I beg to move, That the Bill be now read the Third time.

I almost said "at this late hour", Mr. Speaker. I think that the more controversial elements of the Bill have been exhaustively debated. I do not propose to go through all the arguments again this afternoon. I should like, however, to begin by acknowledging the courtesy with which I have been treated throughout the various stages of the Bill. My hon. and right hon. Friends behind me have not, on the whole, and in all circumstances, been too unkind to me and I am grateful to them.

The right hon. Member for Huyton (Mr H. Wilson), captain of the opposing team, has had long experience of these matches. He is a formidable opponent. I have not always been quite certain whether he was batting or bowling, but he certainly used his available resources with great skill.

I see the hon. Member for Sowerby (Mr. Houghton) present on the Opposition Front Bench. He has been a steady and painstaking bowler. If I may say so without offence, he has kept a very good length during the stages of the Bill and it has needed a very straight bat to play him.

The hon. and learned Member for Kettering (Mr. Mitchison), who is to follow me in the debate, is one we all admire for the skill and industry with which he has drafted Opposition Amendments. Throughout the match he has been very busy with his pencil. Perhaps it is the somewhat rare case of the scorer being allowed to play in the side, too. I must be careful about analogies because one does not know where they may lead. There have been many thoughtful and constructive speeches made on both sides of the House and Committee at all hours of the day and night. It would be invidious for me to select particular ones for mention, but what has been obvious to the whole House has been the extent to which I have relied on the good services of my hon. Friends the Financial Secretary and the Economic Secretary.

I formulated the proposals in the Bill against a background which I tried to define in my Budget Speech. Perhaps I may be allowed to quote from that statement:

"what should be the purposes of this year's Budget? The rise in personal consumption must be restrained. I would hope that as in 1960 increased saving would be an important part in this. Nevertheless, I am sure that the broad effect of the Budget must be counter-inflationary; there must be a larger surplus above-the-line than last year and a smaller overall deficit. All existing encouragements to investment must be maintained. Room must be left for increased exports. I must consider whether existing methods of regulating the economy can be improved upon. I must also consider whether any additional incentive, to effort and initiative can be provided. Above all, in everything I do I must have in mind the maintenance of confidence in the £ sterling, both at home and abroad"—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 801.]

Nothing has happened since to change that analysis. The continued growth in personal disposable incomes, in consumption, in Government expenditure, the movements of sterling, the trade returns the continued upward trends in investment and the strains and stresses in the international situation—South-East Asia, Africa and, more recently, the Middle East, and Berlin—have confirmed the analysis of what was needed from this year's Finance Bill. I wish, therefore, today to mention only some of the salient features in the Bill. First, its counter-inflationary aspects. I provided for a surplus of over £500 million above-the- line and for an overall deficit of only £69 million. That involved asking for certain sacrifices. To meet increased public expenditure, and to provide that surplus, I had to keep almost the whole of the increased proceeds this year from direct taxation, except for the minor relief—though quite a costly one—relating to the deduction of National Insurance contributions for tax purposes.

A silly one.

I have made no direct concessions in the field of direct taxation which affect revenue this year. This means that, with the buoyancy of the Revenue, something like £400 million more will be raised in this way, that is by direct taxation, this year as compared with last year.

No doubt the House will have noticed in the recent Quarterly Revenue return that the yield of direct taxation went up by over £90 million in the first quarter of this financial year as compared with the first quarter of the last financial year and there is still nearly £300 million extra, compared with last year, to come in that way. I believe that that will play its part in countering inflation.

The suggestion has been made from time to time that indirect taxation has been increased and direct taxation has been reduced. I do not necessarily say that such a process is wrong. On the whole, I believe that spendings rather than earnings should be taxed. But in fact that has not been taking place. Of the total to be raised in taxation, direct taxation accounts for 60·1 per cent. compared with 58·5 per cent. last year; indirect taxation 39·9 per cent. as compared with 41·5 per cent. last year. I think that completely disposes of the argument that we on this side are somehow favouring those who pay direct taxation at the expense of those who pay indirect taxation.

To procure this surplus above-the-line I had also to impose some increases in taxation—heavy oil, motor vehicle licences and television advertisements. All three sets of proposals have been strongly criticised. This, I think, was to be expected. No new tax is free from disadvantages of one sort or another. I think, however, that those who criticise these increases in taxation must look at the Budget as a whole. They must weigh the disadvantages of particular taxes against the overall aim. I do not consider that either the heavy oil duty or the motor vehicle licence duty was unfair in the circumstances, and the diversity of the criticisms in fact show how wide was the spread of the burden.

I did feel able to make two concessions relating to oil. First, with regard to horticulture, I gave the reasons fully last Monday and will not repeat them. I also felt it reasonable that with regard to stocks of oil in users' possessions it would be inequitable to levy a tax on stocks bought and delivered to the final user before the Budget. I believe that both these concessions were just and reasonable.

With regard to the duty on television advertising—a new departure—I believe that there was some considerable support, though I admit some dissentients, for the proposition that some special contribution should be made from this particular field of activity. I am not going again today into the argument about passing on the tax. That was discussed fully during the Committee stage. I only repeat today that the conduct of programme companies in this connection will be closely watched. In my opinion, it is reasonable that they should assume a part of the burden. This has happened in some cases.

The next feature in the Bill, which I wish to mention, and which also has aroused much controversy, is the Surtax concession for earned income. The ground has been thoroughly covered and was gone over again only last Tuesday. I simply repeat that I believe that the level of direct taxation on those with higher earnings has been a substantial disincentive to effort and productivity. I am always having the international league tables thrown in my face, and I think it fair to point out that my Surtax concessions will simply make the position of those with higher earnings in this country more nearly comparable with that in the United States, Germany, France and Italy, who are our competitors.

I never thought that it would be particularly popular. It is very easy to make demagogic arguments against it. I thought that it was in the national interest to put forward that proposal, and I have done it, I think, in a reasonable manner because of the timing of the concession, which will not come into effect until January, 1963, and because I increased Profits Tax to bear the cost of it. I express the hope—and I have been most careful in doing this because it is only a hope—that it may be possible for me in the future to carry on this policy of reducing direct taxation to increase the incentives to effort through a wider band of incomes.

I am not going in detail through the various provisions of the Bill, though I would remind the House that there are some useful minor provisions in it. I know that the proposal for compensation for victims of Nazi persecution, and the manner in which I have done it, has caused general satisfaction. For once, retrospection has not been controversial. I believe that the concession with regard to parsonage houses has also been well received. I think that the minor changes in double taxation will be useful.

Over the more controversial matter of business expenses, again I believe that my statement in my Budget speech and the proposals in this Bill have found general acceptance. I cannot refer, Mr. Deputy-Speaker, to what is not in the Bill, but I have promised to watch this matter and, depending on events, what is in this Bill may not necessarily be my last word.

With regard to the two regulators, there is not very much new to say about them. On the whole, I think that they have been rather better received than I expected. [An HON. MEMBER: "Not on this side of the House."]

I spent a considerable part of the six months or so before the Budget examining various suggestions for new economic regulators and criticisms of existing ones. In almost every case the arguments against far outweighed the arguments for, whether looking at monetary measures, sales taxes, turnover taxes, physical controls and all the rest of it. The disadvantages stood out with precision and were clearly defined. So it is with my two proposals embodied in this Bill. The disadvantages can be clearly presented, defined, pinpointed and elaborated. The advantages of using these methods of securing a healthy overall economy are confined to the general objectives to be attained. It is not so easy to present them if one says that they are designed to achieve a general objective when quite obviously practical disadvantages can be used against them just as against any other means of regulating the economy. Pharmaceutical science may have devised means of making nasty medicines more pleasant to take, but that is not yet an established art for a Chancellor of the Exchequer. The test in each case is whether the patient retains or recovers his health.

Or dies.

I think that comes in the phrase "retains his health".

I believe that the Amendments that I have accepted, which are now incorporated in the Bill, have met in a fair manner the constitutional anxieties which, from the first, I have conceded where wholly reasonable. These two proposals were put forward as regulators to be used between Budgets, just as monetary measures can be used between Budgets.

I admit that they are somewhat blunt instruments in the sense that, in the case of the first regulator, there is a flat rate percentage increase in the duties, and in the case of the second one there is a limitation of the power to discriminate to the various categories of stamps. I am well aware of the disadvantages. With regard to the second regulator, I am conscious of the strong feeling there is that an increase of 4s. a week upon the employer per employee is a very serious matter. I am conscious of that fact and I hope that other people concerned with earnings will bear that consideration in mind.

My right hon. and learned Friend said that the burden would be borne by the employer. That may be so in industry, but in local authorities the burden would probably be borne by the ratepayers, and in the main by those living on small fixed incomes. This is a point which we have not been able to discuss in the Finance Bill.

In that case the ratepayers are the employers. The point which has been made again and again is that 4s. a week per employee would place a very great burden upon the employers should Regulator No. 2 be put into force. That is a matter to be taken into account, as well, perhaps, as in other connections which I shall not be in order in developing this afternoon.

Turning to another point which was debated at some length on Tuesday, I can understand the argument that I should not be given these powers at all, but I cannot understnd the contention that some time limit associated with the ending of the Finance Bill should be attached. It seems to me that if this conception of a flat-rate is accepted, the procedural method contained in the Bill is not inappropriate.

We were rather late in starting the debate, and I want to take up as little time as possible. I should, however, say this: I have not concealed from the House at any time since I became Chancellor my anxieties about long-term trends in our economy. I was accused of being complacent when I ventured to say that we had a lot to be thankful for. We have a lot to be thankful for. But we have to realise that rising standards in this country have got rather ahead of rising production and rising productivity, and that is a bad thing for any economy. This Bill is an important contribution, I believe, towards the restoration of a better balance, and I commend it to the House.

May I, on behalf of my right hon. and hon. Friends and myself, thank the Chancellor for the kind words which he has used about us. I hope that he will not consider it amiss if I suggest that the Government were undoubtedly the slips and the hon. Member for Kidderminster (Mr. Nabarro) at any rate one candidate for the position of third man on this cricket field. Be that as it may—and I willingly yield to the right hon. and learned Gentleman on a matter of that sort—I am afraid that I cannot accept the optimistic view which he has taken either of the Finance Bill or of the criticisms of it. If this were a Budget confined simply to providing taxes and reliefs in this present year, no doubt to continue afterwards, and if those taxes and reliefs were operative by virtue of the Budget and not of some subsequent Order, we might not have very much to quarrel about.

Let us consider for a moment what would be in an ordinary Finance Bill. There would be a number of measures, some in one direction and some in another, connected with something so obviously right as the increase in the Income Tax relief for National Insurance contributions—a matter which my hon. Friend the Member for Sowerby (Mr. Houghton) first raised some time ago. There would be such other matters as the Television Advertisement Duty, involving £8½ million, which is not negligible; the £2,000 limitation in respect of cars, which is a matter of £3 million and something which we all welcome, although rather late in the day; and the relief in respect of what I call Nazi persecution compensation. If that were all we should find little to quarrel with, and the total amount of those small items together is about £5 million, on balance.

If one turns even to the major items, we have no fundamental quarrel with such an increase as that made in connection with fuel oil. We wished to exclude kerosene from it, but I will not go into that now, just as we wished some exclusions from the duty on motor vehicles; but we should not have taken a deep objection to any of those provisions.

Our objections arise on three things, none of which occurs in an ordinary Finance Bill, and I wish to devote most of what I say to those three things. It is because of our opposition to them that we voted against Second Reading and propose to vote against Third Reading. The first two are the two regulators. In the nature of the case, we know not whether they will come into operation or when they will come into operation, except that if they are to work at all it will be some time during the coming year. The third thing is the fundamental change in the raising of Surtax, which, because it is Surtax, will come partially into operation next year, 1962–63, and fully into operation in the following year.

All of these provisions—the regulators and the Surtax concessions—involve very considerable sums. I think that the best way that I can put it is that the two regulators each give the Chancellor power to levy an additional £200 million of taxation. We were told that the fundamental point of the Budget and the Bill is that at the end of the day the Chancellor is left with a balance of £68 million on this year's provisions —not a continuation of the preceding provisions. In comparison with that, the two regulators at once assume very considerable importance by reason of their amount. The same comment applies when we come to the Surtax provisions. When they come fully into operation they will account for £64 million. They too, therefore, in relation to the balance left by the Budget and the whole financial picture, are of considerable importance. I regard the Finance Bill as consisting of the Surtax provision, the two regulators and a number of other provisions which are of much less importance for reasons which I shall develop.

Surely a deficit of £69 million will be affected by the Supplementary Estimates. Goodness knows what the figure will be when they have been received!

In relation to a figure of that order, with or without Supplementary Estimates, figures of £200 million each for the regulators and £64 million for Surtax are of very great importance. That is the point I make.

The right hon. and learned Gentleman gave his reasons today for regarding this as what he called a counter-inflationary Finance Bill. It may well be a counter-inflationary Finance Bill. All I can say is that since the Budget Speech was made, and since the Bill was introduced, the reasons for dealing with the inflationary situation and the character of the situation itself have not diminished. In view of that, I must point out that the Budget has followed something which was of considerable economic importance—the steps which were taken, which I cannot discuss now —in connection with the National Health Service contributions and the health charges. It is in the light of that, as well as of the general position, that the Finance Bill has to be considered.

The largest item is the increase of 2½ per cent. in Profits Tax. This represents a substantial sum. In a full year it will bring in about £70 million. This has the same character as the measures to which I have just referred. It will not come into full operation at an early date. I shall say no more about it than that we have made our criticisms of the character of Profits Tax. We have pointed out the effect it has on distributed and undistributed profits. I do not propose to develop it further.

I come back to the three main points. Our first objection to both these regulators is the bluntness of the instrument which the right hon. and learned Gentleman is using. I do not believe that this bluntness is necessary, but to sharpen the instrument would involve a degree of planning and foresight which appears to be wholly alien to the philosophy of the Tory Party. For that reason, no doubt a blunt instrument has been preferred and we are asked to trust with a blunt instrument someone who professes himself to be unable to use a sharp one. The right hon. and learned Gentleman himself took the point in connection with the first and the less offensive of the two regulators—the one concerned with indirect taxation—that he contemplates and provides for an overall increase in duties, the incidence of which in any particular case will be of very different importance. To that extent it is a blunt and undiscriminating instrument.

I want to say something about the first regulator. We on this side of the House have always appreciated that there is a case for doing some things at any rate between Finance Bills, particularly in connection with tax avoidance. I shall not develop the point now, but we have constantly urged that there should be power to take action in the matter of tax avoidance between one Budget and another. However, that is an entirely different thing; it is merely enforcing the law as the law was intended to be by those who passed it. This regulator would levy very considerable tax. I am no economist. If I were, I should no doubt be able to understand why, when the Government complain of prices being too high, they put on a tax to make them higher and think that they have cured the matter. That is what appears to be the position about the first regulator. I am sure that I shall be told how utterly wrong I am, but I notice that my doubts and difficulties are shared by a number of responsible people.

Is the hon. and learned Gentleman now saying that his party are against the first regulator, because they did not vote against it and at least one hon. Member opposite made a speech very strongly in support of it? It should be clearly stated whether hon. Members opposite have had second thoughts about this or whether they still hold to the view they expressed when Clause 9 was debated.

So far as I know, we never expressed a view on whether this regulator ought or ought not to be put into force. That is what the Financial Secretary is asking about. I have already said that we do not take the same objection to the first regulator as we do to the second regulator. Indeed, the hon. Gentleman would be fully entitled to remind me, if he chose to do so, that in 1948, some of the provisions contained in the first regulator were put into the Finance Bill by the Labour Government and could have been applied to Purchase Tax. I am not going so far as to say that, if it is intended to meet a disinflationary situation, the right way to do it is to push up prices by this regulator. I cannot be expected to accept that, at any rate for myself.

The second regulator appears to have every possible fault, all of them of the character of bluntness. It was introduced in such a form and the Money Resolutions were so worded that we have been unable fully to develop what we should have liked to say about it. We have been able to put the point generally. I shall do so again. This regullator will impose an increase, the severity of which each of us can judge for himself, on various labour costs, including the costs of exports. It will, therefore, pro tanto weaken our position in a competitive world at a very competitive time. It will operate, if it operates at all, equally in places where at the moment there is a shortage of labour and where at the moment there is almost an excess of labour or, in fact, an excess of labour. It will operate in Scotland and in other parts of the North, just as it will operate in the Home Counties and the more prosperous parts of the Midlands.

Every hon. Member must agree that that in itself is certainly a very serious fault in such a proposal as this. It is a very serious fault which will result in considerable hardship in the areas where there is a shortage of employment at the moment. The position of Scottish industrialists will be made just that much more difficult in relation to industrialists carrying on similar businesses in other parts of the country. There is no reason why it should be allowed to operate in this way, except the use of the National Insurance machinery. If the only way in which it can be operated is by using the National Insurance machinery, there is no doubt some administrative difficulty about discriminating between one part of the country and another. My answer to that is that machinery is an important matter, but if it can be done only in that way it would be very much better not to do it at all.

I entertain doubts about whether for that reason alone this regulator will be applied, but the right hon. and learned Gentleman has told us that he has not made up his mind and our fishing expeditions earlier in the week led to no result. I do not expect any result today. So much for the distinction between one part of the country and another.

There are other distinctions. This charge on labour costs will have a widely different effect on different industries, roughly corresponding to the proportion which labour costs bear to capital expenditure and other costs in the conduct of the industry. A trade like papermaking has very light labour costs, but we can all think of trades which have considerable labour costs. There is also the absurd case which was put to the Chancellor of the Exchequer a short while ago. To put this tax on local authorities because the Government cannot think of any other way of doing it is complete nonsense. No good result which I can see can possibly result from putting on to the rates an additional charge in respect of every council employee. There are 750,000 local government employees. There are half a million national Government employees, and the tax is to be put on them too. What is the use of putting 4s. a week on the Chancellor's salary? It is comic and absurd.

Another very large class of people will be covered by this regulator. I refer to the people who are described as professional, scientific and similar employees. This is a very large group of people amounting to between one-fifth and one-quarter of the total employed people in the country. They are office staffs, people doing research work, and so on. It is a much larger group than people commonly realise. What good can possibly result from putting this tax on in their case?

I suggest that partly because of this complete inadaptability to geographical distinction, and partly because of its equal inadaptability to differences between different industries, this regulator, if it is imposed, will be a thoroughly bad tax. It constitutes, of course, a charge on the costs of industry—more serious in some than in other cases—and it will be ineffective for the purposes for which it is designed. It will cause a great deal of unfairness, not only between one part of the country and another, but between one industrialist, one employee and another.

After all, are not the Chancellor's reasons for it based on the assumption that if one prunes labour in one industry or area one can use that labour in another? That assumption is absolutely incorrect. One cannot move people about from one place to another, nor, in the majority of cases, can one readily transfer them from one industry to another. Therefore, as an incentive to economy in labour costs I regard this as useless. But I regard it also as being capable of causing a great deal of hardship.

I must say a word about the constitutional position. I am well aware that the Chancellor well knows that he is doing something which has never been done before. It is not the same as the minor adjustments of Purchase Tax which were contemplated in 1948 or 1949. It seems to me that one has always got to compromise between the representative control of taxation on the one hand and the requirement of sheer efficiency in taxation on the other.

The trouble about these two regulators is that they could well have been, as far as I can tell, put into the Bill as legislative action if they were really intended for serious use in the early future. If they were intended as a precaution, then that argument fails and I would not wish to press it. But if what we are doing today, and the short passage of this Bill in another place, is to be followed by the early use of these regulators, then they should have been put into legislation and not left to an administrative Order brought forward very shortly after the passage of the Bill itself.

The Surtax question has led to a great deal of curious argument on the Government side. It is said that this does not really affect the present position because, in the nature of the case, when one is dealing with Surtax, the yield of the benefit of the Surtax concession will not be passed on to Surtax payers fully for a couple of years or even partially for one year. Surely that is a very "phoney" argument indeed? The Surtax payer now has to provide for the tax which he will have to pay in a year or two according to whether he pays under Schedule D or Schedule E. I dare say that he does not always do that, but he should. When considering the effect on the economy, that should be considered. He knows that he will get the concession and he spends accordingly. That is the point.

Further, that psychological aspect must be considered. The most abstract economist recognises that questions of inflation and disinflation are largely psychological matters—questions of confidence, of willingness to spend or to save as the case may be. I see that the hon. Gentleman the Member for Louth (Sir C. Osborne) seems not to be agreeing with me, but I beg leave to use my ordinary knowledge of human beings to assure him that that is so. Perhaps I did not make myself clear. If a man knows that he is going to get whatever the sum is in a Surtax concession next year or the year after, he tends not to save that amount now but to spend it. Therefore, when considering the question of whether this is a disinflationary Budget, one must reckon the Surtax provisions and also the psychological effects of them.

Hear, hear.

It is monstrous, at a time when we are talking about the difficulties of promoting exports, about the question of competitive costs, when we are saying that productivity is so important and is not advancing by comparison with our competitors, and when putting a tax on industry in the shape of increased Profits Tax and oil tax, the Government should have given these Surtax concessions.

If these concessions had been given along with other concessions, we might not have the same violent objection to them, but when they are given now, against the background of the Budget, which is said to be disinflationary, just after the National Health Service contributions and charges have been increased, then we say, whatever their financial advantages are supposed to be, that they are a gross act of social injustice and political folly. That is the way we regard Surtax concessions at the moment, and let there be no bones about it.

What is a man who is earning a smallish income going to say when he sees that there are little or no concessions so far as he is concerned and when he sees the increase in expenditure which the Government is putting on him, when he knows that, at the same time, 350,000 or so people in the country have received a concession which amounts to about half of the total yield of Surtax and when he sees that this concession is so arranged that nearly one-third of the total income of £19 million out of £64 million in a full year goes not to earned income but to unearned income? What is the justification for that in what is said to be a disinflationary Budget?

Let me remind hon. Members that this is happening at a time when men up and down the country are being asked to be moderate in their wage demands and when hon. Gentlemen opposite are complaining about industrial action of one kind or another. Is this going to help? Surely no single measure could possibly do more social harm than this concession at this moment in the circumstances which the right hon. and learned Gentleman has described to us.

If it were a question of equalising the treatment of the well-to-do in this country as between the well-to-do of another country there might be said to be some abstract justice about it. But surely not now, in a disinflationary Budget—not in a Finance Bill which makes such few concessions to ordinary men on lower incomes, not in a Finance Bill introduced directly after the charges that were imposed. It is on these grounds that my hon. Friends and I consider this to be absolutely indefensible.

To put the matter shortly: because of the character of the second regulator, if it is going to be used, and because of the Surtax concessions, we shall divide the House—a somewhat unusual step on Third Reading.

Is the hon. and learned Gentleman allowing for the fact that a considerable part of this concession might well be saved and invested in British industry, which would add to our competitive ability in the export market?

That can be said of all tax concessions and it raises entirely different questions. This is not even supposed to be a tax in relation to investment at all.

It is supposed to be a relief for earned income and an incentive to executives. The Chancellor of the Exchequer said that it was an incentive. We have never had any evidence to that effect, except the ipse dixit of some hon. Members opposite. The Royal Commission, which went into this matter, found the direct opposite some years ago, and I have no reason to suppose that they were wrong.

I should like to take up three points made by the hon. and learned Member for Kettering (Mr. Mitchison). First, he said that the Budget was supposed to deal with an inflationary situation. I agree with him when he says that the inflationary position has worsened considerably since the Budget proposals were made three months ago. One of the questions which I wish to ask the Chancellor of the Exchequer is whether he feels that the proposals which he made three months ago are adequate to deal with the vastly worsened position of today.

The second point made by the hon. and learned Gentleman which I wish to take up is this. He said that the overall deficit of £68 million was out of all proportion to the concessions being made. The Chancellor of the Exchequer has to say "No" to the spending Departments during a whole year if he is to preserve only that £68 million overall deficit. I hope that he will be able to keep to it, but I have grave doubts about that.

Thirdly, the hon. and learned Gentleman said that the Surtax concession could not be justified socially. I think that there is a good deal to be said for his point. It is the executives who will benefit mostly from the Surtax concession and who will decide largely whether extra effort is made to put our goods into the export market or into the easy home market. At the end of twelve months, my right hon. and learned Friend will be justly entitled to go to them and say, "Unless you have improved your efforts in the export market, I will take the concession away".

That is Little Bo-Peep.

You probably understand Bo-Peep. It is a game that you play, and you are qualified to play it.

I hope the hon. Gentleman will remember that he is addressing the Chair.

I beg your pardon, Mr. Deputy-Speaker. I withdraw that remark.

I wish to make only two points. First, I doubt whether any of the proposals made, especially the regulators, can touch the economic position in which we now find ourselves. In my view, I believe that the economic position has vastly worsened nationally since the Budget proposals were made three months ago. Does my right hon. and learned Friend still think that the steps which he is taking are sufficient to deal with the position which now exists? As I see it, the trade gap has widened dangerously since the proposals were first made.

That is not so. It has not improved as much as I expected, but it has not widened.

Then I withdraw that. It has not improved to the extent that we assumed that it would improve. Therefore, I believe that these regulators will have to deal with a more serious situation than the Chancellor of the Exchequer expected when he made his proposals.

Over the last ten years I have been arguing that both sides of the House have minimised the difficulties which we face. I think that if I exaggerate the difficulties now I will do a service for people outside the House. That is what I wish to try to do. Our gold and dollar reserves have fallen. I think that my right hon. and learned Friend will agree with that. The terms of trade are tending to move against us, whereas before we benefited considerably from a fall in the prices of raw materials. Invisible earnings are getting worse, and our military expenditure abroad is increasing. Lastly, I am sorry to say, but it is obviously true, there is an unfortunate loss of confidence in sterling in the financial centres of the world. These are facts which we must face. The position of sterling is maintained only by the help that we are getting from certain central banks.

My right hon. and learned Friend will probably chastise me for saying this, but I feel that I ought to say it. In some respects, we face a graver economic crisis than at any time since 1931. In those days, the crisis was an international one. Today, unhappily except for this country, the position of most countries in Europe is improving.

rose—

Let me make my speech. What I say to my right hon. and learned Friend and to my hon. Friends below the Gangway is this. In my opinion, the nation is more flabby mentally, morally and physically to face the problems which we face than it was 30 years ago. It is because of this that I wish to ask my right hon. and learned Friend whether he still thinks that what he is trying to do will deal with the problems which face us.

Is it not a fact that my hon. Friend has a reputation in the country for being a later-day Wakes Week?

I have been accused of being a Jeremiah. I do not mind that. I have been reading the speeches which I have made on Finance Bills during the last ten years. I will pass them to my hon. Friend. I stand by them today.

Only last week a Question was asked of my right hon. and learned Friend about national productivity. He said—and this is the background against which we must judge the Budget proposals—the national productivity in the first quarter of this year was up 1 per cent. but that industrial employment was up 2 per cent. Therefore, the net productivity per person was down 1 per cent. Is there anything cheerful about that? It gives me the willies to think about it. It is against that background of the lack of increased productivity that there are increased demands from millions of men for higher wages. How can we stop inflation in conditions like that?

Is the hon. Gentleman aware that between 31st March, 1960, and 31st March this year 362,000 people went into various forms of civil employment and that production dropped? The hon. Gentleman fought his election campaign not on this sort of talk but on the basis that we have never had it so good.

I am sure that I will not be allowed to follow up that intervention, but I would not exchange my election address for the hon. Gentleman's. I would go to my constituents on my election address rather than on the hon. Gentleman's election address. As a say, it is against this background that I ask my right hon. and learned Friend whether his Budget proposals are adequate.

In the Economic Survey which he presented to the House at the time of the Budget, he gave these facts. He said that in the previous year we had paid ourselves in salaries and wages 7½ per cent. more than in the previous year and that the normal working week had dropped by 2½ per cent. Yet production remained at the same level. In these conditions, how can there be anything else but inflation? I want to plead later for the people who have got Government stocks and who have been swindled out of their savings by holding those stocks.

That is not related to the Finance Bill. Is my hon. Friend saying that the Budget ought to tougher or not so tough? If he says that taxes ought to have gone up more, how does that help production, and if he says that they should have gone up less, how does that help sterling? I cannot see the conclusion to which he is leading.

I do not think that the Budget is half tough enough, and I do not think that the Government have told the country how serious the position is. It is high time that Ministers stopped going round the country telling people that they have never had it so good, because they already know it. They are not grateful for it and they think they have a divine right to have it that way.

Perhaps, it would help the House if I were to read from Erskine May on the Third Reading of the Finance Bill. It says:

"On third reading of a Finance Bill, debate and amendment must be strictly relevant to the contents of the bill, and the expenditure of the year and alternative methods of providing revenue may not be discussed."

Clauses 9 and 30 of the Finance Bill—to which I was hoping to direct my remarks—impose certain regulators which, I am suggesting to my right hon. and learned Friend, are not severe enough to deal with the position that has developed since he first introduced his Budget proposals. It is to Clauses 9 and 30 that I wish to direct my remarks, and I hope, Mr. Deputy-Speaker, that to that extent you will allow me to continue.

The tragedy from the national point of view is that it is only the marginal bit that is putting us out of court. We are overspending to about Is. in the £, or even as little as 6d. in the £, but the nation does not realise it. Though it is only so small an amount, cumulatively it can run us into a debtors' prison. All I am asking is whether the regulators proposed under Clauses 9 and 30 will be severe enough. I hope that you will not rule me out of order, Mr. Deputy-Speaker, because this was said in a previous Budget debate by a very distinguished Chancellor of the Exchequer. I do not say this in any offensive manner to my right hon. and learned Friend, but I wonder if he might take a cue from one of his famous predecessors. [HON. MEMBERS: "Sir Stafford Cripps."] Of course it was Sir Stafford Cripps. In the report to O.E.E.C., Cmnd. 7572, it was said:

"The difficulties of the present economic position do not present themselves in an obvious form to the British public."—

I am asking my right hon. and learned Friend to do something more to make that possible now—

"A real and grave crisis in economic affairs seems remote and unreal."

Will the regulators in Clauses 9 and 30 do anything to make men and women in all walks of life, the rich as well as the poor, realise that we are living beyond our means and that we must make a greater effort for the good of the country? The then Chancellor said:

"No Governmental action of any kind can in fact save our present social and living standards."

Sir Stafford Cripps said that. He finished by saying—and this is what ought to be said today:

"We can express our present position,"—

he might be speaking here today—

"robbed of all its technical surroundings and explanations, in quite simple terms."—

this is what he said ten years ago—

"Unless we can all quickly produce more and get our costs cut down,"—

that is the essence of the whole thing—

"we shall suffer a tragic fall in our standard of living accompanied by all the demoralising insecurity of widespread unemployment."—[OFFICIAL REPORT, 26th October, 1949; Vol. 468, c. 1352–3.]

No one believes that possible today. [HON. MEMBERS: "Why?"] Because they have been lulled into a sense of false security. I want someone in authority to warn the nation of the perils that lie ahead. I know that my hon. Friends below the Gangway may think that I am exaggerating.

The facts are miserable.

If the facts are miserable, then I must state them. For far too long we have lived in a fool's paradise.

I wish to cite two more sets of figures. The Chancellor told us in the Economic Survey—and the regulators in Clauses 9 and 30 are intended to deal with these points—that between 1959 and 1960 wages and salaries rose by 7½ per cent. and that ordinary share dividends rose by 24½ per cent. It is no good telling the workers that they must have a wage freeze so that we can export our goods at lower prices unless something is also done about the ordinary shareholders.

Furthermore, in answer to a Question a little while ago, the Chancellor gave the following figures. In the first quarter of this year—which makes it even worse —wages and salaries have risen another 9 per cent., production has remained stationary and ordinary dividends have gone up another 12 per cent. I do not think that the regulators in Clauses 9 and 30 will do the trick. I should like to see a complete freeze for two years of both wages and dividends.

I hope that the hon. Member will not go outside what is in the Bill in this Third Reading debate.

I will leave it at that, Mr. Deputy-Speaker, and pass to my second point. I know that I am not pleasing my hon. Friends below the Gangway.

Under Clauses 12 and 13, Income Tax is at 7s. 9d. in the £ and Surtax at 10s. in the £. I think that both rates are much too high and are inflationary. If we could only get away from the narrow partisan arguments it would help, because hon. Members on both sides agree that these rates are far too high. No one should have more than three-quarters of what he earns taken from him.

I have been following my hon. Friend's speech very closely. I think that it is exceedingly miserable. He said earlier, in response to an intervention by my hon. Friend the Financial Secretary, that he wanted a much sterner and tougher Budget. How does he reconcile that earlier statement with what he is now appealing for, that Income Tax and Surtax ought to be further reduced? My hon. Friend cannot have it both ways. He is talking nonsense.

I am much obliged to my hon. Friend for his intervention. I said that I was in favour of reducing taxation for a certain period. I would say to those concerned, "I want economic results. If I do not get those results I shall put the taxes back again."

My right hon. and learned Friend will be aware that under his Budget proposals the Inland Revenue is expected to produce £3,610 million and that Customs and Excise is expected to produce £2,455 million. I think that savings are taxed too heavily and spending too lightly. I should like my right hon. and learned Friend to reverse the position and to tax savings less and spending more. That would encourage thrift. Because I think that the Budget and those two Clauses in particular are inflationary, I make a plea to my right hon. Friend on behalf of those who hold Government stocks and fixed interest bearing securities who have really paid for the Welfare State we have been enjoying.

On a point of order, Mr. Deputy-Speaker. Is it in order to talk about 3½ per cent. saving bonds on the Third Reading of the Finance Bill?

I was on the point of rising to invite the hon. Gentleman once again to restrict his remarks to what is in the Bill.

I am sorry, Mr. Deputy-Speaker. It is very difficult, as you will understand, to put a case which one's hon. Friends dislike so intensely. But I will not be shouted down by my hon. Friend the Member for Kidderminster (Mr. Nabarro). He is not the Gauleiter of this House yet.

I argue that under Clauses 12 and 13 too much taxation is raised and that that taxation, raised in that manner, is in itself inflationary. I am entitled to argue that on Third Reading. I am pleading for those who are penalised as a result of the effect of Clauses 12 and 13. I hope that that is in order. There are £42,000 million—I ask the House to note these figures—of Government and other fixed interest bearing stocks held by the ordinary people of this country. Over the last twenty years, the value of the £ has dropped to one-third. Thus, the holders of those Government and similar stocks have lost no less than £28,000 million in real purchasing power. I plead with my right hon. and learned Friend, on their behalf, that sterner measures for deflation should be taken so that they do not lose more of their money.

I thought my hon. Friend was arguing earlier that we wanted a reduction in taxation. Now, he is speaking of more taxation.

No, I am not. The Chancellor not only has the power to raise money, but he has also the right to say how much of it shall be spent and where it shall be spent. I want him to play the Molotov and say "No" to those who want to spend too much. I am surely entitled to ask him to do that. [Interruption.] I am sorry about this. I will pursue it no further now. On another occasion I shall seek to put my case when what I say is accepted as being more in order. [HON. MEMBERS: "GO on."] No; I have been ruled out of order by my hon. Friends below the Gangway.

I am a little doubtful about whether my right hon. and learned Friend will raise all the money he expects to raise. I can promise him that company profits this next year will not be nearly so high as, I think, he expects them to be, and his revenue may not be so high. However, on behalf of the holders of Government and similar stocks, I beg him to stick to the money when he has it and see that it is not spent wastefully.

Is the hon. Member aware that the Trustee Investments Bill is to be debated tomorrow and there is an Amendment to this very effect? No doubt, if he has not been in order in his remarks this afternoon, he will be in order on that occasion in particularising and discussing the matter in detail.

I am not sure that my opening remarks will be completely in order, but I feel bound to say that when an hon. Member is making such an earnest contribution as the hon. Member for Louth (Sir C. Osborne) has just made, I consider it a shame that other hon. Members should be so raucous in their interruptions. My own remarks will be directed, with equal earnestness, I hope, to the second of the regulators, the payroll tax.

I am very sceptical indeed about the payroll tax. In order to make my point clear, I will draw upon my experience in the engineering industry, in the tool-room. It is not at all uncommon for highly skilled workpeople to be underemployed for certain periods. I want the Chancellor and his advisers to be very careful indeed in the application of what can be a very dangerous method. In the toolroom, after people have tooled up a job and the job has been put out into production, it is by no means unusual for a lull to be experienced. I have known of it myself, and employers have told me how pleased they were that certain of their skilled men were kept on in such circumstances. Otherwise, when further orders came in which required tooling, they would have been in tremendous difficulties. Indeed, it is doubtful that they would have been able to overcome them. This is a point which should be clearly understood. I regard the payroll tax as indiscriminate and likely to be very dangerous for industry.

I come now to the second impact of the payroll tax, its impact upon the local authorities. The hon. Lady the Member for Tynemouth (Dame Irene Ward) tried to draw attention to this matter in an intervention during the Chancellor's speech. The point she raised was a very important one. To emphasise it, I shall read from a message sent to me by the Town Clerk of Burnley. In his letter he says:

"I would like to draw you attention to the serious effect which such a tax would have on local authorities.

"According to statistics given in the Ministry of Labour Gazette for December, 1960, a census of local authority full-time employees on 25th June, 1960 showed a total in England and Wales of 1,178,755. If a tax of 4s. per week on each of these employees were to be charged, local authorities in the aggregate would have to find about £12¼ million a year, and this would affect Burnley to the extent of £36,000 a year.

"An analysis of these employees shows that approximately half of them are teaching and other education staffs, police, fire officers, or are engaged in the health and welfare services. In addition, many of the employees in the central departments of local authorities are occupied in connection with these services. The employment of teachers, police and fire officers is subject to establishments which are still hard to achieve, and, if the purpose of the tax is to retrict manpower, it is difficult to see how this can serve a restraining purpose in relation to the local government services referred to.

"I think that the object of local authorities generally is to use staff economically and that they need no fiscal disincentive of this kind to induce them to keep their staffs at the minimum level consistent with efficiency."

All I need add is that I am speaking of a constituency second to none in its contribution to our country's industrial and economic welfare. There are constituencies in the South which have by no means inherited such a hard and harsh legacy as has Burnley, and they are not, as Burnley is, in the process of trying to bring an old town up to something like the modern standards which its citizens richly deserve. I feel I am entitled Ito protest strongly against the application of the payroll tax to a constituency such as mine. The payroll tax is a blunt and unimaginative tax, and, for all the reasons I have given, there should be very great hesitation before it is ever applied.

First, I want to say, and I hope that he will not take it amiss, how much I deplored the speech of my hon. Friend the Member for Louth (Sir C. Osborne). The picture which he persists in painting—so black that it creates an impression all over the world and also in every section of our own country that this country is literally down and out and that we are a decadent and flabby race—is so far removed from the truth that he does us a very great disservice. These may be the sorts of conditions which exist in Louth, but they certainly do not exist in my constituency of Ilford.

Nor in Kidderminster.

I only want to add that in Ilford we have one or two substantial industries which are major contributors to our export trade, leaders in their own field who owe no apology to any part of the world for the contribution which they make to the betterment of mankind. We have to face the fact that ever since the war, we as a nation, at all levels of society, have advanced on a very broad front, and I say without hesitation that today the nation as a whole is better housed, better clothed, better fed and better shod than at any time in its history. If that is decadence, I think that we ought to have more of it.

To get back to the Third Reading of the Finance Bill, this Measure embodies my right hon. and learned Friend's proposals outlined in the Budget, and I suppose that in general the Budget can be considered to have had a very good response throughout the country. For the first time for a long time, it was a Budget designed in two parts; first, that which concerns the immediate financial year, and the second part, which contains the regulators, which may or may not be used, plus the concessions on Surtax, which will not operate until about 1963.

I want to address such remarks as I have to make purely and simply to the second regulator, which is the payroll tax, and to express the view that it will never be thought necessary to impose it in this country. I am not propounding any new economic theories, but simply asking my right hon. and learned Friend the Chancellor, the Financial Secretary to the Treasury and the Economic Secretary, hon. Members of this House and the country at large to recognise the economic facts as they have existed since the end of the war, and to try to learn some lessons from them.

If we go back to Lord Dalton's cheap money policy, I think that history will record that that fact of cheap money was probably the most inflationary instru- ment used in this country since the end of the war, and that it was primarily responsible for the conditions which exist in our nation today. [HON. MEMBERS: "No."] I am not criticising Lord Dalton from sixteen years behind the times—we can all have hindsight—but simply saying that, in my view, the cheap money policy of the Labour Government immediately after the war was the greatest contributory factor to the inflationary situation which existed at that time.

Then, we come to the right hon. Gentleman the Leader of the Opposition and his Budget prior to the 1951 General Election.

On a point of order. Is this a speech which can be strictly defined as a Third Reading speech?

The hon. Member is entitled to make that interruption. There is a tendency in this debate to go far too wide.

I have no desire to get out of order. What I am simply trying to say by, I hope, a process of putting one brick on top of another, is how the fact of high taxation—[Interruption.] The hon. Member for Gloucestershire, West (Mr. Loughlin) has made his intervention. Perhaps he will have the courtesy to listen to what I have to say. I was simply trying to build up a case, by putting one brick on top of another, that high taxation is inflationary, and that in these circumstances, the payroll tax should not be introduced. I cannot see that there is anything very much out of order in that. [Interruption.] The hon. Member for Nelson and Colne (Mr. S. Silverman) is very voluble on very many subjects, but it is a great pity that his knowledge is so little where economics are concerned.

The right hon. Gentleman the Leader of the Opposition introduced his Budget to the House at the time of Korea. It was quite obvious at that time that he had to increase taxation in order to meet the expenses, but in proposing that Budget, he said, and this is the important point, that by increasing these taxes and by bringing into effect these higher taxes, it was an honest Budget which would cure inflation.

On a point of order. You will recollect, Mr. Deputy-Speaker, that the hon. Member for Kidderminster (Mr. Nabarro) drew your attention to the fact that the hon. Member for Louth (Sir C. Osborne) mentioned quite a lot that was not in the Bill. Is there anything in the Bill about Korea and the Leader of the Opposition introducing his Budget at that time?

As I said before, there is a tendency for the debate to go too wide, but I understand that the hon. Member was building up his argument in order to deal with something which is in order on the Third Reading of this Bill. I hope that he will do so.

I am obliged to you, Mr. Deputy-Speaker. The net result of this increased taxation as a result of that Budget was to increase the cost of living and to be inflationary to an extent greater than we had ever known in this country.

Then, we come to what I regard as the most disastrous post-war Budget, which was the one commonly known as the "pots and pans" Budget, in which, again, taxes were increased in order to correct an inflationary situation, and, unquestionably, had the effect of increasing inflation. It was not until 1957 when we adopted quite different measures that we were able to correct inflation and to expand without inflation.

The payroll tax, which I suppose is one of the most criticised proposals in this Bill, will not, in my view, serve to do anything that it is intended to do. First, we have to consider that, and we have never heard from the Treasury Bench what exactly is intended by the payroll tax. Is it, for example, intended to cause economy in the use of labour? If that is so, I submit that 4s. a week per person, which is about Id. an hour in the main industries of this country, will certainly not have that effect, but it will cause very serious damage to the little woman at the corner of the street, with a little bakery or greengrocery shop, employing the minimum of labour, maybe only one person, and in that case it is something which will be passed on to the consumer.

The big firms with 5,000 or 10,000 employees will simply pick this up as an additional cost which will go through with their other costs that may come along and will be passed on as a rise in price, which must inevitably be inflationary. The local authorities, the National Coal Board, and all the nationalised industries, which, in the main operate—I will not say on excessive labour—on the minimum amount of labour, will have to pick up this extra cost and pass it on in increased fares or charges in one way or another, so that if it is intended to cause economy in the use of labour, I submit to the House that 4s. per week per employee is a derisory figure which certainly will not have that effect.

If its purpose is to force industry into automation, the figure of 4s. per person per week is equally derisory. If we want industry to develop automation to a greater extent than it has done, it must be put in a position whereby the charge against it for not doing so is penal or almost penal. Alternatively, there must be Income Tax concessions by way of quick depreciation which would enable industry to automate. I submit to my hon. Friend the Financial Secretary that if the intention is to create an automated industry, the minimum figure should be, not 4s., but about £1 per week per person, and it should be accompanied by a provision in the Bill whereby anybody introducing complete automation would be able to write it off in the first year. That would have been a constructive proposal which would have helped production.

Secondly, however, if we were to increase the figure to £1 per week, we would not be able to adopt it in the blunt way that it is being introduced. There would be need to differentiate between all sorts of industries.

On a point of order. I understood, followed and appreciated your Ruling, Mr. Deputy-Speaker, when my hon. Friend raised a point of order just now about things that were not strictly in the Bill, on the ground that the hon. Member for Ilford, South (Mr. Cooper) was building up an argument. It is now clear that he is building up an argument to support a complaint that something which he thinks should be in the Bill is not in the Bill. Is that in order?

I was listening carefully to what the hon. Member for Ilford, South (Mr. Cooper) was saying and I thought he was addressing his remarks to a tax which is being introduced in the Bill. It may be that he was tending to stray rather further, but up to now I have thought that what has been said was in order.

I am obliged, Mr. Deputy-Speaker.

The effect of increased taxation since the war and the introduction of this payroll tax, which, according to my right hon. and learned Friend the Chancellor of the Exchequer, will be an increase in taxation to the extent of £200 million a year, will be highly inflationary except on one condition: that is, if the Government are able to control wages, profits, dividends, prices and all external conditions. That would mean a totalitarian society which we in this country would not accept. The Budget will have the general approval of the country as a whole, but it is sincerely to be hoped that my right hon. and learned Friend will have second thoughts concerning the introduction of the payroll tax.

I do not want to detain the House for any length of time, but I should like to make two comments, one about Surtax and the other in respect of the two regulators. Before doing so, however, I should like to bring the House back to the picture painted by the hon. Member for Louth (Sir C. Osborne), because it is only in the context of that picture and of the facts of the economic situation that one can consider the Bill.

It is no good hon. Members, from either side, complaining when a picture has been painted in the blackest terms. What we have to concern ourselves with is whether this Finance Bill will meet the needs of the economic situation which all of us, whether we prefer the light-coloured or the dark picture, know is developing and is likely to develop quickly in the next few months.

The test of the Bill is whether, in the use of the proposals that it contains, the Chancellor of the Exchequer will be able to meet the economic situation during the next twelve months, and, in particular, the next four months, and whether as a result of so doing he will be able to maintain the existing standards of the people. I am not concerned whether hon. Members opposite call me a Jeremiah or whatever description they apply to me. I do not think that the Bill will meet that situation. Indeed, the combination of the proposals contained in the Bill is more likely to increase the difficulties with which the country is faced.

It is no good saying that, in extremely difficult economic circumstances, we should ask the workpeople to restrain their demands for wage increases and, at the same time, saying that we can afford to give to 350,000 Surtax payers £83 million in relief. It is not a bit of good anybody saying that the Surtax payers will not get those reliefs for another year or two. I never knew of a Surtax payer who could not in any circumstances secure the maximum degree of credit or personal loan. The money will be spent if need be.

Think of the psychological effect. With all the criticism of the trade unions —I admit that they can be criticised—can any responsible trade union official go to his membership and say that, because the country's economic circumstances happen to be difficult, irrespective of the causes, whether or not it is the fault of Government policy, they must not ask for increases when, at the same time, the Chancellor of the Exchequer is prepared to extend benefits of this kind to people who can afford not to have those benefits if the economic circumstances are such an additional factor?

In the first regulator, the Chancellor takes unto himself power to increase certain taxes, whether they be Excise taxes or Purchase Tax. We know that within the next few weeks, as soon as the Bill comes back from another place, because of the economic circumstances it is reasonable to expect the Chancellor to impose taxes of one kind or another.

The Chancellor cannot commit himself. He cannot say that he will impose a 5 per cent. or 10 per cent. increase in Purchase Tax immediately the Bill comes back from another place, but it is reasonable to assume that he will impose an increase. That will mean that the men and women in industry must face an increase in their cost of living. In that event, obviously there will be demands for wage increases.

There are circumstances in which trade union officials, in defence of the work-people's interests, can say to the employees, "Whilst you have a justifiable case for wage increases, you ought to be prepared, not only in the interests of the country but in your own interests, to show a degree of restraint." But if, in the self-same Budget, the Chancellor is prepared to give £83 million to the Surtax payers while imposing taxes that will result in a 3 per cent, or 4 per cent. increase in the cost of living by the end of this year, how can any responsible trade union official talk about wage restraint?

There is not so much danger to the economy if we have responsible people on both sides of industry, but if I am responsible enough, as a trade union official, to recognise the difficulties with which British industry is faced at given times—particularly at the present time, and in the next few months—and to pursue a policy of speaking of restraint to the workpeople, am I not asking for more irresponsible people to assume the leadership in the trade union movement, with dire consequences to our economy?

This is one of the really "class" Budgets and "class" Finance Bills in the post-war period, and it is one for which this Government will be sorry. The Chancellor has said that the trade gap has not widened, but it certainly has not improved, For just a moment I will take a leaf out of the book of the hon. Member for Ilford, South (Mr. Cooper) and indulge in a historical survey. In 1951 the Tory Party was charging the Labour Government with leaving us with a bankrupt country, and was quoting gold and dollar reserves of £1,055 million as evidence of that. Today, our reserves of convertible currency are down to £990 million.

Irrespective of the blame that can be attached for that, and I would attach it to the party opposite, these are circumstances in which there should have been a Finance Bill that would have justified a pulling together by both sides of industry and all sections of the community. This Bill will not have that effect. It is a Bill of which the Tory Party will be ashamed, because it will only make our serious economic position worse than it ought to be.

I hope that the hon. Member for Gloucestershire, West (Mr. Loughlin) will forgive me if I do not pursue him, as I could. We have heard all these arguments about Surtax and wage restraint time and again, not merely in the last three months but certainly during the eleven years that I have been in this House. There is obviously a clear party political difference between us, and I do not think that it would do any good to go over all the ground again.

I would only say to the hon. Member that I should like to think sometimes that he and his friends gave us at least the credit for holding our views as honestly and sincerely as they hold theirs. I do not dispute that their views are honestly held, but the implication of the hon. Gentleman's speech was that anyone who disagrees with him is a crook—

Oh.

On a point of order—

It is not a point of order, and the hon. Gentleman knows it.

I very much doubt, Mr. Deputy-Speaker, whether it would be Parliamentary language on my part to call the hon. Gentleman a crook.

I am very pleased to say that the hon. Gentleman did not call me a crook. I said that was the implication of his remarks—but I do not wish to pursue the matter. I believe just as strongly that to confiscate 75 per cent. of any man's honest earnings, provided they are honest—and, if they are not, our law is quite capable of taking care of that—cannot be justified on any grounds of social justice at all but can, in fact, be justified only on grounds of sheer envy.

I was interested to hear the hon. and learned Member for Kettering (Mr. Mitchison)—and I am glad to see that he has returned to enliven our debate—assure us that he and his hon. Friends opposite were so arranging their affairs as to take care of their own Surtax liabilities in 1963. Perhaps I had better consult either the hon. and learned Gentleman or his hon. Friend the Member for Gloucester (Mr. Diamond) professionally to find out how it is done. I wish I knew.

The regulators have taken up much of this debate. I still believe, as I said in the Budget debate, that these represented a courageous and imaginative approach and I have no hesitation in supporting the approach. I think that my right hon. and learned Friend has done the House and the country a great service in bringing forward these new ideas about economic regulators. This is the first time they have been debated or argued at any great length but, having sat through much of the Committee stage—and when, unfortunately, I had to be absent at times, I read the reports of the proceedings very carefully—I am overwhelmingly convinced that neither of these chickens will run. I am quite convinced of that.

I believe that the propositions advanced by the hon. and learned Member for Kettering about the payroll tax were completely right. To apply a tax like that to policemen, to school teachers, to nurses, to farm workers and to all the various classes of people of whom we are desperately short simply cannot make any kind of economic sense, and I hope and pray that we never get round to using that regulator.

I feel the same way about the Purchase Tax regulator. I can well remember sitting here many years ago, in the days of Sir Stafford Cripps and his great doctrines of austerity. The slogan then was that we would stop inflation by mopping up surplus purchasing power. I never found anyone in my constituency who ever had any surplus purchasing power. I have certainly never had it myself, no matter how hard I have worked or by how much the good Lord has been kind enough to increase my income.

In fact, one never did mop up surplus purchasing power. This exercise was tried time and time again, and I think that the last and most disastrous example we have had in this Government was the unfortunate "pots-and-pans" Budget. when Purchase Tax was put on household utensils. We all know perfectly well that it did nothing whatever to stop inflation. It did not mop up any surplus purchasing power at all.

Surely, we have now had enough experience of this utterly wrongheaded economic thinking, which seems to exist nowhere in the country but in the Treasury, to know that every single time we have raised taxes to try to counter inflation, to mop up purchasing power, the effect has been the same. The 80 per cent., roughly, of the community who are in a position to take counteraction, do so. That means not merely the trade unions but everybody who works for a living in one way or another. The British people are far too acute and far too intelligent to be caught napping by something as blunt and dull as this.

The remaining 20 per cent, of the community, the people on small fixed incomes, cannot take counter-action, the whole thing balances out in a matter of a few months at a higher level, and they are left even further behind than they were before. If my right hon. and learned Friend imposes this tax, I believe, I am sorry to say, that the same thing will happen again.

I admire his courage and his imagination, and I congratulate him in that I think he has done a great service in having brought forward these proposals so that they could be really seriously considered and argued in this House and by the public, but I do believe profoundly that now that that has been done the overwhelming weight of the argument is against both, and I hope that he will reconsider them both very seriously.

There is one more point I should like to make. All through these debates from the very beginning, whatever Clause we were concerned with, whatever the subject under discussion, the Chancellor himself and all of us have constantly been coming back and back, as we have been forced to do by the logic of the argument, to the problem of the balance of payments, the need for exports and the stability of the £. I do not think there was one Clause, with the possible exception of that about relief to the victims of Nazi persecution, on which we were not sooner or later considering the effect of it on the balance of payments and the expansion of British industry.

My right hon. and learned Friend has said time and time again that this is in the forefront of his thoughts. We all of us support him wholeheartedly in that policy. I still believe, contrary to the party opposite, that the Surtax concessions are very important in that context.

We had a considerable debate initiated by my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) on export tax incentives. My hon. Friend the Member for Kidderminster (Mr. Nabarro) and the tax committee of the Federation of British Industries—and we could not have two more sound pillars of orthodox taxation policy—were dead against the measures which my hon. Friend the Member for Peterborough was suggesting. As the Chancellor knows, for we have discussed it over the years, I have always accepted the view that any kind of deliberate adjustment of our tax structure to assist exports is probably unpractical or impossible.

I just want in finishing my speech to say, with whatever authority I can command as having some experience in this specialised field, that I have now come to the opposite conclusion. I am quite convinced that if my right hon. and learned Friend does not find some solution of this problem he is not going to solve the exports problem and the balance of payments problem as he is trying to do, and in this objective, which we all support, he will not succeed.

It is really not good enough for my hon. Friend the Financial Secretary—I am sorry that he has left—to go on saying that we have persuaded other countries to drop these things. We all know perfectly well that they have not dropped them. It really was not good enough for my hon. Friend, whose skill and ability I admire immensely, to say that we have Purchase Tax and that when somebody exports from this country he does not pay Purchase Tax and that this compares with the remission of turnover tax paid by the Germans. There cannot be the remotest comparison between these two things because in the field of capital exports, with which we are here primarily concerned, Purchase Tax does not apply.

Our manufacturers competing with the French or the Germans or the Italians for a major power station or railway installation, those sorts of things, do not pay Purchase Tax on those things in the home market. In those countries there is a turnover tax paid by the manufacturers who are our competitors. Whether it is done officially or unofficially, no matter how it is done—it is done and we know it is done, and the proof has been sent to Ministers time and time again—the local tax man, whoever is the authority, says, "If you need a 7 per cent. margin to beat the British we will remit 7 per cent. of the tax on this order to allow you to do it." We all know that happens.

I do implore my right hon. and learned Friend to look at this seriously again, because I think that this is a major gap in his arrangements for what he wants to do and in which all of us support him.

We have in this Bill Clauses 17 and 18 relating to tax reliefs for development purposes throughout the Commonwealth. Our partners in the Commonwealth have no trouble in arranging discriminatory taxes to encourage the things they want to do. That is why these Clauses have arisen. In Jamaica where there is a trade union and Labour Government, because that Government are anxious to encourage the capitalists, they will give a 10-year tax-free holiday. This is done with the full blessing and on the initiative of the trade union leaders, because they know this is the way to attract capital into their country and raise the standards of their work-people. In Barbados, in Trinidad, in all these other countries, we find this succeeding because they are encouraging it in the right way.

We here are told that it is administratively terribly difficult. We are asked how we would distinguish—this is the point my hon. Friend the Member for Kidderminster made—between the direct exporter and the people who supply all the parts. I find that most of my friends in industry are quite prepared to accept the logic of this tax concession. The tax concession goes to the man who takes the risk and makes the effort to export. It is perfectly true that somebody else supplies, for instance, the wheels and tyres of the motor car, but that to him is home trade; there is no export risk; there is none of the enormous cost and problem of export. The man who actually takes the risk, I believe, must have the incentive, and I implore my right hon. and learned Friend to look at this one again.

I suspect—

I was trying to finish.

There is no hurry.

There is.

Yes there is. Others want to speak.

I merely wanted to ask the hon. Gentleman, although I agree with the latter part of what he said, if he would explain his point about the turnover tax. I am trying to follow his argument. When that turnover tax is reduced—suppose it is remitted—and the manufacturer pays ordinary, straightforward tax, what advantage has he, and how, over the British manufacturer who is already competing paying ordinary, straightforward tax?

I thought the hon. Gentleman was a chartered accountant. He knows the answer to that question as well as I do. You have just returned to the Chair, Mr. Speaker, and I suspect that had you heard what we were both saying you would probably have ruled us out of order, and I imagine that if I were to pursue the answer to that question I should be completely out of order.

I should like to say finally to my right hon. and learned Friend that I support him. I think he has done something which was courageous and of great value in bringing forward the proposals he has, but I hope he will consider the arguments, which I believe to be overwhelming, against the use of these regulators, and I hope that he will consider again very seriously this problem of incentives to exporters, because it really will be no consolation to the country if we are to starve like gentlemen so long as the sacred principles of the Inland Revenue are preserved. The sacred principles of the Inland Revenue, I believe, ought to be breached, and must be breached if we are to make the advances in the export markets which we want and if industry is to make the progress which my right hon. and learned Friend wants, and I hope and pray that he—I hope, indeed, it will be he—is going at long last to solve this balance of payments problem which has haunted every Government since 1945.

I am a little puzzled by the attitude of the hon. Member for Somerset, North (Mr. Leather) whose speeches I always listen to with interest. He has congratulated the Chancellor six times in the course of a relatively brief speech and yet the entire burden of his speech was to say that the proposals in the Finance Bill were either mistaken or inadequate. I therefore find it a little difficult to know on what act of courage the hon. Member is congratulating the Chancellor.

I have not been quite as active this time as I have been sometimes in discussions on the Finance Bill, but that at least gives me the advantage of coming to the Third Reading with a relatively fresh mind. I recognise that we are discussing the Bill in its final stage in the House in economic circumstances which are causing disquiet. When the hon. Member for Louth (Sir C. Osborne) was making his speech there was considerable hilarity below the Gangway opposite.

The strongest terms of disapproval among my hon. Friends and myself, but there was no hilarity on my part.

There was derisive laughter, and the usual interventions from the hon. Member for Kidderminster (Mr. Nabarro) who kept reiterating the word "miserable". All I suggest to the hon. Member is that possibly he did not have on his breakfast table this morning the same newspapers that I had on mine. I do not know what the hon. Member reads. Possibly Sporting Life is his first paper.

rose—

No doubt the hon. Member will be able to explain to the House later exactly what his breakfast table reading is. I have an assortment of newspapers. Among them are the two which are sometimes called in inelegant language the "posh" papers, The Times and the Guardian. It happened that this morning, when I was thinking of the Finance Bill in terms of the financial situation in which we would be asked finally to pass it, I read the leading article in the Guardian, and the comments of the City Editor of The Times. Anybody who reads those two articles and comes here in a mood of complacency and utters the word "miserable" to the hon. Member for Louth has an inadequate grasp of the country's economic situation. I also had the benefit of reading Lloyd's Bank Review and I commend it to the hon. Member for Kidderminster.

I read it this morning.

I congratulate the hon. Member. If he has done so, I am sure that he will realise that there are persons who are of at least equal, if not possibly superior, reputation to him as economists who take the view that our economic position is extremely serious. I hope to return to that subject before the end of my speech, but meanwhile I should like to make one or two comments on the three subjects which are the kernel of the Bill, that is, the two regulators and the Surtax proposals.

A great deal has been said in criticism from both sides of the House about both regulators. First, the Chancellor himself admits that they are excessively blunt instruments. We all appreciate that. There is something to be said from an industrial point of view, for example, for the payroll tax. There is something to be said for some kind of arrangement, possibly through National Insurance, for seeing that on the one hand we penalise firms which do not do all they might to economise in labour and, on the other, for seeing that there is a redundancy fund for workers made redundant if a firm goes in for automation. But we cannot discuss that on Third Reading of this Bill.

If we look at this from a purely industrial and not a fiscal point of view, there might be something to be said for some kind of quid pro quo on those lines, but this payroll proposal clearly has not been adequately digested in the Treasury, be-fore being presented to the country. At the beginning we had conflicting explanations from the Government. There was one moment when it looked as if the payroll tax was intended to be an industrial regulator, to economise in labour and to encourage the substitution of machinery for manpower. That one aspect was mentioned at the beginning but it was quickly dropped. Then we were led to believe that this was nothing at all to do with industrial economy and the substitution of machinery for manpower but was a purely fiscal measure. Then various anomalies were brought to light and hon. Members have already pointed out the fears expressed by local authorities and people in public services that this transfer of people would lead to a vast amount of administrative expense without making one iota of difference to the economy.

One could think of thousands of anomalies that would have arisen. There are, for example, the various educational and charitable institutions which would have applied for exemption. One with which I have some connection wrote to me to say, "Dear Mrs. White: You will realise that our position will be made much more difficult if this goes through. Will you bring up our case in the House of Commons?" and so on. As I found it difficult to believe that this scheme would ever be operated, I have not wearied the House with these individual appeals which I am sure most hon. Members have received.

It is obvious that there would be anomalies in cases of this kind and also in industry. The cinema industry, with which I have had a long connection, is required by statute to employ a certain number of people in a cinema when a performance takes place. There would be a sense of injustice if one employee were penalised in a situation in which one could not economise in manpower anyway even if one wished to do so.

This, as I have said, is an ill-digested proposal. One is not against innovations in fiscal policy—far from it. We all like to think that people in the Treasury use their intelligence in these matters, but they must do so to better effect. It is a great pity that in one of the very few efforts on the part of the Government to bring some new device into our economy they should have got off to such a bad start on this one. It is very regrettable that in their first essay into something novel in our economic arrangements for many years this proposal should have been so ill thought out and should have met with such an unfavourable reception in all quarters of the House and in the country.

The other regulator, the increase in indirect taxation by Treasury dictate, is not new. We had that principle in the Purchase Tax although there it was not just a fiscal matter. There was a reputable argument that knowledge that a change in Purchase Tax would take place only at the time of the annual Budget led to a reduction in purchases over the preceding period. There was a good deal to be said for giving the Treasury some leeway if it wished to introduce changes in Purchase Tax at some other period of the year and thus avoid a slack in purchasing. I believe that that was one of the main reasons for allowing these changes in Purchase Tax to be made.

This kind of regulator, however, has no such purpose. This, again, is a purely fiscal measure, falling on the just and the unjust alike, and one can well see how difficult it would be to operate except over a short period. We have already had discussions during debates on the Bill on the existing tax on motor cars and on other commodities subject to tax. If in certain circumstances, especially where exports were concerned, these taxes, for general fiscal reasons, were substantially increased by 10 per cent., we might have serious industrial consequences. Therefore, it also appears that this blunt instrument is too dangerous to use except possibly for short periods. There is also the strong argument of the hon. Member for Louth and the hon. Member for Somerset, North that whereas other people can adjust their earnings over a period to new standards of prices, those on fixed incomes are left behind. They and those on retirement pensions can never catch up as quickly with the rise in general prices. Therefore, I repeat that on both these regulators there has been too little thought. The criticisms have far outweighed the commendations.

The Surtax proposals constitute a third major part of the Bill. I do not need to go again into the arguments which we have used on this side of the House since the Budget. An hon. Member opposite said that the Budget was in two parts. We consider that it had a most unfortunate preface in the Health Service charges and that it has really three parts. We feel very strongly that in the economic situation in which we find ourselves that was a most undesirable step.

The Chancellor in his speech today commending the Third Reading of the Bill said that among his major objectives had been restraint of personal consumption. I find it hard to see how a remission of Surtax of £83 million will restrain personal consumption. The hon. Member for Louth said that higher taxation encourages spending. I also find that very difficult to believe; but perhaps I heard the hon. Gentleman wrongly. In any case, I cannot see how a remission of £83 million will restrain personal consumption.

If one has more money it is true that some people will save it, but I suggest that many people who will have the benefit of the Surtax concessions will simply improve their standard of living. They will say to themselves, "We will take the family this year to Juan-les-Pins instead of the little place near Dieppe." That is the kind of thing that is likely to happen with the people who will get these tax remissions.

The Chancellor said that he wanted to improve incentives to effort and initiative. That was one of the reasons which he gave for the remissions in Surtax. We all remember the ridicule which my right hon. Friend the Member for Huyton (Mr. H. Wilson) poured on this as the great incentive to export. As he pointed out, a great many people who have nothing to do with exports will get the remission just the same.

In any case, I wonder whether these remissions of personal taxation have any connection whatever with improvements in our export trade. I just do not believe it. I am not an accountant and I am not a sufficiently skilled economist to know whether the suggestions made by the hon. Member for Somerset, North about more direct inducements to export are sound or not. I should not like to judge; I am not in a position to do so. However, I feel very strongly that, whether his proposals are good or not, just allowing Surtax payers to have a little more personal income is neither here nor there. Our export situation is very serious. One reason given by people for our going into the Common Market is that unless we have the cold wind of competition our industrialists simply will not manufacture for export or sell adequately overseas.

We have to ask ourselves whether the Surtax remissions really will meet the situation. I have been given some examples by someone who has an unrivalled knowledge of our commercial and export efforts in certain parts of Africa. I choose three specific instances in which British exporters have just not come up to scratch. I ask hon. Members whether the Surtax concession affects this or not.

There was a new hospital to be built, and £2½ million was to be spent on it. A great deal of equipment for it was needed. Inquiries were sent to manufacturers in this country, Switzerland, Germany and Sweden. The response by the British manufacturer was to send a price list and say, "If you want any of these things, here they are". No delivery date or anything interesting was given. Yet the West Germans had people there by air within four days.

Special equipment for overhead irrigation was needed in a drought-stricken area. The development was to be in Israel, but the equipment had to be bought in Europe. Those concerned would not buy the British version because it was not suitable and they could get no delivery date.

Diesel engines were sent out for a railway. The engineers who bought them said they wished they had got them from somewhere else. The engines had not been fully tried out, and there were so many faults and difficulties with them that the engineers said that they were sorry that they had been patriotic and bought British.

There is another point on car exports. Going to some of our territories where one would hope to see British cars, one sees the Volkswagen and the Peugeot. It is only in the last year or so that the British car manufacturer has bothered to take any interest in the East Africa Safari race after the Volkswagen have got themselves in well there.

Will this attitude of mind be changed by giving Surtax remissions? I just do not believe that it will. On the contrary, I think that people who find that their personal lives are more comfortable through their having Surtax remissions will be not more likely but less likely to exert themselves to go out for the further exports which we really need if we are to maintain our position in the world. We are not maintaining our position in the world at present.

I end simply by drawing attention to the comments with which I started in the context in which we are being asked to pass this Finance Bill, so that we may judge whether it is adequate or not. The Guardian leader begins

"A decade of Conservative remedies has failed to cure the United Kingdom's economic malaise."

It is interesting to note that we have now had ten years of Conservative administration, though we have had more than ten Budgets, because there were a couple of emergency ones.

If we look at the comments on our situation made by people who are perhaps better qualified than many of us in this House, we must agree that this year's Budget, far from being courageous, is inadequate, and that if it was based on miscalculation three months ago the Chancellor has failed in not having the courage to come to the House and say that he was mistaken. Instead of asking us to pass this Bill, he should have amended it in many respects. I find myself quite unconvinced by the arguments which have been advanced in support of the Bill, and shall join my hon. Friends in voting against it.

This is the twentieth or twenty-first Finance Bill in which I have participated, and I am very glad to see the last of it. This is a tedious annual institution which is not in proportion to the needs of the times. It is like a Victorian novel which we are reading and rereading year after year. I represent quite seriously to the House that there is a case for shortening considerably the proceedings on the Finance Bill. The Treasury seems still to be obsessed by the idea that this has a significant effect on the major aspects of our economic life. If we are moving into a jet propelled age, it is no use going back to Trollope, except for light relaxation. One must read Ian Fleming or the hon. Member for Coventry, North (Mr. Edelman).

I have given the figures before in the House of the lamentable differentiation in the economic results in the year following a Finance Bill which was calculated to produce another effect. Time after time we have had a Budget and a Finance Bill setting out a substantial deficit up to £800 million or £900 million below the line, followed by a deflationary situation in the country. Time after time we have set up a Budget and a Finance Bill with a large surplus, and this has been followed by a serious inflation.

Yet these Treasury pundits, these mandarins who sit behind the scenes, are absolutely convinced that they can safely put in front of the Chancellor of the Exchequer a set of figures which will produce a definite economic climate at the end of the day. For days and days and weeks and weeks in this House, on Second Reading, in Committee and on R enort—this year, fortunately, less tediously elongated than previously—we have tried to subtract £20 million here and there. The Chancellor has come in at the last moment and has made a small concession and everyone has glowed with pleasure. It is all very delightful and edifying in this Chamber, and no doubt we practise our debating skill in the process. But it has not the slightest effect upon the basic significant facts which emerge in the course of the following twelve months.

I have with me figures of the marked difference between the actual borrowing requirements of the last three years and the estimated borrowing requirements, as set out by the Chancellor of the Exchequer. They swing about wildly—as wildly as the indications I have given about inflation or deflation. For the year 1958–59 borrowing requirements proved to be £54 million more than was estimated; in 1959-60 the figure was £307 million less; in 1960–61 it was £76 million more.

These budgetary figures deal with over £6,000 million a year, which is what we annually raise by taxation, but the difference between £5,900 million and £6,100 million—about £200 million—has not the smallest effect upon a busy, humming economy which annually produces £22,000 million. An overseas insurrection, a cataclysmic change of fortune, devaluation in another part of the world —anything one likes to imagine as inn act of God—has a much more marked effect on the British economy than these trifling details we toy with, sometimes so zestfully and sometimes so listlessly, at this time of the year.

There is a serious case for the Treasury to consider dealing in very much more violent terms with the budgetary situation—not so much in the sector of increasing or reducing taxation but rather in loan, expenditure and subsidies or redemption of debt so that a swing is produced of about £1,000 million —not just these small figures—if one wants to say that one is using the Budget as a major instrument for rectifying errors in the economy. Otherwise, we must go back to the Victorian ideas of Mr. Gladstone and use the Budget in such a way as to get the minimum amount of money necessary to discharge the Government's functions in society and leave it at that. We cannot go on pretending that the present system of Budget and Finance Bill has a marked effect on the economy.

I want to refer to the Clause in the Bill that provides for the regulator which increases fiscal duties. I believe that this is a powerful weapon, and I am glad that the Chancellor of the Exchequer had the idea of introducing it and that the House has accepted it. To be able to make a swing of 10 per cent. each side of the normal, according to the state of the economy, in any particular month, is a major advance and is a small sign of the basic improvements I would like to see brought about in budgetary techniques in the coming year. To be able to increase taxation suddenly by £200 million is quite a formidable thing. If the Chancellor uses the other regulator as well he will raise £400 million altogether.

That is a great deal better than the effort in the "pots-and-pans" Budget introduced by the Home Secretary when he was Chancellor of the Exchequer. The trouble with that Budget was that it was an irritant and so induced a wage claim, which completely wiped out the effect of the irritant within twelve months. But £400 million is a sledgehammer compared with what has been used before and it should be extremely effective.

It will produce a highly important result. I must point out that if the Government are serious about going into the Common Market they will deprive themselves immediately of the regulator they have just invented. That is one reason, among many, why I hope that they will think again before sailing away into the blue with these attractive countries across the Channel. Why should we deprive ourselves of a useful weapon, which we have only just invented, by marrying up with these Common Market countries? It seems inconceivable to me.

The real basic evil that besets us at the moment is that the Government machine and the expenditure of taxpayers money are far too intermingled with the ordinary natural rights of the private sector of the economy. That famous economist Colin Clark said that any free democracy where the State spent more than about 25 per cent. of the national income would, ipso facto, produce a secular inflation. That has been proved by experience in this country since the war.

The Estimates have increased now to 29 per cent. of the national income, and the Conservative Government are back to the position in which they were in 1954—which is not a very good date because, if I remember aright, it began the big inflation of 1955 and 1956 which had to be put right by the present Minister of Aviation the following year.

It looks now as if Mr. Colin Clark has been proved right a second time. The Government are taxing too much and are spending the taxpayers' money in addition to the inclination of the great generality of the private citizenry to spend money. People are definitely prepared to spend and will go on spending money up to what they conceive to be their scale of living by every possible means, if they are allowed to do so, short of physical controls and war-time regulations. They will get the money if they have to beg, borrow or steal it. They will disinvest. They will demand higher salaries and higher wages in the discharge of what they feel to be the functions of themselves and their families in a civilised community. If the Government go on taxing and spending the tax money on top of that expenditure, they will create a secular inflation.

It is therefore the prime duty of the Government to get away from Lord Keynes and to make an enormous sacrifice in their own spending power and to restore the fortunes of the country. When I hear my right hon. and learned Friend the Chancellor of the Exchequer starting to talk about the dangers of the future, inevitably starting his speeches with threats of new impositions, I wonder whether we are to get from the Government that serious, consequential reduction in their spending which alone will restore the situation.

The Minister of Aviation did that in 1958. He put an immediate ceiling on Government expenditure and that had as powerful an effect as his other measures. I trust that my right hon. and learned Friend will do the same.

What I am grateful for most is that the Chancellor will not follow the actions of the Minister of Aviation in fiscal matters and plunge us once more into the greatest economic crisis which we have had since 1945, to use the words of the Minister himself when he was Chancellor.

I can find practically nothing in what he said about which to agree with the noble Lard the Member for Dorset, South (Viscount Hinchingbrooke). I find it impossible to follow his suggestion that what is in the Budget is of little account. Of course, the success of the country depends not on the efforts of Ministers or Members of Parliament, but on the efforts of every man and woman in the country, but the Budget makes a contribution because it is an indication and a help and a guidance and it encourages or discourages. The expenditure represented by the Budget is only a small proportion of the country's total production, measured in terms of incomes, but it still gives some guidance. It is because this Finance Bill gives the wrong kind of guidance that I criticise it completely.

The noble Lord will have noticed that he alone supports the regulator which is known as the payroll tax. He alone of those who have spoken this afternoon has supported that tax, and those of us who are keen on going into the Common Market will therefore not mind very much if the payroll tax has to be thrown overboard—I have not considered whether it will or not—in the process of greater activity, greater production and sharing with other members of a civilised community many things and a great heritage and a great tradition.

The hon. Member for Gloucester (Mr. Diamond) is quite right to say that I support the payroll tax, but when I was making the point about the Common Market I was referring to the other regulator, the fiscal tax. It is that which will have to be abandoned by our joining the Common Market.

I am grateful to the noble Lord. I understood that he was referring to the payroll tax.

My anxiety about the Bill is that, in the sense that it affects the economy, it does so in the wrong way, paying no attention whatever to the serious underlying circumstances. That was particularly to be noticed during the speech of the hon. Member for Louth (Sir C. Osborne). What the hon. Member was saying he was obviously saying with complete sincerity, but the noise below the Gangway on his own side of the House made it impossible for him to continue, as he said. The comments and jeers on his own side prevented him from continuing, but those same hon. Members who jeered and who subsequently spoke criticised the Government. One criticised the payroll tax and others criticised both regulators, but they all strongly criticised the Government.

It is a great pity that an hon. Member should not be given a fair hearing when he desires to express his views, however unorthodox they may be, or unacceptable, or surprising coming from a particular side of the Chamber. An hon. Member should not have to say that he has been put out of order by his own side and will therefore have to sit down and not continue his speech.

The hon. Member for Louth was making what I thought was a most valuable contribution about lack of confidence, to which he was directing attention. It was those remarks to which hon. Members opposite objected so much, but they can be proved by anybody who cares to look at the finest indicator of confidence which there is—the index of market prices. That index takes the form of an inverted cone. One starts at the bottom of the cone at the beginning of this year and mounts up until one reaches 22nd April, Budget Day. From there on one slithers down fast and the curve was still slithering when I last saw it this morning. That is the confidence which hon. Members opposite and those they represent have in the present situation.

The hon. Member for Louth was completely justified in expressing anxiety. I express the same anxiety and draw immediate attention to those parts of the current Finance Bill whose effects are unwise in the present situation. I refer first, as one must, to the Surtax provisions.

I do not know whether the House appreciates the size of the Surtax reliefs. We have mentioned the figure of £83 million, but I want it to be understood and fully grasped by those who do not deal with figures as easily as some of us that £83 million is not only one-half of the total Surtax, but is in addition to enormous Surtax relief which has already been given during the period of Conservative Government.

I will give only a few examples. A typical example is that of the family man who has two children and who earns £10,000 a year. Over the past ten years he has already had £1,400 a year relief and he is now to get more or less the same amount in one fell swoop. I do not know how hon. Members opposite regard that relief, but I do so by glancing at the figures of the earnings of manual workers, 99 per cent. of whom earn less than the relief which this class of Surtax payer is to get in one year, quite apart from what such Surtax payers have already received.

The £5,000 a year man—beloved of the Chancellor—who has two children was getting £700 a year relief before the Budget. He is to get another £450 a year. I regard that by comparing it with the income of every married couple in my constituency of Gloucester living on a pension. Such a man gets more in Surtax relief from one Budget than a married couple living on a pension get in a whole year. That is the sort of comparison to make. Are hon. Members opposite surprised that we regard this as bitterly socially unjust and likely to do more damage to the relations which are essential if this country is to pull itself out of its production problems?

These Surtax reliefs have been justified partly on the ground of incentive and partly on the ground of an overdue reform. The Chancellor justifies them on the ground that they are an incentive. The Financial Secretary knows that to be nonsense, and he does not repeat it. He goes on the other leg of the argument and attempts to justify them on the ground of being an overdue reform, as he pointed out yesterday.

On the ground of incentive, it would bore the House to repeat the arguments. Said in one sentence, no argument has ever been produced in favour of them. There are four serious considered Reports which give evidence to the contrary. There is the P.E.P. Report of 1960, the Medical Research Report of 1959, the Royal Commission's Second Report of 1954, and the T.U.C. Report before that. All those Reports came to the same conclusion, and hon. Members might also have read the interesting comments of Professor Break of Canada who looked at our taxation system quite objectively and reached the same conclusion as the Reports to which I have referred.

It is utter nonsense, or, as I was guilty of saying on a previous occasion, utter poppycock, to say that giving Surtax reliefs will encourage production, and it is also incorrect to say that this is an overdue reform. The reason the Financial Secretary claimed it to be an overdue reform arose out of the allegation I made earlier, that what we should be looking to was our position in terms of production and productivity compared with other nations. I should have thought that the fact that we are at the bottom of the league table, and have been for the last two years compared with other productive hightly-skilled and highly-capitalised manufacturing nations, was one of the most important things to consider in our economic situation. All that the Financial Secretary said was, "Look where we stand in the league of tax liability". That is what appeals to hon. Gentlemen opposite.

The Financial Secretary went into considerable detail to show that in terms of tax liability a man in this country earning £3,000 a year, if he added an extra £1,000, would get more to keep than his opposite number in Germany, that he would get less than his opposite number in the United States, and therefore we were not too badly off. I am content with the fact that what we regard as important is the league table of comparative productivity, and that what hon. Gentlemen opposite regard as important is the league table of where we stand in terms of tax liability.

Let me now deal with the argument about whether this was an overdue reform. I draw the attention of the House to the effects of the increase in the National Insurance charges and of the current Budget. Let us consider the two together to see whether there is any justification for what the Financial Secretary said two days ago. If we take the two together, we realise that the increase in the flat rate contribution for the ordinary person over the last five years is £13 11s. 8d. a year. I can give the House the details if necessary. Now let us consider whether I am justified in saying that the Government treat the community as two nations in their tax policy.

Consider the family man earning £3,000 a year and upwards. This is the case which the Financial Secretary loves so much and believes in. As a result of the last five Budgets, this man, after taking into account the National Insurance contributions, saves approximately £260 a year. The man earning £5,000 a year saves £860. The man earning £10,000 a year saves approximately £2,000. The man earning £20,000 a year saves approximately £3,000.

I have dealt with that group because they represent approximately 1 per cent., the tap 1 per cent., of the population, and I have shown the benefit which they get out of what I call the last two Budgets added together; benefits varying between £3,000 a year and £260 a year.

Now let us consider the bottom 95 per cent., that is, those earning £1,250 a year or less. The man earning £1,250 a year has had no advantage over the last five years when he takes into account his National Insurance contributions. For all practical purposes he is all square. The man earning £1,000 a year—£20 a week—is £5 2s. 9d. a year worse off. The man earning £600 a year—the average £12 a week man—finds himself £12 18s. 4d. worse off as a result of five years of Conservative tax reduction Budgets and the increase in National Insurance charges.

One is entitled to regard a Finance Bill such as we are discussing today, which puts an additional burden on the bottom 95 per cent. of the population by way of taxes—if one includes, as I properly do, the insurance contribution as a tax—and takes off those earning more than £3,000 a year very considerable charges indeed, as a demonstration that the Government identify themselves with the top 1 per cent. and care naught about the bottom 95 per cent.

The Chancellor of the Exchequer uses as his image a man earning £5,000 a year, as he did in his Budget speech, and the Financial Secretary uses as his image a man earning £3,000 a year. Naturally, as a younger man, a bachelor, the Financial Secretary places his target a little lower. No doubt as the years go by it will rise to the £5,000 a year man. I believe that they are incapable of understanding what the ordinary man feels about this Budget. If that is not the case, I cannot conceive of them carrying through the proposals.

I shall say very little about the tax regulators, because we have discussed them at length. There has been no support from this side of the House for the second regulator. I supported the first regulator during the Committee stage, and I repeat that it is refreshing to have a new idea. I believe in controls, and, unlike the noble Lord, I believe that we need more planning instruments and not fewer. I said during the Committee stage that this was the greatest test of the objectivity of any hon. Member on these benches, because we are being asked not to support an idea like this in principle but to give a Tory Government these powers at this juncture.

It has been demonstrated that I was wrong in giving that support because, although one can justify giving powers to the Government to use between Budget times, one cannot possibly justify aiding a Government to get power by the back-door to levy taxes by Statutory Instruments when in fact what they are doing is avoiding debating them in the House in the normal process of the Finance Bill. Inasmuch as it is now quite obvious that what is in the Government's mind is the possibility of using one or both of these regulators, I say that they have been guilty of the worst possible faith in attempting to get these powers—as they are succeeding in doing —at this time.

It is always a pleasure to follow the hon. Member for Gloucester (Mr. Diamond), who talks on fiscal matters with such great authority. He will not expect me to agree with his political deductions from what is contained in the Finance Bill. Throughout our debates since the Budget, I have given broad and general support to my right hon. and learned Friend the Chancellor of the Exchequer for the purposes of his Budget this year and the Finance Bill which we are debating today, which implements it. The critical words used by the Chancellor are to be found in his Budget statement of 17th April, when he said:

"The first and obvious need is a marked improvement in our balance of payments."

He continued later to say:

"Nevertheless, we have a long way to go in fostering the growth of our exports. We must ensure that opportunities are not lost because there is an overload of domestic demand on our productive resources. Nor can we afford to have our competitive power damaged by rising costs."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, cc. 797–8.]

The financial effect of the Bill's provisions is to give the Chancellor a surplus above the line of £506 million and an overall deficit, to be met by borrowing, of £69 million. Although I have none of the facilities or resources available to me that are available to the Chancellor, in my judgment those figures are approximately correct in current circumstances. It is for that reason that I have voted against the Chancellor only on two occasions in the whole of our debates on the Finance Bill—and they were on sectional issues. First, I voted against him on the increased fuel-oil duty, of which I strongly disapprove. I gave him methods which I suggested would have raised for him an approximately equivalent sum of revenue. Secondly, I voted against him in regard to Schedule A Income Tax. But that did not derogate in any way from the general support I have given his budgetary provisions.

I am sorry that my hon. Friend the Member for Louth (Sir C. Osborne) is not here at the moment. I regret that he should have painted a picture which was lamentably gloomy and unnecessarily miserable. He exaggerated every facet of our economic and financial deficiencies and gave none of the points which he might have called in aid as being encouraging signs. This is not an economic debate, but the purposes of the Finance Bill, which I demonstrated a moment or two ago—I hope succinctly—in the Chancellor's words during his Budget statements, are perfectly clear to all of us, and I quarrel at once with my hon. Friend the Member for Louth and many right hon. and hon. Members opposite who have complained about the rate of growth of our economy. Although he did not say so specifically, my hon. Friend the Member for Louth was evidently referring to a reply given by the Chancellor on 4th July, to the effect that production per head over the last year had fallen by 1 per cent.

My hon. Friend the Member for Louth exaggerated when he said that economic and financial matters had deteriorated very much since the Chancellor's Budget statement on 17th April. That is just not true. Of course, we are facing extremely anxious times, which the provisions of the Finance Bill may help to remedy, but the facts of the situation were given by Professor Paish of London University, in the Listener, published this morning. He took up the words of the hon. Member for Grimsby (Mr. Crosland) and said:

"A simple calculation from the index of gross domestic product per man-hour worked gives us a cumulative rise of 1·9 per cent, a year from 1948 to 1953, of 1·7 per cent. a year from 1953 to 1957, and of about 3 per cent. a year from 1957 to 1960…These figures do not allow for the effects of any lengthening of annual holidays, or for the growth in the numbers of part-time women workers. To allow for these would presumably slightly increase the rate of growth in output per hour worked."

Those are significant figures. If production per man-hour has been increasing over the last four years by 3 per cent. per annum, as Professor Paish indicates—I presume authoritatively—that is not a position which should give any comfort to hon. Members opposite who complain that we are always at the bottom of the league. On the contrary, it shows a continuous and, in my judgment, reasonably large rate of expansion.

I want to make a short point on Clauses 9 and 30, which concern the regulators. Not a single speech made during the last four hours has failed to make reference to them. They should not be taken in isolation from the other similar instruments already in the Chan- cellor's hands. Before the Chancellor took the powers under these Clauses, there were three similar instruments in his hands. There was the special bank deposit scheme, there was the Bank Rate, and there were the hire-purchase restrictions, legislated for periodically in the form of Statutory Instruments. Those are three regulators, to which the Chancellor has now added two more, and I judge those regulators by their effect in aggregation, if they were all used.

In the past I have often proclaimed, both in the House and outside it, my belief that former Chancellors of the Exchequer, notably Conservative Chancellors, did not have adequate economic and financial powers, in a free society, for regulating the economy in conditions of exceptional difficulty. It is for these broad reasons that I support these Clauses, which give two additional forms of regulation which, added to the three that I have named already in the hands of the Chancellor—giving him five regulatory powers in all—used partially or wholly, should give him, in the anxious times to which he has referred, adequate means to deal with the fluctuations in our economy.

I want to say a word in particular about Clause 9. I do not want to try to transform this into a Purchase Tax debate, but I appeal to my right hon. Friend to consider earnestly what would be the effect on Purchase Tax schedules if he used the regulator provided by Clause 9 literally. At present the Purchase Tax rates are 5 per cent., 12½ per cent., 25 per cent. and 50 per cent. If he used the first regulator upwards at 10 per cent., the 5 per cent. rate of purchase tax would become 5·5 per cent.; the 12½ per cent. rate would become 13¾ per cent.; the 25 per cent. rate would become 27½ per cent., and the 50 per cent. rate would become 55 per cent. If the Chancellor applied half that level of regulation the rates would change from 5 per cent. to 5·25 per cent.; from 12½ per cent. to 13·125 per cent. from 25 per cent. to 26·25 per cent., and from 50 per cent. to 52·5 per cent. [Laughter.]

Go to the top of the class.

I am being suitably stimulated by my noble Friend saying "Go to the top of the class."

This is not a rehearsed speech I hasten to assure you, Mr. Speaker. The plain fact of the matter is that the calculation of these very difficult rates in commerce and industry would be highly wasteful of resources. I beg my right hon. and learned Friend to remember that the wholesalers may well have business accounting electronic and electrical machines available, and computers of one kind and another, to help them in these calculations. They may well be able to use slide rules. But the multiplicity of retailers who have to check the paper work and details as to rates of this kind generally have no such advantage and would be seriously embarrassed.

I make this suggestion, therefore, to my right hon. and learned Friend. If he uses his regulator under Clause 9 and applies it to Purchase Tax, will he simultaneously use his powers under the Finance Act, 1948, to reduce Purchase Tax to round figures which are much easier of calculation and in consonance with the currency? I mean by that figures which divide equally into 1s., 2s. or 5s. without involving fractions of pence.

I should now like to say a word about Clause 28. The Master of the Rolls, Lord Evershed, said on 26th June—I quote from The Times Law Report of 27th June—in the context of Income Tax Schedule E:

"It shocks me—it really does. That is why Income Tax is a sort of game, a battle of ingenuity, unrelated to any principle or commonense or ethical considerations, and it is extremely bad for respect for the law. I can only plead that some time, some day those who instruct you—"

the learned judge was referring to my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke), who was appearing as a Silk for the Inland Revenue,—

"will pay regard to the prestige of the law and possibly the welfare of society. Originally Schedule E was confined to a very confined class but I do not see why the distinction should be continued."

Their Lordships, Lord Evershed and two other judges, thereupon dismissed the appeal of a bank manager to have his subscription to the Devonshire Club and the Royal Automobile Club paid by the Midland Bank. They dismissed the appeal and disallowed such a charge.

I think the Court of Appeal was quite right.

I am not commenting adversely on the judgment of their Lordships in any way. I am saying that it is grossly unfair that that appeal was dismissed, whereas I am allowed to charge my subscription to the Carlton Club against my Income Tax. [HoN. MEMBERS: "We do not."] I am greeted from all sides by my hon. Friends saying that they do not. I believe that I am the only Tory Member of Parliament who charges his Carlton Club subscription against his Income Tax—of course I am. My right hon. and learned Friend the Chancellor need not nod his disapproval at me. It is grossly unjust of course. I am saying to my right hon. and learned Friend that the truth is, in regard to Schedule E and Clause 28, that his provisions in this Bill relating to Income Tax generally are grossly inadequate to meet the muddled situation and the jungle which has been created in Income Tax law. It is so bad that hardly any layman can today understand the Income Tax law. It is so bad that we have that kind of derogatory statement made in respect of our legislators by a learned judge.

My right hon. and learned Friend, himself a distinguished lawyer at one time, will know exactly to what I am alluding in these matters. But I discern just a ray of hope from his concluding words when he presented his Budget—I shall harass him relentlessly in the next twelve months—

And I shall harass my hon. Friend about his subscription to the Carlton Club.

My right hon. and learned Friend threatens that he is going to harass me about my Carlton Club subscription. What a disgraceful thing with which to threaten a private Member of this House! After all, the Economic Secretary is a member of the Carlton Club, the Financial Secretary is a member also—

Order. We are here concerned with the Third Reading of the Finance Bill.

Yes, Mr. Speaker. I am endeavouring to relate my remarks to Clause 28. I will not continue in this vein.

I want to quote to my right hon. and learned Friend his own words in his Budget statement:

"I readily acknowledge that there is still much to be done in the reorganisation of indirect taxation, and in the increasing of incentives throughout the economy."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 823.]

I hope that my right hon. and learned Friend will not confine his efforts to indirect taxation. He should apply himself along the lines of the recommendations made by the Income Tax Codification Committee, which sat for years under Lord Justice Macmillan in the 1930s. He should apply himself along those lines if he really wishes to give incentives for higher production and a reduction of the wastage of resources throughout the economy which result from this jungle of Income Tax law. In the ensuing twelve months my right hon. and learned Friend should apply himself to tax simplification and reform.

With those few words of criticism and with, broadly, words of commendation and support for my right hon. and learned Friend—he should not laugh at me when I support him. He cries when I attack him—

I was exhibiting pleasure—modified pleasure.

My right hon. and learned Friend's facial expressions are incomprehensible to me.

I support him broadly in his budgetary endeavours and hope that his objectives are gained. It will be a very delicate and difficult state of affairs this autumn if the trends in our balance of payments, if the trends in the inflationary situation to which I referred earlier, should continue. I wish my right hon. and learned Friend well with his budgetary proposals and I intend to support the Third Reading of this Bill.

My right hon. and learned Friend has expressed three hopes for his present Finance Bill. He said that he believed it would be a disinflationary Measure. He hoped that it would cut personal consumption and that it would encourage saving. With all these objectives I find myself in agreement, but I am bound to say that I consider the psychology of my right hon. and learned Friend to be completely and absolutely incorrect. The speech of the hon. Lady the Member for Flint, East (Mrs. White) showed a greater appreciation of how human beings "tick" than was apparent from most of the speeches made by hon. Gentlemen opposite and by my hon. Friends.

I wish to say a word about Surtax. I do not complain about it at all. I am not involved and so I can speak quite freely. But I wonder whether it has occurred to my right hon. and learned Friend that when anyone obtains a windfall, whether it is from a reduction of the standard rate or by additional earnings or by a reduction in Surtax, on the whole, people tend to spend a little more? That is the way life works.

If I happen to get a little additional income from making a television appearance, giving a broadcast or writing an article, I think to myself, "I can spend a little more on a hat". That is the way the human being works. Although, of course, a great many people put additional personal revenue into savings of one form or another, to assume that by a reduction in Surtax personal consumption will be restrained is a most extraordinary assumption. I suggest that my right hon. and learned Friend might come one day and lunch or dine with the women Members of this House. They could give him a lot of instruction about what happens in matters of this kind.

In regard to personal savings, I think it would have been more helpful if my right hon. and learned Friend had given a little more incentive to small savers. National Savings committees have done remarkable work during the last year. I think they would have appreciated something coming from my right hon. and learned Friend through this Finance Bill to make their work a little easier as they go round collecting for the National Savings Movement week by week. It is no good Treasury Ministers riding above the world and not seeing what is going on underneath them. Without entering into any argument about it, because that would not be in order, I do not think that the ordinary personal investor is likely to be encouraged by what has happened in respect of war stock. That, I think, was the normal, ordinary reaction.

That may be, but I have some difficulty in relating it to the terms of the Finance Bill in the Third Reading debate.

A number of hon. Members have had one or two "goes" about that. I do not intend to pursue the subject, Mr. Speaker, but my right hon. and learned Friend opened the debate on Third Reading by saying that he hoped the Bill would encourage personal savings. Therefore, I do not think I should be out of order in saying that I do not think his interpretation was correct.

I wish to say something about the regulators. My right hon. and learned Friend nipped me up immediately—bit my head off, in other words—when I referred to the fact that if the second regulator were imposed throughout the country, particularly on local authorities, and if rates had to go up, it would further embarrass those living on small fixed incomes. My right hon. and learned Friend said that, after all, they are the employers. I wish to point out that if the regulator is meant to encourage economy within local authorities, taking them as a particular example, there is no differentiation made between the extravagant local authority and the good local authority.

In certain local authorities we are short of police, short of teachers, short of nurses and every kind of employee. We are frantically giving additional incentives by increased salaries to police, teachers, and nurses to encourage people to come into those services. That in itself will mean a burden on local authorities. Yet, at the same time, we are saying that we may operate a regulator in order that they shall economise in the use of employees. I agree with what many hon. Members on both sides of the House have said, that this regulator has not been looked at adequately. I doubt very much whether any of the Treasury Ministers have got down to the task of finding out how such a thing would operate.

Another thing which I do not think has been mentioned in the debate is the question of part-time workers. In the present state of full employment in many parts of the country—although not in all parts of the count ry—part—time workers have been encouraged. It will be a great burden on industries which employ part-time workers if they have to meet this additional charge. I hope that my right hon. and learned Friend will not have to operate this regulator but that he will have time between now and the next Finance Bill to think out a better and more practical scheme.

I have noted with great interest that hon. Members representing Northern Ireland have managed to extract Northern Ireland from this provision. I think it extraordinarily unfair that my part of the country, to whose unemployment problems all members of the Government pay lip-service, is not to be treated in the same favourable way as Northern Ireland. I shall not pursue that subject, Mr. Speaker, because I suppose that. Northern Ireland having disappeared from the provisions of the Finance Bill, it would not be in order to refer to Northern Ireland, but I want to watch the interests of my part of the world which I do not think has been fairly treated.

I noticed that in his opening speech this afternoon my right hon. and learned Friend referred to the fact that Income Tax reliefs in respect of increased National Insurance contributions formed an expensive item. The amount is about £15 million. By a Question in the House I tried to get my right hon. and learned Friend to give me an answer about the difference in cost to someone who gets Income Tax relief in respect of a retirement pension and someone who does not get such relief. Needless to say, my right hon. and learned Friend transferred the Question to the Minister of National Insurance, although the object in putting the question was directly related to this additional burden of £15 million on the taxpayer. This matter does not apply only to those who are paying increased National Insurance contributions for retirement pensions. It applies also to National Health Service contributions and Industrial Injuries contributions. Those on lower incomes are paying more for these benefits than those on higher incomes. I take great exception to that.

When my Question was transferred I was surprised to find that the Minister of National Insurance could not read. I thought my Question was quite clear, but he failed to give me an answer. I have not the slightest reason for supposeing that the Ministry ever attempted to work out what the answer was. It would not be convenient if all the figures were presented to the country. Therefore, I challenge my right hon. and learned Friend. Ministers have been able to assess the loss to the Treasury caused by this Income Tax relief, which amounts to £15 million, so—unless it is a completely "phoney" figures, which I do not for a moment believe—they must have some idea of how it works out in an individual case.

I suggest as a challenge that my right hon. and learned Friend should give me a direct figure, supposing that the insurance contribution and income Tax reliefs remain the same as they are today. If I happen to sit in this House for a few more Finance Bills I shall not hold it up against him if anything goes wrong with the calculation, but I want the country to be told what is the difference in the actual amount of money which is paid by those who get the benefit of £18 a year Income Tax relief in respect of their National Insurance contributions and those who do not. I am pretty certain, though I am not much of a mathematician myself, that the country will be surprised if the figures cannot be produced. I hope that the Financial Secretary, if he is to wind up this debate, will meet the challenge and let me have the result.

I want to comment on the reply given by the Minister of Pensions and National Insurance. He said that it was not possible to give the cost of the contributions after allowing the Income Tax relief as the amount of such relief must vary from case to case. Of course, it must vary from case to case, but, at the same time, my right hon. and learned Friend could give an estimate of how much it would cost the Treasury. There must be some means of assessing the basis on which he arrives at his figure. I confidently look forward to receiving it, even if it has to be presented in a table, so that I can go on campaigning in the country once more in support of those living on small fixed incomes and a lower standard of living than the people who get Income Tax and Surtax reliefs.

I have one other point and that is this. [HON. MEMBERS: "Oh."] I have listened to everyone's speech today, and I wish to make my point. If hon. and right hon. Gentlemen opposite groan, may I say that I could talk for a couple of hours without ceasing. I am not in the least likely to do so, because I want to make only one other point.

My right hon. and learned Friend referred to two concessions for which we are very grateful—relief to parsonages and relief to victims of Nazi aggression. He omitted to say that there was one other little relief which was also included in the Budget. I know very well why he did not. His psychology operates for some things but not for everything. Presumably, he did not think that it was a good idea to mention the fact that there has been a slight increase—I think it is £10—in the rate of dependants' allowances. That is one tiny little relief and we have never had any explanation why that relief was selected. I am very grateful for it, but I would point out that a great many people have no relatives on whom they can depend. These people are struggling, and not a single one of them is getting a crumb out of the Finance Bill.

The hon. Lady is complaining about something that is not in the Bill and which she thinks ought to be in it, and that must be out of order.

I was talking about the crumb that is in the Bill. The crumb in the Bill is far too small a crumb and it might help one or two people if it could be extended into a cake. Therefore, I urge my right hon. and learned Friend to give us a few more crumbs.

I end with this one appeal. I hope that the Financial Secretary will say something about this on behalf of his right hon. and learned Friend, because his right hon. and learned Friend seems to have given all sorts of pledges to all sorts of people with regard to big business. I am slightly tired of big business. I can never get any support for the big business that I am interested in—shipbuilding, shipping, dry docks, fishing and all the rest of it. Most of the concessions seem to go to horticulturists and a few other people like that. All that I want is an assurance from the Financial Secretary that all these allowances, which are so inadequately and badly phrased, and badly thought out, will be looked at again.

A rumour has reached me that my right hon. and learned Friend has started an inquiry, but I should feel a little more satisfied if I thought that the whole of the inquiry was not being carried out by the Treasury. I think that the Treasury lives in a world of its own. I want to know whether during the course of the inquiry—

This does not come within the Third Reading of the Bill.

I agree, Mr. Deputy-Speaker, but a lot of the speeches of hon. Members have been very wide while you have been out of the Chair.

The hon. Lady will no doubt set an example.

I shall set an example because I am coming to my peroration. It would be a pity to destroy the form of that peroration, Mr. Deputy-Speaker, and I hope that you will allow me to say that I hope that my right hon. and learned Friend and my hon. Friend the Financial Secretary will be kind enough to ask advice from people who have had experience of life below the level of Treasury life. Treasury life is too much removed from what goes on in the world. A great many people would be only too delighted to give the benefit of their advice which in the next Finance Bill would, I am sure, result in a much fairer and better future for those who live on small fixed incomes. I have not yet made up my mind whether I shall support my right hon. and learned Friend in the Lobby tonight. It all depends on what the Financial Secretary says about this matter when he replies.

We come to the closing speeches in the long debates which we have had on this Bill. It seems a long time since Budget day on 17th April, and it probably seems longer to the Chancellor than it does to the rest of us in the House. The right hon. and learned Gentleman will be relieved that the hon. Lady the Member for Tynemouth (Dame Irene Ward) did not carry out her threat to go on scolding him for another couple of hours. Her speech was, as usual, highly critical of the Government, and it is one of the extraordinary things about the debates on this Bill that so little support has been given to the Government. Most hon. Members who have spoken from the other side of the House today have been critical of one or other of the proposals in this Bill.

I am sure that the House was glad to hear the intervention of the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke), who told us that this was his twenty-first Budget anniversary. We shall agree that throughout that time he has lost nothing of his rigid integrity and nothing of his eighteenth century ideas on economics and finance. He adopted an attitude of lofty disdain for our proceedings on the Finance Bill; with well-starched eloquence he almost said that we were wasting our time on the trivia of financial business and that much which we discussed had nothing to do with the great events of the nation and the world.

The noble Lord referred rather contemptuously to the glow of pride which we all feel when we obtain concessions from the Chancellor during the Budget debates. But we can rarely get big concessions; we have to be pleased with small ones. Moreover, we must bear in mind that even small concessions matter to a lot of people, and it would be a mistake to regard the whole of the debates on the Bill as confined to the broad sweep of economic needs and purposes. The Bill has another purpose. It deals with taxation in the round and it deals with taxation in the smallest detail. Some of the concessions which we sought earlier in the debates, though small, would have been very welcome indeed to considerable sections of the community.

The noble Lord made scathing references to the volume of Government expenditure and roundly condemned the Government for continuing expenditure at its present level. But he and other hon. Members who constantly refer to the present level of Government expenditure rarely say anything about the weight of defence expenditure and the weight of expenditure on education and social welfare, because they know that this is built into our present national and social requirements. The one which we should like to get rid of, and which we hope soon to get rid of, is the crippling burden of defence expenditure. Once we have done that, it may be possible not only to reduce taxation but to extend our social services.

The hon. Member for Louth (Sir C. Osborne), who had a very rough time this afternoon with his hon. Friends, certainly made a very pessimistic appraisal of our economic position, but if to be pessimistic is an error, to be unduly complacent is a more grievous error. I think some hon. Members opposite were more disturbed about the contrast between the Government's statements at the time of the election and the hon. Member's speech than they were disapproving of the contents of the speech itself. But who has induced this feeling of comfort, ease, and well-being? The Prime Minister only the other day said that we were more prosperous than we had ever been. The Prime Minister seems to make the sweet music and to leave the Chancellor to strike the jarring notes. I think the hon. Member for Louth was right to strip the complacency off the political scene and to warn the country that we face difficult and possibly perilous times. It is against that background that we have to judge the Bill.

The Chancellor's worry, as expressed several times, is in the present trend in the economy—the slowing down of the rate of advance. He is right in saying that we cannot continue to prosper on stagnation. Britain is in trade, and that is what we must remember. Our living standards are bound to be in jeopardy unless we can find some way to make a sustained and continuous advance. On these benches, we are of the opinion that the Bill does not facilitate this continuous advance which is so necessary to our rising prosperity.

The Bill will certainly give the Chancellor all the revenue which he is likely to need this year—much more than enough. He is budgeting for £500 million surplus above the line, and that will be adequate, he thinks, to take some of the inflation out of the economy. He is also providing to meet most of the loans to nationalised industries and local authorities without borrowing. The Chancellor says that he still wants savings, but he has made his Budgetary requirements almost independent of them.

Over and above that, the Chancellor has provided in Clauses 9 and 30 for the two regulators which, if used, will bring additional revenue amounting to £400 million a year to the Exchequer, extracted from the coffers of industry and the pockets of the people. Presumably that is the basis upon which he justifies his description of this as a counter-inflationary Bill.

Apart from the major proposals in the Bill, to which I will come in a few moments, there are one or two Clauses which merit comment. The hon. Member for Kidderminster (Mr. Nabarro) referred to Clauses 23–26, which deal with expenses charged against Income Tax on a fairly narrow front. They deal only with the amount to be charged for the use of motor cars. The hon. Member for Kidderminster referred to the comments of Lord Evershed in a case in the Court of Appeal recently. There is no doubt that before long the Chancellor must consider what he can do to clear up the present mess of expenses chargeable against Income Tax under both Schedule E and Schedule D.

Some time soon, I am sure, many hon. Members opposite will be glad to hear from the hon. Member for Kidderminster how he managed to get his subscription to the Carlton Club allowed as a deduction from his taxable income. Either he charged it against his Parliamentary salary as wholly, necessarily and exclusively incurred in the performance of his office, or he charged it against his assessment of business profits as wholly laid out for the purpose of the trade. One day we should like to know which it is. Does he do all his business in the Carlton Club? He must not be surprised if his claim to charge this subscription as a tax deduction is subject to rather closer scrutiny in the future than in the past, although I agree with him that the problem of expenses needs attention. But I do not believe that the solution to the problem of expenses under Schedule E is to bring them into line with Schedule D. In my opinion, if we did that the sluice gates would be wide open, and the hon. Member's speech is proof of that.

I made no recommendations one way or the other. It would be inappropriate to do so on Third Reading of the Finance Bill. I brought out the unfairness of the situation. I was not boasting about the simple fact that the Inland Revenue have for many years allowed me to charge my Carlton Club subscription against income. They do so on grounds that I must have good political conversation—and that is the best place to have it. If my right hon. and learned Friend decides to change the law, I shall warmly support him. I quoted my own case against myself in order to illustrate a totally ridiculous situation. If I can charge my Carlton Club subscription, why cannot any trade union member charge his trade union contribution?

Because we do not do it. We are fair.

I doubt very much whether a search for good political conversation justifies a deduction from Income Tax either on the ground of necessity or on the ground that the expense is wholly laid out for the purpose of trade. However that may be, I do not want to digress on this matter any further, because the Bill deals only with one aspect of the wide range of problems connected with expenses. If the Chancellor thinks that my advice is of any value, it is that much rougher justice would be the best solution and would remove much of the disputation and argument from the relations between the taxpayer and the Revenue.

Clauses 28 and 29 are both welcome as safeguards to the Revenue. The main topics of debate today, however, and on earlier occasions have been the two regulators in Clauses 9 and 30 and the Surtax reliefs. I am sure that the House appreciates the dilemma which confronted the Chancellor in his desire to widen the range of his weapons to deal with difficulties with sterling or balance of payments or other evils which seem continually to beset us. He must realise that the two regulators are just as blunt in their operation as the ones he already has—namely, the Bank Rate, the credit squeeze and hire-purchase restrictions. The difference between them is probably that the two regulators will hit everybody, whereas the others are restrictive in their effect. Clauses 9 and 30 give the Chancellor a double-barrelled blunderbuss with which to pepper everybody with economic grape-shot. That is really what the Chancellor has got, and everybody will feel the effect of them if they come into operation.

If we are looking at this in terms of our future advance economically, I suggest that these, like the other measures which the Chancellor has to curb both consumption and wage increases, cannot be effective for very long. There is no doubt that Clause 9 is intended to curb consumption and Clause 30 is intended to discourage employers from giving wage increases to pay for higher prices. Clause 30 has long since ceased to pretend to be a regulator of the use of labour. It is purely and simply a revenue tax on the employer to disable him from conceding wage increases which are almost certain to follow higher prices following on Clause 9.

I warn the right hon. and learned Gentleman that the two regulators can be effective for only a short time until the tide of demand overtakes them. They are not a remedy for a stagnant economy. Curbing home demand does not of itself facilitate exports, unless there are goods to be exported which our overseas customers will buy which otherwise would be absorbed into the home market. Is there any evidence of failure to meet export demands at present owing to excessive home consumption? I doubt very much whether there is. So the regulators are a negative weapon. They are not a positive contribution to economic advance. They are put in the Bill in a spirit of pessimism and not in a spirit of hope for the future.

I come, finally, to the most grievous blemish in the Bill from our point of view, namely, the Surtax reliefs. It is these proposals which have decided my right hon. and hon. Friends to divide the House on Third Reading. We would have found the other proposals in the Bill tolerable enough to enable the Third Reading to go by without a Division, but we are still not able to swallow the Surtax reliefs, because we have not yet had any real justification for them. The Chancellor says that he believes that there is substantial disincentive because of the levels of taxation at present on higher earnings, but he must have some evidence for that contention if he is to base his decision upon it.

The Chancellor again gave us the league tables. I have never been able to understand what relevance the level of taxation of earned income in Western Germany, the United States of America and Italy has to the level of taxation in this country. Our business executives and directors are not in direct competition personally with their opposite numbers in other countries. They are not emigrating to Western Germany, the United States of America or Italy in numbers that would lend colour to the suggestion that our executives are at some disadvantage compared with their opposite numbers elsewhere. To examine this proposition more carefully we must look at the level of social insurance payments, the level of welfare services, and the provision of education, in this country as compared, for example, with the United States. It is a completely false comparison which the Chancellor and the Financial Secretary keep on making in part justification of the reductions in Surtax.

As my hon. Friend has referred to the challenge the Financial Secretary made in a speech of mine two days ago, would he agree that it is not right to compare American taxes with ours without also taking into account the capital gains tax?

Yes. We all appreciate that there are such differences in all sorts of ways as to invalidate the Chancellor's comparison. What the Chancellor is presumably doing is to put to the country and to the House the argument that, unless the Surtax payer is relieved now, the economy will not expand. That is a very bold proposition to put to the House and to the country. The right hon. and learned Gentleman is backing his judgment with £83 million of revenue and hedging the bet by putting 2½ per cent. on Profits Tax. His judgment rests on the flimsy foundations I have mentioned.

Delving into the explanations of businessmen on this matter, we find some very interesting theories. One put out by the National Union of Manufacturers is that with the present levels of taxation salaries of the top people have to be inflated out of all proportion in order to give them a net income after taxation which they feel is adequate reward for their services. We are now entitled to ask industry this question: if salaries have been inflated in the past because of the high level of Surtax, are they to be reduced now that Surtax is coming down? That is a natural corollary of that theory. If in the past businessmen have had to take much more in terms of gross remuneration than the job is worth in order to take account of the ravages of taxation, now that Surtax is being reduced by anything up to £1,250 a year for people on £10,000 a year, the level of remuneration for Britain's top brass can be reconsidered in the light of these changes. We have not been convinced that there is justification for these reliefs, even if they are postponed for twelve months. In fact, I think that there is probably more objection to a promissory note for Surtax payers on the national economy than there is to giving it to them now. This promissory note will be a serious drain on our resources in several years from now.

Looking at the substantial relief that has been given in this direction and also at the impositions that are being made on the great masses of the public and the threat to extract from their purses what little purchasing power remains to them after they have paid for their essentials of life, my hon. Friends and I feel that we cannot assent even to the Third Reading of this Bill.

The House may be relieved to know that I have to sit on this Bench for the business which follows this Bill and for the business after that, so that I have as strong an interest as any hon. Member in the proceedings of this Bill being carried to an early conclusion. I hope, therefore, that the House will forgive me if I am briefer than is customary on this occasion.

I do not want to comment in detail on many of the speeches that have been made today although I must say a word about the speech made by my hon. Friend the Member for Louth (Sir C. Osborne). I think that my hon. Friend was too determined to be gloomy about our present situation. Among the many statistics and figures which he quoted, there is one—and I will not develop this point but merely refer to it—which would urge my hon. Friend not to forget: during the last two years we have seen a substantial increase in the proportion of our national income going to investment. In those circumstances, it is inevitable that we should have short-term difficulties with our balance of payments and, furthermore, a fairly rapid upsurge in consumer spending as well. Therefore, I advise my hon. Friend to look at all the figures and perhaps to realise that not every aspect is quite as gloomy as he suggested.

One feature of all these debates since April has been that not many hon. Members on either side of the House have qustioned my right hon. and learned Friend's Budget judgment for this year. There have been few criticisms of the Chancellor's prospective revenue surplus or of the small overall borrowing requirement. I remind hon. Members of what the Chancellor said this afternoon; that there is no doubt that the large prospective surplus and the large prospective increase in direct taxation will exert a definite disinflationary tendency. The Chancellor pointed out that the yield of direct taxation went up by over £90 million in the first quarter of the current financial year as compared with the first quarter of the last financial year, and I have no doubt that this surplus will make an increasing impact as the year goes on.

A point which has been very much in the minds of hon. Members is the decision of the Chancellor to take powers for his two regulators. I do not see how there can be any doubt that, in principle, these regulators are needed. We all realise the need to have a balance in our economy between our productive resources and the demands made on them, and we also realise that a mainly free enterprise economy does not automatically steer itself into equilibrium. No hon. Member on either side has ever pretended that it did.

Furthermore, hon. Members should realise that there is no painless way of achieving this equilibrium. We must curtail or limit purchasing power, and we have seen, perhaps more clearly during the last few years, the limits of monetary policy. I do not agree with all the criticism that has been made by hon. Gentlemen opposite of monetary policy, but I appreciate that perhaps, by experience, we have seen its limits. We have seen the operation of hire-purchase controls and how they particularly affect a small section of the economy. Above all, it is common ground in the House that capital investment is extremely important to our future, both from the point of view of exports and from the point of view of strengthening our capacity to increase living standards at home. This demonstrates the need for flexible instruments which will influence consumer spending.

I do not wish to weary the House by making long quotations or giving a great number of figures, but one sensible passage is to be found in a memorandum of evidence submitted to the Radcliffe Committee, an interesting and important memorandum submitted by three economists, Messrs. Little, Neild and Ross. It states:

"…Any Government which takes action to reduce the level of consumers' demand is liable to be unpopular, and its measures are bound to be controversial. But the public—and the Government—must learn to accept that variations in taxation—upwards and downwards—are a necessary and important element in the control of economic fluctuations…"

Those are wise words and I think that the Chancellor's Budget, with his proposals for these regulators, shows clearly that my right hon. and learned Friend sees the strength of that argument.

I do not propose to speak at length tonight about either the first or the second of these regulators. I think that there has been fairly widespread agreement with regard to the first. To those hon. Members who think that any proposal for ever putting up indirect taxation must be wrong, I would say that, first of all, we must realise that the problem of excess demand is not identical with the problem of rising prices. So long as we have excess demand in our economy, then not merely wage costs will rise, but we will get into difficulties with our balance of payments and difficulties over excessive demands for labour as well.

Secondly, I thought that the hon. Member for Grimsby (Mr. Crosland), in an interesting speech on this Clause, made a valuable point when he reminded the House of how important it was to have regulators that acted quickly. He pointed out that the whole purpose of having such a regulator was its ability to bite quickly, and the hon. Gentleman was justified in questioning whether a direct tax regulator could bite as quickly as could an indirect tax regulator.

Thirdly, whatever anyone may say, my view is that most of us are more ready to undertake spending commitments when taxation is falling than when it is rising. These regulators, if put into practice, will have a fairly sharp effect on demand.

On the constitutional point that has been raised, of course we must have a full Ways and Means procedure and a Finance Bill going through all its stages when we bring in new items of taxation or when we introduce measures which affect substantially the distribution of the national income. None of us complains when we have to debate them for a good many hours, just as I make no complaint about the long debates we had about earlier Bills which affected the distribution of the national income. I urge hon. Members to realise that it is wrong that the Chancellor should not have some flexible means at his disposal of influencing the general level of purchasing power in such a way as not substantially to influence the distribution of the national income.

With regard to Surtax, having listened to most of the arguments throughout these debates I am sure that I speak for all of my hon. and right hon. Friends in saying that we are still impenitent about these proposals, and that it is absolutely right that they should have been included in the Bill. A great many hon. Members have talked about these proposals and their impact on wage restraint. That argument, in so far as it has any validity, could have been used at any time during the last ten years. It is true, in any year since the war, that if wages had risen faster than the value of our products the net effect must be a slower rate of economic growth and a lower rate of economic prosperity than we could otherwise achieve.

It is absolutely untrue to say—as hon. Gentlemen opposite have said—that the Surtax reliefs are being paid for out of Health Service charges or contributions. They are, in fact, being financed overwhelmingly out of Profits Tax, the increased Profits Tax imposed last year and the further increase this year. I do not believe, even with these increases in Profits Tax, that our rate of industrial taxation is seriously out of line with the rates of industrial taxation of our chief business competitors. Hon. Members should remember that against these increases in Profits Tax business has gained from the 9d. reduction in the standard rate in 1959.

At the same time, I believe, for reasons that have been explained often in these debates, and before this Bill, that the rate of personal taxation of executives was out of line with the rates of very many of our chief competitors. I shall not quote again those figures that I have quoted, and so have others of my hon. Friends, but I think that they proved their point; that undoubtedly there was a range of taxation in which our tax rates were seriously out of line.

In answer to hon. Members opposite, I should be prepared to justify these proposals both on grounds of incentive and of social justice. On the one hand, I just do not believe that it can be maintained that our high rates of taxation have no effect on the competitive edge of British industry abroad. Equally, I hold to what I said in the Budget debate—that social justice consists of treating everyone fairly in whatever position of society he may find himself, and there is nothing in the least degree just about penal rates of taxation on people of extra ability.

Finally, I absolutely reject the idea that this is in any way a "class" Budget", or that my right hon. Friends have followed a "class" policy. When we look at what has been achieved since 1951 in the way of tax allowances, the increase in the single person's allowance, the increase in the married man's allowance; when we look at the reduction in the standard and reduced rates, and at what we have done for those on small fixed incomes, and when we remember that we now have three or four times as many families with incomes of between £500 and £1,000 a year, I do not believe that idea for one moment.

It is because I believe that we have, over the years, followed a national policy, and that this is a Budget that can be justified on the widest lines, that I ask my hon. and right hon. Friends to approve this Bill this evening.