Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 16 April 1964.

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Photo of Mr Alan Green Mr Alan Green , Preston South 12:00, 16 April 1964

This is the second successive Budget introduced by my right hon. Friend the Chancellor of the Exchequer, the Resolutions of which have been accepted by the Opposition without a vote. This is the first point to be noted amid the welter of words employed by some hon. Members opposite as a substitute for actually opposing it. The right hon. Gentleman the Leader of the Opposition called it a lame duck Budget. I suppose that that is by comparison with the spectral pony suspected to be sheltering in the Opposition's stab le. I say "suspected" because the Opposition have so far shied away from the Chancellor's clear challenge to state exactly what their alternative proposals would be. Perhaps I should not make too much of this, although it is clear that they have refrained from accepting my right hon. Friend's challenge.

It is true that heavy hints have been dropped about taxing profits rather than, for example, tobacco, and that the mystic change was made by the Opposition's "shadow Chancellor" yesterday that we halve been shifting the burden of taxation from profits and dividends to persons. Those were almost his exact words. It seems to have escaped his notice that profits are taxed and that the level of taxation on company profits was raised three years ago. I am left with the impression, perhaps I am wrong, that he would have raised this level of tax on company profits further and have done it—if we are to believe his right hon. Friend—in some ruthlessly discriminating way as an encouragement to that purposeful industrial development, which is the current jargon of the Opposition.

It seems also to have escaped the hon. Gentleman's attention that dividends are actually paid to persons, in whose hands they are taxable at the rate appropriate to the individual recipient's total income. A special extra tax on dividends would, therefore, involve a further tax on persons, many of whom have incomes too small to attract the existing standard rate of Income Tax.

Perhaps while on this subject I might refer to the interesting suggestion put out by the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) about the income equalisation tax. All I can do at present is to assure him that this notion is being carefully considered. I cannot say any more than that to him and I think that he will understand why that is so. He will appreciate, however, that interesting though the idea is from the point of view of distribution—namely, from the company point of view—the objections must obviously be considered because it would also fall as an extra tax, or rather, deduction of receipt, in the hands of the same people I have been mentioning, many of whom have very small incomes indeed.

It is open to question whether, because of the apparently otherwise useful regulating effect of this idea, those people should suffer a deduction in their incomes, many of which are small and inelastic. That will have to be considered along with what is otherwise at first glance an attractive thought.

As a helpful note to the Committee in general and the Opposition in particular, I have asked for and obtained the proportion of direct to indirect taxation for the years 1951–52 onwards. I hope, since reference was made to the whole 12 years of Conservative rule, that this is not an unfair base from which to start. The comparison is usually based on the proportion of Customs and Excise taxation to total central Government taxation; that is, the ratio of Customs and Excise revenue to the total, which comprise Customs and Excise revenue, Inland Revenue taxes and the motor vehicle duties.

In 1951–52, indirect taxes thus defined were 41·8 per cent. of the total. By 1963–64, they were 41·6 per cent. of the total, notwithstanding the reductions in direct taxation made in that and previous years. This is relevant to the rather unguarded reference to this matter in the speech of the hon. Member for Cardiff, South-East (Mr. Callaghan) yesterday. For 1964–65 the estimated proportion, after the Budget changes, has been put at 41·2 percent.—and that is, therefore, less than last year and less even than in 1951–52. The final piece of information which I hope is helpful on this aspect of the Budget is this: it is calculated that the indirect tax increases will add nine-tenths of one point to the cost-of-living index. This piece of information is, I think, required by the right hon. Member for Battersea, North (Mr. Jay). If he wishes, I am able to break down further even that small percentage.

The attack mounted by the Leader of the Opposition, a formidable one, has taken the form that the growth in imports outmatches the growth in exports and thereby imperils the maintenance of a policy of growth in real terms in this country. I hope that that is a fair summary of what the right hon. Gentleman said. He is rightly concerned—as are the Chancellor, the House and the country at large—with the maintenance of and an increase in the real resources of this country, vis-à-vis the rest of the world in which we must seek our living. This is the heart of our economic problem.

My right hon. Friend the Chancellor devoted a great part of his speech to this very central problem and it would be improper to accuse him of not having done so. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) paid proper attention to the importance of this matter, not only to ourselves but to the outside world as well. I will leave it to other of my hon. Friends to examine the likely effects of the Opposition's declared domestic spending proposals on this central problem. Perhaps they would like to think about that in the meantime.

In framing his Budget my right hon. Friend had to consider certain major factors not in isolation from one another, but in connection with one another. If Opposition speakers, if I may put it to them in this way, have a fault, it is a remarkably common tendency to argue from the particular to the general and not from the general back to the particular. It is because they do this that I think that they occasionally get into some sort of a muddle. For example, my right hon. Friend had to consider whether the existing rates of taxation, coupled with the experience and the reasonable expectation of savings, would suffice to cover the expected outlays of public expenditure, themselves substantially increased.

My right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) raised this matter in what I thought was a very eloquent passage. [Interruption.] I did not find myself altogether departing from the philosophy of my right hon. Friend on this matter. There is no reason why I should, as I hope to demonstrate during the course of my speech.

Again, my right hon. Friend the Chancellor had to consider whether the known plans, both public and private, would fully engage existing resources; whether that full engagement would result in too much consumption at home, with a relative stoking of imports and a relative slackening of exports; whether, within the whole very large area of public expenditure, there was a reasonable and sustainable balance between the needs of defence and of the social services, of education and transportation, of housing and the associated environmental services. These are the essential, but not the only, budgetary considerations. Some of the others we shall doubtless debate on the Finance Bill.

My right hon. Friend listed a number of major factors, upon the actual behaviour of which the continuance of balance would be bound to depend, regardless of what party was in power. Because the balance cannot be maintained at home if we are not competitive in overseas markets—this is one consideration that any party would have to have in mind—the attainment and the maintenance of a sensible incomes policy is in the forefront of these factors.

This is not something than can be centrally directed. Even Communist countries have their recurrent problems of wage differentials and wages drift. But it is an area in which Governments have great influence by processes of persuasion and education and by securing, as far as possible, that the resources to be employed in the public sector are covered by a combination of tax yield and savings and, where appropriate, by the prudent deployment of reserves. I do not think that I am so far removed from the philosophy of my right hon. Friend the Member for Wolverhampton, South-West.

The balance is, admittedly, difficult to achieve, and would be for any Chancellor; and is very difficult to maintain, for it does not wholly depend upon the judgments and actions of any British Government. The actions of other Governments may cause major and abrupt adjustments, as the Labour Party itself found in the period of the Korean War. The winters of 1947 and 1963 were both severe enough temporarily to affect the balances then sought, so that these things are not wholly within the gift of Governments to achieve. Again, I find myself not straying too far from the general philosophy of my right hon. Friend the Member for Wolverhampton, South-West.

Last year, by what is generally accepted to have been judicious judgment, m} right hon. Friend the Chancellor achieved balance in a way which led to exceptionally rapid growth in pretty well all the desired directions. It was quite obvious, as my right hon. Friend himself has pointed out without any prompting, that one consequence of the achievement would be a mounting import bill. To meet this virtually certain consequence, better buttresses for sterling had to be secured; a id not only for sterling, because the health of other major currencies is almost as important to us in the long run as is the health of sterling. This is a fact which we would all accept and agree upon.

Now today better buttresses for sterling and, for example, the dollar, have been erected. They are not perfect, and a lot more work needs to be done. However, the point that I am making is that, without that past work, without that real planning, the balance struck by my right hon. Friend the Chancellor would have had to have been at a lower level and the hopes of further progress correspondingly dim. The point I hope I am observed to be making is that a very great deal of real planning has, in fact, preceded this period of growth.

For this Budget my right hon. Friend had to consider whether he could simply leave the balance just as it was trimmed in the circumstances of last year, or whether the rate of growth now visible in the economy was not itself a factor which required some steadying, so that the general momentum might be maintained. By a remarkably general consensus of opinion, it is accepted that some steadying is required. Of course, there will be different opinions about the degree of that steadying and the method thereof, and I have not so far heard any alternative very seriously pressed. It may, or again it may not, come later; but so far I have not heard any alternative seriously pressed. I can promise that it will be very seriously considered if it is so pressed. Indeed, my right hon. Friend is all ears for such suggestions.

There are certain other matters in my right hon. Friend's statement which, I think, by tradition, are probably better left to the Finance Bill—for example, his proposals for dealing with new forms of avoidance, which it would not, perhaps, be appropriate for me to talk about. What we are here concerned with—it is the central point of the Budget—is whether a proper balance has been achieved, in view of the assessment of the economic forces now operating on this country. I would accept at once, as I am sure everyone would, that, if the ratio of imports to exports became seriously wrong, steps would have to be taken further to correct the balance proposed in my right hon. Friend's Budget.