Clause 26. — (Surcharges on Employers.)

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 13th June 1961.

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Photo of Sir Alexander Spearman Sir Alexander Spearman , Scarborough and Whitby 12:00 am, 13th June 1961

The right hon. Gentleman the Member for Huyton (Mr. H. Wilson), with the touch of exaggeration to which he is occasionally addicted, said that no one liked this tax. Nothing that he said in any way shakes my conviction in supporting is very strongly.

I do not support the proposed tax because I think that it will be a particularly effective redistributor of labour. In any case, that is not the point of it. The Clause states that its purpose is to regulate the balance between demand and resources. I do not support it because it is the best conceivable means of withdrawing purchasing power. I have always thought that some form of tax on retailer's turnover would do that more powerfully. I believe that, of the limited instruments which the Chancellor has, the proposed tax is the best available, and I think that he is to be very much congratulated on bringing in these entirely new regulators of which we have not heard hitherto.

Anyone wishing to support this proposal must do two things. He must show that the tax will be an efficient, even if not the most efficient, drawer-off of purchasing power, and he must show that circumstances might well arise when it would be required.

In my view, the effect of the tax will be to put up prices, which must be deflationary, to check rises in divdends, which must be deflationary, or to check rises in wages in excess of increases in production, which must be deflationary. Only in the fourth possibility, if it is to be taken out of undistributed profits, will the effect be far less deflationary. My guess is that its effect will not be all on prices, all on wages, or all on dividends, or undistributed profits. It will be a mixture of the four. Therefore, the Chancellor will probably not succeed in drawing off the full £200 million, but he will succeed in drawing off a very big proportion of it.

The most effective result, I think, would be in the effect on prices. I have never understood why those of my hon. Friends who favour a sales tax should oppose this proposal. As I see it, the tax is a rather crude but simple form of sales tax which avoids many of the administrative difficulties of a sales tax. It is sometimes said that any taxation is inflationary. I doubt that the right hon. Member for Huyton will accept that, and I am quite sure that the Leader of the Opposition would not. If prices go up because of increases in income, whether they be due to higher wages or higher dividends, then, of course, there are continual rises in prices so long as the income goes on increasing; but if there is a rise in prices due to taxation there is no further rise after that has occurred.

I have tried to show that this tax will be effective in drawing off a large proportion of the £200 million of purchasing power. I turn, next, to the need for it.

At present, spending is rising quite sharply. We know that Government spending is up this year by about £100 million. Expenditure on industrial investment is up by £300 million or £400 million. The Chancellor predicted that expenditure on consumption might be up by 3½ per cent. He said that in his Budget speech, and what has occurred since shows that that may well be an under-estimate. That would amount to £500 million. Therefore, it seems that spending is going up this year by about £1,000 million.

10.15 p.m.

I am sure that production is going up, too. There is no question of the Government wanting to hold down production. But, with no reserves of labour, with under 300,000 unemployed and over 350,000 vacancies, how can production go up by anything like £1,000 million? It can only go up by an abnormal increase in growth due to technological improvements. It therefore seems to me that there will be a considerable gap between the amount of money people spend and the amount of goods that they buy.

If any hon. Member can show that my figures are without foundation, I will listen to him with interest, but if not, what is the alternative to the use of these regulators? Either we import much more—and how can we do that at present?—or have very severe inflation. Fourteen years ago we ran into balance of payment difficulties. They were very severe and we had devaluation. On the 4th February this year them was a letter in The Times which stated that The disastrous cost of the Cripps's devaluation can no longer be disputed: That was said, not by a staunch Tory commentator, but by that well-known Socialist adviser, Dr. Ballogh.

Since I have hardly ever agreed with anything that Dr. Ballogh has said in public before, I should like to read an extract from what he said in his letter. He stated that devaluation would represent the acceptance of a cut in real income, especially in real wages when other countries are steadily improving theirs. If the trade unions press for an increase in wages (as they are bound to do) a repetition of the devaluation would become inevitable. Confidence here and abroad would be undermined. I think that every hon. Member agrees with that. What we do not seem to agree about is the extent of the action which might have to be taken to prevent it.

Ten years ago we again ran into a balance of payments crisis. On that occasion hon. Members opposite thought that discretion was the better part of valour. Perhaps they were wise. Four years ago we ran into another balance of payments difficulty which was put right by the drastic and heroic action of my right hon. Friend the Minister of Aviation. I do not think that enough credit has been given to him for that but the price was great. It meant industrial stagnation for a time. I am now asking the Chancellor to take measures in time, not to stop growth, but to regulate the pace of the growth so that stagnation does not occur.

I realise that the consequences of this tax may be disagreeable to some, but I do not think that in twenty years I have ever heard so much fantastic exaggeration as I have heard tonight about the possible consequences of this tax. I agree that there might be some inconvenience, but the consequences of not taking action in time could be disastrous. It is vital that the Chancellor should not wait until it is obvious that action should be taken because then the measures which he proposes would not be enough. That is what has happened before. It is vital that he should take action before it becomes obvious.

Hon. Members who have spoken today in favour of this tax have not, perhaps, been in the majority, but I have no doubt that a majority in favour of it will be shown in the Division Lobby. I hope that a message will go to the Chancellor from this Committee that we very much hope that the need for using this regulator will not arise, but that if it does arise he will have no hesitation about using it in time.