[Commission Documents Nos. R/622/76 and R/606/76 on Policy Guidelines for 1976.]
Mrs. Margaret Thatcher (Finchley)
It is the custom and the pleasure of the Leader of the Opposition to congratulate Denis Healeythe Chancellor on the manner of delivery of his Budget Statement. This year it has been quite a marathon—for us, but particularly a marathon for him. He has to use his voice more in one speech than most actors would have to use theirs during a whole week, and he has to write his own script. He will understand that if the compliments do not always apply [column 284]to the script, they apply to the way in which it was delivered. There have been Budget speeches which took as long as five hours to deliver. Gladstone took five hours and so did Lloyd George; but they knocked off in the middle, doubtless to increase the revenue by what they drank in the process.
The Chancellor has put a great deal into this Budget Statement and we naturally wish to reserve judgment on many aspects until tomorrow. I think that we may make a number of preliminary comments, however. First, he did not quite seem to understand that the world has passed judgment upon his record in the last year. When he rose to open his Budget last year the value of the pound was $2.37. When he rose to open it this year the value was down to $1.87, a fall of very nearly 1 cent per week. That is the best barometer of the world's confidence in the right hon. Gentleman's stewardship.
It is quite wrong, when the right hon. Gentleman says that confidence in our future has been transformed, for him to imply that it has been transformed upwards. It seems very much to have been transformed downwards. In many ways our problems seem far worse than they were two years ago. He tucked away at the back of the speech that the very important and significant figure of PSBR for next year would be some £12 billion. Of course, we have great difficulty in judging that figure because the right hon. Gentleman has always got it wrong—and always in the same direction. His forecasts have always been below the outturn. This last year he wanted to hold it down to £9 billion but it rose to over £10 billion.
This is really the key to our future, and the size of the deficit dominates everything the Chancellor can do. It also dominates any tax reliefs he can make, because until he reduces the underlying rate of expenditure he cannot do very much more than shuffle the taxes around from one taxpayer to another and one set of goods to another—and he has done a lot of shuffling in this Budget.
As to the lower amount of the public sector deficit, it is not by any means all due to the recession. If it were, it would be different. We now know from the many forecasts and the many analyses which have been made that only a very [column 285]small part of that deficit is due to the recession. The bigger part is due to the underlying structural problem, that we are living beyond our means.
We should be living beyond our means even if we had full employment, even if we had the extra tax yield that that would bring, and even if we had North Sea oil. That deficit amounts to something like £6,000 million to £7,000 million, and the Chancellor has made no effort at all to deal with it.
The Chancellor has said that other things are improving. Yes, they are, but he is treating the economy as though it were a patient with two diseases, the first being influenza, which we could say is similar to the recession we are experiencing, and the other being cancer, which is equal to the underlying and growing deficit. He is saying, in effect, that when the patient is recovering from influenza, or looking a little better, we can ignore the cancer and not do anything about the structural growth, which will go on destroying the patient unless we destroy it. He has left that untouched.
Last night James Callaghanthe new Prime Minister said that there were no longer any soft options, but the Chancellor has taken the soft options. He always does. He always defers the difficult decisions. He used to defer them until next year. These days he defers them not until next year but until the year after. Until he starts to deal with them we shall find that our overseas customers and overseas investors will continue to put the value on sterling which they have been putting on it recently.
The Chancellor has a new system for the relation between taxation and pay rises. It is extremely complicated, and we must, of course, reserve judgment upon it. But may I give one instinctive democratic reaction? He is turning over the decision about the taxation levels of the majority of our people to a body which consists of the minority of our people. That seems to me to be taxation without representation. It seems to me to be thoroughly discarding or disregarding the interests of the majority.
We should look at this extremely carefully, because we are the body which represents all the interests of all our people. I do not believe that the [column 286]Chancellor can abdicate his responsibilities to any other body in that way.
We shall have to study the details, but it looks as if the Chancellor's proposals will compress differentials still further. My understanding of some of the recent strikes at British Leyland is that people are rebelling against the flatrate Socialist society. They believe that if they have more skill or carry more responsibility, they ought to have higher pay—and in particular higher net take home pay at the end of the day. We have always believed that it is wrong to depress differentials, because in the end, as we come out of the next phase, this policy will only leave more and bigger problems for the Chancellor's successor—and we have a vested interest in that.
Because of the enormous size of the deficit, because of the enormous amount of borrowing which the Chancellor is putting round the necks of future generations—it is the young who will have to repay, and never have they had to repay so much—he cannot do very much about taxation. Some of the changes he has made will not nearly compensate for the effect of inflation. Indeed, some of us were a little surprised that the child tax allowances he announced were not a little higher.
I had thought, from what the Chancellor said earlier, that he would do more to help middle management. He has, in fact, done comparatively little. Middle management is, after all, a group upon which we depend in getting our economy moving again. We need middle management in endeavouring to make the industrial recovery which we accept, as does the Chancellor, to be the key to the recovery of economic prosperity.
I looked with the greatest possible interest on the Chancellor's privileges for those who buy pipe tobacco. Now that he has also reduced the VAT on boats from 25 per cent. to 12½ per cent., it really looks like an ex-Prime Minister's benefit Budget.
It would seem that the Chancellor is making a very good thing out of all the vices. Indeed, this year he has even found a way of putting a tax on apples, albeit through cider.
We welcome, of course, the continuation of stock appreciation relief. I believe the Chancellor did it in the wrong way [column 287]to start with. We moved amendments which would have extinguished the liability at the beginning, and because he did not accept them, he is in very considerable difficulty now.
We welcome very much the changes that the Chancellor is proposing in relation to capital transfer tax to help the small business man and the farmer. We also welcome the Chancellor's downward change in value added tax from 25 per cent. It would have been very much better had he accepted the logic of his own argument and taken it to a simple 10 per cent., which, on his own yardstick, would be easy to calculate and would also, I believe, have produced quite a good deal of income.
It seems absurd to have a rate of 8 per cent. and a higher rate of 12½ per cent. If the Chancellor is arguing that the industrialist needs stability, so does the small shopkeeper. He also needs simplicity of administration, because he has to endure a great deal of administrative expense in calculating and collecting VAT for the Chancellor.
We also welcome very much the increase of the limit for pension annuities on behalf of the self-employed.
I had thought that we might be able to call this a honeymoon Budget, but, in view of what the Chancellor is doing about personal reliefs on marriage, we can hardly say that it is the best wedding present for a honeymoon couple.
As to the social security changes that the Chancellor is proposing, we are now accustomed to having social security announcements in the Budget. But we are finding difficulties which have not occurred in previous years. Some of these difficulties have, I believe, been highlighted by the assiduous work of my hon. Friend the Member for Norfolk, North (Mr. Howell), who has been making a study of the relationship between the taxation and social security benefits of those in work compared with those who are out of work.
We shall enter a period of difficulty if we are to have social security benefits indexed for inflation and the underlying wages not indexed for inflation. We shall have a position in which some of the social security benefits may [column 288]go up—we do not know about the short-term ones yet—by as much as 12 to 15 per cent., whereas the pay of the employed man may go up by only 3 per cent. This means that the unemployed man with a wife and two children could have a very much higher income in his pocket than the man next door who is in employment. This could and will cause very considerable resentment. It does not make sense to leave it as it is. It is a problem that we shall have to tackle. There is also burning resentment about the higher rates of tax which seem now to take effect at such low levels. Again, the key to all of that is to deal with the deficit, and the key to dealing with the deficit is to deal with the underlying level of public expenditure and its proportion of national income.
I have never seen any Chief Secretary demolished so effectively as Joel Barnettthe present Chief Secretary was by the Fourth Report of the Expenditure Committee. His case was totally demolished. He was putting forward, as the Chancellor has, euphoric forecasts. The Committee agreed that we should not in future be bound by the past. In skilful cross-examination, he was asked what he had done to make him believe that the future would be different. But answer came there none. In fact the Chancellor has repeated some of the forecasts which the Committee condemned as economic miracles.
The Chancellor is not in the world of realism with public expenditure. Because of the rate of inflation, he will have to look at his expenditure commitments alongside his revenue commitments. That is the only way he can judge them. That was perhaps not so necessary when the level of inflation was low, but it is now necessary when the level of inflation is too great for that system to continue.
Mr. Frank Allaun (Salford, East)
What would the right hon. Lady have done?
Mrs. Thatcher
That is the wrong approach. Most of us have to gear our expenditure to our income. However desirable things are individually, if they add up to a total which one cannot afford and which jeopardises one's future, as this permanent deficit does—and one cannot go on borrowing for ever—one has to look at one's priorities. I had to look at priorities in education and, [column 289]£20,000 million of expenditure later, none of the cuts which I made has been restored. It does not make economic sense to go at it the other way.
The Chancellor of the Exchequer has no more discovered the secret of perpetual borrowing than scientists have discovered the secret of perpetual motion. The problem has to be faced and sorted out, otherwise we shall build in the next round of inflation—which could be even worse—together with an even higher level of unemployment.
Most of us want neither inflation nor unemployment but the sort of economy that can be properly handled with jobs which are genuine because those concerned are producing goods. The Chancellor gave us a nice little lecture about that in the middle of his Statement. It was enjoyable.
The Budget gives away money that the Chancellor has not yet even borrowed. It is a big-borrower's Budget from a soft-options Chancellor. After what the Prime Minister said last night about no soft options in the future, I hope that we shall see a Government who trust the people and who tell them the truth, and who stand some chance of halting the slide towards national bankruptcy.