Orders of the Day — Budget Proposals and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 17th April 1958.

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Photo of Mr John Cronin Mr John Cronin , Loughborough 12:00 am, 17th April 1958

It is very agreeable from this side of the Committee to join with the hon. and gallant Member for Down, South (Captain Orr) in congratulating my hon. Friend the Member for Kelvingrove (Mrs. McAlister) on her excellent maiden speech. I think that hon. Members on both sides who heard her felt the utmost pleasure and gratification. Scotland is quite well represented here today and must indeed be proud of the hon. Lady. The temperate and moderate way in which she referred to the iniquities of the Rent Act and the treatment of old-age pensioners was in the highest traditions of a maiden speech. We shall look forward very much to hearing future contributions from my hon. Friend.

Turning to the speech of the hon. and gallant Member for Down, South, which did not err on the side of brevity, I should say that he lent rather half-hearted support to the Budget. He made some very sensible contributions on the matter of unemployment in Northern Ireland. I think most of us here fear that unemployment may well spread in a massive manner towards this country in future, although we hope that will not be so.

Perhaps one of the most disappointing events this afternoon was the speech of the Paymaster-General. It seemed as disappointing as the Budget itself. No doubt the Financial Secretary will pass on these few minor comments to the Paymaster-General. Certain things he said, I thought, require further elucidation. He suggested that a great deal of weekend work occurred and that the earnings from it were not declared to the Inland Revenue. He suggested to my right hon. Friend the Member for Huyton (Mr. H. Wilson) that it would be undesirable to probe into that matter because it would lower productivity. For the Paymaster-General to adopt even a mildly approving attitude towards tax evasion seems a quite extraordinary eccentricity, to say the least.

The right hon. Gentleman also suggested that there was no strict need to control dollar expenditure because in the trade accounts we are in some degree of surplus with the United States, but he was completely overlooking the fact that we are the bankers and trustees of the gold and dollar reserves of the whole of the sterling area, Lind that the rest of the sterling area is having considerable difficulties with the dollar area. The Paymaster-General also took considerable pride in saying that investment was at a record level. In saying that, he was merely echoing the remarks of the Chancellor on Tuesday. He said that investment was at a record level and appeared to take considerable pride in that; but one thing which stands out is that ever since the days of the Industrial Revolution investment has increased on an average year by year. There has been a steady progress in investment. Therefore, one expects investment to be at a record level every year, unless the economy is going backwards. Why that should be a source of pride on the Treasury Bench is not quite clear.

It would be churlish indeed if we on this side of the Committee did not express some approval of some part of the Budget. There certainly are easements for miscellaneous categories of unfortunate people and we must applaud the help that is being given to them. We are very glad about the relief in Entertainments Duty. We pressed for that for some time, but it does not go so far as we would wish. We are also glad to see that there has been some simplification of Purchase Tax, although it still has not got back to the standard at which we left it in 1951.

While on the subject of Purchase Tax, I must, as representative of a large mining community, express some disapproval of the vicious attack on miners' helmets, footwear and garments. This illustrates the extraordinary lack of knowledge of industrial relations on the part of the Government. Why choose this moment, when the mining industry is going through considerable difficulties and when there is a natural feeling of irritability in mining circles, to introduce this extraordinarily tactless tax? It is quite inconceivable. I am quite sure that miners will feel in no way consoled by the fact that a £2,500 mink coat can now be bought for £2,300. This is the measure of the tact of the Government in this matter.

I think there is undoubtedly a case for merging the two forms of Profits Tax—tax on undistributed and on distributed profits. One must accept many of the comments made by the Royal Commission, both in its majority and minority Reports. We all know that Profits Tax as it is at present is causing a certain amount of unfairness to companies which have a high proportion of preference shares in their capital structure. We on this side of the Committee also appreciate that companies carry a continuing potential burden of having to pay back non-distribution relief; but whatever arguments there are in favour of the change, it obviously is a very contentious and difficult subject, and it seems extraordinary that such a change should have been made now, of all possible times. The inevitable effect of this merging of the two types of tax will be a big increase in dividends.

At the same time, the Government are exerting every possible pressure to keep down wages and we have the position that the Chancellor is in favour of a wage freeze and yet that dividends should boil over completely. This is a remarkable inconsistency in economic policy which I cannot follow. It also seems rather odd that the merging of the two forms of Profits Tax should affect the particular companies it does affect. A little elementary calculation, or, easier still, a reference to the front page of the Financial Times on Wednesday, points out that the merging of the two forms will be profitable chiefly to those companies whose dividend cover is less than about three and a half times.

If one looks at those groups of companies which will benefit most, one finds that they are drawn largely from the entertainment companies, stores, brewers, shoes and leather, and finance and land companies. What is the fiscal purpose in giving encouragement to these groups at this moment? Why the brewers? Why the stores? What is their immediate and important contribution to the national economy?

We find certain inconsistencies also in the Government's attitude to initial allowances. Why are they choosing this rather odd way to encourage investment? Would not it have been simpler to reduce the credit squeeze? Why are we having a situation in which the banks and the Capital Issues Committee are doing all they can to discourage investment and yet in the Budget we have this minor encouragement of investment? None of this is clear. One notices a considerable inconsistency of purpose. It would seem that the banks and the Capital Issues Committee are going full speed astern, whereas the Board of Inland Revenue is launching the dinghy to pull the ship ahead. It simply does not make sense.

A disappointing circumstance of the Chancellor's speech was his obvious determination to persist in a deflationary policy. That is something which is not clearly comprehensible. When the right hon. Member for Monmouth (Mr. P. Thorneycroft) plunged into deflation, he really was in difficulties—we were up against a serious balance of payments crisis. Surely, conditions are rather calmer now and the Chancellor could to some extent mitigate the credit squeeze. The right hon. Member for Monmouth plunged into the waters of deflation when his trousers were on fire, but there is certainly no excuse for the present Chancellor's belly dive into them.

An unfortunate feature of the Budget is that, as many of my hon. Friends have pointed out, the Government have no plans whatever for dealing with the imminent recession in this country. There can be no doubt that there is a recession ahead and we are moving straight into it. On every previous occasion when there has been a recession in the United States, this country has been affected, with one exception, in 1954, when world conditions were much more buoyant. It has been said with justice that when the United States sneezes, Europe catches pneumonia. What will happen to us when the United States has pneumonia, as it has now? It must be inevitable that we are moving into a recession. What are the Government's plans for it?

In the present recession, the United States has its highest unemployment for twenty years. The Chancellor's move is to take 2s. off a bottle of port.