Budget Proposals

Part of the debate – in the House of Commons at 12:00 am on 15th April 1953.

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Photo of Mr Anthony Crosland Mr Anthony Crosland , Gloucestershire South 12:00 am, 15th April 1953

The Chancellor claimed— and so did a number of hon. Members on the back benches opposite, whose references to the Chancellor were so adulatory as to suggest very widespread expectation of coming Ministerial vacancies—that this Budget represented an entirely new departure. The Chancellor said that it moved for the first time for many years in a new direction, the reason for this being that there was no increase in taxation and, on the other hand, there were substantial remissions.

A number of newspaper writers this morning seem to have been taken in by what seems to me, if I may say so, a brazen claim which on examination turns out to be quite false. All the remissions of taxation made in this Budget are remissions of taxes imposed solely for the temporary period of rearmament. The remissions are, first, the Excess Profits Levy, introduced by the Chancellor himself purely for the rearmament period and now remitted before that period is over. Secondly, there is the restoration of the initial allowance, which my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) took off in 1951, again purely for the period of rearmament. Thirdly, there is the 6d. off the Income Tax, a 6d. which again was put on by my right hon. Friend the Member for Leeds, South in 1951 purely with the rearmament programme in mind. Lastly, there are the concessions on the Purchase Tax, a great number of them merely reversals of Purchase Tax increases imposed by my right hon. Friend in 1951 purely to deal with the rearmament situation.

Almost every single remission of taxation, therefore, is a remission of tax which was imposed with this one object in mind of paying for a large but short rearmament programme. Now that the Government have found that rearmament can be financed more easily than was thought possible a year or two ago, they naturally find themselves in a position to take off these taxes, and any Government in their situation would have been able to remit taxation to this extent this year. There really is nothing in the claim that all this is a completely new departure. It is merely getting rid of additional taxes which were imposed with this one special object in mind. There is nothing for the Chancellor or his supporters to make such a song and dance about.

The second reason that the Chancellor finds himself in a new situation, and enabled to introduce a new type of Budget, is a reason which has already been pointed out in many speeches on this side of the Committee. What is new, after all, is not the fact of a lenient Budget. What is new is the fact of a fall in production. Naturally it hardly comes as a surprise that in a situation where output is lower, and where the economy has a considerable amount of slack in it, taxation can be reduced.

Of course, it is true that under the Labour Government taxation was higher, but at least the national income was rising every year. Now that we have a quite different Government in power—I am not saying for a moment that it is all their fault, although it certainly is partly their fault—we have lower production, slack in the economy, and, therefore, the possibility of lower taxation. But it is only fair to warn hon. Members opposite that if the Chancellor is successful in his purpose, which I hope he is, of expanding production, with the risk that that will bring of a new inflationary pressure, hon. Members opposite are in for an unpleasant surprise in next year's Budget, as the Chancellor knows quite well.

If I could digress for a moment on this question of production, the fact that total output has fallen has attracted a great deal of comment. What has attracted much less comment is the equally, if not more, significant fact that not merely has total output fallen but productivity has fallen, too. The Economic Survey this year speaks of a significant decline in output per man, and it is a rather ironic situation that the party of business efficiency, the party that spoke so big about productivity and the need for higher output per man, should provide the first Government since the end of the war under which productivity has fallen compared with the year before.

Turning to the positive proposals made in this year's Budget, the first effect and the one that has been most discussed this afternoon is their effect on the distribution of incomes. A number of references have already been made to the effect of this Income Tax concession on the degree of equality of incomes in the country. My right hon. Friend the Member for Leeds, South spoke about this, and attempts were made by the Financial Secretary and the right hon. Member for Blackburn, West (Mr. Assheton) to pooh-pooh his allegation, which I should have thought was unchallengable enough, that this has the effect of making income distribution much more unequal than before.

The right hon. Member for Blackburn, West said that a concession in Income Tax was bound to benefit most those with high incomes because they pay the most tax. Precisely; and it is precisely the reason why this particular method of tax concession does not seem to us the best that could have been chosen. We would very much have preferred—most of us on this side, as indeed would the "Economist," rather surprisingly—the same amount of money to be given away, if the Chancellor decided that he could afford it, as I agree that he could, by way of an increase in the earned income allowance and an increase in other allowances which would not have anything like the same effect on the distribution of incomes after taxation, as would 6d. off the standard rate.

The Financial Secretary, in a speech which, like a number of his speeches, was a very agreeable knockabout but did not add anything to the serious part of the debate, had a great deal of fun this afternoon with this rakish dissolute figure which my right hon. Friend the Member for Leeds, South, conjured up—the bachelor living on £100,000 a year wholly unearned. Everybody agrees that this is perhaps a figure of the imagination. I see that the Leader of the House has entered the Chamber. The only difficulty about identifying the Leader of the House with this definition is that my right hon. Friend referred to "an eligible bachelor" and not just to "a bachelor."

But the fact remains, as everybody knows, that there are a great number of people—many thousands of people—in the country with incomes, after taxation, of £3,000, £4,000, £5,000 or £6,000 a year, and the fact also remains that all these people will benefit, some of them by hundreds of pounds and many of them by thousands of pounds a year. There is no getting over this fact, and equally there is no getting over the fact that people in the lower wage earning class, if they pay Income Tax at all, will benefit only to the extent of a few shillings a year. These are irrefutable facts and in the light of them it cannot be denied that the equality of incomes after taxation has been greatly diminished by the Budget.

Before this Budget, we had a range of incomes after taxation which extended at the bottom from, I suppose, about £400 a year—one could easily find lower incomes —up to a little over £6,000 a year. That was the range of post-taxation incomes two days ago. Today the range is from £400 at the bottom end to £8,500 at the top. In the light of these figures it cannot be denied that a very considerable social change has occurred as a direct result of the Budget.

I should like also to consider for a few moments the effects of the changes in profits taxation. My right hon. Friend the Member for Leeds, South made it quite clear that we did not oppose the concessions which were made to profits, on the understanding that they were used for re-equipment; and the Chancellor himself obviously agrees with this view because, in his Budget speech yesterday, he refers to them as … a potent augmentation of company reserves available for … development, upon which, I trust, it should be spent."—[OFFICIAL REPORT. 14th April, 1953; Vol. 514, c. 60.] The Chancellor may trust, but others, alas, dispose. It is a significant fact that we have had today a considerable rise in share values on the Stock Exchange which, indeed, is only the culmination of a fairly steady rise in values over the last two or three months, based almost entirely on the expectation of precisely the sort of Budget which we had yesterday. Why has there been this rise? It is perfectly clear; there is no mystery about it. It has been due to an expectation that reduced profits taxation would be followed by a great number of dividend increases.

There are two points to note about this. The first is that this rise in share values and the untaxed capital gains associated with it are another factor making for greater inequality as a result of the Budget. The second point to notice—and I think the Chancellor would agree with this, because he implied agreement in his speech—is that there cannot be a strong economic case today for a general increase in dividends in order to attract new capital to industry. We have seen in the Economic Survey figures showing the extent to which industry last year saved a great deal more than it required for investment, and was able to repay bank indebtedness on a very large scale.

On top of this, we now have the E.P.L. concession, the Income Tax concession, much of which will accrue to profits, and the initial allowance relief. That, coming on top of a situation in which industry was already saving much more than it was investing, means that no case can be made for saying that industry in general is so short of capital that higher dividends are absolutely necessary in order to attract new capital. Since there is neither a social justification nor an economic justification for a general increase in dividend payments this year, my right hon. Friend was surely right to suggest that if these concessions were made they should be accompanied by other measures to ensure that they were not dissipated in higher dividends but were used for the purpose for which they were intended.

In this connection the Financial Secretary attacked my right hon. Friend the Member for Leeds, South for suggesting that Profits Tax should be raised when E.P.L. disappears. He said that this showed the fundamental difference between the two parties and their attitudes to taxation. He said that hon. Members opposite wanted taxation only for the one purpose of covering minimum Government expenditure, but that we on this side of the Committee wanted high taxation for its own sake. It is certainly true that on this side of the Committee we do not treat taxation solely as a method of paying for minimum Government expenditure—for the Army, the police forces, the essential services of the State. We also treat taxation as a prime weapon for ensuring that distribution of incomes which we think is right.

After all, the distribution of incomes before taxation is grotesquely unequal even today, and taxation is much the quickest, simplest and easiest method of making that distribution more equal. We certainly, therefore, do not regard any reduction in taxation of whatever kind as being necessarily good, because it may have a very powerful effect in making the distribution much less equal. If the Chancellor wants to reduce taxation on the lower incomes he will find hon. Members on this side very sympathetic. If he wants to reduce taxation by eliminating Surtax he will find hon. Members on this side very hostile. If the Financial Secretary then says that this represents a fundamental difference in attitude between the two sides we shall be the first to agree with him.

In the few minutes still available to me, I want to turn to the economic effects of the Budget. I am very glad that the Chancellor did not take some of the more austere advice tendered to him in the economic weeklies. I am glad he was willing to take a risk on the side of demand as a whole. I think that that was an absolutely correct decision as against some of the advice which was tendered to him. On this side of the Committee we would thoroughly support his desire to expand production once again, to get us back on the rising curve of production on which we were from 1946 to 1951. However, there are two very important corollaries of this policy of expanding industrial production, and I would say a word on each.

First, and much the more serious, is this question, is there going to be coal to support the higher output? I take the view that the coal situation at the moment is extremely alarming. The shortage of coal threatens to frustrate the entire policy of raising output. I do not want to go into the details about the facts. They are fairly well known.

The demand for coal is likely to be very much higher this year than last. Exports, it is hoped, will be three million tons higher. Home demand will be about four million tons higher on a very conservative estimate. We are losing—and nobody grudges this loss—a great deal of output owing to the second week's holiday, which, after all, is a good deal overdue today; and we shall lose some output because of the Coronation holiday. We are faced with a possible gap between the supply of and the demand for coal of over 10 million tons. This is a situation which really threatens the whole of our economic recovery.

One can approach this problem from the side of supply or the side of demand. I do not want to say anything about supply, about which I am not competent to speak. But on the side of demand, in order to release more coal for export and for industrial production, I believe the situation is so serious that the Chancellor should now make it his personal responsibility to take measures to encourage fuel economy. All that we have had so far is a Government offer of £1 million in loans, at full commercial rates of interest, to be used for installing fuel-saving equipment. Those loans have been quite ineffective. Only a small part of this sum has been taken up. There is an overwhelming case for a 100 per cent. initial allowance on fuel saving equipment. The hon. Member for Kidderminster (Mr. Nabarro), with not all of whose recent public utterances all hon. Members will agree, nevertheless on this particular subject has done nothing but good by his constant insistence that there is this overwhelming case.

We have had the principle of discrimination in respect of initial allowances accepted in this Budget, and I urge the Chancellor to consider this as a matter of desperate urgency. But I am sure that by itself it will not be enough. I am quite certain that we shall some day have to adopt what will be highly unpopular on both sides of the Committee, and even more unpopular in the country, namely, a tax on coal. I am absolutely certain of it. The situation is so serious that, however unpopular it will be in the Labour Party, the Tory Party, or any other party, we shall have to come down to this in the end.

The next point to which I wish to draw attention is the effect of a policy of expanding output on the balance of payments. There is clearly a very serious danger that higher output will lead to higher imports, and will plunge us back again into a balance of payments crisis. Now how are we to avoid this? It seems to me inescapable that the corollary of a policy of expanding production at home is determined planning and strict control in the sphere of foreign trade. The Chancellor has spoken—and it is a rather disturbing attitude—of freeing trade from restrictions, moving towards convertibility, and the like. We are going to spend more dollars on Cuban sugar. We shall spend more dollars on oil as a result of re-introducing branded petrol. We have relaxed restrictions on E.P.U. imports. If this kind of derestriction of imports is to continue we shall be plunged into the most appalling balance of payments crisis again.

I urge the Chancellor—and I hope he will be sympathetic to this attitude—to realise that strict control over imports is a necessary accompaniment of any policy of expanding production at home. I think the principle should be only to relax restrictions on imports from those countries which at the same time will take higher exports from us. This applies very obviously to the sterling area countries. It applies, I would say, also to countries such as the South American countries, with whom there are very promising possibilities of bilateral agreements to increase two-way trade. I hope the Government will very seriously consider the possibility of making bilateral payments agreements with countries such as South American countries. They are short of sterling and we are short of their currencies. We have both got surplus export capacity, and it is ridiculous that trade between us should be stagnating. Neither of us can afford much higher dollar trade than we have now, but we can both afford, and both gain from the effects of, a much higher level of trade between us than we now have.

It is my personal opinion that there is a very strong argument for going further than this in the case of South America. It seems to me a market with enormous potentialities looking ahead. It is also a market in which we have lost much ground both to Germany and America. It is a market in which at the moment, judging by reports coming from there, competition is not a matter of price or delivery dates but of the provision of credit, and I think the Government should seriously consider whether it is not worth while now offering credit facilities to South American countries in order to encourage our exports. It might be a magnificent chance of getting a large share in a market which in future will be of overwhelming importance.

Lastly, just a few sentences on the question referred to by my hon. Friend the Member for Edmonton (Mr. Albu), namely, the possibility, indeed the likelihood, of an American recession in the quite near future. I have spoken about this more than once in this Committee, but obviously the likelihood looks much greater now than it did a few months ago. Even the "Economist" had a whole supplement on this subject, which suggests that it is at least something worth considering seriously.

Are the Government really making their plans to deal with the situation when it comes? Are they really making preparations now to deal with it? —because an American slump is not something that can be improvised against in a few days, a few weeks, or even a few months, when it suddenly comes upon us. It is something which has got to be planned for, and it is only right to say to the Chancellor that the country will not forgive him if, in his pursuit and decontrol and laisser-faire, he dismantles our defences, and leaves us helpless, against a recession which might sweep away all the advances of the last few years.