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Commons Chamber

Volume 41: debated on Monday 25 April 1983

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House Of Commons

Monday 25 April 1983

The House met at half past Two o'oclock

Prayers

[MR. SPEAKER in the Chair]

Private Business

EPSOM AND WALTON DOWNS REGULATION BILL [Lords]

Order read for resuming adjourned debate on Question [21 April]

That the Committee on the Epsom and Walton Downs Regulation Bill [Lords] have leave to visit and inspect Walton Downs, provided that no evidence shall be taken in the course of such visit and that any party who has made an Appearance before the Committee be permitted to attend by their Counsel, Agent or other representative.—[Mr. Garel-Jones]

Question again proposed.

Question put and agreed to.

Oral Answers To Questions

Trade

Insolvency Law Review Committee

1.

asked the Minister for Trade what progress he has made towards implementation of the recommendations of the Insolvency Law Review Committee.

The Government have accepted the general principles underlying the committee's report. Accordingly, urgent consideration is being given to the programme of legislation which would be needed to provide a modern body of insolvency law. However, translation of the recommendations into legislation will be a time-consuming task and I cannot say when that will be completed.

I am grateful for that reply. Will my hon. Friend continue to impress upon his right hon. and noble Friend the Secretary of State for Trade the urgent need for insolvency law reform? When will a White Paper or a Bill be published?

I cannot yet answer the second part of my hon. Friend's question, but I can assure him that we are mindful of the urgency of this matter and we think that something should be done as soon as possible.

When will the Minister act on his own words and prevent directors winding up a company one day and setting up another one the next day, however improperly they may have acted, thus bilking their debtors and the public and bringing the entire system into the type of disrepute that the Minister, above all, would wish to avoid?

I share the hon. and learned Gentleman's views on this matter. I think that it is an abuse of the present position when people are able to do that. The difficulty is to find a way of curbing it without at the same time curbing genuine, honest traders. I am mindful of this point, but I am also mindful of the need to examine the qualifications of people who set themselves up as liquidators.

I thank my hon. Friend for that sympathetic reply. Does he accept that, while I agree entirely that no one should be milked by bankrupts setting up immediately after be mg declared bankrupt, nevertheless great hardship can arise among those who wish to rehabilitate themselves and make a living for their company. I am glad that my hon. Friend is taking this matter seriously.

The Minister will recall the recommendation of the Cork committee on the appointment of an administrator in cases of insolvency. Would not that be a useful interim measure which the Government could carry into effect if they decided not to hold an early election arid needed legislation with which to carry on?

The appointment of an administrator was one of the important recommendations of the Cork report. It is an attractive recommendation, but I think that it is important to consult properly on the implications before we start making announcements.

It is not good enough to bottle up the recommendations of the Cork committee. It gave five years' consideration to this important matter, including a year spent inside the Department of Trade. For the Minister simply to say that the matter is complicated is not good enough. Will he at least publish a Green Paper in the present Session of Parliament, or in the next, to ensure that we can start to make progress on a matter which most people recognise as long overdue for legislation?

I do not agree with every word that the hon. Gentleman has said, but I share his sense of urgency and we shall try to produce a statement as soon as we can.

Motor Industry

3.

asked the Minister for Trade if he will make a statement on the overall balance of trade for the motor vehicle industry, including the component sector.

The crude trade deficit for the motor industry in 1982 was £1,278 million. This figures includes a crude trade surplus of £506 million on trade in components.

I thank the hon. and learned Gentleman for that information. Is he not concerned about the fact that the deficit on the complete unit side used to be far more than compensated for by a surplus on the component side and the component surplus is now in danger of diminishing? Does he accept that legislation will be necessary in this country, as has already been introduced in other countries, to ensure that we do not degenerate into an assembly-only motor industry—the assembly of other people's imported cars using other countries' components?

The statistics show that the export figures for motor vehicles and the value of exports remain constant. There was, however, a short upsurge in imports last year. I do not think that the House would expect me to legislate against decisions of our fellow countrymen. As the hon. Gentleman may possibly be contemplating a return to midland politics, I shall give him a piece of good news. Contrasting the past three months with the previous three months, engineering exports have increased by 8·5 per cent. There is great vitality in that sector.

Would it not help our trade in motor car components if the manufacturers of every type of car advertised for sale in the United Kingdom had to give, among other information, the proportion of the United Kingdom value added content of their cars?

I suspect that that would impose an intolerable burden on motor car retailers. I suspect also that it would be difficult to determine precise amounts. I recognise my hon. Friend's concern, but I am not certain that he has offered a practical solution.

Does the Minister appreciate that the British public, who are being invited to buy German-made Fords and Vauxhalls, are under the impression that they are buying British? Will he take steps to ensure that the vehicle identification number on foreign-made cars is displayed conspicuously and that purchasers are informed of what it means?

It may be patronising, but I always try to educate our compatriots in what they are buying. The right hon. and learned Gentleman will appreciate that there are European regulations of which account must be taken before the solution that he has suggested can be adopted.

Hosiery And Knitwear Industries

4.

asked the Minister for Trade what were the levels of United Kingdom imports and exports for the hosiery and synthetic and non-synthetic knitwear industries for the last three months for which records are available.

In the period December 1982 to February 1983 United Kingdom imports of hosiery and knitwear were valued at £130 million cif and exports at £70 million fob.

Does the hon. and learned Gentleman not recognise the disastrous state of this and other traditional industries in places such as Leicester, where unemployment is at a fearful level? Does he not regard the trumpeted allegations of an upturn as a pre-election fraud that is being perpetrated against the background of a growing army of unemployed?

I recognise that the hon. and learned Gentleman is a stout champion of his constituency interests, but his rhetoric does not accord with the facts. Employment in the industry has been reasonably stable over the past couple of years.

Will my hon. and learned Friend consider carefully the proposed takeover of Thomas Tilling by BTR, the effect of which could be the exporting of a great many textile jobs as a result of BTR utilising manufacturing capacity overseas? In the light of this, will he reconsider the possibility of referring the matter to the Monopolies and Mergers Commission?

I take note of what my hon. Friend has said. I remind the House that the new multi-fibre arrangement has recently been negotiated, which will provide a considerable measure of protection for the United Kingdom textile industry. It will enable it to plan ahead with security over the next couple of years.

On a point of order, Mr. Speaker. In view of the totally unsatisfactory answer to that question, I give notice that I shall seek to raise the issue on the Adjournment at the earliest opportunity.

British Airways

5.

asked the Minister for Trade when he expects to receive the accounts of British Airways for the financial year 1982–83.

I expect to receive British Airways' audited accounts for 1982–83 in the second half of June.

Does the Minister accept that a capital reconstruction, or the writing-off, of British Airways' debts is an essential prerequisite to fulfilling his personal ambition of selling off British Airways to the private sector?

Selling off British Airways is a personal ambition of mine that is shared by the entire Government. It is our wish to sell off British Airways as soon as possible. The Government have not made up their mind about a capital reconstruction.

I welcome the substantial progress that has been made by British Airways towards financial success. However, will my hon. Friend ensure the maximum effort by his Department to stop the stupid actions that are now being pursued by lawyers in the United States to put the blame for the unfortunate demise of Laker Airways on British Airways and British Caledonian?

I am glad to hear my hon. Friend praise the splendid performance of British Airways in the past year. That is something that I look forward to hearing from Opposition Members. I hope that they will pay tribute to the amazing turnround from loss into profit. I am glad to be able to tell my hon. Friend that a high-powered delegation from the Department of Trade will start negotiating in Washington tomorrow on the very matter to which he referred.

Is the Minister aware that the Opposition need no lessons in supporting nationalised industries? Indeed, we are pleased to see nationalised industries prosper. It is a pity that the Government seem determined to sell off nationalised industries once they appear to be making a profit for the taxpayer. Is it not the case that the consultants—Price Waterhouse—told the Government that if British Airways were sold off, 75 per cent. of its debts would have to be written off—

Order. Question 14 asks exactly what the hon. Gentleman is asking and he cannot anticipate the answer to that question.

Will the Minister come clean and tell the public that it is his and the Government's intention to use up to £800 million of taxpayers' money to write off British Airways' debts and to sell off the airline after an election—and not before—to the private sector? Why does he not have the courage to tell the electorate that that is his intention?

I have already made clear the Government's attitude to a reconstruction in answering my hon. Friend the Member of Hastings (Mr. Warren). However, I am delighted, and surprised, to hear, at last, the Opposition congratulating British Airways on its splendid turnround from loss into profit.

I do not ask my hon. Friend to prevail upon British Airways to buy certain aeroplanes, but will he draw its attention to the fact that the Government may or may not be involved in the partial funding of the A320 Airbus, and that for British Airways to purchase other aeroplanes from America without considering the A320, when it comes to fruition, would not go down terribly well among many of my right hon. and hon. Friends who care about other involvements of the industry?

I am sure that the chairman of British Airways will take note of what my hon. Friend has said. However, it is not the Government's policy to force British Airways into making purchases into which it does not wish to enter. I remind the House that the Boeing 757 with Rolls-Royce engines has a higher British content than the current Airbuses.

Citizens Advice Bureaux

6.

asked the Minister for Trade why he has not renewed the normal annual grant to the National Association of Citizens Advice Bureaux.

The Government grant that goes to NACAB increased rapidly under this Government. Since 1979 it has increased from £1·85 million to £6·04 milliom this year. That is a sign of the support that the Government give the organisation. With these figures in mind, I thought it advisable to examine the distribution of these large sums of taxpayers' money. NACAB was without a director from April 1982 to February 1983, and it seemed wise to let the new director settle in and to review the allocation of money after six months. I stress that NACAB is funded in full for the first six months of this year—that is to September—so its work can be maintained. I have given assurances that the funding for the second half of the year will be continued should the review take longer than I hope.

Does the Minister still not accept that the damaging allegations, apparently made by someone in his Department, that appeared in The Sunday Times will not be corrected by an inquiry into the very different issue of saving money? Does he further recognise that a half-hour Adjournment debate is no substitute for a proper debate on the subject in Government time? Does he not appreciate that those who have to budget on behalf of NACAB are entitled to know whether they will have the funds to enable them to continue their activity before the bills arise for payment? Does he recognise that budgeting on a hand-to-mouth basis is an impossible way of proceeding for NACAB?

I can understand the right hon. and learned Gentleman's anxieties. I made it clear in my statement last week, and again during last Friday's Adjournment debate, that am not responsible for what individual journalists put in their articles. My Department did not confirm what appeared in the article in The Sunday Times and no contact was made with me. The two main points in the article—first, that I have cut NACAB's funds and, secondly, that I am influenced by another person in another area of activity—are totally incorrect.

Are not the real matters the distribution of these funds, the exact way in which they are distributed and whether large sums of money should be spent on training or for a new headquarters? Surely those are matters at which my hon. Friend has a right to look to ensure that the funds are used in the best interests. Is he aware that if he intends to do that he will have the support of the whole House?

I hope that in this matter I have the support of the whole House. It would be improper for me not to wish to see how these funds are distributed and the basis on which the allocation is made. I share my hon. Friend's views on that. It is important that if people do not want to damage this marvellous movement — [HON. MEMBERS: "Oh."] I have said so a number of times. If they do not want to damage it they should differentiate carefully between the funding of the citizens advice bureaux generally, which is done by local government, and the quality of work that they do, and the funding of the national association, a professional servicing body, which is funded by the Government.

Is not the whole affair yet another disgraceful but unsuccessfull attempt to smear the CAB and Joan Ruddock and is it not similar to the attack made by his colleague the Secretary of State for Defence at the weekend? Mrs. Ruddock is a scrupulous worker for CAB who would not dream of committing the misdemeanours alleged. As this is, in my view, a libellous statement, should not the Minister resign?

I do not accept what the hon. Gentleman says. If there is any question of smears and slurs, it seems that they have been directed much more at me and the Government.

While joining my hon. Friend in paying tribute to the work that the CAB does locally throughout the country, through thousands of volunteers, may I ask him to confirm that the review will be truly independent and will report at an early date?

I urge other hon. Members to follow the line that my hon. Friend has just put forward. It is vital that these matters are kept in perspective. As the Minister responsible for funding NACAB, I have agreed with it the need for a review, and that is now being progressed as rapidly as possible, and I stress "rapidly".

Regional Tourist Boards

7.

asked the Minister for Trade whether he has any plans for the reorganisation of the regional tourist boards.

The regional tourist boards are voluntary, not statutory, bodies, but I have been considering their role and receiving evidence from and about them in my review of tourism, the conclusions of which I hope to announce to the House shortly.

Is my hon. Friend aware that there is widespread support among all political parties in Wales for the work of the Wales Tourist Board and that whatever may be the arguments for rationalisation in this sphere—and there are strong arguments—it would be extremely unpopular throughout Wales were the work of that board to be swept away?

It is certainly true that there are considerable areas where rationalisation would be welcome in the whole of the tourist structure. The Wales board is largely a matter for the Secretary of State for Wales.

Would it not be a good thing, and in accordance with Government thinking, if the other tourist boards were also voluntary, not statutory?

Does my hon. Friend agree that the tourist information centres at some of our ports and airports are of the utmost importance? In his review of these matters, will he do his utmost to ensure that those information centres continue?

My hon. Friend has been a strong fighter for tourist information centres in his area. He may like to know that there are now about 500 such centres throughout the country — a very strong network indeed. A distinction must be drawn between tourist information centres funded by local authorities and those funded by the English Tourist Board. It is those that have recently been called into question.

There are many beautiful areas that are never seen by overseas visitors. Will the Minister do more financially to encourage tourist boards to give more information to visitors to ensure that they go outside London and see our beautiful country? Will he take note that the Yorkshire tourist board is a very good board?

I agree with the hon. Gentleman about the Yorkshire board and I hope that all the regional tourist boards will take note of his wise words.

Does the Minister intend to increase or decrease, Government assistance to tourist boards?

Merchant Shipping

8.

asked the Minister for Trade what responses he has received to his statement in March on the Government's policy towards merchant shipping.

The General Council of British Shipping, National Union of Seamen, Merchant Navy and Airline Officers Association, Mercantile Marine Services Association and Radio and Electronic Officers Union have responded, and I have received 19 other letters, some of them duplicates.

Is the Minister aware that few ministerial statements in this Parliament have been so roundly and universally condemned as his statement of 18 March about the British shipping industry? Was not his statement simply a political smokescreen for the complete absence of any new Government initiatives to halt what is a disastrous decline in our shipping industry? When will the Minister face the damage that is being done to British shipping and take some specific and urgent action to help the industry? Or is it simply to be allowed to sink?

The hon. Gentleman asks when I will take some action. He cannot have been following matters closely if he does not know that in the past few weeks alone I have taken getting on for a couple of dozen measures to reduce the burden currently on the British Merchant Navy. The answers to which I referred in my statement — falling back on subsidy and feeble protectionism — cannot be the answer to the British Merchant Navy, which must make itself more competitive vis-a-vis other merchant navies.

Is the Minister aware that while many people question the astronomic sums that are being spent on the alleged defence of the United Kingdom, for a country calling itself a maritime nation to have reduced its merchant marine by 50 per cent. within six years and to propose to cut the Coastguard is regarded as lunatic?

The right hon. Gentleman is totally wrong if he thinks that we intend to reduce the effectiveness of the Coastguard. That is not true. The Merchant Navy's role in time of war is kept under constant review by my Department and by my right hon. and hon. Friends at the Ministry of Defence.

Is the Minister aware that all sensible observers of the shipping industry agree with his refreshing and robust action in support of the industry? Does he agree that subsidies and protectionism are no lasting solution to the problems of the industry? Would it not be better for the owners and unions to get together and effectively appraise the markets that are available and get into some of those territories, which is where they should be?

I could not have expressed it better myself. The sooner the shipping industry realises that the only way to halt and reverse the decline of the Merchant Navy—which can be done—is to make our Merchant Navy more competitive and to analyse those world markets where it can succeed, the better.

Has the Minister received a letter from the Merchant Navy and Airline Officers Association repudiating the allegation that he made in the recent Adjournment debate on shipping to the effect that it and other trade unions had agreed to a reduction in safety standards—as announced by him in regulations on 18 March—and will he take this opportunity to withdraw that statement which he made to the House of Commons and which was false?

I wrote to the National Union of Seamen and the Merchant Navy and Airline Officers Association on 2 March. The National Union of Seamen replied on 14 March, and I made my announcement on 18 March. The Merchant Navy and Airline Officers Association did not reply until 24 March. It does not agree with what I am doing, but that does not mean that I am not right. I believe that I am.

9.

asked the Minister for Trade what assessment he has made of the level of manning and other costs on United Kingdom merchant shipping compared with those of other European merchant fleets.

My assessment, based on a representative sample, as I have already told the House, is that the greatest variation of cost between United Kingdom and other European merchant fleets arises from the cost of crewing. Manning is of course an important determinant of crew costs, as are rates of pay, frequencies of crew change, and length of paid leave.

Will the Minister confirm The Times report of 30 March, which outlined a list of issues which the Minister has asked his officials to consider? If the hon. Gentleman's purpose is much more wide-ranging than manning, and if he acknowledges the failure of his laissez-faire approach to shipping policy, will he now ensure that a detailed inquiry is conducted impartially, jointly with all sides of industry, with terms of reference that enable the inquiry also to consider the problem of low wage flags of convenience and to carry out a detailed comparison of financial and non-financial Government support to merchant shipping in other countries—measures which the Government have resolutely refused to bring forward, while the merchant shipping industry is collapsing?

I cannot be expected to keep in my head every word that The Times printed on this subject on 30 March. However, as far as I remember, it said that I was going to do a proper analysis of the British Merchant Navy compared with our best European competitors. That is what I shall do.

That is a curious way for the Minister to announce to the House that he has concluded that there is 25 per cent. overmanning and that he will conduct an inquiry into it. Will he assure the House that he will make sure that his inspectors do not continue to reduce crews on small vessels while the inquiry is under way? Will he assure us that the Rayner inquiry that recommended the cutbacks in the numbers of coastguards will be rejected by him and that he will reject the idea of charging people for being rescued?

That was an interestingly varied question. The Rayner review was placed in the Library of the House of Commons. I hope to come to some conclusions on the Rayner review by about the end of June. As I have told the House several times, I have taken a representative sample comparing our crew levels with those of our European competitors. I am sorry to have to tell the House that in too many cases British vessels—some 25 per cent. and more—are overmanned in comparison with our best European competitors. The Merchant Navy cannot continue that overmanning if it is to be competitive.

Spain (Tariffs)

10.

asked the Minister for Trade what initiatives he intends to take further to reduce the differentials in tariffs between the United Kingdom and Spain in view of their inhibiting effect on British manufacturing exports.

Spain's recent decision to open reduced-duty quotas for certain cars, and her commitment to introduce VAT before the end of next year, will significantly improve access for British exports. The current negotiations for Spain's accession to the European Community offer the best means of obtaining further improvements.

Notwithstanding that reply, Spain's accession is still some way off and the present arrangements manifestly benefit Spain, to the grave disadvantage of British manufacturing in the car industry, particularly in the west midlands. To accelerate Spain's acceptance of greater equality of tariff arrangements, can my hon. and learned Friend actively pursue the question whether there should be a restriction on the number of cars coming into this country until Spain agrees to similar tariff levels?

My hon. Friend would get the problem into a little more perspective if he realised that our visible trade with Spain has been roughly balanced over the past few years. In January and February of this year there was a surplus on visible trade. However, I believe that the agreement that has been negotiated between the Community and Spain will offer significant further opportunities to British motor cars. I am sure that British Leyland has two world beaters that will sell effectively on the Spanish market.

Does the hon. and learned Gentleman not appreciate that the tariff disparity is not confined to the motor vehicle industry? British-made footwear exported to Spain faces a tariff of 32 per cent., against a tariff of 4·8 per cent. the other way. Does he appreciate that even the much heralded concessions in relation to motor vehicles apply to a mere 15,000 cars over a 12-month period for the whole of the EC? Does he not appreciate that the British car industry cannot wait for a fair deal until Spain ultimately joins the Community?

If the right hon. and learned Gentleman had studied the problem closely, he would realise that British Leyland has not had a developed retail dealer network in Spain for the past six or seven years, so it will be a year or two before it can take advantage even of the concessions that have been extracted from Spain.

Is my hon. and learned Friend aware that in the west midlands many people are becoming increasingly angered by the diplomatic ditherings through the EC on this issue and that many others are becoming painfully aware that, were this country not a member of the EC, the matter could be negotiated unilaterally?

I am unaware of what diplomatic ditherings my hon. Friend refers to. If he had been in the Chamber earlier he would have recognised that export engineering orders are up and that the output of Jaguar is up. My hon. Friend's gloom is not justified.

Does the Minister accept that there is real concern about the matter in the car and car components industries? Will he bear in mind what his hon. Friend the Member for Wolverhpampton, South-West (Mr. Budgen) said about the dithering on this matter? Will he also consider the proposal of by his hon. Friend the Member for Aldridge-Brownhills (Mr. Shepherd) that, until the matter is settled, there should be some restriction on the import of cars from Spain?

The hon. Gentleman seems unaware that imports of Spanish cars have been dropping at the rate of 10,000 a year over the past three years.

British Airways

11.

asked the Minister for Trade when next he plans to meet the chairman of British Airways to discuss the finances of the airline.

My right hon. and noble Friend and I are in frequent contact with the chairman of British Airways on a wide range of matters, including the airline's finances.

How much taxpayers' money has gone into British Airways in the past two financial years?

I cannot say precisely without notice how much taxpayers' money has gone into British Airways over the past two years. However, as the House well knows, the point is not the precise injection of taxpayers' money, but the Government's underwriting in the past of British Airways' lunatic bills, which currently have put British Airways' debt at over £1 billion, to the detriment of the private sector.

Is it not becoming increasingly clear that, by any standard, the position of British Airways has immeasurably improved over that of a year ago, and that whether one looks at it from the point of view of reduced staff, increased productivity or the greater preparedness of British people to patronise British Airways, we are well on the way to changing a massive deficit of £500 million into a substantial profit in the financial year just ended?

Yes, Sir. That deserves the applause of hon. Members on both sides of the House. Having turned in a loss last year of £544 million, British Airways is about to turn in a happy profit this year. It reflects the greatest credit on the chairman of British Airways, Sir John King, and all the staff at all levels that they have managed to put the airline right. I should be a little more pleased if I thought that Opposition Members were a wee bit cheerier about that almost miraculous turnround.

In an uncharacteristic attempt to lower the temperature, may I ask the Minister to assure the chairman, when he discusses with him the future of British Airways, that there is all-party support in the House for the proposition that the United States' claim to impose its anti-trust legislation on an extra-territorial basis is an indefensible usurpation, contrary to international law, and will be resisted whichever Government are in power in the United Kingdom?

I shall respond in a low-key way. I am deeply grateful for the support of the right hon. and learned Gentleman in what he has just said. I remind the House that my officials begin in Washington tomorrow to point out to the United States that we already have an agreement, Bermuda 2, under which these matters should be settled.

British Airports Authority

12.

asked the Minister for Trade if he has any plans to meet the chairman of the British Airports Authority to discuss the financial performance of the authority.

I meet the chairman of the British Airports Authority regularly to discuss many matters concerning the authority, including its financial performance.

When the Minister next meets the chairman, will he discuss with him the story in The Sunday Times of 10 April about the Government's intention to sell off the British Airports Authority and will he seek to justify that decision in view of the authority's consistent profitability?

I am glad to pay tribute to the authority's consistent profitability since 1966. I certainly undertake to discuss with the chairman the whole question of privatisation of the authority and I shall gladly listen with the closest interest to what he has to say.

Are not the authority's finances sufficiently robust for one to say that it is reasonable that it should finance the costs of the daily transcripts of the current airports inquiry, much as the CEGB does for the Sizewell inquiry?

Philippines

13.

asked the Minister for Trade how many official trade missions visited the Philippines in 1981 and 1982.

In 1981 there were four trade missions assisted by the BOTB under its outward mission scheme, and in 1982 there were two such missions.

In promoting trade with the Philippines, do the Government take account of the disreputable nature of the regime and the gross abuse of human rights there?

If this country's exports and trade were restricted to countries that had not been criticised by Amnesty International— a body for which I have the profoundest respect—the prospects for exports, and thus for jobs, especially in Sheffield, would be bleak indeed.

As the countries of south-east Asia are among the fastest growing in the world, does my hon. and learned Friend agree that if we in Europe wish our economies to recover one of the soundest bases for that would be an increase in exports to that part of the world?

My hon. Friend has identified one of the best and fastest growing British export markets. The hon. Member for Sheffield, Heeley (Mr. Hooley) may be encouraged to know that Davy McKee, a company well represented in his constituency, now has a letter of intent to manufacture a steel plant in Iligan. I hope that he and the House will take comfort from that achievement.

Zimbabwe

15.

asked the Minister for Trade if he will make a statement on current trade with Zimbabwe.

British exports fob to Zimbabwe in 1982 amounted to £95 million, and imports from Zimbabwe cif amounted to £63 million. The expansion of trade between our countries since Zimbabwe's independence has been very encouraging. I hope that these trends will continue, in spite of very strong international competition.

Will my hon. and learned Friend do what he can to continue free enterprise trade links with Zimbabwe, nothwithstanding the dreadful and disastrous moves towards a one-party Marxist state there?

I reassure my hon. Friend and the House that the United Kingdom is now the largest donor of bilateral aid to Zimbabwe, that there is a full range of BOTB support for British exports to that country, and that I believe that £200 million worth of projects with that country involving United Kingdom companies are now in the pipeline.

Tourism

16.

asked the Minister for Trade if he will now make a statement on the reorganisation of tourism services being studied by his Department.

Will my hon. Friend be introducing proposals for consultation, or for implementation? If the latter, may we have a debate? In the light of what he said to my hon. Friend the Member for Flint, West (Sir A. Meyer) earlier, can he assure me that his discussions with the Welsh Office and the Scottish Office have taken on board the importance of keeping the Wales Tourist Board and the Scottish Tourist Board in line with the negotiations that he has been conducting?

As for whether the proposals that I announce will be for discussion or for implementation, some will be one thing and others another, but mainly they will be for implemetation. I should very much welcome a debate in the House. My right hon. Friend the Leader of the House has been listening attentively to all that has been said. If a debate can be arranged, I shall be delighted. I am in close touch with my right hon. and hon. Friends at the Scottish Office and the Welsh Office and I am sure that they will support everything that I propose.

Far from merely maintaining the present position of the Scottish Tourist Board, will the Minister consider giving it greater autonomy in Scotland and abroad so as to bring more tourists to Scotland, especially as he has cut and run to a seat that will depend very much on tourism in the future?

Keeping the temperature of the debate as low as possible, following the advice of the right hon. and learned Member for Warley, West (Mr. Archer), I am acutely aware of the wish of the Scottish Tourist Board to have more powers to promote its area. That desire is not confined to Scotland, but extends to Wales and to London. I hope to announce my conclusions on all these matters before too long.

Company Liquidations

17.

asked the Minister for Trade what representations he has received about companies in liquidation and the problems facing unsecured creditors; and if he will make a statement.

My Department has received and continues to receive many representations about companies in liquidation and the claims of unsecured creditors. These particularly seek a strengthening of the laws governing payments in advance and directors' conduct, and a restriction on the ease with which directors can set up another company without regard to the debts outstanding from an earlier liquidation. These matters were among those considered by the Insolvency Law Review Committee to which I referred in my answer earlier today to my hon. Friend the Member for Beaconsfield (Mr. Smith).

Does the Minister accept that urgent action is needed in view of the thousands of tragedies that have occurred in terms of home improvements not carried out, holidays lost and so on? Will he at least consider the matter to which he referred, which is the ability of directors who are in debt to set up other companies at will?

I accept entirely what the hon. Gentleman says about this. As he knows from my answers earlier today and on previous occasions, I share his concern. I think he will also accept, however, that the recommendations of the Cork committee are extremely complex and form an interrelated and integrated package. I am considering whether some matters can be pulled out of the package for advance legislation, but it is extremely difficult.

Does my hon. Friend agree that one of the most worrying aspects of this is the problem of people making payments to small businesses which claim to be able to carry out home improvements but which then go bust, and the directors simply move to the next town to repeat the same fiasco? Does my hon. Friend agree that the losers are, first, those interested in the future of small businesses, and, secondly, the unfortunate consumers, who are repreatedly taken for a ride?

I share my hon. Friend's concern. It is an absolute disgrace that small people who cannot carry debts of this kind are unwittingly led into these situations by unscrupulous traders who repeat the same process time and again. I should be glad to hear of any instances that hon. Members come across, as I wish to do something about this.

Does the Minister agree with the Cork committee view that the scales are weighted far too heavily in favour of preferential creditors and debenture holders, especially those with floating charges? Does he endorse the recommendation that at least 10 per cent. of a company's funds should be made available for unsecured creditors?

As the hon. Gentleman knows, we are considering both those matters. Discussions are currently taking place and I hope fairly soon to be able to bring proposals before the House. I ask the House to be patient, however, as it is a very complicated matter.

Origin Marking

18.

asked the Minister for Trade when the Government intend to bring forward further proposals for origin marking.

Is my hon. Friend aware—I am sure that he is—that a great number of loyal, patriotic people are very keen to buy British goods, not only because they are the best but because they are British, but that they sometimes find it difficult to identify such goods? The whole country will be delighted when he comes forward with proposals. Will he do so as soon as possible, especially in relation to imported motor cars, as many people buying Fords or Vauxhalls would like to know whether they are produced here or imported?

Every customer has a right to know when buying any commodity the quality of the product and its safety and from where it has come. I share my hon. Friend's views. We have obligations within the Community, which we share with other members of the Community, but I am looking at the present origin marking regulations, which were brought in only at the beginning of last year, to see whether we can improve them. At the same time, as I have said previously, we are also looking at whether more can be done about the safety of goods.

Overseas Development

Falkland Islands

42.

asked the Secretary of State for Foreign and Commonwealth Affairs what has been the total expenditure of his Department in the Falkland Islands over the most recent conveniently available period.

In the last financial year, approximately £10·5 million was disbursed from aid Votes and a further £2·24 million was paid out under the Falkland Islands war damage compensation scheme.

Overall, £2·75 million has been spent per soul—per Falkland Islander. Does it not demean both them and us when such difficulties are placed in the way of the Argentine bereaved going to the islands? What is the difficulty about cameras? Did not the Minister have cameras when he went? Did not she have a cavalcade of cameras when she went—

Does not this embarrassing refusal just make more bloodshed, in the form of a bee-sting attack, more likely?

The hon. Gentleman knows perfectly well that his question has nothing to do with overseas development.

May I first warmly welcome the increase in overseas development expenditure in the Falkland Islands? Can my right hon. Friend say whether he has a programme for increasing overseas development expenditure in the other dependencies of Great Britain?

We are very conscious of our responsibilities towards our other dependencies, including Gibraltar and the Turks and Caicos Islands. We bear in mind constantly the need to look after them. The record shows that we look after them very well.

Voluntary Aid Agencies

43.

asked the Secretary of State for Foreign and Commonwealth Affairs when he expects to meet the leaders of British voluntary aid agencies to discuss the level of central funding of the agencies.

I have, of course, had contacts with the leaders of a number of voluntary agencies; and I expect to have further meetings at which funding will no doubt be discussed.

When the right hon. Gentleman has his next meeting, does he expect to be in a position to outline any possibility of increasing Government aid to the agencies for such schemes as the pound for pound scheme aimed at assisting the poorest of the poor nations, which I understand to be the basis of the Government's approach to these matters?

I should like to have the possibility of increasing support for the pound for pound scheme, but I do not think that that is possible in the current year. Overall, our total assistance to the voluntary sector has gone up by 14 per cent. since last year and by 56 per cent. since 1979.

Having accepted what the Minsiter said about modest increases, may I ask him to undertake wherever possible to provide at least some additional hope to the leaders of those charitable institutions which do this wonderful job in overseas aid? Is it not true that the Third world's development problem is getting worse rather than better and that meagre increases on what was a meagre starting point are insufficient?

I am very committed to the importance of the voluntary sector. I might add that in the volunteer programme there has been an 18 per cent. increase on last year's provision and an 81 per cent. increase since 1978–79.

Aid

44.

asked the Secretary of State for Foreign and Commonwealth Affairs if he is satisfied with current methods of planning the levels of aid to developing countries.

I welcome that helpful reply. Does the Minister take into account when considering the planning of aid to developing countries such as Uganda the way in which they treat British citizens? For example, when the Minister considers, as I hope very much he will, the continuation and increase of aid to Uganda, will he take every opportunity to press the Ugandan Government to be generous in compensating those who were deprived of their property in Uganda by the Amin Government, including very many of my constituents, and to reconsider the need to extend the time for applications for such compensation?

Compensation is really a matter for the Minister of State, Foreign and Commonwealth Office, my hon. Friend the hon. Member for Woking (Mr. Onslow). However, there is no doubt that any help that we can give to strengthen the Ugandan economy will make it easier for the Ugandan Government to meet compensation claims.

Is the Minister prepared to look again at the proposed contribution to IDA 7? Does he recognise the importance of Britain giving a strong lead in expanding that fund? Will he bear in mind the discounted cost of an increased contribution over 10 years? Does he recognise the considerable trade benefits accruing to the United Kingdom if that fund is extended?

We recognise the great importance of IDA. We also recognise that British commercial interests get a very good return from money spent on IDA. The size of IDA 7 has not yet been settled, but obviously we shall be thinking about it carefully.

In considering that extra planning, is my right hon. Friend prepared to give even greater publicity to the splendid work that we already do in the way of overseas aid?

I am grateful for what my hon. Friend said about our aid programme. I hope that both he and I will seize every opportunity to make the country realise that we do extremely well in this important area.

In view of the grossly disproportionate amount of British aid to the Falkland Islands, would not it be better if such sums came off the defence budget, since that is what basically it is all about?

The hon. Gentleman has it wrong. The sums that I talked about are the development programme and the rehabilitation programme, both of which are administered by my Department. The spending in the Falkland Islands on development is justified in its own terms and is important for the confidence of the islanders.

India And Pakistan

45.

asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement concerning the current aid programmes to India and Pakistan.

We are continuing to support substantial aid programmes in both countries. Provisional amounts provided in the financial year 1982–83 were £105 million for India and 13·7 million for Pakistan, all on grant terms, without interest or repayment. In India we support a wide variety of projects, ranging from power stations and fertiliser plants to local cost projects in housing and health, aimed at the poorest people. In Pakistan we are now concentrating on the poorest provinces of Baluchistan and the North-West Frontier bordering Afghanistan, and we are also assisting relief to Afghan refugees.

I welcome the Minister's reply, which was most interesting and informative. Will he say whether the Government have any proposals to extend this help to rural communities by way of assistance to agriculture and irrigation and also to deal with malaria problems in the territories concerned?

We regard both health and agricultural development matters as of great importance. Our aid programme contributes substantially to both.

Can my right hon. Friend say how much of the aid granted by British taxpayers to India was used in the making of the film "Gandhi"?

I am not aware that any money from the aid programme went towards the making of the film "Gandhi", but, if I am wrong, I shall write to my hon. Friend.

Bearing in mind the figures given by the Minister earlier for aid to the Falkland Islands and aid to India, does he think that he might perhaps publish the amount of aid per person in India as against the amount per person in the Falkland Islands and also take into account the amount of aid per person in terms of the average standard of living in each country?

I am quite prepared to accept that the amount of aid per person in the Falkland Islands is substantially higher than the amount of aid per person in India. The Falkland Islands are a direct dependency of ours. Under the United Nations Charter we have a special responsibility towards them. It is a responsibility which, with very few exceptions, the whole country endorses.

Brandt Commission Report

48.

asked the Secretary of State for Foreign and Commonwealth Affairs what further consideration has been given to Her Majesty's Government's policy towards the proposals contained in the Brandt Commission's report, "Common Crisis".

As the hon. Member will know, my right hon. Friend the Secretary of State announced to the House on 18 April that he was arranging to publish a White Paper setting out in more detail the Government's position on the issues raised in the Brandt memorandum.

Although the Government have been a little more forthcoming on the second Brandt report than they were on the first, does the Minister not realise that this country should play a greater part in solving the problems facing the 800 million living in great poverty and on the border of starvation? Should we therefore not devote more of our resources to helping the people in these areas by increasing our overseas aid?

The Government have been extremely forthcoming about the second Brandt report "Common Crisis". We had a whole day's debate, which went on until midnight last week, and the response of my right hon. Friend and myself to it was positive.

Does my right hon. Friend agree that one of the things that both the first and second Brandt reports have emphasised is the importance to developing countries of private sector investment and trade flows? Will he ensure that, in the consultations within the Government about the second Brandt report, consideration is given to ensuring that these countries have as reasonable access as possible to private capital flows to allow such trade to continue?

Statutory Instruments &C

By leave of the House, I shall put together the Questions on the two motions relating to statutory instruments.

Ordered,

That the draft Rates (Amendment No. 2) (Northern Ireland) Order 1983 be referred to a Standing Committee on Statutory Instruments, &c.
That the draft Property (Discharge of Mortgage by Receipt) (Northern Ireland) Order 1983 be referred to a Standing Committee on Statutory Instruments, &c. — [Mr. Garel-Jones.]

Antigua And Barbuda (Independence Gift)

3.32 pm

The Lord President of the Council and Leader of the House of Commons
(Mr. John Biffen)

I beg to move,

That an humble Address be presented to Her Majesty, praying that Her Majesty will give directions that there be presented on behalf of this House a gift of a Speaker's Chair to the House of Representatives of Antigua and Barbuda, and assuring Her Majesty that this House will make good the expenses attending the same.
It is a tradition that this House offers a present suitable for use in a legislative assembly to the Parliaments of the Commonwealth countries to mark their independence. I am happy to be moving two motions today to give formal authorisation for such gifts. The first motion relates to the gift of a Speaker's chair for the House of Representatives of Antigua and Barbuda. This present was agreed after consultation with the authorities in Antigua and is now ready for presentation. It will be on display to hon. Members in the United Kingdom branch, CPA Rooms, on 27, 28 and 29 April, up to 4.30 pm each day.

If the House agrees to the motion, and to the following motion relating to a gift to Belize, a further motion will be moved for leave of absence to be given to a small delegation from the House for the presentation of these two gifts.

I commend the motion as an expression of the friendship and good will of this House to the House of Representatives of Antigua and Barbuda. I am sure that I speak for the whole House in expressing our warmest good wishes for the future of the Parliament and people of those islands.

3.33 pm

On behalf of the Opposition, I echo the words of the Leader of the House, and wish the people of Antigua and Barbuda all happiness and prosperity. We hope and trust that the gift that we make on behalf of the House will remind them of the importance which we attach, and which we know they attach, to democracy and freedom, which we believe are likely to flourish as much there as in the rather colder and mistier latitudes in which we live.

Question put and agreed to

Belize (Independence Gift)

3.33 pm

The Lord President of the Council and Leader of the House of Commons
(Mr. John Biffen)

I beg to move,

That an humble Address be presented to Her Majesty, praying that Her Majesty will give directions that there be presented on behalf of this House a gift of a Speaker's Chair to the House of Representatives of Belize, and assuring Her Majesty that this House will make good the expenses attending the same.
I am equally happy to move this motion to approve a gift of a Speaker's chair from this House to the House of Representatives of Belize. I again understand that this accords with the wishes of the Speaker of that House. It is a dignified and traditional feature of a legislative chamber.

This chair will also be on display in the United Kingdom branch, CPA rooms on 27, 28 and 29 April, up to 4.30 pm each day.

I am sure that the House will join me in supporting the motion, which conveys our warmest wishes for the happiness and prosperity of the people and Parliament of Belize.

3.34 pm

Once again, I should like to associate the Opposition with the words of the Leader of the House and, like him, wish the people of Belize happiness, prosperity and independence.

Question put and agreed to.

Orders Of The Day

Finance Bill

(Clauses 12, 16, 63, 73 and 88; new Clauses relating to the national insurance surcharge or the rate of value added tax first appearing on the Order Paper not later than 19 April.)

Considered in Committee.

[MR. BERNARD WEATHERILL in the Chair]

Ordered,

That the order in which proceedings in Committee of the whole House on the Finance Bill are to be taken shall be Clause 12, Clause 16, Clause 63, any new Clauses relating to the rate of value added tax, any new Clauses relating to the national insurance surcharge, Clause 88, Clause 73 and Schedule 11.—[Mr. Brittan.]

Clause 12

Charge Of Income Tax For1983–84

3.35 pm

I beg to move amendment No. 1, in page 8, line 10, after `charged', insert—

  • '(i) in respect of so much of an individual's total income as does not exceed £750 at the rate of 25 per cent.;
  • (ii)'.
  • Today we are starting the normally lengthy process of the Committee stage of the Finance Bill, first on the Floor of the House and then at somewhat greater lenght upstairs in Committee. We shall be discussing the various tax changes and our attitude to them in so far as we are able to table amendments that fall within the rules of the House.

    One thing that I find particularly disturbing in all the tax changes that we have witnessed under this Government is the way in which the division in the tax system has increasingly mirrored the division in the class system. I am not referring just to the concessions to the higher rate taxpayers on investment income surcharge, capital transfer tax and capital gains tax, even though those reliefs have been without parallel in our recent economic history.

    The Government have gone even beyond such actions. The taxation of unemployment and other benefits introduced the novel principle that no recipient of welfare payments could make a claim on any assessment to income tax after a period which was proposed as 30 days but, after the efforts of my hon. Friends and myself, was extended to 60 days. In that period, the schedule D taxpayer has hardly begun to formulate his income tax liability. The bureaucrats' decision was to be final, even if proof of the mistake were to be provided. The hasty, even impetuous action here contrasts strongly with the dilatory nature of the Government in dealing with tax avoidance and tax havens.

    The evidence published by the Government shows that they have been attacking those who have been on strike and are going on strike by witholding their tax refunds. That was one of the measures introduced by the Government to use the tax system to bring about changes in the way that people receive their tax refunds. As a result, two tax systems have been devised for the two classes in our society —or, as some of the remaining Tories on the Government Benches might call it, two tax systems for the two nations in our country.

    It is the workers' money, paid in advance under the PAYE system, that the State impounds. How different is the treatment meted out to those on schedule D, who pay their taxes much later, can appeal against unfair assessments and can claim reliefs on expenditures that are not even considered under the tax system devised for the employee. Increasingly, a rigorous attitude is being applied to one class of our society and an increasingly relaxed attitude to the other. Such actions cannot be without severe social consequences of which we should be aware.

    In the period before the general election, the Chancellor of the Exchequer said in a press conference on 18 April 1979:
    "Tax cuts are Tory … We shall raise, and raise substantially, the level at which people start paying income tax".
    Only seven days later, on 25 April, the Prime Minister said:
    "We will cut the tax on work. We will cut the tax on savings. We will cut the tax on extra skill and effort".
    The Government came to power with two articles of dogma. One was sterling M3—we know what happened to that—and the other was the reduction in taxation. I shall put those dogmas into perspective by referring to the most interesting book by the hon. Member for Bath (Mr. Patten), entitled "The Tory Case". On page 118, he says:
    "Conservatives have been smitten from time to time by this sort of enthusiasm"—
    the enthusiasm for tax cuts.

    "Too much significance has been attached to tax reforms and tax reduction. Under successive Labour Governments, taxes have certainly been raised to levels which have in some cases been penal and which may have both depressed and distorted some ecomonic activities. Yet to have placed tax cuts so frequently at the top of the agenda has deterred many Conservatives from exploring and articulating the full breadth of the Tory view of the world. It has also made the Conservative Party appear periodically as though all it cares about is money, because it thinks that is all that voters care about. There is a whiff of political bribery about this, the reduction of politics to the figures on a bank statement or a PAYE slip. Great political parties have more to offer than a credit card company."
    I am not sure whether the Government have much more to offer than that, but we need to compare the aspirations, which were so clearly set out, with their achievement. In particular, we must consider the Government's belief that reductions in taxation, and in particular income tax, would recreate the market economy. The idea was that the rich would provide the jobs and the tax reliefs would supply both their incentive and their reward so that the good old 19th century would be recreated. The lower-paid were promised lower taxes but in their case the promise failed to materialise.

    They did indeed, and they have come to rue their acceptance of what was said by the Conservative party before it took office.

    As a result of all that, taxation on high incomes was reduced to encourage the rich, and tax increases on the rest were, in some way, not meant to discourage them. But the reductions in taxation on high incomes were also intended to reduce tax avoidance. After all, it was the Chancellor of the Exchequer who claimed that the many marketed schemes for avoiding tax of the Rossminster kind that were being introduced, were a consequence of high taxation. I note that tax havens are flourishing as never before and the ingenuity of our financial markets is being exercised no less than previously. What is different is that the enthusiasm to control them is rather less than that shown by the last Labour Government.

    The main feature of the British tax system is the low threshold and the high level of taxation at that threshold. It is a system unequalled anywhere in the world. In the United States there has been for many years a steady progressive income tax, moving up in as little as two per cent. steps, starting at 14 per cent. In Western Europe the initial rates of income tax range from seven per cent. in France to 21 per cent. in Belgium. There, too, there is a progressive system of income tax. When the Chancellor of the Exchequer took control of our economic affairs, more than 4 million of our citizens paid tax at the rate of only 25 per cent. Many more received benefit from the combined rates of tax of 25 per cent. and the next rate of tax at 33 per cent.

    In the last year of the Labour Government in 1978–79, a married couple would start to pay tax at the rate of 25 per cent., then at the rate of 33 per cent., higher up at 40 per cent., and at higher rates beyond that. That is clearly not a smooth progression, but it was a move towards one. Those who believed that the Government intended to have a basic rate of 25 per cent. might justifiably have thought that the reduced rate band might have been increased from its starting point then of £750; that they could have achieved their stated objective of obtaining a standard rate of income tax of 25 per cent. by retaining the lower rate band and extending it upwards, rather than doing what they did, which was to abolish that 25 per cent. rate. Had they proceeded in that way, it would have had not only the advantage of redeeming a promise that is unlikely ever to be redeemed by the Government; it might also have had the advantage of helping the lower paid.

    3.45 pm

    If the Government were serious in wanting a basic rate of 25 per cent., they had either that alternative or they could have kept the reduced rate at 25 per cent. and brought the basic rate down year by year to approach that threshold level. By abolishing the 25 per cent., they showed, first, that they did not care much for those on lower incomes and that the main help would go to the wealthy in our society — a conclusion which did not surprise us and, secondly, that a 25 per cent. goal was a goal not for the least well off but for the people whom they have always had very much in mind, the entrepreneurs in society who would transform our economic position.

    In his Budget statement on 26 March 1980, the Chancellor of the Exchequer said:
    "At every income level, taxpayers now retain a significantly larger share of their incomes, which they are free to spend or save as they choose. I intend to do more in the future,"—
    it is always in the future—
    "but at a time when output is falling and we are making further heavy cuts in public expenditure I cannot afford to protect income taxpayers fully from the effects of inflation. This, then, must be a year of consolidation.
    "At first sight, that would suggest increases in the personal allowances which fall some way short of the rise in prices during 1979, but this would have a number of undesirable effects. It would lower the starting point of income tax in real terms, compared with a year ago. It would increase the number of taxpayers. It would narrow the gap between tax thresholds and the main social security benefits, and it would impose particularly heavy burdens on those with the smallest incomes. All those effects would be most undesirable.
    "Given the limited scope available, I have considered how to avoid these consequences. I mean to do so by adopting an alternative approach. I propose to increase the main income tax allowances by 18 per cent. or so, which is in line with the rise in prices and in conformity with the indexation requirement of the 1977 Finance Act. This will bring substantial relief to all taxpayers. But in order to afford this, I intend to remove the lower rate band of taxation, levied at 25 per cent. on the first £750 of taxable income."—[Official Report, 26 March 1980; Vol. 981, c. 1474–5.]
    That was done not on the basis of any theoretical justification — there is no need for Conservative Members to suggest that—but purely to meet particular problems in 1980, when, to their surprise, the Government were unable to meet their commitment to a reduced rate of taxation and even to implement the Rooker-Wise amendment. What they did was to raid the reduced rate band in order to provide money for the Rooker-Wise amendment. It was worse the following year because they had no reduced rate band to raid any more, so they ratted on the Rooker-Wise amendment.

    Until 1963, we had three reduced rate bands. They were then at the rates beginning at 1s. 9d. in the pound, and there was a reduction for all taxpayers on earned income. That was before the unified tax system. At that time, there were three rates of tax below what was regarded as the basic rate of tax. The first was 7 per cent., the second 16·5 per cent. and the third 24 per cent. The standard rate was 30 per cent. In 1963, one of those rates of tax was removed and there remained reduced rates at 15 per cent. and 23 pere cent. Even in 1969, we had a reduced rate of 23 per cent.

    It is sensible and right that we should have a progressive system of taxation and a steady progression through the tax bands. The national insurance contribution is an outstanding example of an indefensible flat percentage rate which ceases to operate on high incomes but is a real burden on the less well off. In addition to that nonsense, we plunge the less well off taxpayer into paying tax at 30 per cent.

    As recently as 20 years ago, therefore, we had a reduced rate band as low as 7 per cent. That former practice is operated by the most industrialised western countries. In last year's debate on the reduced rate band, the Financial Secretary to the Treasury said that about 3·5 million people had incomes at the old reduced rate of 25 per cent. in 1978. As some form of justification he said that that
    "will give a little special help to a large number of people who do not particularly need it".—[Official Report, 22 April 1982; Vol. 22, c. 505.]
    Who are those people? According to the Financial Secretary to the Treasury, they were 1·1 million pensioners, 1·4 million part-time and full-time working wives and 500,000 people under 21. We should remember that those people did not "particularly need it". Those people receive the lowest incomes and there is no justification for taxing them at 30 per cent. just because they are pensioners or wives or have committed the error of being under 21. Why should those categories, who are the lowest earners, be marked out for an increase in taxation from 25 per cent. to 30 per cent. because the Chancellor decides that they "do not particularly need it"?

    The Chancellor completely fails to understand that it is precisely those categories who find the extra money essential. They are the most disadvantaged groups and appreciate most the small differences in their income. The Chancellor decided that he would give lashings of relief to the highest paid by reducing the higher rates of tax. Those with the greatest capital would benefit from alterations to capital transfer tax and capital gains tax reliefs, but the modest reduced rate was to be withdrawn. Rarely in our fiscal history has there been such a stark contrast between what is given to the rich and what is taken from the poor.

    The Chancellor has had his difficulties with increases in taxation. It would be wrong to conduct this type of debate without mentioning our dear old friend the tax and prices index. Since the Government took office, the retail price index has increased by 66 per cent. and the tax and prices index has increased by 69 per cent. The tax and prices index was produced to show how successful the Government have been, but it has failed to make that clear.

    One of the arguments that the Chancellor has advanced against reduced rate bands is that he is conscious of the need to reduce the number of civil servants. That is a laudable general aim if it can be done while retaining notions of fairness and efficiency in the public service. When he tells us that he wants to reduce the 1,300 civil servants who are employed as a result of there being reduced rate bands, our response is that, if that can be done, equitably we should like to know more.

    However, we observe that the Chancellor has increased by 3,000 the number of civil servants to administer the tax on the unemployed and people who are on strike. The Government impound their money but allow the flagrant tax avoidance which I have already mentioned. We have witnessed the new assault on claimants and the problems at Oxford where great wrongs were done to those people who were unfortunate enough to be the target of the campaign to prove the existence of scroungers. Civil servants can be provided for those matters, but fairness is less important than saving civil servants. Money can be found for new Civil Service jobs to deal with DHSS claimants and the unemployed while the larger fish wallow in the deeper waters which the Government have not surveyed.

    It has been argued that it is better to help the low paid by raising thresholds than by the lower rate of tax. No one can doubt that any taxpayer can be removed from tax liability most efficiently by taking him out of tax. The problem was put clearly by the low pay unit, from which I can do no better than quote. I am grateful to it for its work in making people aware of some of the Government's actions and some of the problems that face people on low pay. It says:
    "In any one financial year, of course, it is always more beneficial to the low paid to have an increase in allowances than a lower rate of tax. But the following year part, if not all, of the value of the increase in allowances will have been eroded by inflation. Many of those who had been let out of the tax net will be drawn back in. The reduced rate band, on the other hand, will remain as a structural feature of the tax system, continuing to benefit the low paid long after the increase in allowances has been eroded and forgotten.
    The importance of taking a larger time-scale than a single year in assessing the importance of a reduced rate band can be seen clearly if we consider what has happened to the structure of income tax over the past three decades."
    The Library kindly produced some figures for me which show clearly the way in which the threshold, as a percentage of average manual earnings, has decreased year by year. I entirely accept that that has gone on for a long time. The interesting thing is the way in which, under this tax-cutting Government, the threshold has fallen substantially. When the Government came to office, people started paying tax at 38·8 per cent of average manual earnings. That has fallen to 34·7 per cent. as a result of this year's Budget. Therefore, there has been a year-by-year reduction of the tax threshold. That affects people who pay tax on small incomes.

    What has happened? The low paid were not compensated, as the Chancellor and many other Conservative Members claim, by being taken out of tax as a consequence of forgoing the lower rate bands. Instead, they were brought into tax at a lower level and at a higher rate. That is one problem from which they suffer, and which the low pay unit highlighted in its documentary evidence to the House.

    4 pm

    When the reduced rate band was withdrawn in 1980, the Government's future intention was unclear. Since then we have seen an increase in the burden of taxation. During the debate we shall probe and explore the Government's intentions and decisions. We have many amendments to move on the Floor of the House and in Standing Committee, which will show that the Government's tax-cutting activities are directed at the wealthy members of our society, but that the Government are increasing the tax burden on a large proportion of people, especially the lowest paid in the community.

    At the start of this annual fixture, I shall raise some matters that relate closely, not only to this amendment but to most of the other amendments that we shall discuss today and on two further days this week.

    First, I hope that hon. Members on both sides of the Committee accept that for many years income tax has been collected from people who depend on pensions, social security benefits and other welfare benefits, and that, therefore, one pocket is robbed by the taxman while the other must receive benefits to keep that person going. It is unfortunate that the Committee is once again reduced to the stupidity of considering one form of Government action without discussing the reciprocal form. Liberal Members believe that during debates such as today's, and while tax is hitting many people with small incomes, the Department of Health and Social Security should be represented continuously on the Front Bench. The rules of order should enable a full discussion of benefits to take place in the debate on tax statutes. I accept that that is an unrealistic hope for this year, and throw in the point in the expectation that more reasonable arrangements will be made in the future.

    I now come down to earth and consider how respective amendments are treated by Treasury Ministers. I intend to be the first to point out, as I have done for several years past, that we completely reject, as must every one with common sense, the Government's childish attempts to have a false system of scoring. Sooner or later each summer, a Treasury Minister stands up and, with a crow of triumph, says that he has calculated on his abacus the accumulating total cost of all the Opposition parties' amendments, which shows what prodigal fellows we are, how reckless we are of the Queen's revenue, and how lacking we are in a sense of financial responsibility.

    I shall be the first hon. Member to say that this is an away match for us, and is not on a wicket of our choosing. We are debating the Government's Finance Bill, not, unhappily, an alliance Budget, nor a Budget from another segment of the Opposition. As any observers with common sense can see, the proper rules are that if an amendment is defeated, the putative cost of that amendment should no longer be considered. Each Opposition amendment must be taken as a cost item on its own, and there is no accumulation.

    If irreverently minded people ask whether there is a record of the total cost of comprehensive Budget proposals from the alliance, I refer them to the alliance Budget, which was published well in advance of the Chancellor's effort. It was thoroughly costed and arrived at a modest total compared with the astronomical total from the Labour segment of the Opposition. That is our view about the scorekeeping, and we shall stick to it. [Interruption.] I do not suppose that the Daily Mail will keep to it.

    A sad aspect of this year's debate, as of those of the past few years, is the dual disadvantage that afflicts Treasury Ministers. They are completely out of touch with the psychology of the ordinary citizen — the person who works by hand or by brain, or in most cases a combination of both— about taxation. Treasury Ministers inhabit a fantasy world, entrenched behind their feudal majorities, or the feudal majorities to which they have fled in preparation for the general election. They have a wholly imaginary concept of the reaction of the ordinary worker to the pay-as-you-earn system. Their fantasy is shared by President Reagan and others who call themselves "supply siders", and who share the Prime Minister's naive belief that a reduction in the rate of tax on a reasonable week's pay—I am not talking about low pay—is automatically followed by a great surge in effort, imaginative business decisions and risk-taking. They believe that there is much untapped wealth and effort to be unlocked by reductions in tax for the comparatively well paid.

    However, that fantasy is disproved. There is no firm evidence to support it as a general contention, and it is regrettable that that is the figment of Treasury Ministers' imagination.

    Would my hon. Friend—[Interruption.] Ministers seem to delight in picking up whether an Opposition Member calls another his hon. Friend or the hon. Gentleman. Would the hon. Member for Colne Valley (Mr. Wainwright) care to reflect on the pamphlet written by the Secretary of State for Transport before the previous general election, in which he suggested that to increase effort one must raise the rate of tax?

    I am grateful to the hon. Gentleman, who is certainly my hon. Friend. My range of friendships in the House varies according to the subject being debated. I make no apology for that, and it is not one of my worst failings. I do not trouble to conceal it and, without being carried too far by the hon. Gentleman's shrewd intervention, may I say that I entirely agree with him. There is no firm evidence for the view that the harder it becomes for people to acquire money for a longed-for home comfort, or for some addition to their way of life, the harder they will work. One pays one's money and takes one's choice between those theories, but I am wedded to neither. I am more concerned with fairness in taxation than with exploitative theories that begin with the rather mean attitude: "How can we so tax this citizen that we shall get the most work out of him and the most revenue for the Government services?"

    As to the reduced rate band of income tax, I plead a reasonably consistent record. As a relatively new Member, I strongly opposed the final abolition of the last reduced rate band. I have said in the House that I regarded the tax system as more civilised in the days that I well remember as an accountant when there were no fewer than three reduced rates. I was always taught that the more gears a motor car has, the smoother the ride although more effort is involved if the car has four forward gears and more work has to be done with the gear lever and the pedals. Most motorists, given the chance, would welcome a larger selection of gears rather than having the entire mechanism depending on one gear ratio. Income tax begins to impinge on pay in Britain at the highest level anywhere in the civilised world, except Australia, if that country qualifies.

    How does the hon. Member for Colne Valley (Mr. Wainwright) square his criticism of the high rate with the fact that the Liberal party is proposing an even higher rate for commencing income tax payments?

    That interjection entirely defeats my comprehension. There is no proposition from my party for a higher rate of income tax. I repudiate the insinuation that the hon. Member for Norfolk, North (Mr. Howell) has introduced.

    No. I have made the position quite clear. Nobody, whether they be earning the salary of a nationalised chairman, a bingo promoter or a low-paid cleaner for a local authority ought to have to start their score with the income tax man at anything like 30 per cent. on the first bit of their taxable income. That is a crude imposition, the psychology of which is disastrous. When young people first commence work—if they are lucky enough to get employment at present — their first introduction to the income tax system is at an appallingly high rate. They begin their life as taxpayers with the firm but correct impression that income tax is an impost that starts at almost a third of one's taxable earnings. Attitudes towards income tax become the gossip of the canteen, the youth club and the sports club, on a 30 per cent. basis.

    In those circumstances, is it any wonder that avoidance, and in many cases evasion, becomes a relatively respectable peccadillo that is condoned even in respectable society because the initial rate is so harsh?

    It is true that the young person starting work sees his income tax deduction as just under one third. Overall, the deductions from his pay packet amount to 39 per cent. including national insurance contributions. I am sure that the hon. Member for Colne Valley (Mr. Wainwright) is aware that that deduction has risen by 7½p in the pound. That figure has resulted from the abolition of the reduced rate band which added 5p in the pound and the increase in the national insurance contribution of 2½p. The tax liability has substantially risen under the Government.

    The figures quoted by the hon. Member for Blackburn (Mr. Straw) are spot on. His mention of the national insurance contribution reinforces my earlier contention today that Ministers from the Department administering national insurance should be in attendance. There is little point in putting these matters to Treasury Ministers, who are skilled in the art of saying that that is something for their colleagues in the other Department. My point is serious and I look forward to an Administration—who knows what political label they may have — who treat the House in a civilised and modern way by bringing together Ministers from the relevant branches of our fiscal system when we are discussing this subject.

    4.15 pm

    As to the reduced rate, an essential limb of Liberal policy is that the starting rate of income tax should be substantially lower. There should be a differential of at least five points in the scale for the first slice of taxable income.

    Like the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) I am in no way moved by the smart statisticians who point out with some academic glee that the people most affected by this savage impost on the first slice of taxable income are youngsters or working wives. That is a transient phenomenon. I look forward to a time when the people on the lowest level of taxable pay will not be so low paid as are youngsters at present.

    The main reason why I shall recommend my right hon. and hon. Friends to support this amendment in the Lobby is to do with the point of structure, that by getting a reduced rate restored and, it is to be hoped, in a year or two getting two reduced rates restored to the scale, as there used to be, a lasting improvement will be made to the actual structure of income tax instead of raising the threshold, which is similar to building castles on the sands, which look magnificent for an hour or two and then the tide comes in and they might as well never have been erected.

    As the hon. Member for Colne Valley (Mr. Wainwright) is asking for protection of the lower paid in the structure of income tax, what status has the 44 per cent. income tax proposal under the negative income tax system that his party propose? Is that an agreed policy position with the hon. Member's Social Democratic colleagues in the alliance?

    Mr. Weatherill, I am quite sure that I should not just risk, but incur, your wrath if I were to quote at any length from the manual on combined tax and benefit systems. The manual is available at the modest price of £1 and is written in the most limpid prose. [HON. MEMBERS: "Answer the question."] It is a little hard being called upon to answer, amidst a zoo-like and growing volume of noise, which would make it impossible for any hon. Member, even the late Sir Gerald Nabarro, to be heard. The full costings in this volume pose hypothetical rates of income tax that have nothing to do with the present system and will be bound up with a system of benefits with no valid comparison with the present.

    I trust that the hon. Member for Workington (Mr. Campbell-Savours) and others will read the book. Whether or not they agree with it — it is published by the Women's Liberal Federation—their education will be substantially advanced.

    The Committee is discussing the first foundation stones of a reconstructed system of taxation, and the amendment provides one of those foundation stones. As the improvement will be structural and of lasting value compared with the transient benefits of the Government's proposal in the Finance Bill, I shall recommend my hon. Friends to vote for the amendment in the Lobby.

    I am pleased to speak after my hon. Friend the Member for Colne Valley (Mr. Wainwright). I call him that again, although no doubt it will inspire the Treasury Bench to make some delightful comments. However, I should like to try to answer the question put to my hon. Friend, which he did not answer. The proposals put forward by the SDP-Liberal alliance—

    I think that they were put forward by both. There are two sets of measures and they are very similar. It is proposed that those now on low incomes shall gain substantial help. According to the examples given in the documents, those not on low incomes will be asked to pay at the marginal rate of 44 per cent. If we intend to move income and wealth towards those at the lower end of the scale, others in society will have to pay for it. No party that was serious about changing the living standards of the poor should pretend that that can be bought without any contribution from the rest of society.

    I am grateful to the hon. Gentleman for his remarks, but at the risk of coming very near to the limits of order, I must point out that the whole nature of the scheme put forward by the Womens Liberal Federation is that every taxpayer would also receive a cash benefit. I hope that I have made it clear that talk of a particular tax rate is wide of the mark, unless one allows for the fact that under this scheme every taxpayer would also receive substantial tax credits.

    I give way to my hon. Friend the Member for Workington (Mr. Campbell-Savours).

    Does not my hon. Friend agree that the Liberal party has whetted the appetite of people with the intention of gaining their support, but that it is now apparently seeking publicly to dissociate itself from the document? We still want to know the status of the document. Does it represent Liberal policy and will Liberals propose a level of 44 per cent. as the basic rate of income tax?

    Order. We are debating the official Opposition's amendment, not Liberal policy.

    I am grateful, as always, for your guidance, Mr. Weatherill. My last word on the matter is that I welcome the proposals, because anything that presents a real challenge and seeks to win the votes of the poor can only be good for the poor. The sooner we have a real market economy for the votes of the poor in this country, the better.

    I have two sets of reasons for supporting the amendment. Indeed, I have both general and specific reasons for supporting it. I hope that I am a constructive Member of Parliament, arid I support the amendment because it represents one way in which the Government can help to redeem their election pledges. All of us who fought the last election are aware that the Conservative party won many votes by saying that if it was returned to power it would cut taxation. That is an important pledge to give, and at the end of my speech I shall want to address my Front Bench on the sort of plans that we should put forward at the next election, offering similar proposals.

    However, let us look at the position of those who thought that their taxes would be reduced under this Government. For those on low income, the tax burden has risen, and more of those on low incomes are paying tax. In addition, those — whether rich or poor—who have families pay more tax now than they did in 1979. That was the position at the end of the 1974–1979 Government. Although I am criticising the Government, the Opposition must be careful to ensure that we do not face the same charges at the end of a Labour Government.

    I hope that the Government will support the amendment, because it represents one way in which we can help the Government to go to the country with some of their election pledges fulfilled. It deserves our support, because it favours the low paid. It will be said that it is all very well to propose such measures but that we have failed to mention where the money is to come from. Perhaps I can suggest where the money should come from. In the first Budget of 1979, higher rate taxpayers gained tax reliefs totalling £1,560 million. Those reliefs have operated every year since then. Therefore, the richest 4 per cent. of the population have gained about £6 billion from this Government. Thus, if any Minister should say that there is not enough money available, I suggest that there is a lot of money to be clawed back from that group. It was given tax incentives because the Government believed that a reduction in the tax burden on the rich would lead to growth. They have certainly fulfilled their pledge to reduce the burden of taxation on the very rich, yet while the richest have picked up £6 billion in tax cuts, 2 million jobs have disappeared. Therefore, the Government's policy does not seem to be an effective strategy for growth. I repeat—the money is available.

    Why will this amendment help the low paid? Part of the reason has been sketched in both by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and by the hon. Member for Colne Valley. I shall set out how it can help the low paid. In the debate on low pay held the other month, on a Friday, the Minister made a valid point. He said that in any one year, the most effective way of helping the low paid was to raise the thresholds and thus to take the low paid out of tax. However, if one considers the tax burden over the period of a Parliament, changes that alter the structure of taxation—as the amendment seeks to do by reintroducing a reduced band of tax—help the lower paid if the Government give a commitment that the thresholds will be indexed.

    It is important to draw a distinction between the snapshot of the tax system, which shows who gains in any one year, and the moving picture, which shows who gains help over a Parliament, or a decade or more. The most effective way of helping those on low incomes is to have not just one reduced tax band, but a whole series. The amendment would reduce the amount of tax that those on poverty incomes have to pay to the Exchequer.

    Another reason for supporting the amendment is that it will help those who are caught in the poverty trap. It clearly does not abolish the poverty trap at a stroke if we allow people to pay the first £750 of their taxable income at 25 per cent., but it reduces the marginal rates of tax of many of those who are caught in it. As the hon. Member for Colne Valley has said, if one was set on considerably reducing the effect of the poverty trap, one would have to produce a whole series of reduced rates of tax, and I would support that.

    The Opposition in particular should take incentives to work much more seriously. Perhaps for good reasons, my hon. Friends have tried to play down the issue, but it is important. Those on low incomes pay a considerable amount of them to the Exchequer. Some people are lucky enough to pick up jobs. The unemployment queues are not static and there is a slow turnover all the time. Those who have been on benefit and who compare that with the wage that they are being offered and the net reward of working 48 hours a week, often have some pertinent comments to make. Unless we pay more attention to the real grievances of low wage earners about their contributions to the Exchequer, we shall find that we have given them a very effective rod with which to beat us in future. One negative effect of failing to take such matters seriously is the backlash from many of those who earn low incomes and who are against the whole idea of the welfare state.

    4.30 pm

    I have three reasons for believing that the amendment is important. First, in the long run it would be the most effective way of reducing the tax load for people on low incomes. Secondly, it would help to lessen the effect of the poverty trap. Thirdly, it would increase rather than lessen incentives to work.

    I shall address my next comments to my colleagues on the Opposition Front Bench. I confess to being disappointed at how modest this proposal is. I hope that we shall fight an election with proposals more radical than merely reintroducing a rate of tax of 25 per cent. on the first £750 to taxable income. However, to be radical one must break the financial corset which every Chancellor of the Excheqer wears when he draws up a Budget, and which is caused by the many tax concessions given in a year. Over 50 per cent. of personal income is exempted from tax, and if we are committed to cutting tax as well as to taking large numbers of people out of tax altogether, we must claw back the lost revenue from what I call the tax benefit welfare state. We cannot do that immediately. We cannot take away tax benefits on which people have calculated major expenditure but we can apply a cash ceiling policy with a clear commitment that, as the revenue to the Exchequer increases, we shall cut tax rates, raise the tax threshold and introduce many more than one reduced tax band.

    If we are serious about presenting an alternative to the electorate for reducing the tax burden, we must have a more radical proposal than that suggested in the amendment. I agree that the amendment would help the low paid by reducing their tax burden and by lessening the effects of the poverty trap. It would, to a small but important extent, increase the incentive to work. For those reasons, I support the amendment.

    For good reasons the alliance did not propose to reintroduce a reduced rate of tax. We think that in 1983 the emphasis should be on reducing industrial costs and on stimulating the economy by means of a capital programme. We do not think that a reduction in personal taxation is the right priority. But there are also arguments against a reduced rate band in any Budget. I am sure that those arguments will be expressed by the Treasury today.

    The 25 per cent. rate proposed by the Labour party would result in about 3½ million people paying tax at that rate rather than at the standard rate, but only a small proportion of them would be full-time adult workers with family responsibilities. If is fair to say that in one year it is better to try to lower the threshold, as the Government did in the Budget, that to introduce a reduced rate band.

    Having said that, I agree that there are arguments against what I say, as expressed by my hon. Friend the Member for Colne Valley (Mr. Wainwright) and the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). For those structural reasons I believe that the alliance is right to support the amendment.

    It is right in principle, in the light of the taxation framework, to support the progressive principle. We should not surrender that without a fight. In 1960—not so long ago—people started paying tax at the rate of 7p in the pound and the basic rate impinged on the ordinary person only when he was paid about 30 per cent. above the average. That position has been totally transformed and today a person starts to pay tax at 30 per cent. when earning about 41 per cent. of average earnings.

    It was brought to my attention, by one of the excellent briefs with which we are familiar from the low pay unit, that the Prime Minister once said:
    "We pay the highest rate of income tax at the lowest level of income of any country in the EEC. That is the measure of Socialism—the effect on the poorer people of this country."—[Official Report, 29 March 1977; Vol. 929, c. 293.]
    That is even more vividly so today after four years of Conservative rule.

    We are referring to higher rates of tax. To what extent does the SDP accept the principles outlined in the document produced by members of the Liberal party?

    That document was produced last week and I am not aware that any member of the SDP has thought fit to comment on it. I have no doubt that we shall make our position clear in due course, but it is a little early to comment on a matter of such considerable complexity. We shall also produce proposals of our own, which will be similar in spirit to those produced by the Liberal party.

    Will that be a matter for the Prime Minister designate or for the leader of the alliance in the election campaign?

    We are having a serious debate and that was a flippant remark. I am sure that the problems will be resolved in due course.

    Apart from wanting to support a progressive element in taxation and not wishing to surrender that principle lightly, as the Government have—the Prime Minister should show chagrin about that—we must bear in mind the total tax burden. I managed to extract from the Government the admission that, even including the last Budget, if one expresses the increase in the total tax burden as an increase in the standard rate of taxation since the Conservatives came to power, the tax burden has risen by the equivalent of 7p in the pound. That is not because of an increase in the standard rate, because that has been reduced; it is not because of a change in the tax threshold.

    The increase in taxation is as a result of the near doubling of VAT, a substantial increase in that hidden tax, the national insurance contribution, and the abolition of the reduced rate band. Those three elements have led to a huge increase in the tax burden under the Conservative Government. It is as large an increase as anyone could imagine and it conflicts completely with what the Conservatives said about taxation before they came to power. Moreover, much of the money gathered from taxation is wasted because of the enormous unemployment from which we are suffering. That is a particularly tragic consequence of this Government's economic policies.

    In complaining about the tax burden, I do not rest my argument on any theoretical ideas about incentives that operate one way or another. No one, even after all the academic studies, can be exactly sure of the argument. I rest my case simply on the hardship that the tax burden creates for people on average and below average incomes.

    Anyone who represents a constituency such as mine will be aware that the high levels of taxation are paid by people on very low incomes, and that is where the hardship strikes. There is a growing burden of hardship on those least able to bear it. That is why I am wholly prepared to support even this amendment, inadequate though it is, against the Government's tax policies.

    I join my hon. Friend the Member for Birkenhead (Mr. Field) in calling for a radical programme on taxation. Indeed, in many ways the document produced by the Liberal party is extremely radical. I support much of what I have read of it. I am surprised that the representatives of both the Liberal party and the SDP have sought to dissociate themselves from the comments in that document. It may be that they are prisoners of Conservative electorates and know that it would be politically suicidal to go into the next general election with a 44 per cent. tax band wrapped around their necks which they would have to justify to those Conservative electors.

    The people who wrote that document should perhaps be members of the Labour party, because they were well aware of social problems and the needs of the underprivileged in society. I am surprised that the Liberal party, which always presses its position in terms of a radical political front, has sought not to express openly its support for that document, much of which is perfectly acceptabel to radical elements in society.

    As well as appearing much more naive than I am sure he is, the hon. Gentleman is just plain inaccurate in suggesting any wish to dissociate ourselves from the 63 pages of carefully argued, revolutionary changes in the benefits and tax systems. This will be followed by another substantial document from the SDP under the distinguished leadership of Mr. Dick Taverne. The hon. Member for Norfolk, North (Mr. Howell) tried to make some play of this issue before he left the Chamber, but it will be apparent to hon. Members that my attitude is simply governed by the fact that a debate on an amendment to a Tory Finance Bill to introduce a reduced tax rate band is emphatically not the time — [Interruption.]I am not at all surprised to see you nodding, Mr. Weatherill. This is not the time for an explanation of a closely argued policy that would require a lecture from someone more succinct than myself of at least an hour to explain the elements of the scheme.

    I am sure that the hon. Gentleman will accept that a debate on the low paid and the effects of the lower rate band on low-paid people needs an answer from the Liberal party about its position on the low paid. I understand that this document is part of the debate taking place within the Liberal party about the sort of taxation system that it seeks to implement. I assure the hon. Gentleman that libertarian Socialists will not be as eager to reject that document as so-called libertarian Liberals. I hope that the Liberal party in the country is aware of what I am saying—

    Order. It would perhaps be more appropriate if we touched on these matters in the debate on clause stand part rather than on this amendment.

    Thank you, Mr. Deputy Speaker. The desperate need of the Government to cut taxes by raising the threshold and not introducing a lower rate band in an election year and at the same time maintaining their financial strategy intact, provided for many of us one of the more amusing aspects of this year's Budget statement. The Government's attitude to the contingency reserve — a key component in Budget strategy—seems to have shifted. Last year, they allowed a contingency reserve of £2·4 billion. This year, it has been reduced to £1·1 billion. When Labour-controlled local authorities take that sort of action they are accused of raiding the reserves or robbing the piggy bank of local government moneys, yet when the Government do it they refer to it as fine tuning of the economy.

    4.45 pm

    Such manipulation of the statistics in conjunction with an upward revision of oil revenues from £6 billion in 1983–84 to £8 billion announced in the Budget statement—despite the fall in oil prices—are the two components that I understand have been used to fund the tax reductions and other minor concessions that have been included in this year's Budget.

    All the statistical juggling was based on an alleged PSBR of £7·5 billion at the time of the Budget. We were told that that was in line with the medium-term financial strategy. But last Thursday a bombshell was dropped when it was suddenly discovered that the PSBR had been grossly underestimated and that it would be £9·5 billion —[Interruption.] If the Chief Secretary is saying that that is not correct, perhaps he will intervene and explain what has happened to the PSBR. Has it moved from £7·5 billion at the time of the Budget statement to £9·5 billion according to statements by Treasury officials last Thursday? The right hon. and learned Gentleman made a sedentary interruption; perhaps he would like to clarify the position.

    If he does not, I must proceed on the basis of my figures. I must presume that I am correct and that the PSBR has been underestimated by £2 billion. This seems to be a question, Mr. Deputy Speaker, of, "Now you see it, now you don't." Its change depends on whether it is convenient for Ministers to recognise and admit it or whether it is better for them to deny it for other political reasons. Perhaps, Mr. Deputy Speaker, it is part of what is called the resolute approach—

    Order. I remind the hon. Gentleman that at present we are in Committee, and that therefore I am the Chairman.

    I apologise, Mr. Weatherill. I should have known better. As I was saying, it is a good example of the resolute approach. The Government are resolute in their determination to fix the figures, so long as the recipients are the better off. Indeed, it is clear from the Budget that once again the better off will benefit.

    When the Government find that they are wrong, the better off will not be required to pick up the bill. Measures such as the one embodied in the amendment take the whip. Measures such as the introduction of a 25 per cent. tax band cannot be introduced because the lower paid will pay. Indeed, the large number of people paying the standard rate of income tax will have to pay for the miscalculation derived from the Goverment's obsession with ensuring that the higher paid and better off gain the principal benefits from their annual Budget strategy.

    The Government may deny it, but in every one of their five Budgets the rich in society have paid less while the low paid and those paying the standard rate of income tax have picked up the bill. The rich have been well insulated by the Government from the real world. Even their present Budget increased by 14 per cent. the income of the higher paid person before he comes into the higher tax rate bands. A married couple on £40,000 per annum are £490 better off directly as a result of that Budget. A person who earned one tenth of that amount—£4,000 per annum—was only £104 better off. So, for 10 times the income, one gains four times the tax benefit. That is the measure of the Government's understanding and sympathy for the worse off in society.

    According to the Child Poverty Action Group's most recent release headed
    "The poor pay more in tax while the rich pay less",
    people on five times average earnings—£860 a week—will pay £58·30 less per week in tax. Those on average earnings—a little less than £170 per week—will pay £2·30 more in tax and insurance. The tax and insurance for poorer families on three quarters of average earnings—£130 a week—will rise by £2·30 a week. The tax and insurance for the poorest in society—I am glad that the hon. Member for Croydon, South (Sir William Clark) has entered the Chamber, because I am sure that he will find my comments interesting—on 50 per cent. of average earnings at about £85 a week will increase by £2·70 a week. That is a 100 per cent. increase in tax liability.

    Hundreds of millions of pounds have been given away to the better off in society. Since 1979, the richest 1 per cent. of taxpayers have reaped 27 per cent.—more than one quarter — of all tax concessions given by the Government. The hon. Member for Sowerby (Mr. Thompson) is following my words closely. I hope that he will go back to his constituents and publicly point out these dreadful figures. They represent a betrayal of the Government's honourable position with the electorate. The Government have never gone to the people and admitted the statistics to which I have just referred. Those statistics are correct, and the hon. Member for Sowerby knows it.

    The richest 10 per cent. of taxpayers have reaped 60 per cent. of all the tax concessions given by the Government since 1979. That is an appalling development. The richest 20 per cent.—they are mostly Conservative supporters; very few are Labour supporters — have reaped 70 per cent. of all tax concessions given by the Government. Does not the hon. Member for Sowerby feel ashamed to be a member of a Government who have treated those on the lowest incomes so shabbily and who have so blatantly set out to protect the higher earners in society?

    Our people are suffering. They are not benefiting from a Conservative Government. That is why we have tabled an amendment which, even at this late stage of the proceedings to turn the Budget into legislative form, might stir the Government's conscience into introducing a measure to rescind what they have done and providing fairness and equality in the treatment they mete out to the various groups in society.

    The Institute of Fiscal Studies calculates that a company director earning £45,000 per annum has gained a £120 a week rise in real take-home pay under the present Government. He has gained in tax relief alone more than many of my constituents earn. Do not the Government feel ashamed? Do not they feel a responsibility to provide for greater equality? Did not the Government promise in their election manifesto of 1979, to which I shall refer in a moment, to provide for justice and fair play, or do they believe that it is fair and reasonable to help only the better off in society? At the same time that a man earning £45,000 a year gained a £120 a week rise in real take-home pay, the average unemployed man, if one takes into account the removal of earnings-related benefit, is £15–30 a week worse off. What a gross injustice. One could go on for hours about the position of those people but I shall not do so because so many of my hon. Friends wish to speak. [Interruption.] Government Members may be amused but the public and the country will know that, during the proceedings on this amendment, not one Conservative Member rose to his feet to defend the Government because it would be impossible to do so.

    My constituents are paying. The low paid and those not earning vast amounts are the ones who are required to pay the astonishing bill to fund the substantial reductions in taxation for the better off in society. My constituents in the north—I am sure that it is the same for people all over the United Kingdom—wish to see their taxes reduced. They believe that, if it costs £900 million to introduce a reduced rate band of 25 per cent., the Government have a duty to reverse the tax concessions to which I have already referred with a view to ensuring that the money is available. I am told that, procedurally, the Government still have the right to change the construction of the Budget and to bring forward a measure to reverse the tax benefits that they have given to the better off in society and to introduce a 25 per cent. band which will help many of my hon. Friends' constituents.

    Since 1979 the Government have handed out to the rich in society nearly £3 billion in tax concessions. Higher rate concessions to the better off now total £1,745 million. The reduction in investment income surcharge amounts to £330 million. The business start-up scheme accounts for £160 million. I can see some merit in that scheme and I have argued against it only with regard to the abuses that may arise if it is implemented in certain ways. Retirement annuity relief amounts to £110 million; capital transfer tax concessions amount to £190 million; capital gains tax concessions amount to £335 million. In total, nearly £3 billion has been handed out to a select few in society.

    We could have spent that money in many other ways. To give one example, that £2,870 million is equivalent to the sum involved in increasing child benefit by £5 a week for every child in the United Kingdom. It would have been much fairer and far more just if the Government had sought to distribute the £3 billion by raising child benefit in that way. That would have had an immediate effect on the budgets of millions of low-paid families, as would the 25 per cent. tax band that is being proposed in the amendment. That proposal would equally help low-paid families, including those who are paying tax on their benefits.

    5 pm

    When the next Labour Government set about their annual assessment of what should be introduced in the Budget, having consulted the trade unions, they should set civil servants a task that I hope they would finish in a short time — to examine every amendment that the Government have made to tax law which has been of benefit to the better off in society. The next Labour Government should then reverse every one of those amendments, if necessary, and introduce a Budget and a Finance Bill that would restore justice to the tax system, in the form in which it stood when the Labour Government were defeated in 1979.

    The British people will not be satisfied until they know that there is justice in the tax system. I am sorry that the hon. Member for Colne Valley (Mr. Wainwright) has left the Chamber. It may be that in the document which he and his alliance colleagues have sought to dismiss, there lies a route towards a more just tax system. At the same time, work is going on in the Labour party on new tax systems. The hon. Member for Gateshead, West (Mr. Horam) will recall that when he left the Labour party he said that he had done so because he felt that he should be objective and should be free to be objective. I remain a member of the Labour party. I am proud to be a Labour Member, and I, too, retain my objectivity. If the hon. Gentleman and his associates in the alliance produce a document which may have within it some plausible and reasonable suggestions, I shall examine it reasonably and objectively. That, perhaps, is the difference between the hon. Gentleman and his colleagues and myself. I feel that I can retain objectivity without shifting my political position and joining another political party.

    It is unusual to hear an hon. Member move a vote of thanks to himself.

    The truth is that the past four Budgets have included innumerable measures that have been exclusively of benefit to the better off in society, and they all need reversing. The Government have done immeasurable damage to the British economy. They have looted its wealth to fund the better off. The Government

    "have gone to great lengths to try to conceal the damage they have done to the economy and to our prospects of economic expansion. Even in the depression of the 1930s the British economy progressed more than it has done under this … Government. Their favourite but totally false excuse is that their appalling record is all to the oil crisis and the world-wide economic depression. Yet since the oil crisis, despite our coal, and gas and oil from the North Sea, prices and unemployment in Britain have risen by more than in almost any other major industrialised country. And output has risen by less. With much poorer energy supplies than Britain, the others have nonetheless done much better".
    They found that possible because they did not have our Government and did not have to suffer from their mistakes. [HON. MEMBERS: "Hear, hear."] My hon. Friends acclaim the words that I have just uttered. They are words that we can use justifiably against the Government. They appeared in the manifesto that the Conservative party published at the time of the 1979 general election. It seems that the accusations that it levelled in that document are just as accurate and applicable now. The manifesto stated:
    "We shall cut income tax at all levels to reward hard work, responsibility and success; tackle the poverty trap; encourage saving and the wider ownership of property; simplify taxes".

    Order. We are again going rather wide of the amendment. The hon. Gentleman is advancing arguments that would be more appropriate in a clause stand part debate.

    As always, Mr. Weatherill, I bow to your greater judgment. I merely draw attention to the famous words that appeared in the Conservative party's manifesto—which no doubt will be re-rendered during the next general election campaign — to show how blatantly and cruelly the Government have failed to keep their promises to the British people, including the promise that they would reduce taxes. The amendment gives them the opportunity to reduce taxes for many in society. All the millions who pay tax would be affected. Conservative Members will have the opportunity to vote with the Opposition tonight.

    My hon. Friend the Member for Workington (Mr. Campbell-Savours) got worked up, quite rightly, about the Government's behaviour since they were elected in 1979. He should not be surprised by that behaviour. That is what the Government were elected to do. Their job was to look after the wealthy and to penalise the poor. That is what conservatism is all about.

    During the 1979 election campaign I warned the British people of what might happen. I said that there could be no doubt that a Conservative Government would cut public expenditure—that has been disproved—and that, if they cut public expenditure, they would cut the services for which that expenditure was raised, and that has happened.

    My hon. Friend the Member for Workington and others have referred to the enormously increased taxation burdens, especially on the poor. The story of deprivation of those people does not end there. Probably the most important part of their income is what we continue to call the social wage—education, housing and health. These services are paid for in large proportion out of progressive taxation. All these services have been cut by the Government. At the same time, the taxation burden on the lower paid has increased substantially since the Government were elected.

    The greatest betrayal of the British electorate by the Government has been the way in which they have increased, rather than decreased, taxation, particularly for those who generally form the poorest sections of our community.

    I recall the Minister who will reply saying two years ago that no person could prove that he was paying more tax than he paid when the Conservatives were elected. He had to eat those words then and he will probably have to eat them again today. The facts are undeniable. Millions of people are paying more today than they were then in both tax and national insurance contributions, and there can be no doubt that the latter is a tax; it is a poll tax. Taking those two into account, millions of our citizens, especially the poorer, are paying more. The poorer are paying a bigger proportion of their income in direct taxation than they did, and that is a direct betrayal of the promise on which the Conservatives were elected.

    An example was given to me a few days ago of a nurse who, having been in the NHS all her working life, from the very inception of the service, now receives an NHS pension of £190 a month, of which she pays £70 in taxation, leaving her £30 a week net — that after 45 years of dedicated service to the community. That is the measure of the Government's attitude to taxation problems.

    The Chancellor of the Exchequer said that he would relieve the tax burden on everybody, but the figures produced by the Child Poverty Action Group show the reverse to have been true. The only people to benefit—and they have benefited substantially from successive Conservative Budgets since 1979 — have been those earning more than £20,000 a year, not many of whom vote Labour. It is in their interest to vote Tory, and that is why Conservative Governments over that period have pandered to them when talking about incentives.

    There is, however, no evidence that the incentives given to those people by way of enormous tax concessions have resulted in higher industrial production. On the contrary, the evidence is in the opposite direction. The more concessions they are given, the less hard they work, taking the evidence from the official statistics of industrial production or anywhere else. As has been said, there is no evidence one way or the other to show that tax concessions or tax penalties increase or reduce incentives. There is a great deal of conflicting evidence, so much so that nobody can come to a firm conclusion on the matter.

    The Prime Minister made a statement that has been quoted in the House of Commons before and will certainly be quoted at the next general election, and I feel that I must put it on the record again now. In 1977 the right hon. Lady said:
    "We pay the highest rate of income tax at the lowest level of income of any country in the EEC. That is the measure of Socialism—the effect on the poorer people of this country".—[Official Report, 29 March 1977; Vol. 929, c. 293.]
    I have watched the right hon. Lady since she entered Parliament and seen a wonderful transformation come over her. In 1977 she was blaming everything on a wicked Socialist Government. There was no question of a world crisis then. When we were facing problems of increasing world unemployment and so on, it was all due to the inefficiency and incompetence of the Socialist Government, and the fact that we had the highest rate of tax at the lowest level of income in the EC was blamed on the Socialists.

    5.15 pm

    Today, after three and a half years of the right hon. Lady's Prime Ministership—as a result of the abolition of the reduced rate band by her Government; indeed, by her as the First Lord of the Treasury—the starting rate of tax is still higher in Britain than in any EC country, and by a wide margin. Moreover, with the exception of Italy and Greece, Britain has the lowest tax threshold. However, in those countries tax becomes payable at 16p and 7·6p in the pound, respectively, compared with our starting rate of 30p in the pound. That is why we are not being excessively generous in saying that it should be reduced to 25 per cent., as it was before the Conservatives came to office. Contrary to the Prime Minister's earlier protestations, her Government have increased the starting rate and reduced the level of income at which people start paying tax.

    I am interested to see the hon. Member for Folkestone and Hythe (Sir A. Costain) and my hon. Friend the Member for Workington in their places, because we three are members of the Public Accounts Committee. If there is one group of people which engages the activities of the snoopers in the Civil Service, it is not those who are benefiting substantially from the black economy, where we lose £4 billion a year. The Government cannot find the bodies to produce the investigators to chase those people. But almost overnight they can find nearly 1,000 people to go after the DHSS cheaters who are getting away with perhaps 50p or £1 a week.

    The hon. Member for Folkestone and Hythe knows what I am talking about because the facts are on the record. We have tried to ascertain from the various Government Departments which would be the most effective deployment of Civil Service labour — investigators chasing recalcitrants in the black economy or snoopers chasing DHSS recipients. By a thousand miles, the most effective deployment of investigators would be in the black economy. Yet when we ask Treasury witnesses about that, they reply, "It is not our business. Each Government Department—the Inland Revenue, DHSS and so on— has responsibility to deploy its labour as they think fit". No guidance is given by the Treasury on the most effective use of labour in that respect.

    I cannot see what the remarks of the hon. Gentleman have to do with the amendment, but, as the Chair has allowed them, I hope I may be permitted to intervene. The hon. Member for Fife, Central (Mr. Hamilton) and his hon. Friend the Member for Workington (Mr. Campbell-Savours) were in the United States with me a fortnight ago. During our visit we compared the top rates of taxation there and here, and they then remarked on the enormous increases that the Socialists made, giving us the highest rate in the world. It seems that both hon. Gentlemen want to return to that.

    I would be out of order if I pursued that point. On another occasion I should be happy to do so.

    The point that I was making is relevant to the amendment. It is estimated that the result of implementing the amendment would be about £900 million a year. As a result of the Government's refusal to appoint more investigators, the black economy is getting away with about £4,000 million, which is four or five times the cost of the amendment. I hope that the Government will not ask, "Where will we get the money from?" If they do, the answer is simple. If the Treasury Ministers issued a directive to the Inland Revenue to employ X number of extra investigators, almost overnight the Government would get well over the cost of the amendment.

    As has been made clear, the amendment is a proposal by the official Opposition to reinstate the lower rate band at a cost of about £850 million in a full year, but inevitably, as is customary on such occasions, the debate has ranged wider into all sorts of nooks and crannies of our economic policy, going well beyond the tax system. I hasten to assure you, Mr. Weatherill, that I shall not attempt to follow all those paths and diversions, but some things that have been said need correction, particularly what has been said about the tax thresholds and where they stand in real terms today compared with 1978–79.

    For the financial year 1983–84 the tax thresholds will be 6 per cent. higher in real terms than those for the financial year 1978–79. That correction needs to be made. In the debate hon. Members have referred to the Government's tax record in many aspects. It is not appropriate for me in answering the debate to give a picture of the overall position, which was covered both in the debate on the Budget and in the debate on the Second Reading of the Finance Bill.

    I ought to proceed further. In that debate I was able to put the matter into broader perspective and to explain the Government's record. My right hon. Friend the Financial Secretary went into the matter further when he wound up. I showed that the percentage of income going on income tax — I am distinguishing that from income tax on national insurance contributions — was lower than in 1978–79 for people on three quarters of average earnings and above.

    I must proceed. The right hon. Gentleman must contain himself and allow me to develop the subject a little further. I shall give way at the appropriate moment.

    On a point of order, Mr. Weatherill. Is it not the custom when the House is in Committee for Ministers to give way at the Dispatch Box more liberally than at other times?

    And he will. However, the right hon. Gentleman must contain himself for the moment. I was going to say that the picture as a whole—

    The right hon. Gentleman asks, "What does it mean?" The answer is perfectly simple.

    I am not sure why the Minister refuses to give way when I am seeking to clarify a figure. He said that in real terms the threshold had increased. That seemed to be a response to a statement that I made that, as a percentage of average earnings, the threshold had in fact decreased. Does the right hon. and learned Gentleman accept that?

    The right hon. Gentleman must not allow himself to get so excited by his own statements. The position is perfectly simple. If one takes the figure for the tax threshold and indexes it in the sense of increasing it to take account — [Interruption.] If the right hon. Gentleman does not want to hear the answer, there is no point in his intervening. He asked what I meant and I am explaining. I shall not answer his question unless he is prepared to listen to the answer. What I said was—[Interruption.] If the right hon. Gentleman continues muttering, I shall proceed with the rest of my speech. If he wants to hear the answer, he will have to keep quiet. [Interruption.] The right hon. Gentleman obviously does not want to listen to the answer to his question, so I shall continue with the rest of my speech. He is continually muttering. He is a sufficiently experienced Member of the House not to engage in such nonsense. The explanation is simple, if the right hon. Gentleman will listen for a moment. It is that if one takes the figure for the threshold and indexes it in accordance with the increase in inflation, one reaches another figure. The figure for the tax threshold for the financial year 1983–84 is 6 per cent. higher than the figure that I have just described. That is the answer to the right hon. Gentleman's question, whether he likes it or not.

    I was going to say that, as was made perfectly clear, the percentage of income going on income tax is lower than in 1978–79 for people on three quarters average earnings, but with regard to national insurance contributions, there is a different outcome. As I explained on Second Reading, most people think that the increases in benefits in real terms that have taken place are desirable and so have had to be paid for.

    In that debate I went on to say that, in addition, we have to take into account the fact that when we were able to reduce the tax burden it was felt—rightly, I believe—that priority should be given to reducing the tax burden on industry rather than on the individual. That was reflected in the reduction of the national insurance surcharge from 3½ per cent. to 1 per cent. I said that this year, however, we can make an improvement for the individual. It is for that reason that the allowances have gone up to the extent that they have.

    Perhaps most important of all, I said that real net earnings—the take-home pay—are substantially higher than in 1978–79 for taxpayers at all levels. That is why it is not particularly surprising that real tax payments have gone up—it is because real gross earnings have gone up so much. There is no mystery about that. I shall forbear from extending this discussion further and proceed soon to the reduced rate band. One could compare what has occurred with what occurred under the Labour Government and still more with what would occur under a Government committed to the Labour party's present proposals. That would widen the debate much further.

    We are only too delighted to make comparisons between the Labour Government and this Government because the Labour Government's record stands up well to examination. Does the Minister accept that the measure that the Government use and publish for living standards, which is real personal disposable income per head, has gone down by 3 per cent. under the Government but went up 12 per cent. under the Labour Government?

    5.30 pm

    That is not necessarily the most illuminating figure because it takes account of all sections of the community whether they are retired, unemployed, in receipt of income or not. When talking about people paying tax, the figure for real gross earnings is a fairer indication, and the figure that I gave for that is correct.

    The main subject—it ought to be the only subject—of this debate is the proposition that a lower rate band should be introduced. Very little of the debate has concentrated on the arguments in favour of that. In fact, only one argument has been advanced to support the proposition. The suggestion that it would be a cost-effective way to use the money that would be involved has not received much support. The hon. Member for Gateshead, West (Mr. Horam) put it very fairly when he pointed out the limited benefit of a change of this kind compared with the expenditure of a comparable sum on increasing the tax allowance.

    In many ways, the case was extremely well put by the right hon. Member for Llanelli (Mr. Davies), when he was a Treasury Minister. He said:
    "A reduced rate band, as distinct from an increase in the tax threshold, would not give most help to those on the smallest incomes. For the man on the tax threshold complete exemption for a few pounds is worth more than a lower rate of tax on a larger band of income which he has not got. If the cost of the reduced rate band had to be met by keeping the tax threshold lower than it would otherwise be, it would widen the poverty trap by enlarging the overlap between tax liability and entitlement to means-tested benefit. If having a reduced rate band is at the expense of having less of an increase in allowances, it will not benefit people at the lower end of the scale as much as an increase in allowances."— [Official Report, 3 March 1977; Vol. 927, c. 747–48.]
    That is exactly the position, as my hon. Friend the Minister of State explained in considerable detail in the debate on low pay.

    It is for precisely that reason that at this stage it is desirable that any money available to assist those at the lower end of the tax scale should be used to increase allowances rather than to introduce a reduced rate band. As my hon. Friend the Minister of State said, if the money were used to introduce a lower rate band it would give less benefit to the lowest paid single people and less benefit to all married men. The effect of introducing a lower rate band would be to improve the financial position of most single people and working wives at the expense of the lowest paid single people and of all married men. In other words, low-paid families with children, whom the lower rate band is intended to help, would be better off with an increase in the tax threshold. That is why it is far better to spend whatever money is available to assist those at the lower end of the tax spectrum on an increase in thresholds. Whether it is argued that we should introduce a larger increase in the threshold or whether it involves jobbing backwards the other way, the result is the same because for any given sum of money a choice must be made and no amount of fudging or blurring will avoid that decision.

    Does the Minister accept that we are not really arguing the merits of a 25 per cent. reduced rate tax band as against increases in thresholds? We are arguing that the money that was available was not spent on a 25 per cent. rate band but on reducing the tax burden on the richer members of society. Will the Minister address himself to that?

    The hon. Gentleman may find my arguments uncomfortable, but he cannot say that we are not debating whether there should be a reduced rate tax band because that is precisely the subject of the amendment. The hon. Gentleman's point is not relevant because I am not talking about alternatives involving help to other sections of the community, incentives for those at the upper end of the scale, and so so. I am assuming a situation in which one wishes to help the lower paid, and in that situation the best way is to increase the allowances and not to introduce a lower rate band. If progress could be made in that direction over a period of years, there might be room at a later stage for a lower rate band. At the moment, however, it is clear that a lower rate band would not represent the best use of resources available to assist the lower paid. If the money were available, the same sum could finance personal allowances about 5 per cent. higher than are now proposed. The equivalent threshold increase would take about 340,000 single and married people out of tax, but the introduction of a lower rate band would take no one out of tax. For those remaining in the tax net, a threshold increase would give greater proportionate benefit to those with the lowest incomes than to basic rate taxpayers generally. The introduction of a lower rate band does least for those people because those in the lower rate band would receive less benefit than those with higher incomes in the basic rate band.

    To be fair, those who were prepared to address themselves to the important but comparatively narrow question whether a lower rate band was the most effective way to help the lower paid accepted that it was not the best way and that in any given year an increase in allowances was better. The argument therefore shifted to the proposition that a structural benefit could be secured for the tax system in this way. The document from the low pay unit, to which reference was made, virtually argues that threshold increases would be eaten away by inflation but that a lower rate band would remain as a structural feature of the system. The suggested distinction between structural features and changes in allowances gives greater permanence to a particular structure created by the introduction of a particular rate band than is justified by the whole history of our tax changes over the past generation. Changes in allowances and in the various rate bands have been made with great frequency, so it is not a question of being able in some way to entrench the position of the low paid by making a change of this kind, which actually benefits them less than would an increase in the allowance threshold.

    In every case, it is a matter of the policy and direction that Governments wish to pursue. If Governments of whichever political complexion wish over a period to assist the low paid and the community as a whole by steadily increasing the allowances, they are well able to do so. If they wish to do otherwise, the existence of a lower rate band will in no way impede them. A false contrast has been made between the permenance of one feature of the system and the impermanence of another. It is generally conceded that greater assistance is given to the low paid by an increase in allowances than by introducing a lower rate band. There is, therefore, no justification for pretending, on so-called structural grounds, that a lesser benefit would be enshrined for a longer period as a result of such a change. For those reasons, therefore, irrespective of how much assistance should be given and how much assistance the Government can afford to give, I ask the Committee to take the view that the proposed change would not be in the interests of those on whose behalf it is put forward.

    The right hon. Gentleman clearly wrote that opening sentence before hearing my response.

    Not at all. Unlike the Chief Secretary, I am always happy to listen to arguments and to respond to them during a debate. I do not come wholly prepared as the right hon. and learned Gentleman frequently does. That is why I have to take him back to what he said during the debate about the way in which, according to him, real thresholds had increased.

    No one argues with the figures used by the right hon. and learned Gentleman, but those figures are no response to the debate, any more than are his comments about the threshold as a percentage of average manual earnings, and that is what this debate on the reduced rate band is about. It is about what happens to the ordinary person seeing the reduced rate band being filched from him and the money from that being used to pay for those who are rather better off.

    The answer is to be seen clearly in the two Budget decisions in 1980 and 1981. In 1980, the Government filched the reduced rate band to pay for the Rooker-Wise uprating of the thresholds. In 1981, they had no reduced rate band to filch, so they did not increase the thresholds. That is the straightforward history of it.

    When this Government came to office, they had a threshold of 38·8 per cent. of average manual earnings. As a result of this Budget, it is more than four percentage points below that figure. The threshold for people on the lowest incomes has reduced by four per cent. during the period in office of the present Government.

    I shall give way to the Chief Secretary in a moment. He is teaching me a lesson that I never hoped to learn. He will know that I always give way to other lion. Members. It is only courteous to do that. It helps argument, and it makes sure that we deal with topics as they arise and avoids the necessity of hon. Members making set speeches which they have prepared in advance. With that little homily in mind, the right hon. and learned Gentleman may now intervene.

    I am always grateful to the right hon. Gentleman for his homilies. All hon. Members find them equally valuable on every occasion that they are given.

    The percentages given by the right hon. Gentleman are not quite accurate. He said that tax thresholds were 34·7 per cent. of earnings in 1978–79 and 38 per cent. of earnings this year. I do not know whether that was meant to be a reference to male earnings in all occupations or only to manual earnings. On all male occupations, the figure of allowances in relation to average earnings shows a 1 per cent. reduction in 983–84 from that in 1978–79, and it is 6 per cent. higher in relation to average financial year prices.

    The Library, which produced the figures for me, described them as

    "Threshold as a percentage of average manual earnings "
    Perhaps I did not make that: sufficiently clear. It was 38·8 per cent. in 1978–79 and 34·7 per cent. in 1983–84.

    I hope that the Chief Secretary will allow me to complete my sentence. He knows my record in these matters, and I am delighted to retain it. I wish to point out that average manual earnings and average earnings are a little different. The income scales for those on non-manual earnings have done rather better than manual earnings. But those are the figures supplied to me by the Library.

    I merely wished to suggest to the right hon. Gentleman that it would be helpful if, with his customary fairness, he expressly conceded that in relation to average earnings of all occupations we are talking about a 1 per cent. reduction. That is a significant change. It is of little service to debate to pretend that the only people working are those engaged in manual occupations.

    5.45 pm

    I am delighted to accept figures that I have not seen before. They show that, as a result of this Budget, the deterioration in average earnings is not as big as I feared but nevertheless exists. There is a deterioration in the threshold of 1 per cent. It is rather less than that for manual earnings, but there is a deterioration. I am happy to accept the right hon. and learned Gentleman's word when he produces these figures.

    The hon. Member for Folkestone and Hythe (Sir A. Costain) apparently visited the United States with a view in part to discovering how the American tax system operates. He mentioned those at the highest levels, and we shall come to them in a subsequent debate. However, in the present debate we are discussing the lower levels of taxation. The hon. Gentleman will be aware from what he learned during his visit that Americans have not only reduced rate bands but a series of them. They start at 14 per cent. and go on to 16 per cent., 18 per cent., 20 per cent., 22 per cent., and so on. If the hon. Gentleman cites the American example as one that we should follow, he is asking for more than one simple reduced rate band because he lauds a system which provides for many more rates of tax at levels lower than that which we have.

    I assure the right hon. Gentleman that I did not go to America to learn about the tax system there. I paid United States tax for a number of years. One of the right hon. Gentleman's hon. Friends talked about this Conservative Government giving money to the rich. I was pointing out that the Socialist Government gave the highest priority to taxation but, instead of giving money to the rich, concentrated on getting our taxation system at the higher level on some equality with that of the United States.

    That debate will come in due course. The matter relevant to the present debate is the lower rate bands, and the experience of the United States points to a rather different conclusion from that presented to us.

    In a very impressive speech showing how the poverty trap was helped by the reduced rate band, my hon. Friend the Member for Birkenhead (Mr. Field) spoke of the relief to the higher tax payers and pointed to the large sums of money which had gone to them and which ought in fairness to have gone to those in the greatest need and those who would be assisted by a reduced rate band.

    My hon. Friend made three arugments which the Chief Secretary did not take sufficiently into account. First, he advanced the argument, which the right hon. and learned Gentleman did not mention, that the reduced rate band helped those in the poverty trap. Of course it does not abolish the trap, but it helps, and we should like to see more happening there. One of our problems about the poverty trap is the high marginal rates of taxation. My hon. Friend pointed out fairly that the reduced rate bands reduced the marginal rates of tax of those caught in the poverty trap—which is why it assists—and he added a comment about the increase in the incentive to work.

    I expected that argument to produce a more encouraging response from the Chief Secretary, speaking as he does so often about the need for incentives and bearing in mind that these are people to whom incentives are very real. When we take into account the cost of earning a living, the cost of transport and the cost of canteen meals, it becomes arguable whether it is worth while taking on a part-time job, which is what we are talking about in respect of a great many people. It is a narrow difference that makes them decide whether to take these jobs. The reduced rate band can be the final matter that can make that decision for them.

    My hon. Friend the Member for Workington (Mr. Campbell-Savours), in a notable speech, attacked the hon. Members for Gateshead, West (Mr. Horam) and for Colne Valley (Mr. Wainwright) about the Liberal document. I have not had an opportunity to read it, but, in so far as it probably rests upon interest, concern and affection for a tax credit system, perhaps I should point out the disadvantages of that line of action. I was against a tax credit system when we had a Select Committee on the subject because it removed, almost for ever, the opportunity to have a reduced rate band. The tax credit system depends on an enormous length of a single basic rate of tax. Without that long range, covering about 97 per cent. of the population all paying tax at one basic rate, the principle upon which the tax credit system was based would be unworkable. I strongly opposed that trend to fixing it in amber for as long ahead as one can consider. I also opposed other matters, such as the fact that it would deal with only four out of the 44 benefits that operated at that time.

    There were a number of other matters, but that was an important element. If the hon. Member for Colne Valley is continuing along that line—

    I am glad to see that he is not, but I know that several members of the SDP are interested in the tax credit system, starting with the hon. Member for Farnworth (Mr. Roper). However, it is a line of action that I would strongly oppose, and the hon. Member for Colne Valley seems to be implying that he would oppose it as well.

    As my hon. Friend the Member for Birkenhead said, the reduced rate band involves a small amount of money. We are suggesting a level of 25 per cent. on £750. My hon. Friend sees this as the beginning of a series of ranges of reduced rate bands. Before going too far in that direction, I should like to see the results of the computerisation of the Inland Revenue, to see how far one can have such refinement of the tax system. In principle, I see nothing to disagree with in what my hon. Friend said. He is showing the road ahead, if that can be done within the principles of the system that is being carried out by the Inland Revenue in its computerisation exercise.

    My right hon. Friend may recall that I commented that if the Labour party were to content itself with introducing a modest reform such as a reduced band tax rating of 25 per cent. on the first £750 of taxable income, we should have to get to grips with the loss of taxable income by way of the tax benefits granted by Chancellors. May we have my right hon. Friend's thoughts on this, as a person who might be a member of the next Labour Government in a Treasury position? If we are to offer real changes in the tax system and a real shift in the burden, taking a large number of people out of tax and promising cuts in the rate of tax as well, we must bring all income into tax to make that possible.

    I should be happy to respond to my hon. Friend, who always introduces interesting and important matters. However, I can spot the signs a long way off, Mr. Leadbitter, and I know that I should not receive any encouragement if I were to proceed in this direction. Suffice it to say that my hon. Friend and I shall be happily engaged in discussing these interesting matters in the next Labour Government. The differences between us will be small indeed at the end of the day.

    This beginning of the Finance Bill Committee stage on the Floor of the House has been interesting because it has introduced a theme to which we shall constantly be referring. That is the way in which the Government differentiate so markedly between the advantages that they give to the better-off and the disadvantages that they allow for those at the lower end of our income scale. Because of this and because of the importance that attaches to the amendment, I ask my right hon. and hon. Friends to join me in the Lobby.

    Question put, That the amendment be made:—

    The Committee divided: Ayes 170, Noes 245.

    Division No. 128]

    [5.55 pm

    AYES

    Abse, LeoEadie, Alex
    Adams, AllenEllis, R. (NE D'bysh're)
    Allaun, FrankEnglish, Michael
    Alton, DavidEnnals, Rt Hon David
    Archer, Rt Hon PeterEvans, loan (Aberdare)
    Ashley, Rt Hon JackEvans, John (Newton)
    Ashton, JoeField, Frank
    Atkinson, N.(H'gey,)Flannery, Martin
    Barnett, Guy (Greenwich)Foot, Rt Hon Michael
    Benn, Rt Hon TonyFord, Ben
    Bidwell, SydneyFoster, Derek
    Booth, Rt Hon AlbertFraser, J. (Lamb'th, N'w'd)
    Boothroyd, Miss BettyGarrett, John (Norwich S)
    Bottomley, Rt Hon A.(M'b'ro)Golding, John
    Bradley, TomGraham, Ted
    Bray, Dr JeremyGrant, John (Islington C)
    Brown, R. C. (N'castle W)Grimond, Rt Hon J.
    Buchan, NormanHamilton, James (Bothwell)
    Callaghan, Jim (Midd't'n & P)Hamilton, W. W. (C'tral Fife)
    Campbell-Savours, DaleHarman, Harriet (Peckham)
    Carter-Jones, LewisHarrison, Rt Hon Walter
    Cartwright, JohnHart, Rt Hon Dame Judith
    Clark, Dr David (S Shields)Haynes, Frank
    Clarke, Thomas (C'b'dsre, A'rie)Heffer, Eric S.
    Cocks, Rt Hon M. (B'stol S)Home Robertson, John
    Coleman, DonaldHomewood, William
    Concannon, Rt Hon J. D.Hooley, Frank
    Cook, Robin F.Horam, John
    Cowans, HarryHoyle, Douglas
    Crowther, StanHuckfield, Les
    Cryer, BobHughes, Mark (Durham)
    Cunningham, G. (Islington S)Hughes, Robert (Aberdeen N)
    Cunningham, Dr J. (W'h'n)Hughes, Roy (Newport)
    Dalyell, TamHughes, Simon (Bermondsey)
    Davidson, ArthurJanner, Hon Greville
    Davies, Rt Hon Denzil (L'lli)Jay, Rt Hon Douglas
    Davis, Terry (B'ham, Stechf'd)Johnson, James (Hull West)
    Deakins, EricJohnston, Russell (Inverness)
    Dean, Joseph (Leeds West)Jones, Barry (East Flint)
    Dewar, DonaldKaufman, Rt Hon Gerald
    Dixon, DonaldKerr, Russell
    Dobson, FrankLamond, James
    Dormand, JackLeighton, Ronald
    Duffy, A. E. P.Litherland, Robert
    Dunnett, JackMabon, Rt Hon Dr J. Dickson
    Dunwoody, Hon Mrs G.McCartney, Hugh

    McKay, Allen (Penistone)Rowlands, Ted
    McKelvey, WilliamSandelson, Neville
    MacKenzie, Rt Hon GregorSever, John
    Maclennan, RobertSheldon, Rt Hon R.
    McWilliam, JohnShore, Rt Hon Peter
    Marshall, D(G'gow S'ton)Silkin, Rt Hon J. (Deptford)
    Marshall, Jim (Leicester S)Silverman, Julius
    Mason, Rt Hon RoySkinner, Dennis
    Maxton, JohnSnape, Peter
    Meacher, MichaelSoley, Clive
    Mikardo, IanSpearing, Nigel
    Millan, Rt Hon BruceSpriggs, Leslie
    Mitchell, Austin (Grimsby)Stewart, Rt Hon D. (W Isles)
    Mitchell, R. C. (Soton Itchen)Stoddart, David
    Morris, Rt Hon A. (W'shawe)Stott, Roger
    Morris, Rt Hon C. (O'shaw)Strang, Gavin
    Newens, StanleyStraw, Jack
    Oakes, Rt Hon GordonTaylor, Mrs Ann (Bolton W)
    O'Brien, Oswald (Darlington)Thomas, Dafydd (Merioneth)
    O'Halloran, MichaelThorne, Stan (Preston South)
    O'Neill, MartinVarley, Rt Hon Eric G.
    Orme, Rt Hon StanleyWainwright, E.(Dearne V)
    Owen, Rt Hon Dr DavidWainwright, R.(Colne V)
    Park, GeorgeWardell, Gareth
    Parker, JohnWatkins, David
    Pitt, William HenryWellbeloved, James
    Prescott, JohnWelsh, Michael
    Price, C. (Lewisham W)Whitlock, William
    Race, RegWigley, Dafydd
    Radice, GilesWilley, Rt Hon Frederick
    Rees, Rt Hon M (Leeds S)Williams, Rt Hon A.(S'sea W)
    Richardson, JoWilliams, Rt Hon Mrs (Crosby)
    Roberts, Albert (Normanton)Wilson, Rt Hon Sir H.(H'ton)
    Roberts, Allan (Bootle)Wilson, William (C'try SE)
    Roberts, Ernest (Hackney N)Woolmer, Kenneth
    Roberts, Gwilym (Cannock)Wrigglesworth, Ian
    Robertson, GeorgeYoung, David (Bolton E)
    Robinson, G. (Coventry NW)
    Rooker, J. W.Tellers for the Ayes:
    Roper, JohnMr. George Morton and
    Ross, Stephen (Isle of Wight)Mr. Lawrence Cunliffe

    NOES

    Adley, RobertBulmer, Esmond
    Aitken, JonathanBurden, Sir Frederick
    Alexander, RichardButcher, John
    Alison, Rt Hon MichaelCarlisle, John (Luton West)
    Ancram, MichaelCarlisle, Kenneth (Lincoln)
    Arnold, TomCarlisle, Rt Hon M. (R'c'n)
    Aspinwall, JackChalker, Mrs. Lynda
    Atkins, Rt Hon H.(S'thorne)Channon, Rt. Hon. Paul
    Atkins, Robert (Preston N)Chapman, Sydney
    Baker, Nicholas (N Dorset)Churchill, W. S.
    Banks, RobertClark, Hon A. (Plym'th, S'n)
    Beaumont-Dark, AnthonyClark, Sir W. (Croydon S)
    Bendall, VivianClarke, Kenneth (Rushcliffe)
    Berry, Hon AnthonyClegg, Sir Walter
    Best, KeithCockeram, Eric
    Bevan, David GilroyColvin, Michael
    Biffen, Rt Hon JohnCormack, Patrick
    Biggs-Davison, Sir JohnCorrie, John
    Blackburn, JohnCostain, Sir Albert
    Blaker, PeterCranborne, Viscount
    Body, RichardCrouch, David
    Bonsor, Sir NicholasDickens, Geoffrey
    Boscawen, Hon RobertDorrell, Stephen
    Bottomley, Peter (W'wich W)Douglas-Hamilton, Lord J.
    Boyson, Dr RhodesDover, Denshore
    Braine, Sir Bernarddu Cann, Rt Hon Edward
    Bright, GrahamDunn, Robert (Dartford)
    Brinton, TimDurant, Tony
    Brittan, Rt. Hon. LeonDykes, Hugh
    Brooke, Hon PeterEden, Rt Hon Sir John
    Brotherton, MichaelEdwards, Rt Hon N. (P'broke)
    Brown, Micbael (Brigg & Sc'n)Eggar, Tim
    Bruce-Gardyne, JohnElliott, Sir William
    Bryan, Sir PaulEyre, Reginald
    Buchanan-Smith, Rt. Hon. A.Farr, John
    Buck, AntonyFell, Sir Anthony
    Budgen, NickFenner, Mrs Peggy

    Finsberg, GeoffreyMeyer, Sir Anthony
    Fisher, Sir NigelMills, Iain (Meriden)
    Fletcher, A. (Ed'nb'gh N)Mills, Sir Peter (West Devon)
    Fletcher-Cooke, Sir CharlesMiscampbell, Norman
    Fookes, Miss JanetMoate, Roger
    Forman, NigelMonro, Sir Hector
    Fowler, Rt Hon NormanMontgomery, Fergus
    Fox, MarcusMoore, John
    Fraser, Rt Hon Sir HughMorgan, Geraint
    Fraser, Peter (South Angus)Morris, M. (N'hampton S)
    Fry, PeterMorrison, Hon C. (Devizes)
    Gardiner, George (Reigate)Morrison, Hon P. (Chester)
    Gardner, Sir EdwardMudd, David
    Gilmour, Rt Hon Sir IanMurphy, Christopher
    Glyn, Dr AlanMyles, David
    Goodhew, Sir VictorNeale, Gerrard
    Goodlad, AlastairNeedham, Richard
    Gorst, JohnNelson, Anthony
    Gow, IanNeubert, Michael
    Gray, Rt Hon HamishNewton, Tony
    Griffiths, E.(B'y St. Edm'ds)Oppenheim, Rt Hon Mrs S.
    Griffiths, Peter (Portsm'th N)Page, Richard (SW Herts)
    Grist, IanParris, Matthew
    Grylls, MichaelPawsey, James
    Gummer, John SelwynPeyton, Rt Hon John
    Hamilton, Hon A.Pink, R. Bonner
    Hamilton, Michael (Salisbury)Pollock, Alexander
    Hampson, Dr KeithPorter, Barry
    Haselhurst, AlanPrentice, Rt Hon Reg
    Hawksley, WarrenPrice, Sir David (Eastleigh)
    Hayhoe, BarneyProctor, K. Harvey
    Heddle, JohnRaison, Rt Hon Timothy
    Henderson, BarryRathbone, Tim
    Heseltine, Rt Hon MichaelRees, Peter (Dover and Deal)
    Hicks, RobertRees-Davies, W. R.
    Higgins, Rt Hon Terence L.Renton, Tim
    Hogg, Hon Douglas (Gr'th'm)Rhodes James, Robert
    Holland, Philip (Carlton)Rhys Williams, Sir Brandon
    Hooson, TomRidley, Hon Nicholas
    Howe, Rt Hon Sir GeoffreyRoberts, Wyn (Conway)
    Howell, Rt Hon D. (G'ldf'd)Rossi, Hugh
    Hunt, David (Wirral)Sainsbury, Hon Timothy
    Hunt, John (Ravensbourne)St. John-Stevas, Rt Hon N.
    Irvine, RtHon Bryant GodmanShaw, Giles (Pudsey)
    Johnson Smith, Sir GeoffreyShelton, William (Streatham)
    Jopling, Rt Hon MichaelShepherd, Colin (Hereford)
    Kaberry, Sir DonaldShepherd, Richard
    Kellett-Bowman, Mrs ElaineShersby, Michael
    Kershaw, Sir AnthonySilvester, Fred
    Knox, DavidSims, Roger
    Lamont, NormanSkeet, T. H. H.
    Lang, IanSmith, Tim (Beaconsfield)
    Latham, MichaelSpeed, Keith
    Lawrence, IvanSpeller, Tony
    Lawson, Rt Hon NigelSpence, John
    Lee, JohnSpicer, Jim (West Dorset)
    Le Marchant, SpencerSproat, Iain
    Lennox-Boyd, Hon MarkSquire, Robin
    Lester, Jim (Beeston)Stanbrook, Ivor
    Lewis, Sir Kenneth (Rutland)Steen, Anthony
    Lloyd, Peter (Fareham)Stewart, A.(E Renfrewshire)
    Loveridge, JohnStokes, John
    Luce, RichardTapsell, Peter
    Lyell, NicholasTaylor, Teddy (S'end E)
    McCrindle, RobertTebbit, Rt Hon Norman
    Macfarlane, NeilThomas, Rt Hon Peter
    MacKay, John (Argyll)Thompson, Donald
    McNair-Wilson, M. (N'bury)Thorne, Neil (Ilford South)
    McNair-Wilson, P. (New F'st)Thornton, Malcolm
    McQuarrie, AlbertTownend, John (Bridlington)
    Madel, DavidTownsend, Cyril D, (B'heath)
    Major, JohnTrippier, David
    Marland, Paulvan Straubenzee, Sir W.
    Marlow, AntonyViggers, Peter
    Marten, Rt Hon NeilWaddington, David
    Mather, CarolWakeham, John
    Mawby, RayWaldegrave, Hon William
    Mawhinney, Dr BrianWalker, B. (Perth)
    Maxwell-Hyslop, RobinWalker-Smith, Rt Hon Sir D.
    Mayhew, PatrickWaller, Gary

    Walters, DennisWickenden, Keith
    Warren, KennethWiggin, Jerry
    Watson, JohnWolfson, Mark
    Wells, Bowen
    Wells, John (Maidstone)Tellers for the Noes:
    Wheeler, JohnMr. John Cope and
    Whitelaw, Rt Hon WilliamMr. Tristan Garel-Jones.
    Whitney, Raymond

    Question accordingly negatived.

    Question proposed, That the clause stand part of the Bill.

    Clause 12 gives the Government authority to continue to collect income tax for a further temporary period of one year. Let me put the Financial Secretary's mind at rest by saying that it will not be part of the Opposition's case to criticise the Government for failing to find that they could do without income tax for a further year. Nevertheless, this central clause, which provides for the major tax collected in our kingdom, gives us the opportunity to explore the Government's tax record over five Finance Bills and five Budgets. It is also, this year, a clause that includes some extraordinary proposals on the higher rate bands, about which I want to say something later.

    The starting point for this debate must necessarily be the starting point for the payment of tax at a rate of 30 per cent. That is the highest rate of taxation anywhere in the world, with the possible exception of Australia. It is also 5p higher than the rate that the Government inherited from the Labour Government. That is a strange outcome to five Finance Bills and five Budgets from a Government who put a commitment not to increase taxes, as they have done, but to reduce taxes at the centre of their claim to power. Their commitment was stated with characteristic vigour and confidence by the Prime Minister at her adoption meeting in April 1979 when she told her audience—the Finchley Conservatives—
    "Taxes must and taxes will come down."
    That statement was asserted with all the confidence of a modern Newton who had discovered that taxes were subject to the laws of gravity. Unfortunately, the Government have discovered that taxes need not, and stubbornly will not, come down. I notice that, just as the Prime Minister stated the case with characteristic vigour, the Chancellor stated the truth of the matter with characteristic understatement in his Budget broadcast. He said:
    "Over the last few years I've not been able to cut income tax as much as I would have liked."
    The Chancellor does not do full justice to the horror of his record. Far from not having reduced income tax as much as he would have liked, he has not reduced it at all. He has increased taxes of all types.

    I am delighted that the Financial Secetary to the Treasury is to respond to the debate as I should like to take up some of what he said at the close of the Second Reading debate. I should especially like to take up his surprising statement that, after two years of answering the questions of my hon. Friend the Member for Blackburn (Mr. Straw), he had concluded that he had given the wrrong answers and that instead of adding child benefit to earnings as he has done in the past few years—[Interruption.] With respect to the Financial Secretary, he was not asked to do anything with child benefit. If he examines the questions that my hon. Friend the Member for Blackburn tabled, he will find no reference to child benefit, far less any instructions about how to use it in the calculations. The Financial Secretary said that instead of adding child benefit to earnings, as he has done, for the calculations, he should have been deducting it from income tax. That has not the slightest impact on the net income of the households concerned but it has the convenient effect, to which the Financial Secretary referred, of producing a marginal drop in the proportion of income tax that they pay. My hon. Friend the Member for Blackburn would like to take that matter up later but there are a few points which I should like to offer at this stage.

    If the Financial Secretary insists on that as the new method of calculation I must warn him that it has one embarrassing consequence that he might wish to ponder. The new method of calculation is devastatingly flattering to the Labour Government's record. The Financial Secretary referred to a two-child household on 75 per cent. of the average wage. As he stated, during the five years in which the Conservatives have been in power, the proportion of income that such a household must pay in income tax has decreased from 8·6 per cent. to 8·1 per cent. In 1976–77, the year in which child benefit was first introduced, such a household paid 13·8 per cent. of its income in income tax. That fell to 8·6 per cent. in 1978–79 — under a Labour Government. Therefore, under the Labour Government, the amount of such a household's income paid in income tax fell by 10 times as much as it has fallen in the four years of the present Government. If the Government had sustained that rate of decrease, child benefit would exceed the tax deductions of such households by now. By the Financial Secretary's new form of calculation, the household would pay zero proportion of its income in tax. I suspect that that household would find the result puzzling, as it would still be paying income tax.

    6.15 pm

    As the Chief Secretary of the Treasury candidly pointed out when he replied to the previous debate, that calculation omitted national insurance contributions. When we add such contributions and deduct child benefit, as now instructed by the Financial Secretary, we find that even with the deductions in child benefit from the total tax burden, the total tax burden has increased from 15 per cent. in 1978–79 to 17·1 per cent. in 1983–84. Therefore, even if we accept that the new form of calculation and the answers that have been given in the past two years are water under the bridge, we are still left with the awkward fact for Conservative Members that the percentage deducted in national insurance and income tax from a family on below average income is higher than under the Labour Government. The primary reason for that is the dramatic increase that the Government have made in the national insurance contribution. It is plain that they have chosen to shift the tax burden from income tax to national insurance. That shift is regressive, because poor households start paying national insurance contribution at a lower level of income tax and because well-off households cease to pay national insurance contributions on incomes above £255 a week.

    This year, the Chancellor has chosen not to increase the top ceiling by the full amount. It is now £10 less than it might have been under the legislative formula. That means that he has protected the well-off from the full burden of the increase in national insurance contributions while he has imposed them remorselessly on lower-paid households. Wriggle how they may, Conservative Members cannot avoid the obvious fact that income tax is higher than when they took office. National insurance contributions have soared since the Conservatives took office and now produce almost as much revenue as income tax. VAT has been doubled. I know that they have not doubled the zero rate but they have doubled almost every other one. Moreover, the revenue from North Sea oil has approached flood tide. The Government receive 20 times as much revenue from North Sea oil as did the Labour Government in 1978–79. The public may ruefully reflect on the fact that they are paying this generous tax bill for public services which have sharply reduced in quality.

    Against that background, we should consider the one small group of the nation that is now paying less tax than in 1978–79. They belong to the top 4 per cent. of income earners and qualify for the higher rate band. As the burden on the rest of us has increased, the burden on that 4 per cent. has been lightened. This clause continues that process. Moreover, it is those in the higher rate band who benefit most from the uprating of the basic rate threshold. To the super executive who earns £30,000 and pays 60 per cent. income tax, the value of the uprating of the basic rate threshold is worth precisely double its value to the low-paid household that pays tax at the standard rate. This clause proposes, in addition to that, another specific increase in the higher rate threshold. Nor is that increase the rate of inflation. If Conservative Members were anxious to prevent the burden of income tax from increasing on the higher rate payers, it is necessary simply to increase the higher rate threshold by 5 or 6 per cent. That would keep pace with inflation. They have not done so. Under the clause they propose an increase of 14 per cent., which will bring about a further reduction in the real tax burden on the richest in our community.

    The extent to which the distribution of relief has been arranged to favour the wealthy is clearly seen by comparing the number of those who will drop out of the higher rate bands with those who will drop out of taxation altogether. With the increase in the basic rate, 750,000 fewer people will pay the basic rate compared with what would have happened had the basic rate threshold merely been indexed. When that is set against 25 million taxpayers, we see that about 3 per cent. of taxpayers will drop out of taxation. The reduced number of those who pay at the higher rate is out of all proportion to that figure of 3 per cent. At the bottom of the scale, those taxpayers who currently pay tax at the marginal rate of 40 per cent. will decline in number from 360,000 to 280,000 — a drop not of 3 per cent. but of 25 per cent. In the top higher rate band, the number of taxpayers who pay a marginal rate of taxation of 60 per cent. will shrink from 55,000 to 45,000—a drop of 18 per cent., compared with a drop of only 3 per cent. in the basic rate. The number of those who pay a higher rate of tax will drop from 850,000 to 650,000—a reduction of 23·5 per cent. That reduction is a full 20 per cent. more than the reduction achieved in the standard rate arising from the increase in the basic rate threshold.

    The effect of those changes is profound and will reduce the proportion of taxpayers paying a higher rate of tax from 4 per cent. to only 3 per cent., so that 97 per cent. of all taxpayers will pay precisely the same basic rate of 30 per cent. irrespective of their income. That is a grotesque outcome, and an offence to reason and to the concept of a progressive tax system. Its grotesque nature goes even further because some taxpayers are liable to an effective tax rate well in excess of 30 per cent., although they are not at the top of the income tree but at the bottom. They are caught in the poverty trap just over the basic rate threshold. For them, each pound of increased income triggers off not only a 30p liability in tax, but the loss of benefits amounting to well over another 30p. They include especially those households whose income is so low that they are eligible for family income supplement, but who, nevertheless, have a sufficiently high income to make them liable to pay tax at the basic rate of 30 per cent.

    For the wage earner in that category, each additional pound of income means that he will be liable to pay 30p in income tax and 9p in national insurance contributions —compared with 6·5p under the Labour Government—and suffer a loss of 50p in family income supplement. That totals 89p and is his effective rate of tax. If, as is likely in such a household, its head is a council tenant, it will face a further 20p to 30p drop in rent and rates rebates, giving it an effective tax rate of more than 100 per cent.

    There are 130,000 households in that category. One of the massively unjust ironies in the history of the Government's stewardship of our tax affairs is that, since they slashed the upper rates of tax in the 1979 Budget, the only households in our tax system which pay an effective rate of tax of 80 per cent. or more are among the poorest taxpayers. Yet the consequence of the Budget on that group of 130,000 households is that only 10,000 households—less than 10 per cent.—will be taken out of the poverty trap. That means that 10,000 households will be taken out of the poverty trap, compared with the 200,000 who will be taken out of the higher rate bands under the clause. No wonder that the Permanent Secretary to the Treasury, when he gave evidence to the Select Committee about the poverty trap, said that the poverty trap was not very high on the list of priorities. Plainly, it is not. The high priority of this Government is to help the rich.

    However, matters could have been different. The cost of the concessions in this clause is £255 million in a full year, which represents one tenth of all the costs of uprating thresholds for the top 4 per cent. That £255 million could have been used for other purposes. It could have allowed us to grant the long-term rate of supplementary benefit to those who have been unemployed for more than a year, which would have cost only £150 million. It could have enabled us not to swindle the pensioners of the 2 per cent. that they will lose because of the new method of calculating the uprating, which would have cost only £200 million. It could have enabled us to increase child benefit by a further 45p, which would have cost £250 million. That increase would have been the most effective way of cutting the poverty trap, and of taking out of the poverty trap those who at present pay marginal rates of taxation in excess of 80 per cent.

    In practice, far from increasing child benefit by such an additional amount, the Government have increased it by only 11 per cent., while at the same time they have increased the thresholds of the higher rate bands by 14 per cent. They have chosen to distribute the money available in a way that promotes the greatest inequality by giving the most advantage to the smallest number—the most wealthy. Had that been done against a background in which the tax burden was stable, it would still have been the wrong priority. When it is done against a background in which taxes on everyone else have been increased, it becomes deeply repugnant. For that reason, the Opposition will vote against this offensive clause.

    This Finance Bill, and the four previous Finance Bills, are a weary catalogue of increasing burdens of taxation on the ordinary people of Britain, which involves a cynical betrayal of repeated and emphatic promises to reduce taxes when the Government were campaigning for election in 1979. But of all the clauses of betrayal and of burden, clause 12 most startlingly exhibits the perversity that besets the Government in tax matters.

    Clause 12 once again sanctifies the rate of 30 per cent., extending throughout almost the entire range of income tax payers until we reach the most privileged. As was said in the previous debate, the 30 per cent. rate impinges upon the first pound of taxable income even for those who must also rely on state benefits to stay alive. When one considers how comparatively recently income tax was regarded as a fairly progressive tax—although never as progressive as many of us would have wished—it is appalling that the 30 per cent. rate has now become the standard affliction for almost all taxpayers.

    Another serious aspect of this clause is that it understates by 8·75p in the pound the burden of direct taxation on most incomes. For the reasons that I mentioned earlier this afternoon, there is a parallel impost for which the Treasury manages to escape direct responsibility—the 8·75p of a normal employee's national insurance contribution. In debating this clause most hon. Members will have in the forefront of their minds a basic rate of 38.75p rather than the 30p that is printed in the clause. Furthermore, there are different rules for the cut-off of the national insurance employee's contribution. It all adds to the confusion. It is important to know how much the Government's increase in the burden of taxation on the ordinary people of this country amounts to.

    6.30 pm

    My hon. Friend the Member for Gateshead, West (Mr. Horam) received an answer on 7 April stating quite explicitly in Treasury language that the standard rate of income tax for the average family with two children is today 7p more than when the Government came to power. All the Government's increases in taxation are interpreted in terms of the basic rate. If we funnel together every Conservative increase in taxation during the past four years and express it by the basic rate of income tax, we see that the Government have increased taxation by 7p in the pound for the family on average earnings with two children and by about 8p in the pound for many people earning three quarters of average earnings. The electorate will be led to keep that fact firmly in its mind when the election campaign begins.

    The system of levying income tax, which is encapsulated in clause 12 and others in the Bill, is out of date. A more sensible and intelligent approach to taxation and benefits was raised earlier in the debate, although discouraged by the occupant of the Chair. Hon. Members have been assured by the highest authority in the computer world that it would be virtually impossible to make serious structural alterations in our income tax and national insurance benefit systems until approximately 1988–1989 because the programmes have been half-written, and computerisation, after many delays, is said to be moving forward in such a way that to revolutionise the system before the present computerisation is complete would set it back for many years and possibly risk a breakdown in the tax collection system.

    Since there is a period—a window—before these matters can be finalised, it is high time that we addressed ourselves more seriously than hitherto to combining the tax and benefit system and presenting to the citizen more reasonable instruments of Government that would enable a fuller take-up of benefits and a fairer tax than clause 12 provides. A need is felt on all sides of the Chamber for a system of income tax and of benefits that is simpler to understand and to administer, which ensures a fuller take-up of benefits and gives far less colour and excuse to tax evasion. The mere fact that a small fraction of the earning community receives an income tax form in any one year is the biggest invitation to tax evasion that any Government could devise. The Government say, "We are not asking what you have earned, whether you have been planting wallflowers for your neighbour, cutting his hedge, painting his house or playing the accordion at his daughter's party. We ask that only every five years. In the meantime, good luck to you." A system that enables a fuller take-up of benefits could, by the same method, greatly discourage tax evasion. Furthermore, there is a need, which has been eloquently developed in the debate, to take the edge off the poverty trap and for a tax system that treats men and women equally and conforms with the general principles against discrimination or an undue accent on marital status.

    In commenting on this clause, each of the possible ways out of these dilemmas should be considered on its own and we should not be bandying about mere labels. In addressing my mind to the subject, I was put off when some people referred to a social dividend and when others referred to reforming income tax by means of some type of basic income guarantee. Tax credit systems have been referred to in the debate. It would be better to consider each set of proposals — there will be proposals from most of the political parties — on their merits. One system referred to earlier was that published by the Women's Liberal Federation, although it is not a universalist approach. It neither offers nor attempts to offer universal subsistence allowances for everyone, as some tax credit schemes do. That is why the cost of that scheme is relatively modest compared with many others. Whatever improved version is settled upon, until computers enable us to make big changes any change is bound to be some improvement on the primitive method of levying income tax at the basic rate of 30 per cent. on all ordinary people, regardless of their circumstances, as is the case in this clause. I condemn the clause.

    We should be indebted to my hon. Friend the Member for Edinburgh, Central (Mr. Cook) for his devastating exposure of the Government's taxation policy and how they have managed to make the poor pay additional tax while allowing the already rich to get away with it. The Government are operating a system of Robin Hood in reverse by making the poor pay for the tax reliefs of the rich. That is precisely what has happened under the present Government, and I am quite sure that it was intended to happen.

    During the last general election, my opponent visited factories in Swindon — some of which have unfortunately closed, with the consequent loss of jobs and of tax income to the Exchequer—and told the people, "This horrible Labour Government are taking money out of your pockets so that they can waste it on public expenditure." The Conservative candidate said, "Put us in and we will ensure that you can keep more money in your pockets to do with it as you wish. At the same time, we will ensure that your public services will remain as good as they ever were."

    Under this Government, people have less money in their pockets to spend as they wish, as was promised by the Tory Government and Prime Minister. At the same time, the public services have been undermined. The education system has been undermined and there are fewer teachers. The social services have been undermined as benefits have been reduced, in some cases in real terms. The ordinary people who elected the Conservative party to power on the promise of decreased taxation are now paying more in tax and, at the same time, enjoying worse public services.

    What is worse, many people who were paying tax under the Labour Government no longer pay tax because they are unemployed. Under this Government, 2·5 million additional people do not pay tax, because they do not have the opportunity to do so. The Government's policy has put them out of work.

    Many firms, including construction firms, decided to support the Government's policies because, they thought, they would be better off under a Tory Government. They thought that they would pay less tax, yet they are now bankrupt as a result of the Government's policies. They rue the day that they voted for the Conservative party. I trust that they have learnt their lesson and that, whether the election be in June, October or next year, they will ensure that they do not inflict the same Government on us as we have had for the past four years.

    The Government have broken every promise that they made to every section of the community, with the exception of the very rich. The rich have been given tax reliefs and have had increases in income which, in the present context, are obscene. It is obscene that people earning—or at least getting—about £200,000 a year should receive under this Government tax reliefs amounting to about £200 or £250 per week. The vast majority of people in Britain will never earn £250 per week gross — let alone net — in their lives, yet this Government's policy has been to allow obscene over-consumption, while permitting 4 million people to be unemployed.

    Do the Government want to go to the country and boast about their achievements? They have no achievements to boast about. They cannot even boast about taxation reductions, yet that was their major policy at the last election. Let us consider what some Conservative Members said at the time. On 1 May 1979—two days before the general election—the right hon. Member for Finchley (Mrs. Thatcher), now the Prime Minister, gave the following promise at Bolton:
    "for the politicians the task is clear. It is to provide the incentive through lifting tax burdens. It is to make it pay to work."
    Instead of being lifted, the tax burden on the ordinary people of our country, who produce the nations wealth, has increased beyond measure. However, large reductions have been made in the taxes of those who are already rich. What is the Government's excuse for playing Robin Hood in reverse? They say that those who have the money will invest in British industry. That is the argument they always use. They say that they must give incentives so that those people will invest. However, investment has fallen by 30 per cent.—virtually in inverse ratio to the amount of additional tax relief given to those so-called investors.

    6.45 pm

    On 24 April 1979 the right hon. and learned Member for Surrey, East (Sir G. Howe), now Chancellor of the Exchequer, said:
    "we shall lower taxes on income at all levels to encourage people to work harder, train for skills"—
    that is what he said, yet we have the lowest number of apprenticeships in our history—
    "and accept more responsibility at work."
    What a way to go to the electorate! What falsity! What a thing to do to the electorate! The Government promised them one thing and then did the reverse. I do not know how the Government have the gall to suggest that, if they go to the electorate in June, they will return them to power. The electorate are not as daft as that. They are beginning to understand the sleight of hand the Government have practised on them — [Interruption.] Does the hon. Member wish to intervene? I believe that something was said about inflation. The Government claim to have reduced inflation to 4·3 per cent., but they have reduced it only from the increased level that they managed to achieve. They inherited an inflation rate of, I believe, 8 per cent. from the Labour Government. They then managed to increase it to 22 per cent. as a result of the measures that they introduced, notably in their first Budget. They doubled value added tax and levied swingeing increases in other taxes. In addition, they greatly increased prescription charges, which now stand at £1.40, as opposed to 20p when the Labour Government were in office. Therefore, the Government cannot claim any credit, even for the reduction in inflation. They increased inflation in the first place, and they have now managed to reduce it again.

    I shall gladly go into the Lobby to support my right hon. and hon. Friends' opposition to the clause. As I have said, the Government have conned the people of this country for a long time. It is about time that the people and the Committee understood the Government's philosophy. That philosophy is to make the ordinary people of this country pay throught the nose for the betterment of the Government's friends, who sustain them both in and out of office.

    I shall be critical not only of the Government, but of the Opposition.

    The hon. Gentleman wants Tory votes.

    I can live well without them.

    All who advocate higher public expenditure should say where the revenue is to be found. It is easy to criticise income tax or value added tax without explaining how the money can be raised to meet necessary expenditure programmes. From an economic and social view I believe in the need for a higher level of public expenditure. Some of the extra money needed can be raised through the public sector borrowing requirement to stimulate the economy, but not all can be obtained in that way. More money must come from taxation, but in a manner very different from that proposed by the Government, and one that is fair to those on lowest earnings. We should not be afraid of advocating taxation if we believe in the expenditure programmes that are necessary.

    Today about 3·5 million people are unemployed, at a cost of £17 billion a year. That means that £5,000 or more a year is the cost of each unemployed person. If it is possible to bring those people back into work by paying them £6,000 or £7,000 a year to take the jobs that need to be done, we should not shrink from paying the bill. If it is necessary to raise an extra 1p or even 3p in the pound from income tax—that is the most progressive form of taxation—to bring unemployed people back to work, we should be willing to pay it. We should provide the apprenticeships. We should allow people to do the social work, the much needed work on the roads and houses, hospitals, clinics, schools and universities. We should be willing to pay the home helps, the nurses and the others who could do all the work that needs to be done. If that costs an extra 1p or 3p in income tax, we should be willing to pay it.

    The depression of the past three or four years, from which Britain has suffered so much more than other countries, has been worse for the people who are in no position to tackle it. The people who suffer most are at the end of the job queue. They carry the recession on their shoulders. We should try to share that burden more evenly. I do not say that that justifies the income tax structure that operates today, but we should face it and not go for the easy argument and say that we will cut taxation.

    Does the hon. Member for Caernarvon (Mr. Wigley) agree that it is not fair that people at the bottom end of the income scale should have to pay the extra 1p or 2p in taxation? Should not the emphasis be on the people who are in receipt of the Government's £3 billion in concessions? Surely the Welsh nationalists have a national platform to which the Labour candidate in the hon. Gentleman's constituency can address himself at the next election. The national platform deals with reflation. Does the hon. Gentleman have a reflation policy?

    If the hon. Member for Workington (Mr. Campbell-Savours) had been listening, he would have heard me say that there is a need for a greater public sector borrowing requirement. That need does not extend to the £40 billion expenditure programme that he advocates. If we have to pay bills of that magnitude, we shall have to raise taxation.

    I have made it clear that I criticise the Government's taxation structure. It is iniquitous to bring down the top level of taxation from 84 per cent. to 60 per cent. There is no justification for that. People on higher incomes should bear a greater proportion of the tax burden that may be necessary to bring people back to work.

    We must take people out of the poverty trap. I know about it because I discuss it with my constituents on low wages. I know about widows with a minimal income and lollipop ladies who have to pay tax on a pittance. We must raise the threshold. Income tax thresholds have changed enormously since 1948–49 when income tax bit at over 100 per cent. of the average industrial wage. Today it bites at half that level. There is certainly room for reform.

    The Government have failed to reform the income tax system. That is my first criticism of the Government. There is a need for reform, but the Government missed the opportunity. They failed adequately to deal with the tax threshold. They tried to avoid indexing it at one time. They have failed to overcome the poverty trap. The position of widows and others on low incomes is causing great hardship. The Government have also failed to face discrimination against women. In opposition, the Conservatives said that there was a need to reform the tax system. They have failed to reform it.

    The Government's attempt to create incentives through income tax has failed. Their idea was that bringing down the top income tax rates would trigger new incentives, bring people into work and cause new investment. Instead, there has been a massive surge in unemployment. The money that has gone into the few pockets that have benefited has not been used for investment to create jobs. Much of the money has gone overseas. There has been a massive increase in investment overseas. I do not believe that by playing with the 84 per cent. level the Government can create incentive. Young people at lower levels of income need to be given an incentive. The Government have failed to provide that incentive.

    The Government have also failed to shift the burden of taxation from the poor to the rich. Reducing the top level of taxation to 60 per cent. and retaining a cut-off in the national insurance contribution maximum rate is iniquitous.

    We are now paying higher taxation with nothing to show for it. If people saw something for their tax and believed that they were receiving something worth while in return they would be willing to pay it. I agree that we should not ask people on the poverty line for even an extra 1p or 2p, but many of us have not been hit by the recession—including hon. Members. We could pay a marginally higher tax level to help those who bear so much of the burden. I am surprised that that argument does not appeal to the hon. Member for Workington.

    The hon. Member for Workington cannot have been listening. We shall oppose the clause because of the balance and the change from 40 per cent. to 60 per cent., but— my goodness—we need something more radical if we are to use the taxation system to bring people back to work.

    My hon. Friend the Member for Edinburgh, Central (Mr. Cook) made an excellent speech.

    I want to ask the Financial Secretary one question. The real mistake which the Government made and which has dogged their budgetary policy for the past three years was the huge reduction in income tax which they gave to the very rich in their first Budget in 1979. What was the purpose of that huge reduction in tax to the very rich which is now costing us about £1 billion a year?

    The purpose cannot be that described by the Chancellor at that time. The Chancellor's supposed reason for that reduction was that it would create such an incentive for the biggest earners that there would be a huge uprush in investment, production and productivity throughout British industry. In this regard, the Government have done us a service. We have had an interesting economic experiment. We had the largest tax reduction ever known for the purpose of increasing industrial production, and in the subsequent three years we have seen the largest fall in industrial production in any country this century.

    7 pm

    The lesson is in some ways more telling. From 1940 to 1951, when we had the highest direct taxation on earned incomes in living memory, we also had the highest increases in production for 50 years. Incidentally, President Reagan has had a similar experience in the past two and a half years. He also made a large reduction in taxation on the very rich to give incentives to growth in the economy, but the economy immediately slowed down as a result.

    To the Government's credit, by giving us the benefit of this experience they have ensured that no one will ever again be able to argue that we can transform our economic ills by huge reductions in direct taxation. Had the Chancellor studied the 1954 Radcliffe commission report on profits and income, he would not have fallen into this error. That commission undertook the most extensive inquiries to discover, not by theory but by answers, the reactions of people to changes in taxation. That Royal Commission, which did not consist of politicians or people with preconceived ideas, came to the firm conclusion that there was no evidence whatever that general reductions in income tax, whatever their other merits, would suddenly produce an uprush in production through incentives.

    There is another moral to this huge tax gift to the rich, and it is relevant to what was said by the hon. Member for Caernarvon (Mr. Wigley). We are sometimes asked how a Labour Government would pay for improvements in social services and other aspects of the economy. I agree that some of those improvements would have to be paid for by tax revenue. However, the reversal of these wholly unnecessary tax concessions to the highest earners would immediately make available a considerable tax revenue.

    So that this not very intelligent question is not put again, I should in passing mention two other sources of revenue from which these extra benefits can be obtained. The first is the £15 billion a year that is now spent on unemployment. If unemployment were brought down, we could use that £15 billion for more productive purposes. In plain English, we could pay people to do useful work instead of paying them to do nothing.

    There is another source that would come near to achieving the £30 billion or £40 billion mentioned by the hon. Member for Caernarvon— the additional national income that would be available if we ran our economy anywhere near its full physical capacity of manpower and plant. Heaven knows, we now have a GDP of close on £300 billion a year, and we are probably running the economy at 20 per cent. below capacity. Therefore, from the extra revenue available from existing taxes if the economy were run at its full capacity, we could obtain another £20 billion or £30 billion.

    I hope that no more time will be wasted on this foolish question of how extra services will be paid for at higher levels of employment. As the Financial Secretary cannot now argue that the purpose of the original tax reductions on the rich was to stimulale the economy to faster growth, I hope that he will explain the motive for those reductions.

    There is generally one fairly sure way of knowing when the Government do not have a good story to tell, and it can be seen in the Chamber tonight. It is that Conservative Members do not turn up to face the music At present we have in attendence one Minister, one Parliamentary Private Secretary and one Whip. A few minutes ago there were two Whips, but that was because it was the change of shift. It is clear that the Government realise that they do not have a good story to tell, as a result of which Conservative Members do not dare come to the House to face the music.

    It may be thought rash of politicians, in the run-up to a general election, in any way to criticise cuts in income tax, but there are two provisos. If we are to cut income tax, first, it should be done fairly and, secondly, we must ensure that the consequences are fair. In other words, we should cut income tax for those in greatest need—the people on the lowest incomes—rather than discriminating in favour of those on the highest incomes. We should also ensure that we are fair on those who depend on publicly funded services.

    I represent a constituency in the rural south-east of Scotland. There are two key economic factors about that area. Like all rural areas throughout the United Kingdom, my constituency of Berwick and East Lothian is heavily dependent on public investment and public services — roads, transport, incentives to industry, pensions, education and so on. However, all those things on the public expenditure side of the tax question have in one form or another been cut by the Government, as a result of which my area has suffered.

    Like most rural areas, particularly in Wales and Scotland, my constituency is an area of low incomes. It depends heavily on service industries — the public services in particular — and on agriculture. Let me analyse the effects of the Government's decisions on income tax levels for areas of low income.

    I am indebted to my hon. Friend the Member for Blackburn (Mr. Straw) for the information that he has obtained from the Financial Secretary. We have heard the Financial Secretary protest already that he does not think that the information he gave is correct. When a Minister does not agree with his own parliamentary answers, perhaps he should follow the Economic Secretary—the hon. Member for Knutsford (Mr. Bruce-Gardyne)—and give up. I understand that the hon. Gentleman will not even stand at the next general election.

    The Financial Secretary's figures show that in 1983–84, a married man with two children, on 75 per cent. average earnings—about £129£23 per week—will pay 38·1 per cent. of his income in income tax, national insurance, VAT and indirect taxation and a further 4·3 per cent. in local authority rates. That has happened under a Government who are supposed to have cut taxation, but who demonstrably have not done so.

    In 1978–79, the last year of the Labour Government, the comparable figures were 35·32 per cent. on central taxation—about 3 per cent. less than now—and 3·83 per cent. on local taxation. That is about 1 per cent. less than he is paying now. A citizen on 75 per cent. of average earnings—low paid in any terminology—is now worse off and pays more of his income in tax. He will now lose 42·4 per cent. of his income in taxation, whereas under the Labour Government he lost 39·15 per cent., which itself was too much.

    It is outrageous that taxation on the low paid should have increased. In 1979 a family on average earnings of £172 a week paid 41·54 per cent. in taxation — the figure is now 44·4 per cent. Even for someone on double the average income the percentage taken in taxation has increased. Who is benefiting from the cut in income tax? Taxation for people on five times average earnings has fallen by 6·5 per cent. For those on 20 times average earnings—£3,464 a week—the percentage of income taken in taxation is down by 18·7 per cent.

    My right hon. Friend the Member for Battersea, North (Mr. Jay) said that the Government had cut taxation for those people on the pretext that they would be encouraged to invest more and thus improve the state of the economy. I believe that such a policy is unnecessary. I am in business as a farmer and I know that people are already being encouraged to invest by other means. I know from personal experience and from the experience of other farmers in my constituency that it is extremely easy to avoid paying a great deal of tax simply by investing in machinery. It is right that people in business should be encouraged to invest because that is the way to get industry back on its feet, but, for goodness' sake, what is the point of encouraging people to have more money in their pockets? The effect of cutting the higher bands of income tax is to put more money into people's pockets and to increase their standard of living. What good will that do for British industry?

    The Government have been exposed and the absence of their supporters from the Chamber tonight shows that the Tories know that they have been found out. I see that the hon. Member for Chichester (Mr. Nelson) has entered the Chamber. I suspect that he has done so to find out when the next vote will be. The actions of the Government are quite despicable. I do not know how the Minister will defend his position, but I look forward to hearing from him.

    Having heard my hon. Friend the Member for Berwick and East Lothian (Mr. Home Robertson) speaking about those in rural constituencies, I should like to take the opportunity to make a case for those living in urban constituencies. A good question for a Member of Parliament to ask is, "What effect does a tax change or a change in economic policy by the Government have on my constituents?"

    Although few Scottish Conservative party Members are present—I see the Under-Secretary of State for Scotland in his place—I think that most of them would agree that my constituency represents the totality of the Glasgow population. It ranges from one housing development with an unemployment rate of 30 per cent. to some of the biggest and best housing schemes in Glasgow and the west of Scotland in the Newlands area of the city. Between them is a range of better council housing and lower middle class privately owned housing and privately rented property. Despite that, few of my constituents will benefit from the increases in the top tax bands. Many wealthy people, in Glasgow terms, live in my constituency, but few of them will benefit from the tax changes.

    7.15 pm

    Unemployment has increased dramatically since the Government came to office. Despite the claims that are sometimes made by the Government, those who have lost their jobs in the steelworks, the car factories and other factories which have closed down and laid workers off in the west of Scotland, are worse off today than in 1979. Those who do not pay tax and do not perhaps come into this argument are worse off today than in 1979.

    A large percentage of those in work in my constituency are worse off today than in 1979. They are paying more in direct taxation—that has been spelt out in speech after speech — and, in addition, higher VAT than in 1979. Today, VAT is almost double what it was in 1979. We shall return to that argument later, but I wish to make the point now that the poorer in our society—those whose indirect taxation has increased—are also those whom the increase in VAT has hit hardest. The Government claim that VAT is not paid on essentials, but the poor must buy clothes—which are VAT rated—as are furniture, kitchen utensils and so on. The poor must pay more for their essentials. One of the anomalies of our society is that the poorer one is, the more one has to pay for the goods one buys. The poor are paying more in VAT and in taxation. They are generally being hit hardest by the Government.

    My hon. Friend is right to say that the poor have come off worse in terms of personal taxation, but we are in danger of forgetting another form of taxation —fuel tax. My hon. Friend will recall that in 1980, 1981 and 1982 the Government deliberately levied a 10 per cent. tax on fuel. That has hurt poorer people; in particular, the elderly, the sick and the disabled.

    My hon. Friend is correct. I did not wish to go into all the things for which the poor must pay more because I did not know, Mr. Armstrong, how far you would let me go down that road. My hon. Friend is correct in what he said about fuel.

    The Government have insisted on rent increases for council house tenants well above the rate of inflation. Prescription charges have risen—a subject to which we shall return later—which is another increase in indirect taxation. That again hits the poorest hardest. The Government may say that many people have their council house rents paid for them and do not pay prescription charges, but those who just come into the tax bracket must pay their own rents. They have had to pay rent increases and the increased travel and fuel costs. They face higher inflation simply because they must always shop at the most expensive shops. They cannot afford to store their foodstuffs or to buy in bulk in the way that a person who owns his own car and can go to the super stores can. The poorer people in our society cannot afford to do that, so, in effect, they always pay more for everything that they purchase. That is one of the inequalities in our society that we should eradicate.

    I agree with the hon. Member for Caernarvon (Mr. Wigley) that if we are to have higher public expenditure—we are committed to a programme of higher public expenditure—we shall have to pay for it. Some of the money will be found by increased borrowing, but some will have to come from higher taxation. My right hon. Friend the Member for Battersea, North (Mr. Jay) said that savings could be made by cutting unemployment. I would add defence cuts to the list. Increased productivity and higher taxation will, of course, produce extra revenue. We shall have to face the problem—certainly initially—of raising some of the extra money that will be required from taxation.

    Does my hon. Friend accept that it is not for hon. Members to propose, as did the hon. Member for Caernarvon (Mr. Wigley), that the lower paid should pay an extra 1 per cent., 2 per cent. or 3 per cent?

    My hon. Friend the Member for Workington (Mr Campbell-Savours) anticipated my next point.

    The issue to which we must address ourselves is, "Who will pay higher taxation?" If the burden of taxation is to be increased, we must increase direct, not indirect, taxation. Conservative Members and their friends may think that they bear the burden of direct taxation, but the fact is that direct taxation is always fairer. Indirect taxation, as a percentage of income, means that the poorer contribute the most taxation to the state. If the burden of direct taxation is increased, the better off will pay.

    We must ensure that personal allowances increase much more dramatically so that we take many more people out of taxation. We shall then be able to introduce increases in taxation rates to raise the money that we require. The extra taxation must come from the top, not the bottom, of the earnings scale.

    If there is a 3 per cent. or 4 per cent. increase in taxation for those earning £10,000 a year and more, all hon. Members will be included. Our incomes may not be so high—many may think that they should be higher—but we are in the top 5 per cent. to 10 per cent. of salary earners. That is certainly so if our allowances are taken into consideration. However, we do not come anywhere near paying more than the basic rate of taxation. I do not believe that to be right when we are receiving an income of about £14,500 a year. I think that we should pay more in taxation. We are among the better off in society. We receive an income which allows us to lead a reasonably privileged life. We have more privileges than most of our constituents—certainly most of mine. I state publicly—I shall do so in the election campaign when that comes in May of next year—that I am prepared to pay more taxation if that means that others who are unemployed or low paid will get a better deal in society. That is what creates a Socialist society and that is what it is all about.

    My right hon. Friend the Member for Battersea, North said that the Government's taxation policy is morally and economically wrong. It does not solve our economic problems. The experiment of giving more to the better off has shown that it creates the investment that Britain desperately requires. It is a policy that does not increase the level of demand in our society. If more is given to those at the bottom end of the earnings scale, there will be expenditure within local economies. This will be beneficial to small shopkeepers and will help to ensure the survival of services that are desperately needed.

    British industry will benefit most from the policy of giving more to the least well off. If more is given to the wealthy or the better off, they will invest it abroad or buy luxury items that are of little value to them or anyone else. If we invest at the bottom end of society, the money will be spread evenly throughout the country and new jobs will be created in each locality. There is an old saying that money is like dung. In a heap it simply stinks, but if it is spread out evenly over the fields it brings forth fruit.

    I shall he brief. I am motivated by the comments made before the 1979 general election by Conservative spokesmen. For example, the Prime Minister said a couple of days before the general election that it should be the job of the next Government to lift tax burdens. Many felt that that was an encouraging sign and they decided on that basis to vote for the Conservative party. On 24 April 1979 the right hon. and learned Member for Surrey, East (Sir G. Howe), who was appointed Chancellor of the Exchequer, said:

    "We shall lower taxes on income at all levels to encourage people to work harder."
    In some ways that was an unfortunate choice of words on his part. The Government have failed to lower taxes and they have ensured that more people are unable to work at all, never mind harder. During the general election campaign there were about 1·25 million unemployed but the right hon. and learned Gentleman's Government—he has contributed a great deal to them—have managed to multiply that by at least three.

    On 22 April the right hon. and learned Gentleman said:
    "Personal taxation at all income levels must be substantially reduced."
    On 21 April — obviously someone was writing his speeches pretty regularly at the time—he said:
    "We have absolutely no intention of doubling VAT."
    We are all well aware of what has happened. I, too, am indebted to my hon. Friend the Member for Blackburn (Mr. Straw) for bringing together such a tidy parcel of information by means of his questions to the Treasury. I am sure that the Treasury will not want to deny responsibility for the answers that he has received or to question the accuracy of the information that he has obtained.

    That does not surprise me. I think that it was Disraeli who talked about

    "lies, damned lies and statistics."
    Some of the information may have emerged in that context.

    Personal tax burdens have increased for everyone earning less than £550 a week. My hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) believes that Members should pay more tax. Surely he does not think that we are in the £550-a-week bracket. We are certainly capable of contributing more, but I would not start with my hon. Friend the Member for Cathcart. Others are clearly more eligible—for example, those on £50,000 a year, who are now paying £24 less a week in taxation. It might be useful to start a little higher in the salary scale than £14,500.

    Those on lower incomes are worse off. For example, a man earning £80 a week pays £6·05 more whereas a man earning £120 a week pays only £7·04 more. That trend is clear, particularly when one considers those living on low fixed incomes; for example, a couple have lost from their pension £1·42 a week. The Conservatives have shown great care for certain sections of the community; company directors on £45,000 a year are £120 a week better off.

    7.30 pm

    In a debate in the House on national insurance contributions, between 1974 and 1979, I failed, I am glad to say, to support an increase proposed by the Labour Government. The Conservatives, on the other hand, have had to increase contributions to pay for the longer dole queues, a fact which concerns me more than the proposals of the then Labour Government. Had the present Government been prepared to use increased taxation to provide employment, increased national insurance contributions would have been unnecessary.

    The overall tax burden has gone up by 7p in the pound, and the inescapable conclusion is that financing expenditure is a class matter; the poorer sections are called on to make the biggest sacrifices to provide health, education and other services. Under the Conservatives, the wealthier have become richer, and I hope that at the next general election we will show the electorate exactly what Tory policies meant in 1979 and what they are likely to mean in future.

    I applaud the work done by my hon. Friend the Member for Blackburn. The facts must be brought into the open. I am sure that the Labour party at Walworth road will be concerned to produce a leaflet giving the truth about Conservative action on taxation so that the people may know exactly who has been responsible for their lower living standards. When we have the opportunity to tax wealth and consider all other aspects of public revenue, including borrowing, using pension funds and the other financial mechanisms that will be at our disposal, we shall quickly stop the present outflow of capital, currently running at about £8 billion a year. That is an important factor in financing the needs of the community. Regrettably, it is unlikely that we shall succeed in removing clause 12, but I hope we shall at least maximise our opposition to it.

    The clause raises the higher rate tax threshold by 14 per cent., which at first sight seems fair in that the threshold for paying tax at all was raised by a similar amount. But the two cases are not comparable, for the obvious reason that already the Government have concentrated massive tax cuts on those at the higher end of the tax scale, particularly—as my hon. Friend the Member for Swindon (Mr. Stoddart) pointed out—and unreasonably and unfairly, in their first Budget, on those right at the top. Those people have already benefited substantially. It is unjustifiable that they should do so again in the way they propose under the clause. After all, they are benefiting in the name of an incentive philosophy which is totally unproved. It is a mythology believed by the Government, without any research or evidence to back it. It is nothing but a belief that they and their people who will benefit from cuts in taxes will stimulate incentive. The incentive theory is just an excuse to benefit them and their friends. Indeed, rationally there is an argument for increasing the burden of taxation on them—to make them and their friends work harder—rather than cutting taxes in the way they have in their Budgets.

    The consequence of the policies of the Conservatives has been that the tax burden on the mass of the population has risen substantially. Indeed, the personal tax burden has gone up for everyone earning less than £550 a week. Those earning average wages of £160 a week are now paying £7·95 a week more in direct taxation than they were under the last Labour Government. Those at the top end of the income scale, with £50,000 a year and more, have benefited from the Conservatives; anybody earning £50,000 a year is now paying £24 a week less in taxation. That is the incentive policy of this Government.

    All the others — those on low earnings, average earnings and even on double average earnings — have had an increased tax burden as a result of Conservative Budgets. Whereas in April 1978 there were about 60,000 families in the poverty trap, currently, as a result of the slight alteration in the last Budget, there are 122,000 families in the poverty trap; in other words the numbers have doubled. Meanwhile, anybody earning £50,000 a year pays £24 a week less in taxation.

    The promises were clear and unequivocal at the start of the life of this Government. When Leader of the Opposition, the present Prime Minister said in Bolton on 1 May 1979:
    "for the politicians the task is clear. It is to provide the incentive through lifting tax burdens. It is to make it pay to work."
    The present Chancellor of the Exchequer said in 1979:
    "We shall lower taxes on income at all levels to encourage people to work harder, train for skills, and accept more responsibility.".
    What the Government have done is increase the tax burden on the mass of the people and belie those promises. I see the Financial Secretary laughing cynically. He knows how cynically those promises were made and how cynically they have been betrayed.

    I was not laughing at anything the hon. Gentleman was saying or about the seriousness of his point. I was laughing because the same brief has gone to hon. Gentlemen opposite and he did not know that what he was saying had been quoted already.

    It is a pity that the brief did not go to the Financial Secretary and his colleagues at the Treasury, where we find the economics of Lincolns Inn Fields, which have been destroying the nation's economy, while cynically betraying the promises which they appear not to have known they made in the first place. Those promises were clear and unequivocal and it is right that we on these Benches should reinforce them for the benefit of the Treasury, which has betrayed them over the years. Those promises have been kept for only a small section of the community—namely, those earning over £50,000 a year —so we must ask why there are two nations when it comes to incentives. Why is there one law for those earning £50,000 a year and more, who benefit from the "incentives" — who, we are told, will work harder if their taxes are cut, as they have been, by the equivalent of £24 a week—whereas for the rest of the population there is a law which says, "Your taxes will be increased but that will not harm your incentives."? Why must we have that two-nation philosophy?

    I have found my hon. Friend's speech excellent so far, and because I did not have the privilege of hearing the speeches to which he referred, and as he has permitted some interventions which has meant my concentration being interrupted, perhaps he will tell me who made the speeches, where they were made and what the speakers actually said.

    I am grateful for the opportunity to reinforce my point. The Chancellor of the Exchequer said on 22 April 1979:

    "personal taxation at all income levels must be substantially reduced."
    That was not just for those earning £50,000 a year or more.

    My hon. Friend has just been criticised by the Financial Secretary for referring to a brief that many of us have received. Does my hon. Friend think that it is much better that many Opposition Members have quoted from that brief whereas throughout the debate today there has been no contribution from Conservative Back Benchers? Is it not better that we should repeat our charges, legitimate as they are?

    The difference between the two sides is that we have a better brief and there are more people on the Opposition Benches to repeat it. Conservative Members have done enormous damage to our economy by standing up at the Dispatch Box and by loyally repeating a brief that bears no relation to reality. We are talking about promises and performance. The people will come to judge the political reality. The promises have been betrayed in the Government's performance. A proviso should have been put into everyone of those promises that they would apply only to those earning £50,000 or more a year. The Chancellor of the Exchequer should recollect the promise that he gave before the Government came to office. He said:

    "Every Labour Govermnent put taxes up … Every Conservative Government gets taxes down. The next Conservative Government will be equally true to our record."
    That is for those earning £50,000 a year or more, but for the rest of the population that promise has been betrayed because taxes as a proportion of their earnings have gone up. That has been the cruellest deception of the British people.

    That is not the only reason for opposing the raising of the higher tax thresholds. Another reason is the disproportionate benefit given to a small proportion of the population. The clause removes 25 per cent. of the higher rate taxpayers from the higher band. However, only 3 per cent. of the lower-paid workers are taken out of the tax net by the corresponding concessions at the bottom end of the tax scale. Even in numerical terms rather than percentage terms, 10,000 families have been taken out of the poverty trap by the Budget but 200,000 families will be taken out of the higher bands of taxation by the clause. Is that justice? Is it equity? Is that fairness to the different sections of the population?

    The cost of the clause is £255 million in a full year. In other words, one tenth of the overall distribution of money through threshold changes goes to the wealthiest 3 or 4 per cent. of the population. That shows the Government's sense of justice.

    The tax system is already inadequately progressive. Its progressivity is pathetic compared with the tax systems overseas. It would be one of the aims of a Labour Government to make the tax system fairer and more progressive so that wealth pays its share, as it should. The measure makes it less progressive.

    Without the clause, the number of units in the higher tax ranges would increase by about 150,000. It would only be about 5 per cent. of the tax-paying population even then. More important, the £225 million could be used in all sorts of other ways to benefit sections that are more directly in need than this. It could be used to increase child benefit by 50p. There would be no better reform or means of attacking poverty than such an increase in child benefit.

    The clause is unnecessary because it represents the end of a policy that has already failed — the policy of stimulating the economy by tax cuts to the better off. If one thing has been demonstrated by three to four years' performance of the Government, it is that tax cuts to the better off do not stimulate the economy in the way that the Government claimed that they would. Perhaps that is the Government's greatest failure.

    The Government sit there, a Government of busted flushes and empty dreams, waiting in their sinking craft for the tide to change. The wind in their sails that they have been waiting for could have come from two sources. It could have come from the huge incentives that their tax cuts gave to stimulate production and activity, but that did not happen. The money has been shipped abroad at record levels. It has not gone into production and investment in British industry. It has certainly not been a stimulus to the economy. Alternatively, the wind could have come from the other great hope that has also been vitiated —the fallacious belief that when one gets inflation down, somehow, miraculously, economic activity begins to pick up and, as day follows night, as soon as inflation goes down, the whole economy revives without the state having to intervene or organise, without the Government having to do anything, to plan or arrange for it or make any of the difficult decisions that are necessary for growth expansion and development.

    7.45 pm

    Those two busted flushes have been the basis of the Government's philosophy. Neither has worked or can possibly work. That is why the ship is now becalmed and sinking slowly and why the Government are pathetically having to tell us that they are waiting for recovery in the American economy to lead this economy out of the doldrums into which the Government have plunged it. If the medicine were going to improve the economy and be the stimulus and if the hard discipline were going to bear fruit and if there were to be any growth or expansion, why, since we have gone into the depression harder and deeper than any other economy, are we not leading the way out of it? Why are we sitting there waiting for the American economy to pick up and lead us out of the depression? That is typical of the failure of the Government's hopes and dreams. That is why I reject the clause, which represents a philosophy that has already demonstrably failed.

    The hon. Member for Preston, South (Mr. Thorne) said that the facts must be brought out about the relative tax burdens within different groups of society and that we must compare the Government's inheritance with the present proposals. I intend to do just that in my answer to the debate.

    After my right hon. and learned Friend the Chancellor of the Exchequer's five Budgets, rates of income tax as a percentage of income are lower than they were in 1978–79 for those on three quarters average earnings and above. The hon. Members for Glasgow, Cathcart (Mr. Maxton) and Caernarvon (Mr. Wigley) felt that direct taxation was too low. The fact is that as a percentage of earnings income tax is lower than when we came to office.

    The hon. Member for Edinburgh, Central (Mr. Cook) asked me about a question tabled by the hon. Member for Blackburn (Mr. Straw). The hon. Gentleman
    "asked the Chancellor of the Exchequer if he will publish in the Official Report tables showing the amount … and the proportion in the percentages of personal income"—
    the hon. Gentleman then referred to different types of tax—
    "at 75 per cent … of average earnings, and child benefits where appropriate". — [Official Report, 3 December 1981; Vol. 14, c. 188.]
    In other words, he added child benefit to average earnings.

    There are two ways to make the transition from child tax allowances to child benefit and to calculate whether people are better or worse off after the change. The hon. Gentleman suggested that we should put income tax paid on the top of the fraction and earnings and child benefit on the bottom. If he thinks about it, he will realise that the right way to do it is to put income tax minus child benefit on the top and earnings on the bottom. When there were child tax allowances income tax was reduced by those allowances so to compare like with like one must reduce the income tax by the child benefit.

    I put it to the hon. Gentleman in an even more cogent form. Let us suppose that in 1978–79, when we still had child tax allowances, those allowances had been abolished at the stroke of a pen and child benefit substituted for them. For a family on three quarters average earnings with two children the child allowances were worth £1·27. If child benefit of £1·27 per week had been substituted for that, the whole Committee will agree that that would have made not the slightest difference to the family's income.

    According to the method of calculation used by the hon. Member for Blackburn, the tax burden on that family would rise from 14·7 per cent. to 16·1 per cent. of earnings. Yet it is clear from the example that I gave that in fact there is not the slightest difference. That is why the hon. Gentleman was wrong. He was wrong because he put down the wrong question. We hesitated to answer the question simply because we wondered whether we should be brave enough to suggest a correction to the question. In the event, we did not do so, and we were right.

    The Financial Secretary correctly quoted my question but he did not mention the fact that I first asked it in November 1981 and it was first answered on 3 December 1981. Moreover, the same question was answered on four further occasions. If he now objects so much to my question, why did he not mention his objection in the debate this time last year when we discussed exactly the same figures? Why, too, did he not raise the objection, as is so often the case when hon. Members ask questions, when the question was answered on 3 and 10 December 1981?

    It is a perfectly respectable method of comparison, except when one is trying to compare a period in which child tax allowances were in force with one in which child benefit was in force. But for that change, I should have had no difficulty with the hon. Gentleman's statistical suggestion.

    I am grateful to the Financial Secretary, but his right hon. and learned Friend the Chief Secretary devoted half a column to small print notes in his answer on 10 December 1981, including a reference at note 6 to the way in which child benefit had been calculated. Why was there no note pointing out the problem that the Financial Secretary now raises in making comparisons for a period during which child tax allowance had been phased out?

    Clearly, I do not know the details of every one of the myriad answers given to Opposition Members on income tax questions. It is the duty of Treasury Ministers to answer the questions put to them, and that we have done. To be held responsible for not pointing out that it was the wrong question is stretching our tolerance, helpfulness and patience almost too far.

    I am happy to tell the Committee, however, that for the person on three quarters average earnings the percentage taken in income tax has fallen by 0·5 per cent. and for the person on full average earnings it has fallen by 1·1 per cent. compared with 1978–79.

    To complete the picture, will the Financial Secretary confirm the figures that I gave in opening? On this basis of calculation, following the introduction of child benefit, will he confirm that in the last three years of the Labour Government the burden of taxation on the same household fell not by 0·5 per cent. but by 5·3 per cent?

    I am coming to the comparison of the two periods, but I must establish the facts. Rates of tax as a percentage of income have fallen, but if one adds national insurance contributions, they are higher than they were in 1978–79 for those on less than two and a quarter times average earnings. I concede that. As my right hon. and learned Friend the Chief Secretary said earlier, personal allowance thresholds have risen by 6 per cent. in real terms since 1978–79. Moreover, contrary to the suggestion made by the hon. Member for Edinburgh, Central, when the new rate comes in, child benefit will be higher than it has ever been before.

    I should point out to the hon. Member for Swindon (Mr. Stoddart) that as a result no one who has remained on the same percentage earnings over the period is worse off.

    No, I will not give way. The hon. Gentleman keeps jumping up and down like a jack-in-the-box, but I must explain this. So much nonsense has been talked about the effect of the Government's tax policies on people with average earnings and ordinary incomes that the Opposition should have the facts. Under the Labour Government, real gross earnings rose by 2·25 per cent. Since the Conservatives came to office, real gross earnings have risen by 7·75 per cent. Therefore, if taxation is lower and earnings have kept pace with prices and there have been large increases in earnings, it follows that no one who has remained on the same percentage of average earnings can be worse off. The Opposition make blanket accusations, but those are the facts of the matter.

    The debate concerns the burden of taxation and thus the percentage of income taken in taxation. Does the Financial Secretary accept that, if we include national insurance contributions in calculating direct taxation, as the Chancellor said that we must in the debate on his first Budget on 12 June 1979, the proportion of direct tax as a percentage of income has increased under the Government for all levels of income up to twice average earnings?

    The hon. Gentleman should listen to what I say. I admitted that about two minutes ago. He is wasting the time of the House by not listening to what I say. In fact, he got the figure wrong. I referred to two and a quarter times average earnings. I hope that he will listen before interrupting again.

    The hon. Member for Colne Valley (Mr. Wainwright) and the hon. Member for Edinburgh, Central talked about the poverty trap. I have not the precise costings, but the Labour party's plan for increased social spending is in the region of £15 billion a year extra and that of the alliance is about £3 billion or £4 billion extra. At the same time, they talk about the poverty trap.

    I must make it clear to both hon. Members that the reason for the poverty trap is that successive Governments have indexed benefits in line with earnings but have indexed tax thresholds in line with prices. For that reason, the gap has got smaller and smaller between the level of benefits and the point at which tax becomes payable, when the threshold is crossed. To pay for those benefits, it has been necessary to hold down taxes. In other words, if any Government want seriously to deal with the poverty trap, as the present Government do, the first move not to make is to propose massive increases in social spending which then have to be got back from people either by increasing income tax or lowering the thresholds or by increasing the national insurance contribution, thereby making the poverty trap worse.

    8 pm

    That simple lesson does not seem to have been learnt by those who set themselves up as amateur solvers of the problem of the poverty trap. The only way to deal with the poverty trap is to get more resources. If those resources are committed to making the trap worse before starting, a poor fist will be made of solving it.

    The Financial Secretary said that there were simple reasons for the poverty trap. That illustrates the point that I have tried to make several times, which is the absurdity and the disgraceful result of Treasury Ministers looking after one side of people's accounts and the DHSS looking after the other side, with very little mutual consultation about the effect on families. Does not the hon. Gentleman realise that the main cause of the poverty trap is the tangle of 43 different means tests, each lacking in logic, which eventually result in these disgraceful conditions in which a rise of £50 a week does a man no good?

    I do not know whether the hon. Member for Colne Valley is suggesting that the Treasury should take over the determination of social security benefits and rates or that the DHSS should take over the determination of taxes, but neither would be a good solution. We are wiser to stay as we are.

    I must remind right hon. and hon. Members that the more widely and indiscriminately benefits are spread, as so many hon. Members seem to spread them in their election planning, the more the poverty trap is deepened, because the resources required can be made available only by increasing income tax.

    The hon. Member for Gateshead, West (Mr. Horam) said that a 7p — last year it would have been 9p —reduction in the basic rate of tax would be necessary to return to the same real tax payments on average at three quarters of average earnings. That is correct statistically. It depends on which category one considers — single, married or married with two children—and the figures are set out in the answer to a parliamentary question which I am sure that the hon. Gentleman has before him.

    There has been a much greater rise in real gross earnings under this Government than under their predecessors—7·75 per cent. as against 2·25 per cent. In itself, that is very good — we all want people to improve their standard of living—but the higher real earnings go, the more tax is automatically paid under a progressive tax system. A person gets into the higher rates the higher his real income is. That is the first point that must be taken into account. Secondly, it would be an absurd way to help those on three quarters of average earnings or even average earnings to concentrate on doing it by reducing the rate of tax. That is much the most expensive way of helping them, because it helps other taxpayers to a greater extent since they have higher incomes.

    It is much better to increase the allowances, and that is what my right hon. and learned Friend did in his Budget. To reduce the rate of tax is the most expensive and worst way of doing what has been suggested, and it is merely a statistical quirk that, to help them, that is the sort of rate of tax reduction which is necessary.

    The question put to me by the hon. Member for Gateshead, West covered all taxes—national insurance contributions, income tax and indirect taxes. National insurance contributions are up, and they have put up some people's marginal proportion of tax more than it was before. That is because we have to pay for the retirement pension.

    In the last year for which the Labour party had to provide for the retirement pension, £7·5 billion was spent. The estimate for the retirement pension in the coming year is £14·6 billion. That is an increase of £7·1 billion. Unemployment benefit has gone up on the same basis from £0·6 billion to £1·8 billion, which is an increase of £1·2 billion. However, that is a tiny figure compared with the increase that has to be found for the retirement pension.

    If right hon. and hon. Members want to see the pension price-protected and we have an increasing number of pensioners, we must be prepared to meet the bill. The hon. Member for Caernarvon and the hon. Member for Cathcart tacitly admitted that we have to be prepared to find that money, and that is why the national insurance contribution has had to go up.

    I was also asked about the higher paid and the reductions in higher rates which my right hon. and learned Friend made in 1979. Hon. Members seem to approach this subject as though the 1978–79 rates of income tax for the better off were right, that they were the starting point and that they were written in letters of gold as infallible. The Government do not accept that. We do not say that we have cut the higher rates of taxes from what they were or what they should have been. We say that the higher rates of taxes brought in by the Labour party were absurd, if not obscene.

    The Labour Government introduced a 98 per cent. marginal rate for income tax. Hon. Members know perfectly well what people thought about those tax rates at the time. There is no doubt what the people who had to pay them thought. They decided not to stay. They went overseas. Contrary to what one hon. Member said, he knows that few if any overseas countries have higher rates of income tax at anything like the levels which his right hon. and hon. Friends tried to bring in here.

    If we want to keep good managers here and if we want to see the industrial recovery beginning to get under way, one of the great services that we can perform is to keep these people here by not subjecting them to the penal taxation of the Labour party, with its doctrine of spite and envy.

    When the Chancellor of the Exchequer wept tears for people who had become tax exiles, he mentioned such people as Engelbert Humperdink and Mr. Michael Caine as being likely to return when the Conservative party came to power and reduced income tax to 60 per cent. Have these people returned? Has Michael Caine returned from tax exile during this Government's period in office?

    I would not dream of discussing the affairs of individuals, and I do not know either of the individuals to whom the hon. Gentleman refers. I do not think that his intervention contributes much to our debate.

    Let us take this point a little further. I have tried to answer the points made by the right hon. Member for Battersea, North (Mr. Jay). In a full year, not increasing the higher rate band, as was suggested in an amendment that was not called, would yield £280 million a year. If indexation was all that happened to the higher bands, a full year would yield a further £155 million. I shall take the bigger figure, so that I am not accused of manipulating the argument. That figure of £280 million would be enough to take ⅓p off the basic rate of income tax. It would be enough to increase personal allowances by 1·75 per cent. more than they already have been by the Budget. If we did that, there would be an increase of 16p a week for a single person, for a married couple an increase of 25p a week, for an elderly single person 21p a week and for an elderly married couple 33p a week, on the basic rate. Those are the improvements that it would be possible to effect for the vast mass of the population. The Labour party, in talking about the higher rates being paid by only 3 or 4 per cent. of the population, concede that from this source—even if we drive people to the point of wanting to go abroad —we do not produce anything like the resources that are necessary to deal with our serious problems.

    An amendment that was not called would bring 350,000 extra taxpayers into the higher rate. Higher rates yield in real terms more money than they did in 1978–79. The threshold for the higher rates is 8·5 per cent. below the threshold for 1978–79 in real terms and the threshold for the 45 per cent. rate is 4 per cent. below the threshold then. That can hardly be described in the terms that have been used by the Labour party. Since 1979, as the Committee knows, there have been no changes in the relative rates as between the different bands and the basic rate.

    I should like to question the figure that I have used to show what could be done if the amendments had been made and there had been no increase in the higher rates. The right hon. Member for Stepney and Poplar (Mr. Shore) published his shadow Budget not long ago and talked about lowering the threshold for the higher rate band of 45 per cent. He did not mention the 40 per cent. higher rate band, and I wonder what he will do with that. He said that he wanted to recoup most of the cuts that the Tory party had made. The right hon. Member is not noted for being on the extreme Right of the Labour party, but that is what he wanted to do. Presumably even he, living in his dream Socialist world, has realised that to go back to 1978–79 rates of income tax would be a disaster, so he has not said that he will do that. Therefore, we would not even get the £700 million to help with our problems that would be yielded if we went back to the rates of 1978–79.

    8.15 pm

    The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) got it right earlier this afternoon when talking about the cost of the reduced rate band. That would cost £850 million in a full year, but the right hon. Gentleman called that a small amount of money. However, one would not get anything like that sum of money from the amendments that the Labour party is suggesting. It calls £850 million a small amount of money, but the right hon. Member for Stepney and Poplar would not get half that with his suggestions. The whole thing is a sham, and the whole of the debate has merely been a means to stir up class hatred and envy. That is the only weapon that the Labour party has left.

    I follow the Financial Secretary by beginning with a reference to my hon. Friend the Member for Preston, South (Mr. Thorne). My hon. Friend said that we may not be successful in defeating the clause. I am sure that my hon. Friend will agree that if we are defeated in the Division, it will not be because of the preponderance of the numbers on the Government Benches throughout the debate. We have had eight speakers from the Back Benches since I sat down at the beginning of the debate. Not one of them was from the Conservative Benches. There was not even an intervention in any of the provoking speeches made by Opposition Members or by the Financial Secretary.

    However, 245 hon. Members of the governing party voted in the last Division. There are 245 hon. Members littered somewhere about the precincts of the Palace who have not had the gall or the guts—let us be charitable and say application — to come to the Chamber, and contribute to a debate on why their Government are proposing to treat the higher paid so leniently when they have increased the taxes on the lower paid. There was some talk about a brief being passed round. If the Tories had been given the brief from which the Financial Secretary spoke, I am not surprised that none of them came to the Committee to share it with him.

    The Financial Secretary made attempts to exculpate himself from the criticisms that I and my hon. Friends put to him. Let us start with how one treats child benefit in the calculation of a tax burden. It is worth recording that the whole point of the change from tax allowances to child benefit was to alter the nature of child support from a tax allowance, which favoured the better paid, to a cash payment that was designed to give income into the hands of the wife. That was why the change took place.

    It is bizarre to say, some eight years after that change, that we should continue to regard that payment, introduced as a cash income, as a form of tax allowance. In effect—

    If the hon. Member for Beaconsfield (Mr. Smith) wishes to intervene, I shall happily give way. At least he will break the record of himself and his colleagues of not having spoken in the debate if he can find it in himself to a make a point that is of relevance to the debate. If not, he will do better to continue to run between the Financial Secretary and the official box bringing replies than to yell, "Rubbish," from a sedentary position and interrupt those seeking to contribute to the debate.

    Over the past eight years child support has increased. It increased markedly between 1976 and 1979. The Financial Secretary said that child benefit is at its highest real level. It is precisely 5p better in real terms than in 1979, and even that calculation assumes that we write off the 50p increase in child benefit which was due in November 1979 and which the Government refused to implement the moment they took office. If we allow for that, child benefit is lower than it was in November 1979.

    Between 1976 and 1979 there was a real increase in child support— a switch from tax allowance to child benefit. Conservative Members seek to argue that that increase in child support should now be predicated as a tax allowance in order to produce the statistical reduction in the tax burden in their period in office.

    I must remind the Financial Secretary of what I think he said in confirmation of an intervention that I made. If we take that same basis of calculation, the Labour Government in their last three years in office did 10 times better than the Government have achieved in four years in reducing the tax burden on the very household on which the calculation has been based. If he wants to introduce a calculation that shows that the Labour Government did 10 times better than they have done—if that is the best that they can do to defend themselves—the Committee can only conclude that they have a threadbare case.

    That threadbare case is not covered by the Government's resort to another fallback position as they retreat trench by trench. The Financial Secretary fell back on the last ditch justification that no one is worse off as a result of the Government's tax policies. The Committee is entitled to remember that 1·7 million British citizens are indubitably worse off because under the Government they have no earnings, having joined the dole queue. Moreover, they are distinctly worse off as a result of the Government's tax policies because they are now liable to tax on their unemployment benefit, which was not previously the case. Indeed, if we want a contrast between the Government's tax priorities in favouring the rich and their willingness to tax the poor, we can reflect upon no clearer illustration than the fact that this year the Treasury will derive more tax from the taxation of unemployment benefit than from capital transfer tax after the cuts of the past three years. There will be more revenue from the unemployed than from the owners of wealth.

    Having put that point to the Financial Secretary, I am bound to deal with quotations that were made during the debate. My hon. Friend the Member for Grimsby (Mr. Mitchell), in an impressive cameo performance, recited several quotations from the last election when it was said that taxes would be cut. In my opening speech I quoted the Prime Minister, at her adoption meeting, saying:
    "Taxes must and taxes will come down."
    A cut in taxes was promised to the electorate. At no stage during the last election did anybody say, "Taxes might mount, but, what the heck, incomes might keep ahead." That is what the Government are now driven to claim.

    The electorate were promised a cut in taxes, but, whatever else might have happened, that cut in taxation has not occurred. Nor has there been a rise in income, as the Financial Secretary would wish to have us believe. It is true that those in work, particularly those in skilled jobs, have had an increase in gross earnings and that some have had an increase in net earnings, but we find that in the past four years the real personal disposable income of the nation as a whole has fallen by 2 per cent. while under the Labour Government it rose by 12·1 per cent. That is the true comparison if Conservative Members want to defend their tax record by reference to income after tax has been deducted.

    The Financial Secretary made an extraordinary claim about national insurance contributions. We were told that national insurance contributions had to rise because of what the Government have done for pensioners. The Financial Secretary gave us some gross cash figures which had not been inflated for inflation. He compared £7·5 billion in pensions under the Labour Government with £14·6 billion in the current year. If we inflate the first figure for inflation since 1978–79, the comparison is between £12 billion and £14·6 billion. I concede that that is a real increase of about 18 per cent. It reflects the fact that there are more pensioners, not that there has been an improvement in the value of pensions.

    Another major area of contrast between the Government's performance and that of the Labour Government is that the Labour Government achieved a major improvement in the real value of pensions by linking them to earnings. They achieved that without the mounting increase in national insurance contributions that the Government have imposed upon those in work. On the contrary, in their first year in office the Government smashed that link with pensions, making sure that pensions did not rise in step with earnings, as they have failed to do over the past four years; yet they increased national insurance contributions over and above the level that the Labour Government found sufficient to pay for it.

    One simple explanation is that the Government have been using national insurance contributions as a covert substitution for income tax. That is why, two years ago, they found themselves obliged to cut the Treasury's contribution to the national insurance fund. If it were really the case that the mounting burden of the national insurance fund required those increases in contributions, why were those mounting demands on the fund consistent with a reduction in the Treasury's contribution to the fund from income tax?

    If we review all the Government's defences during the debate against the charge of having increased the tax burden and failed to discharge their fraudulent prospectus to the electorate in 1979, we find that each argument falls as it is examined. One is left with the Government nakedly defending a decision which purely reflects their political prejudice to make an exception to the general rule in the case of the wealthiest income earners who have benefited from tax cuts.

    The Financial Secretary closed by saying that if we were not to go ahead with the increases in the higher rate thresholds, it would make little difference to the mass of the population. When I first contested a parliamentary seat I stood against a candidate who is now one of the nation's 17 noble dukes. In debate he would defend his personal wealth on the basis that, if it were divided per head of the population, it would buy each person only two cigarettes. Therefore, he said that it was perfectly justifiable that he should continue to keep that wealth.

    The result was creditable, given the way in which the dice was loaded. I think that I shall have the last laugh. I thought at the time that that was a remarkably improvident way in which to spend such wealth. I could find more useful and viable ways in which to spend it.

    Precisely the same is true of what the Financial Secretary to the Treasury proposed to do with the money that will be saved by carrying the amendments that were not selected. I outlined some ways in my opening speech. With that money, we could extend the long-term rate to those who have been unemployed for more than one year. We could avoid having to cheat the pensioners of the 2 per cent. of which they have been defrauded. Moreover, with that money, we could increase child benefit by another 50p, thereby seriously reducing the poverty trap. All those things would be worth doing. They would all reduce poverty. Time and again Ministers have told us that we cannot afford to do those things, but here is the money.

    I find it offensive that, having found the little pot of £280 million, it should be proposed to give it to the 4 per cent. of our nation who are wealthy and now pay a marginal rate of tax that is less than the effective tax rate of those who are caught in the poverty trap. My right hon. and hon. Friends share that feeling of offence and repugnance. That is why we shall vote against clause 12. In doing so, it is unfortunate that we shall be obliged to vote against the first two lines which provide the authority to collect income tax. We have no quarrel with those two lines. Our quarrel lies with the remaining 15 lines. It is significant that the bulk of clause 12 concentrates help on the wealthy after the Government have increased the tax burden on the other 96 per cent. of the population, especially those who are caught in the poverty trap. That proposal is repugnant. That is why we shall now vote against clause 12.

    8.30 pm

    Question put, That the clause stand part of the Bill:

    The Committee divided: Ayes 248, Noes 179.

    Division No. 129]

    [8.30 pm

    AYES

    Adley, RobertButcher, John
    Aitken, JonathanCarlisle, John (Luton West)
    Alexander, RichardCarlisle, Kenneth (Lincoln)
    Alison, Rt Hon MichaelCarlisle, Rt Hon M. (R'c'n)
    Ancram, MichaelChalker, Mrs. Lynda
    Arnold, TomChannon, Rt. Hon. Paul
    Aspinwall, JackChapman, Sydney
    Atkins, Rt Hon H.(S'thorne)Churchill, W. S.
    Atkins, Robert (Preston N)Clark, Sir W. (Croydon S)
    Bagier, Gordon A.T.Clarke, Kenneth (Rushcliffe)
    Baker, Kenneth (St. M'bone)Cockeram, Eric
    Banks, RobertColvin, Michael
    Beaumont-Dark, AnthonyCope, John
    Bendall, VivianCormack, Patrick
    Benyon, Thomas (A'don)Corrie, John
    Benyon, W. (Buckingham)Costain, Sir Albert
    Berry, Hon AnthonyCranborne, Viscount
    Best, KeithCrouch, David
    Bevan, David GilroyDickens, Geoffrey
    Biffen, Rt Hon JohnDorrell, Stephen
    Biggs-Davison, Sir JohnDouglas-Hamilton, Lord J.
    Blackburn, JohnDover, Denshore
    Blaker, Peterdu Cann, Rt Hon Edward
    Body, RichardDunn, Robert (Dartford)
    Bonsor, Sir NicholasDurant, Tony
    Boscawen, Hon RobertDykes, Hugh
    Bottomley, Peter (W'wich W)Eden, Rt Hon Sir John
    Boyson, Dr RhodesEggar, Tim
    Braine, Sir BernardElliott, Sir William
    Bright, GrahamFaith, Mrs Sheila
    Brinton, TimFarr, John
    Brittan, Rt. Hon. LeonFell, Sir Anthony
    Brooke, Hon PeterFenner, Mrs Peggy
    Brotherton, MichaelFinsberg, Geoffrey
    Brown, Michael (Brigg & Sc'n)Fisher, Sir Nigel
    Browne, John (Winchester)Fletcher, A. (Ed'nb'gh N)
    Bruce-Gardyne, JohnFletcher-Cooke, Sir Charles
    Bryan, Sir PaulFookes, Miss Janet
    Buchanan-Smith, Rt. Hon. A.Forman, Nigel
    Buck, AntonyFowler, Rt Hon Norman
    Budgen, NickFox, Marcus
    Bulmer, EsmondFraser, Rt Hon Sir Hugh
    Burden, Sir FrederickFraser, Peter (South Angus)

    Gardiner, George (Reigate)Morrison, Hon C, (Devizes)
    Gardner, Sir EdwardMorrison, Hon P. (Chester)
    Garel-Jones, TristanMurphy, Christopher
    Gilmour, Rt Hon Sir IanMyles, David
    Glyn, Dr AlanNeale, Gerrard
    Goodhew, Sir VictorNeedham, Richard
    Goodlad, AlastairNelson, Anthony
    Gorst, JohnNeubert, Michael
    Gray, Rt Hon HamishNewton, Tony
    Griffiths, E.(B'y St. Edm'ds)Oppenheim, Rt Hon Mrs S.
    Griffiths, Peter (Portsm'th N)Page, Richard (SW Herts)
    Grist, IanParkinson, Rt Hon Cecil
    Grylls, MichaelParris, Matthew
    Gummer, John SelwynPawsey, James
    Hamilton, Hon A.Peyton, Rt Hon John
    Hamilton, Michael (Salisbury)Pink, R. Bonner
    Hampson, Dr KeithPollock, Alexander
    Hannam, JohnPorter, Barry
    Hastings, StephenPrentice, Rt Hon Reg
    Hawksley, WarrenPrice, Sir David (Eastleigh)
    Hayhoe, BarneyProctor, K. Harvey
    Heddle, JohnRaison, Rt Hon Timothy
    Henderson, BarryRathbone, Tim
    Heseltine, Rt Hon MichaelRees, Peter (Dover and Deal)
    Hicks, RobertRees-Davies, W. R.
    Holland, Philip (Carlton)Renton, Tim
    Hooson, TomRhodes James, Robert
    Howe, Rt Hon Sir GeoffreyRhys Williams, Sir Brandon
    Howell, Rt Hon D. (G'ldf'd)Ridley, Hon Nicholas
    Hunt, John (Ravensbourne)Roberts, Wyn (Conway)
    Hurd, Rt Hon DouglasRossi, Hugh
    Irvine, RtHon Bryant GodmanSainsbury, Hon Timothy
    Irving, Charles (Cheltenham)St. John-Stevas, Rt Hon N.
    Johnson Smith, Sir GeoffreyShaw, Giles (Pudsey)
    Jopling, Rt Hon MichaelShelton, William (Streatham)
    Kaberry, Sir DonaldShepherd, Colin (Hereford)
    Kellett-Bowman, Mrs ElaineShepherd, Richard
    Kershaw, Sir AnthonyShersby, Michael
    King, Rt Hon TomSilvester, Fred
    Knox, DavidSims, Roger
    Lamont, NormanSkeet, T. H. H.
    Lang, IanSmith, Tim (Beaconsfield)
    Latham, MichaelSpeed, Keith
    Lawrence, IvanSpeller, Tony
    Lawson, Rt Hon NigelSpence, John
    Lee, JohnSpicer, Jim (West Dorset)
    Le Marchant, SpencerSpicer, Michael (S Worcs)
    Lennox-Boyd, Hon MarkSproat, Iain
    Lester, Jim (Beeston)Squire, Robin
    Lewis, Sir Kenneth (Rutland)Stanbrook, Ivor
    Lloyd, Peter (Fareham)Stanley, John
    Loveridge, JohnSteen, Anthony
    Luce, RichardStevens, Martin
    Lyell, NicholasStewart, A.(E Renfrewshire)
    Macfarlane, NeilStokes, John
    MacGregor, JohnStradling Thomas, J.
    MacKay, John (Argyll)Tapsell, Peter
    McNair-Wilson, M. (N'bury)Tebbit, Rt Hon Norman
    McNair-Wilson, P. (New F'st)Thomas, Rt Hon Peter
    McQuarrie, AlbertThompson, Donald
    Madel, DavidThorne, Neil (Ilford South)
    Major, JohnThornton, Malcolm
    Marland, PaulTownend, John (Bridlington)
    Marlow, AntonyTownsend, Cyril D, (B'heath)
    Marten, Rt Hon NeilTrippier, David
    Mather, Carolvan Straubenzee, Sir W.
    Mawby, RayVaughan, Dr Gerard
    Mawhinney, Dr BrianViggers, Peter
    Maxwell-Hyslop, RobinWaddington, David
    Mayhew, PatrickWakeham, John
    Meyer, Sir AnthonyWaldegrave, Hon William
    Mills, Iain (Meriden)Walker, B. (Perth)
    Mills, Sir Peter (West Devon)Walker-Smith, Rt Hon Sir D.
    Miscampbell, NormanWarren, Kenneth
    Moate, RogerWatson, John
    Monro, Sir HectorWells, Bowen
    Montgomery, FergusWells, John (Maidstone)
    Moore, JohnWheeler, John
    Morgan, GeraintWhitney, Raymond
    Morris, M. (N'hampton S)Wickenden, Keith

    Wolfson, MarkTellers for the Ayes:
    Young, Sir George (Acton)Mr. Douglas Hogg and
    Younger, Rt Hon GeorgeMr. David Hunt

    NOES

    Adams, AllenHome Robertson, John
    Allaun, FrankHomewood, William
    Archer, Rt Hon PeterHooley, Frank
    Ashley, Rt Hon JackHoram, John
    Ashton, JoeHoyle, Douglas
    Atkinson, H.(H'gey,)Huckfield, Les
    Bagier, Gordon AT.Hughes, Mark (Durham)
    Barnett, Guy (Greenwich)Hughes, Robert (Aberdeen N)
    Barnett, Rt Hon Joel (H'wd)Janner, Hon Greville
    Benn, Rt Hon TonyJay, Rt Hon Douglas
    Bennett, Andrew(St'kp't N)John, Brynmor
    Bidwell, SydneyJohnson, James (Hull West)
    Boothroyd, Miss BettyJohnston, Russell (Inverness)
    Bottomley, Rt Hon A.(M'b'ro)Jones, Barry (East Flint)
    Bradley, TomKaufman, Rt Hon Gerald
    Bray, Dr JeremyKerr, Russell
    Brown, R. C. (N'castle W)Kilroy-Silk, Robert
    Brown, Ron (E'burgh, Leith)Lamond, James
    Buchan, NormanLeighton, Ronald
    Callaghan, Jim (Midd't'n & P)Litherland, Robert
    Campbell, IanLofthouse, Geoffrey
    Campbell-Savours, DaleMabon, Rt Hon Dr J. Dickson
    Canavan, DennisMcCartney, Hugh
    Carter-Jones, LewisMcDonald, Dr Oonagh
    Cartwright, JohnMcKelvey, William
    Clark, Dr David (S Shields)MacKenzie, Rt Hon Gregor
    Clarke,Thomas(C'b'dge, A'rie)McTaggart, Robert
    Cocks, Rt Hon M. (B'stol S)McWilliam, John
    Coleman, DonaldMarshall, D(G'gow S'ton)
    Concannon, Rt Hon J. D.Marshall, Jim (Leicester S)
    Cook, Robin F.Martin, M(G'gow S'burn)
    Cowans, HarryMason, Rt Hon Roy
    Craigen, J. M. (G'gow, M'hill)Maxton, John
    Crowther, StanMeacher, Michael
    Cryer, BobMikardo, Ian
    Cunliffe, LawrenceMillan, Rt Hon Bruce
    Cunningham, G. (Islington S)Mitchell, Austin (Grimsby)
    Cunningham, Dr J. (W'h'n)Mitchell, R. C. (Soton Itchen)
    Dalyell, TamMorris, Rt Hon A. (W'shawe)
    Davidson, ArthurMorris, Rt Hon C. (O'shaw)
    Davies, Rt Hon Denzil (L'lli)Morton, George
    Davis, Terry (B'ham, Stechf'd)Moyle, Rt Hon Roland
    Deakins, EricNewens, Stanley
    Dean, Joseph (Leeds West)Oakes, Rt Hon Gordon
    Dewar, DonaldO'Brien, Oswald (Darlington)
    Dixon, DonaldO'Halloran, Michael
    Dobson, FrankO'Neill, Martin
    Dormand, JackPark, George
    Duffy, A. E. P.Parker, John
    Dunnett, JackParry, Robert
    Dunwoody, Hon Mrs G.Penhaligon, David
    Eadie, AlexPrescott, John
    Ellis, R. (NE D'bysh're)Price, C. (Lewisham W)
    English, MichaelRace, Reg
    Ennals, Rt Hon DavidRadice, Giles
    Evans, loan (Aberdare)Rees, Rt Hon M (Leeds S)
    Evans, John (Newton)Roberts, Albert (Normanton)
    Field, FrankRoberts, Allan (Bootle)
    Flannery, MartinRoberts, Ernest (Hackney N)
    Ford, BenRoberts, Gwilym (Cannock)
    Forrester, JohnRobertson, George
    Foster, DerekRobinson, G. (Coventry NW)
    Fraser, J. (Lamb'th, N'w'd)Rooker, J. W.
    Freud, ClementRoper, John
    Garrett, John (Norwich S)Rowlands, Ted
    Golding, JohnSever, John
    Graham, TedSheldon, Rt Hon R.
    Grimond, Rt Hon J.Shore, Rt Hon Peter
    Hamilton, W. W. (C'tral Fife)Silverman, Julius
    Harman, Harriet (Peckham)Skinner, Dennis
    Harrison, Rt Hon WalterSmith, Rt Hon J. (N Lanark)
    Hart, Rt Hon Dame JudithSnape, Peter
    Haynes, FrankSoley, Clive
    Heffer, Eric S.Spearing, Nigel

    Spriggs, LeslieWellbeloved, James
    Stewart, Rt Hon D. (W Isles)Welsh, Michael
    Stoddart, DavidWhite, Frank R.
    Stott, RogerWhitehead, Phillip
    Strang, GavinWhitlock, William
    Straw, JackWigley, Dafydd
    Taylor, Mrs Ann (Bolton W)Willey, Rt Hon Frederick
    Thomas, Dafydd (Merioneth)Williams, Rt Hon A.(S'sea W)
    Thorne, Stan (Preston South)Wilson, Rt Hon Sir H.(H'ton)
    Tilley, JohnWilson, William (C'try SE)
    Tinn, JamesWoodall, Alec
    Varley, Rt Hon Eric G.Woolmer, Kenneth
    Wainwright, E.(Dearne V)Young, David (Bolton E)
    Wainwright, H.(Colne V)
    Walker, Rt Hon H.(D'caster)Tellers for the Noes:
    Warden, GarethMr. James Hamilton and
    Watkins, DavidMr. Allen McKay.
    Weetch. Ken

    Question accordingly agreed to.

    Clause 12 ordered to stand part of the Bill.

    Clause 16

    Personal Reliefs

    I beg to move amendment No. 5, in page 9, line 21,

    leave out '£2795' and insert '£2935'.

    With this, it will be convenient to discuss the following amendments: No. 6, in page 9, line 24,

    leave out '£1785' and insert '£1875'.
    No. 7, in page 9, line 26,
    leave out —£3755" and "£2360— and insert —£3945" and "£2475"'.

    It may be convenient for the Committee to take this debate as the stand part debate, although I understand that the Question on clause stand part will be put formally.

    That is a matter of understanding, which has nothing to do with the Chair.

    In the Budget, tax thresholds were increased by about 14 per cent. on the previous year's level. The single person's allowance was increased by £220, the married man's allowance by £350, and the age allowances by £290 and £460 respectively. The amendments increase the single person's allowance by £90, making a total of £1,875; the married allowance by a further £140 to £2,935; and the age allowances by £115 to £2,475 for a single person and by £190 to £3,945 for a married couple. The overall effect is to increase the allowances by about 20 per cent. above their level before the March Budget. Like earlier amendments, the purpose is at least to make progress towards restoring the burden of taxation to the position that existed when the Labour party left office.

    8.45 pm

    Even if we increased allowances by a full 20 per cent. this year the burden of taxation on the hardest hit—the poor—would still not be restored to the position when we left office. Indeed, the low pay unit has estimated that tax allowances will need to be increased by well over 30 per cent. if the tax burden on the poor is to be reduced. It estimates that the allowance for a married couple would need to be increased by 32 per cent. or £783 and that for a single person it would have to be increased by £586 or 37 per cent.

    The debate gives us a further opportunity to examine the Government's appalling tax record. I know that many of my hon. Friends will wish to take advantage of that opportunity, but I warrant that not a single Government Back Bencher will take advantage of it. This first day of our consideration in Committee of the Finance Bill on the Floor of the House has been characterised by the fact that not a single Government Back Bencher has risen to defend the Government's tax record. We all know that if we had been debating a tax on the banks, or if we had been debating, in the middle of the night, some change to the regulation of Lloyd's of London, the Government Back Benches would have been full. However, when it comes to discussing the Government's record on taxation their supporters rightly skulk in their tents because they know, as we know, that the Government's record does not bear serious examination.

    As many of my hon. Friends have pointed out, during the last general election and for three or four months after it, Conservatives pledged categorically to reduce taxation at all levels of income. I shall not weary my right hon. and hon. Friends with quotations from the Chancellor of the Exchequer or the Prime Minister, but the Chief Secretary's election address always bears repetition. It is no wonder that he has already decided to cut and run and to seek the safer haven of Richmond. He promised the electors of Cleveland and Whitby an improvement in law and order and said that the Conservatives would get Britain moving again. He also promised that taxes on income would be cut at all levels.

    The Chief Secretary is a lawyer and chooses his words carefully. He knows that there is a difference between taxes on income and income tax. He knows that taxes on income include national insurance contributions as well as income tax. Indeed, if he does not know that—he has implied that, despite his expertise as a lawyer he does not —the Chancellor of the Exchequer does. In his Budget speech, the Chancellor of the Exchequer said:
    "It is the basic rate—plus, of course, the national insurance contributions—which represent the deterrent effect of tax on additional earnings".—[Official Report, 12 June 1979; Vol. 968, c. 260.]
    As has been said, the Government's record on taxation is made doubly bad by the fact that the increase in the tax burden has not been shared evenly. I am glad that that is gradually sinking in. People are morally offended by the fact that someone earning £800 a week has had the proportion of his income taken in tax reduced from 50 per cent. to 43 per cent. while someone earning a measly £80 a week has had the burden of his direct taxation increased by well over half, from 12·5 per cent. to 17·8 per cent. The burden of direct taxation has even increased for those on average or twice average earnings. In cash terms, the average family is paying about £7 a week more in taxation today than in 1979, adjusting for inflation, while those on £50,000 a year are paying £24 a week less.

    The Financial Secretary has offered explanations for questions that he and his right hon. and learned Friend the Chancellor have answered in the past 18 months. Through our questions we have dragged from the Government an explanation of what has happened to the burden of taxation in the past four years. The most contorted explanations have been made in the past three weeks by the Financial Secretary about why questions that he has answered in the past 18 months about the position of families with children should not now be believed. He gave an elaborate and unconvincing explanation. It is clear that he was not convinced by his answers and did not comprehend them. Tonight we heard an elaborate and unconvincing explanation of why child benefit should be regarded differently from the way that it was treated in his answers.

    Why were the objections not raised before? I applaud the Minister's desire to answer questions exactly as they are put, but if there had been a serious objection about the way that I phrased the question and about how the Chief Secretary answered it, that could have been referred to on 10 December 1981 when my original question was answered. That answer is contained in half a column of small print and footnotes, but there is no reference to the reservations that the Minister now has about child benefit.

    As my hon. Friend the Member for Edinburgh, Central (Mr. Cook) made clear, if one takes national insurance contributions and income tax together, the burden of taxation for those earning less than £360 a week has increased under this Government. The Government cannot wriggle out of that. They cannot fiddle the figures to disprove it. The taxation burden has increased for married couples with children, for childless couples and single persons. Childless couples and single persons are not affected by child benefit so whatever reservations the Government now have about the answers that they have given to me, the figures cannot apply to childless couples or single people.

    What makes the Government's position so much worse is that when they are challenged about the way in which the rich are favoured by the Government they say that the shift to the rich is only "a small switch". They say that we should not worry about it because it is so small.

    The Financial Secretary, on Second Reading said:
    "there has been a small switch. Even if it were reversed, it would not do much, but would raise allowances by 4 per cent. more, or £1·25 a week for a single person and £.1·90 a week for a married man, or reduce the basic rate of income tax from 30p in the pound to 29½p in the pound."—[Official Report, 14 April 1983; Vol. 40 c. 1028.]
    The largesse offered to the rich is justified on the ground that if it were distributed evenly among the rest of us it would make only a small difference.

    It is a sign of the Government's perverted sense of values that they continuously refuse to make modest but important changes in the supplementary benefit system. For example, they refuse to allow more free prescriptions to the chronic sick. Throughout the country, they have refused to permit the building of much needed hospital improvement schemes that have been on the stocks for years. Such improvements, which cost only tens of millions of pounds, are refused on the ground that the expenditure is too great. But the Government then justify the tax giveaway to the already well-off on the ground that the sum involved — £700 million — is small. As the Financial Secretary admitted, that is the amount by which the burden of taxation on the very rich has been reduced over the past four years.

    Here is a new Conservative law of arithmetic—£700 million spent on the rich is a small sum, but £700 million spent on measures to reduce unemployment, to help the poor or to build hospitals or schools, is an enormous sum and cannot be afforded.

    Philanthropic Conservatives such as Shaftesbury and Disraeli — whose memory is respected by those who belong to the genuine Conservative tradition—must be turning in their graves as the Government do violence to Conservative principles that at least sought to temper profit with compassion. No wonder true Conservatives recoil in horror at the lack of compassion of a Government who are not committed to Tory values but to 19th century Liberal values.

    When Ministers reply to our charges, they seek to justify what has happened to thresholds in a number of ways. First, they claim that tax thresholds have increased by about 6 per cent. over their 1978–79 value. That is not a figure with which we would argue, but as my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) made clear, there is another way of describing the present level of allowances. They are 1 per cent. below the level in 1979 as a proportion of average earnings. In other words, in terms of average earnings, people come into tax earlier than they did in 1978–79.

    Even if we accept the 6 per cent. figure as the bench mark, the Chief Secretary knows that although that is true as far as it goes, it is by no means the whole story. Two other major changes in the taxation system have offset that, and by more. First, there was the abolition of the reduced rate band and, secondly, there has been the increase in national insurance contributions by 2½p to 9p in the pound, the combined effect of which has increased the overall tax burden.

    That combined effect means that Britain now occupies the top of the league table for combined income tax and social security contributions. Our starting rate is the highest by far of any European Community country, and far higher than it was when the Prime Minister complained about it when in Opposition. The threshold is the second lowest in the European Community. The starting rate of 39p in the pound should be compared with a starting rate in the Common Market as a whole of well under 27p in the pound. Having had to accept that the tax burden has increased — I hope that we shall have less wriggling from the Chief Secretary than we had from the Financial Secretary on that issue—

    So we shall have a great deal of wriggling and weasel words to the effect that the tax burden has not really increased. Ministers now understand that the tax burden has indeed increased but, having had to face that, they now come up with a series of excuses. The first excuse is that, according to the Chancellor, real take-home pay for an average family has risen by 5·5 per cent. So what? We are not discussing the level of take-home pay but the burden of taxation. Even though for some groups, although by no means all groups, real take-home pay has risen under the Government, those individuals who have benefited from an increase in real take-home pay are still paying a higher proportion of their income in taxation than they would have done under Labour's tax regime in 1978–79. Therefore the burden of taxation for those earning up to £500 a week is higher now than it was in 1978–79

    It is odd that the Government should be proclaiming the rise in real take-home pay, as almost all of it is due to the rise that took place in 1979–80 as a result of the Clegg commission and related awards to which, I thought, Conservative Members had objected at the time and have regretted ever since.

    9 pm

    Conservative Members described it as a post-dated cheque. My hon. Friend is right.

    The improvement in real take-home incomes has applied only to some groups. It is symptomatic of the Government's sense of values that those who have benefited in real disposable income have exclusively been the better-off while those who have suffered have been the pensioners and those on low incomes. The Institute of Fiscal Studies made a series of calculations, which were quoted in The Sunday Times on 20 March. It considered the overall effects of the Government's Budgets and of their other expenditure decisions — for example, the forcing up of fuel prices and rents and rates—to see who had fared better and who had fared worse. It will come as no surprise to my right hon. and hon. Friends to learn that a company director on £44,700 a year has benefited to the tune of £119·80 a week while a couple on a pension, despite the increases they have received, have lost £1·42 a week. The semi-skilled worker on £129 a week—that is a good wage for a skilled worker in my constituency — who lives in a council house has lost £8·05 a week. Worst of all, the jobless man with a family has lost £15·30 a week. I hope that we shall hear less from Conservative Members about how there has been an overall increase in real take-home pay.

    As my hon. Friend the Member for Edinburgh, Central pointed out, if instead of taking the highly selective examples of individuals' real take-home pay, which are not published in any official series, we take the series that is published each month in Economic Trends, which shows real disposable income per head — a series that unshamedly includes pensioners, retired people and the unemployed all of whom have living standards to maintain and now have their incomes taxed—we find that, far from real living standards per head having risen under the Government, they have fallen by 2 per cent. to 3 per cent. whereas, under the Labour Government, they rose by 12 per cent. That last figure is consistent with what happened to the overall economy. Conservative Members may again be reluctant to recall that total national income under the Labour Government rose by 12 per cent. while under this Government it has fallen by a least 3 per cent.

    When we charge Conservative Members and Ministers with having broken every promise that they made during the 1979 election campaign about reducing the tax burden, they claim that they had to increase national insurance contributions, which have borne the brunt of increased taxation, to pay for the cost of unemployment. We heard tonight that it was necessary to increase the contributions to pay for the cost of increased pensions. That was trotted out only recently. When we have charged the Prime Minister with failing to keep any of the promises that appeared in the Conservative manifesto prior to the election, her traditional excuse is that benefits and pensions have increased. So, too, has the cost of keeping 3·5 million on the dole.

    Why are Conservative Members surprised? Why did they not include these factors in the costings that I imagine they carried out prior to the general election? We knew that the number of pensioners would increase. The fact that the number of people moving into the 60 to 65 bracket has increased should not have surprised those who carried out costings on behalf of the Conservative party. Before the general election we said that Conservative policies would lead to a substantial increase in unemployment. We all remember that Conservatives denied that. In a notorious speech at Darlington on 23 April 1979 the Prime Minister said:
    "Another Labour accusation is that Conservative policies will lead to a rise in unemployment, but we are the party of opportunity."
    She said that there would be an increase in real jobs under a Conservative Government while Labour
    "is the party of unemployment."
    We made it clear that Conservative policies would lead to a rise in unemployment, and so did many of the newspapers. Shortly before the general election the Daily Mirror, in a front page editorial, charged the Prime Minister with pursuing a false prospectus of spend, spend, spend. It charged the Conservative party with advocating policies that did not add up. The Conservative party was promising major tax cuts while advocating economic policies that were bound to lead to a rise in social security spending.

    Conservatives denied these charges. The Chief Secretary said that the Conservative party would be able to do all that it said it would do. It was said that a Conservative Government would not increase or double VAT and would not reduce the standard of living of the unemployed. Conservatives told the electorate that at the same time a Tory Government would reduce taxes substantially.

    We all know what has happened. In the light of the Government's record, we need no lectures from Conservative Members on election bribery. The Conservative party bribed its way into Government with promises of more jobs, greater national wealth and more effective law and order. However, no bribe was greater than its claim that it would cut taxes. It was the largest of its 30 pieces of silver. No Conservative bribe has been more completely dishonoured. By the Government's taxation policies they have made the rich richer and the poor poorer. They have a shameful taxation record and the amendment goes some way to restoring fairness in the taxation system.

    I shall fully understand my hon. Friend the Member for Darlington (Mr. O'Brien) seeking to catch the eye of the Chair during this debate. Perhaps my hon. Friend and I can claim that we have the most recent experience of judging public opinion. We have heard what the people are actually saying as opposed to reading reports in the popular press of what they are supposed to say and feel. We know how people relate their feelings to the expression of views through the ballot box.

    I recall attending a meeting in Darlington at which my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) gave an account of a survey which had been made shortly after the last general election. Under it, every Labour candidate had been invited to give an account of the election in his or her constituency and to explain the major issues, as they saw them, and particularly those issues which had had the most profound influence on the result of the election. Without exception, they expressed the view that the biggest single influence on the 1979 election had been the pledge by the Conservatives to reduce taxation. There is no doubt now that that pledge had a considerable bearing on the result of the election, so we are right to examine publicly what happened to those pledges and to relate them to the realities that people face.

    The Daily Express—in my part of the country it describes itself as the Scottish Daily Express, printed in Manchester—said today that we had had a dull Budget. I agree that the paper was saying that in another context —Fleet Street has apparently taken upon itself the right which was once entrusted to No. 10, namely, to decide the date of the general election—but I do not recall that newspaper or many others describing it as a dull Budget at the time, althought it was. Indeed, the legislation that we are discussing tonight reflects its dullness and the irrelevance of the measures that the Government are introducing in the light of the difficulties that the nation faces. The burden of taxation has been readjusted in a way that is unsuited to the burdens people are bearing. Because the emphasis is on indirect rather than direct taxation, those least able to bear those burdens are being asked to do so.

    I recently tried to secure a Second Reading for a Bill which dealt with youth unemployment and training. It endeavoured to ensure that youngsters going in for the various YOP programmes and earning £25 a week could receive some amelioration if their travelling and similar expenses were just less than £4. In other words, if their expenses are £3·99, they have to meet them out of the miserable £25 they received.

    Their burdens do not end there. The American civil war was fought on the slogan, "No taxation without representation." Some youngsters related to me their experience of being asked to pay taxation at unacceptable levels, even before getting the vote at 18.

    A young lady, who is a trainee in hairdressing, was served with a notice from the Inland Revenue asking her to pay tax not on the tips that she was getting, which were poor anyway, but on the tips that the Inland Revenue assumed her—and presumably other young trainees—to be getting. Who are we to assume that people are as generous as the Inland Revenue assumes they are or that young people are in receipt of an income when there is no evidence to support that that income is there to be received? Why should we be so firm about taxation on those young people when people at the top, as we have heard time after time, can get the best advice from their accountants, the legal profession and so on, and deal with taxation in a way that young people could not dream of.

    9.15 pm

    As my hon. Friend the Member for Blackburn (Mr. Straw) said, there is a case for saying that that approach has gone far enough. We are entitled to ask, "Do the Government relate their policy on taxation to the problems that we face? Given the high unemployment that our country faces, what output is there from our taxation policies that will lead to new investment, job creation and so on?" I have seen no sign of it.

    If one gives tax concessions to those who earn £40,000, £50,000 or £60,000 a year, there is not a shred of evidence that that money comes back, is reinvested and creates the jobs that the country so desperately needs. Nevertheless, there is overwhelming evidence that if we gave to the people in the lower income brackets more opportunities to purchase, given the demands on them and the need to purchase goods, food, clothing for their children and so on, the money would he used in a way that is not only morally but economically right, and would justify a change in the tax system.

    In the past four years there has been a readjustment of the tax system, so we are entitled to ask, "Where is the money coming from? How do those in the top income brackets manage to benefit?" That is happening because intolerable burdens are being placed on public bodies, particularly the local authorities. Local authorities have found year after year that the rate support grant settlement has been reduced in real terms. In Scotland the housing grant settlement has been reduced in real terms. Therefore, ordinary people who have not benefited one iota from the Government's taxation policy are being asked to pay more in rents and rates and more for the services that local authorities of all shades of opinion believe are important. They cannot say that taxation has improved their lot, because they have to meet extra demands.

    I belong to a party that believes—its view is worthy of support and over many years it has had a great deal of support —that that our tax system should mean from each according to his means, to each according to his needs. I support the amendment because it takes closer to that philosophy than does the Finance Bill.

    The great mass of the British people has been remarkably patient. When the Chancellor first presented his Budget, I pointed out that more than 80 per cent. of my constituents lived in council houses and asked whether these provisions would give the slightest help to the majority of my constituents. Since the general election, my constituents have faced unacceptable and rising unemployment, rent and rate increases and the daily practical problem of fuel poverty. Clichés, slogans and popular jargon may be used, but for my constituents fuel poverty is a reality. I know of elderly people who switch their lights off at a certain time in the evening, who cannot afford to have heating at weekends, and so on. Female old age pensioners are quite unreasonably taxed up to the age of 65, so they cannot say that they have any tax benefits to compensate for all the extra demands on their resources.

    It is right that we should consider the details of Government policy in these matters, but the Government's record must also be examined on a global scale. We are entitled to ask how the nation has benefited from Government policy. I do not believe that it has benefited at all. We must ask about the impact on our constituents and what it means for ordinary people. As my hon. Friend the Member for Blackburn made clear, there is every sign that people are becoming increasingly aware that Treasury Ministers have allowed a gap to develop between their own thinking and that of the great mass of the British people. That will become increasingly apparent as debate on the Bill proceeds. Moreover, when the British people are given the opportunity to make their comments and pass their verdict, I believe that that verdict will be inconsistent with Government policy but consistent with the philosophy to which the Labour party is committed—from each according to his means, to each according Ito his needs.

    I hesitated to rise immediately after my hon. Friend the Member for Blackburn (Mr. Straw) as I naively expected that a Conservative Member would wish to follow him and to argue against what he had said. Perhaps because of my newness to the House I expected too much. I have sat here for about four hours, but I can recall no speech from a Conservative Back Bencher. Apart from the occasional intervention earlier in the evening, we have heard only official replies from official briefs.

    A few weeks ago, during the by-election campaign in which I was victorious, it was virtually impossible to engage my Conservative opponent in discussion of the Budget. I had to challenge him to talk about it. The same hesitancy seems to be reflected in the Chamber today. That is not surprising as the Conservatives' case is weak and the record that they have to defend is scarcely defensible.

    That being so, I shall attempt to put the Conservative case as I understand it. Their manifesto, and indeed the Chief Secretary's election address, stated that their approach to economic policy would be, first, to cut public expenditure. This, they said, would enable them to reduce taxation. That would increase incentive which, in turn, would miraculously increase productivity in the factories of this country, many of which have, in fact, disappeared. We were told that out of that increase in productivity would come an increase in real pay, that would lead to an increase in demand in the economy because it would stimulate investment and production, and we would have an increase in jobs and a reduction in what was described at the time as the unacceptable level of unemployment.

    Looking at each of those attempts at some kind of logical policy, we see that none of them can be described as successful. The Government have had to cut public expenditure, and we see the effects in the country. In county Durham, for example, we see their severity, and we know what they have meant to education and social services. In the National Health Service the Government claim to have made a real contribution of about 2 per cent., but we know that that in itself is not sufficient for the needs of the service, even simply to stand still.

    In the cuts in those services, we see demonstrated clearly that the Government are quite unable to bring in their consequential pledge on that reduction in public expenditure to reduce taxation. Part of the reason is that some of the reduction in public expenditure has had to be offset by increases. The consequences of other aspects of Government policy have led to a massive increase in the unemployment figures, which they were so ready to criticise in 1979. Today, 3·2 million are people officially unemployed. Taking into account the recent change by the Government to the methods of calculation, which no longer takes account of those who are not registered, the figure may be four million or more. The Government have had to increase public expenditure to pay for those who are out of work. Whether the figure is £15,000 million or £17,000 million, the amount of money that has been draining away and preventing the Government from reducing taxation is huge.

    We have heard a lot of wriggling words from the Treasury Bench about whether they have been successful. The Financial Secretary tried to prove that taxation had decreased. But he was dealing with only one part of the argument. As my hon. Friend the Member for Blackburn and others have shown, if we take account of the national insurance contributions as well, the burden of taxation has increased quite considerably.

    There has been no attempt to deny that the overall burden of all taxes has risen during the life of this Government. Taxes account for about 39 per cent. of national income, compared with 34 per cent. when the Labour Government left office. If the Government got back to the levels that people enjoyed during the life of the Labour Government it would mean a 7p tax cut. We know that there is no chance of the Government doing that. They have not done it, and they will not do it before the next general election, whether it be in June, October or the spring of next year.

    The Government's inability to fulfil those pledges means that the third item in their so-called logical sequence of policy development has proved impossible of achievement. They talked about reducing taxation to increase incentives. We have seen tonight that what Conservative Members think of as incentives and what we think of as incentives are two different things. This was clearly demonstrated, especially by the Financial Secretary when he was bemoaning the fate of the very rich and comparing the records of the Labour and Conservative Governments. It is only for that section of the population that he and his party think incentives have any meaning.

    This is a strange approach to incentives and a strange argument. The Prime Minister keeps talking about Victorian values and the need for hard work, but if these are to be brought about, it is the people who do the work who should be given the incentives and not those with the vast amounts of wealth. They are being let off by the Tory party tax policies. The Financial Secretary was talking about marginal rates of taxation and was concerned about the very rich. If the marginal rates for the very poor are the same as they are for everybody else, the disincentives for the poor will be great. The Conservative party is not only not able to carry out its philosophy, but it does not want to think out that philosophy to its logical conclusion.

    The Tories have failed to provide the incentives, partly because of the increase in unemployment—there cannot be any incentive for those out of work to produce any more. They have failed through their general policies of cuts in social services and their general callousness and lack of concern for the people. The Tories are not producing the incentives that they set out to produce, and therefore there have not been the increases in productivity that they claimed would result from their policies.

    Recently, the Tories have claimed that there have been increases in productivity and that this is a sign of success for the policies that they have been pursuing for the past four years. As I endeavoured to show two weeks ago, the increases in productivity have not come from Government policies except in the sense that they have resulted from the high levels of unemployment. The increases are not the result of financial incentives or increases in real take-home pay, as has been claimed by the Conservative party. The increase in productivity comes as a direct result of the increase in unemployment and the relativity of that increase to production.

    There has been no increase in productivity and only a slight increase recently in real pay. As my hon. Friend the Member for Blackburn showed, that is not the only figure that must be taken into account when looking at the overall circumstances and standard of living. The comparative performances of the Labour Government and this Government do not bear looking at. There was a 12 per cent. increase in the standard of living under our Government and a reduction of about 3 per cent. over the four years of this Government.

    9.15 pm

    If there has been an increase recently in real pay it has probably been because deflation has resulted in a decrease in inflation to its present low level, and because, in spite of the high level of unemployment, the unions have been able to resist the Government's intention to cut wage increases below the level of inflation. It is perhaps only for that reason that there has been some slight difference in the rate of inflation and take-home pay.

    Perhaps the important thing to bear in mind about this is that the reduction in inflation has probably come too late and is too little to do anything to stimulate the economy and bring about an increase in the number of jobs. Indeed, the Budget is based on an expectation that unemployment will continue rising and go up by about 300,000 in the next few months. If that is the case, and the policy of the Government even in their so-called expansionary Budget, taken with the things about which I have been talking, is still further deflation, from where is the increase in demand which they say is the logical result of their policies to come?

    An increase in demand would provide the incentive for entrepreneurs and manufacturers to invest in the economy. It is through investment in the economy that we shall have an increase in productivity and in overall production. But there has not been that increase in investment. It has been demonstrated on several occasions tonight that investment, and every other economic indicator that we can look at, are at their lowest for many years and, in some cases, at record low levels.

    A couple of weeks ago the Chief Secretary said that the position is changing and that recovery is on the way. No doubt he will say the same tonight. But we must recall that that recovery is from a very low level. It has nothing to do with the Government's policies on taxation, incentives or any of the other subjects about which I have been talking.

    Does my hon. Friend also recall that there have been annual pledges that the economy was about to take off? In each Budget statement since 1980 Treasury Ministers have come to the Dispatch Box to tell us that we are about to enter a period of boom, but it has never come about.

    That is so, and the purpose of those annual statements from the Government was to con the British people into thinking that the Government's harsh policies would in the end come right and that it was in their best interests to go along with them. That is the line that they are pursuing again now. They have never believed it themselves. Indeed, their figures have shown that that could not be the case. That is also the evidence of what is happening in industry throughout Britain, in my part of the world as well as in former prosperous areas such as the west midlands. I notice that in recent weeks the west midlands has been given special attention. The Government are not prepared to have a development agency in my part of the world nor a Minister with special responsibility but they are prepared to do so in the west midlands.

    I pay little regard to the Government's annual statements. At best, they are probably whistling in the dark and at worst they are conning the British people. Before many months are out we shall find that the British people will not be conned. They will look at the realities and outcomes of Government policies over the past few years and will see that they have not meant the increase in jobs that was promised in 1979 and in successive statements since, to which my hon. Friend the Member for Workington (Mr. Campbell-Savours) referred, but have meant a greater loss of jobs for Britain than for any other major industrialised country. There was some deindustrialisation previously but since 1979 that has quickened and during the Government's four years in office jobs have been lost at a rate of about 10 per cent. compared with an average of 3 per cent. throughout the EC. It follows that the premises upon which the Government's policies are built are wrong, and therefore that the edifice that has been built upon those premises must be wrong. That has inevitably led to the catastrophic consequences that Britain is now witnessing.

    Instead of, as was the case in 1979 compared with 1974, an increase in the number of people in employment in Britain, we have not only an increase in unemployment but a reduction of those in jobs as well. Those consequences are the direct result of the failure of the Government's policies; not only their policies but their philosophy. The sooner the British people have the opportunity to pronounce on those policies and their failures and to elect a Government prepared to reverse them the better.

    Before I call the next hon. Member, I remind the Committee that we are discussing personal reliefs. I allowed the hon. Member for Darlington (Mr. O'Brien) a wide range but we should narrow the debate to the subject in hand.

    It is ironic that the Prime Minister and her Chancellor should regard themselves as resolute. What does that resolution mean in terms of carrying out the Government's promises and manifesto commitments? It is a resolution to do no more than dupe the electorate by persisting in the lie that everyone has benefited from tax cuts. The path of the Prime Minister and her Chancellor is littered not only with wasted talent, as represented by the growing army of the unemployed, but with broken promises about cutting personal taxation.

    Behind all the talk about lower inflation lies the plain fact that, while the rich are enjoying tax cuts, the poor are being hit hard. My constituents often ask me, "Despite all this talk of low inflation and tax cuts, why am I and my family getting worse and worse off?" The reason is that people who do not live in Southwark or Peckham and who earn £50,000 a year are £24 a week better off in terms of the tax that they must pay than a family in my constituency with an income of £80 a week whose tax burden has increased by 57 per cent.

    The people who are being affected in that way are those who run our vital services, such as hospital workers, those who provide school meals, those who work as home helps and single parents who work part-time. They are already low paid and, to cap it all, they are being hit by increases in personal taxation.

    Clause 16 will not only take from those who are worse off and give to those who are better off, but will penalise women. When we discuss low pay, we also discuss women workers. The tax burden has shifted, but services have been cut, and rates and rents have been forced up so the tax burden has been doubled. The Government are taking more out of small incomes not only in direct taxation, but in indirect taxation by cutting Government grants to local authorities. Therefore, the services on which the low paid rely have been cut. The low paid are suffering a double burden.

    In that context, talk of incentives is nonsense. Clause 16 is simply part of a design to create an irreversible shift in wealth away from working people and their families. I hope that, after the next general election, we shall have a Labour Goverment who are committed to use taxation for its intended purpose — to create equality rather than inequality, which is how it is now being used.

    The jiggling and juggling in clause 16, which the Opposition are trying to counteract with amendment No. 5, is a logical extension of the Government's technique. Their approach to the economy and matters financial is one of verbal prestidigitation. In other words, they say one thing and do another. That is a classic technique of Government which was first developed by Right-wing Governments in Australia and New Zealand by Messrs Fraser and Muldoon.

    The Prime Minister was a natural learner from such Governments during her visits to the antipodes. Indeed, she is already convinced that everything she does is right so it does not matter what she says or does, she is right. That technique has been used to most devastating effect in the promises of tax cuts. Such promises have already been quoted at length, but it is worth reminding the House of them, especially the Prime Minister's unequivocal promise during the general election campaign to provide incentives by lifting the tax burden so that it would pay to work. The Chancellor of the Exchequer made an equally unequivocal commitment. The Conservative party is committed to reducing the burden of taxation, but that reduction has been carried through only for those who earn £50,000 a year or more.

    9.45 pm

    A married couple would have to earn £568·59 a week, and a single person would have to earn £551·36 a week, to pay a smaller proportion of their income in tax as a result of the Budget than was the case when the Conservative party came to power with its promises of reducing taxation. That means that 97 per cent., 98 per cent. or 99 per cent.—perhaps the Chief Secretary will give us the accurate figure—of the working population pay a higher proportion of their income as a result of the achievements of this tax cut promising Government.

    The Government were right to increase the allowances, as they have done belatedly, but they have not increased it to the extent that they should. The low paid were hit by the 1981 freeze on the thresholds, which was carried through when inflation was 15 per cent., they were hit by the abolition of the reduced rate band of 25 per cent. and they were badly hit by the unnecessary increase in national insurance contributions, which were raised from 6·5 per cent. to 9 per cent. The increases in allowances in the Bill do not compensate for that. The low paid have suffered more than most under this Government, and our amendments seek to help them.

    For a married couple with a joint income of £86 a week, which is about half the average male wage—there are many such couples in Grimsby, which is a centre of low earnings—the proportion of their income paid in tax and national insurance contributions has increased by more than one third. The proportion for a single person has increased by more than 13 per cent. By contrast, for a married couple on 10 times average earnings, or £1,723 a week—there are not many such couples in Grimsby although there may be some on the Conservative Benches —there has been a 15 per cent. decrease in the share of their income that they pay in taxation. If the Chancellor wishes to do justice to the low paid and to cut the proportion of the income that they pay in tax, he should have increased the allowances more substantially.

    To take people back to the pre-Conservative level in terms of the proportion of income paid in tax would require an increase of £586, or 37 per cent., in the single person's allowance, or of £783, or 32 per cent., in the married couple's allowance. The Bill has not made an impression on the problems, which have become increasingly severe, thanks to the Government's economic policies. It will make hardly any impression on the poverty trap, to whose removal we are all dedicated, but which has become worse under this Government. The Government talked about alleviating the poverty trap, but they have increased it. The Chancellor claimed that 1·25 million people would be removed from tax, but 500,000 of those will have come out because of statutory indexation.

    The proportion of working people paying tax is greater than if was in 1978–79. The Chancellor said that 10,000 families will be taken out of the poverty trap by the increase in allowances. That does not compensate the 63,000 people who have gone into the poverty trap since the previous Budget. The number of people caught in the poverty trap has doubled since 1978. Any alleviation thanks to the Budget is transitory because the family income supplement increases in November will push people back into the trap.

    Although the Chancellor talks of increasing incentives, only those earning more than £50,000 a year benefit from the incentives. The 122,000 families with children in the poverty trap are in the ludicrous position that an increase in their wages produces no increase in their income. The tax system is as vicious as ever and has been getting steadily more vicious as the decades pass. The tax threshold as a percentage of average earnings in 1960 was 76 per cent.; by 1976 the figure was 46 per cent., and by 1979 it was 45 per cent. The fall had decreased under Labour but by 1981 the figure was 39 per cent. and in 1982 it was 41 per cent.

    That produced a ludicrous position in which the Prime Minister, in another promise and commitment, pointed out in 1977:
    "We pay the highest rate of income tax at the lowest level of income of any country in the EEC. That is the measure of Socialism—the effect on the poorer people of this country."—[Official Report, 29 March 1977; Vol. 929, c. 293.]
    Britain's starting rate of tax is still higher, by a wide margin, than that of any other country in the European Community. With the exceptions of Italy and Greece, Britain has the lowest tax threshold within the Common Market. In those two countries, tax becomes payable at the rate of 16p and 7·6p in the pound, compared with Britain's starting rate of 30p.

    Contrary to the Prime Minister's protestations, this Government have increased the starting rate of tax and reduced the level of income at which people start to pay tax. This has happened because two parts of Tory party philosophy clashed. The people who suffered were the low paid; they got no incentives. The Government believe in incentives especially for the better off and for chaps like themselves who really deserve incentives and who can be guaranteed to send their money overseas as quickly as possible. Incentives will cause those earning more than £50,000 a year to work harder, but not the rest of the population. Those people have received no incentives.

    Although the Government believe in incentives, they also believe in the discipline of unemployment. They have followed an economic policy of deliberate depression and deflation that has used unemployment as a whip and scourge on the working people of this country, to break the power of the trade union movement and to break the pressure for wage increases; people became so frightened for their jobs that they dared not ask for wage increases. That is the technique of the Government. That technique of economic management has produced the disaster in which Britain now has the highest rate of unemployment of all the OECD countries bar one.

    Only Belgium has a higher rate than Britain. Britain's rate has been increasing far more rapidly than that of Belgium. Our unemployment increased, from December 1979 to December 1982, by 144 per cent. The figure for Belgium is marginally higher, but then the figure for unemployment in Belgium was much higher in 1979 than the figure in Britain. Contrary to what the Government say, our rate of unemployment has grown more than twice as fast as that in Belgium, and much faster than that in any other OECD country.

    We are suffering the most from this self-produced depression. As an oil power, we should have been immune to it. A country that is self-sufficient in oil should not have been plunged into such a depression, but it may have been a deliberate policy decision to plunge us into this depression in order to discipline the working classes and break the power of the trade unions. That is the Government's triumph of economic management. As a result, the tax burden is great. In order to finance the increasing level of unemployment and to carry through their policies of social retribution, the Government have had to increase the tax burden and cannot, as a result, implement their policies for incentives.

    The burden of taxation has increased to pay for unemployment, and it is pressing on a shrinking production base. That is the economics of bedlam. That is why we are dealing with this pathetic increase in allowances. That is why we are trying to improve the situation. Various estimates have been given of the cost of unemployment. The Manpower Services Commission estimated in 1981 that each unemployed person cost £4,328. The House of Lords Select Committee estimated that if forgone tax revenue, the loss of VAT through the reduction of purchasing power and the cost of benefits was included, the total amounted to £5,000 per unemployed person—a total tax burden of £15 billion to £18 billion. I do not have the calculations with me and it is difficult to work them out now that the figures have been "Tebbitised" and we do not know what the real figures are. However, let us say that the cost of financing unemployment is a tax burden of £15 billion. That means that the budgetary stance is in substantial surplus once unemployment is allowed for. In other words, the Government's budgetary stance is deflationary. With unemployment at that level, they are deliberately deflating the economy.

    That is why the Government cannot fulfil their promises—because of the unemployment that they have created. The Government's disastrous economic performance has led to its own ruinous financial consequences in the Budgets presented to us by the Chancellor of the Exchequer. Last week, at the CBI, the Prime Minister produced a fitting epitaph to that performance. She mentioned the song "Maggie May". It is an appropriate epitaph for the Government, because "Maggie May" also specialised in personal reliefs, and it is therefore relevant to quote her in this debate. The song that the Prime Minister produced as the epitaph for this Government goes:
    "To well I do remember when I first met Maggie May,
    She was cruising up and clown old Canning Place"—
    or Downing street—
    "With a figure so divine like a frigate of the line,
    And me, being a sailor, I gave chase.
    Next morning"—
    that is to say now, as the election approaches—
    "I awoke, I was flat and stony broke,
    No jacket, trousers, waistcoat could I find.
    When I asked her where they were, she said to me 'Kind sir,
    They're down in Kelly's pawnshop, number nine."
    That is an epitaph to this Government's economic "achievement".

    At last we have had some entertainment in the characteristic fashion that many of us learnt to expect from the hon. Member for Grimsby (Mr. Mitchell) in his better days on the small screen. This is our third debate today, but I would challenge any passer-by to tell the difference between this debate and the earlier debates. Most people would feel that stale mutton had been heated up for the third time, despite the passionate concern expressed by the hon. Member for Grimsby.

    It is extraordinary, but not surprising, that the Opposition should tepidly table amendments and then seek —as they did on Second Reading and during the Budget debate—to talk about almost anything but the measures in the Budget and their proposals to amend it. In this third tranche of stale mutton we have heard some generalised criticisms of the Government's economic policy and some suggestions about where we stand.

    10 pm

    The only interesting aspect of the Opposition's presentation of the argument in the last few debates is that weeks ago the Opposition spokesmen decided that it was opportune to pooh-pooh any apparent improvements in the economy and to argue either that they did not exist or that they would go away. Faced with a crescendo of figures —[Interruption.] That is correct, whether one considers what the construction industry or the CBI say.

    There is a nuance in the Opposition approach. I detect a ritual denunciation of the figures. The Opposition argue that the figures are not real, but when one listens carefully to the fine gradations of their arguments one realises that they are saying, "Oh well, this is an improvement but from a low base."

    We are witnessing an interesting shift arid a recognition, as the evidence becomes strong, that recovery has begun—albeit from a low base. The Opposition are rewriting the script and attempting to pooh-pooh the recovery. So far as I am aware no Government spokesman today or in the past has forecast anything that could be described as a boom. Indeed, Government spokesmen have gone out of their way to say that that is not what is expected and that there is a difference between a gradual emergence from the recession, or an upturn, and a boom.

    No. I must give way to the hon. Member for Blackburn (Mr. Straw) first. However broad the approach, one must recognise that if one is making a serious attempt to debate these issues—

    On a point of order, Mr. Dean. Am I right in assuming that the right hon. Member for Huyton (Sir H. Wilson) has rejoined the official Opposition? We are pleased to see him sitting on the Opposition Front Bench.

    That is not a point of order, but the hon. Gentleman has made his point.

    If one tries to portray the economic position, a measure of precision is called for and I welcome the opportunity to explain that.

    I shall give way to the hon. Member for Blackburn — I am sure that the hon. Member for Workington (Mr. Campbell-Savours) would not wish to forestall that pleasure.

    If the crescendo is moving so fast, when will manufacturing production return to its May 1979 level?

    I thought that the hon. Member for Blackburn was about to say something new, but perhaps I should have known better. He knows that no Minister would attempt to answer such a question. The hon. Gentleman reflects the spirit of the debate. The Opposition are reluctant to consider the clause. It is difficult to understand from the tenor of the Opposition's argument that in the clause that they seek to amend the Government propose a 14 per cent. increase in personal allowances —an increase two and a half times above the level of inflation and the level required to comply with the indexation provisions. The Opposition go further and seek to raise the main personal allowances by about 20 per cent. The cost would be £870 million a year, but, to put it mildly, the financing of that extra cost was touched on only lightly by the Opposition.

    The suggestion that a pot of gold is available simply by not increasing the higher rates of tax is manifestly inadequate. If the thresholds were held at their 1982–83 levels, as the Opposition propose, that would not yield a third of the money needed for the extra increase in the allowance. Even the reintroduction of the absurd higher rate schedule of 1978–79 would not yield sufficient to do the trick.

    As my right hon. Friend the Financial Secretary pointed out, it is significant that, if given the chance, the Opposition propose to go to some unspecified point on the way back to 1978–79, but not the whole way. This is an entirely characteristic Opposition exercise. Faced with a proposal to increase allowances, which was favourably received by all concerned—not surprisingly, as it was 14 per cent. compared with the 5 per cent. required for indexation—the Opposition, in a characteristic fit of irresponsibility, propose a further increase at a cost of £870 million.

    To justify that, we have not been given a serious argument as to the economic consequences or even a serious argument about the alternative ways of financing it, such as the tax that should be forgone. Instead, we have had a plethora of denunciation of the Government for the changes that they introduced at the higher rate levels. But even if reversed in full, which the Opposition are not calling for, that would not be sufficient to finance this further change in allowances.

    On top of that, there have been a series of wholly misleading comparisons between 1982–83 and the Government's entire tax record. It is relevant and proper to compare the tax changes introduced in the Budget with the situation in 1982–83. It is relevant to point out that the number of taxpayers will be reduced over and above the number who will be taken out of tax had indexation alone been introduced. It is also relevant to point out that the average of income tax will be lower at all income levels.

    It is no use the hon. Member for Coatbridge and Airdrie (Mr. Clarke) saying that none of his constituents will see any benefit. They may complain about other aspects of policy or events, but it does no service to rational debate to pretend that an increase in allowances of 14 per cent. is of no significant benefit. That is a ludicrous argument. Why, in the period before the Budget, did everyone ask for a substantial increase in allowances? Indeed, the vast majority of those who proffered their own budgets in the newspapers suggested an increase in allowances substantially below the figure proposed by the Government.

    With respect, the Chief Secretary has missed the point. My constituents, in common with the vast majority of taxpayers, were not given the kind of tax concessions that the Prime Minister promised when she fought and won the election. My second point is that my constituents must pay so much in rent, rates and fuel increases that the clause is nothing more than a pin prick.

    The hon. Member for Coatbridge and Airdrie certainly said those things, but he also said—it was the only thing relevant to the consideration of clause 16 — that the clause did not benefit his constituents. What is manifestly true is that, whatever things in the past, or now, have not helped his constituents, clause 16 is bound to do so. It does no service to sensible debate to pretend that an increase in the allowance of about 14 per cent. — substantially higher than required under indexation and substantially higher than called for by most commentators—is of no benefit. To say that is to turn rational argument on its head. It is the case that the percentage of income going in income tax and national insurance contribution will be lower than in 1982 for all those contracted in and for most of those contracted out. Real net incomes are expected to be higher at all earnings levels as a result of the change put forward in the Budget, which will be implemented in the Finance Bill.

    The hon. Member for Blackburn does not like the concept of real net incomes. He prefers disposable incomes. He complained that the concept of real net incomes does not appear in any published series. It appears to me strange that the concept must be denied because it does not appear in a series. There is nothing magical about the series. His alternative of disposable incomes is misleading because of course it is the case that those who are not in employment cannot expect that a tax change of this nature can reflect favourably on them. Therefore, compared with last year, which is the relevant year for considering a Finance Bill change, the benefits and improvements are substantial and real. If one compares the Government's record as a whole, with 1978–79, it is the case, as we explained in an earlier debate, that tax thresholds are higher in real terms than in 1978–79. That was conceded by the Opposition at the end of the argument.

    The Opposition can produce other figures, but this debate is about tax thresholds. It is therefore entirely relevant in making the comparison of the records to point to the fact that tax thresholds are higher in real terms than in 1978–79—5 per cent. higher than with the statutory indexation of 1978–79 and 6 per cent. higher for the financial year 1983–84 compared with the financial year 1978–79. The percentage of income going in income tax is lower than in 1978–79 for those on three quarters average earnings and above, that is the great majority of married men. All the attempts of the hon. Member for Blackburn to escape from the net in which he was cast by my right hon. Friend the Financial Secretary the other week do nothing to detract from that point.

    It is the case that real net earnings—take-home pay —are substantially higher than in 1978–79 for taxpayers whose earnings have gone up in line with earnings generally. It is the case that since 1978–79 the balance has shifted slightly in favour of families with children. I am content and would be content to rest the case for the Budget and for the Finance Bill on the comparison with last year, but the Opposition seek to make the comparison with 1978–79. But if we are to dig back into the past, they cannot escape—

    —an examination of their own record. It is worth considering what happened when the Labour Government were in power. Under Labour Governments presided over by the right hon. Member for Huyton (Sir H. Wilson), from whose distinguished company we are benefiting this evening, and by his successor, the right hon. Member for Cardiff, South-East (Mr. Callaghan), income tax thresholds fell in real terms by 20 per cent. for single people and 5 per cent. for married men.

    I am coming towards the end of my remarks. The hon. Member for Darlington (Mr. O'Brien) has had his say.

    It is the case that income tax rates were higher under the Labour Government. Their basic rate went up to 35 per cent. at the time when there was no lower rate band. It stood at 33 per cent. in 1978–79. It is the case that the Labour Government's higher rates reached 83 per cent. at the maximum, compared with 60 per cent. under this Government. No country in the Western world can seriously defend such a rate. The burden of income tax and national insurance contributions increased substantially under the Labour Government, substantially more than under the present Government. For those on average earnings, the proportion of gross earnings taken in tax and national insurance contributions increased from 1973–74 to 1978–79 by 3·6 per cent. for the single. It has increased by 1·3 per cent. since 1979.

    10.15 pm

    No, I shall not give way. The proportion increased by 2·3 per cent. from 1973–74 to 1978–79 for the married. It has risen by 1·6 per cent. since 1979. It increased by 2 per cent. for married men with two children under Labour Governments compared with 1·4 per cent. since 1979. If we are to have the record, let us have a fair presentation of it.

    If we are to talk about the Budget and the Finance Bill, let us do so fairly. I ask my right hon. and hon. Friends to reject the Opposition's proposals and to vote down the amendment.

    Sir Kenneth Lewis: On a point of order, Mr. Dean. As we have the distinguished company of the right hon. Member for Huyton (Sir H. Wilson), the ex-Labour Prime Minister, on the Opposition Front Bench, can we have a speech from him instead of from the hon. Member for Blackburn (Mr. Straw)? If we had a speech from the right hon. Gentleman, it might bring into the Chamber a few Opposition Members. We should then have the advantage of being able to say to the right hon. Gentleman, "Come back. All is forgiven. They need you."

    The hon. Member for Rutland and Stamford (Sir K. Lewis) has made the longest contribution that we have had from any Conservative Back Bencher throughout the debate. That shows how little Government Back Benchers think of the Government's taxation record. The Government have not been able to muster one Conservative Back Bencher to enter the Chamber to support their taxation record. No amount of bluster from the Chief Secretary about what happened under the Labour Government can derogate from the fact that at the general election the right hon. and learned Gentleman promised that the burden of direct taxation would be reduced. In fact, the burden of direct taxation has increased.

    The hon. Gentleman talked of bluster, which is usually a contrast to facts. Is he suggesting that any one of the facts that I gave about the record of the Labour Government, who presumably he would have supported had he been here to do so, is wrong?

    I shall check them later. The Chief Secretary read them so quickly that none of us could hear them properly. The Labour Government did not go to the country promising that there would be reductions in direct taxation at all levels of income only to renege on that pledge, except in respect of the very rich. In 1979 the Conservatives went round the country promising that direct taxation would be reduced at all levels of income. The Chief Secretary knows that direct taxation has been increased at all levels of income, except for the very rich. That is an incontrovertible fact and no amount of bluster from the Chief Secretary, or reference to what happened between 1974 and 1979, can derogate from that. The fact is that the level of direct taxation which was achieved under the Labour Government in their last year was lower for all incomes under £500 a week than it has been under this Government. That is a fact that the right hon. and learned Gentleman does not like.

    The debate has been notable because of the contributions of three of my hon. Friends who have entered the House as a result of by-elections which the Labour party won. We had an excellent contribution from my hon. Friend the Member for Coatbridge and Airdrie (Mr. Clarke). He said that the claimed improvements in real living standards that we heard about from the Chief Secretary have not been shared equally throughout all sections of the population. He was right to say that in his constituency, where 80 per cent. of the population live in council houses, virtually no one will benefit from an increase in real net take-home pay and in real living standards as a result of the Government's policies.

    We had a distinguished speech from my hon. Friend the Member for Darlington (Mr. O'Brien), who explained carefully why the Government are now in a mess. The increase in the burden of taxation that has occurred under this Government is a direct consequence of the failure of their economic policies. As he said, their policy was postulated on the basis that cuts in public expenditure and in taxation would lead to an incentive economy, an increase in output and an increase in jobs. None of that has happened and the cuts in public expenditure have added to the deflation that the Government have caused in other ways in the economy. That has increased the number of unemployed, public spending and the burden of direct and indirect taxation.

    From my hon. Friend the Member for Peckham (Ms. Harman) we had a short but penetrating speech about the way in which lower income people, particularly women, have been penalised by the Government. From my hon. Friend the Member for Grimsby (Mr. Mitchell) we had his usual entertaining contribution, in which he pointed out that it was unfortunate for the Prime Minister to speak about the song "Maggie May" and say that she was an expert on personal reliefs, but personal reliefs of a different kind.

    The Chief Secretary referred to these three debates as stale mutton heated up for the third time. That would be a more appropriate description of the Chief Secretary's wild claims of recovery being just around the corner—claims which we have heard about every four months for the past two years. If we do not believe them now, the right hon. Gentleman has only himself to blame, because early in 1981 he was predicting recovery and in May 1981 he said that only the most blinkered pessimist could fail to see evidence of recovery all round.

    From our point of view there will not be any recovery until at the least the levels of total output, including manufacturing output, have returned to the levels that the Conservatives inherited in May 1979. The Chief Secretary knows that there is no way in the world that the Conservatives can go into the next election—be it in June, September or next May — with manufacturing output, let alone manufacturing employment, not at the levels at which they inherited them in May 1979 and with even the prospect of total output being well below those levels—and that from a Government who went into the last election promising that their policies would lead not to what has been the most catastrophic levels in manufacturing we have seen this century, but to an increase in manufacturing.

    The Chief Secretary rightly said that it was a debate about tax thresholds. We have proposed that they should be increased not by 14 per cent. but by 20 per cent. to try to restore the burden of taxation to the level at which it was when the Labour Government left office in 1979. It is untrue and unworthy of the right hon. and learned Gentleman to suggest that in moving the amendment we have not taken account of the cost, which he said would be £850 million. As we have made repeatedly clear, we wish the burden of taxation on the rich, in terms of income and capital taxation, to be restored to the level at which it was when Labour left office. As the Financial Secretary has admitted to me in answer to parliamentary questions, the total now being handed out to the rich annually in real terms is well over the cost of the amendment, because it is costing about £950 million a year.

    The incontrovertible truth is that the burden of taxation for all levels of income below £500 a week has gone up under the Conservatives, who bribed the electorate, dishonoured that bribe, been found out and do not like it. The amendment is designed to restore some honour to Parliament and to ensure that the burden of taxation is brought back at least to the level at which the Government found it in 1979, and I commend it to the Committee.

    Question put, That the amendment be made:—

    The Committee divided: Ayes 177, Noes 249.

    Division No. 130]

    [10.25 pm

    AYES

    Adams, AllenDavis, Terry (B'ham, Stechf'd)
    Allaun, FrankDeakins, Eric
    Archer, Rt Hon PeterDean, Joseph (Leeds West)
    Ashley, Rt Hon JackDewar, Donald
    Atkinson, N.(H'gey,)Dixon, Donald
    Bagier, Gordon A.T.Dobson, Frank
    Barnett, Guy (Greenwich)Dormand, Jack
    Barnett, Rt Hon Joel (H'wd)Duffy, A. E. P.
    Benn, Rt Hon TonyDunnett, Jack
    Bennett, Andrew(St'kp't N)Dunwoody, Hon Mrs G.
    Bidwell, SydneyEadie, Alex
    Booth, Rt Hon AlbertEllis, R. (NE D'bysh're)
    Boothroyd, Miss BettyEnglish, Michael
    Bray, Dr JeremyEnnals, Rt Hon David
    Brown, Ron (E'burgh, Leith)Evans, Ioan (Aberdare)
    Buchan, NormanEvans, John (Newton)
    Callaghan, Jim (Midd't'n & P)Field, Frank
    Campbell, IanFlannery, Martin
    Campbell-Savours, DaleFoster, Derek
    Canavan, DennisFraser, J. (Lamb'th, N'w'd)
    Carter-Jones, LewisFreud, Clement
    Cartwright, JohnGarrett, John (Norwich S)
    Clark, Dr David (S Shields)Golding, John
    Clarke,Thomas(C'b'dge, A'rie)Graham, Ted
    Cocks, Rt Hon M. (B'stol S)Grimond, Rt Hon J.
    Coleman, DonaldHamilton, James (Bothwell)
    Concannon, Rt Hon J. D.Hamilton, W. W. (C'tral Fife)
    Cook, Robin F.Harman, Harriet (Peckham)
    Cowans, HarryHarrison, Rt Hon Walter
    Craigen, J. M. (G'gow, M'hill)Haynes, Frank
    Crowther, StanHeffer, Eric S.
    Cryer, BobHome Robertson, John
    Cunliffe, LawrenceHomewood, William
    Cunningham, G. (Islington S)Hooley, Frank
    Cunningham, Dr J. (W'h'n)Horam, John
    Dalyell, TamHoyle, Douglas
    Davidson, ArthurHuckfield, Les
    Davies, Rt Hon Denzil (L'lli)Hughes, Robert (Aberdeen N)

    Hughes, Roy (Newport)Roberts, Ernest (Hackney N)
    Janner, Hon GrevilleRoberts, Gwilym (Cannock)
    Jay, Rt Hon DouglasRobertson, George
    John, BrynmorRobinson, G. (Coventry NW)
    Johnson, James (Hull West)Rooker, J. W.
    Johnston, Russell (Inverness)Roper, John
    Jones, Barry (East Flint)Rowlands, Ted
    Kaufman, Rt Hon GeraldSever, John
    Kerr, RussellSheldon, Rt Hon R.
    Kilroy-Silk, RobertShore, Rt Hon Peter
    Lamond, JamesSilkin, Rt Hon J. (Deptford)
    Leighton, RonaldSilverman, Julius
    Litherland, RobertSkinner, Dennis
    Lofthouse, GeoffreySmith, Rt Hon J. (N Lanark)
    Mabon, Rt Hon Dr J. DicksonSnape, Peter
    McCartney, HughSoley, Clive
    McDonald, Dr OonaghSpearing, Nigel
    McKay, Allen (Penistone)Spriggs, Leslie
    McKelvey, WilliamStewart, Rt Hon D. (W Isles)
    MacKenzie, Rt Hon GregorStoddart, David
    Maclennan, RobertStott, Roger
    McTaggart, RobertStrang, Gavin
    McWilliam, JohnStraw, Jack
    Marshall, D(G'gow S'ton)Taylor, Mrs Ann (Bolton W)
    Marshall, Jim (Leicester S)Thomas, Dafydd (Merioneth)
    Martin, M(G'gow S'burn)Thomas, Mike (Newcastle E)
    Mason, Rt Hon RoyThorne, Stan (Preston South)
    Maxton, JohnTilley, John
    Meacher, MichaelTinn, James
    Mikardo, IanVarley, Rt Hon Eric G.
    Millan, Rt Hon BruceWainwright, E.(Dearne V)
    Mitchell, R. C. (Soton Itchen)Wainwright, R.(Colne V)
    Morris, Rt Hon A. (W'shawe)Walker, Rt Hon H.(D'caster)
    Morris, Rt Hon C. (O'shaw)Warden, Gareth
    Moyle, Rt Hon RolandWatkins, David
    Newens, StanleyWeetch, Ken
    Oakes, Rt Hon GordonWelsh, Michael
    O'Brien, Oswald (Darlington)White, Frank R.
    O'Halloran, MichaelWhitehead, Phillip
    O'Neill, MartinWhitlock, William
    Owen, Rt Hon Dr DavidWigley, Dafydd
    Park, GeorgeWilley, Rt Hon Frederick
    Parker, JohnWilliams, Rt Hon A.(S'sea W)
    Parry, RobertWilson, Rt Hon Sir H.(H'ton)
    Penhaligon, DavidWilson, William (C'try SE)
    Prescott, JohnWoodall, Alec
    Price, C. (Lewisham W)Woolmer, Kenneth
    Race, RegYoung, David (Bolton E)
    Radice, Giles
    Rees, Rt Hon M (Leeds S)Tellers for the Ayes:
    Richardson, JoMr. George Morton and
    Roberts, Albert (Normanton)Mr. Austin Mitchell.
    Roberts, Allan (Bootle)

    NOES

    Aitken, JonathanBraine, Sir Bernard
    Alexander, RichardBright, Graham
    Alison, Rt Hon MichaelBrinton, Tim
    Ancram, MichaelBrittan, Rt. Hon. Leon
    Arnold, TomBrooke, Hon Peter
    Aspinwall, JackBrotherton, Michael
    Atkins, Rt Hon H.(S'thorne)Brown, Michael(Brigg & Sc'n)
    Atkins, Robert (Preston N)Browne, John (Winchester)
    Baker, Kenneth(St.M'bone)Bruce-Gardyne, John
    Banks, RobertBryan, Sir Paul
    Beaumont-Dark, AnthonyBuchanan-Smith, Rt. Hon. A.
    Bendall, VivianBuck, Antony
    Benyon, Thomas (A'don)Budgen, Nick
    Benyon, W. (Buckingham)Bulmer, Esmond
    Berry, Hon AnthonyBurden, Sir Frederick
    Best, KeithButcher, John
    Bevan, David GilroyCarlisle, John (Luton West)
    Biffen, Rt Hon JohnCarlisle, Kenneth (Lincoln)
    Biggs-Davison, Sir JohnCarlisle, Rt Hon M. (R'c'n )
    Blaker, PeterChalker, Mrs. Lynda
    Body, RichardChannon, Rt. Hon. Paul
    Bonsor, Sir NicholasChapman, Sydney
    Boscawen, Hon RobertChurchill, W. S.
    Bottomley, Peter (W'wich W)Clark, Hon A. (Plym'th, S'n)
    Boyson, Dr RhodesClark, Sir W. (Croydon S)

    Clarke, Kenneth (Rushcliffe)Lawrence, Ivan
    Cockeram, EricLawson, Rt Hon Nigel
    Colvin, MichaelLee, John
    Cope, JohnLennox-Boyd, Hon Mark
    Cormack, PatrickLester, Jim (Beeston)
    Corrie, JohnLewis, Sir Kenneth (Rutland)
    Costain, Sir AlbertLloyd, Peter (Fareham)
    Cranborne, ViscountLoveridge, John
    Crouch, DavidLuce, Richard
    Dickens, GeoffreyLyell, Nicholas
    Dorrell, StephenMcCrindle, Robert
    Douglas-Hamilton, Lord J.Macfarlane, Neil
    Dover, DenshoreMacGregor, John
    du Cann, Rt Hon EdwardMacKay, John (Argyll)
    Dunn, Robert (Dartford)McNair-Wilson, M. (N'bury)
    Durant, TonyMcNair-Wilson, P. (New F'st)
    Dykes, HughMcQuarrie, Albert
    Eden, Rt Hon Sir JohnMadel, David
    Eggar, TimMajor, John
    Elliott, Sir WilliamMarland, Paul
    Emery, Sir PeterMarlow, Antony
    Eyre, ReginaldMarten, Rt Hon Neil
    Faith, Mrs SheilaMather, Carol
    Farr, JohnMawby, Ray
    Fenner, Mrs PeggyMawhinney, Dr Brian
    Finsberg, GeoffreyMaxwell-Hyslop, Robin
    Fisher, Sir NigelMayhew, Patrick
    Fletcher, A. (Ed'nb'gh N)Meyer, Sir Anthony
    Fletcher-Cooke, Sir CharlesMills, Iain (Meriden)
    Fookes, Miss JanetMills, Sir Peter (West Devon)
    Forman, NigelMiscampbell, Norman
    Fowler, Rt Hon NormanMoate, Roger
    Fox, MarcusMonro, Sir Hector
    Fraser, Rt Hon Sir HughMontgomery, Fergus
    Fraser, Peter (South Angus)Moore, John
    Fry, PeterMorgan, Geraint
    Gardiner, George (Reigate)Morris, M. (N'hampton S)
    Gardner, Sir EdwardMorrison, Hon C. (Devizes)
    Garel-Jones, TristanMorrison, Hon P. (Chester)
    Gilmour, Rt Hon Sir IanMurphy, Christopher
    Glyn, Dr AlanMyles, David
    Goodhew, Sir VictorNeale, Gerrard
    Goodlad, AlastairNeedham, Richard
    Gorst, JohnNelson, Anthony
    Gray, Rt Hon HamishNeubert, Michael
    Griffiths, E.(B'ySt, Edm'ds)Newton, Tony
    Griffiths, Peter (Portsm'th N)Oppenheim, Rt Hon Mrs S.
    Grist, IanPage, Richard (SW Herts)
    Grylls, MichaelParkinson, Rt Hon Cecil
    Gummer, John SelwynParris, Matthew
    Hamilton, Michael (Salisbury)Pawsey, James
    Hampson, Dr KeithPeyton, Rt Hon John
    Hannam, JohnPink, R. Bonner
    Hastings, StephenPollock, Alexander
    Hawksley, WarrenPorter, Barry
    Hayhoe, BarneyPrentice, Rt Hon Reg
    Heddle, JohnPrice, Sir David (Eastleigh)
    Henderson, BarryProctor, K. Harvey
    Heseltine, Rt Hon MichaelRaison, Rt Hon Timothy
    Hicks, RobertRathbone, Tim
    Higgins, Rt Hon Terence L.Rees, Peter (Dover and Deal)
    Holland, Philip (Carlton)Rees-Davies, W. R.
    Hooson, TomRenton, Tim
    Howe, Rt Hon Sir GeoffreyRhodes James, Robert
    Howell, Rt Hon D. (G'ldf'd)Rhys Williams, Sir Brandon
    Hunt, David (Wirral)Ridley, Hon Nicholas
    Hunt, John (Ravensbourne)Roberts, Wyn (Conway)
    Hurd, Rt Hon DouglasRossi, Hugh
    Irvine, RtHon Bryant GodmanSainsbury, Hon Timothy
    Irving, Charles (Cheltenham)St. John-Stevas, Rt Hon N.
    Johnson Smith, Sir GeoffreyShaw, Giles (Pudsey)
    Jopling, Rt Hon MichaelShelton, William (Streatham)
    Kaberry, Sir DonaldShepherd, Colin (Hereford)
    Kellett-Bowman, Mrs ElaineShepherd, Richard
    Kershaw, Sir AnthonyShersby, Michael
    King, Rt Hon TomSilvester, Fred
    Knox, DavidSims, Roger
    Lamont, NormanSkeet, T. H. H.
    Lang, IanSmith, Tim (Beaconsfield)
    Latham, MichaelSpeed, Keith

    Speller, TonyVaughan, Dr Gerard
    Spence, JohnViggers, Peter
    Spicer, Jim (West Dorset)Waddington, David
    Sproat, IainWakeham,John
    Squire, RobinWaldegrave, Hon William
    Stanbrook, IvorWalker, B. (Perth)
    Stanley, JohnWalker-Smith, Rt Hon Sir D.
    Steen, AnthonyWarren, Kenneth
    Stevens, MartinWatson, John
    Stewart, A.(E Renfrewshire)Wells, Bowen
    Stokes, JohnWells, John (Maidstone)
    Stradling Thomas, J.Wheeler, John
    Tapsell, PeterWickenden, Keith
    Tebbit, Rt Hon NormanWilliams, D.(Montgomery)
    Thomas, Rt Hon PeterWolfson, Mark
    Thompson, DonaldYoung, Sir George (Acton)
    Thorne, Neil (Ilford South)Younger, Rt Hon George
    Thornton, Malcolm
    Townend, John (Bridlington)Tellers for the Noes:
    Townsend, Cyril D, (B'heath)Mr. Archie Hamilton and
    Trippier, DavidMr. Douglas Hogg
    van Straubenzee, Sir W.

    Question accordingly negatived.

    Clause 16 ordered to stand part of the Bill.

    Clause 63

    Reduction Of Tax

    I beg to move amendment No. 8, in page 52, line 35, at end insert—

    '(1A) Subsection (2) of section 37 of the Finance Act 1975 shall be amended by the insertion after the word "transferor" of the words "to or for the benefit of a beneficiary where that beneficiary thereby becomes entitled to more than one-tenth of the value of all chargeable transfers made by that transferor".'.
    The amendment would have the effect, amongst others, of helping the Government to escape from a snare from which, during all these four years, they have not mustered the gumption to escape. Here we have a capital tax which is very much an instrument of state Socialism—not a libertarian or distributive Socialism, but the kind of Socialism that tries to maximise the holding of wealth by the state.

    The purpose of the amendment is to shove the capital transfer tax markedly in the direction of a quite different capital tax — a tax upon the recipient's accession of wealth levied at rates according to his total wealth at the time he receives either the bequest or the gift. That is a totally different type of capital tax. An accessions tax is not a weapon for maximising the resources of the state. It is a tax being used as a lever to pressurise wealthy individuals to distribute their wealth as widely as possible and in relatively modest amounts.

    The amendment would mean a considerable tax advantage in making gifts in large numbers of small amounts or making them to relatively poor people. The amendment, for example, would greatly reduce the tax on the transfer of a company from its few family proprietors to a large number of its workers. It would greatly reduce the tax on the gift by a landowner of his estates—to which he can have no moral claim, because he did not make the land—to his tenants, occupiers or other people living in the neighbourhood. I cannot understand why the Government have not cut loose from this Socialist capital transfer tax and, as they need the money, adopted an accessions tax. Last year, during similar proceedings on the Finance Bill, the Financial Secretary, as frank as ever, said:
    "If we were starting from scratch now, I would tend to agree with the hon. Gentleman
    in other words, with me pleading for an accessions tax, as I am tonight. He went on, with a further degree of frankness, to give one or two reasons why the Government had never cut loose from this Socialist tax. He said that "the upheaval" that I was proposing would
    "lead to great difficulties. People have made dispositions according to the existing tax. They may be giving some of their capital to their families to take advantage of the lifetime transfer rates."—[Official Report, 27 April 1982; Vol. 22, c. 802–803.]
    The right hon. Gentleman was saying that rather than disturb tax avoidance measures, which nobody disputes people are fully entitled to take but which they take at their risk, he would not change the system. I am sure that my fellow accountants, when asked to advise clients on the distribution of assets, always warn them that they run the risk that Parliament may alter the law and therefore the effect of their dispositions.

    That is not good enough for the Government. They say that anything that interferes with dispositions that owners of capital have already made must be looked upon with grave doubt. The Liberal party differs from them. Parliament, which is meant to be sovereign, should not be hampered by the fact that some people have taken the risk of entering into tax avoidance schemes—however legal —on the basis of the law as it stands.

    The perfect result, for the Liberals and for the alliance, of an accessions tax would be that the state would collect very little, except where the donor had chosen the wrong recipients and overlooked the fact that some of his workers had won the pools, for example, and become rich men, thereby attracting a higher rate of accessions tax. Apart from that, an accessions tax would encourage wealthy people to distribute their wealth widely during their lifetime so that little tax would be incurred.

    This measure is not to maximise the resources of the Exchequer but to put pressure on wealthy people to contribute to the common weal, the better ordering of society and a more harmonious community by distributing their wealth widely now.

    For those who say that this is all a pipe dream and that human nature is not like that, I am happy to cite recent examples of proprietors of successful businesses doing this. We may hear later in the debate of the striking example of the Baxi boiler company. A family, rich by its own exertions and brilliance, has made over the whole of the business for the benefit of 900 employees.

    These things happen. Some of those who do not have family succession, or do not trust their family succession or beleive that it should be greatly privileged, are nowadays interested in making over their businesses to those who have contributed and shown their loyalty to them. The main obstacle is tax. In certain case, I agree that great ingenuity and enormous legal expenses can get round some of the horrors of capital transfer tax, but an accessions tax would be a positive invitation to people to engage in such distribution.

    The amendment seeks to move capital transfer tax at least a small way towards an accessions tax. I readily concede that the amendment alone would not do that job. To introduce an accessions tax in the way that is so successful, for instance, in the Republic of Eire would require substantial legislation. If the Committee treats the amendment favourably, especially if the Government go a little further than they did last year and the Financial Secretary recognises the importance of escaping from the present Socialist measure that he and the Treasury are administering, we should be well on the way to an accessions tax.

    10.45 pm

    I rise to press the Government upon a matter that has already been raised by my hon. Friend the Member for Colne Valley (Mr. Wainwright) — the effect of the amendment and of capital transfer tax in general upon employers or owners of companies who wish to make over their companies to their employees.

    The Government have introduced into the Finance Bill the concept of employee-controlled companies. I should declare an interest in that I am chairman of Job Ownership Ltd., which exists to promote such companies and cooperatives in general. The Bill makes certain concessions to employee-controlled companies where the control and ownership lie with 70 per cent. or more of the employees, but it does not cover companies owned or controlled by a trust of half the employees. At some point I hope that the Government will look at that matter.

    It is clear from what the Government have said and from the Bill that they want to encourage employees to take a larger share in the wealth of the country in general and in their companies in particular, and, indeed, to exercise some control over those companies. The specific point arises that if any owner wishes to make over his company to his employees, he is caught not only by capital gains tax but by capital transfer tax.

    As my hon. Friend said, Mr. Baxendale, acting with extraordinary generosity, has made over his company to his employees for £5.25 million. It is estimated that it would have fetched about £40 million on the open market. That negotiation took some time, and Job Ownership Ltd. was able to give some advice to Mr. Baxendale. I must at this point thank the Financial Secretary for his help over the whole procedure. No doubt, had he not been a Minister of the Crown, he would have been entitled to charge heavy fees for the advice that he gave.

    Helpful as the Financial Secretary was, the company has not escaped capital transfer tax. If Mr. Baxendale's extraordinary example is to be followed—I am glad to say that it has received a good deal of publicity—the Government must look again at the impact of capital transfer tax as well as other matters, some of which I have mentioned.

    The amendment would help in transfering a company to its workers. I am not certain that it would help where a company is made over to a workers' trust, but that can be put right at a later stage of the Bill. Certainly the amendment would minimise the impact of capital transfer tax, which would be an enormous advantage, and that should be dear to the Government's heart.

    Whatever they may say today, I hope that the Government will follow the help and advice that the Financial Secretary to the Treasury gave in that case and remove the drawbacks that public-spirited owners still suffer if they wish to make over their companies to their workers.

    I am always happy to respond to an amendment of the hon. Member for Colne Valley (Mr. Wainwright) for an inheritance or accessions tax. It is becoming an annual event. This is the third time of asking and, I am afraid, the third time of our not starting from scratch.

    The hon. Gentleman wants gifts on deaths which are less than 10 per cent. of the donor's total chargeable bequest to be treated at the lower lifetime rate. I should not like to dwell on drafting difficulties, but I am sure that the hon. Gentleman is aware that there would be great problems in dealing with the cumulation of earlier transfers and that the opportunities for collusion between inheritor and donor would have to be watched carefully.

    Perhaps a more important point, which also applied to the hon. Gentleman's amendments on previous Finance Bills, is that one of the main vehicles for holding property is a trust. To apply such provisions to trusts would be a major and complicated task which would have to he solved satisfactorily. I shall not dwell on those points, because I know that the hon. Gentleman moved his amendment in the spirit of the principle rather than the detail. As I said last year, I have sympathy with his view that the tax should be an accessions tax. However, as the amendment is drafted, it is more like an inheritance than an accessions tax. I do not see how the accessions are cumulated, but that may be no more than a detail. I have always said that it has some attractions in principle.

    Perhaps I can give the hon. Gentleman some new information about the extent to which people are motivated by the relative rates of capital transfer tax or death duty when they leave their money. The hon. Gentleman knows that we have a much lower rate of tax on lifetime transfers than on transfers within three years of death. However, in 1981–82, only £7 million of a total yield of more than £500 million came from lifetime transfers. The advantageous discount on a lifetime transfer did not motivate people to part with their assets before they reached the closing days of their lives. One knows people to whom such behaviour is second nature. It shows, however, that the motivation may not be as direct as the hon. Gentleman suggests.

    Most countries have an accessions rather than a donor-based tax, but those countries find themselves under political pressure to make special reliefs for close relations. Indeed, the closer the relation, the greater the relief. That operation is exactly the opposite of what the hon. Gentleman suggested.

    The other strong political pressure is not to levy heavy or large rates of tax on enterprises where there is some economy of scale. Large privately owned companies and landed estates press strongly for relief, because the tax can damage such enterprises. That is another argument in the opposite direction, but I have no argument to fall back on other than the upheaval that the hon. Gentleman derided. We would need to start from scratch with a completely new tax. We would need complicated anti-avoidance provisions, new transitional provisions and a period of consultation, and we would have to go through all the hell that we went through when the Labour Government brought in capital transfer tax, with disastrous results in yields. However, that would not displease the Liberal party, which regards this not as a tax to raise money but as an instrument of social engineering.

    I am grateful to the right hon. Member for Orkney and Shetland (Mr. Grimond) for mentioning employee-controlled companies. I tried to help Baxi, not because I have an interest in the company but because I believe that an extension of employee-controlled companies would be to the benefit of our economy. That is why we have introduced interest relief for employees who engage in buy-outs. The Liberal party and, I hope, the Labour party should welcome that provision. The Conservative party certainly welcomes it, because Britain is lagging behind in this regard. I assure the right hon. Gentleman that we shall consider his point that buy-out relief may not apply to trusts. If the shares in a company are given to an employee trust that controls the company, no capital transfer tax is payable on the transfer from the original proprietors to the employee trust. The touchstone in present law is whether the employee trust controls the company.

    The Financial Secretary will remember that, in the case of Mr. Baxendale, advantage had to be taken of last year's Finance Bill for the company to buy back its shares and to cancel some of them. I understand that capital transfer tax began to operate at that stage. Can the right hon. Gentleman clear up that matter?

    I should need to refresh my memory of the case. I am not even sure whether I am entitled to discuss a taxpayer's affairs in public without his permission, but I do not believe that what I said about capital transfer tax was wrong. There was another difficulty in that case which did not relate to capital transfer tax, but there was no capital transfer tax impediment in the straightforward sense. I assure the right hon. Gentleman that nothing in this clause will facilitate the matter, but we shall reconsider it later in Committee.

    I hope that my remarks will help to show the Government's sympathy towards the future of capital transfer tax and of more employee-controlled companies. We have both objects in mind, but we hesitate to inflict upon an unsuspecting public another major change in capital taxes, with all its attendant complicated arguments.

    I am grateful to the Financial Secretary for his frank, helpful and understanding reply, because I have never claimed any perfect draftsmanship for this or for any of my amendments. He and the Government of which he is a distinguished member fail to explain why they persist, after their years in power, in hugging their Socialist chains. Capital transfer tax was introduced by the right hon. Member for Leeds, East (Mr. Healey) when he was Chancellor of the Exchequer to make the rich howl with pain. After four years of Tory Government, the tax remains. It is estimated that the tax will bring in a greater return during the present financial year than it did in the previous year.

    11 pm

    When the Financial Secretary goes on and on about the appalling complications of making a change and the difficulties and complexities of applying the new system to trusts, he is surely being disingenuous. The ordinary citizen need not be even remotely aware of these changes. The number of people involved in liability to capital transfer tax is even smaller than those who get caught by capital gains tax. Taxation is a world of great complexity and it calls upon professional advisers who do not find these problems difficult to construe and who are willing to engage in this work. I cannot lay any weight on the argument that the change to an accessions tax would be so inordinately complicated as to outweigh the great benefits that it would bring.

    I take issue with the Financial Secretary when he states that most of the other developed countries in the world rely on an accessions form of tax rather than a donor-based tax. I wish that I could honestly point to a genuine accessions tax in full operation in any part of the world, except in the fortunate Republic of Eire. Other countries base their capital taxes more on the recipient than Britain does because it is common sense. Only a country as perverse as ours, with its mean approach to equity and fairness in taxation and wanting to run a bargain basement type of revenue service where the donor is much easier to catch — just as windows used to be much easier to tax because they could be seen and counted — would maintain a donor-based tax. The crudest possible approach says "Let's tax the person who can be most easily identified, caught, put into a corner and made to turn out his pockets." I agree that it is easier to catch the donor or his executors — they can be caught after the funeral when they are all on parade —than it is to catch the employees of the Baxi company who may be here today and gone tomorrow. However, mere convenience and expediency ought never to be the fundamental basis of a tax.

    The Financial Secretary repeats his sad lament that we cannot start from scratch, and all the attractions of an accessions tax must be forgone because, according to his lights, we are all prisoners of the Socialist system from which it is no longer reasonable to try to escape. That is a nihilistic approach to legislation. For the Government to say that because the Labour Government notched up more Socialism it is not possible to begin again and we have to swallow what has been imposed, is to deny the sovereignty of Parliament and the aspirations of reasonable people. What is "scratch"? The yield of capital transfer tax has, up to now, been a bitter disappointment to Socialists and the Treasury alike. It has not produced the great harvest of easily taxed wealth. I quote Budget-time estimates from the Treasury very cautiously these days, after the public sector borrowing requirement turned out to be much higher than the Government had thought, even a month before. However, the latest estimate of the yield of capital transfer tax for the fiscal year 1982–83 is only £500 million compared with over £30 billion from income tax. Even that well-known voluntary tax, corporation tax—which few people pay unless they are in an extraordinary industry —raised £5.5 billion. The figure for capital transfer tax is only £500 million, although it is expected to rise a little in line with inflation next year.

    Therefore, we are virtually at scratch. Although records of accumulation go back to the time when the right hon. Member for Leeds, East introduced the tax, they are not central to the importance of that tax's yield. In the Liberals' view, capital taxation should be primarily regarded not as a revenue earner but as a lever and instrument of pressure on those who through sheer good fortune and accident of history—including two wars—happen to hold some of the clotted wealth that is the curse of this country. If they can be pressurised into distributing it as widely as possible, the fact that it raises a bit of revenue on the side will be virtually incidental.

    I hope that the Financial Secretary will consult his Treasury colleagues, especially the Chancellor of the Exchequer, and find out whether the Government intend to go to the country admitting that they still have an unfinished agenda, and that one part of it is to get rid of this Socialist tax by turning it into something more Liberal and generous. However, in the meantime I beg to ask leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    Question proposed, That the clause stand part of the Bill.

    In an earlier intervention, in a flight of rhetoric, I rashly committed myself to the proposition that this Government had increased all forms of tax. In the interests of accuracy, I should make an exception of taxes on capital. According to a parliamentary answer that the Financial Secretary gave last year, taxation on capital is yielding a revenue of £600 million less than it would have done if the Government had failed to change the regimes on capital gains and capital transfer tax and on investment income surcharge.

    Marx would have relished this Government, because they have increased taxes on labour while lightening the tax burden on capital. I always felt that the analysis of class conflict was outmoded in the complexities of modern society, but the Government are obliging even me to revise that view. Nothing is more revealing of the Government's commitment to the class struggle than their favourable treatment of taxes on capital. That treatment is repeated in the clause.

    When the Chancellor of the Exchequer justified this clause in his Budget speech, he said:
    "On capital transfer tax, I propose to increase the threshold and rate bands broadly in line with indexation" — [Official Report, 15 March 1983; Vol. 39, c. 152.]
    The extent to which the increases are in line wth indexation is very broad. Generally, the thresholds proposed in the clause are half as much again as indexation would imply. To take an example at the lower end, the reduction in liability for tax on an estate of £100,000 would have been reduced by 7.8 per cent. if the threshold had been uprated in line with indexation, but, as the press notice issued at the time of the Budget fairly pointed out, the increase in the threshold will reduce the liability to tax by 12.2 per cent. That is over half as much again as would flow from the requirement of indexation alone.

    This casual, relaxed, laid-back form of calculating indexation is in stark contrast to the Government's approach on many other fronts. I should be surprised if pensioners were not more than delighted to settle for a broad form of indexation which resulted in a pension increase half as much again as would be required by indexation.

    If the increase had come at the end of a period of stringency in relation to capital transfer tax, we should have let it pass without much comment. We are prompted to comment because this generous loose change, thrown in on top of indexation, comes at the end of a period in which capital taxation has been treated with unique generosity by the Government. In 1980 the Government doubled the CTT exemption level. That, said the then Minister of State, removed from the scope of CTT two thirds of those who had been liable to it.

    In 1981 and again in 1982, the thresholds for CTT were increased. In 1981 the largest mine of all was sprung under the edifice of the CTT regime when the Government abolished the cumulative principle on which CTT had been founded and introduced a 10-year bar which enabled the slate to be wiped clean every tenth year. That change did not pass without comment outside or inside the House. The Institute of Fiscal Studies, in its journal, was prompted to produce an article with the fitting headline:
    "Capital Transfer Tax:—Obituary".
    It opened with the statement:
    "In the Budget of March 1981 the Chancellor made changes which will produce a dramatic reduction in the real burdens of most potential payers of Capital Transfer Tax (CTT). Even without sophisticated tax avoidance, over 99 per cent. of wealth owners will now be able to pay zero CTT when they hand on their assets."
    In the same period The Times said of the 1981 change:
    "When the Chancellor announced his & CTT changes everybody in this office had that warm, comforting feeling experienced when recognizing an old friend. It seemed that CTT had at last been converted back into estate duty".
    The great advantage of estate duty and the reason why CTT was supposed to remove the time bar incorporated in it was that it could be avoided by the wealthy and well-advised. The Financial Secretary said in Committee:
    "I did not like the previous system of estate duty at penal rates, but it was possible to avoid it." —[0fficial Report, Standing Committee A; 29 January 1975, c. 467–8.]
    Some people connected with the present Government would like CTT to be abolished, so it need not surprise us that it is chipped at year by year, bit by bit. Pressure, which is influential in other areas, comes from Walter Goldsmith, the director of the Institute of Directors. He is committed to a campaign to abolish CTT and has said, in support of the abolition of capital taxation:
    "The high concentration of large fortunes alleviates the much more serious problem of the high concentration of political power."
    If I understand Walter Goldsmith correctly, he sees in plutocracy a safeguard against the excesses of democracy.

    Despite the pressures, the Government have not yet screwed up their courage to abolish CTT. Instead, they have contented themselves with chipping at it piecemeal, which has had an impressive effect on the revenue from the tax.

    In 1979, at 1982 prices. the revenue from CTT was £552 million. According to the Red Book, in 1983, again converted to 1982 prices, it is expected that CTT will yield £505 million. In other words, there has been a drop in CTT revenue of 10 per cent. at a time when the revenue from nearly every other source has increased in real terms.

    11.15 pm

    When we debated this matter on Second Reading, the Financial Secretary produced the remarkable observation that since 1978–79 the burden on the smaller estates had been reduced while the burden on the large estates had been increased. I have compared each of the different bands proposed in the Bill with the thresholds in 1978–79. All thresholds have been uprated by more than is required by indexation our estates of up to £700,000. Only those above have been made liable to a burden increased by the failure to uprate fully in line with indexation.

    The Inland Revenue statistics, although they do not give a cut-off at £700,000, tell us how many estates were last year left in excess of £750,000. A grand total of 143 estates were made liable to tax at figures in excess of £750,000.

    I freely concede to the Financial Secretary that the burden on those 143 estates is now heavier than if the thresholds for them had been fully indexed. I request him in return to concede that the burden on everyone else liable to CTT—well over 95 per cent. of the total—has been lightened by what has happened to the thresholds over the past four years.

    I have some difficulty following the other point that the Financial Secretary advanced on Second Reading, as well as last year when we debated a similar clause. It is that, if we go back to 1975 and uprate the thresholds proposed at the time of the introduction of CTT, we find that in real terms these new thresholds are lower than those proposed in 1975. As the Minister must be well aware, because he sat on the Committee that considered that Bill, the thresholds for CTT were deliberately set at a high level because of the introduction of the cumulative principle. It was therefore considered that, as CTT would be more onerous than estate duty, it was only right and proper that the CTT thresholds should be higher than the estate duty thresholds. Indeed, there is a substantial discrepancy between the last estate duty thresholds in 1974 and the first CTT thresholds in 1975.

    However, in the interval since 1975, the Government have converted CTT back into estate duty by restoring the idea of a time bar—a period in which one can concede one's estate without liability to the death duties and without it becoming a cumulative charge. As they have restored that period and made the tax much more like estate duty than CTT as envisaged in 1975, the more appropriate comparison—if we are to delve back into history — would be not with the CTT thresholds introduced in 1975 but with the thresholds as they operated in the last year of estate duty in 1974. If we go back to those thresholds, we find that the thresholds proposed in the Bill are at a much higher level than would be required had we merely indexed the thresholds that applied in the last year of estate duty. In other words, the thresholds proposed in the Bill will result in a less onerous tax than estate duty.

    One might well ask, "Why stop there?" If we are to search for the most appropriate base year for comparison, why not go back to the start of estate duty? Why not go back to 1894, a year in which I suspect many Conservative Members would be instinctively more at home? In 1894, the exemption level proposed by Lloyd George in the Bill which introduced estate duty was actually lower in real terms than the exemption levels provided in the Bill before us. In short, we are now considering a less progressive tax on wealth than the one Lloyd George introduced 100 years ago.

    The reason why he introduced that tax and the reason why a tax on the transfer of wealth has been part of our tax system and the tax system of virtually every other major industrialised nation is that the principle of taxing wealth is as old as taxation itself. Even before estate duty there was a tax on estates through probate duty. Perhaps some Conservative Members would be even happier in 1694, the year that probate duty was introduced. The reason why it was introduced and the reason why many other tax systems have adopted a tax on the transfer of wealth is that wealth represents a taxable commodity. It represents a large sum of available money that is mobile, at least to the extent that it transfers ownership. Secondly, it has a taxable capacity which, in the hands of the donee, is entirely arbitrary. The mass of taxpayers would be offended if they found that they were taxed on every pound they earned by labour while others were not making a fair contribution by their purely arbitrary accession to wealth through good fortune or the accident of birth.

    These arguments have weighed with Chancellors and the Treasury for centuries. The present Chancellor swept them all aside in his Budget speech with the brief statement that capital taxes can suffocate enterprise. Inheritance has nothing to do with enterprise. Elderly wealthy couples are not scouring the country in search of people of enterprise to whom to pass on the family wealth. By and large, with due respect to the hon. Member for Colne Valley (Mr. Wainwright), there is a tendency for wealth to be kept in the family. The sole enterprise that is required of the heir is the good sense to be born to wealthy parents. Nor is there any correlation between the enterprise of the parent at death and the wealth of the parent at death.

    I would not wish to disturb the prejudice of Conservative Members by anything so crude as the facts, but if they refer to the original research in this area they will find that every major research paper on inheritance and wealth at death has come to the conclusion that the prime reason why people die wealthy is that they were born wealthy. The most recent research by Harbury and Hitchens in 1979 concluded that two thirds of large estates were left by people who had inherited large estates. Of the remainder, one in twelve died wealthy because they had married wealth. One might say that that represents enterprise of a sort. It is impossible to conceive what economic advantage there is to the wider economy by perpetuating this type of inequality through the accident of birth or the good fortune of marriage. On the contrary, it is only too clear what damage is done to the economy by concentrating capital in the hands of those who are chosen by accident of birth rather than on the basis of ability. Keynes observed in a celebrated quotation that one of the major reasons for the weakness of capital was that the control of capital was too much in the hands of third-generation men.

    We have intervened at this point in the proceedings of the Bill to give the Committee an opportunity to pause for reflection on what is proposed in the clause on capital transfer tax and to consider the generosity of treatment that is proposed for the capital transfer tax regime. It also provides an opportunity, which I hope the Financial Secretary will take, to explain what it is that the Government have in mind for the future of capital transfer tax.

    The hon. Member for Colne Valley twitted the Government for having failed to do away with a tax that caused Conservative Members—certainly the Financial Secretary —to to howl when it was introduced. After a break in the Committee's sitting, the hon. Gentleman said:
    "The break that I have had has brought me back more resolute to fight this tax, not only while the Bill is going through the House but after it is law, and on every conceivable occasion after it has become law until it is repealed and off the statute book altogether, forgotten, dead and buried for good." —[Official Report, Standing Committee A; 29 January 1975, c. 467.]
    That may or may not be a valid point of view, but it is a curious view to come from a member of a Government who have been in office for four years and who have allowed the tax to survive. There is a perfectly fair and reasonable question to put to the Financial Secretary, who promised that he would not rest until the tax was repealed, "forgotten, dead and buried". Is it the Government's intention to repeal the tax? If it is not, what do they have in mind for it? Do they propose to let it atrophy by successive turns of the tourniquet as each year they introduce a Finance Bill to chip away at the manner in which the regime operates?

    Secondly, I ask the Financial Secretary to explain to the Committee and to the country, even at this late hour, how he can justify once again reducing the tax on the most wealthy section of the population to the 24 million taxpayers who find that as a result of the changes in the past four years they are paying more in tax on income.

    It has long been observed that the tax receipts from wealth are ludicrously out of proportion to the tax receipts from the tax on income. Over the past four years the Government have tilted that proportion even further in favour of wealth and in favour of taxing and receiving revenue from income. Before we pass the clause, which carries that process one step further, it, is only reasonable to invite the Financial Secretary to attempt yet again, perhaps more successfully then on previous occasions, to justify the Government, who have put so much more tax on those who earn a living, carrying through a clause that will result in an even lighter tax burden on those who inherited wealth.

    I hope that the Financial Secretary will take the opportunity that is provided by the debate to answer the demanding question put to him by my hon. Friend the Member for Edinburgh, Central (Mr. Cook). The comments that he made in Committee when the Labour Government were in office showed that his real intention was to get rid of capital transfer tax. It would be good to hear today whether that is still his intention.

    The hon. Member for Colne Valley (Mr. Wainwright) persisted in his contribution to the debate on the previous amendment—I am sure that he will do so again if he manages to catch your eye, Mr. Armstrong — in referring to capital transfer tax as a Socialist tax. I found that amusing, especially as the tax has become voluntary. One has to have a social conscience these days to be prepared to pay it. Most people seem to conduct their affairs in such a way as to avoid it. If it were the Socialist tax that the hon. Gentleman believes it to be, I assure him that the amount drawn from it would be substantially greater that it is now. If we were to proof the level of tax take against total revenue receipts in 1974—the time of its introduction— with today's arrangements, the take from capital transfer tax would be nearer £2 billion, as against the £500 million to which the hon. Gentleman referred, and it could have funded the £850 million for the cost of the 25 per cent. band introduction for which we were pressing in an earlier amendment.

    11.30 pm

    The hon. Member for Colne Valley referred to the accessions tax, but he did not say whether it was his personal policy or that of the Liberals or the alliance, and I hope he will tell us that. There has been a marked trend since 1979 to switch from wealth taxes, estate duties—capital transfer taxes in their current form — and corporation taxes to direct taxation. The switch has been so great that it is now worth 7p on the standard rate of income tax. That, in some people's view, is the price the public have had to pay for the introduction of this switch from capital taxes to direct taxation.

    That has occurred since 1979 under a Government who have committed themselves in various general election statements and in their manifesto to a reduction in direct taxation. I fought a by-election in 1976, when the matter of crucial concern was what were perceived to be the high levels of taxation under a Labour Government. There has been a substantial increase in the tax burden falling on those constituents. Would any Conservative Member care to intervene to try to justify that increase on the basis of the statements that were made at the last general election?

    In many ways in the far fairer Britain of yesteryear, capital taxes were a greater contributor to public revenues. Sandford, Willis and Ironside in 1973 said that in its heyday as a revenue yielder just before the first world war, death duty— which was the principal form of capital taxation at that time — contributed more than 16 per cent. of central Government revenue from taxation. In those years capital taxes played an important part in financing the beginnings of the welfare state which the people have come to accept today. In other words, capital taxes were paying in many ways for the foundation of the welfare state. Even in 1948 they still contributed 9 per cent. of public revenues. Today, the gross from capital gains and capital transfer tax is as low as 3.3 per cent. and steadily reducing, although I am told that in the coming year there may be a marginal increase in the take from capital transfer tax.

    Some say that the decline is due to a switch from personal to institutional wealth. Others say that there is a declining share of wealth owned by the richest families in the land. However, the real answer, which we all know to be true, is that the tax has become voluntary. It now requires a social conscience before anyone is willing to pay that tax. In successive Budgets and Finance Bills since 1979, the Government have widened and increased the opportunities for those who do not wish to play their part in contributing to tax revenues by using whatever schemes are available.

    When estate duty was originally introduced, it had one big loophole—the lifetime gift arrangements under the legislation before 1974. It was with the intention of closing that loophole to some extent that capital transfer tax was introduced in a form applicable to lifetime transfers, although the time bar, to which my hon. Friend the Member for Edinburgh, Central referred, has partially restored that loophole.

    Capital transfer tax included concessions on transfers between spouses and on agricultural land transfers. Taken collectively, those concessions turned out to be substantial. By the 1982 Budget, according to the Financial Times, all those concessions plus the raising of the threshold
    "have meant that the capital transfer tax has declined as a proportion of GNP and that all but the wealthiest can almost escape tax entirely. For 1982–83, even the absolute amount of tax was expected to fall."
    Indeed, it did fall.

    The Treasury expects the take from capital transfer tax in the current financial year to be £465 million. That compares with the take from capital transfer tax almost 10 years ago, in 1973–74, of £470 million. The difference is that whereas in 1973–74 the tax provided 5 per cent. of all tax revenue receipts, the £470 million today provides only 1.2 per cent. of total tax receipts. Therefore, the receipts to the Exchequer have fallen to about one quarter of what they were 10 years ago.

    The position in this year's Budget has been only further entrenched. By raising capital transfer tax thresholds by more than the rate of inflation, the Government have further strengthened the position of the better off in society in their attempt to avoid their social responsibility to make a reasonable contribution to the cost of the social wage. Why were the pensioners treated differently? Why were they required to comply broadly with inflationary increases in their increases? The arrangements for increasing the threshold of capital transfer tax were substantially greater than the level of inflation. Do the Government treat the pensioners as far less important in the economic stakes than the better off in society who can benefit from capital transfer tax concessions? Do they believe that pensioners are to be treated as second-class citizens compared with the better off in society?

    The Government sought to justify that unfairness in the system in 1982 when a Treasury Minister said:
    "The Government believe that there is no case whatever for maintaining a system of capital taxes which by holding back business success and penalising personal endeavour does economic and social damage."
    What evidence is there to suggest that reductions in capital transfer tax have increased business incentive or business endeavour? There has been a steady, relentless decline in business activity in the past 12 months. In my experience, the people who have gone into small businesses or other commercial endeavours in that period did not take the decision to do so on the basis of capital transfer tax concessions provided by the Government in the past three years. Indeed, most of them in very difficult circumstances had to go to banks to raise capital. I do not know of one constituent of mine or of any of my hon. Friends who has felt inclined to go into business as a result of reductions in capital transfer tax.

    It seems, indeed, that the only people to have benefited from the concessions have not invested in British industry at all. The funds exported for investment abroad have come in the main from beneficiaries of the tax advantages. Those people are not investors in British industry, let alone investors in the regions of high unemployment. If the Government wish to meddle with the tax system, they should do so in a way that will directly benefit constituencies in which unemployment is high.

    How do the Government know that capital transfer tax cuts are a greater incentive than other forms of tax reduction? I suggest that other forms of tax reduction would have far more effect in attracting people to small businesses and other industrial activities than the arrangements for capital transfer tax introduced by the Government in the past three years.

    Capital transfer tax reductions have further reinforced the divisions that the Prime Minister and the Government have created in society. They have created a society based on two nations. In the general election, which many of us believe will be called in June, the Government will have to justify to the British people the divisions that they have successfully and effectively created in our society through the tax system.

    The Financial Weekly put it most succinctly in 1980 when it said:
    "At a moment when the Chancellor is telling the nation that it must carry on with its strict monetarist diet of bread and water, he would announce that the wealthiest section of it could not merely carry on eating its cake, but have a dollop of cream on it. Conservatives are not deeply devoted to equality, but neither unless they have entirely forgotten the principles of Disraeli are they deeply devoted to widening social division. And Conservative MPs undoubtedly number more of the low paid and unemployed among their constituents than they do payers of these capital taxes."
    That is a point. There are more constituents of Government supporters who are beneficiaries under other forms of tax advantage than there are from the current arrangements for capital transfer tax.

    11.45 pm

    It is significant that I have been sitting in the Chamber since 25 minutes to four and before that for Question Time, and no Conservative Back Bencher has spoken in the past eight hours and 10 minutes of debate. The only contributions have come from the Treasury Bench. The reason is that Government supporters know that what they have done by way of capital transfer tax concessions to the better off and what they have done in refusing to accede to the requests of the Opposition on the 25 per cent. rate band is unacceptable to their constituents as well as to ours, and they know that their party's record on taxation is utterly indefensible.

    Workington taxpayers—my constituents—are paying for benefits which are received only by the better off. Only a very small group of select people benefit from the tax arrangements introduced by this Government. My constituents object strongly. I object strongly. The Labour party objects strongly. Millions of people object strongly. The Government persist, because they have no intention of showing any sensitivity to the wishes of the people.

    The marathon silence of Government Back Benchers does not prevent this from being a debate and, since the Committee is engaged in debate, there are two aspects of the very interesting speech by the hon. Member for Workington (Mr. Campbell-Savours) to which I want briefly to refer.

    The hon. Member expressed curiosity about the standing of an accessions tax in the policy of the alliance and its two member parties. I refer him to the Amendment Paper, containing details of the amendment in favour of an accessions tax. It stands in the names of three members of the Liberal party and three members of the Social Democratic party, headed by the leaders of each.

    On the more important aspect—the influence, which the hon. Member doubted, of a capital transfer tax on enterprise and on the foundation of small but growing businesses — I must beg to differ, although I do not believe that the hon. Member or I could adduce proof.

    In the west riding of Yorkshire and in east Lancashire, where I used to practise accountancy, it was evident to me in the years immediately after the war that many of the largest and most rapidly growing native businesses—not the branch factories of great international companies, but the biggest native local businesses—in large measure had been founded by people who in their youth had been foremen or supervisors with other companies in their trades. In the spirit of the early part of the century—and to some extent even after the first war that spirit remained — they felt that they could, to use the north country term, better themselves and their families by cutting loose from what they regarded as rather decaying leading firms in the trades and trying their luck with what they believed to be their superior abilities, often taking with them the cream of the old companies' skilled workers.

    That had a powerful effect on the economy of west Yorkshire because it injected life into industry that all too often was, and certainly is now, left in the hands of incompetent people who are there by virtue of who they know rather than what they can do. It pushed aside all that dreary, possessive aspect of crumbling business and made way for those who could compete with the Germans, the Japanese, the United States, and so on. It is to the destruction of that ethos that taxes such as capital transfer tax — perversely maintained by a Tory Government—contribute substantially. It is not the hard accountancy of the tax that usually puts people off, but the spirit of the age, which is encapsulated in whether we have heavy capital taxes or whether, as in an earlier time, there are death duties that need not necessarily be incurred. That is the difference between the period before the first world war and that before the second.

    I have only one point to put to the Financial Secretary about the clause. I put it in a spirit of inquiry, because I do not know what the answer will be. It has already been pointed out, and I make no complaint that the changes in the thresholds that the clause provides apply the index in a rough and ready manner and at each step rather overdo the indexations. If each step is studied, it will be found that the rise in thresholds is either a little more, or, in one or two cases, noticeably more than indexation required.

    Before I give any verdict on this clause, I wish to have information as to why there has been a marked difference in the application of indexation on certain levels of rate at death compared with the indexation on the rates of lifetime gifts. The enthusiasts who remain in the Chamber at this stage will be aware that it has been a marked feature of this tax from the beginning that the tax liability on lifetime transfers has been markedly, deliberately and rightly, lower than the liability on property passing on death. The effect on the way that the Government have indexed these thresholds is to narrow that gap. The gap between the rate at death and the rate on lifetime transfer is at some stages narrower than it was before the clause was introduced.

    One example is that on transfers of £1 million value, the rate of duty payable on lifetime distribution is about £8,350 more favourable than strict indexation but £80,000 more favourable on death. I should like an explanation as to why this deliberate gap which has been an act of policy, between the rate at death and the rate at lifetime transfer, has been somewhat narrowed in the process of applying this rough and ready index.

    I should like to reply briefly to the points that have been made on clause 63. I fear that I must disappoint the hon. Members for Edinburgh, Central (Mr. Cook) and for Workington (Mr. Campbell-Savours) in terms of the whole premise of the case that they sought to put forward. Let us first take the changes made in the Budget and then I shall go back over the longer time scale that the hon. Gentlemen suggested.

    I can answer the question asked by the hon. Member for Colne Valley (Mr. Wainwright) by saying that the threshold changes were rounded up to a reasonable figure in each case and in each case they were rounded up rather than down. In some cases, as he has pointed out, there has been a slightly bigger or smaller change than strict indexation would have given because we were looking for reasonably round figures. The cost of straight indexing to about six decimal points would this year have been £15 million, £30 million next year, and £35 million the year afterwards. That is straight Rooker-Wising of the bands. The actual costs estimated are £20 million, £40 million and £50 million; slightly more. Roughly speaking, that is 2 per cent. more than would be necessary for straight Rooker-Wising, which compares unfavourably with the 8·5 per cent. which is the excess over indexation for income tax allowances. That 2 per cent. is approximate.

    The hon. Member for Edinburgh, Central had a figure of 12·8 per cent. because he was looking at the tax paid on a £100,000 estate. With respect—the Opposition have proved themselves a little short on comprehending true mathematical principles throughout the study of the Bill so far—the hon. Gentleman should have addressed himself to what is the after-tax estate in each case. The £100,000 estate before the Budget would have left £85,250 in the hands of the inheritors. If indexation only had been applied, that figure would have risen to £86,400—a 1·3 per cent. increase. As proposed in the clause, the figure will be £87,000 — a 2·5 per cent. increase. Those increases compare with the increase in the retail price index over the period of 5–4 per cent. So even in the short term the recipient in the hon. Member's example has been taxed a little harder than straight indexation would require.

    Will the Minister answer my precise question whether there is an act of deliberate policy in narrowing the gap at certain stages between the death and lifetime rates, or is it purely accidental?

    There was no deliberate policy. It was purely the result of rounding and trying to keep the cost of the concession within bounds, the two going in slightly different directions.

    The basic premise that in the Budget the tax has been lightened is false and the hon. Members for Edinburgh, Central and Workington should know that. Let me lake them a stage further in the history of this.

    No, I shall not give way. Will the hon. Gentleman please listen to me? I shall give him the yield of this tax in real 1983–84 prices.

    The 1983–84 yields of this tax are as follows. I quote the first-year figure of a financial year. The figure for 1970–71 was £1,645 million; for 1971, £1,905 million; for 1972, £1,808 million; and for 1973, £1,471 million. Then the Labour party brought in capital transfer tax and estate duty was phased out. The yields were £1,026 million; £801 million; £807 million; £736 million; £630 million; and £638 million—all under the Labour party. It was the Labour party that destroyed the yield of capital transfer tax. Since our day it has hardly gone down. It has gone down to £550 million in the current financial year. So all that rubbish and claptrap that the hon. Gentlemen were talking was the result of their own Front Bench's actions.

    If the hon. Gentleman is going to come here and keep the Committee up late at night for a long time, he should first acquaint himself with the facts that he is seeking to discuss.

    On a point of order, Mr. Armstrong. If a Minister makes an accusation against another hon. Member, surely it is courteous for that hon. Member to be given a right to respond.

    The hon. Gentleman knows that if the Minister does not give way he must resume his seat.

    If the right hon. Gentleman cares to examine the Official Report tomorrow, he will find that I said that the tax take from capital transfer tax next year is likely to increase. Does he now wish to withdraw his statement?

    That is completely irrelevant to the point that I was making. I shall give the hon. Gentleman further proof. If we were to institute the rates and bands that the right hon. Member for Leeds, East (Mr. Healey) introduced when he brought in this tax, and index them, we should reduce the yield by £75 million. What the Opposition are doing talking about an increase in the burden is well beyond me. We have no plans to use an accessions tax or to make the pips squeak or whatever was that nasty phrase the Opposition used. The tax is now in the right form. We have not changed it much in this Budget and I commend it to the Committee.

    12 midnight

    The right hon. Gentleman has left two things out with regard to the changing yield of this tax, which the Labour Government introduced. First, the initial rates of tax increased during the Labour Government's term of office. Secondly, under the capital transfer tax, free transfers between spouses was instituted. In many cases, there is a considerable time before the spouse is charged to tax as the wife is often considerably younger than the husband.

    The right hon. Gentleman is right. Perhaps he could draw his hon. Friend the Member for Workington aside, give him a nice cup of tea and explain some of these things to him.

    I was impressed by the Financial Secretary to the Treasury's discovery of the new basis of indexation. It is that indexation should maintain the real value, net of tax, of whatever is being taxed. We do not apply indexation on that basis to income and we do not milk what is being earned by the taxpayer by discovering what tax burden he can pay to leave him with an indexed net income. We apply the indexation or the retail price index to the threshold. It is perfectly reasonable to expect that to apply to tax on capital as to tax on income.

    The Financial Secretary said that the increase over and above indexation of the capital taxes in this clause is only some 2 per cent. as compared with 8 per cent. for income. We would not quibble with that 2 per cent. and accept the comparison with the 8 per cent. were it not the case that, as recently as 1980, the threshold for capital transfer tax was doubled. Had the threshold for the basic rate of income tax similarly been doubled in 1980, there would have been a basis for comparison. However, it was not. Until this year, the threshold for the basic rate declined.

    As I expected, the Financial Secretary said that, if one uprates the 1975 thresholds, one finds that they are higher than those with which we are faced today. However, as I said to the Financial Secretary, it is most unreasonable — he knows it because he was a member of the Standing Committee that considered the Bill—to claim that it was the intention of the Government in 1975 to introduce thresholds that would be appropriate to the tax as he has changed it in 1983. He said that he now believes the tax to be reasonable and that it should remain in its present form on the statute book. Therefore, it must be different from the tax against which he inveighed in 1975, and which he told the Standing Committee he wished to see buried, forgotten and dead. Given that he has carried through substantial changes to the structure of the tax, especially in the community principle, it is unfair of him to base his case on the thresholds on thresholds that were appropriate to a very different tax in 1975.

    We have debated this matter before, and I am aware of what has happened to the revenue from capital taxation during the past decade. I know of the decline from the early 1970s until now, and it will come as no surprise to the Committee that the Opposition are a little disappointed by the way in which capital transfer tax operates. There is no question but that the total yield, and the incidence of that yield on wealth, has fallen during the past 15 years. A priori, we can conclude that a taxable capacity is not being realised to its fullest extent. [Interruption.] If the right hon. Gentleman wishes to argue that during his period at the Treasury total wealth, as well as real disposable personal income, has fallen, it is reasonable to say that the taxable capacity is not bearing its full share. I assure the right hon. Gentleman that a future Labour Administration will ensure that it makes a fairer contribution.

    Question put and agreed to.

    Clause 63 ordered to stand part of the Bill.

    To report Progress and ask leave to sit again.— [Mr. Ridley.]

    Committee report Progress; to sit again.

    Marriage Bill Lords

    Order for Second Reading read.

    Question put forthwith pursuant to Standing Order No. 69 (Second Reading Committees), That the Bill be now read a Second time.

    Question agreed to.

    Bill accordingly read a Second time.

    Bill committed to a Standing Committee pursuant to Standing Order No. 42 (Committal of Bills).

    Housing

    Ordered,

    That the draft Housing Corporation Advances (Increase of Limit) Order 1983, which was laid before this House on 17th March, be approved.—[Mr. Mather.]

    Reedyford Hospital, Pendle

    Motion made, and Question proposed, That this House do now adjourn.— [Mr. Mather.]

    12.8 am

    I welcome the opportunity of this Adjournment debate and thank my hon. Friend the Under-Secretary of State for Health and Social Security for being here this evening.

    There are few more emotive subjects in Pendle than the demolition of Reedyford hospital. Built originally as a private house in 1892, it was converted by public subscription into a war memorial hospital in 1914. For nearly 60 years, thousands of my constituents and their families have benefited from the high standards of treatment and care given at what is regarded by all of us as a family and very personal hospital, which Pendle folk regard as their own. I pay tribute to our current and former medical staff for all that has been, and is being, done at Reedy ford.

    Given that background, it was not suprising that when the line of the M65 Calder Valley motorway was mooted —I place on record my commitment to the motorway as it will be of vital importance to the economic prosperity of north-east Lancashire, and especially Pendle—there was considerable local outcry when it was realised that Reedyford was vulnerable.

    Following a public inquiry relating to the line of the M65 held in early 1974, the inspector issued his report,which spoke of:
    "The existing buildings of the Reedyford Hospital block—the only feasible route for the motorway at that point."
    The inspector went on:
    "The motorway is so important to the whole Calder Valley, and the hospital is so important to the Borough of Nelson that the only possible compromise is one of timing. The hospital buildings must therefore be replaced in Nelson before the existing hospital is demolished. This would involve the hospital board—which has agreed to the demolition of the hospital on an 'equivalent reinstatement' basis—in the early discharge of its promise to hold local consultations. If the motorway were to progress faster than the building of a replacement hospital, there would ensue a difficult period during which temporary links from the motorway round Reedyford hospital would have to suffice; an awkward but not unwarrantable arrangement, in those difficult and short term circumstances."
    He continued:
    "I am not therefore recommending any amendment to the motorway scheme here, but emphatically urging a very vital dovetailing of the project with the local replacement of the hospital, under a planning condition."
    I next quote from the Secretary of State's decision, given in July 1975. It said:
    "The proposal shall not be implemented to such an extent as would involve the demolition of Reedyford Hospital, Nelson, until such time as alternative premises on an equivalent reinstatement basis are available for use in Nelson."
    The inspector's conclusions, which were unanimously supported by Pendle council, were that the hospital buildings at Reedyford must be replaced in Nelson before the hospital is demolished. Mounting concern led to a public meeting held at Silverman hall in February 1977, which I attended, when I was prospective parliamentary candidate more than six years ago. The following resolution was passed:
    "This meeting demands that Reedyford Memorial hospital is not closed down unless and until an alternative hospital and alternative facilities are provided in the Nelson area."
    A working party was established by the former Lancashire area health authority to make proposals for new hospital facilities post-Reedyford. In broad terms, it made the recommendation that, as to acute services, there should be a new ward unit of 60 beds together with a new operating suite and supporting facilities built at Burnley general hospital, and that outpatient and supporting services should be provided on a site in the Pendle district. It also said that hospital provision should be made there for 20 general practitioner/post-operative beds, a standard ward unit of 24 geriatric beds to meet the district shortfall, 28 ESMI beds plus 50 mufti-purpose day places together with outpatient facilities, a mortuary, a diagnostic X-ray room, and 14 physiotherapy and 10 occupational therapy places plus the usual back-up facilities.

    The recommendation was that Reedyford with its 62 beds would disappear, with new and improved facilities being provided by the combination of new developments at Burnley general hospital and the new community hospital. During this period and beyond, I praised the work and dedication of the Reedyford action group, our community health council, the Pendle local authority and those at all levels of our hospital authorities who have worked hard for a successful outcome to our problem.

    Letters from the North-Western regional authority indicated its attitude. It said:
    "The regional health authority is fully committed to this development — that is the proposed community hospital —although the timing of construction must inevitably be governed by the availability of resources."
    A letter from the chairman of the regional health authority stated:
    "It seems likely, therefore, that the community hospital will not only have started on site but will be well on the way towards completion before Reedyford Hospital is required for demolition."
    We now move into 1983. In February, in response to a question from me, the Under-Secretary of State's colleague, the Minister, replied:
    "The North-Western regional health authority is reviewing its capital building programme and expects to announce its decisions, including that on the proposed Nelson community hospital, before the summer. The authority's current aim is to enable Reedyford hospital to be demolished in 1987, but this may need reconsideration in the light of its decisions on the capital programme."— [Official Report, 15 February 1983; Vol. 37, c. 130.]
    Warning lights were beginning to flash.

    Towards the end of February, following inquiries by me, a letter from the new Burnley, Pendle and Rossendale health authority's district administrator, Mr. Brierly—who has been extremely helpful in this regard—stated:
    "We understand from Lancashire County Council that the Nelson to Colne section of the M65 roadway is due to commence in 1983–84, but the agreement from the regional health authority is that the site of the Reedyford Memorial Hospital will be made available only when the replacement facilities at the Burnley General Hospital are completed and commissioned. The current estimate of that completion is the first quarter of 1987. On current information it is anticipated that the first completion date for the Pendle Community Hospital will be the first quarter of 1988 but we are aware that the Regional Capital Programme is subject to review at present and the outcome of that review is not yet known."
    Finally, following a meeting that I had with Sir John Page, the chairman of the North-Western regional health authority at Westminster, he wrote to me on 18 March as follows:
    "the regional authorities' capital programme is currently under review, adjustments to it having had to be made as a result of the reduced capital resources now expected and a number of other factors. Because of the interface between this scheme and the motorway programme and also the fact that part of the expenditure involved, being a replacement for some of the facilities at Reedyford Memorial Hospital, will be met by compensation, it is hoped to keep slippage on the scheme to a minimum."
    The site for the new community hospital in Leeds road, Nelson, was acquired by the RHA in March 1983—last month— in accordance with the original timetable. It adjoins the new health centre and is ideally situated for the majority of my constituents.

    My purpose in requesting this Adjournment debate is threefold. First, I wanted to draw the attention of Parliament and the Minister to our problem and its history. Secondly, I wanted to ask the Minister to ensure that adequate capital resources are made available to the North-Western RHA and to the area authority in revenue terms. Thirdly, I wanted to urge my hon. Friend to use the authority of his office — down through the tiers of decision-making — to guarantee no slippage in our programme.

    Even now, at best, a 20-month gap seems to be opening up between the likely demolition of Reedyford hospital in the spring of 1987 and the completion of the community hospital, perhaps by the end of 1988. We need our community hospital, and the people of Pendle would rightly, I believe, regard postponement as a betrayal, given the guarantees and history that I have attempted to summarise in this short debate.

    12.18 am

    The Under-Secretary of State for Health and Social Security
    (Mr. Geoffrey Finsberg)

    I congratulate my hon. Friend the Member for Nelson and Colne (Mr. Lee) on raising a subject in which he has been most actively involved since 1979 and which is clearly of real concern to his constituents. The closure of Reedyford hospital is necessary for a somewhat unusual reason. The point of concern is not, for once, the closure itself, but the need to ensure that replacement facilities will be available before the closure and eventual demolition of the hospital.

    Reedyford hospital, situated just outside Nelson, is scheduled for closure and demolition so that the M65 Calder Valley motorway scheme can be completed. It is the local hospital for Nelson, but it provides a district service to the Burnley, Pendle and Rossendale health authority. Built in 1936, like many small hospitals at that time, by public subscription, it has always benefited substantially from the involvement of local voluntary organisations, and I know that local loyalty to the hospital is exceptionally strong. However, its closure, as my hon. Friend said, is not now at issue, and the need for the new motorway is, by and large, accepted.

    The facilities provided at Reedyford comprise just under 60 acute beds, an operating theatre, X-ray room, pharmacy and other supporting services. Following local objections to the loss of Reedyford, the then Lancashire area health authority, which prior to NHS restructuring was responsible for health services in that locality, set up a working party to consider how best to replace the facilities needed there by the population of Burnley district.

    The working party, which included representatives of the appropriate health authorities, local authorities and community health councils, unanimously agreed a package of proposals which were approved by the then area health authority in 1978. These proposals form the basis of the current strategy, adopted by the successor authority—Burnley, Pendle and Rossendale —which is to replace the services currently provided at Reedyford hospital by new facilities at Burnley general hospital, some three miles away.

    This strategy also proposes another scheme in the immediate vicinity — the provision of a community hospital in Nelson. I know that, because of its location, this community hospital is, perhaps not unnaturally, regarded locally as the replacement for Reedyford, but it will in fact provide mainly new services for the district. The beds and day places proposed in this development are additional facilities, and only the outpatient department and physiotherapy components can be regarded as replacements for facilities at Reedyford. Since it was first introduced into the North-Western regional health authority's capital programme, the community hospital scheme has not been planned to open in advance of the closure of Reedyford, although it has always been hoped to start work on site before Reedyford is demolished.

    I know that my hon. Friend is well aware of the background to the health authority's proposals for replacing facilities currently provided at Reedyford and further to develop services in the districts, but I hope that he will accept that this preamble is necessary to set the scene. I should perhaps point out that, in what is a needy region with many claims on limited resources, investment approaching £4 million has already been made in the Burnley district in recent years, including about £1 million to provide a health centre in Nelson.

    As matters stand at present, the main replacement works at Burnley general hospital are included in the North-Western regional health authority's current capital programme for a start in 1984–85, although some work concerned with the provision of support services falls within the current financial year. The community hospital at Nelson is programmed to start in 1985–86. On this basis agreement has been reached with the Lancashire county council that it should be possible to vacate the Reedyford site during the early months of 1987, and I understand that the county council's programme for the roadworks has been confirmed to tie in with the availability of the hospital site.

    As my hon. and learned Friend the Minister for Health confirmed in reply to a question from my hon. Friend on 15 February, the North-Western regional health authority is currently reviewing its capital programme and I can appreciate his concern that schemes to provide facilities to replace these at Reedyford might slip to the extent that they will not be completed before Reedyford is forced to close. The regional health authority is reviewing the capital programme to eliminate the present overprogramming which makes the existing strategy unrealistic. Responsibility for the capital programme and for determining priorities within it rests with the North-Western regional health authority and the outcome of its deliberations will not be known until the summer.

    In the meantime it is not possible to give an assurance that any scheme in the programme will maintain its place —a situation which is of concern to a large number of districts and, with the schemes in Burnley, to my hon. Friend. I must take care not to appear to pre-empt the RHA's decision, but I understand that there are two important features of the replacement of the Reedyford facilities to which it thinks it important to give due weight. The first is that the regional health authority is entitled to compensation from Lancashire county council for the loss of Reedyford, which must be spent only on replacement facilities. The compensation becomes due only as and when the replacements are provided. Secondly, the Lancashire county council is fully aware of the regional health authority's concern lest replacement facilities are not ready in time, and it has adopted a most helpful attitude.

    I hope that my hon. Friend will accept that it is impossible at this time to give any guarantee that Reedyford replacement schemes will maintain their place in the North-Western regional health authority's capital programme. All I can do is to assure him that from the inquiries I have made all concerned are aware of the consequences of any slippage of the replacement schemes at Burnley general, and that these will have priority over the scheme for a community hospital at Nelson, which is mainly planned to provide additional facilities. Meanwhile —I can reassure my hon. Friend here—planning on all schemes continues, so that the review of the capital programme will not itself contribute to delays.

    I am very sorry that I cannot give a categorical answer to my hon. Friend on the timing of the replacement of the Reedyford facilities, but I hope that what I have said tonight will give him some reassurance that the RHA is fully conscious of the need to make that replacement in due time, and that the other agencies involved are co-operating with it to that end. I can say firmly that there is no doubt about the commitment to replacing the facilities that will be lost when Reedyford hospital closes, and I hope that he will be reassured by that.

    Question put and agreed to.

    Adjourned accordingly at twenty-six minutes past Twelve o'clock.