Autumn Statement

Part of the debate – in the House of Commons at 8:10 pm on 22 January 1992.

Alert me about debates like this

Photo of Alex Salmond Alex Salmond Leader, Scottish National Party 8:10, 22 January 1992

Like the hon. Member for Stockport (Mr. Favell), I enjoyed the speech of the hon. Member for Wolverhampton, South-West (Mr. Budgen), not so much because I agreed with it but because it provided an antidote to the sterility of the economic exchanges of the past two weeks, which continued earlier this afternoon.

In some ways, it can reasonably be said that the hon. Member for Wolverhampton, South-West has dominated this economic debate. He asked the shadow Chancellor the question that has no answer: if the shadow Chancellor and the Labour party are committed to the same monetary policy as the Government—defending the position of sterling within the exchange rate mechanism—it can hardly be argued that interest rates would be different under Labour.

Interestingly, the Chancellor did not pursue the shadow Chancellor on that policy, no more than the shadow Chancellor seemed to want to pursue the Chancellor on the story in The Guardian today suggesting that the Government's aspirations and programme would cost about the same as the Labour party's— £35 billion. The reason why the shadow Chancellor and the Chancellor do not pursue each other on such points is clear: it is not in their interests to stress the similarity of the economic policies of Ministers and Labour Front-Bench spokesmen. It is far better to continue with the phoney war of exchanges that we have seen in the past two weeks. As the policy similarities increase, so the acrimony of the exchanges grows to attempt to find some semblance of a difference between two economic policies that are basically the same.

It is remarkable that the Government are attacking the Labour party for the over-ambition of its policy programme. To be committed to increasing pensions and child benefit and no other spending initiative can hardly be termed an over-extended programme. The weakness of Labour's policy programme is its lack of ambition. Its Achilles heel is its lack of firm commitments.

The Government should have a care about ascribing figures of £35 billion or £37 billion to any aspiration or policy objective of a party, because as in The Guardian story, exactly the same can be done to the Government. In addition, if one considers the detail of the Government's programme and assumes, as one reasonably can from statements that have been made, that a balanced budget is an objective of the policy, with the public sector borrowing requirement heading towards a £20 billion deficit next year, the same type of argument would have it that the Chancellor must be plotting to increase income tax by 10p in the pound in the Budget to square that circle and eliminate the PSBR deficit or perhaps even a larger increase in the percentage of VAT.

Similarly, as the right hon. and learned Member for Monklands, East (Mr. Smith) said, if it is an objective—albeit a long-term one when circumstances allow—to reduce the direct rate of tax to 20p in the pound, it is reasonable for people to ask how it will be paid for within a Parliament. The Government and the Opposition should address the low standard of debate that, sadly, we have witnessed in the past fortnight.

I was disappointed that the chairman of the Treasury and Civil Service Select Committee chose to attack the proposal to lift the ceiling on the national insurance contributions. As far as I know, that is the only tax proposal that the three Opposition parties in Scotland have in common. If one narrowly defines national insurance as an insurance scheme in itself, one can make an argument against it, but if one accepts, as most people surely do, that national insurance has become part of the income tax system, it is impossible to defend a position whereby people who earn more than £21,060 a year pay lower rates of marginal taxation than those who earn less. That is what would happen next year if nothing is done to correct that anomaly.

If Conservative Members are truly concerned about high marginal rates of taxation, they should consider not people earning more than £21,000 but those at the bottom of the earnings scale, who face by far the highest marginal rates of taxation. The Library made a quick calculation for me. I accept that it is a theoretical example, but none the less it shows that it is possible for someone who is on very modest earnings—through a combination of income tax, national insurance, family credit, rent rebates and poll tax rebate—to pay a marginal rate of tax on earnings of 96.04 per cent. Unless the proposal to lift the national insurance upper limit is carried, a family man on perhaps £7,000 a year will pay double the marginal rate of taxation of somebody earning more than £21,000 a year.

Half a dozen Conservative Members are present. I shall gladly give way if one of them can explain why a marginal rate of taxation of 49 per cent. for people earning more than £21,000 a year will have a disincentive effect, but apparently nothing is to be done about the marginal rate of taxation of 96 per cent. for those who earn about £7,000 a year. Is there any semblance of logic in that? Should it not be a priority to shift the burden of taxation from the lower paid to those on higher incomes?

I propose that the upper limit for national insurance be lifted and that the money be used to introduce perhaps a lower first rate of taxation, perhaps to raise tax allowances by 15 per cent., or to incorporate an allowance system into the national insurance system to try to attack the exceptionally high marginal rates of taxation for those on lower earnings. An Administration that had an ounce of compassion and economic rationale would be arguing for that policy.

The debate has done little to focus attention on the real constraints on the United Kingdom economy. I was a relatively young economist before I became an hon. Member, but even I remember the nostrum that the underlying weakness of the United Kingdom economy was that a balance of payments constraint emerged as soon as the economy moved towards recovery, and that recoveries would always be aborted by the balance of payments coming into play and acting as a constraint. According to the independent forecasts that are released by the Treasury, the balance of payments constraint on the current account is emerging before the economy has moved into recovery. The consensus of the forecasts of the organisations is that the current account deficit will increase from £6.6 billion this year to £8.6 billion next year. That is before any firm recovery in the United Kingdom economy.

The underlying weakness of the United Kingdom economy is becoming ever more evident. I think that the hon. Member for Stockport referred to the fact that no one had argued about some of the dangers of the ERM when we joined. I made a speech on 22 October 1990 in which I made some of the points that I am about to repeat. The rate at which we joined the ERM underscored some of the constraints on the United Kingdom economy and put it back into the fairly familiar position of trying to defend an exchange rate that is unsustainable.

In line with the United Kingdom's economic history, it is only a matter of time before someone writes a tract called "The Economic Consequences of Mr. Major". In The Times just before Christmas Anatole Kaletsky had a stab at what might be a precis for such a tract. He wrote that all players in the game of trying to find someone to blame for the problems in the United Kingdom's economy are supposed to forget that John Major had anything to do with economic management in the past five years. They are not allowed to recall that Mr. Major was the Chancellor who panicked into raising interest rates to 15 per cent. in October 1989; or that it was Mr. Major who blundered into the ERM at the worst possible time with the wrong exchange rate. Above all, players must forget that Mr. Major was the man who, during his brief tenure as an ERM Chancellor, elevated the ERM into a sacrificial totem of a kind unknown in this country since the days of Stonehenge and John Barleycorn. That is an apt summary of the case that could be made against the present Prime Minister.