Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 12th March 1973.

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Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton 12:00 am, 12th March 1973

I am obliged to the hon. Gentleman for agreeing with what I said. He was talking about allowable costs and not denying what I said. If he was denying it, perhaps he will tell us. I see that he does not.

The Minister is telling companies in effect that they should give away profits before they even know whether they will get them. That is precisely what he is doing with the code. Yet at the same time he expects companies to invest with the profits they may or may not have.

I believe that price control of major companies is essential. The Opposition are obliged to the Government for setting up the machinery for us. If they are not prepared to follow through the logic of their own policies and have more public ownership, as, for example, a State holding company to provide investment, a Labour Government certainly would. How much better it would have been if a major part of the £3,000 million of tax reductions that the Chancellor is constantly boasting about had gone into investment.

If the one requirement of sustained growth—investment—has failed, what about the other vital aspect of the Chancellor's policy—the balance of payments? I do not envy the Chancellor having to cope with a difficult enough problem of sterling when on top of it he is in the middle of an international monetary crisis. I am delighted that he has refused to join the Community float. I regret that the present situation does not allow international agreement but I am not disappointed, unlike my hon. Friend the Member for Ashfield, because I have never believed that an economic and monetary union was a proposition before 1980. Even those countries joining in the float are retaining the right to change their parity, for the obvious reason that national interest comes first and is likely to continue to do so for the foreseeable future.

The conditions which the Chancellor laid down for his entry to the float were surely impossible to meet. I can only assume that he was not serious in putting forward such demands. If he was, he was going about it in the strangest possible way. It is like a man going to his bank manager for an overdraft with an unlimited guarantee but being unable to say when he could repay it and, of course, wanting special low interest rates. The manager, trying his best to be helpful, would say "What are your credentials?" The Chancellor would no doubt say "I have just run up a £4,423 million overdraft and I have no plans to reduce it." The manager, still trying his best to help, would say "I suppose the least you did was to use the money for investment in new plant." The Chancellor would have to say "No, I am afraid not. I gave it away in a £3,000 million tax bonanza."

I am sorry that the Chancellor was not in a position to get those guarantees because at some time in the future cross-guarantees and international co-operation will have to be recognised as the only way to beat the speculator. Unfortunately, the world is not yet ready for that situation. Even if the Chancellor's conditions had been met, in practice they never could have withstood the pressure they were likely to be under.

Meanwhile, I hope it is not asking too much to ask the Chancellor to explain to his hon. Friends why they should stop boasting about the repayment of foreign debt and get ready to defend the almost certain new position of substantial foreign debts that will be coming over the next year or two. It is easier to defend that situation than the £4,423 million of debt due to be financed partially by tempting in hot money through interest rates whose average yield is the highest since 1731, and partially to be financed by further substantial concessions to the surtax payers, made all the more generous, as the right hon. Member of Birmingham, Stechford (Mr. Roy Jenkins) pointed out, by the Chancellor allowing loan interest to be deducted for tax purposes.

The Chancellor has created, as many of his hon. Friends have told him, an interest rate war. I never could understand the Chancellor and his hon. Friends being prepared to borrow at rates as high as 11 per cent. money which could well go out as quickly as it came in while at the same time not being prepared to borrow at lower rates for official debt money on which he would at least know that there were agreed terms as to when it would go out. The best that can be said about the present negotiations is that they are not the end of the story.

I hope that the Chancellor is right about the visible trade forecast. It appears that very few people seem to agree with him. If he is wrong, the massive speculative funds now running loose must surely be waiting to pounce with fateful consequences both for his counter-inflation policy and for the balance of payments.

There are some who talk about the joys of floating as if the millennium had arrived yet there is a great danger of getting the worst of all possible worlds, with a further gradual sinking. That would mean, yet again, just as we are coming to the point where we can get some advantage from devaluation, that we would start to get all the disadvantages.

I am not a fan of floating. Our foreign trade and economic management have enough difficulties without the additional hazard of the financial uncertainty of floating. But I recognise that there is no alternative at the present time. As the hon. Member for Kingston-upon-Thames (Mr. Norman Lamont) said, we cannot go on giving speculators a one-way option. Sooner or later, however, we will have to get back to fixed parities.

If the prospects for industrial investment and the balance of payments do not look too rosy, the counter-inflation policy of the Chancellor is in tatters. We have been told that we on this side take a pessimistic view of the situation. What else can one do? One has only to step outside or read a financial newspaper to have that view confirmed. It is nothing to be pleased about. It does not help to pretend that everything is going wonderfully well. If it is, the Chancellor has deceived his supporters and the nation, who thought that he had reversed all his previous policies because there was a serious crisis, which of course there is. It will not wish itself away and it will not go away by his hon. Friends simply cheering him on.

Any successful counter-inflation policy must be acceptable to the nation. That means an incomes policy—and I make it clear that I mean a voluntary policy because, as I am sure most hon. Members agree, the experience we have had shows that a statutory policy simply will not work. I cite the Prime Minister as evidence of that and leave hon. Members to read his speeches to confirm it. I believe that it needs a compact with the working people and with their wives in particular. That does not, however, mean a formal detailed agreement with the TUC. It could not deliver anyway. One has not a cat in hell's chance of getting general acceptance for a voluntary agreement without a totally different tax philosophy from the one the Chancellor continues in the Budget. That is why I say that it is a Budget of wasted opportunities.

A quick glance at what the right hon. Gentleman has done compared with what he should have done shows what I mean. We are to have a land hoarding tax but, as many hon. Members have pointed out, it will not make a scrap of difference to the price of a single house. The Chancellor totally underrates the ingenuity of the developers. When he talks of unjustifiable delay, I do not care how he defines that phrase—I have no doubt that the developers will find a way round it, just as they have found a way round Section 482, under which the Chancellor and the Chief Secretary constantly claim that all gains from speculative land are fully taxed. But the right hon. Gentleman knows that not one person has ever been caught by that section.

If the Government will not nationalise development land, which is the only solution to stop the speculative gains, then at least the right hon. Gentleman might have taken the opportunity of stopping the roll-over relief which allows a farmer to make massive profits and then avoid every penny of capital gains tax. He might also have stopped the 45 per cent. agricultural relief of estate duty. He knows that there are stocks of woodland available at a moment's notice so that wealthy men on their deathbeds can avoid the bulk of their estate duty and at the same time push up the price of land.

So the Chancellor has done nothing about house prices and nothing about mortgage interest, except push it to astronomical heights. He might have done a little about it if he had used a little of the money he had available to help building societies by reducing a proportion of their tax burden. There is nothing about that and only a trifling amount for rate poundage. In most towns and cities, domestic ratepayers will be affected not at all except for a very small amount related to revaluation.

Then we have another example of the right hon. Gentleman's "fairness", in that he first threatened to put value added tax on children's clothing and shoes and then, after great pressure and in typically disarming manner, admitted that he was wrong. I wonder what the Financial Secretary will say. We heard rather more from him in defence of VAT. I hope that the right hon. Gentleman will not expect fulsome gratitude for his concession any more than someone who threatens to kick one in the teeth and then changes his mind should expect it.

I hope that we shall hear no more now about the broad-based tax free from anomalies. Twiggy at least will prevent the right hon. Gentleman from claiming that. I really cannot understand his argument about price increases and VAT. I always thought that the Chancellor believed in the honesty of the local shop keepers. Why then all this elaborate precaution, the advertisements and the shoppers' guide? Does the right hon. Gentleman think that the average housewife is going to telephone her local weights and measures inspector after doing her shopping, and that even if she does so anything will be done about it? Of course there will be price increases from VAT.

The Chancellor has a strange idea of fairness. Four pence of the national insurance stamp will be deducted from the lower paid. I assume that with the money he will buy shares—not, of course, in Rolls-Royce or the Civil Service or the nationalised industries, but in order, as the hon. Member for Kingston-upon-Thames said, to convert trade unionists into capitalists. I do not know whether that was what the Chancellor had in mind.

But perhaps the most outrageous thing of all, something which perhaps sums up the right hon. Gentleman's tax philosophy and which has been condemned by many hon. Members, including some hon. Members opposite, is his decision to give £110 million in a full year in order to reduce the price of sweets and chocolates and lollipops after receiving £20 million through the increase in the price of school meals and £9 million from removing free school milk from so many children rather than putting anything on, for example, family allowances, a great deal of which could have been recouped by tax clawback.

We had a remarkable statement from the Financial Secretary. He said that children would spend less on sweets and then there would be more available for mothers to spend on food. I do not know what sort of world those in Great George Street live in, but the hon. Gentleman must know that most children get a very small amount in pocket money and that they have only a small sum available for sweets. What will happen is that manufacturers, as they have already pointed out, will simply increase the size of the lollipop and the children will spend every bit as much as they did before.

VAT has been condemned by many hon. Members on both sides, not least by those concerned with the dental profession, and against this background of unfairness pious leaders in The Times and patriotic exhortations from the Lord Chancellor or from the Chancellor of the Exchequer and the Prime Minister to low-paid workers on strike are plain humbug. They totally fail to understand the frustrations of moderate, decent workers. These are not sour-faced men and women, as the Chancellor would have us believe in his television speech last Tuesday evening. What he said is not likely to improve the climate to enable him to achieve the voluntary incomes policy on which sustained growth depends.

Such workers do not begrudge their higher-paid fellow workers colour television or holidays in Spain. They simply ask for enough food, clothing and housing for their families. To blame these workers is to fail to understand the reasons for industrial chaos. The Government are responsible for increasing workers' expectations beyond those which any Government can fulfil in the immediate future.

It is true that as a nation we are living beyond our means. There is a need for restraint or, as the hon. Member for Enfield, West pointed out, deferred gratification. But that is just one more reason why the Government's schizophrenic approach is absurd. On the one hand, the Chancellor of the Exchequer boasts of an 8 per cent. increase in personal consumption. On the other, he says that there is a crisis which he knows was caused by that increase. He cannot expect a great national response without being more open and honest. The nation will accept restraint for the average-paid worker as well as for the higher-paid worker, but it must be shared equally. The foolishness of the Chancellor of the Exchequer has made it all the harder for future Governments to persuade the nation to accept such restraint.

That is why the Chancellor stands condemned, for at such a time he has introduced a Budget which is not neutral. In the main, £300 million of it will go to higher income groups and investment groups. This was implicit in last year's Budget, but it is effectively in this year's Budget. The Chief Secretary tried to explain that the surtax payer will have a very difficult time. But, as my right hon. Friend the Member for Leeds, East (Mr. Healey) pointed out, the surtax payer will have to pay surtax which he owed any way, and he will be given three years in which to pay it.

The only example of fairness which the Chief Secretary was able to give was the case of a man with investment income of £4,000 a year who, apparently, was being treated so unfairly. The Chancellor of the Exchequer was offensive when he said that the old and retired can have a proper share only if others do not take more than their fair share. That is true. But it is not the moderate, low-paid worker on strike who is taking more than his fair share. The right hon. Gentleman addressed his remarks to the wrong people. His words serve only to indicate the lack of understanding of the extent to which his philosophy makes him incapable of coping with the legitimate demands of working people in a modern State.

I therefore ask my right hon. and hon. Friends to vote against the Budget and its tax policies by voting against one resolution, not only because in the midst of an economic crisis it maintains the present level of surtax, but because it continues previous Budget policy and persists in giving large real increases in income to the wrong people.