Mrs. Margaret Thatcher (Finchley)
J. DiamondThe Chief Secretary to the Treasury has just made a very revealing speech, a speech which revealed a complacent attitude towards the level of taxation and towards the system of taxation. Whenever he quotes, time and time again, some of these figures about the burden of taxation, I am reminded of some of the threats which James Callaghanthe Chancellor has made about increasing taxation. The Chief Secretary has quoted these figures and the implication is that there is plenty of room for increased taxes by this Government. I disagree with that conclusion very much.
I notice that the Chief Secretary quoted a number of figures from the Richardson Committee's Report. Indeed, he claimed the Richardson Report as the source for [column 360]his figures. There was a very critical analysis of the figures in that Report done in a booklet called, “A Tax for our Time” , by Anthony Mitton. It took precisely the same figures as the Richardson figures, but allocated them differently as between direct and indirect taxation because the classification of some of the taxes is open to question, and it came to a completely different conclusion. Nothing was said about that by the Chief Secretary. I suspect that the same could be done with some of the other figures he quoted. We shall have a close look at Hansard tomorrow morning.
There were times when I wondered whether the right hon. Gentleman was describing the same Finance Bill as is before us, particularly when he said that it simplified and clarified the tax system. I turn at once to the current prize piece of jabberwocky in this Finance Bill in Clause 31(6). If this is an example of simplification and clarification, the Chief Secretary will believe anything. It says:
“Where subsection (1) above is displaced by an election under this section, subsection (5) above shall have effect in substitution for sub-paragraphs (1), (2) and (3) of paragraph 23 of Schedule 6 to the Finance Act 1965 (assumed sale and re-acquisition at market value), but subject to sub-paragraph (4) of that paragraph, construing references to sub-paragraph (2) of that paragraph as references to subsection (5) above … .”
etcetera, etcetera. That, of course, is in a part dealing with the betterment levy, a particular group of financial provisions which received more criticism for complexity than any I have ever known, even exceeding the criticism of Corporation Tax and Capital Gains Tax. The Chief Secretary went on to what I can only refer to as a kind of verbal explanatory memorandum which no doubt we shall find useful when we reach the Committee stage of the Bill.
I turn now to some of the more important items of Budget judgment which, of course, are embodied in the Finance Bill. The Finance Bill I am talking about is certainly one which is historic. It is historic in that it levies on the British people the highest amount of taxation in history and the greatest amount of Government expenditure in history. In addition, it incurs the highest borrowing commitments in history. Those are all records which I am glad no Conservative Chancellor holds. [column 361]
I turn to the atmosphere surrounding the Budget judgment. I think it was noticeable that it changed a few weeks before the actual Budget Statement. There was a sudden optimism, a sudden kind of euphoria caused, I think, in part by short-term money coming back into the reserves and in part by the fact that we had one or two months of good trading figures which we all welcomed at the time, and also in part by the mild winter which helped employment at home. Suddenly it seemed that everyone was expecting a much easier Budget and was expecting that our external position was now all right and our internal position was through the worst.
When we came to Budget day, the Chancellor produced a sterile Budget but coupled it with some rather optimistic forecasts. I want to question the view that both the external and internal positions are now perfectly all right.
Let us look first at the external position. On the reserves, it seems that the money flowing in is largely “hot” money which could move out as fast as it comes in. The underlying position of the reserves is that they are bolstered by second-line reserves, that is to say by some £316 million worth of liquefied dollar stocks. They are also bolstered by third-line reserves which arose from the disinvestment of dollar stocks, a part of the proceeds of which has gone straight into the reserves. So the true reserve figure is swollen by second-line and third-line reserves, namely, part of the Government portfolio, and part of encashment of the private portfolio. When one takes away the short-term money flowing in, the underlying position still gives rise to a certain amount of concern.
Against this background one must look at some of the Chancellor's forecasts. On exports we heard a lot about having an export-led boom. It was one of the favourite phrases in this House at one time, but what we are getting now by way of reflation is a public spending boom. Exports, I am the first to admit, did better last year and that we all welcome. They should have done so because the terms of trade were with us and world trade was expanding. If they could not do better at that time they are unlikely to do better at a time when world trade is expanding less fast and [column 362]the terms of trade may not be in our favour in future as much as in the past.
The Chancellor's estimate was that exports would be up 3 per cent. or 4 per cent. for the second half of 1967 compared with the second half of 1966, but others are already doubting his forecast. For example, in The Guardian on 20th April, 1967, it was reported that the C.B.I. had some doubt about the rate of increase in exports looked for by the Budget. The Financial Times of 21st April, in an article by Samuel Brittan, Economics Editor, says that although for the moment the National Institute and the Chancellor's forecasts about export performance agree
“the Institute is however already thinking of reducing its export forecast in view of the worsened outlook in the U.S. and Germany.”
One turns to this week's Board of Trade Journal and sees in an article on “Orders, deliveries, production and exports in the engineering industries” , that comparing the three-months' period December to February in the preceding three months:
“new export orders fell 5 per cent. producing a further drop in order books at the end of February and continuing the declining trend throughout 1966.”
There is a similar rather pessimistic forecast about commercial vehicle exports. It seems, therefore, that other people are beginning to revise the judgment of export performance. Incidentally, there was another revision in this month's Economic Trends, which reached me yesterday, pointing out that we are not likely to do so well in the United States market this coming year compared with the past two years because of the decline in aircraft deliveries.
On the imports side, one notices that the Chancellor gave no forecast of what the stock position would be in the future, although stocks at the moment are rather low. It seems, therefore, that the underlying external position is unchanged and that the freeze and squeeze have done litle, if anything, to improve it.
I turn now to the internal position. The Chancellor's optimistic forecast about growth towards the end of this year has already received enough comment. Within a few days of his announcement, other people were once again doubting whether the 3 per cent. growth rate could be or would be reached or was the right assessment for this year. One of the right hon. Gentleman's forecasts which interests me [column 363]greatly, and will interest everyone else, too, was his incomes forecast. This also is crucial. He forecast a 6 per cent. increase in wage rates over the 18 months from July last to December next. If, however, we look back to the comparable pay pause period and the figures of wage rates for all industries and services from July, 1961, to December, 1962, we find that, in the identical period, under a voluntary pay pause, wage rates rose by 5½ per cent.
It seems that compulsion has achieved nothing and, in fact, was almost completely unnecessary, as we on this side have always asserted. What we were able to achieve voluntarily the Chancellor has been able to achieve only by compulsion, embittering relations a great deal in the process. Perhaps his speech at The Hague about a compulsory incomes policy being a bonus was one of the true flashes which he had at the time and one which may have turned out to be true because it was the financial stringencies which led to the present incomes position and not the compulsory wage freeze itself. But the spurt, even on the Chancellor's forecasts, will come at a time later this year, very late in the year, when there will, on his forecast, be a considerable upsurge.
Over the last two years, the underlying structure has remained unchanged and, after two and a half years, the external position is still difficult. As regards the internal position, we have learned since the Budget that the index of production has fallen by one point and that the underlying problem of unemployment is even more difficult than we thought at the time of the Budget.
The Chief Secretary devoted some of his time to giving us his attitude to taxation and to taxpayers. As he knows, there have already been large increases in taxation under the present Chancellor. The increases in rates alone have led to increases of about £1,000 million in tax charges. The largest increases are now falling inevitably on the broad middle-income groups. The day seems to have gone—I doubt that it was ever here—when the Labour Party could say that we could have increased taxation and increased expenditure but “they” —someone else—would pay.
The lesson we have learned over the past two years is that public expenditure [column 364]has risen so much that it is the middle-income groups who pay the price of Socialism through constantly increasing taxation. We have threats of further increases, which the Chief Secretary did a certain amount to encourage.
Every action produces a reaction of some kind. In face of these increases in tax rates, some people will prefer more leisure to more work. Others will look for ways of minimising the growing tax burden. Some ways are permissible. The Chancellor gave one in his Budget speech; he wants to encourage people to buy more National Savings Certificates. That is all right. There are other permissible ways of minimising the tax burden, specific life assurance reliefs and mortgage reliefs, for example.
I do not quite know what the Chancellor meant in his Budget speech when he talked about looking at all tax avoidance, but it is worth mentioning that the present high rates of tax on high incomes are bearable only because there are specific reliefs within which people can legitimately put themselves to reduce the burden of taxation. This tax avoidance is not wrong in any way.
One of the significant features of the Chief Secretary's approach and the Chancellor's approach is that they concentrate above all on the enforcement provisions. It seems to me that the Chancellor protects the revenue and the taxpayer can jolly well look after himself.
I happen to be speaking at the moment, but I am referring to the ordinary citizen.
Mr. Joel Barnett (Heywood and Royton)
He is on P.A.Y.E.
It applies to the P.A.Y.E. man, too. The Chancellor has threatened increases in taxation. He threatened them in his Budget speech. I understand also, from the Financial Times, that he threatened them in a meeting which took place upstairs afterwards. I am speaking of the person who is on the receiving end of the Chancellor's threats. This is why I refer to the middle-income groups who bear the increases in taxes. They always do. They pay the greatest price of Socialism. It always seems to be the Inland Revenue versus the citizen, with the Chancellor [column 365]concentrating everything on trying to get after the comparatively few people who do not co-operate in paying their taxes. The Chief Secretary said that the vast majority of people comply voluntarily and readily in paying their taxes.
It is significant that the Inland Revenue, according to the last Report, the 109th Report, collects in gross receipts over £5,261 million a year in Inland Revenue receipts. Another significant fact emerging from the same Report is that back tax assessments over the last years have not varied very much. These are the results of the enforcement policies, of course, and the amount is approximately £15 million a year, or three-tenths per cent. of the total collected.
It seems that the Chancellor, the Chief Secretary and the Inland Revenue concentrate their efforts on going after the three-tenths of 1 per cent.—or, perhaps, a few more—when it would be better if they took a completely different attitude for a few years and concentrated——
Would the hon. Lady do without enforcement?
Enforcement is always part of the work of the Inland Revenue. What I am suggesting is a change of emphasis from a great concentration on enforcement to a concentration on effort on enabling co-operative taxpayers to calculate and discharge their tax liabilities more easily. This would be a great change of approach. Instead of hounding the 1 per cent. with all their effort, some of the effort should be devoted to helping the 99 per cent.
This would call for a fairly extensive programme. For example, the tax forms would have to be redesigned. This has already been done in the United States, where those with incomes of less than 10,000 dollars a year earned income—which would cover most people in this country—and not more than 200 dollars a year investment income fill in a tax form like the one I hold in my hand, which is about the size of a panoramic picture postcard. The forms have been designed by industrial consultants, and there is a great effort directed towards helping the taxpayer to understand and to comply with his tax requirements, helping [column 366]him instead of hounding him. I believe that it has been extremely successful.
Another part of the programme would mean looking at Government legislation to reduce anomalies and not bringing forward pernickerty legislation designed to increase the anomalies already present in the taxation system. It would also mean, if one is to help the taxpayer, redrafting and redesigning some of those arrogant, dictatorial form letters. It would also mean, if one is to secure the co-operation of the taxpayer, paying as much attention to getting quick refunds of over-payments of tax as the Chancellor pays to getting in back tax. I notice that, in any one year, repayments of tax due to the taxpayer are of the order of some £500 million. Most of us know that it takes far longer to get money out of the Inland Revenue which has been overpaid to it than it takes the Inland Revenue to get money out of a taxpayer on which the taxpayer has been under-assessed——
I assume that the hon. Lady is making a constructive comment, but, naturally, she understands that most repayments arise because tax has been deducted at source—on dividends, for example. Does she suggest that we should not deduct tax in that way?
I do not suggest that at all. I am quite aware of it, and the hon. Gentleman and I share some taxation experience. Where the taxpayer is entitled to a refund the Inland Revenue should see that it gets there quickly. The hon. Gentleman knows quite well that people have to wait a very long time now for a refund. The Chancellor is now directing all his effort towards enforcement, and it would be better if he directed some of it towards helping the large number of people entitled to refunds.
If the Chancellor were to embark on a campaign to help the taxpayer, it would also mean that he should be prepared to give advance rulings. We are very much behind in this aspect compared with other countries, judging by the papers presented to the 19th International Congress on Financial and Fiscal Law.
The Chief Secretary spent some time on miscellaneous points in the Finance Bill itself. The more one learns about the Selective Employment Tax, the more absurd the tax seems to become. There are enormous cash flows created all for [column 367]£180 million of tax. There is an enormous cash flow into the Treasury and an enormous cash flow out, largely back to the same people from whom it comes. We have understood for quite a long time that the Selective Employment Tax system is undergoing a review, and a small part of the results of the review appear to be in the Bill.
It would seem that the only major change in the Bill is the one about part-timers, and it is really only a grudging half-relief. It is noticeable that it does not begin to operate until 4th September. That is not really of much help to the hotel industry in the seaside towns or to the tourist industry in Scotland. Just after the hotel industry has its greatest need for part-timers, so the relief will begin to operate. Why does the Chancellor not put forward the relief to help the tourist industry in the development areas and to help the hotel industry, particularly in seaside towns?
The relief was one for which we asked as a compromise a year ago. On that occasion we were told by Niall Macdermotthe Financial Secretary.
“Now we are being asked whether some machinery is possible by which we could devise a repayment system which would be discriminatory and selective within the sphere of part-timers. We are discussing, in particular, an Amendment, and other Amendments grouped with it which are variations on it, suggesting that there should be a refund in relation to people who are employed between 8 and 21 hours a week. I must tell the Committee that we are unable to find no practical way whatever of devising a refund system on the basis of part-timers.” —[Official Report, 20th July, 1966; Vol. 732, cc. 806–7.]
He then went into a long explanation of why he could not do it.
We are grateful that the Financial Secretary has admitted that he was wrong. It would have been better had it been incorporated in the Bill last year. It would be better now if it came soon enough to help the people whom I have mentioned. On the legislation on betterment levy, it appears to be allowed as a cost instead of as a credit, and that means a certain amount of double taxation.
I come now to the main taxes. I disagree with the Chief Secretary on his exposition about taxes. We have still too many, and they are still too high.
In a recent article in the Financial Times shortly before the Budget, my right [column 368]hon. Friend gave his assessment of what we should do. In fact, people are so used to being hard hit by the Chancellor in successive Budgets that it seemed as if they were almost relieved not to be hit again too hard this year. However, the Chancellor could have given a certain amount of encouragement and relief to taxpayers who have had precious little of either during the period of Socialist Government.
Towards the end of the Budget debate last time, the Chancellor wound up and had something to say about Budget judgments and about the 1963 Budget of my right hon. Friend the Member for Barnet (Mr. Maudling). He will recollect that he quoted what he said about the 1963 Budget in November. What he did not put was what he said about the 1963 Budget during the Budget debate. There is a note in Hansard that there was an interruption at that time. I know what the interruption was, because I happened to be sitting next to my right hon. Friend. He pointed out that, at the time, the Chancellor said that the Budget was too cautious. That is perfectly correct. What the Chancellor actually said about that Budget was:
“In my view, the Chancellor has been too cautious. I believe that there is a need for greater incentives if we are to get industry running full out. I do not believe that we can maintain it, but I think that there would be a case for arguing economically that we should have a relatively sudden spurt for a period of twelve months before we settle down to a steady rate of growth of about … 4 per cent.—[Official Report, 4th April, 1963; Vol. 675, c. 642.]
I quote that to put the record right. I was looking back for some Budget judgment of the Chancellor's which would be accurate at the time that it was given. In fact, I found none. On my right hon. Friend's Budget, he said:
“This is the same old stuff again, and the Chancellor knows it.” —[Official Report, 4th April, 1963; Vol. 675, c. 636.]
That was a Budget which gave a large number of incentives. We are not suggesting that this Budget could give as many incentives at this time as that one gave at that time. But we are suggesting that it is time to give a number of incentives to ordinary taxpayers, at the standard rate, at the reduced rate and at Surtax levels. In accordance with my right hon. Friend's own Budget judgment, therefore, we shall move Amendments [column 369]during the Finance Bill to reduce the direct rate of Income Tax by 6d. and the reduced rates by 3d., and to reduce the Corporation Tax.
My right hon. Friend has indicated how he would pay for this and, once again we note that in the Financial Statement there is plenty of scope for reduction in public expenditure. For example, there is £75 million for the nationalisation of steel which would not have been there had steel not been nationalised. There are still the premiums from the Selective Employment Tax. We believe that Income Tax-payers, both those living on earned income and those living on saved income, deserve and need some encouragement. It is clear that the taxpayer can no longer look to the Chancellor to give him a square deal. He can look to my right hon. and hon. Friends, and we shall not fail.