TAXATION OF PROFIT RELATED PAY (Hansard, 14 July 1987)

§ Mr. Austin Mitchell

I repeat a question to the Minister which he did not answer in the debate on clause I stand part. I should have thought that, during the past 10 years, the profits of British companies have been related not so much to the efficiency of companies, although clearly that is a factor, as to the Government's macroeconomic running of the economy. The pattern seems to be that if the pound is overvalued, as it was grievously from 1979 to 1982, profits are squeezed, firms go bankrupt and jettison everything that can be thrown overboard and a hard time is had by all. But if the pound comes down, as it manifestly has come down since 1983—by about 20 to 25 per cent. from the rate prevailing at the end of 1982—profits reemerge, especially in firms which are exporting. I am talking primarily about manufacturing, but it also affects the service sector. Profits have boomed because firms are competitive because exports pay and because they can squeeze more profits out of exports.

In neither case is this essentially related to the performance of the firm or the work force. Therefore, 1003 under this scheme, workers are being rewarded for the consequences of the Government's macroeconomic policy instead of their endeavours. The rewards are coming from increased taxation, because the burden must be spread on those in the public sector who will get no benefit from this.

If profits increase after a devaluation, pay that is related to profits will increase after devaluation. Therefore, we shall be in a less effective position to do what is necessary after a devaluation—keep costs down. After the 1967 devaluation, the Labour Government squeezed costs to free resources for exports and to stop competitiveness being eroded. But this proposal would do exactly the opposite. We shall be pumping out more money, increasing take-home pay and accelerating the rate of inflation simply because the consequences of the Government's profit-related pay scheme will put more money in workers' pockets. How does the Minister answer those points?

§ Mr. Brooke

I am delighted to welcome you to the Chair, Mr. Knox. The hon. Member for Great Grimsby (Mr. Mitchell) spent his speech on clause I stand part accusing the Government of overselling this legislation. I would be the last person to oversell this legislation or the achievement of the Government in providing the framework for the economic prosperity that we have been enjoying in recent years. But I am grateful to the hon. Gentleman for paying tribute to the Government for the success being enjoyed by the economy and by individual companies within it.

This is a wider question than the issues covered in clause 2, so I am responding generally without notice. My recollection is that, at the microeconomic level, industrial and commercial corporations are enjoying a higher rate of return than they have enjoyed since 1964. The same is true for manufacturing companies since 1973. The quarter of a century that is embraced by the figures for industrial and commercial corporations saw several Governments of different colours, and it would be wrong to generalise about the pattern during those 25 years. All that I can say is that 1 am delighted that, within the framework which the Government have provided, the profitability and returns being secured are the highest for nearly 25 years.

The hon. Member for Great Grimsby gave us a trailer of the issues relating to the private and public sectors which we shall debate when we come to Opposition amendments as well as an amendment from my hon. Friend the Member for Beaconsfield (Mr. Smith). It would be a mistake for me to give the hon. Gentleman a general answer. At the microeconomic level, greater profitability in corporations, accompanied by profit-related pay, will ensure a greater commitment among the entire work force to the success of the company and is likely to increase the prosperity of those who work in the company.