Budget (Hansard, 11 March 1982)

§ 3. Mr. Archie Hamilton
asked the Chancellor of the Exchequer what representations he has received on his Budget Statement.

§ 10. Mr. Sainsbury
asked the Chancellor of the Exchequer what representations he has received on his Budget proposals.

§ 18. Mr. Neubert
asked the Chancellor of the Exchequer what representations he has received following his Budget Statement.

§ The Chancellor of the Exchequer (Sir Geoffrey Howe)
As is usual on these occasions, I receive comments and representations from a variety of sources.

§ Mr. Hamilton
May I congratulate my right hon. and learned Friend on his successful Budget Statement? Is he aware that many leaders of industry are extremely relieved that the Government are keeping to a financial policy that will lead to lower interest rates and a lower rate of inflation?

§ Sir Geoffrey Howe
I am grateful to my hon. Friend for his remarks. I have seen many industrial comments to exactly that effect.

§ Mr. Sainsbury
Is my right hon. and learned Friend aware that his Budget Statement has been well received by the many retired people and those engaged in small businesses in my constituency and elsewhere? However, does he appreciate that there is great puzzlement that the Government do not draw a clearer distinction between their capital and their current expenditure? If they were to do so in their public presentation, it might be possible to do still more to encourage British industry to create more jobs and more wealth for Britain.

§ Sir Geoffrey Howe
I am aware, as is my right hon. and learned Friend the Chief Secretary, of the keen interest in this subject that is displayed by my hon. Friend, among 954 many others. It is for that reason that we published in last September's economic progress report a clear analysis that made the distinctions that my hon. Friend suggests. The public expenditure White Paper has contained many improvements to make the distinctions very much clearer. It is important that that continues.

§ Mr. Neubert
Is my right hon. and learned Friend aware that I share the neat assessment of the Daily Express that his Budget is politically skilful, socially adroit and economically sound? Does he agree that the firm prospect of single figure inflation within a matter of months more than anything else, for the first time for many years, puts the prize of renewed prosperity and increased employment within our grasp?

§ Sir Geoffrey Howe
I am grateful to my hon. Friend for drawing to the attention of the House the wise observations of the Daily Express. I entirely endorse the importance of his point. There is every prospect that this Government will be the first for 30 years to have an average level of inflation lower than that of their predecessors.

§ Mr. Ioan Evans
Does the Chancellor of the Exchequer realise that for the 3 million unemployed the Budget will be extremely disappointing? As every other Budget that he has introduced has led to an increase in unemployment, can he say whether his latest will reduce unemployment or, as is stated in the Red Book, will add a further 300,000 to the 3 million already unemployed?

§ Sir Geoffrey Howe
A number of commentators have said that the Budget is likely to bring forward the time when unemployment will start to decline. There is no doubt that it is important to achieve that. The Budget is designed to promote that purpose, among several others.

§ Mr. Eggar
Has my right hon. and learned Friend noticed the welcome that has been given to the abandonment of the medium-term financial strategy and the importance that is being given to monetary policy in general rather than the particular form of monetary policy that was represented in the medium-term financial strategy?

§ Sir Geoffrey Howe
I have noticed that one or two appear to share my hon. Friend's view that there has been an abandonment of the medium-term financial strategy. I repeat what I said in my Budget Satement, that the strategy has served and will continue to serve a most important purpose. That is why it is important to retain it. I emphasise that the adjustment in the monetary target that I announced does not imply any relaxation of purpose. It represents a realistic restatement of our determination to maintain a responsible monetary policy.

§ Mr. Cook
Will the right hon. and learned Gentleman give a straight answer to the question that was put in vain yesterday to the Chief Secretary and the Financial Secretary? Does the press notice issued by the Treasury about its Budget give an accurate picture of its tax impact? If it does, will he confirm that after his supposed "Budget for the people" a higher percentage of income will be taken in deductions for tax and national insurance contributions for every married taxpayer earning less than £20,000 and every single taxpayer earning less than £10,000? Does he seriously expect the nation to congratulate him on that achievement?

§ Sir Geoffrey Howe
I am glad to have the opportunity of making the position clear to the House. Every one of the tables published in the Treasury press notice, as the House would expect, is an accurate statement of the effect of the Budget. The various changes made by my statement on 2 December and in my Budget Statement on Tuesday will have an effect on people's incomes at different times during the year. At the beginning of the financial year in April pay packets will be reduced as a result of the higher national insurance contributions.
However, as soon as the Budget changes take effect after 26 April, as I said in my Budget Statement, the public will find that their income tax will be reduced. As my right hon. and learned Friend the Chief Secretary said, for most families the income tax reductions will be greater than the extra national insurance contributions. If the hon. Member for Edinburgh, Central (Mr. Cook) reads the sixth table he will find that on 26 April, as income tax changes come into effect some three weeks after the national insurance changes, the income tax reductions will be greater than the extra national insurance contributions. There will be a net gain for married men on earnings of up to £170 per week—[Interruption.] If the hon. Gentleman will be patient, he will have the answer to the question that he has put on many occasions.
As the year moves on and people receive wage increases, they will pay more tax and higher national insurance contributions. The ninth table of the Treasury press notice shows what will happen where, for example, a person's earnings rise by 7½ per cent. As right hon. and hon. Members have said, on that assumption the table shows that the proportion of income going in tax and national insurance contributions will be somewhat higher in 1981–82. That will not be so for those on the very lowest or the very highest levels of earnings. Families with children will benefit at a later stage in the year from the increases in child benefit and one-parent family benefit. Those are the inevitable consequences of the increases that I made in the tax thresholds even above those required by the Rooker-Wise provisions. I am surprised that Labour Members are not grateful for that very important advance.

§ Mr. Shore
I thank the Chancellor for that statement, in so far as it has helped to clarify the issue. Apart from the short-term adjustments between April, when national insurance contribution increases come into effect, and a few weeks later when the tax changes come into effect, with a contrary effect, and on the assumption that the increase in incomes will be about 7½ per cent. during the year to the autumn, for example, and for the rest of the year, and it is exactly as we have said it will be, does he agree that most people will pay a higher proportion of their income in taxation and in national insurance contributions combined than they did last year?

§ Sir Geoffrey Howe
On the assumption of 7½ per cent. increases, as set out in the ninth table, at some stage during the year all save those on the very lowest and highest levels of earnings will reach that position. However, an essential component is the 1 per cent. increase in national insurance contributions, which is deliberately endorsed by the House as falling on the shoulders of those in employment to abate the burden of income tax on those out of employment and to abate the burden that would otherwise fall on British industry. It makes a direct contribution to the prospects of recuced unemployment in the year ahead and is entirely helped by my measures.

§ Mr. Speaker
Order. We all understand that we must be much quicker on the other questions.

4. Mr. Squire asked
the Chancellor of the Exchequer whether, based on the latest available figures for the current year, he considered that his Budget for 1981–82 was reflationary, deflationary or neutral in effect.

§ Mr. Brittan
Talk of deflationary or deflationary effects is oversimplified. It ignores the links between fiscal and monetary policy and their effects, through interest rates and the exchange rate, on the economy. Last year's reduction in the PSBR eased the pressure on interest rates and maintained downward pressure on inflation. During the second half of last year output rose.

§ Mr. Squire
Has my right hon. and learned Friend read the editorial in yesterday's Financial Times, which suggested that the real reasons for what it describes as the cautious relaxation of Tuesday's statement was that past fiscal restraints had proved too tight? Does my right hon. and learned Friend have any fears that the same may be said in a year's time by the same newspaper about Tuesday's statement?

§ Mr. Brittan
I should not like to predict what the newspaper will say, in spite of some of its eminent contributors. If it says the same thing, it will not be right.

§ Mr. Newens
Does the Minister recognise that vast numbers of people, including many business men, are deeply disappointed with the Budget in so far as it is, in effect, inflationary and will lead to a continuing rise in unemployment with no real relief being given to those, now more than 1 million, who have been unemployed for over a year? In those circumstances, how on earth can the right hon. and learned Gentleman consider that it is reasonable to argue that this is a Budget that meets the needs of the nation?

§ Mr. Brittan
The question was about last year's Budget, but I am happy to answer the hon. Gentleman and point out to him that a Budget that reduces the direct costs to industry of employing people by reducing the national insurance surcharge, and that gives assistance to the construction industry, enterprise and new technology, cannot do other than improve employment prospects, not make them worse.

§ Mr. Ward
Is my right hon. and learned Friend aware that the Chancellor's Budget will mean that in the county of Dorset £6 million will be available for industry as a direct result of that Budget? This will be used for investment and to create real long-term jobs. It is not bad for a small county such as Dorset to receive £6 million back in this way.

§ Mr. Brittan
I cannot claim to have done the Dorset sums myself, but I am glad to hear the result of them. The same message can come from every county in the country, and I think that the Budget is much welcomed and well received.

§ Mr. Straw
Does the Chief Secretary recall that although he yesterday described the suggestion that the Budget was in some sense deflationary as "a fantastic proposition", his hon. Friend the Financial Secretary only six hours later said: In this connection one is again asked 'Is this Budget inflationary?' One cannot answer that question with a direct answer." — [Official Report, 19 March 1982; Vol. 19, c. 940.] 957 Will the Chief Secretary tell us who is right and who is speaking for the Government?

§ Mr. Brittan
There is no inconsistency. I said that it was "a fantastic proposition" and that is what my hon. Friend was saying. I explained in answer to the question put by my hon. Friend the Member for Hornchurch (Mr. Squire) exactly why and in what sense the concept of whether something was reflationary, deflationary or neutral was limited. The reason for that is that it is looking at the fiscal side alone and not at the monetary implications of the Budget. It is the two, when put together, that reflect what Government policy as a whole is doing for the economy.