THE FINANCIAL SURVEY
AFTER THE DEBATE
Where Do We Go From Here ?
By EDWARD HEATH, MP
A FrEft 211 hours of debate in twenty-one and a ..half days, the longest and most complex Finance Bill of modern times has passed through the Commons. In all 1,222 amendments were Placed on the Order Paper, 440 by the Chancellor of the Exchequer himself and 680 by the Con-. servative Opposition. There were 108 divisions, in three of which the Government was defeated and on one of which it tied. (This was the first Government defeat on a Finance Bill since 1924.) Observers agree that it was the most intensely argued Finance Bill in living memory. Now the debate is over, how should it be judged? First, its effect on Parliament. The time taken by the Bill has thrown the Government's bpsiness into complete disarray. Although the Whitsun recess was shortened by eight days and the House Will have to sit for the first week in August and Possibly longer, the Government has not been able to find time for three of the major measures mentioned in the Queen's Speech—steel nationali- sation, the Crown Land•Commission, and Lease- hold Enfranchisement—together with two of the Political measures, the creation of the Ombuds- man and the disclosure of, political contributions. For the Conservative party this Finance Bill provided an opportunity of acting as a coherent OPPosition in the House of Commons. At last it was something into which the party could get its teeth. It was able to develop new techniques of 00-ordination and specialisation and so press the Government not only on the big issues but also on the technical points of the Bill. Secondly, what of the Finance Bill as a measure of tax reform? This Finance Bill cast its shadow a long way ahead. The premature announcement of the two new taxes, the capital gains tax and the corporation tax, by the Chancellor of the Exchequer in November, was followed shortly afterwards by his statement in the House of Commons which raised more questions than it answered. The consequent uncertainty was serious, not only for sterling but also for industrial activity generally. Complete silence then descended until the Chancellor's Budget speech. Meanwhile he had received massive representa- tions from many who saw themselves greatly affected. The publication of the Finance Bill showed that few of these representations had been heeded. There was only a fortnight to prepare for the second reading of the Bill and only a week in Which to put down amendments before committee Stage began. When the Bill entered committee and the Opposition attack was launched the Chancellor immediately began to re-write large sections of the Bill. This process of redrafting went on continuously until the penultimate uaY of the report stage. As a result of this not only Members of Parliament but those affected by the Bill, as well as the professional organisations which advised them, found the greatest difficulty in keeping pace with the changes and debating their merits. This surely is a lesson In how not to carry out tax reform. There is no doubt that the proposed structure ?,f a new tax should be published in time for 'nose concerned to study it thoroughly and com- ment upon it, for the Treasury to embody con-
structive suggestions in the instructions given to draughtsmen, for the Bill to be carefully drafted, preferably not by reference to existing legislation, and for Parliament to consider it in a way which allows full and detailed discussion.
Thirdly, we must make a judgment as to whether the Bill is achieving its purpose. In his Budget speech, the Chancellor firmly declared that the measures he was taking were not only right, but sufficient to deal with the pressure on the economy. He himself admitted their in- adequacy only three weeks later when he called on the banks for special deposits. More recently, he has taken measures to slow down hire pur- chase. By these additional steps he has admitted that his Budget judgment was wrong and his measures inadequate.
The additional taxes he has imposed, not only in the present Finance Bill, but in his first Budget in November, have done much to push up the cost of living. In the first seven months of this Government there was a rise in the index of retail prices of 4.5 points, 'an annual rate of 7.2 per cent, a higher rate even than that during the last Labour government of 1945-1951.
At the same time all the indicators show that savings are declining and are considerably down on the figures for a year ago. In the first quarter of 1964 the figure for National Savings was £80.6 million. In the first quarter of 1965 it was £44.5 million. In the five weeks up to July 10, 1964, there was an increase of £28 million; for the same period in 1965 the increase was only £4 million. In the first' six months of 1964 build- ing societies had an increase of savings of £271 million. The same period of this year saw an increase of £154 million. Investment in unit trusts was a third lower during the first six months of this year than at the same period last year.
The result is that the outlook for investment— and that means modernisation—is depressing. The latest survey carried out by the National Association of British Manufacturers shows that future orders are slacking off and that many firms expect that their present downward trend in production will continue. The N.I.E.S.R. figures indicate that investment in private industry will flatten out in 1966.
Nor can the Chancellor find much consolation in the index of production. This shows no rise so far this year. It is true that this index has always been somewhat suspect. The same thing happened to the index last year, but there was a substantial rise at the end of the year. One can- not see that the same thing is likely to happen this year.
And as far as the balance of payments is con- cerned, imports are still high and exports have undoubtedly now flattened out at a level which is far too low. In particular, the 15 per cent sur- charge and the export incentives introduced by the Chancellor last November have not so far had the effects which were hoped for and which are required. Then, according to the Chancellor, the import surcharge was going to save us £300 million a year in imports. In fact in the first six months of this year, imports of goods subject to the surcharge have risen by approximately £40 million, although those not subject to the surcharge have dropped by 'f59 million. The Chancellor's calculation therefore as to the effect of the surcharges on imports is so far out by £190 million.
The capital gains tax and the corporation tax were imposed in part to help to achieve an in- comes policy. The purpose of the capital gains tax was not only to tax genuine capital gains but to force a re-distribution of wealth. The object of the corporation tax was to force people to invest more at home whilst at the same time reducing the return. to the investor so as to be able to show that dividends were included in a so-called lair' incomes policy.
There is little evidence that either have had any impact on those negotiating for wage claims. Of the 42 major settlements identified so far, only one is within, or below, the norm set by Mr. George Brown. Ironically, it is the award to 204,000 hospital workers of 21 per cent.
Looking to the future of the economy, there- fore, we see a position in which incomes and prices are rising fast, the index of production is static, the outlook for investment is uncertain, savings are falling and our overseas payments are not moving fast enough into balance. It was in these circumstances that in winding up the third reading of the Finance Bill the Chancellor stated that he did not propose to take any further action to restrain the economy. The next day equity prices rose and sterling weakened. In his speech at the Durham miners' gala on the follow- ing day he quickly reversed his position and said he would not hesitate to take further short term measures. This performance is typical of every action taken and every statement made by this Government since it came into power. In impos- ing surcharges to reduce imports it also asked that -the increase should not be passed on in prices. How then could it expect imports to be reduced? When imposing a 7 per cent bank rate the Government expressed the hope that this would have no effect in slowing down the economy. How then could it expect to make room for exports?
'It is impossible to solve our present problems by such double thinking and double talking. It was bad enough when it reflected the dichotomy between the Treasury and the Department of Economic Affairs. Now that it is being displayed by the Chancellor himself it is even more alarming.
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