Economic Affairs

Part of the debate – in the House of Commons at 12:00 am on 17th November 1965.

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Photo of Mr Donald Box Mr Donald Box , Cardiff North 12:00 am, 17th November 1965

The hon. Member for Heywood and Royton (Mr. Barnett) brings to the House an expert knowledge through his occupation as a professional accountant. I must say that it is rather more pleasant to listen to him at a reasonable hour after memories of his speaking in the early hours during the Committee debates on the Finance Bill. Later, I shall have something to say about accountancy and I hope that if he disagrees with me then, he will take an opportunity to raise the matter.

I note that the Government's first aim mentioned in the Gracious Speech is that we should develop a soundly-based economy. That is a sentiment with which most of us would agree. I cannot help feeling that had we had a Conservative Administration in this past 12 months or so we might have written "maintain and develop a sound economy ", for as time goes on it becomes more and more evident that the economy was basically sound when it was handed over to right hon. and hon. Gentlemen opposite.

In support of this I remind hon. Members of the speech of the hon. Member for Colne Valley (Mr. Duffy), who told us at great length how pleased he was with the reception which the Prime Minister received when making his speech to the Wall Street bankers on 14th April. Hon. Members opposite cannot have it both ways. The Prime Minister boasted on that occasion of the strength of sterling in April and, of course, that strength existed last autumn as well.

There is no need for me to repeat the wearisome details of how half the £750 million deficit on capital and current account was largely accounted for by the fact that we were helping under-developed countries and placing investment abroad which in due course would yield handsome returns by way of dividends. The position was further aggravated, of course, by stockpiling by industrialists in this country in anticipation of the return of a Labour Government and, in consequence, a return of control.

But today even the most gullible of the electorate—and I am referring to that section of the electorate which votes Labour, nationally or locally—despite the protestations of their leaders, are beginning to understand that the basic position was sound. Possibly in support of that they are recalling the fact that in a White Paper on 26th October last year the Government made the forecast that even if there were no basic change in policy, there would be a considerable improvement during 1965. Despite this, some right hon. and hon. Gentlemen opposite will persist in spreading false accusations about this deficit. They do so on the basis that if enough mud is thrown, some of it will stick. They must remember if they are to pursue this sort of policy that they are bound to aggravate both their own and their country's difficulties.

It is obvious from this sort of behaviour that there is very little business experience incorporated on the Government Front Bench. If they had had business experience, right hon. Gentlemen opposite would have learned long ago that in business it is not good policy to exaggerate one's difficulties. It is certainly not good policy to exaggerate those difficulties when they are financial and it is even more important not to exaggerate them if they can reasonably be expected to be temporary financial difficulties. Such exaggeration encourages doubt, arouses unnecessary suspicions about the financial integrity of the business or country, and reduces good will. This in turn makes borrowing both more difficult and more expensive in the long run. I therefore claim that the evidence of the first 10 months of the Labour Government proves that the crisis in confidence of last autumn and early spring was a self-inflicted wound which at times was crippling and at other times very nearly fatal.

It is obvious that by adopting and very correctly following the policies dictated by the Governor of the Bank of England—and I use the word "dictated" advisely, for surely no hon. Member opposite would claim that a self-respecting Labour Government would willingly introduce unpopular measures like high Bank Rate and a surcharge, however temporary, and a widespread credit squeeze, unless they were under extreme pressure to do so—there has been some improvement in the situation.

History will reveal exactly what role the Governor of the Bank of England has played in the financial affairs of the country in recent months and how his influence and his personalty persuaded the bankers of the world to come to the rescue of this country and, incidentally, to the rescue of the Government on two occasions in 12 months. A more generous Government would acknowledge the great part played by the Governor of the Bank of England in this respect and might in future prescribe for their patients that a little more "Cromer" and a little less "Kaldor "would act as a tonic for the nation.

It is obvious that the strength of sterling has shown some improvement in recent months, but the question we have to ask is whether this improvement is temporary or permanent. I am afraid that it appears to be temporary. I think that I am supported in this conclusion by the fact that although large amounts of foreign money are now flooding into the country, the Chancellor of the Exchequer consistently refuses to reduce Bank Rate until he is absolutely certain that the position is secure. This, of course, is an action with which I am in absolute agreement.

It must also be remembered that much of the restored confidence, the feeling that things are a little better, stems from the inevitable relief, a breathing space, obtained from borrowing large amounts of money from overseas. But borrowed money has to be repaid and I am afraid that this borrowed money will probably have to be repaid and taken into account by a Conservative Government. This is something which will not have escaped the notice of my right hon. and hon. Friends.

In order to maintain the improvement in the balance of payments and the terms of trade, we are also told that more incentives to encourage industrial investment are to be introduced before long. I hope that this means the restoration of the investment allowances in one form or another. If I am right in that supposition, this can be claimed as something of a triumph for those hon. Members of the Opposition who, in a spirited debate which lasted five hours in the Committee stage of the Finance Bill last June, put their case very forcefully. In his devious and particular way, the Chief Secretary did his best at that time to justify the devaluation of the investment allowances which had resulted from the introduction of Corporation Tax. He gave the rather lame excuse that a full list of alternative methods was under examination, but he had no alternative to offer when he was discussing the matter.

During that speech he speculated whether methods used for investment incentives should be more direct, whether they should be like a grant or subsidy, or for a more specific purpose, or whether they should be varied by rate or by region. We can all claim to be a little disappointed that the First Secretary today was not more encouraging and did not give us more information about how these investment allowances were likely to be introduced. Presumably we will now have to wait until the Government publish a White Paper on the subject. Before they prepare that, the Government would be well advised to give due attention to the words of my right hon. Friend the Leader of the Opposition, who, during the Committee stage on investment allowances, related his experience, when he was at the Board of Trade, stressing the need for more general modernisation of mechanical equipment generally. He warned that the case for discrimination as to types of machinery has not been proved so far. I hope that any allowances which are proposed will be as broadly-based as possible throughout the manufacturing industries, and that a great deal of discretion will be given to individual industrialists to decide just how those allowances should best be used.

It would be absolutely disastrous if the Inland Revenue, the Treasury, or in other words, the men from Whitehall, were to attempt to dictate how, when and where investment allowances were to be used. If it was decided that some manufactured articles were unsuitable for allowances—and I have one-armed bandits in mind, as they were raised on Committee stage—it should be possible to induce some scheme on disallowed manufactured articles. The right hon. Gentleman the Chief Secretary indicated during his speech on the Committee stage that there might be scope for regional variations in the investment allowances, with the object of helping selected areas, particularly those which had high rate of unemployment. To some extent this is already being done. We see it in the shipping industries and the developing areas. This is presumably what he had in mind.

The more recent Government decision to speed up the closure of the uneconomic coal mines makes the matter one of great urgency now. What we need is some sort of dramatic gesture which will attract the attention of industrialists and encour- age them to bring industries to these areas of prospective high unemployment. We know that the Government have designated a number of development areas— many of them in South Wales—and that they have authorised the building of advance factories. One cannot escape the feeling, in many cases, that something extra special will be required to get industrialists to take the risk of bringing new industries to these areas, especially in a period when there is a fairly tough credit squeeze in operation.

One scandalous omission of the right hon. Gentleman the Chancellor—although I am not sure that it would have been appropriate to include it in the Queen's Speech—is any reference to the rate of Corporation Tax to be charged next year. Boards of directors, firms of accountants and members of the Inland Revenue have been thrown in a state of complete indecision and confusion as to the future rate. This is a state of indecision which is quite unnecessary. We must remember that this tax was foreshadowed by the right hon. Gentleman nearly a year ago and yet the rate is not even known today. We know it is not likely to be known until next April, when the Budget is announced, so that a period of some 18 months will have elapsed since the time it was announced and the time we know the actual rate to be made. I maintain that this delay is quite unjustified.

Another result of the Government's disastrous taxation policy has been brought to our attention by the renewed activity of Mr. Charles Clore in the takeover field recently. I am not suggesting that the particular company which he has under observation at the present time has been materially affected by this Government's financial policies in recent months, but it serves to spotlight the Government's mistaken idea, that by relieving tax on retained profits managements will automatically spend more on modernisation. This is something of a fallacy. The go-ahead managements will modernise whatever the cost, whatever the risks, and however difficult it may be. It is the undecided managements which we need to reach, to give them the incentives of investment allowances, to urge them to modernise more. It is the indolent and lazy managements—and I regret to say there are still some—who perhaps earn their money rather too easily, and are more likely to use the new taxation regulations as an excuse to accumulate funds. Sooner or later they are going to become sitting ducks for the take-over kings like Charles Clore. I am quite certain that the Chancellor will agree that there is some limit to the amount of modernisation which one can carry out in certain industries. When that limit is reached it is surely more sensible to encourage firms and industries to pay out the money, to their shareholders if one likes, so that the money is available for other capital requirements by industry, which need extra capital in order to carry out modernisation programmes.

We might also have reasonably expected a more enlightened policy on money circulation as a whole. Money circulation remains a vital element in the bloodstream of industry. We require a good circulation of the bloodstream; it is essential if we are to have a lively and effective economy. Equally, if the Chancellor wants a lively and effective economy it is not sufficient for him to go billing and cooing to the Institute of Directors, to industry, or to the City, unless he gives a clear indication that his intentions are entirely honourable. By this I mean that if, by some mischance, a Labour Government were ever to get back into office with an increased majority, he would still be as amenable as he now appears to be. I am afraid that there are many people in the City and financial circles, who suspect that the right hon. Gentleman is only "all sweet reasonableness" because of the very narrow majority of the Government. It is feared that if he had a bigger majority he would be far more dictatorial.

If he is really sincere, and wants to co-operate with financial circles, I am hoping that he will consider very carefully indeed the suggestion which I understand is to be submitted to him within the next few days by the Council of the London Stock Exchange, that there should be an exemption of the first £500 Capital Gains Tax in any one tax year. While I freely admit that no Chancellor likes to part with any revenue that he can get his hands on, if he does not introduce something of this sort I fear that he is running a grave risk of bringing the taxation system of this country into ridicule and making a large section of the community into a section of tax dodgers. As he knows, I have seen Capital Gains Tax working at first hand, and in recent months it has resulted in a tremendous fall in turnover on the Stock Exchange with the resultant scarcity of shares and the difficulties of raising fresh capital for new issues. However much this may attract hon. Members opposite, they must remember that this is an essential part of the fabric of the best-known capital-raising city in the world, which is the envy of many other capitals in the free world.

If investors forget—and I use the term in the widest possible sense—to return their capital gains, especially if those capital gains are small, then the chances of the Revenue recovering those amounts are very remote indeed. The Revenue has neither the time nor the staff to do it, and it possibly does not have the inclination. Certainly the tax they might get would not be worth the effort. To give one example, a few weeks ago there was a very successful issue of £50 million of convertible loan stock by I.C.I. There must be thousands of people up and down the country who had a capital gain of about £5 or under. Can the Chancellor honestly tell me that it is going to be worth the Inland Revenue's while to try and trace these small amounts?