HC Deb 03 May 1984 vol 59 cc545-77 3.52 pm
Mr. Terry Davis (Birmingham, Hodge Hill)

I beg to move amendment No. 64, in page 99, leave out lines 16 to 21 and add 'with respect to earnings paid on or after 1st October 1984.'. The amendment would omit five lines from clause 113, and its purpose is to put local authorities and some other bodies on the same basis as privately owned industry. The national insurance surcharge is to be abolished from 1 October 1984 for privately owned industry, but it will not be abolished until 6 April 1985 for local authorities and some other bodies specified in the Finance Act 1982. The House may consider that the most important of those other bodies are the police authorities.

I do not understand why the Government insist that local authorities and the police authorities should not benefit sooner from this measure, which is widely welcomed on both sides of the House. I look forward to the Minister's explanation.

The Chief Secretary to the Treasury (Mr. Peter Rees)

I shall be delighted to reply on the amendment moved with such attractive brevity — by the hon. Member for Birmingham, Hodge Hill (Mr. Davis).

The reason for the Government's opposition is simple. The local authorities have presumably made their plans on the basis of the existence of national insurance surcharge. It would be wrong to give them an unexpected bonus at this stage of the year. Although one is always delighted to do what one can to help, there is no need to ease the authorities' public expenditure plans in such a way. The abolition of NIS is intended primarily to relieve pressure on the private sector, reduce its costs and make it more competitive, particularly with regard to exports. It is with that end in view that we have finally managed to abolish NIS.

I was delighted that the hon. Member for Hodge Hill welcomes the principle underlying the clause. I am sure that, on reflection, he will accept that NIS was a singularly ill-conceived tax which has, in particular imposed a burden upon the private sector that I doubt that it deserved. One might have expected the Labour party to have learnt from the error of the selective employment tax, which was imposed earlier and has been abolished, that such impositions are not the right way to raise revenue. The tax was introduced in singularly inauspicious circumstances.

Mr. Terry Davis

On a point of order, Mr. Walker. The Chief Secretary to the Treasury seems to be engaging in remarks which are more appropriate to a clause stand part debate. I preserved my more general comments for that debate. I am anxious to know why the right hon. and learned Gentleman is penalising local authorities. If my speech was brief his is invisible.

The Chairman

The hon. Gentleman is on to a fair point.

Mr. Rees

If the Chair is delicately saying that it will allow a clause stand part debate, I shall reserve my general comments for it. I was not aware that the hon. Member for Hodge Hill was sitting in the Chair—perhaps that is one of his ambitions. However, I take your point, Mr. Walker.

This is not merely a case of penalising local authorities. The hon. Gentleman will recognise that they are in slightly different circumstances from the rest of the public sector because the notice issued at the time of the Budget said that there will be an adjustment for cash limits. We felt it right that local authorities should not enjoy the benefit of a relief that they could not possibly have taken into account when settling their public expenditure plans. There is no desire to discriminate against local authorities. There is no case for giving them this unexpected bonus, so we have excluded them.

Mr. Terry Davis

I am disappointed with the Chief Secretary's response. I shall leave aside his personal remarks and my more general comments, which I shall make later if I catch your eye, Mr. Walker.

The point of the amendment is to ask why local authorities and police authorities should be penalised in this way. The Chief Secretary said that they are not being penalised and that he does not understand why they should derive what he described as an unexpected bonus because they prepared their expenditure plans for the current year on the assumption that NIS would apply. The same arguments, could be applied to privately and publicly owned industry. I shall comment on publicly owned industry later. It must be within the knowledge of Treasury Ministers that privately owned industry prepares plans, and budgets for the current year. Such industry is being given what the Chief Secretary described as an unexpected bonus. I shall try to show that it cannot have been that unexpected. Why must local authorities not be given that unexpected bonus? why are they unable to share the benefits that are to be derived only by privately owned industry?

Some local authorities engage in some forms of trading and there are direct labour organisations. Why should they not benefit from the abolition of NIS? Why should the ratepayers not benefit? We sometimes forget the effect of NIS on ratepayers. I am surprised that Treasury Ministers should forget today, of all days, which is polling day in local elections, that ratepayers stand behind local authorities. Why should not they and council tenants benefit from the abolition of NIS?

The Chief Secretary has given us absolutely no reason for rejecting the amendment. Unless he gives us a more convincing argument I shall be forced to the conclusion that this is simply one aspect of the Conservative Government's bias against local democracy and local authorities. In the press recently there has been much comment by spokesmen of local authorities and police authorities about the burden being put on ratepayers as a result of the industrial dispute in the mining industry, because of the use of police in that dispute. Why should not the ratepayers receive this small benefit to meet the cost of policing that dispute? The Chief Secretary has given us no justification whatever. I remember his words on the subject—they were few. He asked why the Government should ease the public expenditure plans of local authorities. There we have the nub of the Government's prejudice and bias. That is why the Opposition will vote for the amendment.

I was not in the House when the national insurance surcharge was introduced but I took the trouble to read the comments of Conservative Members who were then in Opposition. One Conservative Member, who is now a Minister, comes from the county of Norfolk. He referred to the wicked imposition of the national insurance surcharge being borne by the ratepayers of Norfolk, not once, not twice but on every possible occasion. Why should not the ratepayers of Norfolk now have the benefit of its removal? This amendment will be known as the Norfolk amendment.

4 pm

Mr. D. N. Campbell-Savours (Workington)

The Minister was given adequate opportunity to reply to my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis), so why did he not tell the House what the cost of our amendment would be? Had he done so, local authorities and the ratepayers would have been able to identify clearly how much the Government have effectively whipped from the coffers of local councils. I ask the Minister to tell us now, because that money rightfully belongs to the ratepayers.

Mr. Peter Rees

I am delighted to tell the hon. Gentleman, in response to his challenge, that the cost would be £85 million. That sum would have to come from the pockets of taxpayers.

Mr. Campbell-Savours

The right hon. and learned Gentleman's reply is interesting. We all know where that £85 million could have gone in local authority budgets. It could have been spent on servicing those in need in the communities, on social services, on helping people whose houses need repairs and on helping every part of local government provision where authorities feel that they have a responsibility to look after those in need.

However, we know that that money is being spent elsewhere. The public should know that later on in today's proceedings we shall be dealing with other amendments that relate to capital transfer tax and the extortionate amount of money that is being allocated, in the form of tax concessions, to the better off, many of whom own more than £100,000 in capital assets. Once again, we are seeing a disgraceful representation of Government financial policy.

Question put, That the amendment be made:—

The Committee divided: Ayes 36, Noes 151.

Division No. 277] [4.02 pm
Bell, Stuart Foster, Derek
Bermingham,Gerald Gould, Bryan
Blair, Anthony Hamilton, W. W. (Central Fife)
Campbell-Savours, Dale Healey, Rt Hon Denis
Cartwright, John Holland, Stuart (Vauxhall)
Cocks, Rt Hon M. (Bristol S.) Hollwells, Geraint
Corbyn, Jeremy Hughes, Dr. Mark (Durham)
Cox, Thomas (Tooting) Kennedy, Charles
Davies, Rt Hon Denzil (L'lli) Kirkwood, Archibald
Davis, Terry (B'ham, H'ge H'l) McDonald, Dr Oonagh
Dobson, Frank Marek, Dr John
Dormand, Jack Mikardo, Ian
Fisher, Mark Mitchell, Austin (G't Grimsby)
Owen, Rt Hon Dr David Stewart, Rt Hon D. (W Isles)
Penhaligon, David Wallace, James
Roberts, Ernest (Hackney N) Wigley, Dafydd
Ross, Stephen (Isle of Wight)
Shore, Rt Hon Peter Tellers for the Ayes:
Skinner, Dennis Mr. Frank Hayes and
Steel, Rt Hon David Mr. Harry Cowans.
Adley, Robert Jessel, Toby
Ashby, David Jones, Gwilym (Cardiff N)
Aspinwall, Jack Jones, Robert (W Herts)
Baker, Nicholas (N Dorset) Kershaw, Sir Anthony
Baldry, Anthony Key, Robert
Bellingham, Henry Kilfedder, James A.
Bennett, Sir Frederic (T'bay) Lang, Ian
Berry, Sir Anthony Latham, Michael
Biggs-Davison, Sir John Lawler, Geoffrey
Boscawen, Hon Robert Lawrence, Ivan
Bowden, Gerald (Dulwich) Lennox-Boyd, Hon Mark
Braine, Sir Bernard Lester, Jim
Bright, Graham Lewis, Sir Kenneth (Stamf'd)
Brinton, Tim Lloyd, Peter, (Fareham)
Brown, M. (Brigg & Cl'thpes) Lord, Michael
Buck, Sir Antony Macfarlane, Neil
Butterfill, John MacKay, Andrew (Berkshire)
Carlisle, Kenneth (Lincoln) Maclean, David John
Chapman, Sydney Maples, John
Chope, Christopher Mates, Michael
Clark, Sir W. (Croydon S) Mather, Carol
Clarke, Rt Hon K. (Rushcliffe) Maxwell-Hyslop, Robin
Clegg, Sir Walter Mills, Sir Peter (West Devon)
Cockeram, Eric Moore, John
Coombs, Simon Murphy, Christopher
Cope, John Neubert, Michael
Couchman, James Nicholls, Patrick
Crouch, David Onslow, Cranley
Currie, Mrs Edwina osborn, sir john
Dorrell, Stephen Ottaway, Richard
Durant, Tony Page, John (Harrow W)
Eggar, Tim page, Richard (Herts SW)
Dorrell, Stephen Ottaway, Richard
Durant, Tony Page, John Harrow W)
Eggar, Tim Page, Richard Herts SW
Evennett, David Peacock, Mrs Elizabeth
Farr, John Powell, William (Corby)
Finsberg, Sir Geoffrey Powley, John
Forman, Nigel Prior, Rt Hon James
Forth, Eric Pym, Rt Hon Francis
Fox, Marcus Raffan, Keith
Freeman, Roger Rathbone, Tim
Galley, Roy Rees, Rt Hon Peter (Dover)
Garel-Jones, Tristan Renton, Tim
Goodlad, Alastair Rhodes James, Robert
Gorst, John Ridsdale, Sir Julian
Gower, Sir Raymond Roe, Mrs Marion
Greenway, Harry Rossi, Sir Hugh
Gregory, Conal Ryder, Richard
Griffiths, E. (B'y St Edm'ds) Sackville, Hon Thomas
Griffiths, Peter (Portsm'th N) Sainsbury, Hon Timothy
Grist, Ian Shelton, William (Streatham)
Ground, Patrick Shepherd, Colin (Hereford)
Gummer, John Selwyn Sims, Roger
Hamilton, Hon A. (Epsom) Smith, Tim (Beaconsfield)
Hamilton, Neil Tatton Soames, Hon Nicholas
Hanley, Jeremy Spencer, Derek
Hannam, John Spicer, Jim (W Dorset)
Harris, David Squire, Robin
Hawkins, Sir Paul (SW N'folk) Stanbrook, Ivor
Hayes, J. Stewart, Andrew (Sherwood)
Hayhoe, Barney Stewart, Ian (N Hertf'dshire)
Hayward, Robert Stradling Thomas, J.
Heathcoat-Amory, David Sumberg, David
Hickmet, Richard Taylor, Teddy (S'end E)
Holt, Richard Thompson, Donald (Calder V)
Hooson, Tom Thorne, Neil (llford S)
Howard, Michael Townsend, Cyril D. (B'heath)
Howarth, Alan (Stratf'd-on-A) Tracey, Richard
Howell, Rt Hon D. (G'ldford) Twinn, Dr Ian
Howell, Ralph (N Norfolk) van Straubenzee, Sir W.
Hubbard-Miles, Peter Viggers, Peter
Hunt, David (Wirral) Waddington, David
Hunter, Andrew Wakeham, Rt Hon John
Walden, George Wolfson, Mark
Wardle, C. (Bexhill) Young, Sir George (Acton)
Warren, Kenneth
Wheeler, John Tellers for the Noes:
Whitfield, John Mr. Douglas Hogg and
Whitney, Raymond Mr. John Major.
Wilkinson, John

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Mr. Terry Davis

I am not sure whether the Minister appreciated the brevity of my remarks on the previous amendment but I shall seek to take a little longer in the stand part debate.

As the Minister said, I gave a welcome to the clause. I have some reservation about its underlying principle in view of his antipathy to local authorities in the previous debate. I am not sure whether we can agree on the underlying principle, but the Labour party, and I believe all sides of the House, welcome the abolition of the NIS.

There are several reasons for that welcome. First, the House will be spared the annual ritual of the Opposition urging the reduction or abolition of the NIS and the Government resorting to the typical yah-boo tactics of pointing out that it is a tax that was introduced by a Labour Government, with Labour spokesmen then arguing that there were different economic circumstances at the time of its introduction and the Government spokesmen simply repeating that the tax was introduced by a Labour Government.

The House will also be spared the spectacle of the Opposition putting forward an amendment to reduce, or more recently to abolish, the NIS and the Government replying that that is impossible, only to be followed a year later by the Government doing exactly what the Opposition had urged.

This year is the final stage in that procedure. The Labour party welcomes the benefit that is being given to privately owned industry. The NIS has been rightly described as a tax on exports which does not apply to imports. It has been described as a tax on employment and jobs at a time when unemployment is at almost unprecedented levels. It has been described as a tax on competitiveness which makes it more difficult for industry at home and abroad. For all those reasons we welcome the final step in the saga—the abolition of the NIS.

However, the only beneficiaries from the abolition of the NIS will be privately owned industry. I am not seeking to re-open the short debate on the amendment, but there is another group of people who pay the NIS who will not benefit from its abolition because, as I understand the Government's intention, they will not give the same benefit to publicly owned industry. I hope that when the Minister comes to reply he will explain why the Government are refusing publicly owned industry the same benefit as privately owned industry. After all, on its introduction the NIS affected privately owned and publicly owned industry alike. I should have thought that the Government would see the justice and equity of removing it and giving the benefit of that removal to both industries.

It is nonsense that an industry that has already been privatised by the Government will receive the benefit of the abolition of the NIS whereas if an industry continues to be publicly owned it will not, bearing in mind that the consumers of publicly owned industries would be the eventual beneficiaries because it would not be necessary for those industries to increase their prices. But the Government have deliberately increased the prices of publicly owned industries, and I suspect that that is behind their restriction of the benefit of the abolition of the NIS to privately owned industry.

4.15 pm

If an industry which was publicly owned has now been privatised, the shareholders, consumers or employees—one of those three—will benefit from the removal of the surcharge. It is a double nonsense that if an industry is to be privatised it will not see the benefit of the abolition of the NIS simply because of timing. I suspect that this is another example of the Minister's prejudices, but I await his reply with interest.

Mr. Campbell-Savours

The debate gives us a little wider latitude to debate broader economic issues in so far as the NIS is a surcharge which certainly had some effect on the cash flow position of companies, and much of our discussion during the Budget debate has been on company funding.

There has been one notable comment during this year's debate. Before I mention that, let me quote from the debate two years ago when the then Chief Secretary to the Treasury announced to the House that he needed the money. Throughout subsequent proceedings in Committee there was repeated reference in our more humorous moments—there were such moments—to that statement. During our debates on the Finance Bill this year the most notable exclamation came from the Financial Secretary to the Treasury the other day when he referred to VAT on fish and chips as being good for the cash flow of industry. He was trying on that occasion—this is a debate about cash flow—to convince the House that chippies up and down the land should welcome the introduction of VAT because it would help them inasmuch as they would be in receipt of what I understand to be a three months' free loan pending the payment of VAT to the Exchequer. Of course, that did not happen.

We must not be churlish. Industry will welcome the abolition of the national insurance surcharge. But let us not forget that for three years the Labour party has repeatedly demanded the withdrawal of the surcharge. Our position is not inconsistent, although a Labour Government introduced the surcharge in 1977. We introduced the surcharge when fewer than 1 million people were unemployed. Different economic conditions then applied. Today real unemployment stands at over 4 million. When we moved our first amendments two years ago unemployment stood at 3 million.

I hope that the Minister will not repeat the misleading statement that he always makes to the House, that, since Labour introduced the surcharge, we are responsible. We introduced it in different economic conditions.

Mr. John Maples (Lewisham, West)

It is interesting to hear the hon. Gentleman's effort to square the circle. He supported the surcharge when it was introduced and now says that that is consistent with supporting its abolition. If the national insurance surcharge is bad when unemployment stands at 3 million why was it good for employment when unemployment stood at only 600,000?

Mr. Campbell-Savours

Then there was more latitude in the economy and the fiscal regime throughout the United Kingdom was far less disciplined than it is today. There was a substantially higher level of reflation in the economy. We introduced the surcharge as part of our reflationary strategy.

The world and the United Kingdom stand in the middle of a recession. Last year many pundits outside the House and hon. Members from all sides hoped that the Williamsburg summit would to some extent deal with the problem in the western world. Following the summit The Sunday Times said that it demonstrated "collective complacency" in the knowledge that everyone was aware and concerned about the deficit in the United States of America.

I should like to discuss the link between company cash flow and the international recession. I am not one of those hon. Members who believe that pressure should be exerted on the United States to reduce its budget deficit. I believe that that would be highly dangerous. We have heard repeated statements from the Dispatch Box during economic debates and questions to the Chancellor of the Exchequer which show that the Government wish to exert that pressure.

Reducing the American budget deficit would have a devastating effect on the social complexion of the United States. It would create social chaos there. If western Europe wishes to create social chaos here it should demand the closure of that deficit in the United States. We have come to terms with the fact that we have to live with high interest rates in America. Europe must now accord its economic system with what is going on in America.

Mr. Austin Mitchell (Great Grimsby)

Does my hon. Friend agree that the United States has prospered in that it has created 4 million jobs in just over a year by doing exactly the opposite of what the British Government preach? The Americans are ignoring the money supply by running a deficit in good old Keynesian fashion. If the British Government succeed in persuading the American Government to adopt the same narrow, piggy-banking orthodoxy that is used here the same fate that has overtaken us will await the Americans.

Mr. Campbell-Savours

My hon. Friend is correct. The Americans have created jobs in areas which this Government say they treat as priorities—in service trades and industry. An excellent article appeared in The Guardian two or three weeks ago drawing attention to the new job profile in the United States which arises from a willingness to sustain and maintain a high deficit level.

I appeal to the Chancellor not to go overboard in his demands and to accept that by pressing America in that way he will invite social difficulties, not only for the United States, but for parts of western Europe, and even the United Kingdom.

The Association of British Chambers of Commerce say: The United States' high interest rates are choking the mechanism of recovery throughout the western world. Is the association aware of the implications of pursuing the strategy that they wish to be pursued? The Budget judgments of various organisations outside the House are crucial to this debate. My hon. Friends will wish to draw attention to many of the judgments and perhaps quote from them. One particular organisation historically has given support and commitment to the British Conservative party and, certainly, to the Government. I refer to the Institute of Directors. It carried out a business opinion survey after this year's Budget. It concluded from the findings that the Budget made little difference to the overall position of companies.

After all the expressions of complacency and self-satisfaction by the Government over the last few weeks, a key organisation tells the Government that almost half of its membership believe that they will not benefit from anything that the Government have done in the Budget.

No better example of a sectoral response can be found than that by the paper and board industry. In one of the regular newsletters that it sends to hon. Members the industry says: The paper and board industry stands to gain £million from this particular area of the budget"— that is, the abolition of the national insurance surcharge. It counters that £3 million with the high additional cost of rates for industrialists. Rates have been forced up directly as a result of the withdrawal of rate support grant to local authorities. The industry counters that £3 million with the additional costs of energy that it has to pay as a result of Government energy policies in the last three or four years. It also counters the £3 million with the changes in corporation tax which cannot be separated from the capital allowance changes in the Budget because they interact. The net effect of that interaction is that in the coming year more money will be paid in corporation tax by companies. By 1986 the industry maintains that it will be paying almost £1.5 billion more per annum than it pays today. Such organisations know what is happening. The Government have refused to take their voice into account in the formulation of their Budget strategy.

In its recommendations the Association of British Chambers of Commerce says that it wants a generally more expansionary international economic policy. It knows, as do industrialists in my constituency, that despite all the Government's palliative measures and the considerable aid given to small businesses in the last four years in 90 or more measures that a reflationary policy is needed to provided jobs and boost demand in the United Kingdom. That is the answer. That is the case that Labour put to the people at the last general election. Because we were sidetracked on peripheral issues which had nothing to do with the central issues in British politics, we did not get the point over. The Bill contains the petty prejudices of the Conservatives towards local government and the public sector of industry. We shall oppose such measures resolutely in the Lobby. At the same time, we welcome the broad thrust of the reduction in national insurance surcharge.

4.30 pm
Mr. Archy Kirkwood (Roxburgh and Berwickshire)

I join hon. Members in welcoming the clause. The joy and euphoria which we witnessed on the Tory Benches when the Chancellor annouced the abolition of the national insurance surcharge left me bemused. The tax should have been abolished many years ago.

The Conservatives are celebrating their fifth birthday in office. Throughout those years we have seen record levels of unemployment, high interest rates in the early part of their administration and high levels of exchange rates. The experience of businesses, big and small, during those years has been horrific, exacerbated by this wholly bad tax which the Conservatives have taken five years to get rid of.

Mr. Eric Cockeram (Ludlow)

Does the hon. Gentleman recall that, during the Lib-Lab pact, his party supported the then Labour Government in the continuation of this taxation, despite the fact that unemployment was rising? Why did his party support it when it was part of the Lib-Lab pact but has had a conversion since the pact collapsed?

Mr. Kirkwood

The short answer is that I was not here at the time. The hon. Member for Workington (Mr. Campbell-Savours) explained how the circumstances of the time were different; there were only 1 million unemployed and the whole economic background was different. Despite that, I accept the hon. Gentleman's point; we spend too much time in these debates blaming one another for historical excesses.

I do not say that when the Prime Minsiter first went through the door of 10 Downing street in 1979 she should have abolished the national insurance surcharge at a stroke, but it would have given industry and commerce a significant fillip had it been done a couple of years ago. In recent years, industry has been extremely hard-pressed. The CBI, TUC and every other pressure group have been arguing for this change for much longer than a year or two.

I hope that the experience which we have had with the national insurance surcharge will dissuade future Administrations of whatever political complexion from adopting similar measures. There are other, better ways of raising money. Governments must raise revenue, and while payroll taxes are simple to administer, the experience that we have had with this duty should teach us not to repeat it.

Mr. Maples

Will the hon. Gentleman agree that, had the national insurance surcharge been abolished four or five years ago, the benefit would almost certainly have gone in increased wages, whereas, now that the climate is different, it will probably operate on industrial costs, which is what we want to see?

Mr. Kirkwood

Its abolition years ago would have stimulated the economy, increased demand and reduced unemployment. However, that is water under the bridge, and the hon. Gentleman asks a hypothetical question.

I welcome the Government's decision in this matter, even if it has been a long time coming. I hope that the experience that we have had with this form of tax will dissuade future Governments from repeating the exercise and that the short period during which we have suffered the national insurance surcharge will prove a dose of political aversion therapy for future Administrations.

Mr. Austin Mitchell

Why so late? That is the central question that we are all asking about the abolition of the national insurance surcharge. I suppose that the Government are entitled to congratulate themselves over this; they do not have much else about which to congratulate themselves. Congratulations are not really in order, however, because this step should have been taken years ago. This is a totally unjustifiable tax on jobs in a period of rising unemployment, and there has been a rapid rise in the numbers unemployed since the Conservatives came to office.

The Conservatives came to power with promises about regenerating the British economy and rebuilding British industry. We recall the "Labour isn't working" posters and the rest, yet as soon as they took office there began a rapid rise in unemployment. That rise clearly took the Conservatives by surprise as things got out of control. Sam Brittan forgave them, for they knew not what they did. They did it nevertheless, and we must hold them responsible.

As that rise in unemployment continued, the national insurance surcharge did not just remain the anomaly which it always had been, a tax on jobs, but a grievous anomaly, and it was the economics of bedlam to continue that tax on jobs for so long.

Mr. Gerald Bermingham (St. Helens, South)

Does my hon. Friend agree that in the last three years, when there has been a shift from the industrial to the service sector, the existence of this tax has been a disincentive to the service sector to expand so as to offer employment to young people?

Mr. Mitchell

My hon. Friend is right, and it has been an even bigger disincentive to the manufacturing sector, which has been the most hard hit by various Government measures. Indeed, in considering the loss of 2.5 million jobs in the last four years, one realises that 1.5 million of those have been in manufacturing industry. The much-vaunted service sector, which the Government say will be the answer to our problems, has also lost jobs, partly because of this tax on jobs which the Government are now removing.

There is no point in the Government making the perennial cry that we find in handouts from Central Office; the cry that the Conservatives have been making since 1979, "You put it on, yah-boo," as if that were a justification for having retained the national insurance surcharge for all this time. It was put on in 1976 largely as a result of the situation that existed when the IMF came in. [Interruption.] We were in particular difficulties at that time. Given the mess that the Conservatives have made with the benefit of North sea oil revenues, which should have transformed the whole of the industrial situation, what we did is understandable. The incoming Labour Government had to face the horrendous crisis that was left by the Heath Government. They were faced with the worst economic crisis that Britain had experienced since the war. They did not have the benefit of North sea oil, which the present Government have thrown away.

Sir William Clark (Croydon, South)

Does the hon. Gentleman agree that the day before yesterday the Government paid back £477 million of overseas borrowings that were made by the Labour Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey)?

Mr. Mitchell

Oil wealth is running out of the Government's ears. Their only achievement is to pump oil out of the North sea at a more rapid rate than anything apart from their own insolvency would justify. To congratulate themselves on paying back borrowings is to raise only a very small cheer. If that is the only cheer that the hon. Gentleman has to raise, he will have to raise it more loudly and on many more occasions.

Sir Geoffrey Finsberg (Hampstead and Highgate)

The hon. Gentleman said that the national insurance surcharge was introduced by the Labour Government and that the IMF borrowings were arranged because of the mess that was left by the outgoing Tory Government. Will he reconcile that argument with the statement of the Labour Chancellor of the Exchequer during the second general election of 1974 that everything was fine and that inflation was declining?

Mr. Mitchell

The outgoing Conservative Government left inflationary pressures in the pipeline. Those pressures and the oil price increase left the incoming Labour Government in 1974 with a horrendous crisis. If the Conservatives' only justification for the mess that has ensued is the Labour Chancellor's statement in August 1974 that inflation was declining, that is a rather pathetic justification for the disaster which the incoming Labour Government were left to tackle. In coping with the crisis the Labour Government of 1976 had two choices. Faced with pressure from the IMF, they could have cut public spending. The alternative was increased taxation. They chose to impose the national insurance surcharge instead of introducing more cuts in public spending, which would have had a depressing effect on the economy.

Mr. Stuart Bell (Middlesbrough)

Does my hon. Friend agree that the Chancellor of the Exchequer of 1974 did not say that inflation was declining? In fact, he said that inflation would be 8.4 per cent. Secondly, the Labour Government of 1974, like other Governments throughout the Western world, and certainly in common with the Governments of Third world countries, borrowed to keep the economy in balance following the fourfold rise in oil prices in 1973. Is it not a fact that the Government are benefiting from the policies into which the 1974 Labour Government entered? They are now able to use North sea oil revenues to pay back the moneys that were borrowed. Surely that is a vindication of the policies of the Labour Government from 1974 to 1976.

The Second Deputy Chairman of Ways and Means (Mr. Paul Dean)

Order. I realise that the hon. Member for Great Grimsby (Mr. Mitchell) has been tempted by recent interventions. I remind the Committee that it is supposed to be debating what should happen to the national insurance surcharge, not recent history.

4.45 pm
Mr. Mitchell

The debate is somewhat sterile, Mr. Dean. It is a fact that this Government inherited a benefit which no previous British Government had had. North sea oil revenues presented them with the opportunity to invest in British industry and to rebuild an economy that had been in comparative decline for decades. That benefit should have been the solution to our problems, but it has been frittered away to pay for manufactured imports that have destroyed jobs in Britain. Tax revenues have been used internally to finance the unemployment which the balance of payments effect has created.

The national insurance surcharge has been a tax on jobs, and I ask the Committee to recognise that circumstances alter cases. Unemployment rocketed under the Government's policies, and from 1979 there was no justification for retaining the surcharge. I accept that unemployment has been an accidental by-product of the Government's policies, in the sense that they did not expect it. They thought that inflation would be reduced painlessly merely by controlling the money supply. They did not understand — this is a reflection of their economic ignorance—that monetarist economic policies could work in bringing down inflation only by producing a depression of the sort that ensued. Unemployment was the inevitable connection between control of the money supply and inflation. However, monetarist policies have been pursued and the result has been under-used resources and economic decline since 1979.

Unemployment has continued to rise, but the Government have argued that the abolition of the NIS would lead to greater borrowing. They should have borrowed far more to stimulate the economy, and the need to do so was recognised by President Reagan, that belated convert to Keynes. Indeed, Reagan is almost a posthumous convert. The newly-elected Reagan Administration was dedicated to Thatcherite policies, to monetarist economics. It quickly discovered — the United States has an open and democratic system—that the howls of pain from industry and the unions were such that a different approach had to be found. The United States political system is sensitive and the Reagan Administration realised that it was necessary to expand the economy by deficit financing. The British Government should have taken the same course. If the Government were not prepared to do that, they should certainly have abolished the national insurance surcharge. Its abolition has been urged constantly by the Labour Opposition.

Dr. John Marek (Wrexham)

My hon. Friend said earlier that he thought that the rapid increase in unemployment of three or four years ago was a surprise to the Government. I am inclined not to take such a charitable view. I think that they increased unemployment deliberately. It must have occurred to the Government that the early abolition of the surcharge would have a beneficial effect on unemployment. The fact that they have only recently decided to abolish it is a sign that the Government's policy was deliberately to keep unemployment at a high level.

Mr. Mitchell

There are two explanations, and both are discreditable to the Government. The Prime Minister pleads innocence at the accusation that her Government have increased unemployment. She gets out the glycerine and puts it in her eyes. She says that unemployment is a world phenomenon and is something over which she has no control. The Government's defence is shifting now and they are saying that unemployment is unavoidable during the transition to the new microchip economy.

There are only two explanations for the huge surge in unemployment. One explanation is that it was deliberate. As my hon. Friend for Livingston (Mr. Cook) has said so graphically, unemployment for the Government was the answer and not the problem. Perhaps they considered it to be a means of disciplining the unions and making working people so scared about losing their jobs that they would not ask for wage increases. Alternatively, the Government did not realise that the inevitable consequence of their policies was unemployment. We can accept the Machiavellian explanation, or the naive explanation, but neither leaves the Government with much credit. Being a charitable person, I blame the Government for naivety, stupidity and incompetence. My hon. Friend the Member for Wrexham (Dr. Marek) is welcome to place a more sinister interpretation on the facts that are before us.

The fact remains that unemployment was out of control and was still rising. However, the Government chose to retain the national insurance surcharge, notwithstanding the constant pleading of the Labour Opposition to abolish it. That pleading was echoed by the CBI on the rare occasions when it managed to get up off its knees. The sore-kneed CBI was bold enough to ask, first, for a reduction, and then for the abolition of the surcharge. We are now discussing its proposed abolition; we are here to bury it, not to praise it. It is important to emphasise the consequences that its retention has had. It has been a direct burden on the costs of manufacturing industry, which is crucial to jobs and Britain's survival in a competitive world market.

The Government say that the key to survival is to bring down our costs, and they are undoubtedly correct in that analysis. Their mistake is to offer us techniques that will not bring down costs, but will increase them. The Government offer the techniques of monetarism, deflation, call it what one will. Those techniques aim to reduce costs by using the pressure of unemployment and high interest rates. I do not know how high interest rates can reduce costs. Interest rates are at historically high levels. Given the low rate of inflation, it is criminal that the Government have not reduced them.

One would have thought that the central part of policy of any Government sensitive to the desire for home ownership, and a desire to stimulate the economy and produce investment, would be to bring down high interest rates, but they have not done so. Why have the Government not reduced interest rates ? They have not done so because they regard them as a discipline and a pressure on costs.

The only way to reduce costs—the Government have avoided this measure and regard it as economically reprehensible—is to expand. There is no better way of bringing down unit costs than by increasing 'production; nor is there a better way of improving productivity. That is a simple correlation. The OECD's main economic indicators show that in the past year our unit costs have risen, despite the self-congratulation of the Government on bringing inflation down from the heights to which they increased it. Our unit costs are still increasing, while in the past year unit costs in America, Germany and Japan have come down substantially because they increased output more. The national insurance surcharge has imposed an extra burden on costs which should have been removed years ago from our competitive economy.

This measure has been left too late and has been undertaken too slowly. The Government must go further, because they have left this measure too late. It is not sufficient to give compensation and provide the boost needed by manufacturing industry. We are in the position of the man in the old Yorkshire joke. His friend comes round asking for Tom. His wife comes to the door in tears and says, "I'm sorry to have to tell thee, but Tom is deed. Come in and look at him." They go upstairs to see Tom lying in bed. His friend says, "Well, he looks well, dun't ee". His wife says, "So he should, we've just come back from Bridlington." The Government say to British industry as it expires, "You are looking good. We have just taken off the national insurance surcharge."

Mr. Bell

I am always delighted to follow my hon. Friend the Member for Great Grimsby (Mr. Mitchell) in his analysis of the economic position in relation to the abolition of the national insurance surcharge. I am sure that the Committee enjoys not only the way he makes his speeches but the humour with which he laces them.

We are discussing a matter on which, I believe, the House is unanimous. All hon. Members welcome the abolition of the national insurance surcharge. The surcharge payable under the National Insurance Surcharge Act 1976 is now being abolished. We have heard a great deal on the matter since the surcharge was imposed as part of a £2,000 million package, designed to raise revenue for the Exchequer. It was a tax that was going not into the national insurance part of the Budget but into the Treasury side of finance. The insurance surcharge was a new tax. The existing 1 per cent. surcharge is to be abolished from 1 October 1984, except in the case of local authorities, police authorities, the Scottish fire authorities, magistrates courts committees and probation and after-care committees, for which the effective date of abolition of the tax is 6 April 1985.

None of that news is welcome to the people of Teesside, whom I represent. The local authority discussed the matter. The budget of the police authorities in Cleveland for the present year has been reduced by £1 million. They would have benefited if the national insurance surcharge had been removed now, but they must wait until 6 April 1985. The port of Cleveland includes a great complex of industrial chemical materials. ICI and Monsanto Chemicals are sited in Cleveland, and chemicals are shipped up and down river. Cleveland needs a high budget for its fire authority. That authority would have benefited had the national insurance surcharge been abolished at the same time as it was abolished for the private sector. Cleveland's social services, magistrates courts, probation and after-care committees would have benefited also from the abolition of the surcharge now. This is a matter of priorities. The Government do not have the same priority for social service, fire and police authorities as they have for the private sector.

I should like to lay one matter to rest once and for all, because this is probably the last time we shall be discussing the national insurance surcharge. When the legislation was placed on the statute book, the tax was designed to raise money. The entire thrust of the Budget is in the interests of the City of London. It is difficult to accept the criticism of Conservative Members about a tax on jobs and a money-raising exercise when the aim of the Budget is to release money into the City of London to improve its competitiveness. The Budget is not in the interests of job creation, as we understand that term.

The expected yield of the national insurance surcharge was £910 million in 1977–78 and about £1,000 million in a full year. From the time the tax was imposed, a great fuss was made about it by the Conservative party, which sought to wring as much political capital from the tax as it could. Conservative Members are still seeking to wring all the political capital that can be extracted from the surcharge, even in its death throes and when it is about to be abolished. When the scheme was introduced, Conservative Members called it the job destruction scheme. They did not consider the £500 million we were spending on job creation schemes at the same time. None of the forecasts which have been resurrected by the Conservatives ever came to pass.

Conservative Members were worried that employers would react in a variety of ways. The criticism was that employers would raise prices to make good the addition to their costs, absorb the additional costs, at the expense of profits, and reduce the size of their labour force. The fact is that, in 1979, when Labour left office, inflation was down to 8 per cent. and more people were in work than ever before. I shall make an aside that might not appeal to Conservative Members—more trade unionists were in work in 1979 than at present. Fewer companies were going broke than now.

Since the Budget statement, the Opposition have consistently referred to the fact that last year more bankruptcies occurred among small firms than ever before. Companies in 1979 achieved higher profits than they do at present under the Conservatives. Since 1979, there has been uncertainty and insecurity. Many businesses have had to consider whether they can remain viable. The criticisms made by the Conservatives in 1979, which have continued to this day, have never been justified. I say that on a factual basis.

Mr. Bermingham

I have listened carefully to my hon. Friend. Does he agree that it is ironic that it takes between six and 12 months to remove a tax, which everyone says it is desirable to abolish and two or three months to impose a tax on, for example, building alterations, which everyone says is counter-productive?

5 pm

Mr. Bell

I am grateful to my hon. Friend for drawing attention to yet another of the anomalies in the Budget. The great euphoria with which Government Back Benchers welcomed the Budget has already been punctured in a number of ways. My hon. Friend and I will continue to expose its weaknesses.

The abolition of the national insurance surcharge is confined to the private sector. Yet again, the Government are subtly discriminating against the public sector. Does not the Chief Secretary realise that the steel and coal industries, which suffer heavily from interest charges on money that they have borrowed, need some assistance? Both industries are attempting to be competitive, and both should be helped. The entire thrust of the Government's argument is in favour of competitiveness and exports. The steel and coal industries both export goods, yet they are to be penalised because the Government will not extend to them the abolition of the national insurance surcharge.

We have heard yet again today, and will no doubt hear again in future, about the Government's concept of rolling back the frontiers of the state. Those frontiers might be rolled back for private firms, but they are certainly not being rolled back for public firms. About 7,500 able-bodied men on Teesside work in the steel industry. They have fought hard to make it competitive, while seeing their labour force reduced from 25,000 under the Conservative Government. They want to compete with European countries, Japan and South Korea—yet they will not benefit now from the abolition of the surcharge. Therefore, it is right to draw the attention of the wider public to the facts.

We had hoped that the great battle about the nationalisation of the steel and coal industries had long since been buried. But those battles are not over and we now know that the industries will continue to be penalised. Nothing will be done to ease their burdens—they will not even have the benefit of the abolition of the surcharge.

In the Chief Secretary's speech during the Budget debate, he said: I now come to the broad sweep of the Budget. It has two themes. It re-emphasises our determination to continue the fight against inflation through sound financial policies, and it introduces a radical programme of tax reforms."— [Official Report, 14 March 1984; Vol. 56, c. 420.] The fact that the abolition of the surcharge will not benefit local authorities, police authorities, Scottish fire authorities, nationalised industries, magistrates courts and probation and after-care committees belies his statement.

In response to my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) earlier today, the Chief Secretary said that he hoped one consequence of the abolition of the surcharge would be a greater volume of exports. It is rather like the feeding of the 5,000—there are so many different mouths to feed that no one knows which will be fed.

Teesside has a large number of small businesses, and would welcome the abolition of the surcharge, provided that the £350 million that is to be given back to private industry in 1984–85 and the £850 million that will be given back in a full year is used for job creation. Our fear is that the money will go into profits, dividends and portfolio investment abroad—not into job creation. The coming year will be a great test of the Government's theory that there will be an upsurge in jobs throughout the country.

The Government constantly urge competitiveness. In a recent speech the Chancellor said: Inflation destroyed our competitiveness, our profits, our investment, and undermined incentives and industrial relations. The reduction of inflation to its present low levels and its further reduction, are the preconditions for creating new jobs. As we know, the contrary is true. The reduction of inflation to 4 per cent. or 5 per cent. has been at the cost of jobs. We as a nation and the Conservative Government have been prepared to put 2 million additional souls on the dole. No other country in the western industrialised world has sought to balance the rate of inflation with unemployment. This is the only Government that have destroyed employment prospects to bring down inflation.

We hope that the abolition of the surcharge will lead to the creation of more jobs. We hope that it will bring more employment to Cleveland, where 18 per cent. of the male work force is unemployed. We hope that it will help firms such as Davy Modules in my constituency, which has set up a new plant. We hope that there will be better prospects than those held out by the CBI yesterday in its report about business reaction to the Budget and our future prospects. We are about to expand from a narrow base and the prospects for business reflected by the CBI extend for no more than six months.

The abolition of the surcharge—which we welcome —is part and parcel of the shifting of our economy from the so-called manufacturing sector to the service sector. While we accept that, we do not believe that it will have the consequences that the Government have suggested.

Mr. John Farr (Harborough)

To hear the miserable succession of Opposition speakers, one would not have thought that the Government were making a substantial change in direct taxation by removing the national insurance surcharge. Opposition Members have said that they welcome the abolition of the surcharge, but that it is long overdue, that, anyhow, it is unnecessary in their constituencies, and that, in any event, it was not the fault of the Labour Government that it was first imposed.

My constituents view the abolition of the surcharge as a great opportunity and a milestone. Employers and employees alike believe that there are great opportunities for those engaged in business enterprise and small companies. The surcharge is far more than a tax on jobs — it is a tax on incentives and on exports. The surcharge is one reason why our export performance has been so dismal, why our industrial capacity has been declining and why our industrial performance was so poor until 1979–80. The Government are now abolishing that surcharge.

The Budget is excellent, and it contains a large number of good points. One could debate for many hours which is the more significant improvement in the economy that has been introduced by my right hon. Friend the Chancellor. I believe that, over the next few years, the abolition of the surcharge will prove to be one of the most significant improvements ever to take place in our economic management.

What appals me from what I have heard so far in the Opposition speeches is that a Socialist Government imposed the surcharge, and that Labour Members will vote against its abolition. I understand that the Opposition will vote against the Finance Bill throughout the day. I should say if I were not such an experienced politician that what revolts me about politics is how insincere people can be in criticising the Government, who in this case are sweeping away the surcharge originally imposed by a Socialist Government. How can the Opposition be so double-faced as to complain that the Government are not doing enough—

Mr. Bermingham

Will the hon. Gentleman give way?

Mr. Farr


In the words of an Opposition Member, the surcharge should be abolished also in relation to the nationalised industries, the Government should make more such changes, and their response is insignificant. Another Opposition Member even had the arrogance to say that the abolition should have taken place years ago. But the Socialists took no steps before 1979 to reduce or limit the impact of NIS upon jobs, enterprise and exports.

It is interesting to consider, had my right hon. Friend not introduced clause 113 and relieved the great load on the backs of so many working people, what alternatives he could have introduced in the Budget costing roughly the same to the Exchequer as the abolition of NIS.

Mr. Bermingham

With great respect to the hon. Gentleman, he has missed the point. Everybody welcomes the abolition of NIS. The question that I must ask the hon. Gentleman is: if its removal is beneficial should it not have been removed forthwith in 1979?

Mr. Farr

That could not have been done. When the Conservatives returned to office in 1979 there were many major financial problems of pressing importance to be solved after years of Socialist Government. Clearly, a sense of priority was necessary. I believe that the priorities have been achieved in the right way.

Sir Raymond Gower (Vale of Glamorgan)

Are not the Opposition very attached to penal taxes that are damaging to industry? My hon. Friend will recall that the Labour Government introduced the selective employment tax that was so injurious.

Mr. Farr

I thank my hon. Friend. He has an excellent and long memory. He knows as well as I do that a Socialist, whether in or out of government, is never happier than when he or she is thinking up a new tax and imposing it upon the wretched taxpayer.

In relation to national insurance surcharge, my right hon. Friend must have turned the matter over carefully in his mind. I know that its abolition has been at the top of the Government's list since 1979, but there must be a sense of priorities in these matters. Let us suppose that clause 113 had not been introduced, and that the surcharge had remained in existence for another year. What alternative improvements could my right hon. Friend have made? He has greatly increased personal allowances over the whole range, well above the rise in prices and the cost of living. I do not believe that Opposition Members, who are arguing so strenuously against clause 113, would have said that personal allowances should have been increased more than they were.

Mr. Bell

We are not arguing against clause 113.

5.15 pm
Mr. Farr

What other methods of fund raising has the Chancellor under examination? If he had left intact the national insurance surcharge, could he have done something about, say, the massive increase in the cost of road fund licences, perhaps by reducing the imbalance of payments and expenditure? Again, I have no doubt that the Chancellor has considered that approach, as representations have been made to him by motoring organisations and local authorities.

Perhaps my right hon. Friend could have changed his policy in relation to Customs and Excise duty and not increased duty on beer and tobacco, or even decreased it, but retained NIS. I have no doubt that the Chancellor considered such alternatives and many others. His decision to abolish NIS at long last, and to do away with what I call a stain on the enterprise and initiative of British workpeople, which was imposed by the Labour Government some years ago, is not a day overdue. If the Socialists are determined to vote against clause 113, I shall certainly support my hon. Friend in the Lobby tonight.

Mr. Mark Fisher (Stoke-on-Trent, Central)

I am sure that the House has enjoyed the contribution of the hon. Member for Harborough (Mr. Farr). Indeed, Opposition Members were enrapt over his reasons and attempted explanation of the fact that this all-action, dynamic Conservative Government have taken five Budgets to do what the hon. Gentleman so studiously and earnestly recommends. His contribution to the debate was most interesting.

I should make clear the point that seems to have escaped the hon. Member for Harborough. Opposition Members welcome the abolition of the NIS. If I say that slowly enough, perhaps the hon. Gentleman will understand and recognise the Opposition's view. Indeed, we shall support the clause.

Dr. Marek

I notice the hon. Member for Harborough (Mr. Farr) shaking his head. It would be better if my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) said two or three times, to get the message across, that we all welcome the abolition of NIS. Has that message got across to the hon. Gentleman?

Mr. Fisher

I am grateful for my hon. Friend's assistance. I see now that the hon. Gentleman has got the gist of our argument. The point has been made.

All would have been well in the debate if the Government, through the Chief Secretary or the Chancellor, had modestly brought the change to the House, saying, "Here is a change that we recommend." The Government know very well that the Opposition support the measure. If they had done that we should have been able to proceed with the Bill more quickly. Unfortunately, although the Chief Secretary is a modest fellow and would have left the matter to the House—the Opposition would have supported him—the Chancellor is not so modest. He is a more ebullient and complacent character. He made grandiose claims for this tax change, and it is those claims that we dispute.

The Chancellor of the Exchequer had the cheek to claim that the abolition of the national insurance surcharge would help to provide employment. In his Budget statement he went to great lengths to make that point. That really is a cheek from a member of a Government under whom unemployment has risen from less than 1 million to more than 3 million. Every constituency bears the scars of the steps that the Government have taken to increase unemployment. In the past few years, summer school leavers in my constituency and in those of most hon. Members have had little chance of finding jobs.

It is impertinent of the Government to say now that they are doing something to help employment. It is rather like Sweeney Todd surveying the blood and the wounds of lost job opportunities and saying that he is going into the Elastoplast or Band-Aid business. That is the scale of it, and it is an impertinence.

Mr. Maples

While we are on the implied subject of hypocrisy, does the hon. Gentleman agree that under the previous Labour Government unemployment doubled, and that it increased under every Labour Government?

Mr. Fisher

Every hon. Member and every member of the public would love to return to the levels of unemployment under the previous Labour Government. If this Government could reduce unemployment to below 1 million again, I am sure that even Labour Members would congratulate them.

Mr. Bell

For the record, is not it true that between 1945 and 1951 unemployment fell under a Labour Government?

Mr. Fisher

I think that we are talking about history when we should, perhaps, be discussing the Finance (No. 2) Bill 1984. The Chancellor of the Exchequer claims that abolition will help employment, but how many jobs will it create, and when will they be created? To find out the Government's view, we should look at the "Financial Statement and Budget Report", but, strangely, there is no forecast there of a decline in unemployment. Perhaps, then, we should turn to the public expenditure White Paper, but this year the White Paper says that in 1984 there will be no fall in the unemployment rate. As we know, in the first few months of this year the underlying trend of unemployment has regrettably been inexorably upwards.

Will the Chief Secretary make good that omission from the Budget statement and tell the Committee when the benefits of removing the national insurance surcharge will be reflected in a reduction in the number of unemployed? I refer him to the evidence which the Treasury and Civil Service Committee heard from Lionel Murray, the general secretary of the TUC. Very pertinently, in evidence to the Select Committee, he said: The fact is that previous reductions in the national insurance surcharge have not increased employment and indeed I see that the chairman of GKN, for example, said this very clearly in his statement last week. So, unless the Chief Secretary has something to tell us, there is no evidence that this measure will have much effect on employment or unemployment. In a full year it will release £865 million, but it is difficult to see how that money will affect employment.

Sir Raymond Gower

If the hon. Gentleman is so convinced that abolition will not confer any benefits and will not reduce unemployment, why are he and his colleagues so insistent that they support it? If it is not to confer any benefits, why do they intend to support something that will cost a good deal? According to the hon. Gentleman, abolition will be quite ineffective.

Mr. Fisher

I am grateful to the hon. Gentleman for bringing me to my next point. Abolition will undoubtedly be effective, and in the private sector it should lead to higher profits. I should put it on record that Opposition Members are definitely in favour of higher profits, despite what Conservative Members so often say. We certainly support higher profits in industry, and abolition of the national insurance surcharge will lead to that.

However, what will happen to those profits? If, as I suspect, private industry becomes marginally more profitable as a result of abolition, will that be reflected in lower prices? I should be interested to hear the Chief Secretary's opinion. Can he name an industry or company which he believes will lower its prices as a result? I shall leave that question with him.

Will higher profits be reflected in higher wages? That is quite possible and would be greatly welcomed in many instances. Will higher profits be reflected in more investment? If so, we would 'welcome that. However, we are constantly told by the Chief Secretary that we should take the Budget as a whole, and it is interesting to note that many other measures, such as the withdrawal of first-year capital allowances, penalise capital investment in industry. So it is a strange double-take by the Government.

I very much fear that for a great many companies those higher profits will not be reflected in prices, wages, investment, design or research and development, and that much of that £865 million will go on higher dividends. Those dividends will certainly benefit one or two people involved in those private companies, but an increase in the dividend take will not address the problem of creating employment, contrary to the Chancellor's grandiose claims.

Sir William Clark

I am sure that the hon. Gentleman will be fair. As he knows, much of the return on capital is dividends out of retained profits. The rate of return on investment in equities—which includes manufacturing industry, and industry generally — is extremely low. Therefore, does the hon. Gentleman not agree that it is no good calling for more investment unless a better return is given on those investments? In the past, under successive Governments, the rate of return on gilt-edged shares has been much higher than on equities. That is the imbalance that must be changed.

Mr. Fisher

If only Conservative Members were as well-intentioned, good-hearted and innocent about the world as the hon. Gentleman. Sadly, people do not respond to profits like that. If the hon. Gentleman's thesis is correct, there should suddenly be an enormous increase in capital investment in Britain, particularly in manufacturing industry, when dividends are high. However, when dividends were high in the early 1970s that money went abroad and into property. Property values rocketed when dividends were extremely high in 1971, 1972 and 1973. Such is the cynicism of private equity holders in this country that there is no sign that when dividends are high they rush to pump that money into manufacturing industry. That is why our manufacturing industry is so under-capitalised. That money has gone abroad and into speculative ventures, such as property, and not into the industrial infrastructure, despite the desperate need.

I wish that private investors were as well-intentioned and good-hearted as the hon. Gentleman, and I mean that sincerely. However, the facts are against him. When dividends are high, they are not translated into investment in manufacturing industry. The truth is that, other than verbally, the Government do not care about employment. Ministers make protestations on television, but their actions are antagonistic to employment and amount virtually to an attack on it.

The Prime Minister makes a great point of telling us that we must get our competitiveness and productivity right. Productivity and competitiveness have improved on paper, but many people suspect that one reason why unit costs have come down and competitiveness has improved is that many companies have gone bankrupt. If the number of batsmen is reduced at the beginning of the cricketing season, the average increases because the number of runs scored is divided between fewer batsmen. Similarly, by reducing the work force, productivity appears to increase. However, real productivity and competitiveness have not changed much.

5.30 pm

During the past four years the Government have made a concerted attack in the name of productivity and competitiveness on labour-intensive industries. With the withdrawal of capital allowances the Government are now attacking capital-intensive industries and showing themselves to be inconsistent, dangerous and daft. The Government should care about employment and jobs, for the important social reason that government is about people, and one of the most dignified things for a human being is the right to earn a living, support a family and contribute to the well-being of society. That is a simple, basic human aspiration, and it will be true for as long as we have the puritan work ethic. The Government must recognise that. That is the important social reason for employment. The economic reason for employment is that it increases the tax revenue and its base, and increases consumer demand.

Both points seem to have escaped the Government's previous two Chancellors, and they appear to be in danger of escaping the present Chancellor. Even he would agree with the rough equation that the level of employment depends on the output demanded and on the mix of capital and labour that is necessary to produce that output and satisfy the demand. Even Conservative Members will agree that that is a basic truism.

One way to bring that about is to boost demand—to reflate demand in the economy, as so eloquently outlined by my hon. Friend the Member for Great Grimsby (Mr. Mitchell). The Government, however, have depressed demand. They should boost output, but they have depressed it.

Despite the abolition of the national insurance surcharge, which comes too late, like the cavalry coming over the hill when the battle is over, the Government have concentrated almost exclusively on the capital and labour mix, and got it wrong. Now they have even changed their mind about that. During the first four years the Government's medium-term financial strategy was to control inflation and reduce interest rates, to create the climate for investment. In this year's Budget the Chancellor decided that there was too much investment and that we needed to concentrate on labour. This year's tax measures relate to labour. The Chancellor presented the abolition of the national insurance surcharge as a way of tackling labour costs rather than capital costs. Although the medium-term financial strategy is nominally intact, we see a complete volte face. I should be grateful for the Chief Secretary's views about that, because the Government appear to have changed tack.

Despite the measure the Government are attacking labour, and with the measure they are attacking capital. With that change of emphasis, the Government have hoisted a flag to show that they are lost. Unfortunately, when they are lost, the economy and the country are likely to be becalmed and in a fog of misapprehension and misunderstanding. Despite the measure, which we welcome, the Government will damage the economy, the people, and the country.

Sir Raymond Gower

I start by emphasising that the hon. Member for Stoke-on-Trent, Central (Mr. Fisher), supported by his hon. Friend the Member for Wrexham (Dr. Marek), said that the Labour party was in favour of the measure. However, he expressed great doubts about it because the Government—especially the Chancellor—cannot prescribe with certainty — [Interruption.] A combination of many factors has caused difficulties for many of our industries. In my experience, large industrialists and those who must supervise the difficult problems of running small firms, are of the opinion that this is a severe handicap to industrialists and all those who seek to provide employment.

The hon. Member for Stoke-on-Trent, Central ranged widely over the financial spectrum. I agree with my hon. Friend the Member for Harborough (Mr. Farr) that this relatively narrow matter is a cumulative achievement. It is part of the process commenced by my right hon. and learned Friend the previous Chancellor and has been carried on while there have not been available great sums of money for easy disbursement. Times have been difficult. The hon. Gentleman gave the impression that we have no desire to reduce unemployment. That is a statement often made by Opposition Members. I am anxious, as are all my right hon. and hon. Friends, to reduce unemployment substantially as soon as possible. I hope that the hon. Gentleman accepts that.

Mr. Fisher

I accept the hon. Gentleman's sincerity. I wish that he would put greater pressure on his Government to implement policies that would do that. The sincerity of Tory Back-Bench Members is not in doubt, but the actions of the Government are not conducive to reducing unemployment. They show categorically that the Government have deliberately followed policies, the necessary price for which — so they believe — is a reduction in employment. We believe that they are wrong.

Sir Raymond Gower

I wish it were even half as easy as the hon. Gentleman implies. If it were, France, under its Socialist Government, would not be facing problems such as having to shed 20,000 jobs in the steel industry alone. Throughout the world Governments of different political outlooks are facing great difficulties. Those who manage our industries now have been facing different circumstances from those in the early 1970s.

Mr. Bermingham

Does the hon. Gentleman agree that the American economy, which has taken the opposite policy to ours, has an expanding steel industry and is taking on more employees?

Sir Raymond Gower

We cannot possibly compare the American economy with ours. America can subsist without exporting. It could be completely independent. It is a continent, and has all the necessary raw materials. We cannot compare it with a small island which must export two thirds of its output to exist. To do so is a perversion of my argument.

All countries that are comparable with Britain face great problems, and we must consider this valuable change in that context. I do not suggest that the change will make our job easy, but had the surcharge not been first reduced and then abolished, how many more jobs might have been lost? Labour Members have welcomed the change with many reservations, but I welcome it because I believe that the surcharge was a severe handicap to industry. It is significant that a Labour Government imposed this obnoxious tax, and proposed previously another obnoxious tax — the selective employment tax. They contributed to unemployment and left a nasty heritage for the Governments who followed them. In 1970 the Conservative Government had to get rid of the selective employment tax, and now we have had to get rid of the national insurance surcharge, with great difficulty.

Mr. Fisher

I do not wish to divert the Committee too much, but I should point out that when those two taxes were introduced, economic circumstances were different, with high profits in companies and great difficulty in tackling tax lawyers, who advised companies so skilfully that the reveue from corporation tax was always low. Many companies contributed to our tax revenue only through selective employment tax and national insurance surcharge. Had the tax lawyers — there are several eminent tax lawyers in the Government ranks—not been so successful in advising companies, selective employment tax and national insurance surcharge would probably not have been necessary.

Sir Raymond Gower

The hon. Gentleman said that it was strange that the Government now appeared to be dealing with the needs of employment whereas previously we were more concerned about capital investment. However, it was our experience that in some cases the former allowances meant vast payments that produced few jobs. The hon. Gentleman should be pleased that the emphasis is now on labour, not on capital. However, again he welcomed it, with many reservations.

We still face formidable problems, for which we cannot seek easy solutions. Our difficulties are equalled and sometimes surpassed in other countries. This is just one useful step that could lead to an improvement in the employing capacity of industry, which we all desire.

Mr. Bell

I am most grateful for the opportunity to address the Committee again, because I wish to reply to some of the points made by the hon. Member for Vale of Glamorgan (Sir R. Gower), who has enlivened our proceedings. My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) did not doubt the sincerity of the hon. Gentleman or of other Conservative Members in wishing to reduce unemployment. No one would doubt the sincerity of Marshall Haig and Marshall Joffre in the first world war, who sent millions of men to their deaths because they believed that that was the way to win the war. No one doubts that the belief of Conservative Members, which has run like a thread throughout Conservative policy since the early 1900s, is to create reservoirs of unemployment so as to create the right economic conditions for capital.

5.45 pm

However, Conservative Members seem to wish to forget the increase in unemployment since 1979 and the fact that the Chancellor has built into the economic equation 3.1 million people officially unemployed. They do not draw attention to that fact in every speech made from the Dispatch Box or elsewhere. There is a great wringing of hands about unemployment, but I repeat that the abolition of the national insurance surcharge is not necessarily aimed at the creation of jobs. It may be aimed at adding to the profits of companies. The Chancellor said that it is aimed at the creation of jobs, and the Chief Secretary said that it is aimed at exports, but the fact is that the abolition of the tax is akin to feeding the 5,000— [interrution.] If the Hon. Member for Croydon, South (Sir W. Clark) wishes me to speak for the next three hours, I should be happy to do so and I hope that he will sit there and listen to me. I have tried to put my arguments in a friendly fashion, accepting the sincerity of Conservative Members. If they wish me to adopt a different tone, we shall go through all the points that we can and continue the debate for many hours.

The abolition of the national insurance surcharge, which the Opposition welcome, might increase investment overseas or increase profits, but it will not create employment. I said earlier that on Teesside we expect some job creation in the area

One reason why I intervened a second time was because of the remarks of the hon. Member for Harborough (Mr. Farr). It is a pity that the hon. Gentleman will not be a member of the Standing Committee on the Bill, because we should have welcomed a continuation of the remarks that he made today. He began by saying that he had heard a series of miserable speakers. I hope that he meant a series of what he might describe as miserable speeches, and that he was not suggesting that Opposition Members are miserable people.

The hon. Gentleman tried to advance the myth, which the Conservative party has supported since national insurance surcharge was introduced in July 1976, that it creates unemployment. However, in 1976, Select Committees of the House estimated that only 10,000 jobs would be lost as a result of the surcharge. The tax was so successful that in 1978 it was increased by my right hon. Friend the Member for Leeds, East (Mr. Healey) to 3.5 per cent., and its cash yield was £1,030 million.

The hon. Member for Vale of Glamorgan asked why the Labour Government had introduced selective employment tax. The emphasis of the Labour Government was on manufacturing production, goods for export and wealth creation through manufacturing. We tried to move people away from the service industries into manufacturing. That was the basis of selective employment tax but, as my hon. Friend the Member for Stoke-on-Trent, Central said, we were somewhat defeated in our purpose by skilful tax accountants, who reduced the revenue from the tax and encouraged investment in the service sector as opposed to the manufacturing sector.

We welcome the abolition of the surcharge, but we regret that it has not gone wide enough. I hope that the Chief Secretary will tell us why local authorities, police authorities, Scottish fire authorities, magistrates courts, probation and after-care committees, and the public sector have been excluded. Why does the private sector need such a boost, when nationalised industries such as coal and steel, which sell products abroad in a highly competitive market, do not?

We hope that the Chief Secretary will give us the answers to the questions that we have put and that we continue to put. We welcomed the reduction by 1 per cent. of the national insurance charge by the Foreign Secretary when he was Chancellor of the Exchequer. We regretted then that he did not have the courage of the present Chancellor to abolish it altogether. In a difficult economic climate, he might have helped more people to stay in work when the dole queues were lengthening and he might have helped to sustain more businesses that were going bankrupt.

We welcome the abolition of the national insurance surcharge also because that was one of the manifesto commitments of the Labour party. We welcome at every opportunity the Conservative party carrying our Labour party manifesto commitments. We urge the Conservative Government to do this time after time in the months and years ahead.

Mr. Peter Rees

I suppose it is worth reflecting occasionally on how our debates strike the unprejudiced observer outside the House, whether he is listening to the radio or reading Hansard. I dare assert that this debate must strike unprejudiced observers as having drifted at times far from reality. I hope hon. Members will allow me to remind them that we are debating the question that clause 113 should stand part of the Bill.

Mr. Austin Mitchell

That is an attack on the Chair.

Mr. Rees

The Chair is well able to look after itself without the intervention of the hon. Member for Great Grimsby (Mr. Mitchell) from a sedentary position; his command of the rules of relevance and order struck me as being tenuous in the extreme.

Every hon. Member who has spoken from the Opposition Benches has prefaced his remarks by welcoming the abolition of the national insurance surcharge. Then with a sigh of relief they have changed gear and have gone on to qualify their welcome with a mass of irrelevancy and inaccuracy. Perhaps the best service that I can do the Committee is to set out as briefly and succinctly as I can some of the basic facts. It is worth reminding the Committee, as some of my hon. Friends have done, particularly my hon. Friend the Member for Vale of Glamorgan (Sir R. Gower) and my hon. Friend the Member for Harborough (Mr. Farr) that this tax was introduced by a Labour Government who appeared to have learnt nothing from the inadequacies of selective employment tax. When they introduced the national insurance surcharge, unemployment stood at over 1 million. I know the hon. Member for Workington (Mr. Campbell-Savours) will allow me to correct his inaccuracy; he said unemployment was below 1 million, but it was not. The figure was 1,313,000. The surcharge was introduced at 2 per cent. Two years later in 1978—and I give them this—unemployment had dropped by 14,000.

Mr. Campbell-Savours

If the right hon. and learned Gentleman refers to the Official Report tomorrow he will see that I did not make any reference to election year but to 1977. I think he will find that I am right.

Mr. Rees

I never referred to election year. I referred to the year it was introduced. The figures for 1977 are the figures that I have just given to the House. Perhaps the hon. Gentleman will do me the courtesy of reading my speech and comparing it with his. If he finds that he was in error I have no doubt that, with his habitual courtesy and regard for the truth, he will make an ample and honourable apology to me on a suitable occasion, perhaps upstairs in Committee Room 10.

In 1978—and I give this to Opposition Members—unemployment had fallen by 14,000, so it was still 1,299,000. Encouraged by that, and no doubt encouraged by their new-found sympathy with the Liberal party, because those were the heady days of the alliance that kept that Administration in power for another two years—

Mr. Kirkwood

I was not a Member of the House at that time.

Mr. Rees

I know that the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) was not in the House then, but if he cares to distance himself from the policies that were advocated by the hon. Gentleman who then represented two thirds of his constituency and whose campaign I understand he masterminded with such assiduity and skill, I shall willingly give way. Is he prepared to say publicly that he would now prefer to distance himself from the activities of the Liberal party in alliance with the Labour party under that Administration?

Mr. Kirkwood

The Chief Secretary must be joking. The period of the Lib-Lab pact was one of the most successful periods of Government that the country has seen since the war in terms of the reduction in inflation and a series of other economic factors with which I shall not detain the Committee. The right hon. and learned Gentleman should not look to me. It is right that I was not a Member of Parliament then, but I in no way repudiate that period. The history books will show that that was one of the most successful periods of Government.

Mr. Rees

There will be other occasions to explore that bold assertion. I think that historians may reach a different conclusion.

Let me remind the Committee that, having introduced this ill-judged tax at 2 per cent., a couple of years later the Labour Government raised it to 3.5 per cent. There was very little attempt to justify the tax in terms of what it would do for investment or jobs. It was just a crude response to a crisis that had been created by the profligacy of that Government. Opposition Members who doubt that would do well to reflect on the debates. They will see that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) picked up a point as a result of which the right hon. Member for Leeds, East (Mr. Healey) admitted that the introduction of the tax would almost immediately result in a loss of 10,000 jobs.

The hon. Member for Stoke-on-Trent, Central (Mr. Fisher) put to me a series of questions; he asked whether I could say over what length of time there would be an increase in jobs. Of course I cannot. The economy is not such a precise machine as those who adhere perhaps to Marxist philosophy would believe—and I do not know the philosophical or economic stance of the hon. Gentleman. There is an area of imprecision. There is a range of factors that even Ministers, with all the resources of the Treasury at their command, should be unwilling to forecast, and I will not satisfy the hon. Gentleman's curiosity.

Mr. Fisher

Of course I can see the complexity of the issue. Will the right hon. and learned Gentleman then agree that if it is impossible to forecast accurately and responsibly the Chancellor should not have been so bold as to make rhetorical claims for a reduction in unemployment?

Mr. Rees

I shall associate with my right hon. Friend's rhetoric in the best sense, because I believe that it is founded on good sense and on the likely outturn of events.

Various points were made by Opposition Members in an endeavour to distance themselves from the simple proposition that commands support from both sides of the House that this is a worthwhile provision because national insurance surcharge is a bad tax. It takes a Conservative Administration to deal with it. It is not often that I carry the whole Committee with me. Therefore I suppose I must savour this moment of exquisite pleasure.

Mr. Bermingham

Will the Chief Secretary please explain to the Committee why, if it is such a bad tax, it is proposed to continue imposing it on the public sector parts of the economy?

Mr. Rees

The problem with the hon. Gentleman is that he so often comes in two thirds of the way through a series of debates. Clearly he was not here for the debate on the amendment that was moved earlier by the Opposition. [Interruption.] Perhaps the hon. Gentleman will contain himself now, and on another occasion he might care to listen to the debate.

I know that he is an agile debater. We know of his exploits in the police courts and we know that he is a man of a silver, agile tongue whose charms are widely appreciated inside and outside the House. All I can say is that perhaps it would advance debate if he were to listen to all the speeches.

If I may return to the subject which should be engaging our attention—

Mr. Terry Davis

Yes, please.

Mr. Rees

The hon. Member for Birmingham, Hodge Hill (Mr. Davis) will recognise that I have been sticking to the clause that we are supposedly debating and that I have generously given way so far to any hon. Gentleman who has sought to intervene if he has had a point that bears on the debate.

Mr. Terry Davis

The Chief Secretary has made some personal comments about my hon. Friend the Member for St. Helens, South (Mr. Bermingham). I shall speak later in the debate.

6 pm

Mr. Rees

My comments were limited to the intervention of the hon. Member for St. Helens, South (Mr. Bermingham) and I suspect that he is well able to look after himself. I cannot understand how the hon. Member for Hodge Hill can misconstrue my remarks. Perhaps he will explain later. I prefer to revert to clause 113.

The clause is designed to abolish a tax that is universally acknowledged to be a bad tax and is long overdue for abolition. Labour Members have been taking us to task and claiming that there have been no moves on this front since 1979. They seem to be oblivious of the fact that the tax has been steadily reduced.

Dr. Oonagh McDonald (Thurrock)

The Chief Secretary continually claims that the reduction in the surcharge and its proposed abolition will lead to an increase in the number of jobs. Where are the jobs?

Mr. Rees

I have so far been dealing with the background of the tax. I do not recall whether the hon. Lady supported its introduction. If she had been listening to my exchanges with the hon. Member for Stoke-on-Trent, Central (Mr. Fisher), she would have heard the answer to her question.

The tax has been steadily reduced since the Conservative Government came to power in 1979. Finally, it comes to be abolished. I do not believe that the pleasure of the House at our proposal need be qualified. It is a good proposal which deserves universal support.

Over the past five years., we have been engaged in a process, which will be completed by the Bill, of restoring £3 billion to employers. That money will be available for investment and I was delighted to hear the hon. Member for Stoke-on-Trent, Central say that it may increase profits. If employers are so minded, the money could enlarge their scope for taking on more employees. More important, it will lower unit costs, increase our industry's cost competitiveness, provide a fillip for exports and leave companies with greater resources for investment and, ultimately, sustained improvement and sustained jobs. Surely those are worthwhile objectives. I believe that they should commend themselves to both sides of the Committee.

In opposition, the Labour party is full of frothy rhetoric about industry and employment. It takes a Conservative Government to do something about those matters. On that basis, I commend the clause to the Committee.

Mr. Bermingham

I listened carefully to the Chief Secretary's comments about me. It has always seemed to me utterly counter-productive to go down the road of personal exchanges, because one does not make good debating points that way.

I concede that I missed the previous debate. I was talking to some Iranian students about their claims that Iranians had been beaten up in their embassy; I do not intend to go down that road either.

I took the trouble to ask the Opposition Front Bench spokesmen whether an explanation had been given of the salient fact that the surcharge was to be removed from the private sector but not from the public sector. I thoroughly agree that the removal of the surcharge from the private sector is a good thing. I used to be an employer in the service sector and I know that the surcharge created problems and was a disincentive to take on staff.

I sometimes make interventions to save making speeches, because I find that a much more economical way to proceed, and I asked earlier why it was necessary to wait until October to remove the surcharge. I pointed out that in June VAT will be imposed on the glass industry, which is close to my heart as it is centred in my constituency. Why cannot the surcharge be removed in June, as a quid pro quo which might help industries in my constituency?

I checked whether anyone had explained why the public sector is still to suffer the burden of what everybody agrees is a rotten tax. The Chief Secretary was right to say that the removal of the surcharge will lower unit costs. The removal of the surcharge in the manufacturing public sector—the steel industry, for example—would also lower unit costs and help that industry to be competitive.

The removal of the surcharge from the rest of the public sector might contribute towards a reduction in the rates burden on industry, which would reduce the unit costs of manufactured goods and make them more competitive.

I cannot understand why the tax is still to be imposed on the public sector. Is there some blind prejudice which benefits the private sector at the expense of the public sector? I hope not, because if we are to have government based on prejudice, we shall not have a good Government —not that I think that we have a good Government; we have a pretty awful Government, as I have said ever since I was elected to the House.

Let us at least be told the logic and the reasoning behind the decision to provide a benefit for the private sector—I welcome the effects that it will have on investment—but to deny that benefit to the public sector. It is not too much that an ordinary Back Bencher should ask such a simple, fundamental question. I sought to do it by way of an intervention and I got no answer, but merely comments on my debating technique. So be it. I now ask the question on my feet.

I believe that open government is valuable government. It means replying to important questions. My question is simple. Why should a tax that is of no use to anyone and is a disincentive and increases unit costs be removed from the private sector, but not from the public sector?

Mr. Terry Davis

I shall not comment on the personal remarks of the Chief Secretary. It is possible that he did not realise what he said, but I suggest that if he reads Hansard he will agree that his choice of language was infelicitous. I know that the right hon. and learned Gentleman is a sensitive man and I think that, on reflection, he will agree that his remarks were unfortunate. If he has any doubts about that, I suggest that he talks to some of his colleagues on the Government Front Bench. The Chief Secretary criticised my hon. Friend the Member for St. Helens, South (Mr. Bermingham) for having missed our earlier debate. I can tell my hon. Friend that he did not miss much in the reply of the Chief Secretary.

The Chief Secretary teased the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) by asking him whether he wished to distance himself from the leader of the Liberal party. The hon. Gentleman asked the Chief Secretary whether he ws joking. The Chief Secretary was not joking. He was quoting selectively from history. A good defence can be made for the Liberal party's attitude to the introduction of the tax, but it is for the hon. Gentleman to make it.

The hon. Member for Harborough (Mr. Farr) seemed to have misunderstood the import of speeches made by Opposition Members. He said that we had claimed that there was nothing much to welcome in clause 113 and that my hon. Friends had said that the clause was not necessary in their constituencies. It cannot be emphasised too strongly that that claim is simply not true. As my hon. Friends the Members for St. Helens, South, for Middlesbrough (Mr. Bell), for Wrexham (Dr. Marek) and for Stoke-on-Trent, Central (Mr. Fisher) made clear beyond doubt, the Opposition welcome the clause.

The hon. Member for Vale of Glamorgan (Sir R. Gower) recognised that we welcome the abolition of NIS but said that we had some strange addenda. That is not so. Our reservations about what is happening concern the refusal of the Government to extend the benefit of abolition to local authorities and nationalised industries. We understand the reason for that prejudice on the part of the Government, but we do not agree with it.

My hon. Friend the Member for Middlesbrough referred to exports by the steel and coal industries. He is quite right. If the abolition of the NIS is supposed to encourage exports, that encouragement should be given to the nationalised industries as well as to the privately owned industries.

The gas and electricity industries must continue to pay the surcharge. The price of gas and electricity adds to the costs of exporting industries, and it would certainly help those industries if gas and electricity could benefit from the abolition of the surcharge. I do not exaggerate that claim. The gas and electricity industries are not labour-intensive and the benefit would therefore be small. Nevertheless, it would be helpful.

Mr. Peter Rees

The hon. Gentleman seems to be suffering from a misconception. Does he not appreciate that the surcharge will be abolished even for nationalised industries, and that the external financing limits for this year have been set on the basis that the NIS will be charged? That is the very simple reason for the difference. Had I not assumed that the hon. Gentleman had understood it, I should have explained it at greater length.

Mr. Davis

I understand the position. I appreciate that the EFLs are based on the assumption that the surcharge will remain. I understand from a press release issued at the time of the Budget that EFLs will take account of the abolition of the surcharge from next year and that therefore there will be no benefit from the abolition for the industries concerned.

If the Chief Secretary can tell me that those industries will benefit from reduced labour costs as a result of the abolition I shall happily give way to him, but my understanding is that the Government are to ensure that no benefit accrues to the nationalised industries. They will do that by adjusting the EFLs during the next financial year. The Chief Secretary is nodding in agreement. The Government are taking steps to ensure that publicly owned industries will derive no benefit whatever from the abolition of the surcharge.

6.15 pm
Mr. Fisher

What the Chief Secretary has said is correct about nationalised industries with a positive EFL, but some industries have a negative EFL, and that factor has not been taken into account. Those industries are not beneficiaries of the Government's policies. They are paying tax to the Government.

Mr. Davis

I am not sure whether I agree with my hon. Friend on that point. I believe that the EFLs of all nationalised industries—whether negative or positive—have taken account of the effect of the surcharge. None of those industries, whatever the EFL, will ever derive any benefit from the abolition of the surcharge. We believe that that is wrong. We do not begrudge the benefit to private industry. If we had done so we should not have moved our new clause on the subject last year. We want publicly owned industries to benefit, too.

Several Conservative Members, including the hon. Member for Harborough, reminded us that the surcharge was introduced by a Socialist Government. The hon. Member for Vale of Glamorgan added selective employment tax to the list of charges, and the Chief Secretary repeated it. I shall make the Government an offer. If they will stop referring to the NIS and the SET as Socialist taxes, I promise never to refer to other taxes as Tory taxes. Value added tax was introduced, and nearly doubled, by Conservative Governments, but I have never called it a Tory tax. It was introduced by a Conservative Government and reduced—though not abolished—by a Labour Government.

Mr. Cockeram

VAT was introduced as a replacement for purchase tax, which was abolished at the same time, whereas the SET and the NIS were additional taxes imposed on the employment of labour. They were not substitutes for any other tax.

Mr. Davis

The hon. Gentleman's point is entirely accurate, unlike some of his earlier remarks. On the other hand, if we look back to a period long before the hon. Gentleman or I came to the House, we shall find another example of a Tory tax.

Mr. Farr

Window tax.

Mr. Davis

We need not go back that far. I was thinking of income tax, which was introduced by a Conservative. It was introduced by Pitt to pay for a war. The war was over long ago, but we still have the tax. It was temporarily abolished, but reintroduced. Income tax could be described as a Tory tax, but it would be rather hard to do so today, bearing in mind the number of Labour Governments who have not abolished it. If Government Members will stop referring to taxes introduced by Socialist Governments as Socialist taxes I shall not describe other taxes as Tory taxes.

The hon. Member for Harborough made another mistake. He seemed to think that the Opposition intended to vote against the abolition of the surcharge. He is totally mistaken on that score.

The hon. Gentleman also said that the surcharge had been responsible for the decline in exports. The hon. Gentleman exaggerates. I agree that it has had an effect on our exports and on the competitiveness of privately owned industry, but to say that it has been responsible for the decline in manufacturing exports is to exaggerate.

Mr. Farr

I was merely repeating what had been said to me by the leaders of various industries in the city of Leicester. They have found the tax a great burden which has blunted the edge of their competitiveness when they have had to submit critical quotations for contracts overseas.

Mr. Davis

I accept the hon. Gentleman's explanation, but if those business men said that that NIS was responsible for the decline in British exports in recent years they were exaggerating. If that was so, why have the Government waited so long to abolish the surcharge? The hon. Member for Harborough did not vote for its abolition when he had an opportunity to do so a year ago. If the NIS is indeed responsible for taking the edge off the competitiveness of British exports, I am surprised that the hon. Gentleman did not extend his criticism to the national insurance contribution, because the same argument logically applies to it. I do not believe that he would want to go so far.

The hon. Member for Croydon, South (Sir W. Clark) argued that the money that had hitherto been paid by way of the NIS would now increase profits, and therefore the rate of return on investment. He said that the rate of return on investment was important in increasing the amount of investment. We all agree that the rate of return on investment is important, but he exaggerated the point. A much more important factor in the level of profits and return on investment must be the amount of demand in the economy. Several of my hon. Friends have made the valuable point that the size of the market is much more important than the NIS—smaller markets mean lower investment. As my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) observed, the Government have pursued policies of deflation that have reduced the size of the market and demand and have therefore reduced profits and the return on investment.

The hon. Member for Lewisham, West (Mr. Maples) justifiably asked whether the NIS had ever been good for employment. By implication, he is correct, as it was never good for employment. The Chief Secretary reminded us that my right hon. Friends gave the relevant figures when it was introduced. They agreed that the tax would cost 10,000 jobs, but they also pointed out that it was a matter of choice. In the package of measures which they imposed in July 1976 they had to choose between a national insurance surcharge or an increase in VAT. They calculated that the necessary increase in VAT would have been 3.5 per cent., which would have cost 50,000 jobs—five times as many as the NIS. They could have reduced public expenditure, but if they reduced it by an additional £1 billion—they intended to reduce it by that amount anyway—the total reduction of £2 billion would have led to cuts in public services which they were not prepared to countenance and cost even more jobs.

As the Chief Secretary reminded us, the evidence was given to the Select Committee. I suggest that the hon. Member for Lewisham, West should read that evidence. The total package was estimated to cost between 150,000 and 160,000 jobs. If the introduction of the NIS was responsible for the loss of 10,000 jobs, the cost of cuts in public expenditure would have been between 140,000 and 150,000 jobs. It also follows that if the Labour Government had chosen to cut public expenditure, as advocated by the Conservative Opposition, there would have been an even greater reduction in jobs—about 300,000. I do not believe that the hon. Member for Lewisham, West would have supported that, at least in his more reflective moments. However, Conservative Members of the day advocated cuts on that scale.

The hon. Member for Lewisham, West also pointed out that unemployment doubled under the previous Labour Government. We can all quote statistics, but I simply remind him that unemployment has trebled under the Conservatives. Indeed, in absolute terms, it has quadrupled.

We all agree that the tax reduces employment and competitiveness. The hon. Member for Lewisham, West incorrectly suggested that the Labour party advocated its abolition four or five years ago. That also is an exaggeration. The hon. Gentleman also argued that if the tax had been abolished four or five years ago the extra money would have gone in increased wages, whereas now that will not happen. Three years ago the Labour party urged that the NIS should be reduced, and last year urged that it should be abolished. If abolition increases some wages, that should be welcomed. Many people receive low wages and if abolition of the NIS raises the wages of the low paid, that is more desirable than an increase in profits.

The Opposition welcome clause 113. It is better late than never. The Chief Secretary claimed to have carried the Committee with him. That was another of his pardonable exaggerations. The truth is that it is the Opposition who have carried the Committee. We have not persuaded the Government to do everything—we have not persuaded them to extend the benefit to local authorities or nationalised industries—but that was to be expected. At least and at last we have persuaded the Government to give this small help to manufacturing industry, and we shall certainly vote for clause 113.

Question put and agreed to.

Clause 113 ordered to stand part of the Bill.

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