Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 28 April 1977.

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Photo of Mr John Pardoe Mr John Pardoe , North Cornwall 12:00, 28 April 1977

The hon. and learned Gentleman is excessively good at making rather trivial points sound enormously and pompously important. It is sometimes entertaining and sometimes simply boring. On this occasion it is simply very very boring. It does not even bear any relation to what I was saying. I simply said that this Finance Bill and this Budget were without the agreement between the Liberal Party and the Government.

With regard to petrol tax, however, we shall be tabling an amendment and we shall certainly press it to a vote. It is perfectly legitimate for the House to debate alternative ways of raising tax revenue. There is no reason why Parliament should not get involved. The fact that it has not been able to get involved in the past is simply because we have had single-party majorities and, therefore, that argument has not been able to win the day.

I do not know where the hon. Member for Guildford got the figure of 20 per cent. as Liberal Party policy for VAT. I have never seen such a suggestion, and I certainly have never made such a suggestion myself. On many occasions I have asked for a flat-rate VAT of 10 per cent. One VAT rate would be infinitely preferable to the petrol tax increase. Indeed, even if one allowed the petrol tax increase, a single-rate VAT would still be preferable. I believe that 10 per cent. would be preferable because for a great many people it would be so much easier to administer. The compliance costs of VAT are more important than the actual Customs and Excise costs, yet Governments do not take them sufficiently into account.

We shall also have the opportunity on various amendments to debate the tax system generally during the various stages of the Bill. The Chief Secretary today argued—all of us thought very convincingly—in favour of switching the burden from taxes on income to taxes on expenditure. We would certainly agree with that. But one has to ask "How?" and "Which tax?". It is perfectly legitimate to choose between taxes on expenditure. Moreover, I remind the Government that there is a severe political difficulty about making the switch from taxes on incomes to taxes on expenditure if we do not index the whole tax system. The unpopularity of the increase in the petrol tax has indicated just that, because unless we index the whole tax system it is altogether too easy to raise revenue from income tax. It happens automatically because of the effect of inflation on the revenue from income tax. One merely needs to leave it alone and income comes pouring in.

It is much more difficult to raise very specific taxes on expenditure because people notice the increases so much more. Such an increase happens at one particular point. It is abrupt and sudden. That is what happened to petrol. I suggest that had the petrol increase been spread over the cost of living, or alternatively, over a period, the outcry would not have been as great. I do not say that that is what we should have done, because I would oppose the increase in the petrol tax for other reasons.

I do not accept the Chief Secretary's argument that we should simply increase taxes in line with the cost of living because we can then change the rate if we have a mind to do so. It remains for Parliament to do so, and that is an important advance.

The Finance Bill is sometimes used as a weapon or vehicle for making comments about the state of the economy generally. Frankly, on the Budget judgment I admit to being an agnostic. I do not think that it matters too much what the particular judgment is at any one time, provided one does not think that it is a judgment for all time or for the next 12 months.

I want to downgrade the importance of the Budget and its one day of the year. This can be changed, depending upon circumstances. In any case, it is notoriously difficult to forecast the public sector borrowing requirement, which is a fairly crucial statistic, let alone the money supply. That is even more difficult to forecast. As those things are taken into account in fixing the Budget judgment—certainly since the IMF agreement—one has to see how the trends develop.

I think that probably the Chancellor has brought in a cautious Budget and that it is about right at this time of the year. However, it will not do anything for unemployment, which will inevitably continue to rise, and I do not think that it will do anything to stop the fall in living standards either. Politicians ought to ask themselves whether it was not inevitable that living standards had to fall following two events. The first was the rise in the money supply during 1972–73. The money supply increased by 60 per cent. in three years, and that is to be found in Table 112. One can see what happened to the money supply in those years. I do not want to rake over that period, but that happened, and if one has to get the rate of inflation down it is inevitable that living standards have to fall. Secondly, following the large increase in oil prices in 1973 we had, in a sense, to export a part of our living standards for a period of time. There is no reason why we should not be able to catch up in time, but during a period of three or four years a fall in living standards was inevitable.

I turn next to the conditional element in the Burget—that is, the pay policy. I was dispirited when I heard the speech of the right hon. Lady the Leader of the Conservative Party the day before yesterday about her party's attitude to pay policy. I much prefer the constructive attitude of the right hon. Member for Lowestoft (Mr. Prior) and the speech this afternoon of the right hon. Member for Chipping Barnet (Mr. Maudling).

Having listened to the right hon. Lady and some of her colleagues on the Conservative Front Bench, I thought "We have been here before". I understand the desire of any Opposition to cut free from the encumbrance of pay policy. I understand particularly the desire of the present Opposition to cut free from the encumbrance of pay policy. I understand particularly the desire of the present Opposition to cut free from the encumbrance of pay policy, because the argument is advanced, and it must infuriate Conservatives, that the Conservative Party will not be able to get a pay policy anyway and, therefore, it is necessary for it to say that it can govern the country without it.

The right hon. Lady said that she does not want any national agreements, but only locally-negotiated ones. That is eminently desirable. I think that we should all prefer to have locally-negotiated agreements. The problem is how to get them. How does one enforce them, or how does one stop trade unions from negotiating national agreements and force them into negotiating only locally?

The consequences of not getting a pay policy were in no way over-estimated by the right hon. Member for Chipping Barnet, and I think that it was right for him to lay his cards on the table. In theory, at some time a reduction in the money supply will do the trick. If it does not, we shall have to bring Professor Milton Friedman before the Bar of the House to answer questions.

At some time it will happen, but if we rely only on the money supply—in the public sector that means relying on cash limits—and there is no pay policy, what will happen? There will be enormous pressure from some trade unions for large increases, and some trade unions, by reason of their bargaining power—which is related not necessarily to their contribution to the economy at any one time but simply to their nuisance value—will be able to get a substantial increase. If the money supply is kept constant and if cash limits are imposed, other people will not get anything like as much, and many will be without any incomes. They will become unemployed.

The inevitable consequence of relying on the money supply and cash limits alone, without a pay policy, will be a substantial increase in unemployment, and with it a substantial increase in industrial unrest by the public sector unions, which will come up against cash limits and be forced to strike. That is the problem. Therefore, I think that to duck the issue and run away from the need for a pay policy is not facing the responsibilities that one has in the present situation.

If one asks how much pay policy should give—and that is a fairly crucial question—one gets different answers depending upon whom one asks. If I ask myself how much I need, inevitably one answers that question by saying "I need enough to compensate for the rise in the cost of living, and that is probably 17 per cent" If I ask how much the economy can afford—that is, how much the economy produces to pay for this in real resources—the answer is "Nothing" or "Next to nothing".

To pay nothing is clearly politically impossible. To pay nothing at all as an overall increase across the board would not be politically feasible. There has, therefore, to be an across-the-board increase. We have to keep it as low as possible by negotiation, and not more than 5 per cent. seems to be the absolute limit for that part of the increase.

We then need a further amount for differentials. We come back to local plant bargaining, because that is the only place where the differential can be bargained over and negotiated in a sensible way. If there was no initial increase, any amount that we voted, or any amount that was decided on in the negotiations for this purpose, would be spread too thinly to deal with the problem of differentials. I guess that about another 5 per cent. will have to be allowed to deal with differentials at the plant bar gaining stage. That makes an increase of 10 per cent., but that does not give an average increase of 10 per cent. It is bound to be higher than that.

In addition, there must be some incentive for increased efficiency and extra production. However, productivity deals have a bad reputation because most of those on which we voted in the late 1960s were "phoney". There was no connection between promise and performance. People tended to get paid for the productivity that they had promised to deliver. They did not deliver it, but they were still paid. Productivity deals have a bad reputation, and no one will negotiate for that sort of thing again. That, however, is putting the cart before the horse. We need genuine productivity deals that are self-financing and in which the pay comes after the productivity is delivered. If we can get to that situation, the sky is the limit for the British economy.

We need incentives in some industries and in a range of organisations. They must be able to negotiate a pay deal that allows them to decide which pay bonuses to take. In coal and steel we shall have to go for direct production bonuses because it is possible to measure production, and a pay policy will have to allow for that. In other industries, particularly in the private sector, added value may be a better measure, and an increase in added value per employee might be a better measure of effectiveness. In yet other industries we shall have to go for profit-sharing schemes that are widely spread. The hon. Member for Guildford said that he was not sure whether the Liberals were still committed to profit-sharing. I assure him that we are.

The hon. Member for Guildford talked a lot of nonsense about our having joined the collectivist camp. The hon. Gentleman was a supporter of the previous Tory Government. One could not get more collectivist than that. I understand that it is Conservative Party policy to get back to free collective bargaining, and that, too, is pretty collectivist.

One must face up to the problem of enforcement. All that a voluntary pay policy has done is to shift the responsibility for enforcement on to the trade union leaders. Parliament should take that responsibility. The buck stops here. Eventually we shall have to take that responsibility. The right hon. Member for Chipping Barnet said that the public interest must be taken into account in negotiations. He asked who represented the public interest. Who represents the public interest if Members of Parliament do not do so? Parliament must do its job.

We cannot return to free collective bargaining. We should use these negotiations to find a new way of determining wages. That must be the main aim of British economic policy over the next three months.