Budget Resolutions and Economic Situation

Part of Orders of the Day — Ways and Means – in the House of Commons at 12:00 am on 11th April 1962.

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Photo of Sir David Price Sir David Price , Eastleigh 12:00 am, 11th April 1962

We see the connections that come out even in such dreary debates as on the Budget.

We live in an age of managed economies. We recognise this fact on both sides of the Committee. There is little agreement across the Floor of the Committee as to precisely how far and by what means the economy should be managed. Indeed, having listened to debates on economy for a number of years, I suspect that there is as much disagreement between hon. Members on each side as there is between some of us across the Committee.

Nevertheless, I think that there must be few hon. Members who disagree that the economy must be managed, at least in some degree, and that therefore by implication the economy must be planned with all the attendent risks of excessive State control. We are all planners now, though some planners would have us plan more than other planners.

I understand that the right hon. Member for Orkney and Shetland (Mr. Grimond) especially believes that planning can be carried out safely only by Liberals. It was with great interest that I read his address to the Liberal Party Conference last autumn, in Edinburgh, in which the right hon. Gentleman used these words: The danger of planning is that it forgets that all planning is for people. In their enthusiasm the planners are apt to think people exist for the plan "— I would say "hear, hear" to those eminently wise and sound words. He goes on with the proposition, which I find it difficult to follow: The great protection against this attitude is to have planning by Liberals ".— [Laughter.] This is to be taken seriously— For, whatever Liberals may be, they are first and foremost concerned with individual men and women. I find this belief that Liberals are the only people who really care about ordinary men and women really rather arrogant and, I would have thought, mildly patronising. I am afraid that my image of the Liberal planners is both matriarchal and patrician. The right hon. Gentleman is to me a man of infinite charm, whose membership of this House of Commons is a pleasure to us all, but let us in this Committee and the electorate outside heed the wise advice of Mr. Stephen Leacock: Many a man in love with a dimple makes the mistake of marrying the whole girl. We must be careful. Furthermore, we should also agree that one of the main instruments for managing the economy in Britain is the Budget. That sounds very obvious and rather platitudinous, but I do not think that it is obvious to everyone outside the House of Commons. Having listened to some of the speeches during the debate, I do not think it is obvious to everyone in this Committee. There still seem to be many people who regard the Budget simply as an exercise in Government accounting, whereby taxes have to be raised to pay for Government expenditure. Indeed, I go further. There are many people who regard the Budget as a form of annual prize-giving. If they do not receive a prize the Chancellor is regarded as unenlightened, reactionary and utterly deliquent of the national interest. If he increases a tax—as, I think, from time to time he should—it is mean and disgusting.

One is reminded of Alice in Wonderland. The Committee will recall that after the race the Dodo declared, Everybody has won, and all must have prizes. It seems to me that the speeches of some hon. Members opposite could have been made more briefly by the Dodo— Everybody has won and all must have prizes. That has been the content of some of the speeches that we have listened to over the last few days. Until we rid ourselves of the idea that in every Budget everybody must have a prize, we shall never be able to use the Budget, as it should be used, as an acceptable instrument for managing the economy.

If I carry the Committee with me that the Budget is a proper instrument for managing the economy, we must declare what our economic aims are at present. In my view, our immediate aims this year are these. The first is to make the economy more competitive at home and abroad. The second is to increase our exports to markets where we get paid. I emphasise the part about getting paid, because anyone can increase his exports to people who do not pay. People are apt to be concerned purely with the volume of our exports. It is the "lolly" I want for this country. Our third aim is to prevent incomes arising ahead of national productivity.

If we pursue these aims with determination and justice this year, I believe that we can achieve as our long-term aim a proper rate of growth and sustain it. For the benefit of hon. Members opposite who may want to know what my idea of a proper rate of growth is, I believe—here I go one better than O.E.C.D.—that it should be 5 per cent. per year compound.

What are the means of achieving these aims? By means of the Budget we must try to equate the projected demand upon our resources against the projected supply. If we allow demand to run ahead of supply, we have no hope of achieving our aims, because we will run straight into a balance of payments crisis. However, I do not believe, though some people do, that it is sufficient merely to attempt to restrict home demand. More positive policies are necessary. A good start has been made by my right hon. and learned Friend in the direction of more positive policies by virtue of the creation National Economic Development Council, the five-year forward look at Government expenditure, the improvement in the services of the Board of Trade to exporters, the start, somewhat painfully, of a national incomes policy, and a more dynamic approach to Government support for science and technology, especially by my right hon. Friend the Minister of Aviation in the field of co-operative space ventures.

But more has yet to be done. When I addressed the House last December, I picked out twelve points in the economy where I thought action was necessary. I shall not repeat those twelve points tonight I wish only to observe that I regard them as just as important tonight as I did last December. Indeed, I hope that the Committee will accept my contributions to our economic discussions in serial form, as I do not want to bore the Committee by repeating myself.

I wish to limit myself tonight specially to this year's Budget. The main question we have to decide during these debates is whether my right hon. and learned Friend has given the right shape to his Budget. Has he taken the correct budgetary view of supply and demand? He has budgeted, as the Committee will recall, for a net deficit of £74 million, which he will have to borrow. There is a school of thought which will say that he has been too generous and that he should have budgeted for a net surplus. I cannot subscribe to that point of view.

I want to comment on what I call the deflationary school of thought. It believes that income-induced inflation—the cost-push inflation—can be controlled by reducing total demand. This point of view was very clearly dealt with in the current number of Lloyds Bank Review in a very penetrating article by Mr. Clegg, who said this: … it is wages and salaries before tax which constitute costs, so that a reduction of incomes through the Budget is not an appropriate method of attacking this 'cost-push' inflation. Like Mr. Clegg, I believe that the deflationary school has made a wrong analysis of the causes of cost-push inflation. Both the United States and Denmark have experienced rising prices with unemployment levels far higher than ours.

Some people hold the view that the pull of the home market diverts production from exports. If there is an excess of demand at home, it does that. However, I do not believe that the reverse is true and that simply by restricting home demand people are forced into the export market. In theory that happens, but, as hon. Members have pointed out, we are human beings and not economic men. I believe that those of us who have practised the craft of economics academically have a certain responsibility for getting the public to believe in this rather mythical creature the economic man, who exists only on graphs and in theory and who one has never met in practice.

The other point of view that has been advanced from the other side of the Committee is that the Chancellor has been too cautious; that he should have budgeted for a large overall deficit. I must admit a slight sympathy with that view because, as the Committee knows, I am a committed and unrepentant expansionist, but the simple view that cost-push inflation can be corrected simply by increasing home demand, and thereby increasing consumption, is fraught with danger, and only too often recently an increase in home demand and in production has led straight to a balance-of-payments crisis.

I would here again quote from Mr. Clegg's admirable article. He says: …incomes have not risen steadily from year to year. Generally they have increased faster during the years when output has grown most rapidly. Labour has been short, overtime has crept up, unions have been encouraged to set their claims high and employers have had more to lose by standing firm. Expansion, therefore, adds to the rate of growth of incomes. There may be some-rate of economic growth that would absorb the wage increases likely to be associated with it, but it is not possible to reach equilibrium at the average rate of wage increase in recent years. The author goes on to other arguments with which I shall not trouble the Committee.

There is, of course, a short-term remedy to balance-of-payments crises due to excessive home demand, and that is either devaluation or import controls, but I am sure that all hon. Members will agree that those are, at best, short-term policies, and do not, in themselves, remedy a secular trend towards cost inflation.

If my right hon. and learned Friend has been too cautious then, as the Committee knows, he has many remedies outside the Budget. He can alter the Bank Rate and credit policy. He can realise Special Deposits and use his surcharge regulatory as a minus element instead of a plus element. He can pay out more post-war credits and increase social benefits. There is also the r61e of Government orders and purchases.

That being so, I think that my right hon. and learned Friend has the overall balance of his Budget about right. It is difficult, however, to be precise. Let us remember that if we take the total volume of the Budget—both sides, above and below the line—we are dealing with about £16,000 million. If the Chancellor is 1 per cent. too cautious it might mean his having to raise Income Tax by 6d., or, if he is too optimistic by 1 per cent., he must lower it by 6d. in the £.

As a taxpayer, I realise the personal implications of these modest margins. If the Chancellor is 1 per cent. too cautious in his budgeting, I may find myself in for a hideous personal balance of payments problem with my bank manager. That is the personal implication to all of us of my right hon. and learned Friend's sincerity of purpose. It may incline us to agree with Oscar Wilde, that … a little sincerity is a dangerous thing and a great deal of it is absolutely fatal. Does that mean that I am satisfied with the Budget as it stands? I am not. I believe that the case for major structural reform in our taxation system is overwhelming. I know that my right hon. and learned Friend is full of good intentions. In his Budget speech, he said: I have tried to maintain some momentum behind the reform of our tax system…"—[OFFICIAL REPORT, 9th April, 1962; Vol. 657. c. 993.] If my right hon. and learned Friend's actions in tax reform had momentum behind them, it is truly the momentum of the tortoise; no doubt a well intentioned tortoise, but the road to hell and Orpington is paved with good intentions—even the good intentions of tortoises.

I should like now to suggest some of the major direct tax changes that I should to see. I should like to see the abolition of the concept of standard rate of Income Tax. I should like to see Income Tax and Surtax amalgamated into a single graduated Income Tax. That, for me, would involve removing the flat point in the progressive curve that will arise under the Chancellor's new Surtax arrangements between £2,000 and £5,000. I want to see a fairly smooth curve right the way through personal incomes.

I would like to see the abolition of the distinction between earned and investment income. In an age of high consumption, the wages of forbearance to spend should not be penalised. Everyone agrees with the need for a high level of investment, but surely, in the circumstances, those who save should not be treated any worse than those who spend.

As one who lives close to his overdraft all the time, I have a very high regard for those who save, and I do not see why those who save should be penalised. If this were done—and only if it were done—I would accept a full-blooded capital gains tax. This would, logically, follow. I would also like to see a corporation tax, amalgamating the current standard rate and the current profits tax. This would involve a 26 per cent. rate on taxable profits. While appreciating the facts, why have no previous Chancellors of the Exchequer thought about this form of taxation? It would, of course, involve the introduction of a withholding rate and the abolition of the concept of years of assessment in favour of years of income.

My right hon. and learned Friend should also consider—and I suggested this last year—the introduction of a new capital tax. I would like to see a once-and-for-all capital charge on the enhanced value of land where the value of that land has been changed as a direct consequence of a change in planning permission. This would be fair. The community rations land through planning and where the value of land is greatly enhanced, through no action on the part of the owner of it, surely the community is entitled to take some of it back?

My hon. Friend the Member for Halifax (Mr. Maurice Macmillan) suggested the abolition of Stamp Duty. This is merely because it is a technical obstacle to the greater earning powers of the City of London in the trading of the world. I have mentioned one condition under which I would accept a full-blooded capital gains tax and I now give a second reason. I would like to see the total abolition of Estate Duty in return for a full-blooded capital gains tax.

It appears a little unseemly that we should impose our main capital tax on the dead and not on the living. I have a curious preference for taxing the living and not the dead, although I appreciate that the present pattern may have a political significance since the dead do not have the vote. As a Tory, I have a respect for tradition, but tradition is merely extending the suffrage from one or two generations previous to one's own.

My major proposal is that I would like to see a payroll tax introduced which would be a revenue raiser. This would please my right hon. Friend the Member for Reigate (Sir J. Vaughan-Morgan). I did not like the Chancellor's proposal last year for a surcharge on employers' National Insurance contributions. It was a poor attempt to institute a right tax for the wrong reasons by the wrong methods. I want to see a payroll tax instituted as a major source of revenue to pay for a large part of our social services.

I take the German pay-roll system as a model and I translate current German practice into British terms, based on our 1961–62 expenditure. I take the German practice because, as a humble back bencher. Treasury information is not available to me. First, I would abolish the insurance principle. Social payments should be made a direct charge on current revenue. I realise that this is very revolutionary and, thus, Liberal hon. Members will realise that radicalism is not limited to their ranks.

Secondly, the cost of current social payments, excluding education, should be divided among employers, employees and the Exchequer in the following proportions: employers, 44 per cent.—today they pay only 23 per cent.—employees, 33 per cent.—as against 27 per cent. which they pay today—and the Exchequer 23 per cent.—as against 50 per cent. today.

The tax would be levied as a direct percentage charge on the total earnings of each employee. Government Departments and the Services would pay the same as everyone else. The whole range would be covered; National Health Service, industrial injuries, family allowances, retirement pensions, unemployment benefit, and widows, but not including education.

On current figures this would mean an employer's contribution of 7½ per cent. of each employee's earnings and an employee's contribution of 5½ per cent. of total earnings. In terms of a £15 a week employee, this would mean an employer's contribution of 22s. 6d. as against 8s. 7d. today and an employee's contribution of 16s. 5d. as against 10s. 7d. Now comes the Committee's reward for listening to me so patiently. This would make available nearly £650 million for the reduction of current taxes. What a field day is open to us…

I will tell the Committee very briefly how I would distribute that. First—this will appeal to right hon. Gentlemen opposite—I would raise and extend the lower bands of Income Tax. I would raise from £60 to £100 the lowest band at present charged at 1s. 9d., which would cost £150 million. I would raise from £150 to £200 the second band, at present charged at 6s. 3d. That would cost another £100 million. I would raise from £150 to £200, the third band at present charged at 6s. 3d. That would mean that from the starting point any taxpayer would have £500 before he reached the standard rate. Alternatively, one could reduce the standard rate and all lower rates equivalency all through the range to the tune of 9d. in the £, making the standard rate 7s., or one could raise the starting point. There are many prizes available there. There is, of course, in these proposals an element of redistribution to the lower-paid employees and, above all, to retired people on fixed incomes.

As to the employers' benefits, I would reduce from 26 per cent. to 20 per cent. the corporation tax. I would abolish the 2d. per gallon duty on heavy hydrocarbon oil imposed last year, or I might reduce the duty on light hydrocarbon oil from 2s. 9d. per gallon to 2s. 5d. Furthermore, I would rationalise Purchase Tax into two rates, one at 10 per cent., raising those at 5 per cent. as my right hon. and learned Friend has done, and lowering those at 12½ per cent., and one at 25 per cent., bringing all the higher rates down.

These are some of the opportunities that would be open to us. I will not be dogmatic about them, but I wanted to give the Committee an idea of what I might do. In doing this I would be transferring the burden of taxation on to employment and thereby broadening the tax base where it could be borne most productively. The long-term effect would be to encourage more efficient use of this country's major raw material, the brains and skill of our people. It is my opinion, based on some modest industrial experience, that as a nation we grossly under-employ our people. The hon. Member for Ashton-under-Lyne (Mr. Rhodes) spoke on the same theme earlier. I am not suggesting that the majority of people do not work hard or conscientiously, but rather that, due to inadequate planning of work and the misdirection of work, a great deal of human effort is wasted.

I have not time to speak of the many more advantages of these changes, but no doubt at some other time I shall be able to pursue the subject. I merely conclude by saying that I hope that my right hon. and learned Friend the Chancellor of the Exchequer and his colleagues on the Treasury Bench will take my proposals seriously. I realise that my right hon. and learned Friend has to be cautious and take as few risks as possible. None the less, I should like him to be a little more daring in his approach to tax reform. I know that he has it in his heart to be the people's champion against the hydra of our taxation system, protected as it is with the armour of precedent and defended by the sword of administrative convenience. My right hon. and learned Friend is a man of rectitude, but, you know, Sir William. They say best men are moulded out of faults;And, for the most, become much more the betterFor being a little bad.