BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 08 April 1976 vol 909 cc637-767

3.32 p.m.

The Secretary of State for Industry (Mr. Eric Varley)

My right hon. Friend's Budget has shown the nation a clear economic strategy, and he has placed before the country far-reaching and imaginative proposals aimed at fulfilling two different but interlocking, objectives. The first objective is to solve the serious immediate problems of inflation and unemployment, problems shared with the whole developed world. He has also put forward measures to tackle the underlying structural problems which have be-devilled this country for a generation, if not longer.

He has based those proposals firmly on social justice, singling out for special consideration the retired and families with young children. The whole approach is aimed at collaboration between Government, unions and employers—a marked contrast with the deliberate and divisive policies of confrontation which were embarked upon so enthusiastically by right hon. Members who now indiscriminately inhabit the Front Bench opposite both above and below the Gangway.

The Government's industrial strategy is based on the same approach of collaboration with all sections of industry. It is avowedly and deliberately a Socialist industrial policy which uses the Socialist instruments of intervention foreshadowed in our manifesto and provided by the Industry Act 1975. It is a practical policy and has found wide acceptance in all sections of industry since its latest phase was launched by my right hon. Friend the Member for Huyton (Mr. Wilson) at Chequers five months ago.

Its aims are to deal with the industrial problems of this recession, while using the period of the recession itself constructively for an asault on the long-term underlying problems. They are problems which must be solved if we are to join other advanced industrial countries in achieving high output, high wages, high individual and social living standards based on full employment.

We have, in the Budget, done much to provide a stable and helpful framework for industry. For industry as for everyone else, the overriding need is to get inflation down. Only by slowing down the inexorable rise in prices in line with those in other countries and our international competitors can industry be made competitive. But to regain our international competitiveness we also need an improvement in productivity. The main effort to achieve that has to come from those working in industry, both in management and on the shop floor. That is why we are developing our industrial strategy on a tripartite basis.

Because our objectives are clear and widely accepted, our policies are meeting with considerable success. The scope of our policies has been modest so far, but the momentum is quickening and the success will become even more obvious as the different and varied instruments reveal their pattern.

One of the problems of every recession, and of this more than others because of its length and depth, is that capacity is under-used. Then, when the upturn gets under way, we are insufficiently prepared for it and are hampered by bottlenecks. These can be bypassed only through massive imports which in themselves limit and undermine the recovery.

That is why we have launched the accelerated investment scheme which has been one of the greatest industrial successes of recent years. The aim is to encourage industry to bring forward manufacturing investment projects which have been deferred to improve our capacity to meet demand, and particularly export demand, in the upswing.

The scheme, which was introduced last year, is an entirely new and, I believe, highly cost-effective, approach to the problem of counter-cyclical investment. A sum of £120 million has now been allocated to the scheme. Applications are examined in accordance with the published Criteria for Selective Assistance. All cases are put to the Industrial Development Advisory Board. So far, the Board has advised that assistance of some £31 million should be provided for 26 projects involving investment totalling £200 million, with foreign exchange benefits building up to some £200 million per annum in the early 1980's. The Board is meeting this afternoon to consider applications which, if successful, will raise the assistance given to £35 million. Further proposals currently under examination could involve investment up to a further £500 million.

Projects so far approved range over a wide geographical area and a wide spectrum of industry, including the diesel engine, chemical, pharmaceutical, food-processing, and electrical and mechanical engineeering industries. Whilst not specifically directed to employment creation, these projects all have significant value in generating new job opportunities, and safeguarding other jobs. In addition, a substantial number of jobs in the construction industry and in firms supplying capital equipment will be created or safeguarded by the orders placed.

Side by side with the accelerated investment scheme have gone the industry schemes. While the accelerated projects scheme is available to all industries, the industry schemes are specifically tailored to individual sectors of industry. This means that our help is directed to those sectors where it can do the most good in terms of improving our competitiveness and productivity. Our aim is to raise both the level of investment and the return on investment in particular industries.

I believe that these schemes are one of the most valuable instruments of our policy, helping our key industries to modernise and equip themselves for the challenge presented by the upturn.

When in office, the Opposition tentatively launched the Wool Textile Scheme. We extended it, expanded it, and built upon it. Three new schemes were introduced last autumn, for the ferrous foundry industry, the clothing industry, and the machine tool industry.

The original allocation to the ferrous foundry scheme was £25 million, but the scheme has been such a success that further funds will be allocated to it. The scheme is designed to encourage investment in new plant and buildings, to develop efficient production facilities, and to improve working conditions.

A sum of £20 million has been allocated to a scheme for the machine tool industry, with the objectives of developing new products, improving production facilities, and rationalisation. The clothing industry has been allocated £20 million. The problems are different in the clothing industry, and the assistance is designed to promote a greater concentration of activity in more efficient units, to increase the introduction of modern plant, and to promote reorganisation to achieve greater efficiency. The response to these schemes has been very encouraging.

Mr. Tam Dalyell (West Lothian)

I have a constituency interest in ferrous foundries. Will my right hon. Friend say something about the time scale of the take-up of those offers? Is there any urgency, or are they open-ended?

Mr. Varley

There is certainly some urgency about making applications under the accelerated projects scheme, because the scheme must be applied for and projects must start before September. We are asking organisations to publicise that scheme even more. The CBI is taking up our invitation to publicise it. There is no time scale for the ferrous foundry scheme. It has been successful, and we want people to continue to make applications. So far more than 200 applications for assistance have been made. In all, proposals under consideration involve new investment of about £100 million. The ferrous foundry scheme in particular has had a rapid impact, with offers of assistance already made for investment projects estimated to cost about £20 million. Further industry schemes are in preparation for the paper and board industries and printing and textile machinery.

My right hon. Friend announced on Tuesday the allocation of a further £40 million to industry schemes, in addition to the £285 million already allocated to these schemes and the accelerated projects scheme.

Mr. Michael Marshall (Arundel)

With regard to the ferrous foundry schemes, how is the Secretary of State monitoring those schemes which would have gone ahead under their own investment anyway, as opposed to those which genuinely need help?

Mr. Varley

Monitoring is taking place on those schemes, but I am not saying that it is precise. It cannot be as precise as the monitoring of the accelerated projects scheme. Such projects have to be cleared by the Industrial Development Advisory Board. It is important that monitoring should take place. If the hon. Gentleman is suggesting that we may not be using the money to best effect, I should be glad to hear from him, but that is not the impression we have within the Department of Industry.

The final choice of the industry schemes for which the £40 million has been allocated by my right hon. Friend will be made in the next few weeks. He told the House that we were looking closely at schemes for electronics and automation. We think that we may well prove to be able to have worthwhile schemes that will be suitable in those sectors. The choice will be made in accordance with the prime objectives of our industrial strategy—in particular, to secure the further strengthening of our industrial base.

So far I have been referring to schemes which in the main have benefited the private sector. Now I should like to say something about the nationalised sector.

In the steel industry we have agreed to fund a counter-cyclical steel stockpile to provide work during the recession and to provide stocks for the upturn. We have also agreed to finance a further scheme to increase the Corporation's ordinary stocks and work in progress during the financial year which has just begun, so that the BSC is well prepared for the higher levels of demand which we expect to develop.

The publicly-owned steel industry has also been during the period of recession one of the most important channels for industrial investment in the economy. In the past two years we have endorsed major BSC projects to a total value of over £500 million. The BSC is now investing at record levels—over £300 million in 1974–75 and over £500 million in 1975–76, and I expect some £600 million in 1976–77.

This programme not only gives the promise of increased production at greater efficiency in the future; it also provides vital work now for United Kingdom private industry—in particular, for the plant manufacturers, who enable BSC to meet over 90 per cent. of its requirements from home sources, and for the construction industry.

I well remember when the right hon. Member for Worcester (Mr. Walker) announced the go-ahead for the steel industry at a plant makers' association luncheon in London. How they cheered him then! I hope that similarly when they hear the figures involved here they will cheer this Government.

Mr. Frank Hooley (Sheffield, Heeley)

While I very much welcome what my right hon. Friend has said about the achievement in this direction, is he aware that there is uneasiness about the hold-up in the Port Talbot scheme? When may we have some information about it?

Mr. Varley

The Port Talbot scheme is closely linked with the Government's decision on Shotton, where there are major social implications. I am not in a position to make a statement about Port Talbot or Shotton today, but I hope that we shall be able to come to conclusions in the next few weeks. I know that there is anxiety not only in Port Talbot but in other areas of the steel industry.

I should like to mention the Post Office, which has exceeded even the tremendous contribution to industrial investment made by the British Steel Corporation. Its massive investment programme is now running at £900 million a year. This is of key importance to its suppliers in private industry. Orders had to be cut substantially last year because of the economic recession but also because of the inflated demand during the locust years of Lord Barber, which led to a large surplus of equipment. Sometimes Opposition Members take great delight in sniping at these two great publicly owned industries, whose morale they did so much to weaken by their meddling in what I think was called the Joint Steering Group, and certainly in their general relationship with public enterprise.

Financial objectives over the past few years have been wildly distorted by what many considered to be an ill-thought-out counter-inflation policy. But the investment programmes of these and other nationalised industries have often been, and are now in some cases, the life blood of much of the private sector of industry. They are a marked example of the growing interdependence between the public and private sectors which emphasises the irrelevance of the antiquated attitudes which pass for an industrial policy on the Opposition Benches. Nothing is so sad as the spectacle of different factions of the Opposition bickering over which of several cobwebbed nostrums shall fill the yawning gap in the Conservatives' industrial policy.

I have in my hand a sad but, some would say, significant document published a few days ago—a copy of The Free Nation. I do not know what significance to attach to this newspaper, but I am told that it is read in great detail in Conservative Party circles. It says that the Opposition do not know whether they can keep the National Enterprise Board. Perhaps there is a view that the National Enterprise Board should be kept, and that the British Steel Corporation should, according to Mr. Marshall, be retained and expanded. We do not know.

In this rarefied world, where there are squabbles about how much true doctrine can be written on the head of a pin, it is difficult to balance allegations against counter-allegations.

Sir John Hall (Wycombe) rose——

Mr. Varley

No doubt another counter-allegation is coming now.

Sir John Hall

I thank the Secretary of State for giving way. He has been quoting from a newspaper of which I have never heard. I wonder whether he would be good enough to tell me the origin of it, because I do not think it is known to any of my colleagues on these Benches.

Mr. Varley

That is rather interesting. I am learning all the time. The hon. Gentleman may not have heard of it, and to be truthful I had not, but the right hon. Lady the Leader of the Opposition and the hon. Member for Henley (Mr. Heseltine) went out of their way to deny at great speed that such a meeting had ever taken place. Probably the hon. Member for Henley will tell us of this when he replies in the debate. Apparently he is indicating that he will not tell us about that or about the NEB or the BSC.

Perhaps he will tell us about Conservative industrial strategy. For example, assuming an incoming Conservative Government, would that Government keep the National Enterprise Board? According to some people the Conservative Party wants to do so but to call it by another name. There are those on the Opposition Benches who rather regret that the Industrial Reorganisation Corporation was abolished. I hear stories of the great battle that took place about it. It may be that they would want to keep the NEB but to change its name in some way. But what about the steel industry? Is that to be denationalised or not? It is very difficult for us to take the Opposition seriously about this. Only the other day there was an eccentric little Ten-Minute Rule Bill from the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) to bring private enterprise back into the coal mines, and it received the support of the right hon. Lady the Leader of the Opposition herself. It is sad that while the real world rolls on remorselessly, those on the opposite Benches bicker over who should navigate their leaking canoe. I get reports that even in Standing Committee D upstairs, which I have not had the pleasure of attending, the Opposition engage in a forlorn and futile filibuster against the Aircraft and Shipbuilding Industries Bill. Those industries watch with baffled contempt while they prepare for the challenge of a new era under public ownership.

The attitude of the Opposition on these industrial matters is all negative. They say "No" all the time. They say "No" to the public ownership of the shipbuilding industry even though nationalisation is the last hope for the survival of that industry as a major manufacturing sector in Britain. In shipbuilding we face a situation in which cancellations exceeded new orders by some 3 million gross tons last year across the world as a whole, and in Britain orders have dropped from about 1.8 million gross tons a year to 70,000 gross tons since the beginning of 1975.

Even making allowances for price cutting, which is resorted to by major countries—which I do not judge to be commercially practicable and which goes beyond what many people judge to be practicable—the British industry has been uncompetitive. But it is even more urgent to inject a new dynamism into the shipbuilding industry if it is to survive in the very difficult years ahead. The Opposition do the industry no service by resorting to tactics which serve only to delay progress, heighten uncertainty and damage the shipbuilding industry.

Mr. Tom King (Bridgwater)

What comfort does the hon. Gentleman take for the future of a nationalised British shipbuilding industry when he sees it reported this week that an independent private yard, Austin and Pickersgill, was successful in world competition and has taken orders for five ships in the very same week in which a nationalised shipyard, Govan, sought the Government's permission to quote below cost and even then failed to secure an order?

Mr. Varley

I can tell the hon. Gentleman that leading people within the shipbuilding industry have expressed to me and to my hon. Friend who leads for the Government in the Standing Committee their disgust at the filibustering that has taken place in that Committee and the uncertainty that it is bringing about. I only hope that hon. Gentlemen opposite will reflect on what they are doing in this industry. The shipbuilding industry employs 70,000 workers directly and probably as many again indirectly, and uncertainty is being created because of the hon. Member for Henley and the way in which he and his hon. Friends are preventing that legislation from reaching the statute book.

Of course the Opposition have played a leading rôle in all these things. We know that they can single out Austin and Pickersgill and compare that firm with certain other parts of our shipbuilding industry, but if we are to preserve that industry, we want that legislation as quickly as possible. I hope that they will take that into account.

Mr. Heseltine rose——

Mr. Varley

I have given way a great deal and I still have a lot to say.

Mr. Tom King

I do not wish to be selective on the point. Would the hon. Gentleman like to compare some other institution, not Austin and Pickersgill, with the Govan shipyard in a way which might show the situation more favourably?

Mr. Varley

Hon. Gentlemen opposite are saying that we should let a nationalised shipbuilding yard—which the Conservative Party nationalised—go under. The right hon. Gentleman for Knutsford (Mr. Davies) was instrumental in that. Now, after investment put in by a Conservative Government, they are saying that we should let it go under.

Mr. Heseltine rose——

Mr. Varley

I cannot give way continually.

Mr. Heseltine

I am most grateful to the Secretary of State for giving way. We have never said anything of the kind he suggested.

Mr. Varley

The hon. Member for Bridgwater (Mr. King) has just suggested that we should not have allowed the Govan yard to tender for ships. The consequence of not allowing Government backing to Govan is to say that hon. Gentlemen opposite want that shipyard, with all its jobs, to go under. I hope that those in Govan and on Clydeside will take account of what is said. It is a perfect example of the attitude of the Opposition.

I have an announcement to make on the shipbuilding industry. We have been playing a part in securing an international agreement which will put an end to the drastic price cutting and the unhealthy and unfair competition which has developed over the past 18 months and I am glad to say that some significant progress was made last week in the Organisation for Economic Co-operation and Development. At home we have been examining carefully, in consultation with the Organising Committee, ways of helping the industry in the difficult years ahead. I am therefore proposing to introduce a scheme under which a Government guarantee may be given that stage payments will be refunded to an owner ordering a vessel at a British yard which is to be nationalised if that yard should fail before nationalisation. After nationalisation that contract would be honoured by British Shipbuilders. I am also proposing to extend the cost escalation insurance scheme, which is at present available in respect of ships built for export, to those ordered by British ship-owners.

The Tories say "No" to so many essential policies. They say "No" to public ownership of the aircraft industry even though they themselves recognised State ownership as the only sensible solution for aero-engines. Even upstairs in Committee they insist on the importance of public funding for new projects.

But they are wrong on these as on so many issues. For example, in the motor car industry, British Leyland, despite the regrettable industrial disputes, is this country's biggest single exporter and is making a tremendous contribution to the balance of payments. It is one of the components of our new approach to the problems of the motor car industry, embodied in the tripartite group of all four major manufacturers and both major unions in the industry, which meets under my chairmanship. This group is further evidence of our approach, based on cooperation and understanding, in which all sections of industry have shown themselves ready to play a part. In a smaller way, Alfred Herbert is another example—a machine tool company which we rescued, which is now wholly-owned by the NEB and which is now in a position to play an important part in our economic recovery.

The NEB is now increasing the scale of its activity and is being recognised for the unique rôle it can play in industrial expansion and innovation.

In addition to British Leyland and Alfred Herbert, we have transferred to the NEB the Government's shareholdings in five other major companies—Rolls-Royce (1971), Brown Boveri Kent, Ferranti, Cambridge Instruments and Dun-ford and Elliott. These seven companies together represent £3,000 million in turnover and employ a quarter of a million workers, making the NEB a major industrial giant.

The NEB is also making a major and novel contribution to major export projects by helping to form and participating in consortia to bid against intense international competition for major civil engineering works in Dubai and Venezuela.

I greatly welcome these initiatives. Industrialists have said that they believe that this is a rôle in which they can participate in co-operation with the National Enterprise Board. If these and future contracts can be won for Britain, they will bring large export orders and thus foreign exchange to assist our balance of payments and to give jobs to our workers.

Major companies have been quick to recognise the advantages of co-operation with the NEB. They want the help of NEB, and they are getting it. The Labour Party document "Labour and Industry: the Next Steps" talked of expanding the frontiers. The NEB is bringing in the public sector to expand the frontiers of British industry as a whole.

The NEB has also launched its own imaginative scheme to provide finance on commercial terms to a number of companies for building stocks of machine tools. It is the intention of the machine tool industry to co-operate with the NEB. This is in addition to the machine tool industry scheme which I have already mentioned.

It is an imaginative and far-sighted contribution towards ensuring that when the economy re-expands, British industry has the capacity to take advantage of increasing world trade. It is a direct and significant way of doing something positive to deal with the capacity constraints that have bedevilled export efforts in the past.

These activities are directly meeting the need stated in "Labour and Industry" to steer investment towards those sectors of the economy which most need it and especially those sectors which contribute most to export and import substitution. Here again we have shown that industry is happy to co-operate with an instrument of Socialist policy that proves its relevance in action.

A further element in this collaborative approach to industrial policy is the concept of planning agreements. It is at the level of the firm that many of the crucial decisions are made. It is necessary to have discussions with the NEDC and also at a sectoral level, but real improvements will take place at firm level.

Work on industrial strategy at national level and at sectoral level needs to be complemented by action at the level of the firm. This is the purpose of planning agreements.

I want to reaffirm the Government's commitment to the concept of planning agreements and my personal conviction that successful development of this programme can contribute to deeper and more understanding and more fruitful relationship between major industrial companies and the Government, to the benefit of both.

One feature to which I attach particular importance is the involvement of a company's workers through their unions. It is the firm intention that workers' representatives should have the opportunity to discuss the kind of matters likely to be covered by planning agreements.

The precise arrangements for such discussion with the workers will vary from company to company and can properly take account of whatever is the already established practice of the company. This is another illustration of our collaborative approach.

Mr. J. W. Rooker (Birmingham, Perry Barr)

When will the Government reaffirm their faith in planning agreements in the form of a planning agreement?

Mr. Varley

My hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) was as enthusiastic as I was over the Industry Act 1975.

Mr. Rooker

I still am.

Mr. Varley

Planning agreements are voluntary, as was stated by my right hon. Friend the present Secretary of State for Energy and other Ministers at that time. We have had discussions with companies and sectors. I am not in a position to announce planning agreements now, but discussions are at an advanced stage.

I have seen statements to the effect that this year there should be 100 planning agreements. I can tell my hon. Friend and the Opposition that there will not be 100 planning agreements this year. That target was always too ambitious, as is now widely recognised. However, there will be planning agreements, and discussions are taking place. I ask my hon. Friend to be patient.

I now pass from the contribution of some of our largest industrial organisations to the smaller firms, which play such an important part in our economic life. I am sure that they will welcome the important measures which my right hon. Friend the Chancellor of the Exchequer announced in connection with capital transfer tax and corporation tax, and his confirmation that we are anxious to help small firms where we can sensibly do so. My hon. Friend the Minister of State, Department of Industry and also my noble Friend in another place, the Under-Secretary of State for Industry, will shortly announce certain measures that we have decided to take to assist small firms.

Another important aspect of our policy is the Government's continuance of the high priority which we are giving to regional development policy and investment policy within the weaker economic regions.

We have had representations from the Greater London Council, the West Midlands County Council and other bodies representing local authorities and industry about the operation of the industrial development certificate control outside the assisted areas. We have therefore decided that projects up to 12,500 square feet in the South-East Planning Region and 15,000 square feet in the rest of the non-assisted areas shall be freed from the need to get an industrial development certificate. I am sure that that step will be welcomed in the South East and in the West Midlands. I have today signed an Order to give effect to these new limits, which will take effect on 1st May 1976.

My right hon. Friend's Budget in an unprecedented and imaginative way aims at making possible a new advance based upon consent. The work now launched in NEDC is a major drive to regenerate British industry and is the framework against which all our policies operate. It underlies all our industrial and economic policies.

A great responsibility lies with the chairmen and members of the sectoral groups which are examining in detail what needs to be done to improve performance in the 32 manufacturing industries selected. These groups are now nearly mid-way through the first round of deliberation and will be producing their first recommendations for action in June.

I hope that these recommendations will be as specific as possible. They should be directed to both short-term and longer-term needs. The shorter-term recommendations will concern steps that can be taken now, over and above those already in hand by industry and the Government, to avoid shortages—usually of labour and capacity—in the upturn. The longer-term recommendations will contribute to the development of medium-term strategies for the industries concerned.

These recommendations should contain proposals for action by management and unions as well as by Government. This is a key feature of our tripartite approach. We shall be looking to our partners to implement agreed recommendations as rapidly as possible. The Government for their part will give urgent consideration to those which are its responsibility.

In the next and future rounds of discussions we shall be able to take account directly of any relevant recommendations in the Budget thinking. As the medium-term sectoral strategies are developed, we shall aim to gear a whole range of Government policies to their success. This includes manpower as well as industrial policies, and major instruments such as the National Enterprise Board and planning agreements.

My right hon. Friend the Chancellor of the Exchequer has recognised that in a democracy such as ours decisions can no longer be imposed but must be shared. That point came out in yesterday's debate, particularly in the remarks of the right hon. Member for Worcester and the right hon. Gentleman the Leader of the Liberal Party. We must try to win co-operation for our range of policies. That is the only way in which we can succeed.

For my part, I believe that the key to industrial regeneration is a genuine industrial democracy in which the work force participates in decision making. The day has gone when workers were ready to accept imposed decisions taken regardless of their own circumstances, needs and aspirations. It must now be seen that any meaningful industrial strategy must embrace a strong and realistic system of industrial democracy in whose creation the workers themselves play a full part.

The Government are committed to helping those who work in industry to achieve a greater measure of participation in the decisions which affect their working lives. We intend to consider how such participation might best be increased in small firms as part of our general strategy for industrial democracy, on which the Report of the Bullock Committee will have an important bearing.

With this as one of the key elements in our industrial strategy we are making a new start, which can produce a healthier climate in British industry. Given good will, it can create the conditions in which we can achieve the economic objectives which underlie my right hon. Friend's Budget. That is the aim of our policies, and I believe that we shall succeed. We have made a good start.

4.12 p.m.

Mr. Michael Heseltine (Henley)

I am sure that the whole House is grateful that the Secretary of State for Industry and the Government are making a new start. The reason why the Government are always making new starts is that they have always made a mess of those they have just finished.

With the Chancellor's overall strategy to restore strength to our industry, no one in this House will quarrel. At the heart of the Chancellor's Budget Statement is a commitment to secure industrial recovery by achieving a major transfer of resources to investment and exports. There are two key questions which I wish to ask about the Chancellor's proposed economic transformation. First, does the prospect of such a dramatic industrial recovery exist? Secondly, do the measures contained in the Budget improve that prospect?

Let me start with the prospect of achieving growth of the kind that the Chancellor needs to underpin his strategy. I wonder whether perhaps the ministerial representatives can listen to what I have to say, because it relates to their Department and is perhaps something they can take on board. It is important to be absolutely clear about the scale of the Chancellor's ambitions. He has set a target of reducing unemployment to 700,000—3 per cent.—by 1979. He will need to secure an increase in manufacturing output of 8.5 per cent. a year. This contrasts with the previous best performance of 6 per cent. a year between 1952 and 1955. Investment will have to rise at about 10.5 per cent. a year over the same three years, higher than for any three consecutive years in the last 20 years. Exports, it has been estimated, will have to rise by well over 10 per cent. a year—again, an unprecedented rate.

Not surprisingly, therefore, the Chancellor's targets, which were first revealed in the Public Expenditure White Paper, have met with what can best be described as universal scepticism. The Select Committee spoke for the nation when it referred to "an economic miracle". My right hon. and learned Friend the member for Surrey, East (Sir G. Howe) powerfully expounded the nature of the macro-economic risks in his speech yesterday.

Against the background of the widespread scepticism about the objectives revealed in the White Paper, I therefore turn to my second question. Do the specific measures in the Budget increase the previously slim prospect of success? The Secretary of State for Industry starts from the assumption that the private sector will recover sufficiently in the new climate to achieve a British economic renaissance. He then argues that in a variety of ways his Department is assisting in that recovery. To argue this case, it is necessary for the right hon. Gentleman to show that the Budget will unleash what the Chancellor suggested would be an unprecedented upsurge of national economic endeavour—and not only unleash it, but sustain it at an unprecedented level over an unprecedented period. Additionally, a prosperous industry must have both the incentive and the resources. I very much doubt whether industry has such resources. It certainly has not the incentive.

Historically, investment has followed rising profitability. If one is looking for the cause of the long-term failure to invest in industry, one must look to the long-term lack of profit. Unless that is put right, the failures will continue. The latest Bank of England Bulletin hammered the message home when it said: While the worst of the recession may be over, profits will need to rise substantially if there is to be a sustained revival of investment. The Chequers statement recognised this fact.

In every recent upturn in investment, profits have led the way up—and they have led the way down. Profit increases in 1963, 1967 and 1970 were followed by investment increases in 1964, 1968 and 1971. The reverse is exactly true. At the moment, nearly 80 per cent. of manufacturing firms, according to the CBI, are working below capacity. If the increase in profitability is to be sufficient to persuade companies not only to utilise spare capacity but also to undertake substantial new investment, it will obviously have to be very considerable indeed.

What, then, have the Government done? Amazingly, with respect to the single biggest constraint on long-term profitability—the Price Code—all we have is a vague assurance about talks later. Industry will have to wait until after those talks have been held and the announcement and conclusions are known. Investment will certainly not grow against unspecified assurances, and the longer industry waits the worse the problems of capacity will be when the upturn comes.

Similarly, the Chancellor has done virtually nothing to ease the burden of company taxation. As we knew before the Budget, stock relief is to remain. Further, there is to be a more radical revision of company taxation in two years' time. But until precision has enabled finance directors to calculate exactly where they stand over the Sandilands proposals and deferred liabilities, the doubts are bound to remain. The Chancellor should therefore have acted now rather than simply talked about acting later.

It is true that at present many companies are not making sufficient profits to pay tax. However, companies need a precise guarantee that if they take the risks to increase their profitability the fruits of their success will not be confiscated in the future by a hungry Chancellor. The Chancellor said that small businesses have been helped by the change in the qualifying limit for the lower rate of corporation tax from £25,000 to £30,000, but this change does not even catch the rate of inflation since CTT was introduced.

It is not an increase of £25,000 to £35,000 that the Chancellor should have announced. Simply to stand still, the figure should have been nearly £40,000 to make up for the 47 per cent. inflation since the Chancellor took office. Nor will the changes in capital transfer tax provide significant safeguards for the survival of small family firms. Let me explain to the right hon. Gentleman the reality under his chancellorship, even allowing for his new relief. Three years ago a man creating a medium-size business could transfer it to his son free of tax. Today he can transfer it only with a massive debt which cannot be paid off unless the donor has independent means. The incentive now is to keep businesses just at that level where one can live comfortably but take no step to expand them to the point where the more successful they are, the bigger the debt.

If we consider a successful medium-size company making £50,000 pre-tax a year, it could be worth, say, £250,000. To transfer that, somebody has to find £78,000. If the size of the company were doubled, one would have to find £360,000. Therefore, there will be no incentive whatever to increase the size of the family business if it is intended to keep it in the family.

Let us consider the alternatives that the Chancellor has made more attractive. If the business was run down so that its profits were only £10,000, the owners of the business might be able to keep their earned income intact and the business could be transferred with a debt of only £2,000. It is true that they might lose dividends, but with tax at 98p in the pound I dare say that that is a loss they could survive. Therefore, in the way that I have described, if small businesses are rundown rather than increased in value, they may remain within the families.

Of course, no one wants to run down small businesses, but that is what the Chancellor has given that sector of the economy, one of the most effective sectors, every incentive to do. The consequence, of course, is that the national economy suffers, jobs are not created, exports do not grow and investment is held back. Surely, even to a Socialist, that is squeezing the wrong pips in the wrong place.

Mr. Tom Litterick (Birmingham, Selly Oak)

Would the hon. Member explain how he justifies pinning his faith on the principle of inheritance as a means of maintaining the quality of British management, since our national history has proved that the operation of that principle in the exercise of political power was a dismal failure?

Mr. Heseltine

I can explain that quite simply. The small business sector shows a return on assets of 18 per cent. while the larger business sector shows a return of 14 per cent. I therefore assume that we should encourage small businesses.

The Chancellor has, of course, repented over his 25 per cent. VAT, and he claimed great virtue for the fact. But the original Budget changes that he so gleefully introduced in his "bash-the-rich" mood last year were not arid statistical exercises. It was not the rich who suffered from the 25 per cent. VAT. Decca shut its audio factory in the Midlands, losing hundreds of jobs, Hoover laid off 5,000 men in Merthyr at the end of February, Servis, Hotpoint and Tube Investments went over to working only a part of the week, Colston's made a third of its work force redundant, and the 1,400 men at the Thorn television tube factory at Skelmersdale will not forget what a Labour Chancellor did to them. One welcomes a repentant sinner, but how much better it would have been if he had not sinned in the first place.

As regards incentives to management, I asked MSL this morning to provide me with the post-Budget comparability of a British manager, married with two children, on the assumption that the 3 per cent. Budget offer is carried out in full. The net take-home pay for a £5,000 a year man in this country would be £3,820. A man doing a similar job but earning European salaries in France and Germany respectively would take home £9,300 and £9,200. Our £10,000-a-year man would get £6,625. In France he would take home £17,300, and in Germany £13,200. On £15,000 our man would be left with £8,395. In France, a man doing a similar job would keep £24,500 and in Germany he would keep £19,000.

How can we seriously expect to get drive and determination into our industrial community when our competitors in Europe, America and the Middle East are recruiting the brightest of British talent at wages which our companies are not allowed to pay and which are taxed dramatically lower than the rates in this country?

Within the domestic economy, we are destroying differentials at an alarming rate. The junior and senior management whose gross pay is of the ratio of 1:4 are down to 1:3 after tax. If those figures are extrapolated, that ratio could be down to 1: 2½ by 1980. No United Kingdom-based company will retain people here if their lifetime's work is measured in such derisory terms. The same phenomenon is now reaching down deep into the skilled shop-floor level.

All of this is to maintain a level of public sector activity which, year after year, gives a bigger disincentive to a widening proportion of our people. Some people call it social justice, but it is a curious sense of justice which pulls down the strong to the level of the weak, when the ambition of the weak is to be elevated to the levels of the strong.

The Chancellor has offered industry virtually no new incentive—although I suppose that industry is grateful for his assurance that at least nothing worse is in store in the immediate future. The Secretary of State for Industry, however, made great play with the accelerated investment scheme. He appears to believe that that is an adequate substitute for general measures to improve profitability throughout industry.

Let us first get the accelerated investment scheme into perspective. So far, a facility of £285 million has been created. The Secretary of State was right to remind us that the Chancellor has added £40 million to that target. Therefore, £325 million may be spent at some stage if the right schemes are submitted and they are then approved, but how do those figures compare with the scale of our problems? There are thousands upon thousands of British manufacturing companies. How many are actually affected by the schemes described by the Secretary of State? According to his Minister of State on Monday, assistance under the accelerated investment scheme has been offered to 19 companies. That is a drop in the ocean when one considers the malaise in industrial investment over decades.

Of course, the Secretary of State is saying that his Department is sorting out the bottlenecks and anticipating them with its counter-cyclical programme. That is one of the most naïve of views. He is simply skimming the surface. The elimination of specific bottlenecks, out of phase with the general expansion of manufacturing, will merely promote the second-tier bottlenecks to the top of the pile. It is no use thinking that one can win the Boat Race by force-feeding a member of the crew if the whole boat is shackled to the shore.

That is the defect in the Secretary of State's highly selective approach. By placing his faith in this concept of hand-picked individual companies or specific industries where he believes that the problems exist, he ignores all the interrelated companies or industries which still stagnate in the grand malaise. To be effective, progress must be upon a broad front, each interrelated part advancing together. To achieve this, there is no substitute for a massive increase in profits which alone will attract the investment resources which are needed.

I do not trust the Secretary of State to find those bottlenecks in practice. I do not blame him for that, because that is not his skill. It is not the skill of the Government or of civil servants. I do blame him, however, for believing that he can find the bottlenecks, because in concentrating on a handful of specific solutions he is diverting attention from the real problem. He must set free the system and allow it to earn the profits which, in motivation and effectiveness, will dwarf the tinkering that he has described.

The Secretary of State should learn the lessons of the period from 1952 to 1955, when manufacturing output came closest to the Chancellor's target of 8.5 per cent. per annum. Those were the years when the then Conservative Government stripped away the vestiges of Socialist control and planning which had so mesmerised the Labour Government up to 1951. Let the right hon. Gentleman start by doing exactly that all over again. Price control and dividend restraint—the selective prod here, the bureaucratic push there—are the bottlenecks which are damaging British manufacturing industry. If the right hon. Gentleman is looking for the single greatest bottleneck of all, it is sitting alongside him on the Treasury Bench—"Chancellor Bottleneck" himself.

If the climate of confidence and profit is established, the selective assistance schemes may play some rôle, but they can never be a substitute for the climate.

Just so that the Secretary of State does not get too carried away with the accelerated investment scheme, whereby he pays interest charges of up to 11½ per cent. on investments made by our companies, let us remember that the fact that British industry is otherwise expected to pay 11½ per cent. compared with lower rates abroad is a function of our domestic economy. It is also true that the benefit of that scheme is largely eliminated vis-à-vis our overseas competitors by those higher interest charges and by the fact that inflation on the cost of investment itself is rising so much more rapidly here than in other European countries. Therefore the Government, with all the selective schemes that the Secretary of State has talked about, are only defraying for some companies part of the inflationary costs that the Government themselves have created.

It is a further interesting reflection on the Government's priorities that the total of about £300 million that they are now prepared to spend on the whole of British manufacturing industry is approximately the same as they are spending on trying to nationalise the aircraft and shipbuilding industries. How much better for all of us it would have been if, instead of engaging in this selective tinkering, the Government had taken the opportunity provided by Budget Day to end two years of controls and the uncertainty that they have generated by really giving British industry the opportunity for which it yearns—to expand in a climate of confidence and profit, without which such expansion will not be forthcoming.

The Secretary of State has made much of an alleged new priority in Government spending plans. I have already dealt with the investment schemes. Of the rest of the public funds allocated to industrial spending, by far the greatest part goes to finance nationalisation and the National Enteprise Board.

The House will not have lost sight of the biggest National Enterprise Board investment of them all, British Leyland. In the public expenditure review figures the cash is shown as "Assistance to industry". In the accounts of British Leyland it gives above budget losses, cash flow deficiencies, dwindling productivity and halted investment. That is national enterprise in practice.

The Secretary of State has the effrontery to suggest that I should help him to add two more industries to the already over-large section of the British industrial economy that is nationalised—two more industries to add to the £1,000 million worth of losses in the public sector of industry last year, two more industries from which he is going to eliminate some of the best management in Britain in favour of a retired pensioner from the Government Back Benches. I care too much for the economy of this country to be prepared to co-operate in the way that the right hon. Gentleman naively suggests.

Meanwhile, although the Government have made only a very small proportion of the increasing funds at their disposal available to industry, the scale of their overall expenditure proposals will make it very difficult for companies to obtain funds elsewhere. The corporate sector is expected to cope with unprecedented rates of output, investment and export demand. What has been missing from Government's analysis in the debate so far is the financial capability of the corporate sector to do this.

We start from a background where, in real terms, British companies may have lost money in each of the last seven years. In the 12 years from 1964 to 1975, Hoare and Govett, a leading firm of stockbrokers, calculated that, adjusted for Sandilands, the profit and loss accounts of our quoted industrial and commercial companies showed an aggregate net loss of nearly £4 billion after charging all outgoings.

The National Institute has pointed out that liquidity will increase this year and next, and so indeed it will, but a few weeks ago the Investors Chronicle indicated that the bulk of that increase was located in British companies overseas. The recent movement in sterling will not have encouraged repatriation to this country any more than will the low domestic profit potential. This is not exactly an encouraging background against which to approach the rather chilling target that the Chancellor has set for us.

What is the prospect of domestic corporate economic liquidity proving a major constraint? The demands on it are obvious. First, an upturn in economic activity will mean more working capital. Second, this will be worsened as the devaluation of the pound pushes up the cost of raw materials. Then, the inflationary pressures this year will necessitate yet more working capital. Third, cash is needed if investment is to rise to produce the additional capacity. Fourth, and perhaps most serious of all, there is the cost of replacing the existing capital equipment in British industry, not at its historic cost but at today's and tomorrow's cost.

I have seen it suggested that that factor alone over the years ahead could cost companies up to £20 billion, which will have to be raised to the extent that it cannot be generated from cash flow. This is on the assumption that inflation is at a nil rate for the next decade. Yet the whole of the Government's strategy is based on the capability of the corporate system to generate or borrow enough to cope with all these factors.

Has the Secretary of State for Industry or the Treasury made any attempt to anticipate the scale of resources needed in total to cope with all these demands, every one of which is indispensable to the Government's strategy? There is not a shred of evidence from any of the speeches in this Budget debate that they have even recognised that the problem exists.

There are only two sources of revenue from which the corporate sector can derive the revenue that is needed for these purposes—that is, from profits or from borrowing. By their Price Code limitations on profits, the Government have precluded the former on anything like the scale that is needed. With regard to borrowings, they run straight into the cost of borrowing in competition with the public sector borrowing requirement, which, at a time of rising demand for funds and declining sterling, is bound to be more expensive here than overseas. That in itself will be a major deterrent. Borrowing in circumstances of profit restraint is particularly hazardous. The Chancellor is considering arrangements to refinance the banks if they lend. That is not the question. The question is, will the companies borrow in these constrained circumstances? That question highlights the continuing theme in much of the Government's strategies. It is to concentrate on the provision of funds.

The Government's speeches consist of endless references to specific industry support grants to the National Enterprise Board and to Finance for Industry. Now we have the refinancing of bank lending. The Government are starting at the wrong end.

The TUC Economic Review got it right, although for the wrong reasons. It showed that money lent to manufacturing industry had declined between May and November 1975 but that it had increased to services, agriculture, mining and construction. In other words, it was not that there was no cash. The cash was there, but it had gone in directions other than that of which the TUC approved. This it described as a "strike of capital". It was far from that. Capital has behaved like any well-ordered trade unionist. It had gone off in search of the highest rewards and found them in those other, more profitable, sectors. It is not, therefore, a shortage of money that is the problem. It is, first, that few people in Britain want to borrow to invest in manufacturing industry. We shall put that right only when we recognise that one has to earn at least 20 per cent. before tax and interest to justify such borrowings. The present climate and the Price Code have prevented that from happening. Secondly, companies will borrow only when their balance sheets are strong enough to provide a background against which it is safe for them to borrow.

I want now to comment on another aspect of the Budget strategy in the wider context of the Government's overall industrial strategy. With many of the phrases, particularly those from Chequers, all of us agree. Let us for a moment put the party divisions on one side. Let us accept that for 30, maybe 70, years there has been a decline in our manufacturing strength. Let us accept that, with the processes of modern industrialisation and the capital costs of keeping abreast of international standards, every year we waste makes it increasingly unlikely that we can ever close the gap which we have allowed to open up. The Chancellor is seeking a national effort of will. The Prime Minister has made it his first appeal. That will involve at every level the commitment of the nation to change, with all its inconveniences, its anxieties and its social tensions. That is what the Chancellor talks about when he talks of a rapid improvement in industrial performance at every level. As a manufacturing community, we all—manager, director, worker and politician—have to behave differently from the way we have behaved in the past. There can be no disagreement about this.

How does all this square with the policies of the Government? Whenever words are replaced by decisions, they pursue policies designed to slow or prevent change and not to encourage it. In housing, where change means mobility, they have frozen the present situation more rigidly than ever before. In employment, where change means moving from old industries to new, they have made it too expensive to employ people and too expensive to lay them off. In retraining—this is where the emphasis has to be—last year only 46,000 people were retrained at the skillcentres. Compare this with the 60,000 who are now artificially employed in jobs, with taxpayers' support, or with the 1.2 million unemployed. We can then see where the Government's real priorities lie. Only yesterday, the Secretary of State for Social Services was announcing policies that narrowed the benefits of doing a day's work compared with doing nothing.

In management, where the need is to catch up with the rewards on offer throughout the world, the Chancellor has handed to the TUC the right to fix its members' salaries. Of course he should talk to the TUC, provided that he also talks to the representatives of the rest of the community and does so in a way which upholds the proper place of Parliament. But I can imagine no act more calculated to send our brightest executives into the nearest airline office than to be told that their earnings in future depend not on energy, responsibility, risk or skill but on what happens to suit the wishes of the TUC.

It is madness, not because the TUC has been asked but because it has nothing to lose by taking the toughest possible line on management salaries. The TUC has its electoral problems, just like the rest of us. It has to be seen to be demanding a tough deal. That is why it is proper that the Government and Parliament should not appear to be surrendering sovereignty over specific groups which comprise the majority of the people to vested interests which comprise the minority.

One of the paradoxes of our time is that, when the nation seeks a distinctive break with the disappointments of the past and a clear lead, this Government are entrusting strategy to a group of people who, by their dedication to Socialism rather than to the living standards of their members, are amongst the least willing element in the community to foster such change in a free enterprise society.

Therefore, in all these areas where the logic of everything that the Government say is for change, in practice they prevent it. With the ever-growing use of controls and the debilitation of the private sector, the Government are fossilising the nation. It is not that we have a hang-over from the past but that we are marching resolutely back into it.

This Budget is in reality a refusal to face what the nation knows. We are living on borrowed time and borrowed money. No man know better than the Chancellor that he has perpetuated the illusion in his own particular style.

On the day after the Budget Statement, I saw a newspaper headline "Double or Quits Chancellor". If we were dealing with today's facts, not tomorrow's promises, that headline would read "Double and Quit Chancellor"—double the rate of inflation, double the unemployment, double the borrowing requirement, double the bankruptcies, and now, for the sake of Britain, let him quit.

4.43 p.m.

Mr. Geoffrey Robinson (Coventry, North-West)

In making my maiden speech, it is appropriate, not just out of respect for the traditions of the House but in recognition of the real achievements of my predecessor, that I should start with a tribute to Maurice Edelman.

Maurice Edelman was a man of distinction in many avenues of life. He was a man of letters—an author whose novels and other works reflected that same graceful urbanity that characterised his elegance of dress and manner. He came to the House in 1945 and, though never holding office, he featured widely and prominently in many Back-Bench activities. He worked assiduously, through the Anglo-French Society, of which he became President, to promote that elusive but essential goal of better relations with France.

His was an egregious career distinguished by intellectual and cultural merit as well as by social and political concern. Throughout that career he was, as the phrase has it, "a good constituency MP for Coventry, North-West", whose interests he served for 30 years with attentive care and which it is now my privilege to represent.

Coventry is, above all, an industrial city. We have there many of the most famous household names in British industry. We have Dunlop, GEC, Courtaulds and British Leyland, too, of which we are proud. We have Jaguar and Triumph, and we are proud of them. We also have Chrysler, and we shall do our best to see that it succeeds. We realise, perhaps more than anybody else, that the health of our city is directly related to the health of its manufacturing industries.

Coventry, historically and probably internationally, is known as a centre of unparalleled engineering skills. It is regarded as a powerhouse behind Britain's industrial effort. However, it is sad to tell the House today that that power is running rather low and that those skills are growing rather rusty. However, we believe that the measures that the Government have put in hand for backing British Leyland, Alfred Herbert's and Chrysler—industries essential to the health of Coventry and of Britain—will succeed.

With our unemployment level at 6.8 per cent., we in Coventry fear that, just as the recessions which we are experiencing have become increasingly frequent and severe, so the creeping malaise of industrial uncompetitiveness is becoming increasingly more pervasive and malignant. It is now striking at the very heart of our traditional engineering industries in the Midlands. I should like to point out to my right hon. and hon. Friends in the Government who have already dealt with and those who may in future have to deal with industrial policy that there seems to be some fashionable idea doing the rounds that the traditional engineering industries are no longer growth sectors; and that we can close them down or safely leave them to their own slow decline in the benign hope that they will be replaced by some trendy new growth technologies. Nothing could be further from reality, as has been shown by the successive quixotic ventures of former Governments, particularly Conservative Governments, into the outer reaches of technology. These have proved extremely painful and expensive to this country.

Our traditional engineering sectors may not have much glamour, Mr. Deputy Speaker, but we are proud of our machine shops and assembly halls. We think it a worthy occupation to work in the oil and the swarf. We need to restore to these industries and to our manufacturing sector as a whole not only greater efficiency but a more prominent and esteemed position in our scale of cultural and social values. And I would wish, with others, to be a champion of our manufacturing industries.

In the light of this situation, one of the most encouraging aspects of the Budget was the unequivocal priority which my right hon. Friend the Chancellor of the Exchequer gave to our manufacturing industries. If previous Chancellors of all Governments had not just said that but had realised it in practice, we might not today face the grave crisis which confronts us.

But it will not be enough to will the end; we shall also have to will the means with all that that may involve in terms of domestic unpopularity when it comes to according to manufacturing industry the level of real resources which it requires and in terms of international unpopularity when it comes to putting Britain's interests first.

My right hon. Friend the Chancellor of the Exchequer is regularly bombarded with advice on what needs to be done or does not need to be done. He will be glad to know that I do not intend to add to his bellyful this week. I hope, too, that he will be pleased to know that what I wish to talk about does not require anything from the Exchequer.

For, with the indulgence of the House, I should like to say a few words about the subject of industrial democracy, a matter of which I have some personal and very practical experience and which, therefore, might be a suitable topic for this occasion.

From time to time various cure-alls are invoked for our industrial problems. Industrial democracy is not that. Nor is it some ready-made commodity which can be bought off the shelf. It is something which has to be worked at over a period and built up by a joint effort of management and unions. It will take some time. But, unless we make a start, we shall not succeed industrially, however good are the diagnostic and prescriptive formulae and equations of our economic forecasters, whether they be the Cambridge School's or any other school's.

Industry is not about that. Industry is about people—people working together inventively and constructively to design, to make and to sell things successfully at home and in world markets. Unfortunately, we have not seen enough of that constructive co-operation in our industries. And it seems to me that as a society we have to re-learn the benefit of working together. As the Government have seen that the nation can sensibly and effectively run only in co-operation with the unions at national level, even if that involves some diminution of the presumed powers of government, so our management must learn that our industries and factories can be successfully run only with the active collaboration of the trade unions, with the collaboration of shop stewards, even if that, too, involves some reduction and sacrifice of jealously guarded management prerogatives. That in essential part is what industrial democracy is about.

My own experience was derived from working directly in industry as Chief Executive of Jaguar Cars and as an adviser to the Meriden Co-operative, which I played a modest part in establishing, and that experience inclines me to make the following remarks of a practical nature.

Firstly, we should accept that all consultative and participative arrangements should be introduced via and on the basis of the existing structure of trade union representation in a place of work where that representation already exists.

Secondly, both sides—unions and management, but especially management, as by the very nature of things so much of the initiative lies in its court—must enter into schemes for industrial democracy not just with good faith, vital thought that is, but with realism.

Thirdly, a particular responsibility lies with management. If we are to succeed there must be the genuine conviction that working people have the right to be consulted about decisions that directly and often vitally affect their daily lives. Management must be prepared to disclose to employees to the maximum extent possible the facts about the business. And it must be prepared to modify plans and to change decisions in the light of consultation.

Fourthly, I turn to the trade unions. Our friends in the unions must be prepared, if an effective system of industrial democracy is to work, to take an increasing measure of responsibility for and a common interest in the success of the enterprise in which they work. That will involve progressively—I emphasis the adverb—an acceptance of responsibility for the achievement of better manning, more productive manning levels and an accepted structure of grading and differentials.

If these four points cannot be presumed we shall not have a good chance of success.

Nothing that I have said should be interpreted in any way as implying that there are not conflicts of interest in industry. Of course there are conflicts. But what we must not overlook—and it has never been overlooked by hon. Members on this side of the House—is that there is also a common interest and a national interest. What we can hope to achieve by a genuine system of industrial democracy is to promote a framework within which me conflicts can be resolved without so much self-destruction and to promote a framework and an atmosphere in which they can be resolved with an enhanced common interest and an enhanced national interest.

I well remember that when we embarked on our programme of consultation and disclosure at Jaguars, which among other things involved discussing all aspects of our five-year plan with the trade union representatives, there was a great deal of anxiety and scepticism on both sides. Perhaps this was especially so among my management colleagues and this was understandable enough.

In fact, we had a good response. The record we were achieving of strike-free production and strike-free pay packets is testimony to the success of the programme, and it underlines the fact that if a scheme of participation and disclosure is entered into it must be entered with sincerity and conviction. If that is done, it can be made to work. Why that chapter at Jaguar came to what we thought was a premature end is a different story.

At Meriden the boot is on the other foot. The former pickets are now the legally constituted board of Synova Motors, which is probably better known both inside and outside the House as the Meriden Motor-cycle Co-operative. As in most post-revolutionary situations, we have had our problems. We have fallen out among ourselves. We have had problems of integrating new recruits with those who did the picketing during the long, hard 18 months it took to bring about the Meriden Co-operative.

We have also had problems—perhaps in some ways they have been the most difficult—in reconciling the idealisms and in some ways the very concept of the co-operative with the exigencies of managerial and organisational competence, without which no industrial activity can flourish. I think I can say that those concerned realise that the job is a lot more difficult now than they thought when the chains were slammed on the gates. But I am also pleased to tell the House that, one year on, the Co-operative is doing progressively better. It was its birthday only a week ago. I hope that we can show a trend of improving performance on the basis of which we look to the Government for continued support and backing of what we regard as a most valuable experiment.

Hon. Members will have noticed that I have spoken much more about changing attitudes, changing motivations and human relationships than about legal or institutional innovations, important as those can be in developing the framework that we require.

I end by making one simple plea. When we are considering new organisations and new laws let us try to avoid the rather pathetic plagiarism of copying what other countries are doing. Let us remember that they have their problems for which they evolved their solutions. The Germans have their Mitbestimmung and their banking system, the French have their planification and participation, the Italians have their IRI and the Japanese have their MITI. Fine. I have no objection and I am sure that those organisations are good for those countries. But let us have the confidence and vision to consider our own problems, which are British problems; problems that exist in our culture and society, and in our industry. They exist on the shop floor, in the design offices and in the boardrooms of our industries. If we spent half the time examining our own problems that we spend considering what takes place in other countries, and if we came up with practical solutions for solving our own problems, I can assure the House that we should surprise ourselves how quickly we could succeed.

4.57 p.m.

Mr. Nigel Forman (Carshalton)

This is the first time that I have had the honour to address the House and to sit in this, the Mother of Parliaments. I must therefore ask for the indulgence that is customarily extended to a maiden speaker—the indulgence that was extended to the hon. Member for Coventry, North-West (Mr. Robinson), whom I dare to congratulate on his maiden speech.

As the new Member for the relatively new seat of Carshalton I am following two predecessors. Part of my constituency was represented by Captain Walter Elliot when he was the Member for the old Carshalton Division. As I am sure many hon. Members will recall, Captain Elliot was an effective and popular constituency Member.

My immediate predecessor was Robert Carr. In following him I am seeking to emulate a distinguished and widely respected man. Both in his capacity as a constituency Member and in the performance of his responsibilities in high office he had a wide and well-deserved reputation as a courteous and effective parliamentarian and as a great human being. He has now embarked on yet another stage of his distinguished career. I am sure that the whole House will miss him and will want to join me in sending him our best wishes for his future in another place.

The constituency that I have the honour to represent is in many ways a microcosm of British society. In the north, there is the huge St. Helier housing estate, one of the largest estates in the country. It was originally laid out by the then London County Council on spacious and agreeable lines. In the east lie the two proud and independent communities of Beddington and Wallington, each with its own history, special interests and sense of identity. The two communities have one thing in common—namely, the desire to be relieved of the damaging uncertainty that is caused by the continuing threat of the M23. For my part, I should like to see a clear ministerial decision taken not to extend the road north of its present terminal point at Hooley.

In the south and west lies Carshalton itself. It is a pleasant residential area with almost a village atmosphere in those parts which are said to date back to Roman times. One of my constituents wrote to tell me that the ancient name of the town is believed to have been Caeshorton, or Caesar's town, on the strength of the belief that the great Roman once pitched camp there.

And while on the subject of things Roman, it has been a fascinating experi- ence to arrive in the House so soon after the Ides of March, at a time when the pro-consuls of the Labour Party have been engaged in successive rounds of their leadership struggle, the latest outcome of which will be known about now. The real tragedy of these events, which can be measured by the 8 per cent. decline in the value of sterling over no more than the last four weeks, has been that, while right hon. and hon. Members opposite have been enjoying the sporting delights of their own brand of Grand National, the country has been deprived of the purposeful and responsible leadership it so badly needs.

Turning to the Budget itself, Mr. Deputy Speaker, I should like to make a few simple points which should be more or less non-controversial. In a Budget in which so much attention has been paid to tax relief, it would have been very welcome if the Chancellor had accepted the long-standing case for tax relief on the cost of rail travel to and from work. Inflation has hit the commuters in my constituency particularly hard and such a form of tax relief would have been greatly welcomed.

The assorted measures to help small businesses go some way in the right direction, but not far enough to rectify the harsh treatment the Government have already meted out to small businesses and the self-employed sector of the economy. The partial return to common sense on the question of the higher rate of VAT will be welcomed by my constituents whose jobs were put at risk by the 25 per cent. rate of VAT. But how much better it would have been if the Government had adopted the Opposition's advice and announced their intention to return to a single 10 per cent. rate.

Among the broader considerations, it is worth emphasising the point already made from both sides of the House—that this is the first conditional Budget in British history. I know of no other country where the Budget is announced in conditional terms, subject to the outcome of negotiations with an outside body. That everyone's take-home pay should be fixed by the Chancellor of the Exchequer is bad enough. To have it fixed by the economic committee of the TUC is really too much.

In holding out the prospect of some tax relief in part exchange for higher nominal wages, the Chancellor runs the risk that the most powerful battalions in the trade union movement will fight for and achieve both, even if it means the rest of the community gets neither. It seems unfair that the people at the bottom of the income scale, whom the Chancellor hopes to keep out of tax altogether, should have the prospect of increased personal and other allowances made conditional upon whatever pay limits the TUC is eventually prepared to accept in the next round of the pay policy. It appears the Government are prepared to see such people—and many others—become the unconsulted and unwilling hostages of the country's most powerful trade union leaders who seldom feel themselves obliged to represent the wider interests of the community as a whole.

The Government appear to be going for a combined pay and tax policy which implies real income rises of between 6 per cent. and 10 per cent., depending on individual circumstances. I doubt the wisdom of such a policy which has to run the gauntlet on one side of purchasing the next round of the pay policy at too inflationary a price and on the other of failing to achieve a workable stage 2 with the unions and being thrown back to the even more inflationary situation known as "free collective bargaining".

This would be an awkward dilemma for any Government, but it is one which this Government have largely brought upon themselves. In any event, there must be serious doubts in all parts of the House about whether the next round of the pay policy will be able to work during a period when market forces and popular expectations will be moving in the opposite direction.

In going for the targets he has set for the economy over the next several years, the Chancellor seems to be looking for nothing short of an economic miracle. If the wishes of the occupant of 11, Downing Street guaranteed their fulfilment in the real world, all would be well. But on the basis of the past, rather bitter experience of all parties, it is difficult to see what realistic possibility there can be of this country sustaining an increase in GDP of more than 5 per cent. a year for the next three years and beyond, no matter how often the Government may confess they have learned the error of their previous ways.

Even if the Government could achieve such heroic targets, I shudder to think what they would almost certainly mean for the balance of payments and hence our ability to go on borrowing from abroad. The House and the nation are being invited to go on yet another of the Government's miraculous mystery tours, the final destination of which is all too likely to be economic ruin.

Speaking on the basis of recent experience at the hustings, I suggest that the sooner the people of this country have the chance to get rid of this Government, the greater will be their chances of saving themselves by their own exertions.

5.7 p.m.

Mr. Arthur Blenkinsop (South Shields)

I consider it an honour to be able to speak immediately after the last two speeches, although I will not pretend I enjoyed them equally.

We had a new interpretation of the old custom of non-controversial maiden speeches from the hon. Member for Carshalton (Mr. Forman). I do not object to that because the convention was rather dull, but the hon. Member's speech could hardly qualify as non-controversial. However, it was a vigorous and able speech, and one which will be welcomed, in that sense, in the House. We all remember with affection his predecessor, Mr. Robert—now Lord—Carr, and I well remember Captain Walter Elliot, to whom the hon. Gentleman referred. There was a time when Walter Elliot and I used to have regular battles on the Front Benches, but I have many reasons to have enjoyed his friendship.

I am particularly delighted to follow the contribution of my hon. Friend the Member for Coventry, North-West (Mr. Robinson). We had expected a great deal from him and were delighted when we knew he was coming here. Our expectations are in the course of being fully fulfilled. He made a most interesting speech, which included a number of important points for us all to consider, especially the emphasis he rightly placed on the importance of traditional industry. I hope he will not mind if I add Tyneside shipbuilding to the traditional industry of motor car construction to which he referred. He rightly stressed how mistaken it is to think that we can afford to write off traditional industries of this magnitude and importance as if they did not have a new role to play in the future.

I was particularly interested in what my hon. Friend said about his experience of industrial democracy and its practical workings. I am sure that we all hope he will play a considerable part in the House, perhaps on the Front Bench as well as on the Back Benches, in developing the policies which he has already done so much to promote. I hope that we shall have many more contributions from him.

My right hon. Friend the Secretary of State made several announcements, the implication of which we shall have to consider carefully. He referred to further relaxation of the industrial development certificate procedures in certain areas. Coming as I do from a development area I shall need to examine these proposals with some care. I accept the need for greater flexibility, but I shall have to study the proposals further before I can judge whether my right hon. Friend has achieved the right balance.

Let no one run away with the idea that the problems of development areas have been solved. They have not. We welcome the action that has helped to strengthen us to withstand the troubles we face. With the help that has been given we are withstanding those troubles more effectively, but let no one imagine that we are remotely through our problems. We cannot afford any weakening of the main basis of the regional aid policy.

My right hon. Friend referred to the damage which had been done by the delay in carrying through the public ownership proposals for the shipbuilding and ship repairing industries. It is vital that this matter should be settled as rapidly as possible. Any further delay will cause confusion and difficulty in the industry and hold up important decisions that must be taken.

I am sure that my right hon. Friend will not delay the approval of essential practical programmes of modernisation and development which have been under consideration on Tyneside for a long time and which need to be carried through if we are to take advantage of the new opportunities which will be opened up by public ownership. I am thinking of the shipbuilding areas on the Tyne, Wear and Tees and also of the ship repairing areas, of which my constituency is one. It has, perhaps, the biggest concentration of ship repair work in the country. There are three major ship repair yards in my constituency already in public ownership and we wish to secure the full benefit of it. There have been unhappy rumours about delay in the carrying through of modernisation schemes in one of those yards. I should like to have an assurance that no unnecessary delay will be permitted.

We are all conscious of the importance of effective industrial investment in this period so that we shall be fully capable of taking advantage of the upswing when it comes in the near future. It would be tragic if we were not able to take advantage of that change simply because we had not been able to carry through major industrial developments.

We are all glad to hear of the proposals for financing shipbuilding. For some time we have been urging successive Ministers to take cognisance of the inflationary pressures and to offer some security in the interim period before shipbuilding comes fully under public ownership. My right hon. Friend said that the insurance scheme will be amended and extended to take account of cost escalation, and that is a measure that will be of great value.

The subject of the availability of pension funds for investment purposes has been raised on several occasions. My own trade union, APEX, submitted proposals to my right hon. Friend the Chancellor of the Exchequer about a year ago, and has now submitted more detailed proposals of changes which could be made in the law to enable superannuation funds more easily to be made available for industrial investment.

My hon. Friend the Member for Coventry, North-West said that we should not always be thinking about what other countries do but should be working out our own solutions. I am sure that he is right, but my hon. Friend would not deny me the right to say that Continental countries allow a much greater use of superannuation funds for industrial investment purposes than we do. Their legal position is much more flexible than ours, and the idea of needing to have fully funded superannuation schemes, as we have them in this country, does not apply, I believe, in any other country in Europe.

Therefore, I think it is important that we should refer to the rather practical recommendations that my own union is making to the Chancellor of the Exchequer. It is suggesting that the Finance Act should make provision to enable companies to have the same access to short-term superannuation contributions as applies in Germany. It is also suggesting that provision should be made for companies in the United Kingdom to retain four months' contributions to superannuation schemes and to pay, to the trustees of the fund, interest on such retained balances, based on the Minimum Lending Rate. Whether those proposals are accepted or not, I believe that the idea is a valuable one. I also strongly support the recommendations the union has made that the Chancellor of the Exchequer should encourage the widest possible discussion in the country about the nature, purpose and effective use of funds accumulated by superannuation schemes.

Sir John Hall

I have been following the hon. Gentleman with great interest. Perhaps he will clarify a point for me. Is he suggesting that the German scheme allows companies to borrow from their own superannuation funds? If that is what happens, does this not tend to put the employees of the companies at some risk?

Mr. Blenkinsop

Not in the circumstances of today. I am suggesting that we might feel that our provisions as of today are far too rigid, and that we ought to discuss the whole question openly, inviting comment and argument about it. We should try to see whether it offers a possible source of important funds for investment in manufacturing industry, where such funds are badly needed. Indeed, manufacturing industry could retain funds which at the moment go into many investment companies—sources which, as we know, have in the past, alas, been used to far too great an extent in speculative purposes, for land and property acquisition, and not for industrial development at all.

Mr. Robert Boscawen (Wells)

Is it not the case that in recent times nearly every major company has had to finance its pension fund out of profits in order to keep its head above water?

Mr. Blenkinsop

I am well aware that many important companies have had to put in a great many funds because of the tragic situation which arose out of the very speculation to which I referred, the heavy concentration of funds in land and property, so that the fall in values resulted in many companies having to face the need to put in very considerable additional funds.

It reinforces, in my view, the need to look again very carefully at the way in which superannuation funds are used, at whether the building up of the funds, as has been accepted in the past, is necessary in this way, and at whether it would not help the beneficiaries more to have those funds going into investment in manufacturing industry, to assist in the development of industry itself.

I hope very much, that my right hon. Friend the Chancellor of the Exchequer will be examining these proposals. I welcome the fact that we are getting such positive thinking from many of our trade unions at the present time.

5.25 p.m.

Mr. John Davies (Knutsford)

I am particularly happy to be able to rise so shortly after hearing two such excellent maiden speeches this afternoon. I have had the pleasure of the acquaintance for many years of both my hon. Friend the Member for Carshalton (Mr. Forman) and the hon. Member for Coventry, North-West (Mr. Robinson). I know that in their respective ways they have both already attained considerable heights and that they bring great expertise to the House. As one who has a very clear memory of the trembling occasion of his own maiden speech in this House, I very much admired the gracefulness and composure of both hon. Gentlemen. I very much wish that I had possesed these qualities on a similar occasion.

I realise the problems of avoiding controversial matters in maiden speeches today. As the activity of Governments becomes daily more and more pervasive, it is hard to find any little corner of our national activity which can be considered in any way to be non-controversial. If I may pay a small compliment to the hon. Member for Coventry, North-West, I felt that his remarks about participative action in industry were made with great experience, and would have found a sympathetic echo right round the House. Similarly, I thought that very much of what my hon. Friend the Member for Carshalton said could hardly be called controversial. It is surely not controversial to speak economic good sense, which it was. I would find it very hard to consider it in any way controversial.

Mr. Robinson

The question whether something is good sense or economic nonsense is very controversial. If one ventures into that field, it is bound to be considered controversial.

Mr. Davies

We shall, no doubt, have the opportunity of hearing both hon. Gentlemen on many occasions in the future. We shall listen to them attentively, although we shall perhaps not prove to be quite as easy with them as we have been today.

I draw attention—as no other hon. Member has done so far—to the fact that the debate on these several days also comprises a reference to two Community Documents. The Paymaster-General gave them a kind of glancing blow yesterday, but I think it is necessary that I, and perhaps some other hon. Members, should at least pay some little attention to these two Documents, which contain matters of great interest.

The first of these Commission Documents, R/606/76, looks retrospectively at the past. It shows what has happened in 1975 to the economies of the Community countries. The second Commission Document looks into the future and considers what these countries should do in the course of 1976. They are both quite significant Documents in their way.

It is the purpose of the Community in these matters to try to work by consensus and agreement with the Governments themselves and not force them into a straitjacket of economic thinking which may not be their own. The retrospective Document, R/606/76 looks back with a certain satisfaction, perhaps, on the Community economies, in the sense that they have performed in accordance with the broad guidelines which were agreed rather than that they have performed with great nobility—because that could hardly be said to be the case.

But, concerning the United Kingdom, there is in the retrospective Document something of an ominous commentary. The second of the Commission Documents, R/622/76, says that The financing of this deficit did not, however, prevent a slowing down in the growth of the main monetary aggregates in 1975", —that is a compliment to the Chief Secretary to the Treasury, who has just entered the Chamber— although it has created a potential for a more rapid expansion of the money supply in 1976. The Chief Secretary will no doubt have to give very considerable attention to that.

Looking at the guidelines for 1976, the Document enjoins the United Kingdom to pursue four principal lines of conduct in the management of the economy. First, it suggests that the United Kingdom should devise arrangements in the next pay round to ensure that the level of wage inflation should move closer to that obtaining in countries which are the United Kingdom's principal competitors. Although we may have differing, diverse and very critical views at times of the way in which the Chancellor of the Exchequer has tried to deal with that problem, it is very unlikely that any of us would doubt his determination to try at least to come to grips with the problem of the wage impact on the inflationary tendencies in this country. I think that one can say, following the assurance by the Paymaster-General yesterday, that that particular aspect of the Community's guidelines looks as though it has received the full assent of the Chancellor of the Exchequer.

The second enjoins the United Kingdom to resist a growing pressure to reflate the economy, and there again I would have thought that most people who had looked at this Budget with a fair mind would acknowledge that there is no evidence of a tendency to bow to pressures for a reflation with all the consequent dangers which could arise. The third is that the use of cash limits as a means of holding back an extension of public expenditure should be most vigorously applied. Here again I would have thought that what we have seen at least shows an earnest of good intentions on the Government's part to try to secure that end.

I freely admit that I am most preoccupied with the fourth, which strongly advises the United Kingdom Government to continue to take such steps as are necessary to ensure that the relatively healthy behaviour of the money supply experienced in 1975 shall not be lost in a total reversal of that situation in 1976.

The topic of today's debate is of particular importance because industry must be deeply preoccupied with the problems of ensuring that the resources it may need for any resurgence which may occur shall be available on conditions which are tenable and, secondly, that the tendency to resume a rate of inflation which would be seriously damaging to the interests of our industrial workers should not arise. The attention that industry is paying to this aspect of the guidelines is therefore quite intense.

We have grown accustomed to sustaining without a gasp of horror the recent levels of the public sector borrowing requirement. It is enormous and is something that we should never by complacency or habit accept as a normal part of our economic situation. The requirement is of a frightening size. At the end of his statement, with his audience almost hammered into submission and perhaps in no state to react more than it did, he announced an anticipated public sector borrowing requirement of £12 billions for 1976.

Yesterday the Paymaster-General spoke very confidently about financing this borrowing requirement. His argument consisted largely of saying that the Government had dealt with it in 1975 and that they could do the same in 1976, that the people who were anxious about the Government's inability to do it last year would be proved wrong again in 1976.

The point is that circumstances this year are very different. The financing of the borrowing requirement last year was undoubtedly facilitated by a series of events which is most unlikely to be repeated. There was—and the Chief Secretary is the person best placed to know it—an enormous deposit of foreign funds in this country seeking an effective outlet. They found it. A large part of the borrowing requirement was undoubtedly picked up by short-term foreign funds available in this country and seeking attractive, realisable and easily-liquidated forms of investment. The ability therefore to move public investment into this area was greatly facilitated.

The second important factor is the state of liquidity. The Chief Secretary was taking some credit for the situation on savings, but "savings" is a wide and embracing term. We saw last year a very sharp decline of stockholding throughout the economy not only because of the compression of consumption but also because of the immense cost of stockholding and the heavy amounts of dead capital held in stocks throughout the country. That had a consequent effect of releasing liquidity. There was a very sharp fall in investment so that the whole nature of the economy was of growing unemployment, low investment and consumption and compressed stocks. All these factors bear heavily on the availability of funds, particularly funds which are once again keen to find investment in conditions in which they could if necessary be easily turned round.

Our experience in 1976 is likely to be quite the opposite. The deposit of short-term foreign funds here is likely to be sharply curtailed, and we have seen that happening already. If the Chancellor's anticipations of the movement of the economy are right there will be heavy re-stocking, and the requirements of liquidity in order to provide for that are bound to be considerable. Moreover, if there is to be a resumption of investment—as we hope, but about which we have grave doubts—that will create a substantial demand for available liquidity. The Chief Secretary needs no reminding how rapidly and effectively there can be a turn-round in the availability of liquidity in the market which can appear in a plethoric state at one stage but, under a variety of pressures, the situation can change completely.

The financing of the borrowing requirement in 1976, particularly the second half of the year, will prove exceptionally difficult. This is causing industry a very considerable degree of anxiety. It sees that the Government have few options. They are caught with a level of public expenditure which they find almost impossible substantially to reduce and with a growing servicing need on the financing of the borrowing requirement. They are unable to curtail substantially their expenditure and they may find that their normal recourse to funds in the market is not easy.

In these circumstances, the Government might seek to outbid the industry for the funds available. Therefore, the whole strategy underlying the Budget can come seriously into question. The situation could arise where, in spite of the best of intentions by the Treasury to ensure that industry finds the resources to move forward, it will not do so because it will be out-bidded by the Government. They will be terrified on the one hand to encounter the enormous dangers of increasing money supply which totally outdistances the movement of the economy, and terrified at the problems of compressing public expenditure with all the difficulties that that entails.

Industry feels far from comforted by this Budget. It recognises that some of its problems have been taken care of by the Chancellor. It considers that the most it has at risk at the moment is finding itself very much the nether millstone in any change in the availability of liquidity in the market if the Chancellor's predictions are proved anything like correct.

5.40 p.m.

Mr. Tom Litterick (Birmingham, Selly Oak)

The 12½ per cent. relaxation in value added tax announced by the Chancellor has been universally welcomed. I suggest that it will be welcomed with as much if not greater enthusiasm in Japan, Germany and Italy, from whence come avalanches of manufactured goods, consumer-durable goods of many kinds.

One of the features of the development of our trade for several years now has been the emergence of a balance of payments deficit in manufactured goods. The trend is unmistakable. The rate of growth of imports of manufactured goods is far greater than the rate of growth of our exports of manufactured goods. The figures, so far as I know them, are that for road vehicles, for instance, our importation of vehicles is about 100 per cent. greater since 1970. In the years 1965 to 1974, during which time the gross domestic product rose by about 24 per cent. our imports of manufactured and semi-manufactured goods rose by 174 per cent., and at the same time our imports of food, fuels and so on, in real terms, rose by about 12 per cent.

The differences in these figures present to us an unmistakable and unambiguous meaning. That is that the recovery in world trade, to which the Chancellor has said so often he looks forward—indeed, he has been saying it now for a very long time—will not be an unmixed blessing. The track record appears to suggest that the recovery of world trade will mean that the British economy will truly come under siege, in that we shall suck in not a suddenly and dangerously greater quantity of raw materials but a dangerously increased quantity of manufactured goods and semimanufactured goods.

One of the more disappointing aspects of the strategy revealed in the Budget is that there appears to be little will to do anything about this. The Secretary of State for Industry has assured us that he is doing varous things to encourage investment in manufacturing industry. Again, tax concessions or subsidy concessions have been made to the private sector to encourage it to retain workers, to keep factories going and so on. But it is really of a negative character.

We heard the Secretary of State reaffirm his faith in planning agreements, but, disappointingly, he was not able to announce a single planning agreement. He said that there would not be 100 planning agreements, which was not terribly helpful. We know that the planning agreements which are being entered into—I hope, anyway—are not of a truly directive character—that is, they are not of the sort that will give to the elected representatives of the people, through the Government, any real control over developments in the British economy.

The Government have time and again, through various Ministers including the Prime Minister, set their face against any interference with the inflow and outflow of trade. Many Ministers have said that there shall be no restrictions or control on imports. I find this acutely disappointing, because it reveals an unwillingness to recognise the dangers that are now present in our economy, and present in the nascent upturn of world trade—if, indeed, that is what it is. It may be nothing more than a little inventory boom. No one knows yet.

But if it is to be an upturn in world trade. I am suggesting that it presents more potential dangers than benefits, because of the existing weakness of the manufacturing sector of the British economy. It is weak in terms of its technology and in terms of investment performance in the immediate and long-term past. It is weak in terms of its current investment intentions.

Notwithstanding the incentives that the Government have granted to the private sector—which I have seen valued as much as £6,000 million—there is as yet no sign, as in the past, that these incentives have had any positive effect on the level of investment. We all agree that what we seek and hope for is an investment-led boom rather than a demand-led boom. In other words, the evidence suggests that this will not happen at all.

Other people may have a boom. They will export part of their increased industrial activity to us and a supine Britain will simply allow it to happen. In no time at all we shall have a repetition of the all too familiar crises that the British have had to weather since 1945. There is little reason to believe that this will not happen within a twelve-month, or perhaps even sooner.

The right hon. Member for Knutsford (Mr. Davies) revealed one extremely crucial area of vulnerability—the vast quantity of short-term money that is now resting in this country, which can be used, if anyone has a mind to do so, as a weapon against Britain. Unwittingly, simply by acting in their own interests the holders of these balances can devastate the hopes of the British people. It seems that nothing is being done to protect the British people from such an eventuality.

I understand that last year the United Kingdom private overseas investment figure was more than £1,700 million. In the previous year it was £1,130 million. Even here the economy is being damaged because of the Government's unwillingness to interfere. As a Socialist I must express surprise at the Government's unwillingness to interfere with the free operation of capitalist markets.

I am not one of those who pleads to the notion that we should have selective import controls. I do not even like the phrase "massive import controls" very much. I am convinced that we need to plan our international trade. By that, I do not mean a temporary intervention in the ebb and flow of trade between Britain and the rest of the world. I mean a commitment to a permanent intervention in our overseas trading activities. As Socialists, we can have no ideological or theoretical objection to this. Therefore, it surprises me all the more that the Government have set their face so strenuously against such a course of action.

There are many ways in which this can be brought about. There are many ways in which it has been done in the past, particularly by the war-time Government, for instance. At present, it seems to me that the most likely of the options would be to auction import licences to those who would export manufactured goods to us, because the control of our trade, the control of imports, in the context of our problem, is about the control of importation of manufactured goods.

Because it is about manufactured goods, the argument that is so often used against us, that others will retaliate, loses much of its force. The fact is that those nations which are now by their trading activities doing us so much damage—the Germans and the Japanese, and, to a lesser extent, other members of the European Economic Community—are enjoying significant payment surpluses in their manufactured goods trade with us. They have a vested interest in British trade. We have a powerful interest in diminishing the deficits, which are now chronic, between ourselves and the nations I have mentioned.

I cannot think that there is any sanction that countries such as Ghana, Malaysia or Saudi Arabia would want to bring against us if we sought to control the importation of the manufactured goods which those countries do not produce. The Third World would not be affected by such a policy except to the extent that we are prepared to plan our importation of raw materials and basic commodities on the basis of long-term contractual arrangements with Third World countries. That would protect them from the endemic uncertainties and instabilities of the free market system.

The planning of which my right hon. Friend the Secretary of State for Industry spoke was strangely reminiscent of the planning which the French Tories were doing 10 years ago and have since advanced beyond. We are not committing ourselves to anything remotely radical. The Government have committed themselves only to a modest step along the road of planning which does not seem to amount to planning at all. But is far short of what we thought we were setting out to do when this Government was first formed.

One of the legs of the Chancellor's policy, in his effort to convince the British people that the policy is fair, is the strategy of price control in the market place and shops. It is a pity that the strategy does not include a policy for controlling the price of money.

The hon. Member for Henley (Mr. Heseltine) pointed out earlier that with the present rate of interest rates it is impossible for industry to produce the necessary profits. I do not know how realistic 20 per cent. profit is, but given the track record of British industry in the last few years it has no hope of achieving that level of profitability. Unless we commit ourselves to controlling interest rates, we shall not only commit the private sector to achieving impossible profit levels but we shall commit local authorities to asking our constituents, the rate payers, for punitive rates.

The Chancellor has argued that his policy secures social justice and will in the end achieve objectives which the British people wil see are worth while. He has said that he will try to hold the ring at the moment, convince everyone that his policies are fair to all and that everyone will have to make the same sacrifices—that by itself is causing a great debate in the country already—and, secondly, that there will be jam tomorrow. The final word on the matter will not be spoken in the Chamber. The judgment will emerge in the immediate future from the country at large. The events at the S.U. carburettor plant recently were one straw in the wind which the Government should have regarded as instructive. There will be other such events and they will grow as people discover the implications of the policy.

It is important that the average family should be confident that the Government are trying to be fair. I do not doubt the Chancellor's sincerity but I doubt the soundness of his policy. Within a short time the Chancellor may have to come back to us with a revised programme, which I trust will be more Socialist in character.

5.55 p.m.

Mr. John Pardoe (Cornwall, North)

It falls to me on behalf of the Liberal Party to congratulate the two maiden speakers. Both speeches were excellent. I campaigned in both constituencies and I had more success in the constituency of the hon. Member for Carshalton (Mr. Forman) than I had in the constituency of the hon. Member for Coventry, North-West (Mr. Robinson). The hon. Member for Carshalton spoke attractively of his constituency and warmly of his two predecessors who were both well thought of in this House. The constituency has a worthy representative to replace them.

The hon. Member for Coventry, Northwest made an outstanding maiden speech. He is not in the Chamber at the moment but I hope that he reads my remarks. When I campaigned against him, I canvassed in the constituency and I was astonished by the reputation that he established for himself in so short a time. His speech today demonstrated how he had been able to do that. It is good to have so excellent a representative of management in the House, because there are too few of them. I hope the hon. Gentleman will not find our proceedings too frustrating and that he will not return to the pastures of management too soon.

Listening to the debate one might be excused for thinking that few hon. Members or people outside the House understand what is happening to the economy in the long term. Our politics concentrate on the short term and on finding political scapegoats, of which there have been a few recently. We are therefore encouraged to ignore the long-term trend. No one can deny that Britain's economic and industrial capacity has been in a fundamental decline for as long as most of us in the House can remember and that the pace of decline has quickened over the last 15 years or so.

Let us consider first the capacity of the British economy to employ the British people. In the first two post-war booms—1951 and 1955—the low point of unemployment was around 230,000. In the next two post-war booms—1961 and 1966—the low point of unemployment was about 310,000. In the next two postwar booms—1969 and 1973—the low points of unemployment were about 535,000.

The best future estimate that I have seen is not that given by the Chancellor of the Exchequer but by the Henley Centre for Forecasting, which estimates that the low point of unemployment in the next boom—which could be in 1978—may be as high as 850,000. That means that our capacity to employ our people is falling.

Let us also consider the capacity of the British economy to pay the British people. Fifteen years ago we had the highest standard of living in Europe. Now we have one of the lowest. It will not be long before the average Greek, Portugese and Spaniard overtakes us in real income per head.

There is also the matter of our capacity to balance our books with the rest of the world. Most estimates from round the world lead one to the conclusion that for every 1 per cent. by which the gross national product rises, we suck in a further 1.7 per cent. of imports. For every 1 per cent. by which our major trading partners increase their GNP we increase our exports to them by 0.7 per cent. We have created a kind of doomsday picture which is a frightening thought.

The decline in the purchasing power of the pound, which has been noted by most hon. Members on this side of the House during the debate—one would not expect it to be otherwise—has been a long-term phenonemon. When I was in Paris four years ago there were 13 francs to the £, but when I sent my small son to France last week the rate was 8.60 francs. The decline in those few years is extraordinary.

It is not a question of decline under one Government. When the Conservative Government came to power in 1970 the pound stood at $2.80. When they left office it stood at $2.22, a decline of 21 per cent. It is now $1.86 or $1.87. That is a fall of about 33 per cent. since 1970, or 15 per cent. since Labour came to power. There is not much in it if we are trying to give away prizes for the devaluation of the pound.

In the face of those figures it is nonsense to suggest that our problems are new or created by this Government or the last. The right hon. and learned Member for Surrey, East (Sir G. Howe), who speaks for the Conservative Party on these matters, was at last able in opening the debate yesterday to give us a list of those items that he thought should be cut out of the Government's expenditure plans if the whole economy was to be put right. What he listed were mostly things that the Government have not yet done, things that they threaten to do or that are being considered in Committee—bits and pieces of nationalisation. There was certainly nothing that was done before this Government came in.

The idea that by repealing those items or not going ahead with them we shall somehow stop the long-term decline of the British economy is nonsense. It is certain that this Budget will not reverse the long-term decline. That is not surprising. Perhaps it is a good thing that Budgets are not that important.

My right hon. Friend the Member for Devon, North (Mr. Thorpe) dealt yesterday with the central part of the Budget, the link between tax reductions and the pay policy. He made clear that we supported it in principle. How could we do otherwise? We have urged a variation of the same thing.

We have some major reservations about the Budget. Its main object is obviously to bring down the rate of inflation. I know that is the Chancellor's first aim. Perhaps more important for the long term should be to encourage the British people to work harder and more productively and to improve their working techniques. If only we could do that, I suppose that it would be some kind of definition of the British economic miracle, a phrase that has been bandied around in our discussions. There is nothing very miraculous about a British economic miracle. It will happen when the value added to imported materials and semimanufactured goods by the average hour worked in British industry is as great as, or greater than, that added by an hour worked elsewhere in the world. That is all it requires, and it is, or should be, very simple.

How can a Chancellor encourage harder and more productive work and improved working techniques? He can do it, first, by reducing the burden of income tax and making investment more worth while. What about income tax? I accept that the Chancellor is hedged around by problems, partly inherited and partly of his own creation. He inherited a massive borrowing requirement from the Conservative Government. I hope that no one will allow the people of this country to forget that. [Interruption.] I shall not allow them to forget it if I have anything to do with it, although the hon. Member for Guildford (Mr. Howell) has no doubt founded a political career on the belief, with Hitler, that the British people are ignorant and forgetful. They will never forget the things his Government did.

Mr. David Howell (Guildford)

If the hon. Gentleman is to make these sweeping statements, will he please get his facts right? He said that when the Conservatives left office the pound was worth $2.22. It was $2.42. Accuracy would help substantiate the hon. Gentleman's reasoning.

Mr. Pardoe

That is not so, as the hon. Gentleman will discover if he looks up the relevant page in Financial Statistics. We could swap statistics all afternoon. If he wishes me to quote some statistics, I shall quote statistics about the borrowing requirement, as given on page 111of "Economic Trends".

It is clear that when the Conservatives came to power in 1970 they inherited a surplus of £18 million. By the time they left office, in the calendar year 1973, the borrowing requirement was £4,418 million, and in the calendar year 1974, for which they were partly responsible, it was well over £6,000 million. We have a precedent for the considerable increase in the borrowing requirement.

Why is it difficult to turn the borrowing requirement round? The first reason is that interest charges have formed a large part of it, and they are cumulative. They form a large part of it now. The second major factor is the increase in public-sector pay in the first year of Labour Government. If the Labour Government had not relied on the social contract but had instead, as we urged, relied on an incomes policy, that would not have accelerated so rapidly.

The third major factor was the recession and the consequent fall in revenues. About £2 billion in the present borrowing requirement is probably caused by that. The Government should have done nothing to cut expenditure to look after that part of the borrowing requirement, because if they had they would have deepened the recession into a descending spiral.

Therefore, it is clear that things are never what they seem—even the borrowing requirement. But there are real dangers in it. I hope that we shall hear from the Government more than we have heard so far about those dangers. The borrowing requirement will probably result in increased taxation if the burden is not to be made still bigger. It probably will result in higher interest rates.

There is the problem of the money supply if it cannot be financed, as at present, out of the very high personal savings ratio, and there is the problem of "crowding out", which the Chancellor spoke of and which is the threat to industrial productive investment.

At present I accept the Chancellor's gamble on the public sector borrowing requirement. I hope that it will be possible to finance it out of the historically very high personal savings ratio, but it is essential that he should be ready with quick-acting devices for cutting public expenditure in case of need. There should be a major debate in the House on those possible cuts. It would be a useful subject for the Expenditure Committee to look into.

The effect on taxation will remain for some time. While I accept that no general reflation is possible, and that therefore there can be no overall cuts in taxation, what about the distribution of the burden of taxation? We have had a strong move from taxes on consumption to taxes on income. In 1973 taxes on income were 47½ per cent. of taxes on income and expenditure together. In the first half of 1975 they were 56 per cent. It now looks as though they will be quite a bit higher as a proportion of the total, largely owing to the failure to link tax allowances and rates to the retail price index.

This is indexation, or what the Chancellor calls revalorisation—but he has not revalorised. He might have been able to go much further towards doing that. He could have had a VAT rate of 10 per cent. or even 12½ per cent. It would have been better to bring down income tax by that measure than not to bring it down at all. The other major measure he should have taken was at last to grasp the nettle of Customs and Excise duties and make them a percentage so that they rise with price.

I ask the Chief Secretary to say something about the effect of the Budget on the poverty trap and on the growing number of people who, if they do their calculations correctly, find it not worth their while to go to work at all. In a Supply Day debate initiated by my hon. and right hon. Friends and myself on 22nd March we were given a promise by his right hon. Friend the Minister of State that all these matters would be dealt with in the Budget. They have not been. The new benefit rates and the failure to index allowances has widened the poverty trap and exacerbated the problem so that a very large number of people in Britain today feel that it is simply not worth working at all. Luckily, some of them have not done their calculations and some who have done them still go to work. I find it amazing that they do.

I turn now to the point which my right hon. Friend the Member for Devon, North mentioned yesterday, the central part of the Budget, the linking of pay policy with taxation, and make clear where we stand. A central part of any Liberal critique of Britain today would be that the monopoly bargaining power of trade unions has increased, is increasing and ought to be diminished. Perhaps that is best expressed in the words of Ralf Dahrendorf in his Reith Lectures: The progress of citizenship, of the right of association, of the autonomy of many social organisations and institutions has led to a fragmentation of the political public, so that representative government has been transformed into a gigantic and confused bargaining process between organised groups. We have a kind of collective anarchy and the public is no longer looking to the House, as it once did in the heyday of parliamentary democracy, to act as umpire between conflicting interests. The people prefer to rely on the muscle power of their own collectivist organisations, whether trade unions or employers associations. And can anyone blame them?

How do we deal with this situation? Dahrendorf speaks of the politics of regulated conflict but the best solution of all in industry is to go for a massive extension of industrial democracy, in the belief that power has moved to the shop floor and that if we can institutionalise that power in properly-elected democratically organised works councils we shall find that power exercised democratically is power exercised with responsibility.

The second point is to revitalise this place, to make it an institution of genuine parliamentary representative democracy, which requires entering into a new political settlement and a whole heap of constitutional innovations.

The problem now, before these reforms have been carried through, is how to govern. We have a straight choice between consent or confrontation. It is not a policy of appeasement. It is simply living in the real world. Trade unions are not ideal democratic institutions, but their leaders have to respond to democratic pressures. Therefore, I welcome the fact that the Chancellor has made it easier for them to ensure that the sectional pressures of their members are in line with the general interest and the common good of society as a whole.

In our tax on inflation we always saw the tax sanction weapon in this light. The pay norm must always be open to negotiation. It should not be something to be imposed. I must tell the Chief Secretary that if the Chancellor has his way and can do a deal with the trade unions at 3 per cent. that would be marvellous but I would not regard 5 per cent. as an outright defeat for the Government or for the people of this country. So there is room for negotiation.

I very much hope that the Chancellor will be able to do his deal with the unions but it might lessen the weight on soft corns in this democratic institution if he said that he did not intend to bring forward for legislation the increase in the allowances of £60 and £130, for the single and married man, perhaps until the autumn when a deal had been signed and sealed by the TUC conference. Otherwise, for this House to have to pass that legislation might be something of an insult.

6.15 p.m.

Sir John Hall (Wycombe)

The hon. Member for Cornwall, North (Mr. Pardoe), who speaks so forcefully on financial matters for the Liberal Party, seemed particularly depressed at the beginning of his speech about the economic situation which this country faces. He made one point about the inability of our industry to employ all our people and went back over the last 30 years, up to the end of the last war, to illustrate his point. Perhaps he might have been a little less depressed if he had gone back further. When I started working in the 1930s the average unemployment throughout the country was running at 16 per cent. and in 1932 it had gone up to 22 per cent. We have to remember, of course, that at that time we had a Labour Prime Minister and Labour Chancellor so perhaps the two things were not entirely unconnected.

I also remember that a little later in 1936, when I worked in France the pound was under considerable pressure although unemployment in this country had fallen to about 14 per cent. I remember having to operate in a country where the par value of the French franc had gone from 125 to 75, a fall of 40 per cent.—so we are not facing anything new. This deterioration in our industrial strength has been going on for much longer than the last 30 years and may have started before the beginning of this century.

The hon. Gentleman referred to the public sector borrowing requirement. When the Conservative Party left office, public expenditure as a percentage of the gross domestic product was running at about 50 per cent. Today it is running at about 60 per cent. There may be a case for a public expenditure at a figure of round about 50 per cent. of GDP. There is no case at all when it gets to 60 per cent. and above. This is the difference between the way my party handled affairs and the way affairs are handled by the present Administration.

If I may turn my attention to the main Budget matters, it is a good rule in any discussion where differences of view are likely to emerge to concentrate first on matters on which there might be some common agreement. I start by welcoming such modest tax reductions as there have been, especially in VAT, and the reduction in the capital gains tax. My hon. Friend the Member for Carshalton (Mr. Forman), who made such an excellent speech, said what a pity it was that the Chancellor had not taken the advice showered on him from all directions to abolish the two differential rates of VAT and reintroduce the old 10 per cent. rate. I know that politicians are very reductant to admit error, but the old rate had two advantages: it was much easier to calculate, and it yielded far more revenue.

On capital gains tax, the right hon. Gentleman the Chancellor said in his Budget Statement that it was not right to insulate those liable for capital gains tax from the effects of inflation which he had not been able to eliminate from income tax payers, and that he had not been able to eliminate fiscal drag in its entirety. The logic of the remark, presumably, is that income tax payers and those liable to pay capital gains tax should be treated alike and both should benefit from whatever measure of indexing applies to either. I hope the Chancellor will consider that proposal before he comes to present his Finance Bill. I accept, though no one could be expected to welcome, the various tax increases.

There is one unfortunate effect of the increase in excise duty on beer, wine, spirits and tobacco about which little has been said. Napoleon once remarked when increasing the tax on brandy that he got much more out of the vices of his subjects than he ever got out of their virtues, and perhaps Governments of all kinds have worked on that assumption. If we add VAT to the expected excise duty revenue from beer, wine, spirits, tobacco and so on, the yield in a full year is about £4 billion. That is by far the greatest revenue yielder after income tax.

I warn the Chancellor of the Exchequer that he may find, at long last, that the law of diminishing returns may affect the revenue out turn. Spirit sales show a marked decline in recent months and the Government's own figures reflect this situation. I do not protest about the increase in what for most industries would be an intolerable taxation burden, but I wish to stress the considerable cash flow problems which these increased duties will create, particularly for distillers and tobacco industries.

Duty on their products has to be paid as soon as those goods are withdrawn from Customs bond, and certainly long before the duty can be recovered in the sale price. Even before the present increases, the distilling industry had to find somewhere between £60 million and £120 million, depending on the time of year, to finance payment of excise duties. One major firm alone had to find as much as £40 million to finance payment of those duties—and that was before the current increase. One can appreciate that there may be a cash flow problem for those companies.

Unlike our system in which the payment of duty is demanded immediately, a different system operates in EEC countries. Other countries give a period of credit. Furthermore, the RUC pay code does not allow the cost of payment of excise duty to be included in the calculation when an application is made for an increase under the Price Code. I hope that the Chancellor of the Exchequer will take this matter into account when considering the provision of the Finance Bill. This problem was raised last year, but so far nothing has been done.

I turn to the heart of the Budget, which relates to industrial policy. I include that curious addendum to the Budget which, subject to the acceptance by the trade unions, will add another £700 million-plus to the public sector borrowing requirement. A great deal of attention has been directed to this matter by the media. I do not object to the Chancellor's proposals on constitutional grounds. It is right that the Government should have discussions with national organisations representing different interests within the community about matters of overriding national importance. Generally, such discussions take place before the Government submit proposals to the House. It is rather unusual for those discussions to take place afterwards. I do not quibble about that matter, but I take exception to the limited nature of the discussions which are confined to the trade unions.

I take exception to the fact that the majority of the working population are excluded from the process of decisionmaking which could deny to them the tax benefits proposed by the Chancellor, particularly as the great majority of such workers who are excluded from the decision-making processes are likely to have suffered more from inflation than have most trade unions. This appears to be rule by the minority and we are already suffering too much from that disease in this House.

Although I support the Chancellor in his attempts to reduce inflation well below 10 per cent. by the end of 1977—preferably to a rate no higher than that suffered by our industrial competitors—and although I believe in the legitimate use of the tax weapon to achieve this aim, the method chosen by the Chancellor has considerable danger for Parliament and for the nation. There are three reasons for my taking this view. First, it seems to confirm a growing public view that Parliament no longer governs—in other words, that power is moving, if it has not already moved, into the hands of organised labour. Secondly, if the trade unions refuse to co-operate so that the whole or part of the proposed tax benefits is lost to all tax payers, this will create considerable bitterness and animosity towards the trade unions, with wholly undesirable results. For a party that is always preaching about social divisions, it seems a little odd, to say the least, to introduce a policy that is likely to cause division.

Thirdly, if the trade unions agree in June or July and tax concessions are granted, will the trade union leaders be able to deliver? Industrial depression has helped to maintain the £6 policy in the last year, but will the unions be able to maintain a 3 per cent. policy against a background of industrial revival, if such a revival occurs? One can only pray that all one's fears prove to be groundless because we all want the policy to reduce inflation to succeed.

I welcome the Chancellor's acceptance of the view that … industry needs a stable framework in which to operate and … this is of greater importance than incentives which may be here today and gone tomorrow."—[Official Report, 6th April 1976;Vol.909, c. 246.] We have never had a real industrial policy under any Government. Sometimes what have passed for industrial policies have been policies for employment—such as the injection of money into dying or inefficient industries, or policies to control industry, such as the National Enterprise Board or planning agreements.

The Chancellor and the Secretary of State for Industry now give the impression that they are beginning to develop a policy which will take into account the need to give confidence to industry to allow it to become profitable in real terms so that its profits can be used to meet the essential needs of the nation, to improve the standard of living of those employed by industry, and to give a fair return on the risk capital used.

The genuineness of these intentions will be tested in the first place when we discuss the next Price Code to replace the present Code, which expires in June or July this year. If the Chancellor means what he appears to mean in wanting to give industry conditions in which it can flourish, it must mean that he will ensure that there are drastic changes in the Price Code so that industry can operate profitably for the first time for a very long time.

I have one minor comment to make about the industrial matters outlined in the Chancellor's speech. The Chancellor has doubled the temporary employment subsidy. Presumably, this has been done with the intention of keeping 60,000 or more people out of the unemployment statistics. Except where a company wishes to retain skilled workers who may not be available again when wanted, and in such a case it would retain them even without Government subsidy, the subsidy encourages overmanning, which has been the curse of British industry for years. It is one of the reasons that led the then Minister of State, Treasury, the hon. Member for Ashton-under-Lyne (Mr. Sheldon), to point out in the House on 17th April 1975—column 796—that investment productivity in the United Kingdom was 20 per cent. lower than in the United States, 50 per cent. lower than in Italy and France, 100 per cent. lower than in Japan and 170 per cent. lower than in Western Germany. Since then the figures have got slightly worse.

I sympathise with the Chancellor's intention to find ways and means of curing unemployment, but I dislike the method he has used. I also dislike the fact that we are likely to suffer increasingly from the feeling among the people that it is profitable not to work. Let me give the House one recent example. In a company in which I am concerned the personnel officer recently had occasion to look for four employees to fulfil a comparatively unskilled job and the wages to be paid were a little below the national average now ruling. Some 30 or more applicants were interviewed and of that number more than 70 per cent. did not want the job. They merely wanted the personnel officer to stamp their cards as not being suitable so that they could return to the labour exchange and continue to draw unemployment benefit. There are too many cases of this kind.

We all know that a large number of working people find unemployment a curse and destructive and would take any job. However, increasingly, there are too many people who prefer to draw unemployment benefit rather than to take a job which yields very little more in real terms after tax. This must be taken into account when we consider the relationship between social service benefits and the pay obtainable by the average worker in industry today.

In the debate last year, speaking of our economic problems, I said: The answer lies as much in changing human attitudes as it does in changing economic policies. For too long we have all lived with the expectation that year by year our standard of living would increase without any perceptible effort on our part. One of the problems we face today is disappointed expectations. I went on to say what the Prime Minister and the Chancellor have been saying much more eloquently recently: We must realise that in the end we can maintain, much less increase, our standard of living only out of the wealth that we generate ourselves. This will not happen without great individual effort, ingenuity and courage. This effort, ingenuity and willingness to take risks will not be forthcoming unless Government policies are thought to be fair, are designed to prevent sections of the community from misusing their power to gain advantage at the expense of the rest, and are policies under which all can hope to get and to retain a fair reward for effort."—[Official Report, 17th April 1975; Vol. 890, c. 789–90.] Too many people believe that the conditions necessary to restore confidence do not exist. It is lack of confidence which discourages industry from investing, not lack of sources of finance.

The lack of confidence in recent months shows that quite clearly. It is the present burden of taxes—not so much corporation tax, since most companies, because of the way in which stock relief works, are not paying tax at the moment—but the high burden of local rates, the increasing cost of national insurance contributions and the restriction on profits which make it difficult for any company to earn even the cost of new money. When they are considering any investment project in the boardroom today directors know perfectly well that they have to earn another 10 to 15 per cent. on the money they borrow just to pay for the new money before they start to make any profit at all.

The uncertainty of the future treatment of tax also makes it difficulty for finance directors to plan ahead, as one of my hon. Friends mentioned earlier. What will happen to Sandilands? What are the Government's intentions about inflation accounting? When do they intend to announce their proposals? Do they intend to tax on the old conventional basis of accounting while insisting that companies present their accounts under inflation acounting? This would mean that, for the first time, in a year or two companies will be presenting accounts on a real basis, in terms of real money, which will be taxed in all probability upon the old conventional scheme of making a company pay tax on profit which is nonexistent. If one looks at companies now producing accounts along the lines suggested in the Sandilands Report one finds that many, far from making profits, are making losses. This is the kind of uncertainty which must be resolved before we achieve the confidence we are seeking.

Other problems preventing confidence in industry are the ever-increasing costs of goods and services provided in the nationalised industries. If there is no alternative, we cannot look to any other source of supply except the nationalised industries concerned. Many other considerations create lack of confidence in industry today. Industry on the whole has become punch-drunk.

What are the chances of moving towards a period of stability which might, perhaps, provide confidence? May I make a suggestion to the Chancellor? He has already made it clear that he believes that industry must have some period of stability. Will he go a little further and say that industry can have a five-year period when it will not be disturbed by any adverse fiscal or other measures, and that any changes will be confined to those genuinely designed to help increase efficiency and reduce costs and taxation? Such a pledge, which I am sure a succeeding Government will be delighted to honour, would go some way to giving industry the confidence which is so essential to its recovery. The Chancellor has already broken new ground with his conditional tax benefits. Furthermore, he has promised a deferral of tax arising out of stock relief, in his own words, "into the indefinite future"

He should not find it difficult to give this simple and helpful pledge to industry on whose efforts he is relying for the growth in the national wealth which is so essential to his whole strategy.

6.35 p.m.

Dr. Colin Phipps (Dudley, West)

Before taking up some of the remarks made by the hon. Member for Wycombe (Sir J. Hall) and other hon. Gentlemen about the central points in the Budget, I should like to touch on one basic mechanical point mentioned by the hon. Member for Cornwall, North (Mr. Pardoe). That is the question of the form in which we levy duty on wines, spirits, tobacco, petrol and so on.

One of the welcome features of the Budget is the first movement away from a fixed amount of duty to a percentage. For the life of me I cannot see why this cannot be extended to cover all the aspects we are describing. I know that there is a slight difficulty in that the retail price on which one can levy a percentage can go down as well as up—although it does not go down all that frequently—but it should not be beyond our wit to put a percentage on the recommended retail price which is published and well understood by everyone.

This would get away from the ludicrous business of the percentage return on those items, in an inflationary period, actually falling. Even after the increases announced in the Budget, it will still be lower than it was five or six years ago for most of these duties. I hope that in the next Budget this process can be extended across the board as a percentage of the recommended retail prices for all wines, spirits, tobacco and petrol.

I wish to concentrate on the central point of the Budget—the question of a prices and incomes policy, particularly incomes policy. I feel that hon. Members have gone too far in suggesting that the Government are being unconstitutional. We have constantly heard from Opposition parties, as well as interested bodies in the country at large, that we are not consulting people enough, that we are doing too much here without prior consultation. However, when we do exactly what they want, we are immediately told that we are taking away the power of the House.

The power of the House to come to conclusions with the trade union movement, and other workers, has only ever been a power of consultation and agreement. There is no such thing as a statutory incomes policy—that has been proved beyond any doubt over the last 10 to 15 years. It is not possible to say to 6 million, 10 million or 15 million people that this is to be the incomes policy if those people do not wish it to be the incomes policy. There are no real sanctions we can introduce which will occasion the great bulk of the working population to stick to the figures we have set down here.

It is therefore legitimate for the Chancellor to say in his Budget " This is the kind of incomes policy that I wish to follow. I know that we do not have to start it until August, but I should like us to start thinking about it now and I suggest that this is the way to tackle it." That does not take away the powers of this House. It is a proper thing to do.

I like the system that my right hon. Friend suggests. One of its advantages, of which not enough has been made, and which I should have thought would have particularly pleased hon. Members opposite, is the effect on the money supply. If we can do this, it will have a much more beneficial effect on the money supply than some large flat-rate or percentage increase coupled with increases in tax. So we shall be helping to keep the money supply down under this system.

My fears are similar to those tentatively expressed by the hon. Member for Cornwall, North. How shall we ensure that it takes place? This is different from the £6 policy. What we are in effect saying is that if it is agreed, people will have the benefit now and later on will have to fulfil their side of the bargain.

I agree with the hon. Member for Wycombe that this policy applies to the population as a whole. It is fair to say that most of the population would regard the unions as the leaders in forcing up wages and inflation. They grumble a great deal about this fact, so it seems logical to go to those about whom they complain in an attempt to sort out the policy. But I take the point that we are talking to all the people.

What will happen if we do not bring home the bacon in this respect? Will it then be said "You have not fulfilled your part of the bargain so we will not give you those tax allowances."? That would be very difficult. In consultation with the unions and other interested bodies, including the employers, I hope that we can devise a system which is a little more step-by-step and flexible, a system that can be implemented over a period.

I can see the difficulty of such an approach, but if we are to base our policy on swopping tax benefits for low wage increases and if we are to do it on the basis of a percentage increase which is so related to the advantages of tax relief and inflation benefits that the result will benefit everybody, in some way we have to monitor the process. Otherwise, what will happen if a group gets more than 3 per cent. in March?

I do not see what sanction we have. I do not believe that we can produce any. We had sanctions previously, for instance, against the employers. We said to the National Coal Board, for instance," If you give more than so much, we will not vote you your money. "I do not know how we thought any statutory undertaker could continue to operate if we did not vote it its money, but that is what we said.

That form of window-dressing might be adopted here, but it does not seem to be anything like as secure as the system we had under the previous limit. Without wishing to pre-empt any final decisions, I should like the Chancellor, in discussions with the unions and other interested bodies, to try to achieve a more flexible approach under which the benefits of the system are better monitored.

The other matter with which I should like to deal is the profitability of investment in industry. In assessing the profitability of any investment, all current calculations involve the interest rate at the current rate of inflation and the amount of tax to be paid in "unreal" profits which originated because of inflation rather than from actual productivity. When these three things are combined, it is hard to find an investment which is worth making unless it returns between 30 and 35 per cent. in money terms. That is a very large percentage return. I know of several examples of investments which have not been made just because that kind of return could not be foreseen. I do not see how we can enter into that sort of vicious triumvirate of factors without reducing inflation, as we are trying to do anyway. So we have to consider what is perhaps the only thing in the Government's power in their programme of aid to industry—interest rates.

The Chief Secretary will know that I have been a long-term proponent of various kinds of two-tier interest rate systems. What I like about low interest rates, if we can use interest rate subsidies as the form in which we help industry to invest, is that they are reflationary but not inflationary. I should have thought that that was exactly what the Chancellor was looking for.

The reason is that if we were to turn the help that we give industry in grants and so on into subsidies towards interest rates, we should be subsidising only the interest on the interest on the loan and not the loan itself. There is ample money available in the City at the moment for industry. The trouble is that industry cannot justify borrowing and investing it because of the analysis that I have just given of the triple factors which make the return in money terms so high.

If, for instance, the Government gave an interest rate subsidy of 10 per cent. for new industrial investment, every £100 million per annum of interest subsidy would represent £1,000 million of loans that industry could take from non-Government sources. For every £1,000 million of interest subsidy, a total of £10,000 million of loans would become available. That would rejuvenate our industrial investment programme and would rapidly pay for itself in terms of reduced unemployment, but it would not in itself be inflationary.

Sir John Hall

Would not the hon. Gentleman agree that that, in effect, would be a two-tier investment system, however it is disguised by a subsidy?

Dr. Phipps

I completely take the point. I hope that there is no mistake—I am advocating a two-tier investment system. I should like to see a two-tier interest rate system on a much wider scale. It would have great advantages for local authorities and other investors.

The only argument against it that I have ever received from the Treasury is that it gives enormous opportunities for arbitrage and would help multinational companies to borrow cheaply here and invest overseas instead. But I do not think that it is beyond the wit of the Treasury and the City to prevent arbitrage, particularly if we are considering industrial investment related to a specific project by industry and local authorities.

But I am speaking specifically to the point of making two-tier interest rates available to industry as our form of specialist subsidy to industry. That would have a much better effect than other forms of grant. If it were 10 per cent. it would provide 10 times the amount of money from the normal sources of loans for commercial undertakings.

I do not expect the scheme to be introduced in the Finance Bill this year. I understand that the Treasury has already examined two-tier interest rates. I am simply asking it to do so once more, particularly considering the scheme as a reflationary and not inflationary solution to our overriding problem. I cannot see how we can deal with this triple difficulty unless we reduce interest rates. I commend it strongly to the Treasury.

6.50 p.m.

Mr. Robert Boscawen (Wells)

Like my hon. Friend the Member for Wycombe (Sir J. Hall), I have noticed a depressed fatalism about a number of the speeches today, particularly from the opposite side of the House, with the exception of the two remarkable maiden speeches. It is a depressed fatalism regarding the failure of the incentives to industry, both past and their likely failure in future.

The reason seems to be that hon. Members have divorced entirely the incentive to inert corporate industry as a machine itself and the incentive to the flesh and blood of those who work the machines and who strive to make them work. That is what has been lacking in many speeches of Government supporters today. Although I fully recognise the need for technical changes, if they can be found, to improve investment to industry, I still think that we have to remember the enormous psychological effect of providing more incentive to individuals.

I want specifically to deal with one or two features of the Budget not directly connected with industry. I was astonished that the Chancellor, almost in an undertone, in his repudiation of commitments given time and again to pensioners, slipped in that their level of pension should cover the cost of inflation or the rise in earnings over the period before uprating. Time and again, those of us interested in these matters have been led to believe that if Government was holy writ pensions should be fully protected. It was printed in black and heavily underlined, in the White Paper "Better Pensions—Fully Protected Against Inflation". On 24th June the Under-Secretary of State for Health and Social Security said: Changes in the movement to earnings and prices after March 1975 will of course be reflected in the next following uprating".—[Official Report. 24th June 1975; Vol. 894, c. 376.] The Secretary of State herself said the same thing. The Social Security Act of 1975 laid down that the Government had to do that. We believed it at the time. I certainly supported that pensions should be protected in this period of devastating inflation. The Chancellor completely repudiated it when he said: an increase of £3 in the rate of pension for a married couple would be more than enough to match the actual and likely movement in earnings in the twelve months to November."—[Official Report, 6th April 1976; Vol. c. 269.] He has gone back on what he has said. He has gone, when it suits him, to a forward projection basis for calculating the pensions when all the arguments in the past were that it should be on a historic basis.

If it were to be on a historic basis, calculating the next uprating would have meant an increase of 22 per cent. or 23 per cent. As it is, the Chancellor has gone to only 15 per cent. He has done it without even an apology, without any rallying call, asking the pensioners to accept some sacrifice as part of their help to Britain in its present dire straits. The Government should explain why they have gone back on these commitments as they have.

I should like to put on record what it means for the pensioner. Had the historic basis been adopted, as stated in the Social Security Act, the single retirement pensioner would have had £3 per week and not £2 per week. The married pensioner would have had £4.70 next November, not £3.30 on the 15 per cent. basis that the Chancellor has chosen.

The Chancellor has used a meretricious way of saving some £500 million for some of his other pet schemes. He has done it by taking off one third of the increase the pensioners had rightly expected from the commitments the Government have made over the past two years.

The working population has been taken advantage of yet again. Even if the conditional increase in the personal allowances comes about, such increases will not fully allow for price rises since the last Budget. It is worse than that. All those receiving the average wage, those below, and even those above the average wage, will be better off for some time by remaining unemployed than they would be if they were employed. For many thousands of people, being in work, working hard, right through the toil and the heat of the day, as the Biblical phrase goes, will receive only a few pounds more in the week than they could get if they were to go to the Labour Exchange.

Dr. Phipps

This is a point which has been made by several Opposition Members. Is the hon. Member saying that the current level of unemployment is in some way artificial, that a greater part of it is made up of people who have chosen not to work? Or does he believe it to be a genuine level of unemployment?

Mr. Boscawen

I believe that the overwhelming majority of the people in this country want to work hard and to get a fair return for the job they do. I am not discussing those who want to abuse the system; that is altogether another matter.

Surely if we are to be a thrusting nation, if we are to try to push forward and regain the growth in the economy which we so much need, it cannot be right to go on with a system for much longer when it gives very little advantage in working hard all day over what one would get if one happened to be out of work. I am not ignoring the needs of the people who are out of work. I know that their needs are great. But the difference between the two is too often much too small.

Dr. Phipps

The hon. Member seems to be suggesting that if in some way we make unemployment benefits lower, we shall solve unemployment. I cannot understand it.

Mr. Boscawen

That is not the point That is jumping entirely to the wrong conclusion. As the machine is working now, those earning up to almost £70 a week—the arithmetic can be worked out —will not be much better off than if they were out of work. That must be put right.

The poverty trap is another manifestation of the same phenomenon. The Child Poverty Action Group today said that the Chancellor's moves on the family income supplement have ensnared another 25,000 people in the poverty trap. If they take home the £2 or more which has been part of the low-pay deal, in most cases they will get less than they were getting before.

The tax levels on the lowest as well as on the highest levels of earning are far higher now than ever before. We have totally forgotten what it is like for those on average or below average pay to take home almost equivalent to their gross pay. It is an enormous incentive for people to know what they are working for and to take it home in their pockets for their wives and families at the end of the week. We must attempt to get back to that position.

I turn now to national insurance contributions Which have been increased this week and will have to be increased again within a year to pay for the up-rating of pensions. The contribution has been raised to 5.75 per cent. of the overall earnings of the employed person getting up to £95 a week. It is said that the 5.75 per cent. is really deferred pay. I suggest that that is the wrong way to look at it, because it is over the whole of an individual's income. Compared with the basis on which income tax is levied—in other words, only on that part of an individual's income which is subject to the full rate of tax—we find some startling results.

I take for example the individual on two-thirds the average wage—the man at the lowest level of the scale. He will be paying 10.7 per cent. of his taxable income in national insurance contributions. Added to the 35 per cent. basic rate of income tax, it means that he will be paying out 45.7 per cent. of his taxable pay in national insurance contributions, deferred pay—call it what one will—and in income tax. Those two figures together make the strongest possible argument for reducing the level of personal taxation on those with below average income.

The poor are being taxed more heavily than ever before. That must be part of our trouble. The only way in which they can be helped—because of the enormous public sector borrowing requirement—is by reducing some of the expenditure being undertaken by the Government.

The central strategy of the Government—to reduce inflation—can be brought about only if they take more seriously the warnings which have been given by Opposition Members and by many people in the country about reducing quickly the £12 billion public sector borrowing requirement. Until that is done we shall not get the incentives needed for those on average or below average earnings, middle management, and all who work, to get this country out of its terrible economic mess.

7.6 p.m.

Mr. Tam Dalyell (West Lothian)

I applaud my right hon. Friends the Chancellor of the Exchequer and the Chief Secretary for an imaginative and brave Budget. It is strange to return to the House of Commons and hear the carping which has gone on about the link with the trade unions.

I have spent the first three days of this week at the European Parliament—most of that time on the Budget Committee—in contact with Commissioner Cheysson, many officials, European financial journalists and European politicians. They are extremely interested in what they are already calling the British experiment. I suspect that it is many years since any British Budget commanded such wide interest and column space in Le Monde and the Frankfurter Allgemeine Zeitung, but they recognise that this is a serious attempt to deal with our problems.

I should like to add on a personal note—I hope that it will not be taken amiss—that for a year, as Vice-Chairman of the Parliamentary Labour Party, it was my privilege to attend the monthly meetings between the Labour Party and the TUC. I have absolutely no doubt from that experience that my right hon. Friends are on the correct course, the right track, and are doing something which is not only imaginative, but right and in the best interests of this country. It is with positive enthusiasm that I support their Budget. Therefore, it will be with positive enthusiasm that, whenever possible, I shall support their efforts in doing anything to help along these lines.

It will not surprise the House if I turn to a subject which I raised in a different form last week when discussing the issue of a separate Scottish navy, army and air force. I should like it to engage the Chief Secretary's attention on the financial and budgetary aspects not only of a separate Scotland, but of a Scottish Assembly. I think that this is the time to put down a marker to my right hon. Friends and to the Treasury. They can do one of two things which are self evident. They can either give revenue-raising powers to the Scottish Assembly, or deny the Assembly such powers.

Let us take the simpler case first. Let us suppose that we deny revenue-raising powers to the Scottish Assembly. Every grievance, real or imagined, will be put at the door of my right hon. Friends, or whoever occupies the offices in Great George Street. If a school is not modernised, the Assemblyman will say "We are terribly sorry. We should have liked to have done something, but those parsimonious people in Great George Street will not give us a sufficient block grant. Therefore, we cannot do what is required."

If a hospital is not brought up to date, it will be the same sorry story if there is a fixed block grant. Those who think that they have anything to gain out of the politics of grievance will proceed on those lines. The hon. Member for Dundee, East (Mr. Wilson) is a skilled operator of the politics of grievance and insult. He is very good at that job. He will certainly go to town along these lines as a Member of the Assembly. That applies not only to the hon. Gentleman but to colleagues of mine, and certain colleagues of the hon. Member for Guildford (Mr. Howell) if they become Members of the Assembly.

The truth is that if we become members of institutions—I have seen this in Strasbourg and Luxembourg—we want to believe that they are important. Even if the institutions are not declaratory parliaments but legislative assemblies, they will always struggle for more power. It would be unnatural and inhuman if they did not.

If the Assembly does not have revenue-raising powers, there will be increasing fiscal irresponsibility. Again I take the example of Europe. I marvel at the way in which some of my colleagues—not only British colleagues, but the French and especially the Italians—come forward with scheme after scheme of enormous cost. As there is no obligation for those who are members of the Assembly to be responsible for the raising of revenue, they continue day after day to churn out reports in a lighthearted manner without any costing. My fear is that that would happen if a Scottish Assembly did not have the disciplines of revenue raising. The result would be enormous discontent.

We now come to the question of what is to happen if the Assembly is given revenue-raising powers. I see around me many clever colleagues who have written enormous tracts on the subject. They are professors at universities or those who hold high positions in various institutions. When I ask about taxes I am told "That is a matter of detail. That can be sorted out". That is what I am told by my hon. Friend the Member for Berwick and East Lothian (Mr. Mackintosh). I shall go through the alternative revenue-raising powers one by one. I ask the Treasury to tell me what its collective wisdom says when my colleagues have had time to think about these matters.

The favoured way of raising money is by a levy on the rates. In the 13 years that I have been a Member I have never faced such angry ratepayer meetings as in recent times. I challenge any district or regional councillor of my party or any other to explain to an angry ratepayers' meeting that there must be a surcharge of not less than 25 per cent. on rates that are already very high in the opinion of most people; hence the dismay of the Scottish Convention on a rates levy.

For what purpose would we be asking for higher rates? Would we be asking for higher rates for a new form of government, or for an expensive shake-up of the form of government? My suspicion is that there are very few angry ratepayers who would be willing to dip deeply into their pockets to pay for yet another tier of government, for Assemblymen in Edinburgh and for Edinburgh government.

I have deliberately not referred to devolution because I do not think that the proposed exercise has much to do with bringing power closer to the people. What we are talking about is Edinburgh government. If we were serious about bringing power closer to the people, we should attempt to do so through the mammoth regions that have already been established, such as Strathclyde and Lothian. Admittedly they have had their teething troubles, but they are still in their infancy and they should be given a chance. A surcharge on the rates does not commend itself to me as an agreeable form of raising money.

There is no painless way of raising money. It certainly cannot be painless to try to do so by means of a surcharge on VAT. It seems that my right hon. and hon. Friends have made some gallant attempt at simplification. There is no one who knows better than my right hon. Friend the Chief Secretary that there are VAT difficulties. He is the most eloquent man I know on the subject. When he led for the Labour Opposition on the Finance Bill I remember the fish and chip shop in Heywood and Royton. I remember all the difficulties that were raised. Imagine what would happen if we placed a surcharge on VAT: never would there have been such angry marches of the self-employed against such a proposal. I do not think that that is a very wonderful way of raising money for a Scottish Assembly.

What about a payroll tax? There would be difficulties because if a firm in Scotland had to pay a payroll tax which was not paid in England, what incentive would there be to expand in Scotland? Why should industrialists looking around for a suitable site on which to start a business and to innovate choose Scotland if a payroll tax is introduced in Scotland but not in England? The same can be said of corporation tax. If there was extra corporation tax in Scotland the same consideration would apply.

We also have the Lord Home sales tax. Lord Home says that we should have a sales tax to support the Scottish Assembly. It seems that he now feels guilty and embarrassed. Perhaps he feels he now has to support the hasty and ill-advised comments that he made when making his Perth declaration. He had better go along to his neighbours at Chirnside and Coldstream. He had better talk a walk up the High Streets of those two small towns to explain to the shoppers and shopkeepers why there should be a sales tax when it is not necessary for one to exist across the water in Norham or Berwick.

It would be difficult to explain the necessity of a sales tax to the canny Borderers. I stood as a Labour candidate in the Borders in 1959. I know that cannier people are not to be found in the whole of the United Kingdom. I suspect that they agree with the Border local authorities that Lord Home's proposal should not be adopted. In fact, it does not make very much sense.

We must also consider local income tax. It is legitimate to say that the Conservative White Paper of the early 1970s paraded powerful reasons suggesting that local income tax is not satisfactory. It would be even less satisfactory if it were levied in one part of Britain for hypothecating purposes and not in others. No doubt there would be the classic arguments for local income tax being applied and why it should be acceptable.

Oil revenues offer another method of raising finance. Some of my hon. Friends say that the Assembly must be paid for from taxation of oil revenues. If a portion of oil revenues is hypothecated to one part of Britain, what is the rest of Britain going to say about it? Once we argue for oil revenues we have to accept that the Selby coalfield becomes English coal, along with natural English resources such as gas off Yarmouth and Blackpool. The principle of hypothecating revenue to one part of the United Kingdom for natural reserves is important.

I remind my right hon. and hon. Friends on the Treasury Bench that these matters have never been discussed at the Labour Party Conference. Some of us look forward very much to Blackpool in October when we hope that for the first time the Labour Party will discuss these issues. For some of us they are issues no less important than the break-up of the United Kingdom.

Mr. Gordon Wilson (Dundee, East)

I was most interested to hear the hon. Gentleman's negative critique of the taxation opportunities which are available to finance a Scottish Assembly. I relate my comments to oil revenues. Is it not the case that they provide a source of finance which could be made available to a Scottish Assembly? There may be argument about principle, but it is a possible method of finance.

Secondly, has the hon. Gentleman read the article in The Scotsman by Mr. G. A. Mackay about the extent of the requirements? Regardless of what the hon. Member has been saying, the resources of Scotland are tremendous. No one would object to the English having the advantage of the coal at Selby or any oil or gas they may have. Scotland has ample resources.

Mr. Dalyell

I have not read the article by Mr. Mackay in today's Scotsman. However, if it is anything like as silly as his television appearances, I shall not waste my time reading it. There is a huge gulf between the hon. Member for Dundee, East and me. He is for independence. That is quite honourable and I take no exception to his holding that view. But he knows my attitude. We have to choose. There is no possibility of fudging the issue and there is no form of words, however deftly chosen, which could paper over the chasm which divides the hon. Member and those who think like me.

There would be great disadvantages in a referendum, but if one is to be held I would like the unbiased, neutral and unexceptionable question to be "Whether, at a time when we have had to introduce education cuts"—though much nonsense has been talked about the extent of them—"when the Treasury is finding it hard to produce the resources to keep the National Health Service standing still, let alone advancing, when we have angrier ratepayers' meetings than ever before and when local authorities are having real problems financing services of which we all approve, and think important, is this the moment to go ahead with an expensive shake-up of the form of government? "

If that were the question, I would find it acceptable, but I have a sneaking suspicion that some hon. Members on both sides of the House might think it a biased question. I do not think it is biased. I think it is a real question and I am in favour of the real questions being asked.

If some of the proposals outlined in the remarkable maiden speech by my hon. Friend the Member for Coventry, North-West (Mr. Robinson) on industrial devolution—if I dare use that word—and industrial democracy were applied to British Leyland, it would do me far more electoral good in Bathgate and do my hon. Friend the Minister of State at the Treasury, who is on the Front Bench, more good in his constituency of Llanelli than this talk of assemblies.

I believe the hon. Member for Dundee, East gets his support for reasons quite different from a desire for a shake-up in the form of government. I commend the speech of my hon. Friend the Member for Coventry, North-West. I represent a huge Leyland factory in the truck and tractor division and I urge Ministers to take seriously the proposals in my hon. Friend's speech.

I have just one question which the Government may like to answer at their convenience. In all this talk of revenue raising for the Scottish Assembly, what contact has there been with the people who will actually have to do that job? It may be appropriate, after the events of Tuesday and the election of a new Prime Minister, to remind him of his early association in a previous incarnation with that very important body the Inland Revenue Staff Federation. What consultation is likely to take place with the Federation about ways of raising money for the proposed Assembly?

7.25 p.m.

Mr. Michael Marshall (Arundel)

I am sure the hon. Member for West Lothian (Mr. Dalyell) will understand if I do not follow him down the road of Scottish devolution. It is one of the lesser known facts of this House that, shortly after my election, I found myself, through one of those strange pieces of brilliance with which the Committee of Selection amazes us, sitting on the Scottish Grand Committee. I soon discovered that the one thing one does not do as an English Member on that Committee is to speak. I ventured to speak and got myself removed very quickly.

I am pleased to have caught your eye, Mr. Deputy Speaker. After four hours sitting in one place, it is gratifying to be able to stand on one's feet.

There have been some interesting contributions to this debate. I regret that the Secretary of State for Industry is not here because I particularly want to comment on his opening speech. I hope that the Ministers on the Front Bench will draw his attention to my comments because today is industry day and I wish to focus on some of the matters raised in the Secretary of State's opening speech.

The right hon. Gentleman is getting a slightly unfortunate reputation for the hustings-type speeches he makes in our debates. I recognise it is an old approach in politics that attack is the best form of defence, but the Secretary of State should reflect, in these difficult days, upon the defensive attitude he is presenting when we talk about industry.

In looking at the whole economy and thinking about the vital role the Department of Industry has to play, the Secretary of State's approach of attacking this side of the House and blaming us for the difficulties he is facing is misplaced. The more he cries "Wolf", the less the country will take him seriously.

I am thinking particularly about the comments he made in respect of the proposals for nationalisation of the aerospace und shipbuilding industries. Allegations of filibustering in the Standing Committee are tired old charges, particularly on a day such as today when there are not many journalists in the Press Gallery. The Secretary of State's remarks will not find much circulation there and hon. Members know exactly how to regard the kind of argument he was using. If the Secretary of State had a breadth of vision, I would have found it harder to criticise him.

If the Government could say that they seriously believe that nationalising these industries would make a real contribution to a more profitable, vigorous and alert industry—to use the words of the famous White Paper on the regeneration of British industry—why did it take two years to bring legislation before the House and why did they bring forward a Bill and then withdraw it? Of course, we know the answer. They were politicking and keeping one eye on their General Election prospects.

The legislation was in the offing for two years and for the Government to complain now about a mere three months in Committee is ludicrous. This is very small beer compared with the overall delay with which the country had to put up while the legislation was pending and which caused some concern.

Finally to dispose of the question of the so-called filibustering, hon. Members who were here on Friday when we debated British industry will know that the hon. Member for Battersea, South (Mr. Perry) freely accepted that the delay in the Committee proceedings was caused almost entirely by the fact that it is dealing with a Hybrid Bill. It is highly unsatisfactory to bring together two industries in one Bill. Even hon. Members who are not on the Standing Committee, but who read its proceedings and drop in from time to time, realise that it is a scene perhaps more reminiscent of tennis at Wimbledon. One speaker talks on shipbuilding, then another speaks on aerospace.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

Order. I think the hon. Member should devote himself to the matters we are discussing in the House.

Mr. Marshall

I accept your ruling, Mr. Deputy Speaker. The alleged delay in the Committee proceedings, which was the main charge of the Secretary of State's speech, cannot be put down to the Opposition.

If we are considering the rôle of nationalisation within the economic package presented by the Chancellor of the Exchequer, it cannot be divorced from the way in which the last Labour Government and the present Government have, by their actions in moving into manufacturing industry, raised a whole new set of problems for our economy. The Labour Government committed themselves to move into manufacturing industry with the nationalisation of steel. With the nationalisation of aerospace and shipbuilding, problems will inevitably arise. On nationalisation, the first thing that happens is an investment hiatus which, when the steel industry was nationalised, lasted for many years. Now we have an investment hiatus in aerospace and shipbuilding which is two years old. All that has to be paid for, and at the end of the line the taxpayer will have to find the accelerated funds for investment to make up for this damaging hiatus.

When those industries are nationalised, if they are, the £1,000 million losses of nationalised industries will be increased. It is a forecast that I regret to make, but history shows that the operation of Government and Whitehall within manufacturing industry has a direct impact on the taxpayer. That does not arise from the fault of individuals or even individual planners. It arises from the failure to recognise that in nationalising manufacturing industry we move into highly competitive international spheres, in which commercial flexibility is of the essence. That flexibility is removed by nationalisation. In judging the Budget, my first argument is that the fact that nationalisation was ignored by the Chancellor is a grave omission.

A few nights ago the new Prime Minister talked about the need to pull together and to make sacrifices. Yet he and his Government are unwilling to sacrifice any of the sacred cows of nationalisation. There is the suggestion that the great public must make sacrifices whereas the Government cannot afford loss of face even if to lose face would save taxpayers' money. That is the fundamental weakness which will bring down the Government. Some of the arguments brought forward by the Chancellor illustrate the partial nature of his proposals.

I should be less than kind if I did not, in the presence of the Minister of State, refer to the reduction in VAT. Those of us who made representations on the boat building industry were appreciative that he appeared to take some interest in this subject. The reduction in VAT is welcome. Many of us who made representations feel that this is a fight worth winning which we have partially won, but we cannot leave it there. The damage done to boat-building firms as well as to electronic firms has been substantial. Several companies have gone bankrupt and in my constituency many companies are working on short time and have been severely affected. Many skilled workers in the industry have been made redundant and, sadly, may never come back to it.

The VAT argument is typical of the way in which Treasury planning has gone adrift. It is not good enough for the Chancellor to breeze down here in his best silly Billy manner and suggest that all is well because VAT is in a nice little narrow band between 8 per cent. and 12½ per cent. The absurdity of those figures is self-evident. It is incredible that we cannot find figures which are easy for small traders to operate. To choose 2½ per cent. and to take us back into the one-eighth era flies in the face of decimalisation, which I assume to be part of the Government's thinking. It is typical of the opportunities that have been missed to help small business more broadly.

It is to be regretted that the Chancellor did not recognise the effect of inflation on the starting point for VAT. The take-up point of £5,000, to allow only for inflation, should now be well over £8,000. By failing to recognise that, the Government are committing more and more small firms to come into the VAT net, and it is precisely those small firms which are least able to cope with the additional paper work and costs. In some cases they may simply decide that the game is not worth the candle. Yet another opportunity of helping small business has been missed by the Chancellor for an infinitesimal amount of revenue compared with the broad figures with which we are concerned.

That brings me to one or two aspects which may seem minor but are indicative of the Government's lack of broad judgment. I am thinking of some of the straight "politics of envy" proposals—for example, the proposal to raise taxation on the engine capacity of cars. Once again, small businesses will feel the weight. There is the question whether the individual out of after-tax revenue can afford to meet the levies which are proposed. For many small businesses the use of a car in selling or working as a sub-contractor is vital. This approach comes ill from Ministers who, in the cushioned ease of their chauffeur-driven motors, are suspect animals to put forward such mean proposals. Ministers who drive round in comfort at all hours of the day and night and who also own a private car must recognise that the same is true of many hard-working people in small business. That is a particularly mean, spiteful and "politics of envy" approach to the national scene.

I come now to future tax levels and the way in which our fate is to be determined by negotiations with the TUC. I share some of the reservations that have been expressed about the way in which personal cash flow is to be determined for months ahead by a method over which we have no control and which we cannot predict. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) was right to draw attention to the implications. It could mean large injections of cash into the economy with perhaps the tendency for a consumer boom later in the year which may not be part of the economic strategy the Chancellor has in mind.

Reliance on negotiations with the trade unions in setting future tax levels is an idea that must be tested by a judgment whether it is likely to succeed. The Government have told us—and Ministers have reiterated—that a 3 per cent. wage increase is the positive maximum that the Government can allow. If that is so, it is hard to accept that the trade unions could enter into negotiations on that basis. One thing the trade unions will expect to do is to negotiate. They will not expect a take it or leave it approach—"Take 3 per cent. and get your tax back—and that is the end of the negotiation". If there is one thing that the trade unions are good at it is negotiating. Their members expect them to negotiate.

If the Chancellor is putting down 3 per cent. as a marker and saying that that is his starting point and we must negotiate from there, let him be honest and say so. To say that this is the absolute maximum if it is not true and if it is part of a bargaining game will throw doubt over the whole Budget strategy.

The reactions from the trade unions so far are not hopeful, and I shall be very surprised if the 3 per cent. sticks. It would mean that the trade union negotiators simply went to their members and said "We were offered 3 per cent. and certain tax concessions and we accepted it." In the history of trade union negotiations that has never been a feature. The trade unions will be expected by their members to stick out for something better, so that the negotiators can go back to them and say "They wanted to give us 3 per cent. but we have got 5 per cent.", or whatever it might be. This throws grave doubt on the whole strategy of the Chancellor, and suggests that a degree of gimmickry is at work.

The general economic judgment of the Budget suggests to me that the Government are about to break every post-war economic record in the book—and simultaneously at that. The all-party Select Committee on Public Expenditure utterly rejected the Government's White Paper on Public Expenditure, with its estimates up to the end of the decade. It criticised the whole of the Government's economic policy as unrealistic. Frankly, I prefer this all-party view to that of the Chancellor. It seems to me to be closer to the kind of national view for which the Prime Minister called. I cannot help but feel that the Chancellor's proposals are much closer to a party political view than to anything else. Indeed, they are close to the kind of shabby party political view that the Secretary of State for Industry put across this afternoon.

It is for that reason that I feel so strongly that we should make clear tonight our objections to the Chancellor's proposals.

7.42 p.m.

Mr. Raphael Tuck (Watford)

I hope that the hon. Member for Arundel (Mr. Marshall), who is my Member of Parliament, will excuse me if I do not follow his remarks. I should like to follow first my hon. Friend the Member for West Lothian (Mr. Dalyell), who congratulated the Chancellor on a courageous Budget. I echo that congratulation. I feel that it was courageous, in that it brought out a new point.

At one end of the political spectrum we have those who say that the Chancellor is dictating to the unions. At the other end there are those who say that the Chancellor is pandering to the unions. The Chancellor is doing neither. He is making an honest offer of co-operation to the unions. I hope that the unions will accept it in that spirit, consider it, and give it their consent.

But if the Chancellor is expecting the unions to agree, he will have to show them that he means business in that he will keep prices down to a certain level. The way to keep prices down to a certain level is not to phase out the food subsidies and the subsidies to the various nationalised industry services.

In this respect I echo the plea made by my hon. Friend the Member for Renfrewshire, West (Mr. Buchan), who a week or so ago begged the Government not only not to phase out subsidies but to increase them in order to prevent a spate of wage demands which would follow if prices rose too far. I ask the Chancellor to take that into consideration.

I also ask the Chancellor to consider the tax relief that companies have had in the last two years. I understand that it was in the nature of £7,600 million. Part of it, I suppose, was legitimate, but it needs consideration and investigation. It may well be found that much of it could be taken from the companies and given to the public to the advantage of the public.

I specifically refer here to advertising. Companies which advertise ought not to be able to claim tax relief on their advertising, because we, the taxpayers, have to pay for it.

With regard to the proposed tax on wine, wine has been increasing in price partly because from time to time the tax on it has been increased. But it ought to be understood by my right hon. and hon. Friends that those who pay from 70p to £1 for a bottle of what is commonly known as "plonk" are much more affected by a rise of, say, 20p due to tax than those who can afford to pay £4 or £5 for a bottle of Nuits St. Georges or Mouton Rothschild.

If I could afford to pay £4 or £5 for a bottle of wine—which I cannot—it would not matter to me very much if 20p, 30p or 40p were added to the price. If I could afford £4, I could also afford £4.50. But the man who can afford only "plonk" cannot afford a tax of the magnitude of 20p. I suggest to the Chancellor that he should consider taxing "plonk" at a low rate while taxing the good wines at a high rate.

I have mentioned this personally to the Chancellor. He said "Yes, probably you are quite right. I might be able to put on an ad valorem tax instead of a tax right across the board."

Mr. Sydney Bidwell (Ealing, Southall)

My hon. Friend is another Mike Yarwood.

Mr. Tuck

I hope that my suggestion will be considered.

I thank the Chancellor for his 60p concession to widows, but I do not think that it is enough. I do not think that a widow's pension—or perhaps any pension—should be taxable. The widow is receiving the pension that her husband would have received. Her husband paid his contribution week after week, or month after month, towards that pension. He was taxed on the money he received and so the contributions were paid out of taxed money. As he paid those contributions out of taxed money, it should not be taxed a second time. If the pension is taxed, the money is thereby taxed a second time.

Widows have come to me in my constituency and said "If our pensions are taxed, it is not worth taking a job, because our earnings from the job are taxed and our pension is taxed. It would be far better for us to obtain social security. But we do not want that. We want to get a job. But why tax us out of existence if we take a job? We want our pensions to be untaxed." I ask the Chancellor to consider the inequity of taxing these pensions. Much more should be done for widows. They are the forgotten group in the community.

But, assuming that pensions are to be taxed, I put the following example to the Chancellor. The first person, Mr. A., goes into a business at 20 years of age, a business which has a contributory pension scheme. He pays every month into this scheme. The employer adds his contribution, paying almost double the amount. When he is 65, the employee retires and receives a pension of, say £3,000 a year.

The second person, Mr. B, goes into a company—or is self-employed; it does not matter which—which does not provide a pension scheme. He therefore feels that he must put something aside which will produce a result equal to a pension in his old age. He pays probably double the amount that A pays because there is no employer to contribute towards B's pension. At 65 he retires and enjoys an income from his savings of £3,000 a year.

The income of A at £3,000 a year is regarded as earned income and is taxed at 35 per cent. B's income is regarded as unearned and he pays a surcharge. The only difference between A and B is that B has had to pay much more than A to realise the same income. Why should B's £3,000 a year be regarded as unearned? I hope that my right hon. Friend the Chancellor will be able to do something about this anomaly.

7.52 p.m.

Mr. Geoffrey Dodsworth (Hertfordshire, South-West)

It is a particular pleasure to follow the hon. Member for Watford (Mr. Tuck), with whom I have had the pleasure of co-operating on a number of non-political matters. I followed his remarks with considerable interest and, in some parts, with considerable agreement.

He referred to the rôle of company profits. It is perhaps worth referring to the Chancellor's Financial Statement and Budget Report which says that in the coming year corporation tax extracted from companies will provide £2.6 billion. That is one of those incomprehensible figures, but it is put into perspective when one considers that that sum would pay twice the expenditure on roads and transport, the full contribution towards education, libraries and science and the arts, and still leave enough to pay a quarter of the social security bill. This shows that those companies are making a substantial cash contribution to the well-being of the nation.

The whole question of the allowance of expenditure by companies for tax purposes is one on which I fully understand the hon. Member's concern. But companies do not operate on the basis of spending money for its own sake. They spend it to provide funds to generate work. I am particularly interested in the question of advertising expenditure because that is incurred in the interests of choice.

I wish to deal with the conditional income tax reliefs, the novelty which appeared in the Budget. I recognise the need for a constructive approach to incomes policy. In the onerous economic circumstances which face us we must realise that not all the methods we would like to use are available to us. The temporary expedient of an incomes policy must be supported to some degree or other. Last year I believed that the Government's policy was right. Such was our situation that we had no alternative but to support the incomes policy.

I wish the Chancellor success in his strategy. However, I am concerned about his method. No responsible person can feel anything but the most earnest desire to see that inflation is reduced and to support action to achieve that. Clearly any action on incomes policy is likely to be of advantage, but this new mechanism raises more questions than it solves. It is the reversal of consultation. The right hon. Gentleman is not saying that he wants to consult and to arrive at an agreement, that he wants to work together to achieve a settlement and to recommend the appropriate legislation to Parliament. He is saying "This is the situation and if the unions do not agree to the 3 per cent. a fine will be imposed because the tax relief will be taken away". But it is worse than that, because those who are consulted represent only half those who will be fined. The whole nation will be fined if the tax reliefs are taken away.

Mr. Tuck

Surely the Chancellor is not saying that people will be fined. He is saying that if they accept his proposal he will be able to give them tax relief but that he cannot do so otherwise. The emphasis is quite different from that suggested by the hon. Member.

Mr. Dodsworth

The situation is the reverse of what the hon. Member for Watford suggests. It is the implied threat of consequences if the Chancellor is not successful in his negotiations which causes me concern. One of the lessons I have learnt from history is that diplomacy is best achieved behind closed doors. When the spotlight is turned on consultations and negotiations, the results are not to the advantage of the public. I believe that we have now turned the spotlight on to the discussions and negotiations over wages. That is sad because it suggests something more ominous. It suggests that the discussions which have taken place so far have failed.

Last year proposals were put before the House after discussions. The Chancellor has told us how successful they were. He did not threaten that a course of action would follow if the unions did not behave. There were private consultations and discussions. I am sure that these discussions have been held again with the TUC which I know makes informed and helpful representations. I believe that there is a failure of confidence in the Chancellor's judgment, a belief that he cannot deliver the goods. The right hon. Gentleman's hands are tied behind his back. He has disclosed what he believes to be the only way in which the Government can proceed, the minimum that he can give. It is wrong to suggest that there may be a bit more round the corner if a settlement can be achieved. It is this element of brinkmanship which concerns me. The people cannot understand why the success of last year is swept to one side and this novelty is presented.

The income tax relief is on personal allowances only. They reflect the whole nation, not just a part of it. This therefore is a form of indexation. We are being indexed to the pay norm. But there are a number of attractive indexation alternatives. A number of my hon. Friends have suggested that the indexation of taxation allowances should have been introduced some time ago. I have my reservations about that. I wonder whether it is a good idea because it tends to build inflation into our taxation system. But if we are to deal with taxation allowances and personal reliefs in this way, why not index them to productivity? That would be highly attractive. Surely it is not beyond the wit of the tax machine to relate tax reliefs to the productivity index or even to exports. After all, we know that is the most important issue for this country. We have the Chancellor's word on that. If that is so, exports is another way in which we can look at the pay norm, because that is the true road to recovery.

I make those observations merely to suggest that perhaps all is not well with this novel proposal. Its only attraction is that it is novel. The Budget made absolutely no contribution on the subject of exports. It offered no help to tourism, shipping, insurance or finance—invisible exports which have been extremely beneficial to the nation at large and which are continuing to be so as one of the real growth industries. It seems sad that the Budget should neglect that area of activity and economic success, which we ought to be supporting.

We could link the success of our pay limits policy to VAT, because that is just as much applicable to the nation at large. We could have a different rate of VAT if we have a 3 per cent. wage limit success. We could say that we shall stick to the 12½ per cent. rate, or, if it is a 5 per cent. wage limit, raise VAT to 15 per cent. There is the whole question of the logic of the mechanism being utilised. I believe that it is more a novelty and economic attraction than a reality.

One other question to which we must seriously address ourselves is what the next round will bring. We had £6 last year as a single cash limit and this year we are to have 3 per cent. tied to personal tax reliefs. What is to follow in the next year? What new argument shall we produce? Shall we say, "If there is rise to offer support to my right hon. in personal tax allowances?"

We are on a road that presents a great deal of difficulty. I suspect that it has an element of lack of logic which will not appeal to the nation at large. The nation believes that it is being led up the garden path. Ordinary people do not think that it is a good idea that the rôle of Parliament should be swept to one side, and they believe, in a very clear-sighted way, that the constitutional issue cannot and must not be neglected.

8.2 p.m.

Mr. Bryan Davies (Enfield, North)

I rise to offer support to my right hon. Friend's Budget Statement. There are many elements in the Budget which all fair-minded Members would applaud, particularly the position with regard to pensions and to industrial training and the job creation schemes. As we all recognise, it is essential to provide circumstances in which manufacturing industry can develop, yet clearly there must be limitations to prevent reflationary possibilities. Before I turn to the main burden of my speech, in which I want to consider the postponed questions of taxation and incomes policy and their relationship, I want to comment briefly on several minor issues.

As a Member for a London constituency, I greatly applauded and welcomed today the statement by my right hon. Friend the Secretary of State for Industry about the lifting of industrial development certificate restrictions in the South-East. The loss of manufacturing jobs in the South-East in recent years has been considerable, particularly in the London area. We cannot afford to make the capital city a city of service industries only. The protection of manufacturing jobs is essential to the maintenance of a balanced community.

All London Members will be grateful for this recognition by the Government of the necessity to encourage manufacturing growth in the South-East. This is particularly so when one realises that over the next five years substantial resources are to be transferred from service industries into manufacturing. London's future would be bleak indeed if our manufacturing industry were not encouraged and developed in the capital city.

There is another element of the Budget about which I am less happy. Many of us expected marginal increases in taxation in certain respects. In a neutral Budget many of us would recognise, with some relief, that some of the taxation increases have been fairly modest. I venture to propose that one or two of them have been somewhat over-modest. For instance, in regard to the tax on petrol there was room for the Chancellor to abstract a little more in terms of revenue, in view of the very wide disparity between pump prices, which can run as widely as 10p. The Chancellor has erred on the side of caution in adding merely 1p in his present proposals.

I argue this case because at a time when, in order to save public expenditure, we are reducing the subsidies for nationalised industries and public transport, in this Budget we have done very little to reduce the pronounced advantages to the private motorist, when for many of our major cities and very many parts of this country it is only by the development and protection of public transport that our problems can adequately be resolved. Petrol taxation has the crucial advantage that it is related to the mileage travelled by the car. It is better than the poll tax attached to the more significant increase last year on the vehicle licence.

I have heard that the reason why petrol taxation could not be increased at this juncture is that it would have stimulated a demand for the smaller size of motor car and that this would have caused a deterioration in our balance-of-payments position because the British car industry is singularly ill-equipped at present to meet a sustained and increased demand for the small motor car. I certainly hope that a result of Government support for the car industry and greater intervention in it will be an emphasis upon the planning of its products that is more socially responsible than has been the case in the past. We should encourage the development and use of the smaller car. I hope that public investment in the car industry will bring about an improvement in this regard.

It would ill become a Member who represents a constituency in which the television manufacturing industry plays a very substantial part to belabour the Chancellor for having reduced the luxury rate of VAT. I welcome the fact that the representations, requests and demands made by the television manufacturers have led to this reduction.

I cannot help feeling, however, that we are still faced with the crucial problem that we do not have the defining line between luxury goods and the essentials drawn correctly. At a time when we are asking for maximum restraint on the part of ordinary people, it would be socially beneficial if real luxuries were taxed more heavily than at the standard rate, by a substantial increment—certainly more substantial than that contained in my right hon. Friend's Budget, a differential between 8 per cent. and 12½ percent.

The difficulty lies in the categories of goods that we identify as luxury goods, particularly those that include essential household items such as washing machines and television sets, which people have the right to expect to be able to afford. It seems a mistake that merely because these are bracketed in the luxury category, that prevents us from introducing a higher rate of taxation on genuine luxuries. I hope that the Government will look more closely at the taxation of luxuries. Such a move would lead to a response by the people, because they would feel that the better-off were contributing their full share to the public purse.

In the initial response to the Budget of the right hon. Lady the Leader of the Opposition and subsequently her hon. and right hon. Friends I detected reservation and concern about the Budget. They appeared to be taken unawares by its boldness. As did many hon. Members on the Labour side, they expected a fairly dull and neutral Budget. Instead they found it was a fresh start, a bold stroke at one of the crucial elements in our economic recovery—the relationship between taxation and incomes policy.

I have genuine sympathy for the Leader of the Opposition, whoever it might be, because of the way in which the Opposition must make an initial response to the Budget statement. The Chancellor of the Exchequer has a two-hour platform on which to present the results of many long weeks of arduous and intensive work. But the Leader of the Opposition has to make a response in a short speech on the basis of a limited briefing. It is normally possible to detect in such responses some of the Opposition's basic values. In such brief speeches we sometimes obtain a clearer insight into their priorities and their criticism of the present Government.

The Leader of the Opposition seemed to think that the Chancellor's attempt to create a relationship between the next pay round and taxation policy was fundamentally undemocratic. Many speeches from the Conservative side in the debate and statements made outside the House by Members of the Liberal Party have given the same impression.

The Opposition seemed to think that the Budget was undemocratic because Parliament is to lose control over budgetary policy and taxation. That seems most unlikely, because the tax changes which might be proposed after agreement on the next pay round will require amendments to the Finance Bill. The rôle of Parliament in our democratic system is ensured, because, as the Chancellor has said, there will be a White Paper and therefore the full participation of Parliament.

The Leader of the Opposition suggested that the proposals were undemocratic because they sought to create a rôle for bodies which she believes lack democratic validity. Conservatives have a reservation about the rôle played by unions in our contemporary society and economy. Their criticisms are misplaced. I accept that unions have their deficiencies. They are organisations which embrace the interests of many people and it would be odd if they did not have imperfections. But unions are democratic in structure.

The Conservative Party sees a rôle in economic strategy for the captains of industry and representatives of capital. But, whatever else one could say about their contribution—which I regard as significant to our economic development—it can scarcely be said that they owe their positions to democratic will. It is spurious to say that the captains of industry and the representatives of a capital are part of the democratic process. One does not have to delve too deeply into the thoughts of commentators on our contemporary industrial scene to recognise that a shareholder's democracy might have had a place in a nineteenth century economy, but that it does not play a significant part in the industrial strategy of our major firms.

The Leader of the Opposition also appeared to think that the proposals were fundamentally undemocratic because organisations which do not embrace the total work force are to be consulted. If the Conservative Party had its way, unions would be less representative of workers than they are today. The Tory Party has demonstrated its opposition to any further moves to increase their representational rôle.

Even if one accepts that only a proportion of our workers are organised into unions, the Opposition's argument still does not hold. Whether the Government consulted the unions or whether, in some mad mood of folly, they decided to disregard them—although I am sure the present Government would never be guilty of that—unions would still have a rôle to play. That is because the action of unions, the wage settlement which they eventually achieved, the bargain which they struck with employers, would have critical and significant effects on all work people, even if they were not represented by unions.

On that ground it cannot be argued that the Government are failing in their duty by developing a policy which explicitly relates taxation proposals to the next pay round and the rôle of the unions. The right hon. Lady's charge that my right hon. Friend's proposals are fundamentaly undemocratic does not stand up. Her reaction shows not her concern about the alleged undemocratic nature of these new, interesting and, I hope, eminently successful proposals, but rather the true Conservative values, the willingness—indeed, eagerness—to dance around the totem pole of the Budget. The right hon. Lady was making a fetish of the little red box, which is a relic of a structure of Government that predates even Keynesianism, which reflects a policy and economic strategy by the Opposition which, if introduced, would take us back into the Dark Ages.

I hope that the way in which the Budget has been introduced and the fact that it contains such a significent proposal, which will not be implemented immediately, will have reduced the significance of the annual presentation of the little red box. I hope that we shall shortly move to a closer relationship of our consideration of taxation and public expenditure in the House and to a much closer relationship between our taxation policies and the annual pay round.

Yet it should be recognised that, although I defend my right hon. Friend's broad strategy, he is seeking to drive a hard bargain in harsh times. In the past year working people have made considerable sacrifices, and the 3 per cent. proposal and its associated tax concessions still call for considerable sacrifices by ordinary working people.

Nevertheless, the Labour movement—Government, unions and people—has an enormous success story to record over the past year in the operation of the incomes policy. I sincerely hope that next year will be equally successful so that we may recover from this tragic economic depression as smoothly and swiftly as possible.

8.22 p.m.

Mr. Peter Bottomley (Woolwich, West)

I found the speech of the hon. Member for Enfield, North (Mr. Davies) far better than that of the Secretary of State for Industry, who looked as though he was either repeating his election address from the last election or was trying to prepare something for the next. Even so, the speech we have just heard got away from the main points raised by the Budget.

I hope that the House will forgive me if I do not follow my normal line on motherhood and inflation or child benefits and their relativity with incomes of single people at work. I hope to address myself to the new Secretary of State for Social Services when he next comes to the Dispatch Box.

I should like to tell the Chief Secretary of the Treasury how grateful I am to him for receiving a deputation from the British Union of Family Organisations two or three weeks ago. He listened with obvious interest, and I think that he shared the concern of the organisations which came.

It is necessary that at some time—hopefully within the next year or two, rather than in 10 or 20 years' time—the Government shall be able to go to a body representative of those with family responsibilities, just as they can at present to speak to the CBI or TUC, which, for all their weaknesses, at least make a reasonable fist of representing many employers and many employees.

The Budget does not deal with one of the major problems which we have faced in the past three or four years—that of industrial relativities. I am thinking not of the relativities of people in different grades in one industry, but of the problem we ran into in the past five years or so, that of relativities between different industries—how much we shall pay the average miner compared with the average school teacher, how much we shall pay the average employee in an industry that is declining in terms of the number of employees, such as the railways and coal mines, compared with people in growth industries, such as computer programmers or university lecturers.

If we can think clearly about how to deal with that sort of problem, we can avoid much of the unnecessary leapfrogging that comes when people in some industries say "We have fallen behind in the league table. The only way to regain our previous position is to go for a pay increase substantially greater than the present going rate." Anybody who examines pay rises in the past 15 to 20 years will put his finger on that as one of the major problems.

The other problem about pay rises is that people negotiate for increases at different times in the year. We have seen this with so many Governments in the recent past, when a Government have to state guidelines or to form pay policy, whether voluntary or statutory at a time of crisis. When they impose a wages policy or introduce a Budget they say "We must make the best estimate possible of what the general pay increases will be." The people who negotiate in March, possibly nine months or 11 months after the Budget or after the pay policy started, get away with much more, or receive much less, than those who settled their increases earlier in the year.

It is worth giving a good deal of consideration to the setting of a "synchro pay day" or to staging increases for most of the industries where the Government are in control, so that we do not find that our major nationalised industries are leap-frogging each other, or that three of the four big ones receive the pay increases that they expected and the fourth finds that it is two weeks or two months too late, or that the portcullis has just been dropped on large pay increases. Whatever one's individual view on a general incomes policy, the Government must have one because of the large number of people at work whose pay they virtually finance or control.

I return briefly to the question of family interests. How is it possible for trade unions to differentiate between the different interests of those of their members who support a spouse and/or children as against those who are single? Anyone who has listened to my speeches and those of hon. Members on both sides of the House will recognise that there has been a massive transfer of resources from those with family responsibilities to those without them. If the House is to share with the TUC responsibility for determining pay increases and tax allowances, or the level of other benefits, tax credits or what one will, we must find a way to make it possible for a trade union—at national or branch level or in a particular factory—to balance the different interests of those who pay their subscriptions to it.

In looking at the major differences between some hon. Members on that side of the House and most of my colleagues it often comes down to a question of planning and whether Government planning, social planning, or whatever one likes to call it, is much more effective than trying to go for indicative planning or guiding a free or social market. Looking at some of the things the Chancellor has not been able to say or do one sees some of the major problems of the kind of planning advocated especially by some hon. Gentlemen below the Gangway.

On the question of increasing the tax on petrol, I follow the hon. Member for Enfield, North. The Chancellor says that it is possible to get manufacturing output up by over 8 per cent. a year, so presumably we have a fair amount of spare capacity. But he cannot put up the tax on petrol, as he probably wanted to do, by more than one penny a gallon because to do so would be to suck in too many of the small economical foreign cars. Secondly, if he believes that there is a case for putting higher tax on a scarce energy resource, petrol, it is far better for him to say, "I as Chancellor believe that this is what we should be doing and in two or three years' time we shall be looking towards higher taxation, relatively, on petrol than on other goods and services, so that the car industry can plan properly." Obviously, the Chancellor will be replaced at some stage by another, hopefully by one of my hon. or right hon. Friends, but at least he can be giving that kind of indication to motor car manufacturers.

Touching on another subject in the Budget, the duty on tobacco, if one is concerned over the nation's health—and I am sorry that the Annual Report of the Chief Medical Officer has been delayed and probably will not be published until May—in considering the link between smoking and health, is not it far better for the Chancellor to say, "So far as it is within my power, or is Government policy, the tax on tobacco will rise at a faster rate than the tax on other goods and services" or, "If we can bring down taxation on other things we do not intend to reduce it on tobacco. On that we shall move the other way."? If that were done, many more individuals would take seriously the economic as well as the medical aspects of smoking.

If long-term planning means anything, those two examples point to one side of the problem. Why is the Chancellor not willing to take up these options? Considering the management of the total economy, I have looked through most of the contributions to this debate but have found very few references by hon. and right hon. Gentlemen opposite to that corner-stone of the Labour Party manifesto, the social contract of two years ago. Where has it gone? Where was all the planning there? Where was the planning that allowed pay increases to run at 54 per cent. in the last couple of years when production has gone down? The dislocation caused not only to individual families but to virtually every industry in the country has been far greater than any relatively free market would have caused.

I do not want to go into the constitutional aspects of discussions with the TUC because that would be going over ground which others have covered far more ably than I could. If I may concentrate on the procedure that may be used by the TUC to discover the views of its members, I would ask the Treasury Bench how they expect people who are not in membership of the TUC to let their interests be known—because there are many people in this country, within and without trade unions, who are desperately concerned. Taking one of the 8 million retired people in this country who perhaps had £600 in the Trustee Savings Bank two years ago at the time of the February Election in 1974, that £600 is now worth £400. There is a 30 per cent. inflation tax on that person. Are those people to have representation directly in the TUC? The answer is "No".

Take the retired person with an annuity or pension that was bringing in £15 per week as fixed income. That is now worth only £10, yet it may have been the product of a lifetime of saving. Take the case of anyone holding an insurance policy from one of our industrial life offices. Millions of people receive a weekly call from the "Man from the Pru" or some other life office, having entered into a proposal for life assurance from which they hope to receive a sum at the age of 65 or to provide income or a lump sum for the widow if the insured dies before that age. How do those people make their point of view known, let alone the millions of self-employed or the 11 million employees who are not in TUC unions?

What of those who are of greatest concern—those who are in TUC unions? When I go to my branch meeting next Tuesday, shall I find a resolution, motion or discussion on whether the common sense put forward by the Chancellor should be accepted? Or shall I find that there is no discussion, as on the social contract or on the Common Market, when my trade union voted two to one against it and discovered that the people of the country as a whole had voted two to one in favour? Am I and 10 million other trade union members to have the chance to put forward their point of view?

If we are not—and I suspect that we are not—and the other 34 million adults in this country will not be asked for their opinion either, I hope that the Chancellor or perhaps the Chief Secretary will send out a call to everybody to go along to their union branch meeting and put forward their point of view, or write to him, or if necessary to Members of Parliament—which might be a good constitutional way of doing it.

I have been concerned at the shock expressed by a number of trade union leaders who have discovered that, after two years of monthly meetings between the Labour Party and the TUC, they are now told that 3 per cent. is the most the nation can afford in terms of pay rises. I would argue that the final figure is less than 3 per cent. It must be remembered that we have the follow-on effect from the £6 per week policy and we must also bear in mind the effects of inflation, price increases and unemployment. The present situation as announced in the Budget came as a great surprise to trade union leaders after two years of virtually non-stop discussion with the Labour Government. Is it a matter of the trade union leaders, being decent honest people, having the wool pulled over their eyes by the Labour Front Bench for such a long time?

I commend the speech made to the House by my hon. Friend the Member for Carshalton (Mr. Forman), who in a witty and able way demonstrated how important it is at by-elections to return Conservative candidates. Furthermore, the speech made by the hon. Member for Coventry, North-West (Mr. Robinson) showed that he was a welcome addition to this House. I know how difficult it is for new Members of Parliament to hold the attention of the House and at the same time to concentrate on what they are saying. But as long as the House finds new Members of their quality in the years to come, the Front Benches on both sides of the House will be filled with people of distinction.

Mr. Deputy Speaker (Sir Myer Galpern)

It may be a little unusual to make such an announcement in the House with its present attendance, but I must make the appeal that if it is possible I wish to call three more Back Benchers before I call the Opposition and Government Front Bench speakers. I hope that I shall be able to accommodate those hon. Members.

8.38 p.m.

Mr. Andrew F. Bennett (Stockport, North)

In view of the appeal from the Chair, I hope that the House will take it from me that I support the vast majority of the Budget proposals and will spend the major part of my time dealing with a few reservations.

I wish to deal first with the subject of vehicle excise duty or motor licence tax. I am disappointed that the Budget did not contain an announcement to abolish motor vehicle excise duty, if only because of the licence centre at Swansea. The tax has always been subject to evasion by some people. Although the tax can be paid every four months, if paid annually it can be something of a burden. Therefore, people do not pay the tax in a particularly happy frame of mind.

I should have thought that it would have been cheaper to administer had it been put on petrol. If we are trying to cut back on public expenditure it is important that we should seek to cut back on administrative costs. There is a strong case to be made for a differential tax between the running of small and large cars. A tax on petrol would go some way to achieve that end. I believe that there is a strong case for getting rid of the road fund tax altogether.

I accept the Chancellor's explanation about the problems of the British car industry and his emphasis on the fact that the industry is not producing the small family car. Surely my right hon. Friend could have offered a date for abolishing the tax by, say, early 1978 or 1979. No doubt there will be problems in phasing out the duty. It will involve people requiring refunds and all the rest of it. But surely it is logical to set a target for the industry so that we may be encouraged to switch to the smaller car, and therefore the date of April 1978 may be realistic for the abolition of the duty, or even 1979. At the same time the Government must consider the other problems which would follow after the tax was abolished to ensure that people maintain their insurance and get their MOT certificates regularly.

When we get round to abolishing the motor licence tax, we shall have to look at these problems. A small piece of legislation to insist that people displayed their MOT and insurance certificates on their vehicles would be very valuable. I hope that in months to come the Government will look carefully at the possibility of making an announcement that this tax will be abolished in the not too distant future.

I want to turn to the subject of VAT. Like my hon. Friend the Member for Enfield, North (Mr. Davies), I have some reservations about getting rid of the luxury class completely. I have received many representations from my constituents about the problems which resulted for them from the introduction of the 25 per cent. rate last year. Many of them were not representations which were particularly valid. They simply felt that luxuries should not be taxed so highly. However, those which impressed me most were those constituents who came forward with examples of anomalies resulting from this sort of tax.

The firm of Friedlands of Reddish, in my constituency, make doorbells and chimes. This is an exampleof one of the most efficient British firms which manages to produce 60 per cent. of its goods for export all over the world. If one is looking for a record of achievement, a firm which can sell doorbells and chimes successfully in Japan must be doing very well. Of course, the 60 per cent. of sales going for export are not subject to VAT, but 40 per cent. go to the home market, many of them into new houses. VAT is put on them, although it can be claimed back.

A small proportion of the total sales is subject to the 25 per cent. rate but there appears to have been a large number of anomalies. There has certainly been some discouragement to the small do-it-yourself shops to stock doorbells and chimes because of the problem of putting on the extra VAT.

I pressed the Government during the year to look sympathetically at reclassifying doorbells and chimes and I am sorry that they have not been able to meet me on this point. The revenue from the tax on doorbells and chimes was small last year, but now that the differential between the standard rate and the luxury rate is only 4½ per cent., the amount in income to the Government from classifying doorbells and chimes as a luxury will be very small.

However, the anomalies with which the firm will have to deal in the application of VAT regulations will still be considerable. I hope that in considering the Finance Bill the Government will sympathetically discuss the possibility of reclassifying doorbells and chimes. I accept that chimes that play a fanciful tune may well be a luxury, even if one likes that sort of thing, but the simple doorbell in blocks of flats or in a house is not a luxury at all.

One of the issues which has concerned me most is the problem of the poor and the least well-off in our society. One of the things which has grieved me most in the last few months has been having to discuss with people the problems they faced over their fuel bills.

I am a little disappointed that the Chancellor did not say a little more about the problems of prices. This is one of the areas to which many people would like to see us turn our attention. If we could keep prices down, the rest of the Budget strategy would be much more acceptable.

Over the last four or five weeks, I have been checking on prices in my constituency, in Oldham where I live and on the fringes of the Financial Secretary's constituency. I find a tremendous variation between the cheapest prices in the supermarkets and those in the small corner shop. This can be a difference of 4p on half a pound of butter. It is a very big difference. Many of the elderly and the lower-paid rely on credit during the week and are forced to use the corner shop. I hope that the Government will see whether there is any way in which they can help the small shopkeeper to keep his prices down, particularly to help the elderly and those on small incomes who need the advantages of credit, but do not have cars and live some distance from the supermarkets.

I welcome the announcement of the increase in family income supplement. I hope that not only Government means tests, but all local authority means tests will be uprated to take account of the £6 increase and the 3 per cent. proposal. One of the things which upsets my constituents most is hearing increases announced in the Budget but having to wait until July or even November for the new benefits. Many spend the extra money several times over before it arrives and it is then something of a disappointment.

We spend a great deal of time administering pensions and other benefits, and a considerable amount of effort goes into the upratings. Some local offices this year are likely to have to carry out an uprating to take account of rates increases and any rent increase by private landlords or local authorities. Then there will have to be another, in effect, because of inflation.

It would be far more desirable if, instead of the cash amount the pension voucher were stamped with a code which could be translated at the Post Office to enable the increase to be paid quickly. All those on benefits would appreciate it if not only increases on beer and so on but increases in benefits could take effect in a few hours. That should not be beyond the wit of the Government.

Such a change would have many other advantages. Many of us were frightened that the high cost of fuel this winter would make many pensioners reluctant to use heating during a cold spell. Would it not be a great advantage if the Government said that for a couple of weeks they would raise benefits to take account of increases in fuel costs? That sort of flexibility could be built into a redesigned system.

Turning to the future of incomes policy, I believe that we are deluding ourselves if we say that the £6 limit has been accepted happily by everyone. Most unions have settled, but many people have not had their increases yet. When the extra money arrives and they find that it is less than £6—in many cases only half—disappointment sets in. As the year goes on, disappointment will grow.

We now have a policy which is supposed to last for 12 months, but some people are affected quickly and others have a long wait. If I were to receive a £6 rise this June, as many building workers will, and were then to be asked whether I was in favour of the tax cuts and 3 per cent. the following June, the tax cuts would sound a very attractive proposition. If, on the other hand, I received my £6 back in September and were likely to receive 3 per cent. in the coming September, the tax cuts would not sound anything like so attractive. I should much prefer the larger increase.

This is one of the major problems. With a period of 12 months for the policy many anomalies arise between those who come into it at the beginning and those who come into it at the end. If I were a building worker, trying to decide whether it was a good deal, I should want to know what was to happen in August 1977. If there were then to be a free-for-all, the present proposals on tax would be ideal, that is, 3 per cent. in June and another rise in September.

One of the major problems the Government have to face is not just that of producing a policy for the 12 months but where they go from there. I support the Budget, but I have those reservations.

8.51 p.m.

Mr. David Crouch (Canterbury)

The hon. Member for Stockport, North (Mr. Bennett) is much too nice, too sensible and sensitive about his constituents to epitomise, in his looks and manner of dress, Karl Marx. If we had television in the Chamber I am sure that the cameras would be on him, not merely for the presentation but for what he said. He spoke to his Ministers, to Government and to Parliament about what his constituents feel. That is most important.

Living, as we do, more and more under the awful pressure of inflation, there is a duty on Members of Parliament to report to the House what constituents say. One of my constituents said to me last week "Do they know what it is like to live on £13.50 a week?". I repeat that to the Chief Secretary so that he passes it on to the Chancellor. On behalf of my constituents I am very grateful to the Chancellor for the additional amounts being given to the old-age pensioners. Another of my constituents has said to me "I am near to tears with anxiety as I try to face my financial difficulties these days".

I will confine myself solely to the question arising from the Chancellor's dramatic last act, in what was otherwise a rather dull Budget, when he told us of his deal with the trade unions. Here I will be more of a renegade than the hon. Member for Stockport, North, although I do not look the part. I believe that in the Chancellor's quid pro quo Budget he properly recognised the truth of what is happening today in Britain—namely, that the unions hold the key. I am not afraid to acknowledge the truth, nor to acknowledge that Parliament is no longer supreme. The Chancellor, the Government and Parliament have to beat inflation and the unions are the key.

The previous Labour Administrations in 1964 and 1966 tried persuasion with the unions. The last Conservative Administration between 1970 and the end of 1972 tried persuasion with the unions. Neither of these Administrations was successful in containing inflation. Confrontation has been tried with the unions, and that certainly has not been successful. The present Administration has tried the social contract, and that has not been successful. For the last year we have been living under a co-called voluntary pay policy, the £6 pay limit policy, which has statutory back-up to support it. We can say that it has worked. Inflation has been coming down. As he faces his biggest hurdle, his stage 2 of a voluntary pay policy, the Chancellor clearly believes that a request for a continuation of a voluntary acceptance of what is to be a very touch pay policy will not be enough. He is offering a lump of sugar.

I do not object to this piece of pragmatism by the Chancellor. If he can get acceptance for this toughest of all pay policies which we have ever seen, I shall not raise my voice in protest at his unconstitutional behaviour. His object and mine is to overcome inflation, to prevent the dam bursting, to prevent a 1930's situation occurring again, and to prevent a major economic collapse happening even before the end of this year.

I want to put my shoulder to the wheel, even if it means accepting that, in all honesty, it is a little unconstitutional to go to this powerful body outside Parliament. Some of my hon. Friend's have complained that Parliament is being bypassed. What do they expect? Parliament is no longer supreme. There is a power outside Parliament—the trade unions. The Government know this. So did the last Conservative Government. The trouble is that too much is already allowed to be decided outside Parliament at Chequers, at Downing Street, and at Congress House. It is no use saying that it is not happening or that it is not true.

The Chancellor is being unconstitutional only because he must be. He has to get the unions to see the writing on the wall—or understand that today's wage rise is tomorrow's price rise. I wish him well in this endeavour. In this all our futures are at stake, and we carry our constituents with us into the disaster if it should happen.

I think that the House knows that I would be prepared to accept measures which would, as it were, constitutionalise the Chancellor's measures, make the trade unions constitutional and, so to speak, make honest men of them within our parliamentary democracy. But that is another story.

I think that the Chancellor has presented a formula which will be difficult to sell, not because of its content but because of the manner of its presentation. It is not clear enough to the man or the woman on the No. 11 bus, it will not be sufficiently clear to the trade unions as they try to swallow this medi- cine, even though the right hon. Gentleman is giving them a piece of sugar with it. Some union leaders are already saying "All it means is that it is £2.76 a week for a married man with two children", whereas the Chancellor is saying "No, it is £5.40".

The Chancellor must take steps to make his message much clearer. If he has to use a little syrup to make the medicine go down, I am prepared to accept it.

8.58 p.m.

Mr. J. M. Craigen (Glasgow, Mary-hill)

The hon. Member for Canterbury (Mr. Crouch) made a number of extremely sound points, apart from trying to pull the beard of my hon. Friend the Member for Stockport, North (Mr. Bennett). There is no doubt that the Budget marks the beginning of the end for the old style of doing things. My right hon. Friend the Chancellor of the Exchequer has writ large the social contract with the hand which he has put out to the TUC General Council. However, it remains to be seen how well this new form of co-determination at national level will operate.

Trade union leaders are well accustomed to the corridors of power. They have become more accustomed to the rooms of Government lately. This latest statement by the Chancellor virtually means that many union leaders will be sitting at the desks of Ministers. That might not be a bad thing. It might give some of them a shake-up—apart from the efforts of the Prime Minister this week. It seems that it will impose a new form of accountability on national trade union figures. It is in that context that the admirable speech of my hon. Friend the Member for Coventry, North-West (Mr. Robinson) on industrial democracy has major significance.

There is no doubt that many people on the shop floor in factories, in offices and in various other employments will want to know what their leaders are negotiating. It will be a hard sell for Government and trade union leaders when they come to deal with the Chancellor's suggestion of 3 per cent.

I know that you like brevity, Mr. Deputy Speaker, so I shall not repeat what others have said. I shall merely instance three features to which I hope the Treasury Bench will pay special attention.

First, we all welcome the announcement of pension increases, although they are not to take effect immediately. However, I have no doubt that the TUC will want to consider the whole area of social security benefits as negotiable.

If it does not take that line this year, it will certainly do so in future. There is great anxiety among many working people about the relationship between social security benefits and take-home pay, especially for workers at the lower end of the earnings scale.

A matter that is probably of greater concern for the Secretary of State for Social Services is the present jungle of benefits. We must remember that we do not have a very literate society in the sense of people reading their way through the various forms that are issued by the DHSS and other Government Departments. There is no doubt that it is necessary to cut through a thicket of bureaucracy to ensure the receipt of one's entitlements.

I ask my right hon. Friend to say something about the possibility of the early introduction of some form of tax credit system. We have now reached a stage at which people are virtually smothered in forms.

I now turn to energy costs. We do not need a "Save It" campaign. The lights are going out in homes throughout the country because people cannot afford to keep them on. I hope that a new look will be taken at subsidies for the electricity industry and other fuel industries. Many working people are in sore plight because of the size of their gas and electricity bills.

My third concern is the whisky industry. The Chancellor has announced that 32p is to be added to every bottle of whisky. I am talking about the water of life. I do not know whether the Chancellor will be called a bottleneck Chancellor but he is putting a bottlestop on whisky. I urge a thorough examination of the arrangements whereby the payment of duty has to be made from the bonded warehouses. The distilling industry employs many unskilled and semi-skilled workers. In the industry's present liquidity position many of those people have unfortunately found themselves out of a job.

The Budget demands an immense amount of co-operation between the Government and the trade unions. I think that it will also call for something that has not been so evident in the past—namely, a major education exercise within the trade union movement. In many respects, this is a wait and see Budget. We have to await the major collective bargaining exercise launched on Tuesday.

9.5 p.m.

Mr. David Howell (Guildford)

Five minutes past nine o'clock on a Thursday evening when there is no Whip is not exactly the peak period of the parliamentary schedule. Nevertheless, I hope that the two remarkable maiden speeches we heard earlier will not go unnoticed, despite the thin attendance in this debate.

The hon. Member for Coventry, North-West (Mr. Robinson) had the courtesy to tell me he could not be here for the winding-up speeches. He spoke from the basis of great industrial experience as the chief executive of Jaguar Motors about the need, as he saw it, to improve industrial performance. He also spoke eloquently about participation in industry, and in his description of participation he provided a distinction between sensible consultation inside a firm and the cruder kind of take-over participation which seems to be advanced in some quarters of the trade union movement and which is a thin disguise for an intrusion into central management. His were sensible views which added to our debates.

Perhaps the hon. Member might have added a few words to the effect that public ownership solves very little in the way of participation and nothing in the way of industral democracy. The changes which need to be made inside firms cannot be offered by public ownership. They are in a very different direction.

I also agree very much with the hon. Member's rejection of the foreign comparisons which are constantly made in the House, though he could have addressed his remarks a little more firmly to his own Front Bench which is constantly looking towards Scandinavia for ideas. We should stick more firmly to British solutions of our appalling problems and reject Scandinavian gimmicks.

One important item was missing from the hon. Member's speech, but it was supplied in the excellent following speech by my hon. Friend the Member for Carshalton (Mr. Forman). My hon. Friend used a most valuable word in his speech. He spoke about the "unconsulted" people. They did not feature in the speech of the hon. Member for Coventry, North-West who spoke about the need to work with trade unions, but overlooked the three-fifths of working people who are not in trade unions and who are unconsulted. One sometimes feels that as far as the Government are concerned they are un-people. I shall return later to the part they are expected to play—or rather not to play—in our economic affairs.

My hon. Friend the Member for Carshalton turned to the theme which has been the most common to have emerged in our debate and in the outside commentaries on the Budget. As he said, the nation is being asked to dish up from somewhere a series of miracles.

The Chancellor of the Exchequer used the phrase "economic miracle" at the beginning of his Budget broadcast. The Chief Secretary to the Treasury believes very strongly in miracles, as he made clear in his evidence to the General Sub-Committee of the Expenditure Committee. There is a general feeling that if we could just conjure up a few miracles, all would be well. Of course if pigs had wings and could fly, things would be very different.

My preference is that we try to stick to realism and get away from the longstanding habit of wishful thinking in public policy-making, which again and again pitches our goals and ambitions miles beyond what can realistically be achieved.

The miracle with which the newspapers and television have been most concerned with in these last few days is the miracle deal of 3 per cent. that can supposedly be achieved—although Mr. Len Murray says that it is impossible—with the trade unions. That is not the major miracle which the Government are seeking to achieve, but it is a formidable one which involves not so much a 3 per cent. or 5 per cent. increase in the personal disposable income of the working people as a very substantial cut.

They will get the cut anyway. If it is done under this deal the cut will be of a certain size; it may be high, it may be smaller. If there is no deal, the cut in living standards will come anyway. One hon. Member recognised that when he put into perspective why 3 per cent. was not enough. We are not talking about how big the increase in living standards should be. We are talking about a substantial cut in living standards, which is part of the miracle which the Chancellor too is trying to achieve this year.

That is not the biggest miracle. The big miracle that the Chancellor seeks to bring about is the financing, without resorting to inflation, of the £12,000 million estimate of the public sector borrowing requirement for next year. Judging by the Chancellor's track record of estimates, it would be a bold man who would predict that it will come out at that figure.

The whole precarious edifice of the Budget rests on the assumption that this £12,000 million can be financed without inflation. Ministers have said in a slightly dismissive way that it is nothing to worry about—"We did it last year and we can do it again". As my right hon. Friend the Member for Knutsford (Mr. Davies) said in his interesting speech, the financial circumstances we face in the next 12 months are totally different. They do not begin to compare.

The Paymaster-General, now the Secretary of State for Trade, said yesterday that it was absurd to worry too much about this matter and that people would go on saving. That is not the view of several other authorities. It is not the view of the Bank of England Quarterly Bulletin, to take one example. The last issue of that publication contained an extremely learned article which ended with this conclusion: For short-term forecasting the results suggest that as the rate of inflation moderates, the savings ratio should decline and the fall might be accelerated if liquid assets were restored to a more normal relationship with income. That it is the obituary, the sounding knell, for the proposition that it is all right and we shall get through on people's willingness to save. No certain predictions can be made, but we are as in a small village situated at the bottom of a potential landslide and that is why everyone is rushing to church to pray for a miracle that the landslide will not happen.

One aspect of the Budget is that it is not just a one-miracle job: it is a multi-miracle proposition. Yet another miracle is how we are to achieve a recovery, particularly in investment, under the present still growing burden of taxation, still growing even if the conditional cuts are made, and growing more substantially if they are not.

Let us look at the size and level of the tax burden. Yesterday, my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) produced telling figures to show that since the Labour Government had been in power the tax burden had more than doubled. It has more than doubled since 5th March 1974. Secondly, he reminded the House that the starting rates in this country were the highest in the Western world. Thirdly, he reminded us that the top rates of tax on earned and investment income were by far the highest in the Western world.

Even the Labour Weekly—not my favourite or regular reading—produced the proposition that the 83 per cent. and the 98 per cent. were a fig-leaf for our Socialist conscience". That is how it described those top rates. It will need more than one fig-leaf to hide the Socialist conscience these days. But it is interesting that, even in that quarter, people are beginning to accept the total absurdity of continuing with these high rates as a symbol of Socialist virility.

Finally, our capital taxation, as is now recognised in this country, is much the highest of all the OECD countries. I hope that it is common ground—one occasionally hears assertions otherwise—that in these respects we have one of the highest tax rates in the Western world, and the burden is growing all the time.

I realise fully that the Chancellor of the Exchequer does not lose much sleep over this matter. He does not believe that the burden of taxation in Britain is a very serious problem at all. In fact, on 2nd March, in a grubby and misleading article in the Wall Street Journal, he told astounded Americans—I met several of them and they expressed their dismay—that he did not believe that either the level of taxation in this country or the size of the public sector, two items which he grouped as "left-of-centre policies", were in any way responsible for low economic growth in Britain, and he said that they had no effect on our economic performance. He went on to try to prove this—using, interestingly, 1973 figures and forgetting that since then taxation has doubled.

The Americans are not idiots and did not swallow it as intended. They can see the realities of the situation. An editorial in the same issue of the Wall Street Journal pointed to the dangers of the British Chancellor of the Exchequer's position. It was no surprise to me that the following day the pound began to go through the floor.

The Government may argue—and there has been quite a bit of argument in Ministers' speeches since Tuesday—that whatever is said about taxation, things are "coming up roses" in this Budget for small business. An instruction seems to have gone out to Ministers to say nice things about small business. We ought to be clear about whom we are talking. I recognise that the hon. Member for Rutherglen (Mr. Mackenzie) has toiled away, as the Minister for small business, and tried—I am afraid in vain—to hold the tide against some of his Socialist colleagues, and to protect small business men in some of the situations they have faced in the past appalling year.

We are talking here of anything from 6,000,000 people upwards. On one definition, taking all unquoted companies, it is 9,000,000. They include all the self-employed, a very large part of the commercial and non-manufacturing enterprises, and some of the most dynamic sectors of the economy. It is a vast horde of people.

Most of them are not in trade unions and therefore they did not have much to say in the deal last summer on the £6. They did not write any of the appendices to the Government White Paper of that time and, of course, they do not come at all into the propositions now before the House of Commons concerning the tradeoff between tax relief and pay restraint.

To the TUC and the apparatus of the corporate State they are the forgotten millions—the "un-persons" I mentioned earlier. They do not belong on the files of a Socialist Government. Recently they have plainly been rediscovered in a way which might be slightly endearing if it were not so patently insincere by the Chancellor and by Labour Ministers. In the last few days one or two items have been rushed into the Budget to help them.

The first such measure, mentioned by a number of hon. Members, is the reduction in the rate of VAT. Then there is the capital transfer tax, which I know will cheer up the Chief Secretary. He is a veteran of the CTT battles and, I believe, received the Order of Lenin from the Tribune Group for his work in that direction.

Let me first deal with the story of high rate VAT. I am prompted to do so because last night the Financial Secretary to the Treasury dealt with it. He gave us a rather miserable account of his stewardship in monitoring the effects of high rate VAT. Why it needed monitoring I do not know. It was all too obvious from the start how damaging it would be. But he did speak about it.

It is a very curious and in a sense a farcical story. In other circumstances I would have recommended it as good family entertainment and given it a "U" certificate. But we are dealing not with farce but with lost jobs, firms which have gone bust and people thrown out of work, and it must therefore have an "A" certificate and must be treated seriously as an example of the incompetence of decision-making by those on the Treasury Beinch who have supposedly been in charge of fiscal policy in the last year. This is a sordid story. Looking back it is hard to recall in fiscal history in recent times any such blatant incompetence and absurdity in the handling of tax legislation.

It might be said that the higher rate has been reduced now, but there are still two rates. And there is still the situation in which the rate has been varied, first up to 25 per cent. and now back to 12½ per cent. The Government have been talking recently about the need for industrial stability. It is hard to imagine any more destabilising performance than that of VAT in the last year.

The higher rate came from a half-baked idea of taxing luxuries, an idea which I think came from Transport House or the trade unions. They got it into their heads that things like telescopes and electric irons had to be taxed more heavily, and so the rate went up. There has now been a change in the right direction, but it means more instability.

Then there are the problems of definition. These are not cured by halving the rates, because there are still two rates. The problems of definition make the old purchase tax look like simplicity itself. The Financial Secretary knows that the electronic components industry, which has already had an appalling year and was floored by the 25 per cent. rate, has found itself confronted with identical components being charged in one area at 8 per cent. and in another at 25 per cent. There have been impossible problems of definition and an appalling load being put upon the wretched Customs and Excise, which is asked to make technical judgments about the nature of goods which would have exercised an Einstein.

To reduce the higher rate to 12½ per cent. does not solve the problem: it makes it more fiddling than ever. The higher rate has knocked dozens of small repair companies out of work and has encouraged people to tackle their own electrical and mechanical repairs, as we predicted last year. That situation will persist. Presumably, that piece of fiscal vandalism must be added to the list.

I do not believe that changing the higher rate will greatly ease the problems of administration. No one has been hit harder than the small traders, who found this happy spot in the Chancellor's heart, by this enormous administrative burden. The Financial Secretary mentioned that a number of organisations had beaten a mournful path to his door to try to get into his head just what an appalling burden of late-night form filling and paper shuffling is involved with the higher rate of VAT.

One organisation—I believe it was the self-employed—visited the Financial Secretary. The Financial Secretary was good enough to tell me in answer to a parliamentary Question that it done so. I asked it what it had got and it said "We got a lot of chat and tea, and the tea was awful". That is a summary of the performance of the Financial Secretary in his stewardship of the 25 per cent. rate.

Finally, the two-rate VAT is a bad tax from the revenue point of view. It would have been far simpler to have settled on one rate of 10 per cent. It was bad of the Chancellor to refuse to recognise his mistake. It is one small part of a year of unparallelled muddle and incompetence in fiscal injustice.

Mr. Pardoe

Is the hon. Member aware that the organisation of the self-employed that he mentioned told me that when it visited the Leader of the Opposition she went berserk and screamed at them in a rage.

Mr. Michael English (Nottingham, West)

And they got no tea?

Mr. Howell

I do not know whether the House is interested in the hon. Member's reports. I do not find them particularly fascinating.

Mr. A. P. Costain (Folkestone and Hythe)

Is it not the custom of this House that if an hon. Member plans to attack another hon. Member, by saying, for example, that she has gone beserk, he should give some notice of his intention?

Mr. Howell

It is a custom and courtesy of the House. I do not expect all customs and courtesies to be followed by the Liberal Benches. What I did expect from the Liberal Benches was a little more detail about attacks and comments on the hon. Gentleman's own leader rather than comments on the leaders of other parties. However, I think that we should pass on from that unsavory intervention and talk about the capital transfer tax.

The changes here, the 30 per cent. reduction and the 50 per cent. reduction for farm land, and the 30 per cent. reduction for farm equipment and other assets, are a welcome improvement. That must be said. However, let us be quite clear that by not raising the monetary level, the £15,000 starting rate for capital transfer tax, in a year in which money has depreciated by 25 per cent., means that there is quite a strong movement the other way as well. Therefore, one must not look at what the Chancellor has done as a net improvement. It must be set off against the ravages of inflation, on this particular tax as on practically all other taxes where there are monetary amounts expressed in the tax statutes.

The Chancellor's little preamble to his announcement on the capital transfer tax was a classic piece of bitter and graceless commentary, I am afraid that it shows that even now he does not understand what our opposition was all about.

We have opposed this tax and continue to oppose it because it is a job-wrecking tax. It smashes up productive assets of small and medium-sized businesses. Even at present rates it is still a problem. It will still do great damage and demand of valuable firms that they meet instalments far in excess of any conceivable income they could get out of those firms. It still leaves very serious problems—to which I hope the Chief Secretary, in his retirement days, will address himself—of separating out individual tax liability—that is, if the Government have a prejudice in favour of taxing wealth in the hands of the individual—from the ongoing enterprise. If the Chief Secretary were able to contain his humour at the whole situation and to apply his mind to this particular problem of looking at how ongoing enterprises can be preserved from further onslaughts from this kind of taxation, he would be doing this country and his Government a favour.

That is all that has happened for small businesses. It is not very much. For the rest, right across the board, the recipe of the Budget is higher taxation on all sides. On investment income, the result of doing nothing in the face of inflation is a sharp rise in the burdens on those drawing income from investments. It means that those who have only investment income, such as divorced women living on maintenance income, pay more tax. The divorced woman living on maintenance income has been more highly taxed as a result of Tuesday's work.

On the whole range of income, corporation and capital taxes, I have done a quick count. Leaving aside personal allowances, I count up to 95 specific "money" figures in the tax statutes, over and above details of the personal allowances, many of which are out of date. Many were out of date last year, but they are now another 25 per cent. out of date in money terms, and thereby more burdensome by being left unchanged.

Whether or not one is arguing for tax reductions, this is a fact. The action of doing nothing is in fact raising taxation across all these areas. This is a fact of which Parliament should have been told. I do not understand why the Government are continuing to run scared in coming before the House and explaining all the taxes that have been raised, instead of pretending that through things such as tax allowances, which fail to compensate for the rate of inflation, in some way taxes have been lowered and decreased. Parliament should have been told and should be told where the tax increases are being made. They are being made in all those 95 instances that I have mentioned where there are fixed cash sums in the tax statutes.

Perhaps I may return from the details of things that the Chancellor somehow did not work up the courage to say to the question of the miracles, which continues to dominate this Budget debate. The main miracle is that somehow the recovery is to come by divine means. The Chancellor is asking simultaneously for substantial further cuts in living standards—a 3 per cent. or even 5 per cent. increase in wages, with the kind of inflation which even optimistically we are likely to have, implies further cuts in living standards—combined with a huge further increase in public spending. The methods outlined in the cash limits White Paper will not be enough to restrain the already growing pressures for public expenditure to be pushed up still further. Cash limits will not do the trick unless Parliament is given a more serious part in monitoring them. The proposal is feeble. It will lead to further cuts in personal living standards and further increases in the Government's living standards.

Taxation has more than doubled since this Government came to power and it is now to go soaring up again. We are to have not less but more, borrowing, more debt, higher interest charges which will put ourselves and our children more deeply in hock.

We say it should stop and the world says it should stop, too. It has been saying that clearly through the trembling state of sterling, which has taken another slide today. Even the new Prime Minister has been saying it should stop, but not much attention has been paid to him. Before long the voters of the country will say that it should stop—and say it loud and clear.

9.33 p.m.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

The hon. Member for Guildford (Mr. Howell) is always unhappy in presenting the Opposition case because he usually manages to provoke. On this occasion I promise to try to remain unprovoked.

I sincerely congratulate today's two maiden speakers. My hon. Friend the Member for Coventry, North-West (Mr. Robinson) paid a sincere tribute to his predecessor, which was well received by the House. The advice which he gave was particularly useful to me because he said that it would cost nothing. His advice was about industrial democracy of which he has much experience. It was therefore particularly appreciated in the House, and I am sure that all hon. and right hon. Members who heard him and all those who will read his speech will want, as I do, to hear him again in the future. We look forward to his contributions to future debates.

I recently visited the constituency of the hon. Member for Carshalton (Mr. Forman) and I am happy to pay a tribute to his maiden speech. The hon. Gentleman also said some kindly words about his predecessor who was a highly respected right hon. Member of the House. The hon. Member for Carshalton gave us some advice which was slightly more controversial than that normally offered in a maiden speech—but I do not complain about that. I am sure that the House will look forward to hearing him in the future.

My hon. Friend the Member for Dudley, West (Dr. Phipps) made a customary constructive speech about a matter which I know to be close to his heart—two-tier interest rates and interest rate subsidies. I hope that he will forgive me for not replying to him now, but I shall write to him about it.

My hon. Friend the Member for South Shields (Mr. Blenkinsop) referred to the APEX suggestion for the use of superannuation funds. I hope he will forgive me if I do not comment on it in detail, but the Government always give serious consideration to constructive proposals as we do not hear many such proposals from the Opposition.

I shall try hard not to be provocative, although the hon. Member for Henley (Mr. Heseltine) did not try too hard in opening the debate for the Opposition. The hon. Gentleman made at least some points with which I had sympathy. One concerned the Price Code and another concerned tax incentives for the higher paid. But the hon. Gentleman did not appear to follow through his arguments. We are all trying to reduce the rate of inflation, including wage inflation, by agreement with the trade union movement. I hope that the hon. Gentleman agrees on reflection that, however we go about that, it is unrealistic to imagine that we can completely remove the Price Code, as he seemed to imply. [Interruption.] I shall not be provoked tonight, even by the hon. Member for Blaby (Mr. Lawson).

I agree with the hon. Gentleman that there has been a serious compression of differentials. But when one is seeking the co-operation of the trade union movement, and particularly the lower-paid, it is unrealistic to suggest that we can go much further in helping the higher-paid.

Mr. Heseltine

The Chief Secretary is being very fair. But the essence of what I was trying to put to him and his colleagues was that he should tell the trade unions the truth, and the longer he defers doing that, the worse the members of the trade unions will suffer. That is the tragedy of what the Government are doing.

Mr. Barnett

We have been telling the trade unions the truth. I believe that that is why we are receiving the kind of co-operation that we are receiving.

I turn to the central problem facing the Government and the nation—whether we can do better industrially and economically in the future than our record over the past 30 years seems to suggest. I start by denying a position that I should not have expected to be attributed to me, that as the Leader of the Opposition said on Tuesday, I was putting forward euphoric forecasts. I have searched through my evidence to the Expenditure Committee, whose distinguished Chairman is present, and I could not find a forecast. I specifically said in my evidence that we were not forecasting.

But I can make one confession. Two years' experience as Chief Secretary to the Treasury has a profound effect in many ways. But one assurance I can give is that it does not have the effect of creating a feeling of euphoria.

If I have no feeling of euphoria, I have an objective, which I hope is shared by all hon. Members on both sides of the House. It is that we should do better than anything we have achieved over the past 30 years or more. I trust that the disagreement is not about the objective but rather about the extent to which we can achieve it and the best way to reach it.

It is surely intellectually possible, and I believe temperamentally necessary, to combine realism or even pessimism in one's expectations with ambition and determination in one's objectives. The genuine misgivings of those who criticise as optimistic and euphoric the illustrative assumptions—they are not forecasts—of the public expenditure White Paper arise, they say, not necessarily from lack of ambition but from realism. Their argument is that realism demands that we should start with lower levels of public expenditure and increase them if we succeed in attaining our objectives, rather than start with higher levels and reduce them if we fail. That is a serious argument which I would like briefly to examine.

At least in one sense the argument is based on a misunderstanding. It is not so much the expenditure plan as the employment objective which is critically dependent on the high growth assumption in the illustrative figures in the central case in table 1.1 of the White Paper. That high growth objective would be required to meet our employment target whichever public expenditure policies were adopted. On the other hand, the expenditure programme would not necessarily have to be abandoned if the growth target were not achieved. But in that case they could be maintained—and one must honestly recognise this—only at expense of either a worse balance of payments deficit or less investment in new plant and machinery or lower personal consumption—not very palatable alternatives.

Perhaps I can turn to what might be called the lower-public-expenditure-now case, because I am trying very hard not to be partisan, and I shall assume for the purpose of argument that it would be a practical possibility to reduce the public expenditure programme and to cut the deficit in 1976–77, if not by the £6,000 million to £7,000 million to which the right hon. Lady the Leader of the Opposition referred, by a substantial amount, some thousands of millions of pounds. I hope we can agree that such a short-term reduction could not readily be made on expenditure on goods and services, such as schools and the teachers in them, hospitals and hospital staffs or the Armed Forces.

Mr. John Nott (St. Ives)

rose—

Mr. Barnett

I will give way to the hon. Gentleman later.

I know, from Opposition speeches, that most of the cuts proposed would come from subsidies of one kind or another, whether to industry or to individuals. For the purpose of the argument, let us assume that such cuts were made. I do not think it unreasonable to ask what the effect would be on the outcome of negotiations for what most people, though I know not everybody, would want to see—a low settlement in the next pay round. It is not unreasonable to assume that an increase in costs for many trade unionists consequent on any immediate substantial reduction in subsidy would result in the next pay round being higher than it might otherwise have been. The net result would be that inevitably there would be an increase in inflation and in wage costs to industry and to the public sector, with all that that would mean to the public sector deficit. We would be back in the vicious circle that we know only too well, and the pessimistic assumptions would be only too adequately fulfilled.

On the other hand, a 5½ per cent. growth target, which has been maintained in other industrial countries, has in the current circumstances in this country, as my right hon. Friend the Chancellor said on Tuesday, the advantage that we need only a marginal improvement in our industrial performance at every level to achieve it here. It is made more possible because we start, only too sadly, with a lot of spare capacity and unemployment still operating, rather than starting already straining at the capacity limit. It will be further helped by what I believe to be the Chancellor's courageous refusal to be stampeded into reflating home demand, thus providing industry with an opportunity, unlike the situation on previous occasions at this point in the cycle, to make recovery this time export-led.

I am sure that most industrialists will accept that the measures taken in this Budget will directly assist them in this task. Before speaking about those measures I will be saying something on the case for the White Paper strategy on stabilising the totals of the public expenditure programme. As I made clear in the expenditure debate, I believe that one way of helping to achieve oureconomic objective is to reduce the proportion of GDP taken by the public sector. That we shall do.

Mr. Norman Tebbit (Chingford)

When?

Mr. Barnett

The White Paper shows a determination to attach a higher share of resources to industry and a lower share to public consumption. I add the caveat that we should not overstate the case. A high level of public expenditure is not the only reason for our poor economic performance. The level of public expenditure would not present anything like the same difficulty if our economic growth compared better with that of other countries and met the universal demand for higher standards in public services and welfare programmes out of growth in resources. However hard the fact is that we must now restrain future growth in our own programmes until we achieve the required increase in economic growth.

Mr. Tebbit

When?

Mr. Barnett

I am sure that at least we can all agree that we should work for the success of our objective. I recognise that if we fail, whichever alternative we adopted would be unpleasant, whether the brunt of the adjustment were borne by public or by private consumption. But for the reasons which I have outlined, I do not believe that it would be helpful to assume that we shall fail.

Mr. Nott

So much traditional Keynesian argument and water has passed under the bridge in the right hon. Gentleman's remarks that the point of my intervention has almost been swamped. The privately-financed consumption figure in the resource table indicated a rise in the region of 1 per cent. over the period concerned in the middle growth band. The Chancellor's Budget indicates a substantial fall in real disposable income and privately-financed consumption. If the Government get anywhere near their 3 per cent. target, will the right hon. Gentleman undertake to let us have anew resource table based on a more realistic figure for privately-financed consumption in that table? It is a minor point, but it is relevant in view of what the right hon. Gentleman has been saying.

Mr. Barnett

The hon. Gentleman has made a reasonable intervention, and I shall bear the point in mind. Indeed, a similar point was made by the Expenditure Committee, and I promised that we would consider the matter. I have referred to differences of opinion over levels of public expenditure, but I am sure that there is no difference between us about the need for adequate control of the general public expenditure level.

Most observers would accept that our control has been improved in two important ways. The first improvement has come about by the extension of the use of cash limits, which have been welcomed by the right hon. Member for Knutsford (Mr. Davies). The second has come about through a more rigorous control of contingency reserve. [HON. MEMBERS: "Oh."] I am surprised to hear that sedentary cry from Opposition Members. I thought that they would welcome those two measures in our effort to improve the control over public expenditure. I do not pretend that these are ideal ways of controlling the situation. There are al-always serious problems of control in public expenditure terms, whether one is or is not cutting expenditure. I hope that any realistic observer will recognise that what we are seeking to do is to improve our methods of control. That must be obvious to critics of whatever level of public expenditure we are considering.

Mr. English

I am sure that my right hon. Friend is aware that both Labour and Opposition Members of the Expenditure Committee, of which I am Chairman, have welcomed the Treasury's measures to endeavour to control expenditure.

Mr. Barnett

I am obliged to my hon. Friend. I was not, of course, including him when I referred to sedentary comments. I know that he respects what we are trying to do and indeed has urged us to take steps in this direction.

Mr. Tebbit

The rumbles that came from these Benches arose because the right hon. Gentleman appeared to use the past tense instead of the future tense. He spoke as though he had already taken action, when in fact he has not.

Mr. Barnett

The hon. Gentleman is usually one of the most provocative Members in the House, and I am determined not to be provoked—perhaps a rare occasion for me. The fact is that we have been seeking to deal with questions of control for some while. I do not pretend for a moment that somehow or other we have found the answer to all our problems. What I am saying is that we have improved it, and this is recognised by the Committee. I am obliged to them for their respect. That is all I am seeking to say.

I want to say a word or two about our measures on the industrial front, which were referred to by the hon. Member for Henley and the Secretary of State for Industry. Our approach has been to provide the maximum stability for the corporate sector. That is why, although, as the Chancellor said, we would prefer the previous form of corporation tax, we do not propose to make the change, in the interests of the stability of the tax structure. Many hon. Members on both sides of the House accept that the imputation system is not ideal. I think it is accepted that the classical system is a better one, but in the interests of stability we preferred not to make a change but to leave the system as it is.

The hon. Member for Henley said that we had done nothing about corporation tax. He cannot be in touch with those in industry with whom I speak and those with whom I know my right hon. Friend the Secretary for Industry speaks. If he were, he would realise how much industry appreciates what we have done in terms of corporation tax by the stock appreciation relief. He would realise that these companies, which are actually expanding and increasing their stocks and are increasing their industrial investment, are hardly paying corporation tax.

I am obliged to the hon. Gentleman for nodding agreement. I am trying not to be any more provocative, but certainly I think he was on rather a poor point.

Mr. Heseltine

I said the same thing.

Mr. Barnett

I would put it no higher than that.

The hon. Gentleman also made one or two points, as did the hon. Member for Guildford, about capital transfer tax and the business relief. The hon. Member for Guildford and I have had debates, night and day, man and boy, for a long time on capital transfer tax. He will know that I am convinced, with a little experience of small companies, that his understanding and the understanding of his hon. Friend the Member for Henley about the way in which capital transfer tax, and indeed estate duty, works on small businesses is a little misconceived. Neither hon. Gentlemen truly understands. That is one of the problems about many Conservative Members who comment on small businesses. Their meaning of small businesses is usually something which we on these Benches consider rather large.

But for small businesses there will be the additional relief which we will provide in the Finance Bill, as the Chancellor said. It will provide that, in the case of most small companies, there will be nothing like the difficulties to which both hon. Gentlemen referred. No doubt we shall have ample opportunity to debate these matters on the Finance Bill.

Mr. Tebbit

That is rubbish.

Mr. Barnett

It is no use the hon. Gentleman talking about rubbish. I am not going to be provoked. I have only five minutes left—[Interruption.] It is no use hon. Gentlemen yelling.

The assistance which we are giving in this Budget will also help the full-time working farmer. There is considerable help for him in the new relief. I said that we were considering this when we debated the capital transfer tax last year and that we have now introduced it in this Budget.

It has frequently been said to me that many small businesses have been deterred from transferring their business to their workers because of capital transfer tax. I am happy to tell the House that we are planning to provide them with that oppor- tunity. We have decided to introduce relief on transfers to employee trusts. There will be exemptions for transfers by close companies to such trusts, and there will also be exemption where shareholders give the whole of their shareholding in a company to an employee trust in such a way that the trust becomes the owner of the company. There will be a corresponding exemption from capital gains tax. I hope that this will be considered helpful to all concerned and I look forward to seeing a substantial increase in the number of employee-owned companies.

I turn now to the capital gains tax on compensation for nationalisation. As foreshadowed in the Written Answer that I gave on 2nd July 1975, the Finance Bill will contain a provision for charging the accrued gains, and allowing losses, on shares given up on a nationalisation in exchange for gilt-edged securities, the gains to be assessed at the time that the compensation stock is sold. We take the view that the 1969 treatment of steel shares taken in exchange for stock, which allowed losses but did not assess gains, was too generous and should not be repeated.

However, I am anxious to encourage reinvestment in productive industry. A Government amendment will therefore be tabled in Committee on the Finance Bill to provide that tax on gains arising from the issue of compensation stock for shares in the aircraft and shipbuilding companies to be acquired under the Bill at present before the House shall be deferred where parents or consortium companies reinvest the compensation in qualifying assets. I hope that that will be helpful and will enable the Opposition to conclude the proceedings on the Bill a little more quickly.

I hope that the measures to which I and the Secretary of State for Industry have referred will provide direct assistance to industry. As the right hon. Member for Worcester (Mr. Walker) said yesterday in a courageous speech, if the Government are successful in achieving the 3 per cent. pay limit, they will do more to increase the profitability of British industry in the coming year than any other measure in the Budget or in any Budget for years past.

The speech of the right hon. Member was quite unlike the petty, carping, niggling criticism of the right hon. and learned Member for Surrey, East (Sir G. Howe)—criticism which, as the right hon. Member for Worcester said, came from a former Cabinet colleague of his who had supported an incomes policy. That is what we got from the right hon. and learned Member. His right hon. Friend has obviously given up all hope—and I hope that the right hon. and learned Gentleman himself has, too—after his speech yesterday.

The right hon. Member for Worcester and the hon. Member for Canterbury (Mr. Crouch) wished the Chancellor every success with the Budget. So, I believe, will the majority of the people in the country.

Debate adjourned.—[Mr. Harper.]

Debate to be resumed upon Monday next.