FINANCE BILL

§ The Chancellor of the Exchequer (Mr. James Callaghan)

I beg to move, That the Bill be now read a Second time.

I hope that it will not be thought faintly improper if I deal with the Finance Bill this afternoon. I should like to start by putting the subjects in the Clauses to some examination, as I have no doubt we will do in more detail in Committee.

Clauses 1 and 2 give effect to my proposals with regard to Income Tax and the duty on hydrocarbon oils. Clause 1(1) raises the standard rate for the coming Income Tax year from 7s. 9d. in the £ to 8s. 3d. in the £. Subsection (2) will maintain the reduced rates of Income Tax, which are chargeable on the first slices of taxable income of individuals after personal allowances have been given, at their present levels. These are 4s. in the £ on the first £100 of taxable income and 6s. in the £ on the next £200 of taxable income.

Some questions have been asked about the Surtax rates mentioned in subsection (1). This is the normal and technical method of dealing with this situation. Subsection (1) leaves the rates of Surtax for 1965–66, which will be payable on 1st January, 1967, to be determined in a later Bill, and no conclusions should be drawn from that, one way or the other. It is a purely technical matter. It is normal for Surtax for a year to be dealt with in the Finance Bill in the year in which the Surtax is due. Thus, the Finance Act, 1964, fixed the rates of Income Tax for 1964–65 and left the Surtax for 1964–65, which will be payable on 1st January, 1966, for a later Bill. This will be covered in the 1965 Finance Bill.

As the House knows, the increase in the standard rate is estimated to yield £122 million next year. I think that the House is agreed that it was right to leave the reduced rates at their present levels, so ensuring that the additional tax which will fall on our citizens will he borne by those who have the higher 1088 incomes. I believe that that is generally accepted. Indeed, there has been surprisingly little criticism—I expected more—about the increase in the Income Tax. I known that hon. Members opposite voted against it, but that was a purely instinctive paroxysm, and does not represent the true feelings in their constituencies. I am glad to say that the lowest income groups will not be affected by these changes.

As to the oil duties, I explained in my Budget speech the importance of the contribution which the increases in the rates of duty on hydrocarbon oils will make to the overall plan of the Budget. Clause 2 gives effect to the increase of 6d. a gallon in the Customs duty on light hydrocarbon oils and on heavy hydrocarbon oils for use as fuel in road vehicles. It also increases by 6d. a gallon the Excise duties on similar oils of indigenous origin, and on petrol substitutes and power methylated spirits. The yield of the Excise duties on petrol substitutes and power methylated spirits is very small; their purpose is merely to protect the yield from the main oil duty.

At present, the Excise duty on indigenous oil is at a rate 1 s. 3d. a gallon less than the corresponding Customs duty. This difference is due to be removed by the end of the year under the E.F.T.A. Convention, and the necessary provisions were contained in Section 5 of the Finance Act which the right hon. Member for Barnet (Mr. Maudling) introduced earlier in this year. For convenience of reference, these provisions are reproduced and re-enacted in the present Clause.

The House will be aware that my right hon. Friend the Minister of Transport has begun discussions with representatives of the bus operators' associations, as I suggested in the Budget speech he should do. The discussions are still at the exploratory stage. I do not think that they have caused dissatisfaction in those with whom they are being conducted. Any necessary legislation resulting from them will be introduced separately.

I turn to Clause 3, which is concerned with the temporary charges on imports. The choice in the short term lay between the limitation of imports either by quantitative restrictions or by temporary 1089 import charges. I do not know what the view of the Opposition is about this. I do not know whether they argue that there should have been no restriction on imports, or that the restrictions should have been quantitative or, thirdly, imposed through the method we employed—namely, the surcharge—but it is up to the Opposition to express a decision for one of those three courses.

We are entitled to ask whether they believe that the situation which existed on 16th October—I state it in completely neutral terms—required no action or, if it did require action, whether it required action by means of quantitative restrictions that would have been legal, or by means of the surcharge. As I understood the initial reaction of the former Chancellor, the right hon. Member for Barnet, who said that we had inherited the diagnosis and the solution, he thought that the surcharge was the right way to do it, but was he speaking for himself or for the Conservative Party when he said that?

§ Mr. Callaghan

I do not know whether the right hon. Member for Barnet has appointed the hon. Gentleman as his spokesman on the matter, but I am quite ready to hear him.

§ Sir H. Nicholls

The electors of Peterborough appointed me their spokesman in this House. Quite apart from what my right hon. Friend may have in mind, the right hon. Gentleman should tell the House whether or not he now feels—he having decided that the surcharge was right—satisfied that the precipitate way in which he put it on was the right way at the time.

§ Mr. Callaghan

The hon. Gentleman will not be disappointed. I shall come to that point, but I do not think that I should be diverted from trying to cast a line over the Opposition to see where they stand on this issue. We are entitled to a clear answer from the Opposition whether they think that action was or was not required. They ought to tell us which of those two views they hold. In our view, in the situation in which we found ourselves, this action was required. We have been confirmed in that view by those in other countries who take, per- 1090 haps, a more impartial view—[HON. MEMBERS: "The E.F.T.A. countries?"]—of our affairs than we do ourselves. Certainly, Mr. Pierre-Paul Schweitzer, as I said on an earlier occasion, said, when he heard of this surcharge—and he, after all, is Director of the International Monetary Fund—that he thought surcharges were the least objectionable way of doing something that had to be done. I am paraphrasing, but hon. Members will know that I am paraphrasing reasonably accurately.

I am entitled to ask the Opposition, who had charge of the affairs of this country until a month ago: do they agree that action needed to be taken or do they not?

§ Mr. Sydney Silverman (Nelson and Colne)

While asking the Opposition for a reply to that question, does my right hon. Friend agree that there is another question to which we are entitled to have an answer? Their other criticism was that my right hon. Friend's object had no relevance to our existing economic difficulties and that other things ought to have been done. Are not the Opposition under an obligation to say what the other things are that they would like my right hon. Friend to do?

§ Mr. Callaghan

I am grateful to my hon. Friend and I hope the right hon. Member for Barnet will give an answer to that question, also.

There was the choice to be made. I believe that part of the Conservative Party was in favour of it. Certainly, I thought that that part which used to be in the Treasury was in favour of it, but I am not so certain about that part which used to be in the Board of Trade. Whether that was a purely domestic difference between those struggling for other prizes, I do not know.

Incidentally, I understand that we are to have a slashing attack by the right hon. Member for Barnet this afternoon. I only say that I do not think that he need run too hard to beat his right hon. Friend the Member for Bexley (Mr. Heath). His natural qualities will stand him in good stead. As between quantitative restrictions and import charges there was a choice to be made and I think that I have shown why we had a preference for the import charges. It is because they are more flexible, less arbitrary and involve less 1091 interference with the established patterns and channels of trade.

In addition, to have introduced quantitative restrictions would have involved unacceptable delays in bringing them into effect. While the apparatus was building up, the inflow of imports would have gone unstemmed. The other point about import charges is that they do not stop trade arbitrarily. They have been applied to the widest possible range of goods, excluding, of course, foodstuffs and raw materials, so that we have avoided heavy selective incidence on particular exporting countries or types of goods as far as possible. This ought to be noted by the House in reference to some of the criticisms which have been made. They also have a built-in disinflationary effect to help to offset the pressure on domestic resources which import restrictions would otherwise have caused.

For all these reasons I think that it was right to choose the temporary import surcharges. They are less damaging. Less damaging is the best way of putting it, because I do not deny that they are damaging—of course they are, and hon. Members ought to agree on that. But it was necessary to impose them. Of all the measures open to us the least damaging to our economy and the interests of trade and the interests of our trading partners is the surcharge. The Government do not claim that the charge comes within the terms of Article XII of the G.A.T.T. or Article 19 of the Stockholm E.F.T.A. Convention, but I point out that these articles provide for the use of quantitative restrictions on imports to correct a serious balance of payments deficit.

There is no dispute among the E.F.T.A. countries, or indeed among the signatories of the G.A.T.T., that a nation is entitled to use quantitative measures to restrict the import of goods when its balance of payments is in a serious situation. Although the use of quantitative restrictions would have brought the United Kingdom within the terms of the G.A.T.T. and the Stockholm Convention, and there could be no legal complaint, in the view of the Government, this would have been more damaging, especially to E.F.T.A. countries and our other trading partners, as well as to the United Kingdom market. I regret very much that the E.F.T.A. 1092 countries have suffered in this way as well as others, including Eire and other parts of the Commonwealth.

Should we have consulted them beforehand? I ask hon. Members opposite to consider what the effect then would have been. If we had consulted the E.F.T.A. countries about whether we should or could impose a surcharge, or whether we could or should impose quantitative restrictions, do not hon. Members opposite think that the effect would have been that those countries would have immediately anticipated any restrictions that were to be put on?

§ Sir Harmar Nicholls

Oh, no.

§ Mr. Callaghan

The hon. Member for Peterborough should say, "Oh, no". It so happens that because of the peculiar difficulties across the border between Eire and Northern Ireland there were a few hours after the announcement was made when, because of the initiative and dash of the Irish, goods poured across that border in an effort to beat the bell. Good luck to them. That was on a small scale and could be tolerated, but what would have been the effect of going into long, detailed conversations with E.F.T.A. countries and asking them if we could please impose a surcharge to keep their goods out?

§ Mr. Callaghan

I have given way to the hon. Member once.

§ Mr. John Hall (Wycombe)

I thank the right hon. Gentleman for his courtesy in giving way to me. May I ask whether he consulted the United States of America?

§ Mr. Callaghan

Consultation took place, I regret to say, on this occasion with no one. Countries were informed as soon as we were in a position to inform them, but that was the pace at which we had to take action.

I come back to the main point. I do not think that what has been said detracts in any way from the point I am making, which is that to have had consultations would have destroyed the whole purpose of the surcharges.

§ Hon. Members

Sit down.

§ Sir Harmar Nicholls

On a point of order. The right hon. Gentleman, in the context of his speech, referred to the hon. Member for Peterborough. Is it not the convention that when he does that he should allow me to interrupt?

§ Mr. Deputy-Speaker (Dr. Horace King)

The hon. Member for Peterborough (Sir Harmar Nicholls) has already intervened once by courtesy of the right hon. Gentleman. There is no convention that the right hon. Gentleman should allow him to intervene again. It is a matter for the right hon. Gentleman to decide.

§ Mr. Callaghan

I have a rather long speech to make to explain the Bill, because there is much in it. [Interruption.] The right hon. Member for Flint, West (Mr. Birch) does not have to stay if he does not want to do so. He can go.

The House may like to hear why the charge was proposed initially at 15 per cent. That, admittedly, is a high figure. Its height corresponds to the size of the balance of payments problem which faces us. The same reason broadly explains why the Bill provides for this rate to he applied uniformly across the area of imports not exempted. If we are to achieve the necessary saving in imports, a lower rate for some products must mean a higher rate for others.

Bearing in mind that the import charge leaves it to buyers in this country to decide for themselves the imports for which they are prepared to pay the higher price, the Government considered that a uniform rate was preferable, certainly at the outset, to attempting themselves arbitrarily to dictate this choice. The import of goods now subject to the charge amounted to £1,350 million in 1963 and the annual rate in 1964, estimated on the latest information, would have been about £1,700 million. A further increase would have occurred in 1965 if no action had been taken.

As I explained in my Budget statement, we expect the 15 per cent. surcharge to produce a saving in imports at an annual rate approaching £300 million. This estimate is inevitably speculative and the true effect may not be clearly discernible for some time. We shall keep a close watch on it, both in total and in detail, and will be ready to use the 1094 powers which the Finance Bill provides for downward adjustments, in whatever manner seems to be most appropriate, as rapidly as the balance of payments situation permits.

Meantime, let us get into perspective the scale of the import saving. The estimates which I have just mentioned mean that we expect imports of goods subject to charge, taken as a whole, to remain at a higher level than in 1963. It is important that the House as a whole should recognise the great volume of imports that were sweeping through the Customs and into this country during the last eight or nine months.

Now, as to duration. I should like to call the attention of the House to Clause 3(11) and (12), because the duration is a point on which the House, as well as other countries, is particularly concerned. These subsections provide that the power to impose the import charge will expire at the end of November, 1965, unless the House were to resolve that the power should be extended for a further year. In addition, the charge can be reduced or abolished at any time by order under subsection (9).

I stress again the temporary nature of the scheme. The Government intend to reduce and abolish the charges as quickly as possible, but to give any indication of the likely duration of the scheme is not possible. We must wait and see how quickly the balance of payments position improves. I re-emphasise, however, that the Government intend the import charge to provide a breathing space during which our other measures to remedy the balance of payments problem can begin to take effect. The charge will be kept under review. While it is not possible to fix precise dates for reducing or eliminating the charge, it is intended that this process will begin in a matter of months.

Now, about the protective effect—

§ Sir Cyril Osborne (Louth)

If these measures are temporary and they merely dam up the demand for imports by British industry, will not a much greater demand be created immediately these measures are removed and, therefore, leave the balance of payments the same over a period?

§ Mr. Callaghan

That is a valid point and it illustrates the difficulties of any 1095 action taken in this field. That is why, although other countries might desire a date, I would resist any attempt to put a date for reductions at this stage, because that would have a damming-up effect. We must, however, assume, as I do assume, that in the light of the measures that the Government are taking our balance of payments situation will improve to the point where we can make natural reductions in the temporary surcharge. That is our intention and our policy.

§ Mr. E. Shinwell (Easington)

May I ask a question on this most important and interesting point? As the balance of payments position improves, will the Government consider reducing the surcharge on some industries which are more adversely affected than others?

§ Mr. Callaghan

At the moment, I would prefer, with my right hon. Friend's permission, not to be drawn into that field. I want to keep both the scope and the level under review.

It is a little early yet—the charges have been in force only two or three weeks since 26th October—to talk about the nature of the reductions, either in scope, in range or in rate. I promise the House, however, and it is the keen desire of my right hon. Friend the First Secretary, and, indeed, of all of us, that we shall keep these matters under review in order to make such adjustments in the position as we can to help industry generally in this way.

§ Mr. Callaghan

I must get on. I hope that the House will agree that I have given way a great deal.

The House will, I think, agree and would want it said that whatever other differences we may have, British manufacturers would be entirely mistaken if they thought of sheltering under the import charges as a protective umbrella. When the time comes to reduce and remove the charges, this will be done. These measures are completely non-discriminatory as regards countries of origin and the coverage has been decided on as broad a basis as possible to lighten the incidence of the charge on individual countries or groups of countries.

1096 In a multilateral system of trade and payments, imports from every source make an equal effect upon our balance of payments—that is why it was impossible to discriminate. It would undermine the whole object if savings in imports from one source were replaced by additional imports from other, unrestricted, sources or by the increases in price which could be charged for exports from unrestricted sources.

Now, about coverage. I said that the 15 per cent. temporary charge would apply substantially to all imports except for certain important items, namely food, feedingstuffs, fuel. unmanuafactured raw materials and unmanufactured tobacco. I also announced that books and periodicals, large ships, heavy aircraft and components used by British shipbuilders in the manufacture, repair and fitting of exempt ships in registered shipyards would be exempted. There are problems which will undoubtedly arise on the inclusion of some goods and the exclusion of others from the list of exemptions in Schedule 1 of the Bill. As I said earlier, the charge covers a range of imports amounting to £1,350 million. The phrase "basic raw materials" has been used in a generally descriptive sense. We have not attempted to apply it with precision because, obviously, there are many opinions about what is a raw material. My hon. Friend the Chief Secretary explained in the House in the debate on the Address what we had done and it is important that this should be understood. We have adopted as a guide the general principle that materials which have undergone only elementary processing should be exempted. Thus, all wood and timber is exempt up to the stage of planing or further manufacture. Raw hides and undressed leather are exempt, but leather which is dressed or further manufactured is not.

I am aware that even such a principle has no generally accepted rules which could be applied precisely and consistently over the whole field. I believe that the list now incorporated in the First Schedule to the Bill is generally about right for the purpose that we have in mind. We shall ask for the support of the House in not making any major changes in it at this stage. I am considering a small group of items which, on a strict application of the general principle, 1097 should be added to the First Schedule and I shall suggest Amendments in Committee.

I shall, of course, always be ready to consider any similar glaring anomalies which hon. Members may alight upon. Whatever we do, the list cannot of its nature be wholly consistent. All but the most major and important imperfections causing serious and widespread hardship must be accepted for the time being, bearing in mind the cause of the charge and our intention to reduce and remove it as soon as possible.

We have not attempted to select items for the exemption list on the basis of availability or non-availability in the United Kingdom. I must emphasise what my hon. Friend the Chief Secretary to the Treasury said in the debate on 12th November. This would not only be impossible to apply on any sensible basis in practice, but it would give the scheme a wholly unacceptable protective character.

It follows that over whole scope of the charge there will be items, whether in the form of materials for industry or of productive machinery such as machine tools of all kinds, which are not produced here which will bear the charge. It should be emphasised that this accords with the intention of the scheme to reduce the import bill over a wide field. It would be illogical to apply the charge to finished manufactures, but not to components or semi- manufactures from which they are made—for example, to apply it to complete cars but not to the components of those cars. A system which exempted goods from the charge because there was a requirement for them would defeat its object. On the other hand, it would not be practicable to go into the question of need or essentiality in each case, nor could this be appropriate in a temporary scheme.

Drawback, to which Clause 5 relates, is an important element in the temporary scheme. It is the intention of the Government that the charge should, as far as is physically and practically possible, not have any adverse effect on our exports of products which are made from or incorporate imported goods which bear the charge. The Bill contains provisions in Clause 5 and Schedule 2 which permit drawback or remission of charge on such goods.

§ Mr. J. T. Price (Westhoughton)

I rise briefly to intervene on this point of drawback. I am advised by manufacturers in my constituency, in Lancashire, that the present provisions for drawback in circumstances where the major product goes for export are so technical and complex that they are unworkable for ordinary businesses concerned. I have information which I will give to my right hon. Friend.

I have discussed this with the Board of Trade, whose officials now agree with me that these provisions are intensely complicated. I would not personally place too much value on the drawback provisions, because to a large extent they are not workable in their present state.

§ Mr. Callaghan

I must get on.

§ Sir A. V. Harvey

My question follows on that one.

§ Mr. Callaghan

I am sure that it does. I am sure that there are hundreds of points which could be raised on this, but there will be a Committee stage and I am sure that a great many of these points can be raised then.

I can say that my hon. Friend the Financial Secretary will attempt to deal with this point in the course of his winding-up remarks. He has already noted it, because it is known.

Where there is already a scheme in operation for drawback of protective duties it will be most convenient to all concerned to use this scheme also for giving drawback of the temporary import charge. In other cases the Customs will, under the terms of flexibility of the Bill, have the necessary powers and method to repay or remit the charge wherever it is shown to their satisfaction to have been paid on goods incorporated in, or used in, the manufacture of goods for export. In many instances, particularly where imported goods have not changed their form, this should present little difficulty. The more complicated cases will take a longer time to settle, but we shall do all we can to facilitate these repayments. Exporters who use imported goods which bear the charge should get into touch with their local Customs officers.

We have received a number of complaints because the charge will apply to 1099 goods in transit and those previously ordered. I should emphasise that relief on such goods would not be justified because the charge must have an immediate effect and it would defeat this important object to give relief. Moreover, it has been the normal practice for many years to apply changes in taxation, for example, Excise duties and import duties, without exception from a precise point in time and at a precise stage, and I think that we must stick to this. Contracts are not frustrated as a result of this procedure. Indeed, exporters will, in general, be safeguarded by their contracts; and the charge is, of course, payable by the importer. Thus, proposals to exempt goods in transit or on order are a means of postponing the application of the charge, which in the present situation the Government could not contemplate.

There will be instances where contracts have been made at fixed prices. As a correspondent in one of the newspapers pointed out, Section 10(1) of the Finance Act, 1901, permits the addition of new duties to the contract price provided that there is no specific agreement to the contrary. In Clause 3(8) of the Bill there is a provision the intention of which is to allow the addition of the temporary charge to the contract price even where there is a specific agreement that the price includes Customs duties. This will help particularly exporters in certain countries who have made contracts at duty-inclusive prices.

I have spent some time on the import duties because I think they are of real concern to industry, and it is important that we should clear up as many of the questions which emerge as soon as we can. Now I would say a word about Clauses 7 to 9 and the Third Schedule on export rebates.

It is generally accepted, I think, that most indirect taxation is passed on by the businesses which incur it in the form of an element in the price of their goods or services, and so it comes to rest against final expenditure in the home market. Under existing arrangements export trade is, very broadly speaking, relieved of indirect taxation by two methods. Exported goods are either excepted from the tax charge, as in the 1100 case of Purchase Tax goods, or drawback is allowed of tax which has been paid at an earlier stage, as with beer and tobacco. But these arrangements do not entirely relieve exports from indirect taxation.

Some elements of tax paid at earlier stages of the process of production enter into export costs, but cannot be precisely identified in the cost of the exported goods. These include vehicle licence duties, the hydrocarbon oil duty, and some elements of Purchase Tax, for example, on business stationery. We estimate that the unrelieved element of tax in export costs due to these may approach £75 million a year, and the purpose of the new scheme is as far as possible to relieve the export trade of these elements of taxation.

The Treasury is given powers under Clauses 7, 8 and 9 to prescribe by Order, subject to negative Resolution, the classes of goods in respect of which the rebate shall be payable, the rates of rebate applicable to various classes of goods, and the criteria for determining whether particular classes of goods are to be regarded as produced or manufactured in the United Kingdom so as to qualify for the rebate. The Commissioners of Customs and Excise are empowered to make provisions about the manner and time of making applications, to require evidence, and to investigate and pay claims.

Rates of rebate necessarily must be an average. The calculation of fair and defensible average rates for different classes of goods is a complex statistical operation. Work is going on on it now, and I cannot yet announce what the rates of rebate will be on particular classes of goods, but they will be based on the latest available statistical information and will be subject to review in future if significant changes occur, for example, in the level of the rebateable taxes.

There is always a fear, and a justifiable fear, I think, when a scheme of this kind is introduced, that business will be faced with a mass of extra paperwork for a comparatively small return. I have to admit that the Clauses as they stand may give an impression of some complexity, but I should like to reassure the House about this. The intention is to work the scheme from the type of 1101 record which exporters will, in the normal coarse of business, have in their possession, without a great deal of additional documentation. Our desire to make the scheme fit existing commercial practice has in fact, in some ways, made the draftsman's task more difficult.

I have seen many other schemes described in the newspapers, and I have followed them with great care and I have had them examined, and I can say to the House that no scheme which has been suggested in any of the public prints matches the requirements of involving both the exporters themselves and the administration in the minimum of work. If anyone finds such a scheme, of course I will look at it and consider what it contains. There have been a number of schemes by writers of letters, but when we have looked at them we have found them not to be applicable throughout industry.

Meanwhile, I am urgently searching for further ways of making exports more profitable, and the First Secretary and the President of the Board of Trade are pursuing in other directions steps for removing remaining obstacles to exports. Within the new pattern of interest rates the arrangements made by bankers and insurance companies to provide medium-term finance for exports will continue to operate at the old rate. Secondly, the Government will see to it that the premiums charged by the Export Credits Guarantee Department will not be raised. We are now, as a matter of urgency, examining other means of helping exports. Within our international obligations we shall not hesitate to give all help to our exporters wherever we believe it is reasonable to do so.

I think that we have all been disappointed by the inability of successive Governments to devise effective export incentives which do not fall foul of our international obligations. We shall press on urgently with further inquiries about this, and I am not defeatist about it. If we are successful I know that we shall have the full backing of the House as a whole.

I think that I have covered the details of most of the Clauses in the Bill and I should like to say a word now about the corporation tax and the capital 1102 gains tax. It has been suggested that business activity will be adversely affected by uncertainty. Business activity is always affected by uncertainty, but I am proposing these changes in the tax system because I believe that they are of long-term economic advantage to the country. A clear balance of advantage lies in making the changes and in announcing them. I am giving opportunity for discussion now so that the Finance Bill will be based upon a considerable amount of public discussion, throwing up points which need to be incorporated in the new legislation.

I have given myself a formidable task in the next few months, and I shall try to reduce the period of uncertainty to the minimum. If I feel that on some issues I can make a preliminary statement of our intentions, I shall do so. I do not think that anything like a complete scheme could be published in advance, partly because of the magnitude of the task, but also because, on looking through the correspondence which has taken place, it is clear that some of the anxiety revolves round the rate of tax, and whatever may be expected outside, I do not think than any hon. Member would expect me to announce the rate of tax in advance of next April. But if I can, as I think I can, identify some general issues on which I can make a statement, I shall do so.

There are, however, two points affecting the capital gains tax which I can mention now. One, I know, has caused anxiety. I said in my Budget statement that the charge could not exceed the difference between the value of the particular asset on the 1965 Budget day and the amount realised when it is disposed of subsequently. Obviously, this did not mean that I proposed to tax a notional gain if there was a loss, and I now make it clear, in case there is any misunderstanding, that I do not propose that the charge to capital gains tax arising on a sale after the next Budget day shall be on an amount greater than any gain that is realised. I think that that will at least remove some of the misapprehensions which have existed.

§ Sir Beresford Craddock (Spelthorne)

Could the right hon. Gentleman define, 1103 at this stage, what he means by an asset? This is rather important.

§ Mr. Callaghan

I would prefer not to be drawn into that without some more technical advice, because I recognise that Parliamentary draftsmen spend a lot of time defining the terms, but I hope that the hon. Gentleman will feel that this gives some general indication in particular cases where I know there has been some concern as to what the future is likely to be.

Secondly, I have seen it suggested that my announcement about the 1965 Budget day value will give the skilful operator splendid opportunities of rigging the market to avoid the tax. I think that we had better wait and see what these risks amount to. The basis will be the genuine market value. If people are able to produce artificially high values which are above the true market value by 1965 Budget day, we can no doubt deal with the situation, and I would expect the support of the House in so doing. We must watch what happens between now and next year's Budget day, and we shall not hesitate to take remedial action in next year's Finance Bill if it should prove to be necessary.

I should like to say one or two words, in conclusion, about the economic situation generally, to try to get the position quite clear as I see it. We expect that the principal effect of the higher Bank Rate which was announced by the Bank of England yesterday will appear in international capital flows. It should apply a sharp corrective to the outflow which has been taking place in the last couple of weeks.

As regards the home economy, the rise in Bank Rate is a reinforcement of our earlier measures to check the pressure of demand and so release resources for export and for import substitution. It is not the Government's desire or policy that there should be a downward revision of investment plans, and it is not our expectation that any such revision will follow. There may be some effect on the phasing of investment projects and there may be an early reduction in the rate of investment in stocks.

Capital investment allowances are, of course, important in the case of the 1104 domestic investment plans, and I hope to see those investment projects going on, but the rephasing of investment projects should help to release capital goods for exports. A reduction in stock-building from the recent high rate should help to reduce imports. The fact that it is necessary to regulate demand in this way does not mean that the Government are abandoning their determination to maintain full employment and to seek a higher rate of growth. Successful short-term regulation of the economy is a prerequisite of successful long-run policies.

As to bank lending, the position of the banks is such that they will wish in the coming months to moderate the expansion of their lending in the interests of their liquidity position, and the normal seasonal pressure will reinforce this tendency. Some tightening up should have the natural result in the present situation, of making a contribution to preserving a proper balance in the economy. I shall continue to watch the monetary situation very closely, and if further action seems to be necessary I shall take it.

I have explained before, in the Budget statement, that I expect the balance of payments to improve sharply as the special factors weighing on it in 1964 come to an end, and as our direct corrective measures bite home. There is nothing new about that. We expect the import charge to have a strong effect on imports, which will soon be at the rate of between £200 and £300 million a year. The need to divert resources from domestic use to match this improvement in the balance of payments remains as important as ever, and this, of course, is where the Budget changes come in. The disinflationary effect of the Budget is greater than many people have understood or have said. The immediate effect of the various decisions is to increase revenue at the annual rate of about £220 million, that is, the revenue of about £200 million a year from the charge on imports, plus the £93 million from the increase on petrol and derv, less the £75 million of the export rebate.

This net increase in revenue will represent a substantial disinflationary force in the economy. Its working cannot be a painless process. From the economic point of view we have also to remember that there will be a reduction in supplies 1105 through the effect of the charge on imports. but in the early stages this will be matched to a large extent by de-stocking, and it does not therefore call to the full extent for disinflationary fiscal action. But, by any standards—and I wish to emphasise this—the change in the balance of the Budget of £220 million, getting on for 1 per cent. of the national income, must be regarded as substantial. This is stiff medicine, and I hope that the House will recognise the disinflationary effects of what has been done.

The Government have taken action along three different lines to deal with the situation of 16th October. First, the 15 per cent. import charge£a temporary measure—to improve the balance of payments by reducing imports, and the rebate on indirect taxes on exports which is a permanent measure and will give a continuing stimulus to sales abroad.

Next, changes in taxation designed to ensure that resources will be released from domestic use to match the improvement in the balance of payments resulting from direct measures. Thirdly, a start on our long-term policies which are designed to make the economy more efficient, more progressive, and more competitive.

These policies, such as the reform of the tax structure, and, more urgently, the fresh start in an attempt to get an incomes policy, a drive for technological improvement, the preparation of a plan covering all the elements of a faster rate of economic growth, and a drive for more exports, add up to a substantial task and to a substantial piece of work for five weeks in the life of the new Government. [Laughter.] Hon. Gentlemen opposite should sit silent. They have no cause to laugh at all. The Government are determined to deal with the situation.

I do not wish to recriminate. I do not intend to go over that, I merely say to the House as a whole—and the Opposition should refrain from laughter—that unless the House and the country recognise the seriousness of this situation, which has been measured by the action which the Government have had to take, we cannot have the drive that is necessary to ensure that this country is fully competitive. [HON. MEMBERS: "No."] It is no use the Opposition saying "No". Are they saying that there is not a serious situation? Is that what they are 1106 saying? [HON. MEMBERS: "You have made it worse."] That is just cheap party stuff.

The situation is of such a character that the country recognizes—I think more than the Opposition do—that there are a great many measures which have to be taken in pursuance both of maintaining our rôle as a reserve currency, and also of maintaining and ensuring the long-term growth of the economy. The measures that we have taken, after a long period of inaction, may be criticised on the ground that others should have been taken. If that is the nature of the criticism, then let the Opposition say what other measures should have been taken, and let them explain why those measures were not taken earlier. This I believe to be a fair point to make to the Opposition.

In the meantime I say, with all the emphasis that I can command—

§ Mr. Callaghan

I cannot give way now.

I want to make it clear—and I hope that I will not raise hon. Members' hackles in saying it—that there is a job of fundamental importance to be done. It is something of the greatest significance to the whole country and to its future. It is for this reason that I have taken the measures that I have, distasteful though they will be to some and painful though they will be to all. I believe that this is the way in which this country can survive and prosper.

§ Mr. Reginald Maudling (Barnet)

The Chancellor of the Exchequer has explained very courteously and clearly the provisions of the Finance Bill, as is traditional in the Second Reading debate. A little later I shall deal with the Bill in some detail, but he will not be surprised if I start by dealing with the financial situation of the country and the very recent developments.

Of course, I agree with the right hon. Gentleman that there is an immense task to be carried out. No one has ever denied that. The establishment of an incomes policy, which hon. Members on both sides have for a long time said is very important, and the sweeping away of restrictive practices of all kinds, so that our goods, and particularly our 1107 export goods, can move more freely, represent immense tasks of a national character which must be undertaken.

But there are also many things which the Government have done which they need not have done, and which have also done immense damage. When listening to the last part of the right hon. Gentleman's speech, about the effects of the 7 per cent. Bank Rate, I was struck by what I thought was inconsistency with what was said when my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) introduced a 7 per cent. Bank Rate. We were not told by the then Opposition that this would virtually have no effect on investment. If the right hon. Gentleman looks at the record I think that he will find that his present assessment of the effects of a 7 per cent. Bank Rate is very different from what he and his colleagues said it would be a few years ago.

Secondly, I cannot help seeing an inconsistency between his reference to disinflation and the Government White Paper published as recently as 26th October, He is now talking in terms of the heed to exercise a deflationary pressure on the economy. He was saying, in effect, that the increased Bank Rate would be valuable in adding to the deflationary pressure on the economy. But in the White Paper of 26th October we were told: The Government further examined the domestic economic situation. Apart from special problems of individual areas and in a limited number of industries there is no undue pressure on resources calling for action. Moreover, the Government reject any policy based on a return to stop-go economics. It did not sound quite the same this afternoon.

I want to refer to what was said yesterday about the increase in Bank Rate. In putting some questions to the right hon. Gentleman, I said: … is he aware that the speculative movements to which he refers, both by their nature and their timing, clearly derive from the recent actions of the Government, including, in particular, the Budget, the taxation proposals, and the inept handling of the surcharge? I thought that that was true then, and I think that it is true now. But I certainly did not expect to have it confirmed within the hour by the Prime Minister himself.

1108 Let us look carefully at what the Prime Minister said yesterday. It was a very important statement. He said: The fact is, as the right hon. Gentleman recognises, that so far as the trade gap is concerned, whatever the trade gap or payments gap—whatever has been estimated as having to be met—there were reserves and borrowings more than adequate to meet this, but in the course of the past week there has been this new development arising from confidence factors. The right hon. Gentleman meant a lack of confidence factors, because there can be no doubt—and it is right for this to be said, because it is equally important for the country to realise this as to realise anything about an incomes policy or restrictive practices—that in the last few days or in the last week—the Prime Minister referred to the last few days—there has been a collapse of confidence in the present Government's ability to handle our economic affairs. There are many reasons for this—

§ Mr. Shinwell

Inspired by whom?

§ Mr. Maudling

Inspired by the actions of the Government.

§ Mr. Shinwell

Tell us what you would have done.

§ Mr. Deputy-Speaker

Order. If the right hon. Member for Easington (Mr. Shinwell) wants to interrupt, he knows the right way to do so.

§ Mr. Shinwell

What is the use of going over all this ground again and again? Will the right hon. Gentleman be good enough to tell the House and the country what he would have done if he had been Chancellor.

§ Mr. Maudling

We would not have got into this situation. [HON. MEMBERS: "Oh."] It is quite impossible to understand the situation unless we look at its causes. I am going to refer to the causes of what the Prime Minister himself called the new development of the last few days, because that, in the words of the right hon. Gentleman, is what the Bank Rate change is designed to deal with.

The first is the nature of the Budget itself and the effect that it undoubtedly had overseas. The Chancellor said that the Opposition's complaint was that the Budget was irrelevant to the economic situation. That is not my complaint. My complaint is that the Budget and the tax 1109 proposals will be positively damaging to the economic situation by their effect upon industrial costs and by what I believe to be an inflationary and not deflationary bias in their operation.

Secondly, damage has clearly been done to our position by the policy of exaggeration adopted by the party opposite. The Prime Minister is aware of this. Yesterday, he said: We are dealing with a situation where what matters is not what our trade and payments position is, but what people overseas think it is."—[OFFICIAL REPORT, 23rd November, 1964; Vol. 702. c. 914–933.] If people overseas think that our position is worse than it really is, who made them think that? [HON. MEMBERS: "YOU did."] This is extraordinary. We have been accused of underestimating the present difficulties; now we are accused of exaggerating them. The figure of £800 million—[Interruption.]

§ Mr. Deputy Speaker

I must ask hon. Members to refrain from interrupting from their seats.

§ Mr. Thomas Swain (Derbyshire, North-East)

Mr. Deputy-Speaker, will you draw the attention of the nut from Knutsford to the fact that it is he who is causing all the trouble?

§ Mr. Deputy-Speaker

My observation was addressed to hon. Members on both sides of the House.

§ Mr. Maudling

I will give one or two examples of what I am saying. The first is the reference to the figure of £800 million, when, of course, the White Paper says that the deficit, current and long-term together, is unlikely to be below £700 million and may be £800 million. Secondly, there is the capital element in this figure which has been wholly ignored. The impression is given in the Left-wing Press that it is a trade gap. Of course, about half of it is new investment overseas or the repayment of old debts. Thirdly, there are the special factors which seriously affect 1964 and which the right hon. Gentleman the Chancellor has mentioned several times in his recent speeches and statements.

These special factors have not been given very much prominence in the other speeches and attitudes of the party opposite. Fourthly, there is the fact that 1964, to which the Government have made so much reference, is nearly five- 1110 sixths or more over. It was three-quarters over when they came to power. That three-quarters of the year 1964 had already been "taken care of ", in the Prime Minister's words.

The year 1965 will show without any further action a substantial improvement in our trade figures. The most recently published trade figures show quite clearly that before any question of the imposition of the surcharge was made imports were beginning substantially to decline. All these are reasons why the situation has been exaggerated. Then there has been the extraordinary mishandling of the import surcharge. Even The Times, which can hardly be regarded as the most enthusiastic pro-Conservative newspaper—[HON. MEMBERS: "Oh."] What a change there has been—said: The Government's handling of its import surcharge has almost passed belief … In order to impose the surcharge Britain had to break faith with international obligations. Yet, incredible as it still seems, Whitehall made no serious attempt to smooth the path beforehand. Only now is it possible to see the true cost of this neglect. The Chancellor said that there would have been forestalling. But it was not a question of having discussions with businessmen, but of having them with the Governments concerned. This is what the Government wholly failed to do.

Then there are the other actions by the Government affecting our overseas relations which are almost bound, in one way or another, to affect our trade adversely. There was the gratuitous reference to the Concord in the White Paper of 26th October. Why it was put in, I cannot imagine. It was bound to create offence to the French and to create difficulties in our trading relations with France.

§ Mr. Dick Taverne (Lincoln)

Can the right hon. Gentleman explain why the obvious intention with which the Government are reviewing wasteful and expensive schemes is something which has lost us confidence in Britain's economy?

§ Mr. Maudling

That really is the point. It is perfectly reasonable for a new Government to review all expenditure, but to do that straight away in respect of a joint project with the French Government and to single out that project in this way was obviously ill conceived. The fact is that Concord sticks 1111 out like a sore thumb. "Let's go with Labour‡"

Then there is the treatment of South Africa over the Buccaneers. The announcement is coming tomorrow. [Interruption.] There is a collapse of confidence in the British Government's handling of our affairs, and the effect on our trade with South Africa is obviously a contributory factor to the situation which we are now facing.

Finally, there was the announcement about the corporation tax and the capital gains tax, to which the right hon. Gentleman referred again today. I do not think that the Chancellor realises how much damage this announcement caused. It has virtually paralysed much of the delicately balanced investment machinery of the City of London. I know there may be some hon. Members opposite who could not care less what happened to the City in general or to the Stock Exchange in particular.

I am sure that that is another contributory factor in this lack of confidence. The Government really must understand that the financial machinery of the City of London is an essential part of the whole investment machine of this country. They must recognise—if they do not now, I cannot understand why not—that damage done to the City spreads to other markets. The damage done to the Stock Exchange is bound to make its effect felt on foreign exchange markets.

§ Mr. William Hamilton (Fife, West)

On a point of order. Is it not the custom of the House, Mr. Deputy-Speaker, for right hon. or hon. Members who have an interest in outside business to declare that interest?

§ Mr. Deputy-Speaker (Sir Harry Legge-Bourke)

The point raised by the hon. Member is not a point of order. I think that it is the custom of the House to leave it to the responsibility of hon. Members themselves to declare an interest if they have one.

§ Mr. Maudling

It is obviously not a question of personal interest at all. The House is perfectly aware of that. That is nonsense.

The fact is that everyone should have a real interest in the health and prosperity 1112 of the financial centre of our country and in the invisible exports that come from the City. The fact is that nothing has made a bigger contribution to the collapse of confidence in the Government in the eyes of people abroad than the way in which the Government have treated the City of London and the—

§ Mr. Deputy-Speaker

The hon. Member must resume his seat if the right hon. Member does not give way.

§ Mr. Maudling

I want to put some particular points to the Chancellor about the Capital Gains Tax and the Corporation Tax. On the Capital Gains Tax, the right hon. Gentleman's assurance about securities showing a loss was helpful, but his remarks about true market value were cryptic, and there are still a number of factors which need to be made clear before rational investment decisions can be taken.

This is a question of finding the necessary finance for British industry. I see the right hon. Gentleman's point that the rate or level of the tax cannot be announced in advance, but it is the structure and method of the tax which can affect the whole structure of company finance. Its effect on individual companies will vary very much according to the structure of the tax. Insurance companies and pension funds are in extreme difficulty at the moment. Investment trusts play a big part in finding the savings that play a very considerable part in our economy. Multiple taxation either under the Capital Gains Tax or the Corporation Tax are all certainly dangers to watch. I appeal seriously to the right hon. Gentleman to do all that he can as quickly as possible to resolve doubt on these matters, which are having a serious effect on insurance funds, pension funds and investment.

I am certain that from the point of view of balance of payments and sterling this is inhibiting foreign investment in this country, because people will not invest in British equities or securities if they have this hanging over their heads. So I appeal to the right hon. Gentleman to clear up some of these ambiguities as quickly as posible in the general interest.

Now I turn to the proposals in the Bill. There are four main proposals: 1113 Income Tax, the petrol duty, the surcharge and the incentive. We shall be examining all these matters in detail in Committee, but I want to say one or two things about each of them and to express our general view of the effects which they will have on the economy. We believe that an increase in the standard rate of Income Tax will have a bad effect on the economy. It will discourage enterprise, particularly among the managerial and technological people whom the Government want to encourage.

The effect on savings, both personal and company savings, is bound to be considerable, and the effect on investment is bound to be discouraging because the net return will be reduced by the tax charged on the profit flowing from it.

Then there is the hydrocarbon oil duty. This seems to be a very unwise type of new impost to place on industry. Something like 60 per cent., I believe, of the total yield from the hydrocarbon oil duty increase will fall on trade and industry and will be borne on the costs and prices in British industry. There are particular problems about which we shall want to hear a great deal more. There are problems of agriculture and horticulture and all the trades which are affected, and the assembly and construction industries and other industries. The new increase in duty will fall particularly heavily upon them because of the large number of transport activities which are included in their businesses.

These are particular problems which we shall wish to raise. I repeat again that we object to an increase in the petrol duty at the present time, or, indeed, at any time.

§ Mr. William Hamilton

That makes a change.

§ Mr. Maudling

I wish to refer to the surcharge. The right hon. Gentleman—

§ Mr. Woodrow Wyatt (Bosworth)

Will the right hon. Gentleman give way?

§ Mr. Maudling

No, I cannot give way to the hon. Gentleman. I have given way enough already.

1114 The right hon. Gentleman dealt with a number of the points, which we have in mind, but I do not think that in any case he did so satisfactorily. There are three main matters which we wish to probe. First, why it is necessary to impose a charge on goods which have to come to this country anyway, either on those in transit or on those which had actually arrived here at the time the surcharge was imposed? Why is it right to impose a surcharge on essential materials which cannot be manufactured in this country? According to a letter which I received today it will be imposed on ammonium sulphate nitrate which, I am told, is an essential raw material for the manufacture of new concentrated fertilisers. In the range of chemicals there must be a very wide number of products which are essential but which cannot be supplied from domestic sources.

Why must the surcharge be 15 per cent.? Why not, as in the case of Canada, have a differential rate for different products? I do not think that the Chancellor answered satisfactorily any of those points. I cannot accept his argument that a duty must be imposed on goods which will have to come to this country anyway. The right hon. Gentleman said that he must do it, that it was always done, but I do not accept that. If the object of the surcharge is to stop things coming into the country—I cannot imagine that there can be any other object—what is the sense in applying it to things which would have come in any case?

What is the sense in applying it to things which cannot be made here? I do not follow the logic of the right hon. Gentleman's argument that these products will be protected. The whole point of the surcharge is temporary protection, and, if that be the object the task is to try to operate on things where a cutback can be made and not, by definition, on things where a cutback cannot be made at all. The answers given by the right hon. Gentleman this afternoon were neither convincing nor satisfactory.

On the export incentive, we doubt whether it will be adequate to work in practice, and whether, in view of the scale involved—it is difficult as we know to evolve a scheme consistent with our international obligations—the expenditure of £75 million will be justified by 1115 the amount of additional exports which will result. These and other related questions we shall want to probe in Committee.

I wish to return to the overall picture of the Budget and to say why, in my view, it is a Budget of an inflationary character which is bound to put up costs and prices and create greater difficulties for the economy. I cannot accept the calculation of the right hon. Gentleman about its disinflationary effect. It is true that when we add the yield expected from the import surcharge and the petrol tax together it comes to something like, with destocking, the amount of imported goods prevented by the surcharge from coming in. That means that the Budget measures will offset the increased inflation arising from the operations of the surcharge. This will have the effect of balancing the equation. It is not disinflationary. It safeguards the economy against the inflation which would have arisen by the operation of the surcharge.

The great bulk of the expenditure involved is, however, new expenditure. My point is that the expenditure will issue immediately into effect as the total amount distributed in social benefits which will be spent at once and to a fairly high proportion on imported goods. This will add about £340 million to £350 million to the demand side of our economy.

The increased tax which is supposed to match this will not do so. The large increase in the amount for stamps paid by employers will be offset against Income Tax and to that extent the total addition collected from industry will be reduced. A great deal of the additional taxation Income Tax or whatever falls on companies—will not come out of spending, but out of saving. Therefore, it cannot be possible for the disinflationary effects of the new tax to be anything like a balance for the automatic and inevitable inflationary effect of the new expenditure. So I say seriously that this calculation, which I believe to be one which has been widely made in other quarters, is right. I believe that the Budget is inflationary. I believe that it will damage our economy and for that reason we object to this Finance Bill.

§ Mr. William Hamling (Woolwich, West)

I ask the customary indulgence of hon. Members on this the first occasion that I rise to address the House. May I, in advance, ask the indulgence of the House for any controversial points which I may introduce, though if I do I hope that they will be expressed in fair terms.

May I refer to some of the remarks of the right hon. Member for Barnet (Mr. Maudling), who was asked very specific questions by hon. Members on this side of the House. The right hon. Gentleman made two brief references, one to incomes policy and one to restrictive practices, and spent the rest of his speech attacking the policy of Her Majesty's Government. Already this year the right hon. Gentleman has had an opportunity to stand at the Treasury Dispatch Box and present a Budget. In April, he had an opportunity to face the problems which we are facing today. Because of his refusal to face them then, the problems today are immeasurably greater.

The right hon. Gentleman said that to some extent we had exaggerated the balance of payments problem and that we had spoken of a figure of £800 million. During the last election I never put the figure any higher than £400 million for this year. We recall that in 1961 the deficit on current payments was £264 million. That was quite a different story, even from £700 million, and when one thinks of the emergency measures taken by right hon. and hon. Gentlemen opposite in that year one wonders what they would have had to do were they on these benches today and facing the balance of payments problem that we inherited from them.

During the Gracious Speech we heard contradictory voices on this question. We heard the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd) pleading for a high wage economy. We also know the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd). I wonder whether they will get together and decide what incomes policy they wish to recommend. We heard the hon. Member for Louth (Sir C. Osborne), who, during his speech in the debate on the Address, referred back to 1950 and pleaded for a return to the policies 1117 of the late Sir Stafford Cripps. That was 13 years of Toryism ago. It was 16 Budgets ago. It was six Chancellors ago. These are the years that the locust has eaten. We heard the hon. Member for Louth pleading for a return to the Labour Party's policies of before 1950. What has the party opposite been doing during the intervening years?

I suppose that it is inevitable that in this debate we shall have a rehash of one or two Budget speeches. Why are we faced with this Finance Bill today'? I suggest that it is because right hon. and hon. Members opposite delayed the election for 12 months. The balance of payments problem has been with us for a long time. During the election we were told that it would be unpatriotic to refer to it. My right hon. Friend the Prime Minister was told that he was talking the nation into a crisis. We know this afternoon who has been talking the nation into a crisis during the last week—those Members on the benches opposite. I suggest that it is some of the "de Gaullist deputies" opposite who paint a black picture of the country abroad.

This afternoon concern has been expressed for E.F.T.A. This is new. Was any concern for E.F.T.A. shown in 1962 and 1963, when people talked about entering the Common Market? The facts are that the problem goes back to that year. Our difficulties go back to the fact that right hon. and hon. Members opposite failed to carry out their policy of entering the Common Market. Ever since, they have been left with a vacuum in economic policies: they have not known what to do. They wanted to hold an election in 1963 in a blaze of glory after entering the Common Market. After they were kicked in the teeth by de Gaulle, what could they do but hang on, hiding the truth from the electorate, because they knew very well that, if the truth were declared, they would go down in disaster? They have left us to shoulder the burden.

We may ask what the right hon. Member for Barnet would have proposed to the House if he had stood at the Dispatch Box today.

§ Sir Douglas Glover (Ormskirk)

On a point of order.

§ Hon. Members

Sit down.

§ Sir D. Glover

The tradition of the House, which the House observes with great courtesy, is that maiden speeches—

§ Hon. Members

—are not interrupted.

§ Sir D. Glover

—are non-controversial [Interruption.]

§ Mr. Deputy-Speaker (Sir Harry Legge-Bourke)

Order. I would ask the House, when I have been called upon to give a Ruling, at least to give me an opportunity to make it. May I say, first, that I appreciate that when an hon. Member is making a maiden speech it is the custom of the House to give him a quiet hearing. I would ask hon. Members, as I am on my feet now, to recognise that a very large number of Members wish to speak in the debate. I therefore appeal to the House as a whole not to overload the atmosphere with too much surcharge of indignation.

§ Sir Peter Roberts (Sheffield, Heeley)

Further to that point of order. Is it not a fact that the reason why courtesy is extended to a maiden speaker is that the tradition was that maiden speeches were not controversial? If that is correct, we are quite prepared, I am sure, to give the hon. Gentleman a courteous hearing. [Interruption.] Mr. Deputy-Speaker, may I ask for your protection whilst I make this point of order? The hon. Member for Nelson and Colne (Mr. Sydney Silverman) is shouting.

§ Mr. Deputy-Speaker

Order. I would ask hon. Members, when a point of order is being put to the Chair—

§ Hon. Members

It is not a point of order.

§ Mr. Deputy-Speaker

Order. I would ask hon. Members, when a point of order is being put to the Chair, to enable the Chair to hear the point of order, and I would ask hon. Members putting points of order not to indulge in argument in the middle of a point of order.

§ Sir P. Roberts

I was provoked. I apologise, Mr. Deputy-Speaker. The point of order is this. In your Ruling you said that it was the practice to extend courtesy to maiden speakers. I was saying that that was because maiden speakers did not indulge in controversial matter. 1119 I suggest to you, Mr. Deputy-Speaker, that if a maiden speaker makes controversial statements it is in order to intervene and interrupt.

§ Mr. Deputy-Speaker

It is true that the whole question of giving a quiet hearing to an hon. Member making a maiden speech does not raise a point of order at all. I would say to the hon. Member for Woolwich, West (Mr. Hamling) that the more provocative he is the less likely he is to have a quiet hearing.

§ Mr. Hamling

I was asking the right hon. Member for Barnet some questions. Perhaps his right hon. Friend who is to wind up the debate will try to answer them. Would the Tories have increased taxation? Would they have raised the Bank Rate to 7 per cent., as they did in 1961? Would they have increased the duty on petrol, as they did after the 1951 General Election and as they did after the 1955 Election? Would they have imposed a wage freeze, as they did in 1961? Would they have increased charges on the hospital section of the Health Service, as were promised before the election? Those are questions to which the House deserves, and is entitled to have, answers.

The Bill is not one of my right hon. Friend's choosing. It is not one of our choosing. This is the legacy of 13 years of Tory government.

§ Mr. Hector Monro (Dumfries)

I rise with great trepidation in a highly charged atmosphere to address the House for the first time, but I am encouraged by the traditional friendliness and appreciation which are shown to maiden speakers and which have certainly been evident to me during the past few weeks.

I come from the County of Dumfries. Perhaps here I may strike my only controversial note by saying how happy I am that it is on the right side of the Scottish Border. The southern boundary is the Solway Firth. I feel that the House may come to know this stretch of water far better if the Salway Barrage scheme is fully investigated and, if found practicable, brought into being. It is a tremendous concept of far-reaching consequence to southern Scotland and northern England. I hope 1120 that the Government will consider the possibilities with the enthusiasm they deserve.

The County of Dumfries has many and diverse industries, nearly all of which are affected by the Finance Bill. It is on these problems that I want to touch for a few moments. In the development district of Upper Nithsdale, which includes Sanquhar and Kirconnel, there is a serious unemployment position. At present it is at the rate of 10.6 per cent.—a very high figure indeed. This has arisen because the coal mines of Sanquhar are worked out and closed. That is not the fault of the National Coal Board or of any Government, but it is unfortunately a fact.

Early this year a new advance factory was completed and now it is let, but even in full production it may absorb only about 80 people. A second factory is urgently required. I hope it is not too late for the President of the Board of Trade to site another one in Upper Nithsdale. In a comparatively remote part of Scotland, the extra tax on fuel will not encourage industrialists to come to the area. London is 360 miles away and Glasgow 54. To London a round trip by lorry will cost an extra 35s. in tax. May I go so far as to hope that the Government will give an additional incentive to firms to come to remote areas where transport costs are disproportionately high and will be even higher under the Bill.

It is also true that these areas of Scotland requiring urgent industrial development will be affected to a considerable extent by yesterday's increase in the Bank Rate. I hope that it will be reduced as soon as possible.

The fuel tax has, of course, affected agriculture, and as a farmer I know this. The movement of livestock, and particularly the collection of milk, costs more and will have to be paid for by the producer, Milk producers are having a difficult period and many are leaving the industry. The increase in tax can only accelerate this trend and may cause unemployment in the creameries and milk-processing factories where there is a shortage of milk. The delivery of fertilisers and feedingstuffs will also cost more, because the vast bulk of these come by road, often directly from the factory to the 1121 farm. I trust that the effect of the fuel tax will be taken fully into account in the coming Price Review.

We must not forget also that in many cases the only means of transport for the agricultural worker, his wife and family in the more remote districts to shop and enjoy recreation is in their own motor car. They will not have a rebate scheme in the manner of a non-existent rural bus service but their need is just as great and usually far greater.

I should like to know just how much the tax rebate will be for rural bus services. The finances of companies, often one-man companies, running these services are in a precarious state. Anything less than a 100 per cent. rebate of the tax may well be a death blow to them. This will certainly fall most heavily on the older folk who have no motor cars of their own.

There is also the effect of fuel cost on tourism. This is a fast developing industry in Scotland. Dumfries and Galloway hope to welcome an increasing share of visitors, and with the advance of the motorways northwards and the chronic overcrowding in the Lake District the attraction of weekend visitors from England to southern Scotland is now most important. It should develop rapidly to the advantage of the economy in my district. I do not wish to see this development retarded by increasing fuel costs. Incidentally, how unfortunate it is that at the gateway to Scotland at Gretna Green we have the unusual State Licensing District which virtually prevents the building of new hotels for tourists. This was introduced during the First World War to restrain over-indulgent munition workers, but it remains today to provoke residents, tourists and runaway couples alike.

I should also like to mention the effect of the increased fuel tax on aviation, and particularly on private flying. We are living in an age of technical advance, and we all know that time is money. We ought to be encouraging the use of aircraft for the rapid transport of businessmen about their work. This is particularly important to the very remote areas which are not served by regular airlines. The extra tax on fuel, which I am informed by people 1122 at my nearest aerodrome is payable by owners of private aircraft, will slow down expansion in this direction.

On a light aeroplane such as I sometimes fly, the cost per hour has gone up by 5s. to cover the tax alone, and for the larger executive-type aircraft the extra cost is at least 10s. an hour. This may just tilt the scale against the use of this type of aircraft and thus affect not only business but the aircraft industry. We ought to remind ourselves that, although the weather has much to do with it, we are years behind the United States and Canada in the timesaving use of aircraft. I suggest to the Government that they should increase the rebate of fuel tax to flying clubs and groups by 6d. per gallon to offset the new tax.

Now, a brief word about the surcharge. Dumfries and Annan have an important hosiery industry. Langholm has mills manufacturing tweeds of a quality second to none. They are all concerned about the effect of the surcharge on their exports to Europe. I have seen letters from Continental importers hinting at the cancellation of orders if their countries impose a surcharge similar to ours. Other importers are demanding that the 1½ per cent. export incentive be deducted from delivery prices. I hope that the surcharge will be removed as soon as possible.

I hope that the general financial position taken up by the Government will not have a detrimental effect on the future of the Chapelcross atomic energy power station. It has a fine site with ample room, ample services and an ample labour force to build and staff the new fast-breeder reactor which I believe is under consideration. I urge the Government to give the area the opportunity. I have pointed out several cases where the Finance Bill will be against the interests of rural areas. I have suggested one or two alternatives. I hope that the Government will give them consideration and later perhaps translate them into action. At a later da