Indeed, and that supports my argument and the Budget judgment. The great danger that the Chancellor has decided to run in his Budget judgment is that if we go for expansion like this in 1973–74 we may run into a grave balance of payments crisis. I think it is possible that we will and therefore the words of the Chancellor in column 1354 are possibly the most important words in the Budget and possibly the most important words ever used by a Chancellor since 1945.
He said that we are going for domestic growth and if we get into trouble because of a balance of payments crisis this will not distort the domestic economy. That is one of the most important economic statements since the war. It means that the Government have learnt the lesson the previous Conservative Government and the previous Socialist Government did not learn. From 1964 to 1967 the previous Socialist Government decided not to adjust the exchange rate and as a result clamped down on the economy with long-term damaging effects. The Chancellor said:
Moreover I am sure that all hon. Members in this House will agree that the lesson of the international balance of payments upsets of the last few years is that it is neither necessary nor desirable to distort domestic economies to an unacceptable extent in order to maintain unrealistic exchange rates…".—[Official Report, 21st March, 1972; Vol. 833, c. 1354.]
This is a major breakthrough. Many of us have pressed the Chancellor and the previous Chancellor to say this. It means, I hope, that we shall move into a period where domestic economic growth will be continuous and sustained.
I utter a word of caution about the expectations the Budget will have of reducing unemployment. From 1966 this country has been literally in a different ball game. The old pattern of unemployment since 1945 of 1, 1½ or 2 per cent, was susceptible to fine tuning—put a bit in the Budget, take a bit out. One then had Budgets of £100 million or £150 million. Those days are gone.
There are long-term changes happening in our economy—the unemployment of progress. We have all experienced in business and in our constituencies technological change and structural change. Managements, whether of collieries, farms, large firms or small factories are all combing through pay-rolls trying to find a more efficient way of producing more goods. The forces of shake-out are very strong in our society, and they will not be countered, met or reduced to any substantial extent by massive demand inflation. In the next 18 months I do not expect unemployment to fall much below 750,000 or 800,000.
Those people who say that what manufacturing industry sheds service industry will take on must also be aware that service industries are equally receptive to shake-out and productivity improvements. I will quote one example of this. The same number of people in 1970 worked in hotels, catering and restaurants as worked in those occupations in 1960. After a decade of tourist boom and of hotel building, exactly the same number of people worked in that industry. I ask my right hon. Friends not to be sanguine in the belief that we can jack down unemployment, because the unemployment of today is an essentially different animal from the unemployment of the 1920s and 1930s.
The proposals in the Budget for corporation tax were submitted to a distinguished Select Committee which came to some very distinguished conclusions, and I am glad that they were accepted in full. Those conclusions were unanimous and I regret that the Opposition have decided to mount a substantial attack upon this part of the Finance Bill. The reform of a fundamental tax like corporation tax is much better done with a degree of unanimity. This will be largely fought out in Committee I suspect and we shall go through many of the arguments again.
Irrespective of our entry into the Common Market I have for a long time been a supporter of value-added tax. It is the only tax on the fiscal horizon which has a real buoyancy of revenue in it. The only other tax that is buoyant at the moment is income tax. The yield of V.A.T. to the Treasury will go up as economic activity goes up. The Treasury Bench is to be congratulated on devising a scheme of V.A.T. which is unlikely to be regressive. Hon. Members opposite who opposed V.A.T. from the beginning would have mounted a much more effective campaign against it if it could have been shown to be regressive in effect. My reading of the White Paper on value-added tax is that it is unlikely to be regressive and the Government are to be congratulated upon that and upon achieving one rate of V.A.T. I never thought that the Treasury would have the courage and sense to have one rate of V.A.T. This makes the tax impartial and we get away from those phoney decisions on which goods are luxury, less luxurious, more necessary or just necessary.
The estimated yield of V.A.T. according to the Financial Statement is £1·6 thousand million. It replaces two taxes, S.E.T. and purchase tax, the yield of which is £2,000 million at the old rate of S.E.T. Taking the first year of operation of V.A.T., there is evidence that we have reduced direct taxation by about £400 million.
I will turn briefly to the positive tax credit system. I welcome this change of heart. It is a change of heart because Treasury Ministers were very cool about negative income tax—