HC Deb 10 April 1962 vol 657 cc1155-273

4.8 p.m.

Mr. James Callaghan (Cardiff, South-East)

I think that every hon. Member in the Committee can enter sufficiently into the feelings of the Chancellor of the Exchequer to realise that introducing a Budget is a great ordeal. I must say that the right hon. and learned Gentleman surmounted the ordeal yesterday with ease and poise. In the fashionable words of today, he was relaxed—or, at least, he appeared to be relaxed. I know enough about it to know that appearances can often be deceptive on matters like this, but I am sure that we all congratulate him on the appearance he gave at the Dispatch Box yesterday.

We then go on customarily to say that, of course, the matter was very bad. And I customarily do so. I think that even hon. Members opposite will agree, whatever their public pronouncements, that in some senses this is a Budget of lost opportunities. Both sides of industry are looking to the Government today for leadership. Both sides of industry are anxious to know what are the future prospects at home. They are anxious to have guidance about investment plans for new machinery and new plant. They are anxious to know what are the prospects of a rise in home output. Above all, they want to know in what circumstances, and when, we can break away from an increase in national production which, last year, was only 1 per cent. and which, over the last decade, has risen at only 2 per cent. per annum—the lowest in Europe. They want to know the consequences to them of the present Common Market negotiations.

Those are questions that I think many hon. Members came to the House yesterday hoping to hear discussed. This is the moment when we need economic leadership and statesmanship of a high order. I am sorry to say that yesterday afternoon the Chancellor missed that opportunity. Instead, he gave us a lecture on how to handle the petty cash. The ordinary citizen is seeking for signs that the drift in the country's affairs is coming to an end. He wants to feel confidence that Britain is on the move again; that there can be a surge forward in our industrial pattern and output. There is a general lack of confidence at present in the Government's handling of our economic affairs. I do not need to point to recent events in the country to demonstrate that. The Budget speech, and the Budget itself, both failed yesterday to restore that missing confidence.

Let me sum up the main points in the Budget. The capital gains tax—to use the words of the Institute of Directors—is innocuous; the sweets tax is contemptible; the Schedule A tax proposal is electoral, and the whole Budget is trivial.

The right hon. and learned Gentleman has a policy to keep down wages even though prices go up; to keep down home production until exports have risen. He has advocated it since last July. So far, he has failed to convince scarcely anyone of the merits of that policy, and yesterday he hardly tried to do so. He missed what should have been the essential push in his speech by referring us to the National Economic Development Council and its activities.

I think that we must all agree that there is nothing at all in the Budget that will overcome the fundamental weaknesses in Britain's trading position. There is nothing in it to stimulate our lagging exports. There is nothing in it that will step up productivity. There is nothing in it that will remove, or even begin to remove, the bogey of balance of payments. Yesterday, these fundamental questions were neither asked nor discussed. The Chancellor contented himself with what one newspaper calls a "Lollipop Budget".

I come to the first of the Chancellor's proposals—because I suppose that we must discuss his proposals before going to the more serious issues—the capital gains tax. The right hon. and learned Gentleman told us that he did not propose to introduce a capital gains tax—he was quite frank about that—and he has not done so. This is a capital let-off tax. His reason for refusing to introduce a capital gains tax is that it would harm saving, investment and economic growth. If that is so, how does he explain why such a tax operates throughout most of the countries of Western Europe and the United States without harming—what is it?—saving, investment and economic growth?

This is a voluntary tax. It will be largely ignored. Already, people are working out ways to avoid it. All that it proposes to do is to charge the taxpayer on gains he makes on stocks and shares within a period of six months, and three years in regard to land and the interest on land. Incidentally, if I might pop in a question now, does the three-year period apply to houses in regard to which there is also an element of land?

To avoid the tax, as I am sure every hon. Member opposite has already found out, what one must do is to hang on to one's shares for six months and a day —

Mr. Gerald Navarro (Kidderminster)

Hear, hear.

Mr. Callaghan

I am sure that the hon. Gentleman, who has made his fortune out of maintenance claims, is on to this one quickly.

The taxpayer is to be entitled to set off his short-term losses against the six-months' profits. Most people who will be concerned with this tax will be capable of buying a bundle of shares. What will they do? They will keep for longer than six months those shares that have made a profit. They will sell off their loss leaders, if I may call them such; those shares that make a loss—slightly before the six-month period is up, in order that they may compensate themselves for any sales they may have made in the meantime, and then, if they do not want to make a legitimate, a real loss, they will buy back the shares they have sold at a loss one day after the six-months period is over. It is as easy as that. I quite agree that there will be double Stamp Duty, and that that may be a slight deterrent, but if, on the other hand, there is to be set off against that Income Tax and Surtax, I have little doubt where the balance is likely to lie.

First, I want to ask the Chancellor: will there be some provisions in the Finance Bill that will make it difficult, if it does not prohibit, the repurchase of shares that have been sold to secure a six months' loss? I do not know whether the right hon. and learned Gentleman can do it, but he should certainly try to do it if the tax is to be something more than a mockery.

Bonus shares—we have not had so much of them recently but I would expect to see a spate of them now—and rights issues will not attract taxes, although they are clearly uncovenanted capital gains. The only circumstance in which they will be chargeable will be when the original shares from which the bonus shares and rights spring were themselves bought within the six months immediately prior to the bonus share or rights issue.

Can that in any way be construed as a tax, not merely on capital gains, but as a levy on any type of gain at all? It is monstrous to suggest, as I have seen in one newspaper this morning, that earned income relief will be allowed on these capital gains. Will the Chancellor give a clear assurance that no such intention will appear in the Finance Bill? I hope that he will refute it immediately, but I cannot really imagine what has caused Lord Ritchie to say that he is at the end of his tether in regard to this tax.

I am glad that the Chancellor has exempted the owner-occupier—I think that he was right to do that—but, I repeat, this short-term capital gains tax is farcical. It will yield little revenue, as the Chancellor himself has said, and we have plenty of evidence to show that that is so. I do not know whether the right hon. and learned Gentleman has studied the American capital gains tax From 1938 to 1941, the period in which short-term capital gains were assessed was eighteen months. In 1941, net gains on assets held for eighteen months or less were only 15 per cent. of the total of realised capital gains—only 15 per cent. That was the amount that would have been brought in under a pure short-term tax, though, as the Committee knows, in America there is a long-term tax as well.

In 1942 and 1943, America changed the basis of the short-term tax and reduced it to six months. As a result, net gains from assets held for six months or less amounted to 8 per cent. of the total net capital gains. Now I come up to date. From 1956 to 1958 short-term capital gains for less than six months represented 3 per cent. of the total capital gains.

That was the experience of the United States and that is why I say that it is a voluntary tax. Under the Chancellor's proposals, if the American pattern is repeated, 97 per cent. of the capital gains accumulated on stocks and shares will be lost and will fail to be taxed. However, the details I have given do not represent the end of the American experience. In the same period—from 1956 to 1958—when short-term gains represented only 3 per cent., short-term losses were greater. There was a net loss of revenue to the United States Treasury on the basis of a short-term capital gains tax.

That is why the Americans do not rely on it. They have a proper capital gains tax that brings into account un-covenanted benefits that have been secured over any length of time giving an abatement for the length of time during which the capital gain has been coming to fruition. That seems to be a much more sensible proposition for the Chancellor to have made.

Mr. Peter Tapsell (Nottingham, West)

Do not the figures which the hon. Gentleman has been quoting indicate that the speculative element of investment is, in fact, very small?

Mr. Callaghan

They show that American investors in stocks and shares know well how to work the system to ensure that they do not pay any capital gains tax and I am sure that the best minds in the City are now hard at work to secure the same sort of result here.

For land, the Chancellor is making it a longer period; three years and not six months. I am sorry to weary the Committee, but I must quote some practical cases to show what is happening now so that we can see how far it is caught. Some land just outside London, valued at £100 per acre five years ago, is now fetching £3,000 an acre and is not caught. That is one example. Land purchased seven years ago for £100 an acre was sold last year for nearly £10,000 an acre. Not caught. An half-an-acre plot with a five-bedroom house—and this follows the question I asked earlier, about whether this will be included because, as I understand the proposals, it will not—was bought for £4,500 seven years ago and is now selling for £25,000. That is the asking price. What about £800 that was paid for eight acres of land four years ago and which has just been sold for £11,000?

Then there is some land which was wanted by a county council in 1959 and which then cost £1,500. Similar land is today costing £36,500. Another piece of land cost a county council £9,000 in 1959 and the present cost for a similar piece of land is £28,000. A 64-acre estate was sold for £25,000 in 1958 and was recently resold, not for £25,000 this time, but for £210,000. A Victorian house in 2 acres of ground was sold in 1948 for £3,500 and was recently resold for £55,000. Another 2¼ acre piece of land was sold in 1958 for £5,000 and an adjoining site has been offered for sale at £40,000. And so it goes on.

None of these will be caught by a short-term tax—not even by the three-year period. I am not surprised that the Chancellor emphasised that the yield is not his main purpose, but I am astonished that he should think, to use his own words, that he is achieving "a greater sense of fair treatment" between taxpayers. What sort of world is the Chancellor living in? Is he so incarcerated in the Treasury that he does not know what ordinary people are thinking about these sort of propositions that are going on day after day?

How can the right hon. and learned Gentleman imagine that his announcement will convince the nation that there is fair treatment between man and man when everyone knows that the Stock Exchange speculator will pay practically nothing and that, while people operating in land will be caught to some extent, these fantastic examples will not be caught at all? My reply to the Chancellor is that if he wants to get a sense of fair play he will not get it unless he gets the yield of tax as well.

People are not easily deceived these days by these games of make-believe. A proper capital gains tax must not only involve some measure of redistribution of income, which would be valuable, but it must introduce a sense of social justice which would also enable us to relieve some of the lower-paid taxpayers. From examining the figures there is no doubt that the Chancellor and the Conservative Party, as the Government, have been shovelling the tax burden from the shoulders of the wealthy on to those of the lower paid.[HON. MEMBERS: "Shame."] It is no use hon. Gentlemen opposite disagreeing. I have been brushing up on my rusty Inland Revenue knowledge and have been working out the figures.

Mr. Nabarro rose

Mr. Callaghan

Since the Chancellor focussed attention on this matter he cannot but expect that my hon. Friends and people outside the House of Commons should turn their attention to this subject. They will turn their attention more and more to the ownership of wealth—in which, as we were shown at the weekend, 2 per cent. of the people own half the personal wealth of the country, a situation which, I understand, is hardly repeated in any other civilised country in the world.

The Chancellor said that he intends to deal with Schedule A in the 1963 Finance Bill. The tax is to disappear after a century's existence and I do not suppose that there will be many house-owners who will mourn its passing. Certainly, those who have grappled with and have tried to understand the intricacies of a notional income will find themselves relieved of a headache.

The earliest date on which the Chancellor will be able to give any relief is 1st January, 1964; that is, if he introduces it in the 1963 Finance Bill. But if the Chancellor takes more than one bite at the cherry—and we understand, from a meeting that he had in another part of the House last night, that he will—it will be 1965, 1966, or later before Schedule A disappears. Why did the right hon. and learned Gentleman make his announcement about this matter at this time? Was he frightened that people might appeal against their rating assessments, or because some party managers remember that there are a couple of crucial by-elections dawning on the horizon?

As the Chancellor has, at long last, agreed to this concession, why does he delay? Why does he not do it now? He could have done it last year, when my hon. Friends moved an Amendment which would have excepted from tax the first £15 of the net annual value.

Mr. Nabarro

Hear, hear.

Mr. Callaghan

Why did he wait?

Mr. Nabarro rose

Mr. Callaghan

I will give way to the hon. Member, although I hope that he will realise that I have a long memory. I recall the last time I endeavoured to put a point to him, when he refused to give way. I can assure the hon. Member that he will never put me off my feet by rising and shouting.

Mr. Nabarro

I will speak softly. I just want to correct the hon. Gentleman. In the Finance Bills of 1960 and 1961 the new Clause selected was in the name of myself and the names of some of my hon. Friends. That called for the total abolition of Schedule A tax. The hon. Gentleman's remarks were incorrect because it was in 1959 that partial abolition, up to £15 of the net annual value, was moved in an Amendment by his right hon. Friend.

Mr. Callaghan

My right hon. Friend tells me that it was first moved in 1959 and again in 1960.

But the point which I want to put to the Chancellor of the Exchequer and to Conservative Members who are so pleased about this is that if they had accepted, instead of voting against, the Amendment moved by my right hon. Friend they would not just have exempted the first £15 of net annual value, but would have cut out of Schedule A tax altogether millions of small terraced houses and semidetached houses, because outside London —

Mr. Nabarro indicated dissent.

Mr. Callaghan

It is no use the hon. Member shaking his head. In the Welsh valleys and in many other country areas there are plenty of houses with a net annual value of £18 or £20 or £16, and those houses would have been removed completely from the realms of Schedule A if the Chancellor had accepted in 1959 what he then refused and has accepted only now.

Mr. Arthur Lewis (West Ham, North)

In fact, he has not accepted it yet. It is only a promise.

Mr. Callaghan

He has accepted it in principle. I agree that it is only a promise.

Mr. A. Lewis

Is not my hon. Friend aware that the Chancellor also promised a capital gains tax last year? He has run away from that promise this year. What guarantee is there that he will not run away again?

Mr. Callaghan

It may well be, as my hon. Friend says, that the Chancellor will not implement this promise. His approach is, "I will deal with it next year. It will end for owner-occupiers, although I do not know exactly what will happen". It reminds me of the old song, suitably adapted, I'll pay it off, Don't know how, don't know when, But I'll pay it off some sunny day. If he is to do it, this is the time to benefit the Schedule A taxpayer, not in the future. If he is to get rid of it, let him do it now and not use this as a General Election bribe whenever it comes along.

I turn to indirect taxes. The Chancellor has a great sense of fair play. He has used this argument in both Budgets. Last year his sense of fair play led him as an act of social justice, and in an attempt to restore some sense of equity, to relieve Surtax payers of £86 million of Surtax. This year his sense of fair play has led him to propose a new tax on sweets. It is with the same sense that most of the country will regard that tax as contemptible. If it is fair play and giving promises for the future which concerns the Chancellor, why could he not give some hope to the old-age pensioners for the future? If we are dealing in social equity and social justice, and he can give promises to Surtax payers and for the remission of Schedule A, are there not other groups in the country who might also have had something to look forward to?

I am sorry that the Chancellor has done nothing to relieve the omnibus companies and municipal undertakings from some part of the fuel tax. In remote country districts, as is well known on both sides of the Committee, this tax may sway the balance between deciding to run a bus service and cutting off a country area completely. In some parts of the country it has already done so. But even in the urban areas it is important. This morning I received a letter from the Town Clerk of Cardiff, in which he told me that in 1945 fuel tax cost the city roughly £17,000 whereas today it is costing the city £80,000, which is approximately equivalent, he told me, to the cost of a wage award of 18s. a week. I am sure that the Committee agrees that something should be done to remit fuel tax in this respect.

Turning to Purchase Tax generally, the Chancellor is on a logical point when he draws attention to the different rates of Purchase Tax on jewellery, 27½ per cent., and cosmetics, 55 per cent. but he should beware of too much logic. Cannot he draw the distinction between, for example, a mink coat and a boiler suit? It was the late Hugh Dalton who invented the distinction, without making any moral judgments; he regarded Purchase Tax purely as a revenue raiser in which he would assess some items more heavily or less heavily than others on a basis of judgment which might be moral or might not. On the other hand, he decided, and I think that he was right, that there was a case for raising revenue by this means on certain items.

We are suspicious that the Chancellor is preparing the way for a sales tax. If he is doing that, it would be a regressive tax, and we should most certainly oppose it from this side of the Committee, because we do not know where it would stop. It would bring in many items which are today exempt, such as coal, oil, books, building materials and, above all, perhaps foodstuffs. If we are to have a general sales tax, the effect on the cost of living and the retail price index and on the general economy of many people will be most serious.

In any case, in my view the Chancellor is pitching the yield of indirect tax far too high, and there is a case for a reduction, to which I will come. He could have got rid of all taxation on articles taxed at 5½ per cent. and 12½ per cent.—clothing, footwear, scarves, gloves, cushions, pillows, furnture, ironmongery, and so on. For £100 million, a little more than he gave to the Surtax payers last year, he could have got rid of that tax, and it would have been a worth-while reduction.

Indirect taxation, together with National Insurance contributions, is bearing too hardly upon the family man at present, and there is a case for transferring the burden. It is not only a question of indirect taxation. Part of the eleven-year operation of the Conservatives has been not only to alter the burden of indirect taxation so that the small man is bearing more than his fair share; they have also altered the burden of direct taxation, and the Leader of the House need not look very far to know the reason why electors are deserting him.

Let the right hon. and learned Gentleman listen to some of the figures. I am sorry that I shall have to give the Committee rather a lot of figures, but it is important that we should have this on the record. The average weekly earnings of men over 21 last October was £15 6s. 10d.

Mr. Ellis Smith (Stoke-on-Trent, South)

That is earnings.

Mr. Callaghan

I would point out to my hon. Friend that 60 per cent. of all male workers earned less than this figure. There are always many people in the lower income groups who find it difficult to understand that the average is as high as £15 6s. 10d.

But it is equivalent to £798 per annum. I want the Committee to note these figures. In 1955, when the Government formed their new Administration, the total tax and National Insurance contributions, adding the two together, borne on a salary of £800 was £53. The total tax and National Insurance contributions paid on a salary of £800 today is £72. This is the liability which I have worked out for a married man with two children under the age of 11. The result of the last seven years of Tory administration has been to put an extra burden of £20 per annum on the average weekly earnings of men.

What is interesting is that the average weekly earnings of administrative, technical and clerical workers, the so-called white collar workers, which has recently been the subject of inquiry by the Ministry of Labour, are almost exactly the same—£15 9s. 11d. compared with the figure of £15 6s. 10d. for manual workers. Their tax liability is, therefore, the same, and they, too, are £20 a year worse off on the same income.

Let us consider the monthly-paid white-collar workers. According to the Ministry of Labour, their earnings were £1,280 per annum on average, or £106 per month. I have taken the tax tables at £1,250. Under the Tory administration in 1955, the tax payable by a married man with two children was £166 on earnings of £1,250 per annum. That is the average for all the white-collar workers who are paid monthly. This year the tax liability is £150. They are £16 a year better off in tax, but that is more than wiped out by the increase in the graduated contribution which has been exacted from them since last July.

There are roughly 20 million P.A.Y.E. employees. Do the Conservative Government realise that 19 million of them are paying more in lax and National Insurance contributions on the same level of income than they were seven years ago—19 million out of 20 million? Seven years ago over 4 million people were wholly relieved from paying tax because of the personal allowances. Today, that figure is less than 2 million. Incomes have risen, but the level of exemptions has not risen with them. In fact, the Chancellor today is taking £350 million a year more in P.A.Y.E. than in 1955. In 1955, P.A.Y.E. taxpayers earning less than £1,500 per annum paid £550 million in tax. I am referring to those earning below £1,500, the high levels. Today, they are paying £870 million in tax.

As a proportion of the total amount paid in Income Tax, Surtax and Profits Tax, the P.A.Y.E. earner has been milked. Seven years ago he used to pay £1 in every £4 of the total taxation. Today, he is paying £1 in every £3. The proportion of his total tax burden has increased from 24 per cent. to 33 per cent. During this period—and this is the indictment against hon. Members opposite—the standard rate of tax has twice been reduced—from 9s. to 8s. 6d. and from 8s. 6d. to 7s. 9d. In addition, Surtax has been reduced.

The total of those reliefs at the top end of the scale is £430 million. But what successive Chancellors have failed to do is to increase the allowances at the bottom end of the scale, which cover not just the main groups but the great mass of the nation of whom I am speaking. Earned income relief has not been changed since 1952. Personal allowances were last increased in 1955. The allowance for wife's earnings was last increased in the same year. The child allowance was last increased in 1957. The income of a dependent relative qualifying for dependent relative relief was last increased in 1955. The maximum income qualifying for reduced rate relief has gone down since 1954. How many hon. Members opposite realise that fact?

The truth is that if we neglect the averages and take the ordinary men and women who now Work a bare week, we find that they are having a tough time today. I refer to such people as the railway porter in London whose bare weekly wage is £8 14s.; the provincial bus driver whose maximum on a bare week is £10 3s. 6d.—for not ail of them work overtime, not all of them get the opportunity; the provincial postman Whose bare weekly wage is £11 1s. 6d. or the "M" rate people who are confined to no increase at all and are later to be paid up to 2½ per cent., whose bare weekly wage is £8 19s.; the first hand in a bakery, in regard to whom the recommendation by the wages council has been sent back by the Minister of Labour for reconsideration, £9 1s. 2d.; and the milk roundsman £9 8s.

These are the people we are talking about. If the Chancellor and successive Governments have pulled the wool over their eyes during the last few years, the scales are now rapidly falling and people are beginning to see what the Government have done. I have not mentioned the position of women workers. Sixty per cent. of women workers earn less than £8 a week, whether employed in factories or in clerical or typing occupations.

I come to the next point. Is there any social justice in the relative rewards of capital and labour? Let us consider how wages and dividends have moved during the last ten years. From the beginning of 1951 to the end of 1955 the index of wage rates rose by 27½ per cent. The amount distributed in ordinary dividends rose in the same period by 73 per cent.—three times as much. So the amount distributed in the first half of the 1950s was very heavily disproportionate in favour of those drawing ordinary dividends. In the second half of the 1950s the disproportion was even greater. From the beginning of 1956, when the new index was introduced, the index of wage rates has risen by 25 per cent. The amount distributed in ordinary dividends has risen by 82 per cent.

Let me give the figures for the index of wage rates for every year since 1956. Here is the increase in wage rates: 5 per cent., 5 per cent., 4 per cent., 3 per cent., 3 per cent., 5 per cent. Let us now look at the increase in the amount distributed in ordinary dividends in the same period: 8 per cent., 7 per cent., 5 per cent.—and here come the lush years—17 per cent., 35 per cent., 10 per cent. The Chancellor turns to wages and says, "We can have no more of these indiscriminate wage increases." If the Chancellor really believes that he has introduced any sense of fairness or of even-handed dealing, he fails to understand the facts or else he is attempting to deceive the ordinary wage earner about what the facts are.

The Government's analysis of our economic problems is based on the assumption that wages especially are rising too fast, faster than production and faster than incomes in other countries, so causing our costs to rise faster than those in other countries and making our exports less competitive. I am dealing in facts, and one fact is that the increases in wages, both rates and earnings, have not been out of line with our competitors in the Common Market and have been far less than in the most important ones, France and Germany.

Let us look at the hourly wage earnings in manufacturing as a percentage increase from 1953 to I960. The attack is on wages, remember. Britain's increase in hourly wage earnings has been 155 per cent. Let us look at the others: Belgium, 138; Italy, 137; West Germany, 158; Netherlands, 167; and France, 182. Is it the case that the increases in hourly earnings in this country are so out of line with other countries that wages are responsible for our lamentable failure in the export field? The real difference is not that our wages have been rising faster, but that our production has been rising more slowly.

Between 1955 and 1960 industrial production in this country rose by 14 per cent. In the E.E.C. countries it rose by 40 per cent.—three times as fast. Our slower growth has not been due just to wages. Nor has it been due to a slower increase in employment or a shortening of working hours. Productivity per man has been growing more slowly here than elsewhere. The United Kingdom increase in the last five years was 16 per cent. The increase in the Common Market countries was 37 per cent. Productivity has been rising too slowly. It is not the case that wages have been rising too quickly. I beg the Chancellor to put less emphasis on the negative aspect of keeping wages down and more emphasis on the aspect of increasing productivity. This is the secret and the solution to Britain's problems.

We have had from the Government an Economic Survey that was as trivial as the Budget itself—hardly worth publishing, for the information contained in it has already been produced somewhere else. We have had another economic survey, and this is the one that I recommend the Committee to read, because this contains a better assessment than any assessment to be found in our own White Paper. I refer to "Economic Surveys by the O.E.C.D." I am sure that the Financial Secretary has read it and I expect that he agrees with it.

The Financial Secretary to the Treasury (Sir Edward Boyle)

It answers one or two of the points that the hon. Gentleman has been making.

Mr. Callaghan

I am sure it does, and that is why I shall refer to it.

First, let us deal with this question of higher investment. What does this Survey say about that? It says: The share of 'productive' investment … was considerably lower… than in most industrialised European countries … it was still substantially lower at the end of the period than in the United Kingdom's main continental competitors. … This had two effects. First, the increase in capital per worker has been lower"— in this country Chan in most of the continental countries— Second, … the average quality"— that is, of the capital investment, the plant and machinery— tends to be inferior both on account of wear and tear and of technical obsolescence In other words, we are supplying our own workers with inferior, second-rate tools by comparison with what is happening in other European countries. Let us turn our attention to this as a way of getting a higher rate of growth and turn our eyes away from wages for a moment or two.

Why is there this low share? It deals with that, too. It suggests that the share is low in this increased capital because of lack of confidence on the part of business. We have had eleven years of Tory rule, unchallenged, with larger majorities each time, and business still has lack of confidence. This is the businessman's Government, I understand, but their own supporters have so little confidence in them that they cannot invest as much in their new plant and machinery as is invested in continental countries. This is a striking reflection on the Government.

Why is there this lack of confidence? It says that the lack of confidence is due mainly to our stop-go economy. We cannot run our economy full out, except in short bursts, because, if we do, we get into balance of payments difficulties. As the Survey says, slow growth and modesty in investment decisions react upon one another progressively. Expansion is irregular. There are bottlenecks when it does take place. It also says that the share of productive investment in the E.E.C. countries and in the United Kingdom has gone like this—and by productive investment, I understand, is meant factories and plant: from 1950 to 1960 in Britain it has been 11 per cent. and in the E.E.C. countries 15 per cent.

Therefore, the first thing that we have to do is to get a higher rate of investment in industries which should be selected, that we should know are capable of growth, and that we can analyse and select in order to get some purpose into our national planning. The Survey asks: Is it due to demand pressure? This was the reason given by the Chancellor for bringing forward his "little Budget" last July. Demand pressure in this country was to such an extent that he had to curtail it. The consequences we have seen.

This is what the Survey says: … it seems unlikely that the British problem of costs and prices can mainly be explained in terms of demand pressures; costs and prices seem to have increased almost equally during periods of restraint and periods of expansion. So the Chancellor, if this analysis is correct, is at the moment enforcing upon us a period of restraint in which costs, taking the period as a whole, are likely to increase, as we know they are increasing, as much as they did in the period of expansion, and we are grinding ourselves continually into the mud. Higher money incomes—this is what the Financial Secretary referred to—play a part.

It says so in paragraph 29 of the Survey, which makes quite clear that that is its view: In short, pressure for higher money incomes has been permanent in the United Kingdom over the period and has resulted in increases which could not be absorbed without increases in unit costs. Restrictions upon demand, given the limits placed on such a policy, have not provided a satisfactory solution. We say to the Government, revise your restrictive policies.

The Chancellor of the Exchequer (Mr. Selwyn Lloyd)

Read the next sentence.

Mr. Callaghan

I am coming to that. I will not read it now. The Chancellor should not assume that I am arguing unfairly. [HON. MEMBERS: "Oh."] I am ready to meet these problems and to deal with and answer them. I only wish that the Chancellor and his supporters were sometimes more ready to grapple with them, too. But I will let that go. I have been speaking for rather a long time and I apologise. I hasten over the last part.

The target for growth which the Chancellor has selected, which last year was 1 per cent. and which the Chancellor this year tells us may be 2 per cent., is lower than that of any other major country in Europe. He should set out to double that target. He should aim at 4 per cent. as the target for growing expansion in Britain. I have indicated the first steps he should take to secure that growth.

The next step that the Chancellor should take is to co-ordinate plans for investment. Forecasts of needs and resources should be brought to the point where the total picture can be seen. This should be done by the Treasury and by the Chancellor. It is his responsibility. If he has really become converted to planning, which I very much doubt, this is what he should do. Inquiries should be made whether funds are available for capital expansion required in particular industries where it is decided there is to be expansion.

I believe that we should need a working party for each one of the main industries if we are to do such a job and such working parties would at least have the advantage of associating both sides of industry, the industrialists, the workers and trade unionists, with the general conception of planning for expansion and seeing that the resources and means are there to achieve it. I believe that to identify those who are to carry out these tasks with the fulfilment of the tasks is the first step to getting their agreement on what is possible and what is not. Then we should work out the priorities for raising new capital. There should be selective depreciation allowances. If we can be selective about taxing or not taxing bounties for Service men, we can be selective about depreciation allowances. There is nothing in the Income Tax philosophy to prevent that.

We should allocate Government contracts and create new Government companies where they are required. [HON. MEMBERS "Oh."]. I see that all this represents a fundamental difference between us I regret that it does. I am quite certain that unless we get away from this flaccid approach by the Government at present we shall achieve none of the aims to which we set our hands. Eleven years of Tory rule have reduced us to the state set out in this document and we want to escape from it. It is easy to sneer when people put up propositions about what should be done, but let us hear what the Government intend to do to escape from this situation. We heard nothing about this yesterday when the Chancellor had his opportunity to say it.

I would also give export incentives. The Chancellor is wrong about this. There should be financial export incentives, which, I am certain, could be devised to coincide with our international obligations. We should encourage co-operative marketing by firms exporting and encourage joint publicity and the setting up of trading corporations for overseas for industries which cannot do so. This is horrible, is it not?—I am sure that the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) is finding this almost unbearable.

Viscount Hinchingbrooke (Dorset, South)

It all sounds very like Dr. Schacht.

Mr. Callaghan

It may sound like Dr. Schacht, though it was not intended to, but at least it was an attempt at something which I should have liked the Chancellor to try, that is to say, to give some idea of the way in which Britain could tackle its problems if we really believe in planning in order to get expansion and do not just pay lip-service to it.

As regards the distribution of industry, I believe that we must take a national view of the economy as a whole and of the social consequences of the placing of new industry. The provinces, Wales and Scotland have a steady and vigorous life Which is being drained away at the present time while London and the south-east of England are becoming an overcrowded wen. The distribution of industry must be brought back to the centre of our economic picture.

We should, of course, encourage mobility of labour. [HON. MEMBERS "Hear, hear."] I am glad to have at least a feeble cheer. Of course, we must have mobility of labour. We cannot expect to embark upon a great national plan of the sort which I have barely begun to outline unless we have movement of labour. This means proper redundancy agreements. It means retraining labour which becomes surplus in its particular industry.

I hope that I shall have more hon. Members to agree with me not merely about that part but about the other parts, because I am trying to approach this matter from The point of view of getting Britain going again. If we can do that, we shall all have to give up some of the things which, perhaps, we hold rather dear, but it is more important to try to achieve the industrial expansion we want rather than stagnate, clinging to our out-worn prejudices as the Government have been doing during the last eleven years.

The plain truth is that we have a four-year plan, a four-year financial cycle. In the first year after the General Election, the Government give away all the benefits they can. They ease up on hire purchase and credit restrictions. In the second year of the four-year cycle, they grab it all back again and stop everything. At present, we are in the third of the four years, or, rather, the second and third years of the cycle.

Sir Douglas Glover (Ormskirk)

Make up your mind.

Mr. Callaghan

It may be a five-year cycle; it depends on when the election takes place, and I do not know when the next election will be. These are the years of stagnation. We are playing out the same drama as we played out before 1959. The Government are not doing much this year. They will do it next year when they try to buy their way back to power by dishing out a few concessions immediately before the General Election.

I wish that the Government would turn their attention towards the ideal of greater productivity and greater production and stop being mesmerised by wages, trying to keep things down, cutting and squeezing the whole time. Let us grow. Let us expand. Let it be a planned expansion and a planned growth. I do not believe that we can expand or grow in the proper direction unless we plan our growth and expansion. If only the Government could for a moment forget their electoral fortunes and think of Britain's future, we might be on our way to recovery. As it is, I fear that the speech we had yesterday is illustrative of their altogether narrow and pedantic approach to Britain's problems, which is unlikely to solve the problems which we shall have to tackle when we come back to power.

5.3 p.m.

The President of the Board of Trade (Mr. F. J. Erroll)

We have had a lively speech from the hon. Member for Cardiff, South-East (Mr. Callaghan), which I very much enjoyed listening to. I am particularly glad that he referred extensively to the O.E.C.D. Report. I think that this Report will be a positive quarry for selective quotation in the weeks to come. Although copies are not generally available, I did arrange to make sure that a copy was available in the Library today for any hon. Members who might not have been able to obtain a copy in any other way. It is, perhaps, a little unfair to select a lot more quotations in reply to the hon. Gentleman, but I recommend to the Committee the conclusions of the Report, because I feel that they answer briefly and succinctly many of the points the hon. Gentleman made. In paragraph 48, the Report refers to the apparent impasse which the hon. Member described and says: Escape from this apparent impasse lies in the achievement of a steady and significant export rise as the major dynamic element in new economic growth. The United Kingdom will not achieve this without improving its international competitive position. Hence the importance, under present circumstances, of keeping production costs steady and, indeed, of reducing them wherever possible. And this requires, in the first place"— and note the words "in the first place"— that money incomes should henceforth rise no more than the growth of productivity over the economy as a whole—and that the benefits of rising productivity should be absorbed to a smaller extent than previously by rising money incomes and to a rather greater extent by a lowering of prices. The hon. Gentleman said that my right hon. and learned Friend was mesmerised by wages and by money policy. He is not. He realises the crucial part which money incomes have to play in our economy, and he has taken steps, last July and subsequently, to give effect to what is recommended in the Report.

I turn now to several points concerning my right hon. and learned Friend's Budget, which the hon. Gentleman himself mentioned. The Budget has been described as a "standstill Budget". It has been described as a "trivial Budget". I think that one hon. Gentleman has called it a "lollipop" Budget.

Mr. Cyril Bence (Dunbartonshire, East)

A humbug Budget.

Mr. Erroll

Certainly not a humbug Budget. As Budget time approaches each year, the country always has a combination of hopeful expectation and gloomy fears. When the Budget does not meet either of those, this does not mean that it is the wrong sort of Budget. In this case, it means that the Budget is addressed to the country's present needs.

The hon. Member for Cardiff, South-East spoke of businessmen wanting to know of some of the prospects for the year. He said that they wanted to know about prospects for home output. What businessmen really want to know is what are the prospects for home demand. It is no good producing things unless there is a demand for them. My right hon. and learned Friend was very clear in what he said about home demand prospects. I commend to the hon. Gentleman and to the Committee his words because they show that we expect that during next year total personal incomes may well be up by 4 per cent. in real terms—a very large rise in relation to the average experience of recent years.—[OFFICIAL REPORT, 9th April, 1962; Vol. 657, c. 965.] In a year in which, as the Chancellor himself said, there was not room for any substantial changes, he has nevertheless managed to bring to the Committee some valuable and imaginative proposals. I did not expect the hon. Gentleman to like them, and he made quite plain that he did not. Part of the trouble, as so often happens in this Committee and on many occasions in the House, is that the party opposite does not like the form of society in which we on this side believe. The hon. Gentleman wants people to be enterprising, as we do, but he is not prepared to accept the system of rewards, the forms of taxation and the restraints which go with a system which encourages enterprise, a system which we must have if Britain is to be successful in the 1960s.

Mr. Archie Manuel (Central Ayrshire)

Of course, we disagree with a system that gives the largest rewards to those who produce least.

Mr. Erroll

I turn now to that part of the hon. Gentleman's speech in which he spoke about capital gains. We have not said that we shall tax capital gains. My right hon. and learned Friend said that he would tax speculative gains. We believe in a steady growth in the values of personal property and that the right time to tax these values is on the death of the owner. The hon. Gentleman did not refer to existing taxes on property of one kind and another, whether moveable or immoveable estate, but, of course, property does already attract substantial taxation at the right time, namely, at the time of death or on transfer through the operation of a very substantial rate of stamp Duty.

Hon. Members opposite were quite pleased to hear about relief being given to small estates by the raising of the limit of exemption from Estate Duty from £3,000 to £4,000 which was announced yesterday. They are prepared to believe in some private property, but they do not seem to believe that it should be in more than small amounts.

The hon. Gentleman referred in what I might call a characteristic way to attacks on wealth. He half touched on the subject but never really revealed his own intention. Is he really advocating a steady, regular tax on wealth? If so, what form should it take? Is he going to come back to this Committee with the old idea of the capital levy such as that which Sir Stafford Cripps introduced in 1948 and which the Labour Government never brought back again after they tried it for one year? We do not believe that there should be this continual taking away of the natural growth in values in this country.

The hon. Gentleman produced some very striking examples of spectacular rises in property values which have occurred. Does he propose that we should introduce retrospective legislation to catch these rises? In many cases, the rises have occurred because the earlier value was not high enough. We live in a changing country in which there is a limit on the amount of land available. As the pressure on it increases, so the value of what is available grows and grows. That is what we should expect in a progressive country such as ours.

Mr. Charles Loughlin (Gloucestershire, West)

Does not the same argument apply equally to labour? If there is a shortage of land and land prices go up, that is reasonable, according to the right hon. Gentleman. If there is a shortage of labour and wages go up, is not that reasonable, too?

Mr. Erroll

That is exactly what has been happening over the years, particularly in sectors where skills are most in demand. I shall be coming to that point in a moment. The increases have been the greatest in those sectors, which is as it should be.

On the other hand, short-term speculative gains are another matter, because here the object is a quick income profit and not a steady growth of capital. My right hon. and learned Friend has properly brought these into charge as income, attracting Income Tax and Surtax where appropriate, and I think that he has received the congratulation of the country for so doing. The hon. Member for Cardiff, South-East, asked me whether "land" included the buildings on it. I can give him the assurance for which he asks, namely, that land includes the buildings on it. I cannot answer the point on earned income relief yet. I have, however, taken note of it.

Mr. Douglas Jay (Battersea, North)

Does that mean that for the purpose of buildings the period is three years and not six months?

Mr. Erroll

Yes, certainly.

Mr. Callaghan

Surely the right hon. Gentleman can say now that these capital gains will not secure the earned income relief?

Mr. Erroll

They will definitely be treated as unearned income.

I now turn to Schedule A. I found it hard to tell whether the hon. Gentleman was in favour of the abolition of Schedule A. He went on to say that it ought to be done now.

Mr. Callaghan

That sounds as though I was in favour of it.

Mr. Erroll

It does not. The hon. Member took a long time coming round to the point, having suggested that it was only an electoral stunt. He spoke of the intricacies of a notional income. The hon. Gentleman knows why it cannot be done this year, namely, because it would cost £50 million and there is not £50 million to give away in this Budget. It is clearly understood that it will be abolished when my right hon. and learned Friend is able to abolish it, but that it was necessary to make the announcement now because of the valuations which are being made, and which might be appealed against, in respect of re-rating. It was therefore important that it should be made clear that these new valuations would not be used as a basis for a change in the method of assessing Schedule A tax.

I am sorry that the hon. Gentleman insists on trying to make this out as an electoral or by-electoral stunt. It is nothing of the sort. It was a very reasonable announcement made for the benefit of many millions of home owners.

Mr. Callaghan

If it is not an electoral stunt, can the right hon. Gentleman tell us why he so consistently voted against this in past years and why it has taken Orpington, Stockton, Pontefract, Lincoln and Middlesbrough to bring him round to this view?

Mr. Erroll

We may have voted against it in the past for very good reasons of income policy and other policies, but we are coming to the stage when we have these new valuations, and this is obviously the time to deal with the matter.

If the hon. Gentleman wishes to quote a few by-election results, I should like to point out to him that in all the by-elections this year the Labour candidate did very much worse than the candidate in the General Election. The average loss of Labour votes at each by-election was no less than 5,485. Therefore, the Labour Party has not very much popular appeal at the moment. I do not think that the hon. Gentleman can take much comfort from any majorities which his party may have achieved.

Mr. William Ross (Kilmarnock)

If the right hon. Gentleman thinks it right to do this in view of the coming revaluation, why was it not done when revaluation was mooted in Scotland? Is he aware that this is the first year in which revaluation is not mooted but is actually in operation? If this is the principle, why was not this statement made earlier?

Mr. Erroll

I am glad to answer that intervention. The reason is that we wanted to look at Schedule A as a whole throughout Great Britain and not only in respect of Scotland.

I want to put the new tax on sweets and confectionery in proper perspective. It is surely good sense to reduce some of the distorting effects of the Purchase Tax system by broadening its base. These new goods are just as suitable for taxation as those already included, and so they ought to carry a small part of the tax burden. Teenagers, with their high level of earnings, can certainly afford to pay the little extra which the tax represents; and they are the ones who will benefit most from the increasing provision for sport and athletics which my right hon. and learned Friend announced yesterday. As for grown-ups, I would only say, as a cigarette smoker myself, that a switch from tobacco to sweets should not mean a complete escape from the Chancellor of the Exchequer's tax net.

My right hon. and learned Friend's proposals will help British industry. They will make Purchase Tax more sensible and less discriminatory. This will be of real value to important sectors of British industry whose goods, when sold on the home market, attract Purchase Tax.

The cut in fuel tax is not as big as those who have to pay it would have liked, but, nevertheless, it is a reduction which will be of help. So will the new provision for computing traders' losses. These new provisions will relieve industry of about £10 million of tax in the next two years, and about half or more of that will go towards relieving and helping the shipping industry.

All too often I am told—and I was reminded of it again this afternoon—that the Government should do more to help. But what we need is more self-help. In a free society such as ours the Government create the right conditions and it is individuals and firms who expand our prosperity. There is no other way of bringing this about—none which has been devised. As an example of how much is going on, investment in manufacturing industry is running at a very high level and it has been increasing. It went up 20 per cent. in 1960 compared with 1959 and another 20 per cent. in 1961 compared with 1960.

Mr. H. Rhodes (Ashton-under-Lyne)

The question which arises in everyone's mind is why, if investment is so high, the yields are so low.

Mr. Erroll

I will deal with one or two industries and show what they are trying to achieve and how much change is involved in their activities year by year.

There may be a slight falling off in this very high level of investment this year, but I wish to reassure the Committee that a slight falling off is nothing to worry about because this type of heavy manufacturing investment tends to be cyclical. There is a period when certain particularly big projects are coming to fruition and then there is a lesser degree of investment in that industry. But, over industry as a whole, investment this year will continue at a very high level, and a number of important industries will be spending more on investment this year than they spent last year. This year will be a year of opportunities. The opportunities are good, and my right hon. and learned Friend's proposals will put British industry in the best possible position to grasp them.

One of the criticisms of the Budget has been that it does not provide any incentive to exports. There is a good deal of confusion of thought on this subject. I should like to join my right hon. and learned Friend in commending the Forbes Report, published by the Federation of British Industries. The hon. Member for Cardiff, South-East came out strongly in favour of export incentives. I urge him, if he can spare the time, to read the Forbes Report, which is a thorough examination of the issues. It particularly includes a thorough examination of the policies and practices of other countries.

The Forbes Report recommends that the British Government should continue to work for the widest measure of agreement against the use of artificial export incentives. It is essential to the success of this policy that the Government should continue to be vigorous in seeking to secure that other Governments live up to their international obligations. Criticisms have often been made of other Governments in what might be called cheating and breaking the rules. The interesting thing about the Forbes Report is that it shows that the international rules accepted by Her Majesty's Government are also observed by almost all the other Governments and that there are few exceptions of significance.

The two main examples of departures are some Italian tax provisions and the Japanese incentive arrangements. In our bilateral economic discussions with the Italians, we have raised with them their tax practices which seem to us to be at variance with the G.A.T.T. declaration on artificial aids to exports. We have also made clear to the Japanese Government our dislike of their incentive schemes. Although we recognise that these schemes of the Japanese are not contrary to any obligations to us, we hope that the Japanese will find it possible to get rid of them even before 1964, when they are due to expire. This is a matter on which I shall certainly have something to say when I visit Japan after Easter.

Some people will continue to urge that the answer to our need for additional exports lies in an incentive scheme and I expect that we shall hear this theme repeated during the remainder of this week's debates. One can call in aid the National Association of British Manufacturers, who have pressed this view as their conclusion from the same facts as those published by the F.B.I. The Government remain convinced, however, that an export incentive scheme financed from Government funds would be a step backwards, that it would undo the valuable benefits secured internationally by the policies which we have followed in the past ten years and that it is not by such means that we shall secure the expansion of the economy on the basis of a thriving export trade.

Some people in recent weeks have thought that we were, perhaps, over-optimistic about exports and they have been asking for figures to justify all the talk of better prospects. Indeed, in the debate on exports last month, in which both the hon. Member for Cardiff, South-East and I joined, I reminded hon. Members how difficult it is to spot a turning point at the moment when it occurs. I said, however, that when we looked back over the figures in some months' time, we might well see that a period of expansion in our exports was beginning just at about that time.

At lunchtime today, I received the March export figures. I am glad to say that they give me some modest encouragement. Seasonally adjusted, United Kingdom exports totalled £312 million for the month of March. This means that exports have increased in each of the past three months.

Mr. Callaghan

What about the figures for twelve months?

Mr. Erroll

Just a moment. On a seasonally adjusted basis, in January the figure was £300 million; in February, £307 million; and, now, £312 million in March. Imports, seasonally adjusted, for March were £359 million, which means a trade gap in March of £36 million. I do not want to make too much of these figures, but we may reasonably take encouragement from them.

If we want to grow—and we all want economic growth—we have to take into account one other factor, and a very important one it is for us. We have to be prepared to change as well as to grow—to change what we make, to change to new markets and, very often, to find new buyers as well. We have to do this in a highly competitive world in which we must and, I believe, can succeed.

In a competitive economy, no company can afford to remain static, because at any given time it is either on the way up or on the way down. Therefore, in a modern industrial society progress and growth mean change. It is because British industry must be able to change that sometimes growth may not be as rapid as it could otherwise be. Nevertheless, change of product, change of method, change of market and often change of size are essential if British firms and industries are to remain competitive in world markets.

The essential need for change to accompany growth is true whether we join the Common Market or not. I noticed this morning that some sections of the Press seem to be rather surprised that my right hon. and learned Friend did not say more about the Common Market in his Budget speech. As he said, however, the basic need is the same whether we join the Common Market or not. We have to be competitive and adaptable. In international trade, it is only the adaptable that will be able to survive.

This process can be painful both to the individual and for the community. It may mean discarding long-established attitudes which have become sanctified by tradition. It means labour, both managers and workers, being willing to move from one place to another, from one industry to another, and, indeed, from one job to another, from a known and liked activity to a novel and, perhaps, less comfortable one.

Where resources are limited, as they are for us in Britain, growth in one sector may mean a decline in another, because our scarcest resource in Britain is skilled labour. Unlike some of our Continental competitors, we cannot look to any substantial number of new recruits to the working population to swell the volume of industrial production. If we are to grow faster, it can only be by deploying our existing labour force more effectively. Indeed, the general movements are much bigger than most people realise and certainly much greater than is suggested by those who assert without looking into the facts that labour is immobile and incapable of moving.

I should like to give a few figures to indicate the broad trend. In the last ten years, employment in manufacturing industry has gone up by 10 per cent. In agriculture and allied industries, it has gone down by about one-sixth. There has been an increase of nearly 20 per cent. in the distributive trades and a fall of 15 per cent. in mining and quarrying. Construction is up by 9 per cent. and transport and communications down by 4 per cent. Metals, engineering and vehicles are up by no less than 20 per cent. and textiles and clothing are down by 14 per cent. These figures show the changes which have been taking place in the economy as a whole, but they mask the even greater changes which are going on within individual industries and firms. We talk of growth, but change is just as important and often as necessary.

I want to get away from generalisations and to give one or two examples of specific British industries to show what a great deal of change and adaptation is going on within industry, which is essential for an industry's future and which may inhibit pure, what I call straight-line, growth of the same product dished out to the same customers year after year. This would be an easy course, but it is not for us.

I start with the example of electrical engineering, because today it is one of our largest export industries. It employs over three-quarters of a million people. Its output is now about £1,500 million a year, of which over £300 million goes directly to exports. With the demand at home for electricity doubling every ten years, the industry has spent over £400 million in the last decade on new or enlarged manufacturing and research facilities and the renewal of capital assets. At the end of the period, its annual investment was three times what it was at the beginning. The industry is outstanding for the opportunities that it offers to technical and professional skills. It employs over one-fifth of the qualified scientists and engineers in manufacturing industry.

As an example of what has taken place over the last few years, hon. Members who were in the House in 1947, may remember the passing of an Order which standardised generating sets for the home market at 30 megawatts and 60 megawatts. Now, only fifteen years later, we are making sets of 500 megawatts for use in what will be the biggest steam power stations in Europe. The cost of installing these sets will be about £35 per kilowatt compared with £58 for the smaller sets built in 1956. That is the measure of the adaptability and rate of change of one of our leading industries.

These developments have called for a massive process of adjustment and change by the industry. It has not only had to cope with the problems arising from rapid technical advance, but it has had to face acute commercial problems too. It is not a matter only of rapid adaptation but of finding customers and selling the exports to them. In certain branches of electrical engineering there is now a world-wide excess of capacity. Competition for the available business is intense. Despite this, 1961 was one of the best years ever for British electrical exports.

In the motor vehicle industry between 1951 and 1961 the output of motor cars, commercial vehicles and agricultural tractors doubled in value, and over the same period exports went up by 50 per cent. Competition in the export markets is becoming more intense every month. More and more countries are establishing their own assembly plants and all too often our manufacturers are faced with high tariff barriers and in some cases quota restrictions. But there are good opportunities for exports. Car ownership in Western Europe is expected to double in the next ten years. Our manufacturers have devoted a tremendous effort to the markets of the Six where in the last three years they have increased their sales by 150 per cent. In January their exports to the Six were double what they were a year previously. I have no doubt that if our negotiations to join the Six succeed, car manufacturers will do even better, and I am sure that they will find encouragement in the change which my right hon. and learned Friend has made in the level of Purchase Tax.

Another industry which is a very different but a very progressive one is the wool textile industry, one of our oldest manufacturing activities which consists largely of quite small firms. It has had to meet competition from a bewildering variety of synthetic and other fibres but it is a good example of successful adaptation to change, as evidenced in its warping machinery which is now electronically controlled. This industry has a fine and continuing export record. Some of the small firms export a very large proportion of their production. Although demand in some of the traditional markets has fallen off, the industry has sought out new markets, notably in Germany, France and Japan, and its successes there have offset the decline in markets elsewhere.

We must realise that in a changing Britain some of our industries face a permanent contraction in the demand for their products which no amount of managerial efficiency can reverse. This can arise from any one of a variety of causes well outside the control of the management—for example, the development of substitute materials, the growth of manufacture overseas, or a permanent change in social habits.

The British railway equipment industry is one of these. It is now going through a period of considerable difficulty and I know that many hon. Members are anxious about the prospects. The industry has long been one of our most determined exporters. But exports have declined from £45 million a year in 1956–58 to £14 million last year, despite the great efforts made by manufacturers, both individually and with the help of the United Kingdom Railway Advisory Service. The British industry is not the only one which has felt these changes. Japanese and German exports have also been falling.

One of the factors is the growth of manufacture abroad. Australia and South Africa are not only manufacturing the equipment they need but they are also seeking export markets for their newly established industries. This is a trend which we cannot influence but it is leading to a decline and contraction in the industry. There is no question of the Government writing off this or indeed any other industry. We shall continue to give it all the support we can in export markets, but we cannot create export markets where they do not exist nor provide orders which can be obtained only by soft long-term loans which Britain cannot afford.

Equally, we must recognise that however much we regret the disappearance of an old, once-famous name, it does no good to prop up by artificial means an activity which world demand is passing by. We have to recognise this change and adapt ourselves to it. To try and prop it up would be the way to industrial stagnation in the true sense of the word. If we want a faster rate of growth—and I have given examples of three growing and one unfortunately contracting industry—we must be prepared to move resources from the declining sectors to the expanding ones and to do it more quickly and more efficiently than our competitors.

The hon. Member for Cardiff, South-East referred to the distribution of industry policy. While I did not intend to say anything about that this afternoon, I might say a few words in passing. It is a subject of great importance. We have used our powers with the greatest vigour to persuade and induce existing and expanding industry to go to places where it is needed. In South Wales practically all localities have been removed from the list because of the success of our policy. Liverpool and the adjacent area is on the stop list and we are able to concentrate our energies mainly on Scotland and the North-East coast.

Government spending is running at many millions of pounds to provide factories and loans and other forms of assistance to enable progressive industries to go to areas where labour can be more effectively used. I challenge the hon. Member for Cardiff, South-East to suggest how we can do better than we are doing at present. I should be glad to hear him on the subject, because I am sure that apart from minor details and changes in emphasis he cannot suggest how we can do better than we are doing. The Government are very proud of their achievement in this respect.

Mr. Stanley R. McMaster (Belfast, East)

I notice that my right hon. Friend has not mentioned Northern Ireland.

Mr. Erroll

I apologise to my hon. Friend. The arrangements there are different in that the Northern Ireland Government are themselves responsible for making many of the arrangements. I did not mention the Isle of Wight either, but I did not intend to be disrespectful to Northern Ireland in any way.

The Government do not intend to bring about the growth or decline of particular industries. Our aim is to produce conditions which favour more efficient methods and more effective deployment of our resources. It is on these that the growth of exports, and so of the economy as a whole, really depends. A rise in output generated by expanding exports leads to higher productivity and lower unit costs. These in turn encourage further exports. The growth of the economy is thus soundly based and self-sustaining.

On the other hand, a growth which depends wholly on an artificial stimulus to home demand, which the hon. Member for Cardiff, South-East seemed to suggest we ought to have, and which is not accompanied by a rise in exports, contributes nothing to the sound growth of the economy. It only creates inflation, and there is no greater impediment to efficiency and exports than inflation at home.

This is why my right hon. and learned Friend's Budget strikes the right balance for our present needs. But growth is not something which can be left to Governments alone to contrive. I hope that my earlier remarks have made plain that industries must do it and our industries are in the main doing a fine job of adaptation and growth to meet the new circumstances of today.

Mr. Jay

So there is nothing wrong at all.

Mr. Erroll

There is nothing much wrong, except in the eyes of hon. Members opposite.

Mr. Ross rose

Mr. Erroll

I am sorry, but I must come to an end now.

I welcome particularly the independent initiative being taken by both sides of industry to inaugurate a National Productivity Year in the coming autumn. They are going in for a series of individual efforts in local centres rather than concentrating on one centralised affair. The National Productivity Year should yield good results during the period in which it is operating.

There is no simple short cut to growth such as hon. Members on both sides of the Committee would like. It requires unremitting, patient and often unspectacular work at all levels. The Government are confident that we can look forward to a period of steady and healthy expansion, in which the growth of exports will take the lead.

5.40 p.m.

Mr. J. Grimond (Orkney and Shetland)

The President of the Board of Trade has expressed some excellent sentiments and has stated some aims with which I am sure most of us will agree. But I was not quite sure to whom he was addressing his remarks. It is not for this side of the Committee to be blamed for any sluggishness which there may be in changing people from one job to another in industry. Permeating his speech was too much complacency about the part the Government have played in achieving these desirable aims. The right hon. Gentleman said that the locomotive industry was passing through a period of uncertainty in some places. That was an understatement of the position—at least for the North British Locomotive Co., which has dosed down for ever.

I have two main criticisms of the Budget, and they are simple. The Budget will do nothing to cure the underlying faults of the economy, and it will do nothing to make the taxation system more fair or more intelligible. As these Budget debates go on from year to year, it becomes obvious that the real division in the Committee is not between those who believe in laissez-faire and those who believe in Socialism, as it was twenty or twenty-five years ago.

On the one side are those, of whom the Chancellor of the Exchequer is an example, who think that, on the whole, the performance of this country during the last ten years has been, broadly speaking, satisfactory, and who think that he is pursuing the methods which can ensure that that—to him—satisfactory state continues. Those people are, I think, very much influenced by the need to protect sterling, and I dare say that the best thing that can be said about the Budget is that, given the presupposition that things on the whole have not been too bad in the last ten years, it may do something—temporarily, in my view—to restore to some extent faith in sterling, although at great cost in other ways.

On this side of the Committee are those of us who think that the situation in the last ten years has not been satisfactory and that the progress of this country has been inadequate, and who therefore feel that the time has long since arrived when some much more radical changes should be made in our methods of running our economic and financial affairs. I think that this difference came out in the speech of the hon. Member for Cardiff, South-East (Mr. Callaghan). I hope that I do not embarrass him or get him into trouble via Bosworth by suggesting that with much of his speech I found myself in sympathy.

The first thing that we want to see is the Government saying that they have taken a political decision to make growth the first object in the economy, that they are going to give us a policy for wages, salaries and profits, that they are going to give us an economic Budget—for a longer term than the usual Budget—that they are going to reform the system of taxation and make it more intelligible, that they are going to take some steps to break down the suspicion and antipathy between management and labour in industry and to share out the ownership of industry more widely, and that they are really going to face up to the kind of sentiment which was expressed by the President of the Board of Trade towards enterprise.

The striking feature of this country is not that it rewards enterprise. On the contrary, over the last ten years, the greatest asset anyone could have had has been to accumulate, by one means or another, some capital. The people who have appeared to disadvantage are those who have been trained, who have learned skills. They have found it extremely difficult in these circumstances, unless they have been able to make capital gains or live on expenses, to keep up with people who have inherited capital or who have been able to make it in other ways.

When we come to the question of the capital gains tax which is not a capital gains tax, why do not the Government look at the question of taxation of land values? Land is in a totally different position from other forms of wealth, and Liberals have said so for a long time.

Again, the Government have admirable sentiments about the need for skilled labour, but are they really satisfied that their policies for education will give us the maximum amount of skilled labour which the country needs and could afford? Are they satisfied with the apprenticeships scheme? They are not a new Government. They have been in office for ten or eleven years. They have had plenty of time to consider any long-term measures they want brought in.

Lord Ritchie has been referred to. It has been suggested that when he expressed acute dissatisfaction with the Government he was referring to a capital gains tax. Perhaps he was. I do not know. But I do not rule out the possibility that he may have been referring to something quite different. In the City, it is realised that we are not going to achieve the necessary rate of growth or bring down costs under this Government—and here the City is looking rather beyond its own self-interest.

We know what has gone on. Production has lagged behind that of every other major industrial country, except for one. Costs have risen, and have led to difficulties over exports. I do not want to quote at length again figures given in the O.E.C.D. Report. I want to mention only two sets, however. First there are the simple figures of industrial production between 1955 and 1960. The increase in the United Kingdom was 14 per cent. and in the E.E.C. 40 per cent.

Some people say that this is due to the aftermath of war, that these countries were destroyed and had to rebuild themselves. But these figures relate to between 1955 and 1960, and it is generally agreed that, as is pointed out in the Report, this excuse is not valid. Then we are told also that Europe has had a great inflow of refugees and extra labour. But the gross national product per head of the employed population has risen in the E.E.C. by 6.1 per cent. and by only 1.7 per cent. in the United Kingdom.

The Report blows sky-high the view that the way to improve productivity in this country and to benefit exports and the overall balance of payments is to restrict imports, for it shows that in the E.E.C. imports have risen by 66 per cent. as against our 26 per cent. But the striking figures are for exports. The E.E.C.'s have risen by 63 per cent. and the United Kingdom's by only 13 per cent. This is not only due to economic measures, but also to a political determination in those countries to ensure growth, to tackle their problems and not to be afraid of more radical solutions than we have ever attempted.

In this situation, those of us who are dissatisfied not only with the economic performance of this country but with the methods which we are forced to use looked to the Chancellor to give us some sort of lead. We got none. We got no indication of what his economic strategy may be. We have no indication even of the rate of expansion at which he is aiming. The nearest he came to giving that was in his passages about the National Economic Development Council when he said: The collective target agreed in Paris by the O.E.C.D. for this decade is one of just over 4 per cent. a year. It will be for the Council to decide whether its study should be based on that figure, or a larger one, and what period of years should be taken for this."—[OFFICIAL REPORT,9th April, 1962; Vol. 657, c. 968.] If hon. Members examine that passage, they will find that among the tasks of the Council were, first, the examination of economic performance; secondly, the consideration of what were the obstacles to growth; and, thirdly, seeking agreement about ways of improving economic performance. There is no indication that the Government will do anything themselves. Apparently, they are to sit by and leave it to the National Economic Development Council.

I do not believe that that is what the nation expected from the Government when it heard of this Council, and I do not believe that it can have any confidence that the Tory Government are seized of the need to give a lead to the economy, or that this Council is a suitable instrument for tackling these tasks, which are the tasks of the Government and which can be tackled by no one else. It appears to me that the Council will be made another excuse for doing nothing, that the Chancellor will sit back believing that the economy of itself will expand, and that his only preparation for action in case of that expansion will be preparations to restrain it.

At the moment there is unused capacity in the country. Certainly in Scotland there are plenty of unemployed and there are plenty of machines in the country which are not being fully used. There are many manufacturers who are not happy that we should assume that everything will get much better this year. It will be a most serious setback if once again manufacturers find that having increased their capacity, through Government policies they are unable to use it. In those circumstances I wonder whether they will ever do it again.

Further, this year we have to prepare to go into the Common Market. I give the Chancellor credit for the capital gains tax and for some of his changes in Purchase Tax which move in the direction of Europe, but I strongly dissent from the view that the Government's economic difficulties will be solved when we go into Europe. They have to be solved before we go into Europe. Before we go into Europe we must bring down costs. Indeed we have to bring down costs, as the Chancellor said, whether we go into Europe or not.

As a first step, why does he not reduce some tariffs? Germany did that before joining the E.E.C. If the Chancellor says that that would give away a bargaining asset, I should like to know what bargaining assets it will give away and why Germany and other countries took just this step before joining E.E.C. I am not suggesting that every tariff should be reduced, but why should not the Chancellor reduce tariffs which protect monopolies or semi-monopolies in this country? Then, why did he not completely remove the tax on fuel oil which is a drag on costs?

The President of the Board of Trade spoke a great deal about mobility. Which bits of the Budget does he think will encourage mobility? I agree that we should be looking for new schemes for redundancy and for new training, but are there any such schemes in the Budget or in other current Government policies?

I should have liked the depreciation allowances to be increased. The President of the Board of Trade turned down the idea of any tax incentives to exports. I do not dissent from that if he is to take other steps to make our exports more efficient. He said that he was to make representations to Japan and Italy because they had been cheating. Can he assure us that the steps taken by the Germans to encourage their exports are according to the rules, because I hear many complaints from manufacturers who think that the Germans go further than the international rules of fair trade allow. I think that it is generally agreed that if other countries subsidise or help their exports, then this is a matter which eventually we too shall have to tackle.

I should like to refer to the price of British exports. It is sometimes said that our costs cannot be too high because we sell goods abroad. Ex hypothesi, they cannot be too high in relation to those goods which we sell; but we have to consider the goods which we do not sell. It is the dogs which do not bark in the night which are interesting, and we ought not to be complacent about export costs.

This is the moment for tackling many of the structural weaknesses in our economy. These weaknesses are most easily tackled when there is some slack in the economy. The lesson of the Amory era is that when things begin to go better, the Government should not sit back and let them take their course but should try to eliminate the structural weaknesses which are sure to recur.

I turn now to the fiscal proposals in the Budget and I start with Schedule A. I cannot help smiling about what the Chancellor said about Schedule A. Year after year the Liberal Party has asked the Government to abolish Schedule A. We have been met with the most adament arguments and year after year we have been voted down. This goes back for many years, possibly even before the hon. Member for Buckinghamshire, South (Mr. Ronald Bell) entered Parliament. We are now told that the abolition of Schedule A is to do with the rating revaluation. There has been a revaluation in Scotland, as one hon. Member pointed out. With a certain charm, the President of the Board of Trade laughed that off and said that he had either forgotten about it, or that Scotland could not be treated alone. But if the Chancellor is to tell us one or two or three years ahead, I do not see why our fears should not have been set at rest one or two or three years ago when the Scottish revaluation took place. The Government could then have announced that they were to abolish Schedule A. But are they really to abolish it and, if so, why have they not done so at once?

The same criticism applies to the corporation tax, which I welcome, but I do not believe that the chances of getting a succesful company tax are enhanced by peddling the idea around the City of London. That is certain to increase the amount of criticism. If the Chancellor is convinced that it is sensible, let him have consultation by all means, but let him remember that this is the tenth year of Tory Government and that if they have not made up their mind about it now, it is high time they did. I am not against the Government having economic regulators, but I am against their being regularly built into the system of taxation with a new regulator put on top of that. We all know that all taxes in this country start as temporary taxes for one purpose and become permanent taxes for another. I am afraid that that is the fate of the regulator and I cannot welcome it.

We have had the refusal to discriminate between tobacco used for pipes and cigars and that used fox cigarettes. The reason we were given was that some people would roll their own cigarettes. In this matter I am on the side of Lord Hailsham and not of the Chancellor. I think that the House ought to take steps to make smoking, which is clearly very dangerous, less attractive and more expensive, and even if there were large-scale evasion, I still believe that there should be some discrimination between tobacco used for pipes and cigars and that used for cigarettes. When I consider what the Government have done with Schedule A, the tobacco tax and the regulator, I ask whether this is an example of consistent Tory policy in economic affairs.

Then in the year when everybody is trying to stop people smoking, especially young people, the Government elect to put a tax on sweets.

There is no sign in the Budget of a move towards a simplification of the tax system. There are trinkets in plenty, enough to please even the Leader of the House. But as for any sign of a consistent policy to tackle the sluggishness of our economy and to get rid of the stops and starts, which everybody agrees have bedevilled the country since the war, and of any radical consistent policy to tackle the real needs of the economy, in this Budget there is none.

6.0 p.m.

Sir Alexander Spearman (Scarborough and Whitby)

I do not on this occasion find myself in any great measure of agreement with the right hon. Member for Orkney and Shetland (Mr. Grimond), but I will not try to follow him today, because I was so provoked by the speech of the hon. Member for Cardiff, South-East (Mr. Callaghan), who opened the debate, that I should like to spend all the time that the Committee can bear with me on his speech.

The hon. Gentleman made the assertion that this country had progressed very badly economically compared with other countries in Europe, and he went on to claim that under a Socialist Government that would be remedied. I want to examine that assertion and that claim. Of course, I quite agree with him that growth of capacity to produce is all important, and that our rate of growth is not sufficiently high today, but the picture which he gave us was, I believe, an entirely false one. If he will refer to the O.E.C.D. Report about which he spoke, he will see that the annual rate of growth between 1950 and 1960 in Belgium and the United Kingdom was just under 3 per cent., in the United States it was just 3 per cent., and in Sweden, Norway and Denmark it was just over 3 per cent. Therefore, there is not more than a half per cent. difference. It was only in France, with 4½ per cent., and in Germany, with 7½ per cent., that there was a very marked difference.

Comparisons with these countries is quite unfair. It seems to be forgotten that this country led the world in new industrial processes and in redeployment of labour. Now, other countries, long afterwards, are doing what we did long ago, and they are now getting the advantages which we achieved a long time ago. They have today a vast pool of labour to draw upon, and again, to quote paragraph 21 of the O.E.C.D. Report: But, unlike many of the European countries, industry and services in the United Kingdom have had no large pool of under-employed workers in agriculture to draw upon. I believe that in Germany 30 per cent. of the population work on the land, most of them on very small inefficient farms, whereas here the proportion is under 5 per cent., and therefore there is nothing like the same reserve to draw upon. Secondly, countries which have been industrialised for a long time have built up their services far more, and it is not possible to increase production in services to anything like the same scale as in manufacturing industry. Also we must remember that we are bearing quite a disproportionate burden of defence.

Actually, "stagnant Britain," as the hon. Gentleman described it, is still providing a higher standard of living than anywhere in Europe, and the remarkable thing, when we consider the resources of other countries compared with our own, is not that our standard is so low, but that it is higher than others. Actually, the rate of growth in this country is about double what it was before the war, or just about the same as it has been in the United States throughout the last fifty years.

Now, I should like to come to the hon. Gentleman's remedies.

Mr. Douglas Houghton (Sowerby)

My hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) has gone out for a few minutes. The hon. Gentleman was kind enough to tell him that he would make reference to his speech, and a message has gone out to my hon. Friend, and I hope he will be here in a moment or two.

Sir A. Spearman

Perhaps tomorrow the hon. Gentleman will read what I have said and he can discuss it with me later on.

He started off by saying that the first remedy was that investment should be far bigger and better. Actually, investment has a much smaller effect on growth than is always realised. If the hon. Gentleman will look at the Blue Book for 1960, he will see that industrial investment other than housing doubled in the last ten years, but the rate of growth of capacity only grew from 2½ to 3¼ per cent., and I would estimate that if, by some miracle, we were able to push up industrial investment by 50 per cent. next year, it would still only push up the rate of growth by less than a half per cent., because this new investment is such a very small proportion of existing investment.

As a matter of fact, as my right hon. Friend the President of the Board of Trade said today, the record is not anything of which we should be ashamed. Investment in private manufacturing industry last year was 20 per cent. over 1960, and 42 per cent. over 1959. The hon. Gentleman implied that there was more and better investment in Germany, and I think that that may be true, but in Germany they are not handicapped by having huge nationalised industries in which investment takes place at a very low rate of interest. In that country, the criterion is profitability, and, of course, they do better.

Mr. Nabarro

Very wise.

Sir A. Spearman

In that country also, there are far more savings, and after all, how much we save must be a limiting factor on investment. In Germany today, they are consuming 57 per cent. of the national income, compared with 66 per cent. in this country. Why is that? The reason is that there is quite a different distribution of wealth. I am not regretting our distribution in any way, but I am saying that it is quite clear that those with small incomes do not save at the rate of those with big incomes. In this country, four-fifths of the spending is done by people with £20 a week or under, and I would ask the hon. Member for Cardiff, South-East, if he were here, what he would do about this. Would he propose to cut investment in the nationalised industries so as to get a better rate elsewhere, or does he propose to cut taxation on the rich and put it on the poor in order to get more savings? The conclusion I draw is that investment, though it is am important one, is not the main obstacle to expansion, and that we should do a great deal worse under Labour.

The hon. Gentleman also wanted planned expansion. In so far as he means that we should have a greater exchange of information, and co-ordination of projects, of course, I agree with him, and that is why my right hon. Friend has set up the N.E.D.C. If he means a precise ordering by the Government of what should be produced and where it should be produced, I emphatically say "No". I believe that only an authoritarian Government can do that, because it has to have the control to be able to force people to consume that which is produced, instead of what they want. It means going back to the rationing we had during the war—unless, of course they are absolutely infallible in their judgment, and I do not think that anybody would accuse hon. and right hon. Gentlemen opposite of that.

Judgment is a very elusive quality. In this country, we are singularly blessed with senior civil servants who are men of immense industry and intelligence, who are entirely disinterested, and who advise the Government very well on general policy, but when it comes to particular projects, it seems to me that the businessman, with his pocket at stake, somehow or other has the faculty of judging better what the public want.

That much respected trade union leader, Mr. George Woodcock, in a recent article in the Statist, said: The Government rely too much on general remedies. What the trade unions want— and I suggest that he was speaking for the Labour Party in this— —are specific solutions for particular problems. I believe that attempting piecemeal solutions always creates more problems than they cure. I think that that was what the late Sir Stafford Cripps was saying when, towards the end of the time that he was Chancellor, he said that they had been trying to deal with the situation by a series of temporary expedients, which led to a series of crises as each expedient became exhausted.

Then, the hon. Gentleman, like the Leader of the Opposition last night, wanted to create more demand in order to get more production. It is only possible to push up production by the amount of the growth in capacity, plus the slack on the economy. In 1959 production went up by 9 per cent. and the slack in the economy came down from 7 per cent to 1½ per cent. In 1951 production was pushed up until there was no slack at all. There was a sharp rise in prices, and a balance of payments crisis. In 1955 the same thing happened. In 1960 nearly the same thing happened.

In 1958, we had between 5 and 7 per cent. surplus capacity. Then we had stable prices, and no mass unemployment. It is, I think, generally accepted—indeed, the Leader of the Opposition repeated it last night—that if incomes rise more than production—and incomes means wages because wages and salaries comprise 93 per cent. of incomes—then inflation is certain. I think that inflation is certain if there is no slack in the economy, because production cannot go on rising at that rate when the slack is taken up, but incomes do go on rising.

When every industrialist can sell everything he produces there is not sufficient competition. As a result, these things happen. First, wages go up, because the industrialist knows that with no competition he can put the cost on to the price of the article he sells. I do not believe that wages go up excessively because of the militancy of trade unionists at all. Wages have gone up in domestic service, and there are no unions there. Pay has gone up in the Services, and there are no unions there. I believe that wages go up because employers prefer to give more rather than have trouble—when they can put the increased cost on to the price of what they sell—and they are particularly likely to give more when they want more men. Therefore, if there is no competition, wages are bound to go up.

Secondly, we get a hoarding of labour, because when employers see excessive demand they keep labour which others want to insure their future requirements. Thirdly, in their investments they aim much more at the sort of investment that maximises the amount of production rather than the sort of investment that minimises the cost, and I believe that it is the cost that is the more important. Fourthly, in conditions of excessive demand, there is tremendous encouragement for the inefficient to stay in industry. I am sure that industry in this country is efficient in many places, but there are many inefficient units which, if there had not been excessive demand in the last ten years, would have been forced out of business. Inflation is rather like other stimulants. It is exceedingly agreeable when it is first imbibed. Profits and wages go up, and so does production for a time, but I would not recommend any hon. Member however pleasant it may be for an hour or two, to drink three bottles of champagne, and I think that the same applies to inflation in industry.

I have tried to make some comments on the hon. Gentleman's remedy for our present situation, and now I should like to suggest some more realistic remedies. The Government sometimes have to take measures which have the result of checking production for a time, but they do not have to take measures—and are not doing so—to check the expansion of the growth of capacity. I think that hon. Gentlemen opposite often get confused between production and the growth of capacity to produce.

The one has to be checked and the other we must push on all we can. I believe that we shall get growth at a higher rate if we can get rid of some of these restrictive practices that cost so much. I recognise that this is only partly the Government's job. I believe that we should get a quicker rate of growth if only we could get the men to work more shifts—as they do on the Continent—and so make more use of existing investment; and, above all, if we could get more mobility of skilled labour.

The National Institute in a recent article suggested that to get full capacity in the engineering industry 300,000 more men were required. Here I think that the Government could do more than they do in the way of training. Paragraph 57 of the O.E.C.D. Report says: There is a wide field over which official action can be intensified to increase the mobility of labour. These must include better training facilities, the modification of certain apprenticeship arrangements and other restrictive practices and the provision of financial incentives and special housing facilities to workers changing jobs. I hope that my right hon. Friends will study that part of the Report very carefully.

Above all, the real responsibility of the Government is to keep the economy going at the right speed. It is not the motorist who goes flat out at 100 m.p.h. and then has to jam on the brakes who gets there quickest. Being a democracy, the Government cannot command employers where and what to produce. They cannot command workers what they should receive and where they should work, and being mortal they cannot command universal altruism—that is why I never have much faith in all these exhortations, whether they are to management or workers. But what the Government can do is to create conditions where it pays the citizen to do what is in the interests of the State, and particularly they can create sufficient competition.

What are the prospects of an equilibrium which will produce competition? On the demand side, if my right hon. and learned Friend is right in anticipating that spending will go up by 4 per cent.—and I think that it may well do—and if he gets an increase in exports of £200 million—and I must warn my right hon. and leaned Friend that, tremendously vital as it is that we should increase exports, they push up demand just as much as anything else and we could have a situation where exports went up splendidly and brought about no solution if this were not countered by other measures—and if we get the increase in Government expenditure that we have been told to expect, and we get an increase on balance in investment, I calculate that demand at the end of the year will be up by £800 million to £900 million. On the supply side I think that there is a good prospect of production going up by about £800 million, or 3½ per cent., but I do not think that it can go up much more. That is why I am sure that my right hon. and learned Friend is right both in having a standstill Budget this time and in giving himself the reserve of the regulator, which I rather think he will have to use.

My right hon. and learned Friend is often criticised, and not only by hon. Gentlemen opposite, for not doing more for exports. I have not much faith in these fancy incentives. I realise that in an emergency they may be necessary, but the things that one does in an emergency are not generally good for health. The real way to help exports is to keep down costs and stop having an easy home market to absorb too much, and this is what my right hon. and learned Friend is doing. If there is excessive demand in this country, a balance of payments crisis is certain, and I can think of no industrial country in recent years which has had a balance of payments crisis except when it has had inflation at home.

Mr. McMaster

Does not my hon. Friend think that a balance of payments crisis might be caused by a lack of reserves rather than by the reasons he gave?

Sir A. Spearman

As in private life, reserves will help for only a limited time. If one spends more than one earns, no amount of reserves will see one out for ever.

I conclude by commenting on the tough policy which I support, and which I know my right hon. and learned Friend has the courage to carry out. It will mean that some people will lose profits. It may mean that some businesses will have to close down if they have not been able to put their houses in order—and instead of subsidising declining industries surely it is much better to spend money retraining and planning transfers to the expanding industries. It may mean that some people will have to change their jobs, and some unofficial strikers may well find themselves without a job. In the case of those people who, through not fault of their own, have to look for other jobs, I ask the Chancellor to consider whether it would not be worth while to increase their unemployment pay for the period during which they are looking for other work.

Those are the costs. I now come to the rewards. There will be great opportunities to earn more in wages and in profits; there will be price stability, and room for exports. Above all, I believe this to be the way in which we could maximise the rate of growth of capacity. I believe that the success of the Government's economic policy will depend largely upon their ability to judge the speed at which they ought to drive the economy, and upon their determination to persevere in those measures which will maintain that speed.

6.20 p.m.

Mr. Joseph Slater (Sedgefield)

The House always listens with great interest to the hon. Member for Scarborough and Whitby (Sir A. Spearman) in these debates, and I was very interested in his speech today. He said that he would attempt to answer the questions posed by my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan). Although my hon. Friend is absent at the moment, I have no doubt that he will give consideration to the hon. Member's speech.

During the course of his remarks, it passed through my mind that the people who come from the North-East are well aware of the fact that at least part of his constituency of Scarborough and Whitby has been seriously affected by unemployment. In spite of that fact, only one sentence in the whole of his speech referred to this fact—when he asked the Chancellor to consider increasing unemployment benefit.

Sir A. Spearman

Few constituencies depend more than mine does upon the prosperity of the whole country, and it is that desirability which I must always advocate.

Mr. Slater

I am always prepared to accept that from the hon. Member, but I should have thought that he would give support to Members representing North-East constituencies who have been agitating for the direction of industry to the North-East, in order to ease the unemployment there.

I was also interested in the speech of the President of the Board of Trade. In his opening remarks he drew attention to the Press publicity given to the Budget. He told us that the Press had referred to it, first, as a standstill Budget and, secondly, as a "lollipop" Budget. When the Labour Government were in office I well remember hon. Members opposite, who were then in Opposition, directing their attacks upon the Labour Chancellor of the Exchequer and referring to him as "Austerity" Cripps. The present Tory Chancellor will go down in history as the "Lollipop" Chancellor.

The President of the Board of Trade also said that hon. Members on this side of the Committee did not like the form of society in which hon. Members opposite believed. How true that is! The policy of the party opposite has always been, "For he that hath, to him shall be given: and he that hath not, from him shall be taken even that which he hath and given to him that hath." Hon. Members on this side of the Committee seek to raise the standards of the ordinary people and give them a greater opportunity for the development of their personalities and their qualifications within society.

We listened very patiently to the Chancellor's speech. I, together with many other hon. Members, hoped that he would put forward a set of proposals designed to assist this country to get out of its present serious position. If the Chancellor believes that by easing Purchase Tax on certain goods and placing a 15 per cent. tax on confectionery he will find favour with the country he is in for a shock. We have become accustomed to the Government's changing their mind and their tactics from one Budget to another, and from one year to the next, in relation to investment, credit, the Bank Rate, income and even taxation. In February last year there was an increase in contributions but in April concessions were announced for Surtax payers. Three months later, in July, we had a higher Bank Rate, with higher prices, a slow-down in our investments, and a clamp-down on wage increases.

I ask the Chancellor and the Government how we can expect industry to plan ahead with any assurance when the signs and forecasts put out by the Chancellor are no more reliable than those of his predecessor. The effect of the Government's policies on the workers is merely to cause a lot more irritation. They regard it as a positive punishment. Last year industry was asked to limit its dividends, and the workers were asked to do without wage increases. What justice was there in this? Dividends can be put into cold storage and paid out later, but wage increases which are denied are lost for ever; they are not merely deferred. If the Chancellor wants to convince the nation that we are in such a serious position that every effort must be directed towards attaining solvency he must abandon his scheme for giving free gifts to the Surtax payers.

As was pointed out by my hon. Friend the Member for Cardiff, South-East, those who earn about £20 a week have had transferred to their shoulders a much heavier burden than those who have higher incomes. It must be understood that the reason for so much criticism being directed against the Government on this occasion is their lack of consideration for the less fortunate sections of our society.

Another factor which has aroused criticism is the capital gains tax. When hon. Members visit their constituencies workers rightly ask how it comes about that overtime continues to be taxed while capital gains are not. Why cannot such gains be taxed over a long period? Why does the Chancellor not take his courage in both hands and do this? If the country is in such a bad state we cannot be allowed to run away from our responsibilities.

I have always held the view that if the necessity for taxation was properly presented to the people, and if each section was called upon to bear a proper share of responsibility, everybody would agree with the measures that were taken. I have always taken great pride in the attitude adopted by the Labour Government from 1945 to 1951. I was not in the House from 1945 to 1950, but I know that during that period it was because the Labour Government took the people into their confidence that they were able to get the increase in productivity for which they asked. Quite apart from all the assistance and the aid which was given us from various channels, if we had not had that increased productivity we might not have been able to carry on. I believe that if we do not take the people into our confidence regarding the position, and the reason why we find ourselves in such a position, we shall not get the support which we ought to have.

If we are to be realistic, in view of the great changes taking place in the world, the economy of the country must be planned and regulated; otherwise, in my opinion, it cannot work satisfactorily. We must realise that "John Citizen" is tired of hearing such slogans as "Double your standard of living in twenty-five years" or of being told that within a period of time workers will be receiving wages of up to £1,000 a year. We have listened to such platitudes for too long. They have become stale and today we require action. The burden on the workers has not been eased by the policies adopted during the last eleven years. If production is to increase and industry expand, the workers must be given an opportunity to counsel their own opinions to a greater extent than in the past. There are many able scientists and technologists in industry who could make a great contribution were they given the opportunity.

Let us not forget that too many men have been out of work for too long. In certain areas the figure of unemployment is high and it persists. People are never free from the fear of redundancy and of becoming unemployed. Many people in the North-East have this fear. Undoubtedly that state of affairs will continue for longer than we desire. Surely it is better social and economic sense to draft new industries to areas where jobs are scarce than to transfer them to areas which are congested and where homes are scarce and rents are high.

Today we require energy and imagination to be used in industry as much as at any time in history. If we are to boost our standard of living in a competitive world, we must also boost our exports. As an industrial nation we cannot live on the achievements of the past. We need new incentives and a more dynamic approach. The greatness of the past will not attract orders in the present, or bolster up our economy. Today an impressive transformation is taking place in the economic structure of Europe and we can play an important part in that without detriment to our wider obligations.

It is known that the Federation of British Industries was not happy about the export position. It was less happy about the business situation in the country than it was four months previous to its report being made. For the first time since October, 1958, more firms reported a fall in output rather than a rise, and more firms reported that they were working below full capacity.

What have the Government done about this? Surely they ought to know what is happening. They cannot shelve the responsibility. How can we achieve expansion in industry under such circumstances? Within the last eighteen months the Government have, as it were, torn up the agreements on service and wage rates without considering the result of such an action. Whatever may be said to the contrary, the action of the Government towards the machinery and procedure of negotiations built up over the last forty years has resulted in the whole set-up being shattered.

How often have we spoken about the rule of law. What sort of rule of law is it which justifies a Government, as the employer, suspending the operation of procedures to which by signature, honour and long practice they are bound? If ever Governments made blunders, the Tory Governments which have been elected since 1959 have done so. And what was it with which those Governments were attempting to deal? It was a recession, something which time and again we have been told did not exist. The facts reveal the sickness in our economy. During eleven years of Tory Government we have seen Chancellor after Chancellor confronted with a crisis. One Tory Chancellor resigned from office but drifted back again into the Government. Faced with a position of their own creation they told us that they had taken steps to stabilise the economy.

First there was the restraint on wages, coupled with the rejection of pay awards to which I have referred already. If the wheels of industry are to keep turning and men are to be retained in employment, there must be a proper balance in industry and this can be achieved only by planning. I know that the expression has not been favoured in the past especially by the supporters of a Tory Government. But now they are bending over backwards to establish a planned position. The operation of the steel industry has been reported to be down to 77 per cent. of capacity and the number of cars exported has fallen during the last few years. But we are told that there is no recession.

I ask any hon. Member to examine any of the durable trades and it will be found that redundancy is rampant and this is spreading to the consumer trades. I know that hon. Members opposite take pride in advocating Tory freedom and the way in which it is said to work. But never have we been faced with such a degree of complacency as has existed during the last eleven years and particularly since the last General Election.

Whenever we have reached a position where there were no longer too many men pursuing too few jobs we have been confronted with a foreign exchange crisis. The Chancellor ought to take note that this Budget will not result in the provision of more jobs on Tees-side or in Scotland or elsewhere in the North-East, because more men are being thrown out of work. More men have received their notices at Dorman Long in the Middlesbrough area. Unemployment is running at 6 per cent. in the Hartlepools up to Middlesbrough and down to Stockton, where there was a by-election last week. The electorate there gave their answer to the Tory Government. If this high rate of unemployment persists on Tees-side, I have great fear for our people there.

We have had an attitude displayed to us over the last two years by the present Tory Chancellor of no easement or advantages being meted out to the ordinary people of society. That has not been granted to them, but assistance and support can be directed and given in aid to those who are in a better position than the ordinary members of society. To them Tory Chancellors have directed aid. I sincerely hope that, irrespective of what might happen in the next Tory Chancellor's statement before the next General Election, the people will remember what the attitude of the Government has been for the last two or three years.

6.41 p.m.

Mr. Frank Taylor (Manchester, Moss Side)

I crave the indulgence which the House and this Committee so generously bestow on an hon. Member making his first speech. In optimistic anticipation of receiving that preferential treatment, I wish to thank hon. Members very much indeed. I am as grateful as they themselves were on the day when they made their maiden speeches.

I thank you, Sir James, for giving me the opportunity to take part in this debate. I wish to respect the precedents of the House and, in consequence, so far as possible my speech will be politically non-contentious. I do not intend, except in passing, to refer to the various details of the proposals in the Budget. Otherwise I should be led into contentious matters. I wish to get back to basic principles which should be kept in mind in relation to direct taxation in which I am interested at the moment.

In considering fiscal policy, I am sure the Committee will be with me in agreeing that it should be efficient, economic and effective, I have no doubt that every hon. Member will agree that it is a good thing to promote enthusiasm for earning money. There is also an equal or even a greater need to encourage the promotion of a prosperous community, but these two needs do not necessarily ride together for the simple reason that some ways of making money may not help the economy. It is perhaps appropriate to ask just how far do the economic circumstances in which we live and present-day taxation go towards encouraging these two important national needs—to earn more and to prosper the community.

Direct taxation is considered by many taxpayers to be penal, and I think that myself. The burden has been considerably reduced since the war, nevertheless the present rates are still considered by many to be quite unwarranted and to provide a brake on both enthusiasm and initiative. When taxation is considered to be too high, one of the certain outcomes is that far more effort is put into the procuring of tax-free income because of the enormous inroads which taxation makes into tax income. That is one of the problems we are running into today. The greater an income the greater the proportion of tax payable on it. This can still rise to as much as 17s. 9d. in the £ on part of that income. As incomes rise there is an increasing proportionate difference between the net income after tax and the gross income if the source is tax-free.

Where, then, lies the inducement for man to devote all his energies voluntarily and full time to his basic employment when the harder he works and the more he earns the greater the impact of taxation upon every extra £ he earns? A compelling natural inclination is generated to search for tax-free revenue in all classes of society. I wish to consider three instances. The first is a very comfortably-off single business owner or high executive who earns perhaps £10,000 a year. Even with the new Surtax benefits, which he will not recover until next year, he will suffer direct taxation of approximately £4,000. He is left with less than £6,000. We are putting him in the position in which he seeks to find income outside which is not taxable. Which hon. Members of this House would prefer £6,000 to £10,000? The inference is obvious. This class of citizen includes a proportion who spend one or two days a week on other pursuits, studying form either on the Stock Exchange, on the race course, or elsewhere. In doing so they are neglecting their own basic business in which they are specially trained and in which they are expert. There is a diminution in the personal productivity of the business in which they are trained and in which they could be most productive. They personally gain, and few can blame them, but the country suffers.

Another class to whom I refer are craftsmen, that section of workmen of which the country is so desperately in need and so desperately short. This type of workman fights, and often strikes, for shorter working hours. The reason often is not so much that he wants to work fewer hours but that with a five-day week and an earlier knocking-off time he is able to find part-time jobs outside his normal business, and very often outside his trade. He is not interested if that part-time work is on a P.A.Y.E. basis. The part-time remuneration must be tax-free.

The third class is the class of the community who one might say have not joined the Income Tax club and have no intention of joining. A man with three children can earn nearly £14 a week without paying Income Tax. Some of these men feel they do not want to pay Income Tax, which they think unfair.

In all these three classes we have a reduction of productivity in the business in which they are most expert. We should carefully consider the root cause of this restriction of labour and output in these classes. Basically, it is because direct taxation is too high. The average man thinks this. When such a situation is found to exist a breach of the law is not looked upon as serious, and evasion is even considered by many to be clever, especially if it is legal evasion.

A law must not only be good and sound, but must also be seen to be good and acknowledged to be sound in order to be fully effective. Clearly what is needed is a fiscal system which will lead, not drive, away from the pursuit of tax-free sources and towards encouraging a full week's work in basic employment. This will be achieved only by making it advantageous and attractive to the worker and not by compulsion. Taxing some speculative gains is a welcome and interesting provision in the Budget and will go some way towards what we want to achieve. This is making tax-free gains less attractive, but I believe this, although sound and equitable in principle, is tackling things rather the wrong way round.

We need to make direct taxation less oppressive, to lighten its impact upon the Friday's pay packet or the monthly cheque, to allow the worker or the executive to take home more of what he earns. In this way he will be much more likely to be enthused to work harder and discouraged from seeking tax-free earnings to the detriment of his own business. This is what the country and our economy need as a spur to extra productivity.

I appreciate that the immediate riposte to be expected from the Treasury is that we cannot afford the loss of revenue resulting from reduced direct taxation, but I think it possible that a loss of revenue would not necessarily result. At present, on personal earnings of about £23,000 million tax amounts to £2,100 million, and on company profits of £3,300 million tax amounts to £1,100 million. If direct taxation is cut by 5 per cent. the immediate and initial cost to the revenue will be about £160 million, but it is certain that there will immediately be a trend towards additional productivity which must provide additional taxable income which will result overnight because tax is reduced.

We know the law of diminishing returns which the Chancellor risks bringing into operation every time he increases the duty on such things as beer, tobacco and fur coats, but there is also the law of increasing returns which is likely to come into force if we reduce direct taxation and which is likely to produce revenue which will offset the amount of the reduction. If, for instance, a 5 per cent. reduction in direct taxation encouraged a 5 per cent. increase in productivity, as I think it would, earnings throughout the country would increase by £1,300 million, which is an enormous achievement. I am sure that it is easily within the capacity of the people of this country to uplift their productivity by 5 per cent. We should earn another £1,300 million, and the extra tax on that would be about £170 million at present rates. It would more than cover the cost of reducing taxation by 5 per cent. If one had a 10 per cent. tax reduction and achieved 10 per cent. extra productivity, the position would be the same in that savings would outweigh the cost of the tax reduction.

This suggestion, if implemented, could mean that personal and company incomes could be uplifted considerably without any extra tax being payable on it at all. The extra earnings would be tax-free, in effect. In one single act and without any loss of revenue, we might well be able to put this country's productivity back on its feet, which is the overriding need, to bring back a much-overdue desire of willingness to do a day's work for a day's pay and at the same time to clamp down upon the unhealthy scramble for tax-free earnings.

I do not suggest a hazardous slash in direct taxation as a highly speculative venture. What I suggest is a modest excursion into taking the people into our confidence. We could say to them, "Here is a 5 per cent. tax reduction as an experiment. We expect extra productivity, but if we do not get it we may have to reimpose that tax. If we get it, you may keep the tax reduction and we shall go further with the experiment."

Surely this is worth trying. Surely with proper presentation and efficient salesmanship it could succeed. It could well provide the means by which the taxpayer is encouraged into a partnership with the Chancellor—an extraordinary situation, but it could happen —a partnership in which the taxpayer has every encouragement to earn more, all to his own personal gain, and a partnership which would be of clear benefit to the national economy. A very honourable Member of the House once said, "Trust the people". I believe that if we went out to the country with a proposal on the lines of my thoughts, the people would respond. I believe that it might well set the spark to the imagination and begin what we all need—the rejuvenation of the idea of making money and putting the economy on its feet.

We shall, of course, never have taxpayers elbowing one another aside in a scramble to pay their taxes quickly, but we could well move a step or two in the direction of achieving a state of painless extraction and at the same time bring about an uplift in productivity. It is with these reasons in mind, but with considerable diffidence, that I have put my views before the House.

6.53 p.m.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

It is always an honour and a pleasure to have the duty of conveying the compliments and congratulations of hon. and right hon. Members to an hon. Member who speaks for the first time in this Chamber. It is an additional pleasure in this case, because the hon. Member for Manchester, Moss Side (Mr. F. Taylor) has contributed quite a number of new ideas and has brought a freshness of outlook which sometimes is not present. Listening to him, I felt quite sure that when he speaks in other circumstances he will find that this kind of speech provokes all sorts of responses and thinking on the part of other hon. Members. No doubt they will want to debate the matters with him. But today he is free from any danger of controversy. Nevertheless, it is a good thing when the House receives a new Member who is prepared to contribute new thoughts, even though other hon. Members may wish to dispute them.

I was interested in quite a number of the things which he said and I hope that the Government will take note of them and will give them consideration. I am sorry that the Chancellor has no faith in standard economics, because he does not believe in diminishing returns. For example, he does not believe that penal taxation on cigarettes or even the cancer threat in respect of cigarettes will reduce their consumption, for I notice that he expects exactly the same income next year from cigarette taxation as he received this year. That seems to me in some ways to be a tragedy, but it shows that the Chancellor is contemptuous of all medical opinion on the subject and that he knows quite well that people will continue to smoke as before, even though they may stop for a couple of weeks. That seems a terrible thing in view of all the medical opinion which has been offered to the Government.

I am sure that the Chancellor feels grateful that his colleagues are so satisfied with what he has done. The President of the Board of Trade, who is in charge of our economic health, is the most soothing physician I have ever met. Even though the patient is dying, even while Scotland is having limbs cut off—the North British Locomotive Company is an example—according to the President of the Board of Trade it is all for the patient's good. The right hon. Gentleman nearly convinced me. I have never heard such a sweet, soothing doctor treating a patient in my life. Everything was satisfactory with the patient's health, he said. He was calm and he was soothing, and he said that the patient need not bother at all. I think that that was a little too much even from the right hon. Gentleman, who naturally was satisfied with the wonderful efforts which he feels that he has made.

I turn to the Chancellor's speech yesterday. Seldom have I heard anyone speak for so long while saying so little in respect of contributing any solution to our problems. He spoke long enough and gave very little away. In effect he said, "Do not work hard for anything this year. Wait until the election year, and then you will have all the bonuses. There will be bonuses next year, just before the election."

Mr. G. R. Mitchison (Kettering)

It will be too late.

Mr. Woodburn

This is one of the things which is hindering the economy. It is driven with the foot either violently on the brake or violently on the accelerator. This type of driving is very bad for the economy. The Chancellor said that what we needed was steady progress, but we cannot have steady progress if the brakes are being put on hard one minute and the accelerator is being pushed down hard the next minute. That gives nobody an opportunity to plan. In spite of all those who have objected to planning, how anybody can run a business without planning is more than I can understand. How a Government can expect to run a country without planning is beyond my comprehension.

The Chancellor promised next year to abolish certain things, including Schedule A, and this seems to me to be holding out a carrot to keep people living in hopes. In this respect he may have misjudged the type of animal which the British public is, because I dc not believe that the British public will fall for this kind of trickery—which is what it amounts to—every time. The people have fallen for it once or twice, but there is a saying that they will not be misled all the time.

While I am talking about zoological matters, I should like to inquire into some Budget effects on other animals. One of the most interesting proposals is the tax on speculation. We have been assured that it is not a capital gains tax but that it will deal with speculators. I want to ask the President of the Board of Trade how it affects three kinds of speculator who seemed to me to get away with the profits—bulls, bears, and stags. Does this tax on speculators apply to each of that type? First we have the person who is not using any money but is buying shares, never transferring them to anybody and selling them the next day or the next week; he gets away with a handsome profit without spending a penny of his money and without even transferring the shares.

The next category is the bear. Bears do not make a profit by selling shares. They make a profit by buying shares. They sell shares when they have not got them, and they buy them back in order to deliver them on the settling date. Does the Chancellor's announcement apply to the bears? What about the stags? When companies issue stock, and that stock is bought up by people who do not want the stock but wish to sell on a rising market, they get away with the profit. I am not sure if they need to transfer the shares or whether they come through the normal channels. These three categories seem to me to make quick ready profits and if the speculative tax deals with them, whatever else it does, it seems to me to be a tax which is justified and to be applied to the proper people.

Mr. Erroll

Bulls and bears art caught.

Mr. Woodburn

What about stags?

Mr. Erroll

I understand that in appropriate circumstances stags are also caught.

Mr. Woodburn

I shall be very interested to watch this tax as it develops. My predecessor Joe Westwood used to say that a man who bet and did not know the winner was a fool but the man who bet and knew the winner was a rogue. There are many people who operate in this sort of market, who know the result and who are not speculating. They are betting on certainties, and some are even capable of rigging the market in order to make a profit. As a matter of fact, if I may refer to another country for a moment, it is said that one of the invasions during the Russian Revolution was financed by spreading different rumours every day on the Stock Exchange, thus enabling enough shares to be sold in order to pay the whole cost of the invasion.

If the Chancellor intends to deal with some of the people who manipulate the market I support him, even though it is only the thin end of the wedge. It has been said that history is full of thin ends of wedges that are never driven home. This may be the thin end of a wedge that may never be driven home. In fact, if it fails it will be an excuse for doing away with it. On the other hand, if it succeeds it will be a thin end of the wedge and it may be that the City is crowing too soon and too much over what is likely to happen in the future, because if the Treasury finds a tax that works, it has a tendency to work on it and improve it. I can see that we are in for another twenty years of legal juggling to see how it is possible to avoid being caught by this tax while the Treasury does its best to catch people.

However, this tax will catch the small fish only. The people who get away with millions seem to be free from any tax at all. The Chancellor says that he depends upon taxing them in the form of death duties, but they are clever in avoiding the payment of death duties. I can think of the head of a great banking concern and historical house who must have made a lot of money in his day, and yet when he died he left £450. I can think of another similar person who left nothing at all.

I am glad that the Chancellor is going to do something to catch some of the people who avoid death duties. I think it is rather mean of people to go abroad in order to avoid paying their share towards the defence of this country, but who preach to us about our duty. After all, there are millions of people in this country who cannot avoid paying tax even if they wanted to. P.A.Y.E. ensures that there is no avoidance of tax, and it is mean of a person to whom this country has been rather more generous if he goes abroad to avoid paying his proper share of taxation so that he may leave a large fortune.

Sir E. Cyril Osborne (Louth)

Is the right hon. Gentleman aware that a distinguished member of his own party, who used to lecture us a great deal some years ago, did that same thing? He married a rich American lady and went to Jive on one of the Channel Islands.

Mr. Woodburn

That does not make it right. I am not saying that all the angels are on this side of the Committee and that all the devils are on the other side.

The Chancellor was rather amusing yesterday when he said that he was going to take off the 10 per cent. regulator but that he was going to reserve power to impose another regulator next year. He was making the 10 per cent. tax permanent so far as I could gather, and was not taking it off. He was making a permanent tax. I may have been mistaken, but that is how I understood him. I thought it was rather a curious way of removing a tax.

I think that we all welcome the proposed abolition of Schedule A tax, even though it is going to be in the "never never". I do not think there is any justification for it from the Treasury point of view, and it is certainly an irritating tax which people hate. They dislike filling up the form. Nothing annoys them more than Schedule A tax. Lots of people do not undertand it. Very often they think they have finished with their Income Tax for the year, and then they get a Schedule A demand. It may be all right for accountants, but it is an awful nuisance to ordinary people.

However, the Chancellor will agree that the removal of Schedule A tax will give owner-occupiers, of whom I am one, a slight advantage because part of our income, the annual value of our houses, will not be taxed. The person who pays rent for a house owned by a private landlord or a local authority will still have his annual value taxed. I am sure that the Chancellor wants to be just, and therefore his next step must be to allow all who pay rent to set their rent as a deduction against tax in order to put them on the same basis as owner-occupiers. That is one thing that the right hon. and learned Gentleman can do if he wants to be fair. Otherwise, he will create a distinction between two groups of the population, which would be undesirable.

Mr. Nabarro

Would the right hon. Gentleman add to that dissertation on tenants what it would cost the Revenue to give that concession? As, no doubt, he will not know the answer, I will give him the figure—£150 million in a full year.

Mr. Woodburn

The hon. Gentleman need not get too excited about it. The Government have given away many hundreds of millions a year to people who do not need it, so it would be no disadvantage if we could relieve some of the people who need it. Apart from that, all that this taxation business does is to decide who is going to pay the cost of running the country, and if one person does not pay, somebody else has got to pay. When we talk about reducing Income Tax there always arises the question, who is going to pay? Obviously somebody has got to pay, and all I am saying is that if one set of people is relieved, in justice it is only fair that another set should receive equal relief.

Mr. F. M. Bennett (Torquay)

Is the right hon. Gentleman suggesting that owner-occupiers should also have their rates set against Income Tax? Otherwise, unfairness would be created in the opposite direction.

Mr. Woodburn

The hon. Gentleman is mixing rates and rents. It is the rent on which the net annual value is based and on which Schedule A tax is paid. Net annual value is not based on rates.

Mr. Bennett

I thought that the right hon. Gentleman was talking about rates.

Mr. Woodburn

No, rent.

The hon. Member for Moss Side made some critical suggestions to the Government and I hope that the Chancellor will consider some of the points that the hon. Member raised. This is an occasion on which we appear to have started electioneering two years before the General Election. Apart from that, there is the fundamental need that if this country is to be run successfully, it must be run on an even keel.

The hon. Member for Scarborough and Whitby (Sir A. Spearman) gave us a very interesting dissertation on all the laws of economics. I agree with him that it is very difficult to interfere with things that are known to work without running the danger of putting other things wrong. It upsets the pattern. I am not disputing that at all. But I think that he is wrong in that he left far too much to the laws of chance—the suggestion that things can be left to private enterprise to develop, and, if they do not then so much the worst. "Create the atmosphere", said the President of the Board of Trade.

There are some places where that does not work. It does not work in Northern Ireland, in South Wales and in Scotland. A large part of Scotland which he knows very well is likely to become a desert if some Government do not take deliberate action to see that life is made possible in the area where I think he himself has an estate. From there northwards every year there is a procession of the population from the outer islands to the mainland and the towns. This has been going on for thirty or forty years. Before the war, Glasgow had all the unemployed from the highlands and islands inside the City of Glasgow because people preferred to live in a town.

It is possible to have an interesting life in Scotland. The hon. Member goes there because he can afford to live there. He finds it an interesting place in which to live and there are beautiful places in which to spend his time. There is no reason why industry of some kind should not go there. But it will not go there of its own volition. Industry has to depend on private enterprise. Private enterprise cannot make a profit in the highlands of Scotland, in Ireland, or in some parts of Wales. If industry is to go there it will only be because of some direction or inducement by the Government.

The Government have accepted this policy. They are spending money in directing the British Motor Corporation to one part of Scotland and Rootes to another part of Scotland and they have also done something to preserve Colvilles. They have been willing to subsidise it in that way, but it is all rather accidental and not part of a comprehensive plan. The need arises and the Government go in to fill it. So far so good, but the Government are not seeing far enough. What will happen if this tendency goes on? Each year 25,000 skilled men leave Scotland to go south. What is the good of cluttering up London and Birmingham with more and more industry? It means increased costs in building great flats and choking up the roads with transport when there is plenty of room in other parts of the country for the development of industry.

One hon. Member said that this was as easy problem for a dictatorship. That is true. Russia has done a great deal of planning in this way. I have had occasion to visit Spain. Spain has done a great deal of development in this way. It has created a great national company. Spain believes in private enterprise. It has decided to develop a steel works in one place, and an irrigation works in another, and the population should be kept there. It develops works and if they are a success it hands them over to private enterprise to continue to run them. In Spain there is a combination of Government enterprise and private enterprise which is certainly providing industries in many parts of the country.

France is not a dictatorship in that sense. People may not be aware of what France has done. France has taken the area, from the Camargue near Marseilles and right up the Rhone Valley and has established a great comprehensive scheme of development. I agree that France has sun to a degree that we have not in Scotland, but they have turned land which is not very different from land in Scotland into a veritable garden, and people have moved from the north to the south. When people come from Algeria there will be many farms available for them. It is a completely comprehensive plan, and the children are educated to work in this great scheme. The French planners have broken up the bigger estates into smaller estates and are combining smaller farms to make larger farms.

They are carrying fertilisers on to the land by irrigation and are developing the whole area in a way which is imaginative and striking. I should like the Government to have someone whose business it is to strike out for an imaginative plan. The Tennessee Valley scheme was based on experience in developing the Rhone Valley. Our country seems to be the only one that does not have an imaginative way of seeing that the country is populated and that people have something to work at instead of being driven from their homes to go into the cluttered up towns in the South and the Midlands. This was the vision that my hon. Friend was trying to put to the Government, that there should be some kind of planning. I believe that it is possible even under the capitalist system and even with a Conservative Government, if they have the will, to provide quite a lot of these things with less resistance than we would have. If they would think out a plan and see that it is carried out they could make a change in the country which would be quite wonderful.

We in Scotland are not afraid of the Common Market. We can produce quality beef, quality wool, and quality agriculture. There may be some farmers who would suffer, but we have lived off exports all our life and our country will be prepared for it. But we must have assistance from the Government if these parts of the country are to remain alive. I hope that the Government will get down to some sort of comprehensive plan to see what can be done not only to develop London and Birmingham and the industrial parts of the country but to give their assistance so that Wales, Durham, Newcastle, Northern Ireland and other places get a share of the industry of the country as well as a share of the taxation.

7.9 p.m.

Mr. Gerald Nabarro (Kidderminster)

My assessment of my right hon. and learned Friend's Budget speech yesterday must depend on the progress that I think he will make in the forthcoming year towards three indispensable objectives in our national economy. I state these objectives at the outset because I believe that they are of major and fundamental importance. The first is the maintenance and further strengthening of sterling overseas. The second is the enlargement of our national export trade. The third is a further increase in the rate of industrial investment, mostly in the private sector, soundly based on increases in personal savings. I shall deal with these three objectives in turn.

First, the strength of sterling. Possibly, the most sensational outcome of my right hon. and learned Friend's proposals in his statement to the House on 25th July last has been the fashion in which sterling recovered in a matter of a few weeks. The recovery has been sustained, and, when I compare the strength of sterling with the strength—perhaps, to be more accurate, I should say weakness—of the American dollar and of the principal West European countries, I think that my right hon. and learned Friend has a great deal to congratulate himself upon. The continued strength of sterling must be the most important single factor among economic considerations during the coming year.

In that connection, I refer to the present level of Bank Rate and the two recent reductions, each of ½ per cent. The present level of 5 per cent. is continuing to attract funds, many of them short-term funds, to the City of London. Having regard to the very large inflow of short-term funds—or hot money, as it is popularly called—during the period between last August and Christmas, and at a diminishing rate since then, I think that the Chancellor's objective should be to endeavour to secure further reductions in Bank Rate and the achievement of a 4 per cent. rate by the end of 1962.

Sir E. C. Osborne

Much sooner.

Mr. Nabarro

My hon. Friend says "Much sooner". I do not think so. I consider that these processes should be gradual. I do not believe in large reductions in Bank Rate in a single move any more than I believe in large changes in taxation in a single move, because too much dislocation is caused, thereby. I think that it is better to set the objective as a 4 per cent. Bank Rate by the end of 1962.

I turn onw to exports. It is true that there has been a marginal increase in the level of our export trade during the past eight months. Similarly, there has been a marginal decline in the value of imports in the same period, and thus a consequential improvement in our balance of payments. But the improvement in exports is not nearly large enough. I confess that, after eight or nine months of earnest study away from the House—this is where the information is really to be derived, in industry and commerce outside the House—I quite recently arrived at the conclusion that we should be forced, before we are much older, to offer some form of fiscal incentive to British exporters.

The arguments against this have been paraded on innumerable occasions in the House of Commons. Twelve months ago, I declared myself as being, on balance, against a fiscal incentive to exporters. I referred on that occasion to the views of the Federation of British Industries which was said to be against it, of the National Association of British Manufacturers which was said to be against it, of the Association of British Chambers of Commerce which was then said to be against it, and of the Trades Union Congress which was then said to be against it.

Opinion has very largely moved in the last twelve months. My right hon. Friend the President of the Board of Trade, to whose speech I listened intently this afternoon, referred to the practices of the Japanese in tax subsidies for their direct exports. He referred to the practices of the Italians. Deliberately, I think, he omitted a reference to the practices of the West Germans. There is no doubt in my mind that the West Germans are manipulating their turnover tax in a fashion which gives a direct benefit to exporters. I am in no doubt, likewise, that, if we were prepared to change our tax system here and consolidate company taxation and replace various forms of indirect taxation in this country by a turnover tax, we could do the same.

Mr. Erroll indicated assent.

Mr. Nabarro

I am glad to see that my right hon. Friend nods in agreement. Generally, I am in favour of such a change. If we were prepared to make widespread changes in our tax system, we could give fiscal incentives to exporters.

However, what I am extremely anxious about is that, if we did pursue a course of this kind—I know that we are still considering the matter—it would lead to a tax relief race among the principal exporters of the world to secure additional markets overseas. All the industrial nations of the world—the United States, West Germany, Italy, France and Japan—are seeking to expand their exports. If we manipulate our tax system in that way, we invite reciprocal tax relief measures for exporters in these other principal competing countries overseas, and, although I wish the matter to be examined further in the period ahead, I believe that we should, before jumping to a quick conclusion that fiscal incentives for exporters are desirable, have regard to the possible consequences following such a policy.

I make these comments from this side of the Committee in support of the Chancellor because the hon. Member for Cardiff, South-East (Mr. Callaghan) said quite unequivocally, "I believe that there should be a fiscal incentive for exporters." When he reads tomorrow what I have said about it, in which, I believe, I have the concurrence of my Treasury colleagues—[Interruption.]—I want to be on the side of the angels this evening, and I support the Budget, not oppose it—I hope that the hon. Member for Cardiff, South-East will concede that here is something in my argument.

I come now to investment. As the Chancellor admitted yesterday, investment in the public sector is high. It is high, of course, because our Conservative Minister control the level of investment year by year in the nationalised industries, and the great bulk of it is being covered this year by the Chancellor's above-the-line surplus. But investment in private manufacturing industry has been retarded in the period since last July, not, I believe, owing to any shortage of funds but, rather, owing to a shortage of confidence in the future about the condition of order books.

Nothing gives a private manufacturer more confidence to expand his output and invest money in more modern plant and machinery, better buildings and so on than a full order book with the prospect of a fuller order book. That is the dynamic behind investment in the private sector of industry and commerce. But order books are generally not well filled today and productive capacity in British industry is very far from filled. I say to my right hon. and learned Friend in this context that it gives me little joy that the British steel industry today is operating at only 78 per cent. of capacity. I do not want it to be operating at 98 per cent. capacity.

Mr. E. Fernyhough (Jarrow)

Why not?

Mr. Nabarro

It is too close to the bone. Steel firms cannot maintain good deliveries ranging over a wide diversity of types and specifications of steel if the whole steel industry is operating at 98 per cent. capacity. The optimum, I believe, is 90 per cent. to 92 per cent. of capacity. Today, we are operating the steel industry and many of our basic industries at far below optimum capacity.

In saying that, I want to impress upon the Chancellor that, though not a critic of what he proposed in his Budget statement yesterday, I believe that the deflationary measures—and they were deflationary—of last July have now gone too far and that, unless measures are taken as a result of this Budget to inject reflationary tendencies into the economy, we may well find ourselves continuing to operate in the next few months at too far below the level of optimum capacity.

A word now about savings. The Opposition talk endlessly about investment. They very rarely talk about the stable base for new investment, which is savings. I was not particularly impressed by the Chancellor's figures of National Savings during the last twelve months. This is in no way a criticism of the National Savings Movement. It is a criticism of economic conditions which have caused a substantial drop in the level of National Savings from £170 million remaining invested last year to a net figure of new National Savings of £78 million.

I believe those amounts are not large enough. There is a great reservoir of personal savings still untapped. If the Chancellor wishes to impart stability and combat inflation during the next twelve months, in addition to his fiscal measures which contribute towards that end he should give further and early incentives to a quickening of personal savings not only through the National Savings Movement by an eleventh issue of National Savings certificates, since the tenth issue has now been on sale for nearly six years, but also by giving under the Finance Bill direct incentives through larger Income Tax rebates on premiums for insurance life polices. So much for savings.

I turn briefly to the Chancellor's fiscal proposals. I have quite a lot to say about various aspects of those. First, I deal with the capital gains tax. It seemed to me that there was a direct contradiction in the speech of the hon. Member for Cardiff, South-East. On the one hand, he complained that there was insufficient investment. He followed that statement by complaining that a capital gains tax was innocuous, and that the net was not spread wide enough or that the gains were not to be taxed over a long enough period. He cannot have it both ways. Where does the money for new investment come from in this country? It comes only from the stable base to which I referred of genuine personal savings and the investment of those savings generally in the form of risk capital in equities. It is nearly all risk capital. There can be no investment in the Stock Exchange which does not carry with it an element of risk. People invest their savings on the Stock Exchange, rightly and properly, to earn a substantial profit over the years from their investments.

I am a very bad investor on the Stock Exchange. I am a very bad client of my stockbroker because I very rarely sell. I almost invariably buy. Therefore, I do not operate as frequently as my broker would like, and I am not a very profitable client. But I am a perfect investor. [Laughter.] I am sorry that that should cause mirth. Of course I am the perfect investor. I invest for long-term gain in the bluest of blue chips in British industry. I hold myself out as a model to the investing community. That is the sort of investor we should encourage to put his money into risk capital formation and to finance the expansion of industry. That is why I believe that the statement of the hon. Member for Cardiff, South-East to the effect that, on the one hand, this capital gains tax is innocuous and, on the other, we have not sufficient investment represents a complete contradiction and ought to be rejected by the Committee.

For my part, I said to the Chancellor of the Exchequer several weeks ago that I did not necessarily dissent from any move in the Budget to catch the speculative investor who was only investing money very short-term and then selling and seeking to cash in on a substantial profit on stocks and shares or in land or in commodities. I said to my right hon. and learned Friend that if he sought to catch this kind of speculator the legislation should be restricted to three things—stocks and shares, commodities and land—and that it should not be retrospective. It should allow an offset of losses against gains and should be essentially short-term. [Interruption.] He has done the lot. I am delighted with him. He could not have done better. I could not have done better. We are, therefore, at one.

I believe that the important and serious point about what my right hon. and learned Friend has done is that nothing in his speculative gains tax is likely to dissuade the genuine investor in British industry. That is surely the important point from our point of view.

I reject at once what the Institute of Directors had to say about this. I am a member of the Institute of Directors.

Sir Henry d'Avigdor-Goldsmid (Walsall South)


Mr. Nabarro

My hon. Friend says that. I should resign. I am on the Midlands Committee of the Institute in Birmingham.

Sir H. d'Avigdor-Goldsmid

Resign from both.

Mr. Nabarro

I will not consider that.

I was about to quote from what was said in The Times, which was this: A spokesman for the Institute of Directors said last night: 'Although the speculative gains tax appears innocuous, it constitutes a major breach of the principle of our taxation in that, since Income Tax was introduced over 150 years ago, it has only been levied on income. The new measure opens the door to extensions until no form of investment will be safe'. I suggest that statement is utter nonsense.

What has happened in the past is that personal income has been disguised as a tax-free capital gain. What we are doing now is, properly, bringing within the ambit of Schedule D, calling it a new Case, namely, Case VII, such profits as should have previously been taxable but which had largely escaped. That is my interpretation of the position. I commend what the Chancellor has done to the Committee and I hope that he will succeed in this context.

Mr. Arthur Holt (Bolton, West)

If that is the hon. Gentleman's argument, why does he support the limit of six months? Surely what he has said is an argument for taxing the kind of gains which he says he is making?

Mr. Nabarro

It is not an argument to that end. I thought that I made myself clear. We do not yet know whether the period will be six months. It may be less than six months. I listened to the Chancellor say very deliberately—I hope that he will correct me if I am wrong—that the period will be six months or less for stocks and shares. Surely the point is this. The longer the period, the more we dissuade the genuine investor on the stock market. That is why I want the period to be short.

There is nothing contradictory in what I have said compared with what I said earlier.

Mr. John McKay (Wallsend) rose

Mr. Dudley Williams (Exeter) rose

Mr. Nabarro

An hon. Member opposite wishes to interrupt. I do not know who he is. I hope that he is a Member.

Mr. Dudley Williams

While I agree with my hon. Friend, I do not think that he is dealing with the point made by the hon. Member for Bolton, West (Mr. Holt), who was speaking for the Liberal Party. He is obviously in favour of taxing long-term gains.

Mr. Nabarro

We never know what the Liberal Party favours or does not favour.

Mr. Holt

The hon. Gentleman's argument was that great gains were made out of capital and that these should be taxed. It did not seem a logical extension of his argument that the tax should be limited to short-term gains. That was my point.

Mr. Nabarro

My reply was given in relation to genuine investment. I hope that the hon. Gentleman will catch your eye, Sir James, before the Budget debate is over. I want a pronouncement of Liberal policy in regard to capital gains. We do not know where the Liberal Party stands—whether it is for or against them. Like agricultural support and many other aspects of national economic policy, it has one story for the countryman and another story for the townsman. On this occasion, we hope that there will be some consistency of Liberal policy in these important matters.

I turn to a second aspect of the Chancellor's fiscal proposals, namely, Purchase Tax. I want to exonerate my right hon. and learned Friend at once from all blame for initiating the new taxes on confectionery, sweets and soft drinks. Here, I quote from HANSARD of 15th May, 1961: There are three great sectors of consumer expenditure which have, so far, escaped taxation. They are, firstly, soft drinks, secondly, sweets and confectionery, and, thirdly, advertising. I hope that they will all be brought within the general ambit of reformed indirect taxation in the next two of my right hon. and learned Friend's Budget statements."—[OFFICIAL REPORT, 15th May, 1961; Vol. 640, cc. 1021–2.] In my judgment, my right hon. and learned Friend is proceeding quite properly. That is a quotation from my own speech on the reform of Purchase Tax on 15th May, 1961. I deliberately included the words in the next two of my right hon. and learned Friend's Budget statements. This year he has applied himself properly, to the important considerations of soft drinks, sweets and confectionery. Next year he will no doubt apply himself to the third proposition, namely, the application of Purchase Tax to general advertising.

On 3rd July, 1961, I used these words:— I would bring the whole of general advertising, the whole of soft drinks and the whole of confectionery and sweets into the ambit of Purchase Tax on one of the lower scales."—[OFFICIAL REPORT, 3rd July, 1961; Vol. 643, c. 1146.] Let me say why in my own words. Five years ago, when we started on the reform of the Purchase Tax, the top level was 90 per cent. and the bottom level 5 per cent. It was violently discriminatory. After the conclusion of my first one hundred Parliamentary Questions, the rates became compressed between 60 per cent. at the top level and 5 per cent. at the bottom level. That was at the conclusion of my first hundred Questions. Then, after my second hundred Questions, in 1959 the rates had become compressed to between 50 per cent. at the top level and 5 per cent. at the bottom level.

Then, we had my third century of Parliamenary Questions with a sterile result, and a fourth century of Parliamentary Questions with an equally sterile result. It had to await the arrival of my right hon. and leaned Friend at the Treasury to see the enlightenment of the cause for ridding our Purchase Tax system of violent discrimination and compressing the rates, notably in the interest of our national export trade.

In my judgment, it is manifest nonsense to claim that there is any article today which is a luxury. All manufactured goods contribute to two things. They contribute, first, to the employment of our people, and secondly, to the export of British goods. [AN HON. MEMBER:

"A mink coat?"] I am delighted that somebody has said that. I will at once take a mink coat as an example. Before the Budget, a mink coat was taxed at 27½ per cent., but a little transistor radio of the type which finds its way into almost every home in this country was taxed at 55 per cent.: yet a 400 guinea cocktail cabinet was taxed at 5½ per cent.

Mr. Ellis Smith

What are the badges on the hon. Member's car taxed at?

Mr. Nabarro

Is that meant to be a sensible interruption?

Mr. Ellis Smith

I merely asked at what rate the badges on the hon. Member's car are taxed.

Mr. Nabarro

The answer is 13¾ per cent. before my right hon. and learned Friend's Budget, but I am delighted to say that they will now be reduced to 10 per cent. should any further replacements be necessary as a result of the predatory habits of memento collectors stealing my badges.

It is manifest nonsense to tax mink coats at 27½ per cent., 400 guinea cocktail cabinets at 5½ per cent. and transistor radio sets at 55 per cent. This affects and afflicts the export trade, as the Society of Motor Manufacturers and Traders has made clear over and over again. I believe in a system which would have the effect, first, of compressing these highly discriminatory rates and making progress towards a single flat-rate tax over a wide field of consumer expenditure.

I am not in the least afraid to defend Purchase Tax being put on soft drinks and confectionery and sweets, and I regard as quite contemptuous those persons outside the House of Commons and Opposition Members who have said that this represents taxing the kiddies' sweets. That is manifest nonsense. If anybody cares to do a little researching on where the bulk of expenditure on confectionery and sweets is made, they will find that it is not on the 2d. lollipop that the child buys. It is on the more expensive brands of chocolates and on the huge consumption of candy and other sweetmeats. The consumption of confectionery and sweets per thousand head of the population has trebled since pre-war and the consumption of soft drinks of all kinds of a non-alcoholic description has been multiplied by two and a half times per thousand head of population as compared with pre-war. [AN HON. MEMBER: "What is wrong with that?"] Nothing at all, but they should not escape taxation. They are part of consumer expenditure and it is quite wrong that British manufactures such as motor vehicles which contribute so largely to our export trade should be taxed at penal levels while items of consumer expenditure such as soft drinks, sweets and confectionery formerly escaped.

I support that policy, but it is only the first step. This year, the Chancellor has reformed Purchase Tax again. It is the fourth reform in six years, each one a marginal reform. I agree with gradual reform, because if the reform made is too dramatic or too drastic in any one year, it involves many traders in heavy losses. We now have a system whereby the rates are 45 per cent. at the top, then 25 per cent., then 15 per cent. and then 10 per cent. The spread is between 45 per cent. at the top and 10 per cent. at the bottom. That compares with 90 per cent. at the top and 5 per cent. at the bottom five years ago.

Next year, however, I hope that the Chancellor will make further progress. I wish to tell him now that a 16⅔ per cent. level of Purchase Tax as a uniform rate applied over the whole field of articles currently taxed, including those brought into the ambit of Purchase Tax for the first time this year and including the application of 16⅔ per cent. Purchase Tax to general advertising, would bring him the same revenue of £576 million which he seeks to raise from the Purchase Tax this year. That is now my ultimate goal for reform of Purchase Tax.

Sir C. Osborne

My hon. Friend has asked an important question of the Chancellor, who, I am sure, would not wish the Committee to be misled or under a misapprehension. My hon. Friend has suggested that the capital gains tax would apply to stocks and shares for six months or less. As I read it, the Chancellor said yesterday that For all … stocks, shares and securities, the charge will apply if the period from acquisition to disposal is six months or less."—[OFFICIAL REPORT, 9th April, 1962; Vol. 657, c. 980–1.] He did not suggest that the period of six months would be less. The Chancellor should clear this point, which is extremely important to the country. It is the most important point that my hon. Friend the Member for Kidderminster (Mr. Nabarro) has brought out.

The Temporary Chairman (Sir James Duncan)

Order. I thought that the hon. Gentleman was interrupting the hon. Member for Kidderminster (Mr. Nabarro).

Sir C. Osborne

The point should be cleared up, Sir James.

Mr. Nabarro

I confess to a certain amount of dubiety in this. I listened intently to the Chancellor and would be grateful if he would clear up the point.

Mr. Selwyn Lloyd

Certainly. The period is six months.

Mr. Nabarro

I apologise to my right hon. and learned Friend. I understood him yesterday to say "six months or less".

Sir C. Osborne

The period is six months.

Mr. Nabarro

Yes. It does not in any way vitiate my argument with regard to genuine industrial investment.

Finally, I want to say a few words about Income Tax Schedule A. I am glad to see a solitary representative of the Liberal Party present.

Mr. Richard Marsh (Greenwich)

The hon. Member is lucky.

Mr. Nabarro

Yes, I am lucky to find just one here. The Leader of the Liberal Party, the right hon. Member for Orkney and Shetland (Mr. Grimond), seemed rather contemptuous of my right hon. and learned Friend and said that it was an electoral measure to try to attract a further Tory support in dormitory constituencies where there are a large number of owner occupiers. That is not true. [Laughter.] I am sorry to cause hon. Members opposite a laugh. They should go away and read the Report of the Royal Commission, which came down against the abolition of Income Tax Schedule A on owner-occupied houses.

I have divided the House against the Government, against my own side, on the last two Finance Bills, in 1961 and—

Mr. Holt

The hon. Member voted against the abolition of Schedule A on a previous occasion.

Mr. Nabarro

May I be allowed to continue? In 1961, I divided the House against the Government on this issue. In 1960, I divided the House against the Government upon it. Last year—incidentally, at 2.7 a.m., on 20th June—when I forced the Division there were fourteen Tories voting with me and only three Liberals—50 per cent. of the Liberal Party. The other three were missing.

Mr. Holt

A rather higher percentage of Liberals were present than Members of the hon. Member's party.

Mr. Nabarro

The Conservatives voting with the Government numbered 110. In the previous year, I divided on a similar basis.

In 1959, I made my position perfectly clear. It was just before the 1959 General Election, and I said on that occasion that the Chancellor had reduced the duty on beer by 2d. per pint, that he had applied to the reduction in beer duty the money I wanted him to apply to the abolition of Income Tax Schedule A on owner-occupied houses, but that having spent the money on the reduction in the beer duty I could not then support a further reduction of taxes in the form of a cancellation of Income Tax Schedule A on owner-occupied houses. But in the ensuing two years, in 1960, and 1961, I and my hon. Friends have voted for abolition of Schedule A. Perhaps the hon. Member will go away and put that in the Liberal News and distribute it to the Tories—

Mr. Holt rose

Mr. Nabarro

Let me finish my sentence. Let the hon. Member distribute it to the Tories in his own constituency, who will not be supporting him at the next General Election.

Mr. Holt

And also put in that the Liberals supported this in the House and on an occasion before the hon. Member for Kidderminster (Mr. Nabarro) put it up he voted against abolition of Schedule A.

Mr. Nabarro

I have explained all those circumstances. I have no doubt that the electorate will reject the hon. Member as being the image of a parrot.

But the Labour Party is also very much in favour of the abolition of Income Tax on Schedule A. I cannot understand why the hon. Member for Cardiff, South-East was so begruding in his approval of what the Chancellor has done.

I quote the hon. Member for Greenwich (Mr. Marsh) from the Daily Express of 4th April, when he said: Should I choose to spend my hard-earned and incidentally heavily taxed savings on a luxury yacht, the Chancellor will give me his blessing, but if I attempt to spend the same money on a two-bedroomed house I must pay tax on it, not once but each year for ever more. … Even more galling is the knowledge that about 600,000 people who do live in houses don't pay Schedule A. As Gerald Nabarro, a sort of rich man's Michael Foot insists on pointing out to the obvious embarrassment of successive Tory Chancellors … I have been called "a poor man's Bob Boothby" but never "a rich man's Michael Foot", and I am sorry that the hon. Member for Ebbw Vale (Mr. M. Foot) is not present. Of course the Labour Party should support the abolition of Income Tax, Schedule A, and of course my right hon. and learned Friend is doing the right thing. [Interruption.] Let me finish on this point before I am interrupted again.

Mr. Ross

Will the hon. Member finish?

Mr. Nabarro


I were Chancellor I would give notice that I intended to abolish the tax, because if a Chancellor did otherwise it would be manifestly unfair to a large number of Income Tax payers who base their maintenance relief claims on a five-year average, and many of them have substantial money in hand to off-set against future notional expenditure of a maintenance character on their homes. Arbitrary cancellation now would deprive them of a benefit tantamount to depriving owner-occupiers of the proceeds of their thrift. The Chancellor has, of course, given notice of the termination of Income Tax, Schedule A, and in my judgment he should bring it to a final end on 5th April, 1964, being the end of the tax year, 1963–64, in order that the maximum benefit may accrue to those persons who have already submitted their maintenance relief claims based on a five-year average.

There is no question of my claiming anything. I have enough money in hand to cover any notional liability until 1964–65. Therefore there is no question of my being affected. There is no question of myself. I am pleading for several thousands of owner-occupiers who make claims of this sort.

I congratulate my right hon. and learned Friend on an imaginative and well-balanced Budget. Last year I voted against the Government during the Finance Bill, four times. The year before I voted against the Government on the Finance Bill, three times. This year I shall vote against the Government on the Finance Bill, no times.

7.55 p.m.

Mr. David Ginsburg (Dewsbury)

It is a very unusual experience for me to follow a poacher turned gamekeeper. The hon. Member for Kidderminster (Mr. Nabarro) has at least this in common with me, that we in Dewsbury spin the yarn and in Kidderminster they make the carpets, but it is a bit rough that the only sector of our local industry that obtains any relief should be the sector that serves Kidderminster. The wool textile industry as a whole will have good reason to regard this as a thoroughly unsatisfactory Budget.

The hon. Member for Kidderminster used to be a strong expansionist, and whatever difference we had with him we had a slight fellow-feeling there. He used to say that if some life was pumped into the home market it would increase productivity and exports would benefit. We have heard none of that tonight. The hon. Member has become for us a member of the Establishment. The Chancellor on reading the Press today on his Budget, apart from the conversion of the hon. Member for Kidderminster, would have drawn little comfort. The authorities were unanimously agreed that, firstly, this was a standstill Budget and, secondly, that an economically neutral Budget is not what Britain requires at present.

It is also crystal clear from listening to him yesterday that, like the Bourbons, the Chancellor in the course of the last year has learned nothing and also has forgotten nothing. It is obvious from everything that was said in the 1961 Economic Survey, in debates on last year's Budget, and in debates in the House in the summer crisis that supervened, that the Chancellor was obsessed by the effect of internal demand on balance of payments. He is still obsessed by that phenomenon today.

The Chancellor's speech last July was revealing. I have taken the trouble to re-read it. He proposed measures last July on two main accounts: firstly, that there was a structural deterioration in Britain's balance of payments, and, secondly, that there were internal pressures in the economy which in the light of the first count could not be afforded. But to do the Chancellor justice, he threw in confidence, and especially confidence in the £, but it was an aside and was not, as he told the House, the main reason for his action.

Last summer we on this side of the Committee told the Chancellor that the crisis was purely a crisis of confidence in the £ and in the British Government as well, and that harsh measures internally to damp down demand in this country ware not justified. The Chancellor persisted in his actions, but it is now crystal clear—and I am now drawing not on my figures but on the Government's own figures in the revised balance of payments statistics which the Treasury published a fortnight ago—that the position was far healthier last summer when we had these impositions than the Government admitted at that time.

There is every evidence that our current account on the balance of payments, even in July when there was a run on sterling, was improving and coming right. Although we had a deficit of £215 million in the second half of 1960, in the first half of 1961 that deficit had closed to £60 million. That was an extremely important fact. There is also evidence from the Government's revised figures that our performance on capital account—indeed, the Government have taken credit for this—was also improving.

It follows that the July cuts were not necessary. If the balance of payments figures, on the basis of the revised statistics, were much more secure than we were led to believe, it follows that the cuts were not necessary and were exercises in economic masochism.

If right hon. and hon. Members on this side of the Committee, whose sources of information are far more slender and less comprehensive than those available to the Treasury, were right in July, why was it that the Chancellor was wrong? We must endeavour to examine that question. It is not enough for the Government now to plead the alibi that they were let down by statistics. That is an important matter, and I shall probe it, but the blame for what happened in July must be placed fairly and squarely on the Chancellor's shoulders, because he—and there is ample evidence of this—starts out with the predisposition that growth is dangerous. It pervades his entire thinking.

The statistical problem has not been touched upon in this debate so far. The White Paper on our balance of payments is not just a minor revision carried out by the Treasury. One would even go so far as to say that it is a complete rewriting of history. I hope that we shall be told why this happened, what kind of investigations are going on and whether the Government will publish the results. In particular, can we be told about page 8 of the White Paper where it says: Investigations are continuing which it is hoped will lead to a more nearly complete recording of transactions. There may be more subjectivity in Government statistics—and I am a great advocate of the production of statistics—than people realise. One is tempted from these benches to say that Chancellors get the figures they deserve. Perhaps that is putting it too high, however. But they tend to get the figures they ask for. A jittery Chancellor, biassed against growth, misconceiving the balance of payments problem, so influences his officials that eventually he is given the figures which enable him to see the picture exactly as he wants to see it.

I am sorry that the Chancellor is not here at the moment. He may say that I have been unfair to him, that after all he is a pioneering Chancellor and has tried to make improvements in the balance of payments figures produced. But the point is that the balance of payments statistics were criticised as long ago as 1956, by the present Prime Minister, when he was Chancellor of the Exchequer, in his famous "Bradshaw" speech. The Prime Minister said then that if this were not put right there would be trouble. The Radcliffe Committee made the same point. It has taken two economic crises and a serious loss of wealth by ordinary people, to enforce action.

If the right hon. and learned Gentleman is thinking about economic statistics, there are other areas where better figures are required. We need far better figures about the employment situation. The statistics published by the Ministry of Labour on manpower and the degree of under-employment and hidden unemployment are lamentable and inadequate. There has also been pressure in the House for some time for the publication of more detailed information about invisible earnings. We have pressed this time and time again on the Chancellor, and on the Prime Minister.

It is ridiculous that invisible earnings are given in so little detail and that we still do not know what the earnings of the oil industry are. If that industry has, as it claims, an extremely creditable record, it seems the height of idleness on the Government's part that the figures are not made available. If we are to avoid running into crisis after crisis, the Government must have much better information available than at present.

The Chancellor may also say that the criticism that he is anti-growth is unfair. But if one reads his speeches and the White Papers published in the last year, one finds ample evidence for saying that his outlook, which is also that of the Government, is anti-growth. Take, for example the Economic Survey, 1961. In paragraph 24, this said: The Government do not believe that running the economy with greater pressure of demand than at present would in fact increase a sustainable rate of growth. Such a policy could not be continued without affecting the stability of sterling …". And so on. In his speech last July, when he imposed these cuts, the Chancellor was even more vehement. He said: … I now have later forecasts about our situation for the first half of 1962. It is true that they are only forecasts, but they show an increasing pressure of demand upon our resources greater than expected and likely to affect exports and the balance of payments."—[OFFICIAL REPORT, 26th July, 1961; Vol. 645, c. 433.] What utter nonsense. Where was this pressure that was to be "greater than expected"? In the outcome, production was stagnant, even negative. The rise was so trivial that it gave only a very slight lift to the economy last year, which the Government damped down. Yet the Government have the same fear of growth in 1962 as they did in 1961. Paragraph 16 of the Economic Survey, 1962, says: Opportunities for … exports are … good; but they will be missed, if export goods are not competitive"— and I emphasise the following words— and if the pressure of home demand becomes too great. Paragraph 28 says: Provided the pressure of home demand is kept in check … the country will be able to take advantage of the favourable opportunities for exports in 1962. All along we have this emphasis against demand and against growth, and I want to deal now with what results from this emphasis, which is, indeed, an obsession with the Government. We have the failure of the country's economy to grow and a serious under-employment situation. We have under-employment both of labour and of capital, and all this leads to higher costs which are eventually utterly self-defeating for the Government's own export objectives.

Unemployment has not been mentioned in the debate so far, except in reference to regional problems. It stands at 2 per cent., which is the highest consistent level of unemployment since the General Election. The Government might say that it is not an intolerable level, but it is interesting to note that the vacancy position is already deteriorating. Last month, vacancies in the economy declined at a time when they should be seasonally up. Therefore, we say—and I think that this is a respectable view with which most experts would agree—that the labour position is already much easier. Indeed, labour is being hoarded to some extent. I will quote evidence of the hoarding of labour, because the Parliamentary Secretary to the Board of Trade seems a little surprised, from paragraph 42 of the Economic Survey itself: Conversely, it may be that in the second half of 1961, many firms were slow to reduce their labour forces after the sharp change in the trend of production after the middle of the year. What does that paragraph mean? Do the Government want these people to be sacked? Do they want the squeeze to be even tighten so that labour is released? If so, why do they not pursue—I am not saying that they should— the logic of their policy, and if they do not want that to happen, why do they not ease up, because the British economy is now getting the worst of all worlds?

Apart from that, we have a growing labour force. More young people are coming on to the labour market and this year will see a record number of young people coming on to the labour market. If we are to seek to measure the ratio of employment and unemployment, we are hampered by the fact that Government statistics for the labour force and total employment are out of date and are always a year behind When we get to the middle of the summer and the Government's policies are subjected to the test, we may not know how the take-up of that labour is going because the figures on which we will be working will be a year old.

In British industry we also have the problem of married women and old-age pensioners, all whom are finding it difficult to get employment. Once again the statistics do not give the answer, because these people do not register at the employment exchanges and are therefore not considered available for employment. In 1958, Mr. Turner of Manchester University published a treatise on the problem and estimated that this type of hidden unemployment accounted for 400,000 in 1958, and it is possible that the position is worse today.

There is also the problem of decline in hours worked. There is much more short time in industry today. Short-time working and the decline in overtime are serious for in many areas overtime is vital to living standards. For instance, in the heavy woollen district, in my constituency, keeping workers on the books and off the dole is a humane and necessary policy, but, on the other hand, the fact that workers do not appear in the unemployment statistics obscures the decline in family living standards which is occurring because of economic stagnation.

In the present state of the British economy, under-employment of capital may be even more serious than underemployment of labour. Of course we have the doctrine, associated with Professor Paish, of a surplus capacity of capital of 5 per cent., but even Professor Paish would dissent from the degree to which the Government have pushed the doctrine—that in order not to have inflation, we must have this safety margin of capacity. Let us look at the figures. At the turn of the year, the motor industry was working to 70 per cent. capacity, the engineering industries to 80 to 85 per cent., and the steel industry to 75 per cent. In the textile industry output was stationary to falling, with a declining labour force, and in wool as in cotton, I regret to say, there was some evidence of excess capacity. As a result of this, we have an atmosphere which is not conducive to achieving the degree of modernisation in industry which we should like.

Last year's experience, grim as it was, is not the full story. Let us consider what will happen this year. Investment is increasing and, on the Chancellor's own admission, is higher than last year. What will the consequences be? The National Institute's review reckons that production will go up by some 2 to 3 per cent. by the end of the year. We hope that that happens, but even if all goes well, this expansion of production will be well within the new plant capacity of the British economy. Indeed, at the end of 1962 we are likely to have as much, if not more, unused plant capacity in Britain than we now have, and that is a very serious outlook.

The Chancellor keeps saying that he wants higher productivity, but he will not get it without new investment, and he will not get it without new investment which is utilised. To pursue a policy whereby labour is idle and capital is not used is not merely a policy which is morally wrong, but is a policy which is economically self-defeating.

I turn to the fiscal remedies for this serious stagnant situation. We say that the Budget is insufficiently expansionist. Every Member of the Opposition and even some hon. Members opposite agree with that. To start with, there is not enough for exports and the Budget provides only exhortations and a negative climate for exports. There are to be no direct tax incentives and precious few indirect incentives. What I find most fantastic in the Government's attitude to this problem is that they have taken no steps to support co-operative export ventures. They are willing to make ambitious proposals for co-operation in agriculture and are willing, quite justifiably, to pay subsidies in order to secure greater co-operation in the processes of agricultural marketing. But they have done nothing to improve the structural machinery and to create the necessary co-operatives which could handle the promotional working required for exports.

We all agree that there must be higher productivity, but no decisive steps have been taken in the Budget to foster it, for example, in the restoration of investment allowances. But the obvious big divide in our deliberations on how to get expansion lies in the problem of consumer spending. I cannot understand where the Government get the idea and why they are so sure that during this year there will be an expansion of consumer spending of 4 per cent.—which is the reason why they are doing nothing to help the home market. The Chancellor said that yesterday, but from my own scrutiny of the Economic Survey and my study of the figures I cannot follow the basis of the reasoning which leads to that belief.

We say that if the Government want expansion and greater consumer spending they have to review the ways in which consumer spending can be effectively helped. My own preference is for relieving the lower income groups from Income Tax. We had some interesting figures on the topic from my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) this afternoon and I should like to give one more, which might be slightly dated but the moral of which is correct. On my figures, if the Chancellor had been determined to relieve the 5 million lowest Income Tax payers, which would have been a great incentive and administratively convenient for the Government, that would have cost £84 million, which is well within the capacity of the present British economy.

The National Health Service charges could have been cut, and there could have been a rise—long overdue—in old-age pensions. Another method by which the Chancellor could have helped consumer expenditure would have been by a substantial cut in indirect taxation.

I suppose that I shall be asked by hon. Gentlemen opposite whether we can afford concessions of this kind. My answer is simply that if we have economic growth on the scale in which we on these benches believe, I think that some of these concessions could be taken in its stride by the British economy, and if it is that we are overloading it rather too much then, simply, if we had a revenue-raising—I stress that—capital gains tax, that kind of exercise would easily be accomplished.

Therefore, I wish to say a few brief words on the capital gains tax, because yesterday the Chancellor missed a very valuable opportunity. The support on these benches for a capital gains tax is not based purely on the psychology of the exercise. We believe, and I hope that perhaps some hon. Members opposite believe—indeed, the hon. Member whose maiden speech we heard this afternoon, the hon. Member for Manchester, Moss Side (Mr. F. Taylor), implied this—that the Income Tax burden could be reduced if this country had a wider tax base; in other words, if we had a proper capital gains tax covering long-term as well as short-term capital gains. It is natural to remember that, in 1955, at the time of the Report of the Royal Commission on the Taxation of Profits and Income, the Minority Report estimated that the yield of such a tax—and it might in some ways be a much fairer tax than the present one—would be from £250 million to £300 million. Of course, it would be a very much bigger yield today.

With regard to speculation, we have never envisaged the tax as an anti-speculation measure. There may be some significance in speculation in the economy, but for tackling speculation, we do not need this tax. There are other ways and other methods that can be adopted, for instance, compelling people to pay cash for the securities which they bought, which would have the effect of cutting down speculation substantially. Therefore, our criticism of the Chancellor is that he has launched, with in- adequate administrative preparation, a tax that was likely to be an administratively difficult tax, and which will cause him a lot of political headaches with his hon. Friends, while the revenue, at the end of the day, will be very small. Perhaps the best that can be said of it is that it is a modest, but only a very modest, step in the right direction.

I want to conclude with a few words on indirect taxation. There are many arguments against what the Chancellor did yesterday. I think that there is a very powerful case to be made for generally reducing the level of indirect taxation at the moment in order to stimulate the economy, but let us for a moment accept the logic of the Chancellor's argument. I would say, in the first place, that the pattern of the change in indirect taxation is an unfair pattern. It is socially unfair, and it is unfair between people. If the Chancellor thought that he could not economically reduce taxation, why did he not save everybody a lot of trouble and make no change in this particular year? There are other things that have to be said. The changes which the Chancellor outlined in the Purchase Tax will lead to serious discrimination between one industry and another, and these changes, in my opinion, make very little sense indeed.

We must also ask the Government whether the Chancellor is seeking to alter the pattern of spending. The Chancellor said yesterday that he was against value judgments in this field. I should like to pursue his logic further. Is he trying to make the home market easier for certain commodities, and at the same time trying to make it more difficult for other commodities? If so, one must ask why he wants to make the home market easier for motor cars and consumer durables and more difficult for textile manufacturers, because, given the Chancellor's own philosophy that he does not want to change consumer demand in order to help exports, he is asking the already depressed textile industry, because of the increases in the Purchase Tax Which will fall upon textiles, to spearhead exports over the products of light engineering and consumer durables, and this is complete and utter economic nonsense.

I know what the Government's reply will be to this argument. They will say that they are making the tax cuts on the home market for consumer durables and motor cars so that there will be an increase in consumer demand which will become more buoyant and costs of production in these industries will fall. I almost detected a nod from the Parliamentary Secretary to the Board of Trade, and I agree with that argument. If that is the argument, it makes nonsense of the Government's argument generally that helping the home market is bad for exports.

This is indeed a bad Budget. It is a timid Budget. There are no incentives for exporters or manufacturers. It will, for the most part, make life a little bit more difficult for the industries in my own constituency. It contains next to no concessions, and it adds to the burdens of many of my constituents. It is equally oppressive to millions of our people, and it is a Budget which is totally out of tune with the requirements of the times.

8.25 p.m.

Mr. F. M. Bennett (Torquay)

If I am not tempted to comment on the speech of the hon. Member for Dewsbury (Mr. Ginsburg), it should not be taken as an indication that I agree with anything he said, but simply that I have more concern than he apparently had for the wishes of others wanting to speak in this debate. I would remind the Committee that were I, too, to speak for half an hour it would mean that the hon. Member sitting opposite would not have the opportunity of speaking today, but I propose to be a little less selfish than that.

There has been so far one obvious lack of understanding between the two sides of the Committee about the so-called capital gains tax, or, as I prefer to call it, the speculators' trading tax. This lack of understanding, which leads the Opposition to say that we have not gone far enough, springs from the fact that this is not a capital gains tax at all, and we on this side of the Committee never have favoured a capital gains tax on investment and savings in the sense that Opposition spokesmen have. Therefore, it is not a matter of how far we go. There is on this matter a fundamental difference of approach on the question of what such a tax ought to do. For our part, and I think I am speaking for my hon. Friends, what we have been trying to find is a method of bringing within the Income Tax and Surtax range individuals who have been trading in the same way as a trading institution. If it did the same thing it would have before this Budget to pay Income Tax and Profits Tax. It is this sort of abuse which the population of this country has been wanting to have removed. For a long time people have been wanting to avoid what appeared to be glaring unfairnesses whereby a professional man, or a salary earner or a wage earner, has paid his tax as he properly should on his earnings but someone who made a living out of a success of so-called capital transactions has escaped all forms of Income Tax.

I am no new convert to this cause because, as the records will reveal, I have in three or four successive Budgets made a plea for something like this to be done. It has been my belief, and still is, that we ought to have done it some time ago. It is also my belief that we should have done it within the ambit of the existing law. I am glad, in this context, to have read in The Times the other day a letter from one of the leading tax counsel of this country supporting this view.

I am glad that the hon. Member for Sowerby (Mr. Houghton) is here, because I am sure that he agrees with this. There is plenty of legal evidence that people who make a living out of trading in stocks or shares or property could, before now, by a directive of the Government of the day, have been brought within the ambit of paying Income Tax and Surtax, without the need for any new legislation.

Mr. Douglas Houghton (Sowerby)

I think that the weakness of the law at the moment is that the badge of trade which has to be fixed on a taxpayer before income from this source can be taxed as income can be fixed only by the local commissioner of taxes, and frequently he takes a lenient view of these activities.

Mr. Bennett

I was coming to that point. I do not differ from the hon. Gentleman on that point of view. The structure has been there, and if successive Governments had urged a stricter view to be taken of these activities over the years there would not now have been the necessity to bring in a complicated new set of proposals. As I say, the public have wanted to get rid of this sense of unfairness, and it is for this reason that, perhaps more modestly than did my hon. Friend the Member for Kidderminster (Mr. Nabarro), I warmly commend the Chancellor of the Exchequer for what he has proposed.

I think that the period of six months for securities is about right, and that the period of three years with regard to property is also right. I have no doubt that clever men are already thinking out methods of getting over these difficulties, but there has never yet been a tax which clever men somewhere or other have not tried to defeat. All that we can do is to make the best structure we can to prevent evasions and unlawful avoidance in the future, and it may well be that some aspects of this will have to be altered in future years. But, whether we are Conservative or Labour, and even though the Labour Party takes a different view from mine about the necessity for a capital gains tax in the real meaning of the word, I think we are at one that what the public have been wanting—and I am repeating myself—is an end to what they felt was an unfair form of escape from tax liability.

I make one small plea. Although the Chancellor is not here, I hope that this will be noted. As we are bringing in these proposals, I think that we might properly make provision for relief from this tax in respect of very small transactions. My reason for saying this is that we have not here attempted to capture tax from the person who goes in for an occasional flutter on a horse, or at the dogs, or on the football pools. There are a number of quite poor people, too, in this country who from time to time prefer to have a small flutter through the Stock Exchange. I would be only too pleased to see the Chancellor concede that transactions below a very small sum should be permitted without the full burden of this tax falling on them.

I was deeply disappointed yesterday that the Chancellor did nothing to remove Stamp Duty on share transactions. I hasten to say that this is not out of any consideration on my part for the investor or the trader. It is simply that at the moment, as I know well from professional experience, we are losing a great deal of the traditional business of the City of London to continental stock exchanges, and as the moment for joining or not joining the Common Market comes nearer we are again and again coming up against this point.

Yesterday was the time to do it, when we were introducing a general tax on trading, and I am confident that it will not be long before the Chancellor will have to do this, because, as this competition grows and the City of London gets more and more thrust out of its traditional rôle, this form of competition will have to be met by removing something which at present discriminates against the City of London which, of all the metropolitan centres in Europe, has the best capacity and experience to take the lead, in or out of a completely united economic Europe, as the leader in providing an international financial centre.

It is rather foolish of us to put unnecessary obstacles in the way of this. It is even more paradoxical than that, because the real in-and-out man who gets in and out within the accounting period of two or three weeks does not pay this Stamp Duty. It is an almost ludicrous position in which the shortest in-and-out man will pay the least. That cannot have any moral or sensible justification. I do not know whether it is too late this year to do anything—and I realise that it will cost money—but if we do not do it now we shall lose more business during the next twelve months and will have to do it then any way.

Finally, I want to make two general points. I was not very surprised at all the hoo-ha that arose from the Benches opposite yesterday about the sweets tax. An Opposition always tries to pin its opposition on some gambit in the Budget; and while I was sitting here I watched the faces of hon. Members opposite while they were waiting for the announcement about which they could make most fuss. A tax on sweets for the kiddies was an obvious one. I submit that this will not be a long-term criticism; when all the froth has been blown away the suggestion that a tax of 15 per cent. on the wholesale value of sweets will inflict a very crushing burden upon children and other people will be seen to be nonsensical. Hon. Members opposite know that as well as I do.

If there is to be a long-term criticism of the Budget, it will be a much graver one than that. It will be that at a very critical moment for this country—whether or not we succeed in our negotiations to enter the Common Market—when we are having to face considerable new challenges and when there is an urgent need to modify our traditional patterns of trade and our economic way of life, the Budget does not answer the challenge of the times, at least psychologically.

If I am asked what I think should be done to introduce such a note of challenge or inspiration, I shall not be able to give an answer; but that fact does not alter the need for such an inspiration. I therefore plead with the Chancellor, in otherwise supporting his Budget proposals in toto, to realise the need not merely to introduce a standstill Budget, however economically justifiable it is, but to take the opportunity in the coming months, whenever he can, to stress to our people the need for a new look, a new energy and a new enthusiasm in facing the undoubted problems that lie ahead.

8.38 p.m.

Mr. E. Fernyhough (Jarrow)

There is a quotation which will be very familiar to hon. Members: "Everything comes to him who waits". I waited for many hours yesterday and today before catching your eye, Mr. Royle.

I quite agree with the peroration to the speech of the hon. Member for Torquay (Mr. F. M. Bennett). That is something that he should put down in his notebook, because it is seldom that I am able to accept a single word he says. I refrained from interrupting him in his speech because I thought Chat he would be staying on to listen to me. He said that he hoped that small capital gains—the modest ones; I do not know what figure he has in mind—would not be taxed, because we did not tax pools winners, or those who backed horses or dogs. But we do; we tax the pools very heavily. About one-third of all that the punter puts on is taken away in taxation. The difference between the punter and those who will be affected by the proposed capital gains legislation is that the punter will not be allowed to off-set his losses against his gains. I understand that privilege will be extended to those who may be caught in the net of the capital gains tax. There is not a punter in the world who would not be delighted to be in the position to be able to off-set his losses against his gains.

This Budget has been received with approbation by hon. Members opposite. There has been little or no criticism of it. Apparently the Budget is to be the salvation of the country, and in that respect it is identical with the previous Budget, which was to save Britain, restore our greatness, increase exports and make us more economically viable. Three or four months later the Chancellor had to say that all his prophecies of April had been wrong. He had to shove up the Bank Rate, put a curb on public expenditure and introduce a wages pause.

The hon. Member for Torquay said there was something lacking in this Budget although he did not know what. It did not provide the drive, energy and vision which the hon. Member thought was needed. Everyone knows why that is so. The Government have no ideas. During the debate on last year's Budget I said that the Chancellor was like a man who had lost his way. The right hon. and learned Gentleman was looking for signposts and none was available. That prophecy has turned out to be true. Between last year's Budget and this one the Chancellor has said, "Our country is sick. We are not getting the exports we ought to have, nor are we increasing production. But, as a Government, we do not know how to tackle this job and so we shall set up a special body, the National Economic Development Council, which, after due deliberation, will tell the Government what is wrong with the country." This body is to tell the Government what is the cause of the sickness in the country and what medicine is required by the nation to make it healthy.

The very fact that the N.E.D.C. has had to be set up after almost eleven years of Tory rule is a condemnation of the present Administration. Had the Government done what they said at the time of the last election that they would do, there would be no need for the N.E.D.C. I wish to assure hon. Members opposite that the N.E.D.C. will have difficulties to face which will be of the Chancellor's making, because the Council will have to try to work within rules laid down by the Chancellor. The right hon. and learned Gentleman has ruled that increases in personal incomes during the next twelve months shall be limited to 2½ per cent. and that thereafter they shall be granted according to the increase in the size of the national cake.

There are 79 wages councils in this country which affect 3½ million people who do not get anything approaching the average wage reported monthly by the Minister of Labour. They are the lowest paid people in the country. Their wages are so low and, generally speaking, they are so unorganised that the Government have to protect them by stautory legislation. A number of these councils decided recently to grant increases of between 3½ per cent. and 8 per cent. The largest amount which will result from that is 12s. 3d. a week. Let us take, for example, the rate of pay received by women, some of whom earn less than £5 a week. If the Chancellor has his way, such workers will receive an increase of 2s. 6d. a week. Most of the men workers are paid less than £10, and on the basis of a 2½ per cent. increase they would perhaps receive 5s. There are many people who are paid ten times more than that weekly wage and if they have a 2½ per cent. increase, they will get a large amount. If a man receives £40, £50, £60 or £100 a week, he will get a large increase.

If this is to be the Government's policy, does it apply to old-age pensioners, the sick and the unemployed? Are their benefits in the future to rise only by this modest 2½ per cent.? Are we to tell the old-age pensioners on £4 12s. 6d. a week that when they get their next increase, on the basis of an increase of 2½ per cent. in personal incomes, they will be entitled to about 2s. 4d? The Government are assuming that we are prepared to accept the present distribution of the national cake, that we think it fair and reasonable and that therefore in future, whatever the increment in the size of the national cake, it should be distributed on the basis of what people are now receiving. But this, far from giving us the more egalitarian society which some of us seek, will tend to widen the gap between those right at the bottom and those right at the top.

For this Government to tell tens of thousands of people working in the industries covered by the wages councils that they can have only a 2½ per cent. increase when last year they gave an average weekly increase of £6 to everybody who is paying Surtax is completely indefensible. They must have seen that whatever the trade unions said collectively about the N.E.D.C., individually they could not accept a position of this kind. My own trade union executive decided to give provisional support to the N.E.D.C., but I know full well that they are being compelled, because of price increases and rent increases which people have to pay, to seek wage increases much in excess of 2½ per cent. in order to compensate their members.

The N.E.D.C. is to go into the whole problem of the planning of the nation's resources. My goodness, what a need there is to plan the nation's resources! I wonder whether the Minister of Housing and Local Government knows the extent of the capital investment in private house building during the last eighteen months on houses which have still not been sold and which are still untenanted. In all parts of the country there are new houses being built by speculative builders and no buyers to be found for them. Some have been standing empty for six months and some have been standing empty for twelve months. At the other end of the scale, hundreds of thousands of decent citizens are living in indescribable conditions. Is this planning the nation's resources? Would it not have been far better for the Government to say to the local authorities, "You know the housing needs of your community. Go ahead with your housing programme"? Instead of that, they cut down the local authority programmes, and we have the spectacle of new houses, for which there are no prospective buyers, remaining empty while hundreds of thousands of decent citizens are denied reasonable houses.

There is a need for planning, particularly when the Government are cutting back the school-building programme. While they are holding back all kinds of desirable social projects, new garages and new filling stations are still springing up like mushrooms. Nobody had any difficulty in getting petrol even five years ago, but we are still allowing the nation's resources in bricks, timber, cement and building workers to be wasted unnecessarily in building petrol stations at a time when the Government are doing all that they can to reduce investment in what I call social projects.

The President of the Board of Trade, who opened the debate, defended the Budget. He said that we must have mobility of labour and a readiness to change jobs and that we must be much more ready to move than in the past. In reply to my hon. Friend the Member for Stoke-on-Trent, North (Mrs. Slater), he likened the question of labour to the question of land; both, he said, were entitled to get what he called the market price. But land is limited; the amount of land cannot be increased. We can bring in labour and increase the labour force, as we are doing by bringing in all kinds of people. We can extend our labour force as much as we like, but we cannot extend the land available. Every year every acre becomes more precious, and every year the pressure upon it becomes greater, and every year it becomes more costly to acquire it for the people who need it.

After millions of pounds have been made in land speculation, the Government intend to try to stop the activities of these get-rich-quick gentlemen, but because I know the pressure from the 1922 Committee against any idea of introducing a capital gains tax, I do not believe that the Government's proposals will be as strong as they ought to be if they are to do justice to our people.

I want to say a word about the favourite item in this Budget—Schedule A relief. True, the benefit will not apply this year. The Chancellor has promised that it will apply next year. Of course, if it should not apply next year it would not be the first promise that a Tory Government have broken, and it certainly will not be the last. The Chancellor is assuming that this Budget is going to work where the last one has not. The last Budget was going to work wonders. The £82 million of Surtax relief was going to produce remarkable results.

In his concluding remarks in last year's Budget the Chancellor said: I believe that my proposals with regard to Surtax will have a dynamic effect upon the initiative and effort of individuals, including those engaged in exporting, whose work is of vital importance to the community."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 822–3.] It has had a remarkable effect. It has cost us £82 million in relief to the Surtax payers in order to increase exports by one per cent. If we are going to have to pay such a price in aid of exports it will be a very costly proposition.

There is no certainty yet that this Schedule A relief will ever come under the present Administration. In any case, it is not for hon. Members opposite to pretend that by giving this relief they are the benefactors of those who are buying their own houses. This relief is chicken feed in relation to the cost of a substantial reduction in interst rates to which people who are buying their own houses are entitled. I invite hon. Members to work it out. If a house is assessed at £30 a year, the owner-occupier is probably paying just over £10 a year in Schedule A tax. Those who have had to take up a mortgage of £1,000 or £1,500, because of the Government's financial policy and the Treasury interest rates are having to pay many times £10 which they would not have had to pay if the Treasury had acted as we on this side of the Committee did when we were in power. Schedule A relief will be very welcome, but it will not bring half as much benefit to those who are now buying their own houses and are having to take up mortgages of £1,500 and more as they would get if they were charged reasonable rates of interest.

When the Chancellor brings in his legislation next year to effect this relief, I hope he will not forget those who live in rented houses. Whilst the cost to those who pay Schedule A tax may be heavy, it is nothing compared with the cost which some who live in rented houses are having to pay. Every year 400,000 houses are becoming decontrolled. We all know that once a house becomes decontrolled, the landlord is free to demand what rent he likes. Everyone knows that the scarcity of houses is still such that thousands of landlords are taking advantage of the basic elementary civilised needs of men and women. Some of these tenants not only have to pay a much higher price for a rented house than some people pay for buying one; some of the tenants are spending out of their own pockets many pounds a year on their landlord's property to make it more habitable. I hope that when the Chancellor brings in legislation to give this relief to Schedule A taxpayers he will not forget those tenants who have been the victims of the Tory Government's 1957 Rent Act. They are now being exploited beyond measure by having to pay for repairs, which landlords have refused to do, so that they can keep their houses in habitable condition, and they should be entitled to look forward to some assistance in the way of tax relief.

It seems to me that we discuss our economic problems too much in isolation. If we look at Germany, France, Belgium or Italy we find that not one has carried since 1950–1951 the same defence burden that this country has catrried. If there is anything that is inflationary it is a big defence programme because we are paying men to produce what they cannot consume. When the pattern of Europe is held up to us, never let us forget that over the last 12 years we had poured out thousands of millions of pounds for defence purposes, which has been far in excess of the expenditure and the burden carried by those other Governments.

There is another factor, because of the monkeying about with the Bank Rate, which goes up and then comes down. We know full well what the cost of the national debt is this year. The cost of administering the national debt is now about £300 million more than it was when we were in power. Each time the Bank Rate goes up, the nation has to face a bigger liability. The two biggest items are the interest on the national debt and defence expenditure. No one ever mentions either of these when talking about cutting down Government expenditure. Yet those are the two items where the biggest cut could be made to produce the best result.

I have listened to most of the speeches that have been made in the Committee during the last two days. I listened intently to the Chancellor of the Exchequer. After all his proposals have been put into operation, what will the effect be on constituencies such as mine on the North-East Coast? What will happen to shipping, to the railways and to the coal mining industry, basic industries around which whole communities were built? This Budget does not offer them much hope.

It is easy to say that the workpeople can move to where jobs are available for them, but can those who say that assure them that there will be houses for them? Can they assure them of school places for their children, that there will be adequate travelling facilities, and that the pressure on the hospital system will not be so much increased that they will have to wait much longer for beds?

Is it not time, if "Neddy" is to do the job which the Government cannot do, that we began to plan our industries in order to meet the needs of the people rather than make the needs of the people meet the plans of industry? Should not human beings, ordinary men and women, still count? Ought not we to accept that it would be much cheaper socially and much more desirable sociologically that people should be allowed to remain where their roots are, if they wish, rather than be uprooted and bidden to go to, as it were, foreign territories merely for economic reasons?

These are some of (he questions which have still to be faced in the North-East, in Scotland and in several other parts of the country. The present Administration are not facing them. Of course, they will promise to face them the nearer the General Election comes.

Before I came into the Chamber I went to the Library and referred to the Conservative Party's last election manifesto. At one point it said: We have shown that Conservative freedom works. Life is better under the Conservatives. We are going to double the standard of living in this generation and ensure all sections of society a share in the expansion of wealth ". They are doing it by giving to those on less than £5 a week whose wages are determined by wages councils less than half a crown a week increase. They are doing it by leaving the pensioners where they are. They are doing it by easing the burden on the Surtax payers, forgetting that, important though they may be, the future of Britain, its export trade, its production and its prosperity still depend fundamentally upon the millions of ordinary people.

It is not the few extraordinary people who can save Britain but the tens of millions of ordinary people. This Budget is no inspiration to them. It is no inspiration to a country which is sick, to a country which, to some extent, because of Conservative propaganda and policy has lost its basic qualities and values. It is hon. and right hon. Members opposite who are responsible for breeding the cynicism which comes from saying, "You have never had it so good". It is hon. and right hon. Members opposite who say, "If you look after yourselves, it will be good in the long run for the community". We are now beginning to realise that that sort of philosophy cannot lead to a great Britain. It can lead only to a dying Britain.

I do not believe that the Chancellor of the Exchequer or those who support him can solve the economic and social problems facing us. The best thing they can do is to get out as quickly as possible before they do more damage to both the economy and to people in general.

9.10 p.m.

Mr. R. M. Bingham (Liverpool, Garston)

I must curtail my remarks in order to keep in touch with the timetable.

One matter which the hon. Member for Jarrow (Mr. Fernyhough) touched on was the mobility of labour. He pointed out—and this found an echo in my heart—that undue emphasis on the mobility of labour undoubtedly tends to create almost as many social problems as the economic problems which it attempts to solve. Personally, I support the Government's policy which is concentrated, by the direction of industries, on taking industries to those areas where, for one reason or another, there is a high rate of unemployment. Merseyside is one area which has benefited considerably from this.

My first impression of the Budget was that here was the golden chance, for which I have listened in vain in a number of economic debates recently, to find out from the Opposition and from the Liberal Party what were their exact recipes for economic growth. It is easy enough to say that our rate of economic growth, sound expansion or increased production is not sufficient. It is not so easy to produce recipes or remedies which would be more satisfactory than those proposed by the Government.

Speaking for myself, I must admit that, as a result of the debate so far, I find myself in a state of some disappointment. I think that I have listened to all the Opposition speeches bar one. I have heard a certain amount of agreement with planning in principle, but I have not heard one wholehearted declaration of support for the best planning proposal which has been made in this sphere, and that is the National Economic Development Council. I do not understand why the Opposition do not give this Council their wholehearted support.

The Opposition's plans for economic development were listed by the hon. Member for Cardiff, South-East (Mr. Callaghan) under a number of heads. I did not find them easy to understand. Nor was it easy to see how they would have much effect on the economic situation. Co-ordinating plans for investment and priorities for raising new capital were two of the recipes for economic growth which the hon. Gentleman mentioned. That is really the language of controls of the immediate post-war period. He said that new Government companies, where required, should be created—not that I would think that any were required—and then he said that there should be export incentives. If an export incentive could be formulated which did not contravene G.A.T.T. and O.E.E.C. rules, I feel sure that it would have been devised by the Government by now. To be fair to the hon. Member, he mentioned certain other matters as part of the Opposition's recipe for economic growth. The distribution of industry and, I am sorry to tell the hon. Member for Jarrow, mobility of labour figured among them.

The Leader of the Liberal Party said that the Government had no plans for economic growth. Surely that is incorrect. I do not know what the National Economic Development Council has been set up for if it was not for that purpose. What seemed to me to be the obvious fact is that the Liberal Party does not have—or if it has, it has not announced—plans for economic growth. I shall have to read the right hon. Member's speech carefully, but I did not detect anything definite, concrete or specific there in the plans of the Liberal Party for that purpose.

I found myself, not surprisingly, perhaps, thrown back upon a speaker from my own side who seemed to my not very economic brain to be saying what was the obvious truth. I refer to my hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman), who said that it is the growth of capacity to produce that we must have and that we must create conditions in which it pays the citizen to do what is in the interests of the State.

I judge that the measures being taken by the Government are calculated to do that, but I ask my right hon. and learned Friend the Chancellor of the Exchequer whether, when he is having his review of business taxation, he would not at the same time refer to the review the question of whether, into a system of business taxation, some form of taxation relief which is deliberately designed to stimulate productivity could not be incorporated.

One is well aware of the enormous difficulties in working out a formula, but, as has been said throughout the debate, productivity is the keynote of our economic position. If a formula for taxation relief granted for increased productivity achieved by a business, comparing one year with another, could be found, surely that would be a fiscal remedy applied where it was most needed.

To turn to slightly less general subjects, I should like to know whether my right hon. and learned Friend could not seize this opportunity to set in train with his review of business taxation a parallel review of personal taxation, with the object of trying to get for persons what he is already trying to achieve for corporations, so that the individual taxpayer pays one single tax—Income Tax.

It would be an ideal opportunity if those two objectives were put into train concurrently. It would be an ideal moment if we could follow the recommendation of the last Royal Commission and move our whole basis of taxation on to an actual year basis. For example, company Profits Tax is already on an actual year basis, whereas Schedule D Income Tax for companies is on the preceding year basis. If a corporate tax is to be devised, it would seem that some reconciliation in that position must be achieved, and if it is to be achieved there, can it not be achieved at the same time over the whole field of taxation?

I ask my right hon. and learned Friend also whether, in this move towards simplification, he could not go on and abolish those relics from the time of Addington—the Schedules, which seem to serve only to confuse the average man in the street and which make necessary the interposition of professional help in the shape of accountants at a much simpler stage than probably would be necessary if the Schedules did not exist. All that is necessary is one comprehensive definition of income, which, admittedly, might be a fairly long one, and on charge to income.

The abolition of Schedule A for owner-occupiers is clearly a step in the right direction here, but I should like to know whether my right hon. and learned Friend is sure that he is right about the loss of yield that would follow. Fifty-two million pounds seems at a glance a very large loss of yield. My right hon. and learned Frend's argument, as I apprehend it, is that Schedule A valuations will have to follow rating assessments in time. The result for owner-occupiers on the new valuations would be insupportable. Therefore, once one admits that fact, any logic for the tax disappears and so it should be abolished, even at a cost of £50 million—and a very good thing, too.

One should consider this position, taking the argument further, with regard to industry and commerce. If the same logic is applied there, the Schedule A valuations would have to follow the rating assessments and one would imagine that they would show an increase of threefold or fourfold. If the logic of the case for abolishing Schedule A for owner-occupiers is followed here, one would think that it would be equally insupportable to industry. If that logic is not followed, the yield from industry and commerce on the new valuations surely must be set against the loss of yield which would result from the abolition in the case of owner-occupiers. I should have thought that those two matters might well have cancelled themselves out, but this is not an argument for limiting the abolition of Schedule A to owner-occupiers. Rather, if it is logical to deal with owner-occupiers on the basis of the arguments upon which Schedule A is now to be abolished, it is equally logical to do so in the case of all payers of Schedule A.

If industry and commerce do pay Schedule A on such a scale that the loss of yield would be too great, then clearly the result of the abolition could be conveniently referred to the review of business taxation, so that the corporate tax could be appropriately adjusted. That would yield a much more just result than an arbitrary levy of tax, as it is at the moment, on land. If one did that, only landlords of rented property, apart from some minor cases, would be assessed under Schedule A and they could be quite easily assessed for the whole of their rents in respect of excess rents under Schedule D, so that without much alteration the whole administrative paraphernalia of Schedule A could well be scrapped at this juncture. If one could do that, the whole administrative machinery of Schedule A could also go, with all the inspectors and staffs scattered over the country, and that would result in much greater administrative efficiency. I end, where I began, when I say that it would improve productivity within the Inland Revenue.

9.19 p.m.

Mr. J. Hill (Midlothian)

Tonight's evening papers give the answer as to who will benefit from the Budget. They bear headlines to the effect that the City welcomes the Chancellor's statement with open arms and that shares are rising by 2s. 6d. and more. I, like my hon. and right hon. Friends, feel sorry for the old people. They, again, have been forgotten. All they have from the Budget is an increase in Purchase Tax on clothing and other things they use.

Sir D. Glover

And reductions.

Mr. Ross

A reduction in motor car prices for old-age pensioners.

Mr. Hill

Two or three speeches seem to be being made at the same time.

The Chancellor is to tax the pleasures of children—their sweets, ice-creams and soft drinks. The estimate is, I believe, that he will get about £50 million from this. It is a shocking way of getting money to run the country. Why does he not reverse his decision to give the Surtax payers £80 million? That would be a better way of raising money than by putting a tax on children's pleasures. It may be said that children should not eat so many sweets and so much ice-cream so that their teeth would not deteriorate so much, but that is a matter of teaching, not of taxing.

I am not satisfied with the Chancellor's capital gains tax, but much has been said about that, and I shall not develop the point further. I wish to devote what I have to say to his statement that this is a Budget of growth. I want to apply that statement to Scotland in particular, because it seems to be forgotten that Scotland is still part of Great Britain, and there is little evidence in Scotland of how he proposes to stimulate growth in the economy. He seems to be relying purely on negative measures and on exhortation.

The right hon. and learned Gentleman's faith will be measured by his reluctance to fix a target for industrial growth. The Budget will not be received very warmly in Scotland, because we expected some steps to bring about the industrial growth that everyone so desires. We want to help to get that industrial growth.

In Scotland we have the skilled labour and the sites readily available—all waiting for the promised industries. What do we get? Instead of expanding, our major industries are being run down. There have been closures of pits—and more are to follow. Men will shortly be paid off at John Brown's. There is the run down of the railways and of the manufacture of locomotives. All these industries employ experienced, skilled labour.

In my constituency there has been the hurried closure of the shale oil industry. We are tired of the same old answers from Ministers when we ask about jobs for Scotland. We are tired of being told how many jobs are in the pipeline. Surely by this time there should have been at least a trickle of jobs from the pipeline. So far, there is no evidence of it.

We were told that the B.M.C. factory would be the salvation of the centre of Scotland. I remind the Financial Secretary that when, after the last Budget, the late John Taylor and I approached him on the question of the preference tax on the shale oil industry, we were given a promise that the Government would take steps to try to assist the industry other than by keeping a preference tax on. We have had the answer in the hurried closure of the industry which is to take place not in 1964, as the Minister said last week, but within the next six weeks. A thousand men will lose their jobs and there is no other work for them. That is the sort of thing which we want to prevent when we say that we want to assist the Chancellor in his claim that he is planning for an expansion in industry.

Under the Local Employment Act, 1960, the then President of the Board of Trade scheduled the Calders area as a development area, but when we got the B.M.C. factory in West Lothian he de-scheduled the Calders area. With the closure of the shale oil industry, I wonder whether he will now schedule the area again as a development area which would be only fair. When the B.M.C. factory came to Bathgate we were told that ancillary industry would follow, but it is practically non-existent, although in Midlothian we have sites not five miles from the B.M.C. factory and a local authority bending over backwards to build factories for any industries prepared to come to the area. None has yet come.

Closures are also occurring in the coal industry in my constituency and miners in Fife have been told that if they want a job in coal mining, they must go to England. We believe that we have already lost too many of our young men to England and I hope that jobs will be found in Midlothian for the miners who are made unemployed because of the continued closures and the contraction of the coal industry. I do not think that the Budget will help much in that direction.

The shale oil industry has been a source of fuel for many public transport undertakings in Scotland and I am sure that one day the Government will regret the closure of that industry. For a long time we have been trying to bring new industry to the area and time after time I have been told in reply to questions that so many jobs are in the pipeline. I had an Answer to a Written Question from the Minister of Labour yesterday saying that 6,000 jobs were to be available. We want to know when they will be available, because people Who lose their jobs cannot afford to wait two or three years before getting another. With the way in which industry is developing in Scotland at present, I am beginning to wonder if they ever will get another job.

Another excuse put forward by the Secretary of State when we discuss the state of industry in Scotland is that we are to have the new town of Livingston which will take an expected overspill of 40,000 from Glasgow, an overspill which will be followed by industry. Are we to assume that the people coming from Glasgow will get jobs in the B.M.C. factory, or is the industry to precede the overspill population?

These are the questions we want answered in order to find out why the people of Midlothian cannot get jobs. I noticed that the Prime Minister went to Stockton during the by-election to assist the Tory candidate there, though not very successfully. I want to remind the Committee that a by-election is due in West Lothian, and to say that we should welcome either the Prime Minister or the Chancellor of the Exchequer coming to West Lothian to meet the people who are concerned with the closure of the shale oil industry and to explain to the men why it is necessary to close down this industry. We will receive them with open arms.

What industry in Scotland requires is a transfusion, and that can only come from one place—from the Government. We have been trying for some time to get the Government to take action, and we are now asking them again, because the position in Scotland is rapidly deteriorating. If the Minister of Labour cares to check up, he will find that Rolls-Royce are about to pay off 6,000 men, that in the shipbuilding industry people are to become unemployed, that there is a rundown in the coal industry and a rundown on the railways, and that no alternative employment has been brought forward for these people. At the locomotive works, 1,500 men are to become redundant. At the risk of offending some of my hon. Friends in England, I suggest again, as we have done in the past, that the Government should take steps to channel some of the excessive industries of England to the midlands of Scotland, because if they do not do something quickly, the centre of Scotland will be like the Highlands, and will become depopulated. The Government would probably then require to bring in a Crofters Bill to cover the midlands of Scotland.

I would ask again that the Chancellor should try to do something for Scotland and its economy before it is too late. Time is running out, and it may well be that within the next year or eighteen months, unless something is done, unemployment in Scotland will be gravely aggravated. I appeal to the Chancellor to help us to get our expansion, and we will give him all the help he wants.

9.38 p.m.

Sir E. Henry d'Avigdor-Goldsmid (Walsall, South)

The hon. Member for Midlothian (Mr. J. Hill) put a number of questions about Scotland, to which he will not expect any reply from me, but I would remind him of the fact, which he has overlooked, that every consumer of sugar in this country, including children and old-age pensioners, will benefit from the fact that the price of sugar has been reduced by ½d. per 1b. as a result of my right hon. and learned Friend's Budget, including, of course, people in Scotland.

The hour is late, but I should not like to close the debate today without offering to my hon. Friend the Member for Manchester, Moss Side (Mr. F. Taylor) our congratulations on his maiden speech, particularly because his predecessor here was so much esteemed by us, and we are very pleased to see that his former division is now so adequately represented.

When I listened to the speech of the hon. Member for Cardiff, South-East (Mr. Callaghan), and also that of the leader of the Liberal Party, the right hon. Member for Orkney and Shetland (Mr. Grimond)—

Hon. Members

Where are they?

Mr. Ross

They are looking for the Prime Minister.

Mr. Houghton

Questions are being asked about my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan). He is doing a television programme at this moment.

Sir H. d'Avigdor-Goldsmid

For the sake of his fans outside, I hope very much that his television programme is more successful than his performance here.

I was reminded very much of that critical point in the serial story of the boy's magazine when the hero was at the bottom of the pit with the water closing over him and the villian was clutching at the edge of the well. At that point the writer of the serial story handed in his notice and said that he required a rise. The staff cudgelled their brains for a solution, but, finding it impossible to find one, they gave the writer a rise so that the next instalment could go to press. The next instalment began: At one bound our hero was free. That story is parallel to the remedies for our present state which were propounded by the hon. Member for Cardiff, South-East and by the Leader of the Liberal Party. They begged every question.

When I heard the hon. Member for Cardiff, South-East saying that he would be in favour of export incentives which did not conflict with our obligations under G.A.T.T., I thought that he might have done his homework more carefully, and when the Leader of the Liberal Party said that our present situation could be improved by taxing land values, I thought that he had overlooked the fact that there is no register of land valuation in existence, and if he had studied the report on land valuation he would have discovered that it would take five or six years to get the necessary information. This seems an extremely long-term solution to our present troubles.

When my right hon. and learned Friend let it be known that he was going to propound a capital gains tax, my heart went out to him. I feared that he might follow those who had followed the lead of that eminent economist Mr. Nicholas Kaldor, and most of those who took his advice have landed in disaster. In Ceylon, in Ghana, and in British Guiana the tally has been the same, and very few Finance Ministers who have taken Mr. Kaldor's advice have survived. I was glad to note that my right hon. and learned Friend did not take Mr. Kaldor's advice, and has not given us a capital gains tax. He has produced a speculative gains tax which will surely be effective in the limited field in which it is to operate.

One result it will have will be the elimination of that fabulous animal referred to by the right hon. Member for East Stirlingshire (Mr. Woodburn)—the stag. This harmless creature takes his name from those ornaments outside Albert Gate where there used to live the famous railway promoter Mr. Hudson, and people who waited outside his house to subscribe to his issues got the name of stags. Undoubtedly their transactions will not survive this measure, because the essence of the transaction is that they apply for shares that they do not intend to keep, and my right hon. and learned Friend has pursued the stags with the energy of the Devon and Somerset hounds and perhaps even with a vindictiveness one would normally associate with the League against Cruel Sports.

Nevertheless, I do not think that the stag will be missed. I think that in recent years he has added enormously to the work of the City issuing houses. Great trouble has been caused by the posting of cheques which could not be met, and the elimination of the stag from the system will probably not make the City's task in dealing with new issues any more difficult.

I think, too, that there is another special value to it. I have noticed, and perhaps other hon. Members have also noted, that certain promoters have suggested to the depositors in their companies that they could benefit from being allowed to subscribe to new issues on specially preferential terms. This has induced them to deposit their funds in this way.

This is an inducement to which we should no give special sanction. For that reason I am glad that this tax has been imposed, so that the stag may become a legendary animal.

Mr. Mitchison

Has the hon. Member read in one of this evening's news- papers the selection of schemes for avoiding the tax? He will find it quite interesting.

Sir H. d'Avigdor-Goldsmid

I am obliged. Unlike the hon. and learned Member for Kettering (Mr. Mitchison), I have spent most of today in this House. I have not had an opportunity of reading the evening newspapers. Nevertheless, I expect that there is plenty of expertise on the hon. and learned Member's side of the House to advise him on this matter should the occasion arise.

I remember when a good many years ago my right hon. Friend the Prime Minister referred to the problems of the Chancellor as having to look up trains in an out-of-date Bradshaw. Since then Bradshaw has become defunct.

Mr. Ross

So have the trains.

Sir H. d'Avigdor-Goldsmid

In the bundle of literature that we have received during the last few weeks we have surely found some very interesting trains. Some, like the trains in Bradshaw, come to a stop almost as soon as they have started. Others have an ever-wider margin of error—even more than Bradshaw allowed for. But there is one table which my right hon. and learned Friend the Chancellor cannot escape, and it should be on his desk opposite to that famous picture of Gladstone of which we used to hear so much. I refer to Table No. 13 in Cmnd. No. 1671—the list of sterling holdings.

It is a very simple table, which shows that, as on 31st December, 1961, we had a liability of £4,515 million, of which £2,631 was owed to sterling area countries and the balance to other countries and the International Monetary Fund. Against that liability of £4,515 million we had exactly £1,185 million in gold and convertible currency reserves. In other words, our reserves were only one-quarter of our sight liabilities. Nobody holding the onerous position of Chancellor can escape the implications of that table in all his doings.

Last year, in the face of that situation, we achieved a fair result. If we take out transactions on current account the position may be summarised as follows: on visible trade we had a deficit of £135 million; on Government military expenditure abroad we spent £227 million, and on what are called net payments for overseas development we spent £162 million—making a total of £524 million that had to be found to balance the account. Against that, we have received £257 million net in interest on our investments abroad and £50 million on private investment from abroad, and there has been a reduction of roughly £300 million in the value of stocks.

I am sorry to hurry over these figures, because they are vital to an examination of our present position. Unless we are going to repudiate on our military expenditure abroad, and renege our treaty engagements; unless we are going to turn our backs on the necessary payments for overseas developments—which hon. Members on both sides have agreed that we have a moral obligation to maintain—we have this large amount of money to find. It is clear that we can find it only if we run the economy in the only way in which this money can be generated.

In the Three Banks Review there is a very interesting comparison between Western Germany and this country showing the reason for the so-called West German economic miracle. The facts of it were that in the ten years from 1950 to 1960, out of the gross national product in West Germany, wages and salaries took 47 per cent. In the United Kingdom the figure was 58 per cent. That is the key to the difference between ourselves and Germany. We have consistently consumed a very large proportion of what we were producing. Therefore, we have not been able to invest productively at anything like the proportion which Germany has done.

Germany had the advantage of the currency reform and to my mind that is a point which should be insisted upon. At one stroke of the pen Germany wiped out 90 per cent. of her cash liabilities and debts. When we are told how much more quick has been the economic growth in France and Germany we must no forget that Germany to the extent of 90 per cent. and France to the extent of 95 per cent. have written off their debts. I remember when 1,000 francs cost £14. Today they would be called 10 New Francs and would cost 14s. In other words, 95 per cent. of the French debt and 90 per cent. of the German debt has been extinguished and if we had taken the same action how happy the Chancellor would have been.

Mr. Woodburn rose

Sir H. d'Avigdor-Goldsmid

I am sorry, I cannot give way. The time is very short.

Instead of paying £600 million interest on our National Debt we should have to pay only £60 million. There would be a saving of £540 million. The companies listed on the Stock Exchange have a loan capital of £2,700 million. If that were cut down to £135 million, think how very much better off they would be, and how easy they would find it to increase their production—

Mr. Holt

Will the hon. Gentleman tell the Committee for whom he is explaining?

Sir H. d'Avigdor-Goldsmid

I am explaining for those who are pressing productivity at all costs.

Mr. Nigel Birch (Flint, West)

I should have thought that the hon. Member for Bolton, West (Mr. Holt) was bright enough to see that.

Sir H. d'Avigdor-Goldsmid

The countries which have achieved this method of productivity are held up to us as examples of those who have taken the preliminary step to writing off their debts.

The question of productivity is one which we have to settle. In my opinion we are producing goods which other people want and for which they can pay. To my mind, pouring surplus milk down a disused coal mine is an obvious example of waste. Another obvious case of waste, or perhaps it is one which is not quite so obvious, is selling cars on hire-purchase terms to people who cannot afford to pay for them. The waste is longer term but exactly the same and that is one problem that people who urge productivity upon us at all costs must bear in mind—that production must be directed to the areas where there is an effective demand.

We have had a great number of Budgets since the war and I think that now we can appreciate our position. First, we have to do what is in our power to expand exports. Secondly, it is no use doing that by expanding internal demand which will provoke an exchange crisis. It is the same thing as the motto on the sun-dial: Each hour leaves a wound, the last is fatal. If we cultivate the habit of exchange crises, we shall quickly run into one which is fatal.

While we have ample resources to deal with any temporary situation, we cannot stand against what looks like a permanent imbalance; and those who demand an increase in domestic demand are implicitly demanding that we should go back on our obligations to the rest of the world and run the risk of devaluation. We should not forget this. I think that my right hon. and learned Friend has produced the Budget that we needed to give our exporters a chance to take advantage of the increasing demand abroad for our goods, and so stimulate home production.

If further encouragement is needed the Chancellor has the regulator. I wonder why nobody has made the point that the regulator works both ways and that it could just as well be used this summer to reduce taxation as it was used last summer to increase it. Secondly, my right hon. and learned Friend, if he wishes, can stimulate the economy. He could release some of the special deposits in the banking system and he could reduce the Bank Rate. He would seem to be most admirably poised to deal with the requirements of the economy, and the real question is whether our manufacturing industry is up to the task which it has to perform. I hope that it is. I would say that the record of my right hon. and learned Friend is unassailable. He saved the £ and he has won the respect of the world by his fortitude.

Whereupon Motion made, and Question, That the Chairman do report Progress and ask leave to sit again.—[Mr. Peel]—put and agreed to.

Committee report Progress; to sit again Tomorrow.