7 Procedimiento de obtención de resultados

Chancellor: Derick Heathcoat-Amory; Prime Minister: Harold Macmillan (Conservative)

Context

212

HC Deb 17 June 1958 vol 589 c1001 213

HC Deb 07 April 1959 vol 603 c1018 214

Economic Survey for 1959, paragraph 1. 215

HC Deb 07 April 1959 vol 603 c58 216

Ibid. 217

A clear indication of the demand-emphasis can be seen in this section of the speech: “How large an increase in demand can our economy safely absorb? And what action on my part will be necessary, allowing for direct and indirect effects, to produce an increase in demand of that order?”( HC Deb 07 April 1959 vol 603 c48)

218

HC Deb 07 April 1959 vol 603 c55 219

HC Deb 07 April 1959 vol 603 c57 220

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Total demand had turned down in 1957 and unemployment was to reach its peak in January 1959. At the beginning of 1959, it was estimated that there was still “considerable reserves of capacity” and the Budget of 1959 provided “a more powerful stimulus to the economy than any since the war”.221 During 1959 GDP had risen by 3 to 4 per cent, industrial production was nearly 10 per cent higher in the last quarter of 1959 than a year earlier, employment rose and unemployment fell.222 The Economic Survey for 1960 notes that “most of the increase in output was, however, achieved through the fuller use of existing capacity… with virtually no increase in prices as a whole”. However, the Survey also noted that by 1960 “there were signs… that if growth in total home demand were left altogether unchecked, too much strain might be put on productive resources and on the balance of payments”.223 Recognising this, the Bank Rate had been raised in January.

Overall Budget Objectives

The Chancellor explained that “if we look at the economy as a whole there are some dangers that expansionary forces already in the economy could lead to overloading”.224 Furthermore “My own judgment is that the prospective increase in demand arising from the factors I have mentioned is likely at least fully to absorb, and might even involve a danger of outrunning, the increase in production which can be expected”.225 The Chancellor explained that there was a need “for a moderate amount of restraint on the economy and [I] have referred to the additional expenditure which we are likely to have to meet during this year”.226 The conclusion was no net reduction in taxation, rather some “modest net increases”.227 The tone of the speech also treats many of the remissions as exogenous but these had to be offset in the aggregate; I therefore include an alternative classification of endogenous, demand management for these measures.

Major Budget Tax Measures

The overall strategy was modest net tax rises and “such a policy, in my judgment, is justified both by the present buoyant level of activity and the prospective expenditure with which I am confronted”.228 The Chancellor set about describing his proposals to deliver a net increase in taxation.

The two (sizable) tax rises were an increase in the Profits Tax from 1st April 1960 and a rise in Tobacco Duty from 5th April 1960. Together these measures raised over £100 million (0.4 per cent of GDP) in a full year. In terms of the latter the Chancellor argued “I have decided that I must look to the Tobacco Duty for the additional revenue I need this year”.229 And following this, “I have decided also to propose an increase in the Profits Tax”230, noting that although it “will not bring in any appreciable amount of revenue this year. But the knowledge that the higher tax in respect of current profits will have to be provided for will influence the decisions of managements, and will thus have an immediate effect on the economy”.231 These two measures are clearly endogenous. It is tricky to decide whether they are spending-driven or for demand management. In the spirit of checking the growth in demand, and that spending decisions had already been taken separately from the decisions over these taxes, I classify these measures as endogenous, demand management.

There were, however, just over £30 million of remissions. Three changes to income tax allowances for the housekeeper, dependent relatives and widows and widowers were implemented on the 6th April 1960. These changes were for social objectives: “I have very little scope this year, but I am glad to be able to propose some useful alleviations for people with responsibility for young children who have lost one or both of their parents, and for others who support old or infirm relatives”232 and so are classified as exogenous, ideological. However, as these had to be offset to generate net tax increases, I provide an alternative

221

Cairncross (1992), page 111. 222

Economic Survey for 1960, part 2, paragraphs 7-9. 223

Economic Survey for 1960 page 5, paragraph 3. 224

HC Deb 04 April 1960 vol 621 c44 225

HC Deb 04 April 1960 vol 621 c45 226

HC Deb 04 April 1960 vol 621 c52 227

Ibid. 228

HC Deb 04 April 1960 vol 621 c64; On Government spending the Chancellor also notes: “The things the nation wants — better education, more up-to-date hospitals, new roads, and so on — are all expensive. And if we demand them, then we must be ready to pay for them” (c47).

229

HC Deb 04 April 1960 vol 621 c63 230

Ibid. 231

Ibid. 232

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classification in common with the tax rises, as endogenous, demand management. As an administrative change to deal with some difficulties in income tax and National Insurance collection: “I have come to the conclusion, after a good deal of study, that the only practicable solution is to have a flat-rate allowance for all adult employees”.233 I classify this measure as exogenous, long-run (together with an alternative classification as above). It was also implemented on the 6th April 1960.

On capital taxes, changes on reliefs for Estate Duty on gifts were made and while “there can be no question this year of major changes, but I can propose two reforms which, I think, will make the incidence of the duty more equitable”.234 Again, this is a social objective and I classify it as exogenous, ideological (with an alternative classification as above). The changes were implemented on 4th April 1960.

On consumption taxes, some modernisation and simplification was carried out to Alcohol Duty on wine from 5th April 1960 (“The duties on heavy wines are still out of line to some extent and the position is unsatisfactory, both for the trade and for the revenue. I now propose to complete this reform of the wine duty structure by reducing the rates for imported heavy wines” and “in conformity with the new structure, the excise duty on British wines will be reduced”235), playing cards from 4th April 1960 (“The duty of 3d. on a pack of playing cards is now outdated, playing cards being chargeable with Purchase Tax. I therefore propose to abolish this duty”236) and tobacco dealers’ licences from 1st October 1960 (“I propose to simplify the collection of tobacco retailers' licences”). These measures are reforms to the tax system, so I classify them as exogenous, long-run (again with the above alternative classification).

Finally, Entertainments Duty (which was reduced in the previous year to help cinemas) was abolished on 10th April 1960 as “the steep decline in attendances has continued during the past year and many more cinemas have closed”.237 This change would seem endogenous as it was to boost demand for cinemas as well as to help the industry. As it lowers the prices and is to deal with falling attendance I classify this measure endogenous, demand management. There were some changes to the repayments of Post-war Credits but, as discussed in the introduction, I exclude these.