Budget Resolutions and Economic Situation

Part of Orders of the Day — Ways and Means – in the House of Commons at 12:00 am on 25th March 1968.

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Photo of Dr John Dunwoody Dr John Dunwoody , Falmouth and Camborne 12:00 am, 25th March 1968

The House will forgive me if I do not follow the hon. Member for Wembley, South (Sir R. Russell) in all his detailed criticisms, especially of the Budget's implications for transport, though I must say in connection with what he said about petrol prices that I think that if he looks at other countries which are not petrol producers and averages the cost of petrol to the consumers he will find that even after the Budget our prices compare favourably with theirs.

I was rather interested, too, in his remarks about Her Majesty's Ministers and their cars. I thought he was going to criticise their use of cars, but he went on to say that it was quite right that they should use them. I would differ with him there. I think that if Her Majesty's Ministers had a self-denying ordinance and one day a week did not use cars but used the public transport some of the questions which the hon. Member raised about the Bakerloo Line, for instance, might be put right a little quicker than otherwise I turn to the critical economic situation. I regret that in the parts of the debate I have heard and in the rest which I have read there has not been from the Opposition any alternative suggestion as to what we ought to be doing. We have heard a great deal of criticism of the measures adopted by the Government but very little in the way of alternative suggestions.

We in Britain are facing a critical economic situation due to a number of different factors, and I think that anyone who suggests that the economic crisis is simply due to one overwhelming factor is naive and is misleading people. One of the reasons for our critical situation is a succession of economic setbacks over a large number of years. Some of those setbacks have been due to policies pursued by successive Governments—one has to be honest about this—from both sides of the Chamber, and over a large number of years, or perhaps to not pursuing to a greater extent, as they should have been, what were correct policies.

In addition, there have been external factors such as those resulting from the Middle Eastern war, and we have had pressures resulting from the changing European economic situation and from events in America beyond our control. We have also had pressures resulting from what I regard as the exaggerated responses overseas to internal problems here in Britain. We can look back, for instance, to the dock strike, and the serious burden put on our economy in the international field, out of all proportion to the true economic cost to our country.

Now on top of all those other burdens we have this international crisis. We have the international pressures on the dollar which, I believe, to a considerable extent are the result of American policies, domestic and overseas, and the increased difficulties which the American Government face with their balance of payments deficit. Also, there is one factor which has been mentioned on one or two occasions in the debate but not perhaps as frequently as it should have been and that is the cost, not only in economic terms but in political terms as well, of American policies in Vietnam. This is not the occasion to go into this in great detail, but there can be little doubt that the economic cost and the political cost of American policies in Vietnam over the last two years have played a part in producing the sort of crisis which the world today is facing.

All these things are inter-related, and to imagine that one could have as serious a situation as there is in Vietnam without affecting virtually every country in the world is exceedingly naive. One could pose the question of the extent to which developments in Vietnam in just the last few weeks—the Tet offensive, for instance—have played a part in our having to face the serious Budget which we are facing today.

Thus I think a new situation has arisen. This new situation has given rise to a financial and economic hysteria in various parts of the world, which is, perhaps, in many ways unprecedented. We have bankers flying all over the world and meetings almost weekend after weekend. I believe that because we are facing a new situation it may well be that we shall be prepared to consider, to a greater extent than in the past, new remedies.

I believe that this Budget makes a very real and significant contribution to developing what is greatly needed today, a degree of stability in our international financial system. It takes some steps at least towards the development of a sane and realistic system of international finance, although obviously there is still a long way for us to go. The Chancellor will be going to Stockholm later this week, and the meeting of the Group of Ten will be of great significance to all of us in this country. I hope that his efforts there will result at least in disposing of the suggestion which we hear, that there is to be a reduction in world trade.

I hope that my right hon. Friend will be able to take effective steps towards putting the £ in what I regard as its real position in the world. In financial terms, because of the position of the £ as a reserve currency and trading currency, we have been continuing to live in the sort of Victorian era which we have put behind us in the defence field and in the field of overseas expenditures. In the same way as we have put behind our imperialist past in the colonial sense and in the military sense, we also have to put it behind us in the financial field.

There is a tendency on the part of some people to dwell on the past. We have to face realities, the realities of the late 1960s. Those realities will also have to be faced by the American Government, because the dollar is not so almighty in the modern world.

This Budget makes a contribution to the solution of the problems of the economic situation. It goes some way towards helping our trading position. It gives time, and will help to create conditions, in which we can work towards a balance of payments surplus. It would, however, be an illusion to imagine that the Budget alone, any more than devaluation alone, will enable us to achieve success. The Budget alone, or with devaluation, is not the answer. Even with the prices and incomes policy it is still not the answer.

I am not one of those who oppose the prices and incomes policy, though I have some criticism of the policy as it appears to be at the moment. I accept the need for a coherent and rational prices and incomes policy as part of the overall financial strategy. However, I am a little concerned with the way in which all workers are subjected to the same norm, irrespective of their rates of pay. I would like to see some of those whose earnings are well below the national average not restricted in the same way as those earning average incomes. Some of those who are less vocal in speaking up for themselves, such as agricultural workers, some of those working in the municipalities and those working in parts of the country where wages are lower than the national average, should go a little more than 3½ per cent. At the same time, I accept that some of those who on occasions are the most vocal opponents of the policy and who are earning well above the national average will have to accept less than 3½ per cent.

In any event, even with the Budget, with the prices and incomes policy and with devaluation, we are only buying time, and the time must be used. I regret that there has not been sufficient emphasis laid on this during the debate. The time has to be used in particular by British industry, which must abandon the slovenly lethargy which has been the hallmark of industry in this country for too many years. British industry has to modernise itself. It has to sell in the world's markets in a far more positive way than it has been prepared to do in past years. It has to make deliveries on time and provide after-sales services which compare with those of our world competitors.

When one travels abroad one realises far too often that we do not stand comparison with our competitors. We have to see that we do not always take the soft options and go for the home market. We must see that, when a situation like devaluation occurs. we do not merely step up prices and increase our profits without necessarily taking a larger share of the international markets.

We want an industrial revolution. Industrial management must look further ahead than just next year's balance sheet. Managements must consider what is to happen in 10, 15 and 20 years' time, and they have to consider the social consequences of what they are doing. It is also time for a dramatic change on the shop floor amongst many trade unionists, who attitude towards modernisation and progress in industry has to change. We are no longer living in the 1930s, though far too many managements in British industry and, I fear, some trade unionists think that we are. There are trade unionists, shop stewards and managers who are conscious of the need to make progress and introduce changes at a more rapid rate to make ourselves competitive in the world. Far too often such people are in the minority.

There are hard, bitter and traumatic experiences ahead for British industry if we are to become competitive. In some cases we have to abandon attitudes of a lifetime. It is essential that a second industrial revolution takes place if we are to have economic success and progress and obtain our fair share of the world's markets. If we do not do it, we shall be faced with a succession of economic crises. Year in and year out, we shall face the serious situation which we have experienced far too often in the last 10 or 15 years. We shall find unemployment figures rising and our living standards falling.

I turn now to the Budget and to one or two of its provisions. As we have been told on a number of occasions, there is considerable emphasis in it on indirect as opposed to direct taxation. I welcome the selectivity in the emphasis on indirect taxation, although there are certain aspects of it about which I am more than a little concerned. However, much as one welcomes that emphasis, because of the selective way in which it has been used, it does not mean that one would welcome the same degree of emphasis on indirect taxation in future Budgets. We are facing a special situation, and this is a special Budget.

Having said that, I think it is surprising that some aspects of indirect taxation have escaped as lightly as they have. For example, in a Budget which in a full year will raise £900 million of taxation, I am surprised that the extra taxes on tobacco, wines and spirits, and betting and gaming will raise only an extra £75 million. That is an extraordinarily small proportion of the total extra demand which is made on taxpayers. Given the gravity of the present situation, I am surprised that the increases were not larger. To bring it down to a personal level, I find it a little illogical that I do not pay more for the glass of beer that I buy but that my young son must pay more for his bottle of lemonade and that my daughter must pay more for her ice cream.

I turn now to a point mentioned by my right hon. Friend when he opened the debate, which he referred to as a small change in National Insurance benefits". It is a good deal more than a small change to those whom it will affect. My right hon. Friend said: We propose to discontinue the payment for the first three days of sickness, injury or unemployment which is at present made after a period off work has lasted for a fortnight."——[OFFICIAL REPORT, 19th March, 1968; Vol. 760, c. 266.] In reply to an intervention earlier today, my right hon. Friend the Chief Secretary said that this measure would raise the sum of £15 million. It is a rather shabby proposal. One penny on a packet of 20 cigarettes would have raised this £15 million, and it would be more socially desirable to put a penny on a packet of cigarettes than to abandon the payment of the first three days' sickness and unemployment benefit to those who are off work for more than 14 days for one reason or another, more especially as in many cases they will be the people who are hit hardest by the reintroduction of prescription charges of 2s. 6d. per item. This is an example of the Treasury's prescription charge mentality, and I believe that there are other reasons for it than purely economic ones.

I hope that my right hon. Friend will assure the House tonight that, together with his colleagues at the Ministry of Health, the Ministry of Social Security and any other departments or voluntary organisations which are interested, he will give serious consideration to the consequences of this change. Having looked closely at the situations of people affected by it, I hope that it will be found after 12 months that the decision should be reconsidered and that, in a time of improved economic circumstances, it will be possible once again to reintroduce the payment of benefits for the first three days to those who are off work for more than a fortnight. If it is not done, we shall put an additional burden on those who are least able to bear it; for example, those on low wages, those in parts of the country where unemployment is abnormally high and where sickness runs at a higher rate than elsewhere, which in many cases are the poorer parts of the country.

I turn now to one or two of the regional implications of the Budget. I represent a constituency in a development area which faces serious and difficult economic problems. Inevitably, I must be concerned about the proposal to raise the Selective Employment Tax contributions by no less than 50 per cent. In my development area, the proportion of manufacturing industry is very small, and my right hon. Friend's proposal means an increased burden on the community as a whole. The development areas have borne the brunt of successive measures—not only the introduction of Selective Employment Tax but some of the other economic measures which are justified in a national sense but which produce anomalies and injustices in a regional sense. These areas—my area in particular—already have low wages and high unemployment rates and are not fully capable of bearing extra burdens.

For these reasons, I particularly welcome the proposals to give certain benefits to the tourist industry. I also welcome the proposals for some S.E.T. relief for part-time workers and for elderly workers. I wish these measures had been introduced some time ago, but I nevertheless welcome them now. There are two proposals to help the tourist industry. There is the scheme for giving assistance to hotels. There is also the proposals for S.E.T. refunds to hotels in certain parts of development areas. Why select only hotels? Other parts of the tourist industry play an important and, in some parts of the country, an increasing part in our economy. I think in particular of camp sites, restaurants, cafeterias, cafés, and so on.

I welcome the scheme for giving assistance to hotels—the scheme for hotel development grants and loan assistance. This will help the tourist industry, although I think that the differential between non-development areas and development areas is rather niggardly and miserly. The difference in the degree of assistance is that the grants will be 25 per cent. in development areas as opposed to 20 per cent. in the rest of the country. The loan assistance will be much the same. Could not the differential be greater?

I welcome the scheme for making S.E.T. refunds to hotels in certain rural areas, first because it will provide a significant stimulus to the economy of some of the tourist parts of our development area. I welcome it also because it creates precedence. For the first time, we have a real breakdown in the rigid classification laid down when the tax was introduced.

This underlines what has been becoming increasingly obvious for some time. The classification of industries for the purpose of Selective Employment Tax is not necessarily equally valid for the whole country. A classification that is right and reasonable in the City of London, for example, is not necessarily right and reasonable in Cornwall, in the north of Scotland, or in the mining areas of the North-East. I hope that Mr. Reddaway, in his investigation of the workings of the Selective Employment Tax, will examine the possibility of the variation of the classification of industries into three categories from region to region according to the needs of the region.

Last week my right hon. Friend the President of the Board of Trade said that the refunds will be made available to hotels in certain rural parts of development areas". My right hon. Friend did not go on to define that. In answer to an intervention he said: details will be given in the Finance Bill."—[OFFICIAL REPORT, 20th March, 1968; Vol. 761, c. 456.] In a Written Answer to me today my right hon. Friend says the same thing.

I realise that the Finance Bill will probably be published in the fairly near future and we can then get an idea of what is meant by certain rural parts of development areas". Normally I would not pursue this matter, except for the fact that a great deal of publicity has been given to it in the last three or four days in some of the development areas. In particular, I am concerned about a radio broadcast from the South-West which said that this benefit would go only to towns with populations of less than 10,000 and to completely rural areas. I have no means of knowing whether this is the intention of the Government Departments concerned.

If it were to be the intention, I should be very disturbed, because it would create a patchwork situation throughout many development areas. In the South-West S.E.T. relief would be given in St. Ives, but not in Penzance; in Penryn, but not in Falmouth; in Ilfracombe, but not in Newquay. Such a situation would be utterly illogical. Whereas most of Wales would obtain S.E.T. relief, Colwyn Bay would not. Whereas most of the north of Scotland would obtain relief, Inverness would not.

If this decision has not yet been taken, I ask my right hon. Friend seriously to consider whether whole areas should not be made development areas in which S.E.T. relief would be given to the hotel industry, rather than working it out on a patchwork arrangement. For example, would my right hon. Friend consider providing that the whole of the South-West development area, the whole of rural Wales, and the whole of rural Scotland, should automatically obtain this concession? Should not the same apply to the whole of the north of England, except the densely populated urban areas?

I think that the Budget, given the critical economic situation that we now face, is reasonable and fair. I have been critical of certain aspects, in the same way as every hon. Member could be. If we watch the situation of the lower paid workers, if we watch the problems of the poorer regions—the areas which have all too often been left behind in the past—and if we take the necessary action, if it is seen that either group is suffering as a result of the Budget, I think that the Budget can and will make a significant contribution to the solution of our economic ills while fairly sharing the burdens which have to borne throughout the whole community.