HC Deb 06 April 1976 vol 909 cc283-307

Motion made, and Question proposed, 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, without prejudice to any authorisation by virtue of any resolution relating to value added tax, this Resolution does not extend to the making of amendments with respect to that tax so as to provide—

  1. (a) for zero-rating or exempting any supply;
  2. (b) for refunding any amount of tax;
  3. (c) for reducing the rate at which tax is for the time being chargeable on any supply or importation otherwise than by reducing that rate in relation to all supplies and importations on which tax is for the time being chargeable at that rate; or
  4. (d) for any relief other than relief applicable to goods of whatever description or services of whatever description.—[Mr. Healey.]

[Commission Documents Nos. R/622/76 and R1606176 on Policy Guidelines for 1976.]

5.46 p.m.

Mrs. Margaret Thatcher (Finchley)

It is the custom and the pleasure of the Leader of the Opposition to congratulate the Chancellor on the manner of delivery of his Budget Statement. This year it has been quite a marathon—for us, but particularly a marathon for him. He has to use his voice more in one speech than most actors would have to use theirs during a whole week, and he has to write his own script. He will understand that if the compliments do not always apply to the script, they apply to the way in which it was delivered. There have been Budget speeches which took as long as five hours to deliver. Gladstone took five hours and so did Lloyd George; but they knocked off in the middle, doubtless to increase the revenue by what they drank in the process.

The Chancellor has put a great deal into this Budget Statement and we naturally wish to reserve judgment on many aspects until tomorrow. I think that we may make a number of preliminary comments, however. First, he did not quite seem to understand that the world has passed judgment upon his record in the last year. When he rose to open his Budget last year the value of the pound was $2.37. When he rose to open it this year the value was down to $1.87, a fall of very nearly 1 cent per week. That is the best barometer of the world's confidence in the right hon. Gentleman's stewardship.

It is quite wrong, when the right hon. Gentleman says that confidence in our future has been transformed, for him to imply that it has been transformed upwards. It seems very much to have been transformed downwards. In many ways our problems seem far worse than they were two years ago. He tucked away at the back of the speech that the very important and significant figure of PSBR for next year would be some £12 billion. Of course, we have great difficulty in judging that figure because the right hon. Gentleman has always got it wrong—and always in the same direction. His forecasts have always been below the outturn. This last year he wanted to hold it down to £9 billion but it rose to over £10 billion.

This is really the key to our future, and the size of the deficit dominates everything the Chancellor can do. It also dominates any tax reliefs he can make, because until he reduces the underlying rate of expenditure he cannot do very much more than shuffle the taxes around from one taxpayer to another and one set of goods to another—and he has done a lot of shuffling in this Budget.

As to the lower amount of the public sector deficit, it is not by any means all due to the recession. If it were, it would be different. We now know from the many forecasts and the many analyses which have been made that only a very small part of that deficit is due to the recession. The bigger part is due to the underlying structural problem, that we are living beyond our means.

We should be living beyond our means even if we had full employment, even if we had the extra tax yield that that would bring, and even if we had North Sea oil. That deficit amounts to something like £6,000 million to £7,000 million, and the Chancellor has made no effort at all to deal with it.

The Chancellor has said that other things are improving. Yes, they are, but he is treating the economy as though it were a patient with two diseases, the first being influenza, which we could say is similar to the recession we are experiencing, and the other being cancer, which is equal to the underlying and growing deficit. He is saying, in effect, that when the patient is recovering from influenza, or looking a little better, we can ignore the cancer and not do anything about the structural growth, which will go on destroying the patient unless we destroy it. He has left that untouched.

Last night the new Prime Minister said that there were no longer any soft options, but the Chancellor has taken the soft options. He always does. He always defers the difficult decisions. He used to defer them until next year. These days he defers them not until next year but until the year after. Until he starts to deal with them we shall find that our overseas customers and overseas investors will continue to put the value on sterling which they have been putting on it recently.

The Chancellor has a new system for the relation between taxation and pay rises. It is extremely complicated, and we must, of course, reserve judgment upon it. But may I give one instinctive democratic reaction? He is turning over the decision about the taxation levels of the majority of our people to a body which consists of the minority of our people. That seems to me to be taxation without representation. It seems to me to be thoroughly discarding or disregarding the interests of the majority.

We should look at this extremely carefully, because we are the body which represents all the interests of all our people. I do not believe that the Chancellor can abdicate his responsibilities to any other body in that way.

We shall have to study the details, but it looks as if the Chancellor's proposals will compress differentials still further. My understanding of some of the recent strikes at British Leyland is that people are rebelling against the flat-rate Socialist society. They believe that if they have more skill or carry more responsibility, they ought to have higher pay—and in particular higher net take-home pay at the end of the day. We have always believed that it is wrong to depress differentials, because in the end, as we come out of the next phase, this policy will only leave more and bigger problems for the Chancellor's successor—and we have a vested interest in that.

Because of the enormous size of the deficit, because of the enormous amount of borrowing which the Chancellor is putting round the necks of future generations—it is the young who will have to repay, and never have they had to repay so much—he cannot do very much about taxation. Some of the changes he has made will not nearly compensate for the effect of inflation. Indeed, some of us were a little surprised that the child tax allowances he announced were not a little higher.

I had thought, from what the Chancellor said earlier, that he would do more to help middle management. He has, in fact, done comparatively little. Middle management is, after all, a group upon which we depend in getting our economy moving again. We need middle management in endeavouring to make the industrial recovery which we accept, as does the Chancellor, to be the key to the recovery of economic prosperity.

I looked with the greatest possible interest on the Chancellor's privileges for those who buy pipe tobacco. Now that he has also reduced the VAT on boats from 25 per cent. to 12½ per cent., it really looks like an ex-Prime Minister's benefit Budget.

It would seem that the Chancellor is making a very good thing out of all the vices. Indeed, this year he has even found a way of putting a tax on apples, albeit through cider.

We welcome, of course, the continuation of stock appreciation relief. I believe the Chancellor did it in the wrong way to start with. We moved amendments which would have extinguished the liability at the beginning, and because he did not accept them, he is in very considerable difficulty now.

We welcome very much the changes that the Chancellor is proposing in relation to capital transfer tax to help the small business man and the farmer. We also welcome the Chancellor's downward change in value added tax from 25 per cent. It would have been very much better had he accepted the logic of his own argument and taken it to a simple 10 per cent., which, on his own yardstick, would be easy to calculate and would also, I believe, have produced quite a good deal of income.

It seems absurd to have a rate of 8 per cent. and a higher rate of 12½ per cent. If the Chancellor is arguing that the industrialist needs stability, so does the small shopkeeper. He also needs simplicity of administration, because he has to endure a great deal of administrative expense in calculating and collecting VAT for the Chancellor.

We also welcome very much the increase of the limit for pension annuities on behalf of the self-employed.

I had thought that we might be able to call this a honeymoon Budget, but, in view of what the Chancellor is doing about personal reliefs on marriage, we can hardly say that it is the best wedding present for a honeymoon couple.

As to the social security changes that the Chancellor is proposing, we are now accustomed to having social security announcements in the Budget. But we are finding difficulties which have not occurred in previous years. Some of these difficulties have, I believe, been highlighted by the assiduous work of my hon. Friend the Member for Norfolk, North (Mr. Howell), who has been making a study of the relationship between the taxation and social security benefits of those in work compared with those who are out of work.

We shall enter a period of difficulty if we are to have social security benefits indexed for inflation and the underlying wages not indexed for inflation. We shall have a position in which some of the social security benefits may go up—we do not know about the short-term ones yet—by as much as 12 to 15 per cent., whereas the pay of the employed man may go up by only 3 per cent. This means that the unemployed man with a wife and two children could have a very much higher income in his pocket than the man next door who is in employment. This could and will cause very considerable resentment. It does not make sense to leave it as it is. It is a problem that we shall have to tackle. There is also burning resentment about the higher rates of tax which seem now to take effect at such low levels. Again, the key to all of that is to deal with the deficit, and the key to dealing with the deficit is to deal with the underlying level of public expenditure and its proportion of national income.

I have never seen any Chief Secretary demolished so effectively as the present Chief Secretary was by the Fourth Report of the Expenditure Committee. His case was totally demolished. He was putting forward, as the Chancellor has, euphoric forecasts. The Committee agreed that we should not in future be bound by the past. In skilful cross-examination, he was asked what he had done to make him believe that the future would be different. But answer came there none. In fact the Chancellor has repeated some of the forecasts which the Committee condemned as economic miracles.

The Chancellor is not in the world of realism with public expenditure. Because of the rate of inflation, he will have to look at his expenditure commitments alongside his revenue commitments. That is the only way he can judge them. That was perhaps not so necessary when the level of inflation was low, but it is now necessary when the level of inflation is too great for that system to continue.

Mr. Frank Allaun (Salford, East)

What would the right hon. Lady have done?

Mrs. Thatcher

That is the wrong approach. Most of us have to gear our expenditure to our income. However desirable things are individually, if they add up to a total which one cannot afford and which jeopardises one's future, as this permanent deficit does—and one cannot go on borrowing for ever—one has to look at one's priorities. I had to look at priorities in education and, £20,000 million of expenditure later, none of the cuts which I made has been restored. It does not make economic sense to go at it the other way.

The Chancellor of the Exchequer has no more discovered the secret of perpetual borrowing than scientists have discovered the secret of perpetual motion. The problem has to be faced and sorted out, otherwise we shall build in the next round of inflation—which could be even worse—together with an even higher level of unemployment.

Most of us want neither inflation nor unemployment but the sort of economy that can be properly handled with jobs which are genuine because those concerned are producing goods. The Chancellor gave us a nice little lecture about that in the middle of his Statement. It was enjoyable.

The Budget gives away money that the Chancellor has not yet even borrowed. It is a big-borrower's Budget from a soft-options Chancellor. After what the Prime Minister said last night about no soft options in the future, I hope that we shall see a Government who trust the people and who tell them the truth, and who stand some chance of halting the slide towards national bankruptcy.

6.4 p.m.

Mr. Roy Hughes (Newport)

The Leader of the Opposition made a controversial speech. [Interruption.]

Mr. Speaker

Order. The hon. Gentleman is trying to address the House. If hon. Members who wish to leave the Chamber will do so quietly, it will be a great help.

Mr. Hughes

In his long speech the Chancellor of the Exchequer dealt with a multitude of issues and tried to provide at least some of the answers to the problems which affect the country. I found him difficult to follow when he was dealing with negotiations with the trade unions. Perhaps I am not alone in that.

I thought that his figures were a little hypothetical. In the early part of his speech my right hon. Friend mentioned the twin evils of inflation and unemployment, which he said were essentially international in character. I shall deal with what I consider to be a distinctly British problem.

It would be repetitive to say that our economy is in a powerless state. We are suffering from inflation, and about 1,250,000 people are unemployed. There are severe restrictions on collective bargaining. I agree that they have been imposed through the voluntary co-operation of the trade union movement, but I was taught that free collective bargaining is an essential part of a free society. I have no wish to rock the boat today, particularly as the new Prime Minister has just come into office. I wish him well in his formidable task. The Government are making strenuous efforts to solve our difficulties.

The situation would be even worse if the Conservative Party were in power. It would not easily get the co-operation of the trade union movement and it would base its policy on even higher unemployment.

When, 20 years ago, I was being taught the rudiments of economics I was told how Britain earned her living as a nation. I was told that we imported 50 per cent. of our food supplies, plus raw materials to service our manufacturing industry, and that we in turn exported manufactured goods. I was told that those earnings were supplemented by those from shipping and from financial facilities such as insurance. That theory is now old hat. Food and raw materials account for only about 50 per cent. of our total imports, and the British market is being flooded with all types of foreign imports such as cars, washing machines, steel, television tubes, textiles and so on. A large deputation of shop stewards from the large Hoover factory at Merthyr Tydfil recently pointed out to hon. Members that the Italians were dumping washing machines in this country.

The Government are proposing assistance to the paper and board industry so that it can re-equip. Representatives of a firm in my constituency have said that they are afraid that the recipients of this public money would buy new machinery from overseas. That would be ridiculous, because we can produce the equipment in this country. There are many more examples of home production, and I have firmly come to the conclusion that we now need severe import restrictions. I agree that there is a danger of retaliation, but many countries are already practising all manner of restrictions.

I shall be told that import controls have nothing to do with Socialism. However, they are necessary to put the British economy back on its feet. There is also the case that import controls would be detrimental to the developing countries, but we must face the fact that charity begins at home, and a strong Britain would be better able to help those developing countries. Dogma in this respect must be put on one side to get our people out of the dole queue.

I appreciate that the principal obstacle to the imposition of severe import controls is our international commitments, whether through the Common Market of GATT or to the International Monetary Fund, but what justification can there be for allowing Britain to be flooded with imported goods that we can easily produce? We seem to be the softest touch of all in international markets. Our manufacturing industry is being eroded, and the result is heavy unemployment. It is as if it is no longer nice to put the case for essential British interests. Yet we must have a firm policy of import restrictions so that we import only what we can pay for with our exports. The economy is suffering from a lack of effective demand. If it could go flat out without the fear of balance of payments crisis, then employment, investment and production would rapidly grow. Our industry would recover its competitive strength.

A start could, perhaps, be made in the car industry. Nothing could be more calculated to stimulate the British economy than a boom in that industry. I welcome the fact that Leyland is now able once again to export to the Arab countries. That is the sort of reciprocal trade that we require. We need their oil and they need our motor vehicles.

Whatever international organisations we may be linked with must be flexible enough for our country to take the necessary steps to gets its economy back on on its feet. The challenge is to the Western world as a whole. What good can an impoverished Britain be to any international organisation?

The Government must be warned that they will not indefinitely get away with unemployment at the present rate. I appreciate that the social security benefits are cushioning the blow, but as they run out the Government could run into trouble. If unemployment persists, the trade unions will be less willing to accept a voluntary incomes policy. The recent trouble at the SU carburettor plant was the writing on the wall. The Government should take heed of it.

6.14 p.m.

Mr. William Clark (Croydon, South)

Without being too pessimistic I believe that in discussing the Budget and giving a judgment on it we should take the economic background as we see it. Britain has a future, but I do not think that we have a future if we continue to do an ostrich-like act and do not face the facts.

Production is lower today than it was in 1974, even during the three-day week. We must do something about that. Nobody need necessarily argue the dogma of the mixed economy, but there must be something wrong in a mixed economy which is 60 per cent. State owned and only 40 per cent. privately owned. That is another matter which we should examine.

When they speak about pay rises people today never seem to think that those rises should come with increased productivity. Without increased productivity any pay rise will merely increase the cost of the goods produced. Another factor that we must consider is that since 1974 the value of the pound in purchasing terms has declined from 100 to only 69.

That is the background against which we should judge the Budget. The Chancellor said in last year's Budget Statement that he would make the people howl with anguish by his taxation. He has now seen what has happened. The law of diminishing returns is operating in many areas, including taxation and many aspects of productivity.

On television last night the Prime Minister said that we could not keep borrowing. I wonder whether he had a word with the Chancellor about the borrowing we have done this year. The Chancellor threw in as a mere aside that borrowing to 31st March this year was £10,750 million. That is the amount by which we overspent. It means that we are overspending at just over £21,000 a minute. If I speak for about 10 minutes the country will have overspent by nearly £250,000 by the time I finish. Our children will eventually have to pay back the money borrowed.

In what was more or less another aside the Chancellor said that the borrowing requirement for the coming year would be £12,000 million. Where are we going? Everyone seems to think that oil will bail us out, but the most optimistic forecast for the product from oil when it is on full stream in about 1980 is £1,800 million. If we borrow at the present rate for the next three years the servicing of the debt we are building up will cost about £3,000 million a year. That figure excludes any repayment of capital. It is criminal folly for the Government to borrow at that rate. There is no point in Labour Members, including Ministers, asking us "Where would you cut public expenditure?" Public expenditure must be cut for we cannot continue to overspend at the rate of £12,000 million a year.

The Chancellor will soon have to return to the IMF, which will, no doubt, put stringent restrictions on any further borrowing. It is all very well to have the ability to borrow from the IMF, but it will not lend us money without strings attached. The Chancellor should have spent a little more time on how he thought he could reduce the borrowing requirement.

Sir Raymond Gower (Barry)

Is it not a fact that the last borrowing from the IMF was used up rather rapidly?

Mr. Clark

Yes. It was just under £1,000 million, which is one month's overspending. That was tied up with the oil tranche, which the IMF had agreed with its members should be given with no strings attached. That was why we got £1,000 million without any stringent regulations.

It is the Government who must decide, as my hon. Friend the Leader of the Opposition has said. It is no good Labour Members asking "Where would you cut?" It is the Government who must cut. They must try to get the revenue of this country in balance with the expenditure of this country. The Prime Minister said last night on television—and I so much agreed with him—that we need a national effort.

That means an effort on all sides. It does not mean selecting one section of the community and giving that section preferential rights. It does not mean that we should go on nationalising. Let us do so if we have the money, but there is no point in borrowing money to nationalise. Any business man will agree that that is the road to ruin.

As my right hon. Friend the Leader of the Opposition said, the Chancellor must look at how social security benefits work. There is a tremendous amount of frustration in the country when people who are in work are living next door to, or near to, others who do not work and who are in many cases better off than those who are working. There must be something wrong with our society if we allow that to continue. Another thing we must look at in social security is the deep frustration that is felt when working people see coming into their community a stranger, probably someone who has only just arrived in the country, and who, 24 hours after arrival, has a right to pick up taxpayers' money. Surely, there must be something wrong there.

The tax credit system, jettisoned—alas—by the present Government when they came into office, to a certain extent alleviated this because the anomaly of our present tax system is that there are two types of income. There is taxable income, and there is untaxable income for those on sick pay or social security benefit. As my right hon. Friend the Leader of the Opposition said, to make social security benefit inflation proof but not to give inflation-proof income to the worker means storing up trouble for ourselves not only economically but, I suggest, socially also.

I was disappointed at the small amount of time the Chancellor spent on private enterprise. You, Mr. Speaker, will know better than most that the private enterprise sector produces something like 93 per cent. of our exports. I would have thought that to be a section of the community, a part of our economy, which should have a great deal more help. It is true that the Chancellor has increased the limit for small businesses from £20,000 to £25,000, but he has only taken into account the inflation rate. The small business man has not been made any better off.

As for "perks" and fringe benefits, all hon. Members, on both sides, agree that there should not be tax evasion there, and that any personal element of such benefits should be charged; but we have to be very careful. It is no good picking out the business man and saying to him "You have the enjoyment of a motor car, a chauffeur and the rest; some of that is a personal benefit and consequently you will be surcharged in income tax so much on that benefit." We cannot do that without at the same time extending it to Ministers or civil or other public servants. They should not be treated differently from business men by such taxation. Otherwise, we are going to create two nations. We have more or less done so with the inflation-proof pension that civil servants have, but what can we or the Chancellor do?

The Chancellor seemed particularly naive as to the present position of sterling. He had the audacity to stand at the Dispatch Box and say that confidence in Britain was growing and growing. That is something which has escaped me up to this moment, because sterling is at the lowest it has ever been. If that is the situation with sterling when people have confidence in Britain, where would sterling be if they did not? I really think the Chancellor should treat the House with greater respect, because I can assure him that we are not all fools in the House of Commons. For him to say there is growing confidence when in fact the £ is at an all-time low in itself creates less confidence among those abroad, who will say "They must have a funny Chancellor there: if he thinks there is confidence in Britain, does not he understand that it is when there is no confidence in a currency that it automatically goes down?"

On a point of detail, the Chancellor has it all wrong from an economic point of view on the capital gains tax. I will not argue the details, but to my mind it is ridiculous for him to assert that this tax is not a tax on inflation. It is not in the same class as the incremental rise or salary increase which people receive. It affects something which is purchased for £1,000 and held for one, two or three years and sold eventually for £2,000. The purchasing power of that £2,000 is identical with the purchasing power of the original £1,000. Yet there is this tax on it. The Chancellor has it absolutely wrong on this.

Personally, I believe this is an irresponsible Budget in that I do not believe the Chancellor has grasped the nettle. It is certainly partisan, but it is not dealing with the cancer that has been referred to, the cancer of our overspending and our over-borrowing requirement. That is something which we cannot continue, because the one basic freedom that anyone has is that of being able to spend his own money in whatever way he likes. If this Government, or the Chancellor, are saddling future generations with huge debts, then that freedom will disappear very rapidly.

Last night the Prime Minister said that we must have honesty and fairness. I wonder whether he can ally that with this Budget. One of the main tax concessions is to assist the middle income group through the personal allowance. This will cost the Exchequer £930 million in a full year, but instead of the Chancellor taking the decision he has abrogated that responsibility, passing it to the trade union movement: and presumably if the Trades Union Congress does not deliver the goods, that £930 million will not be paid.

The trade union movement comprises 10 million members and the TUC is invariably elected by, on average, a 10 per cent. vote. So 1 million votes within the trade union movement determine the structure of the TUC. At the last election this Government had some 11 million votes. Why should the Chancellor with 11 million votes in the country behind him be subject to a body which is outside this House and which was elected by only 1 million votes—on a vote which in any case was not unanimous? Probably the TUC is dependent on 600,000 votes. Why should such a body, whether it be the Institute of Directors, the Confederation of British Industry or any other, thwart the wishes and desires of the British nation and of this House?

It is dangerous to democracy that in relation to a major tax relief we are pushing responsibility over to the TUC and saying "If you can deliver the goods on an incomes policy or on low incomes you will get £900 million." What about the other 14 million who are not trade unionists, who also pay taxes? They have no one representing them. This is a retrograde step by the Chancellor. I am sure everybody hopes and trusts that he will get some rapport with the TUC. I am only suggesting that this rapport should not be made dependent on what happens to the taxation system. The real truth is that the Chancellor and the present Government are kidding themselves if they consider everything in the economic garden is rosy.

Many problems must be tackled. I have mentioned a few. The greatest one—till we solve it we shall not cure inflation—is the borrowing requirement. Unless we cut the borrowing requirement, inflation, high taxation and frustration will carry on. Indeed, not only will inflation carry on, but our children and grandchildren will have round their necks a mortgage debt which they will probably never be able to repay.

6.31 p.m.

Mr. Donald Stewart (Western Isles)

I trust that the hon. Member for Croydon, South (Mr. Clark) will forgive me if I refrain from commenting on his speech. I do so in the interests of brevity. I have only time to make a few general points.

The general tenor of the Chancellor's speech was the old jam tomorrow—promises contingent on certain things which may or may not eventually materialise. Once again, the ailments outlined by the Chancellor were England's ills. The right hon. Gentleman said that we could not base the expansion of the economy on the general reflation of domestic demand. This is true in English, not Scottish, terms, because we do not have England's balance-of-payments problem.

The extra tax on petrol is inevitably a further severe surcharge on the cost of living in areas, such as my constituency, where people are almost entirely dependent on road transport. Some way must be found to alleviate that problem or the Chancellor will be guilty of operating discrimination against those areas.

The increase of 32p on a bottle of whisky is a severe blow to the whisky industry. Production was down by 19 per cent. last year. I accept that spirits are a logical target for the Chancellor of the Exchequer, but there will be a day of reckoning, because the whisky will not be there to tax. The Chancellor should allow whisky the same credit period for payment of duty when it is taken from bond to the customer as the wine trade enjoys.

The Scottish National Party welcomes the plan for relating tax allowances to wage restraint, since it resembles the creative indexation proposals drawn up by the SNP before the last wage restraint package was introduced. But it lacks the virtues of the scheme put forward by the SNP—namely, no interference with the principle of free collective bargaining and the safeguarding of the position of the low-paid.

We also welcome the increase in penhions, but the six-months' delay in implementation will inevitably lead to a serious erosion in the value of the increase.

One shocking omission is the failure to remove the levy on the self-employed. The failure of a Labour Chancellor to remove that Conservative tax is to be deplored.

It is also a matter for great regret that, in his spring cleaning of the corners of the tax system, the Chancellor made no suggestion of ending the taxing of pensioners who, by carrying on working, shorten their dependence on State benefit.

I hope that the Chancellor will give due consideration to these points.

6.35 p.m.

Mr. Michael McGuire (Ince)

I hope that the hon. Member for the Western Isles (Mr. Stewart) will forgive me if I do not follow his comments.

I found this Budget complex, but interesting. I want to comment on some of the points introduced by the Chancellor of the Exchequer in his Budget Statement. I want particularly to refer to the injustices of many of the proposed changes. I do so in the knowledge of hindsight, as I shall explain.

Sometimes changes in the tax laws are proposed to catch people who are avoiding, as distinct from evading, tax. I had brought home to me in an unfavourable way how a change in the tax law disadvantaged me. I do not recall how many years ago this happened.

I think that most hon. Members know that many years ago my son unfortunately lost both legs in a road accident. He did not get any compensation, because negligence could not be proved against the bus company concerned. All he got was the benefit of a collection which was made by the men at the pit at which I worked. That sum was put away for him until he became of age. That money has been bringing in £120 a year in interest. I was also trying to add to this when I worked in the pits and also when I came here as a Member of Parliament.

I was astonished to receive a letter from the tax man saying that I owed money on my boy's investment. I was outraged when I went into the matter and found that if my boy had been awarded that sum by a court, it would not have been taxable. But, as the law was designed to catch those who were giving money to their sons to avoid tax, I was ensnared. Therefore, I have a deep suspicion about any proposed changes in the tax law, the efficacy of which will only be known later, because others are often dragged in and have to pay the penalty.

I think that a certain amount of hysteria has been generated in this country about what I call the old-age pensioners syndrome. Apparently, we must not say anything about the benefits which pensioners are to get or are receiving, as to do so will be looked upon as terrible. But to give a concession on the aged person's allowance is a little odd when, if we have money to spare, we should consider giving help to the disabled. Again, it will be seen that this is a personal reflection.

My boy, who is now a man taller than me, wears out clothes extremely quickly because of his artificial limbs. There is no tax allowance in this respect for the disabled. I suggest that that is unjust. Yet we are prepared to give several million pounds to people who, in the main, are doing all right. Not all old-age pensioners are in penury or poverty. A quarter—about 2 million—are, but the rest are doing reasonably well with their free bus passes and various other concessions. Therefore, I would devote more help to the disabled. There are many ways in which we can help them.

I should also give help to young families. Many young parents come to see me at my surgeries. These young people are outside the limit for free school travel for their children. Some of them take their children to and from school three or four times a day to ensure their safety—I do not blame them for that—and that costs them a small fortune.

We should bring such matters to the attention of the Chancellor. If we are to make changes in tax allowances, let us make them on a sensible basis. Let us not be driven by what I consider to be the hysteria to help certain sections of the population who, on examination, probably do not need it as much as other groups.

I turn next to the reduction in the rate of VAT from 25 per cent. to 12½ per cent. I should like it to have been an all round 10 per cent. or 8 per cent. The Chancellor told us why he has chosen to leave one rate at 8 per cent. and to bring the other down to 12½ per cent.

The Chancellor's Budget proposals last year, which became operative on 1st May 1975 and put up the VAT on electrical appliances to 25 per cent., did incalculable damage to the electricity appliance industry. My constituents have suffered in consequence of the 25 per cent. VAT on television sets because, though it was not the direct cause, it certainly accelerated the closure of a factory in my constituency which employed 1,350 workers, most of them men.

The hon. Member for the Western Isles may not entirely agree, but that caused my constituency to have, if not the highest, one of the highest male rates of unemployment in the United Kingdom—namely, about 23 per cent. That rate is increasing steadily. Therefore, it will be appreciated that anything that will help to save jobs in my constituency, particularly in Skelmersdale, which has an industry which is affected by the 25 per cent. VAT, and even to encourage it to take on more workers, is to be welcomed. We should thank the Chancellor for reducing VAT, but we should have said in the first place that these increases are not thought out.

They are imposed too quickly because somebody says that increasing the current rate of 8 per cent., apart from retarding consumption, will bring in X hundreds of millions of pounds. The consequences of some of these changes are catastrophic. Although I welcome the reduction, I would rather the rate had not been increased in the first place. If we are to change, I would rather we changed on a fair basis and reduced the rate to at least to 10 per cent., although I should like it to come down to 8 per cent. We should not in future have this kind of increase of over 300 per cent. The damage it did was catastrophic and the television industry is now saying that it will take a long time to recover.

We talk as though some of the things we are taxing are the prerogative of the very wealthy, but many appliances are used by the general public—hair dryers, electric fires and so on. There was no justification for imposing the higher rate.

On import controls, the Chancellor went over the ground which has been covered before in our debates on trade and he said that he was keeping a close eye on this subject. He seemed to indicate that he was thinking more along the lines of selective import controls, and that happens to be my own line of thought. I will not go into it now except to say that it would be beneficial to the country. Unfortunately, I think that in our present state we shall be driven to it. We have been taken advantage of by many countries.

To those of my colleagues and hon. Members in all parts of the House who ask how we can justify our commitment to the poorer countries of the world I would say that wiping out our textile industries would benefit the workers of those countries not a jot. We already have a penetration rate of 60 per cent. No other industrialised nation has any thing remotely like it. We should say to our colleagues in the other countries that when we have got on our feet, we will be as generous again.

I think that we shall be driven to this decision. I think that the Chancellor was absolutely right to say that the way for this country to get back to prosperity is to increase our industrial competive-ness. If we do not do, we are really on the slide and we shall slip down it all the faster.

That is the decision facing this country. We have to face that challenge and we have to tell our colleagues who work, as I once worked for a living, in the pits, for example, and in the factories that we have to meet that challenge. If we do not, the world will soon tell us, as it has now, that the prospects for this country will become all the grimmer.

6.44 p.m.

Sir Raymond Gower (Barry)

I understand how the hon. Gentleman feels and I understand the anxieties of those in areas which are dependent on industries suffering severely from overseas competition. Nevertheless, the hon. Gentleman may reflect that we are in a very exposed position ourselves, because we are dependent more on our exports than practically any comparable country in the world, apart from Japan. If other countries turned back on us with the same kind of policy of restricting imports, it would be much more injurious to us than our action would be to them.

The Chancellor's Budget Statement today has a very sombre background which, perhaps, we have not been aware of in the exchanges today. The hon. Member for Newport (Mr. Hughes) mentioned inflation, which still continues at a higher rate than in any comparable industrial country. Extensive unemployment still exists and there is the overseas borrowing mentioned by my hon. Friend for Croydon, South (Mr. Clark). There is also the terrible collapse in the value of sterling. Nobody who objectively considers the state of this nation at this moment can feel anything other than very profound anxiety.

The recent Report of the Expenditure Sub-Committee emphasised that the standards and criteria by which we measure our performance and prospects are terribly imperfect. This should not surprise us. It is a truism, which we tend to forget, that economics are far too dependent on human behaviour or human error to be an exact science, and in recent years we have tended to assume that modern equipment and the accountancy methods will enable us to ensure more accurate forecasts. Numbers of Chancellors in successive Governments have promised more frequent and accurate data on which to base our judgments. Recent experience suggests that not only must the data be improved but so must our methods of interpreting the available information.

Having had the honour of serving in this House for many years, I confess that I have never felt quite so profoundly anxious about the economic future of Britain as I do today. I do not attribute all the blame to the Chancellor or his Government or, indeed, to any particular Government. The present Government must take some of the blame, and so must several earlier Administrations. They must share it with many people who are in other spheres of our national life. The malaise which affects the United Kingdom is too deep-seated and long-established to be excused by facile and partisan recrimination. Our problems are so grave as to demand something much greater than mere party interchanges on this matter.

This does not signify that I am making any sort of plea for coalition government, but I am pleading for a truly all-nation approach to be made to our difficulties. Obviously, Treasury Ministers cannot provide all the remedies, nor can the Government, the House, or Parliament as a whole. A great deal will obviously depend on the future performance of British industry at all levels—on management, sales staff and all employees throughout every organisation. No amount of juggling by the Chancellor with our available and limited resources can possibly compensate for faltering production and continued deficiency of quantity and quality in our industrial output.

It is claimed that we tend unduly to deprecate the real achievements of this country. I do not believe that. Too many of us are far too ready to make excuses for our failures. Too many of us underestimate the extent of our postwar decline. The first step towards real recovery is to recognise our predicament and shortcomings.

As you will be aware, Mr. Speaker, in another context it has been said that the first step towards virtue is to recognise our sin. It is the first step towards industrial and economic recovery to recognise our shortcomings now. If the whole nation recognised the size of our task, we should at least have won the first round.

It is against that background that we should measure the Budget Statement. In so doing we must recognise that we have one rather awkward disability, which was commented on by Helmut Schmidt, the Leader of the German Social Democrats, a couple of weeks ago. The Labour Party has been taking great credit for its unique association with the trade union movement, which, it says, has been a source of great strength to the party. But Britain has suffered sadly and severely from the fact that the industrial divide coincides with the political divide, as it does not in many other countries, including West Germany. That was Mr. Schmidt's comment.

In that context, we have today had a Budget Statement which is a mixture of good and bad, of things which can be praised with things which can be criticised, along with others on which we might seek further guidance. But it contains nothing to match the enormous plight of this nation.

I certainly welcome some of the details. I welcome the VAT reduction, although I should have preferred the rate to be 10 per cent. My talks with industry, trade and commerce convince me that that would have been of great benefit.

I welcome the social security improvements. These have now been established as an annual, indeed, a twice-yearly, feature. But I do not believe that we have so tamed inflation that we should be going back now to an annual increase. We should retain the twice-yearly increase. There is no evidence that we have really conquered inflation and that we can now delay the payment of these pension increases, which we pledged ourselves at the last election to make twice a year. We were pleased to see that the Government had also begun to do the same. The return to an annual increase is a retrograde step in the context that I have sought to describe.

I welcome the help which is to be given to small businesses, which represent one of the most hopeful features of our economy, if successive Governments would only nurture and encourage them.

I can only echo the doubts expressed by the Leader of the Opposition about the Chancellor's strange new formula of conditional and unconditional income tax concessions. Perhaps they can be justified within the conventions of our Constitution, but superficially it would appear to be difficult to reconcile the two. It seems undesirable that some change in the income tax law will depend on a decision by people outside Parliament—no matter who they are and what part of our national life they represent. It is only this elected House which should decide whether to reject or accept the Chancellor's proposals.

I plead with the Chancellor to reconsider some of these matters before his next Budget. With all the changes which are to be made—some of them improvements—I cannot see this Budget as a vita) contribution to the enormous task which faces us. That is my criticism tonight.

6.53 p.m.

Mr. Robert Hughes (Aberdeen, North)

There are a number of hazards about speaking on Budget Day, one of which is that it is difficult to encompass all the proposals. Another is that one is bereft of the marvellous quotations trotted out in the newspapers which make our Budget judgments for us. We have no crib sheets and we have to make our own speeches. A third hazard is that, if one speaks in the Budget debate, one is quickly whipped on to the Standing Committee considering the Finance Bill. I give notice that I have no intention of agreeing to that.

The Budget is in two halves. The first is the outline of the nation's accounts, the forecasting of unemployment and so on. The second deals with the tax changes, some of which are good and some bad. I unreservedly welcome the increase in pensions, as one always does. It is of major benefit. Secondly, I welcome the increase in the age exemption which allows people to earn more when they retire and still not be subject to tax. But perhaps we are going too far in neglecting other parts of the cycle of people's lives. We should not forget the great burdens on young couples who are starting their married lives. A balance should be struck. Probably at the moment it is more or less correct.

I want to take issue with the Chancellor and my namesake, my hon. Friend the Member for Newport (Mr. Hughes), about import controls. There may be a halfway house. I am very worried about the problem which import controls will represent for people in developing countries. It is no good saying that they can wait their turn until we are strong and can help them. We should consider their problems in trying to build up an industrial society.

The Chancellor said that he could not reduce hire-purchase controls or credit restrictions on manufactured goods because that would lead to increased penetration by foreign imports. Presumably he was thinking particularly of Japanese television sets and motor cars. But we have so many different rates of taxation that I do not see why it would not be possible to have a differential rate of credit restriction on, for example, Japanese goods if that was the particular field we chose. In other words, we could be selective in our discrimination over imports.

Turning to pay policies, I am worried that the Chancellor should have accepted almost word for word the classic orthodox economic view that there is a direct link between pay, inflation and jobs. He is saying in effect that if trade unionists in particular ask for pay increases, inflation will be much higher and there will be a great deal of unemployment. Of course there is a link. I do not suggest that pay has no influence on inflation, but the constant harping on wage increases as the main reason for our increased inflation is quite wrong.

My right hon. Friend's approach, of offering tax reductions linked to an incomes policy, is an interesting one. We have never solved the question of differentials, however, and there have been problems in industry as a result. I am a flat-rate increase man. If we are to have pay controls, they should benefit the lower-paid worker as much as possible.

My right hon. Friend repeats the proposition that there should be no growth in the public expenditure cycle during the life of the public expenditure White Paper. It is all very well to talk about investment, but there is no guarantee that it will go to the right quarters. We should not forget that education is an investment in itself. Reducing the amount spent on education and health is to do the country a disservice, because that affects how our people produce and move on in future.

There is a great danger in our tendency to suggest to people that they can get services for nothing. People must realise that the services they demand must be paid for. I accept that people will have to be willing to pay more taxes. The counter-argument is that one needs greater employment, and full employment at that. I welcome what will be done with the temporary employment subsidy.

We must get our economy back to full stretch, but the necessary 5½ per cent. increase in GDP and the 8½ per cent. increase in manufacturing output will not happen without a better policy towards North Sea oil and a more reflationary Budget. We could then go on to produce full employment and perhaps for the first time begin to work towards a Socialist Budget.

It being Seven o'clock, and there being Private Business set down by direction of The CHAIRMAN OF WAYS AND MEANS, under Standing Order No. 7 (Time for taking Private Business), further Proceeding stood postponed.