HC Deb 17 December 1981 vol 15 cc435-7
4. Mr. Leighton

asked the Chancellor of the Exchequer if he is satisfied with the level of incentives provided by his economic policy; and to what extent the incentives policies outlined in his Budget of June 1979 have been modified.

Sir Geoffrey Howe

The Government remain committed to continue the improvement of incentives that began in the 1979 Budget. Further progress must depend upon the likely balance between tax revenue and public expenditure.

Mr. Leighton

Does the right hon. and learned Gentleman recall that he assured us that his original incentive Budget would release the energies of what I believe were called entrepreneurs? I am indebted to the Library for the information that current output of British manufacturing industry is 16 per cent. less than it was in May 1979. Is that intentional? Does it mean that his policy is a success, or a failure?

Sir Geoffrey Howe

Marginal rates of tax, especially for entrepreneurs, were reduced substantially in my first Budget. Had that not been so, people would have been contemplating a dispiriting prospect now. The hon. Gentleman might care to remember that industrial and manufacturing output have been rising for the past four months. The output of manufacturing industry in the third quarter was 2½ per cent. up on the second quarter. Industrial production in the past three months has been up by 1½ per cent. on the previous quarter. All those factors are pointing in the direction of the continued growth of national output.

Mr. Archie Hamilton

Does my right hon. and learned Friend agree that the greatest incentive that could be given to British industry would be to bring down interest rates? Does he accept that that is the best way of controlling public expenditure and not running up large Government borrowing?

Sir Geoffrey Howe

I am certain that my hon. Friend is right to draw attention to that fact. The reduction of interest rates is something to which industry attaches importance. In considering the size of the borrowing requirement that is likely to produce such a reduction, one has to take account of revenue and expenditure.

Mr. Straw

The Chancellor is correct to say that the tax burden for the very rich has lessened. The man on £595 a week is now £25 a week better off because of the right hon. and learned Gentleman's tax changes. However, does he agree that for the majority of the British people on average or below average earnings the income tax burden has risen, and that for the lowest paid families on half average earnings the burden has almost doubled under this Government? Will the right hon. and learned Gentleman say where that increased burden was contained in his election manifesto?

Sir Geoffrey Howe

Once again the hon. Gentleman overlooks, as his right hon. and hon. Friends so often do, the increase in earnings that has taken place alongside every other change. Earnings, on average, rose by 57½ per cent. over the past three years, while the rise in prices was just over 50 per cent. In most types of household disposable income after payment of income tax and national insurance contributions has kept ahead of prices. Even for a household on 50 per cent. of average earnings, with two children, the fall has been only 0.3 per cent. in real disposable personal income after taking account of child benefit and family income supplement.

Mr. Jay

Were the economic consequences of the 1979 Budget the ones that the Chancellor intended?

Sir Geoffrey Howe

Had we not taken the action that was embodied in the 1979 Budget to reduce the massively accelerating growth of public expenditure and to reverse the heightening burden of income tax on the earnings of the British people, we would not have begun the recovery that is now taking place.