asked the Chancellor of the Exchequer, if he will consider abolishing or reducing purchase tax on ice cream.

I have nothing to add to my right hon. Friend's Budget Statement.

I am aware of that disappointing state of affairs. Does not my hon. Friend agree that the tax is largely anomalous, because ice cream is not a luxury but a nourishing food, widely advocated by dieticians, used throughout the hospital service, and a useful supplement to the family menu? Does not he concede that the abolition of the tax on ice cream would result not only in expansion in the ice cream industry and increased employment in it but in a reduction of the price of a popular family food?

I am aware that my hon. Friend has one of Britain's largest ice cream factories in her constituency. She will be delighted to learn that the average rate of growth of production of ice cream in the past four years has been about 5½ per cent. per annum, which hardly suggests that the purchase tax on it is acting as a deterrent to the expansion of production of that very atractive product.

How much "lolly" for the Treasury is there in ice cream?

That was not very good. Ice cream forms the major part of Group 28 of the purchase tax Schedule, of which the revenue in 1970–71 was about £12 million.

asked the Chancellor of the Exchequer how much excise duty was paid on beer in 1970 and how much he assesses will be paid in 1971 on the basis that gravities were in the same proportions to the total amounts liable for duty in 1970 and in 1950, respectively.

Duty receipts from beer produced in the United Kingdom were £436 million in 1970 and at unchanged average gravity would probably be about £450 million in 1971. If the average gravity were to fall to the 1950 level, receipts would be reduced by nearly £10 million per year.

I did not ask the hon. Gentleman anything about average gravity. That is the point. We should like to know exactly how average gravity is calculated and whether the gravities were in the same proportion to the total amounts. Does the hon. Gentleman have that information, which would be very different?

In 1950 the average gravity of home-produced beer was 1036.24 degrees. In 1970 it was 1036.87. Beer gravities have changed remarkably little since the early days of the war.

asked the Chancellor of the Exchequer whether he will seek to change the basis of taxation on beer from its strength to its volume.

No, Sir.

Is the hon. Gentleman not aware that under the present system of taxation there is a great incentive for a brewer to water the beer? Does he not agree that while it would cost nothing extra to make it of a higher strength, the brewers, if they did so, would have to pay more tax? Would not a value-added tax on beer on volume be a far better way from everyone's point of view?

The question of value-added tax on beer is one for discussion and decision in common with other V.A.T. questions. As to the question of altering the basis of taxation, the difficulty with a flat-rate increase regardless of strength would be that it would tend to put up the price of cheaper beer and to bring down the price of the more expensive beers. I am not sure that that is what the hon. Gentleman is trying to do.

Does Watney's Red Revolution mean a watering of the workers' beer?

Is the hon. Gentleman aware that every time the gravity of a particular beer declines—and there is abundant evidence that this is happening—a company then saves taxation which it would have to pay to the Government but fails to pass this saving on to the consumer, thereby deceiving the beer-drinking public?

The hon. Member is under a slight misapprehension. The gravity has been fairly consistent since the war. In 1949–50 it had fallen to 1,033·71 degrees, but it rose to 1,036·51 degrees in 1950–51. In 1960–61 it was 1,037·25 degrees, and in 1970–71 it is provisionally put at 1,036·66 degrees. Gravities have been constant for some time.

asked the Chancellor of the Exchequer what amount and detail of 1966 Census information has been obtained and employed by the Inland Revenue services; and to what uses such data were put.

The Statistics and Intelligence Division of the Inland Revenue obtains a considerable amount of statistical information from the Registrar-General's Office, but always within the rules governing the confidentiality of the Registrar-General's figures.

That is the answer I expected.

Order. I do not think that the House can tolerate comments on the Minister's answer. Hon. Members must ask a supplementary question. That is the second time today we have had a comment.

Is the hon. Gentleman aware that that is the answer I expected? Is he also aware that certain categories of information may have been obtained by the Inland Revenue which were not normally obtainable by other Government Departments? What precise safeguards were put on the confidentiality of that kind of information?

The Inland Revenue gets no more information from the Registrar-General than is available not only to other Government Departments but to anyone outside the Government—the details of particular population areas and so on. Perhaps the hon. Gentleman was misled by the headline to an article in The Guardian a few weeks ago. I do not criticise the article. It was accurate and restrained. But the headline used the words "secrets", which was misleading and some may have thought mischievous.

asked the Chancellor of the Exchequer what measures he now proposes to take to reduce the level of unemployment.

I would refer the hon. Member to the reply I gave to the hon. Member for Heywood and Royton (Mr. Barnett) on Tuesday, 27th April.—[Vol. 816, c. 211.]

Is the right hon. Gentleman aware that the success of other countries in maintaining a high level of employment together with a high level of wages has torpedoed his efforts to condemn British trade unions as being responsible for unemployment? Will the Government now accept responsibility for unemployment and take urgent steps to deal with it?

The level of real wages which a country can enjoy depends on a number of factors, in particular the level of productivity. The fact is that recently the growth of money wages in this country has far outstripped any conceivable increase in productivity, with damaging effects on prices, employment and our international competitive position. It is our objective to raise the level of productivity by means of the reforms we are introducing in taxation, public expenditure and industrial relations.

Do not the very disturbing figures for industrial production, which have just been published, show that the base on which the Budget judgment was made was wrong? In view of the amount of slack which evidently exists in the economy, is it not a mistake to suppose that increasing the pressure of demand to take up that slack will add demand inflation to cost inflation?

No, Sir. I do not draw the same conclusion as the hon. and learned Gentleman. The Financial Statement and Budget Report forecast a fall of output between the second half of 1970 and the first half of 1971, but an increase of just over 3 per cent. was forecast to follow between the first halves of 1971 and 1972. I am confident that a recovery in output will take place as the Budget and our other measures progressively take effect.

asked the Chancellor of the Exchequer if he will now publish a White Paper on the integration of the income tax and social security systems.

No, Sir.

Is my hon. Friend aware that a number of hon. Members on both sides are disappointed by the apparently slow progress of the Government's studies of negative income tax and similar systems of integrated taxation and social security? Is it not particularly foolish when we are in process of enacting the National Insurance Bill, which is to introduce the earnings-related contribution to national insurance, to try to pretend that this is not just a social security tax?

I think that my hon. Friend will agree that it would be even more foolish if we were to act prematurely. We are conducting a close examination of these complicated questions and the results so far show that a good deal of work must still be done, particularly on the whole question of child poverty. It would be wrong to attempt to act or even to publish a Green or White Paper until we are a little further advanced in our studies.

Does not the hon. Gentleman agree that there are significant risks to the degree of confidentiality that can be preserved in the integration of such data? Can he give an assurance that the House will have a full opportunity of discussing this matter before any definite proposal is made?

The hon. Gentleman can rest assured that we are not in a position to publish or to produce anything at the moment. The factor of confidentiality is one of the points we have to consider very carefully in any system which involves the integration of a large amount of information.

asked the Chancellor of the Exchequer whether he has yet decided how many rates of value-added tax there will be.

No, Sir.

May I press my right hon. Friend to opt for just one rate of value-added tax? Having one rate and a zero rate means that there are two rates in practice, and if there are more than two, anomalies will proliferate. If this sort of thing happens, one of the great advantages of the tax—its fiscal impartiality—is compromised.

I will take into account what my hon. Friend said, but these are matters for decision nearer the time of implementation. I am aware that Norway, Denmark and Sweden have a single rate, while the practice in the E.E.C. varies from Germany's two positive rates in addition to the zero rate to France's four positive rates.

Irrespective of the number of rates of value-added tax substituted for purchase tax and selective employment tax, it is bound to have a highly regressive effect, making the poor poorer and the rich richer. Will the hon. Gentleman undertake that, when the tax is introduced, if it is, compensating measures will be taken to protect those on low incomes?

No, Sir. As we said in the Green Paper, the effect on the cost of living of replacing purchase tax and selective employment tax by value-added tax will naturally depend on the decisions we eventually take on questions of coverage and rates, and decisions have not yet been taken on these matters.

asked the Chancellor of the Exchequer what is the percentage of revenue raised by the European Economic Community countries from their value-added taxes; and what is the proportion of such revenues derived from foodstuffs.

The proportions of total revenue (excluding social security contributions) derived from the tax in 1969 in the Netherlands, Germany and France were about 20 per cent., 25 per cent. and 45 per cent. respectively. Figures are not available for Luxembourg, or for the proportions derived from foodstuffs. Italy has not yet introduced a value-added tax and Belgium did so only on 1st January, 1971.

Will the hon. Gentleman concede that these figures are apt to cause a great deal of disquiet if we have to accept, in joining the E.E.C., a system of value-added tax similar to those prevailing there? Are not the Government, by their policies at present. pre-empting a bargaining counter unnecessarily?

I cannot accept that latter point. The conditions in taxation, social security and other systems are so different that I do not think that one can draw the conclusions which the hon Gentleman has drawn.

Will my hon. Friend give a firm assurance that when value-added tax is introduced here it will not be applied to foodstuffs at any stage of their production?

My right hon. Friend and I and the other Treasury Ministers have given an absolute assurance that food, with the possible exception of those few items already subject to purchase tax, will be relieved of value-added tax. The method of so doing and the ways of doing it are under consideration. We have published a Green Paper and have not yet come to conclusions. We shall not reach our conclusions and announce them until there has been a proper amount of study.

Will the hon. Gentleman answer the question, which he has still not answered? Will he make it clear that no element of value-added tax will be included in the price of food, whichever system the Government decide to adopt?

I make it clear again —it was stated in the Green Paper and has been repeated since—that food will be relieved of value-added tax. I will not go further than that until we have reached some conclusions from the study of the Green Paper.

asked the Chancellor of the Exchequer what proposals he is considering for the introduction of value-added tax on house purchase.

As the Green Paper on value-added tax indicates, there will be special arrangements for housing; but the exact form of these special arrangements has still to be decided.

Can the Minister confirm that owner-occupiers will not have to pay tax if and when they sell their houses?

As my hon. Friend knows, there is relief for such people on capital gains tax and there is a strong case for relief from value-added tax, but the details have to be worked out after consideration of the relevant factors, including the Green Paper and the views of the many interests involved.

Can the hon. Gentleman assure us that his proposals, when they are published, will not discriminate unfairly between the different types of housing in that concessions given to home owners will also apply to rented accommodation?

The hon. Gentleman will have to await further details. Naturally this type of fairness as between taxpayers is one of the major considerations in the Department.

asked the Chancellor of the Exchequer if he will make a statement on the progress made in his consideration of the method of levy of the anticipated value-added tax.

The general scope of a possible scheme for V.A.T. is set out in the Green Paper. Consultations are proceeding and the views and suggestions offered by interested parties are being considered. It is still too early for decisions to have been taken.

Will my hon. Friend bear in mind that many business men, shopkeepers and hoteliers are worried about the amount of extra work which may fall upon them in implementing this tax, if it is introduced?

Yes, indeed. One of the difficulties is that some people are not quite as quick in coming forward as we expected. If my hon. Friend will get in touch with Customs and Excise, or write to me or put in touch with me any of the interested parties to whom he has talked, that would be helpful all round.

asked the Chancellor of the Exchequer what is his estimate of the cost to the Exchequer of treating husbands' and wives' unearned income separately for surtax purposes.

The information is not available in such a form as to enable a reliable estimate to be made but the cost would be substantial, possibly of the order of £100 million.

As my right hon. Friend has, rightly, introduced the principle of separate taxation on earned income, would it not be right to extend the principle to what is in most cases retirement income? Will my hon. Friend look favourably on the proposition that, if the expense is prohibitive—as I am inclined to accent that it is—it would be fair marginally to increase the rates in order to do away with this anomaly?

I take note of what my hon. Friend said. The expense is great, and this has to be judged in the order of priorities and the other possibilities open to my right hon. Friend. I am sure that my hon. Friend will agree that the only pledge we gave before the General Election was to disaggregate earned incomes, which we have done by giving married couples an option.

asked the Chancellor of the Exchequer what is his estimate of how much a single man, and a married man with one, two and three children under 11 years of age, respectively, needed to earn on 1st May, 1971, to offset the increase in the cost of living compared wth men in similar circumstances earning, respectively, £1,500, £3,000 and £5,000 a year in 1964, taking into account changes in the internal purchasing power of the £ sterling, income tax, surtax and family allowances.

As the reply contains a number of figures I will, with permission, circulate them in the OFFICIAL REPORT.

asked the Chancellor of the Exchequer what is the purchasing power of the £ sterling now, taking it as 100p on 18th June, 1970.

No later information has become available since my right hon. Friend's reply to a similar Question by the hon. Member on 27th April.

Is the hon. Gentleman aware that, since that date, the electors have delivered their verdict on the answer? [Interruption.] Is not he aware that the rejection of 81 Conservative candidates out of 99 in the City of Manchester—[HON. MEMBERS: "Order."] —and 2,800 Labour gains in the rest of the country—

Order.

Order. Questions of order are for me.

—have demonstrated at a stroke what the people think about the lie on which the Conservative Party was elected?

I am sure that the hon. Gentleman was better employed doing public relations for the right hon. Member for Huyton (Mr. Harold Wilson).

asked the Chancellor of the Exchequer what will be the net increase in income afforded by his Budget to those in receipt of gross incomes of £20,000, £30,000 and £70,000 per annum, respectively.

If the hon. Member means the tax benefit accruing to persons on particular incomes, the figures will depend on the personal allowances due to the individual and on the nature of his income. The hon. Member will find some information about earned incomes in Table 17 of the Financial Statement and Budget Report 1971–72.

Is it not the case that these incomes are typical examples of the salaries of chairmen of companies? Is it not further the case that it is in accordance with the Government's policy that the larger the income the greater the relief? Is it not a fact that the more the Government give to the wealthy the less there will be to give to the poor? Will he reconsider this policy, because if he does not, how can he blame people further down the line if they take the Government's example and endeavour to get the best they can for the people they look after?

It is true that in any system of progressive income tax any tax relief gives proportionately greater relief to those whose earnings are highest. They are still taxed heavily. In the group of incomes quoted by the hon. Gentleman, taking a married man with two children and earned income at the lowest, and an unmarried man with earned income at the highest, taxation varies at £20,000 between £10,000 and £15,000 and at £70,000 between £48,000 and £59,000. Those are considerable sums to pay in tax.

Is it not the Government's duty to protect minority groups from injustices, whatever their financial status?

Probably the most damaging concept put across by such questions as those asked by hon. Gentlemen opposite is that there is some significant increase in yield to the Exchequer which could lead to reductions in taxation elsewhere, which, as hon. and right hon. Gentlemen know, is not the case.

asked the Chancellor of the Exchequer to what extent he intends that the system of planning-programming-budgeting shall be introduced in his own Department.

Planning-programming-budgeting shows most promise as a tool for improving the allocation of resources within major expenditure programmes and is not really suited to a Department such as the Treasury which has only a small expenditure, mainly on staff.

Is the hon. Gentleman not aware that management of Government expenditure is not merely a matter of providing accounting information, which is basically all that the Treasury gets at the moment, but also a matter of providing management information, which is different? Surely if the Treasury is to insist, as I hope it will eventually, that all Government Departments should introduce some form of P.P.B., it would be wrong, to put it mildly, if the Treasury did not introduce this system for its own expenditure?

As the hon. Gentleman knows, a number of Departments have responsibility for major expenditure work and are either operating a P.P.B. system or exploring whether one can be usefully introduced. As an example, the Department of Education and Science recently gave evidence to the Education and Arts Sub-Committee about its work on P.P.B. Hon. Members will also be aware that the Government have instituted a system of programme analysis and review which uses some of the concepts of P.P.B. on an output basis. This is being applied to major expenditure programmes and we hope that it will be expanded. On reflection, the hon. Member might agree that the work of the Treasury is so very small, with the exception of the Revenue Departments, that the limited effort which we can mount at the moment is better applied elsewhere.

asked the Chancellor of the Exchequer whether he has decided the size of the first slice of investment income relief, and at what rate this will apply.

No, Sir. This will be fixed in the 1973 Budget.

Would my right hon. Friend bear in mind especially the position of the pensioners who in some cases are able to save during their working lives? Would he try to ensure that no tax obstacle is placed in their way to prevent them from putting aside sufficient to provide an income which will bring them at least to subsistence level and without having any effect on the State pensions they draw?

Those are certainly matters which I shall bear in mind.

Can the right hon. Gentleman not give us some broad idea of what he has in mind? Unless we know whether he is thinking of a figure of £50, £500, or even £5,000, it is impossible to debate the principle of the matter.

I think that there is an Amendment down for discussion this afternoon in the name of the right hon. Gentleman. If he does not think it worth while discussing it, no doubt he will withdraw it and we shall get on with something else. I can only tell the right hon. Gentleman—and as an ex-Chancellor he will appreciate this—that it would be irresponsible to make a commitment now. It is only sensible that decisions on this matter should depend upon the circumstances in April, 1973, which is when the surcharge will come into operation.

The Chancellor should not try to take false points. I quite agree that he could not give an absolute commitment, but it does not make sense to discuss this unless he can give us some indication of what is in his mind. He must know whether he is thinking of a broad exemption or a very narrow one

If it is any guidance to the right hon. Gentleman I can tell him that it is unlikely that we shall accept his Amendment.

asked the Chancellor of the Exchequer what is his latest estimate of the increase in the money supply in the second quarter of 1971.

I cannot usefully add anything to what my right hon. Friend said in his Budget Speech about the growth of the money supply in the earlier part of the financial year.

Does Friday's Bank of England Consultative Paper show a change of policy? Does it mean that monetary policy will be used to manage the economy or, on the other hand, is it just part of the general policy?

Perhaps the most accurate way of looking at the changes in the Friday paper is that they are changes in method without changes in basic policy.

Does the hon. Gentleman not agree that there is considerable confusion in the country about the Government's attitude to this problem? The Chancellor of the Exchequer in his Budget speech said that he was prepared to continue to finance inflation. In a subsequent speech he jumped on the fence and added to the confusion. According to the new Consultative Paper it is obvious that, with the withdrawal from the gilt-edged market, the Bank of England will control the money supply rigorously. The country is entitled to know where it stands.

The hon. Gentleman has come to a number of conclusions. I certainly do not agree that my right hon. Friend's monetary policy is in any way designed to finance inflation. As he said in his Budget speech, it is to achieve the necessary degree of expansion without adding to the pressure of inflation.

asked the Chancellor of the Exchequer if he will publish in the OFFICIAL REPORT the evidence that the major cause of the increase in unemployment is the high level of pay settlements since the autumn of 1969.

Yes, Sir. I will give it now. Firms are forced to economise in their use of labour, our exports become less competitive, imports take the place of home production, and investment programmes are cut back. In these and other self-evident ways, excessive pay settlements cause unemployment.

Is the Chancellor of the Exchequer aware that by no stretch of the imagination can that answer be called evidence? Can he produce any evidence to indicate that recent redundancies have been concentrated in those industries which have granted the highest pay settlements?

If the hon. Gentleman will talk privately to both sides of industry he will find that leaders in the trade union movement no less than management will confirm that what I have said is true.

Is the right hon. Gentleman aware that what he said is quite different from what he said in his Budget statement. He is now squarely laying the blame on excessive imports arising from the difficulties of exporting firms. This will lead to the consequence that the problem is in exports alone. In view of the present balance of payments situation, is not this rather a surprising conclusion?

No, Sir, I did not say that. I gave a list of factors which are causing unemployment at the present time.

asked the Chancellor of the Exchequer what is his latest estimate of receipts in 1971–72 from the duties on fuel oil and on petrol, respectively.

£145 million from fuel oil and £1,315 million from road fuel.

When my right hon. Friend is ready to take the next step in his excellent programme of tax reduction, will he consider these two duties very high in his list of candidates for reduction, particularly because of their effect on the cost of living?

I am sure that my right hon. Friend will note my hon. Friend's remarks.

When the right hon. Gentleman is considering tax reductions, will he think again about the imposition of a meat tax on cheap goods coming from New Zealand which will shortly have a detrimental effect on the cost of living?

Nonsense.

Apart from the judgment on that supplementary question which came from behind me, it has very little to do with the question of fuel tax.

asked the Chancellor of the Exchequer what was the value of sterling balances at the time of signature of the Basle Agreement, and at the latest date for which figures are available.

At end-September, 1968, the month in which the Basle Facility and the Sterling Agreements were concluded, gross overseas sterling area official and private sterling holdings amounted to £2,788 million. At December, 1970, they stood at £3,525 million.

Will my hon. Friend tell the House whether the Government welcome or deplore the build-up of these potentially volatile claims against the central reserves since the signature of this Agreement? If the Government were faced with a choice between exchanging the present dollar guarantee for institutional holdings for a gold guarantee and allowing institutional holdings to be run down, would he choose the latter course?

Despite the fascination of my hon. Friend's argument, I will not be drawn into answering a hypothetical question. On the first part of the supplementary question, the answer can be implied from a knowledge of what the increase is and what the reasons for it are. About half the total increase represents the rebuilding of sterling holdings which were run down during the period between devaluation and the negotiations for the sterling agreement. The other half reflects the proportion of the increase in total reserves of the overseas sterling area countries which comes from their overall substantial balance of payments surplus.

asked the Chancellor of the Exchequer what proposals he intends to make to the banking sector to change existing arrangements on lending ceilings, liquidity ratios, and competition for deposits.

These proposals are set out in the consultative document "Competition and Credit Control", published by the Bank of England last week. Copies have been placed in the Library.

The Bank of England paper "Competition and Credit Con- trol" will be widely welcomed, particularly by those who have long wished to see a greater degree of competition in the financial sector and a tighter grip on the money supply. It also accords very well with the Conservative policy of greater simplicity and competition within the economy. Will my right hon. Friend expand on the precise role of the Government Broker compared with that which he assumed 10 years ago, and the precise composition of the assets to be counted as assets by the finance houses in the future?

The last three points made by my hon. Friend should await the consultations which are now going on between the Bank of England and others concerned. I am grateful to my hon. Friend for what he said about the general proposals. I knew that they would have his support, and the support of some of his colleagues, because they have been pressing for action on this front for some time. All I can say at this stage about the Government Broker is that rates will tend to fluctuate rather more than previously, but it is important not to exaggerate the change. There is no reason why fluctuation in rates here should be greater than in other countries which order their affairs in this way.

Will the right hon. Gentleman bear in mind that many of us on this side of the House welcome the first crack against the bank cartel? Will he now tell his right hon. Friend the Secretary of State for Trade and Industry that he has no objection to action against the banks to end their collusive practices in charges, hours and the provision of services?

That is a matter not for me but for my right hon. Friend. I am grateful to the hon. Gentleman for what he said at the outset of his supplementary question. The Government want to see a competitive banking system, while still retaining an effective influence on the operations of the banks in so far as this is required for the purpose of economic and monetary management.

asked the Chancellor of the Exchequer if he will review the position relating to the payment of corporation tax by bus operators.

I am not aware of any need for a general review. But if my hon. Friend has a specific point in mind, I shall be glad to look into it.

Is my hon. Friend aware that, unlike normal bus undertakings, municipal bus undertakings are not liable for corporation tax? The passengers of the Midland Red Bus Co., which is a nationalised concern, have to foot a bill for corporation tax this year amounting to more than £500,000. I ask my right hon. Friend to look again at this situation, which imposes a burden on fare-paying passengers outside corporation bus districts.

When the Passenger Transport Authorities were set up, it was decided that they should inherit the municipal bus companies' pre-transfer losses. I will take note of what my hon. Friend said, although questions about bus subsidies generally are for my right hon. Friend the Minister for Transport Industries.

Has not the National Bus Company made representations about this matter, and is it not under consideration at the moment?

I am not aware that that company has made representations to the Inland Revenue, but it may well have made them to my right hon. Friend the Minister for Transport Industries.

asked the Chancellor of the Exchequer if he will initiate joint discussions with the Confederation of British Industry and the Trades Union Congress for the purpose of agreeing on a prices and incomes policy.

The National Economic Development Council will be discussing general economic matters at its meeting in July, and prices and incomes will be within the scope of this discussion.

Could the right hon. Gentleman say whether the Government's failure since July, 1970, to curb inflation is due to the fact that they have deliberately turned their faces against any semblance of a prices and incomes policy, and that this is leading to considerable unemployment, considerable inflation of prices and injustice to people who cannot particularly bear it? Will he give an assurance that there will be some attempt soon by the Government to introduce a voluntary policy agreed by the C.B.I. and T.U.C. to bring an end to the present chaos?

As I said, there will be discussions on these and other matters at the July meeting of N.E.D.C. I have never ruled out a voluntary incomes policy, but it would have to be a real and genuine one and not a phoney, make-believe one.

Would my right hon. Friend say whether the Treasury or the C.B.I. or the trade unions are carrying through any consideration of restraining influences which might be placed on industry in the form of an excess wages tax?

It may be that this matter will be raised by somebody when we meet in July, but I do not know as yet.

Since the Chancellor of the Exchequer said that he does not rule out discussion of a prices and incomes policy, does that mean he does not rule out discussions on price restraint?

I said that I have never ruled out a voluntary incomes policy, but it has to be a real and genuine one. I have no doubt that at the N.E.D.C. meeting in July in the wider economic context, we shall be discussing both prices and incomes.

If the Chancellor of the Exchequer is unimpressed by the damage that is being caused to employers, trade unionists and low-paid workers by the absence of a fair prices and incomes policy, may I appeal to him to take action on the ground that such a policy will damage the Government?

I can only repeat what I said in answer to the original Question, namely, that these matters, together with others related to them, are for consideration at the July meeting of N.E.D.C., which is the forum where the C.B.I., the T.U.C. and the Government should discuss these matters confidentially.

asked the Chancellor of the Exchequer if he will authorise the use of money from the Pakistan Flood Relief Fund for purposes of civil relief arising from the recent internal conflict in East Pakistan.

I understand that my hon. Friend is referring to the money collected by a consortium of charities at the time of the cyclone disaster. Ministers of the Crown do not have the power to direct or authorise that money raised by public appeal for one charitable purpose shall be used for another.

Although I recognise that people who subscribe to charity for a specific purpose would normally, rightly, resent having their money diverted to another purpose, would my hon. Friend not agree that the similarity of purpose in this case is so close that to insist on such a restriction is not only pedantic but inhumane?

I appreciate what my hon. Friend is saying. I recognise that many of those who subscribed to the fund would probably be only too happy that their money should go to relieve distress in the civil war, but I am sure my hon. Friend recognises that there would be dangers if the Government had power to authorise diversion from charitable funds from one object to another at the instance of the fund organisers, when the first commitment is not yet fully discharged.

Will the hon. Gentleman say how much the Government are proposing to pay towards the relief of this dreadful disaster area?

That is not a question for me.

asked the Chancellor of the Exchequer how many premium bond prizes have been drawn on premium bonds not eligible for a draw because they have been encashed.

None, Sir.

Although I welcome the reply, which will reassure many premium bond holders who have been disturbed by recent Press reports suggesting that premium bond prizes have gone to the wrong bond holders, is my right hon. Friend absolutely certain that there is no cause at all for any inquiry into the recording system of the premium prize draw?

I am quite satisfied that the administration of the premium bond office at Lytham reduces administrative errors to the maximum possible extent. The recent Press reports arose out of a correctly addressed warrant to a proper bond holder, which was misdelivered in the course of delivery by the Post Office.

I beg to move Amendment No. 12, in page 26, leave out lines 16 to 26 and insert:

(a) in respect of any income not falling within paragraph (b) below, at such graduated rates as Parliament may determine and shall be known as Personal Employment Tax, and

(b) in respect of any investment income at such graduated rates as Parliament may determine and shall be known as Personal Property Tax.

The Chancellor's proposals for tax reform, especially for the reform of personal direct taxation, are extremely welcome to Liberals. What I propose in the Amendment is not directly contrary to the tenor of the Chancellor's wishes or his specific proposals. Rather is it an extension of them, and I hope that it will be received by the Financial Secretary in that light.

To some extent, the right hon. Gentleman's recommendations follow those of the Liberal Party's tax reform proposals, which is hardly surprising since the Conservative Party has also had the benefit of the advice of Professor Wheatcroft, who has now been sent on a peripatetic tour of the country to persuade the nation at large that the Chancellor means business and sense. He specifically put this proposal in an earlier publication on behalf of the Liberal Party.

The present system of direct taxation is complicated and incomprehensible to most people. We have allowances and exemptions and these tend to make absolute nonsense of the so-called standard rate. I maintain that it will continue in future to make nonsense of what the Chancellor now proposes to call the basic rate.

The Chancellor has himself described the present system as too cumbersome, too complex and in many respects absurd, and I could not agree more. He has proposed simplification, but I am not sure that he has gone far enough in this respect. We are told that the Chancellor really wants to go for taxation reform. In his Budget Statement he said:

"We have two taxes on personal income—ordinary income tax and surtax."

He said that the two systems had been subject to separate collection and computation and that this was unnecessarily complicated and a historical anachronism He is absolutely right to attack this system.

He went on to suggest that we had a standard rate which applied only to investment income, which, after all, is only 5 per cent. of all taxable income; it is crazy that we should run the whole of our tax system according to a tax rate which applies to only 5 per cent. of all taxable income.

He went on to say that no one knew what the marginal rate of tax was:

"Many people think that their marginal rate of tax is much higher than it actually is, because they confuse it with the standard rate."

I have myself moved Amendments to previous Finance Bills trying to ensure that this paradox should be swept away. He proposed, therefore,

"… to replace the existing income tax and surtax … with a single graduated personal tax."—[OFFICIAL REPORT, 30th March, 1971; Vol. 814, c. 1386.]

He went on to say that the distinction between unearned and investment income must remain. I will not argue that this afternoon. It is no part of my purpose to argue the distinction between tax on earned and unearned income or earned and investment income, whichever one wishes to call them. There are plenty of uncertainties in the argument. There is, first, the question of whether high income equals high growth, and, second, whether high taxation on investment income leads to low investment, which the Chancellor has accepted but which I think is an over-simplification of the factors involved.

There is a third question—whether high taxes on investment income promote the egalitarianism or distribution. Again the answer is exceedingly doubtful. If that is our aim, as it is certainly mine, it is far better to concentrate on taxes which directly relate to the distribution of wealth such as a gifts tax and an effective and involuntary death tax. That is a far better way of going about it than we have done in the past.

Is the hon. Gentleman prepared to consider the effects of this kind of tax on, for example, encouraging people to save, which all parties have accepted to be an extremely desirable object?

I agree that savings are desirable, but the connection between savings and high investment on the one hand and savings and high growth on the other is by no means certain. This is why I do not wish to delve into that issue today.

I am, however, asserting that whether or not we want it the distinction will remain for a considerable time, as the Chancellor accepted when, in his Budget Statement, he said that it would remain for the foreseeable future, and certainly for the next tax year. The distinction should remain because it allows considerable flexibility for any future Chancellor.

I am seeking by the Amendment to distinguish clearly between two types of taxation—between tax on earned income and tax on investment income. Parliament could still fix the same rates for these two taxes, and this is part of the flexibility which Parliament, or any future Chancellor, would have if the Amendment were accepted. A future Chancellor would have the added flexibility of being able to impose different rates at different income levels, or any other combination which might be desired.

If we called these taxes by different names and clearly separated them, we would at least know exactly where we were, and that would be preferable to the present confused set-up or the position as it will exist under this Finance Bill.

There is, first, the tax which I have called a "personal employment tax"—a name which would clearly cover a tax on all incomes from wages, salaries and pen- sions—and, second, what I have called a "personal property tax"—which would cover income received by individuals from dividends, interest, rents, annual payments or annuities, income from foreign sources other than trades and emoluments and payments under divorce court or maintenance orders. That would happen under the first part of the Amendment.

The second part of the Amendment is related to the whole business of graduated rates. Here I believe the Chancellor's proposals do not measure up to what he appeared to want in his Budget Statement, and probably what he still wants, and I am not sure that he will get what he wants from the Clause as it stands.

In his Budget Statement the right hon. Gentleman spoke of "a graduated personal tax". I thought that he really meant a graduated tax, because if direct taxation is a disincentive to effort—it is open to argument whether it is; I believe that there must be a point at which it acts as a disincentive, though I do not know what that point is—it is clearly a disincentive at the margin, and particularly at that point of the margin where the tax rate on the next £ of earnings is substantially higher than it was at the last £. That is undoubtedly the point at which disincentive creeps in at its maximum.

We now have a system where there is a colossal jump from the point at which one pays no tax to the £ when one is paying the full standard rate, or "basic rate" as it will be called in future. We are, therefore, suggesting a genuinely graduated tax. The Chancellor said that he wanted such a tax, though he went on to say:

"the tax structure will be founded on a basic rate covering a broad band of income and corresponding to the standard rate less earned income relief."—[OFFICIAL REPORT, 30th March. 1971; Vol. 814, c. 1387.]

This is where the right hon. Gentleman has made his greatest mistake in his reform proposals, because the standard rate is a curse and the basic rate will become a curse to all tax gatherers and future Chancellors.

We need a genuinely graduated tax with no large jumps. I suggest, as we suggested in our tax proposals in the sixties, that throughout the band of taxation on income there should never be a jump of more than 5 per cent. above the previous level. One could juggle with the distance between jumps. For example, the jumps could be further apart in the middle income levels and get closer together up the income scale. Indeed, this would probably be right.

Nevertheless, the jumps even at the higher income levels should never be more than 5 per cent. at each stage, and I would accept an upper limit so that no part of any earned income was taxed at more than 70 per cent. The personal property tax should also, of course, be a graduated tax, for obvious reasons, many of them the same as those I have adduced for the employment tax. However, the rates could, perhaps, be slightly higher.

They could, as I have suggested, be the same if Parliament so wished, though the jumps from rate to rate could be bigger—they could be, say, 10 per cent. rather than the 5 per cent. I recommend for the personal employment tax—and we could have built into the system an exemption on the personal property tax for the first part of an income to encourage small savers and reduce administrative costs.

This would be a considerable improvement. A further improvement could be achieved if, instead of retaining the existing pattern of personal allowances, as the Chancellor intends, these sums were taken off the tax rather than off the income before being taxed. This would make the whole business of computing the individual's tax liability much simpler.

The Amendment would further simplify the tax reforms which the right hon. Gentleman is introducing. It would allow far greater flexibility and remove a certain hypocrisy. Will it ever be possible for any future Government to tax income from property—shares or whatever property it might be—at exactly the same rate as income from work? I doubt whether it will ever be politically possible for that to happen, whether or not a future Government desire it to happen.

If it is ever attempted, to make it politically palatable it will be necessary to build into the taxes on earned income a whole series of allowances, as we have done in the present system, and these will have to be set against income from work. I suggest that these allowances will build up to the point at which they will have to be set against income from system. It seems sensible, therefore, for us now to make a clear distinction between these two taxes so that we do not have to complicate each of them, as we now do, with a paraphernalia of allowances and exemptions.

I hope that the Financial Secretary will, in considering the Amendment, seek further advice from industry and his tax advisers about how my proposal would work in practice. I suggest that the Amendment follows the logic of the arguments and aspirations of the Chancellor witch, in the matter of tax reform, I largely support.

I listened to the hon. Member for Cornwall, North (Mr. Pardoe) with much interest and a good deal of sympathy. Unintentionally, perhaps, he is exaggerating the degree of simplicity that can be achieved by this change. If one wants a sophisticated system giving weight to the great variety of individual cases of numerous kinds of taxpayers, inevitably that system cannot be simple. If one considers quite straightforward cases, of one taxpayer being a single person, another being married, or another having large family responsibilities, to give weight to these differences one is bound to have a fairly elaborate system if it is to affect the infinite variety of taxpayers. The hon. Gentleman gave the impression, perhaps unintentionally, that by a mere change of wording we could achieve tremendous simplicity as opposed to the present confusion.

I agree that the complaint of many taxpayers is that the system is too complicated. But in most cases, that complication reflects the attempts which have been made for many years to do justice to the individual taxpayer. What the hon. Gentleman regards as complication and confusion has emerged from the very conscientious attempts of successive Chancellors of the Exchequer to create a tax system which would reflect the innumerable differences which obtain on personal incomes. Nevertheless, there may be some virtue in the gradation suggested by the hon. Gentleman. Those differences could bring, in the long run, a new kind of confusion. In seeking to remove one source of complication and trying to achieve a new kind of justice, it may be that we would be introducing a new degree of complication. I should not wish to be dogmatic about that, but the hon. Gentleman has erred, perhaps —it is not a serious error—in conveying by his remarks that we could achieve great simplicity and, at the same time, produce a system which would do justice to the great variety which must obtain in the taxation of the individual.

The hon. Member for Barry (Mr. Gower) need have no fears as the tax system of this country, because of the nature of the country and our society, is bound to be complicated and sophisticated. All that successive Chancellors have purported to do, with varying degrees of success, is to make it less complicated or less sophisticated than they have found it.

I think it was Gladstone who said that with income tax one should seek to be "bold, intelligible and decisive". Few Chancellors have matched up to that precept, but it is a welcome sign that the Government have set about a long overdue simplification of the income tax system.

My hon. Friend the Member for Cornwall, North (Mr. Pardoe), in his commendable and incisive speech, followed the advice given to the Liberal Party in 1962 by a Committee set up under the chairmanship of Professor Wheatcroft. It was a very distinguished Committee. All its members were experts on tax matters from different points of view. For example, Mr. Hubert Monroe, one of the leading tax counsel, was a member.

The committee suggested that there should be four categories of taxation: three governing personal income—one a personal business tax, additional to the two that my hon. Friend has mentioned —and another a company tax. Therefore, there would be four clear categories of taxation. This would still allow for a considerable degree of sophistication and inevitably would have to allow for graduation and, as the Wheatcroft Committee suggested, for the not so steep step from one graduation to the other. On personal taxation, especially personal employment taxation, it was suggested that it should be no greater than 5 per cent.

I shall be interested in the answer that will come from the Government Front Bench. Clearly there is a case for greater efforts to simplify the tax system. One of the great faults that all reformers have followed when on the Government Front Bench is to try to introduce these things in too piecemeal a fashion. Often one finds that one stage of the reform is introduced and the other stages are not introduced for many years subsequent to the original introduction. As a result we have a build-up of piecemeal reform which ends up as a far more complicated tax system than we need.

If the Chancellor has in mind the reform of the categories of taxation upon which he expounded in his Budget speech, I cannot see why my hon. Friend's proposals should not be accepted. It seems that they would result in a more intelligible system of tax and would meet everything that the Chancellor has in mind.

I begin by expressing gratitude to the two spokesmen of the Liberal Party for the very warm and genuine welcome they gave to the reform announced by my right hon. Friend in his Budget Statement. I was intrigued to see that the whole of the Liberal Party was present to hear the hon. Member for Cornwall, North (Mr. Pardoe) expound his views as to how we might, as he put it, extend our reforms along the lines he recommended to the Committee. However, having said that, I fear that I must immediately go on to disappoint him, because the main point I wish to make to him is that, so far from being an extension of the reforms embodied in the Bill and the structure which we have embodied in the Clause we are discussing, his scheme would be bound to mean a fundamental alteration of our proposals. In fact, it would be an entirely different scheme and would require a complete redrafting of a great many of the Clauses in this part of the Bill and of the Schedule. For this reason I ask the Committee not to accept the hon. Gentleman's Amendment.

I do not wish to attach too much weight to the form of the matter. One appreciates the problems faced by hon. Members who have not the advantage of parliamentary draftsmen when considering complex legislation, and I do not want to make too much of that. But on the substance of the matter, I wonder whether the hon. Member is justified in claiming that his proposals would represent a great simplification over the existing system, or certainly when compared with the reform embodied in the Bill. After all, one of the main points that my right hon. Friend made in his Budget Statement was that when considering personal taxes, we had two separate tax systems, as the hon. Member acknowledged—income tax and surtax.

We have the advantage of a not dissimilar speech made by the hon. Member during the Committee stage of the 1969 Bill. There was some progress on that, as I shall mention. As I listened to the hon. Member, it seemed that all he was proposing was the substitution of one dual system of personal tax for another. Instead of having income tax and surtax, he would have his personal employment tax and personal property tax. With the best will in the world, I cannot see that this would achieve the greater simplicity and flexibility which he claims for it.

When speaking in the 1969 debate on 13th May, the hon. Gentleman proposed four taxes, as the hon. and learned Member for Montgomery (Mr. Hooson) recognised—a personal employment tax, a personal business tax, a personal property tax and a company tax. I suppose it must be regarded as progress that we have now got down to two. In this part of the Bill we propose one personal tax—a graduated personal tax which will be much more simple than that proposed by the hon. Gentleman.

There are serious difficulties about the hon. Gentleman's proposal, not the least of which is that it would need very complex provisions indeed if one were to ensure that a man whose income was half earned, so that it came under the personal employment tax, and half investment, so that it came under the personal property tax, was not to end up by paying substantially less tax than a man the whole of whose income was earned. It may be that the hon. Gentleman's intention is that the tax paid by such a man should be less, but I doubt it. The hon. Gentleman said some very sensible things which no doubt we can return to on a later Amendment.

I am advised that, if we were to succeed in ensuring that this was a graduated tax as regards the individual taxpayer's total liability, we should need complex provisions, much more complicated than the relatively simple investment income surcharge which we shall be debating later today.

The hon. Gentleman made a rather surprising statement about allowances under the present system. Allowances are indeed expressed in the Act in terms of tax. Anybody who has tried to weave his way through the relevant Sections of what is now the Income and Corporation Taxes Act to ascertain the taxes knows that this is a very complex business, because it is always expressed in terms of tax on a certain slice of a taxpayer's income. We are getting away from this. We are expressing allowances in terms of income, so that the allowance is deducted from the income before the taxable income is calculated. That is the sensible way of doing it.

The minute there are two taxes we are landed with the considerable problem of how to allocate the allowances between the two sets of income. Obviously we have to make some firm rules. Broadly our rule is that personal allowances will go against earned income before they go against investment income. That seems sensible.

On one point I agree with the hon. Gentleman, but this is only in a sense in part relevant to the debate. I agree with the hon. Gentleman that the jump to the basic rate—provisionally fixed in the Bill at 30 per cent.—is a high one. I have no doubt that my right hon. Friend will be very conscious of this as we are able further to reform and modify the lax system. As regards the rates above the basic rate—this is a point to which I shall return later—I probably shall not be able to offer the Committee very much help or guidance this afternoon, because those rates stand to be fixed in the 1973 Budget.

On the whole, though I appreciate the hon. Gentleman's objectives in putting forward his dual system of taxation, I cannot recommend it to the committee as being an improvement on the unitary system—the unified personal tax which my right hon. Friend put forward in his Budget Statement and which is now embodied in this part of the Bill. If the hon. Gentleman, having heard some of the arguments against it, is unwilling to withdraw the Amendment, I shall have to ask my hon. Friends to reject it.

I do not think that I wish to withdraw the Amendment, because I do not think that the remarks that the Financial Secretary has made were convincing or even terribly sympathetic, although I accept that he went out of his way, as is his custom, to be amenable.

The hon. Member for Barry (Mr. Gower) said that I was claiming too much for my proposal and was proposing a total simplification. The answer is that I am not. I accept that some complexities are inevitable in any just tax system. I am trying to remove complexities which are not inevitable. I believe that my proposal does just that.

The Financial Secretary says that the Chancellor says that there are two taxes under the present system. This is not so. I accept that the Chancellor claims that there are two taxes, but there are three. There is income tax, there is surtax, and there is the tax on unearned income. These are to all intents and purposes collected in different ways, at different times, by different criteria. For instance, the tax on earned income has allowances applied to it at the point of collection, whereas the tax on earned income has no allowances applied to it at the point of collection and they are claimed back at the end of the tax year.

Therefore, it is not true that the Amendment, far from reducing the present number from two to one, as the Chancellor is doing, would raise it back to two again. The Amendment would cut the present number of taxes on personal income, anyway, from three to two. I think that two are inevitable. In any case, I maintain that two is what the hon. Gentleman will be left with when the Bill goes through, because he will still have two taxes. He will have amalga