Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 3rd May 1960.

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Photo of Sir Alexander Spearman Sir Alexander Spearman , Scarborough and Whitby 12:00 am, 3rd May 1960

The only way of avoiding that is to lower the general rate of taxation. As long as it is at the present level, tax avoidance of some sort is quite inevitable.

I believe that the measures of my right hon. Friend are exactly right for the conditions facing him today. If the Government had spent less we could be having a different Finance Bill today. We all know that almost the sole responsibility for controlling expenditure rests on the Treasury. Perhaps that is out of date today. One hundred years ago Members of the House of Commons did not urge the Government to spend more. The Opposition were continually critical of any expenditure. The job of the Treasury was to save candle ends, minor waste, not to deal with major policy.

Today the Opposition continually urge the Government to spend more. It is inherent in their social policy. We have had the present Opposition for a long time and look like having them for a long time to come, so that state of affairs will go on. Most hon. Members on this side also urge the Government to spend more money on the particular project which they happen to know is far more important than anything else. Even my hon. Friend the Member for Dorset, South (Viscount Hinchingbrooke), who so often attacks Government expenditure, has been known to urge increased expenditure on his particular projects, such as roads. So we now have an Opposition not criticising but urging Government expenditure. Most Members of Parliament, and I rather think most members of the Government, do the same.

I do not claim to know much of what goes on at Cabinet meetings, and I am open to correction by right hon. Gentlemen on either side. I rather think that when a Minister puts forward a spending project he will find that his colleagues will quite often support him, hoping when their time comes to get their backs scratched in return. If the Government were able to fix the total amount which was to be spent so that every Minister knew that the more one Minister spent the less there would be for him, there might be rather less enthusiasm to support spending projects.

1 should like to see a clearer estimate of the automatic increases of the cost of existing projects and a clearer set-up of the resources likely to be available over the years ahead. I remind my right hon. Friends in the spending Departments of the wise and brave words of Lord Attlee. He said, speaking as Prime Minister, on one of the more serious balance of payments crises of the Labour Government: It may be we have tried to do too much in a short time".—(OFFICIAL REPORT, 6th August, 1947; Vol. 441, c. 1489.] It is not really a question of settling what is good and what is bad on which to spend money. It is a question of priorities, which is far more difficult—how far to put off spending on something that is good in order to make room for something that is still better. If we are to have a more agreeable Finance Bill next year and at the same time are to continue to expand benefits to those in need, perhaps we must move more to the principle of those who can afford it paying for their own benefits, and perhaps, as my right hon. Friend the Member for Flint, West (Mr. Birch) said, those who use particular roads paying a toll for them.

The Bill must be considered in conjunction with the monetary measures which the Chancellor has announced, because without those I do not believe that the Government would retain sufficient control of the economy to prevent inflation. We have had two years of absolutely stable prices with enormous expansion in industry, which I think is unprecedented in our history.

That has not happened by chance. It has happened because my right hon. Friend the Chancellor of the Exchequer gave the economy a push on in 1958 and 1959 when it was going too slowly and a pull back this year when it was going too fast. It is generally agreed—certainly the Leader of the Opposition has repeatedly said this—that we can have stable prices only if the increase in spending does not exceed the increase in resources and we can have full employment or a very high level of employment only if the increase in resources does not exceed the increase in spending. Therefore, the Chancellor must be continually expanding or curbing general expenditure so as to get that balance.

I say this in face of the joint wisdom of the hon. and learned Member for Kettering (Mr. Mitchison) and the hon. Member for Orkney and Shetland (Mr. Grimond), who both seemed to criticise the Chancellor of the Exchequer for varying the pace of the economy according to the circumstances of the day.

Last year, largely as a result of the Chancellor's action in the Budget, demand for goods went up by about £1,000 million and, as the Chancellor had clearly foreseen, output went up by just about the same amount, so we had stable prices. The reasons for that increase in production were two. First of all, there was the capacity to produce more as a result of previous investment—which amounts fairly regularly to 3 per cent. a year—and, secondly, there was the taking up of the slack in the economy resulting, partly, from a falling off in world trade.

That slack has now been almost entirely taken up. I know that there is spare capacity in some industries, particularly in Scotland, but I think that it will be found to be mainly in industries that are either making things that people do not want to buy or industries that cannot get more labour. Until we get more mobility of either work or workers I do not think that that can be improved upon.

This year the increase in production will certainly be up, but it will be less than last year's. Therefore, demand can be up this year, but the increase must be up less than it was last year. According to the Survey, it is quite clear that this year Government expenditure will go up, investment will go up, and exports are expected to go up.

It therefore cannot be safe for personal consumption to rise as much this year as it did last. In 1959, consumption, which takes just over half total demand, went up by 4 per cent., which is rather over £500 million, and it looks as though this year it ought not to go up by more than about 2½ per cent. Had the Chancellor not taken his measures, I am quite certain that this year consumption would have gone up by far more than that.

I believe that the danger of inflation is particularly acute after the slack in our economy has been taken up because, unless action is taken, the rise in incomes that has gone on while the slack was being taken up will continue, but the rise in output cannot continue, so one gets an imbalance.

When incomes rise more than output, two things happen. In the first place, prices rise, because there is no effective competition. Here I should like to quote one sentence from an article by Professor Paish in last February's Westminster Review which, I think, is the clearest exposition of our economic position that I have ever read.

In that article, Professor Paish said: If all firms are employed to the limits of their capacities and new orders can be placed only at the end of long waiting-lists there can be no effective competition. I am quite sure that if there is no effective competition price rises are inevitable.

In the second place, we get balance of payments trouble. Last year, our surplus was down by £200 million. That did not mean any alarming inroads into our reserves because the other countries in the sterling area built up their sterling balances, but we cannot depend on that happening again. Today we are importing just a little too much and exporting just a little too little. But if demand at home goes up we shall import more. If prices go up we shall probably export less.

A balance of payments crisis is a very serious matter for any country, but for this country, as banker for the sterling area, it would be a disaster. I believe that if my right hon. Friend had presented us with a "soft" Budget this year it would have been a clear warning at home and abroad that we were in for inflation. The difficulty about that is that the more inflation is expected the quicker it grows, because the extent to which people try to protect themselves from the consequences of inflation must accelerate it.

My right hon. Friend had two choices. One was to act now—not to stop the expansion but slightly to moderate its pace and, by doing so, risk the opposition of my hon. Friend the Member for Kidderminster (Mr. Nabarro). Or he could have waited, as we have so often done before, until the crisis arrived. He would then have had not to slow down the expansion but stop it altogether by drastic measures. No doubt he would then have had the full approval of my hon. Friend the Member for Kidderminster, because it would have been quite obvious that those measures had to be taken to avoid a balance of payments crisis. If I may say so, my hon. Friend the Member for Kidderminster is always very quick to see the obvious, and tends to declaim it to us in no unclear voice.

I believe that high taxation is bad. It is harsh, particularly on those with fixed incomes. It means a lot of waste, and it is a discouragement to hard work and enterprise. I would remind hon. Members opposite that it not only discourages the comparatively few very rich but also discourages the very many who have every intention of becoming rich.

The Treasury's Bulletin for Industry tells us that now, for every £ of revenue that is raised, 10s. 7d. comes from income and 8s. l0d. from spending. I hope that in future Budgets it will be possible for the Government to alter that proportion so that at least no more is taxed on earnings than is taxed on spending.