regulations, which have led the staff of the licensing authority for the Scottish Traffic Area—which, as I have mentioned, is quite independent, statutorily, of my right hon. Friend—to advise Mr. Buchan that the epileptic attacks which he suffered in 1963 debar him from holding a heavy goods vehicle driver's licence.
  I understand that, although Mr. Buchan attended at the public counter of the licensing authority's office in Aberdeen in February last year with a completed application for a heavy goods vehicle driver's licence, he did not actually lodge the application. He took it away with him when he was informed by the counter clerk—quite correctly—that the epileptic attacks in 1963 referred to in the medical certificate that accompanied his application disqualified him from applying for a licence.
  It is common practice in such circumstances to give a would-be applicant for a licence every opportunity to establish that he does not have a disability that debars him. Although the Aberdeen office did not accept Mr. Buchan's application—which the licensing authority coud not have granted as it stood—it suggested that Mr. Buchan should take it back to the doctor who completed the
  1762
  medical certificate. The intention in so doing was that if the doctor had any doubt whether the attacks were truly epileptic, Mr. Buchan could authorise the release of the medical case papers so that they could be referred to the licensing authority's medical advisers.
  When Mr. Buchan told the counter clerk that he was already the holder of a PSV driver's licence, it was discovered that when this licence had been issued the reference in the medical report to epileptic attacks in 1963 had been overlooked. The hon. Gentleman is right to suggest that there was no attempt to conceal anything by Mr. Buchan. He presented the facts in both cases.
  Mr. Buchan was informed that if the further consideration of the medical evidence led to the conclusion that the attacks were indeed epileptic, the PSV driver's licence would have to be revoked.
  As nothing further was heard from Mr. Buchan, the licensing authority's office wrote to him on 4th June 1976, confirming what Mr. Buchan had been told earlier in the year. The letter stated that it was assumed that Mr. Buchan did not wish to pursue his application for a provisional heavy goods vehicle driver's licence. On receiving this letter Mr. Buchan stated that he still considered that the 1963 attacks were not epileptic. His medical case papers were, therefore, referred to the licensing authority's medical adviser, who advised, however, that he was in no doubt that the attacks in question were epileptic.
  All the evidence thus confirmed the nature of attacks suffered by Mr. Buchan: the medical certificate accompanying his application for a PSV driver's licence in 1975; the medical certificate accompanying his intended application for a heavy goods vehicle driver's licence in February 1976; and the opinion of the licensing authority's medical adviser, who has seen all the medical papers going back to 1963 immediately after the two attacks in question. There seems little room for doubt, therefore, that the licensing authority was thus correct in not accepting Mr. Buchan's application for a provisional heavy goods vehicle driver's licence. He would have had to refuse it if it had been lodged.
  That is the problem. There does not appear to be evidence that would deny that there is a likelihood of these attacks

  1763
  being epileptic. Even Mr. Buchan's own doctor is not prepared to attest that they were not epileptic.
  If Mr. Buchan had lodged the application, however, a right of appeal to the sheriff would have been created in the event of the refusal of the application. If Mr. Buchan wishes to pursue the matter further, the right course would be for him actually to lodge an application. If he did so and it were refused by the licensing authority, Mr. Buchan could take the matter on appeal to the sheriff. I have given the circumstances of the case. and it is clear on the medical evidence that this is not something that I would
  1764
  recommend Mr. Buchan to do. I think that he should try to think of another sort of job to pursue, recognising his wish to be a driver. None the less, it seems unfortunate that he has chosen the one profession that has debarred him by the nature of his condition.
  I have looked at the matter sympathetically—
  The Question having been proposed after Ten o'clock on Thursday evening and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
  Adjourned at eleven minutes past Two o'clock.

NORTHERN IRELAND
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Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Carlisle.):
The LORD CHANCELLOR on the Woolsack.

CARCINOGENS IN FOODSTUFFS
Lord BURNTWOOD: 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 have noted the articles which appeared recently in the magazine Ecologist on the subject of carcinogens in foodstuffs offered to the public; whether they have compared American regulations on this subject with United Kingdom practice as illustrated by these articles; and whether action is contemplated.
Lord STRABOLGI: My Lords, we are aware of the article and of American regulations. We are satisfied that our systems of control, which are kept under regular review, are effective to protect the health of our consumers. We are advised on these matters by independent expert committees on a continuing basis. We also have regard to experience and action in other parts of the world, and to the advice given by other expert bodies, not only within the European Economic Community but also, for example, by the Food and Agriculture Organisation and the World Health Organisation. Our existing laws enable us at any time and without delay to take such further action as we consider necessary to add to the already extensive protection given.
Lord BURNTWOOD: My Lords, is there a case for the legislation to be criticised over these various practices?
Lord STRABOLGI: My Lords, the general control on the use of food
364
additives and contaminants is, of course, exercised through the Food and Drugs Act 1955.
Lord SHINWELL: My Lords, in view of his statement that many organisations and experts have been engaged in investigation into this very important study, may I ask my noble friend whether any reports have been published and made public? Further, is my noble friend aware that the continuing processing of various foods may be having a deleterious effect on the health of the public, and is it not desirable that we should be well informed on the subject?
Lord STRABOLGI: Yes, my Lords, certainly; and the Government welcome that. I cannot say exactly which reports are published, but I will go into it and let my noble friend know, if possible, by way of a Written Answer.
Lord DAVIES of LEEK: My Lords, is my noble friend aware that, as man is growing more neurotic, more schizophrenic and more sophisticated, his stomach is unable to digest Nature's natural foods and that a little more realistic living and less sophistication would do civilisation a power of good?
Lord STRABOLGI: Yes, my Lords, I agree with what my noble friend has said. I may say that with regard to colours in food, this whole question is being reviewed by the Food Additives and Contaminants Committee, and particular attention is being paid to colours in foods consumed by children.
Baroness GAITSKELL: My Lords, while being very reassured by the statement given by the noble Lord on this Question, is he aware that if we were to follow the American way of dealing with food additives we should not be able to eat, drink or breathe without being afraid of having cancer? Is he also aware that in the United States there is not one day when people are not warned about cancer; that there are programmes on cancer, and that everybody is liable to be frightened to death rather than cured?
Lord STRABOLGI: Yes, my Lords, I agree with my noble friend. Of course, if you avoid the risk of cancer you then

365
come up against the risks involved in alternative foods, which might give you cholesterol poisoning.

ACP CONFERENCE: TRADE AND AID
3.5 p.m.
Lord BROCKWAY: 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 conclusions were reached at the conference of representatives of the nine nations of the EEC and 52 nations of the African, Caribbean and Pacific group (ACP) regarding trade and aid.
The MINISTER of STATE, FOREIGN and COMMONWEALTH OFFICE (Lord Goronwy-Roberts): My Lords, the second meeting of the ACP/EEC Council of Ministers in Fiji on 13th and 14th April was recognised on both sides as a significant success. The Council reviewed the application of the Lomé Convention since its first Joint Council held in July 1976. It focussed especially on the aid side on the system for stabilising export earnings (STABEX) and on the Joint Resolution on Financial and Technical Co-operation. On the trade side, there was a general review of current issues of particular importance to the ACP States such as bananas, groundnuts, sugar and rules of origin. The details are set out in the communiqué which I have placed in the Library of the House.
Lord BROCKWAY: My Lords, while welcoming that reply regarding the success of the Conference, together with the fact that the Statement is to be placed in the Library, may I ask the Minister this question: what was the decision with regard to the stabilisation of commodity prices from these 52 Caribbean, African and Asian nations? May I also ask whether that Agreement might not contribute towards a solution of this problem which will be discussed in Paris between the North and South?
Lord GORONWY-ROBERTS: My Lords, I am not quite sure whether final agreement was reached on the point mentioned by my noble friend, but I will
366
make sure that he is made aware of the exact position which has been reached, and I will communicate with him on the matter.
Lord ELTON: My Lords, in the light of the wholly satisfactory statement he has made, does the noble Lord agree that trade is, on the whole, almost always better than aid? Does he agree that the STABEX system is a notable advance which is to the credit of the European Community and which could be copied worldwide? Does he agree, also, that, subsequent upon trade, investment—from the free market as well as from Government markets—should be welcomed in developing countries, and that it is to this area that we should be turning our attention?
Lord GORONWY-ROBERTS: My Lords, I think there would be general agreement with what the noble Lord has said. Trade is undoubtedly better than aid, but aid is so often necessary in the rather long interim in these cases. I hope that aid will be provided in sufficient proportions, and in the right way, in order to encourage the capacity to trade.
Lord LEE of NEWTON: My Lords, following the communiqué after the meeting of the seven Heads of State, could my noble friend say whether we are now approaching agreement on the size of the Common Fund which was mentioned at UNCTAD?
Lord GORONWY-ROBERTS: Yes, my Lords; I think I can give a general assurance on that. The whole tone of this meeting was, as I said, significantly successful. Indeed, at the close of it, the distinguished Prime Minister of Fiji, Ratu Sir Kamisese Mara, said that this meeting had,
"…rekindled the flame of Lomé".
I take that to mean that the intentions of the Lomé Convention, which are varied as well as important, including the point made by my noble friend, have been given a new fillip by this very successful meeting.
Lord BROCKWAY: My Lords, is the Minister aware that we very much appreciate the degree of agreement that has been reached at this conference and that we very much hope it will be the spirit in

367
which these future discussions will take place on a wider basis?
Lord BANKS: My Lords, could the noble Lord say whether there were any representations from the ACP countries about the erosion of the preferences by the GSP under the Lomé Agreement, or are they now satisfied with the situation?
Lord GORONWY-ROBERTS: My Lords, I cannot say that they were completely satisfied, but I would venture to say that there is a new feeling of assurance on that point and on a number of other points. If I may now briefly refer to the point made by my noble friend Lord Brockway about a follow-up to this conference, I understand today that the progress of the sugar prices meeting, which has been going on intermittently since 28th April, promises fair success, and I am sure that my noble friend will be glad of that news.

DWELLINGS FOR THE DISABLED: RATING
3.10 p.m.
Lord CAMPBELL of CROY: 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 have yet decided how to amend the relevant legislation for England and Wales and for Scotland to provide for reduced rating assessments for dwellings adapted for equipment needed by severely disabled persons, so enabling more to live outside hospitals and institutions and helping to reduce public expenditure as a whole.
Baroness STEDMAN: My Lords, Section 45 of the General Rate Act 1967 and Section 8 of the Valuation and Rating (Scotland) Act 1956 provide that, in assessing properties for rating purposes, structures provided to meet the needs of the disabled shall be left out of account. The Ministers concerned with rate relief for the disabled are urgently discussing the amending legislation which may be required in consequence of the decision of the House in the case of Vandyk v.
368
Oliver last year. I regret, however, that I am not yet in a position to say when they will be able to announce their conclusions.
Lord CAMPBELL of CROY: My Lords, I thank the noble Baroness for that Answer, especially as I detect some movement forward in that reply and I know that the noble Baroness herself is much concerned with this question. Is she aware that it is exactly a year this week since the Treasury Minister stated that changes were needed as a result of the confusing ambiguity which had been exposed in the courts? Will the Government give the very highest priority to enabling severely disabled persons to live outside institutions? This is clearly what they would prefer and, also, is probably the best therapy for them, and would greatly reduce the pressure on the health services.
Baroness STEDMAN: Yes, my Lords. I accept what the noble Lord has said; that it is over a year since we first said that we hoped to make a statement shortly. Indeed, I have been guilty in this House twice within that period of saying "shortly". But we are really making movement now, and the noble Lord was right in saying that he detected movement. We are in the midst of consultations. The noble Lord will appreciate that the Scottish position is slightly different from the English one, and we should like to do what we are going to do, at the same time. I assure the noble Lord that we are sympathetic towards his views, and I still hope that this time "shortly" may mean shortly.
Baroness YOUNG: My Lords, can the noble Baroness say whether this matter will be considered when the proposals following upon the Layfield Committee Report are considered, on which I believe a statement is shortly to be made?
Baroness STEDMAN: My Lords, I cannot prejudge what will be in the statement on the Layfield Report, or whether it will be made in advance of this one. But I should not have thought that there would be a very long delay between them, and I am reasonably certain that when the statements are made noble Lords opposite, and those behind me, will find them satisfactory.

NEW ZEALAND DEEP WATER FISHING INDUSTRY
3.13 p.m.
Earl FERRERS: 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 any action is being undertaken to help New Zealand develop a deep water fishing industry.
Lord ORAM: My Lords, in the light of the New Zealand Government's wish to take advantage of the opportunities that will arise when they adopt a 200-mile limit, a mission, comprising consultants, trawler owners and shipbuilders, visited New Zealand in March with British Overseas Trade Board support to discuss the development of a deep water fishing industry. The members of the mission are preparing a report of their findings for the New Zealand Government and for the British Overseas Trade Board. Further action will be considered in the light of the reports.
Earl FERRERS: My Lords, I am very grateful to the noble Lord for that encouraging reply. Is he aware that, in wishing to develop their deep water fishing industry, New Zealand have been looking for partners and that many other countries have offered their services? Does the noble Lord agree that, in view of the great knowledge and expertise we have in this country, nothing should be left undone which could possibly be done to ensure that we are partners in this venture, and that the partnership is not left to our competitors?
Lord ORAM: My Lords, I fully agree with the noble Earl. He is right that other countries have shown an interest in this development, and have indeed sent missions. What he says about the possible mutual advantages to New Zealand and our own industry is a very important point to bear in mind.
Lord CAMPBELL of CROY: My Lords, will the Government bear in mind that not only is there expertise in this country, but also that people with great experience are available, as a result of our own deep sea fishing industry having had to contract recently?
Lord ORAM: Yes, my Lords. That is very true, and it is one possibility that our officials and people with expert knowledge would be able to engage in joint ventures in New Zealand as their industry develops.
Earl FERRERS: My Lords, while this is primarily a matter for the industry, can the noble Lord say whether or not there is any tangible help that the Government would be prepared to give, in order to enable this to come about, or will it be left entirely to the industry itself?
Lord ORAM: My Lords, I indicated that this mission was helped from official funds, and I should like to assure the noble Earl that anything that Her Majesty's Government can do to help New Zealand develop their fishing industry will be done.

SERVICE WIDOWS (EQUALITY OF PENSIONS) (No. 2) BILL [H.L.]
Baroness VICKERS: My Lords, I beg to introduce a Bill to provide pensions for widows of Servicemen below the rank of Warrant Officer Class I, who retired prior to 1st September 1950; to provide for equality of pensions for widows of Servicemen below the rank of Warrant Officer Class I, who retired between 1st September 1950 and 31st March 1973; to provide for the payment of such pensions from the National Insurance Fund; and for connected purposes. My Lords, I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a.—(Baroness Vickers.)
On Question, Bill read 1a, and to be printed.

DEFENCE ESTIMATES
3.16 p.m.
The LORD PRIVY SEAL (Lord Peart)The LORD PRIVY SEAL (Lord Peart) rose to move, That this House takes note of the Statement on the Defence Estimates 1977. The noble Lord said: My Lords, I beg to move the Motion which stands in my name on the Order Paper. I should like to open today's debate on the

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Government's Defence White Paper by reiterating its opening paragraph:
"The defence of the United Kingdom remains firmly based on the North Atlantic Alliance, since it is only through collective effort that the West can ensure its own defence and, by deterring aggression, contribute to world peace".
As usual, we can expect very thoughtful and well-informed contributions from noble Lords on all sides of the House today; and I do not anticipate one voice dissenting from the general view expressed in my opening quotation. We may be an island, or a group of islands, but we cannot stand alone; nor do we stand alone. Membership of NATO has served us well, and we expect continued membership to do so for many more years.
We cannot, however, be complacent. The threat from the Warsaw Pact countries has not been reduced and the White Paper explains in some detail improvements in Soviet capability. While there is, in strategic nuclear terms, a state of broad parity, there are indications that the balance of conventional forces is moving in favour of the Warsaw Pact. To deter an enemy, as noble Lords well know, it is not necessary to match every man and weapon; so NATO does not need precisely to match the conventional strength of the Warsaw Pact. NATO maintains deterrence through its strategy of flexible response. This involves a triad of forces—conventional, theatre nuclear and strategic nuclear. The existence of this triad of forces makes it clear to any potential aggressor that the risks involved in bringing military pressure to bear are not worth while. They show quite clearly to any aggressor that any gains he might make would be greatly offset by the incalculable risks he would run.
I do not believe that Soviet leaders are contemplating military aggression. Nevertheless, the Allies must be alert to the continuing building of the Warsaw Pact's military strength. First, our collective defence efforts must—within economic capabilities—be maintained. Secondly, we must ensure that the Soviet leaders recognise the risks to stability of continuing to build up their conventional forces. Thirdly, it is important that progress should be made in the talks on mutual and balanced force reductions. I hope noble Lords will join me at this point in
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welcoming the efforts of the new United States Administration not only in this important aspect of détente, but also in trying to achieve a new Stategic Arms Limitation Talks agreement and a comprehensive test ban treaty.
As stated in the White Paper, the Government's policy is to concentrate their defence effort on the Alliance. And we will deploy the Armed Forces of the United Kingdom in the areas in which they can make the most significant contribution to the security of the Alliance. During 1976 defence resources have continued to be devoted to NATO in line with this policy.
It has, however, been necessary to reduce planned defence expenditure. Defence could not be excluded from making a contribution towards the Government's efforts to reduce public expenditure. Unlike the reductions in defence expenditure which followed the 1974 Defence Review, and which reflected the thorough reappraisal and reduction in our commitments, the reductions announced last year are aimed at reducing planned expenditure in the next two years, 1977–78 and 1978–79. It is too early to say with complete precision how the reduction of £230 million in 1978–79 will be made, but the Government's aim is to keep to a minimum the effect on our front line contribution to NATO. We are still studying how to achieve these cuts, and there will be full consultation with NATO.
The £200 million to be saved in 1977–78 will, as the White Paper says, come from a wide range of expenditure. First, £75 million will be saved from the equipment programme. This will be achieved mainly through deferments of projects, though there will be two cancellations. The work on the improved version of the Ikara anti-submarine weapon system which was under development with the Australians will be cancelled. The improved version would have carried the new lightweight torpedoes which we are developing and would have given some additional range. But the existing version will remain in service, and will continue to provide a quick reaction anti-submarine warfare capability. The only other cancellation is the proposed Mark 29 cupola for the Chieftain tank. In my opinion we can do without this. Technological developments have enabled us to rely

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on an improved version of the existing cupola. Other savings in equipment have resulted from postponing financial provision for the procurement of medium-lift helicopters.
The second area from which savings will be drawn is works and accommodation stores, which will provide £64 million towards the saving for 1977–78. In making these savings the Services are sharing in the general reduction in capital works expenditure applying to the whole of the public sector. But projects affecting operational capability and those associated with the restructuring of the Services will be given priority for the reduced funds available. The remainder of the £200 million savings will be made up from a number of measures from a variety of areas.
Despite these cuts in planned expenditure, our military contribution to the Alliance is very substantial and compares very favourably with that of our Allies. Indeed, in 1976 our defence expenditure represented 5·1 per cent. of gross domestic product. This is a higher proportion than any of our Allies except the United States of America and Greece. Also, the United Kingdom is the only European member of the Alliance to contribute to all areas of the triad of forces which I mentioned earlier.
Moreover, we aim to spend £2,350 million on equipment. This means we will increase the proportion of the defence budget devoted to equipment to 37 per cent. This is as high as we have achieved for many years. And noble Lords should remember that recent NATO study has shown the proportion of British defence expenditure devoted to the purchase of major equipment on NATO definition is the highest of the 11 members of the Alliance that were surveyed.
I should like now to turn to the points made by the noble Lord, Lord Orr-Ewing, in his Amendment to the Motion. I have already referred to the strength of the Warsaw Pact forces and the Soviet build-up, especially of their conventional forces. Furthermore, I have just emphasised the substantial contribution which our forces make to the North Atlantic Alliance. I should like to make quite clear that, despite the cuts to which the noble Lord's Amendment refers, defence budget estimates were higher in
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real terms in 1975–76 than in 1974–75 and higher still in 1976–77. It is true that 1977–78 shows a lower figure than last, and planned defence expenditure next year will be marginally lower still; but it will nevertheless be significantly greater than in the 1974 financial year.
I am not sure that the noble Lord, Lord Orr-Ewing, fully appreciates the distinction between cuts compared with the previous year and cuts in the planned future level. I have taken 1974–75 as my point of comparison, because that was the first financial year of the present Government's term of office. We took office a few weeks before it began. Expenditure was depressed in that year by the three cuts announced in the single year of 1973 by the Government of the noble Lords opposite. In real terms it fell, year on year, from 1971–72 to 1974–75 inclusive. Let me make this quite clear. The last Conservative Government cut defence expenditure, in real terms, from 1971–72 to 1974–75. This Government have increased defence expenditure in real terms.
So what exactly are noble Lords opposite saying if they support the noble Lord's Amendment today? They are saying that despite all this—despite the fact that this Labour Government's record in maintaining our defence capability is better than that of the last Conservative Government, despite the fact that the Opposition have called time and time again for real reductions in public spending and despite the fact that real defence spending is higher today than it ever was under their Administration—they are not prepared to see any reductions at all in the planned future growth of defence spending.
I shall not pretend that the reductions in our planned defence spending that economic circumstances have regrettably made necessary after the Defence Review have been painless, but the Government have kept and will continue to keep to the absolute minimum their effect on our front line contribution to NATO. So far as possible, the savings have been concentrated in the support area and, as I have said, expenditure on new equipment is being kept high. In this way the fighting capability of our forces is, in absolute terms, continually being improved. The noble Lord's Amendment is, I fear, based on totally misguided premises.
I know that Members of this House always show a keen interest in equipment collaboration. May I mention that this collaboration leads to economies through shared rather than parallel research and development and to longer production runs. Collaborative projects also encourage the standardisation of defence equipment in NATO forces. Moreover, where standardisation is not feasible for one reason or another, it may nevertheless be possible to secure some of the operational advantages of standardisation if different national equipments are, or can be made to be, compatible.
The independent European Programme Group, set up at the beginning of 1976, was, of course, founded to improve equipment collaboration among European Allies and includes standardisation and compatibility among its objectives. The search for standardisation and compatibility is never easy. Different nations have differing views of the priority to be allocated to a particular project at a time when other projects are vying for scarce resources. Of course, there are differences in the time scale by which nations need to replace a piece of their equipment.
Examples of the difficulties that can arise are to be found in NATO's need for an airborne early warning aircraft —AEW— and our studies with Germany of our ideas for a future main battle tank. As noble Lords will know from the statement made by my right honourable friend the Secretary of State in another place, and repeated in this House on 31st March by my noble friend Lord Winterbottom, the Government decided to go ahead with the development of the Nimrod Airborne Early Warning aircraft. This was because of the urgent need to have ready in the early 1980s a replacement for the ageing Shackleton AEW aircraft, and because of the continued uncertainty about the procurement of the Airborne Warning and Control system by NATO. The decision to go ahead with Nimrod was not easy. The Government have consistently maintained the position that a single force of NATO AEW aircraft would be the best answer to the requirement, provided, of course, that it was of the right size and capability and could be achieved in a timely way.
The Government also accepted NATO's choice of the Boeing E3A Airborne
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Warning and Control System aircraft as the best for the overall NATO requirement following a comparison of all the AEW systems, including Nimrod, available or in prospect at that time. But we have always maintained that while a single force of Airborne Warning Control systems was the best solution, it was not the only one. The capability could be met with aircraft of different types provided that the product of their sensors could be fed into the NATO air defence system.
While our Allies may well have hoped that it could have proved possible for Her Majesty's Government to accept yet another delay in the decision, I think they understand the reasons why this was not, in the event, possible. It is still open to our Allies to proceed with the collective purchase of the reduced number of Airborne Warning and Control systems that will now be required for the balance of the NATO task. We should certainly support such an initiative and will work to achieve the maximum compatibility with whatever AEW aircraft the Alliance eventually procures. Present plans for Nimrod and the Boeing E3A already show a large measure of compatibility, particularly in the key area of communications. In the meantime, the Nimrod system will be fully capable of meeting the airborne early warning requirement in the United Kingdom Air Defence Region and the Eastern Atlantic and Channel areas, and as such will give the Alliance an urgently needed and modern capability.
The purpose of our studies with the Germans on the future main battle tank was to establish whether or not our views were sufficiently alike to justify a joint collaborative project. We found that our views on the characteristics of a future tank were very similar, but the replacement timetables of the two countries have gradually diverged to such an extent that both Governments agreed that collaboration on a project is no longer practicable. We need to start replacing Chieftain in the late 1980s. We propose to maintain the excellent contacts we have made with Germany and to make use of our long-established liaison with the United States. In this way we will explore, in the interests of NATO standardisation, the possibilities of harmonising components in the tank forces of the three countries. So constructive possibilities remain in these

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two particular cases, and there has been a number of successes elsewhere in this difficult area of equipment co-operation. The Tornado and Jaguar aircraft, the Puma, Gazelle and Lynx helicopters and the FH.70 and SP.70 medium howitzers are all good examples. These collaborative projects will provide a measure of standardisation which will in turn, we hope, encourage further standardisation.
My Lords, before moving on to other topics, I shall say a few more words about some of the other equipment which we plan to introduce in the coming years. This equipment will maintain and, where possible, enhance the already formidable fighting capacity of the Services, and thereby help to improve the deterrent posture which is so vital to the Alliance. It is planned to place an order this year for the first of the improved Swiftsure class of nuclear powered Fleet submarine. The Royal Navy also has five new classes of surface warship under construction, including the anti-submarine cruiser. The first of these—HMS "Invincible"—was launched by Her Majesty The Queen last week. The Type 42 destroyer and the Type 21 and Type 22 frigates are also under construction. The Navy is acquiring the Sea Harrier vertical and short take-off and landing aircraft and guided weapons systems such as Sea Wolf and Sea Dart. Later this year will see the arrival of the Striker tracked reconnaissance vehicle carrying the Swingfire anti-tank guided missile.
Last October we signed a Memorandum of Understanding with the French and German Governments for the purchase of the Milan anti-tank guided weapon. Initial deliveries of this will be made later this year. These initial deliveries will be from the Franco-German consortium Euromissile, but the remainder of our considerable order will be manufactured in the United Kingdom, thus safeguarding several thousand jobs in the guided weapon industry.
The Royal Air Force is building up its squadrons of strike/attack Jaguar aircraft and its air defence squadrons are being re-equipped with the Phantom. Twenty-four extra Harriers have just been ordered. The Tornado is now in full production and will re-equip the front line in the 1980s in the strike/attack, reconnaissance and air defence roles. The Hawk has
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just entered service to replace the Gnat as the RAF advanced trainer. And our Nimrod maritime patrol aircraft are about to undergo a major refit which will substantially improve their anti-submarine capabilities. The provision of good modern equipment improves the deterrent value of our forces. The new equipment improves morale and further enhances the value of our forces. And in this way we can enrich our contribution to the Alliance.
I do not hesitate to assert to your Lordships that, despite the reductions in defence expenditure and the problems of service in Northern Ireland, morale in the forces is high. It is some time since I visited Northern Ireland, as other noble Lords have done, but I have always found that in that difficult area the morale of our forces is really wonderful.
Noble Lords will agree that it is, of course, important to pay our Servicemen realistic and attractive wages. Under the recent pay award to the Services, officers up to and including Brigadier and all adult Servicemen received, from 1st April 1977, a pay supplement of 5 per cent. of their gross taxable earnings within lower and upper limits of £2·50 and £4 a week; juniors and apprentices received proportionate supplements. This was in accordance with the anti-inflation policy. I believe that it is extremely important to get the economy of this country into a healthier state. The first and second phases of the pay policy have, I believe, helped to prevent what would have been a higher rate of inflation than that which we have at the moment. The public generally has understood and accepted the need for restraint. I know our forces will also understand.
All three Services are involved in the unenviable task of supporting the civil power in Northern Ireland in maintaining law and order. The Services, as always, are going about their job, which is difficult and often dangerous, in a thoroughly professional, dedicated and courageous manner. I think it would be appropriate, at this point, to pay a tribute to all our forces, both active and reserve, wherever they may be. But special praise must go to those who are serving now, or have served, in Northern Ireland. Indeed, some units have served as many as seven tours in the Province.
I am sure the House will wish to join me in expressing our deepest sympathy for the relatives, colleagues and friends of all members of the forces who have given their lives in the interests of peace in that troubled area. There has been some criticism of the conditions of service both in and relating to Northern Ireland, and my honourable friend the Under-Secretary of State for Defence for the Army has called for an urgent report on the subject, and work on this is proceeding.
As announced during the latter half of last year, the full-time element of the locally recruited Ulster Defence Regiment, which has been employed on training, administrative and static guard duties, is being increased and given new tasks. In future it will participate in a range of operational duties similar to those undertaken by the Regular Army in Northern Ireland. This full-time element will provide a very important contribution to the Army's efforts in Northern Ireland. In conclusion, I must say quite firmly that this Labour Government have no need to apologise for their defence policy.
As I have pointed out, the Amendment of the noble Lord, Lord Orr-Ewing, is misconceived. The fighting capability of our forces has been improved by this Government. The problem is not, therefore, how to restore this capability but how to improve it still further. And in considering this problem the Government have, of course, to take into account the economic position of the nation. But, in more general terms, this Government can be proud of its record in defending the United Kingdom. And I use the word "defending" in its widest sense. And by defence I refer not only to equipment, but also to the maintenance and improvement of social services, the health service, the education system and in general terms the defence of our social structure. At the same time, this Government have sought to defend our economic stability, through the industrial strategy and the Social Contract.
This Government take a wider view of defence than the provision of Armed Forces—vitally important though they may be. And the wider view demands that a judgment be made of conflicting priorities. The Estimates before you today represent part—an important part—
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of this Government's judgment. And, in my view, these Estimates, and the Government's judgment of public expenditure priorities, will prove to be a fair and reasonable provision for the defence—in both its wider and narrower senses—of the United Kingdom. My Lords, believe what I have said demonstrates a positive achievement. I beg to move.
Moved, That this House takes note of the Statement on the Defence Estimates 1977 (Cmnd. 6735).—(Lord Peart.)
3.42 p.m.
Lord ORR-EWING Lord ORR-EWING rose to move, as an Amendment to the above Motion, at end to insert "but regrets that, in the face of the massive build-up of the USSR forces, there have been five cuts in the last two years in the United Kingdom defence expenditure and, consequently, in the contribution that our Armed Forces make to our alliances; and therefore urges that no further cuts be made and that the fighting capability of our forces be restored as a matter of the highest priority." The noble Lord said: My Lords, I beg to move the Amendment standing in my name on the Order Paper. The noble Lord the Lord Privy Seal, with his usual robust attitude, I think did his best to put a good face upon the Government's defence programme. I think he took that very famous and useful maxim, when your point is very weak, shout, because we did notice that a number of the points were very weak indeed, as I shall go on to show.
Several noble Lords: Oh!
Lord ORR-EWING: This is the first time we have had the Labour Party take an interest in defence. Noble Lords opposite may cheer and boo as much as they like. I wish more of them were going to speak in this debate; so far on the list there is not a single one, apart from the two who are to speak from the Government Front Bench.
Of course it is true to say that the percentage of our GNP we are spending on defence may be marginally less or marginally more than that of our main Allies, but the difference is that our Allies have had their economic prosperity and their gross national product expanding

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year after year for a decade or more. Here, after nine years of Labour rule out of the last thirteen, our industrial growth is deplorably low, and even sometimes negative. In fact we are producing less now than we were in the three-day week at the beginning of 1974. I see that the forecast of our growth for the coming year is only 1 per cent. against the 5 or 6 per cent. of our main Allies. So in real terms, in money per head of our population, we are spending less than any of our main Allies in the NATO Alliance. What is sad is that we have 1·4 million unemployed who cannot help create the added wealth which we so badly need in order to increase our defence expenditure.
I have to take the noble Lord up on one point. He should perhaps check more carefully. When speaking about the new equipment to be produced he selected, unfortunately, the passage which appears at page 34 of the White Paper, under Production and Development:
"A further Fleet submarine order, the first of an improved Swiftsure Class, is planned for 1977."
That sounds great until you happen to look at page 50 of last year's White Paper, where it says:
"The first of an improved class of nuclear submarine is planned to be ordered in the current year".
This is double counting. I think he should select his examples rather better. Surely it is exactly the same boat in both White Papers.
My Lords, I fully realise that it is not usual to move an Amendment on a defence Motion. It used to be done when defence Motions were put down to "approve the Defence Estimates", but for many years now—I think probably very wisely on the part of this Government—we debate a Motion to "take note", and it is unusual to have an Amendment. But in recent years some very unusual things have been happening. It is not usual for a Government when faced with a massively increased threat to our security and to our NATO Alliance to go on making cuts, and to make five successive such cuts in two years. It is not usual for the Chief of the Defence Staff, Sir Michael Carver to go on television, as he did in July 1975, to say that our defences are down to "absolute bedrock". After a statement of that seriousness it is not
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usual for a Government to make three further defence cuts below bedrock. These were made in February 1976, in July 1976, and in September 1976, and in total that year they cut £407 million. I do not recall since the war the Chiefs of Staff feeling so anxious about our defence and these cuts that they felt compelled to go to 10 Downing Street to see the Prime Minister, as they did just before Christmas, and even then defence cuts went on.
The Official Opposition tabled a Motion of Censure on 12th January, and there was a strong vote in the House of Commons and a further two-day defence debate in March. I was so glad to see that on both those occasions the Liberal leaders supported the Conservatives and one or two Labour Members of Parliament voted with us as well. If the Government believed that these shaming cuts would satisfy their Marxist wing, they still do not know them as well as we and the country do. In fact, 76 of them voted in the March debate for further cuts on top of everything else. At the Labour Party Conference last October, I see that the National Executive supported further substantial cuts of £1,200 million.
In the face of these cuts and the risks being taken, this Amendment was tabled, and if the Government cannot accept it —and I rather gathered from the tone of the opening speech that they will not be able to—I hope it will have the support of Liberals, Cross-Benchers and social democrats on the Labour Benches, all of whom must feel considerable anxiety. I think the timing of this debate is especially appropriate, as President Carter during his recent visit said:
"We shall join with you to strengthen the Alliance politically, economically and militarily".
He went on so say that,
"the United States was prepared to make a major effort in the expectation that its allies would do the same".
The United States are already carrying a considerable burden of the NATO Alliance, and how gallant it is that they are going to spend more in the expectation that we are going to do the same. I suggest that my Amendment would help the Government, if they accepted it, to carry out that expectation and maintain the good will that was created by that meeting.

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It is interesting to study the changes in priority of Government expenditure since the Labour Government took power in 1964. The two biggest spending Departments then were Social Security, with a budget just over £2,000 million, and close behind, Defence, costing just under £2,000 million. Education was third and health was fourth. In the Estimates we have just seen for 1977–78, Social Security will not cost £5,500 million; it will cost £11,000 million. Education is the second biggest expenditure, £7,500 million. Many people feel that we are not getting very good value for that. Health is the third biggest, £6,500 million, and Defence is down at £5,500 million. So we are spending today, whatever the merits of it, and in the face of tremendous acceleration of Russian rearmament, £6,000 million more on Social Security than on defence.
This is a strange sense of priorities. Let the Labour Government remind themselves that they have been responsible during nine out of the last thirteen years for this deplorable lack of interest in defence. Of course, it would be desperately unwise for any Opposition to try to lay down details of the defence priorities which they would set in motion when elected. We must consider the economic position at the time; we must obviously consider the diplomatic position worldwide, the strength of our alliances, the menace from our enemies and, of course, the advice of our defence advisers.
I should imagine that there are three areas which deserve urgent attention: first, the need for more infantry battalions; secondly, the creation of bigger reserves of manpower, equipment and spares; and thirdly, the defence of NATO's sea lanes. As time is short, I should like to concentrate on the last of these.
Nowhere has the USSR expanded its forces faster than in the oceans of the world. We know how nearly Britain was starved and defeated in two world wars by submarine warfare. At any threat of conflict in Europe the NATO Alliance would be utterly dependent on shipborne reinforcement of men and supplies. In fact, 95 per cent. of the urgent reinforcements would have to be carried in ships mostly across the Atlantic. Even in peace time Western Europe is greatly
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dependent on food, raw materials and especially oil travelling along the world's sea lanes. We are becoming increasingly vulnerable. Each day there are 200 ships of NATO countries in the Indian ocean: the larger ships reach Europe round the Cape and the smaller ones through the Mediterranean.
Surely these facts explain quite simply why Russia now has Cuban mercenaries serving the Communist cause in six African countries, and why Russia is stirring rebellion throughout that continent. Until the recent impetus given by the new Secretary of State for Foreign and Commonwealth Affairs, Dr. David Owen—himself a previous Navy Minister —I thought that our diplomatic effort in that part of the world was ineffectual and flabby and did not match in any way the effort being put in by our enemies.
Hitler started World War II with 39 operational submarines; Russia has 300. She has 130 nuclear submarines of which roughly half are Hunter Killers; the other half have a missile capability as well. Russia is building and launching 14 new nuclear submarines a year; the United States of America is building and launching four; we are building and launching one every 18 months. The gap is growing wider and wider. Surely high priority should now be given to strengthen the Royal Navy's anti-submarine capability, particularly its maritime air power. It is now conceivable—and this is only a conjecture—that, as in 1939–40, we could have blackmail; perhaps we could have a war only at sea—a war which did not spread to the land or the air.
In the face of all these possible threats this Government have cut our maritime airforce—our Nimrod force—by 25 per cent. and now plan to take the nine Nimrods based at Malta, which were looking after the surveillance of the Mediterranean, and convert them to airborne early warning aircraft. Why cannot we now start building some more Nimrods to make good these dangerous cuts in our maritime anti-submarine capability? This is the finest maritime aircraft in the world and when it has its new electronic re-fit it will be better still. I suggest that the Government would not only help the unemployment situation in the area but be building an aircraft of tremendous value to our defence, and it

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could probably be exported to our allies as well.
During the nine years that Labour have ruled since 1964 they have sacrificed defence in order to satisfy Left-Wing demands for profligate public expenditure in other areas, notably and especially nationalisation. In 1969 when Mr. Healey was Secretary of State for Defence he said:
"Once we cut defence expenditure to the extent where our security is imperilled, we have no houses, we have no hospitals, we have no schools, we have a heap of cinders".
Since then the building rate of Russian arms on land, sea and air has greatly accelerated. It is now recognised that NATO intelligence greatly underestimated that rate and the threat. A year ago when Mr. Mason was Secretary of State for Defence he said that over the past decade Russia's defence expenditure, at 11–12 per cent. of her GNP, had been underestimated by 60 per cent.
My Lords, surely in the face of these facts ought we not to take action to reverse these successive cuts and to honour our obligation to NATO? I hope that Peers of all Parties and of none will feel able to stay and support this Amendment so that this House can use its influence on the defence policy of the Government.
Moved, as an Amendment to the above Motion at end to insert "but regrets that, in the face of the massive build-up of the U.S.S.R. forces, there have been five cuts in the last two years in the United Kingdom defence expenditure and, consequently, in the contribution that our Armed Forces make to our alliances; and therefore urges that no further cuts be made and that the fighting capability of our forces be restored as a matter of the highest priority."—(Lord Orr-Ewing.)
3.56 p.m.
Lord GLADWYN: My Lords, no impartial person can read the chapter of the Defence Estimates entitled, "The Military Capability of the Warsaw Pact" and its accompanying tables without very considerable alarm, for it is now undisputed that since 1972, when the Mutual and Balanced Force Reduction Talks started in Vienna, the Soviet Union has not decreased—in agreement with the West—but greatly increased its forces in Central Europe to an extent, as everyone would admit, out of all relation to any
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conceivable aggressive potential on the part of the democracies. Though this is not specifically stated in the Estimates, Russian superiority in armour alone is now of the order of three to one. The Russians have great numbers of a new, mechanised infantry combat vehicle and I am credibly informed that their air force is now on an offensive rather than a defensive basis (as it was until recent years) and is perhaps twice as strong as the NATO equivalent. That can be verified in paragraph 122 of the Estimates.
Moreover, as is stated in paragraph 123, their IRBMs (their medium range ballistic missiles) have been "mirved", as they say—that is they are independently targeted re-entry vehicles—and they also have at their disposal a new range of formidable tactical nuclear weapons. All that is not in dispute. But it is not all. Owing to great improvements in its communications and in its air transport the Soviet Union now has the capability—I do not say, of course, that it has the present intention—of starting hostilities with scarcely any warning at all. As the entire NATO strategy, if I understood it rightly, rests on the assumption that at the very least some days will be available in which, if necessary, to bring up reserves and generally get ready for war, this is clearly in itself an immense advantage. It is scarcely necessary to add, as I emphasised in my speech on the Address last December, that an additional great advantage is the standardisation of all weapons and logistics to the East of the Iron Curtain and of the appalling proliferation of different and competing types in the West. We must also reckon with the considerable and efficient forces of all the satellite States involved.
In the face of all that the policy of the Alliance, as outlined in the Estimates, is still that of "flexible response"—namely, the intention:
"…to respond in an appropriate manner to aggression of any kind, NATO being prepared"—
if necessary, presumably—
"to 'escalate' and to use all elements of its forces in its own self-defence".
As part and parcel of this no doubt acceptable strategy, so far as it goes, NATO must sustain what is called in the Defence Estimates:
"a stalwart conventional defence against conventional attack".

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But the weakness of this strategic conception is becoming clearer and clearer as time goes on. For if the opponent did by any chance in the future actually launch a virtually unheralded blitzkrieg on a narrow front, with an immense local superiority in all kinds of weapons—which is becoming increasingly possible—then the chances are that he would advance a very long way into Western Germany before the fatal decision was taken to "escalate", if, indeed, it were taken at all.
Nor is it really conceivable that once in possession of such a hostage he could then be pushed back by any conventional counter-offensive beginning, shall we say? on the Rhine or West of the Rhine, while the use of nuclear weapons to achieve this end and to ensure the success of the counter-offensives would presumably be at the expense of the unfortunate civilian population of the occupied area, and would in any case invite fearful retaliation. And all this time a blockade of Western Europe by sea and air would presumably be in operation which it would certainly need all the combined naval forces of NATO to lift, if indeed they could. Here I agree with what the noble Lord, Lord Orr-Ewing, said, and I think that I would even agree with the practical suggestion that he made.
Flexible response, in other words, will scarcely be "credible" much longer—a few years perhaps. Unless we are to be at the mercy of the Warsaw Treaty forces its place will have to be taken by a really "stalwart" (to use the Government's adjective) forward conventional, or what might broadly be described as a "hedgehog", defence quite close to the Iron Curtain, capable of holding up any assault by the conventional forces of the East, at least for long enough to enable a decision to be taken on whether or not to employ tactical nuclear weapons against enemy lines of communication in enemy territory, and not against lines of communication in our own allied territory. This would, admittedly, involve a redeployment of NATO forces and a complete abandonment of the conception of a "second battle", or counter-offensive, which even now could not seriously be contemplated with any prospect of success.
But for its successful operation such a forward strategy would also (as has been
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for so long demonstrated by so many experts inside the NATO machine and outside) have to depend on a great assembling on the German front of standardised defensive weapons of the latest type, notably anti-tank weapons, anti-aircraft weapons, and electronic devices of every kind. Such a deployment could only be achieved if there were agreement between all concerned, and notably, of course, between the Western European members of NATO, to pool their research and development and to embark on a common production programme. All this calls inevitably for some political impetus, and my own major criticism of the Government has always been that they have apparently failed to grasp and to advance such a conception which, if applied, could result, at no greater expense, in a "credible" defensive system of which the Soviet Union would be forced to take account.
Failing the adoption of such a policy we shall, as it seems to me, gradually lower the so-called "nuclear threshold"—that is to say, arrive all the sooner at the point at which we shall be forced to have resort to employ nuclear weapons and thus "escalate" the war to an unknown extent, or to surrender. In any case it is quite useless to count on détente to alter the conventional balance—that is to say, progress in Vienna on mutual and and balanced force reductions. President Carter may perhaps, as we hope he will, profit by détente in order to achieve a nuclear balance—yes, a strategic nuclear balance, which of course is desirable in itself; but the power to resist a conventional assault by conventional means is what really counts. Real détente will be achieved only when it is apparent that a balance does exist and that any unprovoked assault by the East would be evidently self-destructive.
With this background I approach the recent cuts, condemned in the Amendment put forward by the noble Lord, Lord Orr-Ewing. If there is a vote on this Amendment my noble friends on these Benches—with, I think, one or two exceptions—propose to abstain for the following reasons. Generally speaking, we are not in favour of resolutions condemning the attitude of the Government when it is clearly beyond the competence of this House to alter that attitude in any way. Criticism of the Government's

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policy on any question can, and should, and always is, if necessary, voiced; legislation, other than financial, can equally be contested and, as we all know, can even be delayed up to a certain point if this House insists; but a condemnatory resolution regarding a policy approved, as I understand it, in another place—and incidentally involving a substantial amount of finance—is surely another matter. We doubt whether it is wise to protest in this way when obviously our protest can have no effect, and is perhaps even doubtful constitutionally.
Lord ORR-EWING: My Lords, would the noble Lord allow me to intervene? There must come a time when your Lordships' House has to sustain the Constitution and the defence of our nation. My argument would be that surely that time has come now. It may be the first time, but there is always a first time to do such things. I hope the noble Lord will not think it is unconstitutional to criticise and vote on defence matters.
Lord GLADWYN: My Lords, whether it is constitutional or not—and I should suspect that it was rather unconstitutional —it is perfectly useless; it will not affect the issue in the slightest one way or the other. Whether or not the noble Lord's Amendment is accepted, in my view the policy of the Government will not be affected in the slightest degree.
Apart from the issue of the Amendment itself, the Amendment is, in our opinion, too wide in its reach. Liberals would not necessarily object to some of the cuts made as a result of what the Government would maintain is economic necessity, in so far as they may be said, or may be held, to reduce, as it were, the "fat" of defence expenditure, and would not seriously affect the fighting capacity of our forces. It is another matter—I would emphasise this, and perhaps the noble Lord, Lord Orr-Ewing, would agree with this—so far as the proposed cuts for 1978–79 are concerned. There we do have grave apprehensions and, in so far as we Liberals anyhow have any influence, we shall seek to have these abandoned, or at the least reduced, more especially if our economic situation should by then have taken a turn for the better.
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To this extent we would not necessarily dissent as such from the final words of Lord Orr-Ewing's Amendment:
"and therefore urges that no further cuts be made and that the fighting capability of our forces be restored as a matter of the highest priority".
We would agree with that, as such. Indeed, as I have said, we ourselves are prepared to go even further than that, preferring to see the last proposed cut for 1978–79 abandoned altogether, or at least modified as soon as the economic situation permits. Anyhow, for the reasons which I have ventured to advance, I very much hope that the noble Lord, Lord Orr-Ewing, perhaps advised by his own Front Bench—I do not know whether they will do so or not—will not press this Amendment to a vote.
I have tried to show why, cuts or no cuts, we are now in grave danger of falling under Soviet domination unless we can agree generally on some new defensive posture. This can, admittedly, only be achieved with the willing co-operation of our Allies, and notably our principal Allies in Europe. It may not be easy to convert them to this conception, more especially no doubt the French, though some progress seems to be being made and paragraph 5 of the NATO Summit declaration, which appears in the newspapers today, seems to be a pointer in the right direction. But our complaint is that the Government have not as yet seen the light in this respect. We earnestly hope that they may yet do so and, by their enthusiasm, carry all our Allies with them.
Surely what we need to do is not so much to prop up the present rickety structure, still less to undermine it by reliance on détente to rectify the balance, but to work for a perfectly possible solution which will at one and the same time restore the balance, assure our common defence with less burden on national exchequers and greatly benefit our industrial production. There is some evidence that the Soviet Government assume that our failure to do just this is proof positive of capitalist decline and of the inevitable triumph of totalitarian philosophy. In my gloomier moments, I cannot help thinking that they may well be right.
4.12 p.m.
Lord STRATHCONA and MOUNT ROYAL: My Lords, I must begin by

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expressing thanks for small mercies in the opening speech of the noble Lord the Leader of the House; at least he expressed the Government's good intentions by emphasising their support for NATO as the linchpin of our collective security. But, of course, I have to remind him—this has been said before in these debates—that the way to hell is paved with good intentions, and I fear that that is the direction in which his Government are leading us.
So many Defence White Papers in recent years have fallen into the rather depressing pattern of claiming that a radical review has taken place—I am sure the words "Defence Review" must now strike terror into the hearts of officials at the Ministry of Defence—and that, surprise surprise!, it has shown once again that it is possible to cut defence spending without seriously impairing national security. In passing, it is worth mentioning that it does not reflect very much on previous managements in the Department if this continues to be possible, and I suggest that this particular argument is now beginning to wear a bit thin.
Perhaps, therefore, I might start by quoting the all-Party Expenditure Committee in another place which, in its report in March, quoted itself from two years earlier and said that its conclusions were no less relevant now. It went on:
"Short-term defence cuts may cause disruption out of proportion to their amount. On the other hand, planned reductions as in the Defence Review do not result in instant financial savings, nor do they easily create early benefits elsewhere in the economy".
It added:
"The United Kingdom's contribution to collective defence cannot be significantly reduced without risking a serious loss of confidence among Members of the NATO Alliance, on which our national security depends. We consider that the House should be aware of the consequences for our defence capability and for our contribution to the NATO Alliance if further major cuts were to be imposed".
That was an all-Party committee repeating itself twice over, and I hope noble Lords will try not to repeat themselves too often in this debate, which I know is often difficult. We have the feeling, certainly on this side, that many of our defence debates are a dialogue of the deaf between those believers who are concerned and those who simply do not want to know.
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I shall strive to resist the temptation to ask a whole series of detailed questions—I probably would not get the answers anyway—and I do not intend to swap selected statistical arguments with the noble Lord. I want, rather, to concentrate on our overall philosophy. Let me start by making it plain that I am not about to waste the time of the House by indulging in the luxury of nostalgic pipe-dreams, harking back to the halcyon days of our Imperialist past, because we must accept, in any defence analysis, that we can no longer afford to take up the gauntlet on our own if challenged by a major Power, nor are we ever likely to be in a position to do so.
Dr. Luns, talking to us last Monday, suggested that even the United States is no longer independent in this respect, and the Americans I have talked to certainly emphasise that their defence thinking is based on the participation of their allies. So in the end we must rely on the American umbrella, but, of course, the trouble with sheltering under somebody else's umbrella is that one can get quite wet before they decide it is raining.
We must also face the fact that the Americans are already spending 6 per cent. of their gross national product on defence against the average of 4 per cent. in Europe, and they are increasing their defence budget. They feel that where Europe falls short of what is required they, anyway temporarily, have to make up the balance, but I do not believe we can expect them to continue to be willing to do this indefinitely when, as the White Paper shows, their per capita expenditure is already twice that of ours, 460 dollars as against 209 dollars. Their chiefs of staff consider that the present force balance is enough to deter and perhaps enough to retaliate if attacked, but they go on—this is the important point—to emphasise the gradual erosion of the West's technical lead over the Warsaw Pact while the numerical disparity continues to accelerate against us; and I am sure there will be detailed evidence of this trend produced before the debate is over today.
To plan a massive cumulative defence cut in the face of this sort of evidence has already been described as an ostrich-like policy; to me it more closely resembles the actions of the lemmings or the Gadarene swine. We must therefore

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look once again at the threat we face. Throughout history Russia has been an Imperialist power. On to this has been grafted their ruthlessly exported creed of Russian Communism. This is the régime which has chosen to devote some 12 per cent. of their gross national product to expenditure on their forces; I cannot bring myself to use the word, "defence" in talking about their forces.
Their level of expenditure percentage-wise is three times that of Europe and twice that of the United States. Furthermore, as has been so often said, the very shape of their forces is simply not appropriate to defence, and nor are the exercises which they are known to carry out. We must ask ourselves why, for example, do they choose to build up a large amphibious force? Why are they test-firing missiles at £1 million a time at the rate of about 90 over the last five years while the United States has tested 20? Most of all, as has already been said, we must not overlook the creation by a land-based Power of the second biggest navy in the world.
In this connection, I should like to mention another dimension of the naval expansion: it is the parallel build-up of the merchant navy fleet. I am glad to see my noble friend Lady Ward in her place because this is something that she has mentioned before. The Russian merchant navy fleet has gone from 15th to 10th place over the last 10 years and I am told that the rates which it charges are between 25 and 40 per cent. lower than comparable rates in the West. That, by any standards, has to be considered noncommercial and non-economic. Does that not, therefore, add fuel to the suspicion that the merchant fleet is not designed entirely for what it pretends to be but rather is in support of the Russian flag and potentially in support of the Russian navy?
The noble Lord, Lord Orr-Ewing, has already referred to the submarine force. One may be able to explain away the 40 missile submarines on the grounds of a counter-deterrent to the capacity of the West but, as the noble Lord has already said, what about the other 350 submarines, a large number of which are attack submarines? If we consider the havoc wrought by the 40 German boats operational at the beginning of the 1939 war and remember that Admiral Doenitz said
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in his book that what they needed was increased depth, increased speed and increased range, we should bear in mind that the modern Russian boats have all these three characteristics. These ships are being constructed by the Warsaw Pact countries at over twice the rate that they are being built in the West.
Dr. Luns also said on Monday that, when he challenged the Russians as to why they felt vulnerable at sea, the reply he received was, "We depend on our sea communications for our supply of chocolate and bananas"! We are aware of the traditional, rather paranoic Russian feeling of encirclement but, if one looks at a map, one feels that the Duke of Wellington might have said, "Well, its a damn big circle!"
I suggest, therefore, that we are not only entitled but are compelled to draw the conclusion that the Russians are engaged in military preparation for worldwide political domination, no less. I am not trying to engage in flesh-creeping scare-mongering, nor have I any wish to undermine sincere efforts towards détente. I am trying to be frank, factual and realistic. Nor am I suggesting that we fear imminent attack, but I should like to remind the House of something else that Dr. Luns said in relation to Clausewitz's famous dictum that,
"War is the extension of foreign policy".
This, Dr. Luns suggested, is no longer true unless the defender is defenceless. He summed it up by saying that the combination of military weakness and political instability offers a temptation to an expansionist Power; and that unbalanced forces will yield unbalanced solutions.
So, once again, we must reiterate—and here I feel that I am agreeing strongly with something said by the noble Lord, Lord Gladwyn—that adequate defensive capability should not be seen as a provocation but rather as a discouragement of war. This is particularly true of the nuclear threshold. The best hope of avoiding a nuclear conflict is clearly an adequately strong balance of conventional forces. That is made all the more pressing by the advent of the tactical nuclear weapons—the "mini nukes". It is worth bearing in mind that the likelihood, in any scenario that the West can see, is that the Russian armies would be operating over unfriendly territory and might therefore be less shy

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about resorting to the use of these small nuclear weapons, which are now no larger in yield than the biggest bombs that we had at the end of the late war because they would not be dropping those weapons on a friendly country.
So we come to SALT. Helsinki and the Mutual and Balanced Force Reduction discussions. Is it not plain, however, that unilateral demands armament will be seen by the other side as a display of weakness and disunity which will encourage them to intransigence and to increase their demands? After all, it was Stalin who asked,
"How many divisions has the Pope?".
Let us also remember the kind of example that we shall set to our Allies—and I believe that that is referred to in the Amendment—if we are seen to be starting the game of unilateral disarmament. We still claim a position of leadership in this country. Only the other day, the Prime Minister went on the radio when President Carter came here to claim that he was acting as host to a meeting of the seven most powerful and richest nations in the world. The Ministers in his Government are constantly telling us that, under the guidance of that Government, we are on the road to recovery. Yet, they intend to show their confidence by taking over a thousand million pounds out of defence in 1978–1979 and 1979–1980, which is something like 15 or 20 per cent. of the total budget. I should like to suggest that this kind of dismemberment makes the present cuts look like fleabites. It is a very funny way indeed to demonstrate our leadership claim and our confidence in the future.
I am sure that our problems are understood by our Allies and that they sympathise with them, but must we give them notice that we are leaving the club because we can no longer afford the membership fee? Should we not rather be saying, "I am a little sick and tired at the moment; hold my rifle because I shall soon be recovering"? Again, as the noble Lord. Lord Orr-Ewing, has said, Mr. Carter stated that the United States was prepared to make an effort to that end—that is, support of the Alliance—in the expectation that its Allies would do the same. But I wonder when the President will come again and when we shall have another NATO
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Council meeting here. If he does come, I very much fear that he may quote one of his compatriots who said, "If you can't stand the heat of the fire you had best stay out of the kitchen!"
I should like for one moment to look a little further afield. Sooner or later, NATO will have to recognise the threat that comes from beyond the Tropic of Cancer, which is currently its cut-off point. We have already mentioned the jugular vein of Western trade across the Indian Ocean, with 200 ships at sea only 25 miles apart. Are we to withdraw from participation in the attempt to protect that lifeline? As this country approaches energy independence, are we going to become Little Englanders? Are we going to forget our obligations to our European partners and to the International Energy Agency, and is Sailor Jim going to use an old naval vernacular expression and say, "Pull up the ladder, Jack, I'm all right"? Is this what we are going to say to our Allies? So far as I can see, that is what the policy the Government are putting forward appears inevitably to be leading to.
Before I finish. I should like also to underscore a point made in the Defence Committee's report that slashing defence even has an adverse effect on our international trade. It is an old truism that trade follows the flag and, whatever one believes about Russian intentions, it is a fact that not a week passes but Russian ships visit a new port in the emerging countries that they have not visited before. What sort of security mantle can we offer to our potential friends in those countries? How much trust and confidence can they be expected to have in us, whatever we say? Again, Dr. Luns forecast that in five years Angola would be the norm. Would one not, therefore, imagine that the leaders of the Third World countries will look at Angola and at the Russian ship in the bay rather than listen to the hollow words of the British Prime Minister?
Recently in this House we were discussing the Falkland Islands, and it was asked: In what capacity would we have to go to their assistance? What can we do about the 200-mile EEZ? Here I should like to slip in one specific question to the noble Lord who is to reply. I

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was astonished to find no mention of the Bird class boats and the Kingfishers. In the whole of this Defence Review, where they take credit for all the new hardware, are they so ashamed of these vessels, or are they still arguing, two years after they have come into service, as to what they are going to pay for them?
My Lords, someone asked me the other day: "Do you really feel threatened?" I said then that I do not feel threatened when I get into my car, but I do fasten my seatbelt, I do check the brakes, and I do make sure that my insurance policy is in order. Many years ago one of my ancestors fought at Culloden, and I believe it is a fact that one of the reasons why there was so much slaughter at Culloden was that the Highlanders had a practice of taking off their kilts, fighting naked, wrapping their kilts around their arms as a shield. The fact is that Scotland never recovered from the defeat inflicted on them at Culloden by the English and by the Hanoverians. I should like to suggest that this Government are asking us to undress in the face of precisely this kind of attack at this present time.
4.31 p.m.
Earl CATHCART: My Lords, I will begin by agreeing that defence must contribute its share to the overall reduction in public spending, but five separate cuts announced by this Government in the past two years not only exceeds that fair share; it also considerably weakens the effectiveness of our Armed Forces, and perhaps, even worst of all, deprives our defence strategy of any degree of flexibility. Our defence commitments have now been pruned to two main areas. On the one hand, there is the security of the United Kingdom base and the deployment of our maritime forces in the Atlantic and the Channel adjacent to our shores. Here let me briefly say how very pleased I am that in this Statement, I consider that for the first time security of the United Kingdom base has been given a proper emphasis. On the other hand, there is support for NATO in the central region with a minor, relatively modest contribution to the Northern flank.
At the same time during this period of two years, this short stewardship of two years, our forces manpower has been
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reduced. We have had frequent economies made in the research and development programme, slippage has taken place in the provision of new equipment and our defence programmes, and cuts have been made to the supply elements. It is difficult to say which of these is the least undesirable, but in my opinion the damage done to the battle efficiency of our Armed Forces by the deliberate policy of slippage in defence expenditure cannot be over-emphasised. The next time that I get a second reminder from the tax collector I shall regret that it is due to slippage.
We hear in this latest bi-annual round of defence cuts that it will not weaken our front line forces, so we must assume that it will have to be applied to our second line and support elements. I want to deal with the scenario at an earlier stage than did the noble Lord, Lord Gladwyn; that is, at the very outset of hostilities, and I hope that I may do it with some conviction. The British Army of the Rhine will need to be reinforced at a very early stage by reservists and TAVR units, if they are to be fully operational from the outset. These reservists and TAVR men have a vital task to perform, and my concern is to know whether our reserves are adequate, and whether in fact they will ever get to their battle stations in time and with their full complement of equipment, ammunition and vehicles. If these cuts have affected our reinforcement programme and have inhibited our peace-time preparations, we shall have crippled our defence plans, since our forces on the central front would be operating under strength and under-equipped and at a serious disadvantage from the outset.
We have had two world wars, and I hope that we do not have a third, but in both 1919 and 1939 mobilisation was, luckily for us, conducted in a fairly leisurely manner. Except for Winston Churchill's grand initiative with the Royal Navy in 1914, mobilisation was begun too late to cope with the all-out onslaught on the scale we should expect next time. The Warsaw Pact, with its great superiority in almost everything, are better deployed in peace time and are nearer to a state of battle readiness than NATO. My noble friend Lord Strathcona and Mount Royal has dealt with that matter in some detail. For the Warsaw Pact mobilisation is a bonus, but for the West it is an essential key part of our plans. A Soviet

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attack, if it ever came, would not first of all test our reactions with an attack on Berlin or on the North of Norway, thus giving us time to mobilize; it would be swift and sudden, and on all fronts, on land, sea and air. There has recently been some evidence that our warning time may not be as long as we should like. Undoubtedly, there will be early warning signs of this aggression, and we shall need to make full use of every moment we get from these warning signs if our whole defence effort is not to start at a disadvantage. Most NATO forces are ill-deployed in peace time, and, especially in our own case, rely on reinforcements of TAVR men and reservists who must be recalled from civilian life, mobilised, formed up, and transported across the Channel and the North Sea.
To bring the British Army of the Rhine to battle readiness, units currently at duty in Northern Ireland must be disengaged and redeployed back to Germany. Additional units, and especially support units, must be despatched to Germany to complete the war establishment of that field force. All units in the British Army of the Rhine must be brought up to war establishment with reservists, and at the same time it is quite likely that our components of the ACE mobile force will be deployed overseas, too. All this involves the movement of maybe 60,000 to 80,000 men, which will double the peace strength of the British Army of the Rhine, but in effect it amounts to a substantial expeditionary force.
If this deployment is to be done effectively, it must be done in good time, and yet unfortunately this may be the very moment of rising tension when those whose decision it is may postpone that decision for fear of making a worsening situation even worse. By planning—and of course I quite appreciate why we adopt this plan for a field force which requires large scale reserves and reinforcements from the start—we have in effect adopted a policy of dual basing, and of course we have also made the initial stage of a war very much more difficult for ourselves. This reinforcement of units, men and material needs full and complete plans. I am perfectly certain that these plans exist in great detail and are 100 per cent. effective, but they will remain effective and be successful only if they are not inhibited by
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constant cuts and reductions in our defence expenditure.
Adequate reserves of equipment, ammunition and petrol must be maintained in peace time on the mainland of Europe by us so that the problem of reinforcement is not aggravated by having to transport a vast tonnage of supplies, as well as men, overseas at this early stage which I am talking about. To economise on these stockpiles is a false economy, even if it means foreign exchange expenditure. Perhaps if Her Majesty's Government are worried about this foreign currency expenditure, as I know they are, and wish to rationalise with other countries our expenditure on NATO defence preparations, they should consider organising a khaki pound to work in harmony with its green counterpart.
The whole process of mobilising our national effort from a peace-time to a war-time basis will inevitably be difficult, and the next time the period of rising tension and mobilisation will also be marked, I am afraid, by considerable unrest and disturbance, and perhaps even violence and sabotage. For this reason, I am particularly sorry to learn from the defence debate in another place on 19th April that, as part of these cuts, the Government do not intend to begin phase one of the modernisation of the military port at Marchwood until the period 1980–85. The full and effective operation of this port is vital if the Armed Forces are to carry out the redeployment and the reinforcement programme on mobilisation unimpeded by any of these disorders and disruptions to which I have referred.
This debate is not an occasion to elucidate our mobilisation plans, but I should be grateful if the noble Lord who is to reply to it will assure us that these defence cuts will not affect the size or equipment of our reserves, nor inhibit our plans for reinforcement at the outset of hostilities. Will he also assure us that cuts have not been made to our stockpiles of essentials, and that these will be maintained at an adequate level and will not be badly located, thus causing the massive movement problem to which I have referred. Finally, I would be grateful if Her Majesty's Government could undertake to consider the speeding up of their modernisation plans at Marchwood.

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My Lords, whether or not the noble Lord, Lord Winterbottom, is able to reassure me on these reinforcement plans, and that they will remain unimpaired, I shall support the Amendment of my noble friend Lord Orr-Ewing, because I think that Government cuts in defence expenditure have already been too big and too frequent.
4.42 p.m.
Lord CLIFFORD of CHUDLEIGH: My Lords, I was stupid enough to mention to a Member of your Lordships' House that this was the 26th defence and kindred debate in which I would have taken part. In view of his facetious reply, I shall take the hint and not bother this time to dot any i's or cross any t's. As I see it, my Lords, the average person in this country, of any Party or no Party, who has a sense of responsibility so far as the defence of this country is concerned, would like to know three things. First of all, that we (and when I say "we". everybody refers to us now in terms of NATO) have a naval capability to cope with the 400, or approaching 400, Russian submarines. I think that most people who are wise enough to remember will not forget what German submarines of the smallest number nearly inflicted on us in the last two wars.
Secondly, those who study or read—and, after all, Ministers of the present Government have very rightly given us the details—will, I think, say that we (again speaking NATO-wise) must have the air capability to cope with the 200 per cent. increase in the Soviet fighter-bomber strength that there has been in the last 24 months. Thirdly and lastly, the average person will ask what assurance can be given that we can cope with the 58 divisions of the Warsaw Pact that are poised on the centre front. He is not saying, "We have got to have 58 divisions". What he is asking is that he can be assured by the Government of this country that there is the capability at home. What I feel around the country today is that people are unhappy on those three points.
My Lords, perhaps I may return to my old hobby-horse, which is reserves. This last Sunday I went to Sennibridge Camp, which is just past Brecon in the middle of Wales, in my capacity as
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honorary colonel of a yeomanry regiment to do the usual things that one does at weekends, such as attending a church service, a march past and so on. I could not help remembering when I was last there, which was in 1962. Instead of just one TAVR3 unit, at that time we housed the divisional headquarters, a brigade and a complete brigade group. That was in 1962. Of course, those of your Lordships who are in a like position to myself, such as the noble Viscount. Lord Monckton of Brenchley. know the complaints of that limited number who are still doing their best to serve their country in this voluntary capacity.
We know the limits on the use of petrol; we know the limits on the use of ammunition and so on; but I think there is another point about our reserves that it is worth looking at in view of what has happened recently. Not all that long ago we had specialist reserve battalions of the Royal Engineers. We had railway companies, and we had others which could cope with emergencies. Your Lordships all know what has been going on or what has been said about what is happening in Northern Ireland at the moment, when it had to be publicly stated that we could not produce any specialists to run the power stations. When I look back to the days of the old Territorial Army, the one I served in, I realise how many of those specialist units have disappeared.
My next point has been ably dealt with by the noble Earl, Lord Cathcart. He obviously read, as I think many of your Lordships did, in The Times on Tuesday, a report of the Senate Defence Committee on our NATO capability. They made the point, as the noble Earl said, that what reserves and reinforcements we can get to Germany in the event of a sudden attack would not get there in time. When the Healey massacre of our reserves took place, we were told that the TAVR 2 was going to be devoted entirely to reinforcing our troops in Germany, and I shall therefore be very interested to hear the answers that the noble Lord, Lord Winterbottom, gives to the questions raised by the noble Earl, Lord Cathcart, in that respect. It took a year, as I gather, to plan the NATO exercises in Norway last year, and yet, even so, to get our troops up there we had to hire civilian transport. Is it not ironic that

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the very day, some months ago now, on which it hit the headlines that the vociferous Left were demanding that we should send troops to Rhodesia was the same day as the sale of the last RAF transport planes took place? Our dangers, as I see it, are self-inflicted.
When the Healey cuts took place, we were promised that they were the last. They were terrific cuts. Everything was reorganised; and we were not going to be cut again. That is what we were promised. What many people in this country and the Government are not realising is that the Services had had their great cuts before we started into this economic depression. They had already had their cuts and, therefore, there was no reason to put their cuts in when you had to cut everyone else. That point should have been made clear.
The danger we find ourselves in now is that our technical superiority (which is what we relied on only two or three years ago to counterbalance the big advantage the Soviets had in manpower) has now been dissipated. They have caught up. The NATO Southern flank is in disarray; we are outflanked in Southern Africa. We let Angola—and I am talking collectively—and Mozambique go by default. We have allowed in this country the dislike of apartheid to cloud our sensible vision. Churchill once said that he would make a pact with the Devil to defeat Hitler. I wish somebody could have carried that out on this occasion and prevented this stranglehold on that most important part of the world from our defence point of view.
My Lords, a member of the far Left in another place told me that he would abolish all the Services and the police, which he would replace with a workers' militia and that the money saved would go into the factories and give jobs for everybody. I tried to point out that the factories then would not be able to make refrigerators for eskimoes as over 70 per cent. of the raw materials required to make them comes from and around the Cape. I think that the general opinion among all Parties (other than, as I have said, the "lunatic Left") is that we have not got enough in our defence. I think that the noble Lord the Leader of the House, is quite right in saying that we
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have high morale in our Services. But I am bound to warn him that that morale in the Army, at least at the moment, is beginning to wane and I have had it on good authority that this affects the lowest paid soldier. May I give the example of a private soldier, married, in Germany. When he leaves that country, he gives up his local overseas allowance, and goes to Northern Ireland on his four months' tour. He gets his 50p a day in Northern Ireland. He works a 90-hour week. His family have to stay back in Germany. Compare his pay then with that of a constable in the Royal Ulster Constabulary who gets more per week on that basis than a regimental sergeant major!
I think it would be well worth the Government looking into this creeping, cutting-down of the private soldier. The private soldiers, I am told—and I have it from an officer who is worried about his men—say how badly they compare with their compatriots in "civy street" or in places like the Navy where they are always in the same barracks. When the new pay structure came in, the soldier got his increase in pay. But every time he has an increase, up go his rents and ration deductions. Those private soldiers who have to make this movement from Germany to Northern Ireland look on any increases they get—like the recent 5 per cent.—as being eaten up by increases in rents and ration deductions. I think it is a point which ought to be looked into.
My Lords, to my mind, defence ought not to be a Party matter. I acknowledge the courage of the present Minister and the previous one in making plain to the public and to the other place the prolific build-up of the Soviet forces. He is to be congratulated. My criticism is only of the Left to which, I am afraid it seems to most of us, the Government are paying too much attention; those to the Left who would abolish all our defences, those who, as far as I can see, would want us to be an East European satellite.
We have been warned by Ministers; we were warned before the First World War and we were warned before the Second World War, and we just got by at those times. We have been and are still being warned but the difference now is greater than ever before. I wonder

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whether that should not be taken into account in the level of our defence expenditure. George Santayana said:
"Those who cannot remember the past are condemned to repeat it".
4.57 p.m.
Viscount MONCKTON of BRENCHLEY: My Lords, the noble Lord, Lord Gladwyn, said that he was not going to vote for the Amendment tonight because there was no point in what he did or said or what anyone else did or said in this House. He then went on to speak effectively for 15 minutes; and I am sure he did have an effect both on your Lordships and, when read, in the Press and another place.
Lord GLADWYN: My Lords, it is not that what is said individually does not have effect; no doubt it does; but that what we do collectively might even be counter-productive.
Viscount MONCKTON of BRENCHLEY: My Lords, I accept that; but I still believe that I shall vote for the Amendment tonight and, if I may quote in another context the words of my "streaking" noble friend Lord Strathcona, not as provocation but as discouragement against further cuts, I believe that probably, surprisingly enough, we in this House represent more what the British people really think on defence than often is realised, certainly in another place. We are not responsible to our local Party conferences or anything else. We speak honestly what we think, and we vote honestly what we feel; and it is our sole, lone responsibility so to do.
The Economist believes that two-thirds of the Members of the Commons are genuinely against defence cuts but dare not vote or say so. The Yorkshire Post today believes that the majority of British people are against further defence cuts. Since Korea, we have had it pretty good in this country regarding war and peace, and we have had it good because we kept our defences up. We are getting near the danger mark now—and some have thought almost past the real danger mark.
We heard from my noble friend on Germany. It is worse than that. The numbers there are not right at any time. Some are being re-trained to go to
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Northern Ireland and some are being retrained coming back from Northern Ireland. There is an acute shortage of medical doctors. I hope to hear from the noble Lord of anything which is being done to help the medical situation in BAOR. We are short of fuel for training, we are short of ammunition for training, we are short of air support and short of helicopters. We are suffering from a slippage in production, and I hope to hear a little more on the one thing that we want out there; the anti-tank missile, the Milan missile.
Enough of Germany, my Lords. A quick switch now to Brunei. Is it sensible to cut the Gurkha Battalion there when it is paid for not by us but by the Sultan? Another quick switch, to Ireland, my Lords. Here I declare an interest, as having been colonel of a regiment concerned cut there before my noble friend Lord Grimthorpe. The families of that regiment and others, who are doing their full stint out there, are paying a greater rent than those not at risk at other places in Britain and Germany. I know that there is a committee which is meant to be reporting soon. Cannot something be done now to stop men who are risking their lives having to pay more for their houses than those at home who are not?
Meanwhile, my Lords, we have to make the best of what we have. We have to take more note of our reserve forces—as my noble friend Lord Clifford of Chudleigh said—and increase them. They are the cheapest form of defence that we have at the present time. Is it conceivable that the Parachute Regiment could be changed to more SAS-type duties? The SAS have proved themselves the one force which is always going to be required in every situation in peace and war. It may be that a new look should be given in this direction; it may also be that it has already been done and I do not know it. I hope that the bands—that essential part of regimental life—are being trained more efficiently and quickly in their medical duties. I believe that they need to be.
My Lords, I referred to a speech of about 15 minutes and I see from the indicator that I have been speaking for four minutes. May I end by saying that this yearly ritual and the thanks of all Parties to our forces for doing no more than their duty, whether

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in Germany or Ireland, is not all that well received by the soldiers, sailors or airmen on the ground. What they want is stability; what they want is to stay a little longer in their jobs. It appears to me that what the Government propose to do is to send people to certain unemployment or certain death or to prison as mercenaries. This is honestly the alternative for people who are about to have to leave the Army; and from what I know a lot are about to do so. On the officer side, too many good young officers have already applied to leave. This is bad. This is a sign that they are having doubts as to the future. I believe that it is the duty of the Government to ensure that those two points are looked at, both for stability and to keep men out of unemployment.
5.3 p.m.
Lord DUNCAN-SANDYS: My Lords, I wish to support the Amendment. While the Lord Privy Seal very frankly recognised the marked growth in Soviet military power, if he will allow me to say so, he altogether failed to justify the proposed cuts in defence expenditure this year. During the past decade, as has been pointed out, the Soviet Union has not only achieved strategic nuclear parity with the United States, but has established overwhelming conventional superiority.
What is equally serious—and I do not think that this can be emphasised too strongly—is the fact that the forces of the Warsaw Pact are maintained in a much higher state of readiness. They could, from what is called a standing start, be launched across the West German frontier with scarcely any warning. On the other hand, the NATO forces are to a large extent stationed in rearward positions; and, what is more, as the noble Earl, Lord Cathcart, pointed out, they are dependent upon the arrival of reinforcements from the United States and the United Kingdom, which would of course take some time.
Having regard to their relative weakness and lesser preparedness, our forces would inevitably—and it is no good pretending otherwise—be pushed back and a highly mobile battle would quickly develop. In such a situation, the troops of the different allied nationalities would need to be able
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to draw upon each other's supplies of ammunition, spare parts and fuel, and to establish rapid radio communication with one another. Owing to the deplorable lack of standardisation, or at least interoperability—a principle to which we have paid lip service for so long but with so little result—this will be possible only to a limited extent. We would therefore do well to recognise that the forces of the Warsaw Pact are at this moment in a position to mount a conventional attack on Western Germany with the certainty of initial success, and that they would in all probability be able to reach the Rhine before the Governments of the NATO Alliance could come to a decision whether or not to authorise the use of tactical nuclear weapons.
Nor, I submit, would it be safe to exclude the possibility that the Soviet Union might adopt blitzkrieg methods, using tactical nuclear weapons from the very start. In that case, they could no doubt overrun the whole of Western Germany in a matter of hours. In the background there remains of course the strategic nuclear deterrent; but too much reliance should not be placed on the Russian fear that an American President would readily be prepared to take the suicidal decision to press the button, except in the case of a direct threat to the territory of the United States.
I fully agree that there is no reason to suppose that the Soviet Union is planning any immediate attack on the West. But nor are they probably planning any attack on Finland—for the simple reason that they can get what they want without doing so. If Western Europe continues to neglect its defences, we could very easily, over a period of time, drift into a position of increasing impotence, in which we would be afraid to assert our fishing rights in the North Sea, afraid to resist Soviet encroachments in Africa, afraid to speak our minds freely in the United Nations, and be obliged to give up all thought of exercising any effective influence in world affairs.
I have spoken bluntly because I believe that the facts, however unpalatable, must be squarely faced. The Amendment rightly raises the question of priorities. Of course there must be cuts in public expenditure—and large cuts—but the last thing to cut is national security. Listening

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to this debate today, I could not help thinking of the debates that we had in another place in the years before the war, when the Government refused, until it was too late, to recognise the gravity of the situation. Let us by all means pursue detente with complete sincerity; but it is no substitute for defence. The reality of détente will never be achieved except on the basis of a reasonable balance of military power.
5.9 p.m.
Viscount BRIDGEMAN: My Lords, I agree with every word that my noble friend Lord Duncan-Sandys has said, and I rise to support the Amendment. Belonging as I do to the "bow and arrow" period, perhaps I ought not to have taken up the time of the House in speaking. I would not have done so if I had not realised how few people there are in this House who have had first-hand experience of the things that we are talking about. After all, since the noble Lord, Lord Bourne, came to your Lordships' House, which is about 12 years ago, while we have had a steady stream of distinguished people from the public service, industry, the arts and other places who have lent distinction to these debates, the number of people who have come from the top ranks of the Services can be counted twice over on one hand: and so it is very largely left to some of us who served professionally in the forces and, by accident of birth, have arrived in this House to do their best.
To start at the beginning of the defence White Paper, I notice that the first paragraph is "101". Perhaps if there is any hidden meaning in that, when he comes to reply, the noble Lord, Lord Winterbottom, will tell us what it is. That paragraph, or course, deals with our declaration of adherence to NATO. How much that has been affected by what has happened earlier this week, I do not know; nor do I know how that squares with paragraphs 103 and 104. But at least the sinners who wrote those two paragraphs are sitting in good company, because one can go back to the year 1924 when the Chancellor of the Exchequer of the day, Mr. Winston Churchill, carried out a similar raid on defence expenditure in the Navy and was frustrated from achieving his full objective only by the efforts of my father, supported by Lord
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Beatty. But Mr. Churchill squared his conscience at the time by inventing a formula that for 10 years from any given date there was to be no declaration of war by the potential enemy. With the help of the Treasury, that date was pushed forward until some time in the 1930s when, fortunately, it was abandoned only just in the nick of time. So this Government cannot rely on that comfortable theory, and they could not possibly take it anyhow after having written paragraph 119 and the other paragraphs which deal with the threat to members of the Warsaw Pact.
That brings me to the argument deployed by my noble friend Lord Strathcona—I thought very successfully—and to the question of the economy measures described by my noble friend Lord Cathcart as slippage. Wherever they are, these things are always the same. They very seldom cancel a project: they put it off. If in local government you put off building a school or a road, no great damage is done; but if you put off some project or some weapon in the defence programme, then you are risking at some future date your readiness for war —the time when you are out-gunned, out-flown, out-shot or whatever it may be.
There is another form of slippage which is even more insidious, and that concerns Army pay. I know some of the figures which the noble Lord, Lord Clifford of Chudleigh, produced. They are dangerous figures, because I think we are on the point of letting Service pay slip away from the increases which are given in comparable jobs. Since a few years ago we did the same thing in respect of the police, the Government of the day ought to have learned the lesson.
But, to go back to NATO, I am beginning to think that our adherence to NATO is becoming a catchword, like other catchwords we have used at different times: the Social Contract, industrial democracy, and so on. They sound so good that we think they must be right. The other day, reading the chairman's speech given by a captain of industry—he was talking about industrial democracy—I noticed he talked about catchwords giving a spurious air of respectability. And so we may be getting the wrong impression as we chant incantations about our adherence to NATO.

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Is adherence to NATO an end in itself, or is it the means? The end is in the last words of paragraph 101, referring to the need to ensure our own defence and to deter aggression.
Then the White Paper goes on to say that we can do so only by collective effort. That, I think, is a slightly dangerous remark, because it may lead one to think that no other efforts are necessary except our collective efforts to NATO. And, of course, it is always easy, particularly if you are away from the battlefield, to slip into the error of thinking that the enemy will always behave in the way that you want him to do—in this case, possibly to attack head on on the Western front, no doubt combined with nuclear attacks on this country at the same time. But are we not beginning to realise that the danger may not lie only there but it may lie round the corners? There is the Northern flank, as someone has already said in this debate. There is also the wider flank, and since the Cubans became associated with the Warsaw Pact, how can we believe there is no danger coming to us from round the corner? I am quite certain there is: and if we say we have no resources to deal with these things elsewhere, that may be true but it does not remove the danger.
Therefore, I want to come very shortly—because I mean to take very little time of the House—to speak about the home front. I have spoken about it several times before over the years in this House and I make no apology for speaking about it again. Ever since the Civil Defence Act 1948, defence and home security have been very largely based on defence against nuclear attack. That has been a very convenient arrangement, because as the threat receded the Estimates could be cut when no one was looking. But my own view is—and it is one I have held for a long time—that we are taking a completely unjustifiable risk if we make no proper preparations against subversion, sabotage and all the steps that can be, and have been, taken in so many parts of the world to undermine the will of a nation to resist. I believe from what I have heard that the penny is beginning to drop. I hope to goodness it is, because if it does not drop very soon we shall be in real danger.
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I come now to my last point but one: the failure of successive Governments administratively to look at defence as one problem. You have this line, this demarcation of responsibility, between the Defence Ministry, on the one hand, and the Home Office, with responsibility for civil defence, on the other. You have a third Department with a watching brief, the Department of the Environment, which is watching to ensure that none of the cost of Defence falls on its Estimates. You have had the horrid lesson of the TAVR 3, which was killed not so much by Government decisions as by bargaining between the Home Office and the Ministry of Defence as to which Estimate it should go on. It ended up by going on none. All this is going on, and, of course, you can see the point: the Home Office want their money for luxury prisons, deprived children and things of that kind. The Ministry of Defence has no money whatever to spare for regular forces, and so we come to the size of the problem and the need to deal with it. The problem is there and it will not go away.
Equally, there is the problem of reserves, as my noble friend Lord Cathcart mentioned. There are five tables in the annex to the White Paper, but they tell us nothing at all except the number of officers and men who serve the Queen. They do not tell us whether those numbers are sufficient. They do not tell us what is the readiness for war. No one has come round to the point that the 1957 White Paper, in abolishing National Service, set a time limit to the time when those reserves would disappear and would not be available. They disappeared, I think, last year. How has the situation altered so that they are not wanted? Have they been replaced? Are there enough men to make the forces we have, leave alone the forces we ought to have, ready for war? That is the length of time that I thought I would take to speak to your Lordships, and I will leave it at
that.
5.20 p.m.
The Earl of KIMBERLEY: My Lords, before I start my speech. I must inform your Lordships that I am speaking on my own behalf, and therefore not necessarily in complete harmony with my noble friends. This evening, if I were to admit that I had two regrets, the first would be that my name was not coupled with that of the noble Lord, Lord Orr-Ewing, in

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his Amendment; and the second would be that I should have preferred the Amendment to be even stronger. I heard a noble Lord say the other day that the defence cuts were only cutting into the fat. My Lords, we have no fat left. We are already down to the bone. I wonder how many times it has been said in your Lordships' Chamber that the prime duty of any Government is to protect and defend its people. Today, this duty is still exactly the same, although it has to move with the times, and by that I mean that it has to move with NATO, the Commonwealth and Europe.
I re-read the reports of two speeches that I made about defence in 1975 and 1976, and, unfortunately, in the majority of ways, what I said then still applies. The only difference that appeared to me was that the situation has continued to deteriorate. We have become weaker, the Warsaw Pact has become stronger and the gap has become wider. I agree that in our economic crisis we must have public expenditure cuts, but these must not put us in the position of possibly jeopardising our liberty and freedom, and that of our Allies.
But we could have cuts if we adopted certain measures of standardisation, so what can we do? In April 1976, other noble Lords and I suggested that perhaps we could have greater co-operation inside Europe, and I am happy to say that, so far as I can see, there is a positive move in this direction, like the European armaments symposium which was held in Paris on 3rd and 4th March this year by the Western European Union. So how can we, in the general climate of Budget restrictions, improve the efficiency of our defence expenditure? How can we maintain a credibility, a deterrent and a détente in the face of the ever-increasing arms of the Warsaw Pact countries?
First, I think we must co-operate more with other European Governments. Secondly, we must reduce the diversity of weapons, which would give us longer production runs and thereby lower unit costs. This would mean that, politically, we could lay the industrial and military foundations for the unified defence of Europe. France and Germany have already had some success in this field of co-operation in designing, developing and perfecting two aeroplanes, one ground to
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air missile, two anti-tank missiles, two naval missiles and a radar system. The United Kingdom and France have cooperated over one aircraft, three types of helicopter and one ground to air missile. France, Belgium and Holland have a project for a highly sophisticated, new minesweeper; and the United Kingdom, Germany and Italy have the MRCA—a real winner, in spite of Granada TV. Therefore, from the military aspect, there is no time to lose in agreeing common tactical concepts, so that we can arrive at common specifications and harmonisation in what will be not only our mutual defence, but also much more economical defence. We could reach this goal with determination and common sense, if only general staffs and Governments would act, and they must be prodded and nagged on every possible occasion until this goal is achieved.
Russia's leaders are happy with détente now, but who knows what their new leaders' attitude will be? I am not as worried about a nuclear war as other noble Lords, but I am about a conventional war. It has already been said this afternoon that we can have détente only if both sides have parity, and whether that parity is weakness or strength makes no difference, so long as it is parity. For 100 years, the Treasury has always fought the Service Departments, and invariably the Treasury has been proved wrong. Noble Lords who attend our defence study group are only too well aware of the dangers that we face if we allow ourselves to become even weaker.
In America, the House of Representatives Armed Services Committee only the other day recommended that most of the funding cuts requested by President Carter in the 1977 US Defence Budget should be restored. Yesterday in Washington, it seemed that the President heeded this advice, as he ordered full speed ahead with the production of a completely new arsenal of highly sophisticated weapons. I finish by leaving your Lordships to ponder on an old German proverb:
"Defence is not everything, but everything without defence is nothing".
5.25 p.m.
Lord NEWALL: My Lords, we are having another debate on defence which seems to be much more of a debate on

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cuts, and the views of your Lordships, including myself, have been well and truly heard by many. It is just not possible to separate the teeth from the tail, as is so often done, as one is so very much dependent on the other. The repeated deferments and cancellations will in the long term only hurt the combat troops, in one way or another. It is to be regretted that, in the short term, cuts are being made in maintenance, which probably means unpainted buildings, broken windows and less reliable machinery. This will lower the morale of our forces, which is one of our benefits which cannot be measured. It is regretted that recruits and boy trainees are being taken on rather more slowly than they were in the past, and it is very sad that the forces have been forced to the conclusion that they are set for two years of difficult times.
As a result of recent visits to German and British forces in Germany, perhaps I may make a few very brief points. One of the major factors already visible is the lack of money to improve barracks. Cuts have reduced the troops by 16,000 men, 1,000 of them Gurkhas, and this has necessitated the joining up of certain units, which are now cramming into barracks formerly filled by fewer troops. There is a cutback in expenditure on alterations to the facilities necessary to take account of the influx of these troops. I think that this is very hard on the men, when in any event there are other areas of cuts which affect them very personally.
My second point is that there is one area which seems to be vital, but which is lacking; that is, the top level practice of politicians in situations simulated to provide conditions when military decisions are handed over to politicians for their ultimate answers. It could be anything from a decision to send reinforcements, right up to a decision to use nuclear weapons. Politicians, we are told, are always very busy, but surely they are not too busy to practice this important aspect. Exercise Wintex, which is a NATO exercise, has often been cited as a good opportunity to exercise politicians, and I believe that some Germans were recently exercised in this way. Since politicians are ultimately responsible for ordering equipment and influencing standardisation —something to which they often pay lip-service, as has been mentioned already
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—but often make unilateral decisions, surely it is even more vital to have practice in the larger decisions such as I have outlined. Have the Government thought about this, what views do they have, and are they prepared to do something positive about it?
The next main point of anxiety that I found in Germany was a rumour—and I stress that it was a rumour—that the Government are considering the possibility of reducing the local overseas allowance, based on the fact that German inflation is less than our own. Soldiers receive pay and allowances together. A member of the forces is often ignorant of the fine differences between the two. He knows what cash goes into his pocket, and any cut in local overseas allowance is, to him, a cut in his pay. If this happens, he will be the only type of person to receive less money in cash terms. I hope that this will not happen, because morale will be severely tested if it does. So I trust that the Government can give an assurance that this will not happen, which they were unable to give in the other place.
My final point is a very personal one. The cuts are very much regretted by the forces. They are totally unable to make representations to anyone in authority. There are many other areas where the forces have an opinion and they cannot be listened to properly. With the greater professionalism and the more difficult tasks that they are asked to perform in a very difficult and changing world, I feel that there is a growing need for the forces to have a voice to which the Government listen.
I should like to propose and make a suggestion: that we could look into the possibility of having an Armed Forces association or federation which would have a proper place in the relationship between Government and the Forces. It would be recognised by the Government and might be based on a system already in existence in Europe, especially in Germany. The terms of reference are very important indeed so as not to infringe purely military matters, such as discipline. The charter and rules must have a very detailed examination, but the benefits could be legion, with information and views flowing both ways instead of, at present, just being a one-way stream. I

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must stress that I am not advocating a trade union for the Armed Forces but an organisation with somewhat different ground rules and different aims, although there are bound to be some similarities. Having given the Government notice of it, perhaps I could ask them for their view on this rather personal question. I hope that they may examine the possibilities for the ultimate benefit of our Armed Forces.
I have been fairly brief, as I hope we shall all be, and have confined my remarks to specific areas which think are important. But let us not forget that our fundamental criticism of the Government is that they have cut too much. They have confused everyone in the Forces by the loose phraseology in their White Paper, which is totally at odds with the facts clearly laid out in the Second Report from the Expenditure Committee in the other place. It is regretted by all with any feeling of balanced judgment for the defence of this country against an aggressor, that to ask our Forces to keep out the rain with a deteriorating umbrella —a fact which my friend Lord Strathcona and Mount Royal referred to—an umbrella that is already patched and mended is not really good enough. Without a serious reappraisal, it may well blow inside out quite soon, despite the quality of the basic material.
5.22 p.m.
The Earl of ONSLOW: My Lords, the remarks of the noble Lord, Lord Gladwyn, on the increase of Russian armaments and on their aggressive intent were very telling and very accurate. Thus the thump of him landing on the fence was consequently slightly surprising; but then that is Liberalism for you! What has also surprised me during the debate has been the overwhelming silence of the Government supporters.
In a very interesting, complicated and erudite article in the Royal United Services' Journal called "Western European Collateral Damage from Tactical Nuclear Weapons". the conclusion is drawn that the equipment of NATO Forces with small, low yield, enhanced radiation or neutron tactical nuclear weapons could have considerable and beneficial military effects and help our own defences and, if allied to a moderate
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programme for the civil defence of Western Germany, could reduce civilian casualties enormously, compared with those envisaged by the 1955 exercise Carte Blanche, which tested what they thought might happen in a tactical nuclear situation.
This exercise foresaw enormous physical damage both to buildings and to landscape: 1·7 million dead and 3·5 million wounded in a three-day battle. This has to be compared with 305,000 dead and 780,000 wounded in wartime Germany by aerial bombardment during World War 2. However, since then the mini-nuclear neutron bomb of about 0·5 kilotonnes—and smaller—has been developed. That is one-quarter the size of the bomb which was dropped on Hiroshima. The crews of tanks would be destroyed within a radius of 350 metres of ground zero, and unprotected civilians within a radius of 800 metres of ground zero. And if the weapon is exploded sufficiently high above ground zero, there will be very limited blast damage. Should civilians have access—this is where I come to my point about minimum civil defence expenditure —to sandbagged shelters of a fairly simple construction, the killing zone for civilians (I know this sounds harsh but I think that the language of nuclear war or of war itself is harsh and horrible) is reduced by 75 per cent. in size and 50 per cent. by radius.
If this tactic were to be adopted, and known to be adopted, and if it were known that we were prepared to use these weapons in the event of a massive Russian conventional assault across the Elbe and the Rhine, this could have the effect of increasing the space between Russian armoured vehicles, which at the moment is 100 metres. Consequently, this would dilute the concentration on our own forces. Every schoolboy strategist knows that the essence of strategy is to concentrate the mostest on the littlest.
The adoption of weapons as advocated by Messrs. Cohen and Van Cleave—Mr. Van Cleave is one of the United States SALT delegation members, so he possibly knows a great deal about what he says—could have the effect of minimising the increasing Soviet conventional strength. Incidentally, one is reminded of Marshall Foy's remark of the early 1800s:
"The British infantry are the finest in the world. Thank God there are so few of them".

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Fortunately, the first part is still true, but unfortunately the latter part is as well. Another advantage of the low yield mini-nuclear weapon is that it would reduce the chance of defending an irradiated pile of rubble, because the blast effect is reduced. However, it is reduced only with the small neutron weapon, not with the bigger ones above one kilotonne.
That is the distillation of a very complicated article. I am quite prepared to concede that I did not understand every equation and every word used. Will Her Majesty's Government please comment on this article. Is exercise Carte Blanche still the basis upon which we base our use of tactical nuclear weapons? I have reason to believe that the Government have read and taken note of the article, so I am sure that they will be in possession of the facts.
Let us also remember that in contrast to the picture painted of this country by the noble Viscount, Lord Bridgeman, the Russians have a civil defence programme that is designed to keep civilian casualties in all-out war to 6 per cent.. or considerably less than the total civilian casualties they suffered during World War II. This could be nervous defensive thinking, but Russia has a long and constant history of tyrannising her own population and a desire, both by Communist and Czarist regimes, to tyrannise others, be they Poles, Ruthenes, Magyars, Czechs, Rumanians or Bulgars. Her Majesty's Government have recognised this, but have cut our ability to help ourselves and help our friends. To fail to recognise this aggressive factor is incompetent. To recognise it and then to cut our ability to help ourselves and our friends is not incompetent but the irresponsibility of the spoiled playboy of the Western World.
5.39 p.m.
Lord BOURNE: My Lords, as the noble Lord, Lord Newall, said, this is a debate about cuts. I cannot do better than start with a quotation from Mr. Gilmour, as he then was, on 12th January 1977:
"As the Russians get stronger, the Government say, we should get weaker. We believe that that is an abdication of duty by the Government"——[Official Report, Commons, 12/1/77; col. 1437.]
I cannot put it better than that. However, I suggest, as nobody else has done so, that
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we had better return to the four fundamental requirements for Western European defence. They are as follows, in my opinion: first, the rapprochement between France and Germany; second, the continuing armed presence of the USA in Europe; third, the nuclear deterrent, both strategic and theatre; fourth—and this is special to the United Kingdom which, unlike Europe, can starve and in fact it very nearly did so in the last two world wars—adequate anti-submarine forces and escorts for our convoys. As Admiral Sir Terence Lewin said to us in the Defence Study Group last week, these anti-submarine forces are a great deal more complex than they were. We must accept that.
In my opinion, only if the above four fundamentals are permanently achieved can the latest British cuts be made safely. Are they so achieved? It is for political judgment to say; but I doubt it. We must remember that, if one of the four fails, then NATO breaks down and who would say, coming back to your Lordships' House in 20 years' time—at the end of the century—-that the four fundamentals would be satisfied? The most serious effect of the British cuts has already been automatically to bring the theatre nuclear threshold closer. The Government do not seem to have realized that. It is a terrible thought that we British have brought nuclear war (the chance of escalation to a strategic nuclear war considerable) nearer not only for us but also for the Dutch, the Belgians, the Danes, the Norwegians and others. Not only our grandchildren but the children of the Allies will be obliterated.
Another effect is the cumulative one described in the Second Report of the Expenditure Committee, referred to by the noble Lord, Lord Newall. Incidentally it was an all-Party Committee. I will quote from that report:
"We are bound to report to the House that we have come to the conclusion that the cumulative effect of the cuts has been and is likely to be increasingly felt not only by the Services' support structure, itself important, but also by the frontline forces."
I did not write that, my Lords; it was written by the all-Party Expenditure Committee. They emphasised especially the equipment programme, and in the Defence Study Group of your Lordships' House we have heard Sir Terence Lewin comment on the naval building programme

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with the words, "Not enough". It has been said before this afternoon and I am quite sure that he spoke for all three Services.
Another illustration in BAOR is given in paragraph 9 of the same report
"… the fighting capability of forward troops will be seriously affected by the … "—
incidentally, struck out by the Ministry of Defence—
"year deferment of the …, versions of which are already in service with other NATO as well as Warsaw Pact countries. In consequence, the Army will have to persevere with the existing aging vehicle …".
I do not know what they were referring to, but it is very bad if BAOR has to have weapons which are not as good as those of our Allies.
There is only one bright side to this—and here I somewhat take issue with the noble Lord, Lord Clifford of Chudleigh: in my opinion the cuts have not yet affected morale, which seems to be very high in all three Services. We heard from Admiral Lewin that it was high in the Royal Navy on the basis of the existing programme as planned—they did not know about the cuts—and I heard from a very senior officer in the Army that morale was certainly high in the Army. I have no reason to suppose that it is not equally high in the RAF, in spite of cuts in Transport Command and the cancellation of the MRCA and the postponement of the Tornado aircraft. It seems that we are going through a period of very high professionalism, but the Services have maintained morale so far.
With regard to the NATO attitude to the British cuts—and I will tell your Lordships that I have employed a red pencil very effectively, so it is quite short—last year the chairman of the Military Committee, who happened to be British, told us when an all-Party delegation went from this House to Brussels, that the United Kingdom had been a bad ally in announcing the cuts in February 1975 and also that NATO was on the edge of a precipice. Since then we have cut three times, so I reckon we are over the edge of the precipice, but the Government do not seem to mind. In one of his many speeches, General Haig, the Supreme Commander, only three weeks ago when he was addressing the French HQ of the Atlantic Council, reminded his audience that the North and South flanks of NATO were the most threatened. In addition,
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he also said that the NATO Allies ought to increase their forces by 5 per cent. a year simply in order to stay level with the Soviet conventional forces. I am not very good at arithmetic, but I worked it out that 5 per cent. cumulative for 10 years is 62 per cent., so we have a lot of catching up to do. Incidentally, the British are doing the opposite.
To turn to the Soviet Union, I feel that they are doing quite well without firing a shot. In Saigon—Indo-China—they have won a very convincing victory, and, incidentally, without an air force. In my opinion, World War III has already started. For example, Thailand—or Burma—is next on their Asian list, in my opinion. They have a separate list for Africa. They will simply act as political openings offer. In Africa they are doing quite well. It has already been referred to and it is quite true that they arm the natives and they import Cuban troops. They are now working on Mozambique, to which the other day this Government lent £7 million. They will soon be in a position to cut off Southern Africa, because they have naval ports to which they can go on the West and the East. The Soviet Union are also gaining ground in the Horn of Africa. The secret of their success is that they are not in a hurry. They simply wait for a favourable political situation and then they fight a war with other people's casualty lists. So far they have not tried it in Europe, but the North coast of Africa looks quite promising.
The Defence White Paper which we are debating gives the Government away in paragraph 107, when it says:
"… but political intentions can change rapidly whereas military capability can only be altered over a long period".
The White Paper goes on, if you get that far, to give the reductions in some detail. We debate it always a year too late. It is simply a question of taking a risk, and, in my opinion, the risk is not only to our own country but to NATO itself. For these reasons, I estimate we are contributing less to NATO just when we ought to be contributing more. If General Haig is right, we ought to have been contributing 5 per cent. over the last 10 years, let alone the next 10 years. That is why I am going to quote from The Times of yesterday—President Carter speaking:
"As we strengthen our forces, we should also improve co-operation in development, production and procurement of alliance defence equipment".

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Well, there we are, a pious hope, in my opinion. The question I have given notice to ask is this. We are now weakening our contribution of forces to NATO. What is our official attitude to President Carter's suggestion? My Lords, these are the reasons why I will support the Amendment.
5.52 p.m.
Lord HEWLETT: My Lords, I rise to speak after an interval of many months. Industrial responsibilities have kept down my attendances at this House. I am sorry to say so, but this debate, frankly, is so important and so timely that I feel compelled to try to contribute. As Lord Kimberley has reminded us, the prime duty of the British Government is to defend this nation and to defend it effectively, and in modern conditions that means—and no one speaking in this debate so far has dissented—a full and adequate contribution to NATO to help to ensure its effectiveness, too.
As my noble friend Lord Orr-Ewing has asserted, five rounds of defence cuts in two years, presumably to try to appease the Left-Wing of the Labour Party, the appetite of which seems to me to be quite insatiable, is as foolish as it is wicked and dangerous to this country and its Allies. I have come to the conclusion that Britain's posture must create dismay to our Allies and delight to our enemies. How can we be taken seriously when we cut, cut and cut again our own defences while helping finance Russian expansion and extending aid to Marxist Mozambique!
My Lords, little did I ever think that one day I would be quoting the Chinese Communist advice to a British Socialist Government. From my own visit to Peking in January as a member of the Conservative delegation to China, just as, more recently, from the reports of the visit of Her Majesty's Leader of her loyal Opposition, we can say that Chou en Lai's warnings of 1975 of the Soviet Union's aggressive world intentions are just as clear to the new leadership of Hua Kwo Fung as they were to Mao Tse Tung himself. Western Europe should unite and re-arm to prevent Soviet
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world hegemony, we were told by Vice-Premier Li; he gave us that advice in Peking— "Unite and re-arm before it is too late in Western Europe". My Lords, if even the Chinese Communists, the British Conservatives, some Cross-Benchers and the noble Earl, Lord Kimberley, of the Liberal Party, are all trying to impress upon Her Majesty's Government that this matter is of desperate importance and urgency, I beg them to reconsider their attitude towards future—and I mean projected—defence cuts.
What has been Britain's response to all these warnings? I find it ironic in the extreme, following what the noble Lord, Lord Bourne, was saying has happened in the Far East—and I am not taken in by what is told me in any part of the world, I assure your Lordships. The warning that we have had there is a warning that there is a genuine fear on the part of the Chinese that they are going to be over-run by the Soviet Communists, just as we ought to have the same fear of what is happening in Africa today with the closing of the Cape route or the onrush over the NATO forces that could so easily happen as a result of what we know to be facts in terms of the Warsaw Pact. How foolish can we be, to ignore all these warnings. From our own history alone we know that weakness encourages aggression. We know that. Surely we should remember it and act upon it.
My Lords, time allows me merely to deal with one aspect of defence in a little detail, and I shall speak about our amphibious forces. I speak as a Royal Marine of wartime years, but one who has kept in close touch with the Corps ever since. Now the Corps is one of the most highly trained and clearly the most versatile arm of all our forces. The Royal Marines have a desperately important role to fulfil. Like the Army, they are certainly fully stretched with their constant commitment to Northern Ireland duty and in so many other parts of the world.
The Corps, having its North Norway increased commitment to NATO and increased reserve commitment to NATO, one asks whether they are properly

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equipped with amphibious vessels and first line shipping. Little use in having, as Churchill said to Stalin of the Royal Marines, "The finest Corps in the world", if you cannot get them promptly to where they are needed. Looking at paragraph 141 of the White Paper, surely the whole commando force should be able to be taken promptly and effectively to wherever they are needed. We simply cannot wait until merchant shipping is free or can be commandeered. Modern warfare just is not like that any more. Merchant shipping for back-up, yes, but not for prime lift. In North Norway the Royal Marines have two commandos and a brigade headquarters, and how pleased and proud we are to have General Sir Peter Whitely, a former Commandant General of the Royal Marines, as North NATO commander in Norway. But have we the manpower to match the full commitment to NATO? I regret to say that I fear we have not. The policy of constantly disbanding Royal Marine commandos is a matter to be strongly criticised and most deeply regretted. With our own investment as a country in North Sea oil, I hope that Her Majesty's Government have not only effective plans but the necessary resources to prevent the destruction, or serious damage to the installations. I am not talking nuclear warfare: I am talking conventional warfare.
My Lords, the loss of the Cape route to Communist domination would make the North Sea oil installations all the more vital. What have we heard of their defence?—but nothing. One deplores the uncertainty of constantly nibbling defence cuts. The effect upon morale must be damaging. The 1974 Defence Review was meant to be the review to end all reviews. Although the esprit de corps is characteristic—and I agree entirely with what the noble Lord, Lord Bourne, has said about the morale of the Armed Services—I most certainly say that I can imagine that enormous damage is going to be caused, if it has not already started, by so much uncertainty in the Armed Services over their future commitments and their future strength. How can we create a proper career structure in the Services at all levels if it appears that it is going to be nibbled and chopped and worked away to the point that a person in the prime of experience and knowledge in the Services is axed as in pre-war days?
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Credibility with our own allies is paramount. Against us the Warsaw Pact navies, in amphibious terms, have a whole amphibious fleet in the Baltic capable of carrying 700 T.72 tanks to their point of possible aggression. On the conventional side alone, the Soviet Union as one country, has about 100 amphibious ships with five naval infantry regiments, which would be equivalent to our marines, each of which has three infantry and one tank battalion. I have already told ow story. One of these amphibious marine infantry regiments is stationed on the Kola Peninsula on NATO's Northern flank, in direct confrontation with the forces of Britain, to which I have just referred.
Of course, in numbers Britain cannot match the Soviet Union. I ask that in fairness to our NATO Allies and our own fighting men we should equip our forces properly, give them the necessary logistical support and give an absolute assurance that cuts are not only at an end but that we shall reverse the trend and match more adequately NATO's needs to our own resolve to defend democracy. That is our prime duty, and nothing less.
6.2 p.m.
Lord HAMPTON: My Lords, other noble Lords have spoken eloquently and I can only regret that more have not spoken from the Government side, as was pointed out by the noble Earl, Lord Onslow. Briefly, my position is as follows. Unfortunately, reliable sources seem to confirm that the Soviet Union is continuing to arm in a way that is quite unnecessary from a purely defensive point of view. At the same time, we cannot console ourselves that its regard for human rights is not far below what we in this country believe to be essential. There are two basic options open to us. First, we can adopt a pacifist role in the belief that only by adopting such an attitude can a war that would be truly devastating be averted. I can respect the view of those who sincerely hold this opinion, but I cannot agree with it.
My father served loyally in the Royal Navy during the First World War. He then, thinking that he had seen enough of the folly of this war to end wars, left the Service, became an architect and in due course a pacifist. But when he began to

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understand the full horrors of the Nazi and Fascist regimes, he was forced to realise that, as he said, justice is more important than peace. He campaigned for a realistic attitude after the Munich Agreement and in due course returned to the Navy where he served again with distinction.
A war today would be an appalling tragedy which every reasonable person must strive passionately to avoid. But unfortunately, I believe that the Soviet Union would laugh at our weakness were we to hand domination of Europe over to them on a plate. So I, personally, reject total disarmament absolutely.
The second option is that, with great regret but with determination, we should accept that we must play a responsible part in the military strategy of the West. It can be argued that we can do so little anyway that we should rely almost completely or even entirely on the United States. It is true that the United States of America is vastly the strongest member of the Western Alliance, but what a spineless attitude to take: to do as little as possible to help ourselves. As President Carter commits the United States to the support of Europe, he rightly makes it clear that this is not what he expects or accepts. It can be argued that if we are active in our own defence plans, our standard of living must suffer. In the short term that might be true, but in the longer term I can see no course that would shatter our so-called standard of living more completely than to accept Communist domination. What is far more important is that it would shatter our whole way of life. I think that in this country we take so much for granted for which we should, in fact, be extremely grateful.
I believe that we should do everything possible to preserve our ability to influence world thought, and I do not believe that we can do this from a position of abject weakness. We must remain strong so that we can work towards a genuine and mutually acceptable détente. We must fight and win the battle of words to convince the Warsaw Pact countries that the present arms race is an evil and dangerous nonsense. But we must retain the liberty to express our views.
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I end with two quotations which summarise my feelings. First, your Lordships may recall that in 1790 John Philip Curran said:
"The condition upon which God hath given liberty to man is eternal vigilance".
Secondly, in 1775—and admittedly I take it out of context—Patrick Henry said in a speech in the Virginia Convention:
"I know not what course others may take; but as for me, give me liberty, or give me death".
That may sound over-dramatic, but I remain an optimist. Provided that we remain constant, I do not see why the future should not be far brighter than present prospects may suggest. I think that the Government should be made fully and repeatedly aware of our concern. However, I am not convinced that to pass this Amendment is the best method of procedure and I shall therefore abstain.
6.7 p.m.
Baroness VICKERS: My Lords, there is a well known saying:
"Give us the tools and we shall finish the job".
Now I believe that everybody is saying:
"Give us the tools so that we can do our job".
There is an absolute difference from the original saying. I should like to agree with the noble Lord, Lord Bourne, that, despite all the changes there is very high morale among all three Services—at present I think it is outstanding. Most of the personnel serving in the forces are very proud of their country and they realise that their forefathers fought so that they can live in a democratic and free society. However, it has been conceded by the Government that men cannot be required to serve unless they are properly equipped and trained. It is also conceded in the White Paper that nations which have all-volunteer forces, such as Britain, must offer competitive rates of pay and conditions of service in order to retain the men who are needed. That is just not happening. Rates of pay are not competitive and the men are leaving.
At present in the Royal Air Force there is a shortage of engineering officers, flight controllers, education officers and medical cadets. In the Royal Navy the situation is even more serious because there is a shortage of welders, caulkers, platers and coppersmiths, and many are leaving for better paid jobs at sites which are building the oil rigs and other equipment

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for North Sea oil research. They have also gone to Germany and Canada. So outside areas offer much better conditions of service.
Many of the members of the Army now have no practice with live ammunition in this country. They sit in a room with simulators—which I found very interesting to learn about—which are not much use to the Army in the way of offering practical exercises. In fact, the British Army cannot fire nuclear weapons or lay nuclear mines in the battlefield without the prior consent of the United States.
Twenty-five years ago the RAF had 4,500 front-line combat aircraft; now there are only 850 and there is a shortage of spares. Perhaps when the Minister replies he can say how many ships of the Royal Navy are actually operational. He has mentioned the new ships that are coming into service, but when will HMS "Invincible", "Illustrious", "Cardiff" and "Newcastle" be ready? I know that at least one is four years behind schedule. I should like to be given this information because the Royal Navy has to take on a considerable number of jobs outside NATO. They have the task of fishery protection and have to deal with illegal immigrants; they have the protection of our oil and gas fields, and the control of shipping in the confined waters around our shores. That does not come under NATO, so they are on their own there, and it is important to realise that.
We are told that there is a shortage of skilled labour for building ships both in the Royal Naval and in civilian dockyards. But why are not more people given training? Surely this is the right period with all these large numbers of people unemployed. At the moment there are only 7,000 being trained as apprentices. I have been interested in the question of pay. Recently, I read in the local paper, the Western Morning News, about the visit of some Members of Parliament to St. Mawgan. I thought I would look into the question of pay, in particular in the RAF. I found that it was similar in the Army and the Navy. The new codes are not at all favourable to the increase that is necessary for these men to retain their standard of living. In fact, one man reckoned that he was 42p down, and another said he thought he was in the end
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2p up. It is only the unmarried ones who are benefiting, but a married man with two children is having a difficult time. If, for instance, he is in the RAF and on the ground he gets £1.17p extra, and in the air £1.58p. I mention this because this is one of the reasons why they are leaving for outside enterprises. It takes about £300,000 to train a pilot, and now they are leaving to go, for example, to Cathay Pacific, flying VC10s, where they can earn £24,000 a year.
The point I should like to put to the noble Lord is the question of accommodation. They have to pay rent, which is quite correct. But one of the difficulties is that they now have to pay for the furniture, and this has gone up. I have for many years been saying this: why should not men be allowed to furnish their own homes if they wish to? But they are furnished now from an egg spoon to a lawn mower. There is literally nothing left out. They have to pay for it. I think that this could be looked into to see whether there could not be less payment or they could not be allowed to have their own furniture. In some cases, they are even paying for the storage of their furniture because they cannot take it to their houses. I should like that looked into. One of the other points is that women married to sailors have to live by themselves at home far more than they had to in previous years because there are not the stations overseas to which they can go. Therefore, there is the double expense for these men.
If we continue as at present, there is no need for aggression against the North Atlantic Allies. The Soviets can get all they want by controlling the seas. When Britain had control of the seas it was called the Pax Britannica; now with the Soviet forces it is a stepping stone for the gradual forming of a Soviet controlled world. In view of the fact that I am the only woman speaking in the debate, I should like to end by saying that women are not uninterested in what is going on in the world of defence. If you look at the agenda for the Women's Conference to be held in 10 days' time, you will see a great many resolutions dealing with this. They are fearful for their loved ones and families. I hope that some action will be taken on one or two of the points I have mentioned tonight.
6.13 p.m.
Lord WESTBURY: My Lords, in defence debates so often the soldiers, sailors and airmen are forgotten. The talk is on a far bigger scale. But do please remember, without the personnel of our armed forces no gun can be fired, no ship navigated and no aeroplane flown. The young joining, and the junior ranks in the forces, need very careful examination by the Government, or a manpower crisis may well occur. When a young man or woman considers joining the Armed Forces, their primary thought is of pay and prospects. The pay is not good, and every welcome pay rise produces a deduction in allowances, thereby obliterating all the good done by the rise. The prospects are not good either, because they are not encouraged to see out their active life in the forces owing to pension schemes which do not provide adequately in later life. Promotion is also stinted owing to the size of the Armed Forces, which makes a very narrow pinnacle at the top.
The only hope of recruitment is for unemployment in the country to become worse, thereby forcing young fit men into the Armed Forces. But that is not what is needed. Owing to the run-down of the forces, the demand for enlistment will far exceed the vacancies. Therefore, instead of cutting down, the Armed Forces should be enlarged. The next step is training and morale. The Government again fail on both counts. By the severe rationing of petrol and ammunition the instructors' task is made very difficult because these two ingredients are essential. On my visits to BAOR, Warminster, Bovington and Lulworth, this factor has always been stressed to me by the instructors. If only we had no rationing, the task of instructors would be made possible, as the soldiers are very keen to learn.
Also, these training establishments are the shop window for our military equipment. Surely it would be worth while to boost these demonstrations by no restrictions, so that foreign Powers would be so impressed that they would buy our guns, tanks and vehicles. A soldier who has not had enough training and who has not become entirely conversant with his weapons, whether it be, tank, gun, or rifle, will not have the high morale needed to carry out his arduous duties efficiently.
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The weapons our Armed Forces are provided with are the next cause for dismay. A great deal of equipment is out of date and spare parts are not available. This is outrageous, that our troops should be committed to any situation or battle without the very best we can provide. I am convinced that, however small our Armed Forces are, they must have top class equipment with spares available at a moment's notice. I know that certain up-to-date equipment is sold abroad rather than being issued to our own troops.
Welfare is, as it always has been, of vast importance and certain matters should be well looked into at the present time. The situation in Northern Ireland not only provides problems for our troops but also for their wives and families. I am led to believe that soldiers' wives who are allowed to remain with their husbands in Ulster are finding their financial situation very strained owing to the price of commodities and the stringent cuts in their family allowances. Also, the wives and families left behind in BAOR, when their husbands do the four months' tour in Northern Ireland, are experiencing difficulties. The tours happen probably every four months in 18.
To sum up, the Government must increase the pay of the junior ranks of the Armed Forces, for the very good reason that, without them, our Armed Forces will collapse. Northern Ireland will become a free-for-all. Our commitment in BAOR could not possibly be kept up to strength, thereby threatening the whole of the NATO Alliance. Her Majesty's Government must spend more money on defence and, by so doing, guarantee the safety of the United Kingdom not only from outward aggression but inner strife. It is also quite clear that we cannot negotiate with the Warsaw Pact countries from a position of weakness.
6.18 p.m.
The Earl of CORK and ORRERY: My Lords, with many speeches still to come. I must be brief. I suppose there are many speeches still to come because the noble Lord the Lord Privy Seal began by promising us many well-informed speeches from all sides of the House, So far we have had only one from the opposite

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side, so I suppose we can look forward to several from the noble Lord, Lord Winterbottom. It may be a relief, as a matter of fact, to the Government to find that they have no support from their own side when they remember the defections that have come from the noble Lords, Lord Shinwell and Lord Wigg. Perhaps they can do without them.
There are only two points I want to speak about in the White Paper, and they occur in the first section. The first of these comes in the sentence which says:
"In the search for savings the Government's overriding objective …".
That would have delighted my late and noble friend Lord Conesford. I suspect that he might have classed it almost with his favourite piece of "Whitehallese","The worldwide bottleneck". It says:
"… the Government's overriding objective will be to keep to the minimum the effect of the reductions on our front-line contribution to the Alliance; …"
I suspect that I detect in this an echo of the old doctrine of the teeth and the tail; believing that if the teeth are all right it does not matter what happens to the tail. You might as well say to a man that you have provided him with the best possible teeth that dentistry can buy, so he is all right even though you have failed to provide him with good meat to bite with them. My Lords, there is no such thing as" teeth and tail". If you cut anywhere, you cut the whole.
The second sentence to which I refer is this:
"The reductions which the Government has felt compelled to make in planned defence expenditure in 1977–78 and 1978–79 reflect solely the national economic outlook for the period and the fact that recovery from recession has been slower than expected".
I do not accept the truth of that—that these cuts are due solely to the economic outlook and the slow recovery. As other noble Lords have said, I believe they are due chiefly to the grip on the Government of their own Left Wing. Nor do I accept that it is necessary to place expenditure cuts on the Armed Services on a par with all the other Departments which must make their contribution to the general national austerity. As noble Lords have said time and again—I have said it myself —defence must come first, whatever the
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economic situation. Every other Department—be it education, transport, even health—can suffer without lasting damage being caused to the nation, but the Department of Defence alone stands between the nation and the dark.
I support the Amendment and I hope the House will divide on it. With respect, I demur from the curious doctrine put forward by the noble Lord, Lord Gladwyn, who, if I understand him aright, takes the opinion that it is not worthwhile putting forward a corporate view against the Government if one knows in advance that the Government will not take any notice. I am sure the Government will not take any notice, but there are 50 million people outside the Government and some of them will take notice, and the sooner they do, the better.
6.21 p.m.
Viscount MONCK: My Lords, a fortnight or so ago I had the advantage of talking to somebody who had returned home on leave from BAOR and he told me a number of interesting things, two of which I shall relate to your Lordships because they show how efficiency is being sacrificed to economy. The first concerned vehicles, especially ammunition-carrying vehicles. From time to time these vehicles need to be repaired, as all the best-regulated vehicles do; and it appears that it is frequently six months before vehicles sent for repair are returned to the units to which they belong. It does not need me to tell your Lordships that no weapon is any good without the ammunition to fire from it. The second matter is about the mileage allowance for training. This is very severely restricted to BAOR, much more so than to our NATO Allies, and this makes combined operations very difficult indeed. Apart from that, it draws forth criticism and even sarcasm from our Allies.
I do not think I am alone in believing that Her Majesty's Government regard defence with far too much complacency. I cannot but be reminded of the first defence debate I ever heard in your Lordships' House. It was in the early 'thirties; it could not have been earlier than 1930 because I took my seat in that year. The debate was introduced by the late Lord Carson who, with his very attractive Irish brogue, moved the whole

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House with an impassioned oration on the terrible state of our defences. However, up rose the late Lord Reading, perhaps better known to some noble Lords as Rufus Isaacs, and with that wonderful voice and marvellous delivery he proceeded to tear Lord Carson's arguments to pieces. In what era, he asked, were we living? It was 1930, a year of international peace. We were not back in 1914 or 1918. It was a year of peace, there was no thought of war, no idea of war and no threat of war, he said. I would only remind your Lordships, as I have often thought to myself, that it was not so long between then and 1939.
6.25 p.m.
Lord CARRINGTON: My Lords, I wish at the outset to apologise to the House and in particular to the noble Lord the Leader of the House for not having been in my place when he opened the debate; as I explained, I had an engagement which I found it impossible to abandon. I equally apologise to your Lordships for addressing you yet again on the subject of defence and I fear that what I have to say will be very familiar. The Government however never seem to pay any attention, so it is necessary time and again to reiterate some elementary facts, but I promise that I shall not be long. Perhaps I might say in passing that the debate has shown how your Lordships, when you put your mind to it, in a very short space of time get over a whole lot of facts in a way which to me is a great deal better than some of the long speeches we have in ordinary debates.
Nobody who has listened to this debate can have any doubt where good sense and prudence lie. Over the last three years and over five separate cuts in defence expenditure noble Lords opposite and those Ministers in another place who are responsible for defence have maintained that reductions in defence expenditure have not reduced our capacity nor harmed our defence stance. They are roundly and specifically contradicted and condemned by the Second Report of the Defence and External Affairs Sub-Committee. That report, which has been quoted in this debate, included this passage:
"We are bound to report that we have come to the conclusion that the cumulative effect of the
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cuts has been, and is likely to be increasingly, felt not only by the Services' support structure but also by the front-line forces. In our view, the point has now been reached where our Forces are being seriously deprived of modern equipment necessary to maintain, with the other Members of the Alliance, sufficient capability to deter the Warsaw Pact from acts of aggression, to sustain an effective fighting force in the event of actual hostilities and thereby to avoid early recourse to nuclear weapons."
What do we mean when we talk about defence? It is not the purpose of British policy or of our Armed Forces to prepare for war, though should a war break out they must be sufficiently well equipped and well trained to do just that. Our purpose is to prevent a war, and to achieve that—this is perhaps the most important and positive act of policy that any Government have—requires that our Armed Forces shall be credible; they must appear to a potential adversary to be formidable; they must be big enough to make a proper contribution to the Alliance; they must be trained and equipped to the highest standard; they must feel that they have the full backing of the Government of the day, and the Government must in no circumstances let it be thought that defence is low on their list of priorities, for if they do then they, the Government, will undermine their own position and their own credibility and they will damage to an appalling extent the morale of our own Armed Forces.
In my view the present Government are guilty in almost all those respects, and as regards the latter, the full support of the Government of the day, as many noble Lords have said, not one Back-Bencher on the Government side has thought fit to come and speak in this debate. Of course one cannot get defence on the cheap, and more particularly one cannot get defence on the cheap in an age of sophisticated weapons each taking a decade to bring into production and service. But that does not mean that one can or should do the second best and allow the Services to be equipped with second-rate weapons to fight alongside Allies and against opponents who have the most modern equipment.
There are no doubt those who say that there are no more reasons for maintaining the Armed Services or NATO and that there are no threats. Well, I hope that they are right, but I try to keep my eyes open and to observe what is happening in other parts of the world. I hope—

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and I agree with my noble friend Lord Duncan-Sandys that it may very well be so—that the Soviet Union has no intention whatever of using the immense military capacity built up over the past years, a capacity that, to some of us, seems much greater than can be strictly accounted for in terms of any threat to the Soviet Union itself. So I ask myself a number of questions. Why is it that, at a time when the Soviet Union has been seeking détente, their defence expenditure should still be increasing? Why has there been this enormous surge in their maritime capacity? Why are there Soviet bases springing up in the Indian Ocean? What is the purpose of these things and of other examples of increased Russian military expenditure?
There are, of course, a number of explanations and they may all be true. They may, as my noble friend Lord Onslow said, be frightened of encirclement. Perhaps they are frightened of the United States, though I doubt whether, in current circumstances after the Vietnam war, that explanation is so readily understandable, particularly when one has regard to the nuclear parity of the two countries. Perhaps they are frightened of the Germans, but would the Germans be likely to act in isolation from the Americans? Perhaps they are frightened of the Chinese. Perhaps the country suffers from a bureaucracy that perpetuates the design, manufacture and production of military weapons. Perhaps the military have a disproportionate amount of muscle with the Politburo.
I do not know. All I say is that, until such time as we can see a readily discernible reduction in the military capacity of the Soviet Union, it would be unwise unilaterally to disarm or to reduce the capacity of our forces. I say so more particularly if the Government are reducing our capacity in order to carry out other programmes that are either electorally more popular or accord with the dogma of a minority of even those in the House of Commons. I have said over and over again in this House that we on these Benches and, I believe, everybody in the House are in favour of genuine détente, accompanied, I hope, by a mutual and balanced reduction of arms and men in Europe. I see no evidence of this happening. Perhaps it is distrust on the part of
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the Soviet Union. Perhaps it is mutual distrust, but that must be removed before further steps can be taken and, until such time as that distrust goes, détente, in the sense of disarmament, is a dangerous sham.
We have also to look, as many of your Lordships have said, at the facts of the Warsaw Pact. There is a great preponderance of conventional weapons in favour of the Eastern bloc and no amount of juggling with figures can disguise it. Yes, no doubt we have better trained troops and, in some cases, better equipment, though I believe that that superiority is rapidly disappearing. Yes, we can get some warning, but none of these advantages—if advantages they be—can make up for the overwhelming superiority of the Warsaw Pact. How sad and how mistaken that the United States and we abandoned the link between the Helsinki Pact and the conference on force reductions in Vienna. Since that happened, no progress whatever has been made and no progress will be made in the current circumstances.
So far as I know, the Government do not dispute any of the things that I have said. Indeed, Mr. Mason, when he was Secretary of State for Defence, Mr. Mulley and spokesmen in this House have all stressed the very facts that I have put before your Lordships. What has their answer been? To give way to political pressures, to Party political pressures, to the pressure of their colleagues to cut defence spending five times in three years. Each time we have been told that it does not make any difference. We are told, "We are not cutting the front line. Good heavens, no! We are not cutting the front line! That would be the last thing that we would do! All the millions of pounds that we are saving do not really matter in terms of the capacity of our forces!" In your Lordships' Rouse, I can use no stronger expression than, Fiddlesticks! Of course it is untrue and we all know that it is untrue. No amount of complacent talk from the other side will persuade any of us otherwise.
We have only to look at the Select Committee, from which I quoted. Here are a few facts. In the Navy, cancellations include, as my noble friend Lord Hewlett said, replacement of the amphibious force commando ships and the

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Ikara anti-submarine missile improvement programme, reductions of destroyers, frigates, conventional submarines, mine countermeasure vessels and naval fuel. Deferments include the Sea Skua and general spares items. In the RAF, cancellations include the QC 434 short range air-to-air missile project and various radar and communications items. Reductions include the Jaguar strike/attack aircraft, the air transport force, communications aircraft and engineering spares. Deferments include the medium-lift helicopters for the support of the Army (cancelled in the 1974 Review, reinstated in the 1977 programme but subsequently deferred), reduction of the delivery rate of the Tornado by one-third and a variety of communications equipment. It speaks for itself.
The arguments always advanced by the Government are that we spend a greater proportion of our gross national product on defence than do our Allies. That argument is of course much less true than it was and, anyway, in terms of money, both the Germans and the French spend far more than we do. In those terms, the comparative paucity of our contribution is the measure of our economic failure.
It seems to me that there are two reasons why we should not go down this road. The first is that the example that Britain sets in defence matters is important. During the period when I was Secretary of State for Defence, there is no doubt in my mind that the British determination to maintain and, indeed, increase our military capacity was important in its influence on the ability of our European colleagues to withstand demands from their own Governments for reductions. There is no doubt, too, that the United States looks with a keen concern at the willingness of its European Allies to make sacrifices in their own defence. Though, for the moment, the outcry of two or three years ago is muted, there is still a strong feeling in the United States that Europe should do more in its own defence.
We have just had a successful meeting in London of the NATO Heads of Government. I believe that much the most important thing that emerged from that meeting was the wholehearted commitment of President Carter and his new Administration to the NATO Alliance. President Carter said that the United
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States would continue and, indeed, increase its support in the expectation that its Allies would do the same. But will Britain? Is it the intention of Mr. Callaghan to do any more? There will be a sigh of relief on these Benches if he decides not to do less. Without American involvement, NATO is nothing. Without their wholehearted commitment to Europe, NATO as we know it would cease to exist. It is perhaps not too much to suggest that continued American involvement is worth some sacrifice on our part, too.
Lastly, and perhaps more importantly, none of the things that we stand for as politicians and are striving to achieve—a higher standard of living, better welfare services, better hospitals, education and roads—are worth anything if we are not prepared to make sacrifices in conjunction with our Allies to retain our independence. What good would any of these things be if by our selfishness and our lack of foresight we wake up one morning to find not that Europe has been overrun by the Communist bloc, but that due to the rundown of NATO forces we are incapable of resisting and our defences have crumbled away?
I fear that to ask the Government to mend their ways is to ask too much. They are there, after all, by courtesy of the Liberal Party, and the Liberal Party exists in the House of Commons because they have prevented an Election. I listened to the splendid speech of the noble Lord, Lord Gladwyn, in which he agreed with every single world of the speech and the Amendment of my noble friend Lord Orr-Ewing, and I listened to the extraordinary conclusion in which the noble Lord said that he is not going to support the Amendment. I can only conclude that this must be a result of the Lib-Lab pact.
Lord GLADWYN: My Lords, I did not say that I agreed with every word of the Amendment. I said that it was too wide-reaching in its scope, and I said that the Liberal Party did not dissent from some of the cuts, and therefore for that reason alone we did not propose to support the Amendment. I also thought it inadvisable to do so for what I call constitutional reasons. Perhaps the noble Lord will agree.
Lord CARRINGTON: Words fail me, my Lords! In regard to the last part of what the noble Lord has just said, I simply have no answer which would not he so rude that I could not make it. As regards the first part of what the noble Lord has said, if I have a proposition to make and the noble Lord, Lord Gladwyn, will support me in the terms that he supported the Amendment of my noble friend Lord Orr-Ewing, I should be happy to take that for support.
As I was saying, the Government are there by courtesy of the Liberal Party, frightened to face an Election—
Several noble Lords: Oh!
Lord CARRINGTON: I must say that I am rather surprised that anyone should quarrel with that. They are frightened to face an Election, determined to offend as few people as possible, impotent and discredited. But there, be that as it may, we on this side of the House would not like to have allowed their policy on defence to go unchallenged, nor let anybody think that we agree with it, and I for one will join my noble friend Lord Orr-Ewing in the Lobby tonight.
6.42 p.m.
Lord WINTERBOTTOM: My Lords, before I start to reply to the debate, which I think has been one of the most interesting in which I have ever taken part in your Lordships' House, I should like to say how much I regret that the noble Lord, Lord Orr-Ewing, has found it necessary to put down the Amendment which appears in his name. I know how deeply he feels about the defence of the country, but no more, I believe, than many other noble Lords on all sides of the House. Our debates are known for the expertise of those Members who contribute to them, and such an Amendment will not draw any greater attention to our view from the world outside this Chamber. Indeed, it only introduces an element of partisanship which is not usually heard in our discussions of this important subject—
Several noble Lords: Oh, oh!
Lord WINTERBOTTOM: No, we are pretty good. The noble Lord must be aware that this is an Amendment which neither the Government, nor I believe many other noble Lords, can accept,
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particularly since it does not represent an accurate statement of the situation. So I very much hope that the noble Lord will see fit to withdraw it, but from "noises off" I gather that this will not be the case. If, however, he wishes to press his Amendment in the Division Lobbies, with the help of his Party majority, it will add nothing to the debate. It will instead be a Parliamentary non-event, and will depart from the commendable practice of your Lordships' House, which has grown up in recent years, of not to divide on "taking note of" the Defence Estimates. On this point I somewhat naturally agree with the views that the noble Lord, Lord Gladwyn, has expressed. He has stated quite exactly my feelings on the subject.
Before I start my duty of replying to the debate, which I have been told must be kept short, I should like to make one important point in answer to the speech of the noble Lord, Lord Orr-Ewing, and the final speech from the other side of the House, by the noble Lord, Lord Carrington. A truism is that politics is the art of the possible. This is also true of defence expenditure; defence expenditure is tile art of the possible. We in this country have gone through a very troubled period which is not altogether of the making of the Labour Party. There was an Arab-Israeli war. There was a confrontation between the Conservative Government and the trade unions. There was a three-day working week; and that is something for which we are not in any way responsible. Interestingly enough, many of the criticisms about shortages of spares of minor elements of military equipment date not from defence cuts, but from the three-day week—
A noble Lord: Come off it!
Lord WINTERBOTTOM: No, I will not come off it! Take it or leave it.
Having said that, I want to make two points with which I think the noble Lord, Lord Carrington, and his colleagues might just conceivably agree. First of all, the economic situation of this country is improving, and in about a year from now we shall have a freedom of movement which we do not at the moment possess. The other point is that it is just conceivable that responsibility for defence might be transferred from this side of the

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House to the other. What I deeply regret in the speech that has just been made by the noble Lord, Lord Carrington, is that he has taken the easy way out of lambasting the Labour Party in a revamped speech which he gives us annually while we are on this side of the Table, and has not made a single positive proposal as to what he would do if he were in power to alter the defence policy and stature of this country at the moment—
A noble Lord: He knows that he will not be in power.
Lord WINTERBOTTOM: Unfortunately, blessings do not always occur. The noble Lord, Lord Orr-Ewing, did in fact attempt to do this; he was sufficiently honest to say: "If I were in a position of authority I would do certain things. I would increase the number of infantry battalions, I would increase the reserves, and I would place social emphasis on anti-submarine warfare." That is correct. He also indicated that these have to be paid for and that they would have to be paid for by a reduction of expenditure on social services—
Several noble Lords: Oh!
Lord WINTERBOTTOM: Well, the Conservative Party in power is going to maintain the social services and add to defence expenditure. Is that correct?
However, my Lords, that is my political fling for this evening, and I shall now get round to answering the debate. First of all, as I said earlier, I think that this has been a most interesting and valuable debate. The first respect in which I believe it differed from many other debates that we have had has been in its sense of urgency. I think that this is true, and I believe that this comes from a better understanding—not only in your Lordships' House or in another place, but among the British public as a whole—of the situation which we are facing. I believe that public opinion is changing, it is becoming better informed and more concerned, and this builds up to the debates in your Lordships' Chamber. This concern among the public as a whole comes, first of all, I think, from the very frank and open White Papers that we have published when in Office. The actual problems have been placed squarely before the British people, and they are starting to grasp them.
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I believe that the statements made in the White Papers are in fact not contradicted, as I think the noble Lord, Lord Newall, suggested, by the report of the House of Commons Expenditure Committee on Defence, which I think was a most important publication. The timescale was different, but it was obviously a publication of great importance, all-Party, timely, and widely observed. I think that the work of the Commons in this field, and the specialist committees, has had its effect. But, again, I do not think that this would have happened if the media also was not taking a more intelligent interest in the whole problem of the imbalance of power that is building up in the world. Perhaps one might even say that our small Defence Study Group in this House is in fact contributing to a better informed debate in your Lordships' House.
The new element that is being injected into our discussions at this point, which I find most interesting, is that for the first time I have heard that the flexible response doctrine is being challenged. It is being challenged by the noble Lord, Lord Gladwyn; and it was questioned by the noble Lord, Lord Duncan-Sandys, who gave a warning in what I thought was a very timely speech.
I have the feeling that all of us who took part in this debate were concerned, first, by the increased rapidity of reaction which the Warsaw Pact countries could now achieve due to their better equipment; and, on the other hand, by the fact that. because we were not building up conventional forces to the degree that many people believe we should, we were lowering the nuclear threshold. This in fact implies that we have got to rethink many of our basic doctrines as to the defence of the country. Right or wrong, we have to start thinking again in certain areas. Perhaps the key to it all is this question of the amount of time we have in order to activate our reserve forces and to move them into the positions in which they are intended to be—in fact, to clear the decks for a threatened conflict.
This, of course, is a matter of enormous importance, and I should like to discuss it at length. It is of course the key to all policy: how much time we have to react, so that within that reaction time we can take all the necessary steps which, as the noble

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Earl, Lord Cathcart, pointed out, include calling up our reserves and transferring them to the place where they are required, so that they may join their formations, pick up their equipment and so on. This also requires proper preparation in the area of the logistic base through which these reserve forces are going to move to the formations which they are to reinforce.
My Lords, I had hoped to give a rather full answer to the noble Earl this evening, but as the time is short—and I am told it is short—would it be worth while having a debate on this single subject by means of an Unstarred Question? I think it is fundamental to all our defence thinking, and it might be worth its own discussion. Incidentally, within the framework of reaction times, do not let us forget the point made by the noble Lord, Lord Newall, that in this reaction process—he said the politician, but I would say the Minister, is in fact concerned. As has been made very clear to me, at a certain point military planning has to stop and political decisions have to take over. What impressed me enormously in my recent study visit to Germany with the noble Lord, Lord Newall, was the fact that the German armed forces had persuaded their political masters—and they regard them as their masters—to take part in the various stages of operations which arise from a declaration of a state of readiness. I must say that this is something which we may or may not do in (what shall I say?) our paper scenarios, but I think it is something which we must consider very seriously as the time pressure upon us becomes more acute. Perhaps this might not be an inappropriate moment for me to say, on behalf of both the noble Lord, Lord Newall, and myself, how much we thank the German Government for the trouble they took for us. My Lords, that is the first point.
The second point that I think is interesting is that, for the first time in my recollection of debates in this House, we started with a discussion about the implications of attacks by nuclear weapons. The noble Lord, Lord Duncan-Sandys, in fact suggested that perhaps part of a Russian coup de main might include an almost immediate use of tactical nuclear weapons in order that the forward movement should be so fast that it would
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pre-empt the decision-making process of the Allies. This, I think, has a fundamental truth in it; I think it is not an impossible situation. I think we should all be grateful to the noble Earl, Lord Onslow, for doing his homework with such thoroughness, for in his speech he started talking in realistic terms of changes in tactical nuclear doctrine. I think that we must start thinking about the unthinkable, and this is part of the job of thinking about the unthinkable. I could not in fact tell the noble Earl, even if I knew it, what the present attitude towards carte blanche is, but obviously this is part of the basic military thinking which must lie behind our total strategic concept.
Lord GEORGE-BROWN: My Lords, has the noble Lord time to answer me one question?—because I really want to be clear about this. Is he really indicating to us, on behalf of the Government, that the Government are now seriously thinking that our defence forces, conventional so-called, have now reached such a low level that it is time we began to think of reducing the point at which we would escalate the war from a nuclear point of view? Is he really saying that?
Lord WINTERBOTTOM: My Lords, if the noble Lord, Lord George-Brown, had been present, he would have noted that I did not say that that is what we were doing. I was saying that this is the warning that we as a Government have received. That is not quite the same thing. In my view, this debate is of sufficient importance to be given careful consideration by those in the Government who are responsible for our defence. What I was saying was that this is the warning that has been given to the House this evening by at least three speakers in very carefully prepared and considered speeches.
I now move on to the importance of reserves, which I in fact touched on earlier. This, again, is obviously something which is concerning your Lordships deeply. The noble Viscount, Lord Monckton, stressed this point, and he made the very important point at this time of financial stringency that this is really one of the cheapest forms of defence that we have; that we are in fact cashing in, if I may say so, on the patriotism and dedication of many tens of thousands of our

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citizens who are willing to give of their spare time freely for the defence of their country. All I can say is that their role is of great importance, and may well increase. The noble Viscount, Lord Bridgeman, stressed their importance in relation to internal security. We all know their importance in relation to the reinforcement of the British Army of the Rhine. There was the point made, with regret, that the specialist battalions of the reserve forces are no longer available to us; but, nevertheless, I believe that we as a House can say—and it is also the view of the Government—that the importance of the reserve forces should not be underestimated. Indeed, as we all know, there has been a special recruiting campaign earlier this year which is so far producing very satisfactory results.
My Lords, I could answer innumerable points, but is that what your Lordships want? I should like to answer a small "dig" from the noble Lord, Lord Strathcona, on the subject of the Bird class—and I hope that we will in due course send that rather troublesome little animal away from this House. There were four of the Bird class ordered. Two were delivered—quite clearly it was a most unsatisfactory contract—and those two members of the Bird class are being handed over to the Royal Naval Reserve, where I hope they will be very happy. I can say no more than this. I do not know the whole history, but it is obviously long and complex and it started in Scotland. For this reason, I cannot fully answer it.
Perhaps I may make one final point in answer to the noble Lord, Lord Orr-Ewing, and then, perhaps, I can run through the debate and write to various noble Lords answering the points of detail that they put to me. However, I would repeat that I think that the question of the raising of the level of our reserves and of their movement to their place of duty, together with the communications necessary to make this possible, is something that we might debate separately.
May I say just a few words about the submarine threat and the protection of the sea lanes? The maritime forces of the United Kingdom, as noble Lords know, are concentrated in the East Atlantic and the Channel. In view of the threat posed by the Soviet submarine fleet they are
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oriented primarily against anti-submarine warfare while maintaining a significant general purpose and particularly air defence capabilities. The United Kingdom provide the bulk of NATO's immediately available maritime forces in those areas and therefore make a major contribution to the seaborne and reinforcement routes from North America to Europe and the United Kingdom. So far as the defence of trade routes is concerned, the Royal Navy will retain the ability to deploy worldwide in defence of our national interests and in co-operation with our Allies. We are not stopped by the Tropic of Cancer. The allocation of forces to specific tasks in wartime would depend on all the operational and political considerations at the time.
I should like to make a further point on the question of anti-submarine warfare. The figures quoted today seem frightening but, just as the offensive element grows, so, too, the counter-measures grow which can check it. It is important to note that the anti-submarine capacity of a single Sea King helicopter equipped in the most modern manner is equivalent to one frigate, so although the numbers are a subject of deep concern, nevertheless, with the highly sophisticated defensive equipment of today, the operation is not without hope, particularly because of the skill and devotion of the men concerned.
A noble Lord: My Lords, has the noble Lord no word of comfort for the families in Irish rented houses?
Lord WINTERBOTTOM: My Lords, I know that my noble friend touched on this. There are two separate elements. There is not only the problem of Northern Ireland but that of disturbance in Germany. These are matters of study and, as the noble Lord has said, study does not mean doing nothing; it means understanding the problem and doing something quickly. This we intend to do.
Lord GLADWYN: My Lords, I want to ask the noble Lord whether I am right in thinking that the number of our helicopters available for anti-submarine purposes corresponds with the number of Soviet submarines.
Lord WINTERBOTTOM: My Lords, that is an x and y equation which I cannot

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deal with this evening. There is no doubt that, when we get the Invincible class in operation, plus all the additional facilities provided and the new weapons, the life of a Soviet submarine is not necessarily going to be a happy one. It may be nasty, brutish and short. Having said that, may I thank your Lordships for this really well-informed and concerned debate. What has been said will certainly be subjected to study by my right honourable friend the Secretary of State.
7.3 p.m.
Lord ORR-EWING: My Lords, I wish to thank the noble Lord the Minister for replying and for helping us. I think I must put one point right. I did not suggest, as Hansard will show, any cuts in the social services. I referred particularly to nationalisation. I had in mind the Community Land Act which will cost £400 million a year, the petroleum pipelines Act which will cost £900 million and public borrowing and the £1,000 million a year that the NEB has at its disposal. These are the places where we could effect economies; and as we get the economy growing we should be able to afford it out of the increased industrial production, from which we shall benefit.
Uniquely, we have had 22 speeches in 220 minutes. Therefore, it shows that when trained minds give their attention to the matter they can succinctly put their views forward very effectively indeed. I was sorry that we did not have more speeches than the two from the Labour Front Bench. I had hoped for support in the Lobby from the Labour BackBenchers. I am sorry, too, for the minor disagreement I had with the noble Lord, Lord Gladwyn. I take the view that we have the duty occasionally, on matters of supreme importance, to make our collective voice in this House felt by voting. I think, moreover, that we draw attention to these views and get a better attendance than normally on a defence debate as a result of the Amendment. I respectfully suggest that it is better to vote sometimes than to allow our speeches to trickle quietly and gently into the pages of Hansard or into a few column inches in one or two newspapers.
Unlike the noble Lord, Lord Gladwyn, I think that we do our constitutional duty
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by making our collective views, which come from some Liberals, from many Tories and from several Cross-Benchers and, I hope, from some Labour Peers who are deeply anxious at this time about the defence position of our country and the result it has on our alliances. I thank all those who have attended and contributed to such good effect and I beg now to move the Amendment standing in my name.
7.5 p.m.
The DEPUTY SPEAKER: (Lord Alport): My Lords, the original Question was, That this House takes note of the Statement on the Defence Estimates of 1977 (Cmnd. 6735); since when an Amendment has been moved: at the end to insert the words printed on the Order Paper. The Question I now therefore have to put is: That this Amendment be agreed to. As many as are of that opinion will say, "Content"; to the contrary, "Not-Content." I think the Contents have it. Clear the Bar!
Tellers for the Not-Contents have not been appointed pursuant to Standing Order No. 50. A Division therefore cannot take place and, in accordance with Standing Order No. 53, I declare that the Contents have it.
The Question is, That the original Motion, as amended, he agreed to.
On Question, Motion, as amended, agreed to.

SHREWSBURY AND ATCHAM BOROUGH COUNCIL (FRANKWELL FOOTBRIDGE) BILL
Brought from the Commons; read 1a and referred to the Examiners.

KENSINGTON AND CHELSEA CORPORATION BILL [H.L.]
Reported from the Select Committee with Amendments, and recommitted to an Unopposed Bill Committee.
House adjourned at twelve minutes past seven o'clock.