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 Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford 12:00 am, 12th March 1973

My hon. Friend was kind enough to give me notice that he might raise that question. The answer is that public expenditure on goods and services, including nationalised industry investment, will be just under 30 per cent. of GDP for the current year and we do not anticipate that the figure for 1973–74 will be significantly different.

I want to come to the subject of unification, because the right hon. Member for Leeds, East had a good deal to say about this. He said that it was his first speech as Shadow Chancellor. I am sure that the whole House will wish him many more.

My hon. Friend the Member for Bolton, West (Mr. Redmond) accused the right hon. Gentleman of talking the pound down. With respect, my hon. Friend was being a little unfair. The right hon. Gentleman certainly talked the pound down very effectively last year, but since then I am happy to say that the pound has learned not to pay the slightest attention to anything that the right hon. Gentleman says. I want to take up only one point on which he dwelt on Wednesday. That concerns the unification of income tax and surtax.

On Wednesday—in the House and on television that night—the right hon. Gentleman was beating his depressingly familiar tom-tom about bonanzas for the rich. The fact is—the right hon. Gentleman knows it as well as anyone—that the reform of the personal tax system is something which was long overdue. The right hon. Member for Birmingham, Stechford openly regretted that he was unable to do it. I do not know—because I am not allowed to know—what particular administrative impossibility it was which precluded him from doing it. But of one thing I am sure—that a major reform of this kind is bound to be spread over several years. We legislated in 1971; we fixed the rates of tax in March 1972; the Inland Revenue then had to recode every PAYE taxpayer—and that process alone took many months.

The new system comes into effect this year. In place of two taxes we shall have one. The surtax office will disappear. In place of an illogical jumble of reliefs and allowances—different for income tax and surtax, different for earned and investment income—we shall have a simple basic rate, allowances worth their face value, a simple and logical scale of higher rates and a straightforward investment income surcharge. No one doubts that the new system is infinitely better than the old.

Why has my right hon. Friend the Chancellor succeded where his predecessors failed? I believe that the most significant reason, perhaps, was his readiness to commit himself to the reform, to set the machine in motion and not to stop it until the job was done. That is why we have not sought either to try to delay the introduction of the scheme or to tinker with its details. Quite apart from the appalling administrative difficulties that delay would create, to draw back now would cast doubt on the entire reform.

Nor is there any reason to draw back. The scale of higher rates and the investment income surcharge are fair. Top rates of 75 per cent. on earnings and 90 per cent. on investment income are high enough—higher than almost all our main competitors' rates, and much higher than most.

The differential between earned and investment income has been ludicrously wide. I take, for example, a retired man on £4,000 a year: the marginal rate on a pension of that amount is just over 30 per cent.; the marginal rate on the same income from savings is over 60 per cent. From April, it will be 30 per cent. and 45 per cent. respectively.

For those with modest savings, the surcharge will not apply. One cannot urge people to save and then penalise the results. A year when savings will be of critical importance to monetary policy is not a bad year in which to improve the incentive to save. Nor is it, as the right hon. Member for Leeds, East contended, a bonanza for the rich. All I can say is that, if it is, very few of them will notice it.

Last Wednesday, the right hon. Gentleman was interrupted by my hon. Friend the Member for Bosworth (Mr. Adam Butler), who asked the right hon. Gentleman whether he was aware that all surtax payers this year and for the next two years will be paying more tax. We got a surprising answer. The right hon. Gentleman said that he was aware of that. I must say that that was not immediately apparent from the rest of his speech. I doubt whether anyone who listened to his broadcast that night realised that he was aware of the fact that many of those with large earnings will actually have less money to spend for the next three years.