§ In judging the right balance to strike in this Budget I have taken into account the measures I announced in the autumn which will directly reduce business costs. I have also taken account of the lower level of the exchange rate. As I said in my Budget speech two years ago, exchange rate changes alter the distribution of incomes between companies and persons. A higher exchange rate boosts personal spending power, but it squeezes the profits of companies exposed to international competition. Consequently, in my 1981 Budget, personal income tax thresholds remained unchanged in order in part to be able to offer some help to companies.
§ The same considerations led me to direct over two thirds of the real tax reductions in my 1982 Budget towards business and industry in order to help cash flow and rebuild profits. In this Budget, too, the measures I have announced so far go largely in the same direction. Taken 155 together with the net effect of the changes that I announced last autumn, they will provide help for business and industry that is worth around £1¼ billion in a full year.
§ And that is less than half the story. For, if revenues from taxes paid by business—apart from the North sea industries—were the same share of total taxes in 1983–84 as they were in 1978–79, then these businesses would have to pay some £3 billion more than is forecast for the coming year. But profits have fallen, and over the years I have acted deliberately to lighten that load in recognition of the case for helping business which has been strongly, and rightly, argued in debate after debate, and from all quarters of this House. I do not believe any hon. Member would suggest that business and industry should pay more tax.
§ But I have had to recoup the £3 billion, alongside the need both to hold down borrowing—not least to secure lower interest rates, and hence reduce business costs—and to finance public expenditure. Although spending is now being restrained, it is worth noting again that there are few hon. Members who have not called for increases rather than cuts.
§ It is considerations of this kind which have led to the burden of tax on people, under successive Governments, becoming so unacceptably high. The House and the country must face this reality: spending at current levels, which some still regard as too low, together with current levels of tax on business, which many regard as too high, have brought successive Governments to a position where there has been no alternative to high levels of tax on people.
§ But the fact is that reductions in personal taxation themselves help business and employment. Indeed, it is the individuals who work in business who largely determine business success. Yet for years in Britain the tax system and the tax burden have discouraged individual effort, commitment and enterprise. By strengthening incentives through lower personal taxes, Government can help increase the commitment to business success at every level. And when the state takes less of what people earn there is less justification for excessive pay demands and settlements. Cuts in personal tax provide a vital stimulus for lasting growth and jobs.
§ Happily, because we are reining back public spending—though not yet far enough—the choice is less stark now than in the past. I am able to combine the significant measure of direct tax relief to industry and enterprise which I have just announced with a substantial measure of direct tax relief to people.
§ Acknowledged unfairnesses and anomalies produced by the overlap between the tax and social security systems give further compelling reasons for moving in that direction. It makes no sense that people on low incomes should be paying tax at all. And low tax thresholds are of course an important part of the poverty and unemployment traps. These traps mean that some of those out of work who could find a job, and some of those in work who could find a better one, do not do so because they would end up no better off, with all or more of their increase in income taken in tax and national insurance contributions, or lost in benefits forgone.
§ That is the situation that demands reform. But those who claim to have found a quick, cheap way to dispose of the poverty and unemployment traps deceive themselves. The problem has grown up almost entirely 156 because Governments for 30 years or more have increased benefits in line with earnings, but raised personal tax thresholds only in line with prices, which have grown much more slowly over the years. In 1950 the tax threshold for a married man was about two thirds of average earnings. Today it is barely more than one third.
§ A situation that has built up over 30 years cannot be put right in one Budget or even in one Parliament. These problems have arisen, and the point cannot be emphasised too strongly, not because Government spend too little, but because successive Governments have spent and taxed too much. The substantial increase which I have proposed in child benefit will improve work incentives for the low paid; and several of the measures we have taken since 1979 have reduced the unemployment trap. But it is only by limiting public spending, as we have done, that we can begin to get to grips with the problem along the lines I now propose.