HL Deb 20 December 1982 vol 437 cc853-61

3.1 p.m.

The Secretary of State For Trade (Lord Cockfleld)

My Lords, I beg to move that this Bill be now read a second time. The Bill provides for a reduction in national insurance surcharge to a rate of 1½ per cent. from April 1983. It also provides for the national insurance surcharge payable in the current year, 1982–83, to be reduced by an amount equivalent to approximately ½ per cent. The tax was introduced by the previous Government in 1976 at a rate of 2 per cent.; in 1978, they increased the rate to 3½ per cent. This year's Finance Act reduced the rate to 2½ per cent. and this Bill will further reduce it to 1½ per cent. The surcharge has always been unpopular with industry because it increases their costs and makes them less competitive. It has the special disadvantage that it increases the cost of employing people, and so it is a tax on jobs.

As a result of the reduction in the Finance Act and the proposals in this Bill, the rate of surcharge will reduce the cost of employing labour in the private sector by about £1½ billion in a full year. This is a considerable benefit, and I am sure it will be widely welcomed. Overall, it should improve output, employment and company profitability. It has been suggested that we should have made a bigger reduction in the rate, or even have abolished the surcharge altogether. My right honourable friend the Chancellor of the Exchequer considered the matters very carefully, and the reductions proposed in the Bill go as far as he considered prudent.

The substantial benefits of the reductions depend upon their being made within a responsible financial framework that ensures that the broad thrust of the Government's economic strategy is maintained. That is the only way to produce sound growth and real jobs. Because there is only a limited amount of money available, we had to ensure that it was used to the best advantage. This is why we have concentrated the benefit on the private sector. As a result of provisions in this Bill and elsewhere, the public sector will be neither better off nor worse off following the reductions than they were before.

For central Government and nationalised industries, this will be done by adjusting the 1982–83 and 1983–84 cash limits and external financing limits to take account of the reductions in the rate of the surcharge. We originally intended to treat local authorities in a similar way for 1983–84. This would have allowed them to pay the surcharge at the new lower rate, but with the rate support grant adjusted so that, overall, local authorities would be no better off and no worse off. But after further consideration and consultation with the local authority associations we decided that rather than disturb the grant calculations at such a late date, and to ensure equitable treatment for all local authorities, it would be better to leave the present calculations as they stand and to provide for the local authorities to pay, for 1983–84 only, a rate of 2½ per cent. The Bill has been amended accordingly. Local authorities will be in a similar position for 1982–83. They will continue to pay the surcharge at a rate of 3½ per cent., and the grant calculations will not be disturbed.

My Lords, I now turn to the details of the Bill. The reduction in the rate for 1983–84 will be made in the usual way. Employers will be issued with detailed tables, to take effect from April, which will be based on the new rate of national insurance surcharge and the new rates of national insurance contributions. We could not follow this procedure in making the reduction for 1982–83 because the process of issuing new tables and their implementation by employers takes about four months in all. To make the reduction effective in 1982–83, it is therefore necessary to provide for a new and temporary special scheme. This is what the Bill does. This scheme will achieve a reduction which is broadly equivalent to a ½ per cent. reduction in the surcharge for 1982–83. It does this by providing for employers to calculate 3 per cent. of their total liability for national insurance surcharge and national insurance contributions, including employees' contributions, for the months April 1982 to January 1983. Their February payment of surcharge and contributions will then be reduced by this amount. They will also be entitled to reduce by 3 per cent. the payments due in respect of the rest of the financial year.

Although under this special scheme the national insurance contributions will be taken into account in calculating the reduction, we have taken great care to ensure that the amount of the contributions and the contributions records and procedures will be left intact. Only the national insurance surcharge liability will be affected.

The special scheme will achieve a reduction which is broadly equivalent to a ½ per cent. reduction in the rate of surcharge for 1982–83. But because of the method we have adopted the reduction cannot be precisely equivalent to a ½ per cent. reduction for all employers. This is because total contributions payments, taking account of both employers' and employees' rates, are lower for employers with contracted-out pension schemes and for those employing people of pension age and married women who have opted out of paying full-rate contributions. It follows that under the proposed scheme they will not do quite as well relatively as employers paying full rates of national insurance contributions. But we are satisfied that for this temporary scheme it would have been impracticable to introduce different percentages for a multiplicity of different circumstances. The short point is that all firms paying the surcharge will benefit from the temporary scheme and that, without such a scheme, none would have benefited.

It is particularly important that employers should take no action to reduce their payments before they receive advice and instructions from the Inland Revenue. Depending on the passage of this Bill, the intention is that these instructions will be issued in the last week of January 1983 and in time for employers to make the proposed deduction from their February payment. The measures proposed in this Bill, together with those in this year's Finance Act, provide valuable and welcome help to private sector commerce and industry by reducing their labour costs. Overall, the total benefit to the private sector is worth about £1 billion in 1982–83 and around £1½ billion in 1983–84. My Lords, commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Lord Cockfield.)

3.11 p.m.

Lord Wallace of Coslany

My Lords, may I first of all thank the noble Lord, Lord Cockfield, for his very clear and detailed explanation of the purpose of this small but not unimportant Bill. It is in fact a necessary Bill to give a little relief to industry especially at a time when bankruptcies are still increasing and many firms have gone out of business, with the consequent regretted loss of skilled labour, capital and equipment. If this Bill eases—even if slightly—this regrettable situation, then indeed we welcome a crumb of comfort, albeit somewhat grudgingly welcomed by the CBI.

It is regrettable that this relief applies only to the private sector and not to any extent to the public sector. In particular, I refer to the National Health Service and local authorities. It may of course be argued that local authorities will not be disadvantaged, but recent penal measures introduced by the Secretary of State for the Environment add a somewhat spiteful note to consideration of this Bill. I am particularly concerned with the effect of the Bill on local authorities and on direct labour organisations because, as the Government have decreed—and there is a great deal of good argument in favour of it—direct labour organisations must compete for work in the private sector. Direct labour organisations can operate in a competitive environment but only if that competition is fair. A 1 per cent. differential is not fair competition.

I hope that the noble Lord will be able to say that direct labour organisations will in fact be allowed to tender on terms equal to the private sector. Of course, the noble Lord, Lord Cockfield, as was expected, referred to the fact that this particular measure was introduced by a Labour Government. That is so, and I certainly agree with him that it was not popular and is not popular. But it was imposed under circumstances which were entirely different at that time, in 1976–77. As we know, several continental countries raise money for their social services through charges on the employer. Most of our contributions to social services come from taxation. The surcharge was imposed at a time when the pound was competitive. In addition—and this is a very important fact—the VAT rate was half of what it is today, and the burden of direct taxation is now 10 per cent. higher. Although one is naturally inclined to welcome a little relief to industry, I would have expected the Government to show equal enthusiasm for the victims of industrial depression—the millions of unemployed officially recorded, albeit by adjusted figures, and the unrecorded. I am of course referring to the 5 per cent. cutback in unemployment benefit, the subject of promises but, so far, only inaction. When will the promise of restoration be kept?

Finally, although I feel that the necessity for this Bill could have been avoided by incorporation of its proposals in the Finance Bill arising from the last Budget, nevertheless, I give the Bill a somewhat modest and muted welcome.

3.15 p.m.

Lord Banks

My Lords, I should like to join in thanking the noble Lord the Secretary of State for his clear exposition of the purpose and nature of this Bill. On 20th December 1976—six years ago to the day—we debated the Second Reading of the National Insurance Bill of that year, which first introduced this tax. It is interesting now to look back at the debate which we had on that occasion. The noble and learned Lord, Lord McCluskey, speaking for the Labour Government, explained that the new tax was necessary to help reduce the public sector borrowing requirement. The noble Lord said that this was part of a long-term strategy to reduce the borrowing requirements steadily over the next three years. If this did not happen, he said, then it was the view of the Chancellor of the Exchequer, Mr. Healey—and I quote the noble Lord's words at col. 1080 of Hansard for 20th December, 1976—that: the financing of the public sector could pre-empt private savings, which productive industry was likely to require on a substantial scale to finance stock building and investment. Alternatively, it would lead to an excessive growth of the money supply, which would refuel inflation". That quotation demonstrates the fact that while Governments change, Government pronouncements change less noticeably.

For the Conservative Opposition, the noble Baroness, Lady Elles, opposed the new tax. She said that it was a tax on employment, a tax which directly put up the cost of labour—and I believe that she was right in that. She went on to say how inappropriate it was to have such a tax at such a time, to put a tax on labour in the then prevailing circumstances. Speaking for the Conservative Opposition, she graphically described the conditions then prevailing: It was unimaginable in the early 1970s that the unemployment figure for this country could reach I million, let alone 1½ million. Yet we read again yesterday of estimates of 2 million unemployed. Those figures cannot express the consequences on even more people, including families and dependants; and it is no use quoting statistics only. These arc human beings we are considering, passing their days in ever-declining hope.". The noble Baroness went on to describe the plight of school-leavers.

Some three and a half years of intensification under the present Government of the policy which the noble Lord, Lord McCluskey, outlined in December 1976 has led to a very much worse employment situation than the noble Baroness described as prevailing in 1976. The number of unemployed has doubled. In that debate six years ago I said that I disliked the new tax for four reasons. They were as follows. First, that it was a tax on employment, as the noble Lord, Lord Cockfield, said again this afternoon, and if for that reason it was inappropriate in 1976 then how muchless appropriate it is today. Secondly, it took no account of ability to pay. Thirdly, it took no account of ability to pass on the surcharge in prices, which not all businesses and organisations could do. Fourthly, I considered that it was an abuse of the national insurance system because the money did not go directly to the national insurance fund at all, although people might well suppose that it did. I have not changed those views. We on these Benches welcomed the reduction earlier this year at the time of the Budget, and we welcome the reduction in this Bill.

I share some of the concern expressed by the noble Lord, Lord Wallace of Coslany, about the position of the public sector and in particular of the local authorities. Following the announcement which was this week repeated in this House after being made in another place by the Secretary of State for the Environment, I fear that we shall see rising rates in 1983; and it would bring some help to the hard-pressed local authorities if they could benefit from the reduction in the surcharge. To sum up, we welcome the reductions contained in the Bill for this year and next, but we look forward to the complete abolition of this tax and hope it will not be long delayed.

3.21 p.m.

Lord Beswick

My Lords, it being Christmastime and the time for good will, I had not intended to say anything on this Bill, but I should like to congratulate the noble Minister the Secretary of State on the more moderate way in which he justified the discrimination between the public and private sectors so far as this Bill is concerned. The noble Lord has just said that he justifies the discrimination on the basis that there is only a limited amount of money and it might as well be concentrated on the private sector. That is rather better than what the noble Lord sitting alongside him had to say last week, when he said that the whole point at the moment is that private industry is the means by which Great Britain will be got out of any trouble and it will not be by the nationalised industries. I should like to ask the noble Lord the Secretary of State whether he agrees with that, and whether he would tell the House that in his view this nation will never get out of any trouble at the expense of the gas, electricity, transport and communications industries, as examples.

There is another question I should like to put to him. Again, last week one of his Back-Bench supporters justified this discrimination on the basis, as he put it, that the private sector had to bear the risks of competition and the public sector did not. I wonder whether the noble Lord would assure the House that he is very well aware that a public sector industry like British Airways, for example, has to stand up to competition from Pan American; and that, to take another example, British Aerospace had to stand up against competition from Boeing, Dassault and Fokker. Also, it is quite impossible and unfair to say that the National Coal Board, when it comes to selling coal in the overseas markets, is not up against pretty severe competition.

Then the noble Lord went on to explain that there will be an adjustment in the EFL of the public sector industries. I wonder whether he could answer just one or two questions on that. As I understand the position, the public sector industries will have to tot up the precise amount of money they would have to pay on this surcharge and then, although the amount is actually reduced in their case, an equivalent amount is knocked off their external financing limits. The Secretary of State will correct me if I am wrong, but I think that is what happens. Why should not the public sector industries be allowed to knock this off their prices? The Chancellor made it clear that the tax put up prices in the first place; so why, now that a reduction of surcharge is possible, should not the public sector industries be allowed to use this refund for the purpose of reducing prices? If I am told that all that happens is that their EFL is reduced, then I have to put to him: why should there be a reduction in the external finance limit if the amount can profitably be invested in those industries?

Again—and this is a very serious question I should like to put to the noble Lord—if we have a situation where British Telecom is now having to face up to parallel competition (and it is the boast of the Conservative Ministers that they are deliberately setting up organisations in the telecommunications industry to compete with British Telecom) are we to understand that on the one hand British Telecom has to pay this full amount while its competitors do not? If he tells me again that the answer to that is this fiddling about with the EFL, what happens in the case of British Gas, for example, which does not have to borrow on the market or from the Government and has no external finance requirement from the Government? In their case, how is the adjustment made? I should be grateful if the noble Minister could give me some reason for pleasure over the Christmas Recess by satisfactory answers to some of those questions.

3.24 p.m.

Lord Cockfield

My Lords, I am grateful to the noble Lord, Lord Wallace of Coslany, and the noble Lord, Lord Banks, for the welcome they extended to this Bill, rather more enthusiastic in the case of the noble Lord, Lord Banks, and rather more muted in the case of the noble Lord, Lord Wallace, but a welcome all the same. I imagine that among the points of detail raised by the noble Lord, Lord Beswick, he welcomed the Bill as well.

May I take one or two of the points raised by noble Lords. First, as to the question that the reduction applies to the private sector only, that was of course a deliberate decision of policy and it was based on the fact that the competitive pressures and difficulties are greatest in the private sector. It is the private sector which is in the forefront of our drive to secure more output and it was the private sector where we felt that most encouragement needed be given. The amount of money available is limited, and the more widely it had been spread the thinner it would have been.

So far as the specific points raised by the noble Lord, Lord Beswick, are concerned, he is, as we all recognise, a most doughty defender of the public sector. It is perfectly true—and no one would dispute it—that there are certain public sector industries which are subject to sharp competition. There are some public sector industries which are more efficient but, on the other hand, there are many public sector industries which are in a monopoly situation; and there are other public sector industries where their level of efficiency is at least open to question.

I do not want to follow the debate on the nationalised industries in more detail than that; but if one is looking at the broad distinction between the private sector and the public sector, then many of the operations of the public sector—the local authorities and the National Health Service, mentioned by the noble Lord, Lord Wallace—are not in fact trading services at all, and therefore are not in the field of having to sell their goods against competition at home and abroad. It was largely to improve the competitive position that the reduction was made in this way.

Lord Beswick

My Lords, would the noble Lord allow me? There is an important point here. I follow exactly what the noble Lord the Minister is saying and I agree with him that there is this difference between one public sector industry and another public sector service. But does that not strengthen the argument I have tried to put to the noble Lord, that it is unwise to use this crude, broad brush attack on the sector as a whole? Could there not be a little more discrimination based on economic factors?

Lord Cockfield

My Lords, the answer to the noble Lord is a very simple one: there is no attack being made in this Bill on the public sector. As I explained in some detail, the public sector is no worse off as a result of this Bill. It is no better off either; but it is quite wrong to describe it as being an attack upon the public sector. It is nothing of the sort.

May I follow one or two other points that were raised by noble Lords. The noble Lord, Lord Wallace, with the support of the noble Lord, Lord Banks, raised the question of the impact of the Bill on direct labour organisations. This point, if I may say so, is understood by my right honourable friend the Secretary of State for the Environment. Representations have been made on the point. He is having discussions with the local authorities to establish the best way forward. I do not think it would be right for me to attempt at this stage to anticipate the results of those discussions. I think that we should allow them to go ahead.

We had a most interesting account from the noble Lord, Lord Wallace of Coslany, as to why a Labour Government had introduced this tax and why circumstances today are so different from what they were in 1977. I agree with him that circumstances are very different. I will not expand on that. So far as the tax is concerned, he was very effectively answered by the noble Lord, Lord Banks. The Liberal Party at the time strongly opposed the tax. We ourselves strongly oppose it. In principle, we do not think it is a good tax, which is why we have already taken two important steps towards reducing its impact very substantially. But we have reduced it, first of all from 3½ to 2½ per cent.; and next year we shall reduce it to 1½ per cent. So as far as that is concerned, we find ourselves very much on the same side as the noble Lord, Lord Banks.

The noble Lord, Lord Wallace, also suggested that this reduction could very well have been incorporated in the Budget last March. When one is looking at tax reductions it is very important that they should be made in the context of a sound financial framework which ensures that the general thrust of our economic policy is maintained. When he was looking at the circumstances as they existed last March, my right honourable and learned friend the Chancellor of the Exchequer felt he had gone as far as the circumstances at that time justified. Nine months later my right honourable and learned friend feels that he can take a further step forward, and he has made provision for a third step forward to be taken next April. This seems to me to be the right and prudent way of dealing with these matters.

These answer the major points that have been raised. There is one further point that the noble Lord, Lord Beswick, raised in relation to the external financing limits of the nationalised industries. The point here is that these limits are fixed after a careful review of the profits, other sources of finance and the investment programmes of the industries. That review is done before the beginning of the year. It naturally subsumes whatever plans are made by those industries for their prices in the coming year, and the adjustment of the EFL merely reflects the unexpected change which has now occurred as a result of the reduction in the rate of surcharge. Their investment plans were duly reviewed at the time the EFL was fixed and there is no reason why there should be a further review now.

Lord Beswick

My Lords, I asked about the case where there is no EFL. What happens then? What countervailing concession is made to offset this charge?

Lord Cockfield

My Lords, there are circumstances in which an industry has a positive instead of a negative EFL. Where that is so, the positive figure will be increased in just the same way as a negative figure would have been reduced.

On Question, Bill read a second time; Committee negatived.

Then, Standing Order No. 43 having been suspended (pursuant to Resolution of 16th December) Bill read a third time, and passed.