Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 16 April 1975.

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Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey 12:00, 16 April 1975

I should not have been surprised if many people, after hearing yesterday's performance, had called out. "Come back, Stafford Cripps. All is forgiven."It is small wonder that the Chancellor needed to sustain himself, again according to the Press, on brandy, which is renowned not so much as a beverage as for its medicinal effects. The Chancellor may have appreciated the medicine which he consumed yesterday. The British people certainly do not.

I do not seek to conceal the gravity of Britain's economic condition. I only wish that the Chancellor and his friends had been one half as candid 14 months ago as he was yesterday.

Our economy is often said to be suffering from the English disease. That disease has many symptoms, to some of which the Chancellor referred: a very high temperature, inflation running at 20 per cent.; a disturbingly low blood pressure, unemployment rising to 1 million; with symptoms of mental derangement, known colloquially as "Bennery"; contained within a straitjacket of controls and restrictions imposed by Governments and by some elements in the trade union movement; suffering from chronic overweight in the form of bloated public expenditure; and supported by crutches in the form of loans from overseas, or, to borrow one of the many utterances of the Chancellor which he must later have come to regret, "begging baksheesh from the Arabs".

Of course, the conditions that I have described call for treatment which cannot be mild. The treatment must indeed be tough. But it must also be right. Indeed, the British people have to face up to the fact that changes in world conditions have cut our standard of living in real terms, as the Chancellor said, by 4 per cent. But if the British people have to face up to that fact, then so must their Government. It is that which this Government have entirely failed to do.

That is the case against the Chancellor. He presents himself, as I see him, as a Jekyll and Hyde Chancellor. His diagnosis yesterday showed much of the skill and courage which would have been deployed by Dr. Jekyll but the way in which he chose to administer his prescription showed a great deal of the brutality of Mr. Hyde.

I would ask the House for a moment to look at the Chancellor's competence in one important respect. He spoke about his bitter experience of the last year. I take only one example. On 24th September last year, he was reported as saying, If the social contract is observed, we can get inflation down to 10 per cent. by the end of next year. I leave on one side, to deal with later, his reference to 8–4 per cent., but in that respect we now hear from him that his best hope, again if everything goes right by the end of the year, is 12 per cent. to 16 per cent.

Let us look again at his assessment of the public sector borrowing requirement —a curious saga of forecasting. In March he set out to restrict the public sector borrowing requirement to £2¾ billion. In May, he was still telling the CBI, I have planned a drastic cut in the public sector borrowing requirement. But by November its estimated size had doubled to £5½ billion. By then, that was not apparently enough, because the Chancellor chose to increase it to £6·3 billion, as he estimated in November. The out-turn, as he told the House yesterday, is some £7½ billion.

The Chancellor's record as a forecaster in these two important respects is sadly unimpressive. When the day comes for him to join the dole queue—I hope that that will not be too long delayed—he should have a great future as a long-range weather forecaster at the Meteorological Office. That is why he is so unwise to take so sanguine a view of his prospective public sector borrowing requirement in this Budget.

The right hon. Gentleman makes now the estimate that it should be £9 billion. But he spelled out yesterday some of the assumptions on which his optimism in that respect is based—a prospective upturn in world trade, consequent increase in exports and domestic capacity and so a net improvement in his revenue position. It is my fear that his forecast will turn out to be at least as inaccurate as it has been throughout the last 12 months. On that basis I hesitate to make any prediction as to what his public sector borrowing requirement might turn out to be, but on the evidence of his performance thus far, public expenditure is virtually out of control. If that situation continues, Britiain could well be on the brink of hyper-inflation, the very last thing that any of us wants.

And why? Because the Chancellor has failed to face up to the problem which is said to have haunted the life of Errol Flynn. The Chancellor has shown himself unwilling to reconcile his net income with his gross habits. Like so many Socialist administrations, he decides first what he is going to spend and then how he will raise the money —precisely the wrong way of setting about it. As so often before, the profligacy of a Socialist Government has to be paid for and will have to be paid for out of the net incomes of the British people. That is the result—a result which we find absolutely deplorable.

Let me look for a moment at the performance of public expenditure over the last year. When the Chancellor came to office last March, he then faced cuts which had been made, and wisely made. by the last Conservative Government, of £1,200 million. Since that time and until January of this year, according to the Public Expenditure White Paper, this Government have announced increases in public expenditure of £1,800 million and carried through unannounced changes of £2,200 million.

It is plain from those figures, and apart from any others, that the gross overspending by Government—10 per cent. up in real terms—is a deliberate consequence of this Socialist administration. The responsibility for the long-to-be-delayed cuts announced yesterday—too little in substance and too late in their effectiveness—is also that of this Socialist Government alone. But the whole pattern is something for which they must now accept responsibility—the growth in public spending and the cuts which they now in consequence have to make.

The Government, for example, are responsible for the repeal of our fair rents legislation and for the huge prospective growth of indiscriminate housing subsidies. They are responsible for the introduction of food subsidies which, after further increases taking place this year—equally wasteful—are eventually to be phased out next year with such pain. They are responsible for the huge expansion of government which is involved in the programme of nationalisation to which they are committed and which will do nothing but harm to British industry. They are responsible for the proposed establishment of new and wholly irrelevant agencies such as the National Enterprise Board, and they are responsible for the continuing and virtually uncontrolled expansion of public sector payrolls and public sector pay.

These prospective increases in public expenditure can scarcely be regarded as offset, for example, by the saving of £17 million by the cancellation of the midterm census. It is not without significance, as others will have noticed, that yesterday was the anniversary of the sinking of the "Titanic"—as my right hon. Friend said, "Steady as she sinks." But it is not in the least surprising that. this Government should have abandoned the mid-term census, reluctant no doubt to discover the rate at which passengers are emigrating from the sinking ship.

The last item which I want to mention—there are many others that I could mention—of public expenditure for which the Government are responsible is the increased cost of administration of the new taxes which they have introduced. I refer now only to the administrative costs. I pause to tell the House of the letter which I received from the Chancellor yesterday about the capital transfer tax. The House will not need to be reminded of the many defects still existing in that tax, quite apart from its principle. I submitted a memorandum setting out 50 points which should be changed in it forthwith. I was surpassed by the Law Society, which submitted a document setting out more than 80 points.

I asked the Chancellor whether he would take steps to ensure that the Ways and Means Resolutions laid before the House were sufficiently widely drawn to enable the House in proceedings on this Bill to discuss the changes which should be made in the capital transfer tax. I heard from him only yesterday, in a letter in which he said that he could not go along with the expectation which I expressed, and rejected the idea that the CTT should be open to discussion in the next Finance Bill: I have therefore decided that I will not introduce, and will not accept, amendments to the Capital Transfer Tax legislation in the coming Finance Bill. That is an absolutely disgraceful decision. It shows a characteristic reluctance to face up to the consequences of the mistakes in his execution of his own tax.

The second increased cost of tax collection and administration concerns the multi-rate VAT. I see, not to my surprise, that the trade already asserts that many more shops will be affected by this change in the nature of VAT than the 50,000 to which the Chancellor referred yesterday. Although small businesses and the self-employed will be thankful for the extension of stock appreciation relief which the Chancellor announced yesterday, that will by no means make up for the added burden of capital transfer tax on that sector, for the added horror of a multi-rate VAT, for the higher national insurance contributions—still not offset against tax—which the self-employed will pay, and for the higher standard rate of income tax.

I do not know that the House or the country have yet appreciated just how sharp has been the increase in income tax for the 13 months during which we have had to endure this Government. The standard rate of 35p in the pound, seeming so seductively like 7s. in the pound, has to be considered with the fact that earned income relief is no longer available. By the time account is taken of that, the level of income tax imposed by the Government is already running at more than the standard rate of 8s. 3d. in the pound which we inherited from the last Socialist administration in 1970. That is a measure of how far they have taken us in that direction.

Of course, the Chancellor admitted that the effective rate is much higher this year than last year because of his failure sufficiently to alter personal and other allowances even to take account of the impact of inflation. So in all these ways all the people of this country, particularly the sector of small businesses and entre- preneurs, are having to face a greatly increased tax burden. They know now, if they did not know before, that what is good for a Socialist Government is far from good for the successful expansion of free enterprise to which the Chancellor sometimes pays lip service.

The Chancellor also proposes the introduction of a 25 per cent. rate on nonessentials. Like all those who have gone down this path before him, the Chancellor has a curious idea about what are non-essentials and what are essentials. Of course, he has exempted cookers from the new range of tax, but what about such things as washing machines and refrigerators? No doubt the Chancellor's milk and butter are always kept fresh in a refrigerator of some kind, perhaps provided and paid for at No. 11 by the taxpayers. No doubt, as we see for ourselves, his clothes are always well laundered.

But what about the ordinary young married couples just setting up home, facing the difficulties of getting a house in the first place, then facing the problems of furnishing and equipping it? Has it entirely escaped his attention that 15 per cent. of the new washing machines sold each year go to newly married couples, and that 20 per cent. of new refrigerators sold each year are bought by the same people? Two newly married couples out of every five buy a refrigerator in the quarter in which they get married. Along with all the other hardships which have been imposed by his Budget, therefore, the Chancellor has in this respect set out to batter brides as well. It is an illustration of the absurdity of trying to draw a line between essentials and non-essentials, quite apart from the folly in principle of introducing an additional rate of VAT.

I turn to a different aspect of the Chancellor's approach. I have already referred to his notorious statement last September that inflation was then running at a rate of 8·4 per cent. As the facts then showed, and is now abundantly clear, that was then an attempt to mislead and deceive the British people. Either he knew the figure was misleading or he was entirely reckless whether he was or was not misleading the people. Whatever the explanation—and it can do him no credit—the Chancellor's performance in that respect brought very grave discredit, not just on himself but on his high office. The important question in this debate is how he was able to find any foundation for that deception— [Interruption.] He says that it was true, and for the purposes of that argument I acknowledge that. For that period of three months he was able for that time to put forward that figure by paying out or giving away two things in his July measures. He was able to do it by making food subsidies payable from that time onwards, and by engineering the cut from 10 per cent. to 8 per cent. in VAT.

The cost of the two measures taken then amounted to not far short of £1,000 million, not very far short of the extra taxes the Chancellor is now seeking to take back. The people should take good note of this. They are now being called upon to pay the price of the Chancellor's pre-election deception. This Budget is in large part the price the British people have to pay for re-electing a Labour Government. Still we are stuck with inflation and it is at an accelerating rate.

The House might be interested to consider two aspects of the Chancellor's approach to the problem of inflation. The first concerns monetary policy. The Prime Minister and others are fond on occasion of using the word "monetarist" as some kind of term of abuse. However, it was interesting to see yesterday that the Chancellor made his own position clear. As reported at column 279, he said, and one does not complain of this, I have aimed to keep the rate of monetary expansion firmly under control. He came back to the point at column 287, at which he said, It is my intention that the growth of money supply should continue to be contained at a level which does not fuel inflation".—[Official Report, 15th April 1975; Vol 890, c. 279–287.] In other words, the Chancellor is a self-confessed monetarist. Of course, proper monetary policy is an essential but not by itself sufficient element of economic policy, but be it noted that we are all monetarists now. Let the Prime Minister who, when it is convenient, likes to take credit for the monetary fortitude of his Chancellor, cease from now on using the word "monetarist" as a term of abuse. The Prime Minister must stop trying to have it both ways on this issue.