HC Deb 24 January 1985 vol 71 cc1118-9
6. Mr. Baldry

asked the Chancellor of the Exchequer how he measures the impact of tax cuts on the creation of new jobs.

Mr. Lawson

New jobs are created by successful companies and eager workers. Lower taxes encourage enterprise and effort and so help to secure that success.

Mr. Baldry

I do not suppose that it has gone unnoticed by the man in the Banbury market place that those countries which have thriving economies—[HON. MEMBERS: "Question."]—and which are creating jobs, such as Taiwan, Singapore and South Korea, which were referred to yesterday by Lord Stockton, are exactly the countries that have low tax thresholds. What seems to be causing concern to some commentators—

Mr. Speaker

Order. May I ask the hon. Gentleman to ask a question and not to give a preamble of his own views?

Mr. Baldry

Is my right hon. Friend aware that what is of concern to some commentators is that as soon as people get more money in their pockets they will spend it on imports? Does he agree that that matter is subject to objective test? Will he tell us what inquiries the Treasury is making?

Mr. Lawson

My hon. Friend is right in saying that a proportion of any increase in disposable income, whether it is achieved through an increase in pay or through a reduction in taxes, will be spent on imports. Of course, we do a thriving trade both ways and our balance of payments is likely to be in balance, or even in surplus, this year, despite the effects of the coal strike. These matters are taken into account when the Treasury starts to make its forecast.

As for low taxes, my hon. Friend is on to an even more important point. It is striking that, apart from the countries which he mentioned, among the major industrialised countries in the world the two most successful, the United States and Japan, are the ones which have the lowest levels of taxation as a proportion of gross domestic product.

Mr. Tony Lloyd

Will the Chancellor of the Exchequer tell us how many jobs will be created by means of tax cuts? More important, will he tell us how many more jobs will be destroyed by public spending cuts in housing and all the other areas of public provision? Will he say how many more jobs will be lost because of expenditure cuts than will be gained by giving tax cuts to his rich friends?

Mr. Lawson

The Government propose that public expenditure should remain steady in real terms over a period of years and should not be reduced. That is what the Government's plans clearly show. It is significant that we have had steady growth at about 3 per cent. a year since the trough of the recession in 1981. The number of those who are employed or self-employed in Britain is growing, whereas it is falling in many of the countries of our European competitors.

Mr. Nicholls

Does my right hon. Friend agree that it is untrue to suggest that there is no academic opinion in support of his view that tax cuts help employment prospects? Is he aware of the work done by the employment research institute of Warwick university, which concluded that tax cuts were among the most effective way of promoting proper employment prospects and reducing inflation? It concluded that tax cuts constituted a substantially more effective way of achieving that end than public sector expenditure?

Mr. Lawson

My hon. Friend is correct. The conclusion to which he refers has been shown by Warwick university's model and study and by Liverpool university's model and study. Of course, different computer models produce different results. I regard all computer simulations with a considerable pinch of salt. These models tend to concentrate on the demand side of the economy rather than on the supply side. Secondly, we cannot buy jobs. If that were possible, it would be a simple matter for every country with unemployment to buy its way out. We shall create jobs and reduce unemployment by having a more dynamic economy, by improving the supply side and especially by reducing rigidities in the labour market.

Dr. McDonald

Is the right hon. Gentleman aware that the results of the study of the London Business School show unequivocally on a pound-for-pound basis that public spending creates more jobs than do tax cuts? Will he send the Government's chief economic adviser back to the London Business School so that he can catch up with its latest economic thinking, and will the right hon. Gentleman then take his advice?

Mr. Lawson

The London Business School's simulation examined Government employment, not Government spending. It found that by spending more money on recruiting more civil servants we should get more people in jobs, which is obvious. If the hon. Lady thinks that that is the best way of creating a strong economy, I must tell her that she is mistaken.