Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 30 June 1964.
Mr Reginald Maudling
, Barnet
12:00,
30 June 1964
I beg to move, in page 10, line 3, to leave out "four" and to insert "five".
Sir Harry Hylton-Foster
, Cities of London and Westminster
I suggest that we might have a general debate on all the Amendments proposed to Clause 8.
Mr Reginald Maudling
, Barnet
The Amendments go together, Mr. Speaker. The effect is twofold: first, to increase from four to five the number of groups into which we are classifying the indirect taxes for the purpose of the regulator; and, secondly, to enable surcharges or rebates under the regulator to be applied at different percentage rates for different groups. Originally, the regulator, which is designed, of course, for the purpose of economic regulation, operated over the generality of indirect taxes at a consistent rate. I think that this was right, because the purpose was to increase or if necessary, reduce the total level of demand in the economy. The regulator was not designed as a substitute for the annual procedure of the Finance Bill which, I am sure the House will agree, still remains the best procedure we have whereby individual taxes are deployed and the relationships between individual taxes are altered. It would be a great mistake, in my view, if we in any way adopted a procedure whereby the details of indirect taxation were settled by Parliamentary Order rather than through the procedure of the Finance Bill.
It occurred to me, in considering this year's Budget, that there would be advantage in introducing a new flexibility into the regulator by, as I proposed then, dividing the total of indirect taxation into four main blocks and making it possible, if at any time the regulator was used upwards or downwards, to exempt from its operation one or more of these four main blocks.
I think that the feeling of the Committee was that it would be wise to go further. I must confess that I was slightly surprised by this attitude. I had expected Opposition to the degree of erosion of parliamentary control I was proposing but, emboldened by our discussion in Committee, I have now gone a little further with this Amendment.
In the first place, I propose five rather than four groups of indirect taxation. The original four were tobacco, alcohol, hydrocarbon oils and Purchase Tax and minor duties. I am proposing to divide the fourth of these categories into two—one for Purchase Tax and the other for the remaining duties—pool betting, bookmakers' licences, matches, lighters and other minor duties.
My second proposal is that regulator surcharges or rebates should be able to be applied at different rates. This is logical. When one is asking for the right to exempt a particular group from the operation of the regulator, it seems a fortiori reasonable to have the right not to exempt them but to apply the regulator at a lower percentage than is applied to the generality of indirect taxation at a given time.
The purpose of this group of Amendments is to ask, emboldened as I was by the Committee discussion, for more flexibility in the operation of the regulator by putting indirect taxation into five rather than four groups and by taking power to apply the regulator at varying rates between varying groups. I would not advise the House to go beyond that. If we went to go further at this stage, we would be intruding a little too far on the proper procedure of Parliament in settling the relationship between individual duties.
I think that we must stick to the principle that the purpose of the regulator is to change not the pattern of taxation, but the general level of indirect taxation. We now accept that in making these changes in the general level of taxation it should be possible to temper the wind to some of the shorn lambs and that we are not bound to have a single, flat, uniform change over the whole range of indirect taxation.
If the House will accept these proposals, in future we shall be able to use the regulator, when necessary, for the basic economic purpose of regulating the course of the economy in a more flexible and sensible manner, without undermining proper Parliamentary control over the detailed pattern of taxation.
Mr James Callaghan
Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee
The Chancellor of the exchequer has shown a nice appreciation of the Division of responsibility that Parliament has for the control of the taxation machine and the economic necessities which have led to the introduction of the regulator itself. I think that he was right to be emboldened to go ahead, because in this connection the House thinks that it is more important that he should have the power to be able to use the regulator for economic purposes than it is to maintain, as it jealously does, its control over expenditure. Having pressed this in the initial instance, we support what the Chancellor has now done.
This also marks an interesting development in economic thinking over the last 10 years or so, in that people more and more now believe that it is better to try to use consumption rather than investment as a means of regulation. This is a marked and important step forward. Our history has shown in the successive stop-goes which we have had over the last 10 or 12 years and with which we have attempted to deal by controlling investment, either by expanding it or by cutting it back, that, on the whole, we have chosen to do it at the very moment when it was beginning to reverse the course which had led us into the stop-go policy. For example, this is certainly true of the 1957 occasion and probably true of 1961, although that is not so sure.
The control of investment is lumpy in its operation and tends to act too slowly. I therefore support and welcome the line which the Chancellor has taken—to operate on consumption, which is bound to take effect much more quickly. I think that this was the proposition of my hon. Friend the Member for Gloucester (Mr. Diamond) in the first place.
We do not want to have a general economic discussion now, but I think that we are learning lessons in this respect. The hon. and gallant Member for Winchester (Rear-Admiral Morgan Giles) is present. He will appreciate that these might be lessons derived from the quartermaster of a ship—if one's wheel has gone hard over and one has to wrench it hard back, the head of the ship then yaws well to the other side and one has to go on putting on other distinct movements to get her back on course.
The value of the regulators is that they will enable fine and delicate adjustments to the wheel to be made, so that one has only to put it over a point or two to get the ship's head back on course. This is a welcome advance. The Chancellor has tried to do that with the measures which he has taken over the last few months, and I trust that we shall not see any wild spasmodic movements over the next few months.
11.45 p.m.
We on this side of the House welcome what the right hon. Gentleman has done in this extension of the power of the regulator. I think that there is no doubt that any Government would want to use these powers, and in giving these powers to the Chancellor Parliament ought to say that it wants them to be used, that it does not expect them to be allowed to rust, that they are there to be used, and that they should be used as frequently and as regularly as necessary to keep a smooth and continuous path of expansion in the economy.
Mr. Gresham Cooke:
I am a little disappointed that my right hon. Friend has not gone further than he has. The hon. Member for Cardiff, South-East (Mr. Callaghan) talked about the necessity for fine and delicate manoeuvres of the economy. I had hoped that the Chancellor would be able to go further. In his speech on 2nd June, during the Committee stage of the Bill, my right hon. Friend talked about breaking down these big groups into smaller compartments. I think that that was his phrase. He has broken this group down from four to five and I had hoped that he would look at the Purchase Tax group as a whole.
The Purchase Tax group is enormous. It covers 35 different types of article ranging from household and toilet requisites to garden equipment and umbrellas, chocolate biscuits, and all sorts of things. It brings in no less than £605 million a year. Suppose the Chancellor wanted to put up the regulator by the full 10 per cent. Suppose, also, that of the 35 industries covered by Purchase Tax, three or four were vital to the export trade of this country. They were doing very well at that time and wanted encouragement, but the remaining 31 could suffer an increase in tax without doing any harm to the economy.
Should not the Chancellor have power to exempt three or four industries from the application of the regulation at that moment of time if he wants them to keep up their production? I am thinking particularly of engineering, where a loss of production would affect the industry's output and its costing very much indeed.
I would, therefore, have hoped that my right hon. Friend would have gone further in splitting the Purchase Tax group to give him power to regulate, say, 30 out of 35 industries, and not apply the regulator to the remaining ones. I hope that my right hon. Friend will say a word or two on that issue, because this is very important if he is to use the regulator at all drastically in the future.
Mr Anthony Crosland
, Grimsby
Unlike the hon. Member for Twickenham (Mr. Gresham Cooke), I think that the Chancellor has gone a long way to meet the views expressed in Committee. I think that we ought to welcome these Amendments for three reasons. First,—and this is the very important reason put forward by my hon. Friend the Member for Cardiff South-East (Mr. Callaghan)—this is a further step in the direction of trying to regulate the economy by regulating consumer spending and not investment. If we look at what has been happening to the economy over the last few years, we see that any attempt to regulate investment causes the wildest possible fluctuations, because it cannot be done, and one tends to exaggerate the boom months.
What has been misbehaving in the economy during the last three years is not consumption, not exports, not Government spending, but the level of investment. I think that this is partly the consequence of rather ill-directed measures to control investment, and this increasing emphasis on the necessity to control consumer spending is welcome.
Secondly, we are bound to welcome this, because if we are to have a regulator, let us make it as flexible as we can. There is no point in having a regulator if it is not flexible, and these Amendments make it more flexible than before.
Thirdly, I welcome this for another reason, going beyond what the hon. Gentleman said. Although I agree that it would be wrong to alter the pattern of taxation outside the annual Finance Bill, it is highly desirable to get away from the idea that everything has to be done in an annual Budget.
The annual Budget comes at the beginning of April. Unfortunately, this does not necessarily coincide with the time when the Chancellor may decide that he should either increase the level of demand or reduce it, and the more that we can get away from the idea that major economic decisions must be taken at the accidental moment of the annual Budget the better it will be for the regulation of our economy. This is one way in which this Chancellor—or, as I hope, my hon. Friend the Member for Cardiff, South-East, the future Chancellor—will be able to take basic decisions about regulating demand other than at some completely accidental moment at the beginning of April.
Mr Reginald Maudling
, Barnet
With the leave of the House, Mr. Speaker, perhaps I may reply.
I agree that this is not a perfect system, but it is the best system we have, and perhaps we had better leave it as it is. I have power by Treasury Order to reduce Purchase Tax at any time if it appears that its level is such as to cause serious trouble, for example, in our export trade.
Mr Reginald Maudling
, Barnet
In line 40, leave out from beginning to end of line 2 on page 11 and insert:
which, as respects all or any of the groups of duties,—
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