HC Committee [Finance (No.2) Bill] (Boyd-Carpenter Amendment)

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FINANCE (No. 2) BILL

Again considered in Committee.

Mr. Boyd-Carpenter

I suggest that one of the first steps the Government will be bound to take will be to move our higher levels of direct taxation down towards the European level. I hope that the right hon. Gentleman will tell us something about this, because it is hopeless to try to persuade people that we are sincere in our desire to enter the European Community if we insist in maintaining different levels of taxation which will be inconsistent with membership of the Community.

I have presented the case against these high levels of direct taxation on the basis of their effect on our economy. I hope that we will not have from the right hon. Gentleman the sort of claptrap which we had from the Chancellor previously, about how these people can afford it and how we should consider other needs more greatly on a compassionate ground without addressing himself to the point that I am seeking to make. It is in the interests of all of us that our economy should work better, that we should attain not the somewhat fictional 3 per cent. growth rate which the Chancellor foreshadows, but an effective growth rate over many years and that we should get back to the state of affairs which we knew under Conservative Governments when a rising national product sustained at the [column 929]same time increased social benefits and lower levels of taxation.

If my argument is right that one of the things—and it is only one—which is holding us back is this specially high level of direct taxation on higher incomes, which we alone in the world impose on key people in this country, then it is in the interests of all sections of our community that we should put it right. This is the argument which, right or wrong, I am submitting to the judgment of the Committee. I hope that we can have a debate on these lines and not allow ourselves to be diverted by suggestions that other people are worse off and that these people do not matter as they can afford it. This is not addressed as a compassionate case. It is addressed as a practical one on the working of our economy and on nothing else.

On Saturday, the Chancellor of the Exchequer said that the time had come for a measure of reflation. If part of that reflation were given in this way, we would get an expansion and drive and improvement which would surprise the Committee.

Mr. Iain Macleod

On a point of order. It would be helpful if you could tell us, Sir Eric, whether, at the appropriate time, you will be prepared to call Amendment No. 24 for a separate Division.

The Chairman

I am much obliged to the right hon. Gentleman. My intention was to enable the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) to call a Division on Amendment No. 22, if he so desired, and also to enable a Division to be called on Amendment No. 24.

Sir G. Nabarro

In my experience, since 1950, which is 17 years ago, no Tory Member has sought the reduction of Surtax, save only when, in the early 1960s. My right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) put the commencing level of Surtax, although in a devious and complex way, up to £5,000 from the original commencing level of £2,000, for earned income purposes only—and I shall deal later with the unfortunate contradistinction between earned and unearned income.

The fact is that the total of direct taxation in this country under a Socialist Government has now achieved a ludicrous [column 930]and confiscatory level. Any additional effort which a top professional man, rewarded at £15,000 a year or more, is called upon to make results in 9d. in the £ for him and 19s. 3d. in the £ for the Treasury. Next year, it will be 1s. 9d. in the £ for him and 18s. 3d. in the £ for the Treasury.

Sir Myer, your predecessor in the chair listened to me saying that my Amendment on Income Tax, grouped earlier with the official Tory Party Amendment on Income Tax, was designed to reduce the standard rate to 7s. 6d. My Amendment on Surtax, which includes a large table of figures, Amendment No. 23, provides for a top level of Surtax over £15,000 a year at 7s. 6d. in the £ so that nobody in Britain would be called upon to pay more than an aggregation of 15s. in the £. Even at that level, with the exception of one or two small and insignificant countries, we would be the highest taxed nation in the world in terms of direct taxation—with the exception of one or two small and insignificant countries.

I am glad to see that the Solicitor-General is muttering. I used the term “insignificant” to make him mutter, because I am not prepared for Britain to be compared with Albania; he probably is. I compare Britain with the United States of America, which is the only valid comparison in this context.

Of course, the Chancellor can prattle away, as he endlessly does, about the huge natural resources of the United States of America and how Britain had only a little coal and now, fortuitously, has a little natural gas. We were all taught that in the fourth form. That is not the question. Britain's place in the world and the level of her exports depends, largely on the inventive genius and the skills and the capacity for hard work of her men and women, properly led. Who are the people who lead them? The people in the highest Surtax brackets. Otherwise, they would not be there.

It seems to be a Socialist conception, and part of their wretched philosophy, that people are paid £15,000 and £20,000 a year in industry for sitting on their fat bottoms for four hours a day in a plushy office, and contributing little or nothing by way of leadership to their companies, or by way of expansionist policies, or the kind of executive ability that we on this [column 931]side of the House recognise should command these high rewards.

I am very proud to be associated this year with my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), an ex-Financial Secretary to the Treasury, and my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), who are seeking the same general purpose, which is, by reduction of top levels of direct taxation, to furnish greater incentives.

My right hon. Friend the Member for Kingston-upon-Thames, in his admirable speech, sought to lift the commencing level from £2,000 to £5,000 a year. My right hon. Friend the Member for Enfield, West, in an equally admirable conception, although I do not like it as well as my own, of course, seeks to reduce the scale of Surtax throughout by 10 per cent. I do not seek to do that. I seek to compress the levels of Surtax between the limits of £2,000 and £15,000 in terms of the rates applicable, and with the precise objective that the total overall, the highest rate of Income Tax and Surtax combined, would always leave in the pocket of the taxpayer 5s. in the £ on what he is earning.

The taxpayer earns it invariably by the sweat of his brow and his capacity to lead and his ability as an executive. In all my experience in industry I have never found any of these top level men to be overpaid. They go to an early grave for the most part; they suffer a higher level of coronaries, stomach complaints, lung ailments, haemorrhages and the remainder through gross overwork, anxiety and fatigue. [An Hon. Member: “Over-feeding?” ] No, never over-feeding. I correct my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). They eat sparingly, drink sparingly. [Interruption.] The Solicitor-General really should mind his language. He should not say, “What the hell do they live for?” He knows better than I do. [Interruption.] My hon. and gallant Friend the Member for Knutsford (Sir W. Bromley-Davenport) says that he knows what the Solicitor-General lives for. The hon. and learned Gentleman is a sybarite in his outlook and in all these matters. I am not alone in these opinions about the top levels of executive rewards in industry and professions. [column 932]

My right hon. Friend was talking about the “brain drain” —no doubt he was sustaining himself when I was talking at length about that and about emigration of scientists and technologists to the United States. That is all perfectly true. It has been well registered this evening. Even the Chancellor admitted that there was a grain of truth in it. We are coaxing him along the right paths, though very slowly. He takes only faltering steps. No doubt by next year his voice will be raised in our support, with his Left wing hostile to his views. [Hon. Members: “Where are they?” ] I do not know where they are. The Left wing never come and listen to educational speeches in the Chamber.

I am not alone in my views. I was very impressed by a journalist whom I believe is foremost in his profession. I refer to Sir Colin Coote, of the Daily Telegraph, who spoke for so many of the members of the business and professional classes in Britain when he wrote an article entitled “Tax Problems Old and New” on 22nd March last, in expressing my views far more eloquently than I am capable of expressing views. He said:

“One last point. Nowhere in the world is personal talent and efficiency so heavily punished as in this country. In the highest ranges of income the penalty is worse even than in Sweden, where the individual is allowed to keep at least one-fifth of his income. In Britain a high authority has recently estimated the maximum possible income after payment of tax at £7,000”

a year or equal to £2,000 a year at 1938 values

“without counting indirect taxation and local taxation, both of which have leapt up” .

If we reduce the top level aggregation of direct taxation to 15s. in the £, as my hon. Friends and I suggest in Amendment No. 23, the cost to the Treasury would be £4 million a year: that is all. I hope that the Chief Secretary will argue about that, because he answered a Question from me a fortnight ago saying that he could not give the yield of the different bands of Surtax. In that case, he leaves it to me to compute on my own personal slide-rule what the effect would be on the Revenue. It would cost the Revenue £4 million a year to reduce the top level of Surtax to 15s. in the £. [column 933]

I am glad to call in aid the character so greatly admired by the Chancellor of the Exchequer, my right hon. Friend the Member for Barnet (Mr. Maudling). On Sunday, 9th April, 48 hours before the Budget, my right hon. Friend wrote in the Sunday Express about the pure doctrine of contemporary Tory fiscal policy by calling for a reduction in Income Tax and Surtax. He said:

“I asked the Chancellor of the Exchequer, a few weeks ago, what it would cost him to limit the maximum rate of taxation on earned income to 14s. 9d. in the £;” ——

that is near enough to 15s. for me—

“in other words, to say that anyone could keep at least a quarter of any income he earns, as they can in every other country. His answer was that it would cost £4 million.”

That is £4 million out of the £11,000 million that the Chancellor budgets for this year.

I am sorry that the Home Secretary has arrived late in the Chamber. I was quoting in extenso his speech to the London Labour Party two days after the municipal election results in London, when he advocated taxation incentives and made my case for me. I am sorry that he was not here to listen to it. The right hon. Gentleman shakes his head in dissent. He should read the Sunday Telegraph, which reported his speech. I will send him an extract from it tomorrow so that he does not climb away of the important pronouncements which he made as a future Chancellor of the Exchequer. [column 934]

I return to the Chief Secretary. What I am asking for would cost £4 million a year out of £11,000 million; £4 million a year compared with £3,800 million, that being the estimated yield of Income Tax this year and I hope that when the right hon. Gentleman replies he will not say that we cannot afford the Amendment moved by myself because £4 million would be too much. I remind the right hon. Gentleman of the Chancellor's gross miscalculations last year—whether it was a question of the Treasury's slide rule or an example of crass inefficiency I do not know—when he estimated that the yield of Income Tax would be £3,600 million. Out-turn was £3,246 million, a shortfall of 9.8 per cent., call it 10 per cent., call it a shortfall of 2s. in the £. That is how bad the Treasury is today at estimating the yield of direct taxes. I ask for only £4 million compared with an error in calculation of the mammoth sum of £354 million, that being the right hon. Gentleman's mistake. I will be charitable to him and call it the mistake of £354 million which he made last year in estimating the yield of Income Tax.

I am proud to be associated with my right hon. Friend the Member for Kingston-upon-Thames and my right hon. Friend the Member for Enfield, West. I advocated these causes last year. I am pleased to think that I am scouting ahead by 12 months of the Tory party in fiscal and financial policy.

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

In a recent intervention the Chancellor reminded us that he had been attending these Finance Bill debates for some considerable period. I can only say that the speech which I want to deliver shortly is similar to one that I delivered on a similar occasion about 10 years ago, when a similar subject was being discussed.

My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) and my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) have made a most impassioned appeal on behalf of the rich and industrious. I do not think that there is anything I can say to better their words, or to put the case more accurately. I would like to draw the attention of the Committee to the case of the rich and unindustrious, who have few spokesmen.

I would like to draw attention to two features which appear in our lives as a result of the fact that the rich and unindustrious make such a very small show in it. Tomorrow, on Epsom Downs, there is to be an important racing event. I shall be ruled out of order if I venture to suggest the winner of the race, but I suggest to those who care to be present, or even not to be present, to have a wager, that they should back a horse which does not belong to a British taxpayer. I say that because if they look at the records since the war they see that out of the 21 runnings of the race, on only three occasions has it been won by someone who paid British taxes. In other words, someone who is not subject to British taxes is exactly six times as likely to win the race as someone who is.

This argument would not apply in any other country in the world which was interested in racing. I do not believe that in Ghana, where people are keen on racing, it is six times more likely that a horse which does not belong to a Ghanaian taxpayer will win. In America, France, Italy or Germany a taxpayer would be expected to have a horse capable of winning a great event of this kind. I give that as the first thought to the right hon. Gentleman, that there may be some benefit accruing to our rather barren existence in some respects in having people who can afford to have the best horses. [column 936]

Another thought that I want to leave with him is on a different level—the question of literary magazines. Only two literary magazines, as such, are now published in this country. Until recently one was supported by the C.I.A., but I understand that that body has withdrawn its support, and there is only one other. These are two manifestations of the way in which, in other countries, the rich and unindustrious—the industrious rich having been dealt with by my hon. Friends—spend their money for the benefit of all of us.

Even if they were too high-minded to have an interest in horses most hon. Members might still not despise the reading of a literary magazine, but they would find it very difficult to get one in England today. That is not the case in other countries. These are examples of the ways in which the high rates of taxation—especially Surtax—have reduced the quality of our national life. It is not for me to make a plea of want or anything else in respect of people who own race-horses or produce literary magazines but I say emphatically that taxation levels are such as to freeze these sorts of activity.

This speech is apposite, because the subject seems to come up at the same time each year. I have not made my speech for the last 10 years, so I am pleased to bring the question to the attention of the Committee today, because the circumstances to which I drew attention 10 years ago are true today. There are even fewer literary magazines today than there were then, and the prospects of an English taxpayer winning the race tomorrow are no greater now than they were 10 years ago.

Sir D. Glover

I hope that my hon. Friend will not mind if I do not follow him in his picturesque description of Des Lake coming round Tattenham Corner tomorrow afternoon reading a copy of Encounter. I agree that there is much to be said for what happens in the cultural life of a nation.

I shall not reiterate the excellent arguments put forward by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) and Worcestershire, South (Sir G. Nabarro), who made a devastating case for an alteration [column 937]in the rate of Surtax. My hon. Friend the Member for Worcestershire, South showed that his Amendment would cost the Exchequer only £4 million. At an earlier stage today, we were discussing tax evasion on the registration of motor cars which was probably costing the Exchequer over £10 million. That puts the matter into its proper perspective.

Over the last 20 years we have all heard arguments across the Floor of the House about our not being top of the league in productivity, about our productivity not rising fast enough, and about our poor effort in comparison with Europe and the United States. We have tried nearly every method to get our economy right, yet staring us in the face all that time is the fact that the leadership that the nation requires has been more harshly hit than anywhere else in the world. This could be largely put right for a sum so small that it would not figure in the accounts—£4 million. That sum would provide the leadership of the country with a great deal of incentive, and would alter the whole national picture.

But that is not the end of the story. In the last 20 years, our high taxes have caused 750,000 people to leave for Australia. No one would say that they were the most idle, least ambitious element. Some of these people, who are now in the higher income groups and are helping to make Australia great, could be here helping to keep this country great. Similar numbers have gone to Canada and South Africa. These people would eventually have been the high income earners and leaders of a dynamic society. The blanket atmosphere of Socialism here does not encourage initiative, and thus led to their going elsewhere where there was more opportunity. They were not paying Surtax when they left, but they had initiative—people do not move 10,000 miles otherwise. It is this drive and restlessness which is the quality of leadership.

I would not like none of them to have gone, because I believe in the future of Australia, Canada and these other countries, but far too many went because they thought that this country's pattern was wrong. My hon. and gallant Friend [column 938]the Member for Knutsford (Sir W. Bromley-Davenport) asked the Minister of Technology a pertinent question today about the “brain drain” , and the Minister's answer came from an Alice in Wonderland world that he will spend £75,000 on advertising to persuade some of these people—or the Americans—to come back to this country, which they left principally because of high rates of tax and consequent low incentives.

Surely this must mean that the Minister will discuss with the Chancellor altering the system which is sapping the initiative of the scientists and technicians we require to keep us in the forefront of the world. Even this Socialist Government are spending this money to discover what seems obvious—why these people went. This is the economics of bedlam: they never seem to learn.

I thought just now that we were making progress. The departing Chancellor had disappeared and the new man in this sphere came in to listen, and I thought, “This is the chap who will take over this job and he is interested in providing incentives to leaders of industry.” But I think he only wanted to ask the right hon. Gentleman when the House would rise, as he soon left. He would have learned much had he stayed. The right hon. Gentleman will find it difficult to answer the devastating case of my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro).

For the last 20 years—and I can say this without appearing to be making a party point because this has been the thinking of this country for that time—we have had one debate after another about why Britain is so far behind our competitors. When we realise that every one of our competitors ensures that its industrial, commercial and banking leaders do not pay more than three-quarters of their income in taxation—and often they pay far less than that—we see why we cannot catch up. In Britain, people in the top bracket pay up to 18s. 9d. in the £, and last year they paid 19s. 3d.

It stands out like a sore thumb that this must have something to do with our unsatisfactory performance. American sociologists who have investigated the problem in this country say that, with [column 939]our rates of taxation, people reaching the middle income bracket—I am referring to the £6,000 to £7,000 a year managerial level—lose their enthusiasm for promotion. Why should they become the head of I.C.I. and other large organisations and shoulder the added responsibility when, because of our taxation rates, they benefit so little financially?

Far too many people are content to remain in the semi-important middle income bracket and spend their free time on social activities rather than provide the drive which would make the turnover of their businesses and organisations grow and so enable Britain to survive in this increasingly competitive world. We will not get on the road to growth and recovery until we accept that our potential leaders, who are able to do a magnificent job, and those who are now at the top are given more encouragement to stay in this country and not be tempted away.

A nation can follow the pattern which we have been following for 20 or 25 years, but eventually something must be done. Our present top management were in middle management 15 or 20 years ago. They have roots in our society and responsibilities and, despite the high levels of taxation, have soldiered on. But the potential leaders are members of a totally new generation in a world which is getting smaller each day. People realise that not so much is now involved in moving to the United States. They can come home to see their parents and relatives quite regularly. It takes only seven hours to fly from America to Britain. In four years' time the journey will take three hours. The new generation looks at the world as, 50 years ago, people looked on this country as one trading community.

As the river finally finds its way to the sea, it is inevitable that, in an international trading community, people will seek the best return on their effort and ability. They are bound to go to the places where they and their families can enjoy the greatest benefit and incentive. Unless we accept this we will continue to lose our best brains and suffer from a lack of first-class leadership. The proposal which my hon. Friends and I support and which would cost a fleabite [column 940]compared with our total national income, would, if accepted, solve many of these problems.

Mr. Geoffrey Hirst (Shipley)

Unlike my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), who is a great contributor to our financial debates but who said that he had not spoken on this subject for about 10 years, I can claim to have spoken on this issue whenever an Amendment of this type has been discussed.

On 20th June last year I moved an almost identical Amendment. I proposed a slightly more modest figure and devoted my argument to a much narrower line of thought. I recognised that that covered both elements of so-called earned and so-called unearned income.

Here, I must say, as I have said time and time again, that I deplore the continued use of the unfortunate phrase “unearned income” . I suppose it grew from the fact that as people who worked got earned income, the rest of the income had to be unearned. It is time we changed that view. I was grateful last year to the Financial Secretary—I see that on this occasion we have a change in the batting, which I hope is all to the good—for saying that he had no quarrel with my suggestion that such income should be called investment income.

Even though that description does not cover every aspect of that type of income, it obviously covers the major part of it. It would be a good idea to start there. This term is a peculiarity, and a sad one, of this country. It does not exist elsewhere. No such suggestion is made in the United States. Its use here is a mistake, but I shall deal with that point a little later in my remarks.

The Chancellor of the Exchequer did neither himself nor the reputation of the country any good by his speech on taxation earlier this evening. It does not do for anyone holding his high office to be heard speaking in that way in this Committee and in the House. What is said here is followed very keenly on the Continent—perhaps the more so because of our application to join the Common Market. It is surprising to find how many people abroad are following what we are doing and saying. [column 941]

I recently paid a brief visit to Italy, and I was very surprised to find from conversations the interest in and the knowledge of what we are doing and saying. I noticed the extraordinary extent to which our newspapers are being sold in the most unlikely little villages. It is, perhaps, interesting for those hon. Members on both sides who believe our application to be a right step to know that there is this sincere interest among ordinary people and not just among the politicians abroad.

We should be aware that what we say and do here is observed with interest, and it is the fact that our taxation is completely out of accord with the general thinking and purpose of the E.E.C. We should take the first step now to change it. We could easily do so this year. I was told last year that it would be rather difficult—and I recognised it—to move towards that end, but it is monstrous that we should continue to have this disincentive in our midst.

What the Chancellor of the Exchequer says about the aggregate of the average of the amount paid in taxation is nonsense, and we all know it to be nonsense. Only extraordinarily public-spirited people are prepared to take on responsibilities additional to their normal work at the marginal rate we have today. I know that one industrialist, who would have been a tremendous asset because of his worldwide experience, was invited to join the board of a major company as a part-time director at a moderate director's fee of £1,200 a year. He thought, “It is £147 10s. to me—I cannot take on another thing.”

That is what is behind this discussion tonight. It is true that there is not a vast number of these people, but these are the people who set the pace of industry. Why do the Government have to offer the large salaries to which many hon. and right hon. Members object? It is because of the rate of taxation. These people take £25,000 a year to oblige—they are obliging the Government by accepting that figure. They have to calculate what it is worth.

Why are salaries of civil servants, good as they are, having to be shoved up to higher figures? This is to compensate for the amounts the Government take in Surtax. Not even the measures taken by [column 942]my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) could compensate for that. Even he dealt with this matter unfairly because some adjustment should be made to investment income as well. He did not do that justice, but he did something to improve this position which has been further eroded by inflation.

Did we get the sort of answer which this all justified last year? Not a bit. We had a courteous answer. The Financial Secretary said:

“The hon. Member moved this in very reasonable and fair terms.”

Indeed I did, and I got a courteous answer, but it added up to absolutely nothing. All the right hon. Gentleman said, and that was quite gracious of him, was:

“The hon. Member has made his point. I have given my immediate personal reactions to the main point which he has argued. What the hon. Member has said will, of course, be borne carefully in mind if we reconsider this tax in a future year.” —[Official Report, 20th June, 1966; Vol. 730, c. 136.]

That was very courteous. I usually get that from the Treasury Bench, but it is about time we got something which added up to something and meant something and would give the people of the country the idea that if they took further responsibility there would be a great incentive for them to do so. Many people feel that it is not worth while. People in the middle range incomes say, “If we do not get into the Common Market, I shall pack up and go abroad.” People say that because they are getting fed up, but they are the people who count enormously. We cannot work this out in terms of millions toiling at the benches although they are doing a marvellous job. I respect them, but that cannot take place by inflation. It can take place only if we have sustained growth at the top with such risks as they take to get a reasonable reward.

I want to say a word on the matter of investment income. If we get that term established we shall have gained something, but that is all we shall have gained—a reasonable term. This difficulty does not exist in other countries, certainly not in those which are our great competitors. We need investment in this country. Investment is the savings and partnership in industry which is needed. Where would the big businesses of today be if it were not for the small businesses of the [column 943]past? They were allowed the opportunity in the tax situation to plough money back into their firms to grow up into the organisations which are making exports today. Far too few firms are making exports which the country requires. There are large sums for a very small number. We want to increase that, but we cannot do so if we kill off the small firms or frighten them off with Surtax directions and all the rest. All Governments are somewhat to blame in this matter, but at least the Conservative Government took some steps on these lines. There would be a little more respect for this Government if they in turn took further steps in this direction.

Lieut.-Colonel Sir Walter Bromley-Davenport(Knutsford)

We have had a great many excellent speeches in this debate. I pay tribute to my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) for the eloquent and devastating speech with which he moved the Amendment, though it bounced off the head of the Chief Secretary to the Treasury like a tennis ball off a concrete wicket. I congratulate my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) on the excellent speeches he has made. As I looked through Hansard yesterday, it seemed that our last debate in the Committee had been one long speech by my hon. Friend. Also I congratulate my hon. Friend the Member for Ormskirk (Sir D. Glover) on his contribution.

I come now to the gravamen of the argument, how to reduce this taxation, which is so iniquitous and so heavy. What does it lead to? My hon. Friend the Member for Ormskirk has referred to the “brain drain” . High taxation has two other consequences, tax avoidance and the tax-free racket. We hear enough from hon. Members opposite about tax avoidance; they tell us how the wicked rich avoid taxation. But what about other income brackets—the casual labour, the money in the hand? How often does the tax inspector get those returns, and what gigantic sums they are, too. It is all part and parcel of the same thing. Tax the people too heavily, and they will all cheat in the end.

What about the tax-free racket? A little while ago, my hon. Friend the Member for Ormskirk spoke about the gigantic salaries paid to the leaders of the nation[column 944]alised industries. I remember seeing in a recent television programme the features of the great men who were to lead the nationalised industries, at salaries of £25,000. Far too much, it was said. To emphasise the point we were shown next the unshuffled features of the Prime Minister—with a “Let me be your father” expression—and we were told that he got only £14,500 or thereabouts. What absolute nonsense! £14,500?—my No. 9 foot!

What about the £4,000 a year tax-free? That is not mentioned. How about the house in London and the house in the country, and the motor cars? What about all the free entertainment, in which the right hon. Gentleman is so ably helped by his right hon. Friend the Foreign Secretary? Not so long ago, in company with some of my hon. Friends opposite—I am proud to say that I have quite a lot on that side—I was computing what the Prime Minister's salary was worth. One of them—no one will drag his name out of me even at pistol-point—said that he thought it was worth £200,000 a year plus. He is not far wrong.

I do not want to be misunderstood. I do not begrudge the Prime Minister any salary he wants. I remember Lord Hudson saying, when Lord Attlee put his salary up, that he did not bedrudge the Prime Minister a penny of any salary he decided he should have, but, he said, “Do not disguise it. Call it what it is, make it gross, so that people can see how much you are getting” .

What would it cost to reduce Surtax in the way we ask, so that a man could keep, say, 25 per cent. of what he earned? It would cost £4 million out of a total of £1,500 million. Why will not they allow this? I watched the right hon. Gentleman. I am never personal in the House of Commons. I do not believe in it. But the answer has been written plain on his face and that of other hon. Members on his side of the House. Hate is what will stop them reducing this tax, and nothing else.

Mr. Ian Lloyd

The Committee will not expect me to follow my hon. and gallant Friend the Member for Knutsford (Sir W. Bromley-Davenport) too closely in his distinction between gross and net incomes. It is a rather gross subject.

But a great deal of the envy which he rightly discussed could be removed from [column 945]the discussion of the subject if the Government set a good example by publishing all salaries over, say, £3,000 a year as the net salaries of a married man with two children. That would put a completely different light on the vast majority of salaries, particularly at that level, throughout the public sector.

It is astonishing that year after year the Chancellor, with his strange combination of dogged charm and determination, should continue to defend his fiscal enormities. He reminds me of the newly promoted young officer of the watch on an aircraft carrier who, on a very dark night, saw a light in the distance and told the signalman to send the signal, “Get out of my way. I am an aircraft carrier.” Nothing moved. The two lights, his own and the light that he saw, were on a convergent course and after a few seconds he said, “Make another signal. Remind him that I am a naval vessel, an aircraft carrier, and tell him to get out of my way.” The signal went off and very shortly a second light was seen next to the original light flashing the message: “I cannot. I am a lighthouse.”

It sometimes seems to me that these fiscal matters appear to be absolutely immovable. But the Chancellor throws no light on these murky scenes of fiscal confiscation. High taxation seems to have an irresistible siren light effect on Socialists, and unfortunately they take the economy on the rocks with them.

The Chancellor referred to the cost of tax reductions. Is not he taking a strangely static view on this question, and assuming that there will be no new national impetus as a consequence of these changes, no general improvement in the style and quality of economic performance? That is what we on this side of the Committee hope to achieve from these changes, and are confident that we shall obtain. If we obtain them over a period of time—and time is of the essence of this problem—there will be a dramatic improvement in the style of our economic management and performance, with consequent effects on the gross national product.

It sometimes seems to me that we neglect the wisdom of a great economist to whom the Prime Minister would no doubt refer as a Victorian economist in the disparaging terms he uses about such [column 946]people. I am speaking of Alfred Marshall, who once said that it was important in managing national economic affairs to harness the strongest as well as the highest of human motives. Time and time again the Government are inclined to forget that. Having done so, they discount completely the effect of the higher proportion of the strongest motive, which the type of changes we advocate brings into play.

The Chancellor attempted to answer the arguments on this side by speaking somewhat disparagingly of the extreme contrast between incomes of £15,000 and what he implied were all the rest—possibly £1,000 or less. That is a most misleading argument, because significantly vast numbers of incomes lie between those two levels.

I would have though that the brain drain was not significant numerically in the over £5,000-a-year class, though it could be argued that it was most significant qualitatively. The Chancellor asked the people concerned to return, but why should they suffer the serious financial penalties of doing so? There is no escaping this.

By and large, the people in this category of incomes emigrate before they are earning £5,000 a year, and they do so because they hope to have an income of between, say, £5,000 and £10,000 a year net of tax at least 15 years before they will do so in this country. From that income, in the fiscal environment of the United States and several similar countries—we should not exclude Canada and Australia—they are permitted to look forward reasonably to an honestly-earned accumulation of capital which they do not have the foggiest chance of accumulating in Britain under its present fiscal environment. Why should they abandon that opportunity to return to the fiscal environment of Britain, in which the chance of accumulating a reasonable capital sum of that kind is virtually nil?

The Chancellor said that the United States was a richer economy and could, therefore, afford that broad range of salaries and incomes. It seems to me, however, that a high relative inducement can be offered in an economy of that kind for high additional effort, whereas in Britain today a high relative inducement [column 947]cannot be offered for high additional effort, and particularly if that effort is not necessarily wholly of an economic character but involves all that a man has to do when he has to uproot himself from one part of the country, from one job, one company or one type of work, and move over to a completely different economic environment.

The Chancellor wants to stimulate mobility of employment. He wants to stimulate it, surely, at the highest levels of responsibility as well as at the lowest, but in our fiscal environment this is something which it is almost impossible to achieve.

The Chancellor also attempted to defend his case by saying that the taxes which were reduced for the rich, as he described them, had the effect of having an immediate and perceptible impact further down the scale. He pointed out that this balance in itself was inadequate because the whole range of social incomes up and down the scale should be taken into consideration. In drawing that conclusion, however, he overlooked the fact that education, the National Health Service and the whole range of Government services were used in his calculations. Indeed, in most of the calculations of the effects of social income the whole range of State incomes is applied on an average basis to all concerned.

That neglects the point that many people, not only the rich, not only the highly paid, do not at all stages of their careers and of their earning derive benefit for long periods from that type of income. Many of them choose not to derive benefits from that type of income and many of them may be fortunate enough throughout their lives to derive none at all.

My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), who made a distinguished contribution to the debate, stressed the importance—and it is a most important subject—of the structure of taxation and pointed out that structure was possibly, in many contexts, much more significant than the total value of taxes raised.

It is fair to say that Keynes was not unaware of that, although the gravamen of his work referred largely to the volume of taxation. Many of the other great [column 948]writers on this subject—one can go back a very long way, starting with Adam Smith and going on to Ricardo, Marshall, De Viti de Marco Pigou, Sir Dennis Robertson and a galaxy of economic stars—were wholly aware of it. I think that the Government, however, are not aware of it. It is astonishing that so much of this seems to fall by the way-side in the professional economic advice which the Government receive.

Those men, distinguished as they were, were wholly aware that one of the distinguishing characteristics of taxation is its tendency to crumble as the grip tightens. This the Government neglect time and time again. One range of taxation after another they carry to the point where the tax visibly begins to crumble. Vast problems are created by the sheer complexity of the methods of taxation which have to be employed as this sense of crumbling is appreciated by the Government and they strive, by one means or another, to increase the effect of a tax whose efficiency is declining.

I hope that the Chancellor will learn to distinguish between ships and lighthouses and will reinstate, in his attempts to judge the consequences of these very complex matters, the element of time, because time is all-important. We are not considering a static problem. The size of the cake can never be constant from one day to another. At the moment, he should consider the consequences of tax changes over a period of six months and the net contribution that a tax change can make to the national economy.

Unfortunately, the right hon. Gentleman did not answer the suggestion I made to him about creating some form of tax standstill or platform. Perhaps he did not regard it as desirable. But of all forms of economic freeze desirable in Britain today, a tax freeze is easily and by far the most desirable.

Mr. John Smith

The Government have so far rebutted our contention that direct taxation is too high by reference to the effective rates of tax. The Chancellor stressed that effective rates were much more important than marginal rates. He said that higher paid executives were already in their jobs and paid at a fixed rate and were working as hard or as little as would do in any case, whatever the marginal rates. [column 949]

That is a curiously static and even ossified view of industry. The world of management is constantly in motion. New jobs need filling all the time. When a good man considers a better job it is certainly the marginal rate that he thinks about. It is the men in the good jobs who nevertheless get offered better jobs who are, of course, the most valuable to the country.

I assure the Committee that I know of many people, not particularly highly paid—indeed, well within the lower limit of Surtax proposed by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter)—who decline promotion because it is not worth it. This particularly applies to those people with children at the university. It is not a simple question of offering insufficient marginal incentives because of the tax. For such men, the little they gain is more than offset by what they lose in grants.

Secondly, there is the question of the “brain drain” . The Chancellor actually said that the drain to America was the only drain which mattered. But brains do not only drain to America. They drain into armchairs and into indifference and into cynicism, and they are just as much lost to the country in that way. We pay a very high price for pandering to the spirit of sour grapes and envy and I warmly support the Amendment.

Mr. John Hall

I had not really intended to speak because, unfortunately, I came in after the debate had started, much to my regret. I am moved to speak by the remarks made by my hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith) when he referred to the speech made by the Chancellor. Apparently, the right hon. Gentleman said the marginal rate has no effect because, generally speaking, the people who are having to pay the highest marginal rate are fixed in their appointments and jobs are not likely therefore to be influenced by the tax position. I support what my hon. Friend said about that. The Chancellor's view is really not true. In the first place, one of the major reasons for the “brain drain” is that, among the people going abroad today are younger people who believe they can more quickly reach the highest levels of income at which in this country they would have to pay the highest and most savage marginal rate. [column 950]

These are the young men with confidence in their ability. They are the sort of young men who are the future leaders of the community, especially an industrial and professional community. They are going because they have confidence in their ability to earn. Secondly, as my hon. Friend rightly said, people who are near or at the top marginal rate, which, as the Chancellor said in answer to a question, is 91¼ per cent., get to the position where they refuse to accept further responsibility unless they are considering power and status and not just earnings. I would not under-rate the attractions of power and status. These are the sort of things which keep people going when they are not getting any additional income. But there are many people in medium-sized companies who are not likely to get any additional power and status by taking additional responsibility and they get to the position where they refuse to go on working because it is not worth it.

When comparing the marginal rate in this country with other countries, there is no doubt that we are top of the league. It is true that, taking taxation as a whole, direct and indirect, we are not as badly off as we sometimes like to believe and, in comparison with our major industrial competitors, our position is not all that unfavourable. But when one gets to the top rate of income taxation is savage in the extreme.

If the Chief Secretary will refresh his mind with the figures given to me in answer to a Question last month, he will see that whereas in this country it is 91¼ per cent., the rate of our nearest rival is something like 70 per cent., and in France the rate is 50 per cent. I happen to be on the board of an Anglo-French company, and when I said to my French colleagues that their marginal rate was under 50 per cent. they did not really believe me.

Mr. Michael English (Nottingham, west)

Will the hon. Gentleman give us statistics showing the proportion of French taxation derived from direct taxation as compared with the position here.

Mr. Hall

I was not dealing with that point but with the marginal rate on personal income, and the marginal rate in this country, as stated clearly in [column 951]answer to a Question I asked, is much higher than in other countries and it makes its impact earlier. The impact of the top marginal rate in this country takes place at £18,500 earned income for a married man with two children. If it is unearned income, the impact is at £15,000.

If we go into the Common Market we shall have to do something about bringing our tax burden into line with that of other members. If we do not, people earning high incomes will find ways and means of transferring their main activities to other parts of the Common Market where the tax burden is less. As I understand the Common Market arrangements, it will be top executives as well as bench workers who will be able to move. In France the marginal rate is under 50 per cent. and the effect is felt much later.

I beg the Chief Secretary not to look at this from a political point of view, which is the point of view from which the question is too often considered, but from an economic point of view and the effect on industrial effort in this country. Too often when one considers the question of Surtax one gets the old cry that it is the rich against the poor and one hears the Chancellor say so often, “Why should you give more to the rich?” This is the question which every Chancellor of the Exchequer of every industrial country has to answer. I would suggest to the Chief Secretary, in considering this question, that he has to take into account the leadership and impetus given to the industrial and professional effort of people who have ability. Secondly, he has to consider whether we are to keep in this country the people who are best qualified to contribute to our industrial efficiency.

If we become part of a much larger trading area and if we are likely to lose people to other parts of that community where the tax position is much easier, it could be disastrous. I hope that the Chief Secretary will bear this in mind, especially if he is hoping, as I think he is, that we are successful in our application to join the Common Market.

Mr. English

The speech of the hon. Member for Wycombe (Mr. John Hall) causes me to comment that in this coun[column 952]try we have a sort of purblindness. We automatically assume that our rates of taxation are the highest in the world, and they are not. It is assumed that more of our taxation comes from direct taxation than is the case in any other country, which is not so. On Second Reading, my right hon. Friend the Chief Secretary made this point quite satisfactorily. There are other countries the United States of America, for example, where, if state as well as federal taxation is taken into account, there are higher rates of taxation. I wish that this argument would cease.

Mrs. Thatcher

I congratulate my right hon. Friend the Member for kingston-upon-Thames (Mr. Boyd-Carpenter) upon the excellent and thorough way in which he moved his Amendment. Each speaker from this side of the Committee has had his own method for reducing the Surtax burden, but I hope that when the Division comes my hon. Friends will think it right to divide on Amendment No. 24 so that we can then proceed to other business.

From what he said, it was patently obvious that the hon. Member for Notingham, West (Mr. English) was not present during our debate on the last Amendment when both James Callaghanthe Chancellor and I went into this matter very thoroughly, and perhaps the hon. Gentleman will read in Hansard what we said.

The debate has naturally hinged on the marginal rates of taxation which in this country are undoubtedly the highest in the world.J. DiamondThe Chief Secretary has been very industrious in giving us replies to a number of Questions which we have put to him over the last few weeks and months. It is obvious from his reply on 9th May, 1967—column 189 of the Official Report—that not only are the marginal rates here the highest in the world, but they start to operate at a much earlier level than is the case in a number of other countries.

In particular, we have been compared with the United States of America. This comparison is very telling, because the United States tends to be the country to which we lose our most able industrial and academic brains. The maximum rate of tax on personal incomes in the United Kingdom is 91.25 per cent., disregarding the surcharge, and for a married couple with two small children it starts at an [column 953]income of £18,900. The same marginal rate in the United States, taking into account the highest state income tax as well, is 76 per cent., and it does not start until an income of £77,000. The discrepancies on both counts are absolutely enormous, and in no other country is the actual highest marginal rate anything like as high as it is here. With unearned income, the rates get very high very early. The marginal rate on unearned income this year is 55 per cent. on an income just over £2,000. This puts a very high tax on savings, a subject with which we dealt on the last Amendment.

Mr. Hirst

I know that it is customary and almost habitual to talk of “unearned income” , but would not my hon. Friend agree that “investment income” would be a better term?

Mrs. Thatcher

I think that the best term of all is “income from savings” . Perhaps we can settle for that.

A number of hon. Members have mentioned various salary scales and someone mentioned the salary paid to the chairmen of the nationalised industry boards—£25,000. I note that with that salary, assuming that he is a married man with no children, he would keep only £7,800 and all the rest would go in a mixture of Income Tax and Surtax. One of the problems of having these high Income Tax and Surtax rates combined is, as was pointed out in an article by Professor Wheatcroft and also by Sir Edward Beddington-Behrens in an article in The Times that the British tax system imposes an effective ceiling of £7,000 per annum on the after-tax remuneration of any top executive.

The net take-home pay is £7,000 per annum, at about £16,000 income. In order to boost one's take-home pay above that, say by £1,000, one would have to be paid another £11,000, which is such a ridiculous figure that there becomes an effective top limit of £7,000 per annum. This is equivalent to £3,500 in 1946 terms, and to £2,500 in pre-war terms. I mention those figures because it makes the income seem comparatively low.

My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) was one of the right hon. Members who mentioned the effect of taxation on marriage, where both husband and wife are high income earners. [column 954]There was an excellent illustration in the Financial Times on 1st April headed “Marriage is expensive for the big income earners” . That took a particular case of the husband and wife, who both came into the Surtax bracket for the first time in 1953. Between that year and this year they calculate that it has cost them £12,000 to be married. In the 13 years before they both retire, on the assumption that neither the salary goes up, nor the tax rates come down—and as there is a Labour Government in power that would be a reasonable assumption, though there will not be a Labour Government for the next 13 years—it will cost them an additional £29,500.

This is because for Surtax purposes the additional earned income of the wife is not allowed. This is a ridiculous situation. I admit that it does not affect many people, but it is important that sooner or later this point should be dealt with as well. A number of people have questioned taxation's disincentive effect. Again, I thought that there was another very good case put in the Financial Times on 20th April. It was in the form of a letter to the paper, written by the managing director of McKinsey and Co., very well-known management consultants, who pointed out that hitherto his company had been recruiting for the work that it has to do, which is extremely important, British graduates who had taken second degree at one of the famous business schools in America. The company has found them very valuable and excellent for the work of management consultancy. Mr. Parker said in his letter:

“We are finding increasing reluctance among many of these young Britons to return to this country, for one grim reason: the impact of U.K. taxes on their future earning power. In the U.S. they can command high starting salaries, rapidly increasing gross incomes, and above all the chance to earn enough after-tax net income to be able to build capital.”

That really puts it in a nutshell. We now have a very high rate of Surtax, particularly for next year, which is dealt with in the next Amendment. Incidentally, I would point out that the rate of Surtax this year is 55 per cent., much higher than ever before in the history of the country. That letter puts the situation in a nutshell. It is not possible to accumulate capital in this country in the way in which it can be accumulated in the United States. If people could accumulate capital more easily, a number of people would [column 955]perhaps retire earlier, leaving the top jobs available for the younger men. Younger men want the top jobs quickly. They are not prepared to wait a long time.

Mr. John Lee (Reading)

Is the hon. Lady suggesting that it is socially desirable to render people redundant at an earlier age than is at present the case? Is it not part of our social policy to try to encourage people to stay on at work after retiring age?

Mrs. Thatcher

I do not think that the hon. Gentleman is quite on the same wavelength. He knows that quite often one of the problems is to find top jobs for the younger men at salaries which they ought to be able to command, and which they can command in the United States. They can get a much bigger take-home pay there. One of the problems facing younger men is that of having to wait for the shoes of those who retire.

Whichever way one looks at it, I think that it would be as well if we could all accumulate capital out of saved income, and another reason why people go to other countries is that they can do this. [Interruption.] As far as I am concerned they can earn £25,000 a year. What I want to ensure is that the most able people do not go to the United States.

Mr. Heffer

I have listened very closely to the debate, and it is clear that the Opposition, and the hon. Lady in particular, are concerned only with a very small group of people. The hon. Lady is not concerned with the mass of ordinary working people who work hard for this country and get very little for it.

Mrs. Thatcher

The hon. Gentleman is quite right. We are concerned with a comparatively small group of people, I do not deny that, but I say that the future of people in industry depends tremendously on the small group of people who can create more wealth, and they are far more valuable to the ordinary working person than those of us who work here, including the hon. Gentleman, who cannot.

The Amendment is very modest. It suggests a reduction in Surtax of about 10 per cent. I wish that I felt more optimistic about the right hon. Gentleman saying that he would accept it, but if he [column 956]does not give us a satisfactory reply I hope that we can proceed fairly quickly to the Division Lobby.

Mr. Diamond

This has been an interesting, unusual, and to me an astonishing, debate. It has taken place against a background of great restriction on the incomes of the mass of the people of this country, and it is against this background that it is proposed to help either the richer section of the community, or the richest section of the community, or the very richest section of the community. These are the three proposals which are before us, and they have to be considered against the background which I have considered.

I shall deal with the arguments because it is my privilege so to do, and I shall answer hon. Gentlemen fully, but I want to put the issue in its context so that if from time to time I am unable to express myself with the normal restraint which I do the Committee will understand that it is because I am boiling inside. This is an inevitable result when one has the responsibility of answering a case. One listens with great care to everything that is said and tries to judge the validity of the argument and the relevance of it to the progress of people in this country.

First let me tell the Committee what the cost of the proposal would be, and this has to be measured against a total revenue for Surtax purposes of about £250 million. That is the total amount of revenue which Surtax produces at present, including the 10 per cent. additional levy. Against that proposal we have three Amendments. The first is that of the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), which proposes to reduce the revenue from Surtax by £95 million. He thinks that the present time is the appropriate time to reduce Surtax by £95 million and to exclude from Surtax about two-thirds of those liable to pay it. That is his proposal, and it meets with considerable approval among hon. and right hon. Members opposite.

The second proposal comes from the hon. Member for Worcestershire, South (Sir G. Nabarro), which is to reduce the revenue from Surtax by approximately £32 million The third proposal—the official proposal and a much more modest [column 957]one—is to reduce it by £20 million. In each case I give the figures for a full year. The right hon. Gentleman said there was no suggestion that those who were earning £10,000, £15,000 and £20,000 a year should get this vast reduction in their liabilities and this vast increase in their take-home pay purely on the ground of compassion. I thought that he was leaving a weak point well on one side.

His case was based on the economic improvement of the country as a result of the greater initiative of those leaders of the business, commercial and industrial community who were earning these salaries. Let me deal with the matter on those grounds, and say immediately that I entirely reject that proposal and the slanderous statements—as I understand them—that the right hon. Gentleman was making against the leaders of industry.

Mr. Boyd-Carpenter

As the right hon. Gentleman has sought to summarise my argument, I must point out that he referred only to part of it. I spent a good deal of time and a great deal of emphasis on the prevention of a loss of talent by way of “Brain drain” which would result from reducing our levels of taxation on higher incomes to somewhere near the levels ruling in other countries.

Mr. Diamond

I agree. I was going on to deal with the second part of the right hon. Gentleman's argument later. That was taken up by a number of hon. Members—particularly the hon. Member for Ormskirk (Sir D. Glover). I am not suggesting for a moment that those who carry great responsibility do not deserve and earn high remuneration for what they do. Nobody on this side of the Committee rejects the proposition that there is a rate for the job, and that if the job is a very responsible one the rate should be a very high one.

What I am dealing with is the consequential argument and the theory on which the claim of the Opposition is made. I say—I believe this, and there is no evidence against it and considerable evidence for it—that those who earn these substantial salaries and incomes from carrying out these higher responsibilities are attracted in the main by their interest in the job, the satisfaction they get from [column 958]doing it, the power which the hon. Member for Worcestershire, South referred to, and, to an extent, by the level of remuneration. They are attracted both by the dignity which this knowledge confers—because there are many people who would be willing to accept public appointments at a lower salary if it were not for the fact that it would slightly declassify them—and for the remuneration itself. But I deny completely that their major concern is with the level of remuneration and what they can spend. That is a separate issue entirely—[Interruption.] The hon. Member for Worcestershire, South and I have different views—that is perhaps why we sit on different sides—but we have served in similar ways and I know the field he mentioned. Like everyone else who produces this argument, he said, “Of course, it does not apply to me. I work because I am interested.” ——

Sir G. Nabarro

That is utterly false. I said nothing of the kind. I said that I was proud to represent the case of the highest paid men in industry, because they are far more important than unskilled workers in the workshop.

Mr. Diamond

The trouble is that the hon. Gentleman always talks and never listens. I did not say that. He said that he based his argument on the fact that high taxes deterred people from doing responsible jobs, and added, “Of course, this does not apply to me.” One hears this again and again. Anyone who has spent five minutes considering the real motivations of people doing this kind of work knows that the remuneration is part and not the whole of it and probably the smaller part. We have to consider something different—what happens when such a man is called upon to contribute from his remuneration to the common activities of the State.

Of course he does not like it, mostly. He does not like contributing to a National Health Service which he does not use, or to education which he does not use because he pays for it separately. He much prefers to spend his own money in his own way. This Government believe in intervention by the State and taxation is better described as the level of intervention—[Hon. Members: “Oh.” ] Oh, yes. Taxation does not disappear into thin air. It is collected and is spent on a whole variety of social, [column 959]economic and military services. To the extent that the State intervenes and takes on these activities and organises group community activity, it calls on the individual to contribute, and to the extent that it does not, the individual must pay for it out of his own pocket or go without.

We believe that most of the things which the individual wants are best and most economically satisfied by the community—his defence, his education, his health, his roads, his security, his justice. This is why we believe in a level of intervention not matched in all other countries——

Mr. Michael Heseltine (Tavistock)

The right hon. Gentleman is arguing that the measure of intervention by his Government is reflected in the level of taxation, and he believes in intervention. Why, then, did the leader of his party give a specific assurance that there would be no increase in taxation under his Government—in other words, no increased intervention?

Mr. Diamond

I wish that hon. Gentlemen opposite would be a little more patient. I was coming to a comparison of the levels of Surtax under both Governments. Perhaps hon. Gentlemen opposite will be good enough to listen to me, although that may be too much to expect at this hour.

The allegation is that, under the present Government, the rates of Surtax are so high that they act as a calamitous deterrent to those who would otherwise serve the community and their respective organisations well. I will give some examples of what the burden of Surtax is today and, to put the argument at its highest against me, I will give the level of Surtax as it will be next year, with the additional 10 per cent. added. I will give a comparison between that abnormally high figure for one year only and what individuals were called on to pay under the Tory Government of five years ago.

Sir G. Nabarro

Five years ago?

Mr. Diamond

For 1960–61, before the reliefs.

Mr. Patrick Jenkin

What about 1961–62?

[column 960]

Mr. Diamond

In 1960–61 a married man with two children, an average case, earning £5,000 a year, which is £100 a week, was called on to pay £442. Today he pays nothing.

Mr. Hirst

It is not a proper comparison.

Mr. Diamond

A man earning £10,000 a year, or £200 a week, was called on in 1960–61 to pay £2,070. Today he pays £902.

Mr. John Hall

rose——

Mr. Diamond

The hon. Gentleman can, if he thinks fit, intervene in the debate later.

A man earning £20,000 a year, or £400 a week——

Sir G. Nabarro

What a very bad speech.

Mr. Diamond

—was called on in 1960–61 to pay £6,806 in Surtax. Today—that is, with the additional 10 per cent.—he pays £5,513, a reduction of £1,293. [Hon. Members: “Why” ?] If hon. Gentlemen opposite will allow me to say five sentences without interrupting and caterwauling I will tell them why. I am giving these figures because we know that this was before the vast Tory reduction in Surtax, but if one is to judge and compare the levels of Surtax, one must have a starting point. Hon. Gentlemen opposite may select a lower figure as a starting point, but I assure them—and I want to be frank about this—that a higher figure of Surtax is very much in our minds on this side of the Committee.

Mr. Hirst

What does that mean?

Mr. Diamond

It means that we are conscious of the fact that it was only five years ago that Surtax earners were paying a much larger figure in Surtax. At that time we heard nothing about this deterrent effect; that is, until the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) argued that everybody's efficiency would be increased. Now we have the same argument; and when it is further reduced we will have it again. I reject completely that this is related to deterrent effects.

There has never been any evidence for this in this country. The only thing which [column 961]the hon. Lady has been able to produce is a paragraph from the Canadian Royal Commission Report. We have had four examinations in this country on the deterrent effect of taxation at the Income Tax level, and the Surtax level on overtime pay, and so on. All of them have come out with the same answer, which is that there is no evidence that rates of taxation at the levels we bear exert any deterrent effect on overtime workers or salaried workers generally.

I have been asked about the “brain drain” and I shall be very glad to deal with it. What I suggest is relevant in this consideration is the level of salary and not the rate of Income Tax. It is certainly true that the American economy can offer levels of remuneration with which we cannot compete. One or two hon. Members—the hon. Member for Ormskirk was one—said that the high taxation level was the main cause for the drain, and they are correct in saying that the levels of taxation in this country are high when one gets to the £15,000 a year income.

I am now dealing with the effective rate, not the marginal rate, for reasons which we need not now repeat. The effective rates of Income Tax and Surtax on incomes over £15,000 a year are among the highest. I do not allege that—I affirm it. We believe that when one is earning income at that level one is in a position to contribute more to the common welfare than is the person earning a tenth of that figure. That is our point of view.

Let me turn to the brain drain. The argument is that we lose talent to America and to Australia because of the tax levels in this country. That is a very odd argument, because in America taxation levels are lower, and in Australia they are higher. The hon. Member for Ormskirk said that we lost 750,000 people recently to Australia, and I can give the figures with the greatest pleasure. I have them here at levels starting at £900, and going on to £2,000, £4,000, £7,000 and £15,000. They all show the same result—that the net disposable income for a married man with two children after paying tax is higher at those levels in this country than in Australia. Yet we are told that the cause of the “brain drain” is the level of tax rates, and that that is why 750,000 have gone to Australia. [column 962]

In short, I say that it is absolute nonsense to try to relate the two. There is no evidence. These rates of taxation are not high in terms of the total impact of taxation. I gave the figures during the course of the Budget debate. They do not act as a deterrent to those who have these responsibilities, having regard to the interest, the power and the attraction of their jobs. I say that this is purely—I would not call it a campaign, but rather a smokescreen behind which to hide what many hon. and right hon. Members want, which is simply for the rich to get richer—[Interruption.] There is no appeal in that proposal to this side of the Committee.

Mr. Boyd-Carpenter

There was not much indication on the surface of the internal boiling inside the Chief Secretary of which he was good enough to warn us at the commencement of his observations——

Sir G. Nabarro

Hot air!

Mr. Boyd-Carpenter

My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) observes that it apparently came out in the form of steam.

It was one of the most extraordinary speeches that even this adaptable and flexible Minister has made. He began very heavily about these proposals being made against the background of everyone's income being frozen. It is not my hon. Friends who have frozen it. It is a little curious for the right hon. Gentleman to try to call in aid of his resistance to these proposals other actions for which he and his Government are alone responsible and which we on this side of the Committee have fought at every stage.

I take him up on his reply to me when he said that it was a slander on those in high and responsible positions in industry to suggest that what they were able to get by way of take-home pay was a major factor in their taking those responsibilities. He said that honour, power, status and dignity were the real motives. If so, can he tell us why the Government have found it necessary to pay £25,000 to the Chairman of the new Steel Board and something in excess of £20,000 a year to other members of the Board. Was there not something in the way of power, status, honour and dignity there?

Then there was the quite extraordinary argument that Surtax in respect of some [column 963]people at any rate had been higher in 1961. It is clear that the right hon. Gentleman selected that date because it was immediately before the reductions for which my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) was responsible. If the right hon. Gentleman is seeking to call in aid the fact that in some respects the rates are now lower, I think that in decency he should call in aid the fact that that reduction was fought at every stage by his hon. Friends. The present Prime Minister denounced it again and again as a hand-out to rich Surtax payers. Hon. Members opposite are entitled to their views, but it is a little nauseating when the Chief Secretary comes forward now to claim the result of those changes as apparently reflecting some credit on the present Government.

I was very disappointed by the fact that the right hon. Gentleman did not even try to deal with some of the serious issues which my hon. Friends and I put to him. He never sought to justify—we put this specifically to him—maintaining tax rates on the higher levels of earnings which are higher in this country than in the countries of our competitors. I quoted Government figures, not my figures, showing that a married man with two children in this country who gets £15,000 a year retains a third of what a similar man retains in countries which are our bitter competitors. I suggested that this called for some justification but we did not have a word of it.

I asked the right hon. Gentleman how he reconciled maintaining these rates with an apparently genuine desire by the Government to go into Europe. The right hon. Gentleman knows that those rates are inconsistent with membership of the Community. He will recall that I asked specifically what the Government thinking was on this point, and whether they were making preparations to adjust the tax rates to bring them into line with those of comparable people on the Continent to justify our entering the Community. I am in the recollection of the Committee in saying that he did not address a single observation on that question.

The right hon. Gentleman treated what is a serious issue in a way which at times was, I thought, a little frivolous and at [column 964]times, frankly, inadequate to what is whatever hon. Members opposite think about it, an important and difficult issue. I do not want to detain the Committee at this late hour. As my hon. Friend the Member for Finchley (Mrs. Thatcher) indicated, it would probably be easiest if we came to a decision upon the Amendment in the names of my hon. Friends, Amendment, No. 24. I would be perfectly prepared to accept negativing of my Amendment, No. 22. I hope that the Committee will show its complete dissatisfaction with the right hon. Gentleman's answer and the inadequacy of the Government's attitude on this whole issue by going into the Lobby in support of Amendment No. 24.

Sir G. Nabarro

We are discussing a group of three Amendments taken together. The Chief Secretary told us that No. 22, in the name of my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), would cost £95 million in a full year. My Amendment, No. 23, he said, would cost £32 million in a full year. Amendment No. 24, in the name of my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), he said, would cost £20 million in a full year. I am in the middle of the road here. My right hon. Friend the Member for Kingston-upon-Thames is a dear customer in this context. My right hon. Friend the Member for Enfield, West is cheap in this context, and that in no way derogates from his argument.

If I allow my Amendment to be negatived and I vote in support of Amendment No. 24, I do not want it to be thought that I am necessarily committed for the future to the cheapest recourse.

Mr. Diamond

The hon. Gentleman will not be faced with that problem. I understand that his Amendment is not selected for a Division.

Sir G. Nabarro

Yes, but there are other years in which to debate this issue, next year or the year after, from either side of the Committee.

I greatly resent the calculated and careful arguments advanced from this side on all three Amendments being described as a smokescreen. There is no subterfuge about what I have said, with the support of the majority of my right hon. and [column 965]hon. Friends. I paraphrase it shortly in this way. Nobody in this country should pay more than 15s. in the £ as an aggregation of Income Tax and Surtax, compared with the top rate in the United States of 14s. in the £. That is the first proposition. No smokescreen about that. It may be didactic in delivery, so the right hon. Gentleman thinks, but at least it is honest, blunt and candid.

Second, I am not interested in the fiscal codes of Albania, Liberia, Guatemala, Haiti or some other tin-pot Latin American republic. I am interested in the direct comparison with our principal industrial competitor, the United States. We want our tax codes for successful executives in the higher income brackets to be in consonance with those in the United States of America. The fact that they are not is not the only cause of the brain drain, though the right hon. Gentleman sought to attribute that suggestion [column 966]to me. I did not say that. I said that it was a principal cause of the brain drain, and I named many other causes as well.

With those few further words of clarification, to rectify the errors made by the right hon. Gentleman, I shall happily resume my seat, at one minute before midnight, ready to vote enthusiastically for my right hon. Friend's Amendment No. 24.

Amendment negatived.

Amendment No. 24 proposed: In page 16, line 40, leave out from ‘at’ to end of Clause and add:

‘nine-tenths of the higher rates in respect of the excess as were charged for the year 1964–65’.—[Mr. Iain Macleod.

Question put, That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 179, Noes 129.