Sitting of 27 April 1982

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
Oral Answers to Questions
  DEFENCE

    Falkland Islands
    Mr. Kenneth Carlisleasked the Secretary of State for Defence how it is intended to ensure the military security of the Falkland Islands in the long-term.
    Sir William van Straubenzeeasked the Secretary of State for Defence if he will make a statement on operations in the Falkland Islands area.
    Mr. Frank Allaunasked the Secretary of State for Defence if he will make a statement regarding his military measures against Argentina; and if he will ensure that priority is given to safeguarding the lives of the Falkland Islanders and the British residents in Argentina in any policy he contemplates.
    Mr. Edwin Wainwrightasked the Secretary of State for Defence how many letters he has received, at the latest available date, criticising Her Majesty's Government's military dispositions in the Falkland Islands area before 1 April.
    The Secretary of State for Defence (Mr. John Nott): I refer my hon. Friends and the hon. Members to the statement made by my right hon. Friend the Prime Minister yesterday, informing the House of the operation undertaken on 25 April to repossess the British dependency of South Georgia and of the continuing diplomatic efforts to reach a negotiated solution to the crisis provoked by Argentine aggression.
    There remains a substantial Argentine force on the Falkland Islands. The Royal Navy task force, deploying to the area of the Falkland Islands, is prepared for a wide range of military options. The House will not expect me to discuss these. However, the safeguarding of civilian lives will be one of our highest priorities.
    Since the Argentine invasion of the Falkland Islands I have received over 600 letters, the vast majority of which have been generally supportive of the steps that the Government are taking.
    I would prefer not to speculate on the future military security of the Falkland Islands while they remain occupied by Argentine armed forces.
    Several Hon. Members rose—
    Mr. Speaker: Order. I shall call first those hon. Members whose questions are being answered.
    Mr. Carlisle: Does my right hon. Friend agree that the only certain way to ensure the future security of the
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    Falkland Islands is for the Argentine to understand beyond any shadow of doubt that it cannot gain its wishes by an act of aggression and that a lasting settlement can be reached only when it has withdrawn its forces?
    Mr. Nott: I agree with my hon. Friend. That principle applies to many countries and islands throughout the world.
    Sir William van Straubenzee: I appreciate that the military operations take place against a background of ceaseless diplomatic activity to find a peaceful solution, but does my right hon. Friend appreciate that if it should be necessary to take additional action, which might include the neutralisation of hostile air forces, there would be widespread support, particularly if the objective were the limiting of casualties, as has been so brilliantly displayed up to now?
    Mr. Nott: I share my hon. Friend's desire that we should do everything possible to find a peaceful solution to this dispute. However, if force becomes necessary, I agree that we should use the minimum amount to achieve our objective.
    Mr. Allaun: Do the islanders want the attack that was clearly implied by the Prime Minister yesterday, with all the blood and tears that that would entail for their families and for British Service men and their wives, children and parents? No one has asked the islanders what they want. As the Argentine Government have agreed today to allow a Red Cross team to go to the islands, should not the United Nations be authorised to send a team to ascertain the Falkland Islanders' views?
    Mr. Nott: The Falkland Islanders cannot be consulted about such matters at the moment, because they are the victims of an act of aggression. Nobody would be happier than I if we could contact the Falkland Islanders to ascertain their wishes. That is our principal purpose.
    I had not received the information about the Red Cross team, but we raised the matter some time ago and there appeared to be little enthusiasm. If that information is correct, I am delighted that the Argentine has agreed that a Red Cross team should visit the island.
    Mr. Foulkes: Has the Secretary of State made, or does he intend to make, any arrangements to use an air base in Chile in the event of a military engagement with the Argentine over the Falkland Islands?
    Mr. Nott: I cannot comment on that. We have had widespread support from countries all round the world, but I cannot comment on such matters.
    Mr. Beith: After all that has happened, does the right hon. Gentleman now realise that visible, flexible naval power is a more important independent deterrent for Britain—and one that Britain may even be obliged to use on its own—than a nuclear deterrent?
    Mr. Nott: I am certainly in favour of visible naval power. The conventional Navy receives about £½ billion more in real terms per year than when right hon. and hon. Gentlemen opposite were responsible for such matters. Among the lessons that we have learnt from this incident is that, in the last resort, Great Britain must be responsible for its own defence. There is no way in which this country can ultimately be protected without a nuclear as well as a conventional deterrent.
    Lord James Douglas-Hamilton: Given that South Thule is in the general Falkland Islands area, will my right hon. Friend tell the House how many Argentines are illegally present on the island, and will he keep the matter under close review?
    Mr. Nott: I am very conscious of the position there. I do not know the exact number involved, but it is between 40 and 70. The number varies as the winter approaches.
    Mr. John Silkin: How can the security of the Falkland Islands—or, indeed, of the British Isles—be preserved on the basis of the last defence White Paper? Will the right hon. Gentleman assure the House that the Government intend to provide a strong and proper conventional maritime defence and to scrap Trident?
    Mr. Nott: The principal threat to Britain comes from the Soviet Union and its allies, not from Argentina. As a member of NATO, we maintain a range of forces, both conventional and nuclear, to deter that threat. I repeat that the amount that we are now spending on the conventional naval programme—I emphasise "conventional naval programme"—is £½ billion more than what was spent on it when the Labour Party was in office.
    Mr. Silkin: Has not the right hon. Gentleman yet understood that one-third of the task force will be scrapped two years from now under the defence White Paper scheme?
    Mr. Nott: Again, that is an inaccurate remark. Of the destroyers and frigates now in the task force, not one is on the sales list and not one was on the sales list before the incident began. The figure of 17 vessels is a figment of the right hon. Gentleman's imagination.
    Mr. Robert Atkins: Does my right hon. Friend agree that the Royal Navy's ability to put together in four days a task force of sufficient size to go to the South Atlantic is a tribute to the Royal Navy's present capability? Is it not nonsense for the Opposition to suggest that the Royal Navy has suffered from cuts in the defence budget when the task force proves what can and will continue to be done?
    Mr. Nott: As I said in our debate recently, nothing in our plans for the future will prevent a naval task force of the type now at sea from being sent on a similar task in 1985 or 1990. However, any such task force in 1985 or 1990 will have been further modernised and will have more up-to-date weapons. In a few year's time the task force will be even more powerful than it is today.
    Mr. Skinner: Now that the Secretary of State and his colleagues have found out that they are dealing with a Fascist junta in the Argentine, will they give a categoric assurance, so that similar mistakes are not made in future, not to sell any more arms to Fascist regimes?
    Mr. Nott: I cannot give any assurances—[HON. MEMBERS: "Why not?"]—about the possible actions of Fascist juntas. However, the vast majority of the modern weapons possessed by the Argentines were sold to them during the time of the Labour Government.

    Hong Kong
    Mr. Hooleyasked the Secretary of State for Defence whether it is intended to reinforce the garrison in Hong Kong.
    The Minister of State for the Armed Forces (Mr. Peter Blaker): No, Sir. However, the new agreement with the Hong Kong Government on defence costs, which came into effect on 1 April 1981, provided for the permanent garrison to be increased by one infantry battalion and supporting elements. This new battalion became operational last month.
    Mr. Hooley: Does not the fiasco of the loss of the Falkland Islands clearly demonstrate that it is futile and absurd to give military guarantees to nineteenth century colonies that are scattered round the globe? Is it not dishonourable and unjust to those concerned, and should we not abandon that policy?
    Mr. Blaker: I am sure that even the hon. Gentleman would not regard the situation in Hong Kong as identical with or similar to the situation in the Falkland Islands. I should not have thought it excessive for there to be five infantry battalions in a territory with a population of 5 million people.
    Mr. Adley: Will my hon. Friend put the matter in straightforward perspective? Is not any suggestion of any similarity in the relationship between the Government of the People's Republic of China and this Government over Hong Kong and that facing Britain and Argentina over the Falkland Islands utterly ridiculous? Will my hon. Friend confirm that we enjoy an excellent relationship with the People's Republic of China—[Interruption.]—and that the perceived military threat both to China and to Hong Kong comes only from the Soviet Union? Will my hon. Friend also confirm that we are in touch with the People's Republic of China to ensure that we act jointly, if necessary, against that threat?
    Mr. Blaker: I agree that we have very close relations with the People's Republic of China.

    Communications
    Mr. Neil Thorneasked the Secretary of State for Defence if he is satisfied that wherever necessary the Armed Forces are able to communicate world-wide without unreasonable delay.
    The Under-Secretary of State for the Armed Forces (Mr. Jerry Wiggin): Yes, Sir.
    Mr. Thorne: Given the importance of long-haul communications—whether by satellite or high frequency systems—to any country with world-wide responsibilities, will my hon. Friend ensure that, in considering whether we need to continue to rely on American satellites, proper credit is given to the enormous potential of both the British Marconi and Plessey communications systems?
    Mr. Wiggin: My hon. Friend's views have been noted. Wisely, he has been in correspondence with my hon. Friend the Under-Secretary of State for Defence Procurement. We shall bear that point in mind.
    Dr. McDonald: When does the Minister expect the British defence satellite to come into operation?
    Mr. Wiggin: It is not customary to give details of such operational matters.

    Defence Budget
    Mr. Jim Marshallasked the Secretary of State for Defence what is the percentage and absolute increase in the defence budget over the years 1980–81 and 1981–82 due to (a) inflation and (b) increase in real expenditure.
    Mr. Nott: It is too early to say yet what the final outturn on the defence budget for 1981–82 will be, but it is expected that spending will be very close to the cash provision published in Cmnd. 8494. On that basis, the total cash increase over the years 1980–81 and 1981–82 will be some £3,400 million. Of this, some £2,870 million is currently estimated to be due to inflation of 18 per cent. and 11½ per cent. respectively, and some £530 million provides for a real increase of about 4½ per cent. The 1982–83 cash provision provides for real growth of some 11 per cent. over 1978–79.
    Mr. Marshall: On the assumption that we manage to evict the Argentines from the Falkland Islands, how much additional expenditure will be necessary in this year and succeeding years to maintain in that area a permanent naval presence of sufficient strength to deter any future aggression by the Argentines?
    Mr. Nott: Clearly a large amount of money will be needed to maintain a substantial naval presence in the South Atlantic. We are seeking a negotiated settlement for the future security of the Falkland Islands without the necessity for a naval presence.
    Mr. Viggers: Does my right hon. Friend agree that the increase in defence spending, particularly the increase in the proportion of spending that has been devoted to the Royal Navy, has enabled us to equip the task force with missiles and torpedoes and thereby make it more formidable than would have been possible three years ago?
    Mr. Nott: My hon. Friend is right. The need is constantly to update and provide better weapons systems for the Royal Navy. My hon. Friend probably realises that we are devoting a slightly higher percentage of the total defence budget to the conventional naval programme than did the Labour Government. We have not transferred expenditure from the Navy to other areas.
    Mr. Denzil Davies: As the Secretary of State does not appear to have learnt anything over the past few months and still believes that he has a good defence strategy, will he explain why his defence White Paper has been postponed and is being rewritten?
    Mr. Nott: I thought there was a general wish, shared by both sides of the House, that we should not publish the defence White Paper until the crisis was over. I responded to that feeling by postponing publication of the White Paper. However, the White Paper is substantially complete. As soon as the House feels that it is appropriate, I will publish it.
    Mr. Denzil Davies: Is the Secretary of State saying that the White Paper has merely been postponed? We were told earlier that there was an addendum or an erratum to it. If there is an addendum, what is it about?
    Mr. Nott: I can explain that very simply. The defence White Paper is already substantially complete. It can be published at any time. There is nothing in it that in any way contradicts or embarrasses the Government vis-a-vis the
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    Falklands crisis. I felt that it was more appropriate to hold back publication of the White Paper for a few weeks during the crisis.
    When the crisis is over, we will consider whether any adjustments should be made within the policy already announced. That must be the sensible way to proceed.
    Mr. Peyton: Does my right hon. Friend accept that some of us agree that there is nothing outlandish in being ready to learn from events?
    Mr. Nott: I agree with my right hon. Friend. Of course, we will look at the current situation to see whether there are any necessary and desirable adjustments to be made to the general strategy that we have already outlined. That is nothing to be ashamed about.

    Guard Dog Training Units
    Mr. Bill Walkerasked the Secretary of State for Defence if he has any proposals to merge the Service guard dog training units; and if he will make a statement.
    Mr. Wiggin: We are considering changes in our arrangements for training guard dogs and their handlers. Concentration of the work into one unit is one of several possibilities.
    Mr. Walker: I thank my hon. Friend for that reply. Does he agree that the primary use of an active Royal Air Force airfield is for flying? [HON. MEMBERS: "Reading."] It is important that I do read.
    Mr. Speaker: Order. Public confession of reading at Question Time is always a mistake. If the hon. Gentleman looked up more often it would help.
    Mr. Walker: I know the question so well that I do not need to read it.
    Does my hon. Friend agree that an active RAF airfield is for flying? Does he further agree that when an airfield is being shared by other units, particularly a dog training unit, which impinge on the flying training of the Central Flying School and the Central Gliding School, that cannot be in the best interests of the RAF for pilot training? Does my hon. Friend also agree that there will be advantages in wind scent training if dogs are trained at one establishment for all Service requirements?
    Mr. Wiggin: I am aware of the conflict of interests at Syerston. However, the Ministry of Defence must use its available assets to the best advantage. I do not think that this particular difficulty can be resolved.
    Mr. Latham: Is my hon. Friend aware that the RAVC headquarters in Melton Mowbray, where much vital dog training takes place, has extremely strong links with the town? Is he further aware that it has great support from local people and that, if he is looking for expansion, they would be happy to accommodate him?
    Mr. Wiggin: I do not wish to disappoint my hon. Friend, but the future of the Army's dog training facilities will be included in my inquiry.

    Middle East (Peace-keeping Operations)
    Mr. Campbell-Savoursasked the Secretary of State for Defence if he will make a statement on the involvement of British forces personnel in peace-keeping operations in the Middle East.
    Mr. Blaker: Thirty-seven British Service officers and men are currently deployed to the Sinai. Their main task is to act as the headquarters company of the multinational force and observers, which was set up to help maintain peace in the area following the Israeli withdrawal. We also provide some logistic support for the United Nations interim force in Lebanon from our bases in Cyprus.
    Mr. Campbell-Savours: Will the Minister confirm that there have been hundreds of violations of the ceasefire on the border between Lebanon and Israel? If Britain has a contingent in the multinational force, will it not be possible for the Government to report direct to the House of Commons on the number and nature of any future violations?
    Mr. Blaker: We do not have a contingent in the force in the Lebanon. We supply some logistic support for that contingent from our bases in Cyprus.
    Mr. Archie Hamilton: Is my hon. Friend aware that many people feel that a more robust attitude should be taken by the United Nations forces in South Lebanon towards the enclave run by Major Haddad, which is causing embarrassment to everyone in the Lebanon.
    Mr. Blaker: I take note of that point, but it is for my right hon. Friend the Foreign Secretary.

    Cyprus
    Mr. Christopher Priceasked the Secretary of State for Defence what economies, or increases in real expenditure, have been made in the sovereign base areas in Cyprus in each of the last 10 years; and what savings or additional costs have resulted in cash terms and at constant prices.
    Mr. Blaker: I regret that the information sought by the hon. Member is not readily available and could not be obtained without disproportionate effort. However, I am arranging for details of the estimated budgetary cost of the British Forces in the sovereign base areas and associated sites since 1974–75 to be published in the Official Report at both current and constant prices.
    Mr. Price: As we are able to maintain such substantial forces in those permanent bases, what do the Government intend to do about a far more serious invasion than that of the Falkland Islands? The invasion to which I refer involved a great loss of life and serious injury in an area for which Britain had statutory responsibilities. Will the Government use these forces to put right the problems arising from that invasion, especially as the Government of Turkey are now proposing to put in gaol the democratically elected Prime Minister of the country, Mr. Bulent Ecevit, for up to five years?
    Mr. Blaker: As I recall, when the invasion to which the hon. Gentleman referred took place, the Labour Party was in power. Therefore, the question of military action does not now arise. This is a problem for diplomatic action, and it is a matter for my right hon. Friend the Foreign Secretary and others.
    Sir Anthony Kershaw: Has not the maintenance of the sovereign bases in Cyprus over the years contributed to the stability of the area and helped our allies and friends of peace in that part of the world?
    Mr. Blaker: I agree with my hon. Friend that the sovereign base areas are extremely valuable. They are situated at strategic points on the world atlas.
    The information is as follows:

    £ millions

    At current prices

    At constant 1982–83 estimates prices

    1974–75

    57

    173

    1975–76

    34

    85

    1976–77

    42

    87

    1977–78

    46

    87

    1978–79

    53

    89

    1979–80

    59

    83

    1980–81

    63

    76

    1981–82

    72

    77

    Royal Ordnance Factories
    Mr. Strawasked the Secretary of State for Defence if he will make a statement on the future organisation and ownership of the Royal ordnance factories.
    The Under-Secretary of State for Defence Procurement (Mr. Geoffrey Pattie): I hope to be able to make a statement in the near future.
    Mr. Straw: Is the Minister aware that he and his colleagues have been saying that since December 1980 when we first debated the future of the Royal ordnance factories? The Prime Minister has said that the prospects for privatisation of the ROFs in the near future are not good. Will the Minister now make it clear that the Government will abandon all ideas of privatising the ordnance factories and allow the employees to get on with the excellent job that they are doing?
    Mr. Pattie: This is a complex issue. We have been right to take our time before reaching a decision. We do not want to delay that decision much longer. Immediate privatisation is not in prospect, but we believe that changes should be made to the constitution of the Royal ordnance factories to allow them to operate more competitively than hitherto in commercial life.
    Mr. Robert Atkins: Does my hon. Friend agree that putting the Royal ordnance factories in the position of Companies Act companies and giving them a separate sales team, as the ROFs believe is necessary, would go a long way to increase their already great effectiveness both in this country and abroad?
    Mr. Pattie: I agree with much that my hon. Friend has said. I know that he will await the announcement with interest.
    Mr. Golding: Does the Minister agree that the present crisis shows the importance of keeping the Royal ordnance factories under Government control and ownership? Is he aware that it is important to my constituents who work at Radway Green that an announcement is made as quickly as possible in order to dispel the uncertainty with which they have lived for too long?
    Mr. Pattie: I assure the hon. Gentleman that an announcement will not be unreasonably delayed. I take this opportunity to congratulate the ordnance factories on the contribution that they have made and are making.
    Dr. McDonald: Will the Minister assure the House that in any changes that the Government envisage, this now

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    extremely profitable enterprise, with an expected profit of £30 million this year, will not go to benefit the Government's friends?
    Mr. Pattie: The hon. Lady should wait for the announcement, which will not be unduly delayed.

    HMS "Hermes"
    Mr. Trotterasked the Secretary of State for Defence whether he will now retain HMS "Hermes" in service till the end of the decade.
    Mr. Blaker: As we explained in Cmnd. 8288, our general strategy involves keeping two carriers in service throughout the 1980s and beyond. We therefore plan to phase out HMS "Hermes" once HMS "Ark Royal" joins the Fleet.
    Mr. Trotter: The departure of HMS "Invincible" and HMS "Hermes" for the South Atlantic at 72 hours' notice was a great achievement for both the Navy and the dockyards, but does my hon. Friend agree that we were fortunate that one of those carriers was not in for a refit at the time? Does he further agree that it is not merely desirable, but essential, that there should be three major ships if two are to be available for service at any time, as is clearly necessary?
    Mr. Blaker: My hon. Friend will take the point made by my right hon. Friend the Secretary of State, that the strategy set out in Cmnd. 8288 was designed with the point in mind that the main threat comes from the Soviet Union. I remind my hon. Friend that by 1985 we shall have in service two aircraft carriers that will be a good deal more powerful than the two that we have now.
    Mr. Jay: In view of the great success of the task force, will the Government cancel the sale of HMS "Invincible" to Australia?
    Mr. Blaker: No, we cannot cancel the sale of HMS "Invincible" to Australia, as it has already been agreed. I repeat my right hon. Friend's point that when the Falkland Islands crisis is over we shall consider whether any adjustments are needed within the general strategy, but the general strategy set out in Cmnd. 8288 remains valid.
    Mr. Churchill: Is it not clear that in the years ahead the Royal Navy will need to have two carriers ready for sea at any moment? Does my hon. Friend agree that that is impossible with a two-carrier fleet? Will the Government therefore consider the fact that, in terms of cost-effectiveness, increasing the fleet to three carriers will double the number of carriers that can be put to sea? Should not that be the purpose of an addendum to the defence White Paper?
    Mr. Blaker: I am not sure that my hon. Friend is right to say that such an increase will double the number of carriers that can be put to sea. If we have two, two will be available for two-thirds of the time. I cannot add to the reply given to the right hon. Member for Battersea, North (Mr. Jay).
    Mr. Wellbeloved: Is it true that HMS "Hermes" uses the same type of fuel as HMS "Britannia"?
    Mr. Blaker: Yes, that is true, but if the hon. Gentleman is suggesting that as a reason for sending HMS
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    "Britannia" on the task force he is on unsound ground, as it would have required an extra Royal Fleet Auxiliary to be sent especially for HMS "Britannia", which would have been extremely uneconomic.
    Mr. Cormack: As my right hon. Friend the Secretary of State agreed with our right hon. Friend the Member for Yeovil (Mr. Peyton) that lessons might be learnt and that there is nothing to be ashamed of in that, is not the retention of HMS "Hermes" and HMS "Invincible" a lesson that we might consider learning?
    Mr. Blaker: I have already replied to a question about HMS "Invincible". I cannot add to what I said in response to the right hon. Member for Battersea, North.
    Mr. Denzil Davies: Is the Minister aware that if General Galtieri had waited a few months we should not have had a task force to send to the South Atlantic, because HMS "Hermes" would have been in the knacker's yard and HMS "Invincible" would have been on the way to Australia? Why do the Government not admit that their defence strategy, especially their naval strategy, is in ruins and that the Secretary of State's tenure at the Ministry of Defence has been disastrous?
    Mr. Blaker: Once again the right hon. Gentleman is extremely badly briefed. I do not know how he can be ignorant of the fact that HMS "Hermes" will remain in service until 1985.

    Defence Plans
    Mr. Peter Bottomleyasked the Secretary of State for Defence if he proposes any changes to the defence plans announced in his White Paper.
    Mr. Nott: The adjustments to our force structure announced in Cmnd. 8288 are designed to produce a balanced range of capabilities to counter the prime threat to the United Kingdom posed by the Soviet Union and its Warsaw Pact allies, but versatile enough to respond wherever our interests are threatened. When the Falkland Islands crisis is over we shall naturally consider whether any adjustments are needed within the general strategy.
    Mr. Bottomley: Is my right hon. Friend aware that I regard that as a very sensible answer and that I shall therefore not ask for any more details at this time?
    Mr. Douglas: Will the Secretary of State reconsider the actions that have been taken and those that are in train in relation to the dockyards, in view of their excellent performance during the Falkland Islands crisis?
    Mr: Nott: In view of the present emergency I have said that no further redundancy notices should be issued in the immediate future, but our general strategy for the future of the dockyards must remain unchanged.
    Mr. Alexander: Does my right hon. Friend agree that it would be sensible to postpone closure of the Gibraltar dockyard, a subject which we were not able to probe on an earlier question? Is he aware that there is considerable anxiety on both sides of the House about the proposed closure?
    Mr. Nott: I realise that there is anxiety about this matter. We are giving every possible assistance to finding some future for the Gibraltar dockyard, other than its existing defence function. It is a very unhappy event to

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    close any extablishment, but unless we tailor the future support of the Royal Navy to the size of our front-line forces we shall not be able to afford to go on putting more resources into modern weapons systems, new platforms, combat stocks and other requirements. We cannot have an overlarge support structure that we do not require.
    Mr. Denzil Davies: Will the Secretary of State clarify the position about redundancies at Chatham dockyard? Last week there was a report from the Ministry of Defence that the redundancies would be postponed, but there is now some confusion over whether that is so. Will the Secretary of State confirm, or otherwise, that all the redundancies in the pipeline for Chatham have at least been postponed?
    Mr. Nott: As I have just said, no further redundancy notices will be issued in the immediate future. I believe that further redundancies at Chatham were to be declared on 7 May. Those will not now be declared. No further redundancies will be declared in the immediate future, but our general plan for the future of the dockyards remains unchanged.

    Falkland Islands (Task Force Vessels)
    Mr. Beithasked the Secretary of State for Defence how many of the vessels engaged in the Falkland Islands task force are due to be sold or scrapped.
    Mr. Blaker: With the exception of HMS "Endurance", whose long-term future we shall be considering, one warship and three Royal Fleet Auxiliaries are due to be disposed of by the end of next year.
    Mr. Beith: Do Ministers now recognise that the decision to scrap HMS "Endurance" was taken by the Argentine as a signal that Britain would not be ready to defend the Falkland Islands? Is he aware that the British public were genuinely horrified to learn that the Government regarded as unnecessary the vessels and dockyards that were so effectively pressed into service? Does he appreciate that that calls into question not only the policy but the continued position of the Ministers responsible?
    Mr. Blaker: I think that the Government have conceded that the planned withdrawal of HMS "Endurance" may have been taken by the Argentines as some kind of signal, but HMS "Endurance" cannot have been taken by them as a deterrent, because the invasion occurred when it was still on station. With regard to the launching of the task force, as my right hon. Friend has said, we could repeat such an effort in the future after our plans have been put into effect.
    Mr. Henderson: In view of the substantial reduction in the equipment and the morale of the Armed Forces during the period of the Lib-Lab pact and the intense opposition of the Labour and Liberal parties to the Government's proposals to increase spending on defence, does it not surprise my hon. Friend that we should now be hearing cries for further defence expenditure from right hon. and hon. Members on the Opposition Benches?
    Mr. Blaker: I agree with my hon. Friend. I was not aware that any of the Opposition parties was planning to spend more on defence than the Government are. I repeat a point that has already been made, that under our present plans we shall have more major ships in operation in 1985 than we have now.
    Mr. John Silkin: Is the hon. Gentleman not deluding himself and the House when he imagines that by closing down the Gibraltar, Chatham and, virtually, the Portsmouth dockyards we will in future be able to have a task force that is capable of being anything like the present task force?
    Mr. Blaker: Perhaps the right hon. Gentleman has not yet fully seized the importance of the fact that we are to do away with the major mid-life modernisations that we have previously undertaken. The consequence is that in 1985 we shall have more major ships operational than we have at present.

    Naval Expenditure
    Mr. Newensasked the Secretary of State for Defence if he will reconsider the priorities in naval spending in view of the developments in the Falkland Islands.
    Mr. Nott: As I have already said, the main threat to the United Kingdom is posed by the Soviet Union and her allies, and the response to this threat remains our overriding priority. We therefore plan to proceed within the general framework outlined last year, which includes maintaining a capability to deploy as necessary outside the formal boundaries of the Alliance.
    Mr. Newens: How on earth does the right hon. Gentleman expect to inspire any confidence in the future defence policy of the country when he is refusing, at this stage, to admit, even in the light of the Falkland Islands crisis, that he got any of his priorities wrong, when the whole country realises that we would not be in the present mess if he had got them right? Does the right hon. Gentleman not recognise that the vast expenditure on nuclear weapons is completely unjustified and that, in the light of the equivocation of the United States, vast numbers of people in this country now regard it as utterly wrong to rely on cruise missiles, under American control, based in Britain?
    Mr. Nott: I suggest to the hon. Gentleman that no other nation in the world—and in that I include the two super powers—could have put to sea a task force of this size in three days. There is nothing in our plans that would prevent such a force, with two carriers and an equal number of more modern frigates and more modern weapons, from putting to sea in 1985 and 1990.
    The hon. Gentleman criticised our expenditure on nuclear weapons. My answer is that without a defence against nuclear blackmail by the Soviet Union there would be no point in having a task force of this kind.
    Mr. Moate: Has this crisis not demonstrated above all the extent to which our naval strength depends upon our fleet of nuclear hunter-killer submarines? As that fleet, which is to be enlarged, depends essentially upon adequate refit and refuelling facilities, will my right hon. Friend confirm at least that he is looking again at all the arguments that were deployed so strongly in favour of keeping our existing refit facilities?
    Mr. Nott: I agree that the necessity for a surface fleet is absolutely clear. I also agree that our fleet of SSNs has been a key factor in this crisis. Our fleet of SSNs will grow from 12 to 17 during this decade. My hon. Friend is right.

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    As I have often said to him, we will have sufficient refit capacity at Rosyth and Devonport to handle our fleet of SSNs.
    Mr. William Hamilton: If the right hon. Gentleman's record is so impeccable, why did he offer to resign?
    Mr. Nott: I should be the last to claim that my record is impeccable, so I am sure that hon. Members will cheer at that. Of course my record is not impeccable. I have lessons to learn from this incident, just as anyone else has. I have learnt three lessons: first, that the readiness of combat stocks and spares is crucial; secondly, that the readiness of sufficient fuel is crucial; and, thirdly, that the ability to use civilian assets taken up by the Department of Trade in an emergency of this kind is crucial. Those are some of the lessons that we have learnt, and of course there will be others.

  PRIME MINISTER

    Falkland Islands
    Mr. Dalyellasked the Prime Minister if she will make a statement on the present position in the Falkland Islands.
    The Prime Minister (Mrs. Margaret Thatcher): Following my statement yesterday, I must emphasise again today that, while the Government remain determined to do everything possible to achieve a negotiated settlement, time is fast running out. I know that Mr. Haig understands this and that he has been in touch with the Argentine Government today.
    The Foreign Ministers of the Organisation of American States are still meeting. As Mr. Haig told the meeting yesterday, treatment of the dispute within the framework of the Rio Treaty would be neither appropriate nor effective: UN Security Council resolution 502 provides the surest guide to a peaceful settlement.
    British forces in South Georgia have contacted all the British Antarctic Survey personnel and the two wildlife photographers. All are reported safe and well, and food and other supplies are being delivered. Arrangements have now been made for them to leave shortly.
    Mr. Dalyell: What did the Prime Minister say to the Secretary-General of the United Nations' earnest request not to escalate the problem?
    The Prime Minister: I am very well aware of the Secretary-General's request and that the Security Council's resolution must be complied with. It is Argentina that has flagrantly failed to comply, and it is because of that failure that we must now be free to exercise our right to self-defence under article 51.
    Mr. St. John-Stevas: Is my right hon. Friend aware that, at a time when the House is rightly proud of the British forces in South Georgia and united in their support, it also firmly supports her efforts to achieve a diplomatic settlement of this dispute? Will she, even at this eleventh hour, consider a new step, namely, utilising the mediation services of the Holy See, which has unrivalled experience in such matters, particularly in Latin America?
    The Prime Minister: I am grateful to my right hon. Friend. As he knows, His Holiness is already mediating in a dispute between Argentina and Chile. His Holiness sent a telegram yesterday to Her Majesty the Queen urging
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    the Government to make every effort to find a peaceful solution on the basis of justice and international law, and he hopes and wishes to believe that such a peaceful solution is still possible.
    Mr. Foot: The right hon. Lady's reply on the subject of the appeal from the Secretary-General of the United Nations was insufficient and unsatisfactory. Does the right hon. Lady not appreciate that this is a new element in the situation? Is it not extraordinary that she did not include any comment on it in her reply to my hon. Friend the Member for West Lothian (Mr. Dalyell)?
    Will the Prime Minister look at this matter in a much fuller context? Will she undertake to ensure that the Foreign Secretary goes to New York to discuss this matter with the Secretary-General? We are supposed to act under the authority of the United Nations. Indeed, it is the only authority under which we are supposed to act. The right hon. Lady has a duty to the House and to the nation to ensure that the fullest and most immediate response possible is made to the appeal of the Secretary-General.
    The Prime Minister: We have an excellent ambassadorial representative at the United Nations, and he was there to receive this statement. In the second paragraph of that statement the Secretary-General said:
    "In this critical situation, the Secretary-General therefore appeals to both parties to comply immediately with the provisions of Security Council resolution 502".
    That is our wish, too, and unless and until—
    Mr. Spearing: Read on.
    The Prime Minister: I am perfectly prepared to read both the first paragraph and the next.
    This is a mandatory resolution of the Security Council, which has the force of international law. No statement can overcome something that has the force of international law. Also, under the United Nations charter, until that resolution is complied with Great Britain has the right of self-defence under article 51. We have taken, and continue to take, the view that unless we bring military pressure to bear the Argentines are unlikely to withdraw from the Falklands.
    Mr. Foot: I put it to the right hon. Lady again that her reply is entirely unsatisfactory and does not come anywhere near measuring up to the scale of events. Will she now tell us the answer that was given by our ambassador to the Secretary-General on this matter? Will she respond to my suggestion that the Foreign Secretary, who went to Washington to discuss these matters with Secretary Haig, should go to New York to discuss these matters with the Secretary-General, too, before any further escalation of violence occurs?
    The Prime Minister: I think that our ambassador's reply is likely to have been—[Interruption.]—of the nature that the best way to comply is for the United Nations to bring pressure to bear on the Argentine to withdraw her forces. If she withdrew them there would be no problem whatsoever.
    Mr. Foot: It seems from the right hon. Lady's reply that she does not even know what our ambassador said and was making the answer up as she went along. I say to the right hon. Lady, as straight as I can, that if she does not make a proper response to this appeal from the Secretary-General of the United Nations—who is entitled to make such an appeal under the constitution of the United

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    Nations—along the lines that I have suggested, with either the Foreign Secretary or somebody else going to New York to discuss the matter—and I put it in a hypothetical manner—she will inflict a grievous blow to our country's cause. I hope that she will consider the matter properly.
    The Prime Minister: I totally disagree with the right hon. Gentleman. If we were to refuse to take any further military action during this negotiation he would put many of our soldiers and sailors in jeopardy.
    Hon. Members: Resign.
    Mr. Foot: The responsibility in this matter rests with the right hon. Lady and with all hon. Members of the House of Commons. I ask the right hon. Lady not to take any further steps in the escalation of military matters and to give the House of Commons the chance of deciding what should be the proper response to the appeal of the Secretary-General. I ask her not to take any military action, but to take this diplomatic action after consulting the House of Commons.
    The Prime Minister: I stand by the terms of the United Nations resolution and of the United Nations charter. Until the terms of that resolution are complied with and the Argentine forces withdraw we shall continue to exercise our rights under article 51. My reply to the Secretary-General is to urge him, as well as the right hon. Gentleman, to address his remarks to the junta in the Argentine.
    Hon. Members: Resign.
    Mr. Crouch: Is my right hon. Friend aware that the whole House welcomes the emphasis that she continues to give to working to find a peaceful solution to the crisis? In view of Secretary of State Haig's declaration that the United States will do all that it can to resolve the differences between ourselves and Argentina without further conflict, can my right hon. Friend say what differences stand in the way of a peaceful and honourable settlement?
    The Prime Minister: As I said in reply to the hon. Member for West Lothian (Mr. Dalyell), Mr. Haig has been in touch with the Argentine Government today. We hope that that will be fruitful. The main stumbling block is that the Argentines have not withdrawn their forces, but have steadily reinforced their garrison. Throughout the whole of the period since the passage of the United Nations resolution they have continued to reinforce their forces on the Falkland Island with both men and materials.

    Engagements
    Mr. Dormandasked the Prime Minister if she will state her official engagements for 27 April.
    The Prime Minister: This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House I shall have further meetings later today.
    Mr. Dormand: Is the right hon. Lady aware that the belligerence that she has shown in the past two days misjudges not only the critical situation in the Falkland Islands but the mood of the British people? I do not in any way underrate the many difficulties and problems involved, but does the right hon. Lady agree that at this stage what is required above all else is a rapid
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    intensification and widening of economic sanctions, particularly through the agencies of the United Nations? At the same time, will she make it clear to President Reagan, in straight talking, that his neutralism will not be forgotten in this country?
    The Prime Minister: I do not believe that we have misjudged the views of our citizens over the Falkland Islands. I hope that the hon. Gentleman will remember, too, that there are many British citizens living under occupation on the Falkland Islands. He will be as anxious as I am to see that they are not under that occupation for a moment longer than is necessary. The easiest way to achieve that is for the Argentines to withdraw their forces. They broke the peace first.
    Mr. Colvin: Reference has been made to the attitude of the British people. They are resolutely behind my right hon. Friend. My question refers to the attitude of the Argentines. Can my right hon. Friend confirm that the full resources of our propaganda machine are being mobilised so that the Argentines are aware of the real truth of the situation and are not being force-fed lies by their military dictators?
    The Prime Minister: We are doing as much as we possibly can, especially through the BBC external services, to put out the facts of the situation. I cannot say how often they are heard in the Argentine.
    Mr. Benn: Is it not clear from the Prime Minister's statements yesterday and today, and from the "Panorama" interview last night, that the Government never had the slightest intention of using the United Nations for the purpose of negotiation, or of negotiating directly under resolution 502, and that it was always the Prime Minister's intention that there should be only a military expedition? Is it not clear, to that extent, that she has hitherto grossly misled the House and the country?
    The Prime Minister: The right hon. Gentleman is talking nonsense. I suspect that he knows it. The Government went immediately, the day after the invasion, to the Security Council, gained the support of many other nations and secured the passage of that resolution. It is over three weeks since that resolution was passed. It has not been complied with. On the other hand, Argentina has continued to make the situation worse. We want a peaceful settlement. The easiest way to achieve that is for the Argentines to withdraw their troops.
    Sir Paul Bryan: As the rights and wrongs of the dispute have already been established by international law and supported by the Security Council, is not three weeks about as long a period of intense negotiation as can be justified if both parties are negotiating in good faith?
    The Prime Minister: My hon. Friend is right. Not only have three weeks passed, but during that time the Argentines have put more and more reinforcements on the islands, which shows that they do not intend to comply with the resolution. As we have been saying recently, and as Mr. Haig has been saying, time is running out, because the military options in that part of the world must have regard to the weather and climatic conditions. We still require a peaceful settlement, and we can get one if the Argentines are willing to have it.
    Mr. Speaker: Mr. David Steel.
    Mr. David Steel rose—
    Mr. Foot: May I ask the Prime Minister these further questions? Will she publish as speedily as possible the timing and exact wording of the reply given by our ambassador to the Secretary-General's statement, so that we can all see what was said on behalf of our country? Will she reconsider what I have said about the Foreign Secretary going to New York? If the case is as good as she says, why should not our Foreign Secretary go to New York and state it there? That is what I ask for. If the right hon. Lady does not respond to my request she will do great injury to our country in the eyes of the whole world. As we act in this matter only under the United Nations charter, I urge the right hon. Lady to accept that the advice that I am giving her is in the best interests of the country as a whole.
    The Prime Minister: I do not think that there is a formal reply to such a message. Various views are expressed informally, but it is not a formal reply. Formal reports are given by our ambassador to the United Nations, as they must be, about article 51 and the precise action that we have taken. We have full details of that. I stress to the right hon. Gentleman that resolution 502 is mandatory. Unfortunately, the United Nations does not enforce it and has no means of enforcing it. Therefore, we can only bring the best possible pressure to bear on the Argentine to enforce it.
    As the right hon. Gentleman may have heard our ambassador say this morning from New York, there is no disposition there at the moment to return to the United Nations so long as Mr. Haig's peace initiative is in play. My right hon. Friend the Foreign Secretary has recently returned from Washington. I do not think that he could achieve anything by going to New York now.
    Mr. Foot: Does the right hon. Lady's reply to me mean—I can construe it only in this way—that there is to be no official reply on behalf of her Majesty's Government to the appeal from the Secretary-General?
    The Prime Minister: I can make an official reply if the right hon. Gentleman wishes. It will not be any different from what I have said, because the governing factor in United Nations law—I use the word "law"—and in international law is the resolution of the Security Council. The only possible thing that one can call upon the Secretary-General to do is to implement it. The only thing that I call upon the right hon. Gentleman to do is to use all his powers and influence with the Argentine Government to implement it.
    Several Hon. Members rose—
    Mr. Speaker: Order. In view of the time, most exceptionally I intend to call the Leader of the Liberal Party. [HON. MEMBERS: "Why?"] I shall tell the House why. It is because I believe in fair play.
    Mr. David Steel: Thank you, Mr. Speaker. The record will show that you called me before the time ran out. I gave way to the Leader of the Opposition. Will the Prime Minister clarify two matters? Were the proposals that the Foreign Secretary brought back from Washington commended to the Government by Mr. Haig? Have the Government made a detailed response to those proposals?
    The Prime Minister: The proposals do not yet have the status of formal proposals. They are still discussions. We have let Secretary Haig know our views, but my right lion. Friend did that while he was still in Washington.
    Mr. Hoyle: On a point of order, Mr. Speaker. In view of the news blackout on the Falkland Islands situation, which might mean that our troops have landed there, should not the Prime Minister make a statement on the matter?
    Mr. Speaker: Order. It is unfair for someone who is trying to make a political point to raise it on a point of order.

Business of the House
3.35 pm
The Lord President of the Council and Leader of the House of Commons (Mr. John Biffen): With permission, Mr. Speaker, I should like to make a short business statement.
The business for this Thursday will now be a debate on the Falkland Islands, on a motion for the Adjournment of the House. The business which was set down for that day, namely, the Finance Bill in Committee, will be taken on another occasion.
Mr. John Stokes: Is it wise to have yet another debate on the Falkland Islands? Will it help our diplomacy, and will it help our task force?
Mr. Biffen: I believe that it will be wise because the sound sense of the House will reinforce our diplomacy.
Mr. Speaker: Mr. Norman Lamont.
Mr. Michael English: On a point of order, Mr. Speaker. May I put a question on the business statement?
Mr. Speaker: It was a brief statement, merely changing the business for one day. If the hon. Gentleman feels that he must ask a question about it, I shall call him.
Mr. English: Thank you, Mr. Speaker.
Instead of the debate being on the Adjournment, will the right hon. Gentleman consider whether it should be on a motion to refer the legalities of the issue to the International Court of Justice? If we propose that to the Security Council, the Security Council has the power to do it whether Argentina wishes it or not.
Mr. Biffen: This form of motion, which is customary, was chosen after consultations through the usual channels. I am sure that they will have heard the hon. Gentleman's comments.
Mr. David Winnick: Is the right hon. Gentleman aware that, if hostilities break out and fighting takes place on an extensive scale, there will be a need not just for a debate on Thursday but for a debate on Friday or Saturday? If there is to be war without a declaration of war between this country and Argentina, the House must meet to decide in an ongoing situation.
Mr. Biffen: The hon. Gentleman elaborates a number of hypotheses on which the House would like to make a judgment, should those hypotheses occur.

British Shipbuilders (Financial Support)
3.38 pm
The Minister of State, Department of Industry (Mr. Norman Lamont): With permission, Mr. Speaker, I shall make a statement on future financial support for British Shipbuilders.
The House will be aware that the industry's financial performance has shown some striking gains after the painful adjustments of the last two years. Losses have declined from £110 million in 1979–80 to a target of £25 million in 1981–82 after intervention fund assistance. The cash needs of British Shipbuilders have declined from £236 million in 1979–80 to £150 million in 1981–82. These gains are a tribute to the leadership of Mr. Atkinson and the realistic response of the employees and trade unions.
Under its corporate plan, British Shipbuilders aims to break even in 1983–84 and thereafter to move into profit without intervention fund assistance. But for British Shipbuilders to achieve its target will require continued substantial improvements in performance. Productivity still has to surpass pre-nationalisation levels.
Moreover, the plans of British Shipbuilders assume a sustained increase in real prices for ships. However, in present market conditions it would be wrong to place any great reliance on this happening. This makes it all the more important for British Shipbuilders to control costs tightly and become more competitive. While the volume of Ministry of Defence orders will remain substantial—last year orders were placed to the value of £460 million including associated weapons—British Shipbuilders seems likely to need to make adjustments and will need to regain export markets. British Shipbuilders has already made a start on the adjustment process by diversifying Cammell Laird and Scott Lithgow, and has had a welcome success in securing offshore orders.
Against this background, the Government have considered the question of financial support for 1982–83 only and will review the position later. For 1982–83 an external financing limit has already been announced of £123 million which takes account of the decision of my right hon. and learned Friend the Chancellor on the national insurance surcharge. For the same year we are setting a trading loss limit of £10 million after intervention fund assistance. The present tranche of the intervention fund expires in July this year and British Shipbuilders has sought further intervention fund support. The Commission is currently considering the general question of aids to shipbuilding and how best to ensure that where these are given they foster progress towards viability. I will report later to the House on the progress of consultation with the Commission.
With the agreement of British Shipbuilders and Harland and Wolff, we are going to ask consultants to look into the question of marine engine capacity at British Shipbuilders and Harland and Wolff to see whether the total capacity could be more effectively deployed. We have also been mindful that private sector engine manufacturers have over a long period complained about unfair competition from British Shipbuilders and Harland and Wolff. My right hon. Friend the Secretary of State will shortly announce Government funding for Harland and Wolff for 1982–83. We have also put to Mr. Atkinson the concern of the

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private sector ship repairers on unfair competition from British Shipbuilders which was highlighted by the recent report of the Select Committee on Industry and Trade. I know that Mr. Atkinson regards the performance of this sector as unsatisfactory and British Shipbuilders is reviewing the situation as a matter of urgency.
On the question of privatisation, it remains the Government's firm intention—time permitting—to take powers to facilitate the introduction of private capital for British Shipbuilders. I recognise the impatience of my hon. Friends for the Government to make progress in this area.
Very substantial support has been given by the Government to British Shipbuilders, but it still faces a task of considerable magnitude in obtaining a firm prospect of viability. The Government are determined that aid to British Shipbuilders will be temporary and diminishing. Government support by itself cannot buy viability or security of employment. The need to improve performance remains urgent. The fuller order books this year represent an opportunity for the industry to prove itself.
Dr. John Cunningham: Is the Minister of State aware that we regard this as a particularly inappropriate time for the Government to be making a statement about financial support for British Shipbuilders? We know that the defence White Paper has just been withdrawn. We know that the defence White Paper of a year ago smashed to pieces the proposals in the then British Shipbuilders' corporate plan. Is it not therefore asking an impossible task of the corporation to meet a plan when it knows nothing of the Government's intentions with respect to warship building and orders for the corporation?
Is it not also curious that the statement on financial support should be made at a time when the statement itself admits that no agreement has been reached within the EEC on intervention fund support which is crucial to the survival of some of British Shipbuilders' existing capacity?
I join the Minister in welcoming and paying tribute to the massive commitment that the unions have given to the 15 per cent. improvement in productivity in British Shipbuilders last year. We are opposed to the inferences in the statement to the reduction in financial support for the corporation.
The external financing limit is to be reduced and the loss limit is to be reduced by 60 per cent. Will the Minister of State explain how he expects British Shipbuilders to meet these targets when it has no idea of what is required of it in warship building? In the middle of a national crisis in the Falkland Islands, with heavy dependence on the Navy and support ships, is it not preposterous to reduce support for our shipbuilding industry?
Will the Minister confirm that section 2 of the Aircraft and Shipbuilding Industries Act 1977 lays a statutory duty on the corporation to take cognisance of the defence requirements of the country, and in particular of the Navy? Does not that have implications for what the Minister had to say about the ship repair capacity of the corporation?
What is the Government's response to calls from the unions, from the Opposition Dispatch Box and, most recently, from the Select Committee on Industry and Trade for the creation of a maritime strategy for Britain. As a shipping and shipbuilding nation of major consequence, we have no maritime strategy.
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Will the hon. Gentleman make clear his reference to £460 million of defence orders for the corporation last year? Is not the overwhelming proportion of that money for armaments which are not built by the corporation? If so, will he make it clear to the House?
Finally—[Interruption.] This is a most important statement for many people on the Clyde, the Tyne, Merseyside and elsewhere, and I make no apology for asking a number of questions. They are important to Labour Members and to the areas we represent.
Will the Minister say what level of investment cash will be available to the corporation as a result of his statement? Does it not foreshadow further major redundancies in British Shipbuilders?
Mr. Lamont: I have some sympathy with he hon. Member's first point. The statement has been long delayed and, therefore, we felt that it was right that it should be made to the House even though uncertainties surround it.
With regard to the question of uncertainty about the EEC, I have said that we shall come back to the House and make a full statement when it has made its deliberations on the intervention fund and assistance for shipbuilding generally.
On the subject of the defence review, the hon. Gentleman will have noticed that my statement was concerned with the short term. The figures and facts in it deliberately relate to the short term and the next year. Anything that is decided as part of a review of defence policy will be taken into account for the longer term.
The hon. Gentleman asked about reducing limits—loss target and the external financing limit. There is nothing new here. British Shipbuilders is aware that the Government's requirement is that both these limits should decline with time. It has succeeded in achieving that in the past, and I am confident that it will achieve it this year. I see no reason why that should not continue in the future.
The hon. Gentleman also asked about defence requirements. The Ministry of Defence has placed orders worth £460 million. Those orders include weapons systems and eight ships, including a nuclear submarine, two type 23 frigates and five patrol craft for service in Hong Kong.
As to a maritime policy, of course we shall examine and respond to the recommendations of the Select Committee. However, one must bear in mind the fact that shipping is also of interest in Britain and that a large part of British shipping is carried on between third countries. An overprotective maritime policy would not be in the interests of British shipping, and I am sure that British shipowners do not wish to be compelled to place orders in Britain.
The hon. Gentleman also asked about investment. During the past year we have invested about £30 million and next year we expect to invest £50 million, so it is not all retreat. There is some advance and provision for the future.
The hon. Gentleman's final question was about employment. Obviously there are some implications for employment in the decisions that have been taken by my right hon. Friend the Secretary of State for Defence, but British Shipbuilders expects that, by a policy of diversifying into offshore work and by obtaining a larger share of the export market, it can contain redundancies to about 2,000 to 3,000 over four years.
Mr. James Molyneaux: Is the Minister of State aware that there has been great difficulty

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in refuting the allegation that British shipbuilding representatives have improperly sought to influence shipowners in Brazil against placing engine contracts with Harland and Wolff in favour of John G. Kincaid and Co. Ltd? In assessing the future of the Harland and Wolff marine engine works, will the Minister and the Secretary of State for Northern Ireland take into account the fact that there is, and can be, no other outlet for marine engine skills in Northern Ireland?
Mr. Lamont: I shall certainly take the hon. Gentleman's latter point into account. The purpose of the inquiry is simply to see whether there is over-capacity in the engine sector and whether the complaints of the private sector about subsidised competition are justified.
I was not aware of the hon. Gentleman's first point, but I shall consider it.
Mr. Neville Trotter: One welcomes the substantial support that the Government have given to the shipbuilding industry in the past three years, the commitment to achieve viability and the substantial reduction in losses as a result of the achievements of the management and work force. What is the time scale of the urgent action promised by the chairman on the loss-making repair yards? It is difficult to understand how one can justify a position whereby the efficient, privately owned yards are being undercut and are in danger of being put out of business by the loss-making State yards. Do the Government aim to deal with the problem during the current year or does "urgent" mean longer?
My hon. Friend, in his long and good account of the future of the industry, omitted to comment upon the export of warships. If we are to receive—regrettably in my view—nadequate orders for warships from our Navy because of high costs, it is more important than ever that there should be exports. We have had no real success in recent years in selling significant numbers of warships overseas. My hon. Friend's Department should carry out an inquiry into the problem. It is such an important issue that we need an independent inquiry into it.
Mr. Lamont: On my hon. Friend's first question, I hope that the matter will be cleared up in the coming year. I share his concern about the loss-making side of ship repairing, because it is no good safeguarding jobs in the public sector merely to make people redundant in the private sector. The Government have no powers to direct British Shipbuilders to cease to operate in any area, although we have expressed our great concern about the matter to the chairman and we have made it clear that if he wishes to dispose of any part of the ship repairing side we shall not be slow to give him consent.
We must do much better in the export of warships. We have not exported a frigate since the early 1970s. The reasons for that are much disputed and varied. It may be that the design is too much tailored for our use, but we are hopeful that the type 23 frigates, the SSK submarine and the "Leeds Castle" class of offshore vessel will bring about a better era. I am not sure that we need an inquiry, but I assure my hon. Friend that we attach great importance to exports. The strategy that has been announced depends upon British Shipbuilders securing a larger share of the export market than it has in the past.
Several Hon. Members rose—
Mr. Speaker: Order. If hon. Members will co-operate and ask brief questions, leading to brief replies, I shall call every hon. Member who has risen.
Mr. John Evans: Will the Minister confirm that there is a major dispute about export orders between British Shipbuilders and the Admiralty? British Shipbuilders claims that the Admiralty's orders are much too sophisticated to form the basis of obtaining orders, especially from poorer countries which require simple frigates and destroyers.
Mr. Lamont: This has been a source of controversy in the past. I and my colleagues in the Ministry of Defence meet frequently to discuss this question, because we are mindful of the criticism that has been made in the past. Our defence needs are paramount, but wherever possible we wish to have in mind the export potential for orders. I know that my right hon. Friend the Secretary of State for Defence also takes that view, and the position is now different from that of the past.
Mr. Michael Grylls: Why has British Shipbuilders, which is still heavily dependent on taxpayers' support and still making a loss, doubled its pay offer to its employees from 3 per cent. to more than 7 per cent.?
Mr. Lamont: The wage settlement is a matter for the management of British Shipbuilders. We have made it extremely clear that British Shipbuilders will be expected to find the money for the settlement within its present allocation. That is a tight limit and the corporation must find offsetting savings in order to finance the settlement. Public sector wages must lead the way down.
Mr. Ian Wrigglesworth: Is the Minister aware that his statement is most disappointing because it takes us no further ahead in any of the major decisions affecting the future of British Shipbuilders? Will he clarify two points?
First, the hon. Gentleman said that productivity must still surpass pre-nationalisation levels. What is the position on productivity? We are told that it has been increased. Why has it not yet surpassed pre-nationalisation levels? Secondly, what does the Minister mean about the introduction of private capital into British Shipbuilders? Does he not realise that such statements give rise to great uncertainty in the minds of both management and work force and will he clarify exactly what he means?
Mr. Lamont: As I explained to the hon. Member for Whitehaven (Dr. Cunningham), we were anxious to make this statement as soon as possible—it has already been delayed—despite uncertainties, such as the EEC's attitude to the intervention fund. Productivity has been improving sharply and I pay great tribute both to Mr. Atkinson and to the work force for their co-operative attitude. There have been many changes against a difficult background and a large slump in orders. Productivity has been low, although improving, because the throughput of ships has been very low.
As to private capital, I confirm that it has always been our intention, time permitting, to take powers to introduce private capital into British Shipbuilders. We believe that private ownership and enterprise offer the best prospects for secure employment and orders in the future.
Mr. Robin Maxwell-Hyslop: Does British Shipbuilders continue to give loss-making quotes on ship

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repairs, contrary to the specific recommendations of the Select Committee and to the undertakings given to the Select Committee by Mr. Atkinson, because Mr. Atkinson does not know what is going on in British Shipbuilders or because he is powerless to control it? Why does my hon. Friend pretend that he is powerless to control it when he can make the availability of public funds contingent on the immediate cessation of this practice which is so damaging to the private sector which cannot draw on public funds?
Mr. Lamont: I am powerless only in that I cannot order British Shipbuilders to cease ship repairing. Nevertheless, my hon. Friend is quite right. Through the EFL and other financial frameworks within which British Shipbuilders operates, we have great influence on it and the activities it undertakes. We have, of course, drawn Mr. Atkinson's attention to the evidence that was given to the Select Committee as well as the recommendations of the Select Committee. I have recently discussed some of the examples of contracts that were taken at a loss. Mr. Atkinson is considering them urgently. It is intolerable that jobs in the private sector should be sacrificed in that way.
Mr. Robert C. Brown: Is the Minister aware that his reference to privatisation will be viewed with dismay by a work force that has increased productivity by no less than 15 per cent. in the past 12 months? Does he realise that yards such as Swan Hunter on the Tyne will have no future if the Government are determined to sell off naval shipbuilding, which is where the profit lies?
Mr. Lamont: I do not agree with that at all. Naval shipyards did extremely well under private ownership in the past and I do not see why they should not do so again.
Mr. Michael Colvin: Is the Minister aware that the repair activities of British Shipbuilders since it came into being as a result of nationalisation in 1977 has lost £43½ million of taxpayers' money? Further to the question of my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop), is the Minister aware that its activities are contrary to article 92 of the Treaty of Rome and are rapidly driving free enterprise ship repairers, such as Jefferies in my constituency, into bankruptcy? Will he give an undertaking that the study that he is to institute will include the ship repairing side, which needs to be investigated in depth?
Mr. Lamont: The losses on ship repairing are extensive, especially when calculated on a per man basis.
On his question about article 92 of the Treaty of Rome, my hon. Friend will know that the Shipbuilders and Ship-repairers Independent Association has made a complaint to the Commission. We are extremely worried about that and we do not want to see the private sector undermined by loss-making contracts taken by the public sector.
Mr. Don Dixon: Does the Minister appreciate the importance of the shipbuilding industry in the present crisis? Should he not pay credit to the Labour Government, who saved the industry by nationalisation and by placing the Polish orders? Does he accept the importance of fetching forward a maritime policy that covers shipping and shipbuilding? Does he accept also that only when there is such a policy will there be a scrap-and-build scheme that will give a future to merchant shipbuilding in Britain?
Mr. Lamont: The present Government have done a great deal for British shipbuilding as well. We have given the industry £600 million. That can hardly be called a small allocation. We have backed the industry and there have been some remarkable improvements in the last couple of years.
The hon. Member referred to the Polish shipping order. I am not sure that I regard that as a model for the future. The total cost to the taxpayer is currently estimated at £72½ million, of which £28 million was intervention fund assistance and £39 million was losses incurred during construction. The way forward for British Shipbuilders must be by becoming more competitive, by increasing productivity and by improving the quality of ships. There are signs that those improvements are taking place.
Mr. Michael Morris: Is my hon. Friend aware that the pace of privatisation is a major disappointment? If he believes that it is right to have a major maritime manufacturing capacity, will he perhaps give a lead to those who have the ability to succeed and privatise those companies that are successful and leave rationalisation to those that are not?
Mr. Lamont: I sympathise with my hon. Friend. His point is in contrast to the responses of other hon. Members about privatisation. He will realise that we cannot privatise British Shipbuilders without taking legislative powers so to do. There would then be the question whether we could find buyers—whether people would be willing to invest. In the first instance, however, nothing can be done without legislation.
Rev. Martin Smyth: Although the Minister recognises the problems facing shipbuilding in the modern world, will he consider broadening the inquiry to cover the relationship between British Shipbuilders and Harland and Wolff to give the latter a greater place in British shipbuilding? Will he bear in mind that some years ago Harland and Wolff was steered up the wrong channel and was put into the construction of super tankers and was, as a result, unable to compete at the right level and use the undoubted talent and equipment available for the prosperity of the United Kingdom at large?
Mr. Lamont: I cannot comment on the hon. Gentleman's question because Harland and Wolff is a matter for my right hon. Friend the Secretary of State for Northern Ireland. My only involvement with Harland and Wolff is with the announcement that I made today about the inquiry into the engine section.
Mr. R. C. Mitchell: Is the Minister aware that the best action that the Government could take to help British Shipbuilders now would be to clarify their future naval shipbuilding orders so that. British Shipbuilders can plan properly ahead? He is constantly telling naval shipyards to export. As quite a large proportion of the Argentine navy was built in this country, from which countries should British Shipbuilders seek export orders?
Mr. Lamont: I shall not answer the last part of the hon. Gentleman's question because, as he knows, each case must be considered collectively with my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs and my right hon. Friend the Secretary of State for Defence.

733
The hon. Gentleman's first point is extremely important. We are trying to make the future of defence orders clear to British Shipbuilders. The matter must be handled like any other item of public expenditure. It must be rolled forward year by year, with each year becoming more firm the further forward one goes. In that sense, defence spending is treated no differently from any other item of public expenditure. However, we have frequent discussions with the Ministry of Defence and British Shipbuilders to ensure that they are as aware as possible of the Government's forward thinking on defence.
Dr. John Cunningham: Will the Minister now answer the two questions that I put to him and which he has not answered? First, is there not a statutory requirement on British Shipbuilders to take cognisance of the need, especially in connection with defence, to maintain a ship repair capacity? Is that not what the Act says?
Secondly, do not the Minister's comments about British Shipbuilders needing to make "adjustments" imply further reductions in capacity? Does he agree that that will mean a repeat of lost orders, such as the recent P & O liner order that went abroad because apparently we do not have the space to build it? Will that not, in turn, involve further redundancies?
Mr. Lamont: On the hon. Gentleman's first point, British Shipbuilders has a statutory duty to carry on ship repairing. I am not sure that it is related to defence. I shall have to check that. However, it certainly has a statutory duty to carry on ship repairs.
On the hon. Gentleman's second point, I referred in my statement mainly to the adjustments that would be required as a result of defence decisions. British Shipbuilders hopes and intends that by capturing part of the export market and by further diversification into the offshore market the redundancies that might be caused will be limited to the 2,000 to 3,000 over four years that I mentioned. Merchant shipbuilding will obviously depend considerably on the market and on what happens to ship prices.

Public Opinion Polls (Disclosure)
4.10 pm
Mr. Dick Douglas: I beg to move,
That leave be given to bring in a Bill to regulate the publication of public opinion polls to ensure a fair and balanced presentation.
As participants in the democratic process going before the electorate, we in the House know particularly that the most important poll and the one that really matters is that which takes place through the secret ballot in a general election. However, since 1937, when British Gallup was founded, great attention has been paid to the findings of opinion polls, and considerable sums of money are spent by the media and others in sponsoring such polls. It is, of course, highly debatable whether such polls really influence public opinion and, as such, the electoral process. But, in a situation where there is a close—perhaps too close—connection between the media and the pollsters, there are strong grounds for being suspicious of the manipulation of polls, their findings and their presentation for a biased and partisan political purpose.
The pollsters' organisations are aware of this. They have recently drawn up an international code of practice for the publication of public opinion poll results. Article 4 of the code of practice states that the validity and value of public opinion polls depend on three main considerations: first, the nature of the research techniques used and the efficiency with which they are applied; secondly, the honesty and objectivity of the research organisations carrying out the study; and thirdly, the way in which the findings are presented and the uses to which they are put. Few would quarrel with those views. The Bill seeks to give a statutory framework and to aid the public's understanding and awareness of just what the poll results mean.
The Bill would seek, inter alia, to ensure the disclosure of the organisations that commissioned and conducted the polls, the statistical techniques used, the cost of the polls, the details of questions and the numbers questioned, and the dates on which the poll data were taken.
Additionally, and perhaps most importantly, it would seek to require the media to give a fair and balanced presentation of the results and not, for example—
Mr. Speaker: Order. I hate to interrupt the hon. Gentleman, but he is reading every word. He knows that that is not our custom. He must not read his speech to the House.
Mr. Douglas: I apologise, Mr. Speaker. I had thought that that would be the most expeditious way of proceeding.
My Bill is designed to ensure that the media give a fair and balanced presentation of the poll results and not the snapshot presentation given, for instance, this morning by the BBC, which quoted a poll in today's Daily Star in pursuit of certain conversations and interviews. I do not think that the BBC can be proud of its method of approach in this instance. It should have disclosed that the sample size for this poll was a mere 600 adults from 100 constituencies. If that type of information had been given through the media, the general public would perhaps have had a more sanguine and objective view of the presentation.
An organisation is needed to oversee the polls, and particularly the pollsters, in a general election atmosphere.

735
It may be possible for an organisation to be set up to liaise, for instance, with the Press Council and other such organisations to vet the poll findings and to ensure their objectivity.
Question put and agreed to.
Bill ordered to be brought in by Mr. Dick Douglas, Mr. John Maxton, Mr. George Foulkes, Mr. Martin J. O'Neill, Mr. William Hamilton, Mr. Phillip Whitehead and Mr. Barry Sheerman.

PUBLIC OPINION POLLS (DISCLOSURE)
Mr. Dick Douglas accordingly presented a Bill to regulate the publication of public opinion polls to ensure affair and balanced presentation: And the same was read the First time; and ordered to be read a Second time upon Friday 7 May and to be printed. [Bill 116
Orders of the Day

  Finance Bill
  (Clauses 18, 22, 29, 65, 71, 75, 117 and 128 and
  Schedule 10)
  Considered in Committee [Progress 26 April]
  [MR. BERNARD WEATHERILL in the Chair]

  Finance Bill
    Clause 65

      INCREASE AND INDEXATION OF ANNUAL EXEMPT AMOUNT
      4.15 pm
      Mr. Jack Straw: I beg to move amendment No. 18, in page 45, line 12, leave out subsection (1).
      The Chairman: With this it will be convenient to take the following amendments:

      No. 19, in page 45, line 22, leave out subsection (1A).

      No. 20, in page 45, line 24, leave out subsection (1B).

      Mr. Straw: No one yet knows what will be the long-term costs to the Government arising from the Falklands crisis. As the crisis arose from the bungling and ineptitude of the Government, the costs in political terms for those responsible are likely to be very great. There will also be the financial costs, which the British taxpayer will have to bear in one way or another.
      Whatever the long-term costs and consequences for the Conservative Party and the Government arising from the crisis, there are, sadly, many short-term advantages for them. One is the media concentration on the crisis, which has acted as a convenient smokescreen behind which the Government are able to carry on almost unnoticed their principal task of securing a fundamental shift of power and wealth in favour of the already rich and powerful and away from the 90 per cent. of the population who have to work for a living or who would like to do so if they were given the chance.
      It is not only in respect of the movement of Britain's forces that a news blackout operates. The Government have not needed a "D" notice to black out concentration on what they have been doing to capital taxation and tax handouts to the rich. That has already been done for them. I invite the Committee to study examples of what the Government have done under the smokescreen provided for them by the Falklands crisis. Last week the Secretary of State for Employment—that semi-house—trained polecat, as my right hon. Friend the Leader of the Opposition so eloquently described him—announced additional punitive measures in the Employment Bill to enable strikers to be instantly dismissed with no warning or recourse to justice.
      There was another example last night of the Government and their supporters confirming one of the meanest, nastiest and, in our judgment, least defensible of all the decisions that they have made—their denial to the unemployed of the restoration of the 5 per cent. abatement of benefit promised when taxation was introduced.

      737
      Another example occurs this evening to show that the Falklands crisis acts as a smokescreen for the Government. No one should be in any doubt that the Government are abolishing, through clauses 65 and 71, capital taxation as we have known it. The system of capital taxation that has stood for 17 years is being ended. I pray in aid of that assertion the Financial Times whose writer on capital gains tax said on 13 March:
      "However, with the raising of the annual slice of exempted gains to;£5,000—a figure which itself is to be indexed in future—it is clear that for most investors CGT will cease to be a relevant factor in planning their future investment strategy".
      The reality, simply from the proposal in clause 65, is that capital gains tax, in the words of the Financial Times,
      "will cease to be a relevant factor"
      in planning people's future investment strategy. The first full-year cost of the proposals in clauses 65 and 71, according to the Red Book, taking account of what the Government are doing in terms of the threshold, in terms of benefits to trusts and in terms of the indexation of the tax itself, is a cool £260 million from a tax yielding only £600 million. Even in the first full year of the operation of these changes virtually half the yield of the taxes is wiped out.
      Mr. Anthony Beaumont-Dark: I am trying to follow the point that the hon. Gentleman is making.
      Mr. George Foulkes: It must be difficult for the hon. Gentleman.
      Mr. Beaumont-Dark: We must all try together, must we not? There has been talk about capital gains tax evasion, or avoidance virtually. What I thought the Government were trying to do in this case was to do away with capital confiscation. If we consider what has happened to the retail price index since, say, 1965, we see that it has gone up about 500 per cent., so the money that is paid out is only illusory. Surely it is fair to do away with capital confiscation and have a genuine capital gains tax.
      Mr. Straw: I understand the point that the hon. Gentleman is making. Indeed, it is the one that lies behind the Government's proposals in both clauses 65 and 71. I shall answer the hon. Gentleman's point about whether capital gains tax has indeed been a confiscatory tax when we deal with clause 71. I say only for his consideration in the meanwhile that if capital gains tax were as confiscatory a tax as he suggests, is it not strange that the yield of capital gains tax in the most inflationary period that we have known between 1973 and this year has lagged vastly behind the rise in prices? The yield this year is £540 million. If the yield had kept pace with inflation it would have been £1,123 million. There has been substantial built-in protection against inflation within the operation of the tax, if not within its conception. That is the reality, and we can debate that at great length on clause 71.
      Let me return to clause 65 and the amendments. I was saying that the first full-year cost of these changes in clauses 65 and 71 would be £260 million, virtually half the yield of the tax. What we are not clear about is what the final full-year cost of the changes will be. We are not clear about that, either because the Government themselves are unclear about it, or because they are clear but are unwilling to tell us. Certainly the Government have been unable to
      738
      provide any significant and reliable estimates about the end full-year cost of the changes. When the Minister replies to the debate and to the debates on clause 71, I hope that he will provide the Committee with detailed estimates—albeit on a range of possible assumptions—about the likely final full-year cost of the changes that the Government are making.
      The Red Book speaks in euphemistic terms of these costs being substantial. Taking account of answers that have been given to the House on other occasions, our guess is that the yields are likely to be curtailed drastically and that over a period of five to 10 years capital gains tax will to all intents and purposes cease to exist as a significant tax.
      Clause 65 seeks to do two things. First, it seeks to increase the exemption threshold from £3,000 to £5,000. Secondly, having increased the threshold below which people are exempt altogether from any charge to capital gains tax in any one year, it proposes to index the £5,000 amount in line with the retail prices index. The cost of this single change is £60 million in a full year. The coincidence that this sum of £60 million is exactly the sum that the Government have refused to give back to the unemployed by restoring the 5 per cent. abatement will not be lost on my right hon. and hon. Friends.
      Mr. D. N. Campbell-Savours: It is a disgrace.
      Mr. Straw: It is indeed, as my hon. Friend says, a disgrace.
      The Government will seek to justify the changes in two ways. First, they will say that this is the first increase since 1980–81, when the floor was increased to £3,000 from its previous level of £1,000 and certain tapering provisions were related to it. Secondly, the Minister may seek to argue, as the Chancellor sought to do in the Budget debate, that the increase in the thresholds provides a quid pro quo for the failure of the Government within the new scheme of indexation to allow the indexation of gains that accrued up to 6 April 1982.
      Indeed, when the Chancellor made his Budget speech he said exactly that:
      "Because we have not found it possible to extend the new scheme to cover past gains, I propose also that the exempt slice should be increased to £5,000. That is the best solution to the problem of the past"—
      let hon. Members note that—
      "and will simplify administration both for the taxpayer and the Revenue."
      He went on to say:
      "For the future, I intend that this threshold too should be statutorily indexed."—[Official Report, 9 March 1982; Vol. 19, c. 755.]
      I shall deal in turn with those two justifications for the change. First, there is the question whether the general indexation of thresholds should apply to the threshold of capital gains tax. Despite this being the year of the index, as the hon. Member for Croydon, South (Sir W. Clark) has found to his discomfort, the Conservative Party has never applied the rule of indexation of thresholds with any consistency.
      The Conservative Party opposed the introduction of capital gains tax in 1965 and the right hon. Member for Sidcup (Mr. Heath) led the opposition on the Floor of the House. What is significant about the Conservative Party's position is that when the right hon. Member for Sidcup came into Government in 1970 no changes of any

      739
      significance were introduced to the system of capital gains tax which he and so many others in the Conservative Party had opposed in 1965. There were no changes apart from the abolition of the short-term capital gains tax and its rolling up into the long-term system. There was no change to the thresholds, and the system of the alternative charge to tax which took the place of the thresholds stayed throughout those four years without a single change being made, so far as I have been able to ascertain, by the right hon. Member for Sidcup or his Government.
      It was only in the 1977–78 Budget that a threshold was formally introduced. At that stage the threshold was £1,000, with various tapering provisions up to £5,000. If, as we believe, the £1,000 threshold introduced in 1977–78 was a sensible floor for administrative and other reasons, there can be no justification for a 500 per cent. increase in the threshold in the four years that have elapsed since, when in that period prices could not have increased by more than 70 per cent.
      It is important to stress that the case for thresholds for capital gains tax is different from the case for thresholds for income tax. In respect of income tax the case for thresholds is one of equity and the need to make income tax as progressive as possible. In other words, those with the lowest incomes should pay least and those with the smallest incomes should pay nothing. That cannot apply in respect of those who have a charge to capital gains tax, because it must be possible to count on the fingers of one hand the number of people whose sole source of cash is capital gains and who have no other income. Almost all those with capital gains of more than £1,000 have substantial incomes. All but perhaps a few of those about whom we are talking already have substantial incomes. Therefore, the case in equity for exempting some of their capital gains, as though it were the floor of their income, does not arise.
      4.30 pm
      To the extent that those people do not have high incomes, the case is made for taxing capital gains as income. That is the concept in the United States, although it applies with certain changes. A flat rate to the charge is applied where it suits the taxpayer, but the concept is a fundamental part of the United States taxation system.
      Sir William Clark: The incidence of capital gains tax in the United States is far different from ours, because there are so many exemptions and the threshold is so high. Does the hon. Gentleman not agree that capital gains tax as we have had it has been a tax on inflation and on thrift?
      Mr. Straw: I do not agree with either proposition. We shall deal with the reality of capital gains tax as it has operated when we debate clause 71. I have already said that the yield on capital gains tax is half the real value that it was in 1973. If the tax were indeed a tax on inflation it would at the very least have kept level with inflation, but it is half during the period of the highest inflation that we have known for 50 years.
      I do not suggest that in the United States there is a higher capital gains tax charge than in this country. I prayed in aid the United States example to emphasise that the concept is that capital gains coming into tax are treated as income. When we reach clause 71 I shall suggest that if there is concern on the Conservative Benches about some people who do not have high incomes, but who have
      740
      high capital gains, the way to deal with them in equity is to tax their gains as income, just as the Conservative Government did when they introduced the short-term capital gains tax in the 1962 Budget.
      I make that first point to make it clear that the case for thresholds in capital gains tax is different from the case for thresholds in personal taxation. The case for thresholds in a capital gains tax is twofold. First, there is some administrative convenience in setting a floor below which it is uneconomic to try to bring the gains into charge. Secondly, thresholds were seen as a rough-and-ready offset for inflationary gains. The central part of our objection to the increase in the thresholds is that thresholds and the indexation of capital gains will provide relief against inflation twice over.
      If one indexes capital gains so that only real gains are taxed, what is the case for a threshold, other than a minimum level for convenience? The Chancellor himself seems to have accepted the logic of that point when he justified the increase in thresholds specifically in respect of that part of gains which he could not index. His whole justification for increasing the threshold was in respect of past gains which he could not index.
      The right hon. and learned Gentleman said:
      "Because we have not found it possible to extend the new scheme to cover past gains, I propose also that the exempt slice should be increased to £5,000. That is the best solution to the problems of the past".—[Official Report, 9 March 1982; Vol. 19, c. 755.]
      If that is the justification—and I understand at least its intellectual coherence,—why is the exemption to be indexed by reference to post-1982 inflation? What is it to do with post-1982 inflation if it is to cover the gains of the past? Why is it available as an offset, not just against gains that arise before 1982, but gains that arise after 1982?
      Sir William Clark: The hon. Gentleman is supporting our future amendments.
      Mr. Straw: I am glad to have the hon. Gentleman's support. I look forward to his coming into the Lobby with the Opposition when we vote on amendment No. 18. He can back his words with action.
      Mr. Campbell-Savours: Is it not significant that those Conservative hon. Members who are demanding more money by seeking support for their amendments are not those who were here yesterday when we discussed the 5 per cent. abatement for the unemployed? It is disgraceful.
      Mr. Straw: I accept what my hon. Friend says. The Conservative hon. Members who were absent yesterday, when we discussed an issue of far more importance to many more millions of people, will have to explain themselves.
      If the justification for the increase is that it is to cover past gains that cannot be indexed, why is it to be available for gains that can be indexed, and why is the exemption limit itself to be indexed according to post-1982 inflation?
      It does not take a moment's examination to realise that the proposal to increase the thresholds is not justified. Having tried to deal with our objections and our suggestion, the Minister may fall back on the suggestion that indexation is a general policy of the Government However, indexation is not a general policy, but a selective and specific device that the Government introduce, avoid or abandon as it suits them. They introduce indexation for gilt-edged stocks, capital gains

      741
      tax and capital transfer tax—taxes on the rich. They avoid indexation on taxes for everybody else by refusing to index thresholds last year, and they avoid indexation of benefits for the unemployed by cutting the real value through the abolition of the earnings-related supplement and by the cut in benefit by 5 per cent. They abandon indexation altogether in respect of other aspects of the tax system.
      If indexation is a principle that the Government wish to apply consistently, why have they not indexed the £25,000 limit on mortgage interest? They have remained remarkably silent about the £25,000 limit. It has not been touched while the Government have been in power. Their position is selective.
      The Government have abandoned indexation altogether when it comes to public expenditure. Not only have they gone to cash planning, but they have refused even to provide indices which give an indication of what that cash planning means in real terms. If they start to preach general principles on indexation, we shall have to ask them to refer that to the trade unions representing the nurses and other National Health Service workers, who are asking for no more than the Government are giving to wealthy capital taxpayers, which is to index their incomes.
      Mr. Mendes-France said that to govern was to choose. The Government have chosen to give away £60 million by the clause, on top of at least another £200 million that they will give away by introducing general indexation into capital taxation. That is not justified by any general principle or by any rules of fairness, nor does the proposal have any intellectual coherence, even within the Government's own scheme, and we shall oppose it.
      Sir William Clark: The hon. Member for Blackburn (Mr. Straw) moved the amendment with his usual clarity and felicity, but he was unable to refrain from bringing class into the issue. I share his regret that the Government have not indexed mortgage interest relief and have failed to increase the £25,000 limit. I am delighted to know that he will support such an increase when we discuss the matter in Standing Committee. Undoubtedly an amendment will be tabled that will seek to increase the limit.
      The Government have gone some way in the indexation of revenue in the national account. Of course, this is a matter of priorities. The Government have selected certain items and said "This is an injustice. Consequently we shall try to alleviate it."
      As I said in an intervention in the speech of the hon. Member for Blackburn, I am convinced that capital gains tax is a tax against wealth creation. It is a tax on inflation and on thrift. The hon. Gentleman made great play of the fact that the return for the Revenue has not kept pace with inflation. In the gilt market, which comprises a good deal of capital gains tax, holdings are exempt after one year. It is obvious that there has been a move from equities to gilts to avoid capital gains tax. That is the reason for the product from capital gains tax not keeping pace with inflation.
      I remind the hon. Member for Blackburn that between 1965 and 1982 the rate of inflation has gone up by about 430 per cent. The clause does not seek to index-link inflation. If someone purchased two or three blocks of shares in 1965 for £2,000 and if inflation increased by 430 per cent., those shares, without increasing in real value,
      742
      will be worth £8,600. The threshold will have increased by £5,000, but a person with a small investment of £2,000, for example, will still pay tax of about £3,600.
      If Labour Members wish to be fair, I am sure that they will accept that capital gains tax is unfair. I am delighted that another step has been taken to reduce a great injustice. Insufficient attention has been paid to the effect that the tax has had on thrift. I hope that my hon. Friend the Financial Secretary to the Treasury will resist the amendment. Many of my right hon. and hon. Friends do not think that the Government have done enough, and we shall be pressing for more to be done, to encourage the creation of wealth. There should be no hindrance to the creation of wealth, because wealth will create the jobs that the country needs.
      Mr. Richard Wainwright: I cannot be the only hon. Member whose reaction was gloom and disappointment when the hon. Member for Blackburn (Mr. Straw) quoted with apparent approval a statement in the Financial Times to the effect that if the measures in this clause are accepted the ordinary investor might as well forget about capital gains tax. That came from a member of the party of growth, the party that will inject into the economy a new dynamic, and the party that has at last forsworn some of its cruder nationalisation proposals. Some members of that party are prepared to help the mixed economy.
      I had hoped that if ever we had to suffer a Labour Government led by those now on the Opposition Front Bench they would bring the compensation of some more Racal-type companies that would forge ahead and bring a modest capital reward to their shareholders. Apparently that will not be so. It seems that we can forget about real capital gains under Labour. As the Government are doing something at last about the iniquity of taxing mere inflation gains, the tax could well be forgotten, according to the hon. Member for Blackburn. That is not my view because I do not regard a Labour Government as inevitable. We are discussing an issue that is real and important.
      4.45 pm
      The introduction of a Finance Bill always involves the awkward question of priorities. Those in Opposition parties and Back Benchers generally are in a fearful plight because of the age-old and, I think, outmoded convention that we cannot propose increases in taxation. It is a charter for irresponsibility of which I have taken advantage in my time. When sceptical Yorkshire constituents of mine, having listened to my great plans for the future of the infrastructure of Britain, ask "'Owt pay for it, lad?", I have to say "I am awfully sorry but we are not allowed to propose from our Benches in the House of Commons the raising of taxes". I thereby get off the hook in a way that is unjustifiably easy. That is crazy.
      There is another convention. The Government have adopted the childish ploy—they did so last year and I am sorry that they did not learn their lesson—of calculating the total cost of all the various proposals of the Opposition parties. The Financial Secretary to the Treasury said last week that that would be done clause by clause. The Government will then present the Tory press with an enormous multi-million pound bill at the end of our proceedings. That convention is absurd and not one that I would admit to for a moment.

      743
      Certain important priorities have been dismissed already in Committee by the Government, including that of getting some degree of civilisation into our income tax thresholds. We are confronted with the problem that the Government have already dismissed the most important priority of all in the Finance Bill. Should we from an Opposition stance go on to press for other but much lighter priorities? For what it is worth, I say that we must continue to do so within our judgment of what the economy can stand. That is how I regard the amendments.
      It is true that the Government's approach to indexation is thoroughly messy and unworthy of a British Government with such a well-staffed Treasury. I am glad that the Select Committee on the Treasury and Civil Service is about to consider making an inquiry into indexation in the hope of making some proposals to the Government on how a reasonably coherent and respectable approach can be devised. It seems, for example, to be taken for granted by the Government that all indexation must be based on the retail price index. That presents the great danger of applying the standards of chalk to matters of cheese. I hope that some thought will be given to appropriate indices for certain taxes.
      My party has been on record for years as being in favour of the full indexation of the tax system. Since the early 1970s we have not been impressed by the argument that to do so is to give way to inflation. We believe that it is merely realism and fairness. However, that only amounts to indexation being the automatic norm, subject always, and quite often in practice, to the will of the House. We are not saying that all exemptions, allowances and rates at a certain moment are dead right for all times and must thereafter be indexed without any change or challenge.
      However, there is an overwhelming case for the rather messy measure of indexation which the Government are at last introducing. The present allowances are out of date. Although this would not have been a high priority for us if we had been in a position to write the Finance Bill, we believe that the Labour Party's amendments should be opposed on the basis that even a shoddy, sporadic and unsystematic indexation is better than none at all.
      Mr. Campbell-Savours: The debate is important to all Labour Members. The clause illustrates the Government's determination in this place, irrespective of the national situation, to represent their friends exclusively and to ensure that money that is rightfully the property of those who are not privileged is given to the better off in society. It is a disgraceful clause.
      Sir WilliamClark: How can the hon. Gentleman say that money is given when it is merely the reduction of a payment?
      Mr. Campbell-Savours: The hon. Gentleman will be well aware that yesterday's amendment on the abatement would have required £60 million from the Treasury. That money is being conceded in this clause. It is grossly unjust and it militates not just against the interests of those whom Labour Members represent, but of those whom all political parties should seek to represent.
      The Financial Secretary to the Treasury (Mr. Nicholas Ridley): The cost to the PSBR this year is zero. The cost that the hon. Gentleman has mentioned will not build up for more than two years.
      Mr. Campbell-Savours: Is the hon. Gentleman suggesting that the indexation measures that he is
      744
      introducing will have no effect on Treasury receipts in the coming years? Let us not qualify it by "this year" or "that year". Legislative change is taking place, as a result of which money will be made available to the better off in society. Inevitably, a reduced amount of capital gains tax will be paid, because the indexation of capital gains tax and the raising of the threshold from £3,000 to £5,000 will mean that people will be able to pay a lesser amount of money to the Treasury.
      An article in Financial Weekly in 1980 pointed to the dramatic decline that would take place as a result of t he reductions in capital gains tax that had been introduced in successive Budgets. It said:
      "At a moment when the Chancellor is telling the nation that it must carry on with its strict monetarist diet of bread and water…he would be announcing that the wealthiest section of it could not merely carry on eating its cake, but have a dollop of cream on top as well…the uproar would surely not be confined to the Left. Conservatives are not deeply devoted to equality, but neither—unless they have entirely forgotten the principles of Disraeli—are they deeply devoted to widening social divisions. And Conservative MPs undoubtedly number more of the unemployed and of the low-paid among their constituents than they do payers of these capital taxes."
      This and other clauses on capital transfer tax and capital gains tax have generated the belief in Britain that the Government believe in a two-nation society. The British people want a one-nation Government who believe that such concessions should not be made. Every Government, irrespective of their political colour, should set out to protect the under-privileged in society even if they feel that they are elected by the privileged. This Government, more than any other that I can remember, have set out to protect exclusively their own. That is disgraceful.
      Mr. D. A. Trippier: What rubbish.
      Mr. Campbell-Savours: The hon. Gentleman would do well to consult the under-privileged in his constituency.
      Mr. Trippier: I do.
      Mr. Campbell-Savours: I wonder whether the hon. Gentleman has ever told his constituents at his surgeries that he believes that they should not get increases in State benefits and that the increases should be paid to the better off in society. I bet that he has never put it that way. In failing to do so he pursues and further promotes the idea that prevails throughout my constituency and the Northern region that the unemployed have been forgotten.
      The hon. Gentleman represents an industrial valley in Lancashire. Does he tell his constituents that he walks into the Lobby slavishly in pursuit of Government policy, and against their interests, to provide additional money for the better off in society?
      Mr. Trippier: Before the hon. Gentleman bursts a blood vessel, may I ask whether, as a Socialist Member of Parliament, he is in favour of wider share ownership? Is he aware that many people employed by such companies as ICI come under the terms of reference referred to by my hon. Friend the Member for Croydon, South (Sir W. Clark)? Is he further aware that many trade unions in Britain which hold shares will also be affected by this legislation? Its effect is not confined to the rich. Is he aware also that there are many pensioners in Britain who have saved over a long period of time? No one seems to have answered the point made by my hon. Friend the Member for Croydon, South that this is a tax on thrift. Is the hon. Gentleman against thrift?
      Mr. campbell-Savours: It is a Budget judgment. I and my hon. Friends maintain that the interests of the unemployed in Britain who will have their unemployment benefits taxed from July this year are more important than the interests represented by the groups to which the hon. Gentleman has referred. If the hon. Gentleman were to direct himself to the real priorities in society he would look after the under-privileged, those who have no work, not those who are able to benefit by company share schemes.
      Mr. Trippier: The hon. Gentleman might write to the TUC recommending that it sells all its shares, which are in a sizeable portfolio which is published annually.
      Mr. Campbell-Savours: I shall do more than write. I shall produce for the House an "Investment and Tax Planning Bulletin, No. 7", dated March 1981, by Pilling Trippier Financial Planning Services Ltd., 14 St. Anne's Square, Manchester M2 7HT. If I am not mistaken, the hon. Gentleman is a director of that company. I presume that that investment and tax planning guide is distributed to the customers of the hon. Gentleman's company. There is a reference in that guide to the action to be considered before 5 April 1981 relating to capital gains tax.
      It is interesting to note what the hon. Gentleman's company had to say about capital gains tax. In conditions where our people have insufficient resources to meet their daily needs, it said:
      "You can save up to £900 by action before 5 April. You can deal with capital gains of up to £3,000 in the current tax year without incurring a tax liability."
      In other words, those people can remove money from the hands of those in need and by manipulating their financial affairs—through the advice of Messrs. Pilling Trippier—pcan save a few pounds.
      5 pm
      The document went on to say:
      "If you wish to retain assets then a 'bed and breakfast' transaction can enable you to do this and still save the tax."
      We all know that in capital gains tax law a bed and breakfast transaction means that someone sells his holdings the day before the end of the financial year, realises the capital gain within that financial year and buys them back the following year, so gaining money from the Exchequer that would otherwise go to the unemployed.
      In a business prospectus the hon. Member for Rossendale (Mr. Trippier) advised his constituents in the Rossendale Valley, and whoever wished to subscribe to that monstrous document and nonsense, that they should do that. Those who suffer are those who are not in a position to protect themselves. They do not have a trade union, or friends in the Treasury, unlike the hon. Gentleman and his hon. Friends.
      Sir William Clark: I hope that the Opposition Front Bench does not agree with the hon. Gentleman's remarks. If an hon. Member, in his professional career outside the House, points out to all and sundry the law of the land and says that, for example, the exemption limit is £3,000, it is not normal practice either in the House or in Committee for an hon. Gentleman to make such a disgraceful attack on him. In all honesty, the hon. Member for Workington (Mr. Campbell-Savours) should apologise to my hon. Friend the Member for Rossendale (Mr. Trippier).
      Mr. Campbell-Savours: The hon. Gentleman may say that I made a disgraceful attack, but he will be pleased to know that if the hon. Member for Rossendale had not been
      746
      in the Chamber I would not have referred to his company, but only to the contents of the leaflet. I am told that it is the custom that if an hon. Member is in his place in the Chamber, another hon. Member does not need to give him notice that he intends to refer to one of his interests. Therefore, I believe that my remarks were in order and I see no reason to apologise. I have only quoted from a document put out by a company with which he has some relationship.
      I have seen several reports in the national media that refer to such gains as paper gains, or as gains that are not real if inflation is taken into account. If paper gains are being taxed, we must expect the revenue to rise with the rate of inflation.
      Sir William Clark: No.
      Mr. Campbell-Savours: Perhaps the hon. Gentleman will tell me why that is not the case.
      Sir William Clark: The total receipts from capital gains tax do not necessarily have to rise in line with the rate of inflation for the simple reason that there are certain securities in the capital market—gilt-edged securities—that do not bear capital gains tax. Obviously, if there is a shift from the equity to the gilt market, the totality of the capital gains tax—as a result of the preferential treatment given to the gilts market by successive Governments—could not possibly keep pace with inflation.
      Mr. Campbell-Savours: Does that account for the fact that the yield from capital gains tax is half the level of the rate of inflation? The statistical evidence does not show that. Therefore, that is not a good reason for justifying the dramatic fall in the amount of money received by the Exchequer from capital gains tax.
      Mr. Beaumont-Dark: The hon. Gentleman must bear in mind that capital gains tax is meant to be what it says it is. When a gain is made it is taxed. If the hon. Gentleman were to check these figures as well as he has checked his other figures he would see that the index of ordinary stocks has risen by less that half the rate of inflation. Therefore, if the capital market is growing at a much slower rate than the rate of inflation, how can the hon. Gentleman expect to get so much profit from it unless he increases capital gains tax? I am not being clever. I have only spoken common sense, which might help the hon. Gentleman sometimes.
      Mr. Campbell-Savours: Perhaps the hon. Gentleman has provided the solution—to increase the rate of capital gains tax. We are interested in the gross receipts to the Revenue and in the proportion of receipts that arise from capital gains tax. If things are built into the system—as the hon. Member for Croydon, South (Sir W. Clark) suggested—that reduce, in certain areas, the amount of money that can be raised from capital gains, the Government must respond by imposing new forms of capital taxation to make up for the money lost to the Exchequer. If they do not do that, the unemployed will pay.
      Conservative Members may disagree, but it is significant that those Conservative Members who wish to discuss this amendment to secure additional resources for their friends were not in the Chamber yesterday when we discussed the plight of the unemployed and the 5 per cent. abatement. Perhaps the hon. Member for Birmingham,

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      Selly Oak (Mr. Beaumont-Dark) would like to intervene to tell me why he did not speak on yesterday's amendment dealing with the 5 per cent. abatement. Will he tell us?
      Mr. Beaumont-Dark: I was under the impression, Mr. Godman Irvine, that you were in charge of the debate, not the hon. Member for Workington (Mr. Campbell-Savours). I listened to much of yesterday's debate, but I did not feel that it was absolutely necessary to take part in it. Indeed, we would benefit if the hon. Gentleman took less part in this debate, so that we could all hear some common sense instead of his nonsense.
      Mr. Campbell-Savours: I can understand the hon. Gentleman's embarrassment when some of us bring out the truth about capital gains tax.
      Mr. Trippier: We are bothered about the hon. Gentleman's embarrassment in being unable to answer the questions asked by myself and by my hon. Friend the Member for Croydon, South (Sir W. Clark). Is the hon. Gentleman against thrift?
      Mr. Campbell-Savours: From his experience of the Rossendale Valley and his knowledge of me, the hon. Gentleman should know that I am not against thrift.
      In a written question last October, the Financial Secretary was asked whether he would consider indexation that took account of inflation. I believe that that has been done in this Budget. His reply to such proposals was that they
      "would result in an unwelcome increase in the cost of administration—for taxpayers as well as for the Revenue—while drastically reducing the yield."—[Official Report, 22 October 1981; Vol. 10, c. 168.]
      That was his reply. Perhaps the Financial Secretary will intervene to tell me that that was not what he said at the Dispatch Box last October in reply to a question on the effect of indexation on taxpayers and on the Revenue. Indeed, I hope that the Financial Secretary will address himself to that point. What did he mean by
      "while drastically reducing the yield."?
      Is he saying that one day capital gains tax will no longer exist and there will be nothing to pay, or that the cost of collection is greater than the possible benefit to the Treasury?
      Gross imbalances are now developing in Britain between capital transfer and capital gains tax and the benefit to the Exchequer, and the income tax and direct taxation paid by the constituents of all hon. Members. I have always believed that capital penal taxation should be far higher than it was even under the Labour Government. If we wish to restore initiative and incentive, we must use a completely different argument from that deployed by some Conservative Members.
      To reduce laziness in business, industry and management one must give management the conditions in which it will want to make an additional effort. To do that, capital taxes must be increased and more emphasis placed on reducing direct taxation. That is where the real incentive lies. No incentive is derived from reducing capital taxation. That only breeds laziness and the sense of "Well, why bother? I am well-off. It does not matter." That is the problem with British industry. People accumulate a little nest egg, settle themselves down and think that they need not make any additional effort. That is clear from the way in which they invest their capital.
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      I end by referring to the views expressed in 1964 by Mr. Samuel Brittan. He must have been a young man then, and perhaps wiser than he is today, although I understand that he is a wise economist. He said:
      "Is it conceivable that, if a new tax system were being designed for Britain, income would be taxed so heavily and effectively and capital hardly at all?"
      That is what has happened. It is a disgrace. I hope that my right hon. and hon. Friends will join me in the Lobby with defections from the Conservative Benches. Of course we shall never get them, but we live in hope. I hope that Conservative hon. Members will show their constituents that they sympathise with the unemployed and that such feelings are not the monopoly of Labour Members.
      Mr. Beaumont-Dark: There are still times when one is surprised by what one hears. When I listened to the hon. Member for Workington (Mr. Campbell-Savours)—
      Mr. Campbell-Savours: The truth hurts.
      Mr. Beaumont-Dark: The truth can hurt if it is the truth. I cannot believe that penal taxation is the only way to encourage enterprise, that there is no need to create wealth, or that successful people tend to be slothful because the very essence of being successful and wealthy promotes the feeling that they do not need to work.
      The hon. Gentleman should look at the problems that we face and the reasons why we need this benefit to capital. He should look at the companies that create the most employment and are the best hope for the people of this country. I agree that vast fortunes have been made, but successful companies, in a capital sense, are Racal, Sainsburys, Plessey, Tarmac, and Guest Keen and Nettlefold. Some of the great companies are run and largely owned by wealthy families. They have become wealthy because they have built successful companies. Surely it is not Labour Party policy that penal taxation is the way to encourage enterprise. If we wish to give more to the unemployed or to those who are on low pay, we shoud not crush the wealthy; we should encourage the creation of wealth. It is arrant nonsense to say that making concessions on capital taxes is taking money that rightly belongs to others. The whole idea of capital gains tax, and of this clause, is not to enable people to avoid paying taxes, but to prevent them from having their capital confiscated. There has been capital confiscation.
      5.15 pm
      The hon. Member for Workington tends to forget that people create wealth from income on which they pay their due taxes. The taxation system does not mean that wealthy people do not pay taxes. They pay huge taxes. I hope that, as the debate proceeds, we shall hear more practical suggestions from the Opposition Benches than the suggestion that penal taxation will encourage enterprise and that capital confiscation is the only way forward. No wonder people are loth to return a Socialist Government.
      We do not wish to grind people down, but nor do we believe that people should have all the concessions that can be given. As the hon. Member for Colne Valley (Mr. Wainwright) said, sometimes difficult decisions have to be taken. The hon. Member for Workington may be under the impression that no one should earn more than £15,000 a year. If so, concessions will not create anything. People must be encouraged to strive. We must encourage people to be successful and to take risks. That is the purpose of this and other clauses.

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      The impression given by the hon. Member for Workington and his hon. Friend the Member for Blackburn (Mr. Straw) was that only a few people with surplus cash actually invest it. I deal in investments. More than 3,000 clients of my company are not wealthy people, but they have invested small amounts of money hoping that when they retire they can do something useful with it. They want to look after themselves, possibly buy a cottage in the country, or look after their families. Why should Socialists consider that criminal? People who save do not deprive others of money. The more we encourage people to save, the more good will be done in this country.
      Mr. John Maxton: The hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) made a remarkable case against my hon. Friend the Member for Workington (Mr. Campbell-Savours), but my hon. Friend made a remarkably good case against the clear class basis of the legislation. The whole of the Government's tax strategy has been directed towards allowing—to use a less harsh term—the wealthy to keep more of their income and at the same time hammering those who are much worse off.
      The Opposition believe that that is done for one simple purpose—to benefit and put cash into the pockets of those who support the Conservative Party and pay its bills. The Government argue that the legislation is based on the economic strategy that allowing the wealthy to have more money will encourage them to invest it and create wealth. The hon. Member for Selly Oak said that if one releases money and puts more money into the pockets of the wealthy, they will invest it in productive industry and as a result we will have lower unemployment and more jobs. That is the Government's economic strategy.
      Sir William Clark: The hon. Gentleman said that the legislation had been introduced to help those who support the Conservative Party. We must get the record straight. For every pound spent by the Conservative Party, about 80p comes from the doorstep and 20p from large donations. The complete reverse applies for the finances of the Labour Party. Institutions such as the trade unions provide 80p, and 20p comes from the doorstep.
      Mr. Maxton: If I go too far into the financing of political parties, I think that you, Mr. Godman Irvine, will call me to order. The hon. Gentleman forgets that the bulk of Labour Party finance comes from ordinary members at local constituency level paying their dues.
      Sir William Clark: What about the trade unions?
      Mr. Maxton: The trade unions, too, are made up of ordinary working people paying their dues.
      Conservative Members argue that giving money to the wealthy releases capital for investment so that jobs and wealth are created and industry becomes more productive, but the Government have been doing that for three years. They have been giving more money to the wealthy by constantly reducing taxation for the better off, presumably releasing capital for investment by the wealthy or non-wealthy people to whom the hon. Member for Selly Oak referred. But where is that capital investment? Where are the new jobs and the improvement in productivity that the Government seek as a result of tax cuts? They do not exist. If the Government give people extra money to invest, the
      750
      recipients will put it where they can make the most profit, and one can scarcely blame them for that. They do not invest in productive industry in this country. They may invest abroad. They may buy a painting or some other work of fine art. They may buy a second house or other property. Certainly, in the main, they have not invested in productive industry in this country in the past three years, although large sums of money have been given to the wealthy for that purpose.
      Mr. John Browne: The hon. Gentleman where the productivity and the jobs were. Is he aware that under the Conservative Government productivity has increased dramatically and that 100,000 jobs are now being created every week? To me, that shows that these things are indeed happening. The net figure is different, of course, but these are genuine new jobs rather than false jobs being created.
      The hon. Gentleman also said that people were now free to invest outside the United Kingdom. As the report produced by his right hon. Friend the Member for Huyton (Sir H. Wilson) made clear, there is a shortage not of capital but of investment opportunities. We are trying to create those opportunities.
      Mr. Maxton: The hon. Member made a remarkable little speech in that intervention. Of course 100,000 people may find jobs each week, but they are not new jobs. That is the difference. There is movement between jobs, but 100,000 new jobs are certainly not being created every week. I wish that they were, because we should then very soon get rid of unemployment.
      Mr. Straw: In six months or so.
      Mr. Maxton: My hon. Friend is a much quicker mathematician than I am. I accept his figure.
      In reality, the investment is not taking place and there are more than 3 million unemployed people. Indeed, we all know that that is an unrealistic figure and that the true total is far greater. That is largely the result of the Government's economic policy. Money is being given to the wealthy on the completely phoney argument that it will be used for investment, but it is not being used for investment and there is increasing unemployment and lower productivity. That is the Government's record. At the same time, the wealthy are becoming wealthier.
      Sir William Clark: No. That is rubbish.
      Mr. Maxton: The hon. Gentleman says that that is not true, but people are paying less tax, so they are becoming wealthier. That is obvious. I do not think that even the hon. Gentleman, disputatious though he is, would suggest that if he sells some of his many shareholdings next year and pays less capital gains tax than he would have paid this year he is not better off. He cannot argue that. Of course he would be better off. He would have more money in his pocket.
      I am glad that the hon. Member for Croydon, South (Sir W. Clark) made those comments, because on the index linking of pensions he takes the opposite view. In last week's debate on public expenditure, he made a ferocious attack on the indexation of pensions and public expenditure. Yet today, when his wealthy friends stand to benefit, he suddenly supports indexation. I find that double standard difficult to take.
      Sir William Clark: If the hon. Gentleman looks up the Official Report he will see that I did not take part in that debate.
      Mr. Maxton: I may have mentioned the wrong debate—perhaps the hon. Gentleman will tell me in which debate it was—but certainly he recently condemned the indexation of pensions. Yet he now supports the indexation of incomes for another group of people.
      Mr. Campbell-Savours: It was on the Second Reading of the Bill.
      Mr. Maxton: I am grateful to my hon. Friend. Certainly the hon. Gentleman made such an attack recently.
      In a sense, we are dealing with tax-free income. With regard to unemployment and sickness benefit, the Government say that all income should be taxed. I believe that all hon. Members agree on that. According to the Financial Times of 13 March, the clause will be of great benefit to those who receive regular annual income from bonds and unit trusts. The profit is made by selling units and comes back to the holder of the bond. It is used as income and not as capital gains in the strict sense of the term. If the Financial Times is correct, people will now be able to receive not tax-free capital gains but tax-free income. Yet that is against the very principle that the Government sought to impose through the taxation of unemployment and sickness benefit.
      Again, the wealthier members of society will receive the benefit. It is all very well for the hon. Member for Rossendale (Mr. Trippier) to say that many ordinary people sell properties and shares and make capital gains, but I should think that remarkably few of the people whom I represent make capital gains of more than £3,000 per year.
      Mr. Trippier: I understood that Labour Members were very close to the trade union movement. Many trade unions own large numbers of shares and make gains far greater than £3,000 per year. As my hon. Friend the Member for Croydon, South (Sir W. Clark) said, much of the money contributed by the trade union movement to the Labour Party is raised through shares.
      5.30 pm
      Mr. Maxton: If a trade union passed money from its investment funds to the Labour Party, it would be breaking the law. The money of the Labour Party comes from the contributions of members. No trade union is allowed to pass any other money but that to the Labour Party. I take the hon. Gentleman's point about trade unions having investments, but I am saying that they should be taxed on any income from those investments. Unlike Conservative Members, who believe that they should speak for the financial benefit of their personal friends—and some trade union members are my personal friends-1 believe that if people make high incomes out of such yields they should be taxed on them. That is the principle in which the Labour Party believes, and if such a recipient happens to be a trade union, it should be taxed. I do not think that the hon. Gentleman's point is valid.
      Conservative Members keep using the phrase "We wish to encourage thrift." They want to encourage thrift so that the money can be used for investment. To some extent—wrongly—they always think in terms of capital gains tax in relation to shareholding. But CGT is not just
      752
      about shareholdings. A large amount of investment, with people making money out of CGT, has nothing to do with the creation of wealth and the investment in share capital in order to create that wealth.
      There is, for example, the whole question of the second-home owner, who will be one of the beneficiaries of this provision. The property investor will also be a beneficiary. Some second-home owners have perfectly legitimate reasons for owning that property, but at the same time it has been the rule that people should get tax benefit only on the property in which they live, that they should not be able to get tax benefit on the second property. That principle is to some extent being broken by this provision, because any inflationary gain made from owning a second house will now not be taxed. The tax will come in only where a person makes a real gain. Because, in the property market, most properties only keep pace with inflation, it means that most people will now not pay capital gains tax on a second property. They do not pay it on the first property anyway.
      There is also the fact that capital gains tax is also about investment in art and other investment purely for financial gain—for example, buying gold coins, Krugerrands, and so on, which again have nothing to do with the production of wealth. No extra jobs are created. It is pure speculation. Yet now, as a result of the Government's proposal, a large amount of the profit being made by people out of such investment will not be taxed. That is grossly unfair, particularly at a time when it is the poor who are paying increasingly more in taxation.
      I raised that aspect last week through the case of a widow in my constituency earning £59 a week and paying £9 in taxation. That is grossly unfair in any terms, but it is even more so when one puts it against the sort of benefit going to the very wealthy in our society.
      Conservative Members keep saying that we must have indexation. But we must always bear in mind that the retail prices index has much more relevance to those on lower incomes than to those on higher incomes. If we take 10 per cent. from my poor woman on £59 per week, that is to her very much more in real terms than is 10 per cent. from someone earning £25,000, £30,000, £50,000 or £60,000 a year. Most people on low incomes spend the bulk of their money on essentials, and many of those essentials have soared in price for the very poor over the past few years. If we had an "essentials" retail prices index as opposed to a total retail prices index, we should arrive at different figures. For example, public transport costs have gone up very much more than the cost of living, as have rents. These are the prices that hit the very poor.
      Once one gets beyond a certain income level one is able to make a large number of choices in terms of spending one's income, and that makes an enormous difference in terms of the retail prices index. We must bear that factor in mind. That is where the indexation to the retail prices index that is proposed is a disgrace, and I shall have great pleasure in voting for the amendment.
      Mr. John Browne: I strongly support the general approach of my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) and I shall not add to it and waste further time.
      I am opposed to capital gains tax in principle, because at present it offers to the Government a relatively small yield of less than 1 per cent. of the revenue, it wastes a lot of the productive time of people from all walks of life

      753
      and in some of the professions in dealing with it—the brokers, accountants and so on—time which could otherwise be used to increase the productivity of British industry and achieve an increased growth rate in our gross domestic product. It also has high administrative costs, very few of which achieve anything in terms of our national well-being. My most serious criticism of a capital tax of this nature is that it reduces the incentive to invest in British industry.
      Mr. Campbell-Savours: The hon. Gentleman says that it reduces the incentive to invest in British industry. Why is it that, in reducing the take of capital taxation, investment, according to a reply yesterday by the Secretary of State for Industry, fell from £4,439 million in 1979 to £4,157 million in 1980 and to £3,602 million in 1981? The hon. Member for Leek (Mr. Knox) asked:
      "Does my right hon. Friend agree that those figures provide wide evidence of a worrying decline in investment in manufacturing industry?"—[Official Report, 26 April 1982; Vol. 22, c. 602.]
      This is after three years of reducing capital taxation.
      Mr. Browne: I am delighted to answer that question. I was going to point out that capital gains tax is not the only influence on investment. Of itself, it reduces the incentive to invest. The hon. Gentleman points out that in a time of reducing capital gains tax, or capital taxes, investment has dropped. As I tried to illustrate to the hon. Member for Glasgow, Cathcart (Mr. Maxton), the biggest disincentive to investment is lack of investment opportunities. That is the critical problem. It is not the subject of this amendment, so I shall not waste the time of the Committee by talking about it too much. The amendment deals only with the subsidiary factor of capital gains tax. This only adds fuel to the disincentive.
      Mr. Maxton: Perhaps the hon. Member for Winchester (Mr. Browne) will tell us what part of the Government's economic strategy will create these new investment possibilities for the investor.
      Mr. Browne: The Government have introduced 72 new measures specifically designed to boost investment in new and small businesses. I make no bones about my support for them. My only criticism is that the measures are not dynamic enough and that they are too complex. I have said that many times. However, to say that the Government have done nothing is ridiculous.
      Capital gains tax is a disincentive to investment in British industry. The discriminatory benefits that gilt-edged security investments enjoy add further to this disincentive to invest in British industry in terms of equity. Therefore, I am opposed to capital gains tax in general for those basic reasons.
      However, capital gains tax that does not take account of inflation is confiscation for that inflation amount, and, therefore, daylight robbery. I am opposed to that. Therefore, I welcome the clause. I particularly welcome the increase in the exemption threshold, because that is correct. It alleviates the burden of capital gains tax.
      I accept the indexing of capital gains tax and welcome it. However, I welcome it with mixed feelings, because, as my hon. Friend knows, I am strongly opposed to indexation as a basic philosophy.
      Mr. Maxton: Ah!
      Mr. Browne: I am trying to explain.
      Mr. Maxton: The hon. Gentleman believes in it only when it suits him.
      Mr. Browne: No. I believe that the Government are wrong in doing this. They are trying to select indexation on one side and not on the other. It is impossible to have fairly balanced indexation unless everything is indexed. However, if that were to happen, we would never stop inflation. That is why the Government should be rolling back indexation, not extending it. I am very sorry to see that they are not rolling back indexation, but if we are to have indexation—
      Mr. Maxton: Vote against.
      Mr. Browne: —if we are to have indexation at all, then one of the crying needs is in capital gains tax. I regret that it does not go back to 1965 and that it means even more complication in the calculations of capital gains. Calculating this complex taxation will increase further the dead time and the dead expenditure that otherwise could be used for the benefit of the nation.
      As I have said before, and on Second Reading, I am strongly opposed to indexation, because it is a sweet pill to offer to people to make inflation easier to live with. It is the greatest financial con trick of the lot—an even greater financial con trick than inflation itself.
      Mr. Campbell-Savours: Does the hon. Gentleman accept that there is very little difference between a person on supplementary benefit who, to use the words of the hon. Member for Aberdeen, South (Mr. Sproat), is "scrounging" and the person who, by taking advantage of the capital gains tax laws, is able, under bed and breakfast operations, to arrange his financial affairs so that he extracts from the Exchequer a similar amount of money with a similar amount of effort? What is the difference?
      Mr. Browne: I am not quite clear as to the hon. Gentleman's question.
      Mr. Trippier: I should like to help the hon. Member for Workington (Mr. Campbell-Savours) as he appears not to understand the bed and breakfast system.
      Mr. Campbell-Savours: It is in the prospectus.
      Mr. Trippier: The hon. Gentleman should read it more carefully. I am grateful for the free advertising that he has given to it. None the less, that information was accurate.
      The hon. Gentleman should remember that if bed and breakfasting were to take place, establishing a profit under £3,000, which was the position before the last Budget, no revenue would have been paid to the Treasury in any event. On the other hand, if the bed and breakfasting operation was shown to establish a loss, that does not matter, because there would be a loss in any event. Therefore, again no money would go to the Treasury.
      Mr. Browne: I do not quite understand the logic of the point of the hon. Member for Workington, but I can comment on what he said about bed and breakfast. Capital gains have to be triggered, as do capital losses. It is a legitimate exercise that one should be able to trigger a loss as well as a gain. However, I do not see the connection with supplementary benefit, because in the former case all that is avoided is the unnecessary payment of tax. One is not extracting from the Exchequer; one is avoiding paying unnecessary tax.

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      5.45 pm
      The Government are wrong in accepting the extension of indexation because its effect is to build inflation into our economy. Already, the equivalent of 38 per cent. of Government expenditure is effectively index-linked. That was the level of indexation last year, and now we are increasing it. How can we hope to reduce inflation in the long term? I find it extremely worrying to be extending the principle of indexation.
      By reducing the support at grass roots level for any Government who may come in with tough policies to reduce inflation, we are doing something very dangerous. A party with tough anti-inflation policies will not be elected, because once a person has an index-linked salary, tax threshold, pension and capital gain, he does not feel the ill effects of inflation. We will all be isolated from the ravages of inflation, so there will be no need or will to vote for a Government who will act against inflation with tough economic policies. An anti-inflationary policy is a hard enough bullet to bite anyway. Nobody will be willing to bite it in future.
      The most serious charge I level against the Government is that by extending indexation they are building inflation into our economy. I support the Government on this amendment, because, if we are to have indexation, it should be applied to capital gains tax. However, I warn my hon. Friends that I believe that indexation as a principle is wrong. We should be moving to roll it back, rather than to extend it. Therefore, as the Bill progresses, I shall need to be convinced that these policies are correct.
      Mr. Maxton: Will the hon. Gentleman vote against the clause stand part?
      Mr. Browne: My intention is to vote with the Government on the clause. As I said, if there is to be indexation, I support, and should indeed call for, indexation for capital gains tax. Otherwise, such a tax is confiscation and daylight robbery.
      Mr. Maxton: Vote against Third Reading.
      Mr. Browne: Third Reading is my problem.
      This Budget will be remembered as the Budget of indexation. That is something that I will have a hard job understanding and supporting.
      Mr. John Home Robertson: The hon. Member for Winchester (Mr. Browne) is the kind of Tory rebel that we have come to know and love. If he goes on in this way, he will end up as a Parliamentary Private Secretary. He said at the beginning of his speech that he did not agree with the principle of capital taxation. That point encapsulates the difference between the Conservative Party and the Labour Party. The hon. Gentleman is prepared to say that he will do away with capital taxation altogether—in other words, to assist the wealthy—when only yesterday he went through the Lobby to increase the burden on the unemployed and low-paid.
      Mr. John Browne: I did not say that I wished to assist the wealthy. However, I believe that it is a genuine incentive for them to invest in the country, which increases jobs and so on, if the Government take less from them. We can take income tax, but we should not take from their capital.
      Mr. Home Robertson: The hon. Gentleman has made his point abundantly clear. He wants to leave more money
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      in the pockets of those who are already well off. We all understand that that is what the Conservative Party stands for.
      The group of amendments that we are debating would do away with the proposed increase and indexation of the annual exempt amounts for capital gains tax purposes. We are entitled to an explanation from the Minister of exactly why the Government propose that form of indexation of and tax relief on capital taxation in the first place. Is it the Government's intention simply to cut taxation for wealthy people who want to realise their wealth? If that is so, the Government should be thoroughly ashamed of themselves for introducing such a form of tax releif in a Finance Bill in which they intend to bring unemployment benefit into the tax net for more or less the first time.
      On the other hand, I wonder whether it is the Government's intention to make a serious attempt to approve and refine what is at present a crude lax mechanism, which is intended to redistribute wealth. To my mind, that is a thoroughly worthwhile objective. It is extremely doubtful whether the Government want to improve or refine the mechanism for redistributing wealth. In the unlikely event of that being so, the Government would deserve credit, but if that is their purpose they have chosen a ham-fisted and indiscriminate way of going about it.
      In fairness to all concerned it must be said that capital gains tax can be a singularly arbitrary imposition on people who cannot afford to pay it under certain circumstances. It can be damaging to small businesses. We all know of people wishing to raise funds by selling property to invest in machinery in their businesses, only to find that the tax man takes an inordinate share of the proceeds of such a sale. Almost every hon. Member must have come across the widow in his constituency whose husband had invested his savings in property and who finds out she has been drawn into the tax net.
      My hon. Friend the Member for Blackburn (Mr. Straw) said that wealthy people paid capital tax. He is right. Those are the only people who are intended to pay capital tax. I am sure that all Opposition Members agree that that is justifiable. All of us should take on board the fact that some poor people also fall into that trap. I refer to the people who may be on low incomes or fixed incomes who have savings, perhaps in the form of property, which are subject to capital transfer tax and capital gains tax. That is not a simple matter. It is brazen nonsense for the Government to introduce such tax relief for the wealthy. Those are the people for whom the relief is intended. The hon. Member for Winchester made that clear.
      Mr. Straw: I accept what my hon. Friend said. I tried to make that clear. In general, I believe that my hon. Friend accepts that those who come into charge on capital gains tax and who have gains above the exemption limits are likely to have fairly substantial incomes. In so far as they do not, the argument can be made for gains to be treated as income and brought into charge as income, so that the system becomes fair. For example, if a widow has a low income but is living off capital gains, if the gain were charged to income she would be charged tax at a lower rate than under the capital gains tax rate.
      Mr. Home Robertson: I accept the point that my hon. Friend is trying to make. That illustrates the fact that the taxation policy of the Labour Party is intended to be fair

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      to people, while it is abundantly clear that the policy of the Conservative Party is the opposite. It is brazen nonsense for the Government to offer such taxation relief to wealthy people, including people on substantial incomes, in the same Finance Bill in which they are bringing people receiving unemployment benefit into the tax net.
      Mr. Trippier: I shall endeavour to make a brief contribution, having listened carefully to the debate.
      I am amazed by some of the things that Opposition Members have said. In certain respects I wondered whether they were speaking on behalf of the Labour Party. I was surprised that the hon. Member for Blackburn (Mr. Straw), who is a neighbouring Member of Parliament and a reasonable man in every way, was so political about what I thought he would not normally object to. I remember that the Labour Government indexed capital gains tax. They did not increase the rate of the capital gains tax. Therefore, they did not wish to create a disincentive to savers or discourage thrift in any way. Listening to Opposition Back Bench Members, one would have thought that the Labour Government had sought to increase substantially the capital gains tax rate, which they did not. Therefore, I wondered whether we could try to bring into the debate a modicum of reasonableness because I believe that the vast majority of Opposition Members accept that people should be allowed the freedom to invest their money and to save by doing just that.
      So far capital gains tax has been a levy on illusory gains. I welcome the acceptance inherent in the Budget proposals that such a levy is totally unfair. I also welcome the raising of the exemption limit to £5,000 of net gains in any one year and the principle underlying the proposal that in future years the limit will be indexed in line with the retail price index.
      In his Budget speech my right hon. and learned Friend the Chancellor of the Exchequer rightly drew attention to the fact that the changes in capital gains tax are not designed just to help investors. When selling a share, investors have a variety of motives, but frequently the money realised from the sale of one shareholding is used to buy another. That is of immense benefit to industry.
      If one wanted a good example of that, one could recall the number of rights issues now coming out from companies requiring more cash. Shareholders can contribute. Opposition Members need to be reminded that we are talking about wider share ownership. The benefits that employees of ICI can draw can be considerable. They are accumulated over a number of years. When the time comes for those people to choose to sell the shares—why should they not sell those shares?—they can be caught in the tax net.
      However, there are serious problems with the proposals that my right hon. and learned Friend the Chancellor of the Exchequer has put forward. The measures do not implement what I believe to be the Chancellor of the Exchequer's intention, which is to index more effectively any future capital gains. The reason why the intention fails is that by enhancing the original purchase cost the effect will be unfairly spread.
      It is difficult in such a debate to go into the details of what is a capital gains tax matter. To illustrate my point I shall take the example of two shareholders. One bought
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      5,000 shares at £1 each in 1970 and the second bought the same number of shares at £3 each in 1979. By March 1982 the price of those shares has risen to £4·20. I shall assume a further rise to £4·60 by April 1983. When the calculations that my right non. and learned Friend the Chancellor of the Exchequer has suggested are implemented, an unfair tax burden will be put on the investor who has had his shares longer. That cannot be the intention of my right hon. and learned Friend.
      I strongly suggest that it might be much better for the Government to reconsider the matter in Committee and raise it again on Report. It might be more acceptable to many of my hon. Friends were my right hon. and learned Friend to introduce a new capital gains tax starting date of 6 April 1982.
      6 pm
      Mr. Ridley: We have debated two subjects. First, the exempt allowance and the indexation thereof on which there were some thoughtful and helpful contributions but which, otherwise, was another opportunity for the richer-getting-richer-and-the-poorer-getting-poorer brigade to make their usual noises. I should like to spend a short time on discussing capital taxes in general because the Committee has done that. It would be right for me to examine the overall picture.
      The hon. Member for Blackburn (Mr. Straw), having ventured gently towards the Falkland Islands, came back to say that we were destroying the capital taxes. He then quoted figures for the capital gains tax in which he gave the yield as £650 million.
      Mr. Straw: No—£600 million.
      Mr. Ridley: Very well—£600 million. I misheard the hon. Gentleman.
      The capital gains tax yield is expected to be £850 million. I do not want the hon. Gentleman to feel that it would be right, if that was his intention, to leave out the yield from companies because, in large measure although not entirely, the benefits of the measures in the Bill also apply to companies. Therefore, the capital gains tax yield must be regarded as £850 million.
      Mr. Straw: I say in my defence that I quoted directly from table 23 in the Red Book, which gives the 1982–83 forecast as £600 million.
      Mr. Ridley: I agree. As the hon. Gentleman knows, companies pay capital gains tax and the figures for companies are shown in the corporation tax yield. I was not seeking to catch him out. I was seeking to put the record straight.
      It will be of interest to the Committee to examine the yield of capital taxes over the years. The hon. Member for Barking (Miss Richardson) tabled a question on 1 April. The answer to it appears in c. 376 of Hansard for 7 April. It gives the proportion of total Government revenue that has come from capital taxation of all sorts. Capital taxation as a percentage of total Government revenue was 3·7 per cent. in 1970; in 1971 it was 4 per cent.; in 1972 it was 4·4 per cent.; in 1973 it was 5–2 per cent.; and in 1974 it was 3·9 per cent.
      Mr. Campbell-Savours: Too little.
      Mr. Ridley: In 1975 it was 2·9 per cent.; in 1976 it was 2·6 per cent.; in 1977 it was 2·4 per cent.; in 1978 it was 2·1 per cent.; and in 1979 it was 2 per cent. Since my right

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      hon. Friends have been in charge of these matters, the figures are 1·9 per cent. for 1980 and 2·2 per cent. for 1981.
      It comes ill from the Opposition and particularly from the hon. Member for Workington (Mr. Campbell-Savours) to complain that the present Government or previous Tory Governments have been a little soft on capital taxes. I would understand it if my hon. Friends made the point that we had been a little too hard. It was the Labour Party which was soft on capital taxes in terms of yield. I do not criticise it too much for that. We have had wild debating from the hon. Members for Workington and Glasgow, Cathcart (Mr. Maxton)—"a little ray of sunshine" occurs to me as a description for the hon. Member for Workington. I suggest that the hon. Member gets his figures right and does his homework.
      The hon. Gentleman also betrayed an appalling ignorance of bed and breakfasting. He seems to think that it was a terrible adulterous crime or some ghastly form of tax evasion. He showed that he did not understand it when he was asked to explain what it meant. We shall discuss bed and breakfasting later in the Bill. I wish we could facilitate it. All it means is that one wishes to take the opportunity to declare one's gain and account for one's tax before one actually has to do so. It could be described as a way of bringing forward a tax liability.
      Mr. Maxton: If the Minister is correct in saying that this is a legitimate device, why was considerable suprise expressed in the financial world when the Chancellor of the Exchequer did not take any action against bed and breakfasting? It was thought that the Chancellor would take legislative action against the practice of bed and breakfasting.
      Mr. Ridley: First, there are provisions about bed and breakfasting in the Bill which do not make it illegal or alter the possibilities of doing it. The provisions make it slightly more expensive because stamp duty and commission will have to be paid on bed and breakfasting. This is done because of the one-year rule and the need to find a satisfactory treatment of share pools. It is not correct to say that nothing has been done about it.
      Secondly, I cannot understand why anyone would have wanted my right hon. and learned Friend the Chancellor to deal with it or would have expected him to. In many ways, the more bed and breakfasting that takes place, the greater the immediate revenue yield will be. If bed and breakfasting took place in excess of the exempt allowance, it would have that effect. Some of my hon. Friends, and particularly my hon. Friend the Member for Horsham and Crawley (Mr. Hordern), wish to bring forward a declaration on gains so that tax can be paid early and the slate can be wiped clean. We shall debate those matters in due course.
      Mr. Campbell-Savours: Does any loss to the Exchequer arise from bed-and-breakfasting operations?
      Mr. Ridley: There could be a gain to the Exchequer if people bed and breakfast in excess of their exempt allowance. It they do not bed and breakfast, there is no loss to the Exchequer. It is not a loss to the Exchequer. It is a matter of people availing themselves of their rights to switch investments which are losing or gaining and cancelling out the present net loss or gain. In addition, one can bed and breakfast to the extent of one's exempt
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      allowance, but that is not a loss of revenue. One might say that having a personal allowance for income tax is a loss of revenue to the Exchequer, but I do not believe that anyone is in favour of abolishing personal allowances. Therefore, I do not accept that there is a loss.
      The hon. Member for Blackburn asked about the eventual cost of the capital gains tax provisions. I believe that he meant the cost as a whole and not just in relation to clause 65. The cost depends entirely on inflation. If we have no success, if inflation become greatly worse and if we have the policies of the right hon. Member for Stepney and Poplar (Mr. Shore) and inflation reaches Argentine proportions, the loss of yield from the provisions will be enormous. On the other hand, if my right hon. and learned Friend the Chancellor guides our economic fortunes for another two or three Parliaments until, say, the end of the century, the loss of revenue will be practically zero. It would depend entirely on how many real gains were made. That depends on the extent to which business starts to take off and activity recovers and, later, the extent to which people cash in on their assets.
      Mr. Straw: Did the Treasury or the Inland Revenue do any illustrative projections of the loss of yield on various inflation assumptions? I assume that the figure in the Red Book of £150 million as the full year cost for 1984–85 is based on some projections of the likely yields. Secondly, why did the Financial Secretary say in October 1981 that indexation of capital gains tax would reduce drastically the yield of the tax?
      Mr. Ridley: We did estimates for three years ahead. For instance, the cost of this clause—the exempt allowance, the indexation thereof and raising it to £5,000—will be nil this year. It is likely to be £15 million in the next financial year and £60 million in a full year. However, we did not do projections beyond that because the cost of the rates of inflation and the activity in the economy would be very difficult to estimate.
      Against that, I was astonished to read amendment No. 22 in the name of the official Opposition, which destroys uplift indexation allowance for the first year. I must tell the Opposition now, so that they can prepare their position for when we reach the amendment, that the cost of their amendment would be £80 million in a full year. Far from wishing to claw back the concessions that my right hon. and learned Friend suggested for capital gains tax, the Opposition apparently wish to add to them by a further £80 million. On the net tally, which the hon. Member for Colne Valley (Mr. Wainwright) dislikes so much, the Opposition are plus £60 million on this amendment and minus £80 million on the next, so we have another £20 million to add to the tally.
      Mr. Richard Wainwright: Does the Financial Secretary realise that, in the way that the Finance Bill must go through the House, it is absurd to add up cumulatively the cost of all the proposals because most Opposition parties are fishing to get one or two proposals adopted and never dream of getting all their proposals through?
      Mr. Ridley: I did not threaten to add up the alliance proposals. All that one needs to do is to add up the Labour Party's proposals and cut them in half, because the alliance is always in the middle.
      The hon. Member for Blackburn's second question was why we said that this would drastically reduce the yield of

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      the tax. It is true that indexation as from the date of the introduction of capital gains tax, or some form of basing the values of 6 April 1982, would be a way of relieving gains made before the Budget in past years. There are many ways of approaching the problem of how to relieve past gains, but that would be extremely expensive. It would drastically reduce the yield, as I said in that answer. That question was not about future indexation, but about indexation in general. The Labour Government's Green Paper talks about indexation not in terms of the future, as we are proposing, but in general. We did not feel that we could afford the cost. There are other reasons why we did not do that, but this is not the time to go into them. They will arise on a later amendment.
      6.15 pm
      My hon. Friend the Member for Rossendale (Mr. Trippier) gave the example of a person who invests now and a person who invested 10 years ago. He said that the indexation allowances would be on a different capital base in each case. I wish to deal with that point fully, but, again, there is an amendment on it which we shall discuss later.
      The proposed amendment will cost £60 million in a full year and the numbers of people paying capital gains tax will fall. Last year it was estimated that about 200,000 people paid capital gains tax, falling this year to 175,000 and estimated next year to be 135,000. The Opposition are proposing that a further 65,000 should be kept in the capital gains net. By definition, that will mean those who make the smallest gains of under £5,000. If the Opposition wish to restrict the relief given by this clause, it is odd that they should concentrate the hardship on the smallest gains. That is not consistent with what they seem to be talking about.
      Although I do not wish to labour the point, it is important to remember that the amendment would require 275 extra staff at the Inland Revenue in order to deal with the small gains. That is an important consideration for a Government who are devoted to cutting the size of the Inland Revenue.
      The allowance will be indexed and we had quite a debate about indexation. The hon. Member for Come Valley wished to have clarification, but my hon. Friend the Member for Winchester (Mr. Browne) wished only to complain about indexation wherever it raised its ugly head. We did not consider it in that way. Whatever else we do, it seems sensible to index the levels of taxation thresholds. That does not mean that they are automatically pegged. We have not stuck to a single index threshold throughout the entire personal taxation system in this Budget, but we have on excise duty.
      Before the House considers any threshold in any tax year it should examine it from the position of the indexed figure. The Government or Parliament may propose an upward or downward variation. If we start from that premise, it seems that if it is good for income tax and the allowances thereunder, it is increasingly good for thresholds in other taxes. It does not commit the House, but is a good basis from which to start. I would justify the exemption allowance being indexed on that ground.
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      I say to my hon. Friend the Member for Winchester that that is not digging inflation into the system with the determination that he seemed to suggest. We do not stick to the indexed figures every year.
      Mr. Richard Wainwright: The hon. Gentleman's elucidation of the Government's attitude to indexation has been mildly interesting. What is the Government's programme in that respect? For instance, when will the corporation tax threshold be indexed?
      Mr. Ridley: I do not know that one has a programme. This year, we have again in practice indexed the small company corporation tax relief. I am dealing with individual taxation. In corporation tax, it is the only threshold. There are no others in corporation tax and there should not be. Small company relief is the only one. I shall be happy to discuss the issue with the hon. Member for Blackburn when we debate corporation tax. I doubt whether it is right to index upper and lower limits for corporation tax or profits relief. As the hon. Member for Blackburn knows, the problem is whether to go for a slab or a slice system and the effect on the marginal disincentive of any extra profits. However, we should not debate that now.
      The increase from £3,000 to £5,000, as my right hon. and learned Friend the Chancellor of the Exchequer said in his Budget Statement, is no more than a measure of rough justice for past gains. The Government have set their face firmly against trying to unravel the past of the tax because that would be extremely expensive, extremely complicated and unfair to those who have sold and realised gains and paid their tax as opposed to those who are still sitting on their gains.
      For those reasons, none of our proposals contains any direct assistance to those whose gains were made before 6 April 1982. In recognition of that, my right hon. and learned Friend thought that it was right to increase the allowance from £3,000 to £5,000. That is not a huge increase, but I recognise the force of some of the arguments advanced by the hon. Member for Blackburn.
      We are now changing the system of capital gains tax. We have broken the log-jam that the Labour Party was unable to break when it tried to do so during its stewardship of the Treasury. We found it difficult during the first two years of our stewardship. We want to change to a tax that makes a proper level of taxation on gains that are real, not paper, and that is thought to be fair and reasonable. We may not have got every aspect right at this stage. We face the problem of the huge build-up of past gains. They may stretch to billions of pounds that we are unable, for the reasons that I have given, to do anything about. In many people's eyes, the small increase in the exempt allowance to £5,000 will not seem an adequate recognition of the difficulties of the past.
      The Committee must also consider the means of taxing real gains in a fully indexed tax when the past gains problem is behind us, downstream a few years and has been got progressively out of the system. Should we do so by a flat rate such as we have now or at income tax rates as the Opposition have suggested? We must ask also what part will exempt allowance play in any future tax of that type.
      Sir William Clark: I understand that my hon. Friend said that one of the reasons why the Chancellor did not go in front of 1982 was that many people had realised assets

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      before 1982 on which they had paid capital gains tax. My hon. Friend also said that if the Chancellor went back before 1982 there would be an inequity with regard to the payment of tax and between two taxpayers. It is an extraordinary philosophy when one thinks of what happened in the past when relieving or increasing tax.
      What about the introduction of the development land tax? Those who sold land before the development land tax came into effect have paid no tax at all. Those who still held land or property paid as soon as the Government decided that there should be a tax. It is a strange philosophy that if the Government of the day want to change the tax structure we should go back to the time before that decision was made and say that those who have sold their assets before today will be unfairly treated as compared with those who sell them tomorrow.
      Mr. Ridley: I am not sure that we have set ourselves against any form of retrospective taxation or relief for the three reasons that I gave. One of those reasons, to which my hon. Friend the Member for Croydon, South (Sir William Clark) referred, is not invalid. If we say that the past is past, we will not reopen it and we cannot compensate for what has happened in the past, all are treated equally, however unfair the treatment may be.
      Sir William Clark: We all suffer the same misery.
      Mr. Ridley: Yes, the misery of capital gains tax is equally shared. If, on the other hand, we say that we shall try to retrieve past gains from some of those who have made them in the 17 years of the operation of the tax but have not realised or paid them, the man who has paid perhaps a colossal sum, who might have held on if he knew that this would happen, might be represented in the Committee and move amendments that would be extremely difficult to resist. However, that is not the only reason. Cost is the main one and complexity another. It is for those reasons that we have decided not to do it.
      Mr. Straw: The Financial Secretary said that he recognised the force of some of the Opposition's arguments. Does he accept that there is a logical inconsistency between justifying the increase in the exemption limit to £5,000 to take account of past gains but then to create a situation where that allowance can be offset against both past and future gains?
      Mr. Ridley: The place of the £5,000 allowance in any system of capital gains tax, which is purely on true gains, not paper ones, is clearly a matter that the House will want to examine shortly.
      I hope that I have come some way to meeting the case of the hon. Member for Blackburn. I hope that he will understand mine. I am being attacked by my hon. Friends for doing nothing, and for sticking to my point about doing nothing, about the past. The small increase from £3,000 to £5,000 must be seen in the context of our inability to tackle that problem. Once that problem is out of the way, we can re-examine the matter. For those reasons, I hope that the Committee will resist the amendment.
      Mr. Robert Sheldon: I start by drawing the attention of the Financial Secretary to the way in which amendments are tabled by the Opposition. He will know, because he has it in his brief, that there will be several arguments against the details of any amendment. Any Treasury Minister knows that he has two matters to look at on any amendment. In the top right hand corner of
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      the brief that is provided for him he will see "Resist", and usually it will say that the amendment is "defective". Any sensible Financial Secretary or Treasury Minister will pay no attention to those words. The hon. Gentleman, who was a member of previous Finance Bill Committees, will not find any occasion on which I made use of that argument.
      Sir William Clark: When the brief said "Resist", the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) resisted.
      Mr. Sheldon: That was when I was prepared to listen to the arguments and to debate those arguments rather than to read the brief. My point was that I did not make use of the word "defective". I fully understand the limitation of the Opposition in drafting financial legislation that will stand up in a court of law. For the Opposition to waste time on these matters when we are here to discuss political matters is futile. One has to choose the issues. The issue that we have chosen is that to which the Minister must address his mind. If the Minister or the Committee comes to the conclusion that the issue chosen by the Opposition is right, sensible and acceptable, then the Minister, who knows nothing about these matters, will ask the Inland Revenue to draft legislation to put into effect the argument deployed by the Opposition and accepted by the Committee. That is the way these things happen. I hope that we shall not hear again the argument that was deployed by the Minister. It does not advance his cause.
      6.30 pm
      I am arguing the general point put forward by the hon. Member for Winchester (Mr. Browne) against indexation. The hon. Gentleman pointed to the complicated nature of the legislation and its effect, in particular, on the bed-and-breakfast clauses. I have never experienced an occasion when the main elements of important legislation were not understood by the financial, taxation or legal bodies of opinion that examined them. It took weeks, as the hon. Member for Horsham and Crawley (Mr. Hordern) rightly pointed out, before the implications were understood. This is an illustration of the complexity of the legislation and of the inability of the Treasury to inform Parliament, through written answers or other means, of what it had in mind. There is an obligation on the Treasury, when it comes forward with such important matters, to make sure that its intentions are clear. I hope that the Minister will put aside his brief and that he will attempt to understand the issues before coming back to the Committee. It was an act of dereliction that people were misled for such a long period.
      That is not the only complication. There are the indexation provisions in schedule 9. The hon. Member for Rossendale (Mr. Trippier) referred to the problems of this rough and ready justice, as the Financial Secretary referred to it. It will be interesting to hear in Standing Committee why the Minister chose so complicated a method of dealing with a matter that is surely capable of greater refinement.
      The capital gains tax was introduced by a Conservative Administration in 1962. It is interesting that a Conservative Administration started the tax and that a Conservative Administration will virtually kill it off. The tax was introduced to deal with the killings that were being made on the Stock Exchange as a result of the activities of a number of flamboyant operators. The measures in the

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      Bill mean that the capital gains tax has, at best, an uncertain future and, at worst, is due for virtual demolition.
      According to the Red Book, the indexation of capital gains will mean a reduction of revenue of £150 million. That is a vast sum of money. It also shows that increases in the thresholds for individuals and trusts will mean a reduction of a further £60 million in revenue and that relief for transfers out of settlement will reduce the yield by a further £45 million. The total amount is £255 million without taking account of note (g). There are those who say that, on first receiving the Red Book, one should go through the notes. There is much to be said for that argument. According to note (g), the eventual effect in respect of disposals is likely to be "substantial". No figures are quoted. I suggest that for the word "substantial" there should be substituted an ordinary word that everyone understands—"enormous". One has only to make a few calculations about possible future inflation to see that that is the likely outcome.
      In this legislation, the threshold is being increased from £3,000 to £5,000, after which it will be indexed. The relationship between capital and income taxes is getting out of joint. That cannot be right. When the Conservative Party, on coming to power, retained the capital transfer tax, the Opposition thought that a bipartisan approach had been established and that these matters were properly subject to taxation. We knew that the amounts would vary depending on the views of different Governments. However, we thought that the principles and the structure would remain much the same.
      We had hoped that, at a later stage, the loopholes disclosed in the tax system—income tax, corporation tax or capital taxation—would be closed, whichever party came to office. The Labour Government closed the capital tax loopholes; the Conservative Government opened them. However, both Governments were interested in closing the income tax loopholes. As my hon. Friend the Member for Workington (Mr. Campbell-Savours) pointed out, there has been no agreement on capital taxation. I do not believe that capital taxes have acted as a brake on expansion, as some hon. Members have claimed.
      I know that the Government will be adding up the cost of the Opposition's amendments. We shall hear, long before the Committee stage is concluded, the old story of the profligacy of the Socialist Party and how it wastes money. If, however, the Government are prepared to accept some of our major amendments, we shall happily drop others. I give Treasury Ministers the undertaking that, if the Government are prepared to drop some of their clauses, we shall be happy to drop some of our amendments. The amendment now under discussion will assist, not reduce, the revenue. The party that formed the Government who effectively introduced capital gains tax in 1962 should not end it in the manner that is proposed by making it subject to indexation.
      The problem is the manner in which people's investment decisions will be altered fundamentally as a result of the legislation. A person with £100,000 can invest in a second home, possibly in Spain, and can thereafter reckon that it will keep pace with inflation at perhaps 10 per cent. We are inflation proofing that type of investment. If, on the other hand, a person with £100,000 buys Government stock, there is no inflation proofing. Such a
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      person will have to pay income tax of up to 75 per cent. on the return on that investment. There is a wide discrepancy between the return on money put into a second home and on money put into Government securities.
      Capital gains tax was introduced to deal with the increase in personal wealth, whether that increase came from an increase in income or in capital. There cannot be an identity of taxation between the taxation of capital and the taxation of income, but at least both should be subject to tax. In a number of cases one has the choice of paying tax on the one or the other. The Government are creating a privileged kind of security that will distort the investment process in a way that I do not think Treasury Ministers fully comprehend.
      Mr. Beaumont-Dark: If one puts £100,000 in a property, one pays no income tax, because there is no income, but tax will have to be paid on the capital gain when the property is sold. The £100,000 which is put into a Government security—a most laudable thing to do—will attract tax upon the income, as the right hon. Gentleman said. However, it is possible, as he knows, to make a handsome capital gain on many gilts. No tax is payable on such profit. The right hon. Gentleman pooh-poohs it. Many redemption stocks stand at under half their price, so it is possible to make £50,000 tax free.
      Mr. Sheldon: The hon. Gentleman is too knowledgeable in these matters to believe that the ordinary person will make a fortune out of gilts, except in the limited sense that there might be small profits from buying stocks below their valuation. This is a minor matter. The hon. Gentleman knows, and I know, that the opportunities for capital gains on Government stock are limited. The possibilities for capital gains on second homes are much greater. Taking inflation at 10 per cent. a year, that will be free of any tax, whereas the inflationary element in Government securities is subject to taxation. It cannot be right that the inflationary element in Government stock should he taxed at up to 75 per cent. whereas the inflationary element relating to property is not taxed at all.
      The Government are taxing income-producing assets much more than capital gains-producing assets. This is an anomaly as great as the taxing of inflationary gains. If the Government believe in indexation, why have they assumed that the 30 per cent. rate is immutable? Why has there been no discussion on it? The 30 per cent. rate, which has been held to be right at a time when inflationary gains are being taxed, cannot be right when inflationary gains are made free of tax.
      Mr. Ridley: I want to get it clear. The right hon. Gentleman put his name to the Green Paper, published by the Labour Government, which explored the possibility of indexation or tapering. Is he now opposed to indexation?
      Mr. Sheldon: The hon. Gentleman must surely know that the Inland Revenue Green Paper was put out for consultation. Various suggestions were made, but the rate of tax was not mentioned. Surely he cannot believe that a Labour Government would have taxation at 30 per cent. when capital gains were indexed. This was a matter for consultation and discussion.
      I am saddened because we have had no discussion whatsoever on the rate of tax which should be chargeable under the new regime. The hon. Gentleman made no attempt to show why in equity the rates should be the same.

      767
      The hon. Member for Croydon, South (Sir W. Clark) and the hon. Member for Rossendale called capital gains tax a tax on thrift. I do not know what that means. We tax work. Many people who earn their money in very difficult circumstances are taxed, and rightly so. If people are able to save a certain amount of money, that represents an economic advantage that ought to be subject to the tax system. Taxation on thrift does not deal with increases in inherited thrift.
      6.45 pm
      When Conservative Members start getting pious about the problems of those with large sums of money, I doubt whether the feeling of emotion lasts as long as my journey to Ashton-under-Lyne. There I encounter people in much greater difficulties than many about whom we hear in this Chamber. We do not see such people here for obvious reasons, but we should always remember them and their problems.
      The hon. Member for Winchester called this an indexation Budget. I think that it will become known as the indexation Budget, but I do not believe that the measures on indexation have been proposed because the Government have necessarily come to believe in indexation. They believe that in some matters indexation can help the better off and that therefore they should introduce indexation.
      There is a broad division between both sides. We believe in not just rough justice, but justice for the unemployed. Unemployed benefit might have been indexed. The 5 per cent., of which the Government took no notice, might have been restored. The Labour Government implemented the indexation of personal allowances. We believe in the indexation of such matters. As we see in this legislation, the Conservative Government believe in the indexation of higher rates of tax, capital gains, capital gains tax thresholds and capital transfer tax. If the Government really believed in indexation as a whole, they should have examined the whole area of economic activity. Had they done so, they would have come to very different conclusions. We shall vote for the amendment as an illustration of the Government's wrong priorities in these important matters.
      Question put, That the amendment be made:—
      The Committee divided: Ayes 116, Noes 211.

      Division No. 132

      6.47 pm

      AYES

      Abse, Leo

      Cunningham, DrJ. (W'h'n)

      Allaun, Frank

      Dalyell, Tam

      Archer, RtHonPeter

      Davidson, Arthur

      Atkinson, N.(H'gey,)

      Davies, Ifor (Gower)

      Barnett, Rt Hon Joel (H'wd)

      Davis, Terry (B'ham, Stechf'd)

      Bidwell, Sydney

      Deakins, Eric

      Booth, RtHonAlbert

      Dean, Joseph (Leeds West)

      Boothroyd, MissBetty

      Dixon, Donald

      Bottomley, RtHonA.(M'b'ro)

      Dobson, Frank

      Bray, Dr Jeremy

      Dormand, Jack

      Brown, Hugh D. (Provan)

      Dubs, Alfred

      Buchan, Norman

      Dunwoody, Hon Mrs G.

      Callaghan, Jim (Midd't'n&P)

      Eadie, Alex

      Campbell-Savours, Dale

      English, Michael

      Carter-Jones, Lewis

      Evans, John (Newton)

      Clark, Dr David (S Shields)

      Faulds, Andrew

      Cocks, Rt Hon M. (B'stol S)

      Fitt, Gerard

      Concannon, Rt Hon J. D.

      Flannery, Martin

      Cook, Robin F.

      Fletcher, Ted (Darlington)

      Craigen, J. M. (G'gow, M'hill)

      Foot, RtHonMichael

      Cryer, Bob

      Foster, Derek

      Cunliffe, Lawrence

      Foulkes, George

      Cunningham, G. (IsligtonS)

      Freeson, Rt Hon Reginald

      768

      George, Bruce

      Parker, John

      Hamilton, W. W. (C'trai Fife)

      Parry, Robert

      Harrison, RtHonWalter

      Price, C. (Lewisham W)

      Heffer, Eric S.

      Radice, Giles

      Hogg, N. (EDunb't'nshire)

      Robertson, George

      HomeRobertson., John

      Robinson, G. (Coventry NW)

      Homewood, William

      Rooker, J. W.

      Hooley, Frank

      Sheerman, Barry

      Hoyle, Douglas

      Sheldon, Rt Hon R.

      Jay, Rt Hon Douglas

      Shersby, Michael

      John, Brynmor

      Shore, Rt Hon Peter

      Jones, Rt Hon Alec (Rh'dda)

      Silkin, RtHonJ. (Depfford)

      Lambie, David

      Silverman, Julius

      Lamond, James

      Skinner, Dennis

      Leighton, Ronald

      Snape, Peter

      Lewis, Ron (Carlisle)

      Spearing, Nigel

      Litherland, Robert

      Spriggs, Leslie

      Lyon, Alexander(York)

      Stoddart, David

      McCartney, Hugh

      Stott, Roger

      McDonald, DrOonagh

      Strang, Gavin

      McKay, Allen (Penistone)

      Straw, Jack

      McWilliam, John

      Taylor, Mrs Ann (Bolton W)

      Marshall, D(G'gowS'ton)

      Thomas, Dafydd (Merioneth)

      Martin, M(G'gowS'burn)

      Thorne, Stan (Preston South)

      Mason, Rt Hon Roy

      Tinn,James

      Maxton,John

      Varley, Rt Hon Eric G.

      Maynard, Miss Joan

      Weetch, Ken

      Mikardo,Ian

      Welsh, Michael

      Millan, RtHonBruce

      White, Frank R.

      Mitchell, Austin(Grimsby)

      Wigley,Dafydd

      Morris, Rt Hon A. (W'shawe)

      Williams, Rt Hon.A.(S'sea W)

      Morris, Rt Hon C. (O'shaw)

      Winnick, David

      Morton, George

      Woolmer, Kenneth

      Moyle, Rt Hon Roland

      Newens, Stanley

      Tellers for the Ayes:

      O'Neill, Martin

      Mr. James Hamilton and

      Palmer, Arthur

      Mr. Ioan Evans.

      NOES

      Adley, Robert

      Crouch, David

      Aitken,Jonathan

      Dean, Paul (North Somerset)

      Alexander, Richard

      Dickens, Geoffrey

      Alison, Rt Hon Michael

      Dorrell, Stephen

      Alton, David

      Dover, Denshore

      Ancram, Michael

      Dunn, Robert (Dartford)

      Aspinwall,Jack

      Edwards, Rt Hon N. (P'broke)

      Atkins, Rt Hon H.(S'thorne)

      Eggar, Tim

      Atkins, Robert (PrestonN)

      Elliott, SirWilliam

      Banks, Robert

      Faith, Mrs Sheila

      Beaumont-Dark, Anthony

      Fell, Sir Anthony

      Beith, A.J.

      Fenner, Mrs Peggy

      Bendall, Vivian

      Fisher, Sir Nigel

      Benyon, Thomas(A'don)

      Fletcher, A. (Ed'nb'ghN)

      Benyon, W. (Buckingham)

      Fletcher-Cooke, SirCharles

      Berry, HonAnthony

      Fookes, Miss Janet

      Bevan, David Gilroy

      Gardiner, George(Reigate)

      Biffen, Rt Hon John

      Glyn, Dr Alan

      Blackburn,John

      Goodhart, SirPhilip

      Body, Richard

      Goodhew, SirVictor

      Boscawen, HonRobert

      Goodlad, Alastair

      Bradley, Tom

      Gow, Ian

      Brinton, Tim

      Greenway, Harry

      Brocklebank-Fowler, C.

      Griffiths, E.(B'ySt. Edm'ds)

      Brooke, HonPeter

      Griffiths, Peter Portsm'thN)

      Brown, Michael(Brigg&Sc'n)

      Grist, Ian

      Browne,John(Winchester)

      Grylls, Michael

      Bryan, Sir Paul

      Hamilton, Hon A.

      Buchanan-Smith, Rt.Hon.A.

      Hamilton, Michael(Salisbury)

      Budgen, Nick

      Haselhurst, Alan

      Cadbury,Jocelyn

      Hawksley, Warren

      Carlisle, John(Luton West)

      Hayhoe, Barney

      Carlisle, Rt Hon M. (R'c'n)

      Heddle,John

      Cartwright,John

      Hicks, Robert

      Chapman, Sydney

      Higgins, Rt Hon Terence L.

      Clark, Hon A. (Plym'th, S'n)

      Hogg, HonDouglas(Gr'th'm)

      Clarke, Kenneth (Rushcliffe)

      Horam,John

      Cockeram, Eric

      Hordern, Peter

      Cope,John

      Howell, Rt Hon D.(G'ldf'd)

      Cranborne, Viscount

      Howells, Geraint

      Critchley,Julian

      Hoyle, Douglas

      769

      Hunt, David (Wirral)

      Renton, Tim

      Hunt, John (Ravensbourne)

      Rhodes James, Robert

      Hurd, Rt Hon Douglas

      RhysWilliams, SirBrandon

      Johnston, Russell (Inverness)

      Ridley, HonNicholas

      Jopling, RtHonMichael

      Ridsdale, SirJulian

      Kaberry, SirDonald

      Rifkind, Malcolm

      Kershaw, Sir Anthony

      Roberts, Wyn (Conway)

      Lang, Ian

      Rodgers, RtHonWilliam

      Latham, Michael

      Roper, John

      Lawrence, Ivan

      Rossi, Hugh

      Lee,John

      Rost, Peter

      LeMarchant, Spencer

      Sainsbury, HonTimothy

      Lennox-Boyd, Hon Mark

      Sandelson, Neville

      Lester, Jim (Beeston)

      Shaw, Giles (Pudsey)

      Lewis, Kenneth (Rutland)

      Shaw, Michael (Scarborough)

      Lloyd, Ian (Havant & W'loo)

      Shelton, William(Streatham)

      Lloyd, Peter (Fareham)

      Shepherd, Colin (Hereford)

      Loveridge, John

      Shersby, Michael

      Lyell, Nicholas

      Sims, Roger

      Lyons, Edward (Bradf'dW)

      Smith, Cyril(Rochdale)

      Mabon, Rt Hon Dr J. Dickson

      Smyth, Rev. W. M. (Belfast S)

      McCrindle, Robert

      Speed, Keith

      Macfarlane, Neil

      Speller,Tony

      MacGregor,John

      Spence, John

      MacKay, John (Argyll)

      Squire, Robin

      Maclennan, Robert

      Stanbrook,Ivor

      McNair-Wilson, M.(N'bury)

      Steel, Rt Hon David

      McNair-Wilson, P. (NewF'st)

      Steen, Anthony

      McQuarrie, Albert

      Stevens, Martin

      Major, John

      Stewart, A. (ERenfrewshire)

      Marland, Paul

      Stewart, Ian (Hitchin)

      Mates, Michael

      Stradling Thomas, J.

      Mather, Carol

      Taylor, Teddy (S'end E)

      Maude, Rt Hon Sir Angus

      Tebbit, Rt Hon Norman

      Mawby, Ray

      Temple-Morris, Peter

      Mawhinney, DrBrian

      Thomas, Rt Hon Peter

      Maxwell-Hyslop, Robin

      Thompson, Donald

      Mellor, David

      Thorne, NeilC(IlfordSouth)

      Meyer, Sir Anthony

      Thornton, Malcolm

      Mills,Iain (Meriden)

      Townend, John (Bridlington)

      Mills, Peter (WestDevon)

      Trippier, David

      Mitchell, R. C. (Soton Itchen)

      van Straubenzee, Sir W.

      Moate, Roger

      Viggers, Peter

      Molyneaux,James

      Waddington, David

      Morris, M. (N'hampton S)

      Wainwright, R.(ColneV)

      Morrison, Hon C. (Devizes)

      Wakeham, John

      Murphy, Christopher

      Walker, Rt Hon P.(W'cester)

      Myles, David

      Walker, B. (Perth)

      Neale, Gerrard

      Walker-Smith, Rt Hon Sir D.

      Nelson, Anthony

      Waller, Gary

      Neubert, Michael

      Walters, Dennis

      Newton, Tony

      Ward, John

      Normanton,Tom

      Warren, Kenneth

      Onslow, Cranley

      Watson, John

      Owen, Rt Hon Dr David

      Wellbeloved, James

      Page, Richard (SW Herts)

      Wells, Bowen

      Parris, Matthew

      Wells, John (Maidstone)

      Patten, Christopher(Bath)

      Wheeler, John

      Pattie, Geoffrey

      Wickenden, Keith

      Percival, Sir Ian

      Wilkinson, John

      Pollock, Alexander

      Williams, D. (Montgomery)

      Powell, Rt Hon J.E. (S Down)

      Wolfson, Mark

      Prentice, Rt Hon Reg

      Price, SirDavid (Eastleigh)

      Tellers for the Noes:

      Prior, Rt Hon James

      Mr. Selwyn Gummer and

      Proctor, K. Harvey

      Mr. Tristan Garel-Jones.

      Raison, Rt Hon Timothy

      Question accordingly negatived.
      Sir William Clark: I beg to move amendment No. 32, in page 45, line 14, leave out from '(a)' to end of line 16 and insert
      'for "individual" in each place where it occurs, there shall be substituted "person" and'.
      The Chairman: With this we may take the following amendments:
      No. 33, in page 45, line 17, leave out from '(b)' to end of line 19 and insert
      'for "£3,000", in each place where it occurs, there shall be substituted "the exempt amount for the year" and'.
      No. 34, in page 45, line 19, at end insert
      '(c) for "£5,000", where it occurs in subsection (5)(b), there shall be substituted "an amount equal to twice the exempt amount for the year".'.
      Sir William Clark: I need not detain the Committee for long, because it is a simple amendment. I am sure that even Opposition hon. Members will be able to agree the justice of it. Amendments Nos. 33 and 34 are consequential.
      As I read it, section 5 of the Capital Gains Tax Act 1979, as it refers to "an individual", means that companies are excluded. The amendment seeks to substitute "person" for "individual". I understand that, legally, a person means a company as well.
      7 pm
      I remind my hon. Friend the Financial Secretary to the Treasury that in his Budget Statement my right hon. and learned Friend the Chancellor of the Exchequer said:
      "I propose, therefore, that, as from this April, gains, including those of companies, will, in principle, be calculated after taking account of inflation which occurs after that date."—[Official Report, 9 March; Vol. 19, c. 755.]
      If we are to have an exemption limit of £5,000, and if, as my right hon. and learned Friend said, we are to extend it to companies as well as to individuals, it is not a bad idea to have that spelt out in the Bill. My reading of clause 65 is that it does not include companies, which is diametrically opposite to what my right hon. and learned Friend said.
      Mr. Ridley: I am grateful to my hon. Friend the Member for Croydon, South (Sir William Clark) for the clarity and brevity with which he moved the amendment. He suggested that my right hon. and learned Friend the Chancellor of the Exchequer sought to index gains for companies and had somehow forgotten to do so. That is not so. My right hon. and learned Friend did not forget. The gain will be indexed for companies. The indexation provisions in clause 65 relate to the £5,000 exempt allowance. Companies have never had an exempt allowance for capital gains tax purposes. That was not what my right hon. and learned Friend said he would do, and it was not our intention to allow that £5,000 allowance for companies.
      The analogy is with income tax, where there is a personal allowance for each taxpayer. However, in corporation tax there is no exempt slice of profits or a similar tax-free allowance for corporation tax purposes. There is no reason why there should be, because no minimum standard of profit is necessary to maintain the life of a company.
      Companies are chargeable to capital gains tax. They are charged at 30 per cent. of the capital gains tax rate. This is done by leaving out of account a fraction of the net chargeable gains after losses of the accounting period and charging the balance at 52 per cent. At present the fraction is eleven-twentysixths. I do not think that my hon. Friend would think it right, on reflection, further to help companies in respect of gains. They will benefit from the indexation provisions.
      In the Budget we have provided massive help to companies in a series of different ways. My right hon. and learned Friend feels that what we have done will be of

      771
      great help to companies and that it is not necessary to go any further in respect of capital gains tax. I think that my hon. Friend will agree that the exempt allowance of £5,000 would not be suitable for companies. They do not present the same staff problems in assessing the gain and they do not actually need an exempt slice in the same way as an individual, who should and does get it.
      Sir William Clark: I am grateful to my hon. Friend. I understand that whether a company is paying tax at 40 per cent. on the lower rate, or 52 per cent. at the standard rate, the reduction of eleven-twentysixths brings down the charge on capital gains for the company to 30 per cent. However, can my hon. Friend assure me that in the computation of the capital gains on the sale of any asset by a company, the cost of that asset will be index-linked from April 1982 as it is for an individual? If he can give me that assurance, I shall willingly withdraw the amendment.
      Mr. Ridley: I am happy to give my hon. Friend that assurance.
      Sir William Clark: I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Sir William Clark: I beg to move amendment No. 35, in page 46, line 27, at end insert—
      '(4A)(a) Where in any year of assessment the taxable amount of an individual does not equal or exceed the exempt amount for the year in section 5 of the Capital Gains Tax Act 1979 so far as it relates to him, then the amount of the difference between the said taxable amount and the said exempt amount shall for the purposes specified in subsection (c) below be carried forward to the next following year of assessment and added to the amount which would, apart from this subsection, be the exempt amount for that next year in relation to that individual, and the total thereof shall be the exempt amount for that next following year for that individual.
      (b) Where in any year of assessment there is in relation to an individual an excess of the exempt amount for the year as calculated under subsection (a) above over the taxable amount of that individual for that year as ascertained for the purposes of section 5 of the Capital Gains Tax Act 1979, that excess shall for the purposes specified in subsection (c) below be carried forward to the next following year and paragraph (a) above shall apply to the said excess as if it were the amount of the difference referred to in the said paragraph (a).
      (c) Paragraphs (a) and (b) above apply only for the purpose of calculating capital gains tax payable in relation to disposals in any year of assessment of business assets as defined in section 126(1)(a) and (b) of the Capital Gains Tax Act 1979 and nothing in paragraphs (a) and (b) above and (d) below shall affect the calculation of capital gains tax payable in respect of disposals of assets other than business assets as hereinbefore described.
      (d) Subject to paragraph (c) above references to the exempt amount or a multiple or a fraction of the exempt amount in subsection (5)(b) of section 5 and in Schedule 1 of the Capital Gains Tax Act 1979 shall be construed as if the exempt amount herein referred to meant the exempt amount ascertained under paragraphs (a) and (b) above.'.
      This is a long but simple amendment. If the wording is not correct, I am sure that my hon. Friend will not criticise me. The £5,000 exemption limit is all right if an individual has liquid assets—for example, a portfolio of
      772
      shares. If he has such assets he can make profits each year, or sell his assets and enjoy the £5,000 exemption limit. I am especially interested in family businesses. An individual's only asset may be in a family business, which may have been started and built up over 10 or 15 years. As there has been no sale the £5,000 exemption is lest. This puts an unfair burden on those who start businesses which are successful and which create jobs as opposed to those who invest in stocks and shares.
      The purpose of the amendment is to ensure that when a family business that is in one person's hands is sold, having been started and built up over five, 10 or 15 years, the £5,000 exemption can be accumulated. That means that when the owner of the business sells it he will be able to enjoy the same exemption as that which is enjoyed by his counterpart.
      Mr. Ridley: I am grateful to my hon. Friend for drawing attention to the great importance of not letting capital gains tax damage the family business. However, I suggest that the present arrangements are pretty generous. Business assets can be well sheltered under capital gains legislation. When business assets are sold and the proceeds are reinvested in further business assets, any gain can be rolled over and the tax charge deferred. When a person eventually sells his business on retirement, for example, gains of up to £50,000 are entirely exempt from tax. These concessions are of great value and they are specially designed to be so because of the importance that we attach to small businesses.
      My hon. Friend suggested that the £5,000 allowance should be allowed to be accumulated forward. Incidentally, I am not making a drafting point. I merely say that his amendment as drafted goes beyond the normal definition of business assets and includes shares in a trading company.
      The trouble with the proposal is that nowhere else in the capital gains legislation is it possible to carry forward these exempt allowances. In the same way, it is not possible to carry forward personal allowances in income tax. To make this change would be revolutionary and novel. It would be complicated and it would destroy one of the principles, to which we have always held, that an annual allowance is an annual allowance and cannot be carried forward. It would cost more money. We have put the money that is available to remodel capital gains tax into the right areas. Bearing in mind what I have said, I hope that my hon. Friend feels that his amendment need not be pressed.
      Sir William Clark: I am fully aware of the retirement benefit for family businesses. However, I still think that the matter needs to be looked at again, perhaps not in this Finance Bill but in subsequent Finance Bills. There is an injustice between a person who is producing jobs in a business where he cannot sell off parts of his investment portfolio. I hope that my hon. Friend will assure me that the Chancellor's mind is not closed to what I am saying.
      I do not wholly accept my hon. Friend's point that an annual allowance is an annual allowances and personal allowances are not carried forward. I appreciate that personal allowances are not carried forward. However, in many aspects of our taxation there is roll-over relief and in many cases one can defer tax. Stock relief is a good example. I would not go along the same road as my hon. Friend on that argument.

      773
      I appreciate that the Government have done an enormous amount for small businesses—the start-up scheme, the enterprise zones, retirement benefit and so on.
      If my hon. Friend can assure me—as I am sure he will—that the Chancellor's mind will not be closed to this in future years, I shall withdraw my amendment.
      Mr. Ridley: We want to ensure that the capital gains tax and the capital transfer tax to not damage any business, whether it be a one-man business, an unquoted company or a quoted company. We have a record of looking most sympathetically at the effects of these taxes on all sorts of businesses. We may have to review in the future the effects of this tax on all sorts of enterprises and businesses.
      There has been a major change in the tax. We must debate it in this Chamber and upstairs. People must get used to it and understand it. We should let the new tax settle down. Then I give my hon. Friend the assurance that my right hon. and learned Friend the Chancellor of the Exchequer will be looking to ensure that the shoe is made to pinch less wherever there is prosperity in business.
      Sir William Clark: In view of that assurance, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Clause 65 ordered to stand part of the Bill.

    Clause 71

      INDEXATION ALLOWANCE ON CERTAIN DISPOSALS
      7.15 pm
      Mr. Straw: I beg to move amendment No. 22, in page 52, line 22, leave out paragraph (b).
      I might save the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) a great deal of trouble if I tell him that we recognise the technical and other defects of the amendment. The hon. Member for Colne Valley (Mr. Wainwright) has explained the difficulties that the Opposition face in putting forward amendments as vehicles for debate. We will register our opposition to what the Government are proposing to do on the indexation of capital gains at this time by a vote on the clause itself and not on the amendment.
      The amendment provides us with an opportunity to examine in detail the case for this major and expensive change which the Government are making in the Finance Bill. The Chancellor justified the change in clause 71, to index capital gains, by describing the tax on inflationary gains as an "injustice". He said:
      "I cannot, however, allow this injustice to continue."—[Official Report, 9 March 1982; Vol. 19, c. 755.]
      The Chancellor's choice of words is significant for the Opposition. The taxation of inflationary capital gains is an "injustice". The double taxation of unemployment benefit is merely an "unfortunate necessity". The choice of words is strongly reminiscent of the Prime Minister's strange sense of moral values which led her to describe inflation as an evil but unemployment merely as a problem.
      We acknowledge that the change in capital taxation is one that the Government and their many friends in the City have sought for many years. On the face of it, the case for indexing capital gains before they are brought into charge may appear to some to be strong. It is argued that inflation was not appreciated as a problem in the mid-1960s when
      774
      the present capital gains tax was devised. It is also said that the tax structure took no account of the prospect of the high levels of inflation that existed throughout the 1970s.
      In my judgment, both those assertions are incorrect. First, there was substantial debate in the House and in Committee about the consequences of inflation on the charge to capital gains tax and whether or not that would be fair. The right hon. Member for Sidcup (Mr. Heath), in leading for the then Opposition, during the Second Reading of the Finance Bill in 1965, charged that the capital gains tax
      "makes absolutely no allowance for inflation."—[Official Report, 10 May 1965; Vol. 712, c. 72.]
      The right hon. Gentleman made the charge that the tax took no account of inflation as long ago as 1965 when the tax was first introduced. He and others Members of the Conservative Opposition were countered by arguments from the Government that the tax rate of 30 per cent. had been set deliberately low and at a flat rate to take account of inflation. That point was repeated in the Green Paper published in 1977, to which the Financial Secretary referred in the previous debate.
      The Green Paper said at paragraph 24:
      "When the United Kingdom capital gains legislation was introduced in 1965 it was decided that the tax should be at a relatively low flat rate which took account of the possibility that the gains might have accrued over a longish period but were being charged to tax in one year, and also that they might contain an inflationary element."
      The possibility of an inflationary element was clearly in the minds of those who constructed the tax. It was one of the arguments used at the time to counter the belief that the tax took no account of inflation.
      It is evident from the right hon. Member for Sidcup's subsequent conduct in this respect—as in respect of his conduct on thresholds—that he and the Conservative Government of 1970 to 1974 were convinced by the Labour Party's arguments. It is on record that in those halcyon days of 1970 to 1974 the Conservative Government, led by the right hon. Member for Sidcup, made no attempt to interfere—despite rising levels of inflation—with the basic structure of the tax, its flat rate or its alleged lack of provision and relief for inflationary gains.
      If the ostensible taxation of inflationary gains is the injustice that the Chancellor of the Exchequer now alleges, and if it is as onerous as the Stock Exchange chairman has claimed, one might expect the yield from the capital gains tax to rise broadly in line with inflation. Let us consider what has happened to the yield from capital gains tax during the historically high inflation that Britain has encountered since 1973. Between March 1973 and March 1980, prices—as measured by the retail prices index—rose by about 347 per cent. At the same time, the yield from capital gains tax—according to the Inland Revenue's figures—rose from £324 million in 1973–74 to £540 million in 1981–82. That was an increase of only two-thirds compared with the 347 per cent. increase in the retail prices index. If the real value of the 1973–74 yield had been maintained, that yield last year should have been £1,123 million, not the actual figure of £540 million.
      The truth is that this capital tax and other capital taxes have not been as onerous as Conservative Members often proclaim. The Financial Secretary quoted the figures that were given to my hon. Friend the Member for Barking (Miss Richardson) on 1 April. He sought to make a point that will redound greatly to his disadvantage. He made

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      exactly the point that we now seek to make. As the figures given to my hon. Friend show, the take from capital taxes as a proportion of the total yield from all taxes, far from increasing during the period from 1973 to 1982, has declined consistently and now stands at only 1·4 per cent. of the total yield of taxation.
      It does not lie in the Financial Secretary's mouth to criticise the Labour Government for allowing the yield to fall while at the same time proposing measures that will push that yield down still further. He must make a choice between the arguments that he advances. He cannot advance both arguments. The figures from my hon. Friend the Member for Barking, as well as those that I have given about the cash yield compared with prices over the past nine years, prove beyond peradventure that the tax has not been as onerous or unjust as the Government and their friends in the City suggest.
      Conservative Members may complain about the tax, but they ignore the effect of substantial reliefs on the charge to tax and the operation of thresholds which, combined with bed and breakfast devices, have enabled those who would otherwise have been brought into charge to avoid it. I accept that they have been avoiding that charge lawfully, but the House should realise that bed and breakfasting, although lawful, is artificial, because the transactions are made to reduce a taxable charge and not for any other purpose. Bed and breakfasting operates so that if a taxpayer has made a gain and has other assets that show a loss, he can sell and buy them overnight, create a loss, set that against the gain that he has made and thus avoid gains that exceed his exemption limit. Therefore, thresholds and bed and breakfasting are important mechanisms by which people have been able to reduce their liability to tax. They have acted as offsets against inflation.
      The other important relief that has offset inflation is the flat rate. The operation of the flat rate with thresholds has meant, in practice, that a substantial element of relief against inflation has been built into the operation of the tax. My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) made the important point that, even with the alleged taxation of inflationary gains, those who have made capital gains have been treated far more lightly than those who have made gains from income. The Financial Times of 13 March 1982 said:
      "Capital growth has always been more attractive, especially for wealthier investors in the higher income tax brackets which can lead up, eventually, to the investment income surcharge. This can produce a marginal tax rate of 75 per cent., compared with a capital gains tax rate of 30 per cent."
      That brings me to our principal objection to the Government's proposal on the indexation of capital gains. As many Conservative Members have made clear, the Government are not indexing many other aspects of the taxation system so fully. Far from evening up the balance between the taxation of income and the taxation of capital—the Government have often justified their proposals by suggesting that there is an injustice in the present taxation of capital—these proposals will create an even greater imbalance. They will widen the gap between the treatment of income and the treatment of capital for tax purposes.
      As a result, it will be even more advantageous to hold assets that realise a capital gain, instead of holding those that produce income. Although the Government intend to tax only the real gain on any assets, they will continue to
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      do so at the low flat rate of tax of 30 per cent., which was specifically introduced as an offset for the fact that inflationary gains were being taxed. Now that inflationary gains are not to be taxed, the case for a separate low flat rate of tax for capital gains must disappear, both in justice and in logic. The gains that are taxed should be brought into charge as part of an individual's or company's income and should be subject to the appropriate marginal rate of income tax or to the standard rate of corporation tax. The Government should introduce that essential and fundamental reform if they are to press the proposal for indexing gains.
      The flat rate of tax at 30 per cent. was introduced, as the Inland Revenue made clear, as a rough and ready offset for inflationary gains. There is no doubt about that. Now that only real gains are being introduced and chat inflationary gains are being abandoned for tax purposes, those gains, which will be relatively few and far between for individual taxpayers, must be brought into charge against an individual's income. It is important to point out that when Mr. Selwyn Lloyd was Chancellor of the Exchequer and the Conservative Government first developed the concept of charging capital gains to tax—albeit only short-term capital gains—they were charged to tax as part of income and a separate flat rate tax was not established for them. That was sensible.
      The then Chancellor could have said that we must bring those short-term gains into charge as income because in the short-term there would be very little inflation to set against them. If that was right, as it then was, now that the Government are setting up a system to offset inflation they must bring the gains into tax against income. I look forward to the Minister's explanation of why the Government have set their face against doing that. I assume that they have, as there seem to be no proposals in the Bill to make that change. Why are the Government sticking to the rate of 30 per cent., as though it were permanent for ever and a day? There is no justification for that. The 30 per cent. rate may have stood for 17 years while inflationary gains were taxed, but the case for it no longer exists if we abandon the taxation of inflationary gains.
      7.30 pm
      If the Government fail to introduce that consequential and important change alongside their proposal to index capital gains, I ask the Committee to consider the effects in terms of equity, and in other terms, of making capital gains even more advantageous for those who hold assets that produce income. Again, my right hon. Friend the Member for Ashton-under-Lyne dealt with this on the previous amendment.
      Without further changes the clause will discriminate heavily in favour of the wealthy holder of assets who can move into assets which have a capital appreciation attached to them. The clause will discriminate against holders of assets who do not wish to risk their capital. There is always risk, except for index-linked stocks, and there is usually a risk attached to assets that are purchased to gain an income by capital appreciation.
      The clause will discriminate against holders of small capital assets who wish to achieve an income from them. Many of those against whom the tax system will now discriminate more heavily than hitherto are the little old ladies and widows with small nest eggs which have be en invested to produce an income. For example, if they put

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      their money into a building society they will receive no capital gain from their investment. All their income from the building society, if they are paying higher rates, will be brought into charge, and if they are not paying higher rates it will still be subject to tax.
      However, if they can find a capital asset into which to put their money and can achieve an equivalent capital gain to the income that they would receive from the building society, they might be able to set the whole of that gain against inflation during the period and pay minimal tax. Instead of paying tax on 10 per cent. per year, they will be paying tax on no more than 1 or 2 per cent., at a flat rate of 30 per cent., whereas with their income it would be at the marginal rate, whatever that might be.
      Therefore, our first objection to indexation is that there is no alteration to the way in which the gain is brought into charge and that it is brought into charge against the flat rate.
      Mr. Foulkes: My hon. Friend is being far too reasonable about the Government's proposals. He should be far more furious with the Government, because this is yet another example where those who have already more than enough money will get even more while others, such as the widows to whom my hon. Friend referred, will get even less and will be taxed—in some cases for the first time. Should not my hon. Friend be whipping up some fury against this iniquitous Government?
      Mr. Straw: I accept my hon. Friend's criticism. I am always too reasonable with the Government, although I expended a certain amount of what might have been detected as fury in the previous debate.
      Mr. Robin F. Cook: Reasoned indignation.
      Mr. Straw: Reasoned indignation. I shall have similar criticisms to make of the Government later. As well as being furious about the Government's proposals, I believe that this is an unjust change to make at a time when so many poor people, both in an out of work, are facing great difficulties.
      There are also important objections in terms of tax law and the kind of tax system that we develop.
      The second objection relates to the yield from this taxation. To some extent, I accept that the Financial Secretary dealt with the general question of yields. In reply to my intervention he said that the Treasury had produced illustations of the effects of these changes over a three-year period. Will he make projections available to the Standing Committee, taking the possible consequences of these changes over a 10-year period on various realistic assumptions about growth and inflation? Three or four examples of growth and inflation could be given. It cannot be beyond the wit of the Inland Revenue and the Treasury to produce such figures.
      Mr. Ridley: What assumption would the hon. Gentleman have me make about who will win the next general election?
      Mr. Straw: The hon. Gentleman can make whatever assumption he wishes. We should be serious about this. He has often stood at the Dispatch Box or cheered when his right hon. and hon. Friends have stood there defending the Government's record on inflation. He has said that
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      much of what has happened over the past three years on inflation was nothing to do with the Government, that it was the unanticipated result of the so-called world recession and the doubling of oil prices in 1980.
      The inflation that occurred in 1973 and 1974 was to a substantial extent due to the quadrupling of oil prices. It had nothing to do with the change of Government. I concede that some of the inflation with which the Government have had to contend has been due to forces beyond their control. Therefore, if we are to be serious, it is possible to put forward projections of yield on a variety of assumptions. If the hon. Gentleman wishes, I shall write to him setting out possible scenarios.
      For example, we could do a projection on an average rate of inflation of 10 per cent. and nil growth, or 3 per cent. growth. We could do another on an average inflation rate of 5 per cent., again with nil growth or 3 per cent. growth. If the hon. Gentleman wishes to categorise one possibility as more likely under a Labour Government and another as under a Conservative Government, that is up to him, but it is not unreasonable to request those figures.
      We shall not claim that the figures relating to the higher inflation rate are based on the likely outcome under a Conservative Government, provided that the hon. Gentleman does not claim they would be the outcome of a Labour Government. We should leave aside the election and take a serious view of the possible and probable outcome, over the next 10 years, on three or four assumptions. We appreciate that there are uncertainties, but surely it is reasonable to have such projections with an indication of the range of the yield loss that is likely to arise under the changes.
      The third objection to the Government's proposals is the administrative complexity and cost. Because of the always substantial, but now even greater, advantages of capital gains as opposed to income, the Inland Revenue has always had to develop and establish rules to prevent income from being converted into capital for tax purposes. In these changes the Government have had to resort to some fearsomely complicated rules concerning the calculation of gains over the transitional period. As I understand it, although I do not claim fully to comprehend every rule in the Bill—
      Mr. Robert Sheldon: Nobody does.
      Mr. Straw: I am reassured to learn from my right hon. Friend that nobody does. He is probably right. The understanding of these provisions will probably be like that of the Schleswig-Holstein question—confined to three men, one who had moved, one who had gone mad and one who had died. The same is said of the rate support grant—a view with which the Treasury no doubt agrees.
      While we object strongly in principle to the Government's introduction of the scheme at this time, we shall examine critically the way in which they intend to operate it in detail. We have no interest in allowing on to the statute book a scheme which appears to have rules that are arbitrary and difficult to follow if alternatives can be found. On the face of it, the basis of calculating gains over a transitional period seems rather arbitrary. Certainly the proposed rules seem to have satisfied no one.
      No doubt the Chancellor expected bouquets from the Stock Exchange, if from nobody else, when he introduced the changes. Instead, he has received only brickbats from ever ungrateful friends. On Thursday last the chairman of

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      the Stock Exchange was reported in the Financial Times as saying that the proposals were nonsense. Moreover, the Lex column commented on the chairman's remarks as follows:
      "As the Stock Exchange points out, much of the revenue lost to the Exchequer will find its way into the pockets of tax advisers."
      It seems that little of the benefit will actually find its way into the pockets of the taxpayers.
      We shall examine the rules very closely. Under the transitional rules adopted in 1965, when the Labour Government introduced capital gains tax for the first time, for capital quoted as shares a value was fixed on the shares at 6 April 1965, while pro rata rules operated in other cases. If the Government say that similar rules cannot be adopted on this occasion without a loss of yield on the tax overall, we shall have to consider whether an increase in the rate of tax would achieve the same yield on the basis of fairer and more coherent rules.
      I hope that the Financial Secretary will also tell us more today about the administrative costs of the scheme. No one reading the Bill and trying to make head or tail of the chapter on capital gains and the schedules can possibly deny that they are complicated. As my right hon. Friend for Ashton-under-Lyne pointed out, it was some weeks before the full complexity and consequences of the rules dawned even on many who claimed to be experts.
      On 22 October, when asked whether the Treasury had considered indexation of capital gains, the Financial Secretary replied that the yield would be drastically reduced and that the proposal
      "would result in an unwelcome increase in the cost of administration—for taxpayers as well as for the Revenue".—[Official Report, 22 October 1981; Vol. 10, c. 168.]
      The Financial Secretary has said that in that reply he had in mind the indexation not just of prospective gains but of past gains and that was why he replied as he did. I must say that that was not obvious on the face of it. Do those remarks also apply to the cost of administration? What will be the administrative cost of the changes? Will they, as one suspects, add quite substantially to the cost? In particular, what will be the cost of administration as a proportion of the new and much lower yield of this taxation?
      The fourth objection takes up the point made by my hon. Friend the Member for South Ayrshire (Mr. Foulkes)— the overall equity of introducing this change at this time. I have already referred to the selective indexation favoured by the Government. Capital taxation is already far from onerous, and income tax for higher earners has been significantly relaxed, but unemployment benefit has been cut in real terms. Hundreds of thousands of people are denied employment due to reductions in public spending, and the weak and poor are perpetually told that they cannot have the most marginal improvement in their standard of living because the country cannot afford the cost. In those circumstances, one must ask whether now is the time to embark on further gratuitous handouts to the rich and the wealthy. Our answer is that now is not the time. In the present situation there is no justification for this proposal and we shall oppose it.
      7.45 pm
      Mr. Richard Wainwright: The clause and the amendment relate to indexation. I reminded the Committee earlier of the Liberal Party's long advocacy that we should consider taxes year by year on an indexed
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      basis and make such amendments as may be proper against the background of taxes already indexed. The sovereignty of Parliament and its right to range over the whole spectrum, including increases in taxation proposed by Opposition parties, would thus remain intact, but the debate would take place against a background of indexed taxes.
      Earlier, the Financial Secretary tried to show that the Government had a coherent approach—I shall not use the word "philosophy", which would be to degrade a splendid subject—to indexation. He made much play of the fact that the Government were getting round to a consistent indexation of what he described as thresholds. He seemed, however, to be referring to one type of threshold—what might be described as the exempt threshold—and trying to confine the word to those thresholds which gave exemption to taxpayers with a modest liability.
      When I speak of indexation, I mean indexation of all the various thresholds, including those at which higher rates of tax come into play. I am glad to say that not only the Liberal Party but the alliance takes that view. The SDP is with us on this.
      Having made all that fuss about indexation, and having taken that stance, we must consider whether the clause and the amendment are likely to give indexation a bad name. For instance, in the previous Parliament I strongly opposed the various devolution Bills because, ardent federalist Briton that I am and ardent regionalist within Britain, I considered that the Bills were giving that principle a bad name. Naturally, I apply the same criteria to this amendment, which, on balance, will make indexation stink. That is not something that I want to support. It is being applied in the most ham-handed way.
      The only general class of beneficiaries will be professional tax advisers, unless the Financial Secretary, with the full authority of the Treasury, is able to revive the old notion, in which some citizens used to take comfort, that the tax office is one's best friend. If someone were perplexed about the filling up of forms and the making of elections and options were beyond his intelligence, even when he tried to apply himself to it, he did not need to go to the expense of going to a professional adviser; he could take all the papers to the friendly local tax office and be advised impartially, treated as somebody who must be given the utmost consideration and supplied with the most excellent advice.
      It would influence my attitude if the Financial Secretary were able to say that that still holds good, with all the reassuring qualities that it once had, and that all these enormous complexities—I have in my hand a 12-page set of complexities dashed off by a leading firm of accountants since the Finance Bill was published—will be dealt with by tax offices without the intermediation of professional advisers. This would be at no risk to the taxpayer's minimum liability. Unless that assurance is forthcoming, the administrative snags that have been deliberately introduced for the first time into capital gains computations in the Bill will be formidable. They are likely to interfere severely with the working of the stock market because of the drop in the volume of transactions, certainly from very small investors.
      I am sure that the Financial Secretary and many of his colleagues are genuine and effective supporters of wider share ownership. Many of my constituents are employed at one of the largest dyestuffs factories in Europe—the ICI factory in Huddersfield. These people are in on wider

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      share ownership and have been since the 1950s when ICI started that scheme. Various other public companies in the district, wanting to show that what ICI could do they could do in their own smaller way, copied that scheme. Such schemes have on the whole, at least until recently, been a good thing for the employees. These small shareholders will be brought into this mesh. Dealing in their shares for honourable reasons will land them in an administrative mess.
      I do not wish to weary the Committee with anything like all the examples that I have, let alone those that will come to light if the tax has to be administered. However, I shall mention one inconsistency. As the clause stands, disposals are first related to acquisitions within the previous 12 months on a first in, first out, basis. However, on earlier acquisitions we switch to a last in, first out, basis. Traders who started doing that with their stocks for stocktaking purposes would, in some instances, quickly find themselves subject to a back duty investigation, because consistency is required. To muddle up these two contrasting methods of deciding how to value the items involved is to ask for trouble. It cannot be justified on any intellectual basis.
      There is also the requirement that assets must be held for 12 months to qualify for indexation. I agree that one of the worst aspects of this method of computation is that, as indexation starts only this year, it will give greater advantage on past gains to the relatively short-term holder to the disadvantage of the longer-term investor.
      I am surprised that the Government should want to give the comparatively short-term holder, who starts to hold the shares at the same time as the indexation starts, a more favourable deal than is given to genuine long-term investors in a company who have been standing by while it builds up its business over the years before 1982.
      When it comes to the very short-term investor, apparently there has to be the 12-month rule. That has created a whole host of precautionary regulations to prevent spouses transferring assets in such a way as to obtain an indexation allowance on a third party sale. I could go on with the administrative horrors that will be created for the first time, adding to the cat's-cradle of our tax regulations, and will bear particularly hard on those who realise relatively small parcels of shares.
      Will the clause give indexation a bad name when the ordinary citizen sees what indexation involves him or her in? I hope that the Financial Secretary will explain why losses are not to be subject to indexation. What is the justification? I am glad that the subject will be argued fully, but it is difficult to understand why indexation should apparently be made to stop short of creating a tax loss or converting an apparent inflationary gain into a real loss.
      Unless the Financial Secretary can give me a series of reassurances on the apparent grave inadequacies in the clause as drafted, I shall feel bound to recommend my right hon. and hon. Friends to oppose it for the reasons that I have given.
      Mr. Mark Lennox-Boyd: I did not intend to speak on this amendment, but there are one or two matters that I should like to raise because I am somewhat puzzled by them. I am happy to follow the hon. Member for Colne Valley (Mr. Wainwright) because, if
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      he looks at the amendment carefully, he may find that he can support it. As I understand it, amendment 22 deletes paragraph (b) from clause 71(1). That exempts for the first 12 months holding period any assets from the indexation of capital gains. I should have thought that the hon. Member for Colne Valley would be happy to accept that amendment, as I would. However, I doubt whether that is what the hon. Member for Blackburn (Mr. Straw) had in mind when he moved the amendment.
      There are two small points that I should like to draw to the attention of the Committee, and in particular to that of the hon. Member for Blackburn. He elaborated the argument that the original intention of the flat rate 30 per cent. was as an offset for inflationary gain and that it would have been higher had inflation not been taken into account. He went on to say that that argument in 1965 was given tacit approval by the Conservative Government of 1970–74. However, if he examines the course of history, he will have to accept that no one at that time could possibly have expected the levels of inflation that have occurred since 1965. The pound in 1969 purchased goods that would require £5 today on the retail price index. Since 1969 money has declined to one fifth of its value. Therefore, any taxation of 30 per cent. on a gain between 1969 and today of 500 per cent., which is wholly attributed to inflation, will result in a substantial wealth tax, if that is a more appropriate phrase to use.
      8 pm
      The hon. Member for Blackburn further suggested that the fact that the yield on capital gains tax had gone down in those intervening years was an argument for suggesting that not much needed to be done in any sense of equity. However, whatever arguments there may be on equity, they are fallacious. The substantial reason why the yield has gone down is that between 1969 and today the stock market has hardly moved. In the whole range of investors in the stock market no one has been able to obtain capital gains that would have kept up the yield in inflationary times as well.
      I should like the hon. Member for Blackburn to consider another form of investor who is not among the very rich—the man who has had a second home since about 1970. Can he be expected to be able to do bed and breakfast, if that is something that helps the investor on the stock market?
      Mr. Ridley: The hon. Member for Blackburn (Mr. Straw) said that the Bill had proved to be extremely difficult to understand. I do not believe that the subsection with which we are dealing can be that difficult to understand as my hon. Friend the Member for Morecambe and Lonsdale (Mr. Lennox-Boyd) certainly understood it. The amendment would abolish the twelve-months ban on getting the exemption allowance. The hon. Member for Colne Valley (Mr. Wainwright) referred to that. I shall return to the substance of that point when I respond to what the hon. Gentleman said. It would cost £20 million next year and £80 million in a full year if we were to accept the amendment. Though it would be nice to accept the amendment and tempted though I am to do so, I am not sure that we can afford the extra cost that would be involved in such a big concession.
      The hon. Member for Blackburn moved the debate to wider considerations. We considered the rate on real gains. He referred to the 1977 Green Paper on the future of capital gains tax. He fairly said that the reason why a

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      30 per cent. flat rate had been set was that it would have to cover inflation. He quoted from the Green Paper, which stated that
      "the gains might have accrued over a longish period, but were being charged to tax in one year".
      I shall return to that point in a moment.
      The hon. Gentleman said that the yield had dropped because of various devices that people got round. The yield has risen from £324 million to £508 million. That is excluding gains made by companies, which are individuals' gains only. It is less than the increase in the cost of living. I do not accept that that is due to bed and breakfasting.
      The yield continued to decline in real terms when the Labour Government were in power and had a lower threshold of only £1,000 and even less at the beginning. Bed and breakfasting may enable gains to be set off against losses, but where genuine gains are being made that is of no help. As the hon. Member for Colne Valley said, perhaps we should look to the treatment of losses. I do not believe that bed and breakfasting, which sets off a loss against a gain, is something about which we should complain. It does not rob the Revenue. The only way of robbing the Revenue is not to sell an asset that is full of gain and on which one would pay regular tax if one sold it.
      The reason for the fall in the capital gains tax yield is that equity shares have performed no better than money and have gone down considerably in real terms over the period of the tax. Therefore, there have been, let alone no gains, real losses in capital by many people who have held equity shares. That is bad for industrial investment and jobs. That is one reason.
      Another reason is the exemption for capital gains tax for those who hold gilts over a year. They have tended to invest in gilts to some extent to the disadvantage of equities. They will not pay any tax if they invest in gilts. The gains of many people are still bottled up and have not been realised. There are people with land, second houses and many other forms of assets that are difficult to sell and impossible to bed and breakfast. One cannot bed and breakfast a work of art, a field or a farm. Such assets are stored up. There is a vague estimate that the total value of unrealised gains could be about £20 billion. Therefore, the matter depends on when people choose to realise those gains. With tax such as it has been, they have tried to hold on as long as possible and not to realise them.
      The hon. Member for Blackburn referred to the form of the tax. On reflection, I do not think that it would be right to have real gains charged to income tax rates. Supposing a man spends his life building up a small business, which becomes a middle sized business, he retires and has made a good sum of money through that prosperous and successful business. That is the typical business that we have been talking about. In the year that he retires a large capital sum is realised. Nearly all of it is gain. It is all applied to his income in tax at 75 per cent. and he is left with practically nothing. That is not what we should do.
      Mr. Campbell-Savours: That is an exaggeration.
      Mr. Ridley: Exaggeration? I have never heard anything so ridiculous in all my life. It is not an exaggeration. The proposition from the Opposition Front Bench was that a man who makes a real gain should have it charged as income tax, presumably at higher rates, when
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      he realises it. That could take away three quarters of a man's labours in a year. The point is made in the Green Paper published in 1977. It states that
      "gains might have accrued over a longish period but were being charged to tax in one year".
      There must be an element of gains that accrue over a longish period that are being charged to tax over a longish period or not at punitive rates of income tax or higher rates of income tax.
      Mr. Straw: As I understand it, the small business man would receive substantial relief as a result of the retirement provisions. A Labour Government would make arrangements for those to continue. I was referring to the principle whether, once inflationary gains had been excised altogether from charge, the residual gains, which would be much less than in the Financial Secretary's example, should not in principle be brought into charge and income tax. I do not understand why they should not.
      Mr. Ridley: The hon. Member wishes to make a thoughtful contribution about the right future development of the tax. I would welcome it if he would agree with us that the tax should at least be indexed. That, indeed, was the position of the Labour Government.
      There are imperfections, as I accepted earlier. But we should try to correct them and consider soberly and unrancorously the right way forward. I do not accept that a charge to income tax was preferable to some form of flat rate charge. The extreme example which I gave earlier shows the lack of wisdom of that course of action.. We are right to stay with a flat rate and not to charge it all to income. It may be that we are dealing with a man's main asset, his life's work, his entire capital. Suddenly to charge that to income in one year cannot be right.
      The hon. Member for Blackburn asked about the future yield. I would seek to answer any parliamentary questions that the hon. Gentleman tabled; I always do. The Inland Revenue might tell me that the questions would cost more than £50 to answer or involve an unacceptable degree of speculation, but there would be no harm in him trying.
      It would be fairly meaningless to try to predict the rate of inflation and the rate of growth three, five or 10 years hence and the rate of economic activity which would engender real gain. The hon. Gentleman can give us his assumptions about them. There is a paradox in what he seeks to do. I suspect that he is seeking to prove that our indexation of the tax will cost the Revenue a great deal. That would be true only if inflation was high. We would enable him to make extremely ferocious speeches from the Opposition Front Bench if we were to assume the type of rates of inflation which would be associated with the economic policies of his right hon. Friend the Member for Stepney and Poplar (Mr. Shore). Therefore, I should like to fit into the model a 50 per cent. rate of inflation which would allow the hon. Gentleman to demonstrate what a great deal it would cost to index capital gains tax when we had a 50 per cent. rate of inflation.
      The cost of administration is another important aspect. The hon. Member for Colne Valley said that we are trying to make a complex change. I agree that it is complicated. In all that we have said about our attempts to increase capital gains tax, we have warned that it would be extremely complicated. Certainly any attempt to increase tax on past capital gains would make it even more complicated. An attempt to re-base the valuation on assets as at 6 April 1982 would add even more complication.

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      We had it very much in mind when designing the reforms that we needed to set the complication and the cost of administration as low as possible. We always said, as did the Labour Government's Green Paper, that any attempt to have justice in this area would be very complicated.
      8.15 pm
      Mr. Richard Wainwright: The Financial Secretary has presented the Government's criterion as simply a matter of complication. Is it not true that the Government must have equated the cost to the Exchequer and complication? He said that to index from the start of the tax would be very complicated. In deciding not to do that, were the Government also bearing in mind the cost of the operation?
      Mr. Ridley: We most certainly were. The £5,000 exempt allowance releases 65,000 people from paying capital gains tax in the future. That in itself saves complication and cost of collection, because it is well known that the more people one can let out of any tax the fewer tax inspectors are needed to gather it.
      I shall deal with the other point made by the hon. Member for Colne Valley and my hon. Friend the Member for Rossendale (Mr. Trippier) about the different starting base for the indexation allowance when we come to amendment 36.
      Mr. Straw: Before we leave the question of complexity, what figures does the Financial Secretary have about the administrative cost as a proportion of the yield and how that relates to earlier years?
      Mr. Ridley: I cannot do so now, but I shall give that information to the hon. Gentleman. There is an initial small increase in staff of about 20 for one year, which dies away and becomes a reduction in staff after some time. However, I am speaking from memory and I cannot give that as a proportion of the yield. It is difficult to convert staff into money in the middle of a speech.
      As the hon. Member for Colne Valley knows, this amendment would greatly reduce the complications of the 12-month rule. It would also greatly increase the costs by £80 million in a full year. The Committee may wish to make that change, but I detected some reluctance in the hon. Member for Blackburn to press his amendment. I am not sure that I can promise to follow him into the Lobby if he presses this amendment. I would be with him in spirit, but the cost of it would make me tardy to follow him through the doors, even perhaps to turn into the Opposition Lobby. It may be wiser if the hon. Gentleman does not press the amendment to a Division.
      Mr. Straw: I explained at the outset that the Opposition regarded the amendment as a vehicle for debate. The hon. Member for Morecambe and Lonsdale (Mr. Lennox-Boyd) was not present when I said that. I also repeated what the hon. Member for Colne Valley (Mr. Wainwright) said about the problems that face the Opposition when drafting amendments.
      I am grateful to the Financial Secretary for confirming that there will be an increase in the number of staff to administer the proposed change. That increase, even though it is only 20 jobs, must be set against the significant reduction in the yield of the tax, even on the Treasury's own estimates.
      Mr. Ridley: There will be no reduction in the yield of the tax in the year in which there is an increase in staff. By the time that there is a reduction in the yield, there will also be a reduction in the number of staff.
      Mr. Straw: As I cannot make such calculations while on my feet, I shall look forward to seeing evidence of what the Financial Secretary has promised. The Opposition believe that the administrative costs are likely to increase.
      The Financial Secretary referred to the Labour Government. Governments are judged by their actions. It is not true that the Labour Government favoured indexing capital gains, if by that the Financial Secretary insinuates that the Labour Party is in favour of indexing capital gains now and in this way. In response to comments made on the 1977 Finance Bill, the Labour Government published a consultative Green Paper by the Inland Revenue. That document set out the advantages and disadvantages of indexation. The then Minister of State, Treasury, my right hon. Friend the Member for Llanelli (Mr. Davies), said that the Government would not go ahead with the indexation of capital gains because they regarded that as unfair when the indexation of incomes was not being proceeded with. That should be clearly placed on the record.
      The responsibility for this change lies with the present Government. They cannot pray in aid a Green Paper which, by its very nature, was consultative, and which the Labour Government, in the light of the representations that they received, deliberately decided to take no action on.
      The Opposition recognise that there are serious defects in the amendment. As it will cost money at a time when we are trying to save money for the Government with regard to capital gains tax, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Sir William Clark: I beg to move amendment No. 26, in page 52, line 28, leave out paragraph (c).
      The Chairman: With this it will be convenient to take amendment No. 27, in page 53, line 14, leave out subsection (5).
      Sir William Clark: I agree with the indexation of capital taxes, but many other hon. Members must agree that the way in which the Government have done it has made it complicated for accountants. I declare an interest. I am an accountant, although I do not practise. Nevertheless, we are presumably stuck with it. I have always advocated that the rough way of indexation is to reduce the rate of capital gains tax. In other words, it starts at 30 per cent. for those holding an asset for one year who then sell it. If the asset is held for two years, the tax should be 25 per cent., then 20 per cent. and continue tapering off. That would be simple within six years. Administrative costs would be minimal.
      Every time that it is advanced, the Inland Revenue says that such a system would be very complicated. Although I say it with the greatest deference and diffidence, I am absolutely certain that the Inland Revenue has put forward that argument under Governments of both parties, because it was trying to think of something else to say to justify the "Resist" written at the top of the Minister's brief. It picked any excuse for saying that it would be too complicated.
      A five-point drop in taxation each year means that if one held an asset for six years no capital gains tax would

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      be payable. That may be considered too long. There could be tranches of two years so that it is phased out over 12 years. If that does not meet the Revenue's approval, it can be done over 18 years. We are making heavy weather about indexation.
      It has been long established in our taxation that we deal with profits and losses in a consistent manner. I am delighted that the hon. Member for Colne Valley (Mr. Wainwright) raised this point. The introduction of indexation, complicated as the Government have made it, is nevertheless an important step in taxing real profits. We shall come to the inflationary element in the sale of assets on amendment No. 36. It is, however, illogical and inequitable not to adjust losses in the same manner, from a computation point of view, as one adjusts profits.
      I give two examples; I am sure that there are many more. If one purchases an asset costing 100 units, assuming that the indexed cost is 130 units, and the owner sells the asset for 120 units, he has made an indexed paper loss of 10 units. According to my reading of the clause, the 10 units are not allowed to be carried forward.
      Another example is the investor who purchases two assets for 100 units each and sells them over a period. I propose to assume that the indexation cost of both the assets he has purchased has doubled. Consequently, the indexation cost will be 200 for the first asset and 200 for the second. If he sells the first asset for 250 units, showing a profit of 50 units, and sells the other at 150 units, showing a loss, he will be liable, according to my reading of the Bill, for a capital gains tax on 50 units because he cannot, on the second asset, take the shortfall on his indexation.
      I do not know what my hon. Friend intends to say, but if he cannot give me an assurance tonight, and if capital gains tax is to be indexed, there must be an examination of the matter again between now and Report. If it is right to index where there is a profit, it is also right to index where there may be a loss. Otherwise, the consistency and logicality of taxation are lost.
      8.30 pm
      Mr. Ridley: I am grateful to my hon. Friend the Member for Croydon, South (Sir W. Clark) for raising an important issue. Admittedly, the case has to be argued against the powerful position that my hon. Friend has put forward. The immediate and apparent symmetry and logic of what he said are difficult to resist. If he goes into it in greater depth he may see what made the Government propose not to allow the indexation of losses.
      I make no great argument about it, because we are talking here about the form and shape of the tax, but the cost of the concession that my hon. Friend is seeking would be nothing in the present year, £6 million in 1983–84 and £20 million in a full year. That is another £20 million, which would have to be added to the cost of the changes that we are making. That is the gravamen of what I want to argue.
      Going back to the last debate, the hon. Member for Come Valley (Mr. Wainwright) made the point forcefully that the complication was bad enough as it was, that the number of staff involved was great and that the number of difficulties for taxpayers was even greater. If we were to allow the indexation and the carrying forward of losses, every taxpayer who made an indexed loss would want to have that loss agreed with the Revenue and put into his portfolio, as it were, to be carried forward year after year.
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      The identifying of all these losses, agreeing their indexation and then recording that they had been made as they were carried forward would be a mammoth clerical operation.
      Sir William Clark: Will my hon. Friend forgive me if I tell him that that is not what will happen? If one makes a profit on one stock, on whatever it is indexed at, and gets the actual profit on that, and in the same year sells stock that has not been indexed because it has been sold at a loss, there is no carry forward. It would be set off against the total capital gains tax of that fiscal year.
      Mr. Ridley: As my hon. Friend knows, at present one can carry forward losses, but only losses which are in terms of money of the day. One cannot carry forward gains. This brings me to the point that he made about the symmetry of the taxes. They are not symmetrical now, because one can carry forward a loss until such time as one has a gain to set it against, but one cannot carry forward a gain until such time as one has a loss to set it against. The proposition here is not whether we allow losses against gains, nor whether it shall be possible to carry them forward, but whether losses should be indexed.
      To allow the indexation of losses is different from allowing simply the recording of losses. The evidence of a loss having been made is easy to produce in ordinary money terms. If one buys a share for £100 and sells it for £80, there is a loss of £20. If the losses are indexed, every share in the portfolio and every share that is sold will have to be indexed even though there is little or no chance of those losses being used, because the losses will have to be accepted at their new indexed value by the tax inspector.
      We estimate that there will be about half a million such losses a year to be recorded, agreed and carried forward and that this would involve about 2,000 extra Inland Revenue staff. There might be about £20 billion of gains floating about, so people would be trying to carry forward as much indexed loss as they could. We are trying to avoid those immense complications.
      Sir William Clark: My hon. Friend and I are at cross-purposes and are arguing a different point. The indexation here indexes the cost of the assets. That is the base. Instead of being 100 units it will be 130, or whatever the index may be. The profit or loss when one sells it is the difference between the 130 and the proceeds. In some cases there will a profit and in others there will a loss If one has 10 assets costing 100 units each, when they are indexed up they may be worth, say, 1,300 units. I am saying that, whether they are sold at a profit or a loss, the cost of the assets should then total 1,300 units. That is very different from the indexation of a loss or a profit. The indexation of the cost determines whether one has made a loss or a profit
      Mr. Ridley: It is difficult to follow my hon. Friend's arithmetic. We need a blackboard. I am dealing only with the proposition in my hon. Friend's amendment, which is that the losses should be indexed. My hon. Friend may not be saying that, but that is what the amendment says.
      Sir William Clark: No. I might accept that there is something wrong with the amendment, but its spirit is that we have gone for indexation in the same way as the Government have. The indexation here merely indexes the cost, which is the basis of the computation of one's profit or loss when one sells the asset. As there is a difference

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      between my hon. Friend and myself, why cannot the Government reconsider the matter? I do not accept that the amendment would mean 2,000 more staff in the Inland Revenue. I cannot see how that could be. If one can index the cost of assets that one sells at a profit, one can also index just as easily the cost of those that one sells at a loss.
      Mr. Ridley: I do not deny that. I do not think that we are arguing about different amendments. I withdraw that allegation now that I have heard my hon. Friend once again. My point is that at present there are many losses, even with inflation. If we add to those losses indexation losses—
      Sir William Clark: I am not trying to index existing losses. The indexation would start on 6 April 1982, and any losses carried forward would be carried forward at whatever they were. I am saying that with regard to any sale from April 1982, whenever that sale occurs, the cost of the assets will be indexed, whether they are sold at a loss or at a profit. That will give a true capital gains tax. If my amendment covers previous losses, I apologise, because it is not intended to cover a carry forward.
      Mr. Ridley: My bon. Friend did not allow me to finish my sentence. I did not allege that his amendment sought to index past losses. I was saying that from now on there would be many more losses, because there would not simply be a loss when one's share went from 100 to 80. A loss would be shown if, the original purchase price having been indexed, one did not sell the share for more at the end of the period.
      Sir William Clark: No.
      Mr. Ridley: I shall repeat that, if my hon. Friend does not get it. There would be many more indexed losses recorded than there are losses now, because we are taking the inflationary element out of the tax. People will wish to record and to agree with the tax inspector that they have those losses. That is a facility that one could not deny them. We cannot be in the business of recording half a million losses a year, with all the staff implications that that would have, in order to allow people to carry such losses forward.
      Sir David Price (Eastleigh): What is my hon. Friend's basis for saying that the Inland Revenue would have to record half a million losses? I have no idea what the figure would be, but he asserts that that would be the number. How does he know?
      Mr. Ridley: The Inland Revenue alone can tell what the consequences would be. It says that it would require 2,000 extra staff to record the extra losses if there were indexation of losses.
      I have been asked to give the figures for staff and I have given them, and in all cases they have been accepted. Just to say that the Inland Revenue is wrong does not seem to get us any further in this debate. This is why, although I understand the symmetry that my hon. Friend seeks, it does not seem to me that we can involve ouselves in a complication of this magnitude, especially when what we are trying to do is to make this tax one that will be accepted as fair by those who have to pay it.
      If we have made the concessions of indexing gains and providing a higher exempt allowance, they are, of course,
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      concessions, for the sake of avoiding complication, which were meant to cover the omission to do things like this, because things like this are so expensive and complicated.
      Sir David Price: It had not been my intention to divert the Committee's attention towards my own thoughts on the amendment, but, having heard my hon. Friend, I feel it necessary to say a word or two. I cannot see what this extra work is about which the Financial Secretary has made such a fuss, because the basic calculation in working out the indexation of, for example, a portfolio of shares is the same whether it is a gain or a loss.
      It may be that what my hon. Friend the Financial Secretary is suggesting is that the form of indexation proposed in the clause may not be right way of doing it, but I did not produce this method. He and my right hon. Friend the Chancellor did. It is not me and my hon. Friend who are being inconsistent. I suggest that it is my hon. Friend the Financial Secretary who is being inconsitent. He says that the amendment will involve 2,000 more Inland Revenue staff. With the greatest respect to the Inland Revenue, just to give us that figure and say that it covers half a million transactions is not sufficient evidence. I apologise for being a sceptical character but I should like a little more information to support that contention.
      Mr. Maxton: We heard earlier that only 135,000 people affected by the changes under the clause would be paying capital gains tax. It seems to me that half a million loss transactions between 135,000 people paying capital gains tax is a large number.
      Sir David Price: I suggest that the Inland Revenue's estimate of 2,000 extra staff ignores that we are in the age of computers. We know that all stockbrokers have their portfolios on computers and can run them through their computers easily.
      The Inland Revenue is still moving towards the computerisation of income tax. It is being slow about it. I remember being told years ago on the Select Committee that considered the tax credit scheme in 1973–74 that perhaps it would be computerised within four or five years. I am told that is still the standard figure of the Inland Revenue for the timetable on computerisation. Nevertheless, one day it will get there. Therefore, I do not regard this as a major obstacle.
      I always thought that my hon. Friend was an ally of the taxpayer. I quarrel with his use of the phrase that it would be a tax concession to produce this fiscal consistency. I never thought that I would hear those words from the lips of my hon. Friend. He disappoints me. I thought that he was on the side of the people, taxpayers, and not on that of the tax gatherer. Of course, we have these little lacunae from time to time. However, as I told the Committee, it was not my intention to intervene, but merely to listen to the wisdom of my hon. Friends. Nevertheless, I am so disappointed with my hon. Friend the Financial Secretary that I feel I must record my disappointment.
      Mr. Ridley: I take my hon. Friend for Eastleigh (Sir D. Price) through the argument, which perhaps I have not put across properly. If there is indexation of the basic cost of an asset, which is then sold in the future, not in the past, a very much greater number of transactions than hitherto turn out to be losses. That is a measure of the unfairness of capital gains tax in the past. Many real losses have not

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      been shown as losses. Such is the iniquity of what we have been inflicting upon the taxpayer that the costs of recording the increased scale of losses which indexation would reveal would involve an additional 2,000 staff.
      Sir William Clark indicated dissent
      8.45 pm
      Mr. Ridley: My hon. Friend does not believe that. He can only take the advice that the Revenue gives us. I have no means of checking it, nor has he. It will be a sober moment for the Committee when it realises how many real losses the Revenue has been taxing as paper gains and when it appreciates the implications of trying to index losses.
      Mr. Maxton: Am I right in saying that the hon. Member for Croydon, South (Sir W. Clark) is seeking to put into real terms what the value of a portfolio would be over 12 months? Certainly his hon. Friend the Member for Eastleigh (Sir D. Price) is seeking to do so. I find it remarkable that they should be taking that approach when the Government, with their wholehearted support, have stopped using real terms when talking about public expenditure.
      Sir William Clark: Are the Government prepared to consider this matter between now and Report?
      Mr. Straw: An occasion on which the hon. Member for Croydon, South (Sir. W. Clark) proposes an increase of 2,000 civil servants should not go unnoticed on the Opposition Benches. Indeed, it will not go unnoticed on many occasions in future.
      Sir David Price: My hon. Friend the Member for Croydon, South (Sir W. Clark) and I do not accept the estimate of an additional 2,000 civil servants. I spent the early part of my life in work study and I should like to see staff figures in more detail. In matters of taxation there are many things that we do not accept without question. However, it seems that it is the gospel of my hon. Friend the Financial Secretary to the Treasury that the number of staff of the Inland Revenue is beyond question. I am sorry, but it is not beyond question. I do not accept the estimate of 2,000.
      Mr. Campbell-Savours: If the hon. Gentleman is so concerned about the real statistics, perhaps he will agree to table a written question so that we may all study the answer.
      Sir David Price: The hon. Gentleman encourages me. I wish always to be helpful to the House of Commons.
      Sir William Clark: I apologise for having kept the Committee for so long on what I thought was a simple amendment. I am extremely disappointed by the Financial Secretary's response, but to facilitate progress I beg to ask leave to withdraw the amendment
      Mr. Foulkes: Coward.
      Amendment, by leave, withdrawn.
      Mr. Charles Morrison: I beg to move amendment No. 31, in page 52, line 41, at end insert
      `and any sum which, in the computation of the chargeable gain, was taken into account by virtue of subsection (5) of section 79 of the Finance Act 1980'.
      As the Committee knows, clause 71, as it stands, allows for indexation of two types of expenditure in
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      computing capital gains—the original cost or acquisition value of the asset, and subsequent capital expenditure on enhancement of its value.
      Two other items are normally deductible in calculating capital gains—the incidental costs of making the disposal, which by their nature would not need indexation, and any capital transfer tax paid on the transfer of the asset by gift to the present owner.
      My amendment seeks to apply indexation to the capital transfer tax paid. It comes into the computation by virtue of section 79 of the Finance Act 1980 which was introduced to reduce double taxation on gifts of assets.
      Although there may be some theoretical objection to indexing past payments of tax, it is difficult to see that there is any real difference in principle. Capital transfer tax is paid following the gift of the asset. From the point of view of the current owner, it is a price that has to be paid to ensure his title to the asset. In fact, the CTT is part of the capital cost, or, to coin a phrase used by the Minister, it is part of the basic cost of the asset. Therefore, there does not seem to be any particular reason why it should not be included in the indexation.
      The Committee will not be surprised to know that the amendment has the strong support of the National Farmers Union, of which I am a member. The NFU is concerned with the best interests of its members. The amendment will also be of considerable interest and importance to many small business men and shopkeepers. Therefore, I shall be pleased if my hon. Friend decides to accept the amendment. If not, I hope that he will keep an open mind and give the matter further consideration.
      Mr. Ridley: I am grateful to my hon. Friend the Member for Devizes (Mr. Morrison) for bringing this matter to our attention. As he said, the amendment would extend indexation to capital transfer tax which was taken into account on the subsequent disposal of an asset which had qualified for the general rollover relief for gifts. The indexation allowance is calculated by reference to relevant allowable expenditure—broadly, the cost of acquiring an asset and any sums spent on enhancing its value. The capital transfer tax which is taken into account on the subsequent disposal of an asset, which has quaffed for the general rollover relief for gifts, does not fall into either of these categories and, therefore, it is excluded from indexation.
      The Government are not proposing to index the whole of capital gains tax. That would be prohibitively costly. The new relief concentrates on the injustice of imposing a charge on paper gains by providing relief for the effect of inflation occurring after March 1982.
      Many aspects of the capital gains tax regime are not to be indexed. We have just had a fairly good example of that in the case of losses, which my hon. Friend the Member for Croydon, South (Sir W. Clark) feels should be indexed. Another example is the amount allowed under section 79(5). A third example would be the credit given for foreign tax paid.
      The amount allowed under section 79(5) is a sum of capital transfer tax. There is no reason, in principle, to index it when the amount of tax is not being adjusted for inflation. The effect of section 79 is to defer the payment of the capital gains tax liability. Subsection (5) then exempts from charge a sum equal to the capital transfer tax liability. The taxpayer is already obtaining a substantial advantage by having the use of the money until any capital

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      gains tax falls due, and he is not losing through inflation. Therefore, our current opinion is that such an indexation adjustment is not justified.
      As my hon. Friend made an express request, I shall re-examine the matter. If there is any reason for departing from that course, I shall let him know, but that is how the Government feel about it.
      Mr. Foulkes: I should like to seek your guidance, Mr. Armstrong, on a general matter that is not unconnected with the amendment.
      Last year, I was a member of the Committee on the Finance Bill, and the Committee of Selection has favoured me, yet again, with that privilege this year. Last year, several of my colleagues, including my hon. Friends the Members for Workington (Mr. Campbell-Savours) and Glasgow, Cathcart (Mr. Maxton), and I raised the point that the Finance Bill was different from other Bills and from general debates in the House. When debating the Finance Bill in Committee, hon. Members can move amendments that will result in a direct pecuniary advantage to them. Different issues are raised from those covered by the general declaration of interest, which is published in the annual declaration of interests. It would help if, before the Committee begins upstairs, you could guide hon. Members on that matter. Last year, it caused great concern.
      The Second Deputy Chairman (Mr. Ernest Armstrong): As the hon. Gentleman knows, hon. Members are required to declare their interests. It is a matter for each hon. Member, but I understand that the hon. Member for Devizes (Mr. Morrison) declared his interest
      Mr. Charles Morrison: My interests are set out in the register. I said that I was a member of the National Farmers Union, although I did not do so at the beginning of my remarks. I apologise if I misled the hon. Member for South Ayrshire (Mr. Foulkes)
      Mr. Ridley: It is not standard practice, even in the House, to go so far as to declare that one is a member of a union before putting forward its interests. I congratulate my hon. Friend on his honesty and honour.
      Mr. Morrison: I am grateful to my hon. Friend for his congratulations. I was a little disappointed by his initial reply, but I was glad to note that it was merely his current opinion that the indexation of capital transfer tax was not justified and that he would give the matter further consideration. On that basis, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Sir William Clark: I beg to move amendment No. 36, in page 52, line 41, at end insert
      `provided always that the taxpayer in relation to whom capital gains tax falls to be calculated on any disposal of an asset to which this section applies may elect that the amount of "relevant allowable expenditure" shall not be as otherwise provided herein but shall be the market value of the asset on the disposal of which this section applies as at 1st April 1982 if the disposal is by a company and as at 6th April 1982 in all other cases and such election as mentioned above shall be notified to the Board of Inland Revenue within twelve months from the receipt by the taxpayer of the notice of assessment in relation to that disposal'.
      This debate need not be as acrimonious as the last one. I hope that the Government will agree to consider the
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      amendment. I accept the principle of indexation. During the debate on a previous amendment I said that the Government were being pretty heavy handed in the way that they operated the indexation. However, there is an anomaly and an injustice about the cost of an asset before 1982. As a result of indexation, only real capital gains will be taxed from 1982. However, before 1982 there is nothing to relieve the huge inflation that took place before that.
      For example, someone who purchased an asset in 1965 for £10,000 would find that his asset—without any increase in its real worth—was worth £43,000 because there had been an inflation rate of 430 per cent. between 1965 and today. On paper, that means that if the asset is sold for that figure, there is a £33,000 profit on which capital gains tax is payable. I accept that the Chief Secretary has increased the exemption. As a result, the profit is reduced by £5,000 from £33,000 to £28,000. Therefore, on the inflation element between 1965 and 1982, there is a capital gains tax liability of £28,000, which is £8,400.
      Although great strides have been made to alleviate some of the capital gains anomalies, we still have a long way to go. I am asking for a revaluation of all assets on 5 April 1982. I am sure that hon. members will recollect that, when capital gains tax was amended, 5 April 1965 was the date on which those owning assets could have them revalued. I suggest that we take 5 April 1982 for a revaluation and start from there.
      I am not necessarily wedded to that date. I should be happy if the Financial Secretary were to say that we should take 1981. Indeed, I should be happy if he said that we should take 1975 or 1976. However, I hope that my hon. Friend will consider the amendment or give an undertaking to consider the matter between now and the next Budget. I hope that he will consider the pre-1982 inflation. I remind the Committee that between 1965 and 1982 inflation was extremely high and is built into the capital gains liability of many people who own assets.
      I hope that the Financial Secretary will be a little sympathetic to my amendment.
      9 pm
      Mr. Lennox-Boyd: The gravamen of the amendment is to meet the problem that there cannot be protection against future gains induced by inflation on assets which have been held for several years and have increased in value during a period of inflation. I hope that my hon. Friend accepts that that is one of the anomalies in the Goverment's proposals. I assume that he accepts my statement. I do not see him nodding his head, but I shall not argue the point
      Mr. Ridley indiated assent
      Mr. Lennox-Boyd: I take it that my hon. Friend is now nodding his approval.
      To satisfy the hon. Member for South Ayrshire (Mr. Foulkes), I should say that I probably stand to gain from the amendment. However, I support the amendment because my hon. Friend the Financial Secretary and my right hon. and learned Friend the Chancellor of the Exchequer both said during the Budget debate that they sought to protect investors against future capital gains induced by inflation. My hon. Friend said:
      "Although we were unable to apply the relaxation to past gains, for the future no one who merely maintains the value of

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      his investment will pay tax except in relation to his first year of holding the asset."—[Official Report, 10 March 1982; Vol. 19, cc. 938–9.]
      The Bill does not meet that statement. If my hon. Friend cannot accept the amendment, is that because of the cost entailed or for technical reasons? I doubt whether it is the former reason. If it is for the latter reason and he believes that it would be awkward to have a base date of April 1982, surely that is inconsistent. We have to accept a base date of 1965 which institutes the whole capital gains tax procedure.
      Mr. Beaumont-Dark: I have a modest interest in this matter.
      Mr. Foulkes: The hon. Gentleman is here to represent Selly Oak and not his own interests.
      Mr. Beaumont-Dark: This is an amazing place. If one says that one has an interest to declare, others say that one should not have it. If one does not declare it, it is said that one should. If the hon. Gentleman had let me finish, I should have said that I had an interest to declare.
      My interest is that most people I know, including myself, have invested far more for long-term gain than for short-term gain. They have invested in the long-term future of industry and business in Birmingham. Those who have held longest now find themselves likely to pay more capital gains tax than those who bought for very short-term advantage over, for example, the past two years rather than 18 years.
      My right hon. and learned Friend the Chancellor, whom I applauded from this very seat, said in his excellent speech:
      "It is intolerable for people to be permanently condemned to pay tax on gains that are apparent but not real".
      He later said:
      "the tax…ought never to have been levied in the first place. This change is no more than simple justice." [Official Report, 9 March 1982; Vol. 19, c. 755.]
      We are talking here about simple justice.
      The Inland Revenue has a wonderful habit, which would be enviable were it not usually for the wrong reasons, of always being able to turn something that is fair, just, sensible and intended to alleviate pressure on people and investment into a veritable lead balloon. Reading this turgid prose, one certainly has the feeling that this proposal was very quickly dusted down and shoved into a Finance Bill.
      I know that some hon. Members regard capital gains as next to mortal or even immortal sin, but I hope that the Committee will recognise the virtue in the idea that those who have held for many years and whom we wish to encourage to hold should not be at less advantage than those who have held for only two years. I believe that the Government will gain in revenue, prestige and appreciation if they consider the virtue of that.
      Mr. Richard Wainwright: Does the hon. Gentleman, with his great experience in these matters, agree that the poor treatment of long-term shareholders in the Bill will not only penalise such holders but also damage the reputation of the Stock Exchange? The Stock Exchange will become far more a place for those who have held for a short time to deal in their shares, while the long-term holder will rule less in Stock Exchange dealings. Thus, the surely false allegation that the Stock Exchange is a casino may be brought a little nearer because the long-term holder will be so much discouraged.
      Mr. Beaumont-Dark: The point that the hon. Member makes is that the great idea of investment is that it should be investment, and that it should encourage long-term holdings.
      The good intention of the Government could be brought about, with little loss in revenue, if the date were changed. I recognise that the Government, rightly, say that they do not want to reward short-term holders. The way around that is to accept 6 April 1981 as a base date and to start from there. We cannot keep the 1965 date as the base for ever. If we talk about indexing and updating, the next thing to do is to index and update the time limit. I hope that the Government will do something about this anachronism.
      Mr. Ridley: My hon. Friends the Members for Croydon, South (Sir W. Clark), Morecambe and Lonsdale (Mr. Lennox-Boyd) and Birmingham, Selly Oak (Mr. Beaumont-Dark) have put forward the amendment to allow taxpayers to rebase their values at April 1982 values. It has been put forward on the basis that there is a perceived unfairness as between those who purchase assets in 1965, or since then, and those who purchase assets now. It is argued that, because of the nature of the indexation allowance in the Bill, the man who had purchased 10 years ago would obtain a much smaller indexation allowance than the man who purchased today.
      There is an inconsistency about that basic part of the argument because one cannot compare a man who made a purchase of an identical asset 10 years ago with the man who makes that purchase today. The question is, how did the man who makes that purchase today get his money to make that purchase, and what was happening to his money during the 10 years when he did not have investment in the same assets? The only way that like can be compared with like in this matter is to take two people who both bought identical assets 10 years ago. One of them decides to bed and breakfast the asset and to pay the tax today and the other decides not to, but to keep it, to keep the tax and not to incur liability.
      We then go on for another 10 years with inflation at differing rates and with the indexation allowances applying. After this period, both individuals sell their assets—the one who bed and breakfasted them and the one who did not. They obviously obtain identical prices because they were identical assets. It will be found by anybody who cares to do the arithmetic that there is no advantage to the man who bed and breakfasted 10 years ago.
      The ultimate gain, the ultimate tax payable and the ultimate amount of capital retained are identical in both cases except that the man who bed and breakfasted is obviously standing out of whatever he may have paid in tax during the period after the bed and breakfast and before he finally sold. The loss of that amount of tax must be counted as a disadvantage to him. This proves that there is no unfairness as between the man who bought 10 years ago and the man who buys now. That is easily demonstrated by looking at the figures. I should be happy to show how the arithmetic is computed. On closer examination, it will be found that that is right.
      9.15 pm
      It is not our policy that we should give any relief for the past. I gave three reasons—the immense complication, the large costs and the possible problem of retrospection and fairness. The amendment involves considerable relief

      797
      for gains in the past. They are, as it were, being disregarded and the values are being uplifted to the present values. The cost of the amendment would be zero in the corning year, as are all such costs, in 1983–84 it would be £20 million, and in a full year it would be £80 million. That shows the extent to which we would be relieving past gains through my hon. Friend's approach.
      My hon. Friend the Member for Selly Oak made a distinction between those who have held for a long time and those who are short-term investors. The man who has held for a long time would be penalised by the amendment because the man who makes a short-term investment and has sold would get no benefit from the change in the tax that my hon. Friends have suggested.
      I gave an example of two people who bought identical assets. That example shows that it pays to hold for a long time. We can discuss the matter in relation to shares where bed and breakfasting is available and is a possibility, but the real difficulty is with assets where bed and breakfasting is not available.
      Having anticipated all those problems and having worked out the figures within the limited amount that my right hon. and learned Friend the Chancellor of the Exchequer has available for the major transformation in capital gains tax, we found a way which is fair to all investors at the minimum of cost and which unblocks the log-jam of the past when no one has been prepared to do anything about that. There are blemishes, such as losses and the one-year rule, and another difficulty that the hon. Member for Colne Valley (Mr. Wainwright) mentioned. We shall come across many more difficulties in Committee. I accept that the system is not perfect.
      Let us live with the tax as we have redesigned it and as we can afford it. In the light of my explanation that no unfairness is involved, I hope that my hon. Friend the Member for Croydon, South will withdraw his amendment.
      Mr. Lennox-Boyd: I should be grateful if I could be provided with the detailed series of examples to prove the points that my hon. Friend the Financial Secretary has made because I cannot accept what he has said. I should be grateful if that could be done in the next three weeks.
      Sir William Clark: Was my hon. Friend the Financial Secretary about to reply to my hon. Friend the Member for Morecombe and Lonsdale (Mr. Lennox-Boyd)?
      Mr. Ridley: I was trying to find the page so that I could tear it out and give my hon. Friend the answer now. I shall do so.
      Sir William Clark: Before I decide whether to withdraw the amendment or to press ahead with it, I should like to raise this matter. I should be interested to see the examples to which my hon. Friend the Financial Secretary has referred, especially the examples when one can bed and breakfast and there is no difference between the longterm holder and the short-term holder. At first blush, I disagree entirely with my hon. Friend. If he has examples and I can be convinced, I am prepared to accept them.
      Where an asset has been held which is not capable of being bed and breakfasted—property, land or whatever—will my hon. Friend consider whether some alleviation can be given between the 1982 cost and the cost in 1965?
      Mr. Ridley: I agree with my hon. Friend that this is a problem. The un-bed and breakfastability of a Rembrandt or an acre of land is a disadvantage which is experienced by the owners of those assets but not by the owners of quoted shares. That has always been a disadvantage. There is nothing new about it. There was always bound to be such a disadvantage with an exemption allowance. The calculations that I shall send to my hon. Friends prove that in no circumstances does it pay to bed and breakfast except for obtaining the benefit of the exempt allowance. That is the point, and that is where the difficulties lie. I make no secret about it.
      We have examined carefully the question whether bed and breakfasting can be extended to assets which are not quoted shares. It appears to be extraordinarily difficult to do, and the technical difficulties are such that we do not believe that we can offer to do it. It may be that my hon. Friends will find attractive the argument that we are seeking to give a preference to equity shares and that for reasons of industrial investment there is nothing wrong with saying that the owners of equity shares might, for the first time, develop a certain advantage over the owners of other assets. I am delighted to tell my hon. Friends that we shall continue to examine the matter.
      Sir William Clark: In view of my hon. Friend's explanation, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Question put, That the clause stand part of the Bill:—
      The Committee divided: Ayes, 158, Noes, 101.

      Division No. 133]

      [9.20 pm

      AYES

      Adley, Robert

      Fletcher, A.(Ed'nb'ghN)

      Alexander, Richard

      Fletcher-Cooke, SirCharles

      Alison, RtHonMichael

      Fookes, MissJanet

      Ancram, Michael

      GardinenGeorge(Reigate)

      Aspinwall, Jack

      Garel-Jones, Tristan

      Atkins, RtHonH. (S'thorne)

      Goodhart, SirPhilip

      Banks, Robert

      Goodlad, Alastair

      Beaumont-Dark, Anthony

      Gow, Ian

      Bendall, Vivian

      Gray, Hamish

      Benyon, Thomas(A'don)

      Greenway, Harry

      Benyon, W (Buckingham)

      Griffiths, E.(B'ySt.Edm'ds)

      Berry, HonAnthony

      Griffiths, Peter Portsm'thN)

      Bevan, DavidGilroy

      Grylls, Michael

      Biffen, RtHonJohn

      Gummer, JohnSelwyn

      Blackburn, John

      Hamilton, HonA.

      Body, Richard

      Hamilton, Michael(Salisbury)

      Boscawen, HonRobert

      Hawksley, Warren

      Brinton, Tim

      Heddle, John

      Brooke, HonPeter

      Hicks, Robert

      Brown, Michael(Brigg&Sc'n)

      Hogg, HonDouglas (Gr'th'm)

      Buchanan-Smith, Rt. Hon. A.

      Hordern, Peter

      Cadbury, Jocelyn

      Howell, RtHonD. (Gr'ldf'd)

      Carlisle, Rt Hon M. (R'c'n)

      Hunt, David (Wirral)

      Chapman, Sydney

      Hunt, John(Ravensbourne)

      Clark, Hon A. (Plym'th, S'n)

      Hurd, RtHonDouglas

      Clarke, Kenneth(Rushcliffe)

      Jenkin, RtHonPatrick

      Cockeram, Eric

      Jopling, RtHonMichael

      Cope, John

      Kaberry, SirDonald

      Cranborne, Viscount

      Kershaw, SirAnthony

      Critchley, Julian

      Lawrence, Ivan

      Crouch, David

      Lee,John

      Dean, Paul (NorthSomerset)

      LeMarchant, Spencer

      Dorrell, Stephen

      Lennox-Boyd, HonMark

      Dover, Denshore

      Lester, Jim(Beeston)

      Edwards, RtHon N. (P'broke)

      Lloyd, Peter (Fareham)

      Eggar, Tim

      Loveridge, John

      Elliott, SirWilliam

      Lyell, Nicholas

      Faith, MrsSheila

      McCrindle, Robert

      Fenner, MrsPeggy

      Macfarlane, Neil

      Fisher, SirNigel

      MacGregor, John

      799

      MacKay, John (Argyll)

      Shaw, Giles (Pudsey)

      McNair-Wilson, M. (N'bury)

      Shelton, William(Streatham)

      McQuarrie, Albert

      Shepherd, Colin(Hereford)

      Major, John

      Sims, Roger

      Marland, Paul

      Speed, Keith

      Mather, Carol

      Speller, Tony

      Maude, Rt Hon Sir Angus

      Spence, John

      Mawby, Ray

      Sproat, Iain

      Mawhinney, DrBrian

      Stanbrook, Ivor

      Maxwell-Hyslop, Robin

      Stevens, Martin

      Mellor, David

      Stewart, Ian (Hitchin)

      Meyer, SirAnthony

      Stradling Thomas, J.

      Mills, Iain(Meriden)

      Taylor, Teddy (S'end E)

      Mills, Peter (WestDevon)

      Tebbit, RtHonNorman

      Mitchell, David(Basingstoke)

      Temple-Morris, Peter

      Morris, M. (N'hamptonS)

      Thomas, Rt Hon Peter

      Morrison, HonC. (Devizes)

      Thompson, Donald

      Murphy, Christopher

      Thorne, Neil(IlfordSouth)

      Myles, David

      Thornton, Malcolm

      Neale, Gerrard

      Townend, John (Bridlington)

      Nelson, Anthony

      Trippier, David

      Neubert, Michael

      van Straubenzee, Sir W.

      Newton, Tony

      Viggers, Peter

      Normanton, Tom

      Waddington, David

      Onslow, Cranley

      Wakeham, John

      Page, Richard (SW Herts)

      Walker-Smith, Rt Hon Sir D.

      Parris, Matthew

      Waller, Gary

      Patten, Christopher(Bath)

      Ward, John

      Pattie, Geoffrey

      Warren, Kenneth

      Percival, Sir Ian

      Watson, John

      Pollock, Alexander

      Wells, Bowen

      Prentice, RtHonReg

      Wells, John(Maidstone)

      Price, SirDavid (Eastleigh)

      Wheeler, John

      Prior, RtHon James

      Wickenden, Keith

      Renton, Tim

      Wilkinson, John

      Ridley, HonNicholas

      Williams, D.(Montgomery)

      Ridsdale, SirJulian

      Wolfson, Mark

      Rifkind, Malcolm

      Roberts, Wyn (Conway)

      Tellers for the Ayes:

      Rossi, Hugh

      Mr. Ian Lang and

      Sainsbury, HonTimothy

      Mr. Nick Budgen.

      NOES

      Allaun, Frank

      Grimond, RtHonJ.

      Alton, David

      Hamilton, James(Bothwell)

      Atkinson, N. (H'gey)

      Hamilton, W. W. (C'tral Fife)

      Barnett, RtHon Joel (H'wd)

      Harrison, Rt Hon Walter

      Beith, A.J.

      Haynes, Frank

      Booth, RtHonAlbert

      Heffer, Eric S.

      Bray, Dr Jeremy

      HomeRobertson, John

      Brown, Hugh D. (Provan)

      Homewood, William

      Buchan, Norman

      Hooley, Frank

      Callaghan, Jim(Midd't'n& P)

      Horam, John

      Campbell-Savours, Dale

      Howells, Geraint

      Clark, Dr David (S Shields)

      Hughes, Robert (Aberdeen N)

      Concannon, Rt Hon J. D.

      John, Brynmor

      Cook, Robin F.

      Johnston, Russell(Inverness)

      Craigen, J. M. (G'gow, M'hill)

      Jones, Rt Hon Alec (Rh'dda)

      Cryer, Bob

      Jones, Dan (Burnley)

      Cunningham, DrJ. (W'h'n)

      Lamondjames

      Davidson, Arthur

      Leighton, Ronald

      Davies, Ifor (Gower)

      Lewis, Ron (Carlisle)

      Davis, Terry (B'ham, Stechf'd)

      Litherland, Robert

      Deakins, Eric

      Lyon, Alexander(York)

      Dean, Joseph (Leeds West)

      Lyons, Edward (Bradf'dW)

      Dixon, Donald

      McCartney, Hugh

      Dobson, Frank

      McDonald, DrOonagh

      Dormand, Jack

      McKay, Allen(Penistone)

      Douglas-Mann, Bruce

      Maclennan, Robert

      Dunwoody, Hon Mrs G.

      McWilliam, John

      Eadie, Alex

      Marshall, D(G'gowS'ton)

      Evans, Ioan (Aberdare)

      Mason, Rt Hon Roy

      Evans, John (Newton)

      Maxton, John

      Faulds, Andrew

      Maynard, MissJoan

      Fletcher, Ted (Darlington)

      Millan, RtHonBruce

      Foot, RtHonMichael

      MitchellAustin(Grimsby)

      Foster, Derek

      Mitchell, R.C. (Soton Itchen)

      Foulkes, George

      Morris, Rt Hon C. (O'shaw)

      Freeson, RtHon Reginald

      Newens, Stanley

      George, Bruce

      Parker, John

      800

      Parry, Robert

      Straw, Jack

      Penhaligon, David

      Thomas, Dafydd(Merioneth)

      Price, C. (Lewisham W)

      Thorne, Stan (PrestonSouth)

      Rooker, J. W.

      Tinn, James

      Roper, John

      Wainwright, R. (ColneV)

      Sheerman, Barry

      Walker, Rt Hon H. (D'caster)

      Sheldon, Rt Hon R.

      Wellbeloved, James

      Shore, Rt Hon Peter

      Welsh, Michael

      Silverman,Julius

      White, FrankR.

      Snape, Peter

      Wigley, Dafydd

      Spearing, Nigel

      Woolmer, Kenneth

      Spriggs, Leslie

      Stewart, Rt Hon D. (W Isles)

      Tellers for the Noes:

      Stoddart, David

      Mr. Lawrence Cunliffe and

      Stott, Roger

      Mr. George Morton.

      Strang, Gavin

      Question accordingly agreed to.
      Clause 71 ordered to stand part of the Bill.

    Clause 75

      REDUCTION OF TAX
      9.30 pm
      Mr. Richard Wainwright: I beg to move amendment No. 28, in page 57, line 31, after `(2)', insert
      `Subsection (2) of section 37 of the Finance Act 1975 shall be amended by the insertion after the word "transferor" of the words "to or for the benefit of a beneficiary where that beneficiary thereby becomes entitled to more than one-tenth of the value of all chargeable transfers made by that transferor". 5(3)'.'.
      The amendment is focused on the need for capital transfer tax to be payable by those who receive gifts, legacies or bequests. It is also focused on the need for the rate of tax that recipients and transferees pay to be based on the wealth of the recipient cumulatively for his lifetime. It would, therefore, radically alter the capital transfer tax that is now payable by the donor or by the executors of the deceased.
      The Liberal Party's objection to capital transfer tax in the form that the Government want it to continue is that it does nothing to encourage the wealthy to distribute their property on a really wide scale. It may encourage some wealthy people to make some gifts during their lifetime, but they pay just as little or just as much if they make that gift to one recipient or to several hundred recipients.
      That seems to us to be a waste of what I call the tax lever. I am sure that it is accepted on both sides of the Committee that taxation, if properly designed, can be a powerful lever. For instance, a provision that went through the House almost unnoticed in 1916 to relieve from tax occupational pension funds has ever since been the basis, the fount and the origin of the enormous pension funds industry and the beneficial pension funds system that has almost uniquely developed in this country. That was the operation of the tax lever. A comparatively humdrum sort of measure turned out, perhaps to the astonishment of those who introduced it, to be the lever that shifted wealth into pension funds.
      We believe that capital taxation should not be regarded as a weapon of vengeance to satisfy the blood lust of some political enthusiasts. Nor should it be a means—this is the Liberal grievance against capital transfer tax—of transferring wealth simply from private hands to the Stale.
      Mr. Foulkes: I find the hon. Gentleman's remarks interesting. I wonder whether he can clarify one matter.

      801
      He talked about the Liberal Party's view. He has used the word "we" on a number of occasions. Is he expressing simply the Liberal Party's view, or do his remarks represent the considered view of the alliance of which he is part?
      Mr. Wainwright: I am competent to speak only for the Liberals. All I can say in response to the hon. Gentleman is that, so far as I am aware, the Social Democratic Party is not and cannot yet be possessed of a constitution that enables it to make full policy decisions. Members of the Social Democratic Party will speak for themselves in their own time.
      I hope that a capital transfer tax transformed into an accessions tax will commend itself not only to the SDP, but to the more civilised segments of the Labour Opposition, to various nationalist parties and to members of the Conservative Party who, for all the distracted air of the Financial Secretary at the moment, cannot be expected to go on supporting a tax that simply transfers capital wealth from individuals to the State which promptly uses it for current purposes. It is a thoroughly non-Conservative concept that wealth should be centralised in this way and taken away from the private sector.
      The amendment is illustrative. It is not within my power to draft and produce an amendment that could transform the capital transfer tax in the sense that I have indicated is desirable. So far as it goes, the amendment provides that if gifts are spread among more than 10 beneficiaries, those gifts will carry the lighter of the two capital transfer tax scales—the scale for lifetime gifts. The more punishing schedule of rates on death is reserved for gifts that are spread among fewer than 10 people. This carries out the principle that I have been trying to describe.
      A tax paid by the recipient, and depending upon the recipient's total wealth accumulated over a lifetime, would involve a certain amount of extra administration. We hope that there would be far more recipients whose records would have to be taxed than there are donors. It would be the natural consequence of such a tax.
      Only the records of donors have to be kept on a cumulative basis by the Inland Revenue at the moment. We expect that there would be a larger number of files and a greater amount of clerical work, but there would be no greater complication of administration. There would simply be a greater clerical load, which I hope would be computerised.
      An important characteristic of the tax is that Liberals hope that, in the long run, it would be a poor revenue earner because, as I said at the outset, it is intended, in the form we want it to take, to be a powerful lever to push wealthy people into distributing their wealth as widely as possible—for instance, to their employees or to a whole class of people whom they regard as deserving of encouragement rather than simply passing it down to their own kith and kin and trying to keep it clotted into as large and powerful lumps as possible.
      If the use of the tax bludgeon were successful in making wealthy people act on the advantages of spreading their wealth widely, it follows automatically that the tax yield to the State would eventually become quite small. In a perfect Liberal State—I am not ashamed of being a perfectionist so long as it does not come in my lifetime—there would be no yield from the tax, because
      802
      all wealthy people would behave with the utmost rationality. They would ask their professional advisers to help them to get rid of their wealth to the largest number of people as soon as possible so that they would not have any penalty to pay to the State.
      That state of affairs would surely commend itself to those who follow some of the more enlightened Conservative traditions of British politics. For the tax to be a powerful lever to make people distribute their wealth, the tax rates should be tough. If the tax were properly based in the manner that I have tried to describe, it would be fair to toughen up the rates considerably to make the lever all the more powerful.
      I hope that I have said enough to illustrate the principle on which Liberals want to see this tax rebased. It would then be more appropriately described as an accessions tax than as a capital transfer tax, although it would still be a tax on transfers.
      It is always important to refer to the way other developed countries address themselves to tax problems. Within the OECD, that enormous range of countries, only New Zealand and the United States of America operate a similar and primitive estate-based tax. That should give the Committee pause for thought. In 1976, Eire changed to an inheritance tax, which is halfway to our proposal, after a great deal of deliberation in its properly elected Dail. Four countries—France, Greece, Ireland and Portugal—operate the principle that I have been enunciating of accumulating for tax purposes gifts received by each donee over the whole of his lifetime. In that they are way ahead of us. I have to agree that no other country has adopted an accessions tax in the full sense that I am advocating.
      I hope that this matter will be debated increasingly and that the Government, if they are to live up to the radical image that some of their supporters try to cultivate, will give serious thought to it and set studies on foot within the Inland Revenue on how the capital transfer tax could be transformed into a useful tax lever for distributing wealth more widely.
      9.45 pm
      Mr. Ridley: It is always a matter of congratulation to the hon. Member for Colne Valley (Mr. Wainwright) that he can secure such a large proportion of his party to hear him. I calculate that 25 per cent. are present. I confess that it would be lovely if we could say that there were 25 per cent. of the Labour Party, or even of my hon. Friends, present. I do not know whether the Labour Party has been able to muster even 1 per cent. at any point of our debates today, which are fundamental to it.
      There were two important revelations from the hon. Gentleman. First, we had a glimpse of the perfect Liberal State. It seemed more like Eire than anything else. It is a frightening thought. I hope that we shall not see too much of that perfect Liberal State.
      The other interesting observation was that the SDP is not allowed to make policy because of its constitution. I do not know whether the hon. Member for Gateshead, West (Mr. Horam) subscribes to that view. I do not know whether the observation was a way of inviting the SDP to deny what the hon. Member for Colne Valley said or whether it really is so. Perhaps it is an attempt to justify the known reluctance of the right hon. Member for

      803
      Glasgow, Hillhead (Mr. Jenkins) to say anything that could possibly be construed as policy. So we shall never know what the perfect SDP State is.
      Mr. John Horam: Winning.
      Mr. Ridley: I come to the amendment, which is very modest. It would allow a bequest—or gift within three years of death—whose value does not exceed one-tenth of that of the chargeable transfers made by the donor to be chargeable to capital transfer tax at the lower lifetime rates rather than at the death rates. It would probably benefit a few people a little.
      There are some drafting difficulties, but I shall not dwell on them. It would be difficult to allocate the difference between lifetime rates and death rates as between different beneficiaries. Indeed, the allocation for the tax as a whole between those who qualified under this relief and others who qualified only under the will would give rise to endless difficulties and altercations as to how much tax should be attributed to whom. It would be complex, and it would be open to the defect which the hon. Gentleman identified in his speech on the subject last year when he said that
      "it is open to potential donors to get together and plan an operation in which each of them will give relatively modest gifts to a variety of persons."—[Official Report, 12 May 1981; Vol. 4, c. 670.]
      I do not want to dwell on those difficulties, because I recognise that the hon. Gentleman was canvassing a change from the present tax to an accession tax. In fact, the amendment is leading towards an inheritance tax. We gather from the hon. Gentleman that he wants not an inheritance tax but a cumulative accession tax. There would be many advantages in that system of taxation. If we were starting from scratch now, I would tend to agree with the hon. Gentleman.
      One of the big factors is the resistance to violent change and structural surgery which taxpayers are beginning to develop. We know the arguments. One is that we have changed the rules and the basis of corporation tax more often than any other country in the Western world. Indeed, when the Conservative Party issued a Green Paper canvassing the possibilities of changing to a donee base tax or an accession tax and consulted widely on it in 1972, the proponderant and overwhelming advice of taxpayers and their advisers was that it should not do so because of the complication and the upheaval that it would cause.
      However, the capital transfer tax that we were left by the Labour Party was so savage and punitive that we had to undertake some fairly drastic surgery, if only to draw its teeth. To have changed the form of it as well would have involved a major and unacceptable degree of change in a short time.
      Mr. Cook: Earlier this evening the Financial Secretary complained that the Labour Government allowed the revenue from capital taxation to decline. He is now describing the capital transfer tax as an unduly onerous imposition. May we please have the true view of the Financial Secretary?
      Mr. Ridley: We are now talking about capital transfer tax. Earlier I was talking about all capital taxes. The hon. Gentleman will find that the revenue from capital transfer tax has increased. Without having been indexed since its inception, the tax is yielding a great deal more in real terms—well, perhaps not in real terms. I shall have to check that.
      Mr. Foulkes: The hon. Gentleman will.
      Mr. Ridley: The upheaval that is proposed would lead to great difficulties. People have made dispositions according to the existing tax. They may be giving some of their capital to their families to take advantage of the lifetime transfer rates. It is necessary—this is true of all major tax reforms—to see whether the confusion and difficulties of major upheavals outweigh the advantages of moving to purer and more perfect forms of taxation.
      When major structural changes are made in taxation, it is very soon evident that so many changes have to be made to meet this or that transitional problem that one often ends up with a tax that is no better in itself. We shall bear in mind what the hon. Gentleman has said. We do not share his view that change is possible, although we certainly do not resist his view that the sort of tax he envisages might well be desirable.
      Mr. Richard Wainwright: I am sorry that the Financial Secretary did not take up my question whether the Government regard capital taxes mainly as a source of revenue or whether they have inherited the Labour Party's hope, when it introduced capital transfer tax, that it would be an engine for the redistribution of wealth. The Labour Party's policy is at least clear, although it is not one which I accept for a moment, but the Government's position in retaining this tax and nevertheless trying to amend it seems shoddy. That is because they cannot possibly share the Labour Party's view about the redistribution of wealth, yet they are manifestly failing to get much revenue out of it. It seems that the Financial Secretary has tried to dodge the position that the Government have adopted. Some of their supporters want more enlightenment. I do not know why the Government choose to sustain the tax and to take up our time by making alterations to it.
      When the right hon. Member for Leeds, East (Mr. Healey) introduced capital transfer tax in 1974 he said that it was the intention of the Labour Government to make the rich howl with pain. The object was redistribution. The Labour Government sincerely believed that this new swingeing form of tax, which would remove the voluntary element from capital taxes, would usher in a period of redistribution.
      It is time that the House of Commons recognised that such taxes have not proved to be the way of redistributing wealth. If CTT had worked, it would have concentrated more wealth in the State and would not have benefited the great generality of the people by giving them wealth of their own. However, it has not even concentrated more wealth in the State. It has not been a success as a revenue raiser.
      Let the Labour Party face the fact head on that the new capital taxes, for all their modern shape, are now raising a far smaller percentage of total revenue than the old and much derided death duties. Those duties were a rocky lot and I would not have dreamt of defending them because of the large voluntary element within them. Individuals tended to pay them only if they were run over by a bus at an early age instead of dying in their bed or in hospital in their eighties. It is extraordinary that relatively new arid allegedly modern capital taxes are less efficient at raising revenue than the old death duties.
      The Financial Secretary will not come clean about what he wants from the capital taxes. Does he want to sharpen them so that they become better revenue raisers, or has he

      805
      some vestigial Disraelian ideas of redistributing and splitting up large concentrations of wealth? The Government's attitude on capital taxes remains as obscure as ever.
      The Financial Secretary quoted some alleged words of mine that implied that an accession tax would be easy to dodge by a form of conspiracy. He must have dug up a quotation of mine on a different tax. The words that he used suggested that donors could get together, form a conspiracy and give small gifts to the same recipient. Unless they were extremely small gifts, they would be more fully caught by an accession tax than by the present capital transfer tax. The Committee must be fed up with hearing me say that an accession tax is paid by the recipient on a cumulative basis. If a recipient is lucky enough to receive gifts over his lifetime from many people, he will pay a much higher rate of tax. I do not understand how the conspiracy theory that the Financial Secretary has dug up applies to the amendment.
      I am extremely disappointed with the Financial Secretary's reply. However, I have recognised since putting pen to paper that the amendment is by no means a competent vehicle for bringing an accession tax into being. Now that the subject has ben ventilated, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Question proposed, That the clause stand part of the Bill.
      10 pm
      Mr. Cook: In previous debates the Financial Secretary has produced and flourished before the Committee his totalisator in which he keeps the running cumulative total of the cost of Opposition amendments. The basis for that totalisator is wholly specious, as has been patiently explained to the Financial Secretary by the hon. Member for Colne Valley (Mr. Wainwright) and by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). If he persists in that specious totalisator, we must insist that he at least makes a deduction in respect of the debate that we are about to have, and the division that will follow it. Surprising though it may seem to the Financial Secretary, on this occasion we seek to save the Inland Revenue money. We seek to prevent the Inland Revenue from giving away the £85 million which it proposes to hand over to the wealthy who are liable to capital transfer tax.
      The Financial Secretary and I had a preliminary skirmish a moment ago concerning the yield from capital transfer tax. Before I turn to the gravamen of that dispute, may I say how much I applaud the Financial Secretary's stamina in conducting single-handed the proceedings of the Committee since it commenced at 4 o'clock. That is an achievement which should go down on the record, particularly as it occurs at a time when we have a record number of Treasury Ministers and when the Financial Secretary might reasonably be expected to be relieved of part of the onerous burden that he has accepted tonight.
      Having accepted the burden of garrisoning the Dispatch Box for the past six hours, it is perhaps not surprising that the Financial Secretary should have been in error when he responded to me off the cuff in our earlier exchange on the yield of capital transfer tax. The figures that he gave for the declining revenue from capital taxation are just as true
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      for capital transfer tax and its predecessor estate duty as they are for the totality. Indeed, the taxes largely account for the decline in those figures. In 1948 estate duty provided 9 per cent. of total Government revenue and in 1973 it provided only 4 per cent. Now, capital transfer tax, and the dribble of estate duty that we still receive, provides barely 1 per cent. of total Government revenue. Nor is the decline a measure of the relative increase in income from income tax. The absolute value of the yield has also declined. The Financial Secretary is wrong to suggest that the yield in absolute or real figures has increased. In 1973–74, we received £412 million in estate duty. Last year we received only £470 million from capital transfer tax. Those are the raw cash figures. If we deflate that figure to give us the drop in real terms, we find that over that decade the yield from tax on capital transfers has declined by a staggering two-thirds to one-third of the level of only a decade ago.
      In the financial year 1982–83 there will be a further fall in cash revenue as a result of the measure which we are currently debating. The expected revenue for this year is £465 million, which is almost precisely the same in cash terms—not real terms—as the figure for 10 years ago which was £459 million. Moreover, those figures, which measure the decline in yield from estate duty and capital transfer tax, coincide with a period in which personal wealth has increased. The result is that receipts have declined not just as a percentage of total revenue but as a percentage of personal wealth. The corollary of that is that the tax yield from income has had to increase to compensate for the declining yield from capital taxation.
      A book was written some time ago entitled "The Treasury under the Tories" by an author who is well-connected with the present Treasury team. He wrote:
      "Is it conceivable that if a new (tax) system were being designed for Britain that income would be taxed so heavily and effectively, and capital hardly at all?"
      We may differ as to the cause of that decline in yield from capital taxation, but there can be no disagreement about that essential background to this evening's debate. We must consider the proposals by the present Treasury team for a further relaxation in the regime for capital taxation against an historic background of a long-term trend in the decline in both the incidence of that tax and the yield from that tax. Instead of seeking to reverse that trend, the Government have sought to accelerate it. They have done so on the basis of a prejudice that was staunchly defended by the Chancellor of the Exchequer in his Budget Statement, when he said:
      "there is no case whatever for maintaining a system of capital taxes which, by holding back business success and penalising personal endeavour, does serious economic and social damage".—[Official Report, 9 March 1982; Vol. 19, c. 754.]
      That assertion has nothing but blind prejudice to sustain it. Research after research shows that the most significant factor in deciding who dies wealthy is who is born wealthy. When we reduce the tax on the transfer of wealth and capital we are not rewarding personal endeavour—as the Chancellor of the Exchequer would have us believe it—but are perpetuating inherited wealth. There is not a shred of evidence to show that inherited wealth contributes to economic success.
      On the contrary, the greater the degree of inherited wealth in a nation, the more business decisions are taken by those who are chosen by the accident of birth rather than by their ability.
      Mr. Douglas Hogg: Accident of birth? It is a very deliberate act.
      Mr. Cook: The hon. Gentleman cannot justify those who inherit the power to take decisions because they inherit the wealth that enables them to do so by a conscious and deliberate act of family planning on the part of their parents. The persipience of the parents in that family planning act does not confer on the heir the investment judgments to handle large sums that he may inherit by what I still maintain to be the accident of birth.
      Therefore, there is no evidence to support the Chancellor of the Exchequer's prejudice. However, that has not prevented the right hon. and learned Gentleman and his colleagues from acting vigorously upon it. In the Government's first year of office they doubled the threshold for capital transfer tax. That removed from the scope of capital transfer tax no less than two-thirds of those liable to it. That is in striking contrast to the Government's record on income tax. For income tax, they have lowered the threshold in real terms and thereby increased the number of taxpayers. Last year, the Government slashed the rates on life-time transfers of capital. They also destroyed the cumulative principle and thus enabled those who pay the tax to start afresh after 10 years from scratch.
      This year, the Government are completing their assault on capital transfer tax by carrying out a major uprating of the thresholds. The Government's consistent generosity to those who are liable to capital transfer tax has raised the eyebrows not only of Opposition Members but also of members of the public. The day after the Budget Statement, the Financial Times carried an illuminating article on capital transfer tax. It stated that the intentions of capital transfer tax had been steadily eroded since the tax was introduced in 1975. It added:
      "when the likely reliefs are added to the reduction in standard tax rate bands, the real tax burden has been reduced since 1975 up to quite high asset totals."
      We can get a measure of just how generous that relief has been by considering one of the tables in the schedule. That table, and the table that it replaces, shows that the threshold for the 40 per cent. band is increased by 43 per cent., the threshold for the 50 per cent. band is increased by 50 per cent., and the threshold for the 60 per cent. band is increased by 56 per cent. These figures comfortably exceed the RPI movement since last year and in most case exceed the RPI movement since the Government took office. The Government are plainly intent on doing for capital taxation what they have been unable to afford to do for the income tax thresholds.
      Mr. Campbell-Savours: Why?
      Mr. Cook: That is a pertinent question to which I shall address myself before I conclude. I hope that the Financial Secretary will be able to answer it.
      However, I first refer to a helpful press release issued by the Inland Revenue at the time of the Budget Statement. I fear that the Inland Revenue may not be so helpful next year, following the use that we have been able to make of its press release this year. The Inland Revenue provided a table giving illustrations of the reduction in liability that will flow from the table in the schedule. The largest percentage reduction is concentrated at the lower end of wealth-holding. That is perfectly understandable, because that is where the largest revenue from this tax lies. Sixty
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      per cent. of the revenue from CTT, and a rather larger proportion of taxpayers who are liable to CTT, relate to estates of less than £250,000.
      What is the reduction in the proportion of tax paid by those with estates of less than £250,000? The Inland Revenue tables show that an estate of £100,000 will have a reduction in liability of no less than 22·4 per cent. That is nearly double the increase in tax thresholds for income tax payers. An estate of £150,000 will have a reduction in tax liability of no less than 19·7 per cent. An estate worth £250,000 will have a reduction in tax liability of no less than 15·9 per cent.
      Those are generous estates. Moreover, the reductions can apply to estates of double those values. One of the uniquely generous aspects of CTT is that transfers between spouses are exempt from tax. Thus, the reductions are available to estates that are twice as large by the simple device of dividing the estate between both spouses and then transferring two separate estates to the same heir. Thus, the reduction of 15·9 per cent. can be claimed by a joint estate up to £500,000.
      Those are large sums of money. The hon. Member for Truro (Mr. Penhaligon) startled the Committee yesterday by saying that Members of Parliament are among the top 2 per cent. of PAYE payers. However, if the House as one body were to seize the advantage offered by the clause and schedule I doubt whether the majority of Members, well paid though we may be, could put together an estate of £100,000. I certainly doubt whether that could be achieved with the majority of Opposition Members. I am absolutely certain that it could not be achieved by the majority of our constituents. Anyone in my constituency who could achieve an estate of £100,000 to donate to his heir would be a freak case.
      As we address ourselves to the generosity with which the few have been treated, the Committee is bound to remember that each of us, irrespective of which side of the Chamber we sit on, represent far more unemployed and far more pensioners than those liable to CTT, who will benefit from the proposed reductions.
      The fact that a small number of people who by definition are among the most wealthy in our nation should receive such a generous reduction in their tax liability prompts two questions which I shall address to the Financial Secretary because he will have to answer them if he is to persuade the Committee that it would be proper to allow the clause to remain in the Bill.
      10.15 pm
      First, why should this reduction in tax liability receive priority, given the steady decline in revenue from capital taxation as a percentage of personal wealth? Against the background of the declining yield and the declining incidence of capital taxation over the past 10 years, what possible justification can there be for a further reduction in the incidence of tax on capital transfer, especially as, by and large, the people caught by capital transfer tax who will therefore benefit from the clause and the schedule are the same people who in the past three years have benefited from the Government's uprating of the higher rate band threshold for investment surcharge?
      Secondly, why should this reduction in tax liability be given priority when for so many less advantaged groups the tax burden has increased in the past three years? Treasury Ministers are fond of telling us how little the saving that could be made on a measure such as this would

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      contribute towards uprating the standard personal allowances. That may be so. Nevertheless, the cost of this measure in absolute terms is significant. It should not be underestimated. It is £85 million. There are things that can be done with such a sum.
      Last Thursday, the hon. Member for Colone Valley proposed an amendment to extend the age allowance to women pensioners between the ages of 60 and 65. The Committee will know from that and from previous debates that such women are not at present eligible for the age allowance. Therefore, their State pension takes them over the tax threshold. Any additional income that they receive above the State pension then triggers an income tax liability at often ferocious marginal rates. I think that many hon. Members on both sides of the House recognise that that is unjust and irrational when the same people may claim supplementary pension.
      The Minister of State told the hon. Member for Come Valley what the amendment would cost. By coincidence, the cost of relieving that group of pensioners of tax was £85 million, which the Minister of State described as a substantial sum. The Financial Secretary must now tell the Committee why that substantial sum can be found to reduce the tax on estates of £100,000 but not to assist the incomes of people who have to live on £40 per week.
      There is another contrast. Yesterday, the Committee debated the 5 per cent. abatement of unemployment benefit. I shall not rehearse all the arguments for the restoration of that abatement. I merely point out that the cost of restoring the 5 per cent. to the unemployed would be £60 million in a full year—less than the sum conceded by the clause and the schedule to those with estates of more than £100,000.
      Those are stark contrasts. They cast into bold relief the grotesque social priorities of the Treasury. Because of those contrasts, we believe that the clause has no place in the Bill and we shall vote to take it out.
      Mr. Richard Wainwright: I wish to pursue briefly the analysis of the various rates helpfully embarked upon by the hon. Member for Edinburgh, Central (Mr. Cook), but from a rather different point of view.
      As I said earlier, my party believes that all these taxes should be considered by the Committee on a basis that has been indexed for inflation. If the Committee in its wisdom then decides that the indexed result is not satisfactory, in no sense should we be slaves to indexation, but should proceed to make alterations. Nevertheless, we should start from a basis of considering the taxes in a form brought up to date by the application of the retail price index.
      I have made that calculation, which is just simple arithmetic, on the rates and rate bands for capital transfer tax both at death and for life-time transfers, indexing them from the beginning of the operation of the tax in 1975. I found that in both cases, at any rate up to £500,000, the rates are still higher than would be justified by straightforward indexation. I do not know whether the Minister will respond to this when he replies to the debate, but it would be interesting to know the Government's ongoing thoughts about capital transfer tax rates. Are the reductions this year simply part of a process to try to bring them into line with the inflation-adjusted rates or do the
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      Government intend to stop at this point? What is the intention? It helps to know whether the Government have any idea where they are going.
      The simple process of applying the RPI to the 1975 rate bands produces another aspect about which I should like to hear from the Government, because, taking briefly the rates for transfers arising from death, at £60,000 transferred the rate is 15 per cent. higher than is the figure produced by applying the RPI. In the range from £60,000 to £½ million, the tax rate is 10 percentage points higher. When we get to the range from £½ million to £6 million the rates proposed in the schedule to the Bill are only 5 per cent. higher than the index would have produced.
      More interesting, and requiring more explanation, is the astonishing position on the life-time rates. Here again, on transfer of £60,000, the level proposed in the schedule is 15 per cent. higher than indexation on the RPI would have produced. When we get to only £220,000, the proposed rate in the Bill is 7½ per cent. higher than the indexed rate would have been. However, when we reach the level of £½ million and go up to £5million, the proposed rates are 7½ per cent. less than the indexed rate. When we reach £5 million, the rates proposed in the Bill are 20 per cent. less than indexed rates would have been.
      Why are the Government changes—on the death rates to some extent, but on the life-time transfer rates to a remarkable extent—so heavily weighted in favour of large dispositions? It seems odd that, while the Government are prepared to maintain rates of tax higher than are justified by indexation, up to£½ million of life-time transfers, from that time onwards in their schedule and from that scale, the rate of tax is markedly less than indexation would have produced. It is clear and undeniable that it is a great shift only for large dispositions. It is on that aspect that I should welcome the comments of the Government before advising my right hon. and hon. Friends about the vote.
      Mr. Foulkes: At the start, I must confess that I am afraid that I cannot match the grasp shown by my hon. Friend the Member for Edinburgh, Central (Mr. Cook) of the fiscal details that he deployed with such devastating effect against Conservative Members. They sat there, transfixed and somewhat shattered, by his attack on them. That is a great tribute to my hon. Friend the Member for Edinburgh, Central. It shows how deadly on the mark he was with his remarks. I hope that the Committee will excuse a rather more broad brush approach from me.
      Mr. Douglas Hogg: We do not expect anything else.
      Mr. Foulkes: As the hon. Member for Grantham (Mr. Hogg) said, the Committee would not expect anything else.
      However, I should like to amplify something which I raised earlier, and which was remarkable during the Committee stage of the Finance Bill last year, which many hon. Members who are here tonight sat through. We found that amendment after amendment was put forward and argued forcibly by Conservative Members who had pecuniary interests in, and who were making direct pecuniary gains out of, those amendments. We got the impression that they were spending hour after hour and night after night looking after their personal interests rather than the interests of their constituents whom they are paid to represent. Many of their constituents are the

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      unemployed, low wage earners, widows and retired people, and are not benefiting from amendments such as those that we have seen tonight.
      It is about time that we said much more. Conservative Members should be challenged again and again on that matter. They should be reminded that they are here to represent the whole of their constituencies, particularly most of their constituents who are now unemployed, the poor, widows and the retired and who are in need of a great deal of help. They are not the people who will be helped by the clause.
      The clause is headed "Reduction of Tax". That is an amazingly bland and misleading statement. The Government are not a Government of tax reduction. The ordinary person and wage earner has had a substantial increase in tax under this Government, who promised tax reduction. The people who are rich and who have more than enough money are receiving a reduction in taxation, which they do not need.
      We are grateful to my hon. Friend the Member for Blackburn (Mr. Straw), who has been dragging those facts out of the Government to show that the ordinary worker's tax burden is much worse thanks to the Government, who promised a decrease in taxation. That person was duped and tricked by the Government, as were many others in the electorate by the blandishments and twisted advertising by Saatchi and Saatchi, which led them to believe things that have never been delivered.
      I hope that in comparison with Conservative Members who are championing the rich in clause 75, Opposition Members will increasingly become the champions of the ordinary pay-as-you-earn taxpayer. That is the person whose tax is taken at source. I speak as one of them. Many Conservative Members have many more complicated involvements in tax affairs, but in the Opposition most of us have ordinary, simple tax matters. We should be the champions of the pay-as-you-earn taxpayer. Many of those taxpayers are paying more tax than they should. I hope that we are the people who will look after the interests of those people and make sure that the ones who will be helped through clause 75 are made to pay more tax.
      I had to resort to publications such as the Financial Times so that the situation became clearer to me. My hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) helped me in explaining the effects. I am glad to say that he is not my tax adviser. I would be in greater difficulties if he was. However, he is my adviser on the right publications to read.
      The Financial Times tells us that even before the Budget £200,000 could be transferred tax-free over an 11-year period and £300,000 could be transferred tax-free over a 21-year period. With the spouse being able to transfer a gift of £3,000 a year, that means an extra £66,000. Over 11 years £266,000 can be transferred tax-free.
      In Patna, Dalmellington, Drongan and Rankinston not many people have £266,000 to transfer over an 11-year period. I shall go as far as to ay that there are not many people in Grantham, not since the grocer's daughter moved South to Finchley, who have that sort of money to transfer. Hon. Members such as the hon. Member for Grantham (Mr. Hogg) should be looking after the interests of widows, the retired and the elderly and not the interests of the people with £266,000 to transfer over 11 years.
      Sir William Clark indicated dissent—
      10.30 pm
      Mr. Foulkes: The hon. Member for Croydon. South (Sir W. Clark) should look out, because these strange Social Democrats are creeping into Croydon.
      The Financial Times goes on to say that the teal tax rates for capital transfer tax are lower in 1982 than they were in 1974. That astonished me, even though I realise how devastating the Government's policies have been. The rates are even lower for the favoured groups, the business men and farmers with assets in excess of £1 million.
      Clause 75 is a millionaire's charter, which is not inappropriate from the present Cabinet which contains so many millionaires. According to the Financial Times, the reliefs for favoured taxpayers are now so large that, far from being progressive, as one would expect from this type of tax, capital transfer tax has reached the point where the tax rate declines as assets increase. Therefore, the wealthier one is, the less one is taxed. That is absurd.
      In real terms, capital transfer tax does not exist as an effective tax.
      After a detailed analysis of capital transfer tax, the article in the Financial Times states that there is scope for some future radical Chancellor.
      Unfortunately, my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) is not present, but I know that he has in mind the type of radical measures that are indicated in the article that are necessary if capital transfer tax is to become an effective tax again.
      My hon. Friend the Member for Edinburgh, Central gave some telling examples of how £85 million could be spent more effectively. He said that it could be spent on dealing with 60 to 65-year-old women or on dealing with the tax level for the unemployed whom the Government have cast aside in favour of the millionaires.
      Recently, I went to a meeting of the Cumnock branch of the National Association of Widows. That is a growing association which is rightly concerned with the tax position of widows in Britain. Those widows are working alongside married women, they are doing exactly the same job, and receiving exactly the same gross earnings, but because of the current tax position, they go home with less money at the end of the week than the married woman doing the same job who has a husband who is also probably earning a great deal. The Government could have done something about that, and £85 million would have been a great contribution towards it. The Government have cast aside the widows. Instead, they favour the millionaires.
      My hon. Friend the Member for Cathcart said in an earlier intervention that there should be some indexation of public services. It is appropriate to see the hon. Member for Edinburgh, Pentlands (Mr. Rifkind) leaving the Chamber because, in his previous existence, he was one of the terrorisers of local government. There is no indexation from him or from his right hon. Friend the Secretary of State for the Environment. There is no indexation for the huge increases in fuel and other costs that local authorities must bear. That means that the services to the poor and the unemployed, who do not receive indexed benefits—the health and social work services upon which they depend—are being cut and their social wage is depressed. Again, those people have been cast aside in favour of the millionaires.

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      This is a millionaire's charter. Clause 75 is a millionaire's clause. This Government are a millionaire's Government. I hope that at the next election they get the votes of every millionaire but no others.
      Mr. Maxton: As my hon. Friend the Member for South Ayrshire (Mr. Foulkes) said, Conservative Members spent a long time in Committee on the Finance Bill 1981 arguing for the very wealthy in our society. Yet the press concentrates on tax increases on cigarettes and income tax changes, and the matters that should have tremendous psychological effects in terms of what the world outside thinks about Conservative Members are hardly reported.
      The House of Commons used to be called the most exclusive club in Britain. That is no longer true. The most exclusive club in Britain now comprises the payers of capital transfer tax. It is a remarkably small number of people. One must be a very stupid wealthy person to pay capital transfer tax after what the Chancellor did in last year's Budget. All fiscal studies state that if one pays capital transfer tax, first, one does not have much money, and, secondly, one has not been well advised on how to use that money.
      A study of the Chancellor's changes, as shown in "Fiscal Studies" of November 1981, makes it clear that anyone with considerable wealth, say £1 million plus, is most unlikely to be a potential payer of this tax. The study states:
      "It is easy to acquire access to the business relief, for instance by purchasing a sleeping partnership; or to become qualified for `working' farmer CCT relief by purchasing a farm, and employing a manager to do the farming."
      That comes close to giving advice that is very near the bone in terms of the tax that people should pay.
      The article goes on to say that the Chancellor does not seem to realise the implications of what he has done, because if he did he would now be taking credit, certainly from Government Back Benchers, for the practical abolition of capital transfer tax. That is what almost happened last year. This year we are seeing the final nail driven into the coffin of capital transfer tax. Very few people pay it.
      Another example given in the study is that all personally owned businesses will have low tax rates. Even the assets worth as much as £4 million the effective tax rate will be less than 12 per cent. once in a generation, which is about 0·4 per cent. a year. It is nonsense, but again it is the psychology of the Government of giving to the wealthy and taking from the poor in our society. We have said that time and time again on the Floor of the House. Those Labour Members who have been appointed to the Committee on the Finance Bill will continue to say that throughout the Committee stage as well. This is about inherited wealth. It is largely about millionaires' or multimillionaires' sons, who will continue to be multimillionaires.
      As my hon. Friend the Member for Edinburgh, Central (Mr. Cook) said, it is not about giving a person the opportunity to accumulate wealth and then to use it. It is about handing on wealth to people who, essentially, have done nothing to earn it.
      I shall end with a quotation on wealth:
      "Money is like dung. If you leave it in a large heap it simply stinks. If you spread it over a large area of ground it brings forth fruit."
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      The Government's policy on taxation is ensuring that money is heaped up higher and higher into ever bigger dung heaps. It stinks more and more.
      Mr. Campbell-SavoursI shall be brief, as I spoke at length in the debate on capital gains tax. I suggest to the Financial Secretary that the level of capital transfer tax that he proposes, with the reduction of £80 million in tax receipts, does not command the support of the majority of his Back Benchers even though it may command a majority in the Lobbies. A number Conservative Members are deeply disturbed about the inequalities that he is sowing in society by pursuing his strategy. During the remaining stages of the Bill, I should like to take soundings of his Back Benchers.
      The threshold that the Government are introducing this year is based on the highly ideological views of Treasury Ministers. They may not be representative of the views held by the more moderate and sensible elements—there must be some—in the Conservative Party.
      On the history of capital gains tax, I am told that immediately before the First World War it provided 16 per cent. of total revenue.
      Mr. Douglas Hogg: It was called estate duty.
      Mr. Campbell-Savours: The hon. Gentleman is absolutely right.
      I am also told that £465 million will be raised in the forthcoming year—approximately 1·2 per cent. of total revenue. That represents a substantial reduction. There must be a consensus in the country as to what should be the real level of tax gain from inherited wealth from lifetime transfers.
      Casting aside the political arguments—we have had them all today I am trying in the spirit of late-night reasonableness to advance a sensible suggestion, There must be a consensus about a fairer distribution. Will the Financial Secretary consider taking soundings, even at this late stage, to establish the consensus in the country and then next year come back with a Budget strategy on capital transfer tax that more fairly represents the view of the British people?
      What we are doing tonight is wrong. It is clearly unjust. We cannot in all equity propose that £85 million be given to the very few better-off privileged people in society when, in the same week, we have refused to concede the case of the unemployed and the under-privileged. Not even a Conservative Government can do that in fairness.
      The Financial Secretary must realise that, putting aside traiditional arguments, there are Conservative Members who realise that what I say is true. He must give them the right to put their case. It is significant that tonight, once again, only the Financial Secretary on the Conservative Benches has defended the Government. If Conservative Members believed passionately that what is being done is right, they would also have defended the Government. There are few hon. Members present. No one will defend the position of the Minister. There must be consensus. I hope that the Minister will establish it for the Budget next year and so enable us to put an end to the nonsense that has developed over the last three years when large amounts of money have geen given to very few people. Everyone knows that it is wrong. We must stop it.
      10.45 pm
      Mr. Ridley: The hon. Member for Edinburgh, Central (Mr. Cook) picked me up on figures that I gave him about

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      the yield of capital transfer tax. Admittedly, I was working from memory and not from any paper. I must make it clear that there has been decline in the yield from capital transfer tax in real terms but not in money terms. The hon. Gentleman was wrong on that point. After making his allegation, he recalled the yield from estate duty in 1973. We are not talking about estate duty. The Labour Party changed the tax to capital transfer tax. The question put to me related to capital transfer tax since its introduction. I shall give the figures.
      In 1975–76 the combined yield of CTT and the remnants of estate duty was £330 million. For 1982–83 the forecast is £475 million. In money terms it has crept up from £330 million to £475 million. In real terms it has crept down, if I may use that expression, from £289 million in 1975–76 to £178 million at March 1975 prices. It is interesting to note that during the years of the Labour Government it crept down just as steadily as it has since then. It went down in real terms from £292 million to £266 million, and to £228 million in 1978–79. There has been a decline, almost steady in real terms, in the yield of this tax since it was introduced. Although the hon. Gentleman's Government made no change, or very little change, during that time the yield reduced.
      Mr. Cook: Is the Financial Secretary saying, in retrospect, that had the Labour Government, in the Finance Bill of 1977 or 1978, brought forward proposals to increase the rates of CTT to remedy this decline, the Opposition, of which he was then a distinguished Member, would have supported it?
      Mr. Ridley: This is a hypothetical case. I should most certainly not have supported it. It is, however, odd for a Government out of office to ask whether, if they had done something while in office, I should have supported it. It is, I think, anterior hypothecation.
      The reason for the decline in the real yield has to be sought in factors outside the tax. Asset values have by no means kept value with inflation. Share prices are practically level. They have not remotely kept value with inflation. Wealth has been diminishing due to a decline in the real value of many people's capital assets. There has been a certain element of avoidance—I am not saying evasion. People have preferred to take their wealth with them overseas rather than pay this tax. A certain amount of emigration has taken place simply to avoid paying capital transfer tax. The Committee cannot be surprised, if it sets high rates of tax, if people try to take evasive action. Those are the sorts of reasons why the yield of capital transfer tax has fallen.
      There is no connection between the yield of the tax and the severity of the rates. The rates have got progressively more severe. The thresholds and bands have not been indexed and they have not been altered in any substantial way until this Budget, except for the change in the lifetime rates which was made last year.
      I should like to give the Committee some figures. The original value of the threshold was £15,000. The indexed equivalent of that today is £39,000 and we have put it up to £55,000. The 50 per cent. rate was payable on the band of £100,000 to £120,000 when the tax was brought in. The equivalent of that today is £260,000 to £315,000. The Budget proposal is for £165,000 to £200,000, almost £100,000 lower. The maximum tax level, 75 per cent., was payable on an estate of £2 million. That indexed is
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      now £5¼ million, yet the proposal in the Budget is only £2½ million. So the rates of tax and capital transfer tax bear much more heavily now than at the time since they were introduced by the right hon. Member for Leeds, East (Mr. Healey).
      That is borne out by figures which I gave, and which I wish to correct, on Second Reading. I gave a figure which turned out to be wrong and I should like to set the record straight. I said that even after the Budget changes capital transfer tax would be heavier in real terms than it was both when the Government came into office and when the tax was first introduced. I also said that those with the largest estates would pay more in real terms than before, while those with the smaller estates would pay less.
      Both points are absolutely valid. The first figure that I gave was correct. In real terms the yield of the tax following the Budget changes will be £5 million more. in a full year than it would have been on the rates of tax at the time of the election. However, the later figures have been checked again and have been found to be incorrect. On a similar basis, the additional yield, compared with that on the introduction of the tax, will be £60 million, made up of an additional £75 million from the larger estates, less a reduction of £15 million from the smaller estates. Those are the correct figures.
      Labour Members who became indignant a short while ago because they thought the rates of capital transfer tax would mean a give-away of £85 million were wrong on all counts. First, the cost of these reforms is not £85 million this year, but £35 million. It will be £75 million next year and £85 million the year after. Secondly, even the rates En the Bill are far less onerous than those which their Government proposed. We have increased the tightness of capital transfer tax both since we came into office and since the tax was first introduced. I am not particularly pleased about that or proud of it, but we should get the facts right.
      When the money is obtained simply by allowing the process of inflation to erode tax rates, it is absurd to say that to try, however imperfectly, to put that right is to give money to the rich. It is a ridiculous comparison and stands logic, fairness and honesty on their head to a degree that makes one suspect every word that the hon. Member for South Ayrshire (Mr. Foulkes) said.
      Mr. Robert Sheldon: The hon. Gentleman has put on record the letter that he wrote to me explaining the errors that he made in his Second Reading speech on 6 April, but he has not referred to one point which he made in that speech and which I questioned at the time. He has just spoken of ridiculous comparisons. One of the comparisons which he made was with the yield of the tax in 1975. That was the year of the tax's introduction. It was not a full year. The following years are the proper basis of comparison, not the year when a tax is introduced.
      Mr. Ridley: I can give the right hon. Gentleman the figures: 1975–76, £330 million; 1976–77, £383 million; 1977–78, £398 million. Those were the three years when the net real yield of the tax declined.
      The hon. Member for Colne Valley (Mr. Wainwright) made a fair point. It is true that we have tried to reduce the burden on those who make life-time transfers. We have not had the resources to do other than to allow the burden on death transfers to increase.
      Two organic changes have taken place in the structure of the tax and are carried further in the Budget. The first

      817
      is a change from relieving the smaller estates and putting a higher burden on the bigger ones. The second is relieving life-time transfers and putting a slightly heavier burden on transfers at the time of death.
      My hon. Friend the Member for Croydon, South (Sir W. Clark) was going to move an amendment urging us to go further in the direction of aiding life-time transfers. For the sake of the Committee he kindly did not move it, but it is the direction in which I think it is right to go.
      Mr. Richard Wainwright: Can the hon. Gentleman confirm that the schedule provides that for the largest dispositions under life-time transfers the real rate of tax is reduced compared with what it was in 1975?
      Mr. Ridley: I cannot confirm or deny that. I shall check the figures and let the hon. Gentleman know.
      The tax, alas, bears more heavily on taxpayers than it did when it was introduced and than it did when we came to power. We have tried to do what we can, within a tight economic situation, to make it fairer and more acceptable. To compare it with other aspects of fiscal and financial policy is to miss one vital matter—that if such taxes become unacceptable to the successful, they will not stay here. If there are any people who will help widows and the poor, they are those with the ability and the power to create wealth. To put burdens upon them beyond what they will bear without going away is deliberately to condemn the very people that I am trying to help—I sometimes wonder whether the hon. Gentleman is—to a worse position in future through his blind prejudice and stupidity.
      Mr. Cook: I believe that the Committee is entitled to a response to the Financial Secretary's speech. He concluded by attempting to suggest that the tax on capital transfer was a tax on success. It appears that he was not listening when I opened the debate on the question whether the clause should stand part of the Bill. The great majority of the estates that come within the scope of CTT have been achieved by the accident of birth and not by success, business endeavour or hard work. Those who are born wealthy are those who die wealthy, and likewise those who die wealthy were born wealthy.
      Over a period, Governments of both parties have reduced the yield from the tax on capital and there has therefore been an increase in the tax on income. By and large it is income that is the product of hard work. It is income that is obtained by success and by those who endeavour, and it is they who have to pay a higher rate of tax because those who were born with large amounts of capital pay less tax.
      The Minister did not attempt to address himself to the questions asked by my right hon. and hon. Friends. In the clause we are being asked to give away £85 million to those who are liable to CTT. The Committee has asked properly and legitimately why we should be able to find £85 million for those with estates in excess of £100,000 when we cannot find £85 million for widows under 65 years and for those who are unemployed. We have had no answers to our questions because the questions are unanswerable. For that reason, we propose to divide the Committee and to seek to strike the clause from the Bill.
      Question put, That the clause stand part of the Bill:—
      The Committee divided: Ayes, 155, Noes 74.

      Division No. 134]

      [11.01 pm

      AYES

      Adley, Robert

      Macfarlane, Neil

      Alexander, Richard

      MacGregor, John

      Alison, RtHonMichael

      MacKay, John (Argyll)

      Alton, David

      Maclennan, Robert

      Ancram, Michael

      McNair-Wilson, M.(N'bury)

      Aspinwall, Jack

      McQuarrie, Albert

      Atkins, Rt Hon H. (S'thome)

      Major, John

      Banks, Robert

      Marland, Paul

      Beaumont-Dark, Anthony

      Mather, Carol

      Beith, A.J.

      Maude, Rt Hon Sir Angus

      Bendall, Vivian

      Mawhinney, DrBrian

      Benyon, Thomas(A'don)

      Maxwell-Hyslop, Robin

      Benyon, W. (Buckingham)

      Mellor, David

      Berry, HonAnthony

      Meyer, Sir Anthony

      Bevan, David Gilroy

      Mills, Iain(Meriden)

      Biffen, Rt Hon John

      Mills, Peter (West Devon)

      Blackbunr, John

      Mitchell, David (Basingstoke)

      Body, Richard

      Morrison, HonC. (Devizes)

      Boscawen, HonRobert

      Murphy, Christopher

      Brinton, Tim

      Myles, David

      Brooke, Hon Peter

      Neale, Gerrard

      Brown, Michael(Brigg&Sc'n)

      Nelson, Anthony

      Buchanan-Smith, Rt. Hon. A.

      Neubert, Michael

      Budgen, Nick

      Newton, Tony

      Cadbury, Jocelyn

      Normanton, Tom

      Carlisle,John (Luton West)

      Onslow, Cranley

      Carlisle, Rt Hon M. (R'c'n)

      Page, Richard (SW Herts)

      Chapman, Sydney

      Parris, Matthew

      Clarke, Kenneth (Rushcliffe)

      Patten, Christopher(Bath)

      Cockeram, Eric

      Penhaligon, David

      Cope, John

      Pollock, Alexander

      Crouch, David

      Price, SirDavid (Eastleigh)

      Dorrell, Stephen

      Prior, Rt Hon James

      Dover, Denshore

      Renton, Tim

      Dunn, Robert(Dartford)

      Ridley, HonNicholas

      Eggar, Tim

      Ridsdale, SirJulian

      Elliott, SirWilliam

      Rifkind, Malcolm

      Faith, MrsSheila

      Roberts, Wyn (Conway)

      Fenner, MrsPeggy

      Roper, John

      Fookes, Miss Janet

      Rossi, Hugh

      Gardiner, George(Reigaye)

      Sainsbury, Hon Timothy

      Goodhart, SirPhilip

      Sandelson, Neville

      Goodlad, Alastair

      Shaw, Giles (Pudsey)

      Gow, Ian

      Shelton, William(Streatham)

      Gray, Hamish

      Shepherd, Colin(Hereford)

      Greenway, Harry

      Sims, Roger

      Griffiths, E. (B'ySt.Edm 'ds)

      Smith, Cyril(Rochadle)

      Griffiths, Peter Portsm'thN)

      Speed, Keith

      Grimond, Rt Hon J.

      Speller, Tony

      Grylls, Michael

      Spence, John

      Hamilton, Hon A.

      Sproat, Iain

      Hamilton, Michael (Salisbury)

      Stanbrookm, Ivor

      Hawksley, Warren

      Steen, Anthony

      Heddle, John

      Stevens, Martin

      Hicks, Robert

      Stewart, Ian (Hitchin)

      Hogg, Hon Douglas(Gr'th'm)

      Stradling Thomas, J.

      Horam, John

      Taylor, Teddy (S'end E)

      Howell, RtHonD.(G'ldf'd)

      Tebbit,RtHonNorman

      Howells, Geraint

      Temple-Morris, Peter

      Hunt, David (Wirral)

      Thomas, Rt Hon Peter

      Hunt, John(Ravensbourne)

      Thompson, Donald

      Hurd, RtHonDouglas

      Thorne, Neil (IlfordSouth)

      Jenkin, Rt Hon Patrick

      Thornton, Malcolm

      Jopling, RtHonMichael

      Townend, John(Bridlington)

      Kaberry, SirDonald

      Trippier, David

      Kershaw, Sir Anthony

      van Straubenzee, Sir W.

      Lamont, Norman

      Viggers, Peter

      Lang, Ian

      Waddington, David

      Lawrence, Ivan

      Wainwright, R. (ColneV)

      Lee, John

      Wakeham,John

      Lennox-Boyd, HonMark

      Waller, Gary

      Lester,Jim (Beeston)

      Ward, John

      Lloyd, Peter (Fareham)

      Watson,John

      Loveridge, John

      Wells,John(Maidstone)

      Lyell, Nicholas

      Wheeler,John

      Lyons, Edward (Bradf'dW)

      Wickenden, Keith

      819

      Wilkinson, John

      Tellers for the Ayes:

      Williams, D. (Montgomery)

      Mr. Selwyn Gummer and

      Wolfson, Mark

      Mr. Tristan Garel-Jones

      NOES

      Allaun, Frank

      Dean, Joseph (Leeds West)

      Atkinson, N. (H'gey)

      Dixon, Donald

      Booth, Rt Hon Albert

      Eadie, Alex

      Bray, Dr Jeremy

      Evans, Ioan (Aberdare)

      Brown, Hugh D. (Provan)

      Evans, John (Newton)

      Buchan, Norman

      Foot, RtHonMichael

      Callaghan, Jim (Midd't'n&P)

      Foster, Derek

      Campbell-Savours, Dale

      Foulkes, George

      Clark, Dr David (S Shields)

      George, Bruce

      Cocks, Rt Hon M. (B'stol S)

      Hamilton, James(Bothwell)

      Concannon, Rt Hon J. D.

      Hamilton, W. W. (C'tral Fife)

      Cook, Robin F.

      Harrison, Rt Hon Walter

      Craigen, J. M. (G'gow, M'hill)

      HomeRobertson, John

      Cryer, Bob

      Homewood, William

      Cunliffe, Lawrence

      Hooley, Frank

      Dalyell, Tam

      Hughes, Robert (Aberdeen N)

      Davies, Ifor (Gower)

      John, Brynmor

      Davis, Terry (B 'ham, Stechf'd)

      Jones, Rt Hon Alec (Rh 'dda)

      820

      Jones, Dan (Burnley)

      Rooker, J. W.

      Lamond, James

      Rowlands, Ted

      Leighton, Ronald

      Sheerman, Barry

      Lewis, Ron (Carlisle)

      Sheldon, Rt Hon R.

      Litherland, Robert

      Shore, Rt Hon Peter

      Lyon, Alexander (York)

      Skinner, Dennis

      Mc Donald, Dr Oonagh

      Spearing, Nigel

      McKay, Allen (Penistone)

      Stoddart, David

      Mc William, John

      Stott, Roger

      Marshall, D(G'gowS'ton)

      Straw, Jack

      Maxton, John

      Thomas, Dafydd(Merioneth)

      Maynard, Miss Joan

      Thorne, Stan (PrestonSouth)

      Millan, Rt Hon Bruce

      Tinn, James

      Mitchell,Austin(Grvmsby)

      Walker, Rt Hon H.(D'caster)

      Morris, Rt Hon C. (O'shaw)

      Welsh, Michael

      Morton, George

      White, Frank R.

      Newens, Stanley

      Woolmer, Kenneth

      Parker, John

      Parry, Robert

      Tellers for the Noes:

      Price, C. (Lewisham W)

      Mr. Frank Haynes and

      Robinson, G. (Coventry NW)

      Mr. Hugh McCartney.

      Question accordingly agreed to.
      Clause 75 ordered to stand part of the Bill.

    Schedule 10

      RATES OF CAPITAL TRANSFER TAX
      Sir William Clark: I beg to move amendment No. 38, in page 157, line 20, column 3, leave out figures to line 32 and insert—

      'Nil

      15

      17½

      20

      22½

      25

      27½

      30

      32½

      35

      37½'

      This is the last amendment to be moved tonight. At this late hour brief speeches are probably in order. However, if I make a brief speech, I hope that my hon. Friend and the Patronage Secretary will not think that it diminishes the validity of my argument. Since the Conservative Party came to office, the totality of capital taxes has increased. Indeed, my hon. Friend the Financial Secretary was gracious enough to acknowledge that. There have been improvements in the thresholds for capital transfer tax, but I cannot understand why, under the Bill, the rate for the lifetime transfer is half that of the death transfer, but only part of the way.
      If the transfer is made during the donor's lifetime, my amendment will mean half the death rate all the way through. I cannot see why, after £200,000, the rate does not go down, for example, to 27½ per cent. In the Bill it is set at 30 per cent., 35 per cent., 40 per cent., and so on. I should like an explanation of why this year my hon. Friend the Financial Secretary and my right hon. and learned Friend the Chancellor saw fit only to halve the lifetime transfer rate, as compared with the death rate, for part of the way. There must be a reason. Is my right hon. and learned Friend the Chancellor doing it half this year and half next year? I look forward to hearing my hon. Friend's answer.
      Mr. Ridley: My hon. Friend's amendment would have the effect of making the lifetime transfer rate exactly half that of the death rate all the way up the scale. It would
      822
      begin to bite only at the level of £200,000, where it would part company with the present rates and begin on large estates above £200,000.
      I cannot argue against the amendment on grounds of cost. To accept the amendment would cost only a couple of million pounds. It is hard to say when that would begin to come through as there are few people at that level who will be subject to the tax in any one year. It is a question of judgment. My right hon. and learned Friend suggested recasting the lifetime gift scale in the previous Budget, and all that has happened is that the bands have been, as it were, moved upwards. The shape and structure derives from last year.
      The effect of the amendment on an estate of £1 million would, as drafted in the Bill, be £325,000 of tax payable. The amendment would reduce that still further to £277,500. As I said earlier to the hon. Member for Come Valley (Mr. Wainwright), our judgment is that we should shade the rate more in favour of lifetime transfers and smaller estates. This is a lifetime transfer on a larger estate.
      I do not claim that our judgment is necessarily better than that of my hon. Friend. My right hon. and learned Friend thinks that he has got it just about right, but we will reconsider the scale next year to ascertain whether an alteration is needed. We shall bear in mind my hon. Friend's point on this feature of the scale in the hope that we can convince him jointly and mutually that we are right.
      Sir William Clark: I thank my hon. Friend for his reply. If the lifetime rate were to be halved, even on the higher value estates, that would accelerate the payment of CTT to the Revenue and it is possible that there would be more transfers during the lifetime of the larger estates. However, in view of my hon. Friend's remarks, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Schedule 10 agreed to.
      To report Progress and ask leave to sit again.—[Mr. Lang.]
      Committee report Progress; to sit again tomorrow.

      LIAISON COMMITTEE
      Ordered,
      That Mr. Cranley Onslow be discharged from the Liaison Committee and Sir Timothy Kitson be added to the Committee.—[Mr. Lang.]

      British Firms Overseas (Taxation)
      Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lang.]
      11.20 pm
      Mr. Michael Grylls: The story of this United States taxation, which I am delighted to be able to raise in the House today, began when President Reagan was Governor of California. At that time, the Franchise Tax Board of California began to overstep the bounds of reasonableness and to use the vexatious system of taxation which became known as the world-wide reporting system. Governor Reagan opposed such action, but at that time the tax board was autonomous.
      Other states then realised that there was the loophole exploited by the California board through the world-wide reporting system to raise revenue to which, in the view of most people, it was not entitled and the system began to be copied throughout the United States.
      United Kingdom companies operating in the United States would have been saved from this taxation inequity by article 9(4) of a treaty between the United Kingdom and the United States which would have prohibited individual American states from using such a world-wide combined reporting system in assessing taxation for United Kingdom companies.
      The House will recall that that treaty was signed on 31 December 1975 but was not ratified until nearly five years later. In 1978, however, the United States Senate removed from the treaty the clauses prohibiting the world-wide reporting system, although the majority of senators favoured the prohibition. Britain was then asked to accept the treaty after the removal of that vital part which would have saved our companies having to face that system. We were assured, however, that the United States Congress would resolve the situation by legislation and that it was really just a hiccup in the Senate.
      The problem that I have outlined has been closely followed by the House—rightly, as we have a duty to protect our big trading companies overseas. On 19 July 1979, 129 hon. Members joined me in signing an early-day motion expressing the view that a vital feature of any relationship between the United Kingdom and the United States regarding relief from double taxation should include the prohibition of a world-wide reporting system. I hope to show that the views expressed in that early-day motion are every bit as valid or even more valid today than they were then.
      Following the early-day motion and the debate, a number of hon. Members, including myself and the late Sir Graham Page, as well as the then Minister of State, Treasury, visited Washington in September 1979 and January 1980. I say this merely to demonstrate the position. During our visits, we and the Minister of State were assured that legislation was not far off.
      On 18 February 1980 the House debated ratification of the treaty. I well remember telling the House of the assurances that I had received on my earlier visit to Washington and the assurances that I had had from the Chairmen of Ways and Means there that hearings would begin that very spring.
      When I took part in the debate in February 1980, I remember saying that the message should be that we should accept the treaty and the convention because they had immense importance outside the world-wide reporting
      824
      system, and were important to Third world countries. Therefore, we should accept the treaty but rely on our friends to sort out this thorny and difficult problem so that United States-United Kingdom relations could return to a fair and friendly basis.
      Many in the House today will believe that they have been badly let down by our friends on the other side of the Atlantic who have not delivered the legislation, despite the assurances which were given and the fact that we took the treaty in the belief that the Americans would sort it out.
      During that debate the then Minister said:
      "To those who remain concerned about the unitary question, I say that there is no disposition on the part of the Government to let the issue die. If the House approves the convention and if it is ratified thereafter, we shall be prepared to place on record, for all to see, our reservations on the unitary system. The Administration in the United States were left in no doubt by what I told them.†We do not propose to bury the issue if the House gives its approval to the convention and the three protocols. I have indicated the various ways in which we propose to pursue the issue in the years to come.
      I hope very much that the problem will be solved for us in large measure by the Hughes/Mori Bill."—[Official Report, 18 February 1980; Vol. 979, c. 179–99.]
      The Hughes/Mori Bill was legislation going through the Californian senate. The Minister was right, and if that legislation had been passed and been successful it would at least have solved the problem in California. Unfortunately, the Bill was not passed, so the problem was not even partially solved. We were left with failure by the United States side and so far, I regret to say, a failure by our Government to get the United States to introduce the legislation.
      When the ratification took place on 25 March 1980, the British Government rightly expressed their strong disapproval of the world-wide combined reporting system in a note. It concluded:
      "It must be emphasised however that the acceptance of the Senate reservation in no way implies approval of the unitary basis and that it is the urgent request of Her Majesty's Government for the reasons given above that the Government of the United States should use its best endeavours to eliminate the international application of the unitary basis of taxation."
      The Government were right to put in that reservation.
      The present chairman of the Committee on Ways and Means in the United States recommended in 1977, when he was head of the task force to look into the question of foreign source income, that legislation should be enacted to prohibit this world-wide combined reporting system. In the United States Congress the chairman has received in the past two months written requests for hearings from members of his party who are members of the Committee and sponsoring a new Bill through Congress—H.R. 1983. I regret to say that to date there has been no response to this request to have hearings and proceed to that legislation in the United States.
      There has been one more step. The Departments of Justice, Commerce, State and Treasury and the Trade Representatives Office of the Reagan administration all agreed to enter an amicus brief by the United States Solicitor-General, the senior law officer in the United States, in a case currently before the United States Supreme Court. That was filed in January of this year and was an important step. I hope that it will result in at least some changes in the world-wide reporting system.
      However, it was strange, and I wish to quote from a letter that I have received from the Under-Secretary of the

      825
      Treasury in Washington in the last two days. He referred to the amicus curiae brief that had been filed by the United States Solicitor-General and said:
      "The amicus brief argues that state use of the so called worldwide combined unitary method may result in multiple international taxation and impairs uniformity in the conduct of U.S. international tax policy."
      This is a quirk in the present situation in the American Administration. The Under-Secretary goes on to say:
      "The Administration has not taken a position on the Mathias-Conable legislation."
      That is current legislation before the Congress. He states:
      "The legislation raises difficult issues involving the desired relationship between the taxing powers of the states and the international economic relations of the United States. Those issues are of acute importance and sensitivity, particularly in light of the President's recently announced New Federalism initiatives for returning revenue sources and programme responsibility to the states. The Treasury Department is currently conducting a thorough, objective study of these issues."
      I think that the House of Commons in London would say to the United States Government in all seriousness that they cannot relinquish their right to determine international economic policy. They cannot shrug that off, leave it in the hands of the States and leave foreign companies at their beck and call and taxed in that strange way.
      Where does that leave us? Parliament has been patient since 1975. This short debate gives us the opportunity to make it crystal clear to the United States Government that we cannot continue to accept the use of combined worldwide reporting systems by individual States while the United States Government have agreed in over 40 treaties not to use it. We are not alone in our opposition. Recently there have been treaties between the United States and France and Canada. The European Community on behalf of its member States has presented two successive demarches to the United States Government seeking a solution to the problem.
      We have been patient because we are dealing with friends. We took our friends on trust. Unfortunately, in this instance our friends have not delivered. The only thing left to the British House of Commons—there will be increasing pressure on us to do this—is for us to take our own legislative action to apply a combined world-wide reporting system to United States companies that operate in Britain.
      I do not hide from the House the fact that I would much regret having to do that, but the pressure is such and the damage that has been done to British companies is so serious that the only leverage that we have on Congress is to do to them what they have done to us. Then perhaps mutually we can both agree to stop doing it.
      I realise that when the President comes to Britain in a week or two there will be many things for him and the Prime Minister to discuss, but I hope that my hon. Friend the Financial Secretary will be able to give me an assurance that my right hon. and learned Friend the Chancellor of the Exchequer will be able to raise the matter with Treasury Secretary Donald Regan, if he accompanies the President to the Versailles talks in France or earlier in London. I hope that my right hon. and learned Friend will say to him loud and clear that the patience of the House of Commons is running out. We have been overpatient. Unless action is taken quickly in the United States, we shall have to take action here because we believe that that is the only way in which we can protect
      826
      our companies, which have been the subject of the system. Almost without exception they have agreed that it is grossly unfair, it distorts international trade and is damaging to the friendly business relations that we wish to continue with the United States.
      I ask my hon. Friend whether once again he would strongly make that view known to the United States Government and take advantage of the forthcoming visit to do that.
      11.34 pm
      The Financial Secretary to the Treasury (Mr. Nicholas Ridley): I congratulate my hon. Friend the Member for Surrey, North (Mr. Grylls) on securing the debate and on choosing a subject that I think is of great importance. It is useful to have this chance to put on the record the Government's continuing concern about the situation.
      The use by certain States of the United States of the worldwide combined reporting system in conjunction with the unitary basis of taxation has been a long-standing issue between the United Kingdom and the United States of America. This basis is contrary to generally accepted international principles endorsed by the OECD.
      The problems associated with the unitary basis of taxation are, first, that the State usually takes a larger share of profits than would be appropriate on normal internationally accepted principles. Secondly, the true commercial results of the business operated in the State are ignored. Thirdly, unrelieved double taxation could occur by the attribution of a share in already taxed world profits. Fourthly, there are excessive compliance costs in supplying worldwide data. Fifthly, it may set a precedent for other countries to use this arbitrary method.
      As my hon. Friend said, the UK/USA double taxation convention as originally drafted would have excluded this method of taxation. The United States Senate rejected the treaty's application to State taxation on constitutional grounds. It threw out the famous article 94. The convention as now in force therefore only debars the United Kingdom and United States federal Governments from using the unitary basis in certain circumstances, and not, therefore, the States.
      During the debate in the House on 18 February 1980 on the convention, the Government undertook not to let the issue die. The proposed United States legislation supported by the Carter Administration failed because of the Presidential election. Details of the representations to the present United States Administration are contained in the written answers which I have given on various dates. I shall run through the more salient of them.
      In reply to a question from my hon. Friend, I stated:
      "The Government have strongly urged the United States Government to introduce or support legislation to prevent the application by States of a unitary basis of taxation to British companies, not least because of the representations received from British industry. Within the last six months fresh approaches have been made, both orally and in writing, to the present Administration, and these include a note presented by the United Kingdom on behalf of the European Community expressing the joint concern of the ten Governments."—[Official Report, 11 December 1981; Vol. 14, c. 511.]
      As President of the European Community, we persuaded the other countries, and they joined with us, to leave a note with the Treasury in Washington urging it to do something about this.
      Secondly, my right hon. and learned Friend the Chancellor of the Exchequer wrote to the Secretary of the

      827
      United States Treasury reiterating our concern, and giving him firm support on the matter of the amicus curiae brief which was lodged by the United States Government with the Supreme Court in the case of Chicago Bridge and Iron Company v Caterpillar Tractor Company et al. This brief was referred to by my hon. Friend. The brief challenges the constitutional validity of the application of the unitary apportionment method to multinational groups of companies. I have arranged for a copy of the brief, which includes as appendices the note presented on behalf of the European Community and my right hon. and learned Friend's letter, to be placed in the Library.
      In addition to what the Government have done formally, I assure my hon. Friend that there have been many informal approaches to the American Government, making clear our concern at the lack of progress and the worries about how much longer we must wait for something to be done about this matter. We have not been alone. The CBI has done much to try to persuade the American Government of the rightness of our case. My hon. Friend the Member for Surrey, North-West has done an especially effective and energetic job in single-handedly trying to promote this cause both in Britian and in America. So also did the late Sir Graham Page, whose memory we all cherish so much. He and my hon. Friend fought a splendid crusade.
      The American Solicitor-General has now filed the amicus curiae brief in the Chicago Bridge and lion Co. v Caterpillar Tractor Company State of Illinois case. That brief includes in the appendices the letter from my right hon. and learned Friend the Chancellor of the Exchequer, which challenges the constitutional validity of the application of the unitary proportion method to multinational groups of companies. The Supreme Court decision is expected in June.
      It might help if I quote a few lines from my right hon. and learned Friend's letter to Mr. Donald Regan:
      "It also introduces an undesirably asymmetric element"—
      that is unitary taxation—
      "into the tax relationship between our two countries, since the unitary basis of taxation with worldwide combined reporting is not used by the United Kingdom at any level of government. This
      828
      imbalance is causing increasing concern, not only on the part of British companies which have made representations about it, but in Parliament where Questions have been asked."
      Now Adjournment debates have been raised, not least by my hon. Friend the Member for Surrey, North-West.
      It may be unrealistic to expect any positive steps by the American Administration to support the two Bills now before Congress which would curb the unitary method of taxation until the Chicago Bridge case decision is known. If that decision does not resolve the issue to our satisfaction, the Government will redouble their efforts to press the American Administration to act. My hon. Friend has put forward several constructive suggestions, for which I am grateful. I shall certainly send a report of his speech to the American embassy so that it is relayed immediately to Washington, where the Adminstration can read of the strong feelings that he and many hen. Members, as well as businesses, share in this matter. I shall also bring to my right hon. and learned Friend the Chancellor's attention his suggestion that he should raise the matter with Mr. Donald Regan when he is here in the summer. I shall ask him to take particular note of that.
      My hon. Friend went a little further and suggested that we might have to resort to some retaliation or enactment of similar legislation against American companies if they do not desist from doing this in some American states. I hope that it will not come to that, but I note the growing irritation. We shall make it clear to the American Government that the criticisms, as expressed by my hon. Friend, are mounting and that we cannot forever accept this assymetry in our taxation arrangements arid the deletion of article 9(4) from a treaty that was freely negotiated by both Governments and then altered unilaterally by one of the legislatures. If one of the legislatures in Washington feels able to alter treaties, the re is no reason why one of our Houses of Parliament should not have the same views in due course.
      I am grateful to my hon. Friend and we shall redouble our efforts in the ways that I have suggested.
      Question put and agreed to.
      Adjourned accordingly at sixteen minutes to Twelve o' clock.

TRADE
  Airport Security Measures
  Airport Security Measures
  Argentina (Imports)
  Argentina (Imports)
  Multi-fibre Arrangement
  Multi-fibre Arrangement
  Batteries (Safety)
  Batteries (Safety)
AGRICULTURE, FISHERIES AND FOOD
  Sea Fish Industry Authority
  Sea Fish Industry Authority
  Foodstuffs
  Foodstuffs
  European Community (Self-sufficiency)
  European Community (Self-sufficiency)
  Fishing Industry
  Fishing Industry
NATIONAL FINANCE
  Personal Taxation
  Personal Taxation
  Crude Oil Prices
  Crude Oil Prices
  British Steel Corporation and British Transport Docks Board (Litigation)
  British Steel Corporation and British Transport Docks Board (Litigation)
PRIME MINISTER
  Engagements
  Engagements
  Falkland Islands
  Falkland Islands
  Factory Closures
  Factory Closures
HOME DEPARTMENT
  METROPOLITAN Police (Dialect Tuition)
  METROPOLITAN Police (Dialect Tuition)
  Detained Persons
  Detained Persons
  Police Stations (Members' Visits)
  Police Stations (Members' Visits)
  Convicted Persons (Release)
  Convicted Persons (Release)
  Prisoners on Remand
  Prisoners on Remand
  Home Beat Officers
  Home Beat Officers
  Racial Prejudice
  Racial Prejudice
  Police Training Procedures
  Police Training Procedures
  Police Station Detention Areas (Lay Visitors)
  Police Station Detention Areas (Lay Visitors)
  Radio Frequencies
  Radio Frequencies
  Risley Prison Officers Estate, Culcheth
  Risley Prison Officers Estate, Culcheth
SOCIAL SERVICES
  Homeless Persons
  Homeless Persons
  Drug Addiction
  Drug Addiction
  General Practitioners
  General Practitioners
  Supplementary Benefit
  Supplementary Benefit
  Epilim
  Epilim
  Prescription Charges
  Prescription Charges
  Cervical Cancer
  Cervical Cancer
  Birth Statistics
  Birth Statistics
  Disabled Persons
  Disabled Persons
  Cervical Cytology Screening
  Cervical Cytology Screening
  Pharmaceutical Services
  Pharmaceutical Services
  Triazolam
  Triazolam
  Contraception
  Contraception
  Unemployment Benefit
  Unemployment Benefit
  National Health Service (Land Sales)
  National Health Service (Land Sales)
ENERGY
  Wytch Farm Oilfield
  Wytch Farm Oilfield
  Coal-Mining (Subsidence) Act 1957
  Coal-Mining (Subsidence) Act 1957
  Glass Industry
  Glass Industry
  Renewable Energy Programmes
  Renewable Energy Programmes
INDUSTRY
  British Leyland
  British Leyland
  Relocation of Industry (Financial Assistance)
  Relocation of Industry (Financial Assistance)
  North of England Development Council
  North of England Development Council
  Post Office
  Post Office
EMPLOYMENT
  Manpower Services Commission
  Manpower Services Commission
  Farm Accidents
  Farm Accidents
  Long-term Unemployed
  Long-term Unemployed
  Unemployment Statistics
  Unemployment Statistics
  Redundancies
  Redundancies
  Glasgow (Unemployment Benefit Staff)
  Glasgow (Unemployment Benefit Staff)
FOREIGN AND COMMONWEALTH AFFAIRS
  Falkland Islands
  Falkland Islands
WALES
  Milk Producers
  Milk Producers
  North Wales Expressway (Noise Nuisance)
  North Wales Expressway (Noise Nuisance)
  Unemployed Women
  Unemployed Women
  Youth Opportunities Programme
  Youth Opportunities Programme
  Eurpean Community (Employment Effects)
  Eurpean Community (Employment Effects)
  Cervical Cancer
  Cervical Cancer
  Cervical Cytology Screening
  Cervical Cytology Screening
  Welsh Development Agency
  Welsh Development Agency
  Birth Statistics
  Birth Statistics
  Employment Statistics
  Employment Statistics
  Deeside (European Community Assistance)
  Deeside (European Community Assistance)
  Tourism (Financial Assistance)
  Tourism (Financial Assistance)
ENVIRONMENT
  Homelessness (London)
  Homelessness (London)
  Llangollen Canal
  Llangollen Canal
  Property Services Agency (Contracts)
  Property Services Agency (Contracts)
  Gleneagles Agreement
  Gleneagles Agreement
  Pontefract Council of Social Services
  Pontefract Council of Social Services
  Horse Riders
  Horse Riders
  London Dockland Development Corporation
  London Dockland Development Corporation
  Dartford Rural District Council (Inquiry and Appeal Costs)
  Dartford Rural District Council (Inquiry and Appeal Costs)
  Inner Urban Areas Act 1978
  Inner Urban Areas Act 1978
  Investment Projects
  Investment Projects
  Acid Rain Conference, Stockholm
  Acid Rain Conference, Stockholm
  House Improvement Grants
  House Improvement Grants
  Local Authorities (Government Assistance)
  Local Authorities (Government Assistance)
  Building Research Establishment
  Building Research Establishment
  Nature Conservancy
  Nature Conservancy
TRANSPORT
  Motorways (Traffic Flows)
  Motorways (Traffic Flows)
  Bypasses
  Bypasses
  Parking Meters
  Parking Meters
  River Trent (Burton Bridge)
  River Trent (Burton Bridge)
NORTHERN IRELAND
  Plastic Bullets
  Plastic Bullets
  Higher Education
  Higher Education
  Cervical Cancer
  Cervical Cancer
  Schools(Maintenance)
  Schools(Maintenance)
  Birth Statistics
  Birth Statistics
  Schools (Computers)
  Schools (Computers)
DEFENCE
  Pay (BAOR)
  Pay (BAOR)
  United States of America (Defence Co-operation)
  United States of America (Defence Co-operation)
  Gibraltar Dockyard
  Gibraltar Dockyard
  Sea Wolf Missile
  Sea Wolf Missile
  Falkland Islands
  Falkland Islands
  Trident D5
  Trident D5
  Defence Policy
  Defence Policy
  Belize
  Belize
  Nuclear Weapons
  Nuclear Weapons
  Argentina (Arms Sales)
  Argentina (Arms Sales)
  Royal Yacht "Britannia"
  Royal Yacht "Britannia"
  Soviet Arms Supplies (Argentina)
  Soviet Arms Supplies (Argentina)
  Equipment Exhibition
  Equipment Exhibition
  Defence Sales Organisation
  Defence Sales Organisation
  Chatham and Portsmouth (Redundancies)
  Chatham and Portsmouth (Redundancies)
  Argentine Navy
  Argentine Navy
EDUCATION AND SCIENCE
  Mandatory Awards (Fees)
  Mandatory Awards (Fees)
  Students (Loans)
  Students (Loans)
  Microelectronics Education Project
  Microelectronics Education Project
  Adult Education
  Adult Education
  Prison Sentences
  Prison Sentences
SCOTLAND
  General Practitioners
  General Practitioners
  Private Medicine
  Private Medicine
  Cervical Cytology Screening
  Cervical Cytology Screening
  Birth Statistics
  Birth Statistics
  Cervical Cancer
  Cervical Cancer
  Scottish Development Agency
  Scottish Development Agency
  Unemployment Statistics
  Unemployment Statistics
  Employment (Glasgow)
  Employment (Glasgow)
  Company Closures (Glasgow)
  Company Closures (Glasgow)
  Tourism (Financial Assistance)
  Tourism (Financial Assistance)
  Teacher Supply
  Teacher Supply

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Biship of Hereford
The Earl of Bradford—Sat first in Parliament after the death of his father.
The Lord Russell of Liverpool—Sat first in Parliament after the death of his grandfather.

Redlynch, Somerset: Geological Research
The Earl of Winchilsea and Nottingham: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
To ask Her Majesty's Government what a drilling rig was doing recently at Redlynch, near Bruton, Somerset.
The Parliamentary Under-Secretary of State, Home Office (Lord Elton): My Lords, it was boring a hole. The hole was drilled for the Institute of Geological Sciences as part of its programme. The institute is part of the Natural Environment Research Council, which approves that programme. The purpose of the investigation was to provide further information about the Palaeozoic basement in that part of the country, and it was located at Bruton because those rocks were relatively near the surface. The choice of location has no commercial significance except that being nearer the surface it is cheaper and, therefore, presumably results in a bargain basement!
The Earl of Winchilsea and Nottingham: My Lords, while I thank the noble Lord for his most courteous and brief reply, I wonder whether he can throw a small amount of additional light on this topic for me? Can he confirm that this has in no way been used, or in no way in the future could be used, for the burying of any level of nuclear waste? In other words, could this research be at any time used in the future?
Lord Elton: My Lords, the borehole had no connection with any radioactive waste disposal programme or mineral resources programme. It was undertaken entirely for scientific purposes in the geological field. I understand that the only thing that has been tipped down it so far is concrete in order to seal it, and it will not be used for anything else in the future.

Falklands Islands Dispute and the Defence Budget
2.39 p.m.
Lord Orr-Ewing: My Lords, I beg leave to ask the Question which stands in name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether in view of the cost of moving forces into the South
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Atlantic they will later introduce a supplementary estimate in order to avoid seeking countervailing economies in other parts of the defence budget.
The Minister of State for Defence Procurement (Viscount Trenchard): My Lords, it is much too early to estimate the extra cost of the deployment of forces in the South Atlantic. The treatment of the cost will of course take into account the need to maintain our defence in all other respects. Decisions on the treatment of cost are not appropriate at the present time.
Lord Orr-Ewing: My Lords, while thanking my noble friend for that reply, may I ask whether he can assure us that no economy steps will be taken which will weaken our vital contribution to NATO's defence against the increasing Soviet threat? Secondly, is not one of the lessons that such ships as the Leander class and the Type 12, although somewhat long in the tooth, can be of great value in such operations, and ought not these to be taken off the disposal list and maintained in short notice reserve?
Viscount Trenchard: My Lords, I thank my noble friend for drawing attention to the continued Soviet threat and I think that my original Answer to him makes clear that we are mindful of the fact that our defence must be maintained in full. As regards the use of particular classes of ship at the present moment, I think that the operation has shown that really only this country, apart from the super powers, could possibly mount an operation of this size at this notice, and I believe that there is nothing in our future plans which would prevent us from doing the same in the future if it were ever, unfortunately, necessary.
Lord Shinwell: My Lords, why not get on with the war and damn the expense?
Viscount Trenchard: That, my Lords, is what I can assure the noble Lord we are doing.
Lord George-Brown: My Lords, I think that my noble friend—if I may embarrass him by so calling him—has failed to answer what seemed to me to be the really valid part of the Question of the noble Lord, Lord Orr-Ewing. Will he now come forward at some stage with some policy assurances which make it clear that the cuts that it was proposd to make in surface vessels and things of that kind will, as a result of this exercise, not be made? Of course, in order to do that my noble friend will have to bring forward a supplementary estimate, will he not?
Viscount Trenchard: My Lords, I think that that is a separate question which my right honourable friend would be prepared to meet when the immediate operation is over. I do, however, have to repeat that there is nothing in the plan for the defence of this country, which still stands having been established last July, which amounts to a reduction of the ability of the surface navy to mount this kind of operation. The fact that we use the ships that are available at the current time does not mean that there are not ships of in fact greater fire power which will be available in future years.
Lord Harmar-Nicholls: My Lords, is my noble friend aware that most reasonable people would accept that it is premature to try to draw any conclusions from what is happening in the South Atlantic at the present moment? However, when we are in a position to draw some conclusion from what is happening now, one hopes that the Government will not have a closed mind as to what the future needs will be in the light of the experience that we are going through at the moment.
Viscount Trenchard: My Lords, I can assure my noble friend that there will never be a day when we shall not study any relevant experience in relation to the future.
Lord Avebury: My Lords, since some of the ships that are involved in this operation were due to have been scrapped within a very short time, including one of the aircraft carriers, would not the Minister like to reconsider his assertion that nothing in our future defence plans would prevent us from mounting an operation of this size and complexity in the future?—because, surely, if those ships had been scrapped, as was planned, no immediate replacements would have been available to the Navy.
Viscount Trenchard: My Lords, the noble Lord has not studied the Defence Review or the annual Estimates. The policy of Her Majesty's Government has been to maintain two carriers—two carriers will be maintained and are planned to be maintained. The fact at the moment is that we have one old carrier and one new carrier. Under the plan as announced to Parliament last year, we shall move to a situation where we have two brand new powerful carriers. I give that as an illustration of what I said just now; the fact that we use all ships—old and new, being paid off service and coming into service—as necessary at the present time is not a reflection on the power of the fleet for the future. I have given the assurance that when current matters have been dealt with and are over, any lessons that need to be drawn will, of course, be observed.
Lord Byers: My Lords, when will these two brand new carriers be commissioned? What date?
Viscount Trenchard: My Lords, we are wandering from the Question. I am relying on my memory, but in 1983 another carrier, the "Illustrious", is due to come into service, and in 1985 the "Ark Royal" is due to come into service.
Lord Paget of Northampton: My Lords, is not the trouble with this sort of half war that it is both extremely expensive and no stimulus to production, whereas, on the other hand, if we had a couple of years of real war it might even be enough to pick up the slack which the Government have left in the economy?
Viscount Trenchard: My Lords, in so far as the noble Lord's comment refers to this Question, in the end the extra cost will probably be found to be less than some noble Lords might imagine, because this is the use of our forces and not an addition to them.
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The cost of maintaining them is very considerable in any event. The extra cost is of a lesser order, depending on the outcome of the eventualities.
Lord Leatherland: My Lords, as these troops are now on active service, can the noble Viscount say whether they will receive the nightly rum ration, which is customary in such circumstances?
Viscount Trenchard: My Lords, the noble Lord can ask the question, but because it does not refer to the original Question, I shall not answer it.

Falklands Islands Dispute: Nuclear Weapons
2.45 p.m.
Lord Jenkins of Putney: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will undertake that the Falkland Islands task force will not use, deploy or carry nuclear weapons.
Viscount Trenchard: My Lords, I can state categorically that there is no question at all of our using nuclear weapons in this dispute. It has been the longstanding practice of successive Governments neither to confirm nor deny the presence or absence of nuclear weapons in any particular place at any particular time.
Lord Jenkins of Putney: My Lords, nevertheless, is the noble Viscount aware that I am glad to receive confirmation of what he said the other day; that is, that nuclear weapons were, to use the words I think he used,"not applicable"in the present case? I take it that that is as near as he can go to confirmation of my Question. Will he take this opportunity to reaffirm the Government's intention to secure, if at all possible, a peaceful conclusion to the Falklands issue?
Viscount Trenchard: My Lords, the words I used on this occasion were:
"…there is no question at all of our using nuclear weapons…".
I think that the noble Lord's further question does not follow from his original Question.

UN Special Session: UK Delegation
2.47 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 who will be the members of the United Kingdom delegation to its second special session of the United Nations General Assembly, and whether they will support the proposal that representatives of non-governmental organisations and peace and research institutions should serve on a working group.
The Minister of State, Foreign and Commonwealth Office (Lord Belstead): My Lords, the United Kingdom will be represented at the United Nations special session by our delegation to the Committee on Disarmament, supported by arms control experts from the Foreign and Commonwelth Office and our mission to the United Nations. My right honourable friend the Prime Minister is expected to make the main British statement during the first fortnight of the session. I am glad to say that Mr. Frank Judd, the director of Voluntary Service Overseas and a member of the national executive of the United Nations Association, has agreed to accompany the United Kingdom delegation as an independent adviser in liaison with British non-governmental organisations.
Lord Brockway: My Lords, is the Minister aware that I very much welcome the suggestion that Mr. Judd should go as an observer? Is it not the case that in the first assembly, four years ago, my noble friend Lord Noel-Baker was invited and contributed much to the magnificent final document that was adopted? As regards working committees, is it not the case that the non-governmental organisations are able to give evidence to Select Committees of the United Nations? Would it not be very desirable that their expertise should be available on the working committees?
Lord Belstead: My Lords, I accept the importance which the noble Lord, Lord Brockway, places upon the evidence which non-governmental organisations can give in the context of this special session of the United Nations General Assembly. In the preparatory committee for the special session we are supporting the proposal that non-governmental organisations and research institutes should be allowed two days in which to present their views and proposals. It has already been agreed that their working papers should be made available to official delegations.

Business
Lord Denham: My Lords, it may be for the convenience of the House if I announce that dinner will be available this evening at the usual time. Subject to the progress of business, the Committee stage of the Social Security and Housing Benefits Bill will be adjourned at about 7 p.m. for approximately three-quarters of an hour.
Baroness Liewelyn-Davies of Hastoe: My Lords, may I ask the noble Lord the Chief Whip whether he has any news for the House about a debate in your Lordships' House on the Falkland Islands crisis?
Lord Denham: My Lords, I am grateful to the noble Baroness. I am afraid I am not at present in a position to make a Business Statement to the House. I understand there is to be a Business Statement made in another place later this afternoon and I can give an undertaking to your Lordships that I will make a Statement in this House before we rise this evening.

Social Security and Housing Benefits Bill
2.50 p.m.
The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Trefgame): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Lord Trefgarne.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD ABERDARE in the Chair.]
Clause 1 [Employer's liability]:
Baroness Jeger Baroness Jeger moved Amendment No. 1:
Page 1, line 12, at end insert ("not later than the next normal pay day had he been at work").
The noble Baroness said: May I start by saying that though Her Majesty's Opposition is making as many constructive, and we hope useful, amendments as possible to this Bill, we are completely opposed to its philosophy and the practicalities which will flow from it, so that none of our amendments are to be taken as conceding general support for the Bill.
I beg to move Amendment No. 1. In moving this amendment we are seeking to help people who go sick and whose payment by the employer is delayed. It is quite clear that if the employer disputes liability under Clause 17 the worker can ask for a written explanation, and if the worker is not satisfied he can refer the question to the national insurance adjudicating authorities. Under Clause 16 he can go to the county court. And we appreciate that under Clause 20 non-payment can be an offence subject on summary conviction to a fine up to £200, plus £20 for every day on which payment is withheld.
This amendment does not seek to deal with the employer who contests liability, but with the employer who is dilatory or who has a cash flow problem of his own. It seems to us that without this amendment an employer can say to a worker who goes sick,"We are very sorry, but you will have to wait a little. We are going to have to work things out and see when we can let you have this money". I am sure for many small employers this is a genuine difficulty, especially if the employer has to take on a temporary worker in place of the worker who has gone sick. It means, as I read the Bill, that the employer has to pay the sick worker his money, has to pay the national insurance contribution for the sick worker, has to pay the wages of the person who comes in and the national insurance for that second person. In that situation there might well be many small employers who genuinely find it difficult to get the money to the employee who has gone sick.
The remedies for non-payment to which I have referred—in all fairness, we appreciate that the Government have written these safeguards into the Bill—will take a very long time to implement. By the time the worker denied sick pay has gone through all these processes and possibly got to the county court, I wonder what he will have been living on in the meantime. I am concerned about the man or woman who goes sick and who

781
the next day has to pay his rent, has to pay his milkman, pay for the children's school dinners, perhaps pay fares to the out-patients' department of the hospital to which he has been referred.
It might be argued that to ask for sick pay to be paid on the next normal pay day is unreasonably soon. I do not think so. The employee's wages will be in process of being made out anyhow, especially in large firms which have computer facilities. There is nothing to gain from delay. If it is said that it is rather previous to expect him to get his sick pay at the end of the week or the next normal pay day, I must remind your Lordships that his landlord will be asking for the rent, and he will have to pay the milkman and his other bills at the end of that week, or under whatever arrangements he has.
At present someone who is on sick pay and entitled to national insurance benefit can collect the money without delay. We put down this amendment because we want to be assured that the Government are seized of the very real hardship which might be caused to people through delay in getting this new statutory sickness benefit. There is nothing more destructive, and nothing that gives a more isolated sensation of loneliness, as being totally without money, especially if there is a family to support.
I am sure all of us here know that many employers operate very fair schemes of sickness benefit. In fact, there are many firms which pay the whole wages for a stipulated number of weeks. And if it is not out of order, I might refer to a practice just across the Lobby, where Members of another place are entitled to full pay if they are sick for the whole time between elections. So we are not asking for anything extravagant. What we are saying is that if a person is sick, if an employer is supposed to pay the money and delays payment, there should be written into the Bill the right for the employee to ask for his money on his next normal pay day, which would be the day on which he or she would be expected to meet their household bills. I beg to move.
Lord Cullen of Ashbourne: As the noble Baroness has explained, this amendment is intended to fix a rigid time by which employers must pay statutory sick pay. The intention is to require the employer to pay SSP on the same day that he would have paid the employee for that day's work had he not been ill. The amendment is rather inappropriately placed in Clause 1, since it is Clause 8 which deals with time limits for paying SSP. It is also not too clear in its wording, though the noble Baroness has made the intention clear. However, even if these things were put right, I am afraid we would not accept the amendment.
This sort of rigid time limit would be too unreasonable a requirement to make of employers. There could easily be instances, for example, where a decision about entitlement to statutory sick pay is not made until it is too late for an employer's pay roll arrangements to put the payment into effect by the next pay day. The delay in reaching the decision may not be the employer's fault. He may quite reasonably have been waiting on the employee submitting medical evidence. Nor does the amendment take account of the possible effect of accidents, strikes, equipment
782
failures and so forth, which could delay payment of wages or statutory sick pay.
The Bill also provides for time limits for payment to be set by regulations in certain circumstances, and I think that the noble Baroness might find it helpful if I explained what we envisage happening. First of all, we expect that in the vast majority of cases employers will pay statutory sick pay as soon as they reasonably can, once they have decided that they are liable to pay, It is to the advantage of all parties concerned that they should do so. But time must he allowed for the various contingencies I have mentioned, and no doubt there are many more.
Where, for whatever reason, the employer does not pay, we expect that he will explain why not to his employee. Indeed, if the employee asks for such an explanation the employer will be required to give it. If the employee is not satisfied with the explanation we will encourage both parties to discuss their disagreement, and if either approaches the DHSS advice will be freely given. For example, a DHSS inspector might go to see the employer to help to resolve any problems of interpretation of the legal requirements. I am sure noble Lords will agree that an informed and amicable discussion and agreement would be by far the best resolution to this kind of problem, and this is what we are aiming for.
If, even after this, the two parties cannot agree it will be open to the employee to ask for a formal decision on the question at issue from the insurance officer, the first of the independent adjudicating authorities who now decide entitlement to national insurance benefits and who will have a similar function, once brought into the picture, in relation to statutory sick pay. If the insurance officer (or indeed either of the other two tiers of adjudicating authorities, the local tribunal or the Social Security Commissioner) gives a formal decision that the employee is entitled to statutory sick pay, regulations under Clause 8(2) will lay down a time by which the statutory sick pay must be paid. Failure to pay by the time set will be an offence under the provisions of Clause 20 of the Bill, mentioned by the noble Baroness in her speech. I hope that this satisfies the noble Baroness that we have thought of, and provided for, the situation which her amendment is intended to cover in a way which allows for the many contingencies not recognised by the amendment. I hope that the noble Baroness will see fit to withdraw her amendment.
Baroness Jeger: I thank the noble Lord for his, as ever, courteous reply. Can he tell us what will happen to a worker during the period while all these negotiations and appeals are going on? Will he be entitled to supplementary benefit to meet his immediate needs, and will this be made absolutely clear in the publicity which I hope will be sent out regarding this Bill?
Lord Cullen of Ashbourne: He is certainly entitled to supplementary benefit, and of course when all these regulations are made out the position will be spelt out to all employers.
Lord Banks: I can see the difficulties which the noble Lord, Lord Cullen, has put forward to accepting the

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amendment in the way in which it is worded now. On the other hand, it seems to be useful to have a specific time limit of the kind that the noble Baroness has in mind. If it were to read something like,
"not later than the next normal pay day after his claim has been established",
can the noble Lord see any difficulties? If not, we might return to that at a later stage.
Lord Cullen of Ashbourne: One result of this Bill is that there will be a great many regulations after it is passed. May I give the noble Lord an indication about the regulations in this particular matter. One of them will be that statutory sick pay must be paid not later than the first normal pay day after the time for appeal has expired; or if no further appeal is possible, the first normal pay day after the decision reaches the employer, and so on. The first one is that regulations under Clause 8(2) will provide that where an insurance officer, local tribunal or commissioner has issued a decision that an employee is entitled to statutory sick pay, and no appeal has been made, the time limits for payment will be as laid down. There are four. I do not know whether the noble Lord would like me to read it all out. I will willingly do so, but there are a great many regulations coming along with this Bill.
Baroness Jeger: The noble Lord has said that there are a great many regulations coming after this Bill is passed. It is the opinion of many of us that there are too many regulations and we would have preferred many of these regulations to be written into the Bill so that we could have discussed them today. However, without prejudice to our future action at later stages of the Bill, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Whether Clause I shall stand part of the Bill?
3.6 p.m.
Lord Wells-Pestell: I think this is the appropriate place to raise the matter that I want to raise, in view of the fact that Clause 1 requires employers to pay statutory sick pay. What is going to be the position of the employee who is in the unfortunate position of not enjoying the best of health and who from time to time has got to be absent from his place of employment on a number of occasions? What happens to him if the employer decides to dispense with his services?
Some noble Lords will remember that many years ago we had the attachment of earnings legislation. Where a husband and wife were separated and there was a maintenance order in existence, if the husband did not pay and it was thought that he was trying to avoid payment, the court making the order, or for that matter any other court through which the order was payable, had the right to attach his earnings so that the employer each week would send the money to the court. Many people, myself among them, felt that this could cost a man his employment. There were instances where in point of fact the employer discharged the man because he was a nuisance in the sense that extra work had to be undertaken.
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We are dealing here with a health situation. It is possible that in every employment you get a group of people, or one or two people, who from time to time fall ill. Here the liability is on the employer to pay the sick benefit. What would be the position if an employer came to the conclusion that he could not tolerate this any longer and therefore decided to dispense with the services of the employee? Has that employee a right to go for wrongful dismissal? Is there any compensation at all? What is the position?
Lord Cullen of Ashbourne: I have no doubt that the employee could speak to the tribunal about it. However, I cannot quite see why the employer would wish to get rid of the employee when he is being entirely recompensed with all that he has to pay out in the statutory sick pay. He gets the money back.
Lord Wallace of Coslany: In due course. The Minister said that he gets the money back. When? How long is the employer out of his money before he gets it back?
Lord Cullen of Ashbourne: I think the limit is 14 days, but I am not absolutely certain. I shall let the noble Lord know if I am wrong.
Lord Wells-Pestell: I do not quarrel with the noble Lord that the employer gets the money back eventually. Whether it is 14 days or a month is, I think, beside the point. But in the payment of sick pay by the employer he and his office are put to some extra burden. The attachment of earnings cost not very many but a number of men their jobs. I can foresee that this could happen. Of course, I hope that it will not happen, but I wondered whether the Government had taken the possibility of this into account when framing the Bill.
Lord Cullen of Ashbourne: I do not see why it should happen any more under the statutory sick pay arrangements than it does at present. If an employer finds that one of his employees keeps on going sick, and it is rather a nuisance, he might under present circumstances, before SSP, have taken the same view as the noble Lord suggests, so I do not see that it is any worse with SSP and, as I say, he gets the money hack, anyway.
Clause 1 agreed to.
Clause 2 [Period of incapacity for work]:
On Question, Whether Clause 2 shall stand part of the Bill?
Baroness Jeger: I have a short question to ask about the clause, and while I think I know the answer to it, many people do not and it would be good to have it on the record. Under subsection (2), period of incapacity for work "means" four or more consecutive days". Does that mean that for the first three days off work an employee gets no sick pay, and if he is away for a week he gets sick pay for only four days? It is important that that should be made absolutely clear.
Lord Trefgarne: I do not think the noble Baroness is quite correct in that. If an employee is absent for seven days, for example, he then becomes eligible for statutory sick pay by virtue of the fact that he has reached the qualifying period, and sick pay becomes payable for the full seven days.
Baroness Jeger: I am obliged to the noble Lord, and to make it absolutely clear for people outside, employers and employees, may I repeat the question. If an employee is away for three days and returns to work on the fourth, he gets nothing; whereas if he manages to stay sick for the rest of the week, he gets seven days' sick pay?
Lord Trefgarne: I confess that I come as a novice to these matters. I think I was right in what I said. I shall double check the position and write to the noble Baroness if I was wrong.
Clause 2 agreed to.
Clause 3 [Period of entitlement]:
Baroness Jeger Baroness Jeger moved Amendment No. 2:
Page 3, line 4, leave out (", or has been, pregnant") and insert ("is in receipt of a maternity allowance").
The noble Baroness said: The question of when or whether a woman is pregnant can be an obscure and arcane fact. Any women employee must be very confused by the wording of the clause. Pregnancy is an indeterminate process and to refer to an employee, in the words of the clause,
"who is, or has been, pregnant, the day immediately preceding the beginning of the disqualifying period",
is an impractical reference. It is a very perspicacious lady who knows she is pregnant today and not yesterday or tomorrow. Nevertheless, the clause uses the words:
"immediately preceding the beginning of the disqualifying period".
How is that to be enforced? If a woman says she did not know or did not think she had—in the old East End vocabulary—"fallen", who is to say she was pregnant on the date the Bill wishes to enforce? If she says she did not know, or did not think, or her doctor was not sure on the day immediately preceding the beginning of the disqualifying period, what will happen to her? Even with the most modern pregnancy testing it is not easy to know the exact day. If one is married to a sailor who comes home only one night a year, one might make an informed guess as to the day one became pregnant. But if one is living a happy and normal married life and is making love on Tuesday, Wednesday and Thursday, how on earth is a woman to know on which day she becomes pregnant?
We have tabled the amendment, in all seriousness, to delete the reference to pregnancy, which, I repeat, is an indeterminate state, and we would insert the words,"in receipt of a maternity allowance". I hope the Government will accept the amendment, because it is sensible and practical. We agree that a woman should not be entitled to double benefit—she should not be able to get maternity and sickness benefit at the same time—but, if she is receiving maternity benefit, she should be disqualified under the Bill because of the old rule, which all Governments have accepted,
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that there should not be double payment. If a woman is receiving maternity benefit, the fact of her pregnancy has been established, whereas under the clause as drafted there could be dubiety, particularly about fixing the actual day.
Although I have referred with sympathy to the rule that there should not be dual benefit, I am anxious about women who under the Bill may not receive either benefit. It seems that under the Bill a pregnant woman could be disallowed statutory sick pay and be denied maternity allowance, so that she would get neither benefit. At present, maternity benefit is contributory and not all pregnant women qualify for it. We understand—I am sure the Minister will wish to make the position clear—that changes are being made in maternity benefit and that it is hoped that by next year sometime, unless the Government change their mind, benefit will be as of right and not contributory. In the meantime, may we have an undertaking that the new rules in this measure will not be implemented until the revised rules about non-contributory maternity benefit are established and brought into force?
In another place, the Minister said last December:
"There may be as many as 75,000 working women each year who become pregnant but do not qualify for maternity allowance". —[Official Report, Commons, 10/12/81; col. 96.]
Is the position that under Clause 3 those women will not qualify for statutory sickness benefit either? According to the Minister's statement in another place, they would certainly not qualify for maternity benefit.
Would the Minister also clarify the position of a woman who may be pregnant but who may fall sick from a problem not connected with her pregnancy? For example, she might get knocked down by a drunken driver or catch influenza from the man sitting at the next desk in the office in which she works; he can go off suffering from 'flu and collect sickness benefit, but is she, because she is pregnant, not to be allowed sickness benefit?
I have read the Bill carefully and I know all about the number of days and weeks. Although I am not inexperienced in dealing with legislation, I find it very confusing. Nor am I inexperienced in dealing with some of these problems from a practical point of view, both as a Member of Parliament and a doctor's wife. Unless we spell out the position much more clearly in the Bill, we shall be placing a very heavy burden on employers and women who may be caught under Clause 3, rightly or wrongly. I want to know what is the Government's intention in introducing this requirement into the clause.
It might also be convenient if at the same time I ask the Minister whether he will make clear what happens to a woman who late in pregnancy has a spontaneous abortion, or whose pregnancy does not end in a normal confinement, whether of a dead child or of a live child. I do not apologise for speaking at some length on this matter because there are thousands and thousands of women—an increasing number each year—who are at work in this country and whose entire living standards, as well as the welfare of the rest of their families, could be put in jeopardy if there were to be legislation that would make them less likely to be able to obtain help when they are sick.
I come to my last question to the Minister. If a woman who is disqualified under Clause 3 is ill,

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is it to be made absolutely clear to her that she can go to the DHSS and claim normal national insurance sickness benefit, even though she is within the eight weeks for which the employer is supposed to pay? If the Minister proposes to say that she will be all right because she can go to the DHSS, and though she cannot obtain statutory sick pay under the Bill, she can, if her stamps are in order, obtain national insurance benefit, I would point out that many women who have a number of children would then be better off. But I think it very important that women are informed of their rights and of what is to happen to them in this situation. I beg to move.
3.22 p.m.
Lord Cullen of Ashbourne: In the early part of her speech the noble Baroness entertained the Committee on the subject of pregnancy—
Baroness Jeger: I was not seeking to entertain the Committee. I was bringing before the Committee a very serious problem which affects thousands of women in this country.
Lord Cullen of Ashbourne: I am surprised that the noble Baroness responds in that way. She was suggesting that it was extremely difficult to know whether or not a woman was pregnant. But the period which we are discussing, when maternity allowance is payable, is the 11 weeks before the child is due and the seven weeks afterwards, and I would say that in the former period there would be no difficulty in deciding whether or not a woman was pregnant. I apologise to the noble Baroness if she in any way thought that I was being facetious or rude; I certainly was not. I thought that she was actually entertaining the Committee—and I mean that quite sincerely.
The amendment has several amendments consequential to it; they are Amendments Nos. 3, 4, 7, and 10, and with the permission of the Committee, I shall touch on all of these. The amendments are all concerned with the provisions which exclude pregnant women from entitlement to SSP during the "disqualifying period"—the period of 18 weeks beginning with the eleventh week before the expected week of confinement. The effect of the amendments would be to limit exclusion to those women who are entitled to the national insurance maternity allowance, which is normally payable for the "disqualifying period". I should point out that one of the amendments—the suggestion that we leave out sub-paragraph (i) from Schedule 1—would enable a woman in the maternity allowance period to receive statutory sick pay and her maternity allowance if she were entitled. Given that she may also receive maternity pay, this is over-provision of a serious order. However, I appreciate that the noble Baroness's concern is with those women who do not qualify for maternity allowance.
It is not the purpose of this measure to enter into the field of maternity provision. During the "disqualifying period" the majority of pregnant working women qualify for maternity allowance by virtue of their record of contributions at the full, non-opted out, rate. During this period it would not be difficult for a woman, because of her condition, to claim that
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she was incapable of work and produce supporting medical evidence. In such circumstances there would be no justification for allowing entitlement to SSP—which would, moreover, in most cases be at a higher rate than the maternity allowance—simply because of failure to meet the contribution conditions for the state benefit. To do so would be grossly unfair to those women who had kept up their national insurance record so as to qualify. There would also be an extra administrative expense for employers, who would be required in every case to check whether maternity allowance was payable before they could be clear as to whether they were liable for SSP. It would not just be a question of checking to see if the employee was paying the married woman's opted-out contribution; a woman paying full contributions might also not qualify for the allowance because of a lapse in her record.
Your Lordships' Committee should also consider the fact that many of the women who are paying the reduced-rate contribution are older women and consequently are beyond child-bearing age. As time progresses, practically all working women will establish entitlement to maternity allowance during pregnancy. In the meantime I cannot accept that we should allow someone who does not satisfy the contribution conditions for benefit to receive a higher rate through statutory sick pay than someone who does.
In short, the effect of the amendments would be to introduce a further, undesirable, complication into the system of maternity provision and to the statutory sick pay scheme. However, the Government have acknowledged the need for a review of maternity benefits. That was why we issued the consultative paper in 1980, but the outcome of that consultation was that there was no consensus for change. The Government therefore decided to make no immediate change, but they have undertaken to look again at the arrangements once the sick pay scheme and the change to a non-contributory maternity grant have had time to settle down. During the Committee stage in another place my honourable friend the then Parliamentary Under-Secretary of State said that when we looked again at maternity provision we would also consider the issues which this amendment raises—many of which the noble Baroness has expounded. I am happy to repeat that undertaking to your Lordships' Committee. In the light of that, I hope that the noble Baroness will not press her amendment.
Baroness Jeger: I thank the noble Lord the Minister for his careful reply, but I am not sure whether I heard him clearly enough. I should like him to repeat—if he has already said it—that the rules relating to pregnancy will not be enforced until the non-contributory maternity benefits have been introduced. If they come into force before the non-contributory arrangements come into force, then, according to the noble Lord's own Minister in another place, 75,000 working women will be disadvantaged.
Lord Cullen of Ashbourne: This is rather complicated, and I may not have it right, either. But as I understand it, the position of married women in this connection will be no different when we have SSP from what it is today when we have sickness benefit. By introdu-

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cing SSP we are not suddenly doing something that is to the detriment of married women. I hope that that is what the noble Baroness wants to know.
Baroness Jeger: Again I thank the noble Lord, but of course it is not only married women who become pregnant, and that is a cause of anxiety. In view of what the noble Lord the Minister has said, I beg leave to withdraw the amendment, without promising that I shall not come back to it on another occasion.
Amendment, by leave, withdrawn.
[Amendments Nos. 3 and 4 not moved.]
Clause 3 agreed to.
Schedule 1 [Circumstances in which periods of entitlement do not arise]:
Baroness Jeger Baroness Jeger moved Amendment No. 5:
Page 41, line 12, leave out sub-paragraph (c).
The noble Baroness said: This is a very difficult Bill to follow and I am sure that for people in the big, wide world outside it will be a matter of great confusion, because no sooner does one get to a clause which we are told will be spelled out in regulations than one gets to another clause which is to be spelled out in the schedule. Sub-paragraph (c) concerns people whose earnings are less than the lower earnings limit in force under Section 4(1)(a) of the principal Act; so that if my calculations are right, we are talking about people earning less than £27 a week. Why, then, do we not say so? Why put in the schedule a cross-reference to another Act so that some poor, sick worker must go and get hold of another Act to find out what the current one means? I am not saying this in any party sense but in all social security legislation over the last few years there is too much cross-referencing and it would improve matters if we could spell out more clearly what we mean.
In this schedule, in sub-paragraph (c), we are talking about people earning less than £27 a week as their normal weekly earnings. Many of your Lordships may dispute that there is anybody earning less than £27 a week as normal weekly earnings. I must ask a question or two about this. I am concerned about seasonal workers. Are their normal weekly earnings calculated over the whole year; that is, divided by 52 on a weekly basis when they might well be seasonal workers—women, say, who go picking during the harvest or employees in tourism who go and clean bedrooms in hotels which are then shut for several months of the year? Or is the calculation of the £27 average made on the amount of wages for the previous eight weeks? —because in the middle of an eight-week period a person earning more than £27 in that particular week might fall ill but at the end of the eight weeks he may not be in work at all; and this applies particularly to women who do a great deal of seasonal work at harvest time and in tourism.
It seems to me—and I am willing, in fact eager, to receive clarification—that many of these people will never become eligible for national insurance sickness benefit because they will not have the necessary build-up of stamps on their cards. They may not have a year's stamps on their cards but at the time when they are at work they are paying national insurance stamps.
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Surely such a man or woman on seasonal work could be paying national insurance contributions for a benefit which he or she will never get. If a man falls sick during a period of seasonal work, will he qualify for the statutory sick pay if, during that short season of work, his wages are more than £27 a week? I put this interrogatively. I think there are many people in this country in this kind of twilight zone who, through no fault of their own, do not have regular work but who work hard for the few weeks or months when they are able to get a job. I would feel—and I hope that the Minister would feel—that it would be very unfair if they were to be denied the statutory sick pay that this Bill seeks to bring in.
Lord Collison: I should like to support my noble friend on this amendment because of my interest in agriculture. It is the fact that at harvest time there are large numbers—I cannot give the figures without reference elsewhere—of people who work for just a few weeks, or perhaps only a few days. They are very often the wives of farm workers who turn out to help their husbands' employers at this time. This amendment would particularly refer to them, and it is a matter of interest to me.
Lord Trefgarne: May I, in answer to the important point made by the noble Baroness, say that the period over which the average wage will be calculated for the purpose of this provision is the eight-week period preceding the sickness—which is the point that the noble Baroness was anxious about. The amendment, however, goes wider than that and would remove from the list of those excluded from receiving statutory sick pay, people who earned less than the amount on which contributions become payable. This is currently £29.50 a week. The effect of that would be to widen the scheme far beyond its intention. It would give SSP entitlement to those on very low earnings who would not normally be entitled to sickness benefit. We would thus be putting on employers a statutory liability which the state does not have. The payments would cause a loss of revenue to the National Insurance Fund which could not be recouped in any way from those benefiting, since they would, by definition, be those earning too little to pay contributions.
Moreover, if this amendment were accepted, an employer might be required to pay someone more by way of statutory sick pay than he would pay that person as normal pay. The lowest rate of statutory sick pay is to be £25 a week and this amendment would open entitlement to people earning less than that. I hope the noble Baroness will understand, and perhaps even agree, that that would be an unfair imposition to place upon employers. I think that goes to the heart of the noble Baroness's amendment. If there are any further points which I can clarify, I shall be happy to do so.
Baroness Jeger: I thank the noble Lord for that explanation, but I am afraid that it does not answer my concern about people who work for only a few weeks or months during the year and who, during times when they work, pay national insurance contributions but, because the period is too short, are disqualified from national insurance sick pay and appear to be disqualified under this Bill. I appreciate that this

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Bill might not be the right place for amending legislation because what I have in mind goes further than statutory sick pay. Having listened carefully to the noble Lord, I will read what he has said and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
3.39 p.m.
Baroness Jeger Baroness Jeger moved Amendment No. 6:
Page 41, line 31, leave out sub-paragraph (g).
The noble Baroness said: May I explain that, under sub-paragraph (g) of this schedule to the Bill, if there is to be a stoppage of work due to a trade dispute at the employee's place of employment, he will not be eligible for sickness pay. I hope that I have that right. It seems to me to be an appalling suggestion. It seems absolutely disastrous from the point of view of good industrial relations in any firm of any size to suggest to a worker that he would be disqualified from sickness pay if there is a stoppage of work due to a trade union dispute at his place of employment. I hope it will be in order if I mention that under paragraph 7 of Schedule 1 this disqualification does not apply to an employee,
"who proves that at no time on or before the relevant date did he particpate in, or have a direct interest in, the trade dispute in question".
I hope I may speak to both these points, because they are so closely connected.
In this first case, I have to ask the Minister: How does a worker prove that he did not participate in, or have a direct interest in, a trade dispute? To whom is he to prove this? Is it to the employer, is it to the DHSS or is it to somebody else? Suppose he did not join in (which seems to be the implication of the wording of the Bill) but has a direct interest in that, as a result of the dispute, there might be improved conditions or higher pay in this particular factory. He can say, "I did not go on strike"; but his employer can say, "Yes, but you had an interest in the other men going on strike because now they all have a bonus". It seems to me that this will be extraordinarily difficult to implement.
What happens if a man or woman is off sick when a dispute arises? An employee may be in hospital, but he may give a strike his moral support. He might send a letter to his shop steward saying, "Good for you or "Keep it up". Does that mean that he has a direct interest in the trade dispute? Or he might be lying unconscious in hospital, not even knowing that there is a dispute in being, though it could be claimed that he has an interest in the outcome of the dispute because when he gets back to work he will get higher pay or more holidays, or some other benefit which results from the trade dispute.
I have to ask the Minister: What sort of delay can there be in these cases where an employee is trying to prove, to someone as yet unknown, that he had no interest in this trade dispute and that he did not join in? Is there a right of appeal if he maintains that he did not join in and had no interest in this particular dispute? This seems to me so terribly unreal that I cannot understand how sensible Ministers could have left it in the Bill. It is often stated that those of us on this side of the Committee do not know much about
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industry, but at least even I know that in a big works it is possible for there to be a strike in one department and yet not in another; that a particular engineering shop may be in dispute, whereas the offices are not in dispute. If a girl typist in the office does not go out on strike but supports the machine shop men who are on strike, either by statement or by going to meetings or waving banners, is she then declaring an interest in that strike? Does she then become disqualified?
This is not how industries work. This is not how factories, especially big factories and big firms, arrange their affairs. You might also have the situation where certain workers do not go on strike but they are unable to work because the other workers, who are on strike, supply the spare parts, or whatever it is, on which their work depends. So it can affect everybody, and it is very unclear to me, at any rate, as to how we are to distinguish between the participants in a dispute, those with a direct interest in a dispute, and those who say, "No, I am having nothing to do with it, except that if there is a rise I will gladly take it".
There is also a reference to a worker not having joined in such a dispute "before the relevant date". How long before? Is it a year? Could he have gone to a shop stewards' meeting a year go? According to the Bill, it could be 10 years ago. It might be 10 years since he paid his union dues and went to a meeting. There Is nothing in the Bill about this, so far as I can see, and I would be only too glad if the Minister could tell me what time limit is involved in the phrase "at no time on or before the relevant date".
I also want to ask the Minister whether he will make it absolutely clear that when, under this Bill, a man or a woman is denied payment of sick pay they will be able to go to a national insurance office and, without any questioning, be entitled to national insurance sickness benefit. I ask that because, of course, many of them will do much better in that way, especially if they have a dependent wife and children; and it may be that inadvertently the Government are pointing the way for an increasing number of workers to go to the DHSS rather than to go to their employers in a situation of this kind.
I have read this Bill very carefully, and it seems to me that under Clause 17, which deals with the disclosure of information, it might be possible that regulations could be made requiring employers who refuse sick pay in these circumstances to point out to their workers their absolute entitlement to national insurance sickness benefit provided their contributions are in order. If payment of national insurance in these circumstances is automatic, surely here is a temptation for an employer to save himself a lot of trouble by saying to men and women who may have been involved on the periphery or otherwise of a trade dispute, "Don't bother me; you just go down to the DHSS and you will get some more money if you have some children or you have a wife or a dependent adult relative."
I must remind your Lordships before I sit down, and make clear the argument I am trying to put to your Lordships, that as I understand it, national insurance benefit for a single person is at present £22.50 a week. There is an addition of £13.90 for a wife, and an addition of 80p for a child. I am leaving out the question of child benefit because I do not think that comes within this Bill, although on another occasion

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we may have a great deal to say about it. It therefore seems to us perfectly clear that a worker is better off, if he has dependants, under national insurance sickness benefit than he is under this Bill; and if the Government want this Bill to work I wish they would look at this particular part of it again.
As I say, I think it will be damaging for industrial relations. I cannot think of how much bad feeling and misunderstanding there will be in any firm, small or large, where a worker is trying to explain and to prove (in the words of the Bill) whether or not he had anything to do with a strike that is taking or has taken place. This seems to me a very bad part of the Bill, and I hope that in the interests of good industrial relations, if not for any other reason, the Government will look at it again. I beg, to move.
Lord Wallace of Coslany: I should like to speak on this amendment for the very simple reason that in the Second Reading debate I mentioned that with the introduction of the system of sickness benefit being paid by employers to workers there would undoubtedly be problems of industrial relations. My noble friend Lady Jeger has outlined one of the problems that will undoubtedly arise. I regard this provision—and I use this word in the proper sense—as having some bastard relationship to the employment Bill which has yet to reach us, thank Heavens!, and I hope it will be delayed for a long time.
I say deliberately that this is an act of victimisation of those people who belong to a trade union. It is a stupid, idiotic way of bringing in legislation, particularly on this theme of sickness. A man, whether he is a devout trade unionist or not, cannot help being sick. When a person is sick—in this country at any rate—he has some right of benefit or relief. I very much regret this provision and hope that the Government will have second thoughts about it. If they do not, we shall persist because this is an outrageous provision.
Lord Trefgarne: With permission, I shall speak to Amendments Nos. 6 and 9. These amendments would include in entitlement to statutory sick pay those who fall sick during a stoppage at their place of employment and, consequentially on this, would remove the exception from this general rule of those with no interest or participation in the dispute. The area of trade disputes is a troublesome one, as I am sure we all agree. When we were considering this scheme in its early stages, we looked at employer's sick pay practices in a wide variety of industries and found that, in general, if sickness pre-dated the dispute, liability for occupational sick pay was accepted; but if it began after the dispute commenced, no payment was made.
What Schedule 1 paragraph 2(g) says is that if a man or woman falls sick when he or she might otherwise have been on strike, the state and not the employer should provide the sickness cover. There is no question that sickness benefit would be withheld in these circumstances, subject to the normal rules being satisfied. The employee thus excluded would remain on sickness benefit so long as his incapacity lasted. The exception in paragraph 7 (relating to those who prove that they took no part or had no interest in the stoppage) can be applied by the employer without reference to the
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department if, for instance, the stoppage is localised to one section of the workforce and others are not involved. But it will be open to any employee to make his case to the statutory authorities if he does not accept that he should be excluded from entitlement to statutory sick pay. There is existing case law on this subject arising out of claims for unemployment benefit (Section 19(1) of the principal Act).
If an employer refuses statutory sick pay because of a strike and sickness benefit is claimed, the insurance officer will have to be satisfied that the employee is not entitled to statutory sick pay—that is to say, that he satisfied paragraph 2(g)—before he will award sickness benefit. So there is a safeguard against an employer sending all his employees to the state on the pretext of a strike, which is one of the risks which the noble Baroness apprehended.
An employee who falls sick during a stoppage in which he has been or could well be involved is vulnerable to the suggestion that his incapacity is not genuine. He is entitled to payment which he would not otherwise receive if he were simply on strike. To ask employers to pay SSP in these circumstances could add fuel to an industrial relations fire—quite the contrary to the risk which the noble Baroness observed. It is better for both the employee and employer if the state takes over, as it does now, so removing sickness during stoppages from the employment arena. The amendment would, in our view, harm industrial relations and put suspicion on sick employees where none need exist; and for that reason it is unacceptable.
As I have already indicated, if paragraph 7 were omitted the employer would have no liability to pay those employees who had absolutely nothing to do with the stoppage. Everyone in the place of employment during a stoppage of work would be excluded from SSP, and that is certainly not the intention. This would not be a desirable effect for employers or employees and could only adversely affect industrial relations. The exception to the general rule in paragraph 7 of Schedule 1 is highly desirable both in the kind of case that I have referred to and where the employee feels aggrieved and can prove his lack of involvement and interest in the dispute if he does not accept that he should be excluded. For these reasons, I ask the Committee to disagree Amendment No. 6, and I hope also Amendment No. 9 when we come to it.
Lord Mishcon: I wonder whether the noble Lord the Minister—who has given a clear explanation of the reasons for his objections to this amendment—will kindly enlighten the Committee on his reference to case law, and I believe that he mentioned Section 19(1) of the principal Act. Would he enlighten the House by telling them what in his view, after studying the case law, a direct interest in a dispute means in relation to this Bill? I would have thought, if I may speak callously for a moment, that it would be far better from the point of view of industrial relations if everybody were excluded from this employment benefit in the event of there being a dispute and sickness arising in the course of it, rather than having a section of the workforce—possibly in dire pecuniary need—put in the position of having to prove that, unlike their brother workers, they did not participate in the dispute and they regarded themselves as having no direct interest in it.

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I cannot think of a worse case from the point of view of setting one man against another and one employee against another. Nor can I think of anything more wretched than a man with this onus of proof on his shoulders having to appear before his employer, and then it may be a statutory authority to which the Minister referred, in order to show, as I have said, that he did not take any part in it and, worse still, that he had no direct interest in it. It is those words that an employer, unlike the noble Lord the Minister, would not have been able to study in the light of the case law to which a general reference was made but nothing specific was said.
How the average employer sitting there without lawyers surrounding him can decide whether or not this case is proved with these words, I do not understand. As we have the responsibility for putting into the statute book words that are clear to people who have a certain duty, as the employer would have, I should be grateful if the Minister would now explain how the case law that he has studied affects the words that I am talking about, and what is the employer to do in regard to deciding whether an employee has or has not a direct interest in the dispute or did or did not participate in it.
Lord Trefgarne: May I make two points arising out of that intervention: First, whether employees in the context of the relations with their fellow employees, who feel it invidious to make representations to their employer about their non-participation in a dispute, are able to seek sickness benefit. The noble Baroness explained this and we confirmed it a moment ago. Indeed, as the noble Baroness pointed out, sometimes they will be better off by claiming sickness benefit than they would be if they were to rely only on the statutory sick pay as provided for in the Bill.
As for the main thrust of the noble Lord's intervention, I hope he will forgive me if I resist the temptation to give your Lordships a full legal definition of the principal Act reference which I made just now. If the noble Lord will allow me, I will write to him at length on the subject, and if he feels in need of further clarification on the subject, I shall be happy to assist him further at a later stage of the Bill.
Lord Mishcon: I have a shrewd suspicion that the noble Lord the Minister, with his usual courtesy, in telling me he will write me a long letter, was very charmingly evading the issue and not giving your Lordships the guidance to which you are entitled. I did not ask for a long explanation of the case law. The noble Lord referred to the main thrust of my argument. I would be delighted if, in a few words, he would give me the main thrust of the case law in defining what these words mean. If he would kindly do that, with his usual ability to summarise clearly and lucidly, I personally would be grateful, and I believe your Lordships would be.
Lord Wallace of Coslany: Before the noble Lord replies, I should like to supplement what my noble friend says by asking the noble Lord the Minister this: he says that if a man is unable to get his unemployment benefit from the employer because of a dispute, he can go to the authorities. That is all right, but in the event of his being unconscious in a coma or under intensive
796
care, how can he do so? Who will act for him? Is his welfare officer going to act for him? These are points that nobody seems to have thought about at all.
Lord Fletcher: Before the Minister replies, may I say that I would not have thought it was good enough in this Chamber for a Minister to say that he would try to satisfy my noble friend by writing to him. This is a matter which affects the whole Committee and I am sure I am speaking for many of my noble friends when I say that your Lordships are entitled to a clear answer from the Minister as to what he means by the words in paragraph (7) suggesting that an employee has to prove he has no direct interest in the dispute in question. The question for the Minister to answer is: how does he think an employee can discharge that onus of proof on him? Regardless of what precedent there may have been the Minister must face up to the question and, in my opinion, endeavour to satisfy this Committee as to how the Government think any employee, in a case such as has been mentioned, can possibly satisfy that negative proof about not having a direct interest in the trade dispute.
Lord Trefgarne: I still feel it would be better if I were to reflect upon the profound nature of the questions that have been put to me, and answer them in writing. But I take the point of the noble Lord, Lord Fletcher.—
Lord Fletcher: Writing to whom?
Lord Trefgarne: If the noble Lord will forgive me, I will finish my remarks and he can intervene again if he still feels dissatisfied. I have undertaken to write to the noble Lord, Lord Mishcon, and I shall be happy to send a copy of that letter to the noble Lord, Lord Fletcher. In the meantime, I wonder whether I can help your Lordships further in this way: Section 19 of the Social Security Act 1975, to which I referred earlier, provides that a person who has lost employment by reason of a stoppage of work which is due to a trade dispute at his place of employment, shall be disqualified from receiving unemployment benefit so long as the stoppage continues.
There are two provisos to the general rule. These are that disqualification no longer applies to a claimant who during the stoppage becomes bona fide employed elsewhere in his usual occupation or becomes regularly engaged in some other occupation. The disqualification does not in any event apply in the case of a person who shows that he is not participating in or is directly interested in a trade dispute. Where and for how long the disqualification applies is a matter for the independent adjudicating authorities to decide from the particular facts of the case and in the light of the case law established by commissioners' decisions. I recognise those few words do not wholly answer the questions put to me by the noble Lord, Lord Mishcon, and the noble Lord, Lord Fletcher, but they will have at least indicated that the matter is a very complex one and perhaps not best dealt with on the floor of the Chamber on a Committee stage such as this.
Lord Mishcon: Or, if I may say so, dealt with as between employer and employee. I should like to say

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in case any of my remarks should be taken as being in the slighest degree discourteous, that I certainly did not intend them to be so because this Chamber has had nothing else but courtesy from the noble Lord, Lord Trefgarne, in whatever capacity he may have been dealing with matters here. But we are now dealing—and I may say I am most grateful to the Minister—not with the question of an authority dealing with this dispute and not on the basis of a body having a lot of case law and experience behind it. We are dealing for the first time, and unlike the principal Act to which he referred, with an employer and an employee; and Mr. Jones, the employer, is now asking the Minister—since these words are in—wanting to be a just employer: "Please, what do these words mean from my point of view?" The Minister feels that he can only answer that point by writing a long letter to me, which presumably means it would have to be an even longer letter to a layman, to the employer, Mr. Jones; and if Mr. Jones does not happen to be a considerate employer, quite obviously we are in a greater difficulty in regard to the proper meaning and just administration of the Bill.
Although this is obviously a subject for my noble friend Lady Jeger, I wonder whether the Minister would care in the circumstances to agree to the amendment in regard to the deletion of this particular clause and then, if he feels at a later stage he has some words to put in which are more meaningful and clear, and which show exactly what he intends the employer has to find, perhaps by his own amendment he can bring something before the House at a later stage. But at the present moment this amendment in my view should be carried.
Lord Trefgarne: I was endeavouring to help the noble Lord with the words I used just now in response to what he said earlier, and indeed in response to the words of the noble Lord, Lord Fletcher. The truth is that, in a circumstance such as this, 99 per cent. or more of cases would doubtless be settled by common sense. It is likely to be obvious to most people in most cases whether or not a particular employee was concerned with or participating in a dispute. I accept that there will be some cases where it is not obvious and where there will be a clear and genuine disagreement between the employer and the employee. In those cases the employer will have recourse, first, to the employers' guide which is published by the department to assist in these cases and, secondly, if necessary, ultimately he can refer to the so-called statutory authorities, who hear appeals when asked to do so. If an employee is refused statutory sick pay by an employer and then seeks sickness benefit, it will be up to the authorities to decide whether he is entitled to sickness benefit—that is, not entitled to statutory sick pay—and they will be the ultimate authorities in this matter.
As I have said, I am prepared to write at greater length to the noble Lord, Lord Mishcon, and indeed to any other noble Lord who is interested in this subject, and the matter can be taken further at a subsequent stage of the Bill if your Lordships remain dissatisfied.
Baroness Jeger: This really is not good enough. I appreciate that the noble Lord the Minister is trying to help the Chamber and he has suggested that these
798
amendments are unsuitable to debate across the Floor of the Chamber. I must inform your Lordships that these amendments went down last Thursday. Some of us have been working over the weekend, and I do not think it is unreasonable for us to expect a fair answer on Tuesday to amendments which were put down on the previous Thursday.
I also think that it is a great discourtesy to the House to suggest that queries can be answered by letter. Not even the noble Lord the Minister opposite is a reincarnation of Saint Paul. We do not want his Epistles to the Corinthians or the Philippians. We want the whole House, the whole country, employers and workers to know what this means. It is an outrageous discourtesy not only to this House, but to the people of this country, whose living standards and welfare will be greatly influenced by this Bill, for the Minister to say "Just leave it and I will write you a letter." That is no way to deal with an amendment which has not been just plucked out of the air, but, as I said, was put down last Thursday—
Lord Trefgarne: With respect, I was not proposing to answer the case for the amendment by way of a letter. I was proposing instead to give the noble Lord, Lord Mishcon, a considered reflection upon the provisions of the Social Security Act 1975. It is not, of course, the 1975 Act that is before your Lordships now. It is the Social Security and Housing Benefits Bill 1982, which I hope will become an Act in due course. It was a narrow point relating to another Act upon which I proposed to write to the noble Lord, Lord Mishcon, and I hope your Lordships will agree that that is an appropriate thing to do.
However, I do not want to hide from your Lordships that this is a difficult area, and I have endeavoured to answer the case that has been put for this amendment as sympathetically and as helpfully as possible. But there are very serious difficulties with the proposals that were in the mind of the noble Baroness when she framed her amendment, and I have attempted to enumerate some of them. I hope she will agree, on reflection, that to press the issue now is not the most constructive approach, following the difficulties which she sees in this matter. I am always willing to consider any further points that she wants to raise, but the specific amendments that she has tabled in this connection do not bear the close examination which your Lordships habitually give to amendments to Bills, and I hope she will agree, on reflection, not to press the amendment.
Lord Banks: I have listened with very great interest to what the noble Lord the Minister has had to say about the reasons for having this provision in the Bill. It seems that a lot of what he said is very reasonable and that it would be desirable, if possible, to have the kind of arrangement which the Bill sets out. But the trouble for me is that sickness benefit and statutory sick pay are not identical. If they were identical, one could say that it was perfectly all right to say to the man who was on strike "You have got to go to the state for the same benefit. It will not be through your employer, because it is more satisfactory in these circumstances that it should not be." That is understandable. But they are not identical, as has come out in our debate this afternoon.

799
Also, I think I am right in saying that there are some people who would get statutory sick pay in ordinary circumstances, but would not be eligible for sickness benefit, because they would not have the contribution record. I agree that that would be the position today of those people, but they do not have the other possibility at the present time and I can see some difficulty with regard to that. I should be most grateful if the Minister could say whether I am right in what I have just said and, if so, whether he thinks there is room for further consideration about this aspect before it is proceeded with further.
Baroness Jeger: I appreciate the difficulties of the noble Lord the Minister. I know that he is circumscribed in what he can say by people in another place and I am sure that, if left to himself, he would be much more forthcoming and reasonable as he always likes to be. But it really is not good enough. His reference to the narrow point, on which my noble friend Lord Mishcon made his submission, does not answer the question, because, though it might be said that my noble friend was making a fairly narrow point, it was within the context of this Bill and what is to happen to people under it. Therefore, it cannot be dismissed as something irrelevant, about which a note can be sent to my noble friend. As I said earlier, this is a question which affects too many people for it to be dealt with by correspondence.
I must press this amendment, because I have not heard anything which makes me feel that, as it stands, the Bill is satisfactory in this regard. I can foresee—and I am very sad to say this—a situation of worsening industrial relationships. The onus is put on the worker to prove that he did not participate in a strike and had no interest in it. What kind of worker will go to the employer and make out that he ratted on the other chaps on the floor, and that he is open to the charge of being a blackleg, because he, Simon Pure, did not have anything to do with the dispute? That is what sub-paragraph (g)and paragraph7 in Schedule I are asking workers to do.
This shows such an insensitivity to the kind of solidarity which exists, and which exists to the good of industrial relationships in many places of employment. We are putting the onus of proof on the worker. We are making industrial relations very difficult. The Minister did not clarify to me in answer to my question what the phrase,
"have a direct interest in, the trade dispute",
means. I asked specifically whether that meant that a worker who did not picket or take an active part, yet benefited by a rise in wages won as a result of the dispute, would be declared to have no interest in it—
Lord Trefgarne: I am not sure that the noble Baroness could have listened to everything I said. She usually does so with such care. I endeavoured to explain—I accept, as I said earlier, that I come as a novice to these matters and may not therefore have explained it as clearly as I might have done—that the ultimate decision in these matters actually rests, as it has done for a good many years, with the so-called statutory authorities of the national insurance system, who have to
800
consider the appeals that might in due course come to them. It is the case law that they have established over the years which will be used as guidance by employers and which, of course, will be contained, in essence, in the employers' guide which will be issued in due course. It is not really for the Government to produce a definitive legal definition of when, or when not, an employee is said to be involved in a dispute.
I accept that there are cases when an employee would regard it as invidious to have to persuade his employer that he was not involved, on a certain day, in a particular dispute. That is why we have the safety net of the other benefit which I explained just now. Therefore, I hope that the noble Baroness will not press the point that it is for the Government to offer a definitive legal definition on these matters.
Lord Mottistone: Before the noble Baroness returns to the charge, one thing that seems to come out of this argument is that her concern, which I understood though I did not particularly agree with it, was with paragraph 7 on page 42, which relates directly to subparagraph 2(g), which she is seeking to delete. If she is so keen on that and feels that the whole issue is so important, I do not understand why she does not have an amendment down to remove paragraph 7. I should have thought that, because there is no amendment to remove paragraph 7, it would be illogical to pursue this one at this stage in order to resolve the matter. Would it not be better, in view of the uncertainty of her case, to leave things as they are now, to go away and think about them and return to the charge at the next stage of the Bill? There are two more stages to come.
To me, this is a quite straightforward situation, which has been blown up into something which is absolutely enormous, because this sub-paragraph deals with a state of affairs which does happen. There is stoppage of work. We cannot get away from that. There are situations in which people do not have a direct interest in a dispute. It is not just a question of blacklegging. Quite innocently, people may not have an interest in it. The sub-paragraph is governing a fairly straightforward situation. The way in which it is worded may not be perfect. There may be defects in it which this debate has revealed. But what we ought to do is to leave it as it stands. The amendment ought not to be pressed now. The noble Baroness ought to return to the charge at the next stage of the Bill and let the Committee get on.
Baroness Jeger: I thank the noble Lord, but I must point out that if he had turned over the page he would have seen that Amendment No. 9—page 42, line 34—is to leave out paragraph 7. So I am doing as the noble Lord advises.
Lord Mottistone: I apologise. I misread it.
Baroness Jeger: It is all right; the Bill is very confusing and the amendments are even more confusing. I was even more confused when, in part explanation, the noble Lord said that it would be better if the Government did not become too involved in these disputes. I am trying to help him. By taking out sub-paragraph (g), we are eliminating trade disputes from the Bill. It is the Government who are involving

801
themselves in these arguments by putting sub-paragraph (g) into Schedule 1. I very much regret that the noble Lord has said nothing which makes me feel able to withdraw the amendment.
In response to speakers who have suggested that we ought to leave it until the next stage of the Bill, let me say that I am very willing to do so if the Government will accept our amendment; then at the Report stage they could put something more sensible and more reasonable in its place. I do not believe that it is for us to withdraw our amendment without knowing what is going to take its place. Therefore, I do not feel able to ask leave to withdraw the amendment. Nevertheless, I am happy to look forward to some improvement at the next stage of the Bill. So far as today is concerned, I think it would be for the good of the Bill and for the good of industrial relations if we struck out subparagraph (g). I do not want a letter about it.
4.23 p.m.
On Question, Whether the said amendment (No. 6) shall be agreed to?
Their Lordships divided: Contents, 79; Not-Contents, 125.

DIVISION No. 1

CONTENTS

Airedale, L.

Lee of Asheridge, B.

Ampthill, L.

Lee of Newton, L.

Ardwick, L.

Llewelyn-Davies of Hastoe, B.

Aylestone, L.

Bacon, B.

Loudoun, C.

Balogh, L.

Mais, L.

Banks, L.

Mayhew, L.

Beaumont of Whitley, L.

Melchett, L.

Bernstein, L.

Milford, L.

Bishopston, L.—[Teller.]

Mishcon, L.

Blease, L.

Oram, L.

Blyton, L.

Peart, L.

Boston of Faversham, L.

Phillips, B.

Brockway, L.

Ponsonby of Shulbrede, L.—[Teller.]

Byers, L.

Chitnis, L.

Rhodes, L.

Clifford of Chudleigh, L.

Roberthall, L.

Collison, L.

Ross of Marnock, L.

Cooper of Stockton Heath, L.

Sainsbury, L.

Shinwell, L.

David, B.

Stedman, B.

Davies of Leek, L.

Stewart of Alvechurch, B.

Elwyn-Jones, L.

Stewart of Fulham, L.

Ewart-Biggs, B.

Stone, L.

Fletcher, L.

Strabolgi, L.

Gaitskell, B.

Strauss, L.

George-Brown, L.

Taylor of Gryfe, L.

Gladwyn, L.

Taylor of Mansfield, L.

Glenamara, L.

Underhill, L.

Gosford, E.

Vernon, L.

Gregson, L.

Wade, L.

Hampton, L.

Wallace of Coslany, L.

Hanworth, V.

Wells-Pestell, L.

Hayter, L.

Whaddon, L.

Ilchester, E.

White, B.

Jacques, L.

Wigoder, L.

Jeger, B.

Wilson of Langside, L.

John-Mackie, L.

Wilson of Radcliffe, L.

Kaldor, L.

Winstanley, L.

Kennet, L.

Wootton of Abinger, B.

Leatherland, L.

Wynne-Jones, L.

NOT-CONTENTS

Abercorn, D.

Alport, L.

Ailesbury, M.

Auckland, L.

Airey of Abingdon, B.

Avon, E.

Allerton. L.

Balfour, E.

802

Balfour of Inchrye, L.

Luke, L.

Belhaven and Stenton, L.

McAlpine of Moffat, L.

Bellwin, L.

McFadzean, L.

Beloff, L.

Macleod of Borve, B.

Berkeley, B.

Macpherson of Drumochter, L.

Bessborough, E.

Blake, L.

Mancroft, L.

Bridgeman, V.

Mansfield, E.

Brookes, L.

Margadale, L.

Cairns, E.

Marley, L.

Caithness, E.

Melville, V.

Campbell of Alloway, L.

Mersey, V.

Campbell of Croy, L.

Milverton, L.

Chelwood, L.

Monson, L.

Clitheroe, L.

Montagu of Beaulieu, L.

Cork and Orrery, E.

Montgomery of Alamein, V

Cottesloe, L.

Crawshaw, L.

Morris, L.

Cullen of Ashbourne, L.

Mottistone, L.

Daventry, V.

Newall, L.

Davidson, V.

Northchurch, B.

De Freyne, L.

O'Brien of Lothbury, L.

Denham, L.—[Teller.]

Onslow, E.

Drumalbyn, L.

Orr-Ewing, L.

Ebbisham, L.

Porritt, L.

Ellenborough, L.

Portland, D.

Elliot of Harwood, B.

Rankeillour, L.

Elton, L.

Redcliffe-Maud, L.

Ferrers, E.

Renton, L.

Ferrier, L.

Rochdale, V.

Fortescue, E.

Romney, E.

Fraser of Kilmorack, L.

St. Davids, V.

Gainford, L.

St. Just, L.

Gibson-Watt, L.

Saint Oswald, L.

Gisborough, L.

Sandford, L.

Glasgow, E.

Sandys, L.—[Teller.]

Glenkinglas, L.

Sempill, Ly.

Gore-Booth, L.

Sharpies, B.

Gormanston, V.

Skelmersdale, L.

Gridley, L.

Soames, L.

Haig, E.

Stamp, L.

Hailsham, of Saint Marylebone, L.

Stodart of Leaston, L.

Strathclyde, L.

Halsbury, E.

Strathspey, L.

Henley, L.

Sudeley, L.

Hill of Luton, L.

Tenby, V.

Hylton-Foster, B.

Teviot, L.

Inglewood, L.

Thomas of Swynnerton, L.

Kemsley, V.

Trefgarne, L.

Killearn, L.

Trumpington, B.

Kimberley, E.

Ullswater, V.

Kinnaird, L.

Vaizey, L.

Kinross, L.

Vaux of Harrowden, L.

Kintore, E.

Vivian, L.

Lane-Fox, B.

Wakefield of Kendal, L.

Lauderdale, E.

Westbury, L.

Lindsey and Abingdon, E.

Willoughby de Broke, L.

Linlithgow, M.

Windlesham, L.

Long, V.

Wise, L.

Lucas of Chilworth, L.

Young, B.

Resolved in the negative, and amendment disagreed to accordingly.
[Amendment No. 7 not moved.]
4.32 p.m.
Lord Cullen of Ashbourne Lord Cullen of Ashbourne moved Amendment No. 8:
Page 42, line 10, after ("contract") insert ("(or, where that period has been extended, the specified period as so extended)").
The noble Lord said: This is a purely technical amendment which corrects a defect in the drafting of provisions affecting short-contract workers who have two or more contracts within eight weeks of each other. A worker who has a single contract for a specified period of 12 weeks or less but whose contract is then extended beyond 12 weeks will become

803
entitled to SSP. This is provided for under paragraph 4(1)(a) of the schedule. Under paragraph 4(1)(b) of the schedule, two short contracts can link if they are separated by eight weeks or less. In other words, the two contracts are treated as one. However, as the Bill stands, if the second contract is extended past its original specified period, this is not taken into account. This is anomalous. Clearly, where contracts are linked together, we want the length of both to be taken into account when deciding whether the 12-week limit has been reached. This will place all short-contract workers in the same position. I beg to move.
On Question, amendment agreed to.
Lord Wallace of Coslany Lord Wallace of Coslany moved Amendment No. 9:
Page 42, line 34, leave out paragraph 7.
The noble Lord said: I beg to move the amendment in the name of myself and my noble friend. We have of course, had a general discussion on a previous amendment which did eventually make reference to Amendment No. 9, but we are not proposing not to discuss this, because the noble Lord, Lord Mottistone, himself suggested that we should put it down, and subject to the adjustment of his spectacles he now realises that we have put it down.
Lord Mottistone: If the noble Lord does not mind my intervening, I said put it down if (2)(g) was also swept away; then it would be relevant, but, because (2)(g) is still in the Bill, I should have thought this was now not so important.
Lord Wallace of Coslany: That is a matter of opinion. We still think this particular item in the Bill does give rise to possible difficulties and complications for the employer who has to prove that he was not in dispute, and so on. I am not going to suggest for a moment that we should press this to a Division, particularly in view of the avalanche that has appeared from all sorts of remarkable places, through doors and side alleys and so on, to support the Conservative cause. I hope of course that they will eventually go away; you never know. Of course we know the Government, as distinct from ourselves when we were in Government, have a very disciplined band of loyal commandos on the doors, and anybody who tries to slip past the commandos I am sure has lost his chance of advancement. So there is very powerful whipping going on in this House, contrary to the usual customs and traditions of the House of Lords, where Whips do not normally matter two hoots, whereas in another place it could cost you your constituency.
However, there is a possibility that the Government might like to have a rethink on this. Therefore, I am raising the issue just to see what observations are made by the noble Lord, Lord Cullen, or his senior Minister Lord Trefgarne, who has had a sideways promotion. We just want to know what is the Government line of thinking on this. Is it possible to reconsider the whole setup? That is all we want to know. I beg to move.
Lord Mottistone: Before my noble friend the Minister replies, it would seem to me that this clause is an important one for the benefit of the individual. There must be occasions when it would be helpful to somebody to
804
have the opportunity, which this paragraph gives him, to show that he does not have a direct interest in a particular trade dispute. There might be a certain amount of doubt in people's minds if this was not here in relation to the other points in the Bill which we have just been discussing. It is surely very helpful for the individual to have that paragraph there to make quite clear what his position is. As to whether Whips are important or not, I am sure that they happen in this House when they are needed for all of us. Perhaps some Whips are more efficient than others.
Lord Trefgarne: Your Lordships will forgive me if I resist the temptation to join in the exchanges about the relative efficiency of the Whips on either side of your Lordships' House. As a former Whip, I take it as a compliment that the noble Lord, Lord Wallace of Coslany, complains of the majority we manage to achieve from time to time, although it is in fact the case that we do not always manage it; there have been a good many Government defeats in your Lordships' House in recent years.
As for the amendment which the noble Lord now seeks to move, we are of course having a second look at this. The remarks made by the noble Lord, Lord Mishcon, during the discussion of the earlier amendment went straight to the heart of this amendment, and I did my best to reply. I clearly was not able to satisfy all your Lordships on the Floor of the House, but I did apparently satisfy a good many of your Lordships when it came to the Division Lobby. I hope your Lordships will forgive me, therefore, if I do not deploy all the arguments yet again.
The noble Baroness, Lady Jeger, at the conclusion of her remarks said that she did not want to hear from me by way of letter. I remain willing to write to any noble Lord or Baroness who wants greater explanation of the legal implications of the earlier legislation to which I referred, but I think I stand absolved from that duty at the moment.
Lord Wallace of Coslany: I do not intend to take much more time. The noble Lord, Lord Trefgarne, has reiterated the fact that the Government are going to have a look at this and in fact at the other point which is related. There are points of difficulty. I am very grateful for what he has said. I agree with him that there are Whips and Whips, but that is another matter. I was one once. In another place, Whips are regarded as the lowest form of human life. Here they are a little more respected. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 10 not moved.]
Schedule 1, as amended, agreed to.
Clauses 4 to 6 agreed to.
Clause 7 [Rate of Payment]:
The Deputy Chairman of Committees (Lord Jacques): Before I call Amendment No. 11, I should point out that if it is agreed I shall not be able to call Amendments Nos. 12 to 14.
Lord Banks Lord Banks moved Amendment No. 11:
Page 5, leave out lines 21 to 26 and insert ("£37 and an additional £0.85 for each dependent child").
The noble Lord said: I beg to move Amendment No. 11 in the name of my noble friend Lord Kilmarnock and myself. The object of this amendment is two-fold. First, it aims to eliminate the lower rates of benefit so that all who are entitled to statutory sick pay would receive £37 a week, and, secondly, it aims to provide an additional benefit for each dependent child. Dealing with the lower rates first, under the Bill as it stands those earning between £45 and £60 per week and those earning below £45 a week get statutory sick pay of £31 per week and £25 a week respectively, and not the full amount of £37. Yet under existing legislation those with the required contribution record get the full amount of sickness benefit, whatever their earnings are.
Under the proposed arrangement in the Bill some who have a full contribution record will not get the top rate statutory sick pay; on the other hand, it would appear that some who do not have a full contribution record will now qualify for the top rates. When the transfer comes at the end of the eight weeks in respect of these latter, presumably they transfer to supplementary benefit and not to sickness benefit. Perhaps the noble Lord who is to reply would tell me whether I am right on that?
If the rate of £37, which is arrived at by working from the current sickness benefit rate, is regarded as being at subsistence level, then it seems wrong that anyone should be below that level who has a full contributions record, particularly if some who have not got such a record get the top rate. If £37 is regarded as a subsistence rate, then it does not seem right to put claimants who have a full contribution record on a rate below the £37, necessitating their having recourse to supplementary benefit.
The second object of the amendment is to provide a benefit for each dependent child. At the moment for sickness benefit there is a benefit of 80p for each dependent child. There is also of course child benefit—at the present standing at £5·25 a week. Child benefit is to be increased in November, but only to take account of inflation in the past year. Child benefit is lower in real value now than it was when the present Government came to office.
In our view on these Benches it is right to seek to transfer to child benefit the whole responsibility for provision for each dependent child, but equally we do not think that the 80p per week should be eliminated without a corresponding increase in the real value of child benefit. Therefore, the amendment proposes that a sum should be paid for each child as part of statutory sick pay. In our view, that should continue until child benefit has been increased in real value to replace this. To take account of the impact of employee national insurance contributions which will be paid on statutory sick pay we have put the figure at 85p. I beg to move.
Lord Trefgarne: As the noble Lord, Lord Banks, has explained, this amendment removes the three rates of statutory sick pay which are payable depending upon an employee's average earnings, and replaces them with a single rate of £37 for all employees. It also adds an amount payable for each dependent child to the flat rate of statutory sick pay.
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This amendment is prompted by a twofold concern for employees under the scheme. First, it has been claimed that the proposed rates of statutory sick pay are too low for those normally earning less than £60 a week and that this could cause hardship. Secondly, that the fact that the scheme does not take account of family circumstances has been challenged. With the permission of your Lordships, I would like to deal with these two issues separately. I think it would be helpful if I explained how we arrived at the rate of £37 a week as the main rate of statutory sick pay. £37 is roughly equivalent to the sickness benefit now payable to a man with a dependent wife and child. For children, the principal state provision is child benefit, and it is our intention to phase out the child dependency additions paid with sickness benefit as soon as child benefit has reached an appropriate level.
Taking employees as a whole, we estimate that the rates of statutory sick pay will ensure that employees receive the same extra income from the statutory sick pay scheme (after tax and national insurance contributions) as they would lose from the withdrawal of state sickness benefit, assuming that the benefits were taxable. In this calculation we have had to take account of the effect on employees in different types of occupational sick pay scheme. (This is explained in paragraphs 7–9 of the financial paper which is available to your Lordships with Notes on Clauses, which many of your Lordships have doubtless seen.) This calculation applies to the group of employees who are losing state benefit and gaining title to statutory sick pay in its place. Married women and widows who elect to pay reduced rate national insurance contributions are in a slightly different position. They had no previous title to state sickness benefit, but will have title to statutory sick pay and their contribution rate will be increased accordingly.
Consider now the effect of removing the rates for low earners, which would be an effect of this amendment. We believe that such a lower rate is essential. Without it, it would be possible for some employees to qualify for more in statutory sick pay than they would normally earn. This would be completely at odds with our policy on incentives and it would certainly be wrong statutorily to compel employers to make such payments. One of the main advantages of the scheme is that it tackles the existing problem of incentives which can arise when employees' take-home pay is more when sick than when working, thus making some financially better off sick than when at work—what my noble friend Lord Elton referred to as the "ailment trap" in his Second Reading speech.
However, before any of your Lordships accuse the Government of being unduly harsh in this matter, may I remind you that one of the major amendments to this Bill during its progress through another place was a Government one aimed at meeting the concern which had been expressed about the position of the low-paid under the scheme. We introduced the intermediate rate of statutory sick pay in order to make the provisions fairer to those with low earnings. Let me remind your Lordships of how my honourable friend the Minister of State for Social Security introduced this amendment in another place. He said:
"we estimate that under 2 million people will be in the group whose earnings qualify them either for the lower or intermediate

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rate of statutory sick pay. The amendment will bring about half of them into the intermediate rate".
He went on to a later stage to say:
"Of these 2 million people, we estimate that at least half will be married women who have opted to pay reduced rate national insurance contributions and who, therefore, receive no national insurance sickness benefit. Many of the others will be part-time workers, the majority of whom do not qualify for national insurance sickness benefit. Almost all the full-time workers who will receive the lower or intermediate rate of statutory sick pay and who qualify for sickness benefit now currently receive only the standard payment of £22·50 single person rate of sickness benefit. They are either single persons or married women. It will be rare for a married man with dependants to be in that position. If he were, he would in any case probably claim family income supplement".
Finally, on the issue of the lower rates of statutory sick pay, I should like to point out that the Bill lays upon the employer a duty to pay a statutory minimum. There is nothing to prevent him paying more than that minimum under his own occupational sick pay arrangements. The employer is best placed to judge the incentive effect on his own workforce—we should not in law force him to pay a rate which erodes incentives.
Turning to the other part of the amendment which seeks to add a child dependency addition to statutory sick pay, I have already mentioned the Government's belief that child benefit, and not child dependency additions, is the proper way for the state to provide for children. That, I believe, is common ground among all parties in the Committee. Consequently, it would be inconsistent to introduce an addition which is higher than the present national insurance benefit child dependency addition to statutory sick pay.
However, there is more to the issue than this. In our original Green Paper we asked whether or not there should be a family premium. The general feeling of those who responded was that this would complicate administration and mean the employer making intrusive inquiries into an employee's family circumstances, constituting an unnecessary invasion of privacy. We have accepted this view. Statutory sick pay will essentially be a continuation of earnings, and it has never been the practice for payment from employers to reflect family circumstances.
As a final point I ask your Lordships to bear in mind that, if a person is suffering financial hardship in any way when in receipt of statutory sick pay, the traditional safety net of our welfare state—supplementary benefit—is still available. Anyone can claim supplementary benefit, subject to the normal qualifying conditions, as at present.
The noble Lord, Lord Banks, also referred to the amount of £37. Thirty-seven pounds, is not regarded as a subsistence rate. For some it will be at or below supplementary benefit levels, but that, of course depends upon their individual circumstances. For many it will be significantly above supplementary benefit level. Where it is below, supplementary benefit can be claimed so that no one would be forced below the subsistence level, as the noble Lord was, perhaps inadvertently, suggesting in his remarks. I hope that I have covered all the points that were of anxiety to the noble Lord and, indeed, to the Committee and that the noble Lord will not wish to press his amendment.
Baroness Phillips: While not wishing in any way to complicate the issue for the Minister, but probably doing so, I noted that he referred to the widows. Am I correct in thinking that—as was the case when I did a lot of work for widows—one cannot collect two benefits from the state at any one time, and that in the event of a widow being employed but receiving sickness benefit, she would lose her widow's pension? This seemed to me to account for the fact that the married woman has opted in the past for the lower payment because in any case, if she became a widow, she was not going to benefit.
Lord Trefgarne: I think that the noble Baroness is right. As a general rule someone cannot claim two benefits from the state at the same time. There are very often "ifs" and "buts" to general assurances of that nature, and at the risk of incurring the odium of your Lordships once more, I should like to undertake to write to the noble Baroness if I am wrong.
Lord Mottistone: I should like to suggest to the noble Lord, Lord Banks, that it is a great pity that he has dealt with what are really two quite separate subjects within the one amendment. It is possible to see some merit in the £37 but not really in complicating it with the child benefit allowance at the same time. I should have thought that this was worth two amendments rather than one. But I am persuaded by my noble friend on the Front Bench that really there is a great deal to be said also, as these are minimum amounts to be paid, for having a range of them rather than just one, because there is the flexibility for employers to increase them if they have private arrangements of their own, and they can watch to see that the incentive factor, which certainly on this side of the Committee we think is important to encourage the individual, is retained. I should have thought, therefore, that the range, with the reassurance from my noble friend that this is not an actual rate but a minimum rate, should be enough to satisfy the noble Lord that it really is perhaps better to leave things as they are. As for the child benefit matter, surely that is better dealt with in another way.
Lord Trefgarne: Before the noble Lord replies, I should like to correct what I said to the noble Baroness, Lady Phillips. I understand that widows can, in fact, draw both their widow's pension and statutory sick pay at the same time, and I have thus saved myself another stamp.
Lord Banks: I am grateful to the noble Lord, Lord Trefgarne, for his reply to the amendment and for the other contributions that have been made to this discussion. I should like to make it clear that I did not, of course, query in this amendment the level of £37. The noble Lord began by defending that, but I did not attack it in this amendment. I am not saying that I think that £37 is enough, but we come to discuss that matter in the next amendment. But in this amendment I was not raising that point at all. The point which I did raise—the noble Lord answered a point which I did not raise—and upon which I do not think I received an answer, was the question about those who have a full contribution record but who,

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under this new dispensation, will not have a right to a full benefit, to the £37, and who therefore will be in a worse off position than they would have been under sickness benefit; and those who will not have a full contribution record, yet who will qualify for the top rate, on the basis of their present earnings.
Lord Trefgarne: Will the noble Lord give way? I apologise for intervening yet again. I did endeavour to explain that one of the features of this arrangement which we have been anxious to incorporate is that the employer—and it is, of course, the employer who is making the payments in the first instance under this new scheme—should not be asked to pay more to the employee than the employee would earn when he was fit. That was why we arrived at the particular level that we did arrive at.
Lord Banks: I was coming to that point. While that is a valid point, it is not an answer, I think, to the question which I have just raised about the position of people with full contribution records now and under the proposed system. But coming on to that further point about not compelling the employers to pay employees more than they would normally earn, I agree that that is a valid point and that it might have been better if I had worded my amendment so that it said:
"£37 or normal earnings, whichever is the lower".
That might have been better.
Going on to the question of child benefit, I agree with what the noble Lord subsequently said, and I said in my remarks that I agreed that we should transfer the responsibility to child benefit. But the whole point of the amendment and of what I said about it, was to indicate that it is not right to transfer the responsibility and to eliminate the benefits for children now paid with sickness benefit or sick pay, without increasing the real value of child benefit to offset it. That is what is happening at the present time. The noble Lord gave cogent reasons for suggesting that we ought to do it through increasing child benefit, and I would much prefer that. If his remarks were an indication that there will possibly be a change of heart on the part of the Government with regard to increasing the real value of child benefit in order to offset the elimination of the benefits for children under sickness benefit I should certainly welcome it.
Finally, I think that there was some merit in the point made by the noble Lord, Lord Mottistone, that this would have been better dealt with as two amendments. Therefore, I beg leave to withdraw the amendment, and possibly will return with two amendments at a later date.
Amendment, by leave, withdrawn.
5.1 p.m.
Baroness Jeger Baroness Jeger moved Amendment No. 12:
Page 5, line 21, leave out ("£37") and insert ("£40").
The noble Baroness said: I hope that it will be for the convenience of the Committee if I speak also to Amendments Nos. 13 and 14, because they are all connected with the rates of statutory sick pay. We are very anxious about this figure of £37, and I accept the explanation which the noble Lord has given,
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that it is roughly equivalent—near enough, anyhow—to the £36.40 which a married couple would receive at the present time. I think that I have the figure right. However, there is a substantial difference in that we understand from a later clause in the Bill that this payment is to be subject to deduction of national insurance and that it is also to be brought into income tax. Therefore, it really is unfair to compare the £37 in this Bill with the present arrangements of £36.40, which are exempt from national insurance and which are not taxable.
Therefore, it seemed logical to us that we ought at least to increase this figure to £40 to take some account, if not complete account, of family circumstances—because this will differ with family circumstances—so that in effect a couple will not be substantially worse off under this Bill than under the present arrangements, by which they would receive £36·40 free of national insurance and free of income tax.
I want to ask the noble Lord the Minister whether this figure of £37 is to be index-linked. There is a general expectation that in November there will be an uprating of benefits, but we do not know what shortfall there will be, because last time there was an uprating of benefits certainly in some benefits it did not fully take account of the inflation figures. So it seems to us rather extraordinary that we are to put £37 in this Bill, which I understand is not to come into effect until 1983, by which time surely there would have to have been some uprating of the figures. I know that there is a later provision under which the Minister may make changes, and we shall come to that amendment in due course, because some of us on these Benches want to see that made mandatory on the Minister and not optional. But, for the present time, we think that £37 is too low for the reasons that I have stated—the possibility of inflation and because it takes no account of the problem of children.
I listened very carefully to the noble Lord the Minister. It seemed to me that, if the Government were logical, they would eliminate the children's element from unemployment pay and from national insurance sickness pay. If the object of their policy is to put child maintenance entirely on to child benefit, there would be no reason to have these allowances for children in any of the social security payments. But it seems to some of us that the Government are trying to have it both ways. Under this Bill they are saying, "We shall ignore the children because a person will receive child benefit, but if someone is unemployed or if after the eight weeks of a person's employer paying that person, he goes to the DHSS, he will get something for his children".
At the same time, there is more lack of logic. They have told us that the whole objective is that child benefit should take care of child maintenance. We all know that child benefit is not adequate; that it is running at a level which is below the rate of inflation; and that, therefore, it cannot be an alibi for failure to provide a man who is off sick with some help in keeping his children. Under this Bill, it appears to us that a young girl who has just left school, has got her first job and is living at home will receive the same sickness benefit as a married man with three or four children. I anticipate that the answer will be that the married man with three or four children, finding himself

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suddenly with £37 a week—or even £40, if our amendment goes through—can apply for supplementary benefit.
I thought that there was a general agreement on all sides of this House and in another place that the way forward in social insurance was as far as possible to decrease reliance on supplementary benefit. We want to see that kept for the sort of safety net that Beveridge had in mind. It should not be used as a regular topping-up procedure because the Government have deliberately brought in legislation which will diminish the income of families.
When dealing with the point about helping with children, the noble Lord the Minister referred to the question of privacy. That is a non-starter. The employer knows how many children and dependants a person has because of PAYE. He also knows about family circumstances if one of his workers is claiming family income supplement. I am sure the noble Lord has in mind, as I have, that there should be no compulsion on a man to claim something for his children, and that if he has a love-child hidden away somewhere, he can keep that to himself. It is only if he comes forward and demands some payment for the child that he has to acknowledge the child. It is perfectly voluntary. We all know that we are so computerised that we can hardly get a parking ticket without someone knowing about it, so I think that the argument of privacy is not a very strong one.
I have done a great deal of work on this; I have even read the report of the Select Committee on Social Services in another place. I was interested to read that that committee recommended that if the scheme is to avoid reducing the financial protection for families, child benefit should be raised and maintained at an adequate level. In moving these amendments and in deciding what to do about them, I think it is fair to ask what intention the Government have about raising and maintaining child benefit.
On our suggestion that £31 should be raised to £37, the reasons are very much in line with those that I have already given for Amendment No. 12: we believe that £31 is too low a level. We should remember that people will have received nothing for the first three days of sickness and that they will also have national insurance and, if they are in the right range, income tax to pay. We believe that it will send an undesirable number of people to supplementary benefit offices, and I do not think that that can be a good thing. Also, a man's wages might be a few pence above or below the line. The difference between £25 sick pay a week and £37 sick pay a week may in effect be a difference of earnings of only £1 or £2, but that will be of no comfort to him in trying to maintain his family. I do not consider that these amendments are extravagant. It seems to us only fair to look at them sympathetically, and I hope that the Government will at least look at them again.
If I may refer now to Amendment No. 14, we do ask that the lowest paid people shall receive normal earnings or £37, whichever is the lower. I would rather have said, "whichever is the higher" but, knowing the problems of the Government, we are trying to be helpful. In the Green Paper Mark I—and I am referring here to the Green Paper published in April 1980—it was suggested that,
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"a low earner should have a statutory right to a proportion of normal earnings rather than to the statutory minimum where this would be higher".
I am sorry that was dropped when the Bill was drafted, because that is the substance of our Amendment No. 14; to enable the very low paid workers not to suffer a serious drop. It might well be asked by your Lordships, who are these people who earn so little? Who in this country today earns less than £60 a week, to say nothing of earning less than £45 or £25 a week? The latest figures that I have—and I am sure that the noble Lord, with the customary courtesy will help me—show that of fully employed male workers, 1·1 per cent. earn less than £60 a week—but, of women 15·4 per cent. earn less than £60 a week. I should not want the Minister to reply "Yes, but these are probably married women in part-time work", because there are many working women in this country who are the head of their household; who belong to single parent families and who have all the responsibility that a man would have in looking after children and taking responsibility for housing—in effect, taking on all the same responsibilities as are borne by an unmarried man or married man with children. These are the reasons which have prompted these amendments.
There seems to be some inconsistency, in that the Minister has said that there shall be no payment for the children for eight weeks while the employer is still paying, but, as soon as that eight weeks is up, the employee can go to the DHSS, can he not? and collect a larger sum—which I would have thought was an incentive to string out one's illness. Once one is past the eight weeks' limit, one can collect a payment for one's children. I wanted to make another point on the question of privacy and whether it would be very difficult for this sick pay scheme to include something for children. I should have thought that a very simple way would have been for the employee who is asking for extra payment for children—and I am only talking about the employee who is asking and not those who want to keep their affairs to themselves—to ask his wife for her child benefit payment book. Surely that would give acceptable evidence of the number of children which the man has. This would not be administratively impossible and it would help a very large number of families about whom we are greatly concerned.
I do assure the noble Minister that we have put these amendments down with great care and in a spirit of helpfulness, because we believe that many Members of your Lordships' House would consider it wrong that a family's standard of living is to be drastically reduced by statute when the breadwinner is ill. I appreciate that it may be cloud cuckoo-land to talk about sick pay schemes although, thank goodness, there are many in existence, including that in the Civil Service, where full pay is given for a certain period of time. But we are dealing here with people who do not enjoy that sort of protection in their employment. We feel that the rates the Government have put into this Bill will have the effect of impoverishing even further families with low incomes and therefore with probably no savings, no backup and no resources. I beg to move.
Lord Mottistone: The noble Baroness, Lady Jeger,

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said that companies could tell an employee's number of dependants from the PAYE code. Having at one stage, when our accountant was sick, handled the pay of our small outfit, I can assure the noble Baroness that one would have to be terribly nosy to detect the right number of dependants from the PAYE code number. There are great variations and there is a fairly large measure of security because of the way in which the PAYE system is structured. I rather agree with the argument that it is none of the company's business as to what a man's or lady's private life is—so it is probably just as well that the PAYE system is like that and that there are not ways in which company people can know a whole lot of personal details.
Baroness Jeger: I thank the noble Lord, Lord Mottistone, for his helpful interjection. I can only say that a very clever accountant told me that he could tell.
Lord Mottistone: Yes, but clever accountants are rather sinister, qualified people; but ordinary, humble people cannot tell.
Lord Banks: I should like to say a brief word in support of this amendment and those associated with it. When we were discussing the last amendment, the noble Lord, Lord Mottistone, said he thought there was an advantage in having three different levels of benefit and that this was more flexible. My difficulty with that was that the levels were such that it was possible for somebody who had a full contribution record to be worse off under the new system compared with what we have at the present time. That is not so under these amendments. That problem is dealt with, and also, in the third category there is the phrase which I said would have been better had I included it in my amendment—"normal earnings or £37, whichever is the lower". For these reasons, I support the amendment that has been moved by the noble Baroness, Lady Jeger.
Lord Cullen of Ashbourne: The effect of these two amendments would be to raise the standard and intermediate rates of statutory sick pay by £3 and £6 respectively. I should like to say a few words about how we arrived at the rates in question. The main rate—£37 a week—is roughly equivalent to the sickness benefit payable to a man with a dependent wife (currently £36·40). The intermediate rate of £31 a week, which was introduced as an amendment to the Bill in another place, is in our judgement the appropriate rate for those earning between £45 and £60 a week. Together with the lower rate—£25 a week to those earning between £29.50 and £45 a week—we have a range of rates. That range gives, by way of statutory sick pay, a reasonable but not excessive proportion of normal earnings at each level. In particular, it means that there is no disincentive to return to work at the end of an illness. That is an important aspect.
I have looked at the cost of these two amendments. To increase the standard rate to £40 a week would represent an annual loss of about £40 million to the National Insurance Fund; to increase the intermediate rate to £37 would represent a loss of about £5 million. That total loss to the fund would have to be made up somehow.
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It has been argued that, for the standard rate, the increase to £40 represents broadly the sum which an employee would have to get before national insurance contributions are levied in order to have a pre-tax sick pay level of £37. However, I would draw the attention of noble Lords to the paper on financial effects; we have taken that into account in our calculations and we estimate that the overall effect of the scheme on employees, taken as a group, including paying contributions on sick pay, is roughly equivalent to taxing national insurance benefits.
Turning to the intermediate rate, that was, as I said, introduced in another place to give greater fine tuning to the scheme. It represents our best judgment as to the appropriate level. I should point out that in nearly all cases the intermediate and lower rates of statutory sick pay will be an improvement on what is currently received by way of national insurance sickness benefit. We estimate that about 1 million employees would qualify for the lower rate and a further 1 million for the intermediate rate of statutory sick pay. At least half of those 2 million will be married women who have opted to pay reduced rate national insurance contributions and therefore receive no sickness benefit at all at present. Many others will be part-time workers who do not at present qualify for national insurance benefit. Of the full-time workers who will receive the lower or intermediate rate, nearly all currently receive only the standard £22·50 single person rate of sickness benefit, because they are single men or married women. It will be quite rare for a married man with dependants to be in this position; and, if he were, he could almost certainly claim family income supplement. To sum up, I believe the three rates of statutory sick pay are set at the right level, given their relationship with earnings. To increase the rates would have cost the country a great deal which it cannot afford at present.
I will do my best to reply to the questions which the noble Baroness, Lady Jeger, asked. She asked whether the rate of SSP would be index-linked. The Bill makes clear that it will be increased annually in line with prices, subject to the state of the economy. She also argued that some account should be taken of tax. It has always been accepted that sickness payments should be taxed. The only reason they have not been taxed in the past has been because of administrative complexity. Both the noble Baroness and the noble Lord, Lord Banks, referred to the level of child benefit. The Government are committed to raise child benefit in line with prices as the economy permits, and that was done last year. I fully recognise the importance of child benefit, but I must remind the Committee that every 10p increase costs £55 million.
Baroness Jeger: While the Minister has referred to the cost of raising child benefit, may I ask him to say, on the other hand, how much more the Government will collect as a result of charging people national insurance contributions, for the first time in history, on sick pay? How much is the £37 worth minus the national insurance contribution?
Lord Cullen of Ashbourne: The £37 is roughly equivalent to the £36·40 sickness benefit. If that were

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brought into tax, which is what the Government wish to do and which all parties have agreed should happen—
Baroness Jeger: What about national insurance contributions?
Lord Cullen of Ashbourne: We are dealing with two figures that are about the same—£37 and £36.40—and, as I was saying, all parties have agreed over quite a long period that all income should be taxed, including sickness benefits and sick pay. Therefore, when we are comparing one with another, it is not fair to say that one is comparing £37 taxed with £36·40 untaxed. The intention was to tax the sickness benefit, and it is that figure that one should compare with £37.
Baroness Jeger: It is important for thousands of people that we get this clearly on the record. I was asking especially about the national insurance contribution. If the noble Lord is saying that the £37 is equivalent to £36·40 on which no national insurance is paid, he is therefore telling the Committee and the workers of Britain that they pay only 60p national insurance, and I do not think that can be correct.
Lord Cullen of Ashbourne: I was not trying to suggest that. It is true that national insurance will be payable on sick pay, but let us not forget that the sick pay is limited to eight weeks, and when one comes to look at what it would cost an employer, it does not amount to a great deal of money in relation to sick pay. The total employees' contributions are £40 million. The contribution payable on £37 would be £3·23.
Baroness Jeger: The arithmetic is very important to people working on low budgets. The Minister gave the figure of £3·23, so we must deduct that from the £37, which brings the sick worker way below the present level of £36·40, which is surely to his detriment.
Lord Underhill: When replying to my noble friend, would the Minister also explain how he arrives at the figure of £40 million as the cost to the state when there should be no cost to the state?
Lord Cullen of Ashbourne: I regret that I cannot answer that, but I will write to the noble Lord. We are in a quite complicated area here. A number of points crop up and however hard one studies the Bill, one is not prepared with all the answers.
Lord Davies of Leek: I agree it is a complicated area, but we are told, when we examine Part I of the Bill, that expenditure will be reduced by £385 million overall. I cannot clarify that in my mind and I should be grateful if time could be taken to enable the Minister satisfactorily to answer my noble friend Lady Jeger and get the matter placed accurately on the record so that it can be analysed. Having been at the Ministry at one time, I appreciate how complicated the subject is; I am not blaming the Minister for not being able to give answers off the cuff. It is easy for those who have not held office not to realise how complicated a subject it is. Nevertheless, I should like the whole issue looked into in depth and a reply which we are able to examine placed in
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Hansard. That would clarify my mind and make the matter clearer to the Committee and the country.
5.30 p.m.
Lord Cullen of Ashbourne: I should like to say just one thing; namely, that there is available a financial paper with the Notes on Clauses. It is an infernally difficult thing to understand, but it contains a lot of information which perhaps we should study between now and the next stage. There are many points which could probably be answered by a careful look at that paper, but I should like to confer with my noble friend Lord Trefgarne on how we could best make the information available to your Lordships.
Lord Wells-Pestell: I do not want to add to the noble Lord's difficulties, but I agree with my noble friend on the Front Bench that this is, or appears to be, a very complicated matter. Yet when reduced to simple arithmetic, it is undeniable that the person concerned is going to be far worse off, rather than better of. It might be that there is an over-simplification in this matter, but the noble Lord has admitted that a person must be in the region of £3 a week worse off. If that is not so, then we should know about it; otherwise our thinking on the matter is coloured. It seems to me that before the next stage of the Bill the House as a whole should be aware of the real position. I do not know how that can be done. I like the idea of someone putting down a Question for Written Answer. There is no reason why, because the Bill is before the House in the Committee stage, we cannot put down a Question for Written Answer. I would hope that my noble friend on the Front Bench might feel disposed to do this, so we could get an answer in a matter of days. Somebody must know the answer, and must know it now. If not, we are in a bad way, a very bad way.
Lord Mottistone: I would entirely support the view that to put down a Question for Written Answer would be the solution. I would myself put down a Question if no one on the Benches opposite will do so.
Lord Wells-Pestell: I must say, with the greatest respect, that I would prefer my noble friend to put down the Question for the simple reason that she would put down what we want to know.
Lord Cullen of Ashbourne: I think that the noble Lord's suggestion is a very good one, and if one of your Lordships would put down a Question, we should be very pleased to answer it. I have no doubt that there are people in the box who could answer it right now, but I am afraid that I cannot.
Baroness Wootton of Abinger: Does not the noble Lord the Minister agree that the sheer complication of this matter is a condemnation of the whole thing? Would it not be possible for the Government to bring forward amendments which would make the situation intelligible not merely to the Members of your Lordships' Committee, but also to the unfortunate people who have to work out what they are going to get in benefits?
Lord Trefgarne: I had hoped that my noble friend was reaching an agreement with the noble Baroness on the Front Bench opposite to settle this matter amicably. I am not sure that the intervention just now of the noble Baroness was wholly helpful. May I say that if there is any excessive complication in this matter, much of it stems from the 1975 Act, passed by the previous Administration.
Baroness Wootton of Abinger: If I may say so, that makes no difference. The fault might lie with the 1975 Act; but there might now be an opportunity to make some simplifications which would be intelligible, wherever the fault has arisen in the first instance.
Lord Wells-Pestell: If the noble Lord wishes to make political capital out of this, let us make political capital out of it. In 1975 his party was in a position to defeat the proposal, if it wanted to.
Lord Sandys: I think that the noble Lord, Lord Wells-Pestell, is injecting into our discussions an element which is not wholly helpful.
Lord Davies of Leek: I did not want to put the matter from a party point of view. I have myself gone through this kind of experience, and I know that civil servants themselves have had difficulty with it. I am not now making a political point, but we should like the matter on the record so that we understand it and the man in the street understands it. That is all. It is quite simple, and I do not want to make anything else out of it.
Lord Cullen of Ashbourne: I think that we have now probably come to the end of this discussion. I should like to suggest that perhaps the noble Baroness will withdraw her amendment and that a Question is put down for Written Answer. We would reply to it as soon as we could, and we would send a copy of the reply to any noble Lord who wishes to receive it.
Lord Howie of Troon: Before my noble friend responds to that invitation, I must say that a slight note of disharmony has been introduced by the noble Lord opposite. I cannot help feeling that this is a matter of some urgency. No one is inclined to throw stones at a Minister who is not able to reply—it is perfectly understandable in a matter of this nature—and no one would do such a thing. But it seems to me that it is a quite legitimate question that my noble friend asked, and I believe that it deserves a somewhat quicker answer than would be obtained by means of putting down a Question for Written Answer, even though that would be forthcoming within a few days.
Presumably there is some machinery through which information of this kind can be conveyed to the Minister, so that he in turn can pass it on to Members of your Lordships' Committee. I am inclined to think that we might get out of our difficulty if we were to adjourn the debate for a short while and enable the Minister to confer with whoever he might feel inclined to confer with. He might come back in a quarter of an hour, half an hour, an hour, or however long it takes, and give my noble friend on the Front Bench the information, rather than expect her to wait for a
818
day or two. I know that the noble Lord the Minister was trying to be helpful, but I am inclined to think that what I suggest would be a speedier way of dealing with the matter.
Baroness Jeger: I thank my noble friend for his helpful remarks and I thank the Minister for suggesting that we might get some information by means of a Question for Written Answer. Some time ago I read in a newspaper how much it costs to answer a parliamentary Question. As always, I am keen to save the Government money—except at the expense of the welfare state—and I should like to ask the noble Lord the Minister whether he cannot now answer this point, since semi-numerate and semi-literate though I am, I think that I have an answer. There is a reference in the Bill to a sum of £37 as payment. The Minister has told the Committee that from that there must be deducted £3·23 for National Insurance. So I suggest that the Committee stops talking about £37, because in effect, according to my arithmetic—subject, as always, to correction—the man or woman is receiving £33·77. So let us talk about whether £33·77 is the right amount. That partly explains why we wanted to increase the amount from £37 to £40, which was to uplift it by £3, leaving the sick employee to find just 23p extra; but certainly not leaving a man on sick pay of £37 to have to contribute £3·23 and to be left at the end of the week—if I have got it right—with £33·77.
Lord Trefgarne: The noble Baroness is of course right in suggesting that if one deducts £3·23 from £37, one gets—whatever it was. The noble Baroness's mental arithmetic is vastly superior to mine—and that is not a difficult position to achieve, I must say. However, I should perhaps make two points which might have escaped the Committee's attention, but which have been referred to in connection with earlier amendments.
First, this is a minimum level of sick pay. I am informed that no less than 90 per cent. of employees in fact enjoy the benefit of occupational sick pay schemes, which in general offer them provision which is greatly enhanced compared with that which we are today discussing. I do not deny that there will be a few people who will receive only the minimum provided for in this measure, and then subject to the national insurance contributions, but they are very small in number. They are further reduced in number by the fact that the figure of £37, less the national insurance contribution, is itself a substantial improvement upon the £22·50 which is the standard rate of sickness benefit which has applied hitherto. Therefore, I hope that Members of your Lordships' Committee will not get the problem out of perspective.
I am of course quite ready to answer a Question for Written Answer in order to clarify the matter further, and I happily give the assurance that I shall see to it that the answer is provided before we reach the next stage of the Bill.
Lord Underhill: The figure that the noble Lord has just given surely proves the point which has already been made that there is no cost to the state. I think that a figure in the region of £40 million has been mentioned; there is absolutely no cost. Therefore the reply given

819
by the Minister to the amendment is completely erroneous. Judging from the figures just given by the noble Lord, Lord Trefgarne, there cannot be a cost of £40 million. It just does not arise. If we are now being asked to approve a provision which in effect lowers the sickness benefit to people by about £3-odd a week, then surely the Committee should reject that.
Lord Trefgarne: With respect to the noble Lord, I do not want to indulge in a detailed exchange of figures across the Floor of your Lordships' Committee at this moment. I could do so at very considerable length—I have five or six pages of figures here—but I have a feeling that your Lordships would be unduly wearied if I were to deploy all the figures which are before me at this moment. Most of them are contained in the document called Financial Effects of Statutory Sick Pay, which was distributed to your Lordships with the Notes on Clauses.
This Bill is an extraordinarily complex measure. Whatever may be the genesis of the complexity of our current social security legislation—and I will not deploy those arguments again—the fact of the matter is that, as the noble Baroness rightly pointed out just now, our social security legislation is very complex. We therefore took the unusual step in connection with this Bill of distributing detailed Notes on Clauses and a detailed document called, as I have said, Financial Effects of Statutory Sick Pay. I hope that those of your Lordships who are interested in this matter will study this document, and if there are any further points that the noble Baroness would like developed between now and the next stage then, as I have said, I would be very happy to give an Answer on an urgent basis if she would like to table an appropriate Written Question.
Lord Banks: I should like to return, if I may, to the point which the noble Lord, Lord Trefgarne, made earlier when he was answering on the previous matter. There he was talking about—I have now forgotten the point I was going to make to your Lordships. I will think it out.
Baroness Wootton of Abinger: Can I not appeal again to the Minister, if he is going to take this back and think up something on the lines of an Answer to a Written Question, at the same time to think of some method by which we could simplify this whole matter, so that people could understand it? If the law is being reformed, can it not be reformed in that direction?
Lord Trefgarne: There are many Members of your Lordships' House—and I am among them, I must say—who would like to see our legislation in very many areas, including this one, simpler and easier to understand. The difficulty is that when you apply your mind with these good intentions to the structure as one finds it, the remedies are not quite so easy to discern.
In the case of this particular matter, however, successive Governments have recognised the difficulty for laymen of interpreting the detailed provisions of the legislation, and that is why, for example, we have a huge number of people in the DHSS for staffing our big offices around the country, and why, for example, we have something called the Employers' Guide, which
820
is a simple explanation of the provisions enabling employers to operate them effectively without recourse to the detailed legalistic language which one must perforce incorporate in legislation. However, I agree with the noble Baroness that it would be nice if we could find a simpler form for these matters, but the nature of that form has eluded successive Administrations.
Lord Banks: Having collected my scattered wits, perhaps I could make the point that I was on the verge of making a minute ago, and it is this. I think it is wrong to deploy in defence, as the noble Lord did, the fact that there are some occupational schemes, many of them very good, run by employers, because those occupational schemes are running now. What we are trying to compare is the sickness benefit through the state scheme as it is at the moment and as it would be under the scheme proposed by the Government, and in both cases it will be in the context of existing occupational schemes, which will presumably not necessarily be changed. What we are saying is that in the case of a married man in the top bracket of the new three levels, once you have taken into account the national insurance contributions he will in fact be worse off. Single people, as the noble Lord has pointed out, will be better off; but we are pointing to the fact that the married man will be worse off. We were asking for the Government to confirm that, and I think the calculations which have been made across the Committee have confirmed it.
5.45 p.m.
On Question, Whether the said amendment (No. 12) shall be agreed to?
Their Lordships divided: Contents, 77; Not-Contents, 112.

DIVISION No. 2

CONTENTS

Airedale, L.

Howie of Troon, L.

Ardwick, L.

Jacques, L.

Aylestone, L.

Jeger, B.

Bacon, B.

Jenkins of Putney, L.

Balogh, L.

John-Mackie, L.

Banks, L.

Kaldor, L.

Barrington, V.

Kennet, L.

Bernstein, L.

Kilmarnock, L.

Bishopston, L.—[Teller.]

Lee of Asheridge, B.

Blease, L.

Lee of Newton, L.

Blyton, L.

Llewelyn-Davies of Hastoe, B.

Boston of Faversham, L.

Briginshaw, L.

Lloyd of Hampstead, L.

Brockway, L.

Longford, E.

Chitnis, L.

Lovell-Davis, L.

Cledwyn of Penrhos, L.

MacLeod of Fuinary, L.

Collison, L.

Mais, L.

Cooper of Stockton Heath, L.

Mayhew, L.

Melchett, L.

Davies of Leek, L.

Milford, L.

Ewart-Biggs, B.

Molloy, L.

Gaitskell, B.

Oram, L.

George-Brown, L.

Peart, L.

Glenamara, L.

Phillips, B.

Gosford, E.

Plant, L.

Gregson, L.

Ponsonby of Shulbrede, L.—[Teller.]

Hampton, L.

Harris of Greenwich, L.

Raglan, L.

Houghton of Sowerby, L.

Rhodes, L.

821

Rochester, L.

Underhill, L.

Ross of Marnock, L.

Vernon, L.

Seear, B.

Wade, L.

Stedman, B.

Wallace of Coslany, L.

Stewart of Alvechurch, B.

Wells-Pestell, L.

Stewart of Fulham, L.

Whaddon, L.

Stone, L.

Wigoder, L.

Strabolgi, L.

Wilson of Langside, L.

Strauss, L.

Wilson of Radcliffe, L.

Taylor of Mansfield, L.

Wootton of Abinger, B.

Tordoff, L.

Wynne-Jones, L.

NOT-CONTENTS

Abercorn, D.

Kinross, L.

Airey of Abingdon, B.

Kintore, E.

Allerton, L.

Lane-Fox, B.

Alport, L.

Lauderdale, E.

Avon, E.

Linlithgow, M.

Balfour, E.

Long, V.

Balfour of Inchrye, L.

Loudoun, C.

Bellwin, L.

McAlpine of Moffat, L.

Beloff, L.

McFadzean, L.

Bethell, L.

Mackay of Clashfern, L.

Blake, L.

Macleod of Borve, B.

Boardman, L.

Mancroft, L.

Bolton, L.

Mansfield, E.

Boyd of Merton, V.

Marley, L.

Brookes, L.

Mersey, V.

Brougham and Vaux, L.

Mills, V.

Caccia, L.

Mottistone, L.

Cairns, E.

Newall, L.

Caithness, E.

Northchurch, B.

Campbell of Alloway, L.

O'Hagan, L.

Cawley, L.

Onslow, E.

Chelwood, L.

Orkney, E.

Clinton, L.

Pender, L.

Colville of Culross, V.

Portland, D.

Colwyn, L.

Rankeillour, L.

Cork and Orrery, E.

Renton, L.

Craigavon, V.

Rochdale, V.

Cranbrook, E.

Romney, E.

Crathorne, L.

Rugby, L.

Cullen of Ashbourne, L.

St. Aldwyn, E.

Davidson, V.

S. Davids, V.

De La Warr, E.

St. Just, L.

Denham, L.—[Teller.]

Saint Oswald, L.

Drumalbyn, L.

Sandford, L.

Ellenborough, L.

Sandys, L.—[Teller.]

Elles, B.

Sharples, B.

Elliot of Harwood, B.

Skelmersdale, L.

Faithfull, B.

Stodart of Leaston, L.

Ferrers, E.

Stardbroke, E.

Fortescue, E.

Strathclyde, L.

Fraser of Kilmorack, L.

Strathspey, L.

Gainford, L.

Sudeley, L.

Gibson-Watt, L.

Swinfen, L.

Gisborough, L.

Tenby, V.

Glasgow, E.

Teviot, L.

Gormanston, V.

Thomas of Swynnerton, L.

Gridley, L.

Trefgarne, L.

Grimston of Westbury, L.

Trumpington, B.

Haig, E.

Tweedsmuir, L.

Hailsham of Saint Marylebone, L.

Ullswater, V.

Vaizey, L.

Hayter, L.

Vaux of Harrowden, L.

Henley, L.

Vivian, L.

Ironside, L.

Wakefield of Kendal, L.

Kemsley, V.

Willoughby de Broke, L.

Killearn, L.

Young, B.

Kimberley, E.

Resolved in the negative, and amendment disagreed to accordingly.
5.55 p.m.
Lord Denham: With the leave of the Committee, I think that this would be a convenient moment to make the Statement about business which earlier this afternoon
822
I promised to make. I therefore beg to move that the House be now resumed.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Future Business: Falkland Islands Debate
Lord Denham: My Lords, following a business Statement in another place earlier this afternoon, it has been agreed that a debate should be held in your Lordships' House on Thursday of this week, 29th April: the debate will be held on a Motion, To take note of the situation in the Falkland Islands, which will be moved by my noble friend Lord Belstead.
Perhaps I could say something about the business which was to have been taken on Thursday. The Report stage of the Administration of Justice Bill will now begin during the dinner adjournment on Tuesday next, 4th May, and will continue on Thursday, 6th May. It has not yet been possible to rearrange the debate on the Motion standing in the name of the noble Lord, Lord Greenhill of Harrow, but I will undertake to ensure that the new date will be fixed as soon as possible through the usual channels.

Social Security and Housing Benefits Bill
5.57 p.m.
House again in Committee.
[Amendments Nos. 13 and 14 not moved.]
Lord Banks Lord Banks moved Amendment No. 15:
Page 5, line 41, leave out ("may") and insert ("shall").
The noble Lord said: I beg to move Amendment No. 15 and, with the leave of the Committee, I should like to speak at the same time to Amendments Nos. 16, 17 and 18 which are related. If the first three of these amendments are carried, then subsection (5) at the bottom of page 5 will read:
"Following any such review the Secretary of State shall, in the tax year in which the review is carried out, prepare and lay before Parliament the draft of an order increasing the sums by such amount as is necessary to retain their value".
The object of these amendments is to place a duty on the Secretary of State to increase the rates of statutory sick pay as may be necessary to retain the real value of the benefits.
We are strongly of the opinion that the value of benefits which Parliament has thought fit to provide should be maintained until such time as by primary legislation Parliament determines that circumstances are such that these benefits should be discontinued or modified. The Bill makes it possible for the Secretary of State to raise the rates to restore their value if he thinks fit to do so. He is not obliged to do so although if he does not do so he must report his reasons to Parliament.
Amendments Nos. 15, 16 and 17 oblige the Secretary of State to raise the level of the rates to restore the value. This being so, the provision requiring him to report to Parliament his reasons for not doing so is no longer required and Amendment No. 18 would

823
eliminate it. If the first three amendments were not carried, then we would not wish to proceed with the fourth since in those circumstances we would strongly support the retention of subsection (7). I beg to move.
Lord Cullen of Ashbourne: I am afraid that I shall have to disappoint the noble Lord, Lord Banks, by saying straight away that the Government cannot accept these amendments. As drafted, the Bill requires the Secretary of State to look each year at the rates of statutory sick pay to see whether they have kept their value. In practice, this review will take place each autumn and the measure of inflation used will be the latest retail price index figures. It is the intention to raise the rates of statutory sick pay broadly by the increase in the rate of inflation. I say "broadly" in line with inflation since, in order to keep employers' administration of the scheme simple, we shall have to consider rounding the rates and the earnings thresholds to a convenient figure.
There are, however, other considerations which the Secretary of State shall have to take into consideration. One of the most important of these is the relationship between the rates of statutory sick pay and of national insurance sickness benefit. Noble Lords will appreciate that the standard rate of statutory sick pay, £37, broadly equates with the rate of sickness benefit payable to a married couple (currently £36.40). Since statutory sick pay replaces sickness benefit during the early weeks of illness or injury, it is sensible that there should be a consistent relationship.
There are also practical considerations. For example, if statutory sick pay was to fall substantially behind in relation to the level of supplementary benefit, the net effect would be an increase in the number of supplementary benefit claims during the early weeks of illness. None of us would welcome that.
There will be other factors to which the Secretary of State should pay heed when assessing the new rates of statutory sick pay. For example, in setting the level of the earnings thresholds or the rates themselves he may well wish to look at the movement in earnings. If earnings were rising much more slowly than prices, without the flexibility given by this clause the odd situation could arise whereby people earning quite substantial wages could be considered low earners and be entitled only to one of the lower rates of statutory sick pay.
Finally, it may be necessary for the Secretary of State to have regard to the state of the economy. In the final analysis, what the country pars to people who are sick, whether by sick pay or by sickness benefits, depends on what the country can afford. Relating the rates strictly to the level of inflation could be a recipe for disaster.
We must be realistic about the rates of statutory sick pay. The Secretary of State must have the flexibility to raise the rates, having taken all the relevant factors into account. As it stands before your Lordships, the clause provides that flexibility. But the clause also makes it quite clear that our intention is to increase these rates each year in line with inflation. If the Secretary of State decides not to do that, he has to prepare a report to Parliament explaining why. But it would not be sensible to tie the Government to a
824
statutory requirement, as this amendment would do. The Government of the day must be allowed the freedom to set the rates flexibly and realistically.
Lord Banks: I must confess that that is rather a disappointing answer. The noble Lord says that we must have a consistent relationship between statutory sick pay and sickness benefit and offers that as one of the reasons why it would not be possible to put a duty upon the Secretary of State to raise the benefits in line with prices. But he is given the discretionary powers to do that under the Bill. One would imagine that the same consideration will apply to a discretionary power. If in one year he decided he wanted to do it, although he had not done it the previous year, he would still have to be concerned about a consistent relationship. So that makes no difference whether you have it obligatory for the Secretary of State to make the increase or if it is left to his discretion.
The noble Lord said that the Secretary of State may wish to look at earnings. There is nothing to prevent him looking at earnings and making such other adjustments as are necessary in the rates. But at any rate they would be linked to prices. The third argument was the familiar one about the state of the economy and the shortage of cash; but, of course, pensions which are far and away the largest part of the expenditure on social security are linked to prices. If it can be done for pensions, why should it not be done for statutory sick pay?
Regarding not allowing benefits to be whittled away which we have seen happen to a number of benefits with an awkward situation arising as a result, such as the death grant, if we are not going to have that kind of situation arising, we have to make it clear that benefits—unless Parliament by primary legislation decide otherwise—must be increased in line with prices. For that reason, I should like to press this amendment.
6.4 p.m.
On Question, Whether the said amendment (No. 15) shall be agreed to?
Their Lordships divided: Contents, 77; Not-Contents, 106.

DIVISION NO. 3

CONTENTS

Airedale, L.

Davies of Leek, L.

Ardwick, L.

Ewart-Biggs, B.

Aylestone, L.

Gaitskell, B.

Bacon, B.

George-Brown, L.

Balogh, L.

Glenamara, L.

Banks, L.

Gosford, E.

Barrington, V.

Gregson, L.

Bernstein, L.

Hampton, L.—[Teller.]

Bishopston, L.

Harris of Greenwich, L.

Blease, L.

Howie of Troon, L.

Blyton, L.

Jacques, L.

Boston of Faversham, L.

Jeger, B.

Briginshaw, L.

Jenkins of Putney, L.

Brockway, L.

John-Mackie, L.

Bruce of Donington, L.

Kaldor, L.

Chitnis, L.

Kennet, L.

Cledwyn of Penrhos, L.

Kilmarnock, L.

Collison, L.

Lee of Asheridge, B.

Cooper of Stockton Heath, L.

Lee of Newton, L.

Llewelyn-Davies of Hastoe, B.

David, B.

825

Lloyd of Hampstead, L.

Shinwell, L.

Longford, E.

Stedman, B.—[Teller.]

McGregor of Durris, L.

Stewart of Alvechurch, B.

Mais, L.

Stewart of Fulham, L.

Mayhew, L.

Stone, L.

Melchett, L.

Strabolgi, L.

Molloy, L.

Strauss, L.

Oram, L.

Tordoff, L.

Peart, L.

Underhill, L.

Phillips, B.

Vernon, L.

Pitt of Hampstead, L.

Wade, L.

Ponsonby of Shulbrede, L.

Wallace of Coslany, L.

Raglan, L.

Wells-Pestell, L.

Rathcreedan, L.

Whaddon, L.

Rhodes, L.

Wigoder, L.

Rochester, L.

Wilson of Langside, L.

Ross of Marnock, L.

Winstanley, L.

Seear, B.

Wootton of Abinger, B.

Shepherd, L.

NOT-CONTENTS

Abercorn, D.

Lauderdale, E.

Airey of Abingdon, B.

Linlithgow, M.

Allerton, L.

Long, V.—[Teller.]

Alport, L.

Loudoun, C.

Avon, E.

Lyell, L.

Balfour, E.

McAlpine of Moffat, L.

Bellwin, L.

McFadzean, L.

Beloff, L.

Mackay of Clashfern, L.

Bethell, L.

Macleod of Borve, B.

Blake, L.

Mansfield, E.

Boardman, L.

Margadale, L.

Brookes, L.

Marley, L.

Brougham and Vaux, L.

Mersey, V.

Caccia, L.

Montgomery of Alamein, V.

Caithness, E.

Mottistone, L.

Campbell of Alloway, L.

Newall, L.

Campbell of Croy, L.

Northchurch, B.

Cawley, L.

O'Hagan, L.

Chelwood, L.

Onslow, E.

Clinton, L.

Orkney, E.

Coleraine, L.

Pender, L.

Colville of Culross, V.

Portland, D.

Colwyn, L.

Rankeillour, L.

Cork and Orrery, E.

Rawlinson of Ewell, L.

Craigavon, V.

Renton, L.

Crathorne, L.

Rochdale, V.

Cullen of Ashbourne, L.

Rugby, L.

Daventry, V.

St. Aldwyn, E.

De La Warr, E.

St. Davids, V.

Denham, L.

St. Just, L.

Ellenborough, L.

Sandford, L.

Elles, B.

Sandys, L.—[Teller.]

Elliot of Harwood, B.

Shannon, E.

Faithfull, B.

Sharples, B.

Ferrers, E.

Skelmersdale, L.

Fortescue, E.

Stodart of Leaston, L.

Fraser of Kilmorack, L.

Stradbroke, E.

Gainford, L.

Strathclyde, L.

Gisborough, L.

Strathspey, L.

Glasgow, E.

Sudeley, L.

Gormanston, V.

Swinfen, L.

Greenway, L.

Tenby, V.

Gridley, L.

Teviot, L.

Grimston of Westbury, L.

Thorneycroft, L.

Haig, E.

Trefgarne, L.

Hailsham of Saint Marylebone, L.

Trumpington, B.

Ullswater, V.

Hayter, L.

Vaizey, L.

Henley, L.

Vaux of Harrowden, L.

Kemsley, V.

Wakefield of Kendal, L.

Kimberley, E.

Willoughby de Broke, L.

Kinross, L.

Wise, L.

Kintore, E.

Young, B.

Lane-Fox, B.

Resolved in the negative, and amendment disagreed to accordingly.
[Amendments Nos. 16, 17 and 18 not moved.]
6.12 p.m.
Lord Banks Lord Banks moved Amendment No. 19:
Page 6, line 27, at end insert—
("( ) The Secretary of State shall in preparing any required increase in statutory sick pay in November 1982 include in it such sum as is necessary to make good the effect of section 1(1) and (2)(a) of the Social Security Act 1980 upon sickness benefit.").
The noble Lord said: I beg to move Amendment No. 19. As we heard earlier in the course of our discussions, the top rate of statutory sickness pay had been calculated with reference to the current sickness benefit rate. This rate, together with that of other short-term benefits, suffered a reduction of 4 per cent. in 1980 as a result of the abatement applied under the Social Security (No. 2) Act of that year. It should be the Social Security (No. 2) Act, because there were two that year. The effect of that abatement is of course cumulative. This 5 per cent. abatement was introduced as an interim measure pending the making of short-term benefits taxable. With the exception of invalidity benefit, no guarantee has been given that, when the short-term benefits are brought into tax, the 5 per cent. abatement will be made good, although it has been suffered by taxpayers and non-taxpayers alike.
Since statutory sick pay has been calculated with reference to sickness benefit and since sickness benefit has been subject to the 5 per cent. abatement, we are anxious that statutory sick pay as well as sickness benefit and other short-term benefits, should be increased to offset the effect of that abatement. This amendment deals with the effect of the abatement on statutory sick pay. A later amendment deals with the effect of the abatement on sickness and unemployment. I beg to move.
Lord Trefgarne: As the noble Lord has explained, this amendment is intended to require the Secretary of State to take account of the 5 per cent. abatement of sickness benefit which was introduced in November 1980 when determining the rate of statutory sick pay this autumn. I have explained in response to a previous amendment how the rates of statutory sick pay were calculated, and my noble friend Lord Cullen amplified what I said on another occasion. Essentially they relate quite closely to the rates of sickness benefit; so it could be argued that, if the rate of sickness benefit had not been abated, the rates of statutory sick pay would be higher. I accept that there is some force in that argument, but, before dealing with that point, I should like, if I may, to say a little more about the detailed financial effects of the scheme.
As I mentioned earlier, a paper which gives the figures underlying our calculations is available to your Lordships with the notes on clauses. In setting the rates of statutory sick pay, we have tried to achieve a situation where, overall, employees have the same net income as they would if existing national insurance benefits were taxed. To do this we have to take account of how much occupational sick pay is paid at the moment, of how this will be affected when statutory sick pay is introduced, and of the tax and national insurance contributions that will be paid. I will leave to one side for the moment the arrangements for

827
married women and widows who will be entitled to statutory sick pay but who are not at present entitled to sickness benefit because they take advantage of the option to pay reduced rate contributions. Their reduced rate contributions will be increased in order to pay for their statutory sick pay.
Obviously one cannot know precisely what assumptions to make in carrying out this calculation. We do not know precisely how much occupational sick pay employers pay or, more importantly, how much they will pay after the statutory minimum is introduced under this scheme. In some cases the amounts of occupational sick pay paid at present are only small and will not have a significant effect. In other cases employers pay full pay, often allowing for existing national insurance benefits that the employee can claim, and will no doubt continue with such full pay schemes when statutory sick pay is introduced; but we have made the best estimates that we can.
Perhaps at this point I may pick up a point made by the noble Lord, Lord Banks, in his Second Reading speech. He queried then the much quoted figure of 90 per cent. of employees in occupational sick pay schemes. He quite rightly pointed out that these schemes often have conditions attached to them—for example, qualifying periods, limits of entitlement and lo on. I can, however, assure him that the best estimates we have are that approaching 90 per cent. of all full-time employees are covered by some kind of scheme, whether it be formal or informal. Around 80 per cent. of employees will be entitled to a payment from their employer at given time, and the difference between the two figures represents those covered but not entitled because they do not meet one or other of the qualifying conditions.
I am sorry to have digressed slightly but I thought it worth putting on record the best estimates that we have. The general point I want to make is that the substantial loss to the National Insurance Fund that would arise if the rate of statutory sick pay were much higher will not necessarily bring any benefit to most employees who will already be receiving more—in many cases much more—than the statutory minimum.
We have set the rates of statutory sick pay at what I consider to be reasonable levels, given that they are simply the minimum level of sick pay that this Bill will require employers to pay. In that sense they are rather different from national insurance sickness benefit rates. There is nothing to stop employers paying more than this level and indeed, many already do and will doubtless continue to do so. If we had calculated the rates of statutory sick pay on the basis of what the rates of sickness benefit would have been had they not been abated, we should have come up with a different figure. This could have meant a loss of about a further £25 million from the National Insurance Fund, and that is obviously something that we could not accept.
It has been argued, of course, that it is unfair to have abatement and taxation at the same time and that this is effectively what we are doing. I accept that the two issues are linked in many people's minds, but that does not alter the fact that the main reason for the 5 per cent. abatement in November 1980 was to save money. I make no bones about that, but I shall
828
go no further into the question of abatement now since there is a new clause specifically relating to this issue later on the Marshalled List, and I hope that your Lordships will agree that it would be appropriate for me to deploy the argument further at that time. But in anticipation of that amendment I hope that the noble Lord will see fit to withdraw his first amendment.
Baroness Jeger: May I ask the noble Lord just one question. When he refers to 90 per cent. of workers being in schemes already, can he confirm whether or not that is 90 per cent. of full-time male employees, which was the figure I found out in my researches? If women are included, the percentage is very much lower than 90 per cent.
Lord Trefgarne: I think that it is 90 per cent. of employees, both male and female, in full-time employment. I have a feeling that it does not include part-time employees, many of whom are women.
Baroness Phillips: May I trouble the Minister again? He replied originally that the widow could receive another benefit as well as a pension. First he said one could not and then corrected himself and said that one could. Listening carefully to the Minister's speech, I thought I heard him say in the early part of his speech that the widow would receive sick pay but not sickness benefit.
Lord Trefgarne: What I said earlier was that a widow in receipt of a widow's pension could also receive statutory sick pay.
Baroness Phillips: But not sickness benefit.
Lord Trefgarne: Sickness benefit? I must confess I am not quite certain whether sickness benefit is also available with a widow's pension. Perhaps I could let the noble Baroness know later—Ah! manna from Heaven. As I said earlier, statutory sick pay and widow's pension are payable together, but sickness benefit is not payable with widow's pension.
Baroness Phillips: In other words, the Minister's first answer was correct, and the information sent to him, which he corrected himself, he should have corrected in the first place.
Lord Banks: This question of the abatement is one which has created quite a lot of heat and it did so when it was debated in another place. The strong feeling there was that, when once the short-term benefits were taken into taxation, the abatement, which was an interim measure, should be made good was to be found in all parts of the other place, and I have no doubt that it would be so here if all parts of this place were fully occupied at the present time. I think that the noble Lord, Lord Trefgarne, in his opening remarks put the case for this amendment very well when he said that since sickness benefit had been abated, and since the statutory sick pay had been based on sickness benefit, it could be argued—and, indeed, I would say should be argued—that if it were not for that abatement the statutory sick pay would be fixed at a higher level, and I would point out that we have an amendment coming later which would take care of sickness benefit.

829
The noble Lord raised again the argument on the fact that many people would be receiving more under occupational schemes, which is an argument against any increase in statutory sick pay. I think this is a new argument in favour of statutory sick pay which is being developed tonight. Previously, the numbers of people involved in occupational schemes have been brought forward on administrative grounds, on the grounds that it would make things administratively easier and because employers are already providing schemes of this kind it would be possible to graft on to it the state provision for the first eight weeks. But many employers, of course, are providing sickness benefit which goes on far beyond eight weeks and it is not suggested, so far as I am aware, that sickness benefit itself which people would be on after eight weeks should be reduced because of that, or that no increase should be contemplated because of that. It is being produced only in relation to statutory sick pay and I think the argument is not one which we should accept.
The noble Lord suggested that we might wait until the later amendment to hear the argument which he is then going to deploy before we came to a final decision on this matter. But I think we are obliged to deal with this matter of the abatement as it affects statutory sick pay now as that is the only time it appears on the Order Paper. So for those reasons I should like to press this amendment.
Baroness Jeger: May I say briefly that we support the noble Lord, Lord Banks, in his amendment. It seems to us unfair that the initiation of this new scheme should not be accompanied by an updating of sickness benefit to restore its real value. There are many people in the country who expected this to happen. I know that there are many alibis about the state of the economy. In view of the fact that my noble friend Lord Underhill referred earlier to the extra sums which the Government are going to collect by charging national insurance contributions on sickness benefit, which is a new windfall to the Treasury, we would have thought that that could have helped the Government to make the uprating in sickness benefit which would have made this Bill slightly more acceptable, if I may put it this way.
6.27 p.m.
On Question, Whether the said amendment (No. 19) shall be agreed to?
Their Lordships divided: Contents, 76; Not-Contents, 94.

DIVISION NO. 4

CONTENTS

Airedale, L.

Bruce of Donington, L.

Ardwick, L.

Chitnis, L.

Aylestone, L.

Cledwyn of Penrhos, L.

Bacon, B.

Collison, L.

Banks, L.

David, B.

Barrington, V.

Davies of Leek, L.

Bernstein, L.

Elwyn-Jones, L.

Birk, B.

Ewart-Biggs, B.

Bishopston, L.

George-Brown, L.

Blease, L.

Gladwyn, L.

Boston of Faversham, L.

Glenamara, L.

Brockway, L.

Gregson, L.

830

Hampton, L.—[Teller.]

Pitt of Hampstead, L.

Harris of Greenwich, L.

Ponsonby of Shulbrede, L.

Houghton of Sowerby, L.

Raglan, L.

Howie of Troon, L.

Rathcreedan, L.

Jacques, L.

Rochester, L.

Jeger, B.

Seear, B.

Jenkins of Putney, L.

Shinwell, L.

John-Mackie, L.

Stedman, B.—[Teller.]

Kaldor, L.

Stewart of Alvechurch, B.

Kennet, L.

Stewart of Fulham, L.

Kilmarnock, L.

Stone, L.

Lee of Asheridge, B.

Strabolgi, L.

Lee of Newton, L.

Strauss, L.

Llewelyn-Davies of Hastoe, B.

Taylor of Mansfield, L.

Tordoff, L.

Lloyd of Kilgerran, L.

Underhill, L.

Longford, E.

Vernon, L.

McGregor of Durris, L.

Wade, L.

MacLeod of Fuinary, L.

Wallace of Coslany, L.

Mais, L.

Wedderburn of Charlton, L.

Melchett, L.

Wells-Pestell, L.

Milner of Leeds, L.

Whaddon, L.

Molloy, L.

Wigoder, L.

Napier and Ettrick, L.

Wilson of Radcliffe, L.

Oram, L.

Winstanley, L.

Peart, L.

Wootton of Abinger, B.

Phillips, B.

NOT-CONTENTS

Abercorn, D.

Kinnoull, E.

Airey of Abingdon, B.

Kinross, L.

Allerton, L.

Lane-Fox, B.

Alport, L.

Lauderdale, E.

Avon, E.

Linlithgow, M.

Balfour, E.

Long, V.—[Teller.]

Bellwin, L.

Loudoun, C.

Beloff, L.

Lyell, L.

Bessborough, E.

McAlpine of Moffat, L.

Bethell, L.

McFadzean, L.

Blake, L.

Mansfield, E.

Boardman, L.

Margadale, L.

Brookes, L.

Marley, L.

Caccia, L.

Mersey, V.

Caithness, E.

Montgomery of Alamein, V.

Campbell of Alloway, L.

Mottistone, L.

Chelwood, L.

Northchurch, B.

Clinton, L.

O'Hagan, L.

Coleraine, L.

Orkney, E.

Colville of Culross, V.

Pender, L.

Colwyn, L.

Portland, D.

Cork and Orrery, E.

Rawlinson of Ewell, L.

Craigavon, V.

Rochdale, V.

Crathorne, L.

St. Aldwyn, E.

Cullen of Ashbourne, L.

St. Davids, V.

De La Warr, E.

St. Just, L.

Denham, L.

Sandford, L.

Elles, B.

Sandys, L.—[Teller.]

Elliot of Harwood, B.

Shannon, E.

Faithfull, B.

Sharples, B.

Ferrers, E.

Skelmersdale, L.

Ferrier, L.

Stodart of Leaston, L.

Fortescue, E.

Stradbroke, E.

Fraser of Kilmorack, L.

Strathclyde, L.

Gisborough, L.

Sudeley, L.

Glasgow, E.

Swinfen, L.

Gormanston, V.

Tenby, V.

Greenway, L.

Teviot, L.

Gridley, L.

Trefgarne, L.

Grimston of Westbury, L.

Trumpington, B.

Haig, E.

Ullswater, V.

Hailsham of Saint Marylebone, L.

Vaizey, L.

Vaux of Harrowden, L.

Hayter, L.

Wakefield of Kendal, L.

Henley, L.

Willoughby de Broke, L.

Kemsley, V.

Wise, L.

Killearn, L.

Young, B.

Kimberley, E.

Resolved in the negative, and amendment disagreed to accordingly.
6.36 p.m.
On Question, Whether Clause 7 shall stand part of the Bill?
Baroness Jeger: I intervene only briefly, because we have had a very full debate on many of the details. I want just to reaffirm our objections to this clause, which lays down statutory rates of sick pay which we think are grossly inadequate, especially in view of the fact that national insurance has to be deducted from them. We are also concerned about subsection (4), which provides that for the purposes of subsection (3):
"the Secretary of State shall estimate the general level of prices in such manner as he thinks fit".
We are not very impressed with the assurance that the Secretary of State can do as he thinks fit, because we may not be in agreement with him.
There has been a great deal of discussion, and I shall not detain your Lordships for long, about how we can relate the cost of living to social security benefits. I thought there was general agreement in the House that the retail price index was not really the ideal measurement for these purposes. I recall—it seems a very long time ago—that we were to have a tax and prices index, which was supposed to be a more sensitive index to the living standards of the majority of people. But the latest figures that I have been able to find show that the tax and prices index went up by 15 per cent., whereas the retail price index went up by 12 per cent. That makes me wonder whether the tax and prices index has been forgotten about, because it shows an increase higher than the RPI and, therefore, is not so much in favour of this Bill. But unless we have a formula laid down, other than the discretion of the Secretary of State, there is a danger that many people may be penalised.
I think it is generally accepted on all sides, by noble Lords who know anything about the cost of living for people on low incomes, that there is a different pattern of spending. For the poorest 25 per cent. of the people of this country, the latest retail price index which I was able to find rose by 14·4 per cent., compared with an average of 12 per cent. This is easily explained. It is because poor people do not buy gin, motor cars, fur coats and a lot of items which are included in the retail price index. They tend to spend a higher proportion of their money on housing, warmth and food, all of which have increased proportionately more than many other casual retail prices. So I hope that before the next stage the Government will look again at this part of the clause, and perhaps try to find a way of writing into the Bill some measurement, and not leave it entirely to the Secretary of State to
"estimate the general level of prices in such manner as he thinks fit".
I must confess to your Lordships that I would not want to be a Secretary of State burdened with that responsibility without any indication of how this up-rating would relate to the uprating of other benefits. I understand that the Government have a separate index for pensioner households. I am wondering what kind of a muddle we are getting into. Are we going to stick to the retail price index for people on pensions? Are we going to go by the pensioners' index? Are we going to resuscitate for poorer people the tax and
832
prices index? Or what are we going to do? I assure your Lordships that I am not saying this in a belligerent spirit. It is a gentle inquiry about how the poor Secretary of State is to decide how to work this part of Clause 7.
Lord Trefgarne: I suppose it is true to say that whatever index is selected for use, one year or another, somebody will say that it is the wrong index and that they would have been better off if yet another index had been devised or if another existing index had been used. The wording of the clause closely follows the wording which appears in the Social Security Act 1975. Therefore, I can give an assurance that the index to be used for this purpose will be the United Kingdom retail price index. That is the index which has been used for this purpose for a number of years. To use another index for this statutory sick pay figure—for example, the tax and prices index to which the noble Baroness referred—would mean that we were using a different index for statutory sick pay as compared with some of the other national insurance benefits. I hope the noble Baroness agrees that this would cause confusion and would not be desirable. As I say, therefore, it is proposed that the United Kingdom retail price index should be used for the purposes of this measure. In the light of that assurance, I hope the noble Baroness will agree that this clause should stand part of the Bill.
Clause 7 agreed to.
On Question, Whether Clause 8 shall stand part of the Bill?
Lord Mottistone: Clause 8 and, indeed, Clause 9 provide for a number of regulations which will be of immense importance to business, which now is involved in an enormous amount of administration in this complex area. I am asking my noble friends on behalf of business and industry to expedite, at least in draft, the production of these regulations so that companies can plan well ahead. I am told that the autumn is the latest possible time that will be suitable, and it would be very helpful if a draft of the regulations could be made available in advance to companies—possibly before the Summer Recess. It is no good waiting until Christmas. I hope my noble friends will take note of this.
May I also say that if it is suggested that there should be courses, industry has found in other areas that when the Government run courses they tend to be too general in their approach and rather expensive. On the whole, therefore, people prefer to organise their own courses. This is another good reason why the regulations and any guidance notes should be made available early so that courses can be devised, arrangements made, budgeting provided for and extra staff employed. The Government are going to reduce the number of civil servants, which means that industry may have to employ a few more people. Because of all these problems I hope that my noble friends will make sure that the impetus is kept going for the production of the draft regulations.
Baroness Jeger: I support what has been said by the noble Lord about the need to get ahead with the regulations as quickly as possible. I repeat that we on this

833
side of the House are unhappy that so much of the Bill relies on regulations. However, that is water under the bridge. I share the noble Lord's anxiety about employers. I am also concerned about employees, trade unions, citizens advice bureaux, Members of Parliament—about anybody who may be asked for help. I very much hope that the regulations will be clear and that they will be published as soon as possible.
I notice that in another place the Minister gave an assurance that he would ensure that this information was given in what he called good plain English. With that we would all agree. However, may I suggest to the noble Lord the Minister that it is not sufficient for the information to be in good, plain English. That will not help an Asian woman in a textile mill in Bradford. The information, if not the regulations, should be published, on advice which I know the Minister can procure, in other languages so that the ethnic minorities in this country are not denied knowledge of the rights which they may have under the Bill.
Lord Trefgarne: One of the difficulties in handling legislation like this, as noble Lords will by now have appreciated, is that sometimes one needs to rely upon the advice of one's officials. This evening I have received a note which I think tells me that the regulations will be produced immediately after Royal Ascot, but when I look a little closer I think it says "Royal Assent". I can give an assurance that the regulations will be kept as simple as possible, that they will be produced immediately after Royal Assent and that they will be accompanied by an employer's guide. The local offices will stand ready to help employers to organise any instructional courses which may prove to be necessary. The employers' guide will appear just after the regulations in July, assuming that the Bill has received Royal Assent by then, and it will be available also to employees and to the public in general. We are looking at the possibility of publishing the regulations, or at least the employers' guide, in other languages. But that presents difficulties and I cannot give an assurance about it at present. However, we recognise its desirability and we shall see what can be done.
Clause 8 agreed to.
Clause 9 [Recovery by employers of amounts paid by way of statutory sick pay]:
Lord Banks Lord Banks moved Amendment No. 20:
Page 7, line 36, after ("recover") insert ("105 per cent. of").
The noble Lord said: I beg to move Amendment No. 20. During the Second Reading debate, the noble Lord, Lord Elton, spoke of a £90 million saving as a result of the Bill. At that time I was not clear how this was arrived at. However, I have since seen the Department of Health and Social Security paper Financial Effects of Statutory Sick Pay to which reference has already been made this afternoon.
Table 3 of that paper shows losses of £565 million being the compensation to employers, and gains of £650 million. That figure of £650 million includes £30 million for administrative savings, £365 million for national insurance benefits saved because they are not now to be paid out, extra national insurance
834
contributions and national insurance surcharge amounting to £l25 million, and extra tax on sick pay amounting to £130 million. That makes a total of £650 million and a net gain of £85 million. It seems to me that the Government ought not to have included £130 million from extra tax on sick pay, because, as r understood it, it was intended to bring sickness benefit into taxation in any event. So tax which is obtained in this way cannot, it seems to me, really be claimed as being the result of the introduction of statutory sick pay. If one takes out that figure, one has a loss because of the introduction of the scheme of around £45 million.
I mention the figure of £30 million for administrative savings, but what about the extra administrative costs which are going to be transferred to employers, incluing small employers who are ill-equipped to deal with them? Mr. Rossi, the Minister for Health and Social Security, said in another place during the Committee stage on 28th January:
"We expect that an additional workload is bound to accrue during the early years of the scheme, when employers—especially small employers who do not have the assistance of accountants and professionals to help them get their records right—will need assistance in operating the scheme and dealing with complicated matters such as waiting days and linking periods".
The Society of Civil and Public Servants outlined the administrative difficulties which employers will face in these terms:
"Employers will have to deal with calculating the expiry of employers' liability and the transfer to National Insurance sickness benefit; the linking of several short-term periods of sickness; identifying categories of employees who are excluded from the scheme, e.g. married women paying reduced rate contributions, those over pensionable age, pregnant women during the period prior to and following birth, and casual workers; determining normal earnings in order to operate the two-scale system of payment;"
which is now a three-scale system of payment,
"determining the maternity allowance period for pregnant employees; deciding whether or not statutory sick pay is payable during a strike; agreeing the working week, especially where the employee works shifts or has an irregular work pattern; and recovering statutory sick pay which has been incorrectly paid. Firms will be required to keep additional complicated records of sick absence and the statutory sick pay paid. Any large employers will be involved in considerable extra expenditure in reprogramming existing computerised pay roll systems. Indeed, some will have to scrap their existing hardware and buy new computers to handle the extra work".
How should we assess these administrative expenses? It costs the Department of Health and Social Security some 4 per cent. of benefits to run the social security system. Therefore it seems to me that 5 per cent. of benefits would be a reasonable figure for employers' administrative expenses in administering statutory sick pay. That would be a figure of £28½ million. If I am right in thinking that these are the expenses involved, then we should add that figure to the loss of £45 million. This amendment would ensure that this administrative cost was recovered by employers.
As mentioned on Second Reading, the Government themselves have in their document Compensating Employers for Statutory Sick Pay pointed out the dangers in a 100 per cent. self-deduction scheme. I put that forward during the Second Reading debate as an argument against the proposal to transfer responsibility for the first eight weeks of sickness benefit to employers. But if we are to have such a scheme, expensive as I have shown it to be, then to be fair we should surely have not merely 100 per cent. self-deduction but some such

835
figure as 105 per cent. self-deduction to cover the extra expenses which will be placed on employers. I beg to move.
Lord Cullen of Ashbourne: As the noble Lord has explained, the effect of this amendment would be to allow an employer to deduct from his monthly payments of contributions not only the amount paid out by way of statutory sick pay but also an additional 5 per cent. This amendment, as the noble Lord made clear in his speech, is aimed at helping employers with any additional costs arising from the scheme, most notably the cost of administering it. This would be achieved by giving employers an excess amount of money, over and above the actual statutory sick pay disbursed.
I do not wish to make an issue of the cost of this amendment, but I always think it helpful to know the financial consequences of what we are discussing. To give employers what is, in effect, 105 per cent. compensation would cost about £30 million; the saving in the public sector borrowing requirement which the Bill makes would be correspondingly reduced. However, more importantly, I do not think the amendment would achieve what it sets out to do. Noble Lords will remember that nearly 90 per cent. of full-time employees are already covered by occupational sick pay schemes. The employers who already pay occupational sick pay obviously have the administration to pay sick pay during an employee's absence. They receive notification of absence, consider any evidence about incapacity, assess what is due and make payments —exactly what they will have to do under the statutory scheme. It would not be right to compensate these employers for performing a function they already accept as part of their administrative procedures. The only additional burden these employers would have to bear would be deducting the amount of SSP from their contributions, and I doubt whether many of them would regard recovering money as a burden.
It may be argued that the amendment is aimed at small businesses and not at big corporations which pay sick pay. On that, I have two points to make. First, I would like to make clear that occupational sick pay is not confined solely to banks and other businesses. I know of one organisation representing small businesses which conducted a survey of its members and discovered 60 per cent. of them paid occupational sick pay of some sort. Secondly, I seriously question the logic of helping small firms by doling out largesse to industry in general. Depending on how one defines a small firm, only something like a fifth to a quarter of the £30 million cost would go to such firms. Most would be for firms with sick pay schemes—the very ones who gain from the compensation arrangements and who will have very little extra by way of administrative effort.
I also question the assumption many people make that the scheme will be so burdensome to administer. The scheme contained in the Bill is a simple one to run—much simpler than the state scheme, which involves checking of contribution records, dependency questions and so forth. Under the SSP scheme the employer has simply to decide whether or not an employee is entitled to SSP; and if he is not, because he is in one of the excluded groups listed in Schedule 1,
836
to hand the employee a form on which the employer has simply stamped his name and address and ticked the relevant box. If the employee is entitled, in most cases the rate to be paid will be obvious. Only in a few cases will a simple calculation of earnings be needed. In only around 10 per cent. of the cases will the possibility of the employee exhausting his entitlement arise and, again, a simple form merely stating the date when entitlement is expected to run out is all that is required.
As to getting back the money disbursed as SSP, employers will simply have to complete an extra column in their monthly and annual returns to the Inland Revenue. When employers' organisations pressed on us the merits of the self-deduction method of compensation, they made light of any extra administrative burden. I can assure your Lordships that every effort is being made to ensure that the administration is kept to a minimum. I hope I have explained why I do not think this amendment is satisfactory. I do not agree that all employers need to be compensated for any extra administration which may fall on some of them. We do not compensate them for work involved in the collection of PAYE, for instance, and I think it would be a dangerous precedent to allow such compensation in respect of SSP.
The noble Lord made one point that I should like to deal with. The tax is only collected because the scheme is being introduced. It is logical, therefore, to count the tax gain as part of the advantage of the scheme. I hope I have satisfied the noble Lord and that he will feel able to withdraw the amendment.
Lord Mottistone: Your Lordships know that I endeavour to speak with the interests of industry in mind against other attitudes which are adopted in your Lordships' House. But in this particular case I think the noble Lord, Lord Banks, has been quite extraordinarily generous; 5 per cent. is, as my noble friend said, very much more than it could possibly cost as an additional charge on industry. I should have thought that the arguments of my noble friend were pretty conclusive, because it would be a precedent against the other types of work that industry has to do for the Government. I do not think it likes doing it but it does it, and I think this is another area altogether. So I should have thought that this particular amendment suffered from the error of being excessively generous. If the noble Lord had put in something like ½ per cent. or 1 per cent., I think it would have been more attractive for us to go along with, because one does respect the principle. It is a great pity it is so generous.
Lord Banks: I think the noble Lord, Lord Cullen of Ashbourne, is a little too optimistic about the way in which the scheme is going to be operated without additional burdens, with very little extra. I did read out a long list of things which employers will have to do. The present administrative cost is only part of what they will have to do.
With regard to the question about tax, the noble Lord said the tax is being collected only because the scheme is being introduced and therefore it is logical to include it as one of the benefits which derive from the scheme. If we have already decided, as I believe we had already decided, that sickness benefit was in one

837
way or another to be brought into taxation, then I cannot see that we are right it allowing this particular sum as a credit in the balance sheet which is struck with regard to this particular Bill.
The noble Lord, Lord Mottistone, said that this was too generous. Well, I was comparing it with the requests which were made, and some of which I had received, for excluding the national insurance contribution of the employer, which of course would be a larger figure than this; it would be more than twice this amount. I was cutting it down to this figure and keeping it entirely separate from the whole question of national insurance payments. This was raised in another place, where it was said that it would be administratively extremely difficult to have a recoupment of that kind, to recoup people for national insurance payments. I thought that by doing it this way we should do it more simply and at a figure which was less than half what was being asked. But it may well still have been too generous. I should not want to say that that is necessarily the right figure.
I should like to consider what has been said about this amendment, but I remain convinced that there is a considerable administrative burden being put on employers, that it will fall particularly harshly on small employers, and that we should be right to return to the subject again. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.

Clause 9 agreed to.

Clause 10 agreed to.

Schedule 2 agreed to.

Clauses 11 to 15 agreed to.

Schedule 3 agreed to.

Clauses 16 to 19 agreed to.

Lord Denham: I think that this is probably a convenient moment to adjourn the Committee, and I would suggest that we start again at eight o'clock.
(The Sitting was suspended from 7.7 until 8 p.m.)
Clause 20 [Offences and penalties]:
Lord Cullen of Ashbourne Lord Cullen of Ashbourne moved Amendment No. 21:
Page 16, line 11, after ("8(2),") insert ("9(3)(a),").
The noble Lord said: This amendment is technical. It ensures that there are offence and penalty provisions for employers who fail to provide documents and information to the Secretary of State which may be required under the powers contained in Clause 9(3)(a). I am sure noble Lords will appreciate the sense of this amendment. It makes failure to comply with regulations made under Clause 9(3)(a) an offence which will attract the penalties laid out in Clause 20. Thus failure to produce information in respect of compensation is being treated in the same way as failure to carry out duties set out in other regulations. Clearly we cannot allow anyone to escape with impunity from any obligation which regulations lay on them.
I can assure noble Lords that we are making every effort to ensure that any requirement under Clause 9(3)(a) will not be unduly burdensome. It will be the minimum necessary to allow the Secretary of State to ensure that
838
compensation procedures are being administered properly by employers. Noble Lords will have noticed that the different offence of someone producing false documents and information is treated separately by Clause 9(8) and 9(9). This again bears out the logic of having a deterrent for the employer who simply refuses to produce the information. I beg to move.
On Question, amendment agreed to.
Clause 20, as amended, agreed to.
Clauses 21 and 22 agreed to.
Clause 23 [Statutory sick pay to count as remuneration for principal Act]:
Baroness Jeger Baroness Jeger moved Amendment No. 22:
Page 18, line 26, at end insert ("but such payments shall not be liable to national insurance contributions from either employers or employees").
The noble Baroness said: I shall speak briefly to this amendment. Looking at the Notes on Clauses it is made quite clear that the clause provides that any payment in satisfaction of a person's entitlement is to be treated as earnings for the purposes of Section 3 of the principal Act. It is under this clause, as I read it, that statutory sickness benefit attracts Class I national insurance contributions. We had an earlier debate about this matter and I must make it clear that we on this side of the Committee are opposed to this innovation. We think that it is totally unfair.
If Clause 23 is treating as earnings any entitlement under the Act, I must remind your Lordships of references which were made in another place to this problem. It seems to us that payment of national insurance would be liable if this money were, in fact, to be regarded as earnings. But the Minister in another place on 21st January, at column 235, said of the SSP:
"It is a hybrid between sickness benefit and earnings. It is neither one nor the other, but it has attributes of both".
If that was not a sentence to confuse all legislators, let alone recipients and employers, I cannot think of anything more difficult. If it is income, then I can see that the Government can make out a case for putting national insurance on to it. But if, as the Minister said, it is a hybrid between sickness benefit and earnings, it is very difficult to understand how the Government can sustain the imposition of national insurance contributions on this amount of sickness benefit.
It was stated at column 237 on 21st January that:
"Statutory sick pay is a continuation of earnings".
If it is a continuation of earnings then again the imposition of national insurance must, however unwillingly, be accepted. On the other hand, if it is a hybrid benefit, as the Minister said at column 235, how can we know, and how can people outside Parliament know, what this is all about?
I must say that if the Government are going to stand by the principle that the statutory sickness benefit is a continuation of earnings, then surely it must have some relationship to other earnings and it should not be, therefore, fixed at the flat rates which we were discussing in Clause 7 and which I am sure I would be out of order if I were to raise again. However, these are the points that worry us about Clause 23.
We think that it would be much fairer if neither the employer—and I am sure that I would have some sympathetic support from the other side if there was anybody there to bother—nor the employee should have to pay national insurance contributions. It has been built into our national insurance system that when one is ill or unemployed the card is franked and one does not have to contribute this £3·23 out of the £37 or even less which one will get under this Bill. So this is a new departure and I think it right to ask your Lordships to consider for a moment whether this new departure is right.
We do not, apparently, ask people to pay national insurance contributions on national insurance sickness benefits. So it is only for the first eight weeks that we are asking people to contribute £3.23. If they can manage to stay ill for longer than eight weeks they will then get sickness benefit exempted from national insurance. I hope that the noble Minister will correct me if I am wrong, but that is how I read the Bill. This seems to be grotesquely unfair. Surely if a man or a woman is unemployed or sick, there is no real reason for taking away the agreed right, agreed over many years, that their card is franked and they do not have to make a contribution.
If we proceed with the Bill as it stands and insist on this national insurance payment from people who are sick, we not only reduce the amount of money which they can spend on their family upkeep, but I am worried that we are creating a precedent. I am wondering whether the Government will come along very soon and suggest that all people in receipt of benefit—national insurance sickness benefit and unemployment benefit—are going to be asked to pay a national insurance contribution. That would be a very serious diversion from what many of us understood was to be the purpose of national insurance.
I have tried to put this case as fairly as possible. I want to emphasise that we want the exemption from national insurance contributions to apply both to employers and to employees. I have in mind a small employer, and I know that the party opposite has often professed great kindness for the small employer.
Let us suppose that such a small employer has a worker who goes off sick and that employer has, temporarily, to take on another worker in the place of that person. I put this interrogatively because I am very hesitant about these complicated things and I have every sympathy with Ministers who have to deal with them. Is it the case that that employer has to pay national insurance contributions for the employee who has gone off sick? When he takes on a temporary replacement does he not then have to pay national insurance on the temporary replacement? Is this small employer not then confronted with having to pay two national insurance benefits?—which is certainly not the case at the present time.
In tabling this amendment we are trying to help—and this may surprise noble Lords opposite—both the employer and the employee by suggesting that statutory sick pay is not, as the Minister said in another place, either sickness benefit or earnings; that it is neither the one nor the other; that it is a hybrid. I do not know what one does in this Committee about hybridity, if there is such a word. I would suggest that we leave
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matters as they are. If there are to be changes, the case for changes must be overwhelming and should not be partial or half-hearted. I say that it is partial because it seems that this new element is not to apply to the national insurance sick benefit which comes up after the eight weeks, and it is not to apply to unemployment benefit. Therefore, it seems not only a hybrid, to use the words of the Minister in another place, but a really rather ugly hybrid. I hope that the Minister will accept this amendment, which is meant to be helpful to both employers and employees. I beg to move.
8.12 p.m.
Lord Trefgarne: My honourable friend the Minister of State, whose words have been quoted at considerable length this evening, indeed, dealt with this matter when it was considered in the other place. Of course, statutory sick pay, as provided for in this Bill, is earnings for tax and contribution purposes. As I have already said in connection with a number of amendments this evening it will perhaps form only part of the sick pay entitlement of employees under their occupational schemes. But if it was earnings for supplementary benefit purposes, it would, of course, exclude people from supplementary benefit as such, and that was the point that my honourable friend Mr. Rossi was making when he spoke in the other place on 21st January.
The noble Baroness, Lady Jeger, is right, of course, that after eight weeks someone getting sickness benefit would not pay contributions on it; I think that they are given credits instead. The reason for making national insurance costs payable on statutory sick pay is, of course, the incentive argument, which I shall come to in more detail in a moment.
The effect of this amendment would be to exempt payments of statutory sick pay from national insurance contributions liability. Thus neither employers nor employees would pay contributions on SSP. I must say that this is, in fact, the most expensive of the amendments tabled by the noble Baroness and her noble friends opposite in connection with this Bill, certainly in connection with this part of it. If it was accepted, the loss to the National Insurance Fund would be something of the order of £100 million, and your Lordships will not need reminding that a loss of that size would have somehow to be made up. However it was done, the money would have to come from the pockets of the employees and the employers and that, of course, would mean higher contributions from one or the other, if not both.
Cost is, therefore, a very important reason why the Government think it necessary to resist this amendment. But there is also a principle at stake. If employees are not required to pay contributions on statutory sick pay, then a sizeable proportion of them will end up receiving more when off sick than when they are at work. This is because over half the workforce will, after the introduction of the scheme, be receiving full wages. This is because of the widespread practice in industry—to which I have already referred—of continuing full wages during illness, sometimes with—where appropriate—an adjustment for any national insurance benefit received.
If part of these full wages—that is, the element

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representing statutory sick pay—is exempt from national insurance contributions, the employee would be taking home more money when sick than when he was at work. For someone entitled to the standard rate of sick pay that average would be over £3 in a full week of sickness.
Lord Molloy: If the noble Lord will allow me, the banality of that argument is distressing. Is he really saying that for £3 a week the British workforce would rather go out and catch a cold, catch a disease or have an accident in order to be at home and not to go to work? The argument is that when you are home sick, when you are ill, when you have had an illness or when you have had an accident in the pit, the factory or the steelworks, by the time you have paid your prescription charge and many other things, the cost mounts up considerably. Therefore, what the noble Lord is inadvertently submitting is that the overwhelming majority of British workers are scroungers, and that is not the case. Nobody wants to be sick; nobody wants to be ill. At any time the average British worker would rather be earning his living—because he has a dignity—than having anything free under the excuse that he is ill. If it is an excuse that he is ill, his doctor has joined in that cheating by certifying that he is ill and sick.
Lord Trefgarne: The difficulty is that we have to live in the real world.
Lord Molloy: That is the real world.
Lord Trefgarne: The real world is that if there is a circumstance in which a work person—and this applies as much to management as it does to shop floor workers or any other kind of worker—is substantially or even marginally better off when he is sick, I fear that there will be an inducement for some—a few and only a few—to suggest that they are sick when they are not. This I think is a most unhappy inducement and is not the situation that we seek to create under the provisions of this Bill.
Baroness Jeger: I must interrupt the noble Lord on that point. If I heard him aright, he said that some people might pretend to be ill when they are not. Surely there are provisions in the Bill for certification. Surely it is not possible for there to be people claiming sickness benefit without deserving it.
Lord Trefgarne: It would be a brave noble Lord or noble Baroness who would suggest that there were no circumstances under which that would happen. I accept that they are rare. I imagine that the number of people who seek deliberately to mislead in order to achieve access to benefit of whatever kind is comparatively small, but they do exist. It would be folly and mistaken to suggest that they do not exist. They exist, but on a small scale.
Lord Molloy: The Minister has just said that there are a few. Will he allow this brave noble Lord to tell him that one of the fundamental principles of all British legislation is not to legislate for a tiny minority but to legislate for the broad majority?
Lord Trefgarne: We are not proposing to penalise anyone under this legislation. What we are seeking to avoid is actually rewarding them for their misdeeds, and also to avoid putting temptation in their path. We are all human, and if additional remuneration is available to us when we are genuinely sick, then on occasion we are certainly tempted to consider whether we are sick or whether we are not, and it is that temptation that we seek to remove by this provision.
Lord Tordoff: Can the noble Lord, having now narrowed it down to a very, very small minority, give us an indication of how many of that minority would be susceptible to temptation, and how many of that small minority of a small minority who are suceptible to temptation would actually fall for it? Then we could perhaps have the weight of his case.
Lord Trefgarne: That is a question for the right reverend Prelates who sit in your Lordships' House and not, I think, for me. If part of these full wages, the element representing statutory sick pay, is to be exempt from national insurance contributions, the employee would be taking home more money when sick than when at work. As I earlier said, for someone entitled to the standard rate of statutory sick pay the advantage could be more than £3 in a full week of sickness.
One of the main objectives of this scheme is to end such an anomaly. I do not think that your Lordships could agree to a change which perpetuated what my noble friend Lord Elton referred to at Second Reading as the "ailment trap". There are other reasons for rejecting the amendment. Much has been said about the costs to employers of the scheme. Of the £100 million in contributions which would be the cost if this amendment were agreed, around £60 million would go to employers. That sounds a lot of money—and, I repeat, it is in trims of the National Insurance Fund. But in respect of individual employers the sums involved are small. Average annual sickness absence has dropped to about a week. So, on average, employers would save £3 or £4 a head a year by way of contributions and surcharge.
The procedures for calculating and paying tax and contributions have been closely linked ever since graduated contributions were first introduced and collected through the PAYE system in 1961. Since then it has been the department's consistent policy to align tax and contribution liability as closely as possible. It would be confusing and complicated for employers if tax but not contributions had to be deducted from SSP. New procedures would be needed and misunderstandings and errors would be unavoidable. The position would he worse because most employers would be topping up SSP, subject to tax but not contributions, with extra amounts of occupational sick pay which is subject to both tax and contributions alike.
When we were considering the amendment of the noble Lord, Lord Banks, to Clause 9 I stressed that the effect of his proposal would be indiscriminate. The same is true of this proposed change. Most of the £60 million saved by employers would go to firms with existing sick pay arrangements—the very firms who stand to gain under the compensation arrangements.

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I think this is perhaps not the occasion to repeat to your Lordships the help which the Government have already given to improving the working environment of small businesses. But I would remind your Lordships that the recent Budget statement contained a number of measures to do just that. These were sensible and direct ways of helping small businesses—unlike the exemption of employers from liability to pay national insurance contributions on statutory sick pay.
This amendment would perpetuate the anomalous situation whereby some people get more when sick than when they are at work. It also foists upon employers a cumbersome administrative burden. It costs a great deal of money, which could only be made up from the pockets of employers and employees whom the change is designed to help. For all these reasons, I hope that the noble Baroness would not wish to press her amendment.
Lord Kilmarnock: Since the noble Lord has made great play with the cost that would fall on the Government as a result of this amendment, and indeed of earlier amendments which I believe were moved earlier this afternoon, although I was unable to be here, would the noble Lord agree that the Social Security Advisory Committee in its first report has estimated that the social security measures undertaken by the Government since they came to office have saved something like £11 billion on the social security bill? We have also heard today that there has been a £2 billion shortfall in the PSBR. Therefore, I do not think that the noble Lord can really convincingly claim that some of these amendments that have been put forward which are socially right and desirable are necessarily too expensive to meet.
Lord Trefgarne: If I may say so, that has been the position of successive Administrations, and not just the one of noble Lords opposite, over the years. I was brought up to believe that if you look after the pennies the pounds will look after themselves. I fear that successive Governments have not paid attention to that worthwhile dictum, and as a result of not looking after the pennies the pounds have run away with themselves. It is necessary to have regard to some of the smaller sums in Government expenditure programmes so that the major cost overruns that have been such a feature of Government Administrations of both complexions over the years will not cause such difficulties. I would not accept the argument that just because we have indeed been able to make certain savings in other areas, or indeed in related areas of Government activity, we are therefore in a position to blow all that straight away.
8.27 p.m.
Lord Banks: The noble Lord has referred to the conduct of successive Governments, but he has not referred to the conduct of successive Oppositions. I well remember the noble Lord, Lord Cullen of Ashbourne, explaining to the House in some detail how we could afford to abolish the earnings rule, which the Government of which he and the noble Lord are members have not yet been able to achieve.
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The noble Lord spoke about principle. He thought there was a principle involved in this, and the principle seemed to be that people who are sick must not get more when they are sick than when they are working. He went on and seemed to suggest that in order to prevent that from happening it was necessary to have national insurance contributions. They were there to prevent people getting more when not in work.
But of course what people get when they are on sickness benefit depends on the rate. The Government, one would imagine, would put the rate at what they thought was the right level, and we can argue about whether it should be higher or lower. We have suggested from this side that it should be higher. If the noble Lord thinks it should be lower he could argue that case, but it is rather absurd to suggest that you put it at one level and then, in order to get it to another, you are obliged to enforce national insurance contributions from employers and employees. That argument seems to me to be a particularly nonsensical one for advocating the maintenance, in this particular scheme, of national insurance contributions on statutory sick pay.
Lord Molloy: I would ask the noble Minister if he would reconsider the appeal of my noble friend Lady Jeger on the Front Bench and look at it from a much wider perspective. He talked of the real world. May I, with the greatest of respect, tell him what the real world is so far as British industry is concerned? It is the people who dig the coal; who make the coke; who make the steel; who work in the heavy industries; who transport up and down the country, the great lorry drivers. Does the noble Lord really believe that a miner will hope that there will be a fall in a pit to crush him? Or that if he had just a touch of pneumoconiosis he could be sick for a couple of weeks? Is a steel worker hoping that a Bessemer will overturn—I hope the Minister understands what I am talking about—and there will be a splash of steel which will just scald his arm and burn his leg almost off? Does the noble Lord really believe that people would do that for an extra couple of pounds in national insurance?
I am sure there are people who wangle and cheat on social security, but I urge the Committee to note the figures. People on National Insurance and all forms of social security cheat to the tune of £4 million a year. I agree that that is disgraceful. However, in the black economy, big businesses—one Member of this House was involved—cheat to the tune of £9 billion a year. That is what people like Mr. Arthur Scargill and other trade union leaders, when attending their conferences, must listen to from their members. So do not talk to us about people who fiddle £4 million a year when, in the City, the wealthy are cheating in the black economy to the tune of £9 billion.
I therefore suggest to the Minister—I think the noble Lord, Lord Bellwin, understands what I am talking about—that, if the Government could get back one-tenth of what people in the City get out of cheating in the black economy, they would not think of arguing against the amendment but instead would say, "Of course we agree. We will write it into the Bill and make it part of our legislation".
My final appeal to the Minister is to beg him and the Government to take what I and other noble Lords

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have said on this issue into full consideration, because this very subject is examined in every trade union branch throughout the country. They are not the docile people who went on hunger marches in the '30s. Today, they are working things out. Many of their children are at university and are also working things out. When they go home, they say, "Don't stand for that sort of thing, Dad. The racketeers on the black economy are cheating the nation out of millions a year". I will give way to any noble Lord opposite who will say that what I have said about the black economy is not 100 per cent. accurate.
I beg the Minister to look rather more broadly than simply in the context of the Bill. I cannot understand the Government's meanness and pettiness in refusing to accept the amendment, which has not been tabled for any trivial reason. If the Government ram this legislation through, they will be sowing the seeds of massive industrial irritation, annoyance and possible disruption. The TUC and CBI have examined the Bill and have appealed to the Government. I join that joint appeal and urge the Minister to suspend judgment, to take it back to his right honourable friend and to see whether this simple amendment cannot be incorporated. If he will do that, he will receive the plaudits of both sides of British industry.
Lord Mottistone: What an impressive speech we have just heard from the noble Lord, Lord Molloy, and what a pity to have wasted it just on an amendment in Committee! On Second Reading it would have been absolutely ideal. We are speaking of one subject, yet Lord Molloy invites us to look broadly and widely at all sorts of sinners, and certainly I would not deny that sinners are to be found all over, at all levels of society and in all countries. With respect, however, I would remind him that if one restricts oneself to this measure and the issue under discussion, one does not want to get on to the wider issues all the time.
One might adduce the sort of case the noble Lord made when debating the wider issue against the Bill as a whole, and I hope he did that on Second Reading, although I do not remember him doing so. I would not have thought that such a splendid oratorical sledgehammer was needed to crack such a little nut. Much as I respect the noble Lord—and I particularly respected him the other day when he did not press his Question; I am glad of this opportunity to tell him that—what he said does not represent an argument against the practical facts of life which my noble friends are seeking to balance in terms of balancing the national books. In short, I should not have thought that the amendment deserved a speech as great as that made by the noble Lord.
Baroness Jeger: The Minister's reply was most disappointing. We tabled the amendment in all seriousness and, if I do not paraphrase the Minister's reply wrongly, he said this was not a time or opportunity for change. I would remind him that it is not the amendment which would make a change; the Government are making the change to which we are objecting. We are saying, "Let us not change the situation so that a man or woman in receipt of sickness benefit has to pay £3.23 in contributions out of that benefit".
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I was surprised that the Minister spent so much time referring to the number of people who, if the amendment were accepted, would be better off on sick pay than they would be if they were earning. I know many people and I know how much many of them earn. I cannot think that many of them are earning less than £37 a week, minus £3.23 national insurance. I cannot think that many of them are earning £31 or £25; those are the sums of sickness benefit laid down in the Bill. To suggest that the world is full of workers who would prefer to stay at home because they would be better off receiving those amounts, minus national insurance and minus income tax, than if they went to work, is unrealistic and indicates an ignorance of the real world. I cannot use the phase "with respect" in saying that; why should I respect ignorance? Ignorance has been demonstrated throughout this debate of what life is really like on the buses, on the shop floor, in the hospital wards and in the whole working context.
Lord Stone: And in the sewers.
Baroness Jeger: Yes indeed, and in the sewers, as my noble friend reminds me. That is a very important place of work, and I hope all those who work in the sewers earn more than £37, £31 or even £25 and do not have to stay at home to make a profit.
The Minister then said that, if the amendment were accepted, so exempting employers and employees from national insurance contributions in this context, there would be a loss of £100 million. How could there be such a loss when the Government are not getting that money now? At present, people on sick pay are not paying national insurance contributions, so it cannot be said that the amendment would cause a loss. The amendment would preserve the status quo. On the other hand, if the Minister is saying, "We can get £100 million more out of these poor, sick, miserable people", then he is admitting that the Government are taxing the sick to the extent to £100 million a year. This is nothing less than a hidden tax, and it goes totally against all the promises in the Conservative election manifesto. It goes totally against all the words that they have spoken about reduction of income tax and encouragement of incentives.
They are saying in effect—and the Minister has said it tonight—"We are going to take £100 million out of the pockets of the sick". I note that the noble Lord the Minister is shaking his head, and perhaps after I sit down he will explain to me what was meant by saying that our amendment would cost £100 million. The Minister referred—and I apologise if I interrupted him rather tempestuously—to people who are skiving and who are not entitled to sickness benefit. Human nature has its failings; this problem will be with all Governments, at all times, and we have to rely very much on the medical profession and its certification processes.
Later in the Bill we shall come to the question of self-certification, and I shall want to ask the Minister what agreement has been reached with the BMA about certification and in particular about whether certificates are to be supplied to the employer, which would involve a breach of confidence which does not at present exist. At present, as I understand it, the certificate goes to the DHSS; it does not go to the employer.

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If the existing form, which in shorthand we call "Med 3", is to continue to be used, I would point out that it includes a section for the statement of diagnosis. If the form "Med 3" is necessary in order for a worker to apply for sickness benefit, then it would seem to me that the opportunity for cheating will be minimal. I am worried more about the breach of confidentiality than about the possibility of some people making out that they are more sick than their doctors might think they are.
Does the noble Lord want to put me right? He is sitting on the edge of his seat and I appreciate that he is longing for me to sit down, which I shall do very soon. I apologise to him for having delayed the Committee, but to the people concerned these things are desperately important. They mean the difference between a decent standard of living and living at a miserable level of poverty. The £3·23 which the Government are proposing to take off all sick people might not seem a great deal to your Lordships. After all, one cannot buy many drinks in the Peers' Guest Room for £3·23, but it might involve the cost of school dinners or some shoes for a child. It is an important sum. The Minister is shaking his head perhaps because he knows, as I know, that one cannot buy much of a pair of shoes for £3·23—but perhaps one can buy a pair of plimsolls, or something such as that. We are asking the Government to leave this amount of £3·23 with the sick person, as is the case at the moment. It is the Government who are making the change, not US.
If the Government are absolutely convinced that they must tax sick people £3·23, then why do they not face the music and impose the deduction from national insurance sick benefit? As I understand the Bill, if a person manages to survive eight weeks of statutory sick pay, and then goes to the DHSS, he can get his card franked. So the whole impetus is directed towards staying ill as long as you can. The Minister says that one of the reasons for the Bill is to prevent people feeling better off when they are sick than when they are at work, but the Bill is saying to people, "Stay off for eight weeks whatever you do, string it out, fall down on your nose, break your glasses, or anything. But if you can manage it for eight weeks, you will then go on to national insurance sickness benefit, and you will get payment for your wife and for your children, and your card will be franked".
Without making party politics out of this issue, I would say that this does not make sense. I do not know why the noble Lord the Minister is laughing. Well, he has nothing better to do than laugh; he cannot think of anything useful to say. This is had accounting. How can it be good and sensible accounting in the national insurance scheme to take £3·23 off people who are sick, for eight weeks, and then give it back to them after the eight weeks? It is inconsistent, and it is stupid.
We have been told that our amendment would cost £100 million. I am glad that we have that figure from the Minister, because it means that the Government are taxing sick people with a take-home pay of £37, £31, or £25, by this sum, or some other relevant sum—relevant according to their low earnings. I do not
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really think that this is the Government's intention. I think they have simply not realised that this would be the effect of what they are trying to do.
I am sorry if I am boring the noble Lord, but I have many neighbours who will not be bored by this debate. There will be many people who will want to know why for the first eight weeks they have to be taxed £3·23, whereas in weeks following they will not be subject to such a tax. It really does not make sense, and I wish that the noble Lord the Minister would offer to have another look at it. I know that he thinks that my noble friends and I are making party points about this, but I thought that I was being very actuarial, as actuarial as I could be. I very much hope that he will feel able to leave things as they are, and that he will not support the Government's proposal to introduce this taxation on sickness benefits.
Lord Trefgarne: I can well understand the feeling in the minds of noble Lords and noble Baronesses opposite that a junior Minister of a Conservative Administration, and a hereditary peer to boot, is unlikely to have much idea of the real world, but I should like to tell the Committee that before I had the privilege of joining the present Government I did indeed work and live in the real world. I can, for example, tell the noble Baroness about sick notes. She was not entirely clear about what happens to a sick note. I know, because I have had a sick note, and I can tell the Committee what I did with it. I gave it to my employer, first of all, to tell him that I was not feeling too good. He then passed it on to the DHSS in order to process the application for sickness benefit, as it was.
On the question of the £100 million, which the noble Baroness were agreed to, employees would be in a out that £60 million of that will come from employers. It is only £40 million that comes from the employees. The amendment which the noble Baroness has moved provides that the contributions from both employers and employees should be waived in connection with statutory sick pay, and thus the cost to the fund would be a total of £100 million, being made up of the two figures to which I have referred.
The fact remains that, if the amendment of the noble Baroness were agreed to, employers would be in a position to receive when they were sick more emoluments than they would receive when they were well, and we do not think that that is right and proper. I accept what the noble Lord, Lord Molloy, says, that of course nobody in his right mind would seek to injure himself or seek to suffer from influenza when he did not need to, simply for the privilege of getting £3-odd a week extra. But, of course, there are many more marginal cases, and I have to confess to your Lordships that there were occasions in my working life when I woke up in the morning and felt, "If only I did not have to go to work today! Perhaps I can go sick".
As some of your Lordships may know, I was a pilot in my commercial life, before I came to the Government, and I can tell your Lordships that that feeling is particularly strong at half-past-three or half-past four in the morning, when one is otherwise required to get up and go to work, as I was. So I am well aware of the temptations to which I referred earlier. I hope I was able to overcome those temptations on all appropriate

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occasions but once or twice I had to say that I was genuinely ill. Then I was quite properly required to obtain a certificate from my doctor, which I sent first to my employer in support of my contention that I was unwell, and that, as I say, was in due course processed by the DHSS.
I remain firmly of the view that it is not appropriate to provide a higher income for employees when they are sick than when they are fit. Of course, I agree that sometimes there are, particuarly in the low income cases to which the noble Baroness has referred, cases where genuine hardship may occur, and it is for that purpose, of course, that we have the supplementary benefit arrangements. But I hope your Lordships will agree that it would not be appropriate to accept this amendment, which makes them as of right entitled to this extra emolument.
On Question, amendment negatived.
Clause 23 agreed to.
Clauses 24 to 27 agreed to.
Clause 28 [The statutory schemes]:
8.53 p.m.
Lord Wallace of Coslany Lord Wallace of Coslany moved Amendment No. 23:
Page 22, line 15, at end insert—
("In the calculation of entitlement to a rent rebate or allowance no amount shall be prescribed as a deduction from the rent of tenants who are qualifying students.").
The noble Lord said: I beg to move the amendment standing in the name of my noble friend and of the noble Lords on the Liberal Benches. Of course, this may be assumed as something of a Lib-Lab pact, but the honest truth is that the National Union of Students have made representations to all parties. The noble Lord, Lord Banks, supported their view, as I did, but it so happens that our amendment was a little ahead of theirs. So there is a joint feeling about this.
The intention of the amendment is to eliminate an important area of discrimination against students in the present rent allowance scheme. In 1981–82 £10.83 per week is deducted from the term-time rent paid by students before entitlement to allowances is calculated. It is assumed that this prescribed sum covers students' costs and is paid as part of the grant. There is no rational basis for the calculation of this sum. Most students pay well above £10.85 per week in rent. In a recent survey of over a hundred college accommodation officers it was revealed that the average weekly rent in the private sector paid by students throughout the United Kingdom was £13 in 1981–82. In London the average rent is much higher—it is £18.80—and in the South-East it is £15.50.
It is apparent that the Government now set the grant without reference to students' actual cost, but in the context of wider public expenditure considerations. By 1982–83 the student grant will have fallen in real value by over one-fifth since 1962. Students, both as a matter of principle and as a matter of meeting a real financial need, should be assessed on their entire income on the same basis as any other claimant.
The existence of the prescribed sum for students further complicates the administration of what is already a complex system. Moreover, many officials misunderstand the system as it applies to students, and consequently discriminate against them. Many students are deterred from claiming because the existence of the prescribed sum makes them uncertain of their entitlement. Government and local authority publications on rent allowances take no account of the special calculations which apply to students. I would say that the situation in London is very much worse than can in fact be inferred from what I have said. I think there is a case here for consideration. I beg to move.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Bellwin): The treatment of students in housing benefit must be considered in the context of the existence of the grant system, which covers maintenance needs, including the accommodation costs of people living away from home. It is arguable how far, if at all, the state schemes of financial assistance should supplement public funds paid through the grant system.
Grants paid to students who have to live away from the parental home to pursue their courses include an amount to cover rent. Thus, it is reasonable to expect students to pay rent up to a certain level without looking for further assistance from public funds. For this reason a deduction is made from the eligible rent when assessing entitlement to housing benefit; but, of course, in fairness it must be said that the same deduction is made from the students' assessed income. Not to do this would, I believe, be wrong in principle. I do not think it is right to allow public funds to pay twice. In addition, there would be a cost involved, which would have to be met by cutting assistance given elsewhere.
The noble Lord, Lord Wallace, referred to the concern about students in London in particular. On that, I would want to say that the standard deduction is a national figure applied to all students, and reflects the level of the grant for students outside London. However, London students qualify for a higher award—currently £290 more than other students—in recognition of the extra costs of living in the capital. The present national deduction is anomalous—it gives London students preferential treatment—and we propose in housing benefit to have a higher deduction from London students. This, I think, in fairness—and we seem to have heard much of this word used earlier today—does no more than reflect the fact of a differential grant system.
I think I understand clearly the concern expressed by the noble Lord, Lord Wallace, and others who feel this way, but I hope that, again, if we are talking of fairness, they will take the point that in this case public funds should not pay twice. If there is argument and debate as to the extent to which students have grant in terms of the actual amount, then that is a different thing and perhaps it is for somewhere else. But in terms of the principle involved in connection with the Bill, I hope the noble Lord will feel that there is merit in the point I have made and will understand why we are unable to accept the amendment.
Lord Wallace of Coslany: At this hour I do not want to debate this further. I appreciate the points that the noble Lord, Lord Bellwin, has made. We will have a further think about this and take advice, and if necessary will come back on Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
9 p.m.
Lord Wallace of Coslany Lord Wallace of Coslany moved Amendment No. 24:
Page 22, line 37, at end insert—
("( ) In making regulations under this section the Secretary of State shall ensure that any payments for furniture paid as part of the rent for the dwelling shall be included in the assessment of rent eligible for rebate purposes.").
The noble Lord said: I beg to move the amendment standing in my name and in that of my noble friend. This amendment deals with people in furnished accommodation who have to pay for the furniture as part of their weekly or monthly rent. The majority who live in furnished accommodation do so mainly because there is no alternative available. They have no alternative to that part of the rent being included in the assessment. They pay for furniture, incidentally, whether it is good or bad. The amount of money involved in the amendment is small, about £1 million, I understand. There was some promise of a degree of sympathy from the Government in another place with the usual proviso "if money can be found". While there is life there is hope; and I hope for a more positive reply tonight. I beg to move.
Lord Bellwin: As my honourable friend the Parliamentary Under-Secretary of State for the Environment made clear in another place and as the noble Lord intimated, the Government accept that there is a good case for making such charges eligible for housing benefit in line with the existing supplementary benefits scheme; so that the noble Lord is preaching to the converted on this matter. The difficulty, as always, has been cost and, as he has said, we are talking about £1 million a year. However, I am pleased to say that the Government, having gone into the matter carefully, have decided that this change should be made and, as no primary legislation is required, as the powers in Clause 28(3) will already permit payment in respect of dwellings to form part of eligible rent for housing benefit purposes, we intend to apply to the extra help both rebate and allowances schemes and not just rebates as suggested in the amendment. In any case, to follow that proposal would be unfair to private tenants. With my assurance that furniture will be eligible, I hope that that will please the noble Lord and he will feel able to withdraw the amendment.
Lord Wallace of Coslany: I am delighted to do so and beg leave to withdraw the amendment. I am overcome.
Amendment, by leave, withdrawn.
Clause 28 agreed to.
Lord Wallace of Coslany Lord Wallace of Coslany moved Amendment No. 25:
After Clause 28, insert the following new clause:
("Needs allowance
. Regulations under section 28 above shall provide that the needs allowance shall not be less than the sum of—

(a) the supplementary benefit long term scale rate, and

(b) 40 per cent. of the national average Council house rent, and

(c) the national average domestic rate, and

(d) the national average domestic water and sewerage charges,

being in each case the prevailing weekly rate or charge appropriate to the size of the household for each category of needs allowance.").
The noble Lord said: I beg to move the amendment standing in my name, and with the permission of the Committee, to take with it Amendment No. 30 which is very much bound up with it. The new clause has for its purpose the clarification of the needs allowance formula to be applied under Clause 28 which itself is complicated and, in many people's view, needs clarification. The amendment includes the whole average domestic rate instead of the 40 per cent. proposed by the Government in the needs allowance. This is a serious deficiency as it fails to take account of the tapers and the way in which the increase affects the person whose income is less than the needs allowance.
Topping up payments are objectionable for two reasons. First, because it is difficult to define eligibility and therefore many who are eligible will not receive payments; and, secondly, they involve considerable administrative cost which should at this point alone persuade the Government to accept the amendment.
The needs allowance in real terms fell for married couples for the first time in 1981. This in itself strengthens the case for the new clause. Our amendment on Clause 29 to delete line 27 is tied up with the new clause as it restores the retail price index formula for prices. The Government propose to delete housing costs from that formula. The retail price index has its defects and the worst of these is that it does not reflect the actual costs of the low-paid families when they are in work. Worse, it does not reflect the cost to particular families or individuals when they are not in work. It does not reflect the extreme pressure on the low-paid or unemployed of the large element of family spending on fuel, light, food, rent and rates.
The less one has, the greater the blow of even a small increase, in costs, Council house rents have risen severely and are likely to do so in the near future. The same applies to rents of private accommodation, also. I have endeavoured to put over the point as briefly as possible but there is some need for clarification of the Government's proposal on the needs allowance section. That is why this clause has been moved. I beg to move.
Lord Bellwin: Before looking at the detail of the amendments, may I remind the Committee of our intentions regarding the needs allowances. As my honourable friend the Minister of Social Security announced in another place, we shall continue the existing structure and, under Clause 29 of the Bill, the Secretary of State will review the needs allowances each year taking into account the general levels of prices and of housing costs. Noble Lords will be aware that the needs allowance is based upon the supplementary benefit long-term scale rate, 40 per cent. of

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national average rates and 40 per cent. of national council house rent, together with average water and sewerage charges. The rationale behind these 40 per cent. figures is that a claimant whose income equals needs allowance is entitled to 60 per cent. of his rent in rebate or allowance and 60 per cent of rates as rebate. This is perfectly logical and nothing I have heard this evening suggests that it should be altered. What the noble Lord has argued is that, by increasing the rates element to 100 per cent. the number of topping-up cases will be reduced. It is, of course, obvious that any increase in the needs allowance will have this effect. That is one of the reasons why we intend to add 75p to the needs allowance for pensioners. So what we are discussing tonight is, in effect, the case for a general increase in the level of the needs allowance. Although earlier it was somewhat derogatorily looked upon, I would want to tell the committee that the effect of this amendment would be to increase the 1981–82 needs allowance by £2.68 a week at a cost in excess of £120 million. This is not considered to be a great amount by some, but is considered to be a very great amount by others. A rough estimate suggests that the number of topping-up cases would be reduced by 50,000.
I hesitate to remind the Committee again that current economic constraints mean that housing benefits must be introduced on the basis of nil additional cost. There is no way of finding such a large sum within the schemes except by making tapers more severe and/or by introducing a cut-off to benefit at a given income level. This would be a self-defeating process, since one would be giving with the left and taking with the right. For this reason alone, I feel that we could not accept the amendment. But I should also deal with the issues raised in its last two lines. The national averages used for rent, rates and water charges today are overall averages—that is, that for rent covers all types and sizes of council dwellings.
I also have to say that the proposal would be extremely difficult to administer. Local authorities would have to use a multiplicity of needs allowance and would immediately have the problems of deciding which allowances were appropriate. Would the widow living on in the family home have her needs allowance set without any reference to the level of rents and rates generally for her size of house? There is also the question of non-dependants. They are expected to contribute to housing costs through the non-dependent deductions, but are they part of the household size for needs allowance, if we accept this amendment? Could this lead to pensioners who have a grown-up child living with them being penalised? How could we ensure equity of treatment?
I do not think that I need go on. Like the noble Lord, Lord Wallace of Coslany, I am anxious that we should make progress. I take his point that we are also talking in effect about Amendment No. 30. Therefore, we are talking of a general principle—namely, how is the housing benefit needs allowance to be uprated? The Government's position, I respectfully submit, is grounded on solid logic. I hope that when the noble Lord has the opportunity to consider what I have said, which I appreciate he may want to do—because if we have learned anything from listening to this debate today it is that we are in very complex country—he will
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then know how to deal with it and I leave it to him to do so.
Baroness Birk: I have listened very carefully to what the Minister said. He raised a lot of questions himself: the needs allowance, how it would affect widows and so on. There are many other questions that could be raised. What is important if this amendment is going to be taken back and looked at is that the way it is drafted at the moment is not very equitable. The question is how it can be made more equitable, even though the Minister raised a number of points and different arguments that should be looked at. It seems to us exactly as my noble friend said in moving the amendment, that the Bill is not right as it is.
While I appreciate that it is not difficult to pick holes in an amendment that has been moved, what does the Minister intend to do about this clause and about the requirements asked for in the following clause, whether it is part of a new clause or incorporated differently in the Bill? How does he propose to proceed about that? It seems to me that he agreed that there is a problem and he pointed out the difficulties in putting it right. How is he going to try to put it right?
Lord Bellwin: I think the noble Baroness misunderstands me. The various questions that I was saying had come forth, came from the amendment, in my respectful submission, not from the proposals as they are now. It was my suggestion that, knowing how complex it all is, it might be that the noble Lord, Lord Wallace, would feel that he would want the opportunity—if I were in his place, I should—to look at what I have said, if you like as justification for what we are doing. I suspect that that is what the noble Lord will want to do.
Lord Wallace of Coslany: Lord Bellwin's suspicions are quite correct. I agree that this whole Bill is far more complex than a great number of noble Lords and noble Baronesses appreciate. I shall certainly look at what he said very carefully, and, if possible, obtain a little more expert advice and return to this matter next time. I beg leave to withdraw the amendment.
Amendment, by, leave, withdrawn.
9.13 p.m.
Lord Wallace of Coslany Lord Wallace of Coslany moved Amendment No. 26:
After Clause 28, insert the following new clause:
("Tapers
. Regulations made under section 28 above shall provide that if a person's weekly income exceeds the needs allowance, the rebate or allowance payable to such person shall be reduced by the percentages shown below, being in each case a percentage of the amount by which such person's weekly income exceeds the needs allowance—

(a) in the case of a rent rebate or rent allowance, 19 per cent.;

(b) in the case of a rate rebate, 6 per cent.").

>
The noble Lord said: This is an attempt to get some improvement. The clause, in my opinion, is not a complete improvement on the scheme proposed by the Government. It does not remove all the losers. At least our amendment is intended to be constructive and proposes a change which to a degree improves the Government's scheme. It reduces the timber of losers: the losses that different categories of individuals

855
would suffer are reduced. It also improves the administrative simplicity, and, after all, we must remember that 2 million—I think the Government's figure is 2 million —households will be losers unless this Government scheme is amended.
Lord Bellwin: This, new clause gives us an opportunity to discuss two important facets of the housing and benefit proposals—as the noble Lord rightly says, the numbers of gainers and losers and the cost of the scheme. Lord Wallace of Coslany's proposal is something that we have seen tabled in another place in Report stage. The Government are proposing that the tapers above the needs allowance should be increased to 21p and 7p so the scheme overall remains at nil cost. This, together with the other changes—again, as the noble Lord rightly said—would produce 2 million losers and 220,000 gainers among claimants with incomes above the needs allowance. As my honourable friend the Minister for Social Security explained in the other place, the proposal still produces nearly 1.2 million losers and no gainers above the needs allowance yet costs net an extra £23 million more than the Government's proposals.
It has been argued that the Government were wrong to bring in the housing benefits proposals on a nil cost basis—that is, that the scheme should cost no more than the benefit and administrative costs of the existing local authority and supplementary benefit provisions for housing assistance. But the Government have to live with economic reality. The money for improvements could only be found at the expense of other projects. In the current financial situation, when the Government's first aim must be devoted to putting the economy right, there are higher priorities than housing benefits. We must do the best with what we have got.
The benefit cost of limiting taper losses—up to £14 million a year—would be available; and indeed, the Government propose to use the money, once it is available, to finance in part a 75p a week increase in the needs allowance for pensioners. But this money will not be available until the transitional protection has been eroded. The £30 million they found from changes in the supplementary benefit uprating provisions, is not part of the housing benefits nil cost package. The nil cost scheme is, as I have said, made up of the resources in the existing local authority rebate and allowance schemes, and the supplementary benefit housing additions.
The Government were anxious to reduce the number of topping-up cases. The procedure is necessary to protect poor claimants from falling below supplementary benefit levels but it is complex for claimants and administrators. As nearly all topping-up cases will be pensioners, we had to concentrate help on pensioners. Our proposals, more generous tapers below the needs allowance and a 75p addition to the needs allowance, reduces the need for topping up and produces over 1 million poor pensioner gainers—200,000 people more than the noble Lord actually suggests. But the changes cost over £70 million and have to be funded from within the scheme. It does seem fairest to find the money from the people with relatively higher incomes. The cost of the improvements was met by increasing the rent and rate tapers for those above the needs allowance
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from the current 17 per cent. and 6 per cent. respectively to 21 per cent. and 7 per cent. This also ensured that losses were relative to the size of income.
This is very much a matter of argument, though the Government have sought to concentrate on helping most effectively the poorer pensioners. On the other hand, noble Lords opposite feel that the extra money should be there, and I understand the point. But there is still a question of a judgment at the end of the day, and clearly there is a difference between us. We think that the scheme is a very big improvement on what exists at the moment, but for the reasons I have given we are not able to accept the amendment, although appreciating very much as I do the motivation behind it.
Lord Wallace of Coslany: It is perfectly true that this amendment was moved in another place and, if I remember correctly, there was a Division. The noble Lord, Lord Bellwin, has probably given a clearer and wider explanation than we had elsewhere. Of course, he is well versed in local government affairs and we accept him as an expert. We are not too happy about it and I do not think the Minister will be too happy about the situation, either. It is, however, pointless to press this issue tonight, and therefore I withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Wallace of Coslany Lord Wallace of Coslany moved Amendment No. 27:
After Clause 28, insert, the following new clause:
("Appeals.
. Any claimant of housing benefit shall have the right of appeal to a Supplementary Benefit Appeals Tribunal against any decision of a housing or rating authority regarding such person's entitlement to or level of housing benefits.").
The noble Lord said: I beg to move the amendment standing in my name. This is a very important amendment involving a very important principle. The clause deals with an important human right—that of an appeal against a decision by an official body. It is something that we strongly pressed on the Mental Health (Amendment) Bill and which received very strong support by your Lordships. I am glad to say that it was accepted by the Government in another place.
This Bill does not deal with legal aid whereas the Mental Health (Amendment) Bill was primarily concerned with legal aid; but the principle is there. This clause does not deal with legal aid, as I say, but it would put into the Bill something that does not exist at the moment; namely, the right of appeal. No one would deny that this is a complicated Bill which could lead to anomalies. Local authorities and rating authorities are usually very efficient, but as with other departments and businesses elsewhere the human element exists here, too, and mistakes and errors of judgment will arise. People in need should have the right of appeal against injustice, even if the injustice is accidently caused by human error. I beg to move this amendment. This is an important issue and if we cannot get very far with it tonight it is definitely one matter we shall proceed strongly with at another stage.
Lord Bellwin: I agree very much with what the noble Lord says about an important principle being involved

857
here. I think I should say at once that I am not able to accept the amendment. I just wonder how far the noble Lord would like me tonight to go into the details of the reasons for that. I understand what he means when he says that this is something he and his noble friends will want to pursue in depth at another stage and perhaps would go all the way. For that reason, I think perhaps I should not go into the detail tonight except perhaps to say this: we believe that our proposals offer claimants a direct and speedy means of seeking and securing a review of the housing benefits claim from the body that can best help them—their local council. The alternative proposed in the amendment requires a major shift in the operation and outlook of SBATs.
I would ask: do we need to go down this path to provide a means of challenging a local authority when our proposal builds on the system that is already there in many authorities? I think that the amendment as such, does not show that this system is defective or that local councillors are not able to pursue on behalf of their constituents instances where local officers have come to a poor decision. I certainly believe in democracy, as one who has had much experience for many years, as have others in this Chamber, who have similarly taken up causes and cases on behalf of constituents at local authority level; and in my experience good councillors will pursue the thing to the death, so to speak. I believe that in this kind of case they would continue to do that no less than they do in other cases.
It is basically for that reason, without going into further details tonight, that I would explain that is the main thrust of the argument we would put forward anyhow, however much it is tied in with detail. I would hope that if the noble Lord brings back a similar amendment on another occasion before doing so he would think about that aspect of it, because that would be the major reason why we feel we cannot accept the amendment.
Lord Ross of Marnock: Yes, but I hope the Minister appreciates that it is a very different scheme from the existing local authority scheme, with which local authorities are very much more familiar. The noble Lord has already explained the complications of this, and I hope he appreciates that, as well as being complicated for people who are in local authority houses, I receive considerable correspondence from the Federation of Scottish Housing Associations, who have a great deal of trouble in even being supplied by the Scottish Office with the original paper. I am far from satisfied that the noble Lord can brush it away like this. I know that he is not really brushing it away, but he is pleading for time. We have already heard somebody say today that we cannot deal with this matter because this is the Committee stage. But if you cannot deal with a matter in Committee stage, when can you deal with it? As the noble Lord knows, it will be very much easier for the Government when we come to Report stage, because everyone is very much more limited in the time that is available.
Lord Bellwin: With respect, that is not at all fair. I am quite prepared, here and now, to go into a lengthy
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and detailed explanation of the case and I have said so. I hope that the noble Lord, Lord Wallace, will be with me on this. It was he who said that, if noble Lords opposite were not satisfied with the explanation, they would want at another stage to press the case, presumably to a Division. It was for that reason that I said expressly that I would not, therefore, go into detail tonight, but I felt obliged, nevertheless, at least to give the thrust of the case. I know that the noble Lord, Lord Ross, understands that. I hope he will accept what I am saying, because in no way am I trying to stall or to ask for extra time. I do not need any extra time for this. In the interests of management of the procedure, it makes sense to do as the noble Lord said, but the decision is his.
Lord Wallace of Coslany: I thank my noble friend Lord Ross for his support, because, if he is anything, he is certainly a mine of information and experience, not only on political matters but on football matters. But that is another subject. The noble Lord, Lord Bellwin, referred to local democracy and I accept what he said, because I have been a councillor myself. Of course, as he knows, there are good and bad councillors, as well as lazy and active councillors. When I was a new MP way back in 1945, these sort of things did not go to the councillor, but came to the poor old MP who was badgered to death. The noble Lord, Lord Bellwin, said that there is a case for some kind of appeal, but he did not go into detail. Certainly, it is something which we shall have to study in depth. Knowing the noble Lord, I am sure that he will have another look at the matter. He may not say so officially, but I am fairly sure that he will. In those circumstances, bearing in mind the lateness of the hour and the fact that this is not the best time to go into details on an important matter like this, I beg leave to withdraw the amendment. But the noble Lord knows full well that I shall come back on Report, I hope refreshed and, possibly, re-armed.
Amendment, by leave, withdrawn.
9.28 p.m.
Lord Wallace of Coslany Lord Wallace of Coslany moved Amendment No. 28:
After Clause 28, insert the following new clause:
".Claimants living in hostel accommodation shall be treated on the same assessment basis with regard to housing benefits as all other claimants".
The noble Lord said: This is a very difficult amendment and I think that there is a degree of sympathy from the Government on it. How we shall resolve it, I do not know. The main issue is the principle that people who live in hostels should be treated on the same assessment basis, with regard to entitlement to housing benefit, as all other claimants. I understand that in another place the Minister indicated some sympathy with the position of people living in hostels, and agreed to meet outside organisations concerned with the problem. I am not yet aware whether such meetings or consultations have taken place. There are many problems in relation to this issue; for instance, over the classification of boarders. The hostel problem is growing, mainly due to the housing shortage, unemploy-

859
ment, change of environment to seek work and many other reasons. Has a decision been finally reached to clarify residential qualification? What is the position of people who live in hostels and who, eventually, manage to find work? This, as I said, is an important amendment which I am sure has Government sympathy. I hope that the Government's reply will be satisfactory. I await it with interest. The noble Lord, Lord Bellwin, may not yet be in a position to make a statement, but if he could I should be grateful. I beg to move.
Lord Bellwin: As the noble Lord quite fairly said, the Government are very sympathetic towards what is intended. I can tell the noble Lord that officials have held a number of meetings with the local authority associations and the voluntary organisations most concerned to work out the most effective and practical way of ensuring that hostel dwellers are able to obtain help with their housing costs.
The noble Lord may be aware that many hostel dwellers experience difficulty in obtaining rent and rates assistance from their local authority under the existing schemes. This is because some authorities take the view that they are not occupying the hostel as their home and are therefore ineligible until they have served a qualifying residential period, which varies but which can be as long as six months. The Government amended the Bill in another place to provide for regulations under which a person who occupies a dwelling otherwise than as his home may be treated as if he occupied it as his home. That is Clause 28(2)(b). This gives sufficient legislative cover, we feel, for all hostel dwellers to be brought within the scope of the scheme.
However, it must be recognised that hostel dwellers pose particularly difficult administrative problems, for two reasons.
First, some are very mobile, spending only a few nights at a time at each address. They may also be in urgent need. Secondly, hostel dwellers and other boarders have their entitlement assessed in different ways from other supplementary benefit recipients. Instead of having their entitlement assessed on the basis of a scale rate, plus additional requirements, plus an amount for housing costs, they are assessed on the basis of their board and lodgings charge, plus any additional requirements, plus an amount for personal expenses. The amount included in the assessment for board and lodgings covers not only rent and rates but also board, heating charges and other service charges which would not be eligible for housing benefit purposes.
These different elements are not, however, separately assessed for supplementary benefit purposes. It would therefore not be a simple matter for the supplementary benefit officer not to award an amount for rent and rates and instead to issue a passport which entitled the claimant to housing benefit. Since it is the local authority's responsibility to assess eligible rent and rates, the supplementary benefit officer would not know by how much to reduce the board and lodging award until housing benefit had been calculated. Thus the applicant, who might well be in urgent need, would
860
have to wait not only for his housing benefit but for his supplementary benefit as well.
We have therefore decided that the most sensible way to deal with hostel dwellers and other boarders would be to provide for all boarders in receipt of supplementary benefit to continue to receive their housing assistance via the supplementary benefit scheme. They will then be spared the delays, however short, which would arise if benefit was passported. I am sure that there must be a better word than that. No doubt noble Lords will tell me later on.
So far as those who are not in receipt of supplementary benefit are concerned, we propose to make regulations under which a hostel dweller will be eligible for benefit if he stays for a period of at least two weeks. Once he qualifies, entitlement will be backdated to the date of application in the normal way. This will be a considerable improvement on existing practices. It is probably the most which can reasonably be expected of local authorities in view of the considerable administrative problems involved in processing claims for very short periods.
I think this, too, is something about which the noble Lord will wish to say, "I will read it over very carefully". This is really a difficult problem; I remember it so well in so many other ways and, as they say, there just ain't an easy answer to this one. But all right, if we can do something to make things better as we go along, then we are improving the scene, and that is what we are trying to do.
Lord Wallace of Coslany: I thank the noble Lord for those sentiments. He included, if I am not mistaken, a bargain offer. I am always very suspicious about bargain offers—not in this House but outside, because there is always a catch somewhere. But the noble Lord has been very reasonable in his general approach and at least there is some real concession here. As discussions are still taking place—I understood from the Minister that that is the case—perhaps, if a probing amendment is put down, he will undertake to come back at Report stage to give us, if possible, the result of any further discussions. If that is the case, I will thank the noble Lord very much. I beg to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Denham: I believe this would be a convenient moment at which to finish the evening's proceedings. I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Children's Homes Bill
Brought from the Commons: read a first time, and to be printed.
  THE SEVEN MILE/BERNEY LEVELS DRAINAGE SCHEME
  THE SEVEN MILE/BERNEY LEVELS DRAINAGE SCHEME
  THE FALKLAND ISLANDS AND THE INTERNATIONAL COURT OF JUSTICE
  THE FALKLAND ISLANDS AND THE INTERNATIONAL COURT OF JUSTICE