The Budget and Income Distribution (Hansard, 19 March 1984)

§ Lord Diamond
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

§ The Chancellor of the Duchy of Lancaster (Lord Cockfield)
My Lords, I regret that it is not possible to estimate the full effect on the Gini co-efficient of the 973 effect of my right honourable friend's Budget proposals on the distribution of personal incomes. But I have no doubt that people at all levels of income will benefit from the comprehensive programme of measures which my right honourable friend put forward last Tuesday.

§ Lord Diamond
My Lords, I am grateful to the Chancellor for the trouble that he has taken. But does that Answer indicate that the Government came to a conclusion with regard to this year's Budget without considering that the totality of its effects was going to be in terms of a further widening or narrowing of the inequality of disposable incomes? If they did so, can the noble Lord give us the results of their deliberations? If they did not do so, does this not indicate that the Government are quite prepared to see the continuation of the direction which has already been formed by previous Budgets, of redistributing the burden of taxation from the comparatively well-to-do on to the shoulders of the comparatively poor?

§ Lord Cockfield
My Lords, the main purpose of the Budget proposals was to improve the efficiency of operation of the British economy. That will produce in due course changes both in the absolute level and in the distribution of incomes. Those changes, which will be to the benefit of the British people as a whole, can only be measured after the event. So far as Gini coefficients for past years are concerned, they reflect not only changes in taxation, but also changes in the distribution of pre-tax incomes, including the effects of demographic changes.

§ Lord Thorneycroft
My Lords, is my noble friend aware that, whatever happened to the Gini coefficient, it was a jolly good Budget?

§ Lord Cockfield
My Lords, I entirely agree with my noble friend.

§ Lord Molloy
My Lords, is the noble Lord the Minister aware that very many financial experts who write articles for various newspapers, which might he described as substantial newpapers, would entirely disagree with the remarks made by the noble Lord, Lord Thorneycroft? Therefore, is it not a fact or are those experts telling lies when they write that, after this Budget, the poorer people in our land will be poorer than they were in 1979 because of the increased amount of taxation that they have to carry?

§ Lord Cockfield
No, my Lords, none of that is true. I do not know what newspapers the noble Lord reads, but he will find a fairly universal approval of the proposals contained in my right honourable friend's Budget. The important thing is that we need a growth in output in this country, and the Budget measures are designed towards that end. From this all of our people will benefit.

§ Lord Elwyn-Jones
My Lords, would the noble Lord enlighten those of us who are not fully informed what the Gini co-efficient is? May we assume that it has nothing to do with Aladdin?

§ Lord Cockfield
My Lords, I feared that somebody would ask me that. The Gini co-efficient is the most widely used summary measure of the degree of inequality in an income distribution. It can most easily be understood by considering a Lorenz curve of the income distribution. The area between the Lorenz curve and the diagonal line of complete equality, as a proportion of the triangular area between the curves of complete equality and inequality, gives the value of the Gini co-efficient.

§ Lord Nugent of Guildford
My Lords, is my noble friend aware that in so far as the Budget removes the national insurance surcharge—the tax on jobs imposed by a previous Labour Government—the Government are giving a direct benefit to the most disadvantaged of the community—those who are unemployed—and giving the best prospect of more of them becoming employed?

§ Lord Cockfield
My Lords, the comment made by my noble friend about the removal of the national insurance surcharge is a very important one. I should only like to add one point. The noble Lord, Lord Diamond, pioneered a great deal of work on this particular subject. Every year in Economic Trends we publish a long article on this matter which gives a large number of different measures of the Gini co-efficient, and anyone who wishes to pursue the matter further would be well advised to read those articles.

§ Lord Blyton
My Lords, can the Minister say whether the economy can be saved by putting 15 per cent. VAT on fish and chips?

§ Lord Cockfield
My Lords, that was only one item in a very wide-ranging Budget.

§ Lord Diamond
My Lords, did I hear the noble Lord the Chancellor of the Duchy of Lancaster aright when he said that this measure was the most regular one used for measuring the inequality of incomes in this country? Is it not inevitable that, if the Government pursue their policy of reducing taxes on income and increasing taxes on expenditure—the first being progressive and the second being considerably regressive—what some people describe will become true?—namely, that the Government's purpose is to make the rich richer and the poor poorer.

§ Lord Cockfield
My Lords, no; none of those things is true, nor do they follow from one another. The fact of the matter is that VAT itself is not a regressive tax. For example, food is exempted from VAT and this has a very considerable bearing on the distribution of the burden of that tax. The Gini co-efficient—as, indeed, do all measures of equality or inequality of the distribution of incomes—also reflects the distribution of gross incomes before tax; and the most important point is to obtain a growth in those gross incomes. This is what we are aiming to do.

§ The Earl of Lauderdale
My Lords, will my noble friend agree that one effect of this Budget is to promote profits in industry, which in turn promotes jobs?

§ Lord Cockfield
Yes, my Lords, I entirely agree with my noble friend.

§ Lord Kilmarnock
My Lords, can the noble Lord tell the House whether this useful analytical tool is still in use in the Treasury or whether the Government are not interested in this type of analysis?

§ Lord Cockfield
My Lords, I do not know whether the noble Lord was paying attention to what I said earlier, but I said that every year in Economic Trends an article is published on this which goes into very great detail indeed. The last such article was published in November 1983, and I suggest that the noble Lord should read that article.

§ Lord Molloy
My Lords, would the noble Lord agree that no responsible Minister, such as himself—or indeed anyone interested in whether these measures will affect the poorer in our community—can look at the issues without. for example, noting the following? Those who are sick, ill and disabled will have to pay increased prescription charges; also there is a possibility that 15 million people (mostly old people) will have to buy spectacles without aid from the DHSS; and most responsible economists have declared that those at the lower end of the income scale of our nation will be worse off under this Budget. Therefore, all this means that the poor will become poorer while the rich become richer.

§ Lord Cockfield
My Lords, none of that is true. The single most important measure in the Budget was the increase in the income tax thresholds by 122 per cent, compared with a rate of inflation of just over 5 per cent. This big increase in the thresholds is primarily of benefit to the people at the bottom of the income scale.