§
Motion made, and Question proposed,
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance, so, however, that this Resolution shall not extend to making—
—[Mr. Roy Jenkins.]
§ 5.35 p.m.
§ Mr. Edward Heath (Bexley)I gladly begin, as is the privilege of the Leader of the Opposition, by warmly congratulating the Chancellor of the Exchequer on the presentation of his third Budget. After all, it is a matter of intense pleasure for the House when a test of endurance such as we have on these occasions, albeit briefer than is customary, is delivered with such lucidity and fluency and in such a well-constructed speech as the Chancellor has given us this afternoon. As I said last year, it was again characteristic of the man, not only in its presentation but also in its content. And certainly in the way in which he has comes before the House today, I should like most sincerely and warmly to congratulate him.
§ Mr. HeathHe began his speech on the state of the economy, and I thought, quite rightly, took the precaution of getting the cheers at the beginning of his speech, probably estimating that they would be comparatively fewer by the time he sat down. Despite the vociferous efforts of the P.P.S.s behind him, who are to be congratulated on their still loyal attitude, he sat down to comparative quiet.
§ Mr. HeathI wish to deal only briefly with the first part of the Chancellor's speech. [Interruption.] I will give the Prime Minister the reason. The reason is that the Chancellor himself so frankly pointed out that his task had been to deal with the major deficit incurred by his predecessor. [Interruption.] The Prime Minister has got out of the habit of reading speeches these days—even his own before he delivers them. He really ought to read the Chancellor's speech carefully when it appears in HANSARD tomorrow, because twice his right hon. Friend emphasised that he had to cope with the enormous deficits of 1967–68. In fact, the current deficit in 1968 was the largest this country has ever had, £796 million. That was the current deficit, including payments for American aircraft, with which the Chancellor has had to contend. I gladly give him credit for contending with it.
The second thing he said so frankly was that he had to contend with the enormous indebtedness which reached its peak in 1968. For this reason, because of the enormous level of the current deficit, we are grateful to him for explaining this so frankly to the House and to the country. It finally demolishes the Prime Minister's claim that what he is dealing with is an earlier period of Conservative rule. Today was worth it just for that.
The Chancellor gave the figures of total indebtedness, which he will agree are higher by several hundred million than those I have ever publicly put forward. We welcome the repayment which has taken place, even those it is not as much as we ourselves had calculated. Nevertheless, it is encouraging that he has been able to reduce it, as he says, to four billion dollars, which is still a heavy amount of indebtedness.
As for the question of how it has been done, in addition to the surplus on balance of payments, I am not sure I agree with him about the aspects of hot money. After all, the money pouring into gilts to get high interest rates in the expectation that he would announce a reduction in the Bank Rate to take the profit is hot money and is liable to be moved at any moment. But he has acknowledged that position frankly, and now we have a clearer statement about his indebtedness.
1256 Then we come to the lesser measures that he has introduced, and then the one major point. I say very little about the lesser measures. We shall have an opportunity to discuss them in the debate and when we come to the Finance Bill. We welcome the reduction of import deposits. Whether the overseas trading companies will welcome it so much when it is put fairly and squarely on the grounds that the Chancellor did, that it is required for our monetary control internally, I beg leave to doubt. Such measures are not supposed to be used for that purpose, but the Chancellor has stated it, and we welcome the reduction.
The other feature about the lesser points was that he has given us notice that we shall have to take a decision on the Savings Bank rate in 1971. We appreciate that. He has warned us that he has given away already £12½ million of the next Budget through decimalisation changes, and that we shall have to find £30 million for the 1971 Budget for the construction industry. We welcome these measures and accept the responsibility for having to meet them in the 1971 Budget.
Coming to the next point, the announcement of the Bank Rate change, even with this Government's record of announcing a Bank Rate change on a famous Monday in November, 1964, I am sure that the Chancellor will agree that to announce a Bank Rate change in a Budget Statement on a Tuesday in April 1970 is unusual——
§ Mr. HeathIt is very good, and we welcome it. I am sure that the hon Gentleman welcomed it particularly. What we welcome especially is that the Chancellor of the Exchequer has announced that today, at last, the Labour Government are able to bring the Bank Rate down to the crisis level of 7 per cent., and that after 5½ years of Labour rule.
Then I come to his major effort, his changes in taxation. Before that, I want to deal with what he gave as the three objectives of his policy. First, he wanted the growth of total demand to keep in line with potential capacity. It has been this which has fixed the limits of what he has decided. Secondly, he wanted a sustained growth in industrial investment 1257 He has done precious little to encourage that, apart from some industrial building construction. Thirdly, he wanted to preserve our competitive position, and he stressed the dangers of increasing unit costs.
The House cannot but have noticed the extraordinary speed with which he delivered his next sentence, skated over the page and hastily turned to other matters. He said, "Incomes cannot for long continue to rise at their present rate." What does he intend doing about that? Does he accept responsibility for it? After all, it was the Chancellor of the Exchequer who, in his last Budget, announced that he was abandoning all incomes policy in exchange for the reform of industrial relations. He chose to make the announcement in his Budget Statement because it was a prime part of his economic policy. Of course, we know that it was the Prime Minister who was pushed over. He abandoned it. But why did the Chancellor of the Exchequer stand for his policy being pushed over like this by the Prime Minister? It has removed the major item of his economic policy, which was to deal with incomes as well as industrial unrest.
In the past year, the Chancellor of the Exchequer has seen the main plank on which he was building removed by the Prime Minister. The consequences are clear for all to see: a wage increase now averaging 10 per cent. a year. All that the Chancellor of the Exchequer can do on this occasion is say "Incomes cannot for long continue to rise at their present rate." He does nothing whatever about it.
Just as the abdication of industrial relations reform is his responsibility as much as the Prime Minister's, so his failure to deal with wages in the present situation is his responsibility just as much as that of the Government as a whole——
§ Mr. Roy Roebuck (Harrow, East)I thought that the right hon. Gentleman believed in high wages.
§ Mr. HeathYes, high wages for productivity and production. That is what our policies are designed to secure.
Let me be fair to the Chancellor of the Exchequer. Today, we have witnessed not quite a unique event, but a very rare one. It is a Socialist Chancellor who has announced a reduction in taxation. The last occasion on which 1258 it occurred was in 1949. There are only 17 hon. Members left on this side who last had the pleasure of hearing a Socialist Chancellor announce a reduction in taxation. On the benches opposite, there are some 60 hon. Members who were present on both occasions. Twice in a lifetime they have heard the good news of a Socialist Chancellor of the Exchequer making a cut in taxation. Just to give the flavour of that Socialist Government, a day or two before the Budget——
§ Mr. HeathI will come to the election in a moment. A day or two before the 1949 Budget, the then wonder boy President of the Board of Trade, now Prime Minister, announced that he had granted three applications for the export of onions. It was his finest hour.
We have all been waiting on the abyss to know what decision the Chancellor of the Exchequer would take on his Budget judgment and about the taxes with which he would deal. Would he go for what might be called an Election Budget, or would he appear responsible and avoid the accusation of an Election Budget? Would he bail out the Prime Minister by producing a Budget which appeared to be responsible but which in fact was a vote catcher and irresponsible? Would he look after his own future in the history books, or would he support the Prime Minister? We have all waited with bated breath to hear.
Was it to be an Election Budget? No, he said, certainly not. He had come to the conclusion that he should be cautious because it was too soon to have an Election Budget. He gave us fair warning. He said, "It is too soon for me to produce anything which will really attract the electorate." When one then comes to his main change, I rather agree with him. When one analyses the changes in direct taxation that he has made, they will not produce the startling transformation which the Leader of the House and a number of his hon. Friends want, which is a change of attitude towards the present Government at the next election.
We welcome the reductions in direct taxation. We have urged them constantly, year in and year out. But what has the 1259 Chancellor done? He has increased the allowances. However, in the case of a single man, by the time he reaches £13 a week, he gets no benefit. That has to be seen against average industrial earnings of £24 16s. 6d. a week. So, after £13 a week, he gets no benefit from the Chancellor's Budget.
When we come to a married couple, at £20 a week they gain 2s. 3d. a week benefit from the Chancellor's Budget. Against that, they will start paying tax at a rate of 32 per cent. If that is not a disincentive to extra effort on the margin or to overtime, I ask what is? To talk about giving incentives for steady stable growth and to say when people first came into the direct taxation bracket that it will hit them with 32 per cent. must surely be a mistaken way to handle it. This is no incentive; this is a disincentive at the margin to extra effort, particularly extra overtime, when it is required.
The Chancellor says that he has taken two million people out of paying direct taxation. Last year he told us that he was taking 1,100,000 out, and he did so. Are they still out? Of course not. By the time he produced his Budget today those 1,100,000 were back paying direct taxation. What is more, an additional 1 million are in paying direct taxation.
§ Mr. HeathBecause of a roaring wage inflation. That is why.
The Chancellor has taken two million people out of paying direct taxation. How long will that last? Precious little time, as he knows.
Let us look at the real impact of this Budget. We all know that what matters this afternoon is not so much what the Chancellor has said in the House, but what is going on outside in the country. In the six months to February 1970, prices had increased by 3½ per cent. This means that purchasing power was cut by £1,000 million. In a month from today the increases in prices will remove exactly £200 million of purchasing power. The Chancellor today has given back, or, as he likes to say, has conceded, to the taxpayers of this country £200 million. That will cope with exactly one 1260 month's increases in prices in this country today. One month's increases in prices will wipe out entirely the £200 million which the Chancellor has conceded. This is a one-month Budget as far as the ordinary citizen is concerned. After a month, any advantages that the Chancellor has given him will be wiped out.
This is the balance sheet at the end of five and a half years of Labour Government. Three and a half years of disaster which led to devaluation——
§ Mr. Andrew Faulds (Smethwick)Let somebody else do it—[Interruption.] You are cocking it up.
§ Mr. Deputy Speaker (Mr. Harry Gourlay)Order. The hon. Gentleman must restrain himself.
§ Mr. HeathThree and a half years which led to devaluation, two years of hard slog which the Chancellor promised us, and at the end benefits which will be wiped out in one month.
§ Mr. Roebuckrose——
§ Mr. HeathThe hon. Gentleman cannot stand it. He at least is certain of losing his seat in the next election—[Interruption.]
§ Mr. Roebuckrose—
§ Mr. Deputy SpeakerOrder. Perhaps we can have silence.
§ Mr. RoebuckI am grateful to the right hon. Gentleman for giving way. Concerning electoral prospects, I ask him to turn his attention to his own area in that regard. I earnestly beseech him, in view of the awful mess that he is making, to sit down and allow his right hon. Friend the Member for Kinross and West Perthshire (Sir Alec Douglas-Home) to get to the Box—[Interruption.]—to spell out precisely what the right hon. Gentleman is trying to say with his matchsticks.
§ Mr. HeathI was right to give way to the hon. Gentleman, because he will never have another chance to speak in a Budget debate—[Interruption.]
§ Mr. FauldsThe right hon. Gentleman has had his last chance of opposing a Budget as Leader.
§ Mr. HeathThe present state of this Government is such, and so demoralised 1261 are their supporters on their back benches, that this morning—
§ Mr. RoebuckWhere is Enoch?
§ Mr. Heath—the Chief Whip could not even mobilise enough support for the Government to carry the operative Clause of their Education Bill—[Interruption]
§ Mr. FauldsThey are telling you to go, Ted. They have had enough.
§ Mr. HeathThe Government are ailing and weak, and their supporters are demoralised.
A year ago the Prime Minister said to the T.U.C. that if the Government stood by and did nothing it could lead to economic and political destruction. The right hon. Gentleman was absolutely right. The Government did nothing about the other major matter outside this House—industrial relations. They are now being destroyed economically, and they will be destroyed politically. This is a one-month Budget. If the Prime Minister had any honour or integrity, in a month he would go.
§ 5.56 p.m.
§ Mr. A. H. Macdonald (Chislehurst)I really think that we shall have to change our procedures in this House. I regard it as absolutely ridiculous, after a serious Budget speech, to have to listen to the kind of knockabout slapstick that we had from the Leader of the Opposition, who had to dig back to 1949 to find some feeble joke about onions. It is not proper to say things like that in the middle of what should be a serious examination of the national economy. Our procedures place this difficulty on the right hon. Gentleman. Not having the ready wit to come forward with a serious speech, he has to dig around beforehand to find a few feeble jokes to fling across the Floor of the House. We must think about different procedures in future, because that kind of performance is a disgrace to the status of this House.
It might be worth noting one or two points in the right hon. Gentleman's speech, not that I want to spend very long on it. I understood that he had some experience of banking. Yet, in the first part of his speech, the right hon. Gentleman referred to our liabilities of £4,000 billion as though they were of necessity bad. A liability in itself is neither good 1262 nor bad. It depends entirely upon the use that is made of it. Consideration must be given to the condition of the borrower, the use he has made of it and his ability to repay. These matters are just as relevant to a national liability as to the private liabilities of individuals or firms. However, this fact does not seem to have penetrated.
The right hon. Gentleman said that this was the first Budget since 1949 in which a Socialist Chancellor had reduced taxation. This is certainly something on which I should like to comment. But to propose that a reduction in taxation is necessarily good seems totally to disregard one of the purposes for which a Government—at any rate, a Socialist Government—is brought in.
In the Budget debate last year my right hon. Friend the Chief Secretary, in what I thought was a brilliant speech, referred to the contrast between private affluence and public squalor and suggested that one of the purposes of a Socialist Government was to transfer resources from private affluence to the public sector to assist in the development of schools and hospitals, old-age pensions and overseas aid. I want to spend money on these things, and I see no need to apologise.
I appreciate that, in the conditions of a Budget when we are considering the way in which we raise money, it is easy and popular to call for tax reductions and sneer when reductions are not so great or so frequent as one thinks they should be. But a Budget, of all times, is when we should refer to the purposes for which the money is raised. I want to spend more on education, pensions, hospitals, overseas aid and facilities for the old. I could easily produce a lengthy list. It is no more than humbug to jump around as though the sole object of any Budget debate is to discuss tax reductions, as though they alone were good and the purposes for which taxation is' raised should not even be considered.
How disgraceful it is for the Leader of the Opposition in that sort of knockabout performance, which I greatly deplore and find thoroughly distasteful, to make a speech bearing little relationship to the Budget Statement—obviously, he must have prepared most of it before-hand—and, knowing very well how much 1263 more we need to spend on our social services, to sneer that only twice has a Socialist Chancellor reduced taxation. It is with pride that I think of the amount of public expenditure which Government supporters have carried through, and I do not support the concept which has just been advanced that the single object of a Budget should be to effect some reduction in taxation.
Therefore, I mainly support what my right hon. Friend has done. In the newspapers beforehand, there was widespread comment that Labour Members expected massive reductions in taxation. That was true of me, but the implication that Labour Members wanted massive reductions was not true of me. I thought that a modest reduction was the most which could reasonably and safely be allowed, and this is what we have seen. I entirely support it, and I also support the method which my right hon. Friend has adopted to put it into effect. But I have one or two criticisms.
First, when considering whether to effect reductions in direct or indirect taxation, my right hon. Friend was quite unambiguous, that direct taxation was where reductions should be made. I am not altogether sure that this is entirely consistent with the Socialist thinking which this party is supposed to embody. I should have thought that there was much to be said for the concept, "From each according to his means and to each according to his needs". This is the concept expressed better by direct than by indirect taxation, and I am a little sorry that the reductions which have been effected have been exclusively in direct taxation. I should have thought that there might haxe been some room for lesser reductions there—I agree with the amount of the reductions—and for some reduction in indirect taxation, most notably in the most odious of taxes, purchase tax.
I thought that the present Government were wrong in previous Budgets to widen the band of purchase tax. Governments have no business discriminating and deciding what is and what is not a luxury. Further, one of the causes for the feeling expressed against the Government in certain quarters is the constant rise in prices. This is the thing constantly thrust upon us when we are canvassing.
1264 I should have thought that there was scope for some modest reductions in purchase tax, which would have done something to keep price increases within bounds.
I was again a little surprised at my right hon. Friend's analysis when he said that there should be some relaxation in fiscal policy parallel with some relaxation in monetary policy. I do not think that the relaxation in monetary policy was all that great. He referred to a possible increase to 105 per cent. in bank lending. That is not a great increase and in itself will not do much to encourage further investment in industry, which my right hon. Friend said—I entirely agree—is so desirable. Indeed, there is a case for saying that the prosperity of this country during the 1970s will not depend at all on the Budgets of the 1970s but rather on the amount of the investment which we could put through in the 1960s. In the same way, our prosperity in the 1980s depends on the amount of investment which we can encourage now.
Therefore, a modest little increase in credit to 105 per cent. of present levels is not as much as I would have hoped for. I should have preferred a greater monetary relaxation, even if it had been necessary to accompany that with slightly less fiscal relaxation. Therefore, while I think that my right hon. Friend's judgment in the round was broadly correct, and I entirely applaud him for not throwing away more than he did, none the less, the relaxations which he made might have been better placed.
Subject to that, my right hon. Friend is to be congratulated on pursuing a wise and moderate policy. He must have been considerably tempted to embark on a reckless Budget to attract popularity, but he has adopted a wise course and one which will gain popularity for him in the long run, because courage is generally to be applauded and will, I hope, succeed. I therefore wish my right hon. Friend well in the Budget debates, and I applaud his decision.
§ 6.7 p.m.
§ Mr. Michael Noble (Argyll)Like everyone else, I listened with attention and pleasure to the way in which the Chancellor developed his long Budget speech. I suppose, like many other hon. Members, I was also not unaware of waiting for something which would help my 1265 particular area or constituency. As I go around Scotland, particularly my own constituency in Argyll, I find that there are two things which are outstandingly important to the people who live there and have businesses there. They are without doubt the enormous rise in the cost of living and the equally staggering rise in industrial costs.
In his peroration, the Chancellor made it clear that nothing he had done in this Budget made it necessary for anyone to put up prices. But those of us who have watched what has been happening over the last few months—particularly in wages, but not only there—know only too well that there is a vast increase in industrial costs which must come through to the unfortunate consumer over the next few months. The Chancellor has done nothing in this field that I can see to bring costs down. This is just as important as the reverse.
I know that if one happens to live and work in the outlying parts of the country the single factor which is most critical is the cost of transport. Therefore, I had some hopes that this year, when there was clearly some scope for reduced taxation, the Chancellor might take this as one area where some reduction was possible and fully justified, and one which would have a major effect over a wide number of areas, often the most difficult areas in England, Wales and Scotland. A justifiable case could be made out for this, because if one looks at the figures of taxation on transport—fuel tax, licences and purchase tax on vehicles—for 1964, the total level of taxation was £777 million, whereas for 1970—which must of course be an estimated figure and might be wrong by 1 or 2 per cent. it is £1,800 million. This is an increase of nearly three times. In the four to five years before 1964 when we were in government the increase in taxation on the motorist in the round was 20 per cent. In the four to five years since the Socialist Government took over, the increase has been 125 per cent. So at least there is some real justification for this section of the community—and I am not just thinking of the private motorist but of the commercial firms in transport—getting some relief.
The hon. Member for Chislehurst (Mr. Macdonald) took considerable pride from the fact that the Government were 1266 spending money in many areas. But I do not know if he is very proud of this one. If one looks at the expenditure on roads—and we all know that the day has long past when the money collected from the motoring community goes back to the roads—we find that in 1964 some 40 per cent. to 45 per cent. of the money collected went on the road programme. At the moment under 30 per cent. of the money collected is going back on the roads, so in this field a great deal more has been taken out than has been put back.
I have heard some figures from one of my friends in Scotland of his own business in road haulage where the costs have increased over the last two years by 67½ per cent. I checked with a firm over which I have some control and asked what its recent increases of costs had been, and I was told that since 1st January last costs have increased by 27½ per cent. These are startling increases, so when the Chancellor says that he has done nothing in this Budget to make anybody put prices up, it must be remembered that these sort of increases must come through in one form or another and he has done nothing to reduce them.
§ Mr. MacdonaldThe right hon. Member referred to me and I should like to say that I am proud of the amount we are spending on the roads. Looking at Cmnd. 4234, I see that expenditure in that field is increasing at a rate of 7.5 per cent., and this is faster than under almost any other heading.
§ Mr. NobleThis is the way that so often these arguments go, and they are slightly fatuous. If one takes an extra 125 per cent. in taxation in four or five years, there is not much good in claiming the credit of having spent an extra 7 per cent., because the motorist justly feels that he is being soaked. This is just the sort of sterile arguments which has been put forward.
I turn to the general industrial field in Scotland today. Over the last few weeks, we have had three very considerable shocks there. First, A. M. Carmichaels, perhaps the best known of the big Scottish construction busineses, failed. Second, last week this was followed by the failure of perhaps the best known of the new construction firms, William Logan, the 1267 firm that built many of the great bridges and roads which have been built in the last few years. Third, at the same time there are very serious rumours—and let us put it no higher than that—about the Upper Clyde Shipbuilders and, having seen the figures recently by Harland & Wolff across in Belfast, one can begin to understand the real problems that this section of industry is facing. I know that the hon. Member for Chislehurst will not quote these figures at me, but he could, if he wanted, in the same spirit as he has just quoted what the Government is spending on roads.
The Government have spent in Scotland a great deal more in the last four or five years in actual cash than we spent during the last four or five years of our administration. But it is not unfair, if one accepts that, to look at the results. In the period 1960–64—for the latter period of which I happen to have had some responsibility—I was continually being abused by the present Government for not doing nearly enough. For that period, we created a net gain of 57,000 new jobs. In the last equivalent period up to the end of 1968, the Government have spent more than twice as much per new job created. But there has been a net loss of more than 35,000 jobs over the same period. So a great deal of money was spent but the result was extraordinarily depressing.
Therefore I had hoped, in listening to the Chancellor, to try to find some indication in the Budget that he was aware of the position in Scotland—or indeed in the North-East of England or in the South-West, because I do not care which area it is. I had hoped to find some indication that he was aware of some real regional problems and that he was to take some measures to try to help these areas forward. I know that there is very little benefit in hon. Members shouting that they want something special for Scotland or the North-East, or the South-West, or Wales. But there is a real and good reason for hon. Members to demand that the Chancellor and the President of the Board of Trade face the fact that there are still a number of outlying areas in the country faring desperately worse than many others. The Budget is one occasion—I know that the Treasury does not like it—when positive action can be taken to help those areas. I see no sign of 1268 this in the Budget, and I see no sign of anything to reduce the rise in the cost of living and nothing whatever to reduce the rise in industrial costs.
On that basis, like the hon. Member for Chislehurst, I do not think that an increase to 105 per cent. in the ceiling of credit will spur industry to any great effort, because it cannot. Industry's increase in costs will be far greater than that. It will absorb the whole of that in a week or so. The money will not be available there for people like myself, who are interested in industry as well as being here, who at the moment are trying to build up new industries to employ more people. The incentive is not there and to that extent I cannot support the Chancellor in his thinking.
§ 6.20 p.m.
§ Mr. John Lee (Reading)I will be charitable and will not refer to the speech of the Leader of the Opposition beyond saying, for the benefit of my hon. Friend the Member for Chislehurst (Mr. Macdonald) that by the rules, procedures and traditions of the House the Leader of the Opposition is bound to say something after the Budget speech and that when he is in the position, because of the circumstances, of being able to say nothing of relevance, the only thing he can do is make the kind of knock-about turn that we heard from the right hon. Gentleman today.
It is a criticism of our procedure that today's debate has been cut in two. Indeed, it has been reduced for back benchers to a matter of little more than an hour by the incursion of Private Business. I do not say that that Private Business is not important, because of course it is, but it has been traditional that the first day of a Budget debate should be the occasion when the non-experts are able to raise matters, as the right hon. Member for Argyle (Mr. Noble) did, quite legitimately, which are either of constituency interest or of perhaps somewhat limited reference, leaving the remaining days for those who are perhaps better qualified to go into the details of the Budget and economic policy in greater depth.
I want to make a few references to the position as a whole and then to take my turn, for which I am grateful, to raise one or two specific matters which have been concerning me. I want to extend 1269 a qualified welcome to the Budget. We on this side have had to sit, flinching at times, through the measures introduced in the last two or three years, and it would be right to say, and the Opposition themselves can scarcely deny, that the period of two years' hard slog is now coming to an end.
This is not to be measured by tax reductions. My hon. Friend the Member for Chislehurst is right in saying that it would be wholly wrong for the value of a Labour Budget to be assessed purely or predominantly in terms of tax reductions. They may play a part in it but it is far more important from our point of view to examine the measures in terms of their social usefulness.
I think that the earned income allowance increases were predictable and are welcome compared with the situation before, but I think also that they are less satisfactory than some measure which would have meant the continuous exemption of persons of low income. There is some substance in the jibe of the Leader of the Opopsition that as incomes rise people come back within the scope of the tax system and this serves to increase again the administrative burden of the Inland Revenue, which is considerable and has grown during the last few years.
The fact that incomes are rising is something which is surely a matter for unqualified welcome, certainly in relation to low incomes. The Leader of the Opposition did not see it that way, but we do. It would certainly help to make this process of reducing the tax burden on those of modest in comes more effective if it were geared to something like a specific income related to the overall national income—in other words, instead of a flat floor, a sloping, rising floor. Those who have studied the proposals of the Tribune group will know the kind of things I have in mind. That having been said, the change proposed by my right hon. Friend the Chancellor of the Exchequer is welcome.
I suppose that one may say that the change in Bank Rate is the most important of the other measures in the Bill. I wish that we could get away from these across-the-board interest rates. I believe that it would have been more useful to do something to reduce certain specific interest rates, such as that for the Public 1270 Works Loans Board, and to make house purchase easier.
The trouble with across-the-board reductions is that they benefit the useful and the useless alike. Although, of course, this is a reduction of Bank Rate from a fairly high level, the fact is that we have become used, over the last few years, to fairly high bank rates and that it is no use talking in terms of crisis level. The days of a two or three or even four per cent. Bank Rate have long since departed and this reduction must therefore, be measured against the more rigid and higher rates of the last few years.
I think it reflects the Chancellor's caution that he should have reduced Bank Rate by only one half per cent. after giving us a most impressive display of the improvement in our over all balance of payments position. Whatever measures may have been adopted—and I have been sharply critical of some of them—over the last two years, the fact remains that the over all improvement is most impressive, and nothing that may be said by way of criticism can detract from the fact that we have moved into a situation in which the country's economic position in relation to the rest of the world is stronger than it has been for many years.
§ Mr. Donald Williams (Dudley)The hon. Gentleman is talking about the strength of the balance of payments. Has he not noticed that the Chancellor implied a very substantial increase in the gross national product? If that is so, would not the hon. Gentleman agree that the miserable sum which is now to be given away—about £200 million—will be more than recovered within the terms of taxation at present levelled on the increased gross national product?
§ Mr. LeeIf the hon. Gentleman had been listening carefully, he would have heard me refer to my right hon. Friend's caution. The implication behind my reference was critical. I think that my right hon. Friend is in a position to give rather more than he has chosen to do. I do not regard that as an overwhelmingly serious criticism because he says that there will be time later in the year to make further reductions. But it is a criticism, and up to a point I agree with the hon. Member for Dudley (Mr. Donald Williams), although I strongly suspect that, in common with so many of his 1271 hon. Friends, he measures budgetary excellence in terms of reductions of taxation more than anything else.
I ought to turn to something else, rather aside from the nature of the Budget proposals but relevant to financial policy generally. This is the application of the development grants. Much of the economic recovery of the country is said to depend upon the way in which we have disbursed money in the development areas. Indeed, a great deal has been done to diversify industry, to reduce unemployment and to replace obsolescent industries in development areas. The principal means, apart from industrial development certificates and closely related to these, has been the system of development grants in operation over the last few years. It is right to recall that the Conservative Government started that system but it has been developed on an enormously larger scale during the last few years.
The assistance given to private industry in the United Kingdom in 1964–65, when, to some extent, we were still conditioned by the policies of the Conservative Government although the present Government had by then taken office, was about £45 million. In the financial year just ended the total was £844 million, which is an enormous sum of money. Over the last few months I have been endeavouring, without much success, to persuade the Board of Trade and the Ministry of Technology to say specifically which firms have been assisted to provide what industries and to give in detail what has been done with the taxpayers' money in this direction. My request has been resisted. I get the impression that there is a conspiracy of silence to which both the donor and the recipient are equally willing parties because they do not want this House and the taxpayers to know exactly how this money is spent.
I say at once that I grudge not a penny spent in the development areas, provided that it is spent efficiently and for socially useful purposes. I have no doubt that in a majority of cases this is so. But it is straining one's credulity a little too much when sums of this magnitude can be spent and it is totally impossible to elicit from a Minister exactly how that money is to be spent. I am not sure that it is constitutionally proper 1272 that it should be so. This House has spent a great deal of parliamentary history over the last 300 years gaining control of financial expenditure, gaining a measure of financial accountability. But the operation of this development grant system over the last few years has bypassed that, because one is met with a flat refusal to disclose the identity of firms to which money is paid out.
I would like to know in how many cases money is paid to firms having capital reserves from which they could well afford to carry out the development work that is prescribed for them and on which grants are made dependent. I would like to know the dividend policy of the particular firms. I even tried to get from the various Finance Ministers involved in this an undertaking that where a public company is provided with largesse of this kind its dividend policy should be specifically controlled. After all, in so far as dividends represent the degree of risk involved that is borne by the shareholder, when Government money is provided on this kind of scale that risk, if it ever existed in the first place, becomes negligible.
It would be reasonable, therefore, that the Government should at least control the level and in some cases perhaps prescribe that no dividends should be payable for a specific period of time. I cannot even get that information. It is not a question of castigating the expenditure of money. I represent a non-development area which has been fortunate for many years in the matter of employment and it would certainly not lie in my mouth to begrudge money being spent in areas or constituencies less fortunate than my own. But I believe I have a right, as a back-bench Member of Parliament, to know how Government money is spent.
It ought to be said that there is another factor here, too. One sometimes gets the impression that, in some instances at any rate, development money is spent on projects which are capital-intensive rather than labour-intensive. There is the rather striking example—one that I have been able to identify—which is well known to the House of the petrochemical complex in Invergordon, Scotland. There a very great deal of money has been spent on what is, no doubt, an admirable project but for the provision of 1273 comparatively few jobs. There may be justification for this one, but I suspect there will be instances where this is not the case. But we can only tell in very general terms when we know where and how money is spent.
There is another aspect of this. It is a legitimate election point. I do not see why the Government do not want to parade their medals. I would have thought that in election years they ought to do so; and we know that an enormous amount of money has been spent for impressive results. My hon. Friend the Member for Fife, West (Mr. William Hamilton) was telling me the other day that as a result of development work encouraged or originated and largely financed by the Government, his constituency and the areas around it are now the biggest electronics concentration in the world outside California. I had no idea that this was the case. This is an example of the good work that is done with development grants, so why on earth are Ministers so coy of telling us to whom money is paid?
I suspect the answer is that they realise that it was Labour policy not so very long ago that where money was to be paid out to non-Government organisations the least that we were to require was that we should take a pro rata shareholding. That was one of the proposals mentioned by my right hon. Friend the Member for Battersea, North (Mr. Jay) some years ago; and, after all, he is no Socialist extremist. He was Hugh Gaitskell's Clause Four kite flier 11 years ago and one cannot accuse him of an excessive addiction to ideology. But, in any case, that is ordinary good financial policy. If a large organisation invests money in some other firm the usual collateral is that it takes a holding in that firm. Why, therefore, when Government money is at stake on a very much larger scale than is involved in the ordinary merger or interlocking procedure should not at least the same procedure be adopted?
I do not want to say very much more because several other hon. Members would like to take advantage of this unsatisfactorily rather short period of time allotted to us in this debate. I have a suspicion that the enormous surplus that we have built up about which my right hon. Friend the Chancellor of the 1274 Exchequer spun some impressive statistical web this afternoon is being held in reserve, at least in part, as part of the price we shall pay if this country is affiliated to the Common Market. We know the limits of variability of that price, but it is enormous. We know that at the top end of the scale the price is a staggering one. But even if the price is only half way between the two limits set out in the recent White Paper it will be a grievous cost to pay.
It is certainly a price which I, for one, would never be a party to. I happen to dislike the Common Market in any event. I dislike its political aspect, its undemocratic bureaucracy, and most of all its lunatic agricultural policy. But I know that there are hon. Members on this side of the House and on the other side who for not ignoble reasons believe so passionately in what they call a "united Europe" that they are prepared to pay almost any price of which anyone can think.
I hope that the Chancellor of the Exchequer, despite his own well known enthusiasm for this cause, is not going to be a party to squandering a surplus which has been garnered in with considerable difficulty over a period of time and over which we in this party have suffered great political adversity. It would certainly be a crying shame when there are so many other more immediate and more important matters on which these riches could be spent.
§ 6.28 p.m.
§ Mr. Donald Williams (Dudley)I hope that the hon. Gentleman the Member for Reading (Mr. John Lee) will accept that I am not going to follow him in many of his arguments though I agree with him on two points: first, in regretting that this is to be a truncated debate, and, second, on the question of the E.E.C., on which I believe the right hon. Gentleman the Chancellor of the Exchequer has made it quite clear that he would accept a deterioration of up to £1,000 million in our balance of payments if we were to go into the E.E.C. on acceptable terms. But apart, from that, even we on this side of the House can certainly congratulate the Chancellor on an extremely smooth Budget speech. That apart, it is interesting to note that last year he 1275 exploited the same tactics as he has exploited again this year in terms of personal allowances and a reduced rate of relief.
I said last year, and I believe my voice was the first to be raised on this, that the million people who were to be taken out of taxation would before the end of the fiscal year, due to increased wages, all come back into this position again. It was also interesting to note that the maximum amount up to which the people who were taken out were relieved was five shillings a week. It seems that again this year the Chancellor of the Exchequer feels that he can help some of the more lowly paid by removing some two million of them out of P.A.Y.E. But again I will say—and my right hon. Friend the Leader of the Opposition has already made it quite clear—that with wage demands, which are perhaps the most explosive point in the economy today, these people in the main will be brought back into the taxation net in the very near future. Last year it was other measures which put up prices that led to demands for wage increases. This year it will be wages catching up with prices.
We had hoped that this might have been an easier Budget in the sense that there would have been more pumped into the economy so that we could get greater expansion. Our hopes in this direction were mainly to reduce the number of people unemployed, which hon. Members will agree has remained at much too high a level for far too long. A mere £200 million pumped back in the form proposed will do little to relieve this factor.
We appreciate, on the other hand, that the Chancellor had to appear not too munificent in his Budget. He could not endanger the economy in the long term. Further, many people thought that he might, for political ends, try to con the people, but, it should have been realised that he being a man of such stature, would not do that.
The right hon. Gentleman has ignored an important factor which has been discussed on many occasions, and that is the great demand for a simplification of the tax system and, in the process, the need for increased incentives. I am told that the qualities of a tax should be such that it is equitable, easily understood, simple 1276 to administer, cheap to collect and places only a small disincentive on effort.
None of these qualities is present in our existing taxation system. We are still to continue with this peculiar anomaly of having earned an unearned income. Even with a recognition that decimalisation is coming in early next year, we are still to be left with a standard rate of tax of 41.25 per cent., with a highest rate of tax and surtax of 91.25 per cent. In terms of decimals, we shall be left with the peculiar fraction of earned income relief of two-ninths.
For the small amount of tax which would have been involved, a simple adjustment could have been made; for example, it could have been reduced from 41.25 per cent. to 40 per cent., or 0–4 in terms of decimalisation. Such a move would have been sensible and would not have cost the Exchequer more than about £100 million.
I trust that the Chief Secretary has taken note of this, because he above all knows the many problems which arise from our taxation legislation due to the anti-avoidance measures which have been introduced in one Finance Act after another, not only by his Government but by former Conservative Administrations.
The present "police rules", as they are called—the anti-avoidance measures designed to stop legal avoidance; I will not talk about evasion—are taking up a great deal of time and effort in the accountancy profession. Considering the tremendous burden that has been laid on them, we should be complimenting the staff of the Inland Revenue for the enormously good job that they are doing in the face of continuing new legislation in this sphere.
In recent weeks I have been reading many articles about the economy and taxation. A brilliant article by Mr. Jack Clayton appeared in the Accountant of 9th April under the strange heading
Whom the Gods Would Destroy".He indicated, quoting Graham Hutton, thatThe British disease: State-induced inflation of the currency, brought about through over-spending in the public sector".On a number of occasions over the last 18 months, the Chief Secretary has indicated that public spending was being contained, that everything was on course 1277 and that all would be well. He and the Chancellor have not indicated the tremendous increase in public spending over the last six years.According to my figures, in 1963 public spending amounted to £11,692 million, representing 41.9 per cent. of the g.n.p. In 1969, it is estimated, it was £20,350 million, representing more than 51 per cent. of the g.n.p. Most people agree that public sector spending has become too great as a proportion of the g.n.p., even if it is contained within the small percentage of about 3 per cent. increase per annum.
It must be remembered that the increase in the g.n.p. has, on average over the last three years, been only about 2 per cent., a quite inadequate increase for the purposes we have in mind and inadequate to meet the increases in public sector spending. I hope that the Chancellor will prove to be correct and that we shall achieve a growth rate of 3½ per cent. However, if that is achieved, then the miserable amount which we shall be allowed to retain in our pockets—this sum of £200 million—will be more than collected back out of the £800 million increase in the g.n.p. At the end of the year, therefore, the tax product will be greater than it was in the previous year. It is almost unique in peacetime to see an increase in the National Debt, which has gone up by about 75 per cent. since the war.
One of our greatest problems—it is a problem which the present and future Administrations must meet—is the rapid increase in retail prices. According to my information, these prices are going up by more than 5 per cent. per annum, whereas in the 10 years 1955 to 1965 they increased by less than 3 per cent. per annum.
One of the causes of this has undoubtedly been over-spending in the public sector, with the truncation of personal incomes because of the Chancellor's taxation campaign in the last five years. We are heading for the difficult position of a new wage explosion, which I believe is primarily designed to catch up with price inflation.
We are, therefore, back on the vicious circle. We have had price inflation caused, to a great extent, by Government policy, and in particular by their taxation 1278 policy. Now, with rising prices, wages are seeking, and rightly so, to get back to the position which they enjoyed. In the process we shall have wage inflation and wage increases which will work back through the economy to produce further price increases.
All this came about during the time of the great National Plan, when it was deemed that we would have an increase in the economy of more than 4 per cent., so that the Government could spend a great deal more than they had earned; and they proceeded to do just that. We have had a total bankruptcy of the incomes policy, which finally gave out when the Prime Minister abdicated his position last June.
Looking back at some of the historical factors which have led to the taxation policies of the Labour Administration, I am intrigued to see, in terms of S.E.T., that this tax was regarded as an effort by the previous Chancellor to exhume Lord North's infamous servants tax of 1777. It seems, therefore, that even this tax—a most indiscriminate selective tax—is very ancient and should have been abolished long ago.
We also have had an incomes policy which appears to be a resurrection of the Statutes of Labourers, which I again believe were not successfully followed throughout 600 years of our history. I was very interested to note—I quote from the Encylopaedia Britannica—that:
A statute of 1495 proceeds to fix the wages of artificers and labourers with great minuteness. This Act contains a remarkable Clause against unlawful conspiracy by workmen engaged in building. It is not surprising that, even with so limited a knowledge of the principles, a short time sufficed to show how ineffectual minute legislation was to control wages.There was also the later Act of 1514, which, in a re-enactment of the law of 1495, said "The London workmen could not endure this restriction as to wages".The reason why it appears that incomes policies fail in terms of wages is that they never have a sufficiently broad discussion throughout the country and they do not have the leadership which they must have.
We have often in this House tried to improve Finance Bills and, in terms of Budget debates, point out to the Chancellor of the Exchequer measures which would improve any Finance Bill which 1279 he hopes to bring in. One of these—and I hope this can be done—would be to repeal the betterment levy and also to eliminate short-term gains in terms of capital gains tax legislation. It would be interesting to the House and to the country if someone calculated the difference that would be made if these were taxed under the ordinary capital gains tax legislation. How much would be lost to the Treasury with these simplifications?
I wonder whether the time has not come, as in America, to give to people in employment a standard deduction for expenses, thus stopping so much quibbling which goes on over the minutiae. There would be small amounts of expenses payable to people in employment. It has been found in America that a tremendous amount of the administrative burden can be lessened in this way.
Could not something be done in terms of the £50 exemption for capital gains tax? This factor still means that there has to be calculation and working out. Is it not time it turned on the question of the size of the transaction that gave rise to a capital gain or a capital loss? Could it not be restricted to one item in the year of £1,000 or a series which came up to this figure? I hope something can be done along these lines.
Finally, I have seen a definition of a Budget as "an expression of intention". So often—and again today—I feel we have had a discussion and a discourse on the receipts and payments of Government. I see very little which has shown us on this ide of the House this Government's true intention for the future. Perhaps the real idea here is that this Government will not be present in the future and that it will be this side of the House, the Conservative Party, which will have to bring in future Budgets.
§ 6.55 p.m.
§ Mr. Laurence Pavitt (Willesden, West)The hon. Member for Dudley (Mr. Donald Williams) ranged over a wide field. I would deal with one or two points. I agree very much with his comments about the Inland Revenue and support him in his encouragement to my hon. Friend to do more stopping of tax avoidance.
I disagree with what the hon. Gentleman said about public expenditure. There 1280 has been £132 million more spent on the National Health Service, £100 million on hospitals. We want to pay more to the nurses and the teachers, and we want to pay the whole of the public service more. It is nonsense for hon. Gentlemen in these debates to ask for less public expenditure at the same time as they ask for the amenities that the community deserves.
The hon. Gentleman, like his right hon. Friend the Leader of the Opposition, deplores the fact that working people are getting more pay. He does not like the idea that wages are increasing. I reject entirely the philosophy that the only thing that makes prices go up are the wages of the workers. Profits also play a part, but nobody ever mentions profits.
I rejoice that more than two million people, even if only temporarily, are coming out of the income tax bracket. If they get more money by the end of the year I shall rejoice about that too.
I have two points to make. First, on the question of direct and indirect taxation, I would ask my right hon. Friend not to be so quick to accept the fact that the tax one sees is bad and the tax one does not see is not. There is a good case for a more selective approach to the whole question of indirect taxation, even if we are moving away a little from the Socialist concept put forward by my hon. Friend the Member for Chislehurst (Mr. Macdonald).
I sweated a good deal this afternoon. As the House knows, I am a Co-operative Member of Parliament. I have sat through three of these Budget debates. The Chancellor of the Exchequer, much to my surprise, on the third occasion introduced selective employment tax. When my right hon. Friend started this afternoon to praise the Reddaway Report, not only did I sweat a little but my heart beat at least twice as fast. I rejoice in the fact he is not going to increase that tax.
I hope he will not accept too fully the fact that, although the Reddaway Report has shown that in the first instance when the tax was 25s. it did not have the effect some of us thought, the two subsequent increases going to 37s. 6d. and 40s have completely altered the picture. I hope he keeps this under consideration.
1281 This tax is still a tax on food. As far as the Co-operative Movement is concerned, 71 per cent. of its retail business is food This has a direct tax on it. I agreed with the hon. Gentleman opposite on the question of prices; we have to make a determined effort in respect of prices. We cannot bring prices down and put taxes on and see them increase. On this point I am at one with him.
I hope that when the Reddaway Report is looked at again too much is not made of the argument introduced by my right hon. Friend this afternoon about the redeployment of labour. Anybody who knows anything about services knows that the pay in services is very much less than the pay in production and industry. We are dredging the school-leaving population in order to get people into the grocery trade and into retail distribution. To imagine that there is a great pool of labour to be transferred because of selective employment tax is the greatest bit of nonsense I have ever heard in this House.
I would raise an omission at this stage. I hope that my right hon. Friend would take this opportunity to get rid of the most iniquitous tax the Government have had to introduce over the last two or three years: that is, the tax on the sick. The prescription charge is an onerous one on sick people. The chronic sick, which the Government have the good intention of exempting from this charge, have not been exempted. There are "season tickets" which at the moment raise 0.015 of the total amount of £179 million which the Government have to pay on drugs and medicines. There was a false figure involved. The net amount raised was £16½ million and not £25 million. One has to take into account that the hospitals have to employ extra clerical service. The cost of this goes not on the drugs bill but on the hospital account. The local London executive council pays out some thousands of £s for civil servants. It is able to get only £46 in connection with people claiming exemption from prescriptions.
The weight of this tax is ridiculous in terms of the amount we have to spend in order to get it in; I would estimate that at the moment it is an amount of between £5 million and 7½ million.
1282 I know the House has to proceed with the next debate. Like most of us, I imagined that I was going to make a brilliant speech, congratulating my right hon. Friend on his strategy—which every newspaper would have in headlines tomorrow morning—but I cannot do that in four and a half minutes.
I congratulate my right hon. Friend. He has done an extremely good job of work, not only for the House but for the country. He has taken a wise approach. The strategy of his Budget is correct on this occasion. He has had compassion for the poorest section of the community. The concessions he has given are not enormous, but he has been very fair. I wish him luck in the debate that ensues in the next two days.
§ Debate adjourned—[Mr. loan L. Evans.]
§ Debate to be resumed Tomorrow.