Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 4:51 pm on 15th January 1996.

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Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Public Accounts Committee 4:51 pm, 15th January 1996

The investment income surcharge was the right sort of reaction. How we deal with the consequences of the changes in the value of capital under the next Government remains to be seen. An important aspect of the matter is that the value of capital has changed; it went one way and now it has gone another.

In terms of inheritance tax, I can see the case for moderate levels of taxation of capital. Those who have created wealth want to pass it on to their successors and I understand that. To a certain extent, I can see the case for those who want to accumulate wealth and to pass it on to their families. I understand people who work hard to accumulate wealth for themselves and I understand people who work hard to accumulate wealth so that they can pass it on to their successors. What I do not see is why we should relieve from taxation those who are the beneficiaries of that wealth, to which they have contributed nothing. A person who makes wealth needs to be treated with some respect because of the wealth created, but the person who receives that wealth as a beneficiary—as an inheritor—should not be regarded in quite the same way. There is a need for such people to pay some taxes. We can argue about whether they should pay more than they have in the past, but we should certainly not remove the existing level of taxation. That is clearly wrong.

Another issue is the cost nowadays of earning a living. We never used to take such costs into account. Apart from a small allowance for tools, which was a trivial amount, the costs of earning a living were always excluded from income tax assessments. Nowadays, the costs of earning a living are great. Transport costs are one example. In my constituency, there are people who travel 30 or 40 miles to Leeds or Bradford; people never did that before. Transport costs are not allowed against tax at all although people cannot get the kind of work that they used to be able to get.

Fifty, 60 or 70 years ago—not all that long ago—people walked down the road to the mill. People wore ordinary working clothes and took a jam butty or whatever for lunch. People do not do any of that now; things have changed. There is great expense in earning a living today and that needs to be taken into account. Earned income is not the same as unearned income. Unearned income does not cost people anything, but earned income does and we shall have to find some way in which to deal with that.

The central feature of Lady Thatcher's period in office was not the changes she made. What was exceptional about the period was the rise in the exploitation of North sea oil. Anything else was a disclaimer. In the past, Governments took unwise courses, but the balance of payments constraint always limited the extent to which they could proceed with a particular folly. In 1956, we had the folly of Suez, which was brought to an end by balance of payments constraints. We had Maudling's dash for growth in 1963–64, which was brought to an end by a balance of payments crisis. It might have succeeded otherwise and have been one of the great moves of the post-war years. It could not, however, succeed because of the balance of payments problem. We saw the rise in OPECOrganisation of the Petroleum Exporting Countries—prices which would have been a much smaller problem if we had not had the difficulty of a balance of payments crisis. All those efforts—some of them useful, some of them not—were brought to heel by the constraint of the balance of payments.

In the 1980s, for the very first time since the 1914–18 war—perhaps since the beginning of the century—we had a balance of payments that was no constraint. The question was what we would do with that enormous advantage. With one bound, we were free. What did we do with that freedom? We destroyed much of our manufacturing industry. There were $2.40 to the pound and there was a 17 per cent. interest rate.

Like many hon. Members, my firmly held views are reinforced by my constituency experiences; they are burnt deeply into me. From 1979 to 1981, my constituency lost one third of its industry. Good firms which had every justification to succeed were lost. If they had been in Germany or Japan, they would have continued. Few of them were low-tech; most were medium-tech and one or two were high-tech. They could not survive in that period. Engineering was a prominent industry in my area, but good firms went.

I am pleased that our amendment refers first to the need for manufacturing industry and that my hon. Friend the Member for Oxford, East referred to that first in his valuable speech, which I much enjoyed. I might have been prepared to tolerate a massive Finance Bill if it had included much in the way of comfort for manufacturing industry, but I see nothing of real merit. I have argued for manufacturing industry since I came into the House and the situation is now becoming even more urgent.

The pound is now down from DM2.95 to DM2.22. We ran a £1.7 billion trade deficit in October, the latest month for which we have figures. Even the Red Book forecasts a £5 billion deficit in our balance of payments. There are no signs in our overseas account of the consequences of a devaluation of more than 20 per cent., with no erosion by wage inflation, and of unemployment at well over 2 million.

After the years of reckless destruction of our manufacturing industry, we are now seeing the consequences plainly. In such circumstances, one might have expected a contrite Government to do their utmost to repair the disasters of the past. The opportunities are there in this enormous Finance Bill, but they have not been taken.