Amendment of the Law

Part of Budget Resolutions and Economic Situation – in the House of Commons at 12:00 am on 29th March 1977.

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Photo of Mr David Knox Mr David Knox , Leek 12:00 am, 29th March 1977

I join my right hon. Friend the Leader of the Opposition in commending the Chancellor on his brevity. I am sure that this was the shortest Budget speech since my arrival here in 1970. I hope that it sets a precedent. Chancellors who compile their speeches have always seemed to feel that they should be filled out and that we should all be kept sitting here bored for hours. It may seem churlish to say so, but the right hon. Gentleman could have dropped most of the first half hour of his speech, without great loss and to the great benefit of the House. However, it was a great improvement and I hope that we shall not revert to long Budget speeches.

I share the reservations of my hon. Friend the Member for North Angus and Mearns (Mr. Buchanan-Smith) about the Chancellor's proposals for the motorist. The increases in both road fuel duty and vehicle excise duty will eventually affect the retail price index. They will also place further burdens on people who live in rural constituencies like mine, where the car is not a luxury but an absolute necessity. I regret this additional burden and it seems from what has been said so far that others share that view.

My second detailed point concerns VAT. I was sorry that the Chancellor decided to take no action about VAT, because it strikes me that he missed a great opportunity to revert to a single rate. It was a great mistake to move away from this in his first Budget in 1974. Inevitably, two rates create much more work for small retailers, small business men and, indeed, larger business men. I believe that there would be substantial savings in administrative costs if the Chancellor decided to go back to one rate once again.

My third point concerns the direct tax changes. One must obviously welcome these changes. As the Chancellor rightly pointed out, they will encourage initiative and hard work. Even more important, they will help remove the very strong feelings of injustice and grievance among people at all income levels. I cannot recollect a time when people have felt more bitter about the level of direct taxation. Although the Chancellor's steps are modest by any standard they are nevertheless, steps in the right direction.

As my right hon. Friend the Leader of the Opposition rightly pointed out, the changes which the Chancellor has made go only a short way towards remedying the adverse effects that inflation has had over the past year, far less over the past three years. Nevertheless, one must welcome the changes as at least being a step in the right direction.

I also welcome the conditional tax changes. This was a continuation of the idea in last year's Budget. I welcomed the concept then. It seems to be that the level of incomes and settlements is inevitably bound up with the kind of concessions that the Chancellor can make. In introducing any Budget it is only fair that the Chancellor should allow himself some leeway to adjust tax rates on the basis of the eventually determined income settlements for the year ahead.

I now turn to certain more general matters. The Chancellor has now completed three years in office. I do not think that even his best friend would claim that his tenure has been anything other than disastrous. The past three years have been punctuated by a series of crises of confidence of great gravity demanding enormous borrowings abroad which, eventually, we shall have to repay. Moreover, during this period the balance of payments has been in substantial deficit. Inflation has been higher for longer than ever before and at one time achieved a rate of 25 per cent.

Unemployment has reached an unprecedented high level in the post-war era, reminiscent of the level during the 1930s. Moreover, as we heard yesterday, living standards during the past three years have fallen. That is during the period when the right hon. Member for Leeds, East (Mr. Healey) has been Chancellor. All in all, the last three years have been bad years economically for Britain.

It would, of course, be quite unfair to pretend that all this is entirely due to the Chancellor or his policies. It is certainly the case that he inherited problems in March 1974. Not all the consequences of the commodity price explosion in the previous two years had worked their way through the economy when the Chancellor took office. The effects of the quadrupling of oil prices in the previous few months still had to work their way through as well. No one would hold the right hon. Gentleman or his party responsible for those matters. But the right hon. Gentleman also inherited the consequences of the utterly irresponsible attitude of his party and himself to every wage and salary claim during the 1970–74 period and, above all, to the final miners' dispute.

It was that attitude which probably made inevitable the wage and salary explosion of 1974–75, to which the severity of our present situation can be directly attributed—particularly in relation to the balance of payments, inflation and unemployment. No one but the Chancellor and his friends can be held responsible for that.

It is important that the seriousness of the present level of unemployment should not be underestimated. I have no doubt that it is the most serious social problem in Britain today and that it has serious long-term social consequences. It is not just that unemployment is far too high today. Even more, it is that it has risen far too steeply during the last three years. The sharp rise in unemployment undoubtedly causes deep concern not only to those directly affected by it but to those at work who are worried that they might be next to lose their jobs.

According to the figures provided to me yesterday by the Department of Employment, unemployment in the Leek parliamentary constituency has more than doubled since February 1974—that is, since this Government came into office. In the town of Leek itself unemployment has more than trebled during the same period. The sharp rise has undoubtedly caused deep concern to my constituents. Many of those at present in employment are worried that they may be next to lose their jobs. That is in an area where, thank God, unemployment is still less than the national average. How much worse is it in other areas of the country where unemployment is higher than the national average?

We in this House must never forget that unemployment is a severe affront to human dignity. The feeling of not being wanted is an insult to the great majority of those who are without work today and whose only wish is the opportunity to earn their living and look after their families. Whether one likes it or not there is, unfortunately, still a stigma attached to being unemployed. This should not be the case, because the level of employment and unemployment is dependent on the demand for labour. It has very little to do with the qualities of those affected.

Unemployment hits the good worker just as it hits the bad worker. It hits the hard worker and the lazy worker alike. It hits the skilled worker and the unskilled worker alike; unemployment does not discriminate. The great majority of unemployed lose their jobs through no fault of their own.

The effects of unemployment on our society are very serious. It undoubtedly embitters those affected against society. It undermines their belief in our democratic system. It sours their attitude to their fellow men. It adversely affects the quality of their whole life, and not just during the period when they are out of work.

More than anything else I believe that it has encouraged work-spreading restrictive practices, which so plague our industry and result in so much of the overmanning that we now have in British industry. If people see their jobs being threatened, it is only natural that they should spread their work. If they see a lot of unemployment about, even if the threat to their job has disappeared, they are unlikely to drop these restrictive practices which they adopted in more difficult times. If we are treally serious about getting rid of overmanning in this country we must get rid of the main cause of it which is high unemployment.

The oil crisis in late 1973 and early 1974 made a temporary rise in unemployment inevitable. But had the present Government pursued sensible policies during their first year in office—had they pursued policies of restraint in public spending and wage and salary increases—I believe that that rise in unemployment would have been temporary and that things would by now have been back to normal. The fact that things are not back to normal, that unemployment is more than twice what it was in February 1974, is one of the measures of the Chancellor's failure in the past three years.

I turn to the question of inflation and incomes policy. I mentioned earlier that the seeds of the present Government's disastrous economic record were sown during their first year in office, and in particular during the period when the wages and salaries explosion took place in 1974 and 1975. During the period up to the summer of 1975, increases in wages and salaries of 30 per cent. and 40 per cent. were commonplace. Inevitably, these produced hyper-inflation, with a record rate of 25 per cent.

Then the Government introduced their incomes policy—a policy that they should never have abandoned in the first place. First we had the £6 limit and then, more recently, the 4·per cent. limit. There can be no doubt that both those policies have worked. Of course, they have not stopped inflation, but if one generates a 25 per cent. rate of inflation one cannot eliminate it in two years. It has already fallen considerably and it should fall further in the future.

In my view, phases 1 and 2 of this Government's incomes policy have played an important part in the improvement that has already taken place. I believe that wage and salary increases are less than they would have been had this policy not been introduced. If that is not the case, why has almost everyone received the full amount? If, as some people claim, the market should have been allowed to deal with the situation, surely, with the present high level of unemployment, most if not all the wage settlements should have been for less than the full amount.

The fact is that, as we have found again and again, the market cannot deal with the situation adequately. It does not do so, because the monopoly powers of trade unions and professional bodies and other imperfections in the labour market mean that the labour market works very crudely and that income-cost inflation will be contained only at an excessively high level of unemployment. The fact is that however much some people may dislike it, we need a third phase of the incomes policy to moderate income increases after the present limits end.

We have been hearing a great deal recently about a return to free collective bargaining. I should not mind if it were free collective bargaining. It may well be collective, but there is nothing free about it, and it is certainly not real bargaining, because of the imperfections of the labour market and the monopolies in it. In fact, the term "free collective bargaining" is a euphemism for the exploitation of the public by trade unions and professional bodies through the monopoly power they have in the labour market.

Free collective bargaining is freedom for the strong to exploit the weak. It is the very process that enabled the crippling income-cost inflation of recent years. We are always hearing about the defects and weaknesses of incomes policy. It is time to remind ourselves that in recent years the defects of so-called free collective bargaining have been far greater than those of an incomes policy.

Of course, phases 1 and 2 have not been perfect. They have had weaknesses. They have undoubtedly been somewhat rigid and inflexible. Therefore, it is essential that the next phase should be less rigid and more flexible than the previous two phases. It must allow for some restoration of differentials, but it cannot allow a total restoration, because the damage done in terms of extra wage-and-salary cost inflation would far exceed any benefits that might accrue.

In framing phase 3 of their policy, the Government might well closely examine phase 3 of the last Conservative Government's income policy, because there has never been a more flexible phase of any incomes policy introduced by any Government in this country. If inflation is to be reduced, first to single figures and then to less than 5 per cent., the next phase of incomes policy must be less generous than the two previous phases. But, whatever the next phase may be, I hope that those of us on the Conservative Benches will adopt the same responsible attitude to it as we did to the two earlier phases. Our attitude compared very favourably with that of the Labour Opposition to the Conservative Government's incomes policy between 1970 and 1974.

It may well be that the present Government do not deserve the Opposition's support for phase 3 of their incomes policy. But the country deserves it, the country expects it, and the Government will, I am sure, get the support of the Opposition for it.