BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 20 April 1970 vol 800 cc40-167

3.50 p.m.

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

My task this year is much lighter than it is normally. There is usually some difficulty in persuading the House, or, at all events, the Opposition, to accept our point of view. There are some taxes or reforms which have been misunderstood and there are some points to make clear. There is a good deal on one's plate.

This year, the situation is very different, as those who have attended our debates will know. Broadly, the Budget judgment, and the monetary and fiscal proposals in the Budget, have been accepted both here and elsewhere. The Opposition have been good enough, and have consulted the convenience of the House sufficiently, to say that they do not propose to divide the House this evening. The Press has accepted the Budget proposals. I am particularly pleased to say that world opinion has been welcoming in a very serious way.

I do not think that it is always realised that in the atmosphere of this debating Chamber those who look somewhat more objectively at our affairs from outside draw conclusions from the facts and figures rather than from the content of the debate. I quote only two recent references. One is what Mr. Schweitzer had to say as recently as 11th April—that is, before the Budget. In referring to it, theFinancial Timessaid: A remarkably glowing tribute to the U.K. s economic progress was paid last night by M. Pierre-Paul Schweitzer, Managing Director of the International Monetary Fund. I would merely add that Mr. Schweitzer should be aware of all the facts.

I was also glad to notice what Dr. Paul McCracken had to say as reported inThe Times Business Newsof only two days ago: He "— that is, Dr. McCracken— had been ' reading statistics on Britain's balance of payments and had come over to find out how it was done, perhaps to find some pointers for the United States from the people who have shown the way ' ". That is not as lighthearted as it may seem. My experience was the same when I was privileged to be at the International Monetary Fund meeting last autumn when I met the Finance Ministers of nearly 100 countries, particularly of America, which were undergoing problems similar in nature to those which we had undergone. They were anxious to compare notes and to discover whether the proposals which we had put forward and which seemed to be working so well would have application to their affairs.

I turn to the taxes which normally we have to explain or to defend in some way. I cannot think of a period when they were all working so well. Capital gains tax, which started rather slowly, is now doing its socially just task of filling a gap with effect and economy. This year, it is raising approximately £150 million from individuals and a like or even greater sum from companies. The working of the tax is getting easier as we move further from the starting date.

Similarly, corporation tax—which I promised originally would be seen to be a simpler tax than the tax it replaced once we had got over the transitional period and transitional arrangements made to cover it—is fulfilling its expectation. It is of more than passing interest to the House, and particularly to myself to note, that the European Economic Community, in its concern for the harmonisation of taxes within the Community, recently commissioned a study by a distinguished international tax expert, Professor Tempel, to consider which form of company taxation would be most appropriate for adoption by the whole of the Community to serve that purpose.

The House, and particularly the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), who made an interesting speech on this topic three days ago, will be pleased to note that the report, which has just come out, says that the British form of corporation tax would be the ideal tax for that purpose.

I wish to make it absolutely clear that, important though that opinion is, it is the opinion of one person making a report to the Community. What view the Community will take nobody knows. If it takes the view that the report is well founded and that the British form of corporation tax is the most suitable form of company taxation for harmonising taxes in the Community, there would be no problem for Great Britain about that aspect of taxation.

I do not have to make my usual speech in support of selective employment tax this year, because Professor Reddaway has done that task for me with much greater authority and in much greater depth and has, fortunately, come to precisely the same conclusion. I note with interest that he is strongly of the opinion that the order of the objectives of the tax should have been expressed in the way in which my right hon. Friend the present Home Secretary and myself repeatedly expressed it and not in the way in which it was picked up and continually repeated by the Press. I am sure that Professor Reddaway is right.

A mass of information, statistics and tables have been published for the convenience of hon. Members of a degree never achieved before. My right hon. Friend the Chancellor, has published, as he did last year, an economic forecast in considerable detail in the Red Book. I thought that it was of convenience to the House that the estimates should be published at the same time, so that estimates and taxation could be considered in relation to one another and the two could be considered in context.

I was sorry that the right hon. Gentleman the Leader of the Liberal Party thought that I was seeking to evade publicity by publishing these documents on the same day.

Mr. Jeremy Thorpe (Devon, North)

indicated dissent.

Mr. Diamond

That is what I gathered the right hon. Gentleman was suggesting. I had no such intention.

I think it right that people should, as they would want to do, have the opportunity of comparing the taxes and the expenses and comparing the Budget with the estimates. Those interested in the detail of it will see that within the estimates there is a table relating that part of the estimates which is public expenditure, and which is only approximately two-thirds of the whole, with the recently published White Paper on Public Expenditure, Cmnd. 4234.

All that I need do is confirm that it is in line with that White Paper and that the increase, when reduced to constant prices, is 1 per cent. and is within the target laid down in the previous White Paper.

Mr. Patrick Jenkin (Wanstead and Woodford)

I am well aware of the table to which the right hon. Gentleman is referring, where the expenditure is grouped under functional heads. The request which I made on Thursday was that we should have a table in the form of Table 1.2 in the White Paper on Public Expenditure, which relates the full range of public expenditure to the anticipated revenue as it will be after the Budget. It is this updating which would be most helpful to the House. I hope that the right hon. Gentleman will consider that should he ever be responsible for these matters again.

Mr. Diamond

I will certainly consider that. This is the first time that this has been done. I am grateful that the hon. Gentleman should have found the tables of use and should have thought them worth study, which is the reason for publishing them. The table to which the hon. Member refers is, I believe, 2(d) and it serves that very purpose.

I will certainly consider the hon. Member's further suggestion. None of us anticipates that the first time these tables are produced, they will give all the information. We have to draw a reasonable line between confusing right hon. and hon. Members with too much material and giving the House the information that it needs.

I wish next to deal with the criticisms made by, in particular, the Leader of the Opposition and the right hon. Member for Enfield, West (Mr. lain Macleod). First, may I deal with the two rather wild statements of the Leader of the Opposition. The first was that in which he alleged that this was a one-month Budget. The right hon. Member for Enfield, West added, for my part at least, to our knowledge of his many other amiable qualities by demonstrating at the start of his speech his blind loyalty in seeking to support that wild statement. The facts are simply as follows and they can be derived from the published material, in particular Table 4 of the Budget Report.

There, we see that consumers' expenditure—this is the way of measuring the real increase in living standards of our people—over the coming year is expected to rise by about £900 million, measured in 1963 prices. At today's prices, of course, it would be a substantially larger figure. It is £900 million, in real terms a 3.9 per cent.—nearly 4 per cent.—increase.

The total effect of the tax proposals and the other proposals in the Budget has been carefully calculated and at 1963 prices it will increase consumption by about £200 million. The position is, therefore, that without the Budget there would have been an increase in consumption, at 1963 prices, of £700 million. Now, the increase will be, as shown in the report, £900 million.

The effect of the Budget, therefore, is to raise by 30 per cent. the increase in the growth of consumers' expenditure during the forthcoming year. That is comparing like with like. It is the increase in consumption which is added to by my right hon. Friend's Budget. To suggest that the effect of the Budget will be dissipated during the course of one month, is utter nonsense.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

What estimate has the right hon. Gentleman made of the growth of prices over the same period, and by how much does he expect prices to rise in order to buy the same amount during the year?

Mr. Diamond

I have already told the hon. Gentleman that I am talking about constant prices. I am talking about real terms and I am giving the figures in 1963 prices. It does not matter what year one takes as long as one takes constant prices. The increase, as I have said, is 3.9 per cent., or 4 per cent. for all practical purposes. The increase in consumption would have been one-third less than that if it had not been for this year's Budget.

The benefit will, of course, go on not only for this year, but for future years. Indeed, in the following year—and here I answer the question specifically put to me by the hon. Member for Wanstead and Woodford—it will be of greater value. There will be a small amount in addition in the following year, because in that year will be felt for the first time one of the surtax benefits.

The hon. Member asked me whether the tables were in order and what had happened to the surtax benefit deriving from the additional married man s allowance of £20 a year. The answer is that 1970–71 surtax, as the hon. Member well knows from his own happy experience, is paid on 1st January in the following year, and on 1st January, 1972, those reduced payments will be made. The position is, therefore, that there will be a further benefit arising out of this Budget in the following year.

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

Mr. Diamond

I shall give way to the right hon. Gentleman presently, but if I keep on giving way at this pace my speech will be very long and I should not be happy about that.

Mr. Powell

Will the right hon. Gentleman tell us what estimate he has made of the increase in taxation which will result from whatever rate of inflation he expects during the next 12 months?

Mr. Diamond

All that has been carefully taken into account in the figure which I have given. [Laughter.] The calculation is certainly a complicated one, but that does not alter the fact that, as shown in the published material, there will be an increase in consumption —in other words, an increase in the standard of living—and that this is contributed to in part by the Budget. Therefore, the effect of the Budget is to add to the increasing standard of living of our people. So much for the first rather wild statement by the Leader of the Opposition.

The second rather wild statement, which I shall never understand, was that the deficit in 1968 was the largest that the country had ever had and amounted to £796 million. It was not even half that figure. That was not the figure either on current account, on capital account or on the combined account—[Interruption.] I cannot see anything in the trend, either. Neither was it the visible trade figure. It is no figure. If the right hon. Member for Enfield, West, demonstrating again the virtue of loyalty, can find any possible explanation for it, I shall be delighted to have it.

The only conclusion to which I came was that the Leader of the Opposition gets wilder and wilder as the election approaches. We can all see the pattern coming as the election gets nearer: wild now, wilder later and then, finally—

Mr. Ian MacArthur (Perth and East Perthshire)

Victory.

Mr. Diamond

—wilderness.

There is, however, a possible explanation, because £796 million is not far from £800 million, and £800 million needs only to be mentioned, especially at the present time, for people to react. The most recent reaction was a letter toThe Timesby the hon. Member for Wanstead and Woodford, vainly attempting to extricate his right hon. Friend from his difficulties. The Leader of the Opposition did his best during his speech to try to pretend that the difficulties which we have been through are difficulties which did not have their origin in the balance of payments deficit of 1964.

I want to deal with this matter in some depth and with seriousness, because it is right—

Mr. Robert Sheldon (Ashton-under-Lyne)

Before my right hon. Friend leaves this point—

Mr. Diamond

I am only just starting it. I promise my hon. Friend that when I get to the end of it I shall give way to him.

I want to deal with it in some depth. I will explain to the House, and I think that it will have some sympathy with me. There are two recollections which are very deeply embedded on my mind. The first is that when my right hon. Friend the Home Secretary, then the Chancellor, was made Chancellor in 1964, the first paper which was put before him, within two hours of his moving into the Treasury on the day when we came into office, the day when the previous Conservative Administration left office, was one showing that, in the view of Treasury officials, who had not altered, we were running at a deficit that very year of £800 million. That was an unimaginable, unprecedented, intolerable deficit which altered the whole aspect of what, from that point on, we were attempting to do. That is the first recollection I have.

The second is in that every attempt we have made to move forward from that point on, on our social and economic legislation and reforms, we have been dogged and inhibited by the conditions we inherited and which we had to put right.

I am just telling the House my honest recollection and impression of five years' hard slog in the Treasury. So there is some reason to examine the situation which developed in 1964 and to see whether it came from honourable causes or not.

Everyone knows that misfortune can strike out of the blue. [Laughter.]

Mr. Joel Barnett (Heywood and Royton)

True blue.

Mr. Diamond

The occasion which would serve me as the best example of that is the closing of the Suez Canal, completely unanticipated until a short time before; completely unanticipated, with a major impact on our balance of payments—a major impact. It might well have been that in 1964 there were circumstances of a kind which caused a sudden switch, a complete change, from the previous balance of payments pattern in 1961, 1962, 1963, to that deficit of 1964. I do not know of one.

Mr. Reginald Maudling (Barnet)rose—

Mr. Diamond

The right hon. Gentleman will have a chance to reply and I shall be interested to hear what he says.

I do not know of one. So this is one of the kind of causes.

Mr. Maudling

I shall look forward with great pleasure to dealing with this at some length this evening, if I have the chance to catch your eye, Mr. Speaker, but when the right hon. Gentleman says that he cannot think of any circumstances which might have led to a change in the balance of payments in 1964, would he not recall that in the 1963 Budget speech I predicted precisely that? In 1963, I said that there would be a deficit both on current and capital account in 1964 and it was welcomed from the other side of the House.

Mr. James Dickens (Lewisham, West)

Did he?

Mr. Diamond

I am coming to the right hon. Gentleman's 1963 Budget Statement. It is part of the situation—a very important part of it.

The right hon. Gentleman has been good enough to say he did not indicate to the House the kind of deficit he would be running into and, therefore, he was saying that in 1963, whatever risk he took, whatever chance he took, and whatever chance he took in 1964 in not correcting the situation, he did not expect either that the deficit would be of that size or what it was which for so long prevented their dealing with it was the result of the General Election being delayed.

The right hon. Gentleman may not accept this view, but he could easily give us the facts. He could easily give us the Budget calculations. He could tell us what the estimate was in terms of demand; he can remove any misconception we may have, and any misconception the Press at the time had, such as theEconomistandThe Times, which took the view that the right hon. Gentleman was being far too lenient, or that the General Election being planned for was at an earlier date.

The right hon. Gentleman can give us from his knowledge the facts which will enable us to say whether or not this terrible disability, which caused all our problems from then on, arose out of an intentional act, arose out of a decision to take a chance, to take a risk, or did not. He will know the figures. We shall be very interested to have them.

In the meantime, I see nothing wrong whatever with the response such as we had from Washington about which the hon. Gentleman wrote his letter, and where they compare very favourably my right hon. Friend's Budget today, in today's circumstances, with the Budget of the right hon. Gentleman the Member for Barnet (Mr. Maudling) in 1964, in those circumstances. It is a very natural comparison. It is a comparison which is held not only in Washington, but very widely over the world, and it is one which will always stick till the right hon. Gentleman is able to demonstrate that the advice he got and the knowledge he had was such that he was not taking any risks with the economy in the interests of electoral advantage.

Mr. Ridleyrose—

Mr. Sheldon

My right hon. Friend cannot give way to the hon. Member again.

The point which I wanted to put was one passed by some time ago. I was wanting to contribute to my right hon. Friend's argument on this matter. The point was the figure of £796 million, which was mentioned by the Leader of the Opposition, contrasted with the actual figure of £309 million. I do not think that it is good enough to let this one pass by so readily, for this is an error of monumental proportions. If any Member can come here and make a statement of this kind it is right that he should be rebuked, but when the Leader of the Opposition gets the balance of payments figure wrong by over £400 million, and continues to assert it, he should then receive more than the gentle rebuke which my right hon. Friend has just given!

Mr. Diamond

I stand admonished. I apologise for the fact that my tone was not sufficiently rebuking. I can only say that I will pass it to my right hon. Friend the Chancellor, who will still have an opportunity of catching your eye, Mr. Speaker. I will invite him to respond to my hon. Friend's remarks.

Now I should like to turn to the two major points made by the right hon. Gentleman the Member for Enfield, West. The first was about the 2 million freed from income tax, who, he said, would be floated back by inflation into the tax net—the same 2 million. As I understand, on that occasion on television, the right hon. Gentleman was comparing them with the Duke of York's men who marched up the hill and then marched down again; he said that they were the same 2 million.

The point which the right hon. Gentleman was making was that, as a result of inflation, and as a result of inflation alone—

Mr. lain Macleod (Enfield, West)

No.

Mr. Diamond

Oh, well, the right hon. Gentleman did not make the rest of the case, so I will make it for him.

The point he was making was that, as a result of inflation—he said it twice, both in this House and on the B.B.C., according to my transcript—2 million would be floated back, as a result of inflation, into taxation.

Well, as we all recognise, there are two elements in this matter. One is the need to adjust fixed tax allowances, because the value of these allowances is eroded somewhat from year to year with inflation. The other is the increase in taxpayers who come into higher real wages and, as a result, have to pay tax which they did not earlier have to pay, either for the first time or at a higher rate, or in larger sum.

There axe those two elements. I will explain what happened over the two years and take a quick look at the future. Over the two years to which the right hon. Member for Enfield, West referred, the allowance for a single man went up from £220 to the present £325. Of that, 11 per cent. would have been needed to maintain the real value. If we had put it up over those two years, from £220 to £242, the real value of the personal allowance would have been maintained. We put it up by five times as much. We gave one-fifth for inflation and four-fifths was real tax advantage.

The marriage allowance was £340. To maintain that at its real value it had to be increased over the two years to £374. We put it up to £465. The inflationary element was £34, and we increased it by a further sum, by a total of £125. A quarter represented the inflationary element. The rest was an increase in the real value of the allowance, and, therefore, a reduction in the real burden of income tax..

Let us look at it in terms of next year and the threshold. My right hon. Friend explained that the threshold is raised, and I am taking the case only of the single man to begin with, in one year from £328 to £418. That is an increase of £90, or 28 per cent. I am not saying, but the Leader of the Opposition is, and I imagine that the right hon. Gentleman shares his Leader's view, that the calculation should be based on 7 per cent. inflation.

That is the figure which the Leader of the Opposition has used throughout the Budget debates. I am not responsible for for the figure. I am merely pointing out to the right hon. Gentleman the fallibility in his own arithmetic. The threshold was raised by 28 per cent. so it is obvious that here again one-quarter at the most was in respect of inflation and the remainder raised the real standard of the income tax benefit.

It is not possible to put this into precise numbers or give precise individuals, because, as the right hon. Gentleman knows —and he was wrong in his broadcast when he said that it was the same individuals—no matter what we do with the rates, circumstances change. Every year there are school leavers coming into the tax net and people leaving it at the other end of the scale. Apprentices are becoming wage earners; there is a change-round all the time. It is absolute nonsense to talk about these same individuals.

Mr. John Mendelson (Penistone)

It was fraudulent.

Mr. Diamond

Is is nonsense to suggest that we can put labels on each individual taxpayer, out of 25 million. The point is that there are 2 million people who would otherwise have been paying tax this year freed from payment. Although a small proportion of the allowance was due to them because of the reduction in the real value of the personal allowance the vast majority was an increase in their real living standards.

The other point which the right hon. Gentleman made, and I was glad to hear him make it, was that the main omission from the Budget was anything to reduce child poverty. I was delighted to hear him making that point because I thought, "At all events, here is a conversion. We can make progress this way".

Mr. kin Macleod

I have made it before.

Mr. Diamond

I am grateful to the right hon. Gentleman.

There is a conversion certainly in acknowledging the claw-back method, and that is valuable. There is a conversion for his party, certainly in the amount. What we have done here in five years can be contrasted with what the party opposite did in 13 years. It seems a reasonable comparison. First of all, social security benefits as a whole have gone up in the last five years from £1,960 million to £3,800 million, approximately double. In addition, we have the rate rebate scheme which is effective in dealing with poverty of this kind, where it is felt in the same way. There are now 1 million recipients. Within the social security increase is an increase in the rates of "FAM" which have more than doubled.

If we take an example of a four-child family, the increase is from 28s. a week to 58s. The larger the family, the larger the increase. That is what we have done. Let us compare that with what the Tories did during their last 13 years of power, for a similar four-child family. The rate went up from 24s. to 28s.—an increase in 13 years of 4s. a week. During our five years there has been an increase of 30s. a week, seven and a half times as much in less than half the time. I hope that I am justified in saying that I welcome the right hon. Gentleman's support. This is something with which every one of us has a great deal of sympathy, and it is a matter about which we have done something.

Mr. Scholefield Allen (Crewe)

A pity the right hon. Gentleman was not speaking to the nation.

Mr. Diamond

My hon. and learned Friend, who always makes interesting and valid comments, says that it was a pity that the right hon. Gentleman was not speaking to the nation. Indeed it was, because he could then have said, and it would have come in very well at the point when he was discussing the number of people who would be brought back into the tax net, "We will make slashing reductions of tax and the first thing we will do is to use the £30 million that the Chancellor would otherwise be using on taking people out of the tax net to put them back again. The first thing we will do as regards these 2 million is to see that about one-third of a million whom the Chancellor would have otherwise freed from tax will be pulled back into taxation at once."

If the right hon. Gentleman had been speaking to the nation and had made both comments, the comment about the £30 million and about the 2 million people, he would have had to explain that the arguments went in different directions and that he was proposing to deny to one-third of a million the freedom from tax which the Chancellor was seeking to give them.

We would all like to hear the proposals of the party opposite. They are gradually emerging, in stages. I will say what I think we now know they are, and I speak with some authority on this matter because, as opposed to the right hon. Member for Altrincham and Sale (Mr. Barber), who will no doubt quote from a series of election addresses—because that is what he always does; he has a stimulating imagination and he always finds it useful to refer to the 1964 addresses of a large number of hon. and right hon. Gentlemen—I shall pay the right hon. Member for Enfield, West the courtesy of quoting his next election address, of which I have been fortunate enough to find the first tentative draft.

I have it here with me. Unfortunately, the first page is blank, but no doubt that will be decorated by the usual handsome, attractive photograph of the ever-young candidate. If I may, I will read it out word for word, because it would be wrong to select:

" Dear Sir or Madam,

In appealing to you for your vote once more in the forthcoming General Election I propose to put the issues before you with complete candour, as you would expect of me.

First, as to the leadership. You will recollect that I have always been perfectly frank as to whom I supported from time to time. At present, I fully support Mr. Heath; I see no alternative. If, however, the party finds itself in difficulties after the election, and we are compelled to find a scapegoat, then we shall, of course, throw him overboard, as we did his predecessor. In that event, my old colleague, Mr. Powell, will succeed to the leadership. That would be a fatal error, especially with such an obvious alternative candidate available, and I could not support him.

Next, as to policies—and here again I intend to be perfectly candid. The most pressing need, if we are to protect the higher living standards of our generous supporters, is to curb the increase in wages. The trouble seems to be the hold that the shop stewards have, but I know that there is not a worker in the land who, if he could only be freed from the domination of his militant leaders, would not gladly accept a reduction in his wages. So our first task will be a radical reform of the trade union movement.

It should not, however, be thought that this will be a one-sided affair. We will turn our attention to the employers, also. There must be many company directors who still have qualms about using their shareholders' money to support the Tory party. We shall pursue them with confidence. We also intend to set an example as the biggest employer in the country. We shall keep down the salaries of teachers not in private schools, of doctors and dentists not in private practice and of Service personnel. These, and many others, are tied by agreement to the level of comparable earnings outside the public service. Only in this way will we be able to restore the sanctity of trade union agreements.

Finally, as to money matters—and here, as you know, I can speak with great authority, as the next Chancellor of the Exchequer, I devoutly trust, for no one knows better than our respected leader, when faced with the problem of fitting three people into two jobs, where the national interest lies.

As Chancellor, it will be my responsibility to carry out all our promises—and this is a very heavy responsibility. We are, as you know, committed to sweeping reductions in income tax and surtax, to abolishing S.E.T., to the provision of incentives to industry and to doing something about capital gains tax, to mention but a few of our more obvious and recent undertakings. I reckon this will cost the Exchequer something between £1,000 million and £2,000 million a year. It is just as well that the Exchequer is in pretty good shape. But I think you will agree with me that, now that Labour has got the economy right once more, there is no need for a Labour Government any longer.

My proposals for bridging this gap are well known. First, we will dismantle the agricultural support scheme. This will have the dual benefit of making farmers more self-reliant, which I am sure everyone in urbanised Enfield will agree with, and, by making food more expensive, it will cause people to eat less. Many of us are clearly putting on too much weight, and my deep concern is with the health of our people.

Secondly, we shall reduce the housing subsidies. This means that many council house tenants will no longer be able to afford both the increased rents and their small secondhand cars. Instead, they will have to walk to work. This is much healthier for them, and I am deeply concerned with the health of our workers.

Thirdly, we shall reopen our bases east of Suez, and people them with hundreds of Service personnel and hundreds of civilian employees. This will enable me to redeem my pledge to reduce public expenditure.

Finally, there is our great discovery, the new tax called V.A.T. You will not expect me to go into detail, but I can tell you that it is French and very gay. Of its many advantages there are two that deserve special mention. As this is a tax with wide coverage —indeed, it covers everybody and everything —it will need many thousands of officials to collect it. This should help with the unemployment problem and, at the same time, enable us to redeem our pledge to reduce the number of civil servants.

Even more advantageous is the fact that everyone will have to pay the tax, however small their incomes. Now, there are millions of patriotic citizens in this country who are below the levels of income tax, and so are denied the privilege of contributing in an appropriate way to the cost, for example, of the Armed Forces, which are there to protect them and their possessions. This makes these worthy but impecunious citizens very unhappy. Moreover, they receive from the State more in benefits and subsidies than they pay in taxes on their beer, tobacco and the like. This, if allowed to continue unchecked, can result in the growth of a widespread feeling of guilt. So I propose to restore their happiness and secure their psychological wellbeing by imposing this all-embracing tax.

But I am bound to tell you that, even with all this, although our people will be slimmer and happier, I myself, as Chancellor, will still be in an awful hole facing a huge gap, so please give me your help and support; I need it badly.

Yours sincerely,

Lain Macleod."

The address was rather long, but I have put together, I hope in a reasonably fair way, a number of proposals which the right hon. Gentleman and his hon. Friends have put to their supporters and to the country from time to time and, if they do not work out too seriously, as the right hon. Gentleman knows, he has been brought to task by theEvening Standard, among others, for his irresponsibility in some of his proposals. I have permitted myself a rather light-hearted intervention, because as I said at the start, I did not think that there was a great deal to answer in this debate.

As I have quoted the right hon. Gentleman's election address, it is only fair that he should be free to refer to mine, and to refer to those of us who, during the 1964 election, as he said, on the basis of the information available to us then and in good faith made statements about the reduction in mortgage interest rates which we have implemented as far as we reasonably could. [Laughter.] The hon. Gentleman perhaps was not in the House when we introduced the mortgage option scheme.

The complaint of the right hon. Gentleman and his hon. Friends is that we put a false prospectus before the nation on the basis of which we secured power. The fact is that on the basis of these election addresses we secured a tiny, tiny majority. We were then in power for a period and the people saw what we could achieve in government; and it was on the basis not of our promises of 1964 but on our performance from 1964 to 1966 that we returned to the electorate and won a massive majority. And it is on our performance that we are satisfied to be judged again.

4.41 p.m.

Mr. Anthony Barber (Altrincham and Sale)

I do not suppose that there is one of us in this House who would say that the ultimate objective in life is merely to increase the material trappings, or what we label in these debates as improving the real living standards of the nation. Yet, although a Government must obviously concern themselves with many other aspects, it is with that objective—improving the real living standards of the people—that the economic policies of any Government, Conservative or Labour, must principally concern themselves. I say principally, not exclusively, because economic policy must also have regard to our moral duties to developing countries and with other aspects not directly related to our own living standards.

In the final analysis, the raising of the real living standards of the nation can be achieved in only one way and that is from faster growth in the national output. In the longer term there is on other way. No doubt in the short term—and I am sure that the Chancellor will agree with this—the individual can draw on his savings or back some inflationary wage grab for higher money wages and so climb out of his personal problems on the backs of the weaker and poorer members of society, only to see his gains evaporate in still higher prices, or into the Chancellor's pocket, or in unemployment.

Wages, prices, taxes, public expenditure and personal savings are the key economic and political issues that any Government must face in their bid for an improved standard of living, and I should like to say something about each one, but each one is only a factor in the over-riding objective of faster growth.

The Chancellor of the Exchequer, in his Budget speech, rightly put his first aim of economic policy as sustained and accelerating growth. He was right to do that, for he will agree that a balance of payments is useless unless it clears the way for faster economic growth, a high level of wages makes no sense at all unless it is a reward for higher output and lower taxes out of constant income merely substitutes cuts in the public services for cuts in private consumption.

I make this point because one thing above all else lies at the heart of our troubles and that is the failure to achieve a rate of growth comparable with that in almost every other advanced country in the world. Before 1964 the Prime Minister used to tell us again and again in this House how Britain was doing in the international growth league tables. We do not hear anything like this from him these days. We do not now hear very much from the present Chancellor about this but we did in debate after debate when we were in government. Perhaps the Prime Minister no longer bothers to work out the figures. I should just like to put the House in the picture. This is the growth league for O.E.C.D. countries between 1964 and 1968. There are three exceptions where figures for 1963 to 1967 have had to be taken because the full figures were missing.

First was Japan with 53 per cent.; second, Turkey with 30 per cent.; then came Greece, Spain, Italy and France with 26 per cent.; seventh, Portugal; eighth. Canada, ninth the United States with 22 per cent.; tenth, Netherlands. eleventh, Norway, and twelfth Finland. Then if we had been on the National Plan target we would have come thirteenth but we missed the target and the National Plan was scrapped and so thirteenth place went to Germany with 16 per cent.; fourteenth, Austria, fifteenth. Denmark, sixteenth, Sweden, seventeenth, Belgium, eighteenth, Switzerland. Ireland was nineteenth with 13 per cent.; Iceland, twentieth, with 12 per cent. and Luxembourg twenty-first with 11 per cent. Finally, twenty-second out of twenty-two O.E.C.D. countries came the United Kingdom with 9 per cent.

I shall have a word to say about the Chief Secretary's reference to 1964 and the way he claimed that this had dogged all the actions of the past five-and-a-half years, but why in these circumstances did the right hon. Gentleman and his colleagues, in 1966, promise a 25 per cent. increase in growth in the following five years?

I said we came bottom of the international league growth table, and I thought one of the most droll observations made by the Chancellor in his Budget speech was when he said: There is certainly no eternal law that limits our growth rate to levels achieved in the past."—[OFFICIAL REPORT, 14th April, 1970; Vol. 799. c. 1224.] That was really a very funny remark when one realises that during the five years of the "dynamic" Labour Government our economy has been growing at only about half the rate that it was growing during those last five years of the Conservative Government. The Chief Secretary made some reference to 1964 and my right hon. Friend the Member for Barnet (Mr. Maudling), when he winds up for the Opposition, will be delighted to deal with what the Chief Secretary said about 1964. Meanwhile, perhaps I can just ask him this question. He said, and I took down his words almost literally "Every attempt to move since we took over has been dogged by 1964". "We have had five years of hard slog", and "1964 was a disability which caused all our problems from then on".

I ask the Chief Secretary—and perhaps the Chancellor will answer when he winds up—if all this is so, why did he and his right hon. Friends in their prospectus, in 1966 when they had seen the books, and also in their speeches to the nation on the television—why did they promise the earth to the electorate in 1966? I shall not ask the Government about their promises in 1964 because they pretend that they did not know the situation then. But what is all this hoo-ha and nonsense about 1964 having dogged the whole five years? If this is really so, may I ask why the Minister said in 1965, before the 1966 election: The economy is strong, sterling is strong. Employment is strong". Why did the Prime Minister say on 28th February, 1966, just a few weeks before the Election, "The economy is getting better••". After all, that was more than a year before he decided to devalue the £. Why, in what is called the Huyton election special pamphlet in March. 1966, just a few days before polling, did he say: A new Labour Government's action will strengthen our financial position and make sure that never again do we drift into debt. Why did he say that, if as the right hon. Gentleman is pretending, it all stems from 1964, for they understood the position in 1966? And what about the present Home Secretary, the former Chancellor, who just a few weeks before the 1966 election said, … I do not foresee the need for severe increases in taxation."—[OFFICIAL REPORT, 1st March, 1966; Vol. 725, c. 1116.] Then in May. 1966, just after the election, he put up taxes by £258 million, and in the following July another £176 million was added to taxation. Why, if they knew the situation in 1966, did they say these things? Why did they cheat the nation? Since I have been talking about growth rates, why in the Labour election manifesto of 1966 did there appear these words: In the next five years living standards for the individual and for the whole community will rise by 25 per cent. Last year, it rose just under½per cent. Why, if that was due to what happened in 1964, did the Labour Party make their promise in 1966? The right hon. Gentleman knows the answer. We shall be interested to see whether the Chancellor of the Exchequer tonight will tell us, as his right hon. Friend the Chief Secretary chose to raise this matter, why in the 1966 election—and this is only a selection of what was said—these things were said and high hopes for the future were held out. We are entitled to know.

I referred to some of the factors which he held back our economic growth. The Opposition have no doubt that two of them are the high level of personal taxation and the excessive proportion of the national output which is taken by the State. What are the accepted facts? This year, in Chicago, the right hon. Gentleman the Chancellor told the American people that our taxation had been increased by an amount which has no parallel in Britain's peace-time history and the paltry hand-out of last Tuesday does not affect the accuracy of that statement, as the Chancellor will agree. He will be able to make the same bold claim, not just in Chicago, where it was cheered to the echo, but at every meeting during the General Election. Let me repeat what the Prime Minister said. The House will probably remember his proud boast—he told the nation that there would be no increase in taxation over the lifetime of a Socialist Parliament.

It is this sort of thing which has made people disillusioned about the Government, I believe, much more than because of their performance, although that is bad enough. The fact is that the nation knows that at this election, whatever is said by the Prime Minister and some of his colleagues—I agree, not all—no- body will be able to believe a word, certainly not if what the Chief Secretary has said is true, that they knew all the time when they had got into office that they would have a bad time for the next four or five years. That was the implication of what the right hon. Gentleman said.

Mr. John Mendelson

Does not the right hon. Gentleman agree that the Press has been criticising speakers from both sides in this debate for not highlighting the real issues and for going back too much on the record of the other side? It has done that as much of his side as of our side. Is it not his duty now to point out, if he wants to be fair and to get away from this sterile exchange, that the main reason—[HON. MEMBERS: "What about the hon. Gentleman?"] I have not spoken yet. I will have some criticism to make in my own time. I am not shy about doing that, as the House knows.

However, the right hon. Gentleman must admit that the main reason why there is not more growth is that the Government fear that if they allow the import of raw materials to increase the balance of payments will again be in difficulty. Was there not an O.E.C.D. report in 1964 which criticised the right hon. Member for Barnet (Mr. Maudling) for not pursuing the right policy in this respect?

Mr. Barber

That may or may not be true, but that is not what the Chief Secretary said was the cause of our troubles.

Mr. John Mendelson

Deal with the main argument.

Mr. Barber

I am doing so. I shall come shortly to what I believe to be the main problem confronting us. It is one that the Chancellor studiously ignored in his speech, although, in his television broadcast, he came to the industrial problems and the avalanche of wage increases now going on.

I return to what I was saying. Even taking account of the Chancellor's proposals in the Budget, the incontrovertible fact remains that during the 13 years of the Conservative Government tax rates were reduced by £2,000 million a year while during the five and a half years of the Labour Government tax rates have risen by more than £3,000 million a year. It is a staggering thought that the increase alone in the tax revenue under a Labour Government, even allowing for the petty relief in this Budget, is larger than the entire yield of taxation during the last year of the Conservative Government.

It was rich of the Chief Secretary to say that all the taxes seemed to be working well. Let him ask any young executive in business, or any skilled or semiskilled man. He will be told with absolute conviction—and rightly told—that the present high level of direct personal taxation is penalising initiative and enterprise and frustrating extra effort and increased production. This is the truth of the matter and this is why the Conservative Party is pledged to reduce it.

Let it be remembered, although the Chancellor omitted to mention this, that even after this petty relief is in full operation there will still be more people paying income tax than when the Labour Government came into office. The Chief Secretary did not mention that, but that is the truth of the matter.

I thought that it was a fascinating reflection on the psychology of a Socialist Chancellor of the Exchequer that the petty relief in this Budget, which amounts to a miserable 3s. a week for most married couples, should have been described by him as the one major scheme of tax remission I am able to propose ''—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1249.] The Chief Secretary suggested that people often drew their conclusions from facts and figures rather than from debates. My goodness, he is right! It is incredible that anyone should describe 3s. a week as a major scheme of tax remission. The Chief Secretary talked in glowing terms about what he called an increase in consumption added by the Budget. Three shillings a week for most married couples is not even enough to buy two loaves of bread, not enough to buy even ½lb. of back bacon, and it leaves only 3d. or 4d. after buying a bottle of H.P. sauce and a stick of candy floss.

Mr. Barnett

Will the right hon. Gentleman say how much a week would be the effect on the average industrial worker, married and with two children, of the right hon. Gentleman's proposals to reduce income tax by 6d. in the £?

Mr. Barber

I am coming to consider the position of the married man who has two children who are under 11.

This promised relief at long last, this major scheme of tax remission of 3s. a week for most married couples—

Mr. Barnett

Answer the question.

Mr. Barber

—this scheme

Mr. Barnett

Answer the question.

Mr. Barber

If the right hon. Gentleman had cut the standard rate of income tax by 6d. in the £, we would have known what the effect would be; the hon. Gentleman can work it out for himself. The fact is that this paltry relief has come from a Chancellor of the Exchequer who, during his period of office, has increased taxation by an amount greater than any of his predecessors in history.

The right hon. Gentleman, so we are always told, considers his position in the history books. It is said that he is looking well ahead to the future. He has one claim to fame—the Chancellor who produced a bigger increase in taxation than any of his predecessors.

The sort of relief in this Budget is pitiful, coming on top of the biggest rise in the cost of living since the post-war Labour Government. We enjoyed the speech of the Financial Secretary on Wednesday, but I had to laugh when he said: Of course, regard must be had to price increases, but regard must also be paid to increases in personal disposable income ".—[OFFICIAL REPORT, 15th April, 1970; Vol. 799, c. 1409.] How right he was. Last year, wages went up by 7½ per cent. Prices took 5 per cent. of that. Taxes and contributions took a further 2 per cent. and the poor old consumer was left with less than½per cent. This is the reality of the situation.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

I am interested in the argument. I agree that it is important. But will the right hon. Gentleman define, in terms of how much off the income tax, what sweeping reductions in direct taxation mean? It sounds very big. Does it mean 6d., as has been suggested, or Is.?

What are sweeping reductions in income tax?

Mr. Barber

The right hon. Gentleman asks a fair question and I will give him an answer. They are the kind of reductions that we made in Government when, on five successive occasions, we reduced income tax for all taxpayers. That is a claim of which we can be proud. This is what we mean when we say that we will reduce taxation.

What is really serious is that, after this Budget, any taxpayer who does even half an hour's overtime will in future automatically be handing a third of his earnings to the Chancellor of the Exchequer. There could hardly be a scheme more cleverly or more effectively designed as a disincentive to overtime and harder work. It seems an extraordinary way to proceed—

Mr. W. Howie (Luton)rose—

Mr. Barber

I will not give way. I have already given way a good deal. I am taking full account of the Budget—[Interruption.] I am coming now to consider how Socialism has worked out in practice for the average family man. What have five and a half years of Labour Government meant for the average family man on average weekly industrial earnings with a wife and two children under 11 years of age?

Taking into account the increased earnings in those five and a half years, all the tax changes, including this relief, the extra contributions and rising prices, in terms of real purchasing power he is just about 12s. a week better off. It is really not surprising that people are disappointed after the high hopes that were held out by right hon. and hon. Gentlemen opposite in 1964 and in 1966.

The overriding reason for the mammoth increase in taxation has been the rise in public expenditure as a proportion of the national output. This has certainly outstripped anything contemplated by the Labour Government in the early years. Now the Chancellor—all credit due to him—is belatedly attempting to do something about it, but he is the prisoner of his Government's past profligacy. Of one thing we can be sure. In the event of a Labour victory at the General Election, the Chancellor would no longer be able to hold his own in the sphere of public expenditure.

There are three stark facts which are at once the direct consequence of the Labour Government's policies and, I believe, the root cause of the increasing burden of taxation. I hope that the House will bear with me while I give some figures.

First, the increase in national output, by which I mean gross domestic product, has been cut almost by half under the Labour Government. Secondly, despite this dramatic drop, the proportion of our national output taken by the State has increased during the last five and a half years by some 8 per cent. Thirdly, personal savings, which were rising strongly under the Conservatives, have, under the Labour Government, actually fallen as a proportion of the national output. The previous Chancellor of the Exchequer, now Home Secretary, was always telling us that savings are a substitute for increased taxation. He was quite right.

Taking the two factors that I have mentioned, the increase in the proportion of the national output taken by the State and the decrease in the proportion of the national output taken by personal savings, it is crystal clear that a mammoth increase in taxation was inevitable.

I make this point, because the conclusion is clear. In due course, within 12 months, the nation will have to make its choice. Under Labour the rate of economic growth has been almost halved while public expenditure has rocketed. The inevitable consequence has been this increase in taxation, to use the Chancellor's words, by an amount which has no parallel in Britain's peacetime history. So let the British people be under no illusions. This is the reality of Socialism in action; this is what has actually happened under the Labour Government. We can be certain of one point. If Labour were to win the election, both public expenditure and taxation would go rocketing up again.

I fully appreciate and respect the sincerity of those right hon. and hon. Gentlemen opposite who are not alarmed that the State should take more than 51 per cent. of the national output. Indeed, to be fair, they are the true and consistent Socialists. But, equally, they must accept that the concomitant is very heavy taxation indeed. As I have said, this is the fundamental choice which people will have to make at the election. We, on these benches, believe that not only must the rates of direct personal taxation be cut, as we cut them before, but also that the proportion of the national output taken in taxation must be reduced. We further believe—and we have never sought to hide this aspect of our policy, although it may not be all that popular—that there must be a further shift from direct to indirect taxation, from taxes on earnings to taxes on spending.

One of the fascinating aspects of the development of the Parliamentary Labour Party is that, despite all the fine words in opposition, in Government they have been staunch advocates of an increase in indirect regressive taxation. Indeed, since they have been in office, they have increased indirect taxation by more than £2,000 million a year, and right hon. and hon. Gentlemen opposite voted for it time and time again.

The reason was given a few months ago in a very candid answer by the Secretary of State for Social Services. I think that the House, and certainly the Labour Party, will be interested, so I will read it. The right hon. Gentleman said: …it's public psychology. I think the British working class don't like paving income tax at all. It's quite clear that they prefer to pay indirect taxes. They like being diddled indirectly, they don't notice it on the beer and the cigarettes, they do notice it on the overtime Roy Jenkins, I think he raised about £350 million in his Budget. Do you know how much I raised just by a little small Bill? £460 million. He had endless debates in Parliament, he was on the television. There I was quietly raising contributions and when we got to the Third Reading of the Bill nobody was in the House at all. He concluded: Now that may be a very cynical way of putting it. but this is an enormous question of political psychology. That was the end of the interview, except that Mr. Anthony Howard concluded by saying: Cabinet Minister, Richard Crossman, caught in a candid moment. Incidentally, before leaving public expenditure, there are two contrasting figures which must surely shake every right hon. and hon. Gentleman opposite who fought the last election on the issue of housing. It is now well known that last year fewer houses were built than in 1964 and that this year the number will be even less. But what is not so generally known is that whereas the real increase in public expenditure on housing during the last five years of the Conservative Government was 70 per cent., during the first five years of Labour Government it has been not 70 per cent., but 10 per cent. It is little wonder that the homeless in our midst have had the Labour Party in a really big way—[HON. MEMBERS: "Oh."] This is true. It is also certainly true that the poor are getting poorer. Despite anything that right hon. and hon. Gentlemen opposite may say, if anybody doubts that, I have a transcript of another interview given by the Secretary of State for Social Services on this matter. [Interruption.] Do not push me too hard, or I will quote it. It is a very interesting extract.

An Hon. Member

Let us hear it.

Mr. Barber

I have it here somewhere. He was asked about the poor, and he said: We were hoping to narrow the differential between the lower paid worker and the better off, and here we have failed. The interviewer asked: And you blame that on the unions?", to which the right hon. Gentleman replied: I don't blame them, its a fact the trade unions—that our prices and incomes policy failed, we haven't in fact been able to enforce it. The right hon. Gentleman was making the point about how it affected the poor.

I turn, now, to the balance of payments. In a previous debate I criticised the presentation of the trade figures as misleading. In that same speech I also described the trade balance as excellent, as the right hon. Gentleman will recall. Those two observations were not inconsistent. I should like to say this to the right hon. Gentleman, because it is right that I should be allowed to do so in view of what he said at the end of the previous debate, when I was not able to follow him. I have repeatedly, at home and abroad—and I know that the right hon. Gentleman will accept this—used the word "excellent", and paid tribute to the obvious improvements in the balance of payments after five years of almost continuous deficit. Heaven knows that we deserve an improvement after that.

I should like to ask the right hon. Gentleman two questions. First, to what extent does the right hon. Gentleman consider that the improved position in the balance of payments is due to what have been called the artificial props which he and his predecessor have introduced? These are, first, the restrictions on overseas investment, the seed corn as it is called. Whatever the trend of overseas investment may show, it is clear that the restrictions have saved some foreign exchange. Second, the tougher attitude to overseas aid. The figures produced a short time ago showed that there had been a fall in the percentage of the g.n.p. which goes to poorer countries. Third, the continuance of the import deposits scheme, and finally, the higher unemployment which the Government had deliberately caused to help the balance of payments.

I think that we are entitled to know to what extent the right hon. Gentleman considers that those exceptional and artificial factors introduced by the Government have contributed to the improvement in recent months. The Treasury must have made an estimate in each case in advising how long to continue them, and I think that the House is entitled to know. I ask for this information, but, whatever the answer, it does not detract from the fact that a real improvement has taken place.

My second question concerns the interrelated matters of industrial relations and strikes, wage settlements and prices. Most hon. Members thought that the right hon. Gentleman was a little coy about the avalanche of pay claims. The right hon. Gentleman will be the first to agree that it can be so described, because that was the phrase used by his right hon. Friend the Secretary of State for Employment and Productivity when she appeared with the Prime Minister at Blackburn. It is true that the right hon. Gentleman paid lip-service to the need for restraint, but, when one realises that this is the most serious economic problem facing the Government in the immediate future, I think that I am being a little more than generous when I say that the right hon. Gentleman skated over it a little quickly in his Budget speech.

What are the facts? It is accepted that wage settlements are now running at about 10 per cent. on average, and are expected to remain at this level for most of 1970. This is the conclusion of the Bank of England, and presumably the right hon. Gentleman agrees with it. If one takes into account wage drift, earnings per hour for a week of given measure will be increasing by about l2½ per cent.

Of the three economic aims which the right hon. Gentleman laid down in his Budget speech, the third was to preserve our competitive position. Surely the right hon. Gentleman is bound to agree that here there is a real danger. After all, one should bear in mind that the Government's norm was 2½ per cent. to 4½ per cent. In these circumstances, it is not surprising that the I.M.F. is concerned, and so is the Chancellor himself, because increases of the order which are now being achieved are larger than in most other industrial countries, and are bound, in due course, to affect the competitiveness of our exports.

What makes this all the more serious is that these increases follow a period of severe wage inflation. Between January, 1967, when the six months wage freeze ended, and last October, the monthly earnings index rose by about 22½ per cent., whereas total production rose by only between 7 per cent. And 8 per cent. These figures are really alarming, and these are the hard facts which the Chancellor of the Exchequer cannot lightly cast aside. They are facts which must cause grave concern for any Government, Labour or Conservative, after the next General Election.

Furthermore, as is admitted, Britain has suffered an unprecedented increase in strikes under the Labour Government. This has been due, as I shall show, and there is no other word for it, to the sheer cowardice of the Labour Government. In his Budget speech last year the Chancellor of the Exchequer made it crystal clear that one of the pillars on which his proposals rested was legislation to improve industrial relations.

Mr. Stanley Orme (Salford, West)

What has that to do with wages?

Mr. Barber

It has a lot to do with wages, as I shall show. Last year the Chancellor of the Exchequer made this announcement, and I think that the House should recall his actual words: The Government have, therefore, decided to implement without delay, during the present Session, some of the more important provisions incorporated in the White Paper ' In Place of Strife '. They were not implemented without delay. They were not implemented during that Session. They were not implemented at all, and we have had no report from the right hon. Gentleman in his speech this year telling us of this change, and what the effect will be.

The right hon. Gentleman also said: …the occurrence of unnecessary and damaging disputes, of which we have seen all too much recently,…are totally incompatible with our economic objectives."— [OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1006.] That was the reason for the legislation which the right hon. Gentleman was going to introduce.

Does the Chancellor still take the same view? Are the industrial disputes on the scale which the right hon. Gentleman then had in mind still totally incompatible with our economic objectives "? Or has the right hon. Gentleman changed his mind? He has never told us, and this is what is worrying people overseas. We know that last year there were more strikes than ever before in our history and, as every member of the Government knows, the industrial effect of these strikes is more serious even than the statistics themselves show. Is this worse situation which exists now still, in the right hon. Gentleman's words, totally incompatible with our economic objectives"? Or is it now acceptable? If the right hon. Gentleman has changed his mind, that is fair enough, but he owes it to the House to tell us why, and we ought to know tonight. After all, the White Paper "In Place of Strife" concluded by saying that its proposals are an opportunity and a challenge. The Government missed the opportunity, and they funked the challenge.

What gives cause for real concern is that 90 per cent. of the strikes are unconstitutional and in breach of agreements, compared with a figure of about one-third in the United States. Why has all this happened? It has happened because the Prime Minister and the Secretary of State for Employment and Productivity abandoned the legislation which they themselves declared to be essential and which the right hon. Gentleman, whatever he may say tonight, knows in his heart to be essential, because there has been no reason for him to change his mind from last year.

Why did the Prime Minister and his right hon. Friend abandon their proposals? They did so because they capitulated to their paymasters. They said, in effect, "To hell with the lower paid and those living on small fixed incomes. We cannot offend our paymasters the unions who, for every £50 in affiliation fees to the Labour Party, buy 1,000 votes at the party's annual conference". Hardly any trade union now takes the slightest notice of this discredited Government and their incomes policy.

Why should they? They pay the piper £50 for 1,000 votes and the Labour Government, for once giving value for money, are content to do their bidding. If the right hon. Gentleman doubts the effect of giving up this aspect of the Government's industrial relations policy he should ponder the words of somebody who I know he respect—Sam Brittan. Referring to the saga of the Industrial Relations Bill, as he called it, he said: This Bill, with its penal provisions, was meant as a psychological substitute for incomes policy. There were arguments for and against the Bill. But the worst possible course was first to announce it and then to drop it as a result of trade union and Labour Party resistance. The disastrous impression was created that, until the Election, the trade unions had only to emit the gentlest puff of breath and the Government would give way. That is precisely what they have done. So within a few months, as the British people will learn, the present flood of wage settlements will lead to what can only be called—and my words will be shown to be true—a cascade of price increase. Already during the first quarter of this year prices have been rising at more than 7 per cent. a year. Once again, the penalty will be paid, as we know, by the housewives, those workers with weak bargaining powers, and by retired people living on small fixed incomes.

Mr. Orme

The right hon. Gentleman is making great play of present wage negotiations. Most of the negotiations now taking place are official negotiations related to official disputes. At the time the prices and incomes policy was being implemented the right hon. Member for Enfield, West (Mr. lain Macleod) and his party were in favour of collective agreements arrived at with trade unions. The present wage increases are the result of collective agreements. Is the party opposite not now in favour of collective agreements?

Mr. Barber

Certainly we are; there has never been any doubt about that. I thought I made that clear first by my quotation from Sam Brittan and by my other remarks. It is a direct result of the failure of the Government to act as they said they were going to act—[Interruption.] That is true. That is why every trade union leader knows that in this election year he need take not the slightest notice of anything that the Government say.

Even more serious than the effect on the consumer at home—the effect of rising prices on the housewives and those on small fixed incomes—is the fact that if we are not careful we shall be in real danger of pricing ourselves out of export markets.

Trade union leaders should also ponder the consequences. If Labour were to win the next election the Prime Minister would not hesitate to reintroduce statutory control of wages, exactly as he did before—[Interruption.] Right hon. and hon. Members opposite may not like this, but at the last election, what did the Prime Minister say? [Interruption.] This is typical. Hon. Members opposite do not care the slightest if the nation was cheated. They do not mind at all what was said at the last election. The hon. Member for Penistone (Mr. John Mendelson) can sit there laughing, because he has a fairly substantial majority, but many of his right hon. and hon. Friends will certainly be swept away at the next election.

It is worth recalling again and again that the Prime Minister said that we could never legislate for wage increases, and that no party was setting out to do it—yet within less than six months he did just that. Next time he may make the same hypocritical pledge and, if he wants to, with equal impunity he will not hesitate to break it.

Taking the last five-and-a-half years as a whole, Socialism has failed. The British people know it and hon. Members opposite know it. Before the turn of the year —[Interruption.] No.—I have another quotation to read. Just before the turn of the year the hon. Member for Ilkeston (Mr. Raymond Fletcher), who is hardly on the right of his party, wrote a very revealing article entitled "Where did it all go wrong?". Perhaps hon. Members opposite will do their hon. Friend the courtesy of listening to his words of wisdom. He said: Reality is that though we may be wanted by our constituents, our doctrines are not. It is that most workers were doing very nicely, thank you, during the 13 wasted years and do not think they are doing so well now. It is that Barbara Castle's Prices and Incomes policy, though hardly different from the ' planned increase of incomes' that the 1963 Labour Party conference accepted with exhilaration, was killed by proletarian derision just as her innocuous Industrial Relations Bill was killed by proletarian resentment. It is that the class-consciousness generated in industrial disputes drives workers against `their' party instead of towards it. It is that dynamic words from dynamic ' new men ' have not conjured up much new economic growth. It is that the planned solution to the balance of payments problem did not solve it, whereas the unplanned back-tracking to financial orthodoxy looks like doing so. It is, most of all, that Capitalism works and most people are quite content to let it. That is the truth.

5.26 p.m.

Mr. Douglas Houghton (Sowerby)

I am sure that the House has watched with interest the endeavours of the right hon. Member for Altrincham and Sale (Mr. Barber) to work his passage back as a credible spokesman for the Opposition. We sympathise with the task that he has set himself. He began as a lecturer in economics and finished as one of the last of the line of soap-box orators. He was trying to persuade the British people that they are worse off than they are, and worse off than they realise they are. There is not the slightest doubt that in the last five years the general living standards of our people have risen. There is equally no doubt that the position of many of the poorer people, especially the pensioners, is much improved.

The right hon. Gentleman quoted our rate of growth in comparison with that of other countries. I have never been very much impressed with this league table business. I had little patience with it when it was frequently quoted from our side of the House. In making these comparisons we must remember that it all depends where one begins in looking at the relative improvement in economic growth. The right hon. Gentleman, quoting from his statistics, referred to Ireland as having a higher rate of growth than ours, and he also mentioned Greece and Turkey as being higher up the league table. But we know that the standard of living in those countries is much below ours. That kind of comparison is quite misleading. What we have to consider is the growth potential of our economy and industry. We must see whether we are maximising it and making the best of it.

Another thing that the House has observed is that no Conservative spokesman can now make a speech without the Tory book of quotations in his hand. Extracts from speeches made by right hon. and hon. Members on this side of the House are carefully annotated. They are probably torn from their contexts, but there it is. They are sayings that must be quoted in all Conservative speeches.

Having regard to the right hon. Gentleman's indictment of speeches and promises made from this side, why is the Conservative Party repeating this error of forecasting what it will do, and promising drastic reductions in taxation? Has the right hon. Gentleman the Member for Enfield, West (Mr. lain Macleod) nothing to learn from what he listened to this afternoon? In a speech last year I expressed some rather gloomy thoughts about the future of politics and the parliamentary institution in this country. If all politicians of all parties go on making promises and giving pledges which cannot be fulfilled the people will get sick and tired of the whole institution. That is a warning which the right hon. Gentleman should heed.

The right hon. Gentleman also compared reductions in taxation during the period of Conservative Government with increases in taxation during the period of Labour Government, but the reductions in taxation made during the period of Conservative Government were probably mistaken, economically, at the time. It is probable that they released too much of our resources to private consumption, and did not retain enough for public and private investment. One cannot judge these comparisons on the superficiality of saying, "We reduced taxation by so much and you have increased it by so much." It depends on what the economic conditions were, and what they are now.

The right hon. Gentleman attributed a great many of the "misfortunes," as he described them, of the Labour Government to what he called the cowardice of the Government in not facing the problem of industrial relations. There is no more complex sector of public affairs that industrial relations. The right hon. Gentleman knows that. One is here dealing with men and women in the mass —the workers; indeed, with the majority of the community. This is not just a section of people who can be pushed around, legislated for, put in straitjackets and made to sign contracts against their will. These are the workers, the people who have fought over the centuries for their freedom and independence, politically and industrially. It is not surprising that they are fascinated by their new-won power, and are trying to get their bearings in an uncertain world in changing conditions, and to establish some kind of stable relationship between themselves and the rest of the community, and themselves and their employers.

I spent a great deal of my life in this field, albeit in the public service organisation, and I know that the psychological problems, the small things that give rise to serious discontent, the approach to the dignity of the individual and of the organisation in industrial relations are all factors which require a great deal of study and are bound to be the subject of a great deal of trial and error. There is no simple solution. There is no simple way through. The right hon. Gentleman does a disservice to his own intelligence, to the Government and to the trade unions in suggesting that failure to legislate against the unofficial strike accounts in large part for all that has since followed. It is not true.

Mr. Barber

Will the right hon. Gentleman just say, because it will be useful to know from him, having in mind his particular position in the Labour Party, whether he has any particular view of the Prime Minister's statement that, taking everything into account, legislation was essential?

Mr. Houghton

I am quite convinced that the Prime Minister made that statement in good faith, believing at the time in what he was saying, but, again, Prime Ministers are not immune to changing political, industrial and social conditions. It is not the first time that Governments have had to adjust themselves to influences and opinions which they must respect if they are to carry the good will, not only of their own supporters but of the country as a whole. I played some part, as the House knows, in that extremely complex and difficult situation. I am convinced that the ultimate decision was the right one, and we must now see whether we can build up a new, stable and happier relationship between workers and their employers. But much of what is now going on is not due to unofficial strikes, nor is it the product of the Government's abandonment of the proposed legislation last year. It is due to the fact that many workers can see opportunities of improving their conditions, and they are doing so by agreement.

Turning to the Budget, I think that perhaps the most important point in the right hon. Gentleman's speech was what he did not say. He did not substitute his own Budget assessment for that of my right hon. Friend. Most of what he had to say was about the past—the mistakes of Government and the wickednesses of politicians. He said very little about his judgment of the situation as at this moment.

I see that some of the newspaper headlines over the weekend called the Budget flat. It was termed a non-event, and had other scornful labels attached to it. But the great expectations of this Budget were not built up by the Government, and least of all by my right hon. Friend the Chancellor of the Exchequer, but by the Press; and built up, probably. by Tory politicians who hoped to see the Government fall into the same error as they themselves had fallen into in the past.

The Tories have discredited the preelection Budget, and it looks very much as though the Conservatives were ready to adopt the posture of Satan rebuking sin if the Chancellor of the Exchequer dared to introduce anything that could be called an electioneering Budget.

Mr. Patrick Jenkin

One really must scotch that comment. My right hon. Friend the Member for Barnet (Mr. Maudling) put up taxes by £100 million in the last Budget before the 1964 election.

Mr. Houghton

A pre-election Budget is not necessarily one in which one does not put up taxes: it may be a Budget in which one ought to have put them up more. Again, it is all a question of what is the right budgetary judgment at that particular time. If Governments distribute too much in a pre-election Budget, that may be an error, but if they do not take enough in a pre-election Budget that may be an error, too. A Chancellor of the Exchequer can fail in his duty either way, but I submit that my right hon. Friend has not failed in his duty now. There is no political bribery in the Budget.

Mr. John Biffen (Oswestry) rose—

Mr. Houghton

No, I must get on. I have given way a number of times.

The main complaint seems to be that my right hon. Friend has been unduly cautious, but I do not think that there is any justification for releasing more spending power merely for the sake of it, because the combination of social policy and economic aims is the only sound budgetary policy when we are just emerging from a long period of deficit and when it is most important to avoid any recession. I have every confidence in my right hon. Friend's judgment. I think that he has been proved right in what he has done since he became Chancellor. I believe that he is now seen to have been right in his judgment over the last two years.

What I now want to do is to relieve him at once of a suggestion that has been made in several quarters that in making his income tax and surtax proposals he has been guided by the state of work in the Inland Revenue. On the day after the BudgetThe Guardiansaid: But the biggest cheer may come from the Inland Revenue department itself which has been relieved of much irksome and uneconomic paper work by the changes in surtax rates and the elimination of workers from income tax liability. The New Statesman had two references to this on Friday. In its leading article it said: Indeed, taking direct tax changes as a whole the chief beneficiaries are the supposedly overworked tax inspectors. Sir John Whalley, former Deputy Secretary of the Ministry of Social Security, had a letter inThe Guardianthis morning in which he said: The most charitable reason I can think of "— for the tax concessions being what they are— is that they have been made for the convenience of the Inland Revenue department. This is quite untrue, and arises from a mistaken impression of what happens when people are taken out of paying tax under Pay-As-You-Earn. There is no saving in work for the Inland Revenue as a result of the changes. There might be a little in the surtax branch, but certainly not overall. Two million people are to be lifted out of paying tax, but they are not lifted out of the complex apparatus of Pay-As-You-Earn. Exempt persons must be coded just as liable persons must; coding notices must be sent out for everyone. It is only by use of the tax tables and reference to the code number and earnings of the individual that exemption or otherwise is determined.

The work now being started in the Inland Revenue on this year's Budget proposals will cost initially well over one million hours of overtime. The staff will have to work long hours at the end of a long, rather hard winter, with the light evenings coming on and the warm weather. They will be fully occupied on overtime until the beginning of July. This happens every year, and in the short term there is a great deal of extra work in this kind of exercise.

Mr. Dickens

Surely there must be some saving to the Inland Revenue if a large number of people are taken out of paying tax? Many of those who might have been paying will almost certainly have taken up all sorts of problems with the Inland Revenue about the amount of tax they should pay, exemptions, allowances and so on. By taking people out of the income tax-paying bracket—and my right hon. Friend the Chancellor might have been much more ambitious here—surely my right hon. Friend may claim some savings?

Mr. Houghton

Do not tell me about income tax, for heaven's sake! There is a lot of work in deciding whether or not people are exempt, whether or not they are married, whether or not the children belong to them. All these factors come into deciding what a taxpayer's code is. It is his code, in conjunction with his earnings, which decides whether or not he pays tax. The re-coding that must now be started will cost a great deal in overtime.

It is about time the Government looked afresh at the staffing provision in those departments frequently subject to exceptional burdens of work arising out of statutory review. It is no good just providing the staff when the work arrives. Some preparation should be made for it. It is important for the morale of the staff concerned that reserves should be provided against additional burdens of work of this kind. I looked at the Inland Revenue staff sheet this morning and found that 125 people were shown as having resigned last week. There is wastage and replacement of experienced people by trainees. Some offices have as many as 40 per cent. trainees. This is the problem of Inland Revenue administration.

Another thing the Chancellor should examine is how to save the enormous amount of paper work. All the coding is done, all the millions of coding notices are sent out, and then as soon as the Chancellor sits down after his Budget statement a great deal of that work has to be done again. Is there nothing better than this? It is the most wasteful use of paper and pen and ink in the Civil Service today.

The Chancellor should try to get away from the rigours of the April Budget and forecast possible changes in his taxation system in advance. He has done that in one respect this time. He announced in the autumn the change he proposed to make in the conditions of the dependent relative allowance, and authorised all the coding to be done on the assumption that the changes would be made in this year's Finance Bill. This could be done on a wider scale. For the longer term I am advised that as a result of this Budget more and not fewer staff are required in the Inland Revenue.

I want to say something now about child poverty, because this is the next big question to be raised in discussion on my right hon. Friend's proposals. The Tory interest in child poverty is certainly welcome, though I am not sure there is much evidence of genuine concern in the past. My right hon. Friend the Chief Secretary went over the record. What it amounts to is that only once in 13 years did the Conservative Government improve family allowances, and then they raised the allowance by a very small amount for the third and subsequent children. My right hon. Friend the Chief Secretary gave details of the changes we have made since 1965.

I am all for relieving child poverty and for preventing it as well. I wish that many of those who come to the fore on the relief of child poverty would be equally eloquent on the need to prevent it as far as possible. I hope that those who want to eliminate child poverty by fiscal means or social security payments will come out in favour of a national family planning scheme, with all that should go with it, to enable people to make their choice intelligently and in full knowledge of how they can do it. There is too much ignorance and irresponsibility on the important function of parenthood in Britain today.

But, of course, we cannot visit the sins or fecklessness of parents on their children. How then are we to deal with the matter? My right hon. Friend referred to what the right hon. Member for Enfield, West (Mr. lain Macleod) had said about child poverty and the method he would like to follow to deal with it, but my right hon. Friend did not pursue the matter to reveal the Chancellor's line in this respect.

I believe that the combined operation of improving family allowances and adjusting income tax child relief at the same time has a great deal to be said for it as a satisfactory way of dealing with the problem. I sponsored this scheme when I was a Minister. I did not see it in operation before I left, and unfortunately when it came into operation it was done so clumsily, in two stages, that a great deal of confusion and dissatisfaction arose among taxpayers as a result. These two things must be done together. Unfortunately, it is too late for this method to be adopted this year, because the family allowances should be in payment now so that the adjustment of child relief for tax purposes can be made at the same time and not later in the year.

The Child Poverty Action Group, which now seems to be in a position of considerable influence on the benches opposite is in favour of this method. It is called the claw-back scheme or give-and-take scheme. It has the merit that we can improve the family allowance more in this way than if we do it in any other way. What happened in 1967 and 1968 shows that by clawing back some or all of the increased family allowance by an adjustment of the income tax child reliefs it is possible for the same net expenditure to give much higher benefits for those who are tax-exempt.

This year it is only possible, I think, for the Chancellor to announce his intentions, if he feels able to do so. If he could announce that he would propose that family allowances should be increased and corresponding adjustments in income tax child relief made in 1971, that would not be electioneering but a prudent announcement of what the Government intend to do. If it is not done before next April, it cannot be done at all for that year. I sincerely hope that the Chancellor will apply his mind to the matter very quickly. He said in his Budget Statement that he hoped there would be a new look at the whole subject of family endowment. That may be desirable, but in the meantime nothing more is being done for the children of today.

I want to finish with a word in defence of the surtax concessions, which have also been the subject of some scornful references. The bulk of surtax payers who would benefit from the concessions are working men who are earning rather more than other working men—dockers, printers, journalists, public officials, executives, engineers, scientists, laboratory men and so on. Who will deny that they are workers? Who will say that they should not receive some consideration?

The effective exemption limit for earned income for surtax is £5,000 a year, but under the scheme introduced by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), although people are exempt from surtax on earned income up to £5,000, they have to pay surtax on investment income over £2,000. That is the grievance, and I heard it from a national trade union leader within the past three weeks. He told me that his two problems were unemployment on the one hand and workers earning £60 on the other, and that under a surtax system of the present kind workers earning more than £2,000 a year, whilst they pay no surtax on their earnings, are having their building society interest grossed up and their Post Office savings bank interest, which is exempt from income tax, brought into surtax. What they are saving is not only being taxed in some cases at the standard rate of income tax without earned income relief but is the subject of surtax as well. The Budget proposals, which, as my right hon. Friend the Chief Secretary reminded us this afternoon, will not be effective until 1st January, 1972, are intended to meet that grievance. I do not think that a Socialist Chancellor should be inhibited from removing tax grievances, even if they come from those half-way up the scale.

Mr. John Mendelson

Does my right hon. Friend agree that the whole case he has just made stands or falls not with the accuracy of his statement that some workers are included in the list of surtax payers—and I do not at all doubt his word about what he was told by a general secretary—but rather by the percentage relationship between such workers and the kind of people referred to in the leading article inThe Timeson the day after the Budget, which said that those with investment income of £50 a week will benefit most from the concession?

Mr. Houghton

This is the difficulty. How far is one going to discriminate, how far is it possible to discriminate, in a system of taxation, if to remove one grievance probably creates some sense of unfairness in other directions? The Chancellor can only use his overall judgment of the situation. I am sure, however, that there are far more people at work being caught by the system I have described than are people who are living on investment income. I have never had any ideological difficulty in relieving some of the middle range of taxation and, indeed, this is being done under my right hon. Friend's proposals.

I have put two matters in particular to the House. First, I want to disabuse the mind of anyone who seems to think that the Chancellor would have adjusted his tax concessions to suit the Inland Revenue. The Inland Revenue itself never thinks that any Chancellor would adjust his fiscal policy to the state of work in the Department. It is untrue that anything like that has happened this time. Secondly, on child poverty, there is something here a little disturbing because the Chancellor who enthusiastically introduced the claw-back scheme in 1968 now seems to have lost affection for it, whereas the right hon. Member for Enfield, West seems to have acquired an affection for it. It seems to me that there may be a basis on which both sides of the House could regard this as a suitable way of giving the maximum additional benefit from family allowances without the waste of resources by paying out further subsidies to the much better off families.

5.56 p.m.

Mr. Jeffrey Archer (Louth)

I apologise to right hon. and hon. Members on both sides of the House for making my maiden speech in the Budget debate, when so many Privy Councillors wish to speak. I had intended to speak on the Second Reading of the Misuse of Drugs Bill, but, due to influenza and the misuse of aspirins, I was unable to do so.

I have the privilege of representing the constituency of Louth, which is in itself a misnomer, for the largest part of the constituency is the attractive seaside town of Cleethorpes and the most progressive and forward-looking great new industrial port and complex of Immingham. Perhaps the Boundary Commission, in its wisdom—and it was allowed its wisdom on this occasion—decided to name the constituency after one of the most pleasant market towns in Lincolnshire, or, as my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle) pointed out, after one of the most beautiful parish churches in the country.

Half the House will not know where Louth is and the other half will never have been there—that is to say, until the recent by-election, when right hon. and hon. Members from both sides appeared in droves on the 4.30 train from King's Cross. I suspect that right hon. and hon. Members of Her Majesty's Government who arrived very late at night and departed a little later may still not know where Louth is. The Minister of Transport's decision to axe the local railway line will leave them little chance of finding out.

The entry of a new Member to the House of Commons so often arises because of a personal tragedy and loss, and in this Louth was no exception. I know that the late Sir Cyril Osborne was one of the most respected Members of the House—[HON. MEMBERS: "Hear, hear."] —proving that, to be respected, it is not necessary to be all things to all men. He fought courageously for his constituents and expressed his views with determination and integrity. I shall attempt, in my dealings with constituents and, indeed, with the House, to show the same courage and same forthright determination, but I cannot guarantee that I shall always be as controversial.

I think that it is not a tradition of the House to mention anyone other than the late Member, but I shall, with your permission, Mr. Speaker, break with the custom by saying that Lady Osborne has played as great a role in politics as her distinguished husband and that she continues to be one of the most respected women in public life today.

I am of that generation which has never known this country at war and has really never known her as a No. 1 world Power. My first vote was in the 1964 General Election, which saw the return of a Labour Government even if that return was not assisted by my vote. Since then, I have watched five Budgets increase taxation by varying amounts from £12 million to £900 million, after being promised, as a young voter, that there would be no general increase in taxation. Last Tuesday, I listened to my first Budget lower taxation by £220 million.

I remind the Chancellor of the Exchequer of his own maiden speech, made on 3rd June, 1948, when he said: …it was possible to point out "— that was, to the electorate— that it was better to have a somewhat harsh Budget, which would cure inflation, rather than a generous, popular Budget which would merely undermine the purchasing power of the pound."—[OFFICIAL REPORT, 3rd June, 1948; Vol. 451, c. 1254.] It would appear that inflation can no longer be cured by a harsh Budget. Nevertheless, I welcome this non-electioneering Budget and congratulate the right hon. Gentleman on being the first Labour Chancellor to lower taxation since his own maiden speech.

But I fear that I must, with the hon. Member for Liverpool, Walton (Mr. Heller) and my hon. Friend the Member for Folkestone and Hythe (Mr. Costain), make up a somewhat unusual and certainly unholy trinity in being very disappointed that the Chancellor felt unable to remove selective employment tax from the building industry. Were it not for my youth, I would take the cynical view and say that the only reason the Chancellor felt unable to cut this tax was to make it impossible for the Conservatives to abolish it. Perhaps I will know better when I grow older.

Nevertheless, I feel that the least the right hon. Gentleman could have done was to remove this tax from the apprentices in the building industry. It would have meant a cut of only about £12 million. This action alone would have done a great deal to relieve unemployment in the industry. Selective employment tax can add anything up to £200 to the price of a house, and often it is the final reason for a young married couple being unable to own their own home. It is absurd to regard the building industry as a service and not as a manufacturing industry. While only 7 per cent. of labour is employed in the industry, it seems ridiculous that it should provide 25 per cent. of the revenue collected by S.E.T.

Lack of housing is perhaps the greatest social problem of the last few years. I would have thought that the Government could have put home building in the same priority category as exports and farming as far back as November, 1967, and I still hope that it is not too late for the Chancellor to reconsider the situation. I remind him of a speech made by the right hon. Gentleman the present Prime Minister when he was Shadow Chancellor in 1958.

The right hon. Gentleman said: I suggest that this is a year when the Government should have… done everything in their power to help overcome the shortage of housing. Nothing has occurred during the last six years that has done anything to ease the housing situation. But the right hon. Gentleman made an even more important statement: In our excitement about tax concessions I hope we shall not forget that those concessions have been made possible at the expense of a quarter of a million additional unemployed…".—[OFFICIAL REPORT, 8th April, 1959; Vol. 603, c. 208.] In passing, I want to answer the right hon. Gentleman the Chief Secretary to the Treasury, who mentioned the mortgage option scheme and said that I was not a Member of the House when it was brought in. I was not, but I was a young voter in 1964–65, when 3 per cent. mortgages were promised to people of my age group. Without going into more detail on the frustrations or disappointments, the successes or concessions of this Budget, I want to comment on one aspect which the Chancellor thought unnecessary to mention and which many of us I believe on both sides of the House will have found a sad omission.

The Budget statement made no reference to aid to under-developed countries. No one will pretend, especially someone young and new to the House, that we have money now to throw around in any direction without thought. But the lessening of our position in the world has in no way lowered our responsibility to those nations we once governed. The latest appeal by Christian Aid and Oxfam was supported by thousands of people throughout the country and I still believe that we as a nation have a role to play in the developing world. I hope that the Chancellor will find it possible to mention tonight what role he sees us playing.

All of us over the last few days will have watched the exploits of the American space men. I know that the nation will have been relieved and thankful for their safe return. We saw the wealth and brains of America bringing these three brave men home. I say with the greatest respect, however, that, from the beginning to the end of that flight, just over 48,000 people died of hunger, and that the world surely must put its wealth, its brains and its finance into solving this problem.

Finally, I return to the speech made by the Prime Minister when he was Shadow Chancellor. He ended it on a very high note by saying: Soon the electorate will be called upon to judge the record of this Government, reelected…with such high-sounding promises —as events have proved, fraudulent ones "—[OFFICIAL REPORT, 8th April, 1959; Vol. 603, c. 228.] At this point, HANSARD records a noisy interruption from Sir Cyril Osborne.

The Chancellor must have been aware that the success of the country so often depends on the ability of the next generation. It is only just in time that he has brought back a little incentive into the tax system. I look to my right hon. Friend the Member for Enfield, West (Mr. lain Macleod) to bring back, in his first Budget, incentive and free enterprise in a whole-hearted fashion so that the next generation will not find it necessary to emigrate to any part of the world which will pay them their true worth, thus depriving the nation of its greatest asset —indigenous talent.

Let us stop making "ambition" a dirty word and looking upon risk as an extension of gambling. I beg the Chancellor to remember that he is handing over a legacy to the next generation. Let it be a legacy that sees Britain not as a tiny island somewhere off Europe, which has only its history books to remind the young of its past greatness, but one that leaves Britain with a standard of living second to none.

Let us bring back the British way of life, a desire for each man to better his own and his family's existence. Let restriction and constriction be a thing of the past and incentive and reward again become part of our way of life.

6.8 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

The hon. Member for Louth (Mr. Jeffrey Archer) apologised for preceding a number of his right hon. Friends. I must tell him that, in view of what he has said and of the number of speeches we hear in the House from right hon. Members, there is no cause for apology in that respect.

We listened to the hon. Gentleman with great interest. We heard his very kind comments about his predecessor, the late Cyril Osborne, a very much-liked Member of the House who attacked a number of hon. Members and befriended many more. We listened with pleasure to the hon. Gentleman's remarks about his predecessor.

I took note of the point that the hon. Gentleman made about the effect of S.E.T. on apprentices in the building industry and the way in which he put forward his idealism on Christian Aid and his moderation on a number of other matters. These factors all prove that he will be of great value in our debates.

The first point on the Budget itself that I wish to make concerns the assistance, totally £30 million, being given to the building industry. This short-term incentive can be of great value, but we must understand more about the way in which such incentives can be used. Since some time ago we gave as much as 45 per cent. on plant and machinery in development areas, I am concerned that the relationship between the money given by Government and the working of the incentive arrangement has not been as close as we should like.

There is one useful way in which incentives can be brought to bear in persuading industry to act in certain ways which will be to the public good, and that is by way of short-term incentives. In the United States, when there was the threat of a withdrawal of 7 per cent. tax incentive, large investments were made. A short time ago in Britain the level of investment grants was raised by 5 per cent. over a limited period and industry made changes in its plans to take advantage of this relatively small amount involved. The situation is not that much different from the department store which has a sale and people take advantage of reductions for a limited period only. This is a useful method of counteracting the cycle of investment.

I am pleased that the Chancellor is putting S.E.T. on a percentage basis. We are in some sort of dichotomy here. We naturally want labour to be expensive, because it means that the manufacturer will think very carefully about the use to which that labour is put and will strive for efficiency. On the other hand, in the present situation we cannot expect very high levels of consumption resulting from high earnings sufficient to produce incentives towards modernisation and efficiency. But S.E.T., properly used, could do just that. As a percentage payment it could produce a high level of wage costs to the manufacturer and provide an incentive to reduce labour costs, which could be helpful to the economy without inflationary consequences.

I was sorry that my right hon. Friend the Chancellor did not take the opportunity to increase capital gains tax. The right hon. Member for Leeds, North-East (Sir K. Joseph) wants to see it sharply reduced, but as one who is concerned about the need to tax total increases in wealth I saw this as a suitable time to take the next step in bringing closer together the levels of income tax and capital gains tax. We are surely now at a stage when we can bring the two rates of taxation nearer together.

Much mention has been made about the level of inflation. I, too, am concerned about this matter. However, this is not peculiar to Great Britain, but is happening all over the world. If one takes five of the major industrial countries, the United States, United Kingdom, Germany, Italy and France, one sees that their inflation in 1966 was 3 per cent., whereas last year it increased to 5 per cent. Therefore, inflation is not only continuing but accelerating.

Our inflation is being matched by the experience of other developed industrial countries. It means not so much that we are likely to drive ourselves out of export markets—although there would be consequences if we were to inflate higher than other countries—but what is more likely is that there will be a world spiral of inflation which will lead to difficulty in international finance arrangements. In particular, it is likely to lead to exchange rate crises more frequently in the future than has occurred in the past, unless there can be some other method of adjustment. Floating rates look like becoming more acceptable because of the greater problems which are likely to face us in future.

This acceleration of inflation, which is a world phenomenon, is largely due to the increasing sophistication and understanding by the public towards inflation. Wage claims are now put forward on the understanding that a good part of the claim will be eroded. As the process of inflation is accelerated, the general understanding of it will become more sophisticated. This increasing sophistication in itself leads to an ever-increasing steepening of the curve of inflation. There are no answers to this problem at present, and nobody has suggested any which seems likely to be of value. We shall need to take this factor more into account in our international monetary relations since many countries now find themselves in the same situation.

I had hoped that the prices and incomes policy, proceeding step by step, would have been able to exert a growing influence of management and labour and lead to a situation in which the matter could be decided rationally. There is at present a queue of people jostling for position, and the only way that decides who gets the best place relates to the power of those concerned. We shall have to learn and understand the movements so that we can exercise more influence by means of the mechanisms which were first thought out in 1964 and 1965. This is as much as we can hope to do. Step by step, we can improve our understanding of the problem and in that way exercise greater control. This is a long and slow process, but it is the only opportunity open to us.

The statement by my right hon. Friend about growth has been supported by a number of right hon. and hon. Members opposite, including the right hon. Member for Altrincham and Sale (Mr. Barber). In this debate there has been more lip-service paid to growth than I recall in many Budget debates in the past. But there are a number of misconceptions which I should like to outline. The first is that if we do not accept that we must have an increase in the rate of growth greater than has occurred up to the present, it means we believe that in some ways industry, the abilities of our people, our talents and our advantages are in some way inferior as compared with other countries.

This may be so. But in a political assembly of this kind I should have thought that possibly the last conclusion which any hon. Member could bring himself to accept was that one. He must look for all sorts of other reasons before, in the fullness of time, over many years. this conclusion is forced upon him.

A number of hon. Members believe that the growth rate possible for this country is very limited and is much less than that of other countries and that therefore, in some indefinable way, we are inferior to other countries. What happens to growth can be related to what happens in factories and workshops throughout. Growth means that people are producing more in the factories and the workshops. It need not necessarily be achieved by investment. It can be achieved, and often satisfactorily is achieved, by new methods and a new insight into obtaining greater productivity from existing machinery. There is a direct connection between greater productivity and the changes which are taking place in the workshop.

I am one of those who believe that there is a connection between productivity and production. To put it another way, we are more likely to increase productivity when we are producing a large volume of goods than when we are restraining industry and producing a small number of goods. If we increase output, if we take the brakes off to some extent, and we increase demand in the country, we are more likely to achieve productivity increases than if hardly any changes in production take place year by year.

There is some, although not very detailed, support for what I am saying in the situation which existed in 1964, 1959 and 1955, when, not by accident, we had consumer booms prior to a General Election. In those years there were great increases in production. There were also great increases in productivity. If we are to be serious about growth, we need to understand this connection.

What has held us back in the past has not been any inherent national weakness. There is no national weakness in the body politic or in the people. I see a weakness in the ways in whch we have operated the economy to the disadvantage of industry. In particular, I point to the enormous expenditure on overseas defence. The economy was distorted by Government expenditure of £450 million overseas, a large part of which was military expenditure east of Suez.

I remember trying, as a newly-elected Member in 1965, to discover how much expenditure east of Suez amounted to. To my horror, I was told that nobody knew. Nobody knew the answer to one of the crucial questions of the economic situation. After a number of months, and after constant prodding, the Secretary of State for Defence gave some of the horrifying answers, the true extent of which was revealed only as recently as some months ago. Anybody who thinks that he can turn back the clock and accept again one of the great limiting factors in the performance of the economy must need his head examining. We must not go in a backward direction when so much is at stake.

The other reason why our economy did not perform so well was due not to the basic weakness of the people, but to the reorientation of our exports from Commonwealth countries to other countries. Commonwealth countries which were subservient to us, which accepted our orders, which were largely controlled by us, which had in their palaces Government officials appointed by us who created the trade agreements and the tariffs in our favour and which were of enormous importance to us, as they became independence began to look for fresh trade links outside the Commonwealth, and we started to lose the great advantages which at one time we had.

These Commonwealth countries increased their imports very rapidly, but did not increase their imports from us to anything like the same extent. This was a natural consequence of the ending of empire, and there was nothing that we could do about it. Fortunately, that situation will shortly be coming to an end. There will be a levelling out at the lower part of the curve.

In 1964, we found ourselves with these two enormous brakes on our progress. Unfortunately, we waited several years until we achieved the right exchange rate for the £ and provided that special incentive to exporters which was needed above all else to encourage them to change and to profit from the change of direction from Commonwealth markets to other markets. To bring about this fundamental rehabilitation of British exports a great incentive was required which was not given until devaluation in 1967 provided it.

The right hon. Member for Altrincham and Sale spoke of the difficulties which he saw in increasing rates of growth. He talked about taxation and the proportion of wealth taken by the State. This was the situation before 1964 and the Conservative Party did nothing about it. Taxation was then still being levied at a high rate. The proportion taken by the State, far from falling, was increasing. This is an old story. It is not something which the Opposition have suddenly realised. If they then believed what they believe now, they were culpable and negligent in not taking action to change the situation. But I do not believe that the Opposition's argument is serious.

The lesson which we should learn from the events of 1964 is that the boom engineered by the right hon. Member for Barnet (Mr. Maudling) in 1964 never had a chance of success because it started too soon. We still had very heavy overseas defence expenditure. There was still need for reorientation of trade. The boom was engineered before the kind of devaluation which would have encouraged that change in direction of exports.

The lesson which we should learn—and it is a valuable and important lesson—is not that the right hon. Member for Barnett started a boom which should not have been started in any circumstances, but that he started it without the basic qualifications being present. He started it without the correct exchange rate and the kind of incentive to the reorientation of trade which was an essential part of the economic recovery which we are beginning to see.

The lessons which we should learn is not that we should be too cautious. It was a lesson which every succeeding Chancellor learnt. The danger is that we have become over-cautious by overreacting to the mistake made in 1964. Far from over reacting, we should realise what was basically wrong. Have we cured what was basically wrong? If we have, we can dispense with the caution of which we have seen too much. We have had devaluation. We have seen at last the end of our east of Suez role. Although the savings are not great at the moment they are bound to become larger. In particular, I note that in the fourth quarter of 1969 Government expenditure overseas dropped to £104 million—the lowest quarterly figure we have had for many years. It needs to come down still further. The advantages have not yet all been reaped.

We have seen the advantages, too, from the restructuring of industry. I have always felt in a macro-economic sense that this was not of very great importance immediately and that its greatest importance would come over a period of years. I believe that we shall see this. I believe, however, that the most important lesson is that the productivity which is the function of inventiveness and of organisation is something upon which we should be able to depend.

I would not readily accept the argument that we must wait until we see what is our basic level of production. This is the chicken-and-egg argument. What do we do first? Do we increase demand and then hope for productivity, or do we wait until we see whether productivity increases and then let loose the reins of demand? What happens is that economic take-off is made that much more difficult.

Reinforced, as this argument is, by the excessive caution that succeeding Chancellors have learned, they have adopted the second course of waiting for the cycle to break itself before interfering with the cycle and saying that the necessary lessons have been learned and that we can go back to the pre-1964 period, when the ideas were right but the timing was wrong. That is what we should now turn our attention to.

I do not believe that our basic inventiveness is lacking in any way, or that there is any shortage of confidence in what we as a country can do. What we need now is to make use of the lessons that we have learned over the past five years.

6.32 p.m.

Mr. Selwyn Lloyd (Wirral)

The hon. Member for Ashton-under-Lyne (Mr. Sheldon) is one of the reasonable, persuasive contributors to our finance debates and he has advanced tonight many interesting themes. If he had been in the House of Commons when I was Chancellor of the Exchequer, and he had talked the way he has done tonight about growth, he would have been a lonely figure on these benches, because the league tables were thrown at me morning, noon and night.

Perhaps it is not unreasonable, therefore, that we in our turn should refer to them. The difficulties of which the hon. Member spoke did not all begin in 1964, but I do not propose to pursue what he said, because my right hon. Friend the Member for Barnet (Mr. Maudling) is present and can speak for himself.

I wish to begin by congratulating my hon. Friend the Member for Louth (Mr. Jeffrey Archer). We all regretted the passing of Cyril Osborne and we appreciate very much my hon. Friend's reference to him and to Lady Osborne, as well as the references by the hon. Member for Ashton-under-Lyne.

My hon. Friend's speech was well delivered, well informed and well balanced. I am certain that he is a valuable accretion to our ranks and I congratulate him. He referred to his by-election at Louth, where he won a notable victory for this party at one of the last by-elections before the General Election.

One of the last by-elections before the General Election in 1874 resulted in a Conservative victory at Louth. Therefore, when I heard that my hon. Friend might be speaking, and that it might be possible for me to congratulate him, I hastened to get a copy of Disraeli's message to the successful Conservative candidate in 1874. I quote just two sentences: For nearly five years, the present Ministers have harassed every trade, worried every profession and assailed or menaced every class, institution and species of property in the country. His last sentence was: But the country has, I think, made up its mind to close this career of plundering and blundering. The fact that the 1874 by-election was at County Louth, in Ireland, does not necessarily invalidate my historical analogy.

I add my congratulations to those already given to the Chancellor of the Exchequer on the form and manner of his Budget speech and the way that he survived a considerable ordeal. I also ought to congratulate him on surviving to present a third April Budget, which is more than I—and some others—did, for a variety of reasons.

As to the general shape of the Budget, I am worried rather on the lines to which the hon. Member for Ashton-under-Lyne has referred. What the Chancellor has done is so restrictive that I fear that the dangers ahead are worse than I expected. The prospect of galloping inflation must always be unpleasant, particularly for a country like ours, which must depend so much on exports for its livelihood. Whatever party is in power, galloping inflation is the worst social ill. It hits the poorest and weakest and it destroys the fruits of hard work and thrift. I cannot help feeling that the Chancellor would not have been as restricted as he has been had he not thought that the dangers of galloping inflation were very serious.

I shall not pursue those wider themes; I know that many other hon. Members wish to speak, I wish to devote most of my speech to the selective employment tax, and I do not intend to be very party political because I think that what I say will command a good deal of support among hon. Members on the other side of the House.

Various arguments have been put forward in favour of the tax: first, that it redeploys labour in manufacturing industry; secondly, that it adjusts a fiscal imbalance between services and manufacturing, the former not being sufficiently taxed; and, thirdly, that it brings in a lot of money.

Supporters of the tax vary in their order of priority for those arguments. Last year, it was the third of them that the Chief Secretary put forward. This year, judging by what we have heard from the Chancellor of the Exchequer, his priority seems to be for the first of those arguments, the redeployment of labour.

Before I refer to what the Chancellor said, I wish to mention what some of his hon. Friends have said in the debate. On Tuesday, his hon. Friend the Member for Willesden, West (Mr. Pavitt) pointed out that This tax is still a tax on food. He went on to demolish the argument about redeployment of labour, and he said: To imagine that there is a great pool of labour to be transferred because of selective employment tax is the greatest bit of nonsense I have ever heard in this House."—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1281.] On Wednesday, the hon. Member for Dewsbury (Mr. Ginsburg) mentioned three of the snags and difficulties. He spoke of the effect of the tax on the reclamation industries, which are import saving, on the employment prospects for part-timers, the old, the disabled and lower-paid workers, and he expressed doubt about the long-term future. All three points were valid.

The hon. Member for Manchester, Blackley (Mr. Rose) praised the tax, but went on to say: I am delighted that theatre productions have been exempted. But why only theatre productions?"—[OFFICIAL REPORT, 15th April. 1970; Vol. 799, c. 1481.] The hon. Lady the Member for Wolverhampton, North-East (Mrs. Renee Short) welcomed the extension of relief to theatre production and made a logical plea that that relief should include also others employed in the live theatre. That is an important point and I hope that consideration will be given to the extension of this concession to include all employed in the live theatre.

The Chancellor very much surprised me in his Budget speech when he referred to Professor Reddaway's Report and said: It shows that in both the retailing and wholesaling sectors of the trade S.E.T., possibly associated with the progressive ending of resale price maintenance, has led to an appreciable increase in productivity in addition to that which would have occurred in any case. Thus, one of the main objectives of the tax, to make more labour available for manufacturing industry, has been realised. The Chancellor went on to refer to the figures for employment in June, 1969, and said that they showed that the numbers of people employed in manufacturing industry had increase, that the number of those in services had fallen and that The architects of the tax can, therefore, feel with some justification that the structure they designed, and upon which I have built, has a basis whose soundness has been tested and substantiated by objective and empirical inquiry."—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1243–4.] It is that position which I want to examine.

My only conclusion is that the Chancellor has not had time to read the Reddaway Report. By no stretch of the imagination could any rational person believe that the report amounts to a vindication of S.E.T. as we know it, for the following reasons. It covers only one-third of the area; the distributive trades represent only about one-third of those in employment who are subject to S.E.T.

The report deals with a period when the tax was 25s. per man per week. It acknowledges the sketchy nature of the statistics with which the Reddaway Committee had to deal. It stated the impossibility of disentangling the consequences of S.E.T. and those of the ending of resale price maintenance and of the squeezes and freezes. It set out a number of anomalies and dealt with the wholesaling situation, which the Chancellor himself appeared to admit was an anomaly.

The report pointed out that in the distributive trades quality of service has to be taken into account, quality of service involving speedy attention to customers, a good selection of goods, and so on. It is not taken into account in these statistics.

The figures to which I have referred about this increase of employment in manufacturing industries and the decrease in the service industries prove nothing. There has been a certain amount of regrouping of employees and some firms have been doing for themselves certain services which formerly they put out to others.

But the real point is that put by the hon. Member for Willesden, West. Does anyone really believe that the people displaced by S.E.T. have gone into manufacturing industry? If they were suitable for such employment they would have gone there a long time ago, because of the increased earnings they could have made, for wages are better there.

One effect in my own constituency was the closing-down of a local laundry, when 35 women employed there on a part-time basis were rendered unemployed. I doubt very much whether any one of them has gone into manufacturing industry. I do not believe that the tax has had any major effect at all in sending people into manufacturing industry.

As the hon. Member for Willesden, West said, it is the greatest bit of nonsense I have ever heard in this House."—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1281.] As for Professor Reddaway on this point, the redeployment of labour, my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) dealt with that very fully last Thursday. Professor Reddaway pointed out that the redeployment argument was an unfortunate one, because the implication is that economy in the use of labour is good if it takes place in service industries but not in manufacturing industries. The figures really prove nothing, and even if they did prove that some people have gone into manufacturing from service industries, that would not necessarily be a good thing. This sort of merit judgment that manufacturing industries are virtuous but servicing is vicious, is an absurd conception in a sophisticated economy.

Mr. Sydney Bidwell (Southall)

The right hon. and learned Gentleman said that he wished to address his remarks to those of us on this side who might have some scepticism about S.E.T. Will his remarks and thoughts on this problem, and they are quite considerable, add up to disowning the whole slogan and idea of a manpower tax in industry?

Mr. Selwyn Lloyd

If the hon. Member will allow me to make my speech in my own way I shall come towards the end to what I suggest should be done.

Leaving aside now the redeployment of labour argument, the second argument is that services are undertaxed. On this fiscal imbalance point, the Reddaway Report, on page 17, has this to say: there is a kernel of truth in the idea that services supplied to the consumer as such were under-taxed; but the case is very much weaker than it was represented to be when the Chancellor of the Exchequer introduced the tax and S.E.T. covers many types of service to which his arguments are not applicable at all. I weigh this against what the Chancellor said the other day. What was his phrase? The tax ' has a basis whose soundness had been tested and substantiated by objective and empirical inquiry."—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1243.] I wonder.

Professor Reddaway shows his mind further upon this point in Appendix A of his report, pages 212–where he reprints an article written by him just after the tax was introduced. He says this: Taxes on services such as accountancy "— the Chief Secretary will be interested in this— which are essentially supplied to businesses of all kinds, are not justified. That is a very sound argument. Surely it must also apply to services which are rendered to business by banks, merchant banks, insurance companies, architects, surveyors, and, even perhaps to the popular and necessary profession of the law. If it is wrong that it should be applied to accountancy, it seems to me that it is wrong that the tax should be upon other services essentially supplied to businesses of all types.

A little later, again on this theme of fiscal imbalance, the Reddaway Report says: There is no good argument on this score for taxing industrial and commercial building, not to mention all types of building and civil engineering for public authorities. I think that that proposition is becoming increasingly accepted. This fiscal imbalance argument must seem very strange to the hotel industry, because in addition to all ordinary rates and taxes, and creating a lot of revenue on alcohol and tobacco, they pay purchase tax on many of their raw materials, furniture, linen, crockery, and so on. This fiscal imbalance point really cannot be sustained.

I want now to develop a complementary point which is emphasised in Study No. 5 of the Industrial Policy Group and which has been published this month. This group is a group of distinguished businessmen, leaders of industry. The first few names will illustrate the point—Sir Peter Allen, Mr. D. H. Barran, the chairman, Mr. R. M. Bateman, Lord Cole, and others. There are 18 or 19 of them, people who are leaders in industry. In the summary of their conclusions they say this: The experience of our members is largely in the manufacturing industries (which it was thought would benefit from the tax in a number of ways). Our members believe that the tax has made no significant contribution to the recruitment of labour for manufacturing; nor has it encouraged exports. On the other hand, costs have been increased by the time taken in the refunding to manufacturers of the tax paid. And since manufacturing industries are major customers of the service industries, the tax upon the latter inevitably falls in some degree upon the former. The treatment of the building and construction industries under this tax seems to us particularly unfortunate. This is the view of a group of business people mostly concerned with manufacturing, but the passage which interested me most in their report is in paragraph 17, on page 5, where they look at conditions in other countries and say this: Among the ten most economically advanced countries in the world, the United Kingdom was very low down in the proportion of all workers employed in services and in commerce. Correspondingly, the United Kingdom already had one of the highest proportions of all workers employed in manufacturing. The highest proportion of workers in services and commerce is, in fact, found in those countries with the better industrial performances in the past ten to fifteen years. In recent years, the United Kingdom has shown by far the lowest annual increase in the number of persons engaged in the service industries. Once again, the best industrial performers among other countries have shown the highest rates of growth in employment in the service industries. They supply statistical evidence and say that the growth of service industries is not a form of national prodigality or a deterrent to economic growth, but has been customarily associated with rapid advance and the growing power and maturity of the economic system as a whole. That is profoundly true, and it is the failure to recognise this basic fact, which affects the strength of our economy, which has led the Government to develop this unfortunate tax.

I think that the judgment of that group is a very wise judgment indeed, and profoundly true. This tax has been a brake upon our economic growth—if I may use that word; at all events, it is weakening our economic strength.

I should perhaps add that the group recommended that the tax should be reduced in stages, and finally removed at the end of three or four years.

I come to the final argument, which is that the tax brings in a lot of money. This was the Chief Secretary's argument last year. And, of course, there is the question: what do we put in its place? If the tax is a bad tax, if it is unfair, if it is full of anomalies, if it retards growth, the more it brings in the worse a tax it is. But does it bring in such a lot of money? I do not think that the yield is anything like as much as it is made out to be, because it must reduce taxable products. It is chargeable against profits. It must lessen the amount which is available to be subject to corporation tax and the amount available for distribution and so subject to income tax and, perhaps, surtax.

It is chargeable against the earnings of partnerships, firms and individuals in business, and it means that there is less money upon which to pay income tax and surtax. A solicitor to whom I was talking over the weekend said that the amount that his firm had had to pay in S.E.T. and increased pension contributions was the exact amount by which the earnings of the senior partners had diminished. That may be a good or a bad thing, but the amount of money on which income tax and surtax is payable will be lessened.

I do not believe that the yield of the tax is anything like the £600 million it is made out to be. The cost of so much that is necessary for business is put up—building, hotel accommodation, banking, insurance—the interest-free loan of £1,300 million has to be found throughout the year. In many cases the cash flow position is such that the money has to be borrowed at substantial rates of interest, which again reduces taxable profits. At a guess —and it is very difficult to work out—I believe that the net yield of S.E.T. is between one-half and two-thirds of what it is alleged to be—not £600 million. Therefore, I think that the Chancellor should have followed the advice of the Industrial Policy Group and begun to dismantle the facts.

Before I develop that point, may I answer the interruption of the hon. Member for Southall (Mr. Bidwell). It may be that a tax upon employment is defensible. When I was Chancellor of the Exchequer I took power to put 4s. a week increase on the stamp, as a contribution to the Exchequer, to be used as a regulator. This was viewed with horror by both sides of the House, and I had the greatest difficulty in obtaining the power to do this for one year. My experience of the way this modest tax on employment was received slightly diminished my enthusiasm for that general proposition—there may be better ways of doing it.

I think that the Chancellor of the Exchequer should have begun to dismantle the tax. What would the consequences be if he had cut it by half? The building industry, whose costs are rising all the time, would have been helped to hold its costs. It would help the hotel industry to improve its services and attract more foreign exchange. Invisibles have suddenly become respectable. If help had been given over their costs, more money might be earned for the country. Above all, it would have, to some extent, a holding effect upon prices and the cost of living.

In this particular situation, about which many of us are worried, it would have had a substantial psychological effect in making people diminish their claims for the time being. Those are all thoroughly sound objectives for a Chancellor of the Exchequer in the present situation, and I believe that the cost would be much less than the gross amount.

It may then be asked where the money would come from, and what tax would be put in its place. This year, the answer is very simple, and it bears out what has been said by the hon. Member for Ashton-under-Lyne. I do not think that this year any other tax would be needed; the money is already there. The Chancellor of the Exchequer is budgeting for a surplus of £619 million. In view of inflation, I think that is an underestimate. Last year, he budgeted for a surplus of £807 million and the resulting surplus was £1,130 million, so the gross amount needed to do what I am suggesting would be less than the difference between the outturn and the estimate last year.

This would not be just a give-away. I am inclined to agree with the view that it would be wrong to have general giveaway. This suggestion would be to use a part of the surplus for a perfectly sound economic purpose, to do something to halt inflation. This would do as much as any other single measure to achieve the Chancellor of the Exchequer's main purpose.

The traditional methods of halting inflation have failed and we must accept that. The squeezes and freezes, whether they have been for balance of payments reasons or otherwise, have failed to halt inflation, and the Chancellor should, therefore, try something else. This be could do within the framework which he has already laid down for himself. I hope that the Chancellor will have second thoughts about this, for even if it redounds to his personal credit I will endure that if something is done about a very bad tax, if injustices are in part removed and the national interest served.

6.55 p.m.

Mr. Joel Barnett (Heywood and Royton)

I am pleased to speak after the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), as I think I did last year. He said that he was sad at not being able to introduce a third Budget. Having heard the Conservative Party proposals about incomes policy and taking a firm line with the public sector, if the Conservative Party should by any chance win the next election, I feel that nobody would be better able to pursue a policy of controlling incomes through taking a firm line with the public sector than the right hon. and learned Gentleman.

I will take up the points he made about S.E.T., after first declaring an interest as one who professionally pays a great deal in S.E.T. and is thankful that this year for the first time ever it will not cost me any more. I nevertheless support S.E.T., not because any tax can be popular, but because, given a choice of forms of taxation, I think that this is the least unpopular form, except to those who pay it.

The right hon. Gentleman used many arguments which have been heard over the years. He contradicted himself in saying that he did not think that the tax raised as much money as it was thought to raise, because it reduced profits. Presumably he meant that it is not passed on. Professor Reddaway was right in saying that the economic effect of S.E.T. is not so bad in that, unlike purchase tax, it is not passed on as to 100 per cent., and more than 100 per cent. in many cases.

Mr. Selwyn Lloyd

It may not be passed onin toto, but to some extent it may be passed on. My other point is that the tax causes an increase in the cost of services to manufacturing industry, and that is one way taxable profits are reduced.

Mr. Barnett

The right hon. and learned Gentleman is trying to have it both ways: (a) that it is passed on and (b) that it is not. If S.E.T. were to be removed and V.A.T. introduced in its place, those who at present pay S.E.T. would not reduce their prices. Prices would be increased to the extent that the tax was being replaced, and would be maintained by those who had been subjected to S.E.T. Most service industries would I am sure simply accept with pleasure the removal of S.E.T.

The right hon. Member for Altrincham and Sale (Mr. Barber) said that the public are becoming a little disillusioned. If the public are becoming somewhat cynical, this may be due to the arguments we have heard during this debate, with the constant references to what one party did 10 years ago and what another party did. I think that the public are entitled to be a little disillusioned about that.

This was emphasised in the reports in today's papers of speeches made during the weekend. The shadow Minister of Agriculture told the farmers, perhaps not surprisingly, that he perfectly well understood that they were entitled to more money, and this report appeared in the column adjoining the report of the speeches on inflation by the Leader of the Opposition and the right hon. Member for Enfield, West (Mr. lain Macleod).

It is no wonder that the public become a little cynical. If the farmers are to be helped, it will be at the cost of an increase in the price of food. The inflationary effect of that, added to the Opposition policy of trying to prevent wage increases, enforced by their policy on trade unions, would have a divisive effect on industry generally. Such a policy would not only be unsuccessful in economic terms but would fall very harshly on large sectors of the community.

TheEvening Standardlast Thursday was, if anything, rather kind in its attack on the right hon. Member for Enfield, West for lowering the tone of public debate. The right hon. Gentleman speaks frequently about the high level of unemployment. But he must know that the only way he could do anything about it in the future would be to increase demand. I know that the right hon. Gentleman is sincere, as we all are in our desire to reduce unemployment, but central to the whole matter is the need to increase demand and to get increased growth in the economy.

I wish to deal briefly with one reason why we have not had that increase in growth and demand. My right hon. Friend the Chancellor referred to this matter in his Budget Statement and I should like to question his assessment of what he is planning to do with the economy. He said: …but we shall continue to need a strong balance of payments, because our capacity to repay debt will henceforth be more directly related to that surplus…—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1221.] I question whether there is a need to repay the debt along the lines my right hon. Friend suggests. Must we repay that debt, and what are the consequences if we do not repay it?

If we must repay that debt, then there is no need to argue any further. The Chancellor has pointed out that any further repayment of debt must come from future surpluses. But it is important to know how much is the debt about which we are talking. We appear to be talking about a short- and medium-term debt which the Chancellor has put at some four billion dollars. Incidentally, it is most confusing at one moment to quote dollars and at another £s, and sometimes to use financial years and at other times calendar years. Perhaps in future Budgets the Chancellor will consider translating dollars into £s since that happens to be our own currency.

Of the figure of four billion dollars some 2,400 billion dollars was due to the I.M.F., the first repayment of which is due in June, 1971. Then there are some £800 million in short-term swaps. In the past in much more difficult circumstances we have managed to roll over I.M.F. debts. It is possible to do so again in the future. It has been argued that we have only got into this situation because we have conceded to the I.M.F. control over our economy which has thereby been rigidly constricted in terms of strategy. There is no need for that situation to apply again. I hope that we have learned the lessons of those years and realise that we do not have to run our economy within the rigid bounds of a fixed exchange rate. I believe that it would be possible to negotiate with the I.M.F. from a rather different position than that from which we have negotiated in the past. I do not accept that it would be impossible for us to continue with at least the present level of debt in the future. We will now also have available to us a federal swap line of credit of 2,000 billion dollars, which is totally unused, plus the four billion dollars we have repaid in the last 15 months. Therefore, there is plenty of credit available to us.

Many will argue that we are simply transferring from public to private debts. This is largely the situation, although the Chancellor told us that the bulk of the repayment of debt came from the unwinding on leads and lags, not much of which was hot money. It is not possible to judge how much of this repayment was hot money. Indeed it is difficult to define hot money at all. If a loan were left here for six months one could call it hot money, or even lukewarm money, but undoubtedly there is an amount of warm money about.

The Chancellor said that there is now, thank heavens, no need for us to be obsessed about the level of these debts. Equally, there is no need to be obsessed by the fact that there may or not be a favourable situation in terms of leads and lags and that we shall have some hot money. There will always be some hot money, one cannot avoid it, and inevitably there will be leads and lags at particular times. There will inevitably always be flows across the exchanges. The Chancellor is right to say that there is no longer any need to have an hysterical approach to the question of debts. In the current situation of comparative strength in regard to our debts, I would argue that we can answer the question as to whether or not we must repay with the answer, "No, if we do not want to do so we do not have to repay. We can, if we wish, either not repay or we can reborrow."

What are the consequences of that sort of policy? It is not an academic exercise. It could be compared to the situation of a man who dislikes debt and decides that he will continue to live in a modest house rather than to buy a newer one on mortgage, or a man who buys a house on mortgage but repays the sum quickly over five or ten years, again because of his hatred of debt. On the other hand, there is a different type of man who is happy to repay his mortgage over 30 years. That sort of man wants his happiness today rather than to put it off for four or five years. That is a choice open to most people in terms of their own personal debt.

It is of interest to ask whether the great majority of people understand that a similar choice faces the Government in handling the economy on their behalf. Most people are not so concerned about having debts. To some extent they are prepared to live for today, to borrow on hire purchase and to take on a mortgage so as to live in a decent home. Who would say that they are wrong to do so? Who are we to tell them that they should not be doing this? It would be irresponsible if they were taking on—as some do, but a small minority—mortgage and hire-purchase commitments beyond those which they are able to manage inside their incomes. But the great majority of people choose to have debt and to live, to some extent, for today.

We are choosing as a Government on their behalf that, rather than let them enjoy something for today, we will repay debt rather quicker. That is what we are doing on their behalf. The situation could also be compared with that of a company which has substantial borrowings covered by very substantial assets —a very similar situation to that which we enjoy as a nation. We have borrowings substantially exceeded by our assets. Again, that company does not have to repay its debt and can use the money in a variety of ways—by increasing investment to increase its production and growth for the future, by increasing dividends after payments of interest on the loans. Or it could have an amalgamation of both. This is the choice which we have to take on behalf of the people of this country—whether to restrict current enjoyment to some extent and repay, to keep the debt completely and live for today or keep the debt and invest in increased investment for tomorrow.

The Government's choice is a sort of balance of all three. They are prepared to repay, and advocate repaying, some of that debt and they are striving to get an increased manufacturing investment within our capacity—and at the moment the Chancellor seems to be satisfied that we shall be achieving a reasonable level of growth of manufacturing investment, and one hopes that he is right, in the trends indicated. The Government are striving for a balance. When I have made this point to my right hon. Friend he has always said, "You cannot plan precisely for a particular balance of payments surplus". That is quite right and I do not pretend that one can. One cannot say, "We shall plan next year for, say, a £29.2 million surplus". That would be absurd and obviously one cannot be so precise. But equally I do not think that it could be argued that it is not open to us to go for a lower balance of payments than the Chancellor is striving for now.

But we must accept that if the Chancellor decides that we shall only go for a £100 million surplus, he could be wrong and finish up with a £100 million deficit instead of the surplus. From what I have said about our debt situation, it would not be disastrous if we finished up with a £100 million deficit for the coming year rather than a surplus. Surely, it cannot be denied that if we went for that lower balance of payments surplus there would be available to us an opportunity for a higher rate of growth. Indeed, in the Green Paper "The Task Ahead" one of the primary reasons given for our level of growth and why we could not go for a higher one was precisely the balance of payments and the surplus which we have been going for over the years.

I should not like to say to the Chancellor precisely what that would give us or how much extra growth one could get from it. My hon. Friend the Member for Lewisham, West (Mr. Dickens) said the other day that we had lost about £6,500 million of increased resources in the last five and a half years from a level of growth of perhaps 4 per cent. which we could have achieved. I do not know whether that is the right amount. But I do not think it could be disputed that a 1 per cent. extra growth is available to us if we were to accept my arguments. That 1 per cent. extra growth, £400 million a year of real resources, is not something which we should lightly give away.

It is then argued—and this is again central to what the Chancellor was saying —that it is wrong to fritter away the surplus, as it were, by living for today. He said: It is sometimes argued that because we now have a big balance of payments surplus we can afford to inflate home demand and achieve an eruption of short-term growth. This would be a piece of familiar folly, bringing its own inevitable retribution."—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1223.] I cannot help feeling that this is perhaps a somewhat pious attitude to take. I think that it would be entirely wrong to fritter away an extra 1 per cent. of growth or more in the way which the Opposition propose—by surtax reliefs and income tax reliefs which would help those at the higher end of the scale. That would be totally wrong. But would it be really wrong to use an extra 1 per cent. to improve our educational services and our social services and to do something about the relief of poverty? Would this be so wrong a way of spending an extra 1 per cent. of our growth?

Above all, when I say that we are taking this choice on behalf of the people it is perhaps easy for us to say, "We shall repay the debt first and in 10 years' time we shall begin to get the benefits of the building of a nice solid stable economy." But what about our old people? It is all very well telling them to wait until we have repaid the debt. But they will not be with us then. So we really have to think about this argument that it is so wrong to fritter away, as it were, an extra 1 per cent. of our growth. I hope that we shall reconsider the whole attitude which we have had to debt and, therefore, the reason why we have not been able to obtain a higher rate of growth that is open to us.

The Budget, coming from a just and humane Chancellor, is, as one would expect, as fair as it is able to be inside the amount which he has decided is available to us and in that sense it is responsible and cautious. But it is important to recognise the cost in real terms to real people of that sort of responsible and cautious strategy.

7.16 p.m.

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

The hon. Member for Heywood and Royton (Mr. Barnett) may be surprised—I hope that he will not be dismayed—to discover that my own critique of the Chancellor's basic Budget judgment comes out on not dissimilar lines from his, but whereas he was arguing it on the external accounts I shall be using the internal accounts in my argument.

I begin with an admission which is more often made silently than explicitly in this House by saying that I was mistaken. When, before the Budget, I surveyed the history of the preceding years and noticed that in the last two years the Chancellor had repaid not less than £11 billion of debt in total, I asked myself. "Will he do it again, or anything like it. in his third Budget?" I concluded that he would not.

I was mistaken. The right hon. Gentleman has done it again. He has done it again on a grand scale; for the comparable figure in the Budget accounts which he has laid before the House is once again of the order of £1 billion—a further £1 billion of debt to be repaid by way of overall surplus on the Budget in the coming financial year.

I take the central Government figures for this purpose because I believe that they are more relevant and more appropriate than the figures for the public sector as a whole. After all, it is the central Government accounts which have the most direct bearing on the money supply, on the expansion of domestic credit, which have been at the heart of the concern of the Chancellor of the Exchequer.

Of course, there are very large modifications which one has to introduce in looking at this fantastic figure of £1 billion to be applied to the repayment of debt.

First, there is the cost of the surplus on the balance of payments. A surplus on the balance of payments is, from this point of view, a cost in pounds to the Exchequer. The Exchequer, in effect, has to find in pounds sterling whatever is the amount of our overall surplus on the balance of payments. There was a very big demand, very happily a big demand, in the financial year which has just ended, of about £500 million. It is concealed in the figure of net repayment of debt, because part of the debt repaid consists of those Treasury bills and other internal loans by which surpluses and deficits are expressed as between the Bank of England or Exchange Equalisation Account and the Exchequer. However, this year we probably do not have to reckon, and the Chancellor of the Exchequer is not reckoning, on so large a surplus on the balance of payments. Consequently, there will not be so large a demand on his surplus to meet the counterpart in terms of sterling.

The second factor which the Chancellor has to remember is the partial unwinding of the import deposit scheme which is to take place this year. The cost of this is assessed at approximately £330 million, another large sum which he must rightly take into account in striking his overall judgment.

Finally, there is the figure, rightly never revealed by the authorities, of the amount of maturing debt in the hands of the public which may have to be redeemed in cash during the coming financial year.

So there are these three offsets to be made against the huge surplus and the huge net repayment of debt which the Budget statement features. But then there is a very big element on the other side. That is the Government's probable ability to borrow from the public, the non-banking public. Here the Chancellor is fortunately placed at the moment. He can look forward, after a net borrowing from the public in the year 1969 of about £420 million, as he disclosed in his Budget, to a very large sum again during 1970. After all, he is in a period in which not only are interest rates falling, but there will be the general expectation of a further fall, which always assists sales of debt to the non-banking public.

Nevertheless, when we have made these allowances on both sides, we are still faced with this fantastic phenomenon, which has no parallel, of three successive Budgets which will have resulted in a net repayment of debt of about £2¾ billion. There has certainly been nothing like this in post-war experience. I doubt whether there has been anything on this scale in living experience. In the past, iron Chancellors, or, at any rate, Chancellors in years when they were iron, have with the utmost endeavour managed to minimise their net borrowing requirement. There has not been a case when they have even crossed the edge from net borrowing to net repayment of debt.

Here, in contrast, we have this tremendous continuing surplus applied to net repayment of debt. It is a phenomenon so remarkable that it is strange it should have attracted so little attention not only in comment out of doors, but in this debate on the Ways and Means Resolutions.

When he succeeded to his office 2½ years ago, the Chancellor initiated what we now see in retrospect to have been a profound change of philosophy and policy. He based his policy upon control of the money supply and control of domestic credit. He is entitled to point to, and take credit for, the immense turn-round which he has achieved in this respect over the last two or three years. Gone, gone almost beyond recollection, are the days of his predecessor, when, so far from net replayment of debt of the order of £1 billion, we were seeing net borrowing requirements which were generating additional monetary demand, additional money supply, of about that order, if not greater.

The right hon. Gentleman has forced firmly into reverse the money-manufacturing machine which his predecessor was operating so gaily. But there is a point beyond which the reversing of this machine has no effect, after which, instead of the gears biting, the wheels merely slip. If the Government put themselves into a position in which, because they have little or no net borrowing requirement, they are not dependent upon the banking system to meet their marginal needs, then they can avoid increasing the money supply and can exert control over further expansion of credit. By going further still, they can gain the means to increase their grip upon the banking system by funding debt—by replacing debt held by the banks with debt held by the public. That, indeed, can be done, and often has been done, even with a substantial net borrowing requirement; for if the Government are nevertheless able to borrow from the public they can still carry on the process of funding.

What is certain is that beyond the point at which the Government are refraining from themselves increasing the money supply and are using to the full their power to control the credit mechanism of the banks, repayment of debt is virtually meaningless in an economic sense. It is little more than a recirculation, whereby cash is brought in through one set of channels and redistributed through others.

One is forced to ask why it is that in this year, in this third year, the Chancellor should still be operating his machine in such an over-hitting manner. Why is he over-ensuring to this fantastic extent when he already, as a result of the operations of the previous two years, has a grip on money supply and on domestic credit which any of his predecessors for a long time past might have envied?

Of course we know: it is the spectacle which he is watching of an apparent acceleration of inflation when it should be slowing down. He sees wages and prices rising not slower but faster. He is apparently faced by events which contradict before his very eyes all his assumptions and all his logic of the last 2½ years. One can understand his shock on discovering that the remedy, implicitly believed in and pursued with such tremendous vigour, not only appears to have made no impression upon the malady, but to be consistent with the malady actually deteriorating.

In these circumstances, with that spectre before him, fain would the Chancellor have switched back to the alternative theory, the cost-push theory, to the mechanisms of direct control, prices and incomes policy and all the rest. the policies accepted and advocated by those who despise, who ridicule, money supply and the control of domestic credit. But he could not—he had no weapons.

Last year, in his Budget speech, the right hon. Gentleman was still fingering the edge of one such weapon in his commendation of the then intended trade union legislation of his colleagues. This year, he has not even got that. None of the mechanism, none of the weapons, none of the instruments of the alternative theory, of the theory of direct control, remain. Prices and incomes policy, trade union reform, the whole lot has gone.

So, between the apparent refutation of what he has relied on in the last two or three years and the ruins of any means of working upon the opposite hypothesis, it is not perhaps surprising that the Chancellor of the Exchequer has just shut his eyes and driven blindly ahead in the same direction as he has been following in his two previous Budgets. Thus it comes about that he has actually defied the logic of his own theory and his budgetary position by creating, once again, a huge surplus for the repayment of debt.

Unhappier than the astronauts, the Chancellor of the Exchequer has missed his course for re-entry. Instead, his module, no longer in communication either with his own theory of inflation or with the opposite theory, is hurtling out into budgetary space, propelled by ever-increasing surpluses.

But it is not only the Chancellor of the Exchequer who is in this quandary. Hon. Members must not let themselves off so easily. The whole House is in- volved in this quandary of the Chancellor of the Exchequer. We are all faced by this paradox of a period in which, to an unprecedented extent, money supply and domestic credit have been controlled, in which the classic remedies have been applied—it is an understatement to say, pedantically—and still we see ourselves confronted with an increase in inflation apparently happening month by month. We are all called upon to take up a position—to make our own peace, as best we can, with this paradox. At least, we ought to begin by recognising that it is a paradox and that it is a challenge to monetary thinking and budgetary policy on both sides of the House.

I want to make three contributions to the handling, if not to the resolution, of this paradox, which I believe has led the Chancellor to make a profound budgetary misjudgment. That is where I agree with the hon. Member for Heywood and Royton.

First, there seems to be an almost weird parallel between the besetting problem of our generation and the besetting problem of the generation between the wars. Our predecessors between the wars thought, strove, theorised, budgeted, legislated in an endeavour to cope with unemployment. We now think that we are wise. We now think that we would have known the answer all the time. But not only in Britain, but also in the Western world—and here, too, there is similarity—the economic problem of that day proved inaccessible to the reasoning and to the policies of all parties both here and elsewhere.

Fortunately, the corresponding challenge of our own day is less tragic, but it is just as persistent. We share it with other Western countries—perhaps not only Western countries, but certainly with those—and we deceive ourselves and, what is perhaps more serious, those whom we represent if any of us pretend that we have a theory ready to be turned into action which fully explains the phenomenon of inflation and would banish it for ever if only we were allowed to have a chance at the levers. There is sometimes something to be gained by recognising, and recognising candidly, that we may all be in the presence of phenomena which we do not fully understand.

Secondly, I think that the Chancellor's difficulties are very much greater because, as between the two ways in which he might have operated during his period as Chancellor—either upon public expenditure or upon taxation—he chose to operate almost exclusively upon taxation. If he was set upon finding a means to bring into balance—and more than balance—the cash requirements and the cash receipts of the Government, and so to gain some grip upon money supply and domestic credit, there were two ways, or a combination of them, in which he could have done it. The right hon. Gentleman might have operated massively upon public expenditure, or massively upon taxation, or a balance of both. In the event, it was overwhelmingly the second choice which he took—to operate massively upon taxation.

My right hon. Friend this afternoon reminded the House how the Chancellor candidly, though not within these shores, took credit for the extent to which he had done so. I believe that that has made his predicament now more painful. It has made it more difficult for him now to get down off this procession of budgetary surpluses, based on extremely high taxation, which has characterised his administration. I believe that if instead he had operated more upon public expenditure, he would not have been facing the dilemma which faced him—a huge surplus, which was there to give away, but which he did not dare to give away in the circumstances in which he found himself.

The third factor which I believe we should take into account is time-lag. We are all tempted to ascribe to budgetary and other money methods of controlling inflation a more precise, definite, and visible effect than they really have. The inexactitudes, the intervals of time between cause and effect, and the interferences between cause and effect, are much greater than in our impatience, or perhaps our pride, we are ready to concede. We have seen this recently over this country's balance of payments.

I believe that many of us, from the day of devaluation, sat back waiting for the balance of payments to right itself, realising that from that time onwards, and for long to come, the £ would no longer be, as in the past, over-valued, but, if anything, under-valued. We waited. We had to wait the rest of 1967, the whole of 1968, and into the beginning of 1969. Only during 1969, and ever more clearly as 1969 went by, did the mechanical and necessary consequences which one had predicted from getting the exchange rate right, or at any rate wrong in the opposite direction, duly make their appearance. Yet I do not think anybody would have guessed that it would take something like two years for the effect of righting the exchange rate to show itself decisively in our balance of payments.

It may be that the time-lags in this business are much longer than we are ready to concede. For my own part, I believe we are still gathering, in 1970, the poisoned fruits of the Budgets of the right hon. Gentleman's predecessor. We are seeing the creation of additional credit, the creation of additional money supply, which his disastrous last year brought about, still working their way through the economy.

The Chancellor ought to persist in his belief in the efficacy of money supply and domestic credit. He ought not to grow pale at the apparent contradiction between the phenomena of the current months and his budgetary accounts, but ought to follow the logic of his policy, and aim, not at a meaningless, over-hitting, over-insuring surplus and repayment of debt, but at a genuine balance between Government outgoings and incomings, which will suffice to continue the control he already has over credit and money supply.

There is a historic appropriateness in the fact that this paradox, this dilemma, should have presented itself to the Chancellor and the Government in this, their last year for I believe that it is only by a remoulding of public expenditure upon the grand scale that we can now escape from the impasse into which the Chancellor and the Government have got themselves. There is some propriety in the fact that it will fall to a new Parliament, and a new Government, to resolve if they can—and, if they can, I believe it will be in that way—the paradox of which the Chancellor's Budget is a striking, almost a tragic, expression.

7.42 p.m.

Mr. John Mendelson (Pen istone)

The right hon. Member for Wolverhampton, South-West (Mr. Powell) asked my right hon. Friend not to be dismayed because he might find some points of agreement in his speech. If the right hon. Gentleman had ended on a different conclusion, perhaps on one of his earlier points, I should have found no difficulty in expressing agreement with his analysis. I assure the right hon. Gentleman that I should never be dismayed about agreeing with his analysis. We have long been accustomed to disagreeing profoundly on one subject while not being the least bit hesitant to respect an hon. Member's analysis of another subject. But I cannot agree with the right hon. Gentleman's last point, which I thought was a weakness in his otherwise interesting analysis. I am referring to the right hon. Gentleman's reference to public expenditure, and identifying it as a decisive factor in our present situation.

In a moment I shall come to the point about money supply and a policy of growth. I want to refer, first, to another point made by the right hon. Gentleman, and then to deal with my right hon. Friend the Chancellor of the Exchequer.

The coincidence to which the right hon. Member for Wolverhampton, South-West referred in the rather attractive and interesting picture that he painted was possible only because we are all profoundly grateful that these three brave men have returned safely to earth. Because of that, the right hon. Gentleman was able to make a jocular reference to them. My right hon. Friend has not missed re-entry because he is not an expansionist, or because he did not wish to deal with public expenditure. He has produced what many of us regard as this over-cautious Budget because of the history in recent years of making a fetish out of our balance of payments surplus, which has produced an atmosphere of fear and anxiety in the mind of the Government.

The responsibility for this is not the Chancellor's alone, because no one is naive enough to believe that the Chancellor is the only person who frames the Budget, in spite of what the political correspondent of one newspaper seems to think. The Prime Minister certainly has a share in it, and other members of the Cabinet also have a great responsibility for it.

I believe that in recent years, ever since the right hon. Member for Barnet (Mr. Maudling) left office, we have too readily accepted the doctrine advanced by the O.E.C.D. Committee in July, 1964, when the right hon. Member for Barnet was still Chancellor. The Committee published a report—it was discussed after the present Labour Government took office—in which it criticised the then Conservative Administration on two counts.

The Committee argued that for some years the level of unemployment in this country had been too low, and the level of growth had been too high. That criticism was one with which I did not want to be identified at the time, and I do not want to be identified with it now. I have, therefore, always regarded it as profitless to go after the right hon. Member for Barnet to try to prove that he was following a too easy policy and, therefore, that all our troubles since then can be traced back to that period of his administration.

I think that my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) was much nearer the mark when, in what I thought was a profoundly important analysis of the real situation, he said that over a period of years we had been burdening ourselves with certain types of expenditure overseas, that we had at the same time not done enough to modernise our own industry, and that these were the twin reasons for the kind of difficulty which the country has been facing.

That is the starting point, and I want to put on record my disappointment at the way in which the right hon. Member for Enfield, West (Mr. Iain Macleod) handled the problem in his two contributions to the Budget debate, one in the House, and the other on television. The debate today, at least until now, has been of profound interest, and has got down to the basic problems involved but, listening to the right hon. Member for Enfield, West, with all his intellectual equipment, speaking on television, one would not believe that there was a problem. If there is public criticism that political leaders are not putting the real problems to the people, the right hon. Gentleman's contribution must be held at least partly responsible for that.

I listened to the right hon. Gentleman's broadcast, as I have no doubt others did. He said that the Conservative Party would cut taxation, cut public expenditure, and then there would be growth. The message was delivered with considerable force, without enlightening the electorate what it was all about. This is part of the trouble. We are so concerned, not only in the run-up to the General Election, but all the time, to score points —and the speech of the right hon. Member for Altrincham and Sale (Mr. Barber) was another example of this—that we do not contribute to enlightening people about the real problems which the country is facing.

The right hon. Gentleman used another favourite argument about why the situation could not improve. He talked about the wages explosion. There is no wages explosion. The right hon. Gentleman's argument about the Government not proceeding with the penal clauses in the industrial relations Bill is a red herring. It has nothing to do with the present situation. The number of wages applications, to some extent asking for higher percentage increases than might otherwise have been the case, is a backlash to the statutory incomes policy. Rightly or wrongly, a number of people feel that they have missed an opportunity, that they have been done out of something which they must now make up.

I have always felt, and I said this to my right hon. Friends on the Treasury Bench during the debates on the statutory incomes policy, that they were exaggerating the importance of the effect of this policy, and that they created in the minds of the working people an impression of being left behind far more than was the case.

Mr. Barber

I agree with the hon. Gentleman's analysis. Quite apart from the moral aspects of the statutory control of wages, one reason why we opposed it was that we knew that when it came to an end—as it must one day—it would lead to a flood of pent-up wage demands. I did not use the term "wages explosion"; I used the term "an avalanche of wage claims". That was the phrase used by the Secretary of State for Employment and Productivity. My point was that these wage claims are bound to lead to a tremendous increase in prices later in the year, and that will inevitably affect the housewives and the lower-paid workers. I think that that is very sad, and the hon. Member will probably agree with me about that.

Mr. Mendelson

I do not know what words the right hon. Gentleman wants to advance, but he knows that simply to quote the exact words used by my right hon. Friend the Secretary of State for Employment and Productivity does not make them sacred to me. I accept neither the one formulation nor the other.

When one talks to employers in many of our leading industries one finds that they do not take the view that there is an explosion or avalanche of wage claims. What happens is that at certain times we have a larger number of applications than at other times—when certain contracts come to an end, or when people in certain industries or professions—the teachers were a case in point—feel strongly that they have been left behind and accordingly ask for an interim increase. When the teachers were making their claim I did not hear any mention from the Opposition Front Bench of the beginning of an avalanche of wage claims. The right hon. Gentleman has a very selective attitude to wage claims. He approves of some and not of others. When the British Airline Pilots Association wanted a large increase for its members I did not hear the right hon. Gentleman oppose it and say that it was the beginning of an avalanche of wage claims.

There is far too much hypocrisy about this business. We are so hypocritical that we do not take the country into our confidence and discuss the real issues. The right hon. Gentleman's contribution this afternoon was no more valuable than was his silence over the wage claims that I have mentioned. His remarks were made solely for party advantage, and they made no contribution to the debate.

The key issue that we are debating arises from the strategic economic decision that the Chancellor must make about the way in which our economy is to go. One of his reasons for being so cautious is political. There is nothing dishonourable about that. Having brought the country out of its large balance of payments deficit and reached the promised land, and seeing the shores of light beyond, he has become very afraid. He is being quite honest about it. He is afraid that if he reprimes the pump too much—if there is a boom, which in my opinion is now fully justified—such is the crazy international economic system that now exists—and I use that term advisedly—that there may be a change over the exchanges.

As we all know, such a change cannot always be limited, and we may suddenly find a lot of money pouring into London quite unreasonably, or a lot of money leaving London. That fear is bound to haunt the Chancellor. That is why, in my judgment, he is being over-cautious. That is why I said, a short time before the right hon. Member for Barnet came into the Chamber, that I see no profit in going after him for the sort of thing that he did or did not do in 1964. The accusation made against him by the O.E.C.D. in its report of July of that year was that he had been far too easy, and had allowed too high a level of employment. I never repeated or accepted that accusation. The irresponsibility on the part of the Opposition lay in the fact that they, having known the kind of situation that they left behind, belaboured the present Government—purely on party lines—when they started to try to do something about it.

I therefore make the point that in relation to economic policy the right hon. Member for Enfield, West has not a leg to stand on. Although he is satisfied with a one-legged Father Christmas he has no leg at all to stand on in arguing against the Government's economic policy. Thoughout the period when the Government were pursuing deflationary economic policies, although the right hon. Member for Enfield, West is now the first to attack the Government because our growth has been too slow —and the Chairman of the Tory Party has attacked it in similar terms this afternoon—in all our debates the right hon. Member for Enfield, West told successive Chancellors across the Table- -most recently, and very often, my right hon. Friend who is now Home Secretary" Carry on on the rocky road ''. Ever since they came to office the right hon. Member has been wholly identified with those aspects of Government policy that have been deflationary. He never made any bones about it until he spoke on television recently, when it was apparent that he had become a great expansionist, who would solve all our problems by cutting public expenditure and reducing taxation.

The Government have been overcautious. That is not an original point of view; it is the judgment of most of the British Press. It is not good enough for my hon. and learned Friend the Chief Secretary to point out—as he did in opening the debate this afternoon—that Government policy has had approving views expressed by some of the people concerned with finance in other countries. This Budget pleases the Director of the International Monetary Fund because it is orthodox and safe. But, with great respect, he is not responsible for the future growth of our economy. He is not responsible for our future well-being, or for the retooling of British industry, or for the advances that we have to make in the interests of the British people. They are not his concern. I do not charge him with being callous or indifferent; they are not what he has to look after. But the Government have to do that. Therefore, I do not take much notice of the words quoted by my right hon. Friend the Chief Secretary today.

There are certain questions to which we should have answers from the Government. Given that the Chancellor has made this cautious decision, what are the Government's estimates—and I ask my hon. and learned Friend to ask the Chancellor to give a specific answer—of the trend in unemployment for the rest of this year? That is a question on which the House has a right to receive a definite and specific answer from the Chancellor.

Secondly, is not my right hon. Friend in a position—in spite of the limitation of his Budget—to create an increased demand during the rest of the year by some other means? As my hon. and learned Friend well knows, and as the Chancellor well knows, what he can do in the social services and in providing benefits for those most in need will depend largely on what he can do about the twin problems to which I have referred.

Thirdly—and this needs saying from the Government back benches—the Chancellor does not need any instruction from any of us about the desirability of expansion. There must be many right hon. and hon. Members in the Chamber now who were here with me when my right hon. Friend the Chancellor used to speak from the back benches, criticising Governments and producing excellent arguments on the need for further economic expansion. Anybody who implies that he has anything to teach my right hon. Friend about that is way off beam. It is because my right hon. Friend knows all this so well that I am convinced that it is his fear of matters getting beyond what might be acceptable in balance of payments terms that has caused him to make a limited decision in his Budget.

I plead with my right hon. Friend carefully to consider whether it is not possible to argue—and whether he should not accept the argument—that we do not need to aim at a large balance of payments surplus for the following year. I know that the Chancellor will say it is much better to look forward to a balance of payments surplus than to a balance of payments deficit. That is obviously the answer that everybody must expect. But we also know that we can go on with a large balance of payments surplus and still not solve the problem of unemployment. We also know that there comes a time when the optimum point has been passed, and when we must deliberately aim at a lower balance of payments surplus and take certain risks if we want to get the economy on a more advanced course of expansion.

There has been a good deal of unfair comment about my right hon. Friend's Budget. It has been said that he has hardly done anything. That is profoundly untrue. Having been back in my part of the country over the weekend, I can tell the Chancellor of the Exchequer and the Government that quite a large number of people there greatly appreciate some of the things my right hon. Friend has done. A lot of them will now no longer pay any tax at all. They know it, and they are pleased that it should be so.

In this connection we had another of these intellectually fraudulent statements by the right hon. Member for Enfield, West who talked on television about tile people coming off income tax and those coming on. I do not know who cooked it up, whether it was the Conservative Central Office or some public relations firm, but we saw these little men moving across the screen, and those responsible for the display tried to give the impression, by almost subliminal means, if I dare mention the word, to the uninstructed that the same million people who did not have to pay tax after the previous Budget would have to pay it this year. We had the same little men—they were identical. It was intellectual fraud of the worst type.

But nobody will be deceived. Our people are intelligent and will realise that there is no real identity at all. The right hon. Gentleman the Member for Enfield, West is a clever little man on the television screen, but he will not fool anybody this time. The electorate will realise that there is no identity of person at all between the one group of one million and the other. They will understand that, except for a few, these are altogether different people; that different age groups move up, and that those now exempted from tax include hundreds of thousands who need it very bady because they are earning for the first time. Some of them belong to the new age group which has now been given the vote. I look forward to many in that group in the Penistone area welcoming the new situation, and giving me their confidence in return. I am not frightened of doing a number of good things that are also good for the Labour Party and the Labour Movement.

My second point is one of severe criticism of my right hon. Friend's decision to reduce surtax while not removing prescription charges. In introducing his Budget last week, my right hon. Friend said that his main reason for reducing surtax payments was that collection was so terribly expensive. He said, with all the astonishment he could command—and he can command quite a lot when he wants to—that collection costs represented 21 per cent. of the amount collected.

What was the argument when the prescription charges were put on? The Government estimated that those charges would bring in £25 million, and we had a long series of debates here and elsewhere. The Chancellor of the Exchequer was told time and time again that he was mistaken, and that by the time he had introduced exemptions and differentiations and the cost of collection had been added, the sum would be nowhere near £25 million. The best, and not the most conservative, estimate we have today is that the amount collected, the saving, will be no more than £12 million and other estimates still predict the amount as well below the £25 million. I believe that on my conservative estimate it will be found that the cost of collection will be 50 per cent. of what remains of the £25 million—and it may be only 40 per cent., or even less.

But after deducting my right lion. Friend's 21 per cent. for collection of surtax from 100 per cent. we are left with 79 per cent. Therefore, his argument does not hold water, and there is no excuse for it. The Treasury has also been involved in other arguments since publication of the Budget and there will be still further argument. There can be no moral justification at all for taking off surtax in a year when the Government cannot find the money necessary to remove the prescription charges.

I remember that when he was Chancellor of the Exchequer the right hon. and learned Gentleman the Member for Wirral (Mr. Selwyn Lloyd) in one year made a tremendous return of money to surtax payers—to the tune of £81 million. That action did a lot of harm to his reputation as Chancellor of the Exchequer. It was difficult to find out from him then how much of that sum related to earned and how much to unearned income. It was my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) who, during a late sitting, dragged from the right hon. and learned Gentleman the information that a very high percentage of the total would be returned to people with large unearned incomes.

I do not agree with my right hon. Friend the Member for Sowerby (Mr. Houghton) when he tells us that a majority of the people now affected will be those who are called workers but who have some investment income in addition to their wages. I believe that many people who have an investment income of £65 or £70 a week will get most of the benefit of the concession. There is no justification for this stet, in a year when people earning £25 or £30 a week cannot be considered.

I return to the essential point, which is the growth of the economy. "Growth" is not a miracle word. I believe that the Government will achieve a certain amount of growth additional to that which we have seen in recent years. I do not accept the argument of the right hon. Gentleman the Chairman of the Conservative Party, with his league table. Not long ago we had a debate on the Common Market, when we had a very strong alliance between the two Front Benches against those of us who do not agree with our trying to get into the Common Market. What did the two Front Benches argue then? They said that a league table was wholly irrelevant; that we could not pay attention to the rate of growth of Turkey, for instance; that it was sleight of hand to take a growth of national product each year, and that it was useless to compare that of Turkey with that of the United Kingdom. If the league table was meaningless then, it is equally meaningless now—

Mr. Biffen

Was it equally meaningless when used before 1964?

Mr. Mendelson

Quite a number of the arguments used before 1964 were as propagandist as some of the arguments advanced from the other side today. The hon. Gentleman knows me well enough to agree that I have never denied that. We are all subject to the temptation from time to time. That is why I say it is so fruitless and sterile to quote from the past, and that the national Press and many informed people are right to tell us not to go back over all those years and repeat every little statement that was made.

We have to tell the people about the real problems, and about the real difficulties which produce hesitation in my right hon. Friend's mind, and which would produce hesitation in the mind of any Chancellor of the Exchequer. It is only because the right hon. Member for Enfield, West has no responsibility at all today that he can tell these fairy tales on the television screen, with his little men marching up and down. He is allowing himself the freedom of the fool at court. He knows very well that when he ceases to be the fool and becomes the king he would have to tell a different tale. This is what is so irresponsible. We shall be able to expose this irresponsibility of the right hon. Gentleman, and he will have made a handsome contribution to staying where he is as one of the Front Bench Opposition spokesmen. That is much the safest position for the country.

My right hon. Friend the Chief Secretary pointed out how the leaders of the Opposition have suddenly discovered their social conscience since we have been in office, how they are so terribly interested in poverty among children, how they are so terribly concerned with those injured at work. I was a Member when the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) was Minister of Pensions. I took part in a dozen delegations that went to ask him whether there could not be another 10s. for the injured, and whether something could be done about children. We got a dusty answer year after year. I regret that the right hon. Gentleman is not present now, because I am one of those who still know the evidence. There are many new Members in the House today, and we are very glad that they are here. I am one of those who remember when we went to the right hon. Gentleman in delegation after delegation. I do not remember the other Tory leaders telling him, "You must give a positive reply to these people." They never did.

The Tory Party will always have a social conscience when in opposition. My party has a social conscience when in office, so we shall have both main parties with a profoundly developed social conscience if we keep the party opposite in opposition for the rest of the century.

8.12 p.m.

Mr. Ian MacArthur (Perth and East Perthshire)

It is curious to learn today how effective was the television broadcast of my right hon. Friend the Member for Enfield, West (Mr. lain Macleod) the other day.

The hon. Member for Penistone (Mr. John Mendelson) has clearly been needled by the perambulating million argument. He confirmed that just now when he told us that in his constituency there were many young people earning for the first time who would be freed from income tax by the Budget. I am sure that that is true. I am equally sure that a large number of them will find themselves enmeshed in taxation again before long and that as they work and earn their way up the income scale they will be shocked when they approach £14 a week to discover that they are paying more in income tax as a result of the Budget than they would have done before.

Indeed, the young man or woman in the hon. Gentleman's constituency will have to become a marginal surtax payer before getting any further relief from the Government, and when he or she gets it it is the hon. Gentleman himself who will want to take it away from them.

The Chancellor gave us a questionable review of the selective employment tax. He had some fun which was rather ill-judged, because the one thing one should never have fun with is the selective employment tax. He implied that he might be about to increase the rates of that wretched tax yet again. One full agony column later, he announced that the rates would remain unchanged. That, at least, brought us some relief, as did his announcement that the live theatre would be exempted from the burden of the tax. Theatres all over the country, not least in Perth, will be grateful to the right hon. Gentleman for that relief. But they believe, as I do, that the tax should not have been imposed on the live threatre in the first place. It was a wholly unnecessary charge on the live theatre, which was already struggling for survival. However, I am glad that the right hon. Gentleman has at last recognised that injustice.

But the Chancellor's references to the selective employment tax did not end there. If he has the chance to introduce another Budget it is obvious that he will extend the tax yet again. He made it quite clear that the self-employed will be brought within its strangling net, and the new scale of computation he has in mind will increase the cost of the tax borne by the industries producing our invisible exports. The Government have at last recognised their vast contribution to our balance of payments. With one hand, they are rewarded with a handshake; with the other, they will be presented with a higher bill for the most hated tax of our time.

All this will come after the election, not before. The Chancellor hinted broadly that there might be goodies to come between now and then. Indeed, as the shadow of coming events lengthens over the Treasury Bench room will be found for the easement of hire-purchase restrictions and for similar easements of that kind. The hon. Member for Penistone may even yet find some of the things he is looking for. He may find that the reforming zeal of the Prime Minister and the Chancellor will vie with that of King Solomon and King David who, in the old verse, led merry, merry lives: But as old age crept over them With many, many qualms, King Solomon wrote the Proverbs And King David wrote the Psalms. The Government's plot no doubt is to sow illusory tax and credit easements and then, with a harvest of votes safely gathered in, to whack the taxes on again.

The electors will not be duped again, as they were in 1966. The Government are still £3,100 million short of fulfilling the Prime Minister's statement on television that there would be no general increase in taxation. I do not know whether he regarded that as a promise or a pledge. Certainly, there was no doubt about the then Chancellor's statement on 1st March, 1966: …I do not foresee the need for severe increases in taxation."—[OFFICIAL REPORT, 1st March, 1966; Vol. 725, c. 1116.] That was just before the General Election. Just after it, that same Chancellor introduced the selective employment tax. If the present Chancellor does not regard that tax as a severe increase in taxation, let him talk with any service industry employer or employee in my constituency or anywhere in Scotland. Better still, let him have a word with those people, some of whom I know, who have lost their jobs as a direct consequence of the tax and have joined the ranks of the unemployed, for whom the hon. Member for Penistone rightly has such deep concern.

Indeed, it is a pity that the Chancellor did not speak a little more with the Secretary of State for Scotland about his proposal to introduce the selective employment tax. I recognise that communication between them may be difficult, because the Secretary of State is carefully excluded from membership of the inner Cabinet, and, therefore, will not be privy to its private exchanges.

But it was not only the electors who were duped by the Government in 1966. The Secretary of State for Scotland was also duped. Only last Tuesday the Chancellor took pride in the fact that unemployment in the service industries had gone up, that there had been a sharp fall in service industry employment. Yet just before the 1966 General Election the Secretary of State was taking vocal pride in his belief that employment in the service industries under Labour would increase. He did not then know of the S.E.T. No one had thought of telling him.

It is interesting to make these two comparisons. Last Tuesday, the Chancellor took pride in what he described as a continued fall in the number employed in the main industries which bear the tax."—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1243] In paragraph 8 of the White Paper, "The Scottish Economy 1965 to 1970", Cmnd. 2864, the Secretary of State for Scotland said: Continued expansion of the service industries…. will have a significant part to play in development. There is total contradiction between two senior Cabinet Ministers, contradiction which has duped the electors in Scotland.

The White Paper was published in January, 1966. In a resonant Press release by the Scottish Office it was described as the Government's strategy for economic expansion throughout Scotland. The central theme was the creation of more jobs. The headline to the release opens with the words "more jobs". The opening paragraph of the White Paper set the targets. By 1970—this year—there was to be a net gain of between 50,000 and 60,000 jobs in Scotland. We now have the June, 1969, employment figures and we can judge how far the Government have advanced. There has been no net increase in jobs in Scotland since 1965. Scotland has lost 41,000 jobs, so the Government are adrift on that pledge by over 100,000 jobs. The position for men is even worse. There are 64,000 fewer men in employment in Scotland than there were in 1965, the base year for the White Paper.

Some part of this failure can be ascribed to the Government's sheer economic incompetence and the resultant lack of growth. A large part must spring from the selective employment tax imposed three months after the White Paper and one month after the General Election by a thoughtless Chancellor on an unaware Secretary of State. I say this because the spearhead of the employment growth was to come from those very sectors so quickly hit by the S.E.T. It has not been emphasised enough that the main growth the Government were looking for in January, 1966, in Scotland was to come from the very sectors of employment which were battered by the selective employment tax three months later.

Sixty thousand new jobs were to be created in the service industries, and we know only too well what happened to them. Twenty thousand new jobs were to be created in the construction industry, but the latest figures show that there has been no increase in construction employment in Scotland since 1965. Instead, there has been a loss of 7,000 jobs, so the Government are 27,000 adrift on that declaration.

Yet in the face of this fiasco the Secretary of State clings obstinately to his worthless forecasts. We respect the office which adorns him. We would respect him more if he would recognise that he was caught unawares by the tax and that it made total nonsense of all the hard work he and others put into the preparation of the White Paper. It was a splendid and optimistic forecast published, I know, without a thought of the General Election which was a few weeks ahead. The pity is that all this work was undone by the Government's actions so soon afterwards.

So we have lost 41,000 jobs in Scotland since 1965. By contrast, we gained 30,000 between 1960 and 1964 when the Conservatives were in office.

There is hardly any proposal in the Budget that will foster growth in Scotland. If we group together the effects of recent Government measures, half the so-called relief in the Budget will be wiped out, partly by the £40 million increase in the national insurance stamp and partly by the £65 million increase in telephone charges. The increase in telephone charges will fall very heavily on Scotland, particularly the elderly and those in the countryside, whose link with the outside world is the telephone, which will soon cost them more.

Life in the country, and thus in most of Scotland, has been made harder and more costly by the heavy charges the Government have imposed on many aspects of rural life. For example, the countryside in Scotland suffers terribly from the higher transport charges imposed by the Government, Further, the new restrictions imposed by the Transport Act are crippling life in the country. Even the most efficient agricultural management cannot cope with the disruption of the livestock trade brought about by these measures.

I return now to S.E.T. and the contradiction between what the Secretary of State for Scotland told the people on the eve of the General Election and what the Chancellor claimed last week. I want to read in full paragraph 143 of the White Paper, "The Scottish Economy 1965 to 1970", which set out the Government's view at that time of the service industries. It said: The Government is conscous of the role which the service industries have to play in the expansion of the Scottish economy. In addition to the contribution which certain of them make directly to economic growth, they help provide the basic prerequisites for industry as well as providing the facilities and opportunities which go with a rising standard of living. They also play an important part in influencing both the capacity to restrain migration and the ability to attract new industry. The argument about the service industries could not be put better than that—and that paragraph represents the view of the Government just four years ago.

Then, the Government were conscious of the rôle of the service industries—so conscious that those service industries were to spearhead the growth of employment envisaged in the White Paper. Indeed, the White Paper was described in Labour's election manifesto in 1966 in glowing terms. The manifesto said that that the White Paper set targets of employment which must be carried out. A month after the election, S.E.T. was imposed on those industries. The rates have since been increased twice and now they are almost double. It is no wonder that employment in the service industries has contracted so sharply in Scotland.

The Chancellor pointed to that reduction as a matter for pride. But we were promised growth in the service industries in Scotland. Instead, we have seen them contract. We were promised 60,000 extra jobs by 1970. Instead, we have seen the loss of 41,000 jobs. The Government will never be trusted again in Scotland because no one can believe a word they say.

Mr. Stanley Orme (Salford, West)

What about South Ayrshire?

Mr. MacArthur

May the Government go soon and so hasten the abolition of this hated and hateful tax.

8.28 p.m.

Mr. Stanley Orme (Salford, West)

I repeat what I have just said during the speech of the hon. Member for Perth and East Perthshire (Mr. MacArthur)—what about South Ayrshire? That was the latest demonstration that we have had of Scottish feelings about the political scene. I hope that the hon. Gentleman will not be aggrieved if I do not follow him in his argument about the selective employment tax, because it is not the theme I wish to pursue. I want to return to a theme which has recurred throughout the debate—the issue of wages and industrial relations as they affect the economy, the Budget and many of the observations made on it.

First, however, I want to say something about the surtax relief in the Budget and the criticism by some of my hon. Friends of that relief, criticism which I fully support. I want to link what I have to say about it with what my right hon. Friend the Member for Sowerby (Mr. Houghton) said earlier, when he referred to extending the claw-back system for paying higher family allowances and doing it, therefore, in a fair and just way.

I say to the Government that there is a limit to the extent to which claw-back can be used unless the threshold is lifted, for otherwise the burden falls increasingly on the specific wage group of between £20 and £30 a week. These workers are not only affected by claw-back. They have to make many other payments as well. Whilst I am in favour of increasing family allowances, it would be better to pay for those increases not through the central band of income tax payers, but through the surtax band. That is why I object to the surtax concessions at this stage. I believe that the philosophy of it is wrong.

I fully support the reliefs my right hon. Friend has given to the lower-paid workers. I only wish that they had been extended further. But, within the terms of what he has distributed, he has done it fairly and in the interests of those who really need it. Whether or not my right hon. Friend could or should have distributed more takes us to the central argument, and the core of that argument is the issue of wages and industrial relations.

Wages have moved to the centre of political debate. It is quite extraordinary. They are raised now as an ogre, just as, a few years ago, we were told that we must be careful of what we said because we might affect the standing of the £, whose parity must be maintained. That was the ogre of those days. Now the ogre is wage claims and settlements. This is said to be the central issue of our problems and the remaining malaise of the economy. I regret that argument.

I am confounded by the Opposition's attitude, especially having gone through the trauma of the statutory prices and incomes policy. I remember the debates we had in this Chamber night after night. We heard some of his most brilliant speeches from the right hon. Member for Enfield, West (Mr. kin Macleod). He could have been in the most militant A.E.F. branch and no one could have got to the left off him. We went through all the argument. The Opposition completely rejected the statutory prices and incomes policy which many on this side also objected to because it would not work, was unfair and would prove to create problems. Those are the problems which are now arising in the economy.

The Opposition were opposed to that policy, but they did not develop their arguments. However, we were told that they were in favour of free collective bargaining and this is why I interjected earlier today in the speech of the right hon. Member for Altrincham and Sale (Mr. Barber). We were told that the Conservative Party believed in free collective bargaining as the way in which negotiations and agreements should be carried on. Yet we are now to understand that, as soon as those agreements go above the level which the Opposition think satisfactory or fair, they must be opposed.

The contradictions in the Opposition's attitude on wages will not be missed by the electorate in general and by the workers in particular, some of whom were taken in by some of the pious arguments the Opposition used at the time of the prices and incomes legislation. Those people will rue that day. We have further evidence of the Opposition's attitude in the speech of the hon. Member for Worthing (Mr. Higgins) last Wednesday. He said: If we consider the increase of 11 per cent. in railwaymen's pay, explicitly with no change in productivity, we find it very difficult to see any justification for it. On the other hand, an increase may be justified in terms of the recruitment and training of nurses. He has thus learnt something from the Selwyn Lloyd poise. The hon. Member added: It is in the public sector we need to take a firm line."—[OFFICIAL REPORT, 15th April, 1970; Vol. 799, c. 1507.] That was an interesting statement. The hon. Member said that there was no productivity in the railwaymen's agreement. That is nonsense. A revolution has taken place on the railways with the co-operation of the railwaymen. In 1961, the number employed by British Railways was 500,434 in all grades; in February, 1970, the number had been reduced to 253,615. That is a 100 per cent. reduction in the number of railwaymen in 10 years. Is there no productivity element in that? Are the men on the modernised, electrified and improved railways not entitled to good wages? The argument about productivity bargaining can get carried to a nonsensical length.

I am all for productivity in industry, but I am not so keen on so-called productivity agreements in relation to wage agreements. So much of it is myth anyway, and has no relation to production itself. Again, when men make productivity agreements, they often give up basic rights in their industry. For instance, one-man buses have been introduced. That represents a 100 per cent. reduction in the number of staff on the buses. I remember asking my right hon. Friend the Secretary of State for Employment and Productivity what the busmen would be asked to do next. Would they be asked to get rid of the driver? There is a limit to what can he done. The Fawley refinery agreement, so often cited as an example, has not proved to be a case of production lagging behind wages, which were lower there than in many other sectors of industry.

I do not accept the argument that one can just use the yardstick of productivity. We talk often about teachers and nurses. There is no way of measuring their productivity. When the Opposition go back to Selwyn, as it were, we see what their answer is to the problems facing the economy. It is to clobber the employees in the public sector. I hope that those employees, as well as all others, will take careful note. I remind them again of what the hon. Member for Worthing said about the railway workers.

The Opposition want to extend that philosophy throughout the public sector. This is the refinement they have. At last, we know their answer to a statutory prices and incomes policy. It is to force the workers in the public sector to accept reductions. The hon. Member for Worthing (Mr. Higgins) is sensitive. He does not include the nurses, but it does not matter whether it is the teachers, the railwaymen, the miners—they are in the public sector. They say, "Refuse them the right to an increase and thereby set a pattern for the rest of the country". We have gone through that and the workers will never go through it again.

Mr. Terence L. Higgins (Worthing)

The hon. Member must realise that he is grossly distorting what I said. I said that clearly there may be occasions when it is important that there should be an increase in the public sector. What I am saying is that each case must be treated on its merits. I would have thought that that would be common ground. There can be no case for unjustified inflationary increases.

Mr. Orme

I will leave the railwaymen to judge whether their 11 per cent. application is an inflationary increase, not backed up by productivity measures.

I move to the concept of a prices and incomes policy and ask whether it is viable within our present society. I doubt whether it is. There are too many factors militating against it. If I am asked, as a Socialist, whether I am in favour of a prices and incomes policy, I say that I am, but in the type of society where it is possible to operate such a policy.

We do not have that society now. If we reach a point when the pressure is taken off the public sector, when we can have growth and expansion, full employment, a wealth tax, increased family allowance, when the Government make a genuine stand on redistributing incomes, then such a policy will be possible.

Present wage demands are greatly exaggerated with people taking the demand as the final settlement. This does not happen in industry. There are two sides, and collective agreements are worked out. I have never known of an industry where an employer has come along after a couple of years and said, "You have not had an increase for a couple of years. I think that you ought to have one." It is always the other way round. The worker has to ask, because it seems as though the employer has forgotten about it. There is a real conflict within industry which it would be foolish to ignore. There is a basic struggle and this brings me to the argument about shop floor democracy which is something quite new in many ways.

It cannot easily be defined and there is no easy answer as to how it developed. If my hon. Friends want to see a rationale it can only come about if we reduce the size of the private sector and increase the size of the public sector. As Nye Bevan would say, it is only by controlling the commanding heights of the economy that it will be possible to plan incomes as well as much of the rest of the economy. So much nonsense is talked about incomes.

A good example is the recent Ford dispute. There, many thousands of workers, grade C workers with over two years on the conveyor belt, classified in the engineering industry as semi-skilled, but within their own industry having a definite form of skill, performed at speed and with great dexterity, were said to be earning fantastic sums of money. Before the last settlement they were earning £3 a week less than the national average of £26 for a 40-hour week; and many had been working a 40-hour week for several weeks before the application.

Within a society where millions of workers can gain increments without going through an incomes policy, a Government produce a large identifiable sector of workers and say, "You must be stopped. You must be used as an example." That is an injustice to working people and they will not tolerate it.

We are in a very different situation, as the Government have recognised. I do not think that the Opposition have recognised it. I hope for their sake that they do not have to grapple with this problem, because it would completely overwhelm them. I am convinced that the workers will see the common sense of not allowing them to deal with it. I notice what Hugh Scanlon said at the A.E.F. conference today on this matter.

The problem of wages, incomes and growth is affecting not only Britain but other countries. It is occurring in Germany. It is causing great trouble in Italy. It has happened in France. I am told by reliable sources that when the explosion comes in Japan it will be of considerable force and that it will be of tremendous effect on that country's economy. People will not accept, in 1970, not merely 1930 terms, but 1950 or 1960 terms.

There is much dishonesty in talk about legislation. The right hon. Member for Altrincham and Sale (Mr. Barber) challenged the Government about running away from industrial relations legislation. He said that an industrial relations Bill was needed. The Opposition's intention is not to control wages, but to get a firm grip on the trade union movement and to control wages if they can. Well, they cannot.

The argument about incomes, trade union legislation and wages will continue. It is not a little tidy issue which economists can put into pigeon-holes where everybody has his place. We are dealing with a complex industrial society. We can achieve growth in incomes and growth in the economy, which is so necessary. We can achieve redistribution of income. All I say to my right hon. Friend and his colleagues at the Treasury and to the Government is, "Next time, be a little bolder. Grab the nettle a bit more firmly. I believe that the people will support you. You have the ground base. Now let us continue in the right direction."

8.48 p.m.

Mr. John Biffen (Oswestry)

I was touched, as I am sure the House was, to learn that there are circumstances in which the hon. Member for Salford, West (Mr. Orme) would support an incomes policy. But as I heard him elaborate those circumstances, I felt that, like St. Augustine, he was appealing to the Deity to make him perfect but not yet awhile.

What is fascinating about this debate is the extent to which the shadow of the Chicago School of Economics has cast an almost enveloping darkness on nearly all the arguments. At the beginning, my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) talked about dealing with family poverty by use of a negative tax system. It could have been lifted straight from the writings of Dr. Milton Friedman. This afternoon the hon. Member for Ashton-under-Lyne (Mr. Sheldon) talked about the possible desirability in current circumstances—and I agree with him—of moving towards a system of more flexible exchange rates. The term which he used was "a floating exchange rate". This, too, was a doctrine which could have come straight from Dr. Milton Friedman.

Central to the argument has been the concern over the concepts of money supply and domestic credit expansion. It is as though in these days our gnomes wear Stetsons.

The House will certainly wish to reflect at considerable length upon the arguments that were employed by my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) in what seemed to me to be a penetrating critique of the extent to which the Government are continuing their reliance on money supply long after at least certain of the statistical evidence seems to have outlived some of its usefulness.

Perhaps, therefore, it is easy to understand why, in the Press at least, it was reported that my hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith) should have referred to this as a bankers' Budget. I thought that the Chief Secretary was doing his best at least to strike a good-natured consensus for appealing for support for his Budget from no less a person than Pierre-Paul Schweitzer. Not least in the light of the speech of my right hon. Friend the Member for Wolverhampton, South-West, I should prefer the slightly adapted description that this is the Budget of a banker's apprentice who is still learning the trade. I fear that he still may be capable of making considerable mistakes. I suspect that part of the confusion derives from the acceleration of money as well as in the context of the actual supply.

In the last few moments that remain to me, I do not want to get drawn off into an esoteric argument about money supply and the velocity of circulation. The hon. Member for Penistone (Mr. John Mendelson) said that the current wage claims are the result of pent-up demand arising from past Government policy. It is, therefore, feasible that the argument about money supply, inasmuch as it is now being confounded by temporary incidences of velocity, derives directly from the ineptitude of past Government action.

What worries me is that we do not properly apprehend the true time lags between fiscal and money de-decision authorised by this House and their being brought into effect and being revealed in the economy at large. If we are collecting the poisoned fruit, to use my right hon. Friend's words, from the policies of the Home Secretary when he was at the Exchequer, what poisoned fruit will be for the harvesting of successor Governments as a result of the present Government's over-reliance on money supply?

I believe that the poisoned fruit could well be a substantial increase in unemployment and a substantial turn-down in manufacturing investment. These seem to me to be at least reasonable assumptions, which I make very tentatively because I am not a great advocate of fine tuning. It is, however, a reasonable assumption that if the Government, in desperation, are over-relying on money supply, those are the kind of consequences that will reveal themselves in—who knows-12 months', 18 months' or two years' time. Therefore, there is much with which I would quarrel in the overall Budget judgment.

I am grateful to my right hon. Friend the Member for Birmingham, Hands-worth (Sir E. Boyle) for—I think quite wrongly—giving me precedence to make these few remarks. I should have liked to have elaborated them at greater length, but, none the less, the argument will probably be as sweet by virtue of its brevity. I leave it at that.

8.53 p.m.

Sir Edward Boyle (Birmingham, Handsworth)

I am extremely grateful to my hon. Friend the Member for Oswestry (Mr. Biffen) for having cut short his remarks, and I will follow his example. I am all the more pleased because I wanted to start with exactly the point to which my hon. Friend has addressed himself, which is the part of the Budget judgment that relates to monetary policy and to the money supply.

As many commentators have done, I found this part of the Budget speech profoundly unsatisfactory. On the one hand, the Chancellor of the Exchequer made it clear that money supply was to be limited. He said that in the next financial year, the addition in the money supply was to be limited to 4 per cent. At the same time, we have been told clearly by the Chancellor that he anticipates a rate of growth of the economy of 3½ per cent. He is looking forward to a considerable increase in industrial investment, and we all know that it is very likely that the wages increase this year will be about 10 per cent.

When one sees the figures which the Chancellor has given us for the projected increase in the money supply, and also the likelihood both of the rate of growth which the Government have forecast and of a considerable increase in wages, it seems clear that there is some conflict of testimony here, and that we are likely to see a very great squeeze indeed in company liquidity. I agree very much with my hon. Friend the Member for Oswestry: it is my belief that it may well be that manufacturing investment will be the sufferer.

That strikes me as a particularly serious matter when one compares what has happened to manufacturing investment since the publication of the National Plan in 1965. One of the most important targets in that plan was that manufacturing investment should rise by 7 per cent. a year. In fact, as we know, the figure has been only 4 per cent. a year. I thought myself that one of the sharpest and most pertinent criticisms of the Budget, certainly of those which I have seen, was made in theEconomistlast weekend when it said: The Budget will leave investment-deprived Britain heading for a wages-fed consumer boom. That is one very sharp criticism which can be made of the Budget judgment.

Another point I should like to raise on monetary policy is that I believe myself that we may see, following the Budget, a considerable flow of debenture issues and I also very much wonder what is the immediate outlook for the gilt-edged market. It seems to me that Government policy could only work out on the condition that we have tough action on the gilt-edged market, and I must say that one cannot help noticing how War Loan has already taken a plunge since the Budget, even in advance of the fact that, shortly, it goes ex-dividend. That is the first point I wish to make, to question very much the part of the Budget speech which related to monetary policy.

Secondly, I would just comment on what, I believe, is one of the greatest defects in the Budget. It gives no incentive to industry. It is also, as many hon. Members have pointed out, a Budget which does remarkably little for the poorest in the country. I share the view of the hon. Member for Lewisham, West (Mr. Dickens). I could not agree with all of his speech, but I thought that he made a strong case last Wednesday when saying that as we enter the 'seventies the abolition of poverty in this country ought to be one of the prime objectives, and I dare say that he may agree with me that this should apply not only to Britain, but also to our making a contribution to the abolition of poverty in all parts of the world as well, a point which my hon. Friend the Member for Louth (Mr. Jeffrey Archer) made in his excellent maiden speech.

Here, I want to make one suggestion to the Government. Like my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), I believe that it would have been right in this Budget to have increased family allowances. I also believe that if, as we are told, there is today spare capacity in the construction industry, one simple way in which the Government could at short notice help those less well off would be to allow local education authorities some increase in their allocation for minor capital works. I have never been in favour of using the major school-building programme as an economic regulator, but I have never seen why we should not use the minor capital works programme in a more flexible manner, increasing or decreasing the programme in accordance with the economic situation.

This is something which puts remarkably little strain on the Budget; at the same time, it considerably helps children in the poorest parts of our big cities. It is also a great help to local education authorities such as, for example, Kent, where the population is rising very rapidly and where there is always a risk of the older schools falling further and further behind in the queue.

My last point is on what has been said in today's interesting debate on the subject of inflation. I was interested to hear my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) make the point, which I believe has much truth, that we still do not know as much as we should like about the causes and the course of inflation. Many economists have said that, even today, we are not as fully informed as we should like to be about how inflation happens, and how excess monetary demands works its way into the real sectors of our economy.

I would say to the hon. Member for Ashton-under-Lyne (Mr. Sheldon) that, of course, this is a problem which affects all industrial countries today in the Western world. But it is a problem of particular seriousness in this country, because of our balance of payments position, and because we are so much caught up in world trade. Surely a projected increase in costs of 7 per cent. in a year must be a matter of special concern to Britain, which is so dependent on putting up a competitive performance in world markets.

I understand completely all the doubts that hon. Members on both sides have on the subject of incomes policy. I want to see the measure of trade union reform to which my party is committed. I want to see a most competitive economy. But I do not believe that it will be possible for any Government altogether to dispense with incomes policy, and I thought the hon. Member for Ashton-under-Lyne put it fairly when he said that, as one aspect of policy, Governments will have to learn how to exert some influence in the right way.

My right hon. Friend the Member for Barnet (Mr. Maudling), some years ago, in a very perceptive speech delivered at Aylesbury, said that one could well imagine a situation in which there was rising unemployment and, at the same time, sharp wage pressure in other parts of the economy. That is just the position we have recently had. Under the present Government, there has been an increase o¾ per cent. in the labour force unemployed, and an annual rate of wage inflation 4½ per cent. a year.

I do not want to see the public sector "clobbered", as hon. Members opposite have put it, but the Government have a direct responsibility for pay in the public sector. The Government are the largest employer, and cannot possibly abrogate their responsibilities for the public sector.

More generally, I agree with those who say that we want sustained policies that will result in the wage round each year advancing rather less rapidly than would otherwise be the case. Even an increase in the wage round year by year that is 1 per cent., 1½ per cent. or 2 per cent. less than would otherwise be the case would be worth having. It is a great mistake to suppose that a policy can be worth while only if it is 100 per cent. successful. It may well be that the most difficult aspects of policy, where our success can never be more than partial, may nevertheless be vital to the interests of the country.

I agree with hon. Members who say that we need faster growth. Under the present Government we have had a slow growth. We have had disagreeable cuts in public expenditure, yet a notable increase in the burden of taxation. I look to see a Government who give faster growth, proper priorities in public expenditure and a reduced burden of tax. On this point, I have little hope for future policy under the present Government, and that is why I very much hope that my right hon. Friends will be able, in the next Parliament, to produce a policy along the lines which I have indicated.

9.4 p.m.

Mr. Reginald Maudling (Barnet)

I am very glad to follow my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle), with whom I entirely agree in all the points which he has made. It is always gratifying to be reminded of a prediction which has come true; one is usually reminded of predictions that do not come true. Within a short compass, my right hon. Friend dealt with the main points of the economic situation in a way with which I entirely agree.

This is the end of the Budget debate. It does not look much like it. [HON. MEMBERS: "Hear, hear."] Perhaps the Budget does not look much like a Budget; I do not know.

The debate has been marked by interesting speeches. There have been two maiden speeches, one by my hon. Friend the Member for Bridgwater (Mr. Tom King), the other day, which I was sorry not to hear, and another by my hon. Friend the Member for Louth (Mr. Jeffrey Archer), in an excellent contribution this afternoon. I was glad that he brought in the question of overseas aid, which too often tends to be overlooked when discussing our economic problems and resources.

We had two powerful speeches today, one from my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) and another from the hon. Member for Perth and East Perthshire (Mr. MacArthur) about S.E.T. I hope that the Chancellor of the Exchequer, in his reply, will address himself to the arguments about the tax that were put forward by my right hon. and learned Friend. The Chancellor, on Tuesday last, rested a little too easily on the interim report by Professor Reddaway. The arguments put forward by my right hon. Friend were of a solid character and merit a serious reply from the Chancellor this evening.

This Budget has not created a great deal of excitement. It fell pretty flat when delivered and nobody has tried to pick it up seriously since. It was described by theEconomistas an empty Budget and on the whole that is not a bad description.

What are the reasons for this? The first is that the amount given away by the Chancellor was so small in relation to £3,000 million of additional taxation imposed by the Chancellor and his predecessor during the last five years. In the early stages of the speech we heard a great deal about the remarkable improvement in the balance of payments. One could almost hear his friends below the Gangway licking their lips in expectation of splendid concessions. Then, in the end, all was bathos. Why, despite the remarkable turn-round in balance of payments, was there so little for the Chancellor to give away? Is it because he is doubtful even now of the continuing strength of the balance of payments? I am not sure about this. I should like to know more about his thinking.

No doubt he is relying to some extent on the fact that other countries are inflating as we are, but not always as fast—Germany, Sweden, Japan, for example, are all putting up their costs pretty fast. But the benefits of devaluation have largely been eroded. The Prime Minister tries to deny this, but it is true. When one looks at the extent to which British export prices in dollar terms are now lower than they were at the time of devaluation, there is little left of the 14 per cent. which we should have obtained.

We should not be too complacent about the continuing prospect for the balance of payments on current account, particularly if the world trade buoyancy we have seen in recent years should to any extent turn down. The major restraining effect on the Chancellor was the level of home demand and what has been called the wages explosion. There can be little doubt, both from his speech in the House and his television broadcasts, that had the Government not been faced with this wage explosion he would have felt in a position to make much larger tax reductions than he did. Therefore, the first reason for the first disappointment with the Budget is the fact that so little was given away in total.

The second reason lies in the details, which were complicated and probably incomprehensible to many of the potential beneficiaries. There were many useful concessions, which generally have been accepted by the House. We agree that the right hon. Gentleman was right to go for reductions in direct taxation in contrast with the normal doctrine of Socialist Chancellors. We are doubtful whether he was right in the selection of his main income tax change.

There are two real criticisms which have been made by my right hon. and learned Friend and other speakers on this side of the House. The first is that by his change he has made the initial impact of tax sharper than before on additional earnings when the tax first falls on somebody. It cannot be denied that this will have a disincentive effect on overtime, extra effort and extra earnings. Secondly, one cannot help wondering whether the people whom he has removed from the burden of taxation are necessarily those with the greatest claim. Certainly, some of them have been in and out of tax for many years and that cannot be denied. All Chancellors periodically take some people out of tax and then later, with inflation, they climb back in again. We all know this one and we are not very impressed.

What is deserving of a greater explanation is who are the 2 million people who will get the benefit? The Chancellor said that 800,000 were working wives. I think that only 400,000 are fathers of families on low incomes and that a large proportion are young people—possibly 500,000—under 21, getting their first earnings in industry. No doubt, like everyone else they are entitled to tax reductions. We all want to see tax reduction, but are these the people who should be chosen for priority consideration by the Government at a time when so little is being done for family poverty and when those with the lowest incomes are getting no benefit because, as they are paying no tax, nothing done by the Chancellor can help them?

Therefore, we cannot help feeling that on social grounds alone the proposals put forward by my right hon. Friend the Member for Enfield, West (Mr. lain Macleod) are far more acceptable, far more sensible, and far more just than what the Chancellor has proposed to do.

There are differing views about the economic effects of the Budget. Some of the Chancellor's hon. Friends think that he has been over cautious. Some people think otherwise. TheEconomistsaid: He has been going for a rise in consumption slightly more irresponsible than Mr. maudling aimed at in 1964. I shall come back to 1964 in a moment. I shall enjoy doing so. However, the Chancellor and I agree in rejecting the slightly jaundiced view of the Economist on this matter.

Certainly, it is important to know a little more about how this fiscal monetary combination which the Chancellor proposes will work out. We think that the Chancellor is right to remove the artificial ceilings of bank loans. He may be right to use the special deposits again, but surely there is a considerable doubt whether these actions will be effective unless he has the control over the open market operations of the Bank of England, in other words, unless he is drying up the money supply at source will these other proposals be effective?

What will be the effect on the economy on the figures the Chancellor has given of the £900 million d.c.e. and the 5 per cent. increase in money supply where he predicts a 3½ per cent. in g.d.p. and we are all seeing a 10 to 12 per cent. increase in wage incomes? If he tries to hold the money supply to this point will he not be tied to a very tight credit situation in the latter part of this year? The House and the country are entitled to closer and more thorough analysis of how these various facets of the Chancellor's policy will interact.

What will be the effect on unemployment? The Chancellor made many forecasts of a number of important economic indicators, but he did not forecast two. One was the move of unemployment and second was the move of prices. He was probably rather prudent to ignore the two, but we should ask him what is his estimate in the light of his hope of a 3½ per cent. increase in g.d.p. and his plans for a tight money supply expansion. What does he anticipate will be the course of unemployment during this fiscal year? What are the Chancellor's predictions and judgments in these matters?

Next, there is investment. Does the Chancellor really expect out of this to get the sort of increase in investment that the country really needs—and the increase is dramatic. I agree with him that over the years this country has invested too little and consumed too much. But I was appalled the other day, when looking at some figures produced by a major international company of productivity here, in America and in Japan, and seeing the reason why Japanese productivity was shooting ahead of ours, to find that Japanese investment in new plant was roughly four times as much as we were putting into comparable industry in this country.

The change needed in investment must be dramatic. A little help for buildings does not get us very far. What is required is investment in plant and machinery and, of course, in methods. The total allocation to industrial investment in the coming year of about £160 million seems very small in the light of the problem facing us. We should like to know more about that.

We should certainly like to know more about prices. The Chancellor was not explicit in his estimate about prices. What does he expect to see in the way of further price increases this year? They seem to be rising at about 7 per cent. per annum. Given what seems to be a realistic estimate of the growth in incomes of between 10 and 12 per cent., for what increase in prices is he budgeting in order to get all the bits of his jigsaw together?

The right hon. Gentleman must have that figure in mind. He cannot possibly have in mind a picture of the economy and the balance of supply and demand over the next 12 months without having in mind some estimate of the extent to which price rises will absorb the estimated increase in the rise in real incomes. He must have a figure in mind and he ought to give it to the House.

I turn to rather broader questions of the economy and the economic past and present, the contrast between the present Government and the record of the last Conservative Government. In a contrast of the five years before the 1964 election and the five years after it, the figures are most impressive. Under our Government, annual growth was 3.8 per cent.; under the present Government, it is 2.2 per cent. Under our Government, six months out of the 60 had unemployment at over 500,000; for the present Government, it is 29 months out of 60. Industrial production was up 23 per cent. in our years; up 13 per cent. in theirs. Savings, a vital figure, during the five years of Labour government rose 2.3 per cent.; during the five years of Conservative government they rose by 98. per cent. Retail prices in our five years rose by 3 per cent.; in this respect, the Government have done better and their figure is higher, at 4.3 per cent.

The only figure which the Chancellor can quote to his benefit is the basic balance of payments. During the five years of our administration there was a £1,161 million deficit; during the five years of Labour administration, £817 million. But there is a joker in this of another £800 million on the debit side in their accounts to which the Chancellor did not refer. There are many other statistics of housing, interest rates, and so on, all so many examples of the lamentable performance in economic matters of the Labour Government compared with the Conservative Government.

What is the answer of the Chancellor and the Labour Party? They say, "Look at the improvement in the external balance and the improvement in the surplus at the Treasury on its internal accounts". In two ways, by quoting those, the Chancellor is merely setting out with great clarity the follies and the failures of his own colleagues. The surplus which he now has on current account in the Treasury is merely a measure of the colossal rate of additional taxation which he and his predecessor have felt it necessary to impose on the country in order to cure the collapse in confidence in sterling which occurred as a result of their Government's action.

On the repayment of debt, the Chancellor talks of money flowing back into the country. I agree with him that in the basic economic position of the country what matters is the current account. Capital account is for the future and, on the whole, the country has a surplus of assets on capital account.

But if this is right, if movements out are balanced against movements in, the hot money flowing in now is merely a measure of the extent to which it flowed out a few years ago.

The Chancellor said that he thought that, on the whole, working balances in sterling were about back to normal. There is no excess of money coming into this country. The enormous figures that the right hon. Gentleman quoted for money flowing back into this country were merely restoring the normal position under a Conservative Administration from where it got under a Labour Administration.

What are the other arguments? I want to come to the splendid argument about 1964. The Chancellor, to give him his due, did not refer to this. He referred to the improvements since 1968, which was in logic and economic history the right comparison to draw. The Chancellor is rather different from some of his colleagues. His "side-kick" this afternoon was on again about 1964 with some rather strange remarks. The Prime Minister returns to 1964 with a sickening familiarity—like a dog returning to its vomit. He never keeps off it.

Let us look at 1964—[Interruption] There are a few basic facts about 1964 which hon. Members opposite seem to have forgotten and of which I intend to remind them.

First, I remind them that the promises they made in 1966 bore no relation whatever to the situation in 1964. When the Prime Minister excuses the breach of his 1966 promise about housing by a reference to 1964, he must know perfectly well that in 1966 not only had the Government all the facts at their disposal, but that they were also claiming that they had solved the balance of payments problem.

What is the charge about 1964? Do hon. Members opposite really believe that I reduced taxes in the 1964 Budget for electoral purposes? They seem to have forgotten that I put up taxes. They seem to have forgotten that I put up the tax on cigarettes and beer. Was that electioneering? They seem to have forgotten that I put up Bank Rate; I did not reduce it. All these matters are conveniently forgotten in the myth that they are trying to create about 1964.

I do not remember any hon. Members opposite in 1964 asking me to increase taxes even more than the £115 million that I put on in an election year. Perhaps that argument was that I did too much in 1963. Hon. Gentlemen opposite are nodding. But look at what the present Chancellor and the Prime Minister said in 1963. They blamed me for being too cautious and not going for enough growth. "Why 4 per cent., why 5 per cent?", asked the present Chancellor, "You should go for 6 or 7 per cent." The Prime Minister said" We are not blaming the Chancellor for expanding the economy." In 1963, there was no criticism of me for expanding too much; I was criticised for expanding too little.

Mr. Frank Hooley (Sheffield, Heeley)rose—

Mr. Maudling

Let us come to the final point.

Mr. Hooleyrose—

Mr. Speaker

Order. The right hon. Gentleman is obviously not giving way.

Mr. Maudling

Let us come to the final point.

I believe that some hon. Members opposite who do not seem to like these facts will agree that when they came into power in 1964 there was no undue pressure on resources calling for action. That is proved by their own White Paper, from which I quote, and by the fact that they took no action. It is the most unmitigated rubbish on any evidence to suggest that in 1964 for election reasons we were running a boom that could not be justified. In all that we did we had the support of the then Opposition, and their own assessment of the economy, when they came to power, was precisely what I have been saying—

Mr. Hooleyrose—

Mr. Maudling

I am not giving way.

Let us consider the balance of payments, the £800 million, which they say they were facing. They can only have been facing that deficit of £800 million if they had been born back to front. They inherited a balance of payments situation which was improving with the greatest possible rapidity. If hon. Gentlemen opposite look at the figures, they will be surprised to find that by the first quarter of 1965, by which time their own policies could have had no effect on the balance of payments, the current account deficit had disappeared. In fact, the current account balance, which was in deficit in 1964 by £393 million, was down to £81 million in 1965. They inherited a situation—and this is indisputable if one looks at the facts—in which the current account balance of payments was improving with great rapidity, and they recognised that without any effective action on their part, the deficit would have been halved in 1965, because their import surcharge had very little effect.

In the first quarter of 1965 the current account deficit was reduced to minus four. It averaged 33 in the first two quarters, and it was down in the last two quarters to an average of 12. In the course of 1965 the current account deficit had disappeared, as a result of our policies, as a result of the situation we left behind, as a result of the enormous growth of export orders, recorded in the statistics published by the Government for 1964.

What went wrong was in 1967 and 1968, when the situation of balance which had been achieved became again a situation of very large deficit, and in 1968 the deficit on visible trade was the greatest ever recorded in the history of the country. This is the fact. They took over a situation in which the balance was rapidly improving, and they turned it down by their follies in 1967 and 1968.

We hear so much about £800 million. What about their £800 million. When the Chancellor talked about deficit in our five years, and his five years, he did not refer to the money which this country lost in the course of devaluation, when the Bank of England, the Exchequer Equalisation Account, lost £365 million dealing in forwards, and when the additional cost of our overseas indebtedness, as a result of devaluation alone, rose by £426 million. These two figures, taken together, are very much nearer £800 million than the actual figures for 1964.

This astonishing figure is not really realised by the public. It is so large that it has not yet been recognised. It is almost unbelievable. Perhaps the Chancellor will deny it, but it is here in the figures. There was a loss by the Exchequer Equalisation Account of £356 million, arising solely from the Bank of England having to buy sterling in prodigious quantities at one rate, knowing that it would have to settle the accounts a little later at another rate, a situation which arose solely from the bungling of the Government.

It never arose before. It did not arise with the French devaluation. Nothing comparable to this has happened before. It is the biggest single trading loss in the history of the world. [Laughter] Hon. Gentlemen opposite may laugh, but let them consider what can be done with £356 million. It is equivalent to the entire current deficit in 1964. It is twice the amount which the Chancellor is giving away in tax in this Budget. It would pay for 50 hospitals. It would pay for 70,000 houses. It would provide school places for 1½ million children.

Mr. John Mendelson

The right hon. Gentleman has a nerve to talk about hospitals.

Mr. Maudling

All this money was not spent, as was our money in 1964, on imports of raw materials, machinery and fuel, nor on the stocks which they found so useful when they came to power.—[Interruption]

Mr. Speaker

Order. The hon. Member for Penistone (Mr. John Mendelson) was listened to. He must now listen to the right hon. Member.

Mr. Maudling

This money was not spent on anything useful to the country. It went entirely to line the pockets of speculators. They spent £365 million—£1 million a day. I am prepared to have all the figures which I have given refuted if the Chancellor can refute them, but they are in his own official statistics.

The other loss—£426 million—represents the increased cost to this country of our overseas debts guaranteed in terms of gold. I have the table here. That figure again, is almost equivalent to the capital outflow in 1964, but the difference is that the capital outflow then went to increase British investment overseas and to increase the invisible exports that matter so much to this Government, whereas the £426 million in 1967 was a sheer loss to this country—a measure of the additional British resources that we have to generate and sell to meet the same indebtedness that we had before devaluation.

I hope that the Chancellor will answer these points. Perhaps I am wrong—perhaps the Government figures are wrong—but on the figures that we have at the moment it appears that disaster struck this country at the time on a scale that we had never seen before in financial terms. No one has yet fully realised it yet, but people will realise it. We shall see to that.

Those are the main points that I wanted to make in answer to the Chief Secretary and his attack upon me about the 1964 Budget, which I think that I have answered.

Mr. Diamond

It has not been answered.

Mr. Maudling

I thought that I had answered it. Does the Chief Secretary believe or does he not believe that at the time of the election in 1964 there was an excess demand in this country as a result of my policies? If he does believe that there was an excess demand, perhaps I am wrong, but the Government are even wronger.

I want to sum up the Opposition's attitude to the Government and their Budget. The Budget has fallen flat, because the amount available in recompense for the vast increase in taxation over the last five years is so small. There are doubts about the course of the economy. There are certainly doubts about the effect of the Budget on unemployment and prices, on both of which we should like answers. There has been no attempt to retrieve the disastrous record of the Government, and no attempt to honour the promise made by the Prime Minister about no general increase in taxation—a promise given on the basis not of 1964, but of 1966.

There is a real danger of a serious cost inflation facing us. The savings figures, which are so important, are alarming. Depite rates of interest on some Government schemes that can almost be described as banana republic rates of interest, under this Government savings are not coming in. Throughout the economy in matters concerning labour relations, incomes, and cost inflation, the authority of the Government has completely collapsed.

That is the greatest criticism of all that we make of the Government—and I must include the Chancellor in it. Having said in his Budget last year that the abandonment of any attempt at incomes policy would be compensated by new and essential legislation on the industrial relations front, we finish up with neither—and the Chancellor is apparently prepared to accept that situation.

9.34 p.m.

The Chancellor of the Exchequer (Mr. Roy Jenkins)

Like the right hon. Member for Barnet (Mr. Maudling), I begin by congratulating the hon. Member for Bridgwater (Mr. Tom King) and the hon. Member for Louth (Mr. Jeffrey Archer) upon their maiden speeches. I did not have the opportunity to hear the hon. Member for Bridgwater but I read the report of his speech, which was a striking one, as, I understand, was that of the hon. Member for Louth. I am told that the latter was a little controversial, but so, I recollect, was I in my maiden speech. That is not necessarily a great fault.

The right hon. Member for Barnet was a little rash at an early stage in his speech when he accused my right hon. Friend the Prime Minister of returning like a dog to his vomit of 1964. The right hon. Gentleman seemed rather transfixed on 1964. I thought that we were debating the Budget of 1970. We did not hear much about that from the right hon. Gentleman the Member for Barnet. He was entirely occupied by trying to get rid of his own bad conscience for 1963–64.

I must say that I was a little astonished when I heard him tell us that the balance of payments he bequeathed to us was improving with the greatest possible rapidity. I wonder what forecasts he had earlier in the year if a balance of payments improving with the greatest possible rapidity produced an outturn deficit of £800 million? And I wonder what, confronted as he was with a very bad outturn on current account and on capital account for the second quarter of 1964, and knowing, as he must have known, because he had all the trade figures, how much even that bad account had deteriorated in the third quarter, what measures of any sort he took from that summer and autumn of 1964 to correct a position he could see deteriorating under his eyes?

Mr. Maudling

The right hon. Gentleman has failed to understand my point. The situation was not deteriorating. One measures an improvement in a situation by what happens in the future, not by what has happened in the past, and the improvement in the current account balance was from a deficit of about £90 million in the third quarter of 1964 to a disappearance of the deficit altogether in the first quarter of 1965.

Mr. Jenkins

The position in the overall account was a heavy deterioration between the second and third quarters. The right hon. Gentleman was there, and was doing absolutely nothing about it. I remember the right hon. Gentleman the Member for Enfield, West (Mr. Iain Macleod) accusing me of expecting things to happen in the future, and now one hears the right hon. Member for Barnet say that we ought to be judged by what has happened in the future and not in the past.

However, I take the view, which I think is not unreasonable in the circumstances, that it might now be well to turn to the Budget of 1970 rather than that of 1964.

My first comment on our four-day debate is that it is remarkable how the Opposition have tried to remove from the arena the two main subjects on which they concentrated in both 1968 and 1969; first, the balance of payments—and the right hon. Gentleman had something to say about balance of payments in 1964 —and, secondly, public expenditure. The question of balance of payments dominated the whole debate last year and, I think, the year before. Hon. Members opposite both last year and the year before concentrated at all costs on the balance of payments and on public expenditure, and they know perfectly well that they now do not want to discuss these subjects which they then regarded as central to our economic purposes because they know that we have achieved great economic success.

The right hon. Gentleman the Member for Bexley (Mr. Heath) said last year, with his unfailing sense of timing, that I was faced with a deteriorating balance of payments—[Horn. MEMBERS: "Read it."] I shall be glad to read it. What the right hon. Gentleman said on 15th April last year, the day of the Budget, was: …but at the same time the Chancellor is faced with a deteriorating situation in our balance of payments overseas "— and he went on to say, rather oddly: and no one can regret this more than the House itself."—[OFFICIAL, REPORT, 15th April, 1969; Vol. 781, c. 1046.] We were, in fact, at the very time when the right hon. Gentleman said that, just past the most decisive turn for the better —far more than the right hon. Gentleman has talked about—that we have had in our history. We were within a few weeks of the beginning of the best 12 months —1st April to 31st March—that we had ever had. The right hon. Member for Enfield, West last year bestowed the highest accolade he ever can: he quoted his own speeches on the subject. He said that he had been praying for success—

Mr. bin Macleod

That was the year before.

Mr. Jenkins

But the right hon. Gentleman quoted it last year. He practises a great economy of effort. One speech does for two years, if quoted at sufficient length. He quoted his speech of the year before and said that he had been praying for success, but did not believe that it could ever be restored.

Mr. Iain Macleod

I did not say that. Perhaps the right hon. Gentleman will quote me.

Mr. Jenkins

It will be very boring if I have to quote the whole time. The right hon. Gentleman did not let me get to the end of my sentence. He did not believe that it would ever be restored while the Prime Minister was in power. That is exactly what he said. Does the right hon. Gentleman want the actual words quoted? There is no doubt that the Prime Minister is in power, and there is no doubt either that confidence, measured by the state of sterling, which is exactly what the right hon. Gentleman meant last year, is, according to yesterday'sSunday Times: Looking more healthy than it has done for almost 20 years. The right hon. Gentleman's prayers have been answered, and he should be looking a bit more cheerful as a result.

Yet on this balance of payments subject, which was so much the centrepiece of last year's debate, we heard very little. There were a few exceptions, such as the hon. Member for Farnham (Mr. Maurice Macmillan), whom I do not see here tonight.

An Hon. Member

Where is the Prime Minister?

Mr. Jenkins

The hon. Gentleman made an unorthodox and I thought very interesting speech, though not one in which there is much room for profit for either party over the past 10 to 15 years.

Then the hon. Member for Barkston Ash (Mr. Alison), winding up our debate one night, mentioned the balance of payments in a very odd way. He complained that we were past the peak of our balance of payments performance. I do not agree, if by the peak he meant that we were on the downward slope. Indeed, the first quarter of this year was the strongest so far. Certainly, the rate of climb is slackening and will probably flatten out. But this is hardly surprising, for we have just completed a year with a record current account improvement over the previous year of nearly £700 million. If we went on at this rate to 1971 we would achieve a current account surplus of about £1,700 million by next year, which I think everyone would rightly regard as absolutely crazy and disruptive, bad from the point of view of our own economy and of world trade.

I do not entirely agree, as I think he knows, with my hon. Friend the Member for Heywood and Royton (Mr. Barnett) about the treatment of our debts, but I certainly agree with him that it would be wrong to go on for a balance of payments surplus of that size. The flattening out is therefore intentional and desirable.

Mr. Michael Alison (Barkston Ash)

I was only basing my argument on the figures the Chancellor has published of a drop in the rate of increase of exports over the next year from 7.5 to 3.4 per cent., and an increase of imports from 1.3 per cent. to 5.4 per cent.

Mr. Jenkins

I have entirely dealt with that point, and I cannot think why the hon. Gentleman, to whom I listened with great interest, had to make it. I have indicated why it is entirely right and intentional that the balance of payments should flatten out.

Apart from those two hon. Members we heard little this year about the balance of payments, except for the extraordinary passage in the speech of the right hon. Member for Bexley on the day of the Budget to which my right hon. Friend the Chief Secretary referred this afternoon. The right hon. Gentleman announced that the current account deficit in 1968 was £796 million. That, he said, was the current account deficit, including payments for American aircraft, adding that very oddly as though to give a touch of verisimilitude to his figures. As my hon. and learned Friend the Financial Secretary pointed out, it was nothing of the sort. It was £309 million, not £796 million. As this has been pointed out to the right hon. Gentleman for the third time, I hope that he will now tell us where he got that most extraordinary figure from and that he will at the very least, having very seriously misled the House, now withdraw it.

Mr. Edward Heath (Bexley)

I do not know why the Chancellor should be so upset, because I was backing him up, and still back him up. He started off by saying that 2½ years ago his main task was to turn a large balance of payments deficit into a substantial surplus, refer- ring to the time of his predecessor. He added that there was not only the transformation he has described from the large deficit of a couple of years ago. I back him up on that, and the figure I gave was the deficit on the visible trading account for 1968, which was a widely quoted figure and one without challenge, because it was the Government figure in the Budget of last year. Now, as the trading deficit has been corrected by the Government's increase in exports on various percentages which they say were under-recorded, the trading deficit is £643 million. In 1968, as my right hon. Friend has just said, there was the largest visible trading deficit we have ever had. If the Chancellor likes to challenge that, it is certainly the largest since 1951—but I am backing him up.

Mr. Jenkins

I really do not think that that will do. First, the right hon. Gentleman is not even right in what he says. The visible balance for 1968 was £743 million, and the net adjustment for under-recording exports £130 million. Even on that basis, the right hon. Gentleman's figures are not right. [Interruption] The point is not whether it is the largest. The right hon. Gentleman gave an absolutely specific figure, and it is not good enough and does not do himself justice if, when he has given a false figure, he refuses to withdraw it. It is clearly a false figure, and I ask him to withdraw it.

Mr. Heath

That is the Government's figure for the year, and the Government have since corrected it. I fully accept the correction. The right hon. Gentleman is now differing with me on a few million pounds, but that is the question of American aircraft, and if he does not want to include them, well and good. But it is still the largest trading current deficit that any Chancellor has ever had to contend with.

Mr. Jenkins

The American aircraft are included either way one looks at the matter. They have nothing to do with the matter. It is not a question of a few million pounds. The right hon. Gentleman quoted a figure of £796 million, while the true figure was £309 million. He quoted the current account yesterday and is now trying to pretend that it was based on Government figures. But on any basis he quoted the figures completely wrongly. At the very best, he still got it wrong. He quoted it out of date for several months.

The right hon. Gentleman makes a slight habit of this. He is too inclined to make use of, to say the least, misleading economic information. It was so when he told the Foreign Press Association that half the improvement since 1964 could be attributed to the sale of assets. That was totally misleading. It took no account at all of the fact that a large part of this was direct investment leading to the creation of assets and not the purchase of assets. He took one side of the balance sheet and made no allowance for the export of capital. He gave totally misleading figures. I suggest to him that a mixture of malice and misinformation is not a good basis on which to make speeches, particularly to the Foreign Press Association.

The fact is that the Opposition do not now want to talk about the balance of payments. For them, it is a disappearing target. Nor have we heard much about our international debts—another disappearing target this year. The right hon. Member for Enfield, West, for instance, was widely reported on Wednesday morning as having told his back benchers that he was disappointed in the amount of repayment and that clearly the inflow must have fallen away substantially in the last month or so. He did not repeat that in the House on Wednesday—I take it because all the outside commentators took precisely the opposite view and expressed pleasant surprise at the scale of repayments. I must comment on that latter point. This year has been very good so far but, leaving the special drawing rights aside, March was the strongest month of the lot and February the second strongest. There has been a steady progression upwards and I am sure that the right hon. Gentleman and the hon. Members opposite whom he inadvertently misinformed will be very glad to know that that is so.

The next disappearing target this year is public expenditure. The only right hon. Gentleman opposite to mention it in the debate was the right hon. Member for Altrincham and Sale (Mr. Barber), whom I am glad to welcome back to our economic debates after a little absence. He painted an affecting picture of how, throughout this country and outside, he has been making speeches about the magnificence of our balance of payments performance—speeches which did not get reported. I can only suggest that he consults Mr. Chapman Pincher about his public relations.

The right hon. Member for Leeds, North-East (Sir K. Joseph) is not here. He has explained to me that he could not stay and I understand the reason. But I note that, after his condemnation of the 1969 Budget as a gamblers' Budget, he has now withdrawn entirely from the tables. I am not entirely surprised. He was very, but not uniquely, strong about the public expenditure issue last year.

When I asked him whether he thought that Budget judgment was too tough or too weak—I never ask the right hon. Member for Bexley that question because I know he will not answer constructive questions—the right hon. Member for Leeds, North-East took refuge in saying that the only form of demand management in which we should have engaged was to cut public expenditure. That is always the hypocritical position of the Opposition. They never come forward in detail and all we hear, on the contrary, are numerous demands for increased expenditure. At least this year there is silent hypocrisy, because there is general recognition that we have had Government expenditure under tight control for the last two years and have laid firmly disciplined plans for the future.

This year's central Budget judgment is my best estimate for the fiscal and monetary measures affecting the economy in terms of a firm balance of payments and sustainable growth in the years ahead. This judgment has been challenged on the ground that it is too cautious by a few of my hon. Friends, not all, and has not been directly challenged by right hon. and hon. Members opposite, with the exception of the right hon. Member for Wolverhampton, South-West (Mr. Powell) in an interesting but somewhat convoluted speech. But when I know that the right hon. Gentleman is against me, it slightly fortifies my judgment.

My judgment was not criticised by the right hon. Member for Enfield, West, although he gave a different impression on television, when he promised to get rid of selective employment tax, to make sweeping reductions in direct taxation and, presumably, to keep the economy steady at the same time. That was described by theEvening Standard, which is not normally hostile to the Opposition, as not only the height of political irresponsibility but as a promise almost certain to be broken. I do not agree on the certainty of the matter. I do not think that the right hon. Gentleman will have a chance to expose himself to breaking that promise.

This year's Opposition substitute for last year's public expenditure issue appears to be the prices and incomes issue. This issue is certainly serious enough but they use it as an excuse for not participating in what they think should be the correct Budget judgment. That posture does not begin to give them a coherent position, particularly in view of the fact that they have opposed every prices and incomes Order and every prices and income policy we have put forward.

The right hon. Member for Leeds, North-East when I announced the end of the prices and incomes policy last year gave an absolutely unqualified welcome on behalf of the Opposition. He then asked: what help have the Government provided? He said that some relief was announced by the Chancellor from the worse excesses of the statutory prices and incomes policy. "For that relief, much thanks ", he added.

Mr. Maudling

Would the Chancellor be courteous enough to answer my questions? What is his estimate of unemployment, of the cost of living, and will he confirm or deny my facts and figures about the £800 million that the Government have lost?

Mr. Jenkins

As to the right hon. Gentleman's question about unemployment, I can say that the forecast is that we should grow a little above our productive capacity and on this basis unemployment should fall. As to the figures about the £800 million I leave the right hon. Gentleman to work them out for himself. On the detail of the Budget methods—

Sir E. Boylerose—

Sir Tufton Beamish (Lewes)rose—

Mr. Speaker

Order. The right hon. Gentleman is obviously not giving way.

Mr. Jenkins

The right hon. Member for Enfield, West was a good deal more specific. He told us that he would have approved today of an increase in family allowances with claw-back, plus 3d. off the standard rate and would have used the remaining £55 million—his figures— for increasing allowances. These are serious suggestions and I should like to deal with them seriously. The FAM proposal is clearly arguable although it would have been very complex, much more so than my own income tax scheme, which the right hon. Gentleman castigated on Wednesday as enormously complicated.

It certainly represents an enormous switch of position from that which the right hon. Gentleman took in 1968 when 1 proceeded along these lines. He was then most critical. His words then were, "The method the Chancellor has chosen is bad from every conceivable point of view." That was dealing with the proposal he put forward on Wednesday. He pointed out that it would bring an additional 300,000 into taxation and used this as a major count in his indictment. I am bound to point out that the right hon. Gentleman's enthusiasm for his proposals is always greater when I have not adopted them and that it is always rash to take his advice. He runs away very quickly from his proposals if they are carried into operation.

On the remaining stages his arithmetic was wrong. Threepence off the standard rate would cost not £90 million but £112 million. The amount left over for increasing allowances would therefore have been not £55 million but £33 million. This would have permitted an increase in the present allowance for single and married people of only £3, which would have been totally derisory.

If it were done it would only have taken 70,000 people out of tax—fewer than the right hon. Gentleman was proposing to bring in by his claw-back proposals. It is all very well for him to produce proposals and amusing but somewhat inaccurate diagrams on television of people moving up and down a hill. The serious point is that the only alternative that he put forward would have brought more people into taxation.

While I do not pretend that my own scheme is wholly perfect—I do not believe that any income tax scheme is; it will always have disadvantages—I believe it to be better on a substantial number of counts, taking people out of tax, spreading benefits fairly and being somewhat less complicated than that put forward by the right hon. Gentleman.

To be fair to him, I believe that he would have given tax concessions very far in excess of £200 million. I believe that he would have operated in the strict tradition of Tory Chancellors in an election run-up.

Mr. Maudling

We gave less.

Mr. Jenkins

The right hon. Gentleman the Member for Barnet knows perfectly well that the trouble with him was that he got the date of the election wrong. He gave his tax concessions in 1963 but the election could not be held then for certain reasons, and we had it in 1964. He knows that perfectly well. This was done in 1959 by Lord Amory and 1955 by Lord Butler. They got the same result, a plunge into balance of payments difficulties with a subsequent cynical slamming on of the brakes. I have chosen a different course and I believe that the long-term benefits to the people of this country will be much greater.

Mr. Speaker

Amendment of the Law. The Question is—

Sir T. Beamish

On a point of order—

Sir Ian Orr-Ewing (Hendon, North)

On a point of order. It is not yet ten o'clock.

Mr. Heath

On a point of order. When the Chancellor sat down it was not then ten o'clock and two of my hon. Friends rose to address the House. May I enquire why one of them was not called?

Mr. J. D. Concannon (Mansfield)rose in his place and claimed to move, That the Question be now put.

Mr. Speaker

The Question has now been put and I can answer the right hon. Gentleman. We were within 15 seconds of ten o'clock. The Question is—

Mr. Heath

Further to that point of order. You have now said that it was not then ten o'clock. In that case, may I ask why one of my hon. Friends was not called?

Mr. Speaker

Because I thought, it being 15 seconds to ten o'clock, that it was right to put the Question.

Question put and agreed to.

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 this Resolution shall not extend to making—

1. (1) amendments of the enactments relating to purchase tax so as to give relief from tax, other than amendments making the same provision for chargeable goods of whatever description, or for all goods to which any of the several rates of tax at present applies;
2. (2) amendments of the enactments relating to selective employment tax so as to give relief from tax—
1. (a) by way of exemption from, or a reduction in the rate of, tax except in respect of all persons of the same descriptions relevant for determining the rate of the employer's flat-rate contribution with which the tax is combined, whether, that contribution is under the National Insurance Acts or under the corresponding enactments in Northern Ireland; or
2. (b) by way of providing for payments to employers of an amount equal to the whole or a specified part of the tax paid if the proposed provision—
1. (i)is in respect of employers in, or at establishments in, part only of Great Britain; or
2. (ii)extends to employers in, or at establishments in, Northern Ireland; or
3. (iii)is in respect of all persons in any particular description of employment in all parts of Great Britain, and relief in respect of the whole of the tax paid could be given in respect of that description of employment by an order under section 9(1)(a) of the Selective Employment Payments Act 1966 adding that description of employment to the employments to which section 1 or 2 of that Act applies; or
3. (c)by adding or removing any employer to or from the employers to whom section 3 of that Act applies, or
4. (d)by amending the provisions of Schedule 1 or Schedule 2 to that Act;
3. (3) 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;
4. (4) provisions relating to betterment levy.

Mr. Speaker

I am required under Standing Order No. 90(2) to put successively without further debate the Question on each of the remaining 20 Ways and Means Motions, on the three procedure Motions and on the Motion relating to Finance [Money], on all of which the Finance Bill is to be brought in.

Instead of reading out each Motionin extenso, I propose to follow the procedure used during the last three years, namely, to state the title of the Motion and then simply put the Question, That the Motion be agreed to.

Mr.Iain Macleod

On a point of order. I made it clear at a very early stage that the Opposition do not wish to vote against the Resolutions. Therefore, I wonder whether it would be convenient for the House if you, Mr. Speaker, were to put themen bloc?

Mr. Speaker

Unless there is opposition from either side of the House, I shall put the Motions on the Order Paper together.