Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 6:01 pm on 20 March 1986.

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Photo of Mr Ian Wrigglesworth Mr Ian Wrigglesworth , Stockton South 6:01, 20 March 1986

I am absolutely opposed to it. It is the wrong priority at this time. In the future I would love to see a 25p rate of income tax. A rate of income tax of 25p on a much bigger base in a wealthier country would raise more revenue than the rate of 30p or the proposed 29p. A rate of 25p is a marvellous aim. We will not achieve that unless we invest in the things we advocated in our budget proposals and our autumn statement.

There is consensus — it unfortunately does not encompass the Treasury Benches—among many right hon. and hon. Members on Conservative and Labour Benches. This consensus is shared by the British Institute of Management, the CBI, management in industry and the trade unions. It is most regrettable that the Government will not recognise this consensus and act upon it.

My right hon. Friend the Member for Plymouth, Devonport (Dr. Owen) has said before—so it will come as no surprise to hon. Members to hear it again—that many of the policies that the Government have implemented with regard to industrial relations over the past few years have been enormously beneficial. The increased productivity that has been achieved in the steel, mining and other industries is largely a result of the firm steps that the management and the Government have taken. It is right to acknowledge and welcome those achievements. However, much more needs to be done.

Where should that money go and what should we do with that money? The Paymaster General criticises us for wanting to spend some of the money on the community programme. I am sorry that he made that criticism. The community programme has made a great contribution to helping people who are suffering unemployment, as it has provided work for a substantial number of people. It is an immediate and cost-effective way of getting people back to work. That is why we suggested that the ceiling should be doubled and that more money should be directed to the programme. The programme is effective, both in terms of time and in terms of cost, in providing worthwhile jobs. We have also suggested a 10 per cent. cut in each of the bands of employers' national insurance contributions. That would help to make industry more confident—it would be able to increase its sales in overseas markets, increase profits and therefore invest more. The national insurance contribution is a tax on jobs. A cut of 10 per cent. in national insurance contributions—not the 1 per cent that we previously advocated and that is now advocated by the Labour party—would encourage firms to take on more labour. There is considerable evidence to substantiate that a percentage cut on each band would be a most effective way of achieving it. It would encourage firms to take on more highly skilled labour as well as benefiting people in the lower rate bands.

We would like to see more help given to the long-term unemployed. There is a high level of unemployment and something should be done immediately. The long-term unemployed should be on a long-term rate of supplementary benefit and family support and child benefit should be increased. Help should also be given to pensioners who are being hit hard by the current economic circumstances. We would also want to see a programme for skills.

As part of the mix of expenditure which we would like to see the Government embark upon, £2 billion should be spent on what is loosely called the infrastructure. The Paymaster General did a great disservice to the House by giving the impression that we are simply proposing highly capital-intensive investment. All we have said in our budget proposals is that it should include:

tackling the major backlog of housing repairs and maintenance, and building and renovating houses to meet the substantial requirement for accommodation, renewing out-dated NHS hospitals; rebuilding dilapidated sewers and undertaking essential road construction schemes and repairs. There is a tremendous amount of work in the public sector that needs to be done. Such work would not damage our current account because it is not import-intensive. It uses indigenous materials. Such work is labour-intensive. We have concentrated on house repairs, insulation and renovation. This work and the new start programmes are the most labour-intensive. We believe that mix of proposals would be the best way to help in the long term those who have been hardest hit in the shortterm.

I join with the right hon. and learned Member for Dover in regretting that the Chancellor had nothing to say about joining the exchange rate mechanism of the European monetary system. We have advocated this, not in a blind desire to go headlong into Europe, as some of our opponents have tried to suggest, but in the belief that this system would sustain confidence. It would provide discipline, would give greater stability, and would take out some of the peaks and troughs both in the interest rates and the exchange rates. It would be beneficial to British industry and to the community as a whole.

If we were to join the exchange rate mechanism it would allow the European monetary system to develop into a much more effective force within the international financial system. Britain's half-in, half-out position is preventing the development of the system. For these reasons I hope that, one weekend, the Chancellor—or perhaps the Prime Minister is the right person—will decide to join the exchange rate mechanism and on the following Monday an announcement to that effect will be made. Bearing in mind our present exchange rate with the basket of currencies, the position of the deutschmark and dollar, this is the most appropriate time for negotiations to take place. I hope that the Government will do something about it.

I come now to unit labour costs. In the last quarter of 1985 unit wage costs in the United Kingdom increased by 5 per cent. In Japan and West Germany there was a nil increase and in the United States they increased by 2 per cent. In recent years, unit labour costs in Britain have continued to increase consistently compared with the costs of our major competitors. That must stop. Unless it does, we shall not be able to compete with our major competitors, especially in West Germany, Japan and the United States, and the comparative decline in Britain will continue.

We must make tough decisions and face up to difficult circumstances if we are to stop that decline. The Government must be prepared to intervene, not only in the level of interest rates, as they are now rightly doing, but by having a pay strategy. Exhortations from the Dispatch Box and criticisms at CBI dinners of what is happening are not enough.

I hope that one of the proposals we advocated in our statement on the Budget and which the Government appear to have taken up will be developed—the proposal to give tax relief on profit sharing. We have advocated tax relief because there has been justifiable criticism of the old-style pay policies, which have sought to penalise firms and people for increasing pay levels above the norm. We have advocated that firms should enter into longer-term pay contracts, initially for two years and perhaps later for three years, instead of an annual pay round, and that firms should encompass within those contracts a much greater share of the profits. We have proposed giving financial benefits to firms that conclude such agreements.

I hope that the Government will be persuaded to move in that direction. We believe that that measure should be tried and that it could provide the key to moderating the type of pay settlements made recently which have been undermining our competitiveness, increasing our unit labour costs and thereby ensuring that unemployment is not reduced.

We are opposed to this Budget strategy because it concentrates on giving to those who already have—to those who have jobs, and to those who have incomes—rather than on investing in the long-term future of industry and on getting people back to work to create the wealth needed for all the social services and for the public expenditure that we and many others would like.