BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 30 March 1977 vol 929 cc427-538

4.21 p.m.

Sir Geoffrey Howe (Surrey, East)

I would join with my right hon. Friend the Leader of the Opposition in congratulating the Chancellor—if he were in the House at the moment—on his speech and particularly on its brevity. It sets a good precedent in many respects, and it is the least we are entitled to expect from him by way of compensation for the frequency with which he has troubled the House on budgetary matters.

It is a useful opportunity today, after we have had so many excursions from the right hon. Gentleman, to look back over the three years of Healey Chancellorship and to try to assess it. In one respect I think that we may say that he has been constant to himself throughout, because he has demonstrated from beginning to end his infinite capacity for trying to snatch the appearance of victory out of the jaws of defeat. Had we not known him so well we would have been astonished to hear of the humiliation of the country in the negotiations with the International Monetary Fund last December, which he described yesterday as "striking financial successes".

We remember the first Budget which the right hon. Gentleman introduced three years and four days ago which, with characteristic modesty, he described as the turning point in our people's post-war history."—[Official Report, 26th March 1974; Vol. 871, c. 328.] Perhaps we may be forgiven for wondering whether he was in agreement with the rest of the House as to the way in which we were turning at that time.

I am glad to see that the Chancellor has arrived in time to hear at least part of my speech. I am considering his three years' stewardship of the affairs of the nation. I was about to say how fortunate we are to have on the record, apart from his observations in the House from time to time, the benefit of his own considered judgment on his conduct of our affairs, as recorded by Mr. Kenneth Harris of the Observer last Sunday. The House may remember that the Chancellor was asked what he had achieved and in what he had failed. He began: Failure is a rather loaded word.… You could say that so far I have failed to get the economy as I would like it. We've got high unemployment, which has still been rising; the rate of inflation is much higher than it should be; and our industrial performance is not significantly better than it was in 1974; so I haven't yet achieved my major objective. The last sentence which I want to quote reads: But I could argue that even in these fields the situation would have been even worse without me.

The Chancellor of the Exchequer (Mr. Dennis Healey)

Would not the right hon. and learned Gentleman agree with me that that was also the view of the domestic and financial market as expressed by the fall of £1,400 million in stock values the moment there was some vague suspicion last week that the right hon. and learned Gentleman might be in charge of our financial affairs?

Sir G. Howe

But would not the Chancellor accept, much more realistically, that the reaction of the markets today is due to the extent to which he was compelled to accept the advice received from this side of the House rather than from his own side? We know that the Chancellor has many attributes—they are all described in these articles—including a vivid imagination. But it is difficult to see just how matters could have been worse without him.

Prices have risen by 70 per cent., real take-home pay has gone down by 9 per cent., industrial production is down by 2 per cent., public expenditure is up by 100 per cent., and income tax is up by 140 per cent. Perhaps most telling of all, the rate of bankruptcies and company liquidations in our society has more than doubled since the Chancellor arrived in the Treasury. In the last quarter of 1976 there were 1,876 company liquidations, the highest figure ever recorded in Britain.

Unemployment has gone up by 750,000. As an inevitable consequence of the arithmetic which the Chancellor gave us yesterday, it is likely to go on rising into the foreseeable future. The Chancellor may dimly recollect that he was elected to his high office on the slogan "Back to work with Labour". That seems to have been translated into "Make Britain a land fit for liquidators to live in".

It is particularly alarming to see the Prime Minister, who has apologised that he cannot be here this afternoon, reported in an interview last week as saying after all this I take the view that we are only half way through the job that we started on. We would as soon be spared the other half if it is to be anything like the first half.

By every measurable standard, the country is much worse off than it was before the Chancellor went to the Treasury. I hope that we shall hear no more, in this or any other debate, from him about the transformation he has wrought in our affairs, the new stability he has brought to our economy. For the British people his three years in the Treasury have been disastrous and entirely wasted.

The second point I want to make is that it is important for the House, and particularly Labour Members, to understand the scale and the importance of the change that has taken place in the Chancellor in recent months. We on this side of the House welcome the fact that the Chancellor who embarked in 1974 upon a massive increase in public expenditure has for the last year been trying to do exactly the opposite.

We welcome the fact that the Chancellor who put up the standard rate of income tax from 30 per cent. to 35 per cent. now has plans for reducing it to 33 per cent. We welcome the fact that the Chancellor who once boasted of his plans to make the rich howl with anguish has now been compelled, by the howls of anguish from millions of trade unionists and working people, to abandon that destructive and stupid intention.

Of course, the Chancellor changed position in a way that was characteristic of him. Anyone not familiar with the history of the past three or four years, and listening to the Chancellor in yesterday's debate, might have been forgiven for thinking that the lesson that high income tax does great damage had been unearthed and revealed to the country solely because of the intellectual courage and originality of the Chancellor himself, after burrowing through the red Despatch Boxes that he tells the world he finds so exciting. If I may give him some advice, he would have been far better advised to stick to his original ambition, which is characteristically modest and more fruitful, of writing the world's greatest book on the philosophy of art.

I tell the Chancellor that his personal credibility would have been enormously improved if he had admitted that the propositions he now advances run entirely counter to everything he has previously said or done. The House and the Labour Party should be in no doubt about the scale of the reversal which has taken place between 1974 and 1977.

In 1974 this great tax reform was not an accidental exercise. In his Budget speech then he said that he was embarking upon a deliberately and carefully considered redistribution of fiscal burdens".—[Official Report, 26th March 1974; Vol. 871, c. 295.] He is now embarking, apparently equally deliberately, on an attempt to reverse that very process. Then the right hon. Gentleman planned an expansion of public spending. Today he plans a reduction of it. Then he gave a delighted welcome to the inflow of hot money into the Treasury. Today he has constructed elaborate machinery to prevent any such thing from coming into the country at all. Then he was engaged in a fierce tightening of price control. Yesterday, with a cloud of double-talk, he talked about the need to prevent any unreasonable profit mark-up but at the same time ensuring that the return on capital is allowed to recover sufficiently to reinforce the upturn in investment. If we see anything in all this, it looks as though the Chancellor will certainly be relaxing the price control which he imposed previously. Certainly in 1974 he launched a massive increase in food subsidies. Now we know that he is abolishing them. He doubled the regional employment premium. Now he has abolished it. He froze the price of gas almost alone among the products of the nationalised industries. Now he is gratuitously increasing it.

We admire the ironic sense of justice of the Prime Minister, that the man he has chosen to carry through this symbolic display of our subservience to the International Monetary Fund is the man who made such a huge fuss about our subjection to the sovereignty to the European Economic Community. I congratulate the right hon. Gentleman on a quite remarkable and unprecedented abandonment of almost every policy on which he and his party arrived in office. Labour's last two election manifestos, certainly the economic parts thereof, have been consigned to the scrap heap.

Some interesting questions arise. How is it that this conversion has come about? Has the Chancellor been under the influence of the Tribune Group? Or has he been under the influence of the Leader of the House? It seems unlikely. Even so, the whole process of the reeducation of the Labour Party that has taken place must have some value for it. It must be useful for the Tribune Group to learn, as it supports this Budget over the weeks ahead—[HON. MEMBERS: "Where are they?"]. They are conducting their own private meeting in a state of anguish, I dare say. It will nevertheless be useful for the Tribune Group to learn, as it supports this Budget, that neither this Chancellor nor any other can undo the damage done by taxation which has become too high without conferring, as this Budget will, substantial advantage in tax and post-tax terms on many people.

I hope that the Tribune Group will share our general sense of delight that the Managing Director of British Leyland and the Chairman of the National Enterprise Board will each, as a result of this Budget, be receiving £17.61 per week extra in his pay packet, which is equivalent, as the Chancellor used to say to my noble Friend Lord Barber some years ago, to a gross pay increase for those two distinguished gentlemen of £5,388 a year.

We should all be encouraged by the fact that the Leader of the House—I am sorry that he is not here—has advanced his educational process so far. We know that the Leader of the House is becoming a man of increasing moral flexibility under the pressures of government. There was a time when he used to proclaim that no man was worth more than £10,000 a year—or whatever it was that he himself then happened to be earning. Now we are delighted that he has agreed to support this Budget, which will award him the equivalent of a pre-tax salary increase of £2,560 a year. Certainly hon. Members opposite are learning, but I doubt very much whether the Tribune Group is the source of inspiration for much of this Budget.

How about the Liberal Party—[HON. MEMBERS: "Where are they?"]—which is represented by the hon. Member for Cornwall, North (Mr. Pardoe) and is the fragile foundation for the Government's majority? We know that the Chancellor is a very intellectually agile man, although he presides over a Department that is not renowned for the speediest reaction in Whitehall.

The liaison between the Chancellor and his hon. Friend the Member for Cornwall, North is only seven days old. No doubt the weekly love-in that we are told is to take place between the Chancellor and his hon. Friend will be a deeply therapeutic experience for them both, and Treasury officials who have to sit in on this exhilarating experience will have to take the rough with the rough.

However, I hardly think that the hon. Gentleman's influence on the Chancellor has yet been as extensive as to product, much influence in this Budget. We shall see in a few moments. I believe that three, different strands of influence can be detected in this Budget. The first is the Prime Minister, because week after week now the Prime Minister has been boning up, the better to instruct his Cabinet colleagues, by reading "The Right Approach" from cover to cover, morning till night, and the influence is beginning to make itself felt.

Then, of course, the Chancellor has received instruction from the electors of Woolwich, West, of Workington and of Walsall. To reinforce that instruction, the Chancellor has received supervision from Dr. Johannes Witteveen and Mr. Alan Whittome, the Managing Director of the International Monetary Fund and the team leader. It is a remarkable roll of honour—Woolwich, Walsall, Workington, Witteveen and Whittome.

It will be a happy turn of history if, come tomorrow, the electors of the constituency which elected the Chancellor who had to clear up after the Prime Minister had finished with the Treasury take the opportunity of teaching another lesson to the present Chancellor.

So we welcome the process of re-education as far as it has gone. We welcome the exemption of charities from the National Insurance surcharge. We welcome the improved relief on overseas earnings, although it still seems a pretty rum way of going about it to begin by identifying the man out there in Acapulco for his contribution to the export efforts, while the man who is sweating his guts out in Derby, Crewe or Rotherham is treated as if he had nothing at all to do with it. It demonstrates the folly of having marginal tax rates that are too high in the first place.

We welcome the improved investment income surcharge relief. All those paying the investment income relief surcharge are still far worse off than at the time of the Chancellor's first Budget, let alone when the exemption relief was introduced in 1972.

We welcome the modest movement in tax thresholds that the Chancellor has introduced. However, he has hardly begun to repair the damage he has wrought since he went to the Treasury.

I want to ask the Chief Secretary a question about tax thresholds. The single man's threshold and the widow's threshold have risen by 9½ per cent. as a result of the Budget. It may well be sensible that we do not have a statement of benefits today at this stage in the Budget debate, but we should like to know just how that movement compares with the prospective movement in the level of benefit. We should like the Chief Secretary to tell us when we shall hear about the increase in benefits.

In particular, we should like to know because we want to know the effect of the relative movement of benefits and tax thresholds on the situation complained about yesterday by no less a person than the General Secretary of the National Union of Railwaymen, Mr. Sidney Weighell. The Press report said: More than 9,000 British Rail jobs have not been filled because potential recruits earn more on the dole than at work.

This is a graphic illustration of something that we have all been complaining about. The complaint yesterday was advanced and reinforced not by any of my hon. Friends but by this great trade union leader. We want to know when the Government will announce their intentions about the relative level of benefits and tax thresholds. What would be the effect of this Budget for the poor? When shall we know that?

We also welcome the recognition by the Chancellor that indirect taxes are a more sensible way in principle in our present circumstances of raising revenue than direct taxes. However, we certainly cannot endorse the wisdom of the choice he has made in deciding that the motorist should carry the burden of heavier indirect taxes. Why, for example, has he not taken the advice we have given him over months and years now to return to the 10 per cent. rate of value added tax, which he should never have abandoned in the first place? It produces the same yield. It does no more harm or good to the retail price index than any other tax. It is much more widely spread and, therefore, does not force the whole attack on to one industry and one activity.

Does not the Chancellor recognise the importance of the car to many working families in all parts of the country? Perhaps I may remind the right hon. Gentleman of a speech made in the House two years ago in May 1975: In … many … rural areas the car is not a luxury … In large parts of my constituency and probably … other rural areas the car is the only means of getting to work. We must take account of the very severe disincentive effect which higher and higher motoring costs impose in such areas. It is on this argument that I base my plea to the Government."—[Official Report, 15th May 1975; Vol. 892, c. 684–5.] The House will be delighted to know that that speech was made by the hon. Member for Cornwall, North. That gives the lie to any suggestion that the hon. Member for Cornwall, North has had a dramatic effect on the structure of the Budget. We look forward to hearing in which direction he will advise his party to vote, after he greeted this Budget last night with a degree of enthusiasm bordering on the ecstatic, and whether he will nevertheless support a Budget which will do such a marvellous service to those of his constituents who depend on the motor car to get to work.

The reality is that the room that the Chancellor has for manoeuvre has been and is still gravely limited by the total volume of spending to which the Government remain committed and the consequent size of the borrowing requirement. We remain gravely disturbed by the fact that not just in this fiscal year but in the next the Chancellor still plans to borrow more than £8,000 million. That figure is still much too high.

Nor do we take much comfort from the fact that he looks forward next year as well to a growth of money supply which could be as high as 13 per cent. That suggests that he would be willing to settle for an inflation rate—if he can achieve it—only just inside single figures. If that were the limit of his ambitions that would be inadequate.

That brings me to my last main point—

Mr. Healey

We have not had any main points.

Sir G. Howe

The Chancellor may not have liked them, but there have been plenty of them. My last main point is the relationship between public spending, conditional tax cuts and the projected pay deal. There is a very important lesson to be learned here by the House as well as by the Chancellor. if I may take him back, not to the 1974 Budget speech but to the speech made in 1976, he described that Budget—and he may well have been right—as the most critical Budget of the present Parliament. and above all as a Budget that was about jobs and inflation. The Chancellor also stated The £6 pay limit guarantees —note that word— that our rate of inflation will continue to fall in 1976.

The Chancellor continued: I believe that we can still achieve our target of under 10 per cent. next winter. The prospect for 1977 depends crucially on achieving the low pay limit.

The Chancellor went on, on a different point: I believe it is well worth accepting some increase in the PSBR in order to achieve a lower rate of inflation".—[Official Report, 6th April 1976; Vol. 909, c. 238 and 281–282.]

Many of us pointed out that this showed a degree of economic illiteracy. From that moment onwards the Chancellor of the Exchequer and the economy went down hill all the way. The world saw the huge size of the planned public sector borrowing requirement, £12,000 million, and understandably took fright. The world was hardly to know that the one occasion on which the Chancellor deliberately set out to increase the public sector borrowing requirement was also the only occasion on which he managed to reduce it.

We lived through a long, hot summer when any stray observations from any trade union leader, any passing journalist or any Labour Back Bencher were enough to knock two, five or 10 cents off the value of the pound before breakfast. If we are to get these things right from now on it is important to understand what happened to the economy and who is responsible for what happened. It was not the fault of perverse foreigners around the world and it was not the fault of what the Chancellor called the malign interaction of the exchange rate and other mysterious factors. It was not an act of God, as the Chancellor tried to imply yesterday.

Once again we are indebted to Kenneth Harris of The Observer. I quote from what the Chancellor is reported to have said in an interview which appeared in that newspaper last Sunday. He said: Last year I made, in good faith, the prediction that if we could get another round of pay policy we could halve inflation again, or nearly halve it, to, say 7 per cent. But that one did not come off … mainly because the value of the pound fell much more than we expected.

He again referred to the impact of the drought and commodity prices. He continued: why the exchange rate went down so far was that we didn't reduce our deficit enough".

At last we have the truth. The responsibility for the destruction of the Chancellor's very own counter-inflation policy rests fairly and squarely on the shoulders of the Chancellor himself. I wonder whether I dare go on quoting from this interview. The Chancellor was no doubt accompanied by some hapless Press officer from the Treasury, but I wonder whether next time he ought to be accompanied by his solicitor. What happened has had certain very serious consequences for him and the Government and for our country.

The Chancellor stated: When this happens it can be very damaging to one's credibility, and I don't blame trade unionists for feeling that the Government hasn't kept its part of the bargain.

That is the first problem because whatever people may think of his rather unctuous broadcast last night, trade union leaders do not believe what the Chancellor is trying to say. There are very few people—I think that the Chancellor will agree—on either side of the House who believe in their heart of hearts that we can maintain long-term detailed regulation of pay bargaining. Short of the gravest emergency, no acceptable or even effective machinery is likely to exist. I wonder whether it would command a majority in the House. Almost certainly it would end by destroying itself.

We have to go through a period of transition to a world which is free from direct Government interference in pay bargaining. That period of transition must be one of greater flexibility to allow room for the compressed spring of pay differentials to uncoil. The toolmakers at British Leyland have virtually been told as much. We have to recognise the need for restraint. Without restraint in pay bargaining the inescapable alternative will be unemployment. This will pose particular difficulties for the Labour Party. It means that we shall have to go through a period when pretax as well as post-tax incomes are becoming more unequal. It will impose great strains.

In those circumstances, it is the duty of government—a duty which the Chancellor has neglected to his cost in the past year—first, to see that the money supply is firmly and steadily controlled; secondly, to see that the Government's own deficit is firmly controlled; thirdly, to see that the cash limits over their own expenditure are firmly controlled; and fourthly, to see that the sum available within those cash limits for public sector pay is equally firmly controlled.

There must be no room for doubt in the public sector as well as in the private sector about the inescapable conflict between higher pay and more jobs. So far there has been little room for disagreement on either side of the House with what I am saying. They are, at the end of the day, the economic facts of life. It is very important for the Government to understand that these are matters that the House agrees without dispute on party lines.

Mr. Healey

The right hon. and learned Gentleman is now making some points on which the whole House will want to seek a consensus. It will be helpful for the rest of the debate if he can tell us explicitly whether he agrees with the views put forward by the right hon. Member for Lowestoft (Mr. Prior) on television two days ago that we must have a phase 3 pay policy, and when he told us, speaking as a member of the Shadow Cabinet a couple of days ago, that he would want to do nothing to make this negotiation more difficult. It would be helpful to have that from the right hon. and learned Gentleman because it might give some guidance to the right hon. Member for Leeds, North-East (Sir K. Joseph) when he opens the debate tomorrow.

Sir G. Howe

I am grateful, of course, to the Chancellor for his courteous solicitude for my right hon. Friend, and I think it is important to deal with this matter seriously—

Mr. Healey

What about answering the question?

Sir G. Howe

I intend to answer it, but it is important to understand that on this issue there are, there have been and there always will be within both major parties differences of view and differences of emphasis.

Mr. Healey

Ah!

Sir G. Howe

"Ah!" nothing. The Chancellor knows as well as I do that the Leader of the House and the Minister for Social Security were neither of them conspicuous for their enthusiasm for any kind of incomes policy, statutory or voluntary, before they came into office. The Chancellor himself was not the most robust supporter of such a policy. If he faces the facts he must know that both the major parties have fought elections on both sides of this question. For that reason it is important for us to try to hammer out those areas where we agree and disagree. The Liberals have retained a virginal purity in these matters, never having had the responsibility to do anything about them.

Let me now answer the Chancellor's question. All that I have said is more likely to work and more likely to be accepted without severe social consequences if the inescapable consequences of the policy are clearly understood by the nation as a whole. One consequence—probably the most important—is that the total sum available to finance higher money pay without higher unemployment is, will be and must be strictly limited, probably in our present circumstances to a single figure, less than 10 per cent.

That is part of the reality we have to face. It may or may not be formally endorsed by the trade union movement as a result of the negotiations to take place. The Chancellor has faced that position. I should not like to be sure about it. However, the Chancellor must seek that understanding from the nation as a whole. We shall do nothing to seek to reduce his success in achieving that understanding by consultation with the nation and everyone else to whom he thinks it right to talk about it. That must be the Chancellor's objective.

Whether or not he gets a deal of the familiar semi-private kind of the last year or two—and he must recognise that many trade union members are increasingly resentful of the exclusiveness of that—it must be his duty, and we shall support him in this, to secure an understanding of these inescapable realities throughout the nation. The key messages are these. The Government and only the Government can, must and will control inflation. That is the inescapable duty of government. Trade unions—leaders and members alike—have got to relearn their responsibility for limiting the level of unemployment.

Mr. Sydney Bidwell (Ealing, Southall)

The right hon. and learned Gentleman is preening himself a great deal today. Unfortunately for the Leader of the Opposition, she has in the person of the right hon. and learned Gentleman one who is well remembered as having brought in the most excessive, repressive anti-trade union law ever known in this country, a law which provoked the mightiest anti-Government trade union demonstration of all time. Whatever the trade union movement might think of my right hon. Friend the Chancellor, it is not likely to entrust its affairs to the right hon. and learned Gentleman.

Sir G. Howe

I had rather hoped that we could rise above the level of that sort of intervention, because sitting immediately opposite me on the Labour Benches is the right hon. Member for Blackburn (Mrs. Castle) who in her turn has been round this course—

Mrs. Barbara Castle (Blackburn) indicated dissent.

Sir G. Howe

With her there was only one difference. Her legislation included criminal sanctions, and ours did not.

Mrs. Castle indicated dissent.

Sir G. Howe

If these messages are to be clearly understood, the Chancellor and the Prime Minister will have to be a great deal more candid and explicit about the next stage of the pay policy that they seek than the Chancellor was yesterday.

In the course of fulfilling that task the Chancellor faces perhaps two real hazards, both to do with the Liberal Party. First, if he tries to repeat precisely the formula he followed last year he will have to work hard, it appears, to persuade the Leader of the Liberal Party about the legitimacy of the process he is engaged upon. On 7th April last year the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel)—then a Liberal MP but not the Leader of his party—was reported as having described the Chancellor's decision to offer conditional tax relief as "a constitutional outrage". He continued: They depend on the decisions of the TUC, in which many millions of affected people, from MPs to the self-employed and including most grassroots trade union members, have absolutely no say.

He went on: It is an abdication of government. All Mr. Healey's arguments in favour of his policy are ones he should have properly put to the TUC leaders privately but he should not run away from the responsibility of taking decisions himself. This is the smack of weak government".

He should know, Mr. Deputy Speaker.

Mr John Pardoe (Cornwall, North)

It is less than three minutes since the right hon. and learned Gentleman was explaining how there are differences on his own Front Bench—[HON. MEMBERS: "Oh!"] Let me hasten to assure the right hon. and learned Gentleman that there were differences on this Bench a year ago on that very matter. My right hon. Friend, however, is a quick learner.

Sir G. Howe

I am not quite sure who is learning from whom in this exercise.

There is one other significant worry. It was not easy at the outset to see where the Liberal Party and both wings of the Labour Party could ever come to make common cause. There is one conceivably fatal possibility. They are all by temperament big spenders. As the balance of payments improves, as it must, as domestic credit expansion control becomes a less and less effective discipline, as it will, as unemployment remains stubbornly high, as it will, the temptation presented to these three groups to expand Government spending will become dangerously attractive, and I am worried about that.

The Liberals are fond of saying that they have a clear alternative to Conservatism. They are fond of saying that they have a clear alternative to Socialism. Last week we had the privilege of discovering exactly what that alternative was. It was escapism. The country cannot afford to give the Liberal Party any opportunity to join the Government in trying to escape at any stage down a high-spending road.

I come back to the Chancellor of the Exchequer. We have only to look at him to realise that he is a recidivist at heart—a big-spending, incontinent recidivist. He is at present under two contraints, one more fragile than the other. He is constrained by the Liberal Party and by the International Monetary Fund. I have a great deal more confidence in the effectiveness of the IMF in its capacity as the parole board for the Chancellor than I have in the hon. Member for Cornwall, North in his capacity as a trainee probation officer. It will be the purpose of the party for which I speak this afternoon, well before the Chancellor is set at dangerous liberty by the IMF, to ensure that he does not have the opportunity to present another Budget to this House.

5.0 p.m.

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

It is perfectly clear that the House prefers to hear the right hon. and learned Member for Surrey, East (Sir G. Howe) talking about interviews that my right hon. Friend gives to Kenneth Harris than any serious speech which he delivers. Given the lack of any serious content in his speech today, I can only assume that the right hon. and learned Gentleman finds the Budget as good as we on this side of the House find it. The only—[HON. MEMBERS: "Where are the Labour Members?"] They are perfectly happy to leave us to deal with the right hon. Gentleman. But the only serious part of his speech was that part dealing with incomes policy where the right hon. and learned Gentleman told us that there was not exactly agreement on the Opposition Front Bench. I shall come back to that in a moment.

One of his major criticisms was about the heavy oil, petrol and vehicle excise duty increases. One does not expect them to be popular but they are, nevertheless, right on both energy and transport grounds. The right hon. and learned Gentleman said that he would prefer an increase in VAT from 8 per cent. to 10 per cent. Such an increase would raise about the same amount of revenue as the increase in duties on petrol, heavy oil and vehicle excise duty, but would add 50 per cent. more to the retail price index than those duties.

While these duty increases are unpopular with many people in the country, only the right hon. and learned Gentleman, and no one else, is under the impression that an increase in VAT would be popular with the housewives, given that it is across the board. The right hon. and learned Gentleman's alternative would have meant a much bigger increase in the retail price index.

Both the right hon. and learned Gentleman today and the Leader of the Opposition in her own remarks yesterday, asked about the social security benefits. There is no need for a statement in the Budget about social security uprating. But my right hon. Friend the Secretary of State for Social Services will, in due course, be announcing an uprating in pensions which meets our commitment to uprating no later than November in line with prices and earnings, whichever is the higher. Other benefits will be uprated at the same time, also in line with our commitments.

Mr. Patrick Jenkin (Wanstead and Woodford)

As I understand the statutory requirement, it is to have a review of the level of earnings and prices in each financial year ending 5th April. Will such a review be announced before the end of the present financial year?

Mr. Barnett

I shall have to look into whether there has already been a review in this particular financial year with respect to last year's November uprating. As I am sure the right hon. Gentleman will be aware, and as far as I am aware we do not think it will be necessary to have another one in this financial year. However, I am happy to look into the point that the right hon. Gentleman has made. I am not clear what the right hon. Gentleman is seeking to do. Is he seeking to suggest that we should not uprate the benefits or that he would not? I would make it quite clear that we intend to meet our commitment to uprate the benefits.

Mr. Patrick Jenkin

The point is perfectly simple. There are two obligations. One is to conduct a review and the second is to make an uprating. The position on uprating has been made perfectly clear in the Public Expenditure White Paper. All I am asking is when the Government will conduct a review on which next November's uprating will be based. As I understand it, that has to be announced in the current financial year.

Mr. Barnett

We shall carry out the review in good time in order to ensure that the uprating is carried out in line with our commitment. We are determined to meet our commitment and we shall do so.

The right hon. and learned Member for Surrey, East did not have a great deal to say about the levels of income tax. The last time we discussed this, he took as his theme what he called "Truth in taxation". It is not surprising that he did not tell us very much more about that today. Having discussed "Truth in taxation" last time—there was the explicit understanding on the part of many of his hon. Friends that it meant indexation—the best that the right hon. and learned Gentleman would tell us about indexation was that in seeking after truth he would consider it seriously. That was the right hon. and learned Gentleman's view about that particular aspect of direct taxation.

We now know from what he said today that he wants to see the borrowing requirement much lower than it now stands to be in 1977–78. But even if he were to cut public expenditure much further than it has been cut already he would not be able to offset income tax reductions on the scale that he has previously suggested to the House. I can only assume that in sticking rigidly to the principle of truth in taxation that is what he means.

With regard to the level of public expenditure, right at the end of his speech during the public expenditure debate, and only after an intervention from the right hon. Member for Down, South (Mr. Powell), was it squeezed out of him that what he was really suggesting—the right hon. and learned Gentleman was obviously not intending to put it in his speech—was much bigger cuts in public expenditure. He gave two areas where he would make these cuts. One was in housing subsidies and the other was in grants to industry.

Perhaps in the pursuit of truth, the hon. Gentleman who is to reply for the Opposition this evening will tell us a little more than the right hon. and learned Member for Surrey, East told us on that occasion. The right hon. and learned Gentleman referred to the NEDO Report and that report in turn referred to about £450 million savings. But that would mean an increase of about 40 per cent. in gross rents. Is the right hon. and learned Gentleman really suggesting that that would be the best way of getting the understanding of the people of this country with regard to an incomes policy especially at this particular time? I notice that he does not think so, or perhaps he will tell us on another occasion.

With regard to the level of grants to industry, and again following an intervention from the right hon. Member for Down, South, the right hon. and learned Gentleman said: It was he, also, who was so fierce in his denunciation of the damage done by grants to industry, whether on a regional or a non-regional basis, all of which are on a revenue rather than on a capital basis and are areas in which, I suggest, the Government should be making still further cuts to restore the balance of these patterns of spending programmes."—[Official Report, 17th March 1977; Vol. 928, c. 663.] That was the right hon. and learned Gentleman's view about what we should do. I was rather surprised to hear him refer to them as cuts in current expenditure. In fact, they are capital and not current expenditure. They are for aids to investment. I am surprised that the right hon. and learned Gentleman is not aware of that because they largely come under the Industry Act 1972, and he was a member of the Government which introduced that particular Bill. I am rather surprised to see that that is his view.

I accept that there is a case for examination with regard to transfer payments. But what industry wants at present above all else is stability, with regard to both taxation and grants. To suggest that one of the best ways to help industry at this time is to remove all these grants suggests to me that the right hon. and learned Gentleman is not in touch with the people from industry who are in touch with us.

Before I turn to the Budget, I should like to draw the attention of the House to the fact that along with the Budget Statement we are debating four EEC documents, on the recommendation of the Scrutiny Committee of the House.

In some important respects they are out of date or constitute a record of economic events rather than a prescription for future action. The one exception is Document R/566/77 concerning the adjustment of economic policy guidelines for 1977. This is an updating of the draft annual report on the economic situation which contains guidelines for each Member State, in Document R/2520/76. I apologise to the House for all these complicated numbers. Document R/567/77 is a report on economic policies pursued by member States last year, with an assessment of the progress, or lack of it, towards convergence of the economies of the Community. Finally, Document R/2361/76 contains the draft Fourth Economic Policy Programme with medium-term guidelines for the Community as a whole up to 1980. All these documents have been adopted by the Council after a recommendation by the Scrutiny Committee that their adoption need not be held up pending parliamentary debate.

I hope to deal with our general economic policies as referred to in these documents, but if here are any specific questions my right hon. Friend the Financial Secretary or my hon. Friend the Minister of State will be happy to deal with them later in the debate.

This Budget will, I believe, be seen as an important turning point in progress towards achieving our objectives of full employment, steady economic growth and inflation no higher than our competitors'. These objectives are, of course, dependent on an improvement in our industrial performance. That in turn will depend on both sides of industry. All Government can do is create the right conditions. This Budget, and the measures that preceded it, have created the right conditions, and I should like to deal with some of them.

First, we have, both now, and in prospect, a more stable financial background than we have seen for many years. Internally, the public sector borrowing requirement is within the totals quoted in the Letter of Intent, and there should be no difficulty financing it. On the external side, our balance of payments should be improving in the second half of the year and be in surplus thereafter. Domestic credit expansion will also be safely within the previously stated limits. The associated growth of the money supply, as my right hon. Friend pointed out, is expected to be within the same range—9 per cent. to 13 per cent.—as we set for this financial year.

All this, plus the better balance achieved by the reduction in public expenditure, will ensure that the necessary financial resources will be available for industry, and, above all, that the resources will be available at much lower rates of interest.

Second, we have helped industry directly, both companies, and their employees, as well as small firms the self-employed. I should like to deal with some of the measures.

First, on company taxation, we have confirmed that the 100 per cent. first-year capital allowance will continue, as will stock relief. Taking both together, most expanding companies will pay virtually no corporation tax at all. That is what is most important for the economy of this country. Concerning small companies, the level for the lower rate of corporation tax has been increased to £40,000, with marginal relief going up to £65,000. This means that over 95 per cent. of all companies are covered by these rates. Equally, small, non-incorporated firms and the self-employed will benefit from the 100 per cent. capital allowance and stock relief.

We have also extended the ceiling for retirement annuity relief from £2,250 to £3,000. That is something that I should have thought would be widely welcomed. It is certainly welcomed outside the House. I would have hoped that it was also welcomed within the House. It will enable the self-employed to provide for their retirement in a better way than they have been able to do previously, by setting off the payments under these annuities at the marginal rate of tax to which they are subject.

We have not been able to do as much as many would have liked in reducing the level of income tax. However, those who condemn us and say that we have done too little in reducing income tax are often precisely the same people who also want to see a massive reduction in the level of the public sector borrowing requirement. However, taken together with the 2p reduction in the basic rate that we hope to be able to introduce, I believe that the profiles of the rates are very much better than has perhaps been appreciated.

If we had taken the whole of the £2¼ billion and used it wholly on the threshold, of course that would have been better in one sense, in that one would have taken far more people out of tax altogether. But one would have done nothing about differentials between the unskilled and the skilled. The net result of doing it all on the threshold would be to give exactly the same cash benefit to a man earning, say, £30 a week as to a man earning £120 a week, whereas by reducing the basic rate by 2p one does more for the skilled worker on average earnings and up to twice average earnings.

Mr. Julian Ridsdale (Harwich)

Is it not rather robbing Peter to pay Paul? Has not the cut-back in the rate support grant meant that many householders are having to face an average increase in rates of 15 per cent.?

Mr. Barnett

I do not think that one can look at one aspect of the economy on its own. I think that we were right to reduce the amount of the rate support grant in order to ensure that we had a better control over local authority current expenditure than had previously been available to us. We are now getting a much tigher control, even though it is only indirect control, than we have had in the past by using the 61 per cent. plus cash limits on the grant itself. I think that it has been very effective. We have not reduced the level of local authority current expenditure as much as we would have liked, but certainly by 1977–78 I should hope that local authority current expenditure will be down, in accordance with what we have been seeking in the local authority consultative council.

However, we could have done more as regards income tax only if there had been further large cuts in public expenditure. It is a view taken perfectly reasonably by a number of right hon. and hon. Members, but the right hon. and learned Member for Surrey, East has always suggested that it should be done almost entirely on subsidies. To take the point made by the hon. Member for Harwich (Mr. Ridsdale), that would certainly be robbing Peter to pay Paul, because one would take in one hand from one group of people—for instance, council house tenants—and give very much more to people with higher incomes. I am not sure—to say the least—that that would be an ideal way of getting an incomes policy in the coming round or of holding to the existing round.

One other measure that I think industry will find helpful—indeed, the right hon. and learned Gentleman welcomed it, although in a somewhat confused way—is the special help to those who work abroad, particularly export salesmen. It provides for a 25 per cent. deduction for those working abroad for 30 days or more. I think that this again is generally widely welcomed. We have changed the measure from that contained in the consultative document put out in December to ensure that the relief will be more readily available to those who go abroad for short periods.

Perhaps the greatest help that we have provided for industry in this Budget, and by what we have done previously, is to create much greater stability. For example, I would myself prefer the previous kind of corporation tax system. I do not happen to like the imputation system introduced by the previous Conservative Government. I know that I am not alone in that. It is not a political matter but a matter of what one considers to be the more appropriate system.

However, much more important than the system itself, whether or not one likes it, is the maintenance of some stability so that industry understands the system rather better than if it were constantly being changed. We have helped the expanding companies—even with the imputation system—through the 100 per cent. capital allowance and stock relief. Therefore, in that respect the stability that we have created will be of great benefit to industry.

I have described just two areas where I believe we are creating the right conditions so that industry can improve its performance—through a stable financial background, and by improvements in direct taxation.

But the third area is the most important of all. I refer to incomes. There can be little doubt that the greatest help that we could provide for industry at this time would be to obtain a satisfactory agreement on a third round of pay policy. There can equally be little doubt that after not just two years but many years of different kinds of incomes policies, the widening of differentials and the other forms of flexibility that we now need will not make the achievement of a third round easy.

However, it is vital that we achieve it. The alternative of seeking to remove all anomalies and widen differentials too rapidly would cause a pay explosion that would destroy all our hopes of cutting the rate of price increases and the level of unemployment. I believe that trade union leaders understand that only too well. As the TUC Economic Review makes clear, trade union leaders are not in favour of a free-for-all.

If we want moderation in pay claims, we must understand the problems facing trade union members. It is in that spirit that we took careful note of the representations made in the TUC Economic Review. We could not meet them in a number of important areas. We could not, for example, take action that would, overall, give too much of a stimulus to the economy, thus breaking our commitments on fiscal and monetary policy. The consequences for the exchange rate and inflation would be as disastrous for trade unionists as for everyone else.

We have made income tax reductions that trade unionists recognise as being essential. We have provided finance for selective employment measures and for some help to the construction industry through assistance to the inner city areas. We appreciate that the TUC and many others would have preferred no offsetting indirect tax increases at a time when the crucial problem is bringing down the rate of inflation, but we felt that we had to have a little leeway to make larger cuts in direct taxation.

The indirect tax increases have a minimal effect on inflation—namely, about 1 per cent. They have been chosen because they have the least possible effect on employment while meeting important social and economic objectives in health, transport and energy.

Taking all that we have done in the Budget, including the reduction in the basic rate of income tax that we hope will be possible, I am confident that trade union leaders and, more important, their members, will recognise how essential it is that we should be able to conclude a third stage of pay policy. We should then be able to break out of the series of stop-go cycles that we have been in since the war, which have been created by higher wages chasing higher prices chasing higher wages, to the disadvantage of everyone both inside and outside industry.

We now have a golden opportunity of seeing the end of stagnation, of moving to a new era of moderate but real wage increases, bringing about lower price increases, more jobs and a steady improvement in living standards. No real improvement can be achieved without an improvement in our industrial performance but there is no better way of achieving that than by creating and maintaining the conditions that I have described—namely, a stable financial situation internally and externally, a stable tax structure for industry that provides an incentive for expansionist-minded companies, combined with improved personal incentives for employees, and an incomes policy that provides companies competing at home and abroad with a greater degree of certainty in relation to their industrial costs.

We did not hear too much this afternoon from the right hon. and learned Member for Surrey, East about the alternative that is offered by the Opposition. However, we have had it on previous occasions.

Mr. David Howell (Guildford)

My right hon. and learned Friend made our position very clear.

Mr. Barnett

It has been made somewhat clearer on previous occasions. In my view the alternative that is put forward by the Opposition does not bear contemplation in current circumstances. It is based more on hope than on expectation. Last week the Spectator stated: We should be told in the near future not just that a Conservative Government would balance the budget but exactly how it would balance the budget". That raises interesting questions. We have not had answers to them this afternoon or on previous occasions.

The right hon. and learned Gentleman went into a somewhat convoluted part of his speech when dealing with incomes policy. I hope that those who heard it will now be clear about the Opposition's view about incomes policy. As the right hon. Member for Leeds, North-East (Sir K. Joseph) is on the Opposition Front Bench, perhaps he will tell us whether the Shadow Cabinet is in favour of an incomes policy and negotiation with the trade union movement. Is that the view of the Opposition Shadow Cabinet? We heard the right hon. and learned Member for Surrey, East—this was the only serious part of his speech—going on about incomes policy. None of us is any clearer about the view of the Shadow Cabinet.

Mr. Jim Craigen (Glasgow, Maryhill) rose—

Mr. Peter Walker (Worcester) rose—

Mr. Barnett

I should love to give way to someone from the Opposition Front Bench. I give way to the right hon. Member for Worcester (Mr. Walker).

Mr. Walker

I ask the right hon. Gentleman about his incomes policy and the calculations that he has made. He talks of a public sector borrowing requirement of £8,500 million. He must have calculated what was necessary in that policy for public sector wages. At present they are £26 billion. A 10 per cent. increase in public sector wages will add £2.6 billion to public expenditure. What calculation has the right hon. Gentleman made to take account of an increase in public sector wages?

Mr. Barnett

We cannot separate an incomes policy and apply it only to the public sector, as the right hon. Gentleman is only too well aware. I know that he has honestly stated his view and that he is in favour of trying to achieve a voluntary incomes policy with the trade union movement. I am sure that he would not want to separate an incomes policy and to make a calculation that is based purely and simply on the cost for the public sector. However, I appreciate his point. We want an incomes policy that achieves a rate of price inflation in single figures by 1978 and continuing to reduce thereafter. That is the objective, and it is the objective of the TUC.

It is important that the country should know whether the Opposition Front Bench shares that view and whether its occupants want to have a voluntary incomes policy. We heard the right hon. and learned Member for Surrey, East talk about inescapable consequences that are to be understood. He said that he wants an understanding with the country at large. Does he want to have a voluntary incomes policy with the TUC? It seems that we are not to have an answer from the Opposition Front Bench. I give way to my hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen).

Mr. Craigen

I listened to the right hon. and learned Member for Surrey, East (Sir G. Howe) and he did not make his policy clear. I had the impression that he was saying that the Chancellor is a big spender of public moneys and that he himself would be a wee spender. He seemed to be saying that when it comes to an incomes policy, he is a suspender.

Mr. Barnett

I share my hon. Friend's failure to comprehend the Opposition's policy. I wish that they would make it clear.

Mr. William Clark (Croydon, South) rose—

Mr. Barnett

The hon. Gentleman is not yet on the Opposition Front Bench. If he were, I am sure that he would do a better job than some of its present occupants. However, he cannot speak for the Shadow Cabinet.

Mr. William Clark

The Government have said that the reduction in the standard rate of tax from 35p to 33p is dependent upon a satisfactory incomes policy being arranged. My right hon. and learned Friend said that if it is calculated that the public sector borrowing requirement is £8,500 million, the Government must have taken some cognisance of the amount that was to be paid in the public sector in salaries. I am not mixing up the public sector with the private sector. I accept that if there is a 5 per cent. increase in the public sector, there is a 5 per cent. increase in the rest of industry. If the £8,500 million borrowing requirement is based on a notional 5 per cent. increase in the wage and salary costs of the public sector, a 10 per cent. increase would clearly give us something more. Will the right hon. Gentleman be a little more explicit about the conditions that are attached to the ordinary taxpayer paying a standard rate of 35p or 33p?

Mr. Barnett

Clearly that depends upon the Government remaining in office, which I am sure they will do for a very long time. Equally, I am confident that we shall be able to negotiate a satisfactory pay deal. The hon. Gentleman will find all the assumptions surrounding the cash limits calculations set out in the cash limits White Paper. I am surprised that he has not read it with his customary assiduity. If he does so, he will find incorporated in the figures assumptions about pay increases next year. What will eventually happen to pay increases next year will become clear as a result of the negotiations with the TUC.

Mr. William Clark rose—

Mr.Barnett

I would rather have an intervention from the Opposition Front Bench. I know that the hon. Member for Croydon, South (Mr. Clark) is an illustrious figure in Tory Central Office. It may be that one day he will be translated to the Opposition Front Bench so that I may see him at closer quarters. But at present the right hon. Gentleman cannot speak for the Opposition Front Bench, and those on it are remaining remarkably silent about the Opposition's policy on incomes.

Mr. Peter Hordern (Horsham and Crawley)

As the right hon. Gentleman is so interested in our incomes policy, perhaps he would be good enough to tell us what the Government's incomes policy is and what they are negotiating with the trade unions. We are being asked to consider a Budget that is apparently being settled with the trade unions. Will the right hon. Gentleman tell us what the wages increase will be?

Mr. Barnett

I thought that my right hon. Friend the Chancellor of the Exchequer made it crystal clear yesterday. It was crystal clear to me and my hon. Friends that, subject to our achieving a satisfactory pay deal, there would be a 2p reduction in the basic rate of tax. I am surprised at the hon. Gentleman, who has tried the oldest trick in the game. He is not prepared to tell us what the Opposition want to see. The hon. Member for Guildford (Mr. Howell) should stop whispering in his hon. Friend's ear. His hon. Friend manages without him sometimes—not always, but he tries.

We have been told by some right hon. Members on the Opposition Front Bench that they hope that our negotiations with the TUC will succeed and that we shall be able to negotiate a voluntary pay deal, but is that the Opposition's official policy? We know the view of the right hon. Member for Leeds, North-East. He writes and speaks on these matters very lucidly, much more lucidly than the Shadow Chancellor, who was a little unclear today. Perhaps the right hon. Gentleman will be able to explain it all tomorrow, or at least to explain his own view, if not that of the Shadow Cabinet.

Normally, the Shadow Chancellor's answer to all our problems is to cut income tax, but he told us today that he also wants to cut the borrowing requirement by substantial sums, and one assumes that, as he is truthful in all things, he would not also want to cut income tax. He would want to cut public expenditure and reduce transfer payments and subsidies to reduce the borrowing requirement, but not to cut income tax. Maybe that is the view. If not, it would not exactly be a way of balancing the Budget.

Mr. David Howell

As the right hon. Gentleman is being so coy about the contents of his cash limits White Paper, will he confirm to my right hon. Friend the Member for Worcester (Mr. Walker) that the figure he has in mind is a 10 per cent. increase in gross earnings for 1977–78, which would mean a pay increase for negotiation with the trade unions of about 5 per cent?

Mr. Barnett

Hon. Members should know better than that about the cash limits. We have had cash limits for a little while now. The cash limits White Paper contains assumptions, not forecasts, of what will happen in a pay deal. In any event, pay deals in the public sector are not settled until the end of the year, so the element for pay settlements that are not known is a very small amount, as the hon. Gentleman knows very well, and the margin of error is very small.

The hon. Gentleman keeps asking me questions, but he has never answered one, nor has anyone else on the Opposition Front Bench. I am paid to answer questions, but also to ask some occasion- ally. I never seem to receive any answers to my questions.

It is very interesting to note the Opposition's view on the best way to solve our problems and improve our industrial performance. What they are suggesting would certainly not be to the liking of industry. Here I quote in aid Mr. Hugh Stephenson, in an article in The Times last Monday. I gather that the hon. Member for Blaby (Mr. Lawson) suggests that he is a member of the Labour Party. That does not make the article wrong. Mr. Stephenson wrote: No one for a moment should be confused into thinking that the investing public or institutions would support the Labour Party in an election when it came to one … there are also strong residual doubts concerning the bones of the Tory industrial policy, even in the minds of bankers, financiers and industrialists of an essentially Conservative disposition. I should think that there are doubts about not only the bones but the skin as well, certainly after this afternoon. Then we come to the most interesting part, which is true whoever wrote it: In shipbuilding, cane sugar refining, steel making, machine tooling, ferrous founding, telecommunicating and scores of other industries those concerned know that the future depends on a greater or lesser degree of planning and assistance involving the Government in one form or another. Equally, scores of companies with good records and prosperous prospects in as many more industries know that their future has been made more secure with Industry Act help. We know that the Act was put on the Statute Book by the previous Government. We also know what some Conservative Members would like to do with the Act. [HON. MEMBERS: "Hear, hear. I note the support for that view, but is it the view of the Opposition Front Bench, of the Shadow Cabinet? We do not know, but I fear that all that would be thrown away if ever we were to have the horror of another Conservative Government.

The Conservatives' policies undoubtedly create such despair that they manage to bring together the CBI, the TUC, the City, the banking community and pretty well Old Uncle Torn Cobleigh and all. That is what just the slightest fear of the introduction of their policies did to all kinds of people. It is no wonder there was a collective sigh of relief last Wednesday night when the Conservatives lost the vote. The Opposition Front Bench is in trouble on this matter as on everything else.

There can be only one way forward, and that is through the policies set out by my right hon. Friend the Chancellor in his Budget Statement yesterday. The national interest is not helped by the pretence, implicit in the speeches of Conservative Members, that there is a simple, instant solution to our problems. Our problems are too deep-seated and have been with us for too long.

We all hear complaints about high prices, low net take-home pay and falling living standards. If we are honest, we must admit that we do not reduce inflation generally by artificially holding down one price with money that has to be found at the expense of something else—[HON. MEMBERS: "Hear, hear."] I have a note saying that if Conservative Members cheer at that point, I should remind them of the £1,181 million that they provided in subsidies for the nationalised industries under their legislation. It is very strange that they are now cheering a straightforward statement of fact—and the right hon. Member for Leeds, North-East is nodding agreement—when they did something very different when they had the opportunity.

Of course, artificially holding down one price is not the way in which to deal with the problem, although it may occasionally be possible to help a particularly hard-hit group of consumers. Equally, we do not automatically improve living standards by large increases in net take-home pay. We shall improve real living standards only by a real improvement in our industrial performance.

I believe that by the means I have described, together with the increasing flow of North Sea oil, we have provided industry with the sort of background from which it can move forward as never before. North Sea oil is not a panacea, and it will not last for ever, but if it is used wisely, combined with our newfound financial and economic stability, we can see the end of stop-go. But it must now be for industry to grasp the opportunity that has been provided.

Mr. Deputy Speaker (Mr. Oscar Murton)

Mr. Pardoe.

5.40 p.m.

Mr. John Pardoe (Cornwall, North) rose—

Mr. Kenneth Lewis (Rutland and Stamford)

On a point of order, Mr. Deputy Speaker. While I fully realise that the calling of speakers is at the discretion of the Chair—

Mr. Pardoe

Then why does not the hon. Gentleman sit down?

Mr. Lewis

I want to know whether there is a new rule that says that one Government supporter should follow another.

Mr. Deputy Speaker

That is entirely for the discretion of the Chair. I called Mr. Pardoe.

Mr. Pardoe

It is perfectly true, as the right hon. and learned Member for Surrey, East (Sir G. Howe) said, that my first reaction to the Budget last night was to call it a Budget of hope. I do not think that that was an ecstatic reaction—that might be a misnomer. If anyone was near to ecstatic it was the City editor of the Daily Telegraph this morning and those who deal with the £ sterling. I said last night that it was a Budget of hope, and upon further reflection overnight I still think that. In the present state of the economy hope is about the only commodity for which we can hope.

I want to make it clear to some hon. Members and to the Press that, contrary to Press speculation, which misled the right hon. and learned Member for Surrey East, I did not write the Budget, and it shows. The Sunday Times appears to think that is a great pity that I did not. The Sunday Times leader last Sunday said: The Chancellor rises on Tuesday in a changed political world. It is a pity that the arrangement with the Liberals has come too late to allow them any influence on his Budget. We believe that in this area, as in others, Liberal influence would be beneficial. To that I say "Hear, hear". I see that one Conservative Member put down a Question asking the Chancellor whether I had been told all the Budget secrets. That is a ridiculous Question to table and it makes a mockery of Question Time, because the answer is so obviously "No". Hon. Members really should not try to seek answers they already know.

I take this opportunity to deny suggestions that have been made about the pay round negotiations. There was an extraordinary suggestion in yesterday's edition of The Times, and I object not to the fact that the author that the right hon. and learned Gentleman quotes—Mr. Hugh Stephenson—is a member of the Labour Party, but to the fact that he wrote for The Times. Yesterday it was suggested that I and my hon. Friend the Member for Rochdale (Mr. Smith) claimed that we should be party to the pay round negotiations with the unions. The Times never bothered to ask me or my hon. Friend about this, and the fact is that the suggestion was never made by either of us. I have views on pay policy and I shall say something about them later, but of course I never thought that we should be involved in these negotiations.

In all humility I offer Ministers some words of advice: I hope that they will beware of journalists who ask them to comment on alleged remarks by Liberals about Liberal influence on policy. Not all journalists actually wish the Liberal Party well, any more than they wish the Labour Party well. There are some who know nothing more than what they find at the bottom of a whisky glass. There are some who spend their time ringing up Ministers and saying that a Liberal spokesman has said this and that. Ministers should ponder a moment before they reply to such tittle tattle. They should consider that a quiet and dignified note of scepticism is more appropriate than a loud, quotable explosion.

Mr. John Biffen (Oswestry)

Will the hon. Member dispel any speculation in the Press about how the Liberal Party will vote on Budget Resolution No. 11 on hydrocarbon oils and No. 15 on vehicle excise duty, since he has his own views on these matters which have been well documented in the past? We shall watch with interest the way in which he votes on Monday night.

Mr. Pardoe

The hon. Member must await the rest of my speech, and he may even have to wait until Monday night. But I am not likely to go back to the familiar words that the right hon. and learned Member for Surrey, East read out from the Front Bench this afternoon. It is easy for Conservatives to make capital out of the past failures of the Chancellor. There is no easier game on earth than that. But they only do so by relying on the short public memory of Conservative errors. The present leadership does not want to be judged by the mistakes of Lord Barber. I understand that. For all his manifold sins and weaknesses, no one could say that the present Chancellor is worse than Lord Barber.

I shall try not to judge either the Conservative or Labour Party by the past, because I would not want anyone to judge the Liberal Party by what the Liberal leadership did to Ramsay MacDonald when it sided with Montague Norman and the Conservatives against the advice of Lord Keynes. It is futile to look back in that way. But both the Chief Secretary and the right hon. and learned Member for Surrey, East opened their speeches by looking back at the past and I, too, shall give the Liberal view of the past.

I begin with a statement made on television by the Chancellor on 26th March 1974, when he said: The way I look at it is this: within a few years' time oil will start flowing in from around our shores, and a lot of our problems will be that much easier. So the job is to get from here to there without either our economy or our society breaking down. The folly in that statement and strategy, if it was a strategy, was that it grotesquely underestimated the appallingly low state of the British economy. It was the weakest economy in the Western world in terms of equipment for dealing with the 1973 oil crisis.

I prefer the words of Dr. Edmund Stillman, of the Hudson Institute, who said: North Sea oil is one of a series of evasions of reality which Britain has developed to avoid confronting harsh economic competition. The Chancellor's speech yesterday was very different. He said: Our aim must be to earn a balance of payments surplus in conditions of full employment. The growing output of North Sea oil will not be sufficient to achieve this. He went on: In sum, North Sea oil will not itself create a large number of new jobs, nor will it make possible a rapid return to full employment."—[Official Report. 29th March 1977; Vol. 929, c. 262–3.] That is the reality and it is a pity that the Chancellor did not recognise it and did not realise the full extent of the British economy's weaknesses when he took office. I do not deny for one moment—and I do not think that anyone can deny—that the Chancellor's inheritance in 1974 was a bad one.

The added value, the wealth created per employee in British manufacturing industry was, is, and has been for a long time appallingly low by international standards. The wealth created per employee in manufacturing industry was £2,615 in 1973 and 66 per cent. of that went in wages and salaries. In a sample of 416 Japanese manufacturing companies for the year ending 30th September 1974 the added value per employee was £8,083, of which 42.3 per cent. went in wages and salaries. One must note that in spite of the extraordinary differences in percentages between us and the Japanese because of the very much higher added value in Japanese manufacturing industry, the actual amount paid out in wages and salaries per employee was £1,726 in this country and £3,420 in Japan.

Mr. Ridsdale

Is it not a fact that the reason for this is that wage increases are negotiated on a company basis in Japan and not a national basis?

Mr. Pardoe

If the hon. Gentleman is referring to incomes policy, I agree that that is partly responsible. They are tell-tale figures. They represent a state of British industry over a long period of time.

The short-term inheritance is pretty bad. Money supply, having increased very rapidly before the Chancellor took over, could only equal inflation in the pipeline. One can argue whether money supply usually rises to meet inflation, or whether it goes up in advance and creates inflation. But in the circumstances of the early 1970s, I do not see how there can be any doubt that a 60 per cent. increase in money supply in two years, which happened in 1972–73, will produce a mass of inflation in the pipeline.

Moreover, Conservative pay policy was catastrophic. We warned at the time that commodity prices would not fall as the Conservatives were then predicting, and that phase 3 of that policy was ruinously over-generous and was a recipe, not for controlling inflation but for teaching the British people how to live in a banana republic. At that time the Conservative Government decided to index wages without at the same time indexing the capital side of the economy. If one indexes incomes but not capital, one destroys the whole capital base of that economy.

Mr. David Madel (Bedfordshire, South)

If phase 3 of the Conservative Government's policy was regarded as too generous, was that why it was Liberal policy to offer the mineworkers less?

Mr. Pardoe

The Conservative Government set up a relativity board to do the job that the National Board for Prices and Incomes would have carried out if the Conservatives in 1970 had not abolished it. We would not have abolished that board and would not have got ourselves in the same situation vis-à-vis the miners as did the Conservatives. It is true that we voted against phase 3, and if the hon. Gentleman looks at the record he will see that we so voted because we thought that phase 3 was over-generous. However, Liberal warnings at the time went unheeded.

The worst part of the inheritance involved increases in oil prices. That necessitated a reduction in real living standards, real disposable income, and there was nothing that anybody could have done about it. That had to happen because of external forces. It is extremely difficult to govern a country and to manage it when people, to use the Macmillan phrase, have never had it so good and when they constantly expect living standards to rise as though that were in the natural order of things—and that in a country where standards have fallen, as has happened in the last three years.

The greatest criticism I have of the right hon. Lady the Leader of the Opposition is that in all her utterances on the economy she makes governing Britain sound a darned sight to easy, and frankly it is not—[HON. MEMBERS: "Oh."] It is a pity that Conservatives who have had experience of office have not learned the responsibilities of office. We at least have learned them in Opposition.

Mr. Timothy Raison (Aylesbury) rose—

Mr. Pardoe

No, I cannot give way.

I wish now to turn to the IMF limits, whether the Government were wrong to enter into them, and whether we should have accepted those limits. We have given an undertaking and we should stick to it. There is little argument about the Budget judgment. That is largely irrelevant, and I believe that it is a good thing that Budget judgment this year has been de-mythologised. It is not very much more useful to try to forecast the PSBR. The PSBR is not much more than a crystal ball. People who persist in looking into crystal balls have only themselves to blame if their predictions turn out to be roughly the same shape.

Even in December the Treasury was making a £2 million error, because its officials partly underestimated the effect of cash limits, especially at local authority level. Moreover, interest rates are falling. The National Westminster Bank today announced that its borrowing rates will be 9½ per cent.—a drop of 4½ per cent. in three months. Therefore, the Chancellor is likely to have more to play with than he has been estimating. It may be that he will be able to use a little extra in his negotiations with the unions, because two points off the standard rate do not sound a lot with which to be going into the rough bargaining chamber.

Let me turn to the subject of taxation. I believe that there are two central things wrong with the British taxation system. The first is that income tax is too high and is out of the control of Parliament because of the insidious workings of inflation. Total taxation is not so high. We are not a heavily taxed nation compared with the rest of the world. It just feels that way. [HON. MEMBERS: "Oh."] It is true that we are not. If one draws up a ghastly league table, one sees that of the 10 major industrial nations only Japan has a lower proportion of the national product going in taxes than we do. Other countries, such as Germany and France—whose inhabitants do not complain about taxation half as much as we do—have a higher proportion of national product going in tax.

The main reason is that they impose far less income tax but suffer a far higher proportion in indirect tax. In 1976–77 income tax amounted to 17 per cent. of total tax requirement, including national insurance contributions; in West Germany the figure was 33 per cent., and in France 20 per cent.

The main culprit in all this is the lack of revenue we obtain from national insurance contributions. In this respect the figure in the United Kingdom is 17½ per cent. of total tax revenue, 30 per cent. in West Germany, and 40 per cent. in France. Employers will not like me to point that out, but they now pay less than 9 per cent. of their wages bill in national insurance contributions, whereas employers in Western Germany pay 15 per cent. of the wage bill and French employers 31 per cent. in those contributions.

The Sunday Times Business News contained a report on a proposal along these lines. I should like to make it clear that it is not, as stated in that article, Liberal policy. It is a discussion paper put up to a tax panel and it comes from a working group. That paper will have to be considered along with many other working papers of a similar sort, before it becomes part of party policy—if it ever does. I think that cuts in income tax should be massive.

Mr. Hordern

I have the article in The Sunday Times to which the right hon. Gentleman refers. Would he care to deny the report, which says: Dramatic new proposals, including a 53 per cent. cut in Britain's income tax burden, and a major change in the basis for future pay policy negotiations, have been prepared by the Liberal Party. They are already under discussion between the Liberal leaders, Labour Cabinet Ministers and top trade unionists."? Is that report inaccurate?

Mr. Pardoe

The document has been submitted to the Treasury, and it has been discussed with various trade union leaders. I hope that the Conservative Party also takes the chance of consulting a few interested people outside Conservative Central Office on its research documents. That should do a great deal to improve the quality of Conservative Party policy in future.

I believe that there should be a major cut in income tax. I do not think that a cut of 55 per cent.—55 per cent. is the figure—is too much, but it must be phased over a period. There is no doubt that the effect of reducing income tax would be extremely beneficial in two sectors. The first sector on which it will bite is the poverty trap, because it would enable us to raise thresholds and overcome difficulties in that area.

Secondly, it would have a tremendous effect on small businesses. The plight of small businesses is one of the biggest problems of British industry. There are in the United Kingdom 27,000 manufacturing firms employing 10 or fewer people. In Germany and France there are well over 150,000 such firms. If we had anything like that number of small manufacturing businesses, we should have about 500,000 more jobs in manufacturing industry at the most progressive and dynamic end of the manufacturing sector.

I am convinced that a reduction in income tax will enable people, by being able to save personally rather than through the tax system, to channel savings through the institutions and it will provide risk capital to a far greater extent to bring about a high birth rate of small businesses. However, the Chancellor has made a start by moving from taxes on income to taxes on expenditure. I repeat that it is no more than a start. It is more a nibble than a decent bite. I hope that the right hon. Gentleman will be far more daring and radical in future.

After the Budget changes, the income tax forecast is 39.49 per cent. of total tax, including national insurance contributions, compared with an outturn last year of 41.25 per cent. We must remember that in 1969–70—the last year of the previous Labour Government—the figure was 28.73 per cent. An enormous increase has taken place in that period.

The Liberal Party has been committed to indexation of taxes for a long time. The Chancellor has not introduced it this year, and he has not raised allowances to the levels of April 1976, let alone April 1973. It must be done and done formally. I hope that there can be a firm agreement among the parties about this and that the Conservatives will commit themselves to indexation of the tax system. I hope that if an amendment on indexation is moved in the Finance Bill Committee, the Conservatives will vote for it.

Taxes should be raised with the open consent of Parliament. Fiscal drag is the tax which Parliament does not have to vote. Income tax could not have become such an intolerable burden if it had been indexed. The PAYE system, coupled with high inflation, makes tax gathering too easy and when tax gathering is easy, public spending becomes wasteful and inefficient. I hope that we can use this unique parliamentary situation to do what Parliament is meant to do and ought to do, namely, control taxation.

The Budget increases in indirect taxation are the necessary other side of the coin of a substantial reduction in income tax—although the reduction is not anything like as substantial as we should have liked. There are ways and means of doing these things, and a standardisation of VAT at 10 per cent. would be infinitely preferable to the effects of a rise in petrol tax.

It is all very well to say that the effect of VAT on the retail price index over the whole country would be greater than the effect of a rise in the petrol and car taxes, but the spending patterns of people in rural areas is vastly different from those of people in urban areas. In rural areas there is no public transport as an alternative and a car is a necessity, not a luxury. There must be new thinking on this subject, because it is utterly intolerable that in the rural areas —and, in the absence of even the White Paper on transport in rural areas, for which we have been waiting for months —the price of petrol and car tax should be increased. Also, in rural areas, because of lack of competition, petrol prices are already substantially higher than they are in urban areas.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

While agreeing with every word that the hon. Member for Cornwall, North (Mr. Pardoe) has said about the inequity of the increased petrol tax, may I ask whether he and his hon. Friends will be in the Lobby with us against that when it comes to the vote?

Mr. Pardoe

I shall do a deal with the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). If he will support me on indexation, I might just possibly be tempted to support him on petrol tax. The best answer that I could give to him would be to quote the words of a great and revered Liberal Party Leader of the past—wait and see.

The right hon. and learned Member for Surrey. East referred to the virginal purity of the Liberal Party, but I do not want to claim anything like that. I regard stage 3 as absolutely essential because if we do not get it we shall go into the stratosphere of inflation. Wages are coming down as a proportion of total inflation. They represented three-quarters of inflation in 1975, but half in 1976. We must achieve an effective stage 3.

If we try to rely on monetary policy alone, we shall find that when we come—as we inevitably shall—to face a wage explosion, the monetary floodgates will be pressed hard and if they hold—as they must—wages will be able to rise only at a cost of higher unemployment and lower profits and therefore investment. The company sector will be squeezed short of cash, and there will be no job-creating investment, so unemployment will rise. That would be the short-term consequence of trying to take the strain upon the money supply without an incomes policy.

Neither Government nor Opposition have spelled out what they regard as a reasonable incomes policy. Some people start from the fact that the retail price index is forecast to go up by 13 per cent. Some trade unions say that they must compensate their members for that. We must ask a different question. What will happen to the resources available to pay us? The answer is that those resources will hardly rise over the next year. In an ideal world the norm is "nowt". That is really all the extra that the British people can afford to pay themselves in the coming year. However, we live not in an ideal world, but in the real world. The increase should be no more than 5 per cent., not at national level but at plant level bargaining. It must be at plant level because that is where the problems of differentials and productivity bargaining can be worked out. Five per cent. is the absolute limit.

The real danger to the British economy is that, although the balance of payments will come right within the next year or two and look attractive throughout the 1980s, the underlying balance of payments of the manufacturing sector will be as appalling as it has been for a long time. The whole of the improvement in the balance of payments will come from North Sea oil. When North Sea oil starts to decline and we again become an importing nation, we shall find that we have the chronic balance of payments problem that has bedevilled us for as long as most of us in the House can remember. We must use this period to make our manufacturing sector competitive and efficient and to raise output and value added per man.

This Budget can in no sense be regarded as an election, or even a by-election, Budget. It is—as most of the serious Press has today recognised—a responsible Budget. It is at least a step back on the road to fiscal sanity.

6.9 p.m.

Mrs. Barbara Castle (Blackburn)

I listened for what seemed rather a long time to the three speeches of the party spokesman and I could not help wondering whether it was because they are men that none of them ever referred to one of the most serious flaws in the Chancellor's Budget strategy—his failure to use any of his £2¼ billion to help children or the mothers who bring them up.

We have talked a lot today about the purposes of the Chancellor's strategy. There is pretty general agreement in the House that he has his purposes right. The Chancellor wants to relieve the intolerable pressures on people's circumstances and to restore fair differentials in our society. Above all, the Chancellor wants to underpin the pay policy. However, the House has failed this afternoon to grasp the central rôle that the mothers in our society play in that strategy. Do not let us forget that the mothers of young families are feeling the pinch of inflation most. Over successive years, under successive Governments, they have received the least attention and the least relief.

That is where the anger is accumulating. I agree with the hon. Member for Cornwall, North (Mr. Pardoe) that this is not a by-election Budget. Women voters are in the majority, a fact that we forget at great risk, and they will be deciding whether the Government are helping them to deal with the sort of domestic problems with which they are struggling. It is the women who are angry at inflation and at their wits' end to know how to continue to feed and clothe their families. It is a matter of great regret that in a Budget that pushes up the Index of Retail Prices by another 1 per cent. as part of the effort to enable the Chancellor of the Exchequer to give £2½ billion in tax reliefs none of that money is to go to meet the problems faced by these women.

I thought that there was all-party support for child benefits. It is not so long since there was anger in all parts of the House at the Chancellor's decision to ditch the child benefit in his last Budget. However, no one seems to have realised yet that in this Budget we are, in effect, continuing to make the mothers of this country pay the price for a continuation of the pay policy.

I wish to spell out some figures in detail. The child benefit was ditched last year because the Government wanted to link pay restraint with increases in take-home pay through tax reliefs. As a result of the outcry from all parts of the House, they were forced to compromise, and it was agreed that child benefit should be phased in, starting with two self-financing tax changes this year, namely, family allowances being made free of tax, and child tax allowances being cut by an equivalent amount. I pay tribute to the Chancellor for standing by that compromise. The Budget Resolutions will fulfil that commitment, which is an essential first step towards phasing out child tax allowances and phasing in tax-free child benefits.

As a result, the great majority of families who pay the basic rate of income tax and who are entitled to receive the child benefit will find that the father's pay packet will go down by about 70p a week—as it would have done even if the child benefit were not being slowly introduced—but that the mother will receive £1 child benefit for the first child. The family will, therefore, be 30p a week better off.

That was the system accepted, however unhappily, as the only feasible compromise in the budgetary situation that we faced in July, but no one anticipated then that the Chancellor would be able to introduce income tax reliefs of En billion in this Budget. Now that he has that money to give away I have been urging him to face up to the implications of carrying out the compromise solution.

My right hon. Friend could not use that money to increase child tax allowances. With inflation still running at double figures and further increases in food prices under the common agricultural policy on the way—despite the magnificent efforts, which I salute, of my right hon. Friend the Minister for Agriculture it is clear that in this year, of all years, the Chancellor would normally have given help first to families with children, by increasing the child tax allowances—over and above the extension of the family allowance to the first child, which is a separate and long-standing Government policy. Since child tax allowances are to be phased out, my right hon. Friend could not help families in that way. The only way open to him was to phase in child benefits this year at a substantially higher rate, and that is what I have been asking him to do.

The extension of the family allowance to the first child at the pitiably low figure of £1 a week involves £95 million of help to families in a Budget of tax reliefs totalling £2½ billion. When I think about that I wonder whether we are all mad—but perhaps it is merely that we are governed by men. By refusing to take this proportion seriously, we are once again cheating the children of this country.

For a mere £900 million of that £2½ billion, my right hon. Friend could have raised child benefits to £2.70 per child per week. A man with two children under the age of 11 would have been £2.90 a week better off than he will be under the proposed rate of benefit, and a man with four children under 11 would have been £5.30 better off.

Instead of spending money in that direct and practical way to give urgently needed assistance to mothers trying to bring up families, the Chancellor proposes to spend £901 million on increasing single and married allowances and £960 million on reducing the basic rate of tax by 2p if he gets the pay deal—a total of £1,861 million in a full year.

What will he the effects of the tax reliefs and the changes in child benefits provided in the Budget on family incomes? The tables obligingly provided by the Treasury and the Inland Revenue show the effect dramatically. They do not tally in the form of their presentation or cover all the groups in which I am interested, so I have had to do some calculations myself. If they are not accurate, I urge the Chancellor to circulate the correct figures in the Official Report so that we may all judge what we are doing this week.

The tables show that a single man on £50 a week will be about £1.20 a week better off. A married man on the same income and with no children will be £1.43 better off. A married man with two children under the age of 11 will be £1.63 better off and a married man with four children under 11 will be £1.76 better off. A single man on national average earnings of £80 a week will be about £1.80 a week better off. A childless couple will be just over £2 a week better off. A married man with two children under 11 years of age—that is, a family of four to share this benefit—will be about £2.23 a week better off. A married man with four children under 11 years of age—six people to share this tax relief—will be £2.32 a week better off.

The Chancellor made play with the fact that he is proposing a substantially larger increase in the married allowance this year to help the family man. But, because he cannot increase child tax allowances and will not increase the child benefit, he has still produced the result that the heavier a man's family obligations, the less help relatively he receives from the Chancellor.

Let us look at the size of the opportunity that we are throwing away. As I said, a man with two children on £50 a week gains only £1.63 a week from the Budget, even taking into account the extension of child benefit to the first child. If the Chancellor had spent £900 million of his £1,800 million on increasing child benefit, that man would still have gained about half of his tax reliefs, but in addition would have received £2.90 from the increased child benefit. Therefore, the help going into that family would have been not £1.63 but £3.70 a week.

The same man on national average earnings would, under my proposals, gain for himself and his family about £4 a week compared with the £2.23 the Chancellor offers him. Even with a wage of £100 a week, that man would be better off as a result of increasing child benefit than by giving all the money in tax reliefs. He would get £4.20 a week from my proposals instead of £2.63 a week from the Chancellor's.

Of course, the larger the family, the more the man would benefit from my alternative. For example, a man on national average earnings with four children to bring up would get £6.60 a week from my proposals and only £2.10 from the Chancellor's. The same man with six children would get £8.85 a week under my proposals and only £2.32 a week under the Chancellor's. That £2.32 is just 52p a week more tax relief for eight people than for the single man or 32p a week more than the childless couple will get under this Budget.

How can we say that we are looking after the nation's children? How can we expect mothers to get through the coming year on that distribution of the money that we have to give away?

The man who is too poor to pay tax at all will get nothing from the Chancellor. My suggestion would give him a bonanza of £2.90 a week more for two children or £5.30 a week more for four children. That has always been one of our major arguments for concentrating more of our resources on child benefit. The idea has been that the benefit should go to that small but not insignificant group of families who are too poor to pay tax.

Another major argument is that the higher level of child benefit is the most effective way yet known for removing the built-in disincentive to work which arises when a man is on a low wage or has a large family. The right hon. and learned Member for Surrey, East (Sir G. Howe) made some play with this point in his opening remarks. I think that it was he who quoted Sidney Weighell of the NUR as saying that thousands of his chaps got more on the dole than they got at work. That is true if a man is on a low wage or has a large family. Those are circumstances in which it pays better to be on the dole than to be at work. The central reason is that when a man is unemployel the State pays him £4 a week per child. However, when he is at work he gets the child benefit of only £1 for the first child and £1.50 for the second and subsequent children.

The more rapidly we move towards equalising what we give to a man for his children when he is in work and what we give him to bring them up when he is on the dole, the quicker we shall restore the health and productive vitality of our society. I wish that the Chancellor had used some of the £2½ billion to get us on that way.

My figures may seem surprising. How is it that a man with children could gain so much more under my proposals for the same money as the Chancellor proposes to spend? The answer is that my right hon. Friend is proposing to divert so much of that money to the single, the childless, and the better off. I think that all three of those categories need something, but do they need to corner every bit of that money at the expense of families? Do they need the improvement in personal allowances and then, if all are good boys, a reduction in the standard rate of tax as well? The result of those changes produces what I have tried to spell out to the House.

The Budget continues the trend of recent years of financially discriminating against families. We are always running away from that problem: the moment is never right to put it right. Again, the Chancellor pleads the pay policy.

My right hon. Friend said that he must do something in the Budget to restore better differentials. Differentials for whom? I think that he is talking about differentials between the skilled and the unskilled. If he pleads that as his excuse, it means that we have now reached the ridiculous situation where pay policy has so eroded the differentials in the pay packet that we must offset them in a Budget which deliberately widens differentials in favour of the single and the childless and against families. We are swopping one kind of differential for another. Once again, the children of this country are being made to bear the brunt of pay policy. We are standing our social policies on their heads.

Mr. George Cunningham (Islington, South and Finsbury)

Are there not this year some severe practical difficulties which we always recognised? My right hon. Friend does not want the tax allowances, which we have reduced, to be raised in April. I think that she accepts that the child benefit rate, already fixed, could not have been raised with effect from April. Is she suggesting that it should be raised later this year? Does she think that it would be practical politics for the Chancellor to say that we shall distribute £2¼ billion, but roughly half will be distributed some months ahead in the autumn?

Mrs. Castle

I was coming to that very point. My hon. Friend and I have discussed these practical difficulties many times. I know that he is as keen as I am on the child benefit scheme.

There is a practical difficulty. I accept that it is administratively impossible to increase the child benefit rate before November. I quoted £900 million, because I happen to think that that is a good share of the swag for the kids. Some is left for immediate improvement, therefore. The second tranche—the 2p off the standard rate—is in any case subject to negotiations, which are still to take place. It is for that second tranche of reliefs that I would have substituted the uprating of child benefit at the earliest practicable date.

When he goes into the pay talks, the Chancellor should say that he has done something in the Budget to ease the pressures by substantially increasing personal allowances and that the unions should, therefore, give the Government a good pay policy. If he did that, when the first round of the pay negotiations starts in November he would be able to say to those in the public service and to the members of NUPE that he had something to give them in exchange for wage restraint. In some cases that would amount to £5.30 a week. It is time the Government opened their eyes to what that could mean.

If the Chancellor were to reject that I should fall back in my desperation from one expedient to a lesser one. If he finds, as I think he will, that despite the relaxations in the Budget we are still suffering from economic overkill and that he has to come back with an autumn Budget—not to tighten things up but to relax them to encourage the upsurge needed in industry —he should then increase child benefit substantially. That would redress the injustice to children, as that is contained in the proposals before us. At the very least, will the Chancellor hold out some future hope for the children?

I have never been a particularly arrant feminist, but I cannot help feeling that this Budget is a product, once again of masculine mentality. It is just as much a surrender this year as it was last year to those elements among the wage negotiators who say that their men are interested, not in the family income, but in what they receive in their pay packets. It is a surrender to those who complain that cigarettes are going up and that that has an impact on their pay packet. I am not trying to make an anti-masculine case, but I beg my right hon. Friends, as they examine the proposals, to realise that, in this year of rising inflation, we cannot afford to leave out the children.

6.33 p.m.

Mr. Douglas Crawford (Perth and East Perthshire)

I hope the right hon. Lady will forgive me, a mere male, if I do not follow her speech closely. Perhaps one of her conclusions might have been that we should have the Leader of the Opposition as Prime Minister, but that is not in my interest any more than it is in hers. I am the only representative of a political party in the House that is not taking part in the Stechford by-election, so I shall eschew any comment about that.

We should all be grateful for small mercies. The Chancellor of the Exchequer has not produced such a bad Budget, but he has still not brought us back to where we were in October 1974. From the Scottish point of view for which I speak, this Budget, like its predecessors and its predecessors' predecessors, is nasty and brutish. It fails to allow Scotland to realise her full economic and industrial potential. It fails to offer her a way out of her appalling unemployment and her appalling social and urban deprivation. It fails to encourage real investment in Scottish industry. The Scottish TUC, which was voluble in telling the SNP that its members should not vote against the Government last week, is now busy criticising the Government for what it considers to be a bad Budget.

I shall deal with some small aspects of the Budget proposals, although they are not small to those who are suffering from the Treasury's iron grip and the slavish adherence to a unitary economic State that is centrally managed. The Budget has done nothing to ease the burden on the self-employed that we remember was first proposed by the Con- servatives and subsequently made heavier by the Labour Government. The burden of the levy on the self-employed should be abolished in Scotland. I understand that the cost of that would be about £7 million per year. Surely that is a small sum to pay to give back to small business men in Scotland some freedom to exercise their entrepreneurial skills and their ability to create wealth for the benefit of all.

The same approach should have been taken to VAT. The threshold at which a business becomes liable for VAT registration should have been raised from its present £5,000 annual turnover to £15,000. I understand that to do that in Scotland would cost between £7 million and £8 million a year. That is a small amount to pay to relieve small business men from the administrative complexities involved in their acting as unpaid tax collectors for the Government.

If there is anything that epitomises Scotland, it is whisky. Time and again the industry, the Scotch Whisky Association and the SNP have asked the Chancellor of the Exchequer to relieve some of the burden on whisky. In this instance it is not a case of our being relieved that at least the Chancellor has not imposed a further burden on whisky. He has done nothing to reduce that burden even to the levels that prevailed in October 1974.

If employment and investment in this important industry, which employs about 23,000 people, are to be maintained, the duty on whisky must come down. We shall be tabling amendments to the Finance Bill at a later stage. I hope that we get more support from the Conservatives, who in the past have been conspicuous by their abstention on the issue.

We shall also seek to amend the Bill to ensure that the duty on whisky becomes payable not, as now, when it comes out of bond, but at the time of retail sale. At present the industry is acting as unpaid banker to the Exchequer, interest free. I understand that the once-for-all cost of such a change would be about £150 million.

Much has been made of the increase in petrol and vehicle excise duty and many crocodile tears have been shed. The Chancellor does not appear to realise that in many rural areas the railways have been closed, bus services discontinued and that the car is the only way in which people can get around. If the situation continues, we shall soon be back to horses. When the vote on the resolutions takes place on Monday, members of the SNP will be watching closely to see whether the Conservatives' protestations are matched by their feet in the Division Lobbies.

We shall also watch to see whether the Lab-Lib alliance will stand firm on the matter, since many Liberal hon. Members represent rural areas. Do they wish their constituents to be hammered by this aspect of the Budget?

When the hon. Member for Oswestry (Mr. Biffen) attacked the hon. Member for Cornwall, North (Mr. Pardoe) on that matter, the hon. Member for Cornwall, North wriggled. We were told that we should wait and see. As economic spokesman for his party, the hon. Member should have committed his colleagues clearly and unequivocally to vote against the increases in petrol and vehicle excise duty. These are small issues, but they are not small to the people or the industries involved.

The SNP takes its greatest issue with the Chancellor on the main strategic points in the Budget. The Chancellor told us at length yesterday about what the IMF would or would not let him do. I have news for him. Last year I wrote to the IMF about what was to be the collateral for the loan gained last autumn. It is interesting to note in that context what the Financial Secretary said earlier this year about the relationship between the IMF loan and Scottish oil. He said: The amounts with which we are concerned —the $20 billion in total and the $12.9 billion borrowed since 1st March 1974—need to be set against the very considerable sums which North Sea oil will make available to offset the balance of payments deficit resulting, in part, from the imports of oil which it will replace in considerable measure. He went on: Other countries are presumably satisfied that the facilities granted to us are more than covered by the benefits which will derive to us from North Sea oil."—[Official Report, Standing Committee A; 8th February 1977; c. 32–3] Last year I wrote to the Managing Director of the IMF. In a reply dated 21st October 1976 the acting Managing Director, Mr. William B. Dale, told me: The Fund does not require security along the lines you mentioned. Therefore, that can be forgotten. If the IMF says that oil is not required as collateral, it is not.

But irrespective of that, it is neither morally right nor prudent of the Chancellor and the Chief Secretary to hypothecate the oil revenues to a London Treasury when their destination will be decided in a very few years by a sovereign Scottish Government in control of the natural resources of the Continental Shelf of Scotland, as defined by the Continental Shelf Jurisdiction Order of 1968, passed by this Parliament.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

The hon. Gentleman may have read that quotation in its context or not, but clearly the question of collateral does not enter into these arrangements. However, anyone who lends money—Governments or the IMF: we must remember that a number of other loans are also concerned—must have due regard to the success of the policies carried out by the receiving Government and their ability to repay. That is what I was seeking to impose on that Committee.

Mr. Crawford

I am grateful to the Minister, especially for the fact that I think that he accepts that it was not oil per se as collateral but Government policies that the IMF would be looking for.

On the subject of oil, the people of Scotland will not allow their country to be the only one which, although large quantities of oil have been found, is getting poorer for it. Scotland needs a separate and expansionist budget that will use the oil revenues to reduce taxes, direct and indirect, to provide proper incentives for industry, as is done in Norway, to cultivate future industries in Scotland and to increase public expenditure so as to get rid of the awful social deprivation in the West of Scotland.

The Budget does very little to represent Scotland in these matters. That is why a separate budget is vital. I wrote to the Chancellor about this. His reply was courteous, but it was steeped in the philosophy of the United Kingdom as a unitary economic State, centrally managed, and that simply will not do.

There are many respects in which the economies of Scotland and England differ. This is what the Scottish Council Research Institute said about Scottish trading patterns: Any direct estimation of Scottish exports from United Kingdom overseas trade statistics must founder on the fact that Scottish industry is not a microchosm of the United Kingdom's industry and that in several sectors, manufacturers in Scotland export a different mix of products. It also said: Comparatively, the increase in value of Scottish manufactured exports has been greater than that for the United Kingdom as a whole. Perhaps even more important is this final quote from the SCRI: Analyses suggest that the United Kingdom's increased trade with EEC countries, following membership, was not reflected in Scotland. In total, the rest of the world remains more important for Scottish exporters. But if trading patterns are different in Scotland and England, our balance of payments is even more markedly different, especially now that Scottish oil is on stream to a value of about £1,600 million a year.

Mr. George Cunningham

Is the hon. Gentleman including the Shetlands as part of Scotland? As he knows, the Shetland Islands Council has made it plain in public that if there were to be devolution, it would not want to be part of a devolved Scotland Would the hon. Gentleman, against the wishes of the people of the Shetlands, try to force the Shetlands into an independent Scotland?

Mr. Crawford

The Shetlanders have never said that they do not want to be part of a Scottish Parliament. They have said that they do not want to play a large part in a Scottish Assembly, but that is totally different. If this Parliament is upholding the rights and wishes of the Shetlanders on this issue, it should also respect their rights in the Common Market referendum, in which they voted to come out. We cannot logically have our cake and eat it on this matter.

No one can deny that the possession of oil will give Scotland a healthy balance of payments. The latter-day Lord Godolphins of the "Scotland is British" campaign and its Conservative acolytes suggest that a strong currency would be bad for Scotland. How do they equate that with the parliamentary reply that I recently received from the Financial Secretary, to the effect that a 1 per cent. trade-weighted depreciation in sterling would add between ¼per cent. and ⅓ per cent. to retail prices after about a year?

Given that the pound has fallen from a rate of $2.40 to about $1.70 in the last two years or so, it is fairly easy to see where much of the increase in the cost of living has come from. I am reminded of the Tory heckler at a meeting during my last General Election campaign who, when I confirmed that we wanted a sovereign pound Scots, said that that would not do because very soon it would be worth only—I repeat, "only"— $2. I am sure that we in Scotland would settle for that for a start.

It may be of interest to know what Peter Jay, the economics editor of the much-maligned newspaper, The Times, wrote on 3rd February in an article entitled "Scotland without England": If there is one thing the Scots are supposed to understand, it is money. This tradition is impressively borne out in the Scottish National Party's plans for the financial aspects of self-government, a dimension of the independence debate that has been paid too little attention … The arrangements proposed are perfectly workable. The people of Scotland will benefit from them, as compared with the present situation … The benefits will include the overwhelming effects of increasing the impact of North Sea oil on Scotland's national income. He went on: The decisive argument for financial independence for Scotland, irrespective of political independence and long before North Sea oil was discovered, has always been the need to break out of the '£1=£1 Scots' trap. But a Scottish government should not assume this just on the strength of a so-called favourable 'conventional' export record achieved in conditions of permanently high unemployment. Once the £Scot is allowed to float freely—it may need to go up or down—and provided that trade unions in Scotland are not determined for ever to set Scottish pay at a level in real terms which condemns a high proportion of their members to unemployment, full employment will follow quickly.

Mr. Raison

I am interested in that quotation, but is the hon. Gentleman accepting the argument that Scottish wage rates should fall?

Mr. Crawford

Certainly not, and I do not think that Mr. Jay implies that. We say that with the greater resources that we have at our disposal, wage rates —certainly real wage rates—would have tended to rise. Mr. Jay does not suggest that they will fall.

We need a vast injection of funds from our resources into our industry, our social work, our education, our infrastructure. We are not happy with many of the Budget Resolutions which will be voted on on Monday night. The Chancellor may have prescribed a sugar-coated pill for England, but he has left a bitter taste in Scottish mouths.

6.48 p.m.

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

If it is true that Budget debates are slowly but surely becoming devalued, that is partly because of the frequency with which we have them. They are no longer annual ritual occasions. The Chancellor has now presented 10 Budgets. However, the main reason is that we are becoming increasingly conscious that so little influence on the future of the economy is exerted by what happens in this place. As many people have said, here and outside, the battles for our economic destiny are much more likely to be won in the workshops of Britain.

Nevertheless, this House still has an overwhelming responsibility to provide a satisfactory and responsible financial framework within which the economic operations of this country can function. One attractive feature of the Budget on this occasion is that the Chancellor and, I think, most hon. Members have come round to the view that we must pay attention to some of the indicators which we have laid on one side from time to time, perhaps rightly, perhaps wrongly.

I have one or two reservations about the Budget. But I must say to my right hon. Friend the Chancellor that, despite the fact that he has made many important concessions in income tax, he made a mistake in trying to claw back some of these concessions by imposing some additional indirect taxes. This is the case because of our present situation when people really believe that inflation is public enemy No. 1. I know that we are alarmed by some other indicators, particularly by the fact that unemployment is proving to be such an intractable problem.

We are also rather appalled by the low estimate of the rate at which the cake which we are going to divide amongst ourselves is likely to grow in the next year or two. In the past both of these things would have proved intolerable, yet they have undoubtedly receded into the background as inflation has taken its toll.

Any Chancellor in increasing not real inflation but certainly the RPI is taking a grave risk, perhaps economically, but also politically. As Peter Jenkins in The Guardian said: No Chancellor introducing such a Budget such as Mr. Denis Healey's yesterday could be named as an accessary to a plot to hold an early election. Undoubtedly, this is a reasonable conclusion because the Chancellor has taken a gamble and increased indirect taxes.

I think that he has been seduced to some extent by those gentlemen of the Treasury and other academicians who have put forward arguments about the way in which the percentage derived from indirect taxes has fallen over a certain number of years in the past and who have produced delightful statistics showing that all other countries, especially in the Community, derive a much higher proportion of taxation from indirect taxes. and so forth. I suspect that the average elector in Stechford or anywhere else will not be too seduced by such arguments. He will only say "My God, yet another price increase".

We keep on getting these increases. It seems to people that because Governments make decisions in quite arbitrary fashion to put up gas prices by 9½ per cent., or whatever, to increase the price of petrol, the car tax, and so on, the Government cannot really be taking the problem of inflation too seriously. This will have consequences far beyond the seriousness of the percentage increases.

This change must come, but we all seem to be patching up our tents when it is raining. We are making these sorts of adjustments now which will make the achievements of the Chancellor's policy so much more difficult, at a time when we have had to concede, once more, that our projected estimates of what will happen to the price levels have gone sadly awry. We are still in double figures, and. heavens above, I think that the rate of inflation is running at near 20 per cent. I would say to the Chancellor that in this respect he has made a mistake.

I also have some misgivings about the continuation of the linkage between the pay settlement and changes in taxation. I say that because I feel that one of the reasons the Chancellor has been cautious to the point of not mentioning any figures in his speech is quite simply that he has no confidence about what he can achieve in terms of the amount by which wages will rise.

The problem this time is more complex, and yet by saying that he will make this additional £1 billion available as part of the wage bargain, he has in effect preempted the wage bargain. He has taken away £1 billion from what would have been available to make contributions to solving this incredibly difficult problem of wage differentials and so on. I do not think that that is a problem that would divide myself and the Chancellor. On the whole, I think that many people would pay tribute to his judgment on the general question of how far he should go.

However, I would say, and I had hoped that some of my hon. Friends would have been present, that those who take a rather anti-Chancellor, anti-cautious view about the future—[Interruption.] I must not be too critical, because I am sure that my hon. Friends are doing something which I should be doing, namely, campaigning in Stechford rather than making speeches here to which no one listens, and which will not have the slightest influence on the course of human history.

The Chancellor's caution stems from his fear about what the settlement will be. I think that he has made the settlement more difficult in one sense because he has made this fiscal concession. There will not be enough money left. I do not know what the figures are, because I have not had a chance yet to look at the cash limits. I do not know what my right hon. Friend has in mind, but I suggest, without fear of contradiction, that the wage increase gross next year will be 14 per cent., which will be about 4½ per cent. from the Budget concessions and about 9½ per cent. to 10 per cent. as a consequence of what the Chancellor will have to concede to get a settlement which will embrace all these different factors, particularly differentials.

Mr. Hordern

Is the hon. Gentleman saying that the increase in earnings which he projects means that he has no confidence that the Government's incomes policy can bring about a reduction in the rate of inflation?

Mr. Cant

I do not know whether that would necessarily follow, but I do not have a great deal of confidence in these extrapolations of what is likely to happen to earnings. I hold the view that I do about incomes policy because the end product in all these exercises has been that earnings in some mysterious way, propelled by some type of wage drift which has not been wholly explained, turn out to be much greater than was anticipated.

We said last year that we were going to have a certain percentage. Yet what happened, as figures recently published show, was that the increase was far in excess of that. This is one of the difficulties. I think that the Chancellor has that and a number of other problems relating to what is likely to happen at the back of his mind.

I do not know, following these various analyses of domestic credit expansion—M3 and all the rest of it—whether what the International Monetary Fund was imposing on Britain might have an effect quite the reverse of what was expected. The DCE concept was born in the days of balance of payments deficits of a very high order in the second half of the 1960s. In those circumstances, it is a compensation in relation to M3 that pulls one up fairly sharp.

Thanks to our Scottish friends, at the end of this year—certainly in 1978—our balance of payments will move into considerable surplus. The consequence of that will be that, as DCE recedes, the Chancellor may be faced with serious increases in his money supply aggregates. I do not know what he will do with them.

Everybody is enormously confident about the public sector borrowing requirement. The Chancellor will have no difficulty. He has brought off this brilliant strategy of the £15 down gilt, which he has carefully timed so that he can finance some of his borrowing in the first two or three months of the new fiscal year. These gilts are repayable on such dates as make me feel that we shall have money supply figures on a monthly basis in future.

There is a confidence about this that I do not altogether share. I am not absolutely certain that the Chancellor will be able to find his 4 billion to £6 billion public sector deficit money as easily as all that. This is partly due to the fact that, although interest rates will fall, it is unlikely that they will fall as rapidly or for so long as many people in the City are suggesting. There is now a firm expectation throughout the money markets in the United States that the rate of interest there will begin to rise.

Another interesting factor on which nobody seems to have got his eye, unless I have not been listening, is what has been happening to the savings ratio. In the past the public sector borrowing requirement did not really matter. From a situation in which we were saving 8½ per cent. of personal disposable income we moved last year to saving about 15 per cent. In those circumstances, directly or indirectly, the Chancellor has no difficulty. In times of inflation, taxpayers are very concerned, not about the falling value of their money, but about the future. They fear for the future and are determined to hoard money, even though the value of the pounds that they hoard is in real terms fast diminishing.

The change is obvious. The savings ratio is down to 11½ per cent. One per cent. of savings ratio is equal to about £1 billion. This is also a factor which may be in the Chancellor's mind. He may have difficulties if the savings ratio collapses much further.

I shall not follow the ignoble example of most of the opening speakers who spoke at considerable length. It is abvious that the Chancellor expects, as a result of very cautionary policies, to have considerable headroom—public sector borrowing requirement, money supply, favourable balance of payments as a consequence of North Sea oil, and by 1978 things will be much brighter for this country, again thanks to our Scottish colleagues, than they have been for some time.

What I say to the House, and to those few of my hon. Friends who are here to listen to me, is that this is an opportunity which Britain must not throw away again as it did under two previous Tory Gov- ernment. We have had chances before. We have gone in for dashes for growth, and we have brought Britain to the brink of ruin. I am confident that my right hon. Friend has adopted the right policies of caution to achieve the opportunities that will become available very shortly. If an election occurs in the same year as this bounty becomes available to us, this will be absolutely fortuitous but perfectly acceptable.

7.6 p.m.

Mr. Percy Grieve (Solihull)

There was much in the early part of the speech of the hon. Member for Stoke-on-Trent, Central (Mr. Cant) with which I was in almost complete agreement. I was rather put off at the end of his speech when he attributed some of our economic ills, past or present, to previous Tory Governments.

It is obvious to most of the population who consider these matters that our economic ills—the lack of saving, the lack of thrift, the lack of investment, the lack of the lifeblood of industry—have been procured by the Chancellor himself by his early Budgets in 1974. They recognise that the Chancellor brought this country to a desperate pass and is only now gently—too gently—and slowly—too slowly—trying to put the matter right.

One of the ways in which the Chancellor is trying to put the matter right is, for the first time since this Labour Government came to power, to tackle and reduce the absolutely overwhelming burden of direct taxation.

I felt rather sorry for the Chief Secretary when he endeavoured this afternoon to defend this Budget and to expose its effects and what it sought to do and what the Chancellor, he himself and the Treasury team had designed it and desired it to do. The right hon. Gentleman seemed to be saying—"It is a poor thing. I know that we have not gone very far, but of course half a loaf is better than no bread". Or was it a quarter of a loaf, or an eighth of a loaf, or a sixteenth of a loaf, or even a thirty-second of a loaf?

The Chancellor has set about tackling the problem of the burden of direct taxation. I am the first to agree that it is not possible in one fell swoop to switch that appalling burden—the greatest burden of its kind in any free country—in one Finance Bill from direct to indirect taxation. That would be impossible.

I accuse the Chancellor of not having gone nearly far enough in this Budget. My second charge against the Chancellor is that in going part of the way and in seeking to increase indirect taxation he has chosen quite the wrong method. I seek to deal with that second point first.

I have the honour of representing the constituency of Solihull, which produces one of the finest motor cars in Britain, the Rover, and where the Range Rover and Land Rover are manufactured, vehicles that are among the greatest export earners for this country. The result is that for many years, ever since I have had the honour to represent Solihull, I have been in close contact with the motor industry, as is my duty. We all know that the motor industry is passing through a perfectly appalling phase. The motor industry bids fair to fail the country completely by becoming bankrupt and dragging a large part of British industry down with it.

There is more than one reason for this. One is undoubtedly bad labour relations and another, closely linked to it, has been the fact that we have had suicidal strike after suicidal strike in a large part of the industry. However, even given the evils produced by labour troubles and bad labour relations the motor industry throughout the years has been subject to another evil and another ill, namely, intense Government interference. The motor industry has been used by the Government as a sort of economic regulator or economic yo-yo, so that in one Budget it is raised up and in another it is struck down. In one Finance Bill it is helped and in another Finance Bill it is hindered.

I have talked regularly with the leaders of this country's great motor industry during the past 12 years or more. One of their constant causes of complaint is that they are made the plaything of the Government. They are not given a chance to get to their feet before they are subjected to more taxation. In the old days the Industrial Reorganisation Corporation made the industry establish itself in various parts of the country. Taxation on the industry by means of the purchase tax varied from one Finance Bill to another before we had the VAT system, and then the rate of VAT on petrol was raised to 25 per cent.

It is not only my constituency that depends on the motor industry for its living. The West Midlands and large parts of the rest of the country—in fact the kingdom itself—depend on the industry for their living in a large measure. The industry is going through one of the most difficult periods in its history. It is seeking to rehabilitate itself after the devastating blow of having suffered from strikes, falls in sales, and other difficulties.

Yet what does the Chancellor do in seeking to transfer part of the tax burden from direct taxation to indirect taxation? He increases the burden on the motor industry again. Many of my right hon. and hon. Friends have referred to the burden that the increase in vehicle excise duty and the increase in duty on hydrocarbon oils will place on the ordinary citizen. It will place a burden on those living in rural areas, on the countryman who has to make his way from the country to market, on the elderly, on pensioners and all those outside our cities who depend on a motor car. They will have a great burden to bear.

I emphasise the burden that this will impose on the motor industry itself. The number of cars sold is bound to be fewer now that the vehicle excise duty is £50, than the number sold when it was £40. The number sold is also bound to be fewer because of the increase in the price of petrol.

Solihull will suffer, the West Midlands will suffer, and the country generally will suffer from this wholly misguided transfer of part of the burden of taxation. I hope that the Chancellor and other Ministers will mark what I have said, because already the news from the West Midlands is that this burden is very much resented by those who are dependent on the motor industry for their living.

I shall now deal with the first limb of my accusations against the Chancellor and his actions in this Budget. I echo what has been said by other hon. Members who have spoken this afternoon. The hon. Member for Cornwall, North (Mr. Pardoe), when he had finished that part of his speech wherein he dealt with crystal balls, went on to speak a good deal of sense about the burden of direct taxation in our society.

I do not want to go over at too great length ground that I have already developed in other speeches in the House on taxation. However, I must say that we are subject to the greatest level of direct taxation of any country in the Western world. I believe that even Sweden does not take the higher rate of income tax on any income, whether it is income from earnings or investment, above a level of 70 per cent., while our higher rate is 98 per cent.

The House will recall that in the recent debate on taxation I went in some detail into figures which showed the burden being placed upon the ordinary citizen who, however fast he has been running during the past two years, has simply not been able to keep up with the combined effects of inflation and gross, savage over-taxation.

These things move very fast. As long ago as November last year, a man who in 1974 earned £5,000 a year needed to earn £8,057 a year to break even. A man who had been earning £10,000 a year needed to double his earnings to £19,974. If his income was from investments, although it is almost unbelievable, the same man would have needed to increase his income to £53,000 and more. These figures speak for themselves.

In my capacity as a Member of Parliament I am a Member of the Assemblies of the Council of Europe and the Western European Union. Many hon. Members on both sides of the House who go abroad frequently would agree that this appalling tax burden is undoubtedly having the greatest possible disincentive effect on our people. Wherever one goes abroad, people in the same professional capacities and who do the same kind of work are earning more and keeping more than people in this country. This applies all the way from the shop floor upwards.

If we are to give British industry back its life blood, since it depends on the savings of the people, we have to enable the people to save. To enable the people to save, we have to cut down the appalling burden of direct taxation. In that direction the Chancellor has offered us not a loaf, not a half a loaf, but a sixteenth, a thirty-second, or a sixty-fourth part of a loaf. He has made a few concessions which, to echo a word used by the hon. Member for Cornwall, North, simply nibble at the problem. He has not tackled the problem.

If that problem is to be tackled, Government expenditure must be cut. The very fact of inflation and taxation at this scale distorts the whole economy, and that leads to difficult, dangerous and sad situations, such as those described by the right hon. Member for Blackburn (Mrs. Castle). There will be subsidies and special grants because society demands them. It demands them, however, because the whole economy is distorted by inflation and over-taxation.

I wish to deal with the over-taxation of capital. I am glad that the Chancellor has at least made a minor concession on small investment incomes on retired people. It was a disgrace that this was not done in 1974 and 1975, and even worse that the Chancellor caused the situation to deteriorate then. We had defeated him in 1974 and managed to get the figure increased to £2,000. As soon as he was able to command a necsary majority in the House of Commons, he cut the figure and thereby reduced many retired people living on their savings to something like penury. Now the right hon. Gentleman is making slight amends at a stage when inflation has vastly reduced the value of £2,000 a year.

We have the highest taxes on capital in the Western world—and, for aught I know, in the Eastern world, too, although I do not have figures for that. I asked the Chancellor on 11th March for the comparable figures of estate duty payable in direct line of descent in all the Common Market countries. He chose to reply by saying that the figure was based on there being only one son. That is a comparative rarity in most of the countries of the EEC. In most of them the prevailing system is that each child gets a slice which is free of duty. With large families of between three and six children, for example, the amount of the estate which escapes all duty is considerable.

We do not do that. Thank heavens we have seen the light, so that the surviving spouse now enjoys exemption for life. But on the death of the survivor the children are very hard hit—harder hit here than in any of the countries to which I have referred. I shall give the figures for only £20,000, the value of the houses of very many people. The figures are based on there being one child.

In the United Kingdom the duty payable would be £500. In Belgium it would be £603; in Denmark, £1,372; in France, nothing; in Ireland, nothing; in Italy, £225; in Luxembourg, £837; in the Netherlands, £1,654; and in West Germany, nothing. Further up the scale, however, the increase in the rate in this country is enormous. At £40,000 we have the highest rate of any country in the Community, more than double that prevailing in any other country except Denmark. I shall not go right up the scale, but the figures are to be seen in Hansard.

If we want to encourage saving, and we must encourage saving to provide investment for British industry, we must change our policies not only on taxes on income, but on that final tax on capital which falls on the death of a surviving spouse.

7.26 p.m.

Mr. Jim Craigen (Glasgow, Maryhill)

I think that there has been a general recognition that the Chancellor has a somewhat limited scope, and that this will remain so as long as there is a virtual IMF work-in at the Treasury. Most of the debate this afternoon has been concerned with reductions in personal taxation, reductions which have been expected for some time, if not almost foretold. I should have liked to see yesterday more indication that those in lower-paid employment would be assisted by tax reductions, because the cost of living—electricity prices, travel costs and so on—tend to bear more harshly upon the family budgets of such people.

The Chancellor spoke yesterday about the need to reduce the rate of inflation, and he indicated that this was his main aim. I hope that equally he will see the reduction of the rate of unemployment also as a main aim. My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) made a shrewd observation about the forthcoming negotiations between the Chancellor and the TUC. In some ways it seems that the Chancellor has steered himself up a cul-de-sac with these negotiations. I wonder whether the £960 million which he said would be available to reduce the standard rate of tax from 35 to 33 per cent. might not be the sub- ject of negotiation with the TUC to enable him to ask the unions to suggest alternative ways of using the money to create extra job opportunities, which is an increasingly vital matter. There is a lot of unemployment in most of the industrialised countries, but that gives us no great comfort here.

It certainly gives no comfort to those who are out of work. The right hon. and learned Member for Surrey, East (Sir G. Howe), in his opening speech, made some interesting observations on his outlook on this whole question of the public sector. He virtually posed the choice between reduced taxation—he made it clear that he would reduce public spending—or paying people in the public sector a bit more. He seemed to be saying that it was almost a question of choosing between jobs and pay in the public sector.

The right hon. and learned Gentleman's comments did, however, raise a point concerning the way in which, for example, the rate support grant has operated for the local authorities. Local authorities are sometimes faced with choices of what sectors of employment they should keep and what sectors they ought to try to save through natural wastage. There is often a tendency to save through natural wastage, if not through creating actual redundancies, with regard to lower-paid jobs. But those jobs are very important to the people who actually have them.

The Chancellor yesterday referred to the future potential of North Sea oil but told us that this would present no guarantees of full employment in the future. He said that it would certainly help our balance of payments and our energy position but that there was no guarantee that it would create more jobs, particularly in the manufacturing sector. One of the problems of investment decisions is that, by and large, the kind of investment that we are asked to make is greedy on our capital resources and often leaves public authorities with the task of finding employment for those who are not able to find employment in the capital intensive private sector such as the chemical, communications and oil industries.

It would be interesting to know from the Financial Secretary just what we can look forward to in the way of EEC co-operation in organising investment. I was particularly interested to hear from the Chancellor yesterday that it was hoped we could achieve this organising of investment, especially with regard to providing jobs for young people.

I turn to some of the specific points that the Chancellor announced. I welcome the selective job introduction for manufacturing firms, albeit when they are employing only less than 50 people, but I wonder how long some of those firms will be able to guarantee the life span of those jobs when the six months of the £20 subsidy has ended.

My second point concerns the special assistance to be given to the creation of new jobs for the disabled. I have a blind craft workshop in my constituency. One of the problems in this area of sheltered workshops has been a falling away of public service contracts. The need is surely to assist many of those workshops to sustain the full capacity of their employment potential. That is something to which, perhaps, my right hon. Friend, and his colleagues in the Department of Employment, will pay some attention.

I also welcome the additional boost which is being given to the construction industry, particularly in the inner city areas, not least because of the large number of building workers who are at present unemployed. The extent of the enormous pool of unskilled and semiskilled people, particularly in the west of Scotland, which shows up from an analysis of the trend of the unemployed, is staggering, but I foresee the sheer problem of the physical jerks in respect of central and local government planning. One year we tell the local authorities that they will have to cut back on their expenditure and the next year we say "We want to give you a wee boost so that you can provide some additional employment". Most of the authorities are doing the best they can, but it becomes a frustrating exercise as a result of this weathercock business of chopping and changing. A little more continuity would go a long way to helping some local authorities and public agencies in their planning. One of the problems in the stress areas is that there is so much chopping and changing.

I turn to the increased petrol prices. These have been argued on the basis of energy conservation. In parenthesis I would say that not all motorists are necessarily well-to-do people. A lot of people have family cars which, apart from weekend pleasure, are used as a means to work. Many people also share their cars with other workmates going to the factory, the shop or the office. If we are really serious about energy conservation should we not be looking at what the United States is doing? It is trying to force the motor manufacturers to find ways of getting more out of oil by increasing the miles per gallon.

Similarly, with regard to power, if we are really serious about energy conservation should not the Chancellor have been announcing measures to encourage more insulation in factories, offices and houses in order that heating bills could be substantially reduced? Apart from anything else, that would provide additional employment opportunities. I am glad that the Chancellor has not increased the tax on paraffin, but the reason why more people are having to use paraffin heaters is that they cannot afford to pay for electricity.

As a non-smoker I want to make a point about the price of cigarettes. I know that every packet carries a health warning. I appreciate that the Chancellor has increased cigarette prices for the benefit of the chests of the people who smoke. I understand that tipped cigarettes are a little safer than untipped cigarettes. Something might have been done in that regard. We should also remember that some hon. Members have constituents who earn their living in the tobacco industry. It is an industry that provides no small measure of support to the Treasury and no small number of people are employed in it. It has recently been facing a falling away of employment and turnover.

I believe that high priority should have been given in this Budget to employment and manpower policy generally. We are well accustomed to fiscal Budgets. We know there is an industrial strategy, but it seems to me that we are seriously in need of an employment strategy. When the Chancellor comes to give us his Budget, whether every year or every half-year, as we have now become accustomed to, I hope that he will spell out the implications of his fiscal measures on the manpower situation in the country. To my mind, far too much human resourcefulness is unused at present. We have spent much of the day talking about the importance of tax reductions and the need to introduce more incentives into the place of work. But tax reductions do not matter all that much to a person if he is not in a job. It seems vital that we should be putting the question of employment at the top of our priorities. I regret to say that we do not appear to be doing that in the right way at present.

7.41 p.m.

Mr. Julian Ridsdale (Harwich)

The Chief Secretary said that our problems had been with us for too long. They have been with us too long—but especially since 1964 and more especially since 1974, since when, alas, successive Socialist Governments have tried to create an island of Socialism in a world of free market economies. Socialism just cannot compete with free market economies that are running efficiently. Fortunately, the saviour of this country has been the IMF, first in 1969 when it came to the help of the then Socialist Government and again now when it has come to the help of the present Socialist Government.

The Budget bears all the imprint of a bankers' Budget—not of British bankers but the bankers of the IMF who have dictated the terms to the Chancellor. The Government have now learned the tragic lessons of 1974, when, because of the vast increases of Government spending and the taking off of the lid on wage increases that occured then, the grounds were laid for putting the Government into pawn to the international bankers and for the Government having to borrow the record sum that we have had to borrow in the last few years.

We are at present under the instructions of the IMF and we have little ground for manoeuvres unless we face the reality that if we wish to have more ground for manoeuvre we must redeploy Government spending so that it goes to giving the incentive to create more wealth and to giving incentives to increase productivity, and so that we can get out of the straitjacket of Socialism which has imprisoned our economy for far too long.

Let us compare the performances since 1974 of Japan and this country. In 1974 Japan had an inflation rate of 19 per cent. Our rate was 10 per cent. Today, because the Japanese have adopted a voluntary prices and incomes policy and have had great restraint on Government spending, the rates of inflation are almost exactly reversed. We have a rate of 16 or 17 per cent. Japan has a single figure rate. That is the price that we are paying for Socialism and a demonstration of the success of the market economy, of watching Government spending and of seeing that a voluntary wage agreement is reached with the unions.

I interrupted the Chief Secretary during his speech to ask him to compare the tax reductions with the increases in tax and the cutting back of the rate support grant. I have a feeling that this is rather a sleight of hand on the part of the Chancellor, a robbing of Peter to pay Paul, or a robbing of the ratepayer to pay the taxpayer. What is the total amount of money that is being collected through the average rate increase of 15 per cent. today? It is that amount of money that we must set against the tax deductions that the Chancellor has announced. When we hear that figure, I think that we shall see that we have had very much a neutral Budget, rather than what seems to be a Budget of tax reductions.

The rate burden falls heavily upon small families and those who can least afford it. That is one of my worries at present. The Government have failed to reform local Government finance. Indeed, the system is archaic. We should never dream of having a bill as large as the defence bill included in the rates, yet we have on the rates an education bill that is twice the size of that for defence, and it falls on families who are least able to bear it.

The right hon. Member for Blackburn (Mrs. Castle) made a plea on behalf of children. Of course, householders are being affected by the rate burden. However, the right hon. Lady should direct her mind to local government finance and the increase in rates and not make special pleas necessarily for one section of the community, deserving as it may be. She makes a plea for help for children, but we could all make our special pleas.

Coming from a constituency that contains 33,000 retired people, let alone other people numbering about 60,000 who are making wealth in farming and other activities, I realise that for the single person living alone not nearly enough has been done in this Budget. I realise that a prerequisite for all this help must be that we create more weath as a country and that, therefore, it is right to give incentives for more productivity and the creation of more wealth.

However, at the same time, we must care. For the single person living alone, particularly those aged over 65, who must face an increased telephone bill and doubled electricity and gas bills, and, what is far worse, the increase in bus and rail fares, there are some very human problems that Socialism has created. For all Socialism's wish to try to give more care to the people, it has failed to produce wealth. It is only by producing wealth that we can help the country. That is certainly something that Socialism does not do—but a market economy does it. The lesson is there for people to see in the rest of the world.

Mr. Doug Hoyle (Nelson and Colne)

If the market economy is such a good thing, as the hon. Gentleman is making out, why was it that the previous Conservative Government turned away from it?

Mr. Ridsdale

The previous Conservative Government did not turn away from a market economy. They were in power for only three years, and it takes longer than that to correct the faults of Socialism.

I am most disturbed by the effect that the increase in petrol tax will have, particularly in rural areas. I can appreciate the argument of the necessity for saving energy supplies, but I think that the Government do not realise how imprisoned people are becoming because they cannot travel fairly cheaply and easily in rural areas. This tax will increase the burden, particularly on the elderly and those who cannot afford to pay the increased charges that have been forced upon them. In my constituency there are 33,000 retired people who have no concessionary fares, because if such fares were introduced by the local council the cost would be passed on to other ratepayers who are pensioners. The only real way that help can be given in respect of concessionary fares is by the introduction of a simple national scheme, which need not be extravagant. If that were done, there would be an immediate saving of Government spending of £30 million a year. Surely that would help a great deal.

Yesterday the Chancellor talked about increasing productivity. When I listened to his remarks about capital gains I thought for a moment that with his new love for the Liberal Party he was about to introduce profit sharing on the lines of the Employment Investment Bill that I introduced on 4th February. If such a scheme were introduced and encouraged, there would be increased productivity in industry, increased participation and real industrial democracy rather than some of the other forms of industrial democracy that are set out in the Bullock Report and other reports.

When we come to discuss the Finance Bill I hope to table a new clause that will have an effect similar to the proposals in my Employment Investment Bill. I hope that Liberal Party Members will support me and will not be kin to the desire to support the Socialism that we have had from the Government, which means equal shares of less and less.

Since 1964 we have tried, alas, to create an island of Socialism in a world of free economies. Japan has enjoyed success because it has adopted a market economy and because Government spending has been kept at half total Government spending in this country. As a result, they have been able to keep taxation at half our rate. Wages in Japan are negotiated on a company basis. Investment has been double ours. Their skill in research and development is considerable. Their education system has produced great technical skill. They are reaping the rewards of adopting a market economy that is competitive and producing goods that the world wants.

We have much to learn from countries such as Japan, Germany and the United States where capitalism flourishes. Those countries are able to create wealth and to give their people a life that is far better than the British Government are able to offer in following the road of Socialism.

Unless we can quickly increase our GNP there will have to be a further redeployment of Government resources unto industry. We believe—this seems to be modern non-Liberal belief—that money fructifies in the pockets of the people and not in the coffers of the State. If we are to raise £1,000 million for the National Enterprise Board the money has to come from 1,703,000 people paying tax at £587 a year. How much more wisely they could invest that money than the NEB. This is the principle that we are arguing across the Floor of the House.

My right hon. and hon. Friends know that it is only a market economy system that can produce the wealth and will produce a standard of living in this country that is comparable with that enjoyed in other countries. We want a balanced budget. We want sound finance. We want a strong pound.

We watch what is happening in the wage negotiations now taking place. When I heard the Chief Secretary bandying words across the Floor of the House and asking "What is your policy on prices and incomes?" I felt that we were coming to the crux of the matter—namely whether Parliament rules the country or some outside body.

If the Opposition adopt the irresponsible attitude of Labour Members when they were in Opposition, it will be difficult for any democratic Government to govern. The code of Parliament must be that when the Government of the day have been elected the Opposition in all responsibility must do their best to ensure that the Government can adopt a proper voluntary prices and incomes policy. That is something that Labour Members failed to do when they were in Opposition. I am sure that my right hon. and hon. Friends hope that the Government will be able to reach a proper voluntary prices and incomes policy in the difficult negotiations that they have with the trade unions. If we occupy the Government Benches, I hope that the present Prime Minister and his right hon. and hon. Friends would support us in the same endeavour.

7.57 p.m.

Mr. Fred Evans (Caerphilly)

I shall be brief. I shall try to make one specific and narrow point. Of course, any Budget debate is a temptation to indulge oneself, as did the hon. Member for Harwich (Mr. Ridsdale), in every tired old cliché of economic treaties of 30 years ago, or else to hold forth with ideas of one's own. I hope that I can resist those temptations.

Having heard much of the debate this afternoon, I was struck by what has been called the crystal ball phase in the speech of the hon. Member for Cornwall, North (Mr. Pardoe). However, the deeper emotional reaction and rational reaction was to the speech of my right hon. Friend the Member for Blackburn (Mrs. Castle) with her restrained yet passionate pleading on behalf of the women of this country, who are faced with the real problems of bringing up families in circumstances that more and more remind many of us of the stringencies of the time that we went through when we were young.

It appears to me that whatever the Budget may have to do with Liberalism, it has mighty little to do with Socialism. We should have preferred a very different attitude towards unemployment. In that context I refer to the construction industry. My hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen) referred to the problems of the industry and the massive unemployment that exists in it. My hon. Friend paid tribute to the Chancellor's gesture in pledging himself to a programme of urban renewal in the centres of our great cities. This will absorb a sizeable proportion of the unemployed skills in the construction industry.

But city centres are not the general pattern throughout the country. In my part of the country, for example, we are largely dependent on small to intermediate building firms, which are closely tied to the contracts they secure from local authorities and other public or quasi-public bodies.

The issue to which I shall refer has been the subject of debate in the House and of what appears to be a well-orchestrated campaign of questioning by some Conservative Members to denigrate a whole system. Having watched what has happened in South Wales over improvement grants and exploitation in general, I say at once that I am cheerfully committed to the removal of the cowboy builder. But that does not mean that no problems remain in the construction industry. One concerns the campaign against the tax exemption certificates for contractors and subcontractors.

Here I wish to quote from the South Wales Echo, from an article printed as recently as last Friday, which shows that the information is up to date. It said: Many sub-contracting builders in South Wales could face bankruptcy if they have not received their tax exemption documents in time for a new Inland Revenue law on April 6. The warning came today from the regional director of the Federation of Master Builders, Mr. Austin Clements, who said the 35 per cent. of earnings they stand to lose under a new tax law could easily lead to large scale redundancies in the industry. His 'warning' comes because, he said, many sub-contracting firms have not received tax exemption forms they applied for up to one year ago. The April 6 ruling is an attempt to get rid of 'cowboy builders' who fail to pay their tax. Any builder who fails to produce his certificate at the start of a contract will have 35 per cent. of his earnings confiscated by the Inland Revenue until the end of the year. 'Now any builder who has not received his exemption certificate must get in touch with his local tax office at once to apply for a letter of Intent,' said Mr. Clements. As I have said, in parts of the country such as mine builders are closely tied to local authorities and certain other public bodies. From 6th April, 35 per cent. will be deducted from any payment due to them, excluding only the direct cost of materials, unless the subcontractor produces a tax exemption certificate. Sub-contractors will incur the same deduction, irrespective of who the main contractor's client is, unless they, too, have exemption certificates.

Some firms applied for exemption certificates a year ago or more and have not received the certificates. I have an example of a reputable firm of builders in that position. Certain people who were extremely worried got the Welsh Office to try to ascertain the number of firms of sub-contractors in South Wales which still had to obtain certificates. According to the Inland Revenue's returns, they total about 18,000, a considerable slice of the construction industry in such a small region. There are all sort of theories about the matter. There are stories that the cause is a bottleneck in the computer centre at Liverpool. I do not know.

Even if the Inland Revenue issues the outstanding certificates by the end of this month, many firms will still suffer what is after all a penal deduction—35 per cent.—through no fault of their own. The cause is faults inherent in our pattern of government. It takes a long time for local authorities and similar bodies to make up their minds. They want to execute their administrative work properly and thoroughly in processing payments to a contractor. The whole business can sometimes be very protracted.

There is no hon. Member on either side of the House who has not at some time come up against the problem of people who need an immediate cash flow and who are owed thousands of pounds by a local authority. They will certainly receive the money, but often, it appears, at some dim and distant time in the far future. The industry cannot sustain that kind of delay and the cutting off of cash flow, which in present economic circumstances would seriously threaten the continued existence of many subcontracting units.

In Wales as a whole there is chronic unemployment. It has lasted for a very long time. Successive Governments have tried to tackle the problem, but no one has yet succeeded in dealing with it. Therefore, it is not a question of one job being worth more than another. Any job is vital. If we add up all the redundancies that could occur through something in the nature of an administrative bottleneck, we see that the impact on the whole region can be very serious.

I ask my right hon. Friend the Financial Secretary to give special attention to this matter. I know that he has given a great deal of attention to the whole question already. If the House can try to ensure that as many tax exemption certificates as possible are in the hands of those needing them by 1st April, or certainly before 6th April, we shall be eternally grateful for the prevention of at least some possible redundancies.

I have a great desire to understand the processes of the administrative mind and how all these bottlenecks can occur. We could get a very good picture if the Minister would tell us how many applications for tax exemption certificates have been received by the Inland Revenue; how many certificates have been issued; how many have been refused; and how many received before 30th September and 31st December last year have been approved by the inspectors of tax but for which certificates have not yet been issued.

Mr. Michael Roberts (Cardiff, North-West)

I wonder whether the hon. Member would care to comment on the fact that a very large number of applications for tax exemption certificates have been made in South Wales and have been approved by the Inland Revenue authorities but as far as we know there is a bottleneck in the computer centre in Liverpool which issues the certificates.

Mr. Evans

That is the position as I understand it. In my opening remarks I said that the number of exemption certificates still outstanding in South Wales was fairly considerable. These figures were given to me last Friday by the Regional Director of the Federation of Master Builders. Be that as it may, I accept that the applications have been received. If there is a bottleneck in Liverpool it should be cleared, and if a letter of intent has been produced that should be taken as something very firm.

I urge the Minister to take note of these points in the hope that further crises in this industry in South Wales can be avoided. A consequence of these crises is redundancies. I am sure the Minister will look at this matter and I look forward hopefully to a reference to it in the winding-up speech.

8.14 p.m.

Sir Brandon Rhys Williams (Kensington)

It is nine years since I had the honour to be elected to this House. In the days when I first came here and opened the campaign to draw attention to the need to amalgamate income tax and social security I could empty the House more quickly than anyone. Today as I start there are fewer than a dozen hon. Members in the Chamber. That is the amazing state of affairs on the day after the Budget.

I may not have many hearers, but I believe that the points I wish to make are of interest to a large number of people. The House listened with close attention when the right hon. Member for Blackburn (Mrs. Castle) spoke about child benefits. I had to agree with every word she said, and it would have been heartless to point out to her that if she had taken a more favourable view of the Conservative tax credit proposals, we might have been closer to a realistic rate of benefit for children than we are today.

While we must welcome the Chancellor's intentions in reducing direct taxation, we must ask whether the way in which the concessions are proposed is really sensitive to social needs. There are two particular points that I wish to make. One was made by the right hon. Member for Blackburn, and I reinforce what she said about provision for families. She complained that the Budget was the product of a masculine mentality and that it took that form because it came from a Government of men. I think that the Budget took the form it did because it came from a Government dominated by trade unionists. That is the reason why families are being neglected.

I have often tried to point out that, with the ending of cheap food and the simultaneous effects of inflation, the cost of living has gone up much faster in large households than it has in small ones. If figures are needed to substantiate this, I can give them. They were provided to me rather grudgingly by the Secretary of State for Prices and Consumer Protection and they show strikingly the increase in essential expenditure by families with two or three children compared with that in households consisting of one or two people only. This inflation will continue throughout this year, and the relative position of larger families will continue to worsen.

It is an insult that the first child will receive only £1 a week from next month, at a time when the national average wage is more than £60 a week. We must recognise that this is, at any rate, a gesture in the right direction, but we must also recognise that for the unemployed the national insurance scheme has to give £3.05 on top for each child and that for widows and recipients of invalid benefits the scale of additional allowances for children is very much larger.

I have tried to calculate the differentials for families in net spending power after tax that vary in size. For the great majority of earners the Budget means that they will receive £16 a year more if they are married than if they are single. They will then receive a further £8 a year for two extra children—that is £4 a year each. That is not very much.

Possibly by an oversight, the Inland Revenue did not publish the figures for one-child families but simply gave them for married couples with two children. Therefore I cannot verify my presumption that one-child families will in fact now be less favourably treated than they were before the introduction of the child benefit scheme. This is a matter on which I need to make further calculations.

For the burden of supporting a wife and two children a bread-winner gets an extra £24 a year—that is 7p a day to feed three extra mouths. Yet the Chancellor is giving the single man on the national average wage a tax concession worth £78 a year. We must recognise that the Budget is strongly tipped in favour of single men and wage-earners and neglects mothers and large families.

I have examined the figures involving the person on £3,500 a year, which is the category in which the greatest number of people fall among those who are in regular work. A single man will now have a tax burden of £889; a married man will have a tax burden of £750—in other words, he will be £139 a year better off. A married man with two children will have a tax burden of £500, taking into account child benefit and family allowances.

Therefore the married man with two children will be £5 per week better off than the married man without children—£2.50 per child per week. But one cannot keep a child on £2.50 per week. Hence the growing contrast between living standards of single people and families.

I believe that attention should be drawn to this important fact. It is an anomaly that the standard of living of the country as a whole has fallen and that there is real hardship among families, resulting in a fall in the nutritional standards of those on low incomes and one-parent families. However, one can still pick up a newspaper in London or in the provinces and see whole-page insertions advertising useless household trash which people are asked to buy—and evidently do. I am referring to such equipment as stereo headphones, quadraphonic decks and imported household goods which nobody seriously wants. On the other hand, in Kensington and elsewhere mothers queue up before jumble sales hoping to buy second-hand clothing at bargain prices for their children.

The Chancellor is not helping families by increasing the tax allowances for married couples when both are working. In my opinion married couples without dependants, both in full-time work, are the most favourably treated of all for tax purposes. But the Chancellor has chosen to give an extra £70 increase in respect of earned income relief for married women. Once again the Government have shown bias in favour of the wage earner against the mother who stays at home and who is no longer an active unionist, if she ever was.

My second point relates to household costs. An opportunity is being lost in this year's Budget to help households, in the way the Chancellor is applying the large increase in personal allowances to all types of wage earner whether householders or not. The people with money to burn are often teenagers living at home and not liable for household rent. It would have been a good innovation if we had left their personal allowances alone, or if we had even reduced the amount of those allowances, so that they would have had to pay more tax.

For the most part teenagers can well afford to contribute more to society in the expectation that when they have to raise families of their own, society will give them more generous help. I do not like to see teenagers spending up to £10 on a tie in the same department store where pensioners are unable to afford even warm winter clothing. I wish, therefore, that the Chancellor this year had introduced personal allowances for households.

My suggestion is a topical one because the Department of the Environment has recently issued a consultative document on housing problems. It has been truthfully said that the object of that document is to prepare public opinion for a general increase in the level of rents. I regard the document with mixed feelings.

We must remember the many people who are on low wages, or those who live on small fixed incomes, such as many of my constituents, who are already in despair over household bills and who do not know where they will find the money to pay higher rents. Surely it would have been appropriate if they could have been helped in this Budget. There should have been a new tax allowance for householders, as a preparation for a full tax credit scheme in due course, including a householder's credit as a central feature of the proposal.

The figures of personal allowances show that the Inland Revenue appears to be oblivious of the growing problem of rents. The old personal allowance was £735 and the old married allowance was £1,085. The married allowance can easily be seen to be less than twice as large as that for a single person. One could say that these figures could equally well have been expressed as a figure of £350 per head and £385 for the common household element. If one took the single person's allowance as the basis of the calculation, one would have come up with the figure of £735. If dealing with a household consisting of two people, the figure comes out at £1,085. The difference therefore can be seen to be merely a matter of presentation, but it is important to examine the figures in this way when changes are introduced. We can then see the true nature of such a change.

The new personal allowance is to be increased substantially to £805 and the married allowance to £1,225. What has happened is that the personal allowance has been increased by £70 to £420, but the common household element stays at the same figure of only £385 as it existed before the Budget. In spite of the trend towards higher rents, the allowance remains unchanged.

That is further evidence that the Inland Revenue is out of touch with social needs and is trying to obey a political mandate to produce the most favourable possible Budget to assist the climate of opinion for this year's round of wage negotiations. In its anxiety to benefit as many wage earners as possible, the Inland Revenue has forgotten the household, which is the basic economic unit in society.

We have to ask ourselves whether families are irrelevant to the social contract and whether wives of wage earners have a part in determining the attitude taken by their husbands over the size of take-home pay. Does the ability to meet the household rents and rates have no bearing on attitudes to wages?

I feel that those questions have to be answered by saying that public opinion as to the proper size of the wage packet depends on the attitude of all the people—all the voters—and the wives at home must not be forgotten, as they all too often are by this Labour Government. Therefore, although I welcome the move towards reductions in taxation which the Chancellor is sponsoring in his Budget, I believe that much of this money will go in ways that will not achieve the best effect from a social point of view. I feel that we now need a Government who care for the interests of the whole nation and not merely for those who take part in wage negotiations.

8.28 p.m.

Mrs. Renée Short (Wolverhampton, North-East)

I wish to apologise for the fact that I did not hear the opening speeches from the two Front Benches. It was because I was occupied in proceedings in the Expenditure Committee.

I have mixed feelings about the Budget. It is good in some parts and bad in others. Although my right hon. Friend the Chancellor has some good ideas, he has not followed them up with enough finances to back his proposals, and he has been too cautious in the resources he has made avaialble.

First, I want to take up a point that was touched on by my hon. Friend the Member for Caerphilly (Mr. Evans), namely, the proposal to revitalise the inner cities by injecting the princely sum of £100 million to be spent over the next two years. This is really a derisory sum. It is a tiny bit of pump priming. For that sort of money one could build about 10,000 new houses, or rebuild and modernise about twice that number of old houses, but that is all.

It will do virtually nothing fundamental for the construction and civil engineering industries, which are urgently in need of new resources, new help and new orders from private builders, house-owners and local authorities to prevent them going under. Many firms are hanging on by the skin of their teeth.

Some firms are sending people to the Middle East and other parts of the world to try to win contracts. They are spending a large amount in doing that and, of course, they are meeting a great deal of opposition from our Common Market partners—they are always there.

A large number of firms, such as architects, have built up design teams over the years and these teams are now in danger of being broken up, because the work is drying up. Some time ago the Minister of Housing talked about preparing schemes that could be taken off the shelf when the time was right, when the building industry, civil engineering and architects' firms were in dire need, but we have heard little more about the schemes.

The Chancellor's measures are far from adequate to rescue the industry. Inner city areas in many parts of the country are quite appalling. White and black communities live side by side in crumbling houses surrounded by grimy sites that are waiting to be redeveloped. Even today, millions of people live in substandard houses that ought to have been replaced long ago.

In addition to better houses, we need decent work places and factories to provide jobs for young people and adults. Buildings worth £100 million will not go far towards providing all that is needed.

Too many young people are doing makeshift jobs under the job creation scheme and the work experience scheme. On those schemes alone we are spending much more than the Chancellor has decided to inject into the construction industry. I mention, en passant, that the job creation scheme provides few opportunities for girls.

We need more investment in factories and workshops to provide jobs urgently and to produce the goods for the home market and export. For years now we have been urging the Chancellor to introduce import controls. He has refused to do so, and again in this Budget he has not done it. This is needed to stimulate and encourage good business enterprise at home. Without it imports will continue to come into the country and our deficit with the EEC—which is like an albatross round our necks—will continue to hinder our economic recovery. None of this is tackled in the Budget.

Improving our cities does not mean improving just houses and work places. We need to provide leisure activities and facilities for our people. We do not live on work alone. In order that we may enjoy our leisure we should be providing work for trained and talented people in the whole area of the Arts. Many such people are now unemployed although they are highly skilled, trained and talented. I refer to actors, singers, musicians, theatre technicians and directors, who are in great difficulties today.

Theatre-in-education schemes are very important to help build up the audiences of tomorrow and to inculcate a love of the Arts in the young. Such schemes are among the casualties of recent public expenditure cuts and it is tragic that, for the want of a comparatively small amount of money, this valuable work is going by default. The Chancellor has not offered a penny to help the Arts. There has been no relief on VAT. Yet what the Chancellor receives in VAT from, for example, the commercial theatre is tiny. It is about £5½ million. He would not miss that sum, yet it would provide great relief and help to the non-subsidised theatre.

We have just had the announcement of the funds to be made available to the Arts Council. The council is to receive an increase of less than 15 per cent. to meet an inflation rate of 21 per cent. Another £1½ million was needed to enable the council just to stand still without any development or expansion. This is the meanest cut of any Government expenditure.

I am disappointed that the Chancellor has done nothing to help the Arts in this Budget. He said that he had helped charities because he had received many representations from them. I remind him that he had a fair number of representations last year and the year before about removing VAT from the Arts. We shall just have to continue to try to persuade him to see the error of his ways.

I greet with only muted applause the Chancellor's decision to increase the duty on cigarettes. It is all right as far as it goes, but it should have been an increase of at least 10p on a packet of cigarettes. Cigarettes are killers and great destroyers. All smoking is dangerous, but cigarette smoking is the most dangerous.

I do not approve of the kindness shown towards pipe smokers. My right hon.

Friend said that many of them were pensioners, but many cigarette smokers are pensioners, and we know from those among us who are pensioners that they may be well heeled and well able to pay more for their pipe tobacco.

I sometimes wonder whether it is realised how many days' work are lost because of incapacities caused by illnesses brought on by cigarette smoking, or how much these illnesses cost the National Health Service in the treatment of lung cancer, chronic bronchitis and emphysema and chronic heart disease. All this costs the National Health Service a great deal of money, and it is money that could be better spent on preventive medicine rather than on trying to cure incurable diseases. In 1974–75, sickness and invalidity benefits paid as a result of illnesses associated with smoking totalled £41 million and 17 million days were lost from work.

These diseases cause about 50,000 deaths a year and most of them could be prevented if people smoked less. The Chancellor has been far too timid. I hope that he will go much further to try to reduce the amount of cigarette smoking. Some people claim that if cigarette prices are increased, smoking does not necessarily decrease, but a number of surveys have shown that as the price goes up, the amount of smoking goes down. If the price goes up enough, the decline in smoking will be that much greater.

The BMA has suggested that there should be annual increases in tobacco prices until, within 10 or 15 years, most people will, it hopes, have stopped smoking. If that happens, fewer people will die of these dreadful diseases and the resources of the NHS can be used in other ways.

I turn to other parts of the Budget. Transport costs bear heavily on lower-paid families, whether they live in the town or the country. The increases on petrol tax are in the interests of saving scarce fuel and one can hardly complain about them, but the increase car tax is a considerable imposition on poorer families.

The increases in transport costs during the last few years—bus, underground and railway fares—have clobbered many people. We are not giving people any choice in the methods of travel to get to work or to go out for pleasure or recreation. That is a grave disservice, especially to working people.

The goal that the Chancellor seeks to reach by the summer may not be possible unless he is prepared to reduce taxation and ensure that the cost of food, for example, is controlled. Travel and food costs weigh heavily on all families, but most heavily on the lower paid, especially those with children. These families will have their voices raised for them by the trade unions when they consider the next phase of the pay policy. Unless the Government can be seen to be helping these families, the Chancellor will not reach his goal later this year and we shall certainly be in dire distress.

I congratulate the Chancellor on doing a little, but not enough. I feel that the Budget is good and bad in parts. More resources should be made available for those urgent areas of the economy that need help.

8.42 p.m.

Mr. Nicholas Fairbairn (Kinross and West Perthshire)

I begin by paying a compliment to the hon. Member for Wolverhampton, North-East (Mrs. Short). I share her regret that more has not been done for the Arts, which have an absolutely fixed income and suffer from being a labour-intensive activity. The Arts cannot escape the effects of inflation to the extent that they can be more productive. For example, the Missa Solemnis cannot be played quicker or sung with fewer people. An act cannot be cut from a play. An essential characteristic of the Arts is that they suffer from necessary labour costs.

I regret most of all the lack of capital investment in the Arts. I had not intended to refer to the Arts. However, I endorse the plea made by the hon. Member for Wolverhampton, North-East for the Arts which form an important part of the quality of life and have greatly improved the civilisation of this country in the last decade or so.

I think that there is in the Budget a more hopeful lesson for Opposition Members than for Labour Members. It is that the Chancellor of the Exchequer, assuming him to be the spokesman for the Labour Party, has at last comprehended that there is a motivation in human beings, whether they be wage earners or millionaires, to earn money. Reward is the incentive for the effort that they make.

The recent British Leyland strike was about that very thing. The shock troops, so to speak, of the Labour movement were saying that the skilled toolmaker, who puts in a great deal of effort, should not be paid the same as the tea maker who does not.

Yesterday the Chancellor, who has for so long been saying that we must have a redistribution of wealth so that we all get the same, suddenly recognised the concept of the motive of reward. I believe that widespread human motive is one of the fundamental conflicts in the theory of Socialism.

It was wonderful to see Hugh Scanlon on television last night telling us that we needed investment, reward and incentive to create employment and prosperity—all the things that the Labour Party constantly resents and constantly attempts to diminish. Perhaps it has learnt something, if late and not very well.

The Budget should not be allowed to appear to be different from what it is. Essentially, we have received about £1,000 million of tax rebate. That leaves the people less well off than they were when the Budget was presented a year ago. If we examine the Red Book, the Financial Statement and Budget Report, we find that the Chancellor of the Exchequer will receive this year, in taxation alone, about £5,000 million more than he received last year. In other words, the State machine is still clawing away from those who work, those who produce and those who make profits. This year the State will have a further £4,000 million to spend.

There is a fantasy that there is such a thing as public money. If one asks somebody who should pay for a particular service, he will say that the Government should pay. A Government supporter said that if money is transferred from the ratepayer to the taxpayer it is as though it does not have to be paid. There is no such thing as public money. Charities obtain their money by subscription, firms and families by working. Governments obtain their money by legislative confiscation. They have no money. When we talk of public funds and pub- lic expenditure, we are talking of the expenditure of the private funds of individuals and families who work and of businesses that are built up by those who work and make the money that the Government can confiscate and spend. We should not overlook that the Budget involves an increase in the expenditure of that which is earned of more than £4,000 million.

A lesson has been learned. It has been learned by people who have come, for the first time, into the area of family taxation. It has been learned by the people who previously would not have been taxed or who would have paid only a little tax. The little that was deducted did not matter to them much. But now, when they see a wage slip which says that they earn £100 a week from which is taken income tax and national insurance contributions, that wage-earning man and wage-earning family realises that the Welfare State, that was supposed to be free, is not free. It is far from free. The wage-earner has to pay for it.

Regardless of party, we should realise that people are becoming more conscious that they must pay for State services which, by a trick of the mind, were sometimes imagined to be free like air, superabundant, all-available and costing nothing.

It is also important to understand another matter. Night after night we hear the same people on television—Mr. Scanlon, Mr. Scargill, Mr. McGahey, Mr. Jenkins, Mr. Murray and Lord Watkinson. We hear again and again from the mouths of the same people views which are supposed to be the views of the millions of families, mute and silent, whom they represent. We should realise that the views of those at the top, whether of unions or of anything else, are not at all the views of those whom they claim to represent, and that if one asked the wage earner whether he wanted cuts in public expenditure and less taxation or more taxation and more public expenditure, one would find very different views. I think that they will be reflected tomorrow.

There is a conflict between the treatment of town and country. I was interested in a debate not so long ago about what was called "urban deprivation". Hon. Members described housing and social situations in towns. As closely as anyone, I have seen the worst of urban problems, for instance, in Glasgow. However, there are in my constituency and the constituency of any rural Member, people living in worse houses, with much worse services and greater deprivation, than live in inner cities. They do not complain and they do not expect that everything should be done for them and money spent upon them. It should not be taken for granted that it is only the cities which are deprived. Country people tolerate—much more willingly tolerate and adjust to—the deprivation of transport, entertainment, services, housing and all the other things which are claimed now to be so essential in the inner city.

Of course the Budget will particularly affect those in rural areas. It is not sufficiently understood in this day of universal communication that the communication of transport is something from which rural areas are almost entirely cut out and that without a motor car in some of these vast areas transport is impossible.

The Chancellor stayed last summer in my constituency at Kenmore, at what he might call the "Russian end" of Loch Tay. There he went into the post office and bought some sweets and cigarettes. He had forgotten his money and said that he would have to return to the hotel to get some. The postmistress said, "That may be the way you think you can run this country, but it's no way we do business here." I should like to take the Chancellor into some rural areas where transport is utterly absent and show him the extent to which people depend on it I should like to show him to their incomes and housing. That is where poverty exists and where it is least complained of. I should like him to know the extent to which deprivation will be added to the burden of those who live in the country by his increases in the costs of fuel and motor transport.

Budget after Budget, the Chancellor has told us that unemployment would go down and each time it has gone up. Each time we have been told that productivity would go up and each time it has either remained stagnant or gone down. Each time we have been told that prices would fall and each time they have risen. It was always the next time that we would have single figure inflation and it was always the next time that it did not happen.

Admittedly, the word "miracle" has now been dropped, but yesterday we were told that prosperity and the marvels of the future would be one square away. Every time it is one square away and every time we are further from it than we were the last time. Perhaps it is a sort of intended prophecy. If it is always prophesied that we shall have prosperity, people will be distracted from the penury which is being visited upon them. But the longer it continues, the less faith people can have in the word of the Chancellor. The more often the Chancellor does it—and he does it every time—the less faith the people will have in his word or in his remedies.

We have a give-away Budget which makes everyone in the country less well off than he was a year ago. It says that £4,000 million to £5,000 million more in taxation will be absorbed by the State in the coming year than in the last year.

I grieve for a country in which a generous Budget leaves us poorer than we were before it was given away. I grieve for a country whose rate of inflation is so much higher than that of its competitors, and so much higher because the State spends, at £481 a second, money which it has not got. That is what causes inflation.

Until the Labour Party understands that we cannot tolerate, and that people and wage earners will not tolerate, the spending of vast funds raised by taxation or by borrowing which we cannot afford, and that the State machine is not free so to behave, I do not think that there is any hope for us.

As a result of the Budget strategy we are all becoming increasingly poorer. It is a sad comment on the fantasy that Socialism produces prosperity for all.

8.57 p.m.

Mr. Peter Hordern (Horsham and Crawley)

Yesterday we heard a Budget Statement that was one of the shortest on record, or certainly one of the shortest I have listened to since I have been a Member. Today we had to listen to another from the hon. Member for Cornwall, North (Mr. Pardoe). It will take some getting used to to appreciate that we have two Budget Statements for the price of one. But I imagine that that is what we shall have to do. I did not detect much unanimity of purpose between the Chancellor yesterday and the hon. Member for Cornwall, North, today.

The hon. Member yesterday called this a Budget of hope. I was reminded of the saying of Dr. Johnson about a man who married again immediately after losing his wife and who called it a triumph of hope over experience. Already, after just 24 hours—I do not know whether the hon. Gentleman saw the Chancellor—he seemed to be not his real self at all. He was like a lion become lamb. I fear that after whatever consultations took place the hon. Gentleman found that it was a triumph of experience over hope.

I do not want to go into the Liberal Party's programme, if for no other reason—none of them is here. I suggest that the Liberal Party's programme is different from that which we had from the Chancellor yesterday. I saw it suggested in The Sunday Times, for example, that there should be a reduction in income tax of some £9.4 billion and that this should be paid for by new social security taxes under which the worker would get only half the agreed increase in earnings. I cannot say that that policy would appeal very much to the Liberal Party's new allies but, at any rate, it was an interesting proposal for the hon. Member for Cornwall, North. I daresay that we shall see more of these proposals from him.

Obviously, there will be much more consultation. I should have thought that with the Liberal Party and the Labour Party together the House could have expected to see more tangible results than have so far appeared. I am disappointed that there have not been some closer arrangements already. One would have thought, for example, that the property assets of the Labour Party could be merged with the National Liberal Club. That might have produced some interesting results. I suggest it to the hon. Member for Tottenham (Mr. Atkinson).

The National Liberal Club appears to be full of Danes at present who are under the impression that the National Liberal Club is a hotel. I suppose it is an im- provement on the position many years ago when F. E. Smith was Lord Chancellor and used the National Liberal Club, I am told, as a convenience. When the hall porter remonstrated with him and asked him whether he was a member, F. E. Smith said "Good God, is this a club?" I suppose things have improved since then.

The Chancellor will have to do rather better for the Liberal Party than he has done so far. The fact is that there is a Duchy of Lancaster of which there is a Chancellor. There is a Duchy of Cornwall, too. Could not the Chancellor make the hon. Member Chancellor of the Duchy of Cornwall, North? At least that might be some satisfaction for the disappointments that the Liberals have so far encountered.

However, the hon. Member for Cornwall, North made a most important point about the case for rural transport and the effect on rural transport of the proposals in the Budget to increase the vehicle excise duty and petrol tax. The hon. Gentleman was specific about this. I understood that he personally feels bound by the remarks he made in previous speeches some two years ago, which were very strong indeed and very convincing.

I understand from the hon. Gentleman that he and his colleagues will be joining the Conservative Party on Monday night in voting against these proposals. We understand that that is the position and we look forward to the hon. Gentleman's support in the Lobby because he, like many hon. Members in the debate during the course of the day, had much to say about the problems of rural transport and the effect on industry as well.

With all due deference to the hon. Member, I could not think that this Budget was directly related to the Liberal Party. I think it bears a close resemblance to the Budget of last year, which was related very much more to the trade unions and the spirit of Jack Jones. That was the source of last year's Budget. It is the same position today.

This is the tenth Budget that this Chancellor has introduced. On each occasion the House has become more and more irrelevant to the Budget. The Budget is not directed to the House. It seems to be scarcely directed to the International Monetary Fund. It is directed much more to the Trades Union Congress and to Mr. Jack Jones. We do not know whether Mr. Jack Jones will find these proposals acceptable, but I think it is important to state that there are other people in this country besides Jack Jones and that for us the test of this Budget is what it will do for inflation, for investment, and for unemployment.

On all those matters this Budget seems to me to be either irrelevant or damaging. We have had 10 Socialist Budgets from this Chancellor, and he has shown in the past that he is prepared to put the economy at risk in order to win the election. He will assuredly do so again if he can get away with it.

My first concern—this was mentioned by the hon. Member for Stoke-on-Trent, Central (Mr. Cant)—is that the main element of risk seems to be the size of the public sector borrowing requirement. As is well known, the Letter of Intent had a figure for the PSBR of some £8.7 billion. I believe that the figure of £8.4 billion that the Chancellor is expecting is very near the mark and, if there is a prospect, as the Chancellor makes out in the Financial Statement and Budget Report, of manufacturing investment increasing by some 17½ per cent., I think that that public sector borrowing requirement will be very hard pressed, because it will be in competition with the private sector for funds.

I very much doubt whether manufacturing investment will increase by 17½ per cent. That is most unlikely. It would have been much better to reduce public expenditure to give the leeway required in the size of the PSBR.

The second point on which considerable interest has been expressed is the Chancellor's claim to have reduced income tax. The Red Book shows that the yield of income tax is up by £1 billion. As my right hon. Friend the Leader of the Opposition said yesterday, this is not a give-away Budget at all but a take-away Budget.

The fact cannot be concealed that under this Government the exchange rate has fallen by one-third and for most of the Government's period of office production has been rather less than it was during the three-day week. Public expenditure has almost doubled in money terms and prices have risen by 70 per cent.

I am sorry that the Chancellor could not attend today. He kindly sent me a message to explain the reasons, which I absolutely accept. I understand that the Chancellor's wife sends the Chancellor off to buy cod every Saturday morning. I think that the Chancellor knows a thing or two about that. He had only to look at c. 322 of Hansard of 3rd March to see that the price of cod in terms of minutes worked had scarcely altered since 1945.

I have some advice for Mrs. Healey. She should send the Chancellor down the road and get him to buy a sack of potatoes and a sack of coal and lug them back home and then send a 15-word telegram to himself explaining why the price of those three commodities has more than trebled. He would then get a pretty good idea of the increase in the cost of living, and the exercise would not do him much harm, either.

Everyone knows the Chancellor's personal record on forecasting. He will for ever be known as "Mr. 8.4 per cent.". The Chancellor has been around long enough for us to be able to form a proper judgment. His 10 Budgets give us the right sort of scope to do so. Every prediction and every forecast that he makes is always too optimistic. They are always accompanied by boasts. It is rather like Mohammed Ali in reverse: be can always predict in which round he will be knocked out.

I shall remind the House of some predictions that the Chancellor made a year ago in the 1976 Budget statement. He said: The tide has now turned and output in the United Kingdom is rising. That is correct. It grew by a little under 1 per cent. last year and is due to rise by 1½ per cent. in the next 18 months. I cannot say that I call that much of a tide.

The Chancellor also said: The outlook for unemployment now seems distinctly brighter. In fact, it got worse. The Chancellor went on: We should thus have no difficulty in meeting our external financing needs this year."—[Official Report, 6th April 1976; Vol. 909, c. 234–6.] We entered the worst financial crisis that we have ever had and were in the arms of the International Monetary Fund in December. The Chancellor also said that the pay limit guaranteed that our reduced rate of inflation would continue to fall in 1976. The rate of inflation on an annual basis is now 16.6 per cent., and, on the three-month basis which the Chancellor particularly likes to quote, it is 20 per cent.

It is not always possible to get forecasts right, but it would be nice to get some right occasionally. We feel as though we have been through 10 rounds with the Chancellor and that in every one he has been knocked to the floor. It is time that he packed it in or that his manager threw in the towel for him. It is time that his manager retired, too.

It is no good blaming the Treasury computer for these mistakes. If optimistic assumptions are fed into a computer, one will receive optimistic forecasts. The surprising thing about the Treasury computer is that it has no monetary input and no monetary capacity of any sort. This means that the Chancellor appears to rely specifically on controlling wages to control inflation. He said so in his Letter of Intent on 15th December.

This is a most interesting commentary on the Labour Party's wages and incomes policy. The Letter of Intent said: Under the first stage of this policy, the increase in average earnings was reduced to 13.9 per cent. in the year ending July 1976 … Under the second stage, the T.U.C. and Government are applying the present pay agreement strictly; average earnings resulting from this second stage policy in the period July 1976 to July 1977 will rise by something like half of the amount of increase in the preceding 12 months. That is important because at that time the Government were saying that there would be in this current period an increase in earnings of only 7 per cent. But by January, less than a month after the Letter of Intent had been written, the level of earnings had risen by 5½ per cent.

If we go on at that rate the level of earnings by this July will have reached 11 per cent., and that is 50 per cent. above the level mentioned in the Letter of Intent. That was the first specific pledge which the Government made in the Letter of Intent. Can the Government have been serious about that? Was it important to them that the Letter of Intent should be strictly observed, because that is what one would normally imagine to be the position?

The Letter of Intent said on the following page: Nevertheless the Government is determined to ensure that the rate of inflation continues to fall. Accordingly, it will begin early next year to consider, in consultation with the TUC and the CBI, how this objective can best be pursued in the period beyond July 1977. I would aim at reaching agreement through these consultations in the early spring of next year, in time for the Budget. We all know that spring was very late this year, but there has been no agreement before the Budget and, so far as one can see, practically no consultations.

This looks very different from the assurances that were given to the IMF only a matter of three months ago. Yet listening to the Chief Secretary this afternoon it appears that the only way in which the Government are concerned about controlling inflation is to have a strict incomes policy. Already during the course of the last few months it has been broken to the extent of 50 per cent. Surely no one in the House or outside can think that an earnings and incomes policy applied for the next year, from July 1977 to July 1978, will be more restrictive than that of the past year, but that is what the Letter of Intent says—that it will be just as restrictive, if not more so.

It stands to reason that it will not be more restrictive, because of the disgraceful anomalies already existing under the current pay code. One has only to consider the fact that television and film people are allowed to get any increase in wages which is index-linked, whereas the policeman is bound by the £6 pay limit. These sorts of anomalies are unacceptable. The vast majority of the people in this country believe that earnings will increase much faster than hitherto.

If that is the case this policy, which is the first objective in the Letter of Intent, will be irrevocably broken. How, therefore, can the Government pretend that their policy for controlling inflation by an effective incomes policy is either satisfactory or will be acceptable to the International Monetary Fund? I do not believe that they can make any such claim.

The fact is that their inflation policy seems to depend entirely on building a house of cards with the TUC which the merest puff of wind from Mr. Scanlon or the toolmakers will blow down. That is how it appears. It is no good the Chief Secretary asking us to talk about our incomes policy and say whether we believe in that as a means of controlling inflation when it is plain that the Government do not believe in it either. The Letter of Intent says at a later page: It is also essential to reduce the public sector borrowing requirement in order to create monetary conditions which will encourage investment and support sustained growth and the control of inflation. That is already written into the Letter of Intent. It is quite plain that this is the point to which the IMF attaches importance. If the country had to depend on an incomes policy secured at a level of earnings written into the Letter of Intent, we should be in a singularly bad position.

Mr. Robert Sheldon

The right hon. and learned Member for Surrey, East (Sir G. Howe) at any rate made it plain where he stood. As I understand it, he was in favour of an incomes policy this year. The right hon. Member for Leeds, North-East (Sir K. Joseph) is not. The right hon. and learned Member for Surrey, East explained this divergence of views on the Conservative Front Bench. Where does the hon. Gentleman stand?

Mr. Hordern

I would say quite clearly that I can see no divergence whatever between what my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said earlier today and what I know my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) said. The position is perfectly plain. It is that we agree that an incomes policy is exceedingly helpful in reducing the level of unemployment to below the level that it would otherwise be. But my right hon. and learned Friend the Member for Surrey, East said plainly that in controlling inflation it is much better that a monetary policy should be used. He was talking of an incomes policy in terms of controlling unemployment. That is a clear distinction. It is quite plain that the Government are not resting upon an incomes policy in order to control inflation, because they are depending upon a monetary policy, and they said so in their own Letter of Intent to the IMF.

If the IMF thought that a rise in earnings was related to inflation, it would be very upset indeed that the Government have already broken their assurances by some 50 per cent. in the course of the last three months. But, of course, the IMF for all practical purposes consists of the United States and West Germany, and neither of those two countries believes in an incomes policy to control inflation. Both countries have the best record of controlling inflation of any of the Western democratic countries. Indeed, President Carter said a week ago that he did not believe in using an incomes policy as a means of controlling inflation. They have no objection to the Government, or the Treasury, making their genuflections towards Lord Keynes. So long as the targets for the public sector borrowing requirement and the money supply are stuck to, they have no objection at all to the Government producing these proposals.

I do not think that the IMF has anything to worry about. The people who have to worry are the people of this country, because they have to put up with the effect of the Government's policy in pursuance of the social contract. It is they who feel the effect of price controls.

I want to turn to what the Chancellor said about that in his Budget yesterday. I find it extraordinary that he could say: So we intend to prevent any unreasonable profit mark-up, by keeping the price control on profit margins … and just two sentences later state: We must make sure that the return on capital is allowed to recover sufficiently to reinforce the upturn in investment and to ensure that the new jobs we need are created."—[Official Report, 29th March 1977; Vol. 929, c. 260.] What sort of hypocrisy is that? That is the sort of gobbledegook contained in the incomes policy of this Chancellor.

It is not just price controls which are damaging. That applies to taxation, too. The Chief Secretary said today that VAT would be more expensive on the RPI than would the petrol tax. That is not necessarily the case for elderly people. VAT does not apply to food or transport. But the new petrol tax will have its effect on food prices that elderly people will have to pay.

I find it remarkable that the Chancellor can say one thing to his parliamentary committee upstairs about VAT not being such a damaging tax and yet come to the House later and say that the Government have no proposals for an increase in VAT. The reason is obvious. The TUC will not allow an increase in VAT. That is the position. Furthermore, the TUC will not allow the Government to cut public expenditure in sensible ways, or indeed at all.

Therefore, what we have today is a policy for total stagnation under the social contract. That is not an economic policy that is acceptable to the people of this country.

There is, however, something a great deal more serious that underlies the Budget and the particular proposals that the Chancellor put forward to us yesterday. I think that very few people can recognise the revolution that has taken place in our tax system in just the last few years. In 1973 there were just 400,000 people who paid tax at rates higher than the basic rate. By 1976–77 the figure had risen to 1.4 million.

Three weeks ago I put a Question to the Chancellor to ask him how long it would take at the rate of inflation in the last two years for the married person without children on average earnings to pay tax at the higher rates. The answer was that he would be paying tax at the higher rates in April 1979. That is a very short time away—only two years. In other words, the average wage earner will be paying tax at the higher rates—admittedly at the old rates—in two years' time.

It is true that the Government, by virtue of this Budget, have taken 800,000 people out of this range. But no one can tell what the rate of inflation will be, and it is at least certain on the Government's figures that 400,000 of them will be back in the higher range again. This is a very serious matter indeed.

It is serious on two counts. I do not think it acceptable to the people of this country, particularly to workers, for them to find themselves paying tax at the higher levels knowing full well that within the next two years after that, if inflation continues at the same level, they will be paying even higher rates of tax, on the higher and successive bands. That is a position that the workers will find totally intolerable. Therefore, in any case, there is a clear reason and an absolute necessity to reduce the burden of direct taxation, and of income tax in particular.

There is, however, another reason for doing it which goes far beyond the need to do it because of the total unacceptability of direct taxation. That is because of the inequity of the present tax system and the way in which, as the hon. Member for Cornwall, North said, through fiscal drag the Government get money without passing legislation. This point has been made by many hon. Members during the debate.

The damage that is done by fiscal drag is not sufficiently realised. The Chancellor talks about giving back tax. If he is really serious, I can tell him what the levels of allowances should now be after the passage of the last three years alone. If he were seriously contemplating restoring the allowances to the position at which they stood when he came into power, the single allowance, which is now, after the new uprating, to be £805, should have been £1,140. The first higher band that he has stated with so much pleasure is now to be increased to £6,000 should be £9,850. The higher rate of 83 per cent. which is now to be levied on £21,000 should, just through the course of inflation, be now levied at £38,320. That is simply to bring the rates into line with inflation.

As my hon. Friend the Member for Harwich (Mr. Ridsdale) said, we must also take into account not only the effect of fiscal drag and inflation but the very positive effect of the increase in rates. There have been no reductions in direct taxation by the Chancellor. There have been massive increases instead.

Mr. Pardoe

The hon. Gentleman has said several times that this Budget has been made up in order to please the TUC, but does he recognise that in the new parliamentary situation that has been created this Budget is very much in the hands of the House of Commons, and is probably the first Budget since the war to be so? Therefore, the House of Commons can, in fact, index the taxation system. Is the hon. Gentleman going to do so?

Mr. Hordern

I am interested in what the hon. Gentleman says. I am sorry that he was absent at the beginning of my remarks. I noted particularly what he had to say about the effect of increased petrol tax and vehicle excise duty in rural areas. We shall look for the support of the hon. Gentleman and his colleagues in the Opposition Lobby on Monday. We shall look with care at any amendment that he and his party may table. We shall examine it in great detail and in much the same spirit as in 1974 between the two elections. That is our position.

Indexation is important. We have a form of fiscal injustice that is intolerable. Expenditure should be indexed alongside revenue. There should be an adjustment of rates to allow for inflation. The Chancellor should say "That is what the rate should be and that is the real position after inflation. This is what I propose to do". That would be a much more honest approach. It is one that I hope we shall adopt when we become the Government.

I have thought for a long time that it is extraordinary that we should present a Budget on the expenditure side many months before the Government can know what the revenue will be. It does not happen in any other country. I think it is an old Keynesian relic that the two matters are quite separate and do not have to be examined together. Professor Cairncross had something to say about it to the Expenditure Committee in 1975. He is an economist with a great knowledge of the Government service. I am sure that it is a change that should be undertaken.

It is only sensible that expenditure and revenue should be considered in a similar way. I believe that that was the way in which the matter was considered many years ago. We should return to that position, as it would concentrate the mind of Government wonderfully to have to look at their own revenue position alongside expenditure. It is too absurd that they can look at their expenditure without any idea, except through fiscal drag, of how they will raise the required money.

I believe that tomorrow we shall find that the effect of the petrol tax increase and the increases in indirect taxation will do the Government no good at Stechford. Indeed, they will do them no good at Grimsby. That is well deserved. They have been taking revenue from the pockets of the people by stealth. It is high time that they paid for it.

Long after the Government and the Liberals have done with their wheels and deals, the people will continue to be faced with the inexorable demands of Socialism. The taxes and the bills will still be coming in. That is why public expenditure has to be cut as well. It must be cut to reduce the borrowing requirement. That is the only way in which interest rates can be reduced. It is the only way in which genuine economic recovery may take place.

If I had to sum up the Budget, I should say that it is a Budget without hope and without truth. What has the Chancellor offered the people? He has offered a further retreat in living standards. He has a regime of high interest rates, higher unemployment still, and virtually no growth.

The Government should not mistake the genuine frustration of the British people for silence and apathy. They are no longer prepared to pay the price of Socialism. They do not know whether there is a solution to their problems, but they are fed up with constant appeals to patriotism, to the Dunkirk spirit, and with being told by the Chancellor from his plushy room in the Treasury that it is all up to them.

There have been too many false dawns in the Chancellor's horizons. It is time that we made it clear that there has never been any need to travel down this road. Our troubles are Government-inflicted and not self-inflicted. There is no necessity for us to have the highest direct taxation system in the world, nor to penalise success. Unless we can control public expenditure and cut it we shall never be able to free the resources to provide the incentives for the country to grow and prosper.

I see nothing in the Budget but a planned deterioration in the living standards of the British people. That is a prospect that we totally reject.

9.30 p.m.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

The hon. Member for Horsham and Crawley (Mr. Hordern) talked about the changes in taxation over the past few years. He spoke of a number of changes in income tax. That ties in with comments from both sides of the House about the changing relationship between direct and indirect taxation, a matter to which the Member for Cornwall, North (Mr. Pardoe) referred.

It must be remembered that increases in income tax are not quite the same as increases in direct taxation. Although it is true that the revenue from income tax has increased over the past few years, we must also bear in mind that corporation tax has gone down and that the revenue from capital taxation has been reduced. Therefore, the figures for direct and indirect taxation tend to under-estimate the changing rôle of income tax in direct taxation and the decline in indirect taxation and the excise duties in the case excise duties.

Although the revenue from excise duties has diminished—I am talking in real terms in all cases—revenue from rates has increased, and the employer's national insurance contribution has also gone up. This complicates the figures. Therefore, I should like to talk essentially about the main areas which people have in mind—income tax in the case of direct taxation and the excise duties in the case of indirect taxation. Let us restrict the argument to these narrower but most important areas.

It is true that as inflation increases income tax raises more revenue and, excise duties raise less. Given the increases that come automatically from income tax, we have to look on the other side of the books at the problems arising from the failure to revalorise the excise duties. This has been a common problem and perhaps the most important problem in indirect taxation.

The problem can be seen most clearly if we look at what excise duties reached at their highest levels in about 1969. For example, the tax on beer per pint amounted to 12.9 pence. It has now been reduced in real terms to 9.8 The duty on a bottle of spirits—this meets the point made by the hon. Member for Perth and East Perthshire (Mr. Crawford)—amounted to £6.30 in 1968, in comparable terms. It is now £3.70. That is a measure of the failure to revalorise the excise duties, most of which have declined in real terms for the very reason that Chancellors do not like to have to put them all up by substantial amounts every year, as would be required if they were to keep pace with inflation. I could go through all the excise duties in turn, but that would be rather tedious. For every year that one fails to revalorise there is the problem in the second year of putting them up by large amounts or continuing the gradual slide in the real revenue obtained.

Those who ask for a change from direct to indirect taxation must understand the problems which result both for the Chancellor, in having to make regular adjustments, and for the House. We know that each one of these indirect tax changes has been criticised, particularly those on petrol and vehicle excise duty. But this was simply an attempt—an inadequate attempt some people might say—to revalorise these particular excise duties.

One can say that these duties should not exist or that they are fixed too high, but as long as one assumes that there is a need for them and that there is a requirement at some stage in the future to move from direct to indirect taxation, one simply cannot comment adversely on increases in indirect taxation in the general sense. This was the problem facing the late Sir Gerald Nabarro. He did not like taxation on particular goods and he wanted indirect taxation more broadly spread. But even he did not condemn the excise duties to a diminishing rôle year after year as long as it was felt that the duties served a useful purpose in the collection of large amounts of revenue for the Exchequer.

The attempt to revalorise these duties year after year must be faced. What we are doing with petrol is no more than a revalorisation to the extent of last year. Actually, over a long period of time there has been a considerable reduction. If we take 1969, in real terms the amount of excise duty on hydrocarbon oils was 59.6p. Just before the Budget it was down to 38.9p. Even in this case there has been, over a period of years in real terms, a massive reduction in the amount of revenue obtained from excise duties on petrol.

I do not believe that it was necessarily a conscious decision that there should be a switch from indirect to direct taxation of this kind. A lot of this occurred under a Conservative Government, and that is hardly in accord with their philosophies. Rather, it has been a necessary consequence of the very high levels of inflation.

Mr. Pardoe

I accept entirely what the Financial Secretary has said. But why do we not change to a method of taxation which taxes the value of the goods on which we have excise duty as a percentage? We would not need to revalorise a percentage.

Mr. Sheldon

At some stage every Chancellor must have had that sort of dream in mind when he came to the Treasury. There would be nothing easier than effortlessly to retain the level of revenue he required from this without the annual discussions, debates and arguments that he has to face in the House of Commons. The difficulty is that these duties raise so much money as a proportion of their value before the duty is charged. So high is the duty that any minor adjustments in the price of raw materials for these goods means enormous fluctuations in retail prices and in duty. In certain areas, such as alcohol and tobacco, there is the question of control. It would be very difficult to establish control of rapidly fluctuating prices. But these are technical matters and we can pursue them in the future.

As long as we think that there is a case for the kind of excise duties that we have, and for retaining the values of the revenue that we obtain from them, there is a case at times of high levels of inflation for maintaining the high revenue wherever we can.

If we examine levels of excise duty on petrol, we see that the result in price terms gives us about the cheapest petrol in Europe. Our premium grade petrol in the United Kingdom will cost 87p per gallon after the Budget increases, compared with £1.22 in France, £1.16 in the Netherlands, £1.04 in Germany, and £1.49 in Italy. For these reasons I feel sure that the need for energy conservation as well as the need for revenue point in the same direction.

Let me say a few words about vehicle excise duty. Most of the arguments I have used point to the fact that we have failed to increase excise duties to take account of inflation and so on. Therefore, we decided to increase the amount of the vehicle excise duty by £10. A revalorisation exercise to 1975 levels would have required an extra sum of £15. Therefore, in real terms a declining amount of revenue has resulted from that source of duty.

I understand the points made by a number of hon. Members concerning rural motorists. An assessment and examination was undertaken to see whether it was possible to undertake some kind of discrimination in favour of people with special requirements for motor cars. However, despite an exhaustive examination, that was not found possible. Evasion was felt to be too easy a matter in a country as small as ours, and no practical scheme was discovered.

I feel that we shall have to examine the whole question of direct and indirect taxation in the light of the way in which inflation changes their relationship in the manner I have described.

Mr. Pardoe

Hear, hear—that is a good point.

Mr. Sheldon

I turn to the changes in the levels of income tax. The right hon. and learned Member for Surrey, East (Sir G. Howe) did not refer to those changes. Surely that is a most important aspect of the duties of the Chancellor and a most important matter at any time when there is the prospect of a reduction of basic rate to a figure of 33 per cent. We all welcome that reduction, and it is a reduction we have not seen for some time.

There are three ways in an income tax system in which one can change the rates of taxation and the tax burden. A Chancellor can vary the thresholds. This helps the less-well-off and all those up to the higher rate of tax and beyond. The Chancellor can also change the higher rate bands, which obviously helps the best-off. Furthermore, he can change the basic rate up to the level of the highest rate, and even beyond. Whether he does one or the other helps the situation right up to the limit.

In this Budget my right hon. Friend used all three methods that were available to him. This provides various forms of assistance to each of the sections of the tax-paying public to which I have referred. It is right that he should have taken that course, and particularly in regard to the higher rate bands where there has been a marked erosion.

Let me give one or two figures. Between 1974–75 and 1976–77 the drop in real net income for a married man earning £7,000 a year was 15 per cent. and on a figure of £10,000 a year the fall was between 17½ and 20 per cent. That is the kind of erosion which has been referred to on many occasions. In various debates I have sought to point out the way in which the compression has occurred between the man on average income and the man at the top. The top man might be said to be earning in the region of £25,000 a year.

One can look at the example of two married men, each having two children. For the man on average male earnings of £80 a week, that is, £4,160 a year, after taking account of child benefits and national insurance contributions, his net pay would be £3,203. The married man with two children earning £25,000 a year would end up with a net pay of £11,287. The ratio between the earnings of the two men is 3.5 to 1.

Of course, all these figures are subject to a number of qualifications. One could argue that the man on £25,000 a year would have mortgage relief, but perhaps not a large amount because typically he would be getting on in years and would be on the capital repayment part of his mortgage. Such a person would also be likely to have a fairly large amount of life insurance. Taking all that into account and making allowances for both sides, it is not possible that the ratio could be more than 4 to 1.

I do not know whether one should have a philosophical discussion during a Budget debate as to what the ideal ratio should be. When I was young I used to think in terms of figures not far removed from those, and I am not ashamed that we have brought the ratio down from the high level that existed in the past. At any rate, this is one of the lowest ratios in the Western world, and of almost any country in the world. It is clear when the ratio is so fine that we must be careful that any distortions that arise, particularly from sudden changes, are not unmanageable.

References have been made to the benefits of North Sea oil. I was pleased to hear realistic understanding of the benefits of North Sea oil. Certainly some of the extreme statements that we have heard in the past are now ceasing. North Sea oil must be regarded as a valuable but limited contribution with certain advantages in particular areas, especially the balance of payments, but if it is not wisely used it will be of little benefit in the long term.

The problem is that we shall be dependent on North Sea oil as a proportion of over 3 per cent. of our gross national product by 1980 and over 5 per cent. by 1985. It is expected that we shall achieve self-sufficiency during the 1980s. Thereafter North Sea oil will diminish only moderately, but it will eventually peter out. It is here in the quantities that we envisage for a limited duration. The use to which we put the oil is crucial.

The United Kingdom is fundamentally a manufacturing country, dependent on industrial and commercial skills and not on fortuitous finds of mineral wealth. The danger of which we are particularly aware is that some Government in the 1980s might not be prepared to use the wealth for industrial investment. The greatest danger is that the wealth might be used for a consumer-led boom that could lead to the higher plateau of consumption, not earned by production. That would be the greatest disaster of all that could befall us.

We have been through the problem of getting over our difficulties and encumbrances through our dependence on the Empire. It provided us with wealth that we did not wholly earn. The ability that we had to rig control over other countries' economies and to plan the use of their raw materials for our benefit—for which we sent our manufactured goods in return—was essentially a one-sided advantage. It gave us the standard of living that we enjoyed and a protected market, but we had to face a sudden withdrawal from that privileged position. We are slowly coming to terms with that change in our rôle. It is lasting longer than many of us had hoped, but it is essentially a changing rôle.

Some of us fear that this oil may provide a bridge from one kind of protected rôle to another without the country facing the essential tasks that it needs to confront. The oil will provide us with the means to invest in our manufacturing processes and industries on which we must depend, but it is far from certain that it will be used in that way.

The horror story that must always be there as a warning to any Government in the 1980s is that they may be hooked on high consumption that is not justified by production and is sustainable only by the oil. The plateau of oil wealth will be steady, but it will not continue. The advantage of industry is that it can increase annually the wealth and production that we obtain from it.

We cannot compare the plateau of oil wealth with the giant engine of industrial production and expansion which, through its large and regular increases, limited only by our ingenuity and application, can create a firm basis for our prosperity. Those who say that the rôle of the Government in these matters is to keep out and to allow those in industry to run their affairs may find, as a result of that, that we shall have failed to take advantage of the enormous opportunities provided for us by this asset.

A change is to take place in the remission of taxes in cases of official error. The Inland Revenue now has some new rules. Where a taxpayer is faced with an unexpected demand for tax because of failure by the Inland Revenue to make proper and timely use of information which the taxpayer has supplied, the tax is remitted, wholly or partly, if the taxpayer's gross income falls within certain limits.

The limits which were fixed in 1971 were revised in 1974 with the result that in cases falling under the terms of the White Paper, no attempt is made at present to recover the arrears of tax where the taxpayer's gross income is less than £2,000 a year. Where his gross income is above £2,000 but less than £4,000, only one-half of the arrear is collected, unless there is investment income of £325 or more, since that indicates the availability of a significant amount of capital. In that event, as where the taxpayer's gross income is above £4,000 a year, the whole of the arrear is normally collected, although there is some elasticity to meet exceptional cases of which I could give examples.

The intention is to raise the limits to £3,000, £6,000 and £500, respectively. The effect would normally be that where a taxpayer's gross income is less than £3,000 a year, the whole tax will be remitted in cases of official error. Where his gross income is between £3,000 and £6,000 a year, one half of the tax will be remitted unless there are significant capital resources measured by an income from investments of £500 or more per annum. If his gross income is £6,000 or more there will be no remission. The new limits will apply to any case of official error where the Inland Revenue's view as to the application of the White Paper is conveyed to the taxpayer or his agent on or after today's date.

I understand that the main argument for indexation was prompted by the attempt to fix the Government to ensure that taxation was independently based and outside the Government's control. I am always sceptical about those who seek to enforce actions upon the Government by obligatory means of that kind. It will be difficult to start indexing income tax thresholds, for example, without at the same time indexing indirect taxes, because the two go together. The hon. Member for Cornwall, North obviously agrees with me.

Having done that, what about house loans—mortgages? I am very much aware that there is inequity there. Again, I think that I carry the hon. Member for Cornwall, North with me.

Then there is the question of pay and areas which are not indexed. Once we start leaving areas unindexed, the Government's freedom of action becomes concentrated on a narrower unindexed area. We have to consider lenders to the Government, fixed stocks and securities and such problems. I mention these to show the bewildering array with which we should be confronted if we started to act in that area.

If we were to have high and persistent levels of inflation, which can be foreseen without end, the Government might find themselves on that road. But we are a long way from that situation. We still have a number of opportunities before us. When we think not only of the problems which I have described, but of the problems of legislation, which my right hon. Friend the Lord President of the Council might not welcome, we see the difficulties.

Mr. Nick Budgen (Wolverhampton, South-West) rose—

Mr. Sheldon

I have only a few minutes left. I hope that the hon. Gentleman will forgive me if I do not give way to him. I am sure that he will find other opportunities of taking the matter further.

What I found most interesting was the view put forward by the right hon. and learned Member for Surrey, East on the pay deal. The hon. Member for Horsham and Crawley tried to assert an agreeement which his right hon. and learned Friend had not attempted to claim. I took down his words. The right hon. and learned Gentleman pointed out clearly, freely and frankly that there was some divergence but that there was a welcome for it. The right hon. and learned Gentleman said that he wanted to see a transition to a world free from direct Government interference in pay bargaining. I am sure that we all want to see that particular transition. The way to get it is by achieving levels of responsibility by all who are concerned in looking at the economy as a whole.

The use of the money supply adduced by the hon. Member for Horsham and Crawley and others may control pay in the long run, but what about this autumn? What about the levels of unemployment and of wild inflation which would result immediately? If he were right and we had to go through the fire of high unemployment at the end of it in order to achieve the result that he predicts with a much greater degree of certainty than is given to anyone, we would still have to pay a price this autumn, and possibly next year, too, of a kind which worries not only the House but the country.

We saw what happened to the Financial Times index. It dropped immediately it could be seen there was a possibility that a vote of no confidence in the Government might be carried. Then it rose again when it could see that the Government were safe. That, to me, was the greatest indication of all that the Tory Party does not have the City of London or the Stock Exchange behind it. For the Tory Party to be denied by those whom it seeks to represent is, I should have thought, the greatest danger of all. The support that we have seen, both in areas where we do not expect it as wall as in areas where we do, is an indication of the way in which the Budget is being received by the people of this country.

It being Ten o'clock, the debate stood adjourned.

Debate to be resumed tomorrow.