Mrs. Margaret Thatcher (Finchley)
It is the custom for the Leader of the Opposition to congratulate Denis Healeythe Chancellor of the Exchequer on the manner in which he presented his Budget. I congratulate him most warmly this time. We have never had such a short Budget Statement—it lasted I hour 23 minutes—and that was much appreciated. I notice that the right hon. Gentleman took the usual refreshment. I am not sure whether it was brandy or whisky, but I am sure that he needed it, as we did as we listened to him.
By custom, the Chancellor of the Exchequer starts by giving the House some background to his Budget. There are three aspects of that background on which I should like to comment, but before I do that I must tell the right hon. Gentleman that what he said struck many of us as though, in this Budget he were really apologising for much of the damage that he had done in his other nine Budgets. We are glad that he is repenting the high level of direct taxation that he has imposed on people and, to some extent, the other levels of taxation that arise from the high level of public expenditure that it has been this Government's choice to impose on the economy and on the people.
Looking at the Budget as a whole one finds that it is still a take-away Budget rather than a give-away Budget. He has taken his fiscal stand on £1½ billion. That is not quite enough to restore us to last year's level and it is nothing like enough to restore us to the level of the 1973 Budget.
The Chancellor of the Exchequer said that much would depend on a satisfactory pay policy, but he made no attempt to say what that would constitute. He has given us no hint at all. I thought that the Government were still in charge. Perhaps they are not responsible. They do not like taking responsibility. The Chancellor of the Exchequer has staked everything on a satisfactory pay policy next [column 289]time, yet he has left himself absolutely free to bring in the reliefs, regardless of what that pay policy is.
Last year the right hon. Gentleman said that there would be certain tax reliefs if the pay policy was set at 3 per cent., and he brought those reliefs in on the basis of 5 per cent. We have no means of judging what is in his mind.
There is another gap. It is customary for the Chancellor of the Exchequer to say something about the annual review of social security benefits. He has said nothing about that. Usually there is a reference to the annual review either by the Chancellor today or during the course of the Budget debate. I am not quite sure whether it will be coming or not.
Perhaps I may turn to three of the background factors. There seems this time to have been a singular unanimity in the forecasts of what will happen in the year ahead in Britain. They have not varied very much on a number of things. First, on the real gross domestic product that we may expect this coming year, what many of us are very worried about is that we are practically near the peak of the very temporary recovery and that we are in danger of going into a minor recession. Therefore, the whole Budget is against the background, once again, of stagnant or very slightly rising output; some forecasters say it is falling very slightly. But it is against a background of more or less stagnant output. That is one of the most serious aspects. Again, all commentators are agreed upon that.
The next thing that they are agreed upon is that consumer prices will rise by about 15 per cent. That, too, is pretty devastating in terms of the cost of living for those who have absolutely no margin left in their incomes, and it is much too high. I shall say something about that again shortly.
The third thing that they are agreed upon is that unemployment is likely to rise, particularly towards the end of the year, due no doubt to the stagnant output that is expected and to the increasing productivity that is expected.
That is the background. I have not for a long time remembered such unanimity among the several forecasters in what they are expecting in the coming year. [column 290]
The second background factor is how we adjudge what the Chancellor says about his own forecasts. I heard his broadcast last year. It was extremely interesting. I remember watching it and admiring it for the Chancellor's very polished performance. He started off by saying that we were expecting or hoping for “an economic miracle” . I am not quite sure what happened to that, but it did not come about. He said in the House: “All that is required to achieve the formidable objectives which I have set is a marginal improvement in our industrial performance at every level. This will suffice to produce the economic miracle we need.” —[Official Report, 6th April 1976; Vol. 909, c. 282.] The economic miracle never happened.
Perhaps I may look at some of his other forecasts and analyse what he said would happen. First, he said that “World trade has already picked up and for once we are getting our proper share of it.” World trade had picked up, but our share of it was in fact falling during the first three quarters of last year. Indeed, it fell from 9.2 per cent. to 8.6 per cent. according to Trade and Industry figures. So the Chancellor was not right about that one.
The Chancellor went on to say “British industry is already on the move … and our output will be growing fast.” First, our historic increase in output ever since 1948 has been on average over 3 per cent. per annum, but last year it was only 2¼ per cent.—the annual rate since the Budget. If one contrasts that with what many of our EEC colleagues were doing, one finds that, unlike us, they had got right back not merely to 1974 production but to their 1973 peak production, and over it. We are nothing like back there, in spite of the temporary increase during last year. Therefore, it could hardly be said that our output was growing fast.
The Chancellor then went on to say, “In the next 12 months unemployment will be on the way down.” In fact, in March 1976 it was 1,235,000; in March 1977 it was 1,328,000.
Finally—and I could go on and on—there is just one other factor that I shall take. The Chancellor went on to say “Then our inflation will at last be down to the same level as it is in other countries.” [column 291]But, of course, it is not. On the figures that the Government have placed before us, ours is 15.1 per cent., at an annual rate, and the average in the OECD is 8.4 per cent., so we are way, way ahead on inflation— “behind” would perhaps be the more appropriate word. We are behind the OECD countries on taking advantage of increased output.
Somewhere during his speech today the Chancellor referred to the fact that other countries in Europe were having difficulty in getting their economies right. Of course, we all are, but I do not think that anyone except us has got pretty nearly all the indicators wrong together. Certainly Europe has difficulty with unemployment, although I believe that we are now slightly above the European average, but European countries have not got simultaneously difficulty with unemployment and inflation and the volume of increased production. Everything is going wrong with us simultaneously. Therefore, if we are to judge the Chancellor by his forecasts, we must look at them very circumspectly indeed.
The third background factor is the increase in inflation, which has not come about in any way through wage inflation but, indirectly, through the level of the public sector borrowing requirement and public spending. It seemed to me that the Chancellor ducked this in what he said, but he knows that if he looks at the quarterly figures and not at the annual figures that he has always been very careful to quote, he will find that they dodge about like a yo-yo. This is because his money supply and domestic credit expansion have been so very much related to his borrowing needs that he has had great difficulty with sterling. It went out in the summer, and because of that he has very much higher import prices. That was due to the level of public expenditure and to the level of the deficit, which is still, even on IMF figures, proportionately high as compared with that of other countries. Eltis and Bacon brought this out in an article in The Sunday Times last Sunday, and in The Times previously.
The CBI attributes to that mismanagement of borrowing, and sterling, and an increase of 6 per cent. In the level of inflation. That is a very great imposition on the British people—that large public [column 292]sector borrowing requirement and that mismanagement of sterling, which the people now have to endure.
Perhaps I may say just one more thing about this factor. I know, or I deduce, that it is the Chancellor's policy to keep the £ sterling low to try to make export prices competitive. I believe that he bases this on the old German strategy that when they kept their exchange rate low they built up a big export trade, which has stood them in good stead ever since. But they were in circumstances that were very different from our present circumstances.
It seems to me that the policy of Switzerland has been very much better, namely, to follow what I would call conservative—with a small “c” —policies, which is to have a more balanced Budget—I know that it is not possible at present—which has led to them having only a 1 per cent. rate of inflation and a high exchange rate. Certainly a high exchange rate makes it difficult to export—although not with the quality of their goods. But it does two other things. It means low import prices and, therefore, low costs feeding into one cost element of their exports; and it means a low demand for increased pay because their inflation is low.
That seems to me a much better policy than the one that the Chancellor seems to be pursuing on the exchange rate. I hope that there will be no attempt now to hold the exchange rate down artificially, because that will land us in difficulties with the retail price index and inflation.
I come now to some of the proposals that the Chancellor has put before us. I think that we were all shaken, perhaps, by the extent to which he has loaded extra taxes on the motorist, which will undoubtedly react very heavily on a number of people in the rural areas who have to use their cars.
Concerning corporation tax, again we were very concerned this morning, as we have been for the past few days, to read that companies appear to be very short of cash. This is not when their stocks are high. This is when they have already liquidated their stocks, and, in fact, when they have had a year of low investment. The fact that they are short of cash is very worrying if one is wanting increased output next year. [column 293]
I am particularly pleased that the Chancellor has raised the ceiling on premiums for retirement annuities for the self-employed. As for his income tax reductions, in the case of most of them he does not, in fact, even take us back to where we were last year. That is why it is, net, a take-away Budget and not a give-away Budget.
I notice that the Chancellor has spread his reliefs. I think that he has spread them wisely, because the people at the lowest end of the taxpaying scale are to have considerable relief. After all, it was the Chancellor who brought them into paying income tax. We pay the highest rate of income tax at the lowest level of income of any country in the EEC. That is the measure of Socialism—the effect on the poorer people of this country. He had to do something about that. I noticed that he said that he would take 845,000 people out of paying income tax. With due respect, since he has been Chancellor of the Exchequer he has brought more than 1.1 million people into paying income tax. He still has a long way to go to undo the damage that he has done.
The Chancellor was wise to give relief to those in the middle management band. There has been no more demoralised group in society than middle management. People in middle management. People in middle management have often seen their pay squeezed and have suffered heavy taxation on that pay. Many in middle management have had their standard of living drop not by 3 per cent. or 4 per cent.—which is the average—but by 20 per cent. or 25 per cent. They, at least, have managed to get some encouragement from the Chancellor's Statement.
One wishes that the Chancellor could have been able to do more for the real wealth creators. I accept that middle management does a great deal, but those at the top could have been helped more. On them depends the creation of extra jobs. That is the single most important thing. It is not that we should just add to jobs by artificial means; we should add to the numbers of jobs available by creating real jobs, whether in the manufacturing sector or in the services sector. Both are equally important.
The Chancellor certainly could not do without the very big bonus that he gets from the invisibles every time we have the balance of payments figure. [column 294]
These are some of our initial comments. We are delighted that some of the direct tax is down. We know that the Chancellor is under the constraint of the IMF. There really is no Budget judgment this year, because it is an IMF Budget. In that sense the only judgment that the Chancellor of the Exchequer was able to make was whether he should be slightly tougher or take it at IMF terms. I notice that he has preferred to leave it roughly at the IMF level.
Finally, this is not a revival Budget for Britain. That is what we were hoping for. Instead, it appears to be a survival Budget for the Labour Government.