Orders of the Day — Budget Resolutions and Economic Situation

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

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Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Craigton 12:00 am, 16th April 1964

I know that the Chancellor was sceptical about a value-added tax, as were many of us. But it was argued by hon. Members opposite that the Purchase Tax was out-dated, that we should eliminate all kinds of discrimination in taxes on goods and services, that we needed a flat-rate tax, that it could be done simply, and that it would give an element of dynamism in the economy.

That claim has now been exploded by the Richardson Report, which has demonstrated that, if we put on that kind of overall sales tax, it would mean—if it meant anything different from the present system—taxing food and essential fuels. Now the issues have been clarified and a great deal of claptrap from hon. Members opposite no longer bears any kind of serious examination.

Another fallacy has been that if only we improved the financial and taxation incentives to industry we could have an effective policy of regional development almost by that alone. I never believed this to be the case and I believe that events over the last year have shown that it is not. The Government are giving very generous capital investment allowances, depreciation allowances and general taxation arrangements for firms in the development districts. I agree with the Chancellor about that. I would not wish to oppose these things if they are all that the Government have to offer, but I believe that the difference they make to regional development is very marginal.

Unless there is a tough I.D.C. policy and the whole economy is geared to the development of the under-developed districts, unless we avoid the kind of approach—the defeatism—we have seen in the South-East Study, and unless we have a whole complex of measures going forward in the under-developed districts not only for industry but for roads, hospitals, houses, schools and the rest, tax incentives will make only a marginal difference to the programme of regional development.

That is why I feel that we should resist any further tax incentives for regional development. Perhaps that is not a popular thing for a Scottish Member to say, but I am sure that we now have as much as we need—many would say far too much—of tax incentives and that more direct methods are needed if we are to get a really vigorous economy all over the United Kingdom.

I am not dismissing the tax arrangements out of hand. Nor am I saying that there is nothing we should be doing with the tax system to get this element of dynamism which is lacking in the economy. The kind of programme I would prescribe is very much the kind of programme the hon. Member for Cheadle has been talking about. I would simply add one particular aspect to what he said. That is that the programme is important not only from the point of view of getting an element of dynamism into the economy, but also of getting an acceptable incomes policy. I wish that the Government would appreciate this aspect.

We are told, for example, that dividends and profits are not particularly important and that the proportion of the national income they make up is not nearly as high as the proportion of wages and salaries, so that we need not bother too much about what happens to profits and dividends. Already, the F.B.I. says that there should be no control on profits and dividends.

Of course, it can be proved that dividends are a comparatively small element in the total income as compared with wages and salaries. But, of course, they are going to a comparatively small number of people and it is psychologically and politically impossible to get the ordinary trade unionists—I am not talking about union leaders, backward or progressive by whatever kind of definition we might use—and the ordinary wage and salary earners to accept income restraint unless the Government do something about dividends and profits.

Even if the figures involved are comparatively small when put alongside wages and salaries it is, I repeat, psychologically and politically impossible to get an incomes policy unless the Government tackle profits and dividends at the same time. It is because the Government will not recognise that truth that they have had such a dismal failure in getting an incomes policy.

What people are concerned with is to feel that there is fairness in the economic and taxation systems. But the Government have completely failed to ensure this. Few people, except those who are benefiting from it, really feel that the tax system is fair. They see capital gains being made and property speculation and the rest, and, quite naturally, ask why, if these gains are going untaxed, they should pay their fair share of tax and be denied more than 2½ per cent. or a 3 per cent. salary increase. It is impossible to persuade people of the fairness of an incomes policy unless the Government deal with things like capital gains.

I now turn to the question of the balance of payments, because I believe that this has been the second main item of consideration during this debate. I do not think that I am doing the Chancellor an injustice if I say that what he said about the balance of payments was, roughly, that there is a risk that we might have a balance of payments crisis, but that he is prepared, at this stage, to try to ride things out and hope for the best.

I believe that to be a fair summary of his position and it is ludicrous for the Secretary of State for Industry and Trade to pretend that it is not. I know that the word "complacency" is overworked in this Chamber, but the fact remains that the Secretary of State's speech yesterday was complacent—far more complacent than the Chancellor's.

The Secretary of State pooh-poohed any kind of ideas from this side of the Committee or even from the Chancellor or the N.E.D.C. about improving our balance of payments position. What was particularly depressing, to me at least, in hearing the Secretary of State was the way in which he pretended that so many of these suggestions were completely trivial in comparison with the problem we have to face.

But, as my right hon. Friend the Member for Battersea, North (Mr. Jay) pointed out, the balance of payments problem is a marginal one. We are really talking in terms of £100 million or £150 million in relation to exports approaching £500 million. That is why it was so absurd and depressing for the Secretary of State to say that some of these suggestions were trival because they were concerned only with £200 million or £300 million.

Quite a number of important suggestions have been made and we are beginning to reach a far clearer appreciation of the balance of payments problem than we have ever had. It has always appalled me that, although this has been our most difficult and endemic economic problem, we have had so little information about it at any time since the end of the war, that we have known so little about the actual facts of the situation and have so little analysed it, apart from suggestions of policy to deal with it. We are now beginning to get some of the basic facts of the problem and to appreciate that it has to be tackled in many different ways. That is why I was depressed when the Secretary of State turned down most of the suggestions almost out of hand.

For example, as N.E.D.C. has pointed out, import savings are important, especially import savings on semi-manufactured and manufactured goods. The Secretary of State said yesterday simply that industrialised countries as a whole were tending to trade more and more among themselves, so that world trade in manufactured goods was expanding very rapidly. We know that that is so and that, to a large extent, it is inevitable; but was the Secretary of State saying that because of that it was absolutely unimportant whether we tried to produce things here for ourselves which we would otherwise have to import?

That was the tenor of the right hon. Gentleman's speech, but that is an absolutely false way of looking at the position. The N.E.D.C. report on the growth of the economy, only last month, estimated that between 1961 and 1966 imports of semi-manufactures and finished manufactures to this country would increase from £1,170 million to £1,790 million. Incidentally, that is the biggest increase in all kinds of imports forecast for that period of five years.

An increase of £620 million is important when one is discussing a balance of payments deficit on a margin of about £100 million, or £150 million. We must look at this problem not just on a general basis. The tendency in past years simply to exhort British industry to export more has not taken us very far. I am looking forward very much to the kind of studies, which the little N.E.D.C.s will undertake, of individual industries, because it is important that this kind of thing should be tackled industry by industry, and we are just not doing that at present. There are one or two conspicuous exceptions, but at present we do not know which industries are letting us down and which are doing a worthwhile job in exports on international comparisons.

The qualification "on international comparisons" is important. It is misleading to say that our exports of such and such a kind of goods have risen by so much over the last five or 10 years without relating that to the worldwide demand and to the world-wide increase in the trade in those goods. That is the kind of slick argument which we had from the Secretary of State yesterday, and I very much hope that we will get a much more precise and detailed analysis so that we can know which industries are doing a good job and especially which are letting the nation down.