BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 16 April 1969 vol 781 cc1154-281

3.33 p.m.

Mr. Iain Macleod (Enfield, West)

I assume that the Chancellor is delayed by the I.M.F. and will presently take his place on the Front Bench—[Interruption.] I would have thought that it was a matter of the gravest discourtesy to the House, and one that all hon. Members of Parliament would appreciate. Yesterday the Chancellor was congratulated on his opening speech of two hours twenty minutes, and I willingly add my congratulations to those expressed to him for an agreeably phrased speech which certainly did not seem to last as long as the clock told us it did. I see that the Chancellor has now come into the Chamber. [HON. MEMBERS: "Withdraw."] Of course I withdraw.

I was congratulating the Chancellor on the phrasing of his speech yesterday. I welcome, too, a number of small changes. I shall not spend much time on them, but my welcome is very sincere for them—the alterations in tax allowances; some changes in Estate Duty—although we shall wish to look at his scale in some detail—and a number of minor points, such as the Selective Employment Tax exemptions—naturally I shall return to the main charge later—aggregation, capital gains and close companies. In each of these four last instances Amendments were proposed from this side of the House not only last year but in a number of preceding years. They were opposed by the Government and voted down, and they have been conceded this year. It seems a curiously laborious method of adding to the Statute Book.

The House will probably not expect me to spend further time on compliments to the Chancellor of the Exchequer for his speech. I found yesterday's Budget speech the most depressing in the series for the taxpayer. It is not the heaviest; that honour belongs to the 1968 Budget. It is not the silliest; that honour belongs to the S.E.T. Budget of 1966. But, as my right hon. Friend the Leader of the Opposition summed it up, it is a dead-end Budget. That is the only way to describe it.

I take from many comments one made this morning by Frances Cairncross in The Times Business News. She said: Labour's Budgets have, with one exception, been fiercely deflationary, and the need for repeated doses of the same medicine must make one wonder whether the patient is building up a resistance. Either the Government have consistently been over-optimistic about the real impact that their measures would have; or the effect of deflationary devices has become weaker and of shorter duration. or, as I believe, both are the case.

This Budget, which takes £340 million in a full year, is the third heaviest since the war and, I imagine, the third heaviest in our history, exceeded only by the 1968 Budget and, narrowly, the 1951 Budget of Mr. Hugh Gaitskell. In the "Top Ten" of Budgets which have put taxation on to the consumer and the citizens since the war, nine places are occupied by Socialist Chancellors of the Exchequer. [Interruption.] I am very glad to hear those cheers. They underline a clear distinction, in terms of practice, policy and philosophy, between the two sides of the House, because the record shows that the party opposite believes in high taxation and we do not.

Before we criticise the Budget in detail, we must try to understand the dilemma that faces the Chancellor and has faced him in the weeks and months running up to the Budget. It is a dilemma that we ought to appreciate, because it is a very real one. Let us look at the domestic scene. Although the evidence is fairly sketchy, it seems that unemployment has risen. The trend may be reversed in future months, but certainly this Budget will twist it upwards. The key figure of over 500,000 wholly unemployed has run for 22 months as against eight months in the whole 13 years of Conservative Government. The figure of industrial production fell by two points in January. The National Institute forecast a slack economy in the summer and the autumn. The Chancellor of the Exchequer seemed to think that devaluation and other price rises had already worked their way through. I disagree. I think we will see formidable price increases this year.

All this would point to a neutral, even perhaps a mildly reflationary, Budget if domestic considerations prevailed. But we know full well that they do not. I absolutely understand the reasons which lead the Chancellor to put the balance of payments first. We know that a team from the I.M.F. is here today and for the immediate future—to make certain, no doubt, that we do not forget it.

The Chancellor said yesterday that it is to the current account that we should devote our main attention. It is certainly the best guide to our current economic performance."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 994.] I agree. I suggest that instead of picking individual quarters or individual years we should look at the whole story of the current account for all the years since the war, grouping them into the three periods—two of Labour Administration and one of Conservative Administration—and see what story they tell.

From 1946 to 1951 the Government were in surplus on current account in two years out of six, and the total deficit was minus £648 million. In the second period—1965–68—the Government have been in surplus so far one year in four, and the total deficit is minus £904 million. In the 13 Tory years we were in surplus nine years out of thirteen, and the total surplus was plus £753 million. That puts the whole of 1964 into the account that I have read for the Tories. It is absolutely and abundantly clear from those records of all those years since the war, divided into the periods of government, that Labour government simply does not work and that it was normal in the Tory years to secure a surplus on current account.

The other matter that concerns the Chancellor is the shadow of the autumn. There is the German election, the possibility of a German revaluation, and the spin-off that might cause into other currencies. There is the ending of import deposits. There are the problems of domestic legislation, to which I will come a little later, on incomes and industrial relations. There will be, presumably, the annual round of heavy wage demands. We have our own unpredictable economy. To the Chancellor, studying this disagreeable complex, yesterday's trade figures must indeed have come as a very profound disappointment. No doubt the President of the Board of Trade, when he intervenes in the debate, will deal in some detail with those figures. I thought that yesterday the Chancellor passed them over far too lightly.

The gap of £52 million after the brave words of last year is lamentable enough, but we now know that the current account on the first quarter was in deficit to the tune of £128 million, which is exactly the same as the fourth quarter of 1968—and that despite the introduction of the import deposit scheme. Nor can one take refuge in the three-month average, which I believe the Financial Secretary originated and which I agree is a better method of studying the trends than by taking individual months. This was introduced towards the end of last year when attention began to be drawn to it. Ever since then—it is, perhaps, symptomatic of the ill-luck, or whatever it may be, that characterises every action of the Government—even that three-month average has slipped against us. In the three months of this year it has gone from minus £25 million to minus £41 million to minus £43 million. It will be remarkable if next month it does not go worse again, because we will have to take out of the calculation, I think I am right in saying, the exceptionally good month of January when we were only £12 million in deficit.

Mr. Frank Hooley (Sheffield, Heeley)

Does the right hon. Gentleman think that perhaps a twelve-month average would be a more accurate assessment? Is he aware that, taking a running twelvemonths average over the past twelve months, there has been a steady improvement?

Mr. Macleod

So I should hope. I do not think that the Chancellor would welcome that intervention very much. A twelve-month average is obviously completely misleading in view of the situation immediately pre- and post-devaluation. I am, after all, taking—and deliberately taking—precisely the standard that Treasury Ministers are asking us to take.

I propose to deal with the Budget in two parts—first, what has been done, not covering everything, because we have a lengthy debate and all the Finance Bill in front of us, and then what in my view is the right course. As for what has been done, I shall limit my remarks today, as clearly one must limit them, to the Selective Employment Tax, to the ending of tax relief in relation to overdrafts, to the pension increase, and to some aspects of Purchase Tax.

I start with the Selective Employment Tax. It seems to us simply incredible that the Chancellor should have looked to this tax for £130 million of new revenue. This is the most detested tax of modern times. It has been opposed strongly by ourselves, by the Liberal Party, and, to be fair, by very many hon. Members opposite, including in particular those who represent the Co-op interests. It is damaging over a very wide field, but in particular to the construction industry, to tourism, and to the rural areas especially, perhaps once more, the Highlands of Scotland.

Moreover, this tax is a direct creator of unemployment—and it is meant to be. It is a poll tax which bears heaviest relatively on those with low earnings. The Chancellor said this yesterday: .. S.E.T. undoubtedly made a contribution"— he was talking about productivity— and such a resource releasing effect can be most valuable in allowing us to run the economy at a somewhat higher level of output…"—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1029.] What he meant was that this tax does lead, and will lead, to unemployment, and there can be no doubt that this part of the Chancellor's Budget statement is intended to do precisely that.

The right hon. Gentleman may think, in view of the pledges that we have given, that to add another £130 million makes it more difficult for us to carry out that undertaking. That is perfectly true; but it is desirable, in my view, that I should make the position entirely clear. I do not doubt that the extra impost made yesterday will concentrate our minds even further on searches for public expenditure which we intend to reduce in this country. I do not doubt that the logic of events will push us even more towards a value-added tax, but our studies have already, as the House knows well and as my speeches have indicated, been moving that way. I make it absolutely plain that, irrespective of what the Chancellor did yesterday, we will not allow this tax to stand; and as soon as we get an opportunity we will abolish it.

I come now to the question of tax relief on interest on overdrafts. To me, at least, it is one of the most contemptible features of modern Socialist Budgets that the Chancellors feel that they must sit down to a good old-fashioned class-war cheer. It happened last year with the wealth tax. It has happened this year with the disallowance of relief on personal overdrafts.

I remind the House of a provision in last year's Budget, the aggregation of minors' savings income with that of their parents. We know why it was brought in. It was aimed at what was called the grandfather case, the man who left money, perhaps, to a son for education or for any other purpose. But what we found out in practice, and proved in long debates, for it was this Clause which brought the Guillotine down on the Finance Bill, was that the people who would suffer most from that Clause—it remains true today—were the divorced woman, the orphans whose father may have been killed in an accident, and the victims of a number of terrible diseases. That Clause last year, planned to attack the wealthy, ended up by attacking people who were in many cases very poor indeed.

I believe that exactly the same will happen this year with this new proposal. It is unsound in principle. It has stood as a proposal for many years; it has been looked at year by year by every Chancellor of the Exchequer, of different parties. I am certain that we shall hear much about someone with a savings income of £20,000 a year, or whatever it may be. But I have some questions to put about it today, and I invite the Chief Secretary—or, perhaps, the Financial Secretary, if he wishes—to reply to some of them in his speech.

As I see it, certain key problems will arise. A distinction will have to be drawn in the case of individuals conducting businesses as individuals between their business expenditure and their personal expenditure, and there will have to be an allocation of their assets and liabilities between themselves as businesses and themselves as persons. This introduces, as far as I know, an entirely new concept into British tax law. There are several sectors of the economy in which individuals and partnerships constitute a major element in the business activities concerned. Such sectors are agriculture, building, road transport, the distributive trades, professional services, and many other services as well.

In his speech yesterday—this is a point on which I press the Chief Secretary—the Chancellor of the Exchequer said: … interest which is a proper business expense will continue to qualify for relief; this means that bodies liable to Corporation Tax will only be affected by the new provisions in special cases."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1040.] What about bodies which are not liable to Corporation Tax? I put these questions to the Chief Secretary so that—I am sure he will agree—we can debate these matters on a sound basis. First, what is the position of professional men, for example, doctors, in relation to this proposal? How is a doctor supposed to isolate his expenditure as a citizen, as an individual, from the expenditure which is an inseparable part of his work as a doctor? What is the position of farmers? What is the position of small traders? What is the position—this has already been raised by my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies)—of people such as lodging-house keepers and others?

The second general point which I ask the Chief Secretary to deal with relates to loans for homes. I understand exactly what the Chancellor meant yesterday about exempting the owner-occupier and about relief for money borrowed for the purchase or improvement of any land or building. But what happens in the case of a loan, no doubt used or obtained for general purposes but in part used for such purposes as the Chancellor indicated would or might be exempt? In particular, since a number of nationalised industries advertise in this field, what about heating equipment in the home and how it stands under the new provision?

I foresee two consequences. First, this provision will hurt many people whom the Chancellor simply did not intend to hurt when it was passed in his drafting of the Budget speech. Second, the interpretation of case law by scores of different tax authorities giving different answers will build up almost as many anomalies as the Selective Employment Tax itself.

Now, the question of pensions. It was lamentable that the Chancellor of the Exchequer yesterday could not give a clear answer—I am sure that he must know it—on the question of contributions. I ask the Leader of the House—we shall press him on the Business question if he cannot give an undertaking now or at some time in this debate—to make sure that, before this debate closes on Monday, we shall have a statement about contributions. [Interruption.] Let there be no question of "Not before Monday". I should like it in this debate, because it is part of this debate. It is not right for the Chancellor to come before the House and tell the people what increases will be made if he does not at the same time tell them what payments will be required for them. We introduced increases in the retirement pension five times. On every single occasion—I checked it this morning—we announced both the increase and the contributions in the same statement.

There is another aspect of this matter on which the Chancellor was very evasive yesterday. He said that the payments would be made early in November. That is just six months away. If that be so—I take it from him that it is—it means that the Bill is already in draft, and that means that the Chancellor knows the answer to the question which was put to him from this side yesterday.

We are told that the real purchasing power of the pension will be 20 per cent. higher than when the Labour Government came into office. [An HON. MEMBER: "Hear, hear."] Yes, I am delighted that that is so. But perhaps the hon. Gentleman will cheer equally when I remind him that contributions have risen by 40 per cent. over the same period.

How do the Government intend to finance the increase? One possibility is that they could use exactly the same method as last time, October, 1967, when pensions were raised exactly the same amount, that is, 10s. for a single person and 16s. for a married couple. If so—this is the scale of contribution—that would mean an increased contribution of 2s. a week for an employed man, with 1s. 9d. for an employed woman, and the employer would have to pay an extra 2s. 3d. for each employee. But this time, the increase would have to be bigger because there are more pensions.

The other alternative—this is why we need a statement not just in the future but to fill out one's view of the Budget—is that the employer's contribution will be greatly increased more than the employee's. [Interruption.] Yes, I understand that some hon. Members opposite would welcome it, but I am asking for clarification. The House is entitled to it. If that is done, there will be an additional burden on industry over and above the increase in the Selective Employment Tax and Corporation Tax. It is wrong of the Chancellor not to complete the story, because I am sure that he knows the answers to these questions.

The fourth point is to say a brief word on Purchase Tax. I make no criticism of the Chancellor's speech yesterday, but I believe that the House as a whole—I, too, plead guilty to this, and certainly comment last night on television and in other media was guilty of it—did not appreciate how severe is the increase in Purchase Tax, particularly in relation to textiles and dresses. This has and will have a much more serious effect than appeared from the Chancellor's statement yesterday and is one of the reasons why on Monday we will vote against the Purchase Tax and against the major tax increases, as my right hon. Friend the Leader of the Opposition has said.

There is one more request for a statement which I should like to put to the Chancellor. Talks with the I.M.F. will be taking place, and in due course he will no doubt wish to make a statement to the House. I hope that if there is a re-phasing he will spare us any congratulatory phrases about it. The truth is that we cannot meet our promises, the truth is that that is default, and the truth is that it is that which the Chancellor will be discussing with the I.M.F. in the next few days.

I turn to the other side of the question. What ought the Chancellor to do? As usual, he has had no lack of advice. The part of his speech with which I found myself in most agreement was when he said that devices—floating rate or whatever it may be—provided no sort of panacea. But if I read his speech correctly, he hopes, again perhaps under the influence of the I.M.F., to operate much more on money supply than previously. If so, I agree with him. One of the most terrible features of 1968 was the increase in money supply in the last quarter, which came to no less than £681 million. Although we may argue about what the right level of increase can be, nobody can contemplate an increase remotely like that.

I come now more closely to the proposals which we think should be put before the House. We have argued consistently over the years for structural changes. The first of these, I understand from the speech which is to follow me, is to be the feature of a Bill which will be passed, if the House so decides, this Session. In our view, the first structural change required is the reform of trade union law, and the announcement yesterday by the Chancellor was warmly cheered from this side of the House at least, and by nobody more so than myself.

The Prime Minister, who always in awkward moments retreats into his own Walter Mitty world, has put out the idea, which my right hon. Friend the Leader of the Opposition blew sky high yesterday, that he is defying death on a tightrope. He is on no tightrope. We are beckoning him down the road, and he knows it very well indeed.

All he is left with is the retort that in the years when I was Minister of Labour I neither introduced, nor even contemplated, such legislation. It is true, and I am in pretty good company. Nor did Ernie Bevin, Nye Bevan, Robens, Monckton or George Isaacs—all for exactly the same reason. Because it appears, as must be common ground, because it is based upon fact, that the problem which exercises the mind of Her Majesty's Government now, and particularly that of the First Secretary of State, is the prospect of the unofficial strike. Her own White Paper shows how dramatically this has changed, say, over the last decade since I was Minister of Labour.

If we look at the figures for 1958—I quote from the White Paper, page 39—and compare them with 1968, we see that in the year 1958 there were 1,963 strikes in coalmining, which was not of great importance to the economy, which rarely lasted for long. That figure is now reduced splendidly to 219. But the figure for the rest of the economy—it is this figure which has made the Government turn their mind to the thought of trade union legislation—has gone up from 666 in 1958 to 2,131 today.

The problem, therefore, is the relatively new one of unofficial disruptive strikes. The White Paper tells the story clearly. The right hon. Lady in a few minutes will give us an account of what the Bill will do. A commentator recently said that although one could criticise her political judgment one could not criticise her courage. I absolutely agree. She has shown a good deal of courage in this matter, and I applaud it very much indeed. Whether she likes it or not—and I do not believe for a moment she does—I am in warm support of her in this matter. I give her the further assurance that, as soon as possible, we will build on the foundations which she is laying, and in particular that agreements entered into shall be enforceable in the courts of law in this country.

The second point which I believe to be of great importance—and because there is so little between us I need spend only a moment on it—is the question of savings. I very much welcome the fact that there is to be a contractual savings scheme. The Chancellor is welcome indeed to the title "Save as you earn." I do not know whether or not I coined it. I have certainly been using it for some time. I believe that the scheme which was announced yesterday has in it some promising features.

I have one doubt about it, and I put this doubt mildly out of respect for Sir Miles Thomas and the National Savings Movement. It may be a mistake for the Chancellor—and perhaps he would reflect on this—to tie the suggested scheme so closely to the National Savings Movement. I believe that the growing sophistication of the savers of this country demands that they should have an equity interest, and I do not think that can be obtained best through the National Savings system. However, I am in general support.

I turn to the last main point, the question of public expenditure, which is the third leg of the tripod on which I believe the Chancellor should have rested yesterday. The argument is a simple one. It is true that Government expenditure, as the Chief Secretary so often says, is on target. But it is also true that the target is that of the National Plan and, by definition and by their own words, because of the absence of growth in those years, the level of public spending at present is therefore far too high. The difference between the growth which they estimated and the growth which they have achieved is nearly £10,000 million, allowing them the same estimate for the year 1970 as they take for the present year.

On that basis, therefore, it makes no sense to continue levels of public expenditure as if that growth existed, whereas it does not. This is the answer both to the Chancellor and the hon. Member for Edmondton (Mr. Albu), who took me up on this point on 20th February. He said in effect that an increase did not matter because in future the increases in public expenditure would be held within our resources. I do not accept that argument. When we have had such horrifying years as 1966–67, when G.N.P. went up by 1.1 per cent. while Government expenditure went up by 10.2 per cent., I believe in common with most people—there is, of course, some dispute about this—that the levels of public spending are one of the root causes of our economic troubles.

I know perfectly well that in order to reduce effectively the levels of public spending in this country major changes in policy are needed. The first major change we have put forward, which I repeat, is the change in agriculture to a system of import levies, though keeping the production grants. I believe that we can meet the natural anxieties of the National Farmers' Union on this.

Our second major change would be in subsidies. I take the housing subsidy as an example. It seems to us on this side of the House that although it is absolutely right to provide subsidies, and therefore to tax the people of the country accordingly, for the destruction and replacement of slums and meeting special needs like housing for the very old or disabled, there is no argument for continuing a general housing subsidy on the bricks and mortar of a council house irrespective of the income of those who live inside it. The true answer in this and many fields is that we shall never be able to meet special needs in all special categories until we stop trying to help everybody with general subsidies that very frequently they do not need.

Mr. Joel Barnett (Heywood and Royton)

Will the right hon. Gentleman tell us what exactly is the economic and financial difference between increasing the cost of housing and food to the consumer and putting a Purchase Tax on those items?

Mr. Macleod

That is very different. On the question of subsidies, the point surely is whether one spreads the amount of money available in subsidies on the general system, which I understand to be acceptable on the other side of the House, or whether one isolates special cases of need, with all the arguments that I know that means about going back into the 1930s. In my view, it is right not only on economic grounds but on social grounds to distinguish between the general and selective subsidies.

Mr. Roy Roebuck (Harrow, East)

Will the right hon. Gentleman give way?

Mr. Macleod

No.

Third, we have made it quite clear that there are a number of parts of the paraphernalia of Socialism—the D.E.A., the Land Commission, the Industrial Expansion Act and much more—that we would sweep away. We hold the view that there is far too much Government in this country, and that there are too many people minding other people's business for them.

The year 1968, apart from being the worst we have seen in this country from an economic point of view, is very significant for another reason. It is the year in which so many of the accepted landmarks over the years either disappeared or seemed to disappear. In his book, "The Treasury under the Tories," Sam Brittan, referring to the Bank of England at an early period of the 13 years, said that it … did not appreciate how easy it was to attract back hot money by raising Bank Rate and making deflationary noises. That used to be true. When Chancellors of the Exchequer in the Tory years put up Bank Rate to some unheard of figure like 4 per cent., we were in no time at all—

An Hon. Member

Seven per cent.

Mr. Macleod

Seven per cent. for a period, but Bank Rate has been at 7 per cent. and higher now for longer than at any period since the Bank of England was founded in 1694. The standards have disappeared.

The second point is that the Chancellor last year took no less than £1,200 million in taxation from the people, and the objects with which he set out were not achieved because of the people's resistance to those taxation measures. That bears out the quotation from Frances Cairncross that I gave at the beginning of my speech that the patient has built up a resistance towards high taxation.

I am certain that our proposals will be attacked in particular on the grounds that they will mean an increase in the cost of living. I remind hon. Members opposite of one item of history. Last year was the worst for price increases, even though in theory there were heavy controls, since 1951, when there were also heavy controls. So it is not controls that keep prices down. After 1951 came the 1952 Budget, and older Members will recall very well the howl of fury which greeted the proposals of my noble Friend, Lord Butler, that he should remove food subsidies. An undertaking was then given by the Socialists that they would restore them, but, of course, they did not—for the simple reason that far from that Budget leading to a runaway increase in prices, we had the first—indeed the only—really steady period of prices we have had since the war, because it allowed competition rather than controls to operate on the situation.

Mr. James Dickens (Lewisham, West) rose—

Mr. Macleod

I shall refer to the hon. Gentleman in a minute and will then give way to him if he wants.

My noble Friend, Lord Butler, used the money available, first, to reduce taxation, and second, to help through the social services where there was special need. It is a similar plan that we intend this time, although on a vastly greater scale.

I said a moment ago that I would refer to the hon. Member for Lewisham, West (Mr. Dickens), and I do. I believe, and I have said so before in the House, that the proposals put forward in successive Budgets by the present Government are irrelevant to the basic handling of our economy. I believe that we shall find a solution only by one of two ways—either by the Socialist solution, of which I take the hon. Gentleman to be a leading exponent, or by what I believe are the right Conservative answers. Although I have a considerable personal respect for the hon. Gentleman, as I think he knows, and for some of his friends who think as he does, my opposition to his concept of wealth is complete. I believe profoundly in the creation of more wealth and in the creation of more ownership. I believe above all that there must be an opportunity to save out of taxed income in this country.

I believe, and I say this from all sorts of platforms—it is true I wrote it in The Banker, but I wrote it in the News of the World as well; they were different articles, but I called for more wealth in both cases—that although the people of this country are warmly responsive to the special needs which I indicated a moment ago in connection with housing, they have had enough of the general subsidy soup-kitchen world of Socialism.

Every year—and this is the last point that I want to make—we have a Regulator debate. As the Chancellor said, in most years this is the best debate of the Finance Bill, and these are the only quotations that I allow myself, although I could quote many more from my speeches. In Standing Committee I said: The targets of the Chancellor for a surplus in the second half of this year and £500 million next year are ones that still exist. I wish I could see them being fulfilled, but I am bound to tell the Committee I simply cannot". and long after that, yesterday, the Chancellor admitted that that was true.

I had gone over the previous years and in the next column I said: Three times—the Chancellor must have nightmares about this, and I do, too—this has happened, and now for the fourth time the Government are saying it will be all right come the autumn or come the fourth quarter and come the surge in exports and come all the other things in America and everything else. I devoutly pray that they are right. I really do! I am desperately anxious for this country to get on the right economic road again. But I say frankly and openly to the Committee that I think that for the fourth consecutive time the Government are being far too optimistic, as I think events will prove."—[OFFICIAL REPORT, Standing Committee A; 13th May, 1968, c. 716–7.] Events yesterday proved just precisely that.

The last quotation is just one sentence from the beginning of my speech on that day: … we have been in a crisis of confidence since November, 1964, and we can never get rid of it while the present Prime Minister holds his office."—[OFFICIAL REPORT, Standing Committee A, 13th May, 1968; c. 710.] That message has been taken up by a number of newspapers, and by very many Members of the party opposite.

The Budget introduced yesterday is the end of a series. It is the defeatist Budget of a defeated Government. We know perfectly well that the country is sick of this Government and of the party opposite, and that it longs for the moment of release. The last service, which would be the first service, that the Prime Minister can do for the British electorate is to get out now.

4.24 p.m.

The First Secretary of State and Secretary of State for Employment and Productivity (Mrs. Barbara Castle)

Yesterday the Leader of the Opposition brought his supporters to their feet cheering wildly and waving their Order Papers as he called dramatically for a fresh approach. The reception given to the right hon. Member for Enfield, West (Mr. Iain Macleod) this afternoon has been slightly more restrained on his own side, and I think that his speech is the explanation for it. After all, following the great land of promise that was held out to us yesterday, we naturally awaited the right hon. Gentleman's speech with particular interest. If this is a fag-end Government, then hon. Gentlemen opposite must think that they are very near to the seat of power, with the country eagerly waiting to be revitalised by their policies; and indeed this was the line of the right hon. Gentleman. At the very least, then, they ought to be ready to tell us a little bit more about those policies instead of giving us the usual fag-end of disruptive criticism and the carefully unquantified generalisations that we have had from the right hon. Gentleman.

It is not as if the right hon. Gentleman and his hon. Friends have not been very diligent. The right hon. Gentleman filled some columns of The Banker only the other day with a very moving account of a computer study which they have been carrying out. He said in his article that the exercise was so important that it was worth digressing in order to outline it. I agree with the right hon. Gentleman, so let us look at what he said about this great exercise into tax reform.

It makes very impressive reading. He said: We took a group of 28 representative families (ranging from the single pensioner on less than £10 per week at one extreme to the professional man with a wife and family earning £2,000 to £3,000 per annum at the other) from the categories covered by the National Family Expenditure Survey…. From the Family Expenditure Survey we classified the expenditure of each of our 28 families into 22 commodity groups…We then used input/output data to analyse the effects of a range of different tax proposals and combinations of proposals on the prices of each of the 22 commodity groups…In this way we were able to establish for a large number of tax packages what would happen to each family's expenditure if it continued to purchase the same basket of commodities as before. [Interruption.] Hon. Gentlemen opposite know how the right hon. Gentleman loves to be quoted. He went on to say: Thus we were able to establish the broad implications of any given package of tax reform. That is excellent. What, then, is the package of tax reform that is the very kernel of the fresh approach that we have been promised during this debate? What is the end product of all this studying? I am afraid that when we come to that question the right hon. Gentleman is not very forthcoming, even in his article. In opposition he says, "We cannot ourselves reduce taxation. We can prepare for Government by studying the problem, and our work is not yet completed. The time is not yet right to publish our plans in detail".

When will the time be right? After all, we are having a major Budget debate. The Opposition are delivering devastating attacks on my right hon. Friend's policy. The Leader of the Opposition gave us that dynamic rallying call yesterday. Hon. Gentlemen opposite are sitting on all these packages of tax reform that are going to revitalise the country, yet they will not give us any indication of them.

This afternoon we have listened to something more akin to the advertising copy for a striptease show than the definition of a fresh approach. Shrouded darkly behind the veils which have been flaunted before us lies the right hon. Gentleman's computer, but we are not allowed to see even the whites of its dials, let alone learn what its input-output exercise has revealed.

To do the right hon. Gentleman justice, he has indicated in broad outline all the new policies. He starts, as he made clear in his article and as has been made clear in the House many times, from the simple proposition that what the country needs to revitalise it is a cut in direct taxation, not in indirect taxation. Indeed, according to hon. Members opposite we need more indirect taxation; they propose to cut direct taxation.

But in the article in The Banker the right hon. Gentleman admits that, contrary to the impression which the Opposition like to give, the proportion of income taken in taxation in this country is not, by international standards, above average. His complaint is that we have the most severely progressive system in the developed world. That is interesting wording, "severely progressive". What he wants to do is to make it more regressive; that is Conservative Party policy, the way to create industrial peace and to promote national recovery, and the right hon. Gentleman wants to do it drastically.

Let us take a look at what this drastic reduction in direct taxation would mean. Is a cut of a 1s. in the £ sufficiently drastic? That would cost £600 million. Or is he thinking of a cut of 1s. 6d. in the £? That would cost £900 million. Where would the revenue be replaced? When one considers how hon. Members opposite have trounced some of the tax reforms which we have adopted and when we consider how the Leader of the Opposition yesterday, to the cheers of his own side, demanded, a demand repeated by the right hon. Member for Enfield, West today, that the Chancellor must save £615 million of S.E.T., we realise that we are getting into astronomical sums, £1,500 million already, without starting on the other taxes that they say they want to cut.

The right hon. Gentleman is even getting lukewarm about his own once favourite nostrum, the value-added tax, and not surprisingly, because he would have to say whether he visualised it as a comprehensive tax, covering, for example, food, fuel, public transport, housing and postal and telegraph services, with all the massive consequences for the cost of living, to saying nothing of the fact that it would take an army of civil servants to administer.

The more precise the right hon. Gentleman became the clearer it was that the great new fresh approach consisted of two main elements: first, a swingeing switch from progressive to regressive taxation; secondly, a savage cut in what the right hon. Gentleman likes to call bloated public expenditure. It is here that we get our cue to the Opposition's attitude to prices and incomes policy.

It has always seemed a little incongruous to see hon. Members opposite coming out as champions of the poor, oppressed wage earner, throwing themselves with paroxysms of enthusiasm behind every wage demand, denouncing every effort we have made to relate those demands to increased productivity. Of course they do not like incomes policy, because they do not like all the powers that go with it, not even the power of the pillory over prices, rents, dividends, or higher salaries. They are ready to appear willing to give wages their support because they want to give all the others their head and then cut down, as we have had clearly revealed by the right hon. Gentleman this afternoon, on cheap food, on housing subsidies, on the Health Service, on schools and on hospitals.

Right hon. Gentlemen opposite have their own private regulator—the reductions they are itching to make in public expenditure, and they attack restraint of money incomes because their policy is to attack the social wage. This is the great difference between the two sides of the House. We believe that the social wage is one of the most effective ways of redistributing wealth, far more effective than the wage-price spiral that leaves a worker no better off at the end of it.

The right hon. Gentleman told us in The Banker that he had been feeding into his computer details from the National Family Expenditure surveys. [Interruption.]

Mr. Deputy Speaker (Mr. Sydney Irving)

I hope that the House will listen to the right hon. Lady.

Mrs. Castle

I wonder whether the right hon Gentleman has fed into the computer details of the survey of income after all tax and benefits have been deducted as a percentage of original income and, if so, what conclusions he has drawn from it for tax reform. [HON. MEMBERS: "You tell us."] I will, indeed. If hon. Members will study these tables and figures, they will find that the lower income groups are substantially net beneficiaries from social benefits even when all taxes, including indirect taxes, are taken into account.

In 1961, the lowest of these groups even under a Tory Government had their original incomes increased by nearly half in this way. By 1967, under a Labour Government, the original incomes of these groups had been doubled by the social benefits, including benefits in kind—the National Health Service, housing subsidies and so on, even taking taxation, including indirect taxation, into account. Indeed, in that year every family with an income up to £28 a week was better off under a Labour Government than under a Tory Government, even taking taxation into account, and my right hon. Friend's decision in this Budget to increase personal allowances will sustain this process.

The right hon. Gentleman the Leader of the Opposition had a bit of fun yesterday, as the right hon. Gentleman did today, about what he called the abandonment of the prices and incomes policy. I want to assure him that we have not abandoned it; nor do we intend to abandon it.

Mr. F. A. Burden (Gillingham)

The right hon. Lady talks about holding down prices, but as a consequence of the Budget the cost of a pair of single sheets will go up by 10s. and the cost of a pair of double sheets by £1. How is that holding down the cost of living?

Mr. Maurice Orbach (Stockport, South)

Go and wrap yourself in one.

Mrs. Castle

All the more reason why we on this side of the House want to know the cost of living implications of the tax reform policy of the Opposition. When my right hon. Friend the Member for Belper (Mr. George Brown) struggled to secure the first acceptance of prices and incomes policy in 1965, everyone knew that it would be a long-term policy. It was designed, as the Prices and Incomes Board said in its first report, to change "old habits, inherited attitudes and institutional arrangements".

We did not look to the policy for sudden dramatic effects, but in the economic crisis in 1966, and devaluation in 1967, we rightly decided to use the policy for immediate short-term purposes. In doing that we knew that we were placing a strain on it which it would only bear for a limited time, but the rigorous statutory controls, however unpopular, were a vital part of the economic strategy.

Of course hon. Gentlemen opposite have taken a delight in seizing every opportunity to discredit the policy. All that I can say is that here again they have taken very great care not to be precise about what they would put in its place. That they would put something in its place there is no doubt. The right hon. Gentleman the Member for Enfield, West admitted in the Budget debate last year, this was one of the bits he did not quote: … all Governments operate a sort of incomes policy. What sort does he believe in? Not for him the painstaking effort to devise criteria which, for all their faults, try to do broad justice between different groups of workers, put a premium on productivity, give priority to the lower paid. He draws a crude dividing line between the public sector and the private one.

This is what he also told us in the Budget speech: The Government should give a lead. They should be seen to be absolutely firm in their own wage negotiations."—[OFFICIAL REPORT, 20th March, 1968; Vol. 761, c. 440.] I hope that we on this side of the House have been warned.

It has become fashionable to say that the incomes policy has failed. The right hon. Gentleman the Leader of the Opposition said it yesterday. The most remarkable characteristic of the Opposition's criticisms of the policy is inconsistency. On the one hand every pay settlement above 3½ per cent. is hailed as a final collapse of the policy, despite the fact that the White Paper specifically provides for increases over 3 per cent. in many circumstances. On the other hand they would have us believe—they have deliberately led people to believe—that wages have been frozen while prices have got out of control. If they say the policy has failed, what do they mean by failure? Are they saying that incomes have risen too much? Will their slogan at the next election be: "You have had it too good"? [HON. MEMBERS: "No."]

The sober fact is that the policy, in the phase since the 1968 Act, was introduced, has worked broadly as we intended. The average size of pay settlement—[Interruption.] I know that hon. Gentlemen prefer myths to facts, but the fact is that the average size of pay settlements in the past year has been at an annual rate of 4 per cent., including all the major productivity deals and the special treatment given to low paid workers like farm workers.

Prices have been broadly contained within our target. Increases in declared dividends have been kept within the rules laid down by the policy. My right hon. Friend the Minister of Housing and Local Government has not hesitated to use his powers under the Act to control rent increases. Over one-third of the proposals for rent increases which were due to come into effect from July of last year have been rejected, including a recently submitted proposal from the G.L.C. for rent increases averaging 7s. 6d. a week, to come into effect in October. About 1 million tenants have benefited from the steps he has taken to secure the reduction, postponement or elimination of rent increases.

Not least, the policy has succeeded in one of its prime purposes—to stimulate the new attitudes towards productivity bargaining. It is this that hon. Gentlemen opposite choose to ignore when they point to the big increase in earnings in the last twelve months. Let us analyse that increase. First, people have been working longer. Overtime has risen, and that has naturally pushed up their earnings, perhaps by one per cent. on that account alone. Output per head has been rising dramatically, and that means more pay for everyone on piecework.

Thanks to the record rise in productivity last year—7 per cent. in manufacturing industry—in which the policy has undoubtedly played a part, there has been only a moderate increase in labour costs per unit of output in the economy. In the third quarter of 1968, the last available figures, they were only 1.6 per cent. higher than a year before.

When I consider the situation in which we have had to operate this stringent phase of the policy, a post-devaluation situation in which prices were bound to rise sharply, when unemployment was falling and productive activity increasing, when everything conspired to boost the price-wage spiral, aided at every turn by hon. Gentlemen opposite, who exaggerated every price increase and went out of their way to convince ordinary people that they were worse off and should demand more, I believe that our success in holding the line in this difficult year in prices and incomes and unit costs, has been remarkable.

Nevertheless the policy has understandably been under increasing strain and inequities grow up which are acceptable only for a limited time. So we must begin to turn again to the long-term problems. Much has already been achieved. The basic concepts of the incomes policy are now accepted. The Trades Union Congress this year by a very large majority adopted the General Council's Report on economic policy in which incomes policy plays an integral part. The argument is not about the existence of an incomes policy but about the form that it should take.

As the Chancellor said yesterday, it is not our intention to continue these stringent, statutory powers over pay settlements when the present powers run out at the end of 1969. Instead, we shall activate Part II of the 1966 Act, which we can do by Order, to provide a long-term framework within which a prices and incomes and productivity policy can be developed. It may be helpful if I remind the House precisely what is involved by the activation of Part II of the 1966 Act.

In the first place it provides statutory backing for what is usually called "early warning" of proposed pay settlements, or price increases. In practice, we have been able to operate the early warning system without any recourse to the powers in the 1966 Act. I see no reason why voluntary co-operation in early warning should not continue, but we would have the powers if it were necessary.

Secondly, Part II gives powers to hold up the implementation of a wages settlement or price increase for three months, while the Prices and Incomes Board examines it. Here again we have found that most employers and unions have been willing to co-operate on a voluntary basis in not implementing settlements before the Board reports, so we have had to make very little use of the formal powers. It is only fair to those who abide by the rules that we should have a residual power to deal with any cases where people try to jump the gun. I believe that most of my hon. Friends, and many trade unions, even those who have most vociferously advocated a voluntary policy, recognise the invaluable work that has been done by the Prices and Incomes Board. They certainly do not want to see it abolished, as hon. Gentlemen opposite do. They want it to continue and try and influence the development of more rational and equitable wages structures, to stimulate genuine productivity bargaining, to get everyone, high and low, thinking in terms of relating pay and performance, helping us in the vital task of keeping down unit costs. But it certainly will not be able to do so if, when it is asked to examine a settlement or a price increase, it is faced with a fait accompli—a situation beyond recall. We want the Board to be able to consider situations and make recommendations while there is still time for the parties concerned to take heed of the wider issues of social and economic policy which may be involved. That is why we must have the arrangements for "early warning" and for standstills for three months while the Board considers particular cases. We shall, however, be relinquishing the power given us in the 1968 Act to extend a standstill, following an adverse report by the N.B.P.I., for a further eight months. We believe that unions and employers will take heed of the reasoned recommendations of the N.B.P.I. backed, as they will be, by public opinion. The procedures I have described will enable the policy to be developed within what I believe will come to be a generally acceptable framework.

But, of course, this framework is not the policy. We shall need to set guidelines for those negotiating pay increases and those fixing prices, dividends and rents from 1969 onwards. These guidelines will be set out in a new White Paper, which we shall draw up after the fullest consultation with the T.U.C. and the C.B.I.

But, to avoid any misunderstanding, I want to make it clear that, whatever changes are made in the guide-lines from 1969 onwards, we cannot afford—nor will there be grounds for—any run-away increase in earnings next year. In the first place, we cannot expect an increase in output per head on the same scale as in 1968 when a great deal of slack was taken up in the economy. But, in addition to this, we can reasonably expect greater price stability from now onwards and the pressure for large pay increases should be therefore reduced.

We have always recognised that the present guide-lines will need re-examination. We shall have to see how some of the inequities that I am the first to recognise exist can be overcome in the new policy. I am concerned in particular about the position of the lowest paid workers.

The difficulties of the existing policy were highlighted by the case of the farm workers' settlement. Here the N.B.P.I. was driven to recommend special treatment outside the terms of the White Paper. Clearly, we need to do some urgent thinking about this problem and we shall be helped in this by the publication quite soon now of the review of a national minimum wage which has been prepared by officials in Government Departments and by the publication over the next three months of the results of the new earnings survey initiated by my Department which will throw entirely new light on where exactly low pay occurs and the reasons for it.

Turning now to prices, as the Chancellor has pointed out, the effects of devaluation on prices have now largely worked their way through and this year's Budget measures will add only a fractional increase to the cost of living index: a half of 1 per cent. It is as vital as ever it was that there should be no unnecessary price increases, and we must retain the machinery for examining increases which seem to offend against the policy. For example, we must guard against increases in S.E.T. being used as an excuse for higher prices without every effort being made to absorb costs. But there is also a long-term constructive rôle for prices policy.

Mr. Arthur Lewis (West Ham, North)

My right hon. Friend says that we must guard against increases in S.E.T. being used as an excuse for increasing prices. Is she aware that already the petrol companies, which have put up prices by 3d. as against 2d. referred to by the Chancellor of the Exchequer, have used the increase in S.E.T. as an excuse? Will she take some action?

Mrs. Castle

My right hon. Friend the Minister of Power will look into any widespread abuses of that kind.

Even where there is no actual monopoly, many firms and organisations have a considerable measure of discretion in the fixing of their prices and charges and it is right that there should be the possibility of public examination of the issues involved. Therefore, we shall continue to need machinery for examining objectively the way in which prices are fixed and the relation between prices and the general economic behaviour and efficiency of the firms and organisations concerned. This is true not only of the major nationalised industries, but also of important sectors of privately owned industry. We shall be considering whether Part II of the 1966 Act adequately covers all that needs to be done in this area.

I have already described the Government's success in restraining increases in rents and dividends during the last year. and we shall continue to operate these policies under our existing powers until they expire. Restraint in the growth of rents will continue, in the Government's view, to be an integral part of the prices and incomes policy and we intend to ensure that we have sufficient means available to secure this objective.

As regards dividends, the 1966 Act provides for the notification of increases in company dividends so that if necessary an examination can take place. Moreover, throughout the development of the prices and incomes policy, the Government have committed themselves to use their fiscal powers or other appropriate means to correct any excessive growth in aggregate profits, whether distributed or not, and it will remain possible to refer to the N.B.P.I. prices cases where the growth of profits or dividends is based on excessive market power.

However, as I have said, these are matters which require full discussion with interested bodies, including the C.B.I. and the T.U.C. We must also examine the relation between the voluntary vetting machinery set up by the T.U.C. and our own machinery. As far as possible, we want to make these part of a joint effort to develop a coherent and acceptable prices and incomes policy.

The changes we propose in prices and incomes policy will, I believe, achieve two things that are of vital importance to my hon. Friends: they will preserve our system of free collective bargaining while ensuring that those who operate it are asked to have regard to the wider interests of the community. Indeed, the trade union movement has itself recognised that these two considerations ought not to be, and cannot be, separated. And it is this twin purpose that we must pursue in the field of industrial relations. Every trade unionist in this country has two interests: first an interest in the development of strong, independent collective bargaining as the best system yet devised—and I am quoting my own White Paper—of advancing industrial democracy by enabling him to play a part in the decisions which affect his working life, and, secondly, an interest in a strong and expanding national economy. It is not always easy to reconcile the two, but I think there is little doubt that the economic struggles of the past few years have shown that we must find a way of reconciling them.

It is this which informs the Government's approach to industrial relations. In our recent debate on the White Paper "In Place of Strife", I spelt out the philosophy which impregnated it. The interim Industrial Relations Bill which the Government have decided to bring before the House will faithfully reflect this philosophy. It is based on the premise that, if collective bargaining is to be strengthened, and if it is not to become self-defeating, three immediate steps are urgently needed. The first is to improve the quality and content of collective agreements—to make them comprehensive, clear and precise and, above all, to improve procedure agreements so that disputes and grievances can be dealt with rapidly and effectively. It is for this reason that the Government have lost no time in setting up the C.I.R. under Royal Warrant. Nor have we lost any time in initiating the registration of procedure agreements with my Department which the Donovan Report advocated. Before the end of the month, I shall be inviting firms which employ over 5,000 employees in one establishment to register their procedural agreements with my Department. This in itself will be a powerful incentive to chief executives and senior management to concentrate attention on the improvement of the collective bargaining procedures in their undertakings.

In the meantime, however, we are anxious to get the C.I.R. to work on its first references. This will be of cardinal importance in securing the necessary reforms in collective bargaining. I welcome the statements of the T.U.C. and the C.B.I. of their intention to co-operate constructively with the C.I.R. I certainly intend to consult fully both of them about the references to the C.I.R., in the belief that they will both recognise that it is the very problems which cause difficulties to management or unions which are most likely to need investigation and ought not to be swept under the carpet.

As to the initial references, I am at present in the middle of consultations about my proposal to refer firms which represent two types of problem. The first concerns the development of proper company-wide bargaining procedures, including disputes procedures, and the second concerns the problem of trade union recognition. I am still awaiting the comments of the T.U.C. on my particular suggestions, but I am certainly anxious to get both these issues studied urgently by the C.I.R.

The second pressing need which faces us is to get a change of attitude by management towards the modern meaning of collective bargaining. This brings us to the question of trade union recognition again. As the Donovan Report stressed, and as we stress in the White Paper, there can be no meaningful collective bargaining where there is no free and independent trade unionism.

That is why the first proposition in our proposed Bill will be to establish the statutory right of every worker to belong to a trade union. In this way we shall at last give legislative effect to the provisions of I.L.O. Conventions 87 and 98—something most other countries did years ago. In legislating for this, we shall sweep away the anomaly of some friendly societies denying their members the right to belong to a trade union. This right will now become part of every contract of employment.

But we all know that trade union membership itself is of little value unless the employer recognises, and negotiates with, the union. This will be the second provision of our Bill. Under it, where a union complains that it cannot get an employer to recognise it, I shall be able to refer the problem to the C.I.R. The C.I.R. will investigate the position by any means it thinks appropriate—including a ballot if it so decides—and make a report to me. If it recommends recognition, I shall be empowered to make an Order compelling the employer to comply. If the employer still refuses to negotiate with the union, it will have the right unilaterally to take the employer to arbitration before the Industrial Court, whose award will be legally binding. I am advised by my trade union friends that this is the most effective sanction that can be operated against an employer in such a case.

Sometimes, however, questions of trade union recognition are more complicated. Sometimes it is not a simple question of union versus employer but of union versus union, and this inter-union rivalry over recognition can plunge us into damaging disputes that can rock the very foundations of national recovery. Frankly, I do not believe, nor do the Government, that it is any part of fundamental trade union rights that groups of unions should be able to conduct a war to the death against each other on such an issue, particularly when the victim is the nation's economic strength. There ought to be a more civilised way of settling such inter-union rivalries and it is first and foremost up to the trade union movement to find such a way.

Personally I would like to see the trade union movement decide to do something it has been painfully reluctant to do in the past—to give the T.U.C. authority to give a binding ruling in such cases. That is why our Bill will propose to refer these inter-union recognition disputes in the first place to the T.U.C. in the hope that its constituent unions will give it the power to settle them peacefully. But if that does not happen—if, after a reasonable period, the T.U.C. has not found an agreed solution—then I shall be able to refer the issue to the C.I.R. and to ask the C.I.R. either to settle the dispute or to recommend which union or unions should be recognised. On the basis of the C.I.R.'s recommendation, I shall be empowered to instruct the employer as to which unions he should recognise. From this it inevitably flows that any union which brings industrial pressure against an employer who is obeying the Order will be in breach of the law and subject to a financial penalty.

The third immediate step which we need to take is to secure a change in attitudes towards the honouring of collective agreements. The more we claim the right of workers through their unions freely to strike a bargain, the more important it is that those bargains should be kept. A very important part of those bargains is the procedure for dealing with disputes which arise from them.

That is what the conciliation pause is about, on which we also intend to legislate. Its purpose will be to ensure that where the unconstitutional strike of a group of key workers can put thousands of other people out of work, two things shall happen. In the first place, we will try to remove the immediate cause of the strike, not only by our normal conciliation processes, but also by instructing the employer to reverse any arbitrary action that may have caused it, such as the sudden dismissal of an employee or a sudden change of work practices, so that full and proper consultation can take place. I shall be empowered to order him to do so if necessary.

But clearly, having removed any legitimate grievance that may have caused the strike, we have the right to ask the strikers in return to go back to work for a limited period so that conciliation and consultation can proceed effectively. The period we propose is 28 days. I am confident that most strikers will return to work in those circumstances but if they do not, I shall be empowered to make an Order instructing them to do so. Breaches of either Order—the Order to the employer or the Order to the strikers—will be referred to the Industrial Board, which will be empowered to levy financial penalties.

I believe, as one trade union leader admitted to me only the other day, that this provision in the conciliation clause for a return to the status quo pending conciliation can do more than any single step to get at the causes of sudden down-tools strikes. It can powerfully affect management attitudes towards the need for consultation. As I pointed out to him, however, it would clearly be intolerable to impose such an obligation on an employer if we did not at the same time impose an obligation on his employees—the simple obligation to talk before they strike, to use the disputes procedures which their own unions have negotiated, particularly as nothing in these provisions takes away the right to strike once conciliation procedures have been used and failed.

Mr. Dickens

Can my right hon. Friend now confirm to the House that in the Bill the Government propose to have a provision whereby the Industrial Court will have the power to attach a financial penalty to the earnings of strikers?

Mrs. Castle

That is an example of why one should not give way, because I was just coming to the point.

Mr. Robert Carr (Mitcham)

Before the right hon. Lady leaves the conciliation clause, can she make one point clear? To exactly what sort of strike will this be applicable? What would be the position of a strike which started both unconstitutionally and unofficially but was subsequently, very quickly perhaps, made official but still remained unconstitutional?

Mrs. Castle

The definition here is not "unofficial" but "unconstitutional". It follows from that that a strike in breach of the agreed procedures which is made official is covered by the clause.

I want here to get one thing clear. There is not and there never has been any criminal provision in this Bill. No part of the criminal law has ever been involved. Nothing in the Bill will ever go to any criminal court.

The new Industrial Board, which will consist of members drawn from the trade union panel and the employers' panel of the Industrial Court under an independent legal chairman—and the precise composition of the panel in any particular case will depend on the nature of that case—will adjudicate on whether there has been any breach of an Order made by me under the Bill, and, if it finds there has been a breach, it will be able at its discretion to levy a financial penalty on those who have disobeyed and go on disobeying the Order.

This levy will be a civil debt to be collected as any other civil debt in a civil court—and this brings me to the matter which has caused the most heart-burning among my hon. Friends—the suggestion that the financial penalties might be collected by the attachment of earnings. I made this proposal in the White Paper because I was determined that failure to pay a penalty imposed by the Industrial Board should not result in imprisonment. I remain convinced that this is a vital principle, and the Bill will, therefore, ensure that imprisonment for failure to pay a financial penalty cannot happen. It is possible for us to exclude this and we will exclude it.

What, then, is the alternative? Let me stress one thing that I believe has been widely misunderstood. It has never been our intention that the attachment of wages should be an automatic penalty, but merely a procedure of last resort.

In the normal way, of course, civil debtors pay their debts. If they do not, an Order may be made that they pay by such instalments as they can afford to pay. It is only if it is proved that they have failed to pay when they had the money to pay that a committal order is made, which only comes into force if they still do not pay the instalments. We are prepared to say that, if it is preferred, an attachment of earnings Order might be made as a last resort instead of a committal order.

The choice will, therefore, be with the worker. There are genuine options open to him. He can enter into voluntary arrangements to pay what is due over an appropriate period. He can stipulate that, if he is in default, he would prefer to be subject to the normal process of collection for civil debts, other than attachment. I am ready to discuss all the alternatives with the T.U.C., as I have been and still am with my hon. Friends.

I repeat: there will be no automatic attachment of earnings. But it may be that we can go further to meet the anxieties of my hon. Friends by getting away from any suggestion of a fine—which the T.U.C., however wrongly, believes has the taint of criminality about it—to a new concept, the concept that the unconstitutional striker is not in debt to the State but rather to his fellow workers whose interests have been damaged by his actions. We are not seeking to brand strikers as criminals. We are seeking to underpin trade union authority through the observance of agreed procedures. And the way to do this might be to see that any payments levied on the strikers do not go to the State but to a fund set up to serve some purpose beneficial to workers as a whole—such as, for instance, research into industrial health or safety hazards or industrial diseases. These are only tentative ideas, and I propose to seek the advice of the T.U.C. on the desirability of setting up such a fund and the uses to which it might be put.

This afternoon my right hon. Friend the Prime Minister and I will be meeting representatives of the T.U.C. to explain our proposals for the Bill to them. We shall make it clear that we are very ready to consider any suggestions they may care to make as to ways in which we can allay their anxieties without undermining the Bill's purposes. We shall repeat what my right hon. Friend told them last Friday, that in the weeks that lie ahead, before the Bill is presented, and while it is being discussed in Parliament, the Government will still be prepared to consider any alternative proposals from the T.U.C. for achieving its purposes equally effectively and equally urgently. We welcome the steps the T.U.C. has already taken, through its series of trade union conferences, to start discussion—and, we hope, action—on some of the main proposals of the Donovan Report and to strengthen the authority of the trade union movement as a whole. We shall stress that the powers we are taking are reserve powers, and that no one will be more pleased than the Government if, as a result of these new stirrings in the trade union movement, as a result, for example, of giving the T.U.C. greater power to deal with inter-union disputes, these powers atrophy from disuse. [Interruption.] I am afraid I cannot give way. This speech is going on rather long.

There are two more points I want to make on the Bill. The first is that it will not contain any provision to give me discretionary power to call for a ballot before an official strike. The reason for this omission is partly that the problem of official strikes is less acute than that of unconstitutional strikes and, therefore, the need for action is less immediate. But also, the essence of my proposal for a strike ballot is that the ballot should be conducted by the union itself, in accordance with its own rules approved by the Registrar, and that, apart from approving the form of the question, I should not intervene in its conduct. But there are a number of unions which do not have any provision in their rules for conducting ballots, and it will take time for them to work out and incorporate the correct procedures in their rules. There are a number of problems to be solved here on which I shall want to enter into careful consultation with the T.U.C.

But there is one further provision which I do believe is urgently necessary. That is, the removal of a serious injustice suffered at present by workers who are not involved in strikes themselves but who are laid off as a consequence of other people's industrial action. An essential purpose of this Bill is to reduce the hardships which innocent people may suffer because of inadequacies of our system of industrial relations.

Yet under our present National Insurance rules, which have in substance remained unchanged for nearly 40 years, many workers are refused benefit when laid off because of strikes in which they certainly have no direct interest, and of which they may strongly disapprove. Section 22 of the National Insurance Act, 1965, provides that workers unemployed because of industrial action at their place of work shall not receive benefit unless it can be proved—and the onus of proof is on the worker—that they are neither participating in nor financing nor directly interested in the dispute which caused the stoppage and that they do not belong to the grade or class of employee which is party to the dispute.

The Donovan Commission was highly critical both of the view that workers of the same grade and class as strikers should be disqualified from benefit, and that membership of a trade union officially involved in the dispute amounted to financing that strike. In the context of present industrial conditions, both the grade and class provision and the financing provision are unrealistic. They suggest a relationship between the striker and other workers in his factory which is not borne out by the facts. They penalise the non-striker as if he were cheering on his striking workmate from the sideline when he is often doing the very opposite. Both disqualifications are unfair. Clearly an urgent change in the law is necessary. It is therefore the Government's intention to abolish both the "grade and class" disqualification and the "financing" disqualification.

These, then, are the steps that we believe it is urgently necessary to take in order to set our industrial relations on a new course. There are many other detailed proposals in the White Paper which will not be included in the interim Bill and which we will bring before the House as soon as possible, but the drafting of a detailed comprehensive Bill on the whole of the White Paper would be bound to take time and we believe that our major proposals cannot wait. They are conceived in no vindictive spirit, but in a spirit of faith: faith in the future of the trade union movement of this country, which has set such an example to other countries in the past; faith in its power to grow, to adapt, to accept responsibility—to exert its authority in its own interests and in the interests of the community of which its members form such a vital part. It will be the purpose of our Bill to encourage and to stimulate these developments, and if the trade union movement will accept it in that spirit, together we can build on the achievements of the past and give our country the best industrial relations system in the world.

5.22 p.m.

Mr. Jeremy Thorpe (Devon, North)

I owe an apology to the House and to the right hon. Member for Enfield, West (Mr. Iain Macleod) in that I was not here for the first few moments of the debate. I wrote a letter to the right hon. Gentleman, and I think he and his colleagues know the reason why.

An extraordinary outcome of this Budget debate is that we are not merely being asked to debate the fiscal proposals for the coming year and to chart the financial course of the Government; we have just been given a second Reading speech on the Government's prices and incomes policy, without the benefit of seeing a Bill, yesterday we had statements of the Government's intention to increase old-age pensions with no mention of how the increase was to be financed, and in the first half of the speech of the right hon. Lady the Secretary of State for Employment and Productivity I felt that I had drifted into the Committee stage of the Parliament (No. 2) Bill which she was trying to talk out. I suppose that we must be grateful that in her quotations of what was said by the right hon. Member for Enfield, West, she spared us the News of the World article and perhaps even the right hon. Gentleman himself will, somewhat surprisingly, also take pleasure from that.

We are told that there is to be a new White Paper which will be the guidelines for the Government's new proposals, and it will be interesting to see when the White Paper is published the extent to which the initial "In Place of Strife" will have been ditched. The right hon. Lady says that she is sticking to its philosophy. She is entitled to do that, providing that she ditches many of its proposals. She may well resolve one of those most difficult problems in politics, namely, how to be a member of the Parliamentary Labour Party and also a member of the Labour Party. If that dichotomy can be removed, we may move to a situation like the peace of Amiens about which everyone was relieved but of which nobody was proud.

I still maintain that the Government are attacking industrial disputes in the wrong way. I believe that the Budget could have been used to produce generous fiscal incentives to enhance the status of workers, and I propose later to say how. If the Government solidly believe that they will be able to order 5,000, 10,000, 15,000 or 20,000 men who are on strike to go back to work, they should remember the last experience in the Betteshanger Colliery in Kent during the war when even though they were armed with the Defence of the Realm Acts and with all the pressures of war, they were doomed to failure.

Mr. William Hamling (Woolwich, West)

Was this an official or unofficial strike?

Mr. Thorpe

It was an unofficial strike, and the Government ordered the workers to go back, with a total lack of success.

Mr. Eric S. Heffer (Liverpool, Walton)

The hon. Gentleman will recall the struggle of the dockers and others against Order No. 1305.

Mr. Thorpe

The hon. Gentleman is correct. I do not believe that process will be made easier by saying to the workers, "We will levy financial penalties upon you in the Industrial Court, but we will give you the generous option of deciding whether there will be a committal or an attachment, and you can name the appropriate charity." This is naivety run riot.

Incidentally, I would like to know whether or not the attachment of earnings could involve the bankruptcy of the individual concerned.

However, I do welcome particularly the proposal to help those workers who are laid off although they are not party to the strike and who are not able to get any benefit. A case was recently referred to my hon. Friends and myself of a large number of workers in Swindon being laid off and being unable to draw any assistance. I welcome that proposal.

Although the right hon. Lady has gone some way to meet the Home Secretary and others—no doubt she has received lectures not from the Prime Minister but from her colleagues—I still believe that the Government are tackling industrial relations in entirely the wrong way. In this Budget we are discussing not only fiscal matters, pensions and industrial relations, but we are seeing the publicly announced bargains of the Government. On the one hand, the compulsory powers will not be renewed at the end of the year, and the secret ballot will be dropped. On the other hand, pensions will be increased and an interim measure will be introduced shortly. The Government are using the Budget for a variety of reasons to announce a carefully worked out compromise to preserve unity.

I welcome the economic forecast contained in the Chancellor's Budget this year and last year, and I hope such forecasts will become a current feature of Budgets; they are extremely helpful.

There are some measures in the Budget which are humane and which I welcome. I welcome the exemption of increasing numbers in the lowest brackets from the incidence of taxation. I welcome the amelioration of the effects of betterment levy, although I think it is an appallingly bad and cumbersome way of returning to the nation some of the benefits of the increased wealth. I have always been a land-value-taxer. I think the "slice" instead of the "slab" method of assessing estate duty is an advance, and the treatment of close companies so as to make them more akin in their treatment to corporations is also to be welcomed.

There are other measures which some think are not so humane, particularly the Tory Party, but which I equally welcome. I welcome the ending of tax relief on borrowing for personal consumption. This involved an enormously high gift to the surtax payer and, if individuals are spending money for personal consumption I do not see why the taxpayer should be expected to make a contribution. I say that with an inverted interest to declare, not least because of personal events of recent days. I doubt whether directions to banks will be sufficient and I will in a moment make a suggestion. Seven years ago we advocated the ending of this tax relief, and I am delighted that at last the Government have caught up. What I find depressing in the Budget is the position of the Chancellor. Last year, he came to the Dispatch Box in chains. He was imprisoned by the shackles which had been forged for him by the present Home Secretary and by Dr. Kaldor. This year, we hoped that he would have broken those chains and would come before us as a tax reformer. We found that he is still enchained by his administrative machinery and haunted by those two deceased Treasury mandarins, the Home Secretary and Dr. Kaldor.

What I found depressing in his speech was the number of occasions on which he told us what he wanted to do by way of reform and simplification and then, like some rich man's Fred Peart, said, "Not this year". If I may paraphrase St. Augustine, his attitude seemed to be, "Convert me from sin, O Lord but not just yet."

One of the most serious adverse effects of the whole of our fiscal policy is that there is a crisis of management. The whole of our system of administration is so top heavy that, with the best will in the world, no Chancellor can carry out the acts of simplification and reform to which he says in every Budget that he is committed.

On 1st April, the Financial Secretary was good enough to tell me that the staff increase in the Inland Revenue from 1st April, 1968, to 1st March, 1969, was 1,514. In a Written Reply on 13th March of this year, the Paymaster-General said that the increase in the Inland Revenue between 1st April of this year and 1st April of next year would be 2,380, which is the largest single increase of any Government Department and a prospective quarter of the total anticipated increase.

At the same time, in a memorandum to the Estimates Committee, the Chief Inspector of Taxes said, according to a release which appeared in the Press on 10th April of this year, that the new taxes introduced since 1964 were so complex that that, coupled with the number of the fall-off of the trained inspectorate, meant that today, even without new taxes, we faced the grave risk of fraud and tax avoidance and needed something like 300 to 400 new inspectors. I want to suggest ways in which we can and must improve the machinery of administration, at any rate if not in this Budget in time for the next one.

There is no question that many of the taxes introduced not only by this Government but by their predecessors have been thoroughly ill thought-out. The most obvious illustration is the Selective Employment Tax itself. When it was introduced in 1966, the Government had to be told that agriculture was in fact ranking as a non-manufacturing industry. The Government threw up their hands in horror and said that they had better do something about it. It was only when it was pointed out to them that the obvious came to them in a blinding flash.

In his last Budget statement, the Chancellor told us that Professor Reddaway was to be asked to look at the Selective Employment Tax. He said: Collecting the tax from all employers and giving back all or part of it to some looks, I recognise, a cumbersome procedure, and I hope that at some time in the future—though I fear that it cannot be yet—we can arrange to collect the tax only from those who are liable to it. There is also argument about its effects, which cannot easily be resolved on the basis of the relatively short experience of its working so far. I am glad to say, however, that Mr. Reddaway, of Cambridge University, has agreed to undertake an inquiry into the effects of the Tax. I think that this is of importance: The terms of reference will be: to examine and report on the effects of the Selective Employment Tax on prices, margins and productivity in industries on which the tax falls as a net burden, and the consequent effects on the economy generally. If the House will bear with me, I will make one final short quotation under this head: I should have liked to have had the results of this inquiry, and indeed to have been able to devise a less cumbersome method of administering the tax, before making any further changes in the rate. But these easy options of waiting are simply not available to me if I am to take the steps which are essential to get the economy right this year."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 284–5.] That was the Chancellor's declared view last year.

Here is a Chancellor who says that he accepts that the mysteries of the operation and the complexity of the administration of S.E.T. are such that he has had to refer it to an academic to investigate, but notwithstanding that, he increases it by 28 per cent. this year.

Anyone who doubts the Government's own criticism of the Selective Employment Tax need only look to the R.E.P., which was an attempt to make up for the devastating effect that the Selective Employment Tax had on the development areas. The recovery trades are a similar case in point. It is a matter which my hon. Friend the Member for Cheadle (Dr. Winstanley) pressed as far back as 23rd June, 1966, and to which my hon. Friend the Member for Oprington (Mr. Lubbock) referred in a series of questions the most recent of which was answered on 6th November last year.

When the S.E.T. was initially introduced, some of my hon. Friends and I argued that, if one abolished the Selective Employment Tax and had in its place a payroll tax payable on employees irrespective of the form of employment, at the rate of 7s. 6d. per employee, regionally varied to 5s. in what might be designated the "grey" areas and totally exempted in the development areas, the Treasury would still have had substantially the same yield.

What we are entitled to ask is when the Reddaway Report will be ready and what confidence the Chancellor has in putting up a tax when, on his own admission, he does not understand the effect of it in its operation.

At least last year we had a genuflection in the direction of a value-added tax. In his Budget statement, the right hon. Gentleman said: The subject was of course examined in 1964 by a Committee under the Chairmanship of Mr. Gordon Richardson. The arguments are now being re-examined by a Committee of the National Economic Development Council, which is expected to report by the autumn."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, cc. 274–5.] Did it report by the autumn? If so, where is the report, and what is the thinking of the Chancellor on the subject?

All this points to the fact that the whole system of administration in this country at the moment makes it almost impossible for radical, drastic simplification and reform.

Mr. Iain Macleod

It may be a question of clarification, but I understood the right hon. Gentleman to say that the Liberal Party had advocated in place of S.E.T. a payroll tax at the level of 7s. 6d. However, a payroll tax, as normally understood, is a percentage. If it is to be 7s. 6d., I take it to be a poll tax. Which does he mean?

Mr. Thorpe

The proposals on the payroll tax are a poll tax in the sense that they are levied on each head of the working population. That would be preferable to the Selective Employment Tax because it could be varied regionally, but it would still have the effect of saying to an employer that he must not hoard labour and must contribute to the Treasury for the amount of labour that he employs. I think that such a tax is a more workable solution and has less inequalities about it than the present difference between service and manufacturing industries.

The Chancellor said yesterday that he has great sympathy with those who wanted to see radical simplification, but that it could not be done by a stroke of the pen. However, it cannot be done in an annual Budget. It cannot be done by the existing staff of the Inland Revenue. It cannot be done unless Parliament is given greater power of discussion and deliberation between Budgets. Therefore, while it is true that the Bellinger Committee and the Estimates Committee are looking at certain aspects of the administration of the Inland Revenue, many of the fiscal problems that the Chancellor faces today and his power of manœuvre are affected by management considerations.

I suggest that priority No. 1 should be that we set up in this House a Select Committee on Taxation. There are many hon. Members in many quarters of the House, from which I carefully exclude myself, who have great experience of fiscal matters. I cannot see why the sort of question which the Chancellor says that he has not had time to consider and which the Inland Revenue has not enough facilities to examine, cannot be considered by Parliament itself.

Why, for example, should not Mr. Reddaway appear before a Select Committee when his report has been published, be subject to cross-examination and be asked to assist?

Why cannot we consider whether a payroll tax is preferable to the Selective Employment Tax? Why cannot we do what has been done in the Norwegian Parliament who are currently considered the whole question of V.A.T.? Why should we not consider whether a value-added tax might replace Purchase Tax, Selective Employment Tax and possibly in whole or in part Corporation Tax?

Why cannot we consider whether the present method of financing our social security is right or whether we could abolish, as I believe we can, the National Insurance stamp by a graduated social security tax? Why cannot we see whether a gifts tax is preferable and carry with it a radical reform of death duties? Could we not consider how it is possible to get a tremendous simplification of Income Tax? Is there any reason why the T.U.C. and the C.B.I., the voice of exporters, should not be heard on the taxation that they would like to see to give incentives for growth and investment?

I believe that the trouble with the Budget is that the Chancellor is chained by the system, by the lack of personnel and the lack of prior discussion. Parliament has insufficient opportunities to discuss these changes and the Inland Revenue has neither adequate machinery nor the morale to deal with it.

Therefore, our first priority is to set up a Select Committee which should be starting a dialogue between the nation and Parliament on these issues. It would not bind the Chancellor, but it would be of persuasive authority.

Finally, I turn to individual taxes. First, savings. I congratulate the Chancellor on a shrewd move which appears to have escaped the official Opposition. The Conservative plan, if I have read it aright, is that tax relief would be accorded when the savings are paid in. The Government's view is that it should be paid when the money is drawn out in five to seven years. Therefore, if the pundits are correct, and we have a Conservative Government in five to seven years, this Government will have initiated the savings scheme and the Conservative Government will pay for it.

The only other matter on savings is: why only Government securities and building societies? I agree with the right hon. Member for Enfield, West. Why cannot there be a real encouragement for industrial investment Why cannot generous tax provisions be given to those industries which share profits and share ownership in the shares of a company? I believe that in this way we will raise the status of people employed in industry. Instead of always going for punitive measures, why cannot we enchance the status of workers by changing the Companies Act to give them comparable power with the shareholders? When the News Chronicle was taken over the shareholders had a legal right to protest in the courts and they got certain guarantees, but the workers had no such rights. Is there any reason why, at the annual meeting, the workers should not play a part in electing the board of management? These are some of the civilised ways of raising the status of people in industry and bringing about partnership in place of strife.

There is nothing in the Budget for exports. This is difficult under the provisions of G.A.T.T. That being so, there is all the more reason for considering the value-added tax which is an incentive which is not in breach of G.A.T.T. and is all the more reason for not placing an additional burden on the exporting industries.

Clearly the Selective Employment Tax will have an indirect effect in putting up the costs of shipping companies, insurance, accountants and the ancillary services which are important to these firms, and likewise the fuel increase. Therefore, not only do the Government do nothing for exports, but they put considerable imposts in the way.

I have mentioned S.E.T. Representing an area with 11 per cent. unemployment which relies heavily on service industries, I can give the Chancellor many instances of the effect of S.E.T. without his waiting for Mr. Reddaway's Report.

Concerning overdrafts, I do not think that the directions to the banks will be adequate. I should like the Government to consider whether there should be some minimum reserve ratio between deposits and advances such as has operated successfully in Germany over the last 10 to 15 years.

On monetary systems, I think that the Chancellor was again depressing. The 6½ per cent. increase in the money supply was a grave factor in our economy. Sterling today is still vulnerable. There is a narrow margin. Some of us have advocated the concept of the crawling peg; others want to see a new reserve currency. I should like to think that the Government were moving in that direction.

The most depressing thing is that the Chancellor, who I think genuinely wants to see a reform and simplification of the system and wants to scrap out-of-date and hopelessly antediluvian taxes, is a prisoner of the Treasury system. It will not be possible to get simplification until we reform this archaic structure, of which this Budget is a reflection.

Therefore, I suggest that between now and the next Budget the Chancellor should throw off his chains and that this House should be allowed to carry on a continuous debate and examination of the principles of taxation so that in the next Budget we can have proposals which are clear, simple, and give a real lead to the nation.

5.46 p.m.

Mr. Douglas Jay (Battersea, North)

Before coming to the speech of the Secretary of State, I should like to dwell briefly on the statement of policy which we have had from the Opposition Front Bench this afternoon. I can only express astonishment at the position into which the Opposition have now got themselves. They are simultaneously proposing to make large cuts in direct taxation, to make quite a number of increases in expenditure, as we have constantly heard, and to abolish S.E.T., which they must know in their hearts is now quite impracticable.

If they really carried out these policies they would find that they had tipped the country into a rapid inflation and balance of payments deficit. Indeed, the right hon. Member for Enfield, West (Mr. Iain Macleod) must know, just as well as I, that if they embarked on a general tax cutting campaign of this kind they would soon land the country in the situation that we had in the autumn of 1964.

Apparently their only other positive idea is to raise the cost of living steeply—even faster than it has been rising as a result of other forces—by embarking on the massive folly of taxing food, by launching themselves on what I regard as the expensive folly of the value-added tax, which I am sure they recognise gives no more incentive to exports than does Purchase Tax already, and by raising the rents of council houses. If they embarked on all those policies at once the result would be to give a vicious twist to the wage-price spiral and to push up manufacturing costs throughout British industry. I can hardly imagine a more disastrous combination of policies.

By contrast, the Chancellor seems this year to have acted reasonably and moderately. He certainly cannot be accused of ruthlessly clawing back more purchasing power from the public than was necessary. If anything, I suspect that he has erred on the other side, absorbing this year rather less than £200 million of actual purchasing power in the hands of the spending public.

I repeat the warning which I gave last year. I still expect imports, without controls, to rise again this year rather faster than the official forecast we have been given. It is a staggering fact, not known to many, that since the right hon. Member for Barnet (Mr. Maudling) abandoned import quotas in 1958–59, the increase in imports of manufactured and semi-manufactured goods into the United Kingdom in the ten years 1958–68 has been over £2,700 million a year. That is the cause of our balance of payments deficit—not overseas investment or military expenditure overseas, each of which is absolutely trifling by comparison.

However, I thank the Chancellor for two decisions in particular—more especially because I have been constantly recommending them to him. The first is his decision to raise the exemption limit for the smallest Income Tax payers and the second to end the indefensible tax relief for bank overdraft interest. It has for a long time seemed to me absurd that pensioners with £9 or £10 a week should be paying about 15s. a week in Income Tax, as they have been doing up to this Budget. As money income and prices rise our present Income Tax system automatically creeps down the scale unless something like this is done positively to correct it.

Secondly, in my view there has never been any justification for tax relief on overdraft interest. I have been recommending every Chancellor of the Exchequer since and including Sir Stafford Cripps to get rid of it. My right hon. Friend can claim to have carried out a wholly beneficial and long overdue reform. The right hon. Member for Enfield, West, in attacking this today, gave no good reason for preserving the system. He is quite wrong in thinking that it introduces a new principle into Income Tax. It is already true over a large part of the Income Tax field that if anybody wants to claim the use of a car, a telephone, or whatever it may be, as a necessary expense of earning his income, the onus is upon him to prove it. The same should be true in respect of tax relief on overdraft interest.

Mr. Patrick Jenkin (Wanstead and Woodford)

Does the right hon. Gentleman expect that part of his overdraft—if he has one—if referable to the use of a car for his own purposes, will be eligible for relief under the new dispensation?

Mr. Jay

As I have no overdraft the question does not arise.

I wish the Chancellor had gone rather further in other respects, and I urge him not to be weary of well doing, and to do so next year. With interest rates at their present level I believe in lending and not in borrowing—but that is a diversion. I recommend the Chancellor, first, to get rid of the equally indefensible rebate of 45 per cent. of Estate Duty for agricultural land in the United Kingdom. There is no good reason for this nowadays, as I am sure the Minister of State will realise. Its removal could be carried out by the stroke of a pen, and far from increasing the work of Estate Duty officials it would make it simpler.

The Chancellor has not been bold enough on the savings front. There is only one measure which could at once protect small savers against falling money values, genuinely encourage real new savings and correct the still grossly unequal distribution of property in this country. That would be a measure enabling the mass of small savers to enjoy the benefit of well spread equity investment—I believe that in this respect the right hon. Gentleman will agree with me—by the launching of a Post Office Savings Bank unit trust. That is a quite practicable proposition. If the trustee savings banks can do it the Post Office Savings Bank can do it, and with the vastly greater advantage that it has a counter in virtually every town and village in the United Kingdom.

I am aware of the orthodox arguments against this. I know them as well as the Chancellor does, but in the very short speech which we now very rightly make in this Chamber, all I will say is that those arguments are quite as invalid as were the orthodox arguments against abolishing tax relief for overdraft interest. I hope that the Chancellor will adopt both suggestions next year, as I am confident that he will still be with us on the Front Bench at that time.

On the industrial front, however, I do not feel so convinced of the wisdom of the Government as on the strictly Budget front. Having listened to the Secretary of State this afternoon—and it was not always easy to follow her precisely—I am still somewhat puzzled at the Government's sudden decision to pick out one or two parts of the proposed industrial relations package and try to force it through this summer at this rate. I have always been sceptical of the possibility of improving industrial relations by legislation, and the majority of the highly experienced members of the Donovan Commission supported that view.

I agree with the view which I gather is now held by Ministers, however, that a number of strikes in the last three years have been in some cases irresponsible and in many cases damaging to the economy. It is probably also true that we have now reached the point when many members of the public would like something done without waiting indefinitely for its effectiveness to be proved indisputably true. That may well be true, but it is one thing to introduce next Session—as I had understood was planned—the carefully considered and balanced proposals from "In Place of Strife", some of which would assist and strengthen trade unions and others which would attempt to restrain unnecessary strikes, and quite another for the Government suddenly to change course, pick out one or two of these proposals, apparently to jettison the others, and to postpone a final settlement for an indefinite period.

That might be to invite political bitterness without more than the faintest chance of improving industrial relations. Even if this proposed cooling-off period worked and some way were found of enforcing penalties upon those disregarding the law—and I was not convinced by what my right hon. Friend said this afternoon about the way in which she would do that—it requires a great deal of faith to believe that any legislation of this kind, this summer, could more than negligibly affect our balance of payments over the next 18 months or two years. I may be a sceptic or a pessimist, but that is my honest view.

Mr. Arthur Lewis

On the question of getting this money, however it is arranged, is my right hon. Friend aware that at the present time fines to the value of £3½ million have been outstanding for up to 10 years and that the courts cannot get the money back from the people who have broken the law? In those circumstances, how does my right hon. Friend or the Secretary of State expect to get it from the workers if they refuse to pay?

Mr. Jay

My hon. Friend confirms my doubts—and I am sure that he knows more about this branch of the law than I do.

Unless the Government can produce better reasons for this new package than they have yet done I hope that they will think again about it and see whether it is not possible, even now, to achieve a balanced settlement, agreed with both sides of industry, or at least carrying the acquiescence of organisations representing both sides of industry; otherwise I am afraid that my right hon. Friend may be provoking just that outburst of strikes which she is rightly seeking to avoid and replace.

6.0 p.m.

Mr. John Boyd-Carpenter (Kingston-upon-Thames)

When the right hon. Member for Battersea, North (Mr. Jay) at the beginning of his speech suggested that the policies of my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) might produce a balance of payments crisis, my mind went back to the time when I succeeded him as Financial Secretary to the Treasury in 1951. The right hon. Gentleman will remember that he left behind, and the then Chancellor left behind for the incoming Chancellor, a major balance of payments crisis. It would be unwise of the right hon. Gentleman to attack other people's policies as being likely to produce this. We know, as a matter of plain fact, that the policy with which he was directly associated as Financial Secretary had precisely that effect.

I turn to the quite extraordinary speech of the right hon. Lady the Secretary of State for Employment and Productivity. May I begin by commenting on the extraordinary fact that immediately after she had concluded a speech lasting more than an hour she left the Chamber and has not returned since.

Mr. Arthur Lewis

We must be fair. My right hon. Friend explained that she had a meeting immediately afterwards with the Prime Minister and the T.U.C.

Mr. Boyd-Carpenter

I do not think that that is an excuse. It might be an explanation, but it is not an excuse to treat the House as a Reichstag, to which Ministers come only to harangue it, and immediately depart, instead of taking part in the debate and listening to the views of other hon. Members. It is very wrong. It is a well-established courtesy of the House that a right hon. Member or hon. Member waits at least for the succeeding speech. The Government have a choice of speakers. If they like so to arrange their business that a Minister makes a speech and then immediately goes to another meeting, that is only another indication of the contempt with which they treat the House of Commons.

The Financial Secretary to the Treasury (Mr. Harold Lever)

I am a little remiss, because I, too, have had a break, but the First Secretary asked me to explain to the House that it was with great regret that she had to depart from what I accept is normal procedure. The arrangements made in this context were made at relatively short notice, and she asked me to make it plain to the House that there was no intention of discourtesy. I do not dissent from the general proposition of a Minister's obligation, and I am sure that she would not. I want to make it plain that there was not the least intention to be discourteous to the House or to make any general infraction of the rule which obliges Ministers to listen to other people's speeches as well as to make their own.

Mr. Boyd-Carpenter

Of course I accept that from the Financial Secretary, but nonetheless I hope that in future those who arrange Government business will remember that this House is a debating Chamber, not a forum for listening to Ministers' speeches. I hope that they will not make arrangements under which Ministers are put in the position which the Financial Secretary has described, and which he rightly and fairly regretted.

As to the right hon. Lady's speech, it fell into three parts. There was at least 25 minutes about the Budget to be introduced by my right hon. Friend the Member for Enfield, West. That was an indication that such a Budget will be forthcoming before long, and the right hon. Lady found it much more interesting to discuss than that which her right hon. Friend presented yesterday. Secondly, there was a defence of a policy which she is abandoning. Compulsory control of wages. It was a long and characteristically vigorous defence of a policy which led one to ask, if it is all that good, why is it being given up? She offered no explanation of what was to happen during the fairly long period between now and the end of this year while these powers will remain in force. Are they to be operated?

I must pick one example she gave of the working of this policy, because it leads to the exactly opposite conclusion to that which she suggested. She referred to her action in interfering with the proposed rent increases by the G.L.C. She gave this as an indication of how admirable this policy was. The House will be aware that the Greater London Council has a very sophisticated differential rent scheme under which those of its tenants who cannot afford a full rent receive very substantial concessions.

The House will also be aware that under the proposed increases this differential was to be fully maintained. Nonetheless—and it is the right hon. Lady, not I, who introduced this matter—she intervened to prevent an increase, an increase only for those tenants who could reasonably be expected to afford it, of 7s. 6d. a week and instead put the burden on the ratepayers of London. The relevance of this matter arises, in the context of the Budget particularly, from the reasons given in the decision letter, of which I have a copy, sent by the Ministry of Housing and Local Government to the Greater London Council.

In paragraph 4 of the letter there are some very significant words, in terms of financial management. The letter says: The Minister notes that the Council could to a far greater extent restrict the amount of capital expenditure, met from revenue, in accordance with the recommendation in paragraph 6 of Circular No. 37/1968. This expenditure is now estimated to grow to £3,540,000 in 1969–70 and £4,330,000 in 1970–71 and consists of the cost of staff on capital works and other expenditure of a capital nature. I understand that the practice proposed by the G.L.C. is that carried through by its Labour predecessors and its Labour predecessors in charge of the L.C.C.

Mr. Hugh Jenkins (Putney)

That is not true.

Mr. Boyd-Carpenter

The hon. Gentleman can shout what he likes. If he manages to catch Mr. Speaker's eye he can say that it is not so. I think that it is so. What is far more important than whether the Labour-controlled L.C.C. did it, as I believe it did, is for the hon. Gentleman to direct his mind to it in the context of what the Chancellor is trying to do when the Minister of Housing is telling a local authority to borrow instead of meeting out of revenue in respect of certain housing expenditure. This is at the very moment when the Chancellor is priding himself on having reduced the borrowing commitment of the nation to a minus quantity on the ground that it is necessary in our present economic situation.

It seems clear that this petty interference in the affairs of the greatest local authority in the land, in carrying out policies which it was elected to carry out, is not only a montrous interference in the affairs of local government but goes right against the whole of the Chancellor's policy. It is an indication of the disorganisation of this Government that here we have the Minister of Housing and Local Government working in a sense contrary to the Chancellor.

Mr. Hugh Jenkins

The right hon. Gentleman knows full well that there has been a profound change of policy by the G.L.C. What it is seeking to do is to charge to the tenants the cost of new developments, which are nothing to do with the tenants. It is seeking to transfer to its tenants the whole cost of future developments, and that is a move from rates to rents. That is the fundamental change and that is why my right hon. Friend was right to intervene.

Mr. Boyd-Carpenter

That is wholly untrue.

Mr. Hugh Jenkins

No.

Mr. Boyd-Carpenter

The hon. Gentleman must know that from his experience. I understand, and I challenge the hon. Gentleman to dispute this, that the treatment for this purpose of this expenditure as a charge against revenue follows the practice of the Council over 20 years.

Mr. Hugh Jenkins

That is not right.

Mr. Boyd-Carpenter

It is no good the hon. Gentleman shouting, "That is not right". I have taken considerable trouble to ascertain this. The point which the hon. Gentleman very carefully did not explain is that, whether the Labour-controlled L.C.C. followed a prudent financial policy, as I have been suggesting, or an imprudent one, as he has been suggesting—[Interruption.]—the policy is completely contrary to that on which the Chancellor was priding himself yesterday.

Mr. Hamling

No.

Mr. Boyd-Carpenter

I agree that that could be an argument in favour of it, as no one thinks that the Chancellor is very good at economic management; but it clearly suggests the confusion in this Government's administration.

The right hon. Lady gave us a preview of her interim industrial relations Bill. When she had finished, few of us were very clear as to its details. Obviously, it is the result of uneasy compromise. The curious wrigglings in which the right hon. Lady indulged on the question of penalties were an indication of that. It is something of a novelty when someone to be made liable to a penalty is given a choice of the method of its imposition—perhaps a rather belated conversion of this Government to the doctrine of consumer choice, though in an unusual context.

The whole concept seems extremely curious, and we shall wish to look at it closely when the House considers the Bill. As I say, I think it unfortunate that we cannot elicit from the right hon. Lady at this stage a great deal more than she told us about its proposals. They seem to be at an early stage of consideration at the moment. An even more unsettled question is what is to be the use of the penalties. I took down what the right hon. Lady said: they are to go to some fund to be used for some purpose. I suppose that that is a good example of the purposive, clear and dynamic Government which we were promised.

I return now—I hope that I shall not be out of order in so doing—to the Budget. First, I take the Chancellor's extraordinary handling of the pensions issue. As my right hon. Friend the Member for Enfield, West said, there is no precedent for introducing pension benefit increases without at the same time mentioning contribution increases. If one is to preserve, as I understood both both sides of the House wanted, the contributory basis of the National Insurance Scheme, it is essential that the two be linked. As it was, the Chancellor announced with some precision not only the amounts to be paid to both single and married pensioners but also what percentage increase in real terms they would represent over the levels ruling when the present Government came to power. Incidentally, that indicates that he thinks he knows what prices will do between now and November, which I take leave to doubt.

The Chancellor said that the increase would cost about £250 million to the National Insurance Fund. It is essential that we know, and that everybody knows, how it will be paid for. To make mention of popular benefit increases and no mention of unpopular contribution increases is an exercise in pensioneering which even the right hon. Gentleman the Secretary of State for Social Services would blush to undertake. Moreover, it is dangerous—I put this seriously to the House—in any circumstances for a Minister to make a bid for the popularity of pension proposals in that way, and particularly dangerous when it is done by a Chancellor in a Budget speech. Its effect on foreign confidence in his management of our economy cannot but be disastrous.

The most astonishing feature of all is that, contrary to what my right hon. Friend the Member for Enfield, West suggested, it appears on the face of it as though the Chancellor does not know the answer to the question how the increase is to be paid for. He said yesterday: I indicated that we shall ensure that the burden of increases is distributed as fairly as possible amongst contributors. This means that the matter must be worked out and laid before the House in a Bill."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1015.] The statement that it must be worked out suggests that the right hon. Gentleman does not know the answer as to how the increase is to be paid for. The right hon. Gentleman will recall that my right hon. Friend suggested that he knew. If he does know, we should be told. If he does not know, we should be told that. I shall readily give way to him if he wishes. I read his words as indicating that he does not know.

If the right hon. Gentleman does not know, it is astonishing that a Chancellor of the Exchequer, in such economic circumstances as we now have, should make a statement about a large addition in expenditure without knowing how it is to be financed. The right hon. Gentleman will realise that this goes further than the charge to the National Insurance Fund, large though that is. There is the distribution of the cost as regards the employer, on top of the swingeing increase which he is imposing in the S.E.T., and there is the increase in the employee's contribution which is in the nature of taxation. There is also the quantum of the Exchequer contribution, which is direct public expenditure.

It does not stop there. It would be unthinkable that the Chancellor should move benefit rates in National Insurance and not move supplementary benefit rates at the same time. Otherwise, the worst-off section of the population receives nothing at all from the change. But supplementary benefits are an Exchequer charge. The same is true of war pensions; they are always moved at the same time. Moreover, though this also is an insurance charge, we know nothing about what is proposed to be done regarding industrial injuries. We are, therefore, left with a large area of potential public expenditure entirely unexplained.

There is another curious result of this way of handling the matter. The White Paper Cmnd. 3936, Public Expenditure 1968–69 to 1970–71, is already out of date. Note 7 under Table 2, referring to Social Security, tells us: The figures for 1969–70 and 1970–71 have been estimated on the basis of existing rates of benefits. This was a White Paper forecasting public expenditure issued as recently as February. I do not doubt that at the time it was issued these changes were in contemplation. It is most unsatisfactory to have a White Paper of that sort, if it is to be treated seriously, vitiated in a substantial particular so soon after its issue.

The Chancellor's whole handing of the pension question and, if I may say so, his intervention in a matter which is the affair and responsibility of the Secretary of State is a most unhappy aspect of this unhappy Budget situation. As my right hon. Friend the Member for Enfield, West said, the right hon. Gentleman has introduced an exceedingly depressing Budget. It shows that he has no ideas for the strengthening of our economy or our balance of payments except to increase taxation, by, in a full year, about £340 million, and that over and above the unprecedented increase of nearly £1,200 million which he imposed last year, in a desperate effort to divert resources from consumption to exports and investment.

I accept, as everyone who studies these matters does, that it is a normal post-Keynsian instrument for doing just that, but what the Chancellor did not appear to understand is that this instrument has been used so hard by him and his immediate predecessor that it is both losing its effect and producing dangerous side-effects. People are not willing to go on cutting back their consumption at the behest of the Chancellor, and the effect of seeking that end by simply increasing taxation is to produce a growing resistance, as I think the right hon. Gentleman implicitly admitted in his speech. The young and able face this situation in many cases by emigrating. The older maintain their standard of living by a realisation of their savings, or perhaps take it out in leisure.

I ask the right hon. Gentleman to study, if he has not already done so, the clear analysis given by the noble Lord, Lord Crowther, in the House of Lords on the Second Reading debate on the Customs (Import Deposits) Bill as long ago as 5th December. Lord Crowther has great experience of these matters, and his considered opinion that the use of taxation for this purpose was becoming increasingly ineffective is entitled to be treated with great respect. In continuing to use this one weapon, despite its failure, the right hon. Gentleman recalls to my mind—and since he has studied the period he will appreciate the analogy—the attitude of the generals on the Western Front in the 1914–18 War. When they discovered that throwing men against barbed wire which had machine guns behind it did not produce a breakthrough, the only thing they could think of was to throw more men on the barbed wire and hope that they could achieve a break-through. That again failed. The right hon. Gentleman's persistence in using the bludgeon of taxation again and again to try to get the diversion of resources which we all want to see is an indication of a similar inflexibility of mind.

I accept that the right hon. Gentleman has one difficulty which he inherited from the preceding Government. It is true that the management of our affairs by the preceding Government accustomed the great mass of our people to improving their standard of life every year. Our people had come to expect this and to believe that, with good and competent management, they could get it. This obviously strengthens their resistance to an attempt to check that growth, particularly when it is checked by a Government who have completely lost the confidence of the public, and in circumstances in which the public is inclined to think that if things had been better managed this need not have happened. As I foresee, these measures will not be successful, and the right hon. Gentleman in a year's time, if indeed he is then in office, which I doubt, will have to report yet another year of failure.

The right hon. Gentleman attempted to do the other thing which most commentators advised him to do: he tried to promote savings, and he produced an interesting scheme at the cost of very high interest rates and substantial tax concessions. On the face of it, this looks a most attractive investment for the major type of Surtax payer. I doubt whether the right hon. Gentleman will attract real new savings into gilt-edged securities expressed in money until he can eliminate from people's minds the fear that the money in which this is expressed will not be devalued year after year. The present state of the gilt-edged market is a ghastly example of the situation for all to see and it has produced resistance among savers.

Therefore, although we wish the right hon. Gentleman's experiment well—its parentage, as he has admitted, comes to some extent from this side of the House—I do not believe that he will be successful in tackling the situation unless he can restore confidence that the £ will maintain its value. Other measures in this Budget, such as the increases in S.E.T., Purchase Tax and petrol tax, do the exact opposite. They act to increase prices and therefore to diminish the value of the money which he is asking people to place in investments expressed in terms of money.

The basic criticism of this Budget is that there is in it absolutely nothing to encourage any active young people to stay in this country instead of going abroad, or to encourage any of the rest of us who remain here to work harder, or more successfully, or to invest. There has been no encouragement of any sort or kind. On the contrary, the right hon. Gentleman has allowed to continue a system of taxation which becomes more oppressive on earnings every year. Each year, with changes in money values, the incidence of direct taxation becomes sharper. To maintain an income of constant real value, it has to be higher in money value. If it is higher in money value, it bites directly into higher levels of tax. Therefore, merely to leave our system of taxation as it is causes it to rise automatically every year.

As the right hon. Gentleman knows, because one of his Ministers gave me the answer in January of this year, people at the higher end of the earnings bracket, people at the level of earnings which the Government think necessary now for the chairmen of nationalised industries, keep at the margin of their earnings above that figure only about one-third of what their American, German and French counterparts keep and only one-half of what the Japanese keep. There is nothing whatever in the success of our economy to suggest that all our competitors are wrong and that we alone in this country are right.

We go into a new financial year without a spark of encouragement, with a year of failure behind us and undoubtedly with a year of crisis ahead; and with the bailiffs of the I.M.F. in London. Everybody knows that a new approach is needed, something which will give encouragement to people to work, to stay here, something to get out of the rut of increased taxation and increasing depression. Almost everybody knows that this will not come from the right hon. Gentleman but will come from his successors. The only open question is how soon. And, from the point of view of the recovery of our national economy, that question is becoming more acute every moment.

Mr. Speaker

Since many hon. Gentlemen wish to speak, brief speeches will help.

6.26 p.m.

Mr. David Marquand (Ashfield)

The concluding passages of the speech of the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) were among the most alarming I have heard enunciated in this House. The basic proposition which was advanced by him was that it is impossible to slow down the rate of increase in private consumption and impossible to make private consumption bear the heavier part of the burden of shifting resources into balance of payments and away from domestic consumption altogether.

In other words, what the right hon. Gentleman is saying is that one simply cannot operate the economy in such a way as to allow a redistribution of resources towards social expenditure and away from private consumption if one is living in a capitalist world. If this were so, it would mean that democratic socialism would be impossible and that there would be no alternative to the Conservative Party but revolutionary Socialism.

Fortunately, there is not the slightest evidence from the experience of the past 12 months that it is true. There is no evidence whatever of the alleged silent revolt of the consumer about which the Leader of the Opposition spoke last November. There is no evidence of a flight from money. None of these things which were supposed to take place last year and which were supposed to be responsible for sucking in more imports than were expected took place at all. The reason that imports rose last year faster than expected is simple. It is that earnings went up faster than was expected and prices did not go up as fast as was expected. There was no silent revolt by the consumer whatever. Therefore, the rather alarming philosophical proposition which the right hon. Gentleman advanced dissolved into dust.

We are having a rather curious composite debate this evening, in which all kinds of different things appear to be relevant. I should like to make some brief comments about the proposals put forward by my right hon. Friend the First Secretary of State this afternoon before turning to the Budget strategy as a whole. I should have preferred other ways of refocussing industrial relations. I should have preferred to put the Commission on Industrial Relations on a stronger basis and give it more effective teeth. But it is a balance of advantage, and I am prepared to accept the proposals put forward.

However, I urge my right hon. Friends to remember what happened to the incomes policy. It has been much less successful than I originally hoped, and than it could and should have been, largely because a policy which could yield benefits only in the long run was used, for reasons which are quite understandable, as a short-term measure. I urge my right hon. Friends not to be caught in the same trap again. In their propaganda in the Labour movement and the country generally, in trying to sell to the people the proposals which my right hon. Friend put forward this afternoon, let them not give the impression that the proposals will do something which they cannot possibly do, which is to yield immediate, short-term benefits to the economy. They will not.

If we make the mistake of over-selling the reform of industrial relations, and suggest to people that it will solve problems in the short-term which it cannot solve, there will be great public disillusionment with the results, and we shall get ourselves into the same kind of difficulties as we did on incomes policy. The same applies to the reforms advanced by the Conservative Party, of which I disapprove. It is not a question of the content of the Government proposals, but the way in which they are presented. I urge my right hon. Friends to be very modest in their claims for them, because only in that way can the whole matter proceed on a proper footing.

I turn to the broader subjects that we are considering—the economic strategy advanced by my right hon. Friend the Chancellor yesterday and the proposals in his Budget. I think that it would be universally acknowledged that in recent history there can hardly ever have been a Chancellor who found himself in a more difficult situation than that in which my right hon. Friend must have been while trying to make his basic Budget judgment. All the indicators are confused, and, if one is intellectually honest, it is not possible to say with confidence what is happening to the economy at present. It is not clear from the monthly trade figures or the three-monthly average either that devaluation is working or that it is not. The figures are consistent with both interpretations. It is not clear why imports rose faster than was expected last year; it is not clear whether this was due to the once-and-for-all stock building by importers or to a basic change in the propensity to import, which will continue. It is not clear, either, what is happening to unemployment and productivity.

All this means that the basic judgment which my right hon. Friend had to make was much more difficult than it could have been for any Chancellor in recent years. In those circumstances, he had no alternative but to do what he did. Basically, he has stuck firmly to the 1968 Budget strategy with minor modifications, and, keeping his chin down, is marching solidly forward. In the circumstances, he has no alternative.

For all the alternatives are worse, I want to emphasise strongly that there is no easier, kinder or gentler alternative to my right hon. Friend's proposals. The Conservative Party talk about cuts in public expenditure as though they were somehow a more pleasant alternative to that chosen by my right hon. Friend. I am sure that I speak for all my hon. Friend's when I say that we reject the idea of massive cuts in public expenditure on fundamental, philosophical grounds. Apart from that, if the Conservative Party are trying to pretend that by cutting public expenditure they could at the same time cut taxation by the same amount, they are being hopelessly dishonest. They could not do this. From an economics point of view it makes no difference whether one earmarks certain resources for certain classes of activity and calls it public expenditure or private expenditure. As my hon. Friend the Member for Heywood and Royton (Mr. Barnett) pointed out, it does not make the slightest difference economically whether rents are paid by public authorities or by the householder. From an economics point of view it is neutral. Therefore, massive cut in public expenditure as a way of making things easier and more comfortable constitute a dishonest panacea.

Mr. David Howell (Guildford)

Is not the hon. Gentleman using the word "economics" in rather a loose sense? In the framework of his own thinking—macro-economics—it may make little difference how resources are allocated. But if "economics" means costs, efficiency and use of resources in a micro-economic sense, it makes all the difference in the world how matters are organised, how efficient the system is, and how much it costs.

Mr. Marquand

We are dealing with a problem of excessive demand in the economy. What I am trying to say is that cutting public expenditure and giving that amount of money back to the taxpayer would not deal with the problem at all. For right hon. and hon. Members opposite to suggest that in present circumstances they could cut public expenditure on a massive scale and allow the money to go back into people's pockets is dishonest, because they know perfectly well that it is not true.

Second, I think that the alternatives advanced from within my own Party and by independent commentators in the Press are also as unpalatable as the proposals put forward yesterday. Indeed, they are more unpalatable. Take the proposal of import controls, which is being more and more widely canvassed. It is suggested in some quarters that in some miraculous way import controls would offer a painless way out of our difficulties; they would not. They would necessarily have a highly inflationary effect. If import controls were introduced now they would therefore have to be accompanied by deflationary measures to prevent overheating in the economy, and to prevent exports from being diverted back into the home market and frustrating the export drive. That would not be a painless alternative either.

Nor would the frequently-canvassed alternative of a floating £ be a painless and easy alternative. Part of the reason why the forecasts have not worked out as well as they might have done, and part of the reason for the discouraging trade figures of the last two months, is that the switch of resources which we wanted to see as a result of devaluation has taken place far too slowly. If we have a floating exchange rate we shall in effect have another devaluation—for nobody expects the floating exchange rate to float up—and we should therefore have to have an even bigger switch of resources.

It has been difficult enough to get the switch of resources that we want at a dollar parity of 2.40. Floating the £ would involve an even bigger switch of resources. If we had a floating rate, the effect on the balance of payments in the short term would be unpleasant rather than pleasant. Import prices would rise immediately, and we should have all the effects that we had immediately after devaluation, so that would not be a painless alternative, either.

My hon. Friends, and people outside who echo their views, seriously underestimate the dangers of retaliation if we depart from the strategy outlined yesterday by my right hon. Friend, and which he has followed since last year. The United States has a balance of payments problem. The trend of opinion in the United States is less Atlantic-minded and more inward-looking than it was five or ten years ago. This trend of opinion has much deeper causes than economic problems. It can be seen in the country's foreign policy, and it would also be seen in its economic policy if we were to take further direct action to protect our balance of payments. The same is true of France. That country is grappling with serious economic problems, and I do not believe that if we introduced import controls the French would be able to stand by and do nothing. There would be a real danger of retaliation from them.

I believe, too—and this is a more fundamental point—that my hon. Friends who press that policy on the Chancellor, and press also the associated policy of selling the overseas portfolio, base their approach on a fundamentally mistaken assumption. They base their approach on the view that it is possible for this country painlessly to contract out of the international monetary system of which we are a part. It is true that a situation could arise in which the international monetary system had fallen apart, and we were forced to insulate ourselves from the outside world, for the international monetary system is not very healthy at the moment. But let us not fool ourselves into thinking that opting out of it would result in a more pleasant state of affairs than that in which we find ourselves at the moment.

The present international monetary system, with all its faults, has enabled the world to have a faster growth of trade, and a more rapid increase in prosperity, than has ever been seen before in human history, and if we were to act in such a way as to increase the pressures on it and to make it more likely to collapse, the people of this country would not thank us for our efforts.

My hon. Friends who are Left-wing Socialists and believe in a fortress economy, a siege economy, and want to insulate themselves from the capitalist world because they believe that being part of that world imposes intolerable pressures on a Labour Government—a point of view which I can understand—should at least have the honesty and candour to admit to the people of this country that adopting their policy would involve much harsher sacrifices on the part of working people than anything contemplated by my right hon. Friend either in the last Budget or in this one.

6.45 p.m.

Mr. Hugh Fraser (Stafford and Stone)

I shall not delay the House for very long. I congratulate the hon. Member for Ashfield (Mr. Marquand) on the interesting either micro or macro-economics he talks. I congratulate him, too, on one resounding phrase in his advice to the Chancellor, when he advised him "to keep his chin down and march solidly forward". That is the advice of how to march blind towards an unknown objective, and that is the point to which I wish to come. We are extremely worried about which direction we are marching in, and the most alarming thing this afternoon was the introduction of the right hon. Lady who addressed us for an hour-and-a-quarter.

I know that these Budget debates are something of a set piece, with the Chancellor playing the part of Hamlet. I thought that he was going to introduce the right hon. Lady as a Lady Macbeth to make the debate more exciting or macabre, but she did not turn out to be Lady Macbeth. She walked about the stage like Regan or Goneril discoursing to the winds about things which were irrelevant. She then became a somewhat weepy Ophelia, and ended up as Lady Godiva and became naked of any ideas whatsoever. I found that extremely alarming. That is the result of the Government placing so much weight on the question of what action the right hon. Lady takes against the trade unions.

The situation is probably rather more serious than has been made out by those who have taken part in the debate. One has to take, as the Chancellor did yesterday, the period from the time, not when we devalued, but when other countries thought our currency was not worth more than it was, when we were devalued against. First, the right hon. Gentleman did not take sufficient action immediately. Secondly, we then had the period when I used the soubriquet last year of Rob Roy, when the right hon. Gentleman produced the enormous impost of £1,200 million, but I think we have seriously to consider whether what has been done in this Budget will be sufficient to avoid a further financial crisis this year.

The Chancellor has drawn his net very wide. He has captured in his tax net budgerigars and overplayed songsters, but he has scraped the bottom of the parrot's cage in the methods that he has adopted. Although the sharks, the minnows, and the others have been brought into the net, the fact is that the great whale of inflation still urges forward, and that has been given extra motive power by three things.

First, there is the clear ending of any attempt by the end of this year to continue the prices and incomes policy. Second, there is the fact that a whole variety of expenses will be incurred at the end of this year in further pensions, and so on, but we have not yet been told how the money is to be found. Third, there is the impetus given to price increases by the increase in S.E.T.

What brakes does the right hon. Gentleman propose to put on this motivation of further inflation in our system? I suggest that there are three. The right hon. Gentleman poured scorn on what he described as fancy solutions, and the hon. Member for Ashfield poured scorn on the fancy solution of a floating £. It is perfectly proper for a Chancellor to pour scorn on fancy solutions. However, yesterday the Chancellor himself in his strategy proposed three fairly fancy solutions. Those fancy solutions are, first, an attempt to get savings by offering rates which are South American in the first instance and which, if the savings are kept in for seven years, become positively Brazilian.

The second solution is that there will be expansion of the Chicago school way of thinking which has not been specified, which has not succeeded very much so far, and which was at the back of the Treasury's mind last year, although there was a 6½ per cent. increase in the amount of money in circulation in one year.

Thirdly, there is the concept put forward by the First Secretary this afternoon that this is the time to have a swing at the unions. The relevant White Paper is entitled "In Place of Strife". It should be just entitled, "Strife, 1969". It will be ill-digested. It is almost impossible to conceive of a less balanced speech than that delivered by the First Secretary this afternoon, especially the final concession which she seemed to be prepared to make to the unions and which apparently withdrew one of the main sanctions of the non-striker against the striker. Everybody nodded their heads and said, "What fine, brave, courageous, decent, human stuff this is".

The introduction of such legislation now will not in any way contribute to the very real problem which we shall have this year in achieving a balance of payments and avoiding a financial crisis. We shall see what is in the Bill. I believe that the effort to bring into this Budget something which is totally irrelevant to the economic issues of today and something which will not succeed in solving any immediate problem shows the failure of the Budget.

6.52 p.m.

Mr. Eric S. Heffer (Liverpool, Walton)

I believe that we should all thank my hon. Friend the Member for Ashfield (Mr. Marquand) for his very serious contribution. He was right to stress that it is impossible to isolate or insulate Britain from the rest of the world. He used the phrase "siege economy", but neither my hon. Friends nor myself have at any time argued for the isolation of Britain or suggested that she should be insulated from the rest of the world.

Unfortunately, I am unable to make any lengthy contribution on the Budget because a whole number of what I consider to be extraneous debates have been introduced into this one. However, any-on holding my views must make some comments on some of the statements which have been made about industrial relations.

I have two main comments to make on the Budget itself. First, although I accept that S.E.T. is a useful tax, if selectively used, I regret that the building and construction industries, particularly on the housing side, were not exempted from the increase in this tax. If the increase is applied on the housing side, the cost of housing will inevitably rise. Certainly the cost of housing to local authorities will be increased and there will be greater pressure for increased rents and rates. I hope that consideration will be given to exempting the housing side of these industries from the application of this increase.

We in the building industry have argued against the whole idea of labour-only. With S.E.T., labour-only has come into its own. The imposition of a further S.E.T. burden on the building industry will result in a further mushrooming of labour-only. There is talk, on the one hand, of introducing legislation to deal with labour-only and, on the other, there is talk about an increase in a tax which will result in a mushrooming of labour-only.

Secondly on the Budget itself, as regards the increase in pensions I ask that consideration be given to putting a greater burden on the employer rather than on the worker. I know that hon. Members opposite will not accept that, although most of my hon. Friends will. Consideration should also be given to increasing the supplementary benefits at the same time. I know of the disappointment felt by pensioners, especially the poorer ones—those who need the supplementary pension—when, having been told that they are to get a pension increase, they find that they do not get the full increase.

The main burden of my speech will be to comment on the speech of my right hon. Friend the First Secretary. She dealt with the question of the introduction of a short, interim Industrial Relations Bill. Yesterday my right hon. Friend the Chancellor said this: Our competitive position has been damaged by irresponsible industrial action, and 1968 was a particularly bad year for unofficial strikes."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 992.] It would appear that the Government have decided in advance to allege that if their strategy fails it is all the fault of the workers. Excuses are being made even before the strategy has had an opportunity to work out one way or the other.

It is not true that workers are constantly striking and that their record was worse in 1968 than in any other year. However, on Merseyside my right hon. Friend the Prime Minister said much the same as my right hon. Friend the Chancellor said yesterday. My hon. Friend the Member for Bebington (Mr. Brooks) tabled a Question to elicit the facts about the amount of strikes in Merseyside and the position in the country as a whole and was given the following facts: Statistics relating to stoppages of work due to industrial disputes are not compiled for areas below Regional level, and I, therefore, regret that separate information is not available for the Merseyside Development Area."—[OFFICIAL REPORT, 20th March, 1969; Vol. 780, c. 141.] The Prime Minister said: Strike after strike, frustrating the efforts of Government, signalling a question mark to the industrialists who are attracted by the inducements… There are no figures, and there is no justification for saying that about Merseyside or elsewhere. The second part of the Answer to my hon. Friend was about the number of working days lost per head of the employed working population due to stoppages of work arising from industrial disputes in Great Britain. The percentages were: in 1961 it was 0.134; 1962, 0.252; 1963, 0.076; 1966, 0.098; 1967, 0.124; 1968, 0.203. Even the figure of 0.203 per cent. is below the figure for the period when the Tories were in office in 1962. That amounted to one quarter of a day lost in industrial disputes. It was less than a quarter of a day in 1968, yet we are told that the country was damaged by strikes, that the economy is being affected by them.

It is a very serious thing when the impression is being given to our own people, and to people abroad, that the country is strike-bound when the facts are completely the reverse. I want to quote from New Society of 22nd January. There was a very interesting article in which Harold Lind wrote over a headline of "Labour—Who Stops Strikes": Both the Cabinet and the Confederation of British Industry should have the grace to blush when they look at the table shown here. Then the table was given and heading the list is the United States. Then we get Italy, Germany, Canada, New Zealand, Australia, Japan, Finland, France, and then we come to the United Kingdom. Not at the top, but somewhere towards the bottom of the league. The article ends by saying: Not for the first time, one is somewhat at a loss to understand exactly what the Government hopes to gain by the line of action it has adopted. Neither gnomes nor voters are likely to be much impressed by what is clearly a half-measure, and its chances of significantly holding back future strikes is minimal. It satisfies no one, and now we have this proposition this afternoon. My hon. and right hon. Friends have retreated somewhat. The suggestion for ballots has been eliminated, but the 28 days conciliation period still remains. I listened carefully to my right hon. Friend this afternoon, because I wanted to know exactly how she would deal with this. If there were to be a fine what would happen? I do not know, even after her speech, what the answer is. One thing was pretty clear—that if in the last analysis a worker said that he is not paying, then he has committed some sort of criminal action. Where do we go from there?

Mr. Harold Lever

There is no penalty.

Mr. Heffer

If there is no penalty and no one is to get hurt by it, then it is a damned nonsense to have it in at all. Why have it in? My hon. and right hon. Friends must be logical.

Mr. Harold Lever

My right hon. Friend made it absolutely clear this afternoon that there was no question of criminal proceedings entering into this matter at any stage.

Mr. Heffer

But the answer has still not been given. What happens if the worker refuses to pay? We have never had that answer.

Mr. Hamling

We had it this afternoon.

Mr. Speaker

Order. Speeches should be solos, not trios.

Mr. Heffer

I prefer to hear the answer from the Front Bench. When my hon. Friend replies I hope that he will deal with this point, because we have not had an intelligent answer so far.

Let us look at this conciliation pause. Some sort of retreat has been made but not much of a one. I must comment about the cooling-off procedure. The Chancellor referred to this in his speech yesterday when he said: The apparent slowing down in exports in recent months may largely be attributable to the distorting effects of the U.S. dock strike." [OFFICIAL REPORT, 15th April 1969; Vol. 781, c. 994.] For the information of the Chancellor and my hon. Friends on the Front Bench, the dock strike in the United States followed a 90-day cooling-off period. Did that stop the dispute? It is absolutely ludicrous. What does the T.U.C. say about it? The T.U.C. issued a statement based upon the Donovan Report. The Donovan Commission met for three years and came to one simple conclusion about the cooling-off periods—that they were absolutely out of the question and should be rejected. The T.U.C. commented on this: The Commission exhaustively examined the proposals for compulsory strike ballots and for a cooling-off procedure and the General Council have nothing to add to the Commission's reasoning for decisively rejecting them. What a position we are in. Last year at the Labour Party conference a resolution was passed saying that it … also rejects any further legislation, the aim of which would be to curb our basic union rights. That is the Labour Party on record. The Donovan Commission is on record; the National Executive of the Labour Party, at a recent meeting, is on record; the General Council of the T.U.C. is on record—everybody is on record. Those who know anything about industrial relations on our side are on record—except the Front Bench. That is in favour of something that everyone else says is not wanted, which everyone else says will solve nothing.

Mr. Roy Hughes (Newport)

All out of step but our Johnnie.

Mr. Heffer

Exactly. It has to ask where it is going. Where is it leading this movement? It has to face up to the facts, and ask whether it is deliberately wishing to split the Labour Party; whether it wants to push the party to the extreme, so that the Labour Party, as we have known it over the years, is split, not down the middle, but one quarter on its side and three-quarters on ours. That is a very serious proposition.

I want to tell my hon. Friends, not to believe that because they have made a certain number of minor concessions we shall accept this, because we shall not. It is a complete failure to understand the whole basis of industrial relations. We do not solve industrial problems by legislation, by bringing in the law. We are dealing with people, and as someone who has been on the shop floor practically all his life, I know how the workers will react to this sort of thing. It is no good saying that, of course there are all sorts of procedures to go through before we actually use these provisions. That is understood, but this is the thin end of the wedge.

What did the right hon. Member for Enfield, West (Mr. Iain Macleod) say? He said, "You are not on a tightrope. We are on your side. We are behind you. You have our full support". That is exactly the position. He went on to say, "We will extend what you have begun". I tell my hon. Friends: do not live in a dream world; do not believe that we shall accept this, because we shall not. The Labour movement, particularly the rank and file, the people who really matter, will not accept it.

I end with a quotation from, not Tribune, but the so-called Right-wing Socialist Commentary: All that Mrs. Castle has done is to stick a few gimmicky knobs on Donovan in a conscious political effort to dish the Tories. As the Prime Minister might have said, the White Paper is the product of a tightly-knit group of politically motivated men and women meeting in secret on Thursdays in a room in Downing Street. It also said: Then there is the proposal for a cooling-off period of up to two months which could be applied to certain unofficial stoppages. On the surface it looks sensible. At least Mrs. Castle has found a genuine problem to worry over. But is her solution workable? I doubt it. The article goes on in that strain. It rejects the idea completely, as I reject it. Those of us who genuinely believe in the Labour movement, in Socialism and who have given their lives to this movement believe that this is a fundamentally disastrous policy if the Government go ahead with the White Paper now embodied in the proposed new Bill.

I have heard the story about this proposal being electorally popular. But when we give way to our enemies, when we give way to the C.B.I. and the Tory Party, we do not gain votes; they gain votes. I ask my right hon. Friends to think seriously about this point before the Bill is presented.

7.14 p.m.

Mr. David Howell (Guildford)

For the reasons which the hon. Member for Liverpool, Walton (Mr. Heffer) has given in his oration, I do not wish to dwell at great length on the somewhat bizarre intervention of the right hon. Lady the Secretary of State for Employment and Productivity. For one thing, I do not see that it has all that much to do with the Budget judgments. For another, although I believe that the removal of restrictive practices would increase industrial efficiency, I am far from convinced that in her zeal and hurry to get something on the Statute Book she has chosen the right target.

However, as one of those who took part more than once in all-night sittings upstairs in Committee on prices and incomes legislation, it would be churlish if I did not add a word of farewell to those which no doubt will be expressed by others to the compulsory incomes policy. I hope that that means that we shall hear no more about the rather sickening aspect of the arguments for incomes policy that it is something to do with social justice or equality or with helping the lower paid workers when we know that, when it has had any effect, the opposite has been the case. I hope that we shall not hear any more claims for the medicinal properties of the incomes policy. It may be that my hopes will be disillusioned and confounded.

I wish to confine my comments on the Budget to two subjects: first, innovation policy, and, secondly, the control of public expenditure. Oddly enough, we did not hear anything about innovation policy in the mammoth Budget speech of the Chancellor of the Exchequer. I say "oddly enough" because in any analysis of costs and the way in which a modern economy works the pace of innovation and the rate at which knowledge is put into the industrial processes is one of the key determinants. It is probably ten times more important than the worries about the wage element in costs. It is not much less than extraordinary that in a speech so full of concern about the wage element in costs the side of the economy concerned with the pace of innovation, which is, in a sense, the determinant in a modern economy, should be ignored.

If one goes a little deeper into the current economic thinking of the Government, one gets the impression again and again that the policy is still based on the safe, traditional, economic assumption that costs and efficiency are to do with capital and labour inputs and that if we can increase these everything will be all right, costs will fall and greater efficiency will be attained. But in the kind of economy into which we have moved there is no shortage of capital. It can be mobilised in virtually unlimited quantities for profitable ventures. Nor is there any real chance of a shortage of labour. Not only is there a labour surplus with unemployment but once craft practices are removed the old clichés of the 1950s and 1960s that labour is a bottleneck and that we must make people work harder to raise productivity ceases to be relevant. Once plant bargaining replaces the traditional procedures, that problem disappears.

The phrase to which the economic advisers of the Chancellor of the Exchequer persist in returning again and again—productive potential—which is so beloved of the present Government betrays the outmoded theorising which lies behind current policy and the belief that the effort and capacity of this economy is limited entirely by what can be done in "clobbering" the trade unions or of moving resources from this point to that in the macro-economic sense to which reference was made earlier. This kind of thinking is inimical to the sort of innovation economy for which this country must go or bust.

It is this preoccupation with innovation and the pace at which knowledge is put into the new industries on which this island has always depended and will depend more in future that is missing from the Budget. It leaves a great yawning gap. It is true that the Chancellor of the Exchequer had something to say about close companies. It could be argued that his attention to small companies is attention to the kind of firms and industries which may be the rapid innovators. But anything which he may have done on the good side, which I welcome, is far outweighed by the persistent obsession with Selective Employment Tax as a means of raising revenue.

S.E.T. "clobbers" the service industries. Tomorrow's industries, and indeed today's industries, in this island are the service industries. The growth industries into which the economy, if it is to get anywhere near our competitors in performance, should be pouring resource, effort and ingenuity are primary the service industries. Let me give two examples of tomorrow's major growth industries: the handling and processing of information in all its forms, electronic and traditional, and the technology of urban living and transportation and the movement of people and the process which goes into the way in which people in cities and in industrial communities organise themselves. These are the major growth industries, not merely of tomorrow but of today, in fast growing economies like the economy of Japan. Those are service industries.

To introduce S.E.T. and to raise the level of S.E.T. betrays not merely a wilful determination to prevent the economy from developing in the 1970s but a misunderstanding of the rôle of innovation in the economy. It is this preoccupation with traditional economics which was so graphically portrayed by the hon. Member for Ashfield (Mr. Marquand). There is the belief that, as with coloured liquids, one can raise and lower demand and push consumers here and there. It is these assumptions which were questioned with so much perception by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter). These are the kind of assumptions which lie behind the Government's economic policy and which do not stand up in the modern world.

As long as those assumptions are adhered to, as long as economic policies are based on them, and as long as beneath those economic policies are economic theories of this general and invalid kind so long will Government economic policy be up a cul-de-sac. That is all I wanted to say on the innovation policy. The Government obviously do not understand innovation and about the kind of economy which will exist in the 1970s.

I now turn to public expenditure. Here I think there is a danger that the antagonists in this debate are arguing about two separate things. There are those who say—I heard hon. Members opposite this afternoon say—that public expenditure is doing all right. The Chief Secretary told us many time that it is under control and on target, that perhaps next year it will rise by 2 per cent., and added "But why worry?" and the proponents of the status quo add "Anyway, which community programmes would you cut?"

Mr. Dickens

Hear, hear.

Mr. Howell

If the hon. Gentleman will listen he will realise that we on this side of the House are not talking about cutting major community programmes; we are not talking about cutting expenditure on the new needs which people have in public health, housing and transport. What we are questioning is the suitability of central Government organisation as a vehicle for carrying out all these programmes.

Mr. Dickens rose—

Mr. Howell

If the hon. Gentleman will let me finish this point, he may certainly intervene.

What emerges from studying the record of the Government's attempt to perform in more and more services centrally is that the central Government is an incredibly ineffective device for providing those services on which we in the present situation wish to spend money. There is no question of cutting the services. It is recognising that the Government is an incredibly ineffective vehicle for providing those services.

Mr. Dickens

The hon. Gentleman speaks very much for himself alone on the benches opposite when he advances this view. The right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) in the autumn of last year made a speech in which he called not just for cuts in the rising total of public expenditure but for absolute cuts in the level of public expenditure. This is quite different from what the hon. Member is arguing.

Mr. Howell

The hon. Gentleman has misunderstood what I was saying. I said that even if the programme and resources going into housing or transport or health were to expand—we should be spending more on health than we are at present anyway—the source of those funds and resources and the way in which they are organised should depend far less than at present on central Government, because the illusion so beloved of the Fabian Socialists and the more extreme Socialists that by turning everything over to the Government we can eliminate the problems of cost, of decision and efficiency has finally been exposed.

This is the tragedy when one hears people like the hon. Member for Ashfield—highly intelligent and perceptive hon. Member as he is—say that public spending and private spending are interchangeable. What he really believes presumably is that all the problems of management, allocation of resources and costs and efficiency can be dismissed. It is this belief which lies at the centre of gross inefficiency that the Government can and must get rid of. This is really "dishing" the Government. As the Leader of the Liberal Party said, it is destroying their capacity to take sensible decisions. By trying to do everything they are succeeding in doing nothing.

The plain truth is that, unnoticed by the Labour Party, we have moved away from the world in which it was hoped that the Government could do everything, in which it was assumed that there was a Utopian situation in which all social problems would be solved by turning them over to the Government, and we have moved over to a situation in which, whether hon. Members opposite like it or not, the dynamic of business and citizen participation can be and is ready to be mobilised to supply new needs and services. That applies to everything, from running municipal car parks and municipal trading, and the whole range of services into which local government in some cases curiously and quite unnecessarily has wandered, to things like Government research. We in this country are accustomed to hearing that all research must be Government research, with disastrous effects on costs on such things as transport and even education.

It was interesting to see the other day, incidentally, that people were already beginning to call for an independent university. There is no doubt that this is not just a freak or a reaction. This is a process which is going on in this country and in all industrial countries, including the United States, and we are slowly seeing the restoration of the place of the private individual and the business organisation in the life of the community. That will take place, presumably, with the resistance of the party opposite, but take place it will. From the high tide of public expenditure, which is far from being under control in any describable economic sense, we shall see a gradual retreat by central Government back to the responsibilities which it can properly carry out. It is this poor, tumble-down Government's resistance to this process and their refusal to do away with all kinds of procedures which are out of date, their insistence on preaching bureacracy as a substitute for policy, which makes it dead certain that the present policies of economic and structural reform are leading us up a cul-de-sac.

The plain fact is that fundamental changes are needed in policy, and they certainly appear to be beyond the capacities and, I sometimes fear, the understanding of right hon. Gentlemen opposite. Those fundamental changes in policy alone will preserve this country's place in the world.

7.27 p.m.

Mr. James Hamilton (Bothwell)

I hope the hon. Member for Guildford (Mr. David Howell) will forgive me if I do not follow his line of argument. I should like to deal with the statement made by my right hon. Friend the Secretary of State for Employment and Productivity, although at the same time, appreciating that this is a Budget debate, I want also to deal with one or two matters contained in the statement of my right hon. Friend the Chancellor of the Exchequer.

My right hon. Friend referred to the road tax in a rather humorous sense, and we all enjoyed it very much, particularly those of us who are Members of the Select Committee. However, I wish to ask my right hon. Friends seriously to consider the four-monthly disc costing £9 3s. The annual cost of £27 9s. falls on motorists who can ill afford to pay this amount, and my right hon. Friend certainly cannot justify this cost because it reacts on the week-day motorist who uses his car to travel to work as well as for his weekend enjoyment with his family. I therefore ask the Chancellor to consider seriously reducing the £9 3s. tax.

As to Selective Employment Tax, coming from a development area in Scotland, I recall that when the tax was introduced it was suggested that it would divert workers from the distributive trades to the manufacturing industries. It did not operate in that fashion in Lanarkshire. However, I recognise that there are new industries in Lanarkshire, and obviously many people have of their own volition moved to those new industries where they can obtain higher wages. Because of the further imposition of Selective Employment Tax petrol filling stations at this moment in time have actually increased a gallon of petrol by 3d., although the Chancellor himself expected that it would be 2d., and the petrol filling station people are stating that the extra penny is for Selective Employment Tax. Wallpapers are also being sold to consumers on the basis that their extra price is the cost of the tax.

There is no doubt in the minds of any of us that these things are happening, and at the end of the day it means that the people who suffer most from the Selective Employment Tax are the lower-paid workers, and we have many of them in the industrial areas and particularly in the development areas. Therefore, I would ask the Chancellor, when he looks at this again, and when we discuss it in Committee, to make Selective Employment Tax really selective, because it is certainly not at the moment operating as, no doubt, it was intended to. It is certainly operating very much against the construction industry, with which I am very much involved because of my trade union activities. It is bringing about many closures in the construction engineering industry. I believe that if the Chancellor made the tax more selective and operated it in a different fashion he would still get the £470 million which he requires from it.

I am very happy indeed that there has been an increase in old-age pensions. I want to underline what was said by my hon. Friend the Member for Liverpool, Walton (Mr. Heffer), who mentioned, quite correctly, with reference to the pensions increase in November of this year, that the old people who are most in need, the old people who are in receipt of supplementary pension, will receive only about 5s., because supplementary allowances were increased in October, 1968. To try to explain that to the old-age pensioners is very difficult indeed. The pensioner who is not in receipt of supplementary allowance will receive 10s., if the pensioner be single, while another old person in receipt of supplementary benefit will receive only 5s. I would hope that the Government could give some consideration to supplementary benefits and old-age pensions being paid at the same time. That would eliminate this uncertainty which prevails among the old people.

I am very much worried also about the lower paid worker because it is perfectly true that there will be an increase in the stamp and that also will react against the lower income group. The only gleam of hope I got from the statement made by the First Secretary is that the Government are now having an inquiry into the possibility of introducing in this country a minimum wage. This is a proposal which many of my hon. Friends and I have been putting forward consistently. I think this is the only possible way in which we can solve this pernicious problem.

Now I want to refer to the White Paper "In Place of Strife", which we have already debated, and which is now to become a Bill. It is rather unfortunate that the First Secretary did not seemingly pay attention to those of us who are very much involved in industry and were so involved before we came to this House and played a very important part in the trade union movement. However, she has listened to us on the question of the balloting of members of trade unions, and she has now entirely departed from that. Those of us who have been involved with industrial matters recognised the difficulties of that. If I may refer again to the engineering industry I would point out that before the last increase was granted at national level by the engineering employers, before the trade unions reached a conclusion with the employers, there were negotiations which took eleven and a half months. To reach an agreement the time before, the national agreement took exactly 14 months. Before they could get an agreement on the last occasion there was a national stoppage of one day. That is not the sort of situation where balloting of members of trade unions could serve any useful purpose—when they would realise that negotiations could take a period of eleven and a half months.

As for the conciliation period, we have it at present in some trade union agreements. I want to put to the House a fact which, to the best of my knowledge, has not been put before, that there is within the engineering industry an admitted, recognised procedural agreement that within a period of seven days there must be a local conference, but the trade unions can wait as long as five weeks for a local conference, and that aggravates the situation. It is not because the trade unions are dragging their feet but because the employers do not have sufficient personnel who are trained to deal with these situations. Consequently I would hope that the Government would investigate this matter, because it is an actual fact, and a solution of this difficulty could go a long way towards solving some of the problems which confront us in the engineering industry. We ought also to be mindful of the fact that in the engineering industry there are close on 3½ million workers. That is a fact we have to recognise, and also that they play a very important part in the economy of the country.

When the Chancellor made his Budget speech yesterday he stated that one of the reasons why he did not, as it were, come into balance, why he did not get the balance of payments situation which he wanted, was the dockers' strike in America. I mention that because in many of the States of the United States of America they have a conciliation period of 90 days, and yet in America they still have strikes which upset the economy of that country and, obviously, also play a very important part in the fortunes of countries which are trading with them.

Often when I hear people talking about strikes in this country I think they are doing a great disservice to this country, a disservice to the country's economy, and a disservice to many export industries and also to very good workers. I would ask those who talk so much about strikes in this country to watch the television screens because only the other week there was nearly a national stoppage in France, not brought about by the workers themselves but by students, and only last week the workers of a town in Italy were on strike. Strikes are not things which happen particularly in this country. I hope that we would count our blessings for a change and recognise many of the good things which are taking place within British industry.

My experience has taught me this, that where there are proper lines of communication between workers and trade unions and employers the workers recognise the employers are not, as it were, the big bad wolves they used to be, and where between workers and trade unions and employers there is the co-operation which is so vitally necessary and essential we do not have any trouble at all in industry.

My hon. Friend the Member for Walton tried to interpret what was said by the First Secretary in relation to the fines. Frankly, I myself do not see how they will impose these fines. I say this with deep sincerity, that I do not think my right hon. Friend herself knows. I put a solution to her, for she left here this afternoon to have a meeting with the General Council of the T.U.C.—or some representatives of that very august body.

I would mention in passing, in connection with the conciliation period, to which I am referring, and also, of course, in connection with the attachment of wages, that the General Council of the T.U.C. was not only against that but unanimously against it.

It cannot be said that the members of the General Council of the T.U.C. are not concerned about the economy of the country and that they have not read the White Paper. They have read the White Paper closely since, it affects every one of its members. I hope that my suggestion has been discussed by my right hon. Friend the Prime Minister and the First Secretary with the representatives of the T.U.C. My suggestion is what I said to the General Secretary-elect of the T.U.C.; that he should put forward to the next Congress a resolution giving powers to the General Council so that, for a change, the T.U.C. should have the teeth which are so vital. Unless it has the teeth and can deal with its constituent members, the whole exercise becomes a farce. Could we not get a measure of agreement with the T.U.C. General Council that it will accept this responsibility so that it can move in at a moment's notice to deal with strikes and inter-union struggles?

It has been stated that with amalgamations all our problems will be solved. I have a great deal of experience behind me and, believe me, it is not as easy as that. It is not easy for any Government, irrespective of its colour, and particularly a Government of which I am a member, to introduce legislation to deal with industrial problems. The right hon. Member for Enfield, West (Mr. Iain Macleod) this afternoon said that when he was Minister of Labour he refrained from introducing such legislation. He also enumerated ten of his predecessors who did not introduce such legislation and he congratulated my right hon. Friend on her courage. I do not think my right hon. Friend had any courage; I think she was misguided and should have listened to those of us who are so involved in this problem, who have experience of what happens and who, at the end of the day, are able to produce a solution.

Mention has been made of a conciliation period, this so-called pause of 28 days. There are many aspects of the White Paper which I support 100 per cent. and for which we have been fighting since the beginning of the trade union movement 102 years ago. As I know from having been a trade union official, no trade union official wants his members to be on strike because, if a strike becomes official, it means a drain on trade union funds. The official tells the strikers to get back to work and, as soon as they do so, they sometimes work to rule. Working to rule means, in essence, that they apply all the safety regulations which they are entitled to apply, particularly in the shipbuilding industry and the building trade. The employer becomes rattled and sacks one or two men, and then there is a lock-out. How can legislation deal with that situation?

I say to my right hon. Friend that she has gone a long way towards getting me and many of my colleagues to march with her, and I hope that she will go one step further. She has also gone a long way in the prices and incomes policy, and I have always been a supporter of a prices and incomes policy because I believe in a planned economy. My opposition to the prices and incomes policy was directed to the penal clause, which was never invoked, and never would be invoked by this or any other Government. Any Government which attempted to apply penal sanctions to trade unionists would find themselves in serious difficulties. One can take a horse to the well but one cannot make it drink. I hope that my hon. Friend in winding up will be able to give me a further undertaking which will enable me to go 100 per cent. with the Industrial Relations Bill.

7.45 p.m.

Mr. David Crouch (Canterbury)

Neither the trade union movement nor Scotland has much to fear when we can rely on such contributions as that which has been made by the hon. Member for Bothwell (Mr. James Hamilton). The whole House recognises the value of his experience and his sincerity. The whole House does not go all the way in agreeing with him, but the construction of our House and the manner of our debate are such that we can never go all the way. The value of the House is centred on discussion and debate.

I, too, am sorry that the right hon. Lady the First Secretary was able to be with us only for the duration of her speech, although I understand the pressing needs which have taken her from the Chamber. My right hon. Friend the Member for Stafford and Stone (Mr. High Fraser) went so far as to suggest that she was a sort of Shakespearean striptease artiste. All I can say is that in her speech she was a long time getting down to the bare essentials.

I welcome her presence in this three-day Budget debate. She declared her interest and, if I have noted her words correctly, she said that her interest was in a strong and developing national economy, and this was a good reason for her to be here alongside the Chancellor.

She gave us three needs: first, a good quality and content of collective agreements; second, a need for a change in attitude by management towards the modern necessity for collective bargaining; third, she gave as her aim the need to secure a change in attitude towards collective agreements. It may seem strange that such aims and objectives should be stated during the three-day Budget debate, but I believe that it was right to do so.

This year there are two sides to the Budget debate, a taxation side, which we have heard from the Chancellor, and a trade union or industrial relations reform side, which has been touched upon this afternoon by the right hon. Lady and other speakers. There is also a third side, the prices and incomes policy. I welcome the restructuring of the debate this year. Neither new taxes nor reduced taxation are enough on their own in our present economic situation, because we are concerned with the overall economic position of the country. The Chancellor in his statement yesterday said: … the present climate of industrial relations is the serious obstacle to the attainment of our econmic objectives."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1005.] To forget this other problem in this debate would be quite wrong and, as we consider taxation reform, so we must consider those other factors. The three sides, therefore, in our debate this year are taxation, industrial relations, and the prices and incomes policy. Each must be right for any one of them to work. If one is wrong, the others will fail to work.

The prices and incomes policy has been seen not to work. The right hon. Lady has tried to persuade us with great skill that it has worked, but she has convinced no one.

Industrial relations cannot be seen to be good in the country today. Not even the emotion and power of speech of the hon. Member for Liverpool, Walton (Mr. Heffer) can convince the House that all is well on the industrial scene. Because of the sickness in our industrial relations, we have "In Place of Strife" and "Fair Deal at Work".

Taxation has not worked on its own, and in future taxation changes fiscal policies alone are not the solution. Last year we had taxation increases amounting to £1,173 million in a full year. Now we have another £350 million in a year which the Chancellor announced yesterday. Last year, the Chancellor's Budget resulted in prices rising by 6.2 per cent. while unemployment remained at 500,000 and the 1968 deficit was a record for all time at £796 million.

We are not yet in surplus. The Chancellor said yesterday when dealing with the surplus and the balance of payments problems: Taking current and long-term capital transactions together, the balance of payments should cross the line from deficit into surplus fairly soon, but in the absence of further action it is unlikely that within the next year we would attain the substantial rate of surplus which is essential."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1001.] Last year, when he presented us with a package of £923 million tax increases for the year, he said that it was his objective and necessary aim that we must be in surplus in the second half of this year at the rate of £500 million. This year, in the quietness of a sentence, all that he said was that we must be in surplus "fairly soon". Here is the key to Britain's recovery. I believe that the Chancellor was more right last year than he is this year. We must reach that surplus target at a rate of £500 million a year in the second half of this year, and we have a few months to go.

I agree with hon. Members on both sides who have drawn attention to the fact that the solution of our industrial relations problems, the reform of trade unions and better collective bargaining alone will not produce this miracle. Of course it will not. But the whole purpose of my intervention is to say that I believe that there is a proper place for the right hon. Lady beside the Chancellor of the Exchequer in our debate on this year's Budget. However, does not the Chancellor realise that he had a part to play alongside the right hon. Lady? It was not enough just to invite her to come here and to perform today. It was necessary for the Chancellor to relate his Budget to this other question of industrial relations. The right hon. Lady needed some initiative from the Chancellor, as did the country, and trade unionists needed some incentive from him. In my opinion, trade unionists need incentives today as they have never before to make the new laws acceptable and to make them appreciate what they mean.

Industry can be boring. It can be exciting to be a manager and it can be stimulating to be an executive. To be an operative on the shop floor with a dull repetitive job, such as I had some 20 years ago, is a very boring life. I used to be bored before what I thought was breakfast time after 1½ hours' work at such a dull repetitive job. In a boring occupation, the pay packet is the objective and the week's reward. It must be made a worth-while target.

The economist can get out of touch, and so can Chancellors. I believe that the right hon. Gentleman has given great thought to our economic problems as an economist, but he should get out to see and feel what is wrong with the country on the shop floor of industry. I believe that he should take such a trip with the right hon. Lady, his new partner in the restructuring of our present Budget discussion.

Neither the trade unionists nor the employers are at fault at present. The Government are at fault. I have said in this Chamber before that it is on the Treasury Bench that the responsibility for guidance and direction in all our affairs finally lies.

I am not inviting the Government to make such moves as will interfere, over-govern and over-control. I am suggesting that they are in danger of moving away from some of the realities in industry. Above all, they are moving away from the realities of the problems which people face today. With more government than ever before, a greater gap is growing between Government and governed. Yesterday, the Chancellor failed to provide the initiatives which would have made the modernisation of industrial relations possible. Never was a White Paper given so vivid a title as "In Place of Strife", but I recognise that we shall be facing a very difficult and serious period as we try to re-structure our collective bargaining arrangements. It is necessary, and the Government will have my support as they enter these very difficult waters. The sincerity of the hon. Member for Bothwell and others who have spoken with great feeling and experience as trade union negotiators is an advance sounding of the problems which the Government will face and about which we shall hear in the House.

I want to see an opportunity once more for people to earn, to spend and to save. The Government must create the conditions for such earnings, savings and spendings to rise. They did not get such an initiative yesterday. I expected a change of direction. I felt that it must come. I did not feel that we could struggle along with the same old dose of taxation medicine. I felt, as my right hon. Friend the Leader of the Opposition said, that we were due for a fresh approach. We did not get it.

Trade union reform on its own will not give us the answer; more taxation will not give us the answer; and more policies for prices and incomes will not give us the answer. I want the people of this country to be helped to realise that the health and efficiency of industry directly affects their rewards. Yesterday the Chancellor failed to give the right hon. Lady, the Government and the country the support which they need.

8.01 p.m.

Mr. William Hamling (Woolwich, West)

The hon. Member for Canterbury (Mr. Crouch) says that he wants guidance and control from the Government. His hon. Friend the Member for Guildford (Mr. David Howell) wants the Government to stop interfering with the community.

Mr. Crouch

I think that the hon. Gentleman misunderstood me. I said that I hoped that the Government would give guidance and not overmuch control.

Mr. Hamling

Certainly guidance. The hon. Member for Guildford and the hon. Member for Oswestry (Mr. Biffen) do not want the Government to give guidance. I know the hon. Member for Oswestry well. I am sure that he will agree that his view and that of his hon. Friends is that the Government have not the ability to guide anyone. That is their view, but they are wrong.

We had one of the usual gloomy speeches from the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) whose face has not been seen in the Chamber for the last three hours after his complaints about my right hon. Friend. But that is customary with many Privy Councillors. They come in and make a speech and then we do not see them until the wind-up. That is their contribution to what they call a debate.

According to the right hon. Member for Kingston-upon-Thames everyone is filled with misery and gloom, everyone is leaving the country, everyone is glum, unhappy and poor. I do not know whether Kingston is like that. I am glad that I do not live there. I live in a pleasant, happy borough where things are going on now that ought to have gone on a long time ago. We are building a new general hospital—the first in 50 years. Is it a sign of decadence that we are building a new general hospital for the first time for half a century?

Last week I was in Liverpool, my home town, where a new teaching hospital is being built, the first in England for about 90 years. Is that a sign of decadence? Is that a sign that the Government are failing in their social duty or conscience?

We know that people are emigrating; but people have been emigrating from these shores for many years. I think that Walter Raleigh emigrated a few centuries ago. I am not aware that there was a Labour Government in power which forced him out through penal taxation.

It is interesting that many people from the colonies are emigrating from their homes to this country. I wonder why? There is a large Australian colony in London. They prefer our way of life to that of Australia. I wonder why? There are a lot of Americans here. Perhaps they all like Harold, or perhaps they realise that there is more to life than scratching after an illusory high standard of living.

I am surprised at the materialistic attitude of so many hon. Gentlemen opposite. People in this country work hard. Otherwise we should not be enjoying record exports. The shipyards are so full of orders that they cannot cope. Is that a sign that this country is a collection of Weary Willies and Tired Tims? The only Weary Willies and sad sacks in this country appear to be on the Tory benches.

The poverty of my youth is a thing of the past. In my borough we are knocking down the last of our slums. What a contrast to the capitalist conservative New York in the wealthiest country in the world. Is that the sort of situation that hon. Gentlemen opposite want—the acquisitive society par excellence where the social conscience is dead?

Cuts in public expenditure would mean the cessation of the useful social amenities about which I have been speaking. How many new hospitals would be built if hon. Gentlemen opposite were in power? We know how many were built when they were in power for 13 years.

They had the cheek, the impertinence, to talk about taxation policy. Oppressive taxation under this Government, says the right hon. Member for Kingston-upon-Thames. Then he talked about social insurance contributions. I remind the House of their record in this sphere and Tory taxation policy.

The right hon. Gentleman waxed most indignant at my right hon. Friend talking about pensions in a Budget debate. We know how the Tories did it. They would have a Budget in April when they would take a "tanner" off Surtax and then have a supplementary Budget in February when they would put 2s. on the insurance contribution to pay for the increased pensions which they had already promised. That is what they did. Year by year they reduced the Exchequer contribution. It is no use the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) smiling over this. He knows the facts, and I will give the figures. I know that he is good at statistics.

Mr. Patrick Jenkin rose—

Mr. Hamling

I will give way in a moment. In 1951 the Exchequer paid 27 per cent. of the cost of insurance. By 1960 that was down to 20 per cent. In other words, the burden of taxation was being shifted from the general taxpayer to the individual contributor. The wonderful scheme which they introduced was estimated in 1964–65, if we had had the misfortune to have them in power then, to provide for a 16.4 per cent. contribution by the Exchequer to be reduced by 1981–82 to 14.2 per cent.

Mr. Patrick Jenkin

I was smiling at the hon. Gentleman's audacity in referring to the proposed pensions increase when presumably he is unaware, as is everybody else, what the cost will be in terms of contributions.

Mr. Hamling

I remind the hon. Gentleman that my right hon. Friend is not the first Chancellor who on Budget Day has given a promise to pensioners. The hon. Gentleman was not in the House when a Tory Chancellor did it, but a Tory Chancellor did.

Mr. Patrick Jenkin

Never.

Mr. Hamling

Yes. Look at the record.

Mr. Patrick Jenkin

Which Chancellor?

Mr. Hamling

National Insurance contributions rose from £26 million in 1957 to £165 million in 1963. That is Tory taxation—and taxation on the ordinary working person—and they have the cheek to talk about oppressive taxation.

The 1963 Budget gave a £4 9s. concession to the £1,000-a-year man. However, the same year the Government introduced a new increased contribution for the National Health Service which cost him £2 16s. extra in flat-rate contributions. That is Tory taxation policy. We know what the other aspects of their taxation policy were.

The Opposition Front Bench often say "When we were in power, year by year, taxation came down." Let us have the facts, as they affect the ordinary taxpayer—the P.A.Y.E. chap, not the fellow earning £20,000 or £30,000 a year, or, rather, receiving that sum; heaven knows how many of them earn it. In the year 1954–55 the income assessable under P.A.Y.E. amounted to £9,418 million—nine years later it amounted to £16,860—an increase of 44 per cent. But we must consider the burden of Income Tax upon the poor unfortunates who have to pay it. In the year 1954–55 the figure was £657.9 million; nine years later it was £1,540 million—an increase of 57 per cent. In other words, although incomes had risen by 44 per cent. the tax paid by workers had increased by 57 per cent. That represents the policy of the party that tries to tell the nation that it believes in reducing taxation. On the contrary, it shifted the balance of taxation from the wealthy to the not-so-wealthy.

I do not say that it shifted it to the poor; any man who pays Income Tax, such as the average trade unionist earning £20 a week, cannot be called poor, but he is not as well off as the chap who draws £300 a week. The balance of taxation was shifted in favour of the £300-a-week man to the detriment of the £20-a-week man. That is Tory taxation policy. Why some people do not understand the realities of Tory taxation policy defeats me.

The trouble is that some of us spend so much time bashing our own Front Bench that we forget about the alternative Government, and it is the alternative Goverment that I have in mind.

Mr. Heffer

The trouble is that our Front Bench keep on flattening us.

Mr. Hamling

My hon. Friend sometimes asks for it, and sometimes he gets it.

I want to make one or two points of criticism of the Budget—[Interruption.] I am entitled to make criticisms. Hon. Members opposite cannot have it all their own way. The Selective Employment Tax, as it has affected co-operative societies, I regard as a grave imposition. This is the second increase in two years. I speak as a member of the Royal Arsenal Co-operative Society. I declare my interest—although I do not get much. The R.A.C.S. has been grappling with labour costs, to some extent successfully, but I ask my hon. Friend to tell the Chancellor that, coming at this time, on top of the imposition last year, the latest increase represents a very serious increase.

S.E.T. has caused the Society a great deal of trouble. It affects not only the Society but other traders. I know that some people say, "They are only shopkeepers", but they are providing services, many of them essential. I therefore deplore this tax. But I remind the House of the alternative to S.E.T. produced by the Opposition Front Bench. It fills me with apprehension. I hope that any co-operator outside who is critical of this Government in respect of S.E.T. will consider what a value-added tax would do, not only to the cost of living but to the whole distributive trade. It would place an intolerable burden on that trade and lead to grave increases in the cost of living.

I want to reinforce what my hon. Friend said earlier about pensions. The pension provisions are welcome, but I hope that the supplementary pensioner will not be fobbed off with 5s. I hope that all pensioners will be treated in the same way. I am just about fed up with this business. It relates not just to this Government but to the previous Government.

Mr. Heffer

All Governments.

Mr. Hamling

Year after year this has happened. It causes an intolerable amount of misunderstanding and depression. People feel that they have been cheated. We know that they have not, but pensioners are not necessarily as sophisticated as we are.

I want to know whether contributions will rise, because if they are to rise, we shall be doing precisely what I have been castigating the Tories about earlier, namely, giving certain Income Tax concessions and then taking them away by increasing National Insurance contributions. I hope that my hon. Friend will take a warning from me that a certain vote might be taken in Committee.

I return to the main burden of today's debate—the pamphlet, "In Place of Strife". My hon. Friend, who has shared many a Merseyside platform with me in discussing trade union affairs, said that it was not true that there were more strikes in 1968 than in 1967——

Mr. Heffer

With due respect, I did not say that at all. I said that there were no more strikes in 1968 than in 1962, when the Tories were in power.

Mr. Hamling

I hope that my hon. Friend will read HANSARD tomorrow.

Mr. Heffer

It will be in HANSARD; I have just checked it.

Mr. Hamling

All I know is that there were more strikes in 1968 than in 1967.

Mr. Heffer

I have said that.

Mr. Hamling

But I do not think that that is very important. I shall proceed to tell the House why. On average, we lose about four million working days a year through strikes. That is chicken feed compared with the 28 million we lose through industrial accidents and the 280 million we lose through sickness and injury. The figure of 280 million for sickness is by no means the whole picture It refers only to certificated illnesses for three days or more, and a vast number of working days is lost through people taking the odd day off because they have had a good night the night before and they decide that they will rest and, perhaps, try a "hair of the dog" the following morning.

But that is not the point, either. The worst thing about strikes is the change that has taken place in the pattern. The official strike is now largely a thing of the past; the unofficial strike is characteristic of the situation today. It is interesting to consider why official strikes have almost been abolished while unofficial strikes are on the increase. We all know why. The Royal Commission brought out the facts. Due to conciliation, arbitration, the growth of collective bargains and the rest, trade unions generally recognise that a strike is a thing of the past. Shop floor leaders, however, are only beginning to reach that position. Ultimately I am sure that they, too, will recognise that talk is better than industrial strife, and that in the long run, if a person is out on strike for four or five weeks for a pay increase, when he gets that increase it will take him three years to make up the pay that he has already lost through being on strike.

Mr. Heffer

The shop floor leaders today know that talking is better than going on strike. They are the people who suffer by going on strike.

Mr. Hamling

In that case it is surprising that unofficial strikes are on the increase. It surprises me that unofficial strikes often occur in contravention of accepted procedure and of union rules. I know the feeling of many of those on the shop floor, because they are my friends.

The point about the increasing number of unofficial strikes is not so much their number as the fact that they represent an attempt in some cases by a few to gain at somebody else's expense. This is what offends many people. I spoke at a ward meeting in my constituency last Thursday night about the prices and incomes policy. The majority of members of the ward accept the Government's policy. The only criticism which was made of the policy was that it failed because of the attitude of a minority who were able to jump the queue. This was a criticism of the activity of a minority of trade unionists who selfishly say, "We will go out on strike and get an increase in pay", while the majority have been content to go on working and perhaps accept a less significant increase in pay. This is the complaint made to me last week by a member of the National Union of Bank Employees who is in one of my ward parties.

What gets up the nose of many Englishmen is that there are some who are prepared to accept the doctrine of. "Push off, Jack; I am inboard", when it comes to wages and to going on strike for more money. It is the very antithesis of Socialism to accept the attitude, "We will please ourselves. Blow you, Jack". If that is the attitude of the unofficial striker, I cannot accept that it is a Socialist attitude. There is far more to Socialism than that. But that is what happened at Ford's.

Mr. Heffer

Nonsense.

Mr. Hamling

It is no good my hon. Friend denying this. This was the attitude of the strikers at Ford's. They wanted what they wanted, and to hell with anybody else.

Mr. Heffer

God give me strength!

Mr. Hamling

The attitude was—to hell with the consequences to anyone else. If every group of workers in every industry behaved in that way, what would happen? I ask my hon. Friend that question. What would happen if every group of workers stopped when it suited them? I know that the Ford strike ended as an official strike, but it did not start that way. It was certainly an unconstitutional strike. I cannot accept that that type of strike represents any part of Socialist thinking or of Socialist philosophy. It is the very antithesis of it. The philosophy of the capitalist is, "I will use my industrial strength to get what I want". If my hon. Friends think that is Socialism, God alone knows where they were brought up.

Nevertheless, I shall not accept the proposal which was made this afternoon. It is half-baked and partial and it would not work. A case of this type that I remember very well is when "Shortly Floorcross"—he did soon afterwards—prosecuted some dockers for going on strike. The lads did wrong, so he prosecuted them. What happened? There was then a big strike.

Mr. Heffer

Is it not stupid?

Mr. Hamling

That does not mean that we approve of unofficial strikes.

Mr. Heffer

Of course it does not.

Mr. Hamling

All right. Let us get these things straight. From some of the speeches which have been made in the country about the White Paper it would not appear that some of those who have criticised the Government have been also putting the unofficial striker in the correct place where he should be.

Mr. Heffer

Where is that? In prison?

Mr. Hamling

No. That is just where I am saying he should not go. I do not accept the Government proposals. If we are to do this, let us tackle the job of industrial relations correctly. Let us do the positive things. Let us improve consultation, education of shop stewards, and so on. That was my job before I came to the House. Let us not insert penal clauses which we know full well will never be used.

8.25 p.m.

Mr. John Biffen (Oswestry)

We have been privileged to listen to a dialogue between the hon. Members for Woolwich, West (Mr. Hamling) and Liverpool, Walton (Mr. Heffer). I hope that this will be the precursor of many subsequent dialogues, because undoubtedly the legislation which was outlined by the First Secretary of State earlier is of such significance and of such wide-ranging implications that the Committee stage of it should take place only on the Floor of the House. I am certain that the Patronage Secretary himself will be convinced that this is a suitable subject to be dealt with in Committee of the whole House. That being so, I hope that it will no be thought ungenerous of me if I make no more comment on trade union affairs, because I want to be unfashionable enough to devote the rest of my speech to the Budget.

Mr. Heffer

Does not the hon. Gentleman agree that it would be unthinkable that the Front Bench should ever dream of sending such a Bill to Standing Committee?

Mr. Biffen

Absolutely. We understand, on the principle of the Parliament (No. 2) Bill, that wherever the Front Benches are joined together there must be a principle of bringing the Measure into Committee of the whole House so that back benchers can display that Parliament is not yet dead and can still exert some influence on the course of events.

I am very interested in the Budget be-because, though traditional in its presentation, it conceals a highly novel situation with very considerable implications. There are the traditional techniques for restraining consumption to diminish imports and facilitate exports, presented in the language with which we are all familiar from past Chancellors and repeated yesterday. On the premise that consumption had to be further restrained to assist a recovery in the balance of payments, I find some of the Chancellor's subsequent arithmetic rather intriguing.

First, I am fascinated that so much of the increase in taxation should have fallen on the corporate sector, which is expected either to absorb the cost or to delay its impact. If the Budget is to be a central part of the strategy of facilitating a much needed recovery in the balance of payments, I would have expected the measures much more to have fallen directly on consumption. This thought was very much deepened when I reflected on the proposal to provide a £250 million increase in pensions to be effective towards the end of the year. We need to know a great deal more about that. My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) was right to press the Government about it earlier today.

One factor is clear. The £250 million will be translated almost instantly into consumption. No one expects the recipients of a pension increase to hold on to the money. They will spend it almost at once to meet their requirements in fuel, clothing and food, all of which have a fairly high import content.

Therefore, the financing of the pension increase is a significant factor in the demand strategy which the Chancellor is pursuing. It is difficult to think that he can be foreseeing a situation other than one requiring the wage-earner in the employee's contribution to the National Insurance stamp to pay a substantial amount to meet the £250 million. If he does not foresee that, if he foresees the cost falling substantially on the employer or on the general body of taxation, it is vital that the House should know, and know soon. The whole question of whether there is involved in this arithmetic a further consideration of supplementary benefits is another matter on which the House is entitled to the fullest information.

If I have some doubt about the arithmetic of domestic demand management, I must concede that it is all fairly familiar ground which the House has traversed year by year in Budget after Budget. However, when I reflect on the overall significance of the Budget, the feature which strikes me as novel is that we have a Labour Government bringing in a Budget of this kind against a background of unemployment at between 2 and 2½ per cent. and fairly tangible signs of incipient weakness in the strength of domestic demand, with plenty of evidence that the upward course of retail sales is diminishing, that motor-car sales are substantially weaker at home than in the past, and that industrial investment is significantly lower than the Government themselves had hoped in the forecasts which they published a year ago.

All those are circumstances which would have provided grounds for the deficit financing which one would have expected from a Labour Government a few years ago. It seems to me, however, that there has been a considerable change in the Government's attitude towards the whole question of the use of monetary weapons and that the pseudo-Keynsians have been very much overtaken by new fashions in economics. To my mind, there is a new fashion in economics now abroad. This has happened fairly quietly and undramatically, but the fact of its happening being demonstrated vividly in this year's Budget should give us all furiously to think.

Yesterday, talking about the overall Budget surplus, the Chancellor said: … the accounts of the whole public sector show that not only is the borrowing requirement of the Central Government substantially negative, but that the aggregated borrowing requirement of Central Government, local authorities, nationalised industries and other public corporations will also be negative. And that before he had added the taxation which will be increased at a rate between £300 million and £350 million a year. A moment later, the right hon. Gentleman said: Even if I had no increases in taxation to propose, the repayment by the Central Government would be £537 million. But, as I have just told the House, it is necessary to take further measures…"—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1006–7.] As we know, those measures were of such significance as to raise that figure to about £800 million.

I have no doubt that the Chancellor has become a convert to the money supply school. I shall not stray into the fearful territory of engaging in a lecture on economics, partly because of my own inadequacies in the subject and partly because I think that it is a subject which would not readily engage the sympathy of the House. But there are others who are able to do it with great felicity, and one is the hon. Member for Stoke-on-Trent, Central (Mr. Cant). I was particularly interested in his contribution to the debate yesterday. I thought that he put the matter fairly when he said: … we may in fact—and we should realise this—be at the end of an epoch in economic thinking and at the beginning of another which may well last for a generation, just as Keynsianism has done".—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1079.] I think he is probably right. It is my hunch at any rate that he is.

The hon. Member for Walton rightly corrected one of his hon. Friends—I believe it was the hon. Member for Ashfield (Mr. Marquand)—who suggested that some people in this House thought that one could insulate this country from international events. The hon. Member for Walton was anxious to shield himself from that charge.

The Government may not be a willing convert to the Chicago school, but the Chicago school of money supply is now increasingly in evidence in North America and inside the I.M.F. It could well be that the Chancellor has unwillingly found himself in this new rôle, not least because of the significance with which the theory is held by those from whom we have borrowed money.

There was some evidence of this in the rather patrician way in which, with great hauteur, the Chancellor dismissed this money supply argument, which he had been told was going on but which he thought was not terribly important and would not be resolved in his time. I consider that it has been resolved. The resolution of that argument is implicit in the figures I quoted earlier.

From this I draw one simple but difficult conclusion. The conclusion is that if he is now pursuing a policy which is to rely much more on the control of money supply, it is a policy which will have to be persisted with. It is a policy which is only now being undertaken by the Government and one which cannot be discontinued or suspended for the convenience of a General Election.

The central feature of such a policy is that it concentrates Government responsibility on balancing overall demand. This relieves them from the responsibilities of engaging in so much direct economic intervention—or at least that is the opportunity for a party and for politicians who have a free enterprise philosophy, an anti-interventionist philosophy.

The Government are in an obvious difficulty. It could not have been demonstrated more poignantly than by the First Secretary of State this afternoon on the whole question of whether or not we have discontinued a compulsory prices and incomes policy. There is a widespread belief that a compulsory prices and incomes policy has now been concluded and that we are back to the stage of a voluntary policy. I am not sure about this because there still exists Part II of the 1966 legislation, which has about it plenty of compulsory aspects.

I have a feeling that what happened yesterday was that notice was given by the Chancellor—though, naturally enough, the First Secretary of State is not too happy about it—that we are reverting to a situation where prices and incomes policy will cease to be the subject of Government intervention but will become the subject of weekend exhortatory speeches. However, it will be a sad and somewhat inadequate occasion, because a Government making speeches of exhortation and brimstone at the weekend, without the right hon. Member for Southwark (Mr. Gunter) there to do it, is like re-enacting the Forsyte Saga without Soames. Therefore, although we may get some lingering enjoyment from prices and incomes policy, it has lost much of its flavour.

If the Government had been obliged to pay the attention which they now are paying to the money supply school, it is ironic that we have a situation which creates the preconditions for a free enterprise economy rather than a managerial Socialist one. If there has been this change, which I believe has taken place, then it is best sanctified by a change which is not merely of ideas but of the men who will execute those ideas. That is why I believe that this is a particularly suitable occasion for a new Administration, imbued with the philosophy of economic liberalism, and such an Administration can only be provided by Tory radicals.

8.40 p.m.

Mr. Hugh Jenkins (Putney)

The Budget could reasonably be described as a radical Tory Budget in some respects, but not to the degree the hon. Member for Oswestry (Mr. Biffen) would wish. He and some of his colleagues take the view that the time has come for a decrease in the amount of government. I think that he would agree that a fair description of their view is that less government, rather than more, is what is necessary.

Nobody could spend any time in the United States without considering that that is a very rash thing to say. A country like the United States, which I had the privilege of visiting for the first time recently, shows all the disadvantages of a country which is insufficiently governed, a country which does not have enough government intervention. Many Americans who come to this country, some of whom take up residence here, do so precisely because they have discovered that the social consequences of living in a country in which there is insufficient government intervention are such that life becomes uncomfortable.

There is a certain drain from our country to the United States of people who feel that there is insufficient reward for their labour here and that we are overtaxed and suffer from too much intervention. But there is a significant return of people who, having tasted the fruits of an excessively free society, discover that life is pleasanter, safer and easier in this country. The number of murders in that excessively free society is perhaps not entirely unconnected with the gangsterism so closely associated with untrammelled, Chicago-school business. The association of the two is possibly not entirely accidental. However, the hon. Gentleman is perhaps being a little too optimistic, from his point of view, in suggesting that the Government are going over altogether to a form of economy which would please him.

The period of relative power decline that this country has suffered for many years is painful not only economically but also psychologically. One of the psychological consequences for a nation in our condition is that we tend to become excessively introspective and concentrate too much upon so-called faults. After saying that there was very little wrong with this country, my hon. Friend the Member for Woolwich, West (Mr. Hamling) spent a good deal of his speech in discovering a number of things wrong with it. I think that he was right in his first statement. We are disposed to ignore the fact that even now we still export per head of our population more than any other country in the world, and that we have, as my hon. Friend said, a low strike rate and not a high one. [Interruption.] It is true that per head of our population we export more than any other country in the world.

Mr. Patrick Jenkin

I cannot allow the hon. Gentleman to perpetrate that inaccuracy. It is not true. If he studies the statistics he will find that at least four European countries, notably Germany, export a considerably higher proportion of their national product than we do.

Mr. Jenkins

I disagree with the hon. Gentleman. Possibly it is a question of our using different statistics. I believe that my view of the facts will stand up—that we have been and remain a very high exporting nation. I think that the figures will support me rather than the hon. Gentleman. Even if he thinks that we are taking different tables, I think that he will not disagree with me that we remain at least a very high exporting nation.

Mr. Patrick Jenkin indicated assent.

Mr. Jenkins

The proposition that this country has a generally bad industrial record and that we have something seriously to worry about is not true. What we do have to worry about is the balance of payments problem. It has been said that the Government have become obsessed with this problem, that they have concentrated too much on it. I agree with that, but what they have allowed themselves to become even more obsessively concerned about is strikes.

As my hon. Friend the Member for Woolwich, West said, strikes are relatively unimportant in terms of industrial time lost. The Government are now taking steps to try to correct what they see to be a major fault in our economy and in the whole question of industrial relations. These measues do not merit the amount of time that they have taken up. They certainly do not merit the amount of time that has been spent in considering them during this debate.

I think that the Government's proposed measures are doomed to failure, because they are attempting to lay down rules which will operate over the whole field. In practice they will not do so. The Government are attempting to suggest that the introduction of some additional degree of contractual relationship into industrial relations will make things better. It is just as simple for people engaged in industrial relations to avoid the consequences of legislation as it is for people concerned with business and finance.

For many years before coming to this House I was a full-time official of a trade union in which every member was employed under a written contract to which the union was a party. Consequently, it was impossible in that union—I refer to the British Actors' Equity Association—for there to be a strike in the ordinary sense of the word, but it was sometimes necessary to place the employers under duress to get satisfactory agreements.

As every contract must have in it a period of notice, be it a week or a month, or more under which it can be terminated, a collective decision is taken by all the people concerned to deliver their notice at an agreed time. During the notice period the contract is renegotiated and consequently pressure is brought to bear on the employer. An increase in remuneration is secured, and yet there is no strike in the ordinary sense of the term. It is just as effective, if not more so, than an ordinary strike.

I see no reason why that method, which has proved effective in an industry where contracts are widely used, should not be equally effective over the whole range of industry. The idea that by introducing greater legal sanctions and a greater degree of contractual relationship into industry it is possible to shackle the effective power of trade unions is wrong. Other means can be found within that set up to utilise the full power of the unions to bring pressure to bear on the employers. I hope and believe that that is the case, and my experience suggests that it is.

I turn, now, to one or two matters in the Budget statement. I recognise that this is a little unorthodox in this debate; but the hon. Member for Oswestry gave an example which I intend to follow. The Budget can be considered from two points of view. First, does it contribute to a solution of our national problems? Second, is it a political instrument? Does it fulfil the economic philosophy of the party presenting it? The answer to the first question is a heavily qualified affirmative; the answer to the second is, no.

The Budget seems to me more satisfactory in detail, in its various proposals, than in its totality. It has many good provisions. It is right that celebrities in the entertainment or any other world should be stopped from indulging in a process of what is little more than legalised tax avoidance. That measure in the Budget is right and proper. It should be made impossible for people, as it were, to mortgage their future tax liabilities and get out of it in that fashion.

Mr. John Brewis (Galloway)

Does not the hon. Gentleman think that many celebrities have only a short working life and that, therefore, they are entitled to a bit of consideration?

Mr. Jenkins

They are entitled to consideration, but not to the degree at which they avoid reasonable tax liabilities.

On the other hand, the Chancellor was equally right to give special consideration to sculptors and painters, because their case is legitimate. Their income is earned in a large bulk rather than spread over a period. What is wrong is the method of the creation of special companies to carry out the process of what I have described as little more than legalised tax avoidance. But I am not saying that special proper provision should not be made for those who get their money in large lumps.

I hope that it may become possible for the Chancellor to consider including people other than artists and sculptors in that category. For example, film actors receive large lump sums rather than sums paid over a period, and it should be possible for the sum they earn to be spread over a period for tax purposes.

It is right that film production should be exempted from the payment of Selective Employment Tax. However, I do not agree with the Chancellor's failure to take the opportunity to exclude the theatre as a whole from the application of S.E.T. The present position is that the non-profit-making theatre does not pay the tax, while the profit-seeking theatre does. As he has exempted film production from the application of the tax, he might well exempt the theatre as a whole. Some areas of the commercial theatre are in grave difficulty and exempting them from the tax might enable these parts of the commercial theatre to get by, or to last longer than they will if they still have to pay S.E.T. I hope the Financial Secretary will be able to express some hope that it is not impossible that the inclusion of extra categories in the exemption from S.E.T., for example, the theatre, will he considered.

I also agree that it was right to take more money from the people who have a licence to print money, as one of them called it—commercial television. The decision to extract another £3 million from that source is correct, but the method which the Chancellor has chosen is wrong and I hope that he will have another look at it. I see no reason why £3 million, or even £3½ million or £4 million, should not be taken from them, but the method chosen is wrong, because the money is to be taken from gross advertising revenue.

It should be taken from the net revenue, after production costs have been met. If monies are taken from the gross advertising revenue the tendency will be to take it out of the programmes and we shall get even poorer programmes on commercial television than we are getting now. If it were taken out after production costs, if the impact of the levy were felt after production—a larger-sized levy so as to produce the same amount of money or more—it would be much better for the programmes. I hope that in replying my hon. Friend will consider this.

In many ways, the Budget contributes to a solution of specific problems. What vitiates the Budget is the Government's obsession, and it must be described as such, with problems of industrial relations and strikes. This general mania for anti-strike legislation fulfils neither of the criteria which I have suggested as being necessary for a good Budget. It is neither nationally beneficial nor is it politically valid.

The Budget is also against Socialist ideas, because it leaves the redistributory effects of the system roughly where they were. In theory it pays some regard to taking some money away from the wealthier section of the community and redistributing it among the poorer sections, but in practice it will consent to the enlargement of the range between the poorer people and the better off because growth capitalism in its present state contains a built-in enlargement factor.

Just as throughout the world, the range between the poorer and wealthier countries is enlarging and as the difference between the developed and under-developed countries is increasing, so equally inside countries—in the United States, in European countries and in this country—an automatic enlargement of differentials is taking place. This is the opposite to what the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) said. It is not to say that the actual lower level is not rising. The actual level of the poorer people in the country is higher than it has been, but the difference between them and the wealthiest is growing. The Budget does not do enough—I know that it does something—to correct the automatic extension of that imbalance. If nothing is done and the situation is left precisely as it is, then without any action on the part of the Government there will be an automatic increase in inequality. This is an inbuilt factor in the development of the acquisitive society in its present stage.

Because the Budget does nothing to redistribute wealth, because it does not attack unearned income in any way, it is, in spite of the many good things it contains, essentially either a progressive Tory or conceivably a Liberal Budget. It cannot be regarded, by any stretch of the imagination, as a Socialist Budget. I must therefore express a substantial degree of disappointment in it.

9.0 p.m.

Mr. Michael Alison (Barkston Ash)

I hope that the hon. Member for Putney (Mr. Hugh Jenkins) will forgive me if, since I only have a few moments, I do not follow him too closely in the arguments he deployed, except to say that I very much hope that his pious wish that there should be more Government intervention in the United States will not materialise. I do not see how it will go on lending us money if that becomes the case, judging by the example of our own country which has a lot of Government interference.

I want to try and make a constructive and helpful suggestion. I know that the Financial Secretary has been here for a long time, but I hope that in spite of that, his mind will be flexible and sufficiently refreshed to consider my suggestion. I do not know whether he is aware that British businesses are owed, on export credit terms, something well over £1,400 million at present. That is, the net amount of money outstanding to British exporters, is probably about double the existing visible trade gap, or about a quarter of the value of our visible sales abroad. If we knock off the amount of money we ourselves owe overseas on commercial accounts, the net result would be that British businesses were currently owed something in the region of £1,000 million.

If all these debts were rapidly paid, the effects upon the current account of the balance of payments would be extremely salutary. I hope that the Financial Secretary will consider this. He will know that, where in the internal affairs of our country, a gap exists between the seller of particular goods and the buyer, it is often closed by the issue, on the part of the buyer, of a promissory note, saying that an amount of money will presently be paid, in a year, six months or even five years.

This note, if accepted by a respectable merchant bank, becomes a saleable instrument. The seller can then get his money at once. Will the hon. Gentleman consider whether this principle might not be extended to international affairs, to initiate in some way the underwriting, by creditors of the time gap in payment between the sellers of British goods abroad and the buyers? If, for example, a United Kingdom exporter sells a chemical factory or plant to an African country and does not require payment of the large sum involved for five years, there is in principle no reason why the buying country—say, Grana for the sake of argument—should not issue a promissory note undertaking to pay this sum of money in sterling by a certain date. There is then again no reason why in principle the holder of the promissory note should not go to a third country—say Germany—and sell the note for Deutschmarks. The Deutschmarks would immediately come into the United Kingdom and would be changed into sterling. The seller of the plant or factory would be paid. The balance of payments would get the immediate influx of the money given by the creditor, Germany, which would hold the promissory note. There is no reason to believe that the buying country would default. If there were, it might be possible for the Government to underwrite it.

There is no reason, except in the event of the currency in which the promissory note was ultimately to be redeemed losing its value, why Germany—holding in effect this commercial bill—should not be happy to use its enormous reserves and facilities thus to extend credit, to underwrite some of our trade and to enable us to pull in these very heavy trade debts which we are owed and which would make an immediate and beneficial addition to the balance of payments on current account.

I hope that the Financial Secretary will consider this possibility. The idea is not mine. It has been spelled out in much greater detail by Mr. A. T. K. Grant of Pembroke College, Cambridge, in "The Machinery of Finance and the Management of Sterling". It is an entirely practicable idea which would merely require the Government to extend the principle of underwriting foreign commercial business in the way that they propose in respect of the Gas Council. All that they would be responsible for doing would be to say that if the sterling in which the promissory note would ultimately be redeemed to the creditor country happened to be devalued in the interim, the Government would guarantee the creditor country against the consequential exchange loss.

I hope that the Financial Secretary will consider this matter sympathetically. We should reflect upon the fact that probably double the value of the current deficit on visible and invisible trade could be cleared immediately if all those who owed us money paid it rapidly.

I ask the Financial Secretary also to direct the attitude of the Chancellor of the Exchequer much more firmly and in greater depth to the question of the supply of money on which I do not think he has the argument right. The right hon. Gentleman took about £1,000 million out of the economy in his last Budget. The Financial Secretary will recall, no doubt with some chagrin, that in 1968 wages and salaries increased by more than the amount of money taken out in taxation. According to the latest White Paper on "Preliminary estimates of the national income and balance of payments"—Cmnd. 3983—the amount was £1,390 million. The significant thing is the extent to which consumer expenditure nevertheless went up, despite the fact that £1,000 million had been taken out of the economy. I calculate that in 1968 there was a staggering increase in consumer expenditure in money terms of £1,700 million.

If the Chancellor succeeded in taking out £1,000 million, and if consumers succeed nevertheless in spending nearly double this amount extra, and if only a small part of it can be accounted for by increases in wages and salaries, it is surely arguable that the money supply has crept into this complex situation and has facilitated much more consumer expenditure than anybody believed possible. The increase in the money supply, I believe, provides the missing link. It explains the fact that, although the Chancellor took out of the economy £1,000 million, consumer expenditure went up by nearly double that sum because the increase in the money supply, according to "Financial Statistics", and not according to the Chancellor's figure yesterday, was £1,332 million in 1968. If we add to the increase in the money supply the net increase in wages and salaries after deduction of the extra taxation, the resulting total is almost exactly the same as that by which consumer expenditure increased.

I hope that the Financial Secretary will not consider that his right hon. Friend's decision to cover the whole range of Government expenditure by fiscal means, and not by borrowing, is an effective answer to the problem. All that will happen is that those who would otherwise have lent to the Government, in view of the fact that the Government will not now call upon their services but will substitute the services of the taxpayer, will have this money to lend to other people. In fact, they will have more than this amount because the Government propose, by the net redemption of debt, to pass back extra money from the taxpayer to the lender. There will thus be still more money to lend. The effect of this, particulary in view of the tendency, we imagine, for rates of interest and yields to decline following the anticipated improvement in the gilt-edged market, will be for those who have the loanable funds to find greater opportunity to lend them. I cannot see that we shall get any improvement in the money supply situation simply by switching from borrowing to taxation.

I hope that the Financial Secretary will note this argument and add to it the fact that the funds hitherto dried up or suspended by the import deposit scheme—£400 to £600 million—will be released into the economy in the first half of 1970. Unless we come to grips with the money supply problem, we shall not get out of the wood on consumer expenditure.

9.10 p.m.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

I am grateful to the hon. Member for Barkston Ash (Mr. Alison) for so kindly curtailing his remarks for my benefit. I was about to apologise for the absence of my right hon. Friend but he has escaped from the television studio.

We have had a rather scrappy debate. Despite Mr. Speaker's request for short speeches we have had rather long ones, I think, and I do not think that the quality of the speeches was in direct ratio to their length. Particularly I was struck by the duologue which we heard between the hon. Members for Liverpool, Walton (Mr. Heffer) and Woolwich, West (Mr. Hamling). That is a knockabout team of which, I have no doubt, we shall hear more in future.

In considering this Budget I was reminded of a remark of the right hon. Gentleman the Chancellor during Committee on the Finance Bill last year, when, commenting on an intervention by my hon. Friend the Member for Yeovil (Mr. Peyton), he said it was an all-purpose intervention. I would say that this is an all-purpose Budget. It is an all-purpose Budget because it looks in both ways: it looks to an election this year and it looks to an election next year.

If we take the possibility of an election this year, we see that there are a number of concessions in connection with close companies; there is the aggregation of children's savings income with their parents', a concession for which we asked in Committee last year; there are improved Income Tax allowances, additional personal allowances for widows, the raising of the age exemption limits for Income Tax; and, of course, this interesting concession for artists, that if it takes them more than a year to paint a picture they can pay tax over two years. My acquaintance with artists is probably not as extensive as that of the Chancellor, but most of the pictures which I see could not have taken longer than a day to paint, so I doubt whether that concession will be of any material value.

Important matters which the Chancellor has touched on affect, of course, other Ministers. First of all, we had the pleasure of the company, for about an hour, I think, of the right hon. Lady the Secretary of State for Employment and Productivity. My right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) compared her with Lady Godiva. I rather thought of the mountains being in labour. We had heard an awful lot about this very important contribution of hers which was to be made, but when the mountains were in labour all that was produced was—well, not the proverbial mouse, but something more like a will-o'-the-wisp than anything more substantial.

Then there was the information about pensions—they were to go up, but not till November; and my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) commented very forcefully on this, that there was no one to tell us what the increased contributions were to be. I do not know whether the Financial Secretary will enlighten us on that subject, but certainly the firm impression which we had when we had the pleasure of the Chancellor's company this afternoon was that he did not know.

All this seems to me to build up rather significantly to an election in the autumn for which, no doubt, the Chancellor feels he should prepare. There is also the exemption of property valued up to £1,500 from betterment levy—again, a matter affecting another Ministry, the Ministry of Planning and Land. That, again, is something built up for the election.

I am sorry that, having had so much which affects other Ministries, we have had the presence of so few other Ministers. The Financial Secretary has been very patient in his attendance. While one quite understands that the right hon. Lady cannot be here, she has competent deputies, and one would have thought that a junior Minister from the Department of Employment and Productivity might have spent a little time here. After all, an analysis of the speeches would show that more than half of them, certainly those from the other side of the House, dealt with matters raised by the right hon. Lady. The Government ought to be able to improve on this performance.

Taking the other aspects of the right hon. Gentleman's Budget, I base myself on his statement yesterday: … it remains essential that we should continue to do everything necessary to put our balance of payments on a secure and healthy basis…"—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 992.] This is a splendid thought with which we all agree but, having expressed it, he seemed to depart from it. The Budget has done nothing whatsoever to assist exports. There is no inducement to exporters, there is no encouragement for those working in the export trade; on the contrary, several things have been done to discourage them.

There is the absurd increase in S.E.T., which one feels is imposed only to provoke. S.E.T. is the most unpopular tax that has been introduced even by this unpopular Government, and the increase will be a painful blow to the hotel industry, which is an important contributor to our invisible earnings. Petrol tax has been increased and also Corporation Tax. All these are increases which affect industry directly, and nowhere is there any help in remedying our balance of payments deficit.

There is an urgency about this, as was pointed out by my hon. Friend the Member for Canterbury (Mr. Crouch). On page 15 of the red book which the Government have provided, table 7 shows that we have consumed for what is called financing £3,600 million in the last five years, and that is shown in the table as being a change in account with I.M.F. of £1,100 million; other official borrowing, £2,000 million; and the sale of the Treasury dollar portfolio and change in reserves, £500 million. The Treasury dollar portfolio is sold; we have said goodbye to that. I do not know whether we shall have further borrowing prospects with the I.M.F., but I doubt whether we shall be able to borrow very easily unless we do something to get our balance of payments in order.

On the afternoon of the Budget the Financial Secretary, in reply to a Question by my hon. Friend the Member for Sheffield, Hallam (Mr. J. H. Osborn), informed us that our overseas indebtedness was £3,354 million, and that £533 million was due for repayment this year. Nothing that we have seen in the Budget or in these figures suggests that we shall have available £533 million on current account this year, and therefore that amount will be able to be paid out only with severe impairment to our reserves.

There have been happy references to the possibility of special drawing rights, but I do not feel confident that those S.D.Rs will be available for us when we want them. Although we have passed the necessary legislation, which is not surprising since we are liable to be the users, it has, not surprisingly, taken the countries who are providing the wherewithall rather longer to ratify. I do not think that the Financial Secretary, who is completely honest about these matters, will hold out high hopes that S.D.Rs will be available to us in sufficient quantity this year to repay the proportion of our overseas indebtedness which is due.

The Chancellor and the Financial Secretary both have a very high reputation in Basle. Apparently they have shown great intelligence and skill in handling these complicated negotiations, and obviously they have made a great impression there. When the next gathering takes place in Basle, I suppose that the Germans, the French and others who go to that resort will say, "What have these clever people been up to?" They will be told that in the last Budget the Chancellor put a tax on plastic wall coverings and paper handkerchiefs which will produce £30 million and a tax on potato crisps and pet foods which will bring in another £22 million.

That seems to show what a fantastic problem is involved in controlling the expenditure of the private sector. When a tax on paper handkerchiefs and pet foods brings in something over £50 million, one begins to see the sums which are spent daily on these commodities which, for all I know, feature in the cost of living figures about which we hear so much.

The fact is that we have virtually reached the limit of our direct taxable capacity. One of the proofs of that is that, for the first time this year, there was a shortfall on the projected yield from Income Tax and Surtax as there was from Customs and Excise, though that was foreseeable because of the extremely high impositions on spirits and tobacco.

The hon. Member for Putney (Mr. Hugh Jenkins) expressed his pleasure at hearing that public performers will no longer escape their due tax obligations by being allowed to invest their money in a special form of company. I happen to know a young lady of great charm and talent who has done it recently. I asked her how she could be so silly as to put her good earnings into a company which will depend entirely in the future on its ability to recruit other people of similar talent and on there being no change in the taxation laws. She replied that she had made a film which had been a great success and there were one or two more films in prospect. She told me that she will not be working for very long because she has children and wants to try to do something for them. The alternative was to live in Switzerland, but neither she nor her husband wanted to do that. As they felt that they would get nothing out of it anyway, they thought that they should adopt this dodge. That is a very sad state of affairs. We gain nothing by exiling these agreeable people from our shores, and we lose even the modest contributions that they do make by staying here.

References have been made by hon. Gentlemen opposite to a "siege economy". Unless one establishes a Beige economy, this sort of loss of funds cannot be prevented. It is impossible to stop people seeking to arrange their affairs to their best advantage, as they can quite legally unless one threatens them with a concentration camp. I am not putting ideas into hon. Members' heads but they used the expression, "a siege economy". Certainly the only effective foreign exchange control that we have seen in Europe was that which existed in Germany from 1933 until the outbreak of war. It was effective only because everyone who might be in breach had overhanging him the threat of a concentration camp.

Mr. Thorpe

Before the hon. Gentleman sheds more tears about these unfortunate people who have to leave this country because of the high rate of taxation, may I ask whether it has occurred to him that probably the countries to which they are going have lower taxation because they have no social services? If people are not prepared to pay taxes to contribute to social services, perhaps it is right that they should take their social consciences elsewhere.

Sir H. d'Avigdor-Goldsmid

The right hon. Gentleman has made a characteristic intervention, but I do not think that he has any information on the point that he has raised. In many cases this is not true. Many countries have different taxation systems from ours. One of their policies is to attract rich people to live there, and that is why they can afford lower taxes. But the lady about whom I was talking was not shedding tears. I think that the right hon. Gentleman is being far from generous. She said that she would rather live in England and lose her money in this way than go abroad. I do not think that everybody will take that view.

Unless we establish the sort of siege economy, about which many hon. Members opposite think with interest—the hon. Member for Woolwich, West would be a most genial concentration camp commander—we shall reach the limit of the taxable capacity of the people of this country.

On the capital gains side, I should like to congratulate the Financial Secretary. I am sure that he remembers, as I do, the evening in May, 1965, when his right hon. Friend, the present Home Secretary, produced this extraordinary plan involving what was called the grey zone for securities. I looked up the hon. Gentleman's speech on that occasion. He was right, as usual. He said that it was absurd to do it for one class of security; it must be done for all. It has taken him four years to get that point across.

The important thing is that at least the Chancellor did not close the gilt-edged market. The right hon. Gentleman the Home Secretary closed the gilt-edged market for the whole morning. The interesting feature about this occasion was that there were some minor adjustments but there was no upward move in prices. Why? Because there was an expectation of higher interest rates all over the world. If there was an adjustment and some stocks went down and others went up and there was a minor change, it was nothing radical.

The Chancellor said that from today realised losses on gilt-edged securities would no longer be counted as losses in calculating the liability to Capital Gains Tax. I am not sure that this is wholly equitable. It is a way of avoiding claims, but certainly we are near the bottom of the market. We shall want to return to that in Committee.

This has been a dull Budget. It burdens the British people with £340 million extra tax. Yet three-quarters of the Chancellor's speech could have been written by any intelligent person who had spent a fortnight reading the debates on the Finance Bill in the last Session. The Chancellor stated his theme on the balance of payments and abandoned it. There is no central theme, no philosophy; just a feeling of staleness. The Financial Secretary's supporters are bored, but not half as bored as the country is with him and the Government.

9.30 p.m.

The Financial Secretary to the Treasury (Mr. Harold Lever)

The hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) treated us to his usual good-natured urbanity and perception, but he had great difficulty in winding up with his customary generalised denigration of the Government. I congratulate him on his performance, including his final tribute in the form of a Conservative-Central-Office-style argument.

I was a little puzzled by his reference to the concessions which my right hon. Friend had made as being indicative of an autumn election. It seems to me that my right hon. Friend will be caught on a sort of Walsall fork—I am not allowed to use the hon. Member's name for this purpose. Either he does not make a concession, or he adds to a burden. If he adds to a burden we are told that it is characteristic Socialist lust for piling one tax upon another and, if he makes a concession at any point, however obvious and desirable it may be, it is obviously with one eye on the next election, at an early date. It seems a little difficult to sustain the portrait or caricature of my right hon. Friend as an electioneering Chancellor in the light of his performances in March and November of last year and again this April. However, the right hon. Member for Enfield, West (Mr. Iain Macleod) took a different line on this.

I appreciate the point made by the hon. Member for Walsall, South about the special drawing rights, but he is mistaken if he supposes that it is only countries like ours which are in favour of special drawing rights or have indicated their intention to ratify. In fact, as my right hon. Friend said, we have every confidence that this will be ratified by the necessary percentage before the end of the year. We are hopeful that it will be activated, too, by the end of the year, although by what quantity nobody can say until the Fund has discussed it. The larger the quantity the better for the world and for us.

I do not believe that the members of the Fund are looking at this situation in quite so partisan a fashion as the hon. Member for Walsall, South suggests. We shall all have to play a part in creating S.D.R.s and honouring them, or the whole system will break down. It is a collective decision, taken for the good of us all, and we hope to bring these special drawing rights into operation at the earliest date and for the largest amount.

I will not pause too long in considering film stars. With our taxation system there is always a difficulty with people who have high earnings over a short period. Unhappily, it is a difficulty that no Government can expect to solve by an avoidance tax. No Government, including Conservative Governments, have been able to find a solution to deal adequately with people like film stars, who may make quite a fortune over a period of one or two years and who thereafter may earn little or nothing. We shall have to continue to grapple with that problem even after the arrangements of the present Finance Bill have come into operation.

The right hon. Member for Enfield, West often quotes from his own speeches. He knows that I enjoy reading them and even rehearing them. When he quotes from his favourite orator, I feel that he is a sort of political Dr. Johnson in search of a Boswell, who is putting himself in that rôle until a more suitable volunteer comes forward. I was agreeably surprised when my right hon. Friend—a most unlikely possibility till then, in my mind—seemed to be offering herself for the rôle. The right hon. Gentleman did not seem to be enamoured of the possibility. Perhaps we ought to discuss this further.

The right hon. Gentleman was generous in his welcome of the constructive aspects of the Budget. He seemed genuinely pleased, as did the hon. Member for Walsall, South, to see what we had done about gilt-edged securities. The Government are anxious to establish a gilt-edged market in a state of unique strength as time goes by. [Laughter.] It is all very well for right hon. Gentlemen opposite to laugh. There is a sort of playful game that we are apt to play in this debating Chamber. This is a debating assembly, but I hope that we can have debates at a somewhat more sophisticated level than we are apt to have in discussing the question of the country's situation.

If high interest rates occur at a particular time and a Labour Government are in power at the time, we are invited to suppose that it is because a Labour Government are in power, and we are told of the rates which prevailed under a Conservative Government. All these rates are worldwide rates. It is not only in a Labour Britain. It is in Germany, Italy, America and the Eurodollar market. These rates are rising everywhere. I dare say that, with the amount of statistical evidence available, we could get equally convincing statistics with a four-year sample—

Mr. Iain Macleod

If the Financial Secretary is right—and there is substance in what he says—that there is a link between interest rates in Britain and those in other countries, particularly the American prime rate, why was it that the most convincing promises were given by almost every hon. Member opposite in their election addresses in 1964, particularly by the Prime Minister, that they would bring the rates down?

Mr. Lever

Everybody in high office from Canute downwards and of both parties has been persuaded that in certain circumstances his words can have more effect than follows inevitably. I must be absolutely honest here and say that I never study these predictive statements, even those of my most distinguished colleagues or those of right hon. Gentlemen opposite with the zeal with which some hon. Members study them. Nor do I seek to incorporate them in any addresses that I make to the House. I should require notice of that question, because in all honesty I aver that I cannot recall offhand any specific pledge by any specific Member of the House on either side with predictions on interest rates. This is absolutely so. I gather that people have made hopeful statements on both sides as to what they hope will eventuate. I should like to study any particular prediction in its context and then favour the right hon. Gentleman with my comment.

We have this type of argument over and over again: there are high interest rates and there is a Labour Government; ergo, it must be the fault of the Labour Government. When there are balance of payments difficulties under a Labour Government, the situation is compared with the splendid position which existed at a particular time under a Conservative Government. If the weather statistics were investigated, I dare say that a similar association could be found between the Labour Government and weather experiences, if we are dealing only with a statistical sample of about 25 years. It was probably wetter under the Tories—politically so to say—than at present.

The right hon. Gentleman welcomed the savings arrangements and even made no royalty charge. As far as I am concerned, the right hon. Gentleman was the first to suggest these arrangements, but I am told that the C.B.I. had the idea of Save-as-you-earn. However, the first time I heard it was from the right hon. Gentleman. My right hon. Friend has adopted it, without royalty payment and apparently without grievance from the right hon. Gentleman.

Some people would have wished us to bring in some equity flavour. There has been mention of this. We devoted some thought to this, and we have by no means necessarily rejected the idea in perpetuity. I hope that nobody will infer from that that there is some immediate-choice equity scheme in prospect. That would not be a correct inference. We have nothing in principle against it, but we found that in practice for a proximate undertaking it was not feasible and that what my right hon. Friend has proposed is the right scheme to get on its feet and well under way and will be the most tempting to new savers.

This scheme is not intended specifically for the sophisticated savers. The whole point of the scheme is to try to attract new savers, not necessarily the most sophisticated. Those who participate in it will be getting a uniquely high rate of interest and a guarantee as to their capital and as to the real increase in value that their thrift will bring.

The right hon. Member for Stafford and Stone (Mr. Hugh Fraser) seemed to be a little ungenerous about this; he thought that we had descended to South American standards in this regard.

Mr. Hugh Fraser

Higher rates.

Mr. Lever

I do not know whether the right hon. Gentleman wants more or less; it is not absolutely clear. He was not absolutely clear on incomes policy, if I can mention this en passant. The right hon. Gentleman was the only one opposite who seemed to lament the passing of the incomes policy and to wonder what on earth would happen to the economy now that we were abandoning it. He reminded me when he spoke of those old ladies who nag their husbands unmercifully during their lifetime but who, after their demise, unceasingly bore the neighbours with long catalogues of the virtues of the departed. The right hon. Gentleman has a similar attitude to our incomes policy. He reserves the main vehemence of his affection for it to the point of time when he is certain that it will no longer be in existence.

So much for the minor aspects of the savings proposal, rates of interest, and the equity question, with which I have dealt. I think that the other concessions were pretty generally welcomed in the House.

The close company concession will give pleasure on both sides of the House. I am sure that it will to my hon. Friend the Member for Heywood and Royton (Mr. Barnett). Perhaps it is unfair to mention his name—almost a breach of the conventions of the House, I think—without coupling it with that of my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), and I know that they have both pressed strongly on this question. I for one am delighted that the Chancellor decided to include the concession in his Budget.

I hope that no one will use as demagogic propaganda in future the argument that the present Government have a prejudice against small businesses and initiatives. We have made the concession with good heart in the light of the experience which we have had of the working of the close company legislation. We have never had, and we do not have, any prejudice against small companies, or against any company carrying on its business in an ordinary way in this country.

The hon. Member for Barkston Ash (Mr. Alison) raised the question of discounting the trade debt. I hope that he will forgive me if I tell him that the suggestion comes as no novelty to me. But it only raises the general question of the financing of the balance of payments and foreign currency borrowings. It does not make the smallest difference in consequence to our reserves whether we take the trade debts due to us and discount them for foreign currency or we borrow abroad a similar sum on the faith of the Government guarantee through the nationalised industries.

Since the hon. Gentleman is keen that we should raise the money in this way, I am sure that he will be equally keen that the nationalised industries should go out and collect the money, because that is the cheaper and easier way of getting it. That is what we are doing. We are doing it also by encouraging local authorities to look at the possibility of borrowing abroad, because it brings in foreign currency, not because there is any difficulty in providing the sterling equivalent but because such borrowings help to correct the excessive strain on the reserves of the vast export credits which we are obliged to give and because it helps to be part of the funding process of short-term borrowing we have already made. This is a healthy and desirable process, and there will be further provision in the Finance Bill encouraging the local authorities to do it.

In a way, this is part of the problem which generally faces us on our capital account. This country has traditionally been a vast exporter of capital. We originated this rôle when we had a much stronger competitive industrial position in the world, and, not surprisingly, we tend to continue the rôle with vigour because of the connections, businesses and assets which we have built up over a period of time, even though the surpluses which were automatically ours in the last century are no longer available to us to finance it.

Two rather odd attitudes have grown up in the House on the subject of the export of capital. We have hon. Members opposite tending to say that it is very good for our export trade. So it is—and it is good because of the invisible income which it brings in; and so it does. And we must continue it at all costs. That means that either we have so to tailor our economy that we provide a vast enough surplus continuously, which is something this country is not in a position to guarantee at the present time, or we have to adopt the alternative position which is taken by some of my hon. Friends.

They ask why we should constrain our economy to provide finance for the export of capital now that we are no longer a country continuously in surplus, and they rather tend to suggest that we should drop it, starting again, presumably, only when we have the surplus capital. In parenthesis, I remind hon. Members that, when one is a surplus country in the modern financial world, one cannot help being an investor abroad, whether one likes it or not. The only choice is whether one makes good investments with one's surplus or bad—in our case, I should add, after we have paid off the short-term borrowings with the surplus.

But in general the position is that one will be an investor abroad when one is in surplus, and when one is in deficit or in balance one can be an investor abroad only if one is able to borrow abroad. One simply cannot have this rôle of exporter of capital swinging from country to country every three, four or five years according to which country is in deficit and which is in surplus. Suppose that a great British concern like Guest Keen Nettlefold has an enormous steel works in Australia. It has to build it up, to finance it, add to it and keep it in good shape. This costs money and needs further investment. They cannot look at the balance of payments and say, "We are sorry, but this year, as Britain is in deficit and Germany is in surplus, we will hand the works over to the Germans." They just have to find the money.

What we do is to encourage them to borrow abroad to finance the investment abroad when we ourselves have not a surplus. This is an important solution for the problem of export of capital which is not only advantageous to us but is advantageous to world trade. It is necessary for the promotion of prosperity of world trade that capital investment to the areas which need it should still continue, and continue apace.

This country, by reason of its skill, its connection, its City mechanism, has a great and profitable rôle to play in relation to this entirely constructive purpose. I do not think that we should abandon it, nor do I think that we are in a position to guarantee the surplus from our own resources sufficient to finance it. When we have such a surplus consistent with our other economic objectives, it is right that, after paying off our short-term indebtedness, we should resume investing from our own resources abroad. It is idle to pretend that we have the resources at present, or to ask our people to constrain their economy in such a way as to guarantee every year that those resources will be available from the surplus of our own country. This all dovetails with our concept of the monetary system and the economic strategy within it which the Chancellor is trying to pursue.

The hon. Member for Walsall, South said that there was no theme in this Budget. I thought that there was a strong theme. I confess that one could make permutations of almost every Budget speech in the last 15 or 20 years, with suitable emendations, adaptations, and a little polishing, which would be more or less interchangeable according to circumstances. We have been living in a Keynesian world; we have not suddenly been dropped into a money-supply world. All Governments, and certainly this Government, have had concern for the money-supply question in the management of our affairs throughout the postwar period. This is why we have had bank credit ceilings, and this country has been doing its best, before Mr. Milton Freedman came on the scene, to take a grip of the money supply.

It is clear to me—and the hon. Member for Barkston Ash had a point—that, if one is not careful and takes the simpliste view that one should take £1,000 million from the economy from the consumers and give it to lenders by repaying the debt, one does not necessarily do as much as one thinks one has done in reducing consumption. There is an intermediate situation too complicated for me to go into this evening where the banking system comes in.

I should need a good deal of persuading that high taxation of consumption, if simply followed by a repayment of debt, is not in itself rather deflationary in character. It cannot just be looked at mechanically and with direct simple arithmetic. The main reason for taking a good grip on money supply in this way is that it leaves the situation open to the Chancellor. A healthy gilt-edged market is an essential, central piece in the management of money supply in England in our particular system. Unless one has a firm grip on money supply, no amount of tax measures in themselves can operate except in the bluntest possible way.

I applaud my right hon. Friend's theme in the Budget, which is quite clear. He is saying, "I am continuing the strategy of last year. I am continuing and intensifying it, and intensifying the control I have on the money supply, with a view to making it more sharply effective and more sharply successful in bringing this country into balance."

I do not think he has any other choice except one—I think that the right hon. Gentleman and other people have recognised this in a way—and that is to move to the concept of the siege economy. I think that the right hon. Member for Enfield, West thinks that he also has the alternative of resigning and letting the Conservative Government manage the situation with their great skill and understanding, and the host of secret remedies which they tell us are being gathered together at Conservative Central Office against the day of triumph. But apart from that somewhat hypothetical remedy there are only two choices. One is Britain's getting back into balance by taking all the measures of the kind the Chancellor started to take last year, and is continuing this year.

An Hon. Member

When?

Mr. Lever

We are moving in that direction. I give the House a little instance. Do not be too dismayed. I know that figures can be rather helpfully manipulated either way, but here are a couple of figures that might interest the hon. Gentleman who asks, "When?" In the first half of 1968 our deficit on current and capital account was over £400 million. In the last six months of 1968 I think that it was £50 million-odd. It is true that our visible balance has been running in deficit in 1969 at £40 million-odd a month on average. On the other hand, our invisibles are probably running at around £35 million a month, so there is no longer the vast gap that there was at the end of 1967 and the beginning of 1968. We are determined to close this gap even further.

I do not doubt that we can do so, with the country continuing its efforts. It is not only a question of what the Government do. One of the reasons why I do not like to make predictions about the balance of payments in any detail is that I think it is presumptuous of any Government to believe that their will and decision alone bring about a balance of payments surplus or deficit. I do not say that a Government could not bring about a balance of payments deficit if they tried hard. Look at the Conservative Government in 1964, just before a General Election. They tried pretty hard, and succeeded. But it is not so easy for a Government in our kind of society to give a guarantee that they will produce a particular balance of payments surplus, because they are by no means the only factors. Some may think that they are not the most significant factor in deciding what the surplus or deficit will be. World conditions and the efforts of the people have something to do with the matter. A great number of factors comes into it.

The Chancellor is pursuing the strategy of paying our way to the best of the ability of any Government in the conditions which we face in the world and in our country. The only real alternative is what has been called the siege economy, the alternative of the floating £ and other such arrangements—import restrictions and the like. Mr. Sam Brittan, a writer whom I greatly admire, thought that the Chancellor dismissed the suggestion of the floating rate rather out of hand and without sufficient respectful thought. I am a sufficient admirer of Mr. Brittan to give him a great deal of respectful thought.

But I wish the advocates of the floating rate would make it plain to those who read them that what they are advocating is a unilateral contracting-out of the collective agreements which the world has reached under the Bretton Woods system for providing what I call collective monetary security in the world, to underpin its economic prosperity and, what is more, its political stability, not to mention its military safety. [Interruption.] Stability means stability in a general sense. It does not mean the stagnant grave-like type of stability. It means stability in all countries of the world which is consistent with the increasing surge in the creation of world wealth. It means stability consistent with rising standards of life and rising social standards, not only in our country but in all the countries in the world with which we trade.

Mr. J. Enoch Powell (Wolverhampton, South-West)

The international so-called system of fixed parities is an institutionalised nonsense.

Mr. Lever

The right hon. Gentleman puts me in mind of a certain judge, Mr. Justice Kekewich, who was always wrong. One counsel appeared in the Court of Appeal and said, "My Lords, this is an appeal from Mr. Justice Kekewich, but there are other grounds for the appeal". The Bretton Woods financial system is opposed by the right hon. Gentleman, but there are other grounds for supporting it.

That system is the collective monetary security of the Western world. It is the collective monetary security from which the whole world benefits, and the Labour Government should be the last Government to give support to unilateral lurches calculated to destroy the collective security of the world that has been so painfully pieced together with such advantage to the world. Indeed, the great significance of the Basle Agreement last year——

Mr. Heffer

rose—

Mr. Lever

Perhaps my hon. Friend will allow me to complete my sentence. The great importance of the Basle Agreement last year was that for the first time this Government did what previous Governments failed to do. They integrated our sterling area financial arrangements into the world collective monetary security system, with great advantage to the future stability and prospects of our country.

Mr. Heffer

I am sorry to interrupt my hon. Friend, whose discourse I find fascinating, but can he say that tonight we are not going to get any further thoughts from the Government on industrial matters?

Mr. Lever

If my hon. Friend will allow me, I shall try to conclude on a note which might give him what he wants, though I am sure he would not regard me as the greatest authority on industrial relations. I thought that my right hon. Friend made out a very clear case for Government action, and that she made it persuasively and moderately. My right hon. Friend showed herself to be exceedingly open-minded, and this caused a good deal of merriment on the benches opposite. My right hon. Friend was not legislating. She was actually about to go into discussions with the T.U.C. I think that it would not be particularly helpful to the House if, from my own modest experience in this area, I added anything to what my right hon. Friend said. I pause only to endorse it.

If it is any consolation to my hon. Friend, I tell him that I believe that the country, in its efforts to pay its way in the world, to pay off some of the short-term indebtedness that we have incurred, and to lay a sound basis for future expansion, will depend for that on the efforts of all classes in our mixed economy.

I do not think that many people have heard me jeering at bankers and businessmen in their efforts on behalf of this country. They are even less likely to hear me jeering at the workpeople. I think that my hon. Friend knows that. I do not take the view, so often put abroad in newspaper headlines, that we have a lot of layabouts in our factories, because I wonder who is producing the record export levels, who is producing the services that we sell abroad in such vast quantities, who is laying the foundation for the highest standard of life that the people of this country have ever enjoyed, who is offering us the promise that this country will tackle, and tackle successfully, the problems ahead of us. I think that it is the combined efforts of all the different people in our society.

I do not detract a word from the necessity to deal with indiscipline and the like in industrial relations, but one has to remember that working in a modern factory in repetitive conditions of work is very different from the more relaxed, if more responsible work, that we have to do in this House, and it is understandable that people under the strain and pressure of that work sometimes do not act up to the highest standards of philosophic contemplation that we almost to a man observe in this House.

I think the country——

It being Ten o'clock, the debate stood opposed.—[Mr. Harper.]

Debate to be resumed Tomorrow.