Orders of the Day — Budget Proposals and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 8th April 1959.

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Photo of Mr Harold Wilson Mr Harold Wilson , Huyton 12:00 am, 8th April 1959

Two years ago I described the Budget of the right hon. Member for Monmouth (Mr. P. Thorneycroft) as an assignment with inflation, a warning which, I think, was justified by the events of that summer. Last year I called the present Chancellor's first Budget an assignment with deflation, and there can be no question that that was right. I suppose that this year's Budget will obviously be called an assignment with the General Election.

This is not to say that the Chancellor is wrong to increase purchasing power by tax concessions and otherwise to stimulate industrial production. Of course, that is right. Our charge is that the Government deliberately and of set purpose held back industrial recovery last year to set the stage for this year's tax concessions. The Committee will recall that a year ago I said that this was clearly the strategy, and I named the master strategist behind the plan. It certainly was not the Chancellor, who, I said, would not be capable of such a thing. It was the Prime Minister.

Today, I challenge the Chancellor, when he replies to the debate next week, to tell us this. If it is right today to encourage expansion, why was it wrong to do that and why was it wrong to stimulate production a year ago? I ask him, in view of his review of the situation, to name one feature of our economic situation which is stronger today than it was then. Had he acted then, when I submit that it was already safe to do so, not only could we have expanded with a greater emphasis on the investment which is so vital to us, but we could have avoided the depression and unemployment which have developed.

In our excitement about tax concessions I hope that we shall not forget that those concessions have been made possible at the expense of a quarter of a million additional unemployed and their families.

The Chancellor was right, in the dismal circumstances he had allowed to develop, to give the economy a shot in the arm. What he has done is to give the wrong shot in the wrong arm.

Perhaps it will be convenient to the Committee if, at this stage, I indicate briefly our main criticisms of the budgetary changes before discussing them later in detail. First, as my right hon. Friend the Leader of the Opposition said yesterday, the Chancellor should have concentrated his first reliefs on improving the position of the old-age pensioners, widows and others, and those living on National Assistance. If the country, for whatever reason, is more prosperous, it is the Government's duty and the duty of the House of Commons to make provision first for the under-privileged, not for those who are better off.

Secondly, before handing out tax concessions the Chancellor ought to have repealed those provisions, mainly to his discredit, associated with the name of the Prime Minister, which were introduced when things were tough. Prime among them was that mean little imposition of the Prime Minister, when he was Chancellor, when he introduced the individual Health Service prescriptions charge on the old-age pensioner and the chronic sick. If we are now so prosperous, that should have been one of the first impositions to have been removed. If the Prime Minister were here I should ask him this. How does he defend now the maintenance of the individual prescriptions charge?

Thirdly, since the professed aim of the Budget is to solve unemployment, and not merely to win votes, the Chancellor should, as an immediate measure, have greatly stepped up the rate of social expenditure on highly desirable projects which were held up during the war and in the post-war recovery period and during the hard times of the Tory inflation. With slack in the economy, this was the year to build more hospitals, including mental hospitals. more up-to-date prison accommodation, teachers' training colleges, to carry out the clearing of derelict and blighted sites and to make more progress on water and sewerage schemes, as well as on roads.

I suggest that it is also a year in which the Government should have restored the cuts in the local authority housing programme and to have provided financial help to do it. Aid from the Budget for 100,000 additional local authority houses at £ 22 10s. subsidy per house would have cost less than the beer concession.

Fourthly, turning to Income Tax, what the Chancellor has done over his two Budgets is this. Last year, he increased direct taxation by increasing National Insurance contributions to the tune of £ 200 million a year by a poll tax, bearing most heavily on those with least incomes. This year the Chancellor hands out almost exactly that amount, £ 200 million. but on a very different basis. The basis he has proceeded upon is that the richer you are, the less your family responsibilities, the more you get, as I will show in greater detail in a moment.

Fifthly, while the Chancellor was right to cut Purchase Tax, I suggest that he has done it in the least equitable way. The least essential items in the Purchase Tax schedules are cut, while essentials—clothing, furniture and all the kitchen items the Lord Privy Seal taxed in his 1955 autumn Budget—get virtually no relief. Moreover, I do not know if the Chancellor has thought about this in a Budget designed to help employment. Industrially, his Purchase Tax cuts help the most prosperous industries— motor cars, consumer durables, which are booming today—and do nothing for the clothing, textile, hollow-ware, furniture and other industries which are having a harder time.

Therefore, the best commentary on the Chancellor's Budget has been provided by today's news, not only the lunchtime editions of the newspapers showing a 5s. increase in brewery shares, but also on the front page of The Times, which contains two column-long advertisements, for motor cars, paid for by the Chancellor himself, both saying what a wonderful Budget, what a wonderful Government, what a wonderful time we are having, and advocating that the firms' customers should now take advantage of this increased prosperity to buy themselves a new Rolls-Royce. Both of those advertisements are for Rolls-Royce and Bentley vehicles.

I will return to these fiscal matters later, but I should like now to turn to the present economic situation, and the Government's sudden and dramatic conversion to the need for industrial expansion. Time and time again we have warned right hon. Gentlemen opposite that their policies would lead to unemployment and industrial stagnation. As we told them eighteen months ago, in the speculators' crisis of September, 1957, they failed then to see that the world economic situation had changed from one of inflation to one of deflation, but they went on fighting inflation when that was no longer the problem.

We are glad that the Chancellor, at long last, has agreed to restore the investment allowances which the Prime Minister scrapped in February, 1957, but it is now two years since we pressed the then Chancellor, the right hon. Gentleman the Member for Monmouth to announce then that he would restore the investment allowances a year later to give industrialists a chance to plan ahead, and to take up the slack that it was then clear would develop in investment. The right hon. Gentleman refused.

Last Budget, we pressed the present Chancellor on the same question, but lie was too cautious. As recently as last June, on the Finance Bill, we pressed the restoration of investment allowances to a Division, but the Chancellor told us that the country's economic position was not strong enough to afford investment allowances— and this at the end of a six-month period with a record balance-of-payments surplus. We were voted down by all the expansionists opposite, yet, within a few weeks, the right hon. Gentleman ended the credit squeeze, and, before long, after refusing to stimulate investment, he was trying to boost consumption with a hire-purchase spree.

However, the Chancellor and the Government now announce themselves as converts to the idea we have urged for four years—the need for industrial expansion. Indeed, the whole Treasury Bench have suddenly seen the light—expansionists, all of them. For mass conversions, there has been nothing like it since the Emperor of China baptised his whole army with a hosepipe. I was not there myself to see that occurrence, Sir Charles, but right hon. Gentlemen opposite remind me, as they sit there, so pious and virtuous about their belief in expansion, of the Damon Runyon scene in " Guys and Dolls ", with all the Broadway characters— Harry the Horse, Big Louis, Nicely-nicely Johnson, City Max and all the rest sitting at the Salvation Army meeting confessing their sins and promising to be good in future.

Even that arch-restrictionist, the Prime Minister, who, in 1956, reversed the Lord Privy Seal's expansionist policies—I am sorry that we have not the pleasure of the attendance of either of them here this afternoon, although the Lord Privy Seal explained to me that he was going to another place, though not, I think, permanently—and who, in his next Budget, said that we could not afford to go full out and himself started this miserable record of stagnation, is converted to expansion. I see that, according to last week's Sunday Times, he is to fight the election on the twin pillars—peace abroad and expansion at home.

I do not underestimate the power or virtue of repentance— even a death-bed repentance. As we all know, there are cases recorded of chronic alcoholics who, after years of over indulgence, suddenly decide to "go on the wagon," but it is a bit much when they then decide to fight a General Election on the virtues of total abstinence. Still, for what it is worth, and for as long as it lasts—and we all remember 1955, and the Lord Privy Seal—we have a Government at long last committed to expansion. And about time, too.

Table 18 of the Economic Survey gives the Government's industrial production record in all its glory. Taking 1954 as 100, we have had these figures: 1955, 105; 1956, 106; 1957, 107; and 1958, 106, Two faltering steps forward, and one back. Indeed, had the Government not changed the basis of the figures in the middle of last year the results would have been still worse.

I shall not weary the Committee today with international league tables. That is not necessary, because hon. Members on both sides know that these would only repeat the same dismal tale. Hon. Members themselves know the facts. In the convertibility debate on 28th January, I challenged 200 of them, sitting on the benches opposite, to tell me of a single country in the world other than Britain that had failed to increase its production since 1955. Not one of them could tell me the name of a single country that has done as badly as we have under this Government over these four years. To cheer them up, let me say that I have looked up the figures for Laos and Cambodia, and I think that in the latest abstract of Ethiopian statistics they may find the figure for which they are all looking. There is some little doubt about the accuracy of the figures.

So we have had no increase in production since the last General Election. That is not, of course, what the Government promised the country in 1955. They fought that election on "United for Peace and Progress ". Had they been prophetic they would have called it, "United in Suez and Stagnation ". Of course, they were united. The Prime Minister told us they were united over Suez. I am only sorry that the Lord Privy Seal is not here to confirm it for us.

This is what they said in that 1955 document: …we must devote more of our resources to increasing productivity …First thought must go to investment in productive forms of capital—factory and farm buildings, plant and machinery, communications and power. They had a section called "An Expanding Economy ", which reads: … continued full employment must mean not only everyone in a job, but everyone doing their job to the full. Only with a high output —high earnings economy can we maintain and improve our trading position. We recall the Government's 1955 promise on employment. The document had a section on Scotland which stated: Each year since the Unionists— and that, as you know, Sir Charles, is their alias north of the Border— took office, the number of people at work in Scotland has grown and now stands at a record level. Referring to Wales, it said: Unemployment under the Conservative Government has touched the lowest levels ever recorded in Wales in time of peace. That was in 1955. Of course, they cannot ever have meant that stuff to be taken seriously. We can see that by looking at the section dealing with foreign affairs in which, referring to the Middle East, we read: Our prestige throughout this area has been restored. It goes on: Thus we have a better chance to continue helping the countries of the Middle East in their plans both for defence and for economic development, and also to work for reconciliation between the Arab States and Israel. It is all very funny, I know, but this was the fraudulent prospectus on which hon. Gentlemen opposite got back to power. They all individually told the same tale. I am sorry that the Prime Minister is not here, because I have his own election address before me— and they used to complain about "Keep Death off the Roads ". Apart from some most unfortunate references to foreign affairs in that address — the right hon. Gentleman was Foreign Secretary then, in those days a position which meant that he was in charge of the Foreign Office—he goes on, under the heading " The Future ": As production rises, wages and earnings can rise, also. We have the means—the machines, the brains and the men. Let us use them, in a united effort for still higher standards of life. Of course, he was right. We did have the machines, the brains and the men. What we have lacked has been the Government.

Since the Prime Minister faced the future in Bromley we have had four Chancellors— all dedicated, as he was, to expansion. Let us look at their records in industrial production as shown in the Economic Survey. In 1955, we had the Lord Privy Seal. I think that he genuinely believes in expansion, but, of course, his trouble was that under Tory freedom, without controls, expansion means inflation and a balance-of-payments crisis. However, under the Lord Privy Seal, the quarterly figures for 1955 went like this: first quarter, 103; second quarter, 104: third quarter, 106; and fourth quarter, 108.

Then the right hon. Gentleman went, and to adopt the eloquent words of the independent Conservative candidate for Norfolk, South-West, we exchanged a tame rabbit for a performing seal. Those are not my words. We got as Chancellor of the Exchequer the present Prime Minister, from the Foreign Office. Nineteen fifty-six should have been the year of great expansion, annus mirabilis, the year of the fiscal " supermac ". We remember all the many parts that he played in this House, Mac the Knife, Gladstone— I am sorry that the right hon. Gentleman is not here—and we remember the great captain-general beginning the year by marching the engineering employers to the top of the hill and marching them down again, ending it by inscribing on his battle honours the " Retreat from Trinidad " and the " Retreat from Suez ".

With so colourful a Chancellor we could have expected action and certainly expansion. But what is his epitaph in the Survey of 1956? In the first quarter the figure was 106—two points below the parting shot of the previous Chancellor, the second quarter 106, the third quarter 105 and the fourth quarter 106—that was, of course, the plateau he had promised us.

After that there was nothing for it but to make the right hon. Gentleman Prime Minister. Our other anxiety was that he would follow the precedent of the previous year and bring the Foreign Secretary to the Treasury. Fortunately, he did not do that. We got the right hon. Gentleman the Member for Monmouth. His record was: 1957, first quarter, 107, then a brave little spurt to 108 in the second and third quarters, falling back to 107 in the fourth quarter.

I come to the present Chancellor. His record last year was: first quarter, 107; second quarter, 106; third quarter, 105; and fourth quarter, 107. Now, despite his repeated claims yesterday that the rate of production was increasing, it has fallen back in February of this year and is now two points below that for the same month of last year. So much for production.

I now turn, as the Chancellor did, to the record of last year. I referred in the debate on the Gracious Speech to this new Tory legend, that having inherited, in January, 1957, from some person or persons unknown a formidable economic problem, their stern, tough, firm, resolute and unpopular policies had brought us through to the promised land in 1958, with stable prices, a record balance of payments surplus, rising gold reserves and all the rest of it.

Now let us turn to the actual record for 1958 with the lessons which it presents for this year. Gold reserves rose over the year by £ 284 million. For once this was not helped by any external aid whether from the United States, the International Monetary Fund or Dr. Adenaur. Indeed, the Chancellor has this year had to start to repay the money borrowed as the result of his predecessor's improvidence. The picture is a little spoilt, of course, by the admission in the Survey that during the last year there was a capital in-flow into the sterling area, mainly from the United States and the International Bank, of over £350 million, a fact which has most surprisingly escaped the eagle eyes of the Central Office statisticians.

I must draw attention to one serious fact. In the eight months from September, 1957, to May, 1958, the reserves rose by £ 424 million. In the ten months since then they have risen by only £ 36 million. In that period, the Government have had the help, as we were reminded last week, of about 100 million dollars of United States capital flowing in for the purpose of financing take-over bids of British firms. This may be, as we all recognise, in the Trinidad tradition, but it shocked us when the Economic Secretary vehemently rejected the suggestion a few weeks ago that American take-overs of established British firms were undesirable. I think that the Committee will have noticed, too, that the sterling balances have been rising again.

The balance of payments reached a record surplus on the current year's account of £455 million, although the figures show that of this £327 million was achieved in the first half of last year and only £128 million in the second half of last year. We have been warned, I think quite fairly, that we cannot expect the same favourable balance this year. How did this surplus come about?

We know, according to hon. Gentlemen opposite, from reading some of their constituency speeches, that it is all due to the wonderful work of the Government in fighting inflation, " Mr. 7 per cent." and all that, although they do not mention him so much. In fact, the improvement in our visible trade last year was £189 million, but the saving in imports due to the windfall reduction in import prices was £336 million, so in real terms there was not an improvement but a worsening of £127 million compared with the previous year.

In January and February of this year, it is, perhaps, rather serious that exports were 3 per cent. down on last year. Although exports to the dollar area are very well maintained indeed and are increasing, we all know the anxiety of the Paymaster-General about exports to Western Europe, which we share. Exports to the sterling area in the first two months of this year were 15 per cent. down on the same period of last year.

It was, of course, the fall in import prices also which reduced the increase in the cost of living to a bare 2 per cent., another subject which looms large in the constituency speeches of hon. Members opposite. I am sure that they will have noticed what the Economic Survey itself says about this, because it says, quite frankly and honestly, this: Final prices did not on average rise much because of the fall in import prices during 1957, which was still working its way through the economy. We said last year that with that windfall assistance—this 10 per cent. or 11per cent. fall in import prices—the Government would have to be more than usually incompetent if they failed to bring prices down last year and, of course, they did fail. Indeed, the economic editor of the Observer has recently produced figures —I have not seen them challenged anywhere—showing that if we discount the effect of import prices, costs in this country last year rose just as much as in the years of inflation due to the paralysing effect on productivity of industrial stagnation. I do not need to tell the Committee that over last year rents rose by 18 per cent. So much for the Government's claim that they have got inflation out of the system and can now afford to be generous. The truth is that the Budget hand-out is a bonus issue following a windfall gain.

In any review of last year, the most serious fact in the 1958 economic record was the growth of unemployment. This has been fully debated and I would not add to what has been said, except for the need, perhaps, to convince the Minister of Labour that whereas on that side of the Committee a debating triumph may be enough to cover over a very serious unemployment position, the same is not true in the country and especially in the areas of high unemployment.

What, of course, we had in March was a more than seasonal recovery from a more than seasonal increase two months earlier. Unemployment was, in fact, very much more than the Minister of Labour forecast last year. The Lord Privy Seal, in his recent helpful television appearance, told is that the Minister of Labour has been pretty correct in forecasting what the unemployment figures would be ". But in preparing the estimates for the financial year 1958-59 the Minister of Labour forecast an average figure for unemployment t of 350,000. In the event, it averaged almost exactly 500,000; in other words, he underestimated the figure by about 150,000. It is very revealing that the Minister has estimated the average unemployment figure for the financial year up to March, 1960, as 500,000 over the year. When he made this estimate there was no improvement expected over the year ahead.

As the Committee knows, the registered figures do not tell us anything like the whole story. They exclude unemployed dockers and those on a guaranteed week. They exclude school-leavers who fail to find work and return to school. They grossly fail to measure the excessive degree of under-employment. Above all, they exclude the very large number of older workers, disabled workers, and married women who have lost their jobs and who, as the Economic Survey so delicately puts it, decided not to seek further employment. The figures in the Economic Survey suggest that those who have, as it is put, decided not to seek further employment —they so decided because they could not get it— account for at least another 150,000.

Again, all the Minister of Labour's artistry does not conceal the great growth in long-term unemployment, that is to say, the number of those unemployed for eight weeks or longer. This is where the greatest hardship is felt. I am surprised that the Chancellor did nothing for them yesterday. After all, he bases so much of his concessions on what the unemployed are doing for him; he might have done a little for them. In March—the figures were published this week—there were 286,000 people unemployed for more than eight weeks, some for much longer than that. This is over 100,000 more than the figure for March last year and approaching three-and-a-half times the figure of 81,000 recorded in October, 1951.

Although the Government have a heavy responsibility for the growth of unemployment, I do not, quite frankly, believe, at any rate so near an election, that they want to see the present high figure of over 500,000 continue. The trouble is that they will the end but their ideology prevents them from willing the means. Some right hon. Gentlemen opposite seem to think that it is enough to tell us how grim unemployment was under Tory Governments before the war. We have always the Prime Minister to tell us about the troubles of Stockton when he was its Member of Parliament, as though that provided a guarantee for the future. It has not done so at all, of course.

The latest figures for unemployment in Stockton show a total of 2,000, against over 800 in 1951. The Lord Privy Seal—I am sorry he is not here—is the latest to use this argument. Recently, on television, he said that he remembered being Parliamentary Secretary to the Ministry of Labour in the 'thirties and going round the employment exchanges—on the right side of the counter, of course—and, he said, "I do not wish to repeat that experience."

As the right hon. Gentleman said, he was at the Ministry of Labour for a few months, from May, 1937, until February, 1938. During those nine months, the unemployment figures rose from 1½ million to nearly 1,900,000, an increase of 400,000. Frankly, I do not follow the argument advanced by both the Prime Minister and the Home Secretary, that the worse one's previous criminal record is, the more likely is one to be trusted to go straight in the future.

I understand that the Minister of Labour will be intervening in the debate during the next day or two, and I wish to put this argument to him. This year, with 200,000 more registered unemployed and at least an equal number of additional unregistered unemployed, ought to have enabled us to test the Tory theory which we have heard so often, that a little unemployment helps us to redeploy the labour force more effectively. We had the unemployed last year. Accordingly, we would expect to see, according to the Tory argument, more people in the right kind of jobs.

Let us look at the figures in the Survey. Our redeployment went like this. There were 200,000 more added to the dole queues. I have mentioned that already. There were 22,000 fewer in coal. There were 242,000 fewer in the manufacturing industries, and of these there were 122,000 fewer in the vital engineering and metals sector. There were 9,000 fewer in national government. I suppose the Government are pleased about that. There were 12,000 more in local government. There were 43,000 more in that group known as professional, financial and miscellaneous services—mainly, of course, miscellaneous.

When hon. Members opposite were on these benches, they used to say, "Cut the Civil Service, and there will be more workers for productive industry ". Since 1955, the Government have cut the Civil Service by 33,000, but the numbers in manufacturing industry have not risen. They have fallen by 271.000 since 1955, while the numbers in distribution have risen by 96,000, and those in professional, financial and miscellaneous services have risen by 119,000. Do hon. Gentlemen opposite really think that they are solving our industrial problem by taking people out of productive work and employing them in advertising, trade associations, dividend stripping and all the other ancillary trades which flourish under Tory freedom?

I could summarise the main results of the past year in financial terms, taking all the figures from Government publications. Wage rates last year rose by 3½ per cent. Wage earnings rose by 2½ per cent. Profits fell by 5 per cent. Dividends rose by 6½ per cent., dividends after tax rising still more. Rents rose by 18 per cent. Equity share values rose by 33 per cent., and that was the figure before this morning's Stock Exchange activity. In other words, earnings are up by 6d. in the £, dividends are up by 1s. 4d. in the £, rents are up by 3s. 7d. in the £, and equity shares are up by 6s. 6d. in the £. No wonder the Chancellor called it a golden year.

I would summarise the year, on the Government's own record, rather differently. Nineteen fifty-eight, I suggest, was a bad year for old-age pensioners and others living on small fixed incomes. It was a bad year for industrial workers, especially for those vulnerable to unemployment and short-time working. In many areas, it was a bad year for new school-leavers. It was a bad year for tenants of privately-owned property and, to a less extent, for tenants of council houses. It was a bad year for those engaged in the production of steel, coal, basic materials and machine tools as well as textiles. [Interruption.] It was a good year for some. It was a good year for commercial television, for the advertising profession, not to mention the market surveyors, genuine and bogus. It was a good year for hire-purchase companies, for landlords and property companies. It was a good year for the joint stock banks and for the discount market. It was a good year for dealers in options and other speculative transactions on the Stock Exchange. It was a good year for owners of equity shares and, as we have now heard, it was a good year for the dividend strippers and for the bond washers. For this group of contributors to our national wealth and welfare, the Prime Minister's claim was right. They have never had it so good.

I come now to the Chancellor's fiscal proposals. First, there are two things which he has not done. He ought to have taken the opportunity this year, with the surplus he disposed of yesterday, to abolish once and for all the Entertainments Duty on cinemas. It yields a sharply falling revenue, and it is now quite clear that the profit is not in the cinemas; the profit is gained now by the operators of commercial television. Secondly, if he had this money to give away, it would have been right sharply to reduce the tax on diesel oils for road passenger transport. I think that the effect on fares and the cost of living generally would have been far more striking than the effect of some of the things which he did do.

Turning to the Chancellor's detailed tax proposals, I will begin, as he did, with further action to deal with dividend stripping and bond washing. It seems a long time since 1955 when the then Financial Secretary, now the Minister of Housing and Local Government, promised us, during the debate on the Finance Bill in that year, to exterminate the small but ingenious tribe of dividend strippers."— [OFFICIAL REPORT, 8th November, 1955; Vol. 545. c. 1664.] We warned him then, and we warned the Chancellor last year, that the Government's proposals were not adequate, and we told him how to deal with this problem. But. year by year, these antisocial gentry have been finding a way of making rings round the Government.

In our view, the time is long overdue for effective general powers to be taken to deal with these tax avoidance devices. As regards bond washing also, when I referred, in 1956, to the new practices which had developed, the then Chancellor, who is now the Prime Minister, told us that the matter would be dealt with. We are wondering how many more millions have escaped through the tax net as the result of the failure of the Government to deal with these tax avoidance devices.

As for the Chancellor's proposals for vehicle licence duties, hydrocarbon oils, Estate Duty on life policies, marine insurance, and so forth, I think that the various questions can be safetly left until we see the actual proposals in the Finance Bill. I should warn the Chancellor that we shall wish to scrutinise very carefully, when we see the Bill, his proposal about the remuneration of directors of director-controlled companies, because he told us yesterday that this relatively small group of people would find its situation improve to the tune of, I think he said, £3 million of revenue a year. We shall certainly wish to scrutinise exactly what he proposes to do.

I come now to Purchase Tax. I have explained why we think that the Chancellor has tackled this tax in the wrong way. He should not have set out to compress the rates more closely together. Obviously, somewhere in the Board of Customs and Excise, the old sales tax notion still smoulders. if the Chancellor wanted to bring down the cost of living, as he said he did, above all if he wanted to do something for less well-off families — after all, he is doing something for the " Top People " in his Income Tax proposals— he ought to have concentrated, I suggest, on reducing or removing the tax on essentials, especially clothing, furniture, footwear, bedding, wallpaper. cutlery, pots and pans, and kitchenware.

There are still many items in the Schedule bearing tax which were tax-free at the time of the last General Election but which were brought under the heading of taxation by the Lord Privy Seal in the autumn Budget he introduced to pay for his election Budget of that year. The Chancellor should have cut the 5 per cent. rate to 2½ per cent. if he had not abolished it altogether. Perhaps he can tell us what that would have cost. He should have removed from the 15 and 30 per cent. rate those items which must genuinely be regarded as essential.

As I shall show in a moment, the Income Tax changes are highly regressive. That provides all the more reason for applying Purchase Tax in a way that would give the most relief to people who do not pay Income Tax and, therefore, gain nothing from Income Tax relief. The Purchase Tax changes favour the heavy spender against the man with less to spend. And as I said earlier, I hope that the Chancellor will look at this question, also. He has relieved the industries which are suffering least from unemployment and provided less help for those industries where unemployment is greatest.

I want to ask the Chancellor another question. Will all these Purchase Tax concessions be passed on to the public? Last year many of them were not. Many of them were swallowed by manufacturers and we can produce evidence about that. The Economic Secretary can shake his head, but we can produce letters by manufacturers to retailers showing they had taken over the whole of the tax concession. A smaller number were absorbed by retailers. I doubt whether that will happen to a large extent. The Chancellor has seen to it that the brewers do not absorb the tax and I hope, therefore, that he will take stiff measures to see that that happens in a rather wider range of industry.

I now come to beer and black beer. This will be popular, and no doubt we can see the Churchillian inspiration "an open hand at the Treasury, an open door at the public house ", as he said in 1908. Does the Chancellor not think that even the most confirmed imbiber would have been glad to forgo the remission if he could feel that more was being done for old-age pensioners? There would have been just as many toasts drunk to his health in public houses last night if he had. The Chancellor should not jump to the conclusion that his revenue will be fortified — the fall in beer consumption is due much more to changes in social habits, chiefly television. Whether the revenue is fortified or not, how will this beer remission help unemployment? Is unemployment heavy in the brewing trade? We had not heard that that was so. I suppose the idea is that if a man drinks a couple of pints of beer regularly he will save 4d. and spend that on something else which the Chancellor hopes will not be beer. How will the revenue be fortified if he does not increase his beer consumption? Does the Chancellor feel that more will be spent on4other things? This is really Boyle's law in reverse. Perhaps the Lord Privy Seal will explain that later.

I cannot help feeling the Chancellor did not work it out in this way at all. I think that he first decided how much he could give away and then decided on this for reasons which were not exclusively economic. In fact, I do not think that this was the Chancellor's idea at all. I feel that the inspiration came from the Prime Minister. It is all part of his rather condescending "masters and men " approach to life. The masters are getting some hundreds a year off Income Tax concessions— let us give the men 2d. off a pint.

I have seen a calculation this morning which suggests that if the men, by their beer consumption, are to get as much out of this Budget as the masters are to get out of Income Tax, they will have to raise their consumption of beer to 11 gallons, that is, 88 pints a day, figures which will cause even Mr. " Andy Capp " to quail and will involve liquidity ratios which will be in excess of what the Chancellor has in mind. Three years ago the Prime Minister, in his thirst for economy, put up the price of school milk. He cut the supply of welfare milk. This is a fine record for the Government— milk up and beer down.

I turn now to Income Tax. One of the big Tory myths—and it is surprising how many people believe this one—is that over the past six years they have greatly reduced the burden of direct taxation on lower and middle income groups. What they have done has been whittled away by inflation except for the richer taxpayer. Higher prices have meant higher wages and salaries and this has brought the individual taxpayer into a higher band of tax.

It was interesting to see some rather revealing figures in the Sunday Times. Take a man earning £750 in 1952. He was then paying 5.8 per cent. of his earnings in tax. To have the equivalent income today he would have to earn £ 922, and at today's rates of tax he would be paying not 5.8 per cent. but 7.1 per cent. of his income in tax. He is, therefore, paying a higher rate of tax than in 1952. Similarly, a man earning £ 1,000 in 1952 needs £ 1,230 today and whereas he would have been paying 112 per cent. of his income he will now pay 12.7 per cent. But the £ 5,000 a year man, now getting £ 6,150, pays 41.5 per cent. against 48.3 per cent. in 1952, and he is more likely to get income ex-tax in the way of "perks " of various kinds.

Those figures were taken from the Sunday Times and not from the Daily Herald. While the intention was to reduce the burden of taxation on the smaller and middle income groups, it is quite obvious that those in the higher income groups have gained considerably.

The Chancellor's new proposals do not wipe out this inequity. The lower-paid taxpayer gets very little out of it. Let us take an average family— a man, wife, and, let us say, two children under 11. The man earning less than £ 700 a year gains nothing from this Budget. The man earning £ 700 a year, nearly £ 14 a week, saves in tax 2s. 3d. a year, or ½d. a week. The man earning £ 800 a year, or £ 16 a week, saves £ 2 11s. a year, that is, about 10d. a week. The man earning £ 1,000 a year— and, as the Chancellor knows, there are very many families whose incomes are a very long way below that —or £20 a week, saves £5 19s. a year, that is, about 2s. a week, and perhaps that is the young technician we want to dissuade from emigrating. When one gets to £ 1,500 a year, or £ 30 a week, he saves 4s. 4d. a week. The man earning £ 5,000 a year saves £ 125 per annum or nearly £ 2 10s. a week. A man earning £ 10,000 saves £ 292 a year, or over £ 5 10s. a week. Finally, a single man earning £ 10,000 a year, and living on investment income, gets £ 362 a year, or over a week.

If the Chancellor wanted to reduce Income Tax by £ 200 million a year, he should have done much more by way of personal and child allowances and by increasing the earned income allowance. Any reduction in the standard rate should have been compensated to ensure that those on unearned income and the richest Surtax payers did not, as under the Chancellor's proposals, scoop the pool.

I have referred to investment allowances. We welcome the Chancellor's belated reversal of the Prime Minister's action of three years ago, but he would he well, if he cannot introduce discrimination in the investment allowances— the proposal, I am sure, he considered— in favour of more essential as against less essential industries, to have reserve powers of building licensing to see that inessential investment does not once again get out of hand, as it did in 1955, forcing restrictions all round.

Before leaving taxation, I would once again say this. The Chancellor has missed a great opportunity to increase both the fairness and the yield of our tax system by making a determined drive on all the manifold forms of tax avoidance—" perks ", untaxed capital gains, tax-free compensation for loss of office, of which there have been one or two striking instances recently, the tax loss racket, and the rest.

A year ago, in the Budget debate, I said: a socially just Budget means widening the tax base by bringing all, or nearly all, forms of spendable income within the revenue net. That sentence, twisted and out of context, has been a staple of Tory propaganda ever since. I invite the noble Lord, Lord Hailsham, to bring a meed of unaccustomed honesty into his party's propaganda by quoting the next sentence: The wider the base, the less high the tax rates need to be. This means dealing with capital gains, as we propose. It means a determined legislative drive against all the manifold forms of legal tax avoidance." — [OFFICIAL REPORT, 16th April, 1958; Vol. 586, c. 185-6.] On post-war credits, I will just say that we welcome what the Chancellor has done. My right hon. Friend, four years ago, pledged this party, had we become the Government, to reduce the age of repayment by one year every year. Had that been done we should now be down to the 60-year-olds by this time. However, we very much welcome the Chancellor's acceptance of what we have long urged on him, that he should do something about the hardship cases. [Laughter.] Hon. Gentlemen opposite can look in the columns of HANSARD and see that week by week —almost day by day— I have put this point. I have written to the Chancellor about this. We have, all of us on this side, pressed him on this question, but we were told that the Treasury said that it was utterly impossible to do it. We will not argue about whether the Treasury said that or not, and we are very glad that the Chancellor has found it possible to do this. We recognise the possibility of anomalies, but, nevertheless, we are glad he has taken the chance.

This Budget does relatively little, apart from the beer tax and a little bit about Purchase Tax, for the majority of families in this country. I have referred to the old-age pensioners. What about families with children? Of the 1,900,000 families with two children over half pay more in National Insurance than in laconic Tax. As I have said, it was the Chancellor who raised their taxation last year by increasing National Insurance contributions and he has done nothing for them this year. Of the 500,000 families with four children 90 per cent. pay more in National Insurance than in Income Tax. About 5¼ million children, or about 44 per cent. of all the children, are in families who pay no Income Tax at all, and they have not been helped by the Chancellor's Budget, except in so far as father is able to get his beer a bit cheaper.

We welcome, as I have said, the Chancellor's decision to support expansion, but looking further ahead, can the Government be confident of continued expansion without a new balance of payments crisis? Because the more they concentrate that expansion on consumption rather than investment the greater the threat, sooner or later, to our balance of payments, because of the pull of the home market, which both holds back our exports and increases our imports.

The National Institute for Economic and Social Research, in its most valuable survey of economic prospects, has drawn attention to the way that imports are rising more than proportionately to our national income. The additional imports we are getting year by year are not the industrial raw materials we need to expand output. They are, of course, partly food, partly petrol, but they are also finished manufactures which are replacing our home manufactures. If we look at the figures since 1954 we see that our imports have risen from £ 40 million to £ 50 million a year more than would be justified by changes in industrial production. Looking at these excess imports since 1954 we see we are now importing 80 million less of industrial materials but £ 87 million more of finished goods, most of which we ought to be making in this country. In that fact lies a critical threat to our future, and the Government, so far from taking measures to deal with it, are talking irresponsibly of liberalising more dollar imports.

That is why we must, in all honesty, question the sincerity of the Government's new-found faith in expansion. Is it genuine expansion, or just a process of taking up excessive slack'? The 1954 to 1955 boom and the years of crisis which followed are sufficient justification for saying that under Tory freedom expansion is followed as night follows day by inflation internally and by external crisis. [Laughter.] If hon. Gentlemen opposite can still find satisfaction about the problems that this country was facing in the couple of years after the war, and cannot defend their record, when world prices were falling and their own policies led to inflation, it really is time that they started to think again.

We welcome the decision at long last to aim at expanding industrial production, but we warn the Government that they will fail, as they failed before, unless there are built-in controls to prevent excesses of production of inessential goods and of inessential investment and directed to meeting the over-advertised demands of the home market. Expansion without inflation is possible only on two conditions, first, that excesses can be curbed, and, secondly, that a policy of social justice is reintroduced to make possible the appeal for reasonable restraint in personal incomes that all parties know to be necessary. These gains, the concessions offered by the Chancellor yesterday, can be guaranteed, they can be made permanent— I hope they will be redirected— only if we have a Government determined to pursue the policies which are necessary for expansion without inflation.

In conclusion, this Budget is almost certainly the last Budget of this Parlia- ment. Soon the electorate will be called upon to judge the record of this Government, re-elected in 1955 with such high-sounding promises— as events have proved, fraudulent ones. [HON. MEMBERS: "0h."] We have had four major foreign exchange crises. Year by year we have been forced to record the miserable achievements of four successive Chancellors. Let me end by summarising the record of four years of Tory Government, in uniquely favourable world economic conditions; not the conditions as they were when we formed the Government in four or five years after the war, but at a time from ten to fourteen years after the end of the war.

In trade and industry in four years we have seen industrial production showing no rise; exports up 3 per cent., less than 1 per cent. per annum, and now falling; unemployment doubled. The gold reserves in the four years, it is true, have increased by £ 160 million, but the emergency borrowing in the Suez crisis and in 1957, the sale of national assets such as Trinidad oil, the extraordinary aid from Germany and elsewhere, have been almost £ 600 million, to say nothing of the £ 350 million of United States and International Bank lending to the sterling area last year. Even so, our reserves today, even making no allowance for the emergency aid, are still a long way below the 1951 level. And the record in terms of incomes? Wages have risen by 20 per cent. though eroded by increased National Insurance payments, while dividends have risen by 26 per cent., dividends after tax much more. Rents have risen by 39 per cent.

Most serious of all, year by year we have been falling behind in the remorseless world economic struggle. In production, we have for four years lagged behind almost every other major industrial country. Our prices have risen faster, our exports year by year have failed to expand. In exports of manufactured goods we fell last year to third place, behind the United States and Germany. We have seen Japan and Germany, both without a shipyard to their name eight years ago, surpass our stagnant shipbuilding output. In both the pace and the direction of our industrial advance we have been tragically left standing by the Soviet Union. [Laughter] These figures give no cause for laughter.

We are losing ground year by year to other nations. Before long we shall, on present trends, be outstripped by China. I ask hon. Members who find this very amusing what it will mean when those countries, especially Russia and China, begin to compete in our traditional markets for manufactured goods. The truth is that while Germany and Japan have been concentrating on the hard core industries, engineering and the instruments of production—