Budget Proposals and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 11th April 1957.

Alert me about debates like this

Photo of Mr Patrick Gordon Walker Mr Patrick Gordon Walker , Smethwick 12:00 am, 11th April 1957

I do not think the hon. Gentleman meant that when he mentioned rewards. Like the late Lord Birkenhead who talked about "glittering rewards," he knows that you cannot take it with you and that the purpose of money is to spend it.

I formed the conclusion that the Chancellor was giving these concessions as an extra reward largely to be spent. In any case, a good deal of it will be spent —everyone knows that—but, apart from that, these concessions are indirectly inflationary, too, because they are calculated to set off another round of wage demands with the consequent danger, which is a real danger, of a wage-prices spiral. How can the Chancellor appeal to the trade unions for restraint to guard against inflation when he deliberately makes these inflationary concessions to the richest people in the country.

There was one passage in the Budget, the full callousness of which I only understood on re-reading the speech, because then I realised, as one did not when listening to it, that the Chancellor, when using these words, already knew in his mind that he had decided to make these concessions to the Surtax payers. He said: If we are to find a solution to this problem he was talking about inflation— we all have a part to play—and perhaps some sacrifice to make… He was calling on the workers to make a sacrifice on the assurance that everyone was going to share in this sacrifice, and I noticed that at that moment the faces of the back bench Members behind the Chancellor were pretty glum because they took him momentarily at his ward. He called for sacrifice by all, but what sacrifice is he calling on the Surtax payer to make? He is asking for sacrifices by all in order that the workers shall make the sacrifice. What does he mean by sacrifices for all? [HON. MEMBERS: "Answer."]

I will deal with the jokes which the Financial Secretary made about planning. It is very easy to put up Aunt Sallys and knock them down, but there is only one way of escaping from the dilemma which the Chancellor is in. That is by getting the surge forward in investment in production which we must have—without, in consequence of that surge forward, running into an import crisis. We can do that by a deliberate degree of steering and guidance of the economy. We have to do something to discourage the less essential things and to encourage the more essential, like steel, machine tools and other useful investments, if we are to be able to go forward without this sucking in of imports all over the place and the consequent balance-of-payments crisis.

The Financial Secretary sneered at anyone having any idea of attempting to guide the economy. He cannot really say that this is an impracticable, doctrinaire, Socialist idea, because the Chancellor himself went a tiny bit that way in his Budget, and in two directions. He has restored the power of the Capital Investment Committee to control all bank advances, which is a good thing, although it only restores the 1933 position, as he said. This is a slight degree of planning, though not anything like enough for guiding the economy. It is not enough because the great corporations can make their investments from undistributed profits and reserves. I think that the Chancellor's policy will somewhat hit the smaller concern. It is the smaller company that has not the reserves and cannot go easily on the market which has to rely to a great extent on bank advances. I am not sure that this step, which I generally welcome, may not have this effect, and I hope we shall look at it again from that point of view.

Furthermore, the Chancellor has increased the selective investment allowance in favour of shipping, which, of course, is a way of planning, a way of discriminating and selectively guiding the economy. The Chancellor having taken those little steps, the Financial Secretary cannot object in the way he did, because the Chancellor has done that a little himself, although he should have gone much further.

The Financial Secretary asked how we would spend the money. I would say that the concessions made to the richer Surtax payers should have gone in selective investment allowances. That is the real need of the economy. This has also been urged in quarters which even the Chancellor, even maybe the Financial Secretary himself, must respect. The Financal Times, for instance, in its comment on the Budget, picks out this very point for criticism. It says: Selective allowances of this kind.… which it wants— have had a valuable and stimulating influence both in Germany and in the United States, and either general or selective allowances would have helped to maintain the high level of investment in Britain in 1958 and 1959. That is not loose Socialist talk, that is a serious criticism from a quarter to which the Financial Secretary must pay some attention. It is saying that there should be a degree of guidance and a degree of planning in the economy. I say that the encouragement of investment, either by general investment allowances or, as I would prefer, by some selective allowances, would have been the proper, logical economic conclusion from the Chancellor's own economic analysis.

There was no economic logic which I could detect on the Chancellor's own premise in the concessions he decided to make to the larger Surtax payers. Of course, the Budget was not really framed in terms of economic logic but of party political logic. We all know the pressure there has been on the Chancellor from his own back benchers and the alarms of the Chief Whip—[An HON. MEMBER: "And Lord Woolton."]—maybe from Lord Woolton too—which have been brought to bear on the Chancellor.

I do not think it would be really unfair to call this a "Chief Whip's Budget." The purpose was to rally the back benchers and the hard core of the party. The purpose was not to catch votes, but to rally the hard core of the party. The News Chronicle, as I am sure hon. Members opposite will at once recognise, quite accurately described the hard core of the Conservative Party as consisting of business men and retired people paying Income Tax. Those are the two main classes which benefit from the concessions in the Budget. This, indeed, is an extraordinary example of psephological selection.

The more one looks at the Surtax concessions the less defensible they become, even in terms of the Chancellor's own defence of them. They do not really even remedy the main injustices which exist at this high level of income. As my right hon. Friend the Member for Huyton said yesterday, this concession does not help the young scientist, or the young technician, or frustrated people who are earning up to£2,000. Very few are earning more. I listened very carefully to the Financial Secretary this afternoon. He seemed to build up an unanswerable case for stopping the concession at£4,000. That would bring benefit to 80 per cent. of Surtax payers. The vast majority of scientists and professional people and so forth would come under that category. The Chancellor would then be able to save quite a bit of money.

This afternoon the Financial Secretary was very apt to argue all cases both ways, but I do not think he could now argue against stopping this concession at£4,000 instead of£10,000. If we are to deal with this sort of matter, the major inequity on high levels of income is the distinction between those who earn these large incomes and have to pay tax on them and those who have tax-free capital gains. There is a real source of inequity between people receiving nominally the same sort of spending money. One has to pay tax and the other does not pay because the latter gets the money in the form of tax-free capital gains. A capital gains tax would have been a reasonable conclusion after all we have heard about inequity and unfairness at this high level. That would have removed inequity and provided money which could legitimately have been used for making other adjustments, if necessary, at Surtax levels.

All this talk about injustice at the level of£4,000 to£10.000 a year pales into insignificance in comparison with the gross injustice which lies at the very heart of this Budget. All this talk about "room at the top" cannot conceal the very simple fact that£34 million is being given by the Chancellor to 335,000 people who are Surtax payers and not a penny to old-age pensioners and people on small fixed incomes—many of whom used to be among the supporters of the party opposite—who are below the Income Tax level. However much people may laugh at that or grumble when it is stated, the fact is that£34 million is going to 335,000 people.