4.50 p.m. Mrs. Margaret Thatcher (Finchley)
The speeches of Douglas Jay the President of the Board of Trade usually make better reading than they do listening, because he tends to obscure the issues by such a welter of statistics which I often think confuse the issue rather than clarify it. We note his remarks about exports. I think that the excellent export performance of British industry in 1965 was due to the excellent order intake for 1964. I am always a little wary when politicians tend to take too much credit for the export performance of industry. Frequently, what happens is that industry carries on despite the efforts of politicians and, in exports, makes an extremely good job of it.
I noted that the President of the Board of Trade did not refer to this month's trade figures which, on the face of it, were a little disappointing, though I agree that one should not draw too many conclusions from them at the present time. He said that world trade prospects were good, but uncertain. How they can be both good and uncertain at the same time, I am not quite sure, but this is one of the rigmaroles. I feel certain that the right hon. Gentleman looked with special interest at the economic articles in The Times, and that he noted that one Peter Jay said that the Treasury tends to over-estimate the future export performance of British industry. Parents can learn so very much from their children these days, can they not? [column 120]
I turn to one or two items in the speech of James Callaghan the Chancellor of the Exchequer. He described the British situation as now having come out of the “valley of gloom” . We now know where we have been for the last two and a half years. But the point is that when we were going into this valley, the Chancellor of the Exchequer said that his steering wheel was the National Plan. In a television performance on 6th April, 1965, he said:
“It is a remarkable job. That is going to be the steering wheel of which my Budget is the cog, and the two things are going to operate together.”
At the same time Richard Crossman the Leader of the House was describing this valley of gloom as a “dash for freedom.” It can scarcely be everything at the same time. However, we now know where we are in a ship that the Chancellor of the Exchequer described. What it is doing coming out of a valley, I do not know, but, at the moment, it appears to be entirely without a rudder.
I should like now to turn my attention to one or two of the Chancellor of the Exchequer's references to incomes. One remark he made struck me as being very significant—significant in that it was remarkable that a Labour Chancellor of the Exchequer should make it at all, or make it in the phrases he used. He said:
“The Government are not proposing to make the ordinary worker worse off.” —[Official Report, 11th April, 1967; Vol. 744, c. 988.]
Gone are the days when the Government were promising things; today they have to assure workers that they will not make workers worse off.
In this connection, it was remarkable, too, that the President of the Board of Trade should think it a matter for boasting that the rate of unemployment had risen by only some 45 per cent. or 50 per cent. in the development areas in the last year, and that he should use as his reason for the boast that unemployment had risen by some 200 per cent. in some other areas. That did not seem to be a very appropriate use of percentages.
The remark of the Chancellor of the Exchequer that the Government are not proposing to make the workers worse off comes against a background of falling average earnings, but that was not the only message to the people who earn [column 121]wages and salaries. The right hon. Gentleman also said:
“… If there is a general scramble for substantially higher wages … taxation will have to go up …” —[Official Report, 11th April, 1967; Vol. 744, c. 987.]
Couple that remark with the statement we heard earlier this afternoon it seems that people can get increased wages and salaries by permission only. If, nevertheless they do manage to get them, the message to all who work is, “If you make it, I'll take it” . That is the message of the Chancellor of the Exchequer. We know, too, from what the Government have done that they will not hesitate to make a prices and incomes Order against even a small handful of workers if they think fit so to do.
I turn to the issue of growth. From about 1955 onwards we had an average growth rate under Conservative Governments of 3 per cent. This right hon. Gentlemen opposite bitterly derided at the time as economic stagnation. When the rate of growth increased towards the end of our period of office the present Chancellor of the Exchequer was giving the impression that the then 4 per cent. growth rate could be exceeded by just setting a few targets. On 20th July, 1964, he said:
“However, 4 per cent. should be to this nation a base camp and not a mountain peak. It should be the base from which we move forward. we should be aiming, in the latter part of the 1960s for a 5 per cent. and then a 6 per cent. growth rate.” —[Official Report, 20th July, 1964; Vol. 699, c. 75.]
Here we are in the latter half of the 1960s—and where are we? There has been virtually no growth, and between the end of 1966 and the end of 1967 we expect between 1 per cent. and 2 per cent. growth.
My right hon. Friends have earlier dealt with the rate of growth the right hon. Gentleman expects this year, and it is still not clear what exactly he meant, because he used two differing sets of figures from different places in different parts of his speech. In any event, the right hon. Gentleman has now set a new goal, and it is 3 per cent.—the very goal he was deriding under a Conservative Government. We must not strive too hard as men and women workers—there will be no merit increases in incomes because of our striving. To strive these days means “Do what the Government tell you—or else” . [column 122]
The Chancellor of the Exchequer used a new phrase about public expenditure. Public expenditure is no longer reduced, or cut down, or even rephased—it is reined back. The use of that word gives the impression that all one has to do is gently bring the reins towards one and expenditure will be reduced comparatively easily, but on 20th July last year the Prime Minister promised us that public investment programmes were to be cut by some £150 million a year during the year 1967–68. In that year, those programmes were to be cut, but the result is that this year there is the biggest increase ever in public expenditure. The reining back that was to operate this year does not appear to have been very effective.
We all know that there are difficulties in reducing public expenditure. The greatest hope for the future is to stop it from rising as fast as national income. That was one of the great achievements of Conservative Government during its period of office. We got the compliment from one of the surveys carried out by French employers that this country was one of the few countries that had not increased the burden of taxation on the people relative to the growth of national income. We know that public expenditure has been increasing extremely fast, and the Government have been busy finding reasonable retrospective explanations for the events that happened.
We were told by the Leader of the House on 23rd November, 1966, that the Government had decided that public expenditure should rise over the period 1964–70 by 4¼ per cent. a year, and that the Government's determination to make sure that the total expenditure rose faster than gross national income was a decision to plan. So we know now that everything that happens under Labour Governments must be the result of a decision to plan—rising unemployment included, presumably.
A final point about reining back public expenditure. I notice that on the current part of public expenditure, which, of course, is also rising this year, the Chancellor deliberately left out of account the money for the purchase of military aircraft because we are being loaned that money this year. This, of course, will have to be paid for in future. It is interesting to see that there is a built-in [column 123]increase in current expenditure somewhere in the future, which does not augur very well for it being reined back next year or the year after that. The Chancellor will not look very wise if he has to pay for the aircraft in a year in which other current expenditure is also rising.
I turn to one or two comments about taxation, and first its relation to public expenditure. During the past year the Chancellor has talked a lot about fiscal and monetary mixes in tackling inflation. He has referred to this in relation to other countries as well as our own. We are the first to admit that the Chancellor has used the fiscal weapon to counter demand. Indeed, he has used it very extensively, but the implication of using taxation to reduce demand is that the money so taken in will not then be spent out by the Government. Yet this Government, having imposed increased taxation, have proceeded to spend it. Taxation has led to increasing public expenditure.
The weapon which the Chancellor chose to fight inflation has furthered it through rising public expenditure. Last year we had another bout of increased taxation. This year we have another bout of increased public expenditure. It looks as if this is what happens under Labour Governments—increased taxation, increased public expenditure once again. This year is supposed to be a mildly reflationary year, but in fact extra taxes are being taken, a fact which some seemed to have missed.
J. Diamond The Chief Secretary will remember the reason given last year for fixing Corporation Tax at 40 per cent. It was because the Chancellor would get only 11 months' tax in during the year and also because of the one-year surplus. The one-year surplus has terminated and this year he will get 12 months' tax in. If his reason was right last year, Corporation Tax ought to be reduced to 35 per cent. this year to take in the same amount but, not a bit of it; it is still 40 per cent. The figures are obscured by the changed methods of calculating investment grants, but the Chancellor has about £100 million extra Corporation Tax by this obscured increase in taxation.
He is also consolidating the regulator and transforming a temporary tax into [column 124]a new permanent tax. I am aware that a similar measure—not quite the same, but similar—was taken before, but my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd ) did not merely add a tax. He altered the whole structure of Purchase Tax and simplified it so that we did not get awkward fractions. This year the Chancellor is consolidating the ordinary regulator and arriving at some very odd fractions which are very difficult for the retail trade to have as a permanent feature of its work. The fractions were 10 per cent., 15 per cent. and 25 per cent. but they are now 11 per cent., 16½ per cent. and 27½ per cent.—some advertisement for simplification.
If the Chancellor had exerted a good deal more mental discipline than he did over holding back public expenditure in the years when he was taking in extra taxation, it is interesting now to think of the amount of manoeuvring space and resources he would have available for stimulating the economy in future years and giving it that spurt and incentive which it needs for growth. Having denied himself this manoeuvring space he has denied the nation the growth it needs, not only this year but next year and the one after that.
Last year there were a large number of comments from this side of the House about the effect of the Budget on the social services and the lack of social service provision. We thought that after those comments we would have goaded the Chancellor into providing something this year beyond the very small, although welcome, provisions he has made. When Niall Macdermot the Financial Secretary to the Treasury was answering a point made by me during the debate last year, he pointed out that the reason why there was no social service provision in the last Budget was the option mortgage scheme which the gambling and betting tax were to provide for, but that is not being done this year. It is due to start in April, 1968. Here we have already another commitment for current expenditure next year. The measures for improvement chosen this year are very small but they are, nevertheless, an improvement.
Had I been asked to guess, I would have guessed that the one which the Chancellor would have included above all would have been an increased tax exemption for the elderly. We had a very [column 125]good debate in Committee last year on this. I should have thought that he would have gone some way to meet us this year. There are a number of reasons why he could have done so. The first among them was mentioned at Question Time today. There has been an increase in retail prices in 1966. The figures I quote are from the Ministry of Labour Gazette of the March edition.
In 1966 the average level of retail prices rose by rather more than 3½ per cent. The Ministry of Labour Gazette says that food prices, which are a high component of old people's expenditure,
“were about 4 per cent. higher than in mid-January 1966.”
In the sub-group of components, such as bread, flour, cereals, biscuits and cakes—all used frequently by old people—there was a rise in price of rather more than 6½ per cent. over the year. Fuel, the other important component, rose by 4½ per cent. in price. Old folk have had to take these increases in price in the two main components of their expenditure, but they had no extra tax relief last year and apparently are not to have any this year.
There is another reason why the Chancellor should change his mind on this subject. If he is right about reining back public expenditure next year and the year after, he is going to forego an increase in the basic rate of National Insurance pensions. As he knows full well, although much of the expenditure in that regard is financed by the stamp—and, he has lost manœuvring space for increasing the cost of the stamp because of the burden of Selective Employment Tax on many employers—there is also a substantial Exchequer contribution to the basic rate of National Insurance retirement pensions. If he is right about reining back public expenditure there seems likely to be no increase in the basic rate. If he is wrong, he is not being frank with the House or with his back-benchers.
We know that the purchasing power of the pension has already fallen by 10s. for the married couple and 6s. 1d. for the single person and, on normal expectations of the pensioners, one would have expected increases in about 1968, because, under the Conservatives, we had increases quite frequently, at approximately two and a half year intervals.
I am interested in whether the Chancellor is serious about reining back public [column 126]expenditure. In any event, it is not really very surprising that we had a rather good testimonial from the Observer on 6th November, 1966, in an article by Mr. Brian Abel-Smith , who said:
“From figures now available it seems that the present government's social spending is going to fall some way short of that of its Conservative predecessors.”
I turn now to the effect of the Budget on the average citizen. First, the real incomes of the medium income groups were rising under the Conservative Government. They rose during the early stages of the present Government. Then we had an election and since then they have fallen. One must congratulate the Government on selecting the time for an election so carefully. Secondly, consumer expenditure was also rising under the Conservatives. It is now, of course, going down in the same way that average earnings are going down.
So the ordinary citizen has less to spend on his own home and on the things on which he wants to spend his money. Most people want to see an increase in the standard of living in their own homes. They want to be able to spend their own money on their wives and children. They do not wish to have the increased standard of living going entirely to the public sector at the expense of going where they want to see it most.
No doubt the right hon. Gentleman would regard as old-fashioned the idea that people believe that they can spend their own money as well if not better than he can. The right hon. Gentleman did not give any figures for his estimate of consumer expenditure, but one suspects that, in his future assessment, there is little room for increases in consumer expenditure. Perhaps the right hon. Gentleman will give us his forecast for up to 1970.
The ordinary citizen was used to both his income and his expenditure steadily growing at a rate of about 3 per cent. per annum from 1955 onwards and now, after the freeze on incomes, increased taxes, extra compulsion and more bureaucracy, he will not be any better off at the end of it.
This is slowly being realised and, of course, explains some of the reverses which the Government suffered last week. Ordinary people were led to believe that they had great expectations, but those [column 127]expectations are now turning out to be pretty bleak. Let us consider the effect upon the managerial group, the group of people from whom growth usually comes. We must consider what incentives they have to provide the expansion we need and which we shall continue to need even with a modest 3 per cent. rate of growth.
If they want to expand their industry, they first have to get skilled labour. This is not easy to get when no increases are allowed for differentials or extra skill. Indeed, the Prices and Incomes Order we shall debate tonight is an Order about differentials. If they wish to build an extension to provide for another unit of expansion, they have to find the capital. We know that the amount of capital left for investment after Corporation Tax is less than it was before because of the need to keep up the distribution rate of dividends. They cannot find the capital out of their own money and have to borrow it. But the Chancellor will keep Bank Rate at 6 per cent. as long as he can because his borrowing commitment is high and it helps him to sell more giltedged securities that way.
If they still want to consider further expansion they will have to pay a development levy. If they install modern automation equipment the chances are that they will be liable to the Selective Employment Tax. If, in spite of all this, they go ahead, they know full well as individuals that the Government will not let them keep a just proportion of the increasing rewards which they earn. They will ask themselves, “Is it worth it?” The answer probably will be, “No.” So the spirit of expansion which I believe is there tends to be stillborn.
There will always be some private investment and the Chancellor would be in trouble if he suddenly got a lot of it this year in view of the amount of public expenditure. But the only private investment we shall get is that which goes to the maintenance of machinery and some which goes towards improving worn-out machinery when it is replaced.
Members of the Government have talked about social justice. There are many ways in which one can be socially unjust. One of them is to take away too high a proportion of anyone's income. It is being unjust to them, and indirectly [column 128]to the ordinary people whose only hope of betterment comes from the growth the managerial section of the community could provide. If the Government were more concerned to further the remarkable people, the ordinary pensioners and the ordinary people would do very much better.
I have come to the conclusion that the Government prefer theories of equality to practical progress. This, I believe, is one of the messages of the Budget. The Budget is one of a series and I believe that it is inevitable in the march of Wilsonian socialist theory. It is extremely dreary and offers very little hope of growth in future and very little hope of increasing prospects for the ordinary people—such hope as they may have had went with the statement made earlier today by the First Secretary. The Chancellor used a nautical metaphor, but we would say to him, in view of his Budget and the incomes statement today, that there is little wonder that his crew is in a state of mutiny.