§ I now turn to the only method by which I can cover the remaining cost of our expenditure proposals, a method that must also play the central rôle both in my management of the economy and in achieving that redistribution of wealth and income to which my party is committed—taxation. I think that the House 306 will at least agree that I have never sought to conceal from the British people the fact that the social changes for which my party stands and on which it fought the last election could not be carried through without some increases in taxation and that those increases could not be confined to the very rich.
§ My predecessor used taxation to redistribute income and wealth in favour of the better off as against the average worker, in favour of the single man as against the family, in favour of those who make money as against those who make goods, in favour of luxuries as against necessities. I believe that Britain cannot achieve the national unity required to surmount the problems ahead unless that process is now reversed.
§ This is an area where the needs of economic management coincide with the needs of social justice. It is essential that we should fully cover the demand effects of the increases in expenditure to which the Government have committed themselves. But to reduce overall demand beyond what is needed to cover our expenditure and leave enough room for exports and investment would mean running unacceptable risks of unemployment and unused capacity later in the year. The Budget must avoid the twin perils of demand inflation and demand deflation.
§ Subject to this overriding requirement, I judge it to be essential to improve the performance of the public sector accounts. In 1973–74 the public sector had a financial deficit, that is to say, a shortfall of saving over investment, estimated at some £3,100 million. A little under one half of the capital requirements of the public sector was met from the current surplus. When account is taken of the increase of some £1,170 million in public sector financial assets, a borrowing requirement estimated at around £4,250 million emerges.
§ Such figures rightly cause great concern among informed opinion. I have therefore set it as my aim that, without modifying my target for the path of output and demand, I should substantially increase the volume of public sector saving with a view to covering a much higher proportion of the public sector's capital formation from the current surplus and hence to reduce both the public sector financial deficit and the borrowing requirement.307
§ The best way to ensure that this deficit is cut sufficiently without excessive cuts in demand is to concentrate tax increases on those who are less likely to reduce their consumption when their taxes go up. It is a fact of life—and one of great social as well as economic importance—that a tax is more likely to cause reduction in consumption the poorer the family on whom it falls. But the richer you are, the less you need to cut your standard of life when your taxes go up; you are more likely to meet the increase in your taxes simply by drawing on your bank balance.
§ For this reason, as hon. Members opposite are never slow to remind me, taxes on the wealthy, or indeed on wealth itself, have less effect on demand than taxes on the poor. But they reduce the public sector deficit to the full extent of their money value. So I hope that I shall carry with me at least those many right hon. and hon. Members opposite who complained about the excessive size of the public sector deficit in recent years when I put the major part of the new taxation this year on the better off, who are best able to carry the burden—
Mr. John Billen (Oswestry)
§ Mr. Healey
That is right. I always recognise the hon. Gentleman as one of those with the greatest integrity in the House. I was saying that the better off are best able to carry the burden and are likely to reduce their consumption least in doing so.
I suspect that hon. Members on this side of the House will not require these slightly arcane economic arguments to persuade them that what I propose is right.
It would be convenient for us all if the whole of the additional burden could be imposed on people so rich that they would not even notice it, but in the world as it is there is just not enough taxable income at the highest levels to make this feasible. The proposals that I shall be announcing will ensure that the rich bear a higher share of the tax burden than they have under the last Government. But it is arithmetically inescapable that not only the wealthy but everyone who enjoys 308 an income somewhat above the average must expect to have to make some contribution through taxation to the cost of the essential measures intended to protect the living standards of those who earn less than the average.