FINANCE BILL
Order for Second Reading read.
The Chief Secretary to the Treasury (Mr. John Diamond)
I beg to move, That the Bill be now read a Second time.
We have now reached the stage when we start to implement my right hon. Friend's Budget proposals, proposals which the House unanimously regards as relevant to the needs of our country, novel in their conception, and challenging to certain habits of thought. I hope that I may be allowed to depart on this occasion from the normal tradition in introducing a Finance Bill, which has been to go through the Clauses one after another, explaining the effect and purpose of each.
So many of the Clauses have already been described in speeches made from this Box earlier and, as the Press has correctly said, there are no surprises in the Bill, nothing that one was not expecting, and very little that is not administrative or has not been already explained. I am sure, therefore, that it will be for the convenience of the House if I deal with those matters which are of new principle, which alter existing taxes or which bring in new taxes.
There are several Clauses which help international trade and exports. Clause I, for example, makes it easier for exported goods to qualify for relief from duty on their import content. Other Clauses give effect to undertakings which we have given to our partners in E.F.T.A. and concern, among other things, vodka and heavy oils, both of which, I am told, are lubricants, though one has to be careful which one uses for which purpose.
There are many provisions defining with greater precision the position of the taxpayer, but I do not think that they involve any new principles. There are, of course the usual number of provisions relating to avoidance, and I think that I should say a word or two on the general topic of avoidance, particularly having regard to what the hon. Lady the Member for Finchley (Mrs. Thatcher) said during the Budget debate on 5th May. I am [column 477]glad to see the hon. Lady in her place. During her speech, she is reported to have said:
“… it is now time to point out that some of the anti-avoidance devices are really anti-confiscatory devices” .
I do not know whether Hansard correctly reported the hon. Lady's words because, obviously, she was referring to avoidance devices, not to anti-avoidance devices.
Mrs. Margaret Thatcher (Finchley)
indicated assent.
Mr. Diamond
I am not quite sure which way she actually put it, but I am sure that, if she had thought about it beforehand, she would have said it as I have just amended it.
The hon. Lady went on:
“The complex of taxes, with Income Tax, Surtax, Capital Gains Tax and an 80 per cent. rate of Estate Duty, is so great on some of the top incomes that people try to take defensive action.” —[Official Report, 5th May, 1966; Vol. 728, c. 1891–2.]
At that point, one of my hon. Friends said “Shame” , and we on this side, at all events, share that view.
We do not take the view that high marginal levels of taxation on incomes of £200 a week and more, imposed by Parliament after full debate, can justify one section of the population in using the resources available to them to avoid and escape their fair share of the burden which Parliament clearly intended to impose upon them. We would not describe that kind of taxation decided upon by this House after full debate as confiscatory. We would regard a remark in that regard coming from the Opposition Front Bench as wholly irresponsible. [An Hon. Member: “What?” ] Wholly irresponsible. I am astonished that no right hon. Gentleman who shared the responsibility of government for 13½ years has risen to say anything about it.
What we try to do in this House is to ensure that the will of the House is carried out. If there are any complaints about the kind of taxation imposed, this is the place to debate them. Once a decision is taken, patriotic citizens should pay their taxes and——
Mr. Nigel Birch (Flint, West)
Does the right hon. Gentleman?
Mr. Diamond
Yes—and, moreover, comment like that must sound odd indeed [column 478]in the ears of millions of taxpayers who pay their taxes willingly and of those millions who are subject to the most rigorous of all Schedules, Schedule E, who have their taxes deducted under P.A.Y.E., who have no opportunity to reduce their burden, to take advice to see whether it is open to them, or even the means to do so. In those circumstances——
Mr. John Farr (Harborough)
rose——
Mr. Diamond
I will give way in a moment.
I want to add a further point about the effect of a high level of tax on high incomes. For those who have high incomes and have to pay taxes it may be that the payment of taxes results in their having to forgo some additional luxury. But, for the ordinary man or woman, payment of taxes may mean that one of their children has to go without a pair of shoes. [Hon. Members: “Oh.” ] That is the difference. I could have hoped that Parliament would speak with one voice on the responsibility for paying taxes.
Mr. Farr
Would not the right hon. Gentleman agree, however, that it is the confiscatory level of taxation on, for instance, the £200 a week man which is the very reason that we in this country are suffering from the brain drain?
Mr. Diamond
I would not accept any such comment at all. I repeat the simple fact which hon. Members opposite seem to be unable to be aware of, that at all levels of income one can eat only three meals a day.
In the Bill there are three Clauses relating to the new duties. Those are the Clauses which, I imagine, will attract the greatest amount of interest. There are Clauses dealing with the new betting duty, the references to the new investment incentives, and, of course, the Selective Employment Tax. The duties relating to betting and gambling were fully described in principle by my right hon. Friend in his Budget statement. It is clear that he is in the exceptional position of having won universal approval, at all events, for this tax.
I need only draw the attention of the House to two aspects of the control of the new betting duty. First, it will be seen [column 479]that racecourse authorities may be required to assist the Customs and Excise in administering the duty, and, in particular, to deny access to their courses or tracks to bookmakers who have not complied with the fiscal law applicable to them.
The Customs and Excise for a number of years have had co-operation from the proprietors of dog racing tracks in the administration of existing duties imposed on bookmakers operating on their tracks, duties now to be replaced by the general betting duty. I should like to pay tribute to the proprietors for that help. I am confident that there will be similar co-operation forthcoming from the horse racecourse authorities. Secondly, while we do not wish to sound in any way minatory I mention the provision in Schedule 2(20) for the withdrawal of a betting office licence in the event of a second conviction for an offence.
While bookmakers have assured my right hon. Friend of co-operation in making the new duty work, it would be unrealistic to assume that there will not be some cases of attempted evasion. This stringent penalty is necessary both to protect the reputable bookmakers from unfair competition based on tax evasion and to make it clear and plain to others that such evasion will not be worth while.
As to gaming, there is one relaxation in the scale of duty from the plan already announced. Where bingo and other dutiable games are played on the same premises, it will not be necessary to take out two licences. The higher rates of licence duty will cover the playing of all games, including bingo. There will be other details which perhaps we can usefully discuss in Committee.
Clause 33 of the Bill provides for the abolition of investment allowances and the amendments——
Mr. J. Bruce-Gardyne (South Angus)
Before the right hon. Gentleman leaves the subject of the betting tax, would he not agree that the Chancellor said that the money from the tax was to be used to finance the Government's option mortgage scheme? Why is the tax not financing the mortgage scheme?
Mr. Diamond
The hon. Member is not accurate in what he says about my [column 480]right hon. Friend's statement. [Hon. Members: “Oh.” ] My right hon. Friend compared the amount coming from this source and the amount which would be available for another purpose. Every right hon. Gentleman knows that under no circumstances does one hypothecate a particular tax to a particular item of expenditure. It all goes into the same pool. [Hon. Members: “Answer.” ] My right hon. Friend did not say that and I have answered the hon. Member.
Dame Irene Ward (Tynemouth)
Read it out.
Mr. Diamond
The provisions of Clause 33 are to be read in conjunction with the measures giving the new investment grants described in the Industrial Development Bill, which received its Second Reading last week.
Before I turn to the third of the new taxes, the Selective Employment Tax, perhaps I may say a word about the interrelation of the two taxes. It is sometimes argued that the way to discourage recruitment of labour into the service industries is by providing additional incentives to investment in labour-saving plant and equipment and that we have failed to do this. Conversely, so the argument runs, it cannot be right to encourage the recruitment of labour to manufacturing industries and, at the same time, to provide incentives for the kind of investment which reduces labour requirements.
Both these views are mistaken so far as concerns service industries the imposition of a tax of these quite measurable proportions, and, in particular, the impact of a new and unexpected tax, would be sufficient of itself to encourage the acquisition of labour-saving equipment without a special inducement to investment. In manufacturing industry the need is both for additional labour and plant. It is by increasing the scale of industrial production that we shall get both a greater volume of production and greater efficiency.
I now turn to the Selective Employment Tax, which is the main talking point of the Finance Bill. I wish to deal with some of the principles of the tax and then with the administration, about which there have been one or two grumbles. First, as to the tax itself, may I remind the House, because I think that [column 481]this has been overlooked in pursuing the argument about service versus manufacturing, that the main reason for introducing the tax was to provide revenue. Every political and economic commentator in the period leading up to the Budget was agreed that there was a need for £200 million to £300 million of extra revenue to provide the necessary element of deflation. I doubt whether there was ever such unanimity in the Press except when the Press told us that Labour would lose the Hull by-election. On this occasion, however, they were clearly right and all have accepted my right hon. Friend's Budget judgment.
One way of raising the equivalent revenue would be to increase the rates of Purchase Tax in the way described when my right hon. Friend gave cogent reasons for not adopting those traditional methods. In particular, he had in mind the need to maintain a high rate of investment and full employment. It is clear that increases in Purchase Tax fall with severity on a limited sector of our manufacturing industries and have damaging effects, such as those on motor car production, for example. My right hon. Friend, therefore, turned to a new indirect tax which provides the necessary revenue—in particular, at the time of year when it is expected to be needed—which avoids depressing employment and investment, which avoids the pitfalls of the stop-go policy of the party opposite and which is widespread in its impact.
Anyone, therefore, who seeks to criticise this tax must first say in the most precise terms exactly what alternative method he would have proposed for raising the necessary revenue and raising it at the right time and in the right way and avoiding stop-go. Any criticism which does not base itself on a positive alternative proposal is completely without validity. The Selective Employment Tax can be used——
Mr. T. L. Iremonger (Ilford, North)
rose——
Mr. Diamond
I have given way four times already.
Mr. Iremonger
I am obliged to the right hon. Gentleman for giving way. An alternative should have come from savings, which would have been available [column 482]if there had been more incentives in the economy. The right hon. Gentleman says that the object of this tax is to raise revenue, but is this really so? Is he not also saying that the object is to deflate the economy, to mop up surplus purchasing power, which is not at all the same thing? The Government could have perfectly well done without the revenue, for they are not spending all that much more and are boasting about their surplus.
Mr. Diamond
I am sure that the hon. Gentleman does not want to make a speech now. Perhaps he will have an opportunity later, when I shall listen with interest. There is very little difference between raising revenue and saying that deflating is the purpose of the Budget. That is the purpose of every Budget nowadays. There is more than a revenue-raising purpose behind the tax. It is a contemporary tax which takes account of contemporary conditions, particularly full employment.
Much of the criticism which I have read has provided the major justification for this aspect of the tax, for it has demonstrated the extent to which employers of all kinds have been stimulated into looking at their employment practices and considering how they should use their labour force more efficiently. It has been most gratifying to note that only a minority of employers appear to be taking the view that they should automatically pass on the whole of the increased cost and that, therefore, there is no need for them to consider the efficient deployment of their labour. Here again, we see further proof of the wisdom of adopting this kind of indirect tax, because if we had instead increased Purchase Tax the general reaction would immediately have been to put up the price of goods by the corresponding amount.
Purchase Tax, because of its nature, has come to be regarded as something which is automatically added on at the end of the bill and paid for by the consumer. It is much more encouraging to greater efficiency to have a tax which, by its very selectivity, makes employers question themselves about their use of the scarcest of our resources—manpower.
Mr. Anthony Royle (Richmond, Surrey)
rose——
Mr. Diamond
By providing——
[column 483]Hon. Members
Give way.
Mr. Diamond
No. I have given way five times now.
Hon. Members
Three.
Mr. Diamond
Moreover, by providing premiums the tax encourages recruitment into manufacturing, and to a certain extent could also encourage the flow of labour from services into manufacturing. That would be all to the good. For too long our fiscal policies have encouraged the flow of labour into services, with the result, as was pointed out by my right hon. Friend the Chancellor of the Exchequer in his Budget speech, that 90 per cent. of the increase of our labour force in the past five years has gone into services and only 10 per cent. into manufacturing.
I say “for too long” because if we as a nation wish to increase our productivity we can most readily do so in the field of manufacturing. The available statistics indicate very clearly——
Mr. Richard Sharples (Sutton and Cheam)
On a point of order, Mr. Speaker. Is it in order even for a Minister to read his speech word for word from a prepared text?
Mr. Speaker
The hon. Gentleman knows that Ministers, like back-benchers, are allowed to make use of copious notes.
Mr. Diamond
I was saying that it is in manufacturing that the increase in productivity is conditioned and limited by the increase in the numbers of employees attracted to it. All the statistics clearly show that this country, in particular, has been limited in its increase in productivity because it has denied manufacturing the necessary increase in the volume of labour. All the international statistics, comparing countries at a similar stage of development, have shown that we are virtually at the bottom of the list as regards the proportionate increase in our labour force in manufacturing.
This has been going on for a long time, and it is high time that we took note of it and tried now to encourage the employment of labour in, and particularly the recruitment of labour into, manufacturing. The tax is fully justified as a revenue raiser, as a wise beginning in broadening the tax base, as a step towards redressing the balance of taxation [column 484]between services and manufacturing, and as an encouragement to greater efficiency and productivity in manufacturing. In this way we shall grow more competitive in the manufacture of goods for both the home and overseas markets.
A number of hon. Members, on both sides of the House, have questions about the administration of the tax which they would like answered. I thought it right first to describe at some length the various weighty arguments in support of the tax because, although it is easy to criticise detailed points in the proposed administration in isolation, no such criticism has any real validity unless those who criticise offer, at the same time, an alternative tax which would do all the things to which I have referred. We shall be only too happy to listen to suggestions for improving the tax.
Clearly, there could be arguments about its ultimate effects, about the various rates at which it is to be imposed, or on detailed points of administration. We have deliberately delayed finalising all these detailed points until we had an opportunity, which, in fiscal matters——
Mr. A. Royle
rose——
Mr. Diamond
—can only arise after the proposals have been published to this House, of discussing with the various interests concerned the best method of achieving our objectives and also of listening to representations by those who are likely to be affected. The administration which we propose must be based on simplicity and the minimum use of additional labour.
This tax is infinitely variable in both rates and area of impact. It can be as sophisticated or complicated as Parliament may desire, but with complexity inevitably goes the engagement of large numbers of civil servants with the necessary skills. We do not think that it would be consonant with the spirit of the tax, or would pay sufficient regard to the shortage of labour, to introduce too many complications. We are, therefore, keeping it simple and, as far as possible, making it capable of being used with existing machinery. For this reason we are compelled to make the tax universal in its application and are adopting other methods, which will be described in more detail when the Ministry of Labour Bill [column 485]becomes before the House, of dealing with payment of refunds or premiums.
To get a totally new tax launched and accepted it should be capable of being easily grasped and understood. Its outline should remain clearly visible, rather than being hidden behind a host of subtle refinements. The logic of all this is that for the time being, at all events until everyone is used to the working of the new tax, we should use the administrative machinery which is available to us and avoid, as far as possible, unnecessary refinements and complexities.
In the light of these principles, we have considered the group of employees comprising the elderly, the part-time and the disabled. The argument which has been put forward is that the Selective Employment Tax will bear disproportionately heavily on these categories, with the result that there will be not merely a transfer of labour, but, in certain cases, a loss of employment. For both economic and social reasons, these questions deserve the most careful and sympathetic consideration. I very much doubt, however, whether the tax will have the effect on which the whole of this argument is based.
So long as the policy of full employment is maintained—and this the Government are determined to do—it does not seem that there can be an overall falling-off in the need for workers in these groups. Moreover, we must remember that the tax falls on the employers and not on the employees.
In the case of part-time workers, any scheme for exemption or refund would, by the very nature of the part-time employment, be complicated and open to serious risk of evasion and abuse. Disabled employees—and no category merits more careful consideration—will continue to be covered by the special quota system under which employers with 20 or more work people are legally bound by the Disabled Persons Employment Act, 1944, to employ a minimum number of disabled persons—that is to say, 3 per cent. of their labour force. More importantly, it must be remembered that generally they do as good a job as the next man. To suggest otherwise would be to do them a great disservice.
As to the more seriously disabled who may require sheltered employment, the Government, of course, provide this [column 486]through bodies such as Remploy. For all these reasons, therefore, my right hon. Friend does not feel that it is necessary to take any special steps at the present time—[Hon. Members: “Shame.” ]—concerning these three most important categories.
Mr. Nicholas Ridley (Cirencester and Tewkesbury)
rose——
Mr. A. Royle
rose——
Mr. Diamond
I hope that those two hon. Members, who have been bobbing up and down the whole time and to whom I have given way on many occasions, will have regard to the fact that I have already given way five times—[Hon. Members: “Three.” ]—that they have been bobbing up and down a dozen times during one paragraph dealing with the same item, and that had they had any responsible interest in wanting to hear about this topic they would have sat down and waited until I got to the end. If they will be good enough to contain themselves until I have got to the end of the paragraph, about which the House is anxious to hear, if the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) is not, I will be glad to give way to his hon. Friend.
Mr. Farr
On a point of order. Is it not the case, Mr. Speaker, that the Minister is making a parody of Parliamentary dialogue by reading so exactly from what is obviously a written statement? I suggest that he not reading from copious notes, but is reading word for word, line by line, a prepared speech which has been put into his hands, properly prepared by Dr. Kaldor.
Mr. Speaker
Order. The hon. Member has been in Parliament long enough to know that what he has raised is not a point of order.
Mr. Archie Manuel (Central, Ayrshire)
A schoolboy trick.
Mr. Diamond
It will, perhaps, interest the House to know that I have a number of announcements to make concerning a number of categories in which hon. and right hon. Members, on both sides, have expressed a great deal of interest. In accordance with the normal practice of the House, I propose to read precisely what I have carefully prepared to say about it. [column 487]
I repeat that for the various reasons which I have given my right hon. Friend does not feel that it is necessary to take any special steps at the present time. In any event, many people will be in employment where the tax is reimbursed or where a premium is paid already. We will, of course, keep their circumstances under review. Given, however, the need to get a simple scheme into operation this year, my right hon. Friend does not feel that there is any need for special arrangements at the present time. I repeat that we shall watch the position closely in case it is found right and possible to give them special treatment under a more refined scheme later.
Mr. A. Royle
I am grateful to the right hon. Gentleman for giving way. Does his decision also exclude the Star and Garter Home, where over 200 disabled men, who were disabled in two world wars, are involved and the tax will cost the hospital over £10,000 a year?
Mr. Diamond
I wish that the hon. Member had waited. I have told him several times that I have a number of announcements to make. He has asked me about a charity. I shall talk about charities presently.
Mr. Paul Dean (Somerset, North)
May I ask the right hon. Gentleman a question concerning the disabled?
Mr. Diamond
I am sure you will forgive me. Mr. Speaker, for saying that we are on Second Reading of the Finance Bill. We shall have a long Committee stage of the Bill and of an associated Bill. I shall be at the service of the House and of the Committee to answer as many questions in as much detail relevant to the various Clauses as hon. Members may require, as has happened in the past. I am sure that this will satisfy the hon. Member.
A related question is the effect of the tax upon disabled employers. The Government recognise that these represent a class which merits particular, sympathetic consideration. It is not possible to exempt them from the Selective Employment Tax itself, but the Government hope to bring forward proposals to deal with the real hardship which might otherwise result. [column 488]
We have considered the effect of the Selective Employment Tax in relation to various bodies which receive grants from the Exchequer. There are a large number of these bodies and the amount of assistance which they receive varies greatly from case to case. The Government have decided that the effect of the Selective Employment Tax on these bodies should be regarded in just the same way as any other cost increase and, indeed, in exactly the same way as one would regard an increase of indirect taxation.
That means that as a general rule the effect of the tax will be taken into account with all other costs when the level of the grant is next reassessed in the normal course of events. I recognise, however, that there may be exceptional cases where a grant-aided body finds itself itself in financial difficulties before the end of the current period. In these and future cases the Government will consider requests for assistance on their merits. We will, of course, expect the grant-aided bodies concerned to have first made any possible economies in manpower.
I next come to charities. The Government recognise that charities are in a somewhat special, indeed unique, position. My right hon. Friend will be meeting the National Council for Social Services and the Churches Main Committee after Whitsun. He is looking forward to a useful discussion with them. There are, of course, a great number of charities. A fair proportion will not be directly affected by the tax, but there are many who will be faced with serious problems. It is the Government's intention to consider in principle how and in what way they might be recompensed.
Finally, the House will wish to know the Government's decision on two particular industries affected by the Selective Employment Tax. First, extractive industries. The position here is that nine-tenths of all employment in mining and quarrying is under the National Coal Board, which is to get the refund along with the nationalised industries generally. We think that it would be right for the remaining one-tenth in the other extractive industries to be treated in the same way. These include stone and slate, chalk, clay, sand and gravel extractions. [column 489]This will also help the construction industry.
In the case of forestry, after discussion with some of the interests concerned we have considered the most appropriate machinery for giving effect to the policy of the White Paper relating to forestry. In the light of the decision to make individual repayments to agriculture and horticulture it has been decided to make similar arrangements for private forestry. Power will, therefore, be taken in the Ministry of Labour Bill for repayment of the tax to be made to private woodland owners through local offices of the Ministry of Agriculture, and the Department of Agriculture for Scotland. Details will be announced in due course.
Sir Harmar Nicholls (Peter-borough)
The right hon. Gentleman is puzzling me. At one point he explained, very properly, that before the Budget he could not have more than preliminary discussions to see how the ideas would work, and that the post-Budget period could be used for further discussions. Now he seems to be giving categorical decisions which one would have expected to have been made in Committee on the Bill when, one would have thought, proper consideration could have taken place. Are his decisions on these matters now ruling out any further Amendments we might move in Committee?
Mr. Diamond
I am quite at a loss to know what the hon. Gentleman is complaining about. I am not quite sure whether he is saying “Thank you” or not. He said that I had got him confused. He has certainly got me confused. If he is asking me whether it would be out of order for him to put down Amendments, I can only say, Mr. Speaker, that I wish I could say “Yes” , but I am afraid not, and I shall look forward to any Amendments he cares to put down——
Sir Harmar Nicholls
And look at them sympathetically?
Mr. Diamond
—and look at them with the same sympathy as I always do.
Last year my right hon. Friend introduced an important new tax directed towards establishing a greater sense of social justice, to increasing efficiency in production, to lightening the burden on those companies which look more to [column 490]future growth than immediate high returns. This year we are continuing the process of modernising our tax system. We are creating a new source of revenue, spreading the burden more widely and more evenly, and keeping in the forefront of our minds at all times the need to maintain full employment and a high level of investment.
No one can doubt that the Labour Government, in their fiscal policy, are ever conscious of their social responsibilities, and both imaginative and resourceful in their determination to strengthen our economy.
Mrs. Margaret Thatcher (Finchley)
John DiamondThe Chief Secretary at least chose an unusual method of introducing the Finance Bill, and I must say that seldom have I heard a speech to lead me with more pleasure into the “No” Lobby at the end of the debate.
The Chief Secretary described the new tax as “modernising” the tax system. Some modernising! If he had read his own professional journal last week he would have discovered that this tax was first introduced in 1777, when it was a tax upon servants, and that, ironically enough, in 1873 it was abolished with respect to hotel employees—only to be reimposed less than 100 years later. He made a number of announcements and he made noises of sympathy which extended only to the sermon part of his speech and not to the announcement of practical points of policy. It was extremely disappointing. He quoted conclusions from a number of international statistics, with most of which I could not agree in any way. I have always been taught to be very careful about comparing international statistics, and I gratuitously pass on the advice to the Chief Secretary.
I now come to the main part of his thesis, which was the Selective Employment Tax. This is, of course, entirely the core of the Budget. James CallaghanThe Chancellor has chosen to make it the core of the Budget, and I believe that it has left him with very little manœuvring space to deal, as he should, with cases on their merits when they are presented to him from all parts of the House, as I am sure they will be. This is his choice. It is our job to criticise the measures which he puts forward in his Bill and not to [column 491]attempt to impose another Finance Bill; that is not our task. We dislike this Bill. The Chancellor has never show himself inhibited from introducing a Budget at any time of the year other than that traditional for a Budget, and indeed it may be that we shall have another Budget before the end of this year.
We dislike intensely the method he has chosen for implementing his proposals and also we dislike not being in a position even now of knowing the full implications of the tax. Indeed, almost every word the Chief Secretary said made it clear that he is not ready to bring in this tax. It should be delayed till next year—at least till his proposals have been sorted out. We are in a difficult position in putting forward Amendments to this Bill without knowing what the next Bill will contain, and we are in a difficulty because of the terms of the Money Resolution to the Bill.
Now, as to the tax itself. Seldom has a tax caused such an upheaval and such widespread dismay. From all sides there have been criticisms of it; indeed, from all sides criticisms have been sent to the Chancellor, and it is those criticisms which have led the Chief Secretary to make some of the noises of sympathy he has made today. There are certain criticisms which go to the root of the tax and certain criticisms which lead to mitigating its effect in relation to certain groups of people. I shall try to deal, first, with those which go to the root of the tax.
The White Paper says that one of the objects of the tax was to redress
“the balance between services and manufacturing, because services have been lightly taxed as compared with manufactured products.”
In fact, however, services have often borne the brunt of indirect taxes on commodities; they have borne the brunt of petrol tax. and they have borne the brunt of Purchase Tax. Indeed, in the days when we used to have Budgets which reduced Purchase Tax—those days, of course, are long since gone—those Budgets caused shopkeepers a good deal of trouble because they lost a lot of money through Purchase Tax having financed the holding of goods which were liable to that tax. But there are certain other services which have borne a lesser [column 492]proportion of taxes. These are the services which the Chancellor is proposing to tax now. They are not luxury services. They are the essential and vital services. They are food, housing, clothing, insurance—and, therefore, saving—financing, and all the specialist services, including research.
This is a widespread tax. It is widespread tax upon essential and vital services. If its object is to take money out of the consumer's pocket—that is to reduce demand—it will only work through rising prices. I thought I heard the Chief Secretary say that he thought that most industries would absorb the tax. If they do, the absorption will come from money which would otherwise have gone in savings and into modernising. It would seem, therefore, to be a backward step and not a forward step. The psychology of the Budget has not been lost upon the country. I think it will work only by price rises, but if prices do rise the Chancellor has arranged his Budget in such a way that he can blame someone else for the rises. This, of course, is a frequent occurrence with the present Government, for they are always ready to pass on the blame to somebody else while ready to take credit for the things which go right.
The second objection, which goes to the root of the tax, is that it will hit export earners very badly indeed. I mentioned in my earlier speech on the Budget the special case of export houses and other export services. These services already suffer compared with manufacturing industry, because at least exports which attract tax get the drawback of tax. At least if one exports manufactured goods one gets an export rebate. Export services get no such rebate and are, therefore, in a bad position compared with manufacturing, and in this case if there is a balance to redress it will go to services. It will hit the hotel and catering trades very badly, and I understand that tourism is our fourth biggest dollar earner.
It will also hit insurance and finance. The whole trend of financing exports recently has been to have a series of measures which will make it easier and easier to get finance and enable manufacturers to sell to people who cannot pay immediately. Yet these very finance houses will be the ones to be penalised in the Budget. They are the ones who [column 493]are enabling some of the manufacturers to do the exporting. That is a very serious objection to the tax.
I noted that the Chief Secretary said, or I thought that he did, that the tax was infinitely variable in its impact and in its area. In that case, he can do a lot of the things which later in his speech he refused to do, and we shall make certain that we table Amendments which I hope we shall be successful in moving in order to put some of the things right.
The next objection which goes to the root of the tax is the completely artificial classification between manufacturing and services. In so far as one manages to export products—and this is a vital part of the whole Budget strategy—it is a matter of teamwork between all sides of industry. It is no use being able to produce the goods if one cannot distribute, finance and sell them.
Numerous Questions have been put to various Departments of Government to try to elucidate in more detail the exact classification. So far, they have been unsuccessful. Only last Monday there was an Answer from R. Gunterthe Minister of Labour about the precise classification of head offices which said that the hon. Member must await the publication of the Bill. That means that we cannot discuss in detail the precise effect of the tax upon even manufacturing industry, not knowing the exact definition of “manufacturing industry.” We should have had the other Bill long before we had to discuss the Second Reading of this Bill. But the essential point is that the whole of exporting is really part of one process, and it is quite artificial to try to divide it between the manufacturing and service industries.
There is one further objectionable aspect of the tax, and I refer to the financing of it. In the Budget debate, the Chancellor said:
“It is true that manufacturers … will have to wait for the premiums for which they are eligible. I have not over-looked this, and, against the background of the general credit restraint which it is necessary to maintain, I shall be considering what steps may be needed to enable the banks to respond to temporary needs for credit in such cases.” —[Official Report, 3rd May, 1966; Vol. 728, c. 1457.]
Three weeks have passed. I hope that the Chancellor has considered and will tell the House when he winds up what his decision is and how far he is going [column 494]to allow the banks to relax their credit restrictions and lend money to enable manufacturers and others to meet their very considerable obligations under the tax.
We believe that it is quite wrong to force everyone to borrow at 7 or 7½ per cent. in order to give an interest-free loan to the Government. We shall table Amendments designed so that the impact of the tax does not come until the end of the financial year when the mechanism for repayment of premiums should be ready. I say “should” because for most taxes it would be an insult to call them half-baked. With this tax in its present state, it would be a compliment.
The Chief Secretary, like all hon. Members, is worried about the administration of the tax. He will agree that I have some idea of the National Insurance administration, and I do not accept for a moment that it is necessary to collect the tax in respect of every single person. National Insurance is an excellent system of administration. There are already some 35 different insurance stamps and some 60 different rates of National Insurance contributions. That is a considerable number of permutations and combinations, and if given a reasonable amount of time to administer the tax properly—and no tax should be introduced before it is capable of being administered properly—it will not be necessary to take in the tax in respect of every single employed person. The Ministry could deal with it in a much better way by taking in the tax only from those whom it is desired to make liable to it.
Apart from those objections which go right to the root of the tax, there are a number which could be used to mitigate the effect of it. During the course of the Bill and of the Ministry of Labour Bill later, we shall table many Amendments to mitigate the effect of the tax on people who are deserving cases.
I anticipate that we shall get back to the days of Government majorities of the kind that we had under the previous Governments, when back bench Members spoke to Amendments on merit and even voted on merit. I anticipate that we shall be joined on this side on the occasion of this Finance Bill, unlike the last one, by many hon. Members opposite, [column 495]because a lot of these Amendments are not party political matters at all. I imagine that the Chancellor's own back benchers will be just as annoyed with him as we shall be if he does not give in.
The Chief Secretary referred to some of the cases. I was very disappointed in what he had to say about charities. By a decision taken in principle many years ago, charities have always been exempt from direct taxes and direct rates have been mitigated. There is no new decision to take here. It is one which is as old as the hills. Charities are exempt from the effect of direct taxation, and that is a principle from which the Chancellor should start now. He should build the tax around that, so far as it relates to charities.
Most hon. Members have had a large number of letters from charities in their constituencies and all over the country about the effect of the tax upon them. I want to refer to one in particular which came from the charity called “Help the Aged” . It put the point most cogently:
“The point we feel the Chancellor may not have appreciated is that he is not taxing those who are running charities such as ‘Help the Aged’, but is taking money from those in need.”
That is the essential point. In so far as he is taxing charities, he is not taxing something rather cold and abstract. He is taking money directly from those whom the charity is designed to help.
The point was cogently put again in a letter published in The Times on 20th May, 1966:
“We have just had a house-to-house collection for the Red Cross which has realised £3 10s. 0d. It is gratifying to know that this sum will pay the employment tax for an ambulance driver and one assistant for one week and leave 20 shillings to run the ambulance and equip it with essential medical supplies.”
These cases speak for themselves. It is not a question of whether charities can be exempted from the tax; they must be exempted from the tax. We hope that the Chancellor will change his mind and announce that they will be exempt when he replies to the debate.
Employees of all religious bodies should also be exempt from the tax. I have had representations from all kinds of religious bodies—from the Church of England the Free Church and the [column 496]synagogues—and I should have thought that that again would have gone without argument.
I come to another aspect about which we feel strongly. We feel that employees of educational establishments should be exempted from the tax. There are half a million children educated in independent schools. I understand that the tax would cost some £6.9 million. If they were all to close down there would be educational chaos. We think that the fiscal instrument should not be used to give vent to any political feelings that hon. Members opposite may have about independent schools. I come to a different category of employees—employees of nursing and convalescent homes, private hospitals and old people's homes. Not all are registered charities. Most of them, in fact, save a far greater liability from falling on the State. It would be far better for the State to do a little to help them, or at least to refrain from penalising them, than to take over all the buildings and obligations. These organisations should be free from the tax.
The Chief Secretary referred to the employees of disabled persons who require whole or part-time help. He suggested that he would have some proposals to make, but he did not say what those proposals were. This is another example of the way in which the tax has not been thought out. The Chancellor has several hours between now and winding up the debate to find out what these proposals are. I hope that he will tell us exactly what he proposes to do to help those disabled who have to employ people to look after them.
Another group of employees of organisations which we shall endeavour to help are those who work for organisations for the promotion or study of science, literature and the arts. It took us on this side of the House many years to exempt the theatre from Entertainments Duty. This Budget is a reverse step; it is, in effect, putting an entertainments tax on the theatre once again.
For all those categories which I have mentioned we shall table Amendments, and I hope that we shall be successful in moving them. It would be even more helpful to the passage of the Finance Bill if the Chancellor were to give in to some of them at the outset. They all [column 497]speak for themselves and I hope that he will consider them very carefully.
Another aspect of the same group of Amendments concerns other employees who certainly should be excluded. The Chief Secretary referred to these—the part-time workers. It is inequitable that part time for this purpose should be defined as eight hours a week merely because the tax comes under the National Insurance Act. Why should it not be 20 to 21 hours a week as under the Redundancy Payments Act? I am delighted to note that I appear to have some support in this matter from hon. Members opposite. If that were done it would make a very considerable difference to the incidence of the tax, and it would help those in the retail trade who have to rely on this part-time labour to a considerable extent. It would also help a number of the old folk, many of whom do not work for more than about 20 hours a week but for whom it is most important that they should be able to continue work and that work should be available for them.
The Chief Secretary referred to disabled employees. I hope that they will be excluded from the incidence of the tax, because it would be a great incentive to employers to employ more than the minimum quota if disabled workers were excluded from the operation of the tax. I hope that the Chancellor will consider the problems of the handicapped and disabled people and will agree that these people, too, should be exempt.
We shall also table Amendments designed to raise the absurdities of a tax which treats farming, horticulture, forestry, tourism, catering, hotels and the construction industry differently from some of the manufacturing industries. This matter will arise to some extent on this Bill and to some exent on a later Bill, but we should have discussions on this Bill about the classifications.
The Chief Secretary referred to certain aspects of the Selective Employment Tax. First, he mentioned the appeal procedure. It is obvious that if we are to impose a tax which falls on employed but not on self-employed, there will be a number of questions for determination as to classification. Under the National Insurance Act at present—and I assume that this will apply in this case—such questions are for the determination of the Minister. [column 498]It is rather strange that Miss M. Herbisonthe Minister of National Insurance should have jurisdiction to determine what are essentially taxation matters. We shall have to look very carefully at whether a proper appeal procedure is provided for this tax. Under certain circumstances the Minister can refer the matter to the courts, but we are here dealing with a tax, and it is wrong to have the National Insurance appeals machinery applying to this tax.
Very few people have referred to a fact which struck me the moment the Chancellor announced the tax—that it is a staggeringly high impost, for 25s., or 25 bob-a-nob, as one of the newspapers put it, is very high indeed. When I think how carefully we used to consider the question of raising National Insurance contributions and how we were always wary of raising them as by as much as 3s. a week for the employer, I realise just how high this tax is; and the higher it is the more important it will be to get the appeal procedure right.
Any new tax should be thoroughly considered before being presented to the House—not afterwards but before. The requisite decisions have not been taken, and the House will have to do the work of the Executive throughout the Finance Bill by making essential decisions on policy.
Mr. William Hamilton (Fife, West)
The hon. Lady has suggested certain exemptions from the tax. Some of us might agree about some of them. Has she, or has her right hon. Friend, made any attempt to estimate what the loss to the Revenue would be from those exemptions? Has she any suggestion as to an alternative source of that revenue?
Mrs. Thatcher
It is difficult to assess the loss to the Revenue when it is so difficult to assess the yield of the tax. The Chancellor pointed out that with a new tax it is very difficult to assess the yield. When he cannot even decide what is a manufacturing establishment and what is not, it is even more difficult.
I come to what the Chancellor called his general Budget judgment in relation to this tax. There have been a number of views about the general Budget judgment in relation to this tax. I recognise at the outset that it is a very difficult year in which to make a general [column 499]Bugetary judgment. There is the unknown effect of the imports surcharge being taken off at the end of November. We do not know whether quotas or licensing will be imposed a couple of days before the imports surcharge is due to come off. We cannot get an undertaking from D. Jaythe President of the Board of Trade on this point. We do not know the effect of the present strike on exports and imports. We do not know how far the terms of trade will continue to turn against us or how far copper prices will rise, although we know that they almost certainly will rise. We do not know the cost of sanctions against Rhodesia. All this makes it a very difficult year. I accept that at the outset. But even accepting that, in relation to the tax itself the judgment is by no means clear cut.
The Economist, too, shares this view. The Chancellor put his estimate of the deflationary effect of this tax at £315 million. But the Economist points out that he will have to return a part of that in the quarter beginning in the next fiscal year. Other commentators have put the deflationary effect of this tax this year at only £135 million, which is the amount of net non-returnable receipts this year. Others have said that the effect of the tax is deflationary by some £240 million a year because that is what it would do in a full year. This is a very wide discrepancy, and if it is as wide as this I doubt very much whether I am under any obligation to propose alternative sources of taxation.
Moreover, even since the Chancellor framed his Budget there have been a number of other Measures agreed to which will require many Supplementary Estimates to be placed before the House. Indeed, the Chancellor must have begun to feel that the economy is in very much better shape now to give his approval to the Measure which was brought before the House yesterday and which required another £65 million of expenditure. The Chancellor shakes his head. Perhaps the economy is not in very much better shape after all. Undoubtedly he will tell us tonight.
It may be that there is an alternative explanation—what we know as the “lump it” explanation, which was referred to at the Dispatch Box by [column 500]D. Houghtonthe former Chancellor of the Duchy of Lancaster on one occasion, when he said that the Government would do what they liked about the social services and if the international financiers did not like it they could lump it. Perhaps the right hon. Gentleman will give us the true explanation.
I now turn to certain other specific taxes mentioned in the Budget. The Chief Secretary has given us a number of details about these taxes. The Second Reading of the Finance Bill is not the place to discuss them in detail, but there are a few comments that I should like to make. Everything that we said last year about the complexities of the Capital Gains Tax has been abundantly borne out in fact and can be substantiated by those whose duty it is to try to operate this tax, whether inside or outside the Inland Revenue. I do not know who is complaining most.
Even the Chief Secretary will have noted that there was a meeting of accountants last week at which their grumbles were very vociferous and entirely warranted. This tax will probably go down in history as the tax which had the highest cost of collection in proportion to its yield. In some cases the requisite calculations are impossible to make even when presented to the Treasury. My hon. Friend the Member for Belfast, North (Mr. Stratton Mills), on 8th March, 1966, asked the Chancellor of the Exchequer:
“what was the original cost to the Treasury of the £316 million of dollar securities recently sold?”
That would be a standard calculation if we were having to do it for Capital Gains Tax purposes, and one would have expected the Treasury to be able to provide an answer. Not a bit of it; the reply was:
“Their current value is, as I stated, £316 million.”
That was very helpful. That was what the Question was about. The answer went on:
“Changes in the composition of the portfolio over time make it impossible to calculate the original cost of these securities.” —[Official Report, 8th March, 1966; Vol. 725, c. 460.]
It is extraordinary how the Treasury and the Inland Revenue expect taxpayers to do what they themselves cannot do. [column 501]
The Bill provides some specific reliefs from Capital Gains Tax and we shall table Amendments to these. There is one point to which I want to refer now. In the Bill the Chancellor has allowed to life assurance funds the same Capital Gains Tax level as we wrested from him in the middle of one night in respect of investment trust funds last year. But this rate is too high for life assurance funds. These funds are mostly held by people who would not be liable to the maximum Capital Gains Tax rate and who, if they were individuals, would be able to choose the alternative basis of assessment.
It is quite unfair that these individuals should be penalised because they hold their savings in life assurance funds rather than individually. This is specially important now that the majority of savings are done through life assurance companies. There are also special reasons why life assurance companies warrant more relief than they will at present obtain in respect of dividends paid out of pre-1966–67 profits. They are reasons which do not apply to ordinary companies but do apply to life assurance companies, and we shall have something to say about this matter when the time comes.
I now come to a further small but important necessary relief from some specific taxation proposals. I refer to the adverse effect of bunching dividends on age relief, where a person over 65 years of age receives age relief if his investment income does not exceed £900 during the fiscal year. It may be that the bunching of dividends takes his or her income well above that amount, and I would have thought that this was a case where specific reliefs should be provided to take this into account, so that these people are not penalised.
In my last speech on the Budget I devoted a section to what might be entitled “Women and Children Last” . I shall confine my remarks now to the effect of the Budget on married women, and the way in which I think the taxation effect may be alleviated. The difficulty is that what the Government preach and what they practise are two entirely different things. There is nothing unusual about that with this Government, but there must come a time when the process [column 502]comes to an end. The National Plan, on page 38, in paragraphs 11 and 12, says:
“Further consideration will then be given to ways of making it easier for those married women who wish to do so to take paid employment.”
The National Plan is attempting to make it easier. Part of the debate on the Gracious Speech was devoted to Ministry of Labour matters and this theme came up again. But as soon as we had an assurance on the matter along came the Chancellor with his fiscal measures, which make it infinitely more difficult. It would be so much easier if the two Departments worked together and pulled in the same direction instead of opposite ones.
There are three fiscal ways in which the Chancellor could encourage married women to return to work. Here I should declare an interest. I am at work—at least I hope that the Chancellor considers that replying to his Budget is being at work. First, tax relief could be given for domestic help, without which a married woman cannot contemplate going back to work. There is a legal decision which prevents any expenditure on domestic help from ranking for relief from tax. It is about time we reversed that decision and made special statutory provision.
A second way would be to provide that the first £1,000 of a wife's earnings—because many of the women whom we want back are highly trained, and it has cost the State a lot of money to train them, and they can command high salaries—should not count for Surtax purposes.
A third possibility would be a considerable extension of the point of earned income relief. Whichever way the Chancellor wishes to do this, the essential point is as The Times put it the other day in a short piece of doggerel, that
“Working wives ought to be
I hope that that message is not lost on the Chancellor.Left with a lot more £s. d.”
The idea has been floated about that the taxes in the Budget could one day be used to raise revenue in place of Income Tax. It is important to get one fact clear. This tax is not in substitution for any other tax; it is in addition to taxes which are already severe. This is a bad tax, and for that reason we shall vote against it tonight.