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 Sir John Hall Sir John Hall , Wycombe 12:00 am, 12th March 1973

The Church militant advocates a number of things and it is always rather difficult to know precisely what they are because the Church unfortunately speaks with many divided voices.

I turn now to the Budget. There has not been much concentration upon it as such although there has been much talk about its philosophy and long-term effect. One of the problems which all Governments face today arises from the technique which has developed in recent years of instant comment on every important subject debated inside this House and outside it. The Budget is no exception. It was subject to instant comment by the Press and TV. Members of Parliament and others of all political persuasions or none are rushed to the television to give their views about the Budget. The papers, especially the weekend Press, have been filled with articles written by learned economists and economists not so learned, expounding their views about whether the Budget is good, bad or indifferent.

In many instances the instant commentators get things wrong which sometimes makes things rather difficult because it produces the wrong impression in people's minds and that takes a long time to eradicate. Apart from that most of the comments seem to cancel each other out. The Chancellor and some commentators have claimed that the Budget is neutral. Other right hon. Gentlemen and economists have claimed on the other hand—the right hon. Member for Devon, North (Mr. Thorpe) is a good example—that the Budget was deflationary. Others have said that it is inflationary. "You pays your money and takes your choice". If I were asked to come down on one side or the other I would say that it is inflationary, despite the fiscal drag to which the right hon. Member for Devon, North referred. It tends, if anything, to be inflationary, not because of what it does but because of what it does not do.

There is nothing positively inflationary in the Budget, but the very large borrowing requirement, to which my hon. Friend the Chief Secretary devoted considerable attention, could become, and some would say has already become, dangerously inflationary if the proposed method of financing it is not successful. My right hon. Friend the Chancellor of the Exchequer is aware of the danger, because he referred to it in his Budget Statement and has made it clear that if the suggested method of financing the borrowing requirement is not sucecssful he will take the necessary action—presumably by cutting back public expenditure, the plans already having been laid to that end, should it unfortunately be necessary.

It is always difficult to cut back public expenditure. It is often wasteful in effect. One can do it without waste only if the expenditure can be cut short in a comparatively limited period without too much waste of the previous effort. Thus, a cut back is to be avoided if one can. It is a pity that the rate of public expenditure has been allowed to grow to quite the extent it has. Much of it which we are asked to finance takes the form of loans and grants to private enterprise. For myself—and possibly I speak for many of my hon. Friends—I am rather allergic to grants and loans to private enterprise.

I am opposed to grants, especially those which are intended to persuade industries to go to areas which otherwise they would consider unsatisfactory. I am opposed to this even if the objective is to help bring down unemployment in such areas. The fact is that it destroys the economic judgment of those responsible for deciding how their private enterprise money should be spent, and they are encouraged to do things which, left to themselves and without financial incentive from the Government, they would not do. In the long term, such a system is undesirable and dangerous to the whole economy, although, of course, it may sometimes produce a short-term, but only a short-term, solution.

If we want to help development areas, it would be better to spend the money on developing and improving their infrastructure so that one is making them much more attractive to firms. There is another important feature in doing so—one is giving something of permanent value to a development area and not something which may be transitory in character. The regional employment premium is an example of what I have in mind. It would be better to spend it in the way I have suggested than as an outright grant to private industry as a whole, in which there is a great risk.

The Government are committed to a policy of grants and loans to industry on a scale which is quite unprecedented. Indeed, if the present scale of grants and loans had been suggested by the Labour Government it would have aroused one or two comments from us. There is great risk that these injections of taxpayers' money will tend to destroy rather than strengthen private enterprise, which is something that hon. Members opposite would welcome but is not something that I would welcome.

I turn now to the question of interest rates. I am not particularly happy about the way we use ever-increasing interest rates as we do to control the growth of money supply. It can be of benefit. If we allow interest rates to get high enough, it will succeed in choking off demand for money, but in the meantime it is adding considerably to the inflationary pressure—the very inflationary pressure it is designed to reduce—because increasing interest rates will be reflected in the end in increased prices and increased costs and charges.

It may also, unfortunately, affect investment decisions. If the cost of new money becomes penal, many investments will be postponed until such time as interest rates tend to fall. At present, when interest is allowable for income tax relief, it is not quite so penal as it might have been, but it still has a considerable effect on investment decisions.

Of course, there is an alternative way of dealing with inflation—to let it rip. That may sound controversial but it is not quite so controversial as it sounds. If we let it rip, the only people we harm are those on fixed incomes, and the only other effect is to make it more difficult for us to sell overseas against foreign competitors whose rate of inflation is less than ours. It would mean increased prices, increased wages, with both chasing each other in cost, price or wage inflation, whatever one terms it, with compensations for those on fixed incomes or living on allowances. Those who could not be compensated adequately are those living on their own savings or those on incomes not added to by Government largesse or pensions. One could not safeguard them.

However, in the Budget we have the introduction of new Government stocks which have to some extent a built-in hedge against inflation, albeit a small one. In one instance, there is the premium on conversion to another stock. This provides a small hedge. Thus, one can provide Government-sponsored stocks, with a built-in safeguard against a rise in the cost of living, into which people can put their savings, thus enabling them to maintain the value of their savings, quite apart from Government pensions and allowances.

What we could not do would be to safeguard our exports against compensation from overseas. If the rate of inflation rose too high, we would tend to price ourselves out of the market. Like the exchange rate, that would be a self-disciplining, however, because the rate of inflation in the end would be forced down to the level at which it would have to come in order for us to go on living. That is an alternative way of dealing with the problem of inflation, which has defied the efforts of both Conservative and Labour Governments and has, indeed, defied the efforts of all other Governments to solve.

I want to comment now on the decision to relieve all foodstuffs of tax. Here I refer to the £100 million which is not being put, through value added tax, upon confectionery, soft drinks and so on. We spend about £1,000 million a year on these products. It is interesting to reflect that we spend more and eat more per head of population on sweets and chocolates than does any other nation. I deplore giving further encouragement to the destruction of the nation's teeth, especially when we are also prepared to encourage water undertakings to put fluoride into the water to offset the damage done by the eating of sweets. The decision, therefore is self-cancelling. The money could have been better spent elsewhere—perhaps on supplementing the £10 million to be given towards rate relief. That would have been rather more useful and welcome.

I want to speak now about future Budgets. We have now had capital gains tax for a very long time. When in Opposition, I put down various amendments to successive Finance Bills to try to improve the tax. Over the years, we have heard many hon. Members opposite suggesting the imposition of a wealth tax. I do not know why they bother—we have it already. The capital gains tax is a wealth tax as it operates. One day, perhaps, bearing in mind the inflationary effects of recent years, we might be prepared to amend the capital gains tax to take that into account. If we do not we shall be eating into capital. The fact is that the capital gains tax is in effect a wealth tax, and not a capital gains tax.

I congratulate my right hon. Friend on the way he presented his Budget. It was a tour de force if ever there were one. Over the years, he will be recognised as one of the great reforming Chancellors of our time. He described this as a neutral Budget. I have described it as a small inflationary risk. Nevertheless, it is part of a concerted whole, and over the next year or two I believe that his strategy will be found to have paid off, and we shall see it reflected in the greater and increasing economic strength of the country.