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Unemployment (Tax Revenue)

Volume 13: debated on Thursday 19 November 1981

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asked the Chancellor of the Exchequer if he will estimate the effect of the increase of unemployment over the past year on tax revenue received by the Exchequer; and what effect this has had on public spending.

It is not possible to separate the revenue effects of the increase in unemployment over the past year from other developments affecting the revenue flow. An estimate could be made only by making some essentially arbitrary assumptions about, for example, the income that those now unemployed would have earned in employment, and by simulating an alternative course for the economy on a macro-economic model. The results would be highly dependent on the assumptions used. For that reason, I do not think that this is a fruitful approach.

I am grateful to my right hon. and learned Friend for his answer, although it does not satisfy me. Will he honestly admit to the House that the cost of unemployment through public expenditure is excessive and damaging? Would it not be better if much of the money were directed to capital projects to get people back to work? I am to meet the local authorities' textile action committee at the Department of Trade in a few minutes. Can my right hon. and learned Friend give me any message of hope to take to those people, who represent an important region of the United Kingdom which is being undermined by unfair competition and prices which are rising as a direct result of Government policy?

I agree that the money spent on unemployment benefit is excessive. I wish that it were not as expensive as it is proving to be. My hon. Friend asks for a message of hope. I think that he should draw the attention of the people he is to meet to the facts put forward by my right hon. and learned Friend the Chancellor of the Exchequer about changes in output which are taking place. My hon. Friend should also stress that if moderation in pay claims continues to a greater extent than it has so far, there should be no reason to doubt that the improvement will continue.

Is the Chief Secretary aware that increasing unemployment has pushed up to an intolerable level the crude impost effect of national insurance, thereby creating further unemployment? Will he wind up the national insurance fund and finance unemployment benefit through the Exchequer?

I am not sure that such a change would have the impact that people who ask that question want. There is nothing magical about the present method of financing, and I am prepared to look at any realistic alternatives. However, I do not wish to give the impression that a great change is afoot. I accept that the real problems remain and that financial manipulation will not solve them.

Does the Chief Secretary not yet realise that the more that he cuts public expenditure, the more unemployment increases, the less tax revenue accrues to the Government and the greater is the demand to cut public expenditure? Is it not time to embark on a cumulative expansion rather than a cumulative decline?

I do not accept in their entirety the premises behind that question. The hon. Gentleman might have noticed that on 21 October I made it clear that the Treasury's plans involved an increase in spending above what had previously been planned.

Does my right hon. and learned Friend accept that the suggestion by my hon. Friend the Member for Macclesfield (Mr. Winterton) that the Government should initiate four or five capital projects—presumably to be financed by the City—would be far better than losing tax revenue and paying unemployment benefits? The nation needs to get back to work.

Considerations, such as those put forward by my hon. Friend, have led to plans for increased investment in the nationalised industries.

Does the Chief Secretary recall the many warnings that he received from the Opposition Front Bench during the Finance Bill that the Government's attempt to claw back part of the cost of unemployment by taxing the unemployed would prove both impractical and unjust? Has the right hon. and learned Gentleman noticed the statement today by Mr. Luxton, of the Society of Civil and Public Servants, that, as a result of that proposal, the Government are heading for a gigantic series of blunders?

Does the Chief Secetary accept, even at this late stage, the common sense case for postponing that half-baked scheme? Alternatively, will he at least give the assurance that we sought in vain last spring, that the Government will restore to the unemployed the 5 per cent. which they lopped off benefits in the pretence that it was in lieu of taxation?

I have not read the particular utterance to which the hon. Gentleman referred, but I shall be happy to look at it and to consider whether it deserves credence.