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Budget Proposals and Economic Situation

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

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Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby 12:00 am, 11th April 1957

With great respect, I do not think the hon. Member has put his finger on the point, because however we break up the wages' front or the employers' front it will come together again. It seems to me that we cannot make artificial segments of industries which are in such close association and which are guided by common policies or prices; and where the trade unions are guided by common policies on wages. I do not think that is the answer. We have to face the fact that these large accumulations of power on the side of both labour and of management are there, and we have to deal with them as they exist.

The boot and shoe industry is not of the same size as the engineering industry, but if we made as many boots and shoes as we make engineering products we should have an amalgamated union of boot and shoe operatives which would be as big as or bigger than the trade union dealing with engineering. We cannot solve the problem by breaking up alignments or the concentration of power. Power will not voluntarily be broken up, and if it is broken up by force it will find ways and means of re-establishing itself.

No, the whole problem has to be rationalised on lines different from that. I do say that we will have to learn our economics either the sensible way or the hard way. It will certainly be one or the other, and I think that the hard way is too heavy a price to pay for adult education on both sides of industry.

It is in this climate that the Budget is introduced. I agree that Budgets cannot solve all our economic. industrial or social problems, but they do create a climate. The Budget can influence the direction or course of affairs. There is considerable psychology involved. When one asks people what they think of the Budget, their reaction very frequently is based on enlightened self-interest—or just self-interest. Their reaction is not based on the niceties of fiscal or economic policy, still less on whether concessions to Surtax payers—as in this Budget—are counter-balanced by concessions to other taxpayers several years ago. On this important and grave issue, the Chancellor of the Exchequer offers little but well-chosen though pious words of advice to both sides of industry.

The really genuine tax reliefs in this Budget are those given in direct taxation. The Chancellor cannot really claim as a concession taking the 1s. tax off petrol when it was put on so recently. It is not even easy for the Government to claim that the Purchase Tax reductions are really genuine reductions in taxation, because they should never have been imposed in 1955. In my judgment, they were mistaken, if not foolish, in 1955, and the Government got a pretty quick answer to their mistake from the trade union movement. That only illustrates the importance of the point I have made about the reactions of large masses of industrial workers to the impact of the Budget on their minds and their sense of what is fair play.

If we disregard the taxes which have been removed but which should never have been put on in the first place, we come down to the main relief given to the Surtax payers. I am not going to join in the hue-and-cry after Surtax payers. I do not regard Surtax payers as a separate social class. Many of them are merely working men who manage to earn rather more than other working men, and I think it is a mistake to regard a particular category of taxpayers as in a class by themselves merely because they constitute a group upon which the fiscal burden rests more heavily than on others within a graduated scheme of direct taxation.

Of the 285,000 who are to benefit under the Surtax remissions, I think about 120,000 are in business or the professions, and 165,000 are mostly salaried people, such as directors, executives, town clerks, doctors on the salary basis, civil servants and the rest. They are to get tax relief on the average—and I know all the difficulties about averages—amounting to£85 a year. That group covers 285,000, but there are 8,700,000 other taxpayers with incomes between£500 and£2,000 a year who will get nothing at all unless they happen to have children over the age of 12.

I have listened very carefully this afternoon to the Financial Secretary to the Treasury, and what he says is true. The middle range of taxpayers benefited proportionately higher than the Surtax payers from the increase in earned income relief, from the changes in the differential rates of tax and from the increase in the personal allowance. That is true, but that does not destroy my main point that one has to consider whether it is expedient even to do justice at the wrong time, having regard to the state of unrest and confusion in the general body of workers today.

Just to put the position of Surtax payers straight, since I can probably do it with less prejudice than hon. Gentlemen opposite, I am going to say that over 80,000 of the 300,000 Surtax payers are getting less than£2,500 a year, and that over 130,000 are getting less than£3,000 a year. This is important. The earned income of over half of all the Surtax payers is 80 per cent. or more of their total income, and 40 per cent. of all the Surtax payers have nothing else, or practically nothing else, apart from their wages or salaries. It seems to me that that has to be said in fairness to the Surtax payers.

I do not agree, whatever anybody nay say, that all these men are parasites, or that they have no contribution to make to the wealth of the nation. They have, and there are some names that leap to mind of men who at the present time are rendering incalculable services to the country in the development of nuclear power for peaceful means, who are modest Surtax payers and who probably have nothing besides their earnings. Who is going to begrudge them some fiscal acknowledgment in addition to the other rewards for the services which they are giving to the nation?

We must, of course, admit too that to increase the salary of a married man without children by£500 from£2,000 to£2,500 is to give him a net increase in income of only£240. The higher we go up the scale the smaller the proportion of the financial reward accrues to the recipient, and there comes a stage at which it is practically impossible to continue to reward people by increases in salary, and that is why so many are encouraged to get their rewards by alternative means, producing the biggest accumulation of tax avoidance and tax evasion which this country has ever seen.

We have to acknowledge these things, and I say that, analysed on its merits and looked at in relation to the fiscal scheme as a whole, the Chancellor can make out a very good case for the relief he has given. Whether he should go as high as he has done is a matter of argument. It is chicken feed at that level, in any case. It must also be said, and this is something which must be reckoned in the balance-sheet, that these workers have one great boon in life—that they have the most interesting jobs, they get the greatest satisfactions as well as the biggest cares from responsibility and power. Many of them have amenities which can be provided by firms which want to keep them in their service and which are denied to those lower down, while those in business are more favourably placed from the tax point of view than those who pay under P.A.Y.E.

Yet, agreeable and welcome as This concession will be to those concerned, and I declare my personal interest in the matter, will they boost anything? Will any of us work harder, more zealously or more efficiently as a result of this concession than before? I doubt it. The Chancellor has said that it is not only an incentive to those who are already Surtax payers which he is providing, but that he is also wanting to give encouragement to those who hope to become Surtax payers. What we have to weigh in the scales here is whether that incentive which he is giving them on the one hand is worth the risk which he is taking on the other hand, and that, I think is really the major problem of this Budget. It is an important problem of judgment of what the corning year is likely to bring. At the moment, although the Canal is open, we are not using it. A few months ago, it was so vital a lifeline to this country that we were prepared to fight for it. Now we are not prepared to go through it. In fact, our ships are told that they must not go through. What effect will that have on freight charges? How uncertain is our shipping industry going to be for some time to come?

This cannot be described as an incentive Budget. Its incentives, if they are there—which I very much question—are lop-sided. That is my criticism of it. I know that some of my hon. and right hon. Friends have said that the Budget. including even the parts to which we do not object, would have been acceptable had it been accompanied by fresh measures against tax avoidance or a capital gains tax. I ought to give this warning to the Committee, that I do not believe there can be any real solution of the problem of tax avoidance unless the House of Commons is prepared to pass an omnibus prohibition against undesirable practices such as we previously had in the case of Excess Profits Levy, leaving a tribunal to decide whether a taxpayer is adopting legitimate or illegitimate means of avoiding tax.

There are some features of tax avoidance, if that be the name to give to this particular racket, which it is extremely difficult to eliminate, however efficient the administration. I refer in particular to the employment of wives. Nowadays, apparently, no man can do his job without employing his wife. Farmers do it; their wives collect the eggs and pluck the chickens. Journalists' wives work for their husbands. Solicitors' wives work for their husbands. Doctors' wives work for their husbands. I do not know how many Members of Parliament employ their wives as secretaries. How can the Inland Revenue tell all these honest taxpayers that they are liars? If evidence of what money has actually passed is asked for, how does the inspector of taxes know whether it was salary or just housekeeping money? It is really impossible to get to the bottom of that kind of thing. What is more, how much bureaucratic inquisition will the public stand? We saw only eighteen months ago how the Government responded to the criticisms made by the Institute of Directors when a closer inspection of expense allowance claims was to be introduced.

We must face quite frankly the very great difficulties in checking avoidance unless the House is prepared to adopt much more drastic measures than long and tortuous Clauses in Finance Bills which open up fresh loopholes almost before they are passed into law.

Although it is not a necessary part of a Budget statement to refer to social service payments, I believe that the whole country, not only the old-age pensioners themselves. was looking to the Chancellor to make some reference to their plight. Action can be taken at any time under a National Insurance Bill, and I know that the last two increases in the standard rate of benefit were not referred to in the Budget statement but were subsequently embodied in proposals under a National Insurance Bill. That gives me hope that later on this year the Government will come to the conclusion that something must be done—sooner rather than later, I hope. I am not in despair because the Chancellor has not referred to this matter in his Budget statement, although I wish he had done so.

Taking all in all, with every desire to be absolutely fair and objective in my analysis of it, I have concluded that this Budget is not the Budget for this hour in our affairs. That is my verdict upon it. Last year, the Government brought us to the brink of disaster. The world looked on amazed, incredulous and disapproving. I wonder how this Budget looks to the world outside. Does it look as if we are a country fighting back for our honour and economic strength? I doubt it. I should have liked to see this country and the House putting a braver face on the situation today. I am perfectly certain. if I may say so, with respect, to the Chancellor, that he has been influenced more by the falling fortunes of Her Majesty's Government than by the threatening dangers of industrial unrest and difficulty. If my assessment of that is correct, I regard it as a tragic reflection upon his courage.