When compared with Clause 42, by which the Selective Employment Tax is introduced, and with the acres and pages and lines of print which have appeared a bout the Selective Employment Tax, the Clause dealing with the regulator strikes one as a very modest and moderate and brief set of words, but we should remind ourselves that the significance of this Clause is akin to that of the rudder of a ship and that although it may be submerged in the rest of the Bill it is of enormous significance and importance.
I draw attention to the fact that at 10 per cent. the regulator is capable of regulating the volume of returns from Customs and Excise, about £3,440 million a year, and represents a power of regulation of resources and demand of about £340 million per annum, substantially more than the total amount of the Selective Employment Tax can raise even in the exceptional circumstances of this year. The Chancellor estimates that this year he will get £315 million from it and in a normal year £240 million. So we are putting into the hands of the Chancellor an instrument of taxation of a great deal more than the full Selective Employment Tax and it is not a small item which we are considering.
Looking at the course of events even since the Budget judgment, it seems that we are likely to have to make use of the regulator. The basis upon which I suggest that is the very disturbing signs which have come into the economy since the Budget judgment. It must have been depressing for the Chancellor—it certainly was depressing for the whole country-to see the latest figures for the visible trade returns for last month's, even the three months' comparison, which gives a slightly more balanced view. The visible trade gap widened from £16 million in December 1965 to February 1966 to £24 million in the March-to-May quarter of this year, a substantial increase. If this is the trend of the gap, even in the circumstances before the surcharge is removed, that is to say, while overseas exporters and our importers are holding back in anticipation, the implications are very serious.
I want to consider whether, in the light of the surcharge coming off and the trade gap widening uncomfortably, the Chancellor has his judgment right in terms of the amount that he expects to take out of the economy, especially in respect of the Selective Employment Tax. I wish to refer to a figure which the Chancellor gave at the end of his Budget. He said that he expected the yield on the Selective Employment Tax to be £315 million in the first year of operation in which part would be refunded late, and that it would be £240 million in a normal year. The Chancellor may have registered the point already that Professor Paish pointed out in a paper which was circulated not long ago that the outstanding refunds which will not come back straight away will remain part of the assets of employers which they are entitled to finance by borrowing; so the Chancellor is not taking out nearly as much as he suspects, particularly if he makes concessions in respect of credit restraint later on.
The net withdrawal in respect of the Selective Employment Tax at the rate of £240 million a year for a period of seven months, assuming that the balance which will come back can be considered as assets which employers are entitled to finance by borrowing, will be as little as £140 million, as distinct from the £315 million which he suggests. If businesses consider the refunds which they will ultimately get as assets which they can finance by borrowing, the addition to the right hon. Gentleman's Budget surplus is less than £315 million.
May I look for a moment at the way in which the millions which will fall upon the service industries will filter through to consumption, because that is obviously of great interest. The estimate which has been made is that the service industries will have to foot a bill of some £240 million altogether. The three trades which one might call the consumer trades—the distributive trades, catering and services of various kinds—will almost certainly pass on the extra impost put upon them by the Selective Employment Tax. That will take money out of consumption, and it will raise the cost of living and prices generally. But it should be borne in mind that certain services will not have an effect on consumption, but on investment and saving.
As my hon. Friend the Member for Oswestry (Mr. Biffen) pointed out, it will be an attack on investment and saving to some extent. It will affect banking, professional services and insurance, which will put up the cost of saving, and it will certainly reduce the incentive to invest. Part of the effect of the Selective Employment Tax will undoubtedly be an attack on investment and saving, whereas the total amount which will be taken out of consumption will be much less than the Chancellor suspects.
The Selective Employment Tax will raise less than the Chancellor thinks. It may well have the effect partially of not reducing consumption so much as reducing investment and saving. It will certainly not tackle the redistribution of labour, as Ministers have been trying to suggest to us. If it is really going to have the effect of redeploying labour, the buoyancy available to the revenue will be less than the figures which I have suggested. It will not do anything at all towards encouraging the more economic use of manpower.
I fear that we shall have to use the regulator, and it is worth reflecting that, despite all their ballyhoo and propaganda, in this year of economic crisis to the nation, the Government will have to fall back on the highly intelligent instrument that was introduced by my right hon. Friend the Member for Wirral (Mr. Selwyn Lloyd). It has a far greater potential for withdrawing money from the economy than the Selective Employment Tax, which is easier to discuss in legislative terms than to operate.