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Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 8:54 pm on 6th July 1983.

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Photo of Robin Cook Robin Cook , Livingston 8:54 pm, 6th July 1983

The hon. Gentleman will have to refer to his manifesto, which contains three separate items in that paragraph, all of which were addressed to the specific expenditure proposals of the early years of an alliance Government. It says: The additional spending which the new welfare system will involve will be paid… First, by the continued phasing out of the married man's extra tax allowance… Second, by not fully indexing personal tax allowances, and third, by a relatively small increase in public borrowing—around £600—£700 million over the final programme. That paragraph is put forward with precision and with specific commitment, so specific that it is specific to the last £100 million of the borrowing requirement. Given that, I do not think it will do for the hon. Gentleman to pretend that these were rather airy-fairy ideas for long-term examination. It was a specific and precise commitment from which he cannot now escape, however embarrassed he may have been to find that he was standing for election on it.

I return now to the gravamen of the themes which ran through the debate. Two major themes were explored—first, the absence of any clear sign of recovery in the economy and, secondly, the specific contribution of the Bill to increasing inequality in an already unequal society. What better place to start my examination of the theme of recovery than with the hon. Member for Loughborough (Mr. Dorrell) who, I am pleased to see, is now in his place.

I thought I detected a coded message to the hon. Gentleman from the Chief Secretary when the right hon. and learned Gentleman told the House that he had no intention of ever being dragged off a plane for an urgent meeting with Back Benchers. I noted that the hon. Gentleman has discovered strong enthusiasm for the Budget balance. I hope that I do not misinterpret the mood in which he addressed the House if I say that I detected a certain uneasiness on his part that that Budget balance might be disturbed by the zeal and commitment to monetarism of the new Chancellor of the Exchequer. I shall explore in a moment whether there are grounds for fearing that, but I should like to say first that I too share the hon. Gentleman's nervousness about recovery.

Many other people are also unconvinced that we are trembling on the brink of economic recovery. Only the other week, in its quarterly bulletin, the Bank of England said that we are likely to have a recovery that is below the average for the OECD nations. In other words, having had a worse recession than any of our partners in the OECD, we are now about to experience a worse recovery than any member of the OECD. The National Institute for Economic and Social Research was even bleaker last month when it explicity said that it does not expect the present scale of modest recovery of 1983 to continue to 1984. There are the blunter words of Sir Michael Edwardes, quoted in the financial pages of The Guardian last Friday. With scientific caution, he said I'm not saying there isn't a recovery… just that we're not seeing any". In his opening speech the Chief Secretary said that we had a major debate on the economy last Wednesday and that therefore there was no point in going over the same ground. I can understand why the Chief Secretary was anxious not to remark on anything that has happened since last Wednesday because every set of figures that has been released since then casts doubt on whether we do indeed tremble on the brink of that recovery. On Monday we had the new figures from the Department of Trade and Industry which pointed to a yawning gulf between our exported goods and our imported goods. It made the calculation that, in the first quarter of this year, we had a deficit on our trade and manufactures equivalent to an annual rate of £5 billion. That should remind us that a mere six years ago in 1977 we had a surplus in our trade and manufactures of £5 billion.

The dangers of trying to pluck comfort or trying to find a success story from this bleak set of figures was illustrated by the unfortunate fate of the CBI, which last week chose to highlight the chemical industries as a sterling case of advance and pointed out that the chemical industries had increased exports by 3 per cent. Unfortunately for the CBI, it was not aware that on the same day that it issued its press release telling us that the chemical industry had increased exports by 3 per cent. the Chemical Industries Association had issued a press statement expressing its concern about the penetration of the British market, and stating that over the same period imports of chemicals to Britain had increased by 10 per cent., more than three times the rate at which exports had increased. The association stressed that over the past two years investment in the chemical industry in Britain had fallen by 30 per cent. So much for Monday.

On Friday we had two sets of figures that updated our knowledge of the economy from the previous Wednesday. We learned that in the first half of 1983 15 per cent. more companies went bankrupt than in the first half of 1982. In the same period the increase in bankruptcies was 40 per cent. on the same period in 1981. The rate at which companies go bankrupt is greater than at any time since records began. That gives the lie to the claim of Conservative Members that they represent the party of small business. The fact is that small businesses are going out of business at a rate unparalleled in our history.

Bankruptcies are especially high in manufacturing industry. For the first half of the year, bankruptcies in the engineering sector were up 22 per cent. on the same period for the preceding year.

On Friday the Government also produced the unemployment figures, which showed an underlying upward trend. I grant that it is increasingly difficult to spot which way the trend is going, so heavily is it camouflaged by the various ways of tackling and rigging the figures that are revealed each month. However, if account is taken of everything that the Government have done that has a bearing on the figures, the conclusion cannot be avoided that last month there was an upward trend in unemployment that produced an additional 19,000 unemployed. Last month was the 43rd consecutive month in which unemployment increased under this Government. When the hon. Member for Stratford-upon-Avon, who has now arrived in the Chamber, tries to seek a correlation between rising inflation and rising unemployment, I invite him to reflect that, although inflation has been decreasing for the past 18 months—we never stop hearing about that from the Government—unemployment has persisted perversely in soaring.

The only good news that I have been able to find in the week since the previous debate on the economy took place is that Professor Sir Alan Walters, economic adviser to the Prime Minister, is finally departing to John Hopkins university on the other side of the Atlantic. Even that welcome news is qualified by the caveat that he is committed himself to spending one quarter of his time in Britain exercising his malign influence on the econonmic destiny of our nation.

Although Professor Sir Alan Walters has not done so, some of the economists responsible for visiting upon us the folly of monetarism are now making their excuses. My favourite excuse of the month appears in this morning's edition of The Guardian, which carries an article by Walter Eltis of Exeter college, Oxford. Many right hon. and hon. Members will know that he pushed the Government in the direction of their present economic policies. Mr. Eltis has a wonderful way of talking his way out of the collapse of the export figures. He wrote: Recent figures may be more dismal than the reality. Our exports may be falling because we are taking extra holidays". No industrialist in my constituency has complained to me that too many extra holidays are being taken by his workers. Industrialists may complain of many things, but none has yet complained to me about the impact on exports of additional holidays. I acquit the Chancellor of the Exchequer of trying to seek any such flimsy pretext for the failure of his policies.

I now take up the other ground for uneasiness of the hon. Member for Loughborough. He is quite right to suspect that we may about to witness another U-turn back to the full vigour of monetarism of 1981.

The Chancellor is the arch theorist of monetarism. It is curious that the money supply came under control only after he left the Treasury to go to the Department of Energy and as soon as he returned to the Treasury it started to spiral out of control again. Whatever the truth of his management of the money supply, the Chancellor has a reputation to protect in his commitment to the theory. His speech last week showed that he did not resile one jot or tittle from his full commitment to this arcane theory. It showed that he was further diverging from reality rather than converging on it. It is clear from his extra-parliamentary pronouncements since then that he can see only one cure for the ailments of the British economy—public expenditure cuts. If the economy is ailing, his automatic response is to reach for the medieval remedy and try to strengthen it by bleeding the public sector. I confidently predict — here I echc many similar statements by Opposition Members today—that that will make the problem worse rather than better. I say that with some feeling as there is a clear illustration in my own back yard.

The hon. Member for Loughborough has said that, thanks to the Boundary Commission, we are all maidens in some part. I shall not pursue that curious biological concept. In the ways of the House I am something of a middle-aged roué, but as I am making my first speech as a Member for an entirely new constituency I shall give one illustration from my own area.

One of the heaviest programmes to take the largest cuts in public expenditure under the Goverment has been overseas aid. The cuts not only affect the Third world countries grappling with the problems of hunger, disease and degradation. They have a serious impact on British industry which, although it is in deficit with the rest of the world, is still in surplus with the Third world.

On the border of my constituency and that of the hon. Member for Linlithgow (Mr. Dalyell), whom I am pleased to see in his place, is the major British Leyland truck plant. When the Conservatives came to power four years ago, that plant employed 6,000 men. It now employs 1,800. The truck assembly line depends entirely on orders from African nations, mostly members of the Commonwealth. Last week a further 450 redundancies were announced due to a decline in orders from the Third world. That reflects no lack of need for the product and no lack of competitiveness of the plant but solely the fact that the countries which want and need the trucks cannot now afford to purchase them. One could not hope for a more compelling illustration of the extent to which the future of British industry is tied up with the debt and development crisis of the Third world which the Government helped to create and are doing nothing to resolve.

I do not accuse the Chancellor of not understanding the consequences of his policy. He understands only too well the consequences of the public expenditure cuts that he is preparing. There will be further unemployment and further casualties, as he is pleased to term them, in the war against inflation. We must judge the Bill against that backgorund. There is something surreal about that task. We are dealing with pre-election bribes offered to the House after the election is over.

That surreal offer is the more grotesque in that we are being invited to give away £400 million to the better-off sections of the community at a time when Whitehall is full of the noise of sharpening knives for a barbecue of public expenditure in the autumn. If the Government cannot afford the present level of public expenditure, the overseas aid programme or the present level of unemployment benefit, it follows that they cannot afford to find £400 million for the top 4 per cent. of the population.

Since we last debated this subject, the House has been privileged to receive the report of the Treasury and Civil Service Select Committee about the structure of personal income taxation. I shall refer to it as the Meacher report. My hon. Friend the Member for Motherwell, South (Dr. Bray) has already referred to it. It clearly proves the extent to which our income tax structure is the product of accident and has entirely arbitrary effects. Its central conclusion is that, across the great mass of British taxpayers, the system is not at all progressive. The only corner where one can detect progressiveness is among the top 4 per cent. —precisely the area where the Bill invites us to make the progression less marked. That might not concern us too much were it not for the fact that the report shows beyond doubt that there are major pools of abject poverty. A mirror image of those sections of the community that pay the higher rate of tax is to be found among the lowest income groups who pay a rate of taxation at the margins that is even higher than that borne by the higher income groups earning more than £20,000 a year.

A family paid family income supplement and liable to tax—there are now 50,000 such households in Britain—will lose 30 per cent. in income tax, 9 per cent. in national insurance contributions and 50 per cent. in family income supplement on every extra £1 earned. The extra taxation amounts to 89 per cent. That is a higher rate of marginal tax than the top rate of 83 per cent. which the Government began by abolishing in 1979 on grounds that 83 per cent. taxation was unacceptable. The most appalling figures to emerge from the report show that there are more households at the bottom of the income scale paying those high rates of tax than there are at the top. The Select Committee concludes that there are now 700,000 poor households that, as a result of the interaction of means-tested benefits and the tax scale, pay a marginal rate of tax of more than 50 per cent. That compares with only 270,000 households which pay a marginal rate of tax of more than 50 per cent. at the top of the income scale. There are 500,000 households which have a marginal rate of tax of more than 60 per cent. at the bottom of the income scale as compared with only 70,000 households that pay a marginal rate of tax of more than 60 per cent. at the top of the income scale.

If the House is worried about unfair marginal rates of taxation and their disincentive effects, it should be much more concerned when those excessive marginal rates of taxation and the disincentive fall on the poorest paid households rather than on the highest paid.

I should like to pick out one glaring contrast between the Bill and the Government's proposals for the future of this Parliament. It is now clear from statements that have been made outside the House that the Government are actively considering reducing unemployment benefits in 1984. The theory is that unemployment benefit is too high to price people into jobs and that if it is cut, mysteriously and by some unknown process of osmosis, the unemployed will find jobs into which they will have been priced by the cut of their benefits. That theory is double Dutch to my constituents. I immediately think of one whom I met during the election campaign. He has been out of work for a year since leaving school. When I met him he had just received his 138th job refusal. I also think of another constituent who is a joiner and, aged 46, finds that when he applies for a job he is told that he is too old.

To those people it is an insult to argue that if we cut their unemployment and supplementary benefit they will go out and find themselves a job. They are the casualties of the Government's war against inflation about which the Chancellor talks, but one does not treat casualties by kicking their crutches from under them. I warn the Government of the despair and anger of the unemployed who cannot make ends meet on their present benefits, and I warn them about the additional anger and outrage of the unemployed when they see the stark contrast between the Government's statement that they cannot afford to increase unemployment benefit and the provision in this Bill not merely to increase the higher rates but to increase them by even more than is required by indexation.

That is a terrifying glimpse into the social priorities of a Government who are trying to grasp back with one hand even that which the poorest have, while the other hand is flinging with casual generosity even more money to those who are among the wealthiest 4 per cent. Tonight the Opposition will vote against those double standards, not just because we reject this mean little Bill, but because we reject the rotten, corrupt social division that gave birth to it, and the hypocrisy of an Administration who reward the rich for being rich, while they plot to penalise the poor, who are poor because they cannot find work in Tory Britain.