BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 05 April 1971 vol 815 cc44-180

Mr. Speaker

Before I call the hon. Member who is to speak first for the Government, I would tell the House that I have another 30 hon. and right hon. Members who want to speak and that if what has happened in this debate already continues, if some hon. and right hon. Members speak for half an hour or more each, it means squeezing out other Members. I hope, therefore, that there will be greater regard for brevity.

4.5 p.m.

The Chief Secretary to the Treasury (Mr. Maurice Macmillan)

There has been a marked contrast between the wide diversity of the pre-Budget advice on whether the Chancellor should reflate the economy or move to a policy of greater stringency, and the relative unanimity, on one point at least, of those who have spoken in this debate, for no one has yet suggested, so far as I know, that my right hon. Friend has gone too far in his reflation. Many hon. and right hon. Gentlemen opposite have, indeed, hinted that he has not gone far enough and that he has acted too late.

This, of course, is very different from the accusations which the House will remember from last October, that the package of public expenditure savings and tax reduction was not, as my right hon. Friend said at the time, neutral in its demand effect, but dangerously inflationary. In any case, the charge "too little and too late" comes oddly from right hon. Gentlemen opposite in relation to cutting taxation. Their system was for six years "nothing and never". The Budget speeches of the right hon. Gentleman the Member for Birmingham, Stechford (Mr. Roy Jenkins) were persuasive and eloquent, they even expressed regret that he was unable to reduce the tax burden of the high earners, they went so far as to deplore the disincentive effects of high taxation; but when it came to giving any hope to the taxpayer his speeches sounded like Edgar Allen Poe's raven—a dispirited croak of "Never more".

Anyway, whatever right hon. Gentlemen may have done in Government, at the moment they seem to agree with us on this side of the House on one matter at least, that my right hon. Friend is right in reducing the burden of taxation in total, for no one has suggested that he should have reduced it by less.

It is true that my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), if he catches your eye, Mr. Speaker, may yet prove us all out of step in this matter, but so far not even my hon. Friend the Member for Oswestry (Mr. Biffen) has made this suggestion. He made a number of other points in a speech which was as interesting and original as his speeches usually are, and expressed with his usual cogent wit. I hope he will forgive me if I say that in seeming to prefer purchase tax to value-added tax, admittedly as the lesser of two evils, he was allowing his dislike of the Common Market to overcome his abhorrence for any distortion of the market—far worse, of course, under purchase tax than under value-added tax.

I should like to take this opportunity of congratulating two of my hon. Friends on their maiden speeches, both delivered with force and clarity. I am certain the House will look forward to hearing more from them.

My hon. Friend the Member for Falmouth and Camborne (Mr. Mudd) praised his predecessor and sought to follow his example in speaking up so vigorously in the interests of his constituency, and particularly Cornish tin mining. We are not ignorant of the problems which he described, and we are studying them. Nor are we so callous towards the arguments which he put forward as he would have the House believe; but, as he himself said, there are difficulties.

My hon. Friend the Member for Truro (Mr. Dixon) made some suggestions with not all of which, I think, his hon. and right hon. Friends on this side of the House would agree, but in so doing he brought out very clearly what is one of the main objectives of the Budget, to encourage rather than to penalise the creation of new wealth, and to encourage not only small savings but also individual investors. This is a theme that has long been an enthusiasm of mine, so I have considerable personal sympathy with some of the arguments put forward by my hon. Friend the Mem- ber for Surrey, East (Mr. William Clark), who also referred to the exemption of small disposals from capital gains tax, as did my hon. Friend the Member for Cities of London and Westminster (Mr. Tugendhat) in, incidentally, the first Budget contribution that the House has heard from that constituency by force of circumstances for many a long year.

I should make clear to them that the Government wanted to make the £500 disposals exemption in 1970–71, bringing it in now for this year. It would have been wrong to withdraw the £50 gains exemption, in effect retrospectively, at the same time. The two will run together but only for 1970–71, since it would obviously be complicated and confusing to have two different types of exemption with their separate marginal concessions as a permanent feature of the tax code.

Perhaps I should also make clear to my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), who suggested the exemption from capital gains tax of unit trusts and investment trust companies, that the tax treatment of these organisations and of their unit and share holders is being kept open, so that it can be considered as part of the review of corporation tax, and he will see a reference to this in paragraph 28 of the Green Paper. He mentioned, too, some aspects of estate duty, as did my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter). My right hon. Friend the Chancellor of the Exchequer during the coming year will be considering these proposals, together with others which have been made for changes in estate duty.

I turn now to my main task this afternoon, the question of the scrutiny of taxation and the recent report of the Select Committee on Procedure, which was raised by the Chairman of the Select Committee, my right hon. Friend the Member for Thirsk and Malton (Mr. Turton), the hon. Member for Ashfield (Mr. Marquand), my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) and the hon. Member for Dewsbury (Mr. Ginsburg)—

Mr. John Mendelson (Penistone)

Before the hon. Gentleman departs into these highly technical matters—he said a little earlier on the general strategy of the Budget that the Chancellor was planning some reflation. Will he not admit that the Chancellor will maintain the present level of unemployment unchanged and have not the Government a case to answer on how they are failing the country in not trying to reduce the level of unemployment?

Mr. Macmillan

I am sure the House is grateful for a preview of the hon. Gentleman's speech, which my right hon. Friend will deal with in due course and which I shall come to at a later stage, if he will be content to wait until then.

The report makes five recommendations. What I have to say about them is not necessarily the final view of the Government, since the report was published only in February and we can at best put forward an interim view.

The first recommendation was that it should be possible for a private Member to move Amendments altering the incidence of a tax so that some people paid less and others more, provided that the total amount was not increased. I have great sympathy with this intention, and would like to see what can be done to get more useful, constructive Finance Bill debates with fewer artificial restrictions on the sort of Amendment that can be put down. There are some problems, as the House will realise. The Committee had in mind the maintenance of neutrality within a given single tax. There will be the question of who is responsible for the definition of "neutrality", and there will also be the difficulty of preventing that definition limiting the less restricted "incidental charges resolution", which we introduced in 1964, in a way which would lessen its effectiveness. However, we will try to overcome these problems for, as I have said, we are by no means opposed to the idea, but we have not had long to consider the details, and I am afraid that I cannot go any further today.

There is much the same sort of difficulty with the second proposal—to publish parts of the Finance Bill in advance. I fully accept that it would be a great help to the House to have the longest practicable time to study the whole detail of tax changes before the start of the Committee stage, however this might be done, whether by prepublication of selected parts of the Finance Bill, or by stretching the timetable as widely as possible.

The Budget this year has been fairly early, and we can stretch the programme a little. The Finance Bill will be published soon, indeed, after the Easter Recess, and we shall go as far as we can to meet the Committee's points about the spread of time between the various stages. The White Paper which will be published with the Bill will also help in this respect. This year it was not possible in the time available even to try to get some parts of the Finance Bill published in advance without a great risk of an appalling general delay. We will see what we can do for future years to speed up publication and to combine this with the publication of some Clauses before the Budget, but this depends on the nature of the Bill and on the availability of suitable Clauses.

Since it is already known to the House that we intend to legislate on value-added tax this autumn, I have no hesitation in relaxing my ingrained habit of caution far enough to give a firm promise that there will be a second fiscal Bill next Session in response to the Committee's proposal for an ancillary Finance Bill. I am reluctant to step so far out of character as to make a firm promise for next year, but such a procedure is not wholly unlikely. There may be a similar need, although one cannot be certain in advance that such a need will arise in any given year, or that there will be enough ancillary matters to justify a second Bill, and I am sure that my right hon. Friend the Leader of the House will wish me to say that one cannot be certain that there will always be parliamentary time for such a second ancillary Bill. But, in general, we would not resist this proposal when it is suitable.

The Committee's fourth and fifth recommendations taken together amount to a proposal that taxation matters should be examined in advance by a Select Committee on Taxation, by a Sub-Committee of the Select Committee on Expenditure or at least by an ad hoc committee set up for the purpose. This is much the most important and controversial of the Committee's proposals. I repeat the point I made earlier, that what I say now is not necessarily a final view.

In giving evidence to the Select Committee on Procedure I made it clear that, strong though the arguments put forward were, I felt the arguments against the procedure suggested were even stronger. This remains the Government's present view. A permanent Select Committee or Sub-Committee with a remit over the whole tax field would inevitably develop the sort of political controversy that should inform debates in this Chamber rather than proceedings in a Select Committee. Indeed, there was some evidence for this in the speech of the hon. Member for Ashfield (Mr. Marquand). He suggested, in examining the value-added tax, that a Select Committee could help in elucidating the options and problems in that sphere. He was referring to the value-added tax and to compensating measures to make sure that the regressive effects do not take place."—[OFFICIAL REPORT, 1st April, 1971; Vol. 814, c. 1794.] That was a suggestion that the Select Committee should be in a position to make clear to the Chancellor of the Exchequer proposals for measures, the object of which was to obtain a political end laid down for the Chancellor by the Committee.

Mr. David Marquand (Ashfield)

I do not think that is quite what I said, and it is not what I meant. "Elucidating" was the key word. "Elucidating the options" surely does not imply that the Committee would make recommendations.

Mr. Macmillan

It is extraordinarily difficult to list with entire neutrality a series of options, particularly on a hypothesis which itself is disputed, as the hypothesis that a value-added tax is necessarily regressive is disputed. One of several reasons why the Government feel that such a taxation committee is not a suitable method of examining such problems is the inevitability of this type of argument developing, not only with Ministers present, but when officials are liable to be dragged in to a fundamentally political discussion.

Perhaps I could digress to deal with some of the points of doubt raised about the value-added tax. I reassure hon. Members on both sides of the House that it does not necessarily put up the cost of living relative to the effect of selective employment tax and purchase tax which it replaces. It depends on the rate and the coverage. Neither is yet decided, and the rate will not be decided until the tax is brought into operation.

I should have thought that by now the position concerning food was clear. With the possible exception of a very few items which are now subject to purchase tax, food will be relieved of value-added tax.

Mr. John Roper (Farnworth)

Does the right hon. Gentleman mean that it will be an exempt item or at a zero rate?

Mr. Macmillan

If the hon. Gentleman had waited a second or two, I would have dealt with that point. Food will be relieved of value-added tax. There are various methods of giving relief from value-added tax. They are described in general terms in paragraph 2.11 of the Green Paper on the tax. The other possibilities for dealing with food are described in some detail in paragraph 4.3 of the Green Paper. No decision has yet been taken or will be taken on the methods to be used for relieving food until the National Farmers' Union and other interested parties have been consulted.

Turning to the question of the future of value-added tax should we be successful in entering the European Economic Community, members of the Community are free to decide value-added coverage individually. The aim is to harmonise indirect taxation, including value-added tax throughout the Community. No decisions have been reached on the details. I understand that that is still the case, even after the decision of 9th February to which my right hon. Friend the Member for Thirsk and Mal-ton referred and which reaffirmed the harmonisation commitment. We shall have to harmonise, too, in due course, but only after such transitional arrangements as may be negotiated and probably on a basis of decisions taken by the enlarged Community.

I should like to make a final point on value-added tax which I hope will give some comfort to my hon. Friend the Member for Dartford (Mr. Trew). Although it is described as a tax-on-tax system, it does not mean, as my hon. Friend feared, an automatic increase on the total tax paid on hydrocarbon oils. It depends on the intention of the Chancellor of the Exchequer at the time of the introduction of value-added tax. He can adjust the duty on hydrocarbon oils in the light of the rate which he decides for value-added tax so as to leave the total tax paid unchanged compared with the previous year or, if he wishes, to raise or lower it.

Reverting to the report of the Select Committee, in giving evidence about the proposal for setting up a committee on taxation I made it clear that the Government were prepared to consider setting up ad hoc committees on specific problems about taxation, including Green Papers and possibly a value-added tax. I made it clear in answer to Question No. 19 that, in considering discussion on value-added tax, consideration would in some ways, in certain circumstances, be a rather theoretical consideration. The Chancellor would have the choice of referring it "— that is, the Green Paper— to a Select Committee; but doing that in one year means forcing its introduction to wait until another year because of the timetable. That is pretty well the situation today over the two Green Papers. The Government are not willing to delay the abolition of selective employment tax and purchase tax and the introduction of a value-added tax beyond April 1973. That means that it will be necessary to introduce a Bill soon after the start of next Session. So there will be no time for a Select Committee to consider and report before the Bill has been prepared.

Mr. Joel Barnett (Heywood and Royton)

May I refer back to the right hon. Gentleman's unusually discourteous reply to my hon. Friend the Member for Farnworth (Mr. Roper)? Does the right hon. Gentleman accept that if the Chancellor of the Exchequer chooses to use the exempt method for food that will mean, in practice, a tax on food?

Mr. Macmillan

I said that food will be relieved of value-added tax. The method has not been decided, and it will be decided in consultation with those concerned.

Mr. Barnett rose—

Mr. Macmillan

I shall not give way. There is no question to answer.

Mr. Barnett

There is.

Mr. Macmillan

The hon. Gentleman asked whether food was to be exempted from value-added tax. My hon. Friends the Financial Secretary and the Minister of State and myself, in answering Questions, have said, and I repeat, that food will be relieved of value-added tax and we shall use such methods as are necessary to do just that. The methods open to us are set out in the Green Paper and we shall use them after discussion.

Mr. Barnett

This matter is dealt with in paragraphs 2.12 and 2.13 of the Green Paper. If the exempt method is used, and the Chancellor has left himself free to use that method, a farmer, for example, who pays value-added tax on a piece of machinery would recoup it through the price he charges his customer. Clearly that would be a tax on food.

Mr. Macmillan

That is a very interesting hypothetical argument, but it is not relevant. The hon. Gentleman was quoting from paragrah 2.11. which deals with general reliefs from value-added tax. All that I said was that food will be relieved and that we shall, after discussion with the interests concerned, use such methods as will relieve food. I cannot be more specific than that. Food will be relieved. If the hon. Gentleman is not happy about that, there is nothing that I can do to make him happy about it.

The timetable for corporation tax is not quite so difficult, although I must admit that there is not very much time to spare. In such a case, legislation inevitably takes a fair time to draft properly, and it has to be ready for next year's Finance Bill. But we are prepared to consider the possibility of a Select Committee to study the Green Paper on corporation tax; that is to say, we are prepared to see whether it is possible for a Select Committee, set up ad hoc for the purpose, to examine the proposals set out in the corporation tax Green Paper, without facing such a Committee with a ridiculously short time in which to consider the whole matter and prepare its report, bearing in mind the timetable, the recess and so on.

I am aware that a great deal of what I have had to tell the House about what we can do with regard to Select Committees will disappoint those enthusiasts on both sides who have done so much valuable work on these problems. But I assure them and the Chairman of the Select Committee on Procedure, my right hon. Friend the Member for Thirsk and Malton, that, given the Government's present views on any permanent tax committee, we have done our best, subject to the constraints of the timetable and other difficulties, to meet their proposals in other ways.

We have embarked on a very large programme of tax reform. It puts a considerable strain on all the Departments concerned which have already had to work almost unbearably hard to take matters as far as they have in so short a time. It is impossible to carry out such a programme without keeping to a very strict timetable, because the different parts of it all depend on each other.

My right hon. Friend has published full details as far ahead as possible of the necessary legislation for these reforms, which is a great deal more than our predecessors ever did. My right hon. Friend has told the House and the country exactly when we shall bring in the legislation. All this has been done within nine months of taking office. Nor is it all plans for the future. My right hon. Friend has started the process of reform; indeed, a start was made last October, four months after the election.

It is all very well for the Opposition to criticise this Budget for having too little effect on wages and prices. It was little enough that they did when they were in Government. In 1969, they relied ineffectively on co-operation with the T.U.C. In 1970, they did absolutely nothing to slow down the rise in prices. They did rather the reverse, in fact. Their criticisms leave out of account two of the main objectives of our policies: responsibility and realism. First, we are seeking to act on wages and prices without compulsion by the Government as such, outside our public sector responsibilities. Secondly, we are trying to bring back a sense of financial and economic realism to both the private and the public sectors.

My right hon. Friend's Budget is immensely important to these two objectives. If we are asking the trade unions to see that pushing up wages so much faster than the rise in either prices or production is self-defeating, we should not force them to contend with higher taxes but, rather, provide incentives for greater productivity by reducing marginal tax rates. This Budget does that.

If managements are to stop responding to rising costs by automatic increases in prices without further consideration, we should not squeeze profit margins unbearably, as right hon. and hon. Gentlemen opposite did. Rather, as my right hon. Friend has done, we should reduce and recast the whole system of the taxation of companies and alter investment incentives to encourage profitable investment.

If people are to accept that a pension increase, as it does under any Government, means an increase in contributions, too, we must not add in an increase in taxation. Rather, we must return more than the increase through tax reductions and through not putting up the contributions of lower wage earners. For the unions, managements, and people at large, these are three ways in which the Budget helps to combat inflation directly.

In addition, we have begun to cut public spending—and I assure my hon. Friend the Member for Oswestry that it is the beginning—without cutting essential programmes. Rather, we are giving extra help where the need is greatest. This means that more of the costs fall on those who can afford them. We have begun also to reduce the total burden of taxation—

Mr. Eric S. Heffer (Liverpool, Walton)

Very stirring stuff.

Mr. Macmillan

All the measures brought in by my right hon. Friend in his Budget and in last October's are an essential part of creating the conditions in which responsibility and realism can help prevent the erosion of a higher standard of living by inflation and allow real incomes to increase for the earner, the saver and the pensioner alike. As my right hon. Friend himself said last Tuesday, there is a great deal more to do, and not all of it by the Government. We have made a start. In my right hon. Friend's Budget and in all our other measures, we are doing what we said that we would do, in opposition, in the election. and afterwards. We shall go on doing just that.

4.38 p.m.

Mr. Anthony Wedgwood Benn (Bristol, South-East)

The Chief Secretary struck one responsive chord in my mind when he was discussing the possibility of siphoning off further debate on taxation changes to a Select Committee.

I must ask for the indulgence of the House, since in my 21 years here I have never spoken in a Budget debate. To the outsider debates on the Budget often seem to be confined to a magic circle, restricted to economists, tax lawyers and accountants. I am reminded of the French saying that "There is more in common between two deputies, one of whom is a revolutionary, than there is between two revolutionaries, one of whom is a deputy". In this House, I sometimes think that there is more in common between two taxation experts, one of whom is in opposition, than there is between two members of the Opposition, one of whom is a taxation expert.

I must therefore ask the House to allow me to turn to what seems to be the political judgment behind this Budget. When the Chancellor sat down on Tuesday and his supporters erupted with cheers, and when the Stock Exchange responded generously the following day, they were not cheering the statistical neatness of the Treasury's forecasts or the administrative genius of the Inland Revenue for changing our tax structure. They were cheering the political judgment of the Chancellor.

Now that we have had the opportunity of reading Mr. David Wood's article this morning, we know exactly what they were doing. Mr. David Wood said: Backbenchers could scarcely believe their ears as they heard Mr. Barber going through his well-prepared check list, ticking off the party promises that were being kept. I hope, therefore, that both sides of the House will allow me to go through the same check list as the Chancellor and to consider the political judgments that lie behind the Budget.

The first judgment is that the level of unemployment is about right and cannot really be reduced. The only possible interpretation of the measures announced by the Chancellor was that although he was not prepared to see unemployment rising to some of the worst extremes of the forecasts, neither was he prepared to bring unemployment down. The first judgment, therefore, which the party opposite were cheering was that the level of unemployment which we now have was about right. [Interruption.] Let my right hon. and hon. Friends hear my argument and what the debate is about.

The second thing hon. Gentlemen opposite were cheering—since it is a good legal principle, the Chancellor, as a lawyer, will know that a man is presumed to intend the consequences of what he does—was that investment should remain about stationary for the rest of this year and rise by ½ per cent. next year; that is, that there was not to be a stimulus of investment of a kind which, in Opposition, certainly the Secretary of State for Trade and Industry was continually demanding, although at that time the level of investment in the forecasts was much higher than it now is after the Budget that we have had this year.

Thirdly, they were cheering the argument that the unions are mainly responsible for inflation, and must be controlled either by employers, to whom continual appeals were being made, or, alternatively, by the Industrial Relations Bill now before another place.

Fourthly, they were cheering the basic argument, which emerged from the Chancellor's speech and from the speeches of many of his colleagues, that the market really is the best determinant of as many parts of the economy as can be left to it, that subsidies of all kinds are wrong, that competition is the best way of dealing with prices—I shall come to the extent to which competition is helpful in dealing with inflation as it affects prices—and that, broadly, public enterprise should be restricted or held back.

Fifthly, for this is the only interpretation which one can put on the Chancellor's speech, that Britain must be in Europe as part of the strategy. The announcement today about the early legislation on V.A.T. confirms what the Secretary of State for Trade and Industry said in his Press Gallery lunch the other day—that he saw Britain's entry into Europe as "our single most vital step."

Sixthly, that taxation has in the past been too egalitarian and that a greater degree of inequality is necessary for growth. That was being cheered last Tuesday.

Finally, that public expenditure is too high and ought to be systematically held back. These were the judgments which lay behind the Budget presented by the Chancellor.

We are grateful to Mr. David Wood again for explaining why we have been able to detect in the Budget a certain degree of irrelevance. It was a Budget prepared after Selsdon Park. This Budget could have been bought from the Conservative Central Office a year ago. Indeed, this is exactly what we suspected when we heard its presentation. But just as our criticism of the Industrial Relations Bill is that it was based on "Fair Deal at Work" which came out before Donovan, so our complaint about the Budget is that it was a product of Selsdon Park and was thought out before the election. Indeed, it is described as "a covenant between the Prime Minister and the late Iain Macleod prepared before the Government confronted the reality of the problems which fall to be debated today.

I want to turn to some of the judgments to see whether they can stand examination.

First, the level of unemployment. Listening to the Chief Secretary, and recalling his father's concern with unemployment, I wondered whether we should hear anything from the hon. Gentleman about unemployment. I refreshed my memory of what was said in "The Middle Way" by the former Prime Minister, and I came across these words, which I think it right to put to the House again today. Mr. Harold Macmillan said: In a society in which opportunities of employment occur according to the efficiency of a vast and complicated economic mechanism employing co-operative methods of production, society should accept the responsibility of so governing that mechanism as to provide the individual with the opportunity to work. That was "The Middle Way" commenting upon a much more serious pre-war depression, but becoming rather more relevant as the levels of unemployment begin to rise high again.

I recall the debates in the spring of last year when, with much lower figures of unemployment than now, the then Opposition chose to put down two censure Motions. Today, looking at the level of unemployment, it is no longer true to say, as we said—it was true in our case—that unemployment was principally a regional problem. The fact is that even in the Midlands, and in some areas where unemployment has not been a source of anxiety, the spectre of unemployment is beginning to rise again.

Not only does unemployment involve a massive waste of talent far exceeding any loss of working days in strikes, but it has other effects. I want to draw attention to some of the consequences of unemployment which I think that we should take into account.

Mr. J. Bruce-Gardyne (South Angus)

The right hon. Gentleman said that at the time when the Labour Party was presiding over our fortunes, unemployment was only a regional problem. Does he recall that his right hon. Friend, in his Budget judgment last year, forecast a rate of increase in money supply for the year which has just ended which was predicted by all commentators at that time to involve inevitably an overall and substantial increase in unemployment?

Mr. Benn

I am not sure whether that judgment would be regarded as noncontroversial. In fact, what was predicted last year was some pick up in the rate of growth, which did not occur. If our criticism of the Budget, that it represents too slow and too late a stimulus to growth, has validity, it is because the Treasury forecasts last year did not turn out to be correct. That is why we believe that the stimulus we now see has come too late.

I should like to draw attention to the consequences of unemployment on the general state of the economy as a whole. Undoubtedly one effect of the present level of employment and the forecast of rising unemployment is that it will reduce the likelihood of productivity agreements being brought to fruition. It is no good expecting the same interest and support of working people in productivity agreements which necessarily have and are intended to have the effect of getting fewer people to do the same amount of work if it is done against a background of rising unemployment.

Secondly, checking the rate of growth in the economy is one factor contributing to the continuation of inflation. Anyone who believes in unemployment as an instrument for checking inflation should look again at the circumstances of modern industry. A reserve army of unemployed to hold down wages used to be the theory. I do not say that that is exactly what is being advocated by the Government today, but the theory that a higher level of unemployment had a depressing effect on wage claims and settlements is totally inaccurate in modern circumstances. We can see that, with inter-dependence in industry, the bargaining power in certain key industries is wholly unaffected by the general level of unemployment.

It is all very well for the Prime Minister to have lunch with Henry Ford when he comes to Britain to reassure him about the British economy, but when Henry Ford has to make his offer at Dagenham or elsewhere he is facing a claim virtually unaffected by the general and rising level of unemployment elsewhere.

I now turn to a second consequence of the delay in creating the necessary stimulus which stems from the Budget judgment—namely, the prospects for investment. The Secretary of State for Trade and Industry at Question Time today told the House that the estimates recently published, showing a virtually zero change in investment this year and a half per cent. increase next year, should be seen against the prospect of a steadily rising rate of investment afterwards. But this does not take account of what the Government have already done in abolishing investment grants. There is absolutely no doubt in the minds of anyone, particularly in the regions, that the decision to abolish investment grants, taken, as the Government frankly admitted, before their own review of regional policy had been completed—again, a Selsdon Park decision, taken in the very uncertain world of Opposition before the facts were made available by Government Departments—is one of the major reasons why investment forecasts over the next 12 months will be so low.

I want to put one point to the House which has some general validity apart from the question of our disagreement. If we want any measures to be effective we have to leave them long enough for people in industry to become used to them and to be able to rely upon them. That was why we introduced the regional employment premium. After having published a Green Paper on it—I think that it was the first Green Paper to be published—we deliberately laid down a long period so that people could be sure that the premium would be of benefit to them.

We always recognised that the substantial sums of money which were paid in subsidies—for that is what regional policy is; a subsidy to regions where the level of activity is below what is tolerable and economically sensible—would never pay full dividends until it was possible to obtain a general increase in the rate of growth. It is not possible to persuade people to move into the regions unless there is a greater degree of buoyancy in the economy as a whole. Therefore, at the very moment when we had a balance of payments surplus which my right hon. Friends and my colleagues were able, after a great deal of effort, to help to bring about, and at that moment when the opportunity arose to make those regional discriminations effective, they were discontinued.

The Chancellor must know very well that the degree of sophistication and planning that he or any Chancellor can introduce is effective only to the extent that it is matched by a sophistication and understanding on the part of the managements to whom it is directed. We can introduce very complicated measures in the Budget, but until they have sunk into the managements that might benefit by them, and for whom they are intended, they will not be effective.

One reason why the regional discrimination that we introduced was more effective in respect of American firms than British firms was that American firms, making their calculations about expansion, could see earlier than some British managements the obvious value of discriminatory investment grants in the regions, and moved their new plant there at an earlier stage. By absolutely dismantling the structure of regional discrimination at this moment the Government have performed a great disservice and have contributed to the continuing unsatisfactory nature of investment.

It is not only to the private investment side that we now have to turn our attention. We have had a statement today by the Secretary of State for Trade and Industry about a very important piece of investment, namely investment in the Steel industry. I listened to the Secretary of State on the radio programme "The World at One" yesterday. I took down what he said when he was asked about the consultation that he was having with the steel industry. It is worth quoting to the House. He said: The intensity of it is a matter, I fear, I couldn't exactly illustrate to you, or define. I don't know. He went on: What people, I think, don't realise enough is that when you are dealing with a corporation of this size, you are dealing with one of the most enormous and one of the most important elements at all; and to take steps and make decisions without really going most deeply into the question and most carefully, would be the folly indeed. That is what he said on the radio yesterday when asked about the steel industry. Contrast that with what appeared in the Conservative Party manifesto, namely: We will progressively reduce the involvement of the State in the nationalised industries, for example in the steel industry. The truth is that the Government have intervened on the prices side, but only in the public sector, and with the regional implications of any acceleration in redundancies as a result of the Government's intervention there is even greater grounds for anxiety.

I turn now to the reasons which the Government have given for their Budget judgment and for the degree of stimulus they thought it necessary to give. The first is that inflation has made it impossible for them to do more. Here again, there is a straight conflict between what is said by Ministers about the causes of inflation—and it was said again by the Secretary of State for Trade and Industry today—and what was said about inflation by the present Government when in Opposition. Today we are told that inflation is entirely attributable to unjustified wage increases granted by irresponsible management, but last summer the Tory Party manifesto said: The main causes of rising prices are Labour's damaging policies of high taxation and devaluation … So wages started chasing prices up in a desperate and understandable attempt to improve living standards. They were then trying to win the votes of trade union members. There was none of this blanket condemnation of the unions as being the sole cause of inflation. The plain truth is that we cannot tackle the problem of inflation—we all accept it as one of the central economic problems now confronting the country—by disconnecting incomes from prices and trying to bear only on one side, nor can we deal with prices by concentrating solely on those in the public sector, which inevitably has the effect of providing a subsidy for the private sector. It is now quite clear that the S.E.T. reductions that have been announced are most unlikely to work their way through into any serious reduction in prices.

Next, we cannot disconnect wage claims from the Budget tax remissions, in this case granted to those with very high incomes. It is no good the Chancellor's rebuking Jack Jones, Hugh Scanlon and others for their wage claims when the general secretary of the national union of surtax payers—the Chancellor of the Exchequer—is giving increases to his own constituents much greater than any that are claimed in the so-called "most unjustifiable" claims being made today. Chancellors of the Exchequer have in the past tried to close tax loopholes year after year. This Chancellor must be the first who, using his knowledge of tax law, has taken a pair of wire cutters to open a bigger hole for those whom he thinks would be able to benefit by what he can do, and has shown by the aid of a torch how best to benefit.

The second basis of Budget judgment was that the balance of payments did not permit any greater stimulus to the economy. We have the strongest balance of payments in our history, but in giving his reasons for caution in the second day of the Budget debate the Secretary of State for Trade and Industry expressed three fears which he indicated made it necessary for the Government to limit what they were able to do. First, there was an unfavourable trend in exports and imports. Secondly, there was the higher cost of oil from the oil-producing countries and, thirdly, the limitation that had to be put on the stimulus that could be given, due to our impending entry into Europe.

Of course, this reason, which was fully developed by the Secretary of State, raised in my mind and in the minds of a number of people who heard him the fear that the approach to Europe, with the payments across the exchanges which would fall due to us on entry, might be used as a reason for locking us into a lower level of growth at this stage than we would need if we were to get the take-off necessary to benefit from the higher growth which it is thought we could acquire by entry.

One of the anxieties, therefore, which we have is that this intending burden of the transitional payments arising out of the entry of Europe may be used as a way of keeping our rate of growth below the level which we shall need if we are to benefit even from the advantages of entry if acceptable terms can be found.

On the European question, it is clear that, although the actual terms of entry will not fall to be debated by the House until later this year, already there are certain aspects of this which are becoming dominant in our debates. I have given one example, the reasons which the Secretary of State gave in explaining why it was not possible to give a greater stimulus to the economy. The second is the decision to go ahead with the value-added tax, with the legislation which we now understand is coming this autumn.

Third, there is the anxiety which many of our people feel—this will also be felt by hon. Members opposite with constituencies in the regions—that entering Europe with regional discrimination disappearing, with the demobilisation of regional measures, could actually have a very much more damaging effect on growth in the regions even than has been brought about by the dismantling of the special discrimination which we have seen over the last few months, with the end of R.E.P. and investment grants, and the anxiety that, in a wider market, where obviously the pull of the centre will be greater, the regions could suffer even more than they have done in the last few months.

But all this reflects the Government's general philosophy, which came out very clearly in the course of the Budget debate, that the market is the best determinant for the allocation of resources. In a number of speeches—I heard him recently making a speech on this subject to the Press Gallery—the Secretary of State underlined again his belief that the whole apparatus, as he would describe it, for developing a working partnership between Government and industry was totally unacceptable to him—in marked contrast to the experience of many other countries which have, without any Socialist inspiration, certainly succeeded in maintaining a far closer supervision of industry.

I cite only one quotation from many which I could give, from the Director of Planning of M.I.T.I. in Japan, who, in a recent paper on the work of the Ministry of International Trade and Industry, made it clear that, for the Japanese Government—no one should forget that they have the highest rate of growth of all— It is, therefore, unrealistic to expect some self-regulating market mechanism … to perform the functions in a modern industrial society. All the evidence which one can get from the work of our major competitor in Japan suggests that they have long ago rejected the idea that Government can step entirely aside from industry.

Even in the European Economic Community, it would not be true to say that there was not some degree of protection. The French farmer, I imagine, enjoys a degree of protection which even the Secretary of State would find it difficult to approve. My French is not good enough to translate "lame duck" into French, but perhaps "le canard blessé", a wounded duck, might be appropriate. Probably "boiteux" is really the word, but "canard blessé" has rather more of a popular flavour about it, and I am not sure that, even in the Common Market, the doctrines of laissez-faire will apply to quite the extent that the Government believe—

Mr. A. E. Cooper (Ilford, South)

It should be canard a la Labour ou non-travaille".

Mr. Benn

I yield to the hon. Member in my knowledge of French but he will know that an exchange in a foreign language across the Floor is contrary to the rules of order. The Chair will probably correct me, as it did Sir Winston Churchill for addressing the House in Welsh.

I turn now to the taxation proposals in the Budget. All I want to deal with here is the view reflected by the Chancellor, which won him so many plaudits from his friends, that our system has been too egalitarian in years gone by. The Chancellor made two references to the problems of taxpayers and their advisers, as if the nation were full of taxpayers and their advisers at every level of income, and as if the problem at Dagenham were the Ford workers and their advisers, who found it so difficult to manage under the present tax structure.

In his broadcast, according to the Daily Telegraph, the Chancellor gave two other reasons: One, men at the top of industry need incentives not to be tempted to give up and work abroad. That is the most astonishing doctrine, that Lord Stokes was retained here only by the sort of tax remissions made in the Budget. The truth is, the brain drain has never been a problem at the top. No one has ever left from the top; there is no mobility at the top. The problem has always been lower down.

But anyone who read the Jones Report on the brain drain, which we commissioned, will know that its conclusion was that, for qualified men, the effect of taxation (if properly understood) is unlikely to sway a decision to emigrate. And anyway, the brain drain is no longer a problem. There are thousands of British scientists and engineers clamouring to come back from the United States, where the science squeeze has hit them, and this began long before the change of Government.

The second reason which the right hon. Gentleman gave was that the effect of taxation was to make overtime less acceptable. But if the right hon. Gentleman had read the P.I.B. report on overtime, he would know that taxation was a very minor factor, that only one in ten referred to it. In any case, the tax tables published in The Sunday Times show that the very man who is in exactly this middle bracket, who needs the bracing of which we are always told—even up to the £3,000-a-year man, the very highly paid worker, if one likes—is actually, taking tax, food, National Insurance contribution, rail fares and health charges increases into account, worse off to the extent of £7 a year.

Anyone who really thinks that this Budget was an incentive Budget, designed to help that sort of person, upon whom so much of British industry depends, is absolutely wrong. The truth is the Chancellor has made a conscious decision to increase inequality as a stimulant to growth, and it is a massive miscalcula- tion. As anyone can see who uses the evidence of his eyes, this country is still cursed by the fact that it is two nations in terms of capital, income, variations amongst retired people and between the richer and the poorer parts of our cities, and to increase that gap as a conscious act of policy is totally unacceptable.

There is one other aspect on which I should like to comment, stimulated by what the Chief Secretary said—the argument that public expenditure is too high and should be controlled or, if possible, reduced. This is a part of the built-in mythology of the party opposite, which they have stimulated as best they could in public speeches over the last five or six years. But the pressure for increased public expenditure is not a product of the fevered brains of doctrinaire Socialists; it comes from any ordinary observation of the nature of our society, and the many unsolved problems which still confront us. I have referred to some of them in the two nations. They are evident to anyone who likes to look around.

If the Chancellor cares to take the Social Trends published recently by the Statistical Office and project them forward ten years, he will find that from every one of them comes a demand for further public expenditure.

For example, the population increase of two million up to 1981 will require further expenditure on housing, schools, health and roads. The number of young and old people—in other words, dependants as a whole—will continue to rise until in 1981 for every 1,000 people at work there will be 700 dependants, the highest the figure has ever been. Only after that it will tend to decline. Thus, the burden on those at work in funding their children, aged parents and providing for education and social service payments is bound to increase if we are to maintain civilised standards.

If one examines the number of women at work and projects the trends forward, one sees that from 1951 to 1981 a trebling of the numbers will require special expenditure for amenities and such things as nursery care, pre-school play groups and so on. All this arises from predictable forward trends. The same can be said for the number of deaths. If trends continue, in the 45 to 75 age group, 60,000 more people will be dying each year by 1981 than in 1968. This will require greater public expenditure, on hospital and health services.

Consider the most basic statistic of all. Crime having doubled between 1951 and 1969, if it carries on and doubles again, and if the trend in those crimes which are not solved continues at the present rate, it will mean that by 1981 we will have a very low percentage of crimes being solved. Wherever one looks at the social trends, the case for increased public expenditure is staring one in the face.

For the Government to speak as if poverty and deprivation can be dealt with by a little charity on the margin is totally to misundertand the nature of the "Better Tomorrow" which we are told the Conservatives are offering us.

Captain Walter Elliot (Carshalton)

In discussing the question of Government expenditure the right hon. Gentleman starts from a completely wrong premise. Naturally the gross amount of expenditure will continue to rise, but the real point is the percentage of the gross national product taken by the Government.

Mr. Benn

I appreciate that, but I am arguing something different. I am saying that the trends of population which are revealed and the number of retired and young people rising to the highest figure we have ever known are all bound to increase the burden of taxation on those at work. People now demand a higher standard of living, a quieter and cleaner life and the rest of it. The level of public expenditure is bound to increase more rapidly, and I am saying that it is no basis to approach a modern electorate by saying that public expenditure is, of itself, undesirable and should, if possible, be reduced. The implication of everything that has been said about public expenditure and taxation by hon. Gentlemen opposite is entirely in that direction.

The Financial Secretary to the Treasury (Mr. Patrick Jenkin)

The fact that the right hon. Gentleman must put his argument into our mouths in those extreme and erroneous terms shows how weak an argument it is.

Mr. Benn

Having listened to many of the speeches of hon. Gentlemen opposite, not only in this House but at the hustings, and having noted their attacks on, for example, civil servants and the size of the Civil Service and how it should be cut and so on, there is only one conclusion to be drawn, which is that hon. Gentlemen opposite thought there was political mileage to be gained from suggesting that when they came to power they would dismantle some of the apparatus of the State necessary to meeting human need. That is the conclusion I draw.

Addressing a group of business men in Cardiff recently, the Prime Minister —if the Sunday Times report which I have is correct—said: 'To managements I say: You asked for help to ease your investment problems—we've given it. You asked for greater liquidity—we've given it. You asked for tax incentives for your workers—we've given them. Now the Government and the community can expect something of you'". Giving a similar address to workers, the right hon. Gentleman said: 'You asked for a stimulus for the economy —we've provided it. You asked for higher old age pensions—we've provided them. You've asked for increased child allowances and for help for the lower paid workers—we've provided them … We've done our part. Now on behalf of the community, we have a right to expect you to do yours. Stop the strikes—start the work'. There was a vaguely familiar ring about that, and then I remembered where that approach to the public first appeared. It was in the Book of Genesis: 28. And God blessed them, and God said unto them, Be fruitful, and multiply, and replenish the earth, and subdue it: and have dominion over the fish of the sea, and over the fowl of the air, and over every living thing that moveth upon the earth … 31. And God saw every thing that he had made, and, behold, it was very good … 2. And on the seventh day God ended his work … and he rested". The Prime Minister, having seen his colleagues present their Budget and various other measures, was evidently pleased with what had been done and thought it all necessary to solve the problems of the community. It achieved only one thing. It got Mr. Desmond Donnelly to join the Conservative Party, and a very welcome recruit he is.

I can sum up by saying that in our view unemployment is unacceptably high and must be reduced; that further help must be given to the regions, particularly if the Government contemplate entering the E.E.C.; that it is wrong to damage investment in the public sector at a time when investment in the private sector is likely to be stationary; that in tax policy there must be not just justice but justice that is seen to be done; and that the only basis for tackling the problem of inflation, which is one of the central problems of our economy, is by a sense of national partnership, which the present Government, by their Budget and other measures, have shown themselves to be incapable of achieving. As the shape of the Budget does not meet these needs, we shall vote against it.

5.17 p.m.

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

I gather that it falls to me, if not to congratulate the right hon. Member for Bristol, South-East (Mr. Benn) on a maiden speech, at any rate to welcome him to what he calls the club of those who take part in Budget debates.

I hope that, with more experience and on subsequent occasions, he will not fall into the blunder of confusing the economic effects of a remission in taxation with the economic effects of an increase in pay or prices. It is to be hoped also that he will, as my hon. and gallant Friend the Member for Carshalton (Captain W. Elliot) pointed out, concentrate his attention on the relevant facet of public expenditure—namely, the ratio of public expenditure to national income. If he will do that, he will find that many of the consequences which he treated as inevitable in future trends are by no means inevitable and may well turn out to be the reverse.

There were a few points in his analysis from which I do not dissent; however, I observe at the outset that it has been the habit in these debates over the years for each side of the House to complain of its inheritance from the other. Hon. Gentlemen opposite used to complain of their inheritance of a deficit on the balance of payments. We are occasionally heard to be complaining of our inheritance of an inflationary situation.

These complaints mistake the nature of the things about which we are speaking. Both these things, and I am particularly concerned with inflation, are in the nature of processes: unless they continue, they cease. The surplus on the balance of payments before June of last year was not the same surplus, but a different one, from that which accrued after June of last year. Similarly, the inflation which occurred before June of last year is not the same as the inflation which has continued since.

The fact which we are confronted with is the continuation of inflation at a high rate, and its continuation to the present time. That is not something which my right hon. Friend the Chancellor of the Exchequer in any way sought to deny or palliate. Indeed, the most emphatic passages of his Budget speech, particularly at the beginning and end, referred to the consequences of continuing inflation. In view of that, it is difficult to understand those who conduct the present debate in terms of reflation, as though the inflation were not continuing, and as though its rate was not the most serious problem we face. I am sure that the Chancellor of the Exchequer would not object to his Budget being primarily seen and tested in the light of its effect upon inflation.

One respect in which I find myself in agreement with what the right hon. Member for Bristol, South-East said was his repudiation, which I share, of the notion, though commonly held, that inflation is the product of wage claims—or rather, of wage claims which are conceded. Still less is it the product of some fault in our system of industrial relations. There is much for criticism in our system of industrial relations. I am one of those who believe that Parliament has not been wasting its time but doing work of major importance in reforming the legal structure of our industrial relations. But what I do not believe will stand the test of reason is the proposition that that framework, or any other, has anything causally to do with the phenomenon of inflation.

If hon. Members will take the trouble to look at what has been happening in other countries, they will find that in the three Scandinavian countries of E.F.T.A. in 1970 the rate of inflation was as fast as, or faster than, it was in this country. Yet those are some of the very countries which have been held up to us as paragons of the way in which we ought to conduct our industrial relations.

In the E.E.C. countries as a whole, if hon. Members will look back over the experience of previous years—and this was set out in a Written Answer on 26th March in cols. 229–230 of HANSARD —they will find that, taking one year with another, there is very little difference between the experience of various parts of the European Economic Community and that of this country in the matter of the rise of prices and the rate of inflation.

Above all, we are entitled to look at Germany; for perhaps more than any other country Western Germany has regarded its own performance and procedures with great satisfaction compared with ours, and I have heard in recent weeks sneering references made in Germany to industrial relations in this country. Well, Sir, last year there was a 15 per cent. increase in earnings in Germany and only a 6 per cent. increase in production.

So I think that we are entitled to dismiss as purely superstitious the idea that the phenomenon with which this country and other countries are confronted is the product of the egregious demands of a disorderly or undisciplined trade union movement, or that it could be dealt with by any alteration of the law, however necessary and desirable that alteration may be on other grounds.

There is a Collect which refers to One who is ever more ready to hear than we to ask; but that is not the state of affairs here below. The state of affairs on earth is that we are always more ready to ask than there is the means of giving. That is a constant: there are always more demands in total being preferred than can be satisfied. When we find that the rate, in terms of money, at which those demands are being satisfied has suddenly increased, as it did in 1970, compared with previous years, we must look not to that which is constant—the asking, the demand—but to the means of satisfying it, and see whether there has been a change there—whether there has been a change in the supply of money for satisfying the demand for higher earnings and higher prices.

Sure enough, we find that one of the most marked phenomena of 1970—my right hon. Friend referred to it several times in his Budget speech—was the sharp increase in the money supply; a sharp increase which surely in reason must be related—whether as cause or effect, I will inquire—to the inflation which was our experience last year and which is our experience still.

It is of the utmost importance to know whether that increase in the supply of money is cause or effect; to know whether in this matter the Government are passive, helpless, confronted with a phenomenon over which they have no more control, perhaps less control, than over the weather, or whether it is a positive controllable cause which is at work. That is the vital question, and on that question my right hon. Friend the Chancellor has been heard in recent months. About two months ago, speaking to a financial audience, he said: The monetary policy appropriate to our present circumstances is one that does not passively provide the amount of money that is needed to underwrite the going rate of inflation, but something less. If those carefully chosen words mean what they say, they mean that the Government, if they chose, could provide less money—could finance not "the going rate of inflation", but a lower rate of inflation. They are an assertion that the Government, whether they like to use it or not, have the power, by the amount of money they "provide"—my right hon. Friend's word, not my own—to underwrite the present rate of inflation or to underwrite a lower rate of inflation, and that presumably, if they did not underwrite it at all, it would not continue.

The same is implicit in the words my right hon. Friend used in his Budget Statement. He was referring to the past year and said: In the monetary field, the policy I have pursued has been to allow an increase in money and credit sufficient to support a rise in the level of economic activity but not so large as to compound the pressures of cost inflation."—[OFFICIAL REPORT, 30th March, 1971; Vol. 844, c. 1362.] That is clear enough, too. It means that if the Government do not "compound the pressures of cost inflation", we do not have so much cost inflation, and if perhaps they sufficiently refrain from "compounding" them, we do not have cost inflation at all. My only observation on that policy is—and I am sure that my right hon. Friend shares this regret with myself and with all of us—that that was not what actually happened. The "rise in money and credit" was not merely sufficient to cover the requirement of a comparatively modest rise in the level of economic activity, but was sufficient to "compound", or, to use my right hon. Friend's other word, to "underwrite", a very substantial cost inflation indeed.

I will not weary the House with more than one other quotation from my right hon. Friend in another part of his Budget speech, when he said: … this does not mean —and I will deal with what "this" is in a moment: that I intend the growth of money supply simply to accommodate the going rate of inflation."—[OFFICIAL REPORT, 30th March, 1971; Vol. 814, c. 1374.] So we may take it that the Government's view is that they have it in their power by control of the money supply, of the rate at which money and credit increase, to determine how much inflation there is. That is—it seems to me impossible to contest—their view and I respectfully say. it is a view which seems to me to stand the tests of reason and of empirical experience.

But then there are other passages in my right hon. Friend's speech. There is the one in particular to which my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) drew attention last Thursday, where my right hon. Friend went on, from the passage which I have just quoted, to say: As the rise in costs and prices is moderated, so the aim will be to slow down the growth of the money supply. This will depend on the progress we make in de-escalation. Here we seem to have swung across to the opposite point of view, and to be speaking as if the increase in the money supply were not a cause but a consequence, as if it were not initiatory but consequential; and we find the clue to the change in my right hon. Friend's previous words: … there would be dangers for liquidity and employment if we sought immediately to reduce the growth of money supply to much below 3 per cent. per quarter."—[OFFICIAL REPORT, 30th March, 1971; Vol. 814, c. 1374.] So 3 per cent. per quarter, we are told, is the rate of growth of money supply upon which we are embarked, as at present advised—a rate of 12 per cent. a year, sufficient to finance not a lesser rate of inflation than last year but possibly even a higher one.

So it is as if my right hon. Friend were to say to the country, "We the Government will carry on providing an additional 3 per cent. per quarter addition to the money supply. We will go on inflating the money supply at a rate equivalent to 12 per cent. per annum. But we should like you to understand"—he continues, addressing the public, addressing all sections of the community—" that it is your business to act as though we were not doing so. It is your business to act as though, instead of increasing the money supply by 12 per cent."—and thus underwriting 12 per cent. inflation, presumably —"we were only increasing it by 10, 8, 6 or 4 per cent. Then, when we find that you have listened to us; when we find that you have behaved as you would do if we were acting in the way that I have explained we shall not be acting; when we find that you have behaved as you would be behaving if we were only underwriting an inflation of 10, 8, 6 or 4 per cent.; then we shall come along afterwards and slow down the growth in the money supply."

There is undeniably a grave contradiction here, and it is a contradiction not of a minor character but one which goes to the root question of the cause and, therefore, the remedy of inflation. It is in no carping spirit that I have sought to expose this contradiction, because it is one which I believe not only the Conservative Party or the House but the country as a whole has to face and to resolve.

My right hon. Friend has not left us in doubt as to the reason why, having asserted that the Government have the power to control inflation, he then goes on to say that they are not going to use that power until they find that inflation, for some other reason, is beginning to slow down. It is because of a relationship which he believes to exist between slowing down inflation and liquidity and employment. In short, he believes that if the Government were to use their power not to underwrite the current rate of inflation, then the consequences would be an increase in unemployment.

I have never—for reasons which are implicit in what I have said to the House already—been one of those who regard the manipulation of unemployment as a means of dealing with inflation. Experience shows that consistently with inflation one can have both high unemployment and low unemployment. The notion that employment is a kind of lever which can be adjusted to correspond automatically with a given level of inflation is simply absurd. There is no basic underlying connection between the real phenomenon of employment or unemployment and the monetary phenomenon of inflation. If we doubt this, we can reassure ourselves by looking, for example, at the experience of Germany and other countries. In the last 10 or 15 years, West Germany has experienced high growth in periods when it had no inflation and high growth in periods when it had what we should have regarded until last year as very substantial inflation indeed. It is a superstition, and a crude and dangerous superstition, a superstition which most of economic history refutes, to suppose that there is a simple linkage between growth or economic activity on the one hand, and inflation on the other.

There is, however, a certain connection between employment and the cessation or reduction of inflation. It is a transitional connection, which arises as follows. We all extrapolate. All life is carried on by extrapolating, by assuming that the immediate future will resemble the immediate past. Therefore, in a period of inflation, all concerned—employers, trade unions, every element in the community —are working, consciously or not, on the assumption that inflation will continue. If inflation does not continue at the same rate, if it slows down, or is slowed down, or is not "underwritten"—to use my right hon. Friend's word—then those who prove to have miscalculated, or some of them, catch a cold. It is like a game of musical chairs. When the music of inflation stops, there will always be somebody who for the time being is without a chair until a new pattern of activity, behaviour and expectations is attained which corresponds either with a reduced rate of inflation or with stable money values. So it is, therefore, that in the short term the slowing down or halting of inflation has a transitional effect upon activity and employment by defeating and falsifying expectations.

But my right hon. Friend, the Government and, I feel, the House cannot just ride off from that fact and say: "In that case, we shall do nothing about it. In that case, that being so unpleasant, we will not use the means to combat inflation, which we have to our hand and do not deny that we have to our hand. We shall leave it alone and hope for the best."

We cannot do that. Here is a monetary phenomenon, the result of an undue increase in the money supply, the result of an increase which, if it is not the result of Government action, the Government have admittedly the power to control or to prevent. Here is an evil which my right hon. Friend the Chancellor of the Exchequer stigmatised rightly as the greatest evil from which we are suffering, the greatest danger to this country. And we have in our hands the means of dealing with it. I do not believe that a Government can say, "Well, there will be transitional effects and therefore we will not use the methods which lie to our hand".

I suggest another approach. If the transitional consequences are due to defeated expectations, then it is the business of the Government to minimise those transitional consequences by ensuring that as few expectations as possible are defeated. In other words, they must make it clear in advance what exactly they are going to do. They must make clear by their acts as well as by their words that in the coming 12 months the Government will bring about a substantially slower rate of inflation—to put it no higher than that—than in the last 12 months. In so far as they get that conviction across, people will modify their behaviour, decisions and expectations without waiting for the harsh chastisement of unexpected events. So it is by the clarity, the determination and the publicity with which my right hon. Friends pursue a policy—not a deflationary policy, of course; we are not talking about deflation; we are a long way from that—but a policy of reducing the rate of inflation and show they have the means and intend to use those means, that the inevitable transitional consequences will be minimised.

Briefly, in conclusion, I want to look at the Budget decisions in the light of what I have just said. There are probably two major factors operating on the money supply, at any rate in contemporary times. One, which was certainly operating last year, is the effect of the huge surplus on our balance of payments.

It is not only in this country that a surplus on the balance of payments has proved to be a curse in disguise. Hon. Members will recall that it is only a year or two ago that the Germans were putting a tax on exports and a bounty on imports in an effort to avoid the misfortunes which a surplus on the balance of payments will bring. The Swiss—the happy Swiss, though they had an inflation of between 5 per cent. and 6 per cent. themselves last year—have for years been putting barriers round their country to try to prevent the rest of the world from pushing money into it—to try to prevent themselves, in other words, from having a corking surplus on their balance of payments. Probably in the last 12 months, to the discomfiture both of the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) and of my right hon. Friend, the huge surplus on the balance of payments has been the prime factor affecting money supply in Britain.

I hope that I was right in reading into my right hon. Friend's Budget speech an intention that in the coming year there should be a genuine balance—not a trading balance, but a balance overall in our payments in and out. If the Chancellor aims at that, and if he can achieve that, it is not I who will quarrel with him as to the method by which he does it, though he is aware that given the preference which I hope we share in principle for automatic methods, I would think that it would be more likely to be achieved by allowing the price mechanism, in terms of the exchange rate, to work than by any other methods. As I say, I hope that I may take it that the object in the coming year is, at any rate, to avoid this source of increase of the money supply—the huge surplus on the balance of payments, the huge "total currency flow", as the Treasury put it.

Finally, there is the much more long-term, much more endemic source of uncontrolled increase in the money supply, namely, a Government unable to cover their current cash requirements with their current cash inflow. I am far from thinking that there is some crude mathematics by which one can read off inflationary consequences from the size of a net borrowing requirement. The net borrowing requirement is a useful bit of arithmetic, a useful concept; but one cannot just say: "Here is the net borrowing requirement. That is so much extra on to inflation". The underlying truth is that the larger the net borrowing requirement, the greater is the chance that in the circumstances of a particular year the Government will lose control of the money supply, even when they want to keep and to exert it.

We ought to be under no delusion, particularly those of us on this side of the House, as to how we have purchased the tax remissions in this year's Budget. The tax remissions—£540 million in the coming financial year—happen to be just about the size of the Government's net borrowing requirement; or, to put it another way, it is not by a reduction of Government expenditure that we have earned those remissions which all of us welcomed—and they were all of them justified—in last Tuesday's announcement. We have done it by increasing the Government's, and indeed the public sector's, borrowing requirement by that amount, and more than that amount, in the coming year.

What we ought to understand is that thereby, by substituting for last year's Budget expectation of a net repayment of £250 million a net Government borrowing requirement of over £600 million, my right hon. Friend's power to control events during the next 12 months has, to that extent, been weakened.

Therefore, it comes down in the end, in terms of years, to the ability and to the will to prevent inflation. The ability depends upon the Government being able to finance their expenditure without the risk of resorting to inflationary expedients. The will to do so, given the knowledge—I am saying nothing different from my right hon. Friend—that inflation is our greatest single enemy, the one on which we have to concentrate first and foremost, is the will to use the powers which are in our hands to combat that evil—[An HON. MEMBER: "Unemployment."]—the hon. Member who has just said "Unemployment" cannot have been present at the earlier stage of my remarks —the will to show the public that there is that determination, the will to show why the use of those methods will bring, not loss to any section of any community, but benefit to all.

5.45 p.m.

Mr. J. Grimond (Orkney and Shetland)

The right hon. Member for Wolverhampton, South-West (Mr. Powell) has, as usual, made an attack upon one of the central policies of the Conservative Government. I sometimes wonder why the right hon. Gentleman remains a supporter of the Government. He gained a certain amount of applause from this side of the House by seeming to say that it did not very much matter how high the wage claims might be; but that is not the right hon. Gentleman's real view.

The right hon. Gentleman indicated that, after all, other countries, such as Germany, had had bad inflation and nevertheless were very prosperous economically. Germany is in a rather different position from us. She has had an immense inflow of foreign labour. She does not support a currency which is one of the world's reserve currencies. Wage increases of 15 per cent. against an expansionist economy of 5 per cent. or 6 per cent. are rather different from wage increases of 12 per cent. to 14 per cent. in this country against practically no expansion.

Mr. Powell

I do not think that the right hon. Gentleman heard what I said. There was a wage increase in Germany of 15 per cent. against an increase in production of only 6 per cent.

Mr. Grimond

That is exactly what I said. That is very different from the situation in Britain where the wage increase is 14 per cent. or 15 per cent. and the production increase is at the rate of under 2 per cent.

The right hon. Gentleman's real argument is that in fact these wage increases would not take place did we but have a very strict monetary policy. This is a well-known argument. Indeed, it was the classical argument of the nineteenth century—that the supply of money should be controlled and thereby the price level will be controlled. That has been done. We returned to the gold standard and, as a result of that, the value of money actually increased. However, there were certain other consequences: there was exceptionally high unemployment and there was a very great increase in poverty at the lower end of the scale.

Therefore, what the right hon. Gentleman is really saying is that the Ford workers should have their demands turned down because the Ford Company cannot get its hands on the money to pay them. This is a pretty crude doctrine. It would require activities which have not been seen in this country for 30, 40 or 50 years. It would probably lead to a situation of extreme social injustice and of extreme in labour relations and would certainly defeat any chance of expansion in the economy for a very long time to come. It is theoretically possible, like so many of the right hon. Gentleman's suggestions, and practically totally impossible. In fact, it would be theoretically possible only at a great cost in human misery.

Mr. Powell

Why does the right hon. Gentleman think that an increase in wages of only 15 per cent., and not an increase as great as 25 per cent., is paid?

Mr. Crimond

I am coming on to deal with why I think that wage increases should be limited to below 15 per cent., but I do not accept the right hon. Gentleman's method of pursuing this matter.

The right hon. Gentleman pointed out that in his Budget statement the Chancellor of the Exchequer has said that he intends to keep a close eye on the supply of money and that, at the moment, he will allow it to rise, as I understand it, by 3 per cent. a quarter, but that later in the year he may take a different view.

The Chancellor of the Exchequer also said that the whole question of the control of money supply was to be reviewed. I think that I am right in saying that even those who attach great importance to money supply—it certainly has a part to play—believe that it is the rate of increase or decrease in the supply and not the absolute amount that matters.

Later in the debate, we had an explanation from the Minister of State of the difference between a passive and a neutral policy over the money supply. Although the Minister of State said that the Government would pursue a neutral policy, the Chancellor seemed to me to indicate that the policy would be rather nearer a passive one.

Mr. Bruce-Gardyne

indicated dissent.

Mr. Grimond

I see the hon. Member for South Angus shaking his head. I should, I agree, qualify that, because the Minister of State did say that, although, in general, he rejected the argument for a passive attitude towards the money supply, a neutral attitude would have to be modified in certain ways, at least in the immediate future. But the Minister of State did, I think, say that the Government's basic view was that they should be more neutral towards money supply by which I understand him to mean that the money supply is to be regulated not by wage demands but by the productive capacity of the country and increases in that capacity.

If that be so, the House is entitled to have rather more information about when we may expect the means for enforcing that policy to be known. Are we to have a further Green Paper about it? Indeed, may we be told whether it is, in fact, the Government's policy?

I, too, consider that inflation is by far the most serious danger which we face, and, also, that that danger is aggravated by the high rate of unemployment. When the Labour Party was in office, it maintained that wage increases must be limited, I think, to under 4 per cent. They are now running at 8 per cent. to 10 per cent., and I cannot understand the comparative enthusiasm with which even the Government seem to welcome settlements of that order.

I fear inflation not only because of its potential effect upon our balance of payments, not only for the damage which it does to the economy, not only for the fact that it is an effective bar to a high rate of investment, but because it is socially extremely unjust. For instance, the £10 a week rise which the Ford workers are to have is in fact the basic wage of many women in my constituency today, and women who do jobs just as skilled and useful as those done by Ford workers.

I understand that the Government's policy for dealing with this is, first, to stimulate enterprise, and they aim to do that by their tax changes and by some overall reduction in Government expenditure. Will these tax changes be an incentive, and, if so, what sort of incentive?

I do not take the view that there is any great danger of our "top brass" leaving the country for higher wages and salaries overseas. Indeed, if they were, I should say, "Let them go", for I believe that people stay in this country not because they earn a marginally larger slice at the top of the surtax bracket but because it is an extremely good country in which to stay and work.

I do, however, realise that there may be a case for saying that the general climate which the Government hope to promote may encourage enterprise. I can see that there is a case for encouraging movement from one job to another in the middle band of incomes. But I am not clear that any of the Government's actual measures will help that.

I come now to their next step, which is to refuse as far as they can, to finance what they consider to be unjust wage claims in the public and nationalised sectors. The first thing they must do here is to equip themselves with some doctrine and, perhaps somebody—whether called a Prices and Incomes Board or something else—which will enable them to have some principles upon which they deal with claims of this kind.

It is, unhappily, apparent that a large proportion of people in this country do not understand the dangers of inflation and have no idea of its causes. The right hon. Member for Wallasey (Mr. Marples) made this point, and I think that it is justly made. That is one reason why the Government should themselves carry on a campaign and, as I say, rather than abolish those which they have had to hand hitherto, establish some impartial body to explain the dangers facing us.

It is not only a question of this matter being misunderstood by the weekly wage earner. I find it quite incredible that the top men of the steel industry and Rolls-Royce each took increases of £9,000 a year last year, and this at a time, no doubt, when they, among others, are preaching wage restraint. I shall be very interested to see whether the executives of the big oil companies and their directors take extra salary and emoluments at the very time when they are complaining about under-developed countries taking a rather higher slice out of the large profits earned on oil.

If they are to be effective, the Government must also establish some principle for increases in the public sector generally, and, further, they must make clear what their principles are for dealing with the jungle warfare of wage and salary settlements throughout the economy. At the moment, they say that they do not have a salaries and wages policy. In fact, of course, they have one. Their policy is to wait until there is a particularly large wage claim, and then institute an ad hoc committee, such as Wilberforce, to look into it. This makes it entirely a matter of chance which wage claims are considered, and, moreover, the solution is come to by men who have no particular expertise in this matter and who have no settled principle by which to operate.

I am not suggesting that the Government operate a rigid prices and wages policy, but I am suggesting that these are matters which they should have some means of explaining to the country. Further, a prices and wages policy is very much needed at this time, for in all industrial societies there is a tendency for there to be a proportion of people who have expectations, like we all have, for a higher standard of life but who fall below the accepted standards of living.

Sometimes, these people are immigrants; very often, they are women. I do not think that it is sufficiently realised that, although we all sympathise—I certainly do—with the plight of the pensioner, pensioners have, in fact, kept up comparatively well in the 1960s with the rise in the cost of living—indeed, retirement pensions rose faster than living costs—and those who have not kept up are people at the very bottom end of the employment scale, immigrants, people with large families, and so on.

The Government can no more stand aside from the social implications of wage and salary settlements than they can from the social implications of housing and education.

I reject, therefore, the simple solution offered by the right hon. Member for Wolverhampton, South-West. I do not believe that one can simply say, "Clamp down on the money supply and let the forces of the market take their effect". The social consequences are serious. They affect us all. Moreover, as has often been said, the market does not operate today, and many unions are in a virtual monopoly position. It cannot operate in the public sector. It cannot operate in the way it used to do, with the individual employer standing out against a particular wage claim, when claims are made right across the board and, very often are dealt with by international companies. Strong unions will not abate their claims simply because the Government announce a money squeeze.

What I do give the Government credit for is the courage to tackle reforms in the tax structure and the Budget generally, which those of us who have urged them for a long time were always told were impossible. Whether we like the reforms or not, I give the Chancellor of the Exchequer the highest possible marks for that, and I ask him to keep his courage high and look at some other matters, too.

Here is one area in which the right hon. Gentleman might look. There have been suggestions, for instance, from Professor Fogarty and Professor Wiles, that it should not be beyond the wit of the Treasury to impose extra taxation on those who make wage and salary claims and succeed far beyond what is justifiable in the present state of the economy. It may be difficult—indeed, I think there needs to be an examination of what the psychology of these wages may be—but ideas of this kind ought to be looked into.

Second, if there are today, as it is agreed there are, unused resources both in unemployment and in other ways, is not this a time not so much to cut down on all types of Government expenditure but actually to expand that type of Government expenditure which will increase production and help productivity. Is this not a time actually to expand the housing programme and the road programme to build up the infrastructure in some of the regions? We have heard a lot in the Budget debate about the failure to do anything for the regions.

I realise that this will go against cerideologists of the Conservative Party, who wish to reduce Government responsibility. But "Government expenditure" is a blanket term which means all sorts of things and really productive expenditure is productive and useful whether it is taken by private enterprise or by the Government. I also realise that the building industry is not the great user of labour that it used to be, but it seems that there is a classic situation of unused resources in which we want further investment and the improvement of certain facilities if we are to go into the Common Market, particularly transport in the north and west. We should examine ways of increasing direct investment by the Government.

Lastly, I want to deal with the question of the value-added tax. I congratulate the Government on these Green Papers. I have long thought it anomalous that the Chancellor of the Excqhequer should come to the House one spring day and announce all sorts of decisions which have in fact been taken years before hand but in the formulation of which Parliament has had no part. To do them justice, the process of issuing Green Papers was started by the last Government but it is an important step forward that we are now to have some debate on the form of tax changes and thereby, I hope, avoid some of the mistakes made in 1965. I am not convinced that we should reject the idea of having a Committee of Parliament on this subject. At least let us have discussions.

It is apparent that the value-added tax will not be a levy on agriculture or fish-in or food until we go into the Common Market. During the interim period, these are all to be exempt. Secondly, I am not sure how wholesalers and others stand under these proposals. This is a matter of some concern in areas where there are a lot of scattered businesses. I notice that the value-added tax, under the heading of "Services" in the Green Paper would normally be levied on transport and there is no mention of the exemption of transport.

In my constituency and in most of the development areas this will be extremely serious. We are pressing the Government as hard as we can to reduce the steep increase in transport rates. If they are to intervene at all to cut down price increases by the nationalised industries, perhaps they would like to intervene and cut down some of the transport increases. We have just had another 10 per cent. increase on air fares by B.E.A. Do not let us have a tax actually levied on transport. I hope that when this matter is more fully considered we shall be reassured on that point.

I do not believe that one can stop this process of inflation by a stroke of the pen. The Government are right to reject that sort of approach. This is now an extremely serious in-built social and psychological matter. People say, "We have a claim because our prices have gone up "or" That chap is getting more" The problem needs tackling all round. The Government should now eat their words about a prices and incomes policy and should now be setting out some principles, at least in the public sector, for the purpose of public enlightenment. They have to operate on the money supply and to bring it back to near the path of neutral as soon as they can, no doubt with certain amendments thrown in to please the hon. Member for South Angus (Mr. Bruce-Gardyne), but essentially it should be nearer to the neutral position.

Thirdly, the Government must look at whether undue wage increases can be made less profitable than now and at whether those who abide by good practices can be rewarded. The object of taxation is not to raise money for the Government to spend—they can, if they want to raise money, print it themselves. It is to remove from private expenditure a sufficient amount of purchasing power to enable the Government to carry out their part of the nation's expenditure without unduly causing inflation and rising prices. It is extremely difficult to hold the balance.

I have never thought that these nice calculations in the Budget of £500 million this way or that make much difference. Most Budget estimates are out by that much anyway, so most calculations are usually lost in the wash. The Budget policy to be effective on the economy has not only to be a counter to inflation but must be seen to be reasonably fair, and I am not clear at the moment, taking into account the policy of the Government as a whole, including the Budget, that it will be seen to be fair. Unless it is seen to be fair and to be operating on behalf of the whole community and on some principle, the Government will not be able to stop the major sickness of our time, which is inflation.

6.6 p.m.

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

I hope that the right hon. Member for Orkney and Shetland (Mr. Grimond) will forgive me if I do not follow him down the enticing paths of monetary theory in which he wandered so beguiling, making so many attractive suggestions, because I am bearing in mind Mr. Speaker's request to us to be brief, and I want to be very brief indeed. I want to talk only of two things—the Chancellor who never was and the Budget.

The Chancellor who never was is our late friend lain Macleod. I have read all the speeches delivered in the debate so far and I have not come across any serious reference to him. The right hon. Member for Bristol, South-East (Mr. Benn) made a passing reference to him but it was only a quotation from David Wood. I think that it does merit two minutes of the time of the House to think of that remarkable man who, if he had been spared, would undoubtedly have delivered a speech similar to the one we heard last Tuesday and would now be receiving the plaudits which his hard work over many years, particularly his years in Opposition, would have earned him. I think that particularly my hon. Friends the Financial Secretary and the Minister of State would both admit to having learned a great deal from lain Macleod in the years they sat beside him on the Opposition benches.

I congratulate my right hon. Friend the Chancellor of the Exchequer on the style of his Budget. It was an entirely new style of Budget to me. I remember, as so many hon. Members do, the right hon. Member for Cardiff, South-East (Mr. Callaghan) producing what was undoubtedly an earth-shaking Budget, bringing in both corporation tax and capital gains tax. He did it without any previous Green Paper. It is true that we had a White Paper and mutterings but there was no element of consultation before hand. I remember very well how aghast we were at the enormous document which the right hon. Gentleman produced. It was in such shape that it had to have more than 600 Government Amendments in that first year and about 300 or 400 in the following year—the vast majority of which could clearly have been avoided if the Government then had gone about it in the same way as my right hon. Friend has gone about his Budget—by starting with a Green Paper and getting the opinions of the learned societies and those practising in these various skills.

In this context, I echo the words of another old friend, Lord Rhyl, better known to us as Nigel Birch. He used to say that Members of this House rarely showed to advantage when pretending to act like tax lawyers. I have no belief in the efficacy of hon. Members acting as tax lawyers, and I do not think that we can get the right result by doing so, as is shown by that extraordinary case in which both sides agreed that something meant something but the courts decided against them. My right hon. Friend will have to remedy that. These are the deficiencies of this institution. I do not think, therefore, that we shall be any better at drafting new taxes than we are at correcting old ones. I think that these should be left to the professionals.

However, when I talk about the style of the Budget I would like to congratulate my right hon. Friend in covering so much ground in the time, under two hours, in which he spoke. We remember that Gladstonian style of Budget presentation which lasted five hours, and the style in which three hours were spent on the state of the economy and the experience of the previous year. This time the previous year's experience got the shortest shrift I remember, and was dealt with in one paragraph of my right hon. Friend's speech, and that paragraph lasted not more than about three minutes. So much for the previous year.

These are changes of emphasis. I should also like to welcome another change. Chancellors, in making long-awaited statements, delayed saying anything interesting for an hour or an hour and a half until such time as supposedly the markets had closed. My right hon. Friend did not have any feelings on that subject, as far as I can remember, last Tuesday, and certainly I think there were people awake in the Stock Exchange who took cheer from his remarks. So there was a practice which I hope has gone by the wind, so that the Chancellor may give the House the things in which it is interested, in the way my right hon. Friend did.

In this connection, I think I would like to say that I thought my right hon. Friend was doing rather too much credit to the Governor of the Bank of England in not announcing the change in Bank Rate, which was left until Thursday. There is no doubt now at all, there is no element of doubt, that changes in Bank Rate are made on the decision and under the order of the Chancellor; these are not for discussion; this has been settled once and for all, and very properly. Therefore, I should have thought that my right hon. Friend might very well have copied the example of the right hon. Member for Birmingham. Stechford (Mr. Roy Jenkins) and announced his Bank Rate change in his Budget statement. I do not think it would have made the slightest difference to anybody, and certainly the Governor would not have been hurt.

On the whole this has been a Budget which bears the marks of Iain Macleod, particularly on two matters on which he gave personal pledges. One was the disaggregation of minors' income, and the other was the separate taxation of wives' income. These are both very valuable points. I remember very well the battles we had in Committee upstairs in the Finance Bill of 1968, where we an on thalidomide babies. I am very glad to think that this sort of taxation annoyance has now come to an end, and I am grateful and glad about it.

These debates follow an almost universal pattern. On the first day there are congratulations, and then on the following days people say they want to get more of this or that; we start with congratulations and then we get minor complaints. I am bound to tell right hon. and hon. Gentlemen opposite that my constituents like the Budget very much indeed. As the right hon. Member for Stechford said, they must all have incomes of £50,000 a year! But perhaps some of them do not; some, I think, may get as little as £5,000 a year. But they like the Budget. Why do they like it? I will tell right hon. and hon. Gentlemen why they like it—because they like the idea of a reduction in direct taxation. They like the idea. They like a reduction in indirect taxation, too. They know what S.E.T. costs. They like the idea of a reduction. They like the increases in allowances, and they certainly like increases in retirement pensions. Perhaps if we find one of them, who has £3,000 a year and travels 30 miles each way by train to his work, he may be one who, as the right hon. Member for Bristol, South-East (Mr. Benn) said, will be worse off. But, perhaps, I am lucky; he is not there.

The fact is that the people of this country are delighted with the Government because it comes from a party which has kept its word.

I think that David Wood's piece in The Times today is remarkably interesting, where he says that he found a document dated March, 1970, a year ago, which gave him the Budget point for point. It is, I think, a great tribute to the consistency of this party. Not only that, I think that the people of this country will be much encouraged to think that here are a Government who keep their word and who are making plans to keep their word in the future and to implement various plans which were laid before Parliament and are being laid before Parliament again. The public are getting used to the idea.

As to the state of the economy, I am not going to follow the right hon. Gentleman there, but my feeling is rather based on watching the Grand National on the television. Some horses seem to get round by going slowly; horses which win do so by going fast; but they all always run the risk of coming a cropper on the way. I read about it, and I listened to the interview with the rider of the winner, Specify, and he said, "Well, I just saw a gap and I went for it. The horse went for it, and we pulled it off" This, I think, is exactly what the Government have done. Where they see there is a gap in front of them, the country can go for it, and if they go for it they will pull it off.

The Government cannot do more now than they have. As for this talk about not doing anything to stimulate growth, is not a borrowing requirement of £1,200 million a form of stimulant—the largest which has come to us in any time we can remember? I would have thought it bound to find its way into the economy. Anyway, I should like to tell my right hon. Friend that I am sure Iain Macleod would not have been dissatisfied with his speech.

6.17 p.m.

Mr. John Roper (Farnworth)

I am tempted to follow the less controversial points in the speech of the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). Like him, I am not in disagreement that this is a new style Budget, although the things which I found new about the style may not be the same as those he felt were new. With regard to his references to the late Iain Macleod, I agree that there is much in the Budget which bears the stamp of the late lain Macleod, but I hope that he would have honoured his word on the increase of family allowances.

I do agree with the hon. Gentleman in what he said about the Bank Rate reduction. It is time we recognised the reality of our monetary institutions, and I hope to have a few words to say about that later in my speech, and the inclusion in the Chancellor's speech of the announcement of such important measures as a 1 per cent. reduction in Bank Rate.

Inevitably, there was, in the Chancellor's speech and in the speeches of other Government spokesmen, much with which I disagree, but it would be only right for me to say that I was much impressed by the Chancellor's achievement in developing such a comprehensive package of taxation reforms. I hesitate a little to use the word "reforms", as that has overtones of approval, and some of the measures which the Chancellor proposed will inevitably take our tax system in a regressive and retrograde direction. There will, no doubt, be more opportunity later for criticism of this, not only in the Finance Bill this year but, we gather, in Finance Bills in a number of subsequent years as well.

I should like to say also how pleased I was to hear the Secretary of State for Trade and Industry on Wednesday in relation to the Finance Bill say that enabling powers are to be introduced on generalised trade preferences for developing countries following the U.N.C.T.A.D. agreement last year. I feel that this might well have been the subject of a Bill on that matter, because it is something we should like to debate.

An article in Trade and Industry gives us some information about this but I hope the Government will give us some more information about it, particularly about the safeguard mechanisms which are to be introduced for the generalised trade preferences, whether these will be ceilings or escape clauses. Many hon. Members on both sides will feel that there needs to be a fair balance between the interests of producers in this country and those in the developing countries. Those generalised trade preferences can be one of the most important steps forward in the relations between the developed and developing countries. I hope that the Chancellor of the Exchequer will tell us when the generalised trade preference scheme will come into operation. Can we at least match the effort of the European Economic Community and of Japan, who intend to introduce a scheme of generalised trade preferences in 1st July of this year?

I should like to comment on one or two passages in the Chancellor's speech which have not so far received much comment in the House. The Chancellor on Tuesday and the Financial Secretary on Thursday referred to the problems of occupational pension schemes. I should perhaps declare an interest, in that I am a former member of the F.S.S.U. although I no longer receive any benefits from that superannuation scheme. The Chancellor told us that the Finance Bill will contain certain concessions and, of course, I welcome these, but there is one passage in his speech, which was also referred to by the Financial Secretary, which I ask them to think again about. The Chancellor said: I cannot accept their claim to be allowed to remain as they are indefinitely, even as closed schemes."—[OFFICIAL REPORT, 30th March, 1971; Vol. 814, c. 1377.] He was referring to the F.S.S.U. and similar schemes. Does not the Minister of State agree that, if F.S.S.U. were to become a closed scheme, it would not continue indefinitely? This is quite impossible, because, if it were a closed scheme, all the members of it must at some time take their superannuation, unless one of the university teachers, spurred on by the new security of a continuing F.S.S.U. pension scheme, discovered the secret of eternal life. I hope the Chancellor and the Financial Secretary will reconsider whether the benefits which have accrued to F.S.S.U. should not continue at least for the existing members under a closed scheme, particularly as I understand there would be no loss to the Revenue if this policy were adopted.

Mr. Patrick Jenkin

I am sorry that I did not hear the beginning of the hon. Gentleman's speech, but in saying that there would be no loss to the Revenue, he must be aware that the inadequacies of F.S.S.U. are made tolerable to its members only by a substantial supplementation from the Exchequer. This is perhaps not the best argument for continuing it, even for the 30 or 40 years.

Mr. Roper

I accept the Financial Secretary's point about supplementation, but I do not think it was on those grounds alone that rules were introduced last year by the Budget. I hope he and his colleagues will think again about the possibility of making it a closed scheme and permitting existing members to benefit from the contracts which they initially entered into.

The Chancellor made great play of the success of the present Government in repaying overseas debt. He announced further repayments made last week, and said that more than £on had been repaid since June, 1970. Part of this was the result of the balance of payments surplus obtained by the efforts of my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), but part was a result of the Government's foolish policy of maintaining until last week far too high interest rates and attracting volatile "hot" money into London. Repaying debts on the basis of balance of payments surplus on current account is to be commended, but repaying debts by means of high interest rates and "hot" money is expensive, harmful to the British economy and dangerous to the long-term position of sterling. "Hot" money is twice as expensive, costing perhaps 7 per cent. against an average cost of 3½ per cent. on I.M.F. borrowing, and inevitably it is far less stable than borrowing from the I.M.F.

I was interested to read what the Minister of State—perhaps he will remain while I just finish this passage—had to say, speaking from these benches last year, about repaying debt by means of "hot" money. On 15th April, 1970, in column 1504 of HANSARD, he warned of the dangers of using "hot" money for the repayment of debt. I hope that he will continue to watch this problem and, in due course, point out the dangers to his right hon. Friend. It is not clear why the French in the Brussels negotiations have raised the question of sterling, but the reason cannot be far removed from the irresponsible policy of the Government in relying on "hot" money in this way.

The Chancellor and the Minister of State spoke very elusively about techniques of monetary control. They hinted at new techniques of operating on the bank resources rather than by directly guiding their lending. I hope the Minister of State will agree that this was one of the most frustrating parts of his speech and of the speech of the Chancellor. Like strip-tease artists, they hinted, but did not reveal. They were not fair to the House on that occasion. I am not quite sure what the Chancellor of the Exchequer believes about monetary policy—whether he thinks it matters or does not matter. As with the right hon. Member for Wolverhampton, South-West (Mr. Powell), it is not always clear where the Chancellor stands, but if monetary policy is important, the House is entitled to a far clearer statement of the Government's intentions in this direction.

Why is there no Green Paper on possible developments of techniques in monetary control? Money is far too important a matter to be left to the bankers. Are we to move to a system of variable reserve ratios, as in the United States? What techniques do the Government wish to develop to deal with non-bank financial institutions? These are far too important matters to leave to the financial institutions and I hope that, at an early stage, the House will learn more about these techniques of control of which the Government speak.

I refer finally to the Chancellor's Budget judgment and its macro-economic effect on the British economy. The Chancellor has gone for consumption-led growth—a dangerous prescription for the long term but probably all he could do in view of his prejudice against direct incentives to investment or help for the regions. The growth is all on the side of consumption, as has been pointed out before and as is shown by the forecast of 5.3 per cent. growth in consumption in the Financial Statement. This can only occur if there is a significant fall in the savings ratio, or no deceleration in the rate of wage increases, or a much faster fall in the rate of wage increases and prices than any commentator has dreamed of as being possible. The Treasury, by showing its forecast in 1963 prices and telling us nothing of the divisions of G.D.P. and the effect on shares, has hidden from us which assumption it is making. Whichever it is, the Treasury had better tell the Secretary of State for Trade and Industry that this forecast seems unlikely to create a larger share for profits.

The other weakness in the forecast is the extent to which the whole of the Budget judgment depends on an analysis of the effects of the reduction of S.E.T. This is something, as was pointed out in The Times this morning and elsewhere, we know nothing about. We know the effects of reductions or increases in other taxes, but we have no experience of the effects of a reduction in S.E.T. We do not know whether it will work on prices, on profits, or on employment. It is a fascinating economic experiment that the Chancellor has carried out by putting all the stress on a reduction of S.E. T. Perhaps he should commission Professor Reddaway to do a further study to see what the effects will be. It is a gamble to place the whole reliance of the stimulus which he is giving to the development of the British economy to a large extent on the reduction of one tax, the effect of which is completely unknown. He could perfectly well have acted directly on orthodox indirect taxes or hire-purchase controls to get the same effect but, instead, he has experimented in this dangerous way.

This, I suggest, is one of the many weaknesses of the Budget. My right hon. and hon. Friends have pointed out its other weaknesses—its failure to tackle unemployment, the complacency which is prepared to accept a Budget judgment which leaves unemployment at the same level afterwards as it was before. If maintaining unemployment at the highest level since the war is the recipe of a good Tory Budget, it should be proclaimed throughout the length and breadth of the kinddom. I suspect that even the constituents of the hon. Member for Walsall, South would not be so complacent afterwards.

The same can be said of prices. The Budget will have no direct effect on the rate of inflation. The Chancellor of the Exchequer could have acted in many ways to do something about inflation, but he chose not to do so. On a longer term basis, the class-basis of the Budget, with tax concessions to one section of the community, has further divided the nation and set back further the hope of establishing a sensible incomes policy which must prove the foundation for a policy of steady growth.

This is an interesting Budget, even perhaps a historic Budget, but it has failed to deal with the interest of the British economy or the British people.

6.30 p.m.

Mr. Edward du Cann (Taunton)

I shall not comment on the political conclusions of the hon. Member for Farnworth (Mr. Roper), because I profoundly disagree with them, nor on his remarks about the subject of striptease, for I know too little, about it. On the other hand, I am happy to make common cause with him about preferences for the manufactured goods of the developing countries. There is no more significant subject for us to attempt to grapple with than the growing disparity in living standards between developed and developing countries and what are called the problems of the third world and, not least, the opportunity for political disaffection which flows from them. Like the hon. Gentleman, I look forward to debating this subject on some other occasion.

I too, congratulate my right hon. Friend the Chancellor of the Exchequer most warmly on his Budget speech. He showed both courage and competence. If I may claim this small distinction, he and I were Ministers together at the Treasury some time ago. We believed then in expansion and supported a policy aimed to that end and which I still believe would have succeeded had it not been for the incidence of the 1964 General Election and, in particular, the many political things said by the then Opposition before it.

I rejoice especially in my right hon. Friend's personal success. For our country's sake, I hope that it endures, for we have suffered before when it appeared that the Chancellor of the Exchequer was insecure or uncertain, particularly in the context of the two devaluations which the country suffered at the hands of right hon. and hon. Members opposite.

I wish to make two main points and some constructive suggestions. First, I urge my right hon. Friend the Chancellor and his colleagues to continue along the path of fiscal reform which they have so well begun. I believe that the Government will be judged by how thoroughly that work is completed. I rejoice in the proposed detailed fiscal changes—the reductions in corporation tax, income tax and selective employment tax. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) referred—and it was as well that somebody did—to the late Iain Macleod, who I well remember saying, "How I long to cut the throat of that filthy tax". It is good to see its throat half cut and to see some reform of capital gains tax.

I applaud what my right hon. Friend the Chancellor said, namely, that this is the most comprehensive and far-reaching reform of the tax system this century".— [OFFICIAL REPORT, 30th March, 1971; Vol. 814, c. 1397.] My caution is this. For all that has been done, and well done, so much more remains to be attempted and must be achieved if the Chancellor's strategy is to succeed and if his words are to be a reality. It is fine to paint with the broad brush, as my right hon. Friend has done, but the picture must be complete and there is a great deal of detail to be filled in.

I give two instances—one small, the other rather larger. The small instance is this. It was good to see the stamp duty on mortgages abolished yet there must be other right hon. and hon. Members who have the same recollection of Finance Bill Committees and debates as I have. For 15 years I have put my name to Amendments urging the abolition or reduction of this stamp duty or that. After a while, one is reduced, perhaps another halved and maybe a third abolished. As my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) would say, they are either right or wrong; they cannot be half right. I hope that the abolition proposed in the Budget will be followed by others and that eventually we shall scrap the lot. They are tedious, most of them are unnecessary and most of them unimportant in terms of revenue. This is an area for further reform.

The larger instance is this. We hear much about the shortage of liquidity in corporate terms. However, we hear nothing of the shortage of liquidity in agriculture. The Government are committed to the expansion of this industry and the recent Price Review introduced by my right hon. Friend the Minister of Agriculture—the best Price Review for many years—is an earnest of that intention. The Economic Development Committee for Agriculture published a report a little while ago entitled "Agriculture's import saving rô3le". It suggested that by 1972–73 agriculture could expand its net output by 22 per cent. with a consequent saving of imports of £220 million per annum. The E.D.C. assessed the cost of capital items to fulfil this target—buildings, equipment, machinery and so on—at £230 million in a five-year term. I think that that is a gross under-estimate and that the sum is likely to be double.

Whatever you, Mr. Speaker, or anyone else may think of my mathematics, and however suspect you or they may find them, it will be in the recollection of Members interested in agriculture that more lately a report called "Modern Farming of the Soil" has been published in which it was estimated that seven million acres of agricultural land urgently needed drainage. At present rates of progress this work could take 40 years to complete. At double the current rate of drainage, it would involve additional capital investment of £11 million per annum at current costs, or £220 million over 20 years. Add those two figures together and the sum is doubled.

That money will not appear by magic. It cannot be found by issues on the stock market. Incidentally, how good it is to think that the new issue market may be in better shape this year than last. The money must be found from private pockets, and inflation exacerbates the problem. Yet, as far as one can see, little or nothing is done to help provide it. Minor reforms of tax in the aggregate could make a great deal of difference. I instance the reform of estate duty, of capital gains tax, of the depreciation allowances and of the way in which rents are treated by our fiscal system. There has been disappointment that the interest provisions introduced in 1969 were not repealed in whole or in part in this Budget, especially in cases in which there are statutory obligations to repair.

There is a catalogue of needed fiscal reforms, both small and large, affecting agriculture which would not be expensive and which should be tackled. Similar catalogues can be given for other industries and other responsibilities.

I agree very much with the Prime Minister, whose speech was quoted by the right hon. Member for Bristol, South-East (Mr. Benn), that the Government can do so much and the rest is up to the British people. It is true that the Government must provide leadership. The Government are providing it, and it is to be warmly welcomed. The response will surely come, but it will be stronger as the Government continue and are seen to continue their purpose, especially of fiscal reform.

Again, I warmly welcome what has been called the Green Paper strategy. I hope that consultation will become a habit. The Budget's new style encouragement of individual effort is perhaps its happiest characteristic. In this regard, consultation is especially significant. Whether we talk of a new system of monetary regulation, corporation tax, personal tax, or many other detailed matters, I hope that that consultation will also be a reality in less obvious ways.

Take the savings scene. We are to have an inquiry into national savings. That again is welcome and long overdue. But it is a disappointment that some of the detailed suggestions for improvement made by many of us over the years, whether we talk about unit trusts, with which I have a special connection, investment clubs or any one of many other matters, it is disappointing that those recommendations seem to be ignored by the Treasury. We know that we are beginning a process of reform. I hope, therefore, that Amendments tabled by my right hon. and hon. Friends with the aim of assistaing in the process of simplification of tax will receive a sympathetic hearing in the Finance Bill Committee stage this year.

I was interested in what my right hon. Friend the Chief Secretary said on the subject of committees of inquiry into taxation matters. This is a subject which requires further discussion. It was good to hear my right hon. Friend accept the principle in certain respects. I cannot help feeling that these smaller aspects of taxation are precisely areas where a Select Committee would be of the greatest use. I can remember you, Mr. Speaker, advocating such a Committee in years gone by. I have heard nothing subsequently to make me feel less keen on the subject. The more that I think about it, the more I think that an ad hoc or Select Committee would be of great use in implementing the process of consultation.

Each year, we pass a number of Budget Resolutions. I hope that we can encourage my right hon. Friend to say publicly that he will adopt two new ones. The first is that now and in the course of the coming year he will clear up as much detail as possible and that next year we shall have the fattest Finance Bill ever as a result. I am sure that I speak for many members of the club, as the right hon. Member for Bristol, South-East described it, when I say that my right hon. Friend will get nothing but goodwill, good wishes, and the utmost expedition in dealing with reforming and simplifying Clauses in the future.

There is another change in the Budget strategy much less talked about in this debate than perhaps it might have been. It is the change in the Chancellor's economic strategy. Perhaps it is not yet fully understood. Certainly it is not yet fully evaluated. In 1968, the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) undertook to provide an exportled boom. Today, my right hon. Friend is providing a very substantial addition to consumer expenditure as an encouragement to investment. That is right. First comes confidence. Then follows growth. Then follows investment. That is the usual and logical chain. But it is a bold course to adopt. It involves great risk.

We have a chance to succeed. The balance of payments is satisfactory and, although it is fashionable to talk of it as declining, presumably we shall have a surplus of not less than £300 million this year. There is an assumption in the Financial Statement that imports in the year ahead will rise at an annual rate some £340 million higher than the assumed rise in exports. The risk is justified. It had to be taken.

But the need is for time in which the strategy can succeed. Nothing has been more heartrending in post-war years than the assumed necessity to restrict growth to protect sterling. On this occasion we must succeed. We cannot go back to stop, with unemployment at perhaps more than a million. I agree with the T.U.C. in one respect. We have already wasted too much time since devaluation. I was a critic of the right hon. Member for Stechford in that regard. I repeat that the need is for time.

I come, then, to a suggestion. I was disappointed in the speech that my right hon. Friend made to the International Monetary Fund last year in Copenhagen. I appreciate that it was done for special and mainly domestic reasons. But I hope that it does not mean that he has closed his mind for all time to flexible exchange rates. I am sure that they are inevitable and correct. These matters take a long time to complete, of course. But, if we were to introduce them, they would be a helpful addition to the time that my right hon. Friend needs for his economic strategy to work.

In slowing down the rate of growth in unemployment and in the revival of investment, my right hon. Friend's aim is admirable. But I reflect that an annual increase in the money supply of 12 per cent., £546 million of tax reliefs and 14 per cent. in wage increases added together make continuing inflation a certainty in this fiscal year perhaps up to 9 per cent., that is intolerable, not only to those at the lower end of the scale, many of whom are numbered among my constituents, but to us all.

A significant passage in the speech of my right hon. Friend the Chancellor which seemed to go by largely unnoticed was when he said that an additional increment of reflation was not ruled out. I have another practical suggestion to make. However much we on this side of the House dislike S.E.T., we know that in terms of the effect on prices, purchase tax to S.E.T. is probably as to 10 to 1. We know also that there are many taxes, some introduced for artificial reasons of protection of the coal industry like the fuel oil tax, which similarly put up prices. We know that the Chancellor has the regulator in hand. Thus he has an opportunity still, if he wishes to take it later in the year, substantially to affect prices downwards by using tax leverage.

The Industrial Relations Bill is now in another place. It will become law in the next month or two. Now that the main shouting and tumult is dying, I hope that there may be a renewal of the dialogue between trade union leaders and the Government. Both are honourable men. We all know that the Bill is essential. The artificial light over it is the greatest folly. All men, barring only a few militants, whether in this House or as trade union leaders, are honourable. I hope that they will be better able to work together shortly.

Several Hon. Members rose—

Mr. Speaker

Order. I am grateful to the right hon. and hon. Members for shortening their speeches. If hon. Members will keep to their assurances to me about the length of time that they intend to speak, I should be able to call another dozen hon. Members in the course of the debate. I propose to begin by calling an hon. Member from each side, both of whom have said that they will be only five minutes. Mrs. Short.

6.49 p.m.

Mrs. Renée Short (Wolverhampton, North-East)

I have promised that I shall not take more than five minutes. That will be a painful operation for me, Mr. Speaker, but I shall do my best for your sake.

I shall not deal with any of the points raised by the hon. Member for Taunton (Mr. du Cann). I did not agree with any of them, any more than I approve of very much in the Budget.

Had I been charged with the job of introducing the Budget, I should have selected five urgent priorities. The first is the introduction of a basic minimum wage. In my view, that is absolutely essential if lower-paid workers are to be helped. I shall probably be told that the family income supplement does precisely that. However, most of us realise that the family income supplement is really a subsidy for bad employers who are not prepared to pay their workers a decent wage.

Secondly, there should be an additional share for pensioners. Most of our pensioners now understand that the £1 a week increase is likely to be almost completely eroded by the time that they have waited another six months to get it.

Certainly, improved family allowances should have been introduced, again to help the lower-paid families with children. The change in the tax allowances for families with children will remove only about 200,000 families from payment of tax, whereas my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) in his last Budget removed something like 2 million lower-paid families from paying income tax. This is a measure of the attitude to the priorities that the two Governments have had. The Chancellor has to appreciate that any change in income tax does not help the lower-paid families at all, because many of those families do not pay income tax and yet this year they are having to bear the whole burden of the mini-budget without any real additional help.

I would very much like to have seen an expansion in the urban aid programme. This is a matter of great concern to my constituency. We are in urgent need, just as all the other priority areas are, of more money to start nursery classes and to support playgroups. It is a shame and a scandal that nothing has been done in the Budget to help areas like Wolverhampton which have this desperate need.

The fifth priority which, I think, has been completely ignored is that there is no help in the Budget for the housing programme and for the building industry. I do not have time to develop either of those. I want to concern myself with the alarming increase in unemployment all over the country, which has considerably affected the West Midlands and my constituency, areas which have not had a serious unemployment problem since before the last war.

The Budget does not affect the unemployment position at all, as many right hon. and hon. Members have pointed out. The Government have a great deal to answer for in the 10 months they have been in office. The right hon. Member for Taunton said that nobody had mentioned what the late lain Macleod had said. I shall quote it. Last June, during the election campaign, he pointed to the fact that there were then half a million unemployed. I agree absolutely that that was too many. It was a reflection on the policies of the last Government that unemployment had risen to half a million. If those figures were a national tragedy then, I wonder what lain Macleod would have said today, when we have seen an increase of 300,000 in the unemployment figures since June.

The appalling incompetence of the Government in the handling of the Rolls-Royce situation has increased the numbers of unemployed and of redundancies all over the country. In Wolverhampton, on the very next day after the statement was made in the House, a well-known firm laid off 25 per cent. of its work force as a result of the statement in the House. Every week there are statements in the Press about new redundancies and more people becoming unemployed, all in firms which are household words throughmout the country, leading firms in engineering and leading firms of suppliers to the building industry.

We now have 4½ per cent. unemployment among the male population in Wolverhampton. [interruption.] Hon. Members opposite need not bother to get ready to speak, because I shall not finish until I am ready and I have not had five minutes yet.

Mr. Speaker

Order. I am trying something of an experiment, in which we want to get as many speeches as possible from hon. Members. In these circumstances, it is necessary for hon. Members not to be provocative.

Mrs. Short

I recently asked the Secretary of State for Employment for the unemployment figures in Wolverhampton and the West Midlands. In February, 1970, the figure for male unemployment in Wolverhampton was 2,047. In February, 1971, that had risen to 2,717. By the time that the right hon. Gentleman published his latest figures on 8th March, however, the figure for male unemployment in Wolverhampton had risen to 3,198. In February, 1970, the unemployment total for men and women in the whole of the West Midlands was 50,000. That had risen to 64,000 in February, 1971; it has, of course, very much increased since the change in Government.

Wolverhampton, with its 3,198 male unemployed by March, tops the list of towns in which unemployment is rising in the West Midlands, but Cannock, Halesowen, Oldbury, Smethwick, Stafford, Stourbridge, Tipton, Walsall, Wednesbury and West Bromwich have all shown increases in the number of men and women unemployed, certainly from February to March and, indeed, from June until March, during the whole of the lifetime of the present Government.

If the West Midlands is affected in this way by unemployment, it is obviously a serious position for industry all over the country, because the West Midlands is the seedbed of British industry and a great deal of skill and capital is going to waste. Those who have said that the unemployment figure would rise to 1 million by next winter will find, I think, that their figures are overtaken. The figure is now almost 800,000 and it looks as though the increase in the figures month by month will make the figure of 1 million look rather an under-estimate by next December and January.

I conclude. I have taken five minutes. I think that is a record, Mr. Speaker, and you ought to give me a medal. I merely say to the Chancellor that the Budget has clearly taken too much account of the evidence placed before him by the C.B.I. It has not done a thing to help ordinary working people. Indeed, on my calculation, it is only those families which have above something like £4,000 a year coming in who will derive any benefit from the Budget. It is scandalous and a shameful Budget and the right hon. Gentleman should be ashamed of the whole exercise.

6.58 p.m.

Mr. Hugh Dykes (Harrow, East)

One hesitates to waste any of one's precious five minutes in paying tribute to the experiment. If it enables more Members to speak and make one or two points that they consider to be extremely important, that will be a good thing for the House and for the Budget. I hope that I shall be as successful as the hon. Lady the Member for Wolverhampton, North-East (Mrs. Renee Short) in keeping to the time limit.

I hope also that my right hon. Friend the Member for Taunton (Mr. du Cann) will forgive my not following some of the extremely valid and cogent points he made on some of the things which were, perhaps, omitted from the Budget and which might be considered for later use and implementation. I want to reserve myself to one or two points, some of which have inevitably been mentioned already but which, none the less, merit a degree of re-emphasis.

I, too, would echo the encomium, which has come not only from this side of the House, but from outside the House for the Budget, for its balance, for its central strategy, for its intentions and for its excellent division.

As far as one can judge at this stage in time between the short-term measures to which my right hon. Friend the Chancellor of the Exchquer referred under the heading "Conclusion" at col. 1396 of his Budget speech, which are intended to get the economy going now, and the longer-term reforms, the distinction, perhaps, in character and nature between those two divisions of the Budget is that while the longer-term reforms are, extremely bold and adventurous and have captured the imagination of the country —that is, apart from some hon. Member's opposite—the other, shorter-term budgetary stimulation measures, as they might be described, are much more cautious and reflect the anxiety of the Treasury concerning inflation. They are measures which, therefore, will affect different industries in different ways, as inevitably they always will. But nevertheless they will affect industries and economic activity in the aggregate by a cautious, slow progress and, indeed—this is no lack of praise for the Treasury Bench on the Budget—in a way in which there will be only a slow start to that essential stimulation to the economy which we all desire.

That is why I should like to add my voice to those who are making a plea for what the Chancellor described or hinted at in his Budget speech under "The Budget judgment": If, after the measures I am about to announce have been allowed a reasonable time to have their effect, a further stimulus is needed, the usual instruments are always available. Here I should mention that I propose to extend for a further year the power to vary revenue duties and purchase tax by means of the regulator."—[OFFICAL REPORT, 30th March, 1971; Vol. 814, c. 1370.] I very much hope that the allusion to the usual instruments does not mean that he will limit himself only to the regulator and to nothing else. There are a number of other instruments which will be available to my right hon. Friend later this year to stimulate the economy.

No one would gainsay the central and pressing fact that the rate of growth of production at 3 per cent. per annum this year puts us at a severe disadvantage compared both with our European neighbours, and other countries as well.

I could mention a number of other points on the Budget but time does not permit. Like my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) and, indeed, many others of my hon. Friends who have already spoken, I was pleased with the general tenor of the Budget. I also enjoyed, as I am sure the whole House did, my hon. Friend's humorous allusion not only to wage earners of £50,000 a year in his constituency, but to those struggling along on a supplementary benefit of £5,000 a year. I think that they, too, will enjoy and will be grateful for the Budget.

This Budget means that there will be a chance to get away from what has bedevilled British economic policy: the distribution of resources, equality of economic growth for all those sharing in it, the balance of resources of the community and what is in effect a marginal change on the higher rates of tax announced by my right hon. Friend for high income tax and surtax payers—shortly to be merged in one tax. This in itself is anything other than the kind of deluding temptation which the Opposition would always care to use; to suggest that the Government are anything but a Government which will operate economic policy on behalf of the whole community.

My final point is that this Budget will be welcomed not merely because it exclusively—it did not do this; far from it—gave tax remissions to the high income tax and surtax payers, but because it was the beginning of a tax revolution which surely spells out the opportunity to those not yet in high income brackets who want to stay in this country and to earn those salaries which would be derived directly from a faster rate of economic growth.

7.3 p.m.

Dr. John Gilbert (Dudley)

The only contribution to the debate on which I should like to comment was that by the right hon. Member for Taunton (Mr. du Cann). I congratulate the right hon. Gentleman on his remarks about exchange rates and leave it at that, just to let him know that he has the support of at least one Member on this side of the House.

I should like to give a warm welcome to some parts of the Budget speech. Having said that, I should add that most of the items I welcome were in the speech, but not in the Budget proposals.

I particularly welcome the Chancellor's remarks about the Crowther Committee's Report and his intention of reviewing the whole of the credit industry and changing the whole nature of controls over the activities of the banking sector and operating in future on the total of banking resources rather than seeking to act directly on the level of bank lending. This, at least, is some sign of more movement than we have had from the Secretary of State for Trade and Industry.

As I promise to be brief. I shall not deal with the macro-economics of the Budget. They have been gone over long enough by others far more expert than I. In view of the shibboleths and slogans which have flowed from Budget speeches year in, year out from both sides of the House and from both Front Benches, I should like to take up some issues, particularly on the question of growth.

The right hon. Member for Wolverhampton, South-West (Mr. Powell), although I disagree with much of his analysis, put his finger on some important matters. We cannot get sustained growth by tinkering about with Budget aggregates from one year to another. We all want sustained growth. I doubt whether any hon. Member on either side really has any idea of how to get it. If there were a magic key to getting this growth, it would surely have been propounded before now. It is a more complex thing than toying about with the money supply or the fiscal policy from one year to another. It involves a whole menu of choices. It involves the educational system, the number of engineers we produce, the attitude of young people to whether they will go into commercial or industrial activities for a career, the attitude to risk taking, discrimination in the work force, whether it be against women, immigrants, or whatever deprived minority it may be.

It is not good enough for hon. Members on either side to say that we should push our growth rate up from 2 to 3 per cent., as though it was the easiest thing in the world. An increase from 2 to 3 per cent. is an increase of 50 per cent. We shall not get an increase of 50 per cent. in our long term growth rate by playing about with the Budget or the money supply from one year to another.

Having got that off my chest, there are certain other things in the Budget for which we should be grateful. If it is to be a programme of reform for the whole of this Parliament, it is thin gruel indeed. This could be taken as some criticism of my own Front Bench, because, with the exception of the Budget of 1965, we missed many opportunities for reform.

I particularly welcome the assimilation of the income tax and the surtax structure. That is not to say that I welcome the contemplated changes in the level of surtax. That is a totally different matter. I am not suggesting that there are no circumstances in which surtax could be cut, but to cut surtax by the proportions proposed this year at the same time as, by Government action, we are putting up the price of welfare milk and school meals is an absolutely intolerable socially divisive act, whatever hon. Gentlemen opposite may say.

As has been pointed out more than once, there have been several encomiums to the late Iain Macleod which I certainly endorse. But for hon. Members opposite to refer to Iain Macleod without pointing out that he had made a pledge about family allowances is hypocrisy which they should ponder very deeply.

The net effect of this Budget, plus the proposals of last autumn, means that the children of the poor will suffer. Their teeth will be worse cared for down the years and their poorer health will go to pay for more champagne at Ascot, and things like that. Whether hon. Gentlemen opposite like it or not, this is a fact.

Various other opportunities for reform have been neglected. It is high time that something was done for widows and divorced women. There is no mention of them in this year's Budget or in the programme of reform for the years ahead.

I welcome very much the Green Paper on Corporation Tax. Although this may sound like heresy to some of my hon. Friends, I endorse the comments made by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) about some of the effects of corporation tax, particularly in the form in which it discriminated in favour of retained earnings and against distributed earnings. I have always thought—I endorse the comments made by the Prime Minister at the time of the introduction of the tax in that form—that it ensured the survival of the fattest, not of the fittest. I have an even stronger objection to it.

That tax, in the form in which it has survived up to now, was one of the greatest contributors to inequities in the incomes policy which the last Government put forward. It did not escape the attention of trade unionists that while they were being asked to forgo wage increases for good and all—they never got them back—shareholders who were asked to forgo dividends were having them saved for them by their companies at preferential rates of tax and were able to get them out at any time by selling a proportion of their shareholding, reaping the reward at a capital gains tax rate.

Apart from that, I have some general reservations about corporation tax as a whole. It acts as a veil in the economic system. It appears to be largely indirect in its incidence. It is high time that we had a study of its effects on prices. A corporation is a legal fiction. In the last resort it cannot pay tax, any more than it can accumulate income. Its income belongs to its shareholders, and the tax that it pays will be borne by the shareholders, or the workers, or the suppliers or, far more likely, by the customers of the company. In other words, although it appears to be a direct tax, its form of operation makes it an indirect tax. I hope that we shall have a chance to study matters of that sort in greater detail.

The distinction between direct and indirect axes that is frequently made by hon. Members on both sides of the House is largely a myth. Not only has corporation tax an effect on prices more often than on the incomes of shareholders; income tax is often indirect in its effect, because when it is levied on sole traders or partnerships it can be passed on to the customers of those sole traders or partnerships. The distinction between direct and indirect taxation, about which we tend to become so heated, ought to be studied in the much more relaxed atmosphere of a Select Committee rather than in the polemic of debate on set occasions such as this.

It therefore seems that the case for a Select Committee is now virtually irresistible. I put that point to the Leader of the House at business question time last Thursday and he did not accept it. I am glad that the Chancellor, or whoever winds up the debate tonight, intends to refer to it. The Treasury argument against a Select Committee is that it is impossible to discuss taxation proposals in advance. That argument has been riddled from one end to the other by the Government's publication of their two Green Papers. I hope that we have heard the last of that shabby little argument and will have a Select Committee before long.

I welcome the change of basis of capital gains tax—the change to a disposal basis—which does not mean that I welcome the change in the treatment of short-term gains. I also welcome the raising of the lower limit of estate duty. The way in which estates are treated in cur taxation system, however, is still nothing short of a scandal. In this country estate duty remains an optional tax. Nobody with any brains in his head or generosity in his body pays estate duty if he can possibly avoid it.

My preference is for some sort of cumulative capital receipts tax which would operate throughout an individual's lifetime. I appreciate that there are alternatives, such as a wealth tax or a gift tax, but something must be done. If we say that we cannot do it I should like to know how the United States Senate—that well-known body of revolutionary Socialists—was able to introduce a gift tax as long ago as 1936.

We do not expect from this Government much of an attack on inherited wealth. One of the most distasteful parts of this Budget—and I hope that I have shown that I am prepared to give praise where it is due—was the Chancellor's attempt to equate wealth with merit. My hon. Friends and I totally reject such an equation.

I should like to hear the comments of the Government Front Bench on the way in which, after we have entered the European Economic Community they will be able to make any pretence at preventing evasion, in terms of the taxation of estates, when we will have this enormous loophole for the flight of funk capital to tax havens as soon as the integration of this country's monetary system into that of the Community takes place. As I have said, the equation of wealth with merit is obnoxious to us.

I now come to the most disgraceful part of the Budget—the disaggregation of children's investment income. There is not a shred of a reason for that step, in terms of incentive, savings, investment, or anything else. It is purely an open invitation to tax avoidance. I hope that the Opposition Front Bench will give a pledge that that measure, if no other, will be repealed in the first Budget after we return to office. It perpetuates divisions in society. It is intended to perpetuate accumulations of inherited wealth. It is intended to preserve a socially-divisive educational system. It must go. There is no merit in it. It is the clearest indication that this is a rich man's Budget.

7.16 p.m.

Mr. Peter Rees (Dover)

I had not proposed to follow the hon. Member for Dudley (Dr. Gilbert), but I have been stung by one or two of his observations, and I hope that I may be allowed to follow his remarks briefly. First, he repeated the old shibboleth that estate duty is an optional tax. No one, except by suicide, can calculate the moment of his death. I practice in that field of law, and I have not found estate duty to be an optional tax. It is possible by good management to mitigate some of its grosser effects, but total avoidance is a matter of pure luck. I hope that when my right hon. Friend the Chancellor has finished reforming corporation tax and income tax he will take a closer look at estate duty, because at a rate of 80 per cent. it is not taxation; it is confiscation.

The Budget has been rightly commended as a reforming Budget. We remember Chancellors from Addington to the right hon. Member for Cardiff, South-East (Mr. Callaghan) imposing taxes on us, but we do not recall many Chancellors standing back from the jungle and weighing in with a hatchet to try to clear a path through it. For that reason I welcome the Budget, and hope that my right hon. Friend will find his niche in fiscal history.

It is curious that the Budget has been described as divisive and a "two-nations" Budget. I have never understood why a Budget that imposed taxes selectively at a high rate on certain sections of the community should be referred to as a unifying Budget while a Budget of this sort, which spreads its reforms and reliefs fairly widely should be described as divisive. I can only conclude that Socialist Budgets have been unifying through misery.

I warmly welcome the abolition of that mean little measure introduced by the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) involving the aggregation of children's unearned incomes with the incomes of their parents. Since the hon. Member for Dudley devoted some time to the matter I hope that, notwithstanding the pressure of the debate, I shall be permitted to reply in some detail. Some children are fortunate enough to enjoy settlements set up by rich grandparents or uncles. In my experience they are in a minority. They have been hit by the aggregation measure. But, as with so many ill-thought-out Socialist measures, many other children and parents have been hit by this measure.

I want to give two examples. First, let us take the case of a woman who has been widowed early in life and in whose husband's will money has been left direct to the children. The income from that money counts as unearned income and is aggregated with the income of the mother. I have known of mothers who could ill afford that additional impost.

Another case is that of divorced women. It has been a regular practice under divorce orders for maintenance to be paid direct to the children, and it was not aggregated on that basis, up to 1968. I rarely found that a man's income could stretch wide enough to support two families. Divorced women need all the assistance they can get and not the hindrance which is imposed upon them by this measure. I warmly welcome its repeal. My only criticism is that it is being repealed from 1972–73, and not from 1971–72. I cannot think that there are great administrative reasons why it should not be repealed as from this year.

May I move from this controversial point to the method of the reforms which my right hon. Friend has introduced? I commend this Budget as much for the method as for the matter. This is the first time in my limited experience that we have been presented with a programme of fiscal reform spread over a period of years—certainly the first time that we have had the measures proposed put out for our criticism and comment. I like to think that my right hon. Friend has read and marked and digested the evidence given to the Select Committee on procedure.

Speaking as one who has had to deal professionally with fiscal matters, I contrast this Budget with that of the last Administration in introducing the 1965 Finance Bill, when there was very little chance for informed comment to make itself heard or for representations by the professions who would have to explain the measures to their clients to be heard by the Chancellor.

It is absolutely right that we should know in advance the framework of the kind of taxation which we shall have to operate, even though such matters as rates must be kept, as a matter of secrecy, for the Budget measures themselves. So I welcome this approach and I hope also that fresh consideration will be given to the idea of publishing the technical measures, the Bills, well in advance of the actual debate, so that outside bodies can make representations to the Chancellor and his Ministers.

On reform of corporate taxation, it has been a feature of Socialist thinking for many years that distributed profits should be penalised. We have had this at least twice. There was the two-tier profits tax and the imposition of income tax under Schedule F. We were challenged earlier to produce evidence that money raised on the market could be used more efficiently and earn a better return than retained profits. In the nature of things, it is unlikely that this kind of evidence will be available, because companies do not keep their money in separate pockets and one cannot always tell what they have invested, what they have retained and what they have distributed. If hon. Members are interested in this point, we might ask the hon. and learned Member for Lincoln (Mr. Taverne) to commission his Institute of Fiscal Studies to delve more deeply into this. But I suspect that we shall not get any more conclusive evi- dence because any conclusions would have to be based on too many asumptions.

But, in my limited experience, I have constantly encountered, in considering company balance sheets, companies which have far too much money, which they are not putting to use, which they have invested in quoted securities, Government stocks and local government stocks and which would have been far better distributed to their shareholders. This experience must have been shared by many people considering company balance sheets in commerce or the professions.

I therefore welcome the proposal of a new basis for the taxation of distributed profits. My right hon. Friend said that he wanted to impose a neutral tax. This is not the moment to comment in detail on the relative merits of the two-rate system or the imputation system, but I would venture to suggest that neither is in fact precisely neutral in its operation as between distributed and undistributed profits.

I should like a system under which dividends ranked as a deduction from corporate profits, because they would then be caught up in the net of personal taxation. I should like companies to be induced to invest, to re-equip by the generous system of capital allowances which we had before 1964. In other words, the profits which a company retained but did not use for re-equipment would be taxed at the high rate, the profits used for re-equipment would be relieved by a system of capital allowances and distributed profits would be caught by personal taxation.

With this method, we might be able to disencumber the fiscal system of the extremely complex web of close company legislation and even of the anti-dividend-stripping measures and so on. We have got over-loaded with far too many anti-avoidance measures, which are inevitable when there is tax at high rates, and particularly when there is a high rate of tax on distributed profits.

We are having a stimulating, profound and exciting Budget. I welcome it on the basis—that it will be a real step forward to ridding this country of its necessary but obsessive preoccupation with tax, so that at last it can get on with the more fundamentally important business of creating wealth.

7.26 p.m.

Mr. Eric S. Heifer (Liverpool, Walton)

I do not intend to follow the hon. and learned Member for Dover (Mr. Peter Rees) in his learned arguments. I want to concentrate on two fundamentally important points which have not been adequately dealt with. The right hon. Member for Wolverhampton, South-West (Mr. Powell) put forward an argument which, in essence, once one had stripped away the interesting verbiage, and despite the reasoned way in which he put it forward, meant that we should restrict money supply and, of course, that there would as a result be a rapid rise in unemployment.

That is what the right hon. Gentleman was arguing, although he hardly mentioned the word "unemployment". But unemployment is the most serious issue which faces us. I do not accept the argument of the right hon. Gentleman and the right hon. Member for Orkney and Shetland (Mr. Grimond) that inflation is the greatest evil. It is an evil and it has to be dealt with, but the greatest evil is unemployment, which affects the lives of millions of ordinary working people. Even if it is not millions unemployed, with 800,000 unemployed, their families are affected and fear and insecurity is created. If we are to do anything, we must deal with unemployment. That is the first essential for this Government or any other Government.

I have criticisms of my own Front Bench when we were in power. To that extent, I agree with the hon. and learned Member for Dover that we all inherit something. We certainly inherited something. We solved the balance of payments problem. We got a surplus on the basis of a growth in unemployment—and I will not mince words on that. This Government, instead of doing something positive about it, in their first nine months have allowed the level of unemployment to grow to its present figure.

Dealing with unemployment leads to the valid question of growth. I have been in the House six years and have heard all sorts of arguments about how we should get growth, but up to now I have heard no basic answer because we have all gone around the issue instead of getting to the heart of it.

The question of an incomes policy must be considered as part of the issue. I believed we should have a voluntary incomes policy and I argued, both inside and outside the House, that one should be initiated. Unfortunately we quickly went from a voluntary to a statutory incomes policy. The voluntary one failed because the norm was based on the percentage concept. The trouble was that an overall percentage increase was unfair to a man earning £12 a week compared with a man earning £25 or more a week.

Today the trade union movement will not accept an incomes policy, not because it is against the concept of balanced planned growth in earnings, but because the previous policy was used to keep down wages, particularly the wages of the lower-paid. For this reason the trade union movement will not even listen when it is suggested that a wages policy should be established.

Nevertheless, in the last analysis there must be planned growth in wages, though it must be linked to a planned economy generally. In other words, we must have planning in such a way that the policy is fair all round. I appreciate that this may not be the view of some of my hon. Friends, let alone hon. Gentlemen opposite. However, if we are serious about our future economic development this must be done. I hope that when the next Labour Government are elected we shall have as part our monetary policy planned growth in wages with greater control over the economy than has been the case in the last few years.

There has been not an explosion in wages but a greater demand for higher pay in the last 18 months compared with the previous four years simply because between 1965 and 1969 wages were held down to an increase of 7 per cent. Once that percentage barrier was removed the trade union movement naturally came forward with higher demands. We should not forget, however, that during those years prices were rising partly, though not largely, because of taxation and other measures.

Today workers must demand increases of, say, 10 per cent. just to stand still, and they do not want to stand still. They want to do more than just keep pace with the rise in the cost of living. They want an extra 3 per cent. or 4 per cent. to purchase the goods that make life better.

"If only the workers would not ask for so much—all would be well," we are often told, but are they not entitled to higher wages and some of the fruits of their labour? Hon. Gentlemen opposite would not be able to talk about giving £2,000 to £4,000 tax rebates to the wealthy in this Budget if it were not for the wealth created by the workers. This, basically, is why the workers are demanding more, apart from the need to keep pace with the rising cost of living.

I promised to be brief and I shall conclude, although there are many other topics I would like to discuss. I regard the Budget as an example of the rich being given something on a plate, with only minimal benefits for a small section of workers.

I accept and welcome certain aspects of the Budget, such as the endeavour to deal with the labour only sub-contracting question in the building industry. I hope that those concerned will be caught on the National Insurance stamps, point and not merely because of their failure to pay tax.

7.36 p.m.

Mr. Ralph Howell (Norfolk, North)

I congratulate my right hon. Friend the Chancellor of the Exchequer on an excellent Budget. It represents a turning point in our history. We are turning our backs on the Socialism and semi-Socialism which we have been operating for the last 25 years and have set sail on a free-enterprise course. I welcome this, as do my constituents.

While I am pleased that my right hon. Friend has decided to reform the P.A.Y.E. system, I regret that this will take several years to complete. It should be done quickly because P.A.Y.E. discourages people from working. A great mistake was made in 1949 during the Attlee Government when social security benefits, unemployment pay, sickness benefits and other State payments, with the exception of family allowances, were exempted from income tax. This caused appalling anomalies.

The Chancellor said he was baffled because we had inflation and rising unemployment at the same time. I see no reason to be baffled. If people are paid more when they are unemployed than when they are working, inflation will obviously result.

My constituency is a very low wage area, so this problem is more obvious to me than to some hon. Members. I have done a considerable amount of research into this matter and I have consulted the Treasury on it. For example, I pointed out some time ago that a man earning £20 a week with a wife and four children was better off by £1.05 when unemployed for as long as 13 weeks in the year. This did not seem to make sense to me, but I was told by the Treasury that while it could happen, I had to admit that a man with four children was "an exceptional case". I could admit no such thing.

I investigated further and discovered that while in every case the single man was worse off when unemployed, a man earning £15 a week with a wife and no children was £1.25 better off when unemployed and that that was the position for the 13 weeks while his tax rebates were coming to him. The man with a wife and one child would be about the same amount better off for a period of 14 weeks, and a man earning £20 a week, with a wife and two children, would be £2 a week better off for a period of 12 weeks.

That is all utterly wrong, and it is one of the very deep-seated causes of our trouble. I sympathise with people who are unemployed through no fault of their own, but a great number of people have found out how to work this State-approved tax fiddle—and I say that deliberately. They have discovered that if they extend the period between jobs they can recover practically all the tax they pay. This is also one of the reasons for there being a greater degree of strike activity in the last quarter of the year. I pointed out to the Treasury that this matter could be dealt with very simply, and it is wrong that we should have to wait for several years before tackling a very thorny problem which is causing so much harm to our economy.

7.41 p.m.

Mr. Gwynoro Jones (Carmarthen)

My constituency, too, is basically a low-income area-40 per cent. earn less than £900 per annum—but I doubt whether my constituents will be so eager to accept this Budget as those of the hon. Member for Norfolk, North (Mr. Ralph Howell) seem to be. The Budget does nothing to assist the bulk of those in the low and middle wage earning sector. It is the payback for the hundreds of thousands of pounds doled into Tory Party funds to help that party at the election.

It is a clever Budget. We had euphoria following the Chancellor of the Exchequer's speech, but we also had it with the change of Government on 18th June. Many people in the City thought that the problems of inflation, investment and growth would be solved overnight with the return of a Conservative Government. I daresay that last Tuesday's euphoria is rapidly disappearing and that, as with last October's mini-budget, people will begin to assess what there is in this Budget for them, and will soon realise that they have been badly had by the "jolly, jolly sixpence" announcement in the national Press.

It is basically a give-away Budget for those who least needed the money. It helps the rich. It is amazing to hear hon. Members opposite talking in academic terms about the value of this Green Paper or that and of the long-term fiscal or tax structure strategy while deliberately avoiding the issues now confronting us. The real issue is unemployment, but the Budget does nothing to help reduce the numbers. The right hon. Gentleman the Member for Taunton (Mr. du Cann) claimed that it will reduce the rate of growth of unemployment, but we are completely at loggerheads on this issue. We on this side do not expect unemployment to be dealt with in terms of reducing its rate of growth, but in terms of reducing the number of unemployed.

The Budget does nothing about inflation and prices. Hon. Members opposite keep pointing out that S.E.T. has been halved. We on this side remember that when S.E.T. was introduced a little slip appeared in the shop window announcing price increases because of the S.E.T. surcharge. Now that S.E.T. has been halved, we must expect in the near future to see a similar slip in the shopkeeper's window announcing an equivalent reduction in prices.

The Government came to power, not on the issue of industrial relations or anything else but on the issue of a reduction in the cost of living. That was the commitment: that was the promise. Hon. Members opposite like to claim that they keep their promises, but how is this promise being kept? Where in this Budget is there a direct attempt to reduce prices, as was promised by the Prime Minister? We have here a bonanza for the rich. Taking last year's mini-budget in conjunction with Tuesday's Budget, we find things heavily loaded against the low and middle band of wage earners. With the abolition of free school milk, the increase in the cost of school dinners, prescription charges, dental charges all coming into effect now, the vast majority of people will find the £40 increased child allowance and the 6d. of income tax soon whittled away, if it has not gone already. This certainly applies to those below £3,000 p.a.

There is merit in certain aspects of the Budget. The increase in the old age pension must be welcomed. But why was that increase not announced last October for implementation now, in the same way that the 6d. cut in income tax was announced last October? The one could have been dealt with in the same way as the other. But, again, the £1 increase for a single person will soon be eroded by the present rate of inflation of 10 per cent. per annum. The last pensions increase was in November, 1969, since when the purchasing power of the pension has decreased by 9.7 per cent. or 50 new pence. By the time this increased pension is paid in September the pensioner will find himself in practically the same position as now, if not worse off.

Turning to industrial investment, we in Wales are now going through a period in which industrial inquiries are at the lowest level since 1966 while redundancies are at the highest level for many years. The average redundancy in Wales runs at about 9,000 or 10,000 a year, but in the first ten weeks of this year the present Government have managed to get rid of 5,000 jobs in Wales in 10 weeks of 1971 which is already 60 per cent. of the figure of any year since the period of the Labour Government. Unemployment is at its second highest level since the war with 45,000 out of work. Needless to say, the highest level was at a time of Conservative Government—in 1963–so we did not really expect much better in the first nine months of this Government's term of office. Nevertheless, in September, 1969, the present Prime Minister was eager to convince those in the development areas that he and his party would do all in their power to help those regions. The Prime Minister said: We shall act to bring new life to those areas suffering from high unemployment or depopulation. We shall act to encourage a sensible spread of industry Noble words. But since June of last year, factory after factory in South Wales has announced redundancies or closures. Hardly a week or a day goes by without some announcement of jobs lost here or there. During the term of the present Government, we have not heard much about industrial development or industrial inquiries.

The Budget does nothing to tackle this situation. The abolition of investment grants was a major miscalculation, at a time when the rate should have been increased and the rate of payment should have been increased. What has happened? The investment grants have been done away with. On an analysis of investment grants from 1967 to 1970, 200 manufacturing firms announced their intention of coming to Wales. Under the investment allowances of 1960 to 1964, only 69 manufacturing firms announced that they were coming to Wales, which proves that in terms of the development area of Wales, the investment grants were that much better.

Regardless of the trivial academics of whether consultation was sufficient or better than the Budget of 1965 of the value of tax reform, or whether there should be a Select Committee on this or that proposal, the basic tenor is that the Budget will hit hardest those who should be having the benefit and be encouraged. The child allowance, which has been bandied about as a great giveaway to the ordinary man in the street, has rapidly been dealt with by price increases and the increased charges which came in last week.

The Budget does nothing for unemployment or prices, but only serves to keep happy those people who drew in the money month after month to the Tory Party coffers up to the election of last June.

7.52 p.m.

Mr. David Lane (Cambridge)

I hope to touch on one or two of the issues raised by the hon. Member for Carmarthen (Mr. Gwynoro Jones). Visiting my constituency during the weekend has strengthened the approval of the Budget which I felt last week. There is a widespread welcome for my right hon. Friend's proposals, not by any means confined to Conservatives. It is surely a bold, relevant, and confidence-inspiring Budget. I join in the warm tributes paid to the Chancellor and his colleagues, and, with my hon. Friend the Member for Walsall, South (Sir H. d'AvigdorGoldsmid), I also pay tribute to the late Iain Macleod for all the work he did in laying the foundations.

My right hon. Friend's Budget judgment was sound, in giving the right degree of stimulus and encouragement in the short term and, even more important, paving the way for sustained long-term growth. The country will appreciate two things especially. First, out of the most complex dilemma facing a Chancellor for several years, my right hon. Friend has produced the most ambitious Budget for several years. Second, the Government have already justified the claim which the Prime Minister made at the General Election to be a great reforming Administration. We have already had the Industrial Relations Bill. We have before us proposals for local government reform. Now we have this far-reaching programme for taxation reform.

I shall touch briefly on a few aspects. First, on the changes in the tax system, the hon. Member for Farnworth (Mr. Roper) earlier this afternoon spoke about the position of the federated superannuation system for universities, the F.S.S.U. I thank my hon. Friend the Financial Secretary for the personal interest which he has taken in this. I think the Government have gone as far as is reasonable to meet the wishes of people in universities, and I hope that these people will accept that in the deferment of the appointed day until 1980 there is a generous concession to their particular needs.

I welcome the unification of income tax and surtax, the reform of corporation tax, and the introduction of a value-added tax. I join with those who have praised the openness of this programme, in contrast to what happened in 1965.

Speaking of the value-added tax on Friday, the Leader of the Opposition, typically, was distorting and misrepresenting the facts. Experience in other countries, to my knowledge, has shown that this is an eminently workable tax. I am very glad that the Chancellor has already made clear that there will be exemption for small traders. I am thinking especially of small shops. The pendulum has swung too far towards the big multiple stores and away from the small shops. I hope that this exemption will be widely appreciated because the small shop has a great value in the community.

My right hon. Friend applauded the willingness of the Inland Revenue nationally to accept this programme of reform. I pay tribute to all that the Inland Revenue does in my constituency in looking carefully and sympathetically at the individual taxpayer's problems.

On the immediate measures, critics opposite have said that we have done too little for many of the population. This was well refuted by, among others, my hon. Friend the Financial Secretary on Thursday. The increased pensions after September will have the highest purchasing power ever, and will be brought into effect at a date two months before what would have been the due date under previous patterns. I draw attention to the increase of £2 in the application of the earnings rule, to the more generous provisions for family income supplement, to the increased help for the disabled through the constant attendance allowance, and to the additional help promised for the chronically sick and for very elderly people. This is never enough, but taken in total it adds up to a considerable package of extra help for those who need it most.

Another criticism which we have heard is that the Budget does nothing about prices. That criticism comes ill from the Party that added record burdens of taxation to the pressure on prices in the shops. The cutting of selective employment tax will have a major influence here. The hon. Member for Carmarthen evidently is unaware of what Sainsbury's announced last week. We hope that there will be a similar announcement soon from the Co-ops. I hope that lion. Gentlemen who spoke on behalf of the Co-ops in our debates about selective employment tax will bring their influence to bear.

I echo what was said on Thursday by my hon. Friend the Member for Dartford (Mr. Trew), regretting that it had not been possible for the Government this time to reduce the tax on fuel oil, petrol and other oil products. These should be leading candidates for the next reductions which my right hon. Friend can contemplate.

The Budget is already giving encouragement visibly to industrialists, according to the reports reaching me. There is great psychological benefit, too, from the announcement about Bank Rate. It is good that the Budget is giving particular help and encouragement to small companies.

On the immediate economic prospects, we are all concerned, on both sides of the House, about cost inflation and about unemployment. Regarding inflation, in contrast to what I think was implied by the speech of my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), the Government are absolutely right to continue giving first priority to reducing the level of salary and wage settlements. The gap between the settlements and the increase in production has to be narrowed. I should like to see not only the level of settlements coming down but productivity going up more. In this, the Budget will help.

I wish the Government had been able to take further action about unemployment, but, as my hon. Friend the Member for Tonbridge (Mr. Hornby) said last Thursday, the Government could not prudently have done more at this stage. I believe that the Budget, plus the other measures already taken to help the regions, will before long halt and then reverse the trend in unemployment; and, as the Government make progress in the next few months in getting on top of cost inflation through salary and wage settlements, I hope that they will not hesitate to give further stimulus, through the regulator or through the relaxation of instructions to the banks or in accelerating public spending in some of the regions.

I want to refer, in passing, to one of the main question-marks in the employment situation-the problem of Rolls-Royce and the RB211. My constituency, together with many others, is indirectly affected. I hope fervently that, even at the expense of further millions of pounds of public expenditure, it will be possible, to reach an agreement to continue the manufacture of this engine, for the sake of employment at home and for our reputation and prospects overseas.

My final reason for welcoming the Budget is its relevance to our application to join the Common Market: because I believe that it is proof of the Government's continuing seriousness of purpose in seeking British entry. I think the Budget will help by making sure that the British economy gets into better shape over the next few months, and by laying down the firm commitment to tax reform it will make eventual transition to the Common Market system easier.

I know that there is much public scepticism about the Common Market, but there is also strong support for joining, especially among young people and among people in industry. As a friend of mine in industry in one of the most distant regions put it very vividly last week, "Ware out on a limb and we are falling further and further behind". Any alternative to joining the Common Market will be very much a second best, both economically and politically. I therefore hope that the Government's negotiations will succeed.

I end by reminding the House of words with which The Times, not always one of the Chancellor's most ardent admirers in recent months, greeted the Budget in its leading article on Wednesday morning: … this does look like a Budget which opens a new political prospect. It offers a coherent political strategy, and takes advantage of a period of opportunity. It could be the starting point for a revival of confidence in British industry and, if the European negotiations succeed, in British life.

8.3 p.m.

Mr. John Mendelson (Penistone)

The Chief Secretary earlier gave me a firm promise that he would return later in his speech to reply to an intervention of mine concerning the level of unemployment. Alas, he never did. I do not regard that as a broken promise. I think that we shall probably get an attempted answer from the Chancellor.

However, I begin with that reminder because I regard this as the crux of the debate. It is a subject to which the right hon. Member for Wolverhampton, South-West (Mr. Powell) did not address himself in sufficient detail. The very interesting attack which the right hon. Gentleman made upon the Chancellor's monetary policy was incomplete; and for that reason I do not believe that the Chancellor will find it too difficult to reply to him.

The points about the transitional difficulties which would arise, as the right hon. Gentleman described them, after a strict application of a tight money policy are far too serious to be glossed over in a few sentences. They may well mean, if the right hon. Gentleman's policies were to be followed, a level of unemployment of 1½ million. I do not think that the country is prepared to accept that.

We have the benefit of the experience in recent years of all the major capitalist countries. Obviously, I am treating the right hon. Gentleman's argument with the seriousness that it deserves, because he himself went outside this country—rightly—and did not discuss only the details of our own economy. In a number of capitalist countries in recent years there has been a phenomenon which, strange to relate, the fathers of the Socialist movement predicted more than 70 years ago. They have been proved absolutely right. It is right that in a debate on the Budget their point of view should be briefly introduced.

The problem with which the right hon. Member for Wolverhampton, South-West, the Chancellor and my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), when he was Chancellor last year, are wrestling is that of directing economic policy in a society where 44,000 boardrooms must be influenced and where the Government have very few means of directly telling the 44,000 boardrooms what economic policy they are to pursue. It is a society in which the two major economic strategic decisions which must be made on two questions—first, what is to be produced; and, second, how much of it-are not in the Government's hands.

That is why the right hon. Member for Wolverhampton, South-West, like some eminent American academicians and politicians, comes up with this very blunt instrument of the tightest possible monetary policy, no matter what the consequences in the shorter and the intermediate run. It is a counsel of despair. Some of the advisers of Mr. Montague Norman, when he was Governor of the Bank of England, brought forward the same counsel of despair on many occasions. I should have thought that the lessons of that advice would have been learned by now.

The real problem that the Chancellor faces is that which my right hon. Friend faced. There should be realism across party lines in a Budget debate. In the Budget debate last year, I criticised my right hon. Friend as being too cautious. I believe that my criticism has been proved correct.

The responsibility for the present level of unemployment must be shared between the two Front Benches. Some of it is a continuation of the too-cautious economic policy pursued last year by my right hon. Friend; and some of it is a direct result of the reluctance of the present Government to do anything about it when they came into office.

Both of them are tied to the economic system that we have. Both of them face the difficulty of not being able to command the instruments of economic policy which would make sense in a modern economy to any Government's economic intentions.

The United States economy is largely dependent at present upon a space programme. In recent years in America, when economic policy has been discussed, people have said, "What will you do with all our economic resources? How will you use them?"; because, in spite of the naïve contributions that we sometimes hear from hon. Members opposite, the problem of a modern capitalistic economy is not the absence of resources. It is the presence of too many resources.

I mention America because we are so much influenced by what happens in the United States economy. If, in America, there were not a space programme and if there were not a policy of having three cars for each family, it might be found that the level of unemployment there today would be seven million to eight million.

The problem which faced the Chancellor of the Exchequer last year and this year can be summed up in this way. How is the economic policy of the private economic system to be controlled if the Government have real control over only the public sector? That is the unresolved problem. It was shown again this afternoon when we were talking about the public sector. I represent a steel constituency. I asked the Secretary of State for Trade and Industry, "Is it not common ground that we want an expanding steel industry and that an expanding steel industry can be financed only in two possible ways? One is by allowing the required increases for the product of the industry so that it will be on an equal footing with the prices charged in the United States or just below that, but at any rate near to the level of the Western European countries. The other is by raising public capital which the Steel Corporation will be allowed to use".

The right hon. Gentleman the Secretary of State did not give a straight answer. He said, "I want an efficient British steel industry" So the question remains, for there cannot be an efficient steel industry in this country unless it is an expanding steel industry, as the Chairman of the British Steel Corporation has made clear publicly and privately on many important occasions.

The dilemma is that, if the steel industry were to adopt the proper expansionist policy, it might be in conflict with a restrictionist economic policy in the private sector. I only hope that men's jobs will not be sacrificed on the altar of doctrine and short-term advantage, and that the Government's responsibility for coming to a decision about the future of the steel industry will be exercised in the knowledge that what they have to decide is not whether we have a small or a large industry but whether we are to have a steel industry at all in the future.

That brings me back to the question of the economic strategy. The Government are deliberately aiming—this is clear from the Chancellor's own statements—not to reduce unemployment. They do not feel that they have enough control over the economy to be able to sustain a great expansion within the next 12 months, and this leads them to the old-fashioned view that the working class can be taught their lesson of being what they call reasonable in wage claims only by having a large pool of unemployment.

The argument going on at present between the Chancellor and some of his Right-wing critics, as the hon. Member for Oswestry (Mr. Biffen) rightly hinted last week, is precisely the argument about whether they are being tough enough. Whether in the context of money supply policy or the context of industrial policy, are they being tough enough in forcing working people to realise what the score really is? The Government have no convincing answer to that question because they are tied to the policy inherent in our economic system.

We must not be surprised, therefore, that the Government are refusing to reduce unemployment, are not planning for a reduction in unemployment, and are not planning for the proper expansion of our economy. The Budget stands condemned not only as regressive and because of its inequalities—that we would expect—but because it refuses to face the reality of our economic situation, does nothing to reduce unemployment, and does nothing to end the wastage of our economic resources which has been going on for some time.

8.13 p.m.

Mr. David Knox (Leek)

In view of the shortage of time, 1 hope that the hon. Member for Penistone (Mr. John Mendelson) will forgive me if I do not closely follow his remarks, although I hope shortly to touch on the question of unemployment.

I enter this debate as one who, ever since I became interested in these matters, has considered that the Treasury is always wrong—sometimes more wrong than others, but always wrong none the less. The highest tribute that I can pay, therefore, to my right hon. Friend the Chancellor for his Budget Statement last Tuesday is that I feel that I should reconsider that view for the future and accept that sometimes the Treasury may be right, or at least half right.

This is the best Budget that I can remember, and I congratulate my right hon. and hon. Friends at the Treasury for the work which they have done. It is right also to pay tribute, as other hon. Members have done, to kin Macleod for his contribution to it. I could extol the virtues of the Budget at length, but, because several hon. Members still wish to speak, I shall keep my contribution as brief as possible and concentrate on one aspect of it which appeals to me in particular.

In my view, the most important aspect of the Budget is its strong orientation to the Common Market. My hon. Friend the Member for Cambridge (Mr. Lane) made this point a few minutes ago. The tax changes and, in particular, the proposal to introduce the value-added tax will help prepare us for entry into the European Economic Community in a year or two. The Times said last Wednesday: The more open approach to taxation treats Britain as though Britain could be brought to take a more confident view of herself. As the European negotiations are more likely to fail because of British lack of self-confidence than for any other reason, Mr. Barber's Budget is a real help to Mr. Rippon in the European negotiations. In my judgment, this is the most powerful reason why it is a good Budget. I am convinced, and I have been for many years, that we shall never put our economy right in this country until we join the Common Market. The Budget will take us a certain way along the road towards strengthening the economy, and it will help to smooth the passage of entry into the Common Market, but in itself the Budget will not enable us to improve our economic performance in the way that membership of the European Economic Community will.

I think it probably true that the British domestic market at the time of the Industrial Revolution was larger than we needed for the Industrial Revolution to take place, but, as industrialisation has advanced, and as modern science and technology have opened up new prospects and new productive techniques and methods, so Britain, notably in recent years, has been increasingly unable to exploit the opportunities open to her. This inability to exploit opportunities has been due to the lack of a large domestic market. As a result of all that, the lead which we built up because we were the first country to undergo the Industrial Revolution has in recent years been lost. Although our economy has grown, it has not grown as fast as the economies of other countries, and increasingly we have been left behind.

It is interesting to note that the significant difference between other advanced industrial countries and ourselves has been the much larger domestic market which they have enjoyed. This is true of the United States. It is true of the European Economic Community. It is true also of Japan, and it is right to remember that, as Japan is frequently cited as an example of a country which has got by without a large domestic mar- ket. In fact, the Japanese domestic market is twice the size of Britain's domestic market.

The logic of my argument, therefore, is that we need a much large domestic market, and this can be provided only through membership of the European Economic Community.

Some interesting statistics were given in an article by Mr. Andrew Shonfield in The Times last week, in which he showed that the growth in productivity in the United Kingdom in the last 20 years had been a mere 2.6 per cent. All the countries of the Common Market, on the other hand, had done better, ranging from 3.84 per cent. in Belgium to 6.88 per cent. in Italy. No matter which sector of economic or social statistics one takes, the performance of the countries of the Community has been better than ours in the United Kingdom.

Because I believe so strongly, therefore, that we need this large market before we, too, can enjoy the sort of advantages and have the sort of growth which we want, I am convinced that we must join the Common Market, and join it soon. For that reason, I welcome the orientation of the Budget towards our early entry into the European Economic Community.

Not only do I warmly welcome the actual measures in the Budget which will make our entry easier, but I welcome, and welcome wholeheartedly, the strong European tone of the Chancellor's speech last Tuesday.

Thus far, I have given strong support to my right hon. Friend and his Budget. I now turn to one aspect of his speech which somewhat concerns me. He said that his broad aim over the next 12 months was to ensure that demand expanded by 3 per cent. over the year, which was the estimated rate of growth of production potential. I was sorry to hear this, because it means, as a number of hon. Members have noted, that unemployment will remain at the present level for the next 12 months which is much too high. It also means that none of the undoubted slack in the economy will be taken up over the next 12 months—and there is a great deal of slack.

One large firm, the directors of which I was talking to recently, told me that they could increase production by 10 per cent. and that the only additional costs they would have would be the material costs. The existing labour force and the existing capital equipment would enable them to do it. This means simply that both labour and capital are grossly underemployed at present. If I thought the current rate of unemployment and the under-utilisation of labour to be some brake on the increase in labour costs, I might support it, but there is, as my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) said, no evidence of this, and indeed the experience of the last two years has tended rather to the contrary conclusion.

Apart from the fact that this unemployment and under-utilisation of labour make no contribution to keeping labour costs under control, there are a number of other very substantial disadvantages, both social and economic, in running the economy at the current level of activity, a level where demand is substantially below supply potential. In the first place, there are the social effects of unemployment, because unemployment of this sort affects good workers and bad alike; it is quite undiscriminatory and it is an affront to human dignity.

One has to be careful with this argument, because it is obvious that, in a modern industrialised economy, one cannot altogether eliminate unemployment. But if one can reduce unemployment by 10 per cent. one is reducing the social ill-effects by 10 per cent.; if one can reduce unemployment by 20 per cent., one is reducing the social ill-effects by 20 per cent. At this time in our history, it is intolerable for purely social reasons that almost 800,000 people should be out of work, particularly because of the grave affront to their dignity as human beings. Of course we pay better allowances now to people out of work, and that is welcome. But it is not the whole story. It is an affront to a man—to all sorts of people at all levels in our society—to have to go home and tell his wife and children that he has lost his job. This is a slight on him, even though we here know that there is no real slight at all. That is the first reason why the current level of unemployment is unacceptable.

Then again, there is the wastage of human and capital resources s through unemployment and the under-employ- ment of labour and capital. One does not need to be a sophisticated economist to understand what this means, because at its simplest it is absurd to say that one is strengthening the economy by stopping people from working and preventing machines from producing goods and thus making a contribution to a larger national cake.

Another reason why it is wrong to have this level of unemployment is the effect on getting rid of restrictive practices. These came into being, we would do well to remember, not because people were bad but because men were afraid of losing their jobs and felt insecure. By the mid-1960s, most people had accepted that restrictive practices should go. We are not helping much to get rid of them by re-creating the very conditions in which they came into being.

Then again there is the effect of the current under-utilisation of resources on the level of investment. Investment is dropping. Labour-saving investment naturally is not taking place because there is plenty of labour available. Risk investment does not take place to the same extent when one has an economy that is under-utilised to the extent that ours is. Particularly bad is the effect on growth industries of this sort of policy, because one is cutting off marginal spending power by the people. One is cutting off the sort of spending power they use for luxuries—and yet those luxuries are the very things that the growth industries are producing and which need a good domestic market to enable us to sell them abroad.

There are a number of other disadvantages, which I will not go into now because of time, but finally there is the effect on business morale and business confidence and the effect on national morale. Industry in this country has been subjected to stop-go—and plenty of "stop". Confidence is at a low ebb. Business men have spent a lot in investment, often at the behest of the Government, which has not been taken up. Business men do not like stop-go but they like stop" even less, particularly at a level of economic activity substantially below the full utilisation of capacity. The result is that we have a complete lack of confidence amongst our business community —not only the financial community but the business community as well which, in my view, with the greatest respect to my friends in finance, is more important than the financial community.

There is also the lack of national morale which this sort of policy brings about. This is the sort of thing which concerns me. I think that my right hon. Friend has done certain things which will help improve the position in some of these respects. I also ask him to think about using the regulators in a few months' time because I believe that this country can never again begin to expand economically until such time as we start injecting substantially more spending power into the economy and enable us to use the resources we have to a much greater extent than in the last five years or so.

8.26 p.m.

Mr. Edmund Dell (Birkenhead)

I found a great deal to agree with in what was said by the hon. Member for Leek (Mr. Knox) about the curse of unemployment. I think that he may find certain of the other things I have to say will follow along the lines of some elements in his speech. I want to make a brief intervention in part to celebrate' my return to Budget debates, from which I have been diverted by other vital occupations in recent years.

Many things have been said about the Budget—that it is a Tory Budget, a gambler's Budget, a two-nations Budget. I see nothing in it but faith, hope and charity. The charity, as one would expect, begins at home; the faith is in personal incentives and market forces; the hope is that this will do some good to the country's economy.

At any rate, the faith in market forces appears to be mitigated by some doubts. The Government are prepared to make some gesture, for example, in the direction of the development areas and to distort market forces in the interests of development areas—as long, apparently, as what they do shall be ineffective. They reconcile themselves to the inconsistency of their action with their own principles by the ineffectiveness of what they are doing. When they want to be effective they use investment grants. In Northern Ireland, where there is a very serious unemployment problem. They want to be effective. I asked the Secretary of State for Trade and Industry today, why only in Northern Ireland? Why in Northern Ireland can one do something which we are apparently not allowed to do in other development areas of this country? He says that Northern Ireland is a special case. The real situation is that in Northern Ireland the Government are prepared to take steps which will be effective. They are prepared to take steps which will be effective because of the situation there, but the situation is becoming equally serious in the North-East of England, in Scotland, in my own constituency on Merseyside. It is no use the Government rejecting the use of investment grants on the principle that in some way they create investment of bad quality when apparently they are prepared to use them in Northern Ireland despite the danger, on their own argument, of creating investment of inadequate quality.

I suggested to the Chancellor of the Exchequer, in my own Budget representations which I made by means of a Question which I put down to the Secretary of State, that in addition to free depreciation in development areas he should reintroduce investment grants at a lower level than the Government are using in Northern Ireland, at the rate, say, of 5 per cent. to 10 per cent., on plant and machinery bought for use in development areas. The cost of so doing would be relatively small; at 5 per cent. the gross cost would be £32 million, at 10 per cent. the gross cost would be £64 million. This would have been very much along the lines of what the right hon. Member for Barnet (Mr. Maudling) did during the period when he was Chancellor of the Exchequer. This would have given assistance to development areas, and it would have been consistent with what the Government are doing in Northern Ireland. Unfortunately, nothing along this line was done, but this would have helped to deal with the increasingly serious problem of unemployment in development areas.

The hope is that that these policies of the Government will increase this country's rate of growth. I hope the Government are right. I do not want to see the next three or four years of this country's economic history wasted, but I am afraid that the Government have got the real problem wrong. The real problem is not the problem of lack of incentives. The real problem is the fact that slow growth feeds on itself. In a slow-growing economy all the risks are greater and all management decisions more difficult.

Take, for example, investment decisions. If one makes an overoptimistic investment decision in a market growing at 10 per cent. a year, then the results of over optimism are a great deal more rapidly absorbed than in an economy which is growing only slowly, in an economy which is growing only at 5 per cent.—even more so in an economy growing at 2½ per cent. The risks of investment decisions, particularly if overoptimistic or over-ambitious, are inevitably greater in a slow-growing economy. Consequently businessmen make cautious investment decisions leading to a slow growth rate.

Take, for example, productivity—and here I follow the hon. Gentleman the Member for Leek. Productivity is continually a subject of discourse by Governments to industrialists. Industrialists quite understand the importance of raising productivity. The difficulty, of course, is that there is continued resistance because of the fear of redundancy. Redundancy is the English disease. If one could only get rid of the fear of redundancy. In countries with a higher growth rate there can be genuine guarantees that higher productivity will not lead to redundancy, and therefore one can more easily secure co-operation in obtaining a higher rate of growth of productivity.

Take export-marketing. Industrialists may establish investment capacity directed to the export market and they may develop a market, often at great cost, yet they find, owing to the prestige which the Government attach, for example, to the value of the pound sterling in policies, such as the Chancellor of the Exchequer announced last year, that the competitiveness of their investment projects is undermined and the profit of their projects is undermined by the decision of the Chancellor to follow that course rather than maintain the competitiveness of British industry. Here I agree with what the right hon. Gentleman the Member for Taunton (Mr. du Cann) said about flexible exchange rates. In a slowly growing economy, I emphasise, this problem is much more difficult than it is in a fast- growing economy, and the Government are, to that extent, in a more difficult situation.

In that situation the Government can rely a great deal less on the operation of market forces, on the operation of international market forces. International market forces, I believe, are more likely to work for the benefit of the strong and to the detriment of the weak, and they work to the benefit of fast-growing industrial economies and to the detriment of slow-growing economies. I would no more disarm this country in face of international market forces than I would disarm its military defences. That is why I thought that, on balance, despite the disadvantages—I admit there are disadvantages—the investment grant system, in the condition of our economy, is very much better than the tax allowances system, and I still believe that. The investment grant system encouraged a very necessary degree of risk-taking.

That is why I believe that any British Government must be prepared to take action to support the competitiveness of British industry, if necessary by taking a different view from time to time of the value of the pound sterling. The Government must create and sustain a market for British goods at home and abroad. Unless they are prepared to do this, further damage will be done to the British economy.

8.35 p.m.

Mr. Derek Coombs (Birmingham, Yardley)

I welcome the opportunity of speaking in this debate, particularly as the Finance Bill is probably the most significant fiscal event in our country since the war, not so much for its effects this year but because of the dramatic changes it foreshadows for the future. My only regret is that it is not possible, for obvious administrative reasons, to implement these long-overdue reforms before April, 1973.

This Budget is the last chance for our country to keep pace with other advanced industrialised nations. Whilst congratulating the Chancellor on his initiative and without wishing to take credit away from him, it seems to me, logically and dispassionately, that he had little or no alternative. I may not be doing him justice in this, for even at the point where it is most obvious that any other course of action would be wrong, it still required the courage and determination which have been so painfully lacking in previous Chancellors for many years.

This does not stop me wishing—and these are minor criticisms—that some of the short-term incentive concessions had been more generous. The increase in earned income relief could have been higher than 15 per cent. Similarly, some immediate help on investment income, pending the long-term review, would have given an incalculable but extra boost to business confidence, apart from encouraging personal savings. To tax investment income at the present rate—usually the fruits of somebody's labour which in many instances has already been subject to income tax and surtax—is to my mind a diabolical imposition. In no other comparable country is there such wide and blatant class discrimination.—[Laughter.] —Hon. Gentlemen may laugh, but this happens to be true. They should check their comparisons.

We pledged ourselves to a property-owning democracy, to provide help to the poor in our society and to improve the standard of living of all our citizens. To achieve this, we expect those who are able to take care of themselves to contribute the effort and skill which alone can induce a faster rate of economic growth, for, in spite of what hon. Gentlemen may think, we shall never achieve social justice in any other way.

The prime ingredient is, therefore, confidence. It is a fact of life in any free society—and I am not talking about some Latin-American dictatorship—that the broad mass of the middle-class must get richer if the standard of living of everyone else is to be improved. People's expectations will always rise, and so, probably, will their standard of living, but the extent to which the State derives benefit depends on where these efforts are channelled. Honest endeavour, or devious tax avoidance; that is the choice. The hon. Member for Heywood and Royton (Mr. Barnett) lectured us about social injustice and implied that if any hon. Member wanted to learn a trick or two about tax avoidance he would be available for a quiet word afterwards. All this, after the biggest single handout in welfare benefits to the aged that this country has seen in recent years.

Party political postulating in this way brings Parliament into disrepute. I should be grateful if the Press would sometimes not only report what Opposition Members say but also the expression on their faces when they sit down. The public knows and will not be deceived, that it was Labour's policies during their last years in office which led to the dramatic increase in unemployment. The public knows, and will not be deceived, that it was Labour's high taxation and statutory controls which started this cycle of wage drift and increasing prices. But enough of the Labour Party; they are as irrelevant as yesterday's breakfast. They left behind the problems which this Government will put slowly but surely right.

Now let me say that the element of risk in these budgetary measures on our balance of payments must surely be negligible, for the threat to our trading surplus lies not in the Budget, as the Chancellor of the Exchequer rightly implied, but in the cost-inflation which is eroding our price competitiveness in world markets. The Budget, inasmuch as it has any effect in abating excessive wage inflation, can only help, but even this should not be over-stated or overestimated.

I listened with great interest to what my right hon. Friend the Member for Wallasey (Mr. Marples) said in the first part of his speech last Thursday. He pointed out how much easier it is for the public sector to stand firm against excessive wage demands than the private sector of industry. Both the Ford settlement and British Leyland's revised pay structure at Cowley bring home to all of us very forcibly the need to act swiftly. In addition, there is the awesome problem of the British Steel Corporation and the substantial price increases, be it 14, 12½ of 7 per cent., which stem directly from the enormous losses following nationalisation and the ill-thought-out changes for which the previous Government and the present management must bear some responsibility.

From the point of view of wages and prices, there can surely be no doubt that time is not on our side. I utterly reject the proposition so often paraded of reverting to statutory control, but I recommend to the Chancellor of the Exchequer—and I ask him to think seriously about this—that consideration be given to encouraging companies to reduce wage demands and so restrict price increases per the medium of corporation tax. This recommendation deserves and justifies attention.

The proposition is very simple, namely, that for any company with 500 employees or more there would be a corporation tax rebate if total wages averaged per employee are less than 5 per cent. above that of the previous financial year. Equally, there would be a surcharge if the 5 per cent. were exceeded. A similar procedure would apply with prices except at a lower level in that for a company with over 500 employees there would be a corporation tax reduction if prices were less than 2½ per cent. above the previous year and again, there would be a special surcharge levy if they were more. Obviously, if companies were able to grant more than 5 per cent. on their wage bill and still keep their prices within 2½ per cent. because of greater efficiency, they would be exempt.

That system would be very easy to apply both in the present method of corporation tax and also when a two-tier system for distributed and retained profits is introduced. For obvious administrative purposes, one would be concerned only with the larger companies where prices and wage factors really do have a bearing on the competitiveness of our exports. The method of credit or charge at the end of the tax year could be based on a simple declaration from the company concerned, with very substantial fines imposed for any false returns. In this way companies would have a direct fiscal incentive to be more efficient. Equally, trade unions would have a greater vested interest in not making exorbitant wage demands and our exporting industries would be able to maintain the competitive edge temporarily offered by our devalued currency.

I hope that my right hon. Friend the Chancellor will give that matter some thought, because when we talk about international relative standards of living by 1980—and this was a very important point in my hon. Friend's speech—it follows that balance of payments considerations must never again be allowed to stultify soundly-based growth in this country, at least to anywhere near the same degree that has been allowed in the past.

8.45 p.m.

Mr. Michael Meacher (Oldham, West)

I can only follow the rather extremist siren voices that we have had from the City across the Chamber by seeking to put almost exactly the opposite case.

It has been the constant theme of comment in the debate that the Chancellor had something to give to almost everyone. Indeed, in his weekend speech on a Consevative Central Council pla[...] form at Cardiff, the Prime Minister was at pains to spell out how the benefits would cover the whole community. I am, therefore, merely accepting the package of measures in the spirit in which they were offered when I propose to examine how far they promulgate national unity and how far they advance the philosophy of one nation.

It is well recognised by now that the income redistributive effects are geared massively to the advantage of the tycoon. From the 2½ per cent. cut in income tax, the increased child tax allowances, the 4 per cent. rise in earned income relief and the abolition of the upper income limit for this relief, the £20,000-a-year industrialist with three children will gain £2,078 net a year.

Mr. Coombs

The hon. Gentleman talks about a £20,000-a-year industrialist. The number of people who have very high earned incomes can be literally counted on a few hands. One should not exaggerate the point, and the hon. Gentleman should check his figures before making these blatant, broad statements which have no relevance to the present situation.

Mr. Meacher

The figures were carefully checked, and they are exactly precise. The number of persons to whom they apply is not known. I have tried to discover the number from the Chancellor of the Exchequer. I have been given no reply. Therefore, if the hon. Gentleman wants further information on the point, I suggest that he asks his right hon. Friend.

I repeat that the £20,000-a-year man will derive £2,078 from these concessions, and there are a great many people in that position. If he has a high-earning wife, who opts for the advantage of separate assessment for taxation, his gain from this Budget and the previous mini-Budget will rise to a staggering £4,235 net a year, or £81 net a week.

From exactly the same concessions, the £20-a-week man with the same family responsibilities who is ineligible for family income supplements even at the higher revised levels will gain £3420 a year, or 65p a week. That staggering differential is sharpened still further when one takes into account the main debit element of the fiscal changes made last week, namely, the higher national insurance contributions. Whereas the £20,000-a-year man who is married with no children finds his bonanza cut to a mere £2,032, the wage-earner or clerical worker with a tenth of his salary, also married with no children, finds his sixpenny cut in income tax more than wiped out by higher National Insurance contributions, and he makes a net loss.

It may be argued that, while the rich get the gravy, which they certainly do, the poor get the F.I.S. In terms of any just balance of advantage, this argument is a patent absurdity. Despite the higher family income supplement awards announced in the last 10 days, virtually no potential recipient family will as a result be brought up even to this minimum State-accepted poverty line.

The £12-gross-a-week man with four children—and one cannot get a more bitter or grinding poverty than that—having to make do on a wage little more than two-fifths of the national average, despite a full week's work and often disproportionate overtime, will now, as a result of this package of measures, have a disposable income—a wage net of income tax, pension and insurance contributions, plus family income supplement and family allowances—of some £17.40, which still falls short of the supplementary benefit entitlement by about £1.50.

I simply cannot see how the Government propose to construct one nation when they are showering £2,000 net a year on the £20.000-a-year man while the £40-a-week higher wage earner or clerical officer, net of the higher insurance contributions, the higher social service charges and the proposed near-cost rent structures which the Government have promised, will actually suffer a wage cut of £45, while the poorest of the poor are forced to struggle on below the poverty line despite a full week's and often disproportionate overtime. What sort of social contract is that except a recipe for better industrial strife?

However much the Secretary of State for Employment may believe that he has bottled up trade union anger at these inequalities through the legalisms of his Industrial Relations Bill, my view is that the Chancellor has made a terrible mistake, as time will show, in believing that the working class will not resist these confiscations in the interests of his free-booting allies in the City.

I will be more specific. Although the official estimates of the annual cost of the revised family income supplement have not yet been made, it is unlikely that the cost will be above £10 million a year. This, which is the prize of the Government's shop window, glamorising their generosity to the low-paid worker, is seen in perspective as exactly the same amount as the Government are spending on building a mere 900 yards of one of the four Inner London motorways to which they are committed.

It is also, to give another perhaps more direct comparison with the sum total of the Government's extra expenditure on the half-million poorest children in the country, no more than half the amount that the Government are gratuitously heaping on the few thousand of the richest children through the reintroduction of the non-aggregation rule for children's investment income. This grotesque class bias is surely the exact antithesis of any pretended one-nation philosophy.

A similar pointer to the Government's interpretation of national unity is provided by the surtax concession and the separate assessment for taxation purposes of a wife's earnings. Quite apart from the fact that this utility arises only above family earnings of £5,265 a year and offers excessively lucrative gains at the very high income brackets, it is also, which is more to my point, in direct contrast to a principle which is operated on the poverty line.

Indeed, if that rule were applied at the bottom of the income scale, it would mean that a low-wage earner and his wife could elect to be separately assessed for fiscal and benefit purposes and she, as an independent person, could then claim supplementary benefits while also partly enjoying the benefit of his wage. Of course, any suggestion that she is receiving any male financial support would immediately lead to the curtailment of supplementary benefits and the loss of any State assistance under the cohabitation rule. On that principle, any man or woman in the high income bracket who appeared to share any joint property would immediately sacrifice any entitlement to separate assessment for taxation.

If hon. Members opposite regard an argument of that kind as purely a reductio ad absurdum, all I can say is that it shows how divorced they are from the spirit of one nation and how little they recognise even the existence in promulgating this rule of one law for the rich and a very different one operating at the poverty line for the poor.

There seem to be at least two other points in the Budget Statement where the Chancellor's concern for the poor and the low-paid was conspicuous by his silence.

I refer, first, to his allusion to the assistance which he was giving to the family man. Certainly the increase in the child tax allowances for the average and above-average earner with three children represents about 90p a week, but for the family man on the poverty line at or below the tax threshold it represents no assistance at all. By deliberately rejecting increased family allowances, despite the Prime Minister's explicit written electoral pledge last June, and by ignoring the claw-back method as a non-stigmatising method of assisting the low-paid in family aid, the Chancellor has, in effect, given a family allowance exclusively concentrated on the well-off and the rich—the people who need it least, if at all.

The other ostentatious oversight of the problems of the low-paid concerns marginal tax rates. The Chancellor reduced the top marginal rate for surtax by 13½ per cent., leaving a ceiling of 75 per cent.; but he did not deign to notice that the real crisis over incentives is now occurring at the bottom of the income scale. The low tax threshold, the higher national insurance contributions, higher rates, the accumulated loss of means-tested benefits forgone as income rises have conspired to impose on the low-paid worker a tax disincentive of over 90 per cent. and, in some cases, over 100 per cent., so that, for every extra £1 earned by the low-paid worker, he stands to lose more than £1. What has the Chancellor done for him? Nothing. The grand design for the rich is uninterested in the problems of life below the £5,000-a-year level.

In view of these differential carrots and sticks, it must have been an exercise in irony for the Prime Minister to say to the trade unions at the weekend: We have done our part. Now you stop chasing wild and unjustified wage claims. At a time when the Government are deliberately, by their official policy, de-escalating the claims of many low-paid workers below the State poverty line, the Chancellor has given a knowing wink to the rich, by abolishing the charge to capital gains tax on death and also the associated 15-yearly charge on discretionary trusts, which may herald the biggest boom the tax avoidance industry in this country has ever seen.

At a time when he is deliberately stabilising unemployment at near the million mark, the Chancellor has also seen fit to hand over a total of nearly £400 million exclusively reserved to the already well-heeled over £5,000 a year. When, in consequence of this largesse, investment is expected to rise by a mere ½per cent. a year whilst consumption expenditure is expected to rise by nearly 5½ per cent. a year, even the prop of explanation based on the dynamic investment factor is torn away, and the Budget is revealed for what at least in one vital dimension it really is—a long gravy train for the selfish aggrandisement of the rich.

8.58 p.m.

Mr. J. Bruce-Gardyne (South Angus)

I hope that the hon. Member for Oldham, West (Mr. Meacher) will not think it discourteous of me to say that there was not one of his remarks with which I agreed.

Like so many hon. Members, I suppose, I had prepared a splendid speech in which I was going to congratulate my right hon. Friend most heartily on the brave innovation of a long-term strategy of fiscal reform and to denigrate the Opposition for their carping, niggling reaction to it, particularly the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) who, although a devoted and professed enthusiast for Europe, did not hesitate to attack tax changes, such as V.A.T., which he knows are inevitable concomitants of entry into Europe, and to call upon my right hon. Friend to squander the balance of payments surplus, developed from devaluation, although he knows—none better—that that surplus will be needed in the case of a successful outcome to the Brussels negotiations.

As a Scottish Member, I had hoped, too, to say a word of welcome for the changes in tax which will be of particular advantage to Scotland. There is the cut in S.E.T.—a tax that could hardly be better calculated to damage those areas of Scotland where service industries above all provide the backbone of employment—and the beginnings of reform of the penal taxation imposed by the last Government on family companies —a form of taxation which has driven one Scottish company after another into the arms of a larger group based in the South, which has then all too often closed its activities in Scotland. These were all points that I should have been delighted to develop.

In view of the hour, however, I intend to concentrate on one point concerning the short-term economic strategy of my right hon. Friend. My right hon. Friend the Chief Secretary said earlier that nobody had criticised my right hon. Friend the Chancellor for doing too much. I hesitate to break the consensus, but I confess that my inclination is somewhat in that direction. The right hon. Member for Stechford said one thing with which I agree, namely—as Iain Macleod used to tell us—that a good Budget in April is often a bad Budget in July, and vice versa. Our assessments of the budgetary judgment often turn out to be wrong. I devoutly hope that mine this evening will turn out to be wrong.

It seems to me that my right hon. Friends have, in the first place, gone for a measure of fiscal expansion which corresponds fairly closely to the most expansionist arguments of bodies like the National Institute. At the same time, there has been no mention or suggestion of any cuts in public sector spending to compensate for this. As a result, we have a net borrowing requirement of £600 million. The Treasury predicts a 5.3 per cent, rise in consumer spending. The Treasury often tends to over-estimate the buoyancy of consumer spending, but I have some sympathy with the attitude of the hon. Member for Ashfield (Mr. Marquand) who, on Thursday night, suggested that it was difficult to reconcile this forecast of consumer spending with my right hon. Friend's expectations of de-escalation in the rate of wage settlements.

Here I come to the nub of my argument, which concerns the point raised by my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) in his notable contribution to our debate this afternoon—the question of monetary policy. I thought that my right hon. Friend may not have studied what the Minister of State said on Thursday night. There was some further elucidation in that speech. The key phrase in my hon. Friend's speech to which I want to draw attention was that by setting quarterly guidelines we have given ourselves greater flexibility for adjusting the course of money supply and credit later in the year in the light of developments." —[OFFICIAL REPORT, 1st April, 1971; Vol. 814, c. 1804.] I suggest that that flexibility could apply in two directions. It is clearly the hope of my right hon. Friends—and I pray that their hope is fulfilled—that during the months ahead we shall see a de-escalation in the level of wage settlements and the beginning of a decline in the level of unemployment. But let us suppose—and after the events of last week it does not seem a totally inconceivable possibility—that the opposite occurs. Let us suppose that we see both an escalation in the rate of wage settlements and a continuing rise in unemployment. Is it not quite compatible with what my right hon. Friend said on Tuesday night that we should see the flexibility in monetary supply used in an upward direction, so that instead of having a possible 12 per cent. increase over the years we have even higher levels?

I conclude by asking my right hon. Friend whether he would clear up one point. We have been told that the 3 per cent. a quarter guideline for monetary policy is not a target of 12 per cent. for the year. Is it at least a ceiling? If it is not, I find the implications for inflationary potential somewhat preoccupying.

9.6 p.m.

Mr. Dick Taverne (Lincoln)

I should like to start on a non-controversial note and congratulate the Chancellor on the amalgamation of income tax and surtax and the creation of a new personal tax. I used to make speeches about the need for this kind of reform when I was Financial Secretary, and, as the Chancellor knows a study of this was well under way in the Inland Revenue when his Government came to power. I am not saying this to claim the credit for us or to suggest that it would have taken the same form. I mention it to show that the reports in some papers that the Inland Revenue was resistant to this are quite misleading. We always knew that it would take some time. Obviously, we must wait to see the form which the new amalgamation takes and the rates which it provides, but in principle I warmly welcome it and congratulate the Government on having decided to introduce it.

I fear that I cannot give the same welcome to the decision to introduce a value-added tax, irrespective of whether we enter Europe and irrespective of whether we have to, although I do welcome the decision to publish a Green Paper. Any traders who read the Green Paper will realise the huge task of accounting with which they will be faced. Anyone who has studied the effect on prices of the introduction of this tax on the Continent, or who has read the predictions in the "Neddy" Journal knows only too well that the value-added tax will add considerably to inflation.

The recent study by Professor Brown to which my hon. Friend the Member for Ashfield (Mr. Marquand) referred on Thursday night shows in addition that it is likely to be heavily regressive in its impact on the ordinary family budget. So hon. Members opposite should not be under any illusion that the introduction of the tax in 1973 will bring great joy and delight.

In case they do labour under such a delusion, I would refer to a quotation in a document which went carefully into the problems of this tax. It said: S.E.T. currently amounts to 5 to 6 per cent. of the value of services. A V.A.T. with similar coverage would be not less than 10 per cent., and might be as high as 20 per cent., if exemptions were numerous. As a straight swap it could well be preferable to the service industries to put up with an S.E.T. of 5 to 6 per cent. rather than to have a V.A.T. of even 10 per cent. That is not a quote from a Labour Party propaganda sheet. It comes from a study by the very powerful Taxation Committee of the London Chamber of Commerce, which strongly advised the Chancellor against the introduction of a value-added tax.

This committee referred to the official estimates that V.A.T. would require 8,000 extra staff in the Customs and Excise and that, if one assumed the end of purchase tax and S.E.T., the additional staff might be only 6,000 or so, and went on: Most of these would be engaged in audit and verification of companies' V.A.T. returns and could well require the employment of two or three times that number in commerce and industry. That is a foretaste of some of the comments which are to come. Hon. Members opposite would do well to heed the warnings which the hon. Member for Oswestry (Mr. Biffen) sounded on Wednesday.

But there is another change in taxation, which has attracted little attention. I refer to the new social security tax. Let there be no doubt about this National Insurance contributions are in the nature of insurance when they secure corresponding benefits. They are flat-rate contributions to obtain flat-rate benefits or earnings-related contributions to obtain earnings-related benefits. Then it is a form of insurance. Here, however, we have something quite different.

Earnings-related contributions which increase with income and secure no extra benefit are a form of taxation. This, therefore, is a new form of social security tax. After a short introductory progression, these contributions are non-progressive. When one reaches a maximum of £42 per week, the payments remain the same, irrespective of income. That is why the Government support it. The richer one is the smaller the proportion of one's income goes in this form of social security tax.

The Government say they are worried about the disincentive effects of progressive taxes. If they are really interested in the problem of high marginal tax rates, then, as my hon. Friend the Member for Oldham, West (Mr. Meacher) pointed out, what about relief for those who pay "poverty surtax", because the Government know that this problem exists.

Because of the gradual withdrawal of means-tested benefits such as family income supplements, rate and rent rebates, and exemptions for various charges and allowances, there is a whole range of income on which a person who earns an extra £1 loses 90 per cent. of it, and in some cases more. In many cases in the range of incomes £20 to £25 a week such a person will be worse off. What, then, comes of all the talk of disincentives?

I have an interesting quotation for the House from a previous debate. The Financial Secretary to the Treasury said in November last when we were debating what was then the Income and Corporation Taxes Bill: But if one is to give the selective help one wants to give one has to accept a high implicit tax rate and the loss of incentive which comes from it. What the evidence seems to show, however, is that, for the great majority even of those people, the loss of incentive does not have the effect of deadening the desire to work. I have thought over and over again how astonishing and commendable it is in the character of so many of our countrymen that, although the effect of a high implicit tax rate and the loss of selective benefits is to reduce incentive, nevertheless they will continue and want to continue to be, so far as they can, self-supporting and to work."—[OFFICIAL REPORT, 13th November, 1970; Vol. 806, c. 796.] It is a remarkable fact that the low paid are apparently not put off by these disincentives. Indeed, they appear to matter only to the rich. Thus, the Budget helps the rich, yet there is nothing whatever in it by way of incentives for the lower paid, who pay a far higher rate of marginal taxation than do surtax-payers. Perhaps the Chancellor can tell us why.

This is an aspect of the Budget which has not received quite the same amount of comment from financial commentators, who have concentrated on the reforming zeal which the Chancellor had shown. This may not be unconnected with the fact that they are themselves in the surtax-paying class. [HON. MEMBERS: "Cheap") This reforming zeal has not extended, however, to the area where the marginal rates are the highest of all.

If, without affecting incentives, the Chancellor had been willing to help those who pay no tax, in the areas of real poverty, he could have done something to redeem the extraordinarily firm pledge which hon. Gentlemen opposite gave to spend £30 million on increasing family allowances. This point was made by my hon. Friend the Member for Dudley (Dr. Gilbert). Instead, all we have had is the family income supplement, with a total benefit for the poorest, if all the benefits are taken up, which is highly doubtful, of perhaps £8 million a year.

One can compare this £8 million or so with the £65 million which goes for relieving surtax in one form or another, leaving aside altogether the income tax benefits. And of this, £15 million alone, about twice the amount which would be spent on family incomes supplement, will go to the disaggregation of children's investment income from parents' income. It is hardly the answer which I think the Child Poverty Action Group expected when the pledge was made. So much for the claim that this is a balanced Budget: balanced, yes—heavily in favour of the wealthiest.

Let me turn now to the economic effects and, first, to the question of unemployment. There is one factor about the Budget which hon. Members opposite, I thought, and with one exception the speakers this evening, have rather conveniently glossed over. Why, one might ask oneself, is the Chancellor of the Exchequer in a position to give back so much in tax? The suggestion readily claimed on the other side is that this is a Conservative Government, and in so far as taxes are cut because public spending is cut this may well be so. But that is not the explanation for the Budget.

Let me remind the House of what the Chancellor said in his Budget Statement. He said that it was because of the trend in unemployment. He told the House, as we read in col. 1369 of the OFFICIAL REPORT, that it was because if there were no change of policy there would be considerable rise in unemployment. So let us first make clear what has created the main reason for tax cuts of this size. It is the record high level of unemployment.

But, even so, for them this Budget provides little comfort. The Chancellor has said, as a number of my hon. Friends have pointed out, that his measures should increase the rate of growth to 3 per cent. in line with the rate of growth of productive potential. It is quite clear what this would mean. It would mean that once production grew as fast as new capacity was being created unemployment would level out. It would no longer rise, but it would not fall. That is what the Chancellor is saying, and both my hon. Friend the Member for Penistone (Mr. John Mendelson) and the hon. Gentleman the Member for Leek (Mr. Knox) made this point.

So, on the Chancellor's own prediction, there is nothing in the Budget which will reduce unemployment. But the measures will not have immediate effect. There is a considerable time lag between taking measures and their results, and in recent years there has been a delay of many months between the pick-up in production and the resulting fall in unemployment figures. Mr. Malcolm Crawford suggested in the Sunday Times that the Budget measures would not take effect until spring of next year. So for many months before the Chancellor's measures take effect and employment levels out as he hopes there will first be a further rise in unemployment.

But let there be no doubt that at present unemployment is rising fast. The levelling-off, if it finally takes place as the Chancellor hopes, will be at a figure considerably higher than that of today. That, again, is explicit in the Budget. But even this is probably too optimistic. There is a considerable body of evidence that productivity is now rising faster than 3 per cent.

Professor Lomax's work, referred to in The Guardian on 2nd January, suggests that it is rising considerably faster, and several other leading economists would put the rate of increase at 3½ per cent. This implies that even when the tax cuts finally take effect unemployment will still continue to rise, although somewhat more slowly. The Minister of State reaffirmed on Thursday the Government's view that the fight against inflation must take priority over unemployment. The prospect for unemployment after the Budget remains a dismal one, especially for the regions.

The late lain Macleod, who gave a very high priority to tackling unemployment, used to press us time after time to state to the House what the prospects for unemployment were in the year ahead. Let the Chancellor tell the House what level of unemployment he now foresees for the third quarter of the financial year. At what figure does he hope that unemployment will level out this winter?

It is not an argument which any of us on this side of the House accept, but let us suppose, as the Government argue, that one should not bring down unemployment until one has first won the battle against inflation. If one follows that argument, what is there in the Budget that will help us on this front? Last week the Prime Minister boasted that de-escalation was working, and the Chancellor has claimed the same. The Government only have to give voice to this claim for new settlements to be announced which totally refute it and which show up, incidentally, the monstrous disparity between settlements in the public sector and in the private sector.

The Secretary of State for Employment is normally someone who chooses his words with care. But last Saturday he is reported as having made quite the most extraordinary statement of the week. He said that he welcomed the Ford settlement but that he was very concerned about the wage increase which it contained.

What about the electrical construction workers? How does their rise, and the Ford rise, fit in with the bloody fight to keep the postmen down to 8 per cent.? If wage settlements are now de-escalating, as the Prime Minister says, and if inflation is now being brought under control, as the Government claim, why is a meeting to be held on Tuesday at which the Secretary of State will scold private employers? It is really no use the Government washing their hands of it all and saying, "We have done our bit; now let private industry follow."

I commend to the Government a very interesting and thinking speech made on Thursday afternoon by one of their former colleagues, the right hon. Member for Wallasey (Mr. Marples). He warned the Government that discrimination between the public sector and the private sector will not work. He said: When I was a Member of the Cabinet we had a squeeze on nurses' pay, which I did not like. Then it was assumed that the rest of private industry would follow suit. It did not. It cannot do so, for two reasons. He said the first reason was that the public sector could borrow. The second reason was that … many private firms cannot do that. Chrysler could not do it. It could not afford a strike so it had to give way quite meekly to the demands of its workers. It is simply no use saying that because the public sector does it the private sector will do it. It cannot. Ford is another example."—[OFFICIAL REPORT, 1st April, 1971; Vol. 814, c. 1724.] The Government, despite all their denials, will be driven back to a policy for prices and incomes which is an overall policy and not one related only to the public sector, unless they espouse the remedy so impressively expounded by the right hon. Member for Wolverhampton, South-West (Mr. Powell) and are prepared to face the very drastic transitional problems which that would involve. At least one can say that that is not so far the policy which they wish to pursue. But if they are driven back to a voluntary prices and incomes policy, they will come to realise that this Budget, with its heavy bias towards the highest paid, with its distribution of income not in favour of the weaker but of the wealthiest, will do nothing towards dealing with inflation.

When one combines it with the mini budget, the increased charges on school meals, withdrawal of free milk, higher rail charges for commuters, higher rents as subsidies are withdrawn, higher food prices as levies are imposed, and when one adds to this the further increase in prescription charges and the enormous rise in rates, which the Government themselves estimate will be at 13 to 14 per cent. and is bound to increase as the rate support grant is rapidly cut back, how can they say that against this background they have done anything in the Budget to create a better climate for wage claims?

Apart from unemployment and inflation, what are the other economic problems we now face, particularly for the longer terms? Hon. Members will find this on page 12 of the Financial Statement: the last line, which shows the progress from the first half of 1971 to the first half of 1972 cannot make any very easy reading for hon. Members opposite. The highest increase will be for imports, at 6.3 per cent. compared with an increase of exports of 2.3 per cent.; there is an increase for consumption of 5.3 per cent. compared with an increase for private fixed investment, on which so much depends, of 0.5 per cent.

The picture is worse than that, because if allowance is made, as the Chancellor said that allowance must be made, for a higher rate of housebuilding and shipbuilding, it is clear that industrial investment in the next year will drop.

What are the prospects for the economy? The way in which help is given in the Budget will not reverse the trend of unemployment. It is likely simply to slow down the rise—and that only after a considerable period. It does nothing that will help with inflation. Although the Government gave priority to the fight against inflation, the prospect for the rise of prices is no better than it was before the Budget. Now we have the V.A.T. time-bomb ticking under us. The projection for imports and exports shows that the balance of payments will be deteriorating. Lastly, the outlook, in terms of the Government's own forecasts, is for an actual fall in the level of industrial investment.

So when all the smokescreen has been blown away these are the stark facts which emerge—higher unemployment, higher prices, worsening balance of payments, falling manufacturing investment. If I am wrong, no doubt the Chancellor can explain later why we should ignore the explanations that have been given in his own forecasts.

If the Chancellor had been concerned to act directly on prices, he could have gone for a big cut in purchase tax which would have benefited the ordinary person directly far more than the cut in S.E.T. Second, the Chancellor should have acted to help manufacturing in the regions, where we still have to have the implications of the ending of the regional employment premium. What will happen to those key firms that all of us know of in development areas and which are kept going by the existence of the regional employment premium when the scheme ends or, even earlier, when they must make their plans for the time when the scheme ends? In this Budget the Chancellor should have reversed the decision on the regional employment premium and increased it and have gone back to the investment grant system. But that would have meant an increase in public spending and would have run counter to the whole philosophy of the Conservative Party.

It is clear from the Budget what the Government's philosophy is in the whole social and economic field. Their only recipe for boosting production is one of tax cuts. Last week, at the same time that the House was debating the Budget, a conference was being held, attended by a large number of leading scientists, on the future of man. Paper after paper read at that conference emphasised the need for an increase in community spending to deal with the problems which will increasingly face us. Every advanced country in Europe is becoming more and more convinced of the need for a higher level of social and community spending and a bigger rôle for the community to preserve equality of their society.

At the same time the Government are arguing that their main aim should be to reduce the rôle of Government, and they can only stress for their citizens, or at any rate for their wealthier citizens, one social goal—that of private personal enrichment.

The Government will not achieve their goal of faster growth. They will not create their one nation. There will be a large part of this nation which will find itself out of work standing on its own two feet outside the employment exchange. This Budget contributes little to make Britain a better place. It is a bad Budget for the nation.

9.30 p.m.

The Chancellor of the Exchequer (Mr. Anthony Barber)

Casting my mind back over all the Budget debates which I have either taken part in or listened to, I feel that this four-day debate has been one of the best, if not the best, that I can remember. I believe that this has been so for two reasons. First, we face a series of economic problems which I described last Tuesday as being in many respects paradoxical and uniquely difficult. Economists being what they are, therefore, there is room for genuine differences of opinion about the Budget judgment, about the magnitude of the necessary addition to demand, and about the type of measures most appropriate in the present circumstances. This, indeed, was clear from the speech of the hon. and learned Member for Lincoln (Mr. Taverne) to which we have just listened.

The second reason why I believe that this has been an unusually good Budget debate, a reason which, I am sure, will be accepted on both sides of the House, is that the debate has high-lighted the fact that there is, sincerely held, a fundamental difference of approach between the Labour Party and the Government side of the House.

We have had two maiden speeches, those from my hon. Friends the Members for Falmouth and Camborne (Mr. Mudd) and Truro (Mr. Dixon). My hon. Friend the Member for Falmouth and Camborne showed an intimate knowledge of the economic problems of his constituency. He referred, in particular, to the problems facing tin mining and the question of taxation changes in order to help, arguing —I thought this particularly interesting —that by giving taxation relief we should increase the revenue. That was an interesting way to put it, and I think that all I had better say at this stage is that I have taken note of what my hon. Friend said. My hon. Friend the Member for Truro put forward some proposals for the reform of taxation concerning gifts and the estate duty. I assure him that, in our general review of taxation, which we are continuing, we shall take into account what he said.

We heard also what I might, perhaps, describe as almost the third maiden speech of the hon. Member for Ashfield (Mr. Marquand). He spoke, I think he said, for the first time from the Front Bench, and I am sure we all join in congratulating him. As for the Leader of the Opposition, who had the task of following me last Tuesday, he gave it as his opinion that, … this Budget fails to rise to the occasion". —[0FFICIAL REPORT, 30th March, 1970; Vol. 814, c. 1399.] It was probably the view of both sides of the House, after listening to the right hon. Gentleman, that it was not the Budget which failed to rise to the occasion.

I must thank the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) for his generous remarks last Wednesday about the way in which I presented the Budget speech. I shall come to his speech in a moment. At this stage, I merely observe that, although. obviously, he will not expect me to agree with all or with most of what he said, he at least argued his case—I am sure we all agree—with considerable moderation, as one would expect from him, and, may I add, somewhat more moderation than did some of his right hon. and hon. Friends. This was, in part, I have no doubt, due to the fact that there was little he could attack with genuine conviction.

At the end of the debate, I think the House will agree that I am entitled also to thank my fellow Ministers at the Treasury—the Chief Secretary, the Financial Secretary, and the Minister of State. As one who, first as Economic Secretary and then as Financial Secretary, served three Chancellors of the Exchequer, I can say without fear of contradiction that no Chancellor has had a better team.

Throughout this debate and in the Press, a great deal has been said on the general question of the reform of taxation, and in response I make two points. It is fortunately not the practice in this country for a new Government to inquire into the Departmental activities of a previous Government, but we are entitled to consider the public record. The hon. and learned Member for Lincoln referred to certain work which had been undertaken, he said, when he was in Government, concerned with the unification of income tax and surtax. One of the essential features of the unification of the two which I announced is to show the effective earned income rate—that is to say, the actual percentage of the taxation paid on earned income.

I think that the right hon. Member for Stechford will agree that two years ago he said in his Budget Statement that he wanted to do just that—but he also went on to say that he did not find it possible. If there is one right hon. Gentleman opposite who is entitled to jump on the bandwagon and applaud amalgamation of income tax and surtax it is the right hon. Member for Sowerby (Mr. Houghton) who, in a telling intervention the other day, informed the House that he put forward the proposal 18 years ago—and, of course, the hon. Member for Heywood and Royton (Mr. Barnett) told us that he had been doing it since 1964.

But what counts is not talking about reform but actually doing it. We, of course, had the enormous advantage of all the work which we did in Opposition under the leadership of my right hon. Friend the Prime Minister and Iain Macleod. The right hon. Member for Bristol, South-East (Mr. Benn) referred today to the article in The Times by Mr. David Wood, in which Mr Wood referred to the work we had done in Opposition. Referring to my hon. Friends, the right hon. Gentleman said that, during my Budget Statement, they were ticking off a check list of the promises we made. That is right. That is exactly what they were doing. We were keeping our promises.

I have been flattered by a number of speeches on this side of the House in which hon. Friends have suggested that, in some way, in pursuit of reform I have overruled officials of the Treasury, the Inland Revenue and the Customs and Excise. I am afraid I can make no such claim. The truth is that, in response to any proposal for reforms which is mooted by any Chancellor of the Exchequer, the advice of officials will be the same—the difficulties as well as the advantages will be clearly set out. But thereafter, it is for Ministers to decide, and once they have taken the decision to proceed with the reforms, as I did, then the officials at the Treasury and the Revenue Departments will proceed to implement them.

I said at the end of my Budget Statement that the Revenue Departments themselves had told me that this Budget inaugurates the most far-reaching reforms of the tax system this century. I believe that there has been a general feeling for a long time on both sides of the House that the tax system does need fundamental reform. Indeed, I have not heard throughout the debate anyone contest that general proposition.

I must admit that before last Tuesday I wondered sometimes whether there would be criticism because these reforms are not to be completed till two years from now, but no one in the debate has suggested that, and this is, I think, because hon. and right hon. Gentlemen on both sides recognise just how far-reaching the reforms are and that if we are to get them right it is essential, whenever we can possibly do so, to take enough time to get the details right as a result of full consultation.

There is another feature of the Budget to which several hon. Members on both sides of the House have referred, particularly today by the right hon. Member for Orkney and Shetland (Mr. Grimond) and my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor Goldsmid), and that is our decision to publish the Green Papers both on value-added tax and the reform of corporation tax, and this will give ample opportunity for public discussion before final decisions are taken on the methods which we shall adopt. I would say, without wishing to carp on what happened in 1965, that this is a much better method of proceeding than was the case in that year.

What is of great importance is that we have found a method of making this reform while at the same time preserving the freedom which the Chancellor must always have to vary rates of tax according to the requirements of the economic situation. What we do know is that by April, 1973, we shall have a vastly improved system. We shall have a system of personal taxation which will be simple enough for everyone to understand, and it will be very much simpler to administer than the hotchpotch we have at present and which has accumulated over the years.

We shall also have a system of indirect taxation which will be broader based and fairer and which will avoid the distortions which both S.E.T. and purchase tax at present impose. We shall also have a refurbished system of company taxation preserving the best of the changes made under the previous Government but adjusted to bring into play, by lower taxation on distributed profits, market forces which must be allowed to work more freely if we are to get more efficiency in industry and in the economy generally.

Of course, there have been the anticipated criticisms by some hon. and right hon. Gentlemen opposite, but, on the whole, I must say that it seems to me that the criticisms which we have heard have been strangely out of tune with the reaction of the country generally to this Budget.

The right hon. Member for Stechford asked me a particular question with re- gard to bank lending, whether the 2½ per cent. a quarter to which I referred in my Budget speech was to be above the point reached in March of this year or above the ceiling in March which he himself laid down a year ago. The fact is that, as he knows, the March, 1971, figure was distorted because of the Post Office strike. It is clear that a certain amount of lending which would have occurred but for the strike was postponed. The guideline has been expressed as applying to the base level of 5 per cent. in line with his mid-March, 1970, level. The clearing banks and Scottish banks have been asked to ensure that their restricted lending should be in general this June not more than 7½ per cent. above the level of mid-March, 1970. This was made clear in the Bank of England's notice. I am sure that this is the fairest way of doing it. Updating the base level to mid-March, 1971, this year would have been to reward those banks which increased lending last year and to penalise those which exercised more restraint.

My hon. Friend the Member for South Angus (Mr. Bruce-Gardyne), a few minutes before the hon. and learned Member for Lincoln spoke, raised one or two questions. I hope he will forgive me if I may, perhaps, in answer write to him afterwards. He asked me a question about the growth of money supply. The rise in costs and prices will be moderated, and this is why the aim will be to slow down the growth of the money supply over the year.

Mr. R. B. Cant (Stoke-on-Trent, Central)

Does this imply that the estimate of money supply or money stock—M3—to be operated from April this year to March next year, will be equal to 12 per cent., more than 12 per cent., or less than 12 per cent. of what it was in the last fiscal year?

Mr. Barber

All this is set down in great detail in column 1374 of HANSARD, and I ask the hon. Gentleman to look at what I said there.

My right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) concentrated almost entirely this afternoon on money supply. He spoke with a lucidity and logic which was matched only by the speech on the same subject made to the Finance Houses Association by myself. As he knows, I respect his views, but he will not be surprised to hear that I differ in two major respects from the points which he made in his speech this evening. First, I cannot accept that the excessive wage claims which we have been experiencing are not the main cause of the present inflation. Secondly, while I entirely agree with him that it would be possible to impose a far greater restriction on the growth of money supply, I have not proposed it; first, because it would result in far higher levels of unemployment which I could not accept, secondly, because it would result in a far greater number of bankruptcies, which I could not accept, and, thirdly, because it would be inconsistent with my aim of raising the growth of output to the growth of productive potential.

My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) asked whether we could devise a scheme so that when a husband dies leaving property to his wife the estate duty is postponed until her death. As he said, this is not a new idea. Schemes for relief on property going to widows have been considered on various occasions in the past, but they raise considerable practical problems. I am sure that we should all like to do this if it could be done, but my right hon. Friend's variant of postponing the payment of duty attributable to the widow's benefit raises the difficulty of ensuring that the duty postponed is not dissipated in her lifetime. Nevertheless, hon. and right hon. Members on both sides of the House would like to do this and I will, therefore, ensure that it is looked into in the coming review.

My hon. Friend the Member for Surrey, East (Mr. William Clark) raised a question which will affect many people about the exemption from capital gains tax of small disposals. As I said in my Budget statement, the intention is that the exemption for gains of £50 or less should continue for 1970–71 alongside the £500 disposal exemption. The only reason why the £50 exemption is kept in being for 1970–71 is that it would have been wrong to withdraw it, as people have arranged their affairs on that basis. At the same time, I particularly wish the benefit of the £500 disposals exemption to be available for that year. I hope, on reflection, that my hon. Friend will agree that it would be the reverse of simplification and most confusing to small investors if we kept the two different types of exemption with their marginal relief provisions as permanent features of the tax code.

I now want to deal with the series of questions raised about the Budget judgment. Several right hon. and hon. Gentlemen opposite have complained that the Budget is not sufficiently reflationary. Apparently, they want even more tax cuts. I am pleased that I have begun to whet their appetites—an unusual experience for them. In particular, references have been made by the hon. and learned Member for Lincoln and the right hon. Member for Bristol, South-East to the prospects for investment.

To get investment up we must have two things. First, there must be adequate demand so that industry can see the prospect of a growing market for its products. I have no doubt that in present circumstances the most effective way to stimulate expenditure by industry on plant and machinery is to stimulate demand in the economy generally. The second requirement is that industry should be able to finance a rising level of investment and to see an adequate return on it net of tax, and, as I think the whole House will agree, the Budget has done a series of things to help industry in this way. The cut in corporation tax helps both liquidity and the net return. The reduction in the forced loan associated with selective employment tax and the cut in selective employment tax itself both help to improve liquidity, and the reform and reduction of personal taxation will contribute to savings and improve incentive throughout the economy.

The right hon. Member for Bristol, South-East and the hon. and learned Member for Lincoln referred to the figure of 0.5 per cent. as the forecast growth in private investment in the Budget report. That figure represents a cautious view, but I would certainly hope—[Interruption.] Quite a number of forecasts in the past have proved to be false and it seemed to me right to be reasonable. I would certainly hope that in the outcome we shall have a better figure for investment than that. I think that there is a good chance that the impact which the Budget as a whole has made will produce a better figure.

Right hon. and hon. Members may have seen the front page of the Financial Times this morning which is headed F.T. post-Budget Business Survey: Marked upturn in confidence. I read only the opening words: The Budget has produced a marked upturn in business confidence. A post-Budget survey undertaken for the Financial Times … shows that 90 per cent. of businessmen in a sample of directors of 30 companies in the F.T. Actuaries Index feel more optimistic about their companies' prospects as a result of the Budget. All the companies surveyed report that the Budget will help their liquidity, and half think that their profitability will be improved. About a third say that the Budget should give direct help to new capital investment. Outside the House I have been taken to task by some commentators for stimulating demand too much and at a time when inflation is running as high as it is. This was a concern expressed by my hon. Friend the Member for South Angus. I believe that it would be irresponsible to plan for a faster growth of consumer spending than I have done—that is to say, faster than 5.3 per cent. The fact remains that the rate of cost-inflation is bound to impose limitations on the amount of extra demand which it is safe to inject in the economy at this stage. But I made it clear in my Budget speech that if, after the measures in the Budget have been allowed a reasonable time to have their effect, a further stimulus is needed, then the usual instruments are always available and I would not hesitate to use them.

But others have concentrated on the balance of payments. This was referred to by every Opposition Front Bench spokesman and not least by the right hon. Member for Bristol, South-East. He spoke of the balance of payments as if it were impregnably strong. The fact is, as I said in the Budget speech, that in 1970 the volume of imports rose nearly twice as fast as the volume of exports. the improvement in the trade balance last year—no one can deny this and it is right that we should all face it—was due to prices.

The underlying trend is not now running in our favour. It is true that, with the assistance of the terms of trade, we have a substantial current account surplus. But we have large commitments to meet from it, including a still large amount of debt. I was astonished to hear the hon. Member for Heywood and Royton quoting with apparent approval on Thursday some remarks in an article in The Times which said: We are virtually free of overseas debt. As my hon. Friend the Member for Horsham (Mr. Hordern) pointed out, this is dangerous nonsense. We still have outstanding debt of nearly £700 million and, as I said last Tuesday, this is bound to be a continuing constraint on our freedom of action.

If right hon. and hon. Gentlemen opposite doubt the truth of what I say, let me remind them of the actual figures. If one takes exports seasonally adjusted, including adjustments for under-recording of exports, and imports seasonally adjusted, including United States military aircraft payments, last year at 1963 prices the volume of exports was up by 3.6 per cent., but the volume of imports was up by 6.3 per cent. These are the facts that we have to take into account in exercising caution for the future.

Throughout the debate, I have been struck by the number of hon. Members on both sides who have referred to the economic record of our country over the years. If we are realistic—[HON. MEMBERS: "Unemployment."] If hon. Members will allow me, I shall deal with unemployment. If we are realistic, any consideration of our present situation must start with an acceptance of the fact that for two decades or more our national performance compared with our principal competitors has been, to put it mildly, inadequate.

A number of hon. Members opposite have referred to unemployment. They have made the point that the Budget does not hold out the prospect of a fall in unemployment. We are all agreed that unemployment is too high. But there are two points that I must make—[Interruption.] Hon. Gentlemen opposite have asked me to speak about this, so I hope that they will hear me out.

The first is that, although right hon. and hon. Members opposite may disagree, we take the view that one of the main causes of unemployment at present is cost inflation. Rising labour costs are causing firms to lay off men. I cannot make any promise that unemployment will fall until we get a substantial reduction in the level of pay Settlements.

The second point is this. I could have brought about a reduction in the level of unemployment by giving a still larger boost to consumer demand than I have. But everything that I have said supports the view that it would have been irresponsible in the circumstances to do so.

The Leader of the Opposition accused us of acting contrary to our theme of one nation. But I do not believe that it is possible to create one nation by almost always increasing tax and hardly ever reducing it. It is not possible to create

one nation by taking the existing tax system and saying that it can never be changed lest the changes seem unfair. It is impossible to create one nation by taking the pattern of subsidised welfare benefits which existed in the 1940s and saying that they must remain for ever. One nation is created by uniting it in a new confidence in the future of our country and trust in a Government who keep their word.

Question put:—

The House divided: Ayes 301, Noes 261.

Division No. 338.]	AYES	[10.0 p.m.
Adley, Robert	Critchley, Julian	Harrison, Col. Sir Harwood (Eye)
Alison, Michael (Barkston Ash)	Crouch, David	Haselhurst, Alan
Allason, James (Hemel Hempstead)	Crowder, F. P.	Havers, Michael
Amery, Rt. Hn. Julian	Curran, Charles	Hawkins, Paul
Archer, Jeffrey (Louth)	d'Avigdor-Goldsmid, Sir Henry	Hay, John
Astor, John	d'Avigdor-Goldsmid, Maj. -Gen. James	Hayhoe, Barney
Atkins, Humphrey	Dean, Paul	Heseltine, Michael
Awdry, Daniel	Deedes, Rt. Hn. W. F.	Hicks, Robert
Baker, Kenneth (St. Marylebone)	Digby, Simon Wingfield	Higgins, Terence L.
Baker, W. H. K. (Banff)	Dixon, Piers	Hiley, Joseph
Balniel, Lord	Dodds-Parker, Douglas	Hill, John E. B. (Norfolk, S.)
Barber, Rt. Hn. Anthony	Douglas-Home, Rt. Hn. Sir Alec	Hill, James (Southampton, Test)
Beamish, Col. Sir Tufton	Drayson, G. B.	Holland, Philip
Bell, Ronald	du Cann, Rt. Hn. Edward	Holt, Miss Mary
Bennett, Sir Frederic (Torquay)	Dykes, Hugh	Hordern, Peter
Bennett, Dr. Reginald (Gosport)	Eden, Sir John	Hornby, Richard
Benyon, W.	Edwards, Nicholas (Pembroke)	Hornsby-Smith, Rt. Hn. Dame Patricia
Berry, Hn. Anthony	Elliot, Capt. Walter (Carshalton)	Howe, Hn. Sir Geoffrey (Reigate)
Biffen, John	Elliott, R. W. (N'c't1e-upon-Tyne, N.)	Howell, David (Guildford)
Biggs-Davison, John	Emery, Peter	Howell, Ralph (Norfolk, N.)
Blaker, Peter	Farr, John	Hutchison, Michael Clark
Boardman, Tom (Leicester, S. W.)	Fell, Anthony	Iremonger, T. L.
Body, Richard	Fenner, Mrs. Peggy	Irvine, Bryant Godman (Rye)
Boscawen, Robert	Fidler, Michael	James, David
Bossom, Sir Clive		Jenkin, Patrick (Woodford)
Bowden, Andrew	Finsberg, Geoffrey (Hampstead)	Jessel, Toby
Boyd-Carpenter, Rt. Hn. John	Fisher, Nigel (Surbiton)	Johnson Smith, G. (E. Grinstead)
Braine, Bernard	Fletcher-Cooke, Charles	Jones, Arthur (Northants, S.)
Bray, Ronald	Fookes, Miss Janet	Jopling, Michael
Brewis, John	Fortescue, Tim	Joseph, Rt. Hn. Sir Keith
Brinton, Sir Tatton	Foster, Sir John	Kaberry, Sir Donald
Brocklebank-Fowler, Christopher	Fowler, Norman	Kellett, Mrs. Elaine
Brown, Sir Edward (Bath)	Fox, Marcus	Kershaw, Anthony
Bruce-Gardyne, J.	Fraser, Rt. Hn. Hugh (St'fford & Stone)	Kilfedder, James
Bryan, Paul	Fry, Peter	Kimball, Marcus
Buchanan-Smith, Alick (Angus, N&M)	Galbraith, Hn. T. G.	King, Evelyn (Dorset, S.)
Buck, Antony	Gardner, Edward	King, Tom (Bridgwater)
Bullus, Sir Eric	Gibson-Watt, David	Kinsey, J. R.
Burden, F. A.	Gilmour, Ian (Norfolk, C.)	Kirk, Peter
Butler, Adam (Bosworth)	Gilmour, Sir John (Fife, E.)	Knight, Mrs. Jill
Campbell, Rt. Hn. G. (Moray&Nairn)	Glyn, Dr. Alan	Knox, David
Carlisle, Mark	Godber, Rt. Hn. J. B.	Lamond, James
Carr, Rt. Hn. Robert	Goodhart, Philip	Lane, David
Cary, Sir Robert	Goodhew, Victor	Langford-Holt, Sir John
Channon, Paul	Gorst, John	Le Marchant, Spencer
Chapman, Sydney	Gower, Raymond	Lewis, Kenneth (Rutland)
Chataway, Rt. Hn. Christopher	Grant, Anthony (Harrow, C.)	Lloyd, Ian (P'tsm'th, Langstone)
Chichester-Clark, R.	Gray, Hamish	Longden, Gilbert
Churchill, W. S.	Green, Alan	Loveridge, John
Clark, William (Surrey, E.)	Griffiths, Eldon (Bury St. Edmunds)	McAdden, Sir Stephen
Clarke, Kenneth (Rushcliffe)	Grylls, Michael	MacArthur, Ian
Clegg, Walter	Gummmer, Selwyn	McCrindle, R. A.
Cockeram, Eric	Gurden, Harold	Maclean, Sir Fitzroy
Cooke, Robert	Hall, Miss Joan (Keighley)	McMaster, Stanley
Coombs, Derek	Hall, John (Wycombe)	Macmillan, Maurice (Farnham)
Cooper, A. E.	Hall-Davis, A. G. F.	McNair-Wilson, Michael
Corfield, Rt. Hn. Frederick	Hamilton, Michael (Salisbury)	McNair-Wilson, Patrick (New Forest)
Cormack, Patrick	Hannam, John (Exeter)	Maddan, Martin
Costain, A. P.	Harrison, Brian (Maldon)	Madel, David
Maginnis, John E.	Prior, Rt. Hn. J. M. L.	Tapsell, Peter
Mather, Carol	Proudfoot, Wilfred	Taylor, Sir Charles (Eastbourne)
Maude, Angus	Pym, Rt. Hn. Francis	Taylor, Edward M. (G'gow, Cathcart)
Maudling, Rt. Hn. Reginald	Quennell, Miss J. M.	Taylor, Frank (Moss Side)
Mawby, Ray	Raison, Timothy	Taylor, Robert (Croydon, N. W.)
Maxwell-Hyslop, R. J.	Ramsden, Rt. Hn. James	Temple, John M.
Meyer, Sir Anthony	Rawlinson, Rt. Hn. Sir Peter	Thatcher, Rt. Hn. Mrs. Margaret
Mills, Peter (Torrington)	Reed, Laurance (Bolton, E.)	Thomas, John Stradling (Monmouth)
Mills, Stratton (Belfast, N.)	Rees, Peter (Dover)	Thomas, Rt. Hn. Peter (Hendon, S.)
Miscampbell, Norman	Rees-Davies, W. R.	Thompson, Sir Richard (Croydon, S.)
Mitchell, David (Basingstoke)	Renton, Rt. Hn. Sir David	Tilney, John
Moate, Roger	Rhys William, Sir Brandon	Trafford, Dr. Anthony
Molyneaux, James	Ridley, Hn. Nicholas	Trew, Peter
Money, Ernie	Ridsdale, Julian	Tugendhat, Christopher
Monks, Mrs. Connie	Rippon, Rt. Hn. Geoffrey	Turton, Rt. Hn. R. H.
Monro, Hector	Roberts, Michael (Cardiff, N.)	van Straubenzee, W. R.
Montgomery, Fergus	Roberts, Wyn (Conway)	Vaughan, Dr. Gerard
Morgan, Geraint (Denbigh)	Rodgers, Sir John (Sevenoaks)	Vickers, Dame Joan
Morgan-Giles, Rear-Adm.	Rossi, Hugh (Hornsey)	Waddington, David
Morrison, Charles (Devizes)	Rost, Peter	Walder, David (Clitheroe)
Mudd, David	Royle, Anthony	Walker, Rt. Hn. Peter (Worcester)
Murton, Oscar	Russell, Sir Ronald	Walker-Smith, Rt. Hn. Sir Derek
Nabarro, Sir Gerald	St. John-Stevas, Norman	Wall, Patrick
Neave, Airey	Scott, Nicholas	Walters, Dennis
Nicholas, Sir Harmar	Scott-Hopkins, James	Ward, Dame Irene
Normanton, Tom	Sharpies, Richard	Warren, Kenneth
Nott, John	Shaw, Michael (Sc'b'gh & Whitby)	Weatherill, Bernard
Onslow, Cranley	Shelton, William (Clapham)	Wells, John (Maidstone)
Oppenheim, Mrs. Sally	Simeons, Charles	White, Roger (Gravesend)
Orr, Capt. L. P. S.	Sinclair, Sir George	Whitelaw, Rt. Hn. William
Osborn, John	Skeet, T. H. H.	Wiggin, Jerry
Owen, Idris (Stockport, N.)	Smith, Dudley (W'wick A L'mington)	Wilkinson, John
Page, Graham (Crosby)	Soref, Harold	Wolrige-Gordon, Patrick
Page, John (Harrow, W.)	Spence, John	Wood, Rt. Hn. Richard
Parkinson, Cecil (Enfield, W.)	Sproat, Iain	Woodhouse, Hn. Christopher
Peel, John	Stainton, Keith	Woodnutt, Mark
Percival, Ian	Stanbrook, Ivor	Worsley, Marcus
Peyton, Rt. Hn. John	Stewart-Smith, D. G. (Belper)	Wylie, Rt. Hn. N. R.
Pike, Miss Mervyn	Stodart, Anthony (Edinburgh, w.)	Younger, Hn. George
Pink, R. Bonner	Stoddart-Scott, Col. Sir M.
Pounder, Rafton	Stokes, John	TELLERS FOR THE AYES:
Powell, Rt. Hn. J. Enoch	Stuttaford, Dr. Tom	Mr. Reginald Eyre and
Price, David (Eastleigh)	Sutcliffe, John	Mr. Jasper More.
NOES
Abse, Leo	Conlan, Bernard	Fisher, Mrs. Doris (B' ham, Lady wood)
Albu, Austen	Corbet, Mrs. Freda	Fitch, Alan (Wigan)
Allaun, Frank (Salford, E.)	Cox, Thomas (Wandsworth, c.)	Fletcher, Raymond (Ilkeston)
Allen, Scholefield	Crawshaw, Richard	Fletcher, Ted (Darlington)
Archer, Peter (Rowley Regis)	Cronin, John	Foley, Maurice
Armstrong, Ernest	Crosland, Rt. Hn. Anthony	Foot, Michael
Ashley, Jack	Crossman, Rt. Hn. Richard	Ford, Ben
Ashton, Joe	Dalyell, Tam	Forrester, John
Atkinson, Norman	Darling, Rt. Hn. George	Fraser, John (Norwood)
Bagier, Gordon A. T.	Davidson, Arthur	Freeson, Reginald
Barnes, Michael	Davies, Denzil (Llanelly)	Galpern, Sir Myer
Barnett, Joel	Davies, G. Elfed (Rhondda, E.)	Garrett, W. E.
Benn, Rt. Hn. Anthony Wedgwood	Davies, Ifor (Gower)	Gilbert, Dr. John
Bidwell, Sydney	Davies, S. O. (Merthyr Tydvil)	Ginsburg, David
Bishop, E. S.	Davis, Clinton (Hackney, C.)	Gourlay, Harry
Blenkinsop, Arthur	Deakins, Eric	Grant, George (Morpeth)
Boardman, H. (Leigh)	do Freitas, Rt. Hn. Sir Geoffrey	Grant, John D. (Islington, E.>
Booth, Albert	Delargy, H. J.	Griffiths, Eddie (Brightside)
Bottomley, Rt. Hn. Arthur	Dell, Rt. Hn. Edmund	Grimond, Rt. Hn. J.
Boyden, James (Bishop Auckland)	Dempsey, James	Gunter, Rt. Hn. R. J.
Bradley, Tom	Doig, Peter	Hamilton, William (Fife, W.)
Brown, Bob (N'c'tle-upon-Tyne, W.)	Dormand, J. D.	Hamling, William
Brown, Hugh D. (G'gow, Provan)	Douglas, Dick (Stirlingshire, E.)	Hannan, William (G'gow, Maryhill)
Buchan, Norman	Douglas-Mann, Bruce	Hardy, Peter
Buchanan, Richard (G'gow, Sp' burn)	Driberg, Tom	Harrison, Walter (Wakefield)
Butler, Mrs. Joyce (Wood Green)	Duffy, A. E. P.	Hart, Rt. Hn. Judith
Callaghan, Rt. Hn. James	Dunn, James A.	Hoaley, Rt. Hn. Denis
Campbell, I. (Dunbartonshire, W.)	Dunnett, Jack	Heffer, Eric S.
Cant, R. B.	Eadie, Alex	Horam, John
Carmichael, Neil	Edelman, Maurice	Houghton, Rt. Hn. Douglas
Carter, Ray (Birmingh'm, Northfield)	Edwards, Robert (Bilston)	Howell, Denis (Small Heath)
Carter-Jones, Lewis (Eccles)	Edwards, William (Merioneth)	Huckfield, Leslie
Castle, Rt. Hn. Barbara	Ellis, Tom	Hughes, Rt. Hn. Cledwyn (Anglesey)
Clark, David (Colne Valley)	English, Michael	Hughes, Mark (Durham)
Cohen, Stanley	Evans, Fred	Hughes, Robert (Aberdeen, N.)
Coleman, Donald	Faulds, Andrew	Hughes, Roy (Newport)
Concannon, J, D.	Fernyhough, Rt. Hn. E.	Hunter, Adam

Irvine, Rt. Hn. Sir Arthur (Edge Hill)	Marsh, Rt. Hn. Richard	Short, Rt. Hn. Edward (N'c'tle-u-Tyne)
Janner, Greville	Mason, Rt. Hn. Roy	Short, Mrs. Renee (W'hampton, N. E.)
Jay, Rt. Hn. Douglas	Mayhew, Christopher	Silkin, Rt. Hn. John (Deptford)
Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)	Meacher, Michael	Silkin, Hn. S. C. (Dulwich)
Jenkins, Hugh (Putney)	Mellish, Rt. Hn. Robert	Sillars, James
Jenkins, Rt. Hn. Roy (Stechford)	Mendelson, John	Silverman, Julius
John, Brynmor	Millan, Bruce	Skinner, Dennis
Johnson, Carol (Lewisham, S.)	Miller, Dr. M. S.	Small, William
Johnson, James (K'ston-on-Hull, W.)	Milne, Edward (Blyth)	Smith, John (Lanarkshire, N.)
Johnson, Walter (Derby, S.)	Molloy, William	Spearing, Nigel
Jones, Barry (Flint, E.)	Morris, Alfred (Wythenshawe)	Spriggs, Leslie
Jones, Dan (Burnley)	Morris, Charles R. (Openshaw)	Stallard, A. W.
Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)	Morris, Rt. Hn. John (Aberavon)	Steel, David
Jones, Gwynoro (Carmarthen)	Moyle, Roland	Stewart, Rt. Hn. Michael (Fulham)
Jones, T. Alec (Rhondda, W.)	Mulley, Rt. Hn. Frederick	Stoddart, David (Swindon)
Judd, Frank	Murray, Ronald King	Stonehouse, Rt. Hn. John
Kaufman, Gerald	Ogden, Eric	Strang, Gavin
Kelley, Richard	O'Halloran, Michael	Strauss, Rt. Hn. G. R.
Kerr, Russell	O'Malley, Brian	Summerskill, Hn. Dr. Shirley
Kinnock, Neil	Oram, Bert	Swain, Thomas
Lambie, David	Orbach, Maurice	Taverne, Dick
Lamond, James	Orme, Stanley	Thomas, Rt. Hn. George (Cardiff, W.)
Latham, Arthur	Oswald, Thomas	Thomas, Jeffrey (Abertillery)
Lawson, George	Owen, Dr. David (Plymouth, Sutton)	Thorpe, Rt. Hn. Jeremy
Leadbitter, Ted	Pannell, Rt. Hn. Charles	Tinn, James
Lee, Rt. Hn. Frederick	Pardoe, John	Tomney, Frank
Leonard, Dick	Parker, John (Dagenham)	Torney, Tom
Lester, Miss Joan	Parry, Robert (Liverpool, Exchange)	Tuck, Raphael
Lever, Rt. Hn. Harold	Pavitt, Laurie	Urwin, T. W.
Lewis, Arthur (W. Ham, N.)	Pendry, Tom	Varley, Eric G.
Lewis, Ron (Carlisle)	Pentland, Norman	Wainwright, Edwin
Lipton, Marcus	Perry, Ernest G.	Walden, Brian (B'm'ham, All Saints)
Lomas, Kenneth	Prentice, Rt. Hn. Reg.	Walker, Harold (Doncaster)
Loughlin, Charles	Prescott, John	Wallace, George
Lyon, Alexander W. (York)	Price, J. T. (Westhoughton)	Watkins, David
Lyons, Edward (Bradford, E.)	Price, William (Rugby)	Weitzman, David
Mabon, Dr. J. Dickson	Probert, Arthur	Wellbeloved, James
Marsden, F.	Reed, D. (Sedgefield)	White, James (Glasgow, Pollok)
McBride, Neil	Rees, Merlyn (Leeds, S.)	Whitehead, Phillip
McCartney, Hugh	Rhodes, Geoffrey	Whitlock, William
McElhone, Frank	Richard, Ivor	Willey, Rt. Hn. Frederick
McGuire, Michael	Roberts, Albert (Normanton)	Williams, Alan (Swansea, W.)
Mackenzie, Gregor	Roberts, Rt. Hn. Goronwy (Caernarvon)	Williams, Mr. Shirley (Hitchin)
Mackintosh, John P.	Robertson, John (Paisley)	Wilson, Alexander (Hamilton)
Maclennan, Robert	Roderick, Caerwyn E. (Br'c'n&R'dnor)	Wilson, Rt. Hn. Harold (Huyton)
McMillan, Tom (Glasgow, C.)	Rodgers, William (Stockton-on-Tees)	Wilson, William (Coventry, S.)
McNamara, J. Kevin	Roper, John	Woof, Robert
MacPherson, Malcolm	Rose, Paul B.
Mahon, Simon (Bootle)	Ross, Rt. Hn. William (Kilmarnock)	TELLERS FOR THE NOES:
Mallalieu, J. P. W. (Huddersfield, E.)	Sheldon, Robert (Ashton-under-Lyne)	Mr. Joseph Harper and
Marks, Kenneth	Shore, Rt. Hn. Peter (Stepney)	Mr. James Hamilton.
Marquand, David

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

1. (1) this resolution shall not authorise the making of amendments of the enactments relating to purchase tax, other than amendments about the remission of tax on exported vehicles, and other than amendments making the same provision for chargeable goods of whatever description, or for all goods to which any of the several rates of tax at present applies; and
2. (2) neither this resolution nor any resolution relating to selective employment tax shall authorise the making of amendments of the enactments relating to selective employment tax so as to give relief from tax—
1. (a) by way of exemption from, or a reduction in the rate of, tax except in respect of all persons of the same descriptions relevant for determining the rate of the employer's flat-rate contribution with 172 which the tax is combined, whether that contribution is under the National Insurance Acts or under the corresponding enactments in Northern Ireland; or
2. (b) by way of providing for payments to employers of an amount equal to the whole or a specified part of the tax paid if the proposed provision—
1. (i) is in respect of employers in, or at establishments in, part only of Great Britain; or
2. (ii) extends to employers in, or at establishments in, Northern Ireland; or
3. (iii) is in respect of all persons in any particular description of employment in all parts of Great Britain, and relief in respect of the whole of the tax paid could be given in respect of that description of employment by an order under section 9(1)(a) of the Selective Employment Payment Act 1966 adding that description of employment to the employments to which section 1 or 2 of that Act applies; or
173
3. (c) by adding or removing any employer to or from the employers to whom section 3 of that Act applies, or
4. (d) by amending the provisions of Schedule 1 or Schedule 2 to that Act.

Mr. Speakers

I am now required under Standing Order No. 94(2) to put successively without further debate the Question on each of the remaining 15 Ways and Means Motions, on the two procedure Motions, and on the Motion relating to Finance [Money], on all of which the Finance Bill is to be brought in.

Instead of reading out each Motion in extenso, I propose to follow the procedure used during the last four years, that is to say, first to state the title of the Motion and then simply to put the Question, That the Motion be agreed to.

c173
1. 2. GAS FUEL FOR VEHICLES (EXCISE) 38 words
c173
2. 3. BINGO DUTY (EXCISE) 98 words
c173
3. 4. SURCHARGES AND REBATES IN RESPECT OF REVENUE DUTIES 51 words
c174
4. 5. AGRICULTURAL MACHINES (VEHICLES EXCISE DUTY AND CUSTOMS AND EXCISE DUTY) 80 words
c174
5. 6 INCOME TAX (SURTAX RATES FOR 1970–71) 139 words
cc174-5
6. 7. INCOME TAX (ALTERATION OF PERSONAL RELIEFS) 473 words
cc175-6
7. 8. INCOME TAX (REDUCTION IN RELIEFS ON ACCOUNT OF FAMILY ALLOWANCES) 268 words
c176
8. 9. CAPITAL ALLOWANCES (INCOME TAX AND CORPORATION TAX) 87 words
c176
9. 10. OCCUPATIONAL PENSION SCHEMES (INCOME TAX AND CORPORATION TAX) 40 words
c177
10. 11. CORPORATION TAX (CHARGE AND RATE FOR FINANCIAL YEAR 1970) 38 words
c177
11. 12. CAPITAL GAINS REPLACEMENT OF RELIEF FOR SMALL AMOUNTS AND DISALLOWANCE OF LOSSES IN YEAR QUALIFYING FOR NEW RELIEF 76 words
c177
12. 13. TAX ON CAPITAL GAINS (CONSEQUENTIAL CHARGES) 71 words
c177
13. 14. ESTATE DUTY AND TAX ON CAPITAL GAINS (CONSEQUENTIAL CHARGES) 83 words
c178
14. 15. SELECTIVE EMPLOYMENT TAX 151 words
c178
15. 16. RELIEF FROM TAX (INCIDENTAL AND CONSEQUENTIAL CHARGES) 56 words
cc178-9
16. PROCEDURE (FUTURE TAXATION) 231 words
c179
17. PROCEDURE (NORTHERN IRELAND SOCIAL SERVICES) 120 words
cc179-80
18. FINANCE [MONEY] 304 words
c180
19. FINANCE 56 words