§ 2. Mr. Richard Wainwrightasked the Chancellor of the Exchequer what is his estimate of the present annual cost of reducing employers' national insurance surcharge by two percentage points.
§ The Chancellor of the Exchequer (Sir Geoffrey Howe)On the basis of the economic assumptions recently published in the report of the Government Actuary on the Social Security (Contributions) Bill 1981, the full year cost of reducing the rate of national insurance surcharge by two percentage points would be about £2.3 billion.
§ Mr. WainwrightIs the Chancellor of the Exchequer aware that that reduction in revenue would be dwarfed by the increased buoyancy of the revenue following such a reduction, because the removal of that handicap to British industry has been estimated to produce, after two years, at least 200,000 more jobs, about a 1½ per cent. increase in the gross domestic product and a reduction of the retail price index by about 1 per cent.?
§ Sir Geoffrey HoweThe arithmetic is by no means as easy or as encouraging as the hon. Gentleman suggests. I recognise why so many in business would like to see the surcharge reduced, but I must bear in mind the total revenue yield, which is now £3.8 billion. The case for any reduction would have to be weighed in the light of the circumstances in which I consider it.
§ Mr. EggarWill my right hon. and learned Friend confirm that a reduction in the surcharge would be the single most effective way of assisting industry? Will he confirm also that industry is in need of assistance?
§ Sir Geoffrey HoweMy hon. Friend will need no reminding of the extent to which we recognise the case for assisting industry by the reduction as far as is possible of the costs, burdens and charges that fall upon it. I have received many representations to that effect concerning the national insurance surcharge, but not all of them point in that direction. The representations will have to be considered in the light of the total revenue when the time comes to do that.
§ Mr. ShoreI am not confirming the arithmetic of the hon. Member for Colne Valley (Mr. Wainwright), but the 435 Chancellor must be aware that British competitive costs have declined by about 40 per cent. since the national insurance surcharge was last increased. In the interests of the competitiveness of the economy and the increase in demand that would undoubtedly follow from a reduction of the order of magnitude that has been indicated, does not the right hon. and learned Gentleman agree that he should give further and more urgent consideration to such a modest proposal?
§ Sir Geoffrey HoweThe right hon. Gentleman should be well aware that by far the largest cause of the reduction of the competitiveness of British industry since 1975 has been the doubling of unit labour costs.
§ Sir Geoffrey HoweThe exchange rate of the pound, about which the right hon. Gentleman is gesticulating, stands close to the level at which it stood when the Government took office. Overwhelmingly the dominant cause was the substantial rise in unit labour costs. If the right hon. Gentleman feels so strongly about this issue, what a pity it was that his Government, who introduced the surcharge, increased it and increased national insurance contributions, adding to the burden of British industry by no less than 5 per cent.
§ Mr. MarlowWill my right hon. and learned Friend care to say, if the national insurance surcharge were reduced, how much of that would go into reducing industry's costs and how much of that would go into increasing wages?
§ Sir Geoffrey HoweThat factor is one of the reasons why not all the representations that I receive are to the effect that tax relief should take the form of reductions in the surcharge. Whatever is done to the tax burden, it is crucial that those on both sides of industry should continue to reduce the costs that are imposed by rising unit labour costs.