[column 667]

Clause 1.—(Selective Employment Premium.)

Mr. Iain Macleod (Enfield, West)

I beg to move Amendment No. 2, in page 1, line 10, to leave out from “paid” to end of line 21.

I wish to take one minute of our precious time to outline the Opposition's attitude towards the time for these Amendments. We were told by the Leader of the House, no doubt in good faith, that he thought that adequate time had been allotted and that some mysterious gentleman had decided between the relative merits of the claims upon our time.

We were also told by a number of professors in the guillotine debate that these matters could be dealt with in three or four points. We were also told in the Press by the hon. Member for Tottenham (Mr. Atkinson) that it was [column 668]idiotic to spend the night discussing whether six hours could be added to consideration of the Bill. On the latter point. I will merely state that the hon. Member's observation was both impertinent and inaccurate. The claim of the Opposition was for six days. We all know this, and the Government would admit it. I trust that the Press will give as much space to the correction as it did to the original insertion.

Now we have the selection of Amendments before us. That is something not to be questioned by myself or by the Leader of the House, or by these professors. For Clause 1, for which the Leader of the House thought that four hours was generous, 10 Opposition Amendments are selected, together with five Government Amendments, making a total of 15. Altogether 51 other Amendments are to be discussed with them, making a total of 66. It is abundantly clear as we start that an impossible task has been set us and that every word we put before the House two days ago was fully justified.

Amendment No. 2 is perhaps the most important single Amendment, and therefore it is right, even at the expense of ten minutes of our guillotined time, to record that it would omit the premium. I have not bothered to put on the Order Paper the numerous consequential Amendments which would follow. But the effect would be to leave the premium out. The theory of the Government was old when Queen Victoria was young. The theory of 18th century economists that one can identify and discriminate between manufacture and sale is becoming increasingly impossible in a modern complex society. As I said in the Budget debate, one of the ways to distinguish a democracy or any community with a swiftly rising standard of living is that it should have an explosive growth of its services. It was Sir Paul Chambers who said that production does not become productivity unless one sells the product.

The proposal of the Government to add 7s. 6d. as a premium for men in manufacturing industry is bound to encourage hoarding. I do not suggest that it will encourage recruiting. No one will bring a man into his business at an average cost of £18 to £20 a week in [column 669]order to gain 7s. 6d. a week. But equally it will encourage employers in manufacturing industry to hold tenaciously to their labour forces.

I have made all the study possible, and I am convinced that if there be labour hoarding it is overwhelmingly in the manufacturing industries and not in services. The Government have gone entirely on the wrong track. Today's statement by the Prime Minister makes it all the more important that the spirit if not the words of the Amendment should be accepted, because we are proposing that there should not be such a pay-out. The original figure was stated to be £133 million to manufacturing industry, and perhaps this will be slightly adjusted now as a result of concessions that have been made.

The Chief Secretary to the Treasury must explain whether he believes that we can afford, in the circumstances of the Prime Minister's statement, a pay-out of that sort, particularly when it impinges upon the labour front, to which the Prime Minister rightly showed himself sensitive this afternoon. We shall be judged by what happens to the country as a result of the Prime Minister's statement, and in no direction will this be more important than in what the Prime Minister euphemistically calls the “redeployment” of labour, which really means the increased unemployment which will flow from his statement.

The original idea of the premium was that it offered some way around the provisions of the G.A.T.T. and was compatible with our international obligations. The snag in that argument is that the premium is to apply to everyone in manufacturing industry, whether the product is intrinsically worthless or something as valuable as chemicals or machine tools. It applies to people whether they be key exporters or whether they manufacture only for a wholly unimportant market in this country. Above all, it is applied equally to people whose labour force is already streamlined, as efficient manufacturers always seek to do, and to people whose industry is flabby. It will thus encourage the latter to remain in that state. In other words, in the phrase used by my right hon. Friend the Leader of the Opposition in the Budget debate a year ago, it encourages the survival of the fattest. [column 670]

We do not believe in forwarding the welfare state for industry, to use a phrase first used, I think, by my hon. Friend the Member for Oswestry (Mr. Biffen). Through the debates on the Finance Bill, whenever we were chided for suggesting measures which would cost money, we prayed in aid this measure which we were offering to the Government, £133 million, in return. We got virtually no concession in the Finance Bill, but we still put forward our share of that bond and offer this £133 million.

The Liberal Party at one point put forward an alternative method of regional differentiation in a flat-rate payroll tax. Whatever the merits of that may be, something like it would unquestionably be much more acceptable than the absurdities which have flowed and which can already be seen to have flowed from the Bill.

To sum up; we believe that the thinking behind these proposals is all wrong, that the distinction between manufacture and services is entirely artificial and, moreover, that it is based on a statistical illusion, because the classification was drawn up exclusively for statistical and not for manufacturing purposes and it is quite wrong to use it as a basis for assessing manufacture.

The number of anomalies and absurdities multiplies literally with every post we open, and certainly hon. Members on this side of the Committee know that even if right hon. and hon. Gentlemen opposite do not. We believe that it is a premium on inefficiency to operate in this way and we do not see why we should not seek to amend the Bill in this particular. The general provision would still be unacceptable to us, but many of the anomalies would disappear if we could get rid of the premium. I therefore recommend the Amendment to the Committee.

Mr. Michael Alison (Barkston Ash)

I want for a minute or two to pursue the subject of hoarding in industry. My right hon. Friend the Member for Enfield. West (Mr. Iain Macleod) touched on something which is of crucial and fundamental importance. I want to quote to the Committee one or two of the figures behind our assertion that there is already a great deal of hoarding and that it will [column 671]not be in any sense reduced by the Government's proposals.

I want to quote a figure which has been given not by one but by quite a number of economists of national standing. It is that the degree of under-employment in manufacturing and distributive industry as a whole is as much as 30 per cent. of the employed population. When we have a possible unemployment level for the nation as a whole of between 1½ and 2 per cent. and that is set against the figure of as much as 30 per cent. of the working force under-employed, due to the inefficiencies of restrictive practices agreements, possibly bad management, and the effect of the unions, we must feel that any measure which encourages management to hold on to labour must be counter-productive in the present economic situation.

Let us consider some of the factors which are a positive inducement to management in particular to hold on to labour. I want first to draw attention to the National Plan figure for the manpower gap. The National Institute for Economic and Social Research drew attention to this in one of its recent reports. It said that the publicity given to the manpower gap, estimated at perhaps 200,000 by 1970, was a written-in red light to management to hold on to labour as the scarcest asset in production as the years went on.

Incentives can be given for capital equipment, and the Government does what it can to make it easy to get capital, but the one thing which the Government cannot do, except perhaps by indirect fiscal measures, is to raise the level of the population. It might be able to do so over a long period, but not immediately, and by 1970 we shall have a manpower gap of 200,000. As that is written into the National Plan, how can it be assumed that manufacturers, who are intelligent, will do anything except to make plans to hold on to what they have cause to believe will be the scarcest commodity as the years go on?

Secondly, as my right hon. Friend said, we should bear in mind that manufacturing industry is the industry in which the tendency and the temptation to hold manpower are greatest, simply because that is the most highly unionised sector of [column 672]the economy. Nobody would deny that the unions themselves do a good job on behalf of their members, their job being to keep as many men in employment as they can. In an atmosphere of full employment, it is easy for management to take the easy way out and to reach a compromise with the unions and keep on more men than they need. That is inevitable, because in manufacturing industry it is easier to organise union activities and union solidarity in the shop or in the manufacturing plant where men are grouped together in close proximity. It is self-evident that the most unionised sector of the economy will be the one where manpower will be most difficult to shake out, to use the Prime Minister's euphemism.

In addition, we have the present provisions for redundancy payments. It is open to question whether the Redundancy Payments Act has had the effect of encouraging or discouraging firms to shakeout labour. Perhaps the hon. Lady the Parliamentary Secretary to the Ministry of Labour will be able to tell us whether an effective study has yet been made and whether any statistics are available to show whether that Act has had the effect of encouraging manufacturers to hold on to labour, or has had the reverse effect and encouraged them to get rid of workers when genuinely redundant.

To do the latter costs manufacturers something. If into the bargain is added the premium, coupled with existing union pressure and the warning lights in the economy about the shortage of manpower, with the penalty imposed when redundancy has to take place and workmen have to be discharged, there are at least four major emphases encouraging management to hold on to labour.

We want to emphasise as powerfully as we can that the premium in itself bites most effectively in terms of hoarding on the one sector where manpower is ill allocated in present circumstances. We all know how difficult it is to shift manpower from the declining into the prosperous sectors. That will probably be remedied to some extent by the growth area idea, but even that is not yet proven. We want to stress with all the authority and argument which we can deploy that the hiatus which has been created, not only by the Bill, but also by the Industrial [column 673]Development Bill, which received its Third Reading last night, with its artificial and irrational division between services and distribution and manufacturing, will distort and undermine the effectiveness of the economy.

I draw attention to a vivid illustration of this which comes from the United States of America, from which we have a great deal to learn about productivity, the use of manpower, and the techniques of management. The example is that of Sears Roebuck, one of the largest, most prosperous, most effectively gifted companies in terms of survival—and sheer survival is the acme of managerial enterprise and effectiveness—in the United States.

Sears Roebuck is a great mail order firm with roots going back into American history. It is essentially a distribution organisation and yet nobody can estimate what it has effectively caused to happen in the American economy over the years by the sheer variety of orders for manufactures and supplies for which it has called. It has called for a huge range of distribution, manufacture and transportation, and a whole diverse range of subsidiary, subordinate, complementary, productive activities in the United States economy have been generated and sponsored and promoted by this vast, efficiently managed, distributive undertaking.

I need hardly remind the House that manufacturers in the United States have a knack of increasing productivity which is not strictly related to the amount of capital applied to their manufacturing processes. One thing that studies in the United States have shown is that where plant in the United States is compared with plant in the United Kingdom and in Western Europe, where the degree of capital intensiveness is virtually the same, there is an enormous margin of advantage in terms of productivity, sometimes as much as a third greater. This is not because the plant is more capital intensive but because management techniques are more rationally thought out.

What incentive is there to management by giving them this sort of medicine? There is the additional incentive to relax on manpower, to hold to what they have and not to shake it out. The initiative [column 674]and imagination of management is frustrated and distorted by the clutch of economic measures which have been brought along, discrimination in industrial development, the Selective Employment Payments Bill and the rest. Management is discouraged from making a rational use of manpower, and it is with management that the responsibility lies.

We want to re-emphasise that all the arguments that we bring to bear on the premium are focused upon an artificially separate segment of industry, namely manufacturing, and the distinction against distribution and other features is entirely nonsensical. I will give a brief illustration to show how the general drift of the Government's broad canvas of economic proposals makes no sense at all.

Anyone in the West Country will appreciate that the British Motor Corporation, rightly or wrongly—but it must be doing it for sound economic reasons—has decided that it pays to farm out the manufacturing of motor vehicle bodies to Pressed Steel in places like Swindon. One of the features of the British motor car manufacturing industry is the diversion and subdivision, horizontal disintegration, to use the economic jargon, of some of their activities. This means that vehicles transport car bodies from Swindon to Oxford, from Pressed Steel to the Cowley manufacturers. Under one of the measures introduced by the Government, the manufacturers will not get a grant for this although it is part of the production line in this industry. This shows the anomalous position which arises in selecting individual segments as we are doing in industrial development and the Selective Employment Payments Bill for a premium quite unrelated to the effect that it will have upon the basic ideals and objectives of productivity. For this reason, we urge the Government to think again on this irrational and nonsensical measure.

Mr. Peter Doig (Dundee, West)

I would urge my right hon. Friend to accept this Amendment. In the light of what has been said by the Prime Minister today this opportunity, when the whole Committee apparently agrees that we can save a substantial amount of money, ought to be taken. It can be done without causing hardship to anyone, because none of these people are receiving this money now. [column 675]

I am rather surprised that the right hon. Gentleman the Member for Enfield, West (Mr. Iain Macleod) should stop at saying that we should not pay the premiums. If his logic was correct and he convinced himself and his supporters, I am surprised that he did not go the whole hog and say that we should do away with all of the exemptions as well. If his argument was good for the premiums, then why was it not good for the repayments as well? Of course, I am not advocating that. What is wrong with this Clause is that it is based upon the Standard Industrial Classification, and thus begins from an anomaious position. Under this formula one can have two groups of bakeries, producing precisely the same amounts, and because in one case the bakery is contained within one building, holding not only the bakers but the office staff, sales staff, cleaners, motor mechanics, electricians——

Sir Douglas Glover (Ormskirk)

On a point of order. Is it in order under this Amendment to talk about bakeries and all the other anomalies of the Bill?

The Chairman

This will be dealt with under a later Amendment.

Mr. Doig

The point is that this Industrial Standard Classification is mentioned in this Amendment and, in view of that, I thought that it would be in order to deal with it.

The Chairman

It can be dealt with in a later Amendment.

Mr. Doig

I will endeavour to catch your eye again later on. It seems that this basis causes many anomalies. The premium is going to be paid to some groups of people performing a certain task and yet not to others doing exactly the same thing. I will give two examples, and here again I must come back to bakeries, because this applies to them. I am dealing with a particular Clause later in the Bill not relating to retail shops. There can be two groups of bakeries, one of which houses all of its staff within a single building. Not only does it get the rebate for all of these people, but it gets the premiums as well. On the other hand, the other bakery, of similar size, because it happens to have its staff in separate buildings, is unable to receive the [column 676]premium or rebate on all of those workers not engaged in baking.

There is a clear anomaly here, because of the basis upon which these premiums are paid. The same thing applies in Dundee, which is the centre of the jute industry in Britain. There are two large combines of almost exactly the same size, producing jute, each of them owning many mills. One group has its office staff within one of the mills and thus qualifies for a full rebate and premium for all of its staff employed. The other group, because it has a separate building for office and other staff, does not receive the rebate or the premium for any of these staff. The difference between these two companies producing the same kind of material in exactly the same amounts, is £19,000 a year.

Sir John Hobson (Warwick and Leamington)

Does the hon. Gentleman realise that these provisions do not apply to the nationalised industries and that they receive the premium and a refund for their office staff?

Mr. Doig

I am dealing with the anomalies affecting my constituency. These are very important, and they can be duplicated in almost every constituency throughout the country. This is a very valid point and the Government should take note of it. If this Bill is left as it is, the difference between these two combines of jute producers is £19,000 a year. If we were to accept the Amendment and to do away with the premium, it would be roughly one-third less.

This is a good argument which the Government should accept. We should do away with the premium. If we did so, we should be helping the economy and the Government, and we should not be penalising anybody. All that these firms are concerned about is not whether they get the premium but that they should not be at a disadvantage with their competitors in the same industry. This Clause treats differently two groups producing the same commodity in the same amount. That is wrong. The Government should recognise that this is an opportunity of saving about £133 million, and they should grab it.

Mr. John Nott (St. Ives)

This Bill is riddled with anomalies. Perhaps the greatest anomaly is the absurd idea of [column 677]paying a premium to manufacturing industry. It is a subsidy for inefficiency in industry and a positive disincentive to the redeployment of labour about which we heard so much from the Prime Minister only a few minutes ago. It is absolute nonsense for money to be paid to manufacturing industry for employing more men. It is a complete contradiction of every word spoken from the Dispatch Box less than an hour ago. It is yet another example of the incapacity of the Government to understand the effect of their own measures and to work out their consequences.

The Government should cancel this premium here and now and make their action suit their words by paying it as a rebate to the development areas. An hour ago the Prime Minister talked about the necessity of benefiting the development areas. Yet we all know perfectly well that this tax will have a very serious effect on the development areas. It will bear upon them very much more hardly than on other areas.

Before I give an illustration of how it will do that, may I give an example of the nonsense which the premium will create and why I say that it will be a subsidy to the inefficient. Take a firm of cattle food compounders in a small country town. Over the last two years it has increased its efficiency by cutting back on its labour and installing more machinery. The result is that more than 50 per cent. of its employees are not in manufacturing but in office employment. Because of its efficiency in installing more machinery, it will not be paid the premium, whereas a few yards down the street a firm doing precisely the same, compounding cattle food, which has not made itself more efficient or installed more machinery will qualify for the premium. In effect, the efficient firm is subsidising the inefficient firm and is helping it to reduce its prices, whereas the efficient will have to charge more to pay for the excellent rationalisation which it has put into effect.

I know someone in Bradford who is the joke of all his friends. He is chairman of one of the leading top-making companies in the country. If ever there was an industry which needed rationalisation, it is the top-making industry. Over the last two years this man has cut back on his employment. He has released labour [column 678]to other more needy industries like the machine tool industry. Now he is the joke of Bradford because all his friends are saying to him, “You made yourself more efficient, but now you will receive only £10,000 in premiums whereas those of us who remained nicely coddled and inefficient and did not install more machinery will receive £30,000 in premiums” . This is an example of the anomalies and nonsenses which this premium will create.

My hon. Friends may differ with me here, but the reason why I say that the amount representing premium should be paid as a rebate to the development areas is this. In one part of my constituency only 3 per cent. of employment is in manufacturing as against an average in the country of 38 per cent. Therefore, there are certain parts of the country—the development areas and my constituency in particular—which will be 90 per cent. worse off compared with average parts of the country so far as receiving the premium is concerned.

According to 1964 Ministry of Labour figures, the incidence of service trades in the country generally is 51 per cent. In Cornwall 64 per cent. of the people are employed in service trades. The figure in my constituency is 72 per cent. These are Ministry of Labour figures. Therefore, there are development areas such as the St. Ives division which are 40 per cent. worse off than the average parts of the country when it comes to receiving a refund.

I hope that I have shown how this tax will bear extremely hardly on the development areas. The premium should be used as a rebate to offset some of its adverse effects, bearing in mind that it is in the development areas that there is already high under-employment and incomes generally are much lower than in the country as a whole. Moreover, the premium should be abolished for the simple reason that it is a disincentive to the redeployment of labour. If manufacturers are to be paid this premium per employee, clearly there is a disincentive to them to cut back on their employment and install more machinery. It is a complete contradiction of every word which the Prime Minister said less [column 679]than an hour ago. If the Government wish us to believe that they mean action they should cancel this premium immediately.

Mr. R. E. Winterbottom (Sheffield, Brightside)

I should hate to incur your displeasure, Sir Myer, and I am not sure whether I am strictly in order or whether the debate can range over the whole Clause as distinct from the Amendment. From what I have heard, it seems that the debate can cover the whole Clause, otherwise there is not much sense in what has been said.

I want to deal with the Amendment, which proposes to limit the premiums to firms in development areas. [Hon. Members: “No.” ] I stand to be corrected.

Mr. Norman St. John-Stevas (Chelmsford)

The hon. Gentleman is on the wrong Amendment.

The Temporary Chairman (Sir Myer Galpern)

We are discussing Amendment No. 2.

Mr. Winterbottom

I beg your pardon, Sir Myer. I thought that we were still on Amendment No. 1.

I want to comment on Amendment No. 2 and to say this about the development areas. Sometimes it is very hard——

The Temporary Chairman

Order. I hope that the hon. Member is quite clear about the Amendment which is under discussion. It is Amendment No. 2, which rules out entirely discussion on development areas. I hope that the hon. Member will confine his discussion to the terms of the Amendment.

Mr. St. John-Stevas

On a point of order. Are we to be submitted, Sir Myer, to a filibuster as well as a guillotine?

Mr. Winterbottom

Further to that point of order. I asked in the first place for the guidance of the Chair so that I could clearly understand what was being discussed. It was my mistake in thinking that we were still on development areas. For that I apologise, and I will now resume my seat. There is no intention whatever to filibuster. I connected what I heard from hon. Members with the development areas and thought that it was hopelessly wrong. [Hon. Mem[column 680]bers: “It was.” ] That is clear to me as well.

There is, however, one thing that I would like to say. It seems to me that the debate on the Amendment has been much wider than the text of the Amendment warrants. It has spread almost to the whole of the Clause. I was rather surprised at the hon. Member for St. Ives (Mr. Nott) talking about a premium. I agree for instance, that this premium will be, in the hon. Member's words, a subsidy for inefficiency. I go further and say that it might be an inspiration to inefficiency. I agree on that, too.

At the same time, when I look at the mass of Amendments to the Clause, none of which will be accepted by the Government, I can only conclude that the Opposition are rather inefficient in putting down all these verbose Amendments, which have no hope whatever of success and, indeed, do not deal with the central point with which they themselves wish to deal.

There is only one straight issue on the Clause and it cannot be found in Amendments such as the one we are discussing. That is merely to say that this is a big sin; we will countenance it, but we will make it a little smaller. That is not likely to cut any ice in the House of Commons.

The Opposition would be well advised to cease filibustering with this mass of Amendments and oppose the Clause in truth, as I want to oppose it, in terms of the Question, “That the Clause stand part of the Bill” instead of trying to snipe and enter into full fray and into the joy of battle. Let hon. Members opposite put all those things on one side and deal with the principle which they and I want to see eliminated, namely, that no subsidy should be paid to anybody, whether in the development areas or anywhere else.

Mr. John Pardoe (Cornwall, North)

I shall be brief. We on this side want to make a lot of points, and I think it best if I follow the line of taking less than five minutes to make each point. I will try to keep to that principle throughout the debate.

I support the Amendment. It happens to be in the name of the right hon. [column 681]Member for Enfield, West (Mr. Iain Macleod) only because I have a constituency far from London. I thought it up on the train, but by the time I got back to London I found that the right hon. Gentleman had put down the Amendment instead.

My hon. Friends and I had an Amendment to Clause 42 of the Finance Bill to leave out the word “selective” , which is what Amendment No. 2 would do. In the Bill, the whole business of trying to select is an absolute nonsense. It is the sort of thing which I would have been keen on doing on having just finished reading part one of economics at university and being lectured to for hours on end by Left-wing professors. One had then a tremendous feeling that economists were all-powerful and could select in this way. In the intervening years, I have found that they cannot select in this way and that it is nonsense to pretend that they can. To try to mix up all these industries, which are vastly different and have vastly different problems, just because they happen to appear in a booklet produced some years ago by a statistical office is sheer and utter nonsense.

I would like briefly to illustrate my meaning by references to two industries. Why does not agriculture qualify for the premium? I know why the National Farmers' Union does not want it to qualify—because it would then be classified as a manufacturing industry and might be rated as such. That, however, is not why I thought about it in this context.

Agriculture has a very good productivity record, with a 6 per cent. increase a year. Very few industries can match that. “Very well” , say the Government, “we accept this figure” . Nevertheless, agriculture is still not paid the premium because the Government say, as they have said in the National Plan, that they want x number of people to leave agriculture and go into industry.

I do not altogether quarrel with the National Plan's figure. I remind the Government, however, that the present rate of exit of people from agriculture is substantially faster than the figure laid down in the National Plan. If we go on like this we will not have enough people left on the land to match the targets which the National Plan has produced.

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Captain Walter Elliot (Carshalton)

In the hon. Member's opinion, would the owner of a battery hen organisation which employs men get the 7s. 6d. refund?

Mr. Pardoe

I would have thought, at present, certainly not; but if the Government rate these enterprises, it should qualify as a manufacturing industry.

The second industry which I take is coalmining, which will not qualify for the premium. We shall talk later about opencast mining on an Amendment which appears in my name. Coalmining is not classified as a manufacturing industry, so it does not get the premium. We find, however, that the exit of men from coalmining is at a much faster rate than the figure laid down in the National Plan. The Minister of Power will back me up in saying that there is a real danger that we will not have sufficient men in coalmining to match the targets laid down in the National Plan. Therefore, if we are being selective, we ought surely to say that coalmining is an industry which needs the premium to encourage labour into it, and yet here we are not paying it the premium. These two examples show clearly how nonsensical it is to try to differentiate between industries in this way.

I presume that the Government must be convinced that there has been a movement of employment from manufacturing into service industry which is altogether too fast, and that they wish to check it. I accept that there is an argument here. What the Government must prove, however, is that the movement is any faster than it is in other Western industrialised economies which are successful. I dispute that. The latest figures in my possession show clearly that the movement from manufacturing into service industries, which is a phenomenon of all highly industrialised countries in the modern world, is no faster in this country than elsewhere.

The Chief Secretary to the Treasury (Mr. John Diamond)

I hope that the hon. Member will proceed to give his figures, as mine show the opposite.

Mr. Pardoe

I shall be delighted later to hear the right hon. Gentleman's figures. I hope that he will prove the point. I made much the same point on Clause 42 of the Finance Bill, but the Chief Secretary did not bother to produce the figures. [column 683]If he is able to prove the point, I am certainly prepared to withdraw the argument, but I doubt whether he can prove it.

My third point may not be extremely important, but it is worth making. If we are to get rid of the selective principle and do away with these premiums, which I do not think serve any purpose, we could substantially cut the administrative costs of the scheme. It will cause great complication in the Ministry of Labour in giving a premium plus a rebate to somebody and then a rebate only to somebody else. It would be much simpler to have one figure.

My fourth point arises from an Amendment of mine which has not been selected. To select between men and women and have a different incentive for employers to encourage them to employ men as opposed to employing women is absolute nonsense. We surely want to encourage women into industry to take jobs just as much as we want to encourage men to take jobs in industry. I see no reason at all to make this kind of nonsensical differentiation.

Finally, if the Government want to be selective at all—and I disagree with this selectivity because I think that this is Left-wing economics gone mad—it would have been far better to have been selective in terms of the criteria in the Government's economic policy, namely, to get a better balance between the regions, to get productivity up by 4 per cent. a year at least, and to increase exports by 4 per cent. a year.

I am sorry that the Amendment I tabled has not been selected, because if it had been it would have confined the premiums rather more to those sectors. I am sorry it has not been chosen, because had it been I hoped the Chief Secretary would have had to say the Government could not measure this productivity. I had hoped to hear him say so.

This Measure is not a Measure to increase productivity. It will undermine the whole economic policy of the Government. If those are the criteria by which the Government choose to judge the economy it would be far better to use the selective principle, if one is to [column 684]use it at all, to encourage those three criteria, but this is not going to do that. It is not genuinely selective but only mixes everybody up, and then takes a chunk of the people here and another chunk there, and nobody knows the reason why in the end.

Mr. John Hall (Wycombe)

It was not originally my intention to take part in this debate because from the start it appeared likely that all the speeches would come from this side of the Committee—only four back benchers being present on the Government side. However, I have been encouraged to take part because 50 per cent. of the representation here of the party opposite have spoken, and 50 per cent. of that party as represented here have spoken in support of the Amendment moved from this side of the Committee. Therefore, it would appear that this particular part of the Bill has no support in any part of the Committee. Now we have just heard the Liberal Party condemn the principle, and in no uncertain terms, and the hon. Member for Cornwall, North (Mr. Pardoe) produced some extremely good examples to back up his point.

I speak on this aspect of the matter as an industrialist, and I can say that when I first heard the Government's proposal to introduce a premium for employees in industry it horrified me. As an industrialist I have been trying for a very long time, despite all the discouragement offered from time to time, to ensure that my concern employed no more people than absolutely necessary to make it efficient. One has been opposed in this by difficulties put in one's way—by reduced hours of work, by restrictive practices, many of which cause managements very often to employ more people than they need.

Then, when one is getting to the point where one is overcoming one's difficulties, difficulties with which managements are confronted every day of their working week, one gets this blow—to keep labour one does not need for efficient operation of the factory or other work. If the average undertaking is employing, say, about 500 men—and I shall deal with men only at the moment and not be diverted to consider the sexual inequality which comes out in this Bill—but if the average factory has about 500 people [column 685]it may pay the management to keep eight out of ten men with the tax, because it is paid for by the premium. This is absolute insanity.

I would suggest to the Committee that in view of what we have heard this afternoon the present Bill is quite irrelevant. It does not match up to the needs which we are told are required. It will dislocate industry. It will create appalling anomalies between one manufacturing industry and another, one qualifying for premium, and another, for various circumstances, not.

It is certainly not going to have the effect of diverting labour from service industries into manufacturing industry. In fact, in many cases we do not want to divert it, because manufacturing industries have got too much labour already. The Chief Secretary shakes his head. I do not know how long it is since he was actively employed managing a factory or dealing with men on the shop floor. It is a long time ago, I imagine. Let me tell him quite frankly that I foresee under-employment in the manufacturing industries mentioned with the announcement of the suggestion in the National Plan that by 1970 we shall have a shortfall of 200,000 men. My hon. Friend the Member for Barkston Ash (Mr. Alison) brought this point up.

I would have thought that the purpose of any Government employment tax, a payroll tax, should be to encourage all industry, whether in services or manufacturing, to be efficient, and I personally—I speak purely personally—would not be averse to a payroll tax, preferably as a tax on the payroll and not as a poll tax, because one of the great advantages of having a tax on the payroll is that it encourages manufacturers sometimes to put up resistance to wage demands which are unjustified because they know that if they are to have an increased wages bill they will pay the increased tax put upon it. If we had an overall tax on the use of labour of this kind spread over the country as a whole at a reasonably low level it might have useful results in that way.

This tax, however, is going to dislocate the industrial effort of this country. It will penalise in many respects the very service industries which make a very great contribution to the export potential, and to the invisible exports of this country. [column 686]It is not going to have the effect at all, as I see it, of bringing about redeployment of labour.

I beg the Government to think about it again. I do not believe for one moment that manufacturing industries want to receive this £123 million in the form of premium. I imagine it was designed originally, as I understand it, in order to try and offset the additional costs which might be brought about by the tax on manufacturing industries in the form of increased costs of insurance and services which industry might be called upon to meet. It is an extremely rough method of doing something for industry, to reverse the export-import rebate, and to spread it over such a wide field as to include industries which are not concerned with exports at all. I can only think this to be the basis of this.

It is not going to have that effect. Let me tell the Chief Secreary what happened as soon as this premium was announced. A major customer of one company said he hoped to find it reflected in the prices, since the company was to get the premium. He hoped to receive a substantial discount.

Secondly, shop stewards were very quick to point out that when the next round of wage demands came up they would expect a proportion of the premium received by the industry to meet them.

Mr. Winterbottom

Quite wrongly!

Mr. Hall

Now we have had the statement that there is to be a standstill for six months, and a further attempt to prolong that standstill beyond that six months, but to that extent it will only delay the demands and in due course we shall have the next round of wage demands with the hope that they can be met from the premium.

As I see it, it serves no useful purpose. It is a form of economics that I find extremely hard to follow. It is a measure which has no support on either side of the Committee. Indeed, I venture to suggest to the Chief Secretary that if he likes to have a secret ballot among the members of his own party—a really secret ballot—he will find an overwhelming majority against having this premium at all. I challenge him to conduct this investigation and to stand by the results, [column 687]because if he did he would offer this Amendment every encouragement.

Mr. Raymond Gower (Barry)

I echo what my hon. Friend the Member for Wycombe (Mr. John Hall) has just said. Indeed, the speech of the hon. Member for Sheffield, Brightside (Mr. Winter-bottom) illustrated some of the disquiet which exists in the party on that side of the Committee about the nature not only of the tax but in particular of these premiums which we are discussing. I think that not only the hon. Gentleman and some of his colleagues but some members of the Government, too, would welcome an excuse to bury this tax in the ground, and I suggest to the Chief Secretary that they have an excuse, they have an eminently good reason, in the nature of the present emergency as described by the Prime Minister this afternoon.

I put it to the Chief Secretary a little more seriously than that. In announcing the steps which the Prime Minister has described to us, he was obviously calling for considerable sacrifices from the country. He was asking the people to forgo a number of things. He was asking for restraint. He was asking them to undergo increases in certain forms of taxation. The Government themselves are showing a very poor example if, at the same time as calling for that kind of restraint and those sacrifices, they are giving away or passing over premiums to manufacturers who have not asked for them, who in many cases do not need them and whose industries do not require them. I should have thought that the reasons for reconsidering the payment of premiums on that level are very strong.

Then my hon. Friend the Member for Barkston Ash (Mr. Alison) observed that we were reminded that the division between manufacturing and service industries is somewhat artificial. It is far more artificial than has been suggested. I think that it is completely fallacious. There are a great many industries where the service parts of those industries have a close relationship with the productive parts. The hon. Member for Dundee, West (Mr. Doig) gave some useful examples of that in his own constituency.

The distinction is based on another misconception of the inevitable growth [column 688]of sophisticated economies in the Western countries. In countries with low standards of living, it would be natural to find a vast preponderance of productive industries. But we should be comparing ourselves with the more sophisticated economies of the West.

In an earlier contribution, the Chief Secretary intimated that he would adduce evidence that the movement of people from the manufacturing industries into the service industries was too rapid. Like others of my hon. Friends, I shall be interested to hear those figures, because we should expect a considerable growth in the service industries; it is bound to happen. I expect that growth to accelerate in years ahead; it is bound to. I should expect to see more and more people employed in those industries and services which render life more pleasant.

Mr. James Dance (Bromsgrove)

Following on what my hon. Friend has been saying, I was talking to a constituent of mine the other day who had put a new piece of plant into his factory. As a result, he was able to employ fewer people and produce more, and he wanted more salesmen on the roads. I am sure that that pattern is one which will be seen increasingly.

Mr. Gower

Precisely. On the other hand, in the more backward countries that does not happen.

The Government are being misled into making hasty judgments about this. They are dealing with the problems of today with the minds of those who were considering the industries of 20, 30 or 40 years ago. I hope that it can be reconsidered.

As my hon. Friend the Member for St. Ives (Mr. Nott) has indicated, the payments of premiums, as they appear in the Bill at present, must bear harshly on certain parts of the country where there are fewer manufacturing industries. That is true of a large area in Scotland, it is true of a large part of the West Country, and it is certainly true of the preponderant part of Wales. The payments of premiums as intended by the Bill must be totally at variance with all the Government's policy about the development areas, and I hope that the Government will reconsider the matter from that point of view as well. [column 689]

Let them at least accept the Amendment. It would be far better if they consigned the whole Bill to limbo, but the next best thing would be to bury these premiums.

Sir Lionel Heald (Chertsey)

A number of hon. Members will find this a convenient Amendment on which to speak, because it provides a means of improving many of the anomalies which have caused so much concern all over the country.

There are undoubtedly a number of things, if I may call them that, which any ordinary person would describe as “manufactures” and which are not included in the premiums as matters stand. I need not refer to them in detail, but there are several categories which we hope may be referred to during the debate, although it is doubtful whether we shall be able to discuss them in detail.

There will be a premium in some extraordinary cases, and the most extraordinary one of all, which shows the anomaly which I mention not from hostility of any kind to those concerned, is that which concerns the printing and publishing of newspapers and periodicals, including publishers who do not do their own printing. It means that premium is going to be paid to those who publish newspapers and do not even print them.

The only possible justification for including newspaper publishers under the heading of “manufacturers” is because, owing to their use of great printing machines and industrial processes, they are regarded as manufacturers for the purpose of the Factories Acts safety regulations and such things of that kind. That is perfectly right. But that that should enable them to attract a payment of 25s. a week for every employee in that part of the business is fantastic, unless we give it to people like builders, film studios, and others who do exactly parallel things.

It is a remarkable fact that we have read little about this matter in the newspapers. One can understand it, of course, They may feel a little delicate about it. However, I have received a letter from someone engaged in that business, amongst whom I have a number of friends. He said that he thought that it [column 690]was fantastic for them to get a premium. As I say, it is a rather delicate matter. If the Government offer to pay a man 25s. a week for everyone he employs, he ought not to attack them for it. That may account for it, but the fact remains that it is an extraordinary position. If one considers the end product, what is the difference between the various forms of communication? In one case the product may be a film, and in the other case a newspaper. However, they are both intended to give information, instruction or entertainment to the public, yet one is in and the other is out.

It seems that there are two alternatives. Though it is not what we are discussing now, one is to put all these things in. The other is to take them out, and that is what I suggest.

Mr. St. John-Stevas

There are a number of other hon. Members who wish to speak on this Amendment, so I shall be brief. But the brevity of my remarks should not be taken as an indication of the importance that I attach to the Amendment, because I agree with my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) that it is perhaps the most important single Amendment that we have to consider in this truncated Committee stage. I am sorry that there are not more hon. Members opposite present to listen to the arguments and to support the Government. I dare say that they are ashamed, and I imagine that they are also dazed by the statement which the Prime Minister made earlier today and have gone away to recover as best they may.

There is a connection between the general economic policy of the Government and this Clause of the Bill, in that both are entirely irrelevant to our real economic problems. The Clause is not only irrelevant; it is positively harmful to the efforts which are being made to solve those problems and put the economy on a sound basis.

The aim of the Amendment is to do away with the premium altogether. The whole idea of this premium is misconceived. It rests upon the fundamental flaw of a distinction between manufacturing and service industries. No such distinction can be made. It was Adam Smith who, in that book “The Wealth of Nations” , which I am sure the hon. [column 691]Lady the Member for Hitchin (Mrs. Shirley Williams) has read, because she is one of the better read Members of the Government—that is a modified compliment——

Mr. Charles Fletcher-Cooke (Darwen)

The hon. Lady may be better read, but under this Bill she is worth only 3s. 9d., compared with 7s. 6d. for the other illiterates.

Mr. St. John-Stevas

I would give her the benefit of the doubt, and award her an extra half crown.

In that book to which I have referred there is a chapter on productive and unproductive labour, in which Adam Smith takes this point of the distinction between manufacturing and service industries and disposes of the whole economic argument for the distinction between them.

Quite apart from the fallacious economic basis of this distinction, there is, too, a fundamental moral error which lies at the base of it, the idea that in some way it is better to be in a manufacturing industry than in a service one, that somehow the contribution made by a manufacturing industry is more worth-while than the contribution made by a service industry. This is an erroneous, puritanical notion, because in an advanced industrial society, such as we have today, the contribution of service industries is every bit as vital as that of manufacturing industries. Indeed, in practice they cannot be separated, because manufacturing and service industries are inter-connected at so many points.

Once again the Government are behind the times in trying to make this distiction, because the whole trend in an advanced society is to employ fewer people in manufacturing industries and more in service industries, and surely this is a trend which must continue when we move towards a much more automated society than we have at the moment?

Leaving those more general considerations, even if we look at the very narrow point of the effect on the balance of payments—and it is said that this premium will somehow help our balance of payments by increasing exports—the argument is ill-founded. First, because it is not selective enough between one type of manufacturing industry and another. Sec[column 692]ondly, because it so grossly discriminates between manufacturing industry and a service industry such as the hotel industry which makes a vital contribution to the tourist trade and to solving our balance of payments problem.

A rather delayed measure of justice for the hotel industry was foreshadowed in the Prime Minister's statement this afternoon. It would be much more sensible to give back to the hotel industry in some tangible form the investment grants of which it has been so unfairly deprived, and to relieve hotels of the extremely heavy burden of taxation which is being imposed by the Bill.

It is impossible in practice to make a sharp distinction between manufacturing and service industries, because so many industries cross the frontiers of the distinction which is attempted to be laid down by the Bill. The Clause will raise immense difficulties of classification, which would be got rid of by a simple excision of this Clause from the Bill.

One of the justifications for the Bill is that it is said to be likely to facilitate the redistribution and better use of labour. I wish that these hopes could be justified, because one of our basic economic problems, which so far has not been tackled in any way by the Government, is the lack of effective use of manpower, and it is the effective use of manpower within manufacturing industry which is really the nub of the whole matter.

The Chief Secretary shook his head when my hon. Friend the Member for Barry (Mr. Gower) referred to the over-manning of British industry and the uneconomic use of labour. Perhaps I might remind the right hon. Gentleman of the words of his colleague the Chancellor of the Exchequer, which I put down in this notebook, in what I might call my commonplace book. “I have referred,” said the Chancellor, “to complaints about the wasteful use of manpower in manufacturing industry. Many of these complaints are justified” . There one has as it were from the Chief Secretary's superior officer confirmation of the indictment made by my hon. Friend the Member for Barry.

That is where the hoarding is, and that is where the problem centres. This Bill may lead to a number of part-time teachers, part-time charladies, and part-time hairdressers losing their jobs. They [column 693]will not be turned overnight into skilled workers, and this is where the problem lies. It is not a problem of unskilled labour, but one of a shortage of skilled labour in industry, and the efficient use of this extremely scarce commodity.

Here one finds a direct contradiction in Government policy. On the one hand there is the policy of exhorting industry to use its skilled labour in an efficient way, and on the other one has the positive incentive provided by the premium laid down in the Bill to do precisely the opposite. I agree with my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod). Of course industrialists will not go out and recruit skilled labour because of the premium provided by the Bill. But that is not the problem. The problem is to get manufacturers to disgorge skilled labour so that it can be usefully employed elsewhere, and the existence of this premium may well tip the balance.

After all, thought small in itself, the total subsidy being given to manufacturing industry is likely to be about £150 million a year, and as we move into recession, as we surely shall after the Prime Minister's statement this afternoon, the temptation to hoard skilled labour will be greater than ever, because manufacturers know that it is extremely difficult to get that skilled labour back when the “go” of the “stop-go” gets going again.

The whole purpose of the Government's labour policy should be to increase the flexibility and mobility of the labour force. This Bill in general, and this Clause in particular, do the opposite. The Bill as a whole is unpopular, and rightly so, in the House and in the country. But the most unpopular part of it is this Clause. It has literally no friends—or if it has friends in this House they have been remarkable by their silence. I commend the Chief Secretary to the advice given by the distinguished banker and economist Walter Bagehot to his nephew, Guy, when his nephew, at breakfast, had difficulty in opening his egg. Bagehot said, “Hit it hard on the head, Guy. It has no friends.” I commend that course of action to the Chief Secretary in relation to this Clause, and if he declines to hit it hard on the head we will hit it as hard as we can.

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Mr. Geoffrey Rhodes (Newcastle-upon-Tyne)

I agree with the hon. Member for Chelmsford (Mr. St. John-Stevas) that the distinction made in the Clause between the manufacturing process and the distributive process is far too easily drawn by people who, if they knew industry and commerce sufficiently, would realise that it is far from clear in practice.

I also want to refer to the point made by the spokesman for the Liberal Party, who referred to the Bill, and to this Clause in particular, as being the product of Left-wing economists. I am an economist, and I claim to be Left-wing, but I hope that nobody will think that the Bill or the Clause was any product of my intellect or imagination, because there are some things that I want to say about them that I would interpret as being critical.

As I understand the Clause, it provides that a number of premiums will be paid to manufacturers regardless of the social value of the work that they do or of any special contribution they may make to the national economy, and especially to the export trade. The subsidy will be given to all people who are suitably classified in the Standard Industrial Classification on a basis which seems to me to be irrelevant to the overall needs of the economy, and partly irrelevant to the White Paper that preceded this debate, some months ago.

As a result of this legislation people constantly ask why, for example, the brewers, who do not need a subsidy and who have not asked for one, are being given one, at the same time as many other people will suffer a severe fiscal penalty. That is a fair question, and I repeat it this evening because I have constantly asked it and I am still waiting for a satisfactory answer.

Mr. Geoffrey Hirst (Shipley)

The hon. Member may or may not know—the Committee certainly does—that I have often declared an interest in the brewing trade. That trade estimates the net cost to it as being about £5 million. It will not be receiving a benefit.

Mr. Rhodes

I would not quarrel with the hon. Gentleman's information. I merely say that because of the way in which the Bill is framed that is the kind [column 695]of question which is constantly being asked. Why should manufacturers be subsidised regardless of their social usefulness to the export trade? Perhaps I am indulging in a Freudian slip in referring to the brewing industry, because I had a number of things to say about it, in another context, on a previous occasion.

But my main point is one which I do not think the hon. Member for Shipley (Mr. Hirst) will disagree with, because the last time I said it he said that he agreed with me—although I sometimes become worried when he agrees with me, because there are few occasions on which we can share this privilege.

In replying to the Second Reading debate, while I was recovering from a long stint by having some refreshment, the Financial Secretary criticised me and a number of my hon. Friends—and the Opposition in general—for being critical about the anomalies and difficulties within the Bill. As he put it, we had been completely destructive and had offered no alternative suggestions. I heard the latter part of his speech, but I did not have an opportunity to say anything then, although a number of my hon. Friends protested on my behalf.

That was a distortion of what was said in the debate. A Liberal Member distinctly categorised at length a number of alternative proposals which the Liberal Party had carefully costed. I specifically suggested that it would not help the Government in the present economic situation for premiums to be paid indiscriminately to certain people who are fortunate enough to fit into the right part of the Standard Industrial Classification, and that it would be better if they were not paid. I suggest that if the Government are concerned to tax the more inefficient parts of the distributive process they might consider imposing the tax upon self-employed retail distributors, who are not the most efficient.

At any rate, a number of constructive suggestions were made, and to argue that our case is not worth answering because we have not made alternative suggestions is unfair.

Mr. Winterbottom

We also put up a set of suggestions which even questioned [column 696]the efficiency of the Treasury as a tax collector.

Mr. Rhodes

That is not the theme which I developed, although I drew attention to the fact that if the object of the tax was to encourage efficiency in industry it seemed odd that those distributors who were centralising their warehousing and transport systems into central units would become subject to the tax, whereas if they were to leave those units indiscriminately at the various points of production they would become eligible for a subsidy.

I cannot see the logic of this provision, and as a Left-wing economist it does not seem to me to serve the interests of economic efficiency or sound socialist principle to indulge in the imposition of this tax in this way. We have the situation in which we give a premium to the manufacturer of dog food while imposing a penalty on those who engage in the processing and bottling of milk. I am pleased to see the Joint Parliamentary Secretary to the Ministry of Health here. He might remind me that it is illegal to distribute milk without having previously processed it and bottled it. I cannot see why the processor of milk should suffer a penalty when the manufacturer of certain dog foods receives a subsidy.

The reason why milk processing becomes subject to this kind of penalty is that, from the point of view of the Bill, it happens to be wrongly placed in the Standard Industrial Classification. This brings us back to the ultimate question: is the purpose of this Standard Industrial Classification sufficiently exact to be used for this type of legislation, which has a different purpose?

I suggest that it is not. The statistical value of the Standard Industrial Classification is quite unrelated to the purposes of the Bill. Although it is a convenient device, unfortunately, it is a device that is also pregnant with anomalies of all kinds. Consequently, of course, we get all the complaints. One reason why people have never protested at the processing of milk, for example, being placed in the distributive part of the Standard Industrial Classification is that, in the past, it has not mattered very much to the trade which part of the classification it happened to be in——

[column 697]

Mr. Diamond

I hope that my hon. Friend will not accuse me of discourtesy when I wind up the debate if I do not reply specifically to his comments about milk, as there is another Amendment which deals exclusively with the problem of milk and its bottling.

Mr. Rhodes

I expected that this point might be raised if not from my right hon. Friend, then from the Chair, but I would still make the point that, if the Committee supported Clause I unamended, it would support a classification for giving subsidies to people who, for many reasons which I have explained, neither need them nor deserve them, and would impose a penalty on other groups of manufacturers, like those processing milk. This will, of course, bring the tax into public disrepute, because it is illogical, anomalous and unfair.

We appeal again for improvements to be made in the classification for carrying out the tax as early as possible. The power is in the hands of the Government, with this legislation, to make Amendments and to switch around into different categories of manufacturing and distribution in different parts of the Standard Industrial Classification for the purpose of the Bill.

I accept that whenever a new tax has to be got off the ground, whenever a new aeroplane is put into flight, it is defective and needs time for improvement, but I would be encouraged to think that improvements would be made if at least some sympathetic noises were made from the Treasury Bench in answer to the very fair, sensible and moderate points of criticism which have been made, not only by the Opposition—they may have different motives—but from this side of the Committee as well.

I suggest that, unless improvements are made soon, and the Treasury Bench indicate that they sympathise with and understand the point which is constantly being put to them, this tax will be continually ridiculed in the country and, in the long run, will bring the Government into disrepute.

Mr. Fletcher-Cooke

During my 15 years' experience of the House, I do not think that I have ever heard a Clause of a Government Measure so bitterly attacked from all quarters of the House and most bitterly from [column 698]behind the Treasury Bench. This is the more impressive because we are operating under a timetable, a procedure in which there is no sanction against Government supporters speaking. If we were operating in the normal way, without a time-table, there would, of course, be inhibitions against Government supporters speaking, because that delays progress. But, in these circumstances, there are no such inhibitions.

Not a single Government supporter has said one word in favour of the Clause or against this Amendment. Three speakers have made the most powerful and damaging criticisms of the Government and have supported the Amendment. If Parliamentary democracy means anything, I should have thought that, with those criticisms from the Labour Party, the Liberal Party, and the Conservative Party, the Government must give some way particularly bearing in mind that this provision entails the Government giving money away.

Of course, if the Government were taking money from the population, and said that they must have this money and had to stand rigidly like Mr. Gladstone, or Sir Michael Hicks-Beach, or one of the “great black dogs” of the past in favour of rigid Treasury control, one could understand their position. But this is a unique situation. Hon. Members in every quarter of the Committee and in every party are saying to the Government, “Do not give this money away: keep this money.” Yet the Government apparently are adamant. Is not that the most unique and extraordinary Parliamentary situation within the recollection of any hon. Member? Does it not make the Chief Secretary think that he must be wrong?

No credible explanation for this premium has yet been given. All that is said on the positive side is that, hitherto, taxation has been “somewhat” unfair to manufacturing and “somewhat” unfavourable to services, as though they were two disembodied or classical figures on a monument, sculpted figures, one representing “Manufacture” and the other “Services” , reminiscent of the Great Exhibition of 1851, which saw two neuter figures in the middle, one representing Charity and one Agriculture, which were neither good nor bad. That personalised fashion is not the way in [column 699]which to consider taxation. It was understood that, when the Labour Government came to power, they would indulge in what is known as “purposive” taxation, that the fiscal weapon would be used for certain social and defined purposes.

I think that the hon. Member for Newcastle-upon-Tyne, East (Mr. Rhodes) would approve of that. But he has explained very frankly and squarely that this does not effect any such purpose. Certainly, no purpose has been explained. The most the Government have done is to say that it will not do that much damage, it will not cause the hoarding of Labour in manufacturing industries which people think. That is a poor defence. I suggest that even that is not right.

Although it is true that, probably nobody, will employ more people in order to get 7s. 6d. for a man or 3s. 9d. for a woman, there are, nevertheless, bound to be marginal cases of firms which are within the 50 per cent. rule, or near it, between qualifying and non-qualifying operatives, when it will be worth their while within a plant, establishment or site, or whatever the definitive term may be, to employ two or three more qualifying operatives so as to bring the whole of the site or establishment within qualification for the premium.

This is a very dangerous and critical situation, because two or three or four qualifying operatives might make all the difference to the whole plant. Although this seems to be a small matter in relation to the plant, for the country as a whole it will be a more frequent occurrence than the Chief Secretary realises, and will be absolutely deleterious and devastating to any suggestion of the redeployment of Labour on the lines which the Prime Minister told us this afternoon must happen.

I ask the Chief Secretary and his advisers, therefore, to consider the critical point at which the numbers of qualifying and non-qualifying operatives are nearly in balance in any establishment. This is a more frequent occurrence than is generally recognised. If that is so the prize for employing more qualifying operatives than one really needs so as to get over the 50 per cent. rule is much too great. We shall never have time to go into the [column 700]anomalies in the Bill, owing to the Guillotine.

I was most interested to hear the hon. Member for Dundee, West (Mr. Doig) explain the enormous anomalies in the jute industry in his constituency. There is, of course, a great anomaly in my constituency in the processing of paper. If a firm uses as its raw material rags or esparto grass or something like that, it is a manufacture. If, however, it uses waste paper to produce new paper, it is a service industry and does not qualify. There are hundreds of examples. Many Amendments are down, some selected and some unselected: it does not very much matter, because we will not be able to get on to any of them.

The only clean and honourable way to deal with this is to abolish the premium. I do not think that it is remediable—certainly not in time for the passage of the Bill, since the Government say that they must have all stages before the House rises in August.

Unlike some hon. Members, I can say that my constituents on the whole will benefit from these provisions. Most of them are qualifying operatives. But I am sure that they would be the first to say that this is not only a wrong use of the fiscal weapon, but also a useless use of the fiscal weapon and that it will achieve no economic objective that one can understand, because there is no economic objective, over and above a personalised and futile attempt to do what is called social justice between manufacturing and services—which is a philosophy which has no foundation in heaven or in earth.

The Temporary Chairman

Sir Tatton Brinton.

Sir D. Glover

On a point of order. Is it not usual, particularly under a time-table Motion, that an hon. Member who has his name to an Amendment is called during the debate on that Amendment?

The Temporary Chairman

As far as I am aware, during my years in the House the matter has been entirely at the discretion of the Chair, but I will keep the point in mind.

Sir Tatton Brinton (Kidderminster)

I must declare an interest, because I am a manufacturer and, as a manufacturer, I am totally against this premium which is to be paid to manufacturers.[column 701]

First, I am against the principle of selectivity in general. I think that it is a feature of the Bill which has produced all the difficulties and all the anomalies. We shall have some limited time, I suppose, in this curtailed debate in which to point out a few of the manifold anomalies which have arisen.

Like many of my hon. Friends and hon. Members opposite, I should have preferred a payroll tax, as my hon. Friend the Member for Wycombe (Mr. John Hall) said. In my opinion, such a payroll tax should have been a percentage tax on the payroll and should have been universally applied. In this way the burden of the tax would be spread in proportion to the amount of labour and the administrative cost on salaries, and so on. This would have done away with the anomalies which will arise over the part-time workers, the disabled workers and the very low-paid workers who may become unemployed in the distributive trade. It would immediately have ironed out many of the anomalies.

The Government have gone one step further even than was necessary for their purpose, for they have made it not merely selective between the services and the manufacturing industries; they have created three different categories, one of which we are discussing under the Clause. This has unduly complicated what is already a bad idea and has introduced a further series of anomalies over and above those which would in any case have been entailed in the selective principle.

In the Financial Memorandum to the Bill the Government suggest, to my mind extremely optimistically, that the large number of appeals which they have invited by having this triple selection process will cost the nation only £10,000 in the remuneration and allowances of the tribunals and those required to give evidence to the tribunals which will deal with the appeals. I think that hundreds of cases will arise solely out of this one principle, without taking into account the problem of the major selection between distribution and manufacture.

Many of the points which I had intended to make have already been made by my hon. Friends and by the hon. Member for Newcastle-upon-Tyne, East (Mr. Rhodes). But one or two comments [column 702]remain to be made which underline the inability of the Government to make up their mind as to what they wish to achieve. Like so many of their Measures, the actions taken in connection with a particular problem are mutually incompatible. On the one hand, we are told by the Government that manufacturing is such a virtuous occupation, irrespective of what may be made or foisted on the public by certain types of manufacturer, that it deserves to receive 7s. 6d. a week for every male employee. On the other hand, a sum of £150 million will have to be paid by manufacturing industry between September when the tax comes into operation and the first repayment at the end of February.

We have been told that the entire country will pay between these dates £500 million. I assume that those in manufacturing industry—those receiving the premium—account for about one-third of this. That is a reasonable estimate, although it may not be absolutely accurate. We have also been told that this sum may not be borrowed from the bank.

As a result, a very serious situation will arise in the autumn. The very people the Government wish to encourage, and who are supposed to earn overseas the living of the nation, will have to find large sums of cash; they will ultimately receive it back, but in the meantime they will have to finance it without assistance from the banks. If the Government want to take purchasing power out of the economy in the present crisis, do they wish to do it at this rate and do they wish to apply it to the very people they say they wish to encourage? This seems to me a complete contradiction of what the Government are trying to achieve.

My hon. Friend the Member for Wycombe has pointed to the effect which this will have on the distributive customer of the manufacturer, and I should like briefly to confirm everything that he said. Perhaps encouraged by an article by one of the financial editors of a major newspaper, maintaining that the Government were intentionally transferring large chunks of profit from distribution into manufacturing by this tax, the retail customers have been putting pressure on the manufacturers and are still doing so—on the basis that the manufacturers who are to receive the benefit of the [column 703]premium should be prepared to hand over all or part of it to the distributors who will bear the brunt of the tax. I have some sympathy with the view of the distributors, but I maintain that there is no basis in this demand as a manufacturer.

My own company is roughly typical of a number of companies in that the tax will be worth about ½ per cent. on the turnover. This must vary between one company and another, depending on the balance between raw materials and labour, but that is a rough estimate for manufacturing companies.

We have also estimated in my company—and many others have done the same—that by the end of one year, the ½ per cent. will have totally disappeared, particularly in my industry where wages are to some extent linked with cost-of-living increases bearing in mind the increased cost of all the services which we need. We believe that this small subsidy will have disappeared into the maw of inflation by the end of one year. That is all the use it is to manufacturers.

I could go through the many anomalies produced by the Bill and the injustice between one type of enterprise and another and one individual and another. There are over 350 Amendments and 17 new Clauses down on the Paper. There is criticism from all sides of the tax, but the Government appear to be determined to bring it in. Looking at all these Amendments, which we shall never discuss, I wonder whether any sort of plastic surgery can ever repair the physical defects of this moon calf.

Sir D. Glover

When the Chancellor of the Exchequer introduced the tax, it was a silly, ill-thought-out, and non-sensical tax. After the Prime Minister's statement this afternoon, it is criminal lunacy to continue with it. After that statement I asked the Prime Minister a detailed question about unemployment. In a masterly piece of double talk, for which the right hon. Gentleman is famous, he wriggled and squirmed, but eventually said that the effect of the measures about which he told us would be to raise unemployment to between 1½ per cent. and 2 per cent., which he, as the Prime Minister, and the Government would accept. [column 704]

In his long-winded statement the Prime Minister talked about shaking people out of jobs. He was not talking about shaking people out of jobs in service industries. He talked about shaking people out of manufacturing industries to go into the export trade. Yet within an hour we are debating an Amendment to a Clause which will give people a premium of 7s. 6d. for not doing what the Government ask them to do. It is criminal irrelevancy to proceed with the Bill immediately after the Prime Minister's statement.

It is impossible to decide what is manufacturing and what is distribution. Most hon. Members opposite representing mining constituencies would be horrified to think that the coalmining industry is a distributive industry. Yet nobody over the last 2 million years has invented coal. All that a miner does is to move it from A to B. Coalmining is a distributive industry. The miner breaks it up from large lumps into small lumps. He puts it on to a trolley. The coal is moved from one place to another. It eventually reaches a factory, a household or a furnace. This is not manufacturing. This is distribution.

Is the real thesis of the Government that, if anybody wants to buy a car, there is so much virtue in it that they had better go to Coventry or to Halewood? Is not a motor car showroom anywhere in the country just part of the manufacturing chain involved in turning rough metal into cars?

Even the Government know that they were very ill-advised to introduce the tax in the first place. They have not had a friend anywhere in the House of Commons or in the country, particularly for the premium we are now discussing. As it is completely not only irrelevant, but actually damaging, to the proposals the Government made this afternoon, could not the Chief Secretary, even at this late stage, save Parliament from wasting its time and withdraw the Bill?

Mr. John Biffen (Oswestry)

The Bill is very much the product of the fact that this is an Administration composed of frustrated management consultants. Almost from the start, but certainly from the end of 1964, we have been presented with a series of measures designed to have a selective impact upon the economy and produce certain pre-ordained results. The [column 705]fact that the results which are produced are rarely those which are pre-ordained has in no way deterred the Government.

The Bill is the latest in an unhappy series of Measures which we have been asked to endorse. The Amendment would have the effect of removing a highly discriminatory part of the tax by ensuring that no premiums were repaid. I believe that it is not a logical argument following on from that that the money should remain with the Government. I believe that this is a clear case where it can be demonstrated that when we call for lower taxes we can think of some areas of public expenditure which can be cut.

I want to examine some of the arguments about the presumed consequences of this kind of legislation. It has been argued that too many people are employed in service industries and that a tax of this kind will have some effect upon the redeployment of labour. I very much doubt this. In fairness to the Chancellor, I acknowledge that he himself has never endorsed the argument that the tax will lead to redeployment of labour. However this is not true of all members of the Administration. I recall, though I certainly cannot detail, an occasion when the Parliamentary Secretary to the Ministry of Power said that one of the consequences of the Bill, particularly the use of the premium, would be redeployment of labour.

Let us not look to the publications of various Left-wing academic economists which may inspire the Government. We should, instead, think of our experience in our constituencies. For many of the service industries which will be hit by the tax, labour is a major element in their total cost. A gentleman's hairdresser cannot replace labour by the extensive use of plant or capital. Yet in a great deal of heavy engineering, the steel industry and the chemical industry, the labour element is a comparatively small part of the overall cost. Much more importance is attached to having the plant operating 24 hours a day, six or seven days a week.

Therefore, we are not surprised when we are told, for example, by Mr. Allen, in the Sunday Times, that it is in British manufacturing industry that a great deal of under-employment takes place. I do not regard this as necessarily a blazing indictment of British industry. [column 706]I suspect that the same is true of other industrial countries in the Western world. I do not draw the conclusion that we are noticeably worse than anybody else.

In view of the high labour element in the overall cost, one would expect to find a greater concern about the profitable employment of labour in the distributive trades than in manufacturing industry. Yet the purpose of the Bill is to give a premium to manufacturing industry. This is a ham-handed way of trying to ensure that manufacturing industry has £133 million which it might not otherwise have. The alternative of lower taxation is eminently to be preferred.

I therefore hope that when we vote—alas, under the Guillotine; I wish that the debate could be extended—we shall take this opportunity of repudiating the kind of nonsense which is leading to a welfare state for industry under the guidance of the Chief Secretary to the Treasury, a policy which, in the long run, I believe, cannot but be calamitous for our economic performance.

Mr. Alfred Morris (Manchester, Wythenshawe)

I do not want to follow the hon. Member for Ormskirk (Sir D. Glover), who, in my view, degraded this discussion with his talk of “criminal lunacy” . The Opposition would have done better to have indulged in reasoned arguments instead of vituperative abuse. I am sure that my right hon. Friend the Chief Secretary wants to hear a reasonable statement about the anomalies in the application of the tax and will be entirely unimpressed by abuse.

The most serious anomaly is that the Standard Industrial Classification is to be used as the basis for applying the tax. I hope that my right hon. Friend will not try to defend over the long term the use of this standard for a purpose for which it was never intended. It may regard it as a useful ad hoc arrangement, but I trust that when he replies to the debate he will indicate that it is not the Government's intention to stick slavishly and rigorously to the Standard Industrial Classification.

The second anomaly is that there are manpower-hoarding manufacturers who will benefit financially and that there are distributive enterprises who are short of manpower and who will feel themselves to be very seriously penalised. I have [column 707]said on another occasion that I am particularly concerned about the possibility that certain employers in the distributive trades will discharge part-time employees and add to the hours of work of their full-time employees.

There has been considerable stress on the position of mothers whose children have grown up and who can work between 10 and 20 hours a week in distribution. I am also deeply concerned about the position of the elderly person. I commend to the Chief Secretary a paper presented at this year's national conference of the National Association for Mental Health, concerning mental ill-health among elderly people who go from full-time employment into full-time retirement.

Professor Ferguson Anderson, of the University of Glasgow, a very distinguished authority, has demonstrated conclusively that it is conducive to mental ill-health among elderly people if they go from full-time employment into full-time retirement. If it has to be given to anyone, I should like to see the premium given in respect of elderly people in part-time employment.

I hope, also, that the Chief Secretary will make it abundantly clear when he replies that manufacture is not virtue and that distribution is not wicked. There is a growing tendency now to regard manufacturing as virtuous and distribution as wicked, manufacturing as productive and distribution as wasteful. I should have thought that every hon. Member could accept that distribution is as important to manufacture as manufacture is to distribution.

I hope that those who follow me in the debate will not degrade the argument as it was degraded by hon. Members opposite, and that we shall have a serious and fair discussion about the anomalies in the tax.

Mr. W. R. Rees-Davies (Isle of Thanet)

I am sure that after listening for a short while the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris) will not think that I degrade the debate by what I say. I have found it difficult to achieve, but I have tried to take a bipartisan approach to the general problems of this subject. I did so yesterday on the Report stage of the Industrial Develop[column 708]ment Bill, and I propose to follow the same line today.

The hon. Gentleman talked about degrading the debate. I wonder whether I could have his attention for a moment. I hope that he is not about to leave us now, immediately after he has spoken.

The first thing that I noticed about the Selective Employment Tax was that whereas a brick-maker will get a premium of 7s. 6d. for every brick-maker that he employs in the making of bricks, 25s. will be paid in respect of every bricklayer.

The Government want to hand industry £133 million, having taken several hundreds of millions of pounds from everybody else, particularly the distributive industries. The difficulty that the Government faced straight away was the question, “What is manufacturing industry, and, indeed, what is industry itself?” After a great deal of trouble, we put horticulture and agriculture into the neutral belt. Now the Government are beginning to recognise that they have made a serious blunder over the tourist industry, particularly the hotel and catering industry, and that they must now try to reverse the situation.

The matter does not end there. A particular anomaly that must be removed is the one with which the name of Ambrose Congreve is associated. I do not know this gentleman, but I know his company. It is an extraordinary state of affairs when one of the companies that sell “know-how” and the services of great technicians throughout the world will have to carry a burden of over £100,000, I understand, in respect of its staff, whereas if the staff who are seconded were actually working for the companies to which they are seconded, there would be a rebate in respect of them. I specifically put this as a question to the Chief Secretary. What will he do about the Ambrose Congreve case? This is a company supplying from its own resources many of our great technicians and experts.

The Chairman

Order. The point that the hon. Member raises does not arise on this Amendment. He seems to be pleading for an exemption. There are several Amendments later dealing with exemptions, and I do not think that his present argument is relevant to this Amendment.

[column 709]

Mr. Rees-Davies

With respect, Sir Eric, it goes right to the point. I am putting it this way. This company of technicians will at present have to pay the Selective Employment Tax. If the technicians were transferred to industry, not only would they not be subject to the tax, but the industry would get the rebate.

This is an extraordinary situation. The Government should remove the rebate from industry entirely and not apply it at all. In that event, one would not get the absurd situation that if one employed one's own technician in industry one received a rebate whereas if one obtained him on contract one did not.

This was an aside to my general argument. I do not want to canvass any of the arguments that have gone before, but I take the view, as do others, that this amount of money should not be repaid to industry.

I draw the attention of the Chief Secretary to the present position of the hotel and catering industry, in the light of the fact that £133 million, much of which it will have paid, will be given to manufacturing industry. It has never been suggested, and it could not be, that a single person in the hotel and catering industry will leave it and go into manufacturing industry. It cannot be suggested that the major-domos, the head waiters, the waiters or other members of hotel and catering staff, which is at present grossly undermanned, will leave the industry.

I have figures, which I shall pass to the Chief Secretary later in their entirely, which came in today and show the up-to-date position of Grand Metropolitan Hotels. What is the picture here? This hotel group will carry a burden of £225,000 per annum on Selective Employment Tax. That is the direct figure in respect of the group.

I come now to the impact which this will have together with the withdrawal of investment allowances. In 1964, investment allowances were available in respect of capital expenditure on the Europa Hotel, Grosvenor Square of £299,000—call it £300,000—and with Income Tax at 8s. 3d. in the £ and Profits Tax at 15 per cent. Those allowances were worth £170,000 in cash. With Corporation Tax at 40 per cent. today, they would have been worth £120,000 in cash. There has [column 710]been an increase in building costs of 4½ per cent. since then, so that the figure would have been higher.

The direct cost of the S.E.T. in respect of the staff operating in the hotel is £16,000 a year. Last night, 432 persons were sleeping in the Europa Hotel, of whom 371—86 per cent.—were from overseas. Those are the figures today which have just come to me from the group.

My purpose in quoting those figures is to show the effect of the imposition of this tax coupled with the removal of the investment allowances. We have reached a point when a real growth industry, albeit not manufacturing, is singled out for a form of treatment which, by contrast, is so unfair that there will inevitably be very serious consequences.

The Chairman

Order. The hon. Gentleman still appears to be arguing for an exemption, which does not arise on this Amendment.

Mr. Rees-Davies

With respect, Sir Eric, I submit that the argument does apply. The reason for the strong and bitter feeling in the hotel industry is the same as was felt by people in agriculture until they got out of it, that there is no reason at all why we should pay £133,000 back to manufacturing at this stage, giving an enormous benefit to manufacturing when, as we all know, the hotel and catering industry, although not manufacturing, is the principal growth industry today, bringing the greatest benefit to the country.

That is the way I use the argument. It is a prestige argument. I have used figures to illustrate it, but it is a prestige argument. There is intense feeling throughout the hotel and catering industry at being singled out to be clobbered by the Government and having to pay a large part of this tax which is to be refunded for the benefit of another industry which it regards as considerably less efficient than itself.

This afternoon, the Prime Minister intimated that suggestions were coming forward for some kind of loan arrangements for the hotel and catering industry. If it were clearly stated at the Dispatch Box that there would be some concrete benefit to the industry to offset the substantial impost and rebate which it will have to [column 711]meet—a discrimination which I strongly oppose—that might be some sort of defence. But I understand that this is not to be so and that the scheme being put up is merely a scheme to lend money at Exchequer rates of interest, which will be of no real benefit. We shall be back in the same position as we were before.

I shall not pursue that aspect of the matter further, Sir Eric, because I can quite see that if I did so I should be going wide of the Amendment.

The Chairman

The hon. Gentleman is already wide of the Amendment.

Mr. Rees-Davies

I saw that you were beginning to sidle in the Chair, Sir Eric, with a view to rising to express that Ruling. With respect, I share your view and I shall not get involved further.

I shall not canvass the other arguments which have been most ably put from this side of the Committee. The country as a whole would be willing to accept either a poll tax or some kind of payroll tax, but, whether on grounds of economic principle or on grounds of general dislike of discrimination, everyone I have met inside the House and almost everyone outside takes the view that we should remove the selective element in the tax. For these reasons, we should not in any circumstances permit manufacturing industry to have a rebate.

Mr. John Peyton (Yeovil)

I shall not take long, and neither shall I follow my hon. Friend the Member for Isle of Thanet (Mr. Rees-Davies) in an argument which does not seem to me to be appropriate to the Amendment. My hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) was absolutely on the mark when he stressed that we are here confronted with a proposal actually to return money from the Exchequer to various selected sections of industry but not a single person in the House of Commons favours the idea. Normally, we all have our views about how worth while and important it is to extract money from the Treasury and to secure concessions. We always find it very difficult. But here we have a unique situation when no one has a word to say for this fantastic proposal. [column 712]

Now a word of warm though rather unaccustomed sympathy for the Chief Secretary to the Treasury. The right hon. Gentleman is incredibly unlucky. Every time the Government has a rotten case, he is put up at the Despatch Box to defend it. Very often, my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), with far greater eloquence than I can command, has a good deal to say in criticising his answers. On this occasion, I hope that my hon. Friend the Member for Finchley (Mrs. Thatcher) will take heart from the debate and do nothing of the kind. It would be very unfair to criticise the right hon. Gentleman. He cannot possibly put forward a decent case because there is not one. I hope that my hon. Friend will temper justice with mercy.

I was absolutely astounded at the intervention we had from the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris). He rebuked my hon. Friend the Member for Ormskirk (Sir D. Glover) for describing these proposals as criminal lunacy. Presumably, if the word “criminal” had been taken out, the hon. Gentleman would not have objected and our criticism would have ceased to be vituperative.

It cannot be too often or too firmly stated that to adopt these Kaldor experiments is madness. With the extremely delicate and complex economy which we have in this country, it is madness to seize upon this weird counsellor who, wherever he has gone, in very much simpler circumstances, has spread a trail of ruin among people who have accepted his advice. Now he comes here and, with disastrous effect, wishes this sort of thing upon us. All Ministers are left to say, publicly and privately, is that we shall have to let the tax work out in practice, we can refine it in the fire of experience, and so on. Inevitably, there will be immense losses, contortions and distortions inflicted upon industry in a most wanton way.

We are greatly curtailed in time, but this is the one Amendment which offers a wide oportunity to consider the ridiculous line dividing those who have premiums and those who do not. My right hon. and learned Friend the Member for Chertsey (Sir L. Heald) spoke of the ludicrous position of publishers who do not [column 713]do their own printing, but who get the premium. This is utterly indefensible if one compares it with the unhappy lot of the film studio which is sunk without trace. It seems a gratuitous slap in the face to the film industry. I hope that the right hon. Gentleman will be able to give us some cheer.

Let us take the case of a mixer truck which carries ready-mixed concrete and continues the process of manufacture while in transit and right on to the site. Is the driver regarded as in manufacturing or transport? I have not the slightest idea. Whichever side of the line he happens to be dropped on, it will be just luck or bad luck. There cannot be a really well-founded argument that would be the official justification for putting the man on one side or the other. If he is treated as transport, will he be able to claim that he is taking part in a manufacturing operation? One would say that this was disastrously unlikely. Taxation should not be made the field for such processes of lottery.

As I said, I am profoundly sorry for the right hon. Gentleman in that he has to present a case when he knows damned well there is not one.

Mr. W. T. Williams (Warrington)

You may not be surprised to discover, Mr. Jennings, that my real interest is not in this Amendment and that in rising to speak on it my purpose is only obliquely directed to the Amendment itself. I should have preferred to deal with a later Amendment in my name, but I am prevented by the procedure which has been adopted from speaking about the matters that I want to raise, namely, those relating to milk processing and distribution. That being so, I must do the best I can to raise the matters in which I am interested within the terms of order on this Amendment.

It is clear that if the Government had chosen to introduce such a form of employment tax as is proposed by the Amendment it would have been possible to have spread the tax much more widely. It would have involved a good deal less administrative energy and expenditure, and it would have been possible by that process to have reduced the tax very considerably in respect of each employer.

If the Government had taxed every employer, instead of making the tax 25s. [column 714]and comparable amounts for other employees in the way in which the tax is now to be raised, and then redistributed it to some favoured employers by means of the premium, it would have been possible to make the tax a good deal gentler on all employers, including service employers.

This Amendment would not have met the wishes of those who think as I do that the tax in its incidence upon the distributive trade in unduly heavy. We think that, bearing, as it will in particular, upon that part of the distributive trade which is concerned with the distribution of milk and other essential foodstuffs, it will impose on it so heavy a burden as to cause considerable difficulty, and in some cases possibly disaster, to those engaged in the form of distribution, to say nothing of the increase it will cause in the cost of living——

The Temporary Chairman (Mr. J. C. Jennings)

Order. The hon. and learned Gentleman is being very skilful, but he cannot, under this Amendment, argue even in general terms for exemption. He must restrict himself to the narrow confines of the Amendment.

Mr. Williams

With the greatest possible respect, Mr. Jennings, I was not arguing for discrimination in favour of the distributive trade. I was merely saying that if the Government had chosen what the Opposition are inviting them to do in this Amendment, it would have been possible not to have laid as great a burden on the distributive industry as they have done. I think that that is entirely within order.

Since the Government have not chosen to follow the principle of taxation proposed by the Amendment, it is to me and to those who agree with my point of view, a matter to be deplored. However, it may well be that the Government can find a way out of their dilemma and my dilemma if it is possible for the Chief Secretary to say that the provisions laid down by the Government in the Clause are not by any means final, that the Government will hear representations from those of us who think that the form in which the tax is being applied and the premium is being repaid has been too arbitrarily drawn, and that if those who think as I do are prepared to support the Government against the Opposition in their Amendment, it will [column 715]be possible, even if not now, then very soon for the Government to look again at the Standard Industrial Classification and include some of the industries in which I and those of my hon. Friends who think like me are particularly interested.

If I dare get this in before you, Mr. Jennings, rise to your feet——

The Temporary Chairman

Order. The hon. and learned Gentleman is still being very skilful. In general terms and by innuendo he is making out a special case. He must confine himself to the general principle of the selective employment premium. So I am stopping him before he completes his sentence beginning “If I dare get this in” .

Mr. Williams

Very well, Mr. Jennings. I am flattered by your praise. It is the first time that I have been called skilful by the Chair.

I will abandon completely the point that I was about to make, and substitute for it this one which, I think, is in order. I urge the Government to deserve the support of those who think as I do, and accept it, in the recognition that we have reservations, about which we cannot speak and be in order, but about which the Government must be well aware and to which they should have regard.

Mr. Diamond

I am in difficulty the moment I rise because of a point of order. I am not addressing you on a point of order, Mr. Jennings, but that is the difficulty before me. My hon. and learned Friend the Member for Warrington (Mr. W. T. Williams) has addressed a suggestion to me which I understand full well. Indeed, you were good enough to say that you understood full well. I get the burden of my hon. and learned Friend's message. But, as you pointed out, in effect we are discussing that part of the Clause dealing exclusively with the premium. It would, therefore, be wrong for me to say, even with respect, that your Ruling is quite right, because, obviously, it does not need saying.

My hon. and learned Friend was referring, as you indicated, to the second part of the Clause which is not affected by the Amendment. It is thus impossible for me to reply to that part of his speech. I merely make it clear to him that, [column 716]anxious though I would be in other circumstances, and on a different Amendment, or on the Question “That the Clause stand part of the Bill” , to deal with what he has said, I must now come to the Amendment.

What is at issue is the premium. Numerous hon. Members have drawn attention to anomalies that they say exist as between different categories and areas which are no part of the Amendment. Although I could easily answer them, I cannot. In considering the Amendment, the right hon. Member for Enfield, West (Mr. Iain Macleod) said that 66 Amendments had been chosen and he drew a conclusion in relation to the guillotine Motion. I will not waste time on the point except to say that 66 Amendments were chosen after the guillotine Motion was passed by the House and nobody knows what the Chairman would have selected had there been no Guillotine. Indeed, one wonders why a Chairman ever selects when there is a Guillotine.

The Temporary Chairman

Order. I hope that no criticism of the Chairman's choice is being made.

Mr. Diamond

I am incapable of making such a suggestion, Mr. Jennings. I was casting my mind back to the time when I had to make selections and I was putting myself in a kind of soliloquy in wondering what I would do in the Chair if there were a guillotine Motion, because, of course, it is for the House to decide its priorities when a guillotine Motion has been passed.

My right hon. Friend the Chancellor of the Exchequer would have been here himself to deal with the Amendment were he not on his way to Bonn. The proposals in the Bill—including the premium—were, of course, fully taken into account and were part of the economic background against which my right hon. Friend the Prime Minister's statement was made. There is no question, therefore, of suggesting that, because of the statement, we should not go on with this, or should do something else. These proposals are part of the economic back-ground against which the statement was made and were fully taken into account.

I want to explain why we propose a premium for manufacturing. Of course, the Government are not saying that [column 717]manufacturing is a virtue and distribution is a vice. The premium is merely a fiscal measure to encourage a faster rate of growth in manufacturing in order to adjust an existing imbalance. It is not an attempt by the Government to make a qualitative judgement or to assess the social values of one or another.

We say that the existing state of affairs is wrong. It is one under which, by fiscal processes to which every Government have contributed, there has been an undue increase in the rate of labour joining the service industries and an inadequate increase in the labour force joining manufacture. That results from a system of taxation under which the products of manufacture—it does not matter at which point of time they are taxed—are taxed heavily whereas the products of services are not taxed, or are not taxed nearly as heavily.

A whole host of services are totally unrelated to the products of manufacture. Such services as banking, hairdressing, cinemas and other entertainment, for example, have nothing whatever to do with manufacturing or with production in that sense. None of these services is taxed or taxed at the same weight as the products of manufacturing. We are seeking, therefore, primarily to adjust the existing imbalance and if we do not accept that there is an imbalance we do not proceed on the same argument. It is the imbalance that we are trying to adjust.

An alternative suggestion, which, I understand, would be acceptable to a large number of hon. and right hon. Members opposite, would be a payroll tax levied equally on the wage bills of every employer. That would achieve nothing except an increase in costs and prices. It would be passed on immediately. It would have no differential effect, which is what we are trying to achieve. It would be the same as an all round increase in wages in its economic effect. We are trying to achieve a differential effect.

Mr. John Tilney (Liverpool, Wavertree)

Does the right hon. Gentleman then want a differential against merchant exporters?

[column 718]

Mr. Diamond

The hon. Gentleman has asked a valid point and the answer is, “yes” . He thought that the answer would be “no” . But the answer must be that, if one is levying a tax on services, and one of those services is a merchant exporter who may be—to give the greatest weight to the hon. Gentleman's argument—devoting 100 per cent. of his time to exporting, the answer is still, “yes” .

Here, we are differentiating between manufacture and the services and the hon. Gentleman knows as well as I do that we cannot encourage only exporting activities by either services or manufacturing. What the right hon. Member for Enfield, West, said about this is right. We do not attempt to say that the premium should be exclusively directed to helping exports because no Government could bring forward such a tax having regard to our international obligations.

Our main reason for introducing this system is to correct an imbalance—and we are still only going a small part of the way. When the Bill becomes law, the position will still be that the products of manufacture are taxed very much more heavily than are the services. We will still not have put the matter right by anything like the full amount that we ought to.

We shall watch the effect of the tax. If it is effective, as we believe that it will be, we shall consider whether it may not be possible to go further in the same direction in due course. It would be astonishing if it did not have the kind of remedial effect that we are hoping for, having regard to the deterrent effect that existing tax levels have had on increases in manpower in manufacturing, which has held back production and is at the moment holding back export orders.

Many hon. Members have referred to “labour hoarding” . It is a pity that we have not agreed statistics about this. It is a vague concept about which it would be impossible to have precise statistics. The labour hoarder would not be likely to fill in a form saying, “Yes, I am a labour hoarder; I am hoarding three men and two women” . We are not likely to get the facts that way. [column 719]

I have been asked to consider what my right hon. Friend said in his Budget statement about hoarding. He said:

“Despite some hoarding and waste of man-power it is still true that the growth of manufacturing output has been seriously impeded by labour shortages; and this has hampered the growth of productivity. If manpower can be saved in the service industries, whether through a slower rate of growth in demand for services or through greater economy of manpower, extra labour might well become available for manufacturing, giving it greater scope for growth. It would be helpful to have a tax system which recognised this.” —[Official Report, 3rd May, 1966; Vol. 727, c. 1454.]

And he went on to demonstrate how a payroll tax would not achieve this and the logic of his argument was this kind of tax.

I now come to hoarding more specifically. I do not know what hon. Members opposite have in mind when they talk about hoarding. We are all at one in wanting to avoid labour being used any less efficiently than is possible. But the hoarding which I think some hon. Members mean and which we have in mind and which my right hon. Friend had in mind to some extent is the kind of misuse of labour, its under-use, which can perhaps more accurately be described as overmanning.

Overmanning stems, as we all know, from practices which are—I will not say common—but in which members of both sides of industry participate. We can all think of one or two industries where it is alleged that there is serious overmanning. That overmanning is the result of the pressures of restrictive practices on both sides of industry rather than any other policy directed to seasonal economic activity or anything of that kind. That overmanning will not be affected or reduced by this kind of tax. It needs a different approach and it is the Government's responsibility to supply that approach.

But the other kind of overmanning, which is what has been meant by some hon. Members, when a manufacturer deliberately holds more men than he needs, will, it is said, be encouraged by the premium. It is said that the manufacturer will be even more tax or miserly in his retention of labour. I hope that I can say with courtesy that I just do not believe it. [column 720]

The hon. Member for Wycombe (Mr. John Hall) asked how long it was since I was on the shop floor. I do not know how long it was since he was on the shop floor and I do not know whether I have spent more hours than he has on the shop floor. I will give my experience. Since being a Minister, of course, I have not been connected with the factories and many commercial interests with which up to that time I had been connected, but as a Minister I have spoken to manufacturers and I have been to many cities where chambers of commerce have been good enough to entertain me and we have exchanged views.

I have not come across one manufacturer who has said, “I pay an average of £20 or £21 a week to each man, and if you will give me another 7s. 6d. a week, I shall be only too glad to hold on to more men than I need” . I do not know of a single manufacturer who, paying £11 to each woman, has said that if he is given 3s. 9d. a week in respect of each women he employs he will hold on to them for longer than he needs them. Yet this is the argument which has been advanced by many hon. Members. They say that this plussage of 3s. 9d. for a woman with an average wage of about £11 will induce employers not only to hold on to excessive woman power, but increase it. I do not accept that argument.

Mr. John Hall

The right hon. Gentleman is misrepresenting the arguments. No one suggests that because of an extra 7s. 6d. or 3s. 9d., a manufacturer will hold on to one additional person, but, with premiums on the total staff employed in the factory, he will be able to hold on to a percentage of employees whom he would otherwise get rid of rather more quickly because the cost will be covered by the premium.

Mr. Diamond

My cost accounting experience is wider than the hon. Gentleman's. Cost accounting would show up that sort of thing in a fortnight. We are talking about proportions and there is no firm which could say that it would employ another dozen men, which at £20 a week would amount to £240, just because of the premium—because of the 7s. 6d. against that.

The whole discussion is on the proportion. All manufacturers' costs are made up of proportions and in cost [column 721]accounting every item in production costs is reduced to a proportion. A manufacturer would see immediately what the proportion of cost was and I have the greatest difficulty in believing that any manufacturer would be induced by the premium to hoard labour in any sense which would be affected by these provisions.

Mr. A. P. Costain (Folkestone and Hythe)

Is not the right hon. Gentleman forgetting the 49/50 balance and its effect on people eligible for premiums? The employer could keep on half-a-dozen men in order to qualify the whole of the staff for the premium.

Mr. Diamond

That intervention shows why it is just as well to allow whoever is replying to a debate to do so, for I was just coming to that issue, which was raised by the hon. and learned Member for Darwen (Mr. Fletcher-Cooke). The hon. and learned Gentleman said that the main case against the premium would be not in its overall effect but in its marginal effect and that, where there was a 49/51 case, there could be an inducement to an employer so to adjust as to get the benefit of the percentage. I understand the argument, which is valid. Because it is, the Government considered the figures very carefully before making these proposals.

I do not want to bother the hon. and learned Gentleman with all figures, but I will give some examples to demonstrate that although the 49/51 per cent. consideration may exist in an individual case—and, of course, I could not say that it did not exist in any individual case—it is unlikely to exist in more than a handful of examples and that overall the figures are such as completely to eliminate this argument from our worries.

In any of the 14 categories there is a vast difference between the proportion qualifying and the proportion not qualifying. In food, drink and tobacco, 494,000 qualify and 214,000, less than one-third of the total, do not qualify; in chemicals, 276,000 qualify and 184,000 do not; in metal manufacture, 461,000 qualify and 141,000 do not.

I will send the hon. and learned Gentleman all of these figures with the greatest pleasure, but he will see that there is not one category in all 14 industrial groups in which the numbers qualifying are not [column 722]substantially in excess of those not qualifying. Therefore, overall there is no such problem, although, as I admit, there may be individual cases.

Mr. Fletcher-Cooke

Those were global figures, which I accept, but it is the individual site figures which matter. Until the right hon. Gentleman can satisfy me on the individual sites, my withers will be quite unwrung by the global figures.

Mr. Diamond

The hon. and learned Gentleman approaches all these arguments with objectivity and intelligence and he cannot say that his withers are unwrung, for he is just as much impressed by the argument as I am. The deduction to be drawn from the figures is that the likelihood is that there will be vast numbers of firms within each Order which will present no problem at all. He is saying that there may be some which present a problem. There has been one. We have invited correspondence and complaints, but we have come across only one.

This is not conclusive evidence, but it is an indication, in that one would have thought that if there were many people falling into this category there would have been complaints and letters. As every hon. Member knows there has been an enormous number of letters, but only one complaining about this. If the anomaly which the hon. and learned Gentleman the Member for Darwen (Mr. Fletcher-Cooke) has in mind is the anomaly relating to the establishment, which comes later, then we would be only too glad to deal with it later. There are ample methods in the Bill, and Amendments proposed to be inserted, if the Committee agrees, which will get rid of this kind of anomaly.

I have given the reason why we thought it right to have a differential tax in terms of the premium, and I have indicated why we think that it will assist, to some extent, the existing imbalance, and why it will have a great effect, we hope, on our manufacturing industry, which is a source of increasing productivity and exports. As the Committee knows, 85 per cent. of our exports are manufactured goods or, putting it the other way round, 25 per cent. of what we manufacture is exported, but it is only 25 per cent. because a large percentage of what is manufactured is also import substitutes. An import substitute [column 723]serves just as valuable a purpose as it does as an export. I have indicated why we think it is valuable, and I have tried to demonstrate that we shall keep the whole of the Bill under review.

No one would claim, before a new tax is implemented, that one knows what its final effects are to be. What is certainly the case is that all indications are that this kind of righting of the imbalance is overdue and will serve a useful purpose, and that the anomalies have nothing to do with the premium, but with the classification, which is a different issue. I hope that the Committee will not feel it necessary to press this matter to a Division.

Mrs. Margaret Thatcher (Finchley)

Although this is an important Amendment, I will not detain the Committee long because my right hon. and hon. Friends are anxious to get on with succeeding Amendments.

J. DiamondThe Chief Secretary had a bad case and he made the worst of it. Let us look at what this method of paying the premiums does. I note that the Chief Secretary said that his proposals are part of the economic background against which Harold Wilsonthe Prime Minister made his statement this afternoon. Let us examine that. The result of paying premiums in the way the Bill purposes is to keep the inefficient person in business.

The premiums are given regardless of efficiency and that means that the efficient manufacturers neither need them nor want them. They do not want help from the Government, they want an absence of hindrance. Their own ability will enable them to go ahead. The policy of the Chief Secretary and the Government ought to be to encourage the efficient because they will grow and produce goods at the lowest prices and export them. The Government should discourage the inefficient. If this is done, the inefficient firms will yield up their labour to the growing industries, but if one does what the Chief Secretary is suggesting one will have competition for labour between the efficient and the inefficient which will result in bringing up the price of labour.

One will be creating the very situation which the Prime Minister's statement was meant to reduce. In one day we have [column 724]had the Chief Secretary creating a basically inflationary position over wages, while earlier the Prime Minister had to come to the House with a very severe statement with the object of reducing inflation. It is crazy to have, in the same day, policies going in diametrically opposite directions. If the Chief Secretary pays premiums in the way in which it is proposed in the Bill he knows that in the beginning of January and February he will be pumping back premiums in to the economy when there is a wages and prices standstill. Again, there are diametrically opposed policies, one to reduce inflation and the other to create it, by injecting extra money when there is a control operating to stop inflation. This is absolutely stupid.

I have an administrative point to raise. The Chief Secretary said that classification is a different problem, but the whole of his premiums are based on classification. What he is really doing is using machinery for a purpose for which it was never designed. It is as absurd to use the Standard Industrial Classification for the purpose of the selective employment payments as it would be to use a clothes washing machine for washing up crockery. It is every bit as absurd, and the Chief Secretary knows it.

Mr. Diamond

rose——

Mrs. Thatcher

The right hon. Gentleman is not so good on clothes washing and dish washing machines as I am, so he had better sit down. But I will give way to him if he wants me to.

Mr. Diamond

I am terrified. I was only about to make a simple point that this Amendment does not deal with the classification.

Mrs. Thatcher

It deals with one of the consequences which flow from the classification. The Amendment will reduce the number of groups from three to two. Instead of getting the penalty plus the rebate plus the premiums there would only be the penalty plus the rebate. This would considerably reduce administrative costs. It has already been pointed out that the administrative costs of the Bill as shown in the Memorandum are nearly £1½ million—which need not be spent.

I have one final point. What in the world are the Government doing handing [column 725]out £133 million which no one wants? If they have it to I will have it and place it much better than the Chief Secretary could. It is absurd to have a statement to take money out of the economy and yet to be pumping in £133 million, which we do not want. I hope that hon. Members opposite who have spoken [column 726]against the premium in its present form will show their disgust by voting with us in the Lobby.

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

The Committee divided: Ayes 295, Noes 234.