§ Order for Second Reading read.
§ 11.40 a.m.
§ Mr. Stanley R. McMaster (Belfast, East)I beg to move, That the Bill be now read a Second time.
Although a short Measure, this represents an important amendment to the law. Selective Employment Tax was introduced in 1966 and partly repeated the payroll provisions which had been introduced by a Conservative Government, but which were never implemented.
When introducing this new form of taxation, S.E.T., the Chancellor of the Exchequer said that it was needed to
make a positive contribution to the long-run structural changes we need in order to achieve a healthy balance of payments ".—[OFFICIAL. REPORT, 3rd May, 1966;Vol. 727, c. 1453.]S.E.T. has been amended in various subsequent Finance Acts. Exemptions have been made in respect of public bodies and premiums have been provided for manufacturing industry. However, despite the original intentions of the Government—that is, that S.E.T. should be used to encourage, among other things, a transfer of labour from service to manufacturing industry—the purposes of this new form of taxation have been largely frustrated during the four years since its introduction.Unemployment figures have remained persistently high, particularly in regions like Northern Ireland, where this month we have a stubborn 7 per cent, unemployment figure. My Bill, which is an additional amendment to the law—it is intended to add to, rather than to replace, the existing law—will enable S.E.T. to be used to help to reduce the unemployment figures, particularly in development areas and Northern Ireland.
One of the shocking features of our economy today is the waste of human resources in the development areas. All possible efforts should be made to bring these resources into use. If we could do this, we would benefit both the Exchequer and the nation as a whole. The Exchequer would gain a double benefit from such an improvement because, first, direct income from taxation would be increased, and, secondly, there 1683 would be a direct saving in unemployment pay.
In other words, the nation's bill for unemployment assistance and other social benefits—particularly expensive items in areas of high unemployment—would be greatly reduced. Not only would direct tax income be increased, but those who would become employed would contribute to, rather than be a charge on, the National Insurance Fund.
From the national point of view, there would be tremendous benefit. The resources brought into use would contribute to the gross national product, first by contributing directly to Britain's exports and, secondly, by contributing indirectly in that those not employed in export industries would presumably be employed in other industries, so leading to import saving. There would, therefore, be a great improvement in our external trade balance, an aspect with which we have been preoccupied since the war.
I lay particular emphasis on the human aspect of this for those who are at present unemployed and who face the misery and despair which comes from long-term unemployment would be filled with hope. In Northern Ireland 35,760 men, women, boys and girls, almost 7 per cent. of the insured population, are unemployed. When broken down, that figure reflects an even more alarming position.
In Northern Ireland as a whole the figures vary greatly. Whereas in Belfast the average figure of unemployed is 5 per cent., in Kilkeel—I am glad to see my hon. Friend the Member for Londonderry (Mr. Chichester-Clark) in his place —it is 22.3 per cent. Even that does not reveal the whole picture. The 5 per cent. figure masks the fact that in Belfast 6 per cent. of males are unemployed, representing almost 11,000 on the insurance register in Belfast. At Kilkeel male unemployment is running at 26 per cent., which means that one man in four in that area is unemployed. In other towns like Newtownards, Omagh and Strabane the unemployment figures are also high.
No matter what the cost of my Bill —I have explained that the cost would be minimised by the contributions which people would make to our export trade and to the gross tax income—it has a wholly desirable aim and I hope that my arguments will weigh strongly with the Treasury.
1684 While it might be said that under existing legislation a rebate of S.E.T. is paid to manufacturing industry, it must be remembered that in the development areas one looks particularly to the service industries to take up the slack. It is to services like tourism that we must look if we are to employ our present unemployed resources.
There is no need to treat this aspect of the Measure disparagingly or to say that it would be a burden on the economy. On Second Reading of the Finance Bill it was pointed out that the service industries contribute substantially to the balance of payments. Indeed, without that contribution we would not have a substantial credit balance on the balance of payments. I therefore make no apology for admitting that my Bill would particularly assist those employed in the service industries in places like Northern Ireland, a subject on which I hope my hon. Friend the Member for Londonderry will speak later.
The main Clause provides that for every 1 per cent. by which the level of unemployment in a development area or in Northern Ireland rises above the national average, the payment into the Exchequer shall be reduced by 20 per cent. In Northern Ireland, where unemployment is running at 7 per cent., that would mean a complete 100 per cent. repayment. With such a sliding scale, the contribution to the Treasury—if the Bill is successful, as I am sure that it will be—would be gradually increased until it was the same throughout the United Kingdom. Northern Ireland is not slow to want to make her full contribution to the national income, but particularly in the light of the failure of measures taken by respective Governments since the war to cure our unemployment problem I feel that this method should be tried.
I speak having keenly in mind the serious events which have taken place in Northern Ireland in the last 12 months. I firmly believe, as I understand do all my colleagues, that unemployment, and its accompanying misery, has been a large contributing factor to the unrest and the uprising we have seen here. If my proposals are adopted by the House, they may do something to bring to an end disturbances which, in themselves, drive industry away from Northern Ireland.
1685 I have seen in my constituency the results of a male unemployment figure of 6½ per cent. I have seen the frantic search for jobs, and the jealousies and fears which can result. I particularly emphasise that last aspect, because I believe that it is the fear of unemployment and the fear, too, of political unrest which is the main factor behind our unsettled state in Ulster. It is the fear that people have about what is to happen tomorrow; what is to happen next.
If the Government do not like the exact form of the wording, they might look at it themselves and then introduce their own Measure: it is the underlying idea that I stress. From the Treasury's point of view, from the point of view of balance of payments, and particularly from the human point of view, I commend this Bill and the idea behind it to the House.
§ 11.54 a.m.
§ Mr. R. Chichester-Clark (Londonderry)As I wish to see the Bill make as rapid progress as possible, I shall not detain the House for long. I support much of what has been said by my hon. Friend the Member for Belfast, East (Mr. McMaster) and I congratulate him on his determination in bringing forward a Bill which he believes will do something, perhaps a great deal, to alleviate the unemployment from which we in Northern Ireland have for so long suffered. My hon. Friend, like myself, has a great problem of unemployment in his constituency, where is situated the great firm of Harland and Wolff.
As any hon. Member representing a Northern Ireland constituency inevitably must, I take particular interest in a Bill of this nature. Londonderry has an unemployment rate of 12.6 per cent., in the nearby town of Strabane the figure is 18.6 per cent., and similar percentages exist in many other areas, particularly on the western side of Ulster. The Northern Ireland Government have been grappling with the problem of the West for a very long time. It is not a question of neglecting the area, but of difficulty in persuading industrialists to come that far. As the Minister knows, inducements which are away ahead of those offered to industrialists in respect of other areas are offered by the north-western area.
1686 The selective employment tax has un-undoubtedly made a considerable difference to our situation. In a sense, we are a development area and, above everything else, we have wished to encourage the service industries. The tax has its criticis in the rest of the country but, in Northern Ireland, had it been the intention to make sure that people left service industries to go into manufacturing industry, the authors of the tax could claim some success. It is not, however, a success that any of us would wish to have.
The service industries are particularly important to us. I will not weary the House now with many figures, but the numbers employed in our distributive trades have shown a very heavy fall since the introduction of the tax. The same is true of other service industries. The tax has had a particularly serious effect on the tourist industry. In 1967, when Northern Ireland had well over 1 million tourists, and that trade was being much built up, the catering trade employed 10,099 people who could be said to be looking after the interests of the tourists, and 9,610 of them were permanent. Since 1968, despite the fact that the number of tourists has increased, the number employed to cater for their needs has fallen to 9,182, the important thing being that of that number only 7,530 are now permanent. Such a drop shows the very dramatic effect that selective employment tax must be said to have had, and for that reason alone my hon. Friend's proposals deserve serious consideration.
I beg the Minister to look very seriously at the Bill to see whether it could be improved. On the other hand, as my hon. Friend has said, if the Minister does not like certain provisions, let him bring forward proposals of his own. We are here dealing with a matter of very great importance. In Northern Ireland, the tax is a real chain around our necks and a real stumbling block to our development.
§ 11.59 p.m.
§ The Minister of State, Treasury (Mr. William Rodgers)I believe that on a previous occasion the hon. Member for Belfast, East (Mr. McMaster) referred in particular to the selective employment tax as a wholly bad tax. Were we discussing S.E.T. generally, I should find it necessary to contest that view. It is certainly true that it is a tax which lends 1687 itself less to rational discussion, even here, than do some other forms of taxation. Today, however, the hon. Member has not put forward a major case against S.E.T. but has made a very sympathetic plea on behalf of his constituents, and others in Northern Ireland in the development areas, who are out of work. I entirely share his concern, and. in that sense, I am very glad that he has had the opportunity of seeking a Second Reading for his Bill.
The hon. Member referred to the shocking waste of human resources: that is an old and familiar phrase, but no less effective for that reason. It is a shocking waste of human resources when men are out of work who would wish to work, and I appreciate the concern of the hon. Member and of his hon. Friend the Member for Londonderry (Mr. Chichester-Clark) for the areas they have in mind, where the figure of unemployment is intolerably high.
As I think the hon. Member for Belfast, East, may recall, in the early days of this Government I had some responsibility for regional policy and, partly as a result of his urging, I went to Belfast. I flew in a Skyvan over Belfast Lough before it received its certificate of air worthiness. I was at that time very much struck by the problem with which the hon. Member has been dealing and the need to get to grips with it, but I think it was true of Northern Ireland and the development areas then than it would be a mistake to assume that in a relatively short period—although I do not suggest nothing had been done before—we could totally transform the situation in areas of high unemployment and structural weakness in the economy.
Some of my hon. Friends might have thought that it was a matter of incentives and waving a wand and all would come right, but that is not true, particularly in areas where industries are in decline and there is a serious rural problem. I hope that five years ago I did not seek to suggest that within a relatively short period the problems would be overcome. I think we set out on the right course and the whole House has shown over the five years or so deep concern about these problems and a full recognition of the complexity and difficulty of the situation. I do not exclude—the House has already learned this—a con- 1688 tinuing review of incentives in areas of high unemployment, given only two considerations.
The first is that they must continue to receive the very highest priority. A Government which switched on and off would be doing a great deal of damage, because continuous attention to development areas over a decade can make a great difference. Secondly, there should be a fair element of certainty. If those in the development areas do not know whether the incentives they enjoy today will be the same as those they enjoy tomorrow, we shall not get the prosperity for development for which we are looking.
I entirely share the hon. Member's concern. I think that broadly the House has recognised that the steps we have taken in the last five years have been the right ones. We have attached great priority to the problems of Northern Ireland and the development areas. I certainly do not exclude a change at any time if it can be demonstrated that this would make an essential difference to solving the problem. My case against the Bill, if I must put it that way, is not simply the loss to the Exchequer which would be involved of something like £50 million in Great Britain and £11 million to £12 million in Northern Ireland.
It is arguable that that is a sum of money which at any time we might have to make available additionally to Northern Ireland and the development areas. I should say, however, that there is insufficient evidence to believe that the sort of proposals made in the Bill would be the basis on which to deal with the problems which the hon. Member has described; or the best use of £50 million for Great Britain or £11 million to £12 million for Northern Ireland if these sums of money were available. I would not exclude that in our review of policy towards the development areas. This is something we shall be bearing in mind. I prefer to say to the hon. Member and to the hon. Member for Londonderry that of course this sort of factor and approach to the development areas will never be excluded from our consideration.
Whereas the Chancellor of the Exchequer decided that this was not the year to make changes in S.E.T.—which is a further reason for not being able 1689 to accept the limited proposals in this Bill—of course S.E.T., following Professor Reddaway's review and further reviews of the tax, will be looked at. When the time comes to consider its future, and any anomalies which may exist in it, the sort of arguments put forward by the hon. Member will certainly be fed in for consideration.
As the hon. Member knows, there is a considerable amount of discretion concerning S.E.T. in Northern Ireland. A loss of £11 million to £12 million would be a loss to the Northern Ireland Exchequer and therefore would not in a sense be available as it is for the purposes of the Northern Ireland Government. The Northern Ireland Government agreed to S.E.T. being levied by United Kingdom legislation, but retained the right to make their own refund arrangements. Even at present the effective rate of S.E.T. in Northern Ireland is lower than it is in Great Britain. It has been lower for a large part of the time since S.E.T. was introduced. The effective rate in September, 1966, was 12s. 6d. there when it was 25s. in Great Britain. The effective rate is now 43s. whereas in Great Britain it is 48s. So there is a real element of discretion given to the Northern Ireland Government. I am sure the hon. Member will consider whether the loss of revenue represented by the implementation of the Bill for the Northern Ireland Government would necessarily be the most acceptable way of using such sums were they available.
It is not clear that this would be the best way of spending the money. Secondly, the Northern Ireland Government have this discretion. Thirdly, the proposals would not be acceptable so long as the tax is collected through the National Insurance stamp. Since the introduction of the tax there have been administrative problems in making it as flexible as we should like it to be. Inevitably sometimes there has been clumsiness in the administration for that reason. Until this is remedied, as it will be in due course, it would be impossible to carry out the provisions set out by the hon. Member.
Fourthly, although of course it might be that the consequence of the Bill would be to help in the unemployment problem, 1690 it could work in a number of different ways. It could simply restore the level of profit. It might affect the price level and of course it might make more money available to be spent on goods from outside Northern Ireland. I should not like to say dogmatically that any one of these things would happen, but I put it to the hon. Member that even if the administrative problems could be overcome the Bill still might not achieve the the objectives he has in mind.
The hon. Member moved the Second Reading in a very moderate way. He said that the proposal was one which perhaps should be tried. The hon. Member for Londonderry said that he stressed the idea behind the Bill. I entirely share those sentiments. They are sentiments concerned with a great human problem. Very properly, close scrutiny should he given to all legislation, including tax legislation, in so far as it bears on this problem and its solution. But I hope that the hon. Member will not feel bound to press to a Division his Motion for the Second Reading of the Bill, because in such circumstances I should have to ask the House to reject it.
§ 12.10 p.m.
§ Mr. McMasterI ask the leave of the House to reply briefly to the debate. I welcome the support of my hon. Friend the Member for Londonderry (Mr. Chichester-Clark) and thank the Minister of State for answering in such a courteous and thoughtful manner.
I must admit that I am very disappointed with the last part of the Minister of State's speech. I said earlier that I was not wedded to the precise form of the Bill. However, I am wedded to the Bill's central idea. I sought to make this amendment in 1961, when the question of the payroll tax was originally debated. The then Tory Government saw fit to exclude Northern Ireland from the provisions of that Measure so that, if it had been made effective, it would not have applied in Northern Ireland.
I believe that this is the ideal way of assisting a development area. I stress that I do not restrict this concept to Northern Ireland. The Minister, in quoting a loss of £12 million to the Revenue, was speaking of a very small sum compared with the total tax levied. I do not accept, however, that this would be a 1691 loss to Northern Ireland's economy. This money is simply returned to people, particularly those who are employers in service industries in Northern Ireland. It enables employers, where there is some difference between the wages and salaries paid in Northern Ireland and the national average, to use part of the money to increase salaries and wages of their employees, to improve their capital facilities, and to extend their operations, all of which create more employment. This money is, in turn, spent by the employees in Northern Ireland, thus creating further employment. The same would apply, though to a lesser extent, in any development area.
Ulster has experienced particular trouble due to the run-down of traditional industries. The linen industry has run down. The shipbuilding industry has been rationalised. There have been difficulties in the aircraft industry in my constituency. More important, there has been the move from the land to the town.
This is one of the reasons why, try as hard as the Northern Ireland Government can, with the backing of the Imperial Parliament and Government at Westminster, they have been unable to alter the persistently high figure of unemployment to which the Minister referred. They have been unable to make any dent in it over the past 20 years. During the 1950s it rose to a peak of 11 per cent. or 12 per cent. It came down
§ to 7 per cent. and it has remained at that level for the last few years.
§ Ulster's difficulty is its distance from the markets. To overcome this difficulty and to overcome the cost, either we must provide some type of transport subsidy in Northern Ireland so that it can benefit fully from the fuller employment in Great Britain, or we must adopt a Measure such as this. This Measure would be a very valuable supplement to the industrial inducements which are already being offered by the Government and the attempts of the Northern Ireland Government, supported by the British Government, to build up the infrastructure.
§ This instrument would spread its effects throughout the country and benefit particularly areas such as seaside towns and the areas which I have already mentioned, by helping to build up service industries there where the most intractable problem in Ulster has been found.
§ It is for this reason that I must press the Bill to a Division. I repeat that I am not wedded to the wording and would have been quite prepared to accept any Amendments the Treasury had cared to suggest. I believe that this Measure should be accepted by the House.
§ Question put, That the Bill be now read a Second time:—
§ The House divided: Ayes 12, Noes 37.
1691| Division No. 131.] | AYES | [12.14 p.m. |
| Bell, Ronald | Lane, David | Thorpe, Rt. Hn. Jeremy |
| Boyd-Carpentor, Rt. Hn. John | Legge-Bourke, Sir Harry | |
| Chichester-Clark, R. | Lloyd, Rt. Hn. Selwyn (Wirral) | TELLERS FOR THE AYES: |
| Clegg, Walter | Longden, Gilbert | Mr. Stanley McMaster and |
| Errington, Sir Eric | Orr-Ewing, Sir Ian | Sir Ronald Russell. |
| Heald, Rt. Hn. Sir Lionel |
| NOES | ||
| Beaney, Alan | Hamilton, William (Fife, W.) | Ogden, Eric |
| Bldwell, Sydney | Heffer, Eric S. | O'Halloran, Michael |
| Bishop, E. S. | Huckficld, Leslie | Peart, Rt. Hn. Fred |
| Booth, Albert | Jackson, Peter M. (High Peak) | Perry, George H. (Nottingham, S.) |
| Boston, Terence | Jones, Dan (Burnley) | Rees, Merlyn |
| Brown, Rt. Hn. George (Belper) | Jones, J. Idwal (Wrexham) | Rodgers, William (Stockton) |
| Davies, Rt. Hn. Harold (Leek) | Lester, Miss Joan | Shore, Rt. Hn. Peter (Stepney) |
| Diamond, Rt. Hn. John | Lipton, Marcus | Taverne, Dick |
| English, Michael | Lyons, Edward (Bradford, E.) | Winnick, David |
| Ennals, David | McBride, Neil | |
| Evans, loan L. (Birm'h'm, Yardley) | MacDermot, Niall | TELLERS FOR THE NOES: |
| Gardner, Tony | Marsh, Rt. Hn. Richard | Mr. William Hamling and |
| Gregory, Arnold | Mellish, Rt. Hn. Robert | Mr. J. D. Concannon. |
| Gunter, Rt. Hn. R. J. | Morris, Alfred (Wythenshawe) |