Amendment of the Law

Part of the debate – in the House of Commons at 12:00 am on 3rd May 1966.

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Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford 12:00 am, 3rd May 1966

I must first congratulate the hon. Member for Norwood (Mr. John Fraser) on a most distinguished contribution to the debate and also his predecessor, the hon. Member for Lewisham, North (Mr. Moyle), who also made his maiden speech today. I hope that they will forgive my congratulating them, for I am almost as junior as they are. Nevertheless, it falls to me by convention of the House to extend congratulations. I am sorry that someone of greater seniority than I is not able to commend them on their first oratorical expeditions in the House. We all hope that we shall hear them again soon.

My major criticism of the Budget is that, like so much of Government policy, it is wholly irrelevant to present British economic needs. At times when the Chancellor was speaking, I sensed that his main concern and his main energies seemed to he devoted to the task of stopping up the loopholes of tax avoidance rather than in tackling the much more vital problem of increasing the growth in our wealth.

I feel that the Budget itself, as an institution, is certainly in need of reform, and it is a pity that the Government have missed this opportunity once again. One reform which I should certainly like to see enacted would be the equating of the financial year with the calendar year. Why in fact should we have a Budget beginning and ending in April?

This point has an especial significance if the Government are indeed serious about their intentions of joining the European Economic Community, because one of the steps which could be taken to align ourselves with the countries of the Common Market is precisely this. This is the position in every member country of the E.E.C. Even if the Government have so far refused to realign our agricultural policy with that of the Six, as a preliminary measure before applying to join the Common Market they could, perhaps, make a small start here next year.

I must congratulate the Chancellor on one thing—that he resisted the temptation to play up the importance of the Budget in our economic situation. In fact, he went to some lengths to play the importance down, with a self-sacrifice which is rare amongst politicians. I do not regret the absence of Mr. Gladstone's bag, although I regret very much more the absence of his financial principles, which seem to have been abandoned by all parties in this Committee—the excellent basic principles that taxation is a bad thing and that the money should be allowed to fructify in the pockets of the people. The effect of dramatising the Budget must be to limit a Chancellor's own freedom of manoeuvre, because it concentrates the attention of our foreign creditors on what we are doing with our finances at a particular moment, and they thereby acquire an undue influence over our affairs.

The truth is that the Chancellor's measures today were dictated not so much by the needs of the British economy as by the very urgent need to reassure our creditors abroad. In our present situation of indebtedness the Chancellor could not bring before this Committee any other sort of Budget than a Budget which increased taxation. Our foreign creditors demand a degree of deflation, but it is very dubious whether the degree of deflation which has been imposed by this Budget—and we should not allow the novelty of the manner in which it has been imposed to hide from us the extent and gravity of the deflation which has been proposed—is necessary at the present time. Economics is an inexact science, but there are many indications now that the economy is already on the turn down, and the grave risk which the Chancellor has taken is that he may be turning what is already the beginnings of a recession into a major slump. Time alone will show whether his judgment on the amount of extra taxation he has thought necessary to impose is justified.

At the moment the problems of the British economy are threefold. We all have our trinities. My trinity differs from that of the Chancellor of the Exchequer. I would put my first aim as the need to right the balance of payments. I believe our second aim should be to increase our competitiveness at home and so improve our competitive position in trade abroad. Thirdly—and this is most important: I put these aims in the ecclesiastical order of precedence, where the greatest comes at the end—we must achieve and sustain a prolonged and even period of growth. I fear that, far from moving forward to these objectives, this Budget does nothing to make them easier of achievement, and in a number of ways makes it more difficult.

Our balance of payments problem was stressed by the Chancellor, and it is, indeed, intractable, but it is certainly one which should not be beyond the scope of our economy, given good management, to cope with. What, after all, are we asking for? We are asking for an increase of £300 mililon in exports from a country which has a national income of £25,000 million. That is not an effort which should be beyond the capacities of our people.

Unfortunately, the increased taxation in this Budget will have exactly the opposite effect. It is liable to have some marginal effect on our import bill, but, by pushing up costs in Britain, it will make it much more difficult for us to export. The estimate the Chancellor makes of the yield of the new tax, the Selective Employment Tax, is £240 million, but we must also remember that there is an increased load of taxation coming from the Corporation Tax, which has been put at 40 per cent. There has been so much speculation about a higher rate of tax that psychologically this has been greeted with some relief, but if this is psychologically justified it is certainly not statistically nor economically justified. It is placing a much heavier burden of taxation on industry as a whole than was imposed equivalently by the previous system of taxation. This will hamper us in the export markets of the world. This indiscriminate increase in taxation will hinder us abroad. It is also a further obstacle, erected by the Government themselves, to growth at home.

Already, in two Budgets, the Government have raised taxation by nearly £600 million. Now we have a third instalment of this unholy trinity, as opposed to the pious aspirations of the Chancellor. He has now probably imposed an increase in taxation of another £300 million. This is a very sorry record indeed, and it contrasts sharply with that of Conservative Governments who, in Budget after Budget, in situations frequently of economic difficulty, managed to reduce taxation. We have been spared a rise in Income Tax in this Budget, but let us not forget the achievement of previous Conservative Governments in getting the standard rate of tax down from 9s. 6d. to 7s. 9d. Although this Government in this Budget have paused, in previous Budgets they started the move upwards to a penal level of taxation once again.

Another criticism I would make of the proposals in this Budget affects not income but capital, the provisions governing capital investment in the sterling area. First of all, the effect of this must be to weaken the importance of the sterling area and so indirectly weaken sterling. Secondly, I have the gravest doubts about whether this voluntary scheme which has been put forward by the Government will work. After all, why should people co-operate? This is only a form of blackmail. The threat is, "If you do not do this voluntarily you will have to do it compulsorily".

Why should a man not dispose of his money as he wishes if the law allows him to do so? Why should the Government presume to make a claim on the way people invest their money in order to help the Government out of a hole in which they have got themselves? If the Government think that it is in the national interest to restrict sterling area investment, surely the correct course is to do so by law. The great risk which they are taking by adopting this policy is that they will not stem the flow of capital to the sterling area. Rather, they will encourage it, because people will take the opportunity to invest their money freely while they can.

The matter for the greatest regret in this Budget is the lack of positive measures to make our economy more competitive and to get the economic growth, which has virtually stopped, going again. This is the Chancellor's second objective. I believe that it should be the first. I believe that it is the central problem of our economy. Economists differ about why our rate of growth has been slower than that of equivalent countries, which it has been for a long time. I believe that a high degree of responsibility must be placed on the policy of "stop-go" which undermines investment confidence and so leads to the possibility of only a slow rate of economic growth. But if that is the effect of the policy of "stop-go", what will be the effect of the policy of "stop" with no "go", which is all that we have had so far from the Government?

For all the influence which the Department of Economic Affairs has had on the Budget, it might as well not exist. This Budget finally proves the folly, which has been pointed out from this side, of dividing up the control over the economy into two empires, one dominated by the Treasury, and the other by the Department of Economic Affairs. The result of this has been that effective control of the economy has remained with the Treasury, and further it has removed from the Treasury the most influential voices arguing the case for economic growth. Their talents have been diverted to such academic exercises as the National Plan, which is now deader than the dodo. Even the First Secretary's vocal rôle has been taken over by the Prime Minister. I think in this connection of Belloc's verses on the dodo: The voice which used to squawk and squeakIs now forever dumb—Yet you may see his bones and beakAll in the Mu-se-um", which in this case is the Department of Economic Affairs, but perhaps I am being a little optimistic in thinking that the First Secretary has been silenced permanently.

It is vital in this debate that the case for expansion and economic growth should be put, and I hope that it will be put from the back benches on both sides, because our future depends on the solution of this problem. The Chancellor admitted in his speech that a major handicap to growth was the acute shortage of labour. We have a very low level of unemployment at the moment—about 1·2 per cent. This shortage has been made worse by the restrictive immigration policies of the Government, but even more important has been the shortage of new natural sources of labour within the country on which we might have drawn for new manpower to sustain economic expansion. Other countries on the Continent, such as Italy and France, have had these advantages which we do not enjoy.

In this situation, the correct and efficient use of manpower becomes a central problem of economic management. The over-manning of British industry is widely known, and it is equally widely known that this is so because employers hold on to labour which they do not need, in times when there is a turn-down, for fear that they will not be able to get that labour back again when expansion is once more got under way. This is the most important single sphere in which effective action to stimulate growth could have been taken by the Government in the Budget. The sad thing is that the opportunity has been missed, and very badly missed indeed.

There is much to be said for a payroll tax, but a payroll tax to be effective in this situation should, first, apply to all industry, both manufacturing and service industry, without discrimination. Secondly, it should be flexible so that there is power to vary it from region to region, and it should be flexible also in relation to the sex of the employees to which it applies. What justification can there be for drawing this sharp and arbitrary distinction between service industries on the one hand, and manufacturing industries on the other, which is the essence of this Selective Employment Tax?

Does the Chancellor think that the service industries contribute nothing to our balance of payments? One example alone should suffice. The hotel industry is as important an earner of foreign currency as almost any branch of our manufacturing industry. What about banking and insurance, those two great service industries? They are making a vital contribution to solving our balance of payments problem, but these industries, with the exception of the construction industries, are not only going to be loaded with this extra taxation, but are still being deprived of the investment grants which they were denied in the last Budget. This is a particularly heavy blow to the hotel industry, which is such an important dollar earner.

What an extraordinary view is taken of the economy of Britain by this 20th century Government. They evidently believe that somehow service industries and manufacturing industries are separate in kind. That might have been true in the 18th century, although even then one could have put up a good case against it, but it is certainly not true today, when service industries and manufacturing industries are inter-connected at so many points that the separation of them can only be for academic purposes which bear no relation to the realities of economic fact.

This tax which has been imposed on the country will do nothing to reduce over-manning in manufacturing industry, which is the very point where over-manning is at its worst. In fact, it will have the contrary result. The effect of this tax will be to encourage manfacturers to employ more people, because they are to be given an extra subsidy by the Government for every individual they employ. If we had not heard this with our own ears from the Chancellor, and read it rather hastily in the White Paper with our own eyes, we would find it hardly credible that this was seriously being put forward by the Government as a contribution to solving our economic problems. This is a case where half a loaf is very much worse than no bread at all. It would have been better to have had no payroll tax rather than this ill-thought-out and half-baked version which will make it infinitely more difficult to produce a sensible payroll tax, and which will have the most harmful effects on the economy. I hope and believe that the Opposition will relentlessly oppose this tax at every stage of the Budget.

There is a second omission in the Budget which I regret, and this concerns exports. Exports have risen but they have not risen nearly enough. The Chancellor admitted that world trade was buoyant and rising, and any increase we have had in exports so far seems to be dependent on that buoyancy of world trade. In fact, we shall shortly be faced with a threat of a rise in imports when the surcharge is removed. I am glad that the surcharge is to go, but make no mistake about it; it will call for a tremendous extra effort to raise exports. I am sorry that the opportunity was missed of giving a direct export incentive in financial terms, because that is the only effective way to increase exports. It is much more effective than any amount of exhortation, even that given at the highest level.

The third omission is the omission of any encouragement to savings. Nothing has been done to arrest an extremely sinister movement for the future—a movement of people's private savings from long-term to short-term investment.

But the most extraordinary omission from the Budget speech is the complete lack of any forecast of the future movement of our economy, especially in relation to growth. We are entitled to ask the right hon. Gentleman what has happened to the target of 25 per cent. growth over six years which was outlined in the National Plan. Where is it now, and what has happened to the proposed 3·4 per cent. increase in output per man laid down in the Plan? There is nothing in the Budget to aid their achievement.

I agree with the Chancellor that the Budget must not be seen in isolation but must be taken into consideration in the context of our whole economic policy. What is quite clear from the Budget is that the Government are now more dependent than ever for the success of their economic objectives on the incomes policy. The Budget, by omitting to take direct action to curb the flow of imports and by creating a situation in which imports are likely to rise, makes it more essential than ever to increase our exports, and we can do that only with a successful incomes policy.

I believe in an incomes policy. It is vital for Britain—probably more vital for Britain than for any other country. But a policy which has no other backing than exhortation, even if it comes from the Prime Minister, is doomed to failure. The Chancellor admitted as much in his speech when he said that the rise in wages in 1965 was not justified by the rise in output. That will go down as one of the understatements of all time.

If the Government are to have a successful incomes policy they must do two things. First, they must enforce it in the nationalised industries, where alone they have both power and responsibility. Secondly, they must back up their incomes policy by structural and legal trade union reform. It is no good exhorting the A.E.U. to throw its rule book away; the Government should take some positive action to bring them to fling it away. I therefore regret this Budget very much, as dismal and unimaginative. It does nothing to raise industrial production; it does nothing to increase our growth; it does nothing to increase our exports, and it does nothing to increase the competitiveness of our economy. It is a Budget which is totally irrelevant to the needs of Britain today, and I hope that it will be exposed as such to the British people in the debates which follow.