Budget Proposals and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 28 October 1955.

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Photo of Viscount  Hinchingbrooke Viscount Hinchingbrooke , South Dorset 12:00, 28 October 1955

I believe that the duty of this Government and this Parliament is to restore the classical economy within the framework of the Welfare State. My right hon. Friend the President of the Board of Trade, in an admirable speech, talked yesterday about that as full employment in a free society. I imagine that that is the same idea and the same purpose. Besides that concept at home there is the parallel concept of a much more liberal system of trade and payments overseas and a freer £.

Therefore, I find it possible to congratulate the Chancellor of the Exchequer on the extra-budgetary measures he has taken and is proposing to take. I join in support of my hon. Friends on this side of the Committee who have pleaded for a rectification of the economy towards sanity and sense, the elimination of subsidies, and the substitution of economic prices and lowered taxation. May I say one thing about taxation in general? Here I include the Profits Tax. I would have voted against the Profits Tax as well two days' ago, but it would have been rather ludicrous for my hon. and gallant Friend the Member for the Isle of Ely (Major Legge-Bourke) and myself to stand as Tellers to an empty Lobby, and we decided not to do so.

So far as general taxation is concerned, I think that more and more people are coming to the conclusion that it is now per se inflationary. During the 'twenties and 'thirties the doctrine was steadily built up that in times of boom you must tax high in order to correct the boom and, conversely—this was the real doctrine of Keynes—that in times of slump you must reduce your taxation and pump Government money into the economy. I have a feeling, and I think much more research ought to be done about it—I do not think there has been any thinking in the Treasury on the subject—that when we achieve a situation of full employment we, as it were, pass through a sound barrier, when all the physical properties and characteristics are changed and what was true before is no longer true. Therefore, we have had all this evidence during the war and since the war that full employment with additive taxation produces greater and greater degrees of inflation. That was why I was so profoundly disappointed when my right hon. Friend the Chancellor of the Exchequer added to the Profits Tax and to Purchase Tax.

We should now look back to old-fashioned times when the Government took what money they needed in the fairest way possible out of the economy for the sake of defending the country and providing for social justice, however that is defined. We should turn our backs on taxation as a compulsive instrument of policy. Purchase Tax is even more dirigiste than direct taxation. I use the French term because it is more expressive than the English term. "collectivism." Dirigisme gives the true picture of the State using the weapon of taxation in particular and selective ways in order to achieve a social result. The Purchase Tax is more dirigiste than any other tax.

It is not a concept which I wholly admire that our Conservative Government should be looking at the private economy and saying that it is singling out certain things as being undesirable for a number of reasons and applying Purchase Tax to them in great measure to suppress sales, or whatever the case may be. As well as being selective and unfair, Purchase Tax is actively promoting inflation. Let hon. Members ask every consumer of goods subject to Purchase Tax what they do about it. It will be found that they pay the tax in the end and go on buying the goods.

There is a generally accepted standard of living which people are compelled to adopt in peace-time. In war it is a different thing, and if we are subject to physical controls we are unable to do it. But when there are no physical controls and there is no moral obligation to do without, the generality of people will continue to live at the standard which they think they can attain and whatever the price, they will pay it. They will formulate increased wage demands, or go to their firms and demand increased salaries. The vehemence of their determination in the end works back to the source of the grant and they are given the increase they want. At once, inflation occurs. I know of no consumer who, when a particular article has Customs and Excise Duty, or Purchase Tax, applied to it, goes without that article. The Government are mistaken on that count.

It is the manufacturers' experience as well. What manufacturer will rise with his hand on his heart and say, "I admit that the Dalton Purchase Tax, the Cripps Purchase Tax, the Purchase Tax of the present Chancellor of the Exchequer is forcing me to sell my goods abroad?" If they sell their goods abroad, it is because they have good contacts abroad and because they have a satisfactory home market to take the overhead costs of the firm or industry. They do not take their goods abroad because Purchase Tax is applied. If they do, I should like to know the manufacturer who says that that is what he is doing.