BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 21 April 1969 vol 782 cc41-169

Mr. Speaker

Before the debate opens, may I remind the House that we are begining this last day's debate on the Budget late. Twenty-eight right hon. and hon. Members wish to speak, including seven back-bench Privy Councillors and some hon. Members who have sat several days during the debate. I would again urge right hon. and hon. Members to make brief speeches so that I have not to disappoint too many. Mr. Diamond.

Sir Harmar Nicholls (Peterborough)

On a point of order. Since you have specifically mentioned, Mr. Speaker, that seven Privy Councillors have expressed their desire to speak, may I ask whether this means that they are given any special priority?

Mr. Speaker

As an old Parliamentarian, the hon. Member will know the position of Privy Councillors in the debate.

3.53 p.m.

The Chief Secretary to the Treasury (Mr. John Diamond)

When we started this debate you were good enough, Mr. Speaker, to explain that there would be a number of Resolutions which would have to be put at the end of our debate. It is, of course, the normal practice for a Minister to explain any Resolution before asking the House to decide it.

Most of the Resolutions have already been referred to by previous Front Bench speakers. Those which have not are rather technical in nature. Unless, therefore, the Opposition wish me to explain in any detail any of the remaining Resolutions, I would not propose to waste the time of the House on them. I gather that, in fact, the Opposition have a fairly clear view about which Resolutions they support and which they do not.

Therefore, unless the Opposition wish me to give any detailed explanation, I would like to go straight on and answer some of the questions asked by the right hon. Member for Enfield, West (Mr. Iain Macleod) with regard to the new proposals affecting bank interest. These are, in general, wholly in line with the policy of my right hon. Friend the Chancellor of the Exchequer of encouraging people to save part of what they have earned and of discouraging them from spending part of what they have not earned. They represent, rather than a reform, the restoration in this field of a wise and well-established tax principle, namely, that what one spends in making profits is, in general terms, a proper deduction from those profits in calculating the tax payable but that what one spends out of one's taxed income is one's own affair.

That being the main distinction, it follows that interest incurred by a man, a partnership or a company in carrying on a business, trade or profession will, like any other properly incurred business expense, be deducted from profits before tax is assessed. If money is borrowed to buy an asset which is used both for business and for private purposes, such as a motor car, the interest will be apportioned in the same way as the running expenses are at present.

While most companies are incorporated for the purpose of carrying on a business, there are some incorporated businesses, such as members' clubs, for which this is not their main purpose. In such cases, we shall follow the usual rule and give relief only for interest which constitutes an expense of any incidental business carried on by the body concerned. The general exception is the one to which my right hon. Friend has already referred, namely, interest on money borrowed for the purchase or improvement of land or buildings. This does not, of course, include money borrowed on a building for an entirely different purpose.

To answer the right hon. Gentleman's question, there are well-established tax rules for deciding what does and what does not belong to a building. For example, the normal central heating installation consisting of a boiler, pipes and radiator fixed to the property would qualify. A portable electric fire would not.

As to the date of application of the new rules, as most hon. Members are painfully aware it is the practice of most banks to charge interest on overdrafts in June and December. In addition, we think it reasonable that any individual who may have borrowed money for certain purposes in the knowledge that the interest which he was paying would effectively be reduced by a tax allowance, and who might not have done so had that not been the case, should have a reasonable opportunity for adjusting his affairs if he so wishes. For these two reasons, therefore, interest on bank overdrafts will continue to attract tax relief until the end of June.

In the case of other loans where the payer of the interest is entitled to deduct tax on making the payment, here again a reasonable period of adjustment should, we think, be allowed. For administrative purposes, however, there is no convenient termination date before 5th April next. Accordingly, interest on existing loans other than bank loans will continue to be allowable for tax purposes until 5th April next. There will, of course, be no such allowance on a new loan. There are, no doubt, other details on which the House would like information, but perhaps they could more conveniently be left to our Finance Bill debates.

Speaking in this debate a year ago, I went into some detail about the methods by which the proposal for dividend restraint was to be carried out. It would, therefore, be appropriate that I should now report shortly on our first year's experience. As part of the general policy of restraint on incomes, dividends were not to exceed the level of the previous year by more than 3½ per cent. or, as an alternative, were not to exceed the actual level of some earlier year. There was special provision also affecting wholly-owned subsidiaries, investment and unit trusts and close companies.

The dividend declarations which have been subject to restraint have not yet worked through into the provisional published figures of payments, but it is significant that total dividend payments in 1968 showed virtually no increase above the average for the preceding three years. Of the dividends declared by quoted companies, some 1,400—I give round figures—have shown increases above the previous year, some 1,300 have shown no change and approximately 470 have shown a decrease. All increases have been subject to individual Treasury authorisation. I am happy to say that in no single case have we authorised an increase which was outside the provisions of the scheme, that I am not aware of any breach of the restraint scheme by a single company, and that the reserve powers which were taken in the 1968 Act have not been activated once.

That constitutes a record of 100 per cent. co-operation, in dividend restraint between companies and the Government of the day, and I think it is right that, as the responsible Minister, I should acknowledge my gratitude for this wise co-operation and for the restraint which has been achieved in circumstances, I know, which, in many cases, created real difficulties for the boards of the companies concerned; and although it is the practice in this House to take the good work of our civil servants for granted I would, with the permission of the House, on this occasion like to pay a special tribute to the tact and the hard work of the Treasury officials concerned, because the whole volume of this work which I have described has been handled by an organisation consisting of two full-time and two part-time offficals.

Sir Ian Orr-Ewing (Hendon, North)

Very speedily, too.

Mr. Diamond

I am very grateful to the hon. Member for his courtesy: very speedily, too.

So much for the past year. As for the future, my right hon. Friend the First Secretary said as much as I think can usefully be said in her careful speech which she made on Wednesday last week. In the meantime the present arrangements will continue to apply to all dividend declarations made before 31st December this year, and well before that date we shall be consulting the C.B.I. and others about the dividend situation after the end of the year, and a further statement will be made in good time in whatever form seems most appropriate.

Mr. J. Bruce-Gardyne (South Angus)

Could the right hon. Gentleman clear up what is and has been very far from clear from past practice, and that is, what sort of a calendar year companies are allowed to job backwards in this matter, as there seem to have been no rules explained for this, and there is quite considerable uncertainty about the way in which it is working in individual instances?

Mr. Diamond

It is not my impression that there has been considerable uncertainty. The thing has worked very smoothly. In the course of the whole year, there has been only one case—one case only—where a company sought to go back to a pre-war dividend. It seemed to me that this indicated an excellent memory and a good accounting record, but it hardly seemed very relevant to our current procedure, so that jobbing back that distance would not be sensible. These matters were left to the discretion of the Treasury and have worked very well indeed.

I should like to turn now to Selective Employment Tax, which is one of the new taxes this Government have introduced. There have been one or two, of which I have been privileged to be there at the birth. It seems to me that these new taxes have all followed a general pattern of acceptability—[Laughter.]—that the moment the first announcement of them is made they are greeted with considerable interest; then that is followed by a sense of complete bewilderment; next one gets mounting opposition; this leads to a long and bitter campaign against the tax, whatever it is, waged with the help of whatever arguments can be found or created or, if I may say so, concocted; and this in turn yields to a long and, as far as I can see, never-ending period of grumbling acquiescence. Corporation Tax and Capital Gains Tax have now, I think, moved into that last, never-ending phase, but I would not yet say the same for Selective Employment Tax, partly because it was introduced later than those others I have referred to, and partly because, as I well recognise, the Government have played their part in the campaign by bombarding the services sector with increased rates in each of the last two years.

I think it would be helpful if I were to refresh the memory of the House as to the purposes of the tax, to report on its operation, and to discuss possible alternatives. When my right hon. Friend the Home Secretary introduced this tax in 1966 he made clear that this was done for three reasons, and I give them in the order in which he himself gave them, and which I repeated subsequently. The first was to raise revenue. No one denies that it has succeeded in fairly full measure in this respect. The tax at its new rates will raise a total of £610 million in a full year. This is the equivalent of the combined total of Surtax and Death Duties. This is the equivalent, alternatively, of one-halt—indeed, more than one-half—of the whole of Purchase Tax.

The second purpose was to broaden the base of taxation, which, again, has clearly been achieved. Before Selective Employment Tax was introduced services were hardly subject to any indirect taxation, and even with S.E.T. at its present rate services are taxed much less heavily than manufactured goods. S.E.T. represents about 5 per cent. to 6 per cent. of costs, whereas the rates of Purchase Tax range from 13¾ per cent. to 55 per cent. We must remember that as incomes rise an increasing proportion of personal spending goes on services, and there is, clearly, no reason in principle why tax should not be paid on the consumption of services in the same way as on the consumption of goods. And if I am told that this is not a fair antithesis because the distributive trades, for example, sell goods which are already subject to tax, then I would invite the House, and particularly those Members opposite who are increasingly becoming attracted to a value added tax of the continental type, to regard S.E.T. as simply another way of taxing the value added by distributors. Purchase Tax can be said to tax the value created in the manufacturing process, S.E.T. the value added in the distributive process.

The third reason—I repeat that it was the third—was to encourage economy in the use of labour in the construction and service industries so as to make more labour available for the expansion of manufacturing industry. I suppose it was the third purpose which gave rise to the legend that the sole object of bringing in S.E.T. was to turn the members of the corps de ballet into lathe operators and foundry workers. That is not true. On the other hand, what is true is that there is gathering evidence, although the tax has been going for a short time only, that it is achieving its third purpose also. Certainly, its introduction has coincided with a reversal of the normal relativity in employment as between services and manufacturing industry, and certainly those services where the impact of S.E.T. has been the greatest have shown the highest increase in efficiency, resulting from labour saving.

Mr. Nicholas Ridley (Cirencester and Tewkesbury) rose—

Mr. Diamond

I will give way, but let me finish this.

Productivity in retail distribution could have been expected to increase in the last two years by about 4.2 per cent. if the trend set over the previous five years had continued. The fact is that during these two years when S.E.T. applied, productivity increased by more than double that amount. In fact we are now beginning to hear the argument that S.E.T. is a bad tax because it is laboursaving and because labour-saving means doing the same job with smaller employment. If it is seriously argued, as the Luddites did some 150 years ago, that a labour-saving device is on that account a bad one, then I would say that the argument does not apply merely to S.E.T. but to every investment and to every step throughout industry and the services which is directed towards increasing efficiency and towards reducing unit cost of labour.

As to the method of collecting S.E.T., a method under which we shall collect this year £1,920 million and return £1,314 million to those not called upon to make any net contribution to the tax, I remember with some pleasure that when the method was adumbrated the hon. Lady the Member for Finchley (Mrs. Thatcher) said: If my chief had come to me and put up a cockeyed scheme like that, I should have asked him if he was feeling all right."—[OFFICIAL REPORT, 5th May, 1966; Vol. 727, c. 1893.] The hon. Lady, who is not here, but who appeals to us in many ways, was appealing on this occasion to our common sense, and it seemed on the face of it to be an odd way to go about collecting a tax, but the fact is that, while the cost of collecting all our taxes is relatively cheap, the cost of collecting S.E.T. is the cheapest of all. It is about three times as cheap as the others. It is not right for right hon. Gentlemen opposite to shake their heads. I am comparing the cost throughout, and there is no reason to believe that the cost to others than the Government of collecting S.E.T. is in any sense disproportionate to the cost to others of collecting other taxes. The work has not been done, but one's experience leads one to believe that it would be much less. Purchase Tax represents a considerable burden on those from whom it is collected; P.A.Y.E. represents a considerable burden. There were on this account endless arguments in the House when P.A.Y.E. was first introduced. I repeat, as far as is shown by all the statistics which we can collect, S.E.T. is one-third as costly to collect, three times as cheap to collect, as are other taxes.

Sir Ian Orr-Ewing rose—

Mr. Diamond

As I have said, I will gladly give way at the end of this section—the hon. Gentleman is not the first on the list.

Why then is S.E.T. somewhat unpopular in some quarters, as I am bound to admit it is? I have already given one reason, namely, the increase in the rates of tax which were fairly substantial and took place fairly quickly. The other comment I would make is that its unpopularity is a reflection of its economic success as a tax. I said this when the tax was first introduced, and I was subject to a certain amount of ridicule; but it was true then and it is true today.

Purchase Tax, by comparison, is passed on in full to the consumer and, indeed, the consumer accepts that it should be passed on in full. Increases in Purchase Tax, therefore, do not represent anything like the same problem to the distributor as S.E.T. which, by virtue of its selectivity in the field in which it operates, often cannot be wholly passed on. Competition does not permit it, nor does public acceptance. The shopkeeper finds himself in the painful position of having a portion of the burden remaining on his own shoulders and, being in pain, he cries out. He finds himself compelled to take steps to absorb part of the tax in additional efficiency and, to do him justice, he has succeeded in doing so.

Accordingly, the tax has a much smaller effect on the cost of living index than other taxes of this kind, and has contributed greatly this year to my right hon. Friend being able to raise an additional £340 million of Revenue without adding to the retail price index by more than one half of 1 per cent.

Mr. John Mendelson (Penistone) rose—

Mr. Diamond

This tax—

Mr. Mendelson rose—

Mr. Speaker

The right hon. Gentleman has not given way.

Mr. Diamond

This tax has achieved its three purposes, of raising revenue, of broadening the base of taxation and of encouraging efficiency in the use of labour in the construction and service industries. It has done so at one-third of the normal cost of collection, with an impact on the cost of living of one-third of the normal.

If anyone is still unconvinced as to the merits of this tax, then I pose to him the obvious question: will he please tell me which tax he would prefer which raises £600 million? It is no use criticising the one without suggesting the other. The alternatives available are, broadly, raising the standard rate of Income Tax from 8s. 3d. to 10s. in the £; increasing the whole range of Purchase Tax by over 50 per cent.; or increasing petrol duty not by 2d. but by 3s. a gallon.

When my right hon. Friend for the second year running raised the rates of S.E.T. he certainly did not expect to receive congratulations for doing so, but he is entitled to receive the careful consideration of everyone who is responsible, as we all are, for looking after the overall interests of our people. I am thinking in particular of two groups whose consideration we are entitled to ask for; the Co-operative Retail Societies, who feel that their costs have been unduly burdened by S.E.T. and whose views have been represented to the Government with such clarity and force by several of my hon. Friends; and the builders and contractors, who feel that their function relates more closely to manufacturing than to services, and whose position has been put to us with such care and understanding by my right hon. Friend the Minister of Public Building and Works. I think the hon. Gentleman wished to intervene?

Mr. Ridley

I am grateful to the right hon. Gentleman for giving way at last. He said that he thought S.E.T. had achieved a shake-out from the distributive industries into manufacturing industries. Whereas it is certainly true that the distributive industries have swollen the ranks of the unemployed to some extent, it not he aware that manufacturing industries have swollen the ranks of the unemployed to an even greater extent? If he claims all these advantages for S.E.T., why does not he apply them to the manufacturing industry too and get a better use of labour there?

Mr. Diamond

The first answer is that that is not what I said; it is not even like what I said. The hon. Gentleman will be able to read it more carefully in HANSARD; I do not want to delay the House by rereading the notes I have in front of me.

The second answer is that nobody has ever suggested that there are the same effects of competition in industry as in the services. Nobody has suggested that the same economic laws apply. In manufacturing industry where articles are manufactured everybody puts up the price, and that does not happen in the services. The basis of the argument is totally different.

Several Hon. Members rose—

Mr. Speaker

Order. The right hon. Gentleman must decide to whom he is giving way.

Mr. Diamond

I pointed to my hon. Friend behind me.

Mr. John Mendelson

A little while ago my right hon. Friend gave as his third point of merit for the tax that there were a number of institutions in distribution which were able to make themselves more efficient. If the tax is now to be permanent and to yield so much of the Revenue, will not my right hon. Friend agree that the Government have a duty to look again at institutions which, for instance, look after old people and which do not quite come under the heading of charitable institutions, and where there could not be an increase in efficiency if the number of staff had to be reduced?

Mr. Diamond

We looked at that matter right at the start and, as my hon. Friend knows, charities are exempt. If my hon. Friend is talking about a kind of charitable institution, then it is fortunate that we have well-established rules for deciding the difficult question of what is and what is not a charity, and anyone who attempted to create other rules would find himself in considerable difficulty. I hope that we will not turn a Budget debate into the Committee stage of a Finance Bill. We are concerned with the Budget debate—

Sir Ian Orr-Ewing rose—

Mr. Diamond

I have given way several times already.

Sir Ian On-Ewing

The right hon. Gentleman said that he would give way—

Mr. Diamond

I said that the hon. Gentleman was not the first in the queue.

Sir Ian Orr-Ewing

Will the right hon. Gentleman tell us, since he has done some careful calculations, what is the cost of collecting this £1,900 million a year, and how much falls on the taxpayer and how much falls on industry?

Mr. Diamond

The cost of collecting the tax is approximately 1d. in the £ as compared with 3d. in the £ for our normal taxes.

Mr. John Hall (Wycombe) rose—

Mr. Diamond

The hon. Gentleman may have an opportunity in Committee on the Finance Bill when we shall be debating details.

I referred to the alternative, which no one has taken up, of suggesting some other tax which raised £600 million. It has been said that the answer is instead of raising £600 million in additional tax to reduce Government expenditure by that amount. This year, public expenditure, which is a more accurate and relevant phase than Government expenditure, will amount to over £16,000 million out of a total gross national product of over £36,000 million. It is, therefore, a most important element in our national life and, in absolute terms, is very substantial.

If I may, therefore, I would like to deal with this and the arguments in some detail. First, let me give the main facts. Public expenditure grew during the last five years of the party opposite at an average rate of 4½ per cent. a year. During our first five years, the average rate of growth is slightly less. By its nature, the rate of growth is uneven. The average that I have given for the party opposite covers percentages varying between 1. and 7½. In our case, the percentages vary between 1 and 7. In the first figures that the Government put before the House, we forecast an increase averaging 4¼ per cent. per annum. We are in line with that target. More specifically, my right hon. Friend the Prime Minister announced in January, 1968, the Government's intention to restrict the rate of growth of public expenditure in 1968–69 to 4¾ per cent.

Mr. Reginald Maudling (Barnet)

The right hon. Gentleman has been good enough to give us figures for the growth of Government expenditure in two periods. Could he give figures of output in the same periods?

Mr. Diamond

I am coming to that. I hope that the right hon. Gentleman will allow me to make my own speech. I have the very point for which he asks, and I have figures for a period for which he was largely responsible.

I return to the statement made by my right hon. Friend the Prime Minister in January 1968 of the Government's intention to restrict the rate of growth of public expenditure in 1968–69 to 4¾ per cent. As usual, performance has outstripped promise. According to the latest information, the increase will be just over 4 per cent. For 1969–70, the target was to be a mere 1 per cent. increase over the estimate for 1968–69. The figure which I have given of approximately £16,000 million is within that 1 per cent. target.

An Hon. Member

Real or money?

Mr. Diamond

The comparisons which I have been giving are in real terms. The amount that I have just given is in current terms.

My first point is that under this Government public expenditure is firmly under control. The question is no longer have we achieved our targets in public expenditure but, rather, should they have been maintained. As our national product grew in the earlier years at a slower rate than was at one time thought likely, should not we to the same extent have reduced the growth of public expenditure? To put it another way, did not the resources put at the disposal of the public through this growth of public expenditure result in too great a burden of taxation being put upon the shoulders of the individual? I want to deal with both arguments fully, but first I want to make two preliminary points.

The theory that public expenditure and the national product should rise year by year in harness at the same rate is based on two erroneous assumptions. The first is that one can determine one year's growth of gross domestic product precisely. One cannot. One can attempt to forecast it. One can endeavour to assist in creating the right background. But some of the most important elements in growth are outside the control of any Government. The plain fact is that growth in G.D.P. is not susceptible to precise annual control.

Secondly, the planning of public expenditure is essentially a long-term matter. Certainly one can plan it over a five-year period. One can plan it with some success over a three-year period. But for shorter periods one is up against the difficulty that so many of the items depend upon decisions made and plans laid years in advance. One has to think only of schools, hospitals, power stations, the training of teachers and the production of more doctors to see immediately how much future expenditure is determined by decisions long past. Any Government who desire public expenditure to grow broadly in line with expected increases in the national product must contemplate doing it over a period of years and certainly not on an annual basis. Nor do any Government attempt that, and I will give only two examples.

The first, in response to the request of the right hon. Member for Barnet (Mr. Maudling), is taken from the year 1961–62, under a Tory Government, when public expenditure grew about three times as fast as the national product. In the current year, under a Labour Government, public expenditure is likely to grow about one-third as fast as the national product.

The concept that economic growth should determine the rate of growth of public expenditure can only be given meaning over a period of years. But to apply the concept at all implies the assumption that one is satisfied with the starting point.

If public and private expenditure are in balance to begin with, there is something in the argument that the two should be kept in balance. But what if that is not the case? What if one believes that public squalor amid private affluence is not a credit to our society? What is to happen if a Government are elected on the basis that that should be changed? In 1964, we found an imbalance which we had to redress; and we could only redress it by diverting resources from the affluent area to the squalid, which meant redistributing income through taxation in favour of the needy, in the form of public expenditure. Our public expenditure has been neither uncontrolled in its growth, nor excessive in its absolute amount. It has provided the community with services which it could not possibly have otherwise obtained, it has introduced greater equality and fairness among our people, it has enabled the increasing school population to be accommodated and the increasing numbers of aged to be provided for.

Mr. Patrick Jenkin (Wanstead and Woodford)rose—

Mr. Diamond

I will give way to the hon. Gentleman when I come to the end of this section of my speech.

There still remain two arguments. The first is that part of the increase in public expenditure stemming largely, as it did, from the increase in social and welfare services, could have been avoided if we had been more selective. Let me start by saying that it is a complete myth that we are unselective. Let us take, for example, family allowances. The family allowance always has, to a limited extent, been tailored to income levels and thereby to need by being treated for tax purposes as part of one's income. But we have gone further. Increases in family allowance are now withdrawn, through the tax system, from all those who, as shown by their income tax returns, cannot be said to need this kind of assistance; and the tapering effect at the lower ranges of tax mean that those whose need is modest receive modest assistance and those whose need is great receive the whole assistance.

I have been provided with a list of the benefits and services which are available subject to a statutory test of need. It includes such things as supplementary benefits, legal aid, rate rebates, free school meals, higher education awards, dental and optical treatment, residential accommodation for the elderly and the handicapped, residential child care, school maintenance allowances, school uniform, boarding education allowances, and so on. It is a list of over 30 headings in all, administered by a great variety of authorities, and all either brought in by or carried on under a Labour Government.

Sir Ian Orr-Ewing

How many were brought in by and how many were carried on under the Labour Government?

Mr. Diamond

If the hon. Gentleman wants to know precisely how many were brought in by this Government, perhaps he will put down a Question on the subject, when I will gladly give him the information. All were either brought in by or carried on under a Labour Government. I do not know what further plans right hon. Gentlemen opposite have for enforcing what they call selectivity. I am told by my Government colleagues that nobody could protect the public purse more fiercely than I do. It is right and proper that I should. It is also right and proper that, in addition to protecting the public purse, I should bear in mind the need to protect the self-respect of the citizen and the dignity of my fellow man.

Mr. Patrick Jenkin

As the self-confessed protector of the public purse, does the right hon. Gentleman still adhere to the view, which he put from that Dispatch Box a couple of years ago, that most of the things which the citizen requires are best provided by the community?

Mr. Diamond

Yes, indeed. I repeat what I then said; that in my view most of the things which the individual requires—I said "individual"—are best supplied by the community. I believe that that is still the case.

I come to the final argument as to whether the level of public expenditure has resulted in an excessive level of taxation in this country.

Lord Balniel (Hertford)

Before the right hon. Gentleman leaves the social services, may I remind him that in the course of his Budget Statement the Chancellor announced increases in National Insurance pensions? Does the right hon. Gentleman intend to refer to this matter?

Mr. Diamond

I will come to that later.

In considering the question of the tax burden it is certainly true that social, welfare and other community services must be paid for and that the money comes from taxation in one form or another. When a man looks at his pay packet or salary cheque he sees the money to pay for that part of his standard of living which he chooses individually. There has already been deducted a sum to pay for that part of his standard of living which he chooses through his representatives in local and national government. There must be a reasonable balance between the two and in a free democratic society such as ours it is right that the individual should retain a large measure of individual choice in the provision of his particular kind of standard of living. Nobody can say that this is not the case.

The level of direct taxation—that which affects his salary cheque or pay packet—is such that not until the average family man is earning more than £70 a week does he pay more than 5s. in the £ on average in tax; 15s. in the £ is for his individually chosen standard of living and 5s. is for the community-provided standard of living. It is not until his earned income exceeds £250 a week that he pays more than 10s. in the £ in tax on average.

Nor can anybody say that, by comparison with other similar countries, the effective rates of tax are out of line. I know that the right hon. Member for Enfield, West now accepts this. He said as much in a recent article. [Interruption.] I think that I heard the right hon. Gentleman say that he has always accepted it. I would not argue with him about his recollection.

I remind the House that if one takes the most relevant criterion of the proportion of the gross national product at factor cost taken in taxes and contributions, one finds that of ten similar Western European countries, including the United States and Canada, we are broadly in the middle. We are a broadly average case.

The argument against public expenditure cannot be that the money spent communally is wasted. On the contrary. It produces solid assets and much-needed services at a price which could not possibly be matched by the individual if one considers only the question of the economies of scale.

Nor can the attack against public expenditure be based on the argument that taxes are levied unfairly because the surprising fact is that when one takes account of all direct and indirect taxes and contributions in their impact on individuals and families—the very high rates paid in tax and Surtax by the very rich and the very high rates of indirect tax on beer and tobacco paid by the very poor—admittedly, one is direct and the other is indirect—one finds that taxes over-all are neither progressive nor regressive, but are, broadly, neutral in their impact.

Mr. Ridley

Oh, dear.

Mr. Diamond

Would the hon. Gentleman care to tell me what is wrong with that?

Mr. Ridley

I am grateful to the right hon. Gentleman for giving me a second place in the queue. Is not he aware that although direct taxation is about equal in all the countries he mentioned, taxes on higher incomes in this country are grossly heavier, which is why he finds such strong resistance to increases in public expenditure in this country?

Mr. Diamond

The reason why one finds strong resistance to increased public expenditure and why it is objected to by those who pay very high rates of tax and contribute highly to public expenditure is this: it is objected to by those with very high incomes because, having such high incomes, they have a steeply progressive rate of tax to pay. Not until one is broadly in the region of having a £14,000 to £15,000 annual income does one pay a higher rate of tax in this country than one would pay in other countries.

I repeat, therefore, that when one takes into account the high rates of tax and Surtax paid by the richest and when one takes into account all the other taxes paid by everybody else, the effect of these taxes, direct and indirect, in their impact on families is neutral. The benefits that are paid are progressive. That is the way in which most goes to the neediest. The rich man gets back in services much less than he pays for in taxes. The opposite applies to the least well off. Indeed, a married man with three children and earning up to £25 a week receives more in benefits than he pays in taxes.

This means that the real crime of the Labour Government is that they have taken away from those who can afford it and have given to those who need it. That is the only argument between the parties. Hon. Gentlemen opposite have made it clear—we are grateful to them for this—that their policies are directed to curbing and reducing this redistributive process. They desire to achieve power so that the rich will pay less and the poor will receive less.

The overall effect of this Budget is to take that redistributive process a step further. It will have the effect of reducing the inequality of incomes by a further 2½ per cent., and in making that statement I of course include the redistributive effect of pensions. I have, in a general way, taken into account the impact of the increase in pensions and of the increase in contributions. [Interruption.]

I know that the House would like me to be more specific and to go into more detail about the remaining pension, and consequential increases and the great variety of benefits, but I regret that we are not yet in a position to give that detail. [HON. MEMBERS: "Oh."] If we were, my right hon. Friend the Chancellor would, of course, have given the figures in his Budget statement. It was right that he should allay anxiety by indicating the amount of the increase in the pensions of the two main categories.

Mr. Iain Macleod (Enfield, West) rose—

Mr. Diamond

I will give way to the right hon. Gentleman in a moment.

We are now considering more exactly what these will entail in terms of increased contributions as well as the consequent changes in the many subordinate rates of benefit. When we have settled the detail of all this, my right hon. Friend the Secretary of State for the Social Services will make a full statement to the House and answer questions. The major issue was when the old-age pensioner and his wife would get their increase and how much it would be.

Mr. Iain Macleod

Would the right hon. Gentleman deal with two points? First, the Leader of the House, under strong pressure last Thursday, undertook that a statement would be made before the end of the Budget debate. Is the Chief Secretary now saying that that undertaking is to be fulfilled? Would he comment on that?

Secondly, does the right hon. Gentleman realise that he is saying that the Chancellor, in his Budget Statement, gave the full details of the increase but was irresponsible enough not to have made the calculations about contribution levels and so on?

Mr. Diamond

I will gladly deal with both questions. My right hon. Friend the Leader of the House certainly indicated that he would convey to his right hon. Friends the desire of the House that a statement should be made. I have made that statement. [HON. MEMBERS: "Oh."] I have told the right hon. Gentleman and the House the information which we have.

As to the right hon. Gentleman's second question, of course it was necessary for the Chancellor in making his calculations to have regard to the overall effect. That he has done.

The right hon. Gentleman talked about this as if there were only two rates. As he will recollect, there is a host of rates and benefits and a special problem in terms of the imbalance in the fund. All these have to be carefully worked out

Is the right hon. Gentleman saying that we should not have given this information, information which many people were anxious to receive, until all the detail as to the consequential rates has been gone into? One can never satisfy the Opposition. I remember exactly the same situation arising about taxes. When we gave an indication of what taxes were to be before the date, all that the right hon. Gentleman the Member for Barnet could do was to complain about its causing uncertainty. If you give the information you are criticised; if you do not give it you are still criticised.

Lord Balniel

The Chief Secretary will recall that the Chancellor gave in specific detail the increased pensions to be paid in November. He also gave in specific detail the increased cost to the National Insurance Fund. He has given no indication at all, nor has the Chief Secretary, about how this is going to be paid for. Does this not epitomise the mishandling of the economic affairs of this country? Is it not the Government's intention, as has been the previous practice, to increase supplementary benefit at the same time, and what will be the cost of that?

Mr. Diamond

It is the intention of this Government to make a statement when they have carefully considered all the relevant details. I have indicated the kind of detail which has to be considered. When that has been done, the responsible Minister will be glad to make a statement and answer as many questions as the House desires to put to him. It would be irresponsible for me to go into detail of the kind for which the right hon. Gentleman is asking when it is irrelevant to Budget considerations and when the only issue is that of allaying anxiety on the major rates.

Mr. Joel Barnett (Heywood and Royton)

My right hon. Friend said that it was irrelevant to Budget considerations. Surely the impact of the Budget, deflationary or otherwise, must have been, and clearly was, a consideration in the mind of my right hon. Friend. Is he telling us that he did not know how much reflation or lack of it there would be, and in which way the contributions would be decided as between employer and employee?

Mr. Diamond

My hon. Friend must have misheard me. I said that the detail as to the rate of benefit to a particular person does not affect the overall Budget consideration. The overall Budget consideration is concerned with the totality of the figures, and assumptions had to be made of the kind to which my hon. Friend has referred. For these assumptions we took it for granted that we should go on the previous basis of allocation between the three contributing parties, the employee, the employer and the Exchequer. That is all that is needed for Budget purposes, and I repeat that that has enabled my right hon. Friend to calculate his Budgetary position sufficiently accurately without going into all the detail, which is for a later stage.

Dame Irene Ward (Tynemouth)

I hope the right hon. Gentleman will allow me—

Mr. Diamond

I hope that the House will be good enough to return now to a consideration of—

Dame Irene Ward

Will he allow me—

Mr. Deputy Speaker (Mr. Harry Gourlay)

If the Minister does not give way the hon. Lady must resume her seat.

Dame Irene Ward

Could I have another go, please?

Mr. Deputy Speaker

I have already asked the hon. Lady to resume her seat.

Dame Irene Ward

On a matter of anxiety—

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

On this point—

Mr. Diamond

I do not know whether it is your intention, Mr. Deputy Speaker to expect that the debate should proceed in the normal way.

Mr. Boyd-Carpenter

On this point—

Mr. Deputy Speaker

I have already indicated that if the Minister is not prepared to give way then the hon. Lady or the right hon. Gentleman must remain in their seats.

Mr. Boyd-Carpenter rose—

Mr. Diamond

If I may make a few sentences of comment, perhaps I could give way to the right hon. Gentleman shortly. [Interruption.] If I cannot make myself heard, I cannot make a statement. I heard the right hon. Gentleman say fourteen times running "On this point" but he was not good enough to listen to one sentence of mine.

Mr. Boyd-Carpenter

That is not correct.

Mr. Diamond

I have made it clear that I have given the House the full information that we had. The detail is irrelevant to the present issue, and I have no further information which I am able to give because I have not got it. It is no use the hon. Lady or anybody else asking me for such detail. I will give way to the right hon. Gentleman.

Mr. Boyd-Carpenter

In the right hon. Gentleman's speech, to which I have listened most carefully, he said that what was relevant to the Chancellor was the totality of the expenditure. In those circumstances can he tell the House what, in addition to the increase in social security benefits, is the totality of the expenditure on supplementary benefits, industrial injuries and war pensions, which are invariably raised when social security benefits are raised?

Mr. Diamond

I repeat that they are all part of the consequential figures to which I referred. One can only go on the basis, which has been sufficient for my right hon. Friend's purposes, of assuming the same proportions as previously. That is adequate for the purpose. I am sorry, but there is no point in the right hon. Gentleman asking me any further questions on this matter.

Sir Frederic Bennett (Torquay)

On a point of order. May I ask for your protection, Mr. Deputy Speaker, to which one is entitled as a Member of this House and may I refer to the procedural undertakings which were given in this House last week? On that occasion we all had the clearest recollection that the Leader of the House said that the House was entitled to a statement and that they would get one before the end of the Budget debate. The Minister today has made no such statement at all. He says he cannot make one and he has pretended that this is in fulfilment of a pledge. I ask what protection there is for backbench Members, as well as other Members of the House, when Ministers mislead the House in this fashion and obtain a hearing which otherwise they would not have got.

Mr. Deputy Speaker

That is a matter for the Minister.

Mr. Diamond

Further to that point of order. The hon. Gentleman is always inaccurate, and he has been grossly inaccurate on this occasion, which does not surprise me in the slightest. What my right hon. Friend said—I have HANSARD in front of me—was this. In fact he made two interventions. In the first he said: Yes, I will do my best on this, and I will convey the strong views of many hon. Members on this matter. The second was: I have said that I will convey the feelings of hon. Members. I cannot say at this stage, but I think that my right hon. Friend should make a statement."—[OFFICIAL REPORT, 17th April, 1969; Vol. 781, c. 1335.] I have made that statement, and I do not think that there is any point in being further examined.

I have come to the end of my comments on the Budget. I have made it clear that the progressive nature of the Budget takes into account the pension situation and represents one further step towards equality.

4.50 p.m.

Mr. Terence L. Higgins (Worthing)

I can only regard the Chief Secretary's speech as one of the most disgraceful, outrageous, and irresponsible statements which it has been my misfortune to listen to from the Labour Government. It is quite extraordinary that the Chief Secretary should come to the House this afternoon and fail completely to give us details not only of the cost of the increases which were announced by the Chancellor in his Budget speech but of the entire extent of the increases which he proposes to make in other benefits.

For the Chief Secretary to say that all that is necessary to enable us to analyse the economic implications of this proposal is that the Chancellor should give the figures that he gave in his Budget Statement is the most complete and utter nonsense, because even if the expenditure on these increases is fully met by the increase in the contributions the economic impact of them may vary greatly—first, because they will depend on which way the various contributions are levied on the different contributing parties. It is not sufficient for the Chief Secretary to say that all the Chancellor had to do was to make assumptions about this. If the right hon. Gentleman is to formulate any economic judgment on what he ought to do in his Budget, he does not have to make assumptions, he has to make decisions—and we understand that the Chancellor has made no decisions whatsoever on these matters. Is that the case? Will the Chancellor tell us when he winds up the debate whether that is so or not?

Secondly, one has to know to what extent the increase will be covered by contributions. Pensions increases necessarily redistribute income from people with a high propensity to save to people with a low propensity to save. If that is so, it has a great effect on the total of aggregate demand, which is crucial to the Chancellor in making his Budget judgment, and crucial in deciding whether he should take this or that measure in the Budget.

This is not a matter of trivialities. The sums involved are larger than the total raised by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) in his largest increase in taxation. It is this order of magnitude which the Chancellor has to take into account, and we are now told that he has made his entire Budget judgment without having the remotest idea of how wide the increases are to be, or how they are to be raised.

I am sure that when my right hon. Friend the Member for Barnet (Mr. Maudling) winds up the debate he will return to that, but I repeat that it is completely irresponsible for the Chief Secretary to have made the statement that he made. I am surprised that he allowed himself to be put in to this position. I hate to think what the I.M.F. advisers will think when they find that the Government are run in this way.

Dame Irene Ward

Will my hon. Friend ask the Chief Secretary how he replies to the anxieties of those on supplementary benefit who do not know what their supplementary benefit will be, and also how he replies to the anxieties of those people who will have to pay increased contributions? There is a totality in anxiety, as well as in the point made by the right hon. Gentleman.

Mr. Higgins

I agree with my hon. Friend. The Government's proposals will cause grave disquiet amongst many people, and not least in industry, on which we have to reply for an increase to improve our balance of payments.

The Chancellor has been congratulated on a number of his Budget proposals, but I think it right to say that those on which he has been congratulated have merely sought to rectify a number of aberrations which were perpetuated either by himself or by his predecessor. The change in the law relating to close companies is welcome, but it will not offset the heavy burden which has been placed on such companies since 1964. The change in the scope of betterment levy merely rectifies a situation which ought never to have been created by the Government in the first place.

Reclassification for S.E.T. is some improvement. We have pressed for this change for some years, but it cannot remove the other anomalies of the tax, and the only real solution to the absurdities of the tax is to abolish it altogether. The Chancellor says that the raising of the threshold for Income Tax will take out one million people from Income Tax, but he overlooks the fact that 2½ million people have come within that net since the present Government came to power in 1964. To say the least, the congratulations offered to the Chancellor on those matters ought to be qualified.

The right hon. Gentleman received a number of congratulations from his hon. Friends when he sat down after his two-and-a-half hours speech on Tuesday. There is no doubt that he succeeded, or at least his hon. Friends thought at that time that he had succeeded, in introducing the third toughest Budget that we have ever had in this country and still giving a slight impresssion that he might be electioneering. The sad fact is that he achieved this success in political terms at the expense of sound economic management, and I want to show in a few moments why that is so.

It is difficult to avoid the impression that the Chancellor started by saying, "I need to take a certain amount out of the economy, say £220 million, to improve the balance of payments". He then sought to do that without incurring any electoral unpopularity, and he was so surprised by his success that he overlooked the fact that the measures which he proposed to take were those which would damage investment, exports, and the balance of payments rather than improve them.

I had not intended to weary the House by placing this Budget in its historical context. I had not intended to go through the whole question of the 1966 panic measures, or the 1967 "steady as she goes" Budget, but I think that I must take up one point in that context in relation to the Chief Secretary's remarks, because what he said is totally inconsistent with what he affirmed to believe at the time of the 1967 "steady as she goes" Budget, when we were told that there was no difficulty in reining back public expenditure. That is contrary to what he says now. He said then that public expenditure could be reined back at short notice and that there would be no difficulty about that.

The right hon. Gentleman's explanation about public expenditure is a total reversal of what was said in the National Plan. The National Plan made it abundantly clear that the increase in public expenditure at the levels which were projected was justified only if economic growth proceeded at the rates of economic growth which were projected. It is no good the right hon. Gentleman shaking his head. That is what the National Plan said. The Government failed to achieve the growth, but they increased public expenditure to the projected levels in the National Plan, and the right hon. Gentleman is now seeking to put an entirely different gloss on the whole picture.

It is important to look back to the date and day of devaluation, because the Budget which we are debating today is crucially determined by the events which took place then. In particular, there was a broadcast by the Prime Minister. The Prime Minister has essentially two speeches in a crisis situation. One is that we must all pull together, backs to the wall, Dunkirk spirit, and all that. The other is, "Do not worry chaps, it is going to be all right. Trust me." If there were one occasion on which the Prime Minister should have called on the nation to make a real effort it was on the night of devaluation, but instead he made that absurd statement about "the £ in your pocket not being devalued", and so on, and to give the impression that what he said was true nothing happened until the Budget in the following April.

We are now paying the price for that proscrastination. The enormous Budget of last year—taking £954 million—the November measures, totalling £250 million and now this Budget are all attempts to catch up with the ground we then lost. They are all attempts to make devaluation effective. I want to analyse the extent to which the Government have failed, for failed they have.

On television, of course, the Chancellor made a good show at giving the impression that everything was going quite well, or not too badly, perhaps a bit slower than had been hoped, and so on. He said: The improvement in our trading position was not nearly as fast as it ought to have been. This was primarily because people's expenditure instead of falling a little as I budgeted rose by about one per cent. What a tremendously effective throwaway line, but it represents in absolute terms a mistake of about £624 million. In fact it is a total discrediting of last year's Budget, when the right hon. Gentleman based his strategy on the idea that he would cut consumption by 2 per cent. in order to make way for exports. Yet here we have a throw-away line in a television broadcast as though this kind of difference is a triviality.

In his Budget speech, the Chancellor was again sweet reasonableness. He said: It would therefore be blindly partisan—on either side—to describe 1968 as either a wholly good or a wholly bad year."—[OFFICIAL REPORT, 15th April, 1968; Vol. 781, c. 1000.] While that phraseology may be possible to justify if one wants to quibble, the fact is that 1968, as my right hon. Friend the Leader of the Opposition pointed out, was the worst year for the British economy that we have ever had. All the economic indicators—unemployment, inflation, the trade balance, taxation, Bank Rate and our overseas debts—were far worse than we could ever have feared they might be and they are a complete condemnation of the Chancellor of the Exchequer. It may be true that 1968 was not wholly bad in the sense that one could hardly imagine anything worse, but the fact is that not a single economic indicator does not condemn the right hon. Gentleman absolutely.

I want to say something about economic forecasting, because the right hon. Gentleman sought to give the impression that he wants to stimulate intelligent debate and to make public forecasts and so on. It is true that, for the first time this year, Table 1 of the Financial Statement compares his last year's economic forecasts with the outturn. For that we are grateful, but it does not go nearly far enough to enable any reasonably full debate to take place. Yet the Chancellor says that he hopes that this will contribute to an improvement in forecasting techniques. There is certainly need for the Government to improve their forecasting techniques because their record since 1964 has been much worse in predicting the likely outcome than the views expressed by this side of the House in the regulator debate on the Finance Bill, which has now, by tradition, I am glad to say, become the usual occasion for debating these matters.

If the right hon. Gentleman wants to improve this situation, I repeat my criticism of the Chancellor's forecasts which I made last year. As I said then, most certainly the right hon. Gentleman must give figures for disposable income and prices and cost changes because otherwise one simply cannot tell whether forecasts are consistent. Secondly, by all means let him publish actual techniques so that they can be subjected to scrutiny, because the techniques so far published clearly depend almost entirely on C+I+G process of iteration instead of tying up the demand side of the equation with the supply side. If the right hon. Gentleman wants informed debate, let him go into this matter in much greater detail. It is no good his sliding away by saying that the savings forecast was not what he expected and was about 0.4 per cent. out. That means £120 million. The right hon. Gentleman's speech last Tuesday made no real attempt to analyse what went wrong in the comparisons between expectation and outcome.

The balance of payments is clearly the most crucial and important subject we have to consider. It is not very easy to trace exactly what the Chancellor was saying because his remarks on exports, imports and the balance of payments are spread throughout his speech. But two things he did not say. The right hon. Gentleman did not say, although it is implicit in his statement, that the balance of payments situation on trade account last year—which he admits to be most important—was the worst ever. He did not say either—although, according to the Financial Times, he announced it to a Labour Party meeting upstairs—that his target of £500 million surplus has been abandoned.

But the right hon. Gentleman did say a number of things spread out through his speech. If hon. Members care to select these passages and tie them together, they will find that he is saying, "Last year was an exceptional year for growth in world trade. If it had not been so, we should have been in a very bad way indeed. It is clear that devaluation had very little effect despite the heavy deflationary measures I took both in the Budget and in November. Indeed, despite devaluation our share of world trade went down."

The right hon. Gentleman was a little optimistic about next year. He suggests that there has been a backlog on some exports which will be going through later. We trust that that will be so, but it will not disguise the fact that devaluation, not having been very effective in the first instance, will not be so later in terms of long-term production. The right hon. Gentleman said that world trade could not be expected to grow as fast as it did last year. He did not tell us of his assumptions about world trade, although he wants informed debate. I hope that he will tell us tonight, for this matter is crucial to the future. He also said that he expected world trade to go up after the middle of this year, but no explanation was offered. Most commentators agree, however, that because of the United States taking action on inflation, world trade is likely to decline at that stage.

The conclusion is that the Chancellor's basic strategy following devaluation has not succeeded, for the reasons which I have mentioned. Yet he proposes to introduce measures which will, for example, deter investment, although he himself fears that there will be lack of capacity for exports. These measures will deter exports and he is giving us the same old deflationary package, although this year rather less appropriate in form than last year. The conclusion is, therefore, that whenever the right hon. Gentleman is not sure what to do he puts the leeches on the patient again, trying to get a little more out, and that he does not have any new ideas on how to solve our economic problems.

The right hon. Gentleman's Budget judgment was given rather exceptional emphasis by the Secretary of State for Economic Affairs. It is important to appreciate that the emphasis placed on the idea of a single figure for economic judgment of £270 million in aggregated demand can be very damaging. Simply taking out some figure like that does not solve our problems automatically. The single figure is meaningless, first, because it has no time dimension and this is the area in which the Government have been most wrong; secondly, because we are very short of data on what the judgment is, and after the Chief Secretary's extraordinary performance today we are even more short of data, and short of more data than we had realised; thirdly, because of the idea which the Chancellor puts forward that the process of his Budget judgment tends to be still target forecasting.

Although he wants informed public debate, the right hon. Gentleman has not published what his forecast was before the November measures were taken or, indeed, what effect individual measures such as the overdraft proposals will have on aggregate demand. It is not just a question of arriving at some overall figure which can be simply expressed, as the Financial Secretary seemed to imply on Wednesday. It is very important to see what is happening to the specific proposals which make up the net effect of that Budget judgment. The Chancellor says that there has been no change in his basic policy. But there are two areas in which one can detect a change. On incomes policy, it is not true that the Government are giving up their statutory policy; they are merely to have a rather shorter period for the duration of that compulsory policy—four months instead of the previous twelve months. For goodness sake, why? Surely the failure of the Government's prices and incomes policy is abundantly clear. The rise in wages and earnings in 1968 was more than double the 3½ per cent. ceiling in the 1968 White Paper. Prices rose by 6.2 per cent. compared with that ceiling.

So far as we could gather from the Chief Secretary, the only area in which the Government's policy has been effective is the control of dividends. This shows how absurd and arbitrary the entire policy has been. We wait with interest to hear what new legislation is proposed here. I should be grateful if the Chancellor could say tonight whether he proposes to introduce legislation to cover dividends and so on or whether he believes that it can be done within the existing framework, under Statutory Instrument. I understand that that is not so.

The second major change in his policy is with regard to monetary policy. Here, of course, the Chancellor is protesting too much. Talk of foreign coats with regard to the quantity theory of money is bandied around, although that theory began in Cambridge. But there has been a big change in his attitude towards the borrowing requirement and, as far as we can gather, towards interest rates as well. If the Chancellor is moving, as many suspect, towards the Chicago school and a more active interest rate policy, those concerned with mortgage rates and other interest rates in this country should be aware of it.

Despite the fact that I have the greatest personal respect for him, I must say that the Financial Secretary the other night, winding up in a flippant style, underestimated the impact which the increase in mortgage rates is having on the young married couple and those trying to buy a house. My right hon. Friend the Member for Enfield, West asked the Financial Secretary: … why was it that the most convincing policies 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? The Financial Secretary, in a flippant reply, after referring to King Canute, said: 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 …".—[OFFICIAL REPORT, 16th April, 1969; Vol. 781, c. 1271.] Yet in the Financial Secretary's own 1964 election address, one finds the following statement: Both rents and mortgage interest will be kept down by the steps a Labour Government will take to ensure favourable interest rates. It is not good enough to come out with that kind of flippant statement and disregard election promises. It is not fair on people who are trying to buy houses on mortgage. If one makes the calculations—I will gladly make them available to any right hon. Gentleman opposite—one sees that, as a result of the Government's measures, it seems likely that the number of people who can buy houses on mortgage, because of the restrictions which building societies rightly put on the relationship between the mortgage required and weekly wages, has probably been halved since 1964, as a result of the Labour Government. This is an appalling situation.

I turn to the effects of these proposals on exports. As I have said, the extraordinary fact is that this Budget discourages investment which may be used for exports and then goes on to discourage exports themselves. The Government's own actions have steadily eroded the advantages of devaluation for exporters. I do not believe in debate by enumeration, but I hope that the House will bear with me if I specify shortly the measures which have discouraged exporters since devaluation. At the very time of devaluation there was the removal of the export rebate, which probably knocked off 2 per cent. of the 14 per cent. advantage. Then there was the removal of the non-regional S.E.T. premium, which also probably knocked off about 2 per cent. Then there was the higher rate on imported raw materials which were used for export, which meant probably another average 2½ per cent. erosion of the devaluation advantage.

Then, of course, if any profits were to be made by exporting, they were to be charged at another 2½ per cent. higher Corporation Tax. Even at that moment, therefore, it is doubtful whether many people thought that they should go into exporting, although some who were already in it might feel that they should expand it. But we have subsequently had labour cost increases in manufacturing in 1968 of 8.8 per cent. Domestic inputs, judged by the cost of living index, increased by 6.2 per cent. In April, 1968, S.E.T. was increased by 50 per cent., some of this applying to services which would be used in encouraging exports. In November, there was a Purchase Tax impost on some of the inputs which, again, went into exports, and, of course, there was the petrol hydrocarbon oils impost.

Then we had the higher interest rates which exporters had to bear unless they could tie it to a specific import. Now, S.E.T. is increased again, petrol costs are up again, Corporation Tax is up again. Now we are to have—although we still do not know by how much—further imposts on industry in the autumn because of the Government's proposed increases in pensions. When one goes through this list, it is quite extraordinary that there has been any increase in exports at all. But what is clear is that the advantage of devaluation has been steadily eroded by the Government's own measures. If one tries to appraise the Chancellor's judgment, as far as the prospects for exports go, one must regard it as very optimistic.

Of course, we have had a dissertation this afternoon from the Chief Secretary about Selective Employment Tax. I will not bother to go through all the well-known arguments against the new point which he put. I was very impressed by the cogent way in which it was done by The Economist in its issue published at the end of last week. I was only sorry that I had not sent them a minute saying that this was something which I had categorically intended to mention some time before they published their article. The S.E.T. is a tremendous burden on this country. We in no way accept the arguments of the Chief Secretary, and I am very glad that my right hon. Friend the Member for Enfield, West has said categorically, once again, that we intend to abolish it as soon as possible.

We shall no doubt pursue the question of the interest on overdrafts when we discuss the Finance Bill. It is clear that the whole of this—whether it be the division between personal or business expenditure or whether it is on housing improvements—will lead to the same sort of line-drawing arguments as we had in the S.E.T. debates. I sometimes think that the Chancellor must have become obsessed by some earlier Oxford Union debate on the question, "That the line must be drawn somewhere", because he has drawn up tax after tax in which the line is drawn arbitrarily between one group of people and another.

Contrary to what he said, the Chancellor has not provided us with full information on which a real, serious debate of the issues can take place. The opportunities, which were in many ways forced on the Government at the time of devaluation, have been frittered away by procrastination in backing them up. We do not believe that the measures which the Chancellor now proposes are likely to solve the country's economic problems. That the incoming Conservative Government will inherit a tremendous burden of overseas debts and burden of taxation on our people no one can doubt. But I have not the slightest hesitation in saying that we shall succeed in alleviating that burden. This year's Budget does nothing to alleviate it and has no real prospects of improving our economic situation at this time.

5.20 p.m.

Mr. Frederick Willey (Sunderland, North)

When I listened to the hon. Member for Worthing (Mr. Higgins) I clearly remembered the Budget speech of my right hon. Friend the Chancellor, and I assure the hon. Gentleman that I did not think that my right hon. Friend was electioneering. I thought, as most sensible commentators seemed to think, that the Budget was reasonable and fair. My doubts about it are that it is reasonable and fair within conventional orthodox limits, and probably the real question is whether orthodoxy, even a progressive orthodoxy, is enough for the circumstances which we face.

I want to deal with two questions which would ordinarily be outside a Budget debate. First, I welcome the provisions which the Government are making about the betterment levy. When I last took part in the debate about the hardship cases, I said that it seemed to me that we could bring an awful lot of them within a fairly narrow band and that this seemed the simplest way of dealing with the problem. This is what the Government have done. We can discuss the details when we come to the Finance Bill, but, although I am normally allergic to this, I should like the Government to reconsider making the provisions retrospective.

The other matter with which I want to deal is that of industrial relations. I do not welcome their being dealt with within the context of the Budget. This is window dressing. It is dangerous and it creates a misleading impression that we can provide a dramatic short-term solution.

The Government have been amply warned. The penal provisions in the prices and incomes legislation were equally window dressing. There was never any question of their being invoked. They never were invoked, but they have seriously damaged industrial relations. In any case, presented in the context of our economic difficulties, the Government's present proposals do not make sense. Take the repeal of Section 22 of the National Insurance Act, 1965—the removal of the grade and class disqualification for unemployment benefit. Like the Donovan Commission, I welcome that. It is a step that we should take, but at the same time I am realistic enough to know from experience that Section 22 is a real discouragement to unofficial, unconstitutional strikes. I know that men who are put out of work and find that they are not getting benefit exercise real pressure to get their colleagues back to work. It is nonsense putting this in the context of our economic difficulties. It should be done on its own merits.

The key to the Government's proposals is the conciliation pause, the cooling-off period. There may be a very good case for this. After all, it was urged upon the Donovan Commission by the Society of Conservative Lawyers. I am not so apprehensive about it because the Society was one of Conservatives, but because they were lawyers. Lawyers have never been very felicitous in their intervention in industrial relations. The Society of Conservative Lawyers based its case on American experience. This was examined by the Donovan Commission, which found that unde the Taft-Hartley Act the Americans have a worse record than we have. Undoubtedly, this proposal was seriously considered by the Commission, which reported in paragraph 425 of its Report: … we do not think that the introduction of a procedure such as that proposed by the Society of Conservative Lawyers would be beneficial. I have not yet heard any reasons, or at any rate sufficient reasons, why we should set aside the judgment of the Donovan Report. Even more, I do not know why the Government should propose going much wider than the Conservative lawyers proposed. The Conservative lawyers were referring to strikes … creating grave national loss or widespread hindrance to public health or safety. But now the Government, I understand, propose generally to cover all unconstitutional strikes where "the effects are likely to be serious". This seems to me to be window dressing.

Those of us with any experience of unconstitutional strikes know that this procedure will apply only to a very limited number and very limited category of such strikes. It is not applicable to the vast majority of unconstitutional strikes. For this reason again, I think that by presenting it in this way we are prejudicing the effect that such a provision might have.

But to be fair to my right hon. Friend the Secretary of State for Employment and Productivity, it seems to me that what she is doing is to introduce a new concept. She is saying that the Government are prepared to ignore the fact that unconstitutional strikes are unconstitutional, to intervene, and to do so by restoring the status quo, and then saying that in return the workers should undertake to desist from strike action. In other words, the Government are saying, "We should strike a bargain." This proposition should be seriously considered; there is something in it. What I am afraid of is that we are not affording the time and opportunity for proper consideration of something which is quite novel and which has many implications. I fear that by pushing this legislation through we are prejudicing the serious discussion that there should be about this proposition.

Worse still, we have the muddle about the attachment of wages. We have a Gilbertian situation. I have every sympathy with the Government. We know what they were trying to do, which was to say that if they had to have a financial penalty, in no circumstances would anyone who refused to pay a penalty go to prison. They were realistic enough to know that if anyone went to prison there might well be a second strike. Then, I am sure, my hon. Friends convinced the Government that if instead of sending someone to prison one called in the bailiffs there would still almost certainly be a second strike. Therefore, we have the proposal about the attachment of wages.

I think that the Government were convinced at the end of the day that even if a striker were not sent to prison, and even if the bailiffs did not appear in his house, if his wages were attached compulsorily one might very well have a second strike. So they say to the person who has been on strike, "Please help us out of our embarrassment. Please choose to have your wages attached." This does not need legislation—all it needs is exhortation. This is vitally important because it is feasible only if there is co-operation from the trade unions. It must depend on trade union discipline, and it will be an awful pity if we miss the opportunity of establishing that co-operation upon which any improvement of industrial relations must ultimately depend. We should learn from our experience of the prices and incomes policy, where we obstinately clung to the penal provisions for so long that we had the trade unions turning against the policy as a whole. I very much regret this, because it is a policy which I support.

The proposals in "In Place of Strife" are supported by and large. The whole House agrees that we must improve our industrial relations. It would be a great pity if we prejudiced this by being rigid in the same way. That is why I made the remarks that I did in opening. Equally there is a risk of the Government being too orthodox about their Budgetary measures. There is a risk that they are placing an over-reliance on fiscal monetary measures. The plain fact is that, whatever the reasons may be, the major difference between the post-war Labour Governments and the present Government is that Bank Rate for the whole Labour Government period from 1945 to 1951 was 2 per cent.: it is now 8 per cent.

I am not so much concerned with my hon. Friends below the Gangway as with the Prime Minister. When he spoke from the Opposition Front Bench, no one was more effective and incisive in attacking Bank Rate policy than was the Prime Minister himself. I was delighted to hear him time after time criticising resort to the blunt instrument and reliance on fiscal policy. At that time my right hon. Friend asked: Have we forgotten the devastating analysis of the Radcliffe Report about our reliance on monetary policy? I believe that we are again in danger of placing over-reliance on monetary policy.

We have had a good deal of criticism about planning, but it seems to me that we should pay more attention to what we ourselves said in Opposition about planning. The issue is not in generalities but in having an effective purposive plan. We are, and this is important and very relevant to our present economic difficulties, in a position in which sectional interests quite clearly are not sufficiently subordinated to the national interest. The argument is not about controls in general but whether controls are effective and serve the purpose for which they were intended. It seems, again, that we have lacked the courage to be specific in our controls. Discrimination has almost become a dirty word, but the Prime Minister, when in opposition, was a powerful advocate of discriminatory measures. He called, not just for discriminatory measures but for "blatant discrimination." He even said: After all, the apotheosis of non-discrimination is death."—[OFFICIAL REPORT, 26th July, 1961; Vol. 645, c. 445–53.] I would not put it as high as that, but one of the hindrances to economic recovery at the moment is certainly nondiscrimination. My right hon. Friend the Member for Battersea, North (Mr. Jay) graphically pointed this out in his references to the consequences of the abandonment of import quotas in 1958–59.

I represent a development area constituency. I welcome the regional employment premium. This has certainly helped the development areas considerably but because it is non-discriminatory within the development areas it results in a real waste of resources. We in the North-East got £1 million of Government money directly to back the Furness shipyard. That did enormous good, and was fully worthwhile. It should encourage the Government to take the sort of decision which is needed to make development area policy more effective.

Again, the Prime Minister used to argue for "publicly owned competitive State factories". He has a very good opportunity now to put this into practice at Sunderland. We have in Sunderland an advance factory which has been empty for about a couple of years: let the Government have the courage to take the decision to put production into that factory.

The plain fact is that we slid into devaluation. The Chancellor of the Exchequer is now taking full advantage of devaluation, but within limits. In spite of his achievements, I believe that we must pursue more direct and specific remedies, and I believe that until this is done and we have the courage to face up to the problem, we shall find no real escape from the cycle of recurrent deepening crises.

5.35 p.m.

Mr. Selwyn Lloyd (Wirral)

The right hon. Member for Sunderland, North (Mr. Willey), made a most interesting speech. I warmly support his first point about making betterment levy concessions retrospective. The other matters which he mentioned should give his right hon. Friends a little food for thought. Much as I should like to follow him on them, I want to intervene comparatively briefly, I suspect that it would be a popular change in Standing Orders if an ex-Chancellor of the Exchequer had to get the leave of the House before speaking in a Budget debate, for the practical reason that he might seek to emulate the Chancellor of the Exchequer in the length of his speech and also because I am afraid that what some must regard as a process of Satan rebuking sin is not to everyone's taste.

A Budget speech is a formidable task qualitatively, quantitatively and in the manner of the presentation of the proposals. On the last aspect, I pay my tribute to the Chancellor of the Exchequer without reservation. It certainly did not seem anything like two and a half hours. On the other two aspects, I hope that the right hon. Gentleman will feel that I am not ruder about him than he used to be about me when I say that I thought his proposals stood up better to the test of quantity than to that of quality.

I hasten to add that there are certain proposals which I wholeheartedly support. I support the idea of a Save-As-You-Earn scheme. I have not had time to work out the details, but the idea is certainly welcome, because I think that savings are a relevant factor to the sound management of the economy. We welcome the reliefs in direct taxation in the lower income range, the mitigations for close companies and the broadening of the basis of indirect taxation—with an important reservation, to which I shall refer later, about the products of the textile industry. We welcome the continuation of the process of exemption of small estates from Estate Duty by the raising of the level to £10,000. This is a good thing. I did something about it, as did my right hon. Friend the Member for Barnet (Mr. Maudling).

But on the most important issue of all, what is called the "Budget judgment" I am very doubtful. I concede that any Chancellor has a very difficult task. He gets a lot of advice from many competent people—advice not known in its entirety to the rest of us. There are many, many uncertainties, particularly about this next autumn. It is not useful to go into them now in detail, but the Chancellor of the Exchequer must be aware of them. But even allowing for the being on the safe side argument, I have very grave doubts whether he has been right.

The increase in the Corporation Tax will tend to diminish investment, and to seep through in increased prices to the consumer. Any increase in petrol duty was always scathingly denounced by the party opposite, particularly by the present Prime Minister, as an impost which affected the costs of production and distribution. In other words, it, too, will seep through to the consumer. The S.E.T. increase will obviously increase prices, because it cannot this time be absorbed at all. I suppose it can be said in theory that demand will be damped down; but will this work? Have the inflationary germs become immune to this type of treatment? We have seen quite a lot of inflationary effects of what were meant to be deflationary measures. There has been the desire to get out of money into goods, and the wish to buy now, because things always go up.

In my view, the Chancellor of the Exchequer would have been wiser this time to forgo these three measures. They will mean the end of the remnants of the incomes policy. They will create very great pressures for increased wages—and we have heard the figures given by my hon. Friend the Member for Worthing (Mr. Higgins) of the increase in earnings and the increase in the cost of living during the past year.

Did the right hon. Gentleman know this, and is that the reason for the borrowing requirement being minus £800 million? I remember being rebuked on a former occasion by the hon. Member for Stoke-on-Trent, Central (Mr. Cant) when I recommended the curtailment of that requirement. My right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) wrote in the Sunday Express this weekend that when the Chancellor of the Exchequer gave this figure last Tuesday my right hon. Friend seemed to see on either side of him … the malign ghosts of Peter Thorneycroft and Selwyn Lloyd …". I hope that that was a printer's slip, and that what my right hon. Friend submitted in his text was "maligned figures." However that may be, this figure, without further explanation, is really orthodoxy with a vengeance. It could be shatteringly deflationary, but paradoxically it might be inflationary. What do the creditors do with the money received if the idea is to pay off the debt? How is the surplus to be used? We need more information about this because it is an important part of the Chancellor's strategy.

My next point is in regard to stocks. The rôle of Cassandra foretelling woe is not a very attractive one, although, poor girl, she was absolutely right. I admit to another anxiety. One should look at Table 13—an appropriate number—in Command Paper 3983 which relates to physical increases in stocks and work in progress. In 1960 against a current deficit of £258 million, stocks and work in progress increased by £591 million. In 1964, a controversial year from this point of view, against a current account deficit of £399 million, the figure for the increase in stocks and work in progress at 1963 prices was £665 million, a balance of payment's position much sounder than it was made out to be. In 1968, against a current account deficit of £419 million, it was only £191 million at 1963 prices. Is there an explanation for that or any comfort? It is worrying.

I am all for broadening the base of Purchase Tax as long as it lasts, but bringing in honsehold textiles and cloth at this moment is a mistake. The report of the Textile Council has just been published. Serious decisions have to be taken by the Government and the industry. To make this change at this moment is a psychological error. I shall vote against it. A matter of this sort ought to await the Government's long-term plans for the industry, and this change now is a mistake.

I was thinking of making a long speech about S.E.T., but that does not now seem necessary. The Chief Secretary's defence this afternoon and what other hon. Members have said suggests that further talk about it is hardly necessary. I recommend the House to read again the speech of the hon. Member for Willesden, West (Mr. Pavitt) last Tuesday, the first day of the debate. He made a very effective and moving speech dealing with the position of the distributive trades. They are the cinderellas where wages are so low that anyone who could get a job in manufacturing industry would already have moved from distributive industry. I agree with what he said.

It will mean that the increases will be passed on in the costs of the distribution of food. Distribution and marketing are an essential part of a proper industrial and trading system. To make the construction industries still liable to the tax is a nonsense. As for hotels, it will affect investment, modernisation and the growth of the industry, so important for the balance of payments. Those industries are doing well now, but they have to look to the future and that depends on investment and modernisation. The tax is full of anomalies and absurdities. I do not think it possible to draw a clear dividing line between services and manufacturing. If as is suggested this tax has a wonderful effect on productivity, why is it not applied to production everywhere? If this is the right medicine to create more productivity why does not everyone have to take it? The passage in the speech of the Chief Secretary today dealing with this was an absurdity. To invite Professor Reddaway to conduct an examination into the tax, and then to put it up by 50 per cent. last September and again by 28 per cent. now was wrong. The sooner the tax goes the better. It is indefensible.

On a slightly less controversial note, there is the question of a Select Committee on taxation. My general views about the proliferation of Select Committees have been expressed to the House. The Public Accounts Committee and the Estimates Committee do excellent work. The Select Committee on Nationalised Industries could do more, particularly in examining the accounts of those industries, if it were given the resources to do so. The Select Committee on Science and Technology has done a good job; but I am doubtful about having committees with roving commissions. I would have more of them small in number sitting on top of a particular Governmental discretion—for example, over investment grants. I have spoken about this before. Where a Government Department, like the Board of Trade over investment grants, is operating a discretion, it should have to report regularly to quite a small Select Committee. This would give us some control over the Executive.

I also think that the case has been made out for a Select Committee on taxation. Two examples appear in this Budget. But first I want to be clear as to the limits that should be set to a committee's work. I am not in favour of a Select Committee to review the whole tax system. I do not think it would be the proper body to do so; the membership would not be right and it would not have the time or the staff to do it. I am not saying that it should be done now but if we are to have a committee or a commission to review the whole system it should be a Royal Commission, not a Select Committee of this House. I have a more limited rôle for such a committee in mind.

These Budget proposals provide two very good examples of where a Select Committee could have done a good technical job. It must not be a political job. Take the question of interest not being allowable against tax. I do not think the Chancellor has thought out the ramifications of this. It will create many administrative complications just when everyone is asking that the tax system should be simpler and more comprehensible. There will be many exemptions that will have to be made. What borrowings will rank as business expenses? We are told that a house would be an exemption, and I suppose that in some cases a car would be an exemption and equipment may be an exception. How does one prove it all? I suppose that if borrowings for a house were chargeable against tax, that borrowing would never be paid off. An endless series of niggling points will arise.

Had evidence been taken by a Select Committee from the Treasury and Inland Revenue and the accountants' profession, something much more suitable could have been worked out. If the Government are to do this—and I am against it—there is only one sensible way of doing it, to say that it would be not deductible for Surtax. That would have been a simple thing. I am not in favour of it, but that would be a simple way of doing it; but the Government have chosen a most complicated way. If there had been a Select Committee on taxation the Government's ideas on this matter would have been smoked out beforehand.

The other example concerns the slicing provisions of Estate Duty. I am told that these slicing provisions have some very considerable technical difficulties about them. That is just the sort of matter that should be gone into by a Select Committee. I do not see why we should not accept this. It is not a political matter but it is time to bring out into the open the kind of argument which goes on in the Treasury. It would be far better if a Select Committee were given that sort of job, to consider the technical implications of tax changes. It would be helpful to the Chancellor and reassuring to public opinion, whereas at present these inquiries go on behind closed doors in the Treasury.

Mr. J. Grimond (Orkney and Shetland)

I very much agree with the right hon. and learned Gentleman, but I should like him to clarify one point about his proposals. Does he mean that there should be a Select Committee to examine proposals after they have appeared in the Budget, or that there should be a permanent Select Committee which would select certain areas of taxation to be examined? Who would choose what should be examined by the Committee?

Mr. Selwyn Lloyd

It would be better if such proposals were examined before they made their appearance in the Budget or a Finance Bill. The kind of case I have in mind is something to which I referred in my first Budget speech, the amalgamation of Surtax and Income Tax into one personal tax. That could be done without harm to anyone.

It would need a little bit of give and take between the Chancellor and the Treasury and the Select Committee as to what the Committee did and who chose the subjects. These things can be arranged. There are certain matters on which every Chancellor is anxious to get agreement. This might be a more practical way than as we have tried to do it up to now, in secret, confidentially. We might make progress on some of these matters if we could do it publicly.

That is my view about the idea of a select committee on taxation. Having said all this, my basic criticism of the Budget is that, apart from one or two proposals I have mentioned, it does nothing to promote the creation of wealth. The hon. Member for Lewisham, West (Mr. Dickens) wrote an article the other day, which many of us read, about the distribution of wealth, about the wealth of this country being in too few hands. I entirely agree with his theme, but I completely disagree with his remedy. Any fool can destroy wealth; it is fairly easy to distribute it, to level down, as the hon. Member was suggesting; but it is very difficult to create it and level up.

There is very little in this Budget to encourage that. There is very little to restore confidence. The whole idea of announcing pension benefits without announcing how they are to be paid for was, psychologically, very bad for the promotion of confidence. This Budget, however attractively, one might say speciously, presented, is irrelevant to the real needs of our time and damaging to our prospects of economic recovery.

5.50 p.m.

Mr. Joel Barnett (Heywood and Royton)

I must say that since I came into the House in 1964 and got to know the right hon. and learned Member for Wirrall (Mr. Selwyn Lloyd) I have a much more cheerful view of him than I had, before coming here, from his period as Chancellor.

The point which he made about a Select Committee on Taxation is one which, certainly in general, would be very interesting, and which I should support.

But when he mentions some of his examples, we begin to see the difficulties involved. For example, I question whether we could be discussing loan interest publicly before the Budget. If it were known before it was actually announced in the Budget, there would be some difficulties. There could also be political difficulties in a Select Committee of that kind such as one does not get in, say, the Public Accounts Committee. However, the amalgamation of Income Tax and Surtax, for example, which I advocated to the Chancellor, is certainly something into which a Select Committee on Taxation could look.

Another subject could be the recommendation made by my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) for the abolition of earned income relief and instead having a lower, and the real, rate of tax for earned income. The hon. Member for Worthing (Mr. Higgins), in opening for the Opposition, was a little churlish on the question of the forecasts which the Chancellor has made this year and which are an extension of last year's forecasts. The Chancellor foresaw that he would be criticised for the forecasts. It is not difficult to make criticisms of them, but I hope that he will not be deterred from continuing along these lines.

It is only too easy to be wrong with forecasts. There is an old joke about economists and what happens if one lays them end to end. We can say the same thing about political and economic journalists. If we laid their forecasts end to end we should not get a clear policy as to how the economy should be run. I hope, therefore, that my right hon. Friend will not be deterred from continuing what he has done in the past, and what he did to an even greater extent this year, in making these economic forecasts, even though he recognises, as any sensible person must, that there will inevitably be many variations when the actual figures are seen.

The Opposition are back one again, this year as ever, with their answer to our problems in their proposed cuts in public expenditure. It is really a dishonest playing with words, because the only result is to substitute higher prices for taxation. It should be clearly understood that that is what they are proposing. Nor do the Opposition's proposals deal with the argument which the hon. Member for Worthing went on to make that this Budget was again deflationary. I do not know how a switch from public expenditure—in other words, increasing prices instead of taxation—would have dealt with that aspect. He did not make it clear. We can only conclude that what he really had in mind was to continue the same sort of deflation putting the balance of payments as a first priority.

I must mention the industrial relations problem which the Chancellor placed so high in his Budget speech. We were told in the past that the policy of the prices and incomes legislation was economically essential, when it was clearly obvious that it was anything but economically essential, and everyone knew that it could have, if anything, only a highly marginal effect upon our current economic situation. We are now told that the Industrial Relations Bill is economically essential. I believe that there is some little value in having a cooling-off period. But we are heading for disaster if we rely on this as a major part of economic policy.

I hope that no one in the Government is deluding himself into believing that in the 12th months immediately following this Bill we are likely to have an enormous improvement in industrial relations. On the other hand, it is an equal delusion the other way. There have been some astonishing statements over the weekend by some trade unionists. I read of one trade union leader who said that this Bill … was the most vicious and repressive legislation against trade unions. I find that statement rather astonishing. I hope and believe that there might be some deterrent effect in the legislation. It could have a limited value. In most cases, however, it simply will not be usable because, as the Donovan Commission pointed out, 95 per cent. of strikes are unofficial, and the average length is 2½ days. Clearly the opportunity to use the concilation pause will not apply.

Where it is used, and it can have some value occasionally, it is possible for the trade unions, after 28 days, to go back and strike again. Then it will be used only against men acting unconstitutionally, against procedures agreed by the trade unions. To describe that as action against the trade unions which is "vicious and repressive" is crazy.

Sir Douglas Glover (Ormskirk)

The hon. Member is always so careful in not trying to mislead the House. I think that he may have made a slip when he unwittingly said that the average length of unofficial strikes is 2½ days. In fact, the bulk are in hours and it means that the remainder are more than 2½ days, because the two have to be balanced.

Mr. Barnett

One can juggle with the statistics, as the hon. Gentleman knows very well. I was referring to the Donovan Commission which specifically made this point, that the average length of unofficial strikes was 2½ days.

I turn to the tax changes. It would be churlish of me if I did not thank my right hon. Friend the Chancellor for the relief he has given to close companies, something for which I have pressed him and his predecessor ever since April, 1965. He has gone further than many thought he would in relieving altogether directors' remuneration. It is only too little realised how great a concession this is and how useful it is to advisers, who do not have to go to the sort of lengths it has been necessary to go to avoid this particular piece of legislation. If I speak feelingly it is only because. I have been involved in those particular transactions.

I turn to the question of loan interest. There will be an enormous number of anomalies once some loan interest is allowable and other loan interest is not. The Chancellor has made the further concession in respect of central heating which was announced by my right hon. Friend the Chief Secretary today. A much bigger loophole which will be found and which has already been found is the fact that loan interest is allowed for business purposes. Undoubtedly, some of these anomalies will be unfair in their incidence. I hope that the mind of my right hon. Friend the Chancellor will not be closed in Committee when we discuss cutting out what may well be unfairness.

I welcome many of the tax changes proposed in the Budget and particularly the move towards greater equity. Some of the tax avoidance schemes which my right hon. Friend has stopped clearly should have been stopped a long time ago. Many people in industry thought that they would have been stopped a long time ago. I have particularly in mind tax loss companies. The words which my right hon. Friend used in his Budget Statement were far from clear. Indeed, they were the reverse of clear. He said that when there was a change of trade and of shareholding the tax loss would not be carried forward. But that situation applies today. Indeed, if there is a change of trade, even if there is not a change of shareholders, the tax loss is not available to be carried forward. I assume that the point will be made much clearer in the Finance Bill.

The movement towards equity and the proposals to stop loopholes and tax avoidance and to exempt from tax the 1,100,000 people at the lower end of the tax scale are absolutely right and I welcome them. This only shows what can be done by a Chancellor like my right hon. Friend, given growth in real resources.

In the Budget, the Chancellor proposes to take £270 million out of the economy in increased taxation. It is true that that is not as deflationary as it might have been, particularly as £200 million of that was not as deflationary as increasing Purchase Tax because it has been said by the Chancellor that two-thirds of the Selective Employment Tax is not immediately passed on and that not all of the increase in Corporation Tax will be passed on. Therefore, in that sense, it is not as deflationary as it might have been.

It is difficult to judge how deflationary this Budget is or what the deflationary effect is likely to be in the next 12 months. This is why I was sorry that the Chief Secretary, made it more difficult by not giving the details about the increase on the insurance stamp, and not referring to the total amount involved in the National Insurance contributions in respect of pensions. Last Tuesday, the Chancellor referred to the £250 million which would be required in a full year. He also said: … but substantial extra provision will have to be made on top of this, to take account … of the existing imbalance between income and expenditure of the main National Insurance Fund …"—[OFFICIAL REPORT, 15th April. 1969; Vol. 781, c. 1014.] He might have told us what that additional substantial amount would be because, in judging how much the deflationary effect is, it is important to know what the extra amount involved is and how, broadly, it is to be divided.

One could understand the Chief Secretary to have said that the total amount was to be divided in precisely the same proportions as in the past between Government, employer and employee. I should be interested to know whether that is what he meant. But the amount of inflation in this Budget cannot be separated from the deflation which was in the Budget, even without any tax increases, with all the tax increases which have gone before and, just as important, with the effect which the Chancellor is hoping to have on the money supply. While it may seem a less painless way of bringing about deflation by using the money supply rather than increasing taxation, it is deflation for all that.

My right hon. Friend said that, without his measures, he would have expected a 3½ per cent. growth in the economy which, with his measures, he expects to come down to about 2.9 per cent. In that sense, clearly there is deflation in this Budget. Further, as I have said, there is the additional deflation in the sense of all that has gone before and of what might be to come from the pension contribution increases and from what my right hon. Friend proposes to do concerning the money supply.

Once again, the Chancellor has made his first priority the balance of payments. I am grateful that he has not again told us that he is going for a £500 million surplus this year, next year and for ever. He still says that he is going for a substantial—and again the word "substantial" is used—surplus, but at least I am thankful he did not say that he was aiming for this surplus for more than this year. I have the feeling—and I hope that I am right—that if he gets a little some time, that will be enough. I shall be satisfied if that is his aim. The restriction of growth of real resources comes after years, 1968 apart, of deliberate restriction of growth which has resulted in a reduction in real resources to the extent of thousands of millions of pounds. Therefore, I do not go along with further restrictions.

The Chancellor indulged in what might be called "name calling" of the alternatives which have been proposed to the strategy which the Government have pursued in recent years. He referred to "a siege economy". I do not know what sort of an economy we have been running over the last 20 years. I suppose that it could alternatively be said that we have had an "open economy", an "ideal economy", a "perfect economy". I should have thought that a better description was "a shackled economy." For the alternative I prefer the description "a growth economy." This is not a panacea, any more than the Chancellor's strategy and the strategy of the "shackled economy" is the deliberate creation of poverty. It is far from it. But the Government's strategy, which Governments have pursued for years, makes it certain that we in the Labour Party are unable to carry out all the policies which we are in politics to carry out—to increase social expenditure and to reduce the inequities in our society.

I do not believe that a growth economy means that we need, for example, to sell the portfolio. Selling the portfolio does not have any effect on the current account and it does not particularly help in achieving extra growth. But it means that we need to rephase our debts, which is not impossible. I hope that this is what the Chancellor is discussing now and will discuss when he goes to Washington next week. We have about £1,500 million worth of debts due for repayment to the I.M.F. by the end of 1971. Surely it is not impossible to get a re-phasing of that on a more realistic basis. We should stop talking about nightmares of the massive debts around our necks when those debts are exceeded by our assets to the extent of nearly £2,000 million.

Equally, import quotas are not needed at this time—although many of my hon. Friends disagree with me about this—for a number of reasons. Administratively they are an enormous burden. Their effect on world trade can be seriously underestimated at a time when in many countries, not least in America, there is tremendous pressure for protectionism. This is a very difficult time for a major country, not in any financial sense, but in terms of trade, to clamp on import restrictions.

In any event, my major reason is that we can keep import quotas for only a short period so one could obtain only a short-term improvement on current account, and we might not even get that, as there could be retaliation. This would be unnecessary, if we were to get, as I hope, a rephasing of the debts; we need not then go for the size of balance of payments that we have been talking about.

Although I am against import quotas at this time, I found the speech of my right hon. Friend the President of the Board of Trade last week somewhat complacent, to say the least. To say that because other countries are importing more as a proportion of their gross national product than we are and that, therefore, our problem is not imports, but exports, is a difficult argument to follow. One could, I suppose, compare it to a shopkeeper who is buying goods for which he does not have enough money to pay, because his sales are too low, and he tells his creditors not to worry because he is continuing to buy in the hope that his sales will rise. That, I suppose, could be used as a fair analogy. But there comes a time when that shopkeeper has to buy less.

For the reasons which I have given, I do not believe that for Britain that time is now, but I certainly do not rule it out for all time. If we do not get the requisite increase in exports and if we do not get an improvement over a long period, we certainly would have to consider the possibility of import quotas.

If we do not need import quotas, we certainly need to stop inflating the deficits by allowing capital outflow in the case of portfolio investments that we have allowed on a massive scale to countries like South Africa and Australia. Of course, we need a current account surplus, but creditors do not mind where the money comes from to repay them. They would not mind too much if we did not invest in Australia and used the money to repay them. It is, therefore, a little foolish, at a time like this, to continue allowing portfolio investment in countries like Australia and South Africa.

As a first priority, therefore, our need is to get back to our original promises of a growth economy. To get that, I would prefer quotas, floating rate and devaluation. I would prefer anything to continuing a shackled economy of the sort that we have had for so many years. But I do not believe that we need any of those things now.

For one thing, I believe that there is enough deflation in the economy to give us a surplus in 1969 of, perhaps, £200 million on current account. I am as likely as any of the other economic forecasters to be wrong and it may well turn out to be a deficit of £200 million on current account in 1969. With the size of assets to which I have referred, however, we need not have a neurosis about a further small deficit this year.

I believe, therefore, that we must get away from the idea that as a first priority we have first, foremost and all the time to build up substantial balance of payments surpluses for years ahead. On one occasion, the Leader of the Opposition referred to a £700 million surplus for many years ahead to repay our debts. I do not believe that we need to have obsessions of that sort.

Meanwhile, however, it would be a useful boost to our morale if we stopped talking in any way which left an impression of a bankrupt Britain. It is certainly anything but bankrupt when our assets exceed our liabilities by nearly £2,000 million, when our gross national product is in excess of £36,000 million and when our standard of living by comparison with most countries is very high.

I know that this is difficult with an irresponsible Opposition and a Press which has an insatiable appetite for daily crises, but there is no need for us to feed that appetite. We should press on, and I hope that we will. There is at least an indication that the Chancellor of the Exchequer is getting away from the idea of a shackled economy and I hope that we can move forward to a growth economy which alone will give us the sort of resources that we on this side of the House need to carry out our policies.

6.16 p.m.

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

I have a good deal of sympathy with some of the concluding remarks of the hon. Member for Heywood and Royton (Mr. Barnett) about the balance of payments, although my sentiments do not carry me to the same conclusions as his. I also would like presently to take up what the hon. Member said somewhat earlier about economic and budgetary forecasting. But, although I am anxious not to detain the House for long, I must say two things about the extraordinary performance of the Chief Secretary at the end of his speech this afternoon.

The Leader of the House, whatever may be his other faults, is never suspected of deliberately misleading the House. Last Thursday, there was no doubt about the impression which was left with hon. Members who heard him—that he expected that a statement giving the details of the pension proposals would be made before the close of this debate.

The Leader of the House has been extremely ill-served by his Treasury colleagues in that they have not done what he then clearly expected they would do and thought that they should do. It was unworthy of the Chief Secretary to pretend that his denial of a statement in one sentence or two was the equivalent of the statement which the House had been expecting.

My second observation is that it is not good enough to announce large prospective expenditure in a Budget Statement without any of the elements of that expenditure which are bound to fall directly on the Exchequer appearing in the Budget figures. There are at least three elements of Budget expenditure which are bound to follow from the announcement made as regards next November.

The first element is the Exchequer contribution or quota towards the increased pensions; the second is the impact upon war pensions, which, under the Royal Warrant, invariably keep pace with the alteration in insurance pensions; and the third is supplementary benefits. All these, quite apart from the additional points, which, the hon. Member for Heywood and Royton reminded us, were mentioned by the Chancellor at c. 1014 of his speech, involve additional Exchequer expenditure of a substantial character. To put it mildly, it was somewhat disingenuous, while making the announcement in the Budget speech, to present figures in which that expenditure was not contained.

Before the Budget, and to a less degree since, but also in the Budget speech itself, there has been considerable emphasis upon savings. The term "savings" is, unhappily, an ambiguous one in a number of ways, but there was no doubt about the sense in which it was used by the Chancellor of the Exchequer in his Budget speech. Wherever the term occurred it clearly meant, whether explicitly or implicitly, savings lent to the Government; for it is only in that sense, as the Chancellor said, that one can say that £1 more in savings—that is, savings lent to the Government—permits £1 less, other things being equal, in taxation.

It was for that reason, presumably, that the Chancellor of the Exchequer included in his Budget proposals his new scheme for the stimulation of one form of savings lent to the Government; that is, the form which, in rather obsolete fashion, I think, we still today describe as "national savings".

"National savings", roughly speaking, mean the kind of savings lent to the Government of which the liquidity is extremely high but of which the total, in respect of any given saver, is fixed at a relatively low point. At any rate their prime characteristic, from the point of view of the Government as borrower, is their high degree of liquidity: if they are not available on demand, at any rate they are normally available at very short notice.

The scheme which the Chancellor of the Exchequer embodied in his speech involves paying, for what he hopes will be additional national savings, an extremely high rate. Indeed, as he himself said, it will be the equivalent for a taxpayer at the standard rate of no less than 12 per cent. interest; and, of course, for contributors whose marginal rate of tax is higher than the standard rate, the rate of interest rises to almost astronomical proportions. Even if inflation at the rate of the last few years is taken into account, there is still an offer of 4 per cent. tax free in this bid for additional national savings. This is a direct cost to the Exchequer. These are not just notional figures. When we say it will mean 12 per cent. interest in the case of a lender who is paying Income Tax at the standard rate, that is the actual cost to the Exchequer of getting this extra money—if it gets it at all.

I believe that this is unwise, and for two reasons. I believe it is unwise because this is far too high a price wisely to be bid for the last outer margin of savings lent to the Government. The interest offered is far too high; but I would not mind that so much if I thought there to be a chance over the years of the Chancellor of the Exchequer by this means getting and retaining substantial additional savings from the public. However, I do not believe that prospect exists.

There is in the last Bank of England Quarterly Bulletin a very grim graph of the story of National Savings during the last five years, from which delineation he who runs may read that, taking those five years as a whole, there has been a dis-borrowing by the Government of about £150 million and a corresponding dis-saving by national savers. In other words, after running very hard in the National Savings movement for the last five years, we are further back than we were before.

I see no reason to suppose that this pattern is not going to be repeated; for the history of the last 15 to 20 years of National Savings goes to show that they are highly sensitive to tax and interest opportunity, that the holdings are switched very rapidly from one form to another, and, what is more, that they are highly sensitive to alternative opportunities of investment. When we talk about National Savings we are not now talking about small savings which are being built up and lent to the Government over long periods of time.

Occasionally a new form of National Savings does sustain itself for a series of years; but it does so only at the expense of the other forms. From the same Bank of England Quarterly Bulletin one can see that, although the Premium Bond has stayed in surplus and has been pulling in additional money year by year throughout that period, that has been at the expense, if I may so express it, of the other forms of National Savings.

In short, I do not believe it is wise or worth while for the Government to bid at this exorbitant price for the last margin of savings. We shall only get lending by the public to the Government on a substantial scale again when the whole prospect for the future value of money, when the whole face of the economy itself, has been altered. Before that happens, it is idle to think that by the offer of a few per cent. here or a few per cent. there we can change what is one of the fundamental facts of our situation: that for years past the Government have been, in effect, unable to borrow net from the public.

So much for savings in the sense of savings lent to the Government, the sense in which savings appeared in the Chancellor's speech. But in contemporary discussion savings frequently appear in a wider sense, and the view is often put forward that savings, or an increase in savings, even if not lent to the Government, may perform a similar function to an increase in savings lent to the Government. I believe that this is a misconception, and, perhaps, a dangerous one.

Of course, from the point of view of the individual saver an increase in saving is for him an opportunity of consumption forgone; but the purchasing power which he abstains from using he transfers to a borrower or an investor who exerts it instead. Indeed, the only personal saving which results in a net reduction in demand is personal saving not offset by lending or by investment at all, and that is something very rare nowadays. One of the dangerous ambiguities of this word "saving" is that it has entirely different meanings as applied to the individual and to the economy at large. Applied to the individual it means the renunciation of the use of part of his current income. But when we ascend to the level of the economy as a whole, then the distinction between consumption and saving is really a classification of economic activities. We label different parts of the total pattern of activity in the economy as either consumption or saving—that is, investment. So when we ask the question, "Should there be more saving?"—or the even sillier question, "Is not saving a good thing?"—we are really asking whether the total pattern of activity in the economy is right or not.

Now, there are, broadly, two views about how to ascertain the right pattern of economic activity. They are the two views which, in a sense, are personified by the opposite sides of this House. One view is that the right pattern of economic activity in the community is that which the Government regard as right. The other view, which is held on this side of the House of course, is that the right pattern is the one freely chosen by everybody in the community using the price and market mechanism as freely as possible and with as little distortion as possible, so that if we were to strive for the best possible pattern of activity, for the right balance between saving and consumption, then, from the point of view of this side of the House, the way would not be by destroying but by using the mechanism of price and profit and introducing and encouraging the utmost degree of competition.

The Chancellor in his Budget statement had a good deal to say about the pattern of activity in the community; and here I come to the remarks of the hon. Member for Heywood and Royton about the Budget forecast. Certainly the right hon. Gentleman the Chancellor of the Exchequer has been frank beyond precedent with the House at Budget time last year and again this year in his estimates of the effect which his Budget would have upon the pattern of the economy. He has been perfectly frank in Table 1 of the Budget Report in saying how wrong he was but I do not think he has drawn the right deductions from that declaration.

I will not weary the House with all the figures—some of them have been referred to already—but on the key figures, the figures on which the Chancellor's Budget strategy of a year ago was founded, the right hon. Gentleman was not only wrong, but wrong to a large extent and often in the wrong direction. For example, he expected that consumers' expenditure would fall by 1.9 per cent.; it rose by 1.2 per cent. Public authorities' consumption he assumed would rise by 3 per cent.; it fell by 0.4 per cent. Exports, expected to be up by 13 per cent., were up by 18½ per cent. Imports, expected to be up by 0.6 per cent., were up by 7.9 per cent. Only the most blinded faith could imagine that there was any connection between the out-turn and the forecast, or that the decisions taken in the Budget last year had any predictable or quantifiable effect upon the pattern of the economy which the out-turn figures reflect.

What I am blaming the right hon. Gentleman for is not that he was wrong, not that he failed to do the impossible, but that he is attempting to frame a Budget and to control the economy with methods which simply do not connect, which have no predictable effect upon what actually happens; and there is no reason whatever why, when we see Table 1 next year, we should find any closer correlation than this year—which is none at all—between the Budget forecast and decisions and the out-turn. The right hon. Gentleman aspires to determine by his Budget decisions the pattern of economic activity, and to influence it in a very specific way—down to a few decimal points—by his Budgetary action. But he is not connecting: there is no relation between his intentions and method and the results which follow.

It would be more understandable if the right hon. Gentleman were doing this in pursuit of his socialist philosophy. If he were seeking to bring about this economic pattern in order to implement the kind of national plan put forward by the right hon. Member for Belper (Mr. George Brown), then at least there would be some reason, some logic, in what he was trying to do. He would say: "The Government have drawn up a plan for the economy better than it would have worked out for itself by the processes of the market, and I will use the Budget amongst other methods to try to realise this pattern".

But that is not what the right hon. Gentleman is doing. That is not why he is undertaking this absurd operation, this merely magical ceremony, of saying, "I do this and this in the Budget and the following things follow", when they do not follow at all. He is doing it for an even more improbable, even more fantastic, purpose. He is doing it in order to adapt the economy of this country so as precisely to produce a balance of payments in and out at a fixed rate of exchange. That is what he is trying to do. That is the consideration which dominates all his Budget strategy—the balance of payments. Indeed, I have understated the complexity, the absurdity and the impracticability of what the right hon. Gentleman is trying to do. He is trying to manage the economy not even so as just to produce an overall balance at a fixed international price of sterling. He is trying to do it so as to produce an overall balance at a fixed price after certain specific inter-government transactions, which we describe as a surplus or a deficit on the balance of payments—that is, the £500 million surplus which featured last year and the "substantial surplus" which features this year.

There are various available metaphors about attempting to fire at a moving target, but there is no firing at any moving target which is comparable in its impracticability to what the right hon. Gentleman is trying to do. In the first place, his trigger does not operate his weapon, as we see from Table 1 of the Budget Statement. There is no predictable relationship between what he does in the Budget and what happens in the economy. Much worse than that, there is no predictable relationship between what actually happens in the British economy and the experience of this country on the balance of payments. The economic experience of this country, as measured in these statistical terms, and the movement of the internal purchasing power of the pound sterling are only a couple amongst a whole series of factors all over the world, over none of the rest of which do we have any control, which ultimately produce the out-turn of the balance of payments of the United Kingdom at a fixed price of the pound sterling.

So the right hon. Gentleman is in the position of a person endeavouring to steer a car the front wheels of which are not operated by his own steering wheel—or not in any predictable way—but are affected by the movement of the steering wheels of all the other cars in the town. That is what he is trying to do when he seeks to use the Budget to hit off an almost inconceivably precise balance between payments in and payments out at a fixed rate.

I have already argued that we should be prepared to use price as a means of allowing the pattern of our domestic economy to work itself out. This is not a panacea. I too, like the hon. Member for Heywood and Royton, feel rather hurt at the name-calling in which the right hon. Gentleman indulged at the expense of panaceas other than his own. The price system is not a panacea. It is not a panacea here at home: it does not make men good, wise, industrious, far-sighted or enterprising. But that does not mean it is not useful. It does enable them to regulate their affairs amongst themselves in a far more efficient way than the Government can control them. It does enable them to carry on their individual business, and to carry it on as a community, without constant interference and constant defeating of their expectations and intentions by Government. It does do that, even if that is not a panacea.

Similarly, price is not a panacea when used to gear the economy and the price system of this country with the economy and price system of the outside world. It will not make this country suddenly more competitive. It will not make us more prone to invest or to export. We shall not suddenly become a different kind of nation. Yet it will produce the same benefits for us as at home. It will enable us to regulate our economic relations with the outside world as internally it enables us to regulate our relations with one another, without the constant intervention of the arbitrary power of the State budget by budget—three or four times a year under this Government—and in other aspects of policy almost continuously. That may not be a panacea; but it is rational policy.

The right hon. Gentleman has disclosed—and it is a service which his candour has performed—how inadequate and inapt his methods are to produce the results which he expects of them. He is not the first to experience that. It is something with which we have been struggling, which has been hammering at national morale, self-confidence and pride, for years too many to be remembered. There are no panaceas; but there is a rational course of action particularly for a commercial and trading nation. It is to be unafraid to use price to regulate our internal affairs and to be unafraid to allow it to regulate our relations with the rest of the world.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

Before the right hon. Gentleman sits down, may I ask him one question? His argument is very interesting, but is this not a system which was practised for nearly 100 years and which only worked to produce a series of booms and slumps, which eventually became almost a permanent slump? Is not the present system an endeavour to prevent that?

Mr. Powell

The exact opposite is true. The system which we are using at the moment is that which is almost universally blamed, in part at least, for the slump of 1931. It is the much abused system which we applied from 1925 to 1931 and were then forced to abandon, as I hope we shall be again.

6.42 p.m.

Mr. Douglas Houghton (Sowerby)

The right hon. Member for Wolverhampton, South-West (Mr. Powell) is a politician with whom one must be careful not to agree. I came within hailing distance of him once or twice, but on reflection, as he was speaking, I had to remember that this was only part of his philosophy. This is his economic thinking, and it is linked with his social thinking. I believe that the solution of our economic problems on his terms is not acceptable to right hon. and hon. Members on his side of the House, and it is certainly not acceptable on our side.

The logical conclusion to which he was coming was a free market economy accompanied by a drastic change in social policy and leading, if need be, to unemployment. I think that we have to beware of his bewitching logic, which is fascinating to listen to but which covers a philosophy which some of us find abhorrent.

I must acquit my right hon. Friend the Leader of the House of the persistent suggestion that either he misled the House last Thursday or has failed to fulfil a promise. What he said in reply to the Leader of the Opposition was, first: Yes, I will do my best on this, and I will convey the strong views of many hon. Members on this matter. Pressed by the Leader of the Opposition to be specific, he went on: I have said that I will convey the feelings of hon. Members. I cannot say at this stage, but I think that my right hon. Friend should make a statement."—[OFFICIAL REPORT, 17th April, 1969; Vol. 781, c. 1335.] We all know that the Leader of the House is not in command of statements by his right hon. Friends. He was doing his best to assure the House of his own co-operation in the matter. The fact that my right hon. Friend the Chief Secretary made the statement that he did today is no reflection upon the integrity of the Leader of the House, whatever else one may think about it.

Mr. Powell

I disclaimed most elaborately any intention of reflecting on the integrity of the Leader of the House. Indeed, I said that he had been ill-used by his Treasury colleagues. I think that he made his intention perfectly clear.

Mr. Houghton

My right hon. Friend did his best in the circumstances. But the charge was made against him personally. I am not denying that there may be grounds for disappointment that my right hon. Friend the Chief Secretary was not able to give us the figures for contributions. It is an important missing link in our economic thinking.

Mr. Peter Emery (Honiton)

Hear, hear.

Mr. Houghton

However, I will leave it there, because I have a number of points to make and I want to delay the House for only a short time.

I add only a sentence or two to the general congratulations which have been given to my right hon. Friend the Chancellor on the skill, perception and compassion of many of the proposals contained in his Budget Statement. Within the framework of the economic aim which he has set himself, he has done a great deal of which both sides of the House can approve.

I want to refer to one or two disappointments. First, I am sorry that the Chancellor has not found it possible to go further this year with the scheme that he started last year on the link between family allowances and Income Tax child reliefs. My right hon. Friend the Chief Secretary referred with some satisfaction to what the Chancellor did last year on this matter, and that makes it all the more disappointing that the Chancellor has not been able to carry out the hope that he expressed last year of being able to carry the matter further this year.

The House will remember what the Chancellor did. Family allowances were increased and, by a reduction in the Income Tax child reliefs, the increase was reduced or entirely eliminated according to the income of the recipient, leaving poorer people with the whole increase and the much better off with no increase. The Chancellor called this "civilised selectivity" and referred to it as being a break-through. He said last year that he hoped to introduce full selectivity for family allowances in such a way that people who were not in real need of them need not draw them. He said in his Budget Statement last week that, for the reasons which he there gave, he felt unable to proceed further with the idea this year.

One of the reasons was that it would lead to a disproportionate increase in taxation on some families with children compared with some families with fewer children or with no children. That is a matter which should be examined carefully. When I was a member of the Government, I worked on this a great deal. The proposal which I thought was perhaps the most dramatic and the most necessary was to get rid of Income Tax child reliefs altogether and increase the family allowance to 30s., including the first child.

That would have struck a blow at child poverty the like of which we have not seen for 25 years. I regret the Chancellor's decision, expressed in the House last Tuesday, not to proceed further, because it means that we shall not have another blow struck against child poverty for some time to come. I hope that we may be able to pursue this matter further and look at some of the figures later.

The second disappointment that I want to express is about married women's taxation. I am sorry that so far in this debate only one reference has been made to this matter, and that by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin). Study groups in both the major political parties have come round in favour of separate assessment of married women. I am disappointed that more notice has not been taken of that in the debate, and although I did not expect the Chancellor would be able to embark on that this year, it would have been very welcome if he had given some indication of his adherence to the principle of separate assessment, so that at least we should know where we are going.

It is time, since we are all working towards greater equality, that we relieved married women of some of the humiliations and injustices of the taxation system. We must do that in social security and in the taxation of women, who are required, to all intents and purposes by Income Tax law, to make a full disclosure of their assets and incomes to their husbands for inclusion on the husband's tax return. Women, if they are entitled to tax refund, find that it is made not to them but their husbands. If they take out a life assurance they find that the tax relief on the premiums is allowable to the husband. They have their own special personal disincentives to earning, because if their husbands are surtax payers they have to meet his grumbles that their earnings add to the penalties of his surtax. Separated wives find that a husband who has neither the custody of the children nor is supporting them can still claim tax relief for them. It is time to think of this change, to accept the principle and work towards it.

If the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) needs additional candidates for study by his suggested Select Committee on taxation there are two there, in addition to the amalgamation of Income Tax and Surtax and possibly the examination of an expenditure tax. Eventually we shall have to abolish Surtax and replace it, with all sorts of economic benefits, by a wealth and expenditure tax.

I come to a further disappointment, over Purchase Tax. I represent a constituency which is suffering the blight caused by the rundown of the textile industry. It is what is called a grey area. We are looking forward with eager interest to the publication of the Hunt Report on Thursday, and the Government's announcement of action upon it. At this moment an unexpected blow is imposed upon the textile industry by putting bed linen, of all things, into the range of the lower rate of Purchase Tax.

I would be the last person to suggest that the Chancellor could ever be guilty of sleight of hand, but the way that he told us about it on Budget Day was not fully understood. It was only when we saw the Red Book that we fully understood the full range of the Chancellor's proposed widening of the base of Purchase Tax. I thought that paper serviettes and plastic cups and all sorts of things that did not matter to me were affected, but when it came to bed linen then I really felt very upset indeed. There must be more discussion on this matter.

I turn now to savings. The right hon. Member for Wolverhampton, South-West has spoken of savings this afternoon, and I read a speech of his a little while ago about this. As to his suggestion that the Chancellor will pay much too high a price for this marginal advantage to his budgetary strategy, I would say that the limit is £10 a month under the scheme. Making a rough calculation, it seems that if all the surtax payers in the country entered this scheme the savings would amount to about £40 million a year, and the Chancellor is looking for a great deal more than that. He will not get it from surtax payers, who on the whole, notwithstanding the high rate of interest, will have something better to do with their money.

We must welcome the scheme, as far as it goes. It has a repectable parentage. It was born a Liberal, the right hon. Member for Enfield, West (Mr. Iain Macleod) christened it, and the Chancellor has adopted it, and that should give it a good start in life. On many occasions, inside and outside Government, I have been protesting about the shabby way in which all Governments for the last 25 to 30 years have treated the unsophisticated investor. Not only governments but other institutions have been able to attract money from poorer people much more cheaply than they are entitled to, and they have exploited, if I may use that word, the savings habits of working-class folk, who attach primary importance to security and a secondary importance to being able to get their money out when they want it. My goodness, they have paid for those two considerations.

Another factor which I regret is that many people, especially tax-exempt people recoil from having to claim refund of Income Tax. They want to go for tax-free interest or investments which pay their interest without deduction of tax. It is a pity that they should dislike the Inland Revenue so much, because if only they understood that they can get their refund promptly after receiving the interest, whenever they receive it, even if it is quarterly, they would not be so reluctant to go for the higher yield on their money as they appear to be now.

In the past the small investor has suffered from a low yield and the erosion of the value of his assets. The Chancellor's scheme will give such a high rate of interest that there is a margin, a narrow one perhaps, for the fall in the value of money, as well as for a modest rate of interest. If the £ keeps its value then the rate of interest will be the higher. If it does not, then to get compensation for the fall in the value of their asset they may suffer a reduction in the rate of interest.

I am sorry that it has not been possible for the Government to include in the scheme an equity element. I was glad to see that the Financial Secretary, who knows more about money and investments than most people, said in his reply last week that this was not entirely ruled out. I hope further consideration may be given to that.

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

I did not say that it was not entirely ruled out. I said that it was not permanently ruled out. That is a rather different matter.

Mr. Houghton

I will tell the hon. Gentleman what he actually did say: We devoted some thought to this, and we have by no means necessarily rejected the idea in perpetuity. Is that a promise? He went on: I hope that nobody will infer from that that there is some immediate-choice equity scheme in prospect."—[OFFICIAL REPORT, 16th April, 1969; Vol. 781, c. 1272.] No, we had not suspected that.

I do not give up hope so far as the Financial Secretary is concerned since he knows the subject so well. I succeeded him on the Council for Wider Share Ownership, and I am trying to fulfil there the mission which he went there to undertake. That is why I am pursuing the matter, because I am sure that it is in line with his own thoughts.

I come finally to a tentative approach to the general strategy of the Budget. If I come between my hon. Friend the Member for Heywood and Royton (Mr. Barnett) and my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), I can only say that perhaps I am a little relief from one instalment of financial erudition to another. I may be an economic square, perhaps like the right hon. Member for Wolverhampton, South-West, but I will offer a few brief observations on the matter.

Taking money out of the economy seems to have become one of the principal means of controlling consumer demand. Yet it never seems to succeed. This is not original thought; it has been expressed more than once in this debate. On paper, the amount taken out of the economy during the last five years has been simply enormous. Yet we still have to go on doing it.

Last year the Chancellor estimated that he had clobbered consumption enough to reduce it by roughly 2 per cent. but found at the end of the day that it had gone up by 1 per cent. Now consumer spending must take another knock. Or will it? Certainly, people are mystified about this matter. They know that these extra taxes are not needed to finance increased Government expenditure. The Chancellor is taxing not for revenue but to check the rise in personal spending.

The big question is how far these taxation measures achieve that purpose. If we say that this Budget is painless, we surely are suggesting that it will not succeed. Any measure which is taking money out of the economy with effect must be felt. Chancellors of the Exchequer who are after money will go where the money is. Chancellors of the Exchequer who are after restraint of consumer spending must go where the spending is. I am afraid that that means the great mass of the people.

What seems to happen—I say this in all innocence—is that when money is taken out of the economy all the forces we know of get to work to put it back again. We have mass advertising stimulating consumer demand in the most seductive form, never known before the television age. We have hire purchase on an unprecedented scale. We have credit schemes, credit cards, discounts—most of them fictitious—all stimulants and aids to demand which work against the Chancellor's economic aims. The now discredited prices and incomes policy is needed more than ever. But at the moment we need it most it is to be partially dismantled. It is far more essential than anything contained in the White paper, "In Place of Strife".

Do I take too gloomy a view in thinking that what is being taken out of the economy this time will be more than put back by increased incomes, increased beyond the anticipated rate of economic growth? Has this Budget ritual of taking money out of the economy succeeded in the past, and has it to continue year by year?

The Financial Secretary said the other day that there were noticeable signs of success, but they are not all that obvious. The pity is that the economic measures which are being taken have to go under the name of taxation. People regard taxation as an imposition, as something which they should resent, as something which should be reduced. "Taxation is too high", they say. Look at the idiocy behind the stickers on some cars, "Cut Motor Taxes". This is a resentment against taxation. Yet what the Chancellor is doing is to introduce anti-inflation levies. He is seeking to protect the value of the pound.

Some of the insinuating phrases with which taxation is introduced only add to people's confusion about their purpose. Take S.E.T.: if this is not intended to increase prices, what is it for? Are not Purchase Tax increases intended to be passed on? We do not reduce personal spending by expecting the shopkeepers to absorb increased taxation.

We ought to be honest about this. Extra taxation at present is intended to discourage spending; it is intended to hit spending. The way to avoid this kind of taxation is by not spending. In that sense, this kind of taxation is optional. The Chancellor of the Exchequer quite rightly has left the pay packet alone. To take money out of the pay packet is ruthless and arbitrary, leaving no room for manoeuvre.

I end by saying that some of the speeches which have been made by right hon. and hon. Gentlemen opposite not only are economic nonsense in present circumstances, but have dangerous political implications. I am glad the right hon. Member for Enfield, West is here. I listened to his television broadcast. In the present crisis of Parliament and of our institutions it is reckless for any politician now to make promises which he will not be able to fulfil—[HON. MEMBERS: "Oh."]—or, if he does, at a price to the country which it would be unreasonable to ask them to pay.

We know that in the present situation it is economic nonsense to reduce taxation to release more consumer spending. If the right hon. Gentleman does not intend to do it that way, he intends to do it the way suggested by my hon. Friend the Member foor Heywood and Royston by removing the support to prices by allowing prices to rise and thereby reducing taxation, on the one hand, and, on the other hand, extending an insidious form of indirect taxation.

I think that right hon. and hon. Gentlemen opposite should beware of where they may be going, because in certain circumstances, which I hope will never occur—and I should deeply deplore them if they did—the Leader of the Opposition, if he ever becomes Prime Minister, may be the last Prime Minister to preside over Parliament as we understand it today. Dissillusionment with Parliament and with politicians is widespread today, and I think that it is the deep responsibility of both Ministers and the Opposition to do nothing that will add to that feeling throughout the country; otherwise the whole institution of Parliament and Parliamentary democracy may be put in peril.

7.10 p.m.

Mr. Michael Noble (Argyll)

Mr. Speaker, you asked us at the beginning of the debate to be as brief as we could, and I shall try to be just that. I shall not follow the right hon. Member for Sowerby (Mr. Houghton), except to remind him of what he said about politicians who made promises. If there is one thing which has brought discredit on the whole House it is the profligate way in which the right hon. Gentleman and his party have made promises which they have been totally unable to keep.

The main theme of my speech relates to Scotland. I know that the Budget is a very important subject. I am glad that it affects the whole of the United Kingdom, and I hope that it may continue to do so, but in moments of crisis in Britain, particularly when there is a balance of payments problem, Scotland has an extremely important part to play because she has traditionally, and for a long time, exported a great deal more of the goods that she produces than any other part of the United Kingdom. On the other hand, in the modern context it is possible for Scotland to play a very large part in import substitution because she has a great deal of land which can be used, profitably and effectively for producing more agricultural produce, and more timber, and from the seas around her shores more fish.

But if we are to achieve that the Budget must have some sort of message for us, because what we need, inevitably, is the power to expand so that we can produce more and export more. Because we are an outlying part of the country, we need above all cheap transport, and perhaps the other single thing that we need most is a supply of new houses.

In this Budget the message has, to say the least, been extremely blurred. The Chancellor paid lip-service to import substitution as an important part of what he is trying to achieve in his balance of payments, but only a week or two before he had obviously played a leading part in denying the necessary support for the farming community to do what it believed could be done and what the "Little Neddy" said it could do in this regard.

The Chancellor pays lip-service to the need for more exports, but if the extra 2½ per cent. Corporation Tax has done anything it has made certain that the cash flow of companies will be greatly reduced. If, in this regard, it is possible for companies to expand, certainly they must expand more slowly than before.

I listened with interest and amusement to parts of the speech of the Chief Secretary. He implied, as I understood him at the time, that in some curious way S.E.T. was meant to bring more competitive features into the service industries but that manufacturing industries did not need any more competition amongst them. The whole purpose, surely, of the export drive is that our manufacturing industries should be more competitive, particularly at a time when the first results of devaluation are beginning to work off, as my hon. Friend the Member for Worthing (Mr. Higgins) so clearly said in his excellent speech. There is nothing in this Budget to help manufacturing industry in Scotland, or in any part of the United Kingdom, to expand, to be more competitive, or to achieve anything extra in import substitution. As everybody in the House, I think, realises how fatuous S.E.T. is in this or in any other field, perhaps I can skip quietly away from that.

When we come to the question of saving money, the Chief Secretary again said how important this was, but perhaps I might quote to the House one small example from my constituency because it obviously ties in with the belief which the right hon. Gentleman holds that the Government do things for people much better and more effectively than anyone else.

Two systems of transport to the Islands are being discussed and debated at the moment. The one financed by the Government and costing at least an extra £1 million of taxpayers' money is being supported against private enterprise which can provide a perfectly adequate service at much lower cost. The Government favoured the first because it was a nationalised industry. A few months ago the county council turned it down. Last week there was the usual battery of veiled threats from the Scottish Office—the Chief Secretary knows all about this because I have written to him on several occasions about it—and the county council has to reverse its decision, because if it does not, and if it does not waste £1 million of taxpayers' and ratepayers' money, it may have to find some small amount of rates out of its own pocket. The Government are not trying to save money. They are deliberately wasting it as long as the waste goes to some purpose of which they approve.

Listening to the Chancellor of the Exchequer and to the Chief Secretary I am reminded of an occasion a number of years ago when a rather good-looking young lady was in considerable difficulty at Queen Street Station in Glasgow, She asked me for my help because, she said, she could not understand a word that the porter said to her. Her face dropped a little when I said, "Yes, but, you see, he cannot understand a word that you say, either." I find myself in that position with the Treasury Bench at the moment. I do not understand what they are trying to tell us in this Budget. I do not believe that anybody else in Scotland or in Britain or indeed in the rest of the world understands what they are trying to tell us, either.

The Chief Secretary said that when a new tax was introduced, first people were stunned, then there followed a period of incomprehension and finally there was grumbling acceptance. In the case of this Budget, as in the case of this Government, the country has got beyond the stage of grumbling acceptance. We grumble perhaps, but we no longer accept or believe.

7.18 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

I feel that I ought to reply to the right hon. Member for Wolverhampton, South-West (Mr. Powell), who introduced very much of his economic philosophy. Although I cannot deal with much of his speech, I feel that I ought to deal with the central point of it.

The right hon. Gentleman described in glowing terms the rôle of the price mechanism. That the price mechanism has a part to play in Britain today is obvious. In the market square at Ashton-under-Lyne one sees very nearly perfect competition producing a beneficial result, which not only the right hon. Gentleman but I, too, wish to see. The trouble with the right hon. Gentleman is that he does not know where to draw the line, because, although price mechanism is suitable in certain cases, it is not suitable in every case.

It is obviously not suitable in the shipbuilding industry, as the right hon. Member for Argyll (Mr. Noble), with all the shipbuilding that goes on in Scotland must accept. It is not acceptable in the computer industry, because we should not have a computer industry and we should lose our stake in this industry if the right hon. Gentleman tried to make his philosophy fit the existing situation. What about agriculture, and what about hon. Gentlemen opposite with their agricultural interests? Does the price mechanism fit the agricultural community as a whole? The answer is, "No". One has to draw the line somewhere.

One has to bear in mind that there are two factors involved, not just the one pure philosophy which the right hon. Gentleman strives to enunciate very ably but very misguidedly. There is a price mechanism and it is important to understand it, but there are also the longer-term interests of many industries which are, by the nature of their existence, largely monopolies or else in need of some sort of assistance in the interests of the State as a whole.

I liked the small print of the Budget better than the large. I like the smaller measures better than the strategy. I am pleased that my right hon. Friend has finally accepted the view expressed by myself and many others that close company provisions should be improved and, in particular, that the limitation on directors' remuneration should be removed.

I regret that the hon. Member for Worthing (Mr. Higgins) adopted such a tone today in referring to forecasts by the Chancellor. He and I, among others, pressed for these forecasts. He will recall the great pressure we all put on my right hon. Friend. My right hon. Friend was very brave, considering the risk he was taking, in agreeing to make known his forecasts and thus giving opportunities later on to compare forecast with achievement. It would be foolish if we did not continue to congratulate him on this new step and also on the new kind of Financial Statement that we have. Those of us who take these matters seriously should not allow ourselves to bring this kind of discussion into the party arena because we are fouling our own nests once we start doing that. We should be grateful for the financial forecasts, although I agree that we should try to extend them. I merely remind the hon. Gentleman that my right hon. Friend is the first Chancellor to give this sort of statement.

I was pleased to see the Estate Duty being changed from slab to slice, and there are other provisions I was pleased to welcome. But it is the strategy behind the Budget with which we should be concerned in this debate. These other matters can be left for discussion on the Finance Bill.

I am somewhat unhappy about the strategy of the Budget. I think that the change which has come over this country is still not fully understood and that, because of the lack of comprehension of that change, our measures have been inadequate by comparison. I believe that the main problem created for Britain has been fundamentally, economically and politically the loss of our Empire. This has had enormous economic repercussions which we have always under-estimated.

The Empire was a source of very great wealth to us, and we still do not understand the changes which are necessary following the end of the Empire. I would put the economic decline at round about 1960, when we gave up control of some of our most lucrative colonies. We have not been able to recover the loss of exports to those markets by increases elsewhere. During the inter-war years and in the 1950s we sent over 40 per cent. of our exports to the Commonwealth and last year only 27 per cent. This is a massive change, and we have not yet been able to overcome the disadvantages which came to us with the end of the Empire. Politically, the reasons for the end of the Empire were right but economically the situation has caused us great difficulty.

At the same time that the advantages of Empire declined so rapidly the cost of maintaining it went up enormously. In the inter-war years Government expenditure overseas was less than £3 million a year and last year it was between £460 million and £470 million. As the benefit of Empire declined sharply, so the cost of maintaining the Empire, in which a very large element of Government expenditure was for defence, rose alarmingly.

These two factors were of very great importance, and so fundamental changes were required, but despite all the efforts of successive Chancellors of the Exchequer from both parties, those changes have not been adequate. We have thus had the general economic philosophy of the 1960s that deflation succeeds deflation. That has been the catalogue of economic prescription throughout the 1960s. The pattern of the present Budget is the same.

Given the present strategy, one can even argue that deflation might not be enough, that the Chancellor might be taking a very great risk because he may not have restrained consumption enough and that we might see it rising again and dispelling the forecasts that he has been working on. On the other hand, there is danger of over-deflation. What I object to is that the strategy is limited far too tightly. We should be concerned with looking for other policies in order to get away from the tightrope which Chancellors of the Exchequer have had to tread so warily. In his Budget Statement my right hon. Friend said: It is always attractive to believe that some method which has not been tried will be the panacea. … The hard truth is that there is no painless cure to a stubborn balance of payments deficit. All the other courses urged upon me, apart from their other disadvantages, have one thing in common. They would all be almost certain to worsen our balance of payments over the crucial next six months."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1003.] My right hon. Friend dismissed the alternatives. That was the same day on which we had very bad trade figures. Although he pointed out that exports were most important, he failed to point out also that no one can control the level of our exports. The measures which the Government have taken for exports, although valuable, have been marginal at best. But we can take direct control over imports. If we imposed import quotas, we could save £400 million in imports. This is something that we can do. For the last seven years, ever since 1962, we have been proceeding on an inadequate economic policy. Import quotas would provide certainty where certainty has been lacking for so long, and that is a very strong argument for them. The injection into the economy of £400 million could produce between 100,000 and 160,000 jobs, greatly reducing the level of unemployment.

One of the worst features of deflation to me as a Socialist is that it increases inequality. The well-to-do can take care of themselves. They can withdraw their savings and maintain their standard of living that way or they can take an average view over the years ahead reducing the increase in their savings and so maintain existing commitments. They have a cushion. When a Chancellor seeks to cut consumption he really means consumption here and now, and the only people who can give him that cut here and now are those who live from week to week. If one takes away their money in one week, they cannot spend it because they have not got it. So, when we go for the deflation, we are going for those people with the least money.

The Financial Times 500 share index appreciated between October, 1964, and October, 1968, by 52 per cent. Even after paying Capital Gains Tax at the highest rate of 30 per cent.—for many it will be lower—those concerned will have increased their investment by 37 per cent. Over the same period, average wages rose 28 per cent. and the retirement pension rose 33 per cent. So there is no question but that what we do by constant deflation is increase certain elements of inequality.

There are advantages in import quotas. This is not a panacea—there is no panacea—but there are choices between unpleasant paths. No one can say that deflation is the solution which we should always pick. The commitment which we have maintained historically towards widening the bounds of trade is magnificent, but we do not occupy the same position as we did in the nineteenth century, when we were the cornerstone of world trade. Our share today is about 7½ per cent. Germany exports £9,000 million a year and we export £5,800 million. Retaliation, which would have been very marked years ago, is likely to be much less marked, because the importance of our rôle has changed, but the Board of Trade has not taken that change into account. Although we imposed the import surcharge, contrary to G.A.T.T., quotas are within the rules of G.A.T.T.

So we are bounded by various restrictions which have kept our growth to 2.9 per cent. We are restricting our growth every year by deflation. I believe that we get increases in productivity not by cajoling or trying to fool workers but by increasing production, because the faster that that can be done the faster we can increase productivity as well. It is with the new ideas and new machinery for greater production that the productivity increase comes. The new machinery is more efficient and people are more willing to accept changes in their manner of working.

It is said that this figure of 2.9 per cent., which is supposed to reflect the underlying growth of productivity, represents the underlying changes in goods manufactured and so is the ultimate reality. This means that we are inferior to Germany, Japan and the United States, all of which have much higher rates of growth—and that is something which I do not believe and which none of us should be prepared to believe. It has to be proved well beyond the hilt before we accept that sort of rôle.

If we believe that we should not accept this, we are forced to look for alternatives. There are no panaceas, but there are alternatives. There are risks in some of them, but, rather than just drearily going on year after year with the tourniquet, until we are throttled, the only medical apparatus which the Treasury seems to understand, I prefer to bring about some changes.

I turn now to the industrial reform aspect of the Budget. In column 992 the Chancellor said: Our competitive position has been damaged by irresponsible industrial action, and 1968 was a particularly bad year for unofficial strikes. That was almost at the beginning of his speech, and, announced in this way, it placed very firmly in the context of the Budget the importance which has been attributed to strikes.

Yet when one considers the French devaluation, one of the most successful devaluations of any major country in recent years, one sees that in the following year they had a much larger number of strikes than in the year before devaluation or in the succeeding year. We, last year, had a loss of working days of less than 0.1 per cent. I accept that the effect on management of highly organised industries can be very bad and can produce great problems, so that it does not reflect the whole picture, but it reflects an important part.

What we must find out are the reasons which impel the Government to bring in this measure at this time. One can say that, although the figure is only 0.1 per cent., there are clear advantages in doing what one can once a problem is recognised, but, in the light of the uproar and trouble and potential industrial unrest, what we must do is measure the economic gain against the possible economic loss. Did the Front Bench even consider weighing, in this decision, the economic benefits to be obtained against the economic disadvantages? Also in his Budget speech, my right hon. Friend said, as I have already quoted: All the other courses urged upon me, apart from their other disadvantages, have one thing in common. They would all be almost certain to worsen our balance of payments over the crucial next six months."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 992, 1003.] Is it thought that industrial legislation will produce good results over the next six months? Of course it will worsen them; yet the performance of any solution over the next six months was my right hon. Friend's main criteria.

My hon. Friend the Member for Ashfield (Mr. Marquand) made a useful comparison between the incomes policy and industrial legislation. So much hope was placed on a policy from which very little was obtained. In July, 1966, I estimated that the incomes policy might at best give between 0.5 and 1 per cent. I was too optimistic, because in the long term it gave us less. It can be argued that since the incomes policy led to strikes, the strikes led to this legislation, and this may in itself lead to more strikes, it could well have been a negative factor.

The great problem about the industrial legislation, as with the incomes policy, was that we had a long-term plan. That was first class, but because of our problems we tried to press it into service to serve short-term ends. Used in this way, it cannot deliver the goods, and it is a farce to think that it ever can. A statutory policy was unwisely introduced. It led to strikes, which led to excuses for the trade union legislation, which may yet lead to more strikes.

Given my right hon. Friend's strategy, one can call this an ingenious, clever Budget. There are some useful measures in it, but I quarrel with its basic strategy. Once again, we have it wrong, as the Tories had it wrong since 1962. There have been profound economic changes, and we have not responded. I am sorry that we have missed yet another opportunity.

7.39 p.m.

Mr. Edward du Cann (Taunton)

The hon. Member for Ashton-under-Lyne (Mr. Sheldon) damned the Budget with faint praise. That seems to be the habit on the Government benches—in a Freudian slip I almost called them the Opposition benches. I shall not take up what the hon. Gentleman said about industrial relations. There will be another opportunity to debate that subject.

I can, however, support at once the hon. Gentleman's comment, which my hon. Friend the Member for Worthing (Mr. Higgins) also made in his excellent opening speech, that there are some matters in the Budget with which we can all agree, and so we do. The hon. Gentleman mentioned some. I shall mention others, and perhaps complement a little what he said.

First, there is to be an increase in pensions, though how absurd it is that the figures for the increase should be known while the rates of contribution should not, and that we know nothing about war pensions, supplementary benefits and the like. I foresee a storm of protest and irritation from my constituency, and I imagine that other right hon. and hon. Members foresee the same.

There is a reduction in the number of direct taxpayers by 1.1 million. I remember, as will my hon. Friend the Member for Farnham (Mr. Maurice Macmillan), who succeeded me as Economic Secretary to the Treasury, taking out over one million taxpayers in the Budget of 1963. But he will also remember, as many on this side of the House do, that the number of direct taxpayers is still very much higher than it was in those years. It can well do with further reductions.

I even welcome the widening of the Purchase Tax net, though not the tactlessness with which it has been done, nor the height of the consolidated rates, something that the right hon. Member for Sowerby (Mr. Houghton) pointed out.

I welcome, too, the Financial Statement and Budget Report, as did the hon. Member for Ashton-under-Lyne and my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell). Though he pointed out how bad the Chancellor has been at hitting his targets, I do not think that that is a reason for not publishing economic forecasts.

There are other matters in the Budget to which one can give a qualified welcome. There are the betterment levy change—but what a curious conceit it is that Ministers take credit for the rectification of their own mistakes—and the Save-As-You-Earn scheme, which I most warmly welcome. I hope that it will lead to a substantial widening of the savings habit, for it is a tragedy, as the right hon. Member for Sowerby with his unrivalled knowledge of social services and the like will be aware, that the number on National Assistance has, I think, more than doubled over the past 10 years. That tendency requires urgently to be reversed. My right hon. Friend the Member for Wolverhampton, South-West pointed out that such a scheme is costly and that there will be some switching. I do not deny that, any more than that National Savings is too often a haven for Surtax payers. But anything which encourages the savings habit must be good.

However, surely what is wanted is not simply more tax reliefs but rather a rationalisation and simplification of those which already exist in the savings sphere. Perhaps I may mention unit trusts in particular. My connections with the movement, being chairman of a company which I established some years ago, are well enough known. Why the Chancellor cannot accede to the very simple requests which would have the effect of simplifying the tasks of the Inland Revenue, besides making life easier for the investors, I do not know. The need for simplification is great, and it would be easy for the Chancellor to simplify so many matters in relation to savings media.

But even more do we require a reduction in direct taxation. Promises such as that from the Chancellor are simply not enough. Again taking up what the right hon. Member for Sowerby said, I think that perhaps we have had too many promises already from these discredited Ministers.

I do not see why the Chancellor should make such a song and dance about the need, as he sees it, to disallow interest charges for tax relief. It is wrong to suggest that all borrowing is wrong. Some borrowing comes very much in the category of saving and is meritorious. I hope that the Chancellor will announce tonight that he will keep an open mind on this subject in Committee on the Finance Bill.

But it is not, perhaps, these individual matters that we should be discussing so much as the Budget judgment, a phrase which has recurred time and again during today's debate and in the past two or three days. In my view, the Budget judgment on this occasion is blunt and clumsy. Oh, yes—the Budget is clever and ingenious. It is apparently popular, yet it contains a return to financial orthodoxy, as the Budget arithmetic shows. Anyone who had prophesied this five years ago would have been thought to be stark, staring mad, though, as we know, the reward of a prophet is usually either death or exile.

The Chief Secretary this afternoon accused this side of the House of being interested solely in the reduction of Government expenditure. I assure him—or rather the Minister of State, who is here as his substitute—that that is not so. We are not simply interested in bringing the figures down in absolute terms. What we are becoming interested in, fanatically perhaps, and I believe correctly, is seeing that the taxpayer gets very much better value for money. He certainly does not obtain that at present.

It may well be that, as the hon. Member for Heywood and Royton (Mr. Barnett) said, we shall now find the re-phasing of the I.M.F. debts much easier, and it may also well be that the repayment of the Central Bank swaps, about which we have heard very much less recently, but which will become a necessity before the year is out, may similarly become easier.

But to me this year's Budget smacks much too much of expediency. As the right hon. Member for Sunderland, North (Mr. Willey) suggested, and as my right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) said two days ago, it runs too many risks. I wonder whether it will be so popular when prices rise, when they are seen to rise and, more particularly, when they are felt to rise. By how much will they rise this year? They rose by over 6 per cent. last year and I suspect that they will rise by over 5 per cent. this year.

We run a very grave risk. The right hon. Member for Sowerby talked about the cheating done in the savings field—the playing on the patriotism and good feelings of little, honourable people. How true that is! In the present context of a steadily rising—oh! too bitterly rising—cost of living, we can be on the verge of a flight from money that has most serious implications for us all.

Or will the Budget be so popular when the realities of the British economic situation are more clearly seen and felt? What is its relevance to them?

Its effect on the trade figures would seem to me likely to be minimal, in so far as it is given to any of us to foresee the future. My right hon. Friends the Leader of the Opposition, the Member for Enfield, West (Mr. Iain Macleod) and the Member for Leeds, North-East (Sir K. Joseph) and others have all expressed the shock that many of us felt when we saw the trade figures for March. The rolling averages, too, are bad. I shall not weary the House with the detail of the figures, but, as was said by the hon. Member—not for Ashton-under-Lyne, but the other heavenly twin, the hon. Member for Heywood and Royton—the speech of the President of the Board of Trade in this context was almost insufferably conceited. "Of course", he said somewhat pompously, "devaluation takes a bit of time to work through". I wonder how he would get on as manager of a football team that had been badly beaten in, say, the World Cup who then said that he needed more time to get ready.

The trouble, and the truth, is that we do not have time to get ready. We have no time at all. As succeeding speakers have pointed out, too much time has already been wasted. The export averages show a plateau. The import level shows a slight growth trend. The same is true of the trade deficit. Ever since devaluation the United Kingdom has had substantial and significant advantages. Yet imports rose and continue to rise, in spite of devaluation and in spite of the import deposit scheme. As my right hon. Friend the Member for Argyll (Mr. Noble) pointed out, with the possible minimal exception of increased wine duty, there is nothing in the Budget to encourage import substitution.

It is true that, again, we had a great catalogue from the President of the Board of Trade of the aluminium smelters, and the like, but how irrelevant to import substitution were some of the things he boasted had been done. What about agriculture? What about tourism? To return to my simple, ordinary analogy; what is the point of the manager of the team in what is bound to be a fierce, difficult, hard and competitive international match deliberately fielding his own side with two men short? There is no sense in it at all.

Exports are rising insufficiently quickly in spite of devaluation, and in spite of the high level of world trade which, I must remind the Government, has been very much higher than was expected. Exports depend, in the main, on the private sector: this is hardly a pro-private sector Budget, any more than it is an incentive Budget to individuals or managers on the shop floor.

It is true that corporate profits have risen, although the rise is now tailing off, but this increase in Corporation Tax is bound to damp down investment. How ironic it is to recall the debates when this tax was originally introduced. We were then told that the real reason for the divorce between company tax and personal tax was to encourage greater retentions but, as the scene changes, the arguments change again to suit the doctrine of expediency.

Added to the rise in Corporation Tax is the increase in the employers' National Insurance contributions. Then add the Selective Employment Tax. In his extraordinary catalogue of the theoretical advantages of S.E.T., the Chief Secretary left out the most important of its disadvantages, which is that, unlike a value-added tax, in relation to exports it is non-refundable. But there is very much more to it than that. What an impertinence it is on the part of the Government to say, as it were, that all manufacturing industry is good and that all other industry is bad. What an absurdity that is in these modern days.

All these things added together, and other, perhaps, more minor tax increases—increased petrol duty, and the rest—mean that industrial costs must rise by a fair margin in 1969. For of these tax increases two-thirds fall on business and will hit investment and exports every bit as much as they will hit domestic consumption.

So there it is. There is nothing to encourage import substitution, and nothing to encourage business and industry—the private sector on which the country's prosperity most chiefly depends.

One cannot readily or easily evaluate the extent, but one can argue without any fear of contradiction that the Budget handicaps British industry in the job it is trying to do, and that is my chief complaint. In addition, at a time when the British share of world markets for manufactured goods is declining further, by volume, as it did in 1968, our competitiveness reduces. It may not reduce by so much as the 7 per cent. price advantage that devaluation gave us, but it is monstrous that any of this reduction in competitiveness should be at the option of and, indeed, be the direct responsibility of Government.

The domestic economic outlook for 1969–70 is hardly encouraging. As we know, precise targets for balance of payments surplus have been abandoned. It is right to say that no one can control exports, and how particularly true that is now, for there is a great question mark about the extent to which world trade will grow this year and next, if at all.

Having paid the Treasury a compliment, I have no hesitation in saying that I believe that its assessment is wholly wrong, especially having regard to the restrictive atmosphere now prevailing in the United States and France of which the rise in interest rates throughout the world is a clear symptom. I hope with all my heart that the visit of the Chancellor of the Exchequer to the United States will be infinitely more successful than were his predecessor's discussions with other Finance Ministers in holding down interest rates.

Nor is that the only question. At the end of this year the import deposit scheme will end, and we know not what the Government's attitude is in relation to that. The end of the scheme is sure to be followed by a spurt in imports, and wage costs are bound to rise substantially in the course of the next 24 months. Having regard to the uncertainties that exist, having regard to the Deutschemark, the franc, and so on, I regret having to say that financial alarms and excursions this year are an absolute certainty.

There is no easy way; no panacea. We have heard those words, too. The Chancellor of the Exchequer should certaintly know, because it is he who has been responsible, not only for the sale of the dollar portfolio but for the inheritance of the 3,000 million pound debt. That we know about, but there may be others.

It is possible to find a clear strategy to which the Government should be working, and I sum it up as follows: let the Government open for our people every trading opportunity they can. I do not see this described or defined as being a premier economic objective of the Government, yet it should be. We should go so far as to exploit our undoubtedly substantial buying power.

Let the Government work harder at providing the facilities for international monetary payments. We hear that the S.D.R.s are likely to come in this year. No one knows to what extent they will, or whether they will, but that is not the whole story. World trade has grown, and we hope that it will continue to grow at a high rate, yet the system set up at Bretton Woods immediately after the war with such high hopes is as out of date as a pair of short trousers designed to fit a boy of 14 would be for a man aged 24.

Let the Government encourage our traders to move into more sophisticated enterprises, while allowing the simpler manufactures from the developing countries to come in. Let the Government encourage the traders, and make life easier for them. Let the Government get off their backs for a while.

I should like the Prime Minister to say to his fellow Ministers: "Ask yourself each night as you clear up your desks: 'What have I done this day to help honourable men to earn their living and their country's living?'" The Government should make life cheaper for our people and for our traders, and should back them up, not only with legislation to reform trade union law but with a new company Act.

Last, but by no means least, let the Government provide some personal incentives for those who labour by hand and labour by brain.

This ragbag of a Budget will not make much difference to the outcome of events. Not one of us believes, in his heart of hearts, that this "carry-on" strategy of which we have heard is likely to be more especially successful than anything that has gone on before. "Carry-on with failure", alas, seems to be more likely.

This Budget is tragically irrelevant to the realities of the national and international trading situation. Am I too cynical if I think that it is not so much an attempt to boost the economy as an attempt to boost the personal popularity of the Chancellor of the Exchequer? Be that as it may, it is time, and high time, for new men, new imagination and new measures.

8.0 p.m.

Mr. Trevor Park (Derbyshire, South-East)

I trust that the right hon. Member for Taunton (Mr. du Cann) will forgive me if I choose not to follow him in his remarks. The concluding part of them seemed to be a descent on his part to cheap sloganising and fell quite considerably below the standard of some of the other speeches which he has made in the House.

I want to confine my remarks to two themes. First, I wish to make some general comments on the Budget strategy. Then I should like to say something about the Government's proposals for an Industrial Relations Bill, which my right hon. Friend the First Secretary of State outlined to the House last Wednesday. The Budget has perhaps been more favourably received, certainly on this side of the House and I think in the country, than appeared likely to be the case a week or two ago. It contains a number of proposals which deserve fullest support. The proposed increase in old-age pensions and the higher level of Income Tax allowances are both welcome signs that the Government can still succeed in getting some of their social priorities right.

While I believe that the increase in Selective Employment Tax may well prove a serious mistake, increases in betting and gaming duties, in the television advertising levy and in Corporation Tax reveal a correct order of priority. In all these measures the Chancellor is taxing sources of revenue which can well afford tax and at the same time, through his other proposals, he is providing help for those members of the community who need help the most.

If we are to judge this Budget by its details, if we are to determine our attitude towards it through the fine print, the Chancellor deserves to be congratulated, but other hon. Members have said, and it is the view which I hold, that a Budget judgment cannot be determined on the basis of its bits and pieces. The Budget is not simply at hotch-potch of measures. It is part of a general economic strategy. It cannot be divorced from what has gone before it, nor from what is to come after it. From this point of view the conclusions which I reach about the Budget are a great deal less favourable.

Ever since July, 1966, the Government have pursued a strategy of deflation. We have had a series of Budgets based on the theory that by taking purchasing power out of the economy and by reducing demand at home we can solve our balance of payments difficulties abroad. This is no new theory; exactly the same inspiration was behind many of the Budgets which the Conservative Party introduced when in power. It was a strategy which did not work for them; it is a strategy which has not worked for us either. In spite of 13 years of intermittent application under Conservative Administrations and in spite of three years consistent application under a Labour Government, we have not got as a result of the deflationary approach the higher productivity we need, nor have we got the industrial modernisation and investment necessary. Above all, we are still without any final solution to the balance of payments problem which every Chancellor of the Exchequer in every Budget states it is his intention to attain.

Deflation does not produce the results that we require. Indeed, the results which deflation produces are in many ways the opposite of the results which are necessary. Deflation produces not an expanding but a stagnating economy. It brings about higher unemployment. It creates wage freezes and industrial unrest. The only way in which a deflationary policy could ever help to improve the balance of payments position would be for that policy to be pursued to such a ruthless extent that any Government which attempted to do it would be committing political suicide. For deflation to have a direct effect on balance of payments, wages would not have to be stabilised but would have to be reduced. Unemployment would have to be further increased. Taxation of the consumer would have to be more sharply intensified. Social benefits would have to be cut down.

This is a thoroughly unrealistic, indeed an impossible, programme for the present Government to embark upon. Of course they have never had any intention of undertaking such a disastrous course, but this is the only kind of course which can produce results as long as the deflationary approach is the one which the Government adopt. Since they are not prepared to take that approach to its logical conclusion, since because of political realities they have to confine themselves to a half-hearted deflation which cannot work, it is time that that deflationary strategy was abandoned completely and consigned to the scrap-heap. This is my major criticism of this Budget.

Once one accepts that a deflationary policy is the best way and agrees that the Chancellor is correct in his objective of taking more money out of circulation, perhaps there is little quarrel with the way which he has chosen to go about it, but if one rejects the entire approach and argues the case for a completely different objective of economic policy, we have a very big quarrel indeed with the policy which the Government have adopted. There is an alternative strategy to that which is being pursued. It has been outlined time and time again both by some of my hon. Friends and by the Trades Union Congress and in Labour Party circles throughout the country.

That alternative approach is based on the achievement of higher economic growth by the stimulation of a high-wage, high-productivity and full-employment economy. It is based on the protection of our overseas payments position by direct action in the field of import controls, in reduction of defence expenditure and stronger control over the export of capital. It is based on the acquisition and sale of part of the overseas investments which are now in private hands. What we need is not the modification or application of ingenious trimmings to the Government's existing strategy, but the abandonment of that strategy root and branch in favour of a new one.

I turn to the proposals of the Government for an Industrial Relations Bill. It is not without significance that these were introduced in the course of the Budget debate. They are an essential part of the deflationary strategy which the Government have chosen to adopt. One of the aspects of that strategy is restraint over domestic demand and, particularly, restraint over wages and salaries.

A statutory incomes policy was the instrument which the Government chose to use from 1966 to the present time. They were warned at the time that the policy was unworkable, and it has not worked. The Government are now being forced to acknowledge its failure, through bitter experience. Now we are confronted with a new remedy, in the shape of a conciliation pause and the imposition of legal shackles on trade union freedom.

Let me warn the Government now, as I did on their incomes legislation three years ago, that this policy will not succeed either. It will fail, because it is irrelevant and unworkable. I was not one of those who rejected out of hand the whole of the White Paper "In Place of Strife". I took the view that it contained many positive and constructive proposals, which ought to be implemented. Those proposals which were directed to improving the communications pattern within industry, and to establishing new, and improving existing, machineries of negotiation have my full support. The suggestions for making more necessary information available for trade union representatives engaged in negotiations, the proposals for developing systems of worker participation in management, are proposals which I wholeheartedly accepted.

These proposals sought to reduce industrial unrest by dealing with its causes. There were other ideas put forward in the White Paper, which were at the least irrelevant and at the worst downright dangerous. These were the proposals for strike ballots, conciliation pauses and financial penalties. I say nothing about ballots, because the Government have excluded them from their immediate legislation. I only express the hope that this unworkable idea will never be resurrected.

I do have something to say about the pause and the financial penalties. I do not believe that the concept of a conciliation pause will be successful in preventing even one major strike. Major strikes do not take place until negotiating procedures have been exhausted, and the pause is deliberately designed to deal not with the situation in which the procedures are exhausted but with that in which they have been abandoned. I do not believe that the pause will succeed in preventing short-lived, lightning unofficial strikes, because such strikes will already be under way long before the process leading to the imposition of the pause has been completed. American experience shows, all too clearly, that the period of the pause will not be used for cooling-off and discussion but for hotting-up and the preparation for the struggle to come. Conciliation pauses will solve no problem; they will be an unworkable irrelevancy.

Fines will be an irritant, and if we proceed with the proposals for legal and financial penalties outlined by my right hon. Friend last week, then we are in very considerable trouble. The bitterness which the imposition of these penalties will create will only make it harder to settle disputes, and may well precipitate further strikes against the victimisation of the strike leaders which will take place under the legislation.

To solve industrial conflicts there has to be trust and goodwill, which are qualities that cannot be produced through penal legislation. They are products of conciliation. The only effect of what the Government are now proposing will be to create such an atmosphere of alienation and antagonism between themselves and the trade union movement that the constructive and relevant proposals in the White Paper will prove as impossible to implement as the irrelevant and harmful ones. The possibilities of taking the poison out of the package, of devising a formula acceptable to the Government and the trade unions alike, have been removed by the Government's action in rushing through their legislation with such indecent haste this Session.

Not for the first time the Government have preferred to accept the advice of their enemies instead of embarking upon consultations with their friends. For months now, when their supporters, in the House, in the trade union movement and the country generally, have urged their views upon the Government, it has been like a dialogue with the deaf; they have listened but have not heard. Now we are participating in a dialogue not with the deaf but with the doomed, because if the Government persist in their disastrous course they will be signing their own death warrant.

I do not believe that the Government can survive in office if they lose the confidence of their supporters in the trade union movement, in the workshops and on the factory floors of this country. These are the very people who will be most embittered and antagonised by what the Government are now proposing I am not surprised that the Conservative Party have intimated that they will not oppose the Industrial Relations Bill. If the Government are determined to slit their throat then the Conservative Party I am sure will be only too happy to provide the razor.

It will be the most striking example yet of the operations of bipartisan politics, and of their consequences for the Labour Party. The Prime Minister has said that the passage of the Industrial Relations Bill is essential to the Government's continuance in office. My view is exactly the opposite: the passage of this Bill will be the heaviest burden and the greatest impediment to victory at the next General Election. I tell the Government now that they will not have my support in the Lobby for this Measure. That is true whether or not it is a vote of confidence, whether or not there is party discipline. If the Government propel themselves into a headlong conflict with the trade union movement and the Labour Party in the country, my loyalties will be with the Labour Movement, and the Government can get their support from the Benches opposite.

8.17 p.m.

Mr. Joseph Hiley (Pudsey)

As I listened to the hon. Member for Derbyshire, South-East (Mr. Park) I was reminded of an occasion at Headingley some years ago when a Yorkshireman and a Lancastrian had a violent argument in the "shilling end", as it used to be in those days. A Cockney was listening and had the temerity on one occasion to join in. At this the Yorkshireman looked at him and said, "Where do you come from?" He replied, "London". The Yorkshireman told him, "Shut up, tha' knows nowt about it." It seems that I ought not to join in this little disagreement between the two sides of the Labour Party.

I am particularly glad not to have to do that, because I want to raise a specific point in connection with the Budget. I hope that I may be able to help the Chancellor, the country and the trade which I represent. I refer to the Customs and Excise proposals in the Red Paper, with particular reference to paragraphs (a) and (c). There is a proposal to put 13¾ per cent. Purchase Tax on hand-knitting wool and rug wool.

Before I proceed may I declare an interest in this matter. I have a very strong constituency interest, in so far as there are at least four spinning mills and one dye-house in my constituency devoted exclusively to the production of these two commodities. I have a personal interest in two of them. I also speak tonight as the President of the Hand-knitting Association, which is greatly concerned about the proposal to bring in, for the first time. Purchase Tax on hand-knitting wool and rug wool. The principal organisation in the wool textile trade, the Wool Textile Delegation, takes a similar view and has already protested to the Chancellor about the proposals.

This is the first time that hand-knitting wool or rug wool has been included in a proposal of this kind. Even in those difficult days 20 years ago when a Socialist Chancellor of the Exchequer scraped the bottom of the barrel, as this one appears to be doing, to find new ways of taxing the people, such a proposal was never considered. Those were the days when a Minister introduced bread rationing a few years after the war had ended. It must have been demonstrated to the Chancellor of the Exchequer of those days that it was wrong to put Purchase Tax on a commodity of this kind. Whatever the reasons were in those days, they apply today, and probably even more strongly.

These two commodities are semimanufactured goods, which means that they demand rather fewer than half of the services of a fully-manufactured article. If hand-knitting wood or rug wool were woven on a loom, labour and electric power would be involved. If these wools are diverted to mechanical weaving, the hosiery knitting industry, which is fully engaged and short of labour, as are the carpet and rug weavers, who are exporting to a tremendous extent, will be denied the opportunity of continuing their development of the export market.

The other point which I wish the Chancellor to consider is that hand-knitting wool is used for the production of children's garments. Here we immediately see an anomaly. Ready-made clothing for children is free of Purchase Tax. If the Chancellor's proposal is accepted, home-made jumpers or dresses for young children will be subject to Purchase Tax. Surely that is the opposite to what the Chancellor is trying to do. He is discouraging voluntary production and encouraging the import of children's garments, and particularly the cheaper and thinnest garments, from places such as Hong Kong and Portugal—which often cause hon. Members opposite a great deal of concern.

These two commodities do not help the balance of payments at all. I hope that the Minister of State will make an effort to convince the Chancellor that I make this point not entirely out of self-interest but in the ultimate interest of the Chancellor and the country. Hand-knitting wool is sold by the producers in very small quantities compared with most other textile products. The administrative costs of Purchase Tax on these small quantities will be very great.

Work may be a leisure occupation or, as it is sometimes called, occupational therapy. Many people derive a tremendous amount of pleasure from the production of hand-knitted garments and hand-made rugs. They may not have the opportunity of taking part in other forms of relaxation. By producing these articles they are helping themselves as well as the country. Those in the highest-income groups are not good customers of people who produce hand-knitting wool or rug wool. Their customers are usually in the lower-income groups, and we are in a sense denying them one of their pleasures and enjoyment.

I hope that I shall have the Minister's attention because throughout this debate nobody has made a specific point, as my point is, and I hope that as a result of my plea I shall hear later that the Chancellor has decided to reprieve these two commodities.

8.27 p.m.

Mr. W. T. Williams (Warrington)

The Budget, I suppose inevitably, has had a mixed reception. Although in some sense it is less oppressive than former Budgets, it is a dose of the same medicine. It is another straw on the camel's back of the economy.

I am not, thank goodness, an economist. During all the years that I have been a Member we have been ruled by economists and economic advisers. For all the good that it has done us, we might as well have been ruled or advised by as many witch doctors. We have faced the same crises year after year and have had the same miserable tale of balance of payments problems, whatever party has been in power and whether its advisers have been English or Hungarian. It would appear that the only thing that successive Chancellors can think of is how to solve the elusive problem of the balance of payments, whatever burdens they impose on the unhappy people who have to bear ever-increasing taxes.

There are some things in the Budget for which the Chancellor has to be praised, and I would not withhold my praise from him except that I have a particular case to make and little time. I ask him to take that praise for granted while I move on immediately to my central criticism of the Budget. My criticism is directed specifically to what I and those of the Co-operative group, of which I am chairman, regard as a particularly iniquitous bit of taxation, namely, the Budget's increase in the Selective Employment Tax.

There can be no doubt now, if there were any doubt before, that the proposed increase in S.E.T. will certainly lead to a head-on collision between the Government and the Co-operative movement. That is in itself unfortunate, because the Government have hitherto had no more loyal friends or supporters than this movement. Indeed, there is a case to be made for the Co-operative movement alone for special treatment in this field.

The effects of the increase in S.E.T. upon that movement, and every such increase, are more oppressive than they are on other distributive and service industries, because each increase will add a greater burden on the co-ops than on other traders. The Co-operative movement as a social and non-profit-making organisation carries a heavier burden of unprofitable services than any other retail distributor. That case has been made over and over again to the Chancellor on its own merits.

The fact must be well known that the co-ops bear the burdens of distribution, of taking milk, meat and groceries into villages and of running small shops for social reasons. The cynical comment that, somehow or other, the carrying of these burdens and finding them heavier than similar organisations makes the co-ops less efficient and less deserving of sympathy is bitterly resented, as is this latest increase, in the light of all the matters which have been laid before the Chancellor so many times.

I am not tonight, however, seeking specially to make the case of the co-ops. That case has been made, it has merit and it has been disregarded. That, in turn, has given rise to resentment and hostility and this the Chancellor and the Government must face. I level my charge against the Government more widely for their cynical increase of this tax.

The whole concept and incidence of this tax from the beginning to now is altogether inequitable. The two Chancellors who have been concerned with the tax have offered different reasons to justify its imposition. The present Home Secretary, when he introduced it, talked about it as a convenient instrument for transferring labour from the over-provided distributive and service industries to manufacturing. The present Chancellor has, at least in part, abandoned that pretext if only because it was, and manifestly was, a total failure in that regard.

The present Chancellor chooses to put his increasing faith in this tax regarding it as an easy and, as he put it, relatively painless form of taxation. That it is an easy imposition is clear. It leaves the distributive and service industries substantially the task of collecting the tax, and it is clear what a temptation such a tax must be for any Chancellor.

But, however great the temptation, no Government, least of all a Labour Government, should impose taxation which is unfair in its imposition upon different sections of the people, and, more particularly, which puts its heaviest incidence, as it is increased, on the poorer sections of the community. That, at least in part, is precisely what this increase in the tax is doing.

I have all my life been a member of the Labour and Co-operative movement, as were my father and my grandfather before me. I did not join this Labour movement to play any part in legislation which was designed to assist what the Prime Minister has often called "candy floss" manufactures at the expense of increasing the cost of living of humble people, the greater part of whose earnings is spent in the purchase of necessities. That is precisely what this tax is doing. Every time the Chancellor increases Selective Employment Tax in its present form, the greatest and most painful impact will be upon the distribution of food and necessities.

There was no reason why, if the Chancellor had been as concerned about priorities as he was about seeking, as he said, to solve the balance of payments, he should not have spent some in trying to refine this tax so that it might become genuinely, truly selective. As it is, the imposition of yet another swingeing increase in this tax will increase the cost of food by about 2½ per cent.

I do not believe, nor do those who have advised me, that the Chancellor is serving any useful purpose, either politically or economically, or in any way, by concealing this fact, either by generalised statistics suggesting that the overall increase is 1 per cent., or by the pretence that he can go on increasing this tax—until it now stands 92 per cent. over its original incidence—and that these increases can continually be absorbed, especially by the distributive trades, and that the cost will not be passed on through their shopping baskets to ordinary people. When the people realise—and they will realise it—that this is a tax which, by deliberate act of the Government, has so increased the cost of necessities, then I believe that the bitterness of opposition will go far, far beyond the small group of M.Ps. who, on this side of the House, feel so betrayed now.

The Chancellor talks about not being able to make any refinement of this tax because he is awaiting the results of the Report of the Reddaway Committee. If he had not wanted to wait for the Report of the Reddaway Committee to refine the tax, why was he content to say that, without that Report, the information which was available to him justified him in making this increase of about 28 per cent., on a tax which he had already increased by 50 per cent. only a year ago?

I want to make it quite plain that we who belong to the Co-operative group of Members of Parliament—and we hope that other members of the Labour Movement will make their opposition as clear—are bitterly opposed to this aspect of Government policy, that we shall oppose it now and that we shall continue to do so until its basic injustice and its political ineptitude are as clear to the Government as they are to us.

8.40 p.m.

Mr. Julian Ridsdale (Harwich)

The one optimistic aspect of this Budget debate, to which I have been listening for almost three days, is the appearance of enormous cracks in the ranks of Government supporters. I hope that it will not be long before we see the complete disintegration of the Government and a change of Government. I am convinced that this is the only way in which the economy of the country can be put right.

My main criticism of the Budget, is that, whilst the Chancellor may have stabilised in the short term the Socialist structure of the economy, by his readiness to increase Corporation Tax and Selective Employment Tax, he has done nothing to solve the long-term problem facing the country of our failure to increase investment in productive manufacturing industry.

The Chancellor may believe that he has gained the maximum political benefit by increasing retirement pensions, but I believe that he should have been far more selective. Although I know the extreme difficulties which retirement pensioners are facing, I am equally certain that the Government are putting far too heavy a burden on those who are producing the wealth of the country, the young people and those in productive industry. The Government are killing the goose that lays the golden eggs.

In the last five years of Conservative rule the real value of the retirement pension went up by 16 per cent. In the last five years the real value of the retirement pension, when the increase comes, will have gone up by about 20 per cent., but the insurance contribution will be up by 40 per cent. The Government Front Bench were very quiet today about the increases that will be made in contributions, but I estimate that they will be about 40 per cent., whereas in the last five years of Conservative rule contributions increased by only 18 per cent. The Chancellor is making a serious attack on the productive capacity of manufacturing industry, and he is placing a heavy burden on the young and those working in industry.

The long-term problem which the Chancellor must face is that manufacturing investment as a proportion of the gross national product has hardly increased at all in the last ten years. This is the real seriousness of our long-term problem. Although the position did not improve during the last few years of the Conservative Administration, it has worsened under the Socialist Government. Between 1962 and 1966 Germany invested half as much again as we did in manufacturing industry, and Japan invested double that amount. As a consequence, the gross national product of Japan, which in 1961 was two-thirds of ours, will in 1970 be double ours. This is the measure of all our failings, and I am sure that those who ask for a radical solution to our problems and a move away from Socialism to more economic liberalism are right. That is how Germany, Japan and the United States have succeeded.

What a tragedy it is for the country's long-term prospects that investment in manufacturing industry over the last five years has been almost static. It is all very well for the President of the Board of Trade to say, as he did on Thursday, that we have had a 5 per cent. or a 7 per cent. increase in productive investment in the manufacturing industry. Like many hon. Members on the Government back benches, I thought that the right hon. Gentleman's speech was far too complacent. If we are to measure up to the kind of competition which is coming from Japan and Germany, we should be increasing our investment in manufacturing industry not by 5 per cent. but by 100 per cent. In each of the last ten years Japan has been investing double the amount in manufacturing industry that we have. That is why Japan and Germany are beating us in world trade. It is the long-term problem that the country has failed to face in not adopting the policies that those countries have and in relying too much on Socialism and directing the economy rather than letting market forces work. Until we do that, we shall not find the solution to our problems.

When one sees what is happening in Japan, in terms of savings, there again is a matter to which we should pay far more attention than we do. How different Japan's personal saving performance is. In 1967–68, post office savings in Japan jumped 36 per cent. and personal savings increased by 27 per cent. In this country, National Savings went up by 1.6 per cent. last year.

Having heard so many Budget debates and listened to so much advice poured on various Governments, I am certain that we have to turn away from Socialism and not place so much reliance on the all-embracing Welfare State. We must move quickly to an economy based on the market. We must move nearer to price mechanism and capitalism and away from Socialism. Germany, Japan and the United States have succeeded where we have failed. We have to give the right incentives for investment. We have to strive for maximum efficiency. We have to realise that excessive taxation is discouraging both profits and investment in manufacturing industry.

Every incentive must be made to get genuine savings. We must stop attacking capital, and we must make it worth while to save. A pointer in the right direction is the raising of the limit on Estate Duty from £5,000 to £10,000. However, if it is right to make that kind of move in the lower brackets, surely the Chancellor realises in his conscience that it is right to make a move further up. He must know that one of the reasons why people are spending rather than saving is that the Government of the day have little respect for capital and a good deal less respect than many other Governments, particularly those of Germany, Japan and the United States.

When is it a virtue to save and when is it a sin? As someone asked recently, when does an honest saver become a bloated capitalist? The Chancellor never answered that question the other day. The only thing I can believe is that the only honest kind of saving, from the Government's point of view is something that goes into National Savings or into Government saving. Otherwise anyone who saves, according to the Socialist philosophy, is committing a sin. We have to encourage the managerial class, we have to encourage our system of capitalism and our price mechanism far more than we have been doing. We have to have bold solutions to our problems, much more along the road of capitalism than the road of Socialism.

This is the mistake that we have been making in our economy. We have not been giving the right incentives or encouraging those making the country's wealth. It is because, now, we know in our hearts that unless we have these radical solutions we shall not solve the serious long-term problems which face the country. That the only solution for all the ills is a change of Government.

8.50 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I should like to utter a few words of congratulation, of which the Chancellor has been rather short. He has adopted, in the main, money supply considerations. In trying to cope with excessive demands, his profligate predecessor allowed vast sums of money to be pumped into the economy. I am glad that he has at last realised that the total control of demand is the way in which he will eventually bring inflation under control.

I want to talk about the external side of the account. My right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) said a great deal which must be reinforced, because it is becoming more and more obvious that these endless doses of deflation, this twisting of the deflation spiral, will not achieve the result of improving our balance of payments. The whole concept of achieving a surplus by means of further deflation has very little meaning.

After all, what is the commodity of which we are short, what is the ambition which lies behind the Chancellor's Budget strategy of improving the balance of payments? It is to earn more foreign exchange. Having for one moment looked at foreign exchange as if it were a single commodity, the way in which he deals with it emerges as strikingly ridiculous. There is a difficult market in obtaining foreign exchange for buying property abroad or travelling abroad—one is limited to £50. But take something like imports; one can import any goods ad lib. One can import motor cars in any quantity one requires or machinery, or wine or foreign produce of any sort without let or hindrance.

Then we come to import saving. For some extraordinary reason, the Government are to subsidise the construction of aluminium smelters to the tune of 40 per cent. or perhaps even more. On the other hand, when it comes to the replacement of foreign exchange, the policy is that there appears to be no subsidy at all.

The dollar premium for portfolio investment abroad has raced up to nearly 60 per cent. The investment of funds directly by British companies overseas is treated in a totally separate way. Companies which have contributed to our fortune and have large overseas earnings are allowed to invest them abroad, whereas new companies, which may wish to make investments overseas, are not allowed to do so without suffering much more penal tax treatment than competitors.

This total muddle as to what is the value of foreign exchange is compounded in all these different ways. Whether one is exporting, importing, investing, travelling, or buying luxuries, it is treated in a different and arbitrary way. This gives the Government the power to discourage and demoralise the citizens by saying that all their legitimate desires are bad for the balance of payments. If we were to put a single, same price upon foreign exchange, all these subjective judgments whether the purposes for which it is being used were good or bad would cease to exist. The demands for foreign exchange for all these purposes would come into balance.

In so far as we want to earn more money abroad and to keep up the value of sterling, the way to do it seems to be to make large investments in foreign countries. The idea that one should import everything is changing, to a stage where more and more countries which do not produce are asking that big international companies will set up factories within their territories which will make the goods that they themselves cannot make.

Over the years one element in our foreign exchange which has been getting stronger, and coming more and more to the rescue, has been the dividends and interest of overseas investments. It is a crying shame that the Government should be spending about £500 million a year on aid and on military adventures overseas and at the same time should be choking off investment in foreign countries by our great international trading companies. This is killing the goose that lays the golden egg.

If we want to bring all these difficult problems into line and once more to put the price mechanism into the value of foreign exchange, there is no alternative to allowing the £ to float.

Mr. Deputy Speaker (Mr. Sydney Irving)

Mr. Maudling.

Mrs. Winifred Ewing (Hamilton)

On a point of order, Mr. Deputy Speaker. Is it the position that now that the right hon. Member for Barnet (Mr. Maudling) has been called to sum up I, as the representative of the largest party in Scotland, will not be allowed to participate in this debate?

Mr. Deputy Speaker

I cannot help the hon. Lady. Mr. Maudling.

Mrs. Ewing

Further to that point of order—

Mr. Deputy Speaker

Order. I indicated to the hon. Lady that I could not help her. She cannot speak further to the point of order.

8.58 p.m.

Mr. Reginald Maudling (Barnet)

The debate which we are just concluding has been marked by one maiden speech by my hon. Friend the Member for Walthamstow, East (Mr. Michael McNair-Wilson), whom we much welcome and to whom we listened with great attention.

The debate has not been marked by a large number of speeches from the other benches in strong support of their Chancellor of the Exchequer. The Chancellor must be finding that the first reactions to the Budget are not the last ones. He will be finding that criticism of his Budget rises as people understand it better.

The Budget was first described as moderate and politically skilful. Well, standards change. But to call £340 million of additional taxation in a full year a moderate Budget is a symptom of the state to which we have been reduced in the last four and a half years.

As for the politically skilful part, I must say to the Chancellor that his political skill has rested in disguising from the House and the public the true effects of his proposals. We had a good example this afternoon, about which I will question the Chancellor as I go along, in the cost of the National Insurance increases.

There are many individual points with which I cannot deal in detail, some good, some bad, and many mixed. We give unqualified support to the Estate Duty relaxation and to the Income Tax relief for small incomes. We welcome the new flexibility for investment trusts, though it is an interesting comment on the credit rating of the Government that the dollar premium jumped to 60 per cent. immediately this was announced. We welcome the close company concessions, but we are not sure that they go far enough. They leave the patchy administration of the short-fall computations which is causing considerable difficulty to many small close companies in different parts of the country.

Mr. Diamond

Quite wrong.

Mr. Maudling

I invite the right hon. Gentleman to ask the people who know.

We welcome in principle the removal of the Capital Gains Tax liability from gilt-edged securities. This will not cost the Treasury much. There has not been many capital gains in gilt-edged, and there is an accrued loss position which the Treasury will now be able to write off. The Treasury will now make a profit out of it.

The position of local authorities has been very much worsened by the right hon. Gentleman's action. I understand that the capital stock of great local authorities will not enjoy the advantages given to gilt-edged and to nationalised industry stock. These authorities will have to pay very much higher rates of interest to raise their money. I put this to the Chancellor because it is important and affects many people. The ratepayers in the G.L.C. area, in Birmingham, and in Liverpool, will have to pay a lot more in rates to cover the additional cost of borrowing which arises directly from this move by the Chancellor, and I ask the right hon. Gentleman to look seriously at the consequences of this for local authorities and at the possibility of extending to them concessions which the central Government are getting under this provision.

We welcome in principle the proposal for savings. Indeed, some of my right hon. Friends have advocated a scheme of this character, but once again it is a comment on the present Government's credit that even with interest rates at 12½ per cent. on a Government security for the standard rate taxpaper the Chancellor is not confident of getting any real money in this year. This is extraordinary, and it is worth pausing for a moment to contrast the savings records of Labour and Conservative Administrations. Under the first Labour Administration after the war, though no doubt there were special circumstances, savings were abysmal. In the 13 years of Conservative Government savings increased year after year at an annual average of 17 per cent. Since then the annual increase has been negligible.

What is the reason for that? It is not a question of the inducements offered to savers, because they are very little different from what were available under Conservative Governments. In fact, they are probably bigger. It is not a question of people not having the money to save, because the Government claim that people now have more money, or, to use the commonly used phrase, they have more disposable income. The fact is that people will not save under this Government. The only answer to this extraordinary discrepancy is that confidence is the only breeding ground for savings, and that under this Government, whatever they do, confidence has evaporated and will never return.

I turn, now, to the tax increases, which we regard as wholly wrong. We say that there is no case at all for increasing taxation in this Budget. If the Chancellor wished to turn the deflationary screw any more he should have concentrated on reducing Government expenditure. There are many proposals which are designed to increase prices. Purchase Tax, wine duty, the effect on textiles, and the petrol duty will all affect individuals; they will all fall on investment, on enterprise, and on exports. But there are three particular things to which I wish to refer—S.E.T., the disallowance of interest as a charge to Income Tax and Corporation Tax.

The disallowance of interest is illogical in principle, unworkable in practice, and will not hit the people at whom the Chancellor is aiming. The principle is simple—to aggregate all sources of income for an individual, plus and minus, and charge tax on that. But if I borrow money at 5 per cent. and lend it at 6 per cent., my income is 1 per cent. and to tax me on 6 per cent. and not 1 per cent. is wrong. This has been recognised in the case of business, so why not for the individual? As my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said, the anomalies and distinctions in the case of private businessmen or professional men or farmers will be extremely difficult to work out.

How about a member of Lloyds who has a loss in one year and borrows money to meet it? Is that business or private? Or how about the man who borrows in order to buy additional shares in a private business so as to maintain its character? Is that business or private? What about the intolerable position of an executor of a will, who must borrow to cover the situation so that securities can be realised?

It is said that the cost of borrowing to a rich man is small, and this is true. It is also true that the value of investment income to a rich man is small. It is two sides of the same coin. But it is sophistry of the right hon. Gentleman to argue that in present circumstances the cost of a rich man borrowing falls on the Exchequer. The rich man can either borrow or realise investments, and the consequences in terms of tax to the Exchequer are precisely the same in both cases.

The people who will be hit by this provision are not the rich but those who are up-and-coming executives and managers of business, people with a substantial earned income but no personal capital, who, we hope, will want to acquire capital and a share in the business they are practising in. They are the ones who will be hit.

The Chancellor said that it was a pity that he could not reduce Surtax on earned income. The Government have already eliminated effectively the stock option. Now they have levied a further burden on executives and managers. When the Chancellor expresses his regret that he connot reduce Surtax on earned income, he must forgive us if we think his tears have a certain crocodile quality.

Then there is the Selective Employment Tax, rightly attacked by the hon. and learned Member for Warrington (Mr. W. T. Williams). This is, rightly, the most unpopular tax. It is a sorry thing that a Chancellor as sophisticated as the right hon. Gentleman should not only maintain but increase this most logically absurd of all our taxes. Despite what the Chief Secretary said, the case against the S.E.T. still rests. It is based, first, on anomalies; second, on the fact that it cannot be rebated for exports; and, third, on the fact that there is no buoyancy of revenue in it, and that is one of the things that a modern tax should aim at.

The anomalies are well known and the principle is absurd. To go back to the fallacy of the physiocrats, to say that it is a good thing to produce but a bad thing to distribute is unworthy of an intelligent Chancellor. To say that it is a good thing to produce boots but a bad thing to engage in the wholesale distribution of boots is foolish. [An HON. MEMBER: "No one has said that."] No one has said it, but that is what the tax means.

Not only is there no rebate for exporters, as there can be in the case of many indirect taxes, but exporters are penalised, and heavily penalised in many cases, by the S.E.T. I give an example from my experience. A company engaged in insurance broking gets 60 per cent. of its income from overseas in foreign exchange. There cannot be many manufacturing industries that can show a 60 per cent. export record. Yet every person working in that firm is liable to the S.E.T. On the other hand, down the road a man making the candy floss to which the Prime Minister used to refer is favoured more than the invisible exporter.

We must recall once again the total failure of the Government to appreciate the importance of invisible exports. As Mr. Clark's recent book said, in only seven out of the past 175 years have we balanced our trade internationally by visible earnings alone. In every other year we have needed invisible earnings to do it. Particularly since devaluation, invisible income has risen and risen rapidly, in banking, insurance, shipping, tourism, brokerage—all the manifold services of the British commercial community.

The President of the Board of Trade (Mr. Anthony Crosland)

Hear, hear.

Mr. Maudling

I must tell the right hon. Gentleman that he did not say much about it in his own speech last week. He talked most about visible exports and said nothing about invisibles. When challenged, he seemed to think it better to leave it to the Treasury spokesman. Sometimes that is wise. The fact is that the invisible income producers, our commercial community, are being penalised again, and heavily penalised, by the increase in the Selective Employment Tax. The Chancellor cannot get away from that, and at least this evening he might try to explain it.

I come next to Corporation Tax, which, with the Selective Employment Tax, is the biggest item in the new tax increases. What is the Chancellor's intention about this additional £120 million of taxes? Is it to fall on the cash flow of industry—in other words, on investment, or corporate savings—or is it to be passed on in prices? It will be one or the other. If he wants, as he says, to encourage savings and discourage consumption, he should surely be encouraging companies to pass this additional tax on in increased prices, but he will not make it clear.

In his Budget speech we read this extraordinary statement about the position of companies in 1967 and the beginning of 1968: Liquidity was then very high, and investment low. The evidence is that factors other than the availability of retained profits are crucial to the determination of company investment."—[OFFICIAL REPORT, 15th April, 1969: Vol. 781, c. 1027.] Could one have a better condemnation of the Labour Government? The policy at that time was forcing companies to reduce their distributions so that companies were accumulating more and more money, while apparently saying, "Under a Labour Government, we do not have the confidence to go ahead with a large increase in investment which the country requires. The right hon. Gentleman must clear that up.

The right hon. Gentleman will have seen the article in the Economist about calculations of what percentage of the G.N.P. he is trying to take away in increased taxes. How much of the increase in Corporation Tax and in S.E.T. does he want to see passed on to the consumer? His calculations about reducing consumption by the amount of which he has spoken must depend on the amount by which he thinks prices will be increased. After all, increased prices is his main weapon in this Budget for cutting back imports and trying to improve the balance of payments.

I come to what has been called the politically skilful aspect of the Budget. What, after all, was the Chancellor facing? The year 1968 was one of truly appalling results throughout our economy. In prices, interest rates, unemployment, the balance of trade, taxes, throughout all this spectrum of our economic affairs, as the House is now well aware, the results were disastrous, almost without precedent. He was faced with the total disappointment in the progress to be made under devaluation, and also with an absence of new ideas, or at any rate of new ideas acceptable to his colleagues. So he found himself forced to rely on the old, tried, and now, I think, discredited methods of higher taxation and a rigid credit squeeze. He has come back once again to this old diagnosis and this old doctrine.

The right hon. Gentleman was a little scornful about the "Chicago School". I am not sure that I entirely disagree with him, although I hasten to add that I am going to Chicago myself next week as a guest of the Chamber of Commerce and not of Professor Milton Friedman. But whichever way he takes it, this Budget is enormously deflationary by the measure of the overall surplus which I believe is totally unprecedented. I say to those who believe strongly in the money supply theory that if one bangs the gilt-edged market too hard one may be doing a good deal of damage, because a sound gilt-edged market and an ability for industrial companies to borrow at fixed interest on reasonable terms are very important for our economy.

One of the main criticisms of the right hon. Gentleman is that all the way, having adopted the old medicine, he has tried to hide the facts from the public. There is no better example than the question of pensions and contributions.

We had not a statement but a speech from the Chief Secretary this afternoon. I think that I am right in saying that the Leader of the House promised us a statement. The Chief Secretary said that he made a statement: he said that he could not say anything. This reminds me of the time before the war when, walking down Fleet Street, I saw a newspaper placard saying, "Conscription—Government Statement". I paid my penny, which it cost then, and bought my newspaper. What was the statement? The Prime Minister told the House that he had nothing to say. I was swindled then, and we were swindled today.

I cannot understand why the Chancellor has allowed this to happen, unless, as evil rumour has it, the Prime Minister decided that the particular figures of benefit should be included in the Budget speech without the particular figures of cost. The Chancellor said quite categorically that the costs of the increased pensions would be £250 million, but there would be substantial extra provision because of the imbalance in the fund—we do not quite know why there is still an imbalance, after all the Government have done—and the continuing increase in the number of pensioners. In addition, there are the supplementary benefits, the war pensions and all the other things that always go with a pension increase. The Chancellor must know how much money is involved. He said himself that it was substantial; yet his Budget judgment is very finely worked out to £10 million, £20 million or £30 million. He must know his estimate of the cost of these things, and he must tell the House. His hon. Friend the Member for Heywood and Royton (Mr. Barnett) said roughly the same thing.

How will the cost be divided up? The Chief Secretary hinted that it would be on the traditional basis, although, as my right hon. Friend the Member for Enfield, West said, on that basis it would be 2s. for each man and ls. 9d. for each woman, and 2s. 3d. and 2s. for the employer. Is that the figure, the ratio, the Government are going on? We do not want exact details, but the broad figures. If that is the correct calculation for the £250 million that the Chancellor quoted, what is the correct calculation for the additional sum that he knows but did not quote?

This is the outstanding example of where the political cleverness of which we read has come into the Budget. But there are others. When the Chancellor came on rather exceptionally in a Budget speech to deal—not with prices and incomes policy, for that is not exceptional—with trade union legislation, one could once again see the political calculation behind this part of his statement. He reckoned that the compulsory incomes policy has now collapsed—except for dividends, as the Chief Secretary pointed out this afternoon. So the Chancellor said, "All right, let us drop it", as we warned the Government that they would have to. But he thought that our creditors overseas would be very frightened by this and would not like it at all; so the Government said, "Let us make the maximum show of boldness in the matter of trade union legislation to console our overseas creditors". I suppose that he hoped also that the trade unions would be so mollified by the dropping of the compulsory incomes policy that they would be prepared to accept the new proposals about trade union legislation.

This was clearly the political calculation. I doubt whether it has worked out. What is the Chancellor's calculation of the economic effect of dropping that part of the incomes legislation? This, too, affects his Budget judgment. He cannot have made his Budget calculation without taking into account what he reckons would be the effect of dropping this part of the Government's prices and incomes policy. Once again, he must tell the House what he calculates, if we are to understand his processes of thought. When we recall that a 1 per cent. increase in incomes is about £200 million of purchasing power, this is a very large item. If the effect of dropping it will be large, what will it be? He may say, on the other hand, that it will be small. If so, what on earth has been the point of playing about with it for the past 18 months?

I come to the proposals for legislation to deal with the trade unions, or to change the law relating to them. We on this side of the House welcome the Governments conversion to the need for early legislation here, which we believe to be of great importance, but we are entitled to ask whether the Government, and indeed the unions, really know what the Government are at, and whether the Government really know what effect their new proposals will have.

We listened to the right hon. Lady last week, at some length. I thought that the most depressing thing from her point of view was that her proposals were received by her own party not with hostility but with derision.

Mr. Roy Roebuck (Harrow, East)

Nonsense.

Mr. Maudling

The hon. Gentleman may have been merely hostile, but the rest were derisive. When the Left wing discovers the power of humour, dangers lie ahead for Ministers.

What do the Government really intend? The right hon. Lady repeated over the weekend that the Government intend to bring into effect the entire proposals contained in the White Paper. Let us be quite clear—and the Chancellor of the Exchequer brought it into his speech—that the Government have not resiled in any respect at all, I understand, from the proposals in the White Paper.

Further, what do the Government mean, if they know, about enforcement, which as hon. Members opposite have pointed out is quite crucial? The right hon. Lady spoke of committal at one stage. I do not know quite what she meant, nor, frankly, do I think that she did. But what is the underlying sanction? Surely it is a monetary penalty. How it is to be collected is still obscure, and may have to be left to the Law Officers.

How is the penalty to be assessed? The right hon. Lady is adamant in saying that it is not a fine of any kind but damages to be paid to other people who suffer as a result of a strike. If the payment is to be assessed on the basis of the damage done, the amount will be very large. If we are to put the whole cost of an unofficial strike in the motor industry on the shoulders of a few unofficial strikers, the financial penalties will be very heavy. We feel that the Government have not thought through in any way at all the consequences of what they are trying to do. Nor am I convinced that the measures they propose would really have had a decisive effect on our economic performance, as the Government are trying to argue.

As I say, we welcome these moves. They are moves in the right direction, when properly thought out and crystallised, but without reform of the trade union structure, and certainly without a change in the legal enforcement of freely negotiated contracts, we do not believe that a real solution can be found.

We therefore condemn the Budget because we do not believe that it measures up to the problems. We think that the difficulties that will accrue in the second half of the year will be very serious. At home, unemployment may grow, and investment will certainly be discouraged by the increased Corporation Tax. Under the new dispensation, wages may break away altogether. Abroad, the removal of import deposits and the new difficulties, after the German elections, of the Deutschemark, and the possibility of further deflationary policies in the United States, all throw further doubt on the likelihood of the right hon. Gentleman's achieving his objective.

The fact is that all the Chancellor of the Exchequer has been able to produce is the old recipe of restriction and higher taxation. I do not feel that he took counsel properly with his right hon. Friend the President of the Board of Trade. The Chancellor of the Exchequer concentrated entirely on cutting down imports by depressing home demand, whereas the President of the Board of Trade rightly pointed out that a great part, possibly the major part, of the problem arises from the inadequacy of our export performance. Although British industry has made great efforts they have not been enough, and the in crease in exports has largely arisen from an increase in the volume of world trade. What single thing is there in the Budget to encourage anyone to export anything more than he is obliged to do? Rather the opposite is the case.

Time and time again since devaluation the Government have whittled away the advantages of devaluation; by withdrawing the rebate, by letting prices go up, by putting up Selective Employment Tax. Time and again, more handicaps are placed in the way of our exporters. I challenge the Chancellor of the Exchequer, clearly and directly, to tell the House in what way and by what means his Budget proposals will increase our export performance. I have not seen any single reason for thinking that that will happen.

I sum up our opposition to the Budget. We believe that it is a politically clever Budget designed to hide from the people the real effect on their livelihood and wellbeing of the right hon. Gentleman's measures. We believe that a Budget on this scale, following on Budgets on unprecedented scales in recent years, has shown quite conclusively that a Labour Government are totally incapable of running the country's economy.

9.25 p.m.

The Chancellor of the Exchequer (Mr. Roy Jenkins)

I begin by agreeing with the right hon. Member for Barnet (Mr. Maudling) in one point—in extending my congratulations to the hon. Member for Walthamstow, East (Mr. Michael McNair-Wilson) on his maiden speech, which I greatly regret to say I did not hear but which I read with close appreciation and attention, as I did—with close attention, at any rate—all the speeches on Tuesday, Wednesday and Thursday of last week which I did not hear.

I start by dealing with a point with which the right hon. Gentleman dealt towards the end of his speech—the National Insurance contributions. I can assure him that there has certainly been no desire to conceal the extent of the contribution. I made it clear in my Budget speech that it would be very substantial, and in my television broadcast I stressed that pensioners would not be helped without higher payments by those at work—[HON. MEMBERS: "How much?"]—but there are at present special complications associated with the move towards earnings-related pensions and we are in process of working out exactly what is the fairest way for the next autumn contribution increases to fall on those at different income levels.

I can assure the House that there is no question of employers being made to pay more than their normal share of the contribution nor of the Exchequer, on the one hand, refusing to pay our fair share, nor, on the other hand of failing to maintain the public expenditure targets. [HON. MEMBERS: "How much?"] I come now—[HON. MEMBERS: "How much?"] I have explained the position and my right hon. Friend the Secretary of State for the Social Services will make a statement at the earliest practical moment.

Hon. Members

When?

Mr. Speaker

Order. We must listen to each side equally.

Mr. Jenkins

I now come to the Budget itself. In answering any debate of this sort, my desire is to help the House by singling out the main line of criticism and meeting it head on. This year—[HON. MEMBERS: "How much?"] I am perfectly prepared to wait—[HON. MEMBERS: "How much?"] This year I find this peculiarly difficult—[Laughter.] I am perfectly happy for hon. Member to laugh themselves out.

Lord Balniel

If the right hon. Gentleman wishes to assist the House and if he is anxious to meet the challenge head on, will he say, simply, what is the contribution?

Mr. Jenkins

I have explained exactly why we cannot do that. While I have no desire to conceal that it will be substantial, and while there is no proposition to shift the proportion of benefit, my right hon. Friend will make a statement at the earliest possible moment.

Mr. Noble rose—

Hon. Members

Sit down.

Mr. Jenkins

This year, in dealing with the Budget itself. I find it peculiarly difficult—[HON. MEMBERS: "Hear, hear."]—to single out a main line of criticism because the Opposition are suffering at present from almost total schizophrenia in their approach to our economic problems. Before the Budget, they made it as clear as they possibly could that they were totally opposed to any further squeeze on the economy by Budgetary means. The right hon. Member for Bexley (Mr. Heath), at Scarborough on 22nd March, wanted £400 million off taxation. I will come a little later to his somewhat dubious method of making that possible. What was abundantly clear was that he wanted, even on his own optimistic assumptions, a neutral Budget, and on most other people's assumptions, a strongly reflationary one. The right hon. Member for Barnet, always a little wiser in these matters, did not talk about £400 million but lined himself up firmly behind neutrality, or less, in last week's Sunday Express and again in his speech tonight.

I did not go for neutrality, I went, on very cautious estimates, for a £200 million to £250 million reduction of the pressure of demand on the economy. I went for that, first, without any allowance for the continuing effect of the Regulator, used less than five months ago and judged to reach its full effect only in the second half of this year; second, without any allowance for the monetary squeeze; and third, without any allowance for the new savings scheme. Nevertheless, some Press commentators, including a few who had spent the previous few weeks urging me not to depress the economy, expressed themselves disappointed that I had not done more. Consumption, which they had said was flagging, they now complain has not been hit hard enough.

This Press reaction has presented the Opposition with an agonising choice, because they cannot see a band-wagon, however rickety, however slowly it is moving, however firmly it is going in the opposite direction from that in which they said they wanted to go, without that uneasy feeling that they ought to get on it.

As a result, we have had in the course of the debate a number of speeches in sharp contradiction to the right hon. Gentleman and edging towards that bandwagon. The most significant and I think in many ways the most perceptive speech in the debate from the Front Bench opposite was that by the right hon. Member for Leeds, North-East (Sir K. Joseph). The Budget, he said, was a gambler's Budget. I asked whether he thought that I ought to have done more and he said that he would come to that. Of course he did not come to it. He could not have done so without completely disowning his own leader. The hon. Member for Wan-stead and Woodford (Mr. Patrick Jenkin), the hon.Member for Cities of London and Westminster (Mr. John Smith), the hon. Member for Acton (Mr. Kenneth Baker), the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) and the hon. Member for Worthing (Mr. Higgins) also moved tentatively in that direction.

Sir Keith Joseph (Leeds, North-East)

The right hon. Gentleman has been kind enough to refer to me. I mentioned the alternative. I said that it was too late for the Labour Government to adopt it, but that the alternative was cutting public expenditure and encouraging business by incentives and competition.

Mr. Jenkins

The right hon. Gentleman came on to that in one sentence—[Interruption.] He gave no indication—[Interruption.]

Mr. Speaker

Order. The House has listened to one winding-up speech reasonably. It must listen to the other one reasonably.

Mr. Jenkins

The right hon. Gentleman came on to that in one sentence. As he knows perfectly well, that is sloganising, not giving a Budget judgment. The right hon. Member for Enfield, West (Mr. Iain Macleod) did not move in any direction at all. He did not give us the benefit of his judgment—it may be for a very good reason. [Interruption.] I have published far more in forecasts and the background to our thinking than was ever done by any Conservative Chancellor of the Exchequer. If the Opposition are so attracted by this, why did they refrain from ever publishing a forecast on which the House could reach a sensible judgment?

Mr. Anthony Kershaw (Stroud)

How much will the contributions be?

Mr. Jenkins

I have told the House—

Mr. Speaker

Order. The hon. Member for Stroud (Mr. Kershaw) must control himself.

Mr. Jenkins

I have told the House the position so far as I am able to do so. What I can say is that there is no variation in the method of financing which could mean more than a difference in demand of £10 million at an annual rate in the fourth quarter of this financial year. Therefore, this is well within any possible margin of error, and there can be no question of its prejudicing the general Budget judgment.

Mr. Edward Heath (Bexley)

If the Chancellor of the Exchequer can say that his Budget judgment is not affected by more than £10 million in the last quarter of this year by what he proposes to take out in contributions to the National Insurance scheme, why does he not frankly tell the country what it has to pay for the increase in pensions?

Mr. Jenkins

Because, as I have told the right hon. Gentleman and the House clearly, and as he can understand quite well if he wishes to do so, we have to work out the details how, in the transition to an earnings-related pension scheme, this can most fairly be placed on different individuals.

I come back—[HON. MEMBERS: "Get on."] I am sure that the House, which has debated the Budget for four days, wishes to listen to the reply to the various points which have been made. I come back to the right hon. Member for Enfield, West, who, as I say, never tells us his Budget judgment. But there is a certain built-in consistency about his speeches, and that is rather natural because a large part of them consists of quotations from his own speeches. For one happy moment, when he was finishing his speech, which was distinguished, as usual, by the lack of any clear alternative policy, I thought he was reserving the more constructive part of his economic analysis for his television performance. But, unfortunately, I was disappointed. It was totally barren.

If he will forgive the allusion, the right hon. Gentleman reminded me of the quack doctor in Donizetti's opera "The Elixer of Love" who arrives in the market place, sets up his stall and never bothers us with his diagnosis but tells us that his potions will cure everything. They sound cheap, and he promises us that they will work—to abolish S.E.T., to get rid of Purchase Tax, to ease the burden on the motorist and to reduce direct taxation. The only difference is that instead of the little black bag, we now have his famous computer.

I must come back, as I said I would, to the Leader of the Opposition. His speech at Scarborough must clearly have been carefully thought out. I take two of his recipes. First he was prepared to score £250 million for a savings scheme and to reduce taxation by that amount in advance. On Tuesday he gave a reasonably warm welcome to my savings scheme, and for that I am grateful, as for some other kind things he then said. Of course, the right hon. Gentleman was then speaking at short notice.

The right hon. Member for Enfield, West, however, after 24 hours' reflection, also gave the scheme a good reception. He said that: there is so little between us."—[OFFICIAL REPORT, 16th April, 1969; Vol. 781, c. 1164] I therefore assumed that while there might certainly have been some differences, right hon. Gentlemen opposite were not pretending that their scheme would have been radically different from my own.

This is where the radical difference lies. The Leader of the Opposition would have gambled on his scheme to the extent of reducing taxation in advance by £250 million on the basis of it—a gambler's Budget indeed.

Sir Knox Cunningham (Antrim, South)

Satan rebuking sin.

Mr. Jenkins

But then we have the Opposition totally split on this issue, too. The right hon. Member for Wolverhampton, South-West (Mr. Powell), to whose speech we listened with great interest and attention this afternoon, gave us his speech on savings a few days later. First, speaking at Widnes, he said: Savings as such have nothing to do with taxation". Then he went on: The total volume of personal saving is irrelevant. It is irrelevant whether personal saving is increasing or diminishing. All that matters is whether more is being lent to the Government". The Government themselves will borrow nothing this year. Quite the reverse. They will be a large net repayer of debt.

I thought that the right hon. Member for Wolverhampton, South-West was being a little ungrateful. There was no need to slap his leaders in the face quite as quickly. After all, the Leader of the Opposition had been doing his best to be a half-pint Enoch.

The right hon. Member for Wolverhampton, South-West had gone to Morecambe in October and told us that Income Tax could be reduced to 4s. 3d. in the £. So the Leader of the Opposition went to Scarborough in March and told us that £400 million could easily come off taxation. It is a fairly typical pattern, and in the circumstances five months is not an unreasonable delay. The right hon. Member for Wolverhampton, South-West ought to give a little more encouragement to his reluctant but faithful follower.

I said that I would deal with one of the other recipes of the Leader of the Opposition. He said that Bank Rate should be immediately cut to 6 per cent. He stigmatised the extra 2 per cent. as a premium which a bad borrower had to pay. Let me remind him that the United States discount rate is today 6 per cent. and that a Government of which he was a member twice put Bank Rate to 7 per cent., on each occasion—[Interruption.]—using United States discount rate—[Interruption.]

Mr. Speaker

Order. The Opposition must allow the Chancellor to make his speech.

Mr. Jenkins

It is, I think, normal for a more self-confident Leader of the Opposition to leave people behind him to do the shouting.

The Government of which the right hon. Gentleman was a member twice put up Bank Rate to 7 per cent. with the U.S. discount rate on each occasion at 3 per cent.—not 6 per cent. but 3 per cent. If his logic had begun to be right they would have been paying a far higher premium for whatever deficiencies were thought to belong to them.

But a much more important and serious point is this. If the right hon. Gentleman were to make his unilateral cut he would, apart from other consequences, have made it absolutely clear that he had no intention of pursuing a tight monetary policy at home. He would, therefore, be compounding the recklessness of his tax concessions. Let there be no doubt, therefore, that the official Opposition policy would be to take every possible risk with the balance of payments, to run counter to the experience of every comparable country and the practice which they themselves followed when they had responsibility and not merely an incontinent appetite for votes.

What is the right hon. Gentleman's long-stop position? It is, of course, the all-purpose remedy. We had it again tonight from the right hon. Member for Barnet. When the Leader of the Opposition was asked by the Financial Times what he would do if his "at best a neutral budget"—that newspaper's phrase, which he did not challenge—damaged the balance of payments, he answered: If the Chancellor wants, as you say, to have something in reserve, then he must do it through Government expenditure. There are many other places"— he went on— 'where he could reduce Government expenditure, where he could hold it back, where he could delay projects. Maybe there are, but we do not have them advocated from the benches opposite in this House. All we get is the suggestion of a change in the agricultural price system with its substantially inflationary effect on food prices, and a rag bag of unquantified and largely unspecified administrative savings.

And what do we get to balance this? Apart from a potentially vast commitment to maintain a presence in the Far East, which would either be very expensive or dangerously derisory, we get from the benches opposite more demands for additional expenditure. The right hon. Gentleman has himself voted for pension increases for special categories in the past few months, and they would hardly cost less than £100 million. A short time before, his right hon. Friend had just voted for another costing up to £60 million. The list goes on almost endlessly—keep Civil Defence, keep the Territorial Army, stay in the E.L.D.O., go ahead with C.E.R.N., support any conceivable aircraft project, spend more on roads, give more generous agricultural price reviews.

The fact of the matter is that the attitude of the Opposition to public expenditure is a disorganised hypocrisy. It must mean either that they discount the chances of their coming to power or that they discount, and expect the country to discount, the value of their own words.

So I turn back from the dismal and confused picture opposite to the adequacy of the measures which I have chosen. I believe them to be adequate. No Chancellor can be certain. He has to balance the risks of not doing enough for the balance of payments with those of over-depressing the economy. I have struck what, according to my judgment, is the best balance. If I had thought that more would be right I would have done it.

I have no doubt a lot of criticisms can be and have been levelled against my actions in the past 17 months, but I should not have thought that I could be seriously accused of failure to impose unpopular taxation when I believed it to be necessary. My measures last week must be considered, both in totality and in their composition, in relation to the use of the Regulator in November, which bore almost exclusively upon individual consumption, and to the tough monetary policy which, fortified by an unprecedented overall Government surplus, I am determined to enforce.

On the composition of the measures, there has been criticism that they bear too heavily on companies. I do not agree. There has certainly been no prejudice on my part; otherwise I would not have done what I did—a good deal more than was expected—for close companies. I want to see companies prosper, but it is no part of my purpose to use a period of necessary stringency both in public expenditure and in general taxation to promote a shift from those who earn to those who own. Companies whose profits have been buoyant must therefore pay their share. Nor can I regard it as illogical that, when the economy has to be squeezed for balance of payments purposes, company liquidity should be subjected to part of the pressure. It is indeed a very extraordinary argument for hon. Gentlemen opposite to advance. If this were so, why did Lord Butler in 1952 introduce the new and cumbersome device of the Excess Profits Levy? Why did Mr. Macmillan in 1956 suspend investment allowances entirely? Why did Lord Amory increase the Profits Tax in 1960, and why did the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) do it again in 1961?

Part of the opposition has also treated S.E.T. as essentially a company imposition. That was the view taken by the right hon. Member for Enfield, West, the right hon. Member for Leeds, North-East and by the hon. Members for Wanstead and Woodford and Acton. But here again the Opposition are split down the middle like a filleted herring. The right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) and the hon. Members for Horsham (Mr. Hordern) and Gillingham (Mr. Burden) took a completely different view. They thought that the tax would be fully passed on, and more than fully. With great respect, both these points of view cannot possibly be true. To the extent that the consumer pays the tax, it is not a squeeze on company profits, and even to the extent that he does not, it is not wholly such a squeeze. In some cases it may reduce margins; in others it may be absorbed without such a reduction by a more efficient use of labour, which is undoubtedly of benefit to our central economic purpose. All the evidence of the past two years suggests that there has been an element of all three. There has been some effect on prices—of course there has—but it has been much less than the effect of raising the equivalent amount of revenue by means of traditional indirect taxation. I also believe that the effect of this increase has on the whole been more fairly spread than an equivalent increase in the cost of goods.

Service trades increase as society gets richer. There is nothing wrong with such an increase. The right hon. Member for Barnet is quite wrong to think that I do not believe that this is a reasonable development. But, because it is a reasonable development, it does not mean that service trades should not pay their fair share of tax as well as goods. It is both a natural and a desirable development, provided that it does not mean, as was the case in the early 1960s, that nearly all our new labour is sucked into service trades and not into our manufacturing base.

It follows that as a richer society uses more services, so the richer members of society use more than do the poorer ones. It is, therefore, the case that some shift of the balance of taxation between goods and services makes indirect taxation less regressive.

Moreover, there is no question of the price increases to which Selective Employment Tax may lead not being fully taken into account in the one-half per cent. increase in the retail price index which I gave as the total effect of the Budget.

In my view, therefore, the Budget is fair and relevant, and the Daily Telegraph Gallup Poll, even if not very prominently printed, shows that view to be shared by a very large section of the public. While

right hon. Gentlemen opposite do not share that view, which is predictable, they describe it—and this is another cue for them to cheer—as a "fag end" Budget. As that phrase was used by the right hon. Member for Bexley and repeated by the right hon. Member for Enfield, West on Wednesday, many people must have thought that it was an original phrase. But there is one right hon. Member opposite who knew that it was not and in whose mind it must have struck a chord. That is the right hon. Member for Barnet, because the phrase was the headline used in a national daily newspaper about his Budget in 1964"—"A Fag End Budget". The trouble is—

Mr. Heath rose—

Mr. Jenkins

No, I will not give way. I know the right hon. Gentleman's technique of getting up at this time—

Mr. Heath rose—

Mr. Jenkins

No, I will not give way. The trouble with the right hon. Gentleman is that even his best—

Mr. Heath rose—

Hon. Members

Sit down.

Mr. Jenkins

The trouble with the right hon. Gentleman is that even his best phrases are second-hand—

Mr. Heath rose—

Hon. Members

Sit down.

Mr. Jenkins

The right hon. Gentleman's argument is predictable, shop-soiled and irresponsible.

Question put:—

The House divided: Ayes 322, Noes 253.

Division No. 160.]	AYES	[10.0 p.m.
Albu, Austen	Bennett, James (G'gow, Bridgeton)	Brown, Bob (N'c'tle-upon-Tyne, W.)
Allaun, Frank (Salford, E.)	Bidwell, Sydney	Brown, R. W. (Shoreditch & F'bury)
Alldritt, Walter	Binns, John	Buchan, Norman
Anderson, Donald	Bishop, E. S.	Buchanan, Richard (G'gow, Sp'burn)
Archer, Peter	Blackburn, F.	Butler, Herbert (Hackney, C.)
Ashley, Jack	Blenkinsop, Arthur	Butler, Mrs. Joyce (Wood Green)
Ashton, Joe (Bassetlaw)	Boardman, H. (Leigh)	Callaghan, Rt. Hn. James
Atkins, Ronald (Preston, N.)	Booth, Albert	Cant, R. B.
Atkinson, Norman (Tottenham)	Boston, Terence	Carmichael, Neil
Bacon, Rt. Hn. Alice	Bottomley, Rt. Hn. Arthur	Castle, Rt. Hn. Barbara
Bagier, Gordon A. T.	Boyden, James	Chapman, Donald
Barnes, Michael	Bradley, Tom	Coe, Denis
Barnett, Joel	Bray, Dr. Jeremy	Coleman, Donald
Baxter, William	Brooks, Edwin	Concannon, J. D.
Beaney, Alan	Broughton, Dr. A. D. D.	Conlan, Bernard
Bence, Cyril	Brown, Rt. Hn. George (Belper)	Corbet, Mrs. Freda
Benn, Rt. Hn. Anthony Wedgwood	Brown, Hugh D. (G'gow, Provan)	Craddock, George (Bradford, S.)
Crawshaw, Richard	Huckfield, Leslie	Neal, Harold
Cronin, John	Hughes, Rt. Hn. Cledwyn (Anglesey)	Newens, Stan
Crosland Rt. Hn. Anthony	Hughes, Emrys (Ayrshire, S.)	Oakes, Gordon
Crossman, Rt. Hn. Richard	Hughes Hector (Aberdeen, N.)	Ogden, Eric
Cullen, Mrs. Alice	Hughes, Roy (Newport)	O'Malley, Brian
Dalyell, Tam	Hunter, Adam	Oram, Albert E.
Darling, Rt. Hn. George	Hynd, John	Orbach, Maurice
Davidson, Arthur (Accrington)	Irving, Sir Arthur (Edge Hill)	Oswald, Thomas
Davies, Ednyfed Hudson (Conway)	Jackson, Colin (B'h'se & Spenb'gh)	Owen, Dr. David (Plymouth, S'tn)
Davies, Dr. Ernest (Stretford)	Jackson, Peter M. (High Peak)	Owen, Will (Morpeth)
Davies, G. Elfed (Rhondda, E.)	Janner, Sir Barnett	Padley, Walter
Davies, Rt. Hn. Harold (Leek)	Jay, Rt. Hn. Douglas	Page, Derek (King's Lynn)
Davies, Ifor (Gower)	Jeger, George (Goole)	Paget, R. T.
Davies, S. O. (Merthyr)	Jeger, Mrs. Lena (H'b'n & St. P'cras, S.)	Palmer, Arthur
de Freitas, Rt. Hn. Sir Geoffrey	Jenkins, Hugh (Putney)	Pannell, Rt. Hn. Charles
Delargy, Hugh	Jenkins, Rt. Hn. Roy (Stechford)	Park, Trevor
Dell, Edmund	Johnson, Carol (Lewisham, S.)	Parker, John (Dagenham)
Dempsey, James	Johnson, James (K'ston-on-Hulf, W.)	Parkin, Ben (Paddington, N.)
Dewar, Donald	Jones, Dan (Burnley)	Parkyn, Brian (Bedford)
Diamond, Rt. Hn. John	Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)	Pavitt, Laurence
Dobson, Ray	Jones, J. Idwal (Wrexham)	Pearson, Arthur (Pontypridd)
Doig, Peter	Jones, T. Alec (Rhondda, West)	Peart, Rt. Hn. Fred
Driberg, Tom	Judd, Frank	Pentland, Norman
Dunn, James A.	Kelley, Richard	Perry, Ernest G. (Battersea, S.)
Dunnett, Jack	Kenyon, Clifford	Perry, George H. (Nottingham, S.)
Dunwoody, Mrs. Gwyneth (Exeter)	Kerr, Mrs. Anne (R'ter & Chatham)	Prentice, Rt. Hn. R. E.
Dunwoody, Dr. John (F'th & C'b'e)	Kerr, Dr. David (W'worth, Central)	Price, Christopher (Perry Barr)
Eadie, Alex	Lawson, George	Price, Thomas (Westhoughton)
Edelman, Maurice	Leadbitter, Ted	Price, William (Rugby)
Edwards, William (Merioneth)	Lee, Rt. Hn. Frederick (Newton)	Probert, Arthur
Ellis, John	Lee, Rt. Hn. Jennie (Cannock)	Pursey, Cmdr. Harry
English, Michael	Lee, John (Reading)	Rankin, John
Ennals, David	Lestor, Miss Joan	Rees, Merlyn
Ensor, David	Lever, Harold (Cheetham)	Reynolds, Rt. Hn. G. W.
Evans, Albert (Islington, S. W.)	Lever, L. M. (Ardwick)	Rhodes, Geoffrey
Evans, Fred (Caerphilly)	Lewis, Arthur (W. Ham, N.)	Richard, Ivor
Evans, Ioan L. (Birm'h'm, Yardley)	Lewis, Ron (Carlisle)	Roberts, Albert (Normanton)
Fernyhough, E.	Lipton, Marcus	Roberts, Rt. Hn. Goronwy
Finch, Harold	Lomas, Kenneth	Roberts, Gwilym (Bedfordshire, S.)
Fitch, Alan (Wigan)	Loughlin, Charles	Robertson, John (Paisley)
Fletcher Rt. Hn. Sir Eric (Islington, E.)	Luard, Evan	Robinson, Rt. Hn. Kenneth (St. P'c'as)
Fletcher, Raymond (Ilkeston)	Lyon, Alexander W. (York)	Rodgers, William (Stockton)
Fletcher, Ted (Darlington)	Mabon, Dr. J. Dickson	Roebuck, Roy
Foley, Maurice	McCann, John	Rogers, George (Kensington, N.)
Foot, Rt. Hn. Sir Dingle (Ipswich)	MacColl, James	Rose, Paul
Foot, Michael (Ebbw Vale)	MacDermot, Niall	Ross, Rt. Hn. William
Ford, Ben	Macdonald, A. H.	Rowlands, E.
Forrester, John	McGuire, Michael	Ryan, John
Fowler, Gerry	McKay, Mrs. Margaret	Shaw, Arnold (Ilford, S.)
Fraser, John (Norwood)	Mackenzie, Gregor (Rutherglen)	Sheldon, Robert
Freeson, Reginald	Mackie, John	Shinwell, Rt. Hn. E.
Galpern, Sir Myer	Mackintosh, John P.	Shore, Rt. Hn. Peter (Stepney)
Gardner, Tony	Maclennan, Robert	Short, Rt. Hn. Edward (N'c'tle-u-Tyne)
Garrett, W. E.	MacMillan, Malcolm (Western Isles)	Short, Mrs. Renée (W'hampton, N. E.)
Ginsburg, David	McMillan, Tom (Glasgow, C.)	Silkin, Rt. Hn. John (Deptford)
Gray, Dr. Hugh (Yarmouth)	McNamara, J. Kevin	Silverman, Julius
Greenwood, Rt. Hn. Anthony	MacPherson, Malcolm	Skeffington, Arthur
Gregory, Arnold	Mahon, Peter (Preston, S.)	Slater, Joseph
Griffiths, David (Rother Valley)	Mahon, Simon (Bootle)	Small, William
Griffiths, Eddie (Brightside)	Mallalieu, E. L. (Brigg)	Spriggs, Leslie
Griffiths, Rt. Hn. James (Llanelly)	Mallalieu, J. P. W. (Huddersfield, E.)	Steele, Thomas (Dunbartonshire, W.)
Griffiths, Will (Exchange)	Manuel, Archie	Stewart, Rt. Hn. Michael
Gunter, Rt. Hn. R. J.	Mapp, Charles	Stonehouse, Rt. Hn. John
Hamilton, James (Bothwell)	Marks, Kenneth	Strauss, Rt. Hn. G. R.
Hamilton, William (Fife, W.)	Marquand, David	Summerskill, Hn. Dr. Shirley
Hamling, William	Marsh, Rt. Hn. Richard	Swain, Thomas
Hannan, William	Mason, Rt. Hn. Roy	Symonds, J. B.
Harper, Joseph	Maxwell, Robert	Taverne, Dick
Harrison, Walter (Wakefield)	Mayhew, Christohper	Thomas, Rt. Hn. George
Hart, Rt. Hn. Judith	Mellish, Rt. Hn. Robert	Thomson, Rt. Hn. George
Haseldine, Norman	Mendelson, John	Thornton, Ernest
Hattersley, Roy	Mikardo, Ian	Tinn, James
Hazell, Bert	Millan, Bruce	Tomney, Frank
Healey, Rt. Hn. Denis	Miller, Dr. M. S.	Tuck, Raphael
Henig, Stanley	Milne, Edward (Blyth)	Urwin, T. W.
Herbison, Rt. Hn. Margaret	Mitchell, R. C. (S'th'pton, Test)	Varley, Eric G.
Hilton, W. S.	Molloy, William	Walden, Brian (All Saints)
Hobden Dennis	Moonman, Eric	Walker, Harold (Doncaster)
Hooley, Frank	Morgan, Elystan (Cardiganshire)	Wallace, George
Horner, John	Morris, Alfred (Wythenshawe)	Watkins, David (Consett)
Houghton, Rt. Hn. Douglas	Morris, Charles R. (Openshaw)	Watkins, Tudor (Brecon Radnor)
Howarth, Robert (Bolton, E.)	Morris John (Aberavon)	Weitzman, David
Howell, Denis (Small Heath)	Moyle, Roland	Wellbeloved, James
Howie, W.	Mulley, Rt. Hn. Frederick	Wells, William (Walsall, N.)
Hoy, James	Murray, Albert	Whitaker, Ben

White, Mrs. Eirene	Williams, Mrs. Shirley (Hitchin)	Woof, Robert
Whitlock, William	Williams, W. T. (Warrington)	Wyatt, Woodrow
Wilkins, W. A.	Willis, Rt. Hn. George
Willey, Rt. Hn. Frederick	Wilson, Rt. Hn. Harold (Huyton)	TELLERS FOR THE AYES:
Williams, Alan (Swansea, W.)	Wilson, William (Coventry, S.)	Mr. Charles Grey and
Williams, Alan Lee (Hornchurch)	Winnick, David	Mr. Neil McBride.
Williams, Clifford (Abertillery)	Woodburn, Rt. Hn. A.
NOES
Alison, Michael (Barkston Ash)	Fortescue, Tim	McNair-Wilson, M. (Walthamstow, E.)
Allason, James (Hemet Hepstead)	Foster, Sir John	McNair-Wilson, Patrick (New Forest)
Astor, John	Fraser, Rt. Hn. Hugh (St'fford & Stone)	Maddan, Martin
Atkins, Humphrey (M't'n & M'd'n)	Galbraith, Hn. T. G.	Maginnis, John E.
Awdry, Daniel	Gilmour, Ian (Norfolk, C.)	Marples, Rt. Hn. Ernest
Baker, Kenneth (Acton)	Gilmour, Sir John (Fife, E.)	Marten, Neil
Baker, W. H. K. (Banff)	Glover, Sir Douglas	Maude, Angus
Balniel, Lord	Glyn, Sir Richard	Maudling, Rt. Hn. Reginald
Barber, Rt. Hn. Anthony	Godber, Rt. Hn. J. B.	Mawby, Ray
Batsford, Brian	Goodhart, Philip	Maxwell-Hyslop, R. J.
Beamish, Col. Sir Tufton	Goodhew, Victor	Maydon, Lt.-Cmdr. S. L. C.
Bell, Ronald	Gower, Raymond	Mills, Peter (Torrington)
Bennett, Sir Frederic (Torquay)	Grant, Anthony	Mills, Stratton (Belfast, N.)
Bennett, Dr. Reginald (Gos. & Fhm)	Grant-Ferris, R.	Miscampbell, Norman
Berry, Hn. Anthony	Gresham Cooke, R.	Mitchell, David (Basingstoke)
Bessell, Peter	Grffiths, Eldon (Bury St. Edmunds)	Monro, Hector
Biffen, John	Grimond, Rt. Hn. J.	Montgomery, Fergus
Biggs-Davison, John	Gurden, Harold	Morgan, Geraint (Denbigh)
Birch, Rt. Hn. Nigel	Hall, John (Wycombe)	Morgan-Giles, Rear-Adm.
Black, Sir Cyril	Hall-Davis, A. C. F.	Morrison, Charles (Devizes)
Blaker, Peter	Hamilton, Lord (Fermanagh)	Mott-Radclyffe Sir Charles
Boardman, Tom (Leicester, S. W.)	Hamilton, Michael (Salisbury)	Munro-Lucas-Tooth, Sir Hugh
Body, Richard	Harris, Frederic (Croydon, N. W.)	Murton, Oscar
Boyd-Carpenter, Rt. Hn. John	Harris, Reader (Heston)	Nabarro, Sir Gerald
Boyle, Rt. Hn. Sir Edward	Harrison, Brian (Maldon)	Neave, Airey
Braine, Bernard	Harrison, Col. Sir Harwood (Eye)	Nicholls, Sir Harmar
Brewis, John	Harvie Anderson, Miss	Noble, Rt. Hn. Michael
Brinton, Sir Tatton	Hastings, Stephen	Nott, John
Bromley-Davenport, Lt. -Col. Sir Walter	Hawkins, Paul	Onslow, Cranley
Brown, Sir Edward (Bath)	Hay, John	Orr-Ewing, Sir Ian
Bruce-Gardyne, J.	Heald, Rt. Hn. Sir Lionel	Osborn, John (Hallam)
Bryan, Paul	Heath, Rt. Hn. Edward	Osborne, Sir Cyril (Louth)
Buchanan-Smith, Alick (Angus, N&M)	Heseltine, Michael	Page, Graham (Crosby)
Buck, Antony (Colchester)	Higgins, Terence L.	Page, John (Harrow, W.)
Bullus, Sir Eric	Hiley, Joseph	Pardoe, John
Burden, F. A.	Hill, J. E. B.	Pearson, Sir Frank (Clitheroe)
Campbell, B. (Oldham, W.)	Hirst, Geoffrey	Peel, John
Campbell, Gordan (Moray & Nairn)	Hogg, Rt. Hn. Quintin	Percival, Ian
Carlisle, Mark	Holland, Philip	Peyton, John
Carr, Rt. Hn. Robert	Hooson, Emlyn	Pike, Miss Mervyn
Channon, H. P. G.	Hordern, Peter	Pink, R. Bonner
Chichester-Clark, R.	Hornby, Richard	Pounder, Rafton
Clark, Henry	Howell, David (Guildford)	Powell, Rt. Hn. J. Enoch
Clegg, Walter	Hunt, John	Price, David (Eastleigh)
Cooper-Key, Sir Neill	Hutchison Michael Clark	Prior, J. M. L.
Cordle, John	Iremonger, T. L.	Pym, Francis
Costain, A. P.	Irvine, Bryant Godman (Rye)	Quennell, Miss J. M.
Craddock, Sir Beresford (Spelthorne)	Jenkin, Patrick (Woodford)	Ramsden, Rt. Hn. James
Crouch, David	Johnson Smith, G. (E. Grinstead)	Rawlinson, Rt. Hn. Sir peter
Crowder, F. P.	Johnston, Russell (Inverness)	Rees-Davies, W. R.
Cunningham, Sir Knox	Jones, Arthur (Northants, S.)	Renton, Rt. Hn. Sir David
Currie, G. B. H.	Jopling, Michael	Rhys Williams, Sir Brandon
Dalkeith, Earl of	Joseph, Rt. Hn. Sir Keith	Ridley, Hn. Nicholas
Dance, James	Kaberry, Sir Donald	Ridsdale, Julian
Davidson, James (Aberdeenshire, W.)	Kerby, Capt. Henry	Rippon, Rt. Hn. Geoffrey
d'Avigdor-Goldsmid, Sir Henry	Kershaw, Anthony	Rodgers, Sir John (Sevenoaks)
Dean, Paul	Kimball, Marcus	Rossi, Hugh (Hornsey)
Deedes, Rt. Hn. W. F. (Ashford)	King, Evelyn (Dorset, S.)	Royle, Anthony
Digby, Simon Wingfield	Kirk, Peter	Russell, Sir Ronald
Dodds-Parker, Douglas	Kitson, Timothy	St. John-Stevas, Norman
Donnelly, Desmond	Lambton, Viscount	Sandys, Rt. Hn. D.
Doughty, Charles	Lancaster, Col. C. G.	Scott, Nicholas
Douglas-Home, Rt. Hn. Sir Alec	Lane, David	Scott-Hopkins, James
Drayson, G. B.	Langford-Holt, Sir John	Sharples, Richard
du Cann, Rt. Hn. Edward	Legge-Bourke, Sir Harry	Shaw, Michael (Sc'b'gh & Whitby)
Eden, Sir John	Lewis, Kenneth (Rutland)	Silvester, Frederick
Elliot, Capt. Walter (Carshalton)	Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)	Sinclair, Sir George
Emery, Peter	Lloyd, Rt. Hn. Selwyn (Wirral)	Smith, Dudley (W'wick & L'mington)
Errington, Sir Eric	Longden, Gilbert	Smith, John (London & W'minster)
Evans, Gwynfor (C'marthen)	Lubbock, Eric	Speed, Keith
Ewing, Mrs. Winifred	MacArthur, Ian	Stainton, Keith
Eyre, Reginald	Macleod, Rt. Hn. Iain	Steel, David (Roxburgh)
Farr, John	McMaster, Stanley	Stodart, Anthony
Fisher, Nigel	Macmillan, Maurice (Farnham)	Stoddart-Scott, Col. Sir M.

Summers, Sir Spencer	Waddington, David	Wilson, Geoffrey (Truro)
Tapsell, Peter	Wainwright, Richard (Colne Valley)	Winstanley, Dr. M. P.
Taylor, Sir Charles (Eastbourne)	Walker, Peter (Worcester)	Wolrige-Gordon, Patrick
Taylor, Edward M. (G'gow, Cathcart)	Walker-Smith, Rt. Hn. Sir Derek	Woodnutt, Mark
Taylor, Frank (Moss Side)	Wall, Patrick	Worsley, Marcus
Thatcher, Mrs. Margaret	Walters, Dennis	Wylie, N. R.
Thorpe, Rt. Hn. Jeremy	Ward, Dame Irene	Younger, Hn. George
Tilney, John	Weatherill, Bernard
Turton, Rt. Hn. R. H.	Wells, John (Maidstone)	TELLERS FOR THE NOES:
van Straubenzee, W. R.	Whitelaw, Rt. Hn. William	Mr. R. W. Elliott and
Vaughan-Morgan, Rt. Hn. Sir John	Wiggin, A. W.	Mr. Jasper More.
Victors, Dame Joan	Williams, Donald (Dudley)

Resolved, That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance, so, however, that—

1. (a) without prejudice to any authorisation by virtue of any Resolution relating to purchase tax, selective employment tax or selective employment payments, this Resolution does not extend to the making of amendments of the enactments relating to either of those taxes so as to give relief therefrom;
2. (b) this Resolution does not extend to making amendments of the provisions of the Customs (Import Deposits) Act 1968 so as to give relief from the import deposits required by those provisions to be paid, other than amendments making the same provision for all goods on which such deposits are so required to be paid.