AMENDMENT OF THE LAW

HC Deb 30 March 1971 vol 814 cc1398-426

Motion made, and Question proposed,

That is it expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but—

1. (1) this resolution shall not authorise the making of amendments of the enactments relating to purchase tax, other than amendments about the remission of tax on exported vehicles, and other than amendments making the same provision for chargeable goods of whatever description, or for all goods to which any of the several rates of tax at present applies; and
2. (2) neither this resolution nor any resolution relating to selective employment tax shall authorise the making of amendments of the enactments relating to selective employment tax so as to give relief from tax—
1. (a) by way of exemption from, or a reduction in the rate of, tax except in respect of all persons of the same descriptions relevant for determining the rate of the employer's flat-rate contribution with which the tax is combined, whether that contribution is under the National Insurance Acts or under the corresponding enactments in Northern Ireland; or
2. (b) by way of providing for payments to employers of an amount equal to the whole or a specified part of the tax paid if the proposed provision—
1. (i) is in respect of employers in, or at establishments in, part only of Great Britain; or
2. (ii) extends to employers in, or at establishments in, Northern Ireland; or
3. (iii) is in respect of all persons in any particular description of employment in all parts of Great Britain, and relief in respect of the whole of the tax paid could be given in respect of that description of employment by an order under section 9(1)(a) of the Selective Employment Payments Act 1966 adding that description of employment to the 1399 employments to which section 1 or 2 of that Act applies; or
3. (c) by adding or removing any employer to or from the employers to whom section 3 of that Act applies, or
4. (d) by amending the provisions of Schedule 1 or Schedule 2 to that Act.—[Mr. Barber.]

5.26 p.m.

Mr. Harold Wilson (Huyton)

It falls to me—in this, I speak for the whole House—to congratulate the right hon. Gentleman the Chancellor of the Exchequer on the manner in which he presented his Budget, on his clarity and felicity of expression, and on the helpful way in which he marshalled the compendium of facts and proposals necessary to the presentation of his case to the House. It can assuredly be said that he maintained the interest of the House to the end of his speech, and I am sure that he will be glad to feel, as the whole House feels, that this has been his best speech—I am referring still to the form rather than the content—that he has made in this Parliament.

As to the content of the speech, on both his analysis and doctrine and his proposals the right hon. Gentleman will find us significantly less enthusiastic. The reasons for this will be successively deployed by my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), the former Chancellor, when he seeks to catch the eye of the Chair tomorrow, and by others of my right hon. and hon. Friends who will be speaking both from this bench and from the benches behind me.

My first impression is that, judged against the opportunities open to the Chancellor and the clear priorities which he should have followed, this Budget fails to rise to the occasion with which he was presented. [Laughter.] When they have got over their Budget euphoria and looked across the two-year period and what the Chancellor has announced, hon. Members opposite will be less than enchanted by it, because it is a two-nations Budget, in both direct and indirect taxation.

The right hon. Gentleman's presentation was clever. He has offered the family man in direct taxation reliefs 12s. a week on child allowances, but this will be eroded by price increases—on present form—within weeks; and he has done this in 'order that he may feed his lambs in the four top surtax classes. Perhaps the right hon. Gentleman will tell us when he replies to the debate how much of that 12s. a week reduction must be paid for by that same man in the increased stamp contributions which he announced this afternoon and of which he did not give us the details.

I shall come to the S.E.T.-V.A.T. question in a few minutes, because the proposed change will mean for the average family very large increases in the cost of living.

The Prime Minister (Mr. Edward Heath)

indicated dissent.

Mr. Wilson

Certainly, it will. That is why the right hon. Gentleman refused to mention it throughout the election campaign. The least the Prime Minister can do now, as a debt of honour, is to bring back the Tory Central Office official whom he sacked during the Election campaign for blowing the gaff on V.A.T.

The Chancellor must have realised the priorities he had to meet in this Budget. The first was to attack the present intolerable and rapidly-growing unemployment, which under the right hon. Gentleman has now reached 750,000, so often forecast by the Prime Minister for us. The right hon. Gentleman should have attacked this by soundly-based policies for growth, of which we saw no evidence in his speech this afternoon.

Second, he should have announced measures designed to stabilise prices, which we have not had—

An Hon. Member

What about the S.E.T. reduction?

Mr. Wilson

Certainly not S.E.T. I will come to S.E.T. in a moment, as the Prime Minister knows I will.

The third priority for which we called was for something to be done for pensioners. We all welcome the fact that the Chancellor has offered the increase of £1 a week, but he will know from an answer given by one of his colleagues yesterday that since November, 1969 the value of the pension has already been reduced by 50p, half the amount he is talking about, and the greater part of that fall has occurred since the present Government came to office. To delay the payment of the increased pension until September means that by then the value of the pension will be very little above what it was two years ago.

The Chancellor knows that in economic terms he is starting from a situation in which we are spiralling down into the deepest recession since the War. On top of that, successive shocks to confidence, such as the Government's bilking on the Mersey Docks and Harbour Board and then the big-time default on Rolls-Royce, have produced a new situation in industry, where confidence is rapidly disappearing.

The Chancellor has set out today to create some degree of reflation. Obviously, whatever figure he decided on must be a matter of judgment, and we can argue about that judgment. But he must learn, and I think that he will be willing to learn, from the United States, where there has been a substantial amount of reflationary policies, low interest rates, about which the right hon. Gentleman said nothing, and a flood of new money into the economy, which no one in the United States wants to use. All that money has been flowing into Europe, hence the Chancellor's ability to repay debt. Very much of the money used is American money attracted here by high interest rates.

The Chancellor is still left with the question, which will, I think, be the subject of the debate, whether he has done enough and in the right way to re-create confidence to avoid the spiralling into recession. As I warned one of the right hon. Gentleman's predecessors 15 years ago—and the advice was not taken at the time—you can pull a piece of string, but you cannot push it. The right hon. Gentleman may find that he is pumping money into the economy which industry cannot use because of its lack of confidence in the future.

The Chancellor should have addressed himself to the question of prices, but we have heard nothing from him on this. We have not seen a fulfilment of any of the pledges given in the General Election campaign by the Prime Minister. [Interruption.] Certainly not. The Prime Minister no doubt does not want to be reminded—and unless he wants to be reminded I will not remind him—of the words on which he won the General Election, when he promised to break into the price-wage spiral by acting directly to reduce prices. He has not done so. [Interruption.] It was going to be done at once, not nine months afterwards. He told us how he would do it, with the abolition of S.E.T., and a firm grip on public sector prices and charges. He was going to reduce the price of coal, steel, gas, electricity and transport, and reduce postal charges. That led to the phrase that he would at a stroke reduce the rise in prices, increase production and reduce unemployment. On none of those matters have we had any action at all. The Prime Minister said that that would lead to higher pressure of demand on labour, but that that would be all right. But it has not. We now have 750,000 unemployed. The sad thing is that whereas the man who blew the gaff on V.A.T. was sacked, the man who drafted this statement is now paid a high salary in Her Majesty's Treasury.

I now come to S.E.T. Before the Election, the Prime Minister pledged an incoming Conservative Government to abolish S.E.T. in the first Budget. He has not done so. That is another of the pledges on which he was elected on which he has now once again defaulted. He has defaulted on prices, unemployment and S.E.T. [Interruption.] Right hon. and hon. Gentleman may cheer now, but the country will realise that on everything on which the Prime Minister was elected he has defrauded the electorate once again. The Prime Minister laughs. Does he deny that he said that S.E.T. would go in the first Budget? [HON. MEMBERS: "Answer."] The right hon. Gentleman is laughing it off, like all the rest.

Since the Chancellor, presumably on the Prime Minister's direction, has broken the pledge on S.E.T., let us come to the claim that S.E.T. will—

Mr. Patrick Cormack (Cannock)

What about the £ in your pocket?

Mr. Wilson

Let us come to the claim that the reduction in S.E.T. will reduce prices. The Chancellor has not given the House any indication of steps he will take to ensure that a reduction in S.E.T. is passed on to the consumer. Why not? It is because he scrapped the National Board for Prices and Incomes within a month of taking office and scrapped the Consumer Council soon afterwards. Even if he had wanted to ensure that the reduction was passed on to the consumer—and, of course, he did not, because he wants the S.E.T. reductions to go not to the consumer but into the pockets of the distributive trade—he could not have done so.

I turn briefly to the Chancellor's direct tax proposals, which my right hon. and hon. Friends will examine more closely tomorrow in the light of the documentation now available. These proposals start from his mini-budget, his 2½ new pence reduction in the standard rate of income tax, that jolly, jolly sixpence we all read about in the Press the next day. [Interruption.] I am telling Conservative hon. Members what they know. That is why they do not want to listen. Hon. Members opposite will have this whether they like it or not. Independent commentators pointed out last October the Government's off-setting action to produce the 6d.—the higher charges for school meals, prescriptions, rents, rates and fares, to say nothing of food levies, all of which are coming in this week. These are all the constituents of the Prime Minister's appeal to the housewives during the Election campaign. The price of school meals is going up and free school milk is being cut. It was pointed out that all this would take away from an average family on the average wage or salary far more than the small gain from the tax relief. The commentators said that the average family would have to be earning £3,000 in order to gain net from the mini-budget policies.

But, of course, these charges were not due to begin until April—until this week—and it is therefore this week that the public starts to pay for the mini-budget promises. Most of the charges of public industries, which the Prime Minister pledged himself last June to reduce, are also to be increased from this week onwards.

Sir G. Nabarro

What about surtax?

Mr. Wilson

I shall come to that. The hon. Gentleman must be very disappointed about purchase tax today.

Sir G. Nabarro

Splendid stuff, Harold.

Mr. Wilson

There is not even a reduction of purchase tax on the red, white and blue boxer shorts in which, so we read, he sleeps in bed.

Sir G. Nabarro

I want to say only one sentence to the right hon. Gentleman. I prefer a promise of an abolition totally of purchase tax in 1973 to a slight reduction in it now, and I am wholeheartedly in favour of a general sales tax or a value-added tax—it is the same thing—which I have always advocated.

Mr. Wilson

I am delighted to hear it, but we do not agree with the hon. Gentleman.

For most families in this country, the whole of the gain from the remission of 6d. in the income tax has already disappeared and for many it has disappeared several times over as a result of the unrestrained price inflation since the mini-Budget. A man who, at the time of the mini-Budget, was on the average wage of £28 a week, and with two children under 11, would expect to gain 20 new pence a week in tax remission. But the charges announced last October will take 56 new pence away from him, while the increase in prices since last June will take away from that same family £1.57 a week. This excludes fares which, as we know, are to go up by 50 new pence or more per week for many families. That is the answer to the Chancellor's tax remissions.

Everything that the right hon. Gentleman has offered today will be more than accounted for by price increases, fare increases, rent increases and rates increases which are due to occur.

Mr. Barber

What about the wage increases?

Mr. Wilson

Whatever the right hon. Gentleman can take credit for, it cannot be wage increases. That is a new one from him.

It is the fact that nothing has been done about prices that destroys the value of the Budget. I want to put this to both the Chancellor and the Prime Minister because I still have not decided which "Toni" produced the Budget. Two days after the election was announced, both of them went into hysterics when the retail price figure was published because it had gone up by 2.1 points, or about 1½ per cent. By which figure do they expect it to rise this April, taking into account the higher cost of school meals, the higher prescription charges, the higher road and rail fares, the higher rents and the higher rates? The rates are, we understand, due to go up by 14 per cent. on average throughout the country, with household rates rising by 9 per cent.

I turn to the value-added tax which the right hon. Gentleman has announced as Government policy. It is to be in place of selective employment tax and purchase tax, I understand. I have always taken the view that, if we were to get into Europe on fair terms—if those terms were advantageous, right and beneficial to the country—we should have to introduce value-added tax as part of those terms. It would be part of the price we should have to pay, just as the agricultural policy of the Common Market is part of the price we should have to pay.

What I have never been able to understand is why right hon. Members opposite should rush into paying the price, both in food levies and in value-added tax when there is no certainty at all that we shall get the terms which will enable us to go into Europe. Everyone knows—we have seen it recently on the Continent with the enormous price increases following the introduction of the value-added tax—that to introduce it here in 1972 or any other year will mean an inordinate rise in the cost of living for ordinary families, even with the omission of newspapers and food. Obviously, one cannot impose it on food when one is introducing Common Market food levies at the same time. Even the Prime Minister would not penalise the average family like that.

The Chancellor did not say whether value-added tax would apply to rail fares and fuel. If it does, it will increase the cost of living still further. If it does not, it will mean that the amount of revenue which he has to raise to replace the S.E.T. and purchase tax on the narrow coverage of value-added tax will be at totally intolerable and unacceptable rates for the average family.

For the Chancellor to announce today that he is going to introduce the value-added tax anyway, whatever the terms of entry into Europe, with the certain result of acceleration in price increases and the destruction of any hopes of a fair prices and incomes policy in this country—all without any assurance about getting into Europe—is an act of fiscal masochism which would seem to invite the attention not of an economist but of a psychiatrist.

The Chancellor must ask himself—indeed, the Prime Minister has considered this—"Supposing we do not get terms, that we can accept?". Or is he prepared to accept any term offered? We do not know. The Prime Minister was very angry once before the election when I said that he was prepared to pay the price of getting into Europe without getting in. Now we see it happening under his leadership. Supposing we do not get these terms. Will the Government then be content to have Continental food prices and levies and Continental value-added tax with none of the advantages of entry into Europe?

We welcome the announcement about the increased pension and about the age relief and dependant relief allowances, which are to go up. But the right hon. Gentleman will find that we cannot support him on the aggregation of a child's income with that of the parents. This, if anything else is in this Budget, is a class proposal. It was a national scandal and one of the main forms of encouragement to tax avoidance until it was removed by my right hon. Friend. We shall want to examine the increase of the Millard-Tucker 10 per cent. to 15 per cent., which is largely a gift to the surtax payers, and we shall want to look at what he has said about capital gains tax, particularly in relation to the amalgamation of short-term and long-term gains.

I can understand the right hon. Gentleman's desire to reduce corporation tax further because of the chronic liquidity problem in industry at this time of breakdown in confidence in wide areas of industry. What we shall be much more critical about is his decision to announce once again a change in the basis of corporation tax, which appears to us to give an encouragement to increased dividend payments rather than encouragement to ploughing back for investment purposes. If he feels that that, too, will contribute to a more united and harmonious industrial situation and to better chances of an incomes and prices policy on a voluntary basis, he is wrong.

As we debate this in the next week, some of the euphoria and hubris we have witnessed on the part of hon. Gentlemen opposite will be getting a little tarnished. It will be totally tarnished before the next month is out.

Certainly I concede to the Chancellor, in addition to what I began by conceding—his superb form of presentation, which the House enjoyed—that this Budget will have an appeal where it is intended to appeal—to his friends in the City and the hard-liners in industry.

Mr. Kenneth Lewis (Rutland and Stamford)

What about your memoirs?

Mr. Wilson

I do not challenge comparison with hon. Gentlemen opposite in their sources of income.

The right hon. Gentleman will, by this means, ease the lot of a few hundred surtax payers, but by his other measures, and particularly by his refusal to tackle prices, he will worsen the lot of many millions of other tax payers and, with the increase in the stamp, he will worsen the lot of tens of millions of tax payers. Undoubtedly this Budget will appeal to his friends in the City and the hard-liners in industry. [HON. MEMBERS: "Again?"] I wanted to say it again to give hon. Gentlemen opposite a chance to cheer. It will no doubt also stimulate the flow of funds to the Central Office. [Interruption.] Indeed, I have no doubt about that.

The Budget will bring a degree of confidence to the money dealers—to those who make money and not to those who earn it. It is the Budget of a Bourbon. It is the Budget of people who have learned nothing and forgotten nothing. It is a Budget which will be cheered by hon. Gentlemen opposite now—

Sir G. Nabarro

Hear, hear. It is a Tory Budget.

Mr. Wilson

Exactly. That is what I was trying to say and the hon. Gentleman has said it for me.

It is a Budget which not only hon. Gentlemen opposite but the country as a whole will regret before many months are out.

5.54 p.m.

Mr. Wilfred Proudfoot (Brighouse and Spenborough)

I hope that the Leader of the Opposition will forgive me if I do not comment on the points he raised in a speech which he no doubt prepared at least three weeks ago. I have already thrown away the speech that I had prepared. I trust, therefore, that hon. Members will bear with me as I speak from flimsy notes.

It is a deep honour to be called shortly after my right hon. Friend the Chancellor of the Exchequer presented what I consider to be the best Budget since the war, not just for hon. Members on this side of the House but for the whole community. I am glad he carried out some of the policies which, in a humble way, I have been advocating for at least three weeks. I thought, however, that on social grounds he might have increased the duty on tobacco to prevent people from smoking themselves to death. This is a Budget of sound common sense and is designed to help the whole of society.

The Leader of the Opposition made a profound mistake when he criticised some of my right hon. Friend's tax cuts. If he examines the Budget introduced by the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), he will find that many old-age pensioners found themselves paying tax at a rate which they did not pay before last July. That was a cruel step for the then Chancellor to have taken.

My right hon. Friend has undoubtedly given journalists and commentators plenty to talk and write about in the coming months. They have been rather short of interesting news recently and I am delighted that he is pursuing some of the radical measures which my right hon. Friend the Prime Minister promised before the last election we would, if elected, take. This is a reforming Government and I am glad that our first full Budget should have been of such a radical nature.

I am delighted that the Chancellor has announced certain steps that will be taken in the coming two years. Nobody but a fool would imagine that great administrative changes such as he is proposing could be made at the drop of a hat.

Mr. Kevin McNamara (Kingston upon Hull, North)

Not even at a stroke?

Mr. Proudfoot

I will ignore that cheap political point.

Mr. McNamara

The hon. Gentleman cannot ignore the fact that his right hon. Friend said it.

Mr. Proudfoot

Radical changes of this kind cannot be made without tremendous preparation. It is only right, therefore, that the public should be warned of what this modern Government intend to do in the coming years.

I was particularly delighted by my right hon. Friend's references to the banks. We have seen a proliferation of what are sometimes called "near banks" and the joint stock banks have not been able to lend to small business men because of the administrative action taken by successive Governments. I hope that in the coming months the restrictive practices involving the banking cartel will be broken down, so enabling competition to take place in banking. This competition should apply to the rates which banks charge when lending and to the rates they pay when borrowing. I am sure that the small man will gain from the measures announced by my right hon. Friend.

It is part of the dictum of the Prime Minister that people should stand on their own two feet. Small business men should, when told by a bank manager, "I can lend you money but I shall have to do so at a rate higher than that which you might otherwise have paid", be thrown back on their own resources, do their sums again and see what other courses are open to them.

I am glad that the earnings anomaly applying to married couples is to be brought to an end. The spread of business income is right. I am equally delighted to see an end of stamp duty, though if it is due to finish on 1st August, what is to happen to those who wish to enter a property transaction between now and that date? My right hon. Friend's proposals for corporation tax are welcomed, and it seemed obvious, in view of the inequity on shortfall, that these steps were necessary. The child allowance changes must be welcomed by all. I wanted to see a change in surtax, with a move to a graduated scheme right up to 75 per cent. This step is perfectly right for the nation as a whole and particularly for the go-getters and technologists. They will be encouraged as part of the Government's strategy in this sector.

The P.A.Y.E. system has always operated over a full year. Do the changes mean that it will be non-cumulative in its repayment effects? This question is important in relation to some of the strikes that we have been witnessing. I am delighted by the introduction of V.A.T., whether or not we enter the E.E.C. It is only right that we should begin to change to V.A.T. now because, in any event, I believe that we shall eventually be in the Common Market.

I accept that S.E.T. should not be a method for reducing the cost of living, as it were. The cost of S.E.T. to one business with which I am acquainted is £1,400 a year. However, this firm faces the introduction of equal pay for women. which I welcome, but that will mean an increased wage bill of £5,000. The Leader of the Opposition should do his homework in this connection, particularly when he refers to the distributive trades. Down goes selective employment tax, quite properly, but it should not be canvassed as a way of bringing down prices, because it will go towards the achievement of equal pay. We on this side of the House believe in equal pay for equal work between the sexes.

My right hon. Friend said that the value-added tax will not apply to food. There is a remark worth making about food prices because of the Common Market context of my right hon. Friend's speech. If we were to go into the Common Market tomorrow and prices were equated, it would be found that our prices were not as high as they are in most continental countries. Our prices would be 6 per cent. below those in France, for instance, because the distribution system in this country is 6 per cent. more efficient.

I should have liked to see in the Budget proposals for free depreciation. We must get round to it sooner or later to encourage business to modernise its equipment. When I was previously a Member of the House I remember that Harold Macmillan, then the Prime Minister, used to shake his head and say, "Before this country comes to its senses it might have to go through terribly hard times." I know, because I came from the same part of the country as he did, that he was thinking of vast unemployment and of his experiences when he was the Member for Stockton-on-Tees.

The Budget today has indicated that the Government will never try to achieve their ends by creating gross unemployment figures. The gentle reflation about which we have heard today is about right for the economy.

6.2 p.m.

Mr. R. B. Cant (Stoke-on-Trent, Central)

I must begin by expressing a measure of agreement with the Chancellor of the Exchequer. Politically, this is always fatal, but I try to be a reasonable man at all times. If what the right hon. Gentleman said and what is printed in the Red Book means that he intends to add to aggregate demand about £500 million in the next fiscal year, that is about right. However, I am surprised that, in the last analysis, he should emerge as a good National Institute of Economic and Social Research man. Accepting that a greater reflation than is proposed would have placed a strain on our balance of payments, we then come to the great divide. Obviously the Chancellor lives in a different world from us. He was no doubt born in a bed in a quite different house and of quite different parents.

I began to wonder, as the right hon. Gentleman was unfolding very efficiently his sage of tax reductions, whether he knew the sort of problems which faced us and whether he felt that what he proposed would help to solve the unemployment problem and the problem of the poor. I hesitate to liven up the small number of Members present by telling a joke, but the right hon. Gentleman reminded me of a review by an American which I read of "Lady Chatterley's Lover". He said that, having read the book, he must recommend it because it gave remarkable insights into a natural historical phenomenon; it gave great help to anyone who wished to practise the practical art of gamesmanship. He added, however, that unfortunately it contained a lot of extraneous matter which was of no interest to anybody of serious mind.

It seemed to me that the Chancellor of the Exchequer had misread almost completely the situation in which the country finds itself. All I can say about him is that he is a Chancellor who never missed an opportunity to do his friends a favour. They have been lavishly endowed and richly blessed by this Budget.

I turn to the more general considerations and leave the particulars to the tax lawyers on the benches opposite. I wonder what the proposed reflation adds up to in terms of bringing a breath of life to our economy, with over 750,000 unemployed. The great mistake which the Chancellor has made is that he has directed his very substantial tax cuts to the problem of increasing incentives in the economy whereas he should have directed them to the much more relevant consideration of reducing prices.

In the opening sentences of his major speech, at any rate in chronological terms, the Chancellor used all the old platitudes about incentives, effort, savings and investment. He got delightfully wound up on this theme. But I should have thought that if there were any philosophy which one could regard as bogus and old-fashioned in economic discussion, it was precisely this.

I do not want to recite the bits of research which have been published to show how irrelevant even marginal tax rates are to effort and incentive. The latest is one of the most revealing because, when a range of executive types who are supposed to respond to these reductions were asked how much tax they paid, not one of them had the slightest idea.

We know the purpose of the hand-out: it is merely to increase the income of the friends of the Chancellor of the Exchequer rather than to increase incentive to work and effort. [An HON. MEMBER: "And savings."] It increases the incentive to save a little and the right hon. Gentleman was able to trot out the increase in savings. But the purpose is then to increase investment, and investment becomes a sort of spring which will unleash the production potential of the economy in the months and years ahead.

In economic theory there is a myth that investment responds to increases in savings. In 1936 the great economist Lord Keynes exploded this theory. He regarded the disequilibrium between saving and investment as a major cause of the capitalist crisis. We have evidence, not only in the monthly economic letter of the First National Bank of New York revealing that savings are piling up in the banks and nobody wants them, but in the figures published today by our own banks. There is a massive growth of liquidity and the banks are not lending as much as even the Government would like.

If one takes any economic indicator in relation to investment and tries to find a single correlation between investment and such things as the rate of interest one cannot. No one knows what determines the level of investment. It is possible that it can be correlated only with changes in gross national product, but even this is not absolutely certain. The proof of this is that in suggesting what the level of investment might be at some future date the Department of Trade and Industry is dependent entirely on subjective surveys of businesses.

If the right hon. Gentleman believes that investment will surge ahead because he has reduced corporation tax and done other things to promote an increase in savings, he should dig a little more deeply into the problem. He hoped that investment would grow and absorb the spare resources and, if investment did not grow, he expected that exports would take up the slack. This is equally doubtful. The conclusion we must draw from what he said this afternoon is that he is depending on a consumption-led boom, which we are told by all the economic commentators is the worst possible type of boom which will lead us soonest into balance of payments difficulties.

Apart from opposing these regressive changes in taxation, I believe that the Chancellor should have done much more to attempt to restrain the rise in prices. If there is one thing that is adding fuel to the fire of cost inflation, it is that prices keep on increasing. If prices could have been curbed by a reduction in imposts such as National Insurance contributions, purchase tax and so on, this would have made a significant contribution to the problem. But that was not the Chancellor's line of country. He said. "Let us reduce S.E.T.", but all that will do is further to increase the liquidity of companies; it will not decrease prices.

Not only did the Chancellor take hardly any direct action about prices, but he failed to do anything to try to rebuild the bridges with the trade union movement which have been virtually destroyed by the Industrial Relations Bill. We have seen in the House in the last few weeks, including today, a naked confrontation of power between the classes which possess the wealth and the trade union movement. This will not do.

The Prime Minister likes to think that he is tough—and he is tough. There is a story going round in trade union circles that when the trade unionists came away from seeing the Prime Minister one of them said to a reporter, "He is reputed to be a man of very few words. He greeted us with two of them." This may be an apochryphal story, but I do not think this toughness, this abrasiveness, will get the country through its difficulties, as the Prime Minister would like to think it will. To try to meet the trade union movement the Prime Minister should have set up a prices review committee, not to freeze prices but critically to review the 600 key prices in our economy. This would have given the trade union movement a feeling that lie cared about the things that trade unionists think are important.

It is a tragedy that the Prime Minister should go on in this way. He may succeed or he may fall flat on his face, but, whatever his personal fate, it is the fate of the country that matters. Sometimes when I see him on television or at the Dispatch Box I have a grim feeling, almost a foreboding, recalling the speech of a South American dictator who once said, "When we came into power Brazil was on the brink of an abyss. Since then we have moved forward." If we are not careful, I have a suspicion that this is likely to be our destiny, too.

I will spend one minute on a subject that is slightly esoteric but near to my heart, although I do not want to masquerade as a desiccated calculating machine. In one passage in his statement the Chancellor of the Exchequer either did not know what he was talking about or he was deliberately misleading the Hous—

Mr. Charles Pannell (Leeds, West)

Both.

Mr. Cant

As my right hon. Friend says, both. This concerns the question of money supply. Without doubt the Government have lost control. They have lost control for the simple reason that they will not face the fact that money supply is increasing not only because of the balance of payments surplus but because of the masses of "hot" money flowing into the country.

They are adopting all sorts of techniques to offset this trend by using, for example, special tap issues, "operation twists" and heaven knows what, but the only way in which money supply can be brought under control is by preventing this money ever coming into the country. The only way that they can do that is to reduce the interest differential between London and other financial centres. The only way that can be done is by reducing Bank Rate, and the sooner that happens the better. That would help in the control of money supply and would be yet another price—the price of money—which would be brought down through the reduction of Bank Rate.

6.20 p.m.

Mr. F. A. Burden (Gillingham)

It is interesting to follow the arguments of the hon. Member for Stoke-on-Trent, Central (Mr. Cant) and I agree with him that it is bad that so much "hot" money is coming into the country. However, I would point out that such money is being attracted here because people abroad have confidence in our present financial position. The curious thing is that towards the end of the period of office of the previous Government, despite the fact that Bank Rate was as high as it is now, that "hot" money was not coming in because foreigners had no confidence in the future of this country. There is a great difference in the situation today, and I am sure that the hon. Gentleman is encouraged, as is the rest of the world, by the considerable repayments of overseas loans, borrowed by the Labour Government, who then reneged on repayments. These repayments are to the credit of the present Government and will increase our financial standing and status in the world.

The hon. Gentleman also referred to the 750,000 unemployed, and nobody with any decent human feelings wants to see a considerable number of people in that situation. The whole employment situation is based on the general economy of the country. Why was it that the Labour Government went to the country in June last year when they had another full nine months to run? Was it because they thought that the sun would be shining in June, whereas clouds were bound to appear in the autumn because of the wage inflation deliberately encouraged by the Labour Government? Did they fear that this would turn into a downpour which would ensure that they would be defeated even more heavily at the election? I believe that that was the reason, and I believe that the one person above all others, who miscalculated, was the right hon. Gentleman the Leader of the Opposition, to whose speech we listened a little earlier.

Right hon. and hon. Gentlemen opposite speak with two tongues. I am not saying that this applies to the hon. Member for Stoke-on-Trent, Central, but it certainly applies to some of his hon. Friends. Some hon. Gentlemen opposite who sit below the Gangway and who, during the Labour Government's period of office, were always criticising their own side are now still blackguarding them for some of the suggestions they did their best to ensure were not carried out and which Labour Government knew to be necessary. They are now saying to the present Government, "You must reduce prices but must do nothing whatever to stop the most extravagant of wage demands". Anybody with any economic sense knows that that is the way to despair, not only in regard to the 750,000 unemployed, who I believe will have far more chance of getting back to work as a result of this Budget, but for many thousands of other people who inevitably will be forced out of work if we cannot ensure that the goods we produce can be sold economically in competition with other countries.

I had an interesting experience only two weeks ago. I was invited to dinner at a working men's club in my constituency. During the evening, the talk turned to the subject of cars and the chairman, who was sitting at my table, said that he had just bought a German Opel. He was a retired seaman and bought that car because, in his view, it was between £100 and £200 cheaper than anything comparable made in this country. He said that the car had far more refinements than anything here, that it does 80 miles per hour; 40 miles to the gallon and runs on two-star petrol. The lesson in that story is that, although many of us always like to feel that people would buy British even at a higher cost, we must remember that that German vehicle paid considerable import duty to enable it to be brought into this country. Therefore, the basic cost of that car—when one excludes the import element—is much less than the cost of the home product.

For too long we have taken the view that the rest of the world will buy British because of the old standards of quality and price. But we must now face the fact that there is no preference in the outside world for British goods just because they are British. The only way in which we shall sell our products abroad is by making them at the right price, with the best delivery time, performance and finish. Unless we can do that, it does not matter what is done by Government exhortation, by the trade unions or by anybody else, there will be a considerable growth in unemployment and a decline in our economy and our living standards.

Hon. Members opposite are doing everything they can to oppose the Industrial Relations Bill. Many hon. Gentlement, particularly those who are regarded as Left-wing Members, have stated in the House quite openly that they forced the Labour Government to withdraw their proposals to introduce such legislation based on "In Place of Strife". They are quite blatant about it, and lose no opportunity to make it clear that they forced their Government not to do many things which that Government felt to be right in the interests of the country.

Sometimes I find it very difficult to sit in this House and listen to the speeches of right hon. and hon. Members opposite. The right hon. Member for Blackburn (Mrs. Castle), for example, said in "In Place Of Strife" that not only was an industrial relations Bill necessary but that the very future of the Labour Government depended upon it. But, of course, the Labour Government ran away from it and, because they knew what was likely to result in the autumn, they had to have the General Election in June so that the full impact and effect of their cowardice would not be evident.

Mr. George Lawson (Motherwell)

Is not it a waste of time to attack my right hon. and hon. Friends when they are not here? Why does not the hon. Gentleman devote his attention to the Budget?

Mr. Burden

With respect, the hon. Gentleman has not long been in the Chamber. It was his hon. Friend the Member for Stoke-on-Trent, Central who attacked the Conservative Party because of the Industrial Relations Bill. If right hon. and hon. Members opposite are not present on the Front Bench, that is not my fault. They should be here. The hon. Gentleman should bring them in.

Mr. T. H. H. Skeet (Bedford)

Where are they?

Mr. Burden

Their absence shows that they are probably doing their homework. It is necessary for them to do that so that they can attempt to denigrate this Budget.

Mr. Ernest Armstrong (Durham, North-West)

They are not missing much at the moment.

Mr. Burden

The hon. Member for Stoke-on-Trent, Central told the House that he thought that the present Prime Minister was too tough. I find it a relief to see some toughness after a Government who were led by a man who was so vacillating and weak. Good, firm government is what the country needs. In the long term, it will respond to it. The Government have shown today that they are determined to govern in an enlightened way, looking to the future, and I believe that they will govern in a way to which, ultimately, the country will respond.

I hope that right hon. and hon. Members opposite will not take steps to try to ensure that the trade unions do not respond to that which is necessary for the future of the country: we must have discipline on both sides of industry and an understanding that, if we are to progress, we have to go into the future in a forward-looking way. I believe that this Budget will provide the necessary stimulus for the future.

I was glad to hear my right hon. Friend refer resoundingly to the word "profitability". The word "profit" had become a dirty word even at the end of the period in office of the last Conservative Government because of the activities and statements of right hon. and hon. Members opposite. In their own reign, it disappeared almost entirely. It seemed to be unmentionable. From the point of view of companies, it certainly disappeared almost entirely. Profitability means the creation of wealth. It is from the creation of wealth that the country prospers, out of which workers get their employment and out of which it is increased. It also enables workers to improve their standards of living. We were a great trading nation. We have to be again unless we are to see our present standards of living gradually reduced until we become a nation with one of the lowest standards of living in Western Europe and, indeed, the world.

There was one disappointing feature in the Budget. I was hoping that my right hon. Friend would be able to give pensioners a little more. It is true that this party is committed every two years to examining and, if necessary, raising old-age and other pensions to take care of any inflation. I was hoping that single persons would be given a little more than an extra £1, that the pensions of married couples would have been raised a little higher than £9.70, and that a little more would have been given war pensioners and others.

Mr. Cormack

While I have sympathy with what my hon. Friend says, I am sure that he will acknowledge that this is the biggest ever single increase.

Mr. Burden

That is quite true, and it is in line with Conservative philosophy. During the reign of the last Conservative Government the standards of living of pensioners were increased more than at any time in our history, whereas during the period of the Labour Government they declined below those which prevailed when the Conservative Government went out of office. We have restored the position, but I was hoping that we would do even better, in view of the party's philosophy to look after those who are least able to look after themselves.

It is striking how often right hon. and hon. Members opposite fall into a trap. They are guileless. One could not help noticing the screams of laughter which came from the benches opposite when my right hon. Friend said that we would like to do away with S.E.T. Right hon. and hon. Members opposite thought that my right hon. Friend was doing nothing about it. Then we saw gloom settle on their faces when my right hon. Friend said that it would be cut by 50 per cent. on 5th July.

Manufacturers and members of the distributive trades have had to pay the levy. It is quite true that manufacturers get it back; but they have provided the Government with a huge interest-free loan for a considerable period. This has embarrassed many companies since it has reduced their liquidity and available funds for expanding their businesses and for investment. If they wished to expand their busnesses or invest in new machinery, the tax meant that they had to borrow money from banks at high interest rates, all of which have helped put up costs and made it extremely difficult for many companies to continue. I welcome this the first instalment in the departure of S.E.T.

The Leader of the Opposition was not the clear-minded person today that he sometimes appears to be—

Mr. Skeet

He is too busy writing his memoirs.

Mr. Burden

In fact Lord George-Brown makes it clear in his memoirs that the right hon. Gentleman is frequently not very clear-minded. His confusion over S.E.T., purchase tax and the value-added tax evidenced itself today. S.E.T. is undeniably a tax on costs and ultimately a tax on sales and, therefore, a value-added tax. Purchase tax is nothing but a value-added tax as it inflates the natural cost of the article. What the Leader of the Opposition does not know, or does not admit, is that if we replace S.E.T. and purchase tax by V.A.T., we shall be replacing one value-added tax by another.

The situation with purchase tax is interesting. It is put on the cost at the wholesale point. If an article costs £1 at the time it is transferred to the retailer and the purchase tax rate is 13⅔ per cent., it reaches the retailer at £1.13½. With a 50 per cent. mark up on that total, which is the practice in shops, the total selling price would be £1.70. Out of that the Treasury would get only 13½p.

With value-added tax on the same article, as it is charged on the price at which the article is sold, the £1 would become £1.50 with the shopkeeper's profit margin. With the value-added tax added to that at a rate of 13⅔ per cent., it would total 20p, so that the selling price would be exactly the same. [Laughter.] Labour Members laugh because they do not know. In these circumstances the Treasury would collect 20p instead of 13½p, although the cost to the purchaser would be precisely the same.

There would therefore be a greater spread of taxation without increasing the cost to the public. The benefit is that when the public pays value-added tax they know precisely the shopkeeper's price, because the tax is paid on the price of the goods alone and there is no profit on an element of tax. This disclosure could help to keep down prices.

I have looked into the system in Denmark. There is no question of the value-added tax becoming cumulative from the point of manufacture to the point of sale to the public. Some value-added tax is added on at each stage, but then recovered, until finally at the point of sale it is always consistent.

The Press and the nation generally will see that this is a Budget which looks to the future, a Budget which will give confidence to Britain in its future, a Budget of which my right hon. Friend and the Conservative Party can be very proud.

6.45 p.m.

Mr. George Lawson (Motherwell)

The hon. Member for Gillingham (Mr. Burden) chided my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) and referred with great scorn to what he had said about hot money. The hon. Member had his own explanation of why hot money was flowing into the country—the confidence of the foreigner in this country. If he is sending his hot money into the country because of his confidence, that can hardly be said of the native business man, the man of enterprise about whom Conservative Members so often speak. When the Prime Minister gives his explanation of our difficulties, apart from his regular explanation about the trade unions and their demands for increased wages, he speaks of the lack of confidence in the country. There is a fair amount of substance in this statement although that absence of confidence requires some study.

The hon. Member for Gillingham did not seem to have much to say about the Budget. I find it difficult to discover major differences between this and for- mer Tory Budgets. There is a move towards simplification, although that will not start to operate for a couple of years, if it works at all, and many things can happen in two years. However, most of us will be happy about simplification, although it will not overcome the deep-rooted difficulties under which the country has laboured for so long.

It also shifts the balance.

Mr. Burden

rose—

Mr. Lawson

I will not give way now.

Mr. Burden

I gave way to the hon. Gentleman.

Mr. Lawson

The hon. Gentleman spoke for a long time and the debate is to conclude at 7 o'clock.

As is usual with Tory Budgets, there is a marked shift in emphasis towards the taxation of poorer people, away from direct taxation, where one can measure the incidence fairly although not completely accurately, towards indirect taxation. The changes in the Budget, whether paying more to or taking less from the better off, are advanced on the basis that they will stimulate the man of enterprise. It is said that there is a need to stimulate the profitability of companies.

I do not decry profitability as one of the measures which might operate with advantage in the economy, but it is not the only measure. When one thinks of the nature of the difficulties confronting the country, one must consider much more than immediate profitability.

A characteristic of profitability is that one's mind is usually focused a short distance ahead. This nation, if it needs anything, needs people of vision who can think many years ahead and take the kind of steps and measures which will pull this country out of its difficulties.

This country is not in a difficulty stemming from anything which has been done over the past two or three years. As the Chancellor said, our difficulties go back many years. However, I go back even further than the right hon. Gentleman. I go back well before the beginning of the century when, for divers reasons—I have not time to go into them—this country began to fall behind and these characteristics of enterprise, about which right hon. and hon. Gentlemen opposite so often talk, began to be lost and this competition began to be guarded against. As much as possible, an effort was made to eliminate competition. This has been a long chronic illness which we have not properly diagnosed, but no remedy is to be found in the propositions which have been put forward today.

I take one example of the kind of argument coming from right hon. and hon. Gentlemen opposite. I refer particularly to the Prime Minister. The right hon. Gentleman can hardly talk about our economy without the phrase "wage demands" coming from his mouth. I do not think that anyone will challenge that virtually the entire blame, if blame is to be apportioned, is put on trade unionists or workers demanding higher wages. Yet, if we look at the higher wages or increases in labour costs, this country is measuring much the same as other countries.

I have here the publication German International for February 1971. I think that most right hon. and hon. Members will receive this excellent journal. It talks of wage costs in 1970. At the head of the 11 or 12 nations listed here it puts the Federal Republic of Germany and the United Kingdom of Great Britain. Germany kept pace with us, but we do not hear this cry coming from Germany. The reason is simple. Germany's economy has been growing and ours has not.

We come back to the root difficulty facing us—the failure of the economy to grow. It is not the trade unionists who determine how fast the economy grows; it is not the British workman. It is the fellow managing the business, the man of enterprise about whom right hon. and hon. Gentlemen opposite so often speak.

We hear talk about there not being enough stimulus in our taxation system. Yet when we were paying 6d. in the pound at the beginning of the century, almost before there was a taxation system at all, we had begun to drop out of the race. Before the First World War, when the tax paid was trifling, we found that the people who had been managing our economy were dropping further and further behind.

We cannot honestly say that our taxation system extracts from people substantially more than is expected in comparable countries. We are not the highest of the most heavily taxed countries of the western world. What is usually said by right hon. and hon. Gentlemen is that the tax at the margin is such that it dampens down enterprise.

The amount which is to be saved by this so-called substantial change towards surtax payers is, I think, £16 million. There was great laughter by right hon. and hon. Gentlemen because they thought this a mocking figure. They thought that we would be disappointed because we might have hoped to hear of hundreds of millions of pounds. I was not surprised. The thought in my mind, and no doubt in the minds of most working-class fellows, is that people in that bracket do not pay all that tax. They find all kinds of ways of evading tax. We constantly hear what the man on £50,000 a year is supposed to be paying in taxes. Do not tell me or any ordinary working man that the man who can obtain £50,000 a year is returning £50,000 a year and is being taxed on it.

Mr. Burden

rose—

Mr. Lawson

I shall not give way. I make the point that the very rich are well able to avoid paying the tax. They pay some tax, but not that amount.

Mr. Burden

What did the right hon. Gentleman's Government do about it?

Mr. Lawson

Let us consider the workmen whose wage demands are causing so much trouble. I have here the January issue of what was the Ministry of Labour Gazette, now the Department of Employment Gazette, which makes a study of adult male earnings in April, 1970. I think that is near enough for my purpose. It divides the earnings into categories. There is the median or middle earning, the lower quartile, which is the first 25 per cent., and the lowest decile, the first 10 per cent. I take the lower quartile. The lower 25 per cent. of adult male full-time workers in Scotland were earning £19 10s. This is gross earnings, not take home pay. Is that anything to be shouting the odds about? Are those great earnings which should be dampened down? When we look at this kind of thing we appreciate how absurd it is.

I rose to make one point, and I am nearly failing to make it. What I want to see coming from right hon. and hon. Gentlemen opposite is some enterprise in a large way. Take, for example, the steel industry. Unless the Government become involved and find a means of enabling the British Steel Corporation to carry out its programme, and more than its programme, we shall very soon become not a second, third or fourth-rate country, but a country which does not matter at all.

Stainless steel is largely in the hands of private enterprise. Between 1960 and 1969 the output of stainless steel in this country, the most profitable form of steel, increased by only 6 per cent., whereas in Japan it increased by 422 per cent., in West Germany by 84 per cent., in France by 122 per cent., in Sweden by 106 per cent., in Italy by 250 per cent., and in other countries by 126 per cent. I give those figures quickly to show that we are not even in the league. We are in a different league altogether. We are not even in the league of the also-rans.

The same point applies to crude steel. Between 1960 and 1969 our production of crude steel increased by 8.7 per cent. The Japanese increased their output by nearly 400 per cent.

My point is that the British Steel Corporation, private enterprise or public enterprise, cannot get out of this difficulty by its own efforts. It cannot make the profits to enable it to pay on the level which the Japanese are paying. If this nation is to have any kind of industrial standing, the Government must come in behind the steel industry and say that they want these things done and that those are the things they are going to pay for from public funds or in some other way. Unless we can do that we are all washed out. Judging by what was said today, we shall be all washed out.

Debate adjourned.—[Mr. Rossi.]

Debate to be resumed tomorrow.