HC Deb 05 April 1960 vol 621 cc204-326
Mr. Harold Wilson (Huyton)

Now that the magic of the Chancellor's eloquence is dying away we can begin to look at his Budget in perspective, to assess what it does, what it fails to do, and its relevance to the problems which the country is facing. Before I deal with his detailed proposals, I must refer to the problems which the Chancellor was facing. The Budget was rightly described in a weekend journal as a "morning-after Budget". The boom which was so timely for the right hon. Gentleman last year is, in the Chancellor's view, clearly getting out of hand, so he had to take measures to damp it down. But his task in providing a big enough disinflationary budgetary surplus was made more difficult by the inordinate rise in Government expenditure in this year's Estimates.

My right hon. Friend the Leader of the Opposition referred last night to all the election propaganda last October—the "spendthrift" Socialists, with all those wildcat schemes for higher pensions and the rest, would raise Government expenditure by £750 million in five years. Now the Chancellor presents Estimates showing an increase of £320 million in a single year. It was not only Lord Hail-sham. There was the Home Secretary —and I am sorry that he is not here. The right hon. Gentleman, of course, has an unrivalled claim to speak on any subject dealing with the relations between budgeteering and electioneering. The whole country listens to his words with attention. On 1st October he made a speech proving how irresponsible it was of the Labour Party to say that the £200 million required to increase pensions could be found without bankrupting the country.

The right hon. Gentleman said: The natural increase of expenditure next year, that is to say, what we have to spend without their programme or ours, will be in the order of £100 million. That will leave the Chancellor about £85 million in hand"— that is, for this year's Budget— nothing like enough to meet even the measures which they are pledged to implement … well over £200 million. But the Chancellor is budgeting this year for an extra £322 million without even providing a penny for increased pensions.

We might go further back than last October. We all remember the flamboyance of the Prime Minister during his brief call at the Treasury four years ago. We remember how he set out to reduce Government expenditure where his predecessor, the ill-fated Home Secretary, had failed. He pledged himself in his 1956 Budget to cut Government expenditure by £100 million and he based his whole Budget on that pledge. We all remember his moving reference to the Treasury portrait on Mr. Gladstone— "those eyes … nostalgic and reproachful". Thus inspired, Government expenditure was to be kept to a figure £100 million less than the 1956–57 Estimates. But today the Chancellor is budgeting for a figure not £100 million less than the 1956–57 Estimates, but well over £1,000 million more.

The actual figure above the line is £1,060 million more than the figure to which the Prime Minister pledged himself to reduce Government expenditure. That is, if I may say so, £676 million more than the figure on which the right hon. Member for Monmouth (Mr. Thorneycroft) made his famous last ditch stand only two years ago, and these figures are above the line. Below the line expenditure is, of course, now completely out of control.

The Committee obviously cannot view this with complacency. That is, I know, the view of honourable rebels below the Gangway, led by the neo-Gladstonian, the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke). So close is the noble Lord getting to Gladstone these days that we might even apply to him the famous words used by Macaulay about Gladstone: The rising hope of those stern unbending Tories who follow, reluctantly and mutinously, a leader whose experience and eloquence are indispensable to them, but whose cautious temper and moderate opinions they abhor. In so far as hon. Members opposite are girding against the necessity of paying the bill for policy expenditure for which they voted, such as defence, or National Assistance or education, I do not follow them. Certainly, this party on this side of the Committee will never support moves to dismantle the Welfare State so as to reduce Surtax.

The real problem that we are facing is value for money, the avoidance of waste, tighter systems of controlling expenditure. I cannot help feeling that if a few Ministers spent more time discharging their responsibilities as guardians of the public purse, and less time seeking personal publicity for themselves, we should be debating very different figures and a very different Budget. [Laughter.] Oh, yes, we were all deeply moved by seeing the Minister of Transport helping an old lady across the road. We just wondered how there happened to be a photographer there.

The Leader of the House is to bold conversations on the Parliamentary control of expenditure. He will find us on this side of the Committee highly co-operative and. while I do not want to worry the Committee with the details of what we propose, I can say that the right hon. Gentleman will receive from us concrete and constructive proposals for a much fuller degree of Parliamentary responsibility on this problem of value for money. Our proposal will combine the participation of the House as a whole with the expertise and hard work of members of the Public Accounts and Estimates Committees.

Now I turn to the Chancellor's proposals. I do not propose to follow him on hackney carriages, playing cards, cigarette lighters, heavy oil for road vehicles, and other details—all of them Finance Bill points. I should like to offer a hearty welcome to the abolition of the Entertainments Duty. Against hon. Gentlemen opposite, we voted for this last summer. Again, we welcome his proposal on post-war credits, and I think that we can claim to have pressed these proposals on him every time he has answered Questions in this Parliament.

On the dependent relative and on the housekeeper allowance, and the allowance for widows and widowers where there is no resident housekeeper, we divided the House in support of these reliefs last year, and I am glad that the Chancellor has found our eloquence or our votes so convincing. On Estate Duty and gifts inter vivos, as my right hon. Friend said last night, our welcome is not quite so enthusiastic. There is already so much avoidance of Estate Duty that we should have pressed for a further tightening-up and not a relaxation of the Estate Duty provisions.

I come now to tobacco. As my right hon. Friend has suggested, just as the "pots and pans" Budget was the pay-off for the Home Secretary's Income Tax hand-out five years ago, so the 2d. on cigarettes is the pay-off for the Chancellor's 2d. off beer a year ago. I well remember the hysterical cries from right hon. and hon. Gentlemen opposite when my noble Friend, as he is now, Lord Dalton, raised the price of cigarettes to 3s. 4d. for 20s. I remember what promises they made in those days.

The present Minister of Pensions and National Insurance, whose promises have always outrun his performance, told the country during the 1955 election: It is a part of the Conservative policy to reduce the price of cigarettes and tobacco. I agree that the Chancellor's new imposition will not be a great hardship for some people, but hon. Members should remember that it was they who withdrew the tobacco concession from old-age pensioners two and a half years ago, and that the old folk, at any rate, are the least able to bear this increase.

Turning to the Profits Tax, we have no complaint to make of the Chancellor's proposal, but we think that he might well have gone further. Certainly, what he should have done about this, when finding himself in the present economic situation, was to restore the discriminatory tax between undistributed and distributed profits, and there was certainly a case for much higher tax on dividends.

The Budget proposals involve a number of detailed proposals on tax law, most of which can be left for the debates on the Finance Bill, but I should like to give a welcome for the proposal to deal with the problem of penalties to be incurred in case of incorrect returns. A few weeks ago, I joined the hon. Member for Portsmouth, Langstone (Mr. Stevens) in pressing the Chancellor to amend these Draconian provisions, and we shall want to see what the actual proposals are to be in the Bill.

I turn to the proposals to fortify the Revenue against tax avoidance. We have been pressing the Chancellor and his predecessors for several years to take these measures and others which are even more necessary. Tax-loss farming we have pressed year after year, and the recent report by the Comptroller and Auditor General shows that millions of pounds are lost in taxation by the stockbroker farmer and his like.

The right hon. Gentleman's proposal to deal with the "golden handshake" was not the least welcomed on this side of the Committee. Hon. Members will remember that on 29th June last year, I gave details of 11 of these redundant directors receiving a total of £575,000 tax-free between them. This is an average of £52,000 each, which is more than Manchester City paid Huddersfield Town for an inside forward. This shows what a distorted sense of values we are now getting. I gathered from the Chancellor's reply to an intervention of mine yesterday that this proposal does not affect lawyers. This is a very great disappointment, I am sure, to all those hon. Members on both sides of the Committee who are not referred to as "learned".

Once again, the right hon. Gentleman brings forward proposals to close yet another loophole discovered by the ingenious fraternity of dividend strippers. We warned the Home Secretary about this in 1955 and we warned the Chancellor, two years ago, that these people would find ways round his legislation. We told him then that he needed a general anti-avoidance provision to deter these racketeers, and I am glad that he has at last had the courage to take our advice.

I am not quite sure that what the right hon. Gentleman proposes is the right method. We would have provided another method. It is rather difficult, and the Treasury has to prove motive, but I would have preferred our own proposals three years ago to give the Treasury power to introduce an Order, subject to the affirmative Resolution procedure, and requiring ratification by the House in the next Finance Bill. This would have the advantage of leaving the House and not the Inland Revenue in command of the situation. For all that, these measures, so far as they go, will have our full support. I cannot say that about hon. Gentlemen behind the Chancellor, whose response yesterday, I can tell him, was less than enthusiastic. From where he stood, he could not see them. We could, and I must say that they looked rather like a collection of St. Bernards which had lost their brandy. Indeed, when I saw the account in the Daily Express of last night's secret Committee meeting upstairs, and when I read, also, that among the resigning Treasury Ministers two years ago, the right hon. Member for Flint, West (Mr. Birch) was playing a leading part in the attacks on the Chancellor, I can almost envisage the noble Lord and some of his colleagues chanting "Bring back the 'birch'". I hope that the Chancellor is not going to run away from his right hon., hon. and hon. and learned Friends as he did two years ago. The knives are being sharpened.

Mr. Gerald Nabarro (Kidderminster)

Hear, hear.

Mr. Wilson

I am glad that the hon. Gentleman is still in such good heart after having his moustachios pulled by the Patronage Secretary this morning.

But I want to deal seriously with this problem. Whatever difficulties there may be from that side of the Committee, I promise the Chancellor that we on this side will try to throw over him the mantle of our protection, including our support in the Lobby, if he will undertake to stand firm against his hon. Friends.

Mr. Nabarro

That is just what is wrong with the Budget. The right hon. Gentleman is supporting it.

Mr. Wilson

I think that it would be churlish of us not to offer the Chancellor that protection. After all, he is proving an apt pupil, though perhaps a little slow. In reference to what the hon. Member for Kidderminster (Mr. Nabarro) has just said, I have just heard that one Conservative Member has received a telegram from his constituents asking him to congratulate Harold Wilson on his Budget.

This, I would suggest, is entirely to misconceive the problem, because neither the Chancellor nor his hon. Friends—if I may go on using that phrase—should get the idea that he has really done more than scratch the surface of tax avoidance. In fact, he has hardly begun. What he has done is to deal in a very limited fashion with the professionals. Quite rightly; that needed doing. He has dealt with the Players but he has not yet started to deal with the Gentlemen, and he will find them a much tougher proposition when it comes to tax avoidance.

The noble Lord the Member for Dorset, South—I am sorry to keep on referring to him, but at least he is thinking about this problem—in a recent letter to The Times, said that the present taxation system of the country was … a tax code framed by radical Liberals half a century ago for a slum economy.

Viscount Hinchingbrooke (Dorset, South)

So it was.

Mr. Wilson

I will not ask the noble Lord which party created the slum economy, but it is a testimony to the ingenuity and resource of the moneyed classes of this country that they have turned this slum taxation system into one which so aptly and speedily helps a great number of rich taxpayers to dodge their fair share of taxation. The characteristic of our tax system under right hon. Gentlemen opposite is that those who make money flourish, and that those who earn money are penalised.

We have often debated expense accounts. The different treatment of Schedule D and Schedule E is a national scandal, grossly unfair to P.A.Y.E. taxpayers, wage and salary earners, civil servants, thousands of professional people, the vast majority of whom pay their full tax liability. I will not repeat all the evidence we have brought forward in previous debates on this subject, but there is some information which, I think, is worth examining. For example, not long ago the Chancellor published a new estimate of the proportion of the nation's £400 million drink bill which he pays for; that is, the part which enters into tax-deductible business entertainment. He stepped up the figure from 5 per cent. to 10 per cent., but that is probably still an underestimate. Yet, even so, £40 million a year seems to me to represent an excessive amount of cancellarian hospitality.

It can be calculated that the right hon. Gentleman is probably paying for roughly 1 million drinks, wines and spirits, every day of the year—and still he is not popular. We have all seen what goes on. This is, in fact, the Tory Welfare State—free drinks for the businessmen, prescription charges for the sick and old. Whether all this alcohol is really needed to lubricate the production system is arguable, I should think. Some may hold that, so far from increasing, it diminishes productivity and commercial acumen. What is beyond argument is that there is no need for the Chancellor to pay for it.

This is not all. This hospitality is becoming more expansive. Hon. Members may have seen some of the authoritative and revealing social surveys of the Soho area, which some Sunday newspapers have been publishing recently, with obvious reluctance and distaste, sternly putting their public duty before their desire for circulation.

On one thing all these sociologists agree, that these "mushroom" theatre clubs, if we may so call them, which cause so much pain to the Home Secretary, flourish largely under the patronage of expense accounts. It may well be that just as the de Medicis went down to history as the patrons of Florentine art, so the right hon. Gentleman will be remembered as the patron of the new art forms which flourish in Soho. He can read about them in the Sunday papers.

Again, I was struck recently by some interesting figures in the latest Report of the Commissioners of Inland Revenue for 1957–58—there are no later figures. According to that Report, 115,000 incorporated businesses earned less than £250 a year. Those include over half the businesses in the country. Their average net true income declared for tax purposes was £31 a year. Then, taking individual Schedule D taxpayers, nearly half a (million, one-third of the total, had a net true income of under £250 a year. The average was £120.

Another one-third of the taxpayers had incomes of between £250 and £500, averaging £300. Making every allowance for part-time jobs and the rest, if these tax returns are true private enterprise seems neither so efficient nor so profitable as it is made out to be. Yet these firms and these individuals survive year by year. Their numbers are maintained. They have not even got a Guillebaud Report to look after their earning power.

The Chancellor is a humane man. His heart, I know, bleeds for these people who are living on such a low standard of life. Stoically and uncomplainingly they seek to keep up appearances as they commute in their Bentleys from the National Assistance Board to the Savoy Grill. What, I wonder, is this: what do they live on, what is their real spending power? How many of those unprofitable businesses have a car provided, and an initial allowance for it? How many have tax-free expense accounts several times their taxable income?

As the Observer said a week or two ago, how many buy a £1,000 car and then deduct £550 right away from their taxable income in a single year? Despite all this, during the election last year the Prime Minister solemnly assured the country that, even if there were a determined drive against tax avoidance, the total yield would not exceed £250,000 a year. The right hon. Gentleman's regard for statistical truth, of course, has always been somewhat elliptical, not least at election time.

I referred earlier to the professional tax avoidance industry, to which the Chancellor is belatedly turning his attention. While he is doing this, even unskilled amateurs are learning the game. Poujardiste newspaper articles are popularising tax avoidance on a "Do-it-yourself" basis. Take, for example, the remarkable series in the Evening Standard, a few weeks ago. I can do no more than pick out a few highlights.

Article No. 1 was entitled "How to pay less tax". This was a general introduction to the series. Article No. 2 was entitled "Another £1,000 a year? It's yours". The advice was to get into a top-hat pension scheme. Article No. 3 was called, "Who pays the school fees in your family?" The idea is to cast the burden on the Chancellor by means of covenants. We are told that a £30,000 a year man can make payments of £5,000 a year at a cost to himself of only £560, the Chancellor looks after the rest. The article continued: For some people the setting up of 'one-man' companies may sometimes be a convenient way of saving Surtax. But its application can also be used to save death duties The theme is more fully argued in the fourth article, under the title "Death Duties: will you have to pay?" Of course not, unless you are very imprudent. No wonder the yield both of Surtax and Estate Duty has entirely failed to expand as compared with prewar, despite the increased rates of tax to a level which even begins to correspond to increased income and wealth and changes in the value of money.

The fifth article has a silvicultural flavour. If you can wait twenty years, you can earn big rewards by investing in private woodlands, if, of course, you are, as they say, high up in the tax bracket. The sixth article is also rather specialised. "This way you can win at horse-racing." The thing to do is to own a stud farm.

All this might be amusing if we could ignore its economic and moral effects. I wonder how the Chancellor can come along and appeal for wage restraint in the face of these scandals? All the facts I have given today are known to the Chancellor and they were known to his predecessors. Why have they not dealt with them? The answer is because the right hon. Gentleman and his party believe in the fundamental inequality which this system represents; because they are not content with the wide variations in economic rewards which our present economic society creates, or with the even more unjust distribution of wealth and property.

Over and above a maldistribution of income and wealth and social privilege, they have perpetuated a system of fiscal privilege which makes nonsense of the Prime Minister's post-election claim that we have become one nation. The Chancellor knows that even if he tried to deal with this problem his party would never let him do it, because there are too many Tory crusts dipping into this gravy. [An HON. MEMBER: "What would the Opposition do?"] An hon. Member asks what we would do. Let me tell him, and, at the same time, give the lie to such election propaganda as the polling day article in the Daily Sketch called "Odd job Gestapo—if you don't vote Right."

To deal with expense accounts one does not need a vast army of snoopers nor to go primarily for the individual. The Government need only provide that a firm's appropriation for business entertainment and sales promotion shall only be tax—exempt as to, say, 50 per cent. or less.

Secondly, on cars, abolish the initial allowances and, where cars are legitimately provided, limit the annual tax allowance to a fixed percentage—say, 6 or 7 per cent. of the individual's declared income for tax purposes.

Thirdly, alter the law to get rid of some of these "phoney" trusts which have been established for the payment of school fees and for death duty avoidance.

Fourthly, both to deal with this shady no-man's-land between taxable income and tax-free capital gains, and to bring greater social justice into the tax system, introduce an effective capital gains tax.

Apart from the tax on capital gains, nothing of what I have said presupposes any new taxes or increased rates of tax. It is a suggestion for making the existing laws effective. I make two other suggestions, however. The first, which I put last year, is that there should be an Excise duty on commercial television advertising revenue, which has now reached fantastic levels. When programme contractors have described their franchise as a licence to print money, I see no reason why the State which issues the licence should not, either by charging for the licence or by a tax such as the Excise duty on footpall pool revenues, recover some of the easy profits which accrue.

Secondly, on economic grounds there is a case for some tax on fuel oil for space heating. This was exempted from the general hydro-carbon oil duties in 1947 because of the fuel position then, which has now changed. Without going back to anything like the pre-1947 rates, a duty of, say, lid. per gallon would not only do much at the margin to help indigenous fuels and reduce dependence on imported fuel, but produce enough revenue within the oil duties to enable the Chancellor to abolish the whole of the diesel oil tax on road passenger transport.

A budget, in modern times, must be judged on two tests: how far it succeeds in promoting social justice and how far it helps to solve the economic problems facing the country. On the social test, this Budget, like its predecessors, has dismally failed. As my right hon. Friend the Leader of the Opposition reminded the Committee yesterday, the biggest oharge against the Chancellor is his treatment of old-age pensioners and others in need. Once again, the Government have passed by on the other side.

Whether it is a "give-away" Budget, like that of last year, with £340 million of remission in taxation, or, as the Chancellor called it yesterday, a "fortification and consolidation", not a penny can be found for increasing the basic pension.

During the past year the total national product has risen by £2,000 million, yet the Chancellor cannot find £200 million to put up the pension. Other sections of the community have done well. Vast fortunes have been made on the stock market and in some rather sordid property deals, but the old, the sick, and the disabled have become the forgotten legion of this country.

Taking the Chancellor's three Budgets together, which account for some very substantial reliefs in taxation, his guiding principle is this, "Let me ask who is paying the most in taxation, for he is my first priority for relief; the money, after all, is his, and when I can afford to withhold less he should be the first to get relief."

Our approach, on the other hand, is based on the simple proposition, "From each according to his means, to each according to his needs." In our view, all income and wealth come funda- mentally from the community, and the individual taxpayer is a trustee for that wealth and income on behalf of the nation, so that taxation, so far from being, as the Conservatives regard it, a distortion of a sanctified natural economic process, is one of the main weapons for correcting the distortions and injustices which result from our economic system. To a Conservative a high rate of Surtax on the millionaire is a distortion. To us, the millionaire is the distortion. That is the difference between the two sides of the House.

Mr. Cyril Osborne (Louth)

What about the Opposition's millionaires?

Mr. Wilson

I think that we have rather fewer millionaires than the Conservatives have, but they, under a Labour Government, would pay their full share of taxation.

Let us take another example—the need for houses to let is as great as ever. Every Member from an industrial area, and many others, knows the tragedy and hardship of overcrowding and of broken homes. Yet the Chancellor refuses to restore the Government housing subsidies.

Mr. David Price (Eastleigh)

Quite right.

Mr. Wilson

It would cost no more than what the Chancellor gave up yesterday in the reduced duty on port, but I am glad to get the hon. Member's sense of social priorities right.

Mr. Price

The right hon. Gentleman is being unfair. Under the Labour Government there were trade agreements with other countries which involved reciprocal measures. What has been done with port is a reciprocal measure under the Outer Seven Free Trade Association to make it a little more attractive to Portugal. I thought that the right hon. Gentleman was in favour of promoting exports.

Mr. Wilson

The hon. Member need not apologise. He said "Quite right" to what I said about the housing subsidy before I even mentioned port.

I now turn to the other criterion by which a Budget must be judged, and that is its effect on the economic situation. Yesterday, the Chancellor gave an optimistic and complacent account of the economic position. As I listened to his recital of last year's results— 10 per cent. increase in production, a big increase in productivity, buoyant revenues, and stable prices—I could not help feeling how events of the past year have proved the case we have been putting year by year, which is that only by increasing production can we create the revenue needed for improved social services, and that the way to keep prices down is not by holding production down and endangering full employment, but by following a policy of steady expansion.

The tragedy is that because of the neglect of investment our industrial base is still so inadequate that after only one year of expansion the Government take fright and begin to apply the brake. Yet, even in the fourth quarter of last year, production was still only 8 per cent. above what it was in the corresponding quarter of 1955—an average increase of 2 per cent. a year. We are still lagging behind the rest of Europe.

A tragedy is that the brake is being applied just as investment in manufacturing industry is beginning to recover from the cuts applied in 1957 by the right hon. Gentleman the Member for Monmouth. As the Economic Survey pointed out, even in the last quarter of 1959, manufacturing investment was 7 per cent. lower than it was a year earlier. I cannot emphasise too strongly that in the long run it will be by our investment record that we shall survive and prosper among industrial nations.

It was significant, also, that the very week in January in which the Board of Trade figures showed a prospective rise in investment in manufacturing industries was the week in which the Bank Rate was raised. When the Governor of the Bank of England, last autumn, began to hint at the need to use the brake—even before investment had shown any signs of recovery—he made it clear that one reason in his mind was that the Stock Exchange boom, the speculative fever in the City, was getting out of hand. It is because the Government can find no means of restraining the City, and because acquisitive interests in the City could not restrain themselves, that we have had to put the brake on the economy as a whole and productive industry and urgently needed capital investment have had to be sacrificed to an uncontrollable speculative boom concerned only with private gain.

The Chancellor of the Exchequer was very frank when he told us about our serious balance of payments position. When the Prime Minister, during the election, claimed that our balance of payments position was strong, he was speaking in a year in which the balance of payments surplus was the lowest since 1955—£145 million. He was speaking in the fourth quarter of last year, when there was a deficit on our current balance of payments account.

I understand that it is Government policy to produce a surplus on current account of £450 million. The Treasury said this in its evidence to the Radcliffe Committee, as shown at Question No. 13,358—£450 million should be achieved year in and year out as a current surplus on our balance of payments. Last year it was not £450 million, but £145 million. The Chancellor gave some explanation. He said that our imports have risen a good deal more than our exports, our re-exports are down and there is a worsening on invisible account. This is partly due to increased Government expenditure abroad. In present circumstances we might be able to afford either an expensive Foreign Secretary or an expensive Minister of Defence, but not both at once, and it seems to be time to have an investigation into this very serious increase in Government expenditure abroad, which is worsening our balance of payments year by year.

There has been an increase in net expenditure on foreign travel and a big fall in net oil earnings, as the Chancellor said. How big this is we do not know, because the Chancellor is very coy about publishing any figures about oil earnings. He publishes statistics of most other things in detail, yet he refuses to tell us anything about oil, and considering the great political influence on the Government that the oil companies seem to have, it seems to me that at least we ought to be told something of the economics of the oil industry.

When I said that the balance of payments last year was £100 million worse than even in the crisis year of 1957, this does not necessarily mean an impending foreign exchange crisis. In 1957, against a background of a favourable and an improving balance of payments, a grave exchange crisis broke out on speculative grounds because many people wanted to get into deutschmarks and dollars. At present, there is no sign of any serious imbalance in world currencies which could precipitate a similar run on sterling, but the figures which the Chancellor gave yesterday show, I think, that we are highly vulnerable in our balance of payments and that we have been made the more vulnerable by successive acts of Government imprudence.

The position is that our trading surplus, such as it is. including that on invisible account, is nothing like big enough to pay for our commitments in the way of investment overseas. This means that our monetary reserves have been falling, and in so far as we have been able to keep afloat, it has been by short-term capital movements coming in from abroad.

I am not suggesting that we are over-lending. My complaint is not against the amount we are lending but against the fact that we are not making enough available in terms of current surplus to honour that lending with savings. We are now getting into our traditionally vulnerable posture of borrowing short and lending long. I hope that this afternoon the President of the Board of Trade will address himself to these problems. What are the prospects, in his view, for increasing exports? The markets are there, but we are losing ground year by year compared with other countries. The right hon. Gentleman recently told industrialists, I understand, that delivery dates for exports are lengthening—another sign of strain.

I hope that either he or the Chancellor will tell us what they think of the proposals which we put forward in the debate on the Radcliffe Report for an export-import bank in this country to supplement the work of the E.C.G.D., and the various other suggestions which we made about international liquidity. I also hope that he will give us an up-to-date statement on prospects in Europe. Whatever the Prime Minister may or may not have said in Washington last week, the position is deteriorating sharply while the President of the Board of Trade is still proceeding in stately fashion from seminar to seminar round Europe.

Let me give the Committee just two examples. We export a lot of washing machines to West Germany in competition with Common Market countries. Under the Hallstein plan the tariff for Common Market products will fall from 7 per cent. to 6 per cent. but for British machines it will rise from 7 per cent. to 10 per cent. We are still exporting a lot of the bigger models of cars to Western Germany. Under the plan the tariff on other Common Market cars will fall from 16 per cent. to 14 per cent. while that on British cars will go up from 16 per cent. to 24 per cent. These are very serious figures, and I hope that the President of the Board of Trade will say something about them.

Turning from exports, we should like to know more about the Government's policy for easing internal strains. Certainly, the Budget is quite inadequate for dealing with these. Yesterday, the Chancellor was muttering dark threats at the banks. What has he in mind? An increase in the Bank Rate? Surely it is high already. Any further increase will place an impossible burden on local authorities, on building society mortgage holders and on holders of gilt-edged. Was he hinting at the use of special deposits? It might commend the idea to hon. Members opposite if I told them that the special deposits idea was first put into the Chancellor's mind from these benches. It is another product of our very limited bipartisanship in these matters.

Is it not time that the Chancellor dropped this game of cat and mouse with the banks, all this pre-1914 mumbo-jumbo, all this elaborate quadrille, keeping the banks guessing? Why does he not send for the banks' chairmen, tell them what he wants them to do and then see that they do it?

I must tell the Chancellor that it is no good his thinking that he will bail himself out this time by appeals for wage restraint. The Government have lost the right to make those appeals. During the election, one Minister after another, not least the present Colonial Secretary, then Minister of Labour, claimed that under the Tories wages had risen high. The truth was that they had risen in spite of the Government, not because of them. It was all the fault of the wicked trade union leaders. You cannot appeal for votes in 1959 on a higher wages policy and then spend 1960 asking the trade unions to bail you out with wage restraint.

I go further and say that the whole election was fought on the principle of free for all, grab all you can, never mind those who have not a dinghy. For three months after the election the Stock Exchange thought that the country had voted for that. You cannot have a free-for-all and say that the only people who should observe restraint are trade unions and their members, the more so when the Government's policies promote more and more unequal distribution of wealth and income.

If hon. Members look at last year's figures, for example, they will see that wage rates rose by just over 1 per cent., or 3d. in the £. Wage earnings, partly through increased hours, rose by 5 per cent., or 1s. in the £. Company profits rose by 11 per cent., or 2s. 2d. in the £. Equity dividends before tax rose by 13 per cent., or 2s. 7d. in the £. Equity dividends after tax rose a good deal more. Share prices rose by 45½ per cent., or over 9s. in the £.

If hon. Members look at the figures of the equity shares boom over the past two years they will see the growing inequality due to this. Anyone who held £10,000 of representative equity shares in January, 1958, would have found his holdings in January this year worth £18,000, the whole of the increase being tax-free. But if the holdings had been in a representative group of property shares, the £10,000 would now be worth nearly £27,000. He would have made, tax-free, without raising a finger, £17,000 in those two years. It would take a mainline engine driver, of whom we have heard a lot recently, thirty years, nearly his whole lifetime's work on the footplate, to get as much money as that— and it would be taxed.

For those who own land the capital profits are even more fantastic. More and more newly married couples in this property-owning democracy are being priced out of the market by land charges when they want to build on the outskirts of large towns and cities. As for land prices in the centres of big cities, the problem can be judged by the fact that I am told that to build a 10-storey garage in Central London—knowing how expensive it is to build a 10-storey garage in Central London—costs less than the money which has to be laid out to acquire the site.

Before I sit down I want for a few moments to take the debate on to a rather wider theme than that provided by the right hon. Gentleman's Budget. This is the first Budget debate of the new Parliament; the first, indeed, of the 1960s, a period which, for good or ill, will leave its mark on the future of the country. Not only our material prosperity but our moral influence in the world will depend to an unpredictable degree on our success in solving our economic problems and building up our strength. We are all agreed about that.

We should, therefore, this week be looking ahead and devising the pattern on which our economic and social life will be woven in the next decade. For a moment I should like to draw attention to one or two disturbing features which have developed in the last few years and which, with the right hon. Gentleman in command for the next four years, are likely to develop still further.

The first of these disturbing trends I have already referred to—the growing inequality in our society. The gap, not only between rich and poor, but between the very rich and the average householder has widened, is still widening, and ought to be diminished.

I have already referred to the treatment of the old and disabled and I have described the system of fiscal privilege which has grown up. Not only income, but wealth and economic power are becoming more and more concentrated in fewer hands. We have seen the movement towards monopoly, with mergers and take-over bids reported almost daily. We see the inordinate capital gains which accrue to those who have substantial holdings in equity shares or in land. We have seen some of the details of the squalid property deals of recent months. As certain of these are sub judice, I cannot refer today to any of the features to which, in other circumstances, it would be my duty to refer.

Apart from those, vast fortunes can be made by financiers who add not one jot of wealth or productive power to the nation, at the expense of tenants and other productive workers. A few moments ago I gave some representative figures of capital gains. It will be clear that even in the most representative, the least spectacular, cases the growth of unearned wealth through capital gains from generation to generation goes far beyond the equalising effects of Estate Duty which falls only once in a generation, even on the somewhat unrealistic assumption that Estate Duty is not avoided by the usual methods. In any period of economic expansion—and we are all looking forward to continued expansion—there is a law of increasing returns to the rich; of an increased proportion of newly produced wealth accruing to the owners of property, whether in equity shares or land.

The second theme is the way in which, more and more, productive industry is being subordinated to finance. It is a recurring theme of our economic policy. We see it in the take-over bids, where efficient but prudent managements have to stand back looking over their shoulders at unproductive financial groups who come in and take them over.

We see it in the redevelopment of the nation's productive resources. For example, in terms of manpower from June, 1955, to December, 1959, while the numbers employed in production, that is, manufacturing, mining and agricultural, fell over the last four and a half years by 6,000, the numbers employed in the group known as "professional, financial and miscellaneous", rose by 207,000.

We see it in the figures of bank lending since the end of the credit squeeze. Advances to industry rose by 22 per cent.; to stockbrokers, hire-purchase finance companies, "Other Financial" and "Personal and Professional"—much of it for Stock Exchange speculation—by nearly 60 per cent. The Chancellor, by allowing taxpayers to offset interest on overdrafts incurred for, perhaps, speculation against their taxable income, is conniving at the process.

We see it, too, in the commanding position which the Stock Exchange, in my view wrongly, once again occupies in the economy, with a totally unjustified and often harmful influence over productive industry. I would quote to hon. Members some wise words written twenty years ago: The volume of credit and the quantity of money should be regulated in accordance with the needs of the productive system and not dominated by irrational and anti-social speculation in the fluctuating value of securities. The proper function of the Stock Exchange is, as its name implies, to facilitate the exchange of stocks and shares for cash. A method must be found which will enable this useful function to be performed while at the same time abolishing the frenzied speculation which has such evil disturbing consequences of the productive system". Those words were taken from page 257 of "The Middle Way" by the present Prime Minister, and was published in 1937 by Macmillan and Co.

I will not follow the Prime Minister in his contumacious reference to the Stock Exchange as a "casino", or his disruptive suggestion that the Stock Exchange be by-passed by a newly created investment board for all shares except those of new firms. For hon. Gentlemen opposite the commanding heights of the economy are and should be in the City, and in private hands. In our view, they should be within the control of the community and accountable to it. That is why I said the Chancellor's reference to the hiving-off of some of the profitable parts of the State-owned steel industry would be bitterly contested.

The third development to which I would draw attention is the growing practice of financing private industry out of State funds. The right hon. Member for Woodford (Sir. W. Churchill), in his famous panegyric on the Conservative Party, forty-two years ago, referred to "the open hand at the Treasury", but even he could not have foreseen the arrival of a Government which have established themselves as a public assistance committee for mendicant capitalism.

In recent debates hon. Members on both sides of the Committee have expressed their anxieties about both the scale and the manner of some of these subsidies and loans. I will not, therefore, repeat these arguments, but I ought to mention what some Members may have missed, the alarming statement made during the election by the then President of the Board of Trade, now the Minister of Education, when speaking in Lancashire. He proudly boasted in Lancashire that the £30 million he had asked the House to provide for cotton would not be enough. He said that it would cost £50 million to £60 million, but he had not dared to tell the House it would cost that sum or he would not have got it. In other words, he admitted misleading the House in asking for this big sum. I have the right hon. Gentleman's exact words, which show the utter contempt with which Ministers treat the House in matters of public expenditure.

In this, as in so many other directions, the Government are standing the economic system on its head. The traditional position is that local authorities are free to borrow from the Treasury while private enterprise borrows from the market. Under this Government local authorities are forced on to the market on unfavourable terms while private concerns are encouraged to come and borrow from the Treasury.

Fourthly, I would draw attention to the growing "Americanisation" of our economy. We all welcome increased consumption and a rise in the standard of living. Indeed, this party has fought for these things for ordinary families for sixty years. But in some respects, as in the United States, our real productive strength, and the means of further expansion in the shape of capital investment, are now being sacrificed to sheer frivolities. They are frivolities called forth not by what the consumer wants, but by the lunacies of the advertising agents, who then go to fantastic lengths, at great expense, to persuade the consumer that those are the goods he or she really wants.

How many of the scientists we need are misdirected into these irrelevancies? I ask hon. Members: are they really satisfied with a scale of values under which, as a nation, we are spending more on advertising than on industrial research, more on packaging than on education, more on the egg subsidies than on the universities?

Finally, I ask hon. Members to consider how all these developments that I have mentioned can be said to be strengthening the basic economy of the country as it must be strengthened if we are to meet the challenge from abroad, especially the formidable scientific, educational, technological and industrial challenge from the Soviet Union. I ask them to consider how the excesses of speculation, the take-over bids, the property deals, the subordination of industry to finance, the misdeployment of our scientists and the development of an economy dominated more by the advertising agent than the productive engineer, all measure up to the purposive challenge from abroad.

Soviet production is increasing at a rate of at least 10 per cent. per annum against our five-year average of 2 per cent., and a much higher proportion of what we produce is irrelevant to the challenge of the age. Four per cent. of our national income goes to education, against 10 per cent. in Russia. If these basic trends are allowed to go un-corrected over the next decade—and the Chancellor yesterday showed no awareness of these problems—there is a real danger that our civilisation will be shaped in a way that can lead only to national decadence and a loss of our moral influence in the world.

The one hope for Britain lies in the reasonable assumption that before the 1960s are half over, an election different in its result from the last will ensure that these dangerous trends are reversed.

4.51 p.m.

The President of the Board of Trade (Mr. Reginald Maudling)

I have had several opportunities of following the right hon. Member for Huyton (Mr. H. Wilson) in these debates and it is always interesting to try to anticipate what line of argument he will pursue. Once or twice in the past, he has been guilty of inconsistency, as when last year, he accused us of an election Budget and, at the same time, accused us of a Budget that distributed its favours as narrowly as possible.

This time, I thought that the right hon. Gentleman might be a little torn between the two possibilities of accusing my right hon. Friend of being a skinflint Chancellor and planting on his brow the kiss of death. On the whole, the right hon. Gentleman chose the latter, because throughout his speech he was very careful, as was the Daily Herald this morning, not to criticise the Budget in any way. Clearly, hon. Members opposite have come to the conclusion that, as a matter of political tactics, it is better for them to praise the Budget than to criticise it. Those tactics will prove to be a little naïve when hon. Members opposite come to work it out.

The right hon. Gentleman's speech was composed of two parts. In the first, he went a long way to confirm his reputation as our best financial jester. In the second half, he ventured on some fairly serious arguments. In reply to the right hon. Gentleman, I will take up both his political challenge and the remarks made yesterday by the Leader of the Opposition about the election. I shall refer to those remarks later, because they were of interest, and also to the remarks made by the right hon. Member for Huyton about the position of our economy.

First, let me say one or two things about the developments of the last twelve months. This year, unlike previous years, the right hon. Gentleman did not pay the same amount of attention as he usually does to the development of the economy, for the fairly clear reason that during the last twelve months developments have been very satisfactory. In January and February, production was 11 per cent. higher than a year ago. Investment was 4½ per cent. higher than last year and 46 per cent. higher than in 1951, when the party opposite was in power. If the right hon. Gentleman wants any knowledge of what has been holding back investment, he should look at the change in business intentions before and after the General Election. That is a clear sign of why there has been any damper on recent investment.

Then, look at the unemployment position. [HON. MEMBERS: "What about Scotland?"] I will come to the position of particular areas. As the right hon. Gentleman is so often fond of comparing the production position in this country with what it is in other countries, as he did today, he should also compare the unemployment position, in which our record stands second to none. [HON. MEMBERS: "Not in Scotland."] During 1959, the number of employed rose by 350,000. The latest figures of unemployed are 138,000 fewer than in March, 1959.

Mr. Cyril Bence (Dunbartonshire, East)

The right hon. Gentleman is not speaking of Scotland.

Mr. Maudling

I have often heard that Scotland is in a different situation from the rest of the United Kingdom. If the hon. Member will compose himself in patience a little longer, I hope to refer to that.

Prices, which apply throughout the United Kingdom, have been stable since April, 1958. In January and February this year, exports were 18 per cent. higher than twelve months ago. There is an even greater increase in the North American market, the most competitive of all. The right hon. Gentleman once again referred to the fact that our share of the world market in manufactured goods was falling. That figure, however, can be misleading. The most important figure is what is our competitive position, and in the most competitive markets of all, the markets of North America, we have been increasing our share of the market. I should have thought that the right hon. Gentleman would have been happy to see that happen.

Last year, savings showed an increase of 15 per cent. on 1958, even after taking into account the great increase in hire-purchase lending. As for profits, to which the right hon. Gentleman referred, it is true that they were 11 per cent. higher. He did not mention that they were down by 5 per cent. the year before. That is a small point that must have escaped his attention.

I agree that gross dividends were 13 per cent. higher, but what the right hon. Gentleman forgets once again is that from the profits of industry we find a substantial source both of revenue and of savings, which again this year has been reflected in the state of the national economy. This year's proposals by my right hon. Friend the Chancellor will provide a considerable strengthening of the Exchequer when next year comes.

Then, there is the question of the balance of payments. It is true that the surplus in the balance of payments fell last year. There are reasons for that. In the first place, there was a considerable degree of stocking up. In the second place, we have very large markets in the overseas sterling area and it will not have escaped the right hon. Gentleman's attention that last year the imports of the sterling area fell, whereas the imports of many European countries were rising. Naturally, therefore, with our best customers recovering more slowly than the rest of the world, it is not surprising that our exports have risen less rapidly than in the case of some of our Continental neighbours.

That is the story of progress in the last twelve months. That progress was due in no small measure to my right hon. Friend's Budget of 1959. Neither the right hon. Gentleman nor the Leader of the Opposition opposed at that time the general scale of tax reliefs that were proposed. All that they said was that we should have done more and should have done it sooner.

The prospects for 1960 and 1961 are, clearly, a further vigorous expansion of trade, business and prosperity. Consumption, investment and exports are all likely to expand. The difference between now and 1959 is that we do not have the same amount of spare capacity that we had a year ago. It is certainly true of some parts of the country and of some parts of industry. That is one of the problems. We have a shortage of labour in the Midlands and the South and substantial and serious unemployment in Scotland and other areas. Similarly, there is a shortage of light sections of rod and wire, but a plentiful supply of beams and heavy steel products. That is one of the problems we must solve.

By the Local Employment Act, and by our help for the expansion of the steel sheet industry, we are trying to find ways and means of spreading out the capacity so that we do not get this imbalance between shortages in one area and surpluses in another. By and large, however, the fact is that our resources will be fully employed in the expansion that will take place anyway without any further stimulus from the Exchequer. Therefore, any net tax reductions would create demand in excess of the available resources. This can only be reflected, inevitably, in rising prices and in a strain on our balance of payments.

We have now had more than a year of vigorous expansion and stable prices. It would be folly to cast away that stability by trying to push that expansion one degree too far. Surely the lesson of the past year, or the lessons of recent years, must be that a tough Budget, if we like to call it that, or a restraining Budget or a fortifying Budget—or whatever we call it—is indeed a small price to pay for stable prices and a strong balance of payments.

Of course, our balance of payments is a considerable problem to us. Since the war our reserves have never been really adequate for their purpose and our capital payments, particularly to overseas territories, are rising all the time. Therefore, we must constantly watch our balance of payments for, if home demand gets too high, goods will be diverted from the export market to the home market as we can see from the example of chemicals, steel and one or two other things. A diversion from the export market is bound to affect the export trade.

Similarly, on the home market. If the home market demand is too high, we shall suck in more imports from abroad. Surely in this day and age there can be no doubt that excessive home demand is a deterrent to the export trade and the main danger to our balance of payments Therefore, I submit that my right hon Friend was absolutely right in calculating that it would be wrong, both on the ground of the need for stable prices and on the ground of the need for fortifying the balance of payments, to add in any way to purchasing power by his Budget.

If that argument be accepted, the degree of tax relief which can be given, and the level of taxation itself, is fixed by the level of Government expenditure. This rise in expenditure faces us all in this Committee with grave problems from which no one in the Committee, or the Government, or in the country, should seek to shrink. Let us look at some of the main items of increased expenditure above the line—defence, education, health, National Assistance, local employment, roads and universities. Below the line, if anything, expenditure has declined. But in addition, of course, we must add the burden on the balance of payments of very substantially increased aid to overseas territories. All these items of increased expenditure are things which people have agreed are good and in the national interest.

I said that expenditure below the line next year on the estimates will in fact be less than last year. It is above the line that the increase—

Mr. Nabarro

Because it is below the line and because it happens to be less than the year before does not in any way vitiate the argument of many of my hon. Friends and myself that expenditure on the nationalised industries, uncontrolled by the House of Commons, is very unsavoury.

Mr. Maudling

It is wrong to say that the expenditure is uncontrolled. Whether it is fully or properly controlled, obviously, is a thing which needs discussion and thought. I agree with that. But to say that it is uncontrolled is quite wrong.

For the sake of the party opposite I will draw a veil over the question of defence expenditure, because after the last debate on defence we can well imagine that we should get less defence but certainly no less expenditure from them, and that is quite clear.

Education, roads and the financing of local employment are, of course, essential investments in our economy and necessary to put us in the position to earn in the future the revenue and wealth which we ought to earn. The social services and the increased overseas aid we provide are a recognition of the moral duty to help those people in this country and other countries who have been left behind following the rising tide of general consumption.

All these items of expenditure are individually justifiable, but I think that what we and the country have to face are the consequences of this growing expenditure, urged on us from all sides, when looked at as a single sum. This expenditure has been urged on us from all sides as individual items, and not in a single sum, I agree; but the problem is essentially the lack of correlation between claims for spending on individual desirable items and the total bill as it is presented to the taxpayer. That is the fundamental problem at present facing the Exchequer.

Regarding the question of expenditure, though there may be grounds for critical examination, it certainly does not lie in the mouths of hon. Members opposite to criticise after what they said at the General Election. I listened with interest to what the Leader of the Opposition said yesterday in his account of the General Election. I thought it was rather like putting a looking glass before us—Alice in the looking glass. I fear that the strain of the last few weeks has caused the right hon. Gentleman to lose his grip on his logic as well as his party, which is not altogether surprising. The right hon. Gentleman said In a sense the point we have been making has been proved. It is clear that if we have an expansion, if we have a rapid rise in income and a rapid rise in production … we get a rise in revenue at the same time."— [OFFICIAL REPORT, 4th April, 1960; Vol. 621, c. 77.] That is precisely the point we made at the election—[HON. MEMBERS: "Oh."] —precisely, that the natural growth of revenue would be committed to the natural growth of expenditure upon the schemes to which I have just been referring.

We said, time and again, that the natural growth of revenue is mortgaged to existing expenditure which, by and large, the party opposite supported and asked us to increase. It was on top of that natural growth of expenditure that they wanted to pile the hundreds of millions which they cast before the electorate at the last election.

Mr. H. Wilson

Will the right hon. Gentleman explain the figures used by the Home Secretary, and which I quoted, when the right hon. Gentleman said that the natural growth of revenue would leave the Chancellor with only £85 million for financing increased expenditure. Seeing that the Chancellor is financing £323 million, apart from the extra demand below the line, will the right hon. Gentleman reconcile that with the statement made by the Home Secretary?

Mr. Maudling

The facts are even stronger than the argument of my right hon. Friend the Home Secretary. The natural growth of expenditure has absorbed the natural increase in revenue, which is the point I was making.

While on the subject of the last election, I should like to refer to something else which was said yesterday by the right hon. Gentleman the Leader of the Opposition, when he talked about General Elections and Budgets and said that when a General Election is impending, we always have an easy Budget, with plenty of tax concessions, but, as soon as the election is over, then the Chancellor of the Exchequer gets tough with the taxpayers and tough with the country."—[OFFICIAL REPORT, 4th April, 1960; Vol. 621, c. 76.] Let us examine this charge for a moment. When my right hon. Friend introduced his Budget last year he made a very large reduction in taxation and the party opposite said that he was absolutely right to do so. They did not challenge that in any way. They said that my right hon. Friend was right to have a so-called easy Budget at that time. Surely it is not suggested by the party opposite that my right hon. Friend should keep taxation higher than it ought to be or keep the figure of unemployment higher than it need be because he might have some fortuitous advantage at the election. Even the right hon. Gentleman would not rise to those heights of altruism.

So, on last year's Budget, there was no objection to the extension of taxation reliefs and on this year's Budget there is no objection to no extension of tax relief. Neither the right hon. Gentleman the Leader of the Opposition nor the right hon. Member for Huyton objected, and neither is there any objection to it in the article in the Daily Herald. Is it suggested that my right hon. Friend was wrong in having what is called a tough Budget now? If it is agreed that it was right to have an easy Budget before and a tough Budget now, what is the basis of the charge that there should have been an easier Budget?

Mr. Hugh Gaitskell (Leeds, South)

The right hon. Gentleman has not in anything he has said disproved what I said yesterday, namely, that before an election we have an easy Budget and after an election we have a tough Budget. Of course, we did not oppose what was done last year. What we said was that it should have been done long before, so that we would have got rid of unemployment long before.

Mr. Maudling

The right hon. Gentleman has confirmed my point. He agrees with last year's Budget. If he thought we were too easy, why did not he say so before the election? He did not say so. He agrees with this year's Budget; he thinks it right to be tough. If he thought we were wrong to be tough why did not his right hon. Friend say so? He cannot have it both ways. He cannot have the benefit of agreeing with us and the advantage of criticising us.

Mr. Gaitskell

The right hon. Gentleman had better try to answer this. Why is it that a Conservative Government allowed production to languish and unemployment to increase until within a few months of the General Election and then proceeded to let up? Then they had a boom and an expansion for everybody with the hope that they would be returned, and immediately they got back into office they clamped down with heavy taxation.

Mr. Maudling

I dealt with that clearly in my speech on the Budget last year, answering precisely the same point as that made by the right hon. Member for Huyton. We do not believe in rushing ahead as fast as they did and running back into another period of inflation and a balance of payments crisis. With the present strain on the economy, what position should we be in now and what sort of Budget should we have to introduce now, if we had followed the advice of the party opposite before the election and even during the election? I do not think they have any status to intervene in this argument.

Mr. Arthur Holt (Bolton, West)

May I refer back to what impressed me as an important statement of policy when the right hon. Gentleman said that the natural increase in revenue was mortgaged to the natural increase in expenditure so that things were already balanced? Does he really mean this? This seems to imply that we cannot hope for any cuts in taxation by this Government while they are in office.

Mr. Maudling

If that were always so, what the hon. Gentleman has suggested would be true. But I was talking about the position last autumn and so was the right hon. Gentleman the Member for Huyton. I agree that if the natural increases in revenue were always mortgaged to the natural increase of expenditure then the outlook for tax reduction would be poor. That is why it is so important that my right hon. Friend should concentrate on controlling expenditure and on another source of tax relief, increasing savings, which is too often forgotten in this context.

The point I was making was that, while there may be scope for criticism of the level of expenditure at the moment, that criticism does not lie in the mouth of right hon. Gentlemen opposite. Of course, when the party opposite was in these election difficulties, that did it a certain amount of harm, at any rate, according to the hon. Gentleman the Member for Coventry, East (Mr. Crossman). If I may quote him, he said, in one of his unusual moments of candour, that: These tax pledges were an advantage to the Tories. It gave them the chance to accuse us of election bribes. I am afraid it is true that our own defensive about Income Tax and Purchase Tax undermined in some way the image we had built up about the integrity of the party. I think that was a very fair assessment of the position. The right hon. Member for Huyton has always come to the aid of his leader, and he tried to help him in the election campaign by producing arguments which he has produced again this afternoon about taxing expenses and capital gains.

They are not arguments worthy of a financial expert of the type which we know the right hon. Gentleman is when he really tries. During the election there was some discussion about how much could be obtained from taxing business expenses. In one speech, the Leader of the Opposition said that we could get £100 million from this, and, in another speech, he said that this was not a major item in their programme. In a programme on his scale I am not surprised that it would not be a major item.

The question of business expenses is grossly exaggerated. When Sir Stafford Cripps tightened up business expenses in 1948, he reckoned on getting an additional £250,000, and he was no mean expert in tightening the screw when he thought that it was right to do so. The new measures which my right hon. Friend has properly introduced this year will not produce any increase in revenue next year. In some cases they are designed to prevent opening the gate to a large flood of tax avoidance. In others it is a question of maintaining a sense of fairness between taxpayer and taxpayer, which, I think, everyone agrees is the basis of the taxation system. But to suggest that from this source could be obtained the vast sums of money which hon. Members opposite talk about—

Mr. H. Wilson

The right hon. Gentleman apparently still supports the estimate of £250,000 from the tax avoidance drive. Does he or does he not agree that one of his right hon. Friends admitted a loss of £12 million in a single year from tax avoidance alone? Does he or does he not agree with the figure of £40 million for Treasury subsidised drinks without taking account of other expenses?

Mr. Maudling

I saw the article in which the figure quoted by the right hon. Member appeared, but I am not sure that I accept the accuracy of it or the implication. I also saw the article in the Observer, which no doubt the right hon. Gentleman also saw, on the question of tax avoidance and the question of income returns by companies and individuals, and, as I thought he would probably raise this in his speech, I took the trouble to get advice on the accuracy of it. I am assured that the figures which the right hon. Gentleman quoted in the article and which he repeated this afternoon have not been fully understood, and so the conclusions are largely misleading. I am not altogether surprised. Of the so-called one-man companies, in the case of about 50,000 the trading surplus goes on the salaries of directors and not as profits at all. They are taxed on that basis. That is the whole point. In addition, the lowest range includes several thousand small clubs, with quite trivial trading activities, which make no profits at all. Those are the sort of facts which one must look at with great care before accepting figures at their face value.

Mr. Wilson

I did not take the figures from the Observer but from the Financial Times and the report of the Commissioners of Inland Revenue. Is the right hon. Gentleman aware that the deductions that I drew from those figures were taken from prominent tax experts and indeed from the association representing the employees in the Board of Inland Revenue? That is where I got the deductions from.

Mr. Maudling

I know that the right hon. Gentleman always thinks of everything before any one else. He has told us this six times this afternoon. He thought of it first. I took the precaution, assuming the right hon. Gentleman would take the trouble to quote these figures to get the best information from the officials who advise us and who are in the position to get that information.

The other point which the right hon. Gentleman raised was the so-called capital gains tax. How much money does the party opposite think could be obtained from the capital gains tax? When this came up, the Royal Commission accepted an estimate of some £50 million a year. I know that the minority Report said that it was more, but I prefer to accept the majority Report as more likely to be accurate. This was not taking into account any offsetting effect of savings and investment. I cannot imagine anything having a more serious effect on savings or investment than a swingeing tax or capital levy.

Mr. John Cronin (Loughborough)

I am sure that the right hon. Gentleman wants to be fair to the Committee. These figures of the majority Report of the Royal Commission which he gave us were based on the last thirty years or so, which included one of the largest slumps in history, which is not likely to be repeated in the future, so that the figure given by the majority Report of about £250 million is much nearer the mark.

Mr. Maudling

If I understand correctly the figure of £50 million was given by the Inland Revenue, which is pretty good on these things, and I accept that figure. I am prepared to stand on that.

So far as the actual Budget proposals are concerned, I do not think that the right hon. Gentleman had much criticism to make, and therefore I do not need to enter into any long discussion on that.

I think that the Income Tax and postwar credits reliefs are modest but will be extremely welcome to a large number of people. I think that the assistance given to savings, both by improvement in the National Savings Movement and the Estate Duty changes, are more important than has been realised, and that this assistance to savings will be of very considerable benefit in easing the strain on the economy in the coming year. I was surprised at the point of view of the Leader of the Opposition who seemed to think that if I gave my son a gift of money I was trying to avoid death duties. I think that that is a retrograde point of view. I must warn my son the next time that he has his pocket money it is really an avoidance of death duties.

The right hon. Gentleman was talking yesterday as if any gifts were an evasion of Estate Duty. That has been a point of view which has, I think, often been held by the other side of the Committee and is one which we on this side of the Committee do not agree with.

Concerning the new revenue, the reasons for having some additional revenue have been rehearsed fairly fully. This is part of the general need to protect the stability of prices and to fortify the balance of payments. I think that in looking for new revenue my right hon. Friend was right to turn to tobacco. It is a commodity which, by and large, is imported across the exchanges and this is an impost which is spread pretty widely across the community. Althougn it is an amenity to many people, it cannot be described as a necessity, and it is certainly an item which will yield an increase in revenue because consumption continues steadily to rise.

As for the proposal for Profits Tax, which I think is rightly based on the buoyancy of profits generally, we are facing these increasing bills for social services, education and aid overseas. It is of great importance to the future economy and stability of the country. In meeting these bills my right hon. Friend is right to turn to the sector of the economy where there is considerable buoyancy of income.

I do not think that the Profits Tax will have any effect at all on the level of industrial investments which is at the moment buoyant and high and very encouraging. I think that the level of industrial investment will be determined not by the Profits Tax level or the Bank Rate but by the manufacturers' prospects of selling their products. I think that they will be more certain of their future prospects when they see a Budget which is cautious and prudent of the type introduced by my right hon. Friend yesterday.

One final argument is whether my right hon. Friend has been severe enough. There are those who say, and who will say, that he should have been more severe.

Mr. Nabarro

Not me.

Mr. Maudling

There are other points of view, less important, no doubt, than that of my hon. Friend, but nevertheless worthy of consideration.

There will be those who will say that my right hon. Friend could have been more severe, and if they do they should specify in what way. It is very difficult to calculate exactly the way the economy will go in the next year. Even the Economist was saying last week: The psuedo-science of quantitative forecasting is subject to far too wide a margin of error. I must say that we humbler mortals entirely agree with that. There are so many imponderables. There are the sales in the sterling area, the extent to which the labour force can expand, the rate of savings, and the position in Europe which is very hard to predict at the moment. All these things cannot be exactly weighed and provided for.

My right hon. Friend had to form a judgment in producing this Budget with its moderate degree of restraint on the economy. People may say that he should have erred on the side of caution, but that assumes that all caution is on one side, that there are risks only on one side, which is just not true. It is certainly important to avoid the danger of inflation, but I do not think that anyone can estimate mathematically how much of a surplus one needs to avoid inflation or deflation. There is the danger, as hon. Members opposite have said, of the shock to confidence which must be avoided, and which my right hon. Friend has avoided.

For some time now we have had expansion without inflation. We have had record investment and record savings. We want all these things to continue. They can continue and they will continue so long as confidence remains. I think that everyone can see the need to moderate the rate of advance, not to check it, and to fit it in with the resources of the country. But a sharp check at this stage would have serious effects. Hence the desire of my right hon. Friend to fortify the economy, not to accelerate it or to impose a sharp check.

As my right hon. Friend made clear, he is ready to act upon the growth of private credit if he feels that should be necessary. Therefore, I think that it is difficult to sustain the argument that my right hon. Friend was not severe enough. Had he been too severe he would have fallen into a danger just as serious as the danger which was threatened from the other flank.

Mr. G. R. Mitchison (Kettering)

I am obliged to the right hon. Gentleman for giving way. We have all enjoyed his excursion into Treasury matters, but would he inquire from his right hon. Friend the President of the Board of Trade why it was necessary to concede nearly £4 million to lower the prices of port, champagne and other wines while doing nothing for council housing and old-age pensioners?

Mr. Maudling

I will certainly talk to my right hon. Friend the President of the Board of Trade, but if the hon. and learned Gentleman will be good enough to read my right hon. Friend's speech yesterday he will see the reason.

Mr. Mitchison

rose—

Mr. Maudling

My right hon. Friend dealt with this matter yesterday perfectly clearly and he gave exactly the reason why the change has been made. If the hon. and learned Gentleman cares to pursue the matter in Committee no doubt he will be able to do so, but perhaps he will first read what my right hon. Friend said.

Mr. Mitchison

rose—

The Temporary Chairman (Dr. Horace King)

If the right hon. Gentleman does not take his seat, the hon. and learned Gentleman cannot speak.

Mr. Maudling

I have really answered the point; I have given way quite a lot in the course of my speech, and have endeavoured to deal with all the points raised.

The argument that I have tried to make is that my right hon. Friend had to reach a difficult judgment in the matter. To have remitted taxation now would have been to add to the expansion of the economy, to add to the danger of rising prices and to add to the danger to the balance of payments. That would have been wrong. On the other hand, to have imposed a severe check would have been a blow to confidence which might have created just as serious dangers. Therefore, I think that in producing this Budget of moderate restraint on the growth of consumption and in the distribution of his reliefs of taxation and his additional charges my right hon. Friend has met exactly the requirements of the economy. Nothing that has been said from the benches opposite has thrown the slightest shadow of doubt on that.

5.24 p.m.

Mr. John Diamond (Gloucester)

It is my duty, following the right hon. Gentle-ment the President of the Board of Trade, to pick out and to attempt to controvert some of the arguments he has used. I find this especially difficult because the right hon. Gentleman devoted between two-thirds and three-quarters of his speech to fighting the General Election all over again. He may have been stimulated into doing this, but it does not help us very much in attempting to enter into a serious debate, the most serious economic debate of the year. Instead of giving us a great deal of information, which no doubt the right hon. Gentleman has got, and helping the Committee to understand the position a good deal beter, he proceeded to fight once more the General Election which he has already won. He is already in office and he is there, no doubt, for five years to come. It is better to make these fighting speeches when we get nearer to the date of the next election.

The majority of us are more concerned with facing the difficulties which lie ahead. That is what I regard as my responsibility. I will not atempt to deal even with the right hon. Gentleman's suggestion that death duties relate to pocket money given to one's children. I do not think that that is a level of debate worthy of an answer at all.

As to the general level of the Budget, I do not dissent from what the right hon. Gentleman has said. I agree that, by and large, the Chancellor has acted sensibly in not over-stimulating the economy and in not placing too large a restraint upon it. I go further. I do not accept the view that it is the Chancellor's duty every year to bring forward a multiplicity of tax increases and tax allowances in order to demonstrate that he is aware of his responsibilities. I should have thought that he ought to claim for himself, and I am sorry that the right hon. Gentleman did not do so, the greatest credit. Surely the best evidence that the economy is running more or less as we would like to see it is that the Chancellor has the least to do at Budget time and that, therefore, the Finance Bill is the smallest and not the largest. To my mind it is not a valid argument to say that in order to prove that one is a clever Chancellor doing what the nation requires one should introduce a mass of new taxes.

I repeat that I welcome a good deal of what the Chancellor said yesterday with regard to his proposals. I welcome the abolition of the cinema tax. It is true that this dreadful two-year lag seems to apply as much under this Government as it did under the Labour Government. When one makes a speech, and if one has the good fortune to have an idea which commends itself to the Government, it always takes two years to go through the machine and to come back in the form of a Budget Resolution. The pity about it is that all these cinemas have closed. Not all, of course, would have remained open had this been done, but the need for this to be done was, if anything, greater two years ago than it is today. Nevertheless, we must not look a gilt horse in the mouth, and I welcome what the Chancellor has done in removing the remains of the cinema tax— which is called Entertainments Duty, but refers exclusively to cinemas.

I welcome everything he has done in anti-tax-avoidance measures. I am in great difficulty here because, two years ago, we were exactly in this position at the same time in our Budget debates and, stupid man that I am, what did I do? I congratulated the Chancellor and said that he needed the support of this side of the Committee because he would get into trouble from his own back benchers and he could rely on us for support. That was in regard to retrospective legislation in relation to dividend stripping. The Chancellor was got at by his own back benchers.

Mr. Nabarro

And he will be got at again.

Mr. Diamond

He committed the big-gest folly he has over committed. Having come forward with anti-tax-avoidance measures, he took the most unwise step of going back on them and it was much worse than if he had never put them forward.

Mr. Nabarro

rose—

Mr. Diamond

I know that the hon. Member for Kidderminster (Mr. Nabarro) wishes to interrupt me, but he should give me a little time. I hope that this history will not repeat itself. Therefore, I want to make it quite clear to the Chancellor that I am not in favour of what he is doing because I do not think he has gone half far enough. I hope that, if I make it plain that he has not gone half far enough, we shall not have the same unfortunate results as last time.

Mr. Nabarro

If the hon. Member will be fair in his analogy, he will immediately recognise that the item of retrospection proposed in the present Budget involves a decision made earlier by courts of law and is not in any way concerned with tax avoidance. The reversing of a decision made by a court of law is a very serious matter indeed.

Mr. Diamond

The hon. Member for Kidderminster should not regard it as absolutely essential that every time I get to my feet he must interrupt me every five minutes, as he has done on previous occasions. If he has not understood, I am sure the rest of the Committee has understood that in referring to anti-tax-avoidance measures I am not referring to a particular matter which no doubt will be dealt with in a particular Clause of the Finance Bill. I am not talking about the necessity to see that encouragement is given to pay taxes, but that encouragement is given not to avoid paying taxes.

This is important at this stage because, two years ago, we were in exactly the same position and the wheels were turned so that the vehicle was driven the other way. That is the last thing I want to happen. Therefore, I endorse everything that was said by my right hon. Friend the Member for Huyton (Mr. H. Wilson). The Chancellor is to be congratulated for going so far as he proposes in these measures, but he has a great deal further to go before he will give satisfaction to this side of the Committee—and certainly to me, and I am the only person on whose behalf I can speak.

I am absolutely astonished that, in spite of the great steps forward the Chancellor has made, he saw fit to give another encouragement to tax avoidance by the steps he is proposing in relation to gifts inter vivos. It is so evident to all of us that death duties are an almost archaic tax. Death duties are something which no one pays unless there has been negligence and provision has not been made for themselves; or if, perhaps, late in life, a widow is left a large sum of