We have had two unusually obscure and exceptionally benign points made by the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) in an appeal to the Chancellor. He should be rewarded with some assurance because of the almost excessive benignity with which he put the points in a way which differed from the touch of the jungle with which one associates his speeches. His speech was different in content from that of the hon. Member for Morecambe and Lonsdale (Mr. de Ferranti). During his rather patronising lecture one became more and more doubtful about the principle he enun- ciated, that what was good for Ferranti is good for the country.
The hon. Member defended the payroll tax for reasons largely disowned by the Chancellor and totally disowned by the hon. Member for Scarborough and Whitby (Sir A. Spearman). A very curious thing about this debate has been that all hon. Members opposite who have spoken in it have been defending this tax on completely different grounds. The hon. Member for Morecambe and Lonsdale went back to the original idea of the payroll tax when it was discussed in the Press long before the Budget, namely that it was justified as a means of forcing employers to disgorge labour and providing them with an incentive to introduce new labour-saving machinery. This always seemed to me to be a view without any evidence of any kind whatever to support it.
I am not concerned with the fact that this payroll tax is in fact quite different from that which was envisaged by those who thought this would be a great incentive to introducing labour-saving machinery. Those who took that view certainly did not envisage a variable tax and they did envisage a tax which was balanced, as the hon. Member wanted, by at least an equivalent reduction in Profits Tax. I grant that the tax has in fact come out differently from the way in which it was envisaged by those who took this view, but even if it came out differently I have never been able to see why that view should have been held.
Certainly with a payroll tax such as we have proposed to us in this Clause, only adding a few shillings on to wages bills, it is hard to imagine that it will have any great effect on employers' decisions as to how much labour to employ. It could only add from 1 to 2 per cent. on to the wages bill of a large firm, and that is simply going to have no practical effect on the firm's decision whether to invest in new machinery. The logic of the idea is in any case very vulnerable, because it is often forgotten when people talk about persuading employers to economise on labour in favour of machinery that machinery is also made out of labour and that the labour cost and hence the price of the machinery is bound to go up also as a result of the payroll tax.
Moreover, if it is the case that by putting up the price of labour by a payroll tax one is going to have this wonderful improvement in efficiency and increase in labour-saving investment, why does not this follow from annual wage increases? People who are most in favour of the payroll tax as an incentive in this direction are also the people who are most in favour of wage restraint and who say that even a 3 per cent. increase in wages will plunge us into the most terrible economic difficulties. One cannot have it both ways. If one thinks, as I do not, that a payroll tax has this great effect, at any rate wage increases must have one excellent effect, namely in the direction of encouraging labour saving investment. I personally do not think that either wage increases or a payroll tax have any significant effect in persuading employers to substitute capital for labour.
However, that has not been in practice the main ground on which this Clause has been defended. The hon. Member for Morecambe and Lonsdale was an exception. The main ground used for it this afternoon by the Chancellor and by the hon. Member for Scarborough and Whitby was that this regulator was a wonderful method of cutting down excess demand when this turns out to be necessary. With great respect to the hon. Member for Scarborough and Whitby, it is hard to understand how this can be defended as an efficient regulator of demand. He himself conceded—which is a very strong argument against any regulator—that it would largely fall on undistributed profits and to that extent would have none of the effect that he wants. And to the extent that it does not fall on undistributed profits, as he also partly conceded, it would be largely reflected in increased prices.
One characteristic which we do not want in a regulator for coping with a situation of inflationary demand is the characteristic of increasing prices and particularly increasing export prices. Consider the situation in which the hon. Member and the Chancellor are envisaging using such a regulator. The hon. Member for Scarborough and Whitby, and the hon. Member for Morecambe and Lansdale, I think, assumed that this situation is already with us—I do not think that it is—a situation in which demand, in their view, is rapidly becoming excessive and that in consequence of this we shall run into a balance of payments crisis in the autumn, or at least that sterling will come under increasing pressure. If that is the situation we are faced with—a balance of payments crisis and loss of foreign confidence abroad and so on—the worst way of dealing with that situation is to use a regulator which has the positive effect of increasing export costs and export prices. It is a very ironic type of regulator to use—