Orders of the Day — Taxation

Part of the debate – in the House of Commons at 12:00 am on 21st February 1978.

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Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury 12:00 am, 21st February 1978

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: 'welcomes the start Her Majesty's Government has made in reducing levels of direct taxation; applauds Her Majesty's Government's success in controlling inflation and restoring financial stability; recognises the need to provide adequate public services; and notes that the present Conservative leadership is still wedded to old fashioned dogmas which in the past created so much squalor, social divisiveness and injustice.'. This is the second year that we have had a substantive debate on tax matters in advance of the Budget. It gives us the opportunity to examine some of the main options available to the Government before coming to the House. It limits the area in which we can disclose the analysis which has been carried out, but at the same time it enables the House to express its views and to state clearly its priorities.

The hon. and learned Member for Dover and Deal (Mr. Rees) asked what were the consequences of the present Government's taxation policy. It is right to explain both the consequences and some of the causes of our taxation policies.

In the lifetimes of many of us, there have been three economic crises in which living standards have actually fallen. The first was in the depression when unemployment rose to 21 per cent. of the working population and 27 per cent. in Scotland. This led to actual pay cuts in the public services at a time when income tax was 4s. 6d. in the pound. The inflation rate was less than zero—prices were actually falling. Death duties were a tax on the improvident and the careless At the same time, there was near-mutiny in the Navy and there were those in fashionable society who were busily flaunting their wealth in the midst of poverty. This created a disillusioned and bitter generation and left its mark on much of the character and personality of our people.

In the second economic crisis, much greater hardship was called for because it occurred during the Second World War. A reduction of living standards was called for among all our people. How- ever, that crisis was handled differently. On that occasion, under imaginative leadership the sharing of the sacrifices became the national objective. By means of enlightened social policy, people accepted the inevitable decline in their living standards and the consequent increase in taxation. The 100 per cent. excess profits tax and the rate of 19s. 6d. in the pound on income tax were not just social or economic instruments or means of increasing the efficiency of our people but were also a means of keeping our people united. The signal was that we were a responsible, united and caring democracy. The Beveridge Report covered much of this ground, showing that there was a possibility of laying plans to improve the conditions of those who were less well off.

The third economic crisis resulted from the fivefold increase in oil prices in 1973. Unfortunately, on that occasion we were ill prepared to deal with it. There was trade union resentment because of the Industrial Relations Act and there was the Barber explosion of the money supply—55 per cent. in two years. Inflation, comparing fourth quarter with fourth quarter in the years 1971, 1972 and 1973, was 9 per cent., 8 per cent. and 10 per cent.

There were few who believed the Tory Government's nonsense that those were problems of success. They knew, as we know now, that they were problems of economic failure and, more importantly, problems of industrial and political failure. The oil crisis would have hurt our economy severely whenever it came. It hurt us worse because it added a mighty dose of inflation just at the time when our economy was already being stuffed with cost increases due to the Barber boom.

When the Labour Government took office, it was clear that a reduction in the living standards of our people threatened us once more. We had two previous models to work from—the years of the 1930s and the war years. The question was which of those models we should copy. We knew that there would have to be sacrifices, but the question was how they were to be determined. We chose to equalise those sacrifices, to assist those who were least well off and to ask for extra burdens from those best able to bear them.