§ Order for Second Reading read.10.13 pm
§ The Minister of State, Treasury (Mr. John Wakeham)
I beg to move, That the Bill be now read a Second time.
The Bill is short and I can summarise its objectives quickly. It provides for a further reduction in the national insurance surcharge to a rate of 1½ per cent. from April 1983, and for national insurance surcharge payable in the current year 1982–83 to be reduced by an amount equivalent to approximately ½ per cent. Although the Bill is short, the benefits are considerable and widespread. They will be felt by private sector companies in every hon. Member's constituency. I am confident that the measures will be welcomed warmly and will command wide support from both sides of the House.
I shall remind the House of the history of the tax. It was conceived in 1976 by the right hon. Member for Leeds, East (Mr. Healey). He introduced it in April 1977 at a rate of 2 per cent. In October 1978 he increased it to 3½ per cent. There is no such thing as a popular tax, but ever since its introduction by the previous Government, this tax has been notoriously unpopular with industry. That is why my right hon. and learned Friend the Chancellor of the Exchequer reduced it in his last Budget to 2½per cent. and why he now proposes further reductions.
I should like to remind the House that, without the measures now before us, the surcharge would revert from the present temporary rate of 2 per cent. to 2½ per cent. from April 1983. As it is, the proposed reduction to 1½ per cent. will benefit private sector employers by about £700 million in 1983–84 and by about £800 million in a full year.
As for the reductions earlier this year, we intend that the change should be neutral in so far as it affects the financing of public sector bodies, leaving them neither better off nor worse off than before the change was made. To give effect to this, the 1983–84 cash limits and the external financing limits of the nationalised industries will be adjusted to reflect NIS payments at the new rate of 1½ per cent. rather than 2½ per cent.
For local authorities, we had it in mind to adopt a similar approach and to recalculate the provisional 1983–84 rate support grant settlement that is presently based on an assumption of payments at the 2½ per cent. rate. After further consideration and consultation with the local authority associations, we have decided that rather than disturb these calculations at this late date and to ensure equitable treatment for all local authorities, it would be better to leave the present RSG calculations as they stand and to provide for the local authorities to pay, in 1983–84 only, a rate of 2½ per cent.
An amendment to this effect will be put forward for consideration in Committee. I can assure the House that, while the proposed means are different, the end is the same. The local authorities, collectively and individually, like the rest of the public sector, will be no better off and no worse off as a result of the changes in the surcharge. Indeed, if the proposed amendment is accepted, the procedure will be identical to that adopted earlier in the year when the rate was reduced.
The proposals for 1982–83, if approved, will bring a further benefit to private sector employers of about £350 230 million in the present financial year and about another £50 million in 1983–84. As my right hon. and learned Friend announced on 8 November, we wish to give this further help to the private sector by making approximately ½ per cent. of the NIS reduction due from April 1983 effective in the present year.
To do this, it is necessary to provide for a new and temporary special scheme. The normal procedure when NIS changes are made is for each employer to be issued with detailed tables enabling him to calculate the combined payments of the NIS and of national insurance contributions due for each employee. This process takes about four months in all. What is more, under these arrangements, individual employers do not make separately identified payments for NIS alone.
I am pleased to say that we have, nevertheless, found a way that enables us to go ahead and to achieve a reduction which is equivalent—not precisely but sufficiently—to a ½ per cent. reduction in the surcharge this year. We can do this by providing for employers to calculate 3 per cent. of their total liability for NIS and national insurance contributions, including employees' contributions, for the months April 1982 to January 1983 and to reduce their February payment of NIS and NIC by this amount. They will also be entitled to reduce by 3 per cent. the payments due in respect of the rest of the financial year.
There are four points on these arrangements that I should like to make clear to the House. First, although under this temporary scheme we propose to bring National Insurance contributions into the arithmetic for calculating the reduction, we have taken great care to ensure that the arrangements will be such that NIC contributions, records and procedures will be left intact. The intention and the effect is a reduction in NIS liabilities alone.
Secondly, because of the method we have adopted, the reduction cannot be precisely equivalent to a ½ per cent. reduction in NIS for all employers. Hon. Members will realise that the total contributions payments, taking account of both employers' and employees' rates, are lower for employers with contracted-out pension schemes and for those employing people of pension age and married women who have opted out of paying full rate contributions. It follows that under the proposed scheme they will not do quite as well relatively as employers paying full rates of NIC. But we are satisfied that for this temporary scheme it would have been impracticable to introduce different percentages for a multiplicity of different circumstances. The short point is that all firms paying NIS will benefit from the temporary scheme and that, without such a scheme, none would have benefited.
Thirdly, the Bill as drafted provides that eligibility for the reduction is confined to those employers liable to NIS for the period from 4 January to 5 April 1983. This was to serve the aim of giving the additional help to going concerns. On further consideration, we have decided that this provision could be too harsh in its impact on certain cases—for example, where a business continued but there was a change during 1982 in the employer, the old employer would not qualify for any relief and the new employer could claim relief only on those payments that he had made in the year. There might also be cases where no NIS liability arose for the qualifying period January to March 1983—for example, with a seasonal business.
So, to avoid any risk of withholding the full benefit from deserving cases, we have decided that the simplest 231 and most practicable approach is to extend the qualifying period in clause 1(3) so that anyone who paid NIS in 1982–83 would qualify for the relief. We shall propose an amendment to this effect. I am sure that it is a change that will commend itself to the House as a simple and practical way of giving effect to our intentions. It will lead to some increased payments, but not such as to alter the broad estimate of £350 million in 1982–83.
Fourthly, I must stress that it is particularly important that employers should take no action to reduce their payments before they receive advice and instructions from the Inland Revenue. Depending on the passage of this Bill, these instructions will be issued in the last week of January 1983 and in time for employers to make the proposed deduction from their February payment.
Because this temporary scheme for 1982–83 is novel, I thought it right to spend a little time explaining it and to draw hon. Members' attention to some of its features. But I am sure that the benefits to the private sector—£350 million this year and a further £50 million in 1983–84—will be welcomed by the House. The benefits to the public sector will be offset and we have decided that the most practical way to give effect to this is to leave local authority payments unchanged at 3½ per cent. for 1982–83 and, for the rest of the public sector, to amend cash limits and external financing limits. In short, we propose precisely the same arrangements which applied when the rate was reduced earlier this year.
The measures now proposed in the Bill, taken together with those introduced by my right hon. and learned Friend in his Budget Statement last March, provide valuable and welcome help to private sector commerce and industry in reducing their labour costs. Taking the Budget measures and the present proposals together, the total benefit to the private sector is worth about £1 billion in 1982–83 and around £1½ billion in 1983–84.
§ Mr. D. N. Campbell-Savours (Workington)
Will the Minister accept that the Confederation of British Industry has expressed the view on more than one occasion that this sum is entirely insufficient to resolve its problems, despite the rather large macro figures that he is producing, and that it will not resolve the economic problem, which it maintains requires a far larger reduction in the national insurance surcharge?
§ Mr. Wakeham
I remember well that the announcement of my right hon. and learned Friend the Chancellor of the Exchequer on 8 November was warmly welcomed by the CBI, which thought that it was a substantial move in the right direction.
I strongly recommend these measures to the House and I trust that they will be widely welcomed and supported by hon. Members.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
We have a complicated method of bringing into operation that which could and should have been done in the Budget earlier this year. If the Government had been wise enough to accept the Labour Party amendment that was moved by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) on 5 May 1982, we could have done without this legislation, without a Committee stage, and without all the debate that will ensue. All that the Government had 232 to do was to accept the amendment that we proposed, which formed part of our continuous representations about the appalling industrial record of this Government.
In January 1981, we drew attention to the need to start removing the national insurance surcharge by a phased reduction. We repeated that in the new clause that we tabled on 14 July 1981, when we antedated the subsequent changes that the Government finally accepted. On 5 May this year, we tabled a further amendment to reduce it from 2½ per cent. to 1½ per cent. Each time the Government have reluctantly accepted that we were right, but in examining the problems of British industry they have done too little too late.
It was well put by my right hon. Friend the Member for Stepney and Poplar on 5 May 1982, in moving the amendment to reduce the surcharge from 2½p per cent. to 1½ per cent., when he said:A year ago, the Chief Secretary turned us down and now, I understand, he is proposing what we then urged upon him. The fact is that in this matter, when it comes to assisting British industry, the Government's measures are both too little and too late. Whether or not we succeed in persuading the Government to accept our amendment, on this year's precedent at least we have the possibility that in next year's Budget, if the Chancellor and this Government are still here to present one, they will accept in 1983 what they find unacceptable in 1982".—[Official Report, 5 May 1982; Vol. 23, c. 174–5.]It is interesting that the Government have accepted in the same year, 1982, what they previously refused in the earlier part of this year. The reason is clear. Optimistic comments have poured out of the Treasury month after month about the economic recovery that is as certain as day following night. We have been told that evidence of the recovery is all about us, and that only the most blinkered pessimist could fail to see it. We do not hear that now. The reason why the Bill is presented now is tied up with the absence of the asinine comments which poured out of the Treasury week after week.
Bankruptcies have increased, closures have increased, and unemployment has increased. The faint hopes that the Treasury once had are now diminished. Only the day before our debate on 5 May 1982, Sam Brittan said in the Financial Times:The economy has fallen off Mount Everest and climbed Box Hill".I am sorry to say that it has now fallen off Box Hill. That is the reason for this change in heart by the Government.
The Chief Secretary to the Treasury resisted the amendment on the last occasion because the public sector borrowing requirement was held to be much more important than the state of British industry. It had replaced sterling M3 as the object of idolatrous worship. We should note, incidentally, that sterling M3 rose 1.7 per cent. last month—an annual rate of about 20 per cent. Does anyone bother about that? The same thing will happen to the public sector borrowing requirement. In real terms, it is nothing like the figure thrown at us and has nothing like the importance given it. It has taken over from sterling M3 as the object of worship.
The point is not whether we can control these figures—indeed, the Government have utterly failed to control them—but whether they help to achieve the final objectives that must be the Government's policy. I refer to the final objectives of those concerned with unemployment, output, inflation, and the balance of payments.
It is useful to have intermediate targets, if they are of some assistance, just as milestones assist when they show 233 whether one is travelling in the right direction and how far one has come. However, when the milestones are useless and do not give any information to help us, they do not tell us anything further about when we shall arrive at the destination. Therefore, we must define our final objectives of unemployment, output, inflation and the balance of payments. Judged by that measure, the Government, whatever they may be doing about those intermediate objectives, are completely failing.
When the national insurance surcharge was introduced it had two main features: it was easy to impose and cheap to collect. Even with this legislation, it is fairly simple to amend the Finance Bill. Collection is not difficult, and the amounts can be calculated easily and accurately. One particular attraction is that it has little effect on the retail price index in the short term, because it takes a long time to work its way through. The same is true when there is a reduction. The retail price index will not fall quickly, because the reduction takes time to work its way through. The major disadvantage is that it is a tax on exports, not on imports and there is no easy way of rebating the tax on imports.
In one sense, the opposite is true of VAT. VAT is an incentive to exports and is levied on imports. Manufacturers find the surcharge difficult, because they have to pay long before they sell the goods, and often long before they even manufacture them. However, VAT helps the cash flow, because it is paid well in arrears and often some months after invoicing. Therefore, we see the case for withdrawing a substantial part of the national insurance surcharge year after year and we look forward to a speeding-up of that process.
We tend to forget the circumstances in which the national insurance surcharge was first imposed. It was becoming widely known that several Continental countries raised the money for their social services through imposts on the employer. Much of our contribution to the social services came from taxation. It was held that the surcharge could be more readily accepted when the pound was competitive, with the consequent ease of export and the advantage given to manufacturing industries. It is not that I would fully accept the case for introduction. There were a number of conflicting factors at that time.
§ The Financial Secretary to the Treasury (Mr. Nicholas Ridley)
The right hon. Gentleman has just said that he did not fully accept the case for introducing the tax. As he was a member of the Government who introduced it, is he following the right hon. Member for Heywood and Royton (Mr. Barnett) in denying ministerial responsibility after the event? We need an answer to that question.
§ Mr. Sheldon
There is a simple answer. Value added tax was the preferable tax. However, the necessity for raising money at that time was compensated by the great advantages that British industry had from exports. It was not suffering anything like the problems that we see today. That is clearly why the Government have come belatedly to the view that as times change they must look at taxes differently. The hon. Gentleman should bear in mind that the reasons for taxes are not immutable; they change with time. A tax that is useful on one occasion is not useful on another. If he is to stay in his job for more than a few months, he will have to recognise that truth.
Nationalised industries, particularly those in trading, are dealt with in clause 1(3). They will be disadvantaged. 234 The hon. Gentleman understands that. He mentioned that they will be dealt with in the external financing limit. Will he give the broad explanation of how that will be done now? I am sure that we shall return to it in Committee. We are concerned about the discrimination against publicly owned industries which we see on all occasions, not least this one.
A letter was sent by the Minister for Local Government and Environmental Services to Councillor Sir Jack Smart of the Association of Metropolitan Authorities. Both we and the AMA are concerned about the important problem of direct labour organisations. At present, they have a 1 per cent. disadvantage on the national insurance surcharge. Because of the way the rate support grant will be altered, that disadvantage will disappear in 1983–84.
I understand that as a result of the Bill the disadvantage for 1983–84 will be 1 per cent. Therefore, we are reintroducing a disadvantage for 1983–84 of 1 per cent. which, from January to March, will be a 2 per cent. disadvantage. Were the national insurance surcharge abolished, as we would wish, without any rate support grant offset there would be a 2½ per cent. disadvantage in 1983–84.
Those are important figures because when the direct labour organisations quote for a job they will be disadvantaged in comparison with the private sector. I am sure that the Minister of State, Treasury has received those representations and I should like to be told how he intends to take account of them.
It is a pity that these changes were not introduced earlier. They would have avoided some of the complications in the Bill. Many consequential problems arise from its introduction now.
The Bill is necessary because the Government have been the assassin of valuable and necessary companies, many of which had the right to exist, were valuable employers of local labour, which thought they had a future and which, under almost any definition, ought to have had a future. Their employees' skills, their capital and equipment have in many cases been dismantled. At some stage the realisation of that destruction will become more apparent in Britain than it is now and then the Government will rightly earn the wholehearted condemnation of all.
Meanwhile, we say a belated "Thank you" for what we should have received earlier. It is but a small part of what needs to be done to help British industry.
§ Mr. Peter Bottomley (Woolwich, West)
The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) made a brave speech. I shall not criticise him for arguing a case which he would have argued if he had been in Opposition when the national insurance surcharge was brought in. It is clear that there were discussions during the period of office of the Labour Government. He outlined what would have been a more sensible way to move forward if raising of VAT had not had an impact on the retail prices index. That was a consideration for the previous Government as much as it is for the present Government.
I welcome the reduction in the national insurance surcharge. I shall refer to the future of the employers' contribution to national insurance and the level of pay settlements. Most commentators are expecting the level of earnings or incomes to rise by about 7½ per cent. during the forthcoming year, which is probably at least 6½ per cent. too much. The rest of the increase is part of the old 235 inflationary paper chase, which does no one any good. We are left with the problem of how to deal with turning a nation of inflationary robbers into farmers.
I suspect that the Government have found the answer to one of the Liberal Party's problems, which is how to bring in an inflation tax. It is clear that that mechanism, as we may hear from the hon. Member for Colne Valley (Mr. Wainwright), could in theory be adapted to one of its causes. However, it does not deal with the major problem, which the right hon. Gentleman brought up in passing, of the nationalised industries.
For example, how can one get an effective incomes policy that can be called a national earnings assessment, or whatever the jargon will be, to work in the nationalised industries? It will be interesting to hear, perhaps not in this debate, how the Liberal Party, which is in favour of incomes policies, will deal with things such as the health workers' pay claim. Liberal Members say that they are in favour of an incomes policy, and would like to give an increase to over 1 million people, which would be followed by another 4 million people. I wonder how that would work, using the adaptation of the national insurance surcharge rebate.
I hope that the Government will not follow the reduction in the national insurance surcharge with an automatic reduction next year, unless the general level of pay settlements as well as increases in nominal earnings, even if we do not call that incomes restraint or pay policy, continue on the downward trend. What is clear to me, and should be clear to the CBI, is that it is not possible to allow back extra money to the employers and talk about boosting profits if employers continue to do what they have done for most of the last three or even 15 years, in being a party to pay settlements that they cannot afford.
It was not the Government or the national insurance surcharge that got employers in the private and public sectors over the past three years to agree to pay increases of about 60 per cent. The national insurance surcharge is only a minor part of what employers agreed to in pay settlements. There was a crazy series of increases that seemed to go on throughout the year, and year after year. One of the Government's achievements is that they have been able to help talk down and force down the level of pay increases. They should make sure that people on both the employers and employees sides recognise that the national insurance surcharge will not be further reduced unless there is evidence in both the private and public sectors that the level of pay settlements is coming down. Sticks and carrots are supposed to work in a free enterprise or mixed economy. The national insurance surcharge is one of the ways of dealing with that.
I should normally make this remark to the DHSS. If Treasury Ministers could get involved in trying to make sure that low income earners and employees are compensated for their family responsibilities by a real increase in child benefit, that is likely to make sure that low nominal pay increases are acceptable to the lower paid with family responsibilities. Without that, we shall find that the lower paid will obstruct the progress of the Government on inflation and pay increases. If that happens, no amount of reduction in the national insurance surcharge will do any good.
§ Mr. Richard Wainwright (Colne Valley)
Liberal and Social Democratic Party Members would have welcomed more cheerfully a Bill to abolish the national insurance surcharge by repeal of the National Insurance Surcharge Act 1976, which we advocated not only in this year's but last year's Finance Bill. I was delighted, although not surprised, to hear the praise lavished by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) on VAT, which is, of course, superior to a tax on the mere act of employing people.
Until the National Insurance Surcharge Act 1976 is removed from the statute book, employers will not feel confident that it has disappeared for ever and that the Government will not sneak back in a future panic to increase again the rate of national insurance surcharge, an option that remains open to them by the procedure they are recommending to the House tonight.
Another point that should be mentioned is the unfortunate way in which manufacturing industry in particular has been given less than two months' notice of the reduction which is to start on 4 January. With proper and civilised notice of such a reduction, manufacturers who export in highly competitive trades, where quotations from all parts of the world are keenly drawn, would have had an opportunity to get this reduction into their costings. They will miss that for several months and probably will not be able to get the 3 per cent. into any of their costings because it comes at such short notice. There is no excuse for the Government springing this change in this way and not dealing with the matter in a statesmanlike fashion in the Finance Act.
One reason, which is well known to the House and is a cause for sadness, is that there is no single, authentic voice of the manufacturing industries of the North of England in the Cabinet. The only voice that comes to mind is that of the Chief Secretary to the Treasury who is known to be fleeing from Cleveland and Whitby and, it is said, seeking refuge in some convenient seat that will be left vacant in feudal North Yorkshire. The right hon. and learned Gentleman may find other problems there because even in feudal North Yorkshire the Treasury is not greatly loved.
The hon. Member for Woolwich, West (Mr. Bottomley), who follows all these matters with unusual care, hinted, perhaps mischievously, that the Liberal Party might have some vestigial regard for a employers' surcharge because it might be magically transformed into our inflation tax. I must remind him that the Liberal Party does not propose any tax on the mere act of employing people, which on the whole we regard as a good thing, especially in present times. The inflation tax proposed by the Liberals is essentially a tax on those who take the privilege of paying their employees more than an agreed norm for that particular period. That is a different matter. We stand by the possibility that in certain circumstances an inflation tax might be the right way to enforce an incomes policy, but in no sense would it be a surcharge tax on the mere act of providing jobs.
The hon. Member for Woolwich, West has provoked me into adding one more comment about a payroll tax. We have always believed that there could be room in certain stages of the economy for a payroll tax—an employers' surcharge—on a strictly regional basis. If some regions of the country return to something approaching full 237 employment, which is much to be hoped, there is nothing wrong with having a regional payroll tax in mind as a means of combating overheating and spreading industry more effectively around the country.
It appears to the Liberals to be retrograde and rather uncivilised for the Government, in their usual vindictive fashion, to apply this relief only partially and rather spitefully to deny the public sector the benefit of the relief. In our view, a tax on employers should be spread over all employers. To deny the public sector this relief can only be born of dogmatic partisanship, and that should be regretted. In any tax that the Liberal Party has ever visualised the public sector would be involved equally with the private sector—the NHS employers no less. Only in that way can certain disciplines be enforced.
To ignorant people who say "That would only be bookkeeping because on the one hand the NHS or the NCB would have a liability but would receive grants from Government on the other", my reply is that most of the most important financial transactions the world over are bookkeeping. We no longer go around with sacks of gold or bushels of meal delivering our settlements. We do so by bookkeeping. There is everything to be said for an inflation tax that would be levied on the NCB and to be held in terrorem over Mr. Arthur Scargill.
The Government have set a thoroughly bad precedent by discrimating against the public sector in the narrow and mean style of the economics of the parlour. However, even for this small, belated and ill-shaped relief for the private sector we are bound to express some pleasure, and we hope that it will not be long before the Government see sense and repeal the Act altogether.
§ Mr. R. B. Cant (Stoke-on-Trent, Central)
I shall make a brief and perhaps superficial contribution. In doing so, I wear my other hat as a member of a local authority.
I seek some assurance that local authorities will not be the losers as a result of this measure. Following the contribution of my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), the Minister received a prompt note from Treasury officials, and I hope that it contains that reassurance.
There are few more battered corporate bodies in financial terms than local authorities. They do not know what is happening from one day to the next, and the rules of the game change constantly. The announcement that the NIS was to be reduced was welcomed by local authorities, but immediately the Treasury said "It will not make any difference", just as when the interest rate fell it said "Ah, well, local authorities will derive no benefit from that."
I have been a local authority member for only 30 years, and in my view, ordinary central budgeting is like simple double entry bookkeeping compared with the rate support grant. Palmerston once said of the Schleswig-Holstein question that only three people had ever understood it—one was dead, the second was in a mental home and he himself had forgotten the answers. I sometimes think that the rate support grant mechanism is similar.
In the light of my right hon. Friend's comments, I hope that local authorities will not be the losers as a consequence of the way in which the Treasury is handling this item. It is far too complex a matter for me to follow, but, in the light of everything that has happened in local government finance, I am still profoundly suspicious. Week after week the ball game changes.
238 The Secretary of State for the Environment has a mad rush of blood to his head and gets up one day and says "Spend all of your capital receipts." The Prime Minister, bless her, supports him. "Yes" she says, "let us have a flurry of spending." But then the Treasury intervenes and local authorities are in desperate straits because the Treasury says "If you spend all of your capital receipts you will have serious problems, because we will take half of them from you." That is a diversion merely to emphasise the financial problems, especially those concerned with rate support grant, that local authorities face.
If the Minister can give me and the House an assurance that we will not be the losers once again in the financial crisis through which we are going, I and others in local government will welcome it.
§ Mr. D. N. Campbell-Savours (Workington)
I should like to reiterate the comments of my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant), especially with regard to local authorities. Some weeks ago, the Secretary of State for the Environment made an announcement from the Dispatch Box amid leaks to suggest that there was £1 billion of capital available for local authorities. Many hon. Members will be aware that many authorities had trouble spending that money because they did not have the money in their coffers to service the debt. If the suggestions of my hon. Friend the Member for Stoke-on-Trent, Central were complied with, authorities would be able to spend that money. They are adversely affected as compared with private companies. They will not see the benefit of the reduction, although they are in many ways the most labour intensive mechanism by which Government can allocate money back to communities in the form of jobs. I am saddened that Treasury Members did not use that mechanism to boost employment.
The hon. Member for Colne Valley (Mr. Wainwright) raised an interesting proposition—that of regional employment taxes. I understand that they would operate like the old selective employment tax of the 1960s. That brings me to one of my pet subjects—the need for a national interest rate structure that is based on the regional indices of unemployment. That would require a Treasury contribution and clearance from the European Community where, I am told, difficulties are likely to arise.
I have heard repeated assertions from the Dispatch Box recently that the origins of the surcharge lie with a Labour Government. By introducing it, we are somehow considered to be responsible. But conditions in 1977 were different. One cannot relate industrial conditions at that time to conditions today. For example, the rate of VAT then was half what it is today. Moreover, I am told that the burden of direct taxation is 10 per cent. higher today than it was then. When making such assertions, one must bear in mind the global effect on company budgets. It is unmistakable and cannot be denied that companies have repeatedly, through their associations regionally and through the Confederation of British Industry nationally, demanded that the Government rescind the surcharge because it is damaging their cash flows. Just as today they are crying out for devaluation, before the immediate problem they argued that a high surcharge damaged their competitiveness. Having seen some reduction in that, they now want a lower exchange rate.
The Times yesterday stated: 239The latest study by The Times Business Forum shows that a majority of forum members believe the pound is overvalued against most leading currencies, and should be allowed to fall.In answer to the question,The pound has been losing ground against most major currencies. Should the Government allow the pound to fall further or should they now support it more strongly?52 per cent. of forum members said that it should be allowed to fall. The article further states:Most think the pound should be allowed to find its own level free from the efforts by the authorities to 'manage' the rate. But of those prepared to give a target figure, a rate of $1.50 against the dollar was the most widely approved. This view was held particularly strongly among the financial members.
I believe that many manufacturers and members of the CBI are now pressing for a lower exchange rate, which the Minister may well regard as undermining the Government's strategy, because the Government have refused to respond to their demands in relation to the national insurance surcharge in recent months.
When my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) and his colleagues met representatives of the CBI in London during the Summer Recess—the Minister will recall the parade of CBI people who were wheeled out afterwards to try to re-establish the link between the Conservative Party and the CBI—it was obvious that the CBI had expressed strong resentment and indeed dissent at the Government's whole strategy, especially on the national insurance surcharge and other costs being imposed on British industry. If the Government had responded to the amendment that we proposed on 5 May, many of the CBI's requests and perhaps even the meeting that took place in September would not have been needed. The CBI must have met us in desperation because it realised that it was not getting through to the Government by way of the normal channels open to it.
There is another argument about the national insurance surcharge and the other charges that fall on companies and their cash flow. I refer to the arrangements for lobbies to argue the case with Government nationally. As we all know, the CBI nationally and other business organisations have made approaches. In the regions, however, where the CBI is a highly political organisation, people like the chairman of the Northern region CBI spend far too much time, allegedly on behalf of their members, knocking the rates policies of Labour-controlled local authorities in areas where some of the lowest industrial rates in the United Kingdom apply and far too little time pressing the Chancellor of the Exchequer and the Treasury for a reduction in the National Insurance surcharge and other industrial costs of paramount importance to CBI members in the region.
I hope that the CBI will examine the function of its regional officials. Is it merely to set about the rates policies of Labour-controlled authorities when the rates are already low and the authorities are clearly sensitive to the problems of British industry, or is it to stand up like men and demand that the Government respond to the demands of manufacturers in constituencies throughout the United Kingdom where people are objecting in the strongest terms to the way in which the Government impose unnecessary costs upon them?
§ 11.5 pm
§ Mr. Wakeham
Even late in the evening, if one deserves to be lectured, there is nobody more agreeable to listen to than the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). However, the lecture comes a bit ill from a member of a Government who brought the tax in and put it up to 3½ per cent., even if he was reluctant. This Government have managed to bring the national insurance surcharge down by 2 per cent. I have not been reluctant to do that, although the right hon. Gentleman, as spokesman for the official Opposition, is entitled to think that we should have brought it down by more. The Government have also succeeded in bringing costs down for industry by about £1½ billion within an acceptable financial framework, and have thus been able to give a significant boost to industry without creating any strain on the PSBR.
The hon. Member for Colne Valley (Mr. Wainwright) spoke of the nationalised industries. We made it clear that a reduction in the NIS was designed to benefit the private sector, because it is the private sector that particularly needs to be encouraged with reductions in its costs wherever possible. The reduction has not been designed to enable a higher level of spending in the public sector.
The reduction in the EFLs of the nationalised industries will simply offset the addition to the industries' internal resources following the NIS cut. No nationalised industry will be worse off than previously, and their plans should be unchanged. The EFLs were similarly reduced when the NIS was cut in the last Budget.
The hon. Member for Colne Valley also mentioned the direct labour organisations. I appreciate his point that the local authority associations have made representations to the effect that their direct labour organisations cannot compete on equal terms with the private sector if only the private sector sees the benefit of reduced NIS rates. This is a matter for my right hon. Friend the Secretary of State for the Environment. I know that the local authorities are in discussuion with him, and I know, too, that he will listen courteously, and I hope sympathetically, but I cannot prejudge how those discussions will go. They are very much a matter for him.
§ Mr. Robert Sheldon
There is a problem about timing, because there will be direct labour organisations that will be tendering for work to be carried out during the time when the national insurance surcharge comes down. They will be at a clear disadvantage from now on. That is a particular problem, and it is worrying the nationalised industries. I know that they will not be at an extra disadvantage, but why should they be at any disadvantage at all?
§ Mr. Wakeham
The nationalised industries will not be put at a disadvantage. Their position will not be changed. It will have the same effect on an organisation such as British Leyland as it will on any private company, but the statutory undertakers, the main nationalised industries, will be in neither a better nor a worse position. My right hon. Friend will see the direct labour organisations again and will discuss these matters with them, and some discussions have already started.
My hon. Friend the Member for Woolwich West (Mr. Bottomley) mentioned pay. Pay realism in wage settlements remains vital. Since the Government came into office the United Kingdom's cost competitiveness has 241 deteriorated by about 20 per cent., despite the fact that the exchange rate has not risen. This is attributable to excessive wage increases. It is true that experience tends to suggest that part of the NIS reduction will be passed back on to higher pay. To maximise the benefits of the reduction of the NIS on competitiveness, it is important that pay settlements do not increase in response to the cut. There is evidence to suggest that there is a new mood of realism in pay bargaining which has changed the underlying behaviour, and we hope therefore that that will not occur.
The hon. Member for Stoke-on-Trent, Central (Mr. Cant) said that he was confused. I have known him for many years and find that hard to believe, unless he was confused by the speech of his right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). I shall therefore repeat that part of my original speech which covers the point that he raised. I assure the House that while the proposed means are different, the ends are the same. Local authorities, collectively and individually, like the rest of the public sector, will be no worse or better off as a result of the changes in the surcharge.
If the amendment that I said we would put forward is accepted, the procedure will be identical to that adopted earlier in the year when the rate was changed.
§ Mr. Robert Sheldon
The hon. Gentleman must be aware that when he says that local authorities will be no better or worse off he is not comparing them with British industry as a whole. He is denying the advantage which he is rightly giving to most of industry to the nationalised industries and local authorities.
§ Mr. Wakeham
I have not denied that at all. My right hon. and learned Friend the Chancellor of the Exchequer made it clear that the assistance that he was able to give by this reduction was to be directed at the private and not the public sector. If we had directed it to the public sector as well, it would have been less of a reduction than we were able to give to the private sector. There is no confusion about the facts.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Committee of the whole House.—[Mr. Garel-Jones.]
§ Committee tomorrow.