§ Our prime purpose is to help private commerce and industry to help itself, by cutting its costs. And I have no doubt, from the representations I have received, that the single measure business would most welcome is a reduction in the national insurance surcharge.
§ This surcharge was imposed and then increased by the previous Government. Indeed, in their last two and a half years in office the last Government increased the combined charge on employment, the employers' national insurance contribution and the national insurance surcharge, from 8½ to 13½ per cent.
§ The surcharge is, of course, a tax on employment. It raises production costs. It is not rebatable on exports and it either puts up prices or cuts into profits. But it is an 742 extremely cost-effective tax. It raises large amounts of revenue at little administrative cost. It is much easier to put on a tax of this kind than to take it off.
§ The Government have already protected businesses, and so employment, from any increase in employers' national insurance contribution rates for two consecutive years. Had we not done so, employers would have had to find nearly £1 billion more in the coming year than will actually be the case.
§ It is now time to offer more positive relief. I accordingly propose to cut the rate of the national insurance surcharge from 3½ to 2½ per cent. This will help to reduce costs throughout the economy and will he of value to all businesses, whatever their tax position. The cut will operate from 2 August, which is the earliest practicable date.
§ But I am anxious that industry should not suffer from this unavoidable delay. I shall, therefore, propose an extra ½ per cent. reduction between August 1982 and April 1983. The effect of this will be to ensure that business as a whole will enjoy in the last two-thirds of 1982–83 the equivalent of a whole year's reduction of 1 per cent. in the surcharge.
§ This proposal is intended to reduce business costs in the private sector. However, public sector employers also pay the surcharge, and in order to leave them exactly where they would have been without the change appropriate reductions will be made in the relevant cash limits and the Votes of central Government and the NHS, in the rate support grant to local authorities, and in the external financing limits of the nationalised industries. The necessary changes will be announced as soon as possible. This will reduce the cost to a net figure of £640 million in 1982–83.
§ The aim of the relief I have just announced is to help business costs and employment. If it were to find its way into higher pay, that would totally defeat the object of the exercise, and would obviously have to be taken into account in future.
§ It is crucial that this should not happen. In proposing this reduction, we are offering business and industry, management and work force, an exceptional opportunity to improve their own performance and prospects. I believe that they will take it.