§ 2.53 p.m.
§ Order of the Day for the Second Reading read.
§ THE LORD PRESIDENT OF THE COUNCIL (VISCOUNT HAILSHAM)
My Lords, this is the third time that I have had the honour of proposing the Second Reading of the Finance Bill in your Lordships' House. Before I proceed to do so, I should, with your Lordships' permission first of all ask for a personal indulgence. As those of your Lordships who have held office are aware, towards the end of July Government business sometimes develops rather heavily upon the shoulders of members of the Government, and it so happens that I have been unable to arrange to stay in the House throughout the debate on this Bill. My noble friend Lord Dundee is ready to reply to any points which may be raised. I hope that in the circumstances I shall meet with your Lordships' understanding and indulgence.
The task in this House of moving the Second Reading of the Finance Bill obviously resolves itself into two separate sections: that is to say a review of the current economic situation and a statement of the principal tax and other changes envisaged by or effected by the Bill itself. We have already debated the Budget changes more or less contemporaneously in detail, and, in any event, by mid-July it is, I suppose, inevitable that we should find the economic situation generally a more attractive subject for discussion. I will therefore begin by referring to that, and in doing so, I should like to refer to three general observations before embarking on the rather more solid and reliable material provided for my fare this afternoon.
It was in the first few months of 1957 that I first referred in your Lordships' House to the situation in this country as being one of prosperity balanced on a knife-edge. At that time I was referring to the great vulnerability of the British economy to extremes. If that is less obvious to-day, I would claim that my right honourable friend the Chancellor of the Exchequer, in particular, and perhaps the Government in general, are entitled to take a certain amount of credit. But I believe that the underlying doctrine still remains there. A very narrow margin 174 separates us from inflation, on the one hand, and unemployment and recession on the other; and the House and the country are, I would say, now becoming familiar with the successive adjustments in the helm necessary to keep the ship on course.
From time to time some attempt has been made to use the necessity for these adjustments as evidence of indecisiveness or vacillating purpose. But I would say that the nation is becoming sufficiently attuned to our economic situation to be aware that inflation and recession may follow one another in relatively quick succession, calling in moderate degree for opposite remedies, as they do. I believe that it is precisely because we have been prepared to apply the remedies appropriate to the correct appreciation of our economic necessities that we have managed to bring off what my right honourable friend has recently called his two doubles: that is to say, I think we have managed to get the better of inflation without losing full employment, and we have managed to reduce taxation while still expanding our social services.
Secondly, I would say, by way of general observation, that a debate about finance and economics is necessarily a debate about material things. All the same, I am anxious to rebut the suggestion, which I have seen recently emerging as part of the criticism of our economic policy, that we are becoming a nation of materialists in glorifying unduly material standards. If that were true it would be a serious criticism. That, at least, has not been our object. We are well aware (and your Lordships will, I think, agree that I myself have certainly said so on many occasions) that there is a great deal more to civilisation than material things: the standard of life or the various appliances which make our life more easy, or even important things like pensions and particular economic grievances. The value of a sound economic policy is, as I believe, and as the Government believe, that only so, only by pursuing a sound economic policy, can we carry out our moral responsibility both at home and overseas.
Thirdly, I would make this general observation—and here again I must make it plain that this is very much a 175 personal assessment. I would say that if one looks at the world between the wars, it would be possible now, looking backwards, to say that the dominant feature of that period was shortage of work, shortage of activity, inadequate activity. I do not believe that that has been the dominant feature of these last 15 years, and I do not think that it will be the dominant feature of the coming years. I believe that the great feature of the world to-day is shortage of capital, and as I see the situation, the calls upon Government credit are not likely to be reduced in the coming months and years. But I regard that as all the more reason why the economic policy we pursue should be balanced and sound, and an example of good housekeeping in every respect.
The broad aim of our economic policy is to maintain full employment and a high rate of economic growth, consistently with the maintenance of stable prices and a satisfactory balance of payments. This is our permanent aim. All the same, as I have said, policy changes with circumstances. Sometimes the stress is on one part of this series of objectives, and at another on another part of them. Between 1955 and 1957, I think we shall all agree, employment was extremely full—some people said overfull—prices were rising steadily, and the balance of payments was precarious, perhaps even with a tendency to crisis. In this period on the whole, therefore, policy was, as I should submit, rightly directed towards damping down excessive demand.
But by the middle of last year—that is, by the middle of the calendar year, 1958—circumstances had changed considerably. The pressure of demand for resources in this country had eased considerably; there had been a drop in world commodity prices; a more satisfactory trend had appeared in our own domestic price levels—a trend which, I am happy to say, has continued in the past twelve months—and there had been an improvement in our overseas balance of payments. Therefore at that stage it became appropriate to remove the various restrictions on demand, and prudent gradually to move over to giving positive encouragement to expenditure. This is reflected in the measures which we took. The credit squeeze, as it was 176 called, was relaxed; there was the removal of controls on hire purchase, and, side by side with these steps, we decided considerably to lift the level of the public investment programme.
My Lords, this general trend of policy culminated in the Budget of last April which we are discussing in retrospect this afternoon. The Budget was based upon a fundamental assumption that there was room in the economy for a considerable expansion of demand. In contrast with the conditions of previous years, this expansion of demand was not merely desirable on merits; it was also an objective which could be pursued safely without menacing the value of money or the international position of the pound. Thus the Budget sought to promote expansion by providing tax reliefs and by other repayments, amounting in all to a total of £366 million. One of the principal other matters to which I referred by which the Budget added to purchasing power, was the accelerated payment of Post-War Credits—a problem which had to some extent eluded previous Chancellors of the Exchequer ever since Post-War Credits were initiated. It is, I think, worth noting that, apart from the moral aspects of the matter, this was a measure of carefully calculated and strictly limited effect. It has the additional advantage that in itself it does not add to purchasing power beyond the initial period to which it is related. Secondly, as your Lordships know, there were reductions in purchase tax and in the beer duty, which equally had the effect of increasing the purchasing power of the people. There were also the reductions in income tax and the restoration of the investment allowances; and these too were expected to have, and have had, a stimulating effect on demand.
But in these cases there were other important objectives which it was hoped would be served by the changes brought about by the Budget. The reduction in income tax was, as we believe, calculated to improve the incentive to effort and enterprise. It was, and is, my right honourable friend's wish to do all that he can to make the economy more competitive, and I am bound to say that it is the view of the Government that very high rates of income tax, such as we have had, are harmful from this point of 177 view. Under the same broad rubric, the improvement of the efficiency of the national economy, I would include the restoration of the investment allowances, at the rate of 20 per cent. for plant and machinery and 10 per cent. for buildings. These allowances were substituted for initial allowances of the same extent, and I hope they will give a stronger incentive to industry to increase its rate of investment. In particular it was my right honourable friend's hope that they would encourage industrialists to bring forward plans for investment which they would otherwise have intended to fulfil at a later date. Thus the main object of the Budget was to give a strong stimulant to economic expansion, and to do it in a way which would promote efficiency and investment.
My Lords, three months have passed since the Budget, and I think, therefore, it may be worth while to consider how far the picture of the economy is one which suggests to-day that the Government's expectations were well founded and the policies which it then announced were well designed. I should therefore like to review some of the main indicators or indices of our national economic welfare, and first I imagine that your Lordships would like to put production. There is no doubt at all that a very considerable expansion of the national output is now in progress. The index of industrial production rose by three points between the months of February and April, from 107 to 110, and in the latter month it reached a record for all time. The preliminary indications so far available suggest that the May figure will be equal to that of April, or perhaps even higher. In the steel industry, whose importance in such matters your Lordships will know, most of last year's decline in output has now been recovered. Production of cars is at a level much above previous peaks. The chemical industry is also producing at a very high rate, and even in the textile industries there are clear signs of recovery. Private house-building has been going up steadily and other kinds of building work are also going ahead fast.
One of the principal sources of this rise in production has been provided by increased expenditure by private consumers. There has been, as we all realise, a sharp increase in the rate of expenditure on hire purchase. This has 178 affected cars, furniture and other consumer durables. Perhaps less generally realised is the fact that recent retail sales figures show that expenditure on other consumer goods has also been going up. Nor is the expansion confined to the industries supplying consumer goods. In April and May there was a very satisfactory rise in exports. Together the two months show a growth over the corresponding period of last year by 9 per cent., and the trade deficit for May was, I believe, lower than at any time in living memory. Then there has been an increase of demand in parts of the investment field. Capital expenditure by manufacturing industry has not yet begun to recover, but other kinds of capital expenditure are going up well. House building, both private and public, is on the increase and other investment in the public sector, as well as investment in the distributive and service industries, has also been going up. On the whole, then, it can be seen that the rise in demand is fairly broadly based. I would say that those who are tempted to picture the recovery which has taken place simply as an inflationary bubble of credit purchases are not really in contact with the true facts of the case.
I now turn to the question of employment and unemployment. At the time of the Budget my right honourable friend took the view that the current level of unemployment was higher than he thought it ought to be. Indeed, it was one of the main objects of his Budget to get the figure down. Between March and May quite a substantial reduction took place, and between May and June the fall reached the remarkable figure of 67,000. In June the number unemployed was 413,000, less than 2 per cent., and throughout these months the decline has considerably exceeded the normal seasonal fall at this time of year. Perhaps I ought to add a cautionary note at this stage. We have now reached the middle of July, with August and September, the school-leavers and the holiday season, upon us. I daresay we cannot expect such a favourable trend to continue.
So far I have been able to tell a tale of expansion and improvement. This would, in itself, be very encouraging, but I am happy to say that there are some particular features of the situation which 179 make it even better than would appear from the information which I have so far laid before your Lordships. I would first mention the fact that this expansion is being achieved in conditions of price stability. The retail price index for May was 109. This was the same as for April, and it means that there has been virtual stability now for more than twelve months. The Government believe that it ought to be possible to maintain this stability of consumer prices during the second half of the year. If that can be done it will be a unique achievement in the post-war period. I would say that it is particularly satisfactory to be in this position at the same time as we are enjoying a rapid growth in both demand and production, as I have been trying to show.
Besides price stability I should also mention the balance of payments, since this is another potential weak spot in our economy, another sensitive point. Here again I believe that your Lordships will find the situation fairly satisfactory. We enjoyed in the first quarter of this year, according to the new quarterly series, a current surplus of £78 million. This is in itself quite a good surplus, and it must be remembered that the excellent export figures for April and May have still to be reflected in the balance of payments statistics. So that here, too, I think we can claim that the expansion is proceeding on a reasonably secure basis. We must also remember that we have not yet seen the full effect of the Budget measures, although I am not, of course, claiming that by themselves these deserve the full credit for the progress we have been making in recent months. But for all those reasons I feel that the Government have considerable grounds for confidence that the period of growth, the statistical picture of which I have been attempting to draw, is going to continue in the future. For the time being, at least, the prospects are cheering, and we have good hope that we can maintain the momentum of recovery without running the risk of deterioration in the value of the currency either at home or abroad. I have therefore to say that on the general picture the Government will continue the broad lines of policy which have brought the country into a condition which I can, 180 with some reason, regard as very satisfactory.
I now come to the Budget changes and, following the traditional arrangement with your Lordships' permission, I will deal first with the Customs and Excise and then with the Inland Revenue side. In introducing his Budget, my right honourable friend said that he couldcontemplate with safety some tax reductions that will lead to a fuller use of our resources without creating dangerous pressures on the economy.The principal changes in the Customs and Excise duties were a reduction in the beer duty, accompanied by a reform of the licence duty system, and a reduction in the three top rates of purchase tax. During the passage of the Bill through the House of Commons, the Chancellor has been able to propose two further measures. The first was designed to give entertainments duty relief to the cinema industry, and in particular to cinemas in small towns and rural districts. The second was to provide some relief to small clubs which, under the new flat rate licence proposals, would have had to pay a little more than previously.
The Chancellor of the Exchequer proposed a reduction in the duty on beer, and this, together with the savings resulting from the reform of the licence duty system, enabled the price of beer to the public to be reduced by 2d. a pint. This will cost the Exchequer £40 million in a full year. As your Lordships will be aware, beer is widely consumed in this country—it is indeed, as an article in the Financial Times said, a "staple of mass enjoyment"—and this is reflected in the cost-of-living index; an index which, as I think I said in our debate on the Budget of the time, is not intended as a moral judgment but as a reflection of actual practice. The general reduction in the price of beer by 2d. a pint will, in fact, reduce the index by nearly two-thirds of a point. There are good reasons for saying that beer has not shared in the steady increase which has been shown by most other alcoholic beverages. For a number of years since the war there has been a downward trend in consumption. From the revenue point of view this was not wholly satisfactory, and the reduction in the duty, and therefore in the price of the article, should help to put the revenue on a firmer basis.
181 The Chancellor of the Exchequer also took the opportunity of the reduction in the beer duty to reform the system of licence duties required for the sale of intoxicating liquor. This was done by means of a simple system of flat-rate licence duties, which will in future be regarded as registration licences rather than as sources of revenue. This was done without additional cost to the Revenue, since the cost of these reforms was, in effect, added to the duty of beer. In the course of these changes we have abolished the payment of monopoly value, and we have provided that as from January 1, 1960, clubs should also pay a flat-rate licence duty. In the case of very small sports and social clubs it was represented that the proposed flat-rate licence duty of £5 might cause hardship, as it was greater than the amount paid under the old system of 3d. for each £1 of purchases by the club. My right honourable friend therefore reviewed the position, and during the Report stage of the Bill in another place introduced an Amendment under which clubs would be entitled to a refund of £2 10s. out of the £5 licence duty if their purchases of intoxicating liquor during the previous calendar year did not exceed £200, or to refund of the whole duty if no purchases were made during the year. This arrangement maintains the principle of flat-rate licence duties while at the same time substantially meeting the complaints from small sports or social clubs where the supply of intoxicating liquor is no more than an incidental amenity for members. The overall result of the reform of the licence duty structure as a whole will be a great simplification of what was certainly a complex system, and it permits a substantial administrative saving without loss to the Revenue.
It will be remembered that last year I was able to inform this House that the 1958 Budget changes constituted [OFFICIAL REPORT, Vol. 211, cols. 387–8]:an imaginative recasting of the purchase tax provisions";that they removed a number of anomalies and produced a simpler and more logical structure; and that this made the tax more defensible as a revenue instrument and more easily comprehensible to traders. Last year my right honourable friend said that the new structure 182would also enable any future changes to be made with the minimum disturbance to trade.Following on that, this year he was accordingly able to propose reductions which will leave the general structure of the tax unchanged, but provide some stimulus to the economy in accordance with the underlying policy which I have been endeavouring to describe. The three higher rates of purchase tax at 60 per cent., 30 per cent. and 15 per cent. were reduced by one-sixth to 50 per cent., 25 per cent. and 12½ per cent. respectively. These reductions, which should increase demand for consumer goods, will, I hope, play a significant part in encouraging the expansion of economic activity.
There are two special cases in which complete exemption from purchase tax has been provided: commercial vehicle chassis and replacement television tubes. Commercial vehicle chassis have been the only taxable articles of industrial capital equipment, virtually all the purchases being for business use. The Chancellor of the Exchequer felt able to spare the revenue this year, and therefore removed the tax altogether. Television replacement tubes were exempted because their cost is high, their life uncertain and because in some cases the tax represented a serious hardship. Steps have in fact been taken to ensure that part of the tax on new sets is not avoided by delivering them without tubes and inserting them later. The estimated full year cost of the purchase tax reductions is £81½ million, and the effect of the consequential price reductions will be to reduce the cost of living index by about one-fifth of a point.
I turn now, my Lords, to entertainments duty. Your Lordships will remember that during the Committee stage of the Bill the Chancellor of the Exchequer said that he was particularly concerned about the special problem represented by the small rural cinemas and cinemas serving small market towns where there is only one cinema. He therefore introduced a new clause to the Bill, the effect of which was to reduce by £20 a week the entertainments duty payable in respect of admissions to each place of entertainment. This method of giving relief was chosen because, although it will benefit all cinemas, it will divert proportionately greater relief to cinemas of the type my right honourable friend had in mind and proportionately less to 183 bigger cinemas in the larger towns. I do not think that it would be possible for me to give accurate figures, but it is estimated that something in the region of a further 1,500 cinemas will be virtually freed from duty by this clause. The cost of this remission is put at about £2½ million in a full year. The total cost of the Customs and Excise reductions is £124 million in a full year, and it is our belief that it will benefit almost all sections of the community. The reductions, we hope, will play their part in stimulating the economy, and we believe that their combined effect will reduce the cost of living index by about four-fifths of a point.
I now pass to the Inland Revenue provisions, which are of course contained in Parts III, IV and V of the Bill. The most important of these is, of course, the reduction of 9d. in the standard rate of income tax, and of 6d. in each of the reduced rates chargeable on the lowest bands of the taxable income of individuals. Your Lordships will find these contained in Clauses 17 and 19 of the Bill. They are intended to resume the process of reducing the burden of direct taxation, a process which was begun in 1952 and continued in subsequent years. The standard rate of income tax will, as a result, have been reduced under successive Governments manned by members of the Party on this side of the House since 1951 by 1s. 9d. in the £, from 9s. 6d. to 7s. 9d. Substantial changes in favour of the taxpayer have also been made in the reduced rate structure.
This year's reductions in income tax rates will cost £192 million in 1959–60, and £229 million in a full year. Individuals, I am told, will benefit to the extent of about £166 million in a full year, and we believe that the effect of this will be to encourage more enterprise, more work and more savings. The relief to the undistributed profits of companies will amount to about £63 million in a full year, and this will leave companies with more resources for productive investment and will encourage enterprise and employment generally. It was the pervasive effect of the reduction in tax rates that decided my right honourable friend to devote to it this year most of the revenue that he could spare.
184 It was also felt by my right honourable friend that the economy required some additional stimulus, and his Budget, therefore, contained two other major proposals in the sphere of Inland Revenue duty. First, there was the scheme for a further release of Post-War Credits, which, for the sake of speed, as your Lordships know, was authorised by a separate Bill. My concern, of course, to-day is with the Finance Bill, so I will confine my comments on this topic to saying that the current release of credits will assist the Government's present objectives without prejudicing the Exchequer in the future. Thanks to the economic stability which has been achieved, my right honourable friend has been able to make a substantial attack on this long-standing and difficult problem.
My Lords, the other major proposal to which I have referred is contained in Clause 21, and is designed to stimulate industrial investment in productive plant and buildings. Last year's Finance Act increased the initial allowances for industrial buildings from 10 per cent. to 15 per cent. and the initial allowances for plant and machinery from 20 per cent. to 30 per cent. This year the existence of some spare capacity in industries making capital goods, which may not be available later on, makes it desirable to provide an incentive to bring forward expenditure on new investment which might otherwise take place later. My right honourable friend has therefore decided to restore the investment allowance, which was introduced in 1954 and withdrawn in 1956, for qualifying capital expenditure becoming due and payable after April 7, 1959.
The investment allowance differs from the initial allowance in that it is given as well as other capital allowances amounting in total to the full cost of the asset, and therefore provides, as we think, a more powerful stimulus to new investment. The rates are to be the same as in 1954. They will be 20 per cent. for new plant and machinery, for instance; but, in addition, an initial allowance will be given, where appropriate, so as to bring the combined investment and initial allowances up to the same rate as the initial allowance now in force. For example, capital expenditure on new machinery, which would have qualified under last year's 185 provisions for a 30 per cent. initial allowance, will qualify under the new scheme of combined investment and initial allowances for a 20 per cent. investment allowance and a 10 per cent. initial allowance. We believe that this reintroduction of the investment allowance should have an important effect on business sentiment and we think it will thereby affect the timing of investment decisions.
The only other important Inland Revenue changes involving substantial cost are those made by Clauses 30 and 33. The former of these two clauses replaces the present ad valorem stamp duty on sea insurance policies by a flat rate duty of 6d. The cost will be about £3 million in a full year. We hope it will help the overseas business of our marine insurance market and will also give some benefit to our shipping industry and shippers.
Clause 33, the second of the two clauses I have just mentioned, will also cost in a full year about £3 million. It increases in certain cases the amount of directors' remuneration which may be deducted in computing the profits of a director-controlled company for profits tax purposes. The limits concerned are those which apply in practice to most of the smaller companies. At present the scale starts at £2,500 and it rises by steps of £1,500 for each full-time working director after the first, and reaches a maximum of £7,000 where there are four or more such directors. In view of the increases in salaries and wages since 1952, when these limits were fixed, the minimum of this scale is being increased by £500 to £3,000 and the steps are being increased from £1,500 to £2,000, giving a new maximum of £9,000 where there are four or more full-time working directors.
The most important of the remaining Inland Revenue provisions of the Bill consist of anti-avoidance measures. Clauses 23 to 26 are designed to protect the Revenue against unjustifiable claims to repayment which arise through transactions involving the purchase of securities "cum dividend" and their sale "ex dividend" soon afterwards. The clauses contain provisions to ensure that they do not hamper the ordinary operations of the securities market or interfere with legitimate business more than is necessary to keep the door closed against 186 avoidance. Clause 29 validates an amendment of the double tax agreement with the Republic of Ireland designed to put it beyond doubt that residents in the United Kingdom or in the Republic cannot benefit from what are known as "dividend-stripping" devices in relation to companies in the other country. In conclusion, I would say that Clause 32 might be noted if only because it proposes the total abolition of one tax, the corporation duty. The yield of that tax has always been small and the Chancellor has decided that it is not worth while maintaining it.
That summarises both the provisions of the Bill and the economic policy underlying it. As I tried to say in opening, the purposes of financial policy are, of course, limited to economic and material things, but they are a means to ends which are not necessarily material and not necessarily economic. Upon the solid basis of a sound economic and financial policy I believe this country can go forward, discharging its duty in the international field and improving the structure of its social justice at home. I beg to move.
§ Moved, That the Bill be now read 2a.—(Viscount Hailsham.)
§ 3.39 p.m.
VISCOUNT ALEXANDER OF HILLS-BOROUGH
My Lords, first of all I want to apologise for following the Minister to-day. I do so only because of the absence in Germany of my noble friend Lord Pethick-Lawrence, who has endeared himself to the House, I believe, for the manner in which he usually deals with these matters. I am quite sure he deserves the endearment much more than I ever shall in such matters.
The Lord President of the Council, in introducing this debate to-day, has, if I may say so, taken a much better line in the matter than was taken a year or two ago, when we thought that he did not tell us enough because he was going to reply. But to-day he has given us two main sections in his speech: the first dealing with what he considers to be the true economic position of the country now, and the second an explanation of what is provided in the clauses of the Finance Bill, and we appreciate that he has obviously gone to a good deal of trouble to prepare his case for your Lordships this afternoon.
187 It is always a little difficult for some one following immediately after such a careful and detailed preparation as that which the noble Viscount has made, to be able to comment at once upon the various assessments which he has made of the national economic position. Nevertheless, if I may say so to him, there are one or two phrases that he used that flash back upon my mind now at the Box, with which I shall very largely agree. Perhaps one of the most notable things he said this afternoon was: on what a very narrow margin we tread—I am using my own words in expressing what he said—as between prosperity and something in reverse. That is absolutely true. Moreover, it brings home to me the point which was referred to, I think a fortnight ago, in an article in the Economist—an article quite remarkable for some of its statements. I am not going into it in any detail, I assure your Lordships, but the article was under the title of "Halcyon Days", and in it the path we have been treading these past few years was rightly described as between a morass on this side and marsh land on the other, or something of that kind.
I must say that when the Government seek to take a great deal of credit for the general economic position, they do not tell us very much about the great windfall (that has become the current description of it) there has been in the way of the fall in import prices from 1951 onwards—quite a remarkable reduction. If you look at the years from 1952 to 1959 and take the period overall, you will find that, taking the figure for 1951 as 100, it would not be much more than about 84 or 85 to-day. That is a very large percentage reduction in the cost of imports of raw materials, of manufactured products, and of foodstuffs coming into this country.
When one looks at what has been happening to the home economy in between all that, then one is bound to wonder whether the policy of the Government on fiscal matters has been altogether correct, and whether we could not have made much better use of this windfall in the way of import prices than has actually been the case. I think the Economist was quite right in that article a fortnight ago to which I have referred, when it suggested that from 188 time to time we are bound to face certain changes in such a situation, and that it requires a movement of only 3 to 4 per cent. in our terms of trade to lead to a situation which could change our over-all position by at least £200 million per anum. If you take that into consideration, and if my figures are correct—I am open to correction on them—then in fact import prices have fallen over that period by nearly fifteen or sixteen points, and if a change of three or four points is, according to expert economists, going to mean a difference of £200 million, then that leads to very considerable reflection on what would be the likely effect upon our position here.
Moreover, during the last eight years we have had a number of crises affecting the value of our currency, some of which, of course, were from different causes, but some of which, we felt, were entirely due to the Government's policy. The noble Viscount said during the course of his speech that certain underlying principles had affected their policy all the way through; that at times you must do this, and at times you must do that. Of course, we have to allow to any Government the fact that they will sometimes have varying sets of circumstances to deal with. But what he said was that, above all, you must have at all times a sound economic policy. We do not think that the Government's policy on economic matters has been at all sound all the way through. I wonder myself how we could regard as Sound economic policy the Suez adventure, for example, when one reckons up the aftermath, with regard both to the cost of the actual expendition and to the effect upon our overall finances—first in the borrowing we had to make, and, secondly, in the run upon the pound, which was clearly anticipated, judged by what was revealed in Mr. Randolph Churchill's recent book. I should not regard that longish period—I will not call it an "incident"—With its economic effect, as being a specimen of sound economic policy.
Nor do I regard the general treatment by the Government of our economic policy as having altogether sound economic effects. Take, for example, the general question of price inflation. One would imagine, listening to the defenders of the Government's policy, that price 189 inflation is almost entirely due to the demands of workers for a standard of living which keeps pace with the current prices which they have to pay. I know, of course, that nobody could argue that that is the only cause of inflation, but it has frequently been said to be the case. But the beginning of that, in reality, was due to the Government's reversal of the policy which they had promised to the electorate: that was, that they would not reduce the subsidies on food; whereas those subsidies have been abolished and the cost of living raised—and raised accumulatively, because as the cost of living is raised a well-organised trade union community has insisted upon the wages being adjusted to meet it. It may well be, perhaps, that in one or two instances—very few instances—the wage may have gone slightly ahead of that, but only, in the main, where it could be shown that much higher profits were being made in the industries concerned. The task of the trade unions during the last eight years has been to try to keep the standard of life of the worker up to the position which he would have had if prices had not advanced as they have. Now it is a very curious thing, looking back, to feel that we have had for eight years all the benefit from the reduction in the prices of imports coming into this country, and yet have not been able to relate it to the general economic position of the country, and especially to the position of the workers, without the worker having to fight for wage adjustments to be made in relation to his general rising cost of living.
The Government Party's policy at the last two Elections has been, certainly, that they would reduce the cost of living. That was put to the electorate as one of the main planks of their programme and they declared that, whatever we might say, the cost of food would not go up seriously. Yet an answer which was given by a Minister in another place only a short time ago showed that the cost of food alone has gone up by nearly 49 per cent. in the period of office of the Conservative Government. Therefore there is a considerable case to be made for the manner in which the workers have reacted to their needs in these circumstances.
All this has added to the cost of production, with its consequent effect on the export trade. There is something even 190 more serious. Here I want to check with the noble Viscount, to see whether I have understood him aright on this point. In dealing with economic policy, he spoke of two periods, the first up to 1957 and the other afterwards. He showed that although there was full employment in the first period, the balance of payments was maintained in a precarious position and that policy was in the direction of damping down production.
§ VISCOUNT HAILSHAM
My Lords, I do not think that I said that. I said that the object of policy in an inflationary period was to keep demand down. I think that those were the words I used.
VISCOUNT ALEXANDER OF HILLS-BOROUGH
My Lords, I could not possibly write the noble Viscount's words down in longhand, but I had that impression. Compared with the increase in the rate of production from 1945 until 1951 and with the increased rate of production in Continental and other countries, we have not done very well in expanding our production over the whole period. Indeed, in the years from 1956 we showed little increase in production. When the noble Viscount said that he was pleased with the amount of recovery which has taken place in production during the last few months—and nobody wants to take away his pleasure in that—I could not help feeling that, with a different economic policy all the way through, we might be in a very different position at the present time. I look at the announcements made from time to time by the Federation of British Industries, and a few weeks ago I saw in one of their publications that at the beginning of June a large section of British industry was still working at 75 per cent. of capacity. Therefore I was reassured when I heard the noble Viscount utter the warning that we must not be complacent about the matter. In fact, we are coming on to a difficult period of the year, when it is difficult to find all the places desired by the expanding output from the schools seeking employment.
I appreciate that the noble Viscount has taken a good deal of time to explain what he regards to be the position and I find myself in a measure of agreement with him on what are the main problems. The balance of payments, the internal pressure on resources, and inflation—these are the three outstanding problems 191 which any Government have to tackle. When we take the balance of payments, it is obvious that when the country is in difficulty about payments certain restrictions have to take place. I think that that would have to be admitted by anybody, speaking for any Government. The question is: what kind of restrictions? When the real trouble began at the end of 1956, the great remedy was to put up the bank rate and to restrict credit severely. When the Labour Government were faced with a position of virtual bankruptcy in the national finances in 1945, we could not have afforded to adopt a policy like that. The only way we could deal with the situation was to push up production at all costs and obtain abstention by the public from unreasonable demand in the face of the overall requirements of the country's stability—and we succeeded.
Let me take the two outstanding features that are in my mind at the moment. The first is that we should have gone on succeeding but for the enormously rising bill for armaments at a time when we were putting into operation the Welfare State. At the end of 1945 the second of the joint armament programmes agreed to by the Labour Government raised the triennial programme to £4,700 million, and that was the point at which the pressure of that cost, combined with the internal pressure of operating growing social services of the Welfare State, came to a peak.
The second thing in my mind is that during the last three years of our first Government, which lasted until 1950, we were being pressed all the time from Conservative sources to give up restraints and "set the people free". It was said that they were not getting a fair share of the benefits of the country. They were pressing us all the time and calling down all the curses that could be uttered on the austerity of men like Sir Stafford Cripps. That was what actually took place.
If we have to meet a wider margin of safety than apparently we may have to face in these halcyon days of the future, we shall need more than the sudden imposition of a high bank rate and restrictions upon capital development; we shall rather need to turn to the general control of economic affairs; when, instead of restricting production, we 192 shall have the difficulty of finding economic controls to expand production. I am certain that if we were to have the pleasure of listening to the noble Viscount, Lord Hailsham, in reply (and we quite understand that he could not stay) he would violently combat these arguments. But I have never yet found any statement by a Conservative speaker on these matters that has convinced me that their story of financial success in these last few years is sound, or that, much more could not have been done with the opportunities they have had.
I have not mentioned one serious effect we have had to face in the last few years as a result of Government policy and mistakes, and that is the heavy increase of the cost of the service of the Debt. I did not hear that remarked upon to-day. It is true that some of the special borrowings that were made as part of the Suez crises have been in part repaid; but, at the same time, we have never got away from the heavy increase in the cost of the floating debt. It is a large sum that we have had to pay as a result of those increased charges—I should say probably somewhere near £400 million to £500 million altogether, over the period, in increased charges for interest and the like for the service of the debt. That is a very large sum. It is more than double the sum which has gone out of the Budget this year, for example, to relieve income tax by 9d. in the pound. Yet that is all pure increase. There is no doubt where that money has gone: it has gone to the banking and issuing houses who deal largely in lending for Government purposes of that kind. But it had at certain times a grave effect upon the general line of the public investment in what are called gilt-edged securities of the Government—and I hope that somebody is taking a note of these remarks for the noble Earl, so that when he comes back he will know what I am saying.
There has been a notable effect; and it is that Government securities have fallen disastrously. Why did they fall? Because there was a growing lack of faith in them. There has been a constant move from gilt-edged securities into the equity market. There is no doubt about that. Some of the figures that one could quote, if one had time to go into all these things, are most striking. Having 193 a look at the City and the prices in the last twelve months of equities must surely give one cause to think. Equities were at an index price of 167, and quite recently they went as high at 246 or 247, which represents a big margin of increase in their value.
Nor is this merely an internal move, as between the usual dealers on the Stock Exchange in equities. Many people who are investors have turned definitely from gilt-edged securities. I do not know what is the right body to describe as being in charge of Church of England investments, but I suppose it is the Ecclesiastical Commissioners. In the last ten years they have turned very largely away from investment in gilt-edged securities, and from the annual returns now coming to the Church, they seem to have made wide use of their investments in equities, land properties and things of that kind. The effect has been the same.
I am wondering now how far the tremendous developments of great companies like the Prudential Assurance Company will go. In the old days, I suppose, they were almost the largest single outside holder of gilt-edged securities, but they are now investing their life, fire and other insurance funds very largely in equities and industries, while still, of course, retaining a considerable proportion of gilt-edged securities. How is this going to affect the borrowing of the Government in the future? What is to be the policy about that?
I think it would be a good thing if in your Lordships' House, which contains so many experts in matters of which I have only a passing knowledge, the Government could tell us whether they are going to be able to meet the situation for borrowing in the long term without some adjustment in their present policy: whether they are going to have straight undated securities; whether they are going to have dated securities of an altered length of period in various cases, and some means of recapturing the freedom of the Government to be able to borrow at reasonable rates over a long term and not be forced on to a floating debt at high current rates—because it would have a great effect upon the economy of the country if that was actually arranged.
194 One of the constant problems of policy which faces any Government in regard to financing the country as a whole is what is the fair method the Government should adopt in the budgetary and trade policies to secure a fair distribution of the wealth of the nation. We in my Party hold that, in the end, all wealth comes from the application of labour to land, with the help of capital savings, and that the people in the country as a whole have a great moral right to an adequate share of what is thus created. The manner in which it is distributed is, however, almost essentially in the hands of the Government of the day. The noble Viscount, Lord Hailsham, said that the present Government can claim a substantial success, because they have been able to relieve taxation greatly whilst at the same time seeing an expanding number of social services. If you just put down certain figures left and right on the two sides of an account you would probably see that, broadly speaking, that statement could be justified. But there are other figures to be considered which show that in fact the distribution is going a good deal more in the other direction.
The noble Viscount has pointed out to us to-day that 9d. in the pound relief from income tax costs the Chancellor of the Exchequer something like £229 million; and that is quite a figure. Although probably that now is a higher global sum in any year than it would have been in previous years, because of the development of population and trade and profit, you have to remember that income tax has been reduced by this Government since they have been in office by as much as 1s. 9d. So that the actual amount distributed, say, in a full year at present rates of income of that 1s. 9d. must be somewhere near £700 million; I have not worked out the exact total, but it is somewhere near that figure.
If you take the record, so far as I have been able to get it (I have not been able to get the figure since 1957; I think this figure was given in the Government statistical returns published in 1958), in 1949 there were 5,200 people in this country who had an annual income, after payment of tax of £4,000 per annum or more. But by 1957 this number had increased from 5,200 to 18,800, more 195 than three and a half times as many. Yet if I look at the same set of returns I find that in 1957 there were 12,630,000 of our people who were receiving less than £10 per week before tax. If you think that these figures indicate a fair distribution of wealth, all I can say is that I cannot agree with you. Take the kind of thing which arises directly from Government policy, like the dealing with rents, company remissions and the like. The income from rents, dividends and interest (I obtained these figures from returns published in 1958) rose by £648 million from 1952 to 1957. And in the last three years, since the effect of the rent legislation of the Government has been felt, great fortunes have been made in land property and rents.
The noble Viscount said that one of the great needs at the present time is capital. Well, if that could be shown to all the workers in the country in an understandable and simple manner, it would be useful. They just look at the take-over bids week by week, month by month. Where does the money come from? If the worker looks at the history of the equity companies in the past five or six years, and takes account of the increases of dividends and of the issues of capital, he says, "I do not see where the shortage of capital is." I am quite sure myself that there is a shortage of capital as a whole, and that we could do with a good deal more saving by the community than we actually get. But, you see, while you have the great mass of people wanting to get modern appliances into their homes, and they can get them only by the exercise of hire purchase operations, it is no good going to them and saying, "You cannot afford it, you know"; because just around the corner in the next street of the suburb people will be buying cars on hire purchase at a very high cost to the borrowers—and some of the biggest accretions of capital come to those who finance hire purchase. When you think of the manner in which the main banks of the country have entered into hire purchase finance in the last two years (every one of the banks has been able, without going to the general market at all, to issue new capital in order to finance their further operations in hire purchase finance) you will get more wonderment of the worker as to what is going on.
196 I suppose that this is the last Finance Bill Second Reading debate we shall have before an Election, and I am quite sure that when the Election comes many of these things are likely to be canvassed, and I do not see at all myself why they should not be. The relief to the wealthy has been almost continuous. Not only is there the 1s. 9d. reduction in income tax, which affects all classes of income above a certain amount, but there is also the great relief to the surtax payers—a relief that, in my view, was certainly not necessary in dealing with the great problems of the State to-day. But it is always said that the Conservative Party is well able to take care of those who support it.
I think it is worth while drawing attention to a note I had here of a comparison. This is an extract from a statement in another place by one of the Opposition Front Bench, in which he said:The Conservatives gave £33 million tax relief to 200,000 taxpayers earning more than £3,000 a year"—that is, surtax payers—a relief that works out to £165 per year per head. Under the present National Assistance proposals £32 million was being given to 2½ million people who are the poorest in the land, the equal of a sum of £12 16s. per head.It might well be argued that the relief was not necessary to that class at all, but very good use would have been made of that by an increase in demand, about which we heard so much this afternoon, if more could have been given to those who were getting a slight adjustment in their National Assistance basis.
That is generally how we see the effects of Government policy on finance. I had so much more to say and I have not got time to say it, but I must refer to one other matter before I sit down. Many of my old friends in Parliament know that I have given most of my life to the service of the Co-operative Movement. Somehow or other the Conservative Party seems to be gradually working itself into the position of being the continuing enemy of the Co-operative Movement. That Movement is a great institution. This year it will reach, practically for certain, £1,000 million turnover in the retail societies. It has a membership of nearly 13 million people. It never goes to the finance market for capital; all the capital it has comes from the savings 197 effected in the mutuality and thrift of its people, in not overspending those savings but leaving them to finance the business. It is a great asset to the country in that it finances not only retail distribution, but pure finance in the way of banking. It is a great investor in Government stock, and it also controls something over 300 factories of varying size and in varying trades. That is an enormous thing. It is no wonder that the late Lord Home, when he was Sir Robert Horne, Chancellor of the Exchequer, said of this movement that it is one of the most steadying and stabilising factors in the life of the nation. Why is it that suddenly, in the last few years, and the last two or three years before the war, it is made the butt of Conservative administration?
Here is an introduction to your Lordships' knowledge this afternoon by the noble Viscount, the Lord President of the Council: among other budgetary proposals he touched on are amendments to assessment under profits tax. What has the Chancellor of the Exchequer done? He has brought about a change from a system under which the tax was levied in two different ways, 3 per cent. upon undistributed and 30 per cent. on distributed profits. It has been changed about so that it is 10 per cent. all round. Every one of those in industry participating in the effects of this amendment, except the "Co-ops.", are favourably placed—every one of them, so far as I know; I should like to hear some instances where they are not. The claim of the Chancellor certainly was that they would be able to do very much better not only in regard to the immediate effect of the benefits to them, but also in the future adjustments from time to time that might have to be made. Certainly the relief claimed by the Chancellor was going to the majority of those affected. But the only effect on the Co-operative Movement is to tax them another £1½ million. It is a preposterous position, for a great movement with the position in the State which I have mentioned, to be treated like that. Noble Lords opposite must not be surprised if we have to use the platforms this autumn to make sure that people in the Co-operative Movement understand exactly who are their friends and who are not their friends in matters of this kind.
198 I apologise for having been led, in much of my dissertation this afternoon, by the good and wise explanation by the Lord President of the Council of his policies and the Bill, into speaking longer than I usually do on these matters. I felt that I had to go on, once I had started with the arguments. I have by no means finished all I wanted to say, but I will finish, and I apologise for having gone on for so long. I end by saying that I hope that the time may not be far distant when we shall have an Administration, whatever it might be called by other sections of the community, which will be known to its supporters as standing for the fairest distribution of wealth.
§ 4.23 p.m.
My Lords, we all miss today the annual objective survey of our economic position that we have been accustomed to receiving from the noble Lord, Lord Pethick-Lawrence. I hope that he is enjoying himself in Germany. The noble Viscount the Leader of the Opposition trotted a vast number of delectable hares across the course, and though I should dearly love to chase every one of them, your Lordships would not like me to do it. I will content myself with two or three only. On the subject of food, which the noble Viscount raised, I most profoundly disagree with him, because I believe that the Government's food policy has been an outstanding success during their term of office. By allowing food to find its own level of price, they have created such an abundance that the problem is what to do with the stuff instead of where to get the next meal. In my bag outside I have a list of the rations in 1951 when the Conservative Government attained office, and, believe me, it is rather shocking to read to-day.
With regard to the terms of trade, we are always told that we have had a great deal of luck over the terms of trade. I am very doubtful whether in fact it is a complete windfall and luck, though I know that some financial writers take that view. The terms of trade, which are affected by fairly marginal buying of commodities can be influenced very largely by the control of credit in the manufacturing countries. Mr. Butler, when he put up the bank rate, burst the Korean boom, and I believe that it is our money policy in this country that 199 has largely led to the terms of trade being what is called favourable, though I add a rider that it is not wise to have them too favourable.
Our old friend the bank rate, of course, came up, and I can assure the noble Viscount that the banks do not profit enormously from any increase in the bank rate. It means merely that the people who lend their money get more for it and the banks charge more when they lend it out. The bank rate has become the most potent weapon that we have in riding the trade cycle. If you believe in a free economy, as we do, and at the same time do not want to let things rip, you must have some control; and the bank rate is our most important control. For our free monetary economy has the ability to call into existence the amount of credit it requires at any given time. If that amount of credit is too large for the supply of goods we get inflation; if it is too small we get deflation. The volume of credit can be influenced very greatly by the bank rate, so it really is an essential method of control. The cost of financing the floating debt, to which the noble Viscount rightly referred is, I believe, a small price to pay for the avoidance of the alternative, which would have been the devaluation of the pound. I do not think I will worry any more about any more of the noble Viscount's hares.
The Chancellor of the Exchequer is rather like a mountaineer. He is climbins up a narrow ridge covered with ice, with a precipice on each side; and in doing so he is being buffeted by winds, now from one side and now from the other. The difficulty to advance and keep his balance is enormous. That path has not been traversed by anyone yet, and his guides from the Treasury have not been over the ground either. That path is the path of full employment in a free society without inflation. He has been successful, and I believe that the mountaincraft of the Party is steadily increasing. In fact, I believe that all over the free world the monetary authorities are gaining increasing skill with practice at this business of regulating the world's credit, and the way they have dealt with the last depression, which might have been very serious is most creditable to them.
200 In the Budget the Chancellor of the Exchequer took, I believe absolutely rightly, the view that he must increase the power of consumer buying and rely on borrowing or, if necessary, creating credit to meet his capital needs; and the principal part of that policy was met by the cut in the standard rate of income tax. That I believe to be very good. I should expect, with an Election not far off, that allegations would be made that the Conservative Party are always cosseting the rich and grinding the faces of the poor. I never thought that the noble Viscount would respond so quickly to my anticipations. Such allegations have been the stock-in-trade of demagogues for centuries, and are often untrue; but I suppose they will continue to be popular cries so long as man continues to disobey the Tenth Commandment.
It is interesting to see whether there is any truth in the allegation. I took the trouble to do a little arithmetic on the subject. I wanted to compare the rich under Dr. Dalton, that scourge of the rich, with the rich to-day. Since 1947 the cost of living has gone up 68 per cent. I took married couples under Dr. Dalton with salaries of £1,000, £2,000, £5,000 and £10,000, and I found what they had left after paying their taxes. I converted that amount into present day pounds. Then I took similar married couples to-day, but I assumed that by diligence they had in the interval managed to increase their gross salaries by the amount of the rise in the cost of living—in other words, by 68 per cent. The results were interesting. When comparing the purchasing power they had left with the purchasing power Dr. Dalton's victims had left, Dr. Dalton's £1,000 man would be £75 better off to-day; his £2,000 man would be £80 better off; his £5,000 man £100, and his £10,000 man would be £200 worse off to-day. I may add that before this Budget all of those plus figures would have been minus figures. So that I think it is at least arguable that some change was long overdue, because Dr. Dalton can hardly be regarded as a friend of the rich. I think that dismisses the allegation that the Tories' taxation policy is to favour the rich.
I welcome the reduction in the standard rate, and I expect that most members of the Labour Party, in their 201 hearts, do, too. This is only one of many changes and adjustments which are wanted. Sur-tax is long overdue for revision. It does not bring in a great revenue and it has very bad effects on the economy. There are two different separate effects. The first one is in the lower ranges. This affects the executives, particularly the young and rising executives. If you want to give a £3,000 a year man a rise and you make it £1,000, the product is only £528. If you want to give a similar rise to a £4,000 man the product is £466. If you want to give a similar rise to a £5,000 man the product is £376.
This puts two different classes of employer in great difficulties. First of all, its puts the Government in great difficulty, as we have seen in regard to senior civil servants, judges and the like. In order to produce some worthwhile increase of net income they have to be given gross salary increases that can appear unnecessarily large. Then particularly to manufacturing and trading companies, it produces difficulty in that if they want a man to take up a more responsible post, and particularly to move to London, they have great difficulty in managing to remunerate him without hopelessly upsetting the scale of the rest of their employees. You can see from the figures that I have mentioned that the whole difference might go in rent in London as compared with a provincial town. That may well involve a person spending the whole of the product of a £1,000 salary increase; and if he is going to take up more responsibility as well, he will probably expect an amount which will upset all his colleagues. This, of course, leads to various ways round, such as expense allowances and so on, which I believe do no good to anybody.
The other harm to the economy is done at the top end, where the very high rates on the top marginal incomes encourage every kind of extravagance, where anything can be bought by the firm or partnership which formerly would have been bought by the individual partners or directors themselves. I believe that a reform of this sur-tax is urgently needed, and I believe that it could be so conducted that the loss in revenue would be negligible or none.
When we come to death duties the anomalies are probably still greater. 202 The revenue is far below what one would expect, judging from the figures. For instance, in 1957–58 I believe the product was lower than in 1951, which looks a ridiculous situation. One can only conclude that more and more people are taking good advice on how to distribute their wealth during their lifetime. I accept that modern society demands a measure of levelling down; but if you try to go too fast you defeat your own end. Here perhaps I may take up something that the noble Viscount said. He was comparing the equality of the people who had incomes of £520 a year with those who had £4,000 after tax. To anybody who believes in the perfect equality of income for all men, naturally that must be a grave injustice. But if he does that, how is it possible to justify a Coventry motor worker earning more pounds in a week than an Indian earns rupees in a month? Here, again, in this field of death duties, I believe that, on balance, reforms could be made without loss of revenue. What we want are rates which will ensure, or shall we say encourage, rich men to die possessed of their wealth within the bounds of this kingdom.
I was glad to see a reduction in the beer duty, because I think I am right in saying that the alcohol in beer has for some time been taxed at a higher rate than the alcohol in wine, and that is plainly silly. The British public knew that it was silly and were switching from beer to wine. My only doubt is whether the reduction has gone far enough to safeguard the duty in a normal English summer. I wish that we could re-elect the present Chancellor of the Exchequer for many years, to put through a programme of reform of the revenue; and I hope that he would not ride off on the recommendation of the Royal Commission, because, if I remember aright, the Royal Commission was instructed to make no recommendation for reduction without a corresponding one for increase. That, I think, would be liable to stultify and detract from the value of any report.
The Chancellor of the Exchequer to-day has a heavy burden. The noble Viscount referred to what is perhaps almost his chief preoccupation, which must be the problem of how to borrow enough money to manage his national 203 debt. Some dismiss the problem as being only a manifestation of the bank rate, and that if the bank rate went down all would be easy. I rather think that the noble Viscount tended to take that view. But I am afraid this is a view I cannot accept. I believe that there is a deepening divorce between the long-term rate and possibilities for borrowing money and the short-term rate, and that it will take a great deal and a long period of stability to persuade people to lend money to a Government on the long term with the competition that they have from all other forms of investment both here and abroad. So that it seems that, in practice, the capital projects of a long-term nature will have to be financed from the medium and short-term funds, which the purists will not like.
The alternative is for the Government to borrow or to fix rates at which they really could borrow long-term, and the cost, in interest and discount, might rather shock people. But it is very gratifying to see the very substantial increase in the short-term and medium-term lendings to the Government through the National Savings Movement. In fact, they considerably lighten this nightmare of the Chancellor of the Exchequer. I believe, my Lords, that the Chancellor of the Exchequer has made an excellent beginning by showing himself flexible and susceptible to ideas of change in the field of taxation. He has shown skill in his main preoccupation, which is the pursuit of full employment with stable prices, and I hope that he will have many years to run. I support the Bill.
§ 4.41 p.m.
§ LORD MCCORQUODALE OF NEWTON
My Lords, I had not meant to address your Lordships, but I wish just to refer to one point which I think the noble Viscount, Lord Alexander of Hillsborough, must have made in error. So far as I understood him, he said that the change in profits tax benefited all the companies concerned. Of course, in actual fact the change in profits tax benefits some companies, but for other companies, notably those ploughing back the bulk of their resources, it is very hard indeed, as I know to my cost in the company with which I am associated. On the other hand, the 10 per cent. all 204 round was obviously in the long run fair, because different circumstances suited different people best, and it was better to have one standard.
I sympathise, as I am sure everybody does, with the co-operative societies if the change of tax means that they have to pay more, as it does for my own company. But I cannot believe that the noble Viscount would wish the co-operative societies to be treated more generously than any other company or concern in the State. If everybody pays the same, that is proper equality and I should have thought that is what the noble Viscount would prefer. I would otherwise say to him—I am sure my colleagues on this side of the House and many of us who have been acquainted with the magnificent work that the Co-operative Movement has done, especially in the North of England, for so many years would say the same—that we have no hostility to the Movement at all. On the contrary, we think it is a very fine Movement. We only feel that it is a pity it has allied itself to one political Party rather than keeping out of politics altogether.
VISCOUNT ALEXANDER OF HILLS-BOROUGH
My Lords, I am much obliged to the noble Lord. I did say I thought there were perhaps some companies who were not favoured by the change in tax, and I dare say I was a little underestimating the number. But certainly my Movement is to be mulcted for £1½ million a year in increased tax. When the noble Lord says that surely I do not want the co-operative societies to be treated more generously, I would say that I do want them treated more generously than the Conservatives have treated them from the time they altered the tax law in 1933. They were the first Government ever to do so and to interfere with the taxation upon the results of mutual trading instead of competitive trading—I repeat, mutual trading. And so it goes on, we are bound to say.
The noble Lord says that we joined one political Party. So we have, from the point of view of putting over our central views on these matters; but it is only because we were driven to it, and we had to pay tax upon every penny we spent in that way. I wish that all the supporters of the Conservative Party did the same and showed in their 205 balance sheets where they got their money from, what companies let them have it and whether they pay tax on these particular payments.
§ 4.45 p.m.
§ LORD CHORLEY
My Lords, I should just like to say two or three words on a completely non-Party aspect of this Bill; that is, on the most valuable clause which does away with the duty on insurance policies. I have, I think, on more than one occasion in your Lordships' House criticised what seemed to me to be the antediluvian Revenue doctrine of taxing commercial documents. At a time when the impingement of Revenue taxes was not so well understood by economists as it is now, and when Chancellors of the Exchequer were at their wits' end to find revenue, there may have been something to be said for it, but I think that is a long time ago.
I have in the past criticised particularly the maintenance of the ad valorem duties on bills of exchange and, of course, the fixed duty on cheques. The commercial community relieve the Government by means of this commercial monetary paper of a great deal of expense and provide for the business community an exceedingly valuable type of currency without which trade would really be quite impossible. The ad valorem tax on insurance policies has been a similar type of old-fashioned revenue-raising machinery. Whether it is now being abolished for scientific reasons of this kind, or simply because it is being found that foreign insurers dislike the quite substantial amounts which the ad valorem duty requires them to pay when taking out marine insurance policies, in the London market particularly, I really do not know. But it will, I imagine, be very welcome indeed at Lloyd's, which, after all, is still much the largest institution for marine insurance in the world; and it cannot but have a valuable effect in increasing our already largely invisible earnings in respect of marine insurance.
In addition, I am quite sure that the noble and learned Viscount the Lord Chancellor, if he were here on the Woolsack, would agree with me in saying that this matter has given rise to many difficult and tiresome problems in marine insurance where in the case of a time policy the stamp has had to be renewed every 206 twelve months. Very often, of course, ships were at sea when the policy expired, with the result that continuation clauses have had to be introduced, and tricky problems have arisen as to when and how far such clauses could be effectively enforced, or whether they were to be regarded as evasions of stamp duties. Your Lordships will see that many problems of this kind, which have been tiresome both to the marine insurance market and to the lawyers who advise them on their cases, will be obviated as a result of the new proposals. I should like to say, although in a sense it is a small aspect of this particular Finance Bill, that it is nevertheless a very valuable one, and I congratulate the Government on having introduced it.
§ 4.48 p.m.
§ THE MINISTER WITHOUT PORTFOLIO (THE EARL OF DUNDEE)
My Lords, I should like to add my regrets to those which your Lordships have already expressed that the noble Lord, Lord Pethick-Lawrence, who always leads for the Party opposite in these debates with so much moderation and such great knowledge and charm, is not here to-day. But I think that the loss is ours and not his, and we must all envy him his holiday in Germany. As your Lordships have a great deal of business before you, and as the weather is rather less conducive to oratory than to what my noble friend chose to describe as the "staple of mass enjoyment," I hope I am right in assuming your Lordships do not desire me to make a very long speech. I am grateful to the noble Viscount, Lord Alexander of Hills-borough, to my noble friend Lord Hawke and to the noble Lord, Lord Chorley, for having been much less interrogatory than I know they all can be if they really try.
My Lords, the first purpose of the Finance Bill—what used to be its only purpose, and what is still its first purpose—is to raise money by taxation to pay for the public services. The second purpose, which has now become perhaps almost as important as the first, is to guide our whole economy in what is believed to be the best national interest. For example, the purchase tax produces a very large amount of revenue: but all the changes up and down which are made from time to time in the purchase 207 tax are not made entirely for revenue reasons; they are also made in accordance with whether it is thought right at the moment to stimulate or to check consumer expenditure in the interests of the national economy generally.
My Lords, I think that our system of taxation in Great Britain is much the best, and is the most scientific, in the world. The only trouble about it is that it is much too high. We have devoted a great deal of skill and a great deal of trouble to mitigating the harm that is done by the incidence of excessively high taxation in all kinds of ways—by various rebates, and exemptions, and remissions of every kind, which are designed to temper the wind to the shorn lamb. I think we have done so very successfully. But all these arrangements cannot change or disguise the fact that the total volume of our taxation is far too high a proportion of the gross national product—higher than is good for the economy of any country; and we must aim steadfastly at trying to reduce it.
We know that we cannot reduce it quickly, because our commitments are too great, although the noble Viscount, who mentioned in his speech the cost of administering the National Debt, will no doubt be glad to know from this year's financial statement that the interest and management of the National Debt, which was estimated to cost £695 million last year, is estimated for the current year to cost only £600 million—that is, a reduction of £95 million. The total estimated cost of the Consolidated Fund services is being reduced from £816 million to £728 million—that is, a reduction of £88 million.
We cannot save much, I am afraid, on defence. Our social services will undoubtedly demand increases rather than reductions, if their efficiency is to be maintained, as time goes on; and in order to achieve a better balance between taxation and the gross national product, we must be patient. We must rely on the expansion of revenue and the increase of prosperity. I think, my Lords, it is a matter of some satisfaction that we have this year moved a little way towards that. Taxation has been reduced by £366 million in this Finance Bill, although our estimated expenditure for next year is £120 million higher than it was last year. In 208 particular, our estimated expenditure on the National Health Service is going up from £499 million to £533 million; on the National Insurance Fund from £139 million to £170 million; and on National Assistance, in the financial statement, from £114 million to £123 million—although that increase will be greater, no doubt, on account of the measure which has been introduced since the Finance Bill was brought into the other place and the statement prepared.
My Lords, in his remarks on taxation the noble Viscount opposite made two general criticisms. The first was about the reductions in taxation which have taken place. He thought they were badly conceived; and, no doubt, that some of them ought not to have been made. He said that the Conservative Party was very good at looking after its friends. Perhaps it is; but I think it is also very good at taxing its friends. Of the five major increases in death duties which I can remember in my life-time, four have been made by Conservative Chancellors of the Exchequer, and only one by a Labour Chancellor. It has been Conservative Chancellors of the Exchequer who have been mainly responsible for raising the maximum rates for death duties to their present confiscatory figure; and the same applies to income tax and sur-tax.
I think that the only objection which the noble Viscount had against the taxes actually levied in this Budget was the change in the profits tax, which he thinks had an unfair effect on the co-operative societies. I am sure he will not mind if I respectfully remind your Lordships that this change in the profits tax was not made in this year's Finance Bill, but in last year's Finance Bill; not in 1959, but in 1958. I have the OFFICIAL REPORT here, and I see that the noble Viscount opposite said exactly the same on July 29 last year about this profits tax affecting co-operative societies as he has said this afternoon, although he said it at very much greater length—I expect that probably it was not quite such a warm day.
VISCOUNT ALEXANDER OF HILLS-BOROUGH
May I just explain that this matter was raised during the discussion on this Bill in the other place, where they could move an Amendment, and that an 209 Amendment was so moved. But I cannot move an Amendment on the Finance Bill up here. I can only repeat the argument which has already been used in the course of discussion on an Amendment in another place. Otherwise, if I could put down here an Amendment to the Finance Bill, I should put it down every year.
§ THE EARL OF DUNDEE
My Lords, I should like to assure the noble Viscount that we are always delighted to hear what he has to say about this, and I hope we shall often hear him say it again. But I was going to point out that in this debate last year, to which I have referred, my noble friend Lord Hailsham, who replied to the debate, before he came to the main part of his speech, filled exactly two and a half columns of Hansard in replying to this point made by the noble Viscount. Therefore, I hope that your Lordships will excuse me from doing so, and will look instead at Column 437 of Volume 211 of last year's Hansard.
VISCOUNT ALEXANDER OF HILLS-BOROUGH
Does that mean that the noble Earl does not want to be committed to saying it as his own opinion?
§ THE EARL OF DUNDEE
If the noble Viscount likes I will not read the whole two and a half columns, but I will mention that my noble friend Lord Hailsham pointed out that the Chancellor of the Exchequer had fully taken into account the position of the co-operative societies; that he had allowed, as a special concession, interest on share capital to be deducted on the same basis as loan interest, which it more nearly resembles. And, of course, the trade discounts, which are called dividends, are also omitted. He also pointed out that the profits tax on co-operative societies was therefore on the same basis as that of other companies, and that it might be perhaps unfair on those other companies if the co-operative societies were taxed at a lower rate. However, it is all there in last year's Hansard for your Lordships to see.
Now, with regard to the effects of our annual Finance Bills on the general economic state of the country, the noble Viscount, Lord Alexander of Hills-borough, gave some description of the problems which confronted the Government of which he was a member, and compared them with those which have 210 confronted the Conservative Governments which have been in office since 1951. I am not going to dispute that point with the noble Viscount on Party lines at all: I am going to make only one very brief observation about what I think our real problem has been. After the war, for some years we had what was called a "sellers' market." Nearly everybody was anxious to buy almost anything he could get from almost anyone. Now the sellers' market is no longer there, and our difficulty has been that, while the conditions in which our exports have to be sold abroad have been getting tighter and more difficult, the wage-price spiral has gone on, and inflation, which we tried to check, has continued until nearly a year ago. Our efforts to check inflation, although they were continuous, and though sometimes we thought that we had succeeded, did not in fact succeed.
In 1957, which the noble Viscount referred to as a critical year, there was a world trade recession—not a tremendous one as there used to be before the war, but quite an appreciable one. There was a reduction in foreign buying. If, in those circumstances, we had gone on allowing our internal price levels to rise, if we had gone on with an inflationary economy when competition was growing keener abroad, we would have failed to sell abroad what we must sell to keep our economy stable; we would have had very heavy unemployment. There was a crucial imminent danger of that, which perhaps forced the Government in September of that year to take more drastic measures to stop inflation than they had done before. This is always a difficult question to decide—a question of balance and not a question of principle: how far we should go in the direction of expanding economy, or how far in checking inflation.
The fact is, my Lords, that we have checked inflation. The noble Viscount attributed the chief reason for that to what the Prime Minister and Mr. Stanley Holloway call "a little bit of luck", and he suggested that we had not used that "little bit of luck"—that is, the terms of trade which have moved in our favour—to produce the best results. But I think that we have used them to consolidate our position in a not unsatisfactory way. At the end of last month our gold and convertible currency 211 reserves stood at £1,133 million, which is £321 million higher than they were at the end of 1957. We paid off £67 million on North American loans at the end of last December, £71 million to the International Monetary Fund in March, and an additional gold subscription of £58 million to the International Monetary Fund in May. At the same time we have maintained our very high rate of overseas investment. Most of this has taken place in the Commonwealth, and it assists the economic development of those countries, and so helps to raise the standard of living of peoples with whom we have such close ties. As my noble friend Lord Hawke said, we do not want the terms of trade to be too much in our favour, because that means that the primary producing countries, who are generally economically backward countries, become poorer and cannot afford to buy our exports. So it is in our interests that commodity prices should not be too low and that our customers should earn enough money to enable them to buy our exports.
After the Montreal Conference last December the volume of investment in the Commonwealth on a Government-to-Government basis has increased. The level of grants to under-developed countries is now running at the high level of over £50 million a year. We can meet these calls on our reserves now without weakening our overseas monetary position only if our current balance is in a healthy surplus, and we had a record current surplus of about £450 millions last year. That is a fact, and even though in the month of June, as your Lordships will remember, we had a large surplus of imports over exports, the strength and position of sterling in the world has enabled us to take that without any concern about the future of our balance of payments position for next year.
We have been able now to release controls on a large number of imports from dollar countries with whom we want to trade. Our export trade with Canada, in particular, and with the United States, has gone up heavily in the last twelve months, and our export trade with 212 Western Europe has also gone up. Although, as I mentioned to your Lordships in our debate in April, we expected our exports to the rest of the sterling area to be at their lowest in the first quarter of this year, they also are now beginning to rise. We have this good export position; unemployment is coming down; and production is going up. As my noble friend, Lord Hailsham, mentioned in his speech, the production index, which had risen fairly quickly from 1954 to 1956, then slowed down until in 1958 it was almost stationary. Now, in the first quarter of this year, if has risen from last year's level of 107 to 110, and is expected to be between 110 and 111 in May.
These things may have happened before; but what has not happened before is that the price level has now been steady for about fifteen months: it is the same to-day as it was in April, 1958. I suggest to your Lordships that all these facts lead to the conclusion that the present economic policy which we are trying to pursue is the right one. Now that we have gained this position of stable prices, full employment, increasing production, and increasing exports, we must try to hold that position, consolidate it and use it as a basis for going forward again. In my submission to your Lordships we must resist any proposals which may lead us back into inflation once more or which may destroy the growing confidence in the future of British industry, so that next year we may again move further on towards prosperity.
§ On Question, Bill read 2a; Committee negatived.