PUBLIC EXPENDITURE AND TAXATION

HC Deb 27 October 1970 vol 805 cc37-75

3.44 p.m.

The Chancellor of the Exchequer (Mr. Anthony Barber)

With your permission, Mr. Speaker, and that of the House, I should like to make a statement on new policies for the public sector, public expenditure and related matters.

I hope, Mr. Speaker, that you and the House will accept my apologies for what, inevitably, will I fear be a somewhat lengthy statement. I hope, too, that you will permit me a little latitude to say that there are differing circumstances in which one right hon. Member takes over from another, but none could have been sadder than mine.

I think that in the House right hon. Members on both Front Benches will admit that they have experienced not only the responsibility but also the elation of accepting high office. On this occasion it was not to be so for me. Tributes have already been paid in the House to Iain Macleod, and I have paid my tribute elsewhere, but as I stand at this Dispatch Box I am very conscious of the unseen presence of the brave man whom I have replaced.

Her Majesty's Government have begun a fundamental reform of the rôle of Government and public authorities. Our object is to concentrate their activities and their expenditure on those tasks that they alone can perform; and to enable the individual citizen to keep more of the money he earns, have greater incentive to increase his earnings, and to have greater freedom in how he spends or saves his income.

The public services, thus redefined, will still have a vital rôle in the life of the nation. Yet they must be subject to firm control to secure economy and efficiency.

We intend to adopt a more selective approach to the social services. There will be increases in expenditure on the basic structure—schools, hospitals, payments to those in need. But we aim to confine the scope of free or subsidised provision more closely to what is necessary on social grounds.

Many arrangements which might have been appropriate a generation ago have now been overtaken by economic and social progress.

The same principle will be applied by the Government in their relations with private industry. Government Departments and other bodies have spread their activities too widely, drawing in resources and skilled manpower which ought to be more productively engaged in private industry and commerce. Our object is to lessen Government interference and reduce Government subsidies; to extend the opportunities for profitable enterprise; to widen the area within which industry rather than Government will take decisions.

The review of Government activity and involvement will be a continuing process. The proposals announced recently by my right hon. Friend the Prime Minister on the reorganisation of central Government are designed to increase the efficiency of the whole public sector and to make the control of public expenditure more effective.

A thorough review of the functions of central Government Departments is now in hand. It is important that local authorities should approach their expenditure planning in the same spirit, and in the negotiations for rate support grant we shall assume that they will improve their efficiency.

The effect of the policies which have been applied in recent years is all too clearly seen in the way the national income has been used. In 1964, the public sector accounted for 44 per cent. of the gross domestic product. By 1969, that proportion had risen to 50 per cent.—exactly half our national output. In our view, this trend is unacceptable.

I now summarise the main policy changes resulting from our review. All the figures I give are in terms of 1970 prices and incomes.

I start with defence and overseas relations. In accordance with our election pledges, we intend to maintain a United Kingdom military presence in South-East Asia, as part of a five-Power defence agreement. We shall also be expanding the Territorial and Army Volunteer Reserve, and taking various other steps to strengthen the country's defences. But defence, like all other public expenditure programmes, has been rigorously examined.

The House should know that when we took office we found that the long-term castings of the previous Administration's defence policy were considerably in excess of the figures which had been published in their last White Paper on Public Expenditure—Cmnd. 4234. Nevertheless, despite the Government's additional commitments, defence expenditure will be contained.

In 1971–72, it will not exceed £2,327 million at 1970 prices—the same figure, allowing for pay and price changes, as that published by the previous Government in their last White Paper on Public Expenditure—Cmnd. 4234. This is after taking account of the additional expenditure which must necessarily flow from the new commitments which we shall be assuming.

In 1974–75, defence expenditure will not exceed £2,300 million at 1970 prices. This will represent a net saving of over £130 million on the long-term costings total for that year. My noble Friend the Secretary of State for Defence will be giving fuller details in a White Paper to be published tomorrow.

The fee for a new passport will be raised to £5 and other related charges and consular fees will be increased. These measures will yield an additional £5–£6 million in 1971–72 and £6 million a year thereafter.

The previous Administration provided for an expanding programme of overseas aid up to 1973–74 as further steps towards the U.N.C.T.A.D. 1 per cent. target. Our policy is to maintain that programme and to continue the progress to £340 million in gross cash terms in 1974–75. My right hon. Friend the Prime Minister announced last week in the United Nations that we will do our best to reach the 1 per cent. target by 1975, in the expectation that private flows will be able to make a substantial contribution.

I come next to industry. Public expenditure on trade, industry and employment—excluding investment grants and excluding the nationalised industries—is at present costing about £650 million a year. Much of this should be provided by industry itself and not by the taxpayer.

We will wind up the Industrial Reorganisation Corporation. After meeting existing commitments, a sum estimated at £20 to £30 million, which otherwise would have been drawn in 1971–72, will remain undrawn. Of even greater consequence, this decision will mean that we shall avoid a liability to find up to an estimated £40 million extra a year which would otherwise have been incurred in the years ahead.

The regional employment premium costs about £100 million a year. We do not regard it as a sufficient stimulus to regional development to justify its cost. We will continue the arrangements made by the previous Administration to maintain these payments up to September 1974, but they will be discontinued from that time.

Further economies will be made in expenditure on support for industry. These economies will rise to about £70 million in 1974–75. This will affect a wide range of activities, existing or planned. Throughout this field we shall apply strict criteria as to what are proper functions and activities for the Government to carry out or finance, and what should be eliminated, reduced or undertaken by industry itself.

The scheme of grants and loans to hotels will be brought to an end when it reaches the time limit under existing legislation. Commitments under the existing scheme will be honoured, and will be in excess of the previous forecast. There will be a new limited scheme of assistance to tourism projects in the development areas. There will also be additional expenditure on other selected activities, including new industrial training projects. The grant to the British Productivity Council will be phased out, and that to the Consumer Council will be discontinued.

Public expenditure on the research councils is now running at £110 million a year, and is rising at the rate of 5 to 6 per cent. a year in real terms. This programme will be cut by £2 million in 1971–72, rising to £5 million in 1974–75. This field of expenditure is now being critically reviewed to establish whether activities are being carried on which might more appropriately be financed by industry, and whether there is duplication of effort.

Next I come to agricultural support. We intend to introduce a system of import levies so as to improve the method of agricultural support and reduce the cost to the taxpayer. This involves international negotiations. We hope that the result of these negotiations will have a beneficial effect on the agricultural support bill as early as 1971–72, but it is too soon to be precise about the amount of the savings for that year. They could be substantial.

In the longer run we expect to make a major saving on the deficiency payments of the order of £150 million by 1974–75. In addition to this the Exchequer will also benefit from the proceeds of the levies themselves.

Existing plans for the capital expenditure of the nationalised industries would require about £1,600 million next year, rising to about £1,900 million by 1974–75. These estimates now appear too high by £25 million and £50 million respectively, after considering latest estimates of shortfall. We shall save £30 million in 1971–72 and £10 million in 1974–75 by not proceeding with nationalisation of the ports.

Furthermore, the programmes of the nationalised industries have been examined afresh and the consequent savings will result in an additional reduction of the total programmes by £42 million in 1971–72, rising to £73 million in 1974–75.

I come next to housing. The present system of subsidies, rents and rebates will be entirely refashioned. Instead of the present indiscriminate distribution of subsidies, help will go where it is most needed. My right hon. Friends the Secretaries of State for the Environment, for Scotland and for Wales will shortly give a full account of the Government's proposals. They will also be undertaking the necessary consultations with the local authorities.

By the middle years of the decade this reform will be transforming housing finance and should lead to a saving in public expenditure of £100 to £200 million a year as compared with the level of expenditure which would have flowed from the policies in operation when we took office.

There is scope for saving on the capital expenditure programme of local authorities, for instance, by reducing the part played by local authorities and new towns in financing commercial and industrial development outside development areas; I am counting on £10 million a year from this source.

Expenditure on the main road programme, including motorways, is due to rise from £394 million this year to £552 million in 1974–75. There will be no change in the motorway and trunk road programme, but some other works of relatively low priority are being deferred. The allocations for capital works by local authorities on minor roads, where the general standard is good, will be restricted. More stringent criteria will be applied to new transport infrastructure schemes in cities.

As a result of these measures total expenditure on roads and transport will be about £13 million lower than previously planned for 1971–72, and £43 million below the figure implied in existing plans for 1974–75.

The level of grants to the railways for unremunerative but necessary passenger services is being reviewed. Among other measures the grants to the London area commuter services will be eliminated by 1973. This will reduce the level of grant by £10 million in 1971–72 and £15 million a year thereafter. Port modernisation grants are also being reviewed.

I now come to the social services. Here, we shall establish more sensible priorities. We shall expect that, where the user can afford it, he should bear more of the cost and the taxpayer less, but we shall give more help to those who need it. At the same time, we intend to add substantially to the resources devoted to the basic structure of the health, welfare and education services and to introduce a new social security benefit.

This shift of the burden from the general taxpayer to the user will be achieved partly by the abolition of subsidies and partly by new or increased charges, but with exemptions and better remission arrangements for those who are poor or who have special needs. Many services are subsidise to an extent which is unnecessary and out of date in our present society.

In the health and welfare field, cheap welfare milk, now subsidised by the taxpayer to the extent of 6d. a pint, will cease to be available: but the present arrangements for free welfare milk will continue unchanged.

We shall in due course introduce measures to relate prescription charges more closely than now to a proportion of the cost of the individual prescription, but with a ceiling on the amount of the charge: in the meantime, the existing flat-rate charge will be raised to 4s. per prescription item, the arrangements for exemptions remaining the same.

For ophthalmic and dental services, tests and examinations will continue to be free, but charges for dental treatment will be related to approximately half the cost of the service actually provided, and charges for spectacles will be increased so as broadly to include the cost of dispensing: the present exemption arrangements will remain unchanged, except that in due course the upper exemption limit for dental charges for young people will be reduced from 21 to 18.

In the field of education, the charge for school meals, which is at present 1s. 9d., will be raised by two stages, next year and in 1973, towards the actual running cost, which is at present about 2s. 10d.

The supply of free milk to pupils over the age of 7 will be discontinued—

Hon. Members

Resign!

Mr. Barber

—although they will continue—[Interruption.]

Mr. Speaker

Order. Mr. Barber.

Hon. Members

Disgraceful!

Mr. William Molloy (Ealing, North)

On a point of order—

Mr. Barber

—although they will continue to receive it until the end—

Mr. Speaker

Order. Point of order, Mr. Molloy.

Mr. Molloy

I should like to make the point that what particularly enraged some of us on this side of the House—[HON. MEMBERS: "Not a point of order."]—was the hilarity and the amusement of the Prime Minister at the announcement of a measure of which he and the Conservative Party should be thoroughly ashamed.

Mr. Speaker

That is not a point of order: that is a point of anger. Mr. Barber.

Mr. Barber

—although they will continue to receive it until the end of the summer term following their seventh birthday. However, pupils up to the age of 12 who have a medical requirement and pupils in special schools will not be affected by this change. The practical arrangements will be discussed with local education authorities.

We shall also discuss with those authorities, in England and Wales, increases, from next September, in the fees charged in further education establishments for non-vocational courses and for vocational courses for those already in employment: but we do not intend that there should be any tuition charge for students under 18 attending full-time courses.

Also, in common with most other countries and with the private sector, we shall introduce charges for admission to the national museums and galleries.

Finally, in the field of social security, we have concluded that higher wages and benefits together with better provision through sick pay and redundancy payments have rendered anachronistic the present arrangements under which flat-rate unemployment, sickness and injury benefit is paid for the first three days of absence from work, provided that the claimant is unemployed or sick for a period of 12 days or more. In future, no benefit will be paid for the first three days of absence. Legislation will be introduced to end this entitlement.

I have already mentioned the arrangements which will continue to exempt altogether large numbers of people from the social service charges, including people who are on supplementary benefit, and, of course, there is a system of refunds available for those who, though not exempt, are unable to afford the charges. In future, the gross income levels for entitlement to free welfare milk and to exemptions and refunds of the new charges will be raised by amounts up to about 30s. a week, so that the remissions will, in future, cover more families than before.

In this way we shall extend protection to those with incomes above the supplementary benefit level, but still too low to bear the increased charges. We shall also intensify Government publicity for the entitlements of those with low incomes, to ensure that as many as possible of those who can properly claim exemptions and refunds, do in fact do so.

The timing of all these measures will depend on the completion of the statutory and administrative arrangements, including consultations where necessary, but in no case will any new or increased charge have to be paid before 1st April, 1971.

I come now to the other half of our policy for the social services. As I said earlier, having achieved savings by transferring more of the cost to those users of the services who can afford it, we intend to switch part of these savings, first, to giving more help to those who need it, for example through the higher remission limits, and, second, to improving the services themselves.

In the health and welfare field, we have decided to allocate, over the years 1971–72 to 1974–75, an additional £110 million to provide new resources for the further development of these services, including hospital facilities, particularly for the elderly and mentally handicapped.

In the field of education, in that same period, we shall provide for additional expenditure on educational building amounting to £28 million. This will enable local education authorities to make a substantial increase in their school building programmes for 1972–73, and, in particular—as we promised in our manifesto—to make faster progress in replacing and improving old primary schools.

In the field of social security, my right hon. Friend the Secretary of State for Social Services will tomorrow be introducing, as an immediate step in tackling family poverty, a Bill to provide a new cash benefit, to be paid from August, 1971, to be called the Family Income Supplement. This will be additional to existing family benefits, and will be paid to poor families with children where the wage earner is in full-time work, using a simple test of income. It will provide maximum benefit of £3 for the poorest families of all, tapering to a minimum benefit of 4s. at income levels roughly equivalent to supplementary benefit levels. Full details will be in the Bill.

In our election manifesto we declared that we would abolish the present scheme of investment grants and replace it with tax allowances or reductions.

Accordingly, investment grants will not be paid in respect of expenditure incurred after 26th October, 1970, unless the applicant satisfies the Secretary of State for Trade and Industry that the expenditure was incurred under a contract made by him on or before that date. Legislation will be introduced in due course.

Mr. Harold Wilson (Huyton)

After what date?

Mr. Barber

Expenditure incurred after 26th October, 1970, yesterday.

The ending of the investment grants scheme will yield substantial savings in public expenditure amounting to £670 million at constant prices by 1974–75, subject to the residual grant payments arising from existing contracts.

But the present level of company profits and liquidity makes it desirable that a large part of these savings should be channelled back to the corporate sector and this will be achieved through the tax system.

I believe that a system of depreciation allowances which permits a rapid write-off of expenditure on plant and machinery is the best way of encouraging effective industrial investment. For the country generally—I will deal with development areas in a few minutes—the new system of depreciation allowances will combine an improved rate of initial allowance with improved and simplified annual writing-down allowances.

Under the new system there will be a new first-year allowance which will enable 60 per cent. of the expenditure to be written off for tax purposes in the year in which the expenditure is incurred, and a standard rate of writing-down allowance which will enable 25 per cent. of the reducing balance of the expenditure to be written off successively in later years.

The new system will apply to expenditure incurred after 26th October, 1970, on plant and machinery, except for expenditure on motor cars not now eligible for initial allowance and on assets in respect of which an investment grant is paid under the transitional arrangements to which I have referred.

I also propose to simplify the rates of writing-down allowance for expenditure incurred before November, 1962.

In addition to concentrating as much as possible of the benefit of capital allowances at an early stage, these arrangements will represent a simplification of the present allowances system. Provisions to implement these arrangements will be contained in the Finance Bill, 1971.

In our manifesto we declared that there would be differential arrangements in favour of the development areas. To encourage the location and expansion of manufacturing industry in the development areas, certain forms of capital expenditure for industrial purposes in those areas incurred after 26th October, 1970, will receive free depreciation.

The assets covered will include immobile plant and machinery used in all forms of industrial processing, together with mining and quarrying, and construction and civil engineering.

Free depreciation will not apply where an investment grant is paid under the transitional arrangements. The service industries in development areas, together with mobile plant and equipment, will receive the new allowances I have already outlined for the country generally.

The House will remember that in this year's Finance Act the initial allowance for new industrial buildings and structures was raised to 40 per cent. in the development and intermediate areas, and 30 per cent. elsewhere, but that these increases were limited to the period of two years ending April, 1972. I have decided to retain indefinitely the 40 per cent. allowance for industrial buildings in the development and intermediate areas instead of allowing it to fall back to its earlier level in 1972 as this year's Finance Act provides.

On top of free depreciation for industrial investment in the development areas, we have decided on a number of measures to extend assistance to those areas by grants and loans under the Local Employment Acts. In particular, the rates of building grants will be raised by 10 points to 35 per cent. and 45 per cent. and greater use will be made of infrastructure schemes assisted by grants under these Acts.

We will proceed with these measures without delay, so as to give an early stimulus to growth in the development areas. The additional expenditure which they involve—

Hon. Members

Intermediate areas?

Mr. Barber

Certainly—is estimated to build up to £25 million a year.

The total value of all these differential arrangements is, as nearly as can be judged, no less than the total value of the differential arrangements at present in force. But we are confident that the new arrangements will prove more effective. We have thought it right to set these measures in train now, and we are, of course, continuing with our review of longer-term regional policies.

Mr. Marcus Lipton (Brixton)

What about income tax?

Mr. Barber

The hon. Gentleman keeps asking about income tax; I am dealing only with corporation tax.

The termination of investment grants, except in respect of existing contracts, will apply to ships as to other assets. Capital expenditure on ships will retain the free depreciation which it already enjoys, but on 100 per cent. of the cost of a new ship instead of on the cost net of grant. Ships will, in fact, along with capital equipment for scientific research, be the only assets which will qualify for free depreciation outside the development areas.

Mr. James Callaghan (Cardiff, South-East)

I am sorry to interrupt the right hon. Gentleman in the middle of his statement. However, in reply to a question, he used the word "certainly" at a point which was most important. He was asked whether the allowances which he was enumerating would be given to intermediate areas and his answer was "Certainly". Did he mean that?

Mr. Barber

I was referring to the decision which we have taken to retain indefinitely the 40 per cent. allowance for industrial buildings in the development and intermediate areas. I thought that the question referred to that; my answer was certainly intended to be directed to that point.

The proposals I have outlined will have implications for the proposed farm capital grant scheme and the horticultural improvement scheme on which my right hon. Friend will be making a separate statement. The rates of grant for fishing vessels which were increased when investment grants were introduced will revert to their previous levels. Free depreciation for fishing vessels will continue.

The Government will be discussing with the Northern Ireland Government the implications of these changes for matters within their responsibility.

I now sum up the results of all the changes of policy which I have outlined to the House.

The net effect on the public expenditure plans for the next financial year, 1971–72, as they stood and were costed when we took office, is a reduction of about £330 million.

Some of the policy changes require extensive consultation and negotiations and time will, therefore, be needed to work out their full implications for expenditure in later years. But so that the House may have some measure of their significance, I should tell the House that by 1974–75 the total reduction in public expenditure which we expect from these changes is nearly £1,600 million, including the saving from the abolition of investment grants. After allowing for the increased tax allowances for industry which I have announced, there will be a net saving to public funds of nearly £1,100 million.

Mr. Lipton

What about income tax?

Mr. Barber

I wish that the hon. Gentleman would not keep calling out "What about income tax". I am now dealing with another aspect.

This means that our plans will be achieved within an average annual rate of growth in public expenditure, excluding investment grants, between 1971–72 and 1974–75 of 2.8 per cent., as compared with a rate of 3.5 per cent. which previous plans would have implied.

Two White Papers which will be available in the Vote Office when I sit down summarise the public expenditure results for 1971–72 and 1974–75, and the proposed changes in capital allowances for industry. Further detail for the whole period will appear in the next annual series of White Papers on Public Expenditure.

This statement has been concerned primarily with public expenditure and taxation, but I must also refer briefly to another matter with which I will deal at greater length if, Mr. Speaker, I catch your eye in the debate which, I understand, has been arranged for next week.

In the period ahead, it will be necessary for a firm grip to be maintained on the growth of money and credit. I will not detain the House further with this now. But I want there to be no misunderstanding about our resolve to take the necessary measures to this end.

The changes which I have announced and which will now progressively be put into effect will mean that, instead of facing the depressing need to increase tax rates to finance the public expenditure programme, we can now look forward to the prospect of tax reductions.

So far as companies are concerned, both the C.B.I. and the T.U.C. have expressed to me their concern about the prospective level of investment; and it is the case that the trend of company profits has been downwards, and that in some sectors there is an inadequate cash flow.

It has been suggested that the most effective way of dealing with this situation would be to reduce company tax liabilities which will generally fall due on 1st January next. These liabilities arise in respect of trading profits of the financial year 1969 for which the rate of corporation tax was fixed in this year's Finance Act at 45 per cent. I propose to reduce the rate to 42½ per cent. This will be the first reduction in the rate of corporate taxation for 11 years.

In cases where corporation tax for the financial year 1969 has already been paid at the old rate of 45 per cent., this reduction will be put into effect by way of repayment in due course. The net result of this reduction will be to improve the financial position of industry and commerce by £60 million this financial year and £90 million next year.

Before I sit down, I had better respond to the hon. Member who keeps calling out, "What about income tax?".

I am very conscious that it is now 11 years since there was a cut in the standard rate of Income Tax. I have this afternoon announced a reduction in public expenditure which will total £330 million in 1971–72. As a consequence—and all my colleagues share the credit for this—I have decided that, with effect from the earliest practicable date, 6th April next, the standard rate of income tax will be cut by 6d.

The House may remember that, when a change in the rate of income tax is made in an April Budget, it takes between two and three months before the change is reflected in the pay packet. In order, therefore, to ensure that tax deductions can be made at the new rate from the very beginning of the next income tax year a short Bill will be introduced next week. The same Bill will make provision for the cut in corporation tax.

A cut of 6d. in the standard rate will cost the Exchequer about £315 million in the first year and £350 million in a full year.

Mr. Ted Leadbitter (The Hartlepools)

Who gets it?

Mr. Barber

All people who pay income tax.

The reduction in income tax and the reduction in public expenditure, taken together, will, therefore, be broadly neutral in their effect on demand in 1971–72.

It is, as I have said, 11 years since there was last a reduction in either the rate of corporate taxation or the standard rate of income tax.

I believe that the whole House will agree that it is right to take action to break out of the depressing cycle of high taxation and low growth which has bedevilled our country in recent years. These measures are designed to give the nation new impetus, new opportunity and new hope for the future.

My right hon. Friends and I ask for the support of the House.

Mr. Roy Jenkins (Birmingham, Stechford)

Despite the somewhat excitable atmosphere in which the right hon. Gentleman the Chancellor of the Exchequer finished his statement, I will begin by echoing what he said about the sadness of his succession. We all feel the loss of Iain Macleod.

We appreciate the difficult circumstances in which the right hon. Gentleman succeeded to his present office and we wish him well, on personal grounds at least, though if he goes on as he started this afternoon he must not expect an entirely uncontroversial period of office.

Perhaps I should begin by thanking the right hon. Gentleman for confirming nearly all the leaks about expenditure cuts about which we have read in the Press for at least the last two weeks.

The Chancellor made a statement which was long, complex, at times very depressing, at times mean in its approach and at times, if I may say so, deliberately vague and difficult to follow. [Interruption.] Indeed it was.

Sir Harmar Nicholls (Peterborough)

On a point of order. Is there a Question before the House, Mr. Speaker? Are we beginning a debate? Is it not the convention of the House that only questions are asked after a statement has been made?

Mr. Speaker

I imagine that the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) will come to his questions. We have, of course, had an unusually long statement.

Mr. Jenkins

I shall try to put my observations at least in an interrogatory form, though occasionally, in circumstances such as this, it takes a little time to put one's questions.

It will be well within the recollection of the hon. Member for Peterborough (Sir Harmar Nicholls) that it is usual, after a 40-minute Government statement, for the Opposition spokesman to be entitled by convention to a little latitude. This convention was certainly observed by right hon. and hon. Gentlemen opposite when they were in opposition.

Sir Harmar Nicholls

Further to my point of order. To make sure that we can preserve the procedures of the House, may I ask you to give a Ruling, Mr. Speaker, about the present position? Is is not a fact that following a statement a speech cannot be made—in other words, only questions can be put—unless there is a definite Question before the House? Should not the right hon. Gentleman confine himself to asking questions, otherwise will not our whole procedure be unable to work?

Mr. Speaker

Order. I am sure that the whole House is grateful to the hon. Gentleman for his points of order and for trying to preserve the procedures of the House. I remind him that that is my task.

Mr. Jenkins

Is the Chancellor aware that parts of his statement were difficult to follow? [Interruption.] I gather from that interruption that hon. Gentlemen opposite are telling me that I have already said that. I though that in view of the two interruptions that I have had from the hon. Member for Peterborough, I would remind the House of the position we had reached before I was interrupted.

The right hon. Gentleman's remarks were difficult to follow because of the differing time periods to which he referred; and that to some extent was exacerbated by his actions, as when, for example, in debating the savings on housing subsidies, he was rather vague and referred to figures of between £100 million and £200 million, though clearly, whatever the figure, it must be a mammoth and swingeing saving. He dealt with it on a yearly basis. When, however, he was dealing with increased expenditure on the Health Service and education he dealt with it on the basis of a four-year period, so that he could boast of a large figure for additional school building, amounting on average to £7 million a year.

Is not the right hon. Gentleman also aware that there was nothing in what he said to show that this is an immediate situation with which he is dealing? He does not have to shift resources into the balance of payments; push resources one way or the other. He is not dealing with an immediate situation, but—as is the entitlement of the Government, as a deliberate matter of choice—is making room for tax cuts. Is he not aware, therefore, that he must expect to be adjudged, as I believe he will be, by who pays the bills and who gets the benefits?

I have four short, specific questions to ask the Chancellor. First, on investment grants and the switch to allowances, will he confirm that this is to an overwhelming extent book-keeping, except in so far as the new system may be more or less effective? How much is he proposing to save by a cut from one to the other? The answer was certainly not made explicit. How much of this saving will come from development areas? Can he also say whether development areas will be exempt in these changes in so far as railway line closures are concerned, about which he spoke?

Secondly, is the right hon. Gentleman aware that the puny scheme for family income supplements in no way fulfils his predecessor's promise of 10s. extra per "fam with claw" at a net cost of £30 million, a promise which was given on the second day of the Budget debate this year and which was confirmed by the Prime Minister in a letter to the Child Poverty Action Group during the election campaign? Why is the right hon. Gentleman and the Prime Minister reneging on that election promise, too?

Thirdly, on school and welfare milk—cheap welfare milk—may I ask the right hon. Gentleman to say how much he has calculated—he must have made this calculation—consumption will be reduced as a result of this change?

Has the right hon. Gentleman calculated what effect this will have on dairy farmers' incomes? Will there be any compensating payment and will he therefore present this saving to us in realistic terms, beginning by telling us what will be the cut in consumption? If he does not do that, this change in policy will be as meaningless as it is objectionable.

Fourthly, how does the package begin to square with the Prime Minister's statement two days before the election that he and a Conservative Government would, if elected, act directly on prices? Or is the right hon. Gentleman going to claim that he will act directly—to put them up? That is the effect of nearly everything we have heard today.

We have heard of a tax cut—indeed, of two tax cuts—which will be of benefit certainly to some people; one of the cuts definitely will be—but what we have also heard from the right hon. Gentleman represents a whole future programme of tax increases—[Interruption.]—for that is what the charges amount to. It is the payment, not the method, which counts.

What this programme amounts to is a whole future programme of tax increases for the great majority of the people. It is imposed in a form that is inflationary, regressive and, at best, irrelevant to our problems, and in many cases it will exacerbate those problems. In so far as the promises and policies are unjustified, as we believe many of them to be, we shall oppose them at every stage, because we reject the petty dogmatism and short-sighted materialism on which so many of them are based.

Mr. Barber

First, to answer the right hon. Gentleman's question about development areas, he will see—I believe that he will agree with this when he sees the figures involved—that the differential in cash terms is at least as large as the differential which existed under the previous Administration. [Interruption.] But we believe that it will be much more effective. The right hon. Gentleman will be the first to agree—the facts establish this—that from the point of view of growth in the development areas the system of investment grants has not lived up to its expectations.

Next, I made no reference whatever to any closures of any uneconomic lines. [Interruption.] I said that there were certain necessary but unremunerative lines and I went on to say that we were reviewing them. I then announced, because I thought it was courteous to the House to do so, the decision that we had taken.

The right hon. Gentleman questioned me next about family allowances. Of course, I considered very carefully whether the best way of dealing with the problem of family poverty at present was by means of family allowances. We concluded, however, that the family income supplement—I will explain why we reached this conclusion—was a better way, for the present at least, to carry out our declared intention to help these families.

To increase family allowances without clawback would, the right hon. Gentleman will agree, be extremely expensive. [Interruption.] It was not suggested by the right hon. Gentleman or my right hon. Friend who preceded me at this Box that it should be without clawback. For consideration was the question whether one should increase family allowances with clawback. [Interruption.] The right hon. Gentleman may disagree, but if the Prime Minister will wait a moment—[Laughter.]

Mr. Lipton

Only slightly premature.

Mr. Barber

After all, the Prime Minister—[Laughter.] In view of the words used by the Leader of the Opposition when he was Prime Minister, at the time of the General Election, about the strength of the economy, nobody will take very much more notice of what he has to say.

I return to the serious question of family poverty. To increase family allowances with clawback would not be effective because it would bring into tax so many of the families which it would be intended to help. The family income supplement, on the other hand, will give more help to more poor families and, in particular, will bring help for the first time to first and only children.

Hon. Gentlemen opposite will see that this is so when they have an opportunity to read the Bill which my right hon. Friend the Secretary of State for Social Services will be introducing tomorrow. I believe that they will reach the conclusion that, in our present circumstances, this is by far and away the best means of dealing with the immediate situation.

Of course, in introducing this new method as an immediate step, we will look closely at the whole problem of family support and we shall consider the extended use of family allowances. This remains a possible approach to the problem and I assure the House that we shall study it further. Hon. Gentlemen opposite will see, when they look at the Bill, that what we propose is a better way of dealing with the situation at present.

Mr. Roy Jenkins

What is the cost of this method compared with the scheme which his predecessor promised?

Mr. Barber

The cost of this scheme is £8 million a year—[Interruption.] The cost of family allowances with clawback would, of course, depend on the level, though all I can tell the right hon. Gentleman—I am sure, in fairness, if he looks into the position, that he will agree with this—is that since his tax change in his last Budget it is extremely difficult now to help those people in the poorer families whom we all want to help.

I was then asked by the right hon. Gentleman about a statement made shortly before polling day to the effect that action would be taken to break the price spiral. The answer is that a statement was made based on the assurances of the previous Government about the so-called strength of the economy. [HON. MEMBERS: "Oh."] I was asked a serious question and I will give a serious answer.

The statements of the present Leader of the Opposition, when he was Prime Minister, about the strength of the economy, have been shown, as I say, to be entirely false. In those circumstances it would not have been right to have reduced taxation without achieving economies in public expenditure.

I grant the right hon. Gentleman this. If, of course, the economy had been as strong as the right hon. Gentleman boasted at the time, then there would certainly have been good arguments for a newly-elected Government to take immediate action to break the price spiral through a reduction in direct taxation, but the right hon. Gentleman knows as well as anybody that those were not the circumstances.

There may be some effect on milk consumption. I believe that one has to look at the situation and decide whether it is right for families who can afford to pay these charges to be subsidised by the general taxpayer. I do not believe that it is right.

Mr. R. H. Turton (Thirsk and Malton)

While congratulating the Chancellor on the clarity of his announcement and the balanced nature of his proposals, may I ask him to give the House an estimate of the share of the gross domestic product that will be taken by the public sector in 1974–75, when his changes are complete, and to say how that proportion compares with that of all our main industrial competitors?

Mr. Barber

That depends upon a variety of factors. It would not be right for me to go beyond the figures that I have given and which are undisputed, namely, that the public sector accounted for 44 per cent. of gross domestic product in 1964 while in 1969 it accounted for 50 per cent. As a result of the changes which I have announced the annual average rate of public expenditure has been reduced over those years from 3.5 per cent. to 2.8 per cent.

Mr. Jeremy Thorpe (Devon, North)

Is not the linkage of prescription charges to the value of the medicine prescribed, a new and totally regressive feature which will be highly complicated to administer? Can the right hon. Gentleman say what it will yield?

Turning to the abolition of milk for children of 7 and upwards, up to the limit at which his predecessors abolished it, can the right hon. Gentleman say whether the advice of the Department's medical committee on the aspects of food was sought and, if so, with what result?

As to the nationalised industries, are they likely to be allowed to raise money on the public market and what is the Chancellor's view on the stimulation of employment in development areas in the light of these new policies?

Finally, since the right hon. Gentleman is so anxious to give value for money, may we take it that East African Asians whose passports were devalued in the previous Parliament will not be expected to bear the full increase of cost?

Mr. Barber

A number of these points are matters which we will deal with in debate. The reason I thought it courteous to the House to make this statement was because there are a number of provisions in it, which I have set as briefly as I can to cut the length of the statement and because I thought it right that hon. and right hon. Gentlemen should have an opportunity of considering the details to make more meaningful the debate which will follow.

The proposals relating to prescription charges will save £19 million in 1971–72 and £35 million in 1974–5. The right hon. Gentleman will recognise that children under 15, people over 65, expectant mothers, war disabled, those exempted on financial hardship grounds and other categories—and for the time being the existing range of exemptions—will be exempted.

Mr. J. Bruce-Gardyne (South Angus)

My right hon. Friend referred briefly to the need for effective credit and monetary policies. Would he not agree that so far the guidelines laid down by the former Chancellor and confirmed by my hon. and right hon. Friends have been blatantly disregarded by the Bank of England? Would he not agree that effective control of Government spending, although it may be a necessary adjunct to effective monetary policies, is no substitute for these policies?

Mr. Barber

As this statement is concerned almost entirely with public expenditure and taxation I deliberately kept what I had to say to a few sentences and made it clear that I would deal with it at length in the debate. This is a subject which can be better dealt with in debate rather than by question and answer.

Mr. Stanley Orme (Salford, West)

While the right hon. Gentleman says that he did not make any remarks about the effect that this statement will have on the general wages situation, is he aware that the distribution of wealth he has talked about will fall to a large extent on the average industrial worker who will have to pay increased rents, increased school milk, and so forth?

Is the right hon. Gentleman further aware that this will bring tremendous pressure from semi-skilled and skilled workers to ensure that they do not fall behind? Does he realise that they will take action to redress this by making wage applications which will make the current situation seem like a tea party? What will he do when that happens?

Mr. Barber

I do not believe that it will have this effect. The intention of the proposals I have outlined is to ensure that the country's economy grows at a faster rate than it has been growing.

Mr. Eric S. Heffer (Liverpool, Walton)

Stupid as well as vicious.

Mr. Barber

I agree with the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) who, in his Budget speech of 1969, said: … whatever the evidence or lack of it, high direct taxation is widely believed to be a disincentive, and … this could have a stultifying effect upon the development of the economy."—OFFICIAL REPORT, 15th April, 1969; vol. 781, c. 1031.]

Mr. Peter Emery (Honiton)

Does my right hon. Friend realise that the great success of his statement is in direct ratio to the annoyance that it creates on the benches opposite?

May I ask two questions? Do the alterations to investment allowances and the depreciation allowances cover the tourist and hotel industry? Can he give the number of taxpayers who will benefit from the reduction in the standard rate of income tax?

Mr. Barber

As to the first question, I think it would be preferable for my hon. Friend to look at the details which are set out in a White Paper. They are to some extent complicated. I would not want to make any off-the-cuff statements and mislead the House.

With regard to the question about the number of taxpayers who will benefit as a result of the cut in the standard rate, I am sorry to tell my hon. Friend that I did not ask the Inland Revenue about this because the number alters.

Mrs. Shirley Williams (Hitchin)

Will the right hon. Gentleman say, first, whether the increase in remissions of 30s. applies to increased charges such as prescriptions and school meals, or only to new charges, as the statement says?

Will he say, secondly, whether we are correct in assuming that the family income support scheme will cost £8 million as compared with the £25 million which the right hon. Gentleman is pledged to give back to infant incomes at present not allowed to be disaggregated from parental income—which is a very strange comparison because it affects far fewer people?

Will the right hon. Gentleman also say whether we are correct in assuming that he has made no statement at all about a possible increase in supplementary benefits for old people who will be very much affected by what he has said about council house subsidies?

Lastly, will the right hon. Gentleman say how he can possibly justify what he has done in the light of the pledge given by the Prime Minister, which I will read to the House: 'We accept that the only way of tackling family poverty in the short term is to increase family allowances and operate the 'claw-back' principle."?

Mr. Barber

The position, very simply, is that to help the poor families we have to try to find the best means of getting financial assistance to them, to those who really need it. This is what we are trying to do. I beg the hon. Lady to wait until she has seen the Bill which will be introduced tomorrow by my right hon. Friend.

Without prejudice to the possibility of using at some other time the idea of family allowance with claw-back I believe that when she looks at the Bill carefully she will come to the conclusion that in present circumstances, bearing in mind the present tax ratio, these proposals are the best way of helping these people.

Arrangements will continue to operate to exempt altogether large numbers from charges including those on supplementary benefits—and including the increased charges. There is, as the right hon. Lady knows, a system of refunds for those who, although they are not exempt, are still unable to afford the charge.

With regard to these arrangements, the gross income levels for exemptions and refunds will be raised by up to 30s. a week and, therefore, as I think I said in my statement, the remissions will cover more families that they do at present.

Mr. Iain MacArthur (Perth and East Perthshire)

Will my right hon. Friend confirm that the new depreciation allowances will be available to all service industries in the development areas? If this is the case, will he also recognise that there will be the widest possible welcome for this new approach to the service sector? Is it his intention, in view of the importance of the service industries in themselves, and as generators of industrial growth, to give further encouragement to the service sector in due course?

Mr. Barber

We always have taken the view that it was wrong to differentiate generally when dealing with service industries. Certainly, the depreciation allowances which I announced will apply to the service industries. When I have any statement to make about future policy I will make it.

Mr. Dan Jones (Burnley)

On a point of order. Would the Minister reply to my hon. Friend who asked a question about the old people and supplementary benefits?

Mr. Speaker

Order. That is not a point of order. It is just repeating a question.

Mr. Joel Barnett (Heywood and Royton)

Can the right hon. Gentleman tell us how this abominable statement, increasing the cost of living for so many and reducing taxation by perhaps a 1s. a week for an average worker to a maximum of 3s. for the average industrial married worker, will help to increase economic growth? Would he not agree that the major problem is getting increased industrial investment?

Would he confirm that it is much worse than my right hon. Friend the Member for Birmingham Stechford (Mr. Roy Jenkins) said—it is much worse than bookkeeping? Would he not agree that for most companies what he is doing is switching from investment grants, not to investment allowances but to depreciation, which means that for the life of a particular asset of a company there would be no improvement whatever? Would he confirm this is the case and that, therefore, he is reducing liquidity for most companies even with the 2½ per cent. cut in corporation tax?

Mr. Barber

The net injection for companies as a result of what I have announced will be an additional £60 million in this financial year which undoubtedly will have a considerable effect, or at any rate a significant effect, on their liquidity. In the next financial year it will be £90 million.

As for the cut in income tax, I can only say that I am sorry if the hon. Gentleman does not like it. I believe that most people will like it. I recognise that it is not the policy of his party because it was almost exactly this time of the year in 1964 that one of the very first actions of the Labour Chancellor was to increase the standard rate of income tax by 6d. At least today we have brought it down. I believe that this is the right way and I believe that the whole House would agree that we could not go on as we have been doing over these past four or five years.

Sir Gerald Nabarro (Worcestershire, South)

Is it not a fact that the Chancellor has today implemented precisely what he promised and what every Tory candidate promised to do in the General Election—and within four months?

Will my right hon. Friend apply himself to one omission from the statement? Is he aware that the largest exporting industry in Britain, namely, the motor industry, is in a parlous condition, with a declining home market for motor cars—92,000 less in the first eight months of this year as compared with the first eight months of last year? Is it the intention of the Government to make a separate statement about a stimulus to the motor industry in the early future?

Mr. Barber

I certainly do not have anything in mind about a statement about the motor industry at present. I will only say, in passing, that it would help a little to get that industry into the sort of condition which he and I, and the whole House, would like it to be in, if it could do something about its industrial relations.

Miss Joan Lestor (Eton and Slough)

Bearing in mind that the supplements for poor families will be interpreted as an aid to the bad employer, without any statement being made about what will be done in that respect, I am sure that the right hon. Gentleman will agree that it is essential that those people entitled to the supplement should get it.

Has the right hon. Gentleman taken into consideration the fact that in almost every sphere in which people have had to apply for social benefit—rate rebates, rent rebates and, in future, assistance in the payment of school meals—many people entitled to assistance have not received it? Is this why the figure is so very low for family supplements?

With regard to the decrease of 6d. in income tax, may I inform the right hon. Gentleman that when the Labour Government increased income tax it was to pay for specific social benefits? If this 6d. decrease in my income tax denies children free milk at school, then as far as I am concerned the right hon. Gentleman knows what he can do with it.

Mr. Barber

I ask the hon. Lady to await the publication of the Bill which obviously will be debated before too long elapses thereafter. She will then see the significance of this proposal and the way in which it will help families most in need. At any rate, it is something of a change—and I hope that the hon. Lady will give me this credit—to have a cut in public expenditure accompanied by a cut in taxation.

The last occasion when there was a cut in public expenditure approaching this cut was in 1968–69, when there was a cut totalling £300 million. But in the 1968 Budget the Labour Chancellor of the Exchequer put up taxes by £923 million.

Dame Irene Ward (Tynemouth)

Will my right hon. Friend the Chancellor accept that I have great confidence in him? May I ask two questions? First, as he did not say anything in his statement—[Interruption.] Do not be silly. Would my right hon. Friend let us know what he has in his mind—[Interruption.] You are an idiotic lot.

Mr. Speaker

Order. "You" includes Mr. Speaker. I am sure that the hon. Lady did not mean that.

Dame Irene Ward

Will my right hon. Friend say what is in his mind about selective employment tax? He did not refer to S.E.T. in his statement. [Interruption.] I have already said that I have the greatest confidence in my right hon. Friend, which I did not have in the Labour Chancellor of the Exchequer.

Would my right hon. Friend say something about S.E.T., because it is of great importance, particularly in my part of the country, and, indeed, in the rest of the country. In his statement—and it was difficult to take everything in—did my right hon. Friend announce that help would be given to people living on small fixed incomes whom it is very difficult to help?

Mr. Barber

I ask my hon. Friend to look at my statement. She will then see what I said about people who are at the lower end of the income scale. The answer to her question about S.E.T. is very simple. We gave a pledge to abolish it, and we shall.

Mr. Harold Wilson

Would the right hon. Gentleman be a little more gallant to his hon. Friend the Member for Tynemouth (Dame Irene Ward)?

Dame Irene Ward

He need not be a little more gallant. He is always gallant.

Mr. Wilson

Then would the right hon. Gentleman be a little more forthcoming to the right hon. Lady? Since he has told us so much about his next Budget, did not the Prime Minister pledge that S.E.T. would be abolished—not reduced—in the first Budget? [HON. MEMBERS: "No."] Yes, he did. The facts are on the record, and I will produce them again. It was given on television on 2nd February last year. It is a fact. Does the right hon. Gentleman intend to carry out that pledge?

Secondly, since the right hon. Gentleman has told us what he will do about direct taxation, will he give an assurance that there will be no increases in indirect taxes in the forthcoming Budget to pay for it?

Thirdly, I thought that I heard the right hon Gentleman say that his plan was to cut housing subsidies by between £100 and £200 million a year. I hope that I got that right. If that is so, will the right hon. Gentleman explain why, when earlier this year I suggested to his right hon. Friend that his policy would involve a cut of £100 million—the lower end of that bracket—all that the House was treated to was one of those fits of petulance mainly reserved for Commonwealth Heads of Government?

Mr. Barber

The right hon. Gentleman had better await the statement on housing. However, I made it clear that the expected saving by 1974–75 was in the region of £100 to £200 million. If the right hon. Gentleman will await the statement which will be made by my right hon. Friend the Secretary of State for the Environment, he will see that that is so.

What the right hon. Gentleman said about selective employment tax was a little odd, coming from him. I have not even—

Mr. Wilson

Answer the question.

Mr. Barber

I will.

I have not even spent 100 days in office as Chancellor of the Exchequer. The present Government have achieved a little more than the right hon. Gentleman achieved in his first 100 days.

The fact is that we are going to abolish selective employment tax. My right hon. Friend did not say that it would be abolished in the first Budget. What the right hon. Gentleman says comes ill from him after we have reduced taxation to the extent that I have announced today within a few months of coming into office when his Government, over the whole of their term, increased tax rates by about £3,000 million.

Mr. Edward Gardner (South Fylde)

May I pursue the concern of the hon. Lady the Member for Hitchin (Mrs. Shirley Williams) about the old people? Will my right hon. Friend confirm, and is it not a fact, that the majority of the old people—those who stand in need of Government assistance—will benefit substantially as a result of these proposals?

Mr. Barber

I appreciate the views of people who are opposed to cutting income tax, but if one cuts the standard rate of income tax one can help only those people who pay income tax.

I have twice set out—briefly, it is true—our proposals for dealing with the poorer sections of the community—by raising the gross income level for exemptions and refunds, which will extend the area in which assistance can be given, and also as a result of the Bill which my right hon. Friend is to introduce tomorrow.

But if one is looking specifically at the position of elderly people I ask my hon. and learned Friend to bear in mind that over the four years there will be £110 million more than there was in the previous programme for health and welfare, including hospital facilities, particularly for elderly people. It will be for my right hon. Friend the Secretary of State for Social Services to decide, in conjunction with his colleagues, the best use to which this new finance can be put.

Mr. Frank Allaun (Salford, East)

Does the Chancellor admit that this savage slashing of council house subsidies—great as the total is this year, £170 million—will mean not only a serious increase in council house rents, but, even worse, the virtual ending of all council house building except for the disabled and the elderly? Since most working people are dependent on council houses, how does the right hon. Gentleman square this with the Prime Minister's talk of one nation?

Mr. Barber

What we are doing is precisely what we said we would do in our election manifesto.

Sir Harmar Nicholls

Is my right hon. Friend aware that he need have no doubt that the nation will welcome and applaud his early implementation of election pledges?

My right hon. Friend made clear in his statement that where he was removing the grants to industry he was relying on firms to make up for them out of their own resources. While the £60 million reduction in tax this year will go some way towards that, contrary to the views of some of my colleagues who look at this matter from a theoretical point of view, will he bear in mind that if the bank squeeze is kept at its present level and in its present form many medium and small firms which will have to make up the difference simply will not be able to do so?

Mr. Barber

I ask my hon. Friend to look in due course at the White Paper on investment incentives giving the effect over the next couple of years, which is favourable to companies, of the proposals which I have put before the House today.

Mr. John Mendelson (Penistone)

On the question of the steep increase in prescription charges, which I hope the right hon. Gentleman regards as a serious matter, will he tell the House whether he initiated through one of his colleagues any inquiries into the incidence of the existing prescription charges on people in mining areas, in areas where there are many dust diseases and where large numbers of people do not come within the limits of any of the exempted categories he has mentioned and where people are already paying 7s. 6d. or 10s. a week for prescriptions, which will go up to 15s. or £1 a week—an imposition which many wage earners will not be able to afford? If the right hon. Gentleman made such inquiries, how did he have the face to come to the House and announce these increases?

Mr. Barber

If the hon. Gentleman would like to have details of the exemptions—and for the time being they will remain the same—I am sure that my right hon. Friend the Secretary of State for Social Services will send them to him. They cover about 40 per cent. of the population who are excluded from the payment of prescription charges. My approach to this subject is very much like that of the present Leader of the Opposition, who said about prescription charges: 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.]

Mr. Richard Body (Holland with Boston)

Does my right hon. Friend realise that the new social security payment—the family income benefit—will fulfil an urgent need in areas like East Anglia, where wages have been abysmally low for the last six years?

Mr. Barber

I am sure that my hon. Friend will find that the Bill, when published, is helpful.

Mr. G. R. Strauss (Vauxhall)

Is the Chancellor aware that recently in a public speech the Minister for the Arts said that there might be a case for making charges for entry to public galleries and museums if they provided additional money for building museums and extending existing ones? Can he assure us that the money which he proposes to raise by this new imposition will be earmarked for that purpose?

Mr. Barber

I certainly could not give any such assurance.

Mr. Robert Adley (Bristol, North-East)

Will my right hon. Friend give an assurance that when the ports modernisation grants to which he referred at the beginning of his statement are reviewed no ports which have already put in proposals for such schemes will be subjected to retrospective action?

Mr. Barber

It would be best to await the outcome of my right hon. Friend's consideration. However, if my hon. Friend would like information in the meantime, it would be best for him to ask my right hon. Friend for it.

Mr. Robert Sheldon (Ashton-under-Lyne)

Would the Chancellor state what the extra costs are of administering the family income supplement? Secondly, will he accept that the ending of the investment grants and the notion of replacing them by depreciation allowances is a step even further back from that which existed in 1963? At that stage there was an investment allowance system. So we have gone very far back along the road of reducing investment incentives well below the level operating in most countries in Europe today, and in certain other industrial countries, too. Does he realise the enormous significance of this?

Mr. Barber

The costs of administering the family income supplement will be in the Bill. As for the investment grants, the truth is that they have not worked. Since they were introduced in 1966, with high hopes of them by hon. and right hon. Gentlemen opposite, there has been a slower increase in investment in real terms than in the previous four years.

Mr. Norman St. John-Stevas (Chelmsford)

May I revert to the question raised by the right hon. Member for Vauxhall (Mr. Strauss)? While it is reasonable to charge for admission to public galleries and museums—I presume the House of Commons is exempted—does the Chancellor realise that this would be much more acceptable to the public if it were coupled with an undertaking from the Government to increase the grants to museums and galleries in some way?

Mr. Barber

This question is obviously one which one has to consider in the same way as any other demands on resources which are available, but I believe that it is practicable and reasonable that people should make an honest direct contribution towards the services they receive. The fact is that most museums and galleries in advanced countries do charge for entrance and I hope that, on the whole, my hon. Friend will consider this reasonable.

Sir Myer Galpern (Glasgow, Shettleston)

The Minister spoke of the need to strengthen the country's defences. Is he rejecting outright any responsibility for defending the health of our children, by his savage butchery of the school milk service, a service universally acclaimed as the greatest health-giving benefit? Does he realise that any niggardly saving he may achieve will be dissipated completely by a greater need for providing more medical services for those unfortunate children deprived of the school milk service?

Mr. Barber

I do not believe that the consequences foreshadowed by the hon. Gentleman will take place. He will recall that the Labour Government in 1968 withdrew free milk from secondary schools, and that there was a great outcry at the time. I do not think that it has had any adverse effect. I come back to the point I made earlier. Since many of these social services were introduced circumstances have changed, and I believe it is right that people who can afford to pay for some of these services or who can make a bigger contribution to them should do so.

Mr. Laurie Pavitt (Willesden, West)

Will the right hon. Gentleman confirm that the only extra charges on the sick, disabled, blind, and those with pebble glasses, are those he has announced, and that the Government have no intention of making charges for visits by general practitioners or for hospital board and lodg- ing or for diagnostic services in hospitals? On prescription charges, is there any intention of making any change commensurate with the 4s. and the 55s. season ticket for the chronic sick? Has the Chancellor borne in mind the fact that last year the Chancellor got only £14.8 million from this source, which was taken up by administrative expenses, and the fact that the prescription charge in 1969 more or less broke even?

Mr. Barber

We shall keep the so-called season ticket. Indeed, this is one of the very categories to which I referred before. We shall keep it. Whether it will be modified is a matter the hon. Member must ask of my right hon. Friend the Secretary of State for Social Services.

Mr. Denis Howell (Birmingham, Small Heath)

The Chancellor of the Exchequer has just referred to what the Labour Government did over school milk. Does he appreciate that the Labour Minister of Agriculture was advised by his Department's nutritional authorities that in no circumstances should the Government take milk away from children in primary schools, and that, therefore, the Labour Government did not do so? What advice has the Chancellor taken on that this time—or is he just giving us his own off-the-cuff opinion? Secondly, how much does he calculate will be the amount of the average weekly increase in council house rents as a result of his proposals? Thirdly, no mention was made of the tax relief to owner-occupiers. It is very odd that council house tenants are to be asked to make this sacrifice while in the statement no mention at all is made about the £40 relief for owner-occupiers.

Mr. Barber

I know of no advice which was given to me that my proposals will have any significantly adverse effect on health. As for the council house rents and the proposals I have put forward, the hon. Gentleman must realise that this was clearly set out in our election manifesto. We said that we were going to do this, and it will be done, and it will be in conformity with our pledges.

Mr. Denis Howell

I did not ask whether it was in an election manifesto. I asked how much will the increase be. Can we please have an answer?

Mr. Barber

The hon. Gentleman will have to wait and see when the statement is made.

Mr. James Boyden (Bishop Auckland)

How much does the right hon. Gentleman expect to collect from increases in further education fees and charges through the national galleries? In other words, how much is this a contribution to the new "barbarous" society?

Mr. Barber

First of all, the galleries' fees are expected to bring in £1 million in a full year when fully implemented. As for further education fees, this will save £3 million in 1971–72 and £5 million in 1974–75. I think the hon. Gentleman will know that there are precedents for this sort of action concerning further education, but I carefully set out that there were certain categories who would not be affected by this, although I think it not unreasonable that they should make a modest contribution. After all, even with the proposals which I have put forward, on further education it is a very relevant factor that fee income will still be only 10 per cent. of gross cost, and that cost has risen very quickly. The hon. Gentleman knows a considerable amount about this side of our education services, and he will know that many taking training courses are helped by their employers for training in industry, and I do not think that that should be affected. Local authorities normally exempt students from education fees for full-time educational courses, and it is not intended to alter that arrangement.

Mr. Norman Tebbit (Epping)

Is my right hon. Friend aware that the statement foreshadowing increased expenditure on social and educational services will be widely welcomed, but would he confirm that that money will be allocated by the local authorities in agreement with his right hon. Friend? Secondly, is he aware that it would give very widespread satisfaction, I am sure, to all hon. and right hon. Members if he would announce a scheme under which those who regard tax cuts as abominable, vicious and stupid could be relieved of the obligation to participate in those tax cuts?

Mr. Barber

That is quite a thought. As for the additional expenditure which I have proposed for our health and welfare and educational purposes—and I think my hon. Friend is referring to health and welfare in particular—it will be £110 million over four years. My right hon. Friend the Secretary of State for Social Services will be making a statement on how this will be used.

Mr. E. Fernyhough (Jarrow)

The right hon. Gentleman said he had not held office for 100 days. We must thank heaven for that. Does he appreciate that one has to go back to 1931 to find a meaner statement than the one we have had this afternoon? Does he appreciate that the building of the better tomorrow at the expense of the children, the sick and the unemployed, is unworthy of any nation which professes to be Christian. Will he tell me two things? What will the change in regard to agricultural subsidies and import levies mean in terms of cost of living? How much does the Chancellor expect to save by denying to the unemployed and sick the first few days of the benefits to which they are entitled?

Mr. Barber

On the latter point, this proposal was more or less that which was put forward by his right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), but it was withdrawn. [Interruption.] I believe that he was absolutely right, but he obviously did not have the support of his colleagues. I believe that it is reasonable in present circumstances that this saving should be made. I realise what the hon. Gentleman has in mind when he talks about the effect on the sick, and so on, but by doing what I have announced today there will in total, public and private, now be more resources devoted to health and welfare than before. This is one of the things we can do. It is all very well for the hon. Member to talk about agricultural subsidies, and so on.

Mr. Fred Peart (Workington)

Oh.

Mr. Barber

I know that the right hon. Member for Workington (Mr. Peart) does not like this, but it is interesting that in only May of this year his right hon. Friend the Member for Coventry, East (Mr. Crossman) said that he wanted an additional £350 million to maintain the existing standard of the National Health Service. When he was asked where the money would come from, he said that there were only two major areas, one from agricultural subsidies and the other from industrial grants. I believe that his right hon. Friend was right in putting this forward. I come back to the point I made before. Over the past five years, under the Labour Government, things have gone from bad to worse. Taxation has been enormously increased, prices have risen faster than at any time since 1951, and at the time we took over there was the worst summer unemployment figure since 1940. Furthermore, in the first half of 1970 we had the worst rate for strikes since 1926. We cannot go on like this. We must give somebody an incentive in order to produce what is necessary for the nation.

Mr. Heffer

Is the Chancellor aware that the abolition of the three waiting days is about the most vicious piece of class legislation that has been proposed this afternoon. This is included in a whole bunch of class legislation, which will particularly affect workers in the building industry who will now struggle back to work earlier than they should do. It might decrease the absentee rate, but it will increase the death rate among building workers. Is he also aware that his entire programme can be summed up in the main by saying that we are going back 40 years and that we have proposals of the most vicious class nature? I want to put that on record, because obviously we shall fight them every inch of the way.

Mr. Barber

In regard to the abolition of the three waiting days, I do not believe that in present circumstances this is a sensible use of money.

Mr. Heffer

You have never been a working man.

Mr. Barber

Now, because of high wages and high benefits, there is much better provision today through sick pay and redundancy pay.

Mr. Heffer

You have never experienced it.

Mr. Speaker

Order. The hon. Member for Liverpool, Walton (Mr. Heffer) put a question. He must listen to the answer.

Mr. Heffer

Further to that point of order. I apologise if I get slightly emo- tional about this, but those of us who have experienced this type of thing and who know the effect that this will have on workers become emotional in this sort of atmosphere.

Mr. Speaker

Order. I never question anybody's motives or emotions, but emotions are not matters of order.

Mr. Barber

In answer to the hon. Gentleman, I can only say that if he is not prepared to see this happen, he will not have the additional resources for hospitals and schools of the kind and extent which I have announced. These are programmes which go considerably beyond the plans of the previous Administration. When the hon. Gentleman talks about going back over the years, has he forgotten that his own Government during their period of office of six years, with the hon. Gentleman's support, maintained in this country a growth of output only half what it had been in the previous six years? Has he also forgotten in regard to the people for whom he says he is so concerned—and I believe that he is sincere—that during that period the standard of living rose at only about a third of the rate at which it had risen during the previous 13 years? These are the facts that count.

Mr. S. C. Silkin (Dulwich)

Is the right hon. Gentleman saying to the House that the resources for increased hospital building should be found from the pockets of the sick?

Mr. Barber

All I can say is that that is not the view which was taken by his own right hon. Friend when he was Prime Minister when the Labour Government brought back prescription charges. The then Prime Minister took an entirely contrary view, and I thought he was right to do so.

Mr. Tom Boardman (Leicester, South-West)

Is it not clear that the increased charges proposed by my right hon. Friend for prescriptions, housing, milk, and the like, will not fall upon any family or persons whose means are inadequate to meet them, thus accepting the standard set by the Opposition when they were in Government?

Mr. Barber

This is the purpose of the proposals for remissions and exemptions and family income supplement which I have announced this afternoon.

Mrs. Shirley Williams

The Chancellor said that the increase in resources would have to be raised through charges. Is he not aware that the increase of £28 million in four years for school building is very much less than the increase in school building under the Labour Government?

Mr. Barber

I think the right hon. Lady has misunderstood the point. These are additional starts which are over and above the proposals put forward by the previous Government. This is additional school building.

Mr. Speaker

Order. We must move on. I understand that we are to debate this matter next week.