In his place rather than the Tipstaff, the Government Official Solicitor has been dragged out as the deus ex machina.
The first point to be made about the new Government issues is the sheer size of the £1·4 billion of new Government loans. Whatever their level of take-up, they will clearly dominate, not merely the gilt-edged market, but a wider section of public money borrowing for years to come. Any industrial debenture issue will be in the gravest difficulty. A body which both sides of the House have praised for its activities over a number of years, the ICFC, devoted to aiding and improving the efficiency of small firms, has an 8⅞ per cent. debenture due to mature in 1992–97. In the three days following the Budget it showed an increase in its yield-to-redemption rate of 0·5 per cent.
If the ICFC has to acquire its funds at almost 11 per cent., it is difficult to see how it can be an effective instrument for aiding the small firms with cash flow problems and reorganisation and capital undertaking. An even more important problem is that raised for local authorities in their five-year bonds which also within three days rose to 9·75 per cent., and their four- to 12-years stocks, which rose by a similar amount, to about 9·9 per cent., taking the GLC stock which was issued only a few weeks before the Budget.
It may be argued that these matters do not affect the ordinary man and woman. With local authority borrowing, there are only two possible end payers—either the ratepayer through increased rates, or the taxpayer through increased Government subvention to the local authority. If as a part of a neutral Budget the Government, unwillingly or otherwise, raise the interest rates on local government borrowing by effectively ½ per cent., it behoves them, during phase 2 of the prices and incomes policy to offset that increase. Suppose that a local authority borrows £5,000 for a housing venture—and that sum would scarcely pay for one house. The ½ per cent. increase, if passed on to the tenant, would amount to 50p a week or more on his rent.
Is that neutrality? On the other hand, if the £5,000 is funded and must be dealt with through the rates, the house must carry, because of the additional ½ per cent. interest rate on local government borrowing, an extra burden of about £25 to £30 a year. That money cannot accrue without either the ratepayer or the Government footing the bill. The great risk for anyone in a special development area is that the very high costs for local authorities preparing industrial sites will become prohibitive. Local authorities trying to provide the infrastructure to attract industry—new sewage works, treatment plants, roads and other services—will, as a direct result of the Budget, find the funding of their capital investment for industrial development more expensive.
It behoves the Government, if they are intent on a policy of higher interest rates, to do something about the problem of how they can safeguard local authorities from the effects thereof. It may be that they have in the pipeline some mode of subsidising local authorities' borrowing costs. If, as with the domestic ratepayer under the Budget, a local authority is faced with new expenses, perhaps the Treasury will give some assistance. But there is no mention of such a scheme of assistance in the Budget, and I may be excused for cynicism if I say that I do not believe that it exists. But clearly it needs to exist, because otherwise any pretence at neutrality in the Budget vis-à-vis local authorities is purely fiction.
I come to the £400 million 3 per cent. issue—one of the most extraordinary pieces of Government funding it has been the misfortune of the House to have to countenance. The Economist is not notorious for its support of the Opposition in economic matters. However, in its issue last Friday it said,
referring to the £400 million 3 per cent. Issue—
is a surtax payer's ramp, much more so than anything else in the Budget. The £100 million of capital gains that will accrue before its redemption in 1979 is a tax-free gift.
This is at a time when we are in the middle of a freeze and the Government are asking wage earners to restrain their wage claims. Yet the Budget offers a £100 million tax-free gift. Nothing could have been more carefully designed to detract from the taking up of this £400 million issue than the precise terms upon which it is offered.
Is neutrality observed and is the concept of fairness answered by an issue which, to a taxpayer on the top 90 per cent. rate of tax, provides the equivalent of 44 per cent. interest? Is an interest rate of 44 per cent. in accordance with the guidelines of phase 2, phase 3 or any other part of Government policy? I see nothing in this which is other than economically and socially divisive. In many ways it is the most arrant example of the Government giving away to their close friends all the benefits at the expense of the ordinary taxpayer.