Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 15th April 1964.

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Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee 12:00 am, 15th April 1964

I am deeply obliged for the courtesy that has been extended to me by the hon.. Gentleman the Member for Bristol, West (Mr. Robert Cooke), but not 'or the sentiments which preceded it.

The right hon.. Gentleman the Chancellor of the Exchequer ended his speech yesterday with an astonishing invitation. He invited the Committee to consider not his Budget, which he had spent 90 minutes delivering, but instead that any hon.. Member who had criticisms to make should make his own proposals clear so that the country could judge. I suppose that there are not many occasions when a Chancellor has asked that his own Budget should not be discussed. I can say to him now that on this side of the Committee my right hon.. and hon.. Friends and I relish the opportunity which he has afforded us of filling his vacuum. We will take the opportunity, in so far as we are in order, during the next few days, to expose to the country not only the nakedness of hon.. Gentlemen opposite, but also the alternative policies which they should have followed and which the next Labour Government intend to follow as soon as the Prime Minister calls the General Election.

I think it fair to describe the Budget as straightforward, simple and inconsequential. It wore the air of a man who recognises the problems that exist, but who sees no prospect of solving any of them this side of the General Election. There can be no doubt that the Budget, in its content, has deferred any solution of the major problems which face this country until the election is over and, judging by the way the Chancellor presented it, he seems to think that he will have little interest in solving them.

The Chancellor denied on television last night that he is taking risks. He said that he is taking a chance. I am not sure what is the difference, unless it is the difference between fixed odds betting and football pools. I agree that he is taking, whichever word he cares to choose, a chance or a risk, but the criticism I make is not that he is taking a chance in what is admittedly a risky situation, but that over the preceding 13 years the Government have not steered us further away from the financial rocks than we are today; that they have not during those years so strengthened the economy that we could face more easily and with greater equanimity nine months of boom without dire speculations going on about whether we are likely, in the autumn, to enter into a balance of payments crisis.

The proposals which the right hon.. Gentleman has made are almost irrelevant to the situation that could arise in the autumn. The tax on beer and cigarettes is basically irrelevant to the balance of payments problem. As has been pointed out, although it can be borne relatively easily by a considerable section of the community, it will bring hardship to those citizens whose plight is often represented in Parliament, the old-age pensioners, who enjoy a pint of beer or a packet of cigarettes. I know of no way, except by increasing the pension in some way, to take account of these deliberate acts of Government policy.

This is by no means the first series. Rents is another by which the Government deliberately operate the levers of policy to discriminate against some of the hardest hit sections of the community. I hope that the right hon.. Gentleman will take some of the proposals which we have to make on this issue. The right hon.. Gentleman has also got into trouble with the bookmakers, although he is not the first Chancellor to do that. A famous ex-Chancellor, nearly 40 years ago, got into trouble not only with the bookmakers, but with the bishops. I do not know whether the present Chancellor will incur the wrath of the Church, but we had better wait to hear what representations will be made and what the Chief Secretary has to say about the Finance Bill to find out whether the Chancellor has, in the words of the bookies, backed a loser or dropped a clanger.

It is also interesting to note that the nationalised coal industry is giving a helping hand to private enterprise steel. This is a trait which has distinguished the nationalisation of our industries and which, I believe, will continue. But, basically, the chance, or risk, that the Chancellor is taking is this. He is saying, "If exports continue to increase, if imports moderate, if inflation continues in other countries, if world trade continues to rise "—and, with a sidelong glance at his fellow Ministers on the Government Front Bench—"if I am not pressed by the rest of the Government to indulge in any grandiose schemes of new expenditure, if excessive wage claims are avoided and if the capital outflow slows down, then I can look forward with confidence to moderating the rate of growth of the economy from 6 per cent. to 4 per cent." What an epitaph on 13 years! I wish that he was taking the chance to keep the rate of growth up to 6 percent. instead of reducing it, as he intends and wishes to do. Maybe in the present circumstances he cannot avoid reducing it to 4 per cent.

Among the minor proposals that the right hon.. Gentleman has made, I would like to acknowledge with gratitude that relating to invalid cars. I recall those long and turgid Finance Bill debates that we had last year when the House got the bit between its teeth and insisted that, whatever might be the difficulties of the Treasury, the House of Commons as such intended to have a concession for invalid cars. I am grateful, as are all hon.. Members, that the right hon.. Gentleman should have taken note of the views of hon.. Members which were expressed so strongly on both sides of the House on this issue. I only wish that he could have taken more note of our views. I do not suppose that many cheers will be raised about duty-free tobacco and spirits for people travelling by B.E.A. to Paris or elsewhere for the week-end.

I will not delay the Committee by dealing with the other minor changes, but I am glad, in respect of a major point, that the right hon.. Gentleman is taking new steps to encourage savings. It is absolutely vital to the economy that we have a high level of savings. I wish that he had launched the National Development Bonds with a greater flourish of trumpets.

I was disappointed with the right hon.. Gentleman on the question of tax simplification. It was his predecessor, the present Leader of the House, who told us three years ago that, at that stage, he had set on foot a full inquiry into one system of taxation of companies instead of two, the amalgamation of Income Tax and Surtax and the form of Exchequer accounts. Every year we get a bow in the direction of tax reform from successive Chancellors, but that is all. This year we have had a White Paper. If it takes three years to produce a White Paper on tax simplification, goodness knows how long it will take to get the reforms.

I turn to dividends, rents and wages. The charge I make against the Government is not related to the last 12 months, but to the last 12 years. During that time successive Chancellors have shifted the burden of taxation from dividends and profits to persons That is the charge I make and it is a charge which can be clearly demonstrated by the figures which can be produced. Let us consider two or three of them. Consider, first, the receipts of taxes. Tax receipts from companies, including Profits Tax, have gone up during the lifetime of the last four Administrations by 27 per cent., or little more than a quarter. Tax receipts on capital have gone up by 37 percent.

On the other hand, tax receipts from persons have more than doubled. I realise that this is a crude comparison because there are, naturally, more taxpayers, but if the revenue is as buoyant as we are led to believe it is, this also reflects itself in the profitability of companies. One would expect, therefore, to see a natural buoyancy in the receipts from taxes based on company profits, but that has not happened. It has not happened because the party opposite has deliberately and ostentatiously shifted the burden on to the individual.

Let us consider some other examples which may be drawn from the tax receipts or receipts of dues. Receipts from rates have increased by 179 per cent. and from National Insurance contributions by 190 per cent.

I should like to add my tribute to the Richardson Committee for the clear way in which it disposed of the added-value tax and set out the considerations. It is not surprising that its conclusion was that the percentage rate of tax falling on companies in this country compares favourably with the rates that apply in other countries. I am delighted that this should be so if our overall fiscal position permits it, but I do not accept the view that the Chancellor should achieve this position by shifting the burden, as he has done, on to the wage-earners in a way that has affected the poorest of them worst.

Over the span of Conservative rule total incomes from rents and ordinary dividends have increased to a much greater extent than total income from wages and salaries, and so has the total value of ordinary shares. It comes to this—0that at the end of nearly 13 years of Tory rule incomes from rents and dividends have gone up more than incomes from wages and salaries, proportionately speaking, but tax receipts from wages and salaries have gone up more than the tax receipts from profits Yet the right hon.. Member for Wolver hampton, South-West (Mr. Powell) is still dissatisfied and would like us to do more in this direction.

If we take 1963 by itself, earnings from salaries have increased by 5·3 per cent. Hourly rates of earnings in manufacturing industries have increased by 4·5 per cent., but the increase in the total of ordinary dividends is up by 7·8 per cent. Therefore, taking that year alone, there is a marked discrepancy. The Government have promised more than once to take action against these dividends if they rose at a faster rate than wages and salaries. But when does the Chancellor propose to start? He had the opportunity yesterday and he missed it.

In our view, the right hon.. Gentleman should have taken action. He failed to do so and I am astonished that he should expect to succeed with an incomes policy in the face of this manifest unfairness. Yesterday's increases in the taxation on tobacco and alcohol shift the burden against the wage earner, against the man at the bottom end of the tax scale, and they increase the level of indirect taxation. They depart, once again, from the basic principle behind which we on this side of the Committee are firmly united, that taxation should be based on the ability to pay. This is where any attraction towards indirect taxation faces its greatest weakness.

I give the figures because it is important that they should be on the record. Anybody can challenge generalisations, but these are as accurate figures as I can give. For example, a married man with two children and an income of £12 a week pays in indirect taxes 15·9 per cent. of his income, but at £2,000 a year a similar family man pays only 7·6 per cent. of his income away in indirect taxes. This is the objection to it. The amount paid by the £2,000 a year family man is, of course, greater, but the proportion of taxation that comes out of the total income is less.

The Chancellor said yesterday that he thought that there was substance in the argument that the basis of indirect taxation would have to be widened. I can see the attractions of it to a revenue-hungry Chancellor. There are undoubtedly a number of fields in which this taxation could be extended with some profit to himself, but on this side of the Committee we would be opposed to any increase in indirect taxation which would have the effect of adding to the burden of the wage-earners because it would not be related to the capacity to pay. Any scheme for broadening the basis of indirect taxation as suggested by the Chancellor would have to satisfy us that that would not be the result.

I turn to another problem on which I feel that the Government have been singularly lax, namely, waste in Government expenditure and disinterest in true economy. The Government have spent more on defence than any other Government in peace time. This year, defence makes up the largest single Vote. It reaches a total of £ 2,000 million. In these circumstances, one might be forgiven for thinking that when defence is eating into our resources so considerably there would be the most rigorous efforts to avoid waste and to ensure that we get full value for our money.

Outside the Government Front Bench there is an almost universal belief that this gross expenditure has utterly failed to provide us with adequate defences at a reasonable cost. Yet time after time we have been fed with complacent statements from Ministers about what is happening. The pattern is always the same. We have all heard it more than once. Defence Ministers, Service Ministers, and particularly the Minister of Aviation, come to the Dispatch Box promising great new developments in weapons. Research teams are established, work begins, money is spent and after a time rumours circulate that all is not plain sailing. When my hon.. Friends question Ministers there are indignant denials and reflections on our patriotism that we dare to challenge.

More money is spent. Work continues. Difficulties multiply. Then suddenly a Minister announces at the Dispatch Box that he intends to abandon the weapon on which he had placed so much reliance and to cancel the contract. But he has found a better weapon and he spends more money and the whole circle comes round again. We had a sample of this recently from the Minister of Aviation, when he was asked by my hon.. Friend the Member for Newton (Mr. Lee) about the cancellation of the T188. The right hon.. Gentleman said: This is another typical example of the hon.. Gentleman's characteristic tendency to miss represent the facts. We have not cancelled T188. All we have done is to terminate the programme. It is all very well for hon.. Members to laugh. There was laughter on that occasion, too. The right hon.. Gentleman went on: …there is no question of cancellation. Our decision has been based on the fact that further expenditure would not pay off. The expenditure so far incurred has given a reasonable return."—[OFFICIAL REPORT, 25th March. 1963; Vol. 692, c. 459–60.] Since 1951, 30 major defence projects have been cancelled by Tory administrations. Since the last General Election, in 1959. they have cancelled eight projects. They are: December, 1959, Blue Steel Mark II cancelled, cost £825,000; March., 1960, Bloodhound Mark III cancelled, cost £600,000. I am taking the figures that the Minister gives. I prefer to rely on his figures and let him be hanged out of his own mouth. April, 1960, Blue Streak ballistic missile cancelled, cost £84 million; October, 1960, Spectre rocket engine cancelled, cost £5·75 million; December, 1961, low level surface-to-air guided weapon cancelled, cost £800,000; February, 1962, Rotodyne helicopter cancelled, cost £11 million; August, 1962, medium range surface-to-surface missile cancelled, £32·1 million; December, 1962, air-to-surface ballistic missile cancelled, cost £27 million. Eight projects cancelled at a total cost of £162 million.