Reduction of National Insurance Surcharge

Part of Orders of the Day — Finance Bill – in the House of Commons at 7:45 pm on 5th May 1982.

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Photo of Mr Frank Hooley Mr Frank Hooley , Sheffield, Heeley 7:45 pm, 5th May 1982

Much of our debate on the national insurance surcharge has turned on industry's problems. That is only right, because industrial problems are at the core of the economy's difficulties. It is also right to discuss, in effect, a payroll tax at a time of massive and sustained unemployment.

The excitement over the Falklands crisis has obscured the fact that this month unemployment has again exceeded 3 million. That is only the official figure. It is generally reckoned that the true figure is 3·5 million or 4 million. In any discussion of such a payroll tax we must consider its impact on industry and on industry's problems. In that respect, the Government's record is bizarre. There has been a fall in industrial output of nearly one-fifth in the three years in which the Conservative Party has been in office, and there has been a catastrophic fall in industrial investment year on year. I do not know whether there is any serious evidence that industrial investment will pick up in 1982.

Bankruptcies are running at a record rate. A short time ago it was reported in The Guardian that the figures were at an all time high. In 1980 our gross national product fell by 2 per cent. In 1981 it fell by a further 2 per cent. and it is now said that there may be a modest increase of 1·5 per cent. In other words, there have been four strides back and possibly one or one and a half faltering steps forward.

One serious indictment of the Government is that although major industrial firms find themselves in trouble every day, reporting lower profits or collapsing altogether—as is the case in Sheffield—and although that has been happening for two or three years, the banks are recording record profits. Indeed, so high were their profits that even the Government had to introduce a special windfall tax. The state of affairs was so grotesque that the Conservative Benches would not tolerate it. Ultimately, the mass unemployment that has been directly generated by the Government's policies must be the most serious indictment.

To the extent that the national insurance surcharge is a tax on jobs—as the CBI has argued—a lightening of that burden will be welcomed if it has a serious effect on mass unemployment. The reduction proposed by the Government does not go far enough. Indeed, I am not sure whether our amendment goes far enough. Nevertheless, it is clear that with more than 3 million out of work and looking for jobs which, for the most part, do not exist, there is no case for retaining a severe payroll tax on industry, which represents a burden of £1 billion or £1·5 billion.

In Sheffield alone, unemployment has trebled since the Conservative Party took office. In May 1979 unemployment stood at about 4 per cent., or about 12,000 people. The figure was far too high even then, but it has now increased to 12.6 per cent. and nearly 37,000 are unemployed in Sheffield. To the extent that the national insurance surcharge contributes to that and makes it more difficult for industry to take on workers, there is a powerful case for reducing it, or abolishing it altogether.

The industrial collapse and the calamity that have hit British industry in the past three years must be attributed directly to Government policy. We have seen a sustained, deliberate regime of high interest rates—which are still high despite the slight reductions in the past few months—that discourages the investment and borrowing necessary for a modern industry. The outflow of capital has been deliberately encouraged by the removal of exchange controls, and in the past few years since their removal billions of pounds have flowed out of the country and created jobs overseas. The money should have been invested in the United Kingdom, thus creating new jobs for our workers.

It is a common complaint that industry will not invest, develop or expand unless it can see markets for its products. That argument is not unreasonable, but where will those markets come from while the Government continue to pursue a savage and classic deflationary policy, although dressed up in the fancy nomenclature of supply economics, monetarism and so on? For the past three years the Government have been pursuing the deflationary policies of which the country, alas, became all too aware in the inter-wars period and which applied in the post-war period with precisely the same effects as now, of falling output and investment and a massive rise in unemployment.

It is interesting to note that the same policies, applied by President Reagan and his Administration, are producing the same effect and will have a catastrophic result in the coming months and years on the world economy. Indeed, the Common Market countries are profoundly worried by the American Administration's behaviour. That is not surprising, because the course of America's economy has become the mirror image of that being followed by this Government in deflating our economy, in destroying industrial output and British industry, and in making it more difficult for firms to survive.

In addition to modifying or doing something about the national insurance surcharge, one might have expected the Government to take other steps to relieve British industry's problems, but, far from doing that, they have imposed extra burdens. The crackpot sick pay scheme is completely unnecessary and will create administrative difficulties for industry. It will place extra burdens on administration, will require extra pay calculations to be made, and will lead to further difficulties for personnel departments. The small businesses about which the Government pretend to be concerned will be worst hit.

It could be argued that organisations such as the Central Electricity Generating Board, the British Gas Corporation, ICI and Ford have computerised arrangements to deal with sick pay for those who are off work for a few weeks. Small businesses, however, will not have the capacity to handle the problem efficiently without extra paper work, extra difficulties and possibly arguments if there are problems about entitlement to sick pay and the length of time that someone is off work. All that, for what purpose? The Government have not given any rational reason for removing the payment of sick pay from the accepted State administered system, which has worked for decades, and placing an extra administrative, complex burden on industrialists. There is no benefit to the worker or to industry.

The same story can be told about training. To achieve the same amount of training as in the past 10 or 15 years—under legislation introduced by Conservative Governments—greater efforts will have to be made by private industry to replace the mechanism and administrative effort of the industrial training boards. They are largely being destroyed. Industry will either have to carry extra burdens and administrative work and replace the effort made by the training boards, or training will slump disastrously. The latter is the more likely. Given the arrangements for sick pay and training, extra burdens, complications and difficulties are being created for industry. In the light of the CBI representations on the national insurance surcharge and related matters, I should have thought that the Government would want to make industry's path easier.

The remedies for our industrial ills lie in two directions. First, there must be encouragement for a sustained high level of investment in capital, plant, research and marketing. It is often assumed that investment involves simply putting in new machinery, but the most important investment is sometimes that in research into new products and their marketing.

One of the curiosities of the Prime Minister's speeches about competitiveness is that she does not seem to recognise that in modern industry competitiveness is not a question of cutting wages and forcing down living standards. The most competitive countries in the world, including West Germany, the United States, Sweden and to some extent Japan, have not forced down wage levels, and their competitiveness has depended on sustained high levels of industrial investment. In this country the prospects for such investment have been damaged and almost destroyed by the Government's policies on interest rates, energy costs and so on.

It may be argued that, whatever we do on taxation and charges such as the national insurance surcharge, industry cannot be compelled to expand or invest if it decides that that is not worth while. In that case, the alternative strategy is sustained and massive investment in the public sector—in public corporations, local government, housing and over a wide range of necessary and productive operations that will not only create jobs, but increase our national wealth and general standard of living.

There are enormous possibilities in public investment. It is not public spending in the crude sense—not the spending of taxpayers' money for the sake of it—because public corporations, local government and so on are major customers of private industry. Local government purchases about £6 billion worth of goods and services a year from the private sector. If local government activities are expanding, that will be of direct benefit to the private sector, because the demand for its goods and services will also increase.

A curiosity that I have not seen resolved by economists is that, although we talk of expenditure on housing as if it is public expenditure, most of the activity takes place in the private sector, because much house building, even municipal housing, is carried out by private contractors. Therefore, an expansion of the housing programme will be of direct assistance to the private construction industry. The House-Builders Federation has made that clear in numerous documents that it has sent to me and, no doubt, to other hon. Members.

In terms of competitiveness, which the Government continually say needs to be increased, and stimulating overall economic activity, there is a powerful case for public investment, which will not only assist the public sector, but will be of direct and immediate benefit to the private sector.

The national insurance surcharge is a tax on jobs and should be abolished, but I am not sure that even that will solve our industrial problems. That will require a fundamental and drastic change in the overall economic strategy.