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Commons Chamber

Volume 873: debated on Thursday 16 May 1974

House of Commons

Thursday, May 16, 1974

The House met at half-past Two o'clock

Prayers

[Mr. SPEAKER in the Chair ]

Private Business

BRITISH TRANSPORT DOCKS BILL(By Order)

Order for consideration, as amended, read .

To be considered upon Monday next at Seven o'clock .

GREATER LONDON COUNCIL (MONEY)BILL (By Order)

Order for Second Reading read .

To be read a Second time upon Monday next at Seven o'clock .

Oral Answers to Questions

Northern Ireland

Border (Security)

asked the Secretary of State for Northern Ireland if he has assessed the operational value in the selective blocking of roads on the border with the Republic or Ireland; and if he will make a statement.

asked the Secretary of State for Northern Ireland how many vehicular crossing points are in use between Northern Ireland and Eire; how many have been completely blocked by Her Majesty's Forces; and if he will now have the remainder completely closed with the exception of a very limited number of main crossing points at which all traffic personnel will be thoroughly searched.

There are 41 approved and concessionary crossings. There are also 243 unapproved crossings which range from reasonable roads to farm tracks. Thirty-one border crossings have been blocked since September 1973 and further closures may be made. The aim is to channel movements on stretches of the border, where terrorist activity has been high, into the routes where greater control by security forces can be exercised over vehicular traffic.

For practical and operational reasons it is not feasible to close all unapproved crossings and any further closures will be made selectively according to the operational need.

I am grateful for that reply. Will the Minister of State also consider documentation of vehicles which are crossing to and fro in the border area, and consider particularly the possibility of requiring an authority from the owner of a vehicle for it to be driven if it is driven by a person other than the owner? Will the hon. Gentleman consider making it obligatory for certain documents to be carried, and also consider the possibility of a night curfew in the border area, with the impounding of vehicles which break the curfew?

We can consider the question of documentation in relation to vehicles, but I should point out to the hon. Gentleman and to the House that both this and the restriction of crossing of vehicles is very difficult because of the constant crossings which take place upon legitimate business from both sides of the border. We have to be careful that we do not destroy this legitimate trade.

Will my hon. Friend say approximately how many men are involved in the operation to which he has referred?

Does not the hon. Gentleman agree that it seems to be a great waste of resources to have troops chasing around Belfast and other cities in Northern Ireland looking for explosives, arms and ammunition when these are allowed to go across the border ad lib , with little restriction whatsoever? As the Secretary of State knows, I have asked has office to arrange a meeting with me and a number of senior citizens in about seven towns and villages around the border in Northern Ireland to discuss security. Five weeks have elapsed, and no such meeting has been arranged. I ask the Secretary of State, through the hon. Gentleman, if even now he will agree to meet these people to discuss security, particularly because since I first requested the meeting some people in those areas have been killed, including a young lady serving in the Ulster Defence Regiment. These people have a useful contribution to make and I ask that an early meeting be arranged.

With regard to the right hon. Gentleman's last point, my right hon. Friend has been in communication with him and he considers that the best way to deal with the matter is through the Royal Ulster Constabulary. In regard to border control, the right hon. Gentleman and the House are aware that there has been a greater concentration on the border recently by the transference of forces into the border area, and this is what is meant by some of the redeployment of the Army at present, which we have been talking about.

No matter how many roads are open or shut, is not a critical factor co-operation with the Republic? Can the Minister of State say anything about the talks which I suspect his right hon. Friend will have had in Dublin this week? Will he also say whether any progress is being made on closer co-operation? No matter how many roads are open or shut this is the critical factor.

I accept that point. There is closer co-operation among the Republic, the British Government and the security forces than ever before. We are particularly hoping that out of the developments and discussion which my right hon. Friend has just had this co-operation will be strengthened even further.

asked the Secretary of State for Northern Ireland if he will make a statement on the security of the frontier between Northern and Southern Ireland.

The security of the frontier is a matter on which there is co-operation between the security forces on both sides. Both Her Majesty's Government and the Irish Government recognise that there is room for improvement and we are in touch with them on the subject.

Does the Minister think that we shall ever satisfactorily deal with the IRA as long as IRA members can cross the frontier at will, providing that they keep off the roads? In a previous answer the Minister kept on referring to the fact that it is the Governments view that the matter can be settled only by a political solution. Is there any indication that the IRA is beginning to share that view?

The hon. Gentleman is fully aware that the IRA has a military view. We have witnessed it recently. The Government have taken resolute action against it. We are talking about a border that is over 320 miles long and a coastline of possibly twice or three times that length. That is the magnitude of the job and the problem with which the security forces are faced. In those circumstances there is no easy way of sealing the border. What we need to overcome the problem is co-operation with the Government in the South. We are getting that co-operation, and it is increasing all the time.

I have affection and respect for my hon. Friend, but does he realise that he is lapsing into the language of General Westmoreland?

I do not quite know the language of General Westmoreland. The policy that my right hon. Friend and myself have been consistently advocating is, we believe, the only sane policy for Northern Ireland.

Does the Minister think that it would be practicable to give the UDR a specially enhanced border rôle?

Emergency Provisions Act

asked the Secretary of State for Northern Ireland if he will make a statement on the workings of the Northern Ireland Emergency Provisions Act 1973.

I have nothing to add to the statement which I made in this House on 4th April 1974.

As the House is aware, Lord Gardiner has agreed to chair a committee to consider what provisions and powers are required to deal with terrorism and subversion, consistent to the maximum extent possible in the circumstances with the protection of civil liberties and human rights.—[Vol 871, cols. 1463–77.]

May I thank the right hon. Gentleman for that reply and ask whether he agrees that this is terrible legislation to deal with terrible times? Does he further agree that it is important that the two safeguards contained within it to protect the liberty of the individual should be carefully adhered to? Will he ensure that the Army will strictly observe that part of Section 10 dealing with photographing suspected terrorists, because there is a feeling that vast dossiers of information are being built up unnecessarily on innocent people?

I assure the hon. Gentleman that I shall ensure that the Army carries out the law properly. The hon. Gentleman knows better than most people here what armed guerilla warfare, involving people who are not dressed in uniform, is like. I shall see that the Army acts within the law but I shall also see that the Army acts against people, from whatever side they come, who are working against the law. I will not weaken in that resolve.

Does my right hon. Friend recall that when this Act was being discussed in Committee we divided at least 21 times on important matters of principle as well as on many other amendments? Is it his intention, because he has established the Lord Gardiner Committee—the composition of which we do not yet know, just as we do not know when it will report—to reintroduce the Act in toto ?

I hope very shortly to announce the names of those who will serve on the Gardiner Committee. I shall not ask the House to renew any part of the Act which I do not consider to be necessary. In other words, I shall look at it carefully.

Will the right hon. Gentleman give further consideration to the very difficult question whether soldiers should be liable to action in a civil court for incidents which occur under active service conditions?

This is a matter for the Emergency Provisions Act. It is an appropriate subject for the Gardiner Commitee. It will be looked at by that committee, and it will be possible for people in all walks of life and all forms of organisations to give evidence to the committee. This is part of a much wider issue of armed guerrilla warfare and the rôle of the State and the law. It is something at which we must look carefully.

Maze Prison

asked the Secretary of State for Northern Ireland if he is satisfied with the working of the commissioners' hearings at the Maze Prison.

Does the right hon. Gentleman agree that this quasi-judicial procedure that is used in trying detainees' cases is causing serious trouble among the detainees? Is he aware that in a recent case the only witness called by the authorities to give evidence against a detainee was declared in the chief court of Northern Ireland to be an unreliable witness—something which the Crown admitted? Is the right hon. Gentleman further aware that this person's evidence was struck out of the record of two previous cases heard by the commissioners? Does he appreciate that it is only the evidence of this man which is being used to detain a person? Does he not agree that under these circumstances he cannot be satisfied with the work of the commissioners?

The commissioners are totally responsible for regulating their own procedures. The evidence that a commissioner takes into account is, and must be, a matter for him to decide. If a respondent is not satisfied, as happened in this case, there is the right of appeal to the Detention Appeal Tribunal within 21 days. That is why it was built into the procedure. I understand that as yet no such appeal has been made.

Does my right hon. Friend accept that there is a great deal of concern on the part of members of both communities—certainly among the detainees and internees of both communities—over the length of time they have to wait for the procedure to be gone through? Is he further aware that some of these prisoners, men and women, have been incarcerated for almost 12 months without their cases being heard? Will he do something to reduce this waiting period?

This is one of the most worrying features. It has been present for some time. Since last December, under the previous administration, the number of commissioners has more than doubled and a third court has been opened. A fourth court is being opened shortly in a new building which has been specially constructed. I accept that this is a real problem. We are doing all we can to overcome it.

asked the Secretary of State for Northern Ireland if he is satisfied with the conditions obtaining for detainees at the Maze Prison, Long Kesh.

The conditions under which detainees are held in custody at the Maze Prison are kept under constant review. The prison authorities make every effort to provide satisfactory conditions.

I would refer the Minister to one aspect of the conditions there which I witnessed on a visit. I spent many hours in the Maze Prison and found that one of the major complaints was of the inadequate laundry supplies. Detainees said that they had to wait 6–8 weeks for a change of bed linen, which is one of the ordinary humanities for men, many of whom are incarcerated there without charge and without trial.

I accept the hon. Gentleman's point about the laundry. That matter is being looked at, and I thank him for raising it in the House. Considerable improvements have been effected in recent months, including the provision of new kitchens and a new hospital, and other facilities are being provided.

Whenever I have visited the Maze I have been particularly impressed by the calibre of the governor and the prison staff. But there are two main areas of concern to both those inside and their relatives outside. The first is the recent change in the arrangements for visiting. Secondly, it appears that because the Maze is not a concentration camp, a compound or a prison, there are difficulties in relating it to the normal prison rules—on parole, for instance. Will my hon. Friend examine the criteria affecting parole of people incarcerated in Long Kesh and the changes that have worsened visiting conditions?

On the issue of visiting, I ask my hon. Friend to wait until I reply to the next Question, when I shall have something to say about that. parole has been working very effectively recently, and a great deal has been granted. If my hon. Friend has specific instances I hope that he will draw them to our attention.

asked the Secretary of State for Northern Ireland if he will improve the facilities available to relatives and friends of prisoners at the Maze Prison following a deterioration in these facilities.

Following a review, particularly of the security aspects, visits to inmates at the Maze Prison by women and children will in future be under open conditions: those by adult males will take place across a wall-to-wall dividing table, but if there is any abuse by individuals, whether inmates or visitors, subsequent visits in those cases will be in completely closed conditions.

I am delighted to hear what the Minister says, but why are the delays for relatives and friends so long?

I assume that the hon. Gentleman is asking why has it taken so long to reach the decision. It was a decision taken by the previous Government for security reasons. We have had a full review of the matter, in which the Army and all the other bodies concerned have been consulted. We are now satisfied that we can introduce open visiting, and we shall do so this week.

Would it be possible to reduce the length of time for which children and mothers are kept waiting? Some days they have to take a whole day off to get in. It is not good for children and mothers to have to wait so long in the conditions there. If the Minister could do something to reduce the waiting time, it would be deeply appreciated by all concerned.

I thank the hon. Gentleman. We shall examine the position. One of the matters which concern the people at the Maze and the Northern Ireland Office is the number of families and children that visit there regularly. The proposed return to open visiting is to try to deal with some of the frustration, not least that of the children. We shall certainly examine the length of time involved.

When mothers bring their families to the Maze, although there has been a considerable improvement in the reception area compared with the early days, there is a grave need for proper and adequate play facilities, particularly for young children who, having made a long journey, are likely to be tired and fractious. It would be a great relief to parents taking young children there if my right hon. Friend and my hon. Friend could see a way to provide proper play facilities for children while visiting.

I give my hon. Friend the assurance that we shall consult the authorities about that point.

All Ireland Peace Council

asked the Secretary of State for Northern Ireland if he will review the proposal to establish an All Ireland Peace Council on lines submitted to his predecessor by the hon. Member for Ealing, North; and if he will make a statement.

The policy of Her Majesty's Government is to restore peace, to bring about a reconciliation of the communities in Northern Ireland and to establish close co-operation between Northern Ireland and the Irish Republic as proposed in the Sunningdale communiqué. An initiative such as my hon. Friend proposes would, however, come better from the communities themselves.

I am grateful for that reply. Is my hon. Friend aware that people from all communities and all religious denominations in Northern Ireland and the Republic have expressed to me their support for this idea? Is he further aware that the thing that binds them, irrespective of political or religious beliefs, is the need for a rallying point where they can express themselves as being totally opposed to any form of violence and much of the vulgarity that takes place at the moment?

My hon. Friend can be assured that the Government would support any measure along these lines. We feel it would be better for this to be done outside Government, but Government support could be given if needed.

Is there not a need for an All Ireland War Council rather than a peace council, so that North and South can co-operate against terrorism? Is it not that which is lacking at the moment?

The hon. Gentleman might have doubted that had he been with me in Belfast last night. War will not resolve this matter. It has to be resolved peacefully and by political means, by all the people in the community. The hon. Gentleman ought to understand that.

Terrorism (Loss of Life and Property Damage)

asked the Secretary of State for Northern Ireland what estimate he has made of the total cost in lives and damage to property between 1st January and 30th April 1974 of the troubles in Northern Ireland.

Seventy-four people were killed during this period. Claims for compensation for damage to property amounted to about £10½ million.

After five years, how can we be persuaded that the English and the Scots can do anything about this deplorable situation?

I repeat to my hon. Friend what I said to the hon. Member for Epping Forest (Mr. Biggs-Davison). The British Government have a responsibility in this respect. We feel that we cannot turn our backs on 1,600,000 people. In consequence, despite the security situation and the extremists on both sides, we still believe that a political solution is the only alternative to the problems in Ireland.

Does the hon. Gentleman not agree that the figures he has given show an appalling loss of life and damage to property? Ought not we, in this part of the United Kingdom, to stop the IRA from collecting money, as it does in various parts of London and the rest of Great Britain? Is the hon. Gentleman aware that the IRA does this by means of raffles, often for ostensibly innocent purposes, but that the money raised is used against the people of Northern Ireland? Surely this should be stopped, particularly when we hear demands by some hon. Members to stop the sale of ships to Chile?

The hon. Gentleman beats a rather tortuous route to the point of his question. We deplore the type of thing the hon. Gentleman has referred to. This is not a matter for the Northern Ireland Office. We welcome the strong statements that have recently been made in the United States, not least by Mr. John Hume and the Foreign Secretary of the Irish Republic, because that is where a great deal of the finance is coming from.

Does the hon. Gentleman not agree that what is important for us here is to leave no one in Northern Ireland in any doubt that we shall carry this thing through and see an end to violence, and that we shall not let up in any way whatever in our efforts to see the new constitution working?

That is the intention of the Government. At the moment there are difficulties corning from all sections of the community. My right hon. Friend may say something about this later. We shall not be deflected from trying to achieve what we believe is possible, namely, a political solution to the problems of Northern Ireland.

Royal Ulster Constabulary

asked the Secretary of State for Northern Ireland if he is satisfied with the capability of the Royal Ulster Constabulary in Londonderry to carry out their duties in all parts of the city.

At present the Royal Ulster Constabulary needs the support of the Army in certain parts of Londonderry to carry out its duties.

Is the Secretary of State aware that my constituents are not happy about the capability of the Royal Ulster Constabulary when they see its members being stoned when they are investigating traffic accidents? If the Army is needed to help the Royal Ulster Constabulary to carry out its duties in Londonderry, will the right hon. Gentleman say why 500 soldiers are being withdrawn and the military presence is being reduced in the terrorist-ridden areas of the city, why some of the posts are being closed down, and why Royal Ulster Constabulary personnel are not available to replace them?

In fact, the number of troops in Northern Ireland has been increased in recent weeks. I want to tell the hon. Gentleman, in the light of his question, that if every time there is a movement of troops there is this sort of discussion, it makes life extremely difficult. I realise the problem that is faced there, especially in parts of Londonderry. I am advised that with the forces available there the security forces can deal with the matter, and that if they need extra troops the mobility is very high.

Does the right hon. Gentleman recall that in a recent statement to the House he spoke about the manner in which the terrorists held Press conferences with complete impunity? Does he, or do the security forces, including the Royal Ulster Constabulary, get the assistance of the Press in tying down these terrorists? If not, can the Press be held responsible for collusion with them, thereby hindering the Royal Ulster Constabulary?

I cannot recall that part of what I said. But I do not think that open Press conferences are held. As the House will have realised from last weekend, however, we have a great deal of information about what goes on in paramilitary forces, and I am satisfied with the situation.

I think that the right hon. Gentleman said that the number of troops had been increased—by which assume that he meant British troops. Will he say by how much the Royal Ulster Constabulary or the Ulster Defence Regiment has been increased? Does he not accept the view that Ulstermen must begin to bear at least a larger share of responsibility?

One of the things that I have endeavoured to do is to get people to join the Royal Ulster Constabulary Reserve, for example. Much of this is related to political advancement, because one part of the community does not, in any numbers, join these organisations. This is another example of political advancement being necessary in order to achieve results on this front. But the hon. Gentleman is absolutely right. To have trained soldiers searching people who are going shopping at the Segment in Belfast is a gross waste of trained manpower. I have taken on more civilians to do that job.

Sunningdale Agreement

asked the Secretary of State for Northern Ireland what are his proposals for a further implementation of the Sunningdale Agreement in the light of recent events in Northern Ireland and the Republic of Eire.

Her Majesty's Government are at present engaged in discussions on this subject with the Northern Ireland Executive and the Government of the Republic of Ireland.

I recently spent some time in Dublin discussing the report of the Law Enforcement Commission.

In his recent visit to Dublin and discussions with the Irish Government, was it represented to the right hon. Gentleman that it would be advantageous to ratify the Sunningdale Agreement before the beginning of the so-called marching season of July and August? Did the right hon. Gentleman take the opportunity to point out to the Government of Eire the clear evidence that exists of deep hostility to the Council of Ireland in the Loyalist community in Northern Ireland, and that that was evidence which was so preponderent that it would be imprudent for any British Government to disregard it?

The discussions on the Sunningdale communiqué, which covered a number of agreements and listed a number of things which had to be further investigated, are not yet completed. What was clear from Sunningdale, on the relationship between North and South, which would come under Section 12 of the Northern Ireland Constitution Act—I am speaking without having been present at Sunningdale—was that it seemed clearly to be a matter for North and South, in which the English were on the sidelines except to the extent that financial obligations were involved. I am sure that in all parts of Ireland people are aware of the developing situation in this respect. Her Majesty's Government are very keen to see signed as soon as possible the parts of the Sunningdale communiqué on which agreement was reached and on which developments are to take place.

In view of the fact that on the Minister's own figures, given in parliamentary replies, the average family in this country is subsidising the economy of Northern Ireland to the tune of £30 per annum, will the Minister point out to those so-called Loyalists who are presently engaged in a political strike against Sunningdale that they cannot have both their subsidy and their right to frustrate the wishes of this and their own Parliament? What evidence has there been in the last day or so of intimidation of ordinary people by those fermenting that activity?

There is a political strike taking place at present with the aim of bringing about early elections. Because it is a political strike this gives me a great deal of freedom in how I deal with various matters under it. I regret that there is a great deal of intimidation. My information is that when factory meetings were held, to which often only small numbers of people went, the vote was not decisive, but that it was the intimidation aferwards by groups and bands that was keeping the strike together. This is a political and not an industrial strike.

If the Government persist in a policy of endorsing the Sunning-dale Agreement, which is plainly repugnant to the majority of the people of Ulster—who expressed their opinion by winning 11 of the 12 seats at the last election—it is the Government who are responsible for the havoc which is at present being reaped.

I must say to the hon. and gallant Gentleman and to his friends that they may well soon have to face the question whether their loyalism will lead them to come up against British troops. Then we shall see whether loyalism means "getting our own way, or else", or, "We want to be part of the United Kingdom".

Will my right hon. Friend confirm that he subscribes to the concept of the right of self-determination of peoples? If he so subscribes, will he say how he squares that with the Sunningdale Agreement? Will he also indicate to the House when it has happened that the force—from wherever it may come—of one Government imposed on the peoples of another has produced the self-determination to which I refer?

My hon. Friend is talking about self-determination in a small part of the United Kingdom, with a population of about two-thirds Protestant and one-third Catholic, with strong mythological feelings from the past embodied in both—some of which can be respected and some of which cannot. To talk about self-determination in that context would lead not to self-determination but to self-massacre, if that is the word. My hon. Friend will have to face that. If he thinks that this is the situation, and that it is believed in by the people of Ireland, I invite him to try putting that proposition forward at the junction of the Shan-kill and the Falls. Then he will find what the working class of Ireland think about the situation.

The strong words that the right hon. Gentleman used about Loyalists must pose the question where the Government and, indeed, the Opposition, stand on the question of integration between this country and Northern Ireland. Until that question is answered we shall continue to have endless trouble.

In our view the direction that is shown by Sunningdale, which would allow the two communities in Northern Ireland to work together but to have their different views—South in one instance; over here in the other—is the best way. I tell the hon. Gentleman firmly that the view of the Government on integration is that given the same factor that I put to my hon. Friend the Member for Preson, South (Mr. Thorne) about the nature of the community there, I could not, certainly, even begin to believe in complete integration of Northern Ireland with the rest of the United Kingdom.

asked the Secretary of State for Northern Ireland when he now expects the Sunningdale Agreement to be ready for signature and ratification.

The Sunningdale Agreement was signed by representatives of all the delegations attending the conference. I cannot yet say when a further conference will be held.

Will the House have an opportunity to debate the matter if there should be further progress? Is the right hon. Gentleman aware that it is not a bit of use pompously lecturing the Ulster people about acting in a political and democratic sense and eschewing other acts that are at present being perpetrated if the Government are going to ignore them when they do so act?

It will not be a matter for me to decide whether the House will have an opportunity to debate the matter. I shall act on the next part of the Sunningdale arrangements in the same way as the previous administration acted—at least, that I would so advise. Further, I advise the hon. and gallant Gentleman to read the Sunningdale Agreement. There are many people who are against what they have never read. Is the hon. and gallant Gentleman against the Law Enforcement Commission and the concept that there should be legal co-operation between the North and the South? There are many aspects of the Sunningdale Agreement on which there is overall agreement. Far too many people have used it as an emotive term and have never looked at the agreement.

Why does the Law Enforcement. Commission propose an arrangement to make Northern Ireland different from the rest of the United Kingdom? Why does not the new arrangement apply to the whole of the United Kingdom, so that people wanted for offences in this country who fled to the Irish Republic could be tried there? Does he not realise that people in Northern Ireland accept the position that the Irish Government claim jurisdiction over the whole of Northern Ireland and therefore will not have extradition? Does the right hon. Gentleman realise that he is accepting that stand by the Irish Government?

I hope to report to the House the Government's conclusions on the Law Enforcement Commission. That would be an appropriate time to talk about that matter.

Republic of Ireland (Discussions)

asked the Secretary of State for Northern Ireland whether he is aware of the practice whereby matters of confidential discussion between Her Majesty's Government and the Government of the Irish Republic can become subjects of discussion between the latter Government and a section of the Northern Ireland Executive and if he will take steps to prevent the practice.

Section 12 of the Northern Ireland Constitution Act 1973 expressly empowers a Northern Ireland Executive authority to consult on any matter with any authority of the Republic of Ireland.

Will the right hon. Gentleman bear in mind, first, the undesirability of permitting information to be transmitted to persons who are not bound by the equivalent of a Privy Councillor's oath, while the same information is withheld from hon. Members? Secondly, will he bear in mind the need to discourage the practice of one element in the Northern Ireland Executive of reporting at frequent intervals to the Government of a foreign State?

Although the hon. Gentleman's last remark about a foreign State is technically correct, I think that it is right, particularly given the discussions that are taking place, that members of the Executive should have the right, as they do under the Act, to discuss matters in the South. I have noticed with some of my friends in Northern Ireland that there is sometimes a feeling that nobody should go singly to have a discussion; it is always a matter of taking a large group. I often go on my own and talk on behalf of a group; I do not take the whole Cabinet with me when I go. It is absolutely right that that should be done. I advise the hon. Gentleman not to believe some of the reports in the Press about the Law Enforcement Commission's report, which I hope to present to the House shortly and copies of which have been given to the Northern Ireland Executive. Of course, the Government of the South will have their own copies.

Does not the section of the Act to which the right hon. Gentleman refers deal with the setting up of joint bodies and the power of the Assembly to ratify such discussion? Does the right hon. Gentleman agree with one of his hon. Friends who called Northern Ireland a colony? Does he believe that Northern Ireland is a colony or part of the United Kingdom?

I do not regard Northern Ireland as a colony. It is part of the United Kingdom, and because it is part of the United Kingdom I intend to see that the law of the United Kingdom is carried out there. I do not intend to be threatened by people carrying out a political strike. I know that I shall have the support of the hon. Gentleman in that.

Executive (Selection of Members)

asked the Secretary of State for Northern Ireland whether he will consider introducing amending legislation to enable the Chief Minister of Northern Ireland to select members of the Executive from, and in proportion to the elected strength of, the parties in the Assembly.

But, despite the able and courageous efforts of the Chief Minister and the other members of the Executive, is it not clear that there is widespread discontent with the constitutional arrangements? Is the right hon. Gentleman's mind completely closed to improvements in the present constitutional arrangements? Will he consider urgently how matters can be improved? Otherwise, will not he be compelled to have a General Election?

The power-sharing Executive started on 1st January. There has not been nearly enough time to see how it works. To talk of failure at this early stage is wrong. The hon. Gentleman tried to introduce an amendment at the Committee stage of the Northern Ireland Constitution Act on this matter, and it did not find favour with hon. Members. In my view, the form of proportional representation he suggests for the Assembly would not give us the result that we want. Of course, when the Act has had a fair trial, the matter will be looked at, as with all other Acts, but I support the legislation introduced by the previous administration.

European Parliament (Committee's Visit)

asked the Secretary of State for Northern Ireland, whether he will make a statement on his meeting with the delegation from the Regional Policy and Transport Committee of the European Parliament during its recent visit to Northern Ireland.

I did not myself meet the delegation. The visit was arranged directly between the committee and the Northern Ireland Executive.

Does the Minister agree that for Northern Ireland to be a part of the Community is of real benefit economically and in agricultural terms, and that any talk of coming out of the Common Market is not in the interests of Northern Ireland?

The hon. Gentleman is raising a directly political issue. We did not interfere with the Executive's decision—in any case, it was the Executive's prerogative —to meet the European delegation. I did not think that it was necessary for me to do so.

Departmentalcorrespondence

asked the Prime Minister if he is satisfied with the time it takes Government Departments to reply to letters concerning problems sent to them by individuals or Members.

I refer my hon. Friend to the reply which I gave to my hon. Friend the Member for Newham, North-West (Mr. Lewis) on 2nd April, Sir.—[Vol. 871, c. 323. ]

I thank my right hon. Friend for his reply. Does he agree that it is extremely important that individuals' problems and worries are answered quickly? Does he further agree that it is unfortunate that one of my constituents has still not had a reply to a question that he put to the education pension branch on 30th October last year, in spite of an apology to me in April from the Minister and the Department concerned?

I am aware of that teacher's pension case. I regret that there has been a delay. I understand that my hon. Friend the Parliamentary Secretary has explained the matter and has apologised for the circumstances leading to the delay. I suggest to my hon. Friend the Member for Stockport, North (Mr. Bennett) and other hon. Members that if they do not get a reply quickly enough they should approach the Minister concerned, or one of the junior Ministers—who are sometimes a little faster than Ministers, in all Governments—or the PPS. Of course, hon. Members can write to me at any time but I cannot guarantee that my reply will be immediate in all circumstances.

Will the right hon. Gentleman prepare an early reply to a letter that he may well receive soon from Mr. Len Murray, the General Secretary of the TUC, inquiring what is meant by the social contract? In view of Mr. Murray's admission this morning—[ Interruption. ]

Order. I understand that the hon. Member for Reigate (Mr. Gardiner) is seeking to ask the Prime Minister a question about a letter that he cannot yet have received. That does not seem to be in order.

I ask the question, Mr. Speaker, because it is evident from Mr. Murray's statement this morning that an inquiry of that kind may well be coming shortly. Will the Prime Minister give Mr. Murray a speedy reply on what is meant by the social contract? In that reply, will he be able to assure him that the Government will accept this morning's decision in Committee to re-enact the code of industrial relations practice?

I try to make a practice of not drafting replies to letters before I receive them. This is some advance on the usual conduct of the hon. Gentleman. When he was upstairs in the Press Gallery he always invented facts before he knew them. Contrary to my expectations, since he came downstairs his standards have been even lower than they were upstairs.

Rating

asked the Prime Minister whether he will appoint an expert on the rating system to his Domestic Policy Review Staff at No. 10 Downing Street.

No, Sir. I do not intend to appoint to the policy unit at 10 Downing Street members with responsibilities for specific subjects. My right hon. Friend, the Secretary of State for the Environment, already has adequate sources of advice on rating matters.

In view of the increasing lack of confidence by the public in the whole basis of the rating system, will the righ hon. Gentleman set up an inquiry, whether or not at No. 10 Downing Street, to consider alternative sources of local finance and to report to the House within six months?

I agree with the hon. Gentleman about the feeling that exists throughout the country—and which has existed for many years—that the rating system is unsatisfactory. The hon. Gentleman will have noted the statement which was made last week by my right hon. Friend the Secretary of State for the Environment. My right hon. Friend is immediately concerned to see what can be done to improve the 1975–76 distribution of the grant within the existing system. Of course, we are examining the possibility of a more thorough-going longterm consideration of local government finance. However, it would be wrong to raise the expectations of the House and country. In my experience, for over a quarter of a century successive Governments have always tried to find a better method. Unsatisfactory as the present system is, no Government of any party have yet succeeded in finding a better method.

Would it need a rating expert or psephologist to explain why the right hon. Member for Altrincham and Sale (Mr. Barber) the former Chancellor of the Exchequer who cut public expenditure by a total of £1,200 million and the grant to his own borough of Trafford by £8 million, now seeks to blame the present Government for these cuts?

I do not think that there is any ministerial responsibility for the right hon. Gentleman's statement.

I thank the right hon. Gentleman for his helpful answer, which moves in the right direction, but it is a general maxim of this country that we pay our taxes in sorrow and our rates in anger. Surely it is a highly conservative argument for the right hon. Gentleman to say that for 25 years we could not do it and that we may not be able to do better in future. Many other forms of taxation have been tried in different countries. For example, is the right hon. Gentleman aware of Canada's experience with site value taxation? There are other forms of local tax. Can we not approach this matter with a sense of urgency?

I assure the right hon. Gentleman that I am not trying to take a negative attitude towards this problem. I agree with him. I have always paid my taxes with sorrow and my rates, like most other people, with real anger. They usually come in such a large dollop. I am not trying to be negative. I hope that we can move forward on these matters, but it would be wrong for me to raise expectations by setting up an inquiry. We are aware of the experience with site value taxation. The right hon. Gentleman knows what our proposals are in that direction.

Brussels

asked the Prime Minister if he will seek to pay an official visit to Brussels.

Inevitably, the right hon. Gentleman will be going at some time. Before he goes, will he state clearly to the British people that he is opposed to any move towards federalism or a supranational State in the Common Market as long as we remain a member? Perhaps my right hon. Friend the Leader of the Opposition can say the same thing, because this is precisely what the British electorate do not want, and it needs saying loud and clear.

The Leader of the Opposition, throughout the whole period when the House was considering whether to support entry on the terms negotiated, was, I think, very far from forthcoming on any question of federalism. I agree with the hon. Member for Banbury (Mr. Marten). There is no proposal, as far as I know, in any substantial part of the House in favour of a federal system in the Common Market or in Western and Southern Europe generally in the foreseeable future.

Given the delicate political situation in France and Germany, does not my right hon. Friend think that such a visit would have a reassuring effect on the Common Market countries in their difficulties and at the same time would enable him to give impetus to a common energy policy as well as the redefining of regional policy, which has been so long delayed?

I view these questions in a spirit of great responsibility. Assuming that the Danish Government have survived after last night, the United Kingdom's 10-weeks-old Government are now the fifth most senior Government among the Nine. In considering the energy situation, we take the view that, while there is no reason why we should not discuss these questions within the EEC, the world's energy problems and the world's monetary problems arising from the oil situation will have to be discussed on a world-wide basis.

When the right hon. Gentleman goes to Brussels will he take the opportunity to explain to representatives of the other Community countries whether he still supports the view which was expressed by his previous Government on the occasion of the State visit by President Saragat of Italy in April 1969 —that the European Economic Community remained the basis for European unity and that it should be sustained by an elected Parliament?

That was the statement we made, and I made it clear that we wanted to get into the EEC and develop its institutions if we got the right terms. We did not get the right terms, and we are now renegotiating.

President of France

asked the Prime Minister whether he will seek a meeting with the President of France.

asked the Prime Minister if he will seek to meet the President of France.

I would refer the hon. Members to the reply that I gave my hon. Friend the Member for Ealing, North (Mr. Molloy) on 9th May.—[Vol. 873, c. 238. ]

Whether it is M. Mitterand, M. Giscard D'Estaing, M. Poher, or M. Chaban-Delmas who is elected the new President of France, is not one thing likely to remain unchanged —that the French Government, as usual, will continue to pursue and to win contracts and trade forgone by the British Government with regimes regarded as politically undesirable? Does the right hon. Gentleman intend to raise this subject with the new French President?

While I congratulate the hon. Gentleman on his French pronunciation, which, if it had been shown on the last Government Front Bench, would have raised its average level of French speaking, I cannot congratulate him on his list of candidates. M. Poher and M. Chaban-Delmas are no longer in the hunt. Only two candidates are left. The other questions raised by the hon. Gentleman are being dealt with by my right hon. Friend the Foreign Secretary and there is no need to raise them immediately with whoever is elected President of France.

Will my right hon. Friend not go dashing off to meet any of these people? Is he aware that this morning the Government were defeated in Committee on the Trade Union and Labour Relations Bill, and that it may be necessary to have a General Election pretty speedily?

I have no intention of dashing off to France to meet any of these gentlemen. I am sure that when the Leader of the Opposition hears about the sad events upstairs this morning he will take steps to send more of his own people to France.

Does not the right hon. Gentleman agree that, despite the reported rebuffs to our EEC renegotiators, a new opportunity may well occur in the near future for Britain to play a leading rôle in Europe? Will he assure us that this opportunity will not be lost in the mists of renegotiation?

I agree. I think that the rôle which Britain can play in Europe, regardless of whatever final decision is taken about the terms of entry, is very important. I agree that because of recent events, some of them very sad, Britain is in a more important position and has greater responsibility in matters affecting the future of Europe as a whole.

In view of the uncertainty surrounding the Governments of France and Germany, is it still Her Majesty's Government's intention to issue the important statement of our position in regard to the Common Market on the prearranged date of 4th June? Will my right hon. Friend the Foreign Secretary be making a statement about our intentions in the renegotiations on that date?

Yes, Sir. It was obviously the hope of the Government to make the statement earlier, but the death of President Pompidou and, indeed, the resignation of Chancellor Brandt made it more difficult to expect early discussions. But I hope that on 4th June my right hon. Friend the Foreign Secretary will be able to make a definitive statement as a result of the studies that we have been making, and I know that it is his intention that whatever he says shall be publicly available.

Before the Foreign Secretary makes his statement, will the Prime Minister undertake to hold consultations with interests in this country and in the Commonwealth about exactly what it is that they want renegotiated?

Yes, Sir. Consultations are now going on. The consultations now being held with the Commonwealth are far more realistic than those which led the right hon. and learned Gentleman to sell the Commonwealth down the river on the Sugar Agreement.

Housing(Berwick-Upon-Tweed)

asked the Prime Minister if he is satisfied with the coordination between the Scottish Office and the Department of the Environment in their responsibilities for development and housing in and around Berwick-upon-Tweed.

Yes, Sir. Both Departments keep in close touch with the Development Committee of the Eastern Borders Development Association and with each other on these matters.

Is the right hon. Gentleman not aware that whereas the Scottish Office recognises Berwick as the key to the development of the eastern borders, the Department of the Environment has just delivered a blow to the development of the eastern borders by refusing permission for the development of the Berwick shipyard, and has failed to provide the same backing for housing on the south side of the border as is available on the Scottish side? Will the right hon. Gentleman stop the two Departments from marching in opposite directions and leaving Berwick behind?

The Departments are in close touch. I think that the hon. Gentleman will agree that since the development committee began work there have been considerable improvements. Indeed, since 1967 depopulation has ceased and there are more hopeful signs of future population growth.

With regard to the refusal of planning permission for a new shipyard on the north bank of the river, my right hon. Friend felt that the development, which would not have brought many new jobs to Berwick, could have irrevocably damaged this internationally famous historic town. My right hon. Friend agreed in principle to the planning application for a larger yard on the south bank of the river. From his local knowledge, the hon. Gentleman will know how difficult are these decisions. I am not sure that he will necessarily feel that they are wrong.

I should be grateful if the hon. Gentleman would raise his point of order later.

Business of the House

The Lord President of the Council and Leader of the House of Commons
(Mr. Edward Short)

The business for next week will be as follows:

MONDAY 20TH MAY-Consideration of Private Members' Motions, until 7 p.m.

Afterwards, remaining stages of the Lord High Commissioner (Church of Scotland) Bill.

Second Reading of the Solicitors (Amendment) Bill [ Lords ].

The Chairman of Ways and Means has named opposed Private Business for consideration at seven o'clock.

TUESDAY 21sT MAY-Further progress in Committee on the Finance Bill.

WEDNESDAY 22ND MAY-Debate on motions relating to Declaration of Members' interests.

THURSDAY 23RD MAY-Supply (7th Allotted Day): There will be a debate on National Health Service pay, which will arise on a motion for the Adjournment of the House.

Motion on the Local Loans (Increase of Limit) Order.

FRIDAY 24TH MAY-It will be proposed that the House should adjourn for the Whitsun Recess until Monday 10th June.

It is not customary for the Leader of the House to tell us when the Government propose to take the motion for the Adjournment for the Whitsun Recess but, if it were to be taken on Thursday 23rd May, will the right hon. Gentleman assure the House that there will be proper time for the Supply debate on National Health Service pay, about which hon. Members on both sides of the House have great concern?

The right hon. Gentleman told the House that the Secretary of State for Social Services will attempt to defer the implementation of the 1973 Act by laying an order which will not require discussion by the House. I think that the House as a whole will take the view that on a matter of such importance that procedure is unsatisfactory. Will the right hon. Gentleman assure us that the Government will provide time for a debate on the whole question before the Minister attempts to defer implementation?

We certainly hope that the debate on the Adjournment for the Whitsun Recess will be concluded before seven o'clock—or at any rate by seven o'clock—on Thursday. I shall discuss the right hon. Gentleman's second question with my right hon. Friend to see whether we can help in any way.

Bearing in mind the business for Wednesday of next week, will my right hon. Friend say whether the Government have considered the activation of the Boyle Commission to consider values and other matters in connection with Members' pay?

I told the House last week or the week before that I was considering this matter urgently. I hope to be able to make an announcement about this to the House in the very near future.

Is it not without precedent that the debate on the Adjournment for the recess should not take place until the day before the recess? Many hon. Members believe that there are reasons why the House should not rise for such a long period. There are many things on which we should like to hear from the Government—odd as that may seem to the Leader of the House. I hope that the Leader of the House will give serious consideration to advancing the time of the debate. Why not have it on Monday? He is overriding the rights of hon. Members.

Not at all. I have looked at the precedents. The Adjournment debate has been held on various days of the week hut very rarely on the day of the Adjournment itself.

Is the Leader of the House aware that, having caught Mr. Speaker's eye, I shall not have to raise my point of order later? Is my right hon. Friend aware that in Committee this morning the Labour Government were defeated on an important amendment to the Trade Union and Labour Relations Bill, and will he tell us when we shall have a statement from the Government as to their intentions on this matter, which is the centrepiece of the Labour Party's policy?

Is my right hon. Friend further aware that many Government supporters are convinced that the Conservatives, in league with the Liberals and the Scottish National Party, are out to deny us the repeal of the 1971 Act?

The Government will certainly consider this matter. I shall talk about it to my right hon. Friend the Secretary of State for Employment.

The Leader of the House will be aware that the Secretary of State for Energy told the Select Committee on Science and Technology this week that he proposed to publish a brown book giving forecasts for North Sea production which is likely to be the most important statement of its kind made by the Government. The Secretary of State said that he would do that in answer to a Written Question, but, in view of the great importance of this subject and the fact that it is the first statement of its kind that we shall have had for a long time, does the Leader of the House agree that a statement should be made on which the House can question the Secretary of State? If the Secretary of State intends to see journalists—as he said he would—should not the House at least have equal time with the Press, much as I appreciate the Secretary of State talking to the Press?

The hon. Gentleman makes a very fair point, and I shall discuss it with my right hon. Friend the Secretary of State for Energy.

Has my right hon. Friend noticed Motion No. 101? Will he give it time for debate next week and, in the light of his replies to my question last week during Business Questions and to the first question he was asked today, will he say how active is "actively" and how urgent is "urgently"?

[ That this House, noting the facilities provided by many local authorities to assist councillors in dealing with their ward problems, such as local secretarial assistance and expenses for hire of rooms, &c., requests the Government to initiate the provision of similar help to honour- able Members wishing to give the best possible service to their constituents. ]

I am afraid that I cannot add anything to the reply I gave to this question last week.

In view of the outrageous events yesterday in Israel, will the Leader of the House provide time next week for a statement on Her Majesty's Government's intentions as to the action they propose to take in the United Nations in condemning the terrorism and dealing with countries which harbour and give training and other facilities to terrorists?

I am sure hon. Members on both sides of the House will share the hon. Gentleman's views about the tragic and outrageous incidents in Israel. I shall convey to my right hon. Friend the Foreign Secretary what the hon. Gentleman said.

Will my right hon. Friend take into account the references that have been made to the Government's defeat this morning and suggest to his right hon. Friend the Prime Minister that it would not be a bad idea for the Trade Union and Labour Relations Bill to come under the guillotine procedure, as did the Industrial Relations Bill, which was passed after only three days' debate. When the guillotine motion is introduced might we not dare the Opposition to defeat it and, if necessary, go to the country on it?

Will my right hon. Friend further take into account that if the Leader of the Opposition, the Liberal Party and the rest of the rag-bag assortment decide not to defeat us on that issue we might impose a three-line Whip on the debate on the declaration of Members' interests on Wednesday, and test them on that.

My hon. Friend is perfectly correct about the method by which the Industrial Relations Act was carried in the House. As I said, the Government will consider the events in Committee this morning and decide what action to take.

Will the Leader of the House undertake to make an early statement to the House explaining why his hon. Friends are so furious when they are not defeated and even more furious when they are?

May I again press my right hon. Friend to make a statement about what action the Government will take on allowances to hon. Members, particularly those for their secretaries? A secretary cannot exist on the meagre allowance that she receives at present.

I understand the plight of secretaries and the feeling of hon. Members who have to pay them. As I said earlier, I hope to make an announcement on this matter next week.

In regard to Wednesday's debate on the declaration of Members' interests, is the right hon. Gentleman aware that it would help a great deal if we were to have a White Paper or Green Paper or some other method of informing hon. Members in advance of details of what the Government have in mind and their reasons for putting forward proposals? I do not wish to deprive the right hon. Gentleman of an opportunity to explain his reasons to the House, but will he give us some advance proposals to think about?

We hope to table the motions tonight. There are three motions, which are in the hands of the Opposition parties, and I hope that hon. Members will read them carefully. The debate will not take place until Wednesday next week, and I think that that will give ample time for hon. Members to study the motions and, if they so desire, to table amendments.

In view of the Israeli attacks on the Lebanon which have led to civilian deaths and which are the result of the actions of a Government and not of lunatic individuals—as are the Arab guerrilla attacks—may we have a statement about the position which the Government will take up when this matter is discussed at the United Nations?

I have already answered a supplementary question on this subject by the hon. Member for Bury and Radcliffe (Mr. Fidler) about the tragic events in Israel. I hope that my hon. Friend the Member for Warley, East (Mr. Faulds) and everybody in the House will join us in condemning those events.

I have already said that I shall convey to my right hon. Friend the Foreign Secretary what has been said in the House. If my right hon. Friend wishes to do so, and if that is the general desire of the House, he will make a statement to the House.

May I remind the right hon. Gentleman of Early Day Motion No. 120 which deals with the refusal of the Financial Secretary to answer bona fide questions from a number of hon. Members. May I inform the House that in view of the regret expressed by the Leader of the House, we do not intend to pursue the matter.

[ That this House regrets the arrogant behaviour of the Financial Secretary to the Treasury on Thursday 9th May and his refusal to answer bona fide questions from honourable Members. ]

Does my right hon. Friend recognise that the National Health Service is in danger of immediate disintegration? Is it not the case that the nurses' representatives are meeting the Prime Minister on Monday and that, unless a very generous and immediate pay increase is given to the nurses and improvements are brought about in their conditions, we are likely to be without a health service in the next two weeks? Will he give some assurance that the debate on Thursday will be extended so that Members may properly express their concern over this matter and so that we may have a definitive Government statement on nurses' pay?

My right hon. Friend the Prime Minister, as my hon. Friend rightly says, is meeting nurses' representatives on Monday, and we must await that meeting. I hope that the debate on Thursday will give hon. Members an opportunity to put forward their views on this problem. May I say that the Government—and I am sure this applies to every hon. Member in the House—have a great deal of sympathy for the nurses.

Will the Leader of the House consider, when a second Adjournment debate is arranged with Mr. Speaker, whether notice of such an event could be posted in the Lobby as far ahead as possible so that as many hon. Members as possible have an opportunity to take part in the debate? Does he not agree that it is unsatisfactory that hon. Members should not be informed of such debates until they begin?

That is not a matter for me, but I understand that these events are posted in the Lobby.

Has my right hon. Friend seen Early Day Motion No. 97 on concessionary television licences for retirement pensioners—a motion signed by myself and 52 other hon. Members. May we expect a statement next week about the Government's intentions on this policy and, if not, may we be given an announcement shortly after the recess?

[ That this House, recalling the Early Day Motions on the granting of concessionary television licences to retirement pensioners signed during the last Parliament by Labour Members of this honourable House, including Ministers in the present administration, calls upon Her Majesty's Government to introduce immediately concessionary television licences to aged persons living as separate households, similar to those granted to aged persons occupying accommodation having a shared service. ]

I am afraid that there will be no announcement or statement on this matter next week. There was a Written Answer on this topic on 9th May. I am afraid that I have nothing to add to it.

Will the right hon. Gentleman say when the promised debate is to take place on the O'Brien Report on the export of live animals for slaughter?

I cannot say when the debate will take place but I have promised a debate on this subject.

Will my right hon. Friend the Leader of the House make a statement next week on when we can expect to have a debate on the progress being made on renegotiation of Britain's terms of entry into the EEC?

I am afraid that it will not he next week, but I shall look at this matter. The House must be kept informed of the progress that is being made. I am looking at the whole question of the rôle of Parliament in the renegotiations.

Will the right hon. Gentleman contact the Treasury and ask them to give me an answer to a Question tabled last week on whether the £65,000 will rank for gift tax and will be made retrospective—bearing in mind that my Question has been set down for more than a week and that it is most unusual that such a Question is not answered within a week? This delay only adds to the mystery and uncertatinty. In view of what lies behind this Question, this could be a disturbing state of affairs.

I regret any delay in answering Questions, but the Treasury is at present under great pressure in terms of the numbers of letters and Questions with which it is having to cope. I shall certainly look into the matter and contact the hon. Baronet.

I should like to reinforce what the right hon. Member for Yeovil (Mr. Peyton) said about the motion for the Whitsun Adjournment. If the situation in Ulster deteriorates, we would think it quite appalling for the House of Commons to go into recess for a fortnight. We might want to argue the matter at some length.

There is provision for the House to be recalled in case of need under Standing Order No. 122, and the House could be recalled. I shall bear in mind the hon. Gentleman's comments.

Will my right hon. Friend consider allocating time to debate the situation of the President of the Industrial Relations Court in view of the potential damage he could inflict on industrial relations during the Whitsun Recess?

I am afraid I cannot give my hon. Friend that undertaking, but I assure him that the situation is being carefully watched.

Will the right hon. Gentleman do nothing about the pay and allowances of hon. Members until this House has voted proper pay and allowances for the troops in Ulster who are carrying the can for all of us?

My right hon. Friend the Prime Minister in a Written Answer today announced increases for the Forces. They are very generous and substantial in crease, but they are well merited.

Several Hon. Members rose—

On a point or order, Mr. Speaker. With respect, Sir, are we in such a great hurry to get on? The next business is the Committee stage of the Finance Bill. I must point out that some of my hon. Friends and I have sought to catch your eye in the last few minutes but have not been called. Could this debate not be allowed to continue for a little longer?

This matter is left to my discretion. I try to be fair, but I have to have regard to the business of the House. I give considerable latitude on these occasions, particularly to the hon. Member for Banbury (Mr. Marten). The Clerk will now proceed to read the Orders of the Day.

Orders of the Day

Finance Bill

(Clauses 5, 6, 7, 9, 10, 11, 13, 14 and 19, and new Clauses relating to the matters referred to in the Order of the House [9th May].)

Considered in Committee .

[Mr. GEORGE THOMAS in the Chair ]

Clause 5

CHARGE OF INCOME TAX FOR 1974–75

3.48 p.m.

(Carshalton): I beg to move Amendment No. 1, in page 4, line 5, leave out '33' and insert '30'.

In moving this first amendment—and I must point out that the figures "33" and "30" refer to the basic rate of income tax—I should make clear the main principles on which the Opposition intend to conduct this Committee stage, including our actions on this amendment. We shall not use the instrument of dividing the Committee to challenge the Chancellor of the Exchequer's basic overall Budget judgment. Equally, while refusing to accept any responsibility for the scale and pattern of the Government's public expenditure commitments, we accept for better or for worse—and, as we think, for worse— that the country is landed with this expenditure for the time being. Therefore, we shall not divide the Committee to deprive the Chancellor of a major proportion of the revenue on which he depends to carry out this level and pattern of expenditure.

In effect, we are saying that we will not divide in a way that would significantly increase any tendency that the Chancellor thinks there may be for demand inflation. We believe that it would be irresponsible to do so. In passing, I shall be interested to see how the Liberal Party defines its sense of responsibility in this context.

We will divide with all the strength that we can command on amendments or clauses which in our view raise issues of principle rather than of scale and on amendments or clauses where we believe that at relatively small cost we can put right relatively big injustices. For example, some amendments on the Order Paper, which we hope to reach today, deal with modest savings incomes where we believe that relatively big injustices can be corrected at relatively small cost. Therefore, unless we get agreement and acceptance by the Government, we shall certainly wish to press such amendments to a Division.

Applying the principles that I have enunciated to this amendment, I shall advise my right hon. and hon. Friends not to divide upon it. We want a general debate of a kind which it is traditional in the Committee stage of a Finance Bill to base on any change of the standard rate of income tax. It is also the tradition, in conformity with that principle, not to divide on that question, because if we were to divide on that question and to succeed, we would deprive the Chancellor of a very large slice of the extra revenue that he believes he requires to meet the pattern of expenditure that he has chosen to impose on the country. It is not the scale or pattern of expenditure that a Conservative Government would have imposed on the country. but it is the pattern that the Labour Government—for worse, as we think—have imposed on the country. Therefore, we do not believe that it would be responsible to try to deprive the Chancellor of a huge slice of the revenue that he must have, given his overall Budget judgment, to meet the expenditure that he is proposing to impose on the country.

I think that it will be for the convenience of the whole Committee if the right hon. Gentleman would publish a list of those amendments that we are not intended to take seriously, on which he is willing to strike but not to wound, and those that he intends the Committee to take seriously. He is wasting our time if he clutters up the Order Paper with amendments on which he has not got the guts to divide the Committee.

It is a most extraordinary doctrine of the rôle of Parliament if we are never to discuss anything unless we intend to press it to a Division at the end. The right hon. Gentleman knows very well that as an Opposition spokesman on, for example, foreign affairs, the Budget and the Finance Bill he has often, quite properly, raised major issues for debate with not the slightest intention of dividing upon them.

(Wycombe): Does my right hon. Friend agree that in past debates in Committee on the Finance Bill far more amendments have been debated and not pressed to a Division than amendments on which we have divided?

Of course. I agree with my hon. Friend. That is why I said that, just as it is in line with the tradition of the Committee stage of the Finance Bill to debate the standard rate of income tax, so it is fully in line with tradition not to divide on it.

Often the Opposition have chosen to debate matters like income tax on the Question "That the clause stand part of the Bill" without dividing. However, I suggest that it is unprecedented for the Opposition to move an amendment seeking a reduction of 3 per cent. in the standard rate of income tax without the slightest intention of justifying that proposal by dividing upon it.

That is contrary to my understanding of a history of these matters. If I am wrong, perhaps in due course the Chancellor will give us chapter and verse.

Not so long ago the right hon. Gentleman was among those who deplored an unnecessarily confrontational approach to politics. Now he is suggesting that it is irresponsible to have a debate on a serious matter unless we are willing to carry it to the ultimate confrontation, in parliamentary terms, of a Division. This is not sensible in practice, nor is it in line with parliamentary tradition or with the way that the majority of people outside wish to see us conduct our affairs.

That is the principle on which we shall pursue our debates in Committee. I believe that it is the right principle and that anybody who attends to these affairs outside will also believe that it is the right principle and will prefer it to the one that evidently the Chancellor would rather see.

Perhaps while the Chancellor is refreshing his memory on these events he might recall the debates that took place, if my memory serves me correctly, in 1972 when the then Opposition tabled amendments seeking to reduce income tax and did not vote on them.

That is an interesting analogy. No doubt the Chancellor will find a way of seeming to reply to it without being able to do so.

I want to make a few general points to launch the debate on the amendment. First, looking at the history of successive Governments, we see that their attitudes to taxation and the level of income tax are almost symbolic of their attitudes to levels of taxation and expenditure generally.

I believe that a Government's early actions on the rate of income tax have an importance or significance for the future out of all proportion to the particular purpose which a change is said to be needed to achieve at the time. This is seen, for example, in the fact that the first early action of the Conservative Government was to reduce the standard rate of income tax. I believe it is equally significant and pregnant for the future that the first very quick action of this Labour Government is to increase the standard rate of income tax. I believe that that exemplifies one of the basic differences between the Labour and Conservative parties.

There is a perfectly good argument for each approach. It is one of the basic choices that have to be made by the people of this country—namely, that when they vote in a Labour Government they vote in a Government which in general will wish to increase taxation because it is the only way that they can carry out their collectivist philosophy, whereas when they vote in a Conservative Government they realise that they are voting in a Government which in general and as a trend will wish to reduce taxation because they believe in a more individualistic approach to society.

Therefore, in this early action by the Labour Government of increasing the basic rate of income tax we see a symbol of a basic belief which, to his credit, the Chancellor did not seek to disguise when, for example, he addressed the Labour Party conference last autumn. I am bound to say that previous Labour spokesmen in years gone by sometimes tried to conceal this, but it is in the open that a Labour Government means higher taxation and a Conservative Government means lower taxation, although of course both Governments will sometimes make changes contrary to the overall trend.

4.0 p.m.

The second general major point I wish to make is about the effect of an increase in the rate of income tax on pay claims, because, however we may decide that it is wise or unwise to deal with this matter, we all realise that the effect of the actions of Government on pay claims is central to the health of this economy and to the way in which we deal with the particular problem of inflation, which it is generally agreed is the most serious problem facing us and almost every other country in the world at the present time.

What one has to realise when one looks at the effect of an increase in income tax rates on pay claims is that many of those in industry and in the various central services for the public life who have the strongest bargaining power and also, in some cases, the most militant approach in pressing pay claims are those very people who have earnings at a level which will suffer from this 10 per cent. increase in the rate of income tax. One thinks of miners, power workers and many others who have earnings—I am talking about earnings as opposed to basic rates—at levels which will suffer in extra deductions in PAYE terms from the weekly pay packet as a result of the Chancellor's action in increasing the basis rate of income tax.

I believe, therefore, that this action of the Chancellor may well aggravate the very pressure, the very fever, which we are all agreed it is of the greatest importance for the country that we should seek to reduce. For this reason, an increase in the basic rate of income tax is a very serious step to take in relation to the effect on the reasonable control of pay claims, however that control is sought to be achieved, whether by a voluntary or a statutory policy.

In terms of demand management, I suppose there are really two basic choices when one comes to think of the effect of pay claims. The first choice is to try to do all one can to restrain the level of pay increases in any one year to what can be afforded in terms of the increase in national productivity in that year. A second basic choice is to let the increases in pay claims run wild as nature takes them and subsequently to tax away the excess in so far as it is necessary in order to reduce the level of demand and purchasing power in the economy to what the Chancellor of the day thinks necessary.

In practice, of course, it is inevitably likely that any Government, whether Labour or Conservative, will not be able to opt purely and simply for one of these alternatives, and in practice there will be a mixture of both. But it is clear that the present Government appear to believe in the second alternative, namely, to try to exercise less restraint on the size of pay increases and then to mop up the effect afterwards, if necessary, by taxing away the excess which the Chancellor believes cannot be allowed to be left in the pockets of the people of this country.

We on this side of the House tend to believe in putting greater emphasis on the former; namely, seeking to restrain the level of pay increases to what can be afforded and then taxing them to a smaller extent afterwards. We believe our method and approach is a better one than the Chancellor's, first of all, because the Chancellor's policy adds fuel to the cost of inflation. Whatever subsequent taxing away he may do, we cannot get over the fact that inflationary wage settlements beyond what can be afforded by levels of increase in national productivity have to be passed on in costs and prices. That is bad in terms of the domestic economy and bad in its effect on the competitiveness of British goods and services in the export market, the importance of which is well known to us all and which the Chancellor himself was stressing only two nights ago in an important speech to industrialists, and, of course, we all agree with him. But his approach on income tax adds to cost inflation and is bad for our competitiveness It is bad abroad and bad for price levels at home.

Secondly, as we keep on saying, really the guts of the argument about having as effective a pay policy as one can manage, again regardless of the way we do it, is that the more we can keep pay increases in line with what can be afforded in terms of the increase in national productivity, the higher the level of activity at which we can run the economy. In other words, to an important extent here there is a choice between restraint in pay and lower unemployment or less restraint in pay and higher unemployment, and we simply cannot run away from this basic choice. In our view, as we made clear in the Budget debate, we believe the Chancellor is making the wrong choice, not because he wants to do anything to create unemployment but because we believe a tendency for unemployment to rise will be an inevitable result of this and many other actions he is taking in the Budget and is putting into operation in this Finance Bill.

The third major point of a general nature that I wish to make is on the effect of this increase in income tax on the degree of fairness in our society. In a time of economic difficulty such as we and other countries in the world are going through at the moment it is said there must be equality of suffering and that everybody must make his contribution. I am sure this is generally agreed by a majority of people throughout the country, and superficially it seems right to put forward the proposition that income tax payers should bear their share in the equality of suffering. But we have to look below the superficial and into the question of how these increases in tax work out in practice in relation to particular groups of people, to get away from the superficial generality into the actuality of the effect on many people.

When one does that it becomes less and less clear what the effect of a general increase in income tax rates really is in terms of fairness. There can be no doubt, for example, that many of those who are going to bear an extra burden as a result of this increase in the rate of income tax by 10 per cent. are the middle income groups who are the chief sufferers of the effects of inflation on, to take just one example, house prices and mortgage interest rates. Many other people under Government policy are, for example, having their rates frozen, at least temporarily. I do not want to enter into argument about that this afternoon. But when one comes into the middle income groups who are to bear the brunt of the extra yield of income tax that the Chancellor is imposing one comes across large numbers in the groups who are already suffering more than most from the effects of inflation; to give one example, the effects of inflation on house prices and mortgage interest rates.

It is because mortgage payers are so hard hit that the Government are now providing up to £500 million to subsidise mortgage interest rates. But where does this get the families who are to receive their benefit? As against slightly smaller mortgage payments there are higher PAYE deductions. Which is better?—because in the end a big PAYE deduction is just as much a reduction in a family's spending power as a higher interest payment. Which is better? Of course, the mortgage payment relief is temporary, whereas under a Labour Government the increase in tax payments is much more likely to be permanent.

The mortgage payment relief is only one example of the Government's general policy of making large but unselective general hand-outs to everyone which have to be paid for by large and broadly-based tax increases—indirect tax as well as income tax. It is, therefore, highly questionable whether the increase in the rate of income tax takes the share of the burden from those who are best able to afford it. Certainly at this time a large part of the burden will fall on those whose backs are already carrying a particularly heavy load, and whom it is particularly difficult to relieve in any other way.

The basic rate of income tax and all that goes with it raise a fundamental question about the sort of fiscal policy we need to stimulate rather than to depress the rate of growth in national wealth. The basic rate is the foundation for the whole structure of taxation of incomes right up to the top level, and the more one compares tax levels here with those abroad the clearer it becomes that at the higher rates of earnings we are much more savagely taxed than any other major industrial country, including Sweden, which is traditionally a high-tax country and has had a Socialist Government for many decades.

We therefore believe that the longterm effects of increasing the basic rate of income tax are to depress the wealth-creating processes of the country. If we are to talk about fairness in our society, we must, as I said in concluding my remarks on the Second Reading of the Bill a week ago, do two things. We have to give more compassionate help to those who need it, whether it be, to take yesterday's topical example, people who unfortunately have to go into mental hospitals, whether it be in the scale of benefits, or whether it be in the provision of facilities such as better schools in deprived urban areas. Those are the sorts of measures which we need above all to make our society fairer and more compassionate. But if we are to be able to carry our ideals of compassion more thoroughly into practice we have to find ways of seeing that our national wealth grows at a faster rate, a rate more comparable to the rate of growth achieved by most other countries in the last 10 or 20 years. Unless we do that we cannot be fair except in the very short term.

It is of growing, importance that while we cannot say that the distribution of wealth is unimportant—and my right hon. Friends and I do not suggest that—we should pay more attention to the creation of new wealth, because it is only in that way that we shall be able to meet the needs of compassion and fairness in our society. We believe that we shall achieve a faster rate of growth in our national wealth and, therefore, a faster increase in our capacity to bring about real fairness and compassion if we have a Government who stand for decreasing taxation and not increasing it.

4.15 p.m.

I agree most warmly with most of what my right hon. Friend said, though I was slightly disappointed that he did not refer to the volume of Government expenditure. The dilemma that we always seem so reluctant to face is that we opt to spend more money yet we do not work hard enough to warrant that expenditure. One of the most disappointing aspects of the Chancellor's Budget speech was that he did not refer to the need to avoid those awful strikes and the need to deploy greater effort throughout industry.

The right hon. Gentleman will forgive me when I say that when he spoke at Blackpool last year—and I appreciate that anyone who speaks at Blackpool must be excused—he gave the impression that he actually enjoyed the prospect of imposing higher taxes. I welcomed what he said the other day to the CBI, but he must face the fact that the people who suffer crushing misfortune are those who are involved in the management of industry. Every time a means is discovered whereby some energetic manager might be able to make some money, that means is scotched sooner or later by a Labour Government.

I hope that, in the new mood which has descended upon him in the last few days, the Chancellor will give some serious thought to how he can encourage those who do not have large capital resources and who, if they were described face to face as being very broad backed, would be astounded to hear it. They would not recognise themselves from that description. I hope that the Chancellor will address himself to the task of encouraging those people who create the wealth. We have gone on deceiving ourselves for far too long with the business of distributing wealth or benefits we have done nothing to earn.

Since we are talking about income tax and direct taxation, the Chancellor will have in mind the enormous machine which this country, almost alone, deploys to collect the money. I hope that the right hon. Gentleman will produce the figure of the harvest per head of tax collected by the Revenue machine here as opposed to other countries. However, I believe that the costs here are unjustifiably high and I hope that the Chancellor will look carefully at this problem and learn from it.

Does not my right hon. Friend agree that whether or not the cost per head is higher here than elsewhere, our tax collecting system is far more efficient than any in any other country?

Certainly, and I wonder whether this high degree of efficiency is worth the candle. What is it gaining?

There are two things in which we seem to lead the field. We have an extremely intricate tax machine unequalled anywhere in the world and, secondly, office rents in the City of London are the highest in the world. I do not think those two achievements, however much merit some people may see in them, are good foundations for the future material prosperity of this country. I hope, however, that the Chancellor of the Exchequer will apply his mind to the first of my points.

This may not be a totally inappropriate moment at which to make a brief comment concerning the effect of his Department upon much of our economic scene. We were told originally that it was essential in the eyes of a Socialist Government that the State should own the commanding heights of the economy. I do not intend to discuss the nationalised industries in any great detail, but it is incredible that the efforts of Socialist Governments, to which the Treasury contributes in the most baleful way, are such as to starve the nationalised industries of proper investment. At the end of the day, we always pick up these huge deficits and turn a blind eye to the need to have intelligent investment policies, with the result that, instead of the nationalised industries being a great stabiliser and platform for the prosperity of the country as a whole, they are a source of economic weakness.

I was fascinated by the speech of the hon. Member for Carshalton (Mr. Carr). The new theory of opposition that we have heard enunciated by him today is remarkable. I ask the right hon. Gentleman why he does not try a different theory, such as waiting to hear what the Government have to say in reply to the debate and then deciding whether to divide the Committee. It may be that the Government can persuade us that they have their Budget judgment right. They did not have a very good shot at persuading us of that on Second Reading, when I spelt out the reasons why I believed that they had that judgment wrong.

The right hon. Member for Carshalton said that the increase in the rate of income tax from 30 per cent. to 33 per cent. proposed in the Bill was yet another example of Labour Governments increasing taxation and Conservative Governments reducing it. I should be happy to go along with that comparison if I were certain that the way in which Conservative Governments reduced taxation was strictly honest. They way in which taxation was reduced under the last Conservative Government, without at the same time reducing expenditure, was to indulge in a monetary illusion and was worthy of Ben Jonson's "Alchemist". All that happened was that taxes were reduced simply by turning on the old money-printing machine. That does not make for sensible economic control.

The debate on the specific attempt to reduce the Government's proposed rate of income tax is primarily about the Budget judgment. It is also about the supposed effects of higher rates of income tax on individuals and on their economic performance. I am an agnostic in my thinking about whether 3 per cent. here or there will greatly damage individual incentive. None of us knows whether that will happen. It could be argued equally well that, because the Government are to take another 3 per cent. out of every marginal pound that I earn, I have to work a little harder and earn a bit more to pay for it. It depends on the attitude of mind, on motivation and on the individual's decision.

There is no point, in the situation of uncertainty that we are in about the effect of the increase in marginal rates of tax of 3 per cent. here or there, in conducting a major debate on them. However, I part company from the Government on the Budget judgment, and that was the reason why my colleagues and I voted against the Second Reading of the Finance Bill.

The Government got it wrong. I do not think that the Budget was neutral. Certainly it was not neutral in terms of the deficit in the totality of public sector expenditure income—

In that case, will the hon. Gentleman explain why he did not vote against the Budget?

We have dealt with that question before. There is no point in going into it again. It was raised on the Second Reading of the Finance Bill.

In his speech in the Second Reading debate. the hon. Member for Worthing (Mr. Higgins) quoted some words of the late lain Macleod to the effect that a Budget invariably looks worse as we get nearer to the Finance Bill. That was part of the reason why I became firmer in my opposition to the Budget judgment.

Making an instant judgment about the Budget at any time is crazy. A Government who have spent even only three weeks formulating their Budget judgment are entitled at least to a degree of con- sideration and to a fallowing through of the basis upon which they have reached that judgment.

When the Government produced their Budget, we on the Liberal benches did not vote against it, and I make no apology for that. The Conservative Party did not vote against it, either. I do not think that it was a good Budget, but it was not a disastrously bad one, and presumably the Conservative Opposition did not think so, either. But I think that the Finance Bill is wrong, and that is why I spelt out my party's reasons for voting against it on Second Reading.

The hon. Member for Worthing, believing, as he does, that the Government have their Budget judgment wrong, ought also to have voted against the Second Reading of the Finance Bill and the Budget. In my view, he ought to be intending to divide the Committee on this amendment about income tax. As the right hon. Member for Carshalton said, the 3 per cent. on income tax is a major part of the calculation of the Chancellor of the Exchequer.

If I had to reduce the total amount of taxation, I should not choose first to do it by reducing the standard rate of income tax. I should much prefer to do it on the allowances and by a direct cut in consumption taxes. In the choice between consumption taxes arid income tax, does the Chancellor of the Exchequer think that he has a progressive tax system, and in his view has he made it more or less progressive?

I believe that we have a very unprogressive tax system—

The right hon. Gentleman says that he has made it more progressive, but one very interesting feature is that, taking the total increase in the income from his proposed increases on Inland Revenue taxes, he will get £707 million net in a full year. Taking the total increase in a full year from the Customs and Excise increases, the right hon. Gentleman will get nearly double that—£1,387 million.

Who pays the increase of £707 million on Inland Revenue taxes, and who pays the £1,387 million extra from Customs and Excise taxes? I am aware that the first figure is not strictly related to ability to pay, but the reason why we have an unprogressive tax system is that we have consistently relied on Customs and Excise taxes, and it is the poor who pay a higher proportion of their incomes in Customs and Excise taxes than the better-off and the middle income groups.

I am a little confused about how the argument for the high burden of indirect taxation on those least able to pay it allows the hon. Gentleman to suggest in the Liberal Party's amendment that the rate of direct taxation should be reduced—or does he propose that it should be increased?

4.30 p.m.

I never propose an increase of taxation. It would be a mug's game, unless one took the view that one's Budget judgment required taxation to be increased. I believe that the Budget judgment in this Bill is wrong because the right hon. Gentleman has increased taxes too much. He has reduced the deficit too quickly. I do not say that he should not have acted on the deficit. The public sector deficit under the Conservative administration was too large.

I may have misunderstood the hon. Gentleman, but did he not suggest that the increase in indirect taxes in the Budget was £1,387 million? He will find from the Financial Statement that he has got the figure exactly 100 per cent. wrong. That figure is the total increase in direct and indirect taxation. I hope that that blunder is not characteristic of his approach to these questions.

I am very sorry indeed about this. I apologise immediately to the right hon. Gentleman. My point was that the £206 million which is the Customs and Excise figure is very similar in a full year to the increase that he will get through the Inland Revenue. This increase is approximately similar to the Inland Revenue increase. The right hon. Gentleman has said that he has made the system more progressive, but I do not see how he can claim that.

How can the hon. Gentleman argue that taxes on spirits, for example, and on petrol—I leave aside the tax on tobacco—are not progressive in their incidence?

There is no question of my trying to prove that all Customs and Excise taxes are paid by poor people, but the beer tax figures much higher as a proportion of expenditure among old-age pensioners, according to the Family Expenditure Survey . The hon. Gentleman left tobacco out otf his calculations. Also, the cost of petrol is heavily weighted at the lower end of the income scale in rural areas. The Family Expenditure Survey shows that the lower income groups pay a higher proportion of their total income in Customs and Excise taxes than do the middle income groups.

Is it the Liberal philosophy that a man who owns a Ford should pay far more tax than a man who owns a Rover?

If I have the hon. Gentleman's argument correct, I would say that that is precisely what happens now.

I certainly believe that someone who owns a large car should be taxed more than someone who owns a small car. I would rather go back to a road fund tax that operated in that way. Provided it fell within the EEC rules, I would favour a luxury tax on very large cars. It would make economic sense.

On Second Reading, the Financial Secretary said:

In July, August or September, the Chancellor will have to cut taxes if he is not to have a rapidly rising level of unemployment by the end of the year. We can argue about which taxes he should cut, but in this basic debate about a reduction of taxation I should like him to give us some idea of the Government's thinking about what the level of unemployment will be by the end of the year. The Financial Secretary did not commit himself to a figure, and I do not expect an exact figure. But does the right hon. Gentleman think that the surveys which have been done suggest rising unemployment towards Christmas? If that trend is right, as I believe it is, what steps will he take to ensure that unemployment does not rise to what I would regard as an unacceptable level—say, 750,000—by the end of the year?

I do not say that a reduction in income tax would necessarily be the right way to do this. I have already said that I would much prefer a direct reduction of Customs and Excise taxes, and that if we are to treat income tax, I would prefer to treat the allowances. But it would be helpful to know how the Government see the problem and whether they are prepared to tackle it fairly quickly.

The right hon. Member for Carshalton (Mr. Carr) said that he was moving the amendment to launch a debate on principle. I would welcome a system of conducting our affairs under which Divisions were called only on matters of considerable importance, when the Opposition really meant to try to defeat the Government. The ritual system whereby we have divided for the sake of division, whereby Oppositions have shown their virility by the number of times that they have moved through the Lobby, is absurd. This kind of gesture politics has done Parliament no good.

I am a little doubtful about the sincerity of the conversion of hon. Members opposite. It may not be entirely unconnected with their present predicament. As a debate of principle, however, so far this debate has not risen to a high level. I do not claim that I shall raise it to such, but I want to deal briefly with two points made by the right hon. Gentleman.

The right hon. Gentleman's second point was that raising income tax was a particularly unfortunate way of increasing taxation because of its effect on pay packets. This seemed a perverse point. The most important effect on the pay packet is, clearly, that of any tax in raising the cost of living. Since income tax is one Budget measure which will not directly affect the cost of living, it is a more suitable way of raising taxation—certainly if that is the criterion to be used —than indirect taxes.

I wish also to challenge the right hon. Gentleman's first point, that this illustrated the entirely different philosophy of the Conservative Party as shown by its record. It is true to some extent that the Conservative Government were always concerned to cut taxation and to reduce public spending, but to a large extent this doctrine that the Conservatives cut taxes because that is their philosophy is a myth. The reason why Conservatives cut taxes during their period of government was that for most of it they faced a major recession and had to reflate the economy to deal with unemployment. The bulk of the tax cuts for which the former Government now claim credit were forced on them by their mismanagement of demand. fn so far as they did not use the tax system to manage demand they were at fault.

Looking back at the overall history of the management of demand by the right hon. Member for Altrincham and Sale (Mr. Barber) and his colleagues, one finds that this depended to a large extent on the way they used public expenditure. The record of the Opposition in managing demand through public expenditure was appalling. They started off with roughly £1,000 million worth of cuts in the public expenditure programme; they then increased the public expenditure programme enormously as part of their reflationary measures, by about £1,500 million.

Then again, because they failed to use the fiscal methods for dealing with the overheating which was beginning to show during the course of 1973 at the latest, and had been predicted in 1972, they found themselves at the end of 1973 having to have recourse to another £1,200 million worth of cuts. That was a most appalling way to manage the economy. It would have been much better to use fiscal measures, and the Opposition were particularly at fault in 1973 in not raising income tax. I do not wish to enter into the argument between the new and the old Cambridge schools as to how sensitive the economy is to fiscal measures, but to have recourse to fiscal measures, rather than to manipulate public expenditure in the way the Opposition did, is certainly a preferable way to approach demand management.

I feel that a rise in income tax is justified as part of the Budget measures which the right hon. Gentleman the Chancellor of the Exchequer has taken, and if this particular issue had been forced to a vote —I am glad that it is not to be—I would have voted against the amendment.

The hon. and learned Member for Lincoln (Mr. Taverne) referred to demand management. Having listened to many debates on Finance Bills, as he has, during the past few years and bearing in mind that matters of demand management and fine tuning have attracted much attention in debates, I have come to the conclusion that it is wrong to attempt too much fine tuning. The less one juggles with fiscal measures during the course of the year the better. I could argue about monetary means and monetary policies being a better method of tuning the economy, but I do not wish to do so now.

The hon. and learned Gentleman did not say in his remarks about the economic policy of the last Government that it was a perfectly legitimate part of their policy to reduce taxation and en-encourage savings. There is a great difference in such matters between the Conservative Party and the Labour Party, as has been conspicuously shown. Not only are we the party which reduces taxation, but we are the party which encourages savings. Every action of the Labour Party, including its experience in Government, has shown that it not only increases taxation too willingly but discourages incentives and saving by every means at its disposal.

One reason why we are supporting the amendment and proposing a reduction in the standard rate of income tax is that we cannot accept the level of Government expenditure inherent in the Budget. If we were to accept a standard rate of income tax of 33 per cent. it would necessarily follow that we accept the level of Government expenditure proposed in the Budget and in the Finance Bill, whereas I accept no such thing. It is, therefore, useful to have a debate on the amendment so as to show that the Opposition do not accept the proposed level of Government expenditure, a point which has been admirably made by my right hon. Friend the Member for Yeovil (Mr. Peyton).

4.45 p.m.

The electorate were led to believe by the Chancellor's speech at Blackpool that only the rich were to suffer. The Chancellor said that the rich would be howling with anguish, but the fact is that the Budget and the proposals in the Finance Bill mean that everybody will find themselves in this position. This will be due not only to the Government's action in increasing indirect taxes, with extra taxes on beer, tobacco, spirits and petrol, but because people will later be faced with further increases in prices in nationalised industries, such as electricity and coal. People know that these increases are due to take place and that the cost of living is bound to rise.

It was reasonable to suppose that many who listened to the Chancellor's speech at Blackpool thought that everybody below the average level of earnings was going to be substantially better off through his proposals. That is what the Chancellor deliberately led people to believe. But so far as single persons and married couples without children are concerned the position is different. A single person who is well below the average level of earnings will be worse off by increases in direct tax and the same will apply for married couples without children.

A curious state of affairs arises because of the threshold agreement. Many people will have their wages and salaries increased in line with the retail price index and some earners will find that they are taken out of the tax bracket for a short period, but because of the operation of the threshold agreement they will, in two or three months, be within the tax bracket again. The threshold agreement allows for an increase of 40p in wages for a I per cent. increase in the cost of living, which assumes that the cost of living will go up by 1 per cent., whereas the rise will be much more serious. It has been forecast that the cost of living may rise by 18 per cent. this year. No one seems to take account of the effect of the threshold agreement. Wage demands are bound to be exacerbated by increases in indirect taxation and, now, in direct taxation. When this is taken into account the electorate will feel differently about the Government and their proposals. All of this is very different from what the right hon. Gentleman suggested in his speech at Blackpool.

The Chancellor of the Exchequer said in his Budget speech that his predecessor, my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) had used taxation to redistribute income and wealth in favour of the better off, as against the average worker. That was a very clear statement, but the reality of it is as follows. Perhaps the right hon. Gentleman would like to refresh his memory on what occurred in 1972 and 1973. At that time 3 million people were removed from the tax list, at a time when the increase in the retail price index was 6·3 per cent. This year half that number, 1·5 million, will be taken out of taxes, in a year when the retail price index is rising twice as fast as it did in 1972. Who has done better for the lower paid, the right hon. Gentleman and his Government or my right hon. Friend the Member for Altrincham and Sale?

The statement which the right hon. Gentleman made about his predecessor using taxation to redistribute income and wealth in favour of the better off cannot be justified by the facts. We are again to witness the stage army moving across the stage, and out of the tax bracket, only to be back within it in a few months.

One of the difficulties about inflation —which I am sure we shall discuss further in forthcoming debates—is that the level of inflation, increasing as it is today, causes wage demands to be much higher than previously. As people go into higher tax brackets they find that their improved wage packets are less than they expected, and so pressure for extra wages is redoubled. The certainty about inflation is that it is likely to increase, by this means, far faster than it has in the past.

It would be churlish and quite inaccurate of the Chancellor to suggest that reduction in income tax is anything but the normal practice of the Opposition. It would also be wrong of him to suggest that it is not the normal practice of the Opposition to encourage savings and incentives. Such practices can be found in the record of successive Conservative Governments, and are in stark contrast with the practices of Labour Governments.

A Gallup Poll published in the Daily Telegraph this morning showed that the Labour Party had a 13½ per cent. lead over the Conservative Party. That hardly bears out the comments of Tory Members that the whole country is howling in anguish over the Chancellor's Budget. Going back in time all the way to yesterday, there were excellent trade figures and an upsurge on the stock market. It seems that at home and abroad there is considerable confidence in what the Chancellor is doing.

I wonder whether the hon. Gentleman will confirm that he used the word "excellent" in relation to the trade figures?

I give right hon. and hon. Gentlemen opposite the credit for being able to draw the distinction between the oil deficit and the non-oil deficit. In terms of the non-oil deficit they were excellent trade figures.

Does the hon. Gentleman really say that the trade returns for April are due to the efforts of the Government and were not already in the pipeline and the goods actually exported before the Government came into power?

The Chancellor is fully justified in taking credit for the upsurge in confidence in this country and abroad as expressed on the stock market and in the value of the pound since he took office.

In contrast, the right hon. Member for Carshalton (Mr. Carr) must be the first general to mount an offensive by retreating into the NAAFI at the first sound of gunfire. Is it any wonder that throughout the country people are now referring to the CBI as the political wing of the Conservative Party, which latter has become a dying duck in this House.

I am opposed to the amendment, first, because it represents an irresponsible attitude to the economic crisis we face. Some time before the last election the right hon. Member for Altrincham and Sale (Mr. Barber)—the worst Chancellor of the Exchequer since Churchill—in a rare moment of political honesty surveyed the devastation that he had created in this country. Surveying that economic devastation, he actually admitted that he would have to increase taxation in the unlikely event of the Conservative Party being returned to Government.

Sources close to the Conservative Party led me to believe that Conservatives had in mind a 6p increase in income tax. Listening to the right hon. Member for Carshalton, it seems that that could not have been the case. I have come to the conclusion, after hearing speeches from Tory Members this Session, that it was not VAT they intended to increase, it was not Customs and Excise duty, corportation tax or employers' or employees' contribution. It is about time some hon. Member opposite stood up and told us precisely which tax they intended to increase.

I object to the amendment because it seems to be part of an ever-present and objectionable campaign being mounted by Tory Members to replace a fair system of direct taxation by an unfair system of indirect taxation. Hon. and right hon. Members on the Opposition benches seem to be obsessed with direct taxation and marginal rates of tax. They are for ever allying this with metaphysical theories about incentives or, as the right hon. Member for Carshalton said just now, "the wealth-creating processes in this country".

Why is it that in 100 years of economic research not one iota, not one vestige or shred of evidence, has ever been produced to back up this theory that comes out in the House week after week, year after year, from hon. Members opposite?

If there is any economic evidence, no doubt someone will rise and present it.

I can give the hon. Gentleman a very good example. A servant of this House told me this morning that many of his colleagues were emigrating to Canada and Australia because they could be paid a decent wage there.

I, too, when I was an innocent and naive economic student, once read a book by a man called, Professor Clark, which contained the same sort of metaphysical drivel as we have heard from hon. Members opposite.

Does the hon. Gentleman not agree that in countries in Europe for example, where the top rate of tax is considerably lower than it is here, gross national product has been increasing faster than in this country?

The statement that the gross national product of certain countries in Europe is higher than that of this country is unexceptionable. It is also unexceptionable to say that total taxation in this country is considerably less than in many of the countries of our main European competitors.

The hon. Gentleman is quite wrong, because there is a limit on the top tax allowance in Sweden well below the top tax limit here.

If the hon. Gentleman will study the figures for total taxation he will find that total taxation in this country is lower than in West Germany, France and Sweden. If he comes to the House talking on the basis of economic ignorance it is no wonder that his argument proceeds from false premises to false conclusions.

Order. If the hon. Member does not give way, the other hon. Members must resume their seats.

Finally, I object to the amendment because it seeks to foster the illusion that it is possible to give benefits to people without raising revenue to pay for those benefits. Since the election the right hon. Member for Leeds, North-East (Sir K. Joseph) has said that he intended to introduce proposals for pensioners similar to those introduced by the Government. Leaving aside for a moment the fact that there is no verisimilitude in that statement, he did not tell the country before the General Election that there was a question of the expenditure of something approaching £1,000 million. There was not one word about where that money would come from.

Before the election hon. and right hon. Gentlemen opposite made it clear that they would introduce a tax credit scheme. That would cost £1,300 million. We are now talking about £2,300 million. We have not heard a word about how that would be raised. At a time of acute economic crisis the Chancellor has given considerable benefit to the lower paid and the worse-off. This amendment is an affront to that achievement.

The idea that high rates of income tax have no adverse economic effects is patently wrong and can be demonstrated to be wrong. I am bound to say that for an ex-Financial Secretary to the Treasury the hon. and learned Member for Lincoln (Mr. Taverne) was taking a remarkably naive view when he suggested this. All the evidence suggests that it does have an effect on the cost of living. Sheer common sense would show him that it does.

What people at any level of income are interested in is their net take-home pay or salary. They will attempt to secure a net take-home wage packet or salary level which meets their needs and expenses. If we want to prove conclusively that this is so we have only to look at what happens at the top levels of salary. Why is the rate for certain jobs £25,000, £30.000 or £50,000 a year? It is not because those people want, need or spend that amount a year but because they need that much lower level of income which is left to them after tax to meet their normal expenditure. If they require another £100 a year, they will have to be paid perhaps another £5,000 a year in order to get it. But it is the £5,000 a year which goes on the expenses and the costs of the company paying them.

5.0 p.m.

The hon. Gentleman will not wish to misrepresent me. I said that it had less direct effect on the cost of living. I would not argue that it had no effect. I simply said that it had less effect on the cost of living than indirect taxation. That is all that I said.

Even that is extremely doubtful when one considers the amounts involved, because it is the gross payments made which are costs on companies, producers and services.

The Government take a substantial slice at the higher levels, but the consumer of the goods and services pays the income tax through the costs of the producer or the provider of services. That must be obvious. When one considers the total amounts involved, one finds that it is by no means certain that this has a significantly smaller effect in the long run than minor increases in indirect taxation.

Another point, which is well known, is that because of our present system of taxation, increases in direct taxation have an effect on the margin at various stages, for example, on the willingness of wage earners to work overtime. Coming into a different tax bracket notoriously has a quite significant effect on the willingness of people not merely to work overtime but sometimes to work extra shifts, in coal mining for example. This clearly has an effect on productivity and, therefore, on costs of production per unit of product.

I should like to deal with two other points, one of which was raised by my right hon. Friend the Member for Yeovil (Mr. Peyton)—the effect of very high personal taxation. He said that we had an intricate tax system and a system that made tax expensive to collect. I suggest that there is something even worse about very high direct taxation: that is that we have had to evolve—perhaps not had to evolve, but it is only human nature that we should have evolved—one of the largest and most expensive tax avoidance industries that it is possible to imagine.

The amount of highly skilled professional knowledge and work and the amount of time and accountant's fees which go into the simple business of trying to adjust affairs for companies and individuals so as to attract the minimum of tax is unbelievably wasteful and uneconomic. The point is that it is high taxation in itself which produces this. It would not be worth people's while to go to all the expense, loss of time and trouble to avoid taxation if tax rates were at a reasonable level. It is abnormally, unnaturally and uneconomically high levels of taxation which produce this result.

Finally, I hope that the Chancellor will deal with the argument about saving when he replies to the debate. There is nothing immoral about saving. Equally, there is nothing immoral about spending. Some people do not wish to save, or are temperamentally averse to saving, out of their incomes. There is nothing immoral about that. In any case, the Chancellor socks them through indirect taxation on consumption expenditure. But, just as the Chancellor needs his revenue from indirect taxation on consumption expenditure, he needs savings, too. The marginal effect on savings of high rates of taxation is quite considerable—not only in that they prevent people from saving at all out of income but that they make it less worth while to invest savings if the so-called unearned income produced by the invested savings is to be taxed at a high rate.

It is only reasonable for the Chancellor to ask himself whether, with levels of income as they are now, in a reasonably high-wage and high-salary economy, it is right to deter people from saving even quite moderate amounts for their old age, perhaps for the purchase of a house for retirement, or whatever it may be. The deterrent effect of present tax rates on savings is very considerable indeed. When working class trade unionists are earnings incomes of £5,000 a year or more, it begins to mean that the present rates of taxation are having an effect outside the so-called middle classes, outside the rentiers and outside management. They are deterring savings among a substantial proportion of working class people as well, and these savings could be a very valuable buttress to the economy in its present state.

I hope that the Chancellor will deal reasonably with this problem in his reply.

I hone that the Committee will find it convenient if I intervene at this stage. I have no intention of curtailing the debate. I look forward to hearing some of the comments on the remarks that I am about to make.

I am bound to say that I thought that the right hon. Member for Carshalton (Mr. Carr) pretty well killed the debate before it began. After all, he has put down an amendment asking for a cut in taxation which would cost the Government £900 million if it were accepted. Then he said that he did not actually want us to accept the amendment because this might increase demand. Then he argued that, nevertheless, it was very undesirable to increase taxation as I have proposed, but he did not mind if it happened.

I do not wish to debate the immediate points because I shall hope to catch the eye of the Chair later. However, the Chancellor has said that the amendment would cost £900 million, whereas the red book shows that the increase in the basic rate and the higher rates by 3p and the top rate by 8p is, in a full year, £942 million. Are we to understand that the two latter items cover only £42 million?

No. Acceptance of the amendment would require £900 million. I am sure that the hon. Gentleman, who has some experience in the Treasury in these matters, knows the figures as well as I do.

As my hon. Friend the Member for Luton, West (Mr. Sedgemore) has just said, what the Opposition spokesman was doing was leading his troops into battle but telling them that on no account must they actually fire their weapons, that, somehow or other, they must contrive to look frightening; they must throw away their swords before the duel begins, but, nevertheless, wave their arms about just as though they were still holding them.

I suppose that I must attempt to take the right hon. Gentleman's argument seriously, although it was quite clear that he does not take it seriously. I am at a loss, for this reason, to know, precisely how to deal with what he said, but I will do my best.

First, I repeat that to accept the amendment would cost the Government £900 million in lost revenue. Over two-thirds of that sum, £654 million, is needed to cover the cost of the rise in the threshold, which takes 1½ million people out of tax. As I understand it, right hon. and hon. Members of the Opposition welcome this rise in the threshold but, perhaps, think that I should have gone further—indeed, that I should have spent £1,200 million in taking 3 million people out of tax. That was the implication of what was said by the right hon. Member for Yeovil (Mr. Peyton). But the plain fact is that the rise in the threshold and the increase in the standard rate and the higher rates were essential to make the income tax more progressive. It is essential to make the income tax system more progressive if we want the support of working people for realism in wage claims.

Of course, I know that any increase in taxation—direct or indirect—is liable to have its effect on wage claims. None of us can deny that. But I have sought to organise the income tax system so that the burden falls where it can best be carried. The fact is that as a result of the changes in this year's Budget, which are hypothetically but not practically disputed by the Opposition, 84 per cent. of the increase in the burden of taxation falls on 3½ million taxpayers, one out of six of all taxpayers, who have incomes more than one-and-a-half times the average income. About 10 million taxpayers, nearly half of the total of 21 million, have no increase in taxation as a result of the Budget.

The right hon. Member for Yeovil talked of the problems of those at the top. I do not deny that they have problems, but the point I was making—[ Interruption. ] Perhaps the right hon. Gentleman was speaking not of those at the top but of those in middle management and so on. Is that the point he wanted to make when he quoted what I said about the rich at my party's conference in Blackpool?

Like many other hon. Members, the right hon. Gentleman has, unwittingly, totally misrepresented what I said. I said that tax increases would be required on all who were some way above average earnings, and that this would affect a large number of people—not only the very rich. But I also said that there would be howls of anguish from those who were rich enough to pay the highest rate of income tax-75 per cent.—at the increase in their marginal rate. I added that we heard not one murmur of complaint from those rich enough to pay marginal rates of 75 per cent. at the fact that many more thousands of people at the bottom end of the tax scale were paying marginal rates as high as 110 per cent. Those are people earning between £20 and £30 a week. I stand by what I said. I hope that nobody will now mispresent in future the words I used at Blackpool.

I certainly do not wish in any way to misconstrue or misquote what the Chancellor said, and I am sorry if I did so. But, equally, I hope that the right hon. Gentleman will not misquote me. I was talking not about those in the top income brackets but about the terribly discouraging effect upon those in middle management, who, after all, will have to play an enormous part in any recovery in the British economy.

We shall be discussing the higher rates affecting those people when we shortly debate other Opposition amendments, so I shall not deal with that matter in detail. I say only that I know that there is a fundamental difference of philosophy, perhaps of theology, between the two sides of the Committee on the matter, which my hon Friend the Member for Luton, West dealt with brilliantly.

I do not believe that the young manager, who will certainly be hit by my Budget, will work less hard as a result. I believe that he will work harder, because at that age that sort of man wants a given standard of life, and if he has to work a little harder to achieve it he will do so. I know that there is great disagreement between the two sides of the Committee on this matter, but in talking to people in companies when I travel around the country I have found that those in middle management to whom the right hon. Gentleman refers agree with me when I make this generalisation.

We are here, as always in economics, in the end discussing questions of social psychology. I do not for a moment dispute that there are big differences between individuals in this regard, but it would be wiser to leave a more careful discussion of the issue to the debate on the relevant amendment a little later.

5.15 p.m.

I believe that this change in the structure of the income tax system, to make it more progressive, will help, and has already helped, in persuading those in the bottom half of the incomes scale to be more realistic in their wage demands, although I am deeply conscious that some of the other tax increases I have had to impose will push them in the other direction.

But what I cannot understand is why the Opposition, if they really wanted just a general debate on the question of the income tax rate, put down an amendment asking for a cut of 3 per cent., costing £900 million. This is only the first of a series of Opposition amendments. Those which have already been put down, largely confined to the first few clauses, would increase the cut in revenue to over £1,000 million.

The Opposition have already voted against the VAT order on road fuels and sweets. If they had had the courage to win the vote, as they might well have done if they had wished, that would have added another £275 million to the reduction in revenue, bringing it to £1,315 million. They have already attacked the 2 per cent. increase in the expected rate of corporation tax, and they oppose the increase in revenue duties—at least, they did so in the general debate on the Budget. The tax cuts to which they have already committed themselves would reduce the total tax revenue in a full year by over £1,800 million.

At first sight that is an agreeable prospect for all taxpayers and consumers, rendered doubly agreeable by the fact that the Opposition propose no corresponding cuts in public expenditure. In fact, they want to increase defence expenditure by £50 million. They made it clear on Monday that they oppose the further cut which we are imposing this year.

At times when they are speaking outside the Chamber to audiences which do not know their record, Conservative Members pretend that they want bigger subsidies for the nationalised industries. I thought it was pretty shabby of the right hon. Member for Carshalton in his television broadcast recently to attack the Government for increases in the prices of natinalised industry products which were the direct consequence of his own party's mismanagement when in office, and which he and other spokesmen on the Opposition Front Bench made crystal clear during our debates on the Budget they supported.

I hope that we shall have no more of that dishonest nonsense from the right hon. Gentleman speaking outside the House. If he disputes what I say, does he think that the subsidy of £500 million to the nationalised industries, which still remains after these price increases, is too high? If so, what further price increases is he proposing? Or does he think that the subsidy is too low; in which case, what further tax increases is he proposing to cover the increase in subsidy?

I would rather give way to the right hon. Gentleman, if he has the courage to rise.

I made clear in, I think, the Budget debate that, of course, the present Opposition will not, any more than any previous Opposition, take responsibility for particular quantums of change of this kind. But I made clear equally that, as my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) said clearly in the House last December, as Chancellor, there would have to be increases in some nationalised industry charges. I made it clear that we stood by that. So far as I know, I have never denied that, either inside the House or outside it.

The right hon. Gentleman has evaded my question. He has not said whether he thinks that the across-the-board £500 million subsidy—which goes to rich and poor alike, something about which he so bitterly complains in the case of food subsidies—is too small or too large, and what he would do if it is too small and what he would do if it is too large.

I ask the right hon. Gentleman, because I know that he is normally very punctilious in these matters, to refrain in future from trying to saddle the present Government with responsibility for those increases in the cost of living which arise wholly from the mismanagement of the previous Government.

The Chancellor may be aware that the Secretary of State for Industry, giving evidence to the Select Committee dealing with energy matters yesterday, made it perfectly clear, to the astonishment of many of us, that he believed in a policy of real costs working through to real prices, without subsidy. That is a doctrine which many of us would support and would help the present Government to support. If that is the doctrine that the Government put forward, we shall support them.

I am delighted to hear that. If the hon. Member for Havant and Waterloo (Mr. Lloyd) and his party are prepared to support it, I hope that they will support the price increases which are a necessary concomitant. I hope that they will support it not only in arcane debates in Committee and in the House but when they speak in the country and on television.

With respect, I do not want to trespass too much on the time of the Committee. I now turn to the comments that have been made by Opposition hon. Members—

The right hon. Gentleman accused my right hon. Friend the Member for Carshalton (Mr. Carr) of failing to account for that figure in terms of the expenditure cuts that he would make.

The Chancellor will recall that in his Budget Statement he said that, owing to inflation, the buoyancy of the revenue this year will produce, even without any tax changes, a further £3,000 million. If he manages to cut the rate of inflation by half the buoyancy of the revenue—namely, a cut of £1,500 million —what will he do?

If ever by luck or by good management I achieved a cut in the rate of inflation of 50 per cent. I and the whole country would cheer to the roof tops. I hope that the Opposition Front Bench would do likewise.

From what the right hon. Member for Carshalton said in moving the amendment it was unclear to me what his real position is on food subsidies. The right hon. Gentleman attacked us for spending £500 million on subsidising food. We already spend £500 million on subsidising nationalised industries. Of course, the food subsidies directly reduce the cost of living by over 1 per cent. However, in the next moment the right hon. Gentleman attacked the Budget for being inflationary. How can he justify attacking an element in the Government's budgetary policy which has a direct effect ill bringing down the cost of living? He cannot have it both ways.

His right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) told us in the Budget debate that, although he would not have introduced food subsidies, he would have made bigger improvements in the earnings rule, given greater benefits to the disabled and greater assistance for the separated. On top of that, he would have increased family allowances. It is no good the right hon. Member for Carshalton taking any credit in those circumstances in that he would have saved money by not introducing food subsidies. I should be interested to know precisely how much the Opposition would propose spending on increased social service benefits.

We appear to have an attack by the right hon. Gentleman on the money which we are allocating to housing. The right hon. Gentleman must know that if the Government were not to make such an allocation the collapse in house building would be catastrophic for millions of people. There are two developments that hold out some hope. First, there is the help which the Budget gave to the building societies. They have generously admitted, after being doubtful in the beginning, that that help will assist them. Both Mr. Williams, of the Nationwide Building Society, and Mr. Griggs have said that the return of funds into the building societies is due to the abolition of certain tax avoidance schemes. The building societies also welcome the loans that we have made and that the House has debated.

The Daily Telegraph is not normally regarded as one of my warmest supporters, but I am glad to see that it announces today that there are the first signs of improvement. It believes that the real reason for the improvement in the housing programme is the extra money flowing into the building societies. Further, it attributes the first signs of improvement to the Government's support for local authorities buying unsold houses on private estates. That is one of the matters that the Opposition fiercely attacked in the Budget debate.

I now turn to the pension increases. The right hon. Member for Leeds, North-East (Sir K. Joseph) told us with becoming modesty that it had been his intention to make a comparable increase in pensions to that which we have made although he had not cared to reveal the fact during the General Election. On the other hand, he said that he would have financed the increases in a different way. It seems that the Opposition would have put a great deal less of the burden on the employers. Presumably a greater burden would have been put either on the Exchequer or on the workers, or on both. What would that have done to wage claims? That is what I ask all those right hon. and hon. Members who have complained about the increase in income tax. How would we have financed the increase in the Exchequer contribution? The intentions of the Opposition that have already been revealed would result in a deficit in a full year of approximately £2,000 million. That would bring the public sector borrowing requirement to a higher level than even the unprecedented profligacy committed by my predecessor, the right hon. Member for Altrincham and Sale (Mr. Barber), in his Budget last year, when the public sector borrowing requirement rose to about £4,000 million.

Of course, there is a case for having a deficit if there is a lot of spare capacity in the economy, but there is no such spare capacity. One of the worrying things about the CBI's survey which was published this week is that it indicates that most businesses regard shortages of labour and materials as a serious constraint on their future development, as they did last December.

The consequence of accepting the proposals to which the Opposition have committed themselves is clear to all. It would give a vicious new twist to inflation, and the balance of payments deficit would be forced open wider still. In fact, we would see again what we saw during the three years when the Opposi- tion held power, when all the benefits of the so-called tax reductions were lost in rising prices.

The hon. and learned Member for Lincoln (Mr. Taverne) was right in what he said about taxation. The fact is that the tax threshold, which was £598 for a married couple in 1970, despite all the tax cuts carried out by my predecessor. was only £2 higher in real terms last year. That is the answer to the point made by the hon. Member for Horsham and Crawley (Mr. Hordern) when he talked about the immense assistance which the previous Government had given to the worse off. Because the previous Government financed their public expenditure increases not by taxation but by printing money, they took away in price increases, and particularly from the poorer section of the community, as much as and in some cases more than what they gave in tax reliefs.

Is it not a fact that 3 million people were taken out of the tax bracket in 1972 and that the rate of inflation in that year was just over 6 per cent.? Does it not follow. with 1½ people now coming out of the tax bracket and with inflation rising at double the 1972 rate that the right hon Gentleman's remarks will be far more attributable to his party and to the Government than to us?

What the hon. Gentleman has succeeded in proving is that the 3 million who were taken out of tax by my predecessor were put back into tax by rising prices during the time the previous Government were in power. I intend to do very much better than that. The fact is that the right hon. Member for Altrincham and Sale recognised that his policy of financing expenditure by printing money was a disaster last December. He then cut demand by £1,200 million largely by reducing public expenditure. But at that time, when he felt it necessary to take these Draconian steps on public expenditure, the retail price index was 10·6 per cent. above a year earlier and the current account deficit was running at an annual rate of just under £3,000 million.

5.30 p.m.

These facts are the core of the problem we are debating. My predecessor found it necessary to reduce demand by £1,200 million last December, against an increase in the retail price index of 10·6 per cent. and a current account deficit running at just under £3,000 million annually. When I took over, two months later, after two months of the three-day working week, the retail price index was rising at the rate of 13·2 per cent. and the current account deficit at the rate of over £4,000 million.

I defy any right hon. or hon. Member opposite to deny that in that situation some taxation increases were inevitable. No one knows that better than the hon. Member for Worthing (Mr. Higgins), and I hope that he will tell us which increases he would have introduced if the Conservative Party had had the luck to win the General Election. Tax increases were inevitable, and my job was to see that they were imposed but that the sacrifices were fairly shared. I believe that the results so far justify a modest and cautious satisfaction in the judgment I made in my Budget and the package of measures I adopted.

My hon. Friend the Member for Luton, West is right. The pound since the Budget has been stronger than at any time in the last nine months. The current account, excluding oil, was in balance last month. I am far from suggesting that hon. Members should take the results of a single month as indicating permanent trends, but in the last three months the current account deficit was running at 25 per cent. lower than in the previous three months.

But the right hon. Gentleman would surely agree that while last month's record was still deplorable—we all know that it was not satisfactory—if there is any improvement in overseas trade such improvement could not have filtered through yet as a result of any action by the present Government.

I would not agree with that, but I would agree that the improvement in the non-oil deficit, and particularly the increase in exports, began before the General Election, and one of the things that all of us who have to deal with these matters, including my official advisers, find it difficult to determine at this stage is what precise effect the three-day working week, two months of which fall into the three months to which I am referring, is having on our current trade balance. It is not easy at this stage to be certain. Nor can we yet tell how much of the improvement is due to volume changes or price changes.

But I maintain that the argument of the Opposition that my Budget would be disastrous for exporters—that I have done nothing for exporters or for investment or for anything else—was unfounded. I believe that a steady improvement will be maintained, and I hope that the rate of improvement will be increased in the current year.

The hon. Member for Cornwall, North (Mr. Pardoe) asked about unemployment. It is continuing to fall, and we have long ago absorbed the terrifying unemployment of the three-day working week. More important still, the number of job vacancies is rising and business confidence is returning—there is no question of that. We must not forget that the last Government imposed an unnecessary three-day working week on the country. Judging by the CBI's industrial survey for January, there was a catastrophic collapse in business confidence, but, judging by the April figures, one sees a steady improvement right across the board—an improvement which other surveys like those of the Financial Times and Weekend World show to be more dramatic still. We still have not got back to the happy days of last October, but we have, thank God, got through the catastrophe in which the complacency of last October landed us when the Conservative Government maintained that the only problems we had were those of success.

But, of course. we are not yet out of the wood, and we still have a major problem with prices. Unfortunately, prices are bound to continue increasing, or at least the retail price index is bound to continue increasing, before we have a chance of its levelling off, if only because an enormous increase in wholesale prices is still in the pipeline.

[Sir M GALPERN in the Chair ]

I am sorry that the hon. Member for Stratford-on-Avon (Mr. Maude) has either slumped to the floor or has perhaps gone out for a cup of tea.

My hon. Friend the Member for Stratford-on-Avon (Mr. Maude) asked me to say, if the right hon. Gentleman referred to his remarks, that he is regrettably absent in Committee upstairs.

Of course I accept that. I did not intend my bantering remarks to he taken as a serious rebuke. I reply to the point raised by the hon. Member for Stratford-on-Avon because his belief is held by a number of hon. Members opposite. I do not think that the threat to savings is taxation. There no evidence of that whatever. There is, in fact. some evidence that high taxation is a great spur to certain types of saving. Indeed, I am trying to reduce some of them.

The real threat to savings is inflation. That is the thing which makes people wonder whether it is worth putting money by rather than spending it now. I do not see how any Conservative Member can even put his name to the amendment, never mind vote for it, when accepting it would have such inflationary effect.

I believe that the steps I have taken in the Budget—the tremendous reduction in the public sector borrowing requirement and the effective control we now have over money supply—will reduce the element which has contributed so much to inflation in the past, and there are some faint signs, although I would not put too much weight on them, from the figures for the costs of materials and fuel last month that some of the increases in world prices might be levelling off. But it is far too early to feel any confidence about that.

But however we look at the situation, and, whether we think that we are doing rather better or rather worse now, there is no question that the country is still facing what the right hon. Member for Altrincham and Sale called, before the three-day working week, the gravest situation since the war. I believe there is no question whatever that the nation as a whole is ready for sacrifices in order to meet that situation, provided those sacrifices are fairly shared. The poll published just after the Budget by the Daily Telegraph showed that almost a two-to-one majority of the population thought that the Budget was fair and that a substantial majority approved the increase in the basic rate of income tax, although many of them were bound to suffer from it.

The Opposition may believe that they can win a few votes here or there by the sort of chatter we have heard this afternoon, but I do not think that they have great confidence in that belief because otherwise they would be prepared to support it in the Lobby. I must confess that they appear to me, and I think they will appear to the country at this moment on this issue, as on so many other issues, like a shabby tribe of toothless sirens tottering on the seashore and tempting to destruction passing sailors by promising them something for nothing. What is even more impressive about this ragged band of maenads is the way they scatter shrieking with terror into the undergrowth at the first sign that the sailors might respond to their blandishments.

I believe that the Opposition are fundamentally mistaken in their whole approach to these problems, strategic as well as tactical. The country does not want to throw away the ground that it has won in the last two months by throwing in the sponge so soon. It is perhaps because he realises that that the right hon. Gentleman is running away again today, as he has done so often in the past two months, from the opportunity of giving the Committee a chance to test his views. After all, with the support of the Liberal Party, the Opposition have a great prize in their grasp today. They have the opportunity of defeating the Government on the most important issue in the Finance Bill. I say to the hon. Member for Cornwall, North that the Liberal Party makes a far better Opposition than does the Conservative Party. I can only add that it would make an even worse Government.

In spite of what the right hon. Gentleman said, I invite both Opposition parties to use their temporary and factitious majority to defeat the Government this evening on the most important single measure in the Finance Bill. If they succeed in carrying the day, we on our side will welcome the chance to put our case to the electorate, and when we put that case we shall stand on our record of achievements and promises kept.

The Chancellor of the Exchequer made an interesting peroration. If he supposes that handing out short-term palliatives improves the underlying situation he is sadly mistaken. It is unfortunate for the country that he should believe it.

The Chancellor spoke about debates on specific amendments. It has long been the tradition in Finance Bill debates for the Opposition frequently to put down specific amendments, because that procedure enables the Committee to debate the amendments in an orderly manner. It is not exceptional to do that. I am therefore surprised that the Chancellor put forward the novel idea of debating the whole matter on the Question "That the clause stand part of the Bill". Similarly, in the past Government spokesmen have never aggregated the total cost of amendments. We need to look at the individual items one by one.

The debate has brought out a fundamental difference in approach between Government and Opposition on direct taxation and on taxation in general. It is right that that should be so because there is an important distinction.

The Chancellor attributed to my right hon. Friend the Member for Carshalton (Mr. Carr) certain remarks about nationalised industry prices. If the Chancellor will look at what was said, he will find that the text does not sustain the charges he made. If that is so, I hope that he will withdraw what he said.

The Chancellor said that the cost of the amendment would be £900 million. I pointed out that according to the red book the increase of the basic and higher rates by 3p and the top rates by 8p produces £942 million. I asked the Chancellor whether that meant that the second two items produced only £42 million and he replied "Yes". I was somewhat surprised by the answer, and there is a case for spelling out the items separately in the red book rather than running the three together.

I have been investigating this matter and there may be an error in the red book. If there is. I will so inform the Committee before the end of the debate on this clause.

5.45 p.m.

I am grateful to the right hon. Gentleman. I was reasonably certain that there was an error, but I was not sure whether it was in the red book or in the right hon. Gentleman's statement.

The Chancellor said that the Opposition had put considerable emphasis on the marginal rates at the top end of the scale and not on the poverty surtax. If he will read the speech I made last week he will find that I devoted a considerable part of it to poverty surtax and pointed out that, taking his measures as a whole, for many groups below the threshold of income tax they raise the marginal rate. Therefore, his measures make matters worse. Not only is it untrue that we have not mentioned this, but we have pointed out that he has made matters worse rather than better.

In making that charge I was not referring to the hon. Gentleman. I was referring as I was in my Blackpool speech—to those who are rich enough to pay the higher rate of income tax. If thereby I included the hon. Gentleman and he is an exception to that rule and is not howling with anguish, I should be delighted to have corroboration.

The hon. Gentleman has made poverty surtax worse in as much as people below the income tax threshold pay a higher marginal effective rate of tax than they would otherwise. That is deplorable, and we shall return to it.

The hon. Member for Cornwall, North (Mr. Pardoe) in an interesting speech explained why the Liberal Party thought it right to vote against the Second Reading of the Bill but not to vote against the Budget. He said that on reflection the members of the Liberal Party found that the Budget was much worse than they originally thought. It took members of the Liberal Party five days to make up their minds what they should do about the Budget and whether they should vote, and then, on the hon. Gentleman's own admission, they got it wrong. That is an interesting commentary on the decision-taking ability of the Liberal Party. It is apparent that the Liberal Party will vote only when it believes it can do so without having to take responsibility for what it does.

The hon. and learned Member for Lincoln (Mr. Taverne) commented on the general economic situation. This is perhaps not the most appropirate clause on which to debate that subject. I agree with him that it is extremely important to ascertain precisely what the situation was last autumn—and we now have more figures to enable us to do so—otherwise, there is grave danger now and in the weeks to come that we shall have a mistaken view.

My right hon. Friend the Member for Yeovil (Mr. Peyton) rightly emphasised the importance of public expenditure. It is central to the whole issue. Although the Budget is said to be a neutral Budget, it achieves neutrality by substantially increasing public expenditure on the one hand and substantially increasing taxation on the other. There is no reason why that should be so. My right hon. Friend is right to emphasise the importance of controlling public expenditure and the consequence that necessarily has for taxation.

In speaking of general taxation the Chancellor said that during the period when the Conservatives were in office there was a considerable degree of fiscal drag—or what used to be called buoyancy for the revenue—which had the effect to some extent of offsetting reductions in taxation. He is in no danger of being in that situation. He has increased tax rates in addition to the increase in revenue which is likely to come from fiscal drag. There is, therefore, a substantial difference between the two parties in that respect. By changing the standard rate of tax the Chancellor has made the step between the non-income tax payer and the person on the standard rate significantly greater—an increase of 10 per cent.—so that the disincentive effect on people who are trying to achieve higher incomes in significantly increased.

The Chancellor has given the impression that all the people who will pay this higher rate of income tax have broad shoulders and will be able to bear it. But it will also hit a number of other groups. For example, it will hit those on national insurance pensions who also have some other income. We are familiar with letters from constituents saying that national insurance pensions should not be taxed at all. But the change which the Chancellor has made in income tax and to which the amendment relates clearly will offset to some extent the increase in national insurance pensions announced by the Government. Those two matters need to be taken together.

Similarly, it must he said that people on fixed incomes have suffered more than anybody from inflation. We all know the great dangers and difficulties of trying to help people on fixed incomes other than through the tax system, and we shall return to that point on a later amendment. Nevertheless, people who retired 20 years ago and who have been living on fixed incomes, savings or investments will find that on top of the fall in incomes which they have suffered in real terms, and the loss on money invested in Government securities, such as War Loan, they will also be subject to the increase in the standard rate of income tax. This is a group of people to whom too little attention is paid and the Chancellor, with his shotgun approach, has hit them hard.

The right hon. Gentleman sought to justify himself by referring to his Blackpool speech. He said that it would be the very rich and perhaps a few others as well who would be hit, but that the dividing line was in some sense the level of average earnings. If I understand his proposals correctly, they will have the following effect: a married couple with young children with an income of £34–60 per week—an income below average earnings—will pay more income tax; a single person whose income is only just over £19 per week will be paying more income tax. Therefore, it is not true to say that this will hit the very rich or those on above average earnings, and the right hon. Gentleman's attempt to justify his Blackpool speech in those terms was wrong.

I turn finally to the question of the effect on wage claims. I thought that the hon. and learned Member for Lincoln did less than justice to this point. There can be no doubt that the increase in income tax will tend to stimulate wage claims. Under the old standard rate system it was difficult for people to understand precisely the rate of tax they were paying, and one of the benefits of our scheme was that we made it easier for people to understand their tax situation. It was a virtue of our scheme that we reduced the rate of tax, but if the standard rate is to be increased people will soon discover that they are paying more.

Let us take the situation presented by threshold agreements. People affected by such agreements will find that threshold payments are subject to 10 per cent. more tax than otherwise would have been the case. We must look at this matter in psychological terms. It does not help the general counter-inflationary psychology to adopt this sort of approach. But the Chancellor, as always, seeks to talk his way out of these difficulties. Two days ago he made a declaration on the subject of profits, but in these matters actions speak louder than words. A few moments ago he tried to paint a glowing picture by using the investment survey issued by the CBI, but he quoted many passages out of context. I repeat that it is actions rather than words that count. We do not find the Chancellor's views convincing. but we do not think it would be right to divide on this amendment. I give the Chancellor advance warning that there are other amendments which raise important points of principle and on which we shall certainly divide the House. The Chief Secretary may say that these are threats. We shall return to this point on subsequent amendments. It is right that this debate should have brought out the fundamental difference of view between Conservative and Labour Members.

Perhaps I may take this opportunity to say one thing about the correction to the red book which was mentioned a little earlier. Will the hon. Member for Worthing (Mr. Higgins) table a Question on this point so that I may give him a Written Answer in HANSARD.

Yes, I shall do so, and I thank the right hon. Gentleman for giving that undertaking.

Amendment negatived .

I beg to move Amendment No. 3, in page 4, line 7, leave out '£4,500' and insert '£5,000'.

I hope that it will be convenient to take also Amendment No. 14, in Clause 5, page 4, leave out lines 19 to 28 and insert:

This series of amendments deals with those people whose earnings are somewhat above the average level. They include all the middle managers in industry and in business, experienced teachers, civil servants and professional people; they include doctors and middle-ranking and senior officers of the Armed Services and the police. Some are tied to fixed salary scales devised some years ago, but many others have no such advantage and are dependent on the State for increased incomes, or upon the state of business. Normally they would not be members of trade unions and, even if they were, they would scarcely ever go on strike.

Their incomes have been tightly controlled under phases 1, 2 and 3. Like everybody else, they have had to face higher prices and higher indirect taxes on beer and tobacco as a result of the Budget. They are no exception in this respect, but they have had to face extra expenditure in regard to mortgage interest rates. Both the Conservative Government and the present Government have helped the building societies to some degree, but they have merely been able to hold the mortgage interest rate at what is still an exceptionally high level.

Interest rates being what they are internationally, there can be no reasonable expectation that they will come down while inflation continues at anything like the present rate, and the people who are the subject of this group of amendments know that very well. If they bought their houses some time ago, they may be paying 50 per cent. more interest rates than they were originally paying. If they bought their houses two years ago, they may have seen the value of their houses fall and they have probably seen the value of savings and investments fall by 50 per cent. in the last two years. If they live outside the big city centres, they will have found that their rates have risen quite disproportionately by the deliberate action of the Labour Government. They also know that their telephone and electricity bills will be much higher in future.

It is no wonder that these people are dismayed. Now they find that, once again, a Labour Government have put up their income tax—not just by 3 per cent. extra at the standard rate but by reducing the band of income at which the higher rates operate, from £5,000 to £4,500—the subject of Amendment No. 3.

In answer to my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) on 9th April, the Financial Secretary said that the proportion of those on earned incomes between £3,000 and £5,000 a year of the employed force was 12·8 per cent. It is unlikely that those whose incomes fall between £4,500 and £5,000 can be as much as 3 per cent. and those whose incomes exceed £5,000 form only 2 per cent. altogether. We are talking in these amendments of 5 per cent. of the working force, which is not a significant number of people.

So that we may be sure that we talking about the same thing, will the hon. Gentleman confirm that the figures he is giving are not total income in revenue terms but taxable income?

6.0 p.m.

I am talking about the bands of taxable income above £4,500. The hon. Gentleman will find the figures set out in the Written Answer of 9th April to which I referred.

We are talking about 5 per cent. of the work force. But they are by definition, though not a significant number, all the middle managers in industry, the best scientists and engineers, and the best salesmen for our exports abroad. They have found proposals in this Budget to do away with stock options which for many of them represented the only way that they could ever hope to build up capital and achieve some independence.

A married man, with two children under 11, earning £5,000 a year now has to pay another £58 a year income tax. That is bad enough. But what is much worse is that he knows that the new rates of tax bite much harder as his income rises.

Suppose he goes to a new job at £6,000 a year. His tax will be an extra £98 a year more than a year ago and an extra £398 altogether.

Suppose he looks to the future to see what his tax position will be if he earns £10,000 a year. He will have to pay £186 a year more than a year ago and his tax will take 34 per cent. of his income rather than 24 per cent. of his present income of £5,000 a year.

The scientist, the engineer and the export salesman have a pretty good idea of conditions in other countries. They know that their skills are international. Of course, they are prepared to pay a large premium to live here, but if it is impossible for them to save or to build the future for their families that they would like them to have they are bound to consider going abroad to work.

Looking at rates of tax on earned incomes of £5,000 a year in other countries what do they find? In the United Kingdom the rate of tax for a married man with two children under 11 is 24·5 per cent., in Holland it is 17 per cent., in Japan 12·3 per cent., in the United States 11 per cent., in Canada 16·9 per cent., in Australia 21·5 per cent., in France 6·9 per cent. and in Germany 12·9 per cent. Incidentally, these figures include the local taxes in whichever country they are, but the 24·5 per cent. rate in the United Kingdom does not include any local rates that the taxpayer may have to pay.

At £10,000 a year the rate of tax in the United Kingdom is to be 35·3 per cent., which is higher than in all these other countries and twice as high as in the United States and France.

Finally, on these international comparisons, the new top rate of 83 per cent. on earned incomes, which is the subject of Amendment No. 15, is not only the highest rate of tax of any comparable country, but it is reached at a lower level of income, except for the United States, where the top rate of tax is only 50 per cent. anyway.

Thanks to my hon. and learned Friend the Member for Dover and Deal (Mr. Rees), according to a Written Answer to him on 9th April, col. 133, it appears that the top rate of tax is reached at £21,200 in the United Kingdom, at £21,000 in the United States, at £22,000 in Holland, at £27,000 in France, at £36,000 in Germany and at £356,000 apparently in Italy.

Of course, anybody who has anything like that kind of income probably has savings as well, but now those are threatened with a wealth tax and a gift tax. None of us knows whether such taxes are practical or, if they are, what the rates will be, but it appears that they will be in addition to, not instead of, income tax at the top rate. As far as I know, that does not happen anywhere else. Sweden's top rate is 80 per cent., and the wealth tax is included in that figure.

It is difficult to see why people of means should be prepared to live in this country if a confiscatory wealth tax is introduced. I do not believe that taking so much money from the rich will make the slightest difference to the so-called social compact, and those who counted on it have already had to pay a great deal more money than they anticipated under this Socialist Government. In this rather unhappy combination of very high taxation and high inflation we are entering quite new territory. If the cost of living index remains relatively stable, it is possible that increases in direct taxation may not be felt too deeply; but if they are combined with a very high rate of inflation we can be sure of a good deal of unrest.

My right hon. Friend the Member for Altrincham and Sale (Mr. Barber) achieved considerable success in reducing rates of direct taxation. But, after the increases in this Budget, we are still the most highly taxed country amongst our industrial competitors by a long way.

Even when higher income earners are prepared to continue to live here we cannot yet know what effect the combination of higher taxes and rapid inflation is likely to have upon them, except that they are bound to question the value of savings as a whole.

Young managers in industry have found that stock options will no longer be available to them, so they will not be able to relate the value of their own hard work with reward. In all probability, they will have heavy mortgage commitments, so their ability to save will be negligible.

What possible incentive can there now be to save? There is not much attraction in the stock markets at present with dividend limitation as it is and with the Secretary of State for Industry making all kinds of threatening noises about the future of industrial companies. Nor is it possible to find much comfort in Government securities where the rate of return does not reflect the current rate of inflation, let alone give an additional or real return.

Above all, what possible point can there be in saving when the fruits of saving are taxed so heavily as is proposed in the Budget? If ever there was a lesson to be learned by those who want to save regularly, it is in the treatment of investment income in this Budget. To reduce the surcharge on investment income from £2,000 to £1,000 and to £1,500 for old-age pensioners is sufficient to make any sensible person think twice before setting out to save. That is without considering the threat of a wealth or a gift tax. If ever there was a charter for a spendthrift society, this Budget provides it. Instead of "Save-As-You-Earn", the motto must now be "Spend before they take", and so it will be.

I believe that the Budget has profound social implications which have yet to be considered. It has substantial implications for the Government and the management of the borrowing requirement in the first place. If people do not lend their money to the Government, the Government must borrow from the banks, which will increase the money supply and have its certain effect upon inflation.

It will not be very long before people will refuse to lend their money at a negative rate of return. That will mean that the gilt-edged market will have to fall far enough to provide a sufficiently attractive return to allow for inflation. That in turn will mean a sharp fall in the value of current savings and a substantial increase in the interest bill that the Government or the taxpayer will have to pay.

We hear a lot these days about inflation accounting for public companies, and we have the threshold agreement for pay increases, but we do not hear very much about inflation accounting for savers. It is my belief that if in future the Government are to rely on savings from the non-bank public they will have to offer some form of inflation-proof bond, rather like what is known as the Giscard in France, either linked to other currencies or possibly with gold backing. In such an event there will be a switching from other gilt-edged securities, but a real inflation-plus return is becoming more and more necessary if we are to have an active and healthy market in Government securities. Similarly it is surely worth considering the Canadian system where different bands of taxable income are adjusted for inflation before tax is applied. Otherwise the effect of fiscal drag in a period of high inflation is bound to increase the pressure for higher wages and salaries, and this in turn is bound to lead to even higher inflation.

The cost of Amendment No. 3 would, I understand from the Financial Statement, be £3 million this year and £12 million in a full year. The Chancellor of the Exchequer, speaking on the previous group of amendments, said it was up to the Opposition to show how this money could be found. I have one suggestion. It is not a lot of money; £10 million would certainly more than cover the £3 million required for this year. Let the Chancellor therefore change his mind, withdraw his new clause and, instead of giving the £10 million to the trade unions, allow it instead in favour of this amendment. I ask hon. Members to support that proposition.

I agree with this group of amendments generally speaking, though for rather different reasons from those which were advanced by the hon. Member for Horsham and Crawley (Mr. Hordern). As I explained on the last amendment, I support the 3 per cent. increase in the direct rate of income tax, but I do not support the extra 5 per cent. which has been added to the top of the income range.

In the first place, I am very sceptical whether in practice it makes the tax system more progressive. In the second place, I think it will have a distorting effect. In the third place—and this is very important—I fear that it will give our tax system the wrong shape.

It is always assumed that our income tax is a highly progressive system and that the high marginal rates make it more so. That does not necessarily follow. There is a considerable distinction be- tween the appearance and the reality. The reason for this distinction is the effect of the gradual erosion of the tax base. The effect of the various exemptions and exceptions which are available is considerable. If one looks at the amount which the taxpayers as a community gain from mortgage concessions, insurance concessions and pension concessions, one finds a very large sum indeed. I do not know what the present figures are, but in 1969 if one did not have concessions one would be able to reduce the top rate of income tax by over 10p in the pound. If one were not to have the concessions which are now written into the tax system one might find that one would have a lower top rate, a lower rate all round, and yet a more progressive system.

Looking at the way in which these various concessions are worked, one might, after the appropriate research, reinforce the conclusion that many of those who live on very high incomes pay a lower effective rate of tax than those living on incomes in the middle range.

I feel that the right move in reforming our tax system is to move towards the gradual whittling away or removal of these various exemptions and at the same time a lowering of the rate. If the rate is higher, especially if the top marginal rate is higher, one sees a growth in the fringe benefits which are available. Those are things which it is very difficult to control. I am sure that, for example, the hon. and learned Member for Dover and Deal (Mr. Rees) and the Chief Secretary, both of whom have a great deal of experience of the tax system, will know only to well how difficult it is to control the various fringe benefits which have proliferated and will, I suspect, proliferate far more with a higher rate, with a very high marginal rate, than would be the case if the rate were lower.

6.15 p.m.

I confidently assert, although at this stage the research is not available, that if we had a tax system with a top rate of 60 per cent. but with none of these exemptions which now apply, not only would the tax system be fair and avoid a number of unfortunate effects but it would in practice be more progressive than the tax system is now.

If we increase the top rates we shall find a number of undesirable effects. There is no doubt that it will vastly increase the avoidance industry. There will be lots of dodges which are technically legal, which constitute avoidance rather than evasion, and which are very difficult to control. It is not unknown for Members of Parliament to pay their wives as secretaries. It is not unknown in many other areas for taxpayers to pay wives as secretaries and in this way decrease their own tax liability. It will not be unknown for people who can take advantage of it to appoint their wives as research assistants. There will be many different ways in which people will find artificial means to reduce their tax liability.

Apart from avoidance, which will now be a more profitable industry, undoubtedly the amount of tax evasion will increase and this will have a very undesirable effect on fiscal morality in general. It will again produce an inequitable effect because those who do not evade and those who do not avoid tax will bear higher rates, whereas those who have a more dubious approach to fiscal morality will be much better off.

It was mentioned in the debate on the earlier amendment that there is little evidence of the exact incentive effects of high rates of taxation. I think that is true. The evidence produced before the Royal Commission was inconclusive. A lot is assumed which is not necessarily borne out by research. I do not think there is any evidence either that high rates of tax do not have a disincentive effect. What I would certainly argue is that very high rates of marginal tax distort. They distort the directions into which people put their efforts. In Britain our record in manufacturing is poor. The services provided in the City are, on the whole, of high quality. I have little doubt that many people of great talent tend to drift into the money-making areas of the services in the City rather than into manufacturing industry because there they can make capital gains which bear a much lower rate of tax, rather than bearing a very high marginal rate of tax if they are managers in manufacturing industry. I therefore suspect, and always have done, that very high marginal rates of tax have a distorting effect on the economy even though one cannot necessarily show that an increase in the marginal rate acts as a disincentive on a particular person earning a certain salary.

There is something in the point made by the hon. Member for Horsham and Crawley that it may lead to emigration and to people working abroad. This is a point, however, which is exaggerated. When the European Community was founded it was feared in Holland that because the top Dutch rate was 70 per cent. there would be much emigration of managerial talent from Holland to neighbouring Germany where the top rates were much lower. In fact, this has not been a problem in Holand. The German rate is rising and the Dutch rate is not. Nevertheless, if there is a huge disparity in rates I cannot conceive that this will not have any effect. When one finds that the top rate for some is now 98 per cent. I cannot believe that this will be an entirely negligible factor.

I feel, therefore, that the second reason why this is a mistaken development in the tax system is that it will lead to certain undesirable effects by way of an increase in avoidance, certainly by a likely increase in evasion, and by a certain distortion in the kind of activities into which people direct their efforts.

My third main reason for regretting the shape which the Budget has given to the top tax rates in this country is that it prevents a much more desirable development in our tax system. I should like to move towards a much more integrated tax system, a much simpler tax system. I should like to see tax paid at the same rate, though not necessarily at the same rate at all levels of income—I am certainly not suggesting that—but at the same rate irrespective of the source from which the income arose. I should like to see the same rate on income which is classed as earned income and the increase in spending capacity which comes from the realisation of a capital gain.

There would be a tremendous simplification of our tax system if capital gains were taxed at the same rate as income. I should like to see it applied also to income arising from gifts. I strongly welcome the proposal announced in the Budget to have a gift tax, although I regret the form that, apparently, it is to take. It would be much more sensible if it was a tax on the donee instead of the donor, but this is something to which we can return at a later stage. If it were possible to have an integrated tax system in which one had regard not to the source of income but to the capacity to spend, we would have a very much better, simpler and fairer tax system in this country.

This, however, is quite impossible if there are the very high marginal rates which are to apply to income under the proposals contained in this Finance Bill. I should like to see the tax system further simplified and further integrated so that eventually we might even seek to abolish taxation of such artificial concepts as corporations and trusts, and tax individuals, because that is where wealth lies. This would become possible under the integrated system that I feel is desirable.

I believe that the change in the extra 5 per cent. made in the Budget is going to be very difficult to reverse. It is always unpleasant to make a tax change downwards which clearly gives so much more to one section of the community than another; yet I suspect that this is not something which will make the social compact easier. I suspect that it is an unnecessary alteration of the tax rates. I feel it was an easy way of gaining popularity with a certain section of the Labour movement.

It is not justified on the grounds of making the tax system fairer and more progressive or redistributing income. It will have inequitable and unfortunate side effects. It is not something which greatly increases the income to the revenue, and for those reasons, which I judge to be of very great importance and which are founded on a very fundamental look at the kind of tax system we ought to have, I find myself in agreement with the amendment which has been proposed.

It is a double pleasure to speak after the hon. and learned Member for Lincoln (Mr. Taverne), first, because I agree with a substantial part of what he has to say and, secondly, because what I want to say follows on naturally from what he has said and therefore I can display a carefully prepared spontaneity in the areas to which my remarks will be addressed.

I believe the effects of the increases that have been proposed will be extremely damaging to the morale of much of management in industry and that this will have a significant effect upon the whole question of incentives in industry. It is to the theoretical and "social psychology questions," as the Chancellor put it, of incentives that I wish to address my remarks, because the suggestion has been made from the Government side that there is no empirical evidence that lower taxation leads to people working harder, or to any significant improvement in economic performance.

Sometimes hon. Members opposite say, "Look at what happened from 1970 to 1973. You cut taxes and it did not bring about a great revolution overnight." To put the question in that way is to approach the problem in the wrong way, because really the case for lower taxation depends partly, as the hon. and learned Member for Lincoln has said, on structural effects and partly also on the effect it has, over a longer period of time, on the attitudes of management to risk taking and the ability of managers to make themselves independent by building up capital.

I am surprised that we should have heard this approach so much from the Government benches because from time to time it has even been recognised by right hon. Gentlemen opposite. Some will remember the Chancellor once writing in Socialist Commentary : put a certain amount of capital aside. In comparing the average amount of savings that a top manager has in this country with the savings that a top manager has in the United States, one sees what a significant difference there can be.

A second very important effect to which the hon. and learned Member for Lincoln referred is that of very high marginal rates on income differentials and, therefore, on the distribution of talent within our society, and the distribution of management within the economy. If there are very high marginal rates of taxation, it is extremely difficult to have clear differentials between different functions in society and in the economy, and to move people from one place to another. The hon. and learned Member for Lincoln referred to the fact that perhaps too much of the output of our universities goes into the City. Again, this comes back to the question of marginal rates. There is not enough difference in post-tax terms to make it attractive enough for people to go into industry, which is something, which for historical and social reasons, people have tended not so much to do in this country.

That subject was referred to by Professor Merrett in his study of the effects of high direct taxation on the United Kingdom economy. I wish that the hon. and learned Member for Luton, West (Mr. Sedgemore) was here, because earlier he made the outrageous statement that there were no studies showing emperically the effect of direct high rates on the United Kingdom economy. Professor Merrett did precisely that. One thing he compared was the average salary payable to the top directors of the 100 largest companies in this country with the top salary available to a top civil servant in this country. At the time when Professor Merrett was writing the difference in before-tax terms was about £4,000, but in post-tax terms it was just about £1,000. This, again, was perhaps one of the reasons why the distribution had been affected, because of the effects of the marginal rates of tax.

Perhaps it is, too, why United Kingdom executives tend to be so much less mobile than their American counterparts. Again, one of the statistics that Professor Merrett was able to put forward was that compared with the United States, where 75 per cent. of executives had worked for more than one firm, in the United Kingdom only 66·4 per cent. had done so. In the United States, 52 per cent. had worked for more than two firms but in the United Kingdom only 44 per cent. had done so. So, following from what the hon. and learned Member for Lincoln has said, I would argue that these high marginal rates have a very important effect in preventing our getting the best management into the most important jobs. Sometimes one sees a very notable and conspicuous example of this, as when the right hon. Member for Blackburn (Mrs. Castle) was Minister of Transport. Hon. Members will remember the difficulty she had in getting a chairman for the Railways Board simply because of the arguments over the level of salary.

Another consequence of high rates of tax is to make more difficult the distinction between the mediocre and the successful executive. High rates of tax protect the incompetent from the penalties of failure. In the United States executives have less job security, but they have more financial security. Here, executives tend to have much more job security—they are rarely sacked—but they have much less financial security and are constantly pressed with mortgage payments and all the other payments which beset the middle income groups here.

6.30 p.m.

Another effect of the high marginal rates of tax is felt on the international management market. Business executives in this country talk to executives abroad and are able to compare their post-tax standards of living with those in other countries. They therefore know, for example, that in post-tax terms, whereas in the United States a chief executive of a public company is paid, on average, 30 times what an unskilled labourer is paid, 20 times what a skilled worker is paid, and five times what a professor is paid, in Britain the figures are 17, 12 and 3, respectively. Those are significant economic facts, and have much more to do with getting economic growth than all the talk in the world about demand management. It is the quality of management in the economy that makes the vital contribution to economic growth. That is why I remain unashamed of the tax reforms introduced by my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) when he was Chancellor. We were in a nonsensical position before him and we have now returned to that position as a result of what the present Chancellor has proposed.

One reason why it is so regrettable that increases are proposed in tax levels is that the effects of inflation have overtaken so many of the so-called tax cuts made by my right hon. Friend. In fact, 85 per cent. of the effects of his tax cuts went to help those with incomes under £6,000, and the so-called handouts for those earning above that figure were quickly overtaken by the effects of inflation. We need merely to look at the rates of income which would have to be paid today to secure equivalent figures to those paid in 1970. For example, someone who had two children and was earning £4,000 in 1970–71, in spite of the tax cuts made by my right hon. Friend, has suffered a drop of 25 per cent. in his post-tax income—his real take-home pay—due to inflation. Someone on £5,000 a year in 1970, in spite of the reliefs introduced by my right hon. Friend, has suffered a cut in his real take-home pay of 27 per cent.

In any situation where there are high marginal rates of tax and where the marginal rate of tax is actually higher than the average rate of tax, it becomes difficult for anyone in the higher income groups to get an increase in pay which will keep him ahead of inflation. That is why our high rates of direct tax mean that the real incomes of executives are falling sharply. If someone is given an increase of 10 per cent. in pre-tax salary, that, because of our tax rates, will not compensate for a 10 per cent. rate of inflation. Therefore, it is most important that the different thresholds for the different rates of tax should be put back to where they were before the Budget, and why it is important that in future the different thresholds all along the scale should be related to an index and to inflation. If that is not done the situation will be reached in which there are all the distortions to which the hon. and learned Member for Lincoln referred, and in which the standard of living of executives, in real terms, will continue to fall.

I come to the effects of the increases in the band of rates on investment incomes. I agree with what I think the hon. and learned Member for Lincoln said about that. One of the harmful effects of putting such punitive rates of marginal tax on investment income is that savings will be run down. At the highest rates there is, effectively, complete confiscation of income. People with large amounts of income will not make their capital available for risky ventures and small firms. Instead, they will put it into real assets because they know that there is no point in having any income from it. That is a significant distortion which will appear as a result of these crazy marginal rates of tax introduced by the Chancellor.

These rates produce very harmful effects. The Economist, commenting on the Chancellor's proposals for taxation, quoted what Maynard Keynes once said a bad fairy would produce as a curse over any economic institution it wanted to put on the wrong course. It was:

The hon. Member for Kingston-upon-Thames (Mr. Lamont) argued very persuasively in favour of the amendments. However, we should keep some sense of proportion about what the Opposition are proposing. The amendments are, after all, primarily intended to benefit those with salaries or incomes of more than about £5,000 a year. Those people are entitled to justice, but we must think, too, about the 10 per cent. of the population who live in a state of grinding poverty, some retirement pensioners, one-parent families, and people who have large families and are in the low-wage category. We should not, therefore, be too exercised about the hardship being suffered by people earning more than £5,000 a year.

The hon. Member for Horsham and Crawley (Mr. Hordern) said that a man earning £5,000 with a wife and two children would have to pay another £55 a year. I agree that that is a hardship, but such sympathy as I felt was somewhat diminished when he went on to weep tears about the man earning £10,000 a year who will have to pay another £186 a year. I cannot feel that someone in that position is having a rough time of it, especially when I think of that 10 per cent. of the population who, caught in the poverty trap, are suffering irreversible poverty.

We have talked about incentives, and hon. Members on both sides of the Committee appreciate that the argument goes both ways. If a man has to pay more tax he may feel a desire to do less work because so much of this additional earnings will be taken away. Alternatively, if he has to pay more tax, he may feel that he has to do more work and earn a bigger income.

A very authoritative body, the Royal Commission on Taxation and Incomes, went into the question of incentives and published a report about 12 years ago. I apologise for referring to a 12-year old report, but there has not been an authoritative investigation of the subject since then.

May I remind the hon. Gentleman of the Bolton Report, chapter 13 of which is devoted to this subject and the effect of taxation on incentives for small businesses?

I accept that there is a disincentive effect on small businesses. However, the purpose of the amendment is to help people who are scientists, sales executives, engineers and the like.

The hon. Gentleman might also refer to the Jones Report, in 1966, directly on the subject of the effect of high taxation on scientists and engineers and the extent to which they were obliged to emigrate because of it.

I am grateful to hon. Members for suggesting reading which will keep me occupied for quite a long time. However, in my view we ought to be thinking of the effect of incentives in a more direct manner and taking practical examples.

I am a non-executive director of a company of modest proportions which exports about £20 million worth of electronics a year. The company employs engineers, scientists and sales executives of very high quality. For that reason we have increased our profits by about 30 per cent. a year for the past 10 years. It is a very successful company with very successful executives and technologists. We have not found among them any tendency to work less hard because they have to pay higher tax. Obviously they feel a grievance about it—we all do—but there is no suggestion of these brilliant men in their 30s and 40s, who earn substantial sums, slackening their efforts. I suggest that the main reasons are, first, that they have job satisfaction and the feeling that they are doing a worthwhile job, and second, that they are thinking always in terms of promotion and of still higher incomes, despite the higher taxation on them.

The hon. Gentleman speaks with obvious authority about the impact of high rates of taxation in industry. Has he contemplated the introduction of a share option scheme? How does he think his employees would look at that, and how would they look at the provisions in the Bill which will prevent them?

It is not my business to discuss in this Committee what goes on in boardrooms, especially when it is irrelevant to the amendment. There is nothing about share option schemes in the amendment. When we come to debate them I shall be delighted to make a contribution to the discussion, and I hope that it will be acceptable to the hon. and learned Member for Dover and Deal (Mr. Rees). In any event, in my view the incentive argument is somewhat overrated.

Then I come to savings. The very people who are affected by the amendment have particular advantages in savings from the point of view of mortgages, pensions and insurance. They have specific advantages compared with the remainder of the population, working men and people on small incomes. I do not think that we should worry too much about any disincentive for savings. Is there any disincentive for savings? I suggest that the real disincentive is inflation and not taxation, and the whole purpose of this increased taxation is to reduce inflation and so make saving more worth while in the future.

6.45 p.m.

The hon. Member for Horsham and Crawley referred to tax avoidance, suggesting that there will be a big increase in the tax avoidance industry as a result of the increased taxation being paid by people in this income group. However, the total cost of the amendment will be only £3 million this year and £12 million in a full year. Taking into account the percentage that accountants charge on the incomes with which they deal, surely the effect on the avoidance industry will be very small.

The cost of Amendment No. 3 will be £3 million this year and £12 million in a full year, but the tax avoidance measures refer to the other rates which are much higher in cost.

I am grateful for the hon. Gentleman's intervention. I understood that the cost of Amendment No. 3 would be £12 million in a full year, and that that is the amendment to which tax avoidance measures apply.

I am obliged to the hon. Gentleman. However, that does not affect the main drift of my argument.

Was not my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) making a general point about tax avoidance? He was not talking about these tax rates. He was saying that the result of higher and higher rates of tax is more and more incentive towards tax avoidance. He was saying that if the Government go on piling on more tax more people will spend their time working out schemes of avoidance and some will even spend time working out schemes of evasion. How can the hon. Gentleman argue against that proposition?

I am not arguing against it. If there is higher taxation, obviously there is a bigger incentive for avoidance. However, the amount involved is so small that the increase in the tax avoidance industry, and, therefore, the comparative distortion in the economy, will be of little significance. There will always be people who want to avoid tax and others who want to evade tax. These marginal amounts will not make much difference to the tax avoidance industry, undesirable though its expansion is.

The hon. and learned Member for Lincoln (Mr. Taverne) warned of the danger of wholesale emigration. I wonder how serious this is. The hon. Member for Horsham and Crawley said that taxation rates are much more favourable in Japan and the Netherlands. Is it seriously suggested that our young executives and scientists will consider emigrating to Japan and having their children brought up as Japanese because of the increase in our rate of taxation?

I was making the point that the tax proposed in the Bill is a great deal higher than is tax in any comparable country. I agree that the risk of emigration to Japan is not very great. However, the risk of emigration to the United States, Australia and other countries is very high.

I cannot believe that any executive in his senses would think of emigrating to the United States where it is unwise to go out on the street after dark. What a penalty to pay, in that very competitive economy where possibly he will not get a job at all, to benefit from lower taxation. I suggest that the emigration theory is absurdly overstated.

It has been considered necessary to reduce home demand. The only effective way of doing that is to increase taxation. I suggest that the people who are affected by the amendment are those who can genuinely afford to pay more taxation. What is more, I think that those people will accept the challenge, realising that they have to make a contribution to the country's welfare, and that even they will not complain as much as the hon. Member for Horsham and Crawley suggests.

I am glad to be able to support the amendment. This is a general debate on the higher rates of income tax, the marginal rates. What we have at the back of all our minds is that the progress of this country has not been satisfactory in the past and should be improved in future. Taxation is one aspect only, but a very important aspect, of this problem. The Chancellor said the other day that we need not worry about a wealth tax, since many other countries had one. That is easy to say, but what is not said is that their taxation systems have very different impacts on higher rates of income. We must consider the total rate of tax to get the full picture.

The hon. Member for Loughborough (Mr. Cronin) talked of the "indecisive" evidence of a report 12 years old. There are reports of a later date which go against what he said, but there is also the evidence of one's own experience. Only a fortnight ago, an applicant seeking a managerial post in another business in another part of the country at a much better salary decided that, with house purchase costs and the general cost of living in the area, it would not be worth while for him and his family. The job would have given him greater scope for his talents, but he felt that he might ultimately be out of pocket. Many such problems are cropping up.

Will the hon. Gentleman clarify that example? Was the man considering a move from London to the North?

Obviously, I cannot give names. He was moving from one part of Yorkshire to another part—[An HON. MEMBER: "What were the fringe benefits?"] That is a change of tactic, bringing in the question of benefits in kind. At these high rates of tax, such things loom very large in the mind of someone calculating his net income.

I am fortified by my experience, limited thought it may be, in talking to young people and those reaching the prime of professional life. They take into consideration present opportunities and future prospects if they were to move abroad. Now that we are in the Common Market, management and professional people look more and more to the whole free world for their future jobs. No longer are they restricted to their own localities. Therefore, the whole of their tax burden is a factor, and an important one, that they bear in mind in planning their future careers.

Too many professional and managerial people are neglecting something which was traditional to their way of life, namely, the almost automatic desire to save. Their aim is more and more to maintain their standard of living and not to save. As a matter of principle, it is bad for the country when people do not feel an urge to save. This ideal may not be welcome to Labour Members, but the country is the poorer if such a habit is generally neglected. We should try to get our higher levels of taxation much more into line with those in other countries, with which we compete both in industry and for labour. if we do not, in the long run the country will be the poorer.

[Mr. GURDEN in the Chair ]

The Budget was sold as a Budget of national unity, so we are entitled to ask what it is that unifies us. Is it enthusiasm, interest, capacity to take risks or capacity to save? I regret to say that, as always with a Labour administration, it is unity through misery. We have returned to the austere days of Sir Stafford Cripps, but even he, with all his austerity and integrity, never managed to raise the highest rate of tax on investment income to above 97½ per cent. If the amendment is not carried it will be the present Chancellor's unique distinction to have raised the top rate to 98 per cent.

The distinction between earned and so-called unearned income—I would prefer to say between earned and investment income—is no longer real or meaningful. I will give three examples. First, why should someone whose life savings have been spent in the purchase of an annuity be taxed on any different basis from that of someone who has achieved a pension from his firm? Yet under our present distinction he will be treated, in the unattractive phraseology of Labour Members, as having "unearned" income, whereas the pensioner of a firm and the Civil Service pensioner will be treated as having earned income. What meaningful social, moral or ethical distinction is there between the two?

Second, the ownership of landed property, if let, often involves a great deal of personal supervision and management, quite as much as many businesses. Why should the rents from such property be treated as investment income and taxed differently from, say, farm or business incomes or salaries? Is there a meaningful distinction there, or any recognition of the considerable care and energy that many landowners have to put into their properties?

7.0 p.m.

Another example is that of the person who builds up a small company. He will be under constant pressure from the Inland Revenue to distribute the profits of the company. When the profits are distributed they will be treated as investment income while the salary he receives from the company will be treated as earned income. Is there here a real distinction which the Revenue should recognise and penalise?

The late Hugh Gaitskell, for whose integrity, and, on occasions, perception, I had a great regard, used on occasions when a Budget was being introduced from the Conservative benches to drag out that shop-soiled figure, the bachelor with an unearned income of £50,000 a year. It is not for me to expatiate on the qualities of that rather rare animal but I hope we shall always be tender to so rare a species, much as it seems to me that the Chancellor is trying to extinguish it.

The hon. and learned Member for Lincoln (Mr. Taverne) remarked perceptively on the diversion of capital and effort which these penal rates occasion. The Chancellor will know, as I know from my professional experience, that too much time and energy is put into tax avoidance schemes which do not contribute to the prosperity of the country. Too much capital is put into schemes of doubtful commercial value by people who are paying these rates and who are therefore careless as to the losses which they may incur. It may be that in time the Revenue can deal with this sort of situation by saying that such schemes are uncommercial enterprises. But it would be better for us as a country to work with the grain rather than against it, to encourage enterprise, thrift and initiative and to encourage people to lay out capital as productively as possible rather than put it into doubtful schemes, such as those in the Cayman Islands—which I mention only because they have been drawn to our attention by Labour Members.

There will be a definite consequence from the Finance Bill which has not perhaps been appreciated by Labour Members. It arises from the extraordinary rates of taxes which are proposed, and from the impact of Clause 18. I appreciate that we shall in due course have an opportunity to debate Clause 18 but it is necessary to look at the Bill in the round to see how the various clauses interact.

It may have escaped the attention of the Labour Party that many people of foreign birth, who are, by our standards, foreign domiciled, have made their lives here because, maybe to the surprise of some, they find this country an attractive and civilised place. I apologise to hon. Members for going into technicalities, but because these people are not domiciled here they are not taxed here on their world-wide income. There may be people who have moved the headquarters of their business here because they find, curiously enough, under the attractive measures of my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) that it is worth their while fiscally and commercially to base their headquarters here. If Clause 18 becomes law, even with the amendments suggested by the Chancellor of the Exchequer, these people of whom I speak will be driven out of this country because they cannot risk paying United Kingdom rates of tax on their world-wide incomes. This is a consequence of the proposals which the Government must face and upon which they must give an answer.

I move from those slightly esoteric fields to matters which have exercised my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) and others of my hon. Friends, namely, the impact of the tax rates which we are discussing on middle management, people who are paid £4,500, £5,000 or £5,500 a year. These are not enormous sums by present standards, and translated into weekly figures are not far above what skilled manual employees take home. I shall not stop to comment on how in this regard differentials are being squeezed.

The people of whom I speak are the reservoir of talent, expertise and energy on which the economy ultimately depends. For what have such people to be grateful to the Chancellor of the Exchequer? Like all of us they are hit by inflation. They are hit by rising mortgage rates. if they aspire to have houses costing more than £25,000, in order to rub shoulders with members of the Labour Party in Hampstead and Highgate, they will not get full tax relief which those hon. Members fortunate enough to have bought their houses before 1974 will obtain. If these same people have the benefit of share option and share incentive schemes they will be deprived of that benefit.

I have no doubt that the Financial Secretary will say that I am singing the same old theme, but I suspect that he, too, will sing the same theme if he gets the opportunity, and will speak of equality of misery and say that if all cannot get the benefits of share option and share incentive schemes none shall. No doubt this will be explored in greater detail later, and perhaps we shall hear a new song from the Financial Secretary.

I ask hon. Members opposite, what is left for the people I am concerned about? What encouragement is being given to these people? What future is being held out for them? I would like to see them being given encouragement to enable them to become independent and mobile. My hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) perceptively pointed out the difference between the attitudes of this class of management in this country and in the United States. We want to encourage these people to change their jobs, find new business and start their own companies, but the measures in the Bill will give them no encouragement.

Whether one looks at the lower ranges of earned incomes or the higher ranges of investment income, the message is the same, and is to be read in the fine print of the social compact which has been put to us as the justification for the Budget.

The British people are fair minded. Even though en masse they are not to pay tax at 98 per cent. on the higher part of their incomes I do not believe that they require the sort of measures which the Government are putting forward. The people will recognise the blatant unfairness and the petty meanness of the measures if these are fairly and squarely put to them. I therefore support the amendment wholeheartedly and I shall be happy to vote for it.

I am glad that my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) drew attention to the contention of Members on the Government side that they have made a great deal between themselves and the trade unions, in what has been called a compact. Hon. Members may have noticed on the news tapes in the House of Commons—tapes which cannot be suppressed—a statement this morning from Mr. Len Murray, who had said, "What compact, and where is it?" I am sure that hon. Members opposite would have liked those tapes to be destroyed. There is no compact. All the Government have done has been to get sadistic pleasure from cracking down on the better-off in the community. There is something to be said for this under certain conditions.

I believe that hon. Members are familiar with the problem that arose during the last war, when the Government, concerned with Mosquito aircraft, found it difficult to get balsa wood. Lord Beaverbrook kept on paying more and more for the balsa wood. But going up-river, where the natives grew and hewed it, there was a great sense of merriment, shouting and drinking, but no balsa wood was coming down. At that point an old retired colonial governor was sent for and asked, "What would you do?" He looked at the important figures from various Government Departments, and the great industrialists, and uttered one sentence: "Put up the hut tax." The hut tax was put up and the dancing and singing ceased, and the balsa wood came floating down the river and the Mosquito aircraft were built. That is one way to get the economy moving, and on too many occasions it has been the approach of hon. Members on the Government benches.

If the population is squeezed hard enough it will work harder. I do not think that that is effective in practice. That is why, when the hon. and learned Member for Lincoln (Mr. Taverne) was speaking a few moments ago about what made people work, I am sure that he was correct about job satisfaction being more important than financial inducement.

We are now faced with such a high rate of inflation that, coupled with the proposed marginal rates of taxation, the situation produces despair in management in this country. That is why the CBI and industry generally are putting out a message of gloom and despondency, in complete contrast to the eloquent speeches made by the Chancellor, saying how glorious and buoyant everything is. That is why we ought to look seriously at the top marginal rates of tax. I want to examine them as they affect three areas.

The first area is that of small businesses. Some such businesses are pretty large, but they are in private hands. Here, the effect of inflation upon the earnings of the directors in charge is devastating. Treasury Ministers might like to study page 198 of the Bolton Report on small businesses. There are some calculations of the effect of a 10 per cent. to 15 per cent. rate of inflation on the take-home pay of directors. Now we have a 20 per cent. rate of inflation and the highest taxation rates of any country in the world. The effect on these people is bound to be dangerous.

My hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) raised the question of differentials which can now be paid to persons conducting businesses. At these rates of taxation there is an inevitable tendency for people to indulge in attempts at tax evasion or to get involved in payments in kind, perks such as motor cars and expenses of various kinds, which lead to the general atmosphere of corruption which always goes hand in hand with major inflation. That is why what is proposed is not helping.

Thirdly, there is the effect of Clause 18. The rates of taxation here proposed will, perhaps, make some of our younger people go abroad to work, but they will certainly mean that those people who bring money into the country from overseas will leave. There is no question of that. If we ask people to pay global rates of taxation at the highest rates in the world, they would be mad to stay. Of course they will go.

I shall be happy to send the Financial Secretary a list of 55 persons working in the cinema and other artistic industries. Of those 55 it is the intention of 37 to leave the country. I am sure that the hon. Gentleman would enjoy showing that to the Chancellor, who is such a bullish friend of the arts and culture generally and of international cooperation. This sort of taxation will go further than anything to destroy this country, especially London, as a world centre for art, cinema, theatre, broadcasting and merchanting. The people involved will go and we cannot stop them. There must be wider changes in Clauses 14, 15, 16 and 18.

7.15 p.m.

I come now to the general level of tax, especially in relation to the sort of inflationary rates from which we are suffering. Optimistic though I try to be, I remember that this sort of inflation can lead to bankruptcies on a major scale. There are people in the farming industry who last year made between £10,000 and £15,000. It was perhaps the best year they have had for a long time. This year they will be losing money. That is why these high rates of taxation are so criminal as they apply to quite ordinary people.

This is typical of the way in which our affairs are being conducted by Governments of either party. We should go back to the situation which existed before 1927, when it was possible to average amounts of tax paid over three years. There is a good argument for allowing small businesses to do this again, and I hope that the Treasury will examine it. If people have a boom year followed by one in which they are nearly bankrupted, they should pay reasonable rates of taxation, Otherwise they will be destroyed by having to pay huge and penal rates of taxation in any one year. When taken in conjunction with the rate of inflation these rates of tax must be a disincentive to the wealth-forming section of the community and therefore against the national interest.

I shall confine my remarks to Amendment No. 3, dealing with the tax band between £4,500 and £5,000. I shall not rehearse all the other criticisms of the Bill—criticisms with which I strongly agree. I want to put two additional points relating to this income band. We all agree that this group is important in our economy. It is not just that it is being asked to bear an extra heavy burden in comparison with its counterpart in competitor nations but that it is being asked to bear an extra heavy burden in comparison with its counterparts in this country in the recent past.

We have had indexation in practice for the last few years for most personal allowances. We have certainly had it in relation to the position at which the higher rates of tax start to be paid. I asked the Chancellor a Question about this which he answered on 3rd May. I asked him what the starting level for the higher rates of income tax would be if it were at the same real level as in 1961–62, when the £5,000 surtax rate was introduced. The answer was that today's equivalent, taking account of the rise in prices, would be £10,050. The Chancellor is not only not dealing with the point that inflation has so heavily hit those coming into the higher rates; he is making it a great deal worse by reducing the rate below what it was in 1961–62.

The Chancellor referred to the fact that he felt it was right that the burden of his extra taxation should be fairly shared. But in this group of which I am speaking people are being asked to pay an additional tax higher than everyone else except those at the highest level of taxation, because their marginal rate of taxation is not going up by three points—as is the case with everyone else—but by eight points, from 30 per cent. to 38 per cent. It is curious, to say the least, but most damaging that this group should be picked out in this way. It is this group which is receiving no rebates for rents, rates or anything like that, but which is facing an additional burden of inflation.

A lot has been said this afternoon about the difficulty of proving whether high rates of tax on earned income act as a disincentive to hard work. It has not been proved that they do not do so. But what is becoming clear is that many of the younger and professionally qualified people are very seriously looking at the prospects of moving abroad. It is the younger groups—the under-35s—who do not have families which are yet fully at school and, therefore, have no strong ties here at home, who are most likely to move abroad. These are the groups which we least want to see go overseas. Yet by this proposal these are the groups which are being most savagely treated in the Bill.

That is why I strongly support the amendment and hope that it will be carried.

The common sense of most people tells them that if one imposes extremely heavy rates of taxation on people such as scientists, there must be the risk that such people who have on offer situations abroad will leave this country. I should have thought that it was obvious to most sensible people that very heavy rates of taxation on incomes can have a disincentive effect. But it is necessary that someone on the Opposition benches should express what I know to be the view of the vast majority on the Opposition side of the House—that a matter of principle is involved.

It is wrong in principle that swingeing tax rates should be imposed on the wealthy not to raise revenue but as part of the politics of envy cultivated by Labour hon. Members. It must be wrong in principle to give people in this country the impression that their problems can be solved by raising the tax rate on unearned income to 98p in the pound when obviously their problems cannot be so solved. It cannot be right for Labour hon. Members to spend their time going round the country telling people that positive good can be done to the economy by putting an ever-greater burden on people who are already bearing a very much higher burden in direct taxation than people doing equivalent jobs in other countries in Western Europe and throughout the industrialised nations of the world.

It is wrong in principle that tax rates on middle incomes are so high that people with lower tax rates who could save, and could take on their shoulders responsibilities which everyone acknowledges that the State must bear for the poor, cannot save and cannot, for instance, put something by for their old age.

I am the first to acknowledge that there are numerous people in this country today who are drawing their old-age pension and never during their working lives had the opportunity to save for their old age. But that is no reason at all for encouraging young people today to believe that they have not some duty to try to take off the shoulders of the State some of the burden that it now bears. It is no reason whatsoever for failing to try to inculcate in the young the idea that, far from there being something vicious and wrong in saving, there is a positive duty on people, if they have the opportunity to save, to save and look after themselves as far as possible, and to expect the State to look after them only when they are unable to help themselves.

The whole trouble with the present administration and the present Chancellor is that their whole philosophy is destructive and anti-savings. The Chancellor was reported in the Sunday Telegraph of 24th March this year as saying

Finally, this part of the Finance Bill is just another manifestation of the fact that Conservative Governments have, by and large, over the years been proved to be Governments who try to bring down taxes, and that Labour Governments have been shown time and again to be Governments who are prepared always to put up taxes.

The hon. and learned Member for Lincoln (Mr. Taverne) said that he would like to see us moving towards a system in which capital gains were taxed at the same rate as income. I can see the attractions of that argument, and I can say that I would not be greatly opposed to a wealth tax and that I would not be very much opposed to a gifts tax—if I thought that the proceeds of a wealth tax and a gifts tax would be used to bring down the standard rate of income tax. But we know perfectly well that every time we get a Left-wing Government in this country they will use a new tax not to make a more just system but to raise more revenue to spend more. That is something which we cannot accept, because we believe that it damages the country. It has caused enormous damage over the years.

It has been pointed out, by examples given from the Opposition Front Bench, that it is entirely wrong to suggest that this Budget is a Budget which soaks the rich and does not harm ordinary working people. It has been pointed out that a single man is worse off under this Budget if he earns more than £19·50 a week. Such a man is certainly not wealthy. A married couple with no children are worse off if the husband earns more than £35 a week. Such a couple are certainly not wealthy.

But the most vicious part of the Budget is that which provides for even more swingeing taxation on the middle-income groups, who have suffered so much in recent years through inflation and who, if they are working in industry, are already taking home very much less than their counterparts in other European countries and in the United States and Canada.

I think that all members of the Committee have expressed the view that this country is probably experiencing the worst rate of inflation that it has ever had. In this debate we have confined ourselves to talking about the middle management group. This group of people is very important for the future of this country. It is the middle group upon whom a great deal of our future depends, in the management of our enterprises and in engineering and scientific skills. What worries me is that this is one of the most valuable sections of the community, and we are penalising it to an unreasonable extent. That can have only two effects. The first is to make some people seek employment abroad—although I do not believe that many would choose that option. The second—a point upon which the Chancellor touched—is that if taxes are increased there will be pressure for those who are not self-employed to demand increases in wages. Those are the only two effects which this part of the Bill can possibly have. People will either go abroad or put on pressure for higher wages.

What is much more important, however, is that this is a possible disincentive to saving. This country has always been built up on savings. If we continue to militate against this section of the community we shall be hitting very hard at savings. At present, if those people in this bracket who have invested incomes in Government stock took the interest from that investment, deducted their income tax and then deducted a sum to account for the inflation, they would find that they had a negative income and that their investment was decreasing every year.

I join with my right hon. Friend the Member for Carshalton (Mr. Carr) in saying that we must find some way of stabilising Government securities so that people do not find that in their old age their purchasing power has been very severely reduced.

I agree with the hon. and learned Member for Lincoln (Mr. Taverne) that there is a case for the simplification of our tax structure. It is far too complicated. Some hon. Members have said that it is very efficient, but it is also very complicated.

Another point concerns the ridiculous distinction between unearned and earned income. Many of my constituents save from their taxed earnings throughout their lives and invest the money. Then, when they draw their pensions at the age of 65, they find that their unearned income is taxed on a different scale. How can it be classed any differently from an annuity or pension? They have invested the money from their taxed income and are drawing the income. It is unreasonable to have this ridiculous distinction. They are suffering double taxation.

If we do not amend the Bill we shall live to regret the global tax, because many companies will be unwilling to invest or have their headquarters here, as taxation on a global system will make it unprofitable for them.

7.30 p.m.

I very much agree with a great deal of what has been said about the disincentive effect of the proposed tax rates. To those who say that there cannot be an effective analysis of the disincentive effect I reply that although I do not believe that we can ever look at someone going to work and say that because he knows that his tax rate has just gone up he is now putting in less effort, and so we can see the marginal effect operating, nevertheless it does operate at the points of decision in a man's life. A young man is about to decide where to live and have his career, a man in middle management is about to move from one company to another or from one country to another—those are the points at which the disincentive effects of heavy income tax such as we now suffer operate.

I do not think that it would be very difficult if one went to the United States, Canada or Australia to find 10,000 or 15,000 Englishmen to say "We left Britain because we wanted to escape vicious taxa- tion." They would give a great deal of evidence that they had done that, that the rate of taxation affected their decisions at critical points in their lives. Who can estimate what the loss to this country has been through those individuals deciding to make what may well be a significant contribution to the economies of other countries? These are immeasurable but very important matters, and we cannot escape their consequences.

The hon. and learned Member for Lincoln (Mr. Taverne) said, in his analysis of the general impact of the Budget, that he would be prepared to accept the gifts tax as part of the overall proposal. I wonder whether he and others attracted by the idea of a gifts tax as part of a general tax system realise what a monstrous bureaucratic interference with the lives of individuals would follow from any serious attempt to implement and apply such a tax. I hope that they will reflect seriously on the enormous variety of opportunity for, say, a father to make gifts to members of his family in such a way that there is no formal gift. He can merely pay their bills over a wide front of living, from a holiday in the British Virgin Islands to paying the milk bill. Who is to say whether it is a gift? Who is to say when the aggregate of the small gifts becomes a large gift? If it is to be the intention—

Order. I do not see the relationship of the argument to the amendment. I took it that the hon. Member was making just a passing comment, but it seems to be an extending one.

I accept your rebuke, Mr. Gurden. I intended merely to reply to the hon. and learned Gentleman.

I turn to a rather more fundamental matter, the Chancellor's attempt to justify the present set of proposals on the grounds that it induces a greater sense of social justice in the community. I think that he said that the support of working people for realism in wage claims was the gain which the State obtained for these swingeing tax increases. That is his justification for what he is doing.

When we consider the record of applications for wage increases over the past 10 years. and especially the past six months, we see no sign of realism. Every hon. Member knows that we are now on an economic plateau. The only thing I see on every horizon is wage claims of 10 per cent. to 20 per cent., as though there is a vast surge in the real income in our economy which can meet those claims legitimately and, therefore, justify the Chancellor fiscal philosophy, to which he is giving expression in the Bill. The two matters do not add up. We must look much more realistically at the economic parameters of the whole Budget strategy.

In this sense I should like to make one comment that may be regarded as being wide of the amendment, but I think that it applies to it and to every other amendment that we are likely to consider on the Bill. We are very nearly at the beginning of the great debate on the country's economic and financial strategy. We are in the same position as the board of management of any great company deciding on its annual budget. I know of no great company which spends more than £400 million or £500 million a year which would endeavour to conduct such a debate in verbal terms only, which is what we are doing.

We have no documentation other than the sets of tables available to Members. Modern sophisticated concepts of analysis are now available to decision makers, such as the use of computers, and visual aids. There is the possibility of having at each end of the Chamber a glass screen which could be operated to give us immediate access to the data banks of the Treasury, so that hon. Members might immediately have the proper economic information, showing the exact consequences of our arguments and proposals. This we do not have, so we guess and counterguess.

Does my hon. Friend agree with me that there is precious little sign that the data banks have been of much help to the Treasury?

I accept that that may be so. I am the first to admit that the data banks may have a long way to go.

However, till the Committee is prepared to take considerable steps to increase its access to such information, particularly during debates on the Budget and economic strategy, we shall continue with what so many hon. Members who have been here some time must feel to be a sort of Pavlovian argument. One side will say "We will put up the taxes" and the other will reply "No, you will not". One side will say "We think it is a good thing" and the other will say "We think it is a bad thing". Perhaps most of the argument in the Committee can be described in that way. We have heard it all before. We know the general logical structure of the argument, where it does not agree, and where it does. What we do not know is the central. hard economic fact which, given modern techniques, could be displayed in the Chamber and avoid a great deal of the present waste of time.

I was provoked to intervene by some of the remarks of the hon. Member for Loughborough (Mr. Cronin), who seemed to be in some doubt about practical examples of the disincentive effect of marginal rates of taxation.

I declare an interest straight away. I run my own executive recruitment business. One of my principal tasks is to go every year to the United State to try to bring back British business graduates. It is becoming increasingly difficult, because of the burden of taxation. It is a fact, of which the Chief Secretary is perhaps not unaware, that such people normally receive starting salaries in the region of £4,500 and above. To undertake studies at Harvard, Columbia or wherever it may be, many of them have incurred substantial loan commitments, and require detailed cash-flow consideration of how debts are to be repaid from post-tax income. Therefore, they are extremely anxious about the level of taxation in this country.

The number of people involved is between 50 and 100 a year. They are some of our brightest and most able people who have acquired useful managerial expertise, people we can ill afford to spare. It becomes more and more difficult to bring them back while we have proposals such as that in the clause.

Does my hon. Friend agree that the category of person about whom he is talking is hit very hard by the prices and incomes policy in that any increase which such a person is allowed to have is far below the rate of inflation, so that the real value of such a person's salary or income is falling year by year?

I agree entirely with my hon. Friend. I have made my point. This is just another example of the many people who will undobtedly be hit hard by the proposals contained in the Bill.

It has been an interesting debate. A great many arguments have been put forward. I shall try to reply to as many of them as I can. I have no doubt that I shall be reminded if I forget some. The hon. Member for Horsham and Crawley (Mr. Hordern) dealt mainly with Amendment No. 3. He did not say too much about Nos. 14 and 15. I have a feeling that lie does not want to vote on amendments that cost a lot of money. That is what we were told by the right hon. Member for Carshalton (Mr. Carr).

In fairness, I must tell the Committee what the three amendments would cost. Amendment No. 3 in a full year would cost £12 million, Amendment No. 14 would cost £68 million and Amendment No. 15 would cost £12 million. That makes a total of £92 million.

I tell Conservative hon. Members that if I had not been convinced before the debate I am now absolutely convinced that Conservative hon. Members think that the middle and higher income groups are too highly taxed. I take the point that that is their belief. I understand it and recognise it. That point has been hammered home forcefully. I am also much aware that these levels of taxes hurt those concerned. I have no doubt about that. I pay some of these taxes and it hurts me.

The fact is that we must hurt a great many people at the moment. That is not just because of the tax levels but because of the general economic and financial situation that we inherited. In that sense I do not necessarily blame the previous Government. At the moment the country has a certain gross national product and we must try to distribute that as fairly as we can. If we do so in a certain way we have to consider whether that will be fair. That is my point of view—namely, I want it to be fair. On the other hand, we must consider whether a fair tax system would create such a heavy disincentive as to create enormous difficulties for industry.

Amendment No. 3 would put back the threshold from £4,500 to £5,000. What we have done by lowering the threshold to £4.500 is to reduce by just a small amount the wide band that now exists. It has been said that by so doing we have distorted the whole progression of taxation and that we have created the wrong shape. I accept that we do not have a progressive tax system. I do not like the shape of the present progression. I do not pretend that by narrowing the band slightly by starting the threshold at £4,500 we make it more progressive. However, I would argue that by so doing we make it slightly more progressive.

We had three weeks to prepare the Budget. In that time we could not prepare all the changes that we would have liked to make regarding the progression of direct taxation. I know that we shall take a long look at making the direct tax system of a much more progressive shape and of the kind which my hon. Friends have in mind. Whether that shape will be found to be satisfactory is something that we must wait to see.

7.45 p.m.

Some Conservative hon. Members, and, indeed, my hon. and learned Friend the Member for Lincoln (Mr. Taverne), said that they would like to see a very much simpler direct tax system. Frankly, I do not believe that we can have a direct tax system that is both simple and fair. I know that there are people who believe that the tax credit system would do that. I completely disagree with that argument. I find it difficult to accept that the vast majority of taxpayers would be on one and the same basic rate of tax.

I agree that there can be a conflict between equity and simplicity. However, does my hon. Friend agree that a complex tax system favours those who can employ financial advisers who can find ways round the tax system which defeat the aims of progression? Would not a simple system which had no exemptions but was of a lower rate turn out to be more progressive and more fair than the present system?

I have some sympathy with the point that my hon. and learned Friend is making about the removal of some of the exemptions and allowances. I shall deal later with the question whether there would be less need for accountants in the avoidance and evasion of tax.

The hon. Member for Horsham and Crawley told us about the disincentive effect on savings. We have had that argument from many hon. Members. Some of them waxed most eloquent about the problems of the middle income gentleman who finds himself having to pay increased mortgage rates and is faced with higher costs in all directions. Such a person has been faced with those costs in all directions over the past two months and, indeed, a little longer. I find it difficult to accept the argument that taxation is the disincentive to savings.

In my opinion the main disincentive to savings must be the present high level of inflation. That is what we must reduce. If we were able to have a tax system which was very low and applied to all incomes there would, I accept, be room for some savings, but there is not much room for savings from the income of the average worker. Such people are not in the group about which we have been talking. They do not have much room for savings on their income level.

The case to be made for the average worker is much greater than the case that has been made so eloquently by Conservative hon. Members. The problem is that the average worker represents the majority of taxpayers. The hon. Member for Horsham and Crawley was, therefore, able to say that he hoped to press Amendment No. 3 and not Nos. 14 and 15. I am not prepared for the reasons that I have given to accept the argument about savings, but there are a number of other arguments with which I must deal.

The right hon. Member for Stafford and Stone (Mr. Fraser) spoke about the problem of the small company. The arguments in the Bolton Report do not refer specifically to the levels of direct taxation and their disincentive effect on small companies. There was a series of arguments on behalf of small companies and the need to assist them, but they did not necessarily relate to the levels of direct taxation of the middle income groups.

In chapter 13 the Bolton Report said that it was almost impossible to decide about incentives and disincentives, but that a combination of a high level of inflation with a high level of taxation was a disincentive which fell especially hard on the small company.

I was coming to that point. The main point made by the Bolton Report was that inflation was the real problem.

I want to deal with the problem of the close company. It has been suggested that close companies will be compelled to distribute their profits and will, therefore, be taxed very highly when those profits have been distributed. This is to misunderstand the way in which the taxation system works in relation to close companies. Most trading close companies, with reasonable levels of profits and with proposals for expansion which they are able to show to the Inland Revenue, will not be compelled to distribute and, therefore, will be paying a lower rate of corporation tax. The case of close companies and small companies does not go with the arguments about higher rates of tax.

The question of disincentive has been the central point of the debate. My hon. and learned Friend the Member for Lincoln and others question the effect which high rates of taxation could have on fiscal morality through tax avoidance and tax evasion. Since 6th March I have not been directly involved in tax accountancy, and I hasten to add that I never was involved in any evasion, but I would be astonished if there were more tax avoidance and tax evasion because of this Budget than there was before it.

The funny thing about levels of taxation is that when a man is earning, say £1,000 or £2,000 per year he will say "I would not mind, and it would be no disincentive, paying tax at 75 per cent." But as soon as he gets to the level of income with such a rate of taxation it becomes a terrible disincentive and he hates the idea of paying the tax. No matter what the level of the tax, people do not like paying it. There is nothing new about that. There are people who will try to avoid and evade tax whether they are at the levels proposed in this Bill or at the levels which applied before, and I do not accept that the Bill will change the situation very much. I therefore find it difficult to accept the fiscal morality argument.

Among those who argued that managers were not prepared to move nowadays, the hon. Member for Scarborough (Mr. Shaw) gave the example of a man who refused to move from one job to another in top management. Presumably the hon. Member thought that that case supported the claim that high rates of taxation were a disincentive. In fact he proved the opposite. He was saying that the man would not go from one part of Yorkshire to another. It would be discourteous of me to make any suggestion that any part of Yorkshire is better or worse than any other, but there is a variety of reasons why people will not move.

In many cases a manager is not willing to move not because of the level of taxation but because his wife is not keen to move. Again, if he has a good job in London he will not be too keen to go to the provinces. There are all sorts of reasons why he may not be keen to move. The level of taxation will not necessarily stop him from moving. If a man has the opportunity of promotion and advancement he will usually take it. He will not turn it down simply because of the level of taxation, although there may be other reasons.

In the case I quoted, in view of the costs involved in moving relative to the increase in salary less tax, the differential was not sufficient to persuade the man to move.

That supports my case. We are now talking not about levels of taxation but about other factors.

If there is a combination of high rates of taxation and a very high level of inflation, one gets a person unable to move because he cannot afford, on the marginal amount of money left over, the additional expense of moving. Then one moves into the question of "perks" and the abuses which take place through tax evasion and avoidance.

If the right hon. Gentleman is arguing that it is the level of inflation that is the problem, I agree. It is a much bigger problem than an extra 3 per cent. or 5 per cent. on taxation.

The two things are not the same. The right hon. Gentleman is arguing the opposite of his case. On many occasions hon. Members opposite have tried to prove from all kinds of statistics, surveys and reports that there is disincentive in taxation. The hon. Member for Kingston-upon-Thames (Mr. Lamont) quoted the Merrett Report argument. I have used that report on my side of the argument, which only shows how difficult it is to use any statistical survey or argument to prove one way or the other. As the Merrett Report showed, two kinds of motivation enter into taxation matters. If one asks a man "Do you feel you will be affected by a high rate of taxation?", he will reply "Yes, I will", in the hope that one will reduce the level of taxation. I would not like to call in aid of either side of the argument these reports and surveys. It is difficult to prove what makes a man work harder. I wish we knew. We might then be doing as well as many other countries. But there is no proof that it is taxation.

While I accept that it is difficult to prove anything conclusively in this matter, the statistics that I quoted from the studies of Professor Merrett referred not to people's replies to questions or to people's attitudes to different things but to statistics about how people had actually behaved.

Professor Merrett said:

8.0 p.m.

The effective rate of tax of a young executive earning £5,000 a year, a married man with two children and a mortgage of £10,000, is about 17 per cent., his total tax liability will be £870 and his marginal rate of tax will be 33 per cent. I find it hard to believe that that rate of tax is a disincentive to the bright young manager or the keen young executive.

The effective rate of tax for a man earning £10,000, married with two children and a mortgage, ignoring any possible avoidance measures he might take, is 29·2 per cent., he would pay £2,923 in tax and his marginal rate would be 53 per cent. Even at that level there will not be much disincentive for that man to take promotion.

Will the Chief Secretary tell us, if the marginal rate of tax is 53 per cent. and the rate of inflation is 10 per cent., what increase in pre-tax income will be necessary with that marginal rate to keep the standard of living constant?

The hon. Gentlman is coming to levels of inflation. Reference has been made to indexation, and there is an amendment on that subject. I shall be happy to deal with that when we come to it.

Another argument put forward—one which is always used on these occasions —is that, because of levels of taxation, managers, professional people, scientists and so on will emigrate in large numbers. The Jones Report which dealt with the brain drain has been quoted. I have quoted the Jones Report—as the hon. Member for Worthing (Mr. Higgins) will know—on the other side of the argument. I read it carefully, and not one recommendation deals with taxation. According to the Jones Report, taxation is a marginal problem. Many other reasons were given for managers, executives, scientists and professionals wishing to emigrate—sometimes even the weather. The Jones Report is not an argument that can be called in aid.

The main argument relates back to our first debate. If levels of taxation for middle income groups are reduced, what is to be done for the others? Is there to be increased taxation for those who are below the middle income groups? I notice that we are now talking about middle income groups. The right hon. Member for Leeds, North-East (Sir K. Joseph) spoke about the middle classes, but since then we have spoken of the middle income groups. An interesting distinction has been made.

A point was put which was not answered by the right hon. Member for Carshalton in the first debate. If, when we took over, we were to find money for pensioners—which was agreed to be necessary by the Opposition—if we were to find money for housing and food subsidies and to help those at the lower threshold, how was it to be done without increasing taxation somewhere? That is the weakness of the Opposition's argument in this and in the previous debate. It is wholly dishonest and bogus. For those reasons I ask my right hon. and hon. Friends to vote against the amendment.

My hon. Friends put forward several extremely cogent arguments. Although I once had the pleasure of sharing an office with Professor Merrett, I do not propose to go into detail on his report, which has been referred to frequently.

We do not find the arguments put forward by the Chief Secretary convincing. We had hoped that the Chancellor—and both he and the Chief Secretary stressed the short time available for the preparation of the Budget—would have one of those second thoughts which from time to time we have noticed he is prepared to have.

The Chief Secretary sought to show that people's decisions on where to work and live were affected by a wide range of factors, including the weather, and including at the margin—as even he conceded—taxation. He sought to show that taxation did not have a relevant effect, although my hon. Friend the Member for Scarborough (Mr. Shaw) showed that it was an important consideration. As my right hon. Friend the Member for Stafford and Stone (Mr. Fraser) said, if a high proportion of tax is charged on a higher salary, clearly the net gain is not so great as it would otherwise be, but it will not be sufficient to override the other factors. That is the crux of the matter. It is all very well for the Chief Secretary to say that it sometimes depends on the weather and not on the tax. He has control over the rate of tax, but not over the weather. There is not much difference between his forecasts on the weather and on the economy—they both seem to be somewhat shortsighted.

Amendment No. 15 is concerned with the top rate of tax, and it is worth appraising whether it has a distributive effect. Putting up the rate of tax to 83 per cent. has a distorting effect, but I doubt whether it has a redistributive effect. Mr. John Chown, writing in the Financial Times pointed out that the upper-end change which costs the taxpayer 32 per cent. of his net income yields the Government an increase of only 6 per cent. on the revenue they would otherwise obtain. He goes on to say that one does not have to take very stringent views on the disincentive effect to suggest that people will tend to live on capital rather than work harder.

Tax rates of 83 per cent. or so do not have a significant effect on the economy. They are based only on the politics of spite, and perhaps the misguided view that they might have an effect on the social contract, although Mr. Len Murray is reported as saying this afternoon that he does not know what the social contract or compact is. We do not believe that this kind of measure is likely to have a significant effect.

The second matter that I wish to mention concerns the shape of the tax structure, to which the hon. and learned Member for Lincoln (Mr. Taverne) referred at some length. The crucial point here is that the slope is much steeper than it is in other countries and rises to a very high rate. This must have an impact on on those who might otherwise work here and, as my right hon. Friend the Member for Stafford and Stone said, this will tend to drive people overseas. Despite what the Chief Secretary said, I think that that is a danger.

I do not want to go into detail about tile tax structure, except to say that it is an extraordinary argument that the Government had only three days to prepare

the Budget and thought that they would make these changes rather than wait until they could work out exactly what the correct course should be. I do not believe the present structure is the right one.

I turn finally to Amendment No. 3, which relates to the Chancellor's Budget proposal aimed at reducing the width of the basic rate band. He has effectively reduced the threshold from £5,000 to £4,500. Many of my hon. Friends have pointed out that this will have a disincentive effect on middle management. The Chief Secretary said that the cost of the amendment would be approximately £12 million. Many of the people in this group are the people who are concerned about the problem of high mortgage interest rates. It is another example of the Government's paying money in one direction to help a particular group and then seeking to claw back that sum in tax from the same group. In real terms the threshold has changed from a figure of £5,000 in 1961 to its present equivalent figure of £10,000. Instead of the Government saying, "We must raise the threshold at which the higher rate becomes payable", they have decided to lower it.

This is clearly a move in the wrong direction. We believe that it reflects Labour's approach to taxation as a whole and, indeed, is symbolic of that attitude. It has affected the group of people in the middle income group—if the Chief Secretary prefers that expression—or the middle class group. At all events they are within the band covered by Amendment No. 3. I hope that my right hon. and hon. Friends will indicate their feelings on this subject by joining me in voting for the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 162, Noes 196.

Division No. 24.]

AYES

[8.15 p.m.

Adley, Robert

Bray, Ronald

Clark, A. K. M. (Plymouth, Sutton)

Aitken, Jonathan

Brittan, Leon

Clark, William (Croydon, S.)

Alison, Michael (Barkston Ash)

Brocklebank-Fowler, Christopher

Clarke, Kenneth (Rushcliffe)

Allason, James (Hemel Hempstead)

Brown, Sir Edward (Bath)

Clegg, Walter

Archer, Jeffrey (Louth)

Bruce-Gardyne, J.

Cockcroft, John

Atkins, Rt.Hn.Humphrey (Spelthorne)

Buck, Antony

Cooke, Robert (Bristol, W.)

Awdry, Daniel

Budgen, Nick

Cope, John

Baker, Kenneth

Bulmer, Esmond

Cordle, John

Barber, Rt. Hn. Anthony

Burden, F. A.

Cormack, Patrick

Bell, Ronald

Butler, Adam (Bosworth)

Costain, A. P.

Bennett, Dr. Reginald (Fareham)

Carlisle, Mark

Crouch, David

Biggs-Davison, John

Carr, Rt. Hn. Robert

Davies, Rt. Hn. John (Knutsford)

Blaker, Peter

Chalker, Mrs. Lynda

d'Avigdor-Goldsmid, Maj.-Gen.James

Boyson, Dr. Rhodes (Brent, N.)

Chataway, Rt. Hn. Christopher

Dean, Paul (Somerset, N.)

Dykes, Hugh

Latham, Michael (Melton)

Renton, R. T. (Mid-Sussex)

Eden, Rt. Hn. Sir John

Lawrence, Ivan

Rhys Williams, Sir Brandon

Edwards, Nicholas (Pembroke)

Lawson, Nigel (Blaby)

Ridsdale, Julian

Fell, Anthony

Lester, Jim (Beeston)

Roberts, Wyn (Conway)

Fenner, Mrs. Peggy

Lloyd, Ian (Havant & Waterloo)

Rossi, Hugh (Hornsey)

Fisher, Sir Nigel

Luce, Richard

Rost, Peter (Derbyshire. S.-E.)

Fookes, Miss Janet

McCrindle, R. A.

Sainsbury, Tim

Fowler, Norman (Sutton Coldfield)

Macfarlane, Neil

Scott-Hopkins, James

Fox, Marcus

MacGregor, John

Shaw, Giles (Pudsey)

Fraser, Rt.Hn.Hugh (St'fford&Stone)

Macmillan Rt. Hn. M. (Farnham)

Shaw, Michael (Scarborough)

Fry, Peter

McNair-Wilson, Michael (Newbury)

Shelton, William (L'mb'th, Streath'n)

Gardiner, George (Reigate&Banstead)

Madel, David

Silvester, Fred

Glyn, Dr. Alan

Marshall, Michael (Arundel)

Sims, Roger

Goodhart, Philip

Mather, Carol

Skeet, T. H. H.

Gow, Ian (Eastbourne)

Maude, Angus

Spicer, Jim (Dorset, W.)

Grant, Anthony (Harrow, C.)

Maxwell-Hyslop, R. J.

Stainton, Keith

Grieve, Percy

Meyer, Sir Anthony

Steen, Anthony (L'pool, Wavertree)

Griffiths, Eldon (Bury St. Edmunds)

Miller, Hal (B'grove & R'ditch)

Stewart, Ian (Hitchin)

Grylls, Michael

Mills, Peter

Taverne, Dick

Hall, Sir John

Mitchell, David (Basingstoke)

Taylor, Robert (Croydon, N.W.)

Hall-Davis, A. G. F.

Moate, Roger

Tebbit, Norman

Hamilton, Michael (Salisbury)

Morgan, Geraint

Temple-Morris, Peter

Harvie Anderson, Rt. Hn. Miss

Morgan-Giles, Rear-Adm.

Thatcher, Rt. Hn. Mrs. Margaret

Havers, Sir Michael

Morrison, Charles (Devizes)

Thomas, Rt. Hn. P. (B'net, H'dn S.)

Hawkins, Paul

Morrison, Peter (City of Chester)

Trotter, Neville

Hayhoe, Barney

Neave, Airey

Tugendhat, Christopher

Higgins, Terence

Neubert, Michael

Vaughan, Dr. Gerard

Hill, James A.

Newton, Tony (Braintree)

Viggers, Peter

Hordern, Peter

Normanton, Tom

Waddington, David

Howe, Rt.Hn. Sir Geoffrey(Surrey, E.)

Onslow, Cranley

Walder, David (Clitheroe)

Howell, Ralph (Norfolk, North)

Osborn, John

Walker-Smith, Rt. Hn. Sir Derek

Hurd, Douglas

Page, Rt. Hn. Graham (Crosby)

Wall, Patrick

Irvine, Bryant Godman (Rye)

Page, John (Harrow, W.)

Weatherill, Bernard

Jopling, Michael

Pattie, Geoffrey

Whitelaw, Rt. Hn. William

Joseph, Rt. Hn. Sir Keith

Percival, Ian

Winterton, Nicholas

Kaberry, Sir Donald

Pink, R. Bonner

Worsley, Sir Marcus

Kellett-Bowman, Mrs. Elaine

Price, David (Eastleigh)

Young, Sir George (Ealing, Acton)

Kilfedder, James A.

Prior, Rt. Hn. James

King, Evelyn (Dorset, S.)

Rathbone, Tim

TELLERS FOR THE AYES:

King, Tom (Bridgwater)

Rees, Peter (Dover & Deal)

Mr. John Stradling Thomas and

Lamont, Norman

Renton, Rt.Hn.SirDavid (H't' gd'ns're)

Mr. Spencer Le Merchant.

Langford-Holt, Sir John

NOES

Abse, Leo

Davis, Clinton, (Hackney, C.)

Hooson, Emlyn

Archer, Peter (Warley, West)

Dean, Joseph (Leeds, W.)

Horam, John

Armstrong, Ernest

de Freitas, Rt. Hn. Sir Geoffrey

Howell, Denis (B'ham, Small Heath)

Ashton, Joe

Delargy, Hugh

Huckfield, Leslie

Atkins, Ronald (Preston, N.)

Dell, Rt. Hn. Edmund

Hughes, Rt. Hn. Cledwyn (Anglesey)

Bagier, Gordon A. T.

Dormand. J. D.

Hughes, Mark (Durham)

Barnett, Guy (Greenwich)

Duffy, A. E. P.

Hughes, Robert (Aberdeen, North)

Barnett, Joel (Heywood & Royton)

Dunn, James A.

Hunter, Adam

Bates, Alf

Dunnett, Jack

Irvine, Rt. Hn. Sir A. (L'p'l, EdgeHill)

Baxter, William

Eadie, Alex

Irving, Rt. Hn. Sydney (Dartford)

Beith, A. J.

Edge, Geoff

Jackson, Colin

Benn, Rt. Hn. Anthony Wedgwood

Edwards, Robert (W'hampton, S.E.)

John, Brynmor

Bennett, Andrew F. (Stockport, N.)

Ellis, John (Brigg & Scunthorpe)

Johnson, James (K'ston uponHull, W.)

Bidwell, Sydney

Ellis, Tom (Wrexham)

Jones, Dan (Burnley)

Bishop, E. S.

English, Michael

Jones, Gwynoro (Carmarthen)

Blenkinsop, Arthur

Evans, Fred (Caerphilly)

Jones, Alec (Rhondda)

Boardman, H. (Leigh)

Evans, Ioan (Aberdare)

Kaufman, Gerald

Booth, Albert

Evans, John (Newton)

Kelley, Richard

Boothroyd, Miss Betty

Faulds, Andrew

Kerr, Russell

Boyden, James (Bishop Auckland)

Fernyhough, Rt. Hn. E.

Kilroy-Silk, Robert

Brown, Ronald (H'kney, S.& Sh'ditch)

Flannery, Martin

Lambie, David

Buchan, Norman

Fletcher, Raymond (Ilkeston)

Lamond, James

Callaghan, Jim (M'dd'ton & Pr'wich)

Fletcher, Ted (Darlington)

Latham, Arthur(CityofW'minsterP' ton)

Campbell, Ian

Fowler, Gerry (The Wrekin)

Lawson, George(Motherwell&Wishaw)

Carter, Ray

Freeson, Reginald

Lee, John

Carter-Jones, Lewis

Garrett, John (Norwich, S.)

Lestor, Miss Joan (Eton & Slough)

Clemitson, Ivor

Gilbert, Dr. John

Lever, Rt. Hn. Harold

Cocks, Michael

Griffiths, Eddie (Sheffield, Brightside)

Lewis, Ron (Carlisle)

Concannon, J. D.

Grimond, Rt. Hn. J.

Lomas, Kenneth

Cook, Robert F. (Edinburgh, C.)

Hamilton, William (Fife, C.)

Loyden, Eddie

Cox, Thomas

Hamling, William

Lyon, Alexander W. (York)

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

Hardy, Peter

Lyons, Edward (Bradford, W.)

Crosland, Rt. Hn. Anthony

Harper, Joseph

Mabon, Dr. J. Dickson

Cryer, G. R.

Harrison, Walter (Wakefield)

McElhone, Frank

Cunningham, G.(Islington, S&F'sb'ry)

Hart, Rt. Hn. Judith

MacFarquhar, Roderick

Cunningham, Dr. John A. (Whiteh'v'n)

Hatton, Frank

McMillan, Torn (Glasgow, C.)

Dalyell, Tam

Healey, Rt. Hn. Denis

McNamara, Kevin

Davidson, Arthur

Heffer, Eric S.

Madden, M. O. F.

Davies, Bryan (Enfield, N.)

Henderson, Douglas (Ab'rd'nsh're, E)

Mahon, Simon

Davies, Denzil (Llanelli)

Hooley, Frank

Mallalieu, J. P. W.

Marks, Kenneth

Roberts, Gwilym (Cannock)

Tomney, Frank

Mason, Rt. Hn. Roy

Rodgers, George (Chorley)

Tuck, Raphael

Mayhew, Christopher(G'wh, W'wch, E)

Rooker, J. W.

Tyler, Paul

Mellish, Rt. Hn. Robert

Roper, John

Urwin, T. W.

Mendelson, John

Rose, Paul B.

Varley, Rt. Hn. Eric G.

Millan, Bruce

Sandelson, Neville

Wainwright, Edwin (Dearne Valley)

Miller, Dr. M. S. (E. Kilbride)

Sedgemore, Bryan

Walden, Brian (B'm'ham, Ladywood)

Moonman, Eric

Selby, Harry

Walker, Harold (Doncaster)

Morris, Alfred (Wythenshawe)

Shore, Rt. Hn. Peter(S'pney&P'plan)

Walker, Terry (Kingswood)

Morris, Charles R. (Openshaw)

Short, Rt. Hn. E. (N'ctle-u-Tyne)

Watt, Hamish

Newens, Stanley (Harlow)

Short, Mrs. Renée (W'hamp'n, N.E.)

Wellbeloved, James

O'Halloran, Michael

Silkin, Rt.Hn.S.C.(S'hwark, Dulwich)

White, James

Orbach, Maurice

Sillars, James

Willey, Rt. Hn. Frederick

Ovenden, John

Silverman, Julius

Williams, Alan (Swansea, W.)

Owen, Dr. David

Skinner, Dennis

Williams, Alan Lee (Hvrng, Hchurch)

Palmer, Arthur

Small, William

Williams, W. T. (Warrington)

Pardoe, John

Snape, Peter

Wilson, Gordon (Dundee, E.)

Park, George (Coventry, N.E.)

Spriggs, Leslie

Wilson, Rt. Hn. Harold (Huyton)

Parker, John (Dagenham)

Stallard, A. W.

Woodall, Alec

Pavitt, Laurie

Steel, David

Woof, Robert

Pendry, Tom

Stoddart, David (Swindon)

Wrigglesworth, Ian

Perry, Ernest G.

Stott, Roger

Young, David (Bolton, E.)

Prescott, John

Strang, Gavin

Price, Christopher (Lewisham, W.)

Thorne, Stan (Preston, S.)

TELLERS FOR THE NOES:

Rees, Rt. Hn. Merlyn (Leeds, S.)

Tierney, Sydney

Mr. John Golding and

Reid, George

Tinn, James

Mr. James Hamilton.

Richardson, Miss Jo

Tomlinson, John

Question accordingly negatived.

I beg to move Amendment No. 7, in page 4, leave out lines 9 to 17 and insert:

' (b) in respect of so much of the investment income included in an individual's total income as exceeds £2,000 at the additional rate of 15 per cent'.

We have just had a Division on an amendment that was concerned with persons with incomes of between £4,500 and £5,000. Earlier we were told by a spokesman for the Liberal Party that there was a tendency for parties not to back their decisions in the Division Lobbies. I was surprised to find that on an amendment of that kind the Liberals actually supported the Government on increasing the rate of tax of those on incomes between £4,500 and £5,000.

I make no bones about that fact. We did indeed support the Government, and we shall continue to support them on redistributive measures. To suggest that we should not vote to reduce the standard rate of tax, but vote to reduce it on upper incomes seems socially nonsensical.

That is not so. We made it clear at the opening of these proceedings that we thought there were a number of detailed points in respect of which the Government's action was not likely to be significant in economic terms, and was likely to be undesirable regarding incentives, and so on, and in social terms as well. Therefore, we thought it right that the Government's fiddling about with the tax rate covered by the previous amendment was not a matter that we could support. I further stress that the effect of inflation on that group has been particularly heavy. Therefore, it seemed wrong that action should be taken to change the tax rate, thereby reinforcing the adverse effect that inflation already had on a particular income group.

I turn now to the amendment. Again, we believe that what the Government propose is a retrogade step. My right hon. Friend the Member for Altrincham and Sale (Mr. Barber), as Chancellor of the Exchequer, when designing the system of personal direct taxation that we now have, felt it right that a change should be made relating to those who receive what hon. Gentlemen opposite like to call unearned income—what is sometimes called investment income but what I should like to describe as savings income. It most certainly is not unearned income. Much of this income reflects past savings. It also reflects the postponement of consumption, which, in turn, has allowed the community to release resources from consumption into investment in real goods and assets.

We believe that the economic advantage of saving to the community as a whole is very real and therefore that it is right and proper to encourage it. We also believe that if. after people have saved and invested their savings and perhaps retired, they then receive an income from them, it is not right that that income should be charged at a penal rate of taxation. It should be within limits. Clearly, if we go too far, as my right hon. Friend pointed out when he was Chancellor of the Exchequer, the cost becomes very great. He decided on a limit of £2,000 for savings income. We believe that that was a reasonable limit to set. The Government, without disputing the principle set out by my right hon. Friend, have simply reduced that limit.

There is a later amendment about the position of the elderly who are living on savings income. This amendment comprehends that as well. Indeed, if it were carried, many subsequent amendments would also effectively be implemented. Although we may want to say something on the subject at a later stage, it is important to spell it out now.

I want to concentrate on the position of someone who is saving capital and to stress the amount of savings income needed to be caught by the provisions that the Chancellor has included in the Bill. In the light of inflation, one does not need a vast sum of capital by any standards nowadays to receive the kind of savings income which will be caught by the Chancellor's proposals. One ought to emphasise also that under my right hon. Friend's previous proposals it was consistent with the general limits which have been set on estate duty, and so on.

8.30 p.m.

Taking the matter overall, we believe that it is right to maintain the status quo. We do not think this is a suitable way of achieving the equality of suffering that the present Government feel ought to be achieved, not least because many of those who are retired and are living on savings income, or were seeking to build up capital, were already severely hit by dividend restraint and by capital losses as a result of falls in share values and inflation. To add, on top of those things, a higher rate of tax is not the right approach.

Therefore, I commend to the Committee the amendment, which would maintain the status quo, would encourage what we have always believed in—a property-owning democracy—and also encourage saving which, in the current inflationary situation, is vitally important. Increased saving keeps down the cost of living. Trying to control inflation by taxation, whether direct taxation which reduces take-home pay or indirect taxation which directly affects prices, has dangers which I am sure the Committee recognises. We want to encourage saving. We do not want to penalise, in the way that the Chancellor is suggesting, within reasonable limits, the fruits of that saving. For that reason we have tabled this amendment, which I commend to the Committee.

I support the amendment. I do not intend to rehearse the arguments about the value of savings, and I shall, therefore, not detain the Committee for long.

We have to get investment income into perspective. Consider a person who has worked all his life. He may have been fortunate enough to work for a company with a pension scheme. Many people work for companies which do not have pension schemes, and it is incumbent upon anybody who works for such a company to save during his working life. Compare such a man with the man who benefits from a superannuation scheme. No doubt, the man with a superannuation scheme contributes to it, but the tax laws in past years have given him a tax allowance. We have helped him during his working life to contribute to his pension. When he retires his pension may be £3,000 or £4,000. He does not get a surcharge on that because it is considered to be earned income.

Then take the man who did not join a pension scheme, through no fault of his own. He saves his money and then he retires. Incidentally, I do not think that we should necessarily gear our retirement age to 65. Many companies retire their top executives at a much earlier age. That man is hit on all sides. He has not enjoyed the tax allowance on superannuation contributions. Also he is hit by this increased surcharge.

Another point about investment income is this. In the last year or so wages have gone up. Prices also have gone up and inflation has increased. The person with an investment income, whether he had to save for his pension or not, has been hit by the prices and incomes policy. His dividend limitation has been around 5 per cent. and he has suffered from a 12 per cent. or 15 per cent. rate of inflation. This cannot be right. It cannot be right economically to hit these people.

When the Financial Secretary replies we do not want to hear any of this claptrap about investment income, as if investment income were something which one should not enjoy. There are many people who receive investment income, and they include widows whose husbands have worked all their lives. I do not want to get too emotional about this, but should we in the latter years of their lives hit them with this surcharge increased by taxation?

We must bear in mind, particularly this year, that persons on investment income, and despite the capacity of their advisers in putting them into good investment-bearing stocks, have not been able, because of dividend limitation, to enjoy this income. I would have thought this of all years to be the worst possible year to hit those people, and I hope my hon. Friend will press this matter if we do not have a satisfactory reply.

My hon. Friend has been putting extremely well the case for the man who is working for a company which has not a pension scheme. but could he not apply his mind, for example, to the farmer who could not have a pension scheme and would have to save during his life? When such people as the farmers retire they have to live only on the savings that they have been able to make on their own account. Equally, small shopkeepers and others have no pension scheme. It is not a question of a company not having a scheme but of people who have lived thriftily all their lives being unable to enjoy the benefit.

I quite agree with my hon. Friend, but the position of the self-employed is slightly different since those people, who include farmers, can go into a scheme and get a tax advantage by paying into a pension scheme during their working life if they wish to do so. I agree that those who do not, whether farmers, small shopkeepers or others, who have to save out of taxed income so that they will have a nest egg at the end of their days, should not be subjected to this surcharge.

I am particularly concerned about the effect of this clause on the elderly, of whom I have a great many in my constituency. It was quite clear from the Second Reading debate that the Chancellor was well disposed towards them. He was tempted to leave the threshold at £2,000. But apparently his generosity abandoned him when he realised that it would cost £11 million. He argued that more than two-thirds of those who would have benefited have incomes above £3,000.

My question is: what about the remaining one-third who have incomes of less than £3,000? These are the people the Chancellor is going to hit. I would urge him to have another look at the position of these people with less than £3,000 a year. The cost of the dispensation for them would not be very great, a couple of million at the most—a dispensation on the same lines, perhaps, as that already given to divorced and separated wives. Obviously, such dispensation would ease the burden on these elderly people very considerably. There is nothing more saddening than the sight of elderly people suffering from a falling standard of living. They find it difficult enough to reconcile themselves to inflation. They find it even more difficult to reconcile themselves to this kind of attack on their savings.

On the concession for the divorced and separated, promised by the Chancellor in the Second Reading debate, he was very specific in his limits on the concession in that he said it would be limited to those:

I shall not press the Front Bench opposite on this point now but I will write to the Chancellor in the hope that this case will persuade him to relax his attitude on this point, that the concession he has promised to divorced and separted wives will be limited to those with no other investment income.

Labour Treasury Ministers have a schizophrenic approach to the question of investment income. They extol—and we heard the Chancellor saying it earlier today—further investment by industry, and we have heard the latest CBI survey figures on industrial investment. Yet by lowering the threshold for the surcharge on investment income they discourage those savings that are the necessary fuel for investment.

My right hon. Friend the Member for Altrincham and Sale (Mr. Barber) thoroughly recognised this connection between savings, unearned income and investment when he introduced the surcharge at the rate of £2,000 in his Budget speech in 1972. He said

The Chancellor has said on a number of occasions—for example, on the Second Reading of the Bill—that he was raising the tax thresholds on personal reliefs because of inflation. Logically, he should do exactly the same for investment income. However, to hope that he would raise the threshold from £2,000 to, say, £2,500, is clearly too much to expect from a Labour Chancellor. In fact, he is going in the opposite direction. By dropping the threshold to £1,000 he will make life that much more difficult, as my hon. Friend the Member for Croydon, South (Mr. Clark) said, for those living on their invested life savings, which they may have put in gilt-edged, the building societies or equities—money which they derived from taxed income earned throughout their lives.

If it is the Chancellor's policy to discourage saving and investment in gilt-edged, let him say so. If it is not, I hope he will support the amendment and encourage his hon. Friends to do the same.

I have two points to raise in connection with the amendment. It is time there was some discussion about the purpose of this type of taxation, that is, taxation which is levied on savings or on people with a fairly high income because it is somehow felt that they should and can pay. I do not deny that there is a case for, and that it is a long established practice that there is, differentiation between earned and unearned income. But do the Government believe that if these people are more heavily taxed it will be easier to persuade those low down the income scale to put up with their level of salaries and wages? If that is what the Government have in mind I think they have made a mistake.

8.45 p.m.

I agree that we need a massive change in resources to the less fortunate. I find it intolerable that the highly skilled girls who have been treating my arm in Westminster Hospital, and, if no one else is there, may be called upon to deal with emergency cases of life and death, start at £1,329 a year. There are many people in local government and so on, doing routine jobs requiring much less skill, who earn four times as much. It is a great pity that the previous administration did not put a stopper on top salaries of all kinds. It would have had a psychological effect, but I do not think that this type of taxation does. Nor does it result in any significant change, either personal or communal, to help the under-paid.

It cannot be defended on the naïve grounds that the Government have to raise money for their own purposes. If they want money for their own purposes, they can print it or borrow it. Nowadays the Government raise taxation to reduce demand. But is this a good demand to take away? I think that a lot of it is not, because many of the people affected need their savings. I should like to see an inquiry into the principles of taxation. We are in a different situation today from that which existed 30 years ago.

Like many other right hon. and hon. Members, I have some honorary connection with a savings bank. I have wondered for some time whether I can continue in that capacity. There are elements of the savings movement which are long-term fraud, yet it is supported by many dedicated and hard-working people, and lip-service has been paid to it by every Chancellor of the Exchequer.

We now have a Chancellor of the Exchequer who says quite openly that he does not approve of savings and that he likes spending his money. If that is so, it is hypocritical even to pay lip-service to the encouragement of savings. As with packets of cigarettes, in my view it might be compulsory for savings banks to display notices saying "If you invest money in this institution you will lose 25 per cent. of it"—and that is probably an understatement.

This is a very serious matter. Already these wretched people have been clobbered by inflation. Leave it to inflation and we shall not need a wealth tax. Inflation will wipe out wealth far quicker than any Government can do it. Of course, the rich will always get round these taxes. It is the wretched people with a few thousand pounds in savings who will be clobbered.

I regret this. I am reconciled to a considerable amount of Government intervention and a great deal of Government investment. But I suspect that a society in which all savings and investment has to be done by the Government eventually ceases to be a free society. It is one way in which inflation ultimately will destroy a free society, and this must cause as much concern to Government supporters as it does to right hon. and hon. Members on this side of the House.

It may be possible to save through cooperatives and in other ways than through the Government, but if savings and investment become the monopoly of the Government it will be very difficult to maintain the type of society which, with broad variations, we all agree that we want to see prosper.

I do not want to make heavy weather of the amendment. Inflation is far more serious than the amendment. But this seems to be an occasion for asking the Government to pause and consider what is their attitude to savings of this kind, and whether they feel that they can go on encouraging people to save, or whether those of us who have been vaguely associated with this great savings movement, to which people have given a great deal of time and effort, should say "The Government do not believe in it, and no one who is in receipt of high-class financial advice believes in it." It is only the poor suckers who are saving a few pounds a year who still believe in it, and the sooner they are disillusioned the better for them.

Even if the Labour Party is not overcome by the overwhelming arguments of the right hon. Member for Orkney and Shetland (Mr. Grimond) against the discouragement of saving represented by the clause, I do not see how it can maintain that someone with an income of £1,000 a year can qualify for the clobbering of the rich or the penalising of unearned income which is the Labour Party's stock in trade.

People on this kind of income, even subject to the limited exceptions contained in this mean subsection, have the greatest difficulty in making ends meet. My right hon. Friend the Member for Altrincham and Sale (Mr. Barber) made an only too modest step in the right direction and I am appalled that the Government should retreat from even that modest concession to people who have deserved well of society and not this kind of slap in the face.

The hon. Member for Conway (Mr. Roberts) has kindly given me notice of a letter that he is sending to me. I have some information to hand. As I understand it, the Chancellor's concession is not limited to those with no other investment income. It will provide that the first £1,000 of investment income will not rank as investment income for the surcharge. If that needs further clarification, I shall of course be happy to deal with the matter when the hon. Gentleman writes to me.

The OFFICIAL REPORT for 9th May says:

"I accept that and I have therefore decided that, in addition to the £1,000 already exempted from investment income surcharge, the first £1,000 of maintenance paid shall also be exempt, so that a divorced or separated wife with no other investment income will not become liable to the surcharge until the maintenance paid reaches £2,000."—[OFFICIAL REPORT, 9th May 1974; Vol. 873, c. 606.]

My point is that there are obviously other people like my constituent, whose maintenance does not reach £2,000 but who does have income from another source.

I take the point, which is more refined than I had appreciated. I am grateful to the hon. Gentleman for having given me notice of it and I shall certainly look at it for him.

The amendment seeks to set the investment income surcharge at a starting point of £2,000 per annum for 1974–75 for everyone. In other words, it would restore the structure and rates of the unified tax system to what they were for 1973–74. We consistently made it clear in opposition that we thought that the reliefs given by the then Government to investment income were too generous. There is a clear difference of philosophy between the two sides of the Committee over this and there is no point in trying to fudge it.

However, even after the changes proposed in the Bill take effect, the treatment of investment income will in general—not in every case but in general—be more favourable than under the pre-unified system. Our proposals would at the maximum impose a surcharge of £100 per taxpayer—that is to say, 10 per cent. on the second £1,000 of investment income. Of course, I do not expect that to be welcomed—nobody likes to pay more tax—but we have all along taken the view that if taxes had to go up those who were relatively fortunate enough—not the most fortunate by any means—to have investment income of this amount should pay their contribution to the increases in taxation which the Chancellor thought were necessary.

The hon. Member for Worthing (Mr. Higgins) rightly and strongly argued the case regarding more faviourable treatment for income arising out of savings. He adduced the idea that virtually all these modest investment in- comes were incomes out of savings. This is part of the difficulty. He knows as well as I know that there is no way to tell what is the source of the capital from which this sort of income can arise. The capital can come from savings, of course, but it can also come in a variety of other ways, such as gifts or inheritance.

I understand the point which the hon. Gentleman is making. It is not easy to quantify in such cases. But surely these gifts or inheritance must have been the result of savings? It is the longterm effect on deterring savings which is important. Can the hon. Gentleman say what would be the cost of the amendment as it stands?

I shall deal with that in a moment. The hon. Member for Croydon, South (Mr. Clark), who is always reasonable about these matters, was frank enough with the House on Second Reading to make clear that he appreciated the case, though he might not accept it, for changing the threshhold for the generality of investment incomes of this amount. He drew a distinction between a man whose company has a pension scheme and who is assisted by way of tax relief on his contribution during his working life and the man who has to make his own provisions. I have a great deal of sympathy with this point. It has been a long-standing discrimination in our tax system, under Governments of both complexions, since the war. Unfortunately—this will not surprise the hon. Gentleman—I am not able to offer him a concession in this respect tonight, but I assure him that the distinction which he puts forward is one which we shall be happy to look at, because it is important.

The discrimination has existed in the tax system for many years under both Governments, but my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) did at least give some slight assistance to the people involved. We can argue whether that assistance was too much or too little, but the present Government are accepting that a man is being discriminated against and are then discriminating against him even more. That is illogical.

Does not my hon. Friend agree that a person who is not a member of an occupational pension scheme has got, and has had for the past 17 years, the opportunity of putting his money into a deferred annuity, getting full tax relief on the contributions, and then having the proceeds treated, as in any other pension, as earned income when he retires?

I am grateful to my hon. Friend. As in so many of these situations —the right hon. Member for Orkney and Shetland (Mr. Grimond) referred to this —it is the most sophisticated who are best able to protect themselves from the ravages of inflation and those who do not have the benefit of the sort of advice which would lead them to take the course to which my hon. Friend has referred suffer most.

The hon. Member for Worthing made much of the theme that a reduction in the threshold will bear heaviest on those with income from savings, but it is still the case that the first £1,000-worth of investment income will be at the earned rate. We can make all sorts of calculations about the amount of invested capital which would be needed to produce £2,000-worth of investment income at today's rates. At 10 per cent. it would obviously be £20,000. We can pick any figure according to the type of security in mind. It would probably be a good deal more than that these days if all the savings were in the form of equity shares in industrial companies. The number of people who have saved more than that out of their income over the years is a relatively modest proportion of the working population.

There are special arguments for the elderly and the handicapped, and I will defer my comments on them until we reach the relevant amendments. The effect of this concession would be quite substantial. The hon. Member for Worthing asked me what the cost would be. In 1974–5 it would be negligible. In a full year it would be about £40 million. The relief would run right the way up the income scale, not pro rata but it would be an extra £100 in the pocket of every taxpayer right up the scale.

I ought to make it clear that even after our proposals those with investment income up to quite substantial levels are better off in money terms and, on certain assumptions, in real terms than they were under the unified tax structure. Except for those with very small incomes indeed, and for the elderly with a comparatively modest income, taxpayers used to be liable for the full standard rate on every pound of investment income. Probably it is best if I leave it at that, bearing in mind the cost of £40 million and the many other claims on the Chancellor's sympathy. Of all the amendments attaching to the change in the threshold of the surcharge this is the least deserving, and I invite the Committee to reject it.

It seems that this proposal to increase tax on the relatively low level of savings income is based on pure ignorance and prejudice. It has no significant economic or redistributive effect. From my experience of industry, it will not have any measurable psychological effect in terms of fairness, and so on, upon those who make and press wage claims. It seems to serve no purpose in any of those ways.

Yet it does do harm to those who have up to about £20,000 worth of capital, which the Financial Secretary said might be the sort of level we are talking about to produce an investment income of about £2,000. Before we do such harm we ought to think more deeply than the Government seem to have done. We want to encourage personal saving. We believe that it has an economic and social benefit in encouraging independence and freedom in our society. We want to encourage a wider spread of capital ownership. These are good things.

We believe that this sort of income should in no sense be described as unearned income. It is savings income. In many cases it may have been saved in one lifetime from money which was taxed when it was earned, and even in the case of inheritance, at this modest level—or at any level for that matter—it is money which has been earned and taxed as earnings at some time, and which, on passage on inheritance, has been subjected to death duties. So the money about which we are talking has not by a long way got through free of tax.

We are dealing with people who are not wealthy people at all. A capital of £20,000 is not a large sum. It is a smaller sum than the minimum level at which we now think it right to start to levy death duties. If not all at least many of the people who will be hit by this are already retired, and, as my hon. Friend the Member for Croydon, South (Mr. Clark) pointed out, more and more people are retired before they reach the age of 65, and this is a trend which is likely to continue. Many of those in this category who are not retired are approaching retirement and will, therefore, be needing, in the last few years of their working life, to make all the provision that they can for their impending retirement. They are already being hit not only by inflation but also, like everyone else, by the higher rate of income tax, about which we shall be talking later.

To impose on top of that this extra surcharge on investment income between £1,000 and £2,000 a year seems niggardly, mean and anti-social, without contributing one whit to the fairness of our society or the effectiveness of our economy. I hope that my right hon. and hon. Friends will divide the Committee in favour of the amendment.

I am sorry that the right hon. Gentleman should feel it necessary to use such powerful language about a proposal which, clearly, is intended as part of the process which requires that the burdens be shared by those better able than others to afford to carry them. It was very interesting to hear the right hon. Gentleman deny—once, twice, possibly thrise—that this was unearned income. If he had been listening to the debate he would know that I never used the phrase "unearned income" from start to finish, nor—as I have been the only Member to rise on the Government side of the Committee—has anyone else used that phrase.

So the right hon. Gentleman must have somewhere deep in his psyche a very profound need to deny that it is unearned income. That is worth pondering. I have called it, from start to finish, investment income. I agree that it is investment income. [An HON. MEMBER: "Savings income."] No, it is not necessarily savings income. The right hon. Gentleman knows that, and the hon. Member for Worthing (Mr. Higgins) is quite intelligent enough to know that. It may be savings income but it may very well not be savings income.

The Shadow Chancellor talks about it attracting tax when it passes on inheritance. He is absolutely right. If it passes on inheritance it attracts tax. But, as the right hon. Gentleman is well aware, large sums pass from generation to generation outside inheritance and without attracting tax. As he is also aware, we shall be bringing forward proposals later in the year to remedy that glaring loophole in our fiscal system.

There is no point in detaining the Committee with further arguments whether £20,000 is a large sum. To the overwhelming majority of my constituents, £20,000 is an enormous sum of money, a sum which they have no hope whatever of saving, under any Government and under any tax system, because their incomes are so low that a relief of this sort is of no interest to them whatsoever. They would never expect to have an investment income, a savings income.

Does the hon. Gentleman agree that to receive an investment income that is relevant in the amendment—£1,000—it is not necessary to have anything like £20,000? At current interest rates, it is necessary merely to have £7,000 or £8,000.

If the hon. Gentleman had listened more closely, he would have heard that we were talking about the level from £1,000 to £2,000. As the right hon. Member for Orkney and Shetland (Mr. Grimond) pointed out, the problem is that the mass of small savers are unable to avail themselves of astronomical rates of interest because they do not have the benefit of sophisticated advice. They often put their investments into savings media paying lower rates, including national savings. I quite agree with what one hon. Member said about the nature of national savings. We said it in Opposition, and I have not changed my view. The Government hope to undertake a fundamental review of national savings.

Does the hon. Gentleman also recognise that those who bought quoted securities are also subject to dividend restraint, so that they are squeezed at both ends?

Those who bought such securities have not very much to thank the previous Government for, considering what happened to the price of shares on the London Stock Exchange in their last two years in office.

We on this side of the Committee, while not suggesting that those who hold £20,000 are rich in any accepted sense of the word, would still say that they are among the better-of members of the community. Very few of my constituents would hope ever to have a sum of money of that size, let alone over and above the value of an owner-occupied house, into which the vast majority of people in this country find their savings eventually channelled.

I have no hesitation in rebutting the right hon. Gentleman's charges. The proposal is not intended at all to be mean and vindictive. It is intended as a fundamental ingredient in ensuring that those who are better able to do so help to bear part of the burdens of increased taxation, which is unfortunately necessary to get the country out of the economic mess in which the right hon. Gentleman's Government left it.

Question put, That the amendment be made:

The Committee divided: Ayes 167, Noes 189.

Division No. 25.]

AYES

[9.15 p.m.

Adley, Robert

Gow, Ian (Eastbourne)

Normanton, Tom

Aitken, Jonathan

Grant, Anthony (Harrow, C.)

Onslow, Cranley

Alison, Michael (Barkston Ash)

Grieve, Percy

Osborn, John

Allason, James (Hemel Hempstead)

Griffiths, Eldon (Bury St. Edmunds)

Page, Rt. Hn. Graham (Crosby)

Archer, Jeffrey (Louth)

Grimond, Rt. Hn. J.

Page, John (Harrow, W.)

Atkins, Rt.Hn.Humphrey (Spelthorne)

Grylls, Michael

Pardoe, John

Atkinson, Norman

Hall, Sir John

Pattie, Geoffrey

Awdry, Daniel

Hall-Davis, A. G. F.

Percival, Ian

Baker, Kenneth

Hamilton, Michael (Salisbury)

Pink, R. Bonner

Banks, Robert

Harvie Anderson, Rt. Hn. Miss

Price, David (Eastleigh)

Barber, Rt. Hn. Anthony

Havers, Sir Michael

Rathbone, Tim

Beith, A. J.

Hawkins, Paul

Rees, Peter (Dover & Deal)

Bell, Ronald

Hayhoe, Barney

Renton, Rt.Hn.SirDavid(H't'gd'ns're)

Bennett, Dr. Reginald (Fareham)

Heath, Rt. Hn. Edward

Renton, R. T. (Mid-Sussex)

Blaker, Peter

Higgins, Terence

Rhys Williams, Sir Brandon

Boyson, Dr. Rhodes (Brent, N.)

Hill, James A.

Ridsdale, Julian

Bray, Ronald

Hooson, Emlyn

Rippon, Rt. Hn. Geoffrey

Brittan, Leon

Hordern, Peter

Roberts, Wyn (Conway)

Brown, Sir Edward (Bath)

Howe, Rt.Hn. Sir Geoffrey(Surrey, E.)

Rossi, Hugh (Hornsey)

Bruce-Gardyne, J.

Howell, Ralph (Norfolk, North)

Rost, Peter (Derbyshire, S.-E.)

Buck, Antony

Hurd, Douglas

Sainsbury, Tim

Budgen, Nick

Irvine, Bryant Godman (Rye)

Scott-Hopkins, James

Bulmer, Esmond

Jopling, Michael

Shaw Giles (Pudsey)

Burden, F. A.

Joseph, Rt. Hn. Sir Keith

Shaw, Michael (Scarborough)

Butler, Adam (Bosworth)

Kaberry, Sir Donald

Shelton, William (L'mb'th, Streath'm)

Carlisle, Mark

Kellett-Bowman, Mrs. Elaine

Silvester, Fred

Carr, Rt. Hn. Robert

Kilfedder, James A.

Sims, R. E.

Chalker, Mrs. Lynda

King, Evelyn (Dorset, S.)

Skeet, T. H. H.

Chataway, Rt. Hn. Christopher

King, Tom (Bridgwater)

Spicer, Jim (Dorset, W.)

Clark, A. K. M. (Plymouth, Sutton)

Lamont, Norman

Stainton, Keith

Clark, William (Croydon, S.)

Langford-Holt, Sir John

Steel, David

Clarke, Kenneth (Rushcliffe)

Latham, Michael (Melton)

Steen, Anthony (L'pool, Wavertree)

Clegg, Walter

Lawrence, Ivan

Stewart, Ian (Hitchin)

Cockcroft, John

Lawson, Nigel (Blaby)

Taylor, Robert (Croydon, N.W.)

Cooke, Robert (Bristol, W.)

Lester, Jim (Beeston)

Tebbit, Norman

Cope, John

Lloyd, Ian (Havant & Waterloo)

Temple-Morris, Peter

Cordle, John

Luce, Richard

Thatcher, Rt. Hn. Mrs. Margaret

Cormack, Patrick

McCrindle, R. A.

Thomas, Rt. Hn. P. (B'net, H'dn S.)

Costain, A. P.

Macfarlane, Neil

Trotter, Neville

Crouch, David

MacGregor, John

Tugendhat, Christopher

Davies, Rt. Hn. John (Knutsford)

Macmillan, Rt Hn. M. (Farnham)

Vaughan, Dr. Gerard

d'Avigdor-Goldsmid, Maj.-Gen.James

McNair-Wilson, Michael (Newbury)

Viggers, Peter

Dean, Paul (Somerset, N.)

Marshall, Michael (Arundel)

Waddington, David

Dykes, Hugh

Mather, Carol

Wainwright, Richard (Colne Valley)

Eden, Rt. Hn. Sir John

Maude, Angus

Walder, David (Clitheroe)

Edwards, Nicholas (Pembroke)

Maxwell-Hyslop, R. J.

Walker-Smith, Rt. Hn. Sir Derek

Emery, Peter

Meyer, Sir Anthony

Wall, Patrick

Fell, Anthony

Miller, Hal (B'grove & R'ditch)

Weatherill, Bernard

Fenner, Mrs. Peggy

Mills, Peter

Whitelaw, Rt. Hn. William

Fisher, Sir Nigel

Mitchell, David (Basingstoke)

Wiggin, Jerry

Fookes, Miss Janet

Moate, Roger

Winterton, Nicholas

Fowler, Norman (Sutton Coldfield)

Morgan, Geraint

Worsley, Sir Marcus

Fox, Marcus

Morrison, Charles (Devizes)

Young, Sir George (Ealing, Acton)

Fraser, Rt.Hn.Hugh (St'fford&Stone)

Morrison, Peter (City of Chester)

Fry, Peter

Neave, Airey

TELLERS FOR THE AYES:

Gardiner, George (Reigate&Banstead)

Neubert, Michael

Mr. Spencer Le Merchant and

Glyn, Dr. A'm

Newton, Tony (Braintree)

Mr. John Stradling Tho mas.

Goodhart, Philip

NOES

Abse, Leo

Garrett, John (Norwich, S.)

Orbach, Maurice

Archer, Peter (Warley, West)

Gilbert, Dr. John

Ovenden, John

Armstrong, Ernest

Golding, John

Owen, Dr. David

Ashton, Joe

Griffiths, Eddie (Sheffield, Brightside)

Palmer, Arthur

Atkins, Ronald (Preston, N.)

Hamilton, William (Fife, C.)

Park, George (Coventry, N.E.)

Atkinson, Norman

Hamling, William

Parker, John (Dagenham)

Bagier, Gordon A. T.

Hardy, Peter

Pavitt, Laurie

Barnett, Guy (Greenwich)

Harper, Joseph

Pendry, Tom

Barnett, Joel (Heywood & Royton)

Harrison, Walter (Wakefield)

Perry, Ernest G.

Bates, Alf

Hart, Rt. Hn. Judith

Prescott, John

Baxter, William

Hatton, Frank

Price, Christopher (Lewisham, W.)

Benn, Rt. Hn. Anthony Wedgwood

Healey, Rt. Hn. Denis

Rees, Rt. Hn. Merlyn (Leeds, S.)

Bennett, Andrew F. (Stockport, N.)

Heffer, Eric S.

Reid, George

Bidwell, Sydney

Hooley, Frank

Richardson, Miss Jo

Bishop, E. S.

Horam, John

Roberts, Gwilym (Cannock)

Blenkinsop, Arthur

Howell, Denis (B'ham, Small Heath)

Rodgers, George (Chorley)

Boardman, H. (Leigh)

Huckfield, Leslie

Rooker, J. W.

Booth, Albert

Hughes, Rt. Hn. Cledwyn (Anglesey)

Roper, John

Boothroyd, Miss Betty

Hughes, Mark (Durham)

Rose, Paul B.

Boyden, James (Bishop Auckland)

Hughes, Robert (Aberdeen, North)

Sandelson, Neville

Brown, Ronald (H'kney, S.& Sh'ditch)

Hunter, Adam

Sedgemore, Bryan

Buchan, Norman

Irvine, Rt. Hn. Sir A. (L'p'I, EdgeHill)

Selby, Harry

Callaghan, Rt.Hn.James(Cardiff, S.E.)

Jackson, Colin

Shore, Rt. Hn. Peter(S'pney&P'plar)

Campbell, Ian

John, Brynmor

Short, Rt. Hn. E. (N'ctle-u-Tyne)

Carter, Ray

Johnson, James (K'ston uponHull, W.)

Short, Mrs. Renée (W'hamp'n, N.E.)

Carter-Jones, Lewis

Jones, Dan (Burnley)

Silkin, Rt.Hn.S.C.(S'hwark, Dulwich)

Clemitson, Ivor

Jones, Gwynoro (Carmarthen)

Sillars, James

Cocks, Michael

Jones, Alec (Rhondda)

Silverman, Julius

Concannon, J. D.

Kaufman, Gerald

Skinner, Dennis

Cook, Robert F. (Edinburgh, C.)

Kelley, Richard

Small, William

Cox, Thomas

Kerr, Russell

Snape, Peter

Craigen, J. M. (G'gow, Maryl ill)

Kilroy-Silk, Robert

Spriggs, Leslie

Crosland, Rt. Hn. Anthony

Lamble, David

Stallard, A. W.

Cryer, G. R.

Lamond, James

Stoddart, David (Swindon)

Cunningham, G.(Islington, S&F'sb ry)

Latham, Arthur(CityofW'minsterP'ton)

Stott, Roger

Cunningham, Dr. John A. (Whiteh'v'n)

Lawson, George(Motherwell&Wishaw)

Strang, Gavin

Dalyell, Tam

Lee, John

Taverne, Dick

Davidson, Arthur

Lestor, Miss Joan (Eton & Slough)

Thorne, Stan (Preston, S.)

Davies, Bryan (Enfield, N.)

Lever, Rt. Hn. Harold

Tierney, Sydney

Davies, Denzil (Llanelli)

Lewis, Ron (Carlisle)

Tinn, James

Davis, Clinton, (Hackney, C.)

Lomas, Kenneth

Tomlinson, John

Dean, Joseph (Leeds, W.)

Loyden, Eddie

Tomney, Frank

de Freitas, Rt. Hn. Sir Geoffrey

Lyon, Alexander W. (York)

Tuck, Raphael

Delargy, Hugh

Lyons, Edward (Bradford, W.)

Urwin, T. W.

Dell, Rt. Hn. Edmund

Mabon, Dr. J. Dickson

Varley, Rt. Hn. Eric G.

Dormand, J. D.

McElhone, Frank

Wainwright, Edwin (Dearne Valley)

Duffy, A. E. P.

MacFarquhar, R. L.

Walden, Brian (B'm'ham, Ladywood)

Dunnett, Jack

McMillan, Tom (Glasgow, C.)

Walker, Harold (Doncaster)

Eadie, Alex

McNamara, Kevin

Walker, Terry (Kingswood)

Edge, Geoff

Madden, M. O. F.

Watt, Hamish

Edwards, Robert (W'hampton, S.E.)

Mahon, Simon

Wellbeloved, James

Ellis, John (Brigg & Scunthorpe)

Mallalieu, J. P. W.

White, James

Ellis, Tom (Wrexham)

Marks, Kenneth

Willey, Rt. Hn. Frederick

English, Michael

Mason, Rt. Hn. Roy

Williams, Alan (Swansea, W.)

Evans, Fred (Caerphilly)

Mayhew, Christopher(G'wh, W'wch, E)

Williams, Alan Lee (Hvrng, Hchurch)

Evans, loan (Aberdare)

Mellish, Rt. Hn. Robert

Williams, W. T. (Warrington)

Evans, John (Newton)

Mendelson, John

Wilson, Rt. Hn. Harold (Huyton)

Faulds, Andrew

Millan, Bruce

Woodall, Alec

Fernyhough, Rt. Hn. E.

Miller, Dr. M. S. (E. Kilbride)

Woof, Robert

Flannery, Martin

Moonman, Eric

Wriggiesworth, Ian

Fletcher, Raymond (Ilkeston)

Morris, Alfred (Wythenshawe)

Young, David (Bolton, E.)

Fletcher, Ted (Darlington)

Morris, Charles R. (Openshaw)

TELLERS FOR THE NOES:

Fowler, Gerry (The Wrekin)

Newens, Stanley (Harlow)

Mr. James A. Dunn and

Freeson, Reginald

O'Halloran, Michael

Mr. James Hamilton.

Question accordingly negatived.

I beg to move Amendment No. 10, in page 4, line 15, after 'more', insert:

"or that at any time within that year he is a registered disabled person or a registered blind person'.

With this we are to take the following amendments:

No. 9, in page 4, line 15, after 'more', insert 'or that he was a registered disabled person'.

No. 11, in page 4, line 15, after 'more'. insert:

'or that at any time within a year she is a widow and has a child or children in respect of which she is entitled to relief under section 10 of the Income and Corporation Taxes Act 1970'.

This is a simple and straightforward amendment. We have been discussing the level at which the savings income surcharge is imposed. Instead of following the practice adopted by my right hon. Friend the Member for Altrincham and Sale (Mr. Barber), when he was Chancellor, of imposing a limit of £2,000. the Government have reduced the limit to £1,000 for the generality of taxpayers and to £1,500 for those who are above 65. Even this Government recognise that those over retirement age may have a case for particular consideration if they are living on savings income.

We believe that the change made by the Government in that respect is unsatisfactory and that the concession made to the elderly should be made also to registered disabled persons and registered blind persons.

Amendment No. 11 deals with a widow who has a child or children in respect of whom she is entitled to relief under Section 10 of the Income and Corporation Taxes Act 1970. The purpose of the amendment is to extend the provision which has been made for the elderly to this group of people.

I am sure that the Government will he prepared to accept the amendment. I commend it to the Committee and hope that we shall hear immediately from the Government that the amendment will be made.

I support what my hon. Friend the Member for Worthing (Mr. Higgins) said. Amendment No. 9, standing in my name, applies only to disabled persons. I did not include blind persons because they already get an allowance through the tax system.

I want to concentrate on registered disabled persons, many of whom have become disabled after suffering an accident at work. The courts may have awarded a disabled person compensation because the disability has rendered him incapable of carrying out full-time work. The income of that person can only be investment income, because he is incapable of working.

This is one of the meanest tricks in the Budget. The Chancellor has excluded thalidomide children from the provision for the aggregation of children's income. With this I entirely agree, but if a concession can be made for the thalidomide child it can surely also be made for the person who is completely disabled.

I ask the Government to reconsider this matter. I do not want to get too emotional, but it is illogical, if the courts award compensation because a person's right to work has been taken away from him, for the investment income limit to be reduced from £2,000 to £1,000. It is a disgraceful situation, and I hope that we shall receive support from Labour Members on this important amendment. I know that many of them have championed the cause of the disabled over the years, and I hope that the Government will think again.

9.30 p.m.

This kind of amendment is often debated on Finance Bills and frequently places Treasury Ministers in difficulty. Invariably they appear to be cold and hard-hearted because they seem to resist proposals which, on the face of them, appear to be eminently reasonable and possess strong humanitarian appeal. There seems to have been a sudden transformation among ex-Treasury Ministers because when the Conservatives were in government they also were forced to resist this kind of proposal. I myself at one stage was a Treasury Minister and resisted this kind of amendment. I do not know what the Financial Secretary will say now in reply to this discussion, but there are certain words of caution which should be expressed.

Invariably when this kind of exemption has been created in the past for a certain category, anomalies have been caused and injustices inflicted on other deserving categories. When the first exemption was made for the blind, it left the deaf in an anomalous position, since they were not given the same relief. This was the sort of case to which I was referring earlier when I found myself agreeing with a group of Conservative amendments. I do not think we improve our tax system if we keep adding to the list of exemptions. It is not the job of the tax system to distinguish between one special kind of category and another. This is something which can be more adequately and fairly done by the social security system and it should be done through social security grants.

It is true that those who get the benefit of a tax exemption of this kind may be in a better position, financially, than others who do not pay the same amount of tax. I believe that we should approach the tax system in a different way and not pile exemption on exemption, remembering that one person's tax exemption is another's tax increase. I feel that this kind of money could be better used if allocated to a grant.

I am following the hon. and learned Gentleman's argument with interest, but does this mean that when we discuss the amendment dealing with thalidomide he will speak against the proposal?

The amendment on the thalidomide problem was considered at an earlier stage. The present amendment seeks to add a further category to the position as it stands. Whether it applies to drivers of disabled vehicles, in relation to whom a concession was made, or whether the exemption is to apply to the blind—all these extremely deserving cases should not necessarily be dealt with in the way suggested by the amendment. This is part of the rôle of social security rather than of taxation.

I wish to support the amendment and to endorse the remarks made by my hon. Friend the Member for Croydon, South (Mr. Clark). The hon. and learned Member for Lincoln (Mr. Taverne) has got the situation quite wrong. He assumed that every handicapped or disabled person had no disadvantage against any other citizen in terms of taxation until he or she was down to the National Assistance level.

There are two principles involved in the amendment which go a great deal wider than do the provisions of Clause 5. These principles have recurred over many years when this type of amendment has been moved on various Finance Bills. I say sincerely that no party point is involved in this argument, for I have heard these arguments put to Governments of both political persuasions when the stately gavotte of election results has brought in a change of personalities on the Government Front Bench. This matter remains a continuing theme and amounts to asking: are disabled persons to be treated in the same way as are the elderly, namely, as a separate category of taxpayers? This is the principle behind the amendment. I suggest that they should be treated as a separate category.

The arguments advanced by the hon. and learned Member for Lincoln would be more valid if there were such a thing as a disablement income, but such a concept does not exist. Only those who suffered their disability in consequence of military service or industrial injury are adequately dealt with. We have argued this matter from both sides of the Committee.

I should declare my interest. I am sure that all hon. Members know that I am a member of a disabled family. If the amendment were passed, I should be financially better off as a member of that family. I apologise for that. However, I declare my interest.

If we had a disabled income in the terms that many hon. Members on both sides have argued in the past, the argument by the hon. and learned Member for Lincoln would have greater validity, but as long as the civil disabled, particularly the disabled housewives, are, as the Scots would say, outwith the social security system, his argument has no validity.

I suggest that even when we have a disablement income it will still be correct to argue that those who, while disabled, are able to earn their own income or are lucky enough, through compensation, to have some investment income, will be disadvantaged compared with the normal taxpayer.

That point is recognised in the tax system in terms of the elderly. Many of the disabled are elderly. We know from the Amelia Harris figures that of the 1¼ million severely disabled, we are talking about 300,000 or 350,000 who are below the age threshold of retirement.

The principle involved in the amendment goes much wider. I hope that Treasury Ministers, in advising the Committee to reject the amendment, as they undoubtedly will, will at least undertake to consider the whole principle of treating the disabled as a separate category of taxpayer in the same way as the aged. I hope that on Report they will bring forward an amendment—it may be different—which will at least help the disabled taxpayer. I cannot for the life of me see any difference between recognising the elderly as a separate category of taxpayer and recognising the disabled as a separate category of taxpayer.

I do not wish to detain the Committee by discussing how we might define the registration or the categories. I ask the Treasury Ministers to accept a principle that has never been recognised by the Treasury during my time as a Member of Parliament, which is now over 19 years.

Let the Government be revolutionary, let them innovate, let them recognise the disabled and not be a fuddy-duddy, reactionary Government. Here is the opportunity. Knowing the two Treasury Ministers, I am sure that they would love to make their marks in Treasury history by making this great and progressive innovation of recognising the disabled as a separate category of taxpayer. I am happy to support the amendment.

In support of Amendment No. 11 I want to put forward two more arguments which not only deserve airing in Committee but have been pressed upon me by a number of my constituents who are in the situation referred to here.

The first argument is that on Second Reading of the Finance Bill the Chancellor indicated that he would introduce amendments to ease the position of divorced or separated wives. We do not yet have such amendments before us.

Amendment No. 11 attempts to put the situation straight for widows in the same situation. Let us consider the position of two single-parent families, one a divorced or separated wife and the other a widow who lost her husband due to industrial accident, both wives being of much the same age and receiving the same income. The situation is that, with the Chancellor's pledge, the divorced or separated wife would be in a more favourable tax position than the wife who had become a widow. I can see no justice in distinguishing between the two for tax purposes. The amendment would simply put the matter straight and recognise the situation that the Chancellor appreciated, in part, at least, by his proposed amendments.

The second argument which has been pressed upon me by a number of my constituents and which I believe to be correct, is that, taking into account the amendments which we are told will come in a future Finance Bill to take effect next year regarding the aggregation of children's income, certain families will be seriously disadvantaged taxwise compared with the situation that would have faced them before this year's Budget.

In many of the settlements in an industrial injuries situation some of the agreed settlement goes to the children and the income accrues to the children. As from next year. the two incomes will be aggregated, and if one takes into account the fact that the investment income has been reduced to £1,000 there could in some cases be a substantial reduction in net income to those families. This amendment would at least alleviate that situation, and I therefore hope that the Government will accept it.

I wish to return to Amendment No. 9 in the name of my hon. Friend the Member for Croydon, South (Mr. Clark). I confess that it is a disappointment to hear the hon. and learned Member for Lincoln (Mr. Taverne), whom I have come to regard as a freebooting libertarian Social Democrat clothed in attractive sheep's clothing, reveal that underneath that sheep's clothing there lurk the ineradicable characteristics of the austere Financial Secretary that he once was. At least my hon. Friends do not carry that occupational disease with them when they come into opposition.

On this matter of the disability allowance, the blind have already been recognised as being in a special category who should get special help from the tax system. The fact that we do not extend this special help to the disabled beyond merely the blind is a measure of the out-of-dateness and the reactionary attitude of the Treasury to the realities of disablement.

It is admittedly only since 1971, as my hon. Friend the Member for Eastleigh (Mr. Price) pointed out, that we have had the Amelia Harris Report, and this excuses the Committee and the Treasury for not knowing more about disablement. The sentimental appeal of the blind as a category of disablement must be allowed to go much wider than simply blindness and must embrace that vast army of the disabled of various categories whom Amelia Harris uncovered in her survey.

I must remind the Committee that we know that there are now 3 million men and women over 16 living at home who have some measure of physical or mental impairment, 1,500,000 of them seriously handicapped. The crucial group in this army of disabled are those who, we understand from the figures, have no sort of State income at all. I understand that of the 3 million handicapped whom Amelia Harris uncovered, one-third have no sort of State income at all. They can be disabled housewives who, because they do not go out to work, are unable to contribute to the State insurance scheme and, therefore, get no State insurance benefit, or they can be people so seriously handicapped from birth that they have not been able to work at all and, therefore, have not contributed to any State scheme and get no State income. They could be people just above the supplementary benefit level living on investment income, whose savings are depreciating rapidly as a result of the state of the Stock Market.

One feature of this figure of 1 million which I hope the Treasury Minister will bear in mind is that those people, who get no State help, are peculiarly exposed as a result of the special aspects of their disability. They all have exceptional expenses. Typical special expenses are extra heating, extra dietary expenses because they often need special foods, extra clothing expenses because their clothes often wear out more rapidly, and extra bedding expenses. For many of these people who are housebound—and, indeed, many are confined to their beds—a television or telephone, which might be considered a luxury for many people, is an article of quite a different character.

9.45 p.m.

It is into the midst of this army of the halt, the blind, the lame and, in many cases, the relatively poor that the Treasury Ministers have lobbed, like Arab guerillas, quite indiscriminately a fiscal grenade, to burst and injure indiscriminately—right across the spectrum of this army. It is really quite grotesque to think that if those who are disabled and have extra and special expenses and needs, but have no State income or State help because they are unable to contribute to a State scheme and have to live on their investment income, manage to get an investment income of £1,500 a year, well below average earnings if they were earning, they will find the Chancellor has this year put up their tax bill from £271 to £338 for a single person, a net tax increase of £67. With these special expenses, living on unearned income and well below average earnings, their tax bill would go up. As a result of this indiscriminate tax grenade, the tax bill of a married couple with only unearned income getting £1,500 a year would go up £42.

What kind of discriminating Budget is this, designed to put a burden on those with the broadest shoulders, that brings forward a relatively huge increase in direct personal taxation for those who, because they are too disabled to qualify for national insurance benefit, have to live on their investment income and happen to have a modest investment income of £1,500 a year. It is a grotesque travesty of everything that is to he understood by social justice and fairness, and the Committee should unhesitatingly accept this amendment.

I want to try to concentrate the mind of the Treasury Minister who is to reply to this on one question of logic involved in this amendment. I wish he would tell us, to start with, why it is customary for the Treasury to allow special concessions to the aged in respect of income tax. It cannot be unless they are very old, infirm or sick. It cannot be because they have extra expenses. It is because over the age of 65 and for some years after that a retired person is quite capable of looking after himself or herself. It can only be presumably because they are deemed not to be working because they have reached the technical retirement age.

The point is that many of them go on working and are able to earn an income and at the same time get relief in respect of income tax on their investment income. If it is because they are deemed not to be able to work then, as my hon. Friend the Member for Croydon, South (Mr. Clark) says, the disabled have a much stronger case because they literally cannot work. They would not have been awarded a capital sum in compensation if they had been able to work. Indeed, the capital sum they are awarded is calculated in proportion to their ability to work. They are given a large sum because they cannot work at all or a smaller sum because they cannot work so much. But if the aged are given a relief because they are deemed not to be able to earn so much in work, the disabled must surely be entitled to the same relief or, if anything, larger relief.

I cannot see the logic of giving to the one and not to the other. That is the only point I wish to make but I very much hope the Minister will direct his attention to it. The logic of making a discrmination here seems most peculiar. It may well be that some disabled people have heavier expenses than elderly persons over the age of 65. Indeed, their expenses may be considerably heavier. But on the logic of the matter there seems to be no differentiation between the two.

These debates on the Finance Bill take place every year and are among the most harrowing that we submit ourselves to in Committee of the whole House. They are also distinguished by the sincerity and eloquence of the hon. Members who speak in them. I pay tribute to those Conservative Members who have spoken on this group of amendments because I know perfectly well that each and every one of them would have, and has had, no hesitation whatever in pressing exactly the same points on his own Front Bench when the Conservatives were in Government. I hope that the hon. Member for Barkston Ash (Mr. Alison) does not think that all of us who become Treasury Ministers automatically become the most reactionary members of our parties. He used the word "reactionary" more than once. I do not suggest that our predecessors in the Treasury were the most reactionary Members of the Conservative Party—far from it.

There are extremely powerful reasons why this proposal cannot be accepted. Indeed, there have to be powerful reasons, because the arguments in favour of reliefs of this sort are themselves so powerful. If they were not, generations of Treasury Ministers would cheerfully and willingly have given way on them.

The Financial Secretary made the valid point that, irrespective of which Government were in power, some of us have been pressing our respective Front Benches to give some relief to the disabled. His analogy goes wrong, in that when my hon. Friends and I were pressing our Front Bench we were pressing for extra help for the disabled. This time we are asking only that the Government, for goodness sake, do not take something away from them.

If the hon. Member for Croydon, South (Mr. Clark) had been prepared to be a little patient he would have heard me address myself precisely to his point. I undertake to come back to it in a moment.

This is not a party point, as the hon. Member for Eastleigh (Mr. Price) recognised. Surely no one could have less wish to declare an interest on a subject like this than he, and he has the sympathy of the whole Committee. Why on earth is it that generation after generation of Treasury Ministers have found it necessary to stand at the Dispatch Box and say "No" to a case which engages the sympathy of every hon. Member? Let us be clear precisely what we are talking about. This is not a question of sympathy—or lack of it— for the disabled or the blind, but a question of how best our help can be effective.

Perhaps I may address myself to the question asked by the hon. Member for Stratford-on-Avon (Mr. Maude). The problem is that it is easy to identify the old as a group. It is relatively easy to identify the blind as a group. But it has been shown to be almost impossibly difficult to identify the handicapped as a group and to distinguish between degrees of physical handicap. This is the essential administrative problem involved, and I ask the hon. Gentleman to accept that.

Surely that argument is shot from under the hon. Gentleman's feet by the Chronically Sick and Disabled Persons Act. More and more local authorities are discovering exactly where their disabled are, and we hope that the Secretary of State for Social Services will take action on this point in October, when the Treasury should be ready.

The hon. Member for Lancaster (Mrs. Kellett-Bowman) shows the same understandable impatience as does the hon. Member for Croydon, South (Mr. Clark), and I shall come to her point just as I come now to that made by the hon. Gentleman.

It follows, unfortunately and inescapably, that if it is not possible to identify and distinguish the body of disabled from the rest of the body corporate of taxpayers, when the general level of taxation is raised, taxes on the disabled, they being part of the general body of taxpayers, are also raised. This is an unfortunate and inevitable consequence of our not being able properly to distinguish one group from another. I assure the hon. Member for Croydon, South that I have looked into this matter myself. I looked at it very closely again after he spoke to me outside this Chamber earlier in the week. I had every wish to meet this point if it was at all possible. I assure the hon. Gentleman that I do not stand here with a light heart to tell him that I am not able to accept the amendment.

The difficulty, as I am sure the hon. Member for Barkston Ash will know with his great expertise in these matters, is that there are many different definitions of "disablement" in our legislation. There are appropriate definitions for different purposes. Here I come to the matter raised by the hon. Member for Lancaster. I shall not detain the Committee by repeating what is to be found in the Disabled Persons Employment Act and the National Assistance Act, but the Chronically Sick and Disabled Persons Act 1970 lays on local authorities a general duty to identify the disabled. There is at the moment no requirement upon them to set up any register.

The performance of local authorities in this respect is extremely patchy. At the moment, it is very much a matter of chance whether a disabled person happens to be on a register in one area or on that in another. I accept that the situation could change if a cash nexus were involved and it became economically in the interests of a disabled person immediately to ensure that for tax purposes he was on the register of a local authority. I see that I have anticipated what was in the minds of certain hon. Members.

Are not we making heavy weather of registration? If a person is blind, he has to get someone to fill in his income tax form. It says on the form that anyone who is blind has to obtain the appropriate certificate from his local authority. Why cannot there be a similar provision for the disabled, making precisely the same requirement? In that way, anyone who is not registered will see that from the tax point of view he will gain some advantage, and he will quickly get himself registered.

I was addressing myself to the point of the hon. Member for Lancaster, the question of whether or not one were on a register. At the moment, the local authority registers would be of no help to us.

The next problem that has troubled all Treasury Ministers is that it is very difficult to know where one draws the line—

It being Ten o'clock The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Committee report Progress.

Business of the House

That the Contingencies Fund Bill may be proceeded with at this day's Sitting, though opposed, until any hour.—[ Mr. James Hamilton. ]

Finance Bill

Again considered in Committee.

Question again proposed, That the amendment be made.

We come to the more fundamental problems of identifying the degree of handicap that shall qualify for tax benefits of this sort. It is impossible to know where to draw the line. I think I shall carry the former Financial Secretary, the hon. Member for Worthing (Mr. Higgins) with me on this matter, which has defeated a series of Treasury Ministers in the past.

For all these reasons—

This is an artificial problem, particularly in the light of the philosophy that the Labour Party has adopted. For example, with bread subsidies, the policy and philosophy has been to ensure that one helps those most in need, even if it is of indiscriminate benefit to those less in need. All we are applying for in the philosophical matter of help for the disabled is to make certain that we help the most disabled, even if the less disabled get some of the benefit. All that one has to do to be registered under the Chronically Sick and Disabled Persons Act is to show oneself disabled.

I am grateful to the hon. Gentleman because he has brought me to my next point, how to help the most needy. However we help them, there will always be problems of definition of degree of handicap, as no one knows better than the hon. Member himself. In our view, as the hon. and learned Member for Lincoln (Mr. Taverne) said, it is better to try to solve these problems through the social security system.

I grant that we are not spending enough on these matters. These people have to be a burden on the conscience of us all. The hon. Member for Barkston Ash (Mr. Alison) talked about the problems of people without telephones or television sets. We are all made fully aware in our surgeries of the problems that face the disabled through lack of communication with their friends and families and with the outside world.

The hon. Gentleman said that there were 3 million disabled people of whom a third had no State income. It is that third that we have to help most, those with no outside help. I am absolutely persuaded—I do not seek to rest on the problem of identification—that even if we could construct a clear and logical method of identifying degrees of handicap and the degree of help which we would wish to give to each degree of handicap, which I do not believe is possible, the best way to handle this matter would be not to give relief to those fortunate enough to have investment income of this sort but to give it to those who are even more unfortunate and need assistance through the social security system.

Surely this is a most extraordinary attitude to adopt. The hon. Gentleman is saying that he is interested in giving more money to those least able to support themselves, presumably through social service benefits. But is there any reason for taking away more money from people who have been awarded what was at the time considered to be proper compensation for the loss of their faculties, recognising that it is now in any case inadequate compensation because of inflation?

I said that the problem was whether or not we can construct a logical system for identifying the handicapped and the degrees of handicap. I have already said that I do not believe that this is possible. I accept that if it were possible there might be differences between the two sides of the Committee as to the best way to help these people. I appreciate that hon. Members on the Opposition side may prefer to give help through the fiscal system while those on this side may prefer to do so through the social security system, but before any decision could be made to give help we would be faced with the problem, which has always defeated Treasury Ministers from each side of the House, of how on earth we can identify the disabled as a group and then distinguish between degrees of physical handicap.

This brings me to the question of the blind. As hon. Members know it is much easier to identify the blind than the handicapped—

If a disabled person can show that he has received a payment of money because of his disablement and that income he received is interest on that disablement payment, surely that establishes that he is a disabled person. Will the hon. Gentleman undertake to look at this?

I certainly undertake to look at any suggestions—[HON. MEMBERS: "Oh".] Of course I do. I under taken to look at any suggestion made for the relief of the handicapped. I give the hon. Gentleman that assurance, but I am sure that he will understand that I am not giving him any commitment. I am not able to give him a commitment. But any suggestion made in the Committee to help the handicapped—if it is a practical suggestion which will give benefit where most needed—will be looked at sympathetically.

It is generally agreed that the blind fall into a different category from the disabled, because it is so easy to identify the blind. I endorse what the hon. and learned Member for Lincoln said in this connection. There are many categories of disablement, such as those who are wholly deaf and dumb, and those with other afflictions, where I think relief should come more through the social security system than through fiscal reliefs of the sort we are debating. I am absolutely sure that help should be concentrated through the social services.

I turn to Amendment No. 11, which deals with the problems of widows who have a child or children. I think the hon. Member for Norfolk, South (Mr. MacGregor) was the only hon. Member who referred to this question. The problem here is that the amendment would do nothing for other single-parent families, and since taking office we have already done a good deal for the widow as such. All these situations have to be looked at in the round. It is not just a question of the tax system. We have to look at the social security system as well.

The amendment concentrates on widows because we understood that the Government were to deal with divorced or separated wives in single-parent families.

There are other categories of single-parent family which do not involve widows or divorced or separated wives. The problem is wider than that. The plight of widows left to bring up a family on their own has the sympathy of the whole House. They get an additional personal allowance already. In addition, they have increases forthcoming, both as widows and as widowed mothers, which will be the largest ever made within the national insurance system in both real terms and monetary terms. As my right hon. Friend the Secretary of State for Social Services has made clear, the Government have given, are giving and will continue to give the highest priority to long-term social security beneficiaries, who include pensioners, the chronic sick and the widows.

I do not enjoy having to advise my hon. Friends to resist these amendments. But I feel sure that my right hon. Friends the Chancellor of the Exchequer and the Secretary of State for Social Services have their priorities right. As a Government, as a party and as a country we would like to do more, and when the time comes for us to be able to do more it is better to do it through the social security system than through the tax system.

We have had the sort of debate which, as the Committee appreciates, is always difficult for a Treasury Minister to reply to. But I am in some difficulty because of the way in which the Financial Secretary's reply seemed to swing back and forth. He quoted technical difficulties on the one hand and gave undertakings on the other, then saying that even if the Government could overcome the technical difficulties he still could not make commitments. It is essential that he should clarify the position, because nothing is more annoying in a debate of this kind than to find that someone seems to have given an undertaking which in print seems rather more nebulous than one thought and, indeed, contains very little substance.

The hon. and learned Member for Lincoln is part of the ex-Financial Secretaries trade union. I do not share his view, however, that one should resist this kind of amendment. I believe that one must look at each amendment on its merits, and the merits are not always the same. I found this to be the case on a number of occasions. I often had to resist amendments designed to give relief from value added tax to certain deserving groups. In the case of talking books for the blind, for example, I thought it right, and the Government agreed, to give relief. One cannot therefore talk about "this kind of amendment". One must look at each amendment on its merits.

As my hon. Friend the Member for Stratford-on-Avon (Mr. Maude) and others have said, the group we are concerned with here is in a similar position to that of the elderly, in that they are unable to work and are deemed to be unable to work.

Similarly, as my hon. Friend the Member for Croydon, South pointed out, these are disabled taxpayers who are dependent on investment income. The crux of the matter, therefore, becomes this: is this an appropriate case in which one should give relief through the tax system or is it, as the Financial Secretary suggests, an area in which one gives help through the social security system? It is true that in some cases one method is more appropriate than others. From time to time the House has made a decision in one way, and from time to time, in the other way.

Is it not precisely because of that approach that we are now fixed with a tax system which has so many exemptions and such a high top rate, and is so riddled with anomalies?

I do not dispute that the tax system is complex. That was one of the reasons why we hoped to introduce the tax credit scheme, a framework in which a number of problems could have been dealt with, and on which we would have legislated this year had we been in office.

The central point is, however, whether this is a particular case in which relief should be given by the kind of amendment that we have moved or through the social security system. As my hon. Friends have pointed out, this group of people would not come within the scope of the social security system. They are living on investment income—frequently a capital sum awarded because of their disability.

The Financial Secretary was not very clear about how he thought that this deserving group could be helped through the social security system rather than through our amendment—which we believe ought to be accepted by the Government. I am surprised that the Government have not accepted it. We have talked earlier this evening of this or that particular group bearing the problem of the economic crisis and the burden being shared around. But surely this is not a group upon whom the burden ought to fall.

That being so, should like to give the Financial Secretary an opportunity to clarify his position. What we want is not the assurance that he has given so far, which was certainly not sufficient given the way in which it seemed to be the case that if he could have solved all the problems he still would not have done it. Nevertheless, I give him the opportunity to say clearly that he will undertake to look again at the amendment and seek to find ways around the technical problems, if such they be, so that an amendment can be tabled by the Goverment on Report which will specifically give help to this group through the tax system. It is only through the tax system that that can be done.

If the hon. Gentleman is prepared to rise and say quite simply, "Yes, I accept what has been said a moment ago", my hon. Friends would probably be prepared to take that assurance and would look forward to what the Financial Secretary said on Report. But if the hon. Gentleman is not prepared to do that, I must advise my hon. Friends to vote in favour of the amendment.

I will always respond to an appeal from the hon. Member for Worthing, as he is well aware. Of course I am prepared to look again at this proposal, as I have looked at it already. I shall look at it as thoroughly and as sympathetically as possible. But I have made the position quite clear that at present it is my feeling that the best way of handling this problem is through the social security system. [HON. MEMBERS: "Oh!"].

I have given the undertaking to the hon. Member for Gillingham (Mr. Burden) that I will look at the point that he raised. I cannot say more. Obviously, it would be quite wrong, as the former Financial Secretary will understand, to give an undertaking on a detailed point without having studied all its implications. I am certainly prepared to look at the matter again.

The former Financial Secretary knows perfectly well the difficulties involved in these matters. He and his colleagues, time after time, had to resist similar amendments at the Committee stage and Report stage of previous Finance Bills. I have no intention of quoting at him what he had to say then, any more than I hope he will quote at me what others said when they were in Opposition. He is well aware of the difficulties in this situation. I give him the undertaking that we shall look at the matter again, but I can give him no undertaking beyond that concerning the Report stage.

I am sorry to persist, but the Committee will appreciate that the hon. Gentleman has not quite responded in the way I suggested. We must be clear that he is prepared to look at the matter in the context of the tax system, because it is only in that context that the point can be met. Do we have that undertaking or not?

I am not clear precisely—[HON. MEMBERS: "Oh!"]. This is a debate that we are trying to conduct at a reasonably serious and high level. The hon. Gentleman talks about looking at the matter in the context of the tax system. If he includes the benefit system, which is the counterpart of the tax system, I of course give him that assurance. But I am not prepared to look at it solely with respect to taxes without looking at the benefit side of the fiscal system at the same time.

We want to be clear about this matter. Is the Financial Secretary saying that if the amendment were to be tabled again on Report he would then give us, on the points we are raising, the results of his further consideration? Is he quite specific about that? We understand that there is no commitment to say "Yes", but we want to be quite clear that, whatever he may think about some aspects of the problem of disabled people being better dealt with in the benefit system, there are other aspects which we are raising which can be dealt with only through the tax system. If we have that understanding, we might be clear that the matter can be left until Report to decide what to do.

If the right hon. Gentleman asks me whether, if the amendment is tabled again on Report, he will receive clear and unambiguous answers to the questions he has raised, I have no difficulty whatever in giving him the answer "Yes".

On a point of order, Mr. Thomas. Is it procedurally in order to have another debate on Report? I ask only because I do not want to find that because of a technicality an amendment similar to the one before us cannot be moved.

It is quite in order, and it has often been the case that a debate on Report has mirrored a debate on Committee.

Question put and negatived.

I beg to move Amendment No. 12, in page 4, line 17, leave out '£500' and insert '£1,000'.

This is an amendment which we have already discussed in substance regarding the raising of the limit of £2,000. However, it relates specifically to the old rate. It would raise the limit at which at present the Government propose to set at £1,500 to £2·000.

Order. Will hon. Members please leave the Chamber in silence. This noise is quite unfair to other hon. Members.

I have already rehearsed the argument in favour of raising the limit and I have referred to the importance of saving and savings limits. We believe that there is a case for restoring the limit to the level of £2,000 which was fixed by my right hon. Friend the Member for Altrincham and Sale (Mr. Barber).

We have already pointed out that the capital sum that is necessary to produce this kind of income is not large. It is the kind of figure on which those who have saved and invested during their working life have retired. It might reasonably be regarded as an amount that does not justify being penalised by the tax system. That being so, we emphasise the fact that many of the group to which I have referred have suffered more than anyone as a result of inflation. Moreover, they have suffered from dividend restraint. which has reduced their income.

On all these grounds we think that it is right and proper that we should argue in favour of restoring the limit to £2,000. I hope that the amendment will meet with the Government's approval.

As I said when we were discussing Amendment No. 7, there are degrees of attractiveness in the amendments attacking the investment income surcharge and the reduction in the threshold. This amendment is of much less appeal than Amendment No. 7. We are sympathetic to the claims of the elderly and the claims of those who have worked throughout their working lives to provide for their retirement. They have been recognised in my right hon. Friend's proposals this year in that their starting point for the 1974–75 investment income surcharge is half as high again as for other taxpayers. The threshold of £1,500 represents at current levels of interest an amount of capital that is way above that which most people manage to accumulate in their working lives.

In moving the Second Reading of the Bill, the Chancellor said that he had considered carefully whether the threshold for the elderly should be left at the 1973–74 level of £2,000. However, on analysis, he discovered that more than two-thirds of those who would have benefited would have had incomes of over £3,000 and nearly half would have had incomes over £5,000. On that occasion he said that he could not justify such reliefs for the better-off in present circumstances.

On those grounds I resist the amendment and invite my hon. and right hon. Friends to vote against it.

10.30 p.m.

I found it difficult to follow the Financial Secretary when he said that the amendment was even less attractive than the previous amendment, No. 7. The argument put forward on Amendment No. 7 was that even though it was relatively—

I am afraid I did say that, but it was a slip of the tongue. I meant that it was less attractive than the amendment which dealt with the handicapped and the blind.

I withdraw what I said. I find it difficult to understand how anyone can regard the amounts of money involved in the amendment as constituting the relatively better-off. Of all the things the Chancellor has done in his Budget this is the most unfair. Is it suggested that a person with £1,500 investment income is rich? That income could come from £7,000 or £8,000 savings in a bank. Is it expected that elderly persons should run down their savings until they have nothing left? These people have already suffered dividend restraints and may have suffered more than other sections of the community from inflation. Many of my constituents who have received lump sums instead of pensions are affected.

The Financial Secretary's argument that two-thirds of these people have incomes of over £3,000 has a strong whiff of codfish. So what? We are not suggesting that the threshold should be adjusted up to £3,000. All we are suggesting is that it should remain at £2,000. This is a case for levelling up, not for levelling down.

I gather from the general atmosphere of the Committee that there is a rush to get on with the vote, but it would be a great mistake for us to let this issue pass without at least one or two more comments being made. This is a matter upon which all hon. Members receive a great many complaints. We should be failing in our duty tonight if we were to rush away from this issue without spending a little more time on it.

In his speech in Blackpool last year the Chancellor spoke with relish of extracting howls of anguish from the very rich. I reckon that I see as many of my constituents as any hon. Member. Since the election I have held six surgeries a month, and the only people from whom I have heard howls of anguish are the elderly and retired people about the situation in which they find themselves. The complaints concern not only taxation but rates, electricity charges and other things which make life difficult, for which the Chancellor is not personally responsible—or indeed the present Government. Some are the fault of the Government, but some we share responsibility for.

We have frequently been told by Government spokesmen that it is not the tax system that is at fault but inflation, or "It is your fault, not our fault." It is not the kind of argument that those who come to see me want to hear. They do not want to hear petty arguments about whose fault it is. They only know that for the first time for many years they are genuinely wondering how they are going to meet their bills.

By this Budget, wherever the fault lies, wherever the problems originated, the Chancellor of the Exchequer, by acting on a matter which is within his power, has deliberately chosen to make the problems of such people more difficult. It is a matter on which it is proper that the Committee should vote.

I hope my Front Bench will forgive me for taking up a few more minutes to make these points. I feel strongly about this matter because every week I see the worries and anxieties of the people who are being affected by the Chancellor's actions. I hope that the Opposition Front Bench will press this case.

It is only right that I should reply to those who have made contributions to the debate, but I shall not detain the Committee long.

Of course my right hon. Friend is not unaware of or unsympathetic to the problems of the elderly.

My right hon. Friend has shown it already, with my right hon. Friend the Secretary of State for Social Services, by giving the biggest increase in national insurance pensions that the country has ever had. That is of far greater benefit to most people than making concessions of the sort called for in the amendment.

The hon. Member for Braintree (Mr. Newton) talked about his constituents' problems, told to him in his surgery. As my right hon. Friend has made clear, two-thirds of those who would benefit from these concessions would have incomes of over £3,000 and half of them would have incomes of over £5,000. Of course they do not like their tax bills going up. No one does. But the vast majority of the constituents of my right hon. and hon. Friends would be only too happy to have the problems of people with £5,000 a year investment income. That is where we rest our case, and I invite my right hon. and hon. Friends to reject the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 155, Noes 172.

Division No. 26.]

AYES

[10.38 p.m.

Adley, Robert

Hall, Sir John

Pattie, Geoffrey

Alison, Michael (Barkston Ash)

Hamilton, Michael (Salisbury)

Percival, Ian

Allason, James (Hemel Hempstead)

Harvie Anderson, Rt. Hn. Miss

Pink, R. Bonner

Archer, Jeffrey (Louth)

Havers, Sir Michael

Price, David (Eastleigh)

Atkins, Rt. Hn. Humphrey(Spelthorne)

Hawkins, Paul

Rathbone, Tim

Baker, Kenneth

Hayhoe, Barney

Rees, Peter (Dover & Deal)

Banks, Robert

Henderson, Douglas (Ab'rd'nsh're, E)

Reid, George

Barber, Rt. Hn. Anthony

Higgins, Terence

Renton, Rt. Hn. SirDavid(H't'gd'ns're)

Beith, A. J.

Hill, James A.

Renton, R. T. (Mid-Sussex)

Blaker, Peter

Hooson, Emlyn

Rhys Williams, Sir Brandon

Boyson, Dr. Rhodes (Brent, N.)

Hordern, Peter

Rippon, Rt. Hn. Geoffrey

Bray, Ronald

Howe, Rt.Hn. Sir Geoffrey(Surrey, E.)

Roberts, Wyn (Conway)

Brittan, Leon

Howell, Ralph (Norfolk, North)

Rossi, Hugh (Hornsey)

Bruce-Gardyne, J.

Hurd, Douglas

Royle, Sir Anthony

Buck, Antony

Irvine, Bryant Godman (Rye)

Sainsbury, Tim

Budgen, Nick

Jopling, Michael

Scott-Hopkins, James

Bulmer, Esmond

Joseph, Rt. Hn. Sir Keith

Shaw Giles (Pudsey)

Butler, Adam (Bosworth)

Kaberry, Sir Donald

Shaw, Michael (Scarborough)

Carlisle, Mark

Kilfedder, James A.

Shelton, William (L'mb'th, Streath'm)

Carr, Rt. Hn. Robert

King, Evelyn (Dorset, S.)

Silvester, Fred

Chalker, Mrs. Lynda

King, Tom (Bridgwater)

Sims, Roger

Chataway, Rt. Hn. Christopher

Lamont, Norman

Skeet, T. H. H.

Clark, A. K. M. (Plymouth, Sutton)

Langford-Holt, Sir John

Spicer, Jim (Dorset, W.)

Clark, William (Croydon, S.)

Lawrence, Ivan

Stainton, Keith

Clarke, Kenneth (Rushcliffe)

Lawson, Nigel (Blaby)

Steel, David

Clegg, Walter

Le Marchant, Spencer

Stewart, Ian (Hitchin)

Cockcroft, John

Lester, Jim (Beeston)

Stradling Thomas, J.

Cooke, Robert (Bristol, W.)

Luce, Richard

Tebbit, Norman

Cope, John

McCrindle, R. A.

Temple-Morris, Peter

Cormack, Patrick

Macfarlane, Neil

Thatcher, Rt. Hn. Mrs. Margaret

Costain, A. P.

MacGregor, John

Thomas, Rt. Hn. P. (B'net, H'dn S.)

Critchley, Julian

Macmillan, Rt. Hn. M. (Farnham)

Trotter, Neville

Crouch, David

McNair-Wilson, Michael (Newbury)

Tugendhat, Christopher

Davies, Rt. Hn. John (Knutsford)

Marshall, Michael (Arundel)

Tyler, Paul

d'Avigdor-Goldsmid, Maj.-Gen. James

Mather, Carol

Vaughan, Dr. Gerard

Dean, Paul (Somerset, N.)

Maude, Angus

Viggers, Peter

Dykes, Hugh

Maxwell-Hyslop, R. J.

Waddington, David

Eden, Rt. Hn. Sir John

Meyer, Sir Anthony

Wainwright, Richard (Colne Valley)

Edwards, Nicholas (Pembroke)

Miller, Hal (B'grove & R'ditch)

Walder, David (Clitheroe)

Fenner, Mrs. Peggy

Mills, Peter

Walker-Smith, Rt. Hn. Sir Derek

Fisher, Sir Nigel

Mitchell, David (Basingstoke)

Wall, Patrick

Fowler, Norman (Sutton Coldfield)

Moate, Roger

Watt, Hamish

Fraser, Rt. Hn. Hugh (St'fford & Stone)

Morgan, Geraint

Weatherill, Bernard

Fry, Peter

Morrison, Charles (Devizes)

Whitelaw, Rt. Hn. William

Gardiner, George (Reigate&Banstead)

Morrison, Peter (City of Chester)

Wiggin, Jerry

Glyn, Dr. Alan

Neave, Airey

Wilson, Gordon (Dundee, E.)

Goodhart, Philip

Neubert, Michael

Winterton, Nicholas

Gow, Ian (Eastbourne)

Newton, Tony (Braintree)

Worsley, Sir Marcus

Grant, Anthony (Harrow, C.)

Normanton, Tom

Young Sir George (Ealing, Acton)

Grieve, Percy

Onslow, Cranley

Griffiths, Eldon (Bury St. Edmunds)

Page, Rt. Hn. Graham (Crosby)

TELLERS FOR THE AYES:

Grimond, Rt. Hn. J.

Page, John (Harrow, W.)

Mr. Marcus Fox and

Grylls, Michael

Pardoe, John

Mr. A. G. F. Hall-Davis

NOES

Archer, Peter (Warley, West)

Carter, Ray

Dunnett, Jack

Armstrong, Ernest

Carter-Jones, Lewis

Eadie, Alex

Ashton, Joe

Clemitson, Ivor

Edge, Geoff

Atkins, Ronald (Preston, N.)

Cocks, Michael

Ellis, John (Brigg & Scunthorpe)

Atkinson, Norman

Concannon, J. D.

Ellis, Tom (Wrexham)

Bagier, Gordon, A. T.

Cook, Robert F. (Edinburgh, C.)

English, Michael

Barnett, Guy (Greenwich)

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

Evans, Fred (Caerphilly)

Barnett, Joel (Heywood & Royton)

Crosland, Rt. Hn. Anthony

Evans, Ioan (Aberdare)

Bates, Alf

Cryer, G. R.

Evans, John (Newton)

Baxter, William

Cunningham, G.(Isl'ngt'n, S&F'sb'ry)

Faulds, Andrew

Benn, Rt. Hn. Anthony Wedgwood

Cunningham, Dr.JohnA. (Whiteh'v'n)

Fernyhough, Rt. Hn. E.

Bennett, Andrew F. (Stockport, N.)

Dalyell, Tam

Flannery, Martin

Bidwell, Sydney

Davidson, Arthur

Fletcher, Raymond (Ilkeston)

Bishop, E. S.

Davies, Bryan (Enfield, N.)

Fletcher, Ted (Darlington)

Blenkinsop, Arthur

Davies, Denzil (Llanelli)

Fowler, Gerry (The Wrekin)

Boardman, H. (Leigh)

Davis, Clinton (Hackney, C.)

Freeson, Reginald

Booth, Albert

Dean, Joseph (Leeds, W.)

Garrett, John (Norwich, S.)

Boothroyd, Miss Betty

de Freitas, Rt. Hn. Sir Geoffrey

Gilbert, Dr. John

Boyden, James (Bishop Auckland)

Delargy, Hugh

Golding, John

Brown, Ronald (H'kney, S. & Sh'ditch)

Dell, Rt. Hn. Edmund

Griffiths, Eddie (Sheffield, Brightside)

Buchan, Norman

Dormand, J. D.

Hamilton, James (Bothwell)

Callaghan, Jim (M'dd'ton & Pr'wich)

Duffy, A. E. P.

Hamling, William

Campbell, Ian

Dunn, James A.

Hardy, Peter

Harper, Joseph

MacFarquhar, Roderick

Silkin, Rt. Hn. John (L'sham, D'ford)

Harrison, Walter (Wakefield)

McMillan, Tom (Glasgow, C.)

Sillars, James

Hart, Rt. Hn. Judith

McNamara, Kevin

Silverman, Julius

Hatton, Frank

Madden, M. O. F.

Skinner, Dennis

Healey, Rt. Hn. Denis

Mallalieu, J. P. W.

Snape, Peter

Heffer, Eric S.

Marks, Kenneth

Spriggs, Leslie

Horam, John

Mayhew, Christopher (G'wh, W'wch, E)

Stallard, A. W.

Howell, Denis (B'ham, Small Heath)

Mellish, Rt. Hn. Robert

Stoddart, David (Swindon)

Huckfield, Leslie

Mendelson, John

Stott, Roger

Hughes, Rt. Hn. Cledwyn (Anglesey)

Millan, Bruce

Strang, Gavin

Hughes, Mark (Durham)

Miller, Dr. M. S. (E. Kilbride)

Taverne, Dick

Hunter, Adam

Moonman, Eric

Thorne, Stan (Preston, S.)

Irvine, Rt. Hn. Sir A. (L'p'l, EdgeHill)

Morris, Alfred (Wythenshawe)

Tierney, Sydney

Irving, Rt. Hn. Sydney (Dartford)

Morris, Charles R. (Openshaw)

Tinn, James

Jackson, Colin

Newens, Stanley (Harlow)

Tomlinson, John

John, Brynmor

O'Halloran, Michael

Urwin, T. W.

Johnson, James(K'ston upon Hull, W)

Orbach, Maurice

Varley, Rt. Hn. Eric G.

Jones, Dan (Burnley)

Ovenden, John

Wainwright, Edwin (Dearne Valley)

Jones, Gwynoro (Carmarthen)

Owen, Dr. David

Walden, Brian (B'm'ham, Ladywood)

Jones, Alec (Rhondda)

Palmer, Arthur

Walker, Harold (Doncaster)

Kaufman, Gerald

Park, George (Coventry, N.E.)

Walker, Terry (Kingswood)

Kerr, Russell

Parker, John (Dagenham)

Wellbeloved, James

Kilroy-Silk, Robert

Pendry, Tom

White, James

Lambie, David

Perry, Ernest G.

Williams, Alan (Swansea, W.)

Lamond, James

Prescott, John

Williams, Alan Lee (Hvrng, Hchurch)

Latham, Arthur(CityofW'minsterP'ton)

Price, Christopher (Lewisham, W.)

Williams, W. T. (Warrington)

Lawson, George (Motherwell &Wishaw)

Rees, Rt. Hn. Merlyn (Leeds, S.)

Wilson. Rt. Hn. Harold (Huyton)

Lee, John

Richardson, Miss Jo

Woodall, Alec

Lestor, Miss Joan (Eton & Slough)

Roberts, Gwilym (Cannock)

Woof, Robert

Lewis, Ron (Carlisle)

Rodgers, George (Chorley)

Wrigglesworth, Ian

Lomas, Kenneth

Roper, John

Young, David (Bolton, E.)

Loyden, Eddie

Rose, Paul B.

Lyon, Alexander W. (York)

Sandelson, Neville

TELLERS FOR THE NOES:

Lyons, Edward (Bradford, W.)

Selby, Harry

Mr. Thomas Cox and

Mabon, Dr. J. Dickson

Short, Rt. Hn. E. (N'ctle-u-Tyne)

Mr. Laurie Pavitt

McElhone, Frank

Short, Mrs. Renée (W'hamp'n, N.E.)

Question accordingly negatived.

I beg to move Amendment No. 13, in page 4, line 17, at end insert:

I do not think this is a very expensive amendment. I hope the Government will agree that what is and what is not expensive is subjective. The Bill has discriminated unjustly against elderly persons living on investment income of between £1,500 and £2,000 a year. It has discriminated against others, too, but against this group in particular. Our amendent involves marginal relief up to £2,500 to smooth over the transition.

I shall spell out in as simple arithmetic as I can the effects of the amendment. There is no difference between us and the Government on what happens to investment income between nil and £1,499 a year. In other words, there is no surcharge. Then between £1,500 and £2,000 the Government propose 10 per cent. on any excess over £1,500. We propose no surcharge in that band. The Government are proposing for those with a total investment income between £2,001 and £2,500 a 10 per cent. charge on £500, plus 15 per cent. on any excess over £2,000. We propose 25 per cent. on the excess over £2,000.

For those people with an investment income of over £2,500 the Government are proposing 10 per cent. on £500 plus 15 per cent. on the excess over £2,000, and we are proposing the same. In terms of the actual amount of tax that that would involve, let me give an example of a person who has only investment income. Let us ignore for the purpose of our calculations any earned income and any income which may be set against tax-free allowances. The Government propose that on an investment income of £2,000 a single person would pay £710 in tax. Our proposal would mean that that person would pay £660, a saving of £50. At £2,250—this is where I say that the relief is marginal and that we are closing the gap—the Government are proposing tax of £830 and we are proposing a figure of £807·50. At £2,500 the Government and ourselves come into line and we both propose a figure of £950.

A fairly typical married couple, one or both of whom were over 65, receiving a pension of £832 a year and investment income of £2,000 a year, but no other income, at the 1973–74 rates and allowances, would have a net after-tax income of £1,93490. The Bill proposes that they will have a net after-tax income of £1,904·90. Our amendment would give them a net after-tax income of £1,914·90. These are not vastly differing figures. The couple would be £20 a year better off under the 1973–74 position than under our amendment, so I do not think our proposal can be termed wildly extravagant. As the scale rises the difference narrows out.

Our point is that elderly people with incomes of between £1,500 and £2,000 a year have been unjustly treated by this Finance Bill. I believe that they have a very good case for marginal relief. It would make the shape of our tax system better, more harmonious and more socially just, and, therefore, I hope that the Government will be prepared to look carefully at this proposal. If they do not like the exact figures which I have proposed—and if, by chance, they disagree with them, which I doubt— it may be that they will come up with their own proposal to extend marginal tax relief into this area.

In the suspicious times in which we live, I ought perhaps to disclose a family interest here in that my mother, who will be 90 next year and is the widow of a doctor—I hope that that will appeal to the Financial Secretary—will be affected by the decision taken upon this amendment.

She is able to live in modestly comfortable circumstances on the provision that my father made for her. But, owing to recent changes in taxation and the current rate of inflation, she will undoubtedly have to cut back, if she can, unless the amendment or some similar provision is accepted. I think that that is too harsh a burden for someone of that kind to have to bear, even in these times. For that reason, I make a plea in support of the amendment.

I have listened with interest to the debates on the various amendments dealing with the Government's decision to reduce the threshold for the investment income surcharge. I have found myself agreeing with all the strictures from the Opposition benches about the pointlessness and the meanness of it. But successive amendments have narrowed the range of our attack and drawn attention to all groups adversely affected by the change. As we have gone on, the meanness and pointlessness of this part of the legislation and the harsh effect that it will have on some of the groups worst affected by inflation have become more and more apparent.

When he comes to reply to this debate the Financial Secretary will not be able to point to any technical reasons for resisting the distinction made between those over 65 years of age and those below 65, in the way outlined by the hon. Member for Cornwall, North (Mr. Pardoe) or as outlined when we dealt with the previous amendment.

It is a distinction which the Government have themselves made in their legislation. In reducing the tax threshold from £2,000, even they felt enough guilt about those people over ordinary retirement age to feel that they had to make a distinction. So they fell between two stools by taking away £500 of the previous relief from the over-65s and not reducing the threshold by the full £1,000 which has fallen on other savers.

That minor variation in the Government's changes will do nothing to reduce the feeling of those affected by the changes, especially the indignation of those who have made modest savings for retirement and now find this Government making this proposal. I suspect for reasons of envy which are not really thought out, and the feeling that in some way these groups are the better-off in the community who should share in the suffering which it is sought to inflict on the better-off generally. The resentment amongst these groups of people is very considerable.

The amendment deals with a section of society which has been worst hit of all by inflation. It is popular to suppose that all those over 65 have been worst hit by inflation, but that is not so. Fortunately, the conscience of society has been so pricked by the state of those on national insurance pensions that there have been successive improvements in the rate of social security benefit, so that, rightly, during the period of inflation the living standards of those people have been steadily raised. Governments of both parties compete with each other in the rate at which they try to raise, and succeed in raising, the real living standards of those people.

11.0 p.m.

The same does not apply to those just above the level at which they would be totally dependent on the social security system. The group who have made some modest contribution from saving for their old age to supplement the national insurance benefits have been hard hit by inflation and their living standards steadily reduced.

They are a group who cannot be attacked by the Financial Secretary as the better-off in society. They have made some provision for their retirement and have probably chosen their retirement home on the basis of the income they could justifiably expect from their savings. They now find that that small sum, already hit by inflation, will be further hit by this added burden of taxation. It is not surprising that such people often feel near to despair. Many certainly feel strongly that their efforts to save for retirement have turned out to be pointless.

I accept that people who express these views to Members of Parliament are better off compared to those on supplementary pensions, but the extent to which they are better off—the difference their sacrifices seem to have made to their old age—often makes their efforts during their working lives seem less worth while.

Not only do tax changes of this kind cause hardship to these people. If this sort of thing continues long enough it can cause great changes throughout society in the attitudes of those below retirement age. We are strongly discouraging thrift and making it clear that unless one has a huge sum of money to put aside it is pointless for the wage earner or modest salary earner to save during his working life in such unsophis- ticated methods as building societies and trustee savings banks.

At this late hour, on this last amendment on the subject, I hope that the Government will reconsider their attitude, particularly as such a small cost is involved. The answer to a Question on 9th April made it clear that agreeing to the previous amendment would have cost only £10 million, and this will cost less—

In some circumstances Treasury Ministers would be entitled to raise their eyebrows at such a remark, but alongside what they have done over food subsidies and other expenditure ostensibly designed to help those on low fixed incomes who are hard hit by inflation—which is, in fact, frittered away across the population—the sum involved here is very small.

My hon. Friend the Member for Cornwall, North (Mr. Pardoe), in moving the amendment, was careful to avoid any trace of partisanship or to put any party label on the proposal. We hope that it will commend itself to the Government and to all sides and minorities in the Committee.

I think I can be acquitted of any substantial constituency interest in this matter because few elderly people with moderate investment incomes choose to retire to the industrial townships of the higher Pennines. However, I have a professional interest in this subject and am fortified to find two distinguished members of my profession on the Government Front Bench listening intently to the debate.

Although this is not an egalitarian amendment in material terms, it is egalitarian if we look at the broader view in terms of the anxiety, worry, harassment and difficulties that beset elderly people in seeking to adjust to higher taxation and jet-propelled inflation. But there is also a third element to be considered. I refer to the present stagnation and the state of the stock market, including the market in Government stock, for which both Labour and Tory Governments must accept some responsibility.

When I was practising—I retired from practice before inflation became jet-propelled—my advice to people in the bracket covered by the amendment was to live on capital and tell their stockbroker to sell. But if I were practising today, in the present advanced state of medical science when people can be helped to live into the nineties, I should doubt the wisdom of advising people to dig heavily into capital—and indeed many of these people do not possess much capital value into which to dig, especially if their savings have been left with Government or local government securities. Therefore, since we are being asked to adjust not only to taxation and inflation but to the present lamentable state of practically every sector of the stock market, I think there is a strong case for considering the people who find themselves in this bracket.

I agree with the arguments which have been advanced in this debate, and indeed in the previous debate, without necessarily accepting all the detailed suggestions which have been put forward. I hope that if Treasury Ministers cannot concede the admendment, at least they will undertake to look at the arguments advanced.

I wish to mention one group of elderly people who will be badly affected by the clause. I take the point made by the Financial Secretary in the discussion about disabled people as to the technical difficulties involved in accepting the amendment. The first was the difficulty of identification. There is no difficulty in identification here. We are dealing with people over a certain age, and that age can be clearly established. The second argument is that it is better to help these people through the social security system. I wish to mention one group of people who, by definition, cannot be helped through the social security system because they are not entitled to a national insurance pension and in many cases will not be entitled to an occupational pension.

The group of people about whom I am thinking were either employed abroad or were self-employed, and for both or one of those reasons it simply was not possible for them to gain the advantages covered by the National Insurance Scheme or through occupational pensions.

I am absolutely sure that no Treasury Minister wants to put extra burdens on pensioners who are already hard hit by inflation and the erosion of their savings. These two groups in particular, those who worked abroad and those who, through no fault of their own, are not covered, will be particularly badly hit by the effects of the clause. In their case it is not through a lack of thrift or carelessness on their part. On the contrary, their thrift is being penalised because of the form that their savings have taken owing to the nature of their work and the fact that in many cases their work took place abroad.

I should like to quote to the Committee one of many letters that I have received. It summarises the position very clearly. I am not asking the Minister to respond to this matter tonight, because he will wish to consider it, but I ask him to give an undertaking that he will consider at least this group of people and, I hope, concede the point on Report.

The letter first describes the position of these people who have worked abroad: is given to the national insurance pensioner and many others who are in receipt of occupational pensions.

The second point that my correspondent makes, which really adds power to this matter, is that these people feel the full force of inflation on their savings and their investment incomes. I again quote the letter:

This does not necessarily apply to people over the age of 65, because many of the people I am talking about retired earlier. Their employment abroad was such that it was necessary for them to do so. In the category I have mentioned there are also some women who were compulsorily retired at the age of 60.

11.15 p.m.

I summarise my arguments with a quotation from The Times of 27th April. which said in a leader headed "A Fiscal Injustice": will, clearly, suffer as a result of the clause. I do not believe that that is the Government's intention. I hope that second thoughts will produce on Report a more just situation for them, which can still be fully in keeping with the principles and intentions of the Bill.

I wish I could share the optimistic view expressed by my hon. Friend the Member for Somerset, North (Mr. Dean), who said that he did not believe that any Treasury Minister would deliberately seek to harm the class of persons whom the amendment is designed to protect.

One judges ordinary men and Ministers not by fair words but by their actions. A night or two ago we had fair words from the Chancellor of the Exchequer, but his words are belied by his actions. The Government appear to have declared war upon the middle classes and upon thrift, and to be seeking to undermine the qualities of thrift, industry, enterprise and saving which alone will continue to keep this country economically on its feet. Nowhere does this war appear worse than in the clauses dealing with the savings of those over 65 years of age. I have passed to the Financial Secretary a number of letters from constituents in that class.

My hon. Friend is right in saying that there are many people who are not protected by occupational pension schemes, many people who have worked hard all their lives and served their country well, and have sought in their old age to rely on the revenues of their savings. These are the people whom the Government are hitting hardest and these are the people whom the Opposition—and I hope that we shall be supported by some Government hon. Members—will be protecting.

It is appalling that the modest income that is now represented by an income of under £2,000 should be regarded as a great income, and that the people in receipt of such an income should be treated as rich people living upon the fruits of rich investment.

Some time ago I tabled a series of Questions to the Chancellor of the Exchequer which were designed to show the effect of taxation upon investment in the United Kingdom. The answers which were given by the Financial Secretary to the Treasury were set out in HANSARD on 8th April 1974 at columns 67 and 68. The figures showed the income that was necessary nowadays to produce the equivalent income of £1,000 a year and £2,000 a year, and so on, after tax in 1939.

It appears that to receive an income equivalent to £1,000 a year after tax, given the spending power of the pound in 1939, it would be necessary to have an earned income today of £6,890 per annum or £7,993 from investment. For someone who was comfortably off and in receipt of £2,000 a year in 1939, it would be necessary for a married couple with two children to have an earned income of £17,055 a year or an income from investments of £83,386. To produce such an income would need capital of about £1 million. Those figures illustrate the effect of taxation in the United Kingdom.

The difference between the taxation of earnings and the taxation of investment income is demonstrated by the fact that it is necessary to have an earned income of £17,055 to produce the equivalent of £2,000 in 1939 terms and £83,386 from investments.

There may be rich people with incomes of that kind, but when we are subjected to the barrage of propaganda which we have suffered in recent years from people on the Left about the inequalities of wealth it is as well that we should remember those figures. We should realise that to produce an income from investment equivalent to £2,000 a year before the war it would nowadays he necessary to be a millionaire.

It is when we consider figures of the kind that we come to realise how modestly situated are people living on an income of up to £2,000 a year. In my constituency there are many retired people who are living modestly on the investment income derived from their life savings. It is disgraceful that the Government should treat people of that kind as rich. It is disgraceful that because they are called rich people by people like the Financial Secretary to the Treasury they should be treated as pariahs.

Throughout our recent debates there has been a smirk on the face of the Financial Secretary. I recollect that on the last occasion that I spoke on the Finance Bill I made the same comment. The hon. Gentleman may think that the point which we are making on behalf of retired people are funny. From his point of view perhaps that is so, but they represent a genuine tragedy for retired and old people who are seeking to live on their savings. If the Financial Secretary and the Chancellor of the Exchequer have any concern for the old, for the retired, for those living on modest savings and for the futured economy of this country they will accept the amendment.

I associate myself with the remarks of my hon. Friends. One problem is the use of the expression "unearned income", because someone who has worked hard for the whole of his life and put his savings into a planned means for his retirement cannot be regarded as living on unearned income. It is earned income it is income that has been earned and set aside for his retirement.

These are the people whose qualities of frugality and consideration we should value. These are the people whom we should encourage, yet we are doing two kinds of damage. We are damaging those who are finding themselves in increasing difficulty, and we are damaging the thoughts of those who might work towards a frugal and considerate life, because we are saying that there is no merit in frugality and consideration. Not to accept the amendment would be jealous and vindictive.

We should encourage the qualities of planning. We should try to assist those who have been hit by increases in rates, electricity charges. postal charges and telephone bills.

I have some sympathy with the amendment moved by the hon. Member for Cornwall, North (Mr. Pardoe).

It gives me great pleasure to speak shortly after hearing my right hon. and learned Friend the Member for Huntingdonshire (Sir D. Renton). I declare a sympathy with, but I do not have to declare an interest in, the financial affairs of his mother, since, although our names are the same, we are, alas, not related.

The Financial Secretary earlier this evening kept on informing us that few of his constituents were lucky enough to have the £20,000 which they need to produce an investment income of £2,000. It is worth putting on record that one does not today need £20,000 to produce an investment income of £2,000; the figure is nearer £14,000, and rather less if one invests in local authority bonds; and the way that inflation is going under this Government it will be less still in a few months' time.

The Financial Secretary dismissed the better-off with the comment that they were well able to organise their own tax affairs. As my hon. and learned Friend the Member for Solihull (Mr. Grieve) said very eloquently, we are talking not about the well off but about those who are not very well off, and in a Written Answer to my Question the Financial Secretary said on 13th May that 75,000 people have a net investment income of between £1,500 and £2,000 a year. It is those 75,000 people about whom we are talking tonight.

Because of the correspondence that I have received from my constituents, I am particularly worried about those who were in contributory pension schemes of a not very generous sort and when they retired were given a gratuity by their employer which they invested in an annuity.

I remind the Committee—and I think that one hon. Gentleman opposite got this slightly wrong earlier this evening—that if a person is self-employed, the income that he invests in an annuity comes back to him as earned income, but if someone who was employed puts money into an annuity, only that part of it that is regarded as a return of capital is tax free. The balance that comes back is treated as unearned income or, to use a phrase that is more popular, investment income.

Many people, realising that their pensions were not sufficient but having a little spare money, bought themselves an annuity, and they are now finding that this unearned income will attract a higher rate of tax thanks to the lowering of the threshold for the surtax.

As has been said, these people cannot protect themselves. There is nothing that they can do at this stage in their lives to increase their incomes, and I ask the Minister to try to give them more protection in these days of inflation.

11.30 p.m.

I do not know whether the hon. Member for Cornwall, North (Mr. Pardoe) anticipated quite how long this debate would run, or what degree of interest would be shown in it by other hon. Members on the Opposition benches. Before I refer to the hon. Member's very interesting speech I want to make a few comments on the speeches made by Conservative Members.

Once again, it is very interesting that the same defensive mechanism manifested itself as when the right hon. Member for Carshalton (Mr. Carr)—the Shadow Chancellor—was talking about unearned income. We had the hon. Member for Gosport (Mr. Viggers) and the hon. Member for Mid-Sussex (Mr. Renton) denying that it was unearned, although no hon. Member on the Government benches tonight has used the phrase "unearned income". There must be something very deep and insecure in the psyches of hon. Members on the Opposition benches for them to keep on having to deny the validity of a phrase that has not been used from the Government side tonight.

I must point out that the expression "unearned income" has been wrongly used by Labour Members for many years. The fact that it has not been used today merely reflects the lack of enthusiasm for supporting their Government which many hon. Members opposite have shown by not having attended the debates.

If the hon. Gentleman is saying that the Labour Party has at long last reformed and now fully accepts the case for saying that the right expression is not "unearned income" I shall listen with interest to what he says, and we shall group him among the reformed characters, in which case I hope that he will be able to carry all his party with him.

The correct phrase is not "savings income", either; it is "investment income". The hon. Member and I had that exchange across the Floor of the Chamber earlier. I repeat: it is interesting to note how defensive hon. Members opposite are on this point.

I want to add my congratulations to those expressed by the hon. Member for Mid-Sussex to the hon. and learned Member for Huntingdonshire (Sir D. Renton) on the long life and, I hope, the good health of his mother. I trust that the right hon. and learned Member will be able to refer to her in various contexts in the debates in Committee on successive Finance Bills for many years to come.

I took the point made by the hon. Member for Somerset, North (Mr. Dean), which he pleaded so eloquently. I am grateful to him for suggesting that we should look at the details. I should point out that most people who go abroad and make their careers there do so in the full knowledge of the economic circumstances in which they are placing themselves, and that it involves a tradeoff between the benefits of pension rights and certain other economic benefits attaching to incomes earned abroad, as he will be the first to recognise.

The first point of relevance was that the group of people to which the amendment relates can be identified. I do not seek to influence the Committee against it on the same grounds as were adduced with respect to the group of amendments dealing with the handicapped.

To some extent I accept what the hon. Member for Cornwall, North said about the need to see whether these people who are right on the margin of investment surcharge can be assisted. I take his point that the effect of the tapering provisions would be to concentrate relief on the narrow band of people nearest the investment surcharge threshold. I congratulate him on the quality of his research and the mathematical calculations that he has made. I assume that they are right; I have not been sitting here with a pocket calculator to check him. I am prepared to accept that his figures are accurate. The last thing I want to do at this time of night is to dispute matters of that sort with him. I concede that the cost of the amendment, if it were implemented, would not be substantial.

There is one point on which I take issue with the hon. Gentleman. He said that his proposals, if adopted, would lead to an improvement in the shape of the tax structure. According to my calculations, the reverse would be true. If we were to adopt this tapering relief we should end up with an unsatisfactory tax profile. In some cases investment incomes of just over £2,000 would be charged at a higher rate than investment incomes of over £2,500. "Higher rate" is the important phrase. I do not want to ob- scure matters by racing over them, but, unless the hon. Gentleman wishes me to, I will not detain the Committee by going into all the details of my calculations.

The tapering fraction would be in addition to either the basic or the higher rate tax. The effect would be that the combined marginal rate of tax for someone with an investment income between £2,000 and £2,500 which would otherwise benefit from the tapering could at the extreme in certain circumstances exceed 100 per cent. That could apply where the earned income was very high—for example, over £20,000—in that combination of circumstances. It could rise as high as 108 per cent. I am sure there would not be many cases of that sort, but I am equally sure that the hon. Gentleman would not wish to advance an amendment that could, for no matter how small a minority, have consequences as ludicrous, not to say painful, as that.

Marginal tapering provisions are extremely unpopular, and they are confusing to the elderly, in whose benefit they usually run. It could be said that there is no reason for not giving a benefit to people who do not realise that they are being benefited, but elderly people find it difficult to understand. One only had to listen closely to the hon. Gentleman's exposition, which was a model of lucidity, to know how difficult it is even for hon. Members to understand the provisions, let alone elderly taxpayers who find basic marginal age exemption relief difficult to understand. They think that they are being treated unjustly when a tapering provision means that they are temporarily on the higher rate to bring them back on to the same line of tax as people who have not had the benefit. They find it extremely difficult to understand that alternative systems of tax are open to them, and the option they take is the one that gives them the lower effective rate of tax.

I have an enormous amount of correspondence on this subject. It is not an argument against giving relief to say that people do not understand it, but when there is this sort of confusion it is preferable to give relief in such a way that people appreciate that they are being benefited.

Does the Financial Secretary think it preferable for people to pay a lower rate of tax and have difficulty in underestanding it, or to pay a higher rate of tax and find it easy to comprehend?

That is precisely the point I made. Difficulty in understanding is not necessarily an argument against giving a benefit, but it is better to give a benefit in a way that is easily comprehensible, so that the recipient does not think that he is suffering an injustice.

If the principle is accepted, the hon. Gentleman and I will be prepared to leave the fine tuning and the creation of what is described as a satisfactory tax profile to the Government.

Unfortunately, that begs the question. Once the principle is accepted, one is ineluctably involved in the confusion that is the result of any tapering.

I appreciate the sentiments which led the hon. Member for Cornwall, North to put forward the amendment. I am prepared to look at it sympathetically, but I cannot go beyond that. It would be wrong for me to give him a hint or suggestion that anything favourable to him would necessarily come from our deliberations. I will certainly look at the amendment, but my first reaction is that I can think of more suitable ways of giving concessions.

If, having looked at the matter again, the hon. Gentleman comes to the conclusion that the principle which the hon. Member for Cornwall, North (Mr. Pardoe) and others have supported is sound, just and humane, will he then table Government amendments in order to implement it?

Of course, if one were persuaded of the rightness one would always bring forward an amendment—certainly.

Amendment negatived.

I beg to move Amendment No. 16, in page 4, line 28, at end insert:

'(2) If at any time the official retail price index shall rise above that obtaining on 5th April 1974 the Treasury shall, by order, substitute for the amounts specified in subsection (1) above such higher amounts as shall then have the same purchasing power (calculated by reference to that index) as the corresponding amounts in the above subsection had on 5th April 1974:

Provided that no order under this section shall be made before 5th October 1974 or thereafter at less than six-monthly intervals'.

With this amendment we shall take Amendments No. 2, in line 5, at end insert

'this rate shall apply to all such levels of incomes abovt £4,500 as may, in the next twelve months, have no greater purchasing power than £4,500 on 1st April 1974, as measured by the gross domestic product factor cost price index for the general price level; and'.

No. 4, in page 4, line 8, after 'below'. insert

'provided only that transition from one rate to a higher rate shall, at any time in the next twelve months, not be deemed to have been effected unless and until the excess sum in question is equivalent to the level of purchasing power of each relevant sum specified in the table on 1st April 1974 as measured by the gross domestic product factor cost price index for the general price level;'

and No. 8, in page 4, line 12, at end insert

'the sums in every case being measured at constant prices based upon the purchasing power of the pound sterling on 1st April 1974 as measured by the gross domestic product factor cost price index for the general price level',

all standing in the name of the hon. Member for Barkston Ash (Mr. Alison).

I hope that the Chief Secretary to the Treasury will not complain and accuse me of cowardice if I do not press this amendment to a Division. The purpose is to initiate a debate—and at this late hour it should perhaps be somewhat truncated—on the principle of indexation. All great revolutions start from small beginnings, and I think it would be useful to have a debate on such a subject tonight.

Perhaps I can at once dispose of two objections which, I suspect, the hon. Gentleman may make to the amendment. First I hope he will not bring forward an argument that what the amendment is trying to do is to index the different thresholds into six-month periods, which is rather short. I would prefer a longer period, perhaps 12 months, but there was difficulty about getting the amendment in order if one specified a 12-month period.

Secondly, I hope the hon. Gentleman will not object that the principle of indexation is being applied in the amendment only to the higher income groups and that we are not doing the same for tax allowances. If that is his argument, we shall be happy to put appropriate amendments down which will apply to the allowances as well.

I feel that this principle should apply not just to the bands within the different tax rates covered by the Clause but to tax allowances and to means-tested social security benefits, because the two groups which stand most to benefit from incorporating this principle of indexation are the above-average people in the wage structure and the people at the lowest end of the scale, the latter having a very high rate of marginal tax.

It is possible, too, that the hon. Gentleman may use the argument that the same principle ought to be applied to certain indirect taxes, that the specific duties are not ad valorem taxes. If he wants to arrange a trade-off and put that principle forward, we will accept it in exchange for the acceptance of the principle embodied in the amendment.

The purpose of the amendment is to link the thresholds for different tax rates precisely to movements in the retail price index. I believe that this system is followed in Canada. It is perhaps rather sad that the Financial Secretary, who, I believe, trained in Canada as an accountant, is not to reply to this debate and give us the benefit of his experience of how the system works in Canada.

If the principle were adopted throughout our tax system, we would not have the present annual scenario with the Chancellor of the Exchequer increasing tax allowances and telling us how many people are now being taken out of the tax system. We would not have millions of people coming in and out of the tax system year by year, via adjustments in the thresholds. We would not have so many Chancellors of the Exchequer telling the House of Commons that they were cutting taxes when all they were doing was running hard to stay in the same place.

11.45 p.m.

I suspect that is the real reason why the amendment will be rejected by the Government. All Governments love to cut taxes. I say "All Governments", though this Government have not shown much inclination to do so. Perhaps they wish to reserve the right to do so at some future date. No doubt that is why they will oppose the principle embodied in the amendment.

If they are worried the other way, the principle of indexation would not prevent the Government putting up tax rates if they so wished. If the amendment were accepted it would mean that the different threshold rates would be expressed in real terms from a given base date. If the Chancellor wished to put up taxes he would have to look at the profile of the tax system, but a profile that would be expressed in real terms.

I believe that a system of indexation is necessary at a time of rapid inflation. Many people find that they are unable to keep ahead of inflation. When their incomes go up they find that they are just pushed into a higher tax bracket which penalises them.

People do not seem to realise that it is necessary for them to get an increase in their pre-tax incomes greater than the rate of inflation if they are to stay steady with the rate of inflation. With a 10 per cent. rate of inflation, a man earning £2,000 a year, as Mr. Chown pointed out in the Financial Times last week, would need an increase in his pre-tax earnings of 13 per cent. merely to stay in the same place. That is the effect of inflation combined with our system of taxation.

This objection is even more noticeable at the higher rates. Mr. Chown in his article quoted somebody earning £25,000 a year. That man, after tax, would be left with just over £10,000. If prices went up by 10 per cent. in a year and he got a salary increase of 10 per cent. to £27,500, after paying 83 per cent. marginal tax, which would increase his tax burden to over £16,000, in real terms he would be 6 per cent. worse off. That is an example at the top end of the income scale, but the same principle applies throughout the whole scale of different income ranges.

A married man, with two children under 12, who in 1971 was earning £6,000 would be left with a post-tax income of £4,420. At today's prices, in equivalent purchasing power, his post-tax income would need to be £5,715, which means that his income in pre-tax terms would have to go up to well over £8,000.

That is the case for indexing. It would mean that if salaries were adjusted to compensation for inflation and we had at the same time the thresholds for the different rates moving up, people would get the same benefit in their post-tax incomes as they were getting in their pre-tax incomes. That is one advantage of the system.

I believe that an indexing system is also of use in a counter-inflation policy, because it holds out the prospect that incomes can keep pace with inflation. It means that people will no longer have to act on assumptions about inflation which may prove to be unfounded. All in all, I believe that a change of this kind would make our tax system more rational and realistic.

You have been kind enough, Mr. Thomas, to call for discussion my three amendments which have exactly the same purpose as that of my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont).

I want to fasten the Chief Secretary's attention on two special background factors. The first is the important factor that my hon. Friend mentioned—that an advanced Western economy has already adopted an indexing system, and I quote from the Canadian Department of Finance Press release:

The other background factor is that a Treasury Minister—I refer to the Paymaster-General0—for the first time in my experience—and probably for the first time in history—has actually gone on record at Scarborough last weekend as saying that there will be a particular rate of inflation in the forthcoming year. The Paymaster-General said that the rate of inflation would be in double figures for some time to come.

Against a positive forecast of inflation in double figures in the 12 months to come and the background of indexing actually adopted in an advanced Western country, I suggest that the Financial Secretary should now consider the effects of this double figures inflation upon the groups whom the Chancellor of the Exchequer particularly selected in his Budget Statement as needing special help, and I believe he will agree that something along the lines of this amendment ought to be put in hand.

I draw attention to the group of people whom the Chancellor specially singled out as being the poorest. He talked in the Budget speech about the need to shift the tax burden from the poorest to the broader shoulders. The first example he gave of the poorest who are to be relieved of tax are married men, with two children under 11, earning £21·50 a week—about £1,100 a year. He said that the tax threshold for such folk would be raised so that none of these would be paying tax until they were earning £25 a week—a substantial increase in the tax threshold. If a man earning £21·50 a week has to increase his income at the rate of 15 per cent. a year to keep level with double figures inflation, so that instead of earning £1,150 a year he is earning just over £1,300 a year, with no increase in real income at all but simply an increase in money income, this very man whom the Chancellor sought to take out of tax has come into it again. He will hit the level of just under 1 per cent. income tax obligations.

Take the married man earning £25 a week, with two children under 11, whom the Chancellor mentioned, at that point of just coming into the tax system. With an income of about £1,300 a year, if he has to increase that income by 15 per cent. in money terms to keep in exactly the same place in terms of real earnings he goes up to a level of income of about £1,500 in money terms, but worth not more than £1,300, and he pays a tax bill of £68 a year. The Chancellor is kidding the great mass of the population because he said in his Budget speech that a man earning £25 a week would hardly pay any tax at all. At the end of the financial year, if such a man keeps pace with the rate of inflation he pays nearly £100 in tax.

What about the man on £1,560 a year, who the Chancellor claimed would be saving 85p a week in tax as a result of his measures? His money income will have to rise from £1,560 a year to £1,800 simply in order to keep pace with 15 per cent. inflation and without improving his income in real terms. That raises his tax liability from £68 to £167, which is no less than £53 a year more in real terms than he would have been paying under the last Government. In order, therefore, to keep up with inflation this year, married men with two children will have to pay more tax then they would have paid at the same nominal level under the Conservative Government.

Clearly, the prospectus given by the Chancellor in his Budget speech was entirely bogus and phoney. It took no account of inflation. I ask the Chancellor to take account of the need to protect from inflation, taxpayers who are finding themselves being floated up into new tax rates simply by their efforts to maintain their earnings position.

My hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) need not worry about the question of personal reliefs. I have already tabled a number of amendments which I hope will be selected and which seeks to deal with inflation and personal reliefs. I hope that my hon. Friend will add his name to them.

The real problem which lies behind all this indexing is the fact that we have to accept in our tax system that money is no longer a measure of value. Before the war people on the Continent tried to keep their accounts on the gold standard. They did that because there money was no longer a measure of value as between one year and the next. We now face the question of the honesty of money. In tax terms this means that all sorts of distortions creep in as a result of high rates of inflation, and not least the distortion which would be eliminated if the amendment were accepted.

No doubt it will be argued that to start wide-scale indexing is in a sense to accept inflation and almost to build it into the system. I agree that the danger exists. If this country were an isolated unit, that would not matter as long as it was applied across the board. If we settled on a new measure of value based on the official retail price index, that would not matter to this country in isolation. The building in of inflation would be unimportant. But it is important because Britain trades overseas a great deal.

12 midnight

In that context, I am concerned to see that we do not build in inflation. I am also concerned to see that we have honest Chancellors of the Exchequer. I do not believe that we have had completely honest Chancellors. In his Budget speech this year, for example, the right hon. Gentleman included his references to personal allowances and the ways in which he was altering income tax in the "good news" section, when they should have been in the "bad news" section, because he was not allowing fully for inflation. This is where we need to look for a method of indexing our income tax system.

I do not pretend, any more than my hon. Friend the Member for Kingston-upon-Thames, that this is necessarily the perfect way of doing it and a model of drafting. But a good deal of the Finance Bill is not a model of drafting, even as it emerges from the Government. It is the principle with which we are concerned, and it is a principle that the Committee should support.

The importance of the amendment is that, for the first time, it provides an opportunity for a full-scale debate on indexation or monetary correction. This will not be the last occasion on which this matter is debated.

The Canadian precedent for indexing taxation, which came into operation on 1st January of this year, is important. There is also the experience of Brazil, where monetary correction has assisted in bringing down the rate of inflation from more than 80 per cent. to 15 per cent., which is less than the rate of inflation in this country.

The Brazilian monetary correction does not just affect taxation but indexes almost all financial transactions, including wages. That has been made possible by the virtual outlawing of trade unions, which has resulted in a rapid rate of growth and higher living standards and benefited the members of the outlawed trade unions.

We do not propose to go as far as that. Ours is a more modest amendment —one step at a time. But we make the point that inflation is a fraud. It is a fraud on companies which have to pay tax on profits which are not there. It is a fraud on small savers. It is a fraud on pensioners and others in receipt of benefits, because those benefits are worth less and less. Above all, it is a fraud on the taxpayer.

The fiscal drag or buoyancy of the revenue which arises from inflation pushing up income tax rates for everyone means that £800 million of additional taxation is levied every year without any sanction of Parliament. This is monstrous. It leades to ridiculous political allegations of the kind that we hear from Government supporters of hand-outs to the rich, when everyone knows that the hand-outs were made wholly irrelevant by increases in effective taxation as a result of inflation pushing up taxpayers into higher and higher tax brackets.

We say that this fraud should cease to be perpetrated, particularly because the beneficiary of the fraud is the Exchequer. After all, it is the Government who are in large measure responsible for the inflation, and this is doubly immoral. The more serious immorality is that the perpetrator of the fraud is the beneficiary.

We take this principle of indexation seriously because, with inflation going the way it is, sooner or later the principle will have to be built into our system. We would rather the rate of inflation were brought down sharply, of course, but we have no confidence in the ability of this Government to do so. Therefore, if we have to accommodate ourselves to inflation, let us do it in a way which results in the minimum of distortion and the minimum of fraud on the various groups of people involved.

We give the Chancellor of the Exchequer the chance of immortality. We offer him the chance to make a fiscal breatkthrough, to set up a milestone in our long fiscal history. We ask him to take this opportunity by accepting the amendment.

This is a historic debate. Indexation is something that we shall hear a great deal about in future. We should take it seriously but not consider it uncritically.

Over the next two or three years we on this side will begin to appreciate that statutory or voluntary control of prices and incomes is doomed politically, is economically unenforceable and is a grave intrusion into the liberty of the individual. We shall then be asking some bright young man at Central Office for some way of controlling inflation without restricting the supply of money and without incurring the horrible transitional penalties. The same question will undoubtedly be asked of equally bright young men at Transport House; and back will come the magic word—indexation.

Unhappily, I believe that the anomalies and injustices of general indexation will be just as great as those of statutory or voluntary prices and incomes policies. Whereas inflation benefits those with real assets against those who have the misfortune to lend, particularly small sums, to building societies, under indexation, those with national savings may become the new rich. It will still be a vastly unfair and inequitable alternative to the containment of inflation. I hope that we shall not offer indexation perpetually as a means of trying to avoid those stark and nasty remedies which we all know are necessary if we are to drive away inflation and save our country from the social disruption and economic disasters of Weimar-type inflation.

After the hon. Member for Wolverhampton, South-West (Mr. Bugden) had been called and had been speaking for a few minutes, I thought that someone else had crept back into the Chamber.

I have always liked the hon. Member for Kingston-upon-Thames (Mr. Lamont). He gives the arguments for an amendment as well as those against it. That is an agreeable way of moving an amendment.

The hon. Member for Blaby (Mr. Lawson) asked me to accept the amendment. If I did, no one would be more surprised than his right hon. Friends on the Front Bench and the hon. Member for Kingston-upon-Thames, who said that he did not intend to vote for it—although not for the same reasons as those for which his right hon. Friend the Member for Carshalton (Mr. Carr) said he would not vote for certain amendments tonight.

The amendment was put down to stimulate a discussion of indexation. I am delighted, although I would have preferred a more appropriate time for the discussion. There may be a case for inflation-proofing or indexation, although not just for the higher incomes, as I think has been recognised tonight. If the proposal were to go all the way through, we should have to make sure that we started with rates that were reasonably realistic and fair. I do not believe that is the case at the moment since I do not believe that the present level of income structure is fair. Simply to impose indexation on top of an already unfair tax structure will not achieve very much.

Is the hon. Gentleman saying that the Government are deliberately creating inflation to put up rates of taxation by the back door? That seems to be the import of what he is saying.

I shall come to that point later. I wish now to deal with some of the practical questions raised by the amendment, on the assumption that it is being treated seriously.

I did not understand the hon. Gentleman's last point. On a particular distribution of income, could not the Labour Government say, "We, the Labour Government, have decided that there is nothing to prevent our taking this course"? That would not be incompatible with the principle of indexation.

No, but it is incompatible with superimposing indexation on the present system as it exists, which is what the amendment seeks to do. It may seem a little strange, but I am speaking to the amendment; I shall then come to some of the more general arguments.

The practical objection is that the amendments are largely unworkable in the way they are drafted. I will explain why in a moment. We cannot have the thresholds varying automatically through the year. The only way in which one can administer a tax system in demand management terms is via fixed thresholds which any given Chancellor of the Exchequer knows in advance.

The hon. Member for Blaby mentioned the Brazilian system. I had the good fortune to study personally the Brazilian economic and financial system and visited that country a few years ago. I hope the hon. Gentleman was not suggesting that he would like to see adopted in this country the Brazilian system, with the level of inflation that prevails there. I suppose it is possible that if the Conservatives ever gain office again we might see those escalating rates of inflation, but that is not our intention.

I must intervene once again to tell the hon. Gentleman that things have changed since he left Brazil—and have changed very much for the better. Rates of inflation, far from escalating have been coming down, and are now 15 per cent.—lower than the rate of inflation in this country.

I was about to say that there are other aspects of the Brazilian economy and society which the hon. Gentleman seemed to take rather lightly. He appeared to talk about the trade unions being banned, as though that was a marvellous system. He gave the impression that Brazil did not need to bother with a prices and incomes policy, although he did not say a word about democracy. I was saying that I hoped the hon. Gentleman was not asking us to copy the Brazilian democratic, political, economic or financial structure. I shall leave the hon. Gentleman to pursue that argument in other places, and perhaps in certain journals.

I do not accept the pessimistic approach of those who expect that higher rates of inflation will be with us for ever. The hon. Member for Barkston Ash (Mr. Alison) referred to some remarks made by my right hon. Friend the Paymaster-General. We all know about the level of inflation. With wholesale price rises in the pipeline and raw material prices as they are, one cannot reduce that level of inflation rapidly. Certainly there will be high levels of inflation, but not in the long-distant future, which would be necessary if one were thinking in terms of indexation on a permanent scale0—which I am not.

12.15 a.m.

The major argument, in practical terms as of now, would be that it goes a long way to destroying any Chancellor's flexibility of action in his Budget. I have never been one to argue that any Chancellor can fix for 12 months ahead in one Budget what is likely to happen to the economy. In the current situation that is certainly extremely difficult, as we have seen this year. But it would be very difficult if large parts of what a Chancellor had to do was taken out of his hands and matters were much more inflexible in that there was this indexation which decided in advance what the levels of tax would be for whole groups of people.

Before the hon. Member for Kingston-upon-Thames intervenes. let me hasten to add that I understand that one can then adjust the rates. But if one were to do that, on top of the indexation, why would one be bothering in the first place?

The major argument, in the way in which this matter has been presented by hon. Members, is about the people who have been hurt by the tax system because we have not had indexation and, therefore, that with indexation personal allowances would be that much higher. The impression is given that all that we have to do is to have indexation automatically —at a stroke, as it were—and that thereby we automatically reduce the levels of taxation right across the board. Even the hon. Member for Kingston-upon-Thames —not really "even" but particularly he, with his great knowledge of the subject—would not believe that that would be so.

The danger of pursuing the argument of indexation as it has been pursued this morning is that the impression is given that one can do it and, at the same time, give all kinds of relief to all kinds of people at all levels. We heard the extravagant words of the hon. Member for Blaby. Perhaps that was not too surprising. But there were some more sensible remarks from hon. Members of the Opposition who recognise the problem but, nevertheless, seem to be implying that by indexation one can help certain levels—at the lower end of the income scale, by increasing personal allowances in line with inflation. If one did that across the board one would reduce the yield from taxation.

From earlier debates I know that Opposition Members would like to reduce the yield from taxation—although they did not always press the matter to a vote. However, it would have been reasonably honest, given the economic and financial situation which the Government inherited, if Opposition Members had asked at the same time, "If you are going to cut personal taxation by, say, £900 million" —as requested in the first amendment that was debated earlier— "what will you cut in public expenditure or from where will you get the money?".

The Chief Secretary is using a bizarre argument. The object of indexation is precisely to counteract the effects of inflation. The hon. Gentleman is arguing that it is impossible to have a satisfactory Budget in which the effects of inflation are counteracted. What he is saying, in effect, is that it will never be possible to have a satisfactory Budget in which everything works out exactly as it was nominally calculated with no inflation. That is the burden of his argument.

Those Utopian days when everything works out magnificently! It is like that, it is argued, with the panacea of indexation. I look forward to that time. I should be equally happy to deal with it without indexation.

Whichever way one deals with the matter, however, one thing is clear—one cannot somehow, by indexation, solve the problems of inflation; nor can one reduce the levels of revenue required by Government. As the hon. Member for Wolverhampton, South-West honestly pointed out—as his predecessor regularly pointed out—one can do that only if one cuts public expenditure, and one would need to do that on a vast scale. What the hon. Gentleman's predecessor did not tell us was what levels of unemployment that would require. But that is another matter, and I do not intend to go into it now.

One hon. Member told us that he wanted to make an honest woman out of the tax system. He does not like the dishonesty of the system. I am not sure that it would be any more honest simply to index all the reliefs and rates, or certainly the reliefs—the personal allowances—and then to increase the rates in order to get the same yield.

I realise that the hon. Gentleman finds this extraordinarily difficult to understand, but on a little reflection he must surely realise that what we were talking about in the amendment was not cutting taxation, which is the subject of other amendments, but of cutting out fiscal drag. He is aware what that is and how it comes about. What we are talking about is not cutting the true yield of taxation but cutting the surreptitious increase in taxation, preventing the Government surreptitiously increasing it through fiscal drag. Is the hon. Gentleman proposing this as positive Government policy that it should increase taxation?

The hon. Gentleman will no doubt have many opportunities to lecture us on fiscal drag. I am sure that some hon. Members are not too clear about the subject. Given the lateness of the hour, the hon. Gentleman, who is an expert on the subject, might like to stay on when we have all gone and speak to an empty Chamber about it, or write an article about it. We may take it that most of his hon. Friends, and most of my hon. Friends, understand what it means, and understood it before he entered the House. Perhaps we can now leave off lecturing.

The hon. Gentleman has had an answer, but if he likes I will drop him a note.

I am sure that you understand fiscal drag, Mr. Thomas. If you do not, I will have the hon. Gentleman give you a private lecture.

I hope that I have replied to the hon. Gentleman's case for indexation. He does not intend to vote for it or to recommend his hon. Friends to do so. I hope that I have explained why, if he had so intended, I should certainly have advised my hon. Friends to vote against it.

As this has been described as an historic debate, perhaps I might say a word or two.

I am sure that my hon. Friends are right to raise this important subject of indexation. My immediate reaction—because I do not necessarily subscribe to all the views they expressed—is that I hope that we shall go on discussing it. It is important at two levels. First, the kind of point they have made brings out a large number of the injustices suffered because of inflation.

At the same time I believe that the problems of indexation are immense. I am very concerned that in many ways those whom we would most like to help —for example, those on fixed incomes—are those who would be most difficult to fit into any system, even if it were possible to devise such a system.

The second point is somewhat different. I am rather surprised that the Chief Secretary did not refer to it. A great deal of work is being done on the related subject of inflation accounting. I think that there is scope for making progress. If that does not happen, many bad decisions are made and as a result no one benefits. Given the present state of human knowledge and analysis it is infinitely more important that we should concentrate on controlling inflation rather than on living with it. It is the view of my right hon. and hon. Friends that priority must be given to controlling inflation. What worries us is that the Government are doing remarkably little to help. In fact, they have done a number of things that will hinder the achievement of that objective.

Amendment negatived.

Clause 5 ordered to stand part of the Bill.

Clause 6

INCREASE OF SURTAX RATES FOR 1972–73

I beg to move Amendment No. 17 in page 5, line 44, leave out "18th December 1973" and insert "27th March 1974".

I shall not detain the Chief Secretary to the Treasury for long. Under Section 29 of the Taxes Act there is relief granted on death during the fiscal year when rates are increased. I cannot think why the Government have selected 18th December when the Budget date was 27th March. I do not like the restriction, but to take 18th December and not 27th March is illogical. It would be wrong, for example, to penalise a distribution made between 18th December and 27th March. The cost of the amendment will be very small.

The hon. Member for Croydon, South (Mr. William Clark) moved his amendment very eloquently. He knows how fond I am of him. I am happy to accept the amendment.

Amendment agreed to.

I beg to move Amendment No. 18 in page 6, line 15, at end insert—

'(9) The surcharge shall not apply to an individual who shows that, at any time within that year, his age or that of his wife living with him was 65 years or more'.

This is a simple amendment. The surcharge that was imposed when my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) was Chancellor of the Exchequer was accompanied by the undertaking that the elderly would not be penalised by the surcharge. Irrespective of a change of Government, if a Chancellor says to a small section of the public, such as the elderly, that it will not be penalised, it is incumbent upon the succeeding Chancellor to honour that pledge. Again, I should think that the amount involved is minimal. The people who acted in good faith on the words of my right hon. Friend should not be penalised because of a change of Government.

The hon. Gentleman must not get carried away with himself. He cannot win them all. Even the hon. Gentleman could not make a sob story about surtax payers over 65 years of age. I doubt whether he could do so even at this time of the morning.

The amendment is in fact more restrictive—maybe that is intentional but it may be unintentional—than that which the right hon. Member for Altrincham and Sale (Mr. Barber) had in mind. The hon. Member for Croydon, South wants the concession to apply to those who became 65 in 1972–73 whereas his right hon. Friend was prepared to allow the concession to those who were 65 from 5th April 1974.

12.30 a.m.

I am prepared to alter my amendment to give a little more if that is what is worrying the hon. Gentleman.

That is not what is worrying me. I am worried about the cost of £10 million. This is a modest figure to some right hon. and hon. Gentleman opposite, but it is a lot of money to give to this group of surtax payers who happen to be over the age of 65.

The argument might be that there has been a fall in the income of those who became 65 between 1972–73 and now. I am doing as it were "hon. Member for Kingston-upon-Thames" on this and answering any arguments in advance—I hope. That argument could be made, but that situation is inherent in the surtax system. Anyone who pays surtax knows that it is payable in arrears of the year of liability, and I do not think that one could accept that kind of argument. I do not think that there is any comparison with relief on investment income for those over 65 because we are talking not about those with £1,500 worth of investment but about those with rather more.

On the question of the investment income for the elderly, the most that could be given was £50 to any one taxpayer, whereas this amendment would give considerably more to some wealthy taxpayers, and for those reasons I fear that I cannot accept the amendment.

Our hopes were raised by the hon. Gentleman's acceptance of the previous amendment. We thought that at long last, after a fairly heavy day's debate, the Chief Secretary's heart had softened—if that is what one does to the heart of a Chief Secretary—and that we might receive a more forthcoming answer to this amendment.

The hon. Gentleman slightly glossed over the fact that someone who had a large income some time ago may be paying tax when he no longer has that kind of money. We regret that the hon. Gentleman did not maintain the improvement that he showed a little while ago, but we are hopeful that next Tuesday we shall find a more forthcoming approach, particularly given the Chancellor's statement about the need to encourage investment, and so on.

Amendment negatived.

Clause 6, as amended, ordered to stand part of the Bill.

To report Progress and ask leave to sit again.—[Mr. Joel Barnett .]

Committee report Progress: to sit again this day.

Contingencies Fund Bill

Considered in Committee .

[MR. GEORGE THOMAS in the Chair ]

Clause 1

Maximum Capital of Contingencies Fund

12.34 a.m.

I beg to move Amendment No. 1, in page 1, line 6. leave out from 'exceed' to end of line 20 and insert £300 million'.

Earlier this evening we had a fascinaing debate on the topic of indexation, following which the Chief Secretary's reply was, to say the least, scarcely enthusiastic about the wholesale indexation that was about to be carried out by the Government. Indeed, one's overall impression was that the hon. Gentleman was opposed to indexation in any shape or form if he could possibly avoid it.

But that clearly was a mistaken view because the Government have come to the conclusion that when it suits their convenience they should index the provision to which the amendment refers in such a way that instead of their having to ask time and time again for the limit in the Contingencies Fund to be raised there is an automatic arrangement whereby the limit is raised whenever there is a particular change in the amount of Supply expenditure, based, as I understand it, on the previous year.

This was debated two night ago—on 14th May as reported at col. 1243 of the OFFICIAL REPORT—and the point was made by the Financial Secretary that as far as he was concerned the Government had thought how much they should increase the present limit from its present £200 million. The Chief Secretary said that he had contemplated whether it should go up to £300 million, which he felt was too little, or to £400 million, which he thought was too much. So the Government reconsidered the matter.

I should have thought that if they were saying that £300 million was too little and £400 million was too much it would not be terribly difficult to arrive at a compromise; but not a bit of it; after careful contemplation the Financial Secretary says that he cannot settle for a round figure like £350 million but that he will settle for an index, the whole arrangement thereby not inconveniencing the House, so that it will not, from time to time, have to consider a Bill of this kind.

But it is not the case that this measure requires much discussion in the House, under the normal procedure—not the procedure that we have here—whereby we simply raise the limit. I should have thought that that was the sensible thing to do on this occasion. Using the formula for indexing which the Government have put in the Bill the sum would be £386 million—notably nearer the £400 million which the Financial Secretary thought too much rather than the £300 million which he thought too little.

None the less, I think that this is an undesirable change. I feel bound to say so to the Financial Secretary. I should have thought that there was a case for the figure that I have put in the amendment although, having read the report of the debate the other night, I would have settled, if necessary, for £350 million. I hope that the Financial Secretary will be prepared to settle for that as well.

I want to pose to the hon. Gentleman a specific question. Is it the case that in any other area where limits of this kind are imposed by the House of Commons there is provision for an automatic increase? If not, an innovation of this kind should not have been made late at night—and on two nights within a given week—without consideration by the Select Committee on Procedure, or something of that kind. This is a major departure. The normal procedure would be to make the increase by order. There are many cases of that kind, and the House has accepted that procedure as appropriate.

Is this a complete innovation? If so, I hope that the hon. Gentleman will feel able to reconsider the matter and accept the figure in the amendment, or the figure of £350 million. If there are precedents for the procedure followed by the Government we realise that it may put a different complexion on the matter.

We have been discussing the different ways in which the Government have decided to finance the mortgage subsidy —which they have done through the process of an Estimate followed by a Consolidated Fund Bill—and in this case the food subsidies—because, I understand, the reason for the increase in the limit on this occasion is to finance food subsidies —by the unusual procedure of raising the Contingencies Fund limit and getting the money out of the fund without obtaining parliamentary approval in advance.

I should like to know the answer to the question which I raised in the context of the mortgage interest rate the other night. Why is it that the Government are proceeding in this case by this peculiar route rather than by putting it in an Estimate, as in the case of the mortgage interest payment earlier, and combining the two in a Consolidated Fund Bill?

It is slightly sinister that this peculiar arrangement should have been made. In certain cases it is necessary to take money out of the Contingencies Fund because no appropriate Estimate relating to the Consolidated Fund Bill is going through, but in a week in which we have had a Consolidated Fund Bill I cannot understand why the two matters should not have been separated. The House could have approved the food subsidy finance separately, and if it were necessary to raise the limit that could have been done in the normal way.

I shall be grateful if the hon. Gentleman will answer those two specific questions.

It is clear that, even at this time of night, when we leave the Finance Bill a great weight rises from the shoulders of the former Financial Secretary and he becomes his sparkling self. I only wish that he had been with us in such good form during the debate on the Second Reading of the Contingencies Fund Bill. The hon. Member for Worthing (Mr. Higgins) has raised almost the same points as were raised by his hon. Friend the Member for Wycombe (Sir J. Hall) in that debate.

To answer the hon. Gentleman's questions as succinctly as I can, as far as I am aware—I did not have notice of the question and have not been able to do any research—there is no precedent for a formula of this sort. I will look into the matter and write to the hon. Gentleman if he is prepared to be patient.

There is nothing sinister in this procedure, which was made clear in the Second Reading debate and accepted by the House without a Division. There is no diminution of parliamentary control over the sums voted, and the hon. Gentleman, who is sophisticated and experienced in these matters, is well aware of that.

We needed the money for the food subsidies quickly. The money came out of the Contingencies Fund as soon as the Prices Bill received a Second Reading. As soon as may be there will be a Vote on Supply for the food subsidies, and expenditure on food subsidies out of the Contingencies Fund will, we hope, be repaid. That is normal procedure with which the hon. Gentleman is fully conversant.

I hope that I have answered the hon. Gentleman's questions satisfactorily, and that we can proceed on the basis that the Bill will pass through Committee un amended.

With great respect to the hon. Gentleman, he has not answered either question satisfactorily, but I hope that I can persuade him to do so. I appreciate that the hour is late, but these are two important matters which we should get clear.

We all know that when one changes procedures of the House that seem to be archaic or unnecessary one does so at one's peril. I am concerned that the Government should have made an unprecedented change of this kind without the change being fully discussed, not late at night but in a more appropriate forum. It is not a suitable matter on which to divide. It is a matter of concern to the whole House. When any Government suddenly introduce a dramatic change in procedure it should be carefully considered.

If the Financial Secretary is not prepared to be persuaded tonight on the specific amendment, I shall understand. One of my colleagues may well be sitting where he is sitting in a matter of weeks and I should like to ask the Financial Secretary a question which I should still ask in those circumstances. If we were in Government, I would still think it wrong to have an automatic increase of this kind and that it would be better to do it in the usual way, with provision by order for increasing the amount if necessary.

12.45 a.m.

Will the Financial Secretary give an assurance that he will make representations to the Leader of the House that it should be considered whether this is not a suitable matter to be referred perhaps to the Select Committee on Procedure or some other appropriate body, which would see whether the innovation is desirable? I put this suggestion in the interest of the House and not in a partisan spirit.

If the Government needed the money rapidly for food subsidies, I do not quite understand why they could not have brought in another estimate, as they did for the mortgage subsidy, and included it in the Consolidated Fund Bill, which was debated before this Bill. This would have given them the money which the hon. Gentleman says they need so quickly.

I am grateful to the hon. Gentleman for the courteous and firm way in which, as usual, he has put his points. I did not say that this was without precedent. I said that I was not aware of any precedent, which is not quite the same thing. As I have said, I will look into the matter. There may be precedents of which I am unaware.

The hon. Gentleman suggests going to other authorities to consider the appropriateness of the procedure. There were, as I have said, discussions with the Comptroller and Auditor General as to the feasibility of arrangements of this sort, and he raised no objection. But it is open at any time to the Public Accounts Committee, if it is not satisfied with the procedure, to raise it with the Comptroller and Auditor General.

I was asked on Second Reading whether we had consulted the Public Accounts Committee or the Select Committee on Expenditure. We have not done so because it is not normal to do so in these circumstances, as I am sure the hon. Gentleman is aware. But it is open to us at any time to be criticised if the PAC thinks it appropriate. But I do not think that this is a matter for heavy weather.

We consider this to be a very modest reform and an improvement because parliamentary control over expenditure depends on the House approving Votes of supply, and no responsible Government will take money out of the Contingencies Fund if they do not think that they will get their supply later on. That is the basis on which Governments have always operated through supplementary estimates.

The hon. Gentleman has made proper points. I assure him that we considered the matter in detail and that the form in which we put the Bill forward is such that it is better unamended.

I believe the hon. Gentleman to be mistaken. I am not clear why lie feels that the appropriate body to consider a Bill which the House has passed ought to be the Public Accounts Committee. A Bill passed by the House is binding upon the overall structure, and in my view, it would not be appropriate —although I may be wrong—for the PAC or, still less, the Comptroller and Auditor General, to criticise a decision of the House as far as the operation of the measure was concerned. I may be wrong in my suggestion of the Select Committee on Procedure as the appropriate body.

Clearly, assuming that the Bill goes through normally, the House is the sovereign body, and it would not be appropriate for the PAC or the Comptroller and Auditor General to criticise a decision taken by both Houses of Parliament and which has received the Royal Assent. Will the hon. Gentleman undertake to bring the matter to the attention of the Leader of the House?

I think that more careful consideration should be given to this matter on a completely non-party basis, not as a Government measure. The hon. Gentleman did not answer my second point why he did not put in an estimate on the food subsidy.

We seem to be spending rather more time on this measure than I had expected. However, the hon. Gentleman has made some valid points and I make no complaint.

I was trying to be helpful when I suggested that the Public Accounts Committee might be an appropriate body to look at this matter. I was not suggesting that it was necessarily the body to consider it. I said that we had been in touch with the Comptroller and Auditor-General and I alluded to the fact that one of my hon. Friends had mentioned the Public Accounts Committee or the Expenditure Committee.

A couple of days ago the House gave approval to the Bill in this form and it was made clear beyond peradventure on that occasion that a change in the way in which the upper limit in the Contingencies Fund was operated was envisaged. We made it clear that a change of principle was involved.

It is clear from the Explanatory Memorandum that we have a formula instead of an absolute flat sum. The formula produces a sum that is clear, unambiguous and ascertainable. The control over supply is in no way diluted, as the hon. Gentleman will realise.

I shall be happy to draw the attention of my right hon. Friend the Leader of the House to any representations made by the hon. Gentleman. On the other hand, I cannot advise the Committee not to proceed with consideration of the Bill as we have it.

Why was not the food subsidy amount in an Estimate in the Consolidated Fund Bill which we have already passed?

I am not sure that I can give the hon. Gentleman an answer to that question off the top of my head. The Consolidated Fund Bill was needed especially to get the £500 million approved for the mortgage interest. This was a much smaller amount of £20 million which we thought could be taken out of the Contingencies Fund. But in due course there will be a vote on supply when all this will be swept up in the normal way. I am sure that the hon. Gentleman is aware of that.

I apologise for persisting —I know that this is a two-person dialogue—but I do not understand. If the hon. Gentleman's argument is that it should have been done urgently because he needed the money, then, given that he already had an estimate on the Order Paper on Monday and a Consolidated Fund Bill two days later, why could not this amount for the food subsidy be put in an Estimate in the Consolidated Fund Bill? I understand that he would have got it quicker that way—I may be wrong —than by going through this procedure. In normal circumstances I would agree with what has been done here, but the circumstances were not normal, because there was a Consolidated Fund Bill not only going through in the same week but earlier than this.

We seem to have taken some time to arrive at a resolution of the hon. Gentleman's points. I trust that I may have the answers for him in a satisfactory form now. He will be aware of the convention that funds are not made available from the Consolidated Fund with respect to items of expenditure until the relevant legislation has received Royal Assent. In this instance we had got only as far as Second Reading of the Prices Bill. Having voted on Second Reading it is normal to take it in the Contingencies Fund Bill. We are dealing with a situation where we had got Second Reading, but we had not completed the proceedings on the Prices Bill. I hope that is a satisfactory answer.

I hope that in future we may get the answers quicker than we have taken to get them tonight.

I beg to ask leave to withdraw the amendment on the clear understanding that this matter will be drawn to the attention of the Leader of the House.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Schedule agreed to.

Bill reported, without amendment.

Motion made, and Question, That the Bill be now read the Third time, put forthwith pursuant to Standing Order No. 56 (Third Reading), and agreed to.

Bill accordingly read the Third time and passed.

Race Relations Andimmigration

That Mr. Norman Atkinson be discharged from the Select Committee on Race Relations and Immigration and that Mr. Robert Kilroy-Silk be added to the Committee.—[ Mr. Walter Harrison .]

Expenditure

That, notwithstanding the Order of the House of 8th April relating to nomination of Members of the Expenditure Committee, Mr. Maurice Edelman be discharged from the Committee and Mr. John Garrett be added to the Committee for the remainder of this Parliament:

That this Order be a Standing Order of the House.—[ Mr. Walter Harrison .]

Public Accounts

That Mrs. Sally Oppenheim be discharged from the Committee of Public Accounts and that Mr. Peter Hordern be added to the Committee.—[ Mr. Walter Harrison .]

European Secondarylegislation

That Mr. David Knox and Mr. Peter Blaker be discharged from the Select Committee on European Secondary Legislation and that Mr. James Spicer and Mr. Ian MacArthur be added to the Committee.—[ Mr. Walter Harrison .]

Adjournment

Motion made, and Question proposed, That this House do now adjourn.—[ Mr. Harper .]

Aircraft Accidents (Compensation)

12.57 a.m.

I welcome this opportunity of raising a subject that has recently been very much in the public eye, namely, the compensation that is payable to the victims of fatal aircraft accidents. I am sure that the House will agree with me when I say that compensation in money can never make up for the pain and grief of losing a close relative, but it does help alleviate physical suffering, and in the traumatic circumstances of an air disaster it should be paid at a realistic rate and as quickly as possible.

I suppose there are two serious fatal accidents that are primarily in the public mind at present—first, the Vanguard of Invicta Airlines, which crashed at Basle in April 1973, in which, unhappily, the passengers were very largely my constituents, and, second, the DC10 crash of Turkish Airlines near Paris, in which more than. 300 people were killed.

In talking about money I should like to express my personal gratitude to those who have contributed to the funds for the Basle disaster. The Swiss people raised a magnificent sum of money for the education of some of the children who were left motherless or fatherless—sometimes both—in that accident. There was a central fund contributed to by people from all over Britain, and finally the Rotary, Round Table and Lions, who have being doing a marvellous job in meeting the immediate needs of those who were so unhappily deprived of members of their family.

Perhaps I should declare a personal interest, since, as a member of Lloyds, I belong to an aviation syndicate which I understand is involved in both the accidents that I have named. But I hope that the fact that I shall be speaking against the insurance interests will not lead anyone to think that my personal interest, which I discovered only yesterday, has any bearing on the matter.

It is well known that the Warsaw Convention, subsequently amended by the Hague Protocol, establishes a limit payable to the victims of a fatal air accident by the carrier. However, the victims' families can claim damages without having to prove negligence as in other types of accidents. Therefore, in some cases, although the limit is a very low one, a benefit to the victims' families can be obtained from the application of the convention. Of course, the limit does not apply if wilful misconduct by the airline can be proved, but that is most difficult and it has happened only once since the war, I understand.

Recently the Warsaw Convention limit, as amended by the Hague Protocol, has been amended to £8,723·20—the second time that it has been raised since April 1973. That, of course, is to keep pace with the change in the value of our currency against gold and other international yardsticks used in these calculations. Nevertheless, it is a small sum when compared with compensation obtained by the well-accepted common law methods. I have not been able to reassess the percentage on the new limit, but at the old limit of £7,700 nearly half the victims of the Basle crash would have come up against the old limit of compensation. I do not think the passengers in that air craft could be described as rich. They were ordinary people, of modest means. That illustrates that the limit is completely out of date. I have no knowledge of the numbers who will be affected by the limit in the DC10 crash, but I suspect that it will be very large.

In view of the Minister's profession I need not go into the legal niceties of how it is possible to sue outside the convention if someone other than the carrier is responsible. For example, in the case of the DC10 it has been widely reported that the aircraft manufacturer might be responsible. Equally, it has been suggested that the porter who closed the door might be responsible. In the case of the Basle crash it might have been ground control or some other third party. If one of those outside individuals was responsible, the victims could sue and the convention limits would not apply. I shall not go into that point because since there is no restriction there is no difficulty.

The difficulty arises only where the carrier is responsible and the limit comes into play. There are a number of solutions available to the Government. There is an international solution which would be the most widely accepted and would affect virtually all world air travellers. Would it be possible for the United Kingdom to sign the Guatemala Convention? There is no reason why we should not do that. I accept that until the United States signs the convention it will not be ratified, but it would be helpful and a gesture if the United Kingdom were to sign.

I also ask the Minister whether he will bring pressure to bear internally in an attempt to persuade his colleagues in the Foreign and Commonwealth Office to use diplomatic channels to indicate to the American how important it is and how much public opinion here wishes the matter to be put right, and to see whether the Americans can be persuaded also to sign the Guatemala Convention, leading to its early ratification.

As for our own domestic solution, by which I mean unilateral action by the United Kingdom to deal with this matter on our own territory, with our own carriers, and in respect of flights to and from the United Kingdom, the Civil Aviation Authority, which is responsible for issuing domestic carrier licences, could make it a condition of issuing a licence to have a contractual limit above that of the Warsaw Convention, and a figure of £25,000 has been suggested.

British Airways have already incorporated this figure into their terms of carriage. I have studied their tickets, and one has to be a lawyer to see where this comes in, because the figure is nowhere to be found. But I am reliably assured that the figure applies. BEA had a slightly higher figure, using the Montreal Convention limit of £27,500. But £25,000 is considered to be a convenient, round sum. I should prefer to see it £40,000, and reviewed constantly, but it is a start, and one that the airline has made of its own volition. It is to be congratulated. It is important that all other domestic carriers in the United Kingdom adopt the same limit.

One problem is that this would put our carriers at a disadvantage compared with foreign operators because of the additional insurance costs involved in putting this higher limit on the ticket. However, I believe that the Department of Trade has the right to inform foreign carriers that it will withhold landing rights unless they, too, agree to a higher figure. It may be that all this can be done by voluntary agreement, and I know that moves have been made in this direction. Perhaps the Minister can tell us how far they have got.

I want now to say a little about the Basle disaster. The feeling is growing that we have waited long enough for a preliminary indication of what happened. I quote briefly from one of the Swiss sources provided to me, and I must apologise if the Swiss consider it to be an unreliable newspaper. It is from LNN Aktuell, and it is an extract from one of a number of articles which appeared on the anniversary of the crash when a monument was unveiled at Hochwald. It reads: AL bore the headline:

The Berner Tagblatt of Wednesday, 10th April said:

The accident investigation branch of the DTI issued a statement which said:

One has to know the cause of the accident in order to establish who shall be approached for compensation. Therefore, nothing can be done by the local representatives of the victims until the report is published.

The method of assessing damages is well established under common law. Very simply, it is a multiplication of the earnings of the individual concerned times his life potential. Then there are discounts for the payment of a lump sum and other factors. Lord Pearson is chairing a Royal Commission on civil liability and compensation for personal injuries, and I am certain that he will be considering these points. But the payment of £500 or thereabouts for a person with no dependants is wildly out of date.

Perhaps those who decide these things —I understand that the figure is usually decided within the legal system itself—should have another good look at this, because £500 causes a good deal of ill-feeling to the relatives, even if they had no financial connection with the person involved.

The second matter, relating to damages, is slightly technical. The Law Reform (Miscellaneous Provisions) Act 1971 contained an anomaly, in that it stopped a widow being paraded before a judge so that her remarriage prospects could be assessed but did not have the same effect when assessing damages recoverable by children. The Law Commissioners already recognise this, and a Bill is in draft to put this right. Perhaps the Minister could persuade the Lord Chancellor, or whoever is responsible, to see whether an amending Bill could be put quickly through the House, because that would help.

I hope that in future consideration can be given to the delay that takes place in the payment of damages after an aircraft accident. Perhaps the airlines could set up a buffer fund, or perhaps the Government could pay out at least two-thirds, say, to deal with the lengthy legal proceedings which will subsequently transpire, particularly in a complicated accident like that of the DC10.

Finally, the names and contact address or telephone number of every passenger should be in the possession of the airline before the aircraft leaves. This would be simple to put on the ticket. I know that the airlines do not like it, but the time has come to insist upon it. I welcome the steps taken by this Government and their predecessors to see that, after an accident a proper information centre is made available, so that the hundreds and sometimes thousands who wish to make inquiries can be accommodated.

1.14 a.m.

I am grateful to the hon. Member for Weston-super-Mare (Mr. Wiggin) for giving me a somewhat truncated opportunity to explain the complex situation which affects dependants of victims in aircraft accidents, which were so tragically highlighted by the recent DC10 disaster and equally horrendously by the Basle disaster, which tragically affected so many of his constituents. I may not be able to cover all the points that he has raised in a moderate and helpful manner and if I cannot, I shall write to him on the others.

I also cannot discuss in any detail the two specific cases to which the hon. Gentleman referred, because they are both the subject of inquiries and it would be improper for me to make comments on matters which are, in effect sub judice. But I hope that I shall be able to satisfy the House that the Government are making a real effort, both nationally and internationally, to bring about substantial improvements and to try to achieve greater co-ordination in the way in which these sensitive matters are dealt with.

I shall try to deal with the matters in the order in which the hon. Gentleman raised them. I begin, as he did, with the question of passenger compensation generally. Let me make a general but important point. It concerns the size of offers and awards of compensation for death or injury, in any sort of accident. It is difficult to compartmentalise air accidents from other sort of accidents which give rise to personal injury or death. The matters to which the hon. Gentleman alluded are being looked at by the Pearson Commission. This will cover not only personal injuries and death claims, but specific claims arising out of fatalities and injuries in transport.

The hon. Gentleman rightly referred to the question of the amount of damages to be awarded. This was one of the many reasons that the Pearson Commission was established, and this is of course a matter the commission will be considering. Whatever views one may form about the situation at present, this is something which, whether we like it or not, must be fitted into the general law of the land. These issues cannot be related to the horrendous situation which has been caused by recent disasters.

The hon. Gentleman referred to the question of making advances of compensation. I fully appreciate that a delay of months, or even weeks, may cause great hardship in cases where people are deprived of damages to which they may ultimately be entitled. I am advised that reasonable airlines, or their insurers, are prepared to consider making payments in advance in such cases, but the whole matter must remain in the discretion of legal advisers. Those advisers, whether acting for plaintiff or defendant, must determine the tactical advantage of the strategy involved in accepting a payment on account. It could be regarded as being prejudicial. As for the Pearson Commission, my Department and the Civil Aviation Authority expect to submit evidence to the commission. We look forward in due course to seeing its conclusions and recommendations.

I have given some thought to the question of the Government's advancing compensation, either fully or in part, as soon as possible after an accident has occurred. I find that argument superficially attractive, but it would create immense problems. As the law stands at present, it could have the effect of stimulating litigation rather than discouraging it. Pressures on the part of a defendant to settle could disappear with the knowledge that the plaintiff had already received compensation, and it could affect the defendant's tactics. It is also conceivable that in the event of a defendant's establishing that a claim is worthless, or much smaller than the plaintiff contemplated, the Government would not recoup the sum paid on account. This is a matter which I hope will fall to be considered by the Pearson Commission. I shall certainly look at it afresh.

The hon. Gentleman rightly referred to the inadequacy of the Warsaw-Hague limit. There is no doubt that the limits of liability have been eroded with time, inflation and so on, and that the periodic sterling equivalents orders have been of only marginal help in keeping up the effective limits. On the other hand, however, as the hon. Gentleman said, there are some advantages in the Warsaw-Hague system over the much more anarchic situation which might prevail if we were to return to the old system, or if there were no agreements at all. For example, one of the main purposes of the Warsaw Convention was to try to create some uniformity of law. It had some effect in that regard. It reversed the customary burden of proof. Certainly we would not want to return to the old system there. Indeed, if we were to do so, it would only produce more frequent and contentious litigation.

But there is no doubt that there are tremendous uncertainties and difficulties internationally. The hon. Gentleman has indicated only too well that he is aware of them.

The hon. Gentleman referred to the Guatemala Protocol. I agree that if that could be implemented it would do a great deal to resolve some of the problems that exist. We should have far higher limits of liability. There would be a maximum, at current sterling terms, of about £52,000. It would provide for "no fault" liability, and the limits would be "unbreakable". There are these tremendous advantages. None the less, great difficulties surround the situation. Although I cannot go into them in any detail, the protocol provides, as the hon. Gentleman said, for its implementation only when the United States ratifies—and that the United States has not done at present. But we are hopeful that there will be some progress in this matter and that the United States will ratify during 1975. Our inquiries tend to indicate, however, that there is nothing that we can do to hasten that event, although we take every opportunity to stress our concern about it.

The hon. Gentleman asked why we do not ourselves ratify. We may yet do so. But what the Government, and, indeed, our predecessors, were anxious to achieve is to be able to determine the right time to do that, because the advantages of this course of action must outweigh the disadvantages of tying our own hands, which might happen at the present time. We could find ourselves in an awkward position if, after we had ratified, other countries chose to go down some other route which we, for the sake of a uniform system, might also have wished to follow; so we might be prejudicing ourselves. But we shall watch the international situation carefully and await the right moment for ratification. We are by no means inactive in this matter.

The hon. Gentleman rightly referred to the question of what we were doing nationally, so to speak, about higher limits. As I have indicated, the Civil Aviation Authority, with the Government's full endorsement, has for some time been exploring with British airlines the prospect of an early introduction of substantially higher limits of passenger liability—possibly as a condition of their air transport licences. Meanwhile, it is right to pay tribute to British Airways for introducing, as from 1st April, a limit of liability of £25,000, exclusive of legal costs, on international carriage performed on their services. The domestic limit, of course, already stands at about £31,000 in sterling terms. This has been a most valuable example, and I am extremely pleased to be able to announce that, following the CAA's initiative, and further pressure which I encouraged recently, I have been advised today that British Caledonian is now in the course of introducing a similar limit of up to £25,000 on the basis of "no fault" liability on its scheduled services. I am encouraging the CAA to examine with the airline the question affecting its non-scheduled services.

Pending the authority's action on this matter, I would have hoped that other independents might by now have indicated an intention of following suit. I am sure that the CAA, aided by the Government, will continue to exercise pressure to achieve this end. However—and this is a very important point—we need also to see whether civil aviation authorities in other countries may be persuaded of the advantages of applying similar principles.

It is precisely for this purpose that representatives of the civil aviation authorities of about a dozen other European Governments have been invited to London at the end of this month for informal discussions under the auspices of the CAA about the adoption of similar measures across a wider front. I think that that will gratify the hon. Gentleman and the House. This move has the fullest support of the Government.

The countries that will be represented will include most of those which are known to share our concern in these matters, but if the discussions are fruitful we hope that others will take steps to cause their airlines to follow suit.

The hon. Gentleman referred to the tragic Basle disaster. I understand that the Swiss authorities, who are responsible for this investigation, are making progress as rapidly as the difficult and complicated circumstances of the case allow. Of course, the relatives are concerned about the outcome, as the country must be, and the House can be assured that we shall do all we can to help the Swiss authorities to bring their inquiries to an early conclusion. But it is a Swiss inquiry, and not within our control.

The hon. Gentleman referred to certain Press reports. I can only deplore the fact that some misleading comment has been published, which has not been helpful. It would be premature for me to speculate about the conclusions of the investigation, as it is still proceeding.

We have considered the hon. Gentleman's point about addresses on tickets. My right hon. Friend the Secretary of State has written to him about it. I shall look at the situation afresh. My mind is not closed to any possibility of improvement.

There is a great deal that I should have liked to add if time permitted, but I shall refer to just one other point—insurance generally. I hope that people will insure themselves and that airlines will encourage them to do so. This matter has perhaps not been given the attention that it should have had. It is not too difficult to point out to passengers that it is possible to make arrangements for personal flight insurance before they fly. This form of personal insurance is not inhibited in any way by the limits of compensation operating nationally or internationally. It is not expensive, and I hope that people will take advantage of it.

Generally speaking, we think that we have the balance right.

The Question having been proposed after Ten o'clock on Thursday evening and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty-seven minutes past One o'clock.