HC Deb 21 February 1985 vol 73 cc1185-6
6. Mr. Maxton

asked the Chancellor of the Exchequer if he has made any estimate of the effect of a £1.5 billion income tax cut on the level of unemployment.

The Financial Secretary to the Treasury (Mr. John Moore)

Income tax cuts will encourage enterprise and effort, facilitate lower wage settlements, and help to provide the conditions for improved economic performance and a sustainable increase in employment.

Mr. Maxton

Will the Minister please answer the question and give his estimate of the number of people who will be taken off the unemployment queues as a result of tax cuts? Does he agree that talk about incentives when 4 million people are unemployed is an insult to the unemployed, since they want work but it is not available? They are not shy of work. Would it not be better to put the money back into public capital expenditure instead of giving it away to the rich?

Mr. Moore

The weakness in our economy is not a lack of demand or a lack of public expenditure. Our weakness relates to our inability to compete effectively with foreigners in domestic and international markets. Tax cuts will help not only to stimulate enterprise and effort but to encourage lower wage settlements and to make our economy more competitive.

Mr. McCrindle

If a substantial part of the £1.5 billion were used to reduce the cost of employment by reducing further employers' national insurance payments, is it not arguable that that would have a better effect on unemployment than capital investment or reduction of personal taxation?

Mr. Moore

My hon. Friend has argued that point before, and my right hon. Friend the Chancellor will have heard his question. I am sure that my hon. Friend is pleased that, in the past five or six years, employer costs as a percentage of total taxation have decreased from 14 plus per cent. to 9 per cent. That shows the Government's recognition of the burden.

Dr. Bray

Although Treasury Ministers are quite mistaken in thinking that income tax cuts are the most effective means of stimulating employment, does the Financial Secretary, within his own terms of reference, agree with the Institute of Fiscal Studies that the worst way to improve incentives is to raise thresholds?

Mr. Moore

No, I do not agree with that suggestion. It has an attractive simplicity and I understand some of the points that the institute makes. Bearing in mind our exceptionally low thresholds, I thought that it was common ground that they always merit attention. I shall draw what the hon. Gentleman said to the attention of my right hon. Friend, who was listening carefully.

Mr. John Townend

Does my hon. Friend agree that but for the miners' strike we would be looking forward to much larger tax deductions in the Budget and therefore a much greater effect on employment? Will my hon. Friend remind taxpayers that if the Labour party had not given Arthur Scargill such solid support they would have more money in their pockets?

Mr. Moore

My hon. Friend is right to the extent that our gross domestic product grew by 2.5 per cent. last year —something more than 1 per cent. less than it might have grown. The strike has clearly had a significant impact on my right hon. Friend's ability to carry forward our policies. I hope that all hon. Members want there to be an end to this unnecessary dispute.

Mr. Terry Davis

How many jobs will arise from using £1.5 billion to cut taxes? Does the Minister not know, or is he refusing to tell us?

Mr. Moore

The simplicity that is evident in the hon. Gentleman's question sometimes makes me despair. To the extent to which the economy suffers from supply side difficulties, as opposed to demand difficulties, any attempt to reduce the taxation burden will increase job opportunities. Simple analysis of mathematical models fails to understand how supply side effects are improved by competition through tax cuts. Failure to understand that is at the base of the Opposition's inability to understand the Government's economic policies.