HL Deb 08 December 1977 vol 387 cc1779-93

4.45 p.m.

Baroness BIRK

My Lords, I beg to move that this Bill be now read a second time. This short Bill implements the fiscal proposals announced in the Chancellor's Statement on the economic situation of 26th October. It was clearly right to take advantage of the substantial headroom below the ceiling set for the PSBR this year. An immediate further significant reduction in income tax, effected by this Bill, is a quick-acting measure which should help to keep down unemployment and to strengthen the Government's attack on inflation.

This is the third occasion this year on which income tax has been significantly reduced. First, following the spring Budget, allowances were increased and higher rate thresholds raised. Second, in July, following the Government's decision to accept the principle of Amendments made in Committee in another place, allowances were again increased and the basic rate of tax cut by 1p. Now, this Bill brings a further increase of the basic personal allowances. This is an important further step towards achieving two of the Government's tax objectives: one is reducing the burden of direct taxation; and the other, giving priority to raising tax allowances in real terms.

If I may, I shall deal briefly, first, with the second clause of the Bill. This clause provides for the exemption from tax for 1977–78 only of the increases in social security benefits which came into effect on 14th November. This exemption saved the Inland Revenue a good deal of work in issuing new PAYE codes to take account of the pension and other increases. It was the only way to make administrative room for the extra work involved in giving effect to the increases in personal allowances. The justification for this is solely administrative necessity and it is not a precedent for future years.

Nevertheless, it is a welcome benefit—in addition to the other tax reliefs and the £10 Christmas bonus—for some 2½ million taxpaying pensioners. The increases exempted for the rest of 1977–78 are £44 for a single pensioner and £70 for married couples. The tax saving is some £15 and £24 respectively, which is a useful additional relief for pensioners over the coming winter months.

The main clause of the Bill, Clause 1, gives further increases in the main personal allowances for 1977–78 over and above the levels fixed by the 1977 Finance Act. These increases for 1977–78 anticipate those required for 1978–79 under the indexation provisions of this year's main Finance Act. Allowances are all increased by 12 per cent., with the exception of the additional personal allowance. This goes up by a slightly higher percentage so that the single parent continues to get the same allowances as a married couple.

The reliefs have effect for the full financial year. They give substantial refunds of tax paid to date—that is, about £21 for a single person and £35 for a married man. In addition, taxpayers will be paying less tax week by week until April 1978. The weekly reduction in tax for the rest of 1977–78 is 65p for a single person and £1.05 for a married man, equivalent to increases in gross pay before tax and National Insurance contribution of £1.08 for a single person and £1.74 for a married man.

This Bill, together with the two earlier reductions in income tax this year, means that a single worker on average earnings is getting over £2 a week more in his or her pay packet, and a married man over £3 more. It is essential that these very real increases in take-home pay are borne in mind by all pay negotiators in this critical pay round.

Some people argue that more should have been done. I do not agree. The Chancellor made it clear that he was leaving himself freedom of manoeuvre for further changes in the Budget depending on the way the economy develops. If economic and financial circumstances permit, he has stated his firm intention to make some further reduction in the burden of tax. How far he will be able to go depends on how the critical current pay round goes. My Lords, I hope the House will recognise that this brief Bill is worthwhile and significant. I beg to move.

Moved, That the Bill be now read 2a.—(Baroness Birk.)

4.51 p.m.

Lord CARR of HADLEY

My Lords, may I first of all apologise for the absence of my noble friend Lord Gowrie, whose name appears on the list of speakers today. He is, unfortunately, at the last moment unable to be here and asked me whether I would deputise for him, so I am afraid your Lordships have to put up with me instead. However, I shall not detain you very long.

As we have already made clear from this side of the House, we welcome the income tax reductions contained in this Bill, but we want again to take the opportunity to underline the need, as we see it, for these income tax reductions to go very much further. In order to reduce the total real burden of income tax to what it was at the time of the last Conservative Budget in 1973 it is still necessary for the Chancellor to make a further reduction of no less than £4,000 million a year in the tax he is levying at current money values. This demonstrates the huge scale of the income tax increases which have occurred under the Labour Government since 1974.

Mr. Healey now admits that there is a direct connection between the level of income tax, the level of activity in our economy and the level of unemployment. Indeed, the noble Baroness, in introducing the Bill a moment ago, referred to these tax reductions as "quick acting measures to cut down unemployment." I am bound to ask—and I do not want to be too controversial about this—why, if these really are quick acting measures to cut down unemployment, the country has had to wait so long for them?

We welcome Mr. Healey's conversion, but an awful lot of damage has been done during a period of almost four years when, far from reducing income tax, Mr. Healey has put up income tax, and put it up so much that, if I may repeat myself, it still needs further reductions of £4 billion a year to bring the income tax burden in this country down to what it was in 1973. Even in 1973, it was unduly high by comparison with other major industrial countries with whom we have to compete.

We cannot too strongly stress our view that we shall not really get our industry and our small businesses—our entrepreneurial activity and all the activity that we need to get our real economy moving again — until further major reductions have been made in our income tax burden in this country, because this is where we really are out of line with other countries. We are not so much out of line in the total burden of our taxation but we are very seriously out of line so far as the burden of income tax on individuals is concerned.

I understand that traditionally, a debate on the Second Reading of a Finance Bill in your Lordships' House provides an opportunity to raise and debate matters of general economic policy. I certainly do not wish to stage any full scale economic debate today. I am sure that that would by inappropriate, but I wish briefly to raise three matters. The first is the Government's pay policy. May I begin be emphasising our support from this side of the House for the Government's insistence on the need for pay restraint? We agree that it is vital if we are to continue the downward move of inflation and to keep it down. But I want to raise a number of questions about the way the Government are actually conducting their pay restraint policy.

We are, or at least we were supposed to be in this current year from August 1977 to August 1978, in a transitional stage in which we were moving back to free collective bargaining. But, in the last week or two, both the Chancellor and the Prime Minister have given strong indications to the contrary. Far from being in a transitional stage and moving towards a return to free collective bargaining, we appear to be moving towards a Stage 4 and, so far as I can gather, a Stage 5, a Stage 6 and a Stage 7 of an incomes policy of the future.

What is the truth? Are we still moving towards a return to free collective bargaining? Are we in a pause before we return to a form of incomes policy of a much stricter and more rigid kind, whether it be voluntary or statutory? I think that the present statements and counter-statements by the Government cause a state of confusion (which is not surprising) in the minds and feelings of both employers and trade unions throughout this country. I really do not believe that this vacillation between moving towards free collective bargaining and apparently moving back again is conducive to the atmosphere we want in pay bargaining in this country. I think that that is a point which the Government must clarify for the country. But let me say that in raising that point I am not in any way detracting from our support for the need for pay restraint.

Secondly, on pay policy, we were supposed in this year's Stage 3 to be allowing an opportunity for much more flexibility; an opportunity to put right some of the distortions which a rigid policy inevitably imposes. Overall earnings for each group of employees under this policy must, according to the Government, increase by a maximum of 10 per cent. But in the early days of introducing this policy the Chancellor went out of his way to say that this meant, that on average, increases in wage rates ought to be not more than 5 to 6 per cent. I should certainly agree with him, from my experience of this matter, that unless you keep the basic increases to 5 per cent.

to 6 per cent. it would almost certainly be impossible to keep the increase in earnings to the 10 per cent. which he said was absolutely essential and the maximum that could be allowed. But as we have gone on since last August that seems to have been slipping. We hear much less about the 5 per cent. or 6 per cent. and much more about the 10 per cent.

This has two dangers in it. First, it means that if all are going to settle for 10 per cent. then, whatever it may look like on paper, at the end of the year the average increase in earnings will be much more than 10 per cent. and we shall not achieve our inflationary targets, which I think we all agree are the most vital targets this country ought to achieve at present. The difficulty and the danger is greater than that because 10 per cent. has now become a norm; it has become a maximum and a minimum. Far from reducing some of that inflexibility, which is one of the ill effects of a more rigid pay policy, we are compounding it, particularly in the public service. This is again exactly contrary to what the Government said the policy was to be last August.

Again, I must ask the Government, what do they want? What do they mean? They say one thing, and practise another. Again it is not surprising that this vacillation in purpose is causing dismay and confusion, uncertainty, frustration and resentment among both employers and employees throughout British industry and British employment generally.

The second subject I want to raise is that of industrial relations. The present state of affairs in our industrial relations is of very great gravity. In the first 10 months of this year we have had no fewer than 2,309 recorded strikes. That, of course, takes no account of all the ensuing stoppages which occur resulting from a stoppage in one place. The figures specifically exclude consequential stoppages which the primary stoppage in one place causes elsewhere. That means that, on average, 11 new strikes have been starting every working day throughout this year. I think that your Lordships in all parts of the House must agree that this is an appalling state of affairs. We have had in the first 10 months of 1977 as many strikes as we had in the whole of 1968.

Yet the Labour Government in 1968 thought that the record that year was so damaging to the national interest that they said that it was essential, in the national interest, to take immediate, urgent, and radical action to correct, or to improve, the situation. It was because of that, as your Lordships will know, that the then Labour Government introduced their White Paper, In Place of Strife. I do not want to go over all those debates, but the Labour Government eventually dropped their proposals for In Place of Strife in return for a solemn and binding undertaking by the trade unions that they would take their own action, in lieu of not having In Place of Strife to set about improving the position.

Here we are in 1977 with the position worse than it was in 1968 when the Labour Government of the day said that it was so bad that the national interest demanded that radical, immediate, and urgent action be taken to improve it. So we must ask the Government what do they now propose to do? I think it was only two days ago—certainly some time this week—when Mr. Jack Jones, in the Dimbleby Lecture, referred to the need, which I have heard him refer to on other occasions, to discover in this country how to "talk in" rather than to "walk out".

Of course, this is what we all ought to be doing. What I want to know, and what the country wants to know, is what are we going to do in practice, what initiative are the Government to take, what are the trade unions to do, what are the employers to do, separately and together, to develop what Mr. Jack Jones himself described as the urgent need to learn in this country to "talk in" rather than to "walk out". I appreciate that the noble Baroness may not be able to answer that question today, but I hope that she will convey it to her right honourable and honourable friends in the Government. I believe that this is one of the major national problems, and until it is tackled with some success we shall not really be prosperous in this country.

The third subject I want to mention, very briefly, is one we have heard much about previously; namely, the training of skilled workers. This is vital to the future growth of our economy, and it is vital to reducing unemployment. The Government repeatedly say how much importance they attach to this subject, and, in fact, they back their words with the grants of increasing sums of public money. Speaking for myself, I do not begrudge extra public money spent on the vital subject of increasing training in this country.

But are the Government satisfied with the results that are being obtained? I ask this because even now, with 1½ million unemployed, there are production bottlenecks because skilled vacancies cannot be filled. Only two or three weeks ago, the BBC, in its television programme "The Money Programme", turned the spotlight on the city of Sheffield. The picture painted in that programme was alarming in the extreme. It showed that there were chronic, substantial shortages of skilled engineers now holding back capital investment schemes and current production in some of Sheffield's most important industries. I am sure that what is true in Sheffield is true in other places as well.

Surely this is a paradox that we cannot go on suffering. We must bring our training efforts in this country up to the level of comparable industrial countries. Despite all that successive Governments have tried to do, we are not yet doing this. Despite all the verbal importance which the Government give to this subject, despite the extra public expenditure with which they are backing their words, we are still falling down in this objective. I believe that until we stop falling down on it, we are looking at another problem which, until it is tackled successfully, will prevent us becoming really prosperous once again.

The three matters which I have raised are all vital to the revival and performance of British industry. I think that we all agree with, and welcome, the fact that the financial state of Britain has been transformed for the better in the past 12 months. I think we also all agree with, and all deplore, the fact that the underlying state of the real economy, the industrial economy, is still, frankly, deplorable. There is stagnating production, the rate of inflation is still significantly higher than that in other major industrial countries, and there is a level of unemployment, which in my view is wholly unacceptable and quite intolerable; and it will not be easy to get it down. Unless we take action in the three fields I have mentioned today, I do not believe that we will get it down within the next decade. We believe that if we are to improve the real economy, action must be taken with urgency in those three fields.

5.5 p.m.

Lord VAIZEY

My Lords, I apologise that I did not put down my name to speak in this debate, but I did not realise that I would be present, and I particularly apologise to my noble friend on the Front Bench. However, I have only one point to make. I see there my noble friend Lord Amory, who told me yesterday to address the House as a public meeting, but I hope that your Lordships will excuse me if I remain in my usual rather confidential, though not competent, tones. I share with the noble Lord, Lord Carr of Hadley, the satisfaction of the House that the economic tide at last seems to have turned, and I believe that we must congratulate my right honourable friend in another place on his efforts over the past few years. Perhaps at last the country may take satisfaction from the sacrifices which everybody has endured in this time. I hope that my noble friend on the Front Bench will take back to my right honourable friend those words of comfort.

Listening to the noble Lord, Lord Carr, whom one respects and admires greatly, I felt that it was a great pity that the previous Administration dismantled the Prices and Incomes Board. Many of us have felt for a very long time that the only way of having full employment policies in a modern economy is to have a systematic public procedure for the regulation of prices and incomes. I feel that as soon as this can become a non-Party matter, and a body of agreed procedures can be established, which will build up from precedent to precedent in the traditional English way of doing things, the sooner we shall come to an end of this terrible dilemma of whether to seek full employment or whether to seek stable prices.

I rise in the debate for one very simple reason, and I hope tht my noble friend on the Front Bench will bear with me if I make this point. I make it because I am a member of sub-Committee C of the European Committee of the House, and because I am quite a leading light in the Child Poverty Action Group. I think it rather a pity that we are out of line with Europe in one major respect; namely, the payment of child allowances. Family allowances have never been a popular social service in this country. I think that they are the most unpopular social service. Judging from opinion polls family allowances are regarded as subsidising people with large families, and those who are responsible. Here we are very out of line with Continental Europe. Our family allowances are only about one-fifth of the level of family allowances paid in the countries of many of our major European allies.

If money is to be remitted in taxation, I should like to see it go to the children rather than to us, who pay taxes. I believe there are two reasons for saying that. This is the major way of getting rid of child poverty, which is still a terrible blemish on our society. Furthermore, it is a way of moderating wage demands of all kinds. In the firemen's strike we have seen examples of firemen, with three or four children, taking home more from supplementary benefit than they earn. That situation could not arise if we had proper family allowances. I know of the prejudice in the country at large against proper family allowances, but I know, too, that there are very prominent Members of the Government who are highly in favour of substantially increasing child allowances. I am aware that child allowances are not electorally favoured. Nevertheless, I am sure that in the long run that is the path we must follow in pursuit of our European allies. I am sorry that I intervened in the debate without giving notice, but I wanted to make that point on behalf of the Child Poverty Action Group and other groups to which I belong.

5.08 p.m.

Viscount AMORY

My Lords, the message that I passed to the noble Lord, Lord Vaizey, was related to my declining powers, because I am always interested in his speeches, and I hate missing a single word. So I readily assure the noble Lord that this afternoon I had the pleasure of hearing every single word he uttered.

This is not an occasion for broad economic debate, and there are only two points which my noble friend Lord Carr of Hadley mentioned, one at the beginning of his speech and the other at the end, which I want to say a few words about. He referred to the changes of view which the Chancellor of the Exchequer seems to have adopted during the years he has been at the Treasury. I should like to agree with my noble friend that the conversion of the Chancellor's attitude to direct taxation is among the most welcome of all his conversions. I hope—and I say this in no critical sense—that the day is approaching when all three political Parties will agree about the disadvantages of taxation of earnings as against taxation of expenditure. I hope, too, that we shall see a steady and accelerating movement against direct taxation, even if indirect taxation has to be increased at the same time; and, hopefully, that we shall reach a stage in the foreseeable future when the direct taxation of earnings will be regarded as a bizarre anachronism.

The other point which my noble friend mentioned at the end of his speech, was training. I do so agree with him, particularly in relation to the young unemployed. If they can be encouraged to take a training course it is a splendid thing, I think. They will sometimes be willing to take with enthusiasm a training course which is not necessarily related to their first choice of a career. At the same time, if they are enthusiastic—and in any well-run training course young people can become quite enthusiastic—they will never regret the skills that they have learned on that training course, even though the first job they take up after it may be something entirely different. That, my Lords, is all I wanted to say.

5.12 p.m.

Baroness BIRK

My Lords, the noble Lord, Lord Carr, raised a number of very important points, and I think that a great deal of what he was saying, and has said before, centred around the Government's pay policy. He raised the question of what is meant when we are talking about 10 per cent., and said that 10 per cent. had become the norm rather than a point to be achieved. It is perfectly true—and I am sure he must agree with me—that this is a human reaction in negotiations in a democracy. If he can think of a way—I cannot—in which one is able to alter this, then I am sure any constructive advice would be very welcome. But this is in fact what happens; and, as long as we can keep increases down to what has become the norm rather than let them rise above it, I think it is a very creditable achievement. The achievement includes, of course, the 12-month rule, which is absolutely essential; and I am sure that the noble Lord and other noble Lords were as pleased as I was to note today that the NUM executive have once again supported the 12-month rule in allowing local productivity arrangements.

It is extremely difficult to hold this position with a voluntary pay policy such as we have had in the last two years and which has been working remarkably successfully, and to stand firm, because, as the noble Lord quite rightly pointed out, any higher inflation would of course mean higher unemployment. The Government, I believe, are doing their part, although to many people (not, perhaps, in this House) they appear to be acting extremely harshly by having to stand firm and refusing to subsidise or in any way encourage inflationary pay settlements in either the public or the private sector. We have had to resist the claim of the firemen, for whom there is a great wave of emotion in the country: I do not think any Government like to feel they are having to turn down the claims of a group of people who may in their own way be special cases, and in whose case it is impossible to quantify productivity. Even last week, as noble Lords are aware the TUC felt they were unable to give the firemen the support for which they were asking; and this, of course, is because any breach of the Government's guideline would mean that the much larger public service unions would be likely to seek equal treatment.

I think the noble Lord was rather hard on the Government—of course, this is his job; it would be silly, answering for the Opposition, to be soft on the Government—when he said that we were not doing enough. I think that in these difficult circumstances the Government are holding the position extremely well. Numbers of negotiators are delaying their statements this pay round, and as a result under 5 per cent. have settled so far; but both the Department of Employment and the CBI calculate that 85 per cent. of those who have settled have done so within the guideline. We believe that this will continue. The immediate increases in take-home pay secured by this Bill are designed to strengthen the pay policy, and I am grateful to the noble Lord for appreciating that and being generous in his remarks about it. It is essential that this Bill's provisions are given full weight by pay negotiators on both sides of industry during the remainder of this pay round, so that they really are effective in trying to hold back any rush which will increase the inflationary situation. We are aware that the inflationary pay pressures will be a continuing problem.

The noble Lord referred to where we were going and to free collective bargaining. He also raised queries on Phase Four and Phase Five. I should like to feel that we had got through Phase Three before we discussed what we were going to do in Phase Four and then, perhaps, in Phase Five. I am very glad that he assumes, as I do—he seemed to take it for granted—that a Labour Government will be in office to carry these phases through. I think he is absolutely right, and I agree with him entirely. Free collective bargaining does not always necessarily lead to a socially equitable result, but, as the Prime Minister has said, at the moment we do not know of any alternative, and I do not think any has been put forward, which really would be as successful at this time or would manage to hold the line and get us through as this policy is doing.

The noble Lord also mentioned something which I thought was very important when he spoke on the question of incentives. Even apart from this Bill, the Chancellor recognised in the spring that the increase in the burden of direct tax over recent years had had undesirable results on incentives. Nevertheless, it would be impossible to make the concessions to which the noble Lord referred. We are up to about £3 billion now. To make it £4 billion, as it was in, I think, 1973, is quite impossible at the moment, and he is as aware as I am that there are a great many other factors involved. It is not quite the simple equation that he suggested but I am sure that, like me, he did not want to take the time of the House in launching into, as he said, quite rightly, a full-scale economic debate. The measures in the Budget—raising thresholds and increases in higher rate bands—will have helped to correct this. Both the lower paid, including those within the poverty trap, and the higher paid, particularly middle and senior management, have been given significant relief.

Once we get this upturn and get greater production, then we shall get into a syndrome of higher production and greater productivity. Nevertheless, the Chancellor, as he has said, will clearly have the need for further improvements of incentives very much in mind in preparing for his Budget next year. As to the acceptance of the need for this, I do not think there is anything between us. Our differences are in the way it is done and the amount that can be given at any one time.

On the question of strikes, I am glad the noble Lord, Lord Carr, referred to what Jack Jones said in his Dimbleby Lecture. The noble Lord also referred to the number of days lost through strikes. The encouraging thing about the strike record—and I would not say that I view it with any complacency; nor, I think, does anybody, in the Government or outside—is how much it has in fact improved since the record level of days lost through strikes in 1972 and early 1974, which were times of the noble Lord's own Administration.

In fact, last year the days lost through strikes were a quarter of the 1974 level. Again, I say that this is not a matter for complacency. One of the things that the noble Lord omitted to mention when he was talking in the context of the importance of industrial relations was the catastrophic effect of the Industrial Relations Act that the last Administration brought in. I would be the first to agree that this does not mean that we do not appreciate that to find the right way through to a scheme of industrial relations which is based on negotiation and where strikes can be reduced and people can "talk-in", as Jack Jones has said, rather than "walk out", must be the objective of all of us. It is certainly the objective of this Government.

The noble Lord, and the noble Viscount, Lord Amory, also referred to the importance of training for skills, with which I agree. But the present constraints on production from the lack of skilled men are few and isolated. What we are concerned with—and this I imagine was what the noble Viscount and the noble Lord were referring to—is the increase in the number of skilled men and women available to meet what will now be, we hope, a rising level of demand as unemployment goes down. In the last two months there has been a decrease—and I know it is a small decrease. This emphasis on skilled training is something which has also been taken up and looked at from the educational side by my colleagues in education and not just from the question of employment, finance and the economy.

My noble friend Lord Vaizey raised the question of child allowances. It is true that our allowances for children are lower than those in many European countries. This has always caused a great deal of anxiety to many. Nevertheless, this Government have given a high priority to the introduction of child benefit, tax free cash benefits, to take the place of children's tax allowances. The child benefit brought in last April is due to be increased next April—and I know that there is a difference of opinion as to whether it is enough to make a substantial increase in the real value—in addition to the further transfer of the value of the tax allowances. I would add that this may be one of the areas where we will find that our inclusion, our partnership, in Europe, will be extremely helpful. I think there is very little more I can add to what has been said. I believe that we all want to achieve the same aims and that it is, perhaps, the means upon which we differ.

On Question, Bill read 2a; Committee negatived.