I am just about to make the point that the House in the course of this debate has the opportunity to redeem itself. My hon. Friend the Member for Salford, West made it clear that this is in no sense an alternative Budget. That is beyond our powers. It is beyond the powers of members of a predominantly amateur part-time assembly. In later years it may be possible for members of a full-time professional House of Commons to advance Budget proposals which can be argued out on a level of full equality with the Government machine. But that time is a long way away.
My hon. Friend discussed a wide range of proposals dealing with the economy and tax reform, and I will seek to add some points of detail to them.
Let me turn first to the general economic background. I begin by reiterating some of the facts which have led to the present situation in the British economy. My hon. Friend mentioned the quite striking speech made by the Paymaster-General, in which he drew attention to some of the real causes underlying the present balance of payments deficit. I merely make the point that the Paymaster-General is no longer at the Treasury. While I am delighted to see the Chancellor with us again this morning, it is a very great pity that the sole public exponent of expansionist views was moved from such a key position in the Government.
The Paymaster General was simply saying what the facts bear out, and that is that in the four years from 1965–68 inclusive the cumulative deficit on the balance of payments on current and long-term capital account at £1,124 million was more than offset by the net foreign exchange costs of overseas military expenditure, which came to £1,082 million, plus the net private outflow of capital, most of it to advanced industrial countries abroad, which came to £403 million net, if we exclude borrowings in the Euro-currency markets and the re-investment of locally-earned profits abroad. These figures show quite clearly that this country could have had an average surplus of something like £100 million a year in each of these four years.
It shows that the main reason for the balance of payments difficulties that we have had to face has been the massive external obligations, unique among comparable countries, that we have had to bear. I mentioned earlier the enormous cost of achieving the present balance of payments surplus. I estimate that figure at £6,500 million since deflation seriously began in July, 1966. The signs of this are everywhere, or everywhere evident. Over 600,000 people are out of work in this country for the fourth successive winter, 59 per cent. of them adult male workers who have been out of work for longer than eight weeks. The rate of capital investment in private manufacturing industry is currently no higher as a proportion of national income than it was a decade ago. There is the gradual slowing up of the rate of increase in public expenditure. To continue with the present Treasury formula of trying to relate the rate of public spending to the national income can only lead to a social explosion in the 1970s.
For example, who would tolerate a situation in which education advances between 1972 and 1974 at an annual average rate of only 2 per cent. per annum? It is a nonsense, and must be seen to be a nonsense. Moreover, it is the complete negation of Socialism. To argue that public expenditure should advance at only the same rate as the national income means that we accept that the present balance between private consumption and public expenditure is satisfactory and unchangeable, and this I find totally unacceptable. Moreover, that is precisely what the Conservatives were able to do between 1951 and 1964—and look at the situation in the social services which we inherited when we took office in October, 1964!
My hon. Friend the Member for Salford, West made some specific proposals for reflating the economy this spring. They were rightly concentrated on the construction industry, for the construction industry is perhaps the best example of the Keynesian accelerator-multiplier concept in that, with a given rate of increased expenditure, there is a markedly higher rate of production and consumption.
My hon. Friend's proposals could lead to a rapid, marked increase in housing construction and in the construction industries generally in the nine months which remain of this year and certainly throughout 1971 and subsequently. He drew attention to the degree of spare capacity in industry. Not only is there a large number of people out of work, but in certain key industries there is a high level of spare capacity. For example, the motor car industry is working to 80 per cent. at most of capacity.
My hon. Friends have welcomed the reduction in Bank Rate announced yesterday—the first gleam of sunshine in a bleak, deflationary winter. I hope that my right hon. Friend the Chancellor will be encouraged to take further steps to reduce it. I see no reason why it should be used, as I suspect it is being currently used, to attract a large inflow of hot money short-term capital which The Guardian said recently totalled £250 million in February. We know what happens to that hot money if the country hits a balance of payments crisis, for whatever reason. It flows out as quickly as it has come in. The cost of attracting this money to London is an extremely heavy burden for the British economy to bear in terms of a high rate of interest.
I suspect, too—and I leave this thought with the Chancellor of the Exchequer—that another reason for keeping the present high level of Bank Rate is to accumulate a massive balance of payments surplus, not merely to repay the short-term debt which this country has incurred since 1964, but to build up in the bank, as it were, a surplus which will be required to offset the economic disadvantages of entering the European Economic Community.
We estimate that the cost of carrying out my hon. Friend's reflationary proposals—three of them in the construction industry and another dealing with the increased requirement for building and education, particularly for primary schools in slum areas and secondary schools to accelerate the reorganisation of secondary education on comprehensive lines—amounts to £200 million per annum in terms of private consumption and a further £250 million per annum in terms of increased public expenditure. That would be the total cost of improving the local authority borrowing facilities, of giving private builders higher priority for bank lending, of raising the ceiling on local authority mortgage loans, and of lowering minimum hire-purchase deposits to an estimated 20 per cent. all round, with a maximum repayment period of 30 months for all goods.
To take such a step as the last one, is not to return to the sort of wild hire-purchase boom that we had in the 1950s and 1960s. For example, In August, 1954, the Conservative Government lifted all hire-purchase controls on deposits and on the length of repayment. They had to reintroduce some of them in February, 1955; but they went much further than we recommend today. In November, 1958, they again removed all hire-purchase controls in good time for the 1959 election, but they had speedily to reintroduce some for them in 1960. In June, 1962, they cut all hire-purchase deposits to a flat rate of 10 per cent. all round with a repayment period of 36 months.
What we are saying is very much more modest; namely, that if the level of unemployment is to be reduced and the level of investment increased, we must take certain steps to reflate private consumption to a limited, planned degree.
I turn now to the question of taxation and tax reforms. My right hon. Friend the Chancellor is being inundated with advice on his Budget. I hope that he will find my proposals not entirely unwelcome. I begin by discussing the burden of direct taxation. Before the war, the personal allowance for a single person was £100 per annum and for a married couple £180. Average weekly earnings in 1938 were £3 10s. In 1970 the personal allowance for a single person is £255 per annum and for a married couple £375. Average weekly earnings are now just under £25 a week. Therefore, while average weekly earnings have increased sevenfold over the past 32 years, personal allowances for income tax purposes have only doubled.
It would be prodigiously expensive to try to lessen the burden of direct taxation by simply having an across-the-board personal allowance. For example, if we were to raise the personal allowance for a single person from £255 to £300 and for a married couple from £375 to £450, the cost across the board would be £550 million, and the surtax payer would benefit most from it. Other proposals designed to help people at the lower end of the scale must, therefore, be considered.
The T.U.C. has put forward a most interesting proposal designed to increase the earned income relief from two-ninths of earned income to a formula of "£300 or two-ninths of earned income, whichever is the greater". This proposal has certain merits, but I suspect that it would come up against the familiar stumbling block in the Inland Revenue which seems to be such a barrier to social advance, namely, that the burden of work on the Inland Revenue is such that it simply could not cope with all the additional complications which a proposal of this kind would inevitably entail.
I do not think that a radical social reforming Government can accept for a moment the proposition that social advance in Britain should be hindered or held back because the tax collection system is not sufficiently geared to meet the needs of our time. But I recognise that this is a serious argument which must be met and overcome. Therefore, before we proceed with tax reforms of a wide-ranging nature, which I think are long overdue, particularly in the taxation of capital and inherited wealth, the first thing that we must do is to take some of the present load off the Inland Revenue.
An overriding characteristic of the present situation is that the Inland Revenue is chasing comparatively large numbers of people for relatively small amounts of money. I therefore suggest that the first thing to do is to take as many people as possible completely out of paying income tax at the lowest cost to the Exchequer.
My suggestion is that we raise the tax threshold to a flat £600 a year—roughly half current average industrial weekly earnings—and that we have a phasing-out between £600 and £700 per annum so that someone with an income of say, £625 a year is no worse off than someone whose income is, say, £575 a year. I estimate that the cost of this in the current fiscal year would be about £150 million. This would be the cost of taking at least 4½ million people out of paying tax altogether, including many of the old people on pensions or very low paid persons. Additionally, it would cut heavily the taxation on a further 1½ million people. These are the advantages of the proposal.
The disadvantages are twofold. First, it must be clearly understood that I am not arguing a case for raising the personal allowance. Personal allowances would remain exactly as they are. Consequently, people a little above that level at £700, £800 or £900 a year would not benefit from this reform. Our suggestion, however, is that we concentrate this particular tax relief on the poorest people, those whose weekly income from all sources is £11 10s. or less, and that we cut income tax on people whose income ranges between £11 10s. and £13 a week.
The second disadvantage of this proposal is that it would not in any way remove any of the burden from lower-paid workers with large families as they pay little or no income tax. It would, however, secure maximum relief for a great number of people at comparatively low cost to the Exchequer.
What I have tried to answer is the argument that the Inland Revenue cannot cope with any more work because it is over-burdened. This suggestion at least lifts part of that burden from the Revenue.
I turn, secondly, to income tax. We know that the party opposite has said publicly—the right hon. Member for Enfield, West (Mr. Iain Macleod) has said it publicly—that it wants to see a cut in the standard rate of income tax from 8s. 3d. to 7s. 9d. in the £. This would be a grossly inequitable tax change. Let me give three examples of how this would affect people at different levels of income. Take, for example, a single man earning £20 a week with no family obligations and, thus, no family allowances. He would receive precisely 4s. 8d. a week from a cut in standard rate of 6d. in the £. Take an industrial worker, married and with two young children, with a £3,000 mortgage on a house in London, perhaps in West Lewisham, earning with overtime, say, £25 a week. His net tax bill would fall by precisely 1s. a week.
Take as another example the chairman and managing director of a well-known private international corporation with its headquarters in London who is reported to be earning £70,218 per annum. A cut in standard rate of 6d. in the £ would benefit him to the tune of £34 a week. It can, therefore, be seen that a cut in the standard rate of income tax would help the wealthiest most of all and the lowest paid hardly at all.
I believe, however, that there is a strong case for making a tax reduction which would ensure that people on average weekly earnings of around £25 a week got the maximum benefit. Hence the proposal for reducing the lower rate of tax from 6s. in the £ to 5s. 6d. in the £, because this would give everyone a maximum benefit of £6 10s. a year. It would not be a sweeping across-the-board cut such as a cut in the standard rate would be, because one pays 6s. in the £ on only the first £260 of earned income. The cost of this proposal would be £130 million a year.
My third proposal concerns indirect taxation. Here I take up some of the points made by the hon. Member for Torquay. Indirect taxation need not in all cases necessarily be socially regressive. I think that through the system of purchase tax we have in this country a system of indirect taxation which is about as socially progressive as we have so far been able to devise in Western Europe.
Thus, for example, I am not at all in favour of cutting the Customs and Excise duty on tobacco, for example, or on wines or spirits or, for that matter, on fuel oil. Nor am I prepared to cut purchase tax on expensive jewellery or fur coats.
But the burden of indirect taxation is certainly regressive when it hits the families, particularly of working people, on household necessities like clothing, furniture and a wide range of household utensils. That is why we say that this burden of indirect taxation—and indirect taxation currently accounts for 42 per cent. of all tax revenue in Britain—should be reduced by removing from purchase tax the lowest band-13¾ per cent.—in its entirety. The cost of this would be £310 million, and it would have some beneficial effects on the index of retail prices, which would fall by about perhaps up to 1 per cent.
I come now to the question of social policy. My hon. Friend the Member for Salford, West drew attention to the fact that there are a number of areas of poverty in our society. My hon. Friend was right to be critical of some of the remarks made recently by the Child Poverty Action Group, but I do not think that anyone on this side of the House would deny the absolute sincerity and integrity of that group in advancing its case.
What we have to do as a party and as a Government is to devise for the 1970s a coherent social strategy which aims at the total and complete abolition of poverty over the next decade. This was one of the main principles of the early pioneers in the Socialist Movement at the turn of the century. We have achieved a great deal since then, but in terms of dealing with child poverty, old-age pensioners, the long-term unemployed, the chronically mentally or physically handicapped or the one-parent families, we clearly have a long way to go. My view is that this poverty is at its most acute at present among low-paid wage-earners with families, and so I suggest we start the process here.
I consider that the way to tackle this problem is to recognise that the present arrangement of child tax allowances plus a cash payment of family allowances does not help effectively the people in this category. For example, the child tax allowance obviously means a great deal to a person paying surtax who has a child aged between 16 and 19 at school and who collects a tax relief of £165 per annum on, perhaps, 12s. in the £ or so. It does not mean a thing to a person earning between £700 and £800 a year.
Therefore, what we have to do first is, for the second and subsequent children, to consolidate the £700 million, which is the present cost to the Exchequer of child tax allowances, into a cash payment of family allowance That was what the Swedish Social Democrat Government did in 1948. This would mean that we could at once raise the present family allowance for the second child and subsequent children to 27s. for each child tax free.
It is most important that any increase in the cash payments of family allowances should be made tax free because otherwise we simply push a great number of the lower-paid people back into paying income tax. If we are to ensure that the cash payment of family allowances meets in every case the present circumstances of parents paying at the standard rate—that is to say, that no one paying the standard rate of tax is worse off as a consequence of these changes it means raising the level of family allowances not just to 27s. a week but to 34s. a week, tax free, and this would cost the Exchequer an additional £120 million.
I turn, finally, to the taxation of the rich. We in Britain today still have one of the most unequal societies not only in Western Europe, but in the advanced world. I will give a few figures. The most frequently quoted figure is the one mentioned by my hon. Friend earlier. The top 1 per cent. in Britain in 1960 owned then 42 per cent. of all personal property. I am pretty certain that that figure has not diminished over the past decade. All the signs are that the degree of capital accumulation in the private sector, of private wealth, has in fact increased.
Now what are we proposing here? We are proposing that this country should try to emulate Finland, Sweden, Norway, Belgium, Holland, West Germany, and virtually every other country in Western Europe, by bringing in a wealth tax. We suggest that we begin with the self-assessment of personal fortunes of £50,000 and above. Great things flow from small beginnings. The right hon. Gentleman the Member for Enfield, West talked at the Tory Party conference at Brighton of self-assessed taxation and said it offered the British people "new and exciting opportunities." Very well, let us start to take advantage of these new opportunities, in an admittedly experimental way, by putting this tax on wealth.
What are its benefits? First, the tax yield would be high in relation to the number of taxpayers. The Inland Revenue would not be overwhelmed, because the tax would fall on a very small number of people, and the yield from the tax would, thus, be very high. Moreover, as my hon. Friend mentioned earlier, there are plenty of guidelines available. The value of securities and investment is easily assessable. If one owns land, there are the rating valuations which could be used as an interim measure for this purpose. The value of personal possessions of, say, expensive antique furniture and jewellery can be assessed by reference to insurance policies. The rich are rarely under-insured for their personal property.
A tax of 1 per cent. on personal fortunes of £50,000 and above would bring in £200 million a year, a limited, modest advance which would bring us into line with virtually every other advanced country in Western Europe.
I conclude this part of my remarks about the wealthy by saying that we note that in America the top 1 per cent. of the population own only 24 per cent. of personal property, against 42 per cent. in Britain, and I draw, with great solemnity, the attention of the House to the fact that the recent report of the National Commission on the causes of violence in America has specifically named social inequality as a major cause of violence in that country. The warning for us is clear. In an age of mass media communications, in an age of affluence, people simply are not willing to tolerate this degree of social inequality for much longer. So I am suggesting that we make a modest start to redress this balance now.
The net cost of our proposals, with the increase in public expenditure, and with the various tax reductions that I have described this morning, less the additional revenue raised from self-assessed wealth tax, would cost the Exchequer £800 million a year. Is this figure extravagant? I draw the attention of the House to the fact, firstly, that the National Institute, in its quarterly review published this week, has called for a reflation of £650 million to get us back on the target set out in the document "The Task Ahead" published by the Government in February, 1969. That postulated only a rate of economic growth of 3¼ per cent. between now and 1972. The Trades Union Congress estimates that to attain a rate of economic growth of between 4 per cent. and 5 per cent. it would be necessary to reflate the economy in Britain by £1,000 million. I am more ambitious. I believe we should aim at a rate of economic growth of 5 per cent., the average attained by the O.E.C.D. countries in the recent past. This would cost the Exchequer £800 million, and by certain limited steps, increase private consumption by £200 million. These are specific, positive, clear-cut proposals.
I conclude by simply mentioning the headings of what could be done to tackle any consequential problems caused by reflation to the present balance of payments. I am not going to discuss them in detail. They are, firstly, the fact that we can draw, if we wish to draw, upon our overseas portfolio investment which totalled, as the hon. Member for Torquay reminded us, £5,800 million at the end of 1968. I am suggesting that if the country does want to repay short-term debt quickly this is a much better way of repaying it than by building up a balance of payments surplus at heavy cost to the economy at home, where the seed corn does lie.
Secondly, we would cut further the outflow of private capital to advanced countries within the sterling area, and, in particular, speculative capital going to Australia.
Thirdly, we would keep a very close watch on the import position, certainly retaining the import deposits scheme, and, if need be, bringing in a system of selective import controls to meet the upsurge of imports which reflation would inevitably create.
Finally, we would, of course, take further steps to reduce military expenditure at home and abroad.
This morning I have spoken for some length of time and I am sorry for that, but I have tried to elaborate a succession of serious proposals on complicated matters, which, taken together, could not only give this country a much higher rate of economic expansion, reduce unemployment to below 400,000, stimulate the economy and thus provide a much higher degree of public expenditure in future, but set Britain out, in the 1970's and the remainder of the century, on the path not only of economic advance but of social justice, too.