Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 25th May 1966.

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Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus 12:00 am, 25th May 1966

Thank you, Mr. Speaker.

I was saying that the Budget conforms to a wearily familiar pattern. It involves more taxation, more civil servants, more congestion in the Inland Revenue, which is approaching a stage when it will come to a halt altogether; it involves an ill-prepared and inequitable new taxation proposal, and it is totally irrelevant to the fundamental problems facing our economy, where it does not positively accentuate them.

Clause 8 deals with the withdrawal of the export rebate on exports to E.F.T.A. countries. I raised this point on frequent occasions last autumn with the President of the Board of Trade, when this concession was being negotiated by him. My complaint is that this involves a permanent concession in exchange for a temporary forgiveness on the part of our E.F.T.A. partners for the import surcharge. I cannot help wondering whether it can end there. Either the export rebate is a rebate of internal taxation, in which case it is surely in conformity with the Treaty of Stockholm. If, as the Government seems to have admitted, it is not in conformity with the Treaty of Stockholm, it must presumably be classified as an export subsidy. If so, surely it is not merely against the Treaty of Stockholm, but also against the G.A.T.T. I wonder how long it will be before the export rebate will have to be withdrawn altogether in order to satisfy similar demands from the members of the G.A.T.T.

As I said, my hon. Friend the Member for Moray and Nairn dealt thoroughly with the inequitable effects of the Selective Employment Tax on the economy of Scotland. I have for long been in favour of a regionally differentiated payroll tax, because I believe that it could do two things at the same time. It could encourage the movement of industry to areas where there is room for industry to expand, and it could discourage the over-manning of industry in areas of high employment, in the South and the Midlands. The hon. Member for Manchester, Cheetham (Mr. Harold Lever) said that we must not talk about wastage of labour, but I am not sure whether I would agree with him. At any rate, let us talk about over-manning.

I believe that a regionally differentiated payroll tax could have both these effects. I should not have thought it possible to devise a payroll tax which would have precisely the opposite effect, which would hit hardest the areas of underemployment and areas of emigration, where there is room for industry to expand, and that at the same time would encourage over-manning and wastage of labour in areas of high employment. Yet this, I believe, is precisely what the Chancellor, in his ingenuity, has managed to achieve.

I do not suggest that the 7s. 6d. rebate will have an enormous effect in encouraging over-manning, but we cannot consider this in isolation. We must also take account of the Redundancy Payments Act. We have got ourselves into a position where an employer with surplus labour will receive 7s. 6d. a week for every man he retains and have to pay up to £600 for every man he declares redundant. I cannot believe that this sort of stick and carrot treatment can possibly do other than encourage wastage of labour and over-manning in the areas of high employment.

The Chancellor often tells us how successful the Government have been in their policies for reducing the incidence of unemployment in Scotland. I see the right hon. Gentleman nodding, presumably in agreement, now. It is true that we have managed to keep the level of unemployment in Scotland down below 3 per cent., and we are delighted with that, but the credit for that goes entirely to my right hon. Friend the Member for Barnet (Mr. Maudling) and the Leader of the Opposition for the measures which were introduced when we were in office, in particular the system of free depreciation which we introduced. Even so, the level of unemployment in Scotland is still more than double the national average, and this after a year in which, for the first time in more than a decade, the population of Scotland actually declined.

The Chancellor has made great play of the fact that the level of unemployment in Scotland has declined more steeply than it has in England. It is rather like a doctor with two patients, one with a temperature of 102 and the other with a temperature of 98·8, who manages to bring the temperature of the first to 101 and of the other to 98·4 and who then says, "This is a typical example of the effects of differential medicine."

I am worried about the Finance Bill because I do not believe that it will solve the underlying problems of the British economy. This worries me most because it is still true that when England sneezes Scotland catches cold. That is why it is particularly important for Scotland that we aim to avoid a serious recess on. I appreciate that in framing his Budget this year the Chancellor had a difficult path to tread. He wanted to avoid provoking a recession in 1967 and creating a balance of payments crisis in 1966. I suggest that he has laid the basis for achieving both.

The Budget's economic forecast struck me as being almost offensively inadequate. The Chancellor told us that he had counted on pre-Budget stocking up in anticipation of a much more immediately deflationary Budget to reduce demand this summer. Many hon. Members, certainly my hon. Friends, know by now that the right hon. Gentleman is a remarkably bad psychologist, and once again I believe that his psychology has gone wrong. I call in evidence the latest figures of demand in the motor car industry. These figures hardly suggest that the Chancellor's forecast of a drop in demand after the Budget is being fulfilled.

Nevertheless, in his Budget the Chancellor introduced a number of measures to tackle directly the underlying balance of payments problem, and I will refer briefly to two of them. First, the question of the Rhine Army offset. I wholeheartedly welcome his statement that he hopes to arrange a new agreement with the Federal German Government, and I hope that when replying to the debate the right hon. Gentleman will say something about the outcome of his discussions with the German Chancellor yesterday.

I find it rather nonsense that we should continue to tolerate a position in which, when the West German reserves are more than double ours. reserves which do not, unlike ours, make a substantial contribution to the financing of international trade and we should continue to be paying between £30 million and £40 million per year, which represents in affect a net loss to the international liquidity circuit. I wish the right hon. Gentleman good fortune in correcting this situation, but, on the basis of past experience, I am not sanguine about his chances. In any case, I hope that he will keep the negotiations well clear of the hands of the Foreign Office.

I also hope that the right hon. Gentleman will clear up a point which arises from a Written Answer which the Financial Secretary gave me on 27th April last, when I was told that of the …£45 million set aside…for the financing of additional British exports… that was in the Anglo-German Agreement of 29th June, 1965, …transactions have now been approved in principle which will in due course result in the whole of the deposit account referred to in Article 5 of the Protocol of 20th July, 1965, being used up".—[OFFICIAL REPORT, 27th April, 1966; Vol. 727, c. 37.] What does "in due course" mean? Can the right hon. Gentleman assure the House that any transactions accruing from this £45 million account will not be used to count against the £54 million which the Federal German Government have undertaken to pay over across the exchanges during the current financial year?

I hope that the Chancellor will clear up another point in his Budget speech when he appeared to imply that he was hoping to get agreement on the offset of these exchange costs during the course of the current financial year and apply it in the current financial year. I take it that all he is, in fact, expecting is to have the complete offset over the financial year 1967-68.

I appreciate that the sums involved here are not enormous, certainly not in terms of the sums which the Government propose to spend on the F111, but every little counts in these matters. We must look carefully at what has come over the balance of payments account on current account over the past ten years. Comparing the figures on current account for the period 1951-55 with those for the period 1961-65, one finds that there has been a substantial improvement in the overall visible trade position, and there has been a very substantial improvement in the overall position of invisibles on current account, which, of course, the Selective Employment Tax will do its best to reverse. Nevertheless, we ended the first five-year period with a global surplus and we ended the second with a global deficit.

The reason was that Government spending had increased from about £530 million over the first five-year period to nearly £2,000 million in the second. These are formidable figures. We cannot allow this situation to continue. I know that hon. Members opposite believe that the answer lies in cutting our defence commitments overseas. The Secretary of State for Defence has not found this so easy, and, in any case, it is not the only answer. If we could recover the proportion of international trade and exports in manufactured goods which we used to have, we could bear this burden. Besides that, about 40 per cent. of Governmental overseas spending accrues from civilian transactions, and I imagine that a large part consists of aid. We must do more to increase the proportion of our aid which is tied to the purchase of British goods.

The aspect of the Budget which depresses me most is that in his Budget speech the Chancellor almost began to admit defeat on the balance of payments side. The achievement of equilibrium seems to be becoming the crock of gold at the end of the right hon. Gentleman's rainbow. Originally, his target date for equilibrium was the second half of 1966. Then it was the end of 1966. Now, we are told—he said it again yesterday—that it is the trend which matters. He says that we have ample credit facilities for meeting the temporary fluctuations which may occur in the balance of payments account. Of course we have, if we are permitted to use them. But this is for the judgment of the international central bankers, and I question whether they will be quite so sanguine about trends as the Chancellor appears to be.

The right hon. Gentleman is taking a great gamble in this Budget, and he is counting—perhaps safely counting once more—on the willingness of the United States to bail him out because the United States has its own fears about the consequences of a devaluation of the pound. But I believe that this willingness to depend in the last analysis on an acceptance of further credits from the United States conflicts with what should be the essential first objective of the British Government—to take this country within the European Economic Community. I do not believe for a moment that President de Gaulle will accept this country into the Community so long as it is, in effect, attached—almost by a begging bowl—to Washington.

It is because I believe that the Budget does nothing to deal with the underlying economic problems facing the country and, in effect, represents recognition by the Government that they can continue to rely on charity from overseas that I shall be delighted to join my hon. Friends in voting against the Bill tonight.