§ 3.12 p.m.
§ Order of the Day for the Second Reading read.
§ THE PAYMASTER GENERAL (THE EARL OF SELKIRK)My Lords, on November 1 last we had a fairly full discussion on the economic position in this country, and at that time we examined the events which led up to the Autumn Budget and the proposals which Her Majesty's Government put forward at that time. We also examined in some detail those proposals which now form the contents of the Finance Bill which we have before us. The Bill has come to us with no radical alteration to its main structure. I am given to understand that there is no strong desire in your Lordships' House that I should recapitulate either the history or the arguments which led up to this Autumn Budget. If that is correct, while I shall, of course, be delighted to answer any of your Lordships' questions, if I can do so, it might be of interest to the House if I stated shortly and factually the present economic position in the light of the latest facts which we have available.
It is not to be expected that within two months of the supplementary Budget any definite results should be available. I am quite sure that mastering the inflationary pressure will take a considerable time and demand continuing determination, but it is satisfactory to note that our losses in gold and dollars in October and November were much less than they had been over the previous three months; moreover sterling has shown a steady increase in strength since the Budget was introduced, and has now been over parity for a month. Further, there has been a rise in transferable sterling rate. We have not yet seen in our overseas trade figures the improvement that we want in the gap between imports and exports, though it is satisfactory to note that exports, particularly to the dollar areas, have been improving slightly.
Turning to the internal economy, I think it is fair to say that most of the information here, which has come to hand in the last six weeks, relates to the period before the Budget was introduced; but all this evidence only goes to confirm that the economy is overloaded and that demands upon it must be cut down. The 349 shortage of labour persists. Unemployment in October and November was the lowest for those months since the end of the war, and was far exceeded by the number of unfilled vacancies. Retail trade is booming and it is clear that there is a very large volume of investment plans still to be carried out. If I might give an example, I would point out that the number of industrial buildings started in the first six months of this year was 40 per cent. higher than in the last half of the previous year, while in the machine tool industry, orders, at any rate until quite recently, have been lengthening. It is clear that it is essentially demand which has overloaded the economy, which has been driving up wages and prices and which is distracting attention from the export market.
In these circumstances measures of restraint are undoubtedly necessary and, besides the fiscal measures which are already in this Bill, great importance must continue to be attached to maintaining the pressure of credit restriction through the bank s. The reduction in bank lending so far achieved is all to the good, but it is clear from the economic situation that this must be maintained and carried furthet. There is one way in which we can all contribute, and that is by higher savings; and it is to be hoped that full use will be made of the improved facilities which were announced nearly two months ago.
We are not alone in facing these problems. If we look abroad we find that other industrial countries are experiencing in some cases a very rapid expansion, and have had varying degrees of excessive demand to counter. Measures similar to those we have taken in this tour try have been imposed in Denmark, Norway and Sweden, and credit restrictions of one kind or another have also been imposed in Germany, the Netherlands, Sweden, South Africa and the United States of America. This fact in no way eases our obligation to face squarely the problem of inflation as it exists in this country to-day—inflation which might undermine the structure of the social services which we have built up so laboriously and might undermine the standard of living in this country, which is among the highest in the world. I am quite sure that we cannot meet this threat unless we are prepared to make some sacrifice in doing so, and that if 350 the Government were not prepared to ask the people to make sacrifices, then inevitably inflation would continue. This Bill seeks to spread the burden fairly broadly across the whole community. I beg to move.
§ Moved, That the Bill be now read 2a.— (The Earl of Selkirk.)
§ 3.18 p.m.
§ LORD PETHICK-LAWRENCEMy Lords, the noble Earl who has just addressed us is quite right in saying that, in the main, we covered the ground on this Second Reading of the Finance Bill in the debate on the economic situation which we had six or seven weeks ago; but he is wrong in thinking that the facts which he has been kind enough to give us to-day will impress us very much—certainly not those of us on this side of the House—or alter our view regarding the proposals of the Chancellor of the Exchequer, which we then knew in the budgetary form as they were conceived in the Chancellor's brain, and as we now have them, clothed with flesh and blood, in the Finance Bill. With regard to some of the facts of which the noble Earl was speaking to-day, I will make only one comment. He explained that one of the troubles was the excess of demand over supply. On that, I would only remind Members of your Lordships' House of the fact that every day, and nearly every hour of the day, the Government's set-up, I.T.A., is displaying seductive pictures of various articles and stimulating in that way the very demand which the noble Earl has been deploring.
The growth of this infant of finance from the Budget stage to the present stage has not been a very happy one. I am sure that the noble Earl himself does not expect that we, on these Benches, shall have changed our views, or that we love the poor little infant any more than we did in those days. And not only that—unless I am mistaken, there are quite a large number of people not of our Party but of the Party of the noble Lords opposite who have not a much higher opinion of this Bill than we have ourselves. In spite of that, I have no intention of repeating the case against the objects of these financial proposals of the Chancellor of the Exchequer which we put clearly before your Lordships' House in that debate in November, and, so far as I ant concerned, I shall not oppose the 351 intention of the Government to carry the Bill through all its stages on this occasion—if that is their intention. All I will say is: let the unloved thing go forward to its own predestined end.
§ 3.23 p.m.
§ LORD TEVIOTMy Lords, I have no doubt that your Lordships have all read the Finance Bill which we are now discussing. Having read it, I feel sure that noble Lords all understand it. This reminds me of a certain episode which occurred in your Lordships' House some years ago. We were in Committee on a certain Bill (I think the noble and learned Earl, Lord Jowitt, will remember the occasion) and a point was reached where we were asked to agree that a certain clause should stand part of the Bill. My recollection is that the noble and learned Earl rose in his place and said: "Before we do that ought we not to understand what this clause is about. I do not know whether any noble Lord does." And it appeared that no one did. I think it is important, when these very complicated questions of finance come before us, that we should have, in the simplest possible language, an explanation, of what they all mean. I am not a highly educated man, but even if I had taken a "Double First" in mathematics, the same would apply. I really cannot see how you or I or any ordinary individual can be expected to understand this Bill. There are some clauses which have almost pages of explanation, all very complicated, going back to Finance Bills of the 'forties and then on to some of those of the 'fifties and so on.
I feel that if we are to get the whole nation to do as my noble friend has suggested—which is everything that we want —it would be well to give them something in the shape of a Bill like this written in language they could read and understand. That would be an enormous incentive to people to say: "Now look here, I must do something about this." But it is quite impossible for them to make head or tail of this document. I know that drafting can be a matter of great difficulty. When one writes an article or prepares a speech, or even in merely making notes, one often says to oneself, "Now does that really say what I mean? I hope it does." We frequently find great difficulty in deciding how we 352 should put what we have to say into words.
I should like to give your Lordships an instance relating to the operation of purchase tax. A small industry was doing about 70 per cent. Export, and there was no purchase tax at all on the products. The 30 per cent. of the products sold in the home market were not subject to purchase tax. This particular concern, owing to the big export business they were doing, were in process of building a new factory. Along comes this new purchase tax, which meant a 30 per cent. tax on the products of the industry. That immediately stopped the building of the new factory, which was by then half built, and also greatly increased the prices of the industry's export goods—at a time when they were hoping to compete advantageously in the markets of the world.
Various discussions have taken place lately on the question of not having purchase tax at all. I understand that there are quite a number of countries which do not have purchase tax; they have what they call a "sales tax." This is perfectly simple in operation, as there is a uniform tax on every product that is produced throughout the whole country. What have we here? We have a 10 per cent., 20 per cent., 30 per cent., or even as much as 90 per cent., tax on some of the goods produced in this country, which involves extraordinarily difficult and complicated calculations for all those engaged in business throughout the country. I hope that a sales tax, which I understand is operating quite satisfactorily in other countries, and which is much less complicated than purchase tax, will have the consideration of the Treasury and the Chancellor of the Exchequer. This "squeeze" is all very well, but I feel that if it were applied a little to the Government's own business, things might be better than they are at the present time. It seems to me that we are living in days of exhortations and directions to private undertakings, and that if only we could get at the Government's own business, and particularly the nationalised industries, it would be setting a tremendous example to the rest of the country. I am strongly of the opinion that the Government are right to impose these rather awkward and hampering restrictions on the local authorities, and I hope that the local authorities will—indeed I 353 feel sure they will—conform to these necessary restrictions.
One other thought comes to my mind; it relates to the controversial question of pots and pans. I do not know whether we export a great many pots and pans (I admit that I am very ignorant about this), hut, if we do not, what is the object of putting this purchase tax on these necessities of the people of the country? I agree that if it helped exports it might be a wise thing to do, but I cannot for the life of me see why it should. Of course, we in this House cannot do anything about the Finance Bill except say a word or two that comes into our heads, to try to see that something satisfactory will be carried out which will help the country in the present serious situation, I was immensely interested in what my noble friend Lord Selkirk said. It was most instructive and informative. I hope that what he said will prove to be right and that the policy he explained will gradually extricate us from the difficult situation in which we find ourselves.
§ 3.31 p.m.
§ LORD BARNBYMy Lords, I should like to extend my tribute to the noble Earl, Lord Selkirk, for the happy and effective way in which he moved the Second Reading of this Bill. He chose a method which was effective and which occupied the least part of the time of the House. As he rightly said, in the debate in November the whole broad system of the country's fiscal policy was reviewed, and it would be inopportune to repeat any of that now; and the noble Earl confined himself to domestic issues. I think it would be right if noble Lords were to take this occasion to express their opinions on outstanding matters, and it would be a happy thing if noble Lords who are eminent industrialists were to address your Lordships briefly with reference to some of the important points raised in the autumn Budget.
I seek your Lordships' indulgence to draw attention to ore point—namely, the obsolescence of productive equipment. True, this was dealt with by the Royal Commission on Taxation which reported during the summer, but no recommendations were made and industrialists were left in perplexity as to what should be done. The purpose of my intervention is to draw attention to the point that taxation takes a large part of a company's 354 earnings, while plant of all kinds—in regard to ships there is the same problem —is progressively running down and requires progressive replacement, while costs are rising steeply. Costs include obsolescence allowances on heavily written down plant, and by exporting at selling prices based on these costs it means that in many industries we are really exporting our accumulated fat. We are giving our overseas customers the advantages of these low prices and in many cases that does not permit profits to be made sufficient to build up reserves and to finance replacement. I think it is right that reference should be made to this important domestic arrangement, which affects our exports, when an opportunity like this presents itself.
I would make one other point before I sit down. My noble friend Lord Teviot ventured into an analysis of purchase tax. I think every Member of your Lordships' House could point to anomalies in the effects of a wide range of purchase taxes, and the list would be long enough to extend this Sitting late into the evening. I would make this comment: it would seem that purchase tax on apparel is inopportune, and that it is still mote unreasonable to discriminate between vegetable arid animal fibres.
§ 3.36 p.m.
§ LORD WISEMy Lords, the noble Earl, Lord Selkirk, was kind enough to say that he would give us any help he could in reply to any questions we might raise.
§ THE EARL OF SELKIRKI said that I would try to answer any questions.
§ LORD WISEI have a homely little matter I should like the noble Earl to deal with, and would call his attention to Clause 10 (4). I have been trying to understand what is exempt and what is included in that subsection. It is not clear from the wording of the subsection to what section in the previous Act it refers. Clause 1 (2) refers to the Finance Act, 1948, and in my innocence I looked up the Finance Act, 1948, to try to match this Clause 10 (4) with the items referred to in paragraphs (g), (h), (i) and (j). I could not find any subsection in the Finance Act, 1948, which refers to paragraphs (i) and (j). Are the items in the list of exceptions at the bottom of page 11 exempt from tax or subject to tax? Are 355 they exceptions from some previous exceptions or are they exempt from tax? If the noble Earl could answer that question off-hand I should be glad; but if it is impossible to do so at the moment, I would be satisfied with an answer in the future.
§ THE EARL OF SELKIRKMy Lords, I think the noble Lord is asking a lot to expect a Minister to interpret a Finance Bill off-hand on Second Reading. Subsection (4) refers to gas heaters and electric heaters, and they are exempt.
§ THE EARL OF SELKIRKIt really is not fair to ask anyone to interpret a Finance Bill on a Second Reading debate over the Box, without warning. However, I am anxious to help the noble Lord, and I will try to do so. What is it that he wants to know about—sheets and blankets?
§ THE EARL OF SELKIRKThey are "designed for heating water by electricity or gas." Electrical or gas heaters are exempt. I think I have said that already.
§ LORD MATHERSThe noble Earl would have a poor heating blanket if there was water in it. The electric blanket is quite dry.
§ THE EARL OF SELKIRKI do not think there is any confusion between hot water systems and electric blankets of which I know. But perhaps it was not in the mind of the noble Lord. I think I said that I am certain that blankets are exempt, but I want to be sure about electric blankets.
§ LORD WISEI am sorry to confuse the noble Earl, but this particular subsection confused me in its wording. If he looks at the subsection carefully I think he will agree that it is rather awkwardly worded and uncertain in its meaning if one has not got the proper reference.
§ THE EARL OF SELKIRKI can confirm that electric blankets are subject to 30 per cent. tax. I have a note of most of the articles which are exempt from tax, if the noble Lord wants to know them. There are such articles as sheets 356 and blankets, young children's clothes, nursery furniture, brushes and brooms, shopping baskets, household cleaning materials and gas and electric cookers. I agree with the noble Lord that the interpretation of a Finance Bill is difficult. However, I must say to the noble Lord, Lord Teviot, that it is not practical to write the Finance Bill in basic English. I think that is asking too much of any lawyer. What I might say in extenuation of Clause 4 is that it has been written essentially with the object of allowing all genuine and proper business to continue without being interrupted. It has been written with the object of permitting what I might call normal transactions to continue while excluding the transactions described in this clause. But I must confess that the drafting has got somewhat complicated on this particular clause.
The noble Lord, Lord Barnby, referred to depreciation, and I agree with him that it is an important subject. However, I do not consider it is as important at the present time as it is at other times, because I do not think shortage of finance is restricting the development of industry so much as the shortage of labour and materials. In fact, it is reasonably clear that investment is going ahead at a fairly rapid rate—and, in any case, we have not touched the investment allowance. I would remind the noble Lord that the Royal Commission, after careful consideration, came to the conclusion that there was no case for basing depreciation on replacement costs, subject to the economy continuing to be relatively stable.
The noble Lord, Lord Teviot, asked about something that I think I dealt with before, and I hesitate to recapitulate—namely, the reason for putting a tax on what are called "pots and pans." I would only say this to the noble Lord. In some cases the purchase tax will definitely discourage the purchase of these articles. Where it does not discourage, it will mean that there are less funds available for other purchases. Therefore, one way or the other it will inevitably reduce demand, to some extent. But what I think is perhaps more important is that the rise in prices will check demand and will, therefore, tend to reduce subsequent pressure on prices. It is just when there is a high level of gross trading profits and profits are easy to make that you get 357 exactly that situation of a wage-price spiral, which is what we are essentially trying to prevent. If it is a little more difficult to make profits, and if the corn-petition on the home market is keener, the wage-price spiral will be that much reduced. That is one of the most important factors to be remembered at this particular time.
The noble Lord suggested, I thought rather rashly, that a considerable capital cut should be put on the nationalised industries. With respect, I think that is rather a dangerous proposition. Does the noble Lord really suggest that we can risk a reduction in coal, or in transport services or in electric power? With respect, I think it would be difficult for a Government to fact that sort of prospect in the future. We have said that the capital expenditure of nationalised industries will be streamlined, but I feel it would be going too far—in fact, it would be highly dangerous—to visualise any material reduction in the expenditure. So far as sales tax is concerned, it is true that it is in use abroad in a number of places; but I can assure the noble Lord that we have no sales tax in our pocket and none in preparation. There are several disadvantages to it, and we certainly do not wish to go ahead with a sales tax. And I wonder whether the noble Lord has considered the administrative problem which is involved in collecting a tax of this kind from ten or twenty times as many retail shopkeepers, instead of collecting it at the wholesale stage. As an administrative problem it has many disadvantages.
LORD REAMy Lords, I thought the noble Earl, Lord Selkirk, was only answering the noble Lord, Lord Wise, and was not winding up the debate. I should like to enter a protest against the suggestion that there should be any sales tax, which some of us think would be unfair and impossible to operate.
§ THE EARL OF SELKIRKI am grateful for the support of the noble Lord on this occasion. I think I have answered most of the points, except that raised by the noble Lord, Lord Pethick-Lawrence. I can assure the not le Lord that the facts I gave him were not intended to impress him. They were, as I said, factual, and frankly, I do not think I made them appear particularly rosy. There is only one thing I should, like to say to the noble Lord, and it is this. While a great 358 many items in this Budget have been severely criticised, it is surprising how few people have really examined the fundamental problem. I concede to the noble Lord that he did so when he opened the debate on November 1; but I cannot say that he provided much of a solution to it, or that he faced boldly up to the unpopular measures which he knows will always be necessary if a solution of this problem is to be found. I cannot help feeling that it is just this element of unpopularity which had made people unwilling to face the implication, or to put forward schemes which would be extensive enough to have the necessary result or effect. The noble Lord called this "an unloved infant." But nobody is going to put forward an effective answer to inflation without these unpopular measures. That is precisely the reason why in a democracy inflation is so insidious.
§ LORD PETHICK-LAWRENCEWhat I asked was whether this was an effective answer. That is where we differ.
§ THE EARL OF SELKIRKI know the noble Lord differs from us, But what I say is that in the past nobody has put forward any scheme which goes as far as the present one in its extent and its effect. There bas been plenty of criticism of this little ht and that little bit of the scheme, but nobody has been bold enough to put forward an alternative which would bring a solution. The noble Lord, Lord Wilmot of Selmeston, got up and boldly said: "What about a tax on tobacco?" But he then added: "I do not suggest that myself." That has been the attitude always in regard to this Bill: people do not like what is in it, but they will not face the unpopularity of putting forward alternative measures. I agree with the noble Lord in this: that, whatever happens, there is one test only, and that is whether these measures are successful or not. That is of supreme importance. Any passing unfairness which may seem to exist will be relatively insignificant if this measure is successful in stemming what most of us realise to be a great evil at the present time, and that is the evil of inflation.
§ On Question, Bill read 2a; Committee negatived.
§ Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of December 13), Bill read 3a, and passed.