HL Deb 26 July 1983 vol 443 cc1458-66

5.10 p.m.

Lord Cockfield

My Lords, I beg to move that this Bill he now read a second time. As your Lordships will be well aware, this is, in effect, the second part of the Finance Bill originally introduced in March to give effect to the Budget proposals. When the election was announced it was important to enact the Finance Bill without delay. This could only be done by agreement. The Opposition refused to agree to implementation of all the tax reductions then proposed. As a result the Bill was truncated. We pledged ourselves in our election manifesto to restore the tax reductions the Labour Party tried to take away. This we are now doing.

The kernel of the tax reductions proposed in the Budget was an increase of 14 per cent. in all the income tax thresholds. This did not in any way confer a special benefit on the higher paid. On the contrary, the personal allowances which determine the point at which people begin to pay tax and the thresholds for the higher rate bands were increased by the same percentage amount. The present Bill restores the increases in the higher rate thresholds which were removed from the original Bill in the circumstances I have described. The threshold for the investment income surcharge is similarly being increased.

The limit for mortgage interest relief is being increased from £25,000 to £30,000. The deletion of this proposal from the original Bill reflected the Labour Party's opposition to home ownership—a matter also not overlooked during the election campaign. The present limit was set by the then Labour Government in 1974. Had it been increased in line with prices generally it would now stand at £80,000. As it is, the Bill proposed increasing the limit to £30,000 only.

The Bill also provides for an increase in the profits limits for the small companies rate of corporation tax from £90,000 to £100,000 and from £225,000 to £500,000. This benefits many thousands of small and medium-sized companies and improves incentives to expansion.

Finally, as far as the main provisions of the Bill are concerned, provision is made for an increase in the threshold and rate bands for capital transfer tax slightly above the statutory indexation requirement. This provides a more sensible gradation of the rate scale, primarily benefiting small estates.

The total Revenue cost of the measures in the Bill is £236 million this year and £403 million in a full year. This is not in any sense a new or additional cost: these are Budget measures, and their costs were taken fully into account in the Budget arithmetic.

It was suggested by the Opposition in another place—and the same criticism may well be voiced here—that the measures on pubic expenditure announced by my right honourable friend the Chancellor of the Exchequer on 7th July would be unnecessary if the present Bill were abandoned. This is a wholly mistaken argument. The present Bill gives statutory effect to tax reductions which have been in force since the beginning of the present tax year. To attempt to claw them hack now would be a selective increase in taxation falling not on the very wealthy but primarily on professional and managerial people in the middle income groups, including small businesses. As a practical matter a substantial proportion of the tax could not be recouped this year: so that abandoning the Bill would make little or no contribution to our present problem. That problem, indeed, is essentially a public expenditure problem. Expenditure has been running ahead of the totals set out in the February White Paper. It was necessary to rein it back on track.

This argument illustrates very clearly the fundamental difference in approach between ourselves as Government and the Labour Party as Opposition. We believe in restraint in public expenditure and lower taxation. The Labour Party believe in unrestrained public expenditure and high taxation. The electorate have delivered their verdict on that and I have no doubt will do so again.

There is another aspect of the Bill to which I should refer. The Bill does not contain all the matters which had to be dropped from the original Finance Bill. The present Bill deals with those important matters which need to be settled before the Recess. Because of the constraints of the parliamentary timetable it has not been possible to include other changes which would require detailed parliamentary consideration. Thus certain of the oil taxation provisions of the original Finance Bill will now be contained in a special Oil Taxation Bill in the autumn. My right honourable friend the Chancellor of the Exchequer announced in another place yesterday by way of Written Answer how we intend to proceed on these matters not included in the present Bill.

The Bill before your Lordships, therefore, is a short practical measure which implements the policy announced in March and honours our election commitment. I commend the Bill to your Lordships. I beg to move.

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

5.18 p.m.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord for having reiterated substantially the contents of the speech that he made shortly before the election which dealt with the Government's determination to proceed ahead with those parts of the Finance Bill which it was not possible to get through before the election.

The House will, in a day or so, be embarking on a well-earned recess. I feel the utmost sense of benevolence towards the noble Lord: so much so that I shall try to help him to prevent his obvious mastery of metaphysics from protecting him from the realities of life. The noble Lord has been kind enough to refer to the Government's expenditure plans and I wish to refer not only to the Finance Bill now before your Lordships for purely technical reasons but also to the Finance Bill which preceded it: in other words, to take them as a whole and, indeed, to take the Government's expenditure plans in conjunction with what the noble Lord has just said.

The reality of the matter, no matter how the noble Lord's quadratic equations work out, is that the rich are getting richer and the poor are getting poorer. One of the matters that we ought to consider during the time for reflection that we may have during the ensuing 12 weeks is whether this continued trend—and it has been a trend ever since the noble Lord initially came into office in May 1979—has been exactly for the rich to get richer, and the poor to get poorer.

Sometimes I think when the noble Lord refers to the Government's determination in accordance with their various election manifestoes to reduce taxation, that they never have value added tax in mind. Value added tax, for some mysterious reason, although it is settled in the normal currency of the realm, goes into the Exchequer and is in fact spent by the Government, is itself a tax. Therefore when one refers to reducing taxation, value added tax has to be taken into account. The noble Lord knows perfectly well that the burden of tax that has been inflicted on the country since the Government came into office has been very considerably increased, particularly also if one takes into account the increase in national insurance contributions—on the employees' side entirely, with corresponding reductions in the employers' contribution. These things are the realities.

It sometimes is not grasped that a very significant part of public expenditure is in the hands of a very large number—some millions of the population—as part of the social wage. It is a way in which this country over many decades now has sought to iron out some of the grosser—almost obscene—disparities of income and capital resources as between individuals by devoting part of its taxation to various social measures that are in the main designed to benefit a large, but again limited, section of the population. Notably among those of course is the National Health Service and also the various social security provisions.

Mathematically, the noble Lord is able to explain—as indeed his right honourable and honourable friends do so from time to time in another place—that overall expenditure on various social services has gone up by 1 per cent. or 2 per cent. more this year than it was last year and therefore how good they are being in maintaining, and perhaps slightly increasing, expenditure as a whole on various social services—part of which goes as social wage—in comparison with their predecessors. What the noble Lord neglects to say. and what perhaps the country at the moment does not realise, is that precisely owing to the extra £8; billion that now has to be spent—or is the total impact of expenditure, bearing in mind the shortfalls of revenue as well as expenditure—on unemployment benefit, the whole of the social security provisions have become very severely strained.

Moreover, as was pointed out by the Committee of your Lordships' House which dealt with the question of unemployment, in sharp contradistinction to the contentions of the Government, the effect on health of unemployment in this country has been such that the resources of the health service itself have been grossly overstrained and subjected to far more strain in monetary cost terms than the perhaps slightly increased cash resources that have been devoted to it.

For a very large sector of the population the social wage, on which a very large number of the population rely when they come to consider their total standard of life, has suffered a severe diminution under this Government and has borne very heavily upon them. When this is taken in conjunction with the particular form of wage control that is now in force, then it will be seen that what I said is perfectly true: the rich are getting richer and the poor are getting poorer so far as normal wage earnings are concerned.

The Government from time to time—and, as I see more recently, the CBI—have been urging, ostensibly for the sake of the country, that wage demands should be moderated and kept down. Perhaps it would be wise and a little more fitting if those who made the wage restriction demands—the keeping down of percentage increases below the rate of inflation and matters of that kind—bore in mind that the example is not invariably set by those who make the proposals. Many of them refer from time to time in terms of the utmost eloquence to the sacrifices that have been made in this country over the past four years. What is for sure is that they have not made the sacrifices. Those have been made by others.

I have a list in front of me of a fair selection of the various pay increases of the top paid during the past year. I have the names here but it would not be appropriate if I read out to the House the names of the recipients or indeed of their companies. Their salaries over the previous year in some cases show increases of 78 per cent., 76 per cent., 73 per cent., 39 per cent., 37 per cent., 30 per cent., and so on. I can supply the names. The increases have not been paid to people earning £50 a week but to people earning between £30,000 and £50,000 a year.

Is this right? Is this really what we want to see? Surely it is agreed that we are in a state of recession. Opinions as to the reasons for going into that recession, and the Government's responsibility for the whole or part of it, are a matter for argument which I do not propose to enter into here. But, if we are in such straits, is it morally right that the burdens should be so unevenly borne? Is it something that we can live with as individuals within our own consciences? Can we say that it is right that in such a period the rich should become richer and the poor should become poorer?

Your Lordships may have seen recently some features concerning the working of the agricultural policy in the United Kingdom. Your Lordships may recall a feature on one of the broadcast media which showed a farmer, replete with a few thousand acres, boasting that, owing to the EEC intervention in agriculture and the automatic purchase of the cereals he was producing, it was a licence to print money. If one looked at The Times for the same day one found a description of a nurses' home in the United Kingdom showing conditions of squalor which ought not to be endured by anybody, let alone the nursing profession to whom tributes are so often paid. Is this the kind of society that we want? Is it justifiable that this should take place? Is it something with which society is to be condemned to live for four or five years? What kind of cohesion is there to be within society if this trend continues? Is it right that it should continue? Should there not be an endeavour to make equal, or comparable, the sacrifices that have to be made by various sections of the community?

If there are 7 million people on supplementary benefit, is it not perhaps time that others who are very comfortably placed made their appropriate contribution, instead of growing ever richer in a country where fear of unemployment is beginning to become the dominant factor in determining wage levels? The rich and powerful, who are the people whom the party opposite really represents, have no need to fear: they have both their capital and their income.

As your Lordships know, we are getting perilously near to George Orwell's 1984, and it is interesting to see that we are already getting "double think". We are already beginning to express sacrifices in two terms. The Government have two types of expenditure. The expenditure of which they approve and which they want the country to approve, is always seemingly minimised by reference to its percentage of the gross domestic product. Your Lordships will recall that when it was decided to award Lazard Freres £1,500,000 for the benefit of Mr. MacGregor's services the £1,500.000 was not called taxpayers' money. It was said—which was correct—that it represented only 0.0028929 per cent. of the gross domestic product. Yet when it comes to a question of, for instance, providing books for schools—and at the moment there are in the country thousands of schools in which pupils have to share books—the expenditure is not expressed as a percentage of gross domestic product. It is expressed as perhaps £20,000 or £30,000, and the Minister gets up at the Box and very much regrets that owing to the very considerable shortage of funds—and it is taxpayers' money—it is not prudent that the sums should be spent. So educational standards are rapidly declining in this country.

When it is pointed out that approximately £1 million is payable in respect of each inhabitant of the Falklands, arising from our obligations there and from the principles for which we fought, it is said that this is approved expenditure. So it is immediately expressed not in terms of £1 million per inhabitant, but as 0.0019 per cent. of gross domestic product. This is "double think".

The most important cuts of all that are in prospect, about which the noble Lord knows only too well, are those relating to the National Health Service. If your Lordships will forgive me, I should like to recall that I was in another place when the National Health Service Act was passed in 1947, and I am amazed by some of the folklore that has since grown about it. On listening to noble Lords opposite, and sometimes members of another place, one would almost think that the NHS was their invention, and that they are sworn to protect it. I remember those days very well indeed. I sat through the debates in the House of Commons, and I was in the Ministry of Health at the time. I must tell your Lordships—this can be proved by reference to the records—that in the Commons the Conservative Party fought the Bill on Second Reading, it fought it clause by clause and line by line in Committee, it fought it on Report, and it fought it on Third Reading, because it hated it. It represented a breach of Tory politics. It represented the first illustration of the belief of which the Conservatives continue to be afraid: from each according to his abilities, to each according to his needs. Now that service is threatened, too.

Noble Lords may say that in matters of this kind they are just as compassionate as is anybody else and that this is reflected in the Finance Bill and in their expenditure plans. Human sympathy seems to ooze from them on these occasions. Might they reflect that it is not the expression of the sentiment that is important. Nobody questions the sincerity of noble Lords opposite when they express compassion for the great mass of the people of our country who are far less fortunate. Nobody does that at all. But what they say should he matched by deeds.

I cannot say in any truth that the Conservative party itself, or its members. lack the ability to express their anger and indignation at injustice; they do not. I have in front of me a report from The Times of 15th July. The Times states—and it expresses it in most moderate terms: At a packed and stormy meeting of the backbench 1922 committee in the Commons, MP after MP rose to accuse the Government of incompetence, cowardice…". That shows that Conservative Members of another place have a capacity for being indignant. My only regret is that on that occasion it was an indignation and a sense of injustice where their private affairs were found to be in conflict with their public duty.

I repeat that these are moral questions. Everybody must make up his mind whether the country is going to continue on this course of permitting legislation and governmental action under which the poorer will continue to get poorer and the richer will continue to get richer. If there are in this House any noble Lords who are prepared to cross their hearts and support policies that have that as either their avowed end, or as a perceived and possible end, we on this side of the House cannot be angry any more. We can only express our pity and. as your Lordships know, pity is composed of sorrow and contempt.

5.39 p.m.

Lord Diamond:

My Lords, I wonder whether I may beg your Lordships' pardon for seeking to take up your time for a very short period, notwithstanding that my name is not on the list of speakers, and in the hope that, having regard to the length of the list—that is to say, only one noble Lord apart from the Minister who introduced the Bill—you will be willing that this discourtous intrusion should he made. I should like to apologise for this and to explain the only why my name, or the name of one of my noble friends on the Liberal Front Bench, was not on the list. It arose because we tried to comply with the courtesies of the House which suggest that if one does not expect to be able to be present throughout a debate one should not try to participate in it. But matters have altered during the course of this afternoon and that is why I seek this privilege. I wanted to make it abundantly clear that, although no name was put on the list from us, both the Liberals and we ourselves take considerable interest in this and regard it as a very important issue.

The noble Lord the Minister who intoduced the Bill drew attention to the distinction between what is immediately before us, namely, the provision of finance out of taxation, and the allied matter of public expenditure. The Minister was, of course, quite right in drawing that distinction. He was also right in saying that the Conservative Party made it abundantly clear during the general election that, immediately on being returned, if it was, it would reintroduce those parts of the Finance Bill that had been excluded as a result of the impact of the election. There is no question therefore that the Government have the democratic right to reintroduce those sections. There is also no question that the Government act under certain difficulties in regard to the timetable. which we recognise fully. Again, there is no doubt that your Lordships' House works under very appropriate restrictions in discussing details of taxation that belong properly to another place.

For those three reasons, I would not seek to dissent from the Minister's distinction but to say that we arc very unhappy about the situation that is revealed. We are rather unhappy that the Minister has not been able to give us the information that is generally forthcoming from the ministerial Bench on the exact impact of the proposals that the Government are making. Is it right, as the Minister says, that the impact of the Bill bears mainly on middle managerial salary levels? Or is it right, as the noble Lord. Lord Bruce of Donington, says, that the impact of the Bill is to make the rich richer and the poor poorer? No one knows better than the noble Lord, from his previous experience in the Inland Revenue, that there are well tried formulae that enable one to give, at all events, a general indication, with a comparative shortage of words. of the impact of alteration in taxation levels both as to thresholds and as to personal allowances. I believe that the House would have been better informed if the noble Lord had been able to give more detail than he did and some figures to support it.

The Government are exercising their democratic entitlement. Nevertheless, we are unhappy about a combination of circumstances under which taxation is being reduced and public expenditure is also being reduced—and that public expenditure is being reduced partly on the ground that it cannot be afforded. Although the noble Lord certainly has my sympathy in his difficulties in being required to get the Bill through before the recess, I want to tell him in the plainest of terms that we are very unhappy about the public expenditure aspect. We shall be returning to this issue in full measure after the recess.

Lord Cockfield:

My Lords, yesterday I was assured by the noble Lord. Lord Bruce of Donington, of his support. Today I am unfortunate enough to be the recipient of his benevolence. I neither need the first, nor do I solicit the second. I was even more interested when he based his moral philsophy on a quotation from Karl Marx's manifesto of Gotha. That is very significant indeed. He talked a great deal about the rich being richer and the poor poorer. In a sense the noble Lord. Lord Diamond, was pursuing the same point when he wanted to know what the position was.

There is one fact of great importance to which I must really draw the attention of the noble Lord, Lord Bruce. It is the simple fact that real disposable income of those at work has increased in recent years. What has been happening is that earnings have increased faster than the rate of inflation. This has meant that those at work have enjoyed a higher, not a lower, standard of living. One of the effects has been to increase the uncompetitiveness of many sectors of British industry, to slow down the rate of improvement, to reduce output, and therefore to increase unemployment.

One of the most worrying features of the development of our economic life in the last few years has been the way in which those at work have pre-empted a larger proportion of the national income to the detriment of those not at work. This is a very serious problem to which I think the noble Lord, Lord Bruce of Donington, might well turn his attention rather than repeating fairly empty slogans about the rich being richer and the poor being poorer.

The present Bill increases the thresholds for the higher rate hands. the starting point of the higher rates and the subsequent bands, by 14 per cent. That is the same percentage as the thresholds themselves; that is, the points at which people begin to pay tax were increased under the original Budget proposals. If you look at the previous Bill which was enacted and the present Bill together, they form two parts of a whole. The effect of that whole was to treat everybody from the bottom to the top in exactly the same way. Very detailed information was published at the time of the March Budget. There was, of course, the Financial Statement and Budget Report, sometimes referred to as the Red Book, and also extensive tables were produced showing the impact on particular income ranges. If the noble Lord, Lord Diamond, refers to those, he will find the answers that he is seeking to his questions.

So far as this Bill, looked at in conjunction with the previous Bill, is concerned, the effect is that it treats everyone in exactly the same way. At the same time, child benefit in November rises to £6.50, which is the highest figure, in real terms, at which it has ever stood. We are protecting the poorest people, the poorest families, at the same time as we are alleviating the burden of income tax on the great mass of the people of this country. This effectively disposes of the argument of the noble Lord, Lord Bruce of Donington, that the policy has been one of making the rich richer and the poor poorer. It has been nothing of the sort.

It is also necessary to remind the noble Lord of something else. In so far as we can improve incentives in this country, this will lead to a recovery and ultimately to a higher rate of growth. It is the increasing prosperity of the country as a whole that will ensure that the standard of living for everybody, the rich and the poor alike, increases. A policy of deliberately trying to tax the rich out of existence ends up by reducing the national product for everybody. The rates of tax that we introduced in 1979 on the higher incomes are, in fact, only comparable with those that are found elsewhere in the industrialised world in Europe generally. They are, in fact, not as generous as those to be found in the United States.

The noble Lord, Lord Bruce, also raised the question of VAT and said that when we spoke about reducing taxation there was never a word about reducing VAT. There are two points to be made here. First, we believe as a matter of general principle that it is better to reduce direct taxation as the main objective and that the balance between direct and indirect taxation in this country, as it developed in the 1960s and the 1970s, put undue weight on direct taxation; it is that direct taxation which has the most immediate effect on incentives. Therefore, we have directed our efforts to reducing direct taxation.

But, more importantly, one has to look at this from the overall point of view of economic policy. Our objective has been to reduce the total proportion of the national product absorbed by taxation and that in turn involves reducing the level of expenditure in relation to the total national product. After a period in which the proportion of the national product absorbed by Government expenditure has been increasing—and it is still, frankly, significantly higher than it was in 1979—it is now on a path which is set gradually to reduce, and we hope to see in the years ahead a reduction of the total proportion of the national production which is pre-empted by Government.

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

Then, Standing order No. 43 having been dispensed with (pursuant to Resolution), Bill read a third time, and passed.