PUBLIC EXPENDITURE AND TAXATION

HC Deb 04 November 1970 vol 805 cc1086-218

Mr. Speaker

Before we come to the opening of the two-day debate, may I inform the House that I have so far over 90 names of hon. and right hon. Gentlemen who wish to take part, including those of 21 hon. Members who wish to make their maiden speeches. I am sure that all hon. Members who have been through the experience before appreciate the keenness of those who come to the House and are anxious to make their maiden speeches, but it will be clearly impossible for me to call 21 maiden speakers in the debate ahead.

There is one other point of procedure. We are now beginning a two-day debate. I have selected for debate the official Amendment which stands in the name of the Leader of the Opposition and some of his right hon. Friends.

Mr. George Lawson (Motherwell)

On a point of order. Mr. Speaker. Is it not regrettable that the practice should appear to be encouraged of stimulating hon. Members who wish to be called to put down their names? Should we not follow the old practice that hon. Members stayed in the House and took their chance, instead of there now being submitted a long list of names which excludes anyone who does not put down his or her name?

Mr. Speaker

That point would have validity if the mere putting down of a name to an Amendment on the Order Paper secured, as of right, that an hon. Member would be called. It does not. Hon. Members have the right to put down Motions or Amendments expressing a point of view. It is not for the Chair to examine their motives.

Mr. Lawson

But I am asking you, Mr. Speaker, whether it does not seem to you that hon. Members who do not have their names down and who approach you are politely told that their prospects of being called are virtually nil because of all the names that have been put down. Might I suggest that this might be considered a bad practice to encourage in the House?

Mr. Speaker

It would be a very bad practice. I have tried, perhaps inadequately, to assure the hon. Gentleman that the mere putting-down of a name does not mean that an hon. Member gets a chance to speak.

Mr. William Small (Glasgow, Scotstoun)

Further to that point of order, Mr. Speaker. I understand that my hon. Friend's point of order related to writing to the Speaker for preference.

Mr. Speaker

I am sorry—I did not understand that. If that is so, obviously it helps Mr. Speaker if hon. Members who wish to take part in a debate do intimate to him in advance, but the fact that they do not intimate does not prevent Mr. Speaker from calling hon. Members who have not intimated. I hope that is clear.

3.34 p.m.

The Chancellor of the Exchequer (Mr. Anthony Barber)

I beg to move, That this House approves Mr. Chancellor of the Exchequer's Statement of 27th October on Public Expenditure and Taxation and the White Papers, New Policies for Public Spending (Command Paper No. 4515) and Investment Incentives (Command Paper No. 4516). On Tuesday of last week I informed the House, by way of statement, of certain proposals for public expenditure and taxation. From my point of view, it would have been simpler to have made the announcement in an opening speech of a debate. In the first place, it would have avoided the somewhat prolonged period of questioning which ranged across the whole field of government. Secondly, by tradition parliamentary statements are confined in the main to the bare essentials. In the event of an ordinary opening speech I would have had more opportunity to elaborate and expand some of my proposals. But, having said this, I hope that the House will agree that it was right to proceed as I did so that hon. and right hon. Gentlemen on both sides would have adequate time before the debate to consider those proposals.

I start by paying tribute to the work of my hon. Friend the Chief Secretary to the Treasury, because whatever may be the views of individual Members about particular proposals, this very thorough and fundamental review of public expenditure could not have been carried through effectively, certainly not in so short a time, but for his resolution, determination and patience.

I should like, first, to give the House a brief resumé of the general economic situation. It is well known that Britain's rate of economic growth in recent years has been depressingly slow. Indeed, in the past six years our rate of growth has been little more than half what it was in the previous six years, and I will return later to our proposals for improving the long-term rate of growth.

Looking to the immediate past, output fell slightly in the first quarter of the year but rose again in the second quarter. Over the whole six months from January to June output was only slightly up on the previous half-year, and the main stimulus for that increase came from consumer spending. The volume of exports did not change very much during that period—that is, from January to June—whereas imports rose, partly due to special factors such as the end of the Canadian dock strike. No complete figures for the third quarter are yet available, but a preliminary estimate of consumer expenditure suggests that it may rise further by about half of 1 per cent. between the second and third quarters to a level of 3 per cent. above that in the same period last year. This confirms earlier indications, which I mentioned once or twice during the recess, which were based on figures of retail sales, hire purchase transactions and new car registrations.

Future indications are that consumer expenditure will continue to rise. Exports are also expected to rise strongly with some modest rate of increase in public consumption and fixed investment. I have stated before in this House that I believe that one should be wary of short-term forecasts, but I think it right that I should tell the House that on all the information available it seems that over the coming six months or so the upward trend in the output of the economy as a whole will be broadly in line with the estimated rise in productive potential.

During the period since I became Chancellor of the Exchequer I have naturally considered whether to take steps to reflate the economy. Most of those people who were urging me to deflate the economy based their views on the fact that output had been stagnant, and on the assumption that it would continue to do so without some further action by the Government. There were fears, very genuine fears, that unemployment would rise to a much higher level during the winter. It is true that output was pretty stagnant in the early part of the year, partly, no doubt, due to strikes, but now there is evidence of a significant rise in consumer spending and of rising activity generally.

If one takes into account the continuation of the rapid rise in costs and prices which we have experienced over the past year or so, it follows that it would be wrong to take any steps likely to increase further pressure of demand. The first essential, and I believe that the whole House will be with me when I say this, is to bring the rate of increase in money earnings more nearly in line with the increase in productivity. I shall have something more to say about this later.

In recent years we have had the highest figure and the most prolonged period of unemployment since the 1930s. When I met the Economic Committee of the T.U.C., I agreed with its members that the level of unemployment was higher than any of us would like to see. But the fact is that the fears of a further alarming rise this autumn, which some people were suggesting, have so far proved to be wrong. Indeed, there was even a slight fall in the last two months. The level of vacancies has also been fairly stable in recent months. So the pressure of demand seems to be fairly constant, and this suggests that the economy is somewhat more buoyant than some commentators have been claiming.

It was in the light of the assessment which I have just given to the House and because I wanted to preserve my freedom of action next April that I was prepared to bring in legislation now to reduce direct taxation to an extent which, taken together with the reduction in public expenditure, would be broadly neutral in demand terms in the next financial year. I should like to clear up two points in connection with this.

The first concerns the cut in corporation tax. Although this will increase the amount of profit after tax, after considering all the advice that I have had, my judgment is that, after allowing both for the time that normally elapses before investment decisions can be translated into production and for the effects of corporate borrowing, the demand effect of the proposal concerning corporation tax during the financial year will be small, both absolutely and in relation to the effect of the reduction in income tax.

Secondly, there is the reality of the expenditure cuts, about which one or two questions were put to me at the end of my statement the other day and about which there has been some comment in the Press. It is true that in arriving at the figure of £329 million, which is shown in the White Paper as the net savings in 1971–72, we took account of some £125 million attributed to a further short fall in expenditure now expected for the year for public authorities and nationalised industries.

Hon. Members

Hear, hear.

Mr. Barber

I am grateful to have the approval of right hon. Gentlemen opposite.

Mr. James Callaghan (Cardiff, South-East)

Agreement.

Mr. Barber

Agreement. I hope that they will also agree with this, because it is important to recognise that as well as this downward revision of the estimates caused by a shortfall there had already been a number of upward revisions in the estimates of costs and these amount to £88 million for 1971–72. Taking all these adjustments together, they account for £37 million out of the total net reductions of £329 million. In other words, the new policies which I announced on Tuesday of last week account for the remaining £292 million, that is, for nine-tenths of the total net reductions in public expenditure for 1971–72.

What I set out to do, and I think that this has been achieved, was, broadly speaking, to preserve the balance of aggregate supply and demand in 1971–72 which was in prospect when we took office in the summer. That does not mean to say, of course, that when next April comes I shall necessarily be satisfied with what then turns out to be the prospect for the balance of supply and demand in 1971–72. I think that the two right hon. Gentlemen opposite will agree that he would be a very imprudent Chancellor who would express a view on that at this stage, because that is the judgment which one can sensibly make only very much nearer the time which is appropriate for such a judgment, namely, in the Budget. What action may be called for then in five months is something neither I nor anyone else can say at this stage.

The figures for the balance of payments for the third quarter will not be complete until next month. As everyone knows, they have been very much distorted by the dock strike. But for the year as a whole, as I told the House yesterday in answer to Questions, there should be a good surplus on the current account, and I would expect a substantial surplus for 1971. But this means keeping our goods competitive. I remember the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) saying in his Budget in 1969: There is no magic about a particular figure for a surplus. But that it needs to be substantial and continuing is beyond doubt."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1001.] We need to earn such a surplus on current account and go on earning it, not necessarily in every quarter, but as a sustained average over reasonable periods. We need to build this substantial surplus on current account to build up our reserves and to maintain an appropriate rate of repayment of the very large medium and short-term debts which we inherited from the previous Administration and which totalled £1,461 million at the end of June. [Laughter.] I assure the right hon. Member for Stechford that this is no laughing matter. This is a burden to be borne by the British people, because this is money which will have to be repaid over the years. These debts did not exist when the right hon. Gentleman and his colleagues took over.

Mr. Roy Jenkins (Birmingham, Stechford)

Of course the debts are no laughing matter, but, as the right hon. Gentleman knows, they have gone down to less than 50 per cent. of what they were. A smile crossed my face not at the debts but at the whistles of surprise from some of the right hon. Gentleman's hon. Friends when he announced a figure which had been published at least five or six months previously.

Mr. Barber

The point I was making and which it is fair to make is that this gives some idea of the task which as a nation we have before us. It is all very well for the right hon. Gentleman to talk about halving the debts and leaving them at a figure of "only" £1,500 million. Does he not know that when he and his colleagues took over in 1964 the figure was not £1,500 million but about £70 million? That is what has happened.

I was saying that we need this substantial surplus on current account not only to build up our reserves and enable us to replay this considerable debt, but to finance the net outflow which results from capital movements of many kinds, inwards and outwards, including, of course, overseas investments, and this includes export credit. I hope that the House will note the figure that exports credit is now increasing by around £350 million a year.

My statement last week was concerned almost entirely with public expenditure and taxation. I mentioned that I would say something this afternoon about monetary policy. When I spoke of the need for a firm grip on the growth of credit and of our resolve to take the necessary measures, I had mainly in mind the restricted lending of the clearing banks. I did not think it right to go further last Tuesday, because the figures for October were not then known. In the event, the figures showed a slight fall. But over the six banking months ending mid-October restricted lending rose by 4 per cent., or an annual rate of 8 per cent. This is too steep a rise for the year as a whole.

In particular, there has been too large an increase in personal lending for consumption and I have therefore approved the call for additional deposits, made by the Bank of England on 29th October. Our objective in monetary policy in present circumstances is to prevent too rapid an expansion of domestic credit. We are not proposing Draconian policies to deflate real activity by monetary measures.

What we intend is to ensure that the development of bank lending does not give the force of demand an unwanted boost which is out of tune with our measures on public expenditure and taxation. To this end we shall continue in the light of events to use calls for special deposits, and, in appropriate circumstances, repayments, as a means of influencing the movement of bank lending, using them flexibly and undramatically as the situation requires.

I hope that the whole House will agree that the most pressing and serious problem with which the country is faced today is cost inflation.

Mr. Joel Barnett (Heywood and Royton)

Would the right hon. Gentleman confirm what the Prime Minister told me last Thursday—that this additional monetary squeeze will not have any effect on companies? Would it not be fair to sum up what the right hon. Gentleman has been saying by saying that in fact he is continuing and accepting the Budget judgment of April.

Mr. Barber

Not necessarily. [Interruption.] On the second point, however, I entirely agree with what my right hon. Friend the Prime Minister said on the occasion to which the hon. Gentleman referred, though not exactly as the hon. Gentleman put it.

I was saying, and I am sure that the whole House will agree, that the most pressing problem is that of cost inflation. The main responsibility in this area must rest with those involved directly in negotiations about incomes and decisions about prices. I believe that the greatest contribution which the Government can make to stable prices is to provide the background of a consistent and responsible fiscal and monetary policy, and I have repeatedly made the position of Her Majesty's Government clear.

In the private sector, the actual negotiations about wage settlements are the responsibility of management and unions, but under no circumstances will the Government encourage or connive at inflationary settlements for the sake of short-term peace and quiet. [Interruption.] In the public sector, the Government have a special responsibility and we shall use all our influence against settlements which we believe to be against the national interest. [HON. MEMBERS: "Oh."]

It has been suggested that the increases in social service charges will add to inflationary pressures. The fact is that quite apart from the Measures which I announced last week—which will, on balance, benefit the lowest paid workers. [Laughter.] This is true, and if hon. Gentlemen opposite will wait a moment I will give some instances of this. [Interruption.] If they wish to hear the facts I will give them. If they simply wish to shout the country will draw its own conclusion.

I do not believe that, in practice, the measures which I announced last week, as far as charges are concerned, when one takes into account the other side of the coin, too—[Interruption.] I will give the details in a moment—will make any difference to the level of settlements which are reached.

The House will recall that I said last Tuesday that none of the new or increased charges would come into effect before April of next year. Consider the position between now and not next April but April, 1972. Between now and then the effect of the new or increased social service charges and levy schemes for agriculture will be to increase the cost of living by less than 1 per cent. [Interruption.]

I ask hon. Gentlemen opposite to hear me out and to compare that with the last 12 months of the previous Administration, when the cost of living rose, in their last year alone, by 6 per cent., the biggest rise since 1951.

There is another comparison on which the right hon. Member for Stechford should comment. Compare the increase of less than 1 per cent. to which I referred with the massive increases in indirect taxation piled on the consumer by the Labour Government—and piled on repeatedly—increases in, for example, corporation tax, petrol tax, taxes on beer, spirits and tobacco; all deliberately increased by the Labour Government time and again. Then, on top of that, there was the imposition of selective employment tax.

Mr. Harold Wilson (Huyton)

This might be a good opportunity to ask the right hon. Gentleman to reply to a question which I put to him last week after his statement but which, I am sure through inadvertence, he failed to answer. I asked him, having told us what his budget was for in relation to direct taxation next April, if he would give an assurance that no part of it would be financed out of increased indirect taxation. Perhaps, after what he has now said, he will give us that assurance.

Mr. Barber

Really!

Mr. Wilson

Answer.

Mr. Barber

It is no good the right hon. Gentleman shouting "Answer" as I am about to give him one. If he will consult his two right hon. Friends who were at the Treasury, the right hon. Member for Stechford and the right hon. Member for Cardiff, South-East (Mr. Callaghan), they will advise him that it would be utterly ridiculous for any Chancellor to give such an assurance at this stage. [Interruption.] The Leader of the Opposition is laughing. That is because in his heart he is ashamed of the excess of taxation which was piled on the consumer—nearly £3,000 million of increased taxes—under his Administration. That was the achievement of Labour. [Interruption.] I hope that the Leader of the Opposition will listen to me and not get back to his old habit of muttering when a nasty thing is said. It is calculated that under the previous Government, when the right hon. Gentleman was Prime Minister, the cost of living went up not by less than 1 per cent. but by 7 per cent., and it went up as a result of those measures.

The present level of wage claims and settlements is running far above the rise in production. Nobody will deny that. It is far above the rise in the cost of living and far above the rise in costs which could be attributed to the measures which I announced last week. Those are the facts, whatever individual hon. Members may think about particular measures, and no objective observer can deny them.

Consider the two disputes which are now in the news. Take, first, the miners' dispute. The miners were offered an increase of just under 10 per cent., the largest increase ever offered to miners by the National Coal Board. The executive of the National Union of Mineworkers rejected it and called for a strike. The matter went to the ballot, but the executive of the N.U.M. did not get the necessary two-thirds majority.

An Hon. Member

It got 55 per cent.

Mr. Barber

That was not a two-thirds majority.

Then the N.C.B., in a further negotiation, decided to offer an additional 2 per cent. I will only say that in my view the original offer was generous. I hope that hon. Gentlemen opposite who come from mining constituencies recognise that the original offer was three and half times greater than the current rate of increase in productivity in the industry.

Mr. Michael Foot (Ebbw Vale) rose—

Mr. Barber

I have a great deal to say and I do not want to give way too much.

Hon. Members

Give way.

Mr. Foot

Would the right hon. Gentleman tell the House and the country what will be the effect of the measures he announced last Tuesday on miners who are demanding a wage of £20 a week?

Mr. Barber

I will give some facts shortly about the effect on people in that position—[Interruption.]—of people who are earning £20 a week.

In its wisdom, the N.C.B. decided, after the union had failed to get the necessary support for an official strike, to jack up the offer by 2 per cent. Thus now, as we know, the coal burnt by industry and the coal which produces electricity is to be increased in price by 16 per cent., and this must inevitably lead to higher electricity prices.

Consider, next, the dispute concerning local government workers. Here the local authorities are the employers. Nevertheless, we have made it clear that in the view of the Government the offer is generous. If the offer to local authority employees were to be based on the increase in prices over the past year, plus the effect of the social service charges and the agricultural levy—and in any event the charges do not start until April of next year—then that offer would be halved.

I did not think the right hon. Member for Stechford did himself justice when on television the other evening he implicitly but clearly encouraged the dustmen and other local government employees to remain on strike against an offer which is twice as high as the increase in the cost of living and more than three times as high as the norm which was proposed by him when he was Chancellor of the Exchequer. Right hon. Members opposite lit the fires of inflation and are now pouring oil on them.

Let no one say that I did not warn the House that this was just what would happen. Last April, in a speech which I made in the Budget debate, I said: 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 12½ per cent. … What makes this all the more serious is that these increases follow a period of severe wage inflation". I concluded: … 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."—[OFFICIAL REPORT, 20th April, 1970; Vol. 799, c. 68.] I think the whole House will agree that what I said was true.

In my statement last week I gave details of the abolition of investments grants, the reduction of corporation tax and the new system of accelerated depreciation. The reasons for these changes are these. First, there is no evidence that investment grants have worked in dealing with the central problem of raising the level of productivity investment as a whole. Indeed, the facts show that the rate of increase in manufacturing investment in real terms was lower in the four years after the grants came in than in the previous four years.

Secondly, we are concerned not just with the quantity of investment but with the quality of investment. After all, there is nothing inherently virtuous or economically valuable about investment as such. Building factories and buying machines which cannot pay their way is just as much a misuse of scarce resources as any other form of waste. In my view, much the most serious criticism of the grant system was that it was completely unrelated to the performance of the firm and to the likely return on investment. Money spent by an inefficient company on plant to produce unwanted goods attracted exactly the same subsidy as any other company.

What we want to do—and I hope that on reflection the whole House will agree—is to give the maximum encouragement to worthwhile and profitable investment by well run and profitable companies, and I believe that this is best achieved by a system of tax allowances to be set against profits.

A third reason, which should not be lightly brushed aside, is that the system of investment grants is administratively complicated. The change which I announced, once the transition is completed, will release about 1,000 civil servants.

The fourth reason is that we are concerned to reduce the extent of Government interference in decisions which we believe should properly be left to business judgment and customer choice, and that is why the new national allowances are being made available throughout industry rather than confining them, like the previous grants, to manufacturing industry alone. Higher efficiency is just as important in the service industries as it is in manufacturing.

So much for the reasons for abolishing the investment grants. In devising the new system of allowances, our aim has been to permit the rapid write-off of investment in plant and machinery, concentrating as much as possible on providing the benefit of the allowances at an early stage. This is one of the reasons why we prefer a form of accelerated depreciation to investment allowances. Although the two systems of tax relief can be made to have the same Exchequer cost over a period of years, investment allowances provide less benefit for companies in the earlier years but more in the later years and they do not, therefore, give the early boost to investment which we all want to secure. Therefore, we decided in favour of accelerated depreciation.

I realise that industry would have liked free depreciation for the whole country, but obviously, as those hon. and right hon. Gentlemen opposite who have been at the Treasury will know, one must consider the cost in these matters. However, we think that we have gone a long way towards free depreciation. After all, nearly 80 per cent. of expenditure on plant and machinery can in future be written off within three years.

Sir Gerald Nabarro (Worcestershire, South)

Would my right hon. Friend permit a question from this side of the House? Does that very handsome gesture to the overall opinion of private industry mean that the Government's long-term policy will be to make further progress towards free depreciation on the model introduced in 1960 by the Prime Minister when he was President of the Board of Trade, in giving 100 per cent. free depreciation for development areas only?

Mr. Barber

I could not commit myself to what I might do in future concerning progress in this sense. I can see the force of the arguments which have been put by the C.B.I. and repeatedly by my hon. Friend for an extension of the area which qualifies for free depreciation. I will bear in mind what my hon. Friend says.

I want to say something about the development areas. The present regional imbalance is not only socially unacceptable to all of us but a chronic waste of resources. As we said in our manifesto, we regard an effective regional development policy as a vital element in our economic and social strategy, but we do not believe that the interests of the regions were truly served by the previous Administration's policies, and I will explain why.

Too often those policies tended to subsidise inefficiency, to prop up lame ducks and to pay out large sums with little regard for the additional benefits which they would bring. Although it is true that huge sums were spent on regional incentives, there is, when one looks at the matter, very little evidence that they were cost-effective, while for those areas with a preponderance of service industries they were of no use at all.

Under the system which we propose, services and commerce in development areas will receive the new depreciation allowances, and free depreciation on fixed plant and machinery will provide additional incentive to encourage the location and expansion of manufacturing industry in those areas.

The regional differential will be reinforced by the indefinite continuation of a 40 per cent. initial allowance for new industrial building and, as I mentioned last Tuesday, extended assistance under the Local Employment Acts. What we are aiming to do above all is to create a secure long term base for regional prosperity, to increase the attraction of the less prosperous areas, to create new jobs which will last and to bring in new firms which will make profits and will grow. We are providing £25 million more for new measures of assistance under the Local Employment Acts.

These, then, are our immediate measures for the regions. As the House knows, we are now reviewing the whole of regional policy, but there is one very important factor which I ask the House to bear in mind. The total value to the development areas of the new differential arrangements—that is, free depreciation plus the extra assistance under the Local Employment Acts—should certainly be no less than the value to them of the differential element in the grant system. But what is important, I believe, and my right hon. Friends believe, that the changes which we have made will ensure that the new arrangements will be far more effective.

Mr. Dan Jones (Burnley)

Do those self-same proposals apply equally to the intermediate areas?

Mr. Barber

I dealt with the intermediate areas in my statement last week. I do not wish to go beyond what I said. The changes which we are proposing will be embodied in legislation. I was elaborating on those proposals.

I turn to my proposals for health and welfare because I realise that they are controversial. I can understand, and I respect, those hon. Members opposite who sincerely believe that all health and welfare should be 100 per cent. free. As for those, including the whole of the Opposition Front Bench—all of them—who are not opposed to charges in principle, I ask them to bear these facts in mind.

First, all the existing arrangements for total exemption from the charges will remain, except for a change in the age limit for dental treatment which I have announced. For example, for prescription charges, children, expectant mothers, nursing mothers, old people over the age of 65 and war pensioners are all exempt. Forty per cent. of the population are already exempt from prescription charges.

Secondly, there are the categories of people who, although not exempt from charges, are entitled to refunds of the payments. Here the steps which my right hon. Friend the Secretary of State for Social Services has decided upon will enlarge the categories, and my right hon. Friend is taking additional action to ensure that people are aware of their new entitlement.

Let me give the House some instances. As a result of the changes which I have announced, nearly one-quarter of a million more children will, in future, get free school meals, at an additional cost of £4 million a year. Almost 200,000 more mothers and children will, in future, get free welfare milk, at an additional cost of £3 million a year.

The result of the new system of exemptions, remissions and refunds—I come to the sort of case raised by the hon. Member for Ebbw Vale (Mr. Michael Foot)—is that a typical family with two children, with an income of right up to £1,000 a year—the hon. Member mentioned £1,000 a year—will not have to pay any of the increased charges for school meals, prescriptions charges or health charges which I announced last week. [Interruption.] It is important that right hon. and hon. Members, on both sides—[Interruption.] It is no good the hon. Member for Ebbw Vale shaking his head and saying that this is not true. These are the facts. The truth is that the hon. Member does not want to believe them. He wants to go back to Ebbw Vale and to tell his people that it is all terrible for everybody with an income of under £1,000 a year, but that is not true.

Mr. Michael Foot

Is the Chancellor saying that no one receiving less than £20 a week—and the miners have not got that yet; that is what many of them in South Wales are frightened about—will have to pay anything more for school meals, health charges, prescription charges, council house rents or any of the other items which he mentioned in his Tuesday package?

Mr. Barber

I made the position clear, and I will repeat it if the hon. Member did not hear it. Obviously, somebody with two children and an income of £1,000 a year and a large amount of capital—

Hon. Members

Ah!

Several Hon. Members rose—

Mr. Speaker

Order. As the right hon. Gentleman does not give way, hon. Members must resume their seats.

Mr. Barber

My right hon. Friend the Secretary of State for Social Services has corrected me by saying that capital does not come into it. I said that the result of the new system—

Mr. John Mendelson (Penistone) rose—

Mr. Speaker

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

Mr. Mendelson

On a point of order. The right hon. Gentleman has referred especially to the mining areas. He is under an obligation to give way to hon. Members representing those areas to challenge him. [Interruption.] It is no good hon. Members opposite who do not know the traditions of the House shouting. The Chancellor has referred to mining areas and said that we on this side want to take back a false tale to our constituencies. He is under a moral and traditional obligation to give way to two or three of us, and he should do so now.

Mr. Speaker

Order. I cannot rule on morals or moral obligations. The right hon. Gentleman himself decides whether to give way. That is the rule of the House. Mr. Barber.

Mr. Mendelson rose—

Mr. Barber

No, I am not giving way. I have given way on a number of occasions. I answered many questions the other day for an hour and a quarter following my statement. In deference to the right hon. Gentleman who is to follow me, I should get on. I have made the position clear. [HON. MEMBERS: "No."] I hope that the hon. Member for Ebbw Vale will note the words I used, whether he likes them or not. If he wishes to have any further details, I shall be pleased to provide them.

Several Hon. Members rose—

Mr. Speaker

Order. Mere persistence does not make any right hon. Gentleman give way.

Mr. Eric S. Heffer (Liverpool, Walton)

On a point of order. I wonder, Mr. Speaker, whether for a few moments the House could temporarily go into recess so that the right hon. Gentleman and my hon. Friend can settle between them precisely what is being said.

Mr. Speaker

That is n ot a point of order.

Mr. Thomas Swain (Derbyshire, North-East)

I rise on a point of order, Mr. Speaker, as a genuine miner who does not come from the silly, intellectual atmosphere in which some hon. Members opposite were brought up. There are 27 of us who represent mining constituencies. The right hon. Gentleman has referred specifically to miners but refuses to give way to anyone representing a mining constituency. [An HON. MEMBER: "He has done so."] I wish you would shut your big gob. May I ask, through you, Mr. Speaker, whether the Minister, however ignorant he might be when standing at the Dispatch Box, will give way to a Member from a mining constituency?

Sir G. Nabarro

Certainly not.

Mr. Speaker

I do not question the hon. Member's genuineness as a miner, but that does not affect the point of order. I have dealt with it already. It is the Minister who decides whether he gives way.

Mr. Barber

As the hon. Member is, as he rightly says—I know, because I come from the same part of the world—a genuine miner, I gladly give way to him.

Mr. Swain

The only thing I can say, Mr. Speaker, is that when the Demon Barber has had as many blisters on his hands as I have had on my backside he will be able to talk with the same authority as I do. I am grateful to the right hon. Gentleman for giving way. Is he aware that if the miners' wages had risen over the past 10 years strictly in accordance with the rise in productivity, they would now be getting a £23 10s. a week minimum wage in every section of the mining industry?

Mr. Barber

I was dealing with social service exemptions, remissions and refunds. I had passed the point where I was dealing with the claim of the National Union of Mineworkers but, no doubt, the point made by the hon. Member will be noted.

Thirdly, the effect of the family income supplement will be that where the breadwinner is working poor families will be better off. There are more than half a million children in those poor families who will be helped by the family income supplement. It has been asked why we would not increase family allowances with a matching clawback. I will tell the House. I was asked a number of questions about this the other day, and of course, in answer to questions one could not elaborate very easily. I will tell the House, because naturally the proposal to increase family allowances and to match them with clawback was the first thing we looked at when we took office—[HON. MEMBERS: "Then why the promise?"] but what we found was that because of inflation many poor families are now close to the tax threshhold and as a result the abolition of the reduced rate in the Budget of last year they would derive little or no benefit from an increase in family allowances with clawback. We also found—and references were made the other day to the cost of the family income supplement scheme—we also found—and I must admit that this was a surprise to me, and I believe it would be a surprise to most hon. Members in the House—that the net cost of a 10s. increase in family allowances with clawback would be less than the cost of the scheme proposed by my right hon. Friend; it would in fact be about £6 million and not £30 million which some of us understood that it would be.

Mrs. Shirley Williams (Hitchin)

The right hon. Gentleman said just now that anybody who was earning £20 a week or less would not pay increased charges for school dinners—

Hon. Members

He did not.

Mrs. Williams

Yes, he did.

Hon. Members

He did.

Mrs. Williams

—and would be exempt from charges—if with two children, I think I am right in saying. Is he aware that his right hon. Friend's Order which has been alluded to indicates that anybody earning more than 13 guineas a week with two children will pay increased charges, and he himself has indicated an increase of only 30s.?

Mr. Barber

If the hon. Lady will do my right hon. Friend the justice of going carefully into the details of his proposal she will find that what I have said is accurate—and my right hon. Friend has just confirmed it; and obviously any Chancellor speaking at this Box on a matter of this kind would take the advice of the Department primarily responsible. The fact is in the list and it is true. So the hon. Lady can rest assured on that particular point.

What I was saying was that because of the difficulty—

Mr. William Hamilton (Fife, West)

On a point of order. I think, Mr. Speaker, that there was confusion in the minds of hon. Members of the House as to what the right hon. Gentleman said in the first instance and there appeared to be an attempted correction after an intervention by the Secretary of State for Social Services. Would you take steps, Mr. Speaker, to ensure that HANSARD is not altered in any way on this point?

Mr. Speaker

Order. The hon. Member is right to wage political battle, but I hope that he will not bring HANSARD—[HON. MEMBERS: "Hear, hear."] I hope he will not seek to bring HANSARD, which serves us faithfully, into the political battle.

Mr. William Hamilton

I want to make it quite clear that I am making no reflection whatever on the integrity of the HANSARD people. I am making a reflection on the right hon. Gentlemen on the opposite Front Bench.

Mr. Speaker

That is not a point of order for me.

Hon. Members

The hon. Member should withdraw.

Mr. Peter Tapsell (Horncastle)

On a point of order. The hon. Gentleman has confirmed the fact that he is making a reflection on my right hon. Friends. Is not the observation he has just made a most improper one which he should withdraw?

Mr. Speaker

Observations which are not in order about individuals are in order about groups of individuals.

Mr. John Mendelson

On a point of order. Would not the commonsense way of clearing up this difficult situation be for the right hon. Gentleman the Chancellor of the Exchequer to repeat his original statement and to allow himself to be briefly questioned on that statement and clear the matter up?

Hon. Members

Oh.

Mr. Barber

I am certain it is crystal clear in HANSARD without any need to check it. I would willingly repeat it, but it is absolutely clear. I explained it. I am not going to be diverted from what I was saying about claw-back, because what I am saying to the House is that after considering the possibility of family allowances and claw-back we came to the conclusion that family income supplement would be a better method of getting more money to the families in need, and this will be shown to be so when the scheme is fully understood by hon. and right hon. Gentlemen. What is more—

Mr. Dick Douglas (Clackmannan and East Stirlingshire)

On a point of order.

Mr. Speaker

I remind the House that many hon. Members wish to speak in this debate, and I hope that we are not going to have too many points of order.

Mr. Douglas

Mr. Speaker, I am seeking your guidance. We have been speaking about reflections on the integrity and otherwise of persons inside and outside this House. The statement seems to me to place great reflection on the professional competence of Professor Wheat-croft, who was Conservative Central Office taxation adviser. Was not the information which the Chancellor has now given us available at the Conservative Central Office when right hon. Gentlemen were in opposition?

Mr. Speaker

That is not a point of order at all.

Mr. Barber

What is more—I hope that hon. and right hon. Gentlemen opposite will note this point and will applaud it—under this scheme which has been devised by my right hon. Friend families with only one child are benefiting for the first time, and one-parent families are being specially helped. I think the whole House will applaud this very much.

Mr. Jeremy Thorpe (Devon, North) rose—

Mr. Barber

I have a lot more to say to the House, and there is the right hon. Gentleman opposite who is to follow me.

Mr. Thorpe

I wonder if the Chancellor could help the House in a genuine difficulty? There is some misunderstanding as to what he was saying, and I am sure the Chancellor wants the whole House to be fully and accurately informed as to what he was saying. Can he confirm that, discounting persons with large capital assets—discounting them—a man earning £1,000 a year with two children will not be affected by any of the charges which he announced last week?

Mr. Barber

I did say in answer to an intervention, and apologised to the House that I made a mistake—[HON. MEMBERS: "Oh."]—that capital does not come into it at all. This is to the advantage of the people concerned. I will repeat once again what I said, because the right hon. Gentleman, I know, genuinely wants to hear what I said, but if there are any points of detail about any of these matters, as I have more to say in this speech, my right hon. Friend the Secretary of State for Social Services, who will be winding up the debate, can answer them and my right hon. Friend the Secretary of State for Trade and Industry will be speaking this evening. What I said was this, and the right hon. Gentleman would like to hear: the result of the new system of exemptions, remissions and refunds is that a typical family with two children with an income of less than £1,000 a year will not have to pay any of the increased charges for school meals, prescription charges or health charges which I announced last week. I hope I have made the point clear.

Mr. Harold Wilson rose—

Mr. Barber

I do not propose to go into any further details. I can tell the Prime Minister who is getting up [Laughter.]—that I have the full details here of what is meant by a typical family, and if he would like to have them I will send them to him. Honestly, I have a great deal more to say.

Mr. Harold Wilson

I am most grateful to the right hon. Gentleman. I will try to help him here, too—[HON. MEMBERS: "Oh."]—because we are anxious to hear the rest of his speech, which can only improve on what we have heard so far. Would the right hon. Gentleman, in order to shorten these interruptions, which we all regret—Mr. Speaker, I wonder if I may pass this paper across the Table of the House to him, with your permission—will read out this Order? It is the regulations amending the provisions for the calculation of parent's income in respect of school dinners. It gives a nice table, the size of families, 1, 2, 3, 4, with net weekly income in shillings, and it seems to be centred around a figure of £13. Is this a question of adding in family allowances in order to get the figures the right hon. Gentleman has given us, or is there any other reason which he could simply explain to the House? Then we could get on and hear the rest of his speech.

Mr. Barber

Even for the right hon. Gentleman I do not intend to get involved in the details of the scheme, but I will say to him that the statement which I have made is true, it is accurate and this is what will happen. I regret that this considerable step forward for these families is not recognised as such by the right hon. Gentleman and that he does not do us the credit of saying that it is a step forward and will help these families.

The present figure of claw-back is £42. In theory, that figure should be increased to match the reduction in the standard rate but, for the benefit of the people concerned, I propose to leave it as it is for 1971–72.

Underlying all the changes in the social service field is the inescapable need for a choice between priorities. The whole House will agree that there are limitless directions where it can be argued that more needs to be done and that more burdens should be placed upon the taxpayer. What we have done is to give greater priority to those who are least able to fend for themselves and to devote more resources to the basic fabric of the social services. When the right hon. Gentleman follows, whatever his judgment on our overall proposals, I hope that he will at least give the Government credit for increasing the provision for health and welfare over the next four years by £110 million more than was provided by the plans of his Government for better services, including the hospital service, particularly for the elderly and the mentally handicapped. I hope that he will also express positive approval of our proposals for the net addition of £21½ millions starts to the education building programme for 1972–73—the first year in which we are able now to step up the number of starts.

The right hon. Gentleman may be opposed to the cut in income tax which I announced, although I believe in his heart he warmly approves of it, but at least let him approve the additional resources which we are devoting to the health and welfare and education services.

The Opposition have put down an Amendment in the name of the right hon. Gentleman the Leader of the Opposition and some of his hon. Friends, and I must do them the courtesy of referring to it. The Amendment describes the Government's proposals as "mean and unfair". We are entitled to ask who are these people whose record entitles them to make that particular criticism? Has the right hon. Gentleman the Leader of the Opposition forgotten that it was the Labour Government which increased the charges for spectacles by 25 per cent.? Was that "mean and unfair", or was there a different standard for the right hon. Gentleman when he was Prime Minister? I hope that he will tell us tomorrow. Has he forgotten that it was the Labour Government when he was Prime Minister which increased the charge for dental treatment by 50 per cent.? Was that "mean and unfair"? We on this side of the House are entitled to know.

Have the Parliamentary Labour Party, many of whom are sitting on the benches opposite, forgotten that the right hon. Gentleman when he was Prime Minister put up the charge for school meals by 75 per cent. during his period of office? I do not recall a single right hon. Gentleman in the then Government telling the House that that was "mean and unfair". We did not get that from the right hon. Gentlemen then. The right hon. Gentleman put forward his proposals and dragooned his supporters into the Lobbies in support of increases totalling 75 per cent.

On the contrary, what the right hon. Gentleman the then Secretary of State for Education and Science told the House was this: … the subsidy is now approaching the £100 million mark, and we must be prepared to weigh one priority in the education service against another."—[OFFICIAL REPORT, 17th November, 1969; Vol. 791, c. 863.] Is that still the policy of the Labour Party on charges for school meals? Right hon. Gentlemen were telling a very different tale when they were in office, and they were pursuing a very different policy from the one which they now purport to advocate. One would hardly think, looking at the Amendment, that it was right hon. Gentlemen opposite who abolished free milk in secondary schools.

I hardly think that I need to remind the Leader of the Opposition of the pledge which he gave to the country when he was Prime Minister about prescription charges, but it is worthwhile recalling the reason given by the Leader of the Opposition for the reintroduction of a prescription charge of 2s. 6d. He said: What we decided—and this was our choice of priorities—was that it was still more important to maintain the essential fabric of the National Health Service, and particularly the hospital building programme."—[OFFICIAL REPORT, 18th January, 1968; Vol. 756, c. 1977.] Having been Minister of Health myself, I agree with him; I think he was absolutely right; but it is somewhat synthetic for the right hon. Gentleman who tops the list of names of his right hon. Friends to say that the proposals which we have put forward are mean and unfair.

I was amused to hear the right hon. Gentleman the Leader of the Opposition answering questions on the radio on Sunday. He was talking about the increase in social service charges under the Labour Government, and he said: I found it desperately hard to agree. The simple fact is that he did agree, not once but again and again. He agreed in 1967; he agreed in 1968; he agreed in 1969. He said something to the effect that it was difficult—I have the report here: … because of the financial situation of the country. If the financial situation of the country caused him to put up the social service charges in 1967, 1968 and 1969, why did he say six months before the 1966 Election: The economy is strong, sterling is strong, employment is strong. If he is saying that it had to be done in these three years because of the financial difficulties which his Government found themselves in—and it will be noted that it was in those three years; not in the two election years of 1966 and 1970, but in the intervening years—I hope that he will tell us tomorrow if that was his real reason, that he took over an economy which he described in 1966 as being strong in these three respects and that it was due to the incompetence of his own Administration that he was faced with the difficulty he was talking about.

All my effort and all my thoughts are directed to the future, but on this occasion—the first time I have opened a debate at the Dispatch Box as Chancellor of the Exchequer—I am entitled to place firmly on the record the legacy of the previous Government. It calls for no comment and I make none, and I confine myself to published facts which are available to all the world. This is what the Labour Government left us in June 1970. The fastest rise of prices since 1951. The worst summer unemployment since 1940. The worst record of strikes and days lost since 1926. Industrial production actually lower than a year before. Tax rates up by almost £3,000 million. A short and medium term overseas debt of nearly £1,500 million.

The objective of the proposals which I announced last week can be shortly stated. We aim at a more limited rôle for government and, as a result, greater freedom, greater responsibility and greater self-reliance for the individual. We are doing more to help those in need. We are making greater provision for the basic fabric of the social services, but we are cutting back on the universal benefits distributed to rich and poor alike.

Mr. Dennis Skinner (Bolsover)

On a point of order. Several minutes ago there was some consternation in this Chamber relating to the accuracy of what the Chancellor of the Exchequer had said and the integrity of either HANSARD or the Chancellor of the Exchequer was at stake. I have been up to HANSARD and while there I would like to inform the House that representations were being made by the Government side to the Deputy Editor of HANSARD with respect to this question. Irrelevent though it might be, I would point out that the Deputy Editor of HANSARD has refused me permission to see the statement made at that particular time.

Mr. Speaker

Order. These are serious charges. I must look into them.

Sir Harmar Nicholls (Peterborough)

On a point of order. At the earliest possible moment, ought it not to be on record that nobody in the past has ever been allowed to have the transcript of other people's speeches, only an hon. Member's own speech?

Mr. Speaker

That is the usual custom.

Mr. William Hamilton

Further to that point of order. [Interruption.]

Mr. Speaker

Whatever differences we have, shouting does no good at all, either to the hon. Member concerned or to the cause he seeks to advance.

Mr. Hamilton

May I request you, Mr. Speaker, to make some inquiries into this matter. Could you further give the Government spokesman now the opportunity either to deny or confirm whether some spokesman from the Government, either official or unofficial, has been up to the HANSARD room to report what the Chancellor has just said.

Mr. Speaker

Order. As the hon. Gentleman knows, every hon. and right hon. Member is entitled to correct the script of his speech provided he makes no material alterations.

Mr. E. Fernyhough (Jarrow)

Further to that point of order. I readily accept that it is customary for a Member to go to the HANSARD room to read his speech half an hour or three quarters of an hour after delivery of the speech. I readily accept that private secretaries of Ministers always go up to the HANSARD room on the completion of a Minister's speech. I have never known anybody from the Box, or anybody else, go up halfway through the speech to find out whether what has been said is right with a view to a correction being made if it is wrong.

Mr. Speaker

In a long speech it would be quite natural to making running corrections. Mr. Barber.

Mr. Barber

The ultimate aim of our policy is to achieve a faster rate of economic growth, a faster rise in the living standards of the British people and the ability of our nation to afford greater expenditure. [HON. MEMBERS: "Answer."] If hon. Gentlemen opposite want me to answer, I have made inquiries and I am told that no official of mine has been up to HANSARD.

Hon. Members

No.

Mr. Speaker

Order. In this place one hon. Gentleman takes another hon. Gentleman's word.

Mr. Barber

I have certainly given no instructions to anybody.

Mr. Harold Wilson

Further to the points of order. [Interruption.]

Mr. Speaker

Order. Noise does not help at all.

Mr. Wilson

The Chancellor of the Exchequer has just stated the facts as he understands them at this moment. Would it not be right for the House to accept them? If the right hon. Gentleman wants to make further inquiries about anything that has been said he will do so and I am certain he will tell the House if there is anything untoward to report. But at this stage we must accept what he has said. Surely it is a matter of policy because we want to hear the remainder of the right hon. Gentleman's speech. [Interruption.] I am being quite serious. If there are allegations there is adequate machinery in this House for you, Mr. Speaker, since you are charged by the House with supervision of debates, to see whether any documents are ever interfered with. Meanwhile, we must accept the right hon. Gentleman's statement and allow him to get on with his speech.

An Hon. Member

He was doing so well.

Mr. Barber

I can well understand that when I am giving the facts of a situation like this that somebody comes into the Chamber, no doubt I assume honourably believing it, but with what has turned out to be a completely trumped up charge. I was saying that the ultimate aim of our policy, like that of the previous Government, is to achieve a faster rate of economic growth, a faster rise in the living standards of the British people, and the ability of our nation to afford greater expenditure in those areas of public provision which both sides of the House agree should be provided by the public services.

By economic growth, I do not mean the short term rate of increase in output which is temporarily obtainable by increasing the pressure of demand. I mean the real sustainable long term growth of our national productive potential. The thing about the British economy that stands out a mile is our failure over the years to achieve a long term rate of growth commensurate either with our needs or comparable with that of almost every other advanced country in the world.

Our rate of economic growth was fairly poor in the early 60s and hon. Gentlemen, and particularly the right hon. Gentleman the Leader of the Opposition, lambasted us with league tables. In the international league tables over the last 10 years we came bottom—twenty-second out of twenty-two. But the situation has become far worse in the second part of the decade. Between 1964 and 1968, during the period in which the Labour Party won two elections on the promise of faster growth, output in Britain rose by under 10 per cent., compared with over 20 per cent. in the O.E.C.D. countries as a whole. If Britain had achieved the same rate of growth as the other countries of Europe and North America, our national income today would be some £4,000 million a year higher than it is.

While Britain is bottom of the league for economic growth, we are top of the League for taxation. [An HON. MEMBER: "Untrue."] It is absolutely true. [Interruption.]

Perhaps, Mr. Speaker, this would be an appropriate moment to inform you that I have just been told that no member of my staff has been in touch with HANSARD, as was suggested.

Hon. Members

Withdraw.

Mr. Skinner

On a point of order. I refuse to withdraw. I went to HANSARD to test the validity of what actually had been said in this House, and while I was present the telephone rang and the Deputy Editor of HANSARD was listening to representations that were being made by someone from the Government side.

Mr. Speaker

Order. The right hon. Gentleman has given in the House a categorical assurance which the House has just heard. This is a place in which hon. Members accept each other's word.

Mr. Michael Jopling (Westmorland)

On a point of order. It may have escaped attention that a few seconds before the hon. Gentleman raised his point of order a number of us on this side of the House distinctly saw the hon. Member for Fife, West (Mr. William Hamilton) and the hon. Member for Mansfield (Mr. Concannon), who I believe is an Opposition Whip, prompting the hon. Member for Bolsover (Mr. Skinner) to get up and raise his point of order.

Mr. Speaker

The debate is degenerating if we are reaching that stage.

Mr. Barber

I have had a message that no member of my staff has telephoned HANSARD. I hope that the hon. Gentleman will now withdraw his remarks.

Hon. Members

Withdraw.

Mr. Speaker

It is the custom of the House for one hon. Member to accept the word of another. Nothing that the hon. Member for Bolsover (Mr. Skinner) said in his previous remarks is in conflict with what the right hon. Gentleman has said. However, the right hon. Gentleman speaks, as every hon. Member speaks, on his honour. I hope that the hon. Gentleman will now withdraw.

Mr. Skinner

What I said to the House on a point of order was the absolute truth and I therefore have nothing to withdraw.

Hon. Members

Name him.

Mr. Michael English (Nottingham, West)

On a point of order. Following your Ruling, Mr. Speaker, as to the customs of the House; it is my recollection of my hon. Friend's remarks that they were not in fact in contradiction with those of the right hon. Gentleman. My hon. Friend originally said that someone connected with the Government side of the House, not a member of the Treasury staff—those words were not used to my recollection by him—had been in touch with HANSARD. The right hon. Gentleman the Chancellor of the Exchequer has, I am sure correctly, denied that any member of his staff has done this. That does not say that they cannot both be right.

Mr. Speaker

I have suggested something like that in my approach to the hon. Member for Bolsover. The House must accept the word of the right hon. Gentleman.

Mr. Barber

On a point of order. To make absolutely sure, I have just asked my hon. Friend the Financial Secretary to go up to the Deputy Editor of HANSARD, who was referred to, and inquire whether any representations had been made on my behalf, either in person or by telephone. I am told that inquiries were made round the office and my information, which has just been brought to me by my hon. Friend the Financial Secretary, is that there is no truth whatever in the allegation.

Hon. Members

Withdraw.

Mr. Speaker

I must ask the hon. Member for Bolsover to accept the word of the right hon. Gentleman, which he has made clear. This can easily be done by the hon. Member. The right hon. Gentleman has made a categoric statement in the House which the hon. Gentleman must accept. The least he can do is that. Mr. Skinner.

Hon. Members

Withdraw. Make him withdraw.

Mr. Michael Foot

On a point of order. Would it not resolve the situation, Mr. Speaker, for my hon. Friend the Member for Bolsover (Mr. Skinner) if he fully accepted the word of the Chancellor of the Exchequer that no representations had been made and the Chancellor of the Exchequer acknowledged that he was sure that my hon. Friend reported in absolutely good faith what he had heard in the HANSARD office? Would not the matter thereby be resolved? It is perfectly possible that the conversations which may have taken place in the HANSARD office were misunderstood. I suggest that what I have proposed would be the best way for the matter to be resolved. I am sure that the Chancellor has spoken to the House in good faith, but equally sure that my hon. Friend has spoken to the House in good faith.

Mr. Speaker

I am grateful to the hon. Member for Ebbw Vale (Mr. Michael Foot). There has been no thought in my mind, nor, I think, in the mind of any hon. Member, that either the hon. Member for Bolsover or the right hon. Gentleman has spoken in bad faith. It is in these circumstances that I ask the hon. Gentleman to accept the word of the right hon. Gentleman.

Mr. Skinner

Yes, I will accept the word of the Chancellor, provided that he accepts that what I said was said in good faith.

Mr. Barber

I certainly do so in order that we may get on and give the right hon. Member for Stechford a chance to make his speech. I would not impugn the good faith of the hon. Member. The simple facts—and I should like them to be crystal clear—are that my hon. Friend the Financial Secretary to the Treasury has spoken to the Deputy Editor of HANSARD, who inquired round the office and who was informed that no representations had been made, either in person or by telephone, on my behalf. I hope that the House will accept that and that we may get on.

I repeat what I was saying immediately before this fracas arose—that while Britain is bottom of the league for economic growth, we are top of the league for taxation. I now give some examples. Except for Sweden and Denmark, taxation represents a higher proportion of the gross national product in Britain than in any other advanced country. Taxation in Britain—[Interruption.] I propose to finish my speech. A long time was taken up in the middle of what I was saying by a suggestion which was proved to bewholly unfounded.

Mr. Harold Wilson

We are listening.

Mr. Barber

As long as the right hon. Gentleman and his colleagues are listening, I shall proceed. I was saying that taxation in Britain is higher than in the United States, or in France, or in Germany, or any of the other Common Market countries.

Except for the Scandinavian countries, Britain is top of the league in the level of personal taxation. On an income of £2,500 a year, the rate of tax on earnings in Britain is nearly twice as high as in Germany, nearly three times as high as in the United States and four times as high as in France. Even after the reduction of 6d. in the standard rate, our highest rate of tax is nearly 90 per cent., compared with 70 per cent. in the United States, 55 per cent. in Germany and under 50 per cent. in France.

Do Labour Members believe that it is just a coincidence that Britain has vir- tually the highest taxation in the Western world and also the slowest rate of growth? The true saga of the past few years is that with a depressingly slow rate of economic growth, the Labour Government nevertheless continued to increase public expenditure and, as a result, they had to put up taxation. So we got a vicious circle—and the right hon. Gentleman will agree with this—of higher expenditure and higher taxation. Higher taxation meant less incentive and less growth, and slower growth eroded the incentive to invest and depressed the level of personal savings, and that again meant still higher taxation.

If anyone doubts my word, let me remind the House of two striking facts. First, under the previous Government, the proportion of the gross domestic product represented by public expenditure rose from 44 per cent. in 1964 to 50 per cent. in 1969. Secondly, the right hon. Member for Stechford told the people of Chicago earlier this year that the taxation of the British people had been increased under the Labour Government by an amount which has no parallel in Britain's peacetime history. Never was a truer word spoken in Chicago, and you can bet your bottom dollar, Mr. Speaker, that the right hon. Gentleman will not repeat that phrase today. But it is the truth and I am entitled to remind the House, in the light of what I announced last Tuesday, of what I said in the Budget debate less than two months before polling day. I said: The over-riding reason for the mammoth increase in taxation has been the rise in public expenditure as a proportion of the national output I went on: 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."— I should have said 50 per cent. of the national output. Indeed, to be fair, they are the true and consistent Socialists I then said: But, equally, they must accept that the concommitant is very heavy taxation indeed … this is the fundamental choice which people will have to make at the election. We, on these benches, believe that not only must the rate 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."—[OFFICIAL REPORT, 20th April, 1970; Vol. 800, c. 63–5.] That is precisely what I announced last week.

5.1 p.m.

Mr. Roy Jenkins (Stechford)

I am bound to say that the right hon. Gentleman spoke with greater conviction as Chairman of the Conservative Party than he does as Chancellor of the Exchequer, even though he speaks at greater length as the latter than he did as the former.

One of the byways down which the right hon. Gentleman was led for some time concerned his statement, and I say at once that I accept what he said about that without question. If anything is to be looked at, you will do that, Mr. Speaker. That was not his fault, but another of the byways down which he was drawn for getting on for quarter of an hour was directly due to the fact that it was quite clear that he did not understand his own measures. [Interruption.]

It is not good enough for a Chancellor, when asked to make a reconciliation between what he had said and an Order just laid—a directly financial Instrument—by one of his right hon. Friends, in this case the Secretary of State for Education and Science, to be quite incapable of attempting a reconciliation and merely able to repeat to the House, in effect, "I can assure you that this is my brief. I have complete faith in my brief, but I am afraid that I cannot tell you how to reconcile that which has just been laid before the House by my right hon. Friend". We shall expect, and we shall no doubt have, a clear and lucid statement from the right hon. Gentleman the Secretary of State for Social Services, but when an issue arises in the Chancellor's speech it should be the Chancellor who is able to explain what is happening in such a matter.

The Chancellor directed some stern words of admonition to the miners, the council workers and, indeed, to myself, about what, in his view, I said on television last week. That would have come a great deal more convincingly from him if he had not taken the lead himself in the last election campaign in denouncing the then Government's refusal to pay the doctors immediately a further 15 per cent. as something which was utterly unjustifiable. I do not recall the right hon. Gentleman then making comparisons between the 30 per cent. he was advocating for the doctors and any increases in productivity which they had recently achieved.

What is the core of the case which, in my view, should be deployed against the Government today? First, the Government's measures have been confusingly presented and incompetently carried out, and I shall give a few illustrations of this shortly.

Secondly, they are unfair and socially divisive because they are calculatedly redistributive in the wrong direction, and I shall come to this again shortly.

Thirdly, they are based on a deliberate programme of increasing prices which amounts to one of the most blatant and rapid betrayals of election promises and attitudes that we have ever seen in the political history of this country.

Fourthly, they fail to deal with—indeed, they exacerbate—the real economic problems facing the country today. These are the four main charges—I have no doubt that my hon. Friends will find others—on which I shall concentrate this afternoon, or this evening as it is now rapidly becoming.

The statement last week was in many ways confusing, perhaps even deliberately so. In spite of the new information which the right hon. Gentleman gave us today, about the balance between the £125 million of shortfall and the £88 million of increased charges, which in no way made the whole issue entirely clear, there is considerable difficulty in appreciating from his statement the fact that the demand effects are broadly neutral because a sizable part of the cuts—the abandonment of, for example, I.R.C. and of our programme for ports nationalisation and modernisation—undoubtedly has a very small demand effect indeed, whereas without question the demand effect of the income tax change will be very substantial.

It may or may not be a good thing to insert some reflation into the economy in April, but I doubt whether the cuts amount to a demand reduction of more than £150 million in total—and whether or not it is a good thing, it is certainly not a good thing to pretend to be doing one thing when one is really doing something else.

If the right hon. Gentleman does not accept this, then I ask him to put before the House—because there is considerable confusion about this; more confusion than I recollect after any mini or maxibudget—as to the demand effects. I therefore ask the right hon. Gentleman to lay before the House an analysis of the demand effects on both sides of the account resulting from what he has done.

The medium-term measures have been presented in a very doubtful way. On defence, there was total confusion between the long-term costings and target figures, with the statement switching from one to the other for different years in a way which made it completely impossible to reconcile them in a fair or objective way.

There is also a great deal of vagueness about the time when the savings will accrue and the policies in regard to them. I did not think the right hon. Gentleman the Secretary of State for the Environment added a great deal of clarity or detailed information—about what sums were to be saved and how—when he made his statement yesterday to the House.

The timetable is also extremely vague in the case of the movement from farm price support to import levies.

Mr. Barber

It might be convenient if I intervened at this point on the question of defence. The position is that by 1974–75 there will be a saving in real terms—[HON. MEMBERS: "No."]—comparing the long-term costings of his right hon. Friend's programme and of my noble Friend's programme of £150 million.

Mr. Jenkins

The right hon. Gentleman does not understand this. There is a complete difference between long-term costings and target figures. We did not publish, because the time had not arrived to publish them according to the rolling conventions of the White Paper on Public Expenditure, the costings for 1974–75. It is, therefore, a bogus comparison and the right hon. Gentleman's interruption makes that clearer than ever.

Mr. Barber

I shall make it clearer than that if the right hon. Gentleman wants me to. The figures that were published to 1973–74 by the right hon. Gentleman's right hon. Friend bore very little relationship to long-term costs, as we found when we got to the Treasury.

Mr. Jenkins

The right hon. Gentleman is now doubly contradicting himself, because he cannot have it both ways. He cannot say, in the first place, that we were wrong to publish target figures which were lower than the long-term costs for the years before 1974–75, and then say, "Look how clever I have been because I am publishing long-term costs, and the target figures are lower than the long-term costs for 1974–75", which is what the right hon. Gentleman is doing.

Mr. Barber

The position is clear. I do not question the good faith of them, but the only figures which were published in the White Paper about defence expenditure were what the right hon. Gentleman calls target figures. That was all that we knew at the time of the election. The right hon. Gentleman who was Secretary of State for Defence in the previous Government repeatedly referred to the long-term costs of the previous Conservative Administration and to what their defence proposals would have cost at a certain period of time. We did the same. I am not impugning the right hon. Gentleman's good faith, but the point I am making is that the long-term cost of my noble Friend's programme compared with the long-term cost of the right hon. Gentleman's programme involves a saving of £130 million.

Mr. Jenkins

I do not think that that in any way contradicts what I am saying, and it in no way contradicts the fact that the right hon. Gentleman has running through his mind a continuing confusion between long-term cost and target figures.

Next, there is the really considerable mess which the right hon. Gentleman made of his monetary policy announcement. I thought that we would have a new passage on monetary policy this afternoon. We were prepared for it last Tuesday, but clearly something intervened on the way. I suspect that the right hon. Gentleman is now putting too much strain on monetary policy. It is essential to have it working in the right direction, and buttressing fiscal and other measures, but to give it almost the whole task to do is very doubtful wisdom.

But that apart, the right hon. Gentleman's handling of the matter last week was really extraordinarily inept. On Tuesday he announced that he was going to make a statement today on money and credit policy. He gave eight days' notice that at some time some form of tightening up was in view. Not unnaturally, the market reacted, and reacted pretty violently, but, even after allowing rates to go up quite considerably, the Bank had to buy in a good deal of gilt-edged stock at the end of last week, from the moment of his statement onwards. I do not know how much it was. Sometimes these statements are exaggerated, sometimes they are not put as high as they are but the Financial Times estimated the figure at £200 million. Does the right hon. Gentleman deny that? I shall not press him on it. He should not shake his head without being prepared to rise to his feet. I think that he is wiser—

Mr. Barber

I was only going to say that the right hon. Gentleman should not believe everything that he reads in the newspapers.

Mr. Jenkins

I have never been as devoted a reader of Mr. Chapman Pincher, in particular, as the right hon. Gentleman the Chancellor of the Exchequer.

However much stock had to be bought in, it quite clearly considerably exacerbated the problem against which the right hon. Gentleman was warning, that of growth in the money supply, and by Thursday he had to bring forward—it was clearly not his intention to do so—his special deposits announcement; and even when the right hon. Gentleman made his announcement it had to be accompanied by another statement saying that nothing else was coming later, thereby betraying a certain lack of confidence in whether people would feel that that measure was in itself adequate. It was not, to say the least, a convincing way in which to proceed.

I now come to perhaps the more fundamental points of principle. First, there is the unfairness and redistributive effects of the package. This is a package, and, most unusual in this respect, with no avowed demand management effect. The right hon. Gentleman is not seeking to put the economy on to a new course. He claims, I think rather doubtfully, that it is neutral from a demand point of view, and therefore there is no avowed demand management effect.

As that is the case, it falls to be judged clearly and primarily by where the burdens fall and where the benefits fall. They fall in a most remarkable way. For a minority of the very poor there will, I agree, be some alleviation, though I thought that what the right hon. Gentleman had to say this afternoon about the family income supplement and the reasons why they abandoned the family clawback scheme which was put forward by his predecessor, and reiterated by his predecessor and by the Prime Minister in a statement to the Child Poverty Action Group during the election, was really most extraordinary.

After all, we were told repeatedly that the Government had come to power having done their tax sums with the help of a computer in a way that they had never been done before. In view of what the right hon. Gentleman said this afternoon I can believe that was, indeed, the case. They were incapable, whether owing to some fault of the computer or some more human intervention I do not know, of estimating the cost of the scheme which they advocated in April, and the advocacy of which they repeated with the stamp of the authority of the present Prime Minister in June, within an accuracy of 400 per cent. I beg the right hon. Gentleman's pardon. I have made a mistake. It is 500 per cent. The difference was between £6 million and £30 million. I think that this is a most extraordinary state of affairs, and what the right hon. Gentleman has brought forward here is, in the view of those most concerned with the problems, and those to whom he gave his promises, a cheap, inadequate, undesirable substitute for the brave words that were spoken before the election.

For the rest, it is a clear case of redistribution, not only against those who do not pay income tax, but against many who do; not only against some, I think a large number, in spite of the exchanges this afternoon, on below average wage earnings, but against those around and even some way above average wages, and against a lot of salary earners, too. I am not sure whether the right hon. Gentleman looks sceptical, but let there be no doubt about this. Let us consider a man with average earnings of nearly £27 a week, and with two children. His tax benefit will be £11 18s. a year. If both children are at school, the school meals cost will be £13 a year. I am doing it in yearly sums, rather than weekly, to make full allowance of the fact that schools are not in session all the year. The cost of the first instalment will be £13 a year, and another £9 a year when the 1973 instalment comes into operation, although if that involves the economic cost of the meal it will be more than £9 extra by then. The loss of milk for two children is about £6. One must make an arbitrary estimate for dental, ophthalmic and prescription charges for the parents, but I do not think that £8 would be an excessive sum to put in there, which gives one a total of £27 with only the first instalment of school meals charges included. It is £27 if it is done in that way, and substantially more if it is done otherwise.

That makes no allowance at all for the increased food prices which will come when there is a change in farm price support. It makes no allowance for any loss of subsidy in council house rents if the people concerned live in council houses. It makes no allowance for any increase in rates, which is an issue which has not been mentioned but to which I shall come later. It makes no allowance for any increase in railway fares, and if people live in the South-East the increase will be extremely heavy indeed.

Even if one moves to £40 a week, where the taxation benefit rises to £22 a year, one sees that there will still not be nearly enough to cover the increases, including the second instalment on the school meals, let alone the less quantifiable items such as those I mentioned a little earlier. Indeed, last week, as the right hon. Gentleman will, no doubt, have seen, the Sunday Times calculated that its average reading family, on about £3,000 a year, would be likely to come out neutral or rather worse.

Who does benefit? Single people benefit, against the married and those with children—I think that is regressively redistributive—and, of course, families with very big incomes benefit. The single man on £3,000 a year will get £44 6s. income tax remission with very limited offsets. A family on £20,000 a year will get £445 a year, and with two children their offsets would amount to only about £25, even assuming that they were previously taking up all these benefits, which is rather unlikely.

How can the Government argue that these groups—the £27 a week man and the £40 a week man even, but in particular the £27 a week man, as well as a little above that and a little below it—benefit from these changes? They only begin to do so if they accept the doctrine that the Inland Revenue is the only tax collector which matters. This is, of course, something which they half believe. They regard money collected through the Inland Revenue as potentially destructive of our national moral fibre, but they regard money collected, however compulsorily, by the schoolteacher, the chemist and the rent collector as a sign of our will to stand upon our own feet. This paradox, which is totally confusing at first sight, is, however, explicable, and it is explicable simply by the fact that the one method of tax collection is progressive and the other is regressive. The one tends to make living standards more equal and the other makes them less equal.

The switch from one form of tax collection to another—for that is what it is—does practically nothing to affect the share of real resources pre-empted by the Government, nothing to increase real spending power after tax. This point has been made forcibly in a number of articles in the Financial Times, notably by Mr. Samuel Brittan and Mr. Wynne Godley yesterday. Mr. Godley, now Director of the Cambridge Institute of Applied Economics, was in the Treasury for many years under successive Governments and did a great deal of work to help to make clearer and more rational the presentation of public expenditure which we achieved in last year's White Paper. He is, if I may say so, a man of scrupulous detachment as well as great intellectual power. He is clearly shocked by the deliberate retreat from clear straightforward presentation, by the obfuscating tactics with which the Chancellor is dealing.

This has also been true in some of the Chancellor's simpler and apparently more straightforward presentations. I was struck by his misleading international comparisons when he made them at Blackpool in the first week of October. I was even more struck by them when he repeated them this afternoon. He clearly rather liked them. He made great play of the point that our tax rates as percentages of the G.N.P. were much higher than those of other countries. He quoted France, Germany, Italy, Belgium, Holland and the United States, and showed them all well under 30 per cent. and Britain at 34 per cent. So, he announced this afternoon, we were top of the league for taxation. But he got this result by leaving out social security contributions. He got this result from a table published in his own Treasury Economic Trends in August. But that was the second table. The objective document—rather more objective than the Chancellor—which published the true position was the first table, the table which the Chancellor chose completely to ignore.

With social security contributions the comparison is as follows: United Kingdom 40 per cent., Germany 40 per cent., France 42 per cent., Belgium 37 per cent., Holland 42 per cent., Italy 34 per cent., United States 33 per cent. We are not top of the league at all, but just about the middle of the league. On what possible grounds can the right hon. Gentleman argue that the comparison is more valid without social security contributions than with them? The Chancellor really must be very careful not to become a purveyor of misleading statistics.

Mr. Barber

The statistics which I gave were accurate. Let me ask the right hon. Gentleman this question. Does he, after the massive increases in taxation over these years, think that we are too highly taxed or not?

Mr. Jenkins

The right hon. Gentleman, if he wishes to be respected in this House as Chancellor, must not wriggle. When he has been shown to have quoted misleading statistics, he should not try to get off the hook by asking a question which has nothing to do with the point at issue. I am perfectly willing to give my views on policies, and I will endeavour to do so, and in a more constructive way than was done by the Opposition during the last Parliament, who consistently avoided giving clear economic judgments and facing real choices, but always pretended that everything was easy, which is part of their difficulty at the present time.

The right hon. Gentleman's purpose in such purveyance of misleading statistics is only too clear. It is to pretend that he is giving people greater freedom to spend their money. But it is really a smokescreen for giving some people more money, and a lot more money, and giving other people—a lot of people—a good deal less. May I ask him: what will the full picture in 1971–72 look like? The Chancellor has already told us six months in advance so much of his Budget that there really cannot be much objection to telling us the rest at the present time. Are the tax remissions for the biggest incomes already announced the end of the story or not? Is there, for instance, to be another big surtax reduction on top of the £400 a year which those with £20,000 a year will already gain? He did not answer my right hon. Friend's question on Tuesday or today. But will he at least give an assurance that there will be no increase in indirect taxation to pay for surtax concessions above what has already been announced to the better off?

Sir Harmar Nicholls

Would the right hon. Gentleman have done any such thing when he was Chancellor?

Mr. Jenkins

I would certainly not have behaved as the right hon. Gentleman has done. I would, as a matter of fact, not have thought it wise or right to disclose the major part of my Budget on both sides of the account six months in advance. I would not have thought it necessary to do that in order to show signs of activity after four months of hibernation.

Mr. Tapsell

Is it not a fact that within a few weeks of taking power the right hon. Gentleman's Government introduced a major Budget anticipating what they were going to do the following April?

Mr. Jenkins

My right hon. Friend had to take measures to deal with a £800 million deficit, which was a great deal different from the present position, in which the Chancellor, as he has told us this afternoon, has inherited what he now regards as a very favourable balance of payments account for 1970 and a very good prospect for 1971.

I turn now to the effect of the right hon. Gentleman's package on prices. There is not a single measure here, either direct or indirect, which will have the effect of restraining prices. On the contrary, the overwhelming majority of the big measures in the package are calculated to push up the cost of living still further, and to do it not only next year but for as long ahead as this Parliament can be made to last. Most of the ways in which this will come are familiar—the health charges, the shift to import levies and its effect on food prices in the shops, council house rents, commuter fares—but there is another aspect, a vague but menacing aspect, of the Chancellor's statement about which there has not yet been much comment. I refer to the rate support grant.

When we negotiated the last settlement, an increase in real terms of, I think, 4 per cent. for 1969–70 over the previous year and 5 per cent. for 1970–71 over the year before that, the Opposition screamed at our lack of generosity. What does the Chancellor now say to the local authorities?— … in the negotiations for rate support grant we shall assume that they will improve their efficiency"—[OFFICIAL REPORT, 27th October, 1970; Vol. 805, c. 38.] No doubt, the right hon. Gentleman knows his Tory councillors and their past inefficiency. I doubt that they will change their spots much at this stage. I think that what we shall have will be not so much an increase in efficiency as an increase in rates. We have heard talk already from some of his friends in the G.L.C. areas about an increase of 2s. 6d. in the £. That was before his statement. The increase after his statement may, indeed, be massive, straight on the cost of living and straight off the limited tax benefits going to the great majority.

We have, therefore, a complete reversal of the policy put forward by the Prime Minister on 16th June. I first quoted that document on 7th July. I hoped not to quote it again today because I thought that it had now been quoted so much that all right hon. and hon. Members knew the salient phrases almost by heart. However, the Prime Minister obviously does not, since he assured us at Question Time that he had not used the phrase "at a stroke". HANSARD makes clear that he did. The Prime Minister then wrote the most unconvincing letter I have ever read and sent it to my right hon. Friend the Leader of the Opposition. He sent it also to the Daily Telegraph. Whether he sent it to other newspapers as well which did not think it worth while publishing, or whether he specially chose the Daily Telegraph, I am not sure.

What is clear is that the Prime Minister knows perfectly well that he did use that phrase, that he used it on 16th June. and anyone less self-righteous than himself would already have sought to withdraw his clear misstatement.

What is more important in the document of 16th June is the argument which the Chancellor sought to put forward last Tuesday, for without question—I have read it carefully in HANSARD—there is no question that the Chancellor accepted that the Prime Minister had turned tail and sought to excuse it on the ground that they had thought the economy was stronger that it was. This really will not do. The document of 16th June was based upon a scaremongering approach. It opened by quoting, among other sources, that great independent expert Lord Cromer, saying how grave everything was and going on to threaten in the same document another devaluation. It then proposed a remedy, to act directly on prices, to act directly to reduce prices.

On 2nd July, in his first speech as Prime Minister in the House, the Prime Minister said that everything was as he expected to find it, as the economic indicators had shown it to be. Now, the Chancellor says that the remedy could not be applied because the problem was worse than they had thought. The remedy, apparently, would work only if there was not much of a problem to deal with.

What a remedy, what chicanery and wriggling on the part of the Prime Minister, the Chancellor of the Exchequer and the Government. Their policy now for as far ahead as the eye can see is the direct opposite of that which the Prime Minister, with his full authority, put forward two days before the election. That is what I meant, when some hon. Members opposite jeered earlier, by saying that this was a direct and immediate betrayal of election promises such as had hardly ever been seen before.

Some of the Prime Minister's statements are very odd indeed. He gave an exclusive interview to The Times, published on the morning of his right hon. Friend's mini-budget. With an extraordinary sense of timing, he informed us in that interview that one cannot have compassion on the cheap. So, presumably, he decided not to have it at all. He went on to talk about hearts and heads and of there being no necessary conflict between the two. What emerges increasingly clearly when one looks at last Tuesday's measures, at the document of 16th June, and at the Prime Minister's handling of the South African arms issue, is that he has the worst combination of the lot, a cold heart and a hot head. [HON. MEMBERS: "Where is he?"] I think that he got a little bored with his right hon. Friend's speech, and I do not totally blame him for that.

On the prices issue, however, there is more at stake than the Prime Minister's action in trying to mislead the voters before the election, significant though that is for his own reputation and for the future. There is menace in the present rate of price increases, menace for the future of the balance of payments, menace for the groups who cannot keep up, menace for society as a whole. That is why it is dangerous doctrinaire nonsense for the Government to be willing to push up almost any price in sight in a relentless search for elbow room for direct taxation cuts handled in such a way as to give more help to those already much better off.

This is typical of the Government's whole approach in this package, a package directed to the exacerbation, not the solution, of nearly every problem we face We need to improve the industrial climate, and to get the council workers' strike and the coalfield strike settled, to take only two examples. [An HON. MEMBER: "Settled at any cost?"] Settled on reasonable terms. But does the Chancellor for a moment believe that his package—[HON. MEMBERS: "What percentage does the right hon. Gentleman suggest?"] Why on earth should hon. Gentlemen expect me to give a percentage when the Government say that they will never give a figure themselves? The irresponsibility of the Government and their supporters goes beyond bounds when they think that such percentages should come from the Opposition benches, while there is complete silence on their own. Does the Chancellor for a moment believe that his package, de- liberately making worse off nearly all those affected, will help in either of those directions?

I come now to investment, vital to future growth and employment prospects. Clearly, we need to improve the level of industrial investment, which is now tailing off pretty seriously after a modest post-devaluation spurt. [Laughter.] Certainly, there was a spurt, and that spurt is now falling off. I do not for a moment imagine that the Chancellor's proposals will do that. The net outlay on investment inventives will be over 30 per cent. smaller, £470 million against £725 million. In their new form, they are of value only against tax and, therefore, will be much less favourable to new firms or to firms expanding so fast that they cannot absorb full allowances out of profits. In the short term, there is the cut in the corporation tax to be set against the tight credit position, and no investment allowance from here forward. Many small and medium firms in particular, about which the party opposite used to talk so much, will plainly be worse off as a result of these changes.

We need to stimulate employment, particularly in areas like Scotland where the numbers out of work have been rising ominously. So far from doing this, the changes accompanied by the end of R.E.P. will, in my view, undoubtedly amount to a less powerful inducement to firms to go to, or to expand in, development areas. There is already evidence that some are changing their minds in the wrong way.

These are some of the main problems facing the country, and they are all made worse by the Government's measures.

What economic benefits are we offered as an offset? An increase in some people's incentive. "Incentive"—a lot of crimes can be committed in thy name! Is it seriously contended that the effect of a 6d. cut in the standard rate upon those limited number of people who, as the cut is now to be paid for, will really benefit will make them work so much harder as to outbalance an additional tax liability on the majority, a new jerk to prices, an exacerbation of industrial relations, a reduction in investment incentives and a worse balance between the regions? If hon. Members opposite believe that, they will believe anything.

But there are not only economic consequences to the policies that we are debating today; there are social consequences as well. A new philosophy of deliberate social division has been proclaimed, which will be applied in such a way that the members of every family will be made as aware as possible from as early an age as possible whether their family is on the successful side of the line or not.

On the evening when he became Prime Minister, the right hon. Gentleman stood on the steps of 10 Downing Street and rather sententiously announced: Our purpose is not to divide but to unite, and where there are differences to bring reconciliation. The words of June have quickly changed into the action of October. There is no national unity to be found in the Government's proposals because there is no fairness, and there is no reconciliation because, so far from there being a concern for all the community, there is the narrowest partisan approach which we have seen for a generation or more.

5.45 p.m.

Mr. David Knox (Leek)

I ask the indulgence of the House on the occasion of my maiden speech.

It is a particular pleasure for me to follow the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) against whom I contested two elections. The House will not be surprised to know that the right hon. Gentleman increased his majority on both occasions, though I must point out that since I left Stechford he has not done quite so well. He has, of course, been Chancellor of the Exchequer since then.

As the Member of Parliament for Leek I follow a Member, Mr. Harold Davies, who sat in this House for 25 years and enjoyed a great deal of respect from both sides of the House. He held office in the Labour Government as Parliamentary Secretary to the now defunct Ministry of Pensions and, more recently, as Parliamentary Private Secretary to the former Prime Minister.

Mr. Davies was not only respected in this House, but also in his constituency. He looked after the interests of supporters and opponents alike with diligence. I think that both in this House and in Leek his elevation to another place has been warmly welcomed.

Leek is one of the most beautiful constituencies in England. Perhaps I should emphasise the words "in England", because the name of the constituency and that of the former Member may suggest that it is Welsh. Now it has a Scottish Member to add to the confusion.

Apart from its great beauty, Leek contains a cross-section of England. It has a large agricultural area, it has quarrying and mining, it has textiles and the computer industry, and there is a variety of very small to very large firms. In addition, just to keep up to date, there is a large commuting population to Stoke and to the towns of South Cheshire.

I intervene in the debate because my constituents are naturally concerned with economic prosperity. They believe that economic prosperity is indivisible. They want national prosperity because they know that that will mean prosperity for them as well.

I will concentrate my remarks on two particular aspects of the Chancellor's statement last week.

First, the proposal next April to reduce the standard rate of income tax by 6d. in the pound. I raise this point because it seems that a great deal of nonsense has been talked about it. It really is absurb to start making arithmetical calculations which, it is true, show little change for most people, and to conclude that this reduction in taxation will have no incentive effect. This argument fails to understand what the reduction is trying to do. The real point about any reduction in income tax is that people think that they pay much more in the pound in income tax than they in fact do and, because they think this, they behave as though they do. So long as they think this, so long will the current rates of income tax will have a strong disincentive effect.

I am sure that hon. Members on both sides, in discussions with people about overtime, will have heard the remark, "This man or that man does not work overtime because he thinks that he pays 15s. in the pound in income tax." We know that this is not true. At least, it is true only of those in the surtax class. But because people think that at current rates they are paying this large amount in income tax, the current rates act as a real disincentive.

I believe that by cutting income tax in the way that my right hon. Friend has proposed, he has made a real contribution to persuading people that income tax in future will not be the burden that they think it has been. In this way this measure will have a real incentive effect in future.

Secondly, I should like to express regret that my right hon. Friend the Chancellor said last week, and reiterated today, that the reductions in income tax and in public expenditure taken together will, therefore, be broadly neutral in their effect on demand in 1971–72. Of course, as my right hon. Friend conceded earlier today, there will be an opportunity in next year's Budget to alter this. I welcome the assurance that the Chancellor gave on this score this afternoon. At the same time, I urge my right hon. Friend to think seriously about the early expansion of the economy. If we go through next year without any general reflation not only will the present unemployment situation continue for at least two years, but a large number of married women and elderly people will also remain out of work even though they would be willing to work. There is also the general under-utilisation both of labour and of capital in industry which is more prevalent than some Treasury Ministers not only in this Government, but also in the last Labour Government, seem to suggest. We also need this reflation to get general growth. We can achieve our full industrial potential only by an expansion of demand.

I understand, I hope, the argument put forward by my right hon. Friend that consumer demand is already rising. It would be very surprising if it were not rising at present, but how permanent is this rise in demand? At present, incomes are going up rapidly. Prices are going up quickly, but not quite so quickly. But price increases, which are consequent upon income increases, always lag rather behind income increases. So, obviously, there is an upsurge in real terms in consumer demand at present, but I confess to some doubt about how permanent this is. I think that it will tend to flatten out in due course.

If I am right, we are left with the problem of the economy operating for some time substantially below capacity. I know that some people produce clever and ingenious arguments to deny this, but an unemployment rate of 600,000 is sure evidence that the economy is at present working below capacity.

Again, some will argue that in current conditions of income inflation we dare not reflate because of the effect on income increases, but this is hardly a very strong argument because since 1968 we have had excessively high wage increases in conditions of remarkably high unemployment. For a long time in the 'fifties and early 'sixties we had the Paishite argument that if we only had a little more unemployment it would cure cost inflation. Well, we have had a lot more unemployment and cost inflation has got a great deal worse.

I conclude by summing up the advantages there seem to me to be in a general reflation of the economy. First, it would use up resources in labour and capital which I believe are now under-utilised. Second, the increase in demand would encourage investment—and it has always seemed to me rather foolish to expect investment to increase unless industrialists feel that they are likely to get some return in the form of increased sales.

Third, if one can promote extra demand in the private sector this can help to redress the balance between the public and private expenditure which the Chancellor of the Exchequer, and we on this side, wish. Fourth, I believe that an expansion in the economy can be particularly important in relation to the crucial capital intensive industries because of a consequent reduction that would come about in unit costs, and so the possibility of reduced prices.

Finally, and I suggest most important of all as a reason for reflation, is the fact that it would lead to repromoting confidence in manufacturing industry. It is all very well to promote financial measures—that may well restore confidence in the City—and no one would underestimate their importance, but financial measures on their own do not restore confidence in manufacturing industry. Confidence in manufacturing industry will come about only if there is a steady increase in industrial activity and a rise in orders. No one should underestimate the importance of confidence in manufacturing industry as a contribution to Britain's future economic prosperity.

The House has listened to my slightly controversial views with patience and tolerance, and I am most grateful to all hon. and right hon. Members for their kindness on this occasion which, to me, has been something of an ordeal.

5.54 p.m.

Mr. Jeremy Thorpe (Devon, North)

It is my very pleasant task to congratulate the hon. Member for Leek (Mr. Knox) on his delightful speech. I accept that he found it something of an ordeal, as we all do, but, if I may say so, I have to take his word for it, because he showed no signs of its being so.

I am also delighted to know that the constituency of Leek can still have its views expressed in a Gaelic or Celtic burr or dialect, though of a somewhat different kind from that spoken by the hon. Gentleman's predecessor. When I first got to the House in 1959 I remember hearing from time to time what sounded like a cry of anguish from an hon. Member in distress, but then I found that that was the way in which the hon. Gentleman's predecessor was accustomed to say "Hear, hear"—which would drown any other noise that might be heard in the Chamber.

The hon. Gentleman is an economic consultant and we look forward to hearing his views on economic matters in the future. I also understand that in a Young Conservative and literary capacity—if the two are not a contradiction—he has written a learned work on "Law, Liberty and Licence". We look forward to hearing him on all those subjects as well.

I suggest that the Chancellor of the Exchequer might reasonably be judged in the coming months by three assertions which he himself has made. I think that they are assertions by which his own right hon. and hon. Friends might judge him and the success of his policy. One of his assertions, quite plainly made—and he was courteous to give way to me so that it could be confirmed for the benefit of the House—was that no married man with children who is earning under £1,000 a year would feel the burden of any of the charges announced last Tuesday. I hope that is right—I am delighted to hear it. That will be a prophesy which will be very hard for this Government to fulfil, but the right hon. Gentleman has made it and we will judge him by it.

His second assertion is that the increase in cost of living will be of the order of only 1 per cent. I speak as one who is in favour of going over to the levy system for agricultural support, although I would phase it more gradually. I can assure the right hon. Gentleman that when we of the Liberal Party were advocating this system as a way in which we should give support to agriculture, and the Tory Party at the time, as on so many issues, had not yet realised the possibilities of this advance, we were told that the increase in the cost of living would be almost prohibitive. Now that it has become official Conservative policy it is to be only a very small increase, because the total increase for all the measures contained in the package is apparently to be only 1 per cent.

The third point on which the Chancellor of the Exchequer is to be judged is his suggestion that the philosophy behind his mini-budget is dictated by the fact that this is the highest taxed of almost any advanced industrial country. Of course, as the right hon. Gentleman the Member for Stechford (Mr. Roy Jenkins) pointed out, the Chancellor of the Exchequer, not for the first time in his career, made a highly selective use of statistics and, in doing so, even ignored the statistics put out by the Treasury itself.

We shall judge him on those three issues.

The reduction of 6d. in income tax has obtained the instant euphoria one would expect. If I may say so, I think that the Government started with this as a conclusion and thereafter shaped their statement to achieve this; indeed, what other explanation could there be for announcing a 6d. cut in Income Tax six months before without giving the normal Treasury forecasts and assessments? But I believe that the real tests of these proposals and, I should have thought, the tests that would be accepted as fair by hon. and right hon. Gentlemen opposite are, first: will they bring down prices and prevent wage inflation? Will they bring about economic growth? Have the Government got the right social priorities? It seems to me that those are three not unreasonable tests for any hon. Member to apply. To cut taxes is superficially attractive, but unless it achieves those three objectives I believe it to be a very hollow achievement.

What I have found an extraordinary thing about this Government is that whenever they produce measures which many of us think are contrary to the social priorities we hold, or that we think are of questionable economic or political advantage, we are always told that this is part of the Conservative philosophy. We heard it on overseas development; we heard it on the abolition of the National Board for Prices and Incomes; we heard it on the issue of health charges. It is most extraordinary to elevate bad government into a misapplied science, because that is what this great philosophical approach to politics achieves.

Let us consider first whether these proposals will bring down prices. I do not want to embarrass the other side of the House, but I think the Prime Minister put the subject of how to tackle prices so shortly and so succinctly on 16th June that it would not be a bad thing to refresh our memories. He said: There is a very real alternative … That alternative is to break into the price-wage spiral by acting directly to reduce prices. This can be done by reducing those taxes which bear directly on prices and costs, such as the selective employment tax, and by taking a firm grip on public sector prices and charges such as coal, steel, gas, electricity, transport charges and postal charges. This would, at a stroke, reduce the rise in prices, increase production and reduce unemployment. It would have an immediate effect of moderating the wage-price spiral which would far outweigh any effects of a higher pressure of demand for labour. Nothing has been done about selective employment tax. It may be done later, but certainly it was not regarded after the election as occupying the priority in the Prime Minister's mind which it clearly had on 16th June.

Many of us have long advocated that what we need is to abolish selective employment tax and put in its place a regionally varied payroll tax. But nothing has been done in that regard and yet it was to be one of the conditions precedent to bringing down prices.

There has not been much evidence of the firm grip in the public sector, except that the Government have contributed to raising the fares of commuters on British Railways by the action they have taken in this regard. In fact, the only firm grip they have taken has been in rummaging round in the dustbins of the country and doing what they have always done and what they did under the Macmillan Government—and this is one of the reasons why they were ultimately defeated in 1964. They had no policy at all for wages, except to wait until there were servants in the public sector, usually underpaid, usually with a good case, and usually with an emotional backing, such as the nurses, and then take them on. This is what they are doing at the moment.

There is no great effort, taking the Prime Minister's test as the right one, to grapple with the problem of the nationalised industries. One would have hoped that in the first package we would have seen something along the lines which the Secretary of State for Trade and Industry mentioned in a very interesting speech about enabling the nationalised industries to go to the markets to raise at least a proportion of their capital requirements. This would have an immediate effect of reducing public expenditure.

Nor can they give very much confidence in their determination to bring down prices when one of their first actions is to kill the child which they established in 1963 with such a fanfare of publicity, the Consumer Council, in order to save £240,000 a year. That was not the view of the election. Claiming some of the benefits of Conservative Government, the campaign guide said: In 1963 the Conservative Government set up the Consumer Council, which has since proved to be a powerful and influential spokesman in the interests of the consumer. Alas! It is no longer to be.

Nor can there be very much confidence in the determination of the Government to attack prices, for the National Board for Prices and Incomes has been abolished and for bodies which are to take its place having had no right and no responsibility to deal with any question relating to prices. The answer was not to say that the board was perfect in its mechanism for dealing with prices, but to strengthen it. The experience of many advcanced industrial nations points to the need for a review body such as this.

The Secretary of State for Employment suggested the day before yesterday that all these questions could be dealt with by strengthening the Monopolies Commission and dealing with restrictive practices, and he said that a statement would be made in that regard. One cannot have much confidence if the record of the Government in ignoring the reports and recommendations of the Monopolies Commission is to follow the pattern which we had under the previous Conservative Administration, when 95 per cent. of the recommendations were totally ignored.

I shall refer in a moment to wage inflation, but I do not see, whatever else may be said about the package, that it will have the slightest effect on prices, save to put them up and to put them up to those people whose only and immediate reaction will be to put in a wage demand.

Will we get economic growth? One of the frightening things about the Chancellor is his view—and he repeated it this afternoon and made the point on television on 27th October—that the only reason, or the main reason, why Britain had been overtaken in growth by almost every other country is that we are about the most highly taxed nation in the world. It is simply not true. Of course we want to reduce taxes, but it is simply not true to say that we are the most highly taxed nation. If this is to be in his mind, if he thinks that he will solve the problem of economic growth simply by saying that we are to cut taxes whatever the social or other costs, he will have a very barren policy.

Economic Trends for August, 1970—and, unlike the Chancellor of the Exchequer, I take all the tables—and the O.E.C.D. reports of July, 1970—I do not want to weary the House with tax figures—show broadly the percentage of the gross national product devoted by this country to personal taxation is lower than that in Denmark, Norway and Sweden, and roughly the same as in the United States and Holland. Taken to include corporation tax, it is lower than in America, Denmark, Norway and Sweden and roughly the same as in Austria, Canada, West Germany and Holland. Including employees' contributions to social security, it is lower than almost the whole of Western Europe with the exception of Italy and the United States.

If the Tory thesis is right and the Government have only to reduce taxation to get the growth rate going up, if there is a correlation between lowering taxes and increasing growth, how is it that, notwithstanding five successive reductions in taxation under previous Conservative Administrations, we failed to get the growth rate and remained virtually at the bottom of the league?

The reasons for our sluggish economy and low rate of growth are complex and many. Any man who says that it is merely because we are too highly taxed is deluding himself. One reason is that we are excluded from the European Economic Community, and therefore cannot enjoy the economies of size. The Government and the Opposition have now made up for that, but that fault must lie largely at the door of a previous Conservative Administration. However, that is history. We could have been in as founder members and the effect of that on our growth would have been tremendous.

The next reason is that we do not have a proper incomes policy. It is vital to deal with the problem of minimum earnings. There are many people who have very low minimum earnings. I should like to see guaranteed minimum earnings, more plant bargaining and wages tied to productivity. That is the way in which to get economic growth, not trying to do what the right hon. Lady the Member for Blackburn (Mrs. Castle) did in the last Parliament and what the present Government show every indication, in a different form, of doing in this.

If the Chancellor thinks that 6d. off income tax will get economic growth he is due for a few shocks. I do not believe that by abolishing the investment grant system and substituting an accelerated system of depreciation allowances, we will get the growth we require either from the capital-intensive or the non-intensive industries. It will reduce the cash flow, and if the question is whether a person buys a new machine or cuts overheads it will be easier not to buy the new machine. As to the family incomes supplement scheme, the position has been briefly summarised by Samuel Brittan in the Financial Times when he said that the new cash benefits for poor families should cushion to the tune of £8 million the very poorest but beyond this level there would be redistribution to the somewhat better-off including the better-off wage earner, from the somewhat worse-off.

The worst hit will be those just above the official poverty line with several children and an above-average rate of illness. I do not accept the Chancellor's figures, and there have been times when the party opposite has not accepted a Chancellor's figures either—we remember a very embarrassing occasion a little time ago. My information is that a married man with two children under 11 on £900 a year will be £20 worse off as a result of this package. A man with two children under 11 with an income of £2,000 will stand to gain in a year no less than 6s. 3d. and a man on £3,000 a year will stand to gain something of the order of £20 5s. 2d.

I appreciate the Government's problem, that because of the last Budget a man comes out of the position of paying no tax and goes straight on to the standard rate. My colleague, Richard Wainwright, who was the Member for Colne Valley, said that we thought that this was one of the most regressive innovations in our tax system, because hitherto we had had a progressive taxation system which went up in carefully graded steps.

The position is that a man who suddenly comes out of the lower-paid bracket finds himself paying health charges, full charges for school meals, and could find if he earns an extra £1 that as much as 10s. of it will go at once on those increased charges. This is why it is regressive and this is why I believe that it will kill incentive. This is another reason why many of us have advocated the necessity for a negative income tax. The Prime Minister said yesterday that the Government were looking at this, and I hope that we will move in this direction.

The Government have got their social priorities wrong on these charges. I am in a position to make no apologies. I voted against every imposition of health charges by the Labour Government. I believe that the health service should be free at the time that it is used and there were many hon. Gentlemen in the official Opposition who took that view. We believe that when a man or a child is sick, that is the last time they should have to pay. That is why the principle of the "claw back" until we get a better and more refined system of graduated social security tax, a negative income tax, is to be preferred.

I will make a prophecy. There is one proposal which, apart from being regressive, will be so complicated that it will break down within nine months—perhaps I should amend that and say about 12 months—because I do not think that the Government will realise that it has broken down until about then. It is one thing to have a prescription charge but, if the Government really think that on each occasion that a prescription is made out the pharmacist or doctor will relate the charge to the value of the drug or drugs which are prescribed at that moment, they have another thought coming. It will break down; it will also encourage blunderbuss prescribing which is not in the interests of the health service or the people in the country.

Surely the answer—and let us take the lower-paid worker such as those who work for the local councils—is that if a man who empties dustbins needs cortisone, it is just as important that he gets it, even though it is a very expensive drug, as it is important that anyone else should get it. That has been the principle of the health service. The principle of Beveridge, with family allowances, was that free milk and free school dinners were part of the benefits of family allowances in kind. This was the great thing; they could not be abused because they went to the children. That is why this is regressive.

I want to put again to the Government a question which I put to the Chancellor last Tuesday. Before they introduced charges for school milk for children in primary schools, did they take the advice of their Advisory Committee on medical aspects of food and, if so, what advice were they given? Have they seen the report of Dr. Lynch of Queen Elizabeth College in The Times today who showed in the results of an extensive survey that only half the schoolchildren at State schools had a wholly satisfactory diet and 11 per cent. had a very poor diet, indeed. The evidence of Plowden was that it was in the poorer areas that fewer school dinners were served. That is why, when we consider that school meals represent roughly one-third of a child's nutritional needs, this is a thoroughly retrogressive innovation. I saw in the dictionary definition that a barber is one who shaves and trims and one who lets blood with leeches.

I believe that this is a series of proposals which start from the premise that an election pledge has to be honoured and, therefore, 6d. has to come off income tax and everything else must take its place to achieve that political end. Let us make no mistake about it, this is a political not an economic exercise. It does nothing to cure inflation, it will push up wage inflation. The reason why we will not get economic growth is not only because of the measures but because of the fundamental wrong-thinking of the Chancellor. He seems to think that there is some mystery in cutting taxation that will bring about production. Let him look at countries which have had economic growth and at their labour relations, at productivity deals, the way in which they operate plant bargaining and conduct works councils with consultation between management and labour. That is the way we will get growth. I do not think we will get a sense of national unity unless people feel that there is fairness in the running of the economy.

Mr. David Crouch (Canterbury)

The right hon. Gentleman owes it to the House to say why he is so against tax reduction. He is giving the impression, which I hope he will correct, that he is also against cuts in Government expenditure.

Mr. Thorpe

I have never said anything of the sort. If the hon. Gentleman had the misfortune to see me on television the other night he would have seen precisely what I said in that respect. I will be happy to send him a transcript Of course, everyone wants to see a cut in taxation but not just to say that it has been done, not if the cost is attacking the Welfare State, the principle of a free health service which, at one stage, was supported by all hon. and right hon. Gentlemen—

Mr. Fernyhough

They voted against it.

Mr. Thorpe

I want to get economic growth. As the Tory social security document published this year said, the reason why a larger percentage of the gross national product is being devoted to the social services every year is because we have not had the economic growth and if we had got economic growth, we would not need these cuts. It does not seem that they have very much confidence in getting economic growth if they think that the first priority is to make cuts.

Of course, I would make cuts. I would not have this ridiculous business of going back east of Suez. I have already said that we could have substantial cuts through the nationalised industries raising part of their requirements on the open market. If we had not been ruled for many years by a bunch of ostriches with their heads in the sand, exposing their thinking parts, we would have been a founder-member of the European Economic Community and just think of the economic growth there. Instead of the Labour Government introducing selective employment tax and two years later appointing a professor to see how it was working out, we would have had a regionally varied pay roll tax and a negative income tax.

I am always prepared to put forward alternatives. The position in which I find myself as a Liberal is always a three-stage one. We are told first we have no policy; then that it is severely impracticable; and eventually, at the last minute, our opponents adopt it—alas, usually too late in the day. That is why, if the Government think that this set of proposals will produce economic growth, will bring down prices, and get the social priorities right, they will have a lot of convincing to do in the country.

6.20 p.m.

Mr. Julian Ridsdale (Harwich)

I am honoured to be the first on this side of the House to congratulate my hon. Friend the Member for Leek (Mr. Knox) on his excellent maiden speech. It is good to hear from the Midlands the voice of manufacturing industry, especially, on this side of the House, rather than that of the City, of which I am used to of late. We know from the pointers that he gave why he was able to defeat such a respected former Member of the House, Mr. Harold Davies, because obviously he thinks there should be more incentive and we should try to get more investment in manufacturing industry.

Mr. Scholefield Allen (Crewe)

Is the hon. Gentleman aware that the reason that the hon. Member for Leek (Mr. Knox) won the seat was that the wakes were on in Leek and most of the people were away on holiday?

Mr. Ridsdale

We always have excuses for the defeated, but one must pay tribute to the eloquence of my hon. Friend.

Much has happened in the last few months, and as I listened to the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) I could not help but feel how much happier he was in opposition than he was only a few months ago in government. It is far easier to be critical than correct, and one can see that so well from the way the Leader of the Liberal Party, the right hon. Member for Devon, North (Mr. Thorpe), addresses the House, so often without the prospect of responsibility. Nevertheless, when the right hon. Gentleman says that the test of this mini-budget is whether it will bring down prices, surely this is a question for which we must await the answer, because really the test of this budget, as he rightly said, is whether it will achieve growth.

I can understand why the right hon. Member for Huyton (Mr. Harold Wilson) went to the country in May rather than October. It was not because of the opinion polls but because he knew the kind of wage inflation and cost of living increases that were in the pipeline as a result of the Labour Government's policies and the dire consequences that they would have, particularly on the lower wage earners and pensioners.

I hope that the Secretary of State for Social Services will be frank with the country and say how much it will cost to keep the pensioner and the public service pensioner, and others, in the position that they were even in November, 1969. I estimate—and this is a conservative estimate—that even to keep the pensioners and public service pensioners in that position will cost £200 million. It is wrong for the right hon. Member for Stechford to moralise, as he did to us on this side of the House, and say, "It is all your responsibility; it is not ours at all". In fairness to the common sense of the people, it is only right that both sides of the House should apply their minds to the present serious situation without the recrimination that goes backwards and forwards across the Floor of the House.

The present situation is the consequence of allowing wages to leap ahead of productivity or increases in the gross national product. The right hon. Member for Huyton and the right hon. Lady the Member for Blackburn (Mrs. Castle), if they were not in such a guilty mood, would, I am sure, agree—or do they admit no responsibility for today's position? The position of some of the union leaders which is being adopted, particularly by the leader of the Transport and General Workers' Union, in reply to a letter which which I wrote to the Daily Telegraph, is morally hardly any better. Having all but caused the position, some of the unions, like the Transport and General Workers' Union, are pressing in a pamphlet for better pensions this winter. As the pensioner is now 5s. 6d. a week worse off and the married pensioner is 8s. 10d. worse off than they were in November, 1969, this appeal will not go unnoticed by the pensioner. I am sure that the pensioners will recognise the hypocrisy of such a campaign being pressed by people who have been one of the causes of the wage inflation and the steep rise in the cost of living.

Since the letter of the secretary of the Transport and General Workers' Union to the Daily Telegraph on Monday, I have been telephoned by pensioners of the Transport and General Workers' Union who were pensioned before 1955 telling me that their treatment from the union is not all that generous. I am using moderate language.

I hope that the Chancellor of the Exchequer will soon make a statement about public service and Service pensioners and disablement pensioners. Much as I welcome what has been done for pensioners, and particularly for people over 80 years of age, how long will it be before the Government can bring pensions back to the position that they were in November, 1969, which was hardly any better than it was in 1965?

Mr. Stanley Orme (Salford, West)

If the hon. Gentleman is so concerned about the pensioners—and I recognise his sincerity—why does he not urge the Chancellor of the Exchequer to pay to the pensioners the 6d. which he proposes to take off the standard rate of income tax? Then he would achieve the correct balance.

Mr. Ridsdale

That is a very tempting course to adopt, but I believe that the only real help which can be given to pensioners is to try to bring about stability in prices. The only way in which we can do that is by encouraging investment in manufacturing industry. The tax reduction is a pointer in this direction. I would advocate doing away with the reduction of 6d. in income tax if the present wage demands were brought into line with productivity increases or increases in the gross national product. But I see no sign of that.

Mr. James Hamilton (Bothwell) rose—

Mr. Ridsdale

If I give way, it will only make my speech longer. I do not wish to be continually diverted from my theme.

I should like to hear from the Treasury how much the Government's agricultural policy will affect the pensioners and what sum is being put aside in addition to the £200 million which I estimate is needed to restore the purchasing power of the pension to what it was in November, 1969, to compensate pensioners for the increases in prices due to the new agricultural policy.

I stress these questions because elderly people want to know the answers to them as soon as possible. Pensioners were in despair in June. They have faith in the new Government, but we must give them hope that we shall deal with their problems soon. I am sure that they recognise our difficulties. For all the appeals from the Opposition and the moralising that we hear, they know that the sounds are false when we are being pressed to do in four months what the Labour Government failed to do in six years.

One sure way of helping the pensioner and the country is, first, to restrain wage demands and bring them into line with productivity increases. Why cannot the trade union leaders be more reasonable? What prevents hon. Members opposite from supporting my right hon. Friend's policy when so many of them, only a few months ago, were speaking the same words as I am saying from this side of the House now?

Of course, I want to see higher wages being paid, but as a result of an increase in productivity, as in Germany and Japan. Between 1958 and 1968, real wages in Germany went up by 54 per cent. but in the United Kingdom by only 19 per cent. During those 10 years, income per head in Germany rose by 104 per cent. In the United Kingdom the rise was 49 per cent. With Japan, a country I know well, the comparisons are even more invidious. I agree, however, with the Leader of the Liberal Party that one of the successes in Japan is plant bargaining. Nevertheless, one also knows that saving in Japan is at a much greater rate than it is here. I must say, too, that the rate of unemployment in Japan—again, hidden employment—is much higher than in any of the Western countries. The pressure of unemployment on productivity in that country is great.

During the last 10 years, I have attacked various Governments, including my own, for their failure to see that sufficient investment went into manufacturing industry. That is why I welcome the cut in corporation tax, although I should have liked it to be 5 per cent. and not 2½ per cent. I should also have liked help to be given, if possible, to the smaller industries in the context of trying to get more investment going into manufacturing industry, because unless we get more investment going into manufacturing industry, we will not get growth and as a consequence higher wages and we will not be able to pay higher pensions.

It appears from recent figures that our investment position is far worse than many of us feared or had been led to believe. A year ago, I had a Private Member's Motion on investment, and certainly the figures which I was given by the Government then in power were very different from some of the figures now being given by my right hon. Friends from the Dispatch Box. Especially am I concerned when we know how appalling is our record in investment compared with Germany and Japan, when they have been increasing their national cake considerably and ours has hardly increased at all.

What is far worse is that because of the wage inflation and bad labour relations, foreign capital is being frightened away. During the recent docks dispute in Harwich, the Transport and General Workers' Union tore up an agreement which it had made with the Harwich Dock Company. Much of the investment in that company comes from abroad. The nervousness which was caused among foreign stockholders as a result of that action by the union was very considerable.

I do not want to introduce personalities—I am dealing with policies—but when the General Secretary of the Transport and General Workers' Union expresses a wish to see a wealth tax, does he realise how such words discourage capital from coming to this country? To realise the importance of trying to get foreign capital to come here, one need only consult some of the foreign brokers who have to go overseas and ask whether foreign investors will invest here in view of the wage inflation. One gets a dreary answer.

Is it really impossible to get agreement and understanding over the present chaotic wage situation that faces us? The Leader of the Liberal Party is quite right in saying that this is the crux of the situation. How long must we go along the path of creating a bitter divide in this country? I still believe that there is a middle way in which understanding can be reached. I have no wish to see bitter deflation and large-scale unemployment. I want to see better investment in manufacturing industry and, as a consequence, higher wages and pensions. If the present situation goes on, the divide will continue, because my right hon. Friend the Chancellor will be forced, much against his will, to adopt a tough money policy—deflation—and the consequences will be unemployment, which nobody wants.

A deflationary policy is not in the long-term interest of the country. It is certainly not in the long-term interest of pensioners or of union members who want higher wages. That is why I hope that people will understand, and that we shall be able to get agreement upon, the fundamental problem which faces the country—that is, wage inflation, which is causing so much of our financial and industrial difficulties, and give such distress to pensioners and the lower wage earners.

6.36 p.m.

Mr. John Horam (Gateshead, West)

I am the second in the course of this debate to go through the hoop of making a maiden speech. Like the hon. Member for Leek (Mr. Knox), I, too, am an economic consultant—which just shows how economists can differ but also, perhaps, how they can have politically different beliefs and a different understanding of the condition of the people, some right and some wrong.

I might also add for the benefit of the hon. Member for Harwich (Mr. Ridsdale) that I am a member of the Transport and General Workers' Union. I am sure that Mr. Jack Jones, to whom the hon. Member referred at considerable length, is quite capable of defending himself. I would simply remark that if the hon. Member was doing as much for old-age pensioners as Mr. Jack Jones is doing for them, they might be a lot better off than they are today.

I should like to begin, as I have observed is the custom, by referring to my predecessor and to my constituency. My predecessor was Harry Randall, who began his working life as a postman. This, together with a warm and kindly heart, gave him a fine understanding of working-class people. I can tell the House that he is much loved in the constituency and since I have come to this House, I have found him to be much respected here.

The constituency which he represented, and which I now represent, is Gateshead, West, in County Durham. Gateshead was described in the nineteenth century as the dirty back lane which led to Newcastle. It can no longer be so described, because as a result of a sustained effort, led by an ambitious—and Labour—council, it has wrought a transformation which is quite remarkable to see, particularly during the last five or six years. Now, as a result of a naturally superb setting on the banks of the Tyne and the homogenous and excellent community spirit among its people, the possibilities for pleasant urban living are extremely exciting.

I believe that the measures which the Chancellor of the Exchequer has proposed will bear particularly hard on people living in towns like Gateshead in development areas. To begin with, however, I want to go a little behind the detail and talk about the philosophy behind what the Chancellor said.

It appears that the Conservatives believe that they have a philosophy, or, at least, a fig leaf of a philosophy, even if we on this side believe them to be totally naked. They seem to be saying, "All right. There may be some inegalitarian aspects in what we are saying"—despite the double talk here, some of their supporters outside scarcely trouble to deny this—"However, we will enhance personal freedom and choice and, secondly, by reducing personal taxation, increase incentives and, therefore, increase also the rate of growth." I believe that in all these respects they are making large claims, and utterly mistaken ones.

First of all, let us take the case of personal freedom. Of course, there is an economic aspect of personal freedom just as there is a political and an industrial aspect of personal freedom. The greater the resources an individual possesses, the freer he is, but how does it enhance personal freedom to allow a person to retain after tax more of the money he earns if we cancel out entirely the amount he thereby saves by charging him more for the things he must spend on, things he cannot do without? Yet this is the net effect of the Government's measures.

There has been some statement by the Chancellor today about exactly where the line may fall. He has said that a man earning £20 a week, and with a wife and two children, will be no worse off. I am surprised if he can maintain that, without including elements such as family allowance in the total £20 of income which the person is receiving. I would be very surprised indeed if they were straight earnings. Quite apart from that, it does not touch the case of the average industrial workers who are earning rather more than that—not very much in my part of the world, but more than that. They will be worse off under the measures which the Government are taking.

This is the nub of the matter. To attack equality in the circumstances of Britain today is also to attack freedom. Indeed, since we know that a £ is worth more to a man with £20 a week than it is to a man with £4,000 a year to take from the one and to give to the other is to diminish the total welfare accruing from our resources to the whole community.

But, the Government will say, this is too static we are to get economic growth for all the incentives we are giving. One would think from that, since it is so much the keystone of their argument, that there was some definite, proven, perhaps even quantifiable, link between changes in marginal rates of personal tax and increases in productivity. But there is no evidence of any kind to support such a contention.

Some hon. Members may have seen a fascinating television debate two or three weeks ago between my hon. and learned Friend the Member for Lincoln (Mr. Taverne) and the right hon. Member for Taunton (Mr. du Cann). I think my hon. and learned Friend the Member for Lincoln won hands down, but the right hon. Member for Taunton was faced with the same problem as the Chancellor was faced with today: how to produce some evidence that there is a link between small marginal tax changes and incentives to productivity. He could produce no evidence. All he could do was to trundle out Sir Paul Chambers, who, to his consternation, said he did his job for fun. My hon. and learned Friend the Member for Lincoln was able to produce good sociological evidence that there is no link between small changes in taxation and incentives. Indeed, I believe that if he would look further he would find other evidence from sociological studies and human behaviour of this kind which would indicate the same thing.

If there is any connection at all, it is the other way about. By reducing taxation we can have a disincentive effect; a man may work less hard if his tax is reduced. Now, as we know, the average man's conditions are changed so that he is worse off as the result of the Government's tax and other measures. So if they hope by these means to get increased productivity they should at least be honest enough to admit that this is not a carrot which they are using but a whip.

Quite apart from sociological studies of human behaviour, there is not even general statistical evidence to suggest either that Britain has a uniquely high level of personal taxation or that taxation in toto, or that high or low taxation, is linked in the same way with slow or fast growth.

The Chancellor said in his speech that the public sector accounted for 50 per cent. of the gross domestic product of this country. I think that is a questionable statistic to use in the context of this debate or in the context of his statement. I say it is questionable not because I think it is inaccurate in itself, for the Chancellor was accurate as to that, but because we are talking about Government expenditure and taxation, and taxation as a proportion of gross domestic product is, as my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkin) pointed out, 20 per cent. to 25 per cent., depending on how one looks at it, below 50 per cent. This defines taxation as including social security contributions as well as rates and all types of taxation. By this measure we find that Britain is indeed not at the top of any international league table. As my right hon. Friend said, it is somewhere in the middle. The Scandinavian countries, as the Chancellor instanced, are higher than we are; so also is France; West Germany and the Netherlands are roughly at the same level as we are. Japan is the only major industrial nation, with the United States, which is significantly lower. The same is true if we limit the comparison to personal direct taxation. The only area where we are unique is in the slowness of our growth.

So it is obvious that there is no connection between high taxation and slow growth. Indeed, if we are perfectly honest economists we must say that we do not always know what economic growth is caused by when it appears. But it certainly has to do more with other matters such as those mentioned by the Leader of the Liberal Party; more to do with changing the exchange rate at appropriate intervals, trying to match an increase in money rates with an increase in productivity, having a proper plan for the allocation of resources. All these factors have far more to do with achieving fast growth than taxation. Indeed, when the history of this period comes to be written we shall find that the theory that high taxation and slow growth are inevitably linked will be regarded in much the same way as the old idea which was once popular that trade cycles are caused by the incidence of sun spots. But, then, Tory economists are always centuries behind the times.

In short, there is no substance to the Conservative contention that they have a positive side to their philosophy. It is no more than a blind assertion, and the trouble with this ideological approach to things, which equates national spending with original sin, is that it does untold damage. It does damage in that there are many areas where services are best provided collectively. Not only that, but there are an increasing number of these fields—I am thinking of development planning—where we are best to adopt a collective approach. This is the positive case for increased public spending, and rational and commonsensical decisions are made far more difficult by the smear attacks of the Government on public expenditure. Not only that, but that attack by the Government does direct social damage and increases inequality.

I said at the start of my speech that it is towns like Gateshead which bear the brunt of this kind of proposal. This is indeed the case. It is towns like Gateshead which have few of their population in the more affluent bracket and more in the average or worse than average bracket. It is towns like Gateshead, in development areas, which rely more on social services than the towns in more affluent parts of the country, and it is these services which are being made more costly. It is towns like Gateshead which, precisely because they are not affluent, attract less private investment, and, therefore, rely more on public investment and regional policies, which the Government are paring down.

Capitalism is centripetal; that is to say, the rich get richer faster than the poor get less poor. This applies to people, corporations, regions and countries. As a result of this philosophy, the development regions lose people, they have fragile economic structures, immense social harm is caused, and generally the material quality of life is less good. In addition to that—and this is the irony of it—the rich regions also suffer, because they have to receive fresh waves of people from the North, East or West who are seeking greater opportunity in more affluent regions. The people who come have to be transported, fed and housed, and they want to join in the entertainment and fun like everybody else. So problems are created of pollution, isolation, high house prices, loneliness and all the other difficulties associated with metropolitan big city living. Ghettoes tend to be created inside big cities because the rich can buy themselves out of these problems and the poor cannot. They may buy themselves out by buying a small house in a relatively poor part of London for a fancy price, thereby actually worsening the lot of the poor people. There is, therefore, a threefold effect, and all these problems can be helped by a proper, rational and forceful regional policy.

The last Government had a regional policy. It was not perfect but it is incontestable that it improved the development of intermediate regions. It is equally incontestable that it did not do enough. If there is something to be said about regional policy, it is that it should be strengthened and improved.

What the Government have said so far about regional policy is ominous. First, they say that they have maintained the status quo on investment incentives, but we have yet to see whether they have. Because of the new methods adopted by the Government the calculations cannot be done in advance. We cannot see precisely whether the total amount of money they are pumping into the regions is less than it was. But they have only maintained the status quo; they have not improved the situation.

Equally, during the period of the election the Conservatives told us that they wanted to switch spending from investment incentives of one kind to infrastructure grants. So far there has been no attempt to do that. We have heard no word of any attempt, and all we know is that total spending will diminish. Therefore, I say that what they have said so far about regional policy is deeply disturbing.

Finally, I offer an interesting reflection on the politics of this country. Gateshead is in County Durham. If everyone in the last election had voted as Durham voted there would not be a single Conservative Member of the House of Commons. I add, in fairness, that if everyone had voted as Surrey voted there would be no Labour Members in the House of Commons. If the net effect of the Chancellor of the Exchequer's statement last Tuesday and the policies which the Government intend to pursue will not be to make Surrey more Conservative, it will certainly be to make Durham more Labour. Therefore, any talk from the Government benches about building one nation is absolute cant.

6.54 p.m.

Mr. Peter Rees (Dover)

Since this is my first intervention in a debate I must ask for the indulgence of the House. If in a slightly highly charged debate my remarks assume a rather partisan tinge I hope it will be attributed to inexperience and not to malice.

Perhaps unusually, it falls to me to congratulate the hon. Member for Gateshead, West (Mr. Horam) on his maiden speech. He set a high standard which I shall find it hard to emulate. He obviously has a unique combination of qualifications, and I have no doubt that the House will listen to his subsequent speeches with great interest.

May I also take time to pay tribute to my predecessors, who have represented Dover, Mr. David Ennals and Sir John Arbuthnott. I cannot speak at first hand of their contributions in this House, although I understand them to have been distinguished if perhaps slightly different in character. I can, however, speak at first hand of what they did in my constituency, and I think I speak for myself and the electors when I say that they served Dover well. They were assiduous in their constituency duties, and I shall try hard to match their assiduity.

I suppose that every hon. Member considers that his own constituency is unique, and I claim boldly for Dover that no constituency has been so involved in the history of this country, particularly with its martial history, starting from the day when Julius Caesar set foot on British soil at Walmer. We are proud to boast that we have two cinque ports, Dover and Sandwich, and a third town, Deal, which has a long connection with the Royal Navy and the Royal Marines. I very much hope that this Administration will find it possible to preserve the connection with the Royal Marines.

Dover also has a wide range of activities, from apple growing in the north to digging coal. I was not so bold as to align myself with the hon. Member for Ebbw Vale (Mr. Michael Foot) when he asked the Chancellor of the Exchequer to give way to him as a representative of a coal mining constituency, but I can claim without undue immodesty to represent a coal mining constituency, although Dover has other interests too.

This leads me to the first part of my right hon. Friend's statement, in particular to the part relating to public expenditure. One cannot help observing that the demands of the nationalised industries for capital will persist, demands of well over £1,000 million. Contrary to popular mythology, there can be no hon. Members on either side of the House who wish to see the nationalised industries founder. Certainly I do not wish to see the three pits in East Kent go under. But I feel that my right hon. Friend might give consideration to whether the nationalised industries could not raise more of their capital requirements from the market and less from the Exchequer.

One of the most notable changes in budgeting since the war is the claim of the nationalised industries on the public exchequer; the other is that before the war our defence east of Suez was largely carried on the Indian Vote.

The task of the Chancellor of the Exchequer would be eased if the nationalised industries could be induced to go to the market. It would probably be visionary to imagine that they could sell to the market equity capital, but it would at least be possible for them to issue debenture or loan stock. This must ease the Chancellor's task and also submit the nationalised industries to a form of commercial discipline.

I pass to the second part of the statement, in particular to taxation. The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), in his speech on Tuesday last week and in his questions to my right hon. Friend the Chancellor of the Exchequer, seemed to be trying to assimilate taxation to the charges imposed on us for welfare services. This is to reduce the debate to a semantic exercise. I am directing myself only to direct taxation as it is generally understood, certainly by the electors in my constituency.

In any discussion of taxation one is asked to consider how the fiscal system advances social justice. I hope that on both sides of the House we are ultimately concerned with social justice, although possibly we may define our objectives in slightly different terms.

I ask: what kind of social justice is there in the present fiscal system? I will give one example in the hope that the Chancellor of the Exchequer will be able to take it up more fully in his next Budget. The other day I was approached in my constituency by an unmarried lady—[Laughter.]—purely on a financial basis, I assure the House—whose total gross income for tax purposes was not more than £565 in the last year. She is paying in 1969–1970 £50 by way of income tax. I was so staggered that I referred the matter to her inspector and he confirmed it.

The reason is twofold. First of all, she was ill-judged enough unfortunately to buy a small annuity, which counts as unearned income. This points the moral that the distinction between earned and unearned income is quite meaningless. Secondly, she was a victim of the alteration in reduced rate reliefs introduced in the 1969 Finance Bill. Therefore, she moved quickly on to the standard rate. I am happy to say that she will be relieved of at least part of her burden by the cuts it direct taxation proposed by the Chancellor. However, I still find it staggering that she should be paying anything like as much as £50 per year. I hope very much that my right hon. Friend will be able to take further account of her case and of similar cases.

The second test which must be applied to any fiscal system is, assuming it advances social justice, at what cost to the community is this achieved? Here I must declare a personal interest, as I gather is the custom in this House. I practise at the Revenue Bar, although the views which I advance politically are not likely to advance my professional practice because if the present Administration cuts direct taxation on the scale which I hope it will, then the demand for my services will then probably be considerably reduced.

Hon. Members opposite have advanced the sophistical arguments that there is no evidence that high rates of taxation affect the economy and have any disincentive effect. I can speak from direct experience of contact with clients who have come to consult me. The first consequence of present high rates is that it is practically impossible to take any major business decision without considering the fiscal consequences. Time and again directors have come to consult me on what basically is a commercial operation. They are bound to consider what fiscal effects this will have and whether any profit that might be made will be entirely absorbed by direct taxation. Their time in consulting me is entirely unproductive; it adds nothing to the gross national product of this country.

Beyond that there is the whole area of tax evasion shading off into tax avoidance. I know that some hon. Members would consider that this activity is entirely monopolised by the richer sections of the community. This is certainly not my experience. Many of us are dependent on the good offices of a charlady to keep our houses clean. Some of us have had our houses decorated by people in their spare time. I am certain that a great percentage of these people do not declare those earnings and, frankly, with present rates of taxation, I do not blame them.

There are those people who pass up opportunities for working overtime to undertake jobs in which they will not become subject to Schedule E and will not be under the direct control of their inspector. Then there are those people who can afford advice and, therefore, who fall into the area of avoidance. Two consequences strike me as particularly harmful. First, vast sums of money have passed to places like the Bahamas, Bermuda—and even the Cayman Islands, which nobody had even heard of five years ago. The reason is that it is cheaper to control capital there and that the impact of taxation is almost nonexistent. It must be of advantage to this country to coax that capital back. We shall do that only if we reduce the impact of direct taxation. I refer not to small cuts but to the bigger cuts which I am sure my right hon. Friend envisages in the long term. I welcome his immediate cuts, which I am sure are an earnest of what he intends to do over the life of this Administration.

Leaving aside the question of capital, there are a number of people who have gone abroad to live in those countries, and perhaps to the Channel Islands, too. They are not, contrary to popular mythology, entirely rentiers. They are often people who have built up successful businesses and who, when the shadow of estate duty starts to fall across their path, ask themselves, "Is it worth spending the last 15 years of my life in this country and leave my executors to pay over 80 per cent. on the estate I have so carefully built up to the Exchequer?" Who can blame them if they decide to leave Britain? They have something still to contribute to this country. I hope that we shall be able to coax them back so that they can make a further contribution to the economy of this country.

I am conscious that I have taken up a good deal of the time of the House with my personal experience and that this may sound a little egotistical. However, I conclude by saying that I welcome the cuts that the Chancellor has been able to forecast and I hope that they are merely a pledge of more to come. I hope that it will not sound churlish or presumptuous of me if I ask my right hon. Friend to set as his objective the turning of this country into a tax haven. I am certain that we should be surprised if he did by the reserves of initiative, thrift and resources which he would uncover and which then would be available to set this country on its feet.

7.8 p.m.

Mr. Frank Allaun (Salford, East)

We have had this afternoon three maiden speeches, two from the Conservative benches and one from the Opposition side of the House. I warmly congratulate all three. Quite clearly they will make great contributions to the discussions on this and other subjects in the House of Commons. I hope that they will excuse me for not following them, because I wish to deal with another cut which has not been mentioned so far in this debate, although it is mentioned in the Amendment.

This week the Secretary of State for the Environment announced what he no doubt would want to be regarded as a great new era for housing. But the reality of the situation was revealed last week by the Chancellor of the Exchequer when he said that there would be a cut of £100 million to £200 million a year in housing subsidies by 1975–76. I intend to show that four results will ensue. First, that this will be the worst blow to housing for 13 years since the Conservative Rent Act was introduced. Second, that the housing programme will drop from its present inadequate level to under 200,000 new dwellings a year. Third, that millions of families both in council houses and private landlords' houses will suffer savage rent increases. Fourth, that subsidies for private landlords' tenants will become subsidies for private landlords. In other words, the "Cathys" of Britain will have even less chance of coming home.

There are some on the benches opposite and some academics and some newspaper leader writers who believe that the answer to the housing problem can be summed up in two words: higher rents. I do not share that view. Strange as it may seem, the answer to the housing problem is to build more houses. I was delighted when, in 1968, an all-time record of 413,000 houses was reached. Since then it has fallen seriously to 367,000 last year and, if I am not mistaken, to 330,000 this year. I expressed my disappointment with this falling-off under the Labour Government and I express it now.

This decline is now to be seriously and deliberately accelerated. I cannot claim to be a great Biblical scholar, but I remember that the Book of Kings says, … my father bath chastised you with whips, but I will chastise you with scorpions. That is what we are going to see happening to the ill-housed. This run down of housing will not be achieved by Government edict. It will be achieved in council housing by cutting the subsidies and in private housing by continuing the credit squeeze on private building firms.

The promises of the Secretary of State are false because, if the Government kept all the promises he has made about subsidising poorer tenants in both council houses and in privately owned houses, increasing slum clearance subsidies and making other grants, the cost, as more houses were built each year, would be about £500 million by 1975–76, which no one in this House believes could happen in his wildest dreams. The Secretary of State for the Environment himself said that the council house subsidies totalled £190 million this year, and I gather, since my own figure is £164 million, that his total includes the Scottish subsidies. He also said that there would be a reduction by 1975–76 of about £150 million a year. This means a reduction to £40 million a year, plus, it is fair to say, the subsidy for new houses as and if new houses are built.

The decline in the private sector will go on unless the Chancellor of the Exchequer, via the Bank of England, permits the banks to put loans to the small and medium house building firms into their priority lending list. I asked the Chancellor a Question urging this course last July and was told that the matter was under discussion. That was four months ago. As we have still had no announcement, we must presume that the credit squeeze goes on, and goes on in the housing sector, and this despite the huge number of unemployed building trade workers. More house building firms, unable to get loans even at 9 or 10 per cent., will go into liquidation and so there will be fewer houses for sale.

In the public sector, the causes of the decline are different. I have here a list of the number of starts up to date for the last four years. I have extrapolated this year's figures for Great Britain and seasonally adjusted them to the end of December next. These figures relate to council house starts. In 1967, there were 213,000 council house starts; in 1968—note the decline—there were 194,000; in 1969 there were 176,000 and this year there were 153,000. This serious fall will now be tragically accelerated, and mainly because of ideological reasons.

Since May, 1967, nine out of 10 town halls in Britain have been controlled by Conserative councillors. Most of them, with some honourable exceptions, have no great enthusiasm for council houses. I know that in some areas Labour councils have cut back too, and I deplore it, but these are mainly in mining areas where the population has fallen. The main reason for the decline elsewhere is a mean and snobbish attitude towards council tenants and their homes and I want to quote the Secretary of State, speaking at a conference in Manchester, my home town, a year ago, when he said: I hope that Conservative councils will take great care to resist the temptation to go on building council houses for all sorts of seemingly good purposes. When I tackled him about that in the House at Question Time, he denied it, but I must tell the House that I have checked very carefully and those were his exact words. I see the hon. Member for Oswestry (Mr. Biffen) nodding his head. I am quoting those words verbatim.

Mr. John Biffen (Oswestry)

I should make it clear that my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) was giving me a preview of some of his own views of the Governor of the Bank of England. I would not wish to convey to the hon. Member for Salford, East or to the House any thought that I was endorsing what the hon. Gentleman was saying.

Mr. Allaun

I hope that subsequent interruptions will be on a slightly higher level than that.

I also hope that Ministers and others, inside this House or outside, will not accept the stories with which we are so often regaled of three Jaguars parked outside every council house. To disprove this I want to quote the figures from the report of the Prices and Incomes Board on 20 typical local authorities in October 1968. This report showed that only 1.3 per cent. of husbands' and wives' combined incomes were over £40 a week and that 50 per cent. of them were less than £20 a week. What is more, this excluded tenants on pensions or social security. This means that the figure for combined incomes of under £20 a week was far higher than 50 per cent. I urge owner-occupiers not to allow the Government to drive a wedge between them and council house tenants, particularly since both of them are suffering from the same burden, which is the extremely high rates of interest.

Whether the Minister admits it or not, the great majority of working-class families—and we know it in our hearts to be true—are dependent on council housing since they cannot afford to buy their own houses even with mortgages. There are indications from last May's municipal election results and from local elections since then that Labour will win back next May half of the seats it has lost and that in the following May it will regain control of the remaining councils. Unfortunately, if the present proposals go through, Labour-controlled councils, however much they may wish it, will be prevented from restoring the programmes because the subsidy will have been removed. Each additional house they build will add to the deficit on their housing account. If they do proceed it will mean raising rents astronomically—so high in fact that only the rich will be able to afford them, and rich people do not like council houses.

I turn finally to the proposal to provide subsidies for tenants of private landlords. I repeat that these subsidies will go eventually not to the tenant but to the landlords, and I will explain why. The Government are going to take all rents out of their present control and put them instead into the so-called fair rent fixing machinery.

According to Ministry of Housing and Local Government figures which I secured from the then Minister a year ago, these have resulted in rents which are 2.6 times the previous controlled rents, a drastic increase. Even if they receive subsidy—and hundreds of thousands of families will not—the subsidy will only go to pay, or part pay, these big increases in rents.

Nor am I convinced that the so called fair rents are fair. In some areas, notably London, Birmingham and Southampton, they are not.

Mr. Timothy Raison (Aylesbury)

Would the hon. Gentleman at least accept that even if part of the subsidy finds its way into the pockets of the landlords, it will have the effect of adding to the housing stock, partly by encouraging people to build to let and partly by encouraging those with older properties to let them when at present it is not worth their while to do so?

Mr. Allaun

Unfortunately there is no likelihood of new houses being built to let, certainly not at the present time. We have a rapidly shrinking stock of property to let because housing is preferred either for owner-occupation or council tenancy. This, in my view, is the right solution because housing, like education, is not a suitable sphere for private profit making.

I was saying that often in areas like London, Birmingham and Southampton they are not fair rents. For a damp, terraced house in Tottenham, without a bath in operation, a rent of £4 12s. 6d. a week plus rates has been fixed by the rent assessment committee. A similar house in Manchester has had its rent fixed by the committee at £1 10s. plus rates. Clearly, the high rent is due to the intense housing shortage in some areas which these assessment committees are supposed to ignore and are enjoined by the Act to ignore but are not doing so.

The truth is that housing desperately needs more, not less, money. We are devoting only 3.7 per cent. of our gross national product to housing, compared with 5.5 per cent. on average in the remainder of Western Europe. We now have the lowest percentage of the G.N.P. going on housing, with the exception of Portugal.

I hope there will be a great nationwide movement to resist these cuts. The local Labour Parties, trade unions, tenants' associations, Shelter supporters, and all people who feel sympathy for the victims of the housing tragedy—should combine to prevent these blows.

7.23 p.m.

Mr. Peter Hordern (Horsham)

It is my privilege to congratulate the hon. Member for Gateshead, West (Mr. Horam) and my hon. and learned Friend the Member for Dover (Mr. Peter Rees) on their maiden speeches. Both spoke happily about their predecessors and constituencies, and I am sure that hon. Members on both sides of the House look forward to their further contributions.

The hon. Member for Gateshead, West rather reminded me of the adage that when two economists are gathered together one gets 50 different economic opinions. I am certain that that will be the case in future economic debates. His contribution, like that of my hon. and learned Friend's, followed a strong speech, if such I may describe it, from the right hon. Member for Stechford (Mr. Roy Jenkins).

The right hon. Gentleman said that a new philosophy of social division had been proclaimed and that the measures were calculatedly redistributive in the wrong direction. That sounded strange coming from a right hon. Gentleman who was Chancellor of the Exchequer when, in June, 1968, a half-crown per head prescription charge was imposed. It came strangely from the right hon. Gentleman when he was responsible for putting the standard charge for school meals up by 6d. to 1s. 6d. in April of that year. It was strange to hear the right hon. Gentleman talk today that Conservatives thought that high taxation was destructive of our national moral fibre—he said that that was what the Conservatives thought—when he himself said 18 months ago that he felt like mitigating slightly the rates of tax on high earned income.

I thought the right hon. Gentleman was carrying his accusations too far when he said that the measures were calculated to push up the cost of living still further. What was the supposed effect of the charges which he imposed and of the additional £3,000 million of taxation added by Labour during their six years in office?

On what did the right hon. Gentleman himself rely to control inflation? He certainly did not rely on a very strict monetary policy. Instead, he relied on an incomes policy. At that time he said that there had been far too many unnecessary and damaging disputes "of which we have seen all too much recently, which are totally incompatible with our economic objectives". But we are told by another Mr. Jenkins, this one from The Guardian, that the right hon. Gentleman had stuck to this belief for some time and had even supported the then Prime Minister in the Cabinet—until a crisis arose, when he slid inelegantly off the fence with a squelch of surrender.

The announcement of my right hon. Friend represents a major policy statement setting out a new strategy. It is an able attempt to break out of the slough which has existed in the economy for the last ten years. It recognises that the rate of growth has been too low and that industrial invesment has been stagnant. It recognises that taxation on both companies and individuals is far too high. In particular, it recognises that with public expenditure running far ahead of output, the size of growth of the private sector was diminishing while the public sector was growing. And as the public sector grew, it required yet higher taxation to finance its progress, so that the private sector diminished accordingly.

My right hon. Friend's statement that the growth of public expenditure is to be confined to a rate of 2.8 per cent. rather than 3.4 per cent. is particularly welcome since that, at least, should be covered by the growth in output. So also to be welcomed are the means by which this is to be accomplished. Investment in manufacturing industry has risen by only 8 per cent. in the last four years, which is stagnation in every sense. The total value of investment during the last few years has been about two and a half times the value of the cash grant and I do not believe that any more wasteful system could have been established than the system of industrial cash grants.

Also welcome in these measures is the announcement of the abolition of the Industrial Reorganisation Corporation. I do not say this particularly because of the savings that will he made in future years, but simply because, as a result of the existence of the I.R.C.—coupled with the present high rate of taxation—there was an instrument devised by the Labour Government to allow companies, which were heavily hit by taxation, to go to a Government agency and be bailed by the taxpayer on an entirely subjective basis.

I believe that the depreciation allowances are far preferable to the system of investment cash grants, because they mean that the profit of the company has to be earned, and demonstrably has to be earned, before there is any question of getting relief for an investment grant. In that sense the liquidity of companies has been severely strained, because the growth of company profits has risen by only 5 per cent. during the last five years, and the announced cut in corporation tax will be very helpful to companies.

I think that there has been a good deal of synthetic indignation about these charges, and the question which hon. Gentlemen opposite have to answer is how otherwise are we to increase the expenditure on primary schools, on mental health and on hospitals, which has already been announced as part of the measures to be taken? We have had no constructive proposals from the other side of the House in this regard.

This is a long-term strategy, and not a budget, but the question is what sort of background is there to its introduction? It is just as much an economic judgment to do nothing as to do something. I think the evidence is that this is the most inflationary of any period since 1950. The Chancellor announced today that earnings were rising by about 12 per cent. to 15 per cent. In the consumer sector it is my knowledge that some of the largest store groups are paying in- creased wages of up to 331 per cent. The result of these high increases in earnings and wages can be clearly seen in the figures for consumption.

What one must conclude is that those figures bear no relation whatsoever to productivity. Hon. Members on both sides of the House know that this situation cannot go on like this, and it is therefore right to consider how it has arisen and what can be done to stop it. The Government have rightly, in my view, forsworn a statutory incomes policy. Such a policy was proved by the previous Government to be totally ineffective, and I do not think that there is any evidence of an incomes policy working in any country where it has been introduced. If that is the case, all the greater emphasis must be laid upon the importance of a strict monetary policy.

The old monetary policy introduced by the right hon. Member for Stechford in his Budget, that is to say, an increase in the money supply of about 5 per cent., would have done very well. It was appropriate, but we have already seen this kind of increase in the first three months after the Budget. In his Budget speech on the 14th April the right hon. Gentleman said: So far as the gilt-edged market is concerned, too, official strategy will be based on the general policy requirement."—[OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1235.] The general policy requirement was itself concerned with the restriction of the money supply and the restriction of credit.

But what happened? How can it be explained that within the three months from April to June the money supply increased by £700 million? It was the largest increase in any quarter since 1963 and, I suspect, the largest increase ever in any quarter. Those figures included a net purchase by the Government of £280 million of gilt-edged stock alone. What one has to ask the right hon. Gentleman—and I am sorry that he is not in the Chamber at the moment—is when he knew of this increase? Why was he not informed at any time between March and June, at the time of the election, of the increase in the money supply which had been caused directly by the operations of the Bank of England, for which he was responsible? Are we to believe that the right hon. Gentleman was never told during the whole of these three months about the increase in the money supply? It is very difficult to believe that that was the case. Suppose, however, that it was. On whose responsibility was the right hon. Gentleman's general instruction given during the Budget ignored? I believe that the House is entitled to know the answers to these questions.

The Governor of the Bank of England refuses to accept responsibility for the increase in the money supply. During his speech at the Mansion House recently he said: I do not accept, either, that the monetary authorities can exercise a precise control over the rate of increases in the supply of money from month to month or that in regulating the course of the economy overwhelming priority should be given to influence movements in this particular magnitude". The Governor of the Bank of England refuses to accept responsibility for the operations of the Government Broker in the gilt-edged market.

I think that that is a very dangerous situation. The Governor of the Bank of England knows very well that a statutory incomes policy is not acceptable to this Government, yet it was he who in his speech at the Mansion House was advocating such a policy. He should know that an incomes policy has never worked in any country in which it has been tried.

What is perhaps more disturbing than anything else is the sight of the old Lady of Threadneedle Street bleating about inflation while at the same time flooding the market place with money she has printed herself at an unprecedented rate.

I have never been on the side of those hon. Gentlemen opposite who have taken the Governor of the Bank of England to task on previous occasions, but it really is a most alarming sight to see the keeper of the currency apparently so ignorant of the damage that he personally is inflicting on what he is supposed to protect. The Bank of England is supposed to support the Government in controlling inflation, and yet it is feeding it as fast as it can. This situation simply cannot continue. Battles, it has been said, are too important to leave to generals. Inflation is much too important to leave to such a Governor.

It is well known that there is a lag of at least six months in the effect of a movement of money supply. It would have been bad enough if the increase in the money supply had been halted in June, but there is, unfortunately, very good reason to believe that the third quarter's figures were just as inflationary. It appears that even last week the Government Broker pushed about £100 million more into the system than the clearing banks were asked to deposit with the Bank of England. One does not need to be an addict of the Chicago school to know that one cannot forswear both an incomes policy and a monetary policy. There is only one thing for it. The Governor must be given firm instructions that the money supply must not rise at all for another year.

What concerns me in addition is the fact that this House is badly served by the official statistics.

Mr. Barnett

I am fascinated by what the hon. Gentleman is saying. He should have sat when our old friend Jimmy Dickens used to sit and give us his views on the Governor of the Bank of England. Should not the hon. Gentleman's strictures be applied to the Chancellor of the Exchequer, who will not even tell us what instructions he has given the Governor of the Bank of England about the level of money supply, and what it should be?

Mr. Hordern

I hope that my right hon. Friend is engaged in conversation with the Governor, and far be it for me to get involved in this discussion in any way. I very much hope that he is so engaged, and that perhaps he will be courteous enough to take note of what I am saying.

The House is very badly served by these statistics on the money supply. We get them greatly in arrears, and only quarterly at that. At the very least we should get them monthly, and this should be arranged.

I fear that my right hon. Friend has been put into the position of a man running up an escalator which is going down fast. I do not think that his measures, courageous and proper as they are, will be able to function as they should unless that escalator is brought to a halt, and I hope to goodness that it will be brought to a halt in good time.

7.40 p.m.

Mr. Thomas Torney (Bradford, South)

I should first like to thank you, Mr. Speaker, for allowing me to make my maiden speech on such an important subject. I was just about to say that I was pleased that the Chancellor of the Exchequer was here, but I see that he has left the Chamber. I was hoping that he would have remained behind, because I would very much have liked him to hear at first hand of the effect of his cuts in the welfare services upon ordinary working folk, such as those who live in my constituency.

I pay a tribute to my predecessor who sat for Bradford, South, George Craddock. I am sure that many hon. Members on both sides of the House knew him well and are aware of the excellent service that he gave to this House as well as to his constituents.

I have listened with a great deal of attention to the speeches that have been made today, and I was struck by a couple of speeches which were made by hon. Members opposite who have now left the Chamber. The inference to be drawn from those speeches seems to be that the baling out of firms and industries was necessary because of high taxation or because of the activities of a very large trade union. I should like to make it clear that there are many reasons why firms and industries have had to be baled out over the years. Frequently it has been because of bad and inefficient management and the fact that not enough of the profits have been ploughed back into the industries to buy more machinery and bring them up to date. That is by the way, but I felt that it ought to be said.

The people of Bradford are hard working. For many years they have given good and loyal service to the woollen textile industry, which is the main industry of Bradford and the surrounding area of the West Riding. My constituents have contributed towards the fine records of exports in the woollen textile industry. These are vital exports, and this has been done despite the intense competition from abroad and despite the fact that Japan and Italy, by devious means, manage to subsidise their exports of woollen textiles.

The labour relations in the woollen textile industry in Bradford are excellent. Disputes and strikes are unknown—and they are well organised in their trade unions. Yet, despite the loyalty of these people, it is a low-paid industry. In fact, Bradford is entirely a low-wage area. It is because my constituents are mainly in the low income brackets that the cuts announced by the Chancellor will fall so heavily upon them. It is, indeed, ironic that these people, who have been so loyal and who have worked so hard, should have to suffer so much. The people of Bradford today are very worried because of the contractions in woollen textiles and because of the mergers in engineering, bringing in their wake redundancy with consequent unemployment and a complete lack of alternative work. New industry is urgently required if we are to save this area from becoming an area of depression, so common in the past under the Tory rule of the 1930s and before.

The policy outlined by the Chancellor is, to put it mildly, an aggravation of our problem, and little hope can be derived from Government spokesmen who have repeatedly declared their intention to help only where profit is assured. I appreciate that right hon. and hon. Members opposite find it impossible to understand the human suffering of the housewife trying to succour her family when he man is unemployed. Hon. Members opposite have never experienced it. They cannot understand the loss of human dignity of a man who must go to the labour exchange for his money each week, a man who has been denied the right to work. Hon. Members opposite who have never struggled in this way cannot understand the effect on such people of the abolition of free school milk and the vast increase in prices of school meals.

Tory philosophy changes but little—perhaps only in its method of presentation. It tends to kid a bit more. Still it transfers the cost from those with ability to pay to those who simply cannot afford to pay. For a married man with two children earning £20 a week—I wrote this before the "argie-bargie" that we had earlier today—6d. off income tax gives a gain of about 1s. a week. I see no reason to change that belief as a result of the Chancellor's statement. The Chancellor said that there would be some kind of aid to persons with earnings of less than £1,000 a year. A man with two children earning £20 a week receives slightly over £1,000 a year. This income tax reduction means nothing to him. It will be more than absorbed by the extra cost of school meals for one of his children. Someone must go short in a workingclass family if children are to have proper sustenance; alternatively, the children must do without proper nourishment and make do perhaps with sandwiches or chips, or something like that.

Hon. Members opposite cannot understand this. This is the price that low wage groups, like so many thousands in my constituency, will have to pay for the Tory policies of taking from the poorest to give to the richest. Milk is a vital food—so vital to the nation's children that the abolition of free school milk is criminal, particularly for people in areas like Bradford. This will not be made up by the additional private purchase of milk. The children just will not get the milk. Masses of my constituents cannot afford to buy it. To get one's tax concessions one must rob the children of their milk. This is no laughing matter—certainly not to one like myself who has in his constituency so many people in the condition that I have described.

The General Election campaign is still very fresh in my mind, if it is not fresh in the minds of hon. Members opposite. I still remember the statements which were made by hon. Members opposite, in particular the statement by the Prime Minister that prices must be reduced, not "some time, never", but immediately. These words are fresh in my mind. I wish that they were as fresh in the mind of the electorate.

If we on this side had made such statements to the electorate, telling them that we should reduce prices immediately, and prices had gone on rising for us as they have for the Government since 18th June, the Press would not have allowed the electorate to forget it. The newspapers would not have played it down for us as they have played it down for the party opposite. The Press is Tory-owned and Tory-controlled, but no amount of silent Press and Government gimmicks will cover up the fact that more and more is being paid by the housewife. The immediate cuts are not in prices but in social welfare and social services.

The housewives of Britain are in for an even tougher time when the new system of agricultural support outlined by the Chancellor comes into effect, because more and more will have to be paid for essential foods. So much for the election stunt of immediate lower prices.

All this hardship and the struggle for existence will hit hardest the low-paid of Bradford and of Britain. For many years, I have battled for the low-paid, for until entering this place I was an officer of a trade union catering for some of the lowest-paid workers in this country. I am honoured to continue to do battle now for low-paid people everywhere, and for those in my constituency in particular. I hope that the day is not far distant when, despite the power of the Tory-inspired monopolistic mass media, the electors will see through the false promises of the party opposite, sweep this Government of monopoly big business from power, and return once again a Government pledged to reverse the policies which they have pursued.

7.52 p.m.

Mrs. Sally Oppenheim (Gloucester)

In making my maiden speech, I must first congratulate the hon. Gentleman the Member for Bradford, South (Mr. Torney) on a most articulate and sincere speech. I did not agree with it, but I hold him in none the less esteem for that.

Having experienced in the past few months the trauma of a General Election campaign, the alarms of a gas attack in this Chamber, and the horror of a fire at sea, I can only assure the House that those hazards were but pale precursors of the terror and trepidation currently being experienced by this maiden speaker.

I am anxious to observe the traditions normally followed in a maiden speech. The first, that of non-controversiality, I shall do my best to observe, but if by any chance I should happen to stray, purely from force of habit, into the realms of controversy, I earnestly crave the indulgence of hon. Members opposite.

The second convention, that of paying tribute to my predecessor, I comply with most willingly. Lôrd Diamond was for many years a most illustrious and much appreciated Member of the House. He is now a Member of the other House, where, I am sure, he will acquit himself with equal distinction and will be just as much appreciated.

It is, however, the third convention, that of referring to my constituency, which gives me the greatest pleasure of all. Gloucester is a historic city, boasting one of the most superb cathedrals in Britain, and set amid what is surely the most beautiful gently undulating countryside in England. The people of Gloucester are themselves gentle, kind, warm and tolerant. They are people whom I am extremely honoured to represent and proud to serve, and of whom I shall always strive to be worthy.

In a city so rich in historical tradition and citizenry, it is difficult to single out events or persons for special mention. Indeed, if the Thames had not lost its way, this Parliament might have been sitting in Gloucester today, for it was in Gloucester in the year 896 that the assembly first took place from which we can trace the earliest beginnings of our Parliament. It was in Gloucester that William began the Domesday Book, and in Gloucester that another historic precedent occurred, perhaps more appropriate for this debate. In the year 1207, in what must surely be the earliest recorded attempt to control inflation and help the housewife, a Royal decree ordained that lampreys, a local delicacy, must not be sold there for more than 2s. each.

I single out for special mention, however, an 18th century dean of Gloucester Cathedral, Josiah Tucker, who, as well as being a divine and a great humanitarian, was a prominent economist and political writer. Some of his pronouncements are almost uncanny in their aptness today, for in 1766, in a tract on political and commercial matters, he spoke of the need to excite the activity and ingenuity of England's people, by giving them free scope, without exclusion, confinement or monopoly". So, perhaps, it is only fair to say that in Josiah Tucker of Gloucester we had a pretty accurate prophet of modern Conservative economic philosophy.

Gloucester, as well as being a great city of yesterday, is very much a city of today, with a multifarious industry ranging from light and heavy engineering to the largest ice cream factory in the world. It boasts a skilled and diverse labour force, and its position and surrounding infrastructure make it an ideal city for further industrial expansion.

Unhappily, unemployment has mounted in Gloucester over the past few years, as a result of restriction and stagnation. It is fervently to be hoped that the easing of company liquidity and other Government measures in the near future will allow Gloucester to return to its former prosperity.

I am especially glad to have caught the eye of the Chair today because economic affairs are fundamental to the well being of our people and my overriding concern and, indeed, the concern of every right hon. and lion. Member, will always be the effect of any economic situation on the lives and living standards of the people we represent. While it is true that we on this side of the House do not believe in instant government, there can be no doubt now that the pot is really "perking" and the brew promises to be strong and flavourful.

Although there have been some divisions of opinion among political journalists, rather like those among their calleagues the fashion writers, as to whether my right hon. Friend's statement last week was a mini or a maxi-budget, I am sure that it was much more than either of those names might imply. It was, in fact, the first step in the implementation of measures which keep faith with a deeply-held Conservative conviction that the Welfare State as it exists today is inadequate where it is most needed, wasteful in its provision of indiscriminate subsidies, and harmful to the country's economy and to the well being of those people who are not receiving as much help as they should. I meet such people all the time in my constituency. They are the forgotten people of a Welfare State which attempts to be too all-embracing.

In welcoming my right hon. Friend's decision to allocate extra resources for the elderly and the mentally handicapped and for the hospital services, I urge him to consider the further improvements of State assistance to the elderly as soon as it is possible for him to do so.

On the subject of benefits, I am delighted to see that the hon. Member for Hitchin (Mrs. Shirley Williams) is still with us, because earlier in the debate she thrust a piece of paper upon the Chancellor of the Exchequer which purported to challenge his figures about family entitlement. I have administered free school meals. I am sure that the hon. Lady knows that it is not only the income of the family, nor the number of children, but many other factors which decide the entitlement to free school meals and many other areas of the social services.

Clearly a reappraisal of the relationship of the tax system structure to the Social Security system and of the whole structure of the finance of social security, together with a reassessment of the priorities in Government spending, is essential to curbing inflation and curing our economic maladies. I firmly believe that my right hon. Friend's statement last week, together with Government proposals in the sphere of industrial relations, will go down in history as the most significant first steps to restore long-term economic health and growth and with it better conditions for everyone.

A recurring theme in the debate, especially from hon. Members opposite, has been that of inflation. Of course inflation is the villain of the piece in causing most of our social and economic problems today. Inflation was not invented on 19th June. We have been suffering from mounting inflation over the past five years, and equally it will not be cured overnight.

Of course it matters economically if our goods are priced out of world markets. It matters that inflation greatly increases the cost on Government spending and the extra need for Government spending. But it matters even more in human terms to those already suffering hardship, to those living on pensions, on savings, and on fixed incomes. Not least, it matters to the housewife. So naturally we are all concerned with our obligation to these people to bring inflation under control. I believe that my right hon. Friend's proposals will in the long term enable us to do just that.

Inflation is a problem faced by many other countries. But when we look at the formulae of those countries which have been more successful than ourselves in overcoming this problem, we must inevitably ask: what is the magic ingredient in their recipe which is missing from ours? There are three such ingredients and they are elementary: a more equitable productivity to wage ratio, lower personal taxation, and a lower percentage of total social security finance from the State than we have here.

A move towards adding the first of these ingredients to our economic recipe will be made when the Government introduce proposals for the reform of industrial relations.

The second and third elements in the formulae of those countries which have achieved more expansion, less inflation and a faster rise in their living standards, are that in several countries less is paid in personal taxation than here, though more may be paid by both individuals and companies in contributions to social security, health and pensions, often through privately-run schemes. That means that such countries do not have to rely to the same extent as we do here on taxation to finance their social services.

Indeed, if I had to single out one basic criticism of Socialist economic philosophy, it would surely be their obsession with financing out of taxation the maximum rather than the minimum, which has always meant that succeeding Socialist Governments have had to raise more rather than less tax revenue, and, of course, taxation has always caused more inflation than it has cured, quite apart from the damaging effect that it has had on what Josiah Tucker would call "exciting the activity and ingenuity of our people".

Although high interest rates, increased indirect taxation and company taxation have all played their part in contributing to the inflation from which we are suffering today, the rate of personal taxation at almost every wage level must also be a significant contributing factor. I do not propose to argue the disincentive effect of high personal taxation although it would be quite easy to do so. The point that I am anxious to make is that it is inflationary as much in its effect upon the average wage as on the salary of the chairman of a nationalised industry. It is surely elementary that the proportion of any income taken in direct taxation reduces the value of that income and its saving potential accordingly. In Britain that proportion is higher than most other countries. Therefore, the Chancellor's proud announcement of the first cuts in income tax to be made in 11 years was a very welcome step which I hope will be followed by further sweeping cuts in personal taxation over a reasonable period.

With respect to the Treasury, it has become rather old-fashioned to look upon tax cuts as inflationary. At the moment we are suffering from a cost, not a demand, inflation—much the most uncomfortable and socially unacceptable version of the disease. So all the old economic clichés have become irrelevant in the context of the problem. But whatever forecasts we care to make about economic causes or cures, one forecast can be made with absolute certainty. If a Labour Government had been returned to power at the last election taxes would have continued to rise and our economic situation would have become progressively worse. Under this Government taxes have already been cut and our economic situation will become progressively better, so it is only the rate of progress, not its direction, with which we are concerned in this debate.

To sum up, if a more equitable productivity to wage ratio is one key to a healthier economy and to controlling inflation, the Government's proposal to rationalise industrial relations is a vital and urgent step. But recent tax cuts, followed, we hope, by the abolition of S.E.T., and a reassessment of priorities in Government expenditure also by further substantial cuts in the rate of income tax, as soon as this is possible, are also essential. These three elements are interdependent and fundamental factors in moderating inflation and creating the prosperity that we all want. And if Mr. Deputy Speaker will forgive a domestic simile from one of the comparatively small number of housewives and mothers in this House, these are the missing ingredients that will allow us to bake a bigger cake from which everyone can have a larger slice.

8.8 p.m.

Mr. Joel Barnett (Heywood and Royton)

I am delighted to have the opportunity of congratulating the hon. Member for Gloucester (Mrs. Sally Oppenheim) on an excellently delivered maiden speech, which certainly showed no trace of nervousness. The hon. Lady will not be surprised that I disagreed with almost every word in her speech. It is rather interesting that her predecessor's speeches had much the same effect on me. I disagreed with many of his speeches in the last Parliament. Although I may disagree with everything that the hon. Lady may say during this Parliament, I think that all hon. Members on this side might agree that she does at least make the benches opposite rather more attractive than when they are occupied by hon. Gentlemen.

The hon. Lady will not be surprised that I found the maiden speech of my hon. Friend the Member for Bradford, South (Mr. Torney) more to my liking. I thought that he made an absolutely first-class speech which showed an enormous degree of knowledge of the workers in his constituency and a feeling for the people hurt by this particular package. My hon. Friend made an excellent maiden speech. I hope that we shall hear more speeches from him and from the hon. Member for Gloucester although I am sure that we shall nevertheless disagree with almost everything she may say.

I found this particular package, and, indeed, most of the measures that we have had and have been promised in future, both unfair and irrelevant. The unfairness was amply demonstrated earlier by my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) when he totally demolished the Chancellor. It was not too difficult. If the Chancellor's speech this afternoon satisfied the hon. Member for Gloucester that he will do great things in future—she was not looking around at her colleagues on the benches opposite—I believe that she is easily satisfied. My right hon. Friend made the absolutely clear-cut and unanswerable case, on the score of fairness, that those up to a wage level of perhaps £3,000 a year would have a break-even point in respect of all the measures proposed. I believe that the break-even point will very likely be higher, because people on an income level of about £4,000 generally have reliefs in respect of mortgages, insurances and other items. That means that for someone on even as much as £4,000 a year the benefits derived from the package deal are probably nil.

I do not think that any fair-minded person would claim that to be just, but the important thing is the irrelevance, because if the economic situation is serious, and the late Iain Macleod in a debate on 7th July, while denying that he had ever said there was a crisis, said there was a serious economic problem, and if all these measures are relevant to that situation, why must we wait until 1st April before most of them are implemented? What we have here is not action, but promise of action next April.

But even if all these measures were to be effective as from today, I say that they are totally irrelevant to the serious problems to which the late Iain Macleod and many other people have referred because they do not in any way deal with the serious problem of the very low level of growth we have had over many years—not only in the last six years, although they were particularly bad during that period. They do nothing to the good for the fall in investment. They do nothing, except for the worst, for inflation.

First, let me deal with the investment situation. It is quite true that during the period when we have had cash investment grants the level of investment has been poor, but it would be a very foolish person who tried to argue that that necessarily proved that an investment grant was a bad form of incentive. It may be so, but that does not prove it to be, because one must first look at the economic situation that existed at the time of the cash investment grant. During that period we were consistently running a deflationary policy, so to try to prove that because during that period we did not get the sort of investment growth we needed that form of incentive is bad is a very foolish argument.

The real question is: are the tax allowances likely to be any more effective? What have the Government done in this respect? Indirectly, in respect of company liquidity it cannot be denied that in the longer term this change will reduce funds in companies' hands. That is undisputed—the facts are in the White Paper. The Chancellor of the Exchequer accepts that over the longer period the tax allowance will reduce company liquidity.

Mr. J. Bruce-Gardyne (South Angus)

The hon. Gentleman says that the proposals will have the effect in the long term of reducing the funds in company hands. He will probably agree that while it may reduce liquidity, any reduction of funds will dsepend on whether or not countervailing reductions in corporate taxation takes place.

Mr. Barnett

If the hon. Gentleman is talking of reducing corporation tax to 20 or 30 per cent. or from some other hand-outs to companies, I would agree, but we can only consider it in the context of the measures we now have. The statements that have been made are so confusing that it may well be that next week or next month we shall have a further cut. But we can only work on assumptions based on the figures now given, and on those figures I do not think that the hon. Member for South Angus (Mr. Bruce-Gardyne) will seek to deny that liquidity in company hands will be reduced.

In the short term, up to 18 months, there is a small increase, £60 million in the first period, and that, coming as it does as a sort of hand-out they did not expect, companies may well use for investment to some small extent. Because they had made their reserves for dividends, and so on, they may be inclined to use that hand-out for investment—except for the fact that at the same time we have an increased money squeeze and, if the hon. Gentleman had his way, it would be an even harsher squeeze if he managed to dispose of the Governor of the Bank of England. In practice, therefore, side by side with the money squeeze, even in the short term, we have the liquidity effect on companies, so that investment, to say the least, is not likely to be good.

We then have the question of the tax allowance as against the grant as a direct incentive, and here we have the situation that the Government have removed a clear grant that companies understood. Companies knew that they would get 20 per cent. of cost in the first 15 months of buying, but now they are to get a tax allowance which it has always been known is not very clear except to those companies using the discounted cash flow system. Not many companies use that system as yet, though the number has grown recently. So although there may be a case for reducing cash grants, no case has been made out for it by the Government.

When, yesterday, I asked the straight question: "Has there been any research on this?" the answer was a little difficult to apprehend, but it is clear that there has been no real research into whether tax allowances are better than investment grants. The only work on this that one can find indicates that for most companies tax allowances are not at all clear. So, at a time when everyone accepts, and when every speech by the right hon. Gentleman in the last Parliament made the point quite rightly, that investment is far too low, the Government take the opportunity not only to reduce company liquidity but to remove a form of direct incentive and replace it with something else without any kind of research into whether it is the best method. That is dogmatism gone mad. It is absurd that at a time when we desperately need increased investment the Government proceed, without any research or thought, to take action in this direction.

But, as I say, the other real problems that face the nation have not only not been dealt with in this package, but in a number of cases have been dealt with in the reverse way. In the same speech to which I have referred, the late fain Macleod said that inflation was the most serious problem facing the nation. The Government's income policy, if one can call it that, is to ask employers to resist all wage claims and to point out to the workers the folly of putting in wage claims which are not matched by productivity, and so on. I believe that at some time over a long period we should try to work towards a voluntary incomes policy, but that the only hope for it must be by the educative process and by co-operation with both sides of industry. How on earth can we hope to get that kind of co-operation when, on the one hand, the Government clobber the workers, as this package does. Right at the outset of a Parliament, the Government are telling workers that this is the way in which they propose to carry on while at the same time the Government want them to accept the need for some kind of incomes restraint.

I was very sorry when in the last Government we tried to achieve a short-term economic effect by a statutory incomes policy, which failed, but which had the effect of delaying any chance of getting a voluntary incomes policy. But what the Government have now done is to kill any chance which they may ever have had of getting any kind of voluntary incomes policy.

But the real answer to all these problems lies not in the restraint of incomes, but in going positively for economic growth as the first priority. In such a situation inflation would be more bear- able and one could deal directly with the serious problem of unemployment. Having listened throughout the whole of the last Parliament to speech after speech from Conservative Members deploring the level of unemployment, and similar speeches were made by some of us, one is now listening to a deafening silence from the Government on how to deal with the level of unemployment. No action to deal with it appears in this package. The Government will have to forgive us if we regard that as proof, if it were ever needed, of blatant hypocrisy and insincerity.

I come to the so-called Tory philosophy—and I apologise for the use of the word. The philosophy on which the Chancellor based himself today was exposed by my right hon. Friend so clearly to have been based on bogus figures any way. The philosophy is that our major problems of recent years have been high public expenditure and high taxation, that high public expenditure has prevented growth. What evidence has the right hon. Gentleman for believing that? He quoted some figures and I will quote a few.

There is one country of which it may be said that the level of public expenditure as a percentage of gross national product is low against an enormous level of growth, proving that what is needed is a low level of public expenditure. I refer to Japan. In 1968, its level of public expenditure was 14.4 per cent. of the gross national product. During the ten years 1960–70, O.E.C.D. estimated its growth as likely to be 11.3 per cent. Our public expenditure is 33.3 per cent. against an expected growth of 2.7 per cent. It might be said from such figures that if we could reduce our public expenditure, we could attain the sort of level of economic growth which Japan has had.

But other international comparisons show that this argument does not hold any water. The level of public expenditure in Germany is 32.6 per cent., not very different from our own, and the growth rate is 4.7 per cent., whereas in France public expenditure is 34.5 per cent. of gross national product against a growth rate of 5.6 per cent.

I entirely accept that international statistics and comparisons can be very difficult and that there are all sorts of ways in which to measure gross national product and public expenditure. I give the figures only to indicate that high public expenditure cannot be proved to be the reason why we have not achieved the levels of growth seen in other countries in the last ten years. I hope that hon. Members opposite will not therefore argue when they want to cut public expenditure that the reason is in order to attain higher levels of economic growth such as may be found in other countries, because that simply will not wash. In any case, they are not really cutting public expenditure. What they are doing is transferring payment for it from one group to another, to a group less able to pay.

The other argument is that it is high taxation which is the real burden. It is said that high taxation has prevented growth. Again the Chancellor got himself somewhat confused in his attempt to confuse us. He began by saying that our total taxation as a percentage of gross national product was the highest, and then he went on to say that he was referring to direct taxation. He is wrong either way. He is wrong on total taxation, as my right hon. Fiend the Member for Stechford pointed out with statistics which I will not repeat. I do not dispute that we have a high level of taxation, but the figures from O.E.C.D. and other sources clearly show that there are countries with higher levels of total or direct taxation which are achieving levels of growth greater than we have been able to manage in the last ten or twenty years.

I entirely accept that at a certain level of direct taxation we are much more progressive. At an income of £5,000 a year, we are much more progressive, as we are at the very highest rate where on the margin it is 18s. 3d. in the pound. But these levels apply to only one person in 2,000. We know that people of that sort work very hard, but they would have to work very hard indeed for the increased amount being given in this package, to make up for the lack of growth which we have had in recent years.

As I say, I willingly concede that we have a high, progressive rate above £5,000 a year, but such research as there has been—and it has not been very conclusive, but one of the best pieces was that by Brown and Dawson in a P.E.P. pamphlet published in January, 1969, which picked up other research—has certainly not proven that even a substantial reduction in direct taxation would do much to increase the level of growth.

International statistics are frequently inconclusive and difficult to compare because of the different ways in which things are measured, but I hope I have shown that no one should make international comparisons and deduce that high public expenditure and high taxation are the major reasons why we have not had a better level of growth. The reason why we have not given ourselves a chance to get a higher level of growth is that we have had the wrong priorities. We have put a shackle on the working community by having as first priority a particular level of parity of the pound in particular years and particular days, as though somehow that was the biggest and most important problem facing us, when the first and foremost priority should have been economic growth.

In the circumstances, it is not surprising with shackles of that sort and with deflationary policies such as we have had year after year that we have not achieved better levels of economic growth.

This package does nothing to help that. With a policy as grotesquely unfair as this package which helps, according to the Inland Revenue report, perhaps 367,000 people who earn £3,000 a year and over and takes from the rest of the 55 million people in the country, the only justification for it could be if it could be clearly shown that the economic well-being of the nation was being so improved that eventually those 55 million people would be helped too. There has been nothing to show that this will happen and there is nothing in the package which helps in the vital areas of growth, investment and inflation. This Government are condemned by their words, before the election, during the election and now. The House should condemn them tomorrow night.

8.30 p.m.

Mr. J. Bruce-Gardyne (South Angus)

The hon. Member for Heywood and Royton (Mr. Barnett), whom I frequently have the privilege of following in these debates, is, if he will forgive me for saying so, a growthman'. I have been a 'growthman' before and hope to be again but for reasons which I shall develop I do not feel able to be a growth-man at present. I would first like to join with the hon. Member in expressing my congratulations to the hon. Member for Bradford, South (Mr. Torney) and my hon. Friend the Member for Gloucester (Mrs. Sally Oppenheim). I am sure that we would all agree with that part of the hon. Member's speech when he praised their speeches.

I find the Chancellor's package and the philosophy behind it wholly admirable. I would have liked to develop at some length my reasons for this, but I want to go on to some related aspects of policy. These so-called cuts in public expenditure are, in fact, reductions in the planned rate of growth of public expenditure. Unless the total resources of the nation grow substantially faster than they have in recent years the State's share of those resources will continue to grow. It is hard to believe that that is the position from some of the speeches we have heard.

The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), roundly cheered by his hon. Friends, carefully managed to avoid saying one word about the problem of wage inflation. The right hon. Member for Devon, North (Mr. Thorpe) said that he would say something about wage inflation but carefully avoided it too. I do not see how one can possibly say that it is not the rate of increases in wages, far outstripping any comparable increases in productivity, which lies at the root of the grave inflationary problem facing us. Yet we have only to think back to the staggering spectacle last week of my right hon. Friend the Secretary for Employment having the serried ranks opposite yelling at him for three quarters of an hour because he refused to intervene in the council dispute and secure a wage increase of more than 15 per cent. If anyone had talked about such an increase two or three years ago I suspect it would have been thought that they should have their heads examined. Today this is becoming almost a routine situation.

We have to take this seriously and consider the reasons for it. There is no doubt that to some extent it is the aftermath of the attempt of the previous Government to impose a statutory wage freeze, followed up by their decision to use their enormous intervention machinery to stoke up the fires of inflation for electioneering reasons in their concluding months of office. All that was left was the then Chancellor's plans for control of money supply and investment credit.

At one stage tonight I felt rather like an author who was planning to publish a book, who had had an excellent "puff" for it and then found that someone else had produced an even better book on the same subject in advance of his own. My hon. Friend the Member for Oswestry (Mr. Biffen) suggested that I would have something caustic to say about the Governor of the Bank of England. Then my hon. Friend the Member for Horsham (Mr. Hordern) said it all to very great effect. Nevertheless it is important to stress what has been happening with the monetary situation.

In a leader in the Financial Times on 24th April it was said, a week after the Budget speech of the right hon. Member for Birmingham, Stechford, describing his strategy: If wages continue to rise at their present pace and if the Chancellor maintains a strict control over money supply, as he has suggested, the growth of the economy and the level of employment are both likely to suffer. This is indisputable. But it has not happened because, as my hon. Friend the Member for Horsham pointed out, money supply control has not been maintained. In fact, during the second and third quarters of the calendar year, there has probably been an increase in the money supply just about double what the former Chancellor of the Exchequer had forecast for the financial year as a whole in his Budget statement.

My hon. Friend the Member for Horsham referred to the rather remarkable speech of the Governor of the Bank of England at the Lord Mayor's dinner for the bankers a fortnight ago. I should like to allude to it because the Governor tried to give some explanations for what had been happening. He said, among other things: Conditions in the capital market during the summer have probably added to the pressure of demand for bank advances, and there was a large redemption to cope with in the gilt-edged market. Surely these factors must have been known to the then Chancellor of the Exchequer when he was laying down his targets for the growth of the money supply and d.c.e. in his Budget statement. Furthermore I cannot see any reason for expecting any great change in circumstances concerning conditions in the capital market between now and the end of the financial year.

I agree entirely with my hon. Friend the Member for Horsham. The Governor has, over the summer months, flagrantly disregarded the instruction he was given and now he has the nerve to tell us to organise an incomes policy. It is rather like a car accident, in which the people involved say that it was the other chap's fault. Central bankers are in favour of an incomes policy nowadays because it is nothing to do with them.

Mr. Robert Sheldon (Aston-under-Lyne)

The Governor of the Bank of England is under attack from the Conservative Party, and it is not my intention to defend him, but there is an alternative explanation, and that is that the Chancellor of the Exchequer has not given directions to the Governor and the possibility might be that, whereas in 1968 the Treasury was strongly against the idea of the money supply, it swung behind it with all the fervour of a convert in 1969. It may be that in 1970 it is in doubt.

Mr. Bruce-Gardyne

The hon. Gentleman has made it necessary for me slightly to prolong my remarks, but the point is this. The Chancellor of the Exchequer laid down his targets in the Budget speech. They were reaffirmed for the year as a whole by the Financial Secretary before we rose for the Summer Recess. I would prefer to come in a moment to the position today.

Mr. Callaghan

It is a bit too much that the Governor should have to bear the responsibility for this. He and the Chancellor of the Exchequer are not at arm's length. They have a telephone, and they meet every week. If the Chancellor of the Exchequer really thought that the Governor was not carrying out the directions, why did not the right hon. Gentleman take up the matter with him and make sure that they were carried out?

Mr. Bruce-Gardyne

The right hon. Gentleman should address his remarks to his right hon. Friend the Member for Stechford. What was he doing in the first quarter of the financial year when we had, as we now know for certain, a 16 per cent. increase in the money supply?

A line being taken at the moment—and the right hon. Member for Stechford seemed to be joining the Editor of The Times in taking it—is to say that we cannot leave everything to monetary control. I agree. But who says that we are? We still have a budgetary surplus of almost unprecedented size for recent years. In addition, the present Government, unlike the previous Government, have been trying hard to moderate the rate of wage and salary increases. It is not true to say that money supply, and that alone, is being left to hold the dyke. On the contrary, it is at this point that the dyke has been breached. I do not believe that the Bank of England can be exonerated from responsibility.

There is a more sophisticated alibi which has been advanced in some quarters, that one cannot run an effective monetary policy without a floating rate, because attempts to curb the growth of the money supply by allowing interest rates to rise simply draw in funds from overseas. Thus, liquidity is pumped in from outside and the policy becomes self-defeating. That alibi, however, certainly does not apply to the summer months of this year, because robody can dispute that if there has be any net inflow of funds during the period since the Budget it must have been small.

One recognises that effective control of the money supply creates special problems for the Bank of England—

Mr. Sheldon

For the Chancellor.

Mr. Bruce-Gardyne

—because it has to manage the National Debt, and if it has to operate on the gilt-edged market in such a manner that that market deflates, this increases the problem for the Bank of England.

Mr. Callaghan

The hon. Member knows full well that the Chancellor is just as responsible for the operation of the money market as are the technicians who do the job. He may want to attack his own Chancellor, but he should not go for the Governor when the Chancellor is responsible for the policy and seeing that it is carried out.

Mr. Bruce-Gardyne

If the right hon. Member thinks that he is making a stricture on my right hon. Friend, he is making an equally severe stricture on his right hon. Friend the Member for Stechford. The day-to-day operation of money supply control is bound to be in the hands of the Bank of England, and it can fairly be said to have been falling down on that aspect of the job.

The important question to my mind is what action we ought to take today. The hon. Member for Heywood and Royton—as, it is fair to say, he has done consistently in the past—has urged us to take a great leap forward out of the inflationary pressures and to go for growth and believe that thereby we will cure the inflationary problem. The rate of inflation is far too acute for that today. The underlying rate of inflation is, I suppose, about 11 per cent. per annum, and it is continuing to accelerate. [HON. MEMBERS: "Nonsense."] It may be a little less than that, but not much. I do not see how, in those circumstances, one can go for growth.

One has to look at where the dyke has been breached and one has to fill the breach. In other words, we have to get the growth of the money supply back on the course which the right hon. Member for Stechford outlined in his Budget speech. I should like to know from my right hon. Friend the Minister, when he replies, whether we could not have from the Chancellor a clear reiteration—because it is urgent—that the targets for growth of the money supply and d.c.e. which the right hon. Member for Stechford laid down in April, and which my hon. Friend the Financial Secretary reaffirmed as our targets in July, are still the targets by which we stand.

I accept fully the implication that if we are to reach those targets, we must have substantial net sales of gilts to the non-bank public between now and April, running into, perhaps, £600 million or £700 million worth. I accept that this means higher interest rates. It might even involve the necessity of contemplating floating for a period to ensure that the attempt to get the money supply under further control was not vitiated by an inflow of funds from overseas. The only thing that one can say at present is that, at least for once, anybody who questions the parity could be said to be arguing in a patriotic sense, because uncertainties on that score would facilitate the control of the growth of the money supply.

Of course, I accept that what I have been suggesting could be described as harsh medicine. I do not dispute that, but I believe that, because of the rate of inflation we have today, and the way in which it is still accelerating, unless we are prepared to accept that sort of harsh medicine today, we shall find ourselves, in the not too distant future, facing the sort of situation which Germany faced in 1923.

8.45 p.m.

Mrs. Doris Fisher (Birmingham, Ladywood)

Thank you, Mr. Deputy Speaker, for calling me. I will adhere to what you ask me and restrict my remarks, because there are a number of Members on both sides to speak, ar so that they may have their opportunity, and so that we can properly answer one another.

In making my maiden speech, I am glad to be able to make it in this debate, because, like the hon. Member for Bradford, South (Mr. Torney), I represent an area which is a typical working class area. My constituents are what one may call average working families. Apart from a very small number of houses which are owner-occupied in the slum clearance areas the people of my constituency live in properties owned by Birmingham City Council, and live, the majority of them, in multi-storey blocks of flats and maisonettes. While the city council, under Tory control, has endeavoured to sell as many council properties as it can it has not been successful in the Ladywood constituency in selling one property up to the present. One ward in the constituency, which comprises approximately 60 per cent. of the electorate, has the highest child population of any ward in Birmingham and the least amount of public open space.

Figures which are given by the city statistician in Birmingham show that on average the people in Ladywood are average-wage earners, people earning approximately £25 per week gross, with take-home pay of roughly £22 a week. When we are talking about average pay it is important for us to remember that the average weekly wage of many wage earners does not take into consideration the many anti-social hours which they are asked to work to receive that remuneration. Many of my constituents have to work on night shifts and also around the clock shifts, from 6 a.m. to 2 p.m., from 2 p.m. to 10 p.m., from 10 p.m. to 6 a.m., to keep factory wheels turning—very anti-social hours for what is an average weekly wage.

I would not insult the housewives of Ladywood by telling them to shop around to get competitive prices. They do not need a Prime Minister or any member of the Government to tell them how to make their weekly budgets go further. The housewives in Ladywood—I think the housewives in the majority of areas of this country—use not only their mental resources but also their physical skill to shop around, and naturally, so that the families' resources are spent to the very best advantage. It was only last week, in the constituency, that one of the male electors told me, "It is a great problem, Mrs. Fisher, earning the weekly wage, but the greatest credit, the biggest credit, should go to my wife, who has the job of making it go round each week".

The constituency itself surrounds the centre of the city of Birmingham and includes the city centre. It includes small and medium-sized factories; there are the skills of the gun makers, the crafts of the jewellery quarter, the printing industry, heavy industries, including also electrical accessories manufacture: in short, multifarious types of jobs.

We have no rolling downs or visions from the clifftop. Our greatest attribute is the gasworks, which takes up a large area of the constituency; we have no other claim to fame.

For 25 years the constituency was represented by the late Victor Yates. He made speeches in the House for 25 years, and the House thought of him as a typical constituency Member of Parliament. He knew his constituents and represented them well. Hon. Members will be aware that Ladywood is the smallest constituency in the country and my days might be numbered if there were to be a General Election in the near future but, while I am here, I hope that I shall be able to follow in the worthy footsteps of Mr. Victor Yates.

The Tories believe that a subsidy should not be paid to people who can afford to pay the full economic price. I am concerned how to define the people who can pay the full economic price. The people who are being asked to pay the full economic price in the Chancellor of the Exchequer's proposals are wage earners with an average weekly wage of between £25 and £30 and who are paying £6 or £6 10s. rent for a council property or an equivalent amount if they are repaying a mortgage. They pay £1 10s. to £2 a week for gas and electricity and £1 to £2 a week on bus fares to get to and from work. Are these the people who can afford to pay the full economic price?

It was stated in the Press last week that this mini-budget would make the rich richer and give the factory worker a battering. My constituents in the main are factory workers, family men with children. They have read the Press with keen interest and have worked out how much they will lose by these measures. Although I could not follow very clearly the Chancellor of the Exchequer this afternoon I have been able to understand that my constituents will be much worse off.

I am concerned about the tremendous number of children who will suffer from the loss of free school milk. In Birmingham 16,000 children daily receive free school meals. An assessment has been made of the income of their families and these children are entitled to receive free school meals. If they are in that category, it could legitimately be argued that they should also receive free milk. If free milk is denied to these children they will suffer a severe loss which in the years to come will have repercussions on the health services. There are practically no problems for the wealthy in obtaining maximum benefits in the way of tax concessions. Because they can afford to do so they are able to consult accountants who are skilled in the art and who are able to see any financial gain that is possible for that person. But what about the average working man? How does he wade through complicated details in working out the different forms of benefit?

I run a weekly advice bureau in my constituency and I am constantly being asked to find out for people whether it will pay them to have a rent rebate, an educational maintenance allowance, or whether it will pay them to send their wives out to work. All these are complicated matters for working people to ponder over in deciding what benefits they should go for.

Only a fortnight ago I took up a case of one of my constituents, a widow, who was receiving a rent rebate from the Birmingham City Council. She asked me what she should be doing about her children who were still at school. I took up the case successfully with the Birmingham Education Authority and very quickly they gave a maintenance allowance for her two children who are both over 14. Unfortunately, because she was awarded that allowance she lost all her rent rebate and at the end found herself two shillings a week worse off.

How is the average weekly wage earner to be able to work these matters out? Once a particular subsidy is requested and goes forward, it can easily cancel out anything that may be obtainable from any other source. Authority does not like to be messed around too much by people going along to the education department and saying, "You can keep your maintenance allowances. I will have my rent rebate back." These are the problems and difficulties that the average working man and woman has to face.

As a result of the provisions of the new Bill dealing with supplementary family income even the working wife who takes a little part-time job in an effort to supplement the family income may have to stop working. These are complicated calculations for people to have to work out and they ought not to be called upon to exercise all their skills to sort them all out. If the Government are as interested in the lower paid worker as they claim to be, why have they not tried to persuade employers to improve minimum earnings so that relief under the new supplementary family incomes Bill would become completely unnecessary?

We should ask ourselves not whether people benefit under these schemes, but whether the whole approach on tax cuts and increased payments for social services will help to solve our economic problems. Are the steps which have already been taken—and we know that there are more to come which may lead to increased council house rents, and there are even whispers of payment for hospital beds—likely to lead to the sort of society in which we want to live?

The budget this week was not about inflation or the balance of payments. It was about the redistribution of national wealth in favour of those who earn most. We hear arguments from the Tories that the price of goods in the shops will be kept down by the forces of competition. They argue that the cutting of taxes is necessary and also put up a case for wage restraint. But is it social justice when the people who are now called upon to pay the extra costs for worsening social services are the same people who are also asked to accept a limit on wages to benefit the big income tax payer? Does this help to achieve the aim of one nation upon which we are all asked to support the Prime Minister? What is so significant is the principle now approved by the Government: that instead of increasing these charges to raise money for essential services it should be done mainly for the purpose of trimming taxation. Our clothes might provide a useful fashionable cliché. I see this as a "see-through" budget with a deep cleavage style which divides the "haves" from the "have nots".

9.0 p.m.

Mr. Kenneth Baker (St. Marylebone)

I congratulate the hon. Lady the Member for Birmingham, Ladywood (Mrs. Doris Fisher) upon her maiden speech. It seemed to me to be an authentic voice from the grass roots of the Labour movement and when her constituency disappears I hope that she will not disappear with it.

As the last time I spoke in the House was in an economics debate in the early summer, and as I then represented Acton, perhaps I should begin by saying, "As I was saying before I was so rudely interrupted …" I would like to thank, first, the new hon. Member for Acton (Mr. Spearing) for the kind words he used about me in his maiden speech.

I follow Quintin Hogg at St. Marylebone and I think it is fair to say that on both sides of the House he was liked and respected. Hon. Members who were here will recall that fine speech of his on race relations about two years ago. Everyone will carry their own vivid recollections of his ebullient personality. One of the most amusing incidents occurred in a debate when he was Shadow Home Secretary. The House was discussing the proposal to put party labels on the ballot paper. Mr. Hogg, as he was then, recalled that in 1966 he was opposed by an "anti-Hogg candidate"—that was the man's entire manifesto—and he wanted to know how that man would have been described on the ballot paper. The right hon. Member for Cardiff, South-East (Mr. Callaghan), then Home Secretary, said the answer was simple—the man would have been called an "independent". "Independent?", said Quintin. "The man could not even have existed without me."

It is a great pleasure to be speaking, although briefly, in an economics debate again. I am no maiden and do not expect to be treated as one by hon. Members opposite, as I intend to be contentious. It is sad that Lain Macleod is not taking part. Those of us who served with him on the last three Finance Acts will carry a certain splendid memory for ever. People have said that he would not have presented the sort of package which the Chancellor presented last week. I do not agree. One of the things Iain was determined to do was reduce the standard rate of income tax at the first possible opportunity, and the first possible opportunity is 5th April, 1971.

I welcome this measure. It is some lifting of the clouds. Hon. Members opposite have accused us of the dreadful crime of wanting to cut income tax. They have spoken of the proposal with contempt and when they speak with contempt of reducing taxation it is a contempt which has not been bred by familiarity, because the Labour Government in six years proved to be the greatest taxing Government in our history, and it was only two months before the election that any taxation was reduced.

I had hoped that the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) would give us some inkling of the economic policy of the Labour Party because, in his Budget Statement last April, he set a clear target for the growth of domestic credit this year. He set 5 per cent., taking the year as a whole. As he was saying that, the money supply was expanding by between 12 and 16 per cent. Did he know about that? Did anyone tell him? If they did, what did he do about it?

One of the main reasons why the inflationary forces are so strong today is the tremendous growth in money supply in the early part of this year, and we heard nothing of that from the right hon. Gentleman today. What is the economic policy of the Labour Party? No hon. Member opposite who has spoken today has put forward an economic policy. They have had a field day criticising the Government's package. Since 18th June, former Ministers have encouraged every high wage demand and, in some cases implicitly and in others explicitly, have encouraged industrial action to further those wage demands. There we have it, mismanagement in government, irresponsibility in opposition. That is the epitaph of the party opposite.

There are three brief points I want to raise. First the rise in local government expenditure. This is a difficult area, but it is a fact, perhaps not fully appreciated, that local government expenditure is rising at a much faster rate than national government expenditure. Taking the period 1965–69 and disregarding the fact that they were either Conservative or Socialist councils, local government expenditure, capital and current account together rose by over one-half whereas national government expenditure rose by only a third. We will have to develop, and it may take some time, a more sophisticated method of control over local government expenditure. Unless we can do this many of the efforts of my right hon. Friend the Chancellor will be thwarted and nullified.

Secondly, I hope that the Government will explore methods of finding alternative finance for capital expenditure of nationalised industries. The capital expenditure of these industries this year will be £1,500 million. It is significant that in the cuts announced last Tuesday the largest single item was provided by the nationalised industries. I am not in favour of cutting their capital expenditure, but when it is as high as £1,500 million, of which somewhere between 40 per cent. and 60 per cent. has to be financed by Treasury borrowing, it is imperative we find methods of attracting private capital to provide some of that capital expenditure.

My last point concerns the programme for investment incentives and it is something of a technical one. I welcome the abandonment of investment grants and the movement to taxation incentives, but I would have thought that we could have devised a slightly simpler system. If we had had an initial allowance of 60 per cent. and the balance of 40 per cent. allowed, not on a reducing balance basis, but on a straight-line basis it would have made the task of many accountants in industry much easier.

I hope the Government have not abandoned their intention to simplify our taxation system. It is like some byzantine building, the sort of thing one sees in Venice. Each Chancellor comes along, no one more so than the right hon. Member for Cardiff, South-East (Mr. Callaghan), whom I see in his place, and looks upon his task as embellishment adding a pillar here, a little doorway there, a dome or a doorway. Then he moves on and slowly the facade is becoming more important than the building. The facade is getting to the stage where it can bring the building down. One of the tasks of this Government is to try and create a more simplified tax system, understandable to the tax payer. A system which is not understandable would fall into disrepute and taxes will not be be paid.

9.8 p.m.

Mrs. Shirley Williams (Hitchin)

May I first say that we have had some extremely good maiden speeches, and I would like particularly to congratulate the hon. Members who made them. I say to the hon. Member for Leek (Mr. Knox), the hon. and learned Member for Dover (Mr. Peter Rees) and particularly the hon. Lady for Gloucester (Mrs. Sally Oppenheim) that if they do as well as those whom they have succeeded, then we shall very much admire them. We admired their predecessors, and they can set themselves no higher standard.

To my hon. Friends the Members for Birmingham, Ladywood (Mrs. Doris Fisher) and Bradford, South (Mr. Torney) I would say that both of them contributed excellently to the debate. In particular my hon. Friend the Member for Birmingham, Ladywood revealed the extent to which a means-tested society is a society that confuses a very large number of its citizens.

I begin by saying a word about what I can only describe as an "Alice in Wonderland" statement. It was the hon. Member for Horsham (Mr. Hordern) who said that he regarded the Chancellor as being in the position of someone running up a down-going escalator. I prefer that verse from "Alice in Wonderland" which reads: How cheerfully he seems to grin, How neatly spreads his claws, And welcomes little fishes in With gentle smiling jaws! I do not believe that anybody who looks closely at this budget—and I shall call it a budget because that is what it is—will be persuaded that it in any way meets the economic, social or any of the other problems of this country. It was the Chancellor himself who, in his statement, said that the main economic problems facing the country were those of inflation, unemployment and inadequate growth, and yet my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) and my hon. Friend the Member for Heywood and Royton (Mr. Barnet) have shown that the statement has nothing to do with any of those problems.

Perhaps I might give the House one example. With regard to regional employment, the statement both phases out R.E.P. after several years and also clearly reduces the incentives to people to invest in the regions. I have here—and it is worth quoting—a letter from a managing director of one of the larger firms in Scotland. He writes: … I believe it is true to say that investment incentives in plant and equipment have completely disappeared … I am afraid that those of us who are engaged in trying to attract industries to development areas will have a much more difficult job now since there are no incentives left other than differential building grants. It goes even deeper than that. The hon. Members for South Angus (Mr. Bruce-Gardyne) and Horsham attacked the Governor of the Bank of England. They did so, I think, perhaps in an effort to try to avoid attacking their colleague the Chancellor himself. But it is not only the Governor of the Bank of England who has been critical of economic policies as set out in the statement. It was the Daily Telegraph which, on 2nd November in its financial columns, indicated that the effect of the statement would be a marginal shift from investment to consumption, and it was The Times that said on 30th October: What is clear is that monetary policy alone cannot stand as a surrogate for proper policy in this respect. With no incomes policy and an expansionist fiscal policy, the Government has created a situation in which the natural consequence of wage inflation is a reduction in our already inadequate finance for investment. To put it bluntly, that policy does not make sense. I believe, too, that the policy being followed by the Conservative Government does very little in a situation in which they themselves admit that inflation is extremely disturbing because, as several of my right hon. and hon. Friends have said during the debate, the present position is one in which the Government are not merely allowing prices to go to the levels to which pressures take them, but are deliberately encouraging them to go beyond that.

But even more strange is the fact that this statement, which is not an economic statement, nor a social statement, but is, above all, a political statement, has three major consequences; first, to shift the burden of the financial expenditure of this country from the rich to those who are less well off; second, to shift it from single people and people without children to families; third, to shift it from unearned to earned income. To my mind the oddest feature of all, coming as it does from a party which constantly declares its belief in incentives, is that if one takes the traditional incentives of the stick and the carrot, it is the stick alone that is applied to the great majority of people, and the carrot which is reserved for those who are rich. This statement might be described not as a dustman's tanner but as a director's tanner.

I now turn to say something about the cuts which have been made, and I begin by taking up what was said by the hon. Member for Horsham. He said that it was hypocritical of hon. Members on my side of the House to attack the cuts which had been made. These cuts are not being made in a situation in which taxation is being increased across the board because of an economic crisis. They are being made in a situation in which the Chancellor himself admits that the balance of payments position is sound, and that there is money to return for the purposes of consumption.

Mr. Hordern

I am sure that the hon. Lady would not wish to misquote me. I asked the Opposition to say how they would finance the building of further primary schools and hospitals and encouraging the provision of more mental health facilities. I asked what proposals they had for the money which my right lion. Friends are to spend.

Mrs. Williams

I will come to that later. I do not think that is quite the whole of what the hon. Gentleman said. As I recall it, he said that it was hypocritical of the Opposition to attack the cuts which were being made in the Social Services. May I take the first of these cuts, the cuts concerned with primary welfare milk and school dinners. May I underline a question which was asked in the debate, a question of extreme importance: did the Government, when they reached this decision, consult either the B.M.A. or their own medical advisers? As recently as a year and a half ago when the British Medical Association, on a split decision, agreed by a narrow majority that secondary school milk was no longer necessary, they also agreed that primary school milk should continue. I wonder whether they have also changed their minds in the course of only 18 months. I wonder also why the Federal Republic of Germany is now considering introducing free milk into the schools, at a time when our Government have decided to withdraw it.

In respect of prescription charges, may I ask whether the Government have really worked out the effects of a proportional payment? May I give two examples. At the present time, treatment for the chronic condition of arthritis costs approximately £3 10s. a month. Treatment for Parkinson's disease costs £15 12s. a month. In other words, these diseases are exempted diseases for prescription charge purposes. The object and purpose of the Government's attempt to introduce proportional charges will be directly to say that the more ill a person is, the more that person should pay. This is in direct contradiction to the National Health Service—

The Secretary of State for Social Services (Sir Keith Joseph)

It may help if I remind the hon. Lady that there will be a ceiling and there will be even a better bargain season ticket than now.

Mrs. Williams

I am delighted to hear that, but I must say that it is very typical of the Government that one always hears the details of what they are going to do after they have made a statement about it. There was nothing in the White Paper about the fact that there would he a better bargain season ticket. If the Government believe that this is any part of the answer, the whole argument for proportional charges necessarily and rapidly falls to the ground.

May I say a word about dental and spectacle charges. As the Government well know, what they have done is to introduce a charge which again is proportional and which has been described by the British Dental Association as taking dental treatment in this country back by 20 or 30 years. In addition, the Government have reduced the age of those who are no longer exempt from 21 to 18—the very age at which people are most liable to susceptibility to dental illness and disease. They must introduce a fixed maximum figure if they are going to do this at all. But they have given no indication of that. Unless they do something of that kind, it will wreck the dental service in this country. Once again they have been as unclear and obscure as they can possibly be.

May I next ask a question about the three-day waiting period. As the Government know, the proposal which was made before and which they have attacked was to shift the burden of this on to employers. In the case of this Government, they simply intended not to shift the burden anywhere but to allow those least able to bear this to meet the three day waiting period themselves.

Again the Government have said nothing about linkage, about what happens if somebody is ill for up to 12 days within a 13-week period. A great many people are liable to recurrent diseases like asthma, bronchitis and the rest, and they should not be penalised in this way. The Government also may not know—at least they have said nothing about it—that there are many trades like merchant seamen, fishermen and others who must be allowed linkage because their jobs are such that they get three days' unemployment in a 13-week period on a recurrent basis. The Government have said nothing at all about that. They have said that the family income scheme—and they repeat this over and over again—will meet the needs of those who are least well off in our society. Yet they themselves know that the family income supplement scheme will help less than two in 100 families in this country. They know that their means test will set a new level of poverty which will be below even the level of poverty set in the supplementary benefit scheme. Above all, they must realise that, unless they introduce measures the exact contrary of the kind they are now supporting to uphold minimum wage and low wage occupations, they will be introducing not a genuine income supplement but a Speenhamland system by another name.

I return to what must be, I take it, part of Conservative doctrine, the argument that people ought to have incentives if they are to work harder. The Government recognises—and I know that they recognise—that one of the great difficulties about the scheme which they have adopted, directly contrary to the one promised by the Prime Minister and the last Chancellor of the Exchequer, is that it will create a disincentive of no less than 54 per cent. for those low-paid workers who might earn another £1 or £2 out of overtime or from getting a better job. This is a massive disincentive, greater than anybody faces through the standard rate of income tax and for that matter, a greater disincentive than we have seen elsewhere.

In regard to the whole range of means-tested benefits proposed, I draw attention to what was said by my hon. Friend the Member for Ladywood. The right hon. Gentleman the Secretary of State for Social Services knows better than I do the level of uptake of means-tested benefits. It is shockingly low. He knows, in particular, in respect of such matters as rate rebate, rent rebate, welfare milk and so on, that in many cases not even half those entitled actually draw the means-tested benefit. The reason is the total confusion and utter difficulty of explaining or even understanding these things. In heaven's name, if Members of Parliament cannot understand the system, with a 60-hour week in which to grasp it, how can we expect the great bulk of people, troubled as they are by hardship, by poverty, by trying to make ends meet, to grasp these infinitely complicated schemes now put before them?

In my closing few minutes, I shall raise three points of great importance with the Government. First, I refer to the effect which prices are already having on those who draw supplementary benefit and on old-age pensioners. I shall not reiterate what has been said at length in the debate about the impact of the Chancellor's measures on the prices of food and fuel, on fares, and, for that matter on the social services. Suffice it to say that there is little reason to believe that price rises will slow down over the next few months. When the Chancellor says, as he did, that the effect of these measures will be less than 1 per cent. on the cost of living, I am bound to reply that already the cost of living has increased by more than that in the past three months.

What will be the effect on those who are dependent on supplementary benefits and on pensions? First, supplementary benefits. We know that the November up-rating is already just about matched, give or take a few pence, by the increase in the cost of living. What do the Government propose to do about that? If they plead administrative difficulties, I quote to them a statement made when they were in opposition. On 16th November, 1964, in a similar situation when the cost of living had risen rapidly over the previous few months, the right hon. Gentleman who is now Secretary of State for Social Services said: If, as I am sure is the case, the Minister wants to help the most needy as quickly as possible, she should consider laying regulations raising the assistance scales in a matter of weeks."—[OFFICIAL REPORT, 16th November, 1964; Vol. 702, c. 19.] I ask the right hon. Gentleman to do exactly what he asked his predecessor in office in our Government to do, and what she, in fact, did, for, as most hon. Members remember, she brought in a special fuel benefit for all old people that Christmas.

What does the right hon. Gentleman intend to do about pensions? The hon. Gentleman the Member for Harwich (Mr. Ridsdale) made a moving appeal on behalf of pensioners. But he did more than that; he accused us when in Government of having been unhelpful and ungenerous towards old-age pensioners. But the hon. Gentleman does not realise how the record that was played when they were in opposition looks today. I quote from a letter sent by the Prime Minister's secretary to an old-age pensioner: As you know, the rates of retirement pensions were increased by 10s. a week for a single person and 16s. for a married couple only last November and, although price levels have certainly risen since then, the buying power of the pension is still higher than before the last increase. That is what the Prime Minister says about the policies of the Labour Government. We ask the Government what they will do between now and November, 1971, when the consequencies of their policies will be to undermine the position of the old-age pensioner.

Lastly, I wish to raise a question which follows from the obscurities, the confusions, and the strangenesses of the Chancellor's statement. During the discussion about the statement I asked the Chancellor whether he would indeed commit himself to the £28 million of increased school building which we are told is one of the two major increases that this statement is about. I asked whether this was additional to school building programmes. The right hon. Gentleman replied: These are additional starts which are over and above the proposals put forward by the previous Government. This is additional school building."—[OFFICIAL REPORT, 27th October, 1970; Vol. 805, c. 75.] The 1971–72 Labour school building programme was worth £186 million. The 1972–73 Conservative school building programme is worth exactly the same amount. The difference is as follows. Certainly the Secretary of State for Education and Science is increasing expenditure on improvements by £21 million, but what has not been made clear to the House is that the right hon. Lady is reducing expenditure on basic needs by £30½ million. So much for additional expenditure.

Hon. Members

Disgraceful!

The Secretary of State for Education and Science (Mrs. Margaret Thatcher) rose—

Mrs. Williams

I will give way to the right hon. Lady in a minute.

In fairness to the right hon. Lady, I must quote the other statement that she made about the following year's school building programme. She told the local authorities at the Association of Education Committees last week: It follows that the programme for 1973–74"— she had referred to the end of the raising of the school-leaving age programme— will be smaller than in 1972–73. So much for the additional expenditure of £28 million about which we have been told by the Government. If the right hon. Lady wishes, I will give way now.

Mrs. Thatcher

The difference lies between what the shadow Minister of Education and Science left and what I have provided for the year 1972–73. If the hon. Lady cares to examine the figures, she will find a considerable increase. Also, I hope that she will not blame on me the fact that the birth rate was down for the relevant year.

Mrs. Williams

Of course I do not blame the right hon. Lady. The decision she made may well have been right. I am saying that no one who listened to the Chancellor's statement would have come to any conclusion other than that there was £28 million extra for school building. This follows from an extraordinary constant reiteration of the deep concern of the Government for primary schools. I must remind them, because we cannot divorce the basic needs from the improvement programme, that in the five years 1959–64 they built 1,453 primary schools, whereas in the five years 1964–69 we built 2,818—very nearly twice as many.

We are aware that the problems facing this country that must be solved by whichever party is in office are, above all, the question of industrial peace, the control of inflation, and how we can achieve social justice.

Some of us believed that when the Prime Minister made the statement which my right hon. Friend has aleady quoted about one nation he was going to prove to be the leader of at least a moderately progressive Conservative Government. We now see that even the memory of the depression that to some extent moderated and qualified the approach of previous Conservative Governments has been overthrown by this Government. Indeed, the consequences of that statement will be not one nation but two nations in the classroom, two nations in the doctor's surgery and two nations on the shop floor. It is a tragedy that those divisions should be deepened in consequence.

9.30 p.m.

The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. John Davies)

My pleasant task is to say something about today's maiden speakers. Hon. Members on both sides will realise that I have a closer fellow feeling for them than practically anyone who has spoken from this position today. Their very number forbids me adequately to deal with the excellence of their speeches. However, it would be a pity if I did not say how much I enjoyed the speech of my hon. Friend the Member for Leek (Mr. Knox), with its succinct and sophisticated economic argument. He produced a reflationary argument which would have done justice to Vic Feather.

We have had other excellent contributions. I was, unfortunately, not able to be present for one or two of them, but I understood that my hon. and learned Friend the Member for Dover (Mr. Peter Rees) made a speech in which argument was admirably reinforced with humour, and in which he took up an argument which is close to my interests—the financing of the nationalised industries. The hon. Member for Gateshead, West (Mr. Horam) made an admirable and interesting speech on the subject of regional policies. The hon. Member for Bradford, South (Mr. Torney) who, I understand, was not entirely uncontroversial, obviously had a deep and sympathetic knowledge of the woven textile industry.

My hon. Friend the Member for Gloucester (Mrs. Sally Oppenheim) gave us an entrancing, interesting speech and one which was most sympathetic to the problems in which she is clearly interested. I listened with great interest to the hon. Lady the Member for Birmingham, Ladywood (Mrs. Doris Fisher). Again, that speech was not entirely uncontroversial, but it certainly showed the deep knowledge she had of her constituents, and I admire her for that. There was a kind of half-maiden speech in the person of my hon. Friend the Member for St. Marylebone (Mr. Kenneth Baker), which I was delighted to hear. I am told that some time ago he put down a Motion to reduce the rate of income tax by 1s.; he may feel that we have gone half way to meet him.

Liddell Hart, in an excellent book entitled "Why Don't We Learn from History?" recounted the true story of a general in the First World War who, in the great retreat, held a Press conference. He illustrated what he had to say by reference to a large strategic map behind him, on which he showed at what precise point it was his intention to stop and hold the forces of the enemy from that night on. One of the reporters said to him: "But, General, we lost that line at least three days ago". The General replied: "I know that very well, young man: what I said was for history".

There has been a great deal said in this debate for history—history at times modestly corrected—but I do not pretend or wish to contribute to its historical side. I do not believe that I derive any benefit in seeking once again to work over the tangled skein of these past years and try to derive from it the truth which must somewhere be there. I prefer to look squarely to the future, where the great problems and opportunities lie and where, despite our differences, our concerted efforts are so greatly needed to try to bring about a happy and more fruitful situation for our country.

The measures announced by my right hon. Friend have provoked the most intense discussion. They have been analysed in detail and in specifics, and each has fallen foul of one comment and received another's blessing. But what I find on the whole surprising is that the total strategy of his measures has escaped any serious comment—[Laughter.] I emphasise the words "serious comment", because these measures undeniably constitute a first step—

Mr. William Hamilton

Backwards.

Mr. Davies

No. They constitute a first step towards a new condition in the development of this country's life, and one in which this party believes profoundly. We believe that the essential need of the country is to gear its policies to the great majority of people, who are not lame ducks, who do not need a hand, who are quite capable of looking after their own interests and only demand to be allowed to do so. [Interruption.]

Several Hon. Members rose—

Mr. Speaker

Order. The House ought to listen to both sides equally fairly.

Mr. William Hamilton

Let him get on with his reading.

Mr. Davies

We believe quite firmly that the need to encourage the individual to have a greater and not a lesser say in the conduct of his life is now an essential. National decadence is the consequence of treating us all, the whole country, as though we were lame ducks.

Dr. Shirley Summerskill (Halifax)

Would not the right hon. Gentleman agree that the majority of people at one time in their lives are under-five-year-olds, then primary school children needing milk and school meals, and that eventually everybody becomes sick at some time or another and is therefore a lame duck?

Mr. Davies

To devise a strategy by which the affairs of the country are conducted by reference simply to periods of weakness is unwisdom in an extreme degree. The vast majority is not so. The vast majority lives and thrives in a bracing climate and not in a soft, sodden morass of subsidised incompetence.

Miss Bernadette Devlin (Mid-Ulster)

When talking about lame ducks and subsidised minorities, would not the right lion. Gentleman accept that we stand here tonight facing the lame ducks and the subsidised minority—the faces of directors and chairmen? You are the subsidised minority and we are the workers.

Mr. Speaker

I am not a subsidised minority.

Mr. Davies

There has been intense discussion about tax rates and statistics have been exchanged across the Floor.

Mr. Michael Foot rose—

Mr. Speaker

Order. If the right hon. Gentleman does not give way the hon. Member for Ebbw Vale (Mr. Michael Foot) must resume his seat.

Hon. Members

Give way.

Mr. Davies

There has been intense discussion—[Interruption.]

Mr. Speaker

Order. We have listened to one side reasonably quietly. The other side must be equally fair.

Mr. Davies

For the third and, I hope, the final time, there has been intense discussion about tax rates and statistics have been exchanged across the Floor of the House. One element of our tax system which will be without argument is that at the higher rates the graduation of tax is more sharp than it is in any comparable country in the world. This is true and it is perhaps not altogether insignificant that the measures announced by my right hon. Friend went in a small way towards starting to redress that balance.

Mr. Michael Foot rose—

Mr. Speaker

Order. The hon. Member for Ebbw Vale knows that if the Minister does not give way, he does not give way.

Mr. Davies

I have given way on several occasions. What is true of people is true no less of businesses.

An Hon. Member

They are decadent, too.

Mr. Davies

There is in this no callousness or indifference.

Mr. Foot

On a point of order. It is a rule under the proceedings of this House that Members should not read from speeches. [Interruption.] It is extremely rare that this rule is invoked, but since the right hon. Gentleman has come to the House of Commons tonight without any apparent intention whatever—

Sir John Rodgers (Sevenoaks)

That is not a point of order.

Mr. Foot

It is exactly a point of order. Since—[Interruption.]—the right hon. Gentleman—

Mr. Speaker

Order. Noise on either side does no good at all to either side.

Mr. Foot

Since the right hon. Gentleman has come to the House without any apparent intention to answer the speech of my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) or my hon. Friend the Member for Hitchin (Mrs. Shirley Williams), may I ask whether there is to be any attempt to prevent the right hon. Gentleman from reading a speech instead of conforming to the conventions of this House—which he had better start to learn?

Several Hon. Members rose—

Mr. Speaker

Order. I am prepared to deal with the point of order without any assistance. It is not in order for hon. Members to read speeches. The hon. Member who raised the point of order very rarely reads anything in the House. However, hon. Members may refresh themselves with copious notes.

Mr. Davies

Returning to my copious but not complete notes—

Mr. Foot

Why not pay some courtesy to the House?

Mr. Davies

—I maintain that what I have been referring to is no strategy of callousness or indifference.

Mr. Fernyhough

You have read that before.

Mr. Davies

One side of our policy is matched by the other, which is to make sure that those who really cannot fend for themselves get real help, tailored to their needs. The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) recognised this. He mentioned that the poorest among us were effectively helped by the Chancellor's measures. But he brushed by it without great attention. I suppose that we were treated to one of his rolling conventions.

Mr. Orme

How did he deal with Frank Cousins?

Mr. Davies

Industry, to which I am addressing myself, is not entitled—

Mr. Sheldon

On a point of order. As you know, Mr. Speaker, I hesitate to raise points of order in speeches, but it is a most important and essential convention of the House that Front Bench speakers give way to Front Bench speakers. This convention is being abused.

Mr. Speaker

I know that the hon. Gentleman rarely raises points of order. Whether the Minister gives way is in his discretion.

Mr. Davies

My purpose is to look more at the business side of our problems. The Chancellor's measures sought to gain for us room to manoeuvre. Nothing is harder than to fight back against the inexorable advance of public expenditure. In the course of this deep and difficult study, we have each of us sacrificed pet hopes and schemes, but the greater priority was to force back the ever-contracting boundaries of business decision and personal initiative. The decisive need was to turn towards a new course. The impact of this new course will steadily grow as further measures are taken.

Hon. Members opposite have always been inclined to counsel hasty action and unthinking development.

Mr. Laurie Pavitt (Willesden, West) rose—

Mr. Davies

The effect of such hasty action will be damaging to us all, but my right hon. Friends' measures have great effects for both the wealth creators and the wealth consumers. I know, as we all know, that there is no sharp division between the two. Wealth creators and wealth consumers very largely overlap. At one stage we are the one; at another stage the other. I should like to concentrate on the wealth creators. I make no apology for doing so because the concern, well-being and prosperity of the wealth creators is as much the concern of everyone here as it is for me, it being the main purpose of my Department.

Undoubtedly business welfare operates best in a climate of stability and steady progress, not in a climate of feverish peaks and troughs. We must therefore ensure that undue and hasty action does not induce the same deep cycles which we have experienced for so long.

I should like to speak of the general climate in which the world of industry finds itself at the moment. I have no intention of indulging in any catechism of self-abasement. My right hon. Friend the Chancellor has spoken of the inroads of inflation and a great deal has been said today on this terrible and vexatious problem. Meanwhile, while the inflation rages, the business world undoubtedly waits and watches. It does not, as so many of us would have wished, take its courage in its hands and go forward into further investment and development.

Mrs. Shirley Williams

I am well aware that the Minister is new to the House and that he was not able to hear much of the debate, but, as he is the only Minister responsible, we would like him kindly to address himself to some of the questions which have been raised during the debate.

Mr. Davies

I will, of course, do so, but I have made it clear that my purpose today was to answer those parts of the debate which were concerned with the issues of wealth creation. There will be ample occasion for the other parts of the debate dealing with wealth consumption to be handled otherwise.

I have spoken of inflation, undoubtedly, the impact of headlong inflation which was stoked up by the Oppositon in the death throes of their own Government, has been a menace to us all. Inflation is a universal disease. I am astonished to see the degree to which such ready support to the fires of inflation is still being given by the party opposite. There is no salvation for anybody in so doing. It is curious, too, to hear prices blamed for being the propellent. Latest figures show that earnings are still rising at twice the rate of prices and nearly five times that of industrial growth.

Much mention was made, particularly by the right hon. Member for Stechford, about the level of investment. The right hon. Gentleman gave us the impression that the last few years have seen a steady rise and that this was now tapering off into a steady deterioration. That is not at all a correct presentation of the facts. The facts are that investment through the whole of the 1960s was virtually stagnant. There has been no tendency for it to take off. There have, of course, been minor rises, but they have not been of a profound kind. The object of my right hon. Friend's measures in this respect was to remedy something which, we believe firmly, was a great discouragement to a major part of our industrial world, the service industries. His package contained a readjustment of the balance which, we believe, was damaging to them.

I should like to say a word about our competitive climate. The present Government believe deeply in the benefits of competition.

Mr. Nigel Spearing (Acton) rose—

Mr. Speaker

Ferocious gestures do not make a Minister give way.

Mr. Spearing rose—

Mr. Speaker

The Minister has not given way. Mr. Davies.

Mr. Davies

I repeat that the Government believe profoundly in the benefits of competition—

Mr. James Hamilton rose—

Mr. Davies

I must go on.

Mr. Hamilton rose—

Mr. Davies

I have not time.

Those who have practical experience of working in a competitive environment know, as apparently hon. Members opposite do not, that it has profound effects not just in the field of prices but on a much wider range—on products and the whole question of quality and design. I repeat that these benefits stem from competition, and that this is too often ignored.

Mr. Spearing rose—

Mr. Speaker

Order. The House of Commons is a fair place. It has listened to one winding-up speech from one side fairly quietly and it must do the same for the other side.

Mr. Davies

I believe firmly that we shall improve materially the force of competition in this country. We shall improve it not only by opening our country to the wider field of international competition through abatement of tariffs, through membership of the Community, and through like measures, but we shall take positive measures domestically, too, to try to ensure that competition is a more effective and determined force than it is now.

Several Hon. Members rose—

Mr. Davies

No. I must go on. It is too late for me to give way.

We will also look at the whole field of company law, believing that there are within it the seeds of improved competition, by working steadily towards improved levels of disclosure and an improved situation for both shareholders and consumers.

There has been much discussion of our regional problems. There has been a great concentration of view from the benches opposite that the package which has been offered by my right hon. Friend the Chancellor shows a marked deterioration as compared with that which existed before. Of course it does—in this sense, that that which existed before was an excessive means of attaining an entirely inadequate objective. It reminds me of trying to put the cream in your coffee by spraying a jugful of cream around the room in the dark.

The hon. Lady the Member for Hitchin was very anxious that I should reply to some of the points raised during the course of the debate. [HON. MEMBERS: "Hear, hear."] Unfortunately, the nature of the debate itself was not of a kind to permit that to be done in any effective way, but there is one thing I must do before I finish. I recall the remarks of the hon. Member for Ebbw Vale last week when we were debating coal, when he accused this party of being motivated by antagonism to the public sector and of having spite against the publicly-owned industries. I entirely disagree. On the contrary, we have taken closely to heart the need to try to assist those great industries to develop and survive. We found them, too, in a situation which was little inclined to achieve that particular result.

In the degree to which it has been possible for me, I have replied to this debate. I am wholly convinced of the wisdom of the measures we have taken, and I hope that they will be commended.

Debate adjourned—[Mr. Fortescue.]

Debate to be resumed Tomorrow.