HC Deb 17 April 1961 vol 638 cc804-9

I want now to say something about methods by which the Government can influence developments in the economy. There has been much complaint about the jerkiness of Government action in controlling the economy: what has been referred to as a policy of stop and start I am certain myself that without any regulatory action by the Government the swings in the economy would have been much more violent. However, there has been much discussion this winter of the most appropriate methods and suggestions of the need for new ones. I therefore propose to spend a few moments examining the various possibilities. First, there are physical controls licensing and rationing systems. These are matters of some controversy. There is a deep difference of opinion between the two sides of this Committee. I am not going to argue their merits or demerits this afternoon.

Then there are monetary methods, the Bank Rate, the Special Deposits scheme, and the hire-purchase restrictions—all operated to make credit more or less expensive or more difficult to get or the reverse. These have their disadvantages. It is not always possible to arrange that the same level of Bank Rate suits us domestically and internationally. A high rate may be prudent at home if demand is too high, but it may attract at some cost to us short-term funds from overseas which are not really wanted. I would add, in parenthesis, that we certainly should not be worried when those funds go away again. It is the long-term trends that are important.

The effects of altering the hire-purchase regulations have proved to be both prompt and substantial: but they are heavily concentrated on a certain range of goods and bear severely on a few industries which complain—and with some justice—that they are bearing too much of the brunt of the corrective action that is needed.

Then there is regulation by means of the Budget. That should remain the chief instrument, but it is not always possible to arrange that conditions will remain precisely the same over the following twelve months. What was right at the beginning of the financial year may well need adapting later on.

I have, therefore, come to the conclusion that while not dispensing with any of these monetary methods, we do need further means of stimulating or restricting the economy, by measures which can be brought into operation quickly at any time of the year, and the effect of which will be reasonably rapid and widespread.

I have read with interest the various suggestions that have been made. One suggestion that has commanded some support is that we should have a general sales tax, which could then be varied by small amounts upwards or downwards. There are practical difficulties. It means a new revenue control on half a million or so retailers. Is food to be included? Are services as well as goods to be taxed? Either way there are considerable complications. Lord Amory, in his Budget speech of 1958, went into some detail in analysing the possible yield. He formed the view that a comprehensive sales tax charged at a very low rate, but yielding the same revenue as the present Purchase Tax, is something of a mirage. I agree with his view. What I have said also applies to a turnover tax.

Nevertheless, I do believe that new instruments are necessary. Accordingly, I have two proposals to make to the Committee both of which will be simple and will this year require no new administrative machinery. First, I propose that the Government should be empowered to direct by Statutory Instrument, at any time of the year, that either a special surcharge or a special rebate should be applied to all the main Customs and Excise revenue duties and to Purchase Tax.

The total yield at present from these duties is about £2,300 million on an expenditure of about £7,500 million, largely by private consumers. The proposed special adjustment will be expressed as a percentage to be added to or subtracted from the amounts otherwise payable—a simple arithmetical calculation of the same percentage, from the same date, for all charges under all the heads of revenue affected. The relationship between the taxes will be fixed by the House in the Finance Bill and that will be maintained.

The maximum change in either direction for which I seek authority will be 10 per cent. of the existing charges. As I say, that will be the maximum.

Mr. Hugh Gaitskell (Leeds, South)

Either way?

Mr. Lloyd

Yes, either way. It will, of course, be possible to make smaller changes, such as 2½ per cent. or 5 per cent. The effect of this proposal will be that I shall be able to stimulate or restrain consumers' purchasing power by a maximum annual rate of over £200 million a year each way, giving a range for this new instrument of about £400 million in all.

Mr. Gaitskell

Does it cover everything, Excise Tax and Purchase Tax?

Mr. Lloyd

If the right hon. Gentleman will wait, I am just coming to that.

Drawbacks and other repayments will be similarly adjusted so that exports are not subject to surcharge. Administrative arrangements will be simplified to ensure the maximum flexibility and to avoid accounting complications.

Protective and anti-dumping duties, where quite different considerations apply and international obligations are involved, will be excluded; I shall also leave out the vehicle Excise duties and the television licence duty, since the administrative complications of including them would be too great. The other Excise licence duties will be excluded on de minimis grounds, except for the bookmakers' licence duty, where equity demands that it should be treated in the same way as the pool betting duty.

So, to answer the right hon. Gentleman the Leader of the Opposition, this will cover the tax on alcohol and tobacco, the tax on petrol, and the other mass of duties on consumer expenditure, with the exceptions to which I have referred.

Mr. Percy Collick (Birkenhead)

All of which means increased prices.

Mr. Lloyd

If the weapon is used by way of rebate, it means reduced prices.

Statutory Instruments made under this power, if it is granted, will be subject to confirmation by affirmative Resolution of the House of Commons, but, in addition, because this power is so new and, in my view, so important, I propose to make provision that Statutory Instruments made under it will expire on 31st August, 1962, unless, at the time of next year's Budget, the power to make such Orders is continued for a further period by a Ways and Means Resolution followed by a section in the Finance Act. In other words, it will be for the House each year to decide whether or not to give this power to the Chancellor of the day for the following year.

Mr. Harold Wilson (Huyton)

This is very important, and the House must understand it. Are we right in understanding that any Statutory Instrument of this kind would have to apply flat, right along the board, that there could not be a differential of, say, 10 per cent. in Purchase Tax, leaving the other duties the same, and that the 10 per cent. would cover the whole system of indirect taxation, with the exceptions which the right hon. and learned Gentleman mentioned?

Mr. Lloyd

The essence is that it should be the same percentage for all forms of taxation—at the same date, the same time and the same percentage.

My second proposal relates to a special surcharge on employers, analogous to a payroll tax. The use of such a measure as an economic regulator would have the added advantage that when we are faced with a situation of chronic shortage of labour it would act as an incentive to economy in the use of manpower and to investment in labour saving equipment. I propose to ask for power this year as a temporay expedient to collect such a surcharge, should it be needed, by attaching it to the employers' share of the National Insurance stamp.

This would mean that the liability upon employers would be in respect of the same employments as those covered by the liability to pay the National Insurance employers' contribution. It would, however, be an entirely new and separate element, the proceeds of which would be payable directly to the Exchequer. It will be subject to an upper limit of 4s. per employee per week. At this maximum amount the surcharge would withdraw from the economy about £200 million in a full year.

A Statutory Instrument made under this power will also be subject to confirmation by affirmative Resolution. The power to make such an Instrument, if granted, will expire at the end of the financial year.

I recognise that the method of collection with the National Insurance contribution presents difficulties, particularly the risk of confusion between this surcharge and the contribution. Any such confusion might undermine the very important contributory principle on which National Insurance is based. However, it is the only machinery readily available, and if it should be necessary to utilise this economic regulator during the current financial year this machinery will be used. I will, however, continue to examine other methods of levying such a surcharge. Should Parliament be asked to grant this power again next year, I would put forward fresh proposals.

These two new fiscal powers, which could, of course, be used either together or separately, will, in my view, greatly improve the Government's ability to regulate the economy; we shall be much better able to act by quick and flexible fiscal means, in the interval between this and the next Budget, thus reducing during that period dependence on regulation by monetary and credit restrictions. I realise the importance and the novelty of what I am asking, but I believe that we must improve our capacity for reasonably speedy action between Budgets, and to be seen to be doing so.

I think that this is the moment for me to refresh myself in the traditional manner, before I turn to the Exchequer prospects for 1961–62. If there is any speculation as to what this liquid I am drinking is, I can say it has certain medicinal properties, and that, unlike the drink which my predecessor occasionally took, it does not depend upon any State subsidy. For every gallon that you drink, Sir Gordon, the revenue benefits to the tune of £10 10s.